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Allstate Accelerates Auto Insurance Rate Increases

·16-min read

Slowing Policy Growth and Reducing Costs to Improve Profitability

NORTHBROOK, Ill., August 03, 2022--(BUSINESS WIRE)--The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2022.

The Allstate Corporation Consolidated Highlights

Three months ended June 30,

Six months ended June 30,

($ in millions, except per share data and ratios)

2022

2021

% / pts

Change

2022

2021

% / pts

Change

Consolidated revenues

$

12,220

$

12,646

(3.4

) %

$

24,557

$

25,097

(2.2

) %

Net income (loss) applicable to common shareholders

(1,042

)

1,595

NM

(412

)

187

NM

per diluted common share (1)

(3.81

)

5.26

NM

(1.49

)

0.61

NM

Adjusted net income (loss)*

(209

)

1,149

NM

517

3,020

(82.9

)

per diluted common share* (1)

(0.76

)

3.79

NM

1.85

9.90

(81.3

)

Return on Allstate common shareholders’ equity (trailing twelve months)

Net income applicable to common shareholders

4.0

%

15.3

%

(11.3

)

Adjusted net income*

6.9

%

23.8

%

(16.9

)

Common shares outstanding (in millions)

271.2

296.9

(8.7

)

Book value per common share

66.15

86.33

(23.4

)

Property-Liability insurance premiums earned

10,874

10,009

8.6

21,372

19,905

7.4

Property-Liability combined ratio

Recorded

107.9

95.7

12.2

102.7

89.5

13.2

Underlying combined ratio*

93.4

85.7

7.7

92.2

81.4

10.8

Catastrophe losses

1,108

952

16.4

1,570

1,542

1.8

Total policies in force (in thousands)

187,680

189,361

(0.9

)

(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 has a long history of successfully navigating challenging environments, and we are confident in our ability to restore profitability to target levels while continuing to innovate and transform our company," said Tom Wilson, Chair, President and CEO of The Allstate Corporation. "The impact of rising claim repair costs and upward prior year loss reserve development led to a recorded combined ratio of 107.9 in the second quarter. The underwriting loss combined with equity valuation declines and losses on fixed income sales resulted in a net loss of $1.04 billion and an adjusted net loss* of $209 million in the quarter. As a result, we are further accelerating insurance price increases, implementing underwriting restrictions in underperforming states and reducing advertising spend, which is expected to improve profitability and slow policy growth. Insurance premiums earned of $10.9 billion increased 8.6% primarily due to higher average premiums in auto and homeowners insurance. While the current operating environment necessitates focus on improving insurance margins, progress was made on the Transformative Growth strategy including launching beta versions of a new auto insurance product and technology ecosystem. Shareholders also benefited from strong capital management with cash returns of $919 million through common shareholder dividends and share repurchases," concluded Wilson.

Second Quarter 2022 Results

  • Total revenues of $12.2 billion in the second quarter of 2022 decreased 3.4% compared to the prior year quarter as an 8.6% increase in Property-Liability earned premium was more than 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 $1.04 billion in the second quarter of 2022 compared to income of $1.60 billion in the prior year quarter, primarily due to lower underlying underwriting income, higher catastrophe losses, equity valuation declines and losses on fixed income sales.

  • Adjusted net loss* of $209 million, or $(0.76) per diluted share, compares to adjusted net income* of $1.15 billion generated in the prior year quarter. The decline reflects increased claims severity and unfavorable prior year reserve reestimates, lower net investment income and higher catastrophe losses.

Property-Liability Results

Three months ended June 30,

Six months ended June 30,

($ in millions, except ratios)

2022

2021

% / pts

Change

2022

2021

% / pts

Change

Premiums earned

$

10,874

$

10,009

8.6

%

$

21,372

$

19,905

7.4

%

Allstate Brand

9,288

8,746

6.2

18,299

17,427

5.0

National General

1,586

1,263

25.6

3,073

2,478

24.0

Underwriting income (loss)

(864

)

429

NM

(584

)

2,086

NM

Allstate Brand

(825

)

414

NM

(574

)

1,929

NM

National General

(38

)

15

NM

(9

)

153

NM

Recorded combined ratio

107.9

95.7

12.2

102.7

89.5

13.2

Allstate Protection auto

107.9

94.3

13.6

105.0

87.4

17.6

Allstate Protection homeowners

106.9

100.3

6.6

95.8

94.6

1.2

Underlying combined ratio*

93.4

85.7

7.7

92.2

81.4

10.8

Allstate Protection auto

102.1

91.8

10.3

100.5

86.0

14.5

Allstate Protection homeowners

70.3

69.5

0.8

69.7

68.6

1.1

  • Property-Liability earned premium of $10.9 billion increased 8.6% in the second 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 107.9 generated an underwriting loss of $864 million compared to income of $429 million in the second quarter of 2021.

    • The underwriting loss was primarily driven by adverse prior year reserve reestimates, higher current report year claim severities and increased catastrophe losses. This was partially offset by higher premiums earned.

    • Non-catastrophe prior year reserve strengthening of $411 million in the second quarter of 2022 included $275 million related to personal auto insurance and $91 million related to commercial auto insurance, largely from shared economy business written in states which Allstate has exited.

    • The underlying combined ratio* of 93.4 in the second quarter of 2022 was 7.7 points above the prior year quarter, reflecting a higher auto insurance loss ratio.

    • The expense ratio of 23.0 in the second quarter decreased 1.7 points compared to the second quarter of 2021, mainly from lower advertising expenses and reduced amortization of deferred acquisition costs.

    • Allstate Protection auto insurance earned premium increased 6.8% driven by higher average premiums from rate increases and policies in force growth of 2.3% compared to the prior year quarter. Policies in force growth was driven by National General, including impacts from the SafeAuto acquisition, and the Allstate brand. Allstate brand auto net written premium growth of 7.1% compared to the prior year quarter reflected a 7.3% increase in average gross written premium and 0.3% increase in policies in force. Allstate brand implemented auto rate increases in 30 locations in the second quarter at an average of 8.7%, or 2.5% on total premiums, bringing the year to date impact to 6.1% on total premiums.

      The recorded auto insurance combined ratio of 107.9 in the second quarter of 2022 was 13.6 points above the prior year quarter due to higher claim severity and accident frequency compared to the second quarter of 2021 and 3.8 points of unfavorable non-catastrophe prior year reserve reestimates driven by physical damage and bodily injury coverages. The underlying combined ratio* of 102.1 was 10.3 points above the prior year quarter.

      Rising auto claim severity levels compared to the prior year reflect higher costs for used cars, parts and labor and are geographically widespread across the United States. Injury claim cost increases reflect more severe auto accidents, increased medical inflation, higher consumption of medical treatment and more claims with attorney involvement.

    • Allstate Protection homeowners insurance earned premium grew 11.4%, and policies in force increased 1.2% compared to the second quarter of 2021. Allstate brand net written premium increased 15.2% compared to the prior year quarter, driven by average premium increases of 13.2% due to inflation in insured home valuations and implemented rate increases, combined with policies in force growth of 1.7%.

      The recorded homeowners insurance combined ratio of 106.9 increased 6.6 points compared to the second quarter of 2021 and generated an underwriting loss of $186 million in the quarter. The increase reflects higher catastrophe and non-catastrophe losses and unfavorable prior year reserve reestimates. The underlying combined ratio* of 70.3 increased 0.8 points compared to the second quarter of 2021, driven by higher severity due to inflation in labor and materials costs, partially offset by higher average earned premium.

Protection Services Results

Three months ended June 30,

Six months ended June 30,

($ in millions)

2022

2021

% / $

Change

2022

2021

% / $

Change

Total revenues (1)

$

629

$

581

8.3

%

$

1,256

$

1,133

10.9

%

Allstate Protection Plans

338

295

14.6

667

570

17.0

Allstate Dealer Services

139

130

6.9

274

253

8.3

Allstate Roadside

64

60

6.7

129

119

8.4

Arity

52

64

(18.8

)

114

128

(10.9

)

Allstate Identity Protection

36

32

12.5

72

63

14.3

Adjusted net income (loss)

$

43

$

56

$

(13

)

$

96

$

105

$

(9

)

Allstate Protection Plans

36

42

(6

)

79

87

(8

)

Allstate Dealer Services

8

10

(2

)

17

18

(1

)

Allstate Roadside

1

2

(1

)

3

6

(3

)

Arity

(1

)

1

(2

)

(2

)

3

(5

)

Allstate Identity Protection

(1

)

1

(2

)

(1

)

(9

)

8

(1)

Excludes net gains and losses on investments and derivatives

  • Protection Services revenues increased to $629 million in the second quarter of 2022, 8.3% higher than the prior year quarter, primarily due to Allstate Protection Plans, partially offset by declines at Arity. Adjusted net income of $43 million decreased by $13 million compared to the prior year quarter.

    • Allstate Protection Plans revenue of $338 million increased $43 million, or 14.6%, compared to the prior year quarter, reflecting higher earned premium. Adjusted net income of $36 million in the second quarter of 2022 was $6 million lower than the prior year quarter, due to investments in growth.

    • Allstate Dealer Services revenue of $139 million was 6.9% higher than the second quarter of 2021. Adjusted net income of $8 million in the second quarter was $2 million lower than the prior year quarter.

    • Allstate Roadside revenue of $64 million in the second quarter of 2022 increased 6.7% compared to the prior year quarter, driven by increased rescue volumes and new business. Adjusted net income declined by $1 million compared to the prior year quarter.

    • Arity revenue of $52 million decreased $12 million compared to the prior year quarter, due to reductions in client advertising. Adjusted net loss of $1 million in the second quarter of 2022 was $2 million worse than the prior year quarter. Arity continues to expand its data acquisition platform with over 870 billion miles of traffic data being used to serve an increasing number of insurance and third-party application customers.

    • Allstate Identity Protection revenue of $36 million in the second quarter of 2022 increased 12.5% compared to the prior year quarter, due to new client launches and increased participation rates at existing clients. Adjusted net loss of $1 million compared to income of $1 million in the second quarter of 2021.

Allstate Health and Benefits Results

Three months ended June 30,

Six months ended June 30,

($ in millions)

2022

2021

% Change

2022

2021

% Change

Premiums and contract charges

$

466

$

447

4.3

%

$

935

$

902

3.7

%

Employer voluntary benefits

257

255

0.8

523

518

1.0

Group health

95

87

9.2

189

170

11.2

Individual health

114

105

8.6

223

214

4.2

Adjusted net income

65

62

4.8

118

127

(7.1

)

  • Allstate Health and Benefits premiums and contract charges increased 4.3% compared to the prior year quarter, due to growth in individual and group health. Adjusted net income of $65 million in the second quarter of 2022 increased $3 million compared to the second quarter of 2021 as increased premiums and contract charges were only partially offset by higher individual health claims.

Allstate Investment Results

Three months ended June 30,

Six months ended June 30,

($ in millions, except ratios)

2022

2021

$ / pts

Change

2022

2021

$ / pts

Change

Net investment income

$

562

$

974

$

(412

)

$

1,156

$

1,682

$

(526

)

Market-based investment income (1)

368

355

13

691

709

(18

)

Performance-based investment income (1)

236

649

(413

)

542

1,027

(485

)

Net gains (losses) on investments and derivatives

(733

)

287

(1,020

)

(1,000

)

713

(1,713

)

Change in unrealized net capital gains and losses, pre-tax

(1,459

)

324

(1,783

)

(3,497

)

(1,050

)

(2,447

)

Total return on investment portfolio

(2.8

) %

2.6

%

(5.4

)

(5.6

) %

2.4

%

(8.0

)

Total return on investment portfolio (trailing twelve months)

(3.5

) %

6.8

%

(10.3

)

(1)

Investment expenses are not allocated between market-based and performance-based portfolios with the exception of investee level expenses.

  • Allstate Investments $61.1 billion portfolio generated net investment income of $562 million in the second quarter of 2022, a decrease of $412 million from the prior year quarter, driven by lower performance-based income.

    • Market-based investment income was $368 million in the second quarter of 2022, an increase of $13 million, or 3.7%, 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 $236 million in the second quarter of 2022, a decrease of $413 million compared to an exceptional prior year quarter. Second quarter 2022 results benefited from portfolio diversification as contributions from real estate and other asset classes, including infrastructure investments, contributed more to income than private equity investments.

    • Net losses on investments and derivatives were $733 million in the second quarter of 2022, compared to gains of $287 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 $1.5 billion in the second quarter of 2022, as higher interest rates and credit spreads resulted in lower fixed income valuations. Reducing the fixed income portfolio duration from 4.6 to 3.2 years since September 30, 2021, through the sale of bonds and use of derivatives, mitigated the valuation decline in the portfolio by approximately $1.3 billion year to date.

    • Total return on the investment portfolio was a negative 2.8% for the second quarter of 2022.

Proactive Capital Management

"In the second quarter, Allstate continued to provide meaningful cash returns to shareholders. We returned $919 million to common shareholders through a combination of $683 million in share repurchases and $236 million in common shareholder dividends," said Mario Rizzo, Chief Financial Officer. "Shares outstanding have been reduced by 8.7% over the last twelve months and $1.8 billion remains on the current $5 billion share repurchase authorization, which is expected to be completed early next year," concluded Rizzo.

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, August 4. 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)

June 30,

2022

December 31,

2021

Assets

Investments

Fixed income securities, at fair value (amortized cost, net $44,027 and $41,376)

$

41,282

$

42,136

Equity securities, at fair value (cost $4,410 and $6,016)

4,681

7,061

Mortgage loans, net

848

821

Limited partnership interests

7,943

8,018

Short-term, at fair value (amortized cost $4,384 and $4,009)

4,384

4,009

Other investments, net

1,917

2,656

Total investments

61,055

64,701

Cash

766

763

Premium installment receivables, net

8,824

8,364

Deferred policy acquisition costs

5,030

4,722

Reinsurance and indemnification recoverables, net

9,376

10,024

Accrued investment income

359

339

Deferred income taxes

118

Property and equipment, net

975

939

Goodwill

3,496

3,502

Other assets, net

6,351

6,086

Total assets

$

96,350

$

99,440

Liabilities

Reserve for property and casualty insurance claims and claims expense

$

34,276

$

33,060

Reserve for future policy benefits

1,295

1,273

Contractholder funds

908

908

Unearned premiums

21,026

19,844

Claim payments outstanding

1,216

1,123

Deferred income taxes

833

Other liabilities and accrued expenses

9,635

9,296

Long-term debt

7,970

7,976

Total liabilities

76,326

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, 271 million and 281 million shares outstanding

9

9

Additional capital paid-in

3,740

3,722

Retained income

52,412

53,294

Treasury stock, at cost (629 million and 619 million shares)

(35,858

)

(34,471

)

Accumulated other comprehensive income:

Unrealized net capital gains and losses

(2,138

)

598

Unrealized foreign currency translation adjustments

(62

)

(15

)

Unamortized pension and other postretirement prior service credit

42

72

Total accumulated other comprehensive income

(2,158

)

655

Total Allstate shareholders’ equity

20,115

25,179

Noncontrolling interest

(91

)

(52

)

Total equity

20,024