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Allstate (ALL) Expects Cat Loss to Total $235M in April

Zacks

Property and casualty insurer The Allstate Corporation ALL expects to incur catastrophe loss of $235 million, pretax ($153 million after tax), in Apr 2017.

The loss may be traced back to 11 events caused last month. While these losses will cost $229 million, pretax, the company expects to incur $6 million of prior-period adverse reserve development.

In the first quarter of 2017, the company incurred catastrophe losses from severe hailstorms of $781 million, which were down 6% year over year.

Shares of Allstate have been steadily rising on a year-to-date basis, generating a return of 14.3% compared with the Zacks Insurance Property and Casualty industry’s gain of mere 0.05%. The outperformance reflects optimism over the stock from initiatives taken by the company such as profit improvement plan in its auto business, which was suffering from high auto claims from past many quarters, efforts to diversify its business and product offering at a time when some of its business are facing friction.



As Allstate deals with property and casualty business, it is significantly exposed to catastrophic events. Given the continued occurrence of weather-related events, catastrophe losses had surged to $2.35 billion in 2012 and $3.82 billion in 2011, radically exceeding $2.21 billion in 2010 and $2.07 billion in 2009, pushing up claims and benefits’ expenses, and hurting cash flow.

In 2013, catastrophe losses declined year over year to $1.25 billion but increased again to $1.99 billion in 2014. In 2015, the company lost $1.72 billion on account of catastrophes and $2.6 billion in 2016.

Allstate is focusing on reducing losses through its catastrophe management strategy and reinsurance programs, while maintaining its underlying combined ratio. However, we cannot rule out the possibility of significant losses from catastrophes and severe weather incidents.

Catastrophe losses act as a catalyst in the insurance industry’s pricing cycle. On the face of it, however, high catastrophe losses dent the industry’s margins and cause a spike in the combined ratio which results in underwriting loss. In recent years, the industry amassed ample reserves owing to low catastrophe losses, which led to loose underwriting standards as insurers were compelled to lower their prices. This caused stiff competition and pricing woes in the industry.


Going by a Munich Re report, insured losses due to natural disasters in the United States totaled $23.8 billion in 2016, more than the $16.1 billion total for 2015.

So the rise in catastrophe losses came as a boon for the industry by denting capital and encouraging players to try out disciplined underwriting by hiking premium prices. This should ultimately lead to a hard insurance cycle.

Allstate carries a Zacks Rank #3 (Hold). Some better-ranked stocks are Fidelity National Financial, Inc. FNF, ProAssurance Corp. PRA and State National Companies, Inc. SNC. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here..

Fidelity National beat earnings in three of the last four quarters, with an average positive surprise of 8.47%.

ProAssurance beat expectations in each of the last four quarters, with an average positive surprise of 16.59%

State National beat estimates in two of the last four quarters, with an average positive surprise of 20.54%.

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