Allstate Corp., the largest publicly traded U.S. auto and home insurer, plans to allocate more of its $81.7 billion investment portfolio toward equity to counter bond yields that are near record lows.
“Over time, we are shifting toward an asset mix we believe will have a higher return,” Chief Financial Officer Steven Shebik said today on a conference call with investors to discuss first-quarter results at the Northbrook, Illinois-based insurer. “We expect to rely less on interest-bearing assets and more on equity and other assets.”
Almost 90 percent of Allstate’s portfolio was in fixed-income and other interest-bearing assets at the end of March, according to a presentation on the company’s website. The remaining $10.6 billion was mostly in private equity, real estate, infrastructure and stocks.
U.S. property-casualty insurers typically keep a large proportion of their investment portfolios in bonds because they’re perceived as lower-risk and receive more favorable treatment from regulators. That allocation has pressured profit because the Federal Reserve has kept interest rates low to help the U.S. economy rebound from the biggest slump since the Great Depression.
Allstate Chief Executive Officer Tom Wilson said in 2012 that he was paring bets on longer-term bonds and looking for investments in hotels, toll roads and other hard assets. The strategy was meant to avoid the “food fight” in bond markets as investors hunted for securities with higher yields, he said.
The shift in allocation will link results more to “idiosyncratic operating performance,” Shebik said today. “Interest income will remain the largest, and more stable, component to investment results while equity investments will have attractive but more variable returns over time.”
Allstate climbed $1.25, or 2.2 percent, to $57.82 at 4:15 p.m. in New York, the biggest gain since February. The company has advanced 6 percent this year.
The insurer said late yesterday that net income dropped 17 percent to $587 million in the first quarter from a year earlier on higher claims costs from winter weather and natural disasters. Operating profit was $1.30 per share, beating by 10 cents the average estimate in a Bloomberg survey of analysts.