New York ( TheStreet) - Allstate ( ALL) reported disappointing results through September primarily driven by poor performing investments and has started trimming agencies to compensate for losses. Investors will be expecting to see a positive earnings report for the fourth quarter reflecting these moves or it will be under further pressure from shareholders.

Poor investment returns and pressure on policy income have put pressure on the company. It was overlooked earlier in 2009, in favor of Travelers ( TRV), when the DOW was looking for a replacement for Citigroup ( C).

The third quarter results included a $552 million loss on securities one quarter after reporting a $365 million gain. With $54.7 billion in invested assets in its life and annuity business, it shrank 5.4% from the first quarter. Bonds grew 4% as a percentage of the portfolio. The net yield underperformance by 42 basis points, compared to the life industry, continues the poor track record. Complaints about CEO Tom Wilson's business strategy have been heard from Allstate agents.

The Chicago Tribune reported on Sunday that Allstate could shed 20% of its agents in the coming years. It appears that the 2008 loss of market share is even being laid at the door of profitable agents. The third quarter of 2009 saw a drop of 2.2% in net premiums written compared to the prior year. Questions have been asked about why a company would get rid of profitable agencies, even suggestions that it is "stupid".

Pressure is growing on Allstate from several quarters. The American Federation of State, County and Municipal Employees pension fund is reported by SNL Financial to be targeting Allstate, among other companies, to address accountability and transparency issues. Allstate is on the list of firms potentially subject to the Obama bank tax.

Additionally, the property and casualty market is softening. SNL projected that industry results for the fourth quarter will show premium income down and with better efficiency, profitability up. Allstate is estimated to have the largest net premiums earned, but its profitability after expenses is expected to be close to Travelers.

Investors might look out for the mortgage-backed securities investments when the fourth quarter is reported. $13.3 billion of MBS and ABS were held at the end of the third quarter. With commercial real estate still under pressure, and the retail market in flux this is still a substantial position, even though it is down 43% since the 2008 year end.

Of the thirteen insurers with a market cap above $10 billion, Allstate's stock has a high P/E ratio of 18.3 versus the average of 9.4. Chubb ( CB), for example, has a P/E of 6.2. Despite this, Allstate's price-to-book value of 92.7% is comparable to the average of 91.4% for all insurers but low compared to 129% for the largest insurers. This suggests that it is poor performance rather than a fundamental overvaluation of the stock holding prices down.

The stock offers a 2.7% yield and a price 20% below the analyst consensus target. If the company could improve its results it could provide the patient investor with a handsome reward. After the less-than-stellar appreciation of 27% over 12 months it is long overdue.

Don't look for short sellers, they are not there and this is not a stock to short. Even as the book value per share continues to improve, it is still 16% below the 2007 year end. Another poor performance could see added pressure on Tom Wilson. Allstate reports earnings on February 10.

Reported by Gavin Magor in Jupiter, Fla.

Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.

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