Allstate reports $923 million quarterly net loss

Insurer realizes $1.3 billion in pre-tax investment losses

By Alistair Barr
October 22, 2008

SAN FRANCISCO (MarketWatch) -- Allstate Corp. reported a $923 million quarterly net loss late Wednesday after the property and casualty insurer paid big hurricane-related claims and realized more than $1 billion of pre-tax investment losses from the financial crisis.

Allstate also said it suspended its $2 billion share buyback program and doesn't plan to complete it by March 2009, its original goal.

Still, the company said its main underwriting businesses generated good results, excluding catastrophe losses. Allstate also highlighted that it has lots of liquid investments that can be sold quickly and stressed that it has a strong capital position.

Allstate shares were unchanged at $28.23 in after-hours trading. The stock dropped 12% in regular trading.

Allstate reported a third-quarter net loss of $923 million, or $1.71 a share, versus net income of $978 million, or $1.70 a share, a year earlier. On an operating basis, which excludes net realized investment gains and losses, Allstate said it lost $190 million, or 35 cents a share.

Allstate was expected to make 77 cents a share, according to the average estimate of 17 analysts in a FactSet survey.

Hurricanes Ike and Gustav hit the U.S. earlier this year, becoming two of the 10 most expensive storms in U.S. history. That left Allstate with catastrophe losses of $1.82 billion in the third quarter, up from just $91 million in the same period last year.

Allstate was also hit by net realized investment losses of $1.3 billion, before taxes. Unrealized losses, mainly driven by the falling market value of the insurer's fixed-income investments, reached $4.1 billion at the end of September.

"We expect volatile financial markets and tough economic conditions to persist for some time," Allstate Chief Executive Thomas Wilson said in a statement.

In late September, Allstate disclosed its investments and other financial ties to troubled companies including American International Group, Lehman Brothers, Washington Mutual, Fannie Mae and Freddie Mac.

The insurer said at the time that its investments in these troubled firms and other companies including Bank of America Bank of America Corporation, J.P. Morgan Chase and Morgan Stanley represented roughly 2% of its overall investments.

Capital and liquidity

Allstate said it had $16.9 billion of capital at the end of September, including $5 billion at its holding company that can be used to pay dividends, repay debt, buy back stock and support subsidiaries.

Earlier this month, the company said it injected up to $1.25 billion of extra capital into its life insurance unit, Allstate Life Insurance Co.

At the end of September, Allstate said $5.4 billion, or 5.1%, of its investments were liquid enough to sell within one or two days. Another $33.4 billion of holdings, or 31.9% of its investments, could be sold within 90 days, it added.

Allstate also said it has a $1 billion line of credit from 13 banks that it can tap through 2012. The insurer noted that it has no commercial paper that needs to be repaid and no corporate debt that needs to be refinanced until December 2009, when $750 million is scheduled to mature.

Allstate unveiled a big investment risk-reduction plan earlier this year. During the third quarter, the insurer sold a third of the securities it had identified as part of this $3.3 billion risk-mitigation program. The assets were sold for roughly 95% of their fair value at the end of June.

Underlying insurance business

The combined ratio of Allstate's main property-liability division, which includes its large auto insurance business, was 112.7% in the third quarter.

The combined ratio -- claims and expenses as a percentage of premiums -- is a common measure of an insurer's underwriting profitability. A figure below 100% indicates an underwriting profit.

However, excluding catastrophe losses and changes to reserves from previous years, the combined ratio was 85.9%, a slight improvement from 86% a year earlier, Allstate reported.

The frequency of claims in Allstate's standard auto insurance business fell more than 10% in the third quarter. The severity of claims fell a little for property damage and climbed more than 6% for bodily injuries, the company said.

Alistair Barr is a reporter for MarketWatch in San Francisco.

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