Allstate's 3Q CAT Loss Soars $1.08B - Analyst Blog
October 21 2011 - 12:00PM
Zacks
Yesterday, home and auto insurer, Allstate
Corp. (ALL) projected about $215 million in pre-tax
catastrophe (CAT) losses for September 2011. Summing up this with
the July and August estimates, the company is expected to incur
about $1.08 billion in CAT losses in the third quarter of 2011.
Allstate’s CAT losses in the last month include about seven
natural disasters, while about eight weather-related adversities
were included in August, in the US. Particularly, Hurricane Irene
is projected to cause the maximum damage, whereby losses are
anticipated to be about $500 million from August this year.
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 favorable for the
insurance industry. Allstate had already 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.
Hence, we believe that Allstate would report earnings of 25
cents per share in the third quarter, reflecting a substantial 70%
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 20 firms have revised their estimates downward in
the last 30 days, while no upward revision was witnessed. For 2011,
earnings are expected to be $91 per share for Allstate, declining
about 68% over 2010.
Allstate is scheduled to release its third quarter results after
the market closes on October 31, 2011.
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 is expected to continue,
may be with a lower magnitude, in the third quarter as well. While
most of the insurers are 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 also expect the results of other insurers, such as
PartnerRe Ltd. (PRE), to be dampened by CAT losses
in the third quarter of 2011, as we await results in the beginning
of next month. By and large, we believe a state of hard market is
about to return after years of sharp decline in prices 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
PARTNERRE LTD (PRE): Free Stock Analysis Report
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