Allstate Profit Advances 66% to $367 Million on Investments

Allstate Corp., the largest publicly traded U.S. home and auto insurer, said third-quarter profit rose 66 percent as investment losses narrowed.

Net income climbed to $367 million, or 68 cents a share, from $221 million, or 41 cents, a year earlier, the Northbrook, Illinois-based insurer said today in a statement. Operating profit, which excludes some investment results, was 83 cents a share, missing the 96-cent average estimate of 19 analysts surveyed by Bloomberg.

“Estimates are notoriously volatile,” Chief Executive Officer Thomas Wilson said in a phone interview. “We’re right in the middle of the range we gave people. From our standpoint, we’ve achieved the results we said we were going to.”

Allstate, which typically gets the largest portion of revenue from auto insurance and sells most policies through agents, is competing for new customers with Progressive Corp. and Warren Buffett’s Geico Corp., which increased Internet and phone sales. Allstate is seeking to boost customer retention after losing clients in 2009.

Allstate climbed about 8.1 percent this year in New York Stock Exchange composite trading, compared with the 18 percent rise in the 24-company KBW Insurance Index. The insurer fell 4.2 percent at 6:04 p.m. in New York trading following the earnings announcement.

Investments

Realized investment losses narrowed to $144 million in the period ended Sept. 30 from $519 million a year earlier.

Wilson reshaped Allstate’s $100 billion investment portfolio since 2008 when the company posted a $1.7 billion annual loss, cutting back on stocks, municipal debt and commercial mortgage-backed securities while acquiring corporate bonds. Corporate debt returned 5.3 percent in the third quarter, according to Bank of America Merrill Lynch’s U.S. Corporate & High Yield Master Index.

“Lower interest rates raise all boats,” Wilson said. “You should expect us always to be heavily concentrated in fixed income.”

Underwriting profit at property-casualty operations fell 23 percent to $266 million from $346 million a year earlier. Allstate made 4.1 cents for every premium dollar in its property and casualty coverage, compared with 5.3 cents a year earlier. Excluding the effects of catastrophes and changes to reserves for claims from prior quarters, profit was 10.8 cents, compared with 12 cents last year.

Catastrophe Costs

Catastrophe costs narrowed to $386 million from $407 million as the U.S. escaped damage from major hurricanes. Premium revenue from the property liability business slipped to $6.5 billion from $6.54 billion as increased rates at the main auto business weren’t enough to cushion a decline in the number of policies in force.

Industrywide, U.S. property and casualty insurance sales fell for 12 straight quarters before rising 1.3 percent in the second quarter of 2010, the Property Casualty Insurers Association of America said in a September statement.

“For the past 15 quarters they’ve had either negative or flat premium growth,” said Alan Devlin, an analyst with Atlantic Equities LLP. Allstate was among the first to raise rates in property casualty insurance three years ago, which contributed to a decline in market share, he said.

Book value per share, a measure of assets minus liabilities, increased 6.7 percent to $35.48 from $33.24 at the end of the second quarter. Net unrealized gains totaled $2.7 billion as of Sept. 30, compared with a $400 million gain at the end of June.

Unrealized Gain

The insurer has continued to reduce its municipal bond and real estate holdings, while increasing high-yield debt in the second and third quarters, Wilson said. “The net of all that is unrealized gain,” he said.

The Allstate Financial unit, which sells life and retirement policies, earned $85 million, compared with a net loss of $38 million a year earlier. Allstate said in 2009 it planned to cut 1,000 jobs at the unit to counter losses.

Car owners who curtailed their driving during the recession have begun to return to the road. Travel on U.S. roads increased 1.6 percent, or 4.3 billion vehicle miles, from the year-earlier period in August 2010, according to the Federal Highway Administration. Total travel for 2010 so far is up 0.4 percent. The agency has not yet released results for September.

An increase in driving could lead to more claims and increased payouts from auto insurers, Barclays Capital said in a statement released on Oct. 4. Allstate paid $4.6 billion in property liability claims in the three months ended Sept. 30, up from $4.57 billion in the third quarter last year.

Premium revenue for Allstate’s standard auto policies fell to $4.13 billion from $4.17 billion in the same period last year, according to a supplemental filing on Allstate’s website. The number of policyholders decreased to 17.479 million from 17.529 million at the end of the second quarter.

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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