(Adds comments from CEO, in second paragraph, and information on premiums, beginning in eighth paragraph.)

By Lavonne Kuykendall and Kathy Shwiff Of DOW JONES NEWSWIRES

Allstate Corp. (ALL) swung to a third-quarter profit as it benefited from far smaller catastrophe and investment losses than a year earlier.

With the issue of Allstate's financial strength "rapidly fading into the past," the company is focusing on keeping current customers and attracting new ones in a competitive insurance market, said Thomas Wilson, Allstate's chairman and chief executive, in a Wednesday interview. "I would like to see sustainable growth; that is what we are working on."

Shares dropped 2.1% to $29.00 after the insurance giant reported earnings slightly below expectations. The stock has more than doubled from a 14-year low in March but is still down 11% from its 52-week high in January.

For the latest quarter, Allstate reported a profit of $221 million, or 41 cents a share, compared with a year-earlier loss of $923 million, or $1.70 a share. Operating earnings, which exclude investment gains and losses, were 99 cents in the latest quarter, while the prior year had a 35-cent loss.

Revenue rose 3.6% to $7.58 billion.

Analysts estimated operating earnings of $1.01 on revenue of $8.5 billion, according to a poll by Thomson Reuters.

Property and casualty insurers have benefited from a mild hurricane season and rallying stock markets, though they have had trouble raising rates.

Allstate's homeowners and auto insurance premiums were about flat with the year-ago quarter, as policies in force dropped 1.3% in auto and 4.1% for homeowners.

In its auto business, part of the drop was due to fewer policies available to renew, while customer retention improved.

Premiums and deposits fell 45.5% for Allstate Financial. The unit, which sells life insurance and retirement products, raised prices on some products to improve returns.

Allstate, the nation's largest publicly held personal-lines insurer, continued to see its investments improve after earlier this year suffering more than many insurers from losses on mortgage-related securities.

Catastrophe losses sank 78% from $1.82 billion a year earlier because of Hurricanes Gustav and Ike.

The property and liability segment's combined ratio, the percentage of each dollar the company collects in premiums against what it pays out on losses and expenses, improved to 94.7% from 112.7%. A combined ratio of more than 100% represents an underwriting loss.

Auto premiums were flat, while homeowners' premiums declined 0.2%. The loss in Allstate's financial services division narrowed substantially.

Allstate's investment portfolio rose $4.2 billion during the quarter to $100.6 billion.

- By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141; lavonne.kuykendall@dowjones.com

(Kathy Shwiff contributed to this article.)

(END) Dow Jones Newswires

11-04-09 1847ET