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Allstate Posts Q2 Loss of $620M, Worst Quarter Since Hurricane Katrina

Source: WSJ - Erik Holm

Posted on 01 Aug 2011

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Allstate posted a second-quarter loss of $620 million, which is the company's worst quarter for catastrophe claims since Hurricane Katrina in 2005.

Devastating tornadoes across the Midwest and South contributed to $2.34 billion in disaster costs, in line with an earlier warning it had issued to shareholders. The operating loss, which excludes some investment results, was $1.23 a share, beating Wall Street expectations of an even steeper loss by 33 cents.

The tornadoes have proven costly for the insurance industry, but Allstate, the largest publicly traded home and auto insurer in the U.S., has absorbed some of the largest losses. The company has made a concerted effort to limit the number of homes it insurers in coastal areas vulnerable to hurricanes, but the tornadoes struck away from the coast, causing record-breaking destruction in places like Birmingham, Ala., and Joplin, Mo.

Allstate's net loss of $620 million, or $1.19 a share, compared with a year-earlier profit of $145 million, or 27 cents a share.

The company spent $1.23 on claims and expenses for every dollar it collected in premiums in the quarter, with the catastrophe claims contributing 36 cents to that figure.

Allstate and other insurers often urge shareholders to look past the cost of the natural disasters, which can fluctuate wildly from quarter to quarter, depending on the weather, and concentrate on underlying results. By that measure, the insurer spent 87.5 cents on every dollar it collected in premiums when adjustments to reserves are removed, an improvement from 88.1 cents in the same period a year earlier, and ahead of the company's full-year guidance range of 88 cents to 91 cents.

Allstate's auto-insurance unit, the company's largest, showed some signs of life. The number of policyholders buying the company's Allstate brand coverage fell for the 14th straight quarter, but the company said in a slideshow prepared for a conference call later Monday that the number of policyholders with its standard policy rose in 30 states. The renewal rate for those standard policies was the highest since 2007.

Still, the value of standard policies sold in the quarter fell nearly 1% compared to the same period a year earlier, reflecting the falling number of policyholders and the fact that existing customers were paying less for their coverage on average.

Chief Executive Tom Wilson has said that reversing a years-long decline in market share in the auto unit is among his highest priorities.

The home-insurance operation also lost policyholders, but the value of policies sold increased 2.6%, reflecting price increases that averaged 6% across 18 states.

Allstate spent $232 million on share buybacks. The company had $308 million remaining on its repurchase authorization as of June 30.
Book value per share, a measure of assets minus liabilities, fell 1.5% to $35.95 at June 30 when compared to three months prior.

Allstate also said that a previously announced agreement to sell the deposits of Allstate Bank to Discover Financial Services has been terminated. The company said in a regulatory filing it is "continuing with plans to wind down the Allstate Bank's operations and anticipate obtaining regulatory approval to cancel its banking charter by year end 2011."