Funding Agreements Help Allstate Results

By Allison Bell

April 21, 2004 at 08:00 PM

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NU Online News Service, April 21, 2004, 5:33 p.m. EDT – Sales of funding agreements helped The Allstate Corp., Northbrook, Ill., improve its first-quarter profits.[@@]

The multiline insurer is reporting $949 million in net income for the quarter on $8.3 billion in revenue, up from $665 million in net income on $7.9 billion in revenue for the first quarter of 2003.

Allstate Financial, a company unit that sells life insurance, annuities and institutional investment products, generated $132 million in operating income on $1.3 billion in revenue, up from $82 million in operating income on $1.4 billion in revenue. Despite the decrease in revenue, premiums and deposits increased 38%, to $3.5 billion.

Operating results for Allstate Financial exclude a $175 million charge for a change in accounting rules. Because of the charge, the unit is reporting a $73 million net loss for the first quarter, compared with $50 million in net income for the comparable quarter in 2003.

Premiums and deposits increased more than 15% for variable annuities, fixed annuities and interest-sensitive life insurance policies, but the gain for funding agreements was much bigger. FA premiums and deposits soared to $1.1 billion, from $235 million.

The funding agreements are contracts that call for an insurer to pay institutional investors a specified fixed or floating rate of return. Allstate says the funding agreements it sold during the first quarter are backing medium-term notes.

Institutional investors see funding agreements as stable-value investments that offer a relatively high rate of return, according to a report on the subject that Moody's Investors Service, New York, published in October 2000.

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