S&P Updates Allstate and Subs Ratings; Outlook Revised to Stable from Negative

May 29, 2013

Standard & Poor’s Rating Services announced that it has completed a review of Allstate Corp. and, under its revised insurance criteria, has affirmed the ‘A-‘ issuer credit rating on the holding company, ‘AA-‘ financial strength ratings on its core insurance operating subsidiaries, and ‘A+’ rating on Allstate Life Insurance Co., “reflecting its highly strategic group status.”

S&P said the “ratings predominantly reflect our view of the group’s very strong business and strong financial risk profiles, based on its extremely strong competitive position and strong capital and earnings.”

The rating agency also revised its outlook on all entities to stable from negative, which it said “reflects our prospective view of enterprise capital adequacy and management’s demonstration of a more disciplined risk posture following its recent announcement of capital restructuring.”

“From a combination of these factors, we derive our ‘aa-‘ BRP/FRP anchor, which is the higher of a dual possible anchor outcome in our rating methodology criteria,” S&P said. “The higher anchor outcome reflects our view of Allstate’s extremely strong competitive position in the U.S. personal lines market. We view Allstate’s enterprise risk management (ERM) and management as strong and supportive of the rating.

“Our outlook revision to stable follows the group’s recent capital restructuring announcement to tender existing debt and hybrids and prefund $950 million of debt due in 2014 through a combination of debt, hybrids, and preferreds.

“Allstate also announced that it will not change its current share-buyback program in conjunction with its capital plans. We expect Allstate to pay down $250 million of debt due in June through available cash. Consequently, we expect hybrid debt to encompass a larger proportion of its capital base, providing more equity credit in our capital model and reasonable redundancy well within the ‘AA’ level as compared to our prior expectations.”

Credit analyst Tracy Dolin wrote: “We view the combination of Allstate’s capital plans and continued improvement in its risk profile as a demonstration that capital adequacy will continue to support the rating level.”

S&P said the “stable outlook reflects our view that Allstate will maintain enterprise capital redundancy well within the ‘AA’ level according to our capital model through a prudent balance of capital management and improvements to its risk profile. We expect the group to maintain operating performance consistent with our base case, and at least a very strong competitive position. In addition, we believe the operating subsidiaries will maintain healthy dividend capacity to meet holding-company obligations.

“We could take negative rating actions if:
— Capital deteriorates significantly following huge catastrophe losses, and/or capital deployment outpaces earnings retention;
— The company’s competitive position deteriorates;
— The group experiences losses that largely exceed its risk tolerance levels; or
— Financial risk and operating standards deteriorate in our management and governance assessment.

“We are unlikely to raise the ratings during the next 24 months because of the potential impact of macroeconomic forces, including continued high unemployment in the U.S., a sluggish economic recovery, and a volatile investment environment with historically low investment yields.

“An upgrade is also constrained by our view of intermediate industry and country risk that Allstate faces, as well as increased frequency and severity of catastrophe losses facing the P/C industry that have increased the volatility in earnings.”

Source: Standard & Poor’s

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