Allstate (ALL) Suffers Cat Loss for July Due to Bad Weather

The Allstate Corporation ALL has announced estimated catastrophe loss of $262 million, pre-tax ($207 million after-tax) for July.

These natural calamities comprised 15 events at an estimated cost of $220 million, pre-tax, plus unfavorable reserve re-estimates of prior reported catastrophe losses. Two severe hail storms, primarily impacting Colorado and several other states, and the Carr fire in Northern California accounted for approximately 75% of July catastrophe losses.

Per Aon, the Carr wildfire in particular is expected to result in insurance and reinsurance industry loss of around $1 billion or more.

Due to a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Weather-related losses for the past many years have weighed on the company’s claims and benefits plus expenses and cash flow, draining its underwriting profitability.

In 2016 and 2017, the company's cat loss widened 51% and 26%, respectively, year over year. Allstate incurred $1.27 billion of catastrophe loss in the first six months of 2018, down 28.6% year over year.

Therefore, Allstate remains focused on reducing losses through its catastrophe management strategy and reinsurance programs as well as by 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 significant losses from cat events and inclement weather incidents.

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

Zacks Rank & Share Price Performance

Allstate carries a Zacks Rank #3 (Hold). In a year’s time, shares of the company have returned 7.5%, underperforming the industry’s 11.9% growth.

Key Picks

Some better-ranked stocks in the same space are Alleghany Corp. Y , NMI Holdings Inc. NMIH and HCI Group, Inc. HCI. While Alleghany and NMI Holdings sport a Zacks Rank #1 (Strong Buy), HCI Group has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany surpassed estimates in three of the trailing four quarters, with an average beat of 17.1%.

NMI Holdings beat estimates in each of the preceding four quarters, with an average positive surprise of 29.85%.

HCI Group outpaced estimates in three of the last four quarters, with an average earnings surprise of 0.79%.

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