This Insurer Is Quietly Up Double Digits in a Month. Should You Invest $1,000?

Insurance commercials on TV can be a lot of fun. But the actual insurance business strikes many people as kind of boring. Yet it can be lucrative. And for shareholders, particularly those of insurance company Allstate (ALL +0.57%), it can be a great investment, too. In Allstate’s case, the stock’s share price has climbed 11% over the past month.

What’s driving Allstate’s stock price higher?

Allstate’s Q3 improved on multiple metrics

A likely reason is that the company posted third-quarter financial results earlier this month that were stellar. Revenue of $17.26 billion rose 4% year over year and was slightly higher than the $16.87 billion Wall Street was forecasting.

More importantly, net income of $3.75 billion was 3 times that of a year ago. Adjusted net income came in at $3 billion, also 3 times that of a year ago. So, per-share earnings were $11.17, which blew past the $7.55 analysts expected.

Premiums written rose 6.3% over the same quarter a year ago due to higher auto and homeowners insurance average premiums and policies in force. Total premiums in force rose 6.1% from the prior year, to $14.5 billion. Growing premiums are critical to the financial health of every insurance company.

The company has deals with major retailers — Walmart, Costco Wholesale, and Target are a few — to sell insurance policies.

Allstate is the third-largest property-casualty insurer in the U.S. It provides insurance to about 16 million households.

Good weather reduced catastrophe losses in the quarter

And the insurer got a bit lucky with the weather during the quarter. Catastrophe losses decreased by $752 million, to $479 million, in large part due to the absence of major hurricanes and tropical storms.

The company’s property-liability combined ratio — a measure of an insurance company’s underwriting profitability — fell from 96.4% a year ago to 80.1% in the third quarter. That 16.3 percentage point drop is impressive, as the figure is the ratio of incurred losses and expenses to earned premiums, so the lower it is, the better.

Strong portfolio returns boosted income

Of course, Allstate’s own portfolio is critical to profitability. That portfolio is now $82.3 billion, up from $77.4 billion in the previous quarter. And it generated about $950 million in investment income in the third quarter, which is $166 million more than it returned a year ago.

Should you invest $1,000 in Allstate? The company’s financials are trending the right way, with strong earnings growth. And it pays a quarterly dividend of $1 per share, resulting in a forward yield of about 1.9%. Plus, the stock trades at just 7 times trailing earnings, which makes it a great bargain.