Allstate Raising Insurance Prices Given Cost Inflation

Higher Injury Claim Costs Reflected in Reserve Increases

NORTHBROOK, Ill., November 02, 2022–(BUSINESS WIRE)–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

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