(Bloomberg) — Allstate Corp. is betting on timber and real estate to boost returns at a struggling annuity unit.
“We do need to figure out what we do with our annuity business,” Chief Executive Officer Tom Wilson, said at an investor presentation yesterday. “It's still not where we'd like it to be on a long-term basis, so we're investing a little differently there.”
Allstate, the largest publicly traded U.S. home-and-auto insurer, has been retreating from annuities as low interest rates weigh on results. The company agreed last year to divest a life-and-retirement operation called Lincoln Benefit Life Co., after selling its variable-annuity operation to Prudential Financial Inc. in 2006.
Wilson said Allstate has been harmed by reinvesting funds from maturing investments at lower interest rates. In annuities, insurers profit when investment returns exceed the promised payouts to policyholders. Allstate said in its annual report that investment returns on immediate fixed annuities exceed customer payouts by 0.9 percentage points. The company will benefit when rates eventually rise, Wilson said today.
“In the meantime, we're putting more money into alpha investments,” Wilson said. “We're investing in things like timber and some real estate.”
Allstate advanced 12% this year before today, beating the 7.6% gain of the Standard & Poor's 500 Index. The company has benefited from selling homeowners' coverage and car insurance, where results are less linked to interest rates. MetLife Inc., the largest U.S. life insurer, gained less than 1% this year through yesterday while No. 2 Prudential was down about 4%.
'Muted' Response
XL Group Plc and CNO Financial Group Inc. are among insurers that have made deals this year to exit obligations tied to life or retirement contracts as the companies work to narrow their focus. Randy Binner, an analyst at FBR Capital Markets, said in a note to clients today that such divestitures got a “muted” response from investors who focused on the loss of assets at the selling companies.
Allstate has no immediate plan to exit the annuity operation, “given that we're at the low point in the interest-rate cycle,” Wilson said. “When rates go up, we'll reinvest and that should increase margins.”
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
