On Sep 26, we issued an updated research report on The Allstate Corporation (ALL - Analyst Report) . The company is facing headwinds from high catastrophe losses, continued increase in the frequency of auto accidents, and the impact of Brexit on investment markets.
The company’s Allstate brand policies in force are witnessing a decline due to the intentional curtailing of new business until the company sees improved returns on capital for auto insurance.
In an effort to improve its profits, the company is seeking approval for higher auto prices. Rate increases of 6.2% on average in the second quarter of 2016 were approved in 35 states and Canadian provinces.
Allstate had tightened underwriting guidelines in 2015 to reduce new business in the underperforming segments and lower new business penalty. Now, it is modifying underwriting guidelines for specific segments of business within each state and local market where it feels that it has achieved rate adequacy.
The company is also troubled by high catastrophe losses that hurt underwriting income through the first six months of 2016. These losses totaled $1.8 billion in the first half of the year, almost $700 million higher than the first six months of last year.
However, Allstate’s efficient capital management and risk-adjusted capitalization have improved with time. Moreover, management has been successfully mitigating risks through proactive efforts. It has always focused on creating shareholder value through effective capital deployment strategies like dividend payment and share buybacks. In the first half of 2016, Allstate returned capital worth $1.07 billion through share buybacks and dividends.
Then again, a sustained soft interest rate has affected the company’s net investment income.
Allstate presently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the insurance space include National Interstate Corp. (NATL - Snapshot Report) , Arch Capital Group Ltd. (ACGL - Snapshot Report) and Argo Group International Holdings, Ltd. (AGII - Snapshot Report) .
National Interstate has witnessed a 7.6% rise in its 2016 Zacks Consensus Estimate to earnings of $1.70 per share over the past 60 days. On average, this Zacks Rank #1 (Strong Buy) company delivered a positive earnings surprise of 7.59% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital carries a Zacks Rank #2 and has seen a 5.1% rise in its 2016 Zacks Consensus Estimate to $4.29 earnings per share over the past 60 days. On average, the company delivered a positive earnings surprise of 7.1% in the trailing four quarters.
Argo Group International carries a Zacks Rank #2. Its Zacks Consensus Estimate for 2016 earnings per share has surged 21.6% to $3.89 over the past 60 days. The company delivered a positive earnings surprise of 21.7% on average, in the trailing four quarters.
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