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Allstate (ALL) Poised for Growth; Catastrophe Woes Rife

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On Aug 24, we issued an updated research report on The Allstate CorporationALL .

In second-quarter 2016, the insurer's earnings of 62 cents per share comfortably surpassed the Zacks Consensus Estimate but declined 1.6% on a year-over-year basis. The earnings outperformance in the recently reported quarter was driven by higher premiums in the property and liability segment as well as increased contract charge and fees in the Allstate Financial segment.

Allstate's Property-Liability segment has been performing extremely well over past few years. The trend continued in the second quarter as well with a 3.5% year-over-year increase in the Property-Liability net premiums. The largest portion of Allstate's revenues, which drives its bottom line, comes from this segment. The profitability of this particular segment was driven by the last few acquisitions along with the company's pricing discipline and strong claim management.

Allstate's efficient capital management and its risk-adjusted capitalization hav also improved with time. Moreover, management has been successfully mitigating risks through proactive efforts. The company has been always focused on creating shareholders' value through effective capital deployment strategies like dividend payment and share buybacks. Allstate returned capital worth $1.07 billion through share buybacks and dividends in the first half of 2016.

However, Allstate's property and casualty business continues to be exposed to catastrophe loss. Though the management strives to reduce the losses through strategic catastrophe management and reinsurance programs, the possibility of significant and severe weather incidents cannot be ruled out and hence, the risks remain. Catastrophe losses of almost $700 million in the first half of 2016 adversely impacted Allstate's underwriting income. The company further expects pre-tax cat loss of $253 million, ($164 million after-tax) for Jul 2016.

Also, the company's brand, Encompass, has been underperforming over the past few years. The second quarter witnessed a 6.8% year-over-year decline in the net premiums written.

In addition, a sustained soft interest rate adversely affects net investment income. Notably, the company had witnessed a year-over-year decrease of 3.5% in the metric in the last reported quarter as well.

Allstate presently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the life insurance industry that warrant a look include Allied World AS AWH , Argo Group International Holdings, Ltd. AGII and National Interstate Corp. NATL . All of these stocks sport Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ALLSTATE CORP (ALL): Free Stock Analysis Report

ARGO GROUP INTL (AGII): Free Stock Analysis Report

NATL INTERST CP (NATL): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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