|[December 18, 2013]
Fitch Affirms Allstate's Ratings; Outlook Stable
CHICAGO & NEW YORK --(Business Wire)--
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 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 RATING DRIVERS
Allstate's market position as a top tier personal lines writer, good
property/liability underwriting performance and progress on the
restructuring of the life insurance operations all support the current
ratings. Favorably, capitalization at the operating subsidiaries
improved modestly and Allstate's recapitalization during 2013
incrementally lowered financial leverage. Balanced against these
strengths are elevated levels of risky assets at the life operation and
challenges associated with undertaking a strategic shift in the life
In December, Allstate will issue $135 million of 6.625% fixed rate
perpetual non-cumulative preferred stock as part of its recapitalization
plan. Proceeds 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 reflect more aggressive loss absorption
Similar to previously issued preferred stock, the security has no stated
maturity, dividends are non-cumulative, and the company has the option
to defer them at their discretion. In addition, the security has a
mandatory deferral feature that requires deferral if certain capital
ratios or operating results are breached. Fitch believes the mandatory
deferral could be triggered before there is significant stress in the
organization. Therefore, it deems the features as having more aggressive
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
median guideline 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
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%.
Underwriting results for Allstate's property/liability business were
favorable with a GAAP combined ratio of 93.1% for the first nine months
of 2013 relative to 95.5% for the full year 2012. Fitch believes this
ratio may deteriorate somewhat in the fourth quarter due to Midwest
storm losses. Personal standard auto accounts for approximately
two-thirds of property/liability written 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 2012.
Nearly one-quarter of Allstate's property/liability written premium
comes from the homeowners line of business. Underwriting results for the
homeowners line 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 first nine months and favorable pricing 2013 explain
the improvement in the homeowners' combined ratio from 86.3% in the
comparable period in 2012.
Allstate's year-to-date catastrophe losses were 5.5% of earned premiums,
which was well below the company's 10-year average annual catastrophe
loss of 9.7% of earned premiums.
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 remains below 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 on Fitch's proprietary capital model, Prism,
was 'Strong' which represents an improvement 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
ull year 2012. A $644 million loss on the disposition of Lincoln
Benefit Life (LBL), which remains on Rating Watch Negative pending close
of the sale transaction, was 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
guideline of 130% for the 'BBB' category. Below investment grade bonds
and Schedule BA and 'Other' assets were responsible for the elevated
ratio. Gross unrealized losses have improved significantly over the last
couple years and no longer represent a material concern.
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 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 liquid assets at the holding company level to
fund at least one year of interest expense, preferred dividends and
common dividends as well as upcoming debt maturities. Allstate had $2.8
billion in holding company assets at Sept. 30, 2013 that could be
liquidated within three months, relative to forecasted annual interest
expense, preferred and common dividends of approximately $860 million
and 2014 debt maturities of $1 billion.
Key rating triggers for Allstate that could lead to an upgrade include:
--Sustainable capital position measured by net leverage excluding life
company capital below 3.8x and a score approaching 'Very Strong' 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 approaching 100% and
they are able to sustain a GAAP based Return on Assets ratio over 80
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 pricing conditions;
--Substantial adverse reserve development that is inconsistent with
--Significant deterioration in capital strength as measured by Fitch's
capital model, NAIC risk-based capital and statutory net leverage.
Specifically, if net leverage excluding life company capital approached
4.8x it would place downward pressure on ratings;
--Significant increases in financial leverage ratio to greater than 30%;
--Unexpected and adverse surrender activity on liabilities in the life
--Liquid assets at the holding company less than one year's interest
expense and common dividends.
Fitch has assigned the following ratings:
--6.625% preferred stock 'BB+'
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% $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.
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ Back To Technology News's Homepage ]