ALLSTATE CORP quarterly report, Q3 FY2022

Allstate Corporation: Third Quarter 2022 Form 10-Q Summary

Business context and reporting period

The filing covers the three and nine months ended September 30, 2022. Allstate operates primarily through Allstate Protection and Run-off Property-Liability, Protection Services, Allstate Health and Benefits, and Corporate and Other. The interim financial statements are unaudited and prepared under U.S. GAAP.

Allstate’s strategy emphasizes expanding personal property-liability market share and protection offerings. Results remain affected by inflation, supply-chain constraints, labor shortages, post-pandemic driving patterns, catastrophe activity, investment-market volatility and regulatory conditions.

Key financial metrics

Metric	Q3 2022	Q3 2021	9M 2022	9M 2021
Total revenue	$13.21 billion	$12.48 billion	$37.77 billion	$37.58 billion
Net income attributable to Allstate	$(668) million	$538 million	$(1.03) billion	$782 million
Net income applicable to common shareholders	$(694) million	$508 million	$(1.11) billion	$695 million
Diluted EPS	$(2.58)	$1.71	$(4.04)	$2.30
Net cash from operating activities	Not separately presented	Not separately presented	$4.15 billion	$4.25 billion
Net investment income	$690 million	$764 million	$1.85 billion	$2.45 billion

Property and casualty premiums increased 9.9% in the quarter and 8.4% year to date, to $11.66 billion and $34.00 billion, respectively.
Net losses on investments and derivatives were $167 million in the quarter and $1.17 billion year to date, compared with gains of $105 million and $818 million in the respective 2021 periods.
Allstate Protection underwriting loss was $1.17 billion in Q3 and $1.75 billion for the first nine months, compared with losses of $421 million and income of $1.67 billion in the prior-year periods.
Property-Liability combined ratio was 111.6% in Q3 and 105.8% year to date, compared with 105.3% and 94.8%, respectively.
Catastrophe losses were $763 million in Q3 and $2.33 billion year to date, including estimated net Hurricane Ian losses of approximately $366 million after anticipated reinsurance recoveries.
Unfavorable prior-year reserve reestimates totaled $866 million in Q3 and $1.47 billion year to date, primarily reflecting personal auto bodily injury and physical damage severity, inflation, litigation costs and supply-chain pressures.

Financial position, liquidity and capital

Total assets were $97.68 billion at September 30, 2022, compared with $99.44 billion at December 31, 2021.
Total investments were $61.01 billion, down from $64.70 billion, primarily because of lower fixed-income and equity valuations, share repurchases and dividends.
Allstate shareholders’ equity was $17.67 billion, down from $25.18 billion. Accumulated other comprehensive income declined to $(3.04) billion from $655 million, primarily because of unrealized investment losses.
Book value per common share was $58.35, down 28.4% from $81.52 at December 31, 2021.
Long-term debt was $7.97 billion. Debt-to-Allstate-shareholders’ equity increased to 45.1% from 31.7%; debt-to-capital resources increased to 31.1% from 24.1%.
Cash from operating activities was $4.15 billion. Financing uses included $2.15 billion of treasury-stock purchases and $777 million of common and preferred dividends.
Parent-company deployable assets were $4.47 billion. Allstate reported $13.38 billion of cash and readily liquidated securities available within one week and no borrowings under its $750 million revolving credit facility or commercial paper facility.
As of September 30, $1.16 billion remained under the $5.00 billion common-share repurchase authorization. Management expected the program to be completed after March 31, 2023, while moderating repurchase activity.

Material changes versus the prior comparable period

Revenue grew modestly, but profitability deteriorated sharply as higher insurance losses, unfavorable reserve development and investment losses more than offset premium growth.
Auto underwriting weakened materially. The auto combined ratio was 117.4% in Q3 and 109.3% year to date, driven by higher claim frequency as driving activity recovered and higher severity from repair, parts, used-vehicle, medical and litigation costs.
Homeowners underwriting improved because catastrophe losses were lower, although claim severity remained elevated. Allstate Protection’s homeowners combined ratio was 91.2% in Q3 versus 111.0% in Q3 2021.
Net investment income decreased 9.7% in Q3 and 24.5% year to date, primarily because of lower performance-based returns from limited partnerships, partly offset by higher fixed-income yields.
Protection Services adjusted net income declined to $35 million from $45 million in Q3 and to $131 million from $150 million year to date. Allstate Health and Benefits adjusted net income increased to $54 million from $33 million in Q3 and to $172 million from $160 million year to date.
Share count continued to decline through repurchases: weighted-average basic shares were 268.7 million in Q3 2022 versus 293.1 million in Q3 2021.

Guidance, outlook, risks and unusual items

Management is pursuing rate increases, expense and advertising reductions, underwriting restrictions in underperforming states and claims-management actions to improve profitability. Allstate expected further auto rate increases through 2022 and into 2023.
Allstate stopped writing new homeowners and condominium business in California while continuing coverage for existing customers. Commercial insurance was being exited in five states, and transportation-network coverage would be limited to programs using telematics-based pricing. These actions were expected to reduce premiums beginning in Q4 2022.
On October 18, 2022, Allstate completed the sale of its headquarters for $232 million and expected an approximately $99 million pretax gain in Q4 2022. The filing states that $16 million would be classified in Property-Liability investment gains and $83 million as Corporate and Other income, excluded from adjusted net income.
Allstate expects adoption of the long-duration insurance accounting standard on January 1, 2023, using the modified retrospective approach. Management estimated a $250 million to $350 million decrease in equity, including a $235 million to $315 million decrease in AOCI and a $15 million to $35 million decrease in retained income.
Legal and regulatory matters included Florida personal-injury-protection disputes, homeowner depreciation and auto total-loss putative class actions, a California rating-practices investigation and securities litigation. The estimated aggregate range of reasonably possible loss above amounts accrued for certain disclosed matters was zero to $178 million pretax, although this was not an estimate of expected loss or maximum exposure.
Key risks include catastrophe losses, reserve inadequacy, inflation-driven claim severity, reinsurance availability and counterparty risk, investment-market and credit losses, regulatory limits on rates and underwriting, litigation, cybersecurity, climate and weather conditions, and pandemic or geopolitical effects.

Important facts for investors to verify

Reconcile the deterioration in the Allstate Protection combined ratio and determine how quickly rate actions are expected to offset auto loss-cost inflation.
Review catastrophe and prior-year reserve development assumptions, including Hurricane Ian recoveries and the run-off asbestos and environmental reserves.
Assess the sensitivity of book value, AOCI, capital ratios and liquidity to further interest-rate, credit-spread and equity-market movements.
Verify the timing and final equity impact of the long-duration insurance accounting adoption in 2023.
Monitor the effect of California homeowners restrictions, commercial-line exits and telematics requirements on premium growth and policy counts.
Review the status and potential exposure from the disclosed legal and regulatory proceedings, including the California rating investigation and securities litigation.