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Allstate Posts First-Quarter Losses Due to Investment Write-downs

Posted on 08 May 2009

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The largest publicly traded U.S. home and auto insurer, Allstate Corp., posted its third straight loss on investment write-downs and declines in private equity and hedge fund holdings.

The first-quarter net loss of $274 million, or 51 cents a share, compares with a profit of $348 million, or 62 cents, in the same period a year earlier, the Northbrook, Illinois-based company said in a statement today. Profit before investment losses was 84 cents a share.

Chief Executive Officer Tom Wilson halved the firm’s dividend, halted share buybacks and is cutting 1,000 jobs at Allstate’s money-losing life insurance business to preserve capital. The insurer in December announced it was replacing the heads of its life and investing units before announcing a $1.13 billion fourth-quarter loss.

“When you look at the business, it looks a lot like the fourth quarter of last year, yet is better in a few key areas,” Wilson said in an interview. “We’re halfway home on getting our expenses where we want to be” at the life operation, he said.

Insurers typically add to profits by investing payments from customers until the funds are needed to pay claims. The model backfired last year, leaving 23 of the 24 companies in the KBW Insurance Index with a profit decline or a net loss. The trend has continued as companies report first quarter results, with Hartford Financial Services Group Inc., MetLife Inc. and Lincoln National Corp. among those with losses.

Hedge Funds

Allstate’s investment losses were $359 million before taxes. The insurer wrote down $620 million in securities it said had permanently declined in value, and lost $105 million in its so-called limited partnership investments in private equity and hedge funds. The investment total also included gains from $418 million in sales of securities, primarily U.S. government fixed-income holdings, the company said.

Book value per share, a measure of Allstate’s assets minus liabilities, fell 3.7 percent in the three months ending March 31 from the previous quarter because of the net loss and a $590 million decline in the value of securities the insurer doesn’t intend to sell. That compares to a 25 percent plunge in the fourth quarter.

Since the end of the quarter, the benchmark Standard & Poor’s 500 Index has risen 14 percent and “credit spreads have come in a little bit,” Wilson said. “We appear to be at least if nothing else hovering around the bottom. It is too early to tell if there is a turn up in an aggressive way yet.”