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Ratings agency – A.M. Best Co. affirmed the debt and credit ratings of Allstate Corp. (ALL - Analyst Report) and its subsidiaries. Accordingly, the ratings agency affirmed the issuer credit ratings (ICR) of “a-” of the holding company.

Further, A.M. Best avowed the ICR of “aa-” and financial strength rating (FSR) of “A+” (Superior) of Allstate’s subsidiary – Allstate Insurance Group. The ratings agency also affirmed the FSR of “A+” and ICR of “aa-” of another Allstate subsidiary – Allstate Financial Cos. and its units. The outlook for all the ratings remains stable.

Additionally, A.M. Best upgraded its outlook on First Colonial Insurance Co. to positive from stable, while affirming the FSR of “A-” and ICR of “a-”. The ratings agency exhibited confidence in Allstate’s core fundamental growth, which is cushioned by strong risk-based capital, product portfolio and operating leverage. These factors have also helped the company generate high operating earnings over the years and have enhanced its market position, making it the second-largest personal lines writer in the U.S.

Moreover, a proactive underwriting approach, prudent capital management and sizeable investment income have aided the improvement of margins within the automobile and homeowners' segment. A modest financial leverage with a debt-to-capital ratio of 22.5% at the end of Sep 2012, adequate liquidity and lower catastrophe losses in 2012 paved the way for Allstate to execute cost management initiatives and technology investments.

However, A.M. Best is concerned about Allstate Financial’s fluctuating operating earnings, high investment losses, substantial non-recurring changes as well as the impact of the ongoing low interest rate scenario. Going ahead, a severe economic downturn could lead to substantial asset impairments. Nevertheless, Allstate Financial’s leading brand name, wide product portfolio and ample risk-adjusted capitalization offers significant cross-selling and growth prospects.

Going ahead, we believe that effective capital and enterprise risk management along with modest operating cash flow will be able to boost Allstate’s operating and competitive strength. While Allstate carries a Zacks Rank #2 (Buy), other insurers such as The Travelers Cos. (TRV - Analyst Report), Fidelity National Financial Inc. (FNF - Snapshot Report) and RLI Corp. (RLI - Analyst Report) have also been performing very well. All the three stocks carry a Zacks Rank #1 (Strong Buy).

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