Yesterday, the board of
) announced a 4.8% increase in its quarterly dividend to 22 cents,
a penny higher from the prior 21 cents. The hiked dividend will be
paid on April 2, 2012 to the shareholders of record as on March 5,
This marks the second hike since 2008, the last one being a 5%
hike from 20 cents in February 2011. In November last year,
Allstate had also sanctioned a new share repurchase program worth
While the share buy back will be made through open market
operations, it is scheduled to complete by March 31, 2013. No
repurchases were made during the fourth quarter of 2011.
Allstate returned about $1.4 billion through share repurchases
and dividend payouts in 2011. Moreover, the company has deployed
about $20 billion of capital through share repurchases over the
last 17 years.
Although the dividend increment came in lower than expected,
management aims to generate long-term shareholder value and an
operating return on equity (ROE) of 13% by 2014. As a long-term
growth strategy, Allstate also plans to reposition products and
distribution platforms to meet the changing needs of consumers.
The company's near-term priorities include maintaining standard
auto margins, improving returns in homeowners and Allstate
Financial besides managing capital aggressively.
Allstate is also taking strategic actions to reduce losses for
Allstate business from catastrophes through enhanced property
catastrophe reinsurance program, non-renewals, stricter
underwriting guidelines, increased deductibles and discontinuance
of selected lines of coverage, including earthquake.
Despite lower investment income, higher operating expenses and
policies-in-force in Property-Liability insurance, Allstate
generated operating earnings of $1.48 per share in the fourth
quarter of 2011. Results outpaced the Zacks Consensus Estimate of
94 cents per share and the year-ago quarter's earnings of 50 cents
per share. The higher earnings reflected lower catastrophe losses,
which further led to reduced claims expenses coupled with higher
Allstate's net income for the fourth quarter came in at $724
million or $1.43 per share, compared with $296 million or 55 cents
per share in the prior-year quarter. Particularly, catastrophe
losses for the reported quarter sharply plunged to $66 million from
$537 million in the year-ago period. During the reported quarter,
Allstate witnessed catastrophe losses of $216 million from 19
events, which was substantially offset by favorable reserve
re-estimates of $150 million.
Allstate reported total net revenue growth of 1.8% year over
year to $8.24 billion but substantially exceeded the Zacks
Consensus Estimate of $6.9 billion. Besides, property-liability
insurance claims and claims expenses declined 13.3% year over year
to $4.2 billion while operating costs and expenses jumped 20.1%
year over year to $1.0 billion.
Although Allstate's investment portfolio has been facing the
brunt of the ongoing economic volatility, yet its book value per
share improved at the end of 2011.
Overall, we anticipate continued benefits from Allstate's
diversification, superior financial strength rating and proactive
approach to investment. These factors have helped Allstate gain the
second-largest personal lines writer position in the US, which also
reflects its competitive strength against arch rivals such as
The Travelers Companies
However, Allstate's exposure to catastrophe risks, capital
losses and volatility in pricing, interest and loss costs will
continue to impact the premiums and investment portfolio in the
upcoming quarters. Hence, we maintain a Neutral stance on Allstate
in the long run, with a Zacks Rank #3, which translates in to a
short-term Hold recommendation.
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