By Sam Boughedda
Allstate (NYSE:ALL) shares plunged over 5% after the company posted its preliminary fourth-quarter results after the close on Wednesday.
The company said it estimates a net loss of between $285 million and $335M in the fourth quarter, with an adjusted estimated net loss of between $335M and $385M.
Allstate said premiums written in the quarter increased 11.4% to $11.5B compared to the same period in 2021, driven primarily by higher average auto and home insurance premiums.
Catastrophe losses for the quarter are estimated to be $779M, pre-tax, including pre-tax losses in December of $593M. Net investment income is seen at $557M, including performance-based investment income estimated at $147M.
The company's total return on the $61.8B portfolio was 2.5% in the fourth quarter and -4% for the year ended December 31.
Following the report, BofA analysts cut the firm's price target on the stock to $148 from $154, stating in a note to clients that Allstate pre-announced its Q4 combined ratio of 109.1% compared to the firm's previous forecast of 98.1%.
"The miss is predominantly driven by higher underlying losses (incl. a YTD reserve true-up) and a prior-year reserve charge," said analysts. "The charge this quarter of $282mn (+2.5% loss ratio impact) marks the sixth quarter in a row that Allstate has recorded notable unfavorable prior-year development (PYD)."
"The unfavorable reserve development is likely the most disappointing item from the pre-announcement. Following a corrective prior-year charge of $875mn in 3Q22, investors and the Street were hoping to have the recent strengthening in the rearview mirror," the analysts added.