What drove the swing from a net loss to a profit in Q1 2024?

The swing was driven mainly by Property-Liability underwriting income, which improved to $898 million from a $1.0 billion loss a year earlier. Higher earned premiums from rate increases, improved underlying auto loss experience, and catastrophe losses that fell by more than half all contributed. Investment income growth also helped, partially offset by realized and unrealized investment losses.

Is the improvement in homeowners and auto results likely to persist?

Partly. Homeowners results benefited heavily from milder weather and lower catastrophe losses, so the 82.1 recorded combined ratio is not a run-rate expectation. The underlying homeowners combined ratio of 65.5 was more durable, improving 2.1 points. Auto margins improved through rate increases, expense efficiencies, and lower accident frequency, but the underlying auto combined ratio of 95.1 still leaves limited cushion.

Why did the Allstate brand auto policy count decline, and is it stabilizing?

Allstate brand auto policies in force fell 5.2% year over year as rate increases and earlier growth restrictions reduced retention and new business. The decline improved from 6.2% at year-end 2023, reflecting higher retention and new business in rate-adequate states. Management states that growth restrictions are being removed and advertising investment is increasing in more states, which could support further stabilization.

What is the significance of the $123 million valuation allowance?

The valuation allowance was recorded against surplus notes issued by two reciprocal insurers, Adirondack Insurance Exchange and New Jersey Skylands Insurance Association. It reduced Q1 net investment results by about 0.2% of the investment portfolio return. It is a discrete item, but it signals credit stress at those counterparties and is a point investors may want to monitor.

Is Allstate's capital position strong enough to support its growth plans?

Management characterizes the capital position as strong, citing $15.9 billion of statutory surplus in the insurance companies, up from the prior quarter, and $3.2 billion of assets at the holding company. Total debt was $7.9 billion, and book value per share rose to $62.27. Unrealized net capital losses of $1.1 billion reflect higher interest rates and are a headwind to reported book value that could reverse if rates fall.

ALLSTATE CORP 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.

Allstate reported a broad-based profit recovery for Q1 2024, with net income applicable to common shareholders of $1.189 billion^a ($4.46 per diluted share) versus a net loss of $346 million a year earlier.

Adjusted net income, the non-GAAP measure management emphasizes, rose to $1.367 billion^b, or $5.13 per diluted share, compared with an adjusted net loss of $342 million ($1.30) in Q1 2023. Total revenues increased 10.7% to $15.3 billion, driven by a 10.9% rise in Property-Liability earned premiums to $12.9 billion. The Property-Liability recorded combined ratio improved 15.6 points to 93.0, and the underlying combined ratio improved 6.4 points to 86.9, reflecting higher rates, improved auto loss experience, and lower catastrophe losses of $731 million versus $1.691 billion a year earlier.

The quarter's improvement was driven by auto margin restoration and a sharp decline in catastrophe losses, which fell 56.8%. Allstate brand auto policies in force declined 5.2% year over year, though the decline narrowed from 6.2% at year-end 2023, and management says growth restrictions are being removed in a growing number of states. Protection Services revenue rose 12.2% to $753 million^c, led by Allstate Protection Plans, and net investment income increased 33% to $764 million on higher yields.

Investors should note that Q1 results were supported by lower catastrophes and milder weather, so sustainability depends on continued rate adequacy and normalized weather. Net realized and unrealized investment results were weaker, with net losses of $164 million^d that included a $123 million valuation allowance on surplus notes, and unrealized net capital losses of $1.1 billion. Capital position remained solid, with statutory surplus in the insurance companies rising to $15.9 billion and $3.2 billion held at the holding company.

Book value per common share increased 6.2% year over year to $62.27, and trailing twelve-month adjusted return on common equity reached 11.3%, up from negative 6.7% a year earlier. This filing is an earnings release furnished under Item 2.02, so the information is not deemed filed for Exchange Act liability purposes.

02—Key points

Key Highlights

GAAP net income applicable to common shareholders of $1.19 billion, or $4.46 per diluted share, versus a $346 million net loss in Q1 2023.
Adjusted net income of $1.37 billion, or $5.13 per diluted share, versus an adjusted net loss of $342 million ($1.30) a year earlier.
Property-Liability recorded combined ratio improved to 93.0 from 108.6; underlying combined ratio improved to 86.9 from 93.3.
Catastrophe losses fell 56.8% to $731 million, with homeowners recorded combined ratio of 82.1 versus 119.0 a year earlier.
Total revenues rose 10.7% to $15.3 billion; Property-Liability premiums written grew 11.9% to $13.2 billion.
Net investment income rose 33% to $764 million, while net losses on investments and derivatives were $164 million, including a $123 million valuation allowance on reciprocal exchange surplus notes.
Trailing twelve-month adjusted return on common equity reached 11.3%; book value per share rose 6.2% to $62.27; statutory surplus was $15.9 billion.

03—Questions

Frequently Asked Questions

What drove the swing from a net loss to a profit in Q1 2024?
The swing was driven mainly by Property-Liability underwriting income, which improved to $898 million from a $1.0 billion loss a year earlier. Higher earned premiums from rate increases, improved underlying auto loss experience, and catastrophe losses that fell by more than half all contributed. Investment income growth also helped, partially offset by realized and unrealized investment losses.
Is the improvement in homeowners and auto results likely to persist?
Partly. Homeowners results benefited heavily from milder weather and lower catastrophe losses, so the 82.1 recorded combined ratio is not a run-rate expectation. The underlying homeowners combined ratio of 65.5 was more durable, improving 2.1 points. Auto margins improved through rate increases, expense efficiencies, and lower accident frequency, but the underlying auto combined ratio of 95.1 still leaves limited cushion.
Why did the Allstate brand auto policy count decline, and is it stabilizing?
Allstate brand auto policies in force fell 5.2% year over year as rate increases and earlier growth restrictions reduced retention and new business. The decline improved from 6.2% at year-end 2023, reflecting higher retention and new business in rate-adequate states. Management states that growth restrictions are being removed and advertising investment is increasing in more states, which could support further stabilization.
What is the significance of the $123 million valuation allowance?
The valuation allowance was recorded against surplus notes issued by two reciprocal insurers, Adirondack Insurance Exchange and New Jersey Skylands Insurance Association. It reduced Q1 net investment results by about 0.2% of the investment portfolio return. It is a discrete item, but it signals credit stress at those counterparties and is a point investors may want to monitor.
Is Allstate's capital position strong enough to support its growth plans?
Management characterizes the capital position as strong, citing $15.9 billion of statutory surplus in the insurance companies, up from the prior quarter, and $3.2 billion of assets at the holding company. Total debt was $7.9 billion, and book value per share rose to $62.27. Unrealized net capital losses of $1.1 billion reflect higher interest rates and are a headwind to reported book value that could reverse if rates fall.

04—Continue

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