A.M. Best Affirms Ratings of the Members of Allstate Financial Companies

A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the key life/health insurance members of the Allstate Financial Companies (Allstate Financial). In addition, A.M. Best has affirmed the debt rating of “aa-” of the remaining outstanding note issued under the funding agreement-backed securities programs of Allstate Financial’s lead life company, Allstate Life Insurance Company (ALIC). The outlook for the above ratings is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and the ICR of "a+" of the Allstate Assurance Company (AAC). AAC had been a wholly owned subsidiary of ALIC but recently was sold to Allstate Financial Insurance Holdings Corporation, a holding company directly owned by The Allstate Corporation (Allcorp) [NYSE: ALL]. The outlook for AAC’s ratings is positive. (See link below for a detailed listing of the companies and the ratings.) ALIC, AAC and Allcorp are all headquartered in Northbrook, IL.

In affirming the ratings of Allstate Financial and AAC, A.M. Best notes that these ratings continue to benefit significantly from the financial strength and support of Allstate Insurance Company (AIC) and Allcorp. The rating affirmations also recognize the benefits received from the strong, well-known Allstate brand name, as well as the competitive advantages derived from Allstate’s exclusive agencies and insurance specialists that provide significant cross-selling opportunities.

The ratings of Allstate Financial also reflect its adequate consolidated stand-alone risk-adjusted capitalization, its positive and diversified GAAP operating performance and improving statutory earnings, which have benefited from the group’s strategy to focus on growing its core protection and workplace supplemental health products while continuing to de-emphasize its exposure to spread-based products. A.M. Best notes that Allstate Financial recently exited the independent agent channel and no longer issues proprietary annuity products.

Offsetting these positive rating factors are the challenges Allstate Financial faces to sustain and improve its operating performance given the group’s lower consolidated asset base and the expected continuation of the low interest rate environment, and managing its large, albeit declining, interest sensitive liabilities that remain exposed to interest rate, credit, reinvestment and disintermediation risks. The ratings also reflect Allstate Financial’s moderate exposure to the real estate markets through its investments in direct commercial mortgage loans and commercial mortgage-backed structured securities, and its increasing levels of alternative assets (Schedule BA).

Positive rating actions for Allstate Financial could result from positive movement in A.M. Best’s ratings of AIC. Factors that could result in negative rating actions include negative rating actions taken by A.M. Best on AIC, a material change in A.M. Best’s view of Allstate Financial’s importance to the enterprise or a significant and sustained decline in its consolidated risk-adjusted capitalization.

AAC's ratings also reflect the company’s developing business profile and anticipated strategic value to Allstate Financial. During 2015, AAC will begin issuing the majority of Allstate Financial's new life insurance business, solely utilizing Allstate's exclusive agencies that are supported by Allstate Financial's exclusive financial specialists. A.M. Best believes that AAC’s stand-alone risk-adjusted capitalization is adequate to support the company's business and investment risks in the near term. In assigning a positive outlook to AAC's ratings, A.M. Best anticipates that over the near term, AAC is likely to qualify for the same level of rating enhancement currently provided to the other Allstate Financial companies.

A.M. Best notes that AAC's insurance liabilities are not guaranteed by Allcorp, AIC or ALIC, and a capital support agreement has not been established. Additionally, A.M. Best believes that AAC will be challenged to maintain statutory profitability despite the stream of profits expected from its assumption of seasoned blocks of interest-sensitive life business from ALIC. Expense strains anticipated from new business growth, coupled with potentially prolonged low interest rates, may hinder the rate of earnings growth. Finally, A.M. Best believes the company may be challenged to maintain adequate risk-adjusted capitalization to support its anticipated new business growth without additional capital infusions.

Positive rating actions for AAC could result from positive rating actions taken by A.M. Best on the ratings of Allcorp, AIC or members of Allstate Financial. Positive rating actions could also result if, in A.M. Best's view, AAC meets the criteria for full rating enhancement as outlined in A.M. Best's "Rating Members of Insurance Groups" criteria. Factors that could result in negative rating actions include negative rating actions taken by A.M. Best on Allcorp, AIC or members of Allstate Financial, a material change in A.M. Best's view of the strategic importance of AAC and/or members of Allstate Financial to Allcorp, a significant and sustained decline in AAC's stand-alone risk-adjusted capitalization, net operating performance that does not meet A.M. Best's expectations over an extended period of time, or if meaningful top-line growth does not materialize.

For a complete listing of The Allstate Corporation and its property/casualty and life/health subsidiaries’ FSRs, ICRs and debt ratings, please visit The Allstate Corporation.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• A.M. Best Liquidity Model for U.S. Life Insurers
• A.M. Best’s Perspective on Operating Leverage
• Rating Funding Agreement-Backed Securities
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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