On the housing front, Messrs. (Edward) Liddy and (Thomas) Wilson (the former and current CEO) say Allstate has little choice but to pare exposure to disaster-related losses and look for growth in other areas. The company is one of the top five home insurers in all 15 states curving along the U.S. coastline from Texas to Rhode Island, according to A.M. Best Co., a ratings service. It lost $1.55 billion in the third quarter of last year, largely due to the storms. Mr. Liddy’s annual cash bonus, which is tied to Allstate’s results, fell to $538,351 last year from nearly $3.7 million in 2004.

Audit Fans, Allstate posted a loss in the quarter, but—as the following paragraph tells us—did not suffer a loss for the year, the worst “loss” year in the history of insurance. (Why do I keep putting quote marks around “loss”? Bear with me.) In fact, it posted a healthy profit.

Note out how this is framed:

Allstate’s revenues have been climbing steadily in recent years, from $28.87 billion in 2001 to $35.38 billion in 2005. But its net income has fluctuated, climbing from $1.16 billion in 2001 to $3.18 billion in 2004, but dropping to $1.77 billion last year. This year, the industry is on track to report record profits, in large measure because of a hurricane-free storm season.

Net income has fluctuated? I don’t mean to be smart, but of course it fluctuated. Allstate is an i-n-s-u-r-a-n-c-e company. It spreads risk—over time, over geography, over different lines of insurance. Insurance is supposed to be risky. To give a little perspective, Allstate’s horrible net income is about what Dow Jones & Co., this particular paper’s publisher, posted in revenue last year. DJ’s 2006 operating income was $106 million. Allstate’s CEO, Liddy, made a third of that recently all by himself by selling some of his Allstate shares.

This is a bad year?

Investors aren’t fooled. Go to Yahoo Finance, type in ALL, Allstate’s stock symbol, and compare the stock’s performance to the S&P 500 over five years. And, by the way, the S&P did just fine during the period.

And what if, as a federal court in New Orleans has now found, at least some profits are coming out of claims denied improperly and in bad faith?

And listen, if you’re going to mention that the industry is on track to report record profits in 2006, you should at least mention when the previous record was set: 2005, the year of Katrina.

That’s right, the worst “loss year” ever was also the best profit year since ship owners began sharing risk together at Lloyd’s Coffee House in London in the eighteenth century. How can that be? Here’s a hint: the insurance world’s use of the term “loss” is a misnomer. It’s just a claim that’s paid and has nothing to do with the profit/loss we normally associate with an income statement, which, trust me, is what counts.

An insurer who complains about having to pay claims is like Ford complaining about having to make cars. It’s what they do.

I could go on—and I will! Insurers by law are required to keep a policyholders’ surplus for unexpected claims, those that hit with unforeseen severity—like Katrina. But in 2005—annus horribilus, year of Katrina, Rita, Wilma, and Dennis—insurers had enough left over after profits, buying back shares, paying dividends, paying Ed Liddy and Tom Watson’s salaries, etc., to add to this reserve by $35 billion. Industry surplus now stands at a record $495 billion, ten times the size of the worst-ever property-casualty disaster (Katrina) on record.

My point: If the surplus is for emergencies, when are we going to have one?

Listen, I pick on this story by a fine reporter at a great newspaper, and, yes, I will pick on others. This is not a question of me being more perceptive, more moral, more sensitive, less mainstream media, and certainly more smarter than anyone else. I’ve just had the benefit of a year off the newspaper treadmill to think about things like this.

So, with apologies to The Insurance Transparency Project and its questionable staff, here is an alternative headline, which, I submit, a responsible mainstream business publication could run, depending on how you want to frame it, based on the same facts as those found in the Allstate story:

Take Money, Run
Netting $7 billion-plus
Over Five Years,
Allstate Cuts Coastal Coverage.
“Disastrous” ’05 Net: $1.77 billion

[1]The Wall Street Journal, A1, November 27, 2006.

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