Homeand auto insurer
) announced that its pre-tax catastrophe (CAT) loss estimate has
jumped to $323 million for May 2013. With an estimate of $216
million pegged for Apr 2013, this takes the total CAT loss
estimate for the second quarter to $539 million thus far.
After tax, Allstate is expected to incur CAT losses worth $210
million in May 2013 and $140 million in Apr 2013, bringing the
total to about $350 million in the second quarter of 2013. The
losses in the past 2 months were primarily incurred from three
severe weather events.
Over the recent years, CAT losses have been affecting
Allstate's earnings, also deteriorating the combined ratio and
cash flow significantly. With the changes in weather patterns,
which have increased the occurrence of floods, earthquakes,
hurricanes, hailstorms, tsunami and more, the insurers and
reinsurers have more reasons to worry about.
Following the catastrophes, CAT losses have not only been
augmenting the claims payments of the insurers but have been
distorting the operational dynamics for quite some time. Allstate
had recorded $2.34 billion in CAT losses in the second quarter of
2011, which moderated to $819 million in the corresponding
quarter in 2012. Though it declined, the CAT losses were still
high enough to adversely affect earnings in 2012.
However, assuming some additional loss for Jun 2013, we expect
total CAT losses in the second quarter of 2013 to be below or in
the neighbourhood of the year-ago quarter number. Further,
Allstate has been taking proactive steps to reduce its risks
related to CAT losses, as reflected by its Enterprise Risk and
Return Management (ERRM) system.
Additionally, the company is investing into CAT bonds that
provide insurance coverage. We believe these efforts should at
least partly mitigate the financial risks related to the
uncertain weather-related events, thereby boosting Allstate's
operating and competitive strength.
While Allstate carries a Zacks Rank #3 Hold), other
outperformers in the insurance sector include
Hilltop Holdings Inc.
Montpelier Re Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ALLSTATE CORP (ALL): Free Stock Analysis
AMERISAFE INC (AMSF): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
MONTPELIER RE (MRH): Free Stock Analysis
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