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Can Allstate (ALL) November Cat Loss Mar Q4 Growth Prospects?

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The Allstate Corporation (ALL - Free Report) expects to incur $685 million pre-tax ($541 million after tax) catastrophe loss for November 2018. The same can be attributed to six weather-related events at an estimated cost of $67 million, pretax. Rest of the loss pertains to unfavorable reserve re-estimates of prior-reported catastrophe loss.

The property and casualty insurer also estimates $202 million pre-tax ($160 million after tax) cat loss for October. Therefore, total loss for the two months should be around $887 million pretax or $701 million after tax.
Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Natural calamity-oriented losses for the past many years have weighed on the company’s claims and benefits plus expenses and cash flow, thereby draining its underwriting profitability.

In 2016 and 2017, the company's cat loss widened 51% and 26% year over year, respectively. Allstate’s $1.89-billion catastrophe loss in the first nine months of 2018 was down 28.2% year over year.

Thus, the company is focused on reducing losses through its catastrophe management strategy and reinsurance programs along with limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force. However, we cannot rule out the possibility of massive losses suffered due to cat events and inclement weather incidents.

Despite the cat loss, our confidence in the company’s ability to deliver impressive results for 2018 remains intact. Increasing premiums in property and casualty businesses, an improving auto business, growing net investment income, a low tax rate and a strong balance sheet should act as key catalysts for earnings growth.

Year to date, shares of the company have lost 23%, wider than the industry’s decline of 1.4%.

Allstate carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are National General Holdings Corp. , Mercury General Corporation (MCY - Free Report) and State Auto Financial Corporation , each sporting a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for National General’s 2019 earnings has been revised 1.2% upward over the past 30 days while the same for Mercury General and State Auto’s line is up by 26% and 2.7%, respectively, over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

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