Why did Allstate swing from a loss to a strong profit in Q4 2023?

The swing was driven mainly by Property-Liability underwriting. Earned premiums rose 10.7% on rate increases, catastrophe losses dropped sharply to $68 million from $779 million due to mild weather, and underlying loss experience improved, lifting underwriting income to $1.3 billion from a $1.0 billion loss.

Is the Q4 2023 profit sustainable?

Partly. Management credited favorable weather and improved auto profitability, but the filing notes that claim severity remains elevated, with 2023 report-year severity expected to rise 8-9%. Full-year 2023 results were a net loss, and catastrophe losses of $5.6 billion were a significant drag, so the quarter should not be extrapolated without considering weather variability.

How is Allstate's auto insurance business performing?

Auto is improving but not yet at target. The recorded auto combined ratio was 98.9 in Q4 2023 (down 13.7 points) and 103.4 for the full year. Allstate brand auto rates rose an average of 13.5% in Q4, with an annualized premium impact of 16.4% for 2023, and the company continues to implement rate increases and profit actions.

What is the status of Allstate's capital position?

Management described capital as strong. Statutory surplus in the insurance companies increased to $14.6 billion (preliminary), and $3.4 billion of assets were held at the holding company. Debt was $7.9 billion, and total book value per common share increased to $59.39.

What do the non-GAAP measures mean, and why should investors be cautious?

Adjusted net income excludes realized investment gains and losses, pension remeasurements, amortization of purchased intangibles, and certain non-recurring items. The underlying combined ratio excludes catastrophe losses, prior-year reserve reestimates, and purchased-intangible amortization. Both are useful for trend analysis but are not substitutes for GAAP results, and the filing notes that adjusted measures are used in management incentive compensation, so investors should reconcile them to GAAP figures.

ALLSTATE CORP 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 7, 2024. Cited figures are marked; the original filing is the authoritative source.

Allstate reported fourth quarter 2023 results that swung sharply back to profitability, with net income applicable to common shareholders of $1.46 billion^a, or $5.52 per diluted share, versus a $303 million loss a year earlier.

Adjusted net income was $1.54 billion^b, or $5.82 per diluted share, against an adjusted loss of $351 million in Q4 2022. The improvement was driven primarily by Property-Liability underwriting: the recorded combined ratio fell to 89.5 from 109.1, and the underlying combined ratio improved to 86.9 from 99.2, helped by roughly 10.7% higher earned premiums from rate increases, lower catastrophe losses ($68 million versus $779 million), and milder weather. Full-year 2023 results were weaker, with a net loss applicable to common shareholders of $316 million and adjusted net income of $251 million, though this still reflected a large catastrophe load of $5.6 billion and a 104.5 recorded combined ratio.

Investors should note that the quarter's strength partly reflects favorable weather and reserve dynamics, and management acknowledged that claim severity remains elevated, with Allstate brand major coverage severity expected to rise 8-9% for report year 2023. Auto profitability is still recovering: the auto recorded combined ratio was 98.9 in Q4 and the full-year figure was 103.4, and the company is pursuing rate increases (Allstate brand auto rates up 16.4% annualized premium impact for the year) along with expense reductions and underwriting actions. Investment income rose to $604 million^c for the quarter, with a 4.6% portfolio return, and book value per share grew to $59.39 from $58.12.

Statutory surplus was $14.6 billion^d, with preliminary year-end figures pending final filing in February 2024. The filing is a furnished (not filed) Form 8-K under Item 2.02, containing the earnings press release (Exhibit 99.1) and the Q4 2023 investor supplement (Exhibit 99.2). Management's comments emphasize a comprehensive profit improvement plan and expectations of attractive shareholder returns, but the results rely heavily on a single favorable quarter, so investors should weigh the full-year loss and ongoing severity pressures alongside the quarterly rebound.

02—Key points

Key Highlights

Q4 2023 net income applicable to common shareholders of $1.46 billion ($5.52 per diluted share), versus a $303 million loss in Q4 2022
Adjusted net income of $1.54 billion ($5.82 per diluted share) in Q4 2023, versus an adjusted net loss of $351 million a year earlier
Property-Liability recorded combined ratio improved to 89.5 from 109.1; underlying combined ratio improved to 86.9 from 99.2
Catastrophe losses fell to $68 million in Q4 2023 from $779 million, though full-year 2023 catastrophe losses rose to $5.6 billion from $3.1 billion
Full-year 2023 net loss applicable to common shareholders of $316 million ($1.20 per share); adjusted net income of $251 million ($0.95 per share)
Investment portfolio ($66.7 billion) returned 4.6% in Q4 and 6.7% for 2023; market-based investment income rose 30.2% year over year to $604 million
Book value per common share rose to $59.39 from $58.12; statutory surplus of $14.6 billion (preliminary) at year end

03—Questions

Frequently Asked Questions

Why did Allstate swing from a loss to a strong profit in Q4 2023?
The swing was driven mainly by Property-Liability underwriting. Earned premiums rose 10.7% on rate increases, catastrophe losses dropped sharply to $68 million from $779 million due to mild weather, and underlying loss experience improved, lifting underwriting income to $1.3 billion from a $1.0 billion loss.
Is the Q4 2023 profit sustainable?
Partly. Management credited favorable weather and improved auto profitability, but the filing notes that claim severity remains elevated, with 2023 report-year severity expected to rise 8-9%. Full-year 2023 results were a net loss, and catastrophe losses of $5.6 billion were a significant drag, so the quarter should not be extrapolated without considering weather variability.
How is Allstate's auto insurance business performing?
Auto is improving but not yet at target. The recorded auto combined ratio was 98.9 in Q4 2023 (down 13.7 points) and 103.4 for the full year. Allstate brand auto rates rose an average of 13.5% in Q4, with an annualized premium impact of 16.4% for 2023, and the company continues to implement rate increases and profit actions.
What is the status of Allstate's capital position?
Management described capital as strong. Statutory surplus in the insurance companies increased to $14.6 billion (preliminary), and $3.4 billion of assets were held at the holding company. Debt was $7.9 billion, and total book value per common share increased to $59.39.
What do the non-GAAP measures mean, and why should investors be cautious?
Adjusted net income excludes realized investment gains and losses, pension remeasurements, amortization of purchased intangibles, and certain non-recurring items. The underlying combined ratio excludes catastrophe losses, prior-year reserve reestimates, and purchased-intangible amortization. Both are useful for trend analysis but are not substitutes for GAAP results, and the filing notes that adjusted measures are used in management incentive compensation, so investors should reconcile them to GAAP figures.

04—Continue

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