Allstate weathers inclement quarterly earnings

Colorado hailstorms took a chunk out of Allstate profits in the third quarter.
Colorado hailstorms took a chunk out of Allstate profits in the third quarter.

By Tobias Burns

Allstate Corp.’s third quarter operating income dropped significantly because of higher catastrophe claims, due primarily to a severe hailstorm in Colorado last month.

The insurance giant reported a 16 percent drop in operating earnings to $598 million, or $1.39 per diluted share, from $713 million, or $1.53 per diluted share. This was still enough to trump the $1.33 a share that analysts surveyed by Yahoo Inc. had been expecting.

While the company’s net earnings more than doubled for the quarter, from $310 million to $750 million, this figure is widely considered to be less reliable than operating earnings for the insurance industry, which generates much of its profits from investments and other activities that aren’t reported quarterly.

Allstate’s sale of subsidiary Lincoln Benefits Life Insurance, which was responsible for a $475 million charge that damaged profits in the year-ago quarter, also helped to further skew the net-earnings comparison.

“We’re feeling mildly positive” about Allstate’s prospects, said Brett Horn, an analyst at Morningstar Inc. who covers insurance. “There’s a lot of stuff we need to exclude from third quarter numbers, but the core business strategies are solid,” he said in an interview.

Earnings from property-liability insurance premiums, which are the main driver of Allstate’s operating income, sank 5.7 percent to $2.40 billion from $2.45 billion.

While Allstate CEO Thomas J. Wilson said that the third quarter numbers reflected “the execution of a comprehensive growth plan,” it’s actually the company’s scaling-down of contract terms that’s winning investor confidence, according to Brett Horn.

“It’s addition by subtraction,” he said. “It’s being able to walk away from new areas in homeowner’s insurance and life insurance. That’s the refocus on profitability.”

Third quarter net investment income was down 13.7 percent from $950 million in 2013 to $823 million.

Property-liability premiums written rose 4.9 percent to $7.81 billion.

In New York Stock Exchange trading Thursday, Allstate shares rose 93 cents, or 1.5 percent, to close at $63.9.