Allstate Reports Third Straight Profit on Investments
By Jamie McGee
Feb. 10 (Bloomberg) — Allstate Corp., the largest publicly traded U.S. home and auto insurer, reported its third straight quarterly profit on improved investment results and higher underwriting income.
Allstate’s net income of $518 million, or 96 cents a share, compares with a loss of $1.13 billion, or $2.10, in the same period a year earlier, the Northbrook, Illinois-based insurer said in a statement today. Operating income, which excludes some investment results, was $1.09 a share, beating by 7 cents the average estimate of 17 analysts surveyed by Bloomberg.
Chief Executive Officer Thomas Wilson appointed a marketing head and named new leaders for the property and life insurance units in the last six months as he refocuses on improving insurance results after reshaping the investment portfolio last year. The company posted a $1.68 billion loss in 2008, the result of writedowns and investment losses, and an $854 million profit for 2009.
“This is a much better year for us this year than last year on both an operational and financial basis,” Wilson said today in an interview. “From a financial standpoint, it’s like night and day.”
Allstate fell 13 cents to $28.60 at 4:15 p.m. in New York Stock Exchange composite trading. The insurer has climbed about 39 percent in the past year, compared with the 29 percent increase in the Standard & Poor’s 500 Standard & Poor’s 500 Index.
‘Less Panic’
“This year they can start playing a little more offense in terms of examining where the opportunities are for growth,” said Meyer Shields, an analyst at Stifel Nicolaus & Co., in an interview before results were released. “There is a lot less panic about their aggregate capital levels because enough of that capital has come back to really reassure people.”
Realized investment losses narrowed to $33 million before taxes, compared with $1.9 billion in the last three months of 2008. Investment income dropped 19 percent to $1.1 billion.
“Interest rates are so much lower than they were,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP, said before results were released. “Allstate’s portfolio is a lot less risky. They’ve shed a lot of the more risky, but higher- yielding assets.”
Allstate is competing for customers with Progressive Corp. and Warren Buffett’s Geico Corp. with advertisements featuring Dennis Haysbert, the actor who played a U.S. president on the News Corp. television show, “24.” Allstate has said Haysbert targets older, more affluent drivers than Geico’s gecko mascot and Progressive Corp.’s spunky saleswoman, Flo, and the average net premium per policyholder has increased for three straight quarters.
Fewer Policyholders
Still, the insurer has reported quarterly declines in the number of standard auto policyholders in the last eight quarters. The latest drop was less than a percent from the figure it reported Sept. 30. Progressive, the fourth-largest auto insurer, added to its personal auto policy count in each quarter of 2009.
In 2007 and 2008 as the financial markets weakened, “we decided to maintain our margins rather than reduce price and willingly accepted our business would get smaller,” Wilson said. “All of our competitors have increased prices because they shouldn’t have decreased their prices before.”
Property and liability premium revenue fell to $6.52 billion in the last three months of 2009 from $6.67 billion in the fourth quarter of 2008. Allstate’s profit margin from the property-liability business improved to 6.8 cents for every premium dollar, compared with 3.6 cents in the same period a year earlier.
Profit Margin
The insurer’s profit margin for the full year was 11.9 cents on every dollar, excluding the effects of catastrophes and costs for claims in prior quarters. The result was within the range Allstate gave investors a year ago, and the company said it expected to earn between 10 and 12 cents by that measure in 2010.
State Farm Mutual Automobile Insurance Co., the only U.S. auto insurer larger than Allstate, is owned by its policyholders and has no publicly traded debt. Geico, the third-largest, is part of Buffett’s Berkshire Hathaway Inc. Neither has reported full-year results. Progressive earned $305 million in the last three months of 2009, compared with $159.3 million in the same period a year earlier.
On the Road
The frequency of reported injuries and property damage claims in Allstate’s auto business climbed in 2009 as drivers returned to the roads. In 2008, higher gas prices and rising unemployment caused the number of accidents to fall, Wilson said in November. Progressive CEO Glenn Renwick said that month his company’s bodily injury frequency was “up fairly significantly” in 2009.
U.S. drivers logged 2.69 trillion miles through November, a 0.3 percent increase from the first 11 months of 2008, according to the Federal Highway Administration. The figure rose 1.4 percent in November compared with the same month a year earlier. The agency hasn’t released December data.
Auto insurers “could face pressure” on quarterly results because earnings in the year-earlier period benefited from a drop in miles driven, which led to fewer accidents, Jay Gelb, a Barclays Plc analyst, said in a Jan. 4 note to investors.
Allstate’s investment portfolio included about $100 billion in assets as of Dec. 31 and is primarily comprised of fixed- income securities, including corporate and municipal debt. Allstate had $2.7 billion invested in limited partnership holdings, which includes private equity, real estate and hedge funds, as of Dec. 31, according to company reports.
nicely done. Allstate’s been at it awhile, and they are very conservative and legally agressive.
This insurance company is too expensive. I have been with this insurance company for five years, and had never put in a claim. In May of this year, I was a vitim of a break-in. I called in the claim that same day, and I did receive a check in a couple of days. However, my insurance premium doubled immediately. I tried to add my vehicle to the policy, and the premium went through the roof. I am in the process of cancelling this insurance, and looking for a competitor!
Direct management was great, but I question the Senior Leadership. I think Allstate is far too concerned with generating a specific return on invested capital as opposed to focusing on customer satisfaction and a “reasonable” return. Ford did the exact same thing in the late 90’s and look where it got them. You can’t build, run and maintain a business whose only focus is shareholder equity and if Allstate doesn’t figure this out soon, they will really fall on hard times.
Multi-car discounts, long-term customer discounts, good driver discounts, safety features discounts, some (not all) claims are easy.
I’m guessing I was calling HAITI??? Allstate rep said something like ‘we’re going to run a crdit check on you’ I REFUSED as I think that effects your credit score. So I asked him to verify what exactly he was checking on my credit…he didn’t know…his co-workers didn’t know and his supervisor wasn’t around at 2:30pm in the afternoon on a Monday…hmmmm, he didn’t even know the town I lived which was just west of Montreal…so I’m sure he lied about the location I was calling.
I’m 25 years old and have had Allstate for nearly 2 years. I’ve been paying $98 a month. I have had a clean driving record and my premiums have been reduced $20-$50 a month at each renewal period.
After more than a year at a three-star rank, enough top-performing CAPS members have turned bullish on Allstate (NYSE: ALL) recently to upgrade it to a more formidable four stars. A total of 580 members have given their opinion on the insurance firm, with many of them offering analysis and commentary explaining the recent optimism.
Stock in Allstate has been making progress in regaining ground after the recession torpedoed its investment portfolio, just as it hammered other large insurers like AIG (NYSE: AIG), MetLife (NYSE: MET), and Berkshire Hathaway (NYSE: BRK-A). While plummeting markets prompted Allstate to record $1.93 billion in net realized losses in investments in the fourth quarter of 2008, it drastically narrowed those losses in the fourth quarter of 2009. It’s still feeling some of the pain associated with languishing commercial real estate investments, similar to major banks like Citigroup (NYSE: C), JPMorgan (NYSE: JPM), and Bank of America (NYSE: BAC), but tightened up its fourth-quarter net realized losses to just $33 million.
While some smaller companies are still struggling, Allstate swung to a fourth-quarter profit after a loss in the prior year, similar to life insurer Prudential Financial. It pulled in earnings of $518 million, increased operating income, and generated a nearly 23% boost in total revenues. The firm also recently added a former George Soros risk manager to minimize investment risk.
I was with allstate for half a year before switching to a different ins. I always made my payments on time, and had no claims. After I switched to a different ins, they sent me a letter saying I owe them a little over $80 when I cancelled before my payment was due. I called them a few times, faxed them all my paper/bills as proof I don’t owe anything, and they promised someone whould call back within a few hours and resolve this. I never got that call! A month later, I received a phone call from collection agency saying allstate has put me on collection!!!!! VERY TERRIBLE INSURANCE!!!