Allstate Corp. (ALL:US), the largest publicly traded U.S. auto and home insurer, reported fourth-quarter profit that beat analysts’ estimates after superstorm Sandy. Shares gained in extended trading.
Net income fell to $394 million, or 81 cents a share, from $712 million, or $1.40, a year earlier, the Northbrook, Illinois-based insurer said today in a statement. Operating income, which excludes some investment results, was 59 cents a share, beating by 62 cents the average estimate (ALL:US) of 24 analysts surveyed by Bloomberg.
Property insurers faced a surge in claims from Sandy, the October storm that lashed New Jersey, New York and Connecticut, damaging homes, businesses and public infrastructure. Allstate has been buying reinsurance, raising prices and limiting sales of homeowners’ coverage in vulnerable areas to cushion losses from the costliest natural disasters.
“They have done a lot with their risk-management program over the last several years,” Mark Dwelle, an analyst at RBC Capital Markets, said in an interview before results were announced. That helped the company come through Sandy “pretty well,” he said.
Allstate climbed 2.7 percent to $45.50 at 4:31 p.m. in New York, after the close of normal trading. It had gained 45 percent in the 12 months through today, before results were announced. That compares with the 18 percent advance in the 22- company Standard & Poor’s 500 Insurance Index.
Catastrophes led by Sandy cost Allstate $1.1 billion in the quarter, compared with $66 million a year earlier. The insurer spent $1.02 for every premium dollar in its property and liability insurance unit compared with a profit of 9.1 cents on each dollar a year earlier. Excluding the cost of catastrophes, margins in the business improved by 4 cents per dollar from a year earlier.
Sandy may cost the insurance industry as much as $25 billion, according to an estimate from catastrophe modeling firm Risk Management Solutions Inc. Companies including Travelers Cos. and Chubb Corp. posted lower fourth-quarter profit because of the storm.
Premium revenue in Allstate’s property and liability business rose to $6.74 billion from $6.61 billion a year earlier. Full-year profit climbed to $2.31 billion from $787 million in 2011.
Chief Executive Officer Tom Wilson, 55, is seeking to boost shareholder returns as low interest rates put pressure on income from the company’s bond portfolio and severe weather increases claims costs. Allstate said in December that it will issue subordinated debt to fund as much as $1 billion in share buybacks as it aims for a 13 percent return on equity by 2014.
Wilson is also selling some longer-term bonds from the investment portfolio to lock in gains. The company is looking to invest in hotels, toll roads and other assets that can help hedge against a rise in interest rates, he said.
The Federal Reserve has held borrowing costs near zero and expanded its balance sheet through bond purchases to help stimulate the economy after the deepest financial crisis since the Great Depression. That’s punished savers and spurred businesses that rely on higher interest rates to take longer- term risks and settle for lower-quality investments, Wilson said in a Nov. 30 interview at Allstate’s headquarters.
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