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Allstate Delivers Growth and Attractive Returns

October 29, 2019

NORTHBROOK, Ill.--(BUSINESS WIRE)--Oct 29, 2019--

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

The Allstate Corporation Consolidated Highlights

 

Three months ended
September 30,

 

Nine months ended
September 30,

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

2019

2018

% / pts

Change

 

2019

2018

% / pts

Change

Consolidated revenues

$

11,069

 

$

10,465

 

5.8

 

 

$

33,203

 

$

30,334

 

9.5

 

Net income applicable to common shareholders

889

 

942

 

(5.6

)

 

2,971

 

2,597

 

14.4

 

per diluted common share

2.67

 

2.68

 

(0.4

)

 

8.85

 

7.31

 

21.1

 

Adjusted net income*

946

 

759

 

24.6

 

 

2,457

 

2,577

 

(4.7

)

per diluted common share*

2.84

 

2.16

 

31.5

 

 

7.32

 

7.25

 

1.0

 

Return on common shareholders’ equity (trailing twelve months)

 

 

 

 

 

Net income applicable to common shareholders

 

 

 

 

10.7

%

18.6

%

(7.9

)

Adjusted net income*

 

 

 

 

14.2

%

16.9

%

(2.7

)

Book value per common share

 

 

 

 

69.84

 

60.86

 

14.8

 

Property-Liability combined ratio

 

 

 

 

 

 

 

Recorded

91.6

 

93.9

 

(2.3

)

 

93.1

 

92.0

 

1.1

 

Underlying combined ratio* (excludes catastrophes, prior year reserve reestimates and amortization of purchased intangibles)

86.3

 

86.2

 

0.1

 

 

85.0

 

85.0

 

 

Property and casualty insurance premiums written

9,676

 

9,158

 

5.7

 

 

27,764

 

26,127

 

6.3

 

Catastrophe losses

510

 

625

 

(18.4

)

 

2,262

 

1,892

 

19.6

 

Total policies in force (in thousands)

 

 

 

 

136,077

 

96,682

 

40.7

 

* 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.

“Excellent growth and profitability reflect a consistent strategy, innovation and strong operating capabilities,” said Tom Wilson, Chair, President and CEO of The Allstate Corporation. “The strategy to increase market share in personal property-liability and diversify protection offerings is resonating with customers. Revenues for the last three months increased to $11.1 billion, up 5.8% from the prior year. Strong operating capabilities enabled us to generate net income of $889 million and adjusted net income* of $946 million in the quarter, which was $2.84 per share. Return on equity was 14.2% over the last 12 months, on an adjusted net income* basis.”

“Results were also strong on the five Operating Priorities, which focus on near-term performance and long-term value creation. Customer Net Promoter Scores improved, and growth in personal property-liability policies in force was achieved for both the Allstate and Esurance brands. Expansion into protection plans using innovative technology and the Allstate brand is working, with policies in force increasing by 39.4 million over the prior year. Proactive investment management resulted in a total return for the latest 12 months of 7.8% as we lengthened duration ahead of interest rate declines and remained invested in equities. Long-term growth investments in telematics, protection plans and identity protection are being funded while returning substantial capital to shareholders,” concluded Wilson.

Third Quarter 2019 Results

Property-Liability Results

 

Three months ended September 30,

 

Nine months ended September 30,

($ in millions, except ratios)

2019

2018

% / pts

Change

 

2019

2018

% / pts

Change

Premiums written

9,312

 

8,800

 

5.8

%

 

26,682

 

25,185

 

5.9

%

Underwriting income

737

 

507

 

45.4

 

 

1,804

 

1,967

 

(8.3

)

 

 

 

 

 

 

 

 

Recorded Combined Ratio

91.6

 

93.9

 

(2.3

)

 

93.1

 

92.0

 

1.1

 

Allstate Brand Auto

92.1

 

92.5

 

(0.4

)

 

91.8

 

91.0

 

0.8

 

Allstate Brand Homeowners

80.7

 

87.7

 

(7.0

)

 

92.3

 

88.7

 

3.6

 

Esurance Brand

101.1

 

102.1

 

(1.0

)

 

100.4

 

101.2

 

(0.8

)

Encompass Brand

105.8

 

95.7

 

10.1

 

 

101.3

 

97.1

 

4.2

 

 

 

 

 

 

 

 

 

Underlying Combined Ratio*

86.3

 

86.2

 

0.1

 

 

85.0

 

85.0

 

 

Allstate Brand Auto

92.5

 

92.0

 

0.5

 

 

91.3

 

91.3

 

 

Allstate Brand Homeowners

65.0

 

65.2

 

(0.2

)

 

63.6

 

63.7

 

(0.1

)

Esurance Brand

97.9

 

99.2

 

(1.3

)

 

97.2

 

97.8

 

(0.6

)

Encompass Brand

87.9

 

88.6

 

(0.7

)

 

88.7

 

87.0

 

1.7

 

Allstate Investment Results

 

Three months ended
September 30,

 

Nine months ended
September 30,

($ in millions, except ratios)

2019

2018

% / pts

Change

 

2019

2018

% / pts

Change

Net investment income

$

880

 

$

844

 

4.3

 

 

$

2,470

 

$

2,454

 

0.7

 

Market-based investment income (1)

727

 

683

 

6.4

 

 

2,151

 

2,031

 

5.9

 

Performance-based investment income (1)

202

 

214

 

(5.6

)

 

469

 

571

 

(17.9

)

Realized capital gains and losses

197

 

176

 

11.9

 

 

1,183

 

17

 

NM

Change in unrealized net capital gains, pre-tax

518

 

(97

)

NM

 

2,957

 

(1,423

)

NM

Total return on investment portfolio

1.9

%

1.1

%

0.8

 

 

8.0

%

1.0

%

7.0

 

Total return on investment portfolio (trailing twelve months)

 

 

 

 

7.8

%

2.1

%

5.7

 

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

NM = not meaningful

Allstate Life, Benefits and Annuities Results

 

Three months ended
September 30,

 

Nine months ended
September 30,

($ in millions)

2019

2018

% Change

 

2019

2018

% Change

Premiums and Contract Charges

 

 

 

 

 

 

 

Allstate Life

$

331

 

$

322

 

2.8

%

 

$

1,001

 

$

975

 

2.7

%

Allstate Benefits

291

 

285

 

2.1

 

 

863

 

854

 

1.1

 

Allstate Annuities

3

 

5

 

(40.0

)

 

10

 

11

 

(9.1

)

Adjusted Net Income

 

 

 

 

 

 

 

Allstate Life

$

44

 

$

75

 

(41.3

)%

 

$

185

 

$

226

 

(18.1

)%

Allstate Benefits

31

 

33

 

(6.1

)

 

99

 

98

 

1.0

 

Allstate Annuities

16

 

20

 

(20.0

)

 

43

 

99

 

(56.6

)

Service Businesses Results

 

Three months ended
September 30,

 

Nine months ended
September 30,

($ in millions)

2019

2018

% / $

Change

 

2019

2018

% / $
Change

Total Revenues

$

418

 

$

329

 

27.1

%

 

$

1,215

 

$

962

 

26.3

%

Allstate Protection Plans (1)

177

 

128

 

38.3

 

 

511

 

372

 

37.4

 

Allstate Dealer Services

115

 

102

 

12.7

 

 

336

 

298

 

12.8

 

Allstate Roadside Services

68

 

77

 

(11.7

)

 

214

 

228

 

(6.1

)

Arity

35

 

22

 

59.1

 

 

84

 

64

 

31.3

 

Allstate Identity Protection (1)

23

 

 

NA

 

70

 

 

NA

Adjusted Net Income (Loss)

$

8

 

$

1

 

$

7

 

 

$

35

 

$

 

$

35

 

Allstate Protection Plans

15

 

7

 

8

 

 

48

 

14

 

34

 

Allstate Dealer Services

6

 

3

 

3

 

 

19

 

10

 

9

 

Allstate Roadside Services

(5

)

(5

)

 

 

(14

)

(14

)

 

Arity

(1

)

(4

)

3

 

 

(4

)

(10

)

6

 

Allstate Identity Protection

(7

)

 

NA

 

(14

)

 

NA

 

(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.

NA = not applicable

Proactive Capital Management

“Allstate continued to aggressively manage the cost of capital by issuing $1.15 billion of preferred stock in the quarter, which was used to redeem a similar amount of higher dividend preferred stock earlier this month,” said Mario Rizzo, Chief Financial Officer. “ We also returned $775 million to shareholders during the third quarter through a combination of $166 million in common stock dividends and repurchasing $609 million of outstanding common shares. Allstate has repurchased 6.7% of common stock outstanding (23.0 million shares) over the past 12 months and has $962 million remaining on its current share repurchase authorization.”

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, October 30.

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,
2019

 

December 31,
2018

Assets

 

 

 

Investments:

 

 

 

Fixed income securities, at fair value (amortized cost $56,263 and $57,134)

$

59,259

 

 

$

57,170

 

Equity securities, at fair value (cost $6,930 and $4,489)

8,206

 

 

5,036

 

Mortgage loans

4,694

 

 

4,670

 

Limited partnership interests

7,990

 

 

7,505

 

Short-term, at fair value (amortized cost $5,254 and $3,027)

5,254

 

 

3,027

 

Other

3,904

 

 

3,852

 

Total investments

89,307

 

 

81,260

 

Cash

587

 

 

499

 

Premium installment receivables, net

6,558

 

 

6,154

 

Deferred policy acquisition costs

4,683

 

 

4,784

 

Reinsurance and indemnification recoverables, net

9,363

 

 

9,565

 

Accrued investment income

613

 

 

600

 

Property and equipment, net

1,092

 

 

1,045

 

Goodwill

2,545

 

 

2,530

 

Other assets

3,383

 

 

3,007

 

Separate Accounts

2,942

 

 

2,805

 

Total assets

$

121,073

 

 

$

112,249

 

Liabilities

 

 

 

Reserve for property and casualty insurance claims and claims expense

$

28,076

 

 

$

27,423

 

Reserve for life-contingent contract benefits

12,378

 

 

12,208

 

Contractholder funds

17,804

 

 

18,371

 

Unearned premiums

15,343

 

 

14,510

 

Claim payments outstanding

952

 

 

1,007

 

Deferred income taxes

1,079

 

 

425

 

Other liabilities and accrued expenses

9,729

 

 

7,737

 

Long-term debt

6,630

 

 

6,451

 

Separate Accounts

2,942

 

 

2,805

 

Total liabilities

94,933

 

 

90,937

 

Shareholders’ equity

 

 

 

Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 125.8 thousand and 79.8 thousand shares issued and outstanding, $3,145 and $1,995 aggregate liquidation preference

3,052

 

 

1,930

 

Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 325 million and 332 million shares outstanding

9

 

 

9

 

Additional capital paid-in

3,511

 

 

3,310

 

Retained income

46,527

 

 

44,033

 

Deferred Employee Stock Ownership Plan expense

(3

)

 

(3

)

Treasury stock, at cost (575 million and 568 million shares)

(29,063

)

 

(28,085

)

Accumulated other comprehensive income:

 

 

 

Unrealized net capital gains and losses:

 

 

 

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

82

 

 

75

 

Other unrealized net capital gains and losses

2,276

 

 

(51

)

Unrealized adjustment to DAC, DSI and insurance reserves

(335

)

 

(26

)

Total unrealized net capital gains and losses

2,023

 

 

(2

)

Unrealized foreign currency translation adjustments

(50

)

 

(49

)

Unamortized pension and other postretirement prior service credit

134

 

 

169

 

Total accumulated other comprehensive income

2,107

 

 

118

 

Total shareholders’ equity

26,140

 

 

21,312

 

Total liabilities and shareholders’ equity

$

121,073

 

 

$

112,249

 

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

($ in millions, except per share data)

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Property and casualty insurance premiums

$

9,094

 

 

$

8,595

 

 

$

26,882

 

 

$

25,341

 

Life premiums and contract charges

625

 

 

612

 

 

1,874

 

 

1,840

 

Other revenue

273

 

 

238

 

 

794

 

 

682

 

Net investment income

880

 

 

844

 

 

2,470

 

 

2,454

 

Realized capital gains and losses:

 

 

 

 

 

 

 

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

(16

)

 

(4

)

 

(44

)

 

(8

)

OTTI losses reclassified to (from) other comprehensive income

2

 

 

(1

)

 

1

 

 

(2

)

Net OTTI losses recognized in earnings

(14

)

 

(5

)

 

(43

)

 

(10

)

Sales and valuation changes on equity investments and derivatives

211

 

 

181

 

 

1,226

 

 

27

 

Total realized capital gains and losses

197

 

 

176

 

 

1,183

 

 

17

 

Total revenues

11,069

 

 

10,465

 

 

33,203

 

 

30,334

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

Property and casualty insurance claims and claims expense

6,051

 

 

5,805

 

 

18,227

 

 

16,711

 

Life contract benefits

513

 

 

498

 

 

1,521

 

 

1,485

 

Interest credited to contractholder funds

169

 

 

163

 

 

487

 

 

489

 

Amortization of deferred policy acquisition costs

1,425

 

 

1,317

 

 

4,151

 

 

3,886

 

Operating costs and expenses

1,414

 

 

1,425

 

 

4,174

 

 

4,086

 

Pension and other postretirement remeasurement gains and losses

225

 

 

(39

)

 

365

 

 

(32

)

Restructuring and related charges

 

 

13

 

 

27

 

 

55

 

Amortization of purchased intangibles

32

 

 

24

 

 

96

 

 

69

 

Impairment of purchased intangibles

 

 

 

 

55

 

 

 

Interest expense

80

 

 

82

 

 

245

 

 

251

 

Total costs and expenses

9,909

 

 

9,288

 

 

29,348

 

 

27,000

 

 

 

 

 

 

 

 

 

Gain on disposition of operations

 

 

1

 

 

3

 

 

4

 

 

 

 

 

 

 

 

 

Income from operations before income tax expense

1,160

 

 

1,178

 

 

3,858

 

 

3,338

 

 

 

 

 

 

 

 

 

Income tax expense

229

 

 

199

 

 

784

 

 

636

 

 

 

 

 

 

 

 

 

Net income

931

 

 

979

 

 

3,074

 

 

2,702

 

 

 

 

 

 

 

 

 

Preferred stock dividends

42

 

 

37

 

 

103

 

 

105

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders

$

889

 

 

$

942

 

 

$

2,971

 

 

$

2,597

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share – Basic

$

2.71

 

 

$

2.72

 

 

$

8.98

 

 

$

7.43

 

 

 

 

 

 

 

 

 

Weighted average common shares – Basic

327.7

 

 

346.0

 

 

330.8

 

 

349.7

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share – Diluted

$

2.67

 

 

$

2.68

 

 

$

8.85

 

 

$

7.31

 

 

 

 

 

 

 

 

 

Weighted average common shares – Diluted

333.0

 

 

351.7

 

 

335.7

 

 

355.4

 

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 September 30,

 

Consolidated

 

Per diluted common share

 

2019

 

2018

 

2019

 

2018

Net income applicable to common shareholders

$

889

 

 

$

942

 

 

$

2.67

 

 

$

2.68

 

Realized capital gains and losses, after-tax

(155

)

 

(141

)

 

(0.47

)

 

(0.40

)

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

 

179

 

 

(30

)

 

0.54

 

 

(0.08

)

Valuation changes on embedded derivatives not hedged, after-tax

10

 

 

(1

)

 

0.03

 

 

 

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

(1

)

 

1

 

 

 

 

 

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

25

 

 

20

 

 

0.07

 

 

0.05

 

Impairment of purchased intangibles, after-tax

 

 

 

 

 

 

 

Gain on disposition of operations, after-tax

 

 

(1

)

 

 

 

 

Tax Legislation benefit

 

 

(31

)

 

 

 

(0.09

)

Adjusted net income*

$

946

 

 

$

759

 

 

$

2.84

 

 

$

2.16

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

Consolidated

 

Per diluted common share

 

2019

 

2018

 

2019

 

2018

Net income applicable to common shareholders

$

2,971

 

 

$

2,597

 

 

$

8.85

 

 

$

7.31

 

Realized capital gains and losses, after-tax

(935

)

 

(16

)

 

(2.79

)

 

(0.05

)

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

289

 

 

(25

)

 

0.86

 

 

(0.07

)

Valuation changes on embedded derivatives not hedged, after-tax

15

 

 

(5

)

 

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

2

 

 

6

 

 

0.01

 

 

0.02

 

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

(2

)

 

(1

)

 

(0.01

)

 

 

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

76

 

 

55

 

 

0.23

 

 

0.15

 

Impairment of purchased intangibles, after-tax

43

 

 

 

 

0.13

 

 

 

Gain on disposition of operations, after-tax

(2

)

 

(3

)

 

(0.01

)

 

(0.01

)

Tax Legislation benefit

 

 

(31

)

 

 

 

(0.09

)

Adjusted net income*

$

2,457

 

 

$

2,577

 

 

$

7.32

 

 

$

7.25

 

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. 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
September 30,

 

2019

 

2018

Return on commonshareholders’ equity

 

 

 

Numerator:

 

 

 

Net income applicable to common shareholders

$

2,386

 

 

$

3,891

 

Denominator:

 

 

 

Beginning common shareholders’ equity (1)

$

21,356

 

 

$

20,508

 

Ending common shareholders’ equity (1)

23,088

 

 

21,356

 

Average common shareholders’ equity

$

22,222

 

 

$

20,932

 

Return on common shareholders’ equity

10.7

%

 

18.6

%

($ in millions)

For the twelve months ended
September 30,

 

2019

 

2018

Adjusted net income return on common shareholders’ equity

 

 

 

Numerator:

 

 

 

Adjusted net income *

$

3,009

 

 

$

3,400

 

 

 

 

 

Denominator:

 

 

 

Beginning common shareholders’ equity (1)

$

21,356

 

 

$

20,508

 

Less: Unrealized net capital gains and losses

(16

)

 

1,651

 

Adjusted beginning common shareholders’ equity

21,372

 

 

18,857

 

 

 

 

 

Ending common shareholders’ equity (1)

23,088

 

 

21,356

 

Less: Unrealized net capital gains and losses

2,023

 

 

(16

)

Adjusted ending common shareholders’ equity

21,065

 

 

21,372

 

Average adjusted common shareholders’ equity

$

21,219

 

 

$

20,115

 

Adjusted net income return on common shareholders’ equity *

14.2

%

 

16.9

%

_____________

(1) Excludes equity related to preferred stock of $3,052 million as of September 30, 2019, $2,303 million as of September 30, 2018 and $1,746 million as of September 30, 2017.

Combined ratio excluding the effect of catastrophes, prior year reserve reestimates and amortization 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 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 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 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
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

91.6

 

 

93.9

 

 

93.1

 

 

92.0

 

Effect of catastrophe losses

(5.8

)

 

(7.5

)

 

(8.7

)

 

(7.7

)

Effect of prior year non-catastrophe reserve reestimates

0.5

 

 

(0.2

)

 

0.6

 

 

0.7

 

Underlying combined ratio*

86.3

 

 

86.2

 

 

85.0

 

 

85.0

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

 

 

 

 

0.2

 

 

0.2

 

Allstate brand - Total

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

89.3

 

 

92.3

 

 

91.9

 

 

90.8

 

Effect of catastrophe losses

(5.6

)

 

(7.8

)

 

(9.0

)

 

(7.8

)

Effect of prior year non-catastrophe reserve reestimates

1.7

 

 

0.8

 

 

1.1

 

 

1.1

 

Underlying combined ratio*

85.4

 

 

85.3

 

 

84.0

 

 

84.1

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

 

 

0.2

 

 

0.1

 

Allstate brand - Auto Insurance

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

92.1

 

 

92.5

 

 

91.8

 

 

91.0

 

Effect of catastrophe losses

(2.4

)

 

(2.2

)

 

(2.3

)

 

(1.8

)

Effect of prior year non-catastrophe reserve reestimates

2.8

 

 

1.7

 

 

1.8

 

 

2.1

 

Underlying combined ratio*

92.5

 

 

92.0

 

 

91.3

 

 

91.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

 

 

(0.1

)

 

(0.1

)

 

(0.2

)

Allstate brand - Homeowners Insurance

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

80.7

 

 

87.7

 

 

92.3

 

 

88.7

 

Effect of catastrophe losses

(15.7

)

 

(23.6

)

 

(28.7

)

 

(25.7

)

Effect of prior year non-catastrophe reserve reestimates

 

 

1.1

 

 

 

 

0.7

 

Underlying combined ratio*

65.0

 

 

65.2

 

 

63.6

 

 

63.7

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

0.1

 

 

0.8

 

 

1.3

 

Esurance brand - Total

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

101.1

 

 

102.1

 

 

100.4

 

 

101.2

 

Effect of catastrophe losses

(3.0

)

 

(2.9

)

 

(3.0

)

 

(3.4

)

Effect of prior year non-catastrophe reserve reestimates

(0.2

)

 

0.2

 

 

(0.2

)

 

0.1

 

Effect of amortization of purchased intangibles

 

 

(0.2

)

 

 

 

(0.1

)

Underlying combined ratio*

97.9

 

 

99.2

 

 

97.2

 

 

97.8

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.2

)

 

0.2

 

 

 

 

0.1

 

Encompass brand - Total

Three months ended
September 30,

 

Nine months ended
September 30,

 

2019

 

2018

 

2019

 

2018

Combined ratio

105.8

 

 

95.7

 

 

101.3

 

 

97.1

 

Effect of catastrophe losses

(18.3

)

 

(9.1

)

 

(13.5

)

 

(12.0

)

Effect of prior year non-catastrophe reserve reestimates

0.4

 

 

2.0

 

 

0.9

 

 

1.9

 

Underlying combined ratio*

87.9

 

 

88.6

 

 

88.7

 

 

87.0

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

0.8

 

 

0.8

 

 

1.3

 

 

1.6

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191029006151/en/

CONTACT: Greg Burns

Media Relations

(847) 402-5600

John Griek

Investor Relations

(847) 402-2800

Mark Nogal

Investor Relations

(847) 402-2800

KEYWORD: ILLINOIS UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: PROFESSIONAL SERVICES INSURANCE FINANCE

SOURCE: The Allstate Corporation

Copyright Business Wire 2019.

PUB: 10/29/2019 07:14 PM/DISC: 10/29/2019 07:14 PM

http://www.businesswire.com/news/home/20191029006151/en