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Allstate swings to profit, catastrophe losses dip

A milder hurricane season this year helped Allstate Corp. turn a third-quarter profit as its losses for storms and other catastrophes dropped sharply.
/ Source: The Associated Press

A milder hurricane season this year helped Allstate Corp. turn a third-quarter profit as its losses for storms and other catastrophes dropped sharply.

The property and casualty insurer said Wednesday its net income rose to $221 million, or 41 cents per share, from a loss of $923 million, or $1.70 a share, in the year-ago period.

During the third quarter, Allstate posted catastrophe losses of $407 million, down about 78 percent from the $1.82 billion it recorded in the year-ago period, which included $1.4 billion in losses from Hurricanes Ike and Gustav.

Operating income, which excludes investment gains and losses, rose to $538 million, or 99 cents per share, from a loss of $190 million, or 35 cents per share a year ago.

Analysts polled by Thomson Reuters were expecting earnings of $1.01 per share from the Northbrook, Ill. company. Analysts typically exclude investment gains and losses from their estimates.

Revenue rose 3.6 percent to $7.58 billion from $7.32 billion a year ago, despite a decrease in net investment income and property-liability premiums.

With the third-quarter falling short of analysts' forecasts, Allstate's shares slipped 62 cents, or 2 percent, to $29 in afterhours trading. They closed the regular session down 12 cents, almost flat for the past year at $29.62.

The company's consolidated investment portfolio rose $4.2 billion during the three months ended Sept. 30 to $100.6 billion. Gains on credit and stock investments more than offset some losses due to interest-rate hedging, said Allstate Chairman, President and Chief Executive Tom Wilson in an interview with The Associated Press.

Investment income fell $271 million from a year ago to $1.1 billion due to lower balances, lower yields and other investment actions. The company shifted to shorter-duration, low-yielding fixed-income securities to mitigate risk and increase availability of cash.

Allstate incurred $519 million in net realized capital losses for the quarter, before taxes, partly due to write-downs on real estate and other securities issued by European financial institutions.

Property and liability premiums written, or new and renewed insurance contracts, fell 3.6 percent to $6.54 billion.

Operating income in Allstate's financial business rose to $95 million from $88 million a year ago, partly due to a drop in mortality-related payments, Wilson said. The business unit is moving ahead with restructuring plans announced earlier this year, including 1,000 job cuts aimed at generating annual cost savings of $90 million by 2011.

Allstate's quarterly property-liability combined ratio, a measure of profitability, fell to 94.7 from 112.7 in the third quarter of 2008.

A ratio above 100 means that for every premium dollar taken in, more than a dollar went to cover claims and other expenses. A figure below 100 means the company made a profit on its insurance operations.

As of Sept. 30, Allstate held $17.5 billion in equity.

"We've got plenty of capital and plenty of cash and high liquidity," Wilson said.