Allstate falls after 98% profit drop on tornadoes, investments

Allstate Corp., the largest publicly traded U.S. home and auto insurer, fells 4 percent in early trading after second-quarter profit dropped on $1.22 billion in investment losses and a record number of tornadoes.

Second-quarter net income declined 98 percent to $25 million, the Northbrook-based insurer said in a statement yesterday. Profit excluding investment losses was $1.24 a share, missing by six cents the average estimate of 20 analysts surveyed by Bloomberg.

Allstate fell $1.83 to $44.34 at 8:26 a.m. in New York. The insurer said catastrophe costs rose 61 percent to $698 million after an estimated 1,164 tornadoes struck the U.S. in the quarter, the most since the National Weather Service began counting them in 1950.

"In the first quarter there were a bunch of tornadoes, and then in the second quarter, there were a whole bunch more," Chief Executive Officer Tom Wilson said in an interview yesterday. "Volatile weather continues to impact our business"

Allstate's investment losses include a $1.09 billion charge on the declining value of securities the insurer designated for possible sale.

"We might not hold those securities to maturity, given the risk we see in the marketplace and the potential to earn greater returns in other places," Wilson said.

The investment loss also included $250 million of writedowns, primarily because of a decline in the value of holdings tied to residential mortgages. The loss was cushioned by gains of about $123 million on derivatives. The largest insurers in the U.S. and Bermuda have recorded more than $77 billion in writedowns in the five quarters ended March 31.

(To hear Allstate's second-quarter conference call today at 9 a.m. New York time, visit LIVE.)

--Editor: Dan Kraut

To contact the reporter on this story: Erik Holm in New York at +1-212-617-8755 or eholm2bloomberg.net.

To contact the editor responsible for this story: Rick Green at +1-212-617-5804 or rgreen18bloomberg.net.