Allstate Halves Dividend After Losses, Ending 14-Year Streak

By Erik Holm
Bloomberg News
February 25, 2009

Feb. 25 (Bloomberg) -- Allstate Corp., the largest publicly traded U.S. home and auto insurer, slashed its dividend 51 percent after posting two straight quarterly losses, ending a 14- year streak of boosting the payout.

The quarterly dividend was reduced to 20 cents a share from 41 cents, the Northbrook, Illinois-based insurer said yesterday in a statement. Allstate will save about $450 million over four quarters, based on 536 million shares outstanding.

Chief Executive Officer Tom Wilson is cutting 1,000 jobs at Allstate's money-losing life insurance business after halting share buybacks last year to preserve capital. The insurer had its first unprofitable year as a publicly traded firm in 2008 amid more than $5 billion in writedowns and unrealized losses on holdings including mortgage-backed securities.

"Allstate has a history of proactively and prudently managing our capital," Wilson said in the statement. "In light of recent earnings, Allstate has decided to reduce our dividend for this quarter to a level we believe puts Allstate's payout ratio in line with our peers."

Allstate shares have fallen 61 percent in the past year, compared with the 69 percent decline in the Standard & Poor's 500 Insurance Index. The shares fell to $16.55 in New York Stock Exchange composite trading yesterday morning, their lowest since August 1995, before recovering to close at $18.64.

Allstate declared its first dividend in August 1993, two months after Sears, Roebuck & Co. sold 20 percent of the company in what was then the largest initial public offering in U.S. history, according to the insurer. The board raised the payout every February since 1995, the year Sears spun off the rest of the firm. Allstate's new dividend is payable April 1 to shareholders of record on March 13, the company said.

Hartford Financial

The insurer joins competitor Hartford Financial Services Group Inc. in cutting its payout after losses from life insurance overwhelmed profits from covering cars and homes. Insurer Lincoln National Corp. also cut its dividend for the second time in a year yesterday, to 1 cent a share, after reporting its first quarterly loss since 2002 earlier this month.

Allstate, Hartford and Lincoln National are among insurers that asked regulators to relax reserve requirements on money set aside to pay life insurance claims. Hartford and Lincoln National have also said they applied for U.S. government relief under the federal bailout program.

Book value per share, a measure of Allstate's assets minus liabilities, fell 25 percent in the three months ended Dec. 31 to $23.51 because of the quarterly loss and a $4.7 billion decline in the value of securities the insurer doesn't intend to sell. The drop includes about $1.6 billion on corporate debt, $1.2 billion on commercial mortgage-backed securities and about $900 million on asset-backed securities.

'Continued Investment Losses'

"Allstate's operating results will likely be hampered by continued investment losses" this year, Standard & Poor's said Jan. 29 as the firm cut the insurer's credit rating two grades to A-.

Jim Ryan, an analyst at Morningstar Inc., and KBW Inc.'s Cliff Gallant had predicted the declining value of assets would force the insurer to revisit its policy of annual dividend increases.

"When you start eating into the capital of a company, one of the first thoughts you have is, 'How do I preserve it?'" Ryan said in January. "One of the easiest ways you have to preserve it is to start looking at the dividend."

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