Allstate swings to third quarter gain

Allstate, the US insurance giant, said third quarter net income was $221m and operating income was $538m, compared to a net loss of $923m and an operating loss of $190m in the third quarter of 2008. Lower catastrophe losses contributed to the improvement in operating income. The net income improvement reflected higher operating income and lower realized capital losses in the third quarter of 2009 compared to the prior year quarter.

Total revenues for the third quarter of 2009 were $7.6bn, an increase of 3.6% compared to the third quarter of 2008. This reflected lower realized capital losses than the prior year quarter, partially offset by a decrease in net investment income and property-liability premiums.

“Allstate delivered strong operating income of $538 million and increased book value per share by 16% during the third quarter, thanks to our operating discipline and proactive approach to investing,” said Thomas J. Wilson, chairman, president and chief executive officer of Allstate. “For the third quarter in a row, customer loyalty increased and we delivered a double-digit percentage increase in new standard auto business. By focusing on the customer and maintaining our financial strength, we are building a foundation for sustainable growth.”

Allstate had catastrophe losses of $407m for the third quarter and $1.7bn for the first nine months of 2009. In comparison, the company had $1.8 billion of catastrophe losses in the third quarter and $3.1bn in the first nine months of 2008, including $1.4bn of losses from Hurricanes Ike and Gustav.

Net investment income for the quarter was $1.1 billion, down $271 million from $1.4 billion in the third quarter of 2008, due to lower yields, actions to shorten duration and maintain additional liquidity in the portfolio, and reduced investment balances. During the quarter, Allstate deployed $4.6 billion of short-term investments and cash receipts into securities to generate income and capital appreciation.

Net realized capital losses for the quarter were $519m, pre-tax. This reflected $381m of impairment write-downs and $361m of net losses from derivative instruments. Impairment write-downs were primarily related to investments with real estate exposure and hybrid securities issued by European financial institutions. Net gains of $201m  were realized on sales during the third quarter of 2009. Sales included proactive measures to reduce exposures to commercial real estate, certain municipal bond sectors, and below investment grade assets.