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Allstate (ALL) to Incur $598 Million Loss in April and May

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The Allstate Corporation ALL estimates a headwind of $168 million after tax related to the catastrophe loss for May.

The havoc was caused by seven weather-related events. Two large hail events, primarily impacting Texas and Oklahoma, induced nearly 60% of the above-mentioned losses.

Last month, management announced that for April, it expected a catastrophe loss of $430 million for the company.

Allstate’s exposure to property and casualty insurance makes it prone to losses due to cat occurrences. In the first quarter, it suffered gross catastrophe losses worth $1.67 billion, nearly eight times greater than the 2020 reading. These losses were, however, offset by $1.08 billion of reinsurance and subrogation recoveries.

This shows that Allstate can effectively deal with catastrophe losses via its catastrophe management strategy and reinsurance programs. It also aims at limiting its exposure to riskier geographies by raising premiums. This may, however, reduce the number of policies in force.

Other property and casualty insurers that are exposed to catastrophe losses Chubb Ltd. CB, The Travelers Companies, Inc. TRV and The Progressive Corp. PGR among others.

Despite Allstate’s vulnerability to Mother Nature’s wrath, our confidence in its ability to deliver impressive underwriting results is intact.

This property and casualty insurer has been witnessing annual revenue growth since 2011 and also tided over the pandemic-ravaged 2020 with a 0.3% revenue rise. The company’s ability to survive in a favorable territory against the backdrop of a tough operating environment is quite impressive. In the first quarter of 2021, the top line grew 14% while the bottom line skyrocketed 73%.

Allstate’s long-term strategy of boosting its personal property-liability market share and expanding its protection offerings will fuel growth.

While increasing its personal property-liability market share, the company acquired National General in January 2021. The transaction will broaden its market share in the said space by more than one percentage point and enhance its independent agent-facing technology.

It will significantly fortify its distribution footprint, thus leading the company to be one of the top five personal lines carriers in the independent agency distribution channel. Additional expansion opportunities through independent agents also exist in the standard auto and homeowners insurance realm.

Extension of its Protection Services segment is another key catalyst. A number of acquisitions from 2017 to 2019 led to the segment’s rapid growth and its revenues rose 21.6% in the first quarter.

Allstate also sold its Life insurance businesses in the March quarter to focus on its core growth areas, namely the auto and homeowners insurance.

The company is also overhauling by investing in technology. This should increase its efficiency and save operational costs.

We believe the company is firing on all cylinders for growth and that the catastrophe losses will not dent its profitability.

Year to date, Allstate has gained 13.9% compared with the industry's growth of 15.4%.

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