Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is Allstate in Trouble?

Allstate (NYSE: ALL) is having some troubles despite recent increases in revenue and income. There was a noticeable increase in the number of cancelled policies last year.

The number of policy cancellations at Allstate increased by 200,000 in 2016, Crain’s Chicago Business reported. Allstate reported 2.3 million policy cancellations in 2015 and 2.5 million in 2016.

There has also been a noticeable drop in the company’s customer retention rate. Around 87.8% of its customers renewed their policies in 2016, compared to 88.6% in 2015 and 88.9% in 2014.

Insurance industry observers blamed a 5% increase in Allstate rates in 2015 and a 7% increase in 2016 for the increase in dropped policies. Still an 87.8% retention rate with a 12% increase in premiums is pretty good.

It’s a really impressive achievement in today’s world where a person can switch policies at the push of an app. That indicates most customers are still happy with Allstate and are willing to pay a little extra for its services.

Is Allstate Making Money?

Value investors will be happy to know that Allstate is still making money despite the decrease in customer retention. Revenues and income are growing at the company.

Allstate’s net income grew by $351 million in fourth quarter 2016, rising from $1.526 billion in September to $1.877 billion in December. That’s still down from December 2015 when the net income was $2.171 billion and December 2014 when it was $2.85 billion.

The income growth indicates that the rate increases were a valid but risky move that seems to be paying off. Another indication that rate increases were a smart strategy is the company’s revenue.

Allstate has a Lot of Cash

Allstate’s revenues grew by $880 million in 2016; rising from $35.65 billion in December 2015 to $36.53 billion a year later. More importantly that revenue translated into a lot of cash and float in the form of:

  • $108.61 billion in assets on December 31, 2016.

  • $4.724 billion in cash and short-term investments at the end of fourth quarter 2016.


  • $3.993 billion in cash from operations at the end of 2016. That was up from $3.616 billion in cash from operations in December 2015.


  • $1.138 billion in free cash flow on December 31, 2016. That was a significant increase over the $846 million reported in December 2015.

  • A diluted earnings per share number of 4.7 for those who appreciate such things.


  • A profit margin of 9.05% on December 31, 2016.


Allstate is paying off for Investors

This makes Allstate a decent value investment that is paying off for shareholders. Those who held its stock received a return on equity of 10.02% on December 31, 2016, according to ycharts.

Those shareholders are scheduled to receive a 37¢ dividend on February 24, 2017. That’s a four cent increase over the last payout; which was 33¢ on November 28, 2016. Therefore like a number of other insurance companies Allstate is also a dividend investment.

If you’re looking for an income stock that’s capable of growth, Allstate is a pretty good choice. Looking at its financial statements can also tell us a lot about insurance companies.

What can we learn from Allstate’s Earnings Report

There’s a lot we can learn from Allstate’s earnings report but the most important takeaway is that insurance is still a value investment.

Companies like Allstate are still capable of generating a lot of cash and float despite all the cutthroat competition in the insurance industry. More importantly they are also retaining most of their customers in an insurance marketplace that is characterized by deep discounting and aggressive marketing.

That shows us that most customers are happy with their auto insurance and not willing to change. It also means that these companies will keep receiving their premiums and generating lots of float for the foreseeable future.

Even with long term trends like the decline in driving, the rise in auto fatalities and the looming menace of self-driving cars, auto insurance is still a value investment. Diversified insurers like Allstate are also still a really great investment. Even though it is still sort of boring, insurance still pays off for value investors. Allstate is not in trouble, instead it is still a really nice value investment.