(The following statement was released by the rating agency)
CHICAGO/NEW YORK, December 18 (Fitch) Fitch Ratings has assigned
a 'BB+' rating
to Allstate's issuance of preferred stock. At the same time,
Fitch affirmed the
'A-' Issuer Default Rating (IDR) of The Allstate Corporation
(Allstate) as well
as the 'A+' Insurer Financial Strength (IFS) ratings of Allstate
and its property/casualty subsidiaries, and the 'A-' IFS ratings
Life Insurance Co. and the other life subsidiaries (Allstate
Rating Outlook is Stable. A full list of ratings follows at the
end of this
KEY RATING DRIVERS
Allstate's market position as a top tier personal lines writer,
property/liability underwriting performance and progress on the
the life insurance operations all support the current ratings.
capitalization at the operating subsidiaries improved modestly
recapitalization during 2013 incrementally lowered financial
against these strengths are elevated levels of risky assets at
operation and challenges associated with undertaking a strategic
shift in the
In December, Allstate will issue $135 million of 6.625% fixed
non-cumulative preferred stock as part of its recapitalization
from the issuance will go toward general corporate purposes.
Based on its rating
criteria, Fitch has assigned 100% equity credit to the preferred
stock and has
added one notch to the rating relative to standard notching to
aggressive loss absorption features.
Similar to previously issued preferred stock, the security has
maturity, dividends are non-cumulative, and the company has the
option to defer
them at their discretion. In addition, the security has a
feature that requires deferral if certain capital ratios or
are breached. Fitch believes the mandatory deferral could be
there is significant stress in the organization. Therefore, it
features as having more aggressive loss absorption.
Pro forma financial leverage ratio as of Sept. 30, 2013 was
23.6% and remained
appropriate for the current rating category relative to Fitch's
of 28%. This ratio reflects the equity credit assigned to the
new and existing
preferred stock as well as excludes unrealized investment gains
on fixed income
securities from shareholders' equity.
Allstate has the second leading market position in both private
and homeowners insurance with an approximate market share of 10%
premium written. State Farm Mutual Automobile Insurance Co.
remains the largest
with market share near 20%.
Underwriting results for Allstate's property/liability business
with a GAAP combined ratio of 93.1% for the first nine months of
to 95.5% for the full year 2012. Fitch believes this ratio may
somewhat in the fourth quarter due to Midwest storm losses.
auto accounts for approximately two-thirds of property/liability
premiums and reported a combined ratio of 96.6% for the first
nine months of
2013, which was relatively steady from the comparable period in
Nearly one-quarter of Allstate's property/liability written
premium comes from
the homeowners line of business. Underwriting results for the
continue to be positive, reporting a combined ratio of 82.4% for
the first nine
months of 2013. A relatively benign catastrophe year through the
months and favorable pricing 2013 explain the improvement in the
combined ratio from 86.3% in the comparable period in 2012.
Allstate's year-to-date catastrophe losses were 5.5% of earned
was well below the company's 10-year average annual catastrophe
loss of 9.7% of
Combined statutory surplus at Allstate's P/C operations was
$17.1 billion at
Sept. 30, 2013. Surplus continues to grow at a modest pace but
pre-financial crisis levels of $19.1 billion reported at
year-end 2006. Net
leverage excluding life company capital was 4.0x, which is
somewhat better than
the guideline for the current rating category. Allstate's score
proprietary capital model, Prism, was 'Strong' which represents
from 'Adequate' and coincides with the current rating category.
Allstate Financial reported a modest net loss of $24 million for
the first nine
months of 2013, down from $541 million of net income for the
full year 2012. A
$644 million loss on the disposition of Lincoln Benefit Life
remains on Rating Watch Negative pending close of the sale
primarily responsible for the change.
Allstate's life insurance operations reported risky assets of
163% of total
adjusted capital as of Sept. 30, 2013 compared to Fitch's median
130% for the 'BBB' category. Below investment grade bonds and
Schedule BA and
'Other' assets were responsible for the elevated ratio. Gross
have improved significantly over the last couple years and no
longer represent a
The rating on Allstate's life operations reflects Fitch's
assessment of its
limited strategic importance within the Allstate enterprise and
view that the
'standalone' IFS rating is in the 'BBB' category. The ratings of
operations continue to benefit from the Capital Support
Agreement from Allstate
Insurance Co. and its access to the holding company credit
The life operations focus on traditional underwritten products
spread-based products, which improve its risk profile. Increased
Allstate Financial could eventually improve its strategic
importance within the
Allstate enterprise, but Fitch believes it will take time for a
increase in earnings to occur.
Fitch's rating rationale anticipates a continuation of
Allstate's practice of
maintaining liquid assets at the holding company level to fund
at least one year
of interest expense, preferred dividends and common dividends as
upcoming debt maturities. Allstate had $2.8 billion in holding
company assets at
Sept. 30, 2013 that could be liquidated within three months,
forecasted annual interest expense, preferred and common
approximately $860 million and 2014 debt maturities of $1
Key rating triggers for Allstate that could lead to an upgrade
--Sustainable capital position measured by net leverage
excluding life company
capital below 3.8x and a score approaching 'Very Strong' on
capital model, Prism;
--Reduced volatility in earnings from catastrophe losses and
results consistent with companies in the 'AA' rating category;
--Standalone ratings for Allstate's life subsidiaries could
increase if their
consolidated statutory Risky Assets/TAC ratio approaching 100%
and they are able
to sustain a GAAP based Return on Assets ratio over 80 basis
Key rating triggers for Allstate that could lead to a downgrade
--A prolonged decline in underwriting profitability that is
industry averages or is driven by an effort to grow market share
--Substantial adverse reserve development that is inconsistent
--Significant deterioration in capital strength as measured by
model, NAIC risk-based capital and statutory net leverage.
Specifically, if net
leverage excluding life company capital approached 4.8x it would
pressure on ratings;
--Significant increases in financial leverage ratio to greater
--Unexpected and adverse surrender activity on liabilities in
the life insurance
--Liquid assets at the holding company less than one year's
interest expense and
Fitch has assigned the following ratings:
--6.625% preferred stock 'BB+'
Fitch affirms the following ratings for Allstate and
The Allstate Corporation
--Long-term IDR at 'A-'.
The following junior subordinated debt at 'BBB-':
--6.125% $259 million debenture due May 15, 2067;
--5.10% $500 million subordinated debenture due Jan. 15, 2053;
--5.75% $800 million subordinated debenture due Aug. 15, 2053;
--6.5% $500 million debenture due May 15, 2067.
The following senior unsecured debt at 'BBB+':
--6.2% $300 million debenture due May 16, 2014;
--5% $650 million note due Aug. 15, 2014;
--6.75% $176 million debenture due May 15, 2018;
--7.45% $317 million debenture due May 16, 2019;
--3.15% $500 million debenture due Dec. 15, 2023;
--6.125% $159 million note due Dec. 15, 2032;
--5.35% $323 million note due June 1, 2033;
--5.55% $555 million note due May 9, 2035;
--5.95% $386 million note due April 1, 2036;
--6.9% $165 million debenture due May 15, 2038;
--5.2% $72 million note due Jan. 15, 2042
--4.5% $500 million note due June 15, 2043.
--Preferred stock 'BB+';
--Commercial paper at 'F1';
--Short-term IDR at 'F1'.
Allstate Life Global Funding Trusts Program
--$85 million medium-term notes due Nov. 25, 2016 at 'A-'.
Allstate Insurance Company
Allstate County Mutual Insurance Co.
Allstate Indemnity Co.
Allstate Property & Casualty Insurance Co.
Allstate Texas Lloyd's
Allstate Vehicle and Property Insurance Co.
Encompass Home and Auto Insurance Co.
Encompass Independent Insurance Co.
Encompass Insurance Company of America
Encompass Insurance Company of Massachusetts
Encompass Property and Casualty Co.
--IFS at 'A+'.
Allstate Life Insurance Co.
Allstate Life Insurance Co. of NY
American Heritage Life Insurance Co.
--IFS at 'A-'.
Fitch maintains the following rating on Rating Watch Negative:
Lincoln Benefit Life Insurance Co.
--IFS 'A-' on Rating Watch Negative.
Douglas M. Pawlowski, CFA (Allstate Corp. & Allstate Insurance)
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Cynthia J. Crosson (Allstate Life Insurance Co.)
Julie Burke, CPA, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (November 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
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