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This excerpt taken from the ALL 8-K filed May 7, 2009. ‘Focus to Win’ at Allstate Financial
The restructuring of Allstate Financial that includes cutting expenses, repositioning the cost structure and refocusing the business on high return growth opportunities, is on plan. While risk mitigation programs have benefited Allstate Financial’s investment portfolio, investment losses continued in the first quarter reflecting continued deterioration in the economy and investment markets. To further protect the portfolio, Allstate Financial is proactively reducing the risk of rising interest rates by shortening the duration of its fixed income investments despite the negative impact on earnings.
Allstate Financial’s operating income was $85 million in the first quarter of 2009, a $58 million decline from the first quarter of 2008. Allstate Financial’s benefit spread during the first quarter of 2009 increased 35.1% to $150 million from the prior year quarter of $111 million, driven by favorable life and immediate annuity mortality. However, the investment spread during the first quarter declined to $101 million versus $253 million
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in the first quarter of 2008, primarily because of the company’s ongoing efforts to maintain a strong liquidity position and reduce risks in its investment portfolio. Operating expenses rose to $121 million in the first quarter of 2009 from $118 million in the same period of 2008. Also included in operating income in the first quarter of 2009 was a restructuring charge of $18 million related to the Focus to Win program.
During the first quarter of 2009, Allstate completed its annual comprehensive review of interest-sensitive life, annuities and other investment products to determine amortization and balances of deferred policy acquisition costs (DAC) and deferred sales inducement costs (DSI). Based on that assessment, the company recorded a pre-tax charge of $322 million for accelerated amortization, principally the result of an increase in expected realized investment losses.
Lower operating income and after-tax net realized capital losses totaling $170 million, and DAC unlock contributed to a net loss for Allstate Financial of $327 million in the first quarter of 2009, compared to a net loss of $111 million for the same period in 2008.
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