What happened
Shares of insurer Allstate (ALL -0.07%) were down 12.2% as of 2:05 p.m. ET on Thursday in response to disappointing preliminary results for its fiscal third quarter that ended in September. In short, inflation is taking a sizable toll on the company's bottom line.
So what
Inflation isn't just adversely impacting consumers. It's also working against corporations, including insurance companies.
That's the takeaway from an Allstate warning to its shareholders posted today. Its official third-quarter numbers scheduled to be released on Nov. 2 will likely show a loss for the three-month stretch. Namely, today's published estimate puts the looming quarterly loss somewhere between $675 million and $725 million on $12 billion worth of premium revenue. Even after factoring in accounting adjustments, higher home, auto, and healthcare prices mean the company is paying out more than it's taking in.
The adjusted net loss is expected to roll in somewhere between $400 million and $450 million, compared to adjusted net income of $217 million for the third quarter of last year.
Now what
The insurer is responding appropriately to changing conditions. For instance, automobile insurance premiums are -- on average -- 10.8% higher than they were as of the end of last year. Homeowner premiums are up 13.3% on average year to date.
Simply imposing price hikes, however, is no small matter. Price increases can prompt customers to shop around for other, lower-cost options.
At the same time, a bearish market is crimping returns on Allstate's equity investments that help fund payouts. The company's $61 billion portfolio fell in value slightly during Q3 and is down 6.4% through the first three quarters of this year. Meanwhile, payouts for the coverage it offers home and auto owners continue to increase.
Nothing lasts forever, of course. Inflation will eventually be curbed, and the stock market will eventually rise again. Such a scenario should put Allstate back in the black. But the fact that this insurer's stock hasn't been a particularly bad performer suggests shareholders weren't expecting this sort of headwind. Shares may have further to fall before they fully reflect the problems the company conceded today. Ongoing marketwide weakness paired with continued inflation only makes more downside likely for the foreseeable future.
In other words, today's setback looks to be a warning of what's to come. Interested investors may want to pass on this one for now and look for something better suited for the current economic environment.
