2nd UPDATE:Allstate Posts 4Q Loss On $1.9 Billion In Capital Losses
January 28 2009 - 6:44PM
Dow Jones News
Growing investment losses, market-driven charges on its annuity
business and higher-than-usual catastrophe losses pulled Allstate
Corp. (ALL) to a fourth-quarter and full-year loss and pushed the
company to cut back the size of its life insurance business.
The Northbrook, Ill.-based insurer swung to a loss in the fourth
quarter on $1.9 billion in capital losses in its investment
portfolio and $493 million in annuity-sales costs recorded because
of the tumbling stock market.
The nation's largest publicly held personal-lines insurer posted
a fourth-quarter net loss of $1.13 billion, or $2.11 a share,
compared with year-earlier net income of $760 million, or $1.36 a
share, on revenue of $6.57 billion. Operating earnings, which
exclude investment gains and losses and the annuity costs, fell to
97 cents a share from $1.24. That was below the Thomson Reuters
analyst estimate of $1.35 a share on revenue of $8.46 billion.
Shares fell 11% in after-hours trading to $26.50, more than
erasing gains recorded during the regular session as part of a
strong rebound in financial stocks. The shares closed Wednesday up
nearly 9% to $29.64.
In an interview Thomas J. Wilson, chairman, president and chief
executive of Allstate, said the company's capital position remained
strong. With more than $12.6 billion in capital, including $3.6
billion available at its holding company, he did not anticipate
that the company would need to raise capital.
At the same time, he said he could not predict how ratings
agencies would view the earnings, and whether Allstate might be in
for a downgrade.
"They are in the mode of more downgrades than upgrades these
days," Wilson said. At least one ratings agency had some Allstate
units on a negative outlook.
The company will reduce costs in part by reducing Allstate
Financial's employee count by 1,000 through layoffs and attrition,
and will "reposition" its products. The company aims for a 20%
reduction in certain operating expenses in that unit for an annual
savings of $90 million by 2011.
The company stopped its share buyback program during the fourth
quarter and will not complete the current allotment.
Allstate does not provide earnings guidance but said it expects
a property-liability combined ratio excluding catastrophes and
prior year reserve re-estimates, to be in a range between 87% and
89% for the full year 2009.
"Selling life insurance to the middle market is still part of
our strategy," Wilson said, though the economic downturn has
affected that market severely.
"Their houses are not worth as much and neither are their
savings. We have to come up with a more focused, lower cost model.
That is strategic."
The insurer said pretax unrealized losses more than doubled
during the quarter to $8.8 billion because of widening credit
spreads in Allstate's fixed-income securities.
The investment losses, which have been plaguing other insurers
and some others such as State Street Corp. (STT) helped result in
last month's ouster of Allstate's life-insurance chief and a
downgrade following third-quarter results from Fitch Ratings.
But Allstate's auto and homeowners operations have generally
done well in a competitive market, which has been subject to some
pricing pressures.
Revenue dropped to $6.57 billion from $8.99 billion on the
capital losses, which included $652 million in write-downs, $585
million from the settling and valuation of derivatives and $357
million of losses on sales. Life insurers have been pressured by
the stock market's pummeling, resulting in surging costs for
annuities, with have guaranteed minimum returns no matter market
performance.
Allstate took a premium deficiency charge of $219 million after
tax when a mortality study Allstate conducted indicated that the
some of the annuity contract holders will live longer than the
company had calculated when it sold the annuities. The rest of the
charge was due to a reduction in the related investment portfolio
yield, the company said.
The property and liability segment's combined ratio, the
percentage of each dollar the company collects in premiums against
what it pays out on losses and expenses, increased to 96.4% from
95.9%. Excluding catastrophes and prior-year reserve re-estimates,
the ratio climbed to 91.5% from 88.6%.
Overall catastrophe losses dropped 45% while premiums written
dropped 3.9% amid falling new-car sales and ongoing weakness in the
housing market. That, plus "a highly competitive environment"
resulted in policies under force dropping. But Allstate said it
held the line on prices, with average auto premiums rising.
Allstate's investment portfolio fell 8.6% during the quarter to
$96 billion amid the $4.7 billion increase in net unrealized
capital losses during the quarter.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136;
kevin.kingsbury@dowjones.com
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