Bloomberg News

Allstate CEO May Post First Loss in Two Years as Shares Tumble

July 29, 2011

July 29 (Bloomberg) -- Allstate Corp. Chief Executive Officer Thomas Wilson, who’s presided over a 57 percent decline in the stock price, may say next week that the insurer had its first loss in two years.

Allstate, the second-largest home and auto insurer in the U.S., may post an $831 million second-quarter loss on Aug. 1 as costs from natural disasters increased, according to 12 analysts surveyed by Bloomberg. Allstate, based in Northbrook, Illinois, last had a loss in the period ended March 31, 2009, amid investment declines.

Wilson, 53, rose to the top job on Jan. 1, 2007. Since then, Allstate has lost auto-insurance customers and about $26 billion in market value. Wilson said on July 18 that Joseph Lacher, who oversaw the insurer’s main unit, was leaving after less than two years on the job. Investors may now put pressure on the CEO, said Brian Meredith, an analyst at UBS AG.

“Anytime that a company like Allstate has struggled the way it has struggled for the last several years, people are obviously going to question management,” he said. “If you bought the stock back in 2007, you aren’t very happy.”

Allstate’s share decline compares with the 32 percent drop of the 24-company KBW Insurance Index and the 8.3 percent decline in the Standard & Poor’s 500 Index.

Maryellen Thielen, a spokeswoman for Allstate, declined to comment, saying the company is in “a pre-earnings quiet period.” Attempts to reach Lacher weren’t successful.

Allstate, which got about half of its revenue last year from auto coverage, is competing with Warren Buffett’s Geico Corp. and Progressive Corp., companies that built sales through direct channels such as the Internet. Allstate typically relied more on agents.

Policy Count

The insurer’s overall standard auto-policy count fell 3.5 percent to 17.5 million from year-end 2006 through March 31. Progressive’s personal auto policy count surged 21 percent to 8.3 million in the same period.

Allstate announced a deal in May to purchase Esurance, the online seller of auto coverage, from White Mountains Insurance Group Ltd. Wilson said in an interview at the time that he was trying to “box in” Geico and Progressive with the acquisition.

Lacher, who left Allstate without explanation, called the company’s returns from its homeowners business “inadequate” at the company’s investor day in June. The insurer has reported underwriting losses in the homeowners unit for the past three years, according to data on its website.

Wilson has said he is increasing rates for the coverage to keep pace with rising claims. Catastrophes, including the tornadoes in April that flattened parts of Tuscaloosa, Alabama, cost Allstate $2.3 billion in the quarter before tax.

Wilson’s Performance

Declining market share and rate increases have led some agents to question Wilson’s performance since 2007, said Jim Fish, executive director of the National Association of Professional Allstate Agents. The group is voting on whether to form a guild affiliated with the AFL-CIO.

“We’ve lost over a million households in that period of time,” said Fish, a retired Allstate agent, in an interview. “It just does not seem to be turning around.”

Holders of about 126.7 million shares voted against re- electing Wilson to the board at the annual meeting in May, while investors with about 273.8 million shares supported him. Proxy- advisory service Institutional Shareholder Services Inc. advised clients in April to vote against the management’s proposed compensation for Wilson and other executives.

Allstate’s “return to shareholders continues to lag peers,” ISS said in the report. “There are concerns with the company’s long-term incentive design.”

Support for CEO

Wilson had stints as Allstate’s chief operating officer, president of the property-casualty unit and president of its life insurance unit prior to becoming CEO. He is supported internally and by the board, said Cliff Gallant, an analyst at KBW Inc. who rates the company “market perform.”

“We’ve gone through a couple bad years with the weather,” said Gallant. “He’s had a tough period, yet the company has emerged from it financially sound.”

Wilson reshaped the company’s investment portfolio since 2008, when writedowns contributed to an annual loss of $1.68 billion. He bought corporate bonds while cutting back on commercial mortgage-backed securities and municipal debt.

Wilson has reduced risk in the investment portfolio, said UBS’s Meredith. What Allstate needs to do now is improve the return on capital, get rid of volatility in earnings and stanch losses in market share, he said.

“Those are three things that clearly are necessary for the stock to start working,” Meredith said.

--Editors: Dan Reichl, Dan Kraut

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus