Bloomberg News

Allstate Profit Falls 55% to $165 Million as Irene Fuels Claims

November 02, 2011

Oct. 31 (Bloomberg) -- Allstate Corp., the second-largest U.S. home and auto insurer, said third-quarter profit declined 55 percent on costs from storms including Hurricane Irene.

Net income fell to $165 million, or 32 cents per share, from $367 million, or 68 cents, a year earlier, the Northbrook, Illinois-based insurer said today in a statement. Operating income, which excludes some investment results, was 16 cents per share, beating the 9-cent average estimate of 22 analysts surveyed by Bloomberg.

Chief Executive Officer Thomas Wilson has scaled back sales in Florida, bought reinsurance and raised prices for homeowners’ coverage to limit Allstate’s risk from natural disasters. That strategy wasn’t enough to boost profit as tornadoes struck the Midwest, and Irene, the first hurricane to make landfall in the U.S. since 2008, damaged property in Vermont. Allstate has had more than $3 billion in catastrophe claims this year.

“It’s been frustrating for investors that the volatility’s continued” after the insurer chose to underwrite more policies in inland areas, Cliff Gallant, an analyst at KBW Inc., said in an interview before today’s announcement. “They moved from one target to the next.” He rates the company “market perform.”

Allstate fell 3 percent to $26.35 at 4:01 p.m. in New York before results were released. The insurer has dropped 17 percent his year, compared with the 14 percent decline in the 24-company KBW Insurance Index.

Irene struck North Carolina on Aug. 27 then headed north along the East Coast. The storm may cost the insurers between $3 billion and $6 billion in the U.S., according to an estimate from risk-modeling firm AIR Worldwide. Travelers Cos., the only insurer in the Dow Jones Industrial Average, said Oct. 19 that the storm cost it $253 million after tax in the quarter. Chubb Corp. said Irene led to $335 million in pre-tax losses.

The insurance industry faced about $70 billion of losses from natural disasters and man-made catastrophes in the first half, according to Swiss Re, the world’s second-largest reinsurer. That makes 2011 already the second-most costly year for insurers, surpassed by 2005, when Hurricanes Katrina contributed to $120 billion in claims.

Allstate completed its acquisition of online auto-insurance seller Esurance from White Mountains Insurance Group Ltd. this month. Wilson, 54, who is also chairman, opted to expand direct- to-consumer car policy sales by acquiring a company rather than build the business in-house to save time and money on advertising.

Allstate has lost auto clients as younger drivers shunned using agents to shop for coverage. Berkshire Hathaway Inc.’s Geico unit and Progressive Corp., which rely more on the Internet, have added customers. Policyholder-owned State Farm Mutual Automobile Insurance Co. is the largest U.S. home and car insurer.

“The distribution model that seems to be successful right now is the direct one,” said Gallant. “Geico and Progressive are far ahead of where Allstate is, even with Esurance.”

--Editors: Dan Kraut, Dan Reichl

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus