10-QPeriod: Q2 FY2017

ALLSTATE CORP Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 1, 2017For Securities:ALLALL-PJALL-PBALL-PHALL-PI

Summary

Allstate Corporation reported a strong second quarter and first half of 2017, with net income applicable to common shareholders more than doubling year-over-year in both periods. This improvement was driven primarily by a significant rebound in the Property-Liability segment, which saw its combined ratio improve substantially to 97.2 in Q2 2017 from 100.8 in Q2 2016, indicating improved underwriting profitability. The Allstate Financial segment also demonstrated growth, with net income increasing year-over-year. The company's acquisition of SquareTrade in January 2017 contributed to increased revenues and goodwill. Investment income also saw a notable increase, reflecting strong performance in limited partnerships and higher invested assets. Allstate continued its capital return strategy through dividends and share repurchases, announcing a new $2 billion repurchase program. Key financial highlights include a substantial increase in Property-Liability net income, driven by a lower loss ratio and improved expense management, as evidenced by the better combined ratio. The Allstate Financial segment's net income also grew, supported by increased premiums and stronger investment income. While catastrophe losses remained a factor, their impact on the combined ratio was managed effectively. The company's investment portfolio saw an increase in unrealized capital gains, and net investment income improved across segments. Shareholder equity also grew, reflecting the positive financial performance and capital management activities.

Financial Highlights

34 data points
Beta

Revenue

$9.81B

Net Income

$579.00M

5.9% Net Margin

EPS (Diluted)

$1.49

Total Assets

$110.86B

Cash & Equivalents

$482.00M

Free Cash Flow

$419.00M

Financial Statements
Beta
Revenue$9.81B
Interest Expense$83.00M
Net Income$579.00M
EPS (Basic)$1.51
EPS (Diluted)$1.49
Shares Outstanding (Basic)363.60M
Shares Outstanding (Diluted)369.00M

Key Highlights

  • 1Consolidated net income applicable to common shareholders increased significantly to $550 million in Q2 2017 from $242 million in Q2 2016, and to $1.22 billion in the first six months of 2017 from $459 million in the same period of 2016.
  • 2Property-Liability combined ratio improved to 97.2 in Q2 2017 from 100.8 in Q2 2016, indicating enhanced underwriting profitability.
  • 3Net investment income increased by 17.7% to $897 million in Q2 2017 and by 10.2% to $1.65 billion in the first six months of 2017, driven by higher limited partnership income and increased invested assets.
  • 4The acquisition of SquareTrade for $1.4 billion in January 2017 contributed to revenue growth and added $1.08 billion in goodwill.
  • 5Shareholders' equity increased to $21.50 billion as of June 30, 2017, and the company announced a new $2 billion common share repurchase program.
  • 6Allstate Financial segment reported an increase in net income to $146 million in Q2 2017 from $116 million in Q2 2016.
  • 7Premiums earned in the Property-Liability segment increased by 2.6% in Q2 2017 and 2.8% in the first six months of 2017, indicating continued business growth.

Frequently Asked Questions

The primary driver for the improved net income was the strong performance of the Property-Liability segment, specifically the Allstate Protection segment, which saw a significant reduction in its combined ratio from 100.8 in Q2 2016 to 97.2 in Q2 2017. This improvement was due to higher premiums earned, lower claim frequency, and more favorable prior year reserve reestimates.

The acquisition of SquareTrade in January 2017 for $1.4 billion contributed to an increase in consolidated revenues and added $1.08 billion in goodwill to the balance sheet. SquareTrade's operations generated $70 million in premiums earned in Q2 2017 and contributed to the overall revenue growth, although it also resulted in an underwriting loss of $22 million in Q2 2017, largely due to amortization of acquired intangible assets.

Net investment income increased significantly in the first half of 2017, primarily driven by strong performance in limited partnerships and higher investment balances. The company's performance-based investment strategy, which includes private equity and real estate, showed robust returns. While this is a positive trend, management notes that performance-based investment income can vary significantly between periods due to economic conditions and equity market performance.

Allstate demonstrated strong capital management by increasing shareholders' equity to $21.50 billion. The company continued to return value through dividends, paying $0.37 per common share in Q2 2017. Additionally, it actively engaged in share repurchases, with $45 million remaining on its $1.5 billion program as of June 30, 2017, and entered into a $250 million accelerated share repurchase agreement. The Board also authorized a new $2 billion common share repurchase program, indicating a commitment to enhancing shareholder value.