January 30, 2006 by Canadian Underwriter
The Allstate Corporation, the second-largest property casualty insurer in the U.S., has announced new reinsurance agreements for its countrywide personal lines property and auto insurance business, excluding Florida, and for personal property excess losses in California for fires following earthquakes.
“The fundamental goal of Allstate’s catastrophe management strategy is to enable our shareholders to earn an acceptable return on the risks assumed in our personal lines property business and to reduce the associated variability in our earnings,” Edward M. Liddy, the chairman and CEO of The Allstate Corporation, said in a press release. “While in many areas of the country we are currently achieving returns within acceptable risk management tolerances, we continue to seek solutions to improve returns in areas that have known exposure to hurricanes, earthquakes and other catastrophes.”
The new Countrywide Catastrophe Aggregate Excess Reinsurance Agreement is effective Jun. 1, 2006 for a term of one year. Its terms include $2 billion in coverage in excess of $2 billion of retained losses from:
Storms named or numbered by the National Weather Service
Fires following earthquakes.
The California Fire Following Agreement is effective Feb. 1, 2006 and expires May 31, 2008. In this agreement, coverage is not to exceed $1.5 billion for any one-loss occurrence in excess of $500 million and $3 billion in total. Coverage is fully placed for Allstate Protection’s personal property excess losses in California for fires following earthquakes.
“We anticipate that the total cost of these agreements will be approximately $600 million per year or $150 million per quarter,” the company says in a press release. “Based on the effective dates of these agreements, our costs are expected to increase to approximately $75 million in the second quarter of 2006 and to approximately $150 million in the third quarter of 2006.”
“We will aggressively seek to include reinsurance costs in our premium rates in order to mitigate the impact of this increase,” Thomas J. Wilson, Allstate’s president and COO, added. “We also continue to study the efficiencies of our operations and cost structure, which may offset some portion of the increased reinsurance costs.”
News of the new reinsurance agreements comes after Allstate announced US$3.68 billion pretax loss in the third quarter of 2005 from Hurricane Katrina, which resulted in a third-quarter net loss of US$1.55 billion
Allstate has also offered a voluntary buyout program for between 600 and 700 of its Chicago-office employees, A.M. Best reports. An Allstate spokesperson is quoted as saying the buyout program is not related to financial losses sustained because of the hurricanes.