Bloomberg News

Allstate Bets on Corporate Bonds, Adds Cash in Debt Clash

August 01, 2011

(Updates shares in the eighth paragraph.)

Aug. 1 (Bloomberg) -- Allstate Corp., the auto and home insurer with a $99.3 billion investment portfolio, is betting on corporate bonds and building cash holdings as Congress nears a deadline for raising the U.S. debt limit.

“We’re big proponents of doing something” on the debt limit, said Thomas Wilson, Allstate’s chairman and chief executive officer, in an interview today. “Nevertheless, if you think it’s not going to get done, you need to protect yourself.”

Asset managers, including Pacific Investment Management Co., see a haven in company debt as Standard & Poor’s weighs whether to strip the U.S. government of its top credit rating. Wilson boosted Northbrook, Illinois-based Allstate’s corporate bond holdings to $42.4 billion on June 30 from $37.7 billion six months earlier, according to a regulatory filing today.

“The other thing we did was we got more liquid,” said Wilson. “Our cash balance in banks went up dramatically over the last couple of weeks” to take advantage of investment opportunities that may be created by dislocations in the market.

The insurer is also limiting the percentage of equities in its portfolio, said Wilson. Allstate held $4.95 billion of the securities as of June 30, according to regulatory filings. Allstate has been scaling back holdings of municipal bonds in the past year.

Congress may vote today on a compromise sealed with President Barack Obama to raise the $14.3 trillion U.S. debt ceiling. The Treasury Department has said it will reach the borrowing limit and run out of options for avoiding default tomorrow without action by Congress.

Government Debt

S&P said last month that the U.S. government’s long-term rating may be lowered by one or more levels into the AA category if lawmakers haven’t slowed the rise of government debt and aren’t likely to do so soon.

Allstate advanced 62 cents, or 2.2 percent, to $28.34 at 4:03 p.m. in New York Stock Exchange composite trading after second-quarter results beat estimates. The insurer added auto customers in most states, excluding New York and Florida, where it has scaled back to boost profitability.

A surge in claims costs from tornadoes and other storms led to a second-quarter net loss of $620 million, or $1.19 a share, the insurer said today in a statement.

--Editors: Dan Kraut, Dan Reichl

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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