Hit by an increase in catastrophe losses, Northbrook, Ill.-based insurer Allstate Corp. saw its profit drop by more than 37 percent in the fourth quarter of 2007 compared to the same period in 2006.
The fourth quarter net income of $760 million was down $453 million from the year earlier period. In addition to catastrophe losses, the insurer cited higher underlying property and liability combined ratio and unfavorable prior year reserve re-estimates for the drop.
The combined ratio for the fourth quarter was 95.9 (88.6 excluding catastrophes and the effect of prior year reserve releases). Also in the fourth quarter, expenses were up, a development the company attributed to related to advertising, marketing and technology investments in product innovations.
Property and liability premiums written declined 0.7 percent from the fourth quarter of 2006, reflecting growth in standard auto and a decline in homeowners due to catastrophe management actions including the increased cost of the catastrophe reinsurance program. The cost of the catastrophe reinsurance program was $222 million in the fourth quarter of 2007 compared to $209 million in the fourth quarter of 2006. Excluding the cost of the catastrophe reinsurance program, premiums written decreased 0.5 percent.
Allstate brand homeowners premiums written declined 1.3 percent in fourth quarter 2007, compared to the prior year, primarily due to catastrophe risk management actions.
In January 2008, the company renewed its catastrophe reinsurance agreements countrywide, except for Florida, which it expects to do later this year.
The effect of catastrophe losses on the Allstate homeowners loss ratio totaled 28.4 in the fourth quarter of 2007 compared to 16.5 in the fourth quarter of 2006.
Catastrophe losses for the quarter totaled $472 million, compared to $279 million in the fourth quarter of 2006. This increase was primarily due to $318 million in catastrophe losses related to the Southern California wildfires in October.
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