Allstate Outshines Estimates

Allstate Corporation’s (ALL) second quarter operating earnings of 81 cents per share came in way ahead of the Zacks Consensus Estimate of 70 cents and the 55 cents per share recorded in the year-ago quarter.

Results for the quarter deteriorated primarily due to lower revenue as a result of a significant decline in investment income. However, decreased expenses, prudent capital management and strong liquidity impressed during the reported quarter.

Allstate’s net income for the reported quarter came in at $145 million or 27 cents per share, compared with $389 million or 72 cents in the prior-year quarter. Operating income for the reported quarter, which excludes realized net gains and losses from the sale of investments as well as accruals on unhedged derivative instruments, was $441 million, up 48.5% from $297 million in the year-ago quarter.

Quarter in Detail

Property-Liability net written premiums were $6.5 million, down 0.7% from prior-year quarter. This segment’s combined ratio improved by 3.2 points year over year to 98.9%.

The underlying combined ratio, which excludes catastrophes and prior-year reserve estimates, was 88.1% in the reported quarter, within the company’s 88%-90% outlook range for full-year 2010 but higher than 87.2% recorded in the year-ago quarter.

Allstate brand standard auto premiums written for the reported quarter increased 1.9% from the prior-year quarter as a result of a 3.3% increase in average premium and retention. This increase was partially offset by a 1.7% decline in policies in force. The combined ratio improved 0.4 points year over year to 94.5%, due primarily to growth in earned premiums.

Allstate-branded homeowners’ written premiums for the quarter increased 2.2% year over year, as a 6.1% increase in average premium was partly offset by a 4.0% decline in policies in force. The combined ratio picked up to 104.4% from 116.3% in the prior-year quarter, reflecting lower catastrophe losses and non-catastrophe claim costs.

Catastrophe losses for the reported quarter came in at $636 million, down 22.2% year over year. Property-liability net income came in at $299 million, down 29.1% from the prior-year quarter. Operating income for this segment was $368 million, up 27.3% from $289 million in the year-ago quarter.

Operating income for Allstate Financial increased 92.3% year over year to $125 million. Net loss for this segment came in at $107 million compared to a net income of $19 million in the year-ago quarter. Higher operating income was offset by higher-than-expected deferred acquisition and deferred sales inducement (DAC) charges and realized net capital losses.

Corporate & Other segment reported a net loss of $47 million, compared to a net loss of $52 million in the prior-year quarter.

Total cost and expenses were $7.5 billion, down 6.7% from $8.0 billion in the year-ago quarter.

As of June 30, 2010, Allstate’s total investments decreased marginally over March 31, 2010 to $99.9 billion. The investment valuations helped pre-tax unrealized net gains to climb to $400 million as on June 30, 2010 from unrealized net losses of $849 million as on March 31, 2010.

Allstate’s net investment income for the reported quarter came in at $1.0 billion, down 5.3% from the prior-year quarter. The declines primarily resulted from lower short-term interest rates and duration-shortening actions taken to protect the portfolio from rising interest rates.

As on June 30, 2010, reported book value per share increased 15.7% year over year to $33.24. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, increased 3.0% year over year to $32.51.

Dividend Update

On July 13, 2010, the board of Allstate declared a regular quarterly cash dividend of 20 cents on its common stock, to be paid on October 1, 2010, to the shareholders of record as on August 31, 2010.

We anticipate continued benefits from Allstate’s diversification, pricing discipline and proactive approach to investment, but the ongoing global crisis and catastrophes will continue to impact the results in the upcoming quarters.

ALLSTATE CORP (ALL): Free Stock Analysis Report

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