Allstate Q2 profit plunges 98% on catastrophe losses; revenue drops 22% - Update

(RTTNews) - Faced with the highest level of second quarter catastrophe losses in its 77-year history, Allstate Corp. (ALL | Quote | Chart | News | PowerRating), a personal property and casualty insurance company, Wednesday reported a 98% drop in its second quarter profit, while revenues declined 22% from the previous year period.

The Northbrook, Illinois-based company said second quarter net income plunged to $25 million or $0.05 per share from $1.403 billion or $2.30 per share in the same period last year.

Operating income dropped to $683 million or $1.24 per share from $1.072 billion or $1.76 per share in the previous year. On average, 19 analysts polled by First Call/Thomson Financial expected earnings of $1.29 per share for the quarter.

The company noted that operating income was affected by $698 million in pre-tax catastrophe losses as well as the absence of favorable reserve re-estimates. In the year-ago period catastrophe losses were $433 million.

Net income of the latest period reflects the impact of realized after-tax capital losses of $788 million and lower operating income.

Consolidated revenues for the second-largest home and auto insurer declined to $7.4 billion from $9.5 billion reported in the second quarter of 2007. The Street estimated second quarter revenues of $8.80 billion.

Revenue from property-liability insurance premiums slipped 1% to $6.750 billion, while Life and annuity premiums and contract charges advanced 3.7% to $471 million. Net investment income dropped 13.6% to $1.412 billion from the year ago period.

Property-Liability premiums written declined 2.0% in the second quarter of 2008 to $6.803 billion. Combined ratio dropped 6.8 points to 94.4 from 87.6. The Property-Liability underlying combined ratio for the quarter, which excludes the effects of catastrophes and prior year reserve re-estimates, was 84.1, lower than the full-year outlook of 87.0 to 89.0 provided in January.

Allstate said its standard auto premiums written in the second quarter of 2008 were comparable to the prior year quarter, while homeowners premiums written declined 0.8% during the period.

For the first half of the year, net income plunged to $373 million or $0.67 per share from $2.898 billion or $4.71 per share in the previous year. Revenues decreased 17.5% to $15.505 billion from $18.786 billion.

Total investments at June 30, 2008 were $113.603 billion, while it was $118.98 billion at December 31 2007. Cash for the same periods was $748 million and $422 million, respectively.

Looking ahead, the company now expects its underlying combined ratio will be within 86.0-88.0 for the full year of 2008, an improvement from the full-year outlook of 87.0-89.0 provided in January.

On July 18, analysts at Credit Suisse reinitiated coverage of Allstate shares with an "Outperform" rating. The target price was set to $55.

Among others in the industry, Progressive Corp. (PGR | Quote | Chart | News | PowerRating), a provider of personal and commercial automobile insurance, on July 10 announced a 24% drop in second quarter profit, compared to last year. Net premiums written slipped 1%, while net premiums earned decreased 3%.

ALL closed Wednesday's regular trade at $46.17, up $0.56 or 1.23% from the previous close, on 7.02 million shares. The stock dropped 35 cents in the extended trade. For the past year, the stock trended in the range of $42.51-$59.23.

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