Allstate 3Q Income More Than Doubles

Overall, the net income dollar figure was $691 million, compared to $248 million last year. Operating income rose to $638 million from $516 million for third-quarter 2002.

For just property-casualty business, third-quarter operating income rose 24 percent to $533 million.

Discussing the result during a conference call, Chairman and Chief Executive Officer Edward Liddy said, "This was another excellent quarter for us–one in which we continued to execute our strategy of getting better and bigger in property-casualty?and broader in financial services."

"Profitability was strong," pushing earnings per share up to 97 cents for the quarter, in spite of the fact that catastrophe losses in the quarter?including losses related to Hurricane Isabel?at $378 million, were four-times last year's third quarter. The above-expected level of CAT loses was the highest for Allstate since 1992, when Hurricane Andrew struck, he said.

Despite catastrophes, Allstate's core business had an 88.3 combined ratio?a 7.1 point improvement over last year, he said.

Mr. Liddy attributed favorable results for the core business to favorable loss cost trends. In particular, he said that the company had seen good frequency trends in standard auto and homeowners. Coupling those with consistent severity trends in auto, and improving homeowners severities, allowed the company to take favorable reserve actions on its continuing business during the quarter.

On discontinued business, the asbestos reserve charge had a 7.6 point impact on the combined ratio, bringing the overall p-c third-quarter combined ratio to 95.9, compared to 98.1 last year.

The asbestos charge also had a 29 cent negative impact on earnings per share, executives reported. While CAT losses took another 26 cents out of earnings per share, Allstate executives said that favorable core reserve developments had a 27 cent positive impact, and that underlying loss ratio improvements accounted for another 38 cents in the plus column.

Dan Hale, Allstate's chief financial officer gave more details on the asbestos charge, noting, first of all, that it came as part of a groundup analysis that is traditionally completed in the third quarter. He also said that overall, Allstate carried $1.1 billion asbestos reserves as of Sept. 30.

Noting that the $442 million pre-tax figure was a significantly larger increase than Allstate had taken in prior years, he said, the higher charge was the result of more claims being reported by excess policyholders with existing active claims and of new claims being reported in our assumed reinsurance business.

"We believe this trend ? related not only to increased publicity and awareness [and] increased bankruptcy actions, but also to concerns over federal asbestos reforms," he said.

The reserve strengthening takes Allstate's three-year average survival ratio (the ratio of reserves to payments) up to 23-times from a 12.5 year survival ratio previously.

During his remarks, Mr. Liddy also referred to Allstate's independent agency business?the Encompass book acquired from CNA in the late 1990s?saying that the business "came within a whisker of achieving an underwriting profit" and that it would have had 6 point improvement, if not for catastrophes.

With the expectation of an underwriting profit for that business in the fourth quarter, Mr. Liddy said the company "will explore opportunities for profitable growth in this channel" going forward.