Allstate Faces Significant Near-Term Headwinds

The coronavirus boosted personal auto results, as quarantine efforts led to a stark decline in miles driven and claims. Allstate offered rebates to customers as a result, but the company saw a dramatic short-term boost to underwriting margins while social distancing efforts were in effect. Ultimately, though, this benefit waned as vaccination efforts took hold, and the pandemic appears to have restarted the pricing cycle at a less attractive point. Further, insurers are absorbing a rise in claims costs due to multiple factors beyond the impact of drivers returning to the road. Auto insurers are now enduring a very difficult period, which has pushed Allstate to significant underwriting losses. However, pricing has improved, and the industry has shown an ability to recover from negative claims trends fairly quickly. That said, the magnitude of recent claims issues may make normalization a longer process this time. Outside of this issue, Allstate has been buffetted by relatively high catastrophe losses recently. These trends have pushed the company into meaningful losses. All in all, while we expect normalization over time, Allstate is enduring a rough stretch.