Allstate Corp., the second-biggest U.S. personal-lines insurer behind State Farm, said its fourth-quarter profit rose 17 percent as it continued to benefit from a benign year for hurricanes.
The $1.21 billion (euro930 million) quarterly profit ran Allstate’s earnings for the year to a record $5 billion (euro3.85 billion), a number likely to be a flashpoint for critics who say the insurance industry is gouging consumers as it runs away from increased storm risk along the U.S. coastline.
The increased income was due largely to a $378 million (euro291.4 million) drop in catastrophe losses compared with a year earlier, and operating earnings fell short of expectations, sending the Northbrook, Illinois-based company’s shares down in after-hours trading Tuesday.
Net income for the last three months of the year amounted to $1.93 per share, up from $1.04 billion (euro800 million), or $1.59 per share, a year earlier.
Operating income was $1.78 per share, or 6 cents below the consensus estimate of analysts surveyed by Thomson Financial.
Revenue climbed 1.8 percent, to $9.1 billion (euro7.02 billion), from $8.9 billion, topping Wall Street’s forecast of $8.54 billion (euro6.58 billion).
Catastrophe losses for the quarter were a comparatively modest $279 million (euro215.08 million), compared with $657 million a year earlier when Hurricane Wilma alone caused $437 million in losses in South Florida in October 2005.
Property-liability premiums declined 0.8 percent from a year earlier, which the company said reflected the cost of a catastrophe reinsurance program.
The company reported a 2.7 percent increase in Allstate brand auto policies, which it attributed partly to a marketing push.
Analyst Donald Light said the results confirm that Allstate is slowly transforming itself into more of an auto-insurance company as it pulls back from offering homeowners policies in catastrophe-exposed areas. Auto insurance now represents two-thirds of its property-liability premium.
Auto business grew 2 percent for the quarter and 1.5 percent for the year, while homeowners declined by 7.7 percent and 2 percent respectively, he noted.
“So far, the numbers look good,” said Light, of Boston-based Celent, a financial research and consulting firm. “But what happens if more states follow Florida’s lead and say to insurers, ‘If you want to write auto here, you’ve got to write homeowners too?”’
Allstate, operating with Thomas Wilson as CEO since Jan. 1, said it will stop giving operating profit forecasts. Wilson, formerly president and chief operating officer, succeeded Edward Liddy, who led the insurer for nearly eight years and remains as chairman.
The new chief executive said Allstate had strong operating results in the fourth quarter to cap a year of record profitability. “Virtually every area of our company had an outstanding year,” he said in a statement.
Investors, however, were less than impressed. Allstate shares fell $1.18, or 1.8 percent, to $62.82 in extended-hours activity after closing up 47 cents at $64 on the New York Stock Exchange.
Morningstar analyst Jim Ryan said that because of all the homeowners business the company has walked away from, it’s difficult to say exactly how it is doing on a comparative basis.
Market conditions will make it tough for the company to keep up the outstanding numbers of recent quarters, the analyst added.
“Allstate and all the property-casualty insurers are entering a soft market where premium rates are going to decline and it’s going to be hard to keep up profit margins at the level that they’re used to,” Ryan said. “I think they’ll be fine, but it just won’t be at the lofty levels that they’re accustomed to.”
For the full year, net income was $5 billion (euro3.85 billion), or $7.84 per share, nearly tripled from $1.8 billion, or $2.64 a share, in 2005. Revenue was $35.8 billion (euro27.6 billion), up 1 percent from $35.4 billion.
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Allstate Corp.: http://www.allstate.com
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