Catastrophes and declining investments led to a 194 percent loss in third quarter net income at Allstate Corp., but the company's chief executive said it could have been much worse if the company had not acted to mitigate losses.
Speaking during a financial analyst's call today, Thomas J. Wilson, president and chief executive officer for the Northbrook, Ill.-based insurer, said despite a well performing property-casualty book of business, the company suffered significant losses from what are expected to become two of the top 10 most expensive hurricane events.
He also noted the company has made significant adjustments to its investment book reducing holdings that are money losers.
For the third quarter of this year, Allstate reported income fell $1.9 billion for a net loss of $923 million translating into a loss per share of $1.71. Revenues were down 19 percent in the quarter compared to last year, or $1.7 billion, to $7.3 billion. The combined ratio in the quarter deteriorated 22.7 points to 112.6.
For the nine months, net income fell 114 percent, or $4.4 billion, from net income of $3.9 billion to income loss of $550 million, translating into a loss of income per share of $1. Revenues were down 18 percent, or $5 billion, to $22.8 billion. The nine month combined ratio was up 12.7 points to 100.3
Allstate reported that its operating loss of $190 million in the quarter can be contributed to 35 catastrophe losses amounting to $1.8 billion in pre-tax losses, which includes Hurricanes Ike and Gustav. Losses from Hurricane Ike are estimated to run $944 million and Gustav is expected to amount to $459 million for Allstate. Ike's losses include $325 million not related to Texas.
Mr. Wilson noted that without the catastrophe losses the property book would have performed at the same level as last year. He also noted that without loss mitigation initiatives, where the company either stopped writing new business in coastal areas or began pulling out completely, the company's losses would have been twice as bad.
On the investment side, Allstate said its investment portfolio declined $8.6 billion reflecting reduced market valuations of $4.6 billion and net sales of $3.8 billion to fund net reductions in liabilities.
Company executives said during the conference call that they feel the company has plenty of liquidity.
According to the financial information the company released, it has more than $5 billion in cash or short term positions that it can convert to cash. It has over $11 billion in highly liquid investments and another $16.6 billion in other liquid investments consisting of bonds and securities.
Allstate said it has $1.7 billion or almost 2 percent of its investment portfolio exposed to financial institutions that have run into financial difficulty of late including American International Group, a number of investment banks exposed to the sub-prime mortgage crisis, and Fannie Mae and Freddie Mac.
After Allstate's earnings release, Standard & Poor's said it revised the outlook for the company from stable to negative. The company's "A-plus" counterparty credit rating and its "double-A" rating for counterparty credit and financial strength on Allstate Protection and Allstate Financial were affirmed.
"The negative outlook reflects the significant deterioration in capital adequacy to the strong from very strong," said Neil Stein, an S&P analyst in a statement. "This resulted from a combination of sizable catastrophe losses and realized investment losses, investment losses at Allstate Financial, and a somewhat aggressive share-repurchase and dividend strategy."
The company said it has stopped repurchasing shares at the moment.
A.M. Best Co. late in the day affirmed the financial strength rating on Allstate Insurance Group and its members of "A-plus Superior)" and downgraded the issuer credit ratings to "double-a-minus" from "double-a". It took other action including affirming the "A-plus (Superior)" financial strength rating on the primary life/health companies of Allstate Financial.
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