Insurer Allstate expected to post 4th-quarter profit helped by investment improvements

Earnings Preview: Allstate to report 4Q results

CHARLOTTE, N.C. — Property and casualty insurer Allstate Corp. reports its fourth-quarter results after the stock market closes Wednesday.

WHAT TO WATCH FOR: Improvement in Allstate’s investment portfolio.

Last year, the second-largest personal lines insurer in the U.S. ended in the red as losses in its investment portfolio spiked amid the global financial crisis. Since then, a recovery in the credit markets has aided Allstate’s financial position, analysts say.

Analysts also will likely seek insight on the future of Allstate Financial, the company’s financial arm. A year ago, Allstate said it would eliminate about 1,000 positions in the unit over the next two years.

Catastrophe costs for the Northbrook, Ill.-based insurer should also be limited as the 2009 Atlantic hurricane season was the quietest in more than a decade.

“It appears unlikely that Allstate will either sell its life insurance subsidiary or buy another one to expand its footprint,” wrote FBR Capital Markets analyst Bijan Moazami in a recent note to clients.

WHY IT MATTERS: Overall, the company’s size gives it significant scale and cost advantages. Allstate is able to spread its fixed costs over a larger base, which helps allow it to price policies lower than its competitors.

Through its investment portfolio, Allstate has significant exposure to the commercial real estate market. Deterioration in this market may cause future write-downs or losses. However, Allstate has been “actively decreasing” its commercial real estate exposure, Moazami said. The company is doing this by waiving prepayment penalties, he said.

Allstate is restructuring its Allstate Financial segment to focus on margins and returns. While profitability is currently depressed, the business still holds some potential, Morningstar analyst Drew Woodbury said.

WHAT’S EXPECTED: Analysts polled by Thomson Reuters expect Allstate to post fourth-quarter earnings of $1.01 per share.

LAST YEAR’S QUARTER: Allstate reported a loss of $2.11 per share on revenue of $6.57 billion.