Allstate Quarterly Profits Dip 52 Percent

By Daniel Hays

NU Online News Service, Feb.6, 4:02 p.m.EST?Allstate executives said today they expect thatincreased price levels for their products will pull them out of aprofits slump that saw their fourth quarter net income drop by 52percent.

The Northbrook, Ill.-based insurer said net income for theperiod ending Dec. 31, 2001 was $264 million or 37 cents per share,compared with the 2000 fourth quarter result of $547 million or 74cents a share.

Allstate's unsatisfactory results were attributed to a $59million reserve for the settlement of a class action suit on behalfof auto policyholders in Georgia, and the surge of mold damageclaims in Texas.

During a conference call for investors, Allstate Chief ExecutiveOfficer Edward M. Liddy and Robert Block, vice president forinvestor relations, said they expect operating profits to hit $2.50to $2.70 per share.

Mr. Block said that company earning trends are moving in theright direction. However, Mr. Liddy noted that increases inhomeowners rates would not be reflected in the bottom line for sometime because policies would run for 12 months at existing ratesbefore they come up for renewal at the higher price.

Asked if there was a concern that raising rates might be chokingvolume growth, Mr. Liddy said the company would monitor carefullyfor any such impact, "but our focus now is on maintaining andimproving profitability."

He said the company had stabilized the mold damage claim issuein Texas with a new policy form "that greatly limits mold cover"and includes language to indicate that coverage for damage relatedto water is limited to a "sudden and accidental" event.

He noted that the Georgia ruling was contrary to the law in moststates. Courts in Georgia ruled that insurers must not only payclaims for the repair cost of a damaged vehicle, but for the auto'sloss in value as well.

On another legal front, Mr. Liddy said the company has notreserved for an Equal Employment Opportunity Commission lawsuit,which accuses the company of an age-biased restructuring of itsemployment system.

He said the company acted legally and the position of the agentswho brought the complaint is legally very difficult to prove.Allstate converted 6,400 employee-agents into independentcontractors. Agents contend the move was aimed at eliminating olderagents closer to receiving pension benefits.

Mr. Liddy, when asked if the company would be interested inacquisitions of other property-casualty insurers in the future,said, "I don't know we'd be interested right now."

He said Allstate is still at work restructuring its Encompassunit, formerly CNA Personal Insurance, which the firm bought in1999. "We don't feel the need to add to the muscle we alreadyhave," he said.

Allstate said it has seen a slight increase in auto claimsduring the quarter and have accounted for it with increased rateactivity and targeted underwriting in specific states. Mr. Liddysaid that one cause of the frequency increase might be that withlower gas prices, motorists are increasing the number of miles theyare driving.