Allstate Corp. (ALL), the largest publicly traded U.S. home and auto insurer, posted second-quarter profit that exceeded analysts’ estimates as costs tied to natural disasters dropped.
Net income was $423 million, or 86 cents a share, compared with a loss of $624 million, or $1.19, a year earlier, the Northbrook, Illinois-based company said yesterday in a statement. Operating profit, which excludes some investment results, was 87 cents a share, beating the 52-cent average estimate of 23 analysts surveyed by Bloomberg.
Chief Executive Officer Tom Wilson, 54, has been seeking rate increases and changing terms of policies to boost profitability as severe weather increases claims costs and low interest rates put pressure on investment income from the company’s bond portfolio. Tornadoes and other storms in the U.S. erased profit in last year’s second quarter.
“Allstate is trying to drive higher margin and is making a reasonable amount of progress,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in an interview before results were announced. “Last year was a dramatic event, and it was a shocking event, too, because you had so many large tornadoes.”
Allstate climbed 3.9 percent to $35.65 yesterday in extended trading. The shares had advanced 25 percent this year through the close of regular trading, the best performance in the 24-company KBW Insurance Index.
Book value, a measure of assets minus liabilities, advanced to $39.73 a share from $38.57 as of March 31.
Catastrophes cost Allstate $819 million in the quarter, compared with $2.34 billion a year earlier. Hail from Texas to Wyoming and windstorms along the U.S. East Coast added to industry claims costs in the period, even as fewer tornadoes were reported than a year earlier, according to broker Aon Plc.
Premium revenue in Allstate’s property and liability business rose 3.2 percent to $6.67 billion from a year earlier. The insurer earned 2 cents for every premium dollar in its property and liability coverage division compared with a loss of about 23 cents a year earlier.
Allstate received approval for rate increases in 20 states, averaging 8.6 percent, for its namesake brand of homeowners’ coverage in the first half, the company said yesterday in a quarterly filing. The insurer also has altered underwriting standards to improve shareholder returns.
Some of the rate increases for residential coverage have hurt Allstate’s market share in auto insurance, Wilson said in May. The company, which gives discounts to customers who bundle the products, has lost customers as younger drivers shun buying policies from agents and shop for coverage online.
Progressive Corp. (PGR) and Geico Corp., a division of Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), sell policies directly to consumers over the Internet and have added customers in recent years. Wilson last year purchased Esurance, an online car- insurance provider, to compete.
Net investment income rose less than 1 percent $1.03 billion from a year earlier on a higher contribution from limited partnerships. Income from the company’s fixed-income portfolio slipped 9 percent to $818 million from a year earlier.
Falling yields for fixed-income securities have hurt insurers’ investment income as proceeds from maturing bonds are reinvested at lower rates. Ten-year Treasuries dropped below 1.5 percent for the first time on June 1.
Wilson has reshaped Allstate’s investment portfolio since 2008, when writedowns contributed to an annual loss of $1.68 billion. The insurer has added intermediate-duration corporate bonds and cut back on short-term Treasuries and long-term municipal debt to lift returns.
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