2nd UPDATE: Allstate 4Q Profit Doubles As Weather Cooperates
February 01 2012 - 7:06PM
Dow Jones News
Allstate Corp. (ALL), the largest publicly traded home and auto
insurer in the U.S., more than doubled its fourth-quarter profit as
the company won a rare reprieve from the severe weather that has
dragged down results in recent years.
Operating profit also exceeded Wall Street expectations, and
Allstate shares jumped 3.9% to $30.45 in late trading after the
results were released.
Nineteen catastrophes cost the company about $216 million in the
fourth quarter, but the insurer also cut its estimate of costs
related to disasters that struck earlier last year. The
re-estimation reduced the fourth-quarter hit to the bottom line to
$66 million before taxes.
"We had a bang-up quarter in homeowner insurance because there
were very few catastrophes," Chief Executive Tom Wilson said in an
interview after the results were released. The larger, more stable
auto insurance unit also "continues to do really well," he
said.
A long roster of severe natural disasters across the U.S. have
plagued Allstate and its rivals in recent years, and prompted
insurers to raise the price of home insurance in many areas.
Allstate's $2.34 billion in catastrophe costs in the second
quarter were the most since Hurricane Katrina hit in 2005. But the
$537 million from last years fourth quarter and $1.08 billion in
the third quarter of 2011 were also well above average.
Overall, Allstate posted net income of $724 million, or $1.43 a
share, in the latest period, up from $296 million, or 55 cents a
share, a year earlier. Operating profit, which excludes some
investment results, jumped to $1.48 a share from 50 cents.
Analysts surveyed by Thomson Reuters had expected operating
earnings of 95 cents a share, on average.
Allstates's home-insurance operation swung to an underwriting
profit of $451 million from a loss of $23 million in the same
period a year earlier. Underwriting income for its main
auto-insurance brand was $203 million, while newly acquired online
car-insurer Esurance had an underwriting loss of $37 million.
Still, the company has yet to reverse a decline in the number of
drivers it insurers. Policyholders with the standard Allstate auto
coverage declined for the 16th straight quarter, and the number of
new customers applying for those policies fell to the lowest level
since the second quarter of 2008.
Wilson said the company's efforts to raise rates in New York and
Florida explained the decline in applications. Insurers have
complained of widespread fraud in both states in recent years.
Because of Allstate's price increases, the two states are
profitable, but "they are not as profitable as we would like yet,"
Wilson said. The two states will "continue to be a drag on overall
growth through 2012."
Premiums written increased 2.9% to $6.43 billion, driven by the
acquisition of Esurance, which had $181 million in written premiums
after the acquisition closed in October.
The company kept its guidance for 2012 unchanged from 2011,
predicting that its underlying underwriting profit at its
property-casualty operation would be between 9 cents to 12 cents
for every dollar it collects in premiums.
That underlying profit margin was 10.7 cents for all of 2011.
The underlying margin excludes several factors, including
catastrophes, investment returns and adjustments to reserves.
Operating income at Allstate Financial, its life insurance and
retirement unit, rose 33% to $138 million as premiums and contract
charges rose. Life insurance applications issues through Allstate
agencies increased 43% in the fourth quarter compared to the same
period a year earlier as the company pushed agents to sell the
product.
In November, Allstate unveiled a new $1 billion stock buyback
program. The company bought $106 million of its own shares in the
quarter.
-By Erik Holm and Joan E. Solsman, Dow Jones Newswires;
212-416-2892; erik.holm@dowjones.com
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