What happened
In relatively prosperous times, insurance stocks are considered by many to be safe investments. That sure wasn't the case with Allstate (ALL -0.63%) this week, however. According to data compiled by S&P Global Market Intelligence, the veteran insurer's share price deteriorated by just shy of 10% during the period. Dispiriting preliminary results were the culprit behind the decline.
So what
On Wednesday, Allstate furnished a set of projections for its fourth quarter. The insurer expects to report that its written premiums increased by over 11% year over year to $11.5 billion. That anticipated increase is due to higher premiums for vehicle and home insurance policies.
But with the awful weather the U.S. experienced in December with Winter Storm Elliott, catastrophe losses were considerable. Allstate is estimating that it will book $779 million in that line item before taxes for the quarter. Of that amount, $616 million was expected to have been incurred in December alone.
On the bottom line, the company is forecasting a notable loss. It's estimating that it will be in the red to the tune of $285 million to $335 million under generally accepted accounting principles (GAAP) standards. On a non-GAAP (adjusted) basis, that deficit deepens to an estimated $335 million to $385 million.
Now what
Those net numbers aren't pretty at all. So it was little wonder that not only investors but analysts got notably more bearish on Allstate stock.
Just after the preliminary results were disseminated, Bank of America prognosticator Joshua Shanker cut his price target on the stock to $148 per share from $154. He pointed out that one major drag on the bottom line was a $282 million prior-year reserve charge, which, he wrote, "marks the sixth quarter in a row that Allstate has recorded notable unfavorable prior-year development (PYD)."
