08/01/2011 09:33 EDT | Updated 10/01/2011 05:12 EDT

Allstate reports $620M loss in 2Q from storms, yet key payout ratio provides silver lining

BOSTON - Allstate reported a second-quarter loss Monday, hammered by a previously disclosed $2.3 billion in catastrophe losses from waves of tornadoes, wildfires and storms this year.

Yet Allstate's numbers were better than Wall Street had expected as the property and casualty insurer's ratio for claims paid out versus dollars taken in improved. Shares rose nearly 3 per cent before the market opened.

The $620 million loss at the Northbrook, Ill. company amounted to $1.19 per share. That compared with a profit of $145 million, or 27 cents per share, in the same quarter a year ago.

Allstate's adjusted loss for the latest quarter was $1.23 per share. Analysts surveyed by FactSet had forecast a wider loss of $1.46 per share, on average.

Allstate provided coverage during 33 catastrophic events during the April through June quarter, including five tornadoes, three wildfires and 25 wind and hail storms. This year has been the deadliest for tornadoes since 1950, based on an assessment of figures from the National Weather Service.

Before Monday's earnings, Allstate had disclosed pre-tax catastrophe losses of a total $2 billion combined for April and May, and another $300 million for June.

The $2.34 billion total is up from $636 million in the year-ago quarter, and tops a recent quarterly high set in 2008, when Hurricanes Ike and Gustav drove up that year's third-quarter catastrophe losses to $1.8 billion. The company reported $4.7 billion in losses as a result of Hurricanes Katrina and Rita in the third quarter of 2005.

Allstate's catastrophe losses for the latest quarter were more than twice the $1.09 billion reported by a rival, Travelers Cos. about two weeks ago.

Allstate has been pursuing rate hikes in its homeowners unit to offset higher claims from violent storms. The company said rate increases averaging 6 per cent were approved in 18 states during the second quarter.

Homeowner premiums written increased 2.6 per cent in the second quarter, compared with a year ago. A 6 per cent increase in average gross premium was partly offset by a nearly 4 per cent decline in policies in force.

Allstate said its combined ratio improved to 87.5 during the second quarter, from 88.1 a year ago, excluding the impact of catastrophes as well as the previous year's re-estimate of the company's reserves. A ratio above 100 means that for every premium dollar taken in, more than a dollar went to cover claims and expenses. A figure below 100 means the company made a profit on its insurance operations.

Citi Investment Research analyst Keith Walsh said that trends driving the combined ratio were better than expected.

Adding in catastrophe losses, Allstate's combined ratio in the latest quarter was 123.3 points, compared with 96.8 in the year-ago quarter.

Revenue rose nearly 6 per cent to $8.08 billion from $7.66 billion in last year's second quarter.

Allstate brand standard auto policies continued to decline, in line with the company's expectations. Premiums written declined nearly 1 per cent compared with a year ago, reflecting a 0.6 per cent decline in policies in force, and lower average premiums. The level of new policies issued wasn't enough to offset policies that weren't renewed.

Allstate said its financial unit reported operating income grew nearly 13 per cent to $141 million in the second quarter, up from $125 million in the same quarter a year ago.

Also on Monday, Allstate disclosed that the pending sale of its banking unit had fallen apart, and that Allstate Financial would be shut down in the fourth quarter.

Allstate is just the latest insurer to rid or try to rid itself of banking divisions which, under regulations put into place after the banking crisis, put them at a competitive disadvantage with other insurers.

MetLife announced two weeks ago that it was exploring a sale of its banking unit because the insurer was forced to be regulated as a bank holding company.

Allstate spokeswoman Maryellen Thielen said that the required regulatory approvals were not obtained by a date that Allstate and the buyer, Discover Financial Services, had agreed on.

Financial terms were never disclosed.

Shares of Allstate Corp. rose 78 cents to $28.50 in electronic trading.