Allstate (ALL) Catastrophe Woes Continue With Losses In May

The Allstate Corporation (NYSE:ALL) recently announced estimated pretax catastrophe loss of about $278 million or $220 million after tax for May 2018.

Of these, a $224-million was incurred from 12 events and the remainder was from adjustments to prior-period cat loss. About 60% of the catastrophe losses were related to two severe wind and hail events, primarily affecting Mid-Atlantic, Northeast and certain Midwest states.

For April, the company expects a cat loss of $211 million or $167 million after tax. Clubbing both, the company will likely bear a $489-million loss in the second quarter, per the recent estimates.

Per Aon’s Impact Forecasting, cat loss for May is estimated at $2.3 billion and two-thirds of the same will be borne by the insurance and the reinsurance sector. According to Aon, May will be the most impactful month pertaining to severe weather so far this year across the United States and Canada.

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. The company incurred $361 million of catastrophe loss during the first quarter of 2018.

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, which 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 show strong results during the second 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 Impact

Allstate carries a Zacks Rank #3 (Hold). Shares of the company have returned 3.6% in a year’s time, underperforming the industry growth of 8.7%.

Stocks to Consider

Some better-ranked stocks in the same space are Alleghany Corp. (NYSE:Y) , HCI Group, Inc. (NYSE:HCI) and NMI Holdings Inc. (NASDAQ:NMIH) , each sporting a Zacks Rank #1 (Strong 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 17.6%.

HCI Group outpaced estimates in three of the last four quarters with an average earnings surprise of 1.57%.

NMI Holdings beat estimates in three of the preceding four quarters with an average positive surprise of 24.6%.

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