The Basics of Allstate

By Amanda Alix | September 14, 2012

For well-nigh 20 years now, the Motley Fool has been here to help you invest better and smarter, using spot-on analysis and a razor-sharp wit. To celebrate Worldwide Invest Better Day on September 25, we are taking some time to get back to the basics -- of investing, that is. In that spirit, I have rounded up some sweet financial sector stocks that have been showing some real sparkle and promise lately.

Without further ado, let me introduce you to the focus of this particular article: Allstate Insurance, contained within holding company Allstate Corporation (NYSE - ALL).

Fulfilled a need for low-cost insurance

Allstate Insurance was created in 1931 by Sears, Roebuck & Co., and named after a line of car tires sold by the retailer. The company was a wholly owned subsidiary of Sears Holdings (NYSE - SHLD) even as it went public in 1993, but it became independent two years later when Sears spun off its interest in the company to stockholders.

Allstate and a handful of other property and casualty insurers such as Travelers (NYSE - TRV), and Cincinnati Financial (NYSE - CINF) have been on a tear for the past year as investors run up share prices into new highs. Allstate's recent Q2 report was notable on many levels, but particularly in the fact that the company's property-liability ratio improved substantially, meaning that more of the money taken in as premiums was retained.

The latter is important since it shows that Allstate was able to dodge large payout bullets, despite damaging storms earlier this year. The destructive hailstorm in Texas in June was expected to be trouble for property insurers, yet the company was able to report that its losses were only about one-third of those paid out at the same time last year.

The sunnier picture is also because Allstate has raised homeowner premiums this year and has written more policies than at the same time last year. Other insurers have raised premiums, too, particularly as low interest rates sap the income these companies traditionally make from investments. Travelers announced that it has successfully raised premiums on business accounts, with the most recent being the largest hike instituted in the past few years. Cincinnati Financial credits increased premium prices for its higher revenue numbers, as well.

Along with the stronger financial picture comes a sweet little increase of a different sort: Allstate bumped up its dividend this year by a penny per share over that of 2011.

One Fool's take

Though no property insurer can predict payout claims for the future, Allstate seems to have figured out that, in these low-return times, increasing premiums and writing more business is the way to survive -- and thrive. With the Fed's QE3 program now a reality that will surely drive long-term rates even lower, this mindset is more important than ever.