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Allstate's Core Growth Pace & Leverage Appear Promising

On Sep 30, 2014, we issued an updated research report on The Allstate Corp. (ALL). Although the low interest rate restricts investment returns, the company’s diversified portfolio, pricing discipline and decent capital position drive optimism.

Moreover, Allstate has been witnessing improved performance in its core insurance operations, which were capable of maintaining the growth momentum in the first half of 2014, despite increased catastrophe losses.

This property casualty (P&C) insurer has delivered positive earnings surprises in all of the last 4 quarters with an average beat of 18.8%. The company’s second-quarter 2014 earnings topped the Zacks Consensus Estimate by 26.3%.

However, earnings fell short of the year-ago quarter figure by 9.8%, primarily due to higher catastrophe losses and claims expenses as well as loss of earnings from Lincoln Benefit Life (:LBL), which was divested in Apr 2014. Higher catastrophe losses along with fluctuations in underwriting results and P&C margins have also affected operating cash flow and investment income adversely in the past quarters.

Nevertheless, the sale of Lincoln Benefit Life (:LBL) in Apr 2014 has generated incremental synergies such as reduction in capital requirement at Allstate Life Insurance Co. by about $1.0 billion. The company also gained $38 million from the sale of Sterling Collision Centers in second-quarter 2014. Allstate plans to outsource the annuity business management to a third-party administration company by 2014-end, while strategically investing in technology upgrades.

Moreover, continued synergies from agency expansions, healthy rating and improved financial leverage support efficient capital deployment, boosting shareholders’ confidence as well. Allstate’s total debt-to-capital resources ratio improved to 20.4% at Jun 2014-end from 21.9% at Mar 2014-end, 22.4% in 2013 and 22.7% in 2012. With an operations and capital strategy that enables acclimatizing to changing market regulations, Allstate is well positioned to benefit from an improving economy and the expected rise in interest rates.

Some favourable stocks in the P&C insurance sector like AmTrust Financial Services Inc. (AFSI), XL Group Plc (XL) and Navigators Group Inc. (NAVG) are also worth reckoning.

Read the Full Research Report on XL
Read the Full Research Report on ALL
Read the Full Research Report on AFSI
Read the Full Research Report on NAVG


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