IRVING, Texas March 01 (BestWire) — Allstate Corp. said it would begin limiting its writing of new homeowners policies along the Gulf Coast of Texas.

Beginning March 27, Allstate (NYSE:ALL) still will write new homeowners policies in coastal counties, but it will require all windstorm coverage to be written through the Texas Windstorm Insurance Association. The windstorm association is a statewide pool funded by policyholder premiums. For the next counties inland, Allstate will continue to write new homeowners business for current Allstate customers but won't write any new homeowners policies for new customers. And for the second and third group of counties inland, the company is increasing the required cyclone deductible to 2%, up from 1%.

Allstate spokesman Joe McCormick said the changes are part of Allstate's ongoing shedding of coastal risk after the 2005 hurricane season.

"We were taking a really careful approach to that since Hurricane Andrew (in 1992), but this past year has forced us to rethink our approach," McCormick said. "We want to make sure that one or two huge storms don't wipe us out. Allstate's committed to the Texas marketplace. We just want to do it in the right way."

Allstate's net income fell to $1.76 billion in 2005, down from $3.2 billion in 2004 (BestWire, Feb. 1, 2006). This was driven by catastrophe losses, including a $3.68 billion pretax loss from Hurricane Katrina and a pretax $850 million loss from Hurricane Rita, both in the third quarter of 2005.

Rita caused Allstate about $500 million in losses in Texas alone, McCormick said, with about 30,000 claims. Allstate has about 800,000 homeowners policyholders in the state, the company said.

McCormick said "it's hard to imagine the kind of damage a storm like that would inflict" had it stuck to its original path toward Galveston, Texas. Insurance specialist Ken Stanton, an assistant professor of finance at the University of Baltimore, called a powerful hurricane hitting Galveston a "doomsday scenario" for the city (BestWire, Sept. 21, 2005).

"It's not a matter of will it happen, it's a matter of when," McCormick said.

According to the National Oceanic and Atmospheric Administration, the deadliest natural disaster in the United States was the 1900 Category 4 hurricane that struck Galveston, devastating the area and killing 8,000 people. An 18-foot sea wall was constructed after the hurricane to protect against future storms, but NOAA said it doesn't make the city "invincible" against powerful hurricanes.

In a statement, Allstate, the second-largest homeowners insurer in Texas, said the hurricane risk is increasing. The company noted that experts predict a cycle of more frequent and intense storms in the decades ahead, while the growth of coastal populations is outpacing the rest of the county by a 3-to-1 margin.

A tropical storm forecaster, Tropical Storm Risk, is predicting the United States and the Caribbean will experience another active Atlantic hurricane season in 2006, with landfalling hurricane activity to be 60% above the 1950-2005 norm — and an 81% likelihood the hurricane activity will be in the top one-third of years historically (BestWire, Dec. 6, 2005).

McCormick said Allstate is working on arrangements to allow its agents to pass new customers to other markets in areas where the insurer won't be writing any new policies for new customers. He said Allstate also is considering its renewal options.

Earlier this month, regulators said Allstate would begin nonrenewing homeowners insurance policies this May in coastal areas of New York (BestWire, Feb. 7, 2006). The move came about a month after Allstate announced it wouldn't be writing any new homeowners business in New York City, Long Island and southern Westchester County (BestWire, Jan. 13, 2006).

Allstate also has entered new agreements to supplement its existing reinsurance program for its nationwide personal-lines property and automobile insurance business (BestWire, Jan. 10, 2006). The new nationwide catastrophe aggregate excess reinsurance agreement will provide $2 billion of coverage in excess of $2 billion in retained losses from storms named or numbered by the U.S. National Weather Service, earthquakes and fire following earthquakes. The agreement is effective June 1, 2006, for one year. The Atlantic hurricane season begins June 1.

The company said it also expects to increase the coverage limits in its New Jersey and Texas treaties by $100 million for each state treaty, effective June 1. The expected increase in coverage limits is linked to hurricane risks in the two states.

The top five writers of homeowners multiperil in Texas in 2004, according to A.M. Best Co. state/line product information, were: State Farm Group, with a 29% market share; Allstate Insurance Group, with 16%; Farmers Insurance Group, with 11.5%; USAA Group, with 7%; and St. Paul Travelers Cos., with 6%.

Allstate Insurance Group, led by Allstate Insurance Co., primarily writes personal property/casualty and life insurance. Established in 1931 by Sears, Roebuck & Co., Allstate is the country's second-largest property/casualty underwriter and ranks among the 25 largest life and health insurers.

The property/casualty operations under Allstate Insurance Group currently have a Best's Financial Strength Rating of A+ (Superior).

On the afternoon of March 1, Allstate's stock was trading at $54.69 a share, down 0.16% from the previous close.
(By Rick Cornejo, associate editor, BestWeek: rick.cornejo@ambest.com) BN-NJ-03-01-2006 1604 ET #

Click here for a list of companies related to this BestWire News Story