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Allstate (ALL) Continues Auto Rate Hikes to Boost Profits

The Allstate Corporation ALL announced that it carried on auto insurance rate hikes in August to combat inflationary pressures and increase profitability. It also implemented homeowners’ insurance rate actions during the month. Given the current macroeconomic trends, the company is likely to continue the momentum. It reported August’s estimated catastrophe losses of $551 million ($435 million after taxes).

Let’s delve deeper.

Last month, Allstate hiked auto rates by 7% in five locations, which provided a total premium impact of 0.2%. The auto rate hikes since 2023 beginning had a premium impact of 8.6%, which are likely to boost annualized written premiums by around $2.23 billion. It estimates the average gross written premium for August in homeowners insurance to have witnessed a 13.2% year-over-year increase.

The high inflation environment is expected to keep driving insurance prices higher for auto and homeowners insurance. Last month, it increased homeowners rates by 9.2% in two locations, which offered a total premium impact of 0.1%.

Apart from implementing higher rates, ALL is likely to improve profitability through cost-curbing measures with the help of digitization, improving efficiency, leveraging scale with strategic partnerships and stricter underwriting requirements. Reducing distribution expenses will also support its margins.

ALL’s catastrophe losses for the last month incorporated 18 events estimated at $641 million, partly offset by favorable reserve re-estimates. Around 50% of the losses were related to the Maui wildfire.

ALL’s catastrophe losses were $4,387 million in the first half of 2023 alone, which surged 179.4% year over year. For July and August, total catastrophe losses amounted to $864 million before taxes. In 2021 and 2022, the company incurred catastrophe losses of $3,339 million and $3,112 million, respectively.

The company remains focused on lowering losses through its catastrophe management strategy and reinsurance programs and restricting exposure to riskier geographic markets by expanding premiums. However, this is likely to affect the growth rate of policies in force for Allstate Protection Homeowners. In the first half of the year, policies in force in Allstate Protection auto reduced 2.6%.

Price Performances

Allstate shares have declined 11% in the past year against the industry’s 30.3% rise.

Zacks Rank & Key Picks

ALL currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Finance space are Trupanion, Inc. TRUP, Employers Holdings, Inc. EIG and Aegon N.V. AEG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Trupanion’s current year earnings has improved 12.7% in the past 60 days. Also, the consensus mark for TRUP’s revenues in 2023 suggests 19.5% year-over-year growth.

The consensus mark for Employers Holdings’ current year earnings indicates a 14.3% year-over-year increase. Furthermore, the consensus estimate for EIG’s revenues in 2023 suggests 20.5% year-over-year growth.

The Zacks Consensus Estimate for Aegon’s current year earnings indicates 42.1% year-over-year growth. In the past 60 days, AEG has witnessed one upward estimate revision against none in the opposite direction.

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Aegon NV (AEG) : Free Stock Analysis Report

The Allstate Corporation (ALL) : Free Stock Analysis Report

Employers Holdings Inc (EIG) : Free Stock Analysis Report

Trupanion, Inc. (TRUP) : Free Stock Analysis Report

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