Allstate Corporation’s (ALL) first-quarter operating earnings of 69 cents per share came in substantially short of the Zacks Consensus Estimate of 79 cents. This is in contrast to the operating earnings of 84 cents in the year-ago quarter.
Results for the quarter deteriorated primarily due to lower revenue as a result of a significant decline in investment income. However, decreased expenses, prudent capital management and strong liquidity impressed during the reported quarter.
Allstate’s net income for the reported quarter came in at $120 million or 22 cents per share, compared to a net loss of $274 million or 51 cents in the prior-year quarter. Operating income, which excludes realized net gains and losses from the sale of investments as well as accruals on unhedged derivative instruments, for the reported quarter was $375 million, down 17.4% from $454 million in the year-ago quarter.
Quarter in Detail
Property-Liability net written premiums were $6.3 million, almost flat compared to the prior-year quarter. This segment’s combined ratio deteriorated to 98.9% from 96.8% in the year-ago quarter.
The underlying combined ratio, which excludes catastrophes and prior year reserve estimates, was 89.1% in the reported quarter, within the company’s 88-90% outlook range for full year 2010.
Allstate brand standard auto premiums written for the reported quarter increased 1.1% from the prior-year quarter as a result of an increase in average premium and retention. This increase was partially offset by declines in policies in force. The combined ratio deteriorated 1.1 points year-over-year to 94.4%, due primarily to higher loss costs.
Allstate-branded homeowners’ written premiums for the quarter increased 1.5% year-over-year, as a 7.0% increase in average premium was partly offset by a 4.1% decline in policies in force. The combined ratio deteriorated to 111.3% from 106.8% in the prior-year quarter, reflecting higher catastrophe losses partly offset by lower non-catastrophe claim costs.
Catastrophe losses for the reported quarter came in at $648 million, up 25.6% year-over-year. Property-liability net income came in at $164 million, compared to a loss of $100 million in the prior-year quarter. Operating income for this segment was $286 million, up 30.9% from $414 million in the year-ago quarter.
Operating income for Allstate Financial increased 63.5% year-over-year to $139 million. Net income for this segment came in at $4 million compared to a loss of $327 million in the year-ago quarter. The improvement included a decrease in deferred acquisition and deferred sales inducement (DAC) charges, a decrease in realized net capital losses and higher operating income.
Corporate & Other segment reported a net loss of $48 million, compared to a net loss of $47 million in the prior-year quarter.
Total cost and expenses were $7.6 billion, down 4.7% from $8.0 billion in the year-ago quarter.
As of Mar 31, 2010, Allstate’s total investments increased over Dec 31, 2009 to $100.2 billion. The investment valuations helped pre-tax unrealized net losses to decline to $849 million as on Mar 31, 2010 from $2.3 billion as on Dec 31, 2009.
Allstate’s net investment income for the reported quarter came in at $1.1 billion, down 2.4% from the prior quarter and 10.7% from the prior-year quarter. The declines primarily resulted from lower short-term interest rates and duration-shortening actions taken to protect the portfolio from rising interest rates.
Reported book value per share increased 42.4% year-over-year to $32.26 as on Mar 31, 2010. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, increased 14.1% year-over-year to $32.83.
We anticipate continued benefits from Allstate’s diversification, pricing discipline and proactive approach to investment, but the ongoing global crisis and catastrophes will continue to impact the results in the upcoming quarters.
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