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Will Catastrophe Losses Hurt Allstate's (ALL) Q2 Margins?

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The Allstate Corporation ALL estimates a headwind of $154 million after tax from the catastrophe loss incurred in June.

The havoc was caused by 11 weather-related occurrences. Three large hail events, primarily impacting the Midwest induced nearly 70% of the above-mentioned losses.

Previously, management provided an estimated catastrophe loss of $430 million for April and $168 million for May. Altogether, the company expects to suffer $752 million after tax of weather-related losses for the second quarter.

Allstate’s exposure to property and casualty insurance makes it prone to losses due to cat occurrences. In the first quarter of 2021, it suffered gross catastrophe losses worth $1.67 billion, nearly eight times greater than the 2020 reading.

These losses were, however, offset by $1.08 billion of reinsurance and subrogation recoveries. This shows that Allstate can effectively deal with catastrophe losses via its catastrophe management strategy and reinsurance programs.

The company also aims at limiting its exposure to riskier geographies by raising premiums but the same may, reduce the number of policies in force.

Other property and casualty insurers that are susceptible to catastrophe losses include Chubb Ltd. CB, The Travelers Companies, Inc. TRV and The Progressive Corp. PGR among others.

Despite Allstate’s vulnerability to Mother Nature’s wrath, our confidence in its ability to deliver impressive underwriting results is intact.

This property and casualty insurer has been witnessing annual revenue growth since 2011 and also tided over the pandemic-ravaged 2020 with a 0.3% revenue rise. The company’s resilience to survive against the backdrop of a tough operating environment is quite impressive. In the first quarter of 2021, the top line grew 14% while the bottom line soared 73%.

Allstate’s long-term strategy of boosting its personal property-liability market share and expanding its protection offerings will fuel growth.

The company acquired National General in January 2021. The transaction will broaden its market share in the said space by more than one percentage point and enhance its independent agent-facing technology.

It will significantly fortify its distribution footprint, thus leading the company to be one of the top five personal lines carriers in the independent agency distribution channel. Additional expansion opportunities through independent agents also exist in the standard auto and homeowners insurance realm.

The company is on course to acquire SafeAuto. This deal will expand Allstate’s presence in non-standard auto insurance operations. Non-standard insurance pertains to offer insurance policies to customers having riskier driving profile.

In order to focus on its core growth areas like the auto and homeowners insurance, Allstate sold its Life insurance businesses in the March quarter.

It is also overhauling its operations by investing in technology. This should increase its efficiency and save operational costs.

We believe, the company is firing on all cylinders to boost growth and that the catastrophe losses will not dent its profitability.

In a year’s time , shares of the company have gained 42.5% compared with the industry's growth of 33.9%.

Zacks Investment Research
Zacks Investment Research

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The stock carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report

Chubb Limited (CB) : Free Stock Analysis Report

The Allstate Corporation (ALL) : Free Stock Analysis Report

The Progressive Corporation (PGR) : Free Stock Analysis Report

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