Tuesday, February 12, 2008

Things get worse for Allstate

On January 30th, Allstate reported their Q4 earnings in which they stated that their profit dropped almost 37% on higher catastrophe losses and increased costs. Net income was $760 million, or $1.36 a share, compared with $1.21 billion, or $1.93 a share, in Q4 2006.

Revenue declined 1 percent to $8.99 billion, from $9.1 billion a year earlier.

So that means their Profitability Ratio (Net Income / Revenue) fell by 58.3% from 0.133 (13.3%) to 0.084 (8.4%). That's certainly not good news for Allstate.

Allstate said unrealized losses from mortgage and asset-backed securities totalled $502 million due to illiquidity in those markets. Write-downs on those investments were $82 million.

I took a deeper look at their Q4 financials. Their Property-Liability combined ratio was 95.9 (vs 85.7 Q4 2006), and if they exclude their catastrophe losses, their combined ratio falls down to 88.6 (vs 84.3 Q4 2006). For Q4 2007, their combined ration consisted of:
- Claims and claims expense ratio - 69.6 (vs 60.6 in Q4 2006)
- Expense ratio - 26.3 (vs 25.1 in Q4 2006 - so not much change here, that is good)

Property-Liability premiums written declined 0.7% from Q4 2006, reflecting :

(a) growth in standard auto (+1.5% WPs and +0.9% in #PIFs) and
(b) decline in homeowners (-1.3% WPs and -3.4% in #PIFs)

Well, (b) was mainly due to catastrophe management actions including the increased cost of the catastrophe reinsurance program. Some more interesting numbers caught my attention, but these could be equally impacting for all players in the auto insurance fight.

(a) Standard auto property damage frequencies increased 2.8%. And, paid severity increased 2.2%
(b) Bodily injury gross claim frequencies decreased 2.8%, compared to Q4 2006. BUT, paid severities increased 9.3%

So, (b) brings out a nice trend that the severity paid per claim for bodily injuries has increased drastically compared to Q4 2006.

Anyway, what does it mean to you? If you're an Allstate customer, there's only one thing you can expect in 2008 as a logical derivation from their current reports. Your premiums could very well go much higher! They have to do the needful to survive and continue to operate. So, if you may, take the cue and do the needful too...



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