Shares of Allstate Corp.ALL,
Thursday tumbled, enough to beat the S&P 500 index’s losers by a wide margin after the insurer warned of a surprise third-quarter loss amid weakness in its personal auto business.
The company said late Wednesday that it expected net losses of between $675 million and $725 million, and losses excluding one-time items of between $400 million and $450 million. That compared to a FactSet consensus of adjusted net income at the end of September of $256.4 million.
The expected losses come even as Allstate said it continued to take “significant auto insurance actions” in the second half of 2022 in response to inflationary increases in loss costs.
Actions taken include increases of 16.2% in Allstate-brand auto insurance rates at eight locations in September, and a 4.4% increase in National General rates at 11 locations. Total Allstate branded auto insurance rates rose 0.9% in September, following a 3.2% increase in August and a 1.0% increase in July.
Read also: Allstate plans “significant” auto insurance price increases in the second half in response to inflationary pressures.
The stock tumbled 11.4% during afternoon trading, putting it on track for its biggest one-day decline since falling 14.1% on March 18, 2020. It performed by far the worst in the S&P 500 SPX,
as the index’s second-biggest faller is Equifax Inc.’s stock EFX.
who lost 5.5%.
Allstate said its third-quarter combined ratio, which compares insurance expenses and net loss reserves to premiums earned, for Allstate Protection — auto insurance was 117.4%. A ratio of more than 100% means the company is losing money, outflows exceeded inflows.
Excluding certain items, the underlying combined ratio for motor insurance was 104% compared to 74.6% for Allstate Protection – homeowners insurance and 96.4% for property liability.
JPMorgan analyst Jimmy Bhullar said third-quarter results were simply “poor.” He expects auto margins to remain low in the near term and believes the growth rate of current policies (PIF) for Allstate’s auto book will slow as the company cuts marketing spending for new customers and as retention falls given price increases.
However, he reiterated his overweight assessment, citing auto margins and PIF growth expected to improve by the end of the year and “attractive valuation”.
Bhullar also noted that Allstate’s estimate for third-quarter catastrophe losses of $763 million was well below its $1.1 billion forecast.
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MKM Partners’ Harry Fong cut his $165 price target from $145 to $145, but also reiterated his buy rating, saying he believes the company can turn around its profitability within a year.
“While the announcement was not what we wanted to see, we continue to believe that the company will continue to be very aggressive in repricing its auto business to restore underwriting profitability with a combined ratio in the mid-1990s relative to the estimated level of 117.4% in the third quarter. Fong wrote in a note to customers.
Shares of Allstate lost 2.1% over the past three months, while SPDR S&P Insurance exchange-traded fund KIE,
has gained 1.3% and the S&P 500 is down 6.7%.