ALL Allstate Corporation

Yesterday, Hartford Financial Services Group Inc. (HIG) charted out its preliminary results for the second quarter of 2011, whereby the reported net income is expected to be $24 million or 3 cents per share, substantially lower than $76 million or 14 cents recorded in the year-ago quarter.

Besides, core operating earnings are expected to be $12 million or break-even on per share basis. Results primarily reflected the impact of post-tax catastrophe (CAT) losses of $290 million and incremental litigation reserves of $189 million to counter annual legacy asbestos liabilities.

Additionally, a charge of $73 million will be taken to write off capitalized costs associated with a discontinued software project, while $74 million will be incurred on Hartford’s previously announced sale of Federal Trust Corp. These charges will be partially offset by a $52 million tax gain on the favourable outcome of a tax matter related to dividend deductions in 1998, 2000 and 2001.

Besides, Hartford’s investment portfolio has been performing well and is expected to record net unrealized gains of $800 million in the second quarter, against losses of $161 million booked in the prior-quarter. While management kept a bright outlook on the top-line front, it did not provide any financial details of its sales.

It appears that the general fear of natural disasters and consequent loss of life and property have been compelling people to buy decent amounts of insurance coverage for themselves. While this has led to a surge in premium income, claim rate has also increased tremendously. Hence, realizing the opportunities and problems, the insurers are gradually increasing the prices of their products, after years of sharp pricing declines in the industry.

Yesterday, Allstate Corp. (ALL) also reported that it expects to book about $2.3 billion in CAT losses in the second quarter of 2011, thereby generating a net loss. Even PartnerRe Ltd. (PRE) expects to incur $50–$70 million from the US disasters in the second quarter.

Overall, we believe that the fate of insurers will now depend on how well they manage to counterbalance the money outflow due to the increasing number of claims with money inflows from growing demand for insurance policies and premium hike.   

 
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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