UPDATE: Allstate Aims To Improve Home, Auto Units By 2013
June 01 2011 - 11:42AM
Dow Jones News
Executives at Allstate Corp. (ALL) are hoping to add customers
at the company's auto-insurance unit and improve home-insurance
profitability by 2013 under new targets disclosed to investors
Wednesday.
But the company warned its auto-insurance unit, which has been
losing customers for three years, will cede further ground to
rivals in 2011 before returning to "low-single digit growth" in
2013.
The home-insurance unit, meanwhile, is raising prices and
tightening underwriting standards to improve profit margins in a
line of business "where our returns have clearly been inadequate,"
in part because of a series of natural disasters across the
country, said Joe Lacher, the president of the home and auto unit,
in a presentation to investors.
Executives led by Chief Executive Tom Wilson outlined their
goals for the company in their first "Investor Day" presentation in
more than a decade after Allstate missed Wall Street's earnings
expectations in 13 of the last 17 quarters. The missed estimates
have prompted analysts to express frustration at the company's
direction as the stock underperformed benchmark indexes.
Allstate shares fell 1.7% to $30.86 in morning trading; other
financial stocks also fell.
The company is aiming for by the end of 2013 a homeowners
combined ratio, a measure of its profit margin, in the "low 60s"
when the costs of disasters are excluded, compared with a combined
ratio of about 75 when disasters are excluded now.
A combined ratio in the low 60s indicates the company is
spending just over 60 cents on claims and expenses for every dollar
it collects in premiums. But the company has spent just over 20
cents of every dollar on catastrophes in recent years, and Lacher
said the company needs to earn "somewhere in the low to
mid-eighties" when disasters are included to "generate adequate
returns over time."
In the auto unit, the decline in policyholders has come in part
as the company has eliminated some of the smaller, newer insurance
agencies that sell Allstate coverage and shifted attention to
larger agencies where results have generally been better, Lacher
said. The company has also shed drivers in New York and Florida,
where auto insurers have complained of rampant fraud. The two
states were unprofitable for Allstate last year.
Later in the company's presentation, the head of Allstate's
life-insurance and retirement arm, Matt Winter, said his unit was
targeting an operating return on equity of 9% to 10% in 2014, and
predicted the unit will generate $1 billion of excess capital over
the next four years.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
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