Allstate's unsatisfactory results were attributed to a $59 million reserve for the settlement of a class action suit on behalf of auto policyholders in Georgia, and the surge of mold damage claims in Texas.

During a conference call for investors, Allstate Chief Executive Officer Edward M. Liddy and Robert Block, vice president for investor relations, said they expect operating profits to hit $2.50 to $2.70 per share.

Mr. Block said that company earning trends are moving in the right direction. However, Mr. Liddy noted that increases in homeowners rates would not be reflected in the bottom line for some time because policies would run for 12 months at existing rates before they come up for renewal at the higher price.

Asked if there was a concern that raising rates might be choking volume growth, Mr. Liddy said the company would monitor carefully for any such impact, "but our focus now is on maintaining and improving profitability."

He said the company had stabilized the mold damage claim issue in Texas with a new policy form "that greatly limits mold cover" and includes language to indicate that coverage for damage related to water is limited to a "sudden and accidental" event.

He noted that the Georgia ruling was contrary to the law in most states. Courts in Georgia ruled that insurers must not only pay claims for the repair cost of a damaged vehicle, but for the auto's loss in value as well.

On another legal front, Mr. Liddy said the company has not reserved for an Equal Employment Opportunity Commission lawsuit, which accuses the company of an age-biased restructuring of its employment system.

He said the company acted legally and the position of the agents who brought the complaint is legally very difficult to prove. Allstate converted 6,400 employee-agents into independent contractors. Agents contend the move was aimed at eliminating older agents closer to receiving pension benefits.

Mr. Liddy, when asked if the company would be interested in acquisitions of other property-casualty insurers in the future, said, "I don't know we'd be interested right now."

He said Allstate is still at work restructuring its Encompass unit, formerly CNA Personal Insurance, which the firm bought in 1999. "We don't feel the need to add to the muscle we already have," he said.

Allstate said it has seen a slight increase in auto claims during the quarter and have accounted for it with increased rate activity and targeted underwriting in specific states. Mr. Liddy said that one cause of the frequency increase might be that with lower gas prices, motorists are increasing the number of miles they are driving.