NORTHBROOK, Ill.—Hurricane Irene is likely to put Allstate Corp.'s five years' worth of hurricane preparations for the Northeastern U.S. to the test.

After the $3.7-billion bath Allstate took on Hurricane Katrina in 2005, the Northbrook, Ill.-based insurance giant quickly moved to protect itself from a similar storm striking the Northeast, where population is denser and property values far higher than in the Bayou country hammered by Katrina.

In 2006, Allstate halted new homeowners' policies in Long Island, N.Y., and refused to renew property insurance in certain parts of the island and other areas around New York. It also increased its purchase of reinsurance, essentially insurance from outside companies to help it shoulder the cost of claims in catastrophe-prone areas.

Allstate's reinsurance protection appears to limit its claims costs from Irene to a little over $600 million if total damages are no more than $3.25 billion, according to the company's most recent reinsurance report. If the costs are higher than that, Allstate will bear a greater share.

“We'll see if what they did with their risk management works,” said Paul Newsome, an insurance industry analyst at Sandler O'Neill & Partners L.P. in Chicago.

Even with efforts to limit its exposure, Allstate still insured more than 15% of the homes on Long Island in 2010, according to the New York State Insurance Department. On Long Island, Allstate is second only to Bloomington, Ill.-based State Farm Insurance Cos., which had 23% of the homeowners policies there. A State Farm spokesman declined to comment on the company's reinsurance arrangements for an East Coast hurricane.

With a dense suburban population living in relatively expensive homes close to the ocean, Long Island is particularly vulnerable to big storms like Irene.

Allstate stopped its program of not renewing policies in catastrophe-prone areas of the New York region early this year, a spokeswoman said. It also began offering homeowners insurance again to new customers in Westchester County, an affluent suburban area north of the city.

Allstate's stock price dropped 3%, closing at $24.43, on Thursday as fears about Irene grew.

Investors must hope that Allstate's protective steps will work now that it is hurricane season. The company's bottom line has been hurt by spring and summer storms in the South and Midwest. In the second quarter, Allstate incurred $2.3 billion in claims stemming mainly from a spate of tornadoes.

In an August 2010 conference call with analysts, Allstate CEO Thomas Wilson referred to “a longer-term perspective” in justifying what the company was doing in New York. He was responding to an analyst who asked why Allstate had dropped him as a homeowners customer in Queens.

“There's the 1938 hurricane that went across Long Island, which if it happened again could lead to dramatic flooding in New York and lots of severe damage,” Mr. Wilson said, referring to one of the deadliest hurricanes in U.S. history. “So we are getting smaller around the coast, and we'll continue to get smaller around the coast until such time as somebody comes up with a way to predict and price for hurricane risk.”

Steve Daniels is a senior reporter at Crain’s Chicago Business, a sister publication of Business Insurance.