First up – the implications of Bloomberg’s headline: Allstate Declines Bailout OFFER From U.S. Treasury . Offer? Surely Uncle Sam isn’t walking Wall Street offering bailout money!
Even if Uncle is offering, it still can’t be anything but good news that Allstate Corp., the largest publicly traded U.S. home and auto insurer, declined to take U.S. rescue funds, joining Ameriprise Financial Inc. in turning down federal aid as banks move to exit the bailout program.
Government help isn’t needed, “given Allstate’s strong capital and liquidity positions,” Chief Executive Officer Tom Wilson said in a statement today. The Northbrook, Illinois-based insurer said the value of its securities portfolio gained more than $1.5 billion from April 1 to May 13 after investment declines caused net losses in the three prior quarters.
Allstate was among six insurers including Prudential Financial Inc. and Hartford Financial Services Group Inc. granted preliminary approval last week to tap the Troubled Asset Relief Program.
Insurers, which clamored last year to qualify when asset values plunged, have reassessed federal relief as markets improved and banks that took funds last year chafed at the terms. “The financial institutions that took TARP feel they ended up dancing with the devil,” said David Havens, managing director at investment bank Hexagon Securities LLC. “It’s nice to have the option in your back pocket, to have something you can pull out in a last ditch effort, but it’s not the preferred way of raising cash.
It’s about time someone pointed out there are better ways to raise case. The best for Allstate and other insurance companies, of course, is working for money by selling insurance products, not bundles of worthless paper.
In Alabama, Allstate seems to be doing just that – or trying to – according to New company could help Allstate keep agents and other business, Jeff Amy’s story in the Press Register
Besides giving Allstate Corp. more control over prices, North Light Specialty Insurance Co. could help the parent company retain its agents and other insurance business.
Unlike an independent insurance agent, who can sell policies from a number of different companies, Allstate employs what are called captive agents, who generally sell only the company’s own policies. That creates a problem when the firm stops writing new homeowners policies, as it has in Mobile and Baldwin counties.
Because most insurers offer discounts to customers who buy auto or life insurance in addition to homeowners coverage, Allstate agents have to work harder to win new business, and could have trouble keeping the business of people who lost wind coverage.
Companies that have cut homeowners coverage have seen agents defect, some taking customers with them to new insurers. For example, some Baldwin County agents left Alfa Mutual Insurance after it cut back. Captive agents can sell policies from the Alabama Insurance Underwriting Association, the state insurer of last resort known as the beach pool. And Allstate has also allowed local agents to sell policies from GeoVera Insurance Co., a California-based surplus lines company, said Allstate spokesman Shane Robinson.
But with North Light, Allstate can keep that wind coverage for itself, and retain agents who sell profitable auto and life policies, said Amy Bach, head of United Policyholders, a consumer group. “They don’t want to lose their market share,” she said. “Obviously, the agent factor is a big part of this.”
Here at SLABBED, we’ve continually expressed our concern for the impact of insurers’ Katrina claims handling and related coverage decisions were having on local agents. The “agent factor” should be a big part of any insurer’s plan.
It’s important to note, however, that North Light is a surplus line. Jeff Amy addresses the implications in Allstate selling policies again along Alabama coast through lightly regulated company
North Light’s appearance gives some homeowners another coverage option. But it raises questions about the future of the traditional insurance market in coastal areas. If companies can set up surplus lines and charge what they want, why would they remain under state oversight? Surplus lines policies are written by companies not licensed by the state. Besides not regulating their rates, the state doesn’t review policy forms of surplus carriers, and the state guaranty fund won’t bail out policyholders if a surplus lines insurer goes bust.
Homeowners typically turn to surplus lines policies, which are often more expensive, when they can’t find coverage from regulated carriers. Under state law, two regulated carriers must refuse an applicant before an agent can offer the surplus line, although state regulators don’t routinely monitor that requirement.
Allstate spokesman Shane Robinson said that the company launched North Light to write more “hard risks.” Amy Bach, the executive director of United Policyholders, a consumer advocacy group based in Berkeley, Calif., said it seemed a “pretty obvious ploy” by Allstate to herd consumers to more expensive policies.
Companies suffered big losses on bad investments over the past year, and may be trying to make up the money, Bach said. “The carriers are on a full-court press with the regulatory bodies to try to get relief from rate control,” she said. Robinson said Allstate’s first choice would be to write a traditional policy. North Light, he said, “was set up to offer an alternative.”
Insurance Commissioner Jim Ridling said that Allstate told him it’s not trying to move all its hurricane-prone business into North Light. “They didn’t say that as their long-range plan,” he said. “But Allstate does want to cut its risk on the coast.” Allstate still retains wind coverage on some policies in Mobile and Baldwin counties, but won’t say how many. It’s not hard for a homeowner to find two rejections when looking for coverage in Mobile and Baldwin. Here, State Farm Mutual Automobile Insurance Co. is the only large regulated carrier writing new policies for homes. ”
The excess and surplus carriers are going to be part of the Gulf Coast for your and my lifetimes,” Ridling said. Allstate incorporated North Light last year, putting in $22.5 million. The company began doing business in South Carolina. At first, North Light could not do business in Alabama as it was less than five years old and was not a direct subsidiary of an insurer licensed here. But on March 30, Allstate filed a letter in Illinois saying it was transferring ownership of North Light from Allstate Insurance Holdings to Allstate Insurance Co., which is licensed in Alabama.
Having met state law, North Light entered Alabama two days later. Ridling has been working to recruit carriers, and pushed an unsuccessful bill this year in the Legislature to empower him to bring in insurers that don’t meet all current regulations. But Ridling said he didn’t recruit North Light. Bruce White, chief executive officer of Whitehaven Insurance in Gulf Shores, said that more competition, no matter by whom, is helpful. “It’s good to see another market open up here,” said White, whose company mainly sells surplus lines policies.
Independent agents say that North Light’s prices appear comparable to those charged by other surplus lines companies. Those amounts are usually higher than what regulated insurers charge, but less than what is charged by the Alabama Insurance Underwriting Association, the insurer of last resort known as the beach pool. “The price is going to vary from location to location and house to house,” Robinson said.
Speaking of “Light,” the entry of North Light in the coastal insurance market sheds light on the opposition to Gene Taylor’s effort to add wind coverage to the flood program. When you hear folks cite the availability of private wind coverage as a reason for the opposition, remember the surplus line companies are lightly regulated and state guaranty funds won’t bail out policyholders if a surplus lines insurer goes bust.