2009-11-20 21:41:02 -

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Allstate Insurance Group (Allstate) and its members. Additionally, A.M. Best has affirmed the ICR of “a-” and debt ratings of Allstate’s parent, The Allstate Corporation (Allcorp) (Northbrook, IL) (NYSE: ALL). The outlook for these ratings is stable.

Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and ICRs of “aa-” of the primary life/health member companies of Allstate Financial. A.M. Best also has affirmed the debt ratings of “aa-” of the outstanding notes issued under various funding agreement-backed securities (FABS) programs of Allstate Life Insurance Company (ALIC) (Northbrook, IL). The outlook for these ratings has been revised to negative

from stable. (See link below for a detailed listing of the companies and ratings.)

The ratings reflect Allstate’s solid risk-adjusted capitalization, favorable operating performance and significant market presence. The group’s capital position reflects its profitable earnings, which have contributed to surplus growth over the previous five-year period, excluding policyholder dividends. The group’s non-catastrophe operating results have been favorable through tightened underwriting guidelines, improved risk segmentation, adequate pricing and favorable loss trends.
Additionally, Allstate has a significant market presence and strong overall business profile as the second-largest personal lines writer in the United States. Furthermore, Allstate maintains moderate financial leverage as well as additional liquidity at the holding company level at both Allcorp and Kennett Capital, Inc., and through access to capital markets, lines of credit and its commercial paper program. The group’s operating returns compare favorably to its industry composite peers due to its solid underwriting capabilities and investment income.
Underwriting results reflect the favorable impact of Allstate’s various expense management initiatives and its significant investment in technology.

Partially offsetting these positive rating factors are Allstate’s exposure to frequent and severe weather-related events, significant dividend payments to its parent and above average underwriting and investment leverage. Allstate’s exposure to natural disasters is attributable to its expansive market presence throughout the United States. This exposure was evident over the previous five-year period as net catastrophe losses totaled $3.3 billion in 2008 with an overall combined ratio impact of 13 points and $5.7 billion in 2005 with an overall combined ratio impact of 21 points. However, in recent years, Allstate has executed an extensive catastrophe risk exposure reduction program, which includes a significantly enhanced property catastrophe reinsurance program, non-renewals, stricter underwriting guidelines, policy transfers, increased deductibles and discontinuance of selected lines of coverage, including earthquake.

Additionally, the group has made large dividend payments to its parent over the previous five-year period, which has contributed to volatility in risk-adjusted capitalization at times of heightened losses.
Furthermore, the group maintains above average underwriting and investment leverage, relative to industry norms. This was evident in 2008, when the group reported approximately $2.4 billion in unrealized capital losses and $900 million in realized capital losses, primarily on its equity and bond portfolios, attributable to unfavorable market conditions from an economic downturn. However, due to improved investment markets and profitable underwriting performance, Allstate has been able to increase its current risk-adjusted capital position relative to year-end 2008.

The ratings of the primary life/health members of Allstate Financial acknowledge the financial strength and support from their direct parent, Allstate Insurance Company (AIC) (Northbrook, IL). To offset statutory net losses in both 2008 and 2009, AIC provided ALIC, the lead company within Allstate Financial, with $2 billion in capital contributions in the form of cash, securities and surplus notes. A.M. Best believes this support demonstrates Allcorp’s commitment to Allstate Financial, and its operations remain strategically important to the Allstate group.

Despite this ongoing support, A.M. Best notes that the severity of investment losses incurred in 2008 and 2009 and the remaining investment risk in the portfolio have weakened Allstate Financial’s stand-alone credit profile. Allstate Financial experienced over $2.5 billion of GAAP investment impairments in 2008 ($1.2 billion of which represented change in intent writedowns taken as a discretionary risk mitigation action) and approximately $900 million through third quarter 2009. Although the unrealized loss position has improved dramatically in 2009, A.M. Best believes additional investment losses are likely to occur within Allstate Financial’s corporate bond, structured asset and commercial mortgage portfolios given the current economic environment. These concerns, combined with the life/health operations’ diminished operating trends, drive the negative outlook on the ratings of the four primary insurance entities within Allstate Financial.

For a complete listing of The Allstate Corporation and its property/casualty and life/health subsidiaries’ FSRs, ICRs and debt ratings included in this rating event, please visit www.ambest.com/press/112005allstate.pdf : .

The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology : .



Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com : .


A.M. Best Co.Analysts:Kenneth Tappen—P/C,

908-439-2200, ext. 5248 kenneth.tappen@ambest.com : mailto:kenneth.tappen@ambest.com orDarian
Hala—L/H, 908-439-2200, ext. 5802 darian.hala@ambest.com : mailto:darian.hala@ambest.com orPublic
Relations:Jim Peavy, 908-439-2200, ext. 5644 james.peavy@ambest.com : mailto:james.peavy@ambest.com orRachelle
Morrow, 908-439-2200, ext. 5378 rachelle.morrow@ambest.com : mailto:rachelle.morrow@ambest.com