ALLSTATE CORP quarterly report, Q1 FY2022

Allstate Corporation — Q1 2022 Form 10-Q Summary

Business context and reporting period

Allstate reported results for the three months ended March 31, 2022. The company operates primarily through Allstate Protection, 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.

The 2022 comparison reflects the 2021 acquisition of National General and excludes Allstate’s divested life and annuity operations, which were reported as discontinued operations in the prior-year period. Allstate completed the sale of Allstate Life Insurance Company and affiliates in November 2021 and the sale of Allstate Life Insurance Company of New York in October 2021.

Key financial metrics

Metric	Q1 2022	Q1 2021	Change
Total revenues	$12.337 billion	$12.451 billion	Down 0.9%
Property and casualty premiums	$10.981 billion	$10.307 billion	Up 6.5%
Income from continuing operations	$646 million	$2.406 billion	Down 73.2%
Net income applicable to common shareholders	$630 million	$(1.408) billion	Prior year included discontinued-operations loss
Diluted EPS from continuing operations	$2.24	$7.78	Down 71.2%
Diluted total EPS	$2.24	$(4.60)	Improved from prior-year loss
Net cash provided by operating activities	$432 million	$1.388 billion	Down $956 million

Income before tax was $797 million, representing an approximately 6.5% pretax margin on revenue. Net income applicable to common shareholders represented an approximately 5.1% revenue margin.

Allstate Protection underwriting income was $282 million versus $1.660 billion. The combined ratio increased to 97.3% from 83.2%, including a 73.3% loss ratio and a 24.0% expense ratio.
Property and casualty premiums written increased 10.2% to $10.761 billion. Policies in force increased to 38.442 million from 37.642 million.
Catastrophe losses were $462 million versus $590 million. Prior-year reserve reestimates were unfavorable by $145 million versus favorable reestimates of $241 million in the prior-year quarter.
Protection Services adjusted net income increased to $53 million from $49 million; premiums written increased 8.1% to $630 million.
Allstate Health and Benefits adjusted net income declined to $53 million from $65 million. Its benefit ratio increased to 55.7% from 51.2%.
Net investment income declined to $594 million from $708 million, primarily due to lower limited-partnership results and lower fixed-income yields.
Net losses on investments and derivatives were $267 million versus $426 million of gains. The 2022 result primarily reflected lower equity valuations and investment sales losses, partly offset by derivative gains.

Financial position, debt and liquidity

Total assets were $97.150 billion at March 31, 2022, versus $99.440 billion at December 31, 2021.
Total investments were $61.768 billion, down from $64.701 billion. The portfolio included $40.745 billion of fixed-income securities, $5.315 billion of equity securities and $7.977 billion of limited-partnership interests.
Allstate shareholders’ equity was $23.212 billion, down from $25.179 billion, primarily due to a $1.593 billion after-tax decline in unrealized capital gains and losses, share repurchases and dividends.
Book value per common share was $75.95, down from $81.52 at December 31, 2021 and $81.08 at March 31, 2021.
Long-term debt was $7.973 billion. The debt-to-Allstate-shareholders’ equity ratio was 34.3%, compared with 31.7% at year-end 2021. No scheduled debt maturities occur in 2022; principal maturities include $750 million in 2023 and $350 million in 2024.
Cash was $1.130 billion. Management stated that liquidity was sufficient for base and stressed needs. Cash, U.S. government and agency securities, and public equity securities totaling $12.11 billion were expected to be liquidated within one week.
The company had $750 million of available capacity under its unsecured revolving credit and commercial paper facilities, with no outstanding borrowings at March 31, 2022.
Allstate repurchased approximately 6.4 million common shares for $794 million during the quarter. The $5 billion repurchase authorization had $2.50 billion remaining and was expected to be completed by March 31, 2023.

Material changes versus the prior comparable period

Reported common earnings improved from a $1.408 billion loss to $630 million of income, primarily because the prior-year period included a $3.793 billion after-tax loss from discontinued operations.
Continuing-operations profitability fell substantially as auto claim frequency and severity increased, inflation raised repair, parts, medical and labor costs, and prior-year reserve reestimates became unfavorable.
Premium growth was strong across auto, homeowners and commercial lines, supported by National General, SafeAuto, rate increases and higher average premiums.
Auto underwriting deteriorated materially: the auto combined ratio was 102.1% versus 80.5%, while auto premiums written increased 7.8%.
Homeowners underwriting improved, with the combined ratio declining to 84.2% from 88.8%, mainly due to lower catastrophe losses and higher earned premiums.
Accumulated other comprehensive income moved from $655 million of income to a $953 million loss, primarily due to higher interest rates and wider credit spreads reducing fixed-income fair values.

Guidance, outlook, commentary and risks

The filing does not provide formal full-year earnings or revenue guidance. Management’s strategy remains focused on increasing personal property-liability market share and expanding protection offerings through multiple distribution channels.

Management expects rate actions to address inflation-driven loss costs, but noted that higher rates may adversely affect renewal ratios.
Auto claim frequency has rebounded toward pre-pandemic levels but remained below 2019 levels. Inflation, supply-chain disruption, labor shortages, used-car values, medical utilization and attorney representation continue to pressure severity.
The 2022 catastrophe reinsurance program provides up to $6.61 billion of coverage, subject to a $500 million retention and other terms; Florida property exposures are excluded from the Nationwide Program.
Reserving remains uncertain, particularly for newly incurred claims, catastrophe losses and run-off asbestos, environmental and other liabilities. Net run-off reserves were $1.404 billion at March 31, 2022.
Management identified risks from catastrophes, claim inflation, investment-market volatility, credit losses, reinsurance availability and counterparty risk, regulatory restrictions on rates and underwriting, litigation, cybersecurity, climate and weather changes, the Russia-Ukraine conflict, and COVID-19.
Aggregate reasonably possible legal losses in excess of amounts accrued were estimated at zero to $142 million before tax for disclosed matters where an estimate was possible. The filing states this is not an estimate of expected loss or maximum exposure.
Restructuring charges were $12 million in the quarter, primarily related to the future work environment. Remaining expected charges for that program were $16 million.
The company recorded a $247 million pension and postretirement remeasurement gain, primarily from higher discount rates and assumption changes; this is a significant non-operating item and may not recur in the same form.

Most important facts for investors to verify

Whether auto rate increases and other underwriting actions reduce the 102.1% auto combined ratio without materially weakening policy retention.
The persistence of inflation-related claim severity, medical costs, repair costs, used-vehicle prices and labor shortages.
Future catastrophe experience and the adequacy, pricing and collectability of reinsurance protection.
The effect of interest rates, equity markets and private-investment valuations on investment income, realized gains and losses, AOCI and book value.
Progress and remaining cost of the $5 billion share-repurchase program, together with capital and liquidity requirements at regulated insurance subsidiaries.
Developments in the California rating-practices proceeding, vehicle-total-loss and homeowner-depreciation litigation, securities litigation, and other regulatory matters.
The eventual impact of the long-duration insurance-contract accounting standard, which management did not expect to be material but was still evaluating.