Will Decline in Auto Claim Aid Allstate's (ALL) Q1 Results?
The Allstate Corp. ALL has announced that it will return more than $600 million of premium to its policyholders carrying auto insurance. This move by the company comes as a friendly gesture to reward its policyholders as it gains from lower claims amid a decline in vehicular driving due to the COVID-19 impact.
The company has been witnessing fewer insured vehicles on road as people tend to stay at home and travel less as a precautionary measure against the coronavirus disease, which seems to spiral out of control.
This reduction in travel is kind of a silver lining in the cloud for Allstate, which boasts big auto insurance business. The company’s first-quarter 2020 is expected to gain from lower claims.
Allstate’s will provide a Shelter-in-Place payback in excess of $600 million over the next couple of months (April and May), which will be almost 15% of its customers’ monthly premium. The rebate will be credited to their bank account, credit card or Allstate account, and the easiest way to get the benefit is by using the Allstate Mobile app. The company is also providing free identity protection for the rest of the year to all U.S. residents who sign up for the app.
Additionally, Allstate is offering relief to its customers by allowing them to defer their premium payments without any penalty via a Special Payment option. This plan gives auto and homeowners insurance customers the choice to delay two consecutive premium payments. Customers can also choose to pay what they can afford.
Allstate is also expanding insurance coverage for customers who use their personal vehicles to deliver food, medicine and other goods for commercial purposes. This is a special extension as the Standard personal auto policy does not provide coverage for the same. However, given the supply-chain disruption caused by the coronavirus mess, many people are using their own vehicles to dispatch essential goods to help others, earn money and also aid businesses as well as social service organizations.
Other companies with auto insurance business that too stand to gain from decreased driving and lower auto claims are Progressive Insurance Corp. PGR and The Travelers Companies, Inc. TRV.
Though Allstate might gain from its personal auto insurance business, its life insurance business might take a suffer due to the low interest ratesThe rating agency Fitch ratings recently informed that because of Allstate’s core life insurance subsidiaries’ susceptibility to spikes in mortality, the insurer might suffer a double whammy from the financial market instability combined with life insurance exposure, which may partly weigh on earnings and variability in capital.
Thus, we expect to see the company’s first-quarter earnings to gain from low claims in personal auto insurance business, partly offset by lower underwriting gains from its life insurance business.
Year to date, the stock has lost 16.8% compared with its industry’s decline of 19.8%.
Allstate carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is First American Financial Corp. FAF, sporting a Zacks Rank #1 (Strong Buy). Its earnings beat estimates in each of the trailing four quarters, the average being 17.68%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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