CAT Losses to Hurt Allstate's 2Q - Analyst Blog
July 15 2011 - 7:45AM
Zacks
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
HARTFORD FIN SV (HIG): Free Stock Analysis Report
PARTNERRE LTD (PRE): Free Stock Analysis Report
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