A disappointing preannounced report from The Allstate Corp. paints a potentially gloomy picture for other personal auto insurers as property and casualty carriers prepare for their fourth-quarter 2022 earnings calls.
Allstate said in a Jan. 18 press release that it expected to report an estimated fourth-quarter 2022 net loss of between $285 million and $335 million, a stark difference from net income of $790 million in the prior-year quarter.
The company also projected a fourth-quarter 2022 combined ratio of 112.6% for its personal auto business due to increased claims frequency. Prior-year adverse reserve development of $282 million, $180 million from personal auto and $100 million from commercial auto adds to the view that the issues in the personal auto insurance line are continuing, CFRA Research analyst Cathy Seifert said.
The analyst is predicting a "tough quarter" for personal auto insurers, as Allstate's problems are "not necessarily unique" to the company.
"I don't think this happens in a vacuum, so what remains to be seen is are some of Allstate's competitors going to show better results or is this going to be across the board," Seifert said in an interview. "Neither scenario bodes all that well for profitability."
Issues plaguing Allstate such as frequency, medical liability, severity and property and physical damage have led to five consecutive quarters of prior-year development and pressured underwriting performance in those quarters, Credit Suisse analyst Andrew Kligerman said in an interview.
"We're looking at some real challenges, and the industry has a lot of work to do to retain the rates that are needed to overcome this challenging loss environment," the analyst said.
Allstate, along with other carriers, has been pursuing rate increases. The question of how much higher those rates will climb could lead to some "interesting conversations" between insurers and state regulators, Seifert said. Regulators are going to be sensitive to companies' lack of underwriting profitability while remaining aware of the effect inflation has already had on consumers' pocketbooks, she added.
"What's going to be interesting to see is the degree to which some of these insurers pull back if they can't get an adequate underwriting profit in the business," Seifert said.
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EPS estimates drop YOY, rise sequentially
The majority of the top 20 publicly traded U.S. P&C insurers are expected to post year-over-year decreases in earnings per share in the fourth quarter of 2022, according to analyst estimates compiled by S&P Global Market Intelligence. Seven companies, including Chubb Ltd., The Progressive Corp., Markel Corp. and Arch Capital Group Ltd., are projected to book higher year-over-year earnings for the period.
The projections for sequential growth are more positive, with all but three companies expected to book increases in EPS over the third quarter of 2022.
Despite the uncertainty surrounding the economy, P&C companies possess "generally strong fundamentals that should not be impacted by an economic downturn," UBS analyst Brian Meredith said in a note. Meredith continues to favor commercial insurers, such as The Travelers Cos. Inc., Chubb and The Hartford Financial Services Group Inc., due to expected improvement in pricing, margins and earnings.
