Allstate Starts Rail-Car Venture to Counter Rate Risks

  • Duchossois, Henry Crown's CC join insurer in Riverside Rail
  • BMO Harris led a credit facility for rail-car acquisition

Allstate Corp., the largest publicly traded U.S. home and auto insurer, helped form a freight rail-car leasing company as Chief Executive Officer Tom Wilson expands his bets on hard assets to generate better returns than bonds.

The insurer joins CC Industries and Duchossois Capital Management, which is known as DCM, in starting the venture, the investors said Friday in a statement that didn’t disclose terms. The new company, named Riverside Rail, acquired 2,032 rail cars and is backed by a credit facility led by BMO Harris Bank.

Wilson has been boosting wagers on assets including property and timber while he cuts back on bonds, which are facing pressure from interest rates that are near record lows. The insurer’s portfolio was valued at more than $77 billion as of Dec. 31, with about 6.3 percent in limited partnerships, up from 5.6 percent a year earlier.

“Over the past several years, Allstate has increased its holdings of higher-returning, less-liquid private equity and real estate investments, which provide attractive returns relative to their risk,” Maryellen Thielen, a spokeswoman for the Northbrook, Illinois-based insurer, said by e-mail. “Rail car leasing investments fits well with this strategy. We also like partnering in transactions with small groups of like-minded investors.”

About three quarters of the insurer’s portfolio is still in bonds. Net investment income in the three months ended Dec. 31 fell 8.9 percent from a year earlier to $710 million.

‘Performance-Based’

The insurer is “shifting the portfolio mix over time to have less reliance on investments whose returns come primarily from interest payments,” Allstate said last month in a regulatory filing.

Allstate gained 7 cents to $65.38 at 4:15 p.m. in New York, extending its advance to 5.3 percent since Dec. 31. That’s the third-best performance in the 20-company Standard and Poor’s 500 Insurance Index this year.

Pacific Life Insurance Co. and Warren Buffett’s Berkshire Hathaway Inc. are among other financial firms that have been betting on transportation assets. PacLife owns Aviation Capital Group, which buys planes and leases them to airlines. Berkshire, which counts insurance as a key business, also owns Marmon, a unit that expanded its fleet last year with the purchase of about 25,000 rail cars from General Electric Co. in a $1 billion deal.

Buffett highlighted the business in his annual report to shareholders Saturday. About 97 percent of the rail cars were leased as of Dec. 31, and less than 20 percent of the fleet comes up for renewal each year, he wrote.

DCM is an investment firm owned by the Duchossois family, according to the statement. CC operates under the Henry Crown & Co. umbrella and invests in closely held ventures.

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