Allstate Corporation: Q2 2022 Form 10-Q Summary
Business context and reporting period
The filing covers the three and six months ended June 30, 2022. Allstate operates primarily through Allstate Protection, Run-off Property-Liability, Protection Services, Allstate Health and Benefits, and Corporate and Other. The life and annuity businesses sold in 2021 are reported as discontinued operations in prior-year periods.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $12.22 billion | $12.65 billion | $24.56 billion | $25.10 billion |
| Net income applicable to common shareholders | $(1.04) billion | $1.60 billion | $(412) million | $187 million |
| Diluted EPS | $(3.81) | $5.26 | $(1.49) | $0.61 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $2.11 billion | $2.92 billion |
| Property-Liability combined ratio | 107.9% | 95.7% | 102.7% | 89.5% |
| Allstate Protection underwriting result | $(861) million | $431 million | $(579) million | $2.09 billion |
Property and casualty premiums earned increased 8.8% to $11.36 billion in the quarter and 7.7% to $22.34 billion year to date. Premiums written in Allstate Protection increased 11.5% to $11.51 billion in the quarter and 10.8% to $22.27 billion year to date.
Net investment income declined to $562 million in the quarter and $1.16 billion year to date, primarily because of lower performance-based investment results, especially from limited partnerships. Net losses on investments and derivatives were $733 million in the quarter and $1.00 billion year to date, compared with gains in the prior-year periods.
Catastrophe losses were $1.11 billion in the quarter and $1.57 billion year to date. Prior-year reserve reestimates were unfavorable by $459 million in the quarter and $604 million year to date, principally reflecting personal auto physical damage and bodily injury costs, inflation, medical severity, supply-chain disruption, and higher repair and labor costs.
At June 30, 2022, total assets were $96.35 billion, total investments were $61.06 billion, cash was $766 million, total liabilities were $76.33 billion, and Allstate shareholders’ equity was $20.12 billion. Long-term debt was $7.97 billion. Book value per common share was $66.15, down from $81.52 at December 31, 2021.
Material changes versus the prior comparable period
- Allstate reported a quarterly net loss attributable to common shareholders versus substantial prior-year earnings, driven by weaker underwriting, investment losses, lower investment income, and pension remeasurement losses.
- The Property-Liability loss ratio increased to 84.9% from 71.0% in the quarter and to 79.2% from 65.5% year to date. The combined ratio increased to 107.9% from 95.7% and to 102.7% from 89.5%, respectively.
- Auto frequency increased as miles driven rebounded, while claim severity rose because of vehicle repair inflation, used-car prices, parts and labor costs, medical inflation, and more severe accidents.
- Homeowners premiums written increased 15.1% in the quarter and 15.2% year to date, but homeowners loss performance weakened because of higher severity, catastrophe losses, and unfavorable reserve development.
- Protection Services adjusted net income declined to $43 million from $56 million in the quarter and to $96 million from $105 million year to date, primarily due to expansion investments and higher roadside severity.
- Allstate Health and Benefits adjusted net income increased to $65 million from $62 million in the quarter but declined to $118 million from $127 million year to date. Its benefit ratio increased to 55.8% from 54.6% in the quarter and 55.7% from 52.9% year to date.
- Shareholders’ equity declined primarily because of after-tax unrealized investment losses of $2.74 billion, share repurchases, dividends, and the net loss.
Outlook, management commentary, risks, and unusual items
Management did not provide a specific earnings or revenue forecast in the filing. It stated that it is executing a profitability improvement plan involving broad auto and homeowners rate increases, expense reductions, advertising and growth investments, underwriting restrictions in underperforming states, and claims-operating actions. Auto rate increases may accelerate in the second half of 2022.
Allstate had $1.82 billion remaining under its $5.00 billion common-share repurchase authorization, which was expected to be completed by March 31, 2023. It repurchased 11.6 million common shares for $1.48 billion during the first six months.
Liquidity sources included $5.13 billion of parent-company deployable assets, $13.52 billion of cash and highly liquid securities expected to be liquidated within one week, and an undrawn $750 million revolving credit facility. Management stated that liquidity was sufficient for base and stressed needs. There were no scheduled debt maturities in 2022; principal maturities were $750 million in 2023 and $350 million in 2024.
Key risks include catastrophe frequency and severity, inflation and supply-chain disruption, reserve inadequacy, adverse auto and homeowners loss trends, investment-market volatility, credit and counterparty risk, reinsurance availability, regulatory limits on rates and underwriting, cybersecurity, climate and weather conditions, litigation, and the continuing effects of COVID-19. Management reported no significant direct investment or operating exposure to Russia, Belarus, or Ukraine.
Unusual items included $259 million of pension and other postretirement remeasurement losses in the quarter, $13 million of restructuring charges year to date, and $31 million of operating-cost gains in the quarter from revaluing contingent consideration related to the 2021 sale of Allstate Life Insurance Company. The filing also notes an aggregate estimated range of reasonably possible legal losses above accrued amounts of zero to $178 million before tax for certain disclosed matters; this is not an estimate of expected loss or maximum exposure.
The company expects to adopt the revised accounting guidance for long-duration insurance contracts beginning in 2023 and does not anticipate a material impact because substantially all affected life and annuity businesses were sold in 2021.
Investor verification checklist
- Verify whether rate increases and underwriting restrictions are sufficient to offset auto severity, inflation, reserve strengthening, and catastrophe losses.
- Track future combined ratios, auto and homeowners frequency and severity, catastrophe experience, and prior-year reserve development.
- Assess the effect of equity-market performance, interest rates, credit spreads, and limited-partnership valuations on investment income, earnings, AOCI, and book value.
- Review capital adequacy, insurer dividend capacity, debt maturities, share repurchases, and liquidity under stressed catastrophe and market scenarios.
- Monitor the California rating-practices proceeding, Florida claims litigation, securities litigation, and other legal and regulatory contingencies.
- Confirm the timing and financial impact of the 2023 long-duration insurance contract accounting adoption.