Homeand auto insurer -
) announced its pre-tax catastrophe (CAT) and net of reinsurance
loss estimate to rise to $440 million for May 2014. About $400
million of this loss occurred from 11 events, 3 of which represent
78% of the loss. The remaining $40 million of loss was the result
of unfavorable reserves.
Including the estimate of $280 million in Apr 2014, total
pre-tax CAT loss amounts to about $720 million ($468 million
post-tax) so far in second-quarter 2014. This is about 34% higher
than $539 million ($350 million after-tax) of CAT losses recorded
for the same months last year.
CAT Loss Mars Growth
CAT losses play a major role in the insurance industry as they
not only augment the claims payments of insurers but also reduce
the earnings of the companies, thus distorting the operational
dynamics for quite some time. Meanwhile, total CAT loss in the U.S.
insurance industry was almost $2.2 billion in first-quarter
For the same quarter, Allstate's CAT losses rose 24% year
over year to $445 million, due to freeze and fire-related losses in
winter. Subsequently, combined ratio deteriorated to 94.7% from
93.2% in the year-ago quarter. Moreover, underwriting income fell
18.8% to $372 million.
Due to persistent weather-related hazards, CAT losses increased
to $2.35 billion in 2012 and $3.82 billion in 2011, much wider than
$2.21 billion in 2010 and $2.07 billion in 2009. These adversely
weigh on Allstate's claims, benefits expenses and cash flow.
Although CAT losses were lower than the prior-year period, it still
amounted to $1.25 billion in 2013. The CAT losses incurred by the
company so far this year signal weak comps for the remainder of
2014 as well.
Despite resorting to CAT bonds to minimize risk exposure, we
believe Allstate will likely face challenges that directly risk the
operating leverage and capital deployment capacity going forward,
given the prevailing competitive pricing pressure and low interest
Given the considerable CAT losses, the Zacks Consensus Estimate
for second-quarter 2014 and full-year 2014 were revised downward by
3 cents per share, in the last 7 days. At present, the Zacks
Consensus Estimate for second-quarter 2014 and full-year 2014 is
pegged at $1.13 and $5.12, respectively.
Moreover, the Most Accurate estimate for Allstate's
second-quarter 2014 and full-year 2014 earnings currently stand at
$1.03 a share and $4.99 a share, resulting in an
of -8.9% and -1.8%, respectively.
Allstate carries a Zacks Rank #3 (Hold). However, some
better-ranked insurers include
HCI Group Inc.
Endurance Specialty Holdings Ltd.
AmTrust Financial Services Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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ALLSTATE CORP (ALL): Free Stock Analysis Report
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