A.M. Best Co. has assigned a rating of “aa” to the various funding agreement-backed securities (FABS) programs established by Allstate Life Insurance Company (Allstate Life), the lead life operating company of The Allstate Corporation (AllCorp) (NYSE:ALL). A.M. Best has also assigned a debt rating of “aa” to the outstanding notes issued under Allstate Life’s European Medium-Term Notes (EMTN), Global Medium-Term Notes (GMTN) and SEC registered FABS programs.
Concurrently, A.M. Best has affirmed the financial strength rating of A+ (Superior) and has assigned issuer credit ratings (ICR) of “aa” to Allstate Life and its core life/health affiliates, all under the group name of Allstate Financial. All the above companies are domiciled in Northbrook, IL. All ratings have a stable outlook. (See link below for a complete list of the ratings.)
The ratings reflect Allstate Life’s diversified revenue and profit sources, multi-channel distribution system, prudent risk management and considerable investment expertise, which has resulted in superior investment performance over the last several years. The ratings are supported by AllCorp’s strong capital position, strong earnings momentum, significant market presence, financial flexibility and its proactive corporate infrastructure, management and business models. These strengths are partially offset by the life group’s growing presence in interest sensitive lines of business, its evolving business profile and the challenges associated with streamlining its existing distribution and alliance capabilities.
Allstate Life’s Institutional Markets business employs sophisticated asset/liability management techniques to ensure that close matches between assets and liabilities are maintained. The group’s exposure to institutional spread-based liabilities is moderate at roughly 20% of general account liabilities; A.M. Best does not expect this ratio to exceed 25% in the near to medium term. With the use of the registered program, Allstate Life has the ability to sell these products directly to retail investors, facilitating more regular periodic funding, which should help to smooth out the uneven cash flows that are characteristic of institutional note transactions.
Allstate Life’s outstanding FABS were issued through four separate programs over the last several years. Its $5 billion EMTN program was established in July 1999 to issue fixed and floating rate notes to institutional investors outside of the United States on a private placement basis through a limited liability company, Allstate Life Funding, LLC (ALF) (Cayman Islands). Although still active, Allstate Life has not issued notes through ALF since 2003.
Through its initial $3 billion GMTN program–established in September 2000–Allstate Life has issued various series of notes to institutional investors in the United States in accordance with Rule 144A through Allstate Financial Global Funding LLC (GFI). With less than $1 billion in notes outstanding, GFI has essentially been inactive since mid-2004. The successor to GFI is Allstate Life Global Funding II (GFII) (both of Delaware), a $6 billion GMTN program established in July 2003. Approximately $3.8 billion of medium-term notes are outstanding under GFII, most of which are floating rate issues.
Allstate Life’s SEC registered FABS program, established in April 2004, provides for the issuance of up to $4 billion of secured medium-term notes to both retail and institutional investors. The notes are issued in series by separate and distinct special purpose Delaware statutory or common law trusts, collectively known as Allstate Life Global Funding Trusts. Similar to the other three programs, each series of notes is secured by one or more funding agreements issued by Allstate Life, which is domiciled under the laws of the state of Illinois.
Based on A.M. Best’s analysis of the FABS structures utilized by Allstate Life, the programs and notes will carry Allstate Life’s ICR of “aa.” This reflects that each series of notes is secured by a first priority perfected security interest in the underlying funding agreements, which are unsecured obligations of Allstate Life’s general account. In addition, in the event of an insolvency of an Illinois domestic insurance company, timely and properly filed claims to pay principal and interest under the funding agreements would be entitled to distribution pari passu with Allstate Life’s other policyholders and prior to its general creditors. Therefore, in assigning the above ICR, A.M. Best believes that all investors in Allstate Life’s FABS are exposed to the inherent credit, liquidity and business risks of the sponsoring insurance company, Allstate Life.
For a complete listing of Allstate Financial’s financial strength, debt and issuer credit ratings, visit http://www.ambest.com/press/061004allstatefinancial.pdf.
For Best’s Debt Ratings, all other Best’s Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.
A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best’s Web site at http://www.ambest.com.