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Allstate Shares Rise as Profit Exceeds Estimates

Monday, 31 Oct 2011 07:04 PM

Shares of Allstate Corp., the second-largest U.S. home and auto insurer, climbed in extended trading after third-quarter profit beat analysts’ estimates.

Operating income, which excludes some investment results, was 16 cents per share, beating the 9-cent average estimate of 22 analysts surveyed by Bloomberg, the company said in a statement Monday. The insurer jumped 5.2 percent to $27.70 at 4:26 p.m. in New York.

Chief Executive Officer Thomas Wilson has scaled back sales in Florida and bought reinsurance to limit Northbrook, Illinois- based Allstate’s risk from natural disasters. Wilson has also applied to state regulators to charge more for coverage.

“They’re getting rate approvals and they are seeing a decent average rate increase across their book of business,” said Mark Dwelle, an analyst at RBC Capital Markets, in a phone interview before results were announced. He rates the insurer “outperform.”

Excluding reserve re-estimates and claims from natural disasters such as Hurricane Irene, Allstate made 10.8 cents for every premium dollar it collected, matching results from a year earlier. Catastrophes cost $1.08 billion in the quarter, compared with $386 million in 2010.

Net income fell to $165 million, or 32 cents per share, from $367 million, or 68 cents, a year earlier, the insurer said. Book value, a measure of assets minus liabilities, slipped to $35.56 a share from $35.95 at the end of June. Wilson has reshaped Allstate’s investment portfolio since 2008, when writedowns contributed to an annual loss of $1.68 billion.

Hurricane Irene

Irene struck North Carolina on Aug. 27 then headed north along the East Coast. The storm may cost the insurers between $3 billion and $6 billion in the U.S., according to an estimate from risk-modeling firm AIR Worldwide. Travelers Cos., the only insurer in the Dow Jones Industrial Average, said Oct. 19 that the storm cost it $253 million after tax in the quarter. Chubb Corp. said Irene led to $335 million in pretax losses.

The insurance industry faced about $70 billion of losses from natural disasters and man-made catastrophes in the first half, according to Swiss Re, the world’s second-largest reinsurer. That makes 2011 already the second-most costly year for insurers, surpassed by 2005, when Hurricanes Katrina contributed to $120 billion in claims.

Online Sales

Allstate completed its acquisition of online auto-insurance seller Esurance from White Mountains Insurance Group Ltd. this month. Wilson, 54, who is also chairman, opted to expand direct- to-consumer car policy sales by acquiring a company rather than build the business in-house to save time and money on advertising.

Allstate has lost auto clients as younger drivers shunned using agents to shop for coverage. Berkshire Hathaway Inc.’s Geico unit and Progressive Corp., which rely more on the Internet, have added customers. Policyholder-owned State Farm Mutual Automobile Insurance Co. is the largest U.S. home and car insurer.

“The distribution model that seems to be successful right now is the direct one,” said Cliff Gallant, an analyst with KBW Inc., before results were announced. “Geico and Progressive are far ahead of where Allstate is, even with Esurance.”

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