Allstate's 3Q CAT Loss Surges $865M - Analyst Blog
September 16 2011 - 9:24AM
Zacks
Yesterday, home and auto insurer Allstate Corp.
(ALL) projected about $735 million in pre-tax catastrophe (CAT)
losses for August 2011. Including the July and August estimates, to
date the company is expected to incur about $865 million in CAT
losses in the third quarter of 2011.
Allstate’s CAT losses in the third quarter include about 8
natural disasters in the U.S. Hurricane Irene is projected to cause
the most damage, whereby losses are anticipated to be about $500
million.
Effect on the Bottom-Line
CAT losses have not only been increasing the claims payments of
the insurers but also been nibbling into the earnings of the
companies, thereby distorting the operational dynamics for quite
some time post the weather-related events. Moreover, the year 2011
does not appear to be favourable for the insurance industry.
Allstate itself has crossed its 2010 benchmark in CAT losses in the
first half of 2011 itself.
Allstate incurred $2.34 billion in the second quarter of 2011,
as a result of 33 catastrophe loss events including five tornadoes,
three wildfires and 25 hailstorms. The dramatic CAT loss resulted
in operating loss of $1.23 per share, lagging the year-ago
quarter’s earnings of 81 cents per share. Increased frequency and
intensity of catastrophes also led to declining premiums, higher
claims payables and deteriorating combined ratio, primarily in the
Property-Liability segment.
Even during the first quarter of 2011, Allstate’s CAT losses
stood at $333 million. The total CAT loss in the first half of 2011
was higher than that of $2.21 billion recorded for the whole of
2010 and $2.1 billion incurred in 2009.
Going ahead, we apprehend that any more devastating CAT losses
in the rest of 2011 could skew the operating results for Allstate,
which could be as poor 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.
However, we believe that despite the increase in rates, Allstate
would report earnings of 74 cents per share in the third quarter,
reflecting an 11% plunge year over year, according to the Zacks
Consensus Estimate, on the back of mounting CAT losses.
With respect to the estimate revisions, 3 of 18 firms have
revised their estimates downward in the last 30 days, while one
upward revision was witnessed. For 2011, earnings are expected to
be $1.37 per share for Allstate, declining about 52% over 2010.
Industry Concern
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.
Overall, CAT losses significantly dampened the industry earnings
in the first half of 2011 and the trend are expected to continue,
may be with a lower magnitude, in the third quarter as well. While
most of the insurers have yet to ascertain their third quarter CAT
losses from the recent hurricane Irene, catastrophe modeling firm
AIR Worldwide estimates insured losses in the US from Irene in the
range of $3–$6 billion.
We expect other insurers such as Hartford Financial
Services Group Inc. (HIG) and PartnerRe
Ltd. (PRE) to release their losses very soon. By and
large, we believe a hardening 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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