Does Allstate Corp (NYSE:ALL) still have you in good hands or is its combination of dampened earnings and exposure to mortgage-backed securities a significant drag on its future? Investors will want to know what Allstate's prospects might be going forward, as the insurers have been part of the battered and maligned financials.

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Passed Over
When the markets opened this week the Dow had replaced Citigroup (NYSE:C) with Travelers Companies Inc (NYSE:TRV), though some might have wondered why Allstate wasn't chosen. Travelers, though its earnings are down as its income was $2.9 billion last year after a previous year's earnings of $4.6 billion, is just the kind of solid, unspectacular company that the inscrutable Dow deciders wish to include in their index.

As for Allstate, it lost $274 million in the first quarter due to charges, but the concern on its otherwise solid profile is the $6.9 billion of commercial mortgage-backed securities and $9.7 billion it holds in commercial mortgages. No one is suggesting these investments are automatically going to blow up like the American International Group (NYSE:AIG) mess or the meltdowns of earlier phases of the overall credit crisis, but these mortgages are holdings that call for a watchful eye. Some institutional investors, such as BlackRock (NYSE:BLK), are very negative on Allstate stock. (To learn more, check out our Credit Crisis Tutorial.)

The Good Hands Part
Allstate's still got a lot going for it. It's usually a consistent, solid moneymaker; it is well positioned in auto, homeowners, life insurance and finance via Allstate Financial, so it is more diversified than, say, auto specialist and competitor Progressive Corp (NYSE:PGR), which seems to be stuck in neutral right now.

Allstate's stock, which fell from $60 to $14 in the last year, has bounced back to $25 a share with some on Wall Street looking for much more. Its recent two-part debt offering garnered $1 billion and it refused TARP money, as did Prudential (NYSE:PRU), along with some of the other insurers. Prudential's stock has risen handsomely this year, which could be a preview of a move for Allstate shares.

Painted With the Same Brush
Allstate has been dipped in the same paint as AIG and colored awful just by association because it is an insurer. But Allstate, along with Prudential and many others, is nothing like AIG. The AIG credit exposure was wider, open-ended and massive by comparison. Again, the mortgage issues with Allstate are not to be ignored, but perhaps now investors are getting back to discriminating between (as with banks) which financials and which insurers are well-run and which aren't. In the auto area GEICO, available through Berkshire Hathaway (NYSE:BRK.A) is well run, for example, where Progressive lags right now.

Don't Just Jump In But...
Allstate, unlike weaker insurers, should be able to withstand its mad foray into mortgages and live to profit another day. Investors should be cautious, watch how the Allstate mortgage holdings are wound down, and then be ready to invest in what will resume being a traditional steady-grower, an unspectacular but solid moneymaker. (For a deeper look, check out The Industry Handbook: The Insurance Industry.)

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