OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) of the Allstate Corporation (Allstate) as well as the 'A+' Insurer Financial Strength (IFS) ratings of Allstate Insurance Co. and its property/casualty (P/C) affiliates. In addition, Fitch affirmed the IFS ratings of Allstate Life Insurance Co. and its subsidiaries (ALIC) along with American Heritage Life Insurance Co. (AHLIC) at 'A'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS
Fitch's affirmation is supported by Allstate's top-tier market position in personal lines insurance, solid underwriting results in P/C insurance, and a holding company with good financial flexibility. The capitalization of Allstate's P/C operations is consistent with the current rating category, but consequently holds the rating down in the 'A' category.

Allstate has 'large' market position, size and scale that would be consistent with Fitch's guidelines for a higher rating category. Allstate is the second-largest personal lines insurance writer in the U.S. behind State Farm Mutual Automobile Insurance Company (State Farm). Allstate's market position in private auto is third behind Government Employees Insurance Co. (GEICO) and State Farm, while its homeowners insurance remains the second largest after State Farm.

Underwriting results for Allstate's property/liability business remained better than Fitch's median guidelines for the current rating category despite some deterioration in auto results. Allstate reported a combined ratio of 95.8% for the first nine months of 2015 compared to 95.2% for the comparable period in 2014. Catastrophe losses accounted for 6.0 percentage points (pp) on the combined ratio for the first nine months of 2015, compared to 8.8pp in the comparable period in 2014.

Personal auto accounts for approximately two-thirds of property/liability written premiums and reported a combined ratio of 100.1% for the first nine months of 2015, deteriorating from 96.3% in the comparable period in 2014. Increased frequency and severity trends were responsible for the period-to-period deterioration in underwriting results.

One-fifth of Allstate's property/liability written premium comes from the homeowners line of business. Underwriting results for the homeowners line continue to be positive, reporting a combined ratio of 82.7% for the first nine months of 2015, improving from 90.8% in the comparable period of 2014. Catastrophe losses through the first nine months of 2015 were down to 19.7% of earned premium, down from 27.9% in the comparable period of 2014.

Consolidated earnings before interest expense and taxes covered interest expense and preferred dividends by 8.2x during the first nine months of 2015, unchanged from the comparable period of 2014. The fixed charge coverage calculation excludes realized investment gains of $280 million and includes preferred dividends of $87 million for the first nine months of 2015. Fixed charge coverage is consistent with Fitch's median guideline for the current rating category.

Fitch's rating rationale anticipates a continuation of Allstate's practice of maintaining liquid assets at the holding company level to fund at least one year of interest expense, preferred dividends and common dividends, as well as upcoming debt maturities. Allstate had $3.06 billion in holding company assets at Sept. 30, 2015 that could be liquidated within three months, relative to forecast annual interest expense, and preferred and common dividends of approximately $900 million.

Combined statutory surplus at Allstate's P/C operations was $15.8 billion at Sept. 30, 2015, down $1.2 billion from year-end 2014, as AIC paid $2.1 billion in dividends to Allstate, exceeding its $1.1 billion in net income over the period. Fitch expects surplus to grow in the fourth quarter of 2015, since net income should greatly exceed the approximately $200 million of AIC's remaining dividend capacity.

Capitalization at Allstate's P/C operations continues to be considered 'Strong' as measured by Fitch's proprietary Prism capital model, which is consistent with guidelines for the current rating category. Stated net leverage was 3.7x at Sept. 30, 2015, and approximately 4.6x excluding life company capital.

Year-to-date through September 2015, ALIC reported net income of $542 million compared to $343 million for the same period of 2014. The increase was primarily due to realized investment gains, as the company has strategically repositioned its portfolio, selling longer-duration fixed income securities and investing more in private equities and real estate. The company's pre-tax operating income fell by $60 million, or 11% over this same time period, primarily due to declining net investment income.

ALIC's risky assets ratio, which increased to 214% in 2014 from 179% in 2013, is among the highest in Fitch's universe, and may continue to rise due to its portfolio repositioning if Total Adjusted Capital (TAC) does not increase at a commensurate level. AHLIC generated a statutory return on assets (ROA) of 5.8% through the first nine months of 2015 and has a much cleaner investment profile.

The 'standalone' IFS rating on ALIC is 'BBB' with a three-notch uplift applied for parent support. Fitch views ALIC's strategic importance within the Allstate enterprise as 'Very Important' and considers the various strategic actions taken to strengthen its risk profile. The ratings continue to benefit from the Capital Support Agreement from Allstate Insurance Co. and its access to the holding company credit facility.

AHLIC's 'standalone' IFS rating of 'A-' reflects an 'Important' strategic category within the Allstate enterprise. While Fitch views AHLIC's financial metrics more favorably than ALIC's, the company is seen as less synergistic to the Allstate enterprise. Thus, AHLIC receives a one-notch uplift in its rating.

RATING SENSITIVITIES

Key rating triggers for Allstate that could lead to an upgrade include:
--Sustainable capital position measured by net leverage excluding life company capital below 3.8x and a score approaching 'Very Strong' on Fitch's Prism capital model;
--No material deterioration in underwriting profitability of the property/casualty operations from current levels.

Key rating triggers that could lead to an upgrade for the life operations include:
--Standalone ratings for ALIC could be upgraded if its statutory Risky Assets/TAC ratio improved to 130% and the company is able to sustain a GAAP-based ROA over 80 basis points;
--Ratings for ALIC could also be upgraded if Fitch's view of its strategic importance changes to 'Core' from 'Very Important.'
--AHLIC's standalone rating is unlikely to be upgraded in the intermediate term, due to its relatively small size and scale.
--Ratings for AHLIC could be upgraded if Fitch's view of its strategic importance changes to 'Very Important' from 'Important' or if the agency's view of parent support merits a greater degree of uplift.

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;
--Significant deterioration in capital strength as measured by Fitch's capital model, NAIC risk-based capital, and statutory net leverage. Specifically, if net leverage excluding life company capital approached 4.8x it would place downward pressure on ratings;
--Significant increases in financial leverage ratio to greater than 30%;
--Liquid assets at the holding company of less than one year's interest expense, and preferred and common dividends.

Key rating triggers that could lead to a downgrade for the life operations include:
--Standalone ratings for ALIC could be downgraded if its statutory Risky Assets/TAC ratio deteriorates further or GAAP-based ROA declines to 50 basis points;
--AHLIC's standalone rating could be downgraded if financial performance or capitalization deteriorates significantly;
--Ratings for ALIC and AHLIC could be downgraded if Fitch's view of the strategic categories weaken.

Fitch affirms the following ratings for Allstate and subsidiaries with a Stable Outlook:

The Allstate Corporation
--Long-term IDR at 'A-';
--Preferred stock at 'BB+';
--Commercial paper at 'F1';
--Short-term IDR at 'F1'.

The following junior subordinated debt at 'BBB-':
--6.125% $252 million debenture due May 15, 2067;
--5.10% $500 million subordinated debenture due Jan. 15, 2053;
--5.75% $800 million subordinated debenture due Aug. 15, 2053;
--6.5% $500 million debenture due May 15, 2067.

The following senior unsecured debt at 'BBB+':
--6.75% $176 million debenture due May 15, 2018;
--7.45% $317 million debenture due May 16, 2019;
--3.15% $500 million debenture due June 15, 2023;
--6.125% $159 million note due Dec. 15, 2032;
--5.35% $323 million note due June 1, 2033;
--5.55% $546 million note due May 9, 2035;
--5.95% $386 million note due April 1, 2036;
--6.9% $165 million debenture due May 15, 2038;
--5.2% $62 million note due Jan. 15, 2042;
--4.5% $500 million note due June 15, 2043.

Fitch also affirms the following with a Stable Outlook:

Allstate Insurance Company
Allstate County Mutual Insurance Co.
Allstate Indemnity Co.
Allstate Property & Casualty Insurance Co.
Allstate Texas Lloyd's
Allstate Vehicle and Property 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 at 'A+'.

Fitch also affirms the following with a Stable Outlook:

Allstate Life Insurance Co.
Allstate Life Insurance Co. of NY
American Heritage Life Insurance Co.
--IFS at 'A'.

Allstate Life Global Funding Trusts Program
The following medium-term note at 'A':
--$85 million note due Nov. 25, 2016.