Moody's Rating Services says Allstate's plan to restructure $3billion in debt is credit positive and will lower its cost ofcapital heading into hurricane season.
|The move is part of the Northbrook, Ill., company's enterpriserisk management program aimed at reducing the effects of lossesfrom catastrophes and weather-related events on both earnings andcapital.
|Over the past two years, Allstate has enhanced its catastrophereinsurance program, which includes issuance of a $350 millioncatastrophe bond this year. It also strengthened underwriting inhomeowners insurance nationwide with non-renewal of less profitablebusiness and high-single digit premium rate increases.
|Last week, Allstate issued approximately $1.3 billion of debtsecurities, its first step in retiring its $3 billion debt. Fundingcomes in the form of issuance of preferred stock, subordinated debtand senior debt. In addition to lowering the cost of capital, theprogram lowers financial leverage as a result of a higher mix ofequity-like securities in the capital structure and lengthens theinsurer's maturity profile.
|Moody's says Allstate's adjusted financial leverage—debt inrelation to equity in the firm's capital structure—has dropped fromclose to 40 percent in 2008 to less than 30 percent by March ofthis year. The rating service expects the figure to drop to closeto 25 percent this year on a pro forma basis.
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