Allstate seeks long-odds all-loss aggregate reinsurance to protect capital

US homeowner and auto insurer  Allstate is eyeing additional aggregate stop-loss reinsurance cover to trim earnings volatility in long-odds total risks and ease concerns over recent capital erosion, a top company official told an analyst conference.

“We continue to proactively evaluate capital management options, including purchasing additional reinsurance that lowers volatility and therefore reduces required capital at an economically attractive rate,” Jess Merten, CFO of Allstate, told an investor gathering hosted by Barclays.

Allstate is currently looking at its options for an aggregate programme, inclusive of all loss cost and not just nat cat, to cover events outside the 1:100 threshold, Merten indicated. The programme could “significantly reduce the volatility of earnings that we retain for those outside the 1:100 events,” he said.

Merten worked to soothe investor concerns which were palpable at the meeting after Allstate broke the charts with $1.7 billion in net losses in the first half.

“Otherwise at this point, we feel very comfortable with capital,” Merten said. “We are comfortable that we have the capital we need to operate the business through this cycle and I am very confident we have enough power to rebuild any capital that we eroded.”

Allstate’s preferred method of capital rebuilding will be earnings retention and Merten vowed “we are going to take rate aggressively until we get through.”

Cat losses have spelled the difference to date. Cat losses accounted for 22.6 points on the combined ratio in Q2 after 14.5 points in Q1. Cats accounted for 77.7 points on that line’s Q2 combined ratio and 51.4 points in Q1.

Allstate had already signalled the pending need to alter capital policy with word in July that they were suspending a share repurchase programme.

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