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June 1 (Bloomberg) -- Allstate Corp., the home and auto insurer with more than $80 billion in fixed-income investments, is scaling back bond holdings and buying real-estate equity and infrastructure assets as it prepares for rising inflation.
“We should favor alternatives and inflation protection over fixed income,” Chief Investment Officer Judy Greffin told investors today. “That allocation should shift from what we think is still good fixed income, yet relatively rich. We’re going to shift that to be more into inflation protection, which includes real assets, also into infrastructure, assets with more global content, and real estate.”
The U.S. Federal Reserve and Treasury Department have pumped money into the economy since 2008 through bank bailouts, government stimulus and near-zero interest rates. Allstate rivals including Liberty Mutual Holding Co. and Warren Buffett’s Berkshire Hathaway Inc. have predicted inflation will increase and shortened the durations of their bond holdings.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against six currencies, including the euro, dropped 5.6 percent this year through yesterday.
Allstate’s holdings outside of bonds include $4.1 billion in limited partnership interests such as private-equity, real- estate and hedge funds. The investment in real-estate funds jumped 29 percent in the 12 months ended March 31, to $685 million, according to company filings.
Allstate, the largest publicly traded U.S. home insurer, is seeking to maintain yields in its investment portfolio as the company recovers from writedowns in 2008 and 2009 and claims tied to natural disasters. The insurer is increasing prices for residential coverage after results missed the company’s targets.
“Overall returns have been inadequate” in the homeowners’ segment, Northbrook, Illinois-based Allstate said today in a slide presentation for its Investor Day.
Chief Executive Officer Thomas Wilson needs to cushion losses from natural disasters, including April tornadoes in Alabama, Arkansas, Georgia and Virginia. Catastrophes cost the firm $1.4 billion that month, the insurer said on May 12.
Allstate “significantly reduced” the potential for losses on earthquakes and hurricanes by curtailing the sale of homeowners’ policies in the most vulnerable regions and buying reinsurance, the firm said.
Allstate slipped 94 cents, or 3 percent, to $30.44 at 4:01 p.m. in New York Stock Exchange composite trading. The insurer has dropped 4.5 percent this year, compared with the 2.2 percent decline of the 24-company KBW Insurance Index.
--With assistance from Noah Buhayar in New York. Editors: Dan Kraut, William Ahearn
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