Allstate Puts Hurricane Loss at $700 Million

Allstate Insurance Co., a unit of Sears Roebuck & Co., Friday said its after-tax loss from Hurricane Andrew could reach $700 million, the highest estimate among insurers to date.

If the estimate is accurate, it would result in a third-quarter loss for Sears, a company spokesman said. In the 1991 third quarter, the big retailer had net income of $229.2 million, or 67 cents a share.

Allstate, with the second-largest share of the Florida and Louisiana homeowners’ markets after State Farm, said it expects to receive 165,000 policyholder claims for more than $1 billion in losses.

Allstate spokesman Al Orendorff said 62,696 Florida customers and 21,054 Louisiana customers had filed claims as of Friday morning. The numbers do not count business insurance claims, which Orendorff said the company was still totaling.

Florida Insurance Commissioner Tom Gallagher said Friday that insurance claims adjusters have been overwhelmed by the destruction wrought by Andrew.

Allstate has brought in more than 1,100 out-of-state claims people to assist nearly 2,000 workers stationed in Florida and Louisiana.

Allstate Chairman Wayne E. Hedien said the insurer can weather the damage and has a surplus of nearly $8 billion for catastrophes such as Andrew.

The financial impact of the loss will be spread over several quarters, Allstate spokesman Bob Lapinski said. “This is not a one-time charge,” he said.

Claims payments will likely continue into next year, Lapinski said. The company has received 84,000 claims.

The storm hits Sears in one of its most profitable businesses. Last year, Allstate’s income of $722.5 million surpassed the $486.3 million earned by Sears’ retailing operations. The insurance unit contributed $19.35 billion of Sears’ $57.2 billion in revenue in 1991.

After closing at a three-month high Thursday, Sears stock fell on the news, closing down $1.125 at $41.375 on New York Stock Exchange volume of 896,300 shares.

Standard & Poor’s Corp. said it may downgrade its AA+ rating on the claims-paying ability of Allstate Insurance Co. Group because of the hurricane losses.

Hurricane Andrew destroyed 85,000 homes and left as many as 250,000 people homeless when it struck southern Florida on Aug. 24. The storm also lashed Louisiana and the Gulf Coast, but damage there was less severe.

Andrew resulted in an estimated $7.3 billion of insured losses in Florida alone, according to the American Insurance Services Group. Losses on the Gulf Coast are estimated at $500 million.

Hurricane Hugo in 1989 was the industry’s costliest catastrophe to date, with $4.2 billion in insured losses.

According to Barnett Banks Inc.’s chief economist, John Godfrey, damage from Andrew appears to be roughly three times that of Hurricane Hugo, which smashed into Charleston, S.C., in September, 1989. Property damage from Hugo totaled $6.3 billion, of which only $4.2 billion was paid for by insurance companies.

Based on the $7.3-billion estimate, closely held State Farm this week estimated its insured losses at $750 million. The company cautioned that the figure wasn’t based on numbers from its own adjusters.

Reliance Group Holdings Inc. on Friday said Hurricane Andrew would cut third-quarter after-tax earnings by about $20 million, or 27 cents a share.

Reliance said it will post results of about break even for the quarter, after the hurricane losses. For the first six months of 1992, Reliance reported net income of $42.5 million, or 57 cents a share.