Allstate Profit Falls 7.4% on Catastrophe Costs

Allstate Corp. (ALL), the largest publicly traded U.S. car and home insurer, said first-quarter profit fell 7.4 percent as costs tied to the most expensive storms rose.

Net income slipped to $709 million, or $1.47 a share, from $766 million, or $1.53, a year earlier, according to a statement yesterday from the Northbrook, Illinois-based company. Operating profit, which excludes some investment results, beat by 5 cents the $1.30 estimate of 22 analysts surveyed by Bloomberg.

Chief Executive Officer Tom Wilson, 55, has been raising prices for some coverage and changing policy terms to improve underwriting profit at Allstate’s main unit, which sells residential and auto coverage under the insurer’s namesake brand. That’s helped boost returns as he seeks to generate better results at a life unit pressured by low interest rates and spends to expand online car-insurance seller Esurance.

“The Allstate brand is starting to rebuild after having to get smaller because of the catastrophe changes we need to make,” Wilson said in a phone interview yesterday. “We like what’s happening there.”

Allstate fell 1.8 percent to $48.40 at 4 p.m. in New York prior to the announcement, narrowing its advance to 20 percent this year. The 22-company Standard & Poor’s Insurance Index has risen 16 percent since Dec. 31.

Catastrophe costs rose to $359 million from $259 million a year earlier, when the tally included a benefit from reserves held for events in prior quarters, Allstate said. The insurer made 6.8 cents for every premium dollar in its property and liability coverage unit compared with 7.9 cents a year earlier.

Costly Storms

Property-casualty insurers have paid higher claims costs in recent years as more-severe weather hits the U.S. Superstorm Sandy, which lashed New York and New Jersey six months ago, cost the industry $18.8 billion, according to trade group Insurance Information Institute. It was the third-most costly storm for the industry in the country’s history, the group said.

Wilson helped curb Allstate’s losses from such events by buying reinsurance, raising prices and limiting sales of homeowners’ coverage in some vulnerable areas.

“I still continue to feel that the choices we made over the last four or five years have been correct,” he said. “We decided we needed to reduce our level of exposure to catastrophes, we needed to change the amount of money we charged people, and we needed to insure different houses. We’ve done all three of those.”

Premium revenue in Allstate’s property and liability business rose to $6.77 billion from $6.63 billion a year earlier as the company added customers at Esurance.

Allstate’s Portfolio

Low interest rates have also reduced income from bond portfolios backing policyholder liabilities. The Federal Reserve has held borrowing costs near zero and expanded its balance sheet through bond purchases to help stimulate the economy. Allstate has been selling some longer-term bonds from its portfolio to lock in gains, Wilson said last year.

The insurer participated in Apple Inc.’s record $17 billion bond offering this week, Wilson said. He didn’t say which maturities Allstate purchased or how much it bought. Apple offered floating-rate notes and fixed-rate securities in six parts, ranging in duration from three to 30 years.

“Apple’s a good credit,” Wilson said. “We stayed consistent with our strategy of being short on the maturity profile rather than going long and stretching for yield.”

Allstate’s book value, a measure of assets minus liabilities, advanced to $43.46 a share from $42.39 three months earlier. The company’s $97.4 billion investment portfolio returned 1.2 percent in the quarter.

The insurer has also been seeking potential buyers for its Lincoln Benefit Life Co. subsidiary, according to three people familiar with the matter. Goldman Sachs Group Inc. was engaged to solicit offers, said the people, who declined to be identified because the matter isn’t public. Wilson declined to comment on the matter.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

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

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