A decision to sell certain securities and a charge related to the sale of variable annuities nipped financial unit results at the Allstate Corp. during the second quarter.
Allstate, Northbrook, Ill., is reporting $1.2 billion in net income for the quarter on $8.9 billion in revenue, up from $1.1 billion in net income on $8.8 billion in revenue for the second quarter of 2005.
The Allstate Financial unit, which sells products such as annuities, is reporting $73 million in net income for the second quarter on $1.5 billion in revenue, down from $97 million in net income on $1.5 billion in revenue for the second quarter of 2005.
The unit used a reinsurance arrangement to sell a large variable unit to Prudential Financial Inc., Newark, N.J., during the quarter. That transaction increased Allstate’s statutory surplus by $361 million, but Allstate is reporting $23 million in costs related to the sale of the unit. Some of the costs are the result of adjustments to the value of derivatives used to hedge the final value of the ceding commission, Allstate says.
Allstate also is recording losses on some debt securities in its investment portfolio. The prices of those securities are down. If Allstate held the securities to maturity, it could hold off on “realizing” the losses. But Allstate says it is realizing the losses now because it has decided to sell the securities, to reallocate its portfolio and generate cash.