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Allstate Estimates August Cat Loss, Climate Woes Hurt

Zacks Equity Research

Property and casualty insurer The Allstate Corp. ALL expects to incur catastrophe (cat) loss of $593 million pretax ($385 million after tax) for the month of August 2017.

The loss may be attributed to six events from Hurricane Harvey. While these losses will cost $591 million pretax, the company expects to incur the remaining $2 million from the prior-period adverse reserve reestimate.
Allstate also expects to incur nearly $181 million, pre-tax ($118 million after-tax), in estimated catastrophe losses for the month of July 2017.

Catastrophes are an inherent risk of the company that have and will continue to result in material year-to-year fluctuations in its results and financial position. In the first six months of 2017, Allstate incurred cat loss of $1.75 billion, down 2.2% year over year.

The company might incur additional loss from hurricane Irma that occurred this month.

In order to mitigate weather-related losses, Allstate is focusing on catastrophe management strategy and reinsurance programs. Despite these efforts, we cannot rule out the possibility of losses from catastrophes and severe weather incidents, going forward.

Nevertheless, shares of Allstate have been rising steadily year to date, generating returns of 22%, significantly outperforming the industry’s gain of 10.7%.

The outperformance reflects optimism surrounding the stock from initiatives taken by the company such as profit-improvement plans in its auto business, which suffered high auto claims for the past many quarters. Efforts to diversify its business and product offerings at a time when some of its business lines are subjects of friction have also been viewed favorably by investors.  

There seems no end to woes and mass devastation as parts of the United States continue to be rampaged by a host of Hurricanes hitting one after another. While Harvey rocked Houston and Texas Gulf Coast, Irma ran amok in regions across Caribbean to Florida. Both storms are considered the costliest in a decade. No sooner the country had heaved a sigh of relief, with Hurricane Jose not turning not as destructive, another hurricane, Maria, hit Puerto Rico and the Virgin Islands. Maria is already deemed to a Category 5 storm.

Economic losses from Irma are estimated at about $58-$83 billion while the same from Harvey could be as high as $108 billion by Moody’s Analytics. Loss counts are yet to come for the damages caused by Maria. The only good news is that Irma’s impact is projected to be lower than anticipated.

Insurers have already started releasing loss estimates. Assurant Inc. AIZ has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pretax.

The Travelers Companies, Inc. TRV estimates pre-tax catastrophe loss from Hurricane Harvey between $375 million and $750 million or $245 million and $490 million after tax. HCI Group, Inc. HCI projects loss between $100 million and $300 million from Hurricane Irma.

Allstate 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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Assurant, Inc. (AIZ) : Free Stock Analysis Report
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