What Happened

July was the best month for the stock market since November 2020, but the rising tide didn't raise all boats. Allstate Corporation (ALL -1.72%) is one of those stocks that had a rough month, dropping 7.7% in July, according to S&P Global Market Intelligence. 

It fell well short of the S&P 500, which was up 9.1% in July, and the Nasdaq Composite, which gained 12.4% in the month.

So what

Insurance stocks have been among the best performers this year, benefiting from higher interest rates. Allstate is only down 3% year to date as of August 3, and that includes a 7.7% decline in July and another 3% drop since Aug. 1.

As for its July performance, most of the decline can be attributed to a sharp drop in the stock price on July 21 after the property and casualty insurer reported its Q2 underwriting results. The report showed high catastrophic losses in the quarter -- about $1.1 billion pre-tax. In June alone, the losses were $356 million.

Just to put that into perspective, Allstate had $462 million in catastrophic losses in Q1 and $752 million in 2021's Q2.

That led analysts at Wells Fargo, Raymond James, and Barclays to lower their price targets for Allstate on July 21, sending the stock down even more. Wells Fargo lowered it from $116 to $110; Raymond James dropped it from $165 to $155; and Barclays dropped it from $132 to $123.

Now what

Allstate has had to increase rates to account for the inflationary impacts on claims. Rate increases have averaged approximately 8.3% since the start of Q4 2021. The rate increases, according to officials, are expected to raise annualized written premiums by roughly 9% -- or $2.17 billion.

However, higher catastrophic losses were expected to be a drag on Allstate's Q2 earnings report, which was due to be released after the market closed on Aug. 3. The consensus among analysts is that the company will see a net loss of about $1.26 per share, compared to net income of $3.79 per share a year ago this quarter. Revenue is projected to decline by 1.6% year over year.

Keep an eye on the actual earnings when they come out to see if they were better or worse than expected.