Allstate Canada Flood Claims Surge, Challenging Benign Catastrophe Narrative

What happened

Allstate Canada reported that water damage claims from external flooding nearly doubled in 2025, indicating a sharp rise in catastrophe-related losses for its homeowners insurance segment. This surge highlights increasing climate-driven perils, particularly in regions vulnerable to water damage, which could pressure underwriting margins. Despite the heightened risk, a survey shows more than half of respondents do not plan preventive action this spring, suggesting potential for continued high claims if flooding recurs. This development contrasts with the recent market narrative of benign catastrophe conditions that have supported Allstate's strong earnings, as noted in the DeepValue report. It reinforces the report's warning that catastrophe losses remain a structural headwind and could revert to or exceed historical averages, undermining current profitability.

Implication

The doubling of flood claims in Canada signals that Allstate's homeowners business faces growing climate risks, likely leading to higher combined ratios and reduced profitability if trends persist. With many customers not taking preventive steps, claim frequency and severity may remain elevated, forcing Allstate to raise premiums or cut exposure in affected areas, impacting growth. This aligns with the DeepValue report's caution that catastrophe drag could revert to historical averages, compressing earnings and validating a potential sell rating. If such risks spread beyond Canada, Allstate's overall risk profile deteriorates, emphasizing the need for conservative normalized earnings estimates. Consequently, the stock's current valuation, which reflects inflated margins from low catastrophe losses, appears vulnerable to downward revision as these headwinds materialize.

Thesis delta

The article reinforces the DeepValue report's thesis that catastrophe losses are a key downside risk, providing concrete evidence of rising flood claims in Canada. This shifts the narrative from temporary benign weather to ongoing climate challenges, suggesting investors must factor in higher normalized catastrophe losses. As a result, the potential for earnings compression increases, strengthening the case for a cautious or sell stance until sustainable margins are demonstrated.