Allstate Earnings Drop 9% on Hurricane Damages from 3 Storms

February 2, 2006

Insurer Allstate Corp. says it has settled about 75 percent of the property claims and nearly all auto claims stemming from Hurricanes Katrina, Rita and Wilma.

But the company cited Wilma, which battered south Florida in October, for causing a 9 percent drop in fourth-quarter earnings.

Net income at Allstate, the second-largest U.S. personal-lines insurer behind State Farm, totaled $1.04 billion, or $1.59 a share, down from $1.14 billion, or $1.63 a share, a year earlier.

Excluding certain items, Allstate said that operating income was down about 1 percent from a year earlier to $975 million. Per-share operating income rose 5 percent to $1.49, but was shy of the $1.52 per share estimate of analysts surveyed by Thomson Financial.

Allstate said revenue for the October-December period rose less than 1 percent to $8.95 billion, ahead of analysts’ forecast of $8.3 billion.

The company also said revenue from homeowner premiums might drop as it writes fewer new policies in markets susceptible to hurricanes and earthquakes.

Analyst Gary Ransom at Fox-Pitt Kelton in Hartford, Conn., called Allstate’s underlying performance for the quarter “superb” despite the high catastrophe losses.

Hurricane Wilma, which hit south Florida as a category 3 hurricane, cost Allstate more than $500 million in pretax losses, the company said.

Allstate Chairman and CEO Edward Liddy touted the insurer’s profitability last year despite suffering three of the 10 most costly natural disasters in U.S. history. Losses from Katrina and Rita contributed to a third-quarter loss of $1.55 billion, the largest quarterly loss for Allstate as a publicly traded company.

“Our ability to be profitable in such a difficult year is a testament to the effectiveness of our strategy, our focus on superior execution and the diversity of our product offerings,” Liddy said in a statement.

Net profits for the year were $1.77 billion, down 45 percent from $3.18 billion in 2004.

The company said it has a new reinsurance agreement in place that limits its losses to 5 percent of hurricane or earthquake losses that exceed $2 billion. The insurer says the policy, which covers every state but Florida, “will significantly reduce our exposure to hurricanes and earthquakes.”

Earlier this month Allstate said its cost of reinsurance would triple to about $600 million a year.

“Whether or not we’re really on the cusp of a new hurricane era as a lot of people believe, (the reinsurance) will help investors sleep better at night,” said analyst Adam Klauber of Cochran Caronia Waller in Chicago.

Total catastrophe losses in the fourth quarter jumped 60 percent to $657 million, working to offset relatively low losses on homeowners and auto policies, the company said. Property-liability underwriting income dipped from $762 million a year earlier to $752 million despite an additional $245 million in catastrophe losses.

Allstate last week said it would eliminate up to 700 jobs at its Northbrook, Ill., headquarters as it looks to trim costs and improve operations.

Topics Catastrophe Natural Disasters Profit Loss Florida Hurricane Windstorm

Was this article valuable?

Here are more articles you may enjoy.