IE 11 is not supported. For an optimal experience visit our site on another browser.

Allstate reports second-quarter profit

/ Source: The Associated Press

Surging catastrophe losses weighed heavily on Allstate Corp.'s earnings Wednesday, but the insurer still turned a profit in the second quarter.

The property-and-casualty insurer's results also reflected lower investment income amid the global financial crisis.

The news sent Allstate's shares tumbling in aftermarket trading, down 76 cents, or 2.7 percent, to $27.47. The stock closed Wednesday's regular session at $28.23, down nearly 14 percent for the year.

The Northbrook, Ill., company said it earned $389 million, or 72 cents per share, for the three months ended June 30. That compares with a profit of $25 million, or 5 cents per share, last year. Revenue rose 14.5 percent to $8.49 billion.

Operating income, which excludes investment gains and losses, fell 56 percent to $297 million, or 55 cents per share, as catastrophe losses mounted.

Analysts polled by Thomson Reuters, on average, expected a profit of $1.12 per share. Analysts typically exclude investment gains and losses from their estimates.

During the second quarter, Allstate had record catastrophic losses of $818 million, up 17 percent from $698 million in the year ago period, due to a large number of costly windstorms and hailstorms. It was the company's sixth-consecutive quarter of high catastrophe losses from events other than hurricanes, said Allstate Chairman, President and Chief Executive Tom Wilson in an interview with The Associated Press.

"Catastrophes happen, and I'm accountable for those ... our shareholders have to pay that money out," Wilson said.

When it comes to hurricanes, Mother Nature so far this year has cut property casualty companies like Allstate a break. However, Wilson said Allstate has been raising prices of homeowners policies to reflect the fact the insurer has been paying more out in recent quarters than it has been taking in.

The company's consolidated investment portfolio grew by $2.6 billion to a total $96.5 billion at the end of the quarter, benefiting partly from programs designed to limit its exposure to rising interest rates, Wilson said.

The company's investment income declined 22 percent to $1.1 billion. That was offset by net realized capital gains for the period, before taxes, totaling $328 million, due primarily to $419 million in gains from derivatives.

Property and liability premiums written, or new and renewed insurance contracts in the most recent quarter, slipped 2.8 percent to $6.62 billion.

The company's financial arm, Allstate Financial, saw operating income drop 45 percent during the second quarter to $65 million from $118 million, reflecting the company's ongoing restructuring efforts. Earlier this year, Allstate said it plans to cut 1,000 jobs in the financial services unit over the next two years. The move will produce annual cost savings of $90 million by 2011.

Allstate's combined ratio for the quarter rose to 100 percent from 94.4 percent in the last year's second quarter.

Combined ratios measure the amount of money insurers pay out in claims and expenses compared with how much they receive from writing new business. A ratio above 100 means the insurer is pays out more in claims and expenses than it takes in from writing new premiums.

Allstate was one of six major life insurers that won approval in May from the government granting access to the $700 billion bailout Troubled Asset Relief Program, or TARP. A number of insurers had been seeking federal aid in the wake of major investment losses resulting from the financial market turmoil of last fall and early this year.

The company turned down the bailout, saying it has strong capital and liquidity positions. As of June 30, Allstate held $15.1 billion of equity and $17.2 billion in capital.

"Regarding our capital position, we're in great shape," Wilson said.