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March 13, 2020  

Allstate Cuts Off New Investments in ABS

Allstate Investments has stopped buying asset- and mortgage-backed securities.

The freeze took place in late February, applying to all purchases of asset-backed bonds, residential mortgage bonds and commercial mortgage securities. But Allstate continues to invest in collateralized loan obligations.

As part of the move, Allstate dismissed portfolio manager Kelly Bivens. His last day was March 1.

A source said Allstate’s retreat resulted in part from a view by chief executive Tom Wilson that structured products shouldn’t be considered core holdings for the Northbrook, Ill., insurer and that the instruments’ returns don’t justify their risks and administrative costs. The source added that Wilson’s stance increasingly was reflected in how the portfolio took shape after the 2007-2008 market collapse. “Ever since 2008, the CEO just didn’t have a constructive view of the ABS market,” he said.

Indeed, Allstate was holding more than $10 billion of asset- and mortgage-backed bonds prior to the crash. In 2017, the book totaled some $3 billion. It since has dwindled to about $1 billion, consisting primarily of securities underpinned by student loans, prime-quality and subprime auto loans and less-common receivables.

There likely are some agency risk-transfer bonds in the portfolio as well, although a large portion of those investments have run off already.

Insurers as a whole still represent a large portion of the structured-product investment community. But all told, those instruments accounted for a mere 2% of Allstate’s interest-bearing holdings on Sept. 30, 2019.

The company’s exit doesn’t appear to be linked to the broader market downturn brought on by coronavirus-related fears. It didn’t return calls for comment.

Bivens had joined Allstate straight out of graduate school in 1995 and assumed oversight of its structured-product investments in 2004. Sources said the insurer may hand his portfolio to an outside manager or reassign them to another staffer until they run off.