The Allstate Corporation ( ALL Quick Quote ALL - Free Report) recently disclosed catastrophe loss estimates of $436 million or an after-tax amount of $344 million for the month of May 2022.
Shares of Allstate gained 0.9% on Jun 17.
Catastrophe losses last month primarily stemmed from 14 events related to the occurrence of wind and hail throughout Texas, the Midwest and Canada. These events are expected to cost Allstate $423 million. The events coupled with unfavorable reserve reestimates of prior period are behind catastrophe loss estimates during last month.
Being a property and casualty (P&C) insurer, catastrophe losses remain a headwind for Allstate. The unpredictable nature of such events makes the situation look more concerning for a P&C insurer. Catastrophe losses for the months of April and May amounted to a combined pre-tax amount of $752 million. With only one month still remaining before the second quarter of 2022 conclusion, the combined figure of April and May is already higher than the first-quarter’s catastrophe losses of $462 million, pre-tax.
Consequently, the continued incidence of catastrophe losses leads to elevated claim costs for any insurer, which in turn, hampers underwriting results and strains margin expansion. As a counter measure, insurers resort to rate hikes to cope with increasing expenses that they have to handle amid the occurrence of such unpredictable events. Rate increases are likely to drive the premiums of a P&C insurer, which are one of the most significant contributors to its revenues.
After executing rate improvements of 6.4% across 14 locations in April, Allstate actively implemented rate increases of 9.3% in 13 locations during May as well. Rate increases for May had a 0.7% positive impact on total Allstate brand insurance premium. From the onset of fourth-quarter 2021, Allstate enforced 78 rate increases that averaged around 8.1% amid 49 locations, reflecting the continuous rate increases for quite some time.
To handle the continuing inflationary consequences on auto insurance severities, Allstate undertook rate hikes in the month of May. Auto rate increases of $180 million were enforced last month by Allstate brand. The same on a quarter-to-date basis amounted to $343 million.
Frequent rate hikes in 2022 seem to be a prudent move on the part of Allstate, considering the fact that an active Atlantic hurricane season is likely to occur this year as well. While the Climate Prediction Center of National Oceanic and Atmospheric Administration (NOAA) have forecast an above-average Atlantic hurricane season in 2022, the Colorado State University’s (CSU) researchers predict an active season with 19 named stores (nine can become hurricanes and four might become major hurricanes) likely to occur in this year’s season.
Though such estimates might raise concern for Allstate’s investors, the P&C insurer has a catastrophe management strategy and reinsurance programs in place to tackle significant headwinds stemming from catastrophe losses.
Shares of Allstate have rallied 6.4% in the past six months against the
industry’s decline of 6.8%. Image Source: Zacks Investment Research
ALL currently has a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the
P&C insurance space include RLI Corp. ( RLI Quick Quote RLI - Free Report) , Chubb Limited ( CB Quick Quote CB - Free Report) and Kinsale Capital Group, Inc. ( KNSL Quick Quote KNSL - Free Report) . While RLI sports a Zacks Rank #1 (Strong Buy), Chubb and Kinsale Capital carry a Zacks Rank #2 (Buy) at present. You can see . the complete list of today’s Zacks #1 Rank stocks here
RLI’s earnings surpassed estimates in each of the last four quarters, the average surprise being 45.89%. The Zacks Consensus Estimate for RLI’s 2022 earnings suggests an improvement of 13.2% from the year-ago reported figure, while the same for revenues suggests growth of 16.9%. The consensus mark for RLI’s 2022 earnings has moved north by 0.7% in the past 30 days.
The bottom line of Chubb outpaced earnings estimates in each of the trailing four quarters, the average surprise being 13.45%. The Zacks Consensus Estimate for Chubb’s 2022 earnings suggests an improvement of 19.1% from the year-ago reported figure, while the same for revenues suggests growth of 3.9%. The consensus mark for CB’s 2022 earnings has moved north by 0.3% in the past 30 days.
Kinsale Capital’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 26.43%. The Zacks Consensus Estimate for Kinsale Capital’s 2022 earnings indicates a rise of 18.3% year over year, while the same for revenues suggests an improvement of 24.8%. The consensus mark for KNSL’s 2022 earnings has moved north by 2.6% in the past 60 days.
Shares of RLI and Chubb have rallied 0.2% and 1.1%, respectively, in the past six months. Meanwhile, Kinsale Capital’s stock has declined 4.% in the same period.