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. The Rating Outlook is Stable. A full list of ratings can be found below.
Allstate has shown improvement on all three key rating issues in 2010, namely: capitalization, profitability and investment valuations. The company has grown its stockholders' equity through profitable operations and a greater net unrealized investment gain position. Stockholders' equity reached $19.3 billion at Sept. 30, 2010, up from $16.7 billion and $12.7 billion at year-end 2009 and 2008, respectively.
Financial leverage ratios have benefited from the growth in equity and debt-to-total capital was less than 24% at Sept. 30, 2010 ignoring equity credit to the company's $1 billion in subordinated debentures. At Sept. 30, 2010, Allstate had $3.5 billion of net holding company invested assets which provide significant flexibility to the enterprise. These assets cover fixed charges greater than 5x.
Consolidated net income improved to $632 million through the first nine months of 2010, up from $336 million in the same period in 2009, driven by better results from the life insurance operations. Property/casualty results were relatively stable period-to-period, but continue to be hindered by severe weather losses. The P/C combined ratio was unchanged at 97.2% through nine months, including 8.6 percentage points of catastrophe losses. Allstate's life operations reported a modest $18 million net loss over the first three quarters of 2010 compared to a net loss of $346 million over the same period in 2009.
Gross unrealized investment losses continue to shrink, amounting to $2.4 billion at Sept. 30, 2010 compared to $5 billion and $11 billion at year-end 2009 and 2008, respectively. Concentrations continue to be in asset-backed securities, which are more heavily focused in the life insurance operations. The net unrealized investment position on a pre-tax basis has changed to a positive $2.7 billion as of Sept. 30, 2010 compared to net losses of $2.3 billion and $8.8 billion as of year-end 2009 and 2008, respectively.
The Stable Outlook reflects considerable improvement in consolidated unrealized losses in invested assets and Fitch's belief that Allstate's property/casualty operations continue to offer favorable cash flow and earnings potential. Concern remains regarding the impact of catastrophe losses on earnings. Specifically, catastrophe losses amounted to 8.6 percentage points of Allstate's 97.2% combined ratio through the first nine months of 2010.
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' Insurer Financial Strength 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. Strategic changes meant to strengthen the risk profile of the life operation have been in place for more than one year. The company has de-emphasized spread-based products, instead focusing on traditional underwritten products. Further, the company exited the bank and broker/dealer distribution channels and is focusing on the Allstate Exclusive Agent distribution channel to align with the P&C organization.
Key rating drivers for Allstate's ratings that could lead to an upgrade include:
--Growth in surplus leading to an improved capitalization profile.
--Reduced volatility in earnings from catastrophe losses and better operating results consistent with companies in the 'AA' rating category.
Key rating drivers for Allstate's ratings 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 industry trends.
--Significant deterioration in capital strength as measured by Fitch's capital model, NAIC risk-based capital and traditional operating leverage.
--Significant increases in financial leverage to a debt-to-total capital ratio greater than 30%.
Fitch has affirmed the following ratings on Allstate and subsidiaries:
The Allstate Corporation
--Long-term IDR at 'A-';
--Commercial paper at 'F1';
--Short-term IDR at 'F1';
The following junior subordinated at 'BBB-':
--6.125% $500 million debenture due May 15, 2037;
--6.5% $500 million debenture due May 15, 2057.
The following senior unsecured debt at 'BBB+':
--7.5% $250 million debenture due July 15, 2013;
--6.75% $250 million debenture due May 15, 2018;
--7.45% $700 million debenture due 2019;
--6.2% $300 million debenture due 2014;
--6.9% $250 million debenture due May 15, 2038;
--6.125% $350 million note due Feb. 15, 2012;
--5% $650 million note due Aug. 15, 2014;
--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;
Allstate Insurance Company
Allstate County Mutual Insurance Co.
Allstate Indemnity Co.
Allstate Property & Casualty Insurance Co.
Allstate Texas Lloyd's
Deerbrook 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.
--Insurer Financial Strength (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 at 'A-'.
Additional information is available at 'www.fitchratings.com'. The ratings above have been initiated by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Aug.13, 2010);
--'Rating Hybrid Securities' (Dec. 29, 2009);
--'Non-Life Insurance Rating Methodology' (March 24, 2010);
--'Life Insurance Rating Methodology' (March 24, 2010);
--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010);
--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (Dec. 29, 2009);
--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010).
Applicable Criteria and Related Research:
Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285
Insurance Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114
Fitch's Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Short-Term Ratings for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
Non-Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369
Rating Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086
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Contacts:
Fitch Ratings
Primary Analysts:
Douglas M. Pawlowski, CFA
(Allstate Corp. and Allstate Insurance Co.), +1-312-368-2054
Senior
Director
Fitch, Inc.
70 West Madison St.
Chicago, IL 60602
or
Bruce
E. Cox (Allstate Life Insurance Co.), +1-312-606-2316
Director
or
Secondary
Analyst
Martha M. Butler, CFA, +1-312-368-3191
Senior Director
or
Committee
Chairperson
Jeff Mohrenweiser, +1-312-368-3182
Senior Director
or
Media
Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com