Allstate, rivals facing 'manageable' claims

Sep 03, 2008 (Chicago Tribune - McClatchy-Tribune News Service via COMTEX) -- ALL | Quote | Chart | News | PowerRating -- Sep. 3--Insured losses for Hurricane Gustav could reach as high as $10 billion, which would make it the sixth-most-costly U.S. catastrophe.

That's potentially bad news for two Illinois-based insurers, Allstate Corp. and State Farm, because they have the most property and casualty exposure in Louisiana. But the news isn't as bad as it might have been. Both have taken steps since Hurricane Katrina in 2005 to better manage their vulnerability to disasters in the Gulf region. The area also represents a relatively small piece of their business overall.

"The impact of Hurricane Gustav was significantly less than it could have been, which is a positive for the industry and Allstate in particular," said Tom Kersting, an analyst for Edward Jones. "Allstate will have high levels of claims, but it should be manageable."

On a day when the Dow Jones industrial average closed down 0.2 percent, Northbrook-based Allstate stock closed up 0.2 percent, at $45.20 a share.

Since Katrina, the nation's biggest publicly traded home and auto insurer has been curbing its homeowner's business in disaster-prone areas nationwide.

Allstate's exposure to Gustav, as measured by 2007 direct written Louisiana premiums for most insurance lines, is about 15.5 percent of the market, down from 17.2 percent in 2005. That put Allstate second only to State Farm's exposure of 28.6 percent, compared to 30.3 percent in 2005, according to Stifel Nicolaus & Co. and Sandler O'Neill & Partners.

Louisiana accounts for less than 2 percent of both companies' total 2007 direct written premiums.

As of Tuesday afternoon, Bloomington-based State Farm had received about 2,500 homeowner's claims, with many being filed "virtually," including over the phone, spokesman Fraser Engerman said.

But "it's very early, and those numbers will increase as people are allowed to go back in to assess the damage," he said.

Allstate said it's focusing on getting its catastrophe team deployed in the state, particularly into the hardest hit areas. It didn't have a claims number Tuesday afternoon.

Offshore damage to oil platforms and wells, as well as production interruptions caused by wind and waves, could range from $1 billion to $3 billion, and insured losses for onshore damage to residential and commercial properties, as well as business interruption, could reach $3 billion to $7 billion, said Risk Management Solutions, a Newark, Calif.-based catastrophe risk management firm.

But, in contrast, Hurricane Katrina caused $41.1 billion in insured losses in August 2005, or $43.6 billion in 2007 dollars, according to the Insurance Information Institute.

As of late Tuesday afternoon, Gustav was no longer a hurricane, but it was still expected to dump several inches of rain in northern Louisiana and eastern Texas.

Louisiana Gov. Bobby Jindal said his state was only at "halftime" and was worried the damage from rain could exceed Gustav's pounding of the coast.

"This is a serious storm that has caused serious damage in our state," he said, according to The Associated Press. "We're pleased we have not seen major flooding in New Orleans and places that flooded before, but we are facing major challenges in other parts our state."

Eqecat Inc., an Oakland-based catastrophe analysis firm, on Tuesday reduced its estimated onshore insured losses to a range of $3 billion to $7 billion, primarily in Louisiana, from an initial landfall estimate Monday of $6 billion to $10 billion.

The most costly U.S. property catastrophes are Hurricane Katrina, Hurricane Andrew, the Sept. 11 terrorist attacks, the 1994 California earthquake and Hurricane Wilma, according to the Insurance Information Institute.

Robert Hartwig, president of the institute, said he has seen estimates of insured losses of Gustav ranging from $2 billion to $10 billion, excluding the impact on energy-related industries. He said $5 billion sounds reasonable.

"The storm bore more similarities to Hurricane Rita," which caused insured losses exceeding $5 billion, he said. "It was the same part of country and a similar intensity."

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