Property and casualty insurer The Allstate Corporation ALL expects to incur $186 million, pre-tax ($147 million after-tax) catastrophe loss for the month of August. These losses can be attributed to 16 events at an estimated cost of $137 million, pre-tax. The rest of the loss pertains to unfavorable reserve reestimates of prior-reported catastrophe losses.

Allstate also expects to incur cat loss of $262 million pre-tax ($207 million after tax) for July. Combined losses for the two months amounts to $448 million, pre-tax ($354 million after-tax).

These catastrophe loss estimates do not include Hurricane Florence, which made landfall on Sep 14, 2018. Given the company’s exposure to this region, it should incur loss from Florence. Other insurers that are expected to suffer losses from Florence are Travelers Cos. TRV, The Hartford Financial Services Group, Inc. HIG and American International Group, Inc. AIG.    

Being a relatively large property insurance business, Allstate is significantly exposed to catastrophic events. Weather-related losses for the past many years have weighed on the company’s claims and benefits plus expenses and cash flow, draining its underwriting profitability.

In 2016 and 2017, the company’s cat loss widened 51% and 26% year over year, respectively. Allstate has incurred $1.27 billion of catastrophe loss in the first six months of 2018, down 28.6% year over year.

Therefore, the company is focused on reducing losses through its catastrophe management strategy and reinsurance programs along with limiting exposure to riskier geographic markets via premium hikes. This, in turn, might cause a decline in the number of policies in force. However, we cannot rule out the possibility of significant losses from cat events and inclement weather incidents.

Despite the cat loss, our confidence in the company’s ability to deliver impressive results during the third quarter remains intact. Increasing premiums in property and casualty businesses, an improving auto business, growing net investment income, a low tax rate, and a strong balance sheet should act as key catalysts for earnings growth.

Allstate carries a Zacks Rank #2 (Buy). In six month’s time, shares of the company have returned 7.8%, underperforming the industry’s 9.6% growth.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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