Catastrophe losses and the global financial crisis contributed to a $923 million net loss for the third quarter of 2008, which reflects an operating loss of $190 million and net realized capital losses of $728 million, The Allstate Corp. reported.
Thomas J. Wilson, chairman, president and CEO, said that hurricane losses would have been twice as high for the company without its catastrophe management programs and reinsurance programs put into place beginning in 2005.
Allstate’s operating loss of $190 million for the third quarter of 2008 is primarily attributable to catastrophe pretax losses of $1.8 billion from 35 events, including Hurricanes Ike and Gustav.
The $923 million net loss for the third quarter of 2008 reflects the operating loss and net realized capital losses of $728 million.
The insurers aid that losses from Hurricanes Ike and Gustav were mitigated by catastrophe exposure management actions taken over the last several years, which include reductions in policies in force, reinsurance and policy changes. Reflecting the combination of reduced policies in force and ceded wind coverage in the coastal regions of Texas and Louisiana, at the beginning of the third quarter of 2008, the company’s catastrophe exposure was 42 percent and 33 percent, respectively, below 2006 levels. Reinsurance recoverables during the quarter offset losses by $246 million.
Favorable frequency combined with moderate severity to produce an underlying Property Liability combined ratio of 85.9 for the quarter.
Allstate Financial operating income declined to $88 million in the third quarter of 2008 from $147 million in the prior year quarter, reflecting lower investment spreads related to market conditions, proactive actions taken to improve liquidity and lower benefit spreads.
“Our investment portfolio initiatives enabled us to avoid large losses in financial companies and helped protect the value of our equity investments,” Wilson said. “Our property/casualty business continued to deliver good underlying margins and operating cash flow, which is extremely important in this economic climate. As a result, Allstate has maintained strong liquidity and capital positions which protect our customers and shareholders in these difficult times.”
Q3 Report Highlights
– Consolidated revenues were $7.3 billion in the third quarter of 2008 compared to $9.0 billion in the third quarter of 2007, reflecting net realized capital losses in the third quarter of 2008 compared to net realized capital gains in the third quarter of 2007.
– Catastrophe losses for the quarter totaled $1.8 billion, compared to $343 million in the third quarter of 2007, impacting the combined ratio by 26.8 points in the third quarter of 2008 and 5.0 points in the third quarter of 2007. Catastrophe losses for the quarter include estimates of losses for Hurricanes Ike and Gustav of $944 million and $459 million, respectively, among other events. The catastrophe losses for Hurricane Ike reflect reinsurance recoverables of $246 million. Hurricane Ike catastrophe losses included $325 million related to states other than Texas. Hurricane Ike is expected to be among the top three costliest U.S. hurricanes along with Hurricane Katrina of 2005 and Hurricane Andrew of 1992. Hurricane Gustav is expected to be among the top 10 costliest U.S. hurricanes.
– Property Liability premiums written declined 1.5 percent in the third quarter of 2008 from the third quarter of 2007. Excluding the impact of the catastrophe reinsurance program, Property Liability premiums written declined 2.4 percent in the quarter.
– Allstate brand standard auto premiums written declined 0.7 percent in the third quarter of 2008 from the third quarter of 2007. Contributing to this result were the following: 1.1 percent decrease in policies in force (“PIF”); 0.5 point decline in the six month renewal ratio to 88.9 percent; 0.9 percent increase in six month average premium before reinsurance to $427; and a 2.7 percent decrease in new issued applications.
– Allstate brand homeowners premiums written declined 0.9 percent in the third quarter of 2008, compared to the prior year quarter, primarily due to our catastrophe risk management actions. Contributing to this result were the following: 4.0 percent decrease in PIF; 1.0 point increase in the 12-month renewal ratio to 87.3 percent; 0.7 percent increase in 12-month average premium before reinsurance to $852; 23.4 percent decrease in new issued applications; and a $49 million decrease in catastrophe reinsurance costs.
– Standard auto property damage frequency decreased 11.8 percent and bodily injury frequency decreased 13.7 percent in the third quarter of 2008 compared to the third quarter of 2007, which may be in part due to a reduction in the number of miles driven. Claim severities (average paid cost per claim) for auto property damage and bodily injury decreased 0.3 percent and increased 6.4 percent, respectively. Increased catastrophe losses, however, led to a 0.9 point increase in the Allstate brand standard auto loss ratio in the third quarter of 2008 compared to the third quarter of 2007.
– Homeowners gross claim frequency, excluding catastrophes, increased 6.6 percent in the third quarter of 2008 compared to the third quarter of 2007 fueled by non-catastrophe weather-related claim trends. Claim severity (average paid cost per claim) for homeowners, excluding catastrophes, decreased 4.2 percent in the third quarter of 2008 compared to the third quarter of 2007. Higher catastrophe losses resulted in an 89.7 point increase to 158.1 in the Allstate brand homeowners loss ratio in the third quarter of 2008 compared to the third quarter of 2007. The effect of catastrophe losses on the Allstate brand homeowners loss ratio totaled 106.2 in the third quarter of 2008 compared to 19.8 in the third quarter of 2007.
“We expect volatile financial markets and tough economic conditions to persist for some time. Our focus will remain on running our businesses efficiently and effectively to serve our customers and proactively managing catastrophe and investment risk,” concluded Wilson.
Allstate expects its Property Liability underlying combined ratio, which excludes the effects of catastrophes and prior year reserve re-estimates, to be at the favorable end of the previously stated range of 86.0 and 88.0 for the full year 2008.
Source: Allstate Corp.