Allstate Corp.s report Thursday that its second-quarter earnings had fallen 47%, more than expected, prompted the biggest one-day plunge ever in its shares.
Profit from operations at the No. 2 U.S. auto and home insurer fell to $230 million, or 31 cents a share. The biggest catastrophe losses in seven years, a rise in homeowner claims, and lower profits at its life insurance and annuity unit all contributed to the shortfall.
Though Northbrook, Ill., company was not the only insurer hurt by claims from Tropical Storm Allison in June and other bad weather, declines excluding these losses marked a setback for its chairman and chief executive, Edward Liddy, who has raised prices and tightened underwriting to keep a lid on losses.
Usually the market excuses weather-related costs, but this is more than that, said Lynn Yturri, a portfolio manager at Banc One Investment Advisers. It was a very messy quarter. We would have expected better.
Results missed even the lowest analyst estimate in a First Call/Thomson Financial survey of 32 cents a share, which was already revised lower to reflect $536 million of storm losses. Allstates shares slumped 12%, to $36.20, in the biggest drop since the companys initial public offering in June 1993. So far this year, the shares have fallen almost 17%.
The insurers combined ratio which measures the portion of a premium dollar that goes toward paying claims rose to 106.3 in the quarter from 100.9 a year earlier. That means the insurer paid out about $1.06 in claims for every dollar in premiums it received, incurring losses. Excluding catastrophe losses and restructuring charges, Allstates combined ratio rose to 96.5 from 93.9, reflecting more homeowner claims.
Expenses and claims did them in, said Alan Villalon, an analyst at Federated Investors, which owns 2.9 million Allstate shares. They need to get their expenses under control.