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.