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Allstate's (ALL) Latest Buyout to Expand Personal Lines Business

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The Allstate Corporation’s (ALL - Free Report) recent acquisition of National General for a consideration of $4 billion will increase its already strong share in the personal lines insurance market.

Upon closure, the transaction will add to the company’s adjusted net income earnings per share and return on equity within the first year. The deal is a perfect strategic fit for Allstate and will help expand its market share in the personal lines insurance business, which can be attributed to the increase in personal lines premiums by $4 billion and its market growth by more than 1-10%. National General’s business and technology platforms will be utilized to further strengthen Allstate’s existing independent agent businesses.

Allstate, with a market capitalization of $32.6 billion, is one of the largest publicly-held personal lines insurers in the United States. Its personal property-liability strategy is to increase its market share by providing auto insurance with a competitive value proposition and offering a circle of protection. Allstate is the third largest personal property and casualty insurer in the United States on the basis of the 2018 statutory direct premiums written, per A.M. Best

Other players dominating this space are Berkshire Hathaway Inc. (BRK.B - Free Report) 's GEICO, The Travelers Companies Inc (TRV - Free Report) and The Progressive Corp. (PGR - Free Report) . Although Allstate’s Personal Lines business provides Auto, Homewoners, Specialty auto (motorcycle, trailer, motor home and off-road vehicle) and other personal lines (renters, condominium, landlord, boat, umbrella, manufactured home and standalone, scheduled personal property), its operating segment Allstate Protection contributes to nearly 85% of the company’s revenues.

National General is most suited to Allstate given that the latter provides a wide range of property-liability products through independent agents with significant presence in non-standard auto insurance. The acquired entity also boasts an attractive Accident and Health business and a Lender-Placed Insurance operation. In 2019, the company wrote gross premiums worth $5.6 billion, which generated an operating income of $319 million.

Allstate is one of the nation’s largest personal lines insurers with 145.9 million policies in force, protecting cars, homes, motorcycles, lives, personal devices and identities. Its products are sold through Allstate agents, independent agents, call centers, online, major retailers and voluntary benefits brokers. The company wrote $34.5 billion of premiums, up nearly 5% year over year.

The expansion in the personal lines insurance space bodes well for Allstate. A.M.Best provides a stable outlook for the personal insurance segment of the insurance industry. The rating agency perceives that within this space, the automobile industry will sustain its profitable performance through 2021 owing to the ongoing remote-working wave and the reduced number of miles driven following travel restrictions. Performance will further be boosted by the enhanced use of technology and data analytics to strengthen underwriting, claims handling, rate-making and innovation in all operational phases as well as in risk management. Allstate is one of the leading players in automobile insurance and the industry dynamics plus the company’s investment in technology should keep it at the forefront of the industry.

Year to date, the stock has gained 15.7% compared with the industry’s growth of 20.9%.

The stock currently 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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