Allstate Corp. (ALL), the largest publicly traded U.S. home and auto insurer, rallied after announcing that it will issue subordinated debt to fund as much as $1 billion in share buybacks.
The insurer climbed 2.6 percent to $41.83 at 10:54 a.m. in New York, the biggest increase in the 22-company Standard & Poor’s 500 Insurance Index. Northbrook, Illinois-based Allstate disclosed the repurchase authorization in a statement yesterday after the close of regular trading.
Chief Executive Officer Tom Wilson, 55, is taking advantage of near record-low borrowing costs to boost shareholder returns after severe weather in recent years increased claims costs. The insurer has been raising the price of homeowners’ coverage and shrinking its annuity business to help reach its goal of a 13 percent return on equity by 2014.
“Issuing inexpensive debt to buy back stock gives Allstate a little more wiggle room to increase its quarterly dividend” to 30 cents a share, Meyer Shields, an analyst at Stifel Nicolaus & Co., wrote yesterday in a note to clients.
Allstate cut its dividend in half to 20 cents a share in 2009, after investment writedowns drained capital. The payout is currently 22 cents a share. The insurer recently completed a $1 billion buyback authorization, according to yesterday’s statement.
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