Allstate quarterly profit slips 63 percent on derivatives

Allstate Corp., the largest publicly traded U.S. home and auto insurer, posted its first profit decline in five quarters on losses tied to derivatives.

Second-quarter net income fell to $145 million, or 27 cents a share, from $389 million, or 72 cents, in the year-earlier period, the Northbrook-based insurer said today in a statement. Operating income, which excludes some investment results, was 81 cents a share, beating the 69-cent average estimate of 20 analysts surveyed by Bloomberg.

The net realized capital loss for the second quarter was $451 million compared with a gain of $328 million in the same period a year earlier. Losses from derivatives were the result of interest-rate and equity-market declines, according to the statement. Derivatives are instruments whose value are based on and determined by the worth of another security.

"There's always volatility on the investments, and there's pressure on that right now," said Cliff Gallant, a New York- based analyst at KBW Inc., before earnings were released. "We're seeing lower investment yields because interest rates are lower."

Allstate, led by Chief Executive Officer Thomas Wilson, is seeking to add to market share and increase customer retention after losing clients last year. He has reshaped Allstate's $100 billion investment portfolio since 2008 when the company posted a $1.7 billion loss, cutting back on stocks, municipal debt and commercial mortgage-backed securities while acquiring corporate bonds.

Allstate rose 59 cents to $29.20 as of 4:33 p.m. in extended trading. It has declined 4.8 percent this year in New York Stock Exchange trading while the Standard & Poor's 500 Index rose 1 percent.