Tickers in this Article: ALL, TRV, BRK.A, BRK.B, PGR
Property and casualty insurance giant Allstate (NYSE: ALL) finished another difficult year when it reported fourth-quarter and full-year results last week. Fortunately for investors, the challenges were less severe than in 2008, but the company has some way to go to improve growth at its flagship insurance operations. (Learn more about insurance industry history; see The History Of Insurance In America).

IN PICTURES: 10 Insurance Tips For Homeowners

Fourth Quarter Highlights
Total revenue improved 22.7% to $8.06 billion despite a 2.3% decline in property-liability insurance premiums to $6.5 billion, as the combined ratio improved to 93.2. A ratio below 100 indicates that an insurance company is making an underwriting profit. It also indicates that Allstate was helped by a lack of major catastrophes and other events that would lead to claims in its flagship auto and homeowners insurance segments that compete with the likes of Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) Geico unit, Progressive Corp (NYSE: PGR) and Travelers (NYSE: TRV). Life and annuity premiums declined 1.2% to $498 million, but weak overall premium growth was easily offset by a huge improvement in the investment portfolio. Realized losses fell dramatically to negative $33 million after a negative $1.9 billion in last year's quarter. Net investment income fell 19% to $1.1 billion due to "lower yields and reduced average investment balances".

Total expenses fell 12.2% on overall cost controls and shifting fixed expenses to a more variable variety so they will fluctuate along with sales. This, combined with lower realized losses, served to send net income into positive territory at $518 million, or 96 cents diluted EPS.

Full Year Recap And Outlook
Results for the full year were similar to the Q4, as a slight decline in premiums to $28 billion and a double-digit fall in investment income to $4.4 billion paled in comparison to less severe realized losses. These came in at a negative $583 million after a loss of $5.1 billion in 2008. Costs fell 5.1%, and net income came in at $854 million, or $1.58 diluted EPS after a hefty loss of $3.06 last year.

For the coming year, analysts are projecting a 19.4% fall in revenue to $25.8 billion, as growth in insurance businesses should continue to be anemic and net investment income will likely struggle as interest rates remain low. However, investment losses should keep moderating. As such, consensus earnings for the coming year are around $4 per share.

Bottom Line
Allstate reported year-end book value of $30.84 per share, which was up sharply from $23.47 in 2008. Current book value is a couple of dollars higher when excluding several unrealized losses in the fixed income holdings. The current share price is slightly below $30, which means the stock is trading below book value. This is usually a solid entry point for investing in insurance stocks, though it would be nice to see premium growth resume sometime soon as future investment appeal will hinge on trends in the underlying insurance businesses. (Learn more about book value; see Digging Into Book Value).

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