"Allstate Financial’s results were solid and investment results were also strong in the quarter. Allstate Financial’s operating income increased 24.1% from the prior year third quarter to $134 million in the third quarter of 2011 reflecting improved margins and lower expenses. These improvements were partially offset by the managed reduction in the size of the fixed annuity business. Proactive risk and return strategies enabled us to maintain the portfolio yield, realize net capital gains and increase the absolute level of fixed income unrealized gains in the quarter.
"We completed the $1 billion share repurchase program in the third quarter, and the acquisition of Esurance and Answer Financial in early October," Wilson concluded.
Property-Liability Impacted by Catastrophe Losses, Underlying Profitability Within Guidance
Allstate’s Property-Liability combined ratio for the third quarter of 2011 was 104.8, reflecting the previously reported catastrophe losses of $1.1 billion, or 16.7 points. During the period, Allstate experienced 23 catastrophe loss events, including Hurricane Irene and Tropical Storm Lee. Excluding catastrophe losses and prior year reserve reestimates, the Property-Liability underlying combined ratio was 89.2 during the third quarter of 2011, consistent with the third quarter of 2010. Total Allstate brand policies in force declined as of September 30, 2011 compared to the prior year quarter driven by standard auto and homeowners declines, but were partly offset by growth in the Emerging Business lines and Canada.
Allstate brand standard auto premiums written* declined by 0.8% from the prior year third quarter as increased average premiums were offset by lower policies in force. Average gross premium increased 1.1% in the third quarter of 2011 compared to the third quarter of 2010, as rate increases were partially offset by reduced volumes in New York and Florida where average premiums are above the countrywide average. Policies in force declined during the quarter, consistent with the company’s expectation, as growth was balanced with a focus on maintaining auto profitability. New issued applications declined 13.2% in the quarter when compared to the prior year, while retention improved to 89.1 from 88.7 in the third quarter of last year. The Allstate brand standard auto combined ratio was 94.2, 1.0 points higher than the third quarter of 2010.
Allstate brand homeowners premiums written increased 1.5% in the third quarter of 2011 compared to the same period a year ago, as a 5.0% increase in average gross premium was partly offset by a 4.2% decline in policies in force. Rate increases averaging 13.9% were approved in 15 states during the third quarter, as Allstate continued to take actions to improve homeowners returns. Policies in force declined reflecting restrictions in new business and, to a lesser degree, the decision not to offer continuing coverage to some policyholders. The Allstate brand homeowners combined ratio was 131.9 for the third quarter of 2011 as catastrophe losses impacted the combined ratio by 55.8 points. Excluding the impact of catastrophes and prior year reserve reestimates, the Allstate brand homeowners underlying combined ratio was 73.3 in the third quarter of 2011, compared to 75.0 in the third quarter of 2010.
Allstate Financial Strategy Produces Improved Financial Results
Allstate Financial’s strategy of reducing concentration in, and improving the profitability of, investment spread products, expanding the sales of underwritten products through Allstate agencies and growing Allstate Benefits resulted in improved financial results. Operating income increased to $134 million in the third quarter, which was 24.1% above the third quarter of 2010.Net income increased to $183 million in the third quarter of 2011 compared to $85 million in the same quarter of 2010.
Allstate Financial premiums and contract charges were essentially flat to the prior year quarter as growth in underwritten products was offset by a decline in annuity sales. Premiums and contract charges on products sold through Allstate agencies were 5.3% higher than the prior year quarter. Deferred fixed annuity contractholder funds declined $4.0 billion, or 13.4%, as of September 30, 2011 compared to September 30, 2010, as surrenders and maturities outpaced new sales. Allstate Benefits’ premiums and contract charges were 2.7% higher than the third quarter of 2010.
Operating income was $26 million higher than the third quarter of 2010 as increases in the investment spread and lower expenses were only partly offset by declines in the benefit spread. The investment spread increased 11.8% to $142 million in the third quarter when compared to the prior year third quarter, as actions to improve investment portfolio yields and lower crediting rates on annuities and interest-sensitive life insurance more than offset the effect of a continued decline in spread-based business in force. The benefit spread decreased to $134 million in the third quarter from $141 million in the 2010 third quarter, due primarily to unfavorable mortality experience on annuities and life insurance, partly offset by higher profitability and growth at Allstate Benefits and higher contract charges on interest-sensitive life insurance. The improvement in net income was due to net realized capital gains in the third quarter, versus net realized capital losses in the third quarter of last year, and increased operating income.
Proactive Management of Investment Portfolio Maintains Yield and Return
Allstate’s proactive management of risk and return during the first nine months of 2011 was focused on enhancing yields and total risk adjusted returns. The fixed income yields were maintained, despite lower interest rates, by increasing corporate bond allocations, reducing investments in government securities and slightly lengthening duration. Interest rate derivative positions, which were used for overall risk management purposes in 2010, were also terminated in 2011. Additional actions to manage risk included reducing select exposures to municipal bonds and European Union banks and reallocating portions of below investment grade exposures from structured securities to high-yield corporate bonds.
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