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Alexis Prousis/MEDILL

Allstate's third-quarter net income fell due to the sale of Lincoln Benefit Life Company in July.

Allstate third quarter profit not a catastrophe despite 57 percent drop

by Alexis Prousis
Oct 31, 2013

Allstate Corp. said third-quarter profit declined 57 percent as the company took a loss on the sale of its life insurance business, but results exceeded Wall Street estimates.

Net earnings fell 57 percent to $310 million, or 66 cents per diluted share, in the quarter ended Sept. 30, compared with $723 million, or $1.48 per diluted share, in the year-ago period.

Sales of the Northbrook-based insurance company increased 4 percent to $8.46 billion from $8.13 billion in the year-ago period.

Allstate said the decline in profit was driven mainly by the almost $475 million after-tax loss on the $600-million sale of Lincoln Benefit Life Company to Resolution Life Holdings, Inc. in the second quarter.

“We expect this transaction to close early in the first quarter of 2014,” said Steven E. Shebik, chief financial officer of Allstate Insurance Corp, in a conference call. “After closing we’ll have lower financial risk and additional capital of $1 billion.”

Excluding the sale, Allstate’s profit was $1.53 per share, beating the analysts’ consensus estimate of $1.44 per share, according to Bloomberg LP.

Higher premiums, benefits made to the retirement program and the lowest third-quarter catastrophe losses since 2002, all contributed to the increase in operating profit.

“The Allstate brand continues to generate solid profitability as the positive effects of rate changes and low catastrophe losses more than offset the modest increases in lost cost,” Shebik said.

Property-liability net premiums rose 4.1 percent within the Allstate brands from the year-ago period to $6.97 billion due to growth in auto, homeowners and investments.

“The biggest positive from the quarter was acceleration in auto policies, which increased 0.4 percent year-over year,” Adam Klauber, an analyst for William Blair & Company, wrote in a research note. “Policies in force for standard auto had been in decline for several years, decreasing by 2 percent last year, so this is a fairly drastic turnaround.”

Allstate’s auto profitability was in large part due to Esurance, the company’s online auto insurer, and Encompass, which offers in-person local advice to clients.

Esurance written premiums rose 27 percent while the number of new policies increased 3 percent in the quarter, compared with the third quarter of 2012. Encompass written premiums grew 10.8 percent and the number of new policies increased 7.2 percent from the year-ago period.

For the nine months ended Sept. 30, net income fell 24 percent to $1.45 billion, or $3.07 per diluted share, compared with $1.9 billion, or $3.86 per diluted share, in the year-ago period. Revenue rose 3.8 percent to $25.7 billion from $24.77 billion a year ago.

Shares of Allstate rose 10 cents to $53.06 at Thursday’s close.