Fitch Rates Allstate's $500MM Subordinated Notes 'BBB-'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned a 'BBB-' rating to The Allstate Corporation's (Allstate) $500 million subordinated debentures.

Allstate issued $500 million of fixed-to-floating rate subordinated debentures with an initial coupon of 5.10% and a maturity of 2053. After January 2023, the fixed coupon changes to a floating rate of three-month LIBOR plus 3.165%. Interest on the notes is cumulatively deferrable for up to five years. Additionally, the notes are callable by Allstate with various restrictions. This hybrid security does not receive equity credit in Fitch's financial leverage calculation.

Proceeds from the notes will be used to repurchase Allstate stock under a new $1 billion authorization that was announced on Dec. 17, 2012. The entire share repurchase authorization is likely to be completed during 2013.

Allstate's financial leverage will remain within Fitch's median guidelines for the current rating category. Proforma financial leverage ratio as of Sept. 30, 2012 is 26.8%. Year-end 2012 stockholders' equity is likely to be lower than the third quarter figure due to October catastrophe losses. Allstate announced losses of $1.1 billion pre-tax and net of reinsurance primarily from Hurricane Sandy. Fitch estimates that financial leverage ratio will remain below 30% at year-end 2012.

Interest coverage during the first nine months of 2012 was strong at 10.4x. Catastrophe losses in fourth quarter-2012 will lower interest coverage. On a run-rate basis with 'normal' catastrophe activity, Allstate is expected to meet Fitch's median guideline for interest coverage of 7x for the current rating category.

KEY RATING DRIVERS

Allstate's ratings continue to be supported by its market position as a top tier personal lines writer, property/liability underwriting performance and acceptable capitalization at the operating subsidiaries. Balanced against these strengths is a history of material catastrophe losses and challenges associated with undertaking a strategic shift in the life operations.

The following upgrade and downgrade rating triggers for Allstate's insurer financial strength and debt ratings remain in place.

Key rating triggers for Allstate that could lead to an upgrade include:

--Growth in surplus leading to an improved capitalization profile measured by operating leverage approaching 1.1x and a score of 'Strong' or better on Fitch's proprietary capital model, Prism;
--Reduced volatility in earnings from catastrophe losses and better operating results consistent with companies in the 'AA' rating category;
--Standalone ratings for Allstate's life subsidiaries could increase if their consolidated statutory Risky Assets/TAC ratio falls below 100% and they are able to sustain a GAAP based Return on Assets ratio over 80 basis points.

Key rating triggers for Allstate that could lead to a downgrade include:

--A prolonged decline in underwriting profitability that is inconsistent with industry averages or is driven by an effort to grow market share during soft pricing conditions;
--Substantial adverse reserve development that is inconsistent with industry trends;
--Significant deterioration in capital strength as measured by Fitch's capital model, NAIC risk-based capital and traditional operating leverage. Specifically, if operating leverage, excluding the surplus of the life insurance operations, approached 2.5x it would place downward pressure on ratings;
--Significant increases in financial leverage ratio to greater than 30%;
--Unexpected and adverse surrender activity on liabilities in the life insurance operations;
--Liquid assets at the holding company less than one year's interest expense and common dividends.

Fitch has assigned the following rating:

The Allstate Corporation
--5.10% $500 million subordinated debenture due Jan. 15, 2053 'BBB-'.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).

Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692293

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Contacts

Fitch Ratings
Primary Analysts:
Douglas M. Pawlowski, CFA (Allstate Corp. & Allstate Insurance), +1-312-368-2054
Senior Director
Fitch Ratings, 70 West Madison Street, Chicago, IL 60602
or
Bruce E. Cox (Allstate Life Insurance Co.), +1-312-606-2316
Director
or
Committee Chairman:
Julie Burke, CPA, CFA, +1-312-368-3146
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com