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Letter to the Editor
Thursday October 23
Allstate Reports 2008 3Q $923 Million Net Loss
The Allstate Corporation has reported results for the third quarter of 2008, posting a $923 million net loss for the quarter. Catastrophe losses of $1.8 billion, including losses from Hurricanes Ike and Gustav, were partially mitigated by exposure reduction actions and reinsurance. Pre-tax net realized capital losses of $1.3 billion reflect unprecedented declines in credit markets, partially offset by positive impact of risk mitigation programs. However, profitability from underlying underwriting remains strong and within full-year outlook range, according to a company press release.Consolidated revenues were $7.3 billion in the third quarter of 2008 compared to $9.0 billion in the third quarter of 2007, reflecting net realized capital losses in the third quarter of 2008 compared to net realized capital gains in the third quarter of 2007.
Property-Liability premiums written declined 1.5 percent in the third quarter of 2008 from the third quarter of 2007. Excluding the impact of the catastrophe reinsurance program, Property-Liability premiums written declined 2.4 percent in the quarter. Allstate brand standard auto premiums written declined 0.7% in the third quarter of 2008 from the third quarter of 2007.
“Catastrophes, including two of the ten costliest hurricanes in U.S. history, and the impact of a global financial crisis contributed to a quarterly net loss for our company. In this environment, our proactive and decisive approach to risk reduction has benefitted Allstate,” said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation. “Hurricane losses would have been twice as high without our catastrophe management programs. Our investment portfolio initiatives enabled us to avoid large losses in financial companies and helped protect the value of our equity investments. Our property-casualty business continued to deliver good underlying margins and operating cash flow, which is extremely important in this economic climate. As a result, Allstate has maintained strong liquidity and capital positions which protect our customers and shareholders in these difficult times.”
Allstate’s operating loss of $190 million for the third quarter of 2008 is primarily attributable to catastrophe pre-tax losses of $1.8 billion from 35 events, including Hurricanes Ike and Gustav. The $923 million net loss for the third quarter of 2008 reflects the operating loss and net realized capital losses of $728 million.
Losses from Hurricanes Ike and Gustav were mitigated by catastrophe exposure management actions taken over the last several years, which include reductions in policies in force, reinsurance and policy changes. Reflecting the combination of reduced policies in force and ceded wind coverage in the coastal regions of Texas and Louisiana, at the beginning of the third quarter of 2008, Allstate’s catastrophe exposure was 42 percent and 33 percent, respectively, below 2006 levels. Reinsurance recoverables during the quarter offset losses by $246 million. Allstate’s analysis shows that the company’s losses from Hurricanes Ike and Gustav would have been approximately twice the amount recorded in the third quarter without the catastrophe exposure management actions and reinsurance programs put into place beginning in 2005.
As of September 30, 2008, Allstate's consolidated total investments were $105 billion, with more than two-thirds in investment grade fixed income securities. From June 30, 2008 to September 30, 2008, the company’s portfolio value declined by approximately $8.6 billion, primarily reflecting reduced market valuations of $4.6 billion and net sales of $3.8 billion to fund net reductions in liabilities. The $4.6 billion decline in market valuations during the period was predominantly due to the widening of credit spreads and, to a lesser extent, equity market value declines. The decline was reflected through a $3.3 billion increase in net unrealized losses and $1.3 billion of realized capital losses.
Net realized capital losses for the third quarter of $1.3 billion on a pre-tax basis reduced net income by $728 million. Net realized capital losses primarily consisted of impairment write-downs of $666 million and change in intent write-downs of $453 million.
Net unrealized losses, primarily reflecting depressed valuations from widening credit spreads, were $4.1 billion as of September 30, 2008. Gross unrealized losses as of September 30 were $6.3 billion, $2.5 billion higher than June 30, 2008. Given its current level of liquidity, the company intends and believes it has the ability to hold these assets to recovery and therefore does not anticipate significant conversion from unrealized to realized losses.
During the third quarter, Allstate sold 33 percent of securities identified as part of the targeted $3.3 billion risk mitigation program. These assets were sold at approximately 95 percent of the fair values reported at June 30, 2008.
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