NU Online News Service, July 1, 11:55 a.m. EDT
Allstate's plan to acquire online direct insurer Esurance could benefit Progressive in part because of an expected cutback in advertising, according to a financial analyst.
In an analyst's note, Joshua Shanker with Deutsche Bank Securities Inc. says the acquisition by Allstate of Esurance is no threat to Progressive, and could prove to be a benefit to the auto insurer.
The reason, he says, is that advertisement spending will decline as Allstate "retools its expanding multiple brand personalities."
He notes that Progressive's "Drive" campaign failed to create multiple identities for the company "and we expect Allstate is two years away from this same conclusion."
The $1 billion price tag for Esurance and the independent agency Answer Financial, both currently owned by White Mountains Insurance Group, could end up slowing capital return and could prove to be expensive for Allstate, he adds.
While Allstate is busy with Esurance, a direct auto insurer writer, the deal is distracting it from its homeowners business, Shanker says. Premium rates for homeowners have increased 50 percent, he notes, but the line of business is still not profitable.
However, Progressive has managed to rehabilitate four of its major auto insurance markets (Florida, Massachusetts, New Jersey and New York) and is preparing for growth in these states.
Recent financial reports indicate that Progressive's book is improving and with "corrected rate plans in place, Progressive may have an opportunity to add customers."
He notes that second half earnings of Progressive could surprise investors.
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