Allstate Corporation 2023 Q3 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three and nine months ended September 30, 2023, with comparisons to the same periods in 2022. Allstate operates primarily through Property-Liability insurance, Protection Services, Allstate Health and Benefits, and Corporate and Other. The filing was reviewed by Deloitte & Touche LLP and filed November 1, 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenues | $14.50 billion | $13.21 billion | $42.26 billion | $37.76 billion |
| Net loss attributable to Allstate | $5 million | $659 million | $1.68 billion | $1.01 billion |
| Net loss applicable to common shareholders | $41 million | $685 million | $1.78 billion | $1.09 billion |
| Loss per common share | $0.16 | $2.55 | $6.76 | $3.99 |
| Operating cash flow | Not separately provided | Not separately provided | $3.00 billion | $4.15 billion |
| Property-Liability combined ratio | 103.4% | 111.6% | 109.8% | 105.8% |
| Allstate Protection underwriting result | $(331) million | $(1.17) billion | $(3.42) billion | $(1.75) billion |
Property and casualty premiums increased 10.1% in the quarter and 10.2% year to date. Premiums written increased 10.5% in the quarter and 9.9% year to date, driven primarily by rate increases and higher premiums in the Allstate and National General brands.
Property-Liability catastrophe losses were $1.18 billion in the quarter and $5.57 billion for the first nine months, compared with $763 million and $2.33 billion, respectively, in the prior-year periods. The first nine months of 2023 represented the highest catastrophe-loss level for that period in the Company’s history.
Net investment income was $689 million in the quarter and $1.87 billion year to date. Net losses on investments and derivatives were $86 million in the quarter and $223 million year to date. Allstate reported $656 million of after-tax other comprehensive loss in the quarter, primarily reflecting unrealized investment losses.
At September 30, 2023, total investments were $63.36 billion, total assets were $101.18 billion, debt was $7.95 billion, and total equity was $14.45 billion. Allstate shareholders’ equity was $14.59 billion, down from $17.49 billion at December 31, 2022. Book value per diluted common share was $47.79, down from $58.12 at year-end 2022.
Material changes versus the prior comparable periods
- Quarterly net loss applicable to common shareholders improved to $41 million from $685 million, primarily because of higher earned premiums and substantially lower unfavorable prior-year reserve reestimates.
- Year-to-date net loss worsened to $1.78 billion from $1.09 billion, primarily because catastrophe losses and underlying incurred losses were higher, partially offset by premium growth, lower unfavorable reserve reestimates, and improved equity valuations.
- The quarterly Property-Liability combined ratio improved to 103.4% from 111.6%; however, the year-to-date ratio increased to 109.8% from 105.8% because of elevated catastrophe and non-catastrophe losses.
- Allstate Protection’s quarterly underwriting loss narrowed materially, but the nine-month underwriting loss nearly doubled, reflecting higher auto and homeowners losses.
- Auto policies in force declined 2.9% year over year to 25.38 million, while Allstate-brand auto average premiums increased 15.3% year to date. Homeowners policies in force increased modestly, but policy growth and new business were constrained by profitability actions.
- Protection Services adjusted net income declined to $27 million from $35 million in the quarter and to $102 million from $131 million year to date, primarily because of higher claim severity and lower margins in certain businesses.
- Allstate Health and Benefits adjusted net income increased to $69 million from $63 million in the quarter but declined to $182 million from $187 million year to date.
- Operating cash flow declined to $3.00 billion from $4.15 billion year to date. Investing activities used $1.89 billion and financing activities used $985 million, resulting in a $124 million increase in cash to $860 million.
Outlook, management commentary, risks and unusual items
Management is pursuing rate increases, expense reductions, lower advertising, underwriting restrictions in underperforming markets, and enhanced claims processes to improve auto profitability. These actions are expected to pressure policy growth, renewal rates, premiums, and future policies in force. Allstate has stopped writing new homeowners business in California and Florida and is taking additional exposure-reduction actions in Florida.
Management cited inflation, supply-chain disruption, labor shortages, higher auto repair and medical costs, attorney representation, claim severity, severe weather, higher interest rates, credit spreads, and investment-market volatility as significant operating factors. The filing does not provide formal consolidated earnings or revenue guidance.
Restructuring and related charges were $87 million in the quarter and $141 million year to date, compared with $14 million and $27 million in the prior-year periods. The charges primarily relate to organizational transformation, outsourcing, staffing reductions, and facility exits. Expected organizational-transformation charges were $95 million, of which $76 million had been incurred by September 30, 2023; the remaining expected charges were $19 million, with completion expected in 2024.
Allstate issued $750 million of 5.25% senior notes due 2033 and repaid $750 million of maturing debt during the first nine months. It redeemed $575 million of Series G preferred stock and issued $600 million of Series J preferred stock. The common-share repurchase program was suspended in July 2023; $472 million remained authorized at September 30, 2023.
Liquidity included $2.92 billion of deployable parent-company assets, $14.36 billion of cash and liquid investments expected to be saleable within one week, and an undrawn $750 million revolving credit facility. Management stated that liquidity was sufficient for expected base and stressed needs. Debt-to-Allstate-shareholders’ equity increased to 54.5% from 45.5% at December 31, 2022.
Subsequent to quarter-end, on November 1, 2023, Allstate announced that it was pursuing the sale of its Allstate Health and Benefits businesses, which would likely be completed in 2024.
The filing reports aggregate reasonably possible legal losses above accrued amounts of zero to $67 million, pre-tax, for disclosed matters where an estimate is possible. This range is not an estimate of expected loss or maximum exposure. The Company also faces regulatory, litigation, reinsurance, catastrophe, reserve adequacy, investment valuation, credit, rating, cybersecurity, and climate-related risks.
Allstate adopted the FASB long-duration insurance contract standard effective January 1, 2023. The transition reduced retained income by $21 million and accumulated other comprehensive income by $277 million, for a total after-tax equity reduction of $298 million at the January 1, 2021 transition date. Comparative 2022 amounts were recast.
Most important facts for investors to verify
- Whether rate actions and underwriting restrictions improve auto and homeowners profitability without causing greater-than-expected declines in policies in force and renewal rates.
- The sustainability of the $5.57 billion year-to-date catastrophe-loss experience and the adequacy of catastrophe reinsurance and reserves.
- Reserve development, particularly for auto bodily injury, homeowners, National General personal auto, asbestos, environmental, and other run-off exposures.
- The effect of inflation, repair and medical cost trends, severe weather, and claims-severity trends on future combined ratios.
- The impact of unrealized investment losses, interest rates, credit spreads, private-equity valuations, and performance-based investment income on equity and earnings.
- Capital and liquidity implications of reduced shareholders’ equity, higher leverage, debt maturities, preferred dividends, and the suspension of common-share repurchases.
- Terms, regulatory approvals, proceeds, and accounting effects of the proposed sale of Allstate Health and Benefits.
- Developments in disclosed legal and regulatory matters, including the estimated $0 to $67 million reasonably possible loss range and the California insurance-rating investigation.