Allstate Earnings: Catastrophes and Auto Woes Drive Allstate to a Loss

A difficult auto insurance backdrop and elevated catastrophe losses pushed Allstate ALL to a $346 million loss in the first quarter. While the no-moat company continues to struggle, we see some signs of improvement in the quarter and believe it is just a matter of time for pricing increases to normalize auto insurance profitability for Allstate and its peers. We will maintain our $122 fair value estimate.

Premiums written for P&C lines grew 10% year over year, as Allstate implemented significant pricing increases in both auto and homeowners. However, we continue to see long-term growth as a challenge for Allstate, as pricing increases will fade and policies in force growth remains meager as the market shifts away from Allstate’s captive agent base. In the quarter, auto policies in force declined 1% year over year and homeowners grew 1%.

Auto insurance continues to generate significant underwriting losses, with the combined ratio for Allstate Protection coming in at 104.4% compared with 102.1% last year. However, underwriting losses narrowed sequentially, suggesting the company might be starting to turn a corner. Allstate’s underwriting results are not out of line with what we’ve seen from peers, and with auto insurers pushing through large pricing increases, we expect underwriting results to normalize over time. Historically, auto insurance has shown the ability to quickly get underwriting results back in line, but we think the magnitude of current issues might make this a somewhat longer process.

The homeowners side of the business was negatively impacted by wind events that resulted in elevated catastrophe losses. This pushed homeowners to a large underwriting loss. However, the underlying combined ratio improved to 67.6% from 68.0% last year and improved sequentially, suggesting pricing increases are creating a better base of underwriting profitability.