Climate catastrophes take toll on Allstate Q2 earnings

Severe weather and climate catastrophes took their toll on Allstate Corp.’s earnings in the second quarter this year as the insurer reported a wider adjusted loss per share compared to the previous quarter and the same period last year.

Allstate's adjusted earnings per share for the second quarter fell to -$4.42, a figure well off the Wall Street consensus estimate of -$3.96. The loss was substantially larger than the -$1.31 recorded in the first quarter of the year and a considerable rise from the -$0.75 reported in the second quarter of 2022.

Total revenue, however, managed to surpass expectations, reaching $13.98 billion, outperforming the average analyst estimate of $13.36 billion. This also indicated an upward trajectory from $13.79 billion in Q1 and $12.22 billion in Q2 2022.

Allstate President and CEO Tom Wilson said the second quarter was marked by a staggering 42 catastrophic events, resulting in a net catastrophe loss of $2.7 billion, impacting about 160,000 customers.

Will curb homeowners' policies in Calif.

During the quarter, Allstate said it would curb homeowners' policies in California, citing soaring rebuilding costs induced by the post-pandemic inflation spike and supply-chain disruptions, in addition to natural disasters, chiefly wildfires, made worse by climate change.

In response to the underwriting losses experienced during the quarter, Allstate said it suspended its $5 billion stock repurchase authorization in July. This move reflects the company's commitment to navigate the financial challenges posed by the surge in catastrophe losses and ensure the stability of its financial position, the company said.

Wilson emphasized the company's ongoing efforts to implement an auto insurance profit improvement plan, which he said has demonstrated success in enhancing the overall profitability of this segment.

'Profit improvement plan' cited

“For the first couple of quarters this year we've seen the average earned premium trend begin to outpace the increases in loss and expense,” Mario Rizzo, Allstate’s president of property liability told analysts in an investors call Wednesday. “It's hard to predict what the future will hold, but that's an encouraging development underneath that last trend. We're going to continue to aggressively implement our profit improvement plan and we can see the benefits that the cost reductions are having on the combined ratio.”

Rizzo mentioned three problematic states: California, New York, and New Jersey, which make up about a quarter of the company’s auto insurance book.

“We want to keep pushing on continuing to drive rate increases into the book,” he said. “We've gotten some approval so far this year, but there are pretty significant rates pending in California and New Jersey, and we're prepared to file another rate in New York. So, we're going to keep pushing really hard on that. And in the meantime, we've scaled way back on new business production in those states.”

Wilson said he was confident the auto insurance profit improvement plan will restore profitability.

“The homeowners insurance business is designed to generate underwriting profits, and proactive investment management will create additional capital to grow market share, expand protection offerings and provide cash return to shareholders,” he said. “Or they will continue to proactively manage capital to navigate the current operating environment and be well positioned for growth to increase shareholder value.”

Homeowners' prices may increase

In light of the elevated severity and frequency of catastrophes, the company said it is pursuing a strategy of increasing homeowners’ prices. However, despite these measures, the quarter saw the impact of increased claim frequency and severity, effectively offsetting gains from price adjustments and operating efficiency improvements.

Allstate reported growth in consolidated premiums written for Q2, reaching $13.73 billion compared to $12.87 billion in the first quarter and $12.64 billion in the second quarter of the previous year.

Wilson cast high hopes on future quarters.

“Allstate will improve results while building an enhanced business model to better serve customers, generate attractive returns for shareholders, and create opportunity for the Allstate team,” he said.

Allstate stock was off nearly 4% in midday trading Wednesday, at 108.50 per share.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].