While many companies are retaining more risk this January renewal season, Allstate Corp. is going the other way, adding a $2 billion nationwide reinsurance program in excess of $2 billion of retained losses from several events.
The move comes as Allstate has moved on a number of fronts to reduce its natural catastrophe exposure. This month, the company said it would no longer write new homeowners' policies in New York City, Long Island and Westchester County.
Allstate Chief Executive Officer Edward Liddy said the new secondary coverage was an effort to improve returns in areas that have known exposure to natural catastrophes.
The new program will cover named storms, earthquakes and fires following earthquakes, and comes in the aftermath of third-quarter losses last year that exceeded $3 billion.
The company said the program will add about $400 million in costs next year once it is fully in place.
Bear Stearns analyst David Small said he believes, after speaking with insurance commissioners, that the company will be able to pass on the additional costs in rate increases, although Allstate President Thomas Wilson said every effort will be made to avoid doing that.
So far the company has only placed $750 million worth of coverage. Bank of Securities analyst Brian Meredith said that was primarily due to the fact that Allstate remains in negotiation over price and choice of carriers.
“But sufficient capacity exists in the marketplace to fully place the program, and we believe the additional protection will be in place by its inception date in June,” he added.
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