Citing declines in statutory capital and poor underwriting results in personal auto, Fitch Ratings has downgraded the financial strength ratings of Allstate P/C insurance subsidiaries to “A” (Strong) from “A+.”

Fitch has also downgraded Allstate’s holding company ratings, including the Issuer Default Rating, to “BBB+” from “A-” and its senior debt to “BBB’ from “BBB+.” Additionally, Fitch has assigned a “BB+” rating to Allstate’s Series J preferred stock issuance. The Rating Outlook is Stable.

Fitch noted a sharp deterioration in Allstate’s underwriting results in recent periods, with a property/liability calendar-year combined ratio of 106.6 in 2022, compared to a prior five-year average of 92.3. The decrease was primarily related to an auto combined ratio of 110.1. Allstate’s underwriting results continued to be challenged in first-quarter 2023 with a combined ratio of 108.6, leading to a GAAP net loss of $346 million.

Statutory surplus at Allstate’s P/C operations declined to $15.0 billion at year-end 2022, down $6.2 billion (29 percent decline) from year-end 2021 as a result of statutory dividends to the parent company of $4.2 billion along with a net loss of $1.7 billion. A statutory underwriting loss is expected in first-quarter 2023, which will further pressure statutory capital. Allstate did not pay statutory dividends to the parent in Q1 2023.

Fitch said that while Allstate’s historical reserve experience is generally favorable, the company reported over $1.7 billion of adverse development in 2022, adding 4.0 points to the GAAP calendar-year combined ratio. The adverse reserve development was largely related to personal auto business, reflecting heighted severity trends and updated assumptions about bodily injury and physical damage coverages.