Allstate posts lower investment returns

US insurer Allstate posted a $127 million drop in net investment income in the first quarter primarily due to lower returns from limited partnership (LP) interests and higher expenses.

Investment income at the end of March stood at $786 million, down from $913 million at end-2017 and the lowest since the first quarter of last year, when it equalled $748 million.

Income attributable to LP interests and alternative investments plummeted $109 million quarter-on-quarter. Equity investments and interest-bearing instruments returned $10 million and $1 million less, respectively.

Allstate has pared down its fixed income investments in recent quarters, with debt accounting for 71% of its total portfolio in March 2018, down from 75% the year before. Equity investments’ share has risen from 7.25% to 8.75% over the same period, LPs from 7.6% to 9.3%.

Who said what

“We have increased the portfolio's equity allocation in response to historically low market yields and to utilize available risk capacity” – Mario Rizzo, chief financial officer at Allstate.

Why it matters

The CFO may have highlighted the increase in equity allocations, but the larger increase in allocations over the year is to alternative investments, including LPs. The timing of the liquidation of some of these partnerships adds volatility to the firm’s quarterly investment income. However, they can also provide outsize returns, which can help the insurer meet outsize insurance liabilities when they occur.

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Are increased allocations to LPs and alternatives a growing trend among US insurers? Let us know by emailing [e-mail] or tweet at @LouieWoodall or @RiskQuantum.

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