(ALL) Allstate Announces Catastrophe Losses

Property and casualty insurer Allstate Corp. (ALL) has made an upward revision to its preliminary estimate of catastrophe losses (cat losses) from property damages owing to the adverse weather conditions that continued into May.

After the revision, the company expects pre-tax cat losses in the range of $2 billion. Allstate said that its pre-tax losses for May were about $600 million added to the $1.4 billion in catastrophe losses that was announced during April, which was on account of the storms in the southern states of the U.S. In the month of May Allstate was affected by unprecedented tornadoes.

Experts predict the April-May cat losses to cost $7.7 billion – $12.5 billion to the industry. They also say that insurers overall have already incurred cat loss, which is almost two fold of what they had earlier predicted for the full year 2011.

Allstate’s expected second quarter loss of $2 billion is considerably higher in magnitude as against $2.21 billion incurred for the whole of 2010. In the previous quarter the company incurred $333 billion of cat losses from 16 events compared with $648 million in the first quarter of 2010 from 11 events and affected the combined ratio by 520 basis points compared with 1000 basis points in first quarter 2010.

As Allstate deals with property and casualty business, it is significantly exposed to catastrophic events. In 2009, catastrophe losses were $2.1 billion and included estimates of losses from Hurricanes Ike and Gustav, among other events. Though the company is focusing on reducing losses through its catastrophe management strategy, we cannot rule out the possibility of significant losses from catastrophes and severe weather incidents, going forward.

Allstate’s peer Travelers Companies Inc. (TRV) estimates April and May cat losses to cost between $1 billion to $1.05 billion. During the first quarter, Travelers incurred significantly lower catastrophe losses compared with the year-ago quarter.

We expect a return of hard market as the disasters caused by severe weather-related events this year are pushing prices higher in the insurance industry after years of sharp pricing declines.

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