Allstate Sees Customers Cutting Back On Auto Insurance
January 29 2009 - 10:55AM
Dow Jones News
As if the big losses on investments in its portfolio and
annuities charges weren't enough, customers in Allstate Corp.'s
(ALL) core auto insurance business are adding to the trouble, said
the company's auto insurance chief Thursday.
"We are seeing customers making changes to engineer their
premium down," said George E. Ruebenson, president of Allstate
Protection, the company's property insurance unit during the
company's fourth-quarter earnings conference call Thursday. "They
are dropping collision (coverage), setting lower limits and a
higher deductible."
It is the economy that is pushing customers to cut back, and it
helped contribute to a 3.9% drop in property-liability insurance
premiums written in the fourth quarter for Allstate, to $6.3
billion, from $6.6 billion in the year-ago quarter.
The nation's largest publicly held personal-lines insurer on
Wednesday posted a fourth-quarter net loss of $1.13 billion, or
$2.11 a share, compared with year-earlier net income of $760
million, or $1.36 a share, on revenue of $6.57 billion. Operating
earnings, which exclude investment gains and losses and the annuity
costs, fell to 97 cents a share from $1.24. That was below the
Thomson Reuters analyst estimate of $1.35 a share on revenue of
$8.46 billion.
The Northbrook, Ill., insurer swung to a loss in the fourth
quarter on $1.9 billion in capital losses in its investment
portfolio and $493 million in annuity-sales costs recorded because
of the tumbling stock market.
Shares of Allstate plunged 20% in recent trading to $23.82 on
the disappointing earnings news.
The company's launch of a tiered auto insurance concept, where
customers can opt for higher levels of coverage for a higher price,
has taken something of a beating as the economy turns down, with
fewer customers taking the high-level platinum level of coverage,
Ruebenson said.
On the positive side, Ruebenson said that competitors had cut
prices significantly in recent years and are now taking much bigger
price increases than Allstate.
Allstate's significant realized and unrealized losses pushed
down its book value 25% to $23.51 per share since the end of the
third quarter.
Standard and Poor's responded to the earnings announcement by
cutting Allstate's financial strength rating by one notch to AA-,
but during the earnings conference call, Allstate Chief Executive
Thomas Wilson said that the company maintained more than $12
billion in capital and he did not foresee needing to raise
more.
While analysts generally agreed that Allstate would not need to
raise capital during the first quarter due to its strong capital
position, "if the company were to take significant further realized
losses on its investment portfolio due to a significant
deterioration in the credit markets, the company's capital position
will be severely tested, which increases the risk of a capital
raise," said Credit Suisse analyst V. Misquith in a Thursday
note.
Misquith maintained his outperform rating on the stock Thursday
but called Allstate "a high risk high reward stock."
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
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