Allstate Corp. will scale back its homeowners coverage in the Gulf Coast region after Hurricane Katrina caused it to take an “unacceptable” loss of $1.55 billion in the third quarter, the insurer’s chief executive said Thursday.
Chairman and CEO Edward Liddy, while pledging the company’s continued assistance to thousands of affected customers in Louisiana and the surrounding area, said Allstate must reduce its exposure in the region because of the risk of additional heavy catastrophe losses.
Allstate, the nation’s second-largest personal lines insurer after State Farm, similarly did not renew coverage for 95,000 homeowners in hurricane-battered Florida last year and also moved quickly to raise rates there.
“It’s not good stewardship of our shareholders’ capital to have these kinds of losses in extreme events,” Liddy told analysts on a conference call a day after Allstate reported its biggest-ever quarterly loss. “So we just need to get better, smarter and get smaller in some of these coastally exposed areas.”
Katrina is likely to result in at least $34.4 billion in personal and commercial property loss claims, according to a survey of the nation’s insurers released this month.
Allstate executives called it a once-in-500-years event and said there is no way to predict such rare catastrophes by actuarial methods.
The Northbrook, Ill.-based insurer’s third-quarter loss included catastrophe losses of $3.06 billion, of which $2.39 billion was from Katrina and $553 million from Hurricane Rita, along with smaller amounts from hurricanes Dennis and Ophelia.
Liddy said the financial hit from the catastrophes eliminated the equivalent of one and a half quarters of earnings for the year.
“This size loss as a level of exposure is simply unacceptable to us,” he said.
Allstate raised its homeowner rates by 9 percent in Florida after last year’s hurricanes and was recently denied a bid for an additional 18 percent increase. It writes virtually no new policies there now.
The company is expected to act similarly in the Gulf Coast region and could also raise rates elsewhere.
Thomas Wilson, the president and chief operating officer, said Allstate isn’t looking to spread the cost of Katrina among other states. But he did not rule it out as the insurer pushes to reduce its exposure to catastrophic events.
“That’s not the way we do pricing,” Wilson told analysts. “We look at the risk in each individual state and determine what we should charge in that state. That said, as we learn more and as we develop an increased understanding of the amounts of risk we have, we’ll be factoring that into our pricing.”