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Will Allstate's (ALL) April Cat Loss be a Cause for Concern?

By Zacks Investment ResearchStock MarketsMay 21, 2021 03:05AM ET
Will Allstate's (ALL) April Cat Loss be a Cause for Concern?
By Zacks Investment Research   |  May 21, 2021 03:05AM ET
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The Allstate Corporation (NYSE:ALL) ALL estimates a headwind of $430 million after tax related to catastrophe loss for April.

The havoc was caused by five weather-related events. One large hail event, primarily impacting Texas and Oklahoma, induced nearly 60% of the above-mentioned losses.

Allstate’s exposure to property and casualty insurance makes its prone to losses due to cat occurrences. In the first quarter, it suffered gross catastrophe losses worth $1.67 billion, nearly eight times greater than the 2020 reading. These losses were, however, offset by $1.08 billion of reinsurance and subrogation recoveries.

This shows that Allstate can effectively deal with catastrophe losses via its catastrophe management strategy and reinsurance programs. It also aims at limiting its exposure to riskier geographies by raising premiums. This may, however, reduce the number of policies in force.

Other property and casualty insurers that incur catastrophe losses due to their exposure to property and casualty insurance are Chubb (NYSE:CB) Limited CB, RLI (NYSE:RLI) Corp. RLI, Arch Capital Group (NASDAQ:ACGL) ACGL among others.

Despite Allstate’s vulnerability to Mother Nature’s wrath, our confidence in its ability to deliver impressive underwriting results is intact.

This property and casualty insurer has been witnessing annual revenue growth since 2011 and also tided over the pandemic-ravaged 2020 with a 0.3% revenue rise. The company’s ability to stay in a positive territory against the backdrop of a tough operating environment is quite impressive. In the first quarter of 2021, the top line grew a good 14% while the bottom line was up a whopping 73%.

Allstate’s long-term strategy of boosting its personal property-liability market share and expanding protection offerings will fuel growth.

While increasing its personal property-liability market share, the company acquired National General in January 2021. The transaction will expand its market share in the said space by more than one percentage point and enhance its independent agent-facing technology.

It will significantly fortify its distribution footprint, thus leading the company to be one of the top five personal lines carriers in the independent agency distribution channel. Additional expansion opportunities through independent agents also exist in the standard auto and homeowners insurance realm.

Extension of its Protection Services segment is another key catalyst. A number of acquisitions from 2017 to 2019 led to the segment’s rapid growth and its revenues rose 21.6% in the first quarter.

Allstate also sold its Life insurance businesses in the March quarter to focus on its core growth areas, namely the auto and homeowners insurance.

The company is also overhauling by investing in technology. This should increase its efficiency and save operational costs.
We believe, the company is firing on all cylinders for growth and that the catastrophe losses will not mar its profitability.

Year to date, Allstate has gained 23.8% compared with the industry's growth of 19.9%.

Allstate currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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Will Allstate's (ALL) April Cat Loss be a Cause for Concern?

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Will Allstate's (ALL) April Cat Loss be a Cause for Concern?

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