Allstate Posts Profit Despite Record Cat Losses

NU Online News Service, Aug. 6, 3:03 p.m. EDT

Allstate Corp. reported second quarter net income soared to $389 million, compared with $25 million for the period last year, despite record catastrophe losses.

At the same time the Northbrook, Ill.-based insurer said it is trimming its expectations to grow its independent agent business.

The reported net income increased by $364 million primarily on the strength of improvements in its investment portfolio. The results translated into an increase of earnings per share from 5-cents last year to 72-cents a share. Revenues increased 14.5 percent, or $1.07 billion, to $8.5 billion in the quarter.

For the six months, net income was down 69 percent, or $258 million, to $115 million, or 21-cents a share. Revenues rose 6 percent, or $868 million, to $16.4 billion.

Catastrophe losses rose 17 percent, or $120 million, to a record $818 million in the second quarter, Allstate said. For the first six months of the year, catastrophe losses rose 5 percent, or $68 million, to $1.33 billion.

During a conference call with investment analysts today, Thomas J. Wilson, chairman, president and chief executive officer, called the results a "good quarter" saying the company has "made money and strengthened our capital position; our customer loyalty results improved overall and relative to the industry, which should lead to more referrals and better retention in the long term. Our reinvention efforts are to continue as we pursue new ways to satisfy customer's needs for both protection and retirement."

The company strengthened its financial position by raising more than $1 billion in the financial markets late last year and avoiding any request for government rescue funds.

Catastrophe losses were reflected in an overall combined ratio of 100, up from 94.4 for the same period last year. The company said losses were primarily in the homeowners market where the insurer is seeing unusually high impacts from weather related claims.

Executives said that they are addressing this issue by reducing exposures and raising rates primarily in middle-America.

George E. Ruebenson, president of Allstate Protection, said they have had a staff meteorologist examine weather patterns and found no meteorological reasons for the increase in catastrophe losses, the performance is "not acceptable" and the company is taking rate increases.

The company noted it has received approval for rate increases averaging more than 13 percent in 16 states during the quarter. Executives said they expect more increases to follow throughout the country.

In an answer to a question about the drop in premium written at its independent agent division (Encompass), Mr. Ruebenson explained that while the unit showed significant growth last year, the business it received "was not the quality we wanted."

"We are diminishing our prospects for growth right now [at Encompass]," he said.

Encompass combined ratio deteriorated by 2.3 points to 101, while Allstate brand combined ratio rose 5.9 points to 99.9 according to its Securities and Exchange filing. Most of Encompass' loss ratio was in the non-standard auto at 85.7 followed by homeowners at 76.3. Allstate brand's loss ratio was primarily in homeowners segment at 95.1 followed by other personal lines at 72.5.

Mr. Ruebenson said the company has dropped producers and strengthened its underwriting standards to get the necessary rate, accounting for the loss in premium.