Allstate CEO sells stocks, bets on corporate-debt

Allstate Corp., the largest publicly traded U.S. home and auto insurer, sold stocks in the first quarter as Chief Executive Officer Thomas Wilson bet corporate debt will provide higher returns.

"Our outlook for the economy is more of the same slow growth which would not imply high increases in equity prices," Wilson said yesterday in an interview after reporting a fourth straight quarterly profit for the Northbrook-based insurer. "It's about risk return. You look and you say, 'We think we can get a better risk-adjusted return in corporate credit.'"

Allstate's $100 billion portfolio is mostly comprised of municipal debt and corporate bonds, an asset class that returned 26 percent in 2009. The insurer cut about $1.5 billion of its stock holdings in the first quarter and held onto its corporate credit investments, Wilson said.

Corporate bonds returned 3.2 percent in the quarter, including reinvested interest, as companies beat analysts' earnings expectations, according to Bank of America Merrill Lynch's U.S. Corporate & High Yield Master index. The Standard & Poor's 500 Index increased 4.9 percent in the same period and gained 23 percent in 2009.

"Spreads continue to come in on corporate because there is so much cash floating around in the market," Wilson said.

Allstate also reduced real estate assets, commercial mortgage-backed securities and municipal debt in the first quarter, Wilson said. The insurer cut its real estate holdings by 30 percent and its municipal debt assets by 8 percent in 2009, according to the company's annual letter.

Credit Risk"If you don't like credit risk, you should not own our stock," Wilson said in an interview in August.The insurer held about $3.8 billion in equities and about $34.5 billion in corporate debt at fair value as of March 31, according to reports on its Web site. Allstate had $2.4 billion in stocks in March 31, 2009, and $5 billion at year-end. "Last year on equities, we hung in there and rode it up," Wilson said.Allstate has about $2.8 billion of limited partnership interests, which include private-equity and hedge-fund holdings. Realized capital losses on those assets narrowed to $21 million in the first quarter from $339 million in the year-earlier period.Allstate's first-quarter net income of $120 million, or 22 cents a share, compares with a loss of $274 million, or 51 cents, in the same period a year earlier."Their corporate bond bet has paid off, and there is much less risk compared to what we saw a year ago," said Meyer Shields, an analyst at Stifel Nicolaus Co., in an interview before results were released.Allstate has climbed 52 percent in the past 12 months through yesterday on the New York Stock Exchange. The shares were unchanged at $33.77 at 9:33 a.m. in composite trading.