Allstate Earnings: Headwinds Ease
Allstate ALL still faces some significant issues, but overall headwinds appeared to ease in the third quarter. The company recorded a modest $41 million loss in the quarter, largely due to elevated catastrophe losses of $1.2 billion. We will maintain our $122 fair value estimate for the no-moat company and see shares as roughly fairly valued.
In addition to catastrophe losses, Allstate’s biggest issue this year has been weak underwriting conditions in personal auto. To that point, we are encouraged by the improvement in the personal auto combined ratio, which declined to 102.1%, compared with 108.3% in the previous quarter. We’ve seen similar improvement at peers, which strengthens our belief that this line may be finally turning the corner toward more normalized underwriting results.
Allstate continues to push pricing, with a year-to-date annualized brand premium impact of 9.5% through the first nine months of 2023. We’ve seen peers also accelerate pricing actions through the course of the year, and pricing may finally be catching up to the negative claims trends.
On the negative side, these pricing actions appear to be resulting in lower policies in force. Personal auto policies decreased 3% year over year, with a 6% decline for Allstate-branded, partially offset by 13% for National General. But until Allstate shows it can return to a reasonable rate of underwriting profitability, we think ceding some share is the best course.
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