Allstate Corporation — Q2 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the three and six months ended June 30, 2021. Allstate operates primarily through Property-Liability insurance, Protection Services, and Allstate Health and Benefits. The life and annuity businesses being sold were classified as discontinued operations and held for sale beginning in the first quarter of 2021.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $12.646 billion | $10.403 billion | $25.097 billion | $20.269 billion |
| Net income from continuing operations | $1.435 billion | $1.106 billion | $3.841 billion | $1.943 billion |
| Net income applicable to common shareholders | $1.595 billion | $1.224 billion | $187 million | $1.737 billion |
| Diluted EPS | $5.26 | $3.86 | $0.61 | $5.43 |
| Operating cash flow | Not separately reported | Not separately reported | $2.916 billion | $2.876 billion |
| Allstate shareholders’ equity | $28.207 billion | Not provided | $28.207 billion | Not provided |
Property and casualty premiums increased 13.2% in the quarter and 12.4% year to date, primarily reflecting the National General acquisition. Net investment income rose to $974 million from $220 million in the quarter and to $1.682 billion from $466 million year to date, driven mainly by performance-based income from limited partnerships.
Allstate Protection underwriting income was $431 million in Q2 and $2.091 billion year to date. The combined ratio was 95.7% in Q2 and 89.5% year to date, compared with 89.8% and 87.3%, respectively, in the prior-year periods. Catastrophe losses were $952 million in Q2 and $1.542 billion year to date.
Investments totaled $62.570 billion at June 30, 2021, compared with $59.540 billion at December 31, 2020. Cash from continuing operations was $656 million. Long-term debt was $7.996 billion, compared with $7.825 billion at year-end. Debt-to-Allstate-shareholders’ equity was 28.3%, versus 25.9% at December 31, 2020.
The company had $4.30 billion of parent-company deployable assets and $7.60 billion of cash and highly liquid securities expected to be liquidated within one week. A $750 million revolving credit facility and a corresponding commercial paper facility were undrawn at June 30, 2021.
Material changes versus the prior comparable period
- Q2 net income applicable to common shareholders increased 30.3%, but six-month income declined 89.2% because of a $3.971 billion after-tax loss on the pending sale of the life and annuity businesses.
- National General was acquired on January 4, 2021, expanding Allstate’s independent-agent distribution and adding property-casualty, health, technology, and other businesses.
- Property-Liability premiums written increased 12.5% in Q2 and 13.1% year to date. Allstate Protection policies in force increased to 37.863 million from 33.777 million at June 30, 2020, primarily because of National General.
- Allstate Protection underwriting income declined 52.4% in Q2 and 7.3% year to date. Higher auto and homeowners non-catastrophe losses, advertising, deferred policy acquisition cost amortization, and restructuring costs more than offset premium growth and lower Shelter-in-Place Payback expense.
- Auto claim frequency increased as driving activity rebounded from pandemic-related restrictions, while repair, used-vehicle, medical, and labor costs increased severity. Homeowners frequency and severity also increased.
- Protection Services adjusted net income increased to $56 million from $38 million in Q2 and to $105 million from $75 million year to date. Allstate Health and Benefits adjusted net income increased to $62 million from $5 million in Q2 and to $127 million from $29 million year to date.
- Shareholders’ equity declined from $30.217 billion at year-end, primarily because of share repurchases, dividends, and lower unrealized investment gains, partially offset by net income.
Guidance, outlook, risks, and unusual items
The filing does not provide formal quantitative earnings guidance. Management’s strategy emphasizes increasing personal property-liability market share, expanding protection offerings, integrating National General, and executing the Transformative Growth program.
- Allstate agreed to acquire SafeAuto for $270 million in cash, subject to regulatory approval and customary closing conditions.
- The pending life and annuity transactions are expected to close in 2021, subject to regulatory approvals and other conditions. Final sale proceeds and the ultimate loss may change based on purchase-price adjustments, statutory capital changes, and closing-date GAAP equity.
- Restructuring and related charges were $71 million in Q2 and $122 million year to date. Remaining estimated charges were $31 million for the future-work-environment program and $13 million for Transformative Growth.
- COVID-19 continues to affect driving patterns, claim frequency and severity, hospital utilization, policy sales and retention, investment valuations, credit allowances, and other operations. Management states that the impact cannot be reliably estimated and could be material.
- Investment returns are exposed to low interest rates, market volatility, credit deterioration, valuation uncertainty, and variability in performance-based investments. Management expects market-based portfolio yields to decline if market yields remain below current portfolio yields.
- Catastrophes, reserve development, inflation, reinsurance availability and pricing, regulatory restrictions on rates and underwriting, legal proceedings, cybersecurity, climate and weather events, acquisitions and divestitures, and insurer financial-strength ratings remain material risks.
- The aggregate reasonably possible legal loss in excess of accrued amounts, where estimable, was disclosed as zero to $85 million pre-tax; management stated that this is not an expected-loss estimate or maximum exposure.
Important facts for investors to verify
- Completion timing, regulatory approvals, final proceeds, and final accounting for the Allstate Life and Allstate Life of New York divestitures.
- National General integration costs, purchased-intangible amortization, operating performance, and expected synergies.
- Whether auto claim frequency, repair-cost inflation, medical inflation, and homeowners loss trends normalize or continue to pressure combined ratios.
- Sustainability and volatility of limited-partnership and other performance-based investment income.
- Catastrophe losses, reserve reestimates, reinsurance recoveries, and the adequacy and collectability of reinsurance recoverables.
- Execution of the SafeAuto acquisition and the Transformative Growth and future-work-environment restructuring programs.
- Use of capital, including the $5 billion repurchase authorization announced after quarter-end, dividends, debt maturities, and the effect on leverage and equity.