NU Online News Service, Oct. 29, 3:08 p.m. EDT
Allstate Insurance Corp. reported a 16 percent decline in operating earnings in the third quarter of 2010 compared to a year ago because of the costs associated with settling a class action lawsuit, the company said yesterday.
Results at its auto insurance operation, its larger unit, also declined, another factor in the lower operating results.
Homeowners' insurance income, however, "remained a source of financial strength for the company," the company said, although the combined ratio rose 6.4 points to 104.7 due to a higher expense ratio and increased claim frequencies.
The combined ratio for the overall company stands at 95.9, up 1.2 points, as the company experienced catastrophe losses totaling $386 million during the third quarter reflecting 29 events.
Overall earnings were higher, however, due to a decline in investment losses compared to a year ago.
Operating earnings were $452 million, or 83 cents a share, a drop of $86 million from the same period a year ago.
Analysts surveyed by Thomson Reuters expected an operating profit of 98 cents a share.
Overall third quarter net income was $367 million, or 68 cents per diluted share. This compared to net income of $221 million, or 41 cents a share, for the same period last year.
The lower operating earnings reflected $79 million set-aside to settle a class-action lawsuit.
The lawsuit dealt with claims that Allstate has not settled with general contractors who oversaw construction work on Allstate customers' damaged homes. According to a regulatory filing, the case has not been settled, but Allstate's settlement offer "appears acceptable to the plaintiffs."
Problems at the auto-insurance business also contributed to the decline in operating earnings, according Allstate.
The company said that underwriting income in the auto unit dropped 9 percent to $281 million as a decrease in claims costs failed to offset a decline in premium revenue.
The company continued to lose auto policyholders, as new customers were outnumbered by those who dropped coverage for the 11th straight quarter.
Thomas Wilson, Allstate chairman, president, and chief executive officer said overall auto insurance declined, "but standard auto new issued applications improved as we implemented new marketing and growth initiatives."
He said that Allstate financial's net and operating income improved this quarter from a year ago, reflecting progress on its "strategic repositioning."
He said that the company's overall book value per share rose 7 percent during the quarter to $35.48 as of Sept. 30 "reflecting profitability and strong investment results."
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