Monday, 10 August 2015 22:56

Allstate Operating Earnings Fall 41%--Update

Allstate Corp. said its second-quarter operating earnings fell 41 percent on lower auto insurance margins and seasonally high catastrophe losses.

Shares fell 4.6 percent to $66.20 in recent after-hours trading as the results missed expectations.

Operating earnings are a widely watched benchmark for the insurance industry because they exclude realized capital gains and losses from companies' investment portfolios, among other items that aren't considered recurring on a quarterly basis, reported nasdaq.com.

Chairman and Chief Executive Thomas J. Wilson said in prepared remarks on August 3 that the decline in operating earnings reflected a broad-based increase in the frequency and severity of auto accidents by state, risk class and other factors.

"While recent growth in Allstate brand auto policies in force did increase frequency, since new business typically has higher relative frequency, this was not the primary driver of a higher combined ratio," Mr. Wilson said. "We have responded aggressively to improve profitability with rate increases, tighter underwriting standards and expense reductions."

For the second quarter, the property-casualty combined ratio--a measure of the portion of premiums used to cover claims and expenses--rose to 100.1 percent from 97.4 percent.

The insurer said a 1.5 percent rate increase was approved for Allstate-branded auto insurance during the second quarter in 34 states and that it expects to pursue further increases, given current loss trends. Allstate said total Allstate brand rate increases have totaled 3.5 percent over the past 12 months, reported nasdaq.com. The company also has raised some rates for its Esurance and Encompass brands.

The company said cost reductions included advertising, technology and personnel, which resulted in a one-time after-tax restructuring charge of $12 million during the quarter.

Allstate's pretax catastrophe losses reached $797 million in the second quarter, compared with catastrophe losses of $936 million a year earlier.

Allstate reported an operating profit of $262 million, or 63 cents a share, down from $445 million, or $1.01 a share, a year earlier.

Property-liability premiums written increased 4.4 percent to $7.88 billion, while premiums earned in the business grew 4.8% to $7.55 billion.

Analysts polled by Thomson Reuters expected per-share operating profit of 97 cents and net premiums written of $ 7.91 billion.

Overall, Allstate reported a profit of $355 million, or 79 cents a share, down from $645 million, or $1.39 a share, a year earlier, reported nasdaq.com.