Allstate Corporation 2009 Form 10-K Summary
Business context and reporting period
The filing is an annual report for the fiscal year ended December 31, 2009. Allstate is primarily a U.S. personal property-liability insurer, with additional life insurance, annuity, retirement, investment and banking businesses. Its reportable segments are Allstate Protection, Discontinued Lines and Coverages, Allstate Financial, and Corporate and Other.
Allstate Protection generated approximately 93% of consolidated insurance premiums and contract charges in 2009. The filing also presents unaudited quarterly results; fourth-quarter 2009 net income was $518 million, or $0.96 diluted earnings per share.
Key financial metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total revenues | $32.01 billion | $29.39 billion | Up 8.9% |
| Net income (loss) | $854 million | $(1.68) billion | Returned to profit |
| Diluted EPS | $1.58 | $(3.06) | Improved |
| Net cash provided by operating activities | $4.30 billion | $3.91 billion | Up $391 million |
| Net investment income | $4.44 billion | $5.62 billion | Down 21.0% |
| Realized capital gains and losses | $(583) million | $(5.09) billion | Materially improved |
| Shareholders' equity | $16.69 billion | $12.64 billion | Up 32.0% |
| Total investments | $99.83 billion | $96.00 billion | Up 4.0% |
| Long-term debt | $5.91 billion | $5.66 billion | Up $251 million |
Property-Liability premiums earned declined 2.9% to $26.19 billion. The segment generated $1.54 billion of net income versus $228 million in 2008, with underwriting income of $995 million versus $164 million. The combined ratio improved to 96.2 from 99.4, including catastrophe losses of $2.07 billion versus $3.34 billion in 2008.
Allstate Financial reported a $483 million net loss versus a $1.72 billion net loss in 2008. Premiums and contract charges increased to $1.96 billion, but net investment income declined to $3.06 billion and investment spread fell to $380 million from $848 million. Contractholder funds declined 10.0% to $52.58 billion, primarily due to lower deposits and institutional product retirements.
Consolidated cash flow included $4.30 billion from operating activities, $3.44 billion from investing activities and $(7.54) billion from financing activities, resulting in a $197 million increase in cash to $612 million. Allstate held $35.50 billion of cash and liquid investments saleable within 90 days without significant additional realized losses.
Material changes versus the prior comparable period
- Net income improved by $2.53 billion, primarily because realized capital losses were substantially lower and Property-Liability underwriting results improved.
- Catastrophe losses declined by $1.27 billion, although auto claim frequency increased and homeowners remained exposed to severe weather.
- Allstate Protection premiums written fell 2.3% to $25.97 billion. Standard auto premiums declined 2.2%, while homeowners premiums declined 1.1%.
- Allstate Financial deposits fell 56.0% to $4.58 billion; no institutional product deposits were issued in 2009 compared with $4.16 billion in 2008.
- Unrealized net capital losses improved to $2.32 billion from $8.81 billion, supporting the increase in shareholders' equity.
- Net property-liability reserves decreased to $17.03 billion from $17.18 billion. Prior-year reserve development was favorable by $112 million in 2009 versus unfavorable by $170 million in 2008.
- Allstate issued $1.00 billion of senior notes in May 2009 and repaid $750 million of notes maturing in December 2009. No commercial paper was outstanding at year-end.
- The $2.00 billion share-repurchase authorization expired March 31, 2009; no new authorization was approved.
Guidance, outlook, commentary and unusual items
- Management's 2010 priorities are to improve customer loyalty, reinvent protection and retirement products, and grow the businesses.
- Allstate Protection plans to emphasize high-lifetime-value customers, pricing discipline, expense efficiency and continued catastrophe-exposure management. Management expects catastrophe volatility to continue.
- Allstate Financial intends to reduce concentration in fixed annuities and institutional funding agreements, expand workplace and underwritten products, and target approximately $90 million of annual savings beginning in 2011. Approximately 1,000 workforce positions are expected to be reduced relative to December 31, 2008.
- Management expects invested assets to decline with lower contractholder obligations and expects improved investment spreads from portfolio repositioning.
- 2009 included $1.92 billion of net other-than-temporary impairment losses recognized in earnings, $277 million of additional DAC amortization from assumption changes, and $130 million of restructuring charges.
- The company adopted new debt-security OTTI accounting guidance on April 1, 2009. Adoption increased retained income by $863 million and reduced unrealized net capital gains and losses by $578 million, with a net $285 million benefit to equity and no impact on reported net income.
- Key risks include catastrophe severity and frequency, reserve adequacy, asbestos and environmental liabilities, investment impairments, credit spreads, interest rates, liquidity, reinsurance collectability, regulatory pricing restrictions, litigation, and rating downgrades.
- Allstate's insurance financial strength ratings at year-end were A+ from A.M. Best and AA- from S&P for both Allstate Insurance Company and Allstate Life Insurance Company. Moody's ratings were Aa3 and A1, respectively. The filing notes negative outlooks from certain agencies.
- Management stated that controls over financial reporting were effective and Deloitte & Touche issued unqualified audit opinions.
Most important facts for investors to verify
- Whether improved 2009 earnings are sustainable without the benefit of sharply lower catastrophe losses and materially reduced investment losses.
- Future catastrophe losses, homeowners policy counts, rate approvals, reinsurance costs and exposure in Florida, coastal states and earthquake-prone regions.
- Development of property-liability, asbestos, environmental and other discontinued-lines reserves; management states that a meaningful range of possible additional discontinued-lines losses cannot be estimated.
- Credit performance and valuation of structured investments, including $7.99 billion of RMBS, $2.59 billion of CMBS, $3.03 billion of ABS and $1.69 billion of student-loan-backed auction-rate securities.
- Allstate Financial's ability to restore profitability while reducing fixed-annuity and institutional-product exposure, including the effect on spreads, liquidity and DAC amortization.
- Parent liquidity, subsidiary dividend capacity and the $1.00 billion commercial-paper and revolving-credit facilities, particularly because AIC paid no dividend to the parent in 2009.
- Pending class actions, the multi-state claims-handling market-conduct examination, agency-program litigation and other regulatory proceedings.