Fitch Ratings has affirmed The Allstate Corporation’s core property/casualty insurance subsidiaries’ Insurer Financial Strength (IFS) ratings at ‘A+’ (Strong).
Fitch has also affirmed the ratings of American Heritage Life Insurance Company (AHLIC). The Rating Outlooks are Stable. Fitch also maintains the Negative Watch on Allstate Life Insurance Company (ALIC), and the Evolving Watch for Allstate Life Insurance Company of NY (ALICNY).
The affirmation of Allstate’s property and casualty subsidiary ratings reflects its very favorable business profile with market-leading underwriting expertise and significant operating scale, strong risk-based capital position and very strong financial performance with consistently favorable underwriting margins and operating returns, offset by its higher than peer average allocation to risky investment assets.
Allstate completed the acquisition of National General Holdings Corp., unrated by Fitch, a provider of property liability and accident and health products through independent agents in 1Q21.
If Allstate is able to successfully integrate the strong underwriting that comes with National General’s business, Fitch would expect to have a more positive view of Allstate’s business profile and ability to sustain or improve on its historically strong financial performance.
ALIC’s, and its ALICNY subsidiary’s, ratings are based on Fitch’s view of their standalone profile and strategic importance of “Limited Importance” following the announcement that Allstate has reached a deal to sell ALIC and is exploring its options for exiting the business in ALICNY.
The Rating Watch Negative on ALIC reflects the uncertainty of future capitalization and investment profile as a run-off operation under the ownership of Blackstone entities. The Rating Watch Evolving on ALICNY reflects the uncertainty of its future ownership.
Allstate is one of the strongest underwriters among major property/casualty companies with a history of favorable underwriting margins and stability. Allstate’s financial performance was very strong in 2020, with a GAAP combined ratio of 87.6% and a return on equity of 21.0%.
Allstate’s 2021 auto results will likely benefit from continued pandemic-related lower claims frequency, as the recovery in economic activity slowly unfolds. Offsetting strong underlying financial performance, the company is expected to incur a substantial charge on a GAAP basis, which will pressure Q121 and full-year 2021 earnings.
Allstate’s 2019 score on Fitch Ratings’ Prism capital model improved to ‘Very Strong’, driven by 13% growth in statutory surplus, reflected in a higher level of available capital. Operating company risk-adjusted capitalization would materially benefit if parent holding company liquid investments were included in the calculation.
The sale of ALIC will provide Allstate the opportunity to redeploy capital; however, Fitch expects growth in statutory capital in 2021 to be limited by the sale of ALIC.
Exposure to risky assets in support of P/C operations, is expected to be higher than peer companies, as the company continues to increase performance-based investments, consistent with the company’s strategy, to have a greater proportion of return derived from idiosyncratic asset or operating performance.
However, on a GAAP basis, risky asset ratios are expected to decline post-close. On a consolidated basis, Allstate’s risky asset ratio was approximately 84% of common equity at YE 2020, down from 109% at YE 2019, which is higher than Fitch’s guideline for the current rating category.
