Allstate Sees Auto Claims Rise

August 10, 2015

Allstate Corp. reported net income fell to $355 million in the second quarter, down from $645 million, as the insurer coped with rising auto claims costs. The Allstate brand suffered an underwriting loss for the quarter.

The company stressed that it has a rate increase plan in effect to address the rising auto claim costs, along with steps to tighten underwriting standards and lower expenses.

“We are broadly increasing rates to catch up, and then keep pace, with increased loss costs,” Allstate President Matt Winter said during a conference call.

CEO and Chairman Thomas Wilson said the increase in auto accidents is “broad-based by state, risk class, rating plans and the maturity of the business, and consequently appears to be driven by external factors,” including insureds driving more miles.

Winter said the company is also watching several trends that could affect auto claims severity going forward, including newer and more complex vehicles with expensive electronic components, the growth in the average number of parts replaced per claim, and an increase in more labor hours per claim.

Winter also said the largest increase in miles driven has been on interstate roads where accidents occur at higher speeds.

Second Quarter Results

Allstate Protection had an underwriting loss of $8 million and a combined ratio of 100.1 in the second quarter of 2015, as underwriting income of $86 million from the Allstate brand was more than offset by investments in Esurance’s growth strategy and higher non-catastrophe losses in the Encompass brand.

Allstate brand underwriting income declined from $299 million in the second quarter of 2015 as the auto combined ratio deteriorated by 6.0 points from the favorable results in the prior year to 101.4 due to higher auto claims frequency and severity.

Homeowners underwriting income improved by $103 million to $91 million in the second quarter due to a consistently strong underlying combined ratio and lower catastrophe losses.

Operating income was $262 million in the second quarter of 2015, as lower auto insurance margins and seasonally high catastrophe losses resulted in a small underwriting loss.

Allstate’s revenues were $9.0 billion in the second quarter of 2015, reflecting a 4.7 percent increase in insurance premium from the prior year quarter, which was partially offset by lower investment income and capital gains.

Property-liability net written premium grew by 4.4 percent to $7.9 billion in the second quarter of 2015 compared to the prior year quarter, largely due to an increase in Allstate brand premium.

Allstate brand auto net written premium rose 4.9 percent due to a 3.3 percent increase in policies in force and higher average premium. Allstate brand average auto premium increased 2.1 percent in the second quarter of 2015 over the prior year due to rate increases taken so far this year, as well as in 2014.

Allstate brand homeowners net written premium increased 3.1 percent in the second quarter of 2015 over the prior year, as average premium increased 1.3 percent and policy in force growth increased to 1.2 percent.

Net written premium at online seller Esurance rose 9.1 percent in the second quarter of 2015 over the prior year quarter, due to higher average auto premium and a reduction in policy growth to 6.4 percent, reflecting profit improvement actions.

The independent agency division, Encompass, saw net written premium decrease by 0.9 percent in the second quarter of 2015 from the prior year as a decline in policies in force due to profit improvement initiatives offset higher average premium.

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