Allstate’s Shares Continue to Drop
Insurance giant Allstate has been having financial struggles over the past few years – specifically 2008 and the first quarter of 2009 – posting losses of $1.7 billion and $274 million, respectively. These number come in sharp contrast to the profits that were made in years prior. For example, in 2006, the company posted profits of $5 billion, or $7.89 a share, and in 2007,it saw $4.6 billion in profits, which equals $7.83 a share.
Its stock has fallen from $60 in the fourth quarter of 2007 to as low as $14 in March of 2009, but to be fair many financial institutions and insurance companies are in the same boat, and it shouldn’t affect their ability to provide quality health care. In recent weeks, it has bounced back to $25, but is still seeing losses that threaten this number daily.
So what has brought on these new losses?
- Natural disasters. One issue that can be a major problem for any insurance company is the natural disaster. Having to cover damages to homes -and even pay out money to beneficiaries after a life is lost -can strip funds, especially if the natural disaster is major enough. In recent years, Hurricane Katrina was a major blow to the insurance industry, and Allstate was no exception.
- Financial market blowout. Another issue that hit Allstate pretty hard was the massive losses in the financial markets, as well as the credit crisis.
Allstate has tried to make some adjustments to slow down loss:
- Stock buy-back program suspended. In recent times, the company suspendeda $2 billion stock buy-back program in midstream. This helped them to cut their quarterly dividend rate in half and hold on to some of their capital.
- Bond portfolio duration shortened. Another adjustment that the company made was to shorten the duration of its bond portfolio. This way, it would be less sensitive to changes in interest rates and make investments over the years less risky.
- Product cut-backs. Allstate is cutting back on its life and financial products in order to focus more on its “protection” business, which includes auto and homeowners’ policies. These are said to be carried by over 70 million Americans.
For a company that has thrived for over seven decades, recent losses have proven to be difficult, if not devastating. But the company’s initiative to take on new profit-making ventures, make cutbacks where necessary, and benefit from a slowly-recovering economy should hopefully help it to bounce back rather quickly.
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