Home and auto insurer,
) announced that its pre-tax catastrophe (CAT) estimates for Nov
2013 has been within limits. However, pension obligations are
projected to hurt the fourth-quarter 2013 earnings.
In order to generate greater transparency, since 2011 Allstate
has always disclosed its quarterly and monthly CAT loss estimates
if the amount exceeded $150 million in any month. The CAT losses
for Nov 2013 were well within this limit.
Nonetheless, the lump sum pension obligations toward staff
retiring this year are estimated to pinch the fourth quarter's
earnings between $100 million and $120 million. Allstate also
bore a post-tax pension settlement charge of $49 million (pre-tax
$76 million) in third-quarter 2013.
Previously, management estimated net periodic pension cost to
be $333 million in 2013 based on current assumptions, including
settlement charges. This is likely to be higher than $266 million
in 2012 and $304 million in 2011. Meanwhile, Allstate already
recorded $29 million of net periodic pension cost in the first
nine months of 2013, up 43.3% over the prior-year period.
The pension costs are charged to the 'corporate and other'
segment of the company. An increase in voluntary activity amid
the historically low level of interest rates tends to amplify the
company's payout obligations in order to make contributions to
the pension plans. This, in turn, hampers financials and negates
growth from core fundamentals.
Nevertheless, Allstate has chalked out a new cash balance
formula to calculate the pension benefits of its retiring
employees in future. The re-measurement replaces the existing
formula and takes in to account the current market dynamics. The
amendment also supported an accretion of $599 million to
Allstate's book value in third-quarter 2013 and is expected to
reduce expenses in future as well, thereby reflecting Allstate's
prudent risk management.
Allstate presently carries a Zacks Rank #2 (Buy). Other stocks
worth considering in the insurance sector include
HCI Group Inc.
The Hanover Insurance Group Inc.
Hallmark Financial Services Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
ALLSTATE CORP (ALL): Free Stock Analysis
HALLMARK FINL (HALL): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis
HANOVER INSURAN (THG): Free Stock Analysis
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