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updated: 8/1/2013 1:35 PM

Allstate profit advances on investments, reduced disaster costs

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Bloomberg News

Northbrook-based Allstate Corp., the largest publicly traded U.S. auto and home insurer, said second-quarter profit climbed on investment gains and reduced costs tied to natural disasters.

Net income climbed 2.6 percent to $434 million, or 92 cents a share, from $423 million, or 86 cents, a year earlier, the Northbrook, Illinois-based company said yesterday in a statement. Operating profit, which excludes some investment results, was $1.12 a share, beating by 14 cents the average estimate of 24 analysts surveyed by Bloomberg.

Chief Executive Officer Thomas Wilson has sought to improve margins at the insurer's property-casualty business by purchasing reinsurance, raising rates for homeowner's coverage and exiting some markets after severe weather boosted claims costs. Those changes hurt sales of Allstate brand auto insurance because the products are often bundled together.

"We're a long way toward having that business restructured" and the negative impact is diminishing, Wilson said in an interview. Policies in force for the company's namesake brand of auto and home coverage should "continue to trend upward from here."

Allstate rose 32 cents to $51.30 yesterday in extended trading in New York. The insurer had gained 27 percent this year before the release, compared with the 29 percent advance in the 22-company Standard & Poor's 500 Insurance Index.

Catastrophes cost Allstate $647 million in the quarter compared with $819 million a year earlier. The insurer made 3.9 cents for every premium dollar in its property and liability coverage unit compared with a profit of 2 cents a year earlier.

Premium revenue in Allstate's property-and-liability business rose to $6.86 billion in the second quarter from $6.67 billion a year earlier as the company retained more customers and issued more of its namesake brand of policies.

Realized investment gains rose to $362 million from $27 million a year earlier. The insurer has been selling some of its bonds after falling yields pushed up prices in recent quarters.

That trend reversed in the three months ended June 30 when Federal Reserve Chairman Ben S. Bernanke signaled that the central bank may begin tapering some of its stimulus efforts this year. Ten-year Treasury yields rose to 2.49 percent from 1.85 percent in the first quarter.

The rise in rates lopped $2.73 billion in net unrealized investment gains off Allstate's balance sheet. Book value, a measure of assets minus liabilities, declined to $41.63 a share from $43.46 at the end of March.

Results in the quarter were hurt by Allstate's plan to retire some debt early. Wilson said in May that the company was taking advantage of the low cost of capital and lengthening the maturity of the company's borrowing. Repaying $1.83 billion of its bonds lowered earnings by $312 million in the quarter.

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