Allstate Addresses Impact of Supply Chain Disruptions

Transformative Growth positions for continued success

NORTHBROOK, Ill.--(BUSINESS WIRE)--The Allstate Corporation (NYSE: ALL) today reported financial results for the third quarter of 2021.

“Allstate’s operational expertise enables us to address inflation in auto repair costs while executing our Transformative Growth strategy,” said Tom Wilson, Chair, President and CEO of The Allstate Corporation. “Auto insurance had an underwriting loss in the quarter as supply chain disruptions drove rapid price increases for used cars and original equipment parts. Auto insurance did generate attractive margins for the first nine months of the year, and we are filing for rate increases to maintain historical profitability levels. Performance-based investment income increased by $308 million reflecting the strategic decision to increase these investments, which offsets some of the decline in quarterly underwriting income. Transformative Growth is lowering expenses, providing further protection from increased loss costs. The catastrophe risk and return strategy also benefited results as nearly $1 billion of net reinsurance recoveries offset the impact of increased severe weather, including Hurricane Ida. In the quarter, revenues of $12.5 billion generated net income of $508 million and adjusted net income* earnings per share of $0.73.”

“In addition to offsetting short-term volatility, our ongoing strategic initiatives have increased long-term value. Transformative Growth continued to reduce costs, allowing us to provide more competitive prices. Expanded customer access has increased Allstate brand auto new business by 5% and direct sales increased to 30% of auto insurance sales in the quarter, which more than offset a slight decline in existing Allstate agent productivity. The National General acquisition is ahead of cost savings and growth goals and will increase our total market share by one percentage point this year. Allstate Protection Plans rapidly grew by leveraging retail distribution and the Allstate brand. The strategies for Allstate Health and Benefits, Roadside, Identity Protection and Arity are also on track. The Allstate Life Insurance Company divestiture closed earlier this week and combined with the previously announced divestiture of Allstate Life Insurance Company of New York increased deployable capital by $1.7 billion. The strategy to increase market share in personal property-liability and expand protection solutions is working,” concluded Wilson.

Third Quarter 2021 Results

• Total revenues of $12.5 billion in the third quarter of 2021 increased 16.9% compared to the prior year quarter, reflecting higher earned premiums from National General, Allstate brand homeowners premium growth and increased net investment income. Protection Services revenues also increased, reflecting a 23.9% increase for Allstate Protection Plans compared to the prior year quarter.

• Net income applicable to common shareholders of $508 million in the third quarter of 2021 decreased $618 million compared to the prior year quarter, primarily driven by lower underwriting income partially offset by a $300 million increase in net investment income.

• Adjusted net income* of $217 million, or $0.73 per diluted share, decreased $683 million compared to the prior year quarter. The decrease reflects higher non-catastrophe losses in auto and homeowners insurance and increased catastrophe losses, partially offset by higher earned premiums.

• Property-Liability written premium of $11.0 billion increased 16.7% in the third quarter of 2021 compared to the prior year quarter, primarily driven by the addition of National General and Allstate brand homeowners growth. The recorded combined ratio of 105.3 generated an underwriting loss of $534 million, compared to income of $752 million in the prior year quarter. This was primarily driven by higher non-catastrophe losses in auto and homeowners insurance and increased catastrophe losses, partially offset by increased premiums.
  • Underwriting income was impacted by non-catastrophe prior year reserve strengthening of $162 million in the third quarter of 2021, which increased the combined ratio by 1.6 points. This includes $111 million related to asbestos, environmental and other reserves in the Run-off Property-Liability segment as a result of our annual comprehensive reserve review.

  • The underlying combined ratio* of 90.4 for the third quarter of 2021 was 10.7 points above the prior year quarter, reflecting higher non-catastrophe losses primarily driven by higher incurred auto and homeowners claims severity due to increased inflationary impacts and higher auto accident frequency.

  • Cost reductions implemented in 2020 and continuing in 2021 provide operational flexibility to improve customer value and competitive price position. The underlying expense ratio*, which excludes the amortization of purchased intangibles, decreased by 0.6 points compared to the prior year quarter. The decline was driven by lower restructuring and related charges, partially offset by higher advertising expenses. Increased claims process efficiency and expanded digital capabilities continue to drive lower loss adjustment expenses while improving the customer experience. The long-term goal is to further reduce the adjusted expense ratio* (which includes underwriting and claims) by 3 percent of premiums.

  • Allstate Protection auto insurance net written premium increased 13.4%, and policies in force increased 14.7% compared to the prior year quarter, driven by the acquisition of National General and increased new issued applications. Allstate brand auto net written premiums declined slightly from the prior year quarter as increased policies in force were offset by lower average premiums.

    The recorded auto insurance combined ratio of 102.3 in the third quarter of 2021 was 16.9 points above the prior year quarter, and the underlying combined ratio* of 97.6 was 13.3 points above the prior year quarter, primarily due to an increase in the loss ratio. The auto loss ratio increase was driven by higher claim severity from rising inflationary impacts and increased accident frequency as miles driven rebound toward pre-pandemic levels. While frequency increased relative to the prior year, it remains below pre-pandemic levels. The third quarter combined ratio for auto insurance was also impacted by 2.2 points for reserve strengthening for the first two quarters of 2021. Unfavorable non-catastrophe prior year reserve reestimates also contributed to the higher loss ratio, adding 1.1 points in the quarter.

    Auto insurance loss costs increased primarily due to higher used car values and replacement parts costs. Used car values began increasing above the Consumer Price Index (CPI) in late 2020, which accelerated in 2021 resulting in an increase of approximately 44% in the third quarter 2021 compared to the end of 2018. Similarly, original equipment parts prices have dramatically increased and are now up approximately 17% over the same period, approximately twice the core CPI.

  • Allstate Protection homeowners insurance net written premium grew 28.4%, and policies in force increased 7.6% compared to the third quarter of 2020, due to the addition of National General and Allstate brand growth. Allstate brand net written premium increased 9.8% compared to the prior year quarter, driven by policies in force growth and higher average premiums due to inflation in insured home valuations and approved rate increases.

    The recorded homeowners insurance combined ratio of 111.0 in the third quarter of 2021 increased 7.8 points above the prior year quarter, and the underlying combined ratio* of 71.6 increased 6.8 points compared to the third quarter of 2020. The increases were primarily driven by higher severity due to inflation in labor and material costs and the inclusion of National General’s results, partially offset by higher average premium.

    Catastrophe losses were $1.27 billion in the third quarter with approximately 75% related to homeowners insurance. This includes 45 events, the largest of which was Hurricane Ida. Hurricane Ida gross and net losses were $1.5 billion and $689 million, respectively. Net losses include reinsurance recoveries of $986 million and reinstatement premiums of $181 million.

• Protection Services revenues increased to $597 million in the third quarter of 2021, 23.3% higher than the prior year quarter, and written premium of $651 million increased by 34.2% primarily driven by continued Allstate Protection Plans growth. Adjusted net income of $45 million increased by $5 million compared to the prior year quarter, due to higher profitability at Allstate Identity Protection and Arity.
  • Allstate Protection Plans revenue of $311 million increased $60 million, or 23.9%, compared to the prior year quarter, reflecting increased policies in force. Written premium of $439 million increased 46.3% compared to the prior year quarter, driven by the launch with the Home Depot in the first quarter, and are approximately 5.5 times higher since the acquisition in 2017. Adjusted net income of $32 million in the third quarter of 2021 was $4 million lower than the prior year quarter, driven by restructuring charges and investments in growth.

  • Allstate Dealer Services revenue of $129 million was 6.6% higher than the third quarter of 2020, driven by increased sales and the impact of lower volumes in the third quarter of 2020 from impacts of the pandemic. Adjusted net income of $7 million in the third quarter was comparable to the prior year quarter.

  • Allstate Roadside revenue of $64 million in the third quarter of 2021 increased 8.5% compared to the prior year quarter, driven by the impact of lower rescue volumes in the third quarter of 2020 from impacts of the pandemic. Margins declined slightly due to capacity constraints with third party tow providers and the proprietary “gig” Good Hands Rescue Network. Adjusted net income of $1 million in the third quarter of 2021 was $3 million below the prior year quarter.

  • Arity revenue of $62 million increased $37 million compared to the prior year quarter, primarily driven by the inclusion of Transparent.ly and LeadCloud as a result of the National General acquisition, and increased device sales driven by growth in the Allstate brand Milewise^® product. Adjusted net income of $1 million in the third quarter of 2021 improved $4 million compared to the prior year quarter. Arity continues to expand its data acquisition platform with over 600 billion miles of traffic data being used to serve an increasing number of insurance and third-party application customers.

  • Allstate Identity Protection revenue of $31 million in the third quarter of 2021 increased 10.7% compared to the prior year quarter and policies in force increased by 28.4% to 3.2 million. Adjusted net income of $4 million in the third quarter of 2021 increased $8 million compared to the prior year quarter primarily driven by timing of expenses and a one-time expense benefit.

• Allstate Health and Benefits premiums and contract charges increased 60.3% compared to the prior year quarter, primarily due to the addition of group health and individual accident and health businesses acquired with National General. Adjusted net income of $33 million in the third quarter of 2021 was comparable to the third quarter of 2020 as income from the addition of National General was offset by a higher benefit ratio compared to the prior year quarter, when benefit utilization was lower due to the pandemic.

• Allstate Investments $61.8 billion portfolio generated net investment income of $764 million in the third quarter of 2021, an increase of $300 million from the prior year quarter, driven by higher performance-based income.
  • Market-based investment income contributed $352 million of investment income in the third quarter of 2021, a decrease of $6 million, or 1.7%, compared to the prior year quarter as the impact of low reinvestment rates was largely mitigated by higher average assets under management and prepayment fee income.

  • Performance-based investment income totaled $437 million in the third quarter of 2021, an increase of $308 million compared to the prior year quarter, primarily due to higher private equity investment valuations. These results represent a long-term and broad approach to growth investing with nearly 90% of year-to-date performance-based income coming from assets with inception years of 2018 and prior. Approximately half of the total year-to-date performance-based income was generated by 25 individual investments.

  • Net realized capital gains were $105 million in the third quarter of 2021, compared to $319 million in the prior year quarter, primarily due to lower gains on sales of fixed income securities and a net loss on the valuation of equity investments in the current quarter compared to gains in the prior year quarter.

  • Unrealized net capital losses were $302 million in the third quarter of 2021 as an increase in interest rates resulted in lower fixed income valuations.

  • Total return on the investment portfolio was 1.0% and 3.3% for the third quarter and year-to-date periods of 2021, respectively.

• Discontinued Operations generated $325 million of income in the third quarter of 2021, primarily driven by a decrease in the loss on disposal and higher performance-based income. In the first quarter of 2021, the assets and liabilities of Allstate Life Insurance Company and Allstate Life Insurance Company of New York were reclassified as held for sale with results presented as discontinued operations. This includes $36.8 billion of assets and $32.4 billion of liabilities as of September 30, 2021.

  On October 1, 2021 Allstate closed on the sale of Allstate Life Insurance Company of New York to Wilton Re, and on November 1, 2021 closed on the sale of Allstate Life Insurance Company to entities managed by Blackstone. These transactions generated combined proceeds of approximately $4.4 billion. Allstate agents and financial specialists will meet customers’ needs primarily by offering a full suite of life insurance and retirement solutions from third-party providers.

Proactive Capital Management

“Allstate’s proactive capital deployment provides top tier cash returns to shareholders while funding growth,” said Mario Rizzo, Chief Financial Officer. “Through a combination of dividends and share repurchases, Allstate returned nearly $1.5 billion to shareholders in the third quarter. This included executing a $750 million accelerated share repurchase program as part of the current $5 billion authorization. Earlier this week the previously announced divestiture of Allstate Life Insurance Company was completed, which combined with the sale of Allstate Life Insurance Company of New York, increased deployable capital by $1.7 billion and reduced interest rate risk. SafeAuto was acquired on October 1, 2021 to consolidate into National General’s platform, further increasing personal lines market share,” concluded Rizzo.

Visit www.allstateinvestors.com for additional information about Allstate’s results, including a webcast of its quarterly conference call and the call presentation. The conference call will be at 9 a.m. ET on Thursday, November 4. 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,” “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.

Contacts

Al Scott

Media Relations

(847) 402-5600

Mark Nogal

Investor Relations

(847) 402-2800

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