Allstate Tops Q2 Earnings Estimate Despite CAT Loss - Analyst Blog


Allstate Corporation ( ALL ) reported second-quarter 2014 operating earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 80 cents by 26.3%, as most of the projected catastrophe loss was absorbed in the estimate. Moreover, the results enabled the company to keep its earnings streak alive with its trailing four-quarter average beat of 37.6%. However, the reported figure fell short of the year-ago quarter figure of $1.12 by 9.8%.

The Allstate Corporation - Quarterly EPS (BNRI) | FindTheBest

Operating net income fell 15.9% to $445 million. Including extraordinary items, Allstate's reported net income surged to $614 million or $1.39 per share from $434 million or 92 cents per share in the prior-year quarter.

Property-liability insurance claims and claim expenses rose 8.5% year over year to $5.14 billion, while operating costs and expenses inched down 0.6% year over year to $1.02 billion. Notably, catastrophe (CAT) losses for the reported quarter spiked 44.7% to $936 million.

Allstate's net revenue edged up 0.8% year over year to $8.86 billion. The results also topped the Zacks Consensus Estimate of $7.59 billion.

Quarter in Detail

Property-Liability 's earned premiums were $7.2 billion, up 5% from the prior-year quarter, primarily driven by decent performance across the Allstate, Encompass and Esurance brands, modest growth in new business and customer retention across standard auto and personal lines' businesses. However, policy rates continued to decelerate in the homeowners' segment.

Moreover, net written premiums grew 5% year over year within the Allstate brand, whereas total policies inched up 1.5% reflecting improvement in auto and personal lines. Additionally, the Encompass brand witnessed an increase of 8.3% in net written premiums and 4.8% in policies. Esurance posted 15.3% growth in net written premiums and 17.5% in policies.

The segment's combined ratio deteriorated to 97.4% from 96.1% in the year-ago quarter, reflecting radically high CAT losses.

However, the underlying combined ratio, which excludes catastrophes and prior-year reserve estimates, was 84.7% in the reported quarter, down 2.2 points from the year-ago quarter, due to improvement in underlying loss costs. This was also lower than management's outlook of underlying combined ratio of 87% to 89% for 2014.

Meanwhile, underwriting income plunged 29.7% to $189 million owing to higher claims, operating and other expenses as well as increased catastrophe losses. However, the Property-Liability expense ratio for the reported quarter was lower at 26% against 27% in the prior-year quarter.

Subsequently, higher catastrophe losses along with lower underwriting, partially offset by slightly improved investment income, weakened Property-Liability's net income to $554 million from $617 million in the year-ago quarter. Operating income for this segment also declined to $364 million from $433 million in the year-ago period.

On the other hand, operating income for Allstate Financial grew 5.1% year over year to $165 million. The increase reflected lower benefits and interests charged against contract funds along with lower operating expenses and strong investment spreads. These were partially offset by lower premium, contract charges and investment income as well as absence of earnings from Lincoln Benefit Life (LBL) business.

However, net income declined 23.7% to $145 million, and primarily included a loss of $12 million related to the disposition of LBL along with realized capital losses against higher gains in the prior-year quarter.

Corporate & Other segment reported a net loss of $85 million, narrower than a loss of $373 million in the prior-year quarter. The improvement primarily came on the back of lower operating expenses in the current quarter as well as higher loss from extinguishment of debt of $312 million in the year-ago quarter.

Investment and Capital Position

As of Jun 30, 2014, Allstate's total investment portfolio increased to $82.6 billion from $81.16 billion at 2013-end, reflecting total investment returns of 2.2% driven by increased fixed income valuations and positive equity market performance in 2014.

Allstate's net investment income declined 8.7% year over year to $898 million in the reported quarter. This also included $195 million from limited partnership interests and $36 million related to prepayment fee income and litigation proceeds. However, annualized portfolio yields was 4.7% at Jun 2014-end, lower than the prior-year quarter but slightly up from 4.6% at 2013-end.

Book value per share increased 15.2% year over year to $47.97 in the reported quarter. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, jumped 14.7% to $44.13 at the end of Jun 2014. Additionally, annualized operating ROE improved to 13.7% from 12.3% in the year-ago quarter.

Operating cash flow plunged 22.7% year over year to $1.2 billion at the end of Jun 2014, while cash stood at $889 million against $675 million at 2013-end. Long-term debt decreased to $5.85 billion from $6.2 billion at 2013-end, and total equity increased to $22.87 billion from $21.48 billion at 2013-end. Meanwhile total assets declined to $110.23 billion at the end of Jun 2014 from $123.52 billion at 2013-end.

The company's statutory surplus, at the end of Jun 2014, came in at $18.0 billion, lower than $18.2 billion at 2013-end. Further, total debt to capital ratio improved to 20.4% at Jun 2014-end from 22.4% at 2013-end.

Stock Repurchase Update

Allstate bought back shares worth about $142 million through open market operations during the reported quarter. This completed 40% of the $2.5 billion share repurchase program authorized in Feb 2014, the largest one since 2006. The buyback is projected to be executed by Aug 2015.

At the end of Jun 2014, Allstate had shares about $1.5 billion available for repurchase under the current authorization.

Dividend Update

On Jul 22, 2014, the board of Allstate announced a regular quarterly dividend of 28 cents per share, payable on Oct 1, 2014, to shareholders of record as on Aug 29.

On Apr 1, 2014, the company paid a regular quarterly dividend of 28 cents per share to shareholders of record as on Mar 3. In Feb 2014, this dividend was hiked by 12% from the prior payout of 25 cents. Thus, the company is now shelling out $1.12 per share annually.

Stocks to Consider

Currently, Allstate carries a Zacks Rank #4 (Sell). However, better-ranked insurers like Mercury General Corp. ( MCY ), Endurance Specialty Holdings Ltd. ( ENH ) and AmTrust Financial Services, Inc. ( AFSI ), all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CAT , ALL , AFSI , ENH , MCY

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