Fitch Ratings has affirmed the ‘BBB+’ senior debt rating of The Allstate Corporation (Allstate) and the ‘A+’ Insurer Financial Strength (IFS) ratings of Allstate’s property/casualty subsidiaries. Fitch has also downgraded the life subsidiaries to ‘A-‘ from ‘A’. The Rating Outlook is Stable. A full list of ratings can be found below.
The affirmation of Allstate’s holding company and property/casualty ratings recognizes greater profitability as consolidated net income reached $854 million, up from a net loss of $1.7 billion in 2008. A significant improvement in realized investment losses to $583 million in 2009 from $5.1 billion in 2008 accounted for most of the change in the bottom line. Although shareholders’ equity increased by $4 billion to $16.7 billion, this level of equity was still significantly below 2007’s nearly $22 billion mark.
The rating downgrade on Allstate’s life operations reflects Fitch’s reassessment of its 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. The greater exposure to troubled assets inside the life operations and generally weak performance were considered in the downgrade.
The Stable Outlook reflects considerable improvement in consolidated unrealized losses in invested assets and growth in property/casualty surplus, which brought capitalization at the property/casualty operation closer to its financial strength rating. However, the capital ratios remain below targets for the rating level and further deterioration in risk-based capital would place downward pressure on ratings.
Allstate’s 2009 financial leverage adjusted for hybrid equity credit was 23%, which is considered appropriate for the rating category. Allstate’s financial flexibility appears strong as the $1 billion bank line remains completely available and the holding company has approximately $3 billion of cash and securities to meet liquidity needs. In addition, AIC can pay dividends of $1.5 billion in 2010 without prior regulatory approval.
Under Fitch’s newly introduced Total Financings and Commitments ratio (TFC), Allstate demonstrated average leverage compared to peers at approximately 0.5 times (x) shareholders’ equity. TFC is a non-risk-based leverage measure that expands on the traditional debt-to-equity ratio to include other forms of debt that may have been historically classified as ‘operating’ debt. The measure is intended to flag those companies that have an above-average reliance on the capital markets for funding.
Fitch believes that Allstate’s property/casualty operations continue to offer favorable cash flow and earnings potential. However, current results continue to be adversely affected by catastrophe losses, reporting GAAP net income of $1.5 billion in 2009, up from $228 million from 2008. Specifically, Allstate’s personal lines property/casualty business posted a combined ratio of 96.2% for 2009 that included 7.9 percentage points of catastrophe losses.
The life operations reported a net loss of $483 million for 2009 compared to a $1.7 billion net loss during 2008. After tax realized losses on investments were $818 million in 2009 and continued to overwhelm operating income. However, the trend is improving from 2008’s $1.9 billion in realized losses.
Fitch has taken the following rating actions on Allstate and subsidiaries:
The Allstate Corporation
–Long-term IDR affirmed at ‘A-‘.
The following junior subordinated debt rated ‘BBB-‘:
–6.125% $500 million debenture due May 15, 2037;
–6.5% $500 million debenture due May 15, 2067.
The following senior unsecured debt is rated ‘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;
–Commercial paper affirmed at ‘F1’
–Short-term IDR affirmed at ‘F1’.
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) affirmed at ‘A+’.
Allstate Life Insurance Co.
Allstate Life Insurance Co. of NY
American Heritage Life Insurance Co.
Lincoln Benefit Life Insurance Co.
–IFS downgraded to ‘A-‘ from ‘A’.
Allstate Life Global Funding Trusts Program downgraded to ‘A-‘ from ‘A’.
These rating actions reflect the application of Fitch’s current criteria which is available on Fitch’s web site at ‘www.fitchratings.com’ and specifically include:
–‘Insurance Rating Methodology’ (Dec. 29, 2009);
–‘Life Insurance Ratings Criteria’ (March 24, 2010);
–‘Non-Life Insurance Ratings Criteria’ (March 24, 2010)
–‘Fitch’s Approach to Rating Insurance Groups’ (March 24,
–‘Insurance Industry: Global Notching Methodology and Recovery Analysis’ (Dec. 29, 2009).
Additional information is available at ‘www.fitchratings.com’