Higher Injury Claim Costs Reflected in Reserve
Increases
The Allstate Corporation (NYSE: ALL) today reported financial
results for the third quarter of 2022.
The Allstate Corporation
Consolidated Highlights
Three months ended September
30,
Nine months ended September
30,
($ in millions, except per share data
and ratios)
2022
2021
% / pts Change
2022
2021
% / pts Change
Consolidated revenues
$
13,208
$
12,480
5.8
%
$
37,765
$
37,577
0.5
%
Net income (loss) applicable to common
shareholders
(694
)
508
NM
(1,106
)
695
NM
per diluted common share (1)
(2.58
)
1.71
NM
(4.04
)
2.30
NM
Adjusted net income (loss)*
(420
)
217
NM
97
3,237
(97.0
) %
per diluted common share* (1)
(1.56
)
0.73
NM
0.35
10.70
(96.7
)
Return on Allstate common shareholders’
equity (trailing twelve months)
Net income applicable to common
shareholders
(1.6
) %
13.2
%
(14.8
)
Adjusted net income*
4.3
%
21.2
%
(16.9
)
Common shares outstanding (in
millions)
265.9
288.0
(7.7
)
Book value per common share
58.35
84.62
(31.0
)
Property-Liability insurance premiums
earned
11,157
10,159
9.8
32,529
30,064
8.2
Property-Liability combined
ratio
Recorded
111.6
105.3
6.3
105.8
94.8
11.0
Underlying combined ratio*
96.4
90.4
6.0
93.6
84.5
9.1
Catastrophe losses
763
1,269
(39.9
)
2,333
2,811
(17.0
)
Total policies in force (in
thousands)
185,007
191,856
(3.6
)
(1)
In periods where a net loss or adjusted
net loss is reported, weighted average shares for basic earnings
per share is used for calculating diluted earnings per share
because all dilutive potential common shares are anti-dilutive and
are therefore excluded from the calculation.
*
Measures used in this release that are not
based on accounting principles generally accepted in the United
States of America (“non-GAAP”) are denoted with an asterisk and
defined and reconciled to the most directly comparable GAAP measure
in the “Definitions of Non-GAAP Measures” section of this
document.
NM = not meaningful
“Allstate’s operational excellence and financial strength
enabled us to navigate a difficult economic environment while
serving customers, adapting to significant cost increases and
executing profitable growth strategies,” said Tom Wilson, Chair,
President and CEO of The Allstate Corporation. “Revenues increased
to $13.2 billion for the quarter due to a 9.8% growth in
Property-Liability earned premiums largely due to higher average
premiums for auto and home insurance and a 7.2% increase in
Protection Services revenue. Auto and home insurance prices
continue to be increased, reflecting cost inflation with Allstate
brand increases of 10.4% and 13.3% respectively, being effective in
2022. Plans to reduce personal lines insurance in states with
unacceptable auto and home insurance margins are being expanded.
Additionally, we are exiting commercial and shared economy
insurance markets that comprise 55% of commercial premiums. The net
loss of $694 million reflected a small underlying underwriting
margin that was more than offset by prior year reserve increases
and a $199 million valuation decline in public equity related
investments in the quarter. Prior year reserves, excluding
catastrophes, were increased by $875 million, primarily due to
higher expected settlements with non-customer claimants reflecting
more severe accidents and higher medical and litigation costs.
Adjusted net income* was a loss of $420 million for the
quarter.”
“Excellent progress was also made in executing the strategy to
increase Property-Liability market share and expand protection
offerings to customers,” continued Wilson. “Customer value for auto
and homeowners insurance will be increased through further cost
reductions and sophisticated pricing. Expanded customer access is
being achieved with growth through independent agents. While
Allstate branded direct sales and marketing investment have been
reduced given current auto insurance profitability, execution
capabilities were improved. Growth strategies for Health and
Benefits, Protection Plans and Identity Protection also advanced.
Allstate’s capital position is strong, enabling us to provide cash
returns to shareholders of $2.8 billion year-to-date through
dividends and share repurchases," concluded Wilson.
Third Quarter 2022 Results
- Total revenues of $13.2 billion in the third quarter of 2022
increased 5.8% compared to the prior year quarter reflecting a 9.8%
increase in Property-Liability earned premium, partially offset by
net losses on investments and derivatives in 2022 compared to net
gains in 2021 and lower net investment income.
- Net loss applicable to common shareholders was $694 million in
the third quarter of 2022 compared to income of $508 million in the
prior year quarter, primarily due to an underwriting loss and
equity valuation declines.
- Adjusted net loss* was $420 million, or $1.56 per diluted
share, compared to adjusted net income* of $217 million generated
in the prior year quarter. The decline reflects increased claims
severity, higher unfavorable prior year reserve reestimates and
lower net investment income.
Property-Liability
Results
Three months ended September
30,
Nine months ended September
30,
($ in millions, except ratios)
2022
2021
% / pts Change
2022
2021
% / pts Change
Premiums earned
$
11,157
$
10,159
9.8
%
$
32,529
$
30,064
8.2
%
Allstate Brand
9,517
8,774
8.5
27,816
26,201
6.2
National General
1,640
1,385
18.4
4,713
3,863
22.0
Underwriting income (loss)
(1,292
)
(534
)
NM
(1,876
)
1,552
NM
Allstate Brand
(1,049
)
(311
)
NM
(1,623
)
1,618
NM
National General
(124
)
(112
)
10.7
(133
)
41
NM
Recorded combined ratio
111.6
105.3
6.3
105.8
94.8
11.0
Allstate Protection auto
117.4
102.3
15.1
109.3
92.4
16.9
Allstate Protection homeowners
91.2
111.0
(19.8
)
94.2
100.2
(6.0
)
Underlying combined ratio*
96.4
90.4
6.0
93.6
84.5
9.1
Allstate Protection auto
104.0
97.6
6.4
101.7
89.9
11.8
Allstate Protection homeowners
74.6
71.6
3.0
71.4
69.6
1.8
- Property-Liability earned premium of $11.2 billion
increased 9.8% in the third quarter of 2022 compared to the prior
year quarter, driven primarily by higher average premiums and
policies in force growth. The recorded combined ratio of 111.6 was
6.3 points higher than the prior year quarter and generated an
underwriting loss of $1.3 billion.
- The underwriting loss was primarily driven by adverse prior
year reserve reestimates, primarily in auto insurance bodily injury
coverage and higher current report year claim severities across
injury and physical damage coverages. This was partially offset by
higher earned premiums.
- Prior year reserve reestimates, excluding catastrophes, were
strengthened $875 million in the third quarter of 2022. This
included $643 million related to personal auto insurance, $120
million related to Run-off property-liability following our annual
review of environmental and asbestos exposures, $63 million related
to commercial lines and $51 million related to personal homeowners
insurance.
- The underlying combined ratio* of 96.4 in the third quarter of
2022 was 6.0 points above the prior year quarter, reflecting higher
auto and homeowners insurance loss ratios.
- The expense ratio of 22.6 in the third quarter decreased 2.5
points compared to the third quarter of 2021, mainly from lower
advertising expenses and the impact of amortization of deferred
acquisition costs.
- Allstate Protection auto insurance earned premium
increased 9.2%, driven by higher average premiums from rate
increases and policies in force growth of 1.9% compared to the
prior year quarter. Policies in force growth was driven by National
General, including the SafeAuto acquisition, which was partially
offset by a reduction in the Allstate brand. Allstate brand auto
net written premium growth of 9.0% compared to the prior year
quarter reflects a 10.4% increase in average gross written premium
driven by rate increases implemented throughout the year. Allstate
brand implemented auto rate increases in 19 locations in the third
quarter at an average of 14.0%, or 4.7% on total premiums, bringing
the year-to-date impact to 10.8% on total premiums and the trailing
twelve-month impact to 13.7%. We expect to continue to pursue rate
increases for the balance of 2022 and into 2023 to improve auto
insurance profitability. The recorded auto insurance combined ratio
of 117.4 in the third quarter of 2022 was 15.1 points above the
prior year quarter, reflecting 8.5 points of adverse prior year
reserve reestimates, excluding catastrophes, primarily related to
bodily injury claims across multiple report years. This reflects
increased severity of third-party bodily injury claims and higher
medical and litigation costs. The underlying combined ratio* of
104.0 was 6.4 points above the prior year quarter due to higher
claim severity and accident frequency compared to the third quarter
of 2021. Current report year claim severity was increased for
bodily injury and physical damage coverages to reflect ongoing cost
pressure. Physical damage severities continue to be impacted by
higher costs for parts and labor in addition to the higher levels
of used car prices compared to the same period in 2021. The
increases to 2022 report year severity for claims reported in the
first and second quarter of the year are estimated to represent 2.6
points of the third quarter underlying combined ratio. Excluding
this impact, the third quarter underlying combined ratio would have
been 101.4.
- Allstate Protection homeowners insurance earned premium
grew 10.1%, and policies in force increased 1.4% compared to the
third quarter of 2021. Allstate brand net written premium increased
14.3% compared to the prior year quarter, driven by average premium
increases of 13.3% due to inflation in insured home replacement
costs and implemented rate increases, combined with policies in
force growth of 1.6%. National General premiums and policies in
force declined as we improve underwriting margins to targeted
levels. The recorded homeowners insurance combined ratio of 91.2
decreased 19.8 points compared to the third quarter of 2021 and
generated underwriting income of $245 million in the quarter. The
decrease reflects lower catastrophe losses, partially offset by
higher non-catastrophe losses and unfavorable prior year reserve
reestimates. Enterprise risk and return management actions and
comprehensive reinsurance programs, including our stand-alone
Florida property coverage, significantly mitigated net losses from
Hurricane Ian. Given these actions, and a 2.6% personal property
market share in Florida, estimated net losses totaled $366 million.
The underlying combined ratio* of 74.6 increased 3.0 points
compared to the third quarter of 2021, driven by higher severity.
Current report year incurred severity was increased in the third
quarter of 2022 due to increasing labor and materials costs. The
impact of higher estimated report year severity related to claims
reported in the first and second quarter are estimated to represent
2.4 points of the third quarter underlying combined ratio.
Excluding this impact, the third quarter underlying combined ratio
would have been 72.2.
“We continue to implement a multi-faceted program to restore
Property-Liability margins to targeted levels,” said Mario Rizzo,
President, Property-Liability. “This includes continued increases
in auto and home insurance prices, reducing expenses and adapting
claims settlement practices to a high inflation environment. In
addition, growth is being reduced in states and lines of business
that are underperforming. At this time we will no longer write new
homeowners and condominium business in California, although we will
offer continuing coverage to existing customers. Commercial
insurance is being exited in five states and coverage to
transportation network companies will not be offered unless it
utilizes telematics-based pricing. Additional actions are likely in
personal auto insurance. This balanced approach enables us to serve
customers while generating appropriate returns for investors,”
concluded Rizzo.
Protection Services
Results
Three months ended September
30,
Nine months ended September
30,
($ in millions)
2022
2021
% / $ Change
2022
2021
% / $ Change
Total revenues (1)
$
640
$
597
7.2
%
$
1,896
$
1,730
9.6
%
Allstate Protection Plans
349
311
12.2
1,016
881
15.3
Allstate Dealer Services
143
129
10.9
417
382
9.2
Allstate Roadside
65
64
1.6
194
183
6.0
Arity
49
62
(21.0
)
163
190
(14.2
)
Allstate Identity Protection
34
31
9.7
106
94
12.8
Adjusted net income (loss)
$
35
$
45
$
(10
)
$
131
$
150
$
(19
)
Allstate Protection Plans
29
32
(3
)
108
119
(11
)
Allstate Dealer Services
10
7
3
27
25
2
Allstate Roadside
1
1
—
4
7
(3
)
Arity
(2
)
1
(3
)
(4
)
4
(8
)
Allstate Identity Protection
(3
)
4
(7
)
(4
)
(5
)
1
(1) Excludes net gains and losses on
investments and derivatives
- Protection Services revenues increased to $640 million
in the third quarter of 2022, 7.2% higher than the prior year
quarter, primarily due to Allstate Protection Plans and Allstate
Dealer Services, partially offset by a decline at Arity. Adjusted
net income of $35 million decreased by $10 million compared to the
prior year quarter, primarily due to Allstate Identity Protection.
- Allstate Protection Plans revenue of $349 million
increased $38 million, or 12.2%, compared to the prior year
quarter, reflecting higher earned premium. Adjusted net income of
$29 million in the third quarter of 2022 was $3 million lower than
the prior year quarter due to increased severity on appliance
repair and investments in growth.
- Allstate Dealer Services revenue of $143 million was
10.9% higher than the third quarter of 2021. Adjusted net income of
$10 million in the third quarter was $3 million higher than the
prior year quarter driven by lower operating expenses.
- Allstate Roadside revenue of $65 million in the third
quarter of 2022 increased 1.6% compared to the prior year quarter,
driven by increased pricing. Adjusted net income was flat to the
prior year quarter.
- Arity revenue of $49 million decreased $13 million
compared to the prior year quarter, due to reductions in insurance
client advertising. Adjusted net loss of $2 million in the third
quarter of 2022 was $3 million worse than the prior year quarter
driven by lower revenue. Arity continues to expand its data
acquisition platform with almost one trillion miles of traffic data
being used to serve an increasing number of insurance and
third-party application customers.
- Allstate Identity Protection revenue of $34 million in
the third quarter of 2022 increased 9.7% compared to the prior year
quarter, due to new client launches and increased participation
rates at existing clients. Adjusted net loss was $3 million,
primarily driven by investments in growth and technology, compared
to income of $4 million in the third quarter of 2021, which
included a one-time expense benefit.
Allstate Health and Benefits
Results
Three months ended September
30,
Nine months ended September
30,
($ in millions)
2022
2021
% Change
2022
2021
% Change
Premiums and contract charges
$
463
$
460
0.7
%
$
1,398
$
1,362
2.6
%
Employer voluntary benefits
257
251
2.4
780
769
1.4
Group health
96
90
6.7
285
260
9.6
Individual health
110
119
(7.6
)
333
333
—
Adjusted net income
54
33
63.6
172
160
7.5
- Allstate Health and Benefits premiums and contract
charges increased 0.7% compared to the prior year quarter, as
growth in group health and employer voluntary benefits was
partially offset by a reduction in individual health. Adjusted net
income of $54 million in the third quarter of 2022 increased $21
million compared to the third quarter of 2021, reflecting an
improved benefit ratio and lower restructuring charges.
Allstate Investment
Results
Three months ended September
30,
Nine months ended September
30,
($ in millions, except ratios)
2022
2021
$ / pts Change
2022
2021
$ / pts Change
Net investment income
$
690
$
764
$
(74
)
$
1,846
$
2,446
$
(600
)
Market-based investment income (1)
402
352
50
1,093
1,061
32
Performance-based investment income
(1)
335
437
(102
)
877
1,464
(587
)
Net gains (losses) on investments and
derivatives
(167
)
105
(272
)
(1,167
)
818
(1,985
)
Change in unrealized net capital gains
and losses, pre-tax
(1,009
)
(302
)
(707
)
(4,506
)
(1,352
)
(3,154
)
Total return on investment
portfolio
(0.8
) %
1.0
%
(1.8
)
(6.4
) %
3.3
%
(9.7
)
Total return on investment portfolio
(trailing twelve months)
(5.3
) %
6.0
%
(11.3
)
(1)
Investment expenses are not allocated
between market-based and performance-based portfolios with the
exception of investee level expenses.
- Allstate Investments $61.0 billion portfolio generated
net investment income of $690 million in the third quarter of 2022,
a decrease of $74 million from the prior year quarter, driven by
lower performance-based income.
- Market-based investment income was $402 million in the
third quarter of 2022, an increase of $50 million, or 14.2%,
compared to the prior year quarter reflecting an increase in the
fixed income portfolio yield, which has benefited from reinvesting
at higher interest rates.
- Performance-based investment income totaled $335
million in the third quarter of 2022, a decrease of $102 million
compared to a strong prior year quarter. Three individual
investments generated 97% of performance-based income in the third
quarter 2022, which coupled with positive valuations on real estate
and other asset classes, more than offset the negative valuation
changes for private equity funds.
- Net losses on investments and derivatives were $167
million in the third quarter of 2022, compared to gains of $105
million in the prior year quarter, primarily due to declines in the
valuation of equity investments and losses on the sales of fixed
income securities. Partially offsetting the net losses were gains
on derivatives used to shorten the bond portfolio duration, which
began in 2021 to reduce exposure to inflation and higher interest
rates.
- Unrealized net capital gains and losses declined $1.0
billion in the third quarter of 2022 and $4.5 billion year-to-date,
as higher interest rates and credit spreads resulted in lower fixed
income valuations. Investment portfolio risk to inflation was
reduced by shortening the fixed income portfolio duration from 4.6
years on September 30, 2021, to 3.0 years on September 30, 2022
through the sale of bonds and use of derivatives. These actions
mitigated the valuation decline in the fixed income portfolio by
approximately $2 billion this year.
- Total return on the investment portfolio was a negative
0.8% for the third quarter of 2022 and negative 6.4% for the nine
months ended September 30, 2022.
Proactive Capital Management
“Allstate’s capital position and liquidity remain strong with
$4.5 billion of parent holding company deployable assets,” said
Jess Merten, Chief Financial Officer. “This enables us to navigate
the challenging inflationary environment, invest in Transformative
Growth and provide cash returns to shareholders. In the third
quarter we returned $897 million to common shareholders through a
combination of $665 million in share repurchases and $232 million
in common shareholder dividends. We have $1.2 billion remaining on
our current $5 billion share repurchase authorization, which is
expected to be completed after the first quarter of 2023 as we
moderate the pace of share repurchases,” concluded Merten.
Visit www.allstateinvestors.com for
additional information about Allstate’s results, including a
webcast of its quarterly conference call and the call presentation.
The conference call will be at 9 a.m. ET on Thursday, November 3.
Financial information, including material announcements about The
Allstate Corporation, is routinely posted on www.allstateinvestors.com.
Forward-Looking Statements
This news release contains “forward-looking statements” that
anticipate results based on our estimates, assumptions and plans
that are subject to uncertainty. These statements are made subject
to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements do not relate
strictly to historical or current facts and may be identified by
their use of words like “plans,” “seeks,” “expects,” “will,”
“should,” “anticipates,” “estimates,” “intends,” “believes,”
“likely,” “targets” and other words with similar meanings. We
believe these statements are based on reasonable estimates,
assumptions and plans. However, if the estimates, assumptions or
plans underlying the forward-looking statements prove inaccurate or
if other risks or uncertainties arise, actual results could differ
materially from those communicated in these forward-looking
statements. Factors that could cause actual results to differ
materially from those expressed in, or implied by, the
forward-looking statements may be found in our filings with the
U.S. Securities and Exchange Commission, including the “Risk
Factors” section in our most recent annual report on Form 10-K.
Forward-looking statements are as of the date on which they are
made, and we assume no obligation to update or revise any
forward-looking statement.
THE ALLSTATE CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions, except par value
data)
September 30, 2022
December 31, 2021
Assets
Investments
Fixed income securities, at fair value
(amortized cost, net $45,468 and $41,376)
$
41,715
$
42,136
Equity securities, at fair value (cost
$4,652 and $6,016)
4,723
7,061
Mortgage loans, net
833
821
Limited partnership interests
7,907
8,018
Short-term, at fair value (amortized cost
$4,031 and $4,009)
4,030
4,009
Other investments, net
1,798
2,656
Total investments
61,006
64,701
Cash
786
763
Premium installment receivables, net
9,150
8,364
Deferred policy acquisition costs
5,273
4,722
Reinsurance and indemnification
recoverables, net
9,961
10,024
Accrued investment income
389
339
Deferred income taxes
492
—
Property and equipment, net
1,008
939
Goodwill
3,502
3,502
Other assets, net
6,109
6,086
Total assets
$
97,676
$
99,440
Liabilities
Reserve for property and casualty
insurance claims and claims expense
$
36,529
$
33,060
Reserve for future policy benefits
1,276
1,273
Contractholder funds
909
908
Unearned premiums
22,026
19,844
Claim payments outstanding
1,196
1,123
Deferred income taxes
—
833
Other liabilities and accrued expenses
10,212
9,296
Long-term debt
7,967
7,976
Total liabilities
80,115
74,313
Equity
Preferred stock and additional capital
paid-in, $1 par value, 25 million shares authorized, 81.0 thousand
shares issued and outstanding, $2,025 aggregate liquidation
preference
1,970
1,970
Common stock, $.01 par value, 2.0 billion
shares authorized and 900 million issued, 266 million and 281
million shares outstanding
9
9
Additional capital paid-in
3,765
3,722
Retained income
51,490
53,294
Treasury stock, at cost (634 million and
619 million shares)
(36,518
)
(34,471
)
Accumulated other comprehensive
income:
Unrealized net capital gains and
losses
(2,927
)
598
Unrealized foreign currency translation
adjustments
(150
)
(15
)
Unamortized pension and other
postretirement prior service credit
34
72
Total accumulated other comprehensive
income
(3,043
)
655
Total Allstate shareholders’
equity
17,673
25,179
Noncontrolling interest
(112
)
(52
)
Total equity
17,561
25,127
Total liabilities and equity
$
97,676
$
99,440
THE ALLSTATE CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
($ in millions, except per share
data)
Three months ended September
30,
Nine months ended September
30,
2022
2021
2022
2021
Revenues
Property and casualty insurance
premiums
$
11,661
$
10,615
$
34,004
$
31,366
Accident and health insurance premiums and
contract charges
463
460
1,398
1,362
Other revenue
561
536
1,684
1,585
Net investment income
690
764
1,846
2,446
Net gains (losses) on investments and
derivatives
(167
)
105
(1,167
)
818
Total revenues
13,208
12,480
37,765
37,577
Costs and expenses
Property and casualty insurance claims and
claims expense
10,073
8,264
27,262
21,514
Shelter-in-Place Payback expense
—
—
—
29
Accident, health and other policy
benefits
263
277
801
771
Amortization of deferred policy
acquisition costs
1,682
1,582
4,913
4,650
Operating costs and expenses
1,842
1,890
5,594
5,304
Pension and other postretirement
remeasurement (gains) losses
79
40
91
(404
)
Restructuring and related charges
14
23
27
145
Amortization of purchased intangibles
90
109
264
267
Interest expense
85
69
251
246
Total costs and expenses
14,128
12,254
39,203
32,522
(Loss) income from operations before
income tax expense
(920
)
226
(1,438
)
5,055
Income tax (benefit) expense
(237
)
20
(377
)
1,008
Net (loss) income from continuing
operations
(683
)
206
(1,061
)
4,047
Income (loss) from discontinued
operations, net of tax
—
325
—
(3,272
)
Net (loss) income
(683
)
531
(1,061
)
775
Less: Net loss attributable to
noncontrolling interest
(15
)
(7
)
(34
)
(7
)
Net (loss) income attributable to
Allstate
(668
)
538
(1,027
)
782
Less: Preferred stock dividends
26
30
79
87
Net (loss) income applicable to common
shareholders
$
(694
)
$
508
$
(1,106
)
$
695
Earnings per common share applicable to
common shareholders
Basic
Continuing operations
$
(2.58
)
$
0.62
$
(4.04
)
$
13.31
Discontinued operations
—
1.11
—
(10.98
)
Total
$
(2.58
)
$
1.73
$
(4.04
)
$
2.33
Diluted
Continuing operations
$
(2.58
)
$
0.62
$
(4.04
)
$
13.11
Discontinued operations
—
1.09
—
(10.81
)
Total
$
(2.58
)
$
1.71
$
(4.04
)
$
2.30
Weighted average common shares – Basic
268.7
293.1
273.5
298.1
Weighted average common shares –
Diluted
268.7
297.9
273.5
302.6
Definitions of Non-GAAP Measures
We believe that investors’ understanding of Allstate’s
performance is enhanced by our disclosure of the following non-GAAP
measures. Our methods for calculating these measures may differ
from those used by other companies and therefore comparability may
be limited.
Adjusted net income is net income (loss) applicable to
common shareholders, excluding:
- Net gains and losses on investments and derivatives
- Pension and other postretirement remeasurement gains and
losses
- Business combination expenses and the amortization or
impairment of purchased intangibles
- Income or loss from discontinued operations
- Gain or loss on disposition of operations
- Adjustments for other significant non-recurring, infrequent or
unusual items, when (a) the nature of the charge or gain is such
that it is reasonably unlikely to recur within two years, or (b)
there has been no similar charge or gain within the prior two
years
- Related income tax expense or benefit of these items
Net income (loss) applicable to common shareholders is the GAAP
measure that is most directly comparable to adjusted net
income.
We use adjusted net income as an important measure to evaluate
our results of operations. We believe that the measure provides
investors with a valuable measure of the Company’s ongoing
performance because it reveals trends in our insurance and
financial services business that may be obscured by the net effect
of net gains and losses on investments and derivatives, pension and
other postretirement remeasurement gains and losses, business
combination expenses and the amortization or impairment of
purchased intangibles, income or loss from discontinued operations,
gain or loss on disposition of operations and adjustments for other
significant non-recurring, infrequent or unusual items and the
related tax expense or benefit of these items. Net gains and losses
on investments and derivatives, and pension and other
postretirement remeasurement gains and losses may vary
significantly between periods and are generally driven by business
decisions and external economic developments such as capital market
conditions, the timing of which is unrelated to the insurance
underwriting process. Business combination expenses, income or loss
from discontinued operations and gain or loss on disposition of
operations are excluded because they are non-recurring in nature
and the amortization or impairment of purchased intangibles is
excluded because it relates to the acquisition purchase price and
is not indicative of our underlying business results or trends.
Non-recurring items are excluded because, by their nature, they are
not indicative of our business or economic trends. Accordingly,
adjusted net income excludes the effect of items that tend to be
highly variable from period to period and highlights the results
from ongoing operations and the underlying profitability of our
business. A byproduct of excluding these items to determine
adjusted net income is the transparency and understanding of their
significance to net income variability and profitability while
recognizing these or similar items may recur in subsequent periods.
Adjusted net income is used by management along with the other
components of net income (loss) applicable to common shareholders
to assess our performance. We use adjusted measures of adjusted net
income in incentive compensation. Therefore, we believe it is
useful for investors to evaluate net income (loss) applicable to
common shareholders, adjusted net income and their components
separately and in the aggregate when reviewing and evaluating our
performance. We note that investors, financial analysts, financial
and business media organizations and rating agencies utilize
adjusted net income results in their evaluation of our and our
industry’s financial performance and in their investment decisions,
recommendations and communications as it represents a reliable,
representative and consistent measurement of the industry and the
Company and management’s performance. We note that the price to
earnings multiple commonly used by insurance investors as a
forward-looking valuation technique uses adjusted net income as the
denominator. Adjusted net income should not be considered a
substitute for net income (loss) applicable to common shareholders
and does not reflect the overall profitability of our business.
The following tables reconcile net income (loss) applicable to
common shareholders and adjusted net income. Taxes on adjustments
to reconcile net income (loss) applicable to common shareholders
and adjusted net income generally use a 21% effective tax rate.
($ in millions, except per share
data)
Three months ended September
30,
Consolidated
Per diluted common
share
2022
2021
2022
2021
Net income (loss) applicable to common
shareholders
$
(694
)
$
508
$
(2.58
)
(1)
$
1.71
Net (gains) losses on investments and
derivatives
167
(105
)
0.62
(0.35
)
Pension and other postretirement
remeasurement (gains) losses
79
40
0.29
0.13
Reclassification of periodic settlements
and accruals on non-hedge derivative instruments
—
—
—
—
Business combination expenses and the
amortization of purchased intangibles
90
109
0.34
0.37
Business combination fair value
adjustment
—
—
—
—
(Gain) loss on disposition of
operations
5
—
0.02
—
(Income) loss from discontinued
operations
—
(235
)
—
(0.79
)
Income tax expense (benefit)
(67
)
(100
)
(0.25
)
(0.34
)
Adjusted net income (loss) *
$
(420
)
$
217
$
(1.56
)
(1)
$
0.73
Nine months ended September
30,
Consolidated
Per diluted common
share
2022
2021
2022
2021
Net income (loss) applicable to common
shareholders
$
(1,106
)
$
695
$
(4.04
)
(2)
$
2.30
Net (gains) losses on investments and
derivatives
1,167
(818
)
4.23
(2.70
)
Pension and other postretirement
remeasurement (gains) losses
91
(404
)
0.34
(1.34
)
Reclassification of periodic settlements
and accruals on non-hedge derivative instruments
—
1
—
—
Business combination expenses and the
amortization of purchased intangibles
264
289
0.96
0.96
Business combination fair value
adjustment
—
(6
)
—
(0.02
)
(Gain) loss on disposition of
operations
(6
)
—
(0.02
)
—
(Income) loss from discontinued
operations
—
3,435
—
11.35
Income tax expense (benefit)
(313
)
45
(1.12
)
0.15
Adjusted net income (loss) *
$
97
$
3,237
$
0.35
$
10.70
_____________
(1)
Due to a net loss reported for the three
months ended September 30, 2022, calculation uses weighted average
shares of 268.7 million, which excludes weighted average diluted
shares of 2.9 million.
(2)
Due to a net loss reported for the nine
months ended September 30, 2022, calculation uses weighted average
shares of 273.5 million, which excludes weigh average diluted
shares of 3.3 million.
Adjusted net income return on Allstate common shareholders’
equity is a ratio that uses a non-GAAP measure. It is
calculated by dividing the rolling 12-month adjusted net income by
the average of Allstate common shareholders’ equity at the
beginning and at the end of the 12-months, after excluding the
effect of unrealized net capital gains and losses. Return on
Allstate common shareholders’ equity is the most directly
comparable GAAP measure. We use adjusted net income as the
numerator for the same reasons we use adjusted net income, as
discussed previously. We use average Allstate common shareholders’
equity excluding the effect of unrealized net capital gains and
losses for the denominator as a representation of common
shareholders’ equity primarily applicable to Allstate's earned and
realized business operations because it eliminates the effect of
items that are unrealized and vary significantly between periods
due to external economic developments such as capital market
conditions like changes in equity prices and interest rates, the
amount and timing of which are unrelated to the insurance
underwriting process. We use it to supplement our evaluation of net
income (loss) applicable to common shareholders and return on
Allstate common shareholders’ equity because it excludes the effect
of items that tend to be highly variable from period to period. We
believe that this measure is useful to investors and that it
provides a valuable tool for investors when considered along with
return on Allstate common shareholders’ equity because it
eliminates the after-tax effects of realized and unrealized net
capital gains and losses that can fluctuate significantly from
period to period and that are driven by economic developments, the
magnitude and timing of which are generally not influenced by
management. In addition, it eliminates non-recurring items that are
not indicative of our ongoing business or economic trends. A
byproduct of excluding the items noted above to determine adjusted
net income return on Allstate common shareholders’ equity from
return on Allstate common shareholders’ equity is the transparency
and understanding of their significance to return on common
shareholders’ equity variability and profitability while
recognizing these or similar items may recur in subsequent periods.
We use adjusted measures of adjusted net income return on Allstate
common shareholders’ equity in incentive compensation. Therefore,
we believe it is useful for investors to have adjusted net income
return on Allstate common shareholders’ equity and return on
Allstate common shareholders’ equity when evaluating our
performance. We note that investors, financial analysts, financial
and business media organizations and rating agencies utilize
adjusted net income return on common shareholders’ equity results
in their evaluation of our and our industry’s financial performance
and in their investment decisions, recommendations and
communications as it represents a reliable, representative and
consistent measurement of the industry and the company and
management’s utilization of capital. We also provide it to
facilitate a comparison to our long-term adjusted net income return
on Allstate common shareholders’ equity goal. Adjusted net income
return on Allstate common shareholders’ equity should not be
considered a substitute for return on Allstate common shareholders’
equity and does not reflect the overall profitability of our
business.
The following tables reconcile return on Allstate common
shareholders’ equity and adjusted net income return on Allstate
common shareholders’ equity.
($ in millions)
For the twelve months ended
September 30,
2022
2021
Return on Allstate common
shareholders’ equity
Numerator:
Net income applicable to common
shareholders
$
(316
)
$
3,293
Denominator:
Beginning Allstate common shareholders’
equity
$
24,759
$
25,293
Ending Allstate common shareholders’
equity (1)
15,703
24,759
Average Allstate common shareholders’
equity
$
20,231
$
25,026
Return on Allstate common shareholders’
equity
(1.6
) %
13.2
%
($ in millions)
For the twelve months ended
September 30,
2022
2021
Adjusted net income return on Allstate
common shareholders’ equity
Numerator:
Adjusted net income *
$
893
$
4,829
Denominator:
Beginning Allstate common shareholders’
equity
$
24,759
$
25,293
Less: Unrealized net capital gains and
losses
1,828
2,744
Adjusted beginning Allstate common
shareholders’ equity
22,931
22,549
Ending Allstate common shareholders’
equity (1)
15,703
24,759
Less: Unrealized net capital gains and
losses
(2,927
)
1,828
Adjusted ending Allstate common
shareholders’ equity
18,630
22,931
Average adjusted Allstate common
shareholders’ equity
$
20,781
$
22,740
Adjusted net income return on Allstate
common shareholders’ equity *
4.3
%
21.2
%
_____________
(1)
Excludes equity related to preferred stock
of $1,970 million as of September 30, 2022 and September 30,
2021.
Combined ratio excluding the effect of catastrophes, prior
year reserve reestimates and amortization or impairment of
purchased intangibles (“underlying combined ratio”) is a
non-GAAP ratio, which is computed as the difference between four
GAAP operating ratios: the combined ratio, the effect of
catastrophes on the combined ratio, the effect of prior year
non-catastrophe reserve reestimates on the combined ratio, and the
effect of amortization or impairment of purchased intangibles on
the combined ratio. We believe that this ratio is useful to
investors and it is used by management to reveal the trends in our
Property-Liability business that may be obscured by catastrophe
losses, prior year reserve reestimates and amortization or
impairment of purchased intangibles. Catastrophe losses cause our
loss trends to vary significantly between periods as a result of
their incidence of occurrence and magnitude, and can have a
significant impact on the combined ratio. Prior year reserve
reestimates are caused by unexpected loss development on historical
reserves, which could increase or decrease current year net income.
Amortization or impairment of purchased intangibles relates to the
acquisition purchase price and is not indicative of our underlying
insurance business results or trends. We believe it is useful for
investors to evaluate these components separately and in the
aggregate when reviewing our underwriting performance. The most
directly comparable GAAP measure is the combined ratio. The
underlying combined ratio should not be considered a substitute for
the combined ratio and does not reflect the overall underwriting
profitability of our business.
The following tables reconcile the respective combined ratio to
the underlying combined ratio. Underwriting margin is calculated as
100% minus the combined ratio.
Property-Liability
Three months ended September
30,
Nine months ended September
30,
2022
2021
2022
2021
Combined ratio
111.6
105.3
105.8
94.8
Effect of catastrophe losses
(6.8
)
(12.5
)
(7.2
)
(9.4
)
Effect of prior year non-catastrophe
reserve reestimates
(7.8
)
(1.6
)
(4.5
)
(0.4
)
Effect of amortization of purchased
intangibles
(0.6
)
(0.8
)
(0.5
)
(0.5
)
Underlying combined ratio*
96.4
90.4
93.6
84.5
Effect of prior year catastrophe reserve
reestimates
(0.1
)
—
0.1
(0.7
)
Allstate
Protection - Auto Insurance
Three months ended September
30,
Nine months ended September
30,
2022
2021
2022
2021
Combined ratio
117.4
102.3
109.3
92.4
Effect of catastrophe losses
(4.4
)
(2.9
)
(2.2
)
(1.9
)
Effect of prior year non-catastrophe
reserve reestimates
(8.5
)
(1.1
)
(4.9
)
(0.1
)
Effect of amortization of purchased
intangibles
(0.5
)
(0.7
)
(0.5
)
(0.5
)
Underlying combined ratio*
104.0
97.6
101.7
89.9
Effect of prior year catastrophe reserve
reestimates
(0.1
)
(0.1
)
(0.3
)
(0.1
)
Allstate
Protection - Homeowners Insurance
Three months ended September
30,
Nine months ended September
30,
2022
2021
2022
2021
Combined ratio
91.2
111.0
94.2
100.2
Effect of catastrophe losses
(14.1
)
(38.0
)
(21.0
)
(29.8
)
Effect of prior year non-catastrophe
reserve reestimates
(1.8
)
(0.6
)
(1.2
)
(0.2
)
Effect of amortization of purchased
intangibles
(0.7
)
(0.8
)
(0.6
)
(0.6
)
Underlying combined ratio*
74.6
71.6
71.4
69.6
Effect of prior year catastrophe reserve
reestimates
0.2
0.1
1.0
(2.3
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221102006120/en/
Al Scott Media Relations (847) 402-5600 Mark Nogal Investor
Relations (847) 402-2800
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