As if the big losses on investments in its portfolio and annuities charges weren't enough, customers in Allstate Corp.'s (ALL) core auto insurance business are adding to the trouble, said the company's auto insurance chief Thursday.

"We are seeing customers making changes to engineer their premium down," said George E. Ruebenson, president of Allstate Protection, the company's property insurance unit during the company's fourth-quarter earnings conference call Thursday. "They are dropping collision (coverage), setting lower limits and a higher deductible."

It is the economy that is pushing customers to cut back, and it helped contribute to a 3.9% drop in property-liability insurance premiums written in the fourth quarter for Allstate, to $6.3 billion, from $6.6 billion in the year-ago quarter.

The nation's largest publicly held personal-lines insurer on Wednesday 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.

The Northbrook, Ill., 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.

Shares of Allstate plunged 20% in recent trading to $23.82 on the disappointing earnings news.

The company's launch of a tiered auto insurance concept, where customers can opt for higher levels of coverage for a higher price, has taken something of a beating as the economy turns down, with fewer customers taking the high-level platinum level of coverage, Ruebenson said.

On the positive side, Ruebenson said that competitors had cut prices significantly in recent years and are now taking much bigger price increases than Allstate.

Allstate's significant realized and unrealized losses pushed down its book value 25% to $23.51 per share since the end of the third quarter.

Standard and Poor's responded to the earnings announcement by cutting Allstate's financial strength rating by one notch to AA-, but during the earnings conference call, Allstate Chief Executive Thomas Wilson said that the company maintained more than $12 billion in capital and he did not foresee needing to raise more.

While analysts generally agreed that Allstate would not need to raise capital during the first quarter due to its strong capital position, "if the company were to take significant further realized losses on its investment portfolio due to a significant deterioration in the credit markets, the company's capital position will be severely tested, which increases the risk of a capital raise," said Credit Suisse analyst V. Misquith in a Thursday note.

Misquith maintained his outperform rating on the stock Thursday but called Allstate "a high risk high reward stock."

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com

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