EUR 850.00 For Business Accounts Only

Morningstar | Allstate Continues to Benefit From Market Conditions in First Quarter

Allstate had a good first quarter. While catastrophe losses were a little high, underlying underwriting results remain good. However, we continue to believe that the company is operating in a bit of a sweet spot in terms of the pricing cycle, and that mean reversion is inevitable. We don’t believe the current market price fully factors this in. We will maintain our $85 fair value estimate and no-moat rating.

Allstate’s auto lines have been performing quite well recently, as a spate of strong pricing increases within the industry have boosted underwriting margins. Results in the first quarter continue to reflect this trend, in our view. The underlying combined ratio (which excludes catastrophe losses and reserve development) for Allstate brand auto lines came in at 90.2%, compared with 89.4% last year, but this was largely due to a difficult comparison, and the level in the quarter was below more recent results. Net earned premiums were up 5% year over year, with policies in force growth of 3%. Pricing increases appear to have moderated significantly, but still seem to be positively impacting underwriting margins, and retention levels are holding steady, suggesting pricing competition within the industry is still somewhat muted. However, the current level of the combined ratio is very much on the low end of the company’s historical range, a phenomenon we see at peers as well. Although there was little evidence of this in the quarter, we believe mean reversion on this front over time is inevitable.

Market conditions in the homeowners line have not been quite as favorable, but we think the underlying conditions here look fairly steady. The quarter did see a relatively large dose of catastrophe losses, but the underlying combined ratio for the Allstate brand was 63.7%, only a little higher than the 63.1% level last year and roughly in the middle of the range over the last year. Net premiums earned were up 5% year over year, with a 2% increase in policies in force, suggesting the company is achieving modest pricing increases.