UPDATE: Allstate Tumbles After 3Q Earnings Miss Estimates
October 27 2010 - 6:41PM
Dow Jones News
Allstate Corp.'s (ALL) shares tumbled in late trading after the
insurer's third-quarter profit missed analyst estimates.
Operating earnings of $452 million, or 83 cents a share, were
down 16% from the same period a year earlier as Allstate's
homeowners unit reported an underwriting loss on costs tied to
settling a class-action lawsuit. Analysts surveyed by Thomson
Reuters had expected an operating profit of 98 cents a share.
The stock fell 4.7% to $30.95 in after-hours trading. Results
were released after markets closed on Wednesday.
The class-action case had alleged that Allstate had failed to
properly pay general contractors who oversaw construction work on
its customers' damaged homes. While the case hasn't yet formally
settled, Allstate's settlement offer "appears acceptable to the
plaintiffs," which prompted the company to set aside $70 million in
its reserves, the firm said in a regulatory filing.
The company's auto-insurance operation, its largest unit, also
reported less favorable results. Underwriting income fell 8.8% to
$281 million as a decrease in claims costs failed to offset a
decline in premium revenue. The company continued to lose auto
policyholders, as new customers were outnumbered by those who
dropped coverage for the 11th straight quarter.
Reversing the decline in auto policyholders has become one of
Chief Executive Officer Tom Wilson's main goals at Allstate. The
company has tied its employee-incentive programs to customer
loyalty and increased its spending on advertising in an effort to
boost its policy count.
"We have to get to higher customer-service standards," Wilson
said in an interview. "We've been pushing that hard. We did not
make progress on that in this quarter" based on the company's own
measures of loyalty.
But the auto results were also affected by price increases in
Florida and California that caused some customers to leave when
their policies were due to renew, Wilson said.
While analysts most closely follow operating results, the
company's net income, which includes investment gains and losses,
surged 66% to $367 million on markedly improved investment
results.
Furthermore, the company said it expects to hit its 2010 target
of a 10- to 12-cent profit margin for every dollar it collects in
premiums from its home and auto customers. That figure excludes
catastrophe costs and the sort of reserve reestimate that cost the
homeowners unit money in the third quarter.
On that basis, the company earned 10.8 cents on every dollar
after paying claims and expenses in the quarter.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
(Joan E. Solsman contributed to this story.)
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