(Updates with analyst’s comment in fourth paragraph.)
Aug. 1 (Bloomberg) -- Allstate Corp., the second-largest U.S. home and auto insurer, posted its first quarterly loss in more than two years as tornadoes led to a surge in claims costs. The stock gained as results beat estimates.
The second-quarter net loss of $620 million, or $1.19 a share, compares with profit of $145 million, or 27 cents, a year earlier, the Northbrook, Illinois-based insurer said today in a statement. The operating loss, which excludes some investment results, was $1.23 a share, beating by 35 cents the average estimate of 21 analysts surveyed by Bloomberg.
Chairman and Chief Executive Officer Thomas Wilson, 53, added auto customers in most states excluding New York and Florida, where the firm has scaled back to boost profitabilty. He’s also raising rates for homeowners’ coverage after storms caused catastrophe costs in the second quarter to balloon to $2.34 billion, an expense the insurer had previously disclosed.
“There is a light at the end of the tunnel” if they can reduce their homeowners exposure and increase the number of auto-insurance customers, said Tom Lewandowski, an analyst at Edward Jones & Co., in an interview. “There’s a lot of pessimism priced into these shares.” He advises clients to buy the stock.
Allstate rose 82 cents, or 3 percent to $28.54 at 9:38 a.m. in New York Stock Exchange composite trading. The insurer had declined 13 percent this year through July 29 while the Standard & Poor’s 500 Index climbed 2.8 percent. The insurer had been profitable every quarter since reporting a $274 million net loss for the period ended in March 2009.
Bank Unit Shuttered
The insurer plans to shutter its banking unit after the collapse of a deal to sell deposits to Discover Financial Services, Allstate said today.
“We are continuing with plans to wind down the Allstate Bank’s operations and anticipate obtaining regulatory approval to cancel its banking charter by year-end 2011,” Allstate said in a regulatory filing.
Catastrophe costs in the second quarter were $2.34 billion, compared with $636 million a year earlier. Allstate lost 23.3 cents for every premium dollar in its property and liability coverage unit compared with a gain of 3.2 cents a year earlier. Using the so-called underlying ratio, which excludes items such as catastrophes, the company made 12.5 cents for every premium dollar in the second quarter.
More than 1,600 tornadoes have been reported this year, compared with 1,282 in all of 2010, according to the National Oceanic and Atmospheric Administration. Storms in the U.S. contributed to $14.7 billion in direct insured losses to property in the second quarter, ISO, a unit of Verisk Analytics Inc., said in a June 22 statement.
Premium revenue in Allstate’s property and liability business fell to $6.46 billion from $6.51 billion a year earlier as the company’s auto and home policy counts declined. Wilson announced a deal in May to purchase Esurance, the online seller of auto coverage, and Answer Financial from White Mountains Insurance Group Ltd. for about $1 billion.
“The actions we took during the quarter, including our pending acquisition of Esurance and Answer Financial, position us well,” Wilson said in today’s statement.
The departure last month of Joseph Lacher, president of Allstate Protection since 2009, sent shares tumbling. Lacher had overseen Allstate’s auto-coverage business, which has lost customers for most of the last three years. Direct-to-consumer rivals such as Progressive Corp. and Berkshire Hathaway Inc.’s Geico unit have added policies as drivers shun agents and purchase coverage over the Internet.
Lacher also managed Allstate’s business that covers residential property. Allstate said in June that returns from the homeowners unit were “inadequate.” Allstate has received approval in 18 states to raise homeowners rates, according to today’s statement. The company competes with policyholder-owned State Farm Mutual Automobile Insurance Co., the largest U.S. home and auto insurer.
“I don’t know if you can necessarily put the blame on Joe fully for not being able to turn things around” since some of the trends predate his tenure, said Brian Meredith, an analyst at UBS AG. Lacher “was actually in the process of trying to fix it.”
Book value, a measure of assets minus liabilities, slumped to $35.95 a share from $36.51 at the end of March. Wilson has reshaped Allstate’s investment portfolio since 2008, when writedowns contributed to an annual loss of $1.68 billion. He bought corporate bonds while cutting back on stocks, commercial mortgage-backed securities and municipal debt.
Allstate posted $57 million in realized investment gains in the second quarter, compared with a loss of $451 million a year earlier, on fewer writedowns and narrower derivative losses.
--Editors: Dan Kraut, William Ahearn
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