Allstate Profit Weakens as Accidents, Claim Costs Increase

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Car insurers are raising rates to cover higher prices for repairs and replacement vehicles

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Allstate’s first-quarter adjusted income fell to $726 million from $1.87 billion a year earlier, primarily because of the company’s worsened car-insurance underwriting results.

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A top-five car US insurer by market share, Allstate said it is continuing to take steps to address the impact of higher costs. The industry has been among the hardest hit as inflation has accelerated to its fastest pace since 1982.

In contrast, Allstate enjoyed strong profitability in the year-earlier quarter as it benefited from Americans working from home rather than commuting. Rush-hour fender-benders—a leading source of claims—were running well below prepandemic levels.

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Now, growing numbers of people are commuting again, and many Americans are using interstate highways for vacation trips.

Allstate said inflation has boosted prices for car repairs, replacement vehicles and rental cars, while auto-accident frequency has ticked up.

“I think I would describe inflation as like the pig going through the python: It doesn’t go very fast,” Allstate Chief Executive Tom Wilson said in an interview. “We think inflation is here for a while, so we’ve been raising prices pretty aggressively, as well as reducing our expenses.”

Industrywide, claims costs also have risen as a result of 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, Moody’s Investors Service summarized in a report this week .

Many car insurers are seeking to pass the higher costs back to customers. They are boosting 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 car-insurance premium rate increases average 6.5% nationwide, though they vary widely because of different state-insurance regulations. Homeowners, on average, are paying 14% more, most of it attributable to higher insured values, he said.

With those increases starting to go into effect, Allstate said its property-liability earned premium, a common industry measurement of revenue, rose 6.1% to $10.5 billion in the first quarter, including car and home-insurance policies. Still, underwriting income for the car- and home-insurance businesses fell 83% to $280 million, from $1.66 billion.

Allstate has altered its investment strategy to deal with rising interest rates, Mr. Wilson said. Last year, it began shifting more into shorter-duration bonds as a way to suffer fewer losses as interest rates rise and to more quickly start earning higher yields.

Allstate’s catastrophe costs were lower, at $462 million, compared with $590 million a year earlier. Last year’s first quarter included frigid February weather in Texas and other states that caused frozen pipes to burst, leading to extensive water damage.

MetLife’s adjusted earnings, 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 driven by lower variable investment income, which includes money earned from the slice of its portfolio in nontraditional holdings such as private-equity funds.

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

which reported results Tuesday, on Wednesday attributed improved results for its US businesses in part to declining Covid-19-related death claims.

Both Allstate and MetLife reported improved net income. Allstate swung to a $630 million profit from a $1.41 billion loss a year earlier. The loss was tied to the divestiture of certain life-insurance businesses.

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

Write to Leslie Scism at [email protected]

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Credit: www.wsj.com /

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