ALLSTATE CORP quarterly report, Q2 FY2023

Business Context and Reporting Period

The Allstate Corporation is a diversified insurer focused primarily on property-liability insurance, protection services, and health and benefits products. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods. Deloitte & Touche completed a review of the interim financial information and reported no material modifications were necessary.

Key Financial Metrics

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Total revenues	$13.98 billion	$12.22 billion	$27.77 billion	$24.56 billion
Net loss	$1.38 billion	$1.02 billion	$1.70 billion	$372 million
Net loss applicable to common shareholders	$1.39 billion	$1.04 billion	$1.74 billion	$406 million
Diluted loss per share	$5.29	$3.80	$6.59	$1.47
Net investment income	$610 million	$562 million	$1.19 billion	$1.16 billion
Net gains (losses) on investments and derivatives	$(151) million	$(733) million	$(137) million	$(1.00) billion
Operating cash flow	Not separately presented	Not separately presented	$1.77 billion	$2.11 billion

Property and casualty premiums increased 9.8% in the quarter and 10.3% year to date. However, higher claims costs caused the Allstate Protection underwriting loss to widen to $2.09 billion in the quarter and $3.09 billion year to date, compared with losses of $861 million and $579 million, respectively, in 2022.

Property-Liability combined ratio was 117.6% in Q2 and 113.1% year to date, compared with 107.9% and 102.7% in the prior-year periods.
Catastrophe losses were $2.70 billion in Q2 and $4.39 billion year to date, versus $1.11 billion and $1.57 billion in 2022.
Net investment income benefited from higher fixed-income yields and investment balances, partly offset by lower performance-based investment income.
Protection Services adjusted net income was $41 million in Q2 and $75 million year to date, down from $43 million and $96 million.
Allstate Health and Benefits adjusted net income was $57 million in Q2 and $113 million year to date, down from $67 million and $124 million.

Financial Position, Debt and Liquidity

Total assets were $100.51 billion at June 30, 2023, versus $97.99 billion at December 31, 2022.
Total investments were $63.67 billion, including $45.55 billion of fixed-income securities, $8.15 billion of limited partnership interests, and $5.14 billion of short-term investments.
Allstate shareholders’ equity was $15.52 billion, down from $17.49 billion, primarily because of net losses, dividends, and share repurchases, partly offset by improved unrealized investment losses.
Debt was $7.95 billion. Debt-to-Allstate shareholders’ equity increased to 51.2% from 45.5%, and debt-to-capital resources increased to 33.9% from 31.3%.
Cash was $699 million at June 30, 2023. The company reported $3.28 billion of deployable parent-company assets and $15.32 billion of highly liquid assets expected to be saleable within one week.
The company had no borrowings under its $750 million revolving credit facility or commercial paper facility; remaining borrowing capacity was $750 million.
Six-month financing cash outflows included $459 million of common dividends, $53 million of preferred dividends, and $307 million of common share repurchases.

Material Changes Versus the Prior Comparable Period

Revenue increased substantially because of premium growth and improved equity valuation results, but underwriting deterioration more than offset the revenue benefit.
Catastrophe losses rose by $1.59 billion in Q2 and $2.82 billion year to date, primarily from more frequent and severe wind and hail events.
Auto loss ratios increased as claim severity rose due to repair-cost inflation, labor and parts costs, total-loss mix, attorney representation, and medical-cost trends. Estimated Allstate-brand report-year 2023 incurred severity increased 11% from report year 2022 for major coverages.
Homeowners loss ratios increased sharply, with the Q2 ratio rising to 125.0% from 84.5%, driven mainly by catastrophe losses and higher severity.
Premium growth reflected rate increases, but auto policies in force declined 2.6% year over year to 25.52 million. New issued auto applications declined 9.4% in Q2.
Book value per diluted common share was $51.29, down 11.8% from December 31, 2022 and 22.2% from June 30, 2022.
After-tax other comprehensive income was $478 million year to date, primarily reflecting improved unrealized investment losses, compared with an OCI loss of $2.64 billion in 2022.

Outlook, Management Commentary, Risks and Unusual Items

Management is pursuing rate increases, reduced advertising and operating expenses, underwriting restrictions in underperforming states, and claims-process improvements to restore auto profitability. Rate increases are expected to continue during 2023. The company is no longer writing new homeowners business in California and Florida and may further reduce exposure in certain states and lines.

Allstate adopted the revised long-duration insurance contract accounting standard effective January 1, 2023. The transition reduced retained income by $21 million, accumulated other comprehensive income by $277 million, and total equity by $298 million at the January 1, 2021 transition date. Prior-year amounts were recast where applicable.

Restructuring charges were $27 million in Q2 and $54 million year to date, primarily related to facility exits, workforce enablement, and outsourcing.
The company issued $750 million of 5.250% senior notes due 2033 and repaid $750 million of maturing debt during the first six months.
Series G preferred stock was redeemed for $575 million, while Series J preferred stock was issued for gross proceeds of $600 million.
Allstate suspended common share repurchases under its existing authorization in July 2023; $495 million remained available at June 30.
The company reached an agreement in principle to settle the certified Allstate securities litigation, subject to court approval and appeals, without admitting liability.
The aggregate estimated range of reasonably possible legal losses above accrued amounts for certain disclosed matters was zero to $70 million before tax; the estimate excludes matters for which a loss cannot be estimated and is not the company’s maximum exposure.
Key risks include catastrophe severity and frequency, inflation-driven claims costs, reserve inadequacy, rate and underwriting restrictions, reinsurance availability and counterparty risk, investment and credit-market volatility, regulatory actions, litigation, cybersecurity, and rating downgrades. No material changes to previously disclosed risk factors were reported.

Facts Investors Should Verify

Whether rate actions and claims initiatives reduce the elevated auto and homeowners loss ratios without causing excessive policy attrition.
The development of catastrophe losses, prior-year reserve reestimates, and the adequacy of property-liability reserves.
Changes in policies in force, renewal ratios, new business volumes, and the effect of underwriting restrictions in California, Florida, and other states.
Capital and liquidity levels, including debt maturities, insurance-subsidiary dividend capacity, ratings outlooks, and the status of share repurchases.
Performance and valuation volatility in the $63.67 billion investment portfolio, including $2.46 billion of gross unrealized fixed-income losses and $2.74 billion of additional limited-partnership commitments.
Final approval and financial consequences of the securities-litigation settlement and developments in other legal and regulatory proceedings.