Not unlike the stock market, insurance is all about what you think will happen. If you're right, you make money. If you're wrong, you lose money. And it looks like Allstate's (NYSE:ALL) crystal ball is finely tuned these days.

Even granting that this huge property-casualty insurer got some benefit from a lower-than-normal level of catastrophe in the first quarter, earnings performance was exemplary, leaving the analyst estimates in the dust. Revenue rose more than 4%, as premiums written increased 2.2%, net income rose 26% (even more on a per-share basis), and operating income climbed over 14%.

Befitting a rather mild quarter in terms of weather events, the company saw improvement in its combined ratio. I think it's also noteworthy that the expense ratio part of the combined ratio showed a slight gain, once adjusted for a restructuring item. Looking at the underwriting income from the property-casualty business, you see nearly 27% growth -- and that's a very good result.

While the life insurance business didn't do so well -- operating income was down on flat revenue -- there was also some turbulence here this quarter. Namely, management decided to sell the variable annuity business to Prudential (NYSE:PRU) for about $580 million. Though this will reduce earnings a bit, I think it's a wise move on balance.

The trick with insurance companies (and their stocks) is that you're always waiting for the next piece of bad news. In Allstate's case, the company is getting praise for its efforts to minimize its future super-cat risk, but there's still worries about whether pricing and competition in the auto insurance business will stay rational. So far, at least, it's stayed saner for longer than most people expected.

Allstate has more than event risk to worry about. GEICO (part of Berkshire Hathaway (NYSE:BRK-A)) was recently attacked for the way it calculates some of its premium and coverage decisions. While I think the criticism is largely wrong-headed, the fact remains that Allstate does some of its calculations in the same way and might be similarly censured (though rival Progressive (NYSE:PGR) does not use the controversial approach).

If you put the high quality of Allstate's operations (and its above-average returns) on one side of a balance and the risks and valuation on the other, I think the scales tip in favor of this stock. Well-run companies should trade at higher levels, so Allstate's valuation still might have room to grow. What's more, these fundamental changes in underwriting policy might lead to more sustainable returns (fewer huge losses), and that's good for long-term value as well.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).