Offsetting these positive rating factors are the challenges Allstate Financial faces to sustain and improve its overall operating performance, which remains modest relative to A.M. Best’s expectations. Managing its large, but declining, interest sensitive liabilities that remain exposed to interest rate, credit, reinvestment and disintermediation risks add to the challenge. While A.M. Best recognizes the currently favorable performance of Allstate Financial’s investment portfolio, there remain several asset classes that could be exposed to potentially large asset impairments should the fragile U.S. economic recovery stall or deteriorate. However, A.M. Best notes that Allstate Financial has been actively reducing its exposure to these asset classes.

A.M. Best believes Allstate Financial is well positioned at the current rating level for the foreseeable future. Factors that could result in negative rating actions include negative rating actions taken by A.M. Best on AIC, a material change in A.M. Best's view of Allstate Financial's importance to the enterprise or a significant and sustained decline in its consolidated risk-adjusted capitalization.

The ratings of First Colonial are based on its solid risk-adjusted capitalization and explicit and implicit support provided by Allstate. As a subsidiary, First Colonial benefits from Allstate’s expansive market presence and brand-name recognition. The company's capital position reflects its conservative investment risk profile and historical record of financial support from Allcorp. In addition, First Colonial maintains modest underwriting leverage and an improved risk-adjusted capital position following AIC's assumption of a large book of auto roadside business. Furthermore, First Colonial's steady stream of investment income has complemented underwriting earnings in most years. The outlooks reflect A.M. Best's expectation that First Colonial will maintain solid risk-adjusted capitalization as its operating results continue to improve.

Positive rating actions could occur if there is a sustainable long-term improvement in First Colonial's operating performance and loss reserve development trends. However, any material negative deviation in terms of earnings, capitalization or risk profile could result in downward pressure on the ratings and/or a revised outlook.

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