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Allstate Announces Catastrophe Loss Estimate & Growth Plan

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The Allstate Corporation (ALL - Free Report) expects to incur $33 million, pre-tax ($26 million, after-tax) catastrophe loss for November 2019. The loss of $19 million, pre-tax (15 million, after-tax) can be attributed to four weather-related events. Rest of the loss estimate ($14 million, pre-tax) can be attributed to unfavorable reserve re-estimates of prior-reported catastrophe losses.

Allstate previously announced $237 million, pre-tax ($187 million, after-tax) in estimated catastrophe losses for the month of October 2019. Estimated catastrophe losses for the month of October and November would cost the company $270 million, pre-tax ($213 million, after-tax).

Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events.  In 2016 and 2017, cat loss increased 51% and 26%, respectively, year over year, but was down 12% in 2018. For the first nine months of 2019, the company incurred catastrophe losses of $2.3 billion, up 6.3% year over year.

Other companies in the property and casualty space, such as W.R. Berkley Corp. (WRB - Free Report) , Chubb Ltd. (CB - Free Report) and Everest Re Group, Ltd. also remain exposed to catastrophe losses.

Allstate is focused on reducing losses by limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force.

The company also engages in catastrophe reinsurance programs to manage these losses. In July, Allstate completed its 2019 catastrophe reinsurance program, which is part of its catastrophe management strategy, intended to provide its shareholders with an acceptable return on the risks assumed in its personal lines business, reduce earnings variability, and give protection to customers.  The company assumes less than 1% likelihood to incur catastrophe losses exceeding $2 billion.

Allstate’s catastrophe reinsurance program materially reduces its exposure to wind and earthquake losses. These reinsurance agreements have been placed in the traditional reinsurance and insurance linked securities (ILS) markets. The total cost of its catastrophe reinsurance was $188 million in the first half of 2019 and $354 million in 2018.

Given the company’s good management of catastrophe related losses, our confidence in its ability to deliver impressive underwriting results remains intact

Allstate also announced to begin a ‘Transformative Growth Plan’ to accelerate growth in its personal property-liability business. In this vein, the company will expand customer access, improve customer value propositions, and increase investments in growth and technology.  Allstate expects this renovation plan to enhance its competitive position. Customers will benefit from additional service options, greater connectivity and higher-value products.

The company has been benefiting from a favorable operating performance and a solid capital position. Its business strategy has been to increase market share in its traditional auto, home and life insurance products and newer offerings such as electronic device and identity protection. This implies increase in personal property liability market share and expansion into other protection businesses.

The stock carries a Zacks Rank #3 (Hold). Shares of the company have gained 34.5% year to date compared with the industry’s growth of 11.5%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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