Posting Major Second-Quarter Net Jump, Allstate Looks to Reposition Fixed Annuities, Get Higher Rates

Allstate Corp.'s chief executive Thomas J. Wilson said the company is happy with its automobile and life businesses but "needs to work on" fixed annuities and homeowners.

During a conference call announcing a major jump in second-quarter earnings to $398 million from $25 million, Wilson said Allstate (NYSE: ALL) was working to reposition its fixed annuity line to get it back to a more profitable level. It's also looking to increase homeowners rates to offset substantial losses the company has experienced due to catastrophes.

The combined ratio in Allstate's homeowners business was 116.3 during the second quarter as the company had record catastrophe losses of $818 million during the quarter. Total policies in force dropped 4.2%. Catastrophe losses the last two years far exceeded the 15-year average.

"Frequency is up, and we are looking to reflect that in pricing," said Wilson, also chairman and president of Allstate Corp. Wilson added that Allstate was not seeing a downward trend in labor or building costs. Much of the catastrophe losses during the quarter were due to wind and hailstorms. Allstate sought homeowners rate increases of 13.3% on average in 16 states during the quarter.

George Ruebenson, chief executive of Allstate Financial and president of Allstate Protection, said an on-staff meteorologist has not determined any change in weather patterns. The recent losses are "bad luck" but "not acceptable," he said.

Wilson said the company has not unsuccessfully swapped hurricane exposure for exposure in the Midwest. Over the long-term the business here is "profitable but a little more volatile."

Allstate reported net income of $389 million during the second quarter this year, compared with net earnings of $25 million the same period last year (BestWire, Aug. 4, 2009). Executives during the call said Allstate put in place hedges, decreasing the duration of assets sensitive to interest, to protect it against rising interest rates during the quarter and increase profit. Don Civgin, chief financial officer, said Allstate also reduced its exposure in commercial real estate by $1.2 billion.

The company's combined ratio was 100 during the second quarter, an increase of 5.6 points over the ratio during the second quarter in 2008. Allstate said its underlying combined ratio, excluding catastrophes, was 87.2 ? in line with expectations and the company's efforts to reduce expenses.

Allstate Insurance Group currently has a Best's Financial Strength Rating of A+ (Superior).

The morning of Aug. 6 shares of Allstate were selling at $27.47, down about 2.7% from the previous close.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)