Allstate Profit Rises 2.6% on Lower Costs From Natural Disasters

Allstate Corp. (ALL), the largest publicly traded U.S. auto and home insurer, said second-quarter profit rose 2.6 percent as costs from natural disasters fell.

Net income climbed to $434 million, or 92 cents a share, from $423 million, or 86 cents, a year earlier, the Northbrook, Illinois-based company said today in a statement. Operating profit, which excludes some investment results, was $1.12 a share, beating the 98-cent average estimate of 24 analysts surveyed by Bloomberg.

Chief Executive Officer Thomas Wilson is scaling back Allstate’s business that sells life insurance and retirement products as he focuses on auto and home coverage. He struck a deal this month to divest Lincoln Benefit Life Co. and has announced a plan to stop issuing fixed annuities.

“It’ll be interesting to see what else they do on the life side,” Cliff Gallant, an analyst at Nomura Holdings Inc., said in an interview before results were announced. “It’s been a drag on their earnings.”

Allstate rose 0.1 percent to $50.98 at 4:03 p.m. in New York. The insurer has gained 27 percent this year, compared with the 29 percent advance in the 22-company Standard & Poor’s 500 Insurance Index.

The insurer said this month that it will sell Lincoln Benefit to Clive Cowdery’s Resolution Life Holdings Inc. for $600 million. The deal will free up about $1 billion of capital at Allstate’s life-insurance operation and eliminate a unit that had averaged after-tax returns of about 1 percent of transaction reserves, according to a July 17 statement.

Margins at the insurer’s property-casualty business have improved in recent quarters. Wilson, 55, has purchased reinsurance, raised rates for homeowner’s coverage and exited some markets after severe weather boosted claims costs. Those changes hurt sales of Allstate’s namesake brand of auto insurance, because the products are often bundled together, Wilson has said.

Allstate’s auto business has also been under pressure as more customers shop for policies over the Internet rather than purchasing them through agents. The insurer bought online car coverage seller Esurance in 2011 to boost its sales through that channel and to compete directly with the Geico unit of Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and Progressive Corp.

Results in the quarter were hurt by Allstate’s plan to retire some debt early and boost the amount of equity on its balance sheet. Wilson said in May that the plan was meant to take advantage of the low cost of capital and lengthen the maturity of the company’s borrowing. Repaying $1.8 billion of its bonds lowered earnings by about $320 million in the quarter, the insurer said in June.

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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