Allstate Corp. (ALL:US), the biggest publicly traded U.S. home and auto insurer, posted its largest quarterly profit since 2007 as catastrophe costs declined and policy sales climbed after acquiring the Esurance online business.
Net income (ALL:US) advanced to $766 million, or $1.53 a share, from $524 million, or 98 cents, a year earlier, the Northbrook, Illinois-based insurer said today in a statement. Operating income, which excludes some investment results, was $1.42 a share, beating the $1.12 average estimate (ALL:US) of 23 analysts surveyed by Bloomberg.
Chief Executive Officer Thomas Wilson, 54, is charging customers more for homeowners’ coverage after the insurer faced $3.8 billion in claims costs tied to natural disasters last year. Allstate booked $259 million in catastrophe costs in the quarter, compared with $333 million a year earlier. Rivals Travelers Cos. and Chubb Corp. (CB:US) also posted narrower losses from natural disasters in the period.
“It was a pretty mild winter across the country,” Cliff Gallant, an analyst at KBW Inc., said by phone before results were released. “Except for a few isolated areas in the Midwest that got hit,” insurers were spared, he said.
Allstate climbed 2.5 percent to $33.73 at 5:13 p.m. in extended New York trading following the earnings announcement. The insurer had surged 20 percent this year at the close of regular trading, compared with the 12 percent advance in the Standard & Poor’s 500 Index. (SPX)
The insurer booked lower catastrophe costs in the quarter, in part, because it determined it had set aside more money than necessary for claims in prior quarters, according to an April 19 statement.
Wilson has reduced sales of some retirement products and made acquisitions in addition to raising prices for home coverage to boost earnings. Allstate purchased online car- insurance seller Esurance in October after losing market share to direct-to-consumer rivals Progressive Corp. (PGR:US) and Berkshire Hathaway Inc. (A:US)’s Geico unit, as younger customers shunned using agents to buy coverage.
“Being in the direct market is a tool that they need to have,” Mark Dwelle, an analyst with RBC Capital Markets, said before results were announced.
Premium revenue in Allstate’s property and liability business rose to $6.63 billion from $6.45 billion a year earlier as the company added Esurance customers. The insurer made 7.9 cents for every premium dollar in its property and liability coverage compared with 5.1 cents a year earlier.
Realized Capital Gains
Wilson has reshaped Allstate’s investment portfolio since 2008, when writedowns contributed to an annual loss of $1.68 billion. In the first quarter, the insurer bought intermediate corporate bonds and cut back on short-term Treasuries and long- term municipal debt to lift returns amid near record-low interest rates.
Net realized capital gains in the first quarter were $168 million, compared with a gain of $96 million a year earlier, as the company sold stocks and booked fewer impairments.
Book value (ALL:US), a measure of assets minus liabilities, advanced to $38.57 a share from $36.18 as of Dec. 31, the company said in a presentation on its website.
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