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Allstate Earnings: Headwinds Ease

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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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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