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Allstate Estimates July Catastrophe Loss, Weather Woes Hurt
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Property and casualty insurer The Allstate Corp. (ALL - Free Report) expects to incur catastrophe (cat) loss of $181 million pretax ($118 million after tax) for the month of July 2017.
The loss may be attributed to 13 events that took place last month. While these losses will cost $151 million pretax, the company expects to incur the remaining $30 million from the prior-period adverse reserve development.
Catastrophes are an inherent risk of the company that have and will continue to result in material year-to-year fluctuations in its results and financial position. In the first six months of 2017, Allstate incurred cat loss of $1.75 billion, down 2.2% year over year.
In order to mitigate weather-related losses, Allstate is focusing on catastrophe management strategy and reinsurance programs. Despite these efforts, we cannot rule out the possibility of losses from catastrophes and severe weather incidents, going forward.
Nevertheless, shares of Allstate have been rising steadily year to date, generating a return of 26%, significantly outperforming the industry’s gain of 9.6%. The outperformance reflects optimism surrounding the stock from initiatives taken by the company such as profit-improvement plans in its auto business, which suffered high auto claims for the past many quarters. Efforts to diversify its business and product offerings at a time when some of its business lines are subjects of friction have also been viewed favorably by investors.
On the face of it, catastrophe losses cause a spike in loss ratio and hurt insurer's underwriting margins. Then again, catastrophe losses act as catalysts in turning the industry's pricing cycle. (Insurance industry is highly cyclical, characterized by periods of soft and hard pricing phases).
Lately, the industry amassed ample capital reserves owing to low catastrophe losses, which led to losing of underwriting standards as insurers equipped with huge cash did not mind undertaking risky businesses at low prices. This heightened competition and insurers were compelled to lower their prices further to attract more business. Eventually, pricing woes crept up, as evident by the current soft pricing in many insurance business lines.
A recent report by Swiss Re states that global insured losses from disasters plunged to $23 billion in the first half of 2017 from $36 billion in the year-ago period.
Lower levels of claims from natural catastrophes and other disasters suppressed demand for insurance against such events, thereby putting pressure on premiums.
Also, a report from insurance broker Marsh stated that global insurance rates fell for the 17th consecutive quarter, with property insurance rates down 2.8%
It remains to be seen if weather-related losses over the coming months can shrink the massive capital surplus and change the insurance pricing cycle.
Allstate carries a Zacks Rank #3 (Hold). Some better-ranked players in the space are Atlas Financial Holdings, Inc. , Markel Corporation (MKL - Free Report) and Mercury General Corporation (MCY - Free Report) . Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Atlas Financial provides commercial automobile insurance policies primarily in the United States through its subsidiaries. It beat estimates in two of the last four quarters with an average positive surprise of 57.9%.
Markel markets and underwrites specialty insurance products and programs to a variety of niche markets. It surpassed estimates in two of the last four quarters with an average positive surprise of 21.1%.
Mercury General is engaged primarily in writing all risk classifications of automobile insurance in a number of states, principally California. It beat estimates in three of the last four quarters with an average positive surprise of 1.1%.
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Allstate Estimates July Catastrophe Loss, Weather Woes Hurt
Property and casualty insurer The Allstate Corp. (ALL - Free Report) expects to incur catastrophe (cat) loss of $181 million pretax ($118 million after tax) for the month of July 2017.
The loss may be attributed to 13 events that took place last month. While these losses will cost $151 million pretax, the company expects to incur the remaining $30 million from the prior-period adverse reserve development.
Catastrophes are an inherent risk of the company that have and will continue to result in material year-to-year fluctuations in its results and financial position. In the first six months of 2017, Allstate incurred cat loss of $1.75 billion, down 2.2% year over year.
In order to mitigate weather-related losses, Allstate is focusing on catastrophe management strategy and reinsurance programs. Despite these efforts, we cannot rule out the possibility of losses from catastrophes and severe weather incidents, going forward.
Nevertheless, shares of Allstate have been rising steadily year to date, generating a return of 26%, significantly outperforming the industry’s gain of 9.6%. The outperformance reflects optimism surrounding the stock from initiatives taken by the company such as profit-improvement plans in its auto business, which suffered high auto claims for the past many quarters. Efforts to diversify its business and product offerings at a time when some of its business lines are subjects of friction have also been viewed favorably by investors.
On the face of it, catastrophe losses cause a spike in loss ratio and hurt insurer's underwriting margins. Then again, catastrophe losses act as catalysts in turning the industry's pricing cycle. (Insurance industry is highly cyclical, characterized by periods of soft and hard pricing phases).
Lately, the industry amassed ample capital reserves owing to low catastrophe losses, which led to losing of underwriting standards as insurers equipped with huge cash did not mind undertaking risky businesses at low prices. This heightened competition and insurers were compelled to lower their prices further to attract more business. Eventually, pricing woes crept up, as evident by the current soft pricing in many insurance business lines.
A recent report by Swiss Re states that global insured losses from disasters plunged to $23 billion in the first half of 2017 from $36 billion in the year-ago period.
Lower levels of claims from natural catastrophes and other disasters suppressed demand for insurance against such events, thereby putting pressure on premiums.
Also, a report from insurance broker Marsh stated that global insurance rates fell for the 17th consecutive quarter, with property insurance rates down 2.8%
It remains to be seen if weather-related losses over the coming months can shrink the massive capital surplus and change the insurance pricing cycle.
Allstate carries a Zacks Rank #3 (Hold). Some better-ranked players in the space are Atlas Financial Holdings, Inc. , Markel Corporation (MKL - Free Report) and Mercury General Corporation (MCY - Free Report) . Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Atlas Financial provides commercial automobile insurance policies primarily in the United States through its subsidiaries. It beat estimates in two of the last four quarters with an average positive surprise of 57.9%.
Markel markets and underwrites specialty insurance products and programs to a variety of niche markets. It surpassed estimates in two of the last four quarters with an average positive surprise of 21.1%.
Mercury General is engaged primarily in writing all risk classifications of automobile insurance in a number of states, principally California. It beat estimates in three of the last four quarters with an average positive surprise of 1.1%.
4 Surprising Tech Stocks to Keep an Eye on
Tech stocks have been a major force behind the market’s record highs, but picking the best ones to buy can be tough. There’s a simple way to invest in the success of the entire sector. Zacks has just released a Special Report revealing one thing tech companies literally cannot function without. More importantly, it reveals 4 top stocks set to skyrocket on increasing demand for these devices. I encourage you to get the report now – before the next wave of innovations really takes off.
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