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Allstate (ALL) Takes Initiatives for Growth, Risks Remain

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On Mar 10, we uploaded an updated research report on Allstate Corporation (ALL - Free Report) , one of the nation’s largest personal lines insurer serving more than 16 million households.

The company boasts a diversified portfolio of business which includes Auto, Homeowners, Other Personal Lines, Life, Benefits, Annuities, Road Services, Dealer Services, Arity, and Consumer Protection Plans.

We remain impressed with the company’s efforts to successfully execute the auto profit improvement plan across its three underwritten brands. It has also sustained its superior performance in the Allstate brand homeowners and other personal lines insurance.

In 2017, the company is expected to expand its customer base with continued positive growth in Allstate Benefits and Esurance and rapid growth in its newly acquired consumer product protection plan business Square Trade. It will also reduce the number of policy losses under the Allstate and Encompass brands.

Allstate’s consolidated pre-tax net investment income (NII) decreased 3.6% year over year to $3.0 billion in 2016, primarily due to continued actions to shorten the maturity profile of the fixed income portfolio, and a shift to equity investments. The year-over-year decline in consolidated pre-tax NII also partly reflected a decrease in the fixed income securities’ pre-tax yield to 3.6% in 2016 from 3.8%. We, however, expect total return on portfolio to increase given that the interest rates will be raised by the Fed. Other players in the industry Chubb Limited (CB - Free Report) , MetLife Inc. (MET - Free Report) , American International Group Inc. (AIG - Free Report) are expected to benefit from rate hike.

Though the company’s combined ratio deteriorated in 2016 due to catastrophe loss, the underlying combined ratio (excluding catastrophes0 showed an improvement. Management expects combined ratio of 87–89% in 2017 compared with 87.9% in 2016.

The company is gearing up for growth with a number of initiatives. Its Allstate Agencies platform is being strengthened by rolling up the trusted advisor initiative. Esurance will continue to expand in auto and homeowners insurance. Allstate Benefits will continue to leverage its position in a high growth solitary benefits market. Arity will expand both the telematics business lines and Square Trade will continue to gain new retail partners.

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