HomeMost PopularInvestingCan Auto Insurance Rate Hikes Aid Allstate's (ALL) Q3 Earnings?

Can Auto Insurance Rate Hikes Aid Allstate’s (ALL) Q3 Earnings?

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With the imminent release of Allstate Corporation’s (ALL) third-quarter 2023 results on November 1, it is worth taking a closer look at the factors that could potentially impact its earnings. One key factor to consider is the effect of auto insurance rate hikes on Allstate’s financial performance during the quarter. In this article, we will explore the potential impact, analyze the latest estimates, and provide insights into Allstate’s Q3 earnings.

Q3 Estimates

According to the Zacks Consensus Estimate, Allstate is expected to report earnings per share of 39 cents in the third quarter of 2023. This estimate reflects a considerable improvement compared to the loss of $1.56 per share reported in the same quarter last year. Furthermore, the consensus estimate for revenues stands at $14.7 billion, indicating a growth rate of 10.2% compared to the prior-year quarter.

Earnings Surprise History

Allstate has a track record of beating earnings estimates, having surpassed expectations in three of the trailing four quarters. The average surprise during this period was 4.74%, as illustrated in the chart below:

[The Allstate Corporation Price and EPS Surprise chart]

Factors to Note

Several factors are expected to have a significant impact on Allstate’s third-quarter performance. First and foremost, Allstate’s revenues are likely to benefit from improved net premiums earned, driven by rate increases. Net premiums earned are estimated to grow by 10.7% year over year to $12.9 billion in the third quarter. Additionally, higher fixed income yields and increased bond duration are anticipated to boost net investment income.

Furthermore, strong contributions from Allstate’s Property-Liability segment are expected to drive the company’s overall performance. The segment is likely to benefit from higher earned premiums resulting from rate increases in the auto and homeowners insurance business. It is estimated that the unit’s premiums earned will improve by 9.9% year over year to $12.3 billion in Q3. The auto insurance business, in particular, is expected to benefit from expanding earned premiums, lower expenses, and reduced adverse non-catastrophe prior year reserve re-estimates.

Conversely, the homeowners insurance business may face challenges due to continued catastrophe losses, which could partially offset its quarterly performance. However, improved average gross premium per policy in the Allstate and National General brands, coupled with a rise in policies in force, is anticipated to provide some support.

Despite these potential upsides, catastrophe losses are likely to negatively impact Allstate’s underwriting results and contribute to a deterioration in the combined ratio. Management estimates pre-tax catastrophe losses to be $1.18 billion in the third quarter.

Additionally, Allstate’s Protection Services segment is expected to benefit from the strength of Allstate Protection Plans, Allstate Dealer Services, and expanding international operations. Revenues for the segment are estimated to rise by 24.5% year over year to $780.4 million.

The Allstate Health and Benefits segment is also expected to perform well, driven by improved premiums and contract charges, as well as higher revenues from group health products. However, a decline in individual health and employer voluntary benefits, combined with escalating expenses related to system investments, could partially offset the segment’s growth. Revenues for the unit are estimated at $586 million, representing a 3.9% increase compared to the prior-year quarter.

Nevertheless, an elevated level of catastrophe losses may increase property and casualty insurance claims and claims expenses in the third quarter. This could negatively impact Allstate’s margins, with costs expected to rise by 5.6% year over year to $10.6 billion.

What Our Quantitative Model Predicts

Based on our proven model, Allstate is not likely to beat earnings estimates this time. The combination of a negative Earnings ESP (-53.74%) and a Zacks Rank of 3 does not favor an earnings beat.

Stocks to Consider

While an earnings beat may be uncertain for Allstate, there are other companies in the insurance space that have the potential to outperform expectations. According to our model, American International Group, Inc. (AIG), American Equity Investment Life Holding Company (AEL), and Aflac Incorporated (AFL) have the right combination of elements to beat earnings estimates in the upcoming quarter.

American International Group, Inc. (AIG) is expected to report third-quarter 2023 earnings per share of $1.55, more than double the figure reported in the prior-year quarter.

American Equity’s bottom line has beat estimates in each of the trailing four quarters, with an average surprise of 13.45%.

Aflac Incorporated (AFL) has an Earnings ESP of +0.62% and a Zacks Rank of 2. The company is expected to achieve 17.1% growth in its third-quarter earnings compared to the same period last year.

American Equity Investment Life Holding Company (AEL) is projected to experience a 68.7% surge in earnings per share in the third quarter of 2023, with an estimate of $1.67.

Stay updated on upcoming earnings announcements by referring to the Zacks Earnings Calendar.

In conclusion, Allstate’s third-quarter earnings are anticipated to benefit from auto insurance rate hikes and strong segmental performance. However, potential challenges from catastrophe losses and other factors may impact the company’s overall results. Investors may also consider other insurance companies, such as AIG, AEL, and AFL, which have favorable outlooks for the quarter. For a more comprehensive analysis and expert recommendations, download the free report “7 Best Stocks for the Next 30 Days” from Zacks Investment Research.

Disclosure: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Nasdaq, Inc.

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