ALL Allstate Corporation

On Wednesday, home and auto insurer, Allstate Corp. (ALL) projected about $0.3 billion in pre-tax catastrophe (CAT) losses for June 2011. Including the April and May estimates of $1.4 billion and $0.6 billion, respectively, the company is expected to incur about $2.3 billion in CAT losses in the second quarter of 2011, which will likely be released before the market opens on August 1, 2011.

Allstate’s CAT losses in the second quarter include about 13 natural disasters in the U.S. and Canada. Particularly, tornadoes harshly hit the Midwest and Southern areas such as Alabama, Arkansas, Georgia and Virginia. This has not only increased the claims payments in these areas but also augmented the pre-tax losses for the quarter, which is as poor for Allstate as its third quarter of 2005 when the devastating hurricane Katrina smacked New Orleans. The company had incurred CAT losses of $4.71 billion in 2005.

The ultimate second quarter projection has come out to be higher than the CAT loss of $2.21 billion recorded for the whole of 2010 and $2.1 billion incurred in 2009. Even during the first quarter of 2011, Allstate’s CAT losses stood at $333 million, although substantially lower than $648 million in the year-ago period. This helped the net income in Property-Liability segment to surge to $468 million from $164 million in the prior-year quarter.

However, we believe that despite the increase in rates, Allstate would report loss of $1.39 per share in the second quarter, reflecting a 272% fall year over year, according to the Zacks Consensus Estimate, on the back of mounting CAT losses. With respect to the estimate revisions, 17 of 20 firms have revised their estimates downward in the last 30 days, while no upward revision was witnessed.

Severe weather-related adverse events have become a growing concern for insurers and reinsurers in recent years. The weather-pattern changes have resulted in regular occurrence of floods, earthquakes, hurricanes, hailstorms, tsunami etc.

While CAT losses significantly dampened the industry earnings in the first quarter, the trend is expected to continue with higher magnitude in the second quarter as well. In the middle of this week, Hartford Financial Services Group Inc. (HIG) also came out with its loss projections for the second quarter, and estimates pre-tax CAT losses of $447 million from 12 events in the quarter. After incurring $1.02 billion in CAT losses in the previous quarter, PartnerRe Ltd. (PRE) expects to book $50–$70 million in the second quarter, from the US disasters.

Overall, we believe a state of hard market is about to return after years of sharp pricing declines as the disasters caused by severe weather-related events this year are pushing prices higher in the insurance industry.

 
ALLSTATE CORP (ALL): Free Stock Analysis Report
 
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