Allstate Delivers Strong Growth and Attractive Returns in 2018

Continues to broaden portfolio of protection solutions

NORTHBROOK, Ill.–(BUSINESS WIRE)–The Allstate Corporation (NYSE: ALL) today reported financial results
for the fourth quarter of 2018.

 
The Allstate Corporation Consolidated Highlights
  Three months ended     Twelve months ended
    December 31,     December 31,
($ in millions, except per share data and ratios)       % / pts         % / pts
    2018 2017 Change     2018 2017 Change
Consolidated revenues   $ 9,481   $ 10,062   (5.8 )     $ 39,815   $ 39,407   1.0  
Net income (loss) applicable to common shareholders   (312 ) 1,220   NM     2,104   3,073   (31.5 )
per diluted common share   (0.91 ) 3.35   NM     5.96   8.36   (28.7 )
Adjusted net income*   430   762   (43.6 )     2,851   2,467   15.6  
per diluted common share*   1.24   2.09   (40.7 )     8.07   6.71   20.3  
Return on common shareholders’ equity (trailing twelve months)            
Net income applicable to common shareholders             10.5 % 15.5 % (5.0 )
Adjusted net income*             14.8 % 13.4 % 1.4  
Book value per common share             57.56   57.58    
Property-Liability combined ratio                  
Recorded   97.0   91.0   6.0       93.6   93.6    
Underlying combined ratio* (excludes catastrophes, prior year
reserve reestimates and amortization of purchased intangibles)
  86.8   85.7   1.1       85.8   84.9   0.9  
Property and casualty insurance premiums written   8,859   8,147   8.7       34,986   32,742   6.9  
Catastrophe losses   963   599   60.8       2,855   3,234   (11.7 )
Total policies in force (in thousands)             113,892   82,276   38.4  
 

* 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 continues to deliver strong operating results while building
the future. The strategy to grow market share in personal protection is
working with growth in auto and home insurance, workplace benefits and
protection plans. We also expanded identity protection by acquiring
InfoArmor. Full year revenues increased to $40.7 billion, excluding
realized capital gains and losses. Policies in force increased 2.4% in
Allstate Protection insurance, and the addition of 30 million
SquareTrade protection policies brought our total to over 113 million.
Arity, our connected car platform, is now collecting 10 billion miles of
driving data per month through expansion of third-party connectivity,”
said Tom Wilson, Chair, President and Chief Executive Officer of The
Allstate Corporation.

“Operating results for 2018 were strong with achievement of the five
Operating Priorities. Customers were better served with increased net
promoter scores, which supported higher growth. Attractive returns were
generated as the underlying combined ratio was better than the range
established at the beginning of the year. Adjusted net income* was $8.07
per share, 20.3% higher than 2017, and adjusted net income return on
common shareholders’ equity* was 14.8%. Reflecting these results, the
underlying combined ratio* for the Property-Liability business is
expected to be between 86 and 88(1) in 2019,” concluded
Wilson.

Full Year 2018 Financial Highlights

  • Allstate delivered on the 2018 Operating Priorities, which focus on
    both near-term performance and long-term value creation.

    • Better Serve Customers: The Net Promoter Score, which
      measures how likely customers are to recommend us, increased for
      all major businesses.
    • Achieve Target Economic Returns on Capital: Adjusted net
      income return on shareholders’ equity* was 14.8% for 2018,
      primarily driven by strong Property-Liability underwriting income.
      Allstate Life and Allstate Benefits also generated good returns.
    • Grow Customer Base: Allstate Protection policies in force
      increased by 2.4% in 2018 to 33.3 million due to a 2.3% increase
      in the Allstate brand and 10.4% in the Esurance brand.
      Consolidated policies in force grew to 113.9 million in 2018.
    • Proactively Manage Investments: Total return on the $81
      billion investment portfolio was 0.8% during a volatile 2018,
      reflecting lower equity and fixed income valuations. Net
      investment income of $3.2 billion was 4.7% lower than 2017,
      primarily due to decreased performance-based income compared to a
      very strong 2017.
    • Build Long-Term Growth Platforms: SquareTrade continued its
      rapid growth in 2018 with a 77.1% increase in policies, and
      acquired PlumChoice to broaden its service offering. In the fourth
      quarter, Allstate acquired InfoArmor, a fast growing identity
      protection provider.

Fourth Quarter 2018 Results

  • Total revenue of $9.48 billion in the fourth quarter of 2018 decreased
    5.8% compared to the prior year quarter.

    • Property-Liability insurance premiums earned increased 5.7%.
    • Service Businesses revenue increased 27.1%.
    • Life premiums and contract charges increased 4.0%.
    • Net investment income decreased 13.9%.
    • Realized capital losses reduced revenues by $894 million.
  • Net loss applicable to common shareholders was $312 million, or $0.91
    per diluted share, in the fourth quarter of 2018, compared to net
    income of $1.22 billion, or $3.35 per diluted share, in the fourth
    quarter of 2017. Realized capital losses, principally from mark to
    market losses on the public equity portfolio, more than offset
    adjusted net income* of $430 million in the fourth quarter. Fourth
    quarter adjusted net income* was $332 million below the prior year
    quarter, driven by higher catastrophe losses, lower net investment
    income and a larger pension settlement charge, partially offset by
    higher premiums earned and reduced auto insurance accident frequency.

_________
(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 loss reserves as of the reporting date.

  • Property-Liability underwriting income of $249 million in the
    fourth quarter of 2018 was $466 million below the prior year quarter,
    driven by higher catastrophe losses, increased claim severity and
    lower favorable prior year reserve reestimates, partially offset by
    increased premiums earned and reduced auto accident frequency.

    • The recorded combined ratio of 97.0 for the fourth quarter was 6.0
      points above the prior year quarter, primarily driven by
      catastrophe losses of $963 million, net of reinsurance recoveries
      of more than $700 million. Hurricane Michael and the Camp and
      Woolsey wildfires in California accounted for approximately 85% of
      recorded catastrophe losses in the quarter.
    • The underlying combined ratio* of 85.8 for the full year 2018 was
      within the revised annual outlook range of 85 to 87. The
      underlying combined ratio* of 86.8 for the fourth quarter of 2018
      was 1.1 points higher than the prior year quarter, primarily due
      to adverse non-catastrophe weather related losses in Allstate and
      Encompass brand homeowners insurance and higher auto claim
      severity.
 
Property-Liability Results
  Three months ended   Twelve months ended
    December 31,   December 31,
(% to earned premiums) pts pts
    2018 2017 Change   2018 2017 Change
Recorded Combined Ratio   97.0   91.0   6.0     93.6   93.6    
Allstate Brand Auto   92.9   91.9   1.0     91.9   93.2   (1.3 )
Allstate Brand Homeowners   105.7   85.4   20.3     93.3   89.4   3.9  
Esurance Brand   101.8   100.2   1.6     101.3   103.3   (2.0 )
Encompass Brand   102.0   106.4   (4.4 )   98.7   103.0   (4.3 )
                 
Underlying Combined Ratio*   86.8   85.7   1.1     85.8   84.9   0.9  
Allstate Brand Auto   93.6   94.2   (0.6 )   92.2   92.2    
Allstate Brand Homeowners   61.9   59.9   2.0     63.5   60.5   3.0  
Esurance Brand   99.8   99.8       98.3   100.2   (1.9 )
Encompass Brand   101.6   86.4   15.2     91.0   86.5   4.5  
 
  • Allstate brand auto insurance net written premium grew 6.4% in
    the fourth quarter of 2018 compared to the prior year quarter,
    reflecting a 2.7% increase in policies in force and higher average
    premium. The recorded combined ratio of 92.9 in the fourth quarter of
    2018 was 1.0 point higher than the prior year quarter. The underlying
    combined ratio* of 93.6 in the quarter was 0.6 points better than the
    prior year quarter, due to higher earned premium and lower accident
    frequency, partially offset by higher physical damage claim severity.
  • Allstate brand homeowners insurance net written premium grew
    4.9% in the fourth quarter of 2018 compared to the prior year quarter
    and continues to generate attractive returns. The recorded combined
    ratio of 105.7 in the fourth quarter was 20.3 points higher than the
    prior year quarter, primarily driven by catastrophe losses of $798
    million, compared to $480 million in the prior year quarter. For the
    full year 2018, the recorded combined ratio was 93.3 and the
    underlying combined ratio* was 63.5.
  • Esurance brand net written premium grew 16.3% and policies in
    force increased 10.4% in the fourth quarter of 2018 compared to the
    prior year quarter. The recorded combined ratio of 101.8 in the fourth
    quarter of 2018 was 1.6 points higher than the prior year quarter,
    driven by elevated claim severity, increased advertising spend and
    higher catastrophe losses, partially offset by earned premium growth.
    The underlying combined ratio* of 99.8 in the fourth quarter was in
    line with the prior year quarter.
  • Encompass brand net written premium increased 1.6% in the
    fourth quarter of 2018 compared to the prior year quarter. The
    recorded combined ratio of 102.0 in the fourth quarter of 2018 was 4.4
    points better than the prior year quarter. The underlying combined
    ratio* of 101.6 in the fourth quarter was 15.2 points higher than the
    prior year quarter, primarily due to current year reserve
    strengthening in auto insurance and adverse non-catastrophe weather
    related losses in homeowners insurance.
  • Service Businesses policies in force grew to 74.2 million, and
    revenues increased 27.1% compared to the prior year quarter. Adjusted
    net income was $6 million, an increase of $30 million compared to the
    prior year quarter.
 
Service Businesses Results
 

Three months ended

 

Twelve months ended

   

December 31,

 

December 31,

($ in millions) % / $ % / $
    2018 2017 Change   2018 2017 Change
Total Revenues   $ 356   $ 280   27.1 %   $ 1,318   $ 1,059   24.5 %
SquareTrade   137   90   52.2     509   297   71.4  
Allstate Roadside Services   74   73   1.4     302   307   (1.6 )
Allstate Dealer Services   105   97   8.2     403   376   7.2  
Arity   24   20   20.0     88   79   11.4  
InfoArmor   16     NA   16     NA
Adjusted Net Income / (Loss)   $ 6   $ (24 ) $ 30     $ 2   $ (59 ) $ 61  
SquareTrade   9   (11 ) 20     23   (22 ) 45  
Allstate Roadside Services   (7 ) (7 )     (23 ) (20 ) (3 )
Allstate Dealer Services   6     6     15   (2 ) 17  
Arity   (3 ) (6 ) 3     (14 ) (15 ) 1  
InfoArmor   1     NA   1     NA
 

NA = not applicable

  • SquareTrade revenue was $137 million in the fourth quarter,
    reflecting policy growth of 29.9 million compared to the fourth
    quarter of 2017 and the adoption of the new revenue recognition
    accounting standard. Adjusted net income was $9 million in the fourth
    quarter of 2018, due to improved loss experience.
  • Allstate Roadside Services had revenues of $74 million in the
    fourth quarter. The adjusted net loss of $7 million in the fourth
    quarter was comparable to the prior year quarter due to adverse loss
    experience and expenses associated with the provider network and
    technology.
  • Allstate Dealer Services revenue grew 8.2% compared to the
    fourth quarter of 2017, and adjusted net income was $6 million,
    reflecting improved loss experience.
  • Arity revenue was $24 million in the fourth quarter of 2018,
    primarily from contracts with affiliates. The adjusted net loss of $3
    million in the quarter includes investments in research and
    development.
  • InfoArmor, an identity protection provider acquired in October
    2018, had revenues of $16 million, and adjusted net income of $1
    million in the fourth quarter of 2018.
 
Allstate Life, Benefits and Annuities Results
  Three months ended   Twelve months ended
    December 31,   December 31,
($ in millions)   2018 2017

%
Change

  2018 2017 %
Change
Premiums and Contract Charges                
Allstate Life   $ 340   $ 324   4.9 %   $ 1,315   $ 1,280   2.7 %
Allstate Benefits   281   273   2.9     1,135   1,084   4.7  
Allstate Annuities   4   4       15   14   7.1  
Adjusted Net Income                
Allstate Life   $ 68   $ 57   19.3 %   $ 289   $ 253   14.2 %
Allstate Benefits   25   20   25.0     119   95   25.3  
Allstate Annuities   31   55   (43.6 )   130   204   (36.3 )
 
  • Allstate Life adjusted net income of $68 million in the fourth
    quarter of 2018 was 19.3% higher than the prior year quarter, driven
    by a lower effective tax rate and higher premiums and contract
    charges, partially offset by higher contract benefits.
  • Allstate Benefits adjusted net income was $25 million in the
    fourth quarter of 2018, $5 million higher than the prior year quarter,
    primarily due to increased premiums and a lower effective tax rate,
    partially offset by higher expenses.
  • Allstate Annuities adjusted net income was $31 million in the
    fourth quarter of 2018, $24 million lower than the prior year quarter,
    primarily due to lower performance-based investment income.
  • Allstate Investments $81 billion portfolio generated net
    investment income of $786 million in the fourth quarter, which
    declined $127 million from the prior year quarter due to lower
    performance-based income.
 
Allstate Investment Results
  Three months ended   Twelve months ended
    December 31,   December 31,
($ in millions, except ratios) % / pts % / pts
    2018 2017 Change   2018 2017 Change
Net investment income   $ 786   $ 913   (13.9 )   $ 3,240   $ 3,401   (4.7 )
Market-based investment income(1)   696   664   4.8     2,727   2,656   2.7  
Performance-based investment income(1)   145   296   (51.0 )   716   917   (21.9 )
Realized capital gains and losses(2)   (894 ) 127   NM   (877 ) 445   NM
Change in unrealized net capital gains, pre-tax(3)   (11 ) (120 ) NM   (1,434 ) 857   NM
Total return on investment portfolio   (0.2 )% 1.1 % (1.3 )   0.8 % 5.9 % (5.1 )
 

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

(2)Includes $840
million and $691 million of losses in the fourth quarter and in 2018,
respectively, due to the valuation of equity investments.

(3)Upon adoption of the recognition and measurement accounting
standard on January 1, 2018, $1.2 billion of unrealized net capital
gains for equity securities were reclassified to retained income.

NM
= not meaningful

  • Total return on the investment portfolio of -0.2% for the
    fourth quarter of 2018 and 0.8% for the year included a stable
    contribution from net investment income but was impacted by lower
    fixed income and equity valuations.
  • Market-based investments contributed $696 million of income in
    the fourth quarter of 2018, an increase of 4.8% compared to the prior
    year quarter, primarily from higher bond yields and duration extension
    of the fixed income portfolio.
  • Performance-based investments generated income of $145 million
    in the fourth quarter of 2018, a decrease of 51% over a strong prior
    year quarter, primarily reflecting a lower number of sales of
    underlying investments.
  • Net realized capital losses were $894 million in the fourth
    quarter of 2018, compared to gains of $127 million in the prior year
    quarter. Net realized losses for the quarter primarily related to
    lower valuation of equity investments.
  • Unrealized net capital gains decreased $11 million from the
    third quarter, as higher market yields resulted in lower fixed income
    valuations.

Proactive Capital Management

“Allstate provided excellent cash returns to shareholders in 2018 while
broadening our business model through acquisitions. We returned $2.8
billion to common shareholders through a combination of $2.2 billion in
common share repurchases and $614 million in common stock dividends,”
said Mario Rizzo, Chief Financial Officer. “We continued to
strategically deploy capital in the fourth quarter, redeeming $385
million of our Series C Preferred Stock, completing the $525 million
acquisition of InfoArmor and $30 million acquisition of PlumChoice, and
executing a $1 billion accelerated share repurchase program as part of
our $3 billion 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, February 6.

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
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
   

($ in millions, except par value data)

December 31, December 31,

 

2018 2017
Assets (unaudited)
Investments:
Fixed income securities, at fair value (amortized cost $57,134 and
$57,525)
$ 57,170 $ 58,992
Equity securities, at fair value (cost $4,489 and $5,461) 5,036 6,621
Mortgage loans 4,670 4,534
Limited partnership interests 7,505 6,740
Short-term, at fair value (amortized cost $3,027 and $1,944) 3,027 1,944
Other 3,852   3,972  
Total investments 81,260 82,803
Cash 499 617
Premium installment receivables, net 6,154 5,786
Deferred policy acquisition costs 4,784 4,191
Reinsurance recoverables, net 9,565 8,921
Accrued investment income 600 569
Property and equipment, net 1,045 1,072
Goodwill 2,530 2,181
Other assets 3,007 2,838
Separate Accounts 2,805   3,444  
Total assets $ 112,249   $ 112,422  
Liabilities
Reserve for property and casualty insurance claims and claims expense $ 27,423 $ 26,325
Reserve for life-contingent contract benefits 12,208 12,549
Contractholder funds 18,371 19,434
Unearned premiums 14,510 13,473
Claim payments outstanding 1,007 875
Deferred income taxes 425 782
Other liabilities and accrued expenses 7,737 6,639
Long-term debt 6,451 6,350
Separate Accounts 2,805   3,444  
Total liabilities 90,937   89,871  
Shareholders’ equity
Preferred stock and additional capital paid-in, $1 par value, 79.8
thousand and 72.2 thousand shares issued and outstanding, $1,995 and
$1,805 aggregate liquidation preference
1,930 1,746
Common stock, $.01 par value, 900 million issued, 332 million and
355 million shares outstanding
9 9
Additional capital paid-in 3,310 3,313
Retained income 45,708 43,162
Deferred ESOP expense (3 ) (3 )
Treasury stock, at cost (568 million and 545 million shares) (28,085 ) (25,982 )
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities
with OTTI
75 85
Other unrealized net capital gains and losses (51 ) 1,981
Unrealized adjustment to DAC, DSI and insurance reserves (26 ) (404 )
Unrealized net capital gains and losses (2 ) 1,662
Unrealized foreign currency translation adjustments (64 ) (9 )
Unrecognized pension and other postretirement benefit cost (1,491 ) (1,347 )
Total accumulated other comprehensive (loss) income (1,557 ) 306  
Total shareholders’ equity 21,312   22,551  
Total liabilities and shareholders’ equity $ 112,249   $ 112,422  
 
 
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
   
($ in millions, except per share data) Three months ended Twelve months ended
December 31, December 31,
2018   2017 2018   2017
(unaudited) (unaudited)
Revenues
Property and casualty insurance premiums $ 8,707 $ 8,202 $ 34,048 $ 32,300
Life premiums and contract charges 625 601 2,465 2,378
Other revenue 257 219 939 883
Net investment income 786 913 3,240 3,401
Realized capital gains and losses:
Total other-than-temporary impairment (“OTTI”) losses (5 ) (11 ) (13 ) (146 )
OTTI losses reclassified (from) to other comprehensive income 1   (2 ) (1 ) (4 )
Net OTTI losses recognized in earnings (4 ) (13 ) (14 ) (150 )
Sales and valuation changes on equity investments and derivatives (890 ) 140   (863 ) 595  
Total realized capital gains and losses (894 ) 127   (877 ) 445  
9,481   10,062   39,815   39,407  
 
Costs and expenses
Property and casualty insurance claims and claims expense 6,081 5,279 22,839 21,929
Life contract benefits 488 507 1,973 1,923
Interest credited to contractholder funds 165 168 654 690
Amortization of deferred policy acquisition costs 1,336 1,239 5,222 4,784
Operating costs and expenses 1,642 1,451 5,869 5,442
Amortization of purchased intangible assets 36 25 105 99
Restructuring and related charges 18 32 83 109
Goodwill impairment 125 125
Interest expense 81   84   332   335  
9,847   8,910   37,077   35,436  
 
Gain on disposition of operations 2   5   6   20  
 
Income from operations before income tax expense (364 ) 1,157 2,744 3,991
 
Income tax expense (95 ) (92 ) 492   802  
 
Net income (269 ) 1,249   2,252   3,189  
 
Preferred stock dividends 43   29   148   116  
 
Net (loss) income applicable to common shareholders $ (312 ) $ 1,220   $ 2,104   $ 3,073  
 
Earnings per common share:
 
Net (loss) income applicable to common shareholders per common
share – Basic
$ (0.91 ) $ 3.41   $ 6.05   $ 8.49  
 
Weighted average common shares – Basic 341.9   357.5   347.8   362.0  
 
Net (loss) income applicable to common shareholders per common
share – Diluted
$ (0.91 ) $ 3.35   $ 5.96   $ 8.36  
 
Weighted average common shares – Diluted 347.1   363.8   353.2   367.8  
 

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:

  • realized capital gains and losses, after-tax, except for periodic
    settlements and accruals on non-hedge derivative instruments, which
    are reported with realized capital gains and losses but included in
    adjusted net income,
  • valuation changes on embedded derivatives not hedged, after-tax,
  • amortization of deferred policy acquisition costs (“DAC”) and deferred
    sales inducements (“DSI”), to the extent they resulted from the
    recognition of certain realized capital gains and losses or valuation
    changes on embedded derivatives not hedged, after-tax,
  • business combination expenses and the amortization of purch

Contacts

Greg Burns
Media Relations
(847) 402-5600

John Griek
Investor
Relations
(847) 402-2800

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