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Allstate (ALL) Expects to Incur Catastrophe Loss in May

Zacks Equity Research

The Allstate Corporation ALL expects to incur $473 million pre-tax ($374 million after-tax) catastrophe loss for May 2019. The same can be attributed to seven weather-related events at an estimated cost of $504 million, pre-tax, which is partially offset by favorable reserve re-estimates of prior-reported catastrophe losses.

For the month of April, the company expects $290 million, pre-tax ($229 million after-tax), bringing estimated catastrophe losses for the second quarter months of April and May 2019 to $763 million, pre-tax ($603 million after-tax).

Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Natural calamity-oriented losses for the past many years have weighed on the company’s claims and benefits plus expenses and cash flow, thereby draining its underwriting profitability.

In 2016 and 2017, the company’s catastrophe loss increased 51% and 26%, respectively, year over year. The company, however, further incurred catastrophe loss of $2.6 billion in 2018 which was down 11.7% 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, owing to their property and casualty businesses.

Allstate’s weather related losses have caused historically induced volatility to its results. To address the same, the company is focused on reducing losses through its catastrophe management strategy and reinsurance programs along with limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force. However, we cannot rule out the possibility of massive losses suffered due to cat events and inclement weather incidents.

Despite the cat loss, our confidence in the company’s ability to deliver impressive result 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 25%, wider than the industry’s rally of 5%.

Allstate carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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