ALLSTATE CORP annual report, FY2022

Allstate Corporation: FY2022 Form 10-K Summary

Business context and reporting period

The filing covers the fiscal year ended December 31, 2022, with comparisons primarily to 2021. Allstate is principally a U.S. and Canadian property and casualty insurer, offering auto, homeowners, personal lines and selected commercial insurance, supplemented by protection services and health and benefits products. The filing is an annual report rather than a standalone fourth-quarter filing; fourth-quarter figures are included where disclosed.

Reportable segments: Allstate Protection, Run-off Property-Liability, Protection Services, Allstate Health and Benefits, and Corporate and Other.
Policies in force totaled 189.1 million at year-end, down 1.0% from 2021; Property-Liability policies in force increased 0.7%.
Allstate Protection represented 92.0% of consolidated insurance premiums and contract charges; Protection Services represented 77.3% of total policies in force, reflecting its large volume of lower-premium protection plans.

Financial performance and key metrics

Metric	2022	2021	Change
Total revenue	$51.41 billion	$50.59 billion	Up 1.6%
Property and casualty premiums	$45.90 billion	$42.22 billion	Up 8.7%
Net investment income	$2.40 billion	$3.29 billion	Down $890 million
Net gains/(losses) on investments and derivatives	$(1.07) billion	$1.08 billion	Year-over-year deterioration
Net loss applicable to common shareholders	$(1.42) billion	$1.49 billion income	Down $2.90 billion
Diluted EPS	$(5.22)	$4.96	Down $10.18
Operating cash flow	$5.12 billion	$5.12 billion	Essentially unchanged
Property-Liability combined ratio	106.6	95.9	Up 10.7 points

Allstate Protection recorded a $2.78 billion underwriting loss versus $1.79 billion of underwriting income in 2021. Auto was the primary driver: its combined ratio was 110.1, compared with 95.4 in 2021. Property-Liability total underwriting loss was $2.91 billion, including a $129 million Run-off Property-Liability loss.

Premiums written increased 10.7% to $45.79 billion. Auto premiums written increased 10.1%; homeowners premiums written increased 12.0%.
Catastrophe losses were $3.11 billion, compared with $3.34 billion in 2021. Hurricane Ian and Winter Storm Elliott produced approximately $843 million of net estimated losses.
Unfavorable prior-year reserve reestimates totaled $1.74 billion for Property-Liability, including $1.25 billion attributable to auto and $1.62 billion for Allstate Protection.
Protection Services adjusted net income declined to $169 million from $179 million, while premiums written increased 2.2% to $2.70 billion.
Allstate Health and Benefits adjusted net income increased to $222 million from $208 million; premiums and contract charges increased 0.7% to $1.83 billion.
Net reserves for property and casualty claims increased to $28.37 billion from $23.58 billion. Gross reserves were $37.54 billion, partially offset by $9.18 billion of reinsurance and indemnification recoverables.

Balance sheet, capital, debt and liquidity

Total investments were $61.83 billion at year-end, down from $64.70 billion. The portfolio included $42.49 billion of fixed-income securities, $4.57 billion of equity securities and $8.11 billion of limited partnership interests.
Allstate shareholders’ equity declined to $17.48 billion from $25.18 billion, primarily due to investment losses, common share repurchases, the net loss and dividends. Book value per diluted common share fell 28.8% to $58.07.
Debt was $7.96 billion. Debt-to-shareholders’ equity increased to 45.6% from 31.7%; debt-to-capital resources increased to 31.3% from 24.1%.
Operating cash flow was $5.12 billion. Investing activities used $1.73 billion and financing activities used $3.42 billion.
Cash and investments expected to be liquid within one week totaled $12.66 billion; estimated liquidity available within one quarter was $23.44 billion. Parent-company deployable assets totaled $4.02 billion.
The company had no borrowings under its $750 million revolving credit facility or commercial paper program at December 31, 2022. The credit facility matures in November 2027 and includes a 37.5% debt-to-capitalization covenant; reported compliance was 22.2%.
Common share repurchases totaled $2.50 billion in 2022, and $802 million remained under the $5 billion authorization at year-end. Common dividends paid were $926 million and preferred dividends were $105 million.
Property and casualty statutory surplus declined to $15.00 billion from $21.19 billion. Allstate Insurance Company’s statutory surplus was $12.24 billion and its authorized control level RBC was $2.96 billion.

Material changes versus the prior comparable period

Profitability deteriorated sharply because of higher auto claim frequency and severity, inflation, supply-chain and labor pressures, unfavorable reserve development and investment losses.
Net investment income declined 27.0%, mainly because limited-partnership and other performance-based investment results fell from unusually strong 2021 levels. Market-based fixed-income yields increased.
Investment portfolio returns were negative 4.0% in 2022. Management stated that duration-shortening and other risk-reduction actions mitigated approximately $2 billion of portfolio losses.
Accumulated other comprehensive income shifted from $655 million of income to $2.39 billion of loss, principally from unrealized investment losses.
Allstate sold its Northbrook headquarters for $232 million, recognizing an approximately $99 million pretax gain in the fourth quarter, including $83 million in Corporate and Other and $16 million in Property-Liability.
Fourth-quarter revenue was $13.65 billion, and fourth-quarter net loss applicable to common shareholders was $310 million, or $(1.17) diluted EPS. Fourth-quarter auto underwriting loss was $974 million.

Guidance, outlook, management commentary and risks

Management expects 2023 priorities to remain broadly consistent with 2022, with greater emphasis on executing the Transformative Growth strategy.
Allstate expects to continue pursuing auto rate increases for both the Allstate and National General brands, while acknowledging potential adverse effects on retention, new business and policy growth.
Allstate is reducing exposure in underperforming markets, including discontinuing new homeowners business in California beginning in the fourth quarter of 2022, reducing new homeowners business in Florida, and exiting traditional commercial insurance in five states during 2023.
The company is investing in technology, telematics, digital distribution, claims management and National General’s independent-agency platform. It also plans to complete placement of the 2023 nationwide catastrophe reinsurance program during the first half of 2023.
Key risks include catastrophe and severe weather losses, climate-related changes, inflation-driven claims severity, reserve inadequacy, reinsurance availability and counterparty collectability, investment-market volatility, regulatory restrictions on rates and underwriting, cybersecurity and privacy events, litigation, and execution risk related to Transformative Growth.
The modeled 1-in-100 annual aggregate catastrophe limit for hurricanes, earthquakes and wildfires was $2.5 billion net of reinsurance. The 2022 property catastrophe reinsurance program cost $788 million.
The company estimates the aggregate range of reasonably possible legal losses above amounts accrued, for matters where estimation is possible, at zero to $135 million pretax. This is not the company’s maximum potential exposure, and some matters cannot be estimated.
The Inflation Reduction Act’s 1% excise tax on stock repurchases and 15% corporate alternative minimum tax became relevant after December 31, 2022; Allstate had not yet estimated the CAMT impact at filing.
Allstate planned to adopt the new long-duration insurance contract accounting standard on January 1, 2023 using the modified retrospective approach. The filing estimated a transition decrease in equity of approximately $250 million to $350 million, subject to final implementation.

Most important facts for investors to verify

Whether rate increases and underwriting restrictions restore auto profitability without causing disproportionate policy lapses or slowing new business.
Whether 2022 adverse reserve development, especially the $1.25 billion auto reestimate, continues into 2023.
The adequacy, cost and renewal terms of catastrophe reinsurance, including Florida and nationwide coverage.
The collectability and financial condition of major indemnification programs, particularly the approximately $6.72 billion MCCA recoverable.
The effect of investment-market conditions, interest rates, credit spreads and limited-partnership valuations on earnings, AOCI and statutory surplus.
Parent liquidity, upcoming debt maturities of $750 million in 2023 and $350 million in 2024, and the pace of remaining share repurchases.
The impact of the January 1, 2023 long-duration insurance accounting adoption, the Inflation Reduction Act, regulatory proceedings and disclosed litigation.
Whether Protection Services growth and Allstate Health and Benefits profitability offset weakness in Allstate Protection.