Allstate Corporation: First Quarter 2020 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2020, with comparative results for the three months ended March 31, 2019. Allstate operates primarily through Property-Liability insurance, Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other. Results were materially affected by the COVID-19 pandemic, market volatility, and related shelter-in-place measures.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenues | $10.076 billion | $10.990 billion | Down 8.3% |
| Property and casualty premiums | $9.235 billion | $8.802 billion | Up 4.9% |
| Net investment income | $421 million | $648 million | Down 35.0% |
| Realized capital gains (losses) | $(462) million | $662 million | Material adverse swing |
| Net income | $549 million | $1.292 billion | Down 57.5% |
| Net income applicable to common shareholders | $513 million | $1.261 billion | Down 59.3% |
| Diluted earnings per share | $1.59 | $3.74 | Down 57.5% |
| Operating cash flow | $1.027 billion | $714 million | Up 43.8% |
| Shareholders’ equity | $24.173 billion | $25.998 billion at Dec. 31, 2019 | Down 7.0% |
| Long-term debt | $6.633 billion | $6.631 billion at Dec. 31, 2019 | Approximately flat |
Property-Liability underwriting income increased to $1.345 billion from $700 million. The combined ratio improved to 84.9% from 91.8%, including a 2.4-point impact from the Shelter-in-Place Payback expense. Excluding that expense, the combined ratio was 82.4% versus 91.7% in the prior-year quarter.
Allstate Protection underwriting income increased 91.7% to $1.348 billion. Catastrophe losses declined to $211 million from $680 million, while premiums written increased 3.2% to $8.592 billion. Service Businesses adjusted net income increased to $37 million from $11 million. Allstate Life adjusted net income increased to $80 million from $73 million, while Allstate Benefits adjusted net income declined to $24 million from $31 million. Allstate Annuities reported an adjusted net loss of $139 million versus a $25 million loss in the prior-year quarter.
Total investments were $84.842 billion at March 31, 2020, compared with $88.362 billion at December 31, 2019. Cash was $338 million. Parent holding company deployable assets were $3.41 billion, and securities generally saleable within one week totaled $8.81 billion. Debt represented 27.4% of shareholders’ equity and 21.5% of total capital resources.
Material changes versus the prior comparable period
- Net realized capital results shifted from a $662 million gain to a $462 million loss, primarily reflecting equity valuation declines and credit losses.
- Net investment income decreased by $227 million, primarily because of lower performance-based investment results and limited partnership valuations.
- Other comprehensive income changed from $967 million of income to a $1.392 billion loss, driven by a $1.357 billion after-tax decline in unrealized capital gains and losses.
- Allstate recorded $318 million of pension and other postretirement remeasurement losses versus $15 million in the prior-year quarter.
- The Company accrued $210 million for the Shelter-in-Place Payback; the remainder of the announced payback exceeding $600 million was expected to be recognized in the second quarter of 2020.
- The Company adopted the expected credit loss standard on January 1, 2020, recording an $88 million after-tax cumulative decrease to retained income. Total credit loss allowances were $365 million at March 31, 2020.
- Common share repurchases totaled $511 million during the quarter. A new $3 billion repurchase authorization was approved, with $2.75 billion remaining at March 31, 2020.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide a quantified full-year earnings forecast. It stated that the duration and severity of COVID-19 and its effects cannot be reliably estimated and could materially affect operations, financial condition, liquidity, policy sales, retention, claims severity, life mortality, annuity reserves, investment valuations, and credit losses. Management expects the effects could continue, emerge, or accelerate into 2021.
- Auto claim frequency declined as miles driven fell, but management noted potential offsetting increases in claim severity, parts inflation, and uncollectible receivables.
- Management identified potential pressure on life mortality, hospital and outpatient claims, benefits claims, annuity reserves, investment income, and credit quality.
- Performance-based investment income may decline further in subsequent periods; the Company stated that it could not reasonably estimate the amount, but the decline may be material.
- The Transformative Growth Plan remained in progress, including plans to integrate Esurance into the Allstate brand in the second half of 2020.
- The 2020 catastrophe reinsurance program was substantially placed, but the Florida property component was expected to be placed in the second quarter. The program targets less than a 1% likelihood of annual aggregate hurricane and earthquake losses exceeding $2 billion after reinsurance.
- Potential proceeds from PG&E wildfire subrogation settlements were not recorded because recovery, allocation, and plan confirmation remained uncertain.
- Legal and regulatory proceedings included Florida personal-injury-protection disputes, homeowner depreciation class actions, and securities-related litigation. The estimated aggregate range of reasonably possible loss above accrued amounts, where estimable, was zero to $75 million before tax; this was not an estimate of expected loss or maximum exposure.
- A $250 million floating-rate senior note maturity is scheduled for March 2021. No scheduled debt maturities were reported for 2020.
Important facts for investors to verify
- Whether the remaining Shelter-in-Place Payback and subsequent COVID-19 claims, policy, and receivable effects materially affect second-quarter and full-year underwriting results.
- The sustainability of the 84.9% combined ratio after catastrophe normalization and excluding the temporary payback expense.
- Future realized and unrealized investment losses, especially in equities, limited partnerships, energy, transportation, retail, lodging, and other economically sensitive sectors.
- Changes in expected credit loss allowances for mortgage loans, bank loans, reinsurance recoverables, and premium receivables.
- Liquidity and capital actions, including share repurchases, dividends, subsidiary dividend capacity, and the March 2021 debt maturity.
- Developments in annuity reserve sufficiency, surrender activity, low interest rates, and performance-based investment income.
- Progress and costs associated with the Transformative Growth Plan and Esurance integration.
- Developments in legal proceedings, PG&E settlement recoveries, catastrophe reinsurance placement, and regulatory requirements.