Fitch Ratings has affirmed The Allstate Corporation's core property/casualty (P/C) insurance subsidiaries' Insurer Financial Strength (IFS) ratings at 'A' (Strong), its holding company ratings, including the Issuer Default Rating (IDR), at 'BBB+' and senior debt ratings at 'BBB'.

The Rating Outlooks are Stable.

The affirmation of Allstate's P/C subsidiary ratings reflect its favorable company profile with market-leading underwriting expertise and significant operating scale, risk-based capital position and financial performance that have shown signs of recent stability with a path to returning to favorable historical levels, offset by higher than peer average allocation to risky investment assets.

Key Rating Drivers

Company Profile: The Allstate Corporation (Allstate) maintains a favorable company profile as one of the leading personal lines insurers in the U.S. The business mix is weighted towards personal auto and homeowners insurance products across multiple distribution channels, a growing protection services segment along with a modest allocation to commercial lines.

Underwriting Performance: Allstate historically has been one of the strongest underwriters among major P/C companies, with a history of favorable underwriting margins and stability. Allstate reported sharp underwriting deterioration in recent periods, with calendar-year combined ratios of 104.5% and 106.6% in 2023 and 2022, respectively. The company has addressed underwriting performance with targeted rate increases as well as non-rate actions over several quarters. Fitch expects approved rate increases will serve to drive further improvement in underwriting results and help the company's efforts to return to underwriting profitability over time.

Capitalization: Fitch's Prism capital model for the P/C group deteriorated to the 'Adequate' category in 2022. Prism results for 2023 will be available in summer 2024, with results expected to be pressured by the decrease in statutory capital in 2023, offset by a benefit to available capital from unrealized bond position recovery during the year. Statutory surplus at Allstate's P/C operations declined by 5% to $14.3 billion in 2023, driven by a statutory net loss of $487 million. Allstate did not pay statutory dividends to the parent in 2023.

Statutory capitalization, as measured by NAIC Risk-Based Capital, operating and net leverage ratios remained weaker than historical levels at YE 2023. Fitch expects that Allstate will maintain flexibility to contribute capital to operating subsidiaries from the holding company when prudent.

Allstate's financial leverage ratio steadily increased higher than rating sensitivities in recent periods. As of YE 2023, financial leverage was 30.3%, up from 28.8% at YE 2022, with a return to mid-20's financial leverage expected over time.

Coverage and Financial Flexibility: GAAP fixed-charge coverage remained weaker than expectations in 2023 at -0.6x, compared with a prior five-year average of 7.6x (2018-2022) as the pretax loss from operations was driven by underwriting losses.

Financial flexibility and liquidity remain strong, with $3.4 billion of deployable assets at the holding company level that management estimated were saleable within three months, as of Dec. 31, 2023, which can cover estimated annual interest expense and preferred dividends by approximately 7x. Operating company risk-adjusted capitalization would benefit if parent holding company liquid investments were included in the calculation.

Above-Average Risky Assets: Fitch views investment and asset risk as Allstate's weakest relative credit factor, with a score that is several notches below the current IFS ratings. Exposure to risky assets modestly declined in 2023 with a reduced allocation to public equity, high yield bonds and bank loans during the period. Fitch expects Allstate will maintain a meaningful portfolio of performance-based investments, consistent with the company's strategy to have a greater proportion of return derived from idiosyncratic asset or operating performance.

On a GAAP basis, Allstate's risky asset ratio was approximately 90% of total equity at YE 2023, down from 106% at YE 2022, which remained higher than Fitch's guideline for the current rating category.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Sustained combined ratios above 103%;

Capital strength declining below 'a' level, as measured by Fitch's capital model, NAIC RBC and traditional capital measures;

Financial leverage ratio of greater than 30%;

Deterioration in Allstate's risky asset measures;

Liquid assets at the holding company of less than one year's interest expense and preferred and common dividends.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Returning to historic profitability levels with combined ratios consistently in low- to mid-90% range;

Improving capital metrics, including statutory leverage, financial leverage and a return of Prism score to the high end of the 'Strong' category or better;

Consolidated risky asset ratio decreasing to levels in line with higher rated peers.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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