As reported in earlier articles here, Allstate Insurance companies are under intense scrutiny by insurance regulators and legislators in Florida. The state officials suggest Allstate is gouging consumers with unjustified requests for rate increases as high as 42%. It is instructive to contrast the tale of woe Allstate is telling those Florida insurance officials to what Allstate tells investors. One thing Allstate told investors was that it has benefited from the lack of major hurricanes in 2006 and 2007.
The President and CEO of Allstate also touted how Allstate had reduced its hurricane exposure. This was partly by canceling hundreds of thousands of homeowners’ policies. Allstate also bought $900 million a year of reinsurance, which was a much larger amount of reinsurance than it had carried in the past. Undoubtedly that purchase ties in with concerns of Florida legislators that Allstate has wrongly failed to lower premiums after taking excessive advantage of the new Florida reinsurance program. That publicly funded program allows Allstate to shift the risk of major losses onto the citizens of Florida, many of them the same citizens who had their homeowners’ coverage cancelled by Allstate. The regulators and legislators believe Allstate has greatly reduced its hurricane risk by canceling most of its homeowners’ policies, and reduced its risk even further by foisting the risk onto the Florida reinsurance fund, so the huge rate increases Allstate requested are not justified.
The President and CEO also told investors that Allstate has done extremely well on the financial front for many years. In little more than a decade, Allstate has raised dividends an average of 11.7% annually. In that same timeframe, Allstate repurchased more than 40% of its outstanding common stock at a cost of almost $16 billion. In sum, those figures mean Allstate has returned more than $23 billion of “excess” capital to shareholders in less than twelve years. To put those outsized profits into perspective, Allstate’s market capitalization when it went public was only $19 billion. Allstate is still extremely well capitalized, even after giving $23 billion, almost $2 billion a year, to its shareholders.
How can those huge profits be justified when insurance rates are supposed to be regulated by each state’s division of insurance? If an insurance company has a lower loss experience payout than projected, that experience should result in lower premiums. Instead, Allstate has paid more than $23 billion dollars to its shareholders (and officers) while complaining that its rates are too low and must be increased.
Looks like insurance regulators everywhere, including Alaska, need to take a much closer look at what Allstate’s actual loss experience has been and whether it has been allowed to charge excessive rates. Bear in mind that Alaska legislators passed a law that allows insurers to increase rates without prior approval by the Division of Insurance. That is certainly a formula for mischief, not only by Allstate, but by other insurers in Alaska.