Analysts and investors reacted positively today in the wake of Allstate Corp.'s report that second-quarter net income increased by 5 percent and growth remained strong as the company continued to shed catastrophe risks.
The nation's largest personal lines insurer, based in Northbrook, Ill., reported net income increased $58 million, from $1.15 billion, or $1.71 a share for last year's second quarter, to $1.21 billion, or $1.89 a share. Revenues were up 1 percent, from $8.79 billion to $8.88 billion.
In early afternoon trading on the New York Stock Exchange, Allstate stock sold at $57.43 per share compared with a close of $56.15 per share the previous day.
For the first six months of the year, net income increased 15 percent, or $350 million over last year, going from $2.27 billion, or $3.35 a share, to $2.62 billion, or $4.08 a share. Revenues increased 3 percent, or $460 million, from $17.50 billion to $17.96 billion.
Allstate said its new business writings for homeowners insurance decreased 17.5 percent in the quarter as it continues to nonrenew and curtail writing coverage in coastal areas. The company said this effort at catastrophe exposure management is a multiyear program that varies in impact from state to state.
In the hurricane-exposed states, along the East and Gulf Coasts from Texas to Maine, new writings were down 19.4 percent in the quarter. In California, where the company has removed its optional earthquake coverage, new writings dropped 51.7 percent.
The company said the decreases were primarily due to its cessation of writing policies in New York, Texas and Louisiana in catastrophe-prone areas, and changes in underwriting requirements in California.
However, auto writings increased 3.6 percent in the quarter. The company said writings in the hurricane-exposed states declined 1.2 percent, except Florida, where writings increased 40.7 percent due to "changes in underwriting requirements, marketing and agency growth.
Allstate said it has completed its catastrophe reinsurance program, with a total cost amounting to $840 million annually. This is a $600 million increase over 2005, the company said.
The company's combined ratio stood at 82.4 percent for the quarter, down from 84.9 percent for the same period last year.
Allstate increased its per-share operating guidance for 2006 from a range of $6.00-to-$6.40 a share to $6.70-to-$7.00 a share.
During a conference call, Edward Liddy, the company's chief executive officer, said the company likes the trends it is seeing and that it doesn't see anything negative on the horizon, which led to its increase in its guidance.
The company raised EPS guidance for the full year to $6.70-to-$7.00 per share from $6.00-to-$6.40 a share. According to analysts polled by Thomson Financial, results were above projections by $1.61 per share.
After results were released yesterday, analyst David Small with Bear Stearns wrote that "Allstate remains our top insurance pick, and we expect shares to trade higher on this news." Gary Ransom, an analyst at Fox-Pitt Kelton, described the firm's numbers as "another blowout quarter."
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