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Will Hurricane Laura Dent Allstate's Underwriting Margins?

Zacks Equity Research
·3 mins read

The Allstate Corp.’s ALL business exposure in Louisiana and Texas where Hurricane Laura caused widespread destruction after making landfall is likely to induce huge catastrophe losses for the company.

According to A.M. Best, the insurance lines that are likely to be hit by the hurricane are commercial multiperil, fire and allied, homeowners and auto physical damage.

In Louisiana and Texas, Allstate carries a respective 11% and 13% market share in Homeowners’ line of insurance and a 12.8% and 14% share each in Auto insurance.

Per the rating agency, property and casualty insurers and reinsurers are likely to suffer meaningful losses from Hurricane Laura. This hurricane-related loss is likely to place additional stress on the rated insurance companies’ balance sheets, which already stand weak due to the COVID-19 pandemic.

Moody’s also expects losses to hit reinsurers as well as insurers. “The U.S. Gulf Coast is a peak catastrophe zone for reinsurers, and those with exposure to Texas and Louisiana could incur meaningful losses,” per the credit rating giant.

Nevertheless, Moody’s believes that given their careful surveillance of exposures, geographic diversification, high-quality reinsurance protection and strong capital bases, large national carriers can withstand this hurricane event.

Analysts from Wells Fargo Securities believe that the hurricane is likely to cause insured losses in the range of $8-$15 billion.

In the first half of 2020, the company incurred catastrophe losses of $1.39 billion, down 20% year over year. Recently, management announced that losses from July catastrophe events were $145 million pretax ($115 million after tax) including Hurricane Hanna and two severe wind and hail weather occurrences that accounted for approximately 65% of the estimated loss.
The company is likely to see higher cat loss this year as the 2020 Atlantic hurricane season is expected to be above normal.

However, given the company’s efficient cat loss management, our confidence in its ability to deliver impressive underwriting results is intact. Allstate is covered under a catastrophe reinsurance program, which materially lowers its exposure to wind and earthquake-emanating losses. These reinsurance agreements are placed in the traditional reinsurance and insurance-linked securities markets.

Other insurers likely to suffer losses from Hurricane Laura are The The Travelers Companies, Inc. TRV, Chubb Limited CB, Berkshire Hathaway Inc. BRK.B, The Progressive Corp. PGR et al.

Shares of the company have lost 6.9% in a year’s time compared with the industry’s decline of 2.9%.

The stock sports a Zacks Rank #1 (Strong Buy), presently. You can see the complete list of today’s Zacks #1 Rank stocks.

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