Allstate’s profit weakens as accidents and claims costs rise

Allstate Corp.

EVERYTHING 3.01%

announced a 61% drop in its closely watched adjusted net profit from a year ago as the U.S. auto insurance industry grapples with rising accident volumes and soaring claims costs .

Another of the largest and best-known publicly traded insurers, MetLife Inc..

MEET 2.51%

, also reported lower adjusted earnings, as it calls its operating profit measure to exclude items deemed non-recurring. The company cited a drop in investment income from non-traditional investments, partially offset by a drop in death claims related to the Covid-19 pandemic.

Allstate’s first-quarter adjusted profit fell to $726 million from $1.87 billion a year earlier, largely due to deteriorating auto insurance underwriting results at the company.

Allstate, one of the top five U.S. auto insurers by market share, said it was continuing to take steps to deal with the impact of rising costs. Industry has been among the hardest hit, with inflation hitting its fastest pace since 1982.

In contrast, Allstate enjoyed strong profitability in the year-ago quarter as it benefited from Americans working from home rather than commuting. Rush-hour bumpers – a major source of complaints – were operating well below pre-pandemic levels.

Today, an increasing number of people are commuting again, and many Americans are using the interstate highways for their vacations.

Allstate said inflation has driven up the prices of auto repairs, replacement vehicles and rental cars, while the frequency of auto accidents has risen.

“I think I would describe inflation as the pig crossing the python: it’s not going very fast,” Allstate Chief Executive Tom Wilson said in an interview. “We think inflation has been there for a while, so we’ve been raising prices quite aggressively, while cutting spending.”

Industry-wide, loss costs have also increased due to more severe damage in many wrecks, resulting from higher average driving speeds, distracted driving and an increase in driving under the influence of alcohol and drugs, summarized Moody’s Investors Service in a report this week. .

Many car insurers are looking to pass on higher costs to customers. They are raising premiums by 6% to 8%, and some are asking for double-digit increases, according to industry executives and analysts.

Allstate’s Mr. Wilson said the company’s auto insurance premium rates have risen by an average of 6.5% nationwide over the past six months, although they vary widely due to different state insurance regulations. Homeowners pay an average of 14% more compared to the previous year, largely attributable to higher insured values, he said.

As those increases begin to take effect, Allstate said its earned premium for liability, a common measure of turnover in the industry, rose 6.1% to $10.5 billion as of first quarter, including auto and home insurance policies. Still, home and auto insurance business underwriting revenue fell 83% to $280 million from $1.66 billion.

Allstate has changed its investment strategy to deal with rising interest rates, Wilson said. Last year, he began shifting more to shorter-duration bonds in order to take fewer losses as interest rates rise and start earning higher yields more quickly.

Allstate’s disaster costs were lower, at $462 million, from $590 million a year earlier. In the first quarter of last year, freezing February weather in Texas and other states caused frozen pipes to burst, resulting in extensive water damage.

MetLife’s adjusted profit, which analysts track as a measure of recurring profitability, fell 12% to $1.73 billion from $1.97 billion. MetLife said the decline was primarily due to lower variable investment income, which includes money earned on the portion of its portfolio in non-traditional holdings such as private equity funds.

Analysts are expected to ask MetLife for more details on Covid-19 trends on Thursday, during the company’s earnings call. Its rival Prudential Financial Inc..

which reported results on Tuesday, on Wednesday attributed improved results from its U.S. operations in part to lower Covid-19-related death claims.

Allstate and MetLife both reported improved net income. Allstate posted a profit of $630 million after a loss of $1.41 billion a year earlier. The loss was related to the disposal of certain life insurance activities.

At MetLife, net income more than doubled to $606 million from $290 million. The life insurer’s prior-year results were hurt by market value losses on the financial hedges it buys to protect the business from falling interest rates and stock markets. When rates and equities rise, as they did in the first quarter of last year, the value of this protection declines.

Write to Leslie Scism at [email protected]

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