Allstate (ALL) Estimates April Cat Loss, Pursues Rate Hikes

The Allstate Corporation ALL anticipates a headwind linked with catastrophe losses amounting to $316 million or an after-tax amount of $250 million for April 2022.

Catastrophe losses for the month emanated from 14 events, primarily related with the incidence of wind, hail and tornados across Texas and the southeast. These events, projected to cost $299 million for Allstate when combined with unfavorable reserve re-estimates for prior period events, are accountable for the estimates of catastrophe losses last month.

Results of ALL, a property and casualty (P&C) insurer, remain susceptible to unforeseen catastrophic events. Consequently, the continued incidence of catastrophe losses can escalate claim costs for any insurer, dampen underwriting results and put pressure on margins. However, the occurrence of catastrophe losses prompts insurers to undertake rate hikes to tackle escalating costs, which they have to handle amid the occurrence of such unpredictable events. This, in turn, is expected to boost their premium amounts, which remain a significant contributor to any P&C insurer’s revenues.

Allstate undertook rate hikes of 6.4% at 14 locations in April, which positively impacted its total insurance premiums by 0.7%. Auto rate increases amounting to $163 million were also enforced last month.

Management of Allstate remains optimistic about pursuing more rate increases in 2022 than initially expected, considering another active Atlantic hurricane season in 2022 after last year, per the researchers of Colorado State University (CSU). Per the first extended range forecast disclosed by CSU about the 2022 Atlantic hurricane season last month, there can be 19 named storms in the season, of which nine can emerge and become hurricanes and four might take the form of major hurricanes. The CSU team also forecasts that hurricane activity this year can be around 130% of the average season over the 1991-2020 period.

Though an active hurricane season implies that Allstate's bottom line may remain under pressure in the days ahead, continuous price increases might provide some respite to its performance. ALL has been quite active in hiking rates for some time, which is evident from the insurer pursuing 67 rate increases across 45 locations from the fourth quarter of 2021. Auto rate increases of $1.6 billion were also implemented in the past two quarters (the first quarter of 2022 and the fourth quarter of 2021).

Meanwhile, Allstate remains equipped with appropriate strategies to tackle significant headwinds arising from catastrophe losses, which should continue to impress investors. To complement its endeavor, Allstate has catastrophe management strategy and reinsurance programs in place.

Shares of Allstate have rallied 6.9% year to date compared with the industry’s growth of 2.4%. ALL currently carries a Zacks Rank #3 (Hold).

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Stocks to Consider

Some better-ranked stocks in the P&C insurance space include W. R. Berkley Corporation WRB, Kinsale Capital Group, Inc. KNSL and AXIS Capital Holdings Limited AXS. While W.R. Berkley sports a Zacks Rank #1 (Strong Buy), Kinsale Capital and AXIS Capital each carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average surprise being 27.08%. The Zacks Consensus Estimate for W.R. Berkley’s 2022 earnings suggests an improvement of 13.2% from the year-ago reported figure, while the same for revenues suggests growth of 18.2%. The consensus mark for WRB’s 2022 earnings has moved north by 4.9% in the past 30 days.

The bottom line of Kinsale Capital outpaced earnings estimates in each of the last four quarters, the average surprise being 26.43%. The Zacks Consensus Estimate for Kinsale Capital’s 2022 earnings suggests an improvement of 18.3% from the year-ago reported figure, while the same for revenues suggests growth of 24.8%. The consensus mark for KNSL’s 2022 earnings has moved north by 2.6% in the past 30 days.

AXIS Capital’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 54.80%. The Zacks Consensus Estimate for AXIS Capital’s 2022 earnings indicates a rise of 20.7% year over year, while the same for revenues suggests an improvement of 3.2%. The consensus mark for AXS’ 2022 earnings has moved north by 15.5% in the past 30 days.

Shares of W.R. Berkley and AXIS Capital have rallied 20.7% and 2.7%, respectively, year to date. Meanwhile, Kinsale Capital’s stock has declined 12% in the same period.


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