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Rating Action on Allstate

Zacks Equity Research

Earlier this week, A.M. Best Co. assigned indicative ratings of “a-” to the Senior Debt, “bbb+” to Subordinated Debt, “bbb” to Junior Subordinated Debt and  “bbb” to preferred stock of The Allstate Corporation’s(ALL) recently filed shelf registration. The rating agency also rated the preferred securities of Allstate Financing VII, VIII, IX and X as “bbb.” The outlook for all assigned rating is stable.

The new shelf registration replaces the former registration that expired on May 8, 2012. Subsequently, the rating agency called off all previous ratings assigned therein.

The ratings reflect Allstate Insurance Group’s strong risk-adjusted capitalization, dominant position in the market and its strong operating performance. The rating agency noted that Allstate’s debt-to-capital ratio as of March 31, 2012 stood at 24.5%. This number is almost same as 2011-end debt-to-capital ratio.

Even though debt increased over the prior quarter, there was no material impact on the ratio as shareholder equity also increased during the same period. The debt-to-tangible capital stood at 25.8%. The company also maintains a decent interest coverage ratio of 26% that is supportive of its current rating as higher ratio enables the company to better meet the interest expenses.

In a separate development, Moody’s Investor Service also provided ratings for Allstate’s senior debts at (P) A3. The outlook is negative.

Allstate recently declared its first quarter 2012 earnings. The operating earnings per share of $1.42 outpaced the Zacks Consensus Estimate of $1.12 as well as the year-ago quarter earnings of 93 cents. A prudent capital management coupled with an impressive liquidity position resulted in considerable improvement in book value per share and combined ratio excluding the effect of catastrophes.

The Progressive Corporation (PGR), a prime competitor of Allstate, received Issuer Default Rating (“IDR”) of 'A+', Senior debt ratings of 'A' and Junior subordinated debt of 'BBB+' from Fitch Ratings. The rating agency also reaffirmed the Insurer Financial Strength (“IFS”) rating of 'AA' on Progressive’s subsidiaries. The outlook is stable.

We retain our long-term Neutral recommendation on Allstate. Currently, it carries a Zacks #3 Rank, implying a short-term Hold rating.

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