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Rating Action:

Moody’s affirms Allstate’s ratings (A3 senior) upon sale of life insurance business; outlook stable

28 January 2021


New York, January 28, 2021 -- Moody's Investors Service has affirmed the A3 senior debt rating of The Allstate Corporation (Allstate; NYSE: ALL), and the Aa3 insurance financial strength (IFS) ratings of Allstate Insurance Company (AIC) and certain of its property-casualty subsidiaries. The rating outlook for Allstate and its P&C operations is stable. In the same action, Moody's also has downgraded the IFS ratings of Allstate Life Insurance Company (ALIC), Allstate Assurance Company (AAC) and Allstate Life Insurance Company of New York (ALNY) to A3 from A2, and placed the ratings on review for further downgrade. For a complete rating list, please see below. The rating outlook for Allstate is stable.

These actions follow Allstate's announcement that it will sell ALIC and AAC to entities managed by Blackstone for $2.8 billion, including a pre-closing dividend from ALIC of up to $400 million. The parties expect to close the transaction in the second half of 2021, pending regulatory approvals. Allstate plans to retain ALNY but is pursuing alternatives to sell or transfer the risk to a third party.

Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000004200 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The rating agency said the pending transaction reduces Allstate's interest rate and investment risk and allows the company to focus on its P&C operations and services business. Partly offsetting these benefits, the sale of ALIC and ACC reduces Allstate's product diversification and lowers its operating earnings by around 10% on average. Allstate expects to record a $3.1 billion GAAP loss on the sale in the first quarter of 2021.

P&C OPERATIONS AND PARENT COMPANY

According to Moody's, the affirmation of the Aa3 IFS ratings on AIC and its rated property-casualty affiliates reflects the group's formidable competitive position in the US market for personal automobile and homeowners insurance, its excellent brand recognition, diversified revenue and earnings streams, multiple distribution channels and consistent cash flow generation. These strengths are offset by the company's exposure to catastrophes, intense competition from direct auto insurance writers, its active capital management philosophy as well as regulatory challenges given the politically sensitive nature of the personal lines market.

For the first nine months of 2020, Allstate reported net income applicable to common shareholders of $3.0 billion reflecting strong personal auto underwriting margins primarily due to lower auto loss frequency, which was offset in part by higher catastrophe losses in its homeowners business, lower net investment income and a restructuring charge related to its Transformative Growth Plan. Allstate also reported lower life and annuity income driven by ultra low interest rates.

Moody's views the portfolio of liquid assets maintained at the holding company and its unregulated subsidiary Kennett Capital, Inc. as available for future capital needs at Allstate's property-liability operations as well as funding needs at the holding company. The holding company's primary source of cash flow is statutory dividend capacity from Allstate Insurance Company.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade of the P&C group and parent ratings include: pretax earnings coverage of interest and preferred dividends exceeding 10x; improvement in the risk adjusted capital position of AIC; and total financial leverage consistently below 25%. Factors that could lead to a downgrade of the P&C group and parent ratings include: material reduction in capital supporting the P&C business (including liquidity at the holding company and its investment subsidiary); pretax earnings coverage of interest and preferred dividends consistently below 6x; catastrophe losses greater than one year's worth of earnings; sustained increase in total financial leverage materially above 30%.

RATINGS RATIONALE

Life Operations

The downgrade of the life IFS ratings reflects the removal of the one notch of uplift associated with implicit financial support from Allstate following the announced sale of ALIC and AAC to Blackstone as well as Allstate's intent to sell or transfer risk of ALNY. The review for further downgrade reflects Allstate's intention to stop selling new life insurance business, effectively placing the entities into runoff which weakens their business profile. The review will focus on prospective profitability and capitalization of the individual subsidiaries.

The A3 IFS rating on ALIC, ALNY, and AAC is currently based on Allstate's ownership and the life group's lower risk life insurance and accident and health policies. These strengths are offset by the group's narrow business focus and its relatively high investment risk. Although investment performance has been solid, the company has significant holdings in alternative investments and below investment grade bonds, and remains sensitive to a stress scenario. The company also continues to have significant exposure to interest-sensitive fixed annuity liabilities.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's said the life entities' A3 IFS rating could be confirmed and the outlook changed to stable if the transaction does not close and Allstate continues writing new life insurance business. Factors that could lead to a downgrade of the life operations include: closing of the sale to Blackstone; returns on capital consistently below 4%; or a decline in regulatory risk-based capital ratio below 250% (company action level).

The following ratings have been affirmed:

The Allstate Corporation: senior unsecured debt at A3; subordinated debt at Baa1(hyb); junior subordinated debt at Baa1(hyb); non-cumulative perpetual preferred stock at Baa2(hyb)/Baa3(hyb); short term commercial paper rating at Prime-2; provisional senior unsecured shelf at (P)A3; provisional subordinated shelf at (P)Baa1; provisional preferred stock shelf at (P)Baa2; non-cumulative preferred stock shelf at (P)Baa2;

Allstate Insurance Company - insurance financial strength at Aa3;

Allstate Indemnity Company - insurance financial strength at Aa3;

Allstate Fire and Casualty Insurance Company - insurance financial strength at Aa3;

Allstate Property and Casualty Insurance Company - insurance financial strength at Aa3;

Allstate Financing VII - provisional guaranteed trust preferred securities at (P)Baa1;

Allstate Financing VIII - provisional guaranteed trust preferred securities at (P)Baa1;

Allstate Financing IX - provisional guaranteed trust preferred securities at (P)Baa1;

Allstate Financing X- provisional guaranteed trust preferred securities at (P)Baa1.

The outlook for the above entities remains stable.

The following ratings have been downgraded and placed under review for further downgrade:

Allstate Assurance Company – long-term insurance financial strength at A3;

Allstate Life Insurance Company – long-term insurance financial strength at A3;

Allstate Life Insurance Company of New York – long-term insurance financial strength at A3.

The outlook for the above entities changed to ratings under review from stable.

The following rating has been downgraded:

Allstate Life Insurance Company - short-term insurance financial strength at Prime-2.

The principal methodologies used in rating The Allstate Corporation, Allstate Financing VII, Allstate Financing VIII, Allstate Financing IX, and Allstate Financing X were Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 , and Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . The principal methodology used in rating Allstate Fire and Casualty Insurance Company, Allstate Indemnity Company, Allstate Insurance Company, and Allstate Property and Casualty Insurance Company was Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . The principal methodology used in rating Allstate Assurance Company, Allstate Life Insurance Company, and Allstate Life Insurance Company of New York was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The Allstate Corporation, based in Northbrook, IL, is a publicly-traded holding company that is engaged, through its subsidiaries, in providing personal property-liability insurance, life insurance and retirement and investment products in the US and Canada. For the first nine months of 2020, Allstate reported net income applicable to common shareholders of approximately $3.0 billion. Total assets were $123 billion and shareholders' equity was $27.3 billion as of September 30, 2020.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1000004200 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Endorsement

• Lead Analyst

• Releasing Office

• Person Approving the Credit Rating

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406 .

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Dion, CFA
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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