Allstate's Strategic Initiatives Hold Promise, Cat Losses A Drag

On May 17, 2016, we issued an updated research report on The Allstate Corporation (NYSE:ALL) .

The property and casualty (P&C) insurer’s first-quarter 2016 earnings surpassed the Zacks Consensus Estimate but deteriorated year over year. Lower investment income and catastrophe losses contributed to the downside, which was partially offset by higher insurance premiums and favorable mortality experience.

The Property-Liability segment, which generates the majority of Allstate’s revenues, continues to profit on pricing discipline and strong claim management. Total premiums of this segment have been increasing consistently and the first quarter was no exception. The company witnessed a rise of nearly 4% in total premiums from the prior-year quarter.

Further, management’s proactive risk mitigation and return optimization programs have enabled Allstate to enhance operating cash flow and shareholder value. Moreover, the company regularly engages in buyback activities. In fact, the company’s board authorized a $1.5 billion share repurchase program in Feb 2016, which is anticipated to be completed by Nov 2017.

Also, the company hikes its dividend from time to time. In Feb 2016, the company raised its dividend by 10%. Allstate managed to return capital worth $565 million to its shareholders during the first quarter.

However, exposure to catastrophe losses continues to weigh on the operating results of the company. Also, the insurer cannot rule out the possibility of significant losses from catastrophes and severe weather incidents in the future.

In addition, declining net investment income and the persistent underperformance by the company’s brand Encompass, remain headwinds.

Zacks Rank and Stocks to Consider

Currently, Allstate carries a Zacks Rank #3 (Hold). Some better-ranked stocks are Cincinnati Financial Corp. (NASDAQ:CINF) , Markel Corp. (NYSE:MKL) and NMI Holdings, Inc. (NASDAQ:NMIH) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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