Allstate questioned by SEC over investment losses

Allstate Corp., the insurer suing Bank of America Corp. for selling faulty mortgages, was asked by its regulator last year why the company hadn't taken losses on some of its worst-performing investments in the property market.

“Please expand your disclosures to support your assessment” that more than $1 billion of paper losses will reverse on Allstate's securities backed by subprime and Alt-A mortgages, the U.S. Securities and Exchange Commission said in an April 21 letter that was released today.

Allstate has reported improved investment results since 2008, when writedowns helped push the Northbrook-based insurer to an annual loss of $1.68 billion. The company owned $8.5 billion of residential mortgage-backed securities at the end of September.

Allstate, the biggest publicly traded U.S. car and home insurer, told the SEC in an Oct. 28 letter that it added more information to its quarterly filing about valuing securities. The SEC said in a Dec. 13 letter that it completed the review and had “no further comments at this time.”

Maryellen Thielen, a spokeswoman for Allstate, had no immediate comment.

Allstate said in its December complaint against Bank of America and the lender's Countrywide subsidiary that it was duped into buying $700 million of securities made from loans that were “highly likely to default.” Investors are seeking refunds from Charlotte, North Carolina-based Bank of America and other lenders as home owners fail to meet payments. Banks have been accused of lending against overstated property values and inflated borrowers' incomes.

Bill Halldin, a spokesman for Bank of America, said in December that a review of Allstate's complaint was under way. It appeared “to be a situation where a sophisticated investor is looking for someone to blame” for losses, he said.