Ratings agencies are viewing Allmerica Financial Corporation'sdecision to divest most of its life operations as a strong positivefor the company's property-casualty businesses.

Both Fitch and Standard & Poor's reacted to Allmerica'sdecision by upgrading the credit rating of certain of Allmerica'scorporate securities, affirming the credit rating of some of thecompany's p-c subsidiaries and placing others on credit watchpositive.

Allmerica announced Tuesday it has agreed to sell its variablelife insurance and variable annuity businesses to Goldman SachsGroup Inc. Those units were the last of its life insurancebusiness, which it put into runoff in 2002.

In announcing the sale, expected to close by November, Allmericasaid it will ask the Massachusetts Division of Insurance for adividend of $40 million from its remaining life business. Itprojects total cash proceeds from the sale and the dividend to beabout $385 million.

In making the changes, Fitch said it views the deal as a "modestpositive" for Allmerica, since it will enable the company to focuson its property-casualty operations and "removes any lingeringdoubts about possible cash and capital needs the variable annuityand variable life businesses could impose on the rest of theorganization."

Standard & Poor's analyst John Iten said S&P views thelatest deal as "beneficial to AFC and anticipates raising theratings by one notch following the close of the transaction."

Mr. Iten said the sale of the life unit will get Allmerica outof the variable annuity and variable universal life businesses.Allmerica placed its entire life and annuity business in runoff in2002 after the guaranteed minimum death benefit (GMDB) feature ofthese products produced very substantial losses following aconsiderable decline in the equity markets.

The company has instituted a dynamic hedging program to mitigatethe GMDB risk associated with this business, Mr. Iten said. Headded, however, that "the sale of this business benefits AFC byremoving this exposure completely from its books and allowingmanagement to concentrate on its core property-casualtyoperations."

Standard & Poor's also views the transaction as positive forthe remainder of Allmerica's life insurance business, FirstAllmerica Financial Life Insurance Co. (FAFLIC), and anticipatesraising the ratings by two notches following the close of thetransaction.

The liabilities that AFC is retaining in its life unit consistpredominantly "of a well-seasoned book of low-volatility whole lifeand group annuity business," Mr. Iten said. FAFLIC's capitaladequacy is expected to remain strong for the rating, S&Psaid.