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Allstate (ALL) Estimates Weather Related Losses in July

Zacks Equity Research

 The Allstate Corporation ALL expects to incur $235 million, pre-tax ($186 million, after tax) catastrophe loss for July 2019. The loss can be attributed to 10 weather-related events at an estimated cost of $186 million, pre-tax and unfavorable reserve re-estimates of prior-reported catastrophe losses.

Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events.  In 2016 and 2017, cat loss increased 51% and 26%, respectively, year over year, but was down 12% in 2018. For the first half of 2019, the company incurred catastrophe losses of $1.76 billion, up 38% year over year.

Other companies in the property and casualty space, such as W.R. Berkley Corp. WRB, Chubb Ltd. CB and Everest Re Group, Ltd. RE also remain exposed to catastrophe losses.

Thus, Allstate is focused on reducing losses by limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force.

The company also engages in catastrophe reinsurance programs to manage these losses. In July, Allstate completed its 2019 catastrophe reinsurance program, which is part of its catastrophe management strategy, intended to provide its shareholders with an acceptable return on the risks assumed in its personal lines business, reduce earnings variability, and provide protection to customers.  The company assumes less than 1% likelihood to incur catastrophe losses exceeding $2 billion.

Allstate’s catastrophe reinsurance program materially reduces its exposure to wind and earthquake losses. These reinsurance agreements have been placed in the traditional reinsurance and insurance linked securities (“ILS”) markets. The total cost of its catastrophe reinsurance was $188 million in the first half of 2019, and $354 million in 2018.

Given the company’s good management of catastrophe related losses, our confidence in its ability to deliver impressive underwriting results remains intact. Increasing premiums in property and casualty businesses, an improving auto business, growing net investment income, a low tax rate and a strong balance sheet should act as key catalysts for earnings growth.

Year to date, shares of the company have gained 23.3%, wider than the industry’s growth of 0.6%.


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