Allstate Q2 to Witness $797 Million in Catastrophe Loss - Analyst Blog
The Allstate Corporation ALL announced that it will incur catastrophe-related loss of $$797 million pre-tax ($518 million after-tax) in the second quarter.
Of the total amount, $346 million pre-tax ($225 million after-tax) accounts for losses in the month of Jun, 2015. These losses emanated from 9 events which cost approximately $310 million, pre-tax. The rest of the loss relates to increased reserve reestimate for April and May, 2015.
The remaining 451 million, pre-tax ($293 million after-tax), are from catastrophe losses for the months of April and May 2015.
Because of the exposure of Allstate’s property and casualty business to catastrophic events, its operating results and financial condition have varied significantly from one period to another. Increased catastrophe loss resulted in deterioration in combined ratio which went up 190 basis point year over year to 93.9% in 2014, consequently hurting the year’s operating income.
Allstate has incurred catastrophe losses to the tune of billions of dollars in the past and can witness such severity going forward in case of an acute weather-driven event. Some of Allstate’s historical catastrophe experiences include losses relating to Hurricane Katrina in 2005 totaling $3.6 billion, the Northridge earthquake of 1994 totaling $2.1 billion and Hurricane Andrew in 1992 totaling $2.3 billion.
Although the company has historically financed the settlement of catastrophes from operating cash flows, including very large catastrophes that had complicated issues resulting in settlement delays, its liquidity could be constrained by a catastrophe, or multiple catastrophes, which result in extraordinary losses or a downgrade of its debt or financial strength ratings.
Allstate carries a Zacks Rank #3 (Hold). We hope to find out more on the effect of catastrophe loss when the company releases its second-quarter earnings on Aug 3, 2015. The Zacks Consensus Estimate calls for earnings per share of $1.13, which translates into a year-over-year growth rate of 11.97%.
Some better-ranked players in the space are Everest Re Group Ltd. RE, PartnerRe Ltd. PRE and Arch Capital Group Ltd. ACGL. All these stocks carry a Zacks Rank #2 (Buy).
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