Allstate Corp. plans to raise rates on its auto insurance products after the company suffered a 41% decline in its operating earnings during the second quarter of 2015, the national property/casualty insurer announced this week.
Shares fell 4.6% to $66.20 on the Monday news that Allstate had missed analyst expectations, with pretax catastrophe losses reaching $797 million during the second quarter and operating profit peaking at $262 million (63 cents a share) – down from $445 million during the same period last year ($1.01 a share).
Financial analysts polled by Thomson Reuters had expected a per-share operating profit of 97 cents with net premiums written of $7.91 billion.
Allstate Chairman and Chief Executive Tom Wilson attributed the decline in performance to a widespread increase in the frequency and severity of auto accidents as well as seasonally high catastrophe losses. He stressed that the carrier has already put cost-saving measures in place to limit the fallout from such trends.
“While recent growth in Allstate brand auto policies in force did increase frequency, since new business typically has higher relative frequency, this was not the primary driver of a higher combined ratio,” Wilson said. “We have responded aggressively to improve profitability with rate increases, tighter underwriting standards and expense reductions.”
The news comes after Allstate secured approval for a 1.5% rate hike for all of its auto products during the second quarter in 34 states, with total brand rate increases reaching 3.5% during the past year. The insurer says it will pursue further rate increases in future for Allstate-branded products as well as for its Esurance and Encompass brands.
The company also plans significant cost reductions in advertising, technology and personnel, and Wilson suggested earlier this month that Allstate is considering the possibility of selling customer telematics data to analytics companies representing local businesses.
This is the second quarter in which the company has reported losses in its auto business. During the first quarter of 2015, the property/casualty giant suffered a 48% decline in underwriting income from auto coverage reporting just $144 million in auto underwriting income with a combined ratio of 96.8.
“There are more accidents now over the last couple of years than there have been because economic activity has gone up,” Wilson said at the time. “We and other people have been raising our rates to account for that.”
Overall, Allstate reported a profit of 355 million for the second quarter – down from $645 million during the same period in 2014.
