Allstate Profit Falls as Auto, Catastrophe Claims Rise

February 10, 2011

Allstate Insurance net income fell 43 percent in the fourth quarter as rising claims from auto insurance customers and catastrophes took their toll.

Allstate’s fourth quarter 2010 net profit was $296 million compared to $518 million in the fourth quarter of 2009. Total operating income was $271 million in the fourth quarter of 2010 compared to $592 million in the same period of 2009.

However, net profit for the 2010 year was $928 million compared to $854 million in 2009. The company said the increase was due to improved investment results and higher operating income from Allstate Financial, partially offset by lower property/casualty operating income. Total operating income was $1.5 billion in 2010 compared to $1.9 billion, or $3.48 per diluted share, in 2009.

Allstate’s property/casualty business combined ratio for the year was 98.1, which is 1.9 points higher than 2009.

The P/C underlying combined ratio was 92.0 in the fourth quarter of 2010 compared to 88.1 in the same period of 2009, primarily due to increased claim frequencies and a higher expense ratio. The recorded combined ratio was 100.8 for the fourth quarter of 2010, compared to 93.2 for the fourth quarter of 2009.

Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corp., said profitability continued to be hurt by high catastrophe losses and increased frequency of auto insurance claims.

“While we were able to increase auto insurance new business levels at the end of the year, this was not enough to offset lower customer renewals reflecting actions to maintain auto profitability in several large states,” Wilson said.

He said the company’s priority is to maintain the profitability of the auto business and improve homeowners profitability.

Catastrophe losses remained high, which the company said reinforces the importance of its strategy to improve the profitability of the homeowners business. Catastrophe losses were $537 million during the fourth quarter of 2010, reflecting 20 events, including an Arizona hailstorm with estimated losses of $355 million. This compares to catastrophe losses of $328 million for the fourth quarter of 2009. Catastrophe losses added 8.3 points to the combined ratio during the fourth quarter of 2010.

Allstate auto premiums written declined 0.4 percent for the fourth quarter of 2010 compared to the prior year fourth quarter. This decline was driven by a 1.5 percent decline in policies in force, reflecting a decline in retention to 88.4 percent, partly offset by a 7.8 percent increase in new issued applications. Rate increases in several large states were the primary cause of the decline in retention, according to the company.

The Allstate auto combined ratio was 99.7, an increase of 6.0 points from the fourth quarter of 2009, due to increasing claim frequencies and, to a lesser extent, higher expenses which were primarily related to the “Mayhem” television advertising campaign.

Allstate brand homeowners premiums written for the fourth quarter of 2010 increased 2.2 percent compared to the same period a year ago, as a 7.1 percent increase in average premium was partly offset by a 4.1 percent decline in policies in force. Rate increases averaging 7.4 percent in 10 states were approved during the fourth quarter, as Allstate took actions to improve homeowners returns.

The homeowners combined ratio was 102.0 in the fourth quarter of 2010 compared to 89.0 in the fourth quarter a year ago, primarily due to higher catastrophe losses and lower favorable prior year reserve re-estimates. Favorable prior year reserve re-estimates not related to catastrophe losses were $7 million in the fourth quarter of 2010 compared to $37 million in the prior year quarter.

Statutory surplus at Dec. 31, 2010 was an estimated $15.3 billion for Allstate Insurance Co., including $3.3 billion at Allstate Life Insurance Co.. This compares to $15.0 billion at Dec. 31, 2009.

The Allstate Financial unit has been restructured and is shifting its focus to underwritten products sold through Allstate agencies and the workplace. As part of this refocusing, the company announced its intentions to wind down Allstate Bank.

Topics Catastrophe Trends Auto Claims Profit Loss Property Casualty Homeowners

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