Property and casualty insurer The Allstate Corporation (NYSE:ALL) ALL has announced estimated catastrophe losses of $577 million pretax ($456 million after tax) for February 2021.
These weather-related losses emanate from two events with an estimate of $590 million pretax ($466 million after tax), partially offset by favorable prior-period reserve reestimates.
The major winter freeze that mostly impacted Texas induced gross losses of $1.3 billion while net losses are estimated at $567 million pretax ($448 million after tax). This shows projected reinsurance recoveries, offset by reinstatement premiums to some extent.
For the month of January, estimated catastrophe losses stood at favourable $55 million, which was a result of subrogation recoveries related to the 2018 Woolsey wildfire. This brings projected February quarter-to-date cat loss to $522 million pretax ($412 million after tax).
Due to a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Weather-related losses over the years have weighed on the company’s claims and benefits, expenses and cash flow, thereby draining its underwriting profitability.
In 2020, the company incurred catastrophe losses of $2.8 billion, which increased 9.9% year over year. Though the company is focused on reducing losses through its catastrophe management strategy and reinsurance programs, and also aims at limiting exposure to riskier geographic markets by raising premiums, it will suffer a decline in the number of policies in force.
Other property and casualty insurers that incur catastrophe losses include United Insurance Holdings (NASDAQ:UIHC) Corp. UIHC, RLI (NYSE:RLI) Corp. RLI and Arch Capital Group (NASDAQ:ACGL) ACGL.
Nevertheless, given the company’s managerial skills in tackling losses due to cat occurrences, our confidence in its ability to deliver impressive underwriting results is intact.
Allstate is covered under a catastrophe reinsurance program, which materially mitigates its exposure to wind and earthquake losses. These reinsurance agreements are placed in the traditional reinsurance and insurance-linked securities markets.
The company has also been delivering solid revenues from the past many years, led by premium growth. Its strength in 2020 reflects its resilient strategy to rapidly adapt to the coronavirus pandemic environment. We expect revenue growth to continue, given a number of strategic initiatives taken, such as product enhancements and changes in business mix to focus on those that command a high return on equity.
Moreover, its solid capital position boosts investment in business.
Shares of this currently Zacks Rank #3 (Hold) company have gained 57.1% in a year’s time, outperforming its industry’s growth of 42.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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