Allstate Profit Falls 37% on California Fire Losses (Update2)
Allstate Profit Falls 37% on California Fire Losses (Update2)
By Erik Holm
Jan. 29 (Bloomberg) — Allstate Corp., the largest publicly
traded U.S. home and auto insurer, said fourth-quarter profit
fell 37 percent on losses from the October wildfires in
California.
Net income fell to $760 million, or $1.36 a share, from
$1.21 billion, or $1.93, in the same period a year earlier, the
Northbrook, Illinois-based company said today in a statement.
Profit before investment gains was $701 million, or $1.24 a
share, missing the $1.34 average estimate of 21 analysts
surveyed by Bloomberg. It was the worst quarter for the insurer
since 2005 when Hurricane Katrina struck the U.S.
“I don;t think people anticipated how the winter storms
and the total California wildfires were going to impact on the
quarter,;; said David Lewis, an analyst with Raymond James %26amp;
Associates, in an interview on Bloomberg Television. “The
street was pretty optimistic on what their catastrophe losses
were.;;
The wildfires and high winds that forced the largest
evacuation in California;s history caused an estimated $2.26
billion in insured losses industrywide, according to a tally by
the state;s insurance regulator. The losses are the largest for
a natural disaster in the U.S. since Hurricane Wilma, which
capped a record hurricane season in 2005.
Allstate has declined 18 percent in the past year in New
York Stock Exchange composite trading, compared with an 11
percent decrease in the 24-member KBW Insurance Index. The
shares fell 42 cents to $52.25 at 4:15 p.m. today; the company
released results after the close of regular trading.
Car Insurance
Allstate;s auto unit, the company;s largest, faces rising
expenses as the cost of repairing vehicles and paying medical
bills increases. The rate of accidents reported by policyholders
rose for the fourth consecutive quarter, a reversal of a long-
term trend that helped car insurers triple profit margins from
2003 to 2006.
Claims and expenses in its standard auto business rose 8.7
percent to $4.12 billion, while premiums rose less than a
percent to $4.29 billion.
Allstate earned 4.1 cents on every dollar it collected in
property and casualty premiums, compared with 14.3 cents a year
earlier, as the increasing auto accident costs and natural
disasters led to higher claims expenses. The company said the
wildfires cost $318 million in the quarter, more than any other
insurer has reported.
Allstate said it will retain between 11 and 13 cents of
every dollar in 2008 excluding the effects of catastrophes and
changes to reserves for claims from prior quarters. The full-
year profit margin was 14.3 cents in 2007 by the same measure.
Investment Income
Income from investments rose about 4 percent to $1.63
billion.
Auto insurance now accounts for more than two-thirds of
Allstate;s revenue as Chief Executive Officer Thomas Wilson
scales back the company;s coverage of homes in areas prone to
natural disasters including Florida and California. The insurer
increased efforts to limit losses from catastrophes after the
record hurricane season in 2005 cost the company more than $5.6
billion that year.
“Allstate;s doing a good job today of pulling back from
catastrophe-prone area where they don;t feel they;re getting
paid for the risk,;; said Lewis, who rates the shares “strong
buy.;;
Florida Probe
Florida Insurance Commissioner Kevin McCarty this month
barred Allstate from writing new policies in the state before a
court intervened at Allstate;s request. McCarty said the company
hadn;t complied with a subpoena seeking documents for a state
investigation probing possible collusion in setting prices and
dealing with claims. Allstate spokesman Adam Shores has said the
insurer stands by its practices in Florida.
Progressive Corp., the first of the 10 largest U.S.
insurers to report fourth-quarter results, said Jan. 16 that
profit fell 41 percent to $236.1 million as lower prices for
auto coverage reduced premium revenue.
Allstate ranks behind State Farm Mutual Automobile
Insurance Co. as the second-largest home and auto insurer in the
U.S. by premium, according to 2006 data compiled by A.M. Best
Co. Progressive, based in Mayfield Village, Ohio, is the third-
largest auto insurer. State Farm, based in Bloomington,
Illinois, is owned by its policyholders.
(To hear Allstate;s fourth-quarter conference call tomorrow
at 9 a.m. New York time, visit LIVE)
To contact the reporter on this story:
Erik Holm in New York at
