Fitch Ratings has taken the following rating actions on The Allstate Corporation (Allstate):
-- Issuer Default Rating (IDR) downgraded to 'A+' from 'AA-'.
-- Senior debt downgraded to 'A' from 'A+';
-- Trust preferred rating downgraded to 'A-' from 'A';
-- Commercial paper was affirmed at 'F1'.
-- The insurer financial strength (IFS) ratings of Allstate's property/casualty and life subsidiaries (see list below) are also downgraded one notch to 'AA' and 'AA-', respectively.
The Rating Outlook is Negative.
The rating actions follows Allstate's third quarter 2008 earnings announcement where details of deterioration in the company's investment portfolio as well as a plan to infuse capital into the life insurance operation were given. Specifically, through the first three quarters of 2008 Allstate reported a nearly $5 billion or 22% decline in stockholders' equity to $17 billion. More than $3 billion in pre-tax realized capital losses and a $6 billion unfavorable shift in pre-tax unrealized gains and losses were behind the year-to-date decline in equity.
Allstate's life operations account for a significant portion of the realized and unrealized investment losses. The Negative Rating Outlook reflects Fitch's concerns related to Allstate's investment portfolio and the potential for additional impairments.
Fitch considers Allstate's life operation a strategic, but not core operation. The fact that more troubled assets reside at the life operation, the relatively modest franchise and capital quality coupled with and weakened performance of the life operations contribute to our opinion. Consequently, the primary life insurance subsidiaries carry insurer financial strength ratings one notch below the property/casualty operating subsidiaries. The current life insurance ratings do take into account the financial support currently offered by Allstate including a $1.0 billion Capital Support Agreement and inclusion on company credit facilities.
Allstate revealed plans to add $1 billion to $1.25 billion of capital to the life operation in the fourth quarter of 2008, in addition to the $750 million already put into the life operation during the first three quarters of 2008, to replenish losses on invested assets. The NAIC risk-based capital ratio following the capital infusion is expected to reach 300% of the NAIC company action level at the life operation. While this level of surplus is seen as solid, additional investment losses are possible, and consequently, capital quality could deteriorate again in the near future.
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.
Allstate's personal lines property/casualty business was negatively impacted by catastrophe losses during 2008 that added 15.2 percentage points to its year-to-date combined ratio of just over 100%. Fitch believes that Allstate's property/casualty operations remain strong, however, ratings were effectively pulled down by the underperformance and related support provided to the life insurance operations.
Allstate financial flexibility appears solid as financial leverage remains consistent with the rating category at 25% of total capital. In addition, Allstate's $1 billion bank line remains completely available and the holding company has approximately $5 billion of cash and securities at September 30, 2008 relative to estimated annual fixed charges of $1.3 billion.
| Fitch has downgraded the following ratings with a Negative Outlook: |
| The Allstate Corporation |
| -- Junior subordinated rating 'A-'. |
| $500 million debenture due May 15, 2037 |
| 6.50% $500 million debenture due May 15, 2067 |
| -- Senior unsecured debt rating 'A'. |
| 7.50% $250 million debenture due July 15, 2013 |
| 6.75% $250 million debenture due May 15, 2018 |
| 6.90% $250 million debenture due May 15, 2038 |
| 7.20% $750 million note due December 1, 2009 |
| 6.125% $350 million note due February 15, 2012 |
| 5.00% $650 million note due August 15, 2014 |
| 6.125% $250 million note due December 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 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. |
| IFS rating downgraded 'AA' from 'AA+'. |
| -- Allstate Life Insurance Co. |
| -- Allstate Life Insurance Co. of NY |
| -- American Heritage Life Insurance Co. |
| -- Lincoln Benefit Life Insurance Co. |
| IFS rating downgraded 'AA-' from 'AA'. |
| Allstate Life Global Funding Trusts Program 'AA-'. |
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Contacts:
Douglas M. Pawlowski, CFA, +1-312-368-2054 (Chicago)
Bruce
E. Cox, +1-312-606-2316 (Chicago)
Peter F. Patrino, CFA,
+1-312-368-3266 (Chicago)
Tana Higman, +1-312-368-3122 (Chicago)
Tyrene
Frederick-Mack, +1-212-908-0540
(Media Relations, New York)
tyrene.frederick-mack@fitchratings.com
