By Cara Lombardo and Leslie Scism

Carl Icahn holds a roughly $400 million stake in Allstate Corp. and supports the insurer's moves to cut costs and sell more products directly to consumers, according to people familiar with the matter.

The stake amounts to about 1% of Northbrook, Ill.-based Allstate, which has a market value of roughly $40.5 billion.

The billionaire activist bought the position when Allstate's shares were trading around $90 each last year, the people said. Mr. Icahn's team concluded Allstate's share price was significantly undervalued compared to that of rival Progressive Corp., they said.

Mr. Icahn, known for his raucous activist campaigns, has been uncharacteristically quiet at Allstate because the company was already undertaking the changes he had envisioned. It hasn't hurt that the shares closed Tuesday at around $135, buoyed by a cost-cutting plan.

In September, Allstate said it was laying off 3,800 employees in claims, sales and support roles, part of its goal to reduce costs and further improve profit margins. The layoffs represent about 8% of the insurer's approximately 46,000 workers.

Since late 2019, Allstate has been pursuing a growth plan intended to lower customer premiums and increase technology investment. The company has said its goal is to increase market share in property-liability insurance with sales online or through agents, whichever customers choose.

Allstate posted strong first-quarter operating results, though it had a net loss tied to previously announced agreements to sell a pair of life and annuity insurers. It told investors that its "Transformative Growth" plan, as it is known, was progressing, with higher new-business sales driven by the direct channel.

Allstate's profit has surged in recent quarters, helped by the Covid-19 pandemic. It is one of many U.S. car insurers to benefit from fewer vehicle accidents after miles driven fell sharply due to stay-at-home directives and business shutdowns. Now, traffic volumes are increasing, and insurers are trying to figure out what continuing work-from-home arrangements will mean for traditional rush hour, when many fender-benders occur.

Allstate had irked some of its shareholders in recent years by spending on acquisitions rather than maintaining a primary focus on keeping costs down and pivoting to a direct-to-consumer model as Progressive and others had done years before.

In January, Allstate closed on its $4 billion acquisition of National General Holdings Corp., expanding its reach in the personal-property-liability business and adding relationships with more than 42,000 independent agents across the U.S.

While many insurance companies have increasingly steered away from armies of agents as consumers buy all types of products online, the deal reflects Allstate's view of a continued role for middlemen.

Mr. Icahn has experience with insurance. His firm disclosed a stake in American International Group Inc. in the fall of 2015 and called for the firing of the chief executive at the time, before reaching an agreement for a board seat.

Mr. Icahn called for a breakup of AIG, a global insurance conglomerate, into separate property-casualty and life-insurance companies as a way to boost shareholder returns. The CEO left, but a new one supported by Mr. Icahn didn't go along with the breakup at the time, though the insurer last year began moving toward such a split.

Write to Cara Lombardo at cara.lombardo@wsj.com and Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

05-26-21 1518ET