Investments, hurricanes drive Allstate loss
Allstate Corp., the largest publicly traded U.S. home and auto insurer, said investment losses and Hurricanes Ike and Gustav caused the first money-losing quarter since Katrina stuck in 2005.
The third-quarter net loss of $923 million, or $1.71 a share, compares with a profit of $978 million, or $1.70, in the same period a year earlier, the Northbrook, Illinois-based company said in a statement distributed by Business Wire The loss excluding declines in the value of some holdings was 35 cents a share, compared with the profit estimate of 68 cents by 19 analysts surveyed by Bloomberg.
Chief Executive Officer Thomas Wilson has pared back the number of homes Allstate covers in coastal regions to limit losses from storms. Ike and Gustav cost insurers a combined $10 billion when they struck the Gulf Coast in September, making this year's hurricanes the most expensive since Katrina contributed to a record $58.7 billion of claims in 2005, according to preliminary data from Insurance Services Office Inc.
"Catastrophe losses were an issue for Allstate," said Paul Newsome, an analyst with Sandler O'Neill & Partners, before results were released. "They're pretty exposed to hurricanes. They always have been and they always will be, despite their efforts to limit those losses. It's the nature of their business."
The record number of tornadoes this year through June and greater-than-usual damage from wildfires last year weighed on Allstate's results in prior quarters after an uneventful storm season in 2006.
Allstate has fallen about 45 percent this year in New York Stock Exchange composite trading, compared with the 52 percent decline in the 24-company KBW Insurance Index. The shares fell $3.34, or 10 percent, to $28.61 at 4 p.m. The company released results after the close of regular trading.
Wilson and his predecessor, Edward Liddy, bought protection from reinsurers, sought price increases and stopped selling new coverage in some catastrophe-prone regions after Katrina contributed to a $1.55 billion third-quarter loss.
Hurricanes Gustav and Ike were the first substantial tests of those efforts. Gustav struck Louisiana on Sept. 1, sparing New Orleans a direct hit. Ike smashed into Galveston, Texas two weeks later.
Catastrophe costs and investment losses contributed to an estimated $4.8 billion loss in the third quarter for all U.S. property and casualty insurers, according to a report by consulting firm Towers Perrin this week. Travelers Cos., the second-largest U.S. commercial insurer, said today that profit fell 82 percent to $214 million on losses from Ike.
Allstate, which gets about two-thirds of its revenue from its auto unit, has been raising the price of its car coverage in some states. Rivals including Bloomington, Illinois-based State Farm Mutual Automobile Insurance Co., the largest U.S. auto insurer, and No. 3 Progressive Corp. are following suit to counter the increasing cost of medical claims and repair costs.
With gasoline selling for $4 a gallon in July and unemployment rising, Americans have been driving less for the first time since 1979, a trend that may result in fewer car crashes. Still, higher oil costs also push up the cost of replacement car parts. The effect on driving may be temporary, as the price of regular unleaded fell below $3 last week, said Newsome, who is based in Chicago.
Progressive, the first of the 10 largest auto insurers to report complete third-quarter results, lost $684.2 million, the company said Oct. 10. The net loss, its first in eight years, was caused by a writedown in the value of investments, including holdings of mortgage lenders Fannie Mae and Freddie Mac.
Allstate is the second-largest home and auto insurer in the U.S. by policy sales, behind State Farm, according to 2007 data compiled by the National Association of Insurance Commissioners. Bloomington-based State Farm is owned by its policyholders and doesn't report quarterly figures.