Allstate Quarterly Net Income Declines 77 Percent

NU Online News Service

Allstate Corp. announced a 77 percent drop in net income for the first quarter of 2008 compared to 2007, attributing the decline mostly to high catastrophe losses.

The Northbrook, Ill., insurer reported first-quarter 2008 net income at $348 million, compared to $1.5 billion a year ago.

Thomas J. Wilson, president, chief executive officer and chairman-elect of Allstate, said, "Catastrophe losses offset the solid underlying performance of our insurance operations, where profitability exceeded the full-year outlook we provided in January."

The company specifically cited "an unusual number of tornados" as contributing to its reported operating income of $747 million, which is $450 million lower than the first quarter of 2007.

Allstate's reported property-liability combined ratio was 94, which is 9.4 points higher than the 84.6 figure reported for the first quarter of 2007. Excluding the effect of catastrophes and prior-year reserve re-estimates, however, the number can be reduced to 85.8 for 2008 compared to 84.1 for 2007, the insurer said.

The company also reported net realized capital loses of $655 million on a pre-tax basis due in part to $415 million of impairment write-downs. Allstate said that $347 million of the impairment write-downs were on fixed income securities, "primarily related to residential mortgages and other structured securities...."

Allstate said $300 million of net losses related to the settlement and valuation of derivative instruments.

A Bear Stearns equity research analysis reported that it remains "bullish on [Allstate's] shares long-term...." Outside of cat losses, earnings per share would have been better than projected, Bear Stearns said, and the combined ratio would have been 1.6 points better than expected.

Bear Stearns also commended Allstate's pricing strategy. "Our analysis has shown that over the past few years, [Allstate] has maintained a strategy of gradually raising rates and maintaining a more consistent approach to pricing than its competitors," the analysis said.

On the negative side, Bear Stearns cited concerns with Allstate's investment portfolio. "The largest negative in our view is that book value declined sequentially due to realized and unrealized losses from the investment portfolio (share repurchases also negatively impacted book value)," stated the analysis.