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Recently, A.M. Best Co. raised the financial strength rating of Pacific Compensation Insurance Company – a subsidiary of Alleghany Corporation (Y - Snapshot Report) – to “A-” from “B++”. The rating agency also upgraded Pacific Compensation’s issuer credit rating to “a-” from “bbb+”. Further, A.M. Best changed the outlook for both the ratings to stable from positive.

The rating upgrade was based on the financial flexibility provided to Pacific Compensation by Alleghany as well as the support provided by Pacific Compensation’s affiliate captive reinsurer, AIHL Re, LLC. The subsidiary’s strong management team and business plans also supported the ratings, partly offset by weak underwriting results in the past and lack of product and geographic diversification.

A.M. Best does not expect any further upward revision in ratings in the near future. However, a downward revision is possible if Pacific Compensation’s risk-adjusted capitalization level falls below the requirement for the ratings, the underwriting profits continue to remain weak or if the support provided by Alleghany or AIHL Re falls significantly.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. We believe that the improved ratings will help Pacific Compensation and Alleghany retain investor confidence and help them write more businesses going forward, thereby boosting their results.

Alleghany currently carries a Zacks Rank #1 (Strong Buy). Other property and casualty insurers with the same Zacks Rank are Montpelier Re Holdings Ltd. (MRH - Analyst Report), Hilltop Holdings Inc. (HTH - Analyst Report) and United Fire Group Inc. (UFCS - Snapshot Report).

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