Allstate Corporation: Q3 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three- and nine-month periods ended September 30, 2021, with comparative periods ended September 30, 2020. Allstate operates primarily through property-liability insurance, Protection Services, and Allstate Health and Benefits. The life and annuity businesses were classified as discontinued operations and held for sale following announced dispositions.
Financial performance and key metrics
- Revenue: Total revenue was $12.48 billion in Q3 2021, up 16.9% from $10.68 billion, and $37.58 billion for the first nine months, up 21.4% from $30.95 billion.
- Premiums: Property and casualty premiums were $10.62 billion in Q3 and $31.37 billion for nine months, increases of 13.7% and 12.9%, respectively. Growth primarily reflected the National General acquisition.
- Profit: Net income applicable to common shareholders was $508 million, or diluted EPS of $1.71, in Q3 versus $1.13 billion, or $3.58 per diluted share, in Q3 2020. Nine-month net income applicable to common shareholders was $695 million, or $2.30 per diluted share, versus $2.86 billion, or $9.01 per diluted share.
- Continuing operations: Net income from continuing operations was $206 million in Q3 and $4.05 billion for nine months. Discontinued operations contributed $325 million in Q3 but reduced nine-month results by $3.27 billion, including a $3.75 billion after-tax loss on disposition.
- Property-liability underwriting: Underwriting income was a loss of $534 million in Q3 versus income of $752 million in Q3 2020. The nine-month result was $1.55 billion versus $3.00 billion. The combined ratio increased to 105.3% in Q3 from 91.6% and to 94.8% for nine months from 88.8%.
- Catastrophes and claims: Catastrophe losses were $1.27 billion in Q3 and $2.81 billion for nine months, compared with $990 million and $2.39 billion. Q3 included net Hurricane Ida losses of $689 million.
- Investment income: Net investment income increased to $764 million in Q3 from $464 million and to $2.45 billion for nine months from $930 million, primarily due to higher performance-based income from limited partnerships.
- Cash flow: Net cash provided by operating activities was $4.25 billion for nine months, compared with $4.17 billion in 2020. Financing activities used $4.07 billion, including $2.26 billion for treasury stock purchases and $737 million of dividends.
- Liquidity and investments: Investments totaled $61.84 billion and cash from continuing operations was $690 million at September 30, 2021. Parent-company deployable assets were $3.41 billion, and $6.70 billion of cash and readily saleable securities were expected to be liquidated within one week.
- Debt and capital: Long-term debt was $7.98 billion, compared with $7.83 billion at December 31, 2020. Debt represented 29.9% of Allstate shareholders’ equity and 23.0% of total capital resources. No borrowings were outstanding under the $750 million revolving credit facility or commercial paper facility.
- Equity and returns: Allstate shareholders’ equity was $26.73 billion. Book value per common share was $84.62, down from $91.50 at year-end 2020. Twelve-month return on common shareholders’ equity was 13.2%, down from 18.9%.
Material changes versus the prior comparable period
- National General, acquired January 4, 2021, added personal and commercial property-liability, accident and health, and technology-related operations. The acquisition increased policy volume and revenue but also increased operating expenses, amortization, and purchased intangible amortization.
- Allstate Protection’s Q3 underwriting deterioration reflected higher auto and homeowners claim frequency and severity, inflation in parts, labor and used-car costs, higher catastrophe losses, and unfavorable auto and commercial reserve development.
- Protection Services adjusted net income increased to $45 million in Q3 and $150 million for nine months, compared with $40 million and $115 million. Allstate Health and Benefits generated $33 million in Q3 and $160 million for nine months, compared with $33 million and $62 million.
- The company completed the $3.00 billion share repurchase authorization and authorized a new $5.00 billion program expected to run through March 2023. It repurchased 18.8 million common shares for $2.39 billion during the first nine months.
- The company redeemed $450 million of preferred stock during the first nine months and repaid $250 million of floating-rate senior notes at maturity.
- Accumulated other comprehensive income declined to $1.92 billion from $3.30 billion, primarily because of a $1.35 billion after-tax decline in unrealized capital gains.
Outlook, commentary, risks, contingencies, and unusual items
- No specific quantitative earnings or revenue guidance is provided in the filing.
- Management states that COVID-19 effects remain difficult to estimate and could materially affect policy sales and retention, driving behavior, claims costs, investment results, credit exposure, and liquidity.
- Management identified inflation, supply-chain disruption, labor shortages, higher repair and medical costs, and used-car values as factors that could increase claim severity and reserve uncertainty.
- Catastrophe results remain inherently volatile. Allstate increased its catastrophe reinsurance risk-tolerance target from $2.0 billion to $2.5 billion, reflecting the addition of wildfire exposure to the target framework.
- Run-off Property-Liability produced a $113 million underwriting loss in Q3. Net asbestos, environmental, and other run-off reserves were $1.46 billion at September 30, 2021, including $744 million of estimated IBNR reserves.
- Restructuring charges were $23 million in Q3 and $145 million for nine months. Remaining estimated charges under disclosed programs were $39 million at September 30, 2021.
- The company closed the sale of Allstate Life Insurance Company of New York for $400 million on October 1, 2021, and subsequently closed the sale of Allstate Life Insurance Company and affiliates on November 1, 2021, for total proceeds of $4.0 billion. These closings occurred after the reporting date.
- The company completed its $262 million cash acquisition of SafeAuto on October 1, 2021, also after the reporting date.
- Legal and regulatory matters include Florida personal-injury-protection disputes, property and auto claims class actions, a California insurance-rating investigation, securities litigation, and life-insurance lapse-notice cases. The estimated aggregate reasonably possible loss above accrued amounts for certain disclosed matters was zero to $85 million before tax; management states this is not an estimate of expected or maximum loss.
- Key forward-looking risks include catastrophe severity, reserve adequacy, reinsurance availability and counterparty risk, investment-market volatility, regulatory restrictions on rates and capital distributions, acquisitions and divestitures, cybersecurity, climate and weather conditions, and changes in accounting standards.
Investor verification priorities
- Verify the sustainability of the sharp increase in investment income, particularly performance-based limited-partnership returns.
- Assess whether auto and homeowners claim frequency and severity, inflation, and catastrophe losses continue to pressure the combined ratio.
- Review the integration, earnings contribution, expense structure, and reserve development associated with National General.
- Reconcile reported earnings with continuing operations, discontinued operations, and the large after-tax life-business disposition loss.
- Monitor capital and liquidity after share repurchases, dividends, debt maturities, and the completed life-business transactions.
- Evaluate reserve adequacy for catastrophe, run-off asbestos and environmental claims, and other litigation and regulatory contingencies.