S&P revises outlook on Allstate to negative

NEW YORK Oct 23 (Reuters) - Standard & Poor's on Thursday revised its outlook on ratings of home insurer Allstate Corp and its key property and casualty units to "negative", and said heavy catastrophe and investment losses have drained capital.

S&P has an "A+" counterparty credit rating on Allstate, which is the fifth-highest investment grade in its scale.

"The negative outlook reflects the significant deterioration in capital adequacy to the strong level from very strong," S&P analyst Neil Stein said in a statement.

The action comes after Allstate reported an unexpected third-quarter loss, hurt by losses from hurricanes Ike and Gustav, and a slump in the value of its investments. For more, see [ID:nN22384762].

S&P said the company's strong underlying earnings strength could allow it to rebuild capital in 2009. But the uncertainty about potential catastrophe and investment losses and the potential for continued capital strain from its Allstate Financial unit could act as a pressure.

The agency is expecting consolidated earnings to rebound in 2009 from about breakeven in 2008, but to remain well below 2007's $4.6 billion.

Still, the company's liquidity position is strong as the group continues to generate ample cash flow and has little debt scheduled to come due in the next three years.

(Reporting by Ciara Linnane; Editing by Chizu Nomiyama)