The Allstate Corp. shares have felt the force of higher-than-anticipated catastrophe losses amid a challenging macroeconomic environment of persistent inflation and a banking sector in turmoil.
Since announcing its February catastrophe losses on March 16, Allstate's stock price has fallen by 5.85% — trading at $105.55 a share by 2:30 p.m. Friday. Fellow property and casualty (P&C) insurers The Travelers Cos. Inc. and The Progressive Corp. saw similar declines, their stocks falling by 4.15% and 2.41%, respectively, during the same period. By 2:30 p.m. Friday, the S&P 500 had risen 1.20% from the week prior to 3,963.60, while the S&P 500 U.S. Insurance index gained 1.61%, rising to 540.16.
In a news release, Allstate announced catastrophe losses for February totaling $211 million, stemming from nine geographically widespread events. Catastrophe losses for January and February totaled $518 million, pretax, according to the P&C insurer's news release.
The first quarter of the year tends to be a relatively lighter month for catastrophe losses, said Piper Sandler analyst Paul Newsome, but rain and wind storms in January and February, as well as the yet-to-be-reported catastrophe damage in March, posed a challenge for P&C insurers.
"The last two months were fairly active for catastrophe events, relatively speaking, and that is contributing to profitability challenges," Newsome said. "There are specific issues related to catastrophe losses, such as states like California, for example, which are not allowing insurers to raise rates to account for the fact there have been a lot of catastrophe losses."
Compounding the insurer profitability issue are inflationary pressures and whether or not insurers like Allstate are able to raise rates quickly enough to keep up, Newsome said.
"It looks like [Allstate is] on track to have a recovery of new profitability, but it's hard to tell because there are some places where there are constraints on raising rates," Newsome said. "The bigger piece ... is the inflation piece, which has been very persistent and I think higher than what anybody would have expected."
On Wednesday, the Federal Reserve increased interest rates 25 basis points in a continued effort to curb inflation.
Newsome said the continued persistence of inflation has hit auto insurers particularly hard, in some cases leading to double-digit cost increases in the cost of accidents, repairs and other related areas.
"There's now a question of whether these very high, double-digit inflation trends moderate decline over the next couple of years," Newsome said. "Insurers are essentially filing for the inflation they've already felt and if inflation accelerates, there's really no way for an insurance company to catch up in a regulated environment."
While the final quarter of 2022 was rough for many property and casualty insurers, Allstate took it on the chin and reported a $420 million loss before taxes, according to an S&P Global Market Intelligence analysis. The fourth-quarter loss was a huge reversal from a net income before taxes of $1.39 billion the previous year.
Allstate did not respond to a request for comment regarding the forecast impact of its catastrophe losses but in the news release pointed to its efforts to raise auto rates.
Trupanion in the doghouse
Pet insurer Trupanion's stock value plummeted during the same week it announced CFO Drew Wolff will be stepping down, effective June 1, but will remain as a senior adviser to support the interim CFO.
By 2:30 p.m. Friday, Trupanion's stock was trading at $38.35 a share, a 32.46% decline from its price a week earlier and a 31.3% decline from March 22, the day before Wolff's departure was announced.
In a research note, Piper Sandler analyst John Barnidge pointed to the additional departures of Trupanion's executive vice presidents of both pricing and legal and regulatory matters, suggesting "continued challenges in getting pricing ahead of vet cost increases."
"We anticipate shares underperform near term given the sudden management change," Barnidge wrote, while noting that the firm's founder and CEO Darryl Rawlings will remain.
Trupanion did not respond to a request for comment regarding its leadership change or stock value decline.