Allstate To Step Up RM Efforts After $2.4 B Katrina Loss

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With its estimate of losses from Hurricane Katrina–$2.39 billionafter taxes–eclipsing any other U.S. insurer estimate to date,Allstate reported a $1.55 billion net loss for the thirdquarter.

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Outside the United States, Lloyd's previously put forth thehighest loss estimate for one insurance organization to date, $2.55billion. Within the United States, State Farm, with the largestmarket share in the region impacted by Katrina, has not announced adollar estimate of its losses.

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During a conference call today, Ed Liddy, chairman and chiefexecutive officer of Allstate, said that Hurricane Rita brought theoverall after-tax catastrophe loss total to just over $3billion.

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The catastrophe losses gave the Northbrook, Ill.-based insurer abottom-line net loss of $2.36 per share for the third quarter. Theresult essentially erased one-and-a-half quarters of earnings, Mr.Liddy said.

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For all of 2004, Allstate reported full-year net income ofroughly $3.2 billion. For the first nine months of this year, netincome is just $56 million, or 9 cents per share.

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Calling the third-quarter result "unacceptable," Mr. Liddy saidthat it hid what he views as progress in a catastrophe managementprogram that Allstate has been working on for a number ofyears.

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"If Katrina had been a Florida event, we would be talking abouta much, much, much smaller number," he said at one point inresponse to an analyst's question, attempting to underscore theprogress in that state.

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In the face of actual Katrina losses, however, he admitted, "Ourprogress wasn't fast enough or deep enough," noting that more wouldbe done "operationally and legislatively" in areas where Allstateis exposed to "historically unprecedented events" like Katrina.

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Tom Wilson, president and chief operating officer, listedseveral future operational actions, including reducing the size ofAllstate's property business in U.S. coastal counties by notwriting new business as renewals roll off the books. In Florida, hereported, Allstate is writing virtually no new business, whilecutbacks along the New York coastlines, for example, are in the25-to-30 percent range.

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"Reducing property exposure to major catastrophes continues tobe a top priority," he said, noting that Allstate has been workingvery aggressively at this for three years.

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In addition to cutting back coastal business and using riskmanagement tools to "surgically identify" those coastal risks thecompany can write, Mr. Wilson said the company is pushing for rateincreases appropriate for the risks it takes on, while activelypursuing external legislative solutions and stepping up reinsurancepurchases.

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On the legislative front, he said, Allstate would like to "see aseries of state funds to cover major catastrophes, backed up by afederal program that would enable consumers to have adequateprotection at the right price."

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"We're starting to get the attention of some legislators," hereported, noting, however, that the attention is at the"discussion" rather than the "action" phase.

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With respect to reinsurance, Mr. Wilson said that purchases haveincreased dramatically since 2002, but Allstate did not havereinsurance protection in Louisiana.

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