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Allstate Expects Lower 2Q CAT Loss

Zacks Equity Research

The Allstate Corporation (ALL) has announced that its pre-tax current accident year catastrophe (CAT) loss for the month of June is estimated to be $440 million. It also expects CAT losses of $820 million for the second quarter of 2012, which is considerably lower than $2.34 billion recorded in the year-ago quarter.

CAT loss estimates for the second quarter are based on losses incurred due to 30 catastrophes. The estimated cost for the same is $960 million. However, Allstate is looking ahead to certain re-estimates that will neutralize the negative impact of these estimated CAT losses.

The company reported CAT losses of $259 million in the first quarter of the current year, plunging 22.2% from $333 million in the year-ago period. The decline led to improvements in combined ratio and book value. In addition, the company announced its pre-tax CAT loss estimates for April 2012 in May, which is expected to be about $280 million including the effect of about 10 natural disasters.

Escalating losses from catastrophes have been weighing on the company’s claims and benefits expenses for quite some time now. It has led to a significant decline in Allstate’s combined ratio, bottom-line and cash flows.

The company is focused on reducing losses through its catastrophe management strategy.  Management expects to maintain the profitability of the auto business and improve homeowners’ profitability, resulting in an underlying combined ratio outlook of 88% to 91% for 2012.

In addition to Allstate, other insurers including Hartford Financial Services Inc. (HIG) and Cincinnati Financial Corp. (CINF) recently revealed their estimated CAT losses.

Allstate Corporation is scheduled to release its second quarter results after the closing bell on July 31. The Zacks Consensus Estimate for the second quarter earnings is currently pegged at 84 cents per share, representing an estimated year-over-year increase of 168.3%.

Allstate currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.

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