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Allstate Delivers Excellent Results in 2019

February 4, 2020 GMT

NORTHBROOK, Ill.--(BUSINESS WIRE)--Feb 4, 2020--

The Allstate Corporation (NYSE: ALL) today reported financial results for the fourth quarter of 2019.

The Allstate Corporation Consolidated Highlights

 

Three months ended
December 31,

 

Twelve months ended
December 31,

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

2019

2018

% / pts
Change

 

2019

2018

% / pts
Change

Consolidated revenues

$

11,472

 

$

9,481

 

21.0

 

 

$

44,675

 

$

39,815

 

12.2

 

Net income applicable to common shareholders

1,707

 

(585

)

NM

 

 

4,678

 

2,012

 

132.5

 

per diluted common share

5.23

 

(1.71

)

NM

 

 

14.03

 

5.70

 

146.1

 

Adjusted net income*

1,020

 

552

 

84.8

 

 

3,477

 

3,129

 

11.1

 

per diluted common share*

3.13

 

1.59

 

96.9

 

 

10.43

 

8.86

 

17.7

 

Return on common shareholders’ equity (trailing twelve months)

 

 

 

 

 

Net income applicable to common shareholders

 

 

 

 

21.7

%

10.0

%

11.7

 

Adjusted net income*

 

 

 

 

16.9

%

16.2

%

0.7

 

Book value per common share

 

 

 

 

73.12

 

57.56

 

27.0

 

Property-Liability combined ratio

 

 

 

 

 

 

 

Recorded

88.7

 

96.6

 

(7.9

)

 

92.0

 

93.2

 

(1.2

)

Underlying combined ratio*

84.9

 

86.3

 

(1.4

)

 

85.0

 

85.3

 

(0.3

)

Property and casualty insurance premiums written

9,190

 

8,859

 

3.7

 

 

36,954

 

34,986

 

5.6

 

Catastrophe losses

295

 

963

 

(69.4

)

 

2,557

 

2,855

 

(10.4

)

Total policies in force (in thousands)

 

 

 

 

145,937

 

114,257

 

27.7

 

* 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 had excellent operating results in 2019 while pursuing long-term profitable growth,” said Tom Wilson, Chair, President and CEO of The Allstate Corporation. “Revenues reached $44.7 billion and net income was $4.7 billion for the year due to strong operating results. Adjusted net income* was $3.5 billion ($10.43 per share) for 2019 and $1.0 billion ($3.13 per share) for the fourth quarter, both substantially higher than the previous year, reflecting excellent underlying auto and homeowners insurance profitability and lower catastrophe losses. The Service Businesses continued growing rapidly, bringing total enterprise items in force to 145.9 million. Investment income declined for both the quarter and the year due to lower limited partnership income. Total return on the $88.4 billion portfolio, however, was 9.2% for the year, reflecting increased valuations of bonds and public equities. Adjusted net income return on equity* was 16.9% for the year. We finished a $3 billion share repurchase program in January, which reduced common shares outstanding by 4.9% during 2019, and today the board authorized another $3 billion share repurchase program.

“We also accelerated the Transformative Growth Plan to increase market share in the personal property-liability businesses and provide customers with a circle of protection,” continued Wilson. “The plan’s three components of increasing customer access, enhancing customer value and investing in growth will be a core part of 2020’s Operating Priorities. Customer access is being expanded by leveraging Esurance’s highly successful direct sales capabilities for the Allstate brand. Increased customer value will be provided by lowering expenses to improve affordability while investing in technology and marketing,” concluded Wilson.

Full Year 2019 Highlights

Fourth Quarter 2019 Results

_________

(1) A reconciliation of this non-GAAP measure to the combined ratio, a GAAP measure, is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of catastrophes, and prior year reserve reestimates are expected to be zero because reserves are determined based on our best estimate of ultimate losses as of the reporting date. In addition to these components, for adjusted net income return on common shareholders’ equity, it is not possible to provide a reliable forecast for investment income on limited partnership interests and a reconciliation of this non-GAAP measure to return on common shareholders’ equity, a GAAP measure, is not possible on a forward-looking basis.

Property-Liability Results

 

Three months ended December 31,

 

Twelve months ended December 31,

($ in millions, except ratios)

2019

2018

% / pts
Change

 

2019

2018

% / pts
Change

Premiums written

8,737

 

8,370

 

4.4

%

 

35,419

 

33,555

 

5.6

%

Underwriting income

1,000

 

286

 

NM

 

 

2,804

 

2,253

 

24.5

 

 

 

 

 

 

 

 

 

Recorded Combined Ratio

88.7

 

96.6

 

(7.9

)

 

92.0

 

93.2

 

(1.2

)

Allstate Brand Auto

92.8

 

92.4

 

0.4

 

 

92.0

 

91.3

 

0.7

 

Allstate Brand Homeowners

74.3

 

105.3

 

(31.0

)

 

87.7

 

92.9

 

(5.2

)

Esurance Brand

107.0

 

101.8

 

5.2

 

 

102.1

 

101.3

 

0.8

 

Encompass Brand

93.3

 

101.6

 

(8.3

)

 

99.3

 

98.2

 

1.1

 

 

 

 

 

 

 

 

 

Underlying Combined Ratio*

84.9

 

86.3

 

(1.4

)

 

85.0

 

85.3

 

(0.3

)

Allstate Brand Auto

92.8

 

93.1

 

(0.3

)

 

91.7

 

91.7

 

 

Allstate Brand Homeowners

61.1

 

61.6

 

(0.5

)

 

63.0

 

63.2

 

(0.2

)

Esurance Brand

96.4

 

99.8

 

(3.4

)

 

97.0

 

98.3

 

(1.3

)

Encompass Brand

88.2

 

101.2

 

(13.0

)

 

88.6

 

90.5

 

(1.9

)

 

 

Allstate Investment Results

 

 

Three months ended
December 31,

 

Twelve months ended
December 31,

($ in millions, except ratios)

2019

2018

% / pts
Change

 

2019

2018

% / pts
Change

Net investment income

$

689

 

$

786

 

(12.3

)

 

$

3,159

 

$

3,240

 

(2.5

)

Market-based investment income (1)

735

 

696

 

5.6

 

 

2,886

 

2,727

 

5.8

 

Performance-based investment income (1)

 

145

 

NM

 

 

469

 

716

 

(34.5

)

Realized capital gains and losses

702

 

(894

)

NM

 

 

1,885

 

(877

)

NM

 

Change in unrealized net capital gains, pre-tax

(246

)

(11

)

NM

 

 

2,711

 

(1,434

)

NM

 

Total return on investment portfolio

1.3

%

(0.2

)%

1.5

 

 

9.2

%

0.8

%

8.4

 

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

Allstate Life, Benefits and Annuities Results

 

Three months ended
December 31,

 

Twelve months ended
December 31,

($ in millions)

2019

2018

%
Change

 

2019

2018

%
Change

Premiums and Contract Charges

 

 

 

 

 

 

 

Allstate Life

$

342

 

$

340

 

0.6

%

 

$

1,343

 

$

1,315

 

2.1

%

Allstate Benefits

282

 

281

 

0.4

 

 

1,145

 

1,135

 

0.9

 

Allstate Annuities

3

 

4

 

(25.0

)

 

13

 

15

 

(13.3

)

Adjusted Net Income

 

 

 

 

 

 

 

Allstate Life

$

76

 

$

69

 

10.1

%

 

$

261

 

$

295

 

(11.5

)%

Allstate Benefits

16

 

26

 

(38.5

)

 

115

 

124

 

(7.3

)

Allstate Annuities

(33

)

32

 

NM

 

 

10

 

131

 

(92.4

)

Service Businesses Results

 

Three months ended
December 31,

 

Twelve months ended
December 31,

($ in millions)

2019

2018

% / $
Change

 

2019

2018

% / $
Change

Total Revenues

$

434

 

$

356

 

21.9

%

 

$

1,649

 

$

1,318

 

25.1

%

Allstate Protection Plans (1)

189

 

137

 

38.0

 

 

700

 

509

 

37.5

 

Allstate Dealer Services

121

 

105

 

15.2

 

 

457

 

403

 

13.4

 

Allstate Roadside Services

65

 

74

 

(12.2

)

 

279

 

302

 

(7.6

)

Arity

35

 

24

 

45.8

 

 

119

 

88

 

35.2

 

Allstate Identity Protection (1)

24

 

16

 

50.0

 

 

94

 

16

 

NM

 

Adjusted Net Income (Loss)

$

3

 

$

8

 

$

(5

)

 

$

38

 

$

8

 

$

30

 

Allstate Protection Plans

12

 

9

 

3

 

 

60

 

23

 

37

 

Allstate Dealer Services

7

 

5

 

2

 

 

26

 

15

 

11

 

Allstate Roadside Services

(1

)

(6

)

5

 

 

(15

)

(20

)

5

 

Arity

(3

)

(1

)

(2

)

 

(7

)

(11

)

4

 

Allstate Identity Protection

(12

)

1

 

(13

)

 

(26

)

1

 

(27

)

 

(1) Starting in the third quarter of 2019, we are reporting SquareTrade and InfoArmor using the names Allstate Protection Plans and Allstate Identity Protection, respectively.

Proactive Capital Management

“Allstate continued to provide strong cash returns to shareholders in 2019,” said Mario Rizzo, Chief Financial Officer. “We repurchased 16.4 million shares of our common stock and paid $653 million in common shareholders dividends in 2019. Over the last three years, Allstate has increased the proportionate ownership of a common share by 14.7% through share repurchases. The $3 billion share repurchase program we announced in October 2018 was completed in late January 2020, and today the board approved a new $3 billion share repurchase authorization to be completed by the end of 2021. We also reduced the cost of capital by redeeming multiple series of preferred stock and issuing two new series at lower rates, which will reduce preferred dividends by $17 million annually.”

Visit www.allstateinvestors.com to view additional information about Allstate’s results, including a webcast of its quarterly conference call and the call presentation. The conference call will be held at 9:30 a.m. ET on Wednesday, February 5. 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,” “

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

($ in millions, except par value data)

 

December 31,
2019

 

December 31,
2018

Assets

 

 

 

Investments:

 

 

 

Fixed income securities, at fair value (amortized cost $56,293 and $57,134)

$

59,044

 

 

$

57,170

 

Equity securities, at fair value (cost $6,568 and $4,489)

8,162

 

 

5,036

 

Mortgage loans

4,817

 

 

4,670

 

Limited partnership interests

8,078

 

 

7,505

 

Short-term, at fair value (amortized cost $4,256 and $3,027)

4,256

 

 

3,027

 

Other

4,005

 

 

3,852

 

Total investments

88,362

 

 

81,260

 

Cash

338

 

 

499

 

Premium installment receivables, net

6,472

 

 

6,154

 

Deferred policy acquisition costs

4,699

 

 

4,784

 

Reinsurance and indemnification recoverables, net

9,211

 

 

9,565

 

Accrued investment income

600

 

 

600

 

Property and equipment, net

1,145

 

 

1,045

 

Goodwill

2,545

 

 

2,530

 

Other assets

3,534

 

 

3,007

 

Separate Accounts

3,044

 

 

2,805

 

Total assets

$

119,950

 

 

$

112,249

 

Liabilities

 

 

 

Reserve for property and casualty insurance claims and claims expense

$

27,712

 

 

$

27,423

 

Reserve for life-contingent contract benefits

12,300

 

 

12,208

 

Contractholder funds

17,692

 

 

18,371

 

Unearned premiums

15,343

 

 

14,510

 

Claim payments outstanding

929

 

 

1,007

 

Deferred income taxes

1,154

 

 

425

 

Other liabilities and accrued expenses

9,147

 

 

7,737

 

Long-term debt

6,631

 

 

6,451

 

Separate Accounts

3,044

 

 

2,805

 

Total liabilities

93,952

 

 

90,937

 

Shareholders’ equity

 

 

 

Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 92.5 thousand and 79.8 thousand shares issued and outstanding, $2,313 and $1,995 aggregate liquidation preference

2,248

 

 

1,930

 

Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 319 million and 332 million shares outstanding

9

 

 

9

 

Additional capital paid-in

3,463

 

 

3,310

 

Retained income

48,074

 

 

44,033

 

Deferred Employee Stock Ownership Plan expense

 

 

(3

)

Treasury stock, at cost (581 million and 568 million shares)

(29,746

)

 

(28,085

)

Accumulated other comprehensive income:

 

 

 

Unrealized net capital gains and losses:

 

 

 

Unrealized net capital gains and losses on fixed income securities with OTTI

70

 

 

75

 

Other unrealized net capital gains and losses

2,094

 

 

(51

)

Unrealized adjustment to DAC, DSI and insurance reserves

(277

)

 

(26

)

Total unrealized net capital gains and losses

1,887

 

 

(2

)

Unrealized foreign currency translation adjustments

(59

)

 

(49

)

Unamortized pension and other postretirement prior service credit

122

 

 

169

 

Total accumulated other comprehensive income

1,950

 

 

118

 

Total shareholders’ equity

25,998

 

 

21,312

 

Total liabilities and shareholders’ equity

$

119,950

 

 

$

112,249

 

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

($ in millions, except per share data)

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Property and casualty insurance premiums

$

9,194

 

 

$

8,707

 

 

$

36,076

 

 

$

34,048

 

Life premiums and contract charges

627

 

 

625

 

 

2,501

 

 

2,465

 

Other revenue

260

 

 

257

 

 

1,054

 

 

939

 

Net investment income

689

 

 

786

 

 

3,159

 

 

3,240

 

Realized capital gains and losses:

 

 

 

 

 

 

 

Total other-than-temporary impairment (“OTTI”) losses

(4

)

 

(5

)

 

(48

)

 

(13

)

OTTI losses reclassified to (from) other comprehensive income

 

 

1

 

 

1

 

 

(1

)

Net OTTI losses recognized in earnings

(4

)

 

(4

)

 

(47

)

 

(14

)

Sales and valuation changes on equity investments and derivatives

706

 

 

(890

)

 

1,932

 

 

(863

)

Total realized capital gains and losses

702

 

 

(894

)

 

1,885

 

 

(877

)

Total revenues

11,472

 

 

9,481

 

 

44,675

 

 

39,815

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

Property and casualty insurance claims and claims expense

5,749

 

 

6,067

 

 

23,976

 

 

22,778

 

Life contract benefits

518

 

 

488

 

 

2,039

 

 

1,973

 

Interest credited to contractholder funds

153

 

 

165

 

 

640

 

 

654

 

Amortization of deferred policy acquisition costs

1,382

 

 

1,336

 

 

5,533

 

 

5,222

 

Operating costs and expenses

1,516

 

 

1,508

 

 

5,690

 

 

5,594

 

Pension and other postretirement remeasurement gains and losses

(251

)

 

500

 

 

114

 

 

468

 

Restructuring and related charges

14

 

 

12

 

 

41

 

 

67

 

Amortization of purchased intangibles

30

 

 

36

 

 

126

 

 

105

 

Impairment of purchased intangibles

51

 

 

 

 

106

 

 

 

Interest expense

82

 

 

81

 

 

327

 

 

332

 

Total costs and expenses

9,244

 

 

10,193

 

 

38,592

 

 

37,193

 

 

 

 

 

 

 

 

 

Gain on disposition of operations

3

 

 

2

 

 

6

 

 

6

 

 

 

 

 

 

 

 

 

Income (loss) from operations before income tax expense

2,231

 

 

(710

)

 

6,089

 

 

2,628

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

458

 

 

(168

)

 

1,242

 

 

468

 

 

 

 

 

 

 

 

 

Net income (loss)

1,773

 

 

(542

)

 

4,847

 

 

2,160

 

 

 

 

 

 

 

 

 

Preferred stock dividends

66

 

 

43

 

 

169

 

 

148

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to common shareholders

$

1,707

 

 

$

(585

)

 

$

4,678

 

 

$

2,012

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share – Basic

$

5.32

 

 

$

(1.71

)

 

$

14.25

 

 

$

5.78

 

 

 

 

 

 

 

 

 

Weighted average common shares – Basic

320.7

 

 

341.9

 

 

328.2

 

 

347.8

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share – Diluted

$

5.23

 

 

$

(1.71

)

 

$

14.03

 

 

$

5.70

 

 

 

 

 

 

 

 

 

Weighted average common shares – Diluted

326.3

 

 

347.1

 

 

333.5

 

 

353.2

 

Definitions of Non-GAAP Measures

We believe that investors’ understanding of Allstate’s performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Adjusted net income is net income applicable to common shareholders, excluding:

Net income applicable to common shareholders is the GAAP measure that is most directly comparable to adjusted net income.

We use adjusted net income as an important measure to evaluate our results of operations. We believe that the measure provides investors with a valuable measure of the company’s ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, pension and other postretirement remeasurement gains and losses, valuation changes on embedded derivatives not hedged, business combination expenses and the amortization or impairment of purchased intangibles, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses, pension and other postretirement remeasurement gains and losses, valuation changes on embedded derivatives not hedged and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, adjusted net income includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes. These instruments are used for economic hedges and to replicate fixed income securities, and by including them in adjusted net income, we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g. net investment income and interest credited to contractholder funds) or replicated investments. Business combination expenses are excluded because they are non-recurring in nature and the amortization or impairment of purchased intangibles is excluded because it relates to the acquisition purchase price and is not indicative of our underlying business results or trends. Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends. Accordingly, adjusted net income excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business. A byproduct of excluding these items to determine adjusted net income is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods. Adjusted net income is used by management along with the other components of net income applicable to common shareholders to assess our performance. We use adjusted measures of adjusted net income in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income applicable to common shareholders, adjusted net income and their components separately and in the aggregate when reviewing and evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize adjusted net income results in their evaluation of our and our industry’s financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management’s performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses adjusted net income as the denominator. Adjusted net income should not be considered a substitute for net income applicable to common shareholders and does not reflect the overall profitability of our business.

The following tables reconcile net income applicable to common shareholders and adjusted net income. Taxes on adjustments to reconcile net income applicable to common shareholders and adjusted net income generally use a 21% effective tax rate and are reported net of income taxes as the reconciling adjustment.

($ in millions, except per share data)

Three months ended December 31,

 

Consolidated

 

Per diluted common share

 

2019

 

2018

 

2019

 

2018

Net income (loss) applicable to common shareholders

$

1,707

 

 

$

(585

)

 

$

5.23

 

 

$

(1.71

)

Realized capital gains and losses, after-tax

(553

)

 

704

 

 

(1.69

)

 

2.03

 

Pension and other postretirement remeasurement gains and losses, after-tax

 

(199

)

 

395

 

 

(0.61

)

 

1.15

 

Valuation changes on embedded derivatives not hedged, after-tax

 

 

2

 

 

 

 

0.01

 

DAC and DSI amortization relating to realized capital gains and losses and valuation changes on embedded derivatives not hedged, after-tax

3

 

 

1

 

 

0.01

 

 

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

 

 

(1

)

 

 

 

 

Business combination expenses and the amortization of purchased intangibles, after-tax

24

 

 

35

 

 

0.07

 

 

0.10

 

Impairment of purchased intangibles, after-tax

40

 

 

 

 

0.12

 

 

 

Gain on disposition of operations, after-tax

(2

)

 

(1

)

 

 

 

 

Tax Legislation expense

 

 

2

 

 

 

 

0.01

 

Adjusted net income*

$

1,020

 

 

$

552

 

 

$

3.13

 

 

$

1.59

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31,

 

Consolidated

 

Per diluted common share

 

2019

 

2018

 

2019

 

2018

Net income applicable to common shareholders

$

4,678

 

 

$

2,012

 

 

$

14.03

 

 

$

5.70

 

Realized capital gains and losses, after-tax

(1,488

)

 

688

 

 

(4.46

)

 

1.95

 

Pension and other postretirement remeasurement gains and losses, after-tax

90

 

 

370

 

 

0.27

 

 

1.05

 

Valuation changes on embedded derivatives not hedged, after-tax

15

 

 

(3

)

 

0.05

 

 

(0.01

)

DAC and DSI amortization relating to realized capital gains and losses and valuation changes on embedded derivatives not hedged, after-tax

5

 

 

7

 

 

0.01

 

 

0.02

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

(2

)

 

(2

)

 

(0.01

)

 

(0.01

)

Business combination expenses and the amortization of purchased intangibles, after-tax

100

 

 

90

 

 

0.30

 

 

0.25

 

Impairment of purchased intangibles, after-tax

83

 

 

 

 

0.25

 

 

 

Gain on disposition of operations, after-tax

(4

)

 

(4

)

 

(0.01

)

 

(0.01

)

Tax Legislation benefit

 

 

(29

)

 

 

 

(0.08

)

Adjusted net income*

$

3,477

 

 

$

3,129

 

 

$

10.43

 

 

$

8.86

 

Adjusted net income return on common shareholders’ equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month adjusted net income by the average of common shareholders’ equity at the beginning and at the end of the 12-months, after excluding the effect of unrealized net capital gains and losses. Return on common shareholders’ equity is the most directly comparable GAAP measure. We use adjusted net income as the numerator for the same reasons we use adjusted net income, as discussed above. We use average common shareholders’ equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of common shareholders’ equity primarily attributable to the company’s earned and realized business operations because it eliminates the effect of items that are unrealized and vary significantly between periods due to external economic developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process. We use it to supplement our evaluation of net income applicable to common shareholders and return on common shareholders’ equity because it excludes the effect of items that tend to be highly variable from period to period. We believe that this measure is useful to investors and that it provides a valuable tool for investors when considered along with return on common shareholders’ equity because it eliminates the after-tax effects of realized and unrealized net capital gains and losses that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management. In addition, it eliminates non-recurring items that are not indicative of our ongoing business or economic trends. A byproduct of excluding the items noted above to determine adjusted net income return on common shareholders’ equity from return on common shareholders’ equity is the transparency and understanding of their significance to return on common shareholders’ equity variability and profitability while recognizing these or similar items may recur in subsequent periods. We use adjusted measures of adjusted net income return on common shareholders’ equity in incentive compensation. Therefore, we believe it is useful for investors to have adjusted net income return on common shareholders’ equity and return on common shareholders’ equity when evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize adjusted net income return on common shareholders’ equity results in their evaluation of our and our industry’s financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management’s utilization of capital. We also provide it to facilitate a comparison to our long-term adjusted net income return on common shareholders’ equity goal. Adjusted net income return on common shareholders’ equity should not be considered a substitute for return on common shareholders’ equity and does not reflect the overall profitability of our business.

The following tables reconcile return on common shareholders’ equity and adjusted net income return on common shareholders’ equity.

($ in millions)

For the twelve months ended
December 31,

 

2019

 

2018

Return on commonshareholders’ equity

 

 

 

Numerator:

 

 

 

Net income applicable to common shareholders

$

4,678

 

 

$

2,012

 

Denominator:

 

 

 

Beginning common shareholders’ equity (1)

$

19,382

 

 

$

20,805

 

Ending common shareholders’ equity (1)

23,750

 

 

19,382

 

Average common shareholders’ equity

$

21,566

 

 

$

20,094

 

Return on common shareholders’ equity

21.7

%

 

10.0

%

($ in millions)

For the twelve months ended
December 31,

 

2019

 

2018

Adjusted net income return on common shareholders’ equity

 

 

 

Numerator:

 

 

 

Adjusted net income *

$

3,477

 

 

$

3,129

 

 

 

 

 

Denominator:

 

 

 

Beginning common shareholders’ equity (1)

$

19,382

 

 

$

20,805

 

Less: Unrealized net capital gains and losses

(2

)

 

1,662

 

Adjusted beginning common shareholders’ equity

19,384

 

 

19,143

 

 

 

 

 

Ending common shareholders’ equity (1)

23,750

 

 

19,382

 

Less: Unrealized net capital gains and losses

1,887

 

 

(2

)

Adjusted ending common shareholders’ equity

21,863

 

 

19,384

 

Average adjusted common shareholders’ equity

$

20,624

 

 

$

19,264

 

Adjusted net income return on common shareholders’ equity *

16.9

%

 

16.2

%

_____________

(1) Excludes equity related to preferred stock of $2,248 million as of December 31, 2019, $1,930 million as of December 31, 2018 and $1,746 million as of December 31, 2017.

Combined ratio excluding the effect of catastrophes, prior year reserve reestimates and amortization or impairment of purchased intangibles (“underlying combined ratio”) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio, the effect of prior year non-catastrophe reserve reestimates on the combined ratio, and the effect of amortization or impairment of purchased intangibles on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses, prior year reserve reestimates and amortization or impairment of purchased intangibles. Catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year reserve reestimates are caused by unexpected loss development on historical reserves, which could increase or decrease current year net income. Amortization or impairment of purchased intangibles relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide it to facilitate a comparison to our outlook on the underlying combined ratio. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.

The following tables reconcile the respective combined ratio to the underlying combined ratio. Underwriting margin is calculated as 100% minus the combined ratio.

Property-Liability

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

88.7

 

 

96.6

 

 

92.0

 

 

93.2

 

Effect of catastrophe losses

(3.3

)

 

(11.4

)

 

(7.3

)

 

(8.7

)

Effect of prior year non-catastrophe reserve reestimates

0.1

 

 

1.1

 

 

0.4

 

 

0.8

 

Effect of impairment of purchased intangibles

(0.6

)

 

 

 

(0.1

)

 

 

Underlying combined ratio*

84.9

 

 

86.3

 

 

85.0

 

 

85.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

(0.3

)

 

0.1

 

 

0.1

 

Allstate brand - Total

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

87.3

 

 

96.0

 

 

90.7

 

 

92.2

 

Effect of catastrophe losses

(3.4

)

 

(12.3

)

 

(7.5

)

 

(9.0

)

Effect of prior year non-catastrophe reserve reestimates

0.1

 

 

1.2

 

 

0.8

 

 

1.1

 

Underlying combined ratio*

84.0

 

 

84.9

 

 

84.0

 

 

84.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

(0.3

)

 

0.1

 

 

 

Allstate brand - Auto Insurance

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

92.8

 

 

92.4

 

 

92.0

 

 

91.3

 

Effect of catastrophe losses

 

 

(1.0

)

 

(1.7

)

 

(1.6

)

Effect of prior year non-catastrophe reserve reestimates

 

 

1.7

 

 

1.4

 

 

2.0

 

Underlying combined ratio*

92.8

 

 

93.1

 

 

91.7

 

 

91.7

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.2

)

 

 

 

(0.1

)

 

(0.2

)

Allstate brand - Homeowners Insurance

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

74.3

 

 

105.3

 

 

87.7

 

 

92.9

 

Effect of catastrophe losses

(13.4

)

 

(44.6

)

 

(24.8

)

 

(30.5

)

Effect of prior year non-catastrophe reserve reestimates

0.2

 

 

0.9

 

 

0.1

 

 

0.8

 

Underlying combined ratio*

61.1

 

 

61.6

 

 

63.0

 

 

63.2

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

0.4

 

 

(1.1

)

 

0.8

 

 

0.8

 

Esurance brand - Total

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

107.0

 

 

101.8

 

 

102.1

 

 

101.3

 

Effect of catastrophe losses

(0.8

)

 

(1.2

)

 

(2.4

)

 

(2.8

)

Effect of prior year non-catastrophe reserve reestimates

 

 

(0.6

)

 

(0.1

)

 

(0.1

)

Effect of amortization of purchased intangibles

(0.2

)

 

(0.2

)

 

(0.1

)

 

(0.1

)

Effect of impairment of purchased intangibles

(9.6

)

 

 

 

(2.5

)

 

 

Underlying combined ratio*

96.4

 

 

99.8

 

 

97.0

 

 

98.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

 

 

 

 

 

 

0.1

 

Encompass brand - Total

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

Combined ratio

93.3

 

 

101.6

 

 

99.3

 

 

98.2

 

Effect of catastrophe losses

(4.7

)

 

(3.9

)

 

(11.3

)

 

(10.0

)

Effect of prior year non-catastrophe reserve reestimates

(0.4

)

 

3.5

 

 

0.6

 

 

2.3

 

Underlying combined ratio*

88.2

 

 

101.2

 

 

88.6

 

 

90.5

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.4

)

 

 

 

0.9

 

 

1.2

 

Combined ratio excluding the effect of impairment of purchased intangibles (“combined ratio excluding impairment”) is a non-GAAP ratio, which is computed as the difference between the GAAP operating ratios: the combined ratio and the effect of the impairment of purchased intangibles on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by impairment of purchased intangibles. Impairment of purchased intangibles relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends. We believe it is useful for investors to evaluate this component separately and in the aggregate when reviewing our underwriting performance. The most directly comparable GAAP measure is the combined ratio. The combined ratio excluding impairment should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.

The following tables reconcile the respective combined ratio to the combined ratio excluding impairment.

 

Three months ended December 31, 2019

 

Property-
Liability

 

Allstate
Protection -
auto
insurance

 

Esurance

 

Esurance -
auto
insurance

Combined ratio

88.7

 

 

94.2

 

 

107.0

 

 

109.0

 

Effect of impairment of purchased intangibles

(0.6

)

 

(0.8

)

 

(9.6

)

 

(10.2

)

Combined ratio excluding impairment*

88.1

 

 

93.4

 

 

97.4

 

 

98.8

 

 

Twelve months ended December 31, 2019

 

Property-
Liability

 

Allstate
Protection -
auto
insurance

 

Esurance

 

Esurance -
auto
insurance

Combined ratio

92.0

 

 

93.0

 

 

102.1

 

 

102.4

 

Effect of impairment of purchased intangibles

(0.1

)

 

(0.2

)

 

(2.5

)

 

(2.6

)

Combined ratio excluding impairment*

91.9

 

 

92.8

 

 

99.6

 

 

99.8

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20200204006071/en/

CONTACT: Greg Burns

Media Relations

(847) 402-5600

Mark Nogal

Investor Relations

(847) 402-2800

KEYWORD: UNITED STATES NORTH AMERICA ILLINOIS

INDUSTRY KEYWORD: PROFESSIONAL SERVICES INSURANCE FINANCE

SOURCE: The Allstate Corporation

Copyright Business Wire 2020.

PUB: 02/04/2020 06:08 PM/DISC: 02/04/2020 06:08 PM

http://www.businesswire.com/news/home/20200204006071/en