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Allstate Growth Stifled by Competitive Pricing Challenges

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On Aug 18, we issued an updated research report on The Allstate CorporationALL .

Allstate's second-quarter 2015 earnings of 63 cents widely missed the Zacks Consensus Estimate of 94 cents and declined from $1.01 earned in the year-ago quarter. Earnings suffered from lower auto insurance margins and seasonally high catastrophe losses.

The company struggles to maintain its position in a highly competitive industry, in which pricing pressure and selective underwriting standards are common. Growth in policies at Esurance brand has come down from the prior year to 6.4% following tightened underwriting standards, reduced discounts, raised auto prices and lower advertising expenses.

Allstate's another brand, Encompass, competes in the independent agency channel which serves brand-neutral customers seeking local advice. As expected, policies in force have declined by 2.8% in this price sensitive channel, as the company has implemented a wide variety of profit-enhancing actions.

The company, however, continues to invest in two long-term operating priorities, modernize the operating model and build long-term growth platforms. But earnings from these initiatives are expected to be slow.

As Allstate deals with property and casualty, it is significantly exposed to catastrophic events. During the second quarter, its suffered cat loss of $797 million, down 14.9% year over year.

Further, Allstate's investment portfolio has been witnessing a rough patch due to the ongoing equity market decline and sluggish returns. Net investment income shrunk 12.1% year over year to $789 million in the second quarter.

Allstate carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same space are First American Financial Corp. FAF , Hallmark Financial Services Inc. HALL and Selective Insurance Group Inc. SIGI . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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ALLSTATE CORP (ALL): Free Stock Analysis Report

FIRST AMER FINL (FAF): Free Stock Analysis Report

HALLMARK FINL (HALL): Free Stock Analysis Report

SELECT INS GRP (SIGI): 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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