Allstate Corp., the largest publicly traded U.S. auto and home insurer, sold about $300 million of private equity and real estate investments in the second quarter as values surged.
“We thought the market was pretty aggressive,” Chairman and Chief Executive Officer Tom Wilson said in a phone interview yesterday after the company announced earnings. “We didn’t think the future returns looked as good.”
Returns from the $4.3 billion in limited partnership investments have helped Allstate cushion the decline in yields on its fixed-income portfolio. Like other insurers, the Northbrook, Illinois-based company has faced years of lower reinvestment rates when its bonds matured, because the Federal Reserve has kept borrowing costs low to help stimulate the economy.
Now that the U.S. is rebounding, central bank policy makers are weighing when to lift interest rates. Rising yields could hurt the value of insurers’ bonds even as they give the companies the opportunity to deploy funds at higher rates.
Allstate began preparing for that shift by shortening the duration of its $62.6 billion fixed-income portfolio about 18 months ago, and added to its holdings of securities that mature in three to five years, Wilson said.
“We still feel good about that, and we’re sticking with where we’re at,” he said. “We don’t see any reason to draw down the yield curve right now.”
Allstate said yesterday that net income rose 41 percent to $614 million, or $1.39 a share as the company trimmed costs and increased the number of customers for its namesake brand of coverage. Operating profit, which excludes some investment results, was $1.01 a share, beating the 65-cent average estimate of 22 analysts surveyed by Bloomberg.
The insurer rose 2.7 percent to $58.45 at 4:02 p.m. in New York, extending its advance to 7.2 percent this year. That compares with the 2.6 percent decline since Dec. 31 in the 21- company Standard & Poor’s 500 Insurance Index.