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Allstate (ALL) Announces May Cat Loss, Weather Woes Linger
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Property and casualty insurer The Allstate Corp. (ALL - Free Report) expects to incur catastrophe loss of $403 million pretax ($262 million after tax) in May 2017. The loss may be attributed to 14 events that took place last month. While these losses will cost $392 million pretax, the company expects to incur the remaining $11 million from the prior-period adverse reserve development.
The company expects to incur catastrophe loss of $235 million pre-tax ($153 million after tax) for April. In the first quarter of 2017, the company incurred losses from severe hailstorms of $781 million, down 6% year over year.
Shares of Allstate have been rising steadily on a year-to-date basis, generating a return of 21.2% compared with the Zacks categorized Insurance Property and Casualty industry’s gain 5.71%. The outperformance reflects optimism over the stock from initiatives taken by the company such as profit improvement plans in its auto business, which suffered high auto claims for the past many quarters. Efforts to diversify its business and product offerings at a time when some of its business lines are subjects of friction have also been viewed favorably by investors.
As Allstate deals with property and casualty business, it is significantly exposed to catastrophic events. This has added volatility to its earnings over the past several years.
Allstate is therefore focusing on reducing these losses via its catastrophe management strategy and reinsurance programs. Despite these efforts, we cannot rule out the possibility of losses from catastrophes and severe weather incidents, going forward.
On the face of it, catastrophe losses cause a spike in loss ratio and hurt insurer's underwriting margins. Then again, catastrophe losses act as catalysts in turning the industry's pricing cycle. (Insurance industry is highly cyclical characterized by periods of soft and hard pricing phases).
In recent years, the industry has amassed ample capital reserves owing to low catastrophe losses, which have led to lose underwriting standards as insurers equipped with huge cash did not mind undertaking risky businesses at low prices. This heightened competition and insurers were compelled to lower their prices further to attract more business. Eventually, pricing woes crept up, as evident by the current soft pricing in many insurance business lines.
A recent report by Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (AON - Free Report) , states that damage from all natural disasters in the U.S. in the first quarter of 2017 was approximately $7 billion. This made the quarter, the most expensive one in the past 16 years.
It remains to be seen whether weather-related losses over the coming months will be able to shrink the massive capital surplus and change the insurance pricing cycle.
Other players in the property and casualty industry like The Travelers Companies, Inc. (TRV - Free Report) and Chubb Limited (CB - Free Report) are also exposed to weather-related losses. In the last reported quarter, Travelers' underwriting gains were hurt by high catastrophe losses. Chubb, however, was able to report margin growth, because of lower weather-related losses.
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Allstate (ALL) Announces May Cat Loss, Weather Woes Linger
Property and casualty insurer The Allstate Corp. (ALL - Free Report) expects to incur catastrophe loss of $403 million pretax ($262 million after tax) in May 2017.
The loss may be attributed to 14 events that took place last month. While these losses will cost $392 million pretax, the company expects to incur the remaining $11 million from the prior-period adverse reserve development.
The company expects to incur catastrophe loss of $235 million pre-tax ($153 million after tax) for April. In the first quarter of 2017, the company incurred losses from severe hailstorms of $781 million, down 6% year over year.
Shares of Allstate have been rising steadily on a year-to-date basis, generating a return of 21.2% compared with the Zacks categorized Insurance Property and Casualty industry’s gain 5.71%. The outperformance reflects optimism over the stock from initiatives taken by the company such as profit improvement plans in its auto business, which suffered high auto claims for the past many quarters. Efforts to diversify its business and product offerings at a time when some of its business lines are subjects of friction have also been viewed favorably by investors.
As Allstate deals with property and casualty business, it is significantly exposed to catastrophic events. This has added volatility to its earnings over the past several years.
Allstate is therefore focusing on reducing these losses via its catastrophe management strategy and reinsurance programs. Despite these efforts, we cannot rule out the possibility of losses from catastrophes and severe weather incidents, going forward.
On the face of it, catastrophe losses cause a spike in loss ratio and hurt insurer's underwriting margins. Then again, catastrophe losses act as catalysts in turning the industry's pricing cycle. (Insurance industry is highly cyclical characterized by periods of soft and hard pricing phases).
In recent years, the industry has amassed ample capital reserves owing to low catastrophe losses, which have led to lose underwriting standards as insurers equipped with huge cash did not mind undertaking risky businesses at low prices. This heightened competition and insurers were compelled to lower their prices further to attract more business. Eventually, pricing woes crept up, as evident by the current soft pricing in many insurance business lines.
A recent report by Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (AON - Free Report) , states that damage from all natural disasters in the U.S. in the first quarter of 2017 was approximately $7 billion. This made the quarter, the most expensive one in the past 16 years.
It remains to be seen whether weather-related losses over the coming months will be able to shrink the massive capital surplus and change the insurance pricing cycle.
Other players in the property and casualty industry like The Travelers Companies, Inc. (TRV - Free Report) and Chubb Limited (CB - Free Report) are also exposed to weather-related losses. In the last reported quarter, Travelers' underwriting gains were hurt by high catastrophe losses. Chubb, however, was able to report margin growth, because of lower weather-related losses.
Allstate carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Zacks just released a Special Report to guide you through a space that has already begun to transform our entire economy...
Last year, it was generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. Download Report with 3 Top Tech Stocks >>