Lower Cat Losses Help 3Q Profit as Allstate Takes 'Aggressive Stance' on Risk Management

Allstate Corp. jumped to a third-quarter profit, posting $221 million in net income, compared with a $923 million loss during the same time last year, as catastrophe losses fell to $407 million from nearly $2 billion a year ago.

Thomas J. Wilson, chairman, president and chief executive officer, said the company's continued "proactive risk mitigation and return optimization" efforts are paying off as Allstate has made progress on its previously stated priorities this year. In a conference call, he outlined these as keeping Allstate financially strong, improving customer loyalty and building a foundation for sustainable growth.

"Our shared vision has grown roots," said Wilson, adding that Allstate Financial is "80% on the way home" to a previously stated target of $90 million in annual cost savings by 2011.

The chief executive said the company's automobile line is driving growth, with a 12% uptick in new business applications and a slight increase in retention. The combined ratio for this segment was 92.7, up 1.7 points compared with the third quarter of 2008, due to higher loss frequency. The combined ratio in property-liability business was 94.7 in the third quarter, an improvement from 112.7 last year.

Though fewer catastrophe losses were recorded, they remain a concern. George E. Ruebenson, president of Allstate Protection, said that in terms of catastrophes, "the last two years have been worse than any other two-year period" in the company's history. Net written premiums in homeowners remained flat, as Allstate continues to manage exposure and seek appropriate rate changes. The company received homeowners rate increases averaging 6.9% in 19 states during the quarter.

Ruebenson, who is retiring at year end, said Allstate has decided to take "an aggressive stance" on risk management, choosing not to think of recent non-model catastrophic weather events as anomalies. The company is raising rates when it needs to he said, especially in monoline homeowners. If Allstate cannot reduce its exposure, it will "simply price our way out of the problem," he said. The company has a goal to increase multiline customers.

When asked again if Allstate thought recent weather activity was temporary, Wilson said, "We think it's real. If it's not, then we'll adjust. In the meantime, we are not earning an adequate return and we need to."

Allstate Financial reported operating income of $95 million during the third quarter, compared with $88 million during the same time last year as the company reduced its exposure to commercial real estate and municipal bonds, and remained defensive with interest rate movement, said Don Civgin, senior vice president and chief financial officer.

Allstate Insurance Group currently has a Best's Financial Strength Rating of A+ (Superior).

Shares of Allstate on the morning of Nov. 5 were selling at $28.34, down about 4.3% from the previous close.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)

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