Allstate shares fall after large loss

October 23, 2008

NEW YORK (Reuters) - Shares of Allstate Corp (ALL) fell as much as 8 percent on Thursday, a day after the largest publicly listed U.S. home and auto insurer surprised Wall Street with a large quarterly loss.

Standard & Poor's revised its outlook on the company to "negative," indicating a downgrade is possible over the next year or two.

"Significant deterioration in capital adequacy to the strong level from very strong," accounted for the change in outlook, said S&P analyst Neil Stein in a statement.

On a conference call with investors, Allstate declined to comment on any ratings actions, but said the company meets with the major rating firms regularly, adding that the use of capital is based on economic need, rating and regulatory requirements.

The company is shoring up capital at its life insurance operations, with the holding company giving $1 billion to the unit, cutting the parent company's capital to around $4 billion.

Allstate shares were down 82 cents or 2.9 percent to $27.41 on the New York Stock Exchange, where it fell as low as $26 earlier.

Concerns over Allstate's capital came as other insurers, including MetLife Inc and Hartford Financial Services Group Inc have sought to shore up capital through equity offerings and an outside investment.

Catastrophe losses of $1.8 billion from hurricanes Gustav and Ike and an $8.6 billion decline in its investment portfolio weighed on Allstate's results.

Chief Executive Tom Wilson said the two hurricanes were expected to be among the top 10 most-costly U.S. hurricanes on record, and said losses could have been twice as high were it not for steps taken to reduce risks both in its insurance business and investment portfolio.

Wilson called Allstate's results "explainable but not acceptable."

The company posted a third-quarter net loss of $923 million, or $1.71 a diluted share, late Wednesday, compared with a profit of $978 million, or $1.70 a share, in the year-ago quarter.

On an operating basis, the insurer posted a quarterly loss of $190 million, or 35 cents a share. On that basis, Wall Street had expected profit of 66 cents a share, according to Reuters Estimates.

"We remain concerned about credit quality and liquidity in ALL's investment portfolio, despite recent 'risk mitigation' efforts," said S&P stock analyst Catherine Seifert, in a research note.

She has a "sell" rating on the stock, but raised the target price by $3 to $26.

Merrill Lynch, in a research note, said Allstate's shares, based on expected return on equity in 2009 of up to 16 percent, were not expensive, but potential future credit losses and margin sustainability were concerns.

The insurer's book value dropped 12.5 percent during the third quarter to $31.44.

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