Allstate Corporation — Q1 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020. Allstate is primarily a property and casualty insurer, with additional protection services and accident and health businesses. The company completed its acquisition of National General Holdings Corp. on January 4, 2021, and announced pending sales of substantially all of its life and annuity businesses. Those businesses were classified as discontinued operations and held for sale, with prior periods retrospectively reclassified.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $12.451 billion | $9.866 billion | Up 26.2% |
| Income from continuing operations | $2.406 billion | $837 million | Up $1.569 billion |
| Net income applicable to common shareholders | $(1.408) billion | $513 million | Declined $1.921 billion |
| Diluted EPS | $(4.60) | $1.59 | Declined $6.19 |
| Net cash from operating activities | $1.388 billion | $1.027 billion | Up $361 million |
| Property-liability underwriting income | $1.657 billion | $1.348 billion | Up 22.9% |
| Property-liability combined ratio | 83.3% | 84.8% | Improved 1.5 points |
| Net investment income | $708 million | $246 million | Up $462 million |
| Realized capital gains (losses) | $426 million | $(162) million | Improved $588 million |
Continuing operations produced diluted EPS of $7.78, compared with $2.48 in the prior-year quarter. The consolidated loss was driven by a $3.998 billion after-tax loss on the planned disposition of the life and annuity businesses. The loss included a $4.418 billion pre-tax disposition loss partially offset by a $420 million tax benefit.
Balance sheet, capital and liquidity
- Total assets were $129.811 billion at March 31, 2021, compared with $125.987 billion at December 31, 2020.
- Total investments were $60.076 billion, including $40.594 billion of fixed-income securities, $3.154 billion of equity securities and $6.367 billion of limited partnership interests.
- Allstate shareholders’ equity was $26.819 billion, down from $30.217 billion at year-end, primarily due to the discontinued-operations loss, lower unrealized investment gains, share repurchases and dividends.
- Long-term debt was $7.996 billion, compared with $7.825 billion at December 31, 2020. Debt to Allstate shareholders’ equity increased to 29.8% from 25.9%; debt to capital resources increased to 23.0% from 20.6%.
- Cash from continuing operations was $709 million at March 31, 2021, compared with $311 million at year-end. Operating cash flow was $1.388 billion.
- Parent-company deployable assets were $4.21 billion. The company reported $6.07 billion of cash and highly liquid securities that it expected could be liquidated within one week.
- The company had no borrowings under its $750 million revolving credit facility or related commercial paper facility, leaving $750 million of borrowing capacity. Management stated that liquidity was sufficient for base and stressed needs.
- Common share repurchases totaled $601 million during the quarter, and $959 million remained under the $3 billion repurchase authorization expected to be completed by year-end 2021.
Material changes versus the prior comparable period
- National General added significant personal property-liability, independent-agent, accident and health, and technology-related operations. Allstate Protection premiums written rose 13.7% to $9.768 billion, while policies in force increased to 37.642 million from 33.585 million.
- Allstate Protection underwriting income increased $309 million to $1.660 billion. The improvement reflected National General’s contribution and favorable auto non-catastrophe losses, partly offset by higher catastrophe losses.
- Catastrophe losses increased to $590 million from $211 million. Homeowners and other personal lines loss ratios deteriorated, while the auto loss ratio improved to 57.2% from 62.2%.
- The property-liability expense ratio improved to 23.2% from 25.7%, partly because the prior-year quarter included $210 million of Shelter-in-Place Payback expense.
- Protection Services adjusted net income increased to $49 million from $37 million, and Allstate Health and Benefits adjusted net income increased to $65 million from $24 million, primarily due to National General and growth in protection plans.
- Net investment income benefited from performance-based investments, particularly private equity and real estate limited partnerships. Performance-based income before investee-level expenses was $390 million versus a $79 million loss in Q1 2020, but management cautioned that such results can be volatile.
- The company recorded a $310 million pension and other postretirement remeasurement gain, compared with a $318 million loss in Q1 2020, primarily due to a higher discount rate and changed actuarial assumptions.
- Accumulated other comprehensive income declined to $1.823 billion from $3.304 billion, primarily due to a $1.500 billion after-tax decline in unrealized net capital gains.
Guidance, outlook, commentary and risks
- The company did not provide formal earnings guidance in the filing. It expects the life and annuity transactions to close in the second half of 2021, subject to regulatory approvals and customary closing conditions.
- Allstate expects to discontinue sales of proprietary life insurance products during the second quarter of 2021 and expects the National General integration to expand independent-agent distribution and personal property-liability market share.
- Transformative Growth and future-work-environment programs generated $51 million of restructuring and related charges in Q1 2021. Expected total charges were approximately $290 million for Transformative Growth and approximately $110 million for the future-work-environment program, with actions expected to be completed in 2021.
- The COVID-19 pandemic continues to create uncertainty around driving patterns, claim frequency and severity, premium growth, policy lapses, employee and agent productivity, investment valuations, regulatory restrictions and cybersecurity. Management stated that the effects could remain material.
- Insurance reserves are inherently uncertain, particularly for catastrophe claims, newly emerging loss trends, and run-off asbestos, environmental and other claims. Changes in prior-year reserve estimates may materially affect results.
- The 2021 catastrophe reinsurance program targets less than a 1% likelihood of annual aggregate catastrophe losses from hurricanes and earthquakes exceeding $2 billion after reinsurance. The placement of the remaining program was expected to be completed in Q2 2021.
- The company estimated the aggregate range of reasonably possible legal losses above accrued amounts, for matters where estimation was possible, at zero to $85 million pre-tax. This estimate excludes matters for which a loss estimate was not possible and is not the company’s maximum exposure.
- Management identified risks related to market interest rates, investment credit quality, performance-based returns, reinsurance availability and counterparty risk, regulatory restrictions, catastrophes, acquisitions and divestitures, capital requirements, litigation, cybersecurity and climate-related events.
Important facts for investors to verify
- Completion timing, regulatory approvals, purchase-price adjustments and final proceeds for the pending life and annuity divestitures.
- The sustainability of Q1 continuing-operations earnings after excluding the $426 million of realized capital gains, $310 million pension remeasurement gain and unusually strong performance-based investment income.
- National General integration costs, amortization of acquired intangibles and value-of-business-acquired amortization, including the remaining expected 2021 expense.
- Whether catastrophe frequency, homeowners loss severity and auto claim severity remain elevated and how effectively reinsurance offsets future losses.
- Changes in investment portfolio valuations, unrealized gains and losses, private-equity performance and credit-loss allowances in a low-interest-rate environment.
- Progress toward the $3 billion share-repurchase authorization, dividend capacity and the effect of repurchases on leverage and per-share book value.
- Final legal and regulatory outcomes, including the certified securities litigation class action and pending insurance-claims-related proceedings.