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Will August Weather Losses Mar Allstate's (ALL) Profitability?

Property and casualty insurer The Allstate Corporation ALL has announced estimated catastrophe losses $985 million pretax ($778 million after tax) for the month of August.

These weather-related losses emanate from 11 events at an estimated cost of $969 million pretax ($766 million after tax). The rest of the expected loss that is $16 million pre-tax relates to unfavorable prior-period reserve reestimates.

Estimated catastrophe losses for the month include the impacts of Hurricane Laura ($430 million pretax) and Hurricane Isaias ($200 million pretax). Other insurers likely to suffer losses from Hurricane Laura are The Travelers Companies, Inc. TRV, Chubb Limited CB, Berkshire Hathaway Inc. BRK.B and Progressive Corp. among others.

In August, Allstate announced that the impact of PG&E recoveries and July 2020 catastrophe losses generated income of $334 million pretax ($264 million after tax). Therefore the July recoveries along with August losses net out to pretax losses of $651 ($514 million on a post-tax basis).

In the first half of 2020, the company incurred catastrophe losses worth $1.39 billion, down 20% year over year. It is likely to see higher cat loss this year as the 2020 Atlantic hurricane season is expected to be above normal.
Per the U.S. National Oceanic and Atmospheric Administration (NOAA), the current-year Atlantic hurricane season will be active enough, perhaps similar to last year’s or more intense with greater number of storm names than an average season can witness.

This above-normal catastrophe loss combined with Shelter-in-Pay expense (expense incurred to pay back a portion of the auto insurance premium to customers due to a decline in automobile insurance claims) is likely to deteriorate the combined ratio and drain the company’s underwriting profitability.

Nevertheless, given the company’s managerial skills in tackling catastrophe-related losses, our confidence in its ability to deliver impressive underwriting results remains intact. Allstate is covered under a catastrophe reinsurance program, which materially mitigates its exposure to wind and earthquake losses. These reinsurance agreements are placed in the traditional reinsurance and insurance-linked securities markets.

Allstate has been delivering solid revenues from the past many years, led by premium growth. The company’s strength in the first half of 2020 reflects a resilient strategy and its rapid adaptation to the coronavirus pandemic environment.

Allstate’s focus on increasing its personal Property-Liability market share and further penetrating other protection businesses also bodes well for the long haul. Moreover, its solid capital position spurs investment in business.

Shares of the company have rallied 24.3% in six months’ time compared with the industry’s growth of 23.3%.

The stock sports a Zacks Rank #1 (Strong Buy), presently.  You can see the complete list of today’s Zacks #1 Rank stocks here.

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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.

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