Allstate Oct. CAT Loss Tops $1B

Last week, home and auto insurer Allstate Corp. ( ALL - Analyst Report ) announced its pre-tax catastrophe (CAT) and net of reinsurance loss estimate to jump to $1.08 billion for October 2012. The loss occurred from five events, primarily Hurricane Sandy in the Northeast US, where Allstate owns about 10.7% of the market share.

Accordingly, 66% of the gross loss due to Sandy came from New York, while the remaining 20% and 14% rose from New Jersey and other states, respectively. Allstate has already paid about $340 million as claims until November 2012.

Moreover, the company’s auto segment has been marred most by the superstorm Sandy, accounting for 40% of the gross losses. About 78% of these losses represent those from New York, 19% from New Jersey and remaining 3% from other states.

Industry Loss of $20–$25 Billion

Another reinsurer, Swiss Re Ltd. estimated its claims payments of over $900 million against the recent catastrophe. The Chubb Corp. ( CB - Analyst Report ) deferred its share buyback program due to its inability to estimate the extent of loss related to the recent superstorm.

Other insurers such as The Travelers Companies ( TRV - Analyst Report ) and PartnerRe Ltd. ( PRE - Analyst Report ) , have notified that the catastrophe losses from Sandy are higher than their absorbing capacity. Most disaster analysis companies such as AIR Worldwide, Eqecat and RMS have pegged the CAT losses from Sandy between $20 billion and $25 billion.

Over the past few years, catastrophe losses are not only augmenting the claims payments of the insurers but also nibbling into the earnings of the companies, thereby distorting the operational dynamics for quite some time, post the weather-related events. Several insurers such as Hartford Financial Services Inc. ( HIG - Analyst Report ) , Travelers and PartnerRe saw most or all of their earnings being washed away after incurring severe catastrophe losses in 2011.

Although catastrophe losses moderated in the first nine months of 2012 and helped the bottom line regain stability, the recent Hurricane Sandy is expected to erode the insurers’ earnings once again. Meanwhile, CAT losses from 19 events stood at $216 million in the fourth quarter of 2011, which is way lower than the current October loss estimate of $1.08 billion. More insurers are soonexpected to release hefty CAT losses for the last quarter of 2012.

Estimate Trend Revision

Over the last 30 days, 18 out of 23 analysts covering the Allstate have reduced their estimates for the fourth quarter of 2012, while no upward revision was witnessed. Currently, the Zacks Consensus Estimate for the fourth quarter is pegged at 11 cents per share, which would plunge by about 92% from the year-ago quarter. Consequently, earnings are expected to plummet 191% over 2011 to $3.84 per share in 2012.

Although continued synergies are expected from Allstate’s industry-leading position, along with diversification and pricing discipline, the current volatile economy and CAT losses will continue to impact its margins and income until the markets regain momentum. Consequently, Allstate carries a Zacks Rank #3, which implies a short-term Hold rating.