Are Allstate Earnings Enough?

In mid-July, Allstate announced estimated catastrophe losses for the month of June 2015 of $346 million pretax ($225 million after-tax). Catastrophe losses occurring in June comprised 19 events at an estimated cost of $310 million, pretax, plus increased reserve re-estimates of prior reported catastrophe losses. The increased reserve re-estimates in the month of June primarily relate to re-estimates of April and May 2015 events.

During the second quarter, Allstate returned $642 million in cash to shareholders through a combination of share repurchases and common stock dividends.

Book value per diluted common share of $47.96 was comparable to the prior-year quarter and lower than the first quarter of 2015 due to lower unrealized gains in the investment portfolio.

Thomas J. Wilson, chairman and CEO of Allstate, said:

Allstate’s proactive approach to strategy and operating performance resulted in a rapid adjustment to continued increases in auto losses. Our second quarter operating income of $262 million was lower than last year, reflecting increased frequency and severity of auto accidents. The increase in auto accidents is broad-based by state, risk class, rating plans and the maturity of the business, and consequently appears to be driven by external factors. While recent growth in Allstate brand auto policies in force did increase frequency, since new business typically has higher relative frequency, this was not the primary driver of a higher combined ratio. We have responded aggressively to improve profitability with rate increases, tighter underwriting standards and expense reductions. We continue to focus on achieving our five 2015 operating priorities and have not changed the priority to deliver an underlying combined ratio of 89 or below for the full year.

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At the end of the second quarter, the company had $805 million in cash and cash equivalents.

Was this performance good enough to appease investors? Apparently not, as shares of Allstate dropped 10% to $62.44 Tuesday morning, in its 52-week trading range of $58.12 to $72.87. The stock has a consensus analyst price target of $73.42.