Fitch Ratings has affirmed the ratings of The Allstate Corporation (Allstate) and its property/casualty and life subsidiaries (see list below). The Rating Outlook is Stable.
Allstate’s ratings continue to be favorably influenced by its top-tier market position and national scope in the personal lines property/casualty business, moderate financial leverage at the holding company level and the diversification benefit provided by the life insurance business.
Balanced against these strengths are operating pressures from first quarter 2008 catastrophe losses, a challenging investment environment and a softening property casualty business cycle. In addition, the risk-adjusted capital position for both Allstate’s life and property/casualty operations are below average for the rating category. Fitch also recognizes uncertainties surrounding Allstate’s competitive position in Florida in light of the company’s disagreement with the Florida Office of Insurance Regulation.
Allstate and similar highly-rated peers are expected to consistently report better than average operating results, and managing catastrophe exposure to minimize operating volatility is a key strategy. Catastrophe losses accounted for 840 basis points of Allstate’s first quarter 2008 combined ratio of 94%, up significantly from 84.6% in the comparable period. Allstate’s catastrophe reinsurance program is focused toward the most severe catastrophic events, leaving the company’s operations exposed to losses from frequent, moderately-sized catastrophes.
Allstate’s combined statutory surplus for the property/casualty group declined by $1.1 billion during 2007 due to dividends and unrealized losses on the investment portfolio. This drop in surplus is likely to hurt Allstate’s Prism capital score, which was previously at the ‘AA’ level based on 2006 data. Although this level of Prism score is adequate for Allstate’s existing level of ratings, continued deterioration in surplus could adversely affect ratings.
In Florida, Allstate continues to fight an Office of Insurance Regulation order suspending the company from transacting any new insurance business in Florida. In a step toward resolving the conflict, Allstate released documents requested by Florida regulators pertaining to a third-party study of Allstate’s claims practices. Currently, Allstate can transact business as usual in Florida, however, the regulatory investigation surrounding Allstate’s insurance pricing continues.
Ratings for the life subsidiaries of Allstate are assigned on a group basis under Fitch’s Approach to Rating Insurance Groups criteria, and the life ratings are considered an ‘important’ strategic operation relative to Allstate’s property/casualty business. The life insurance ratings consider the meaningful financial support currently offered by Allstate including a $1 billion Capital Support Agreement and inclusion on company credit facilities.
While Fitch believes the life companies have a good competitive position in individual fixed annuities (particularly the bank distribution channel) and in the funding agreement backed note market, standalone ratings would be significantly lower than the current ‘AA’ level.
During recent periods capitalization has weakened from dividends and investment portfolio losses. Consequently, Fitch anticipates that year-end 2007’s capital score from Prism, Fitch’s economic capital model, will be lower than the previous ‘A+’ level. Significant deterioration in operating results, a meaningful reduction in capital, or material changes in the organizational structure could put downward pressure on ratings.
The noted ratings were initiated by Fitch as a service to users of Fitch ratings and are based on public information.
Fitch affirmed the following ratings with a Stable Outlook today:
The Allstate Corporation
–Issuer default rating (IDR) ‘AA-‘.
–Commercial paper ‘F1+’.
–Junior subordinated ‘A’
–Senior unsecured ‘A+’
Allstate Insurance Company
Allstate County Mutual Insurance Co.
Allstate Indemnity Co.
Allstate P&C 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) ‘AA+’.
Allstate Life Insurance Co.
Allstate Life Insurance Co. of NY
American Heritage Life Insurance Co.
Lincoln Benefit Life Insurance Co.
Allstate Life Global Funding Trusts Program
–Secured medium-term notes ‘AA’.