Dec 14 - Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) of
The Allstate Corporation (Allstate) as well as the 'A+' Insurer
Financial Strength (IFS) ratings of Allstate Insurance Co. and its
property/casualty subsidiaries, and the 'A-' IFS ratings of Allstate Life
Insurance Co. and the other life subsidiaries (Allstate Financial). The Rating
Outlook is Stable. A full list of ratings follows at the end of this release.
Key issues supporting the rating are Allstate's market position as a top tier
personal lines writer, property/liability underwriting performance and
acceptable capitalization at the operating subsidiaries. Balanced against these
strengths is a history of material catastrophe losses and challenges associated
with undertaking a strategic shift in the life operations.
Allstate has the second leading market position in both private passenger auto
and homeowners insurance with an approximate market share of 10% measured by
premium written. State Farm Mutual Automobile Insurance Co. remains the largest
with market share near 20%.
Allstate's announced losses from catastrophes in October 2012, primarily
Hurricane Sandy, were $1.1 billion pre-tax and net of reinsurance. Allstate's
pre-tax earnings for the first nine months of 2012 were $2.8 billion, meaning
moderate profit and growth in shareholders' equity is expected for the full year
Allstate's property/liability GAAP combined ratio was 93.4% for the first nine
months of 2012 relative to 107.7% for the comparable period in 2011. Allstate's
20-year average annual catastrophe loss as a percentage of earned premium
appears high at eight percentage points. Losses attributable to catastrophes
will exceed that average in 2012, but are likely to be well below the nearly 15
percentage points experienced in 2011.
Statutory surplus at Allstate Insurance Company (AIC), the primary
property/casualty underwriting subsidiary, was $16 billion as of Sept. 30, 2012.
While this level of capitalization is acceptable at the current rating category,
it remains below pre-financial crisis levels of $19.1 billion reported at
year-end 2006. Operating leverage, excluding the surplus attributable to
Allstate's life operations, was 2.0x, which is considered consistent with the
1.8x median guideline for 'A' rated companies in Fitch's universe.
Allstate Financial reported net income of $375 million for the first nine months
of 2012, down from $455 million in the same period of 2011. Modest investment
losses in 2012 relative to gains in 2011 were responsible for the
period-to-period change. This result continues to represent an improvement
relative to material net losses during the financial crisis.
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' range. The ratings of the life
operations continue to benefit from the Capital Support Agreement from Allstate
Insurance Co. and its access to the holding company credit facility.
The life operations focus on traditional underwritten products and de-emphasize
spread-based products, which improve its risk profile. Increased earnings at
Allstate Financial could eventually improve its strategic importance within the
Allstate enterprise, but Fitch believes it will take time for a significant
increase in earnings to occur.
Fitch's rating rationale anticipates a continuation of Allstate's practice of
maintaining sizeable liquid assets at the holding company level. Allstate has
$2.3 billion in deployable assets at the holding company level, relative to
forecasted annual interest expense and common dividends of approximately $800
million. Further, holding company resources are sufficient to meet the July 2013
maturity of $250 million of senior notes.
Debt-to-total capital remained appropriate for the current rating category at
26% at Sept. 30, 2012, relative to Fitch's median guideline of 28%. This ratio
was calculated excluding unrealized investment gains on fixed income securities
from shareholders' equity.
Key rating triggers for Allstate that could lead to an upgrade include:
--Growth in surplus leading to an improved capitalization profile measured by
operating leverage approaching 1.1x and a score of 'Strong' or better on Fitch's
proprietary capital model, Prism;
--Reduced volatility in earnings from catastrophe losses and better operating
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 falls below 100% and they are able
to sustain a GAAP based Return on Assets ratio over 80 basis points.
Key rating triggers for Allstate that could lead to a downgrade include:
--A prolonged decline in underwriting profitability that is inconsistent with
industry averages or is driven by an effort to grow market share during soft
--Substantial adverse reserve development that is inconsistent with industry
--Significant deterioration in capital strength as measured by Fitch's capital
model, NAIC risk-based capital and traditional operating leverage. Specifically,
if operating leverage, excluding the surplus of the life insurance operations,
approached 2.5x it would place downward pressure on ratings;
--Significant increases in financial leverage to a debt-to-total capital ratio
greater than 30%;
--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 affirms the following ratings for Allstate and subsidiaries:
The Allstate Corporation
--Long-term IDR at 'A-'.
The following junior subordinated debt at 'BBB-':
--6.125% $500 million debenture due May 15, 2037;
--6.5% $500 million debenture due May 15, 2067.
The following senior unsecured debt at 'BBB+':
--7.5% $250 million debenture due June 15, 2013;
--6.2% $300 million debenture due 2014;
--5% $650 million note due Aug. 15, 2014;
--6.75% $250 million debenture due May 15, 2018;
--7.45% $700 million debenture due 2019;
--6.9% $250 million debenture due May 15, 2038;
--6.125% $250 million note due Dec. 15, 2032;
--5.35% $400 million note due June 1, 2033;
--5.55% $800 million note due May 9, 2035;
--5.95% $650 million note due April 1, 2036;
--5.2% $500 million note due Jan. 15, 2042.
Fitch also affirms the the following:
--Commercial paper at 'F1';
--Short-term IDR at 'F1'.
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.
Lincoln Benefit Life Insurance Co.
--IFS at 'A-'.
Allstate Life Global Funding Trusts Program
--The following medium-term notes at 'A -'.
--5.375% $1,750 million note due April 30, 2013;
--$85 million note due Nov. 25, 2016.
Additional information is available at 'www.fitchratings.com'. The ratings above
were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended