Allstate Operating Income Rises in Q2; Capital Losses Hurt Net Income

August 5, 2010

The Allstate Corp., headquartered in Northbrook, Ill., reported that second quarter 2010 operating income rose to $441 million compared to $297 million in the same period of 2009, reflecting improved results in both property/liability and Allstate Financial.

Net income was $145 million in the second quarter of 2010 compared to $389 million in the second quarter of 2009, primarily due to realized capital losses in the 2010 quarter versus realized capital gains in the prior year period. Realized capital losses in the second quarter of 2010 reflect risk management actions, including derivative losses that were offset by increased portfolio valuations.

Property/Liability results for the second quarter of 2010 reflect Allstate Protection’s implementation of actions to profitably grow standard auto and improve homeowners returns. Property/Liability premiums written increased 0.4 percent in the second quarter of 2010 compared to the prior year second quarter.

Allstate brand growth of 1.6 percent contributed to the premium increase, partially offset by a 20.4 percent Encompass brand decline when compared to the second quarter a year ago. Actions to improve Encompass profitability negatively impacted results.

Allstate’s Property/Liability business produced an underlying combined ratio within the company’s full-year outlook range of 88 to 90. The underlying combined ratio, which excludes catastrophes and prior year reserve re-estimates, was 88.1 in the second quarter of 2010 compared to 87.2 in the same period of 2009, primarily due to a higher expense ratio. The recorded combined ratio was 96.8 for the second quarter of 2010, a 3.2 point improvement from the second quarter of 2009.

Catastrophe losses totaled $636 million during the second quarter of 2010, reflecting 30 events with losses of $758 million, offset by favorable reserve re-estimates of $39 million on first quarter 2010 events and $83 million on prior years’ events. This compares to catastrophe losses of $818 million for the second quarter of 2009.

Catastrophe losses added 9.8 points to the combined ratio during the second quarter of 2010. Although lower than the record second quarter impact in 2009 of 12.5 points, it was 3.2 points higher than Allstate’s 19-year average for a second quarter of 6.6 points.

Allstate brand standard auto premiums written increased 1.9 percent for the second quarter of 2010 compared to the prior year second quarter, due to a 3.3 percent increase in average premium. Increased average premium was offset by a 1.7 percent decline in policies in force as the rate of new business was not sufficient to overcome the business lost at renewal.

Standard auto retention was comparable to the prior year second quarter at 89.0 despite a slight decline in Allstate’s customer loyalty index score during the quarter. New issued applications increased 0.4 percent compared to the prior year second quarter. The Allstate brand standard auto combined ratio was 94.5, a decline of 0.4 points from the second quarter of 2009, due to growth in earned premiums as well as favorable prior year reserve re-estimates.

Allstate brand homeowners premiums written for the second quarter of 2010 increased 2.2 percent compared to the same period a year ago, as a 6.1 percent increase in average premium was partly offset by a 4.0 percent decline in policies in force.

The combined ratio was 104.4 in the second quarter of 2010 compared to 116.3 in the second quarter a year ago, reflecting lower catastrophe losses and lower non-catastrophe claim costs. Rate increases averaging 11.3 percent in 14 states were approved during the second quarter, reflecting actions to improve returns and lessen the volatility of the homeowners results.

Allstate Financial made significant progress on reinventing its business model during the second quarter. The goals are to produce higher returns, reduce concentrations in products with returns dependent on investment spread, and serve Allstate customers by focusing on Allstate agencies and expanding Allstate Workplace Division.

Allstate Financial reported a net loss of $107 million in the second quarter of 2010 compared to net income of $19 million in the 2009 second quarter. The second quarter of 2010 net loss reflected $226 million of after-tax realized capital losses including the impact of related deferred acquisition costs and deferred sales inducements. The second quarter of 2009 reflected an after-tax realized capital loss of $49 million, including the impact of deferred acquisition costs and deferred sales inducements.

“We made continued progress in executing our strategies and achieving our 2010 goals in the second quarter,” said Thomas J. Wilson, chairman, president and chief executive officer of Allstate Corp. “Profitability at Allstate Protection met our underlying combined ratio outlook for the year. Implementation of growth initiatives reduced the impact of catastrophe risk management and profitability actions, but has not yet generated sufficient volume to increase overall policies in force. Allstate Financial’s operating income significantly rebounded reflecting progress on its strategic repositioning and the benefit of reserve actions. Strong investment results reflect our risk mitigation and return optimization strategies.”

Source: Allstate Corp.

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