Natural Disasters Cut Allstate’s Third Quarter Profits in Half

Allstate Insurance managed to turn a $165 million profit during the third quarter of 2011 despite nearly $1.08 billion in catastrophe losses resulting from Hurricane Irene and other natural disasters, the company has announced.

Overall, profit was down 55 percent in the third quarter compared with 2010, even though catastrophe losses for the quarter were more than two and a half times as large as what was seen during the same period last year.

Allstate said it was able offset at least some of the higher losses, thanks in part to the improved profitability of New York and Florida auto insurance policies and homeowner coverage, officials said.

“Maintaining auto insurance profitability and proactively managing our investment portfolio enabled us to overcome an increase of $691 million in catastrophe losses from the third quarter of 2010 and still earn a profit,” Thomas Wilson—Allstate chairman, president and chief executive officer—said in a news release.

Irene, Tropical Storm Lee and 21 other severe weather events cost the insurer a combined $1.08 billion in catastrophe losses in the third quarter, with Irene alone accounting for $500 million. That was a 179 percent increase in losses from the third quarter of 2010, when the company incurred $386 million in catastrophe losses.

Insurers typically define catastrophes as events that cause $25 million or more in insured property losses and affect a large number of policyholders and coverage providers.

Allstate’s most recent results follow a second quarter characterized by the effects of natural disasters, with the company losing about $2.3 billion to tornadoes, wildfires and other events from April through June.

Catastrophes Showing Industry-Wide Effect in 2011

The insurer is not alone in losing money on claims filed by policyholders in the wake of disastrous events this year, which has turned out to be a costly one for coverage providers.

ISO and the Property Casualty Insurers Association of America (PCI) announced last week that catastrophes in the first six months of 2011 cut profits for property/casualty insurers from $16.8 billion during the first six months of 2010 to $4.8 billion for the same period this year.

ISO blamed reductions in net income largely on catastrophes, which caused $23 billion in direct insured losses for insurers, up $14.1 billion from 2010 and about three times the average for first-half losses over the past decade.

Progressive announced last month that its third-quarter 2011 profits were down 42 percent compared to last year. The auto and home insurer reported in September that catastrophe losses in August had totaled $37 million, slashing profits by 66 percent—from $66.5 million to $22.5 million—compared with the same month in 2010.

Irene was to blame for nearly two-thirds of those losses, according to the company.

MetLife Auto & Home estimated after-tax catastrophe losses on auto and homeowner policies as high as $100 million, far exceeding the $38 million predicted for the quarter.

State Farm reported it had paid out $5 billion on more than 970,000 weather-related claims as of Sept. 23.

To read the experiences of current and former Allstate policyholders, readers can find user-submitted Allstate auto insurance reviews online.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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