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Allstate Rides on Growth Initiatives, Weather Loss Lingers


Property and casualty insurer, The Allstate Corp. ALL, has been benefiting from profit-improvement plans initiated more than two years ago. This is evident from improving margins in its auto insurance business, which accounts for nearly two-third of earned premiums.

Though the company has a huge concentration of auto business, it has diversified its product suite to include homeowners, renters, commercial, life insurance and annuities. This broad product profile will work in favor of the company in the long term by providing revenue diversification.

Allstate has also taken initiatives around claims aimed at curbing loss-adjustment expenses, which will benefit its combined ratio. Some of these initiatives are QuickFoto Claim, Virtual Assist, and use of drones to take pictures of destruction at site.

Its recent acquisition of SquareTrade, completed in January, has added to its total policies, along with providing business diversification.

Allstate’s shares have returned 24% year to date, significantly outperforming the industry’s gain of just 8%.

Nevertheless, exposure to weather-related losses have always imparted volatility to the company’s earnings. Most of the fluctuations occur within its homeowners’ insurance business. The company expects to incur catastrophe loss of $181 million pretax ($118 million after tax) for the month of July 2017. Hurricane Harvey and Irma will also lead to further loss though the company has not yet quantified it.

The company has, however, taken counter measures to control cat losses by purchasing reinsurance and raising premium prices. We believe that these measures will help in reducing earnings volatility and be catalysts to shares.

Allstate carries a Zacks Rank #3 (Hold). Some better-ranked players in the space are Atlas Financial Holdings, Inc. AFH, Markel Corporation MKL and Mercury General Corporation MCY. Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial provides commercial automobile insurance policies primarily in the United States through its subsidiaries. It beat estimates in two of the last four quarters, with an average positive surprise of 57.9%.

Markel markets and underwrites specialty insurance products and programs to a variety of niche markets. It surpassed estimates in two of the last four quarters, with an average positive surprise of 21.1%.

Mercury General is engaged primarily in writing all risk classifications of automobile insurance in a number of states, principally California. It beat estimates in three of the last four quarters, with an average positive surprise of 1.1%.

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