If you’re insured with Allstate or are thinking about insuring with them this post is for you as I’ve had Allstate and its incompetent CEO Tom Wilson on my mind for the past week or so. Now that I have a few good links, allow me to share some of the indicators I look at on individual stocks when performing DD (due diligence). Speaking of DD, it is an ongoing process that never ends which is one of the reasons I think most folks are far better off in no load mutual funds (offered by low-cost producers like Vanguard).
We last visited with Allstate last Thursday after they whiffed on their Q4 earnings. Mr Wilson has a curious business strategy for an insurance company in withdrawing Allstate from taking HO (homeowners insurance ) risks in coastal America, where roughly half the nation’s population lives. That is not unusual as many of the insurance companies are doing like wise but unlike State Farm, which bought into the Bermudian reinsurance market to capitalize on the shortage of coverage they helped create, Allstate has pursued a different strategy of using non admitted carriers to insure the void, at so-called market rates as non admitted carriers do not have rate regulation.
The rationale for using non admitted carriers is simple. Consumers typically bundle their HO coverage with their auto policy and insurance companies make a mint selling auto insurance. Withdrawing from the coast has its draw backs and the loss of the auto policies with the homeowners is a real downside to the industry’s current price-fixing scheme for wind insurance. Continue reading “The Wilson effect: Sure signs the market is becoming concerned about Allstate’s long term solvency”