Summary
The Allstate Corporation reported a strong second quarter and first half of 2007, with net income rising 16.2% and 10.5% respectively, leading to diluted earnings per share of $2.30 and $4.71 for the periods. This performance was bolstered by a significant increase in realized capital gains, which offset a slight decrease in property-liability earned premiums. The company's Allstate Financial segment also showed substantial improvement in net income, driven partly by the favorable comparison to the prior year's variable annuity business disposition. Allstate continued its aggressive share repurchase program, funded in part by a recent $1 billion issuance of junior subordinated debentures.
Key Highlights
- 1Net income increased by 16.2% to $1.40 billion in Q2 2007 and by 10.5% to $2.90 billion in the first half of 2007.
- 2Diluted EPS grew to $2.30 in Q2 2007 and $4.71 in the first half of 2007.
- 3Total revenues increased by 6.5% to $9.46 billion in Q2 2007 and by 4.6% to $18.79 billion in the first half of 2007.
- 4Realized capital gains on a pre-tax basis were $545 million in Q2 2007 compared to losses of $48 million in Q2 2006.
- 5Allstate Financial segment's net income increased significantly by $127 million in Q2 2007 and $183 million in the first half of 2007.
- 6The company repurchased $1.50 billion of its stock in Q2 2007 and has $1.59 billion remaining under its $4.00 billion share repurchase program.
- 7Property-Liability premiums earned saw a slight decrease of 0.6% in Q2 2007 and 0.8% in the first half of 2007.
Frequently Asked Questions
The primary driver of the increase in net income was a significant increase in realized capital gains on investments, which more than offset a slight decline in property-liability earned premiums and provided a substantial boost to overall profitability. Improved performance in the Allstate Financial segment also contributed positively.
Allstate significantly expanded its share repurchase program from $3.00 billion to $4.00 billion in May 2007, funded in part by a $1.00 billion issuance of junior subordinated debentures. The company repurchased $1.50 billion of stock in the second quarter, including an accelerated stock repurchase agreement, and had $1.59 billion remaining under the program as of June 30, 2007.
Property-liability premiums earned slightly decreased in both the second quarter and the first half of 2007 compared to the prior year. The combined ratio for the Property-Liability segment increased to 87.6 in Q2 2007 from 82.5 in Q2 2006, primarily due to higher catastrophe losses and increased costs associated with the catastrophe reinsurance program.
Allstate expects to receive all payments on its sub-prime RMBS and Alt-A mortgage-backed securities portfolio in accordance with contractual terms, based on its analysis of the securities' seniority and collateral. While the company acknowledges potential risks and continuously monitors its portfolio, it currently does not anticipate significant downgrades and believes existing unrealized losses are temporary.