Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Allstate Quickly Adapts to Pandemic and Delivers Excellent Operating Results


The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2020.

The Allstate Corporation Consolidated Highlights

 

Three months ended June 30,

 

Six months ended June 30,

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

2020

2019

% / pts

Change

 

2020

2019

% / pts

Change

Consolidated revenues

$

11,197

 

$

11,144

 

0.5

 

 

$

21,273

 

$

22,134

 

(3.9

)

Net income applicable to common shareholders

1,224

 

821

 

49.1

 

 

1,737

 

2,082

 

(16.6

)

per diluted common share

3.86

 

2.44

 

58.2

 

 

5.43

 

6.17

 

(12.0

)

Adjusted net income*

780

 

735

 

6.1

 

 

1,920

 

1,511

 

27.1

 

per diluted common share*

2.46

 

2.18

 

12.8

 

 

6.00

 

4.48

 

33.9

 

Return on common shareholders' equity (trailing twelve months)

 

 

 

 

 

Net income applicable to common shareholders

 

 

 

 

18.2

%

11.2

%

7.0

 

Adjusted net income*

 

 

 

 

17.9

%

13.5

%

4.4

 

Book value per common share

 

 

 

 

79.21

 

67.28

 

17.7

 

Property-Liability combined ratio

 

 

 

 

 

 

 

Recorded

89.8

 

95.8

 

(6.0

)

 

87.3

 

93.8

 

(6.5

)

Underlying combined ratio*

76.8

 

84.4

 

(7.6

)

 

79.5

 

84.3

 

(4.8

)

Property-Liability insurance premiums earned

8,863

 

8,681

 

2.1

 

 

17,744

 

17,188

 

3.2

 

Catastrophe losses

1,186

 

1,072

 

10.6

 

 

1,397

 

1,752

 

(20.3

)

Shelter-in-Place Payback expense

738

 

?

 

NA

 

 

948

 

?

 

NA

 

Total policies in force (in thousands)

 

 

 

 

167,540

 

130,131

 

28.7

 

*

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.

NA = not applicable

"Allstate's strong results reflect a resilient strategy and rapid adaptation to the coronavirus pandemic," said Tom Wilson, Chair, President and CEO of The Allstate Corporation. "Customer satisfaction increased as we maintained high service levels and helped customers, including almost $1.0 billion in Shelter-in-Place Payback, payment deferrals and extended coverage. The Allstate brand personal property-liability Transformative Growth Plan is gaining momentum with broader customer access and continued expense ratio reductions, excluding the impacts of customer-facing coronavirus programs. Allstate Protection Plans continued its rapid growth through major retailers with policies in force increasing 43% from the prior year to over 120 million. The independent agent personal property-liability business' strategic position will be significantly improved with the pending acquisition of National General Holdings Corp., which will be accretive to earnings."

"Financial results for the quarter were excellent, with revenues of $11.2 billion generating net income of $1.2 billion and adjusted net income* of $2.46 per common share. The Property-Liability combined ratio was 89.8 in the second quarter, which more than offset the negative pandemic impact on reported investment income and life mortality. The total return on the $89.6 billion investment portfolio was 5.0% in the quarter and 5.7% over the last 12 months. Allstate Protection Plans' adjusted net income of $35 million in the quarter was 84% higher than the prior year quarter. Shareholders also benefited from the 17.9% adjusted net income return on equity* with $563 million of dividends and share repurchases in the quarter," concluded Wilson.

Second Quarter 2020 Results

Property-Liability Results

 

Three months ended June 30,

 

Six months ended June 30,

($ in millions, except ratios)

2020

2019

% / pts

Change

 

2020

2019

% / pts

Change

Premiums written

9,172

 

9,043

 

1.4

%

 

17,764

 

17,370

 

2.3

%

Underwriting income

904

 

367

 

146.3

 

 

2,249

 

1,067

 

110.8

 

 

 

 

 

 

 

 

 

Recorded Combined Ratio

89.8

 

95.8

 

(6.0

)

 

87.3

 

93.8

 

(6.5

)

Allstate Brand Auto

83.9

 

92.8

 

(8.9

)

 

86.0

 

91.6

 

(5.6

)

Allstate Brand Homeowners

106.1

 

104.3

 

1.8

 

 

88.6

 

98.3

 

(9.7

)

Esurance Brand

86.2

 

100.6

 

(14.4

)

 

91.3

 

100.0

 

(8.7

)

Encompass Brand

97.6

 

97.2

 

0.4

 

 

96.1

 

99.0

 

(2.9

)

 

 

 

 

 

 

 

 

Underlying Combined Ratio*

76.8

 

84.4

 

(7.6

)

 

79.5

 

84.3

 

(4.8

)

Allstate Brand Auto

82.5

 

91.1

 

(8.6

)

 

85.1

 

90.7

 

(5.6

)

Allstate Brand Homeowners

60.1

 

62.1

 

(2.0

)

 

61.0

 

62.9

 

(1.9

)

Esurance Brand

82.4

 

96.2

 

(13.8

)

 

89.0

 

96.8

 

(7.8

)

Encompass Brand

74.7

 

89.8

 

(15.1

)

 

82.3

 

89.2

 

(6.9

)

Allstate Investment Results

 

Three months ended June 30,

 

Six months ended June 30,

($ in millions, except ratios)

2020

2019

% / pts

Change

 

2020

2019

% / pts

Change

Net investment income

$

409

 

$

942

 

(56.6

)

 

$

830

 

$

1,590

 

(47.8

)

Market-based investment income(1)

654

 

731

 

(10.5

)

 

1,328

 

1,424

 

(6.7

)

Performance-based investment (loss) income(1)

(211

)

261

 

NM

 

 

(419

)

267

 

NM

 

Realized capital gains (losses)

704

 

324

 

117.3

 

 

242

 

986

 

(75.5

)

Change in unrealized net capital gains and losses, pre-tax

2,997

 

1,104

 

171.5

 

 

1,160

 

2,439

 

(52.4

)

Total return on investment portfolio

5.0

%

2.8

%

2.2

 

 

2.6

%

6.1

%

(3.5

)

Total return on investment portfolio (trailing twelve months)

 

 

 

 

5.7

%

7.0

%

(1.3

)

(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 June 30,

 

Six months ended June 30,

($ in millions)

2020

2019

%
Change

 

2020

2019

%
Change

Premiums and Contract Charges

 

 

 

 

 

 

 

Allstate Life

$

339

 

$

333

 

1.8

%

 

$

672

 

$

670

 

0.3

%

Allstate Benefits

263

 

284

 

(7.4

)

 

545

 

572

 

(4.7

)

Allstate Annuities

2

 

4

 

(50.0

)

 

4

 

7

 

(42.9

)

Adjusted Net Income (Loss)

 

 

 

 

 

 

 

Allstate Life

$

72

 

$

68

 

5.9

%

 

$

152

 

$

141

 

7.8

%

Allstate Benefits

5

 

37

 

(86.5

)

 

29

 

68

 

(57.4

)

Allstate Annuities

(111

)

52

 

NM

 

 

(250

)

27

 

NM

 

Service Businesses Results

 

Three months ended June 30,

 

Six months ended June 30,

($ in millions)

2020

2019

% / $

Change

 

2020

2019

% / $
Change

Total Revenues

$

476

 

$

405

 

17.5

%

 

$

906

 

$

797

 

13.7

%

Allstate Protection Plans

241

 

170

 

41.8

 

 

441

 

334

 

32.0

 

Allstate Dealer Services

128

 

114

 

12.3

 

 

240

 

221

 

8.6

 

Allstate Roadside Services

53

 

73

 

(27.4

)

 

113

 

146

 

(22.6

)

Arity

26

 

25

 

4.0

 

 

56

 

49

 

14.3

 

Allstate Identity Protection

28

 

23

 

21.7

 

 

56

 

47

 

19.1

 

Adjusted Net Income (Loss)

$

38

 

$

16

 

$

22

 

 

$

75

 

$

27

 

$

48

 

Allstate Protection Plans

35

 

19

 

16

 

 

69

 

33

 

36

 

Allstate Dealer Services

8

 

7

 

1

 

 

15

 

13

 

2

 

Allstate Roadside Services

2

 

(3

)

5

 

 

4

 

(9

)

13

 

Arity

(3

)

(1

)

(2

)

 

(6

)

(3

)

(3

)

Allstate Identity Protection

(4

)

(6

)

2

 

 

(7

)

(7

)

?

 

Proactive Capital Management

"Allstate's strong capital position and earnings power enable us to invest in profitable growth and provide ongoing cash returns to our shareholders," said Mario Rizzo, Chief Financial Officer. "In the second quarter, we returned $563 million in cash to shareholders through $172 million in common shareholder dividends and the repurchase of $391 million in common shares. We also announced an agreement to acquire National General Holdings Corp., which will enhance our strategic position in the independent agent channel. The acquisition will not impact our $3 billion share repurchase program, which is expected to be completed by the end of 2021."

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 a.m. ET on Wednesday, August 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," "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)

 

June 30,
2020

 

December 31,
2019

Assets

 

 

 

Investments:

 

 

 

Fixed income securities, at fair value (amortized cost, net $60,534 and $56,293)

$

64,448

 

 

$

59,044

 

Equity securities, at fair value (cost $3,817 and $6,568)

4,212

 

 

8,162

 

Mortgage loans, net

4,774

 

 

4,817

 

Limited partnership interests

6,941

 

 

8,078

 

Short-term, at fair value (amortized cost $5,343 and $4,256)

5,344

 

 

4,256

 

Other, net

3,918

 

 

4,005

 

Total investments

89,637

 

 

88,362

 

Cash

547

 

 

338

 

Premium installment receivables, net

6,367

 

 

6,472

 

Deferred policy acquisition costs

4,683

 

 

4,699

 

Reinsurance and indemnification recoverables, net

9,290

 

 

9,211

 

Accrued investment income

605

 

 

600

 

Property and equipment, net

1,100

 

 

1,145

 

Goodwill

2,544

 

 

2,545

 

Other assets, net

3,587

 

 

3,534

 

Separate Accounts

2,906

 

 

3,044

 

Total assets

$

121,266

 

 

$

119,950

 

Liabilities

 

 

 

Reserve for property and casualty insurance claims and claims expense

$

27,426

 

 

$

27,712

 

Reserve for life-contingent contract benefits

12,471

 

 

12,300

 

Contractholder funds

17,396

 

 

17,692

 

Unearned premiums

15,448

 

 

15,343

 

Claim payments outstanding

882

 

 

929

 

Deferred income taxes

842

 

 

1,154

 

Other liabilities and accrued expenses

10,275

 

 

9,147

 

Long-term debt

6,634

 

 

6,631

 

Separate Accounts

2,906

 

 

3,044

 

Total liabilities

94,280

 

 

93,952

 

Shareholders' equity

 

 

 

Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 81.0 thousand and 92.5 thousand shares issued and outstanding, $2,025 and $2,313 aggregate liquidation preference

1,970

 

 

2,248

 

Common stock, $.01 par value, 3.0 billion shares authorized and 900 million issued, 313 million and 319 million shares outstanding

9

 

 

9

 

Additional capital paid-in

3,541

 

 

3,463

 

Retained income

49,380

 

 

48,074

 

Treasury stock, at cost (587 million and 581 million shares)

(30,542

)

 

(29,746

)

Accumulated other comprehensive income:

 

 

 

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

(1

)

 

70

 

Other unrealized net capital gains and losses

3,079

 

 

2,094

 

Unrealized adjustment to DAC, DSI and insurance reserves

(476

)

 

(277

)

Total unrealized net capital gains and losses

2,602

 

 

1,887

 

Unrealized foreign currency translation adjustments

(89

)

 

(59

)

Unamortized pension and other postretirement prior service credit

115

 

 

122

 

Total accumulated other comprehensive income

2,628

 

 

1,950

 

Total shareholders' equity

26,986

 

 

25,998

 

Total liabilities and shareholders' equity

$

121,266

 

 

$

119,950

 

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

($ in millions, except per share data)

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Property and casualty insurance premiums

$

9,223

 

 

$

8,986

 

 

$

18,458

 

 

$

17,788

 

Life premiums and contract charges

604

 

 

621

 

 

1,221

 

 

1,249

 

Other revenue

257

 

 

271

 

 

522

 

 

521

 

Net investment income

409

 

 

942

 

 

830

 

 

1,590

 

Realized capital gains (losses)

704

 

 

324

 

 

242

 

 

986

 

Total revenues

11,197

 

 

11,144

 

 

21,273

 

 

22,134

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

Property and casualty insurance claims and claims expense

5,222

 

 

6,356

 

 

10,563

 

 

12,176

 

Shelter-in-Place Payback expense

738

 

 

?

 

 

948

 

 

?

 

Life contract benefits

497

 

 

511

 

 

998

 

 

1,008

 

Interest credited to contractholder funds

200

 

 

156

 

 

332

 

 

318

 

Amortization of deferred policy acquisition costs

1,349

 

 

1,362

 

 

2,750

 

 

2,726

 

Operating costs and expenses

1,451

 

 

1,380

 

 

2,850

 

 

2,760

 

Pension and other postretirement remeasurement (gains) losses

73

 

 

125

 

 

391

 

 

140

 

Restructuring and related charges

14

 

 

9

 

 

19

 

 

27

 

Amortization of purchased intangibles

29

 

 

32

 

 

57

 

 

64

 

Impairment of purchased intangibles

?

 

 

55

 

 

?

 

 

55

 

Interest expense

79

 

 

82

 

 

160

 

 

165

 

Total costs and expenses

9,652

 

 

10,068

 

 

19,068

 

 

19,439

 

 

 

 

 

 

 

 

 

Gain on disposition of operations

1

 

 

2

 

 

2

 

 

3

 

 

 

 

 

 

 

 

 

Income from operations before income tax expense

1,546

 

 

1,078

 

 

2,207

 

 

2,698

 

 

 

 

 

 

 

 

 

Income tax expense

296

 

 

227

 

 

408

 

 

555

 

 

 

 

 

 

 

 

 

Net income

1,250

 

 

851

 

 

1,799

 

 

2,143

 

 

 

 

 

 

 

 

 

Preferred stock dividends

26

 

 

30

 

 

62

 

 

61

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders

$

1,224

 

 

$

821

 

 

$

1,737

 

 

$

2,082

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share ? Basic

$

3.90

 

 

$

2.47

 

 

$

5.50

 

 

$

6.27

 

 

 

 

 

 

 

 

 

Weighted average common shares ? Basic

313.7

 

 

332.0

 

 

315.6

 

 

332.3

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders per common share ? Diluted

$

3.86

 

 

$

2.44

 

 

$

5.43

 

 

$

6.17

 

 

 

 

 

 

 

 

 

Weighted average common shares ? Diluted

317.0

336.9

319.8

337.2

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 June 30,

 

Consolidated

 

Per diluted common share

 

2020

 

2019

 

2020

 

2019

Net income applicable to common shareholders

$

1,224

 

 

$

821

 

 

$

3.86

 

 

$

2.44

 

Realized capital (gains) losses, after-tax

(554

)

 

(256

)

 

(1.75

)

 

(0.76

)

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

58

 

 

99

 

 

0.18

 

 

0.29

 

Valuation changes on embedded derivatives not hedged, after-tax

41

 

 

2

 

 

0.13

 

 

?

 

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

(11

)

 

1

 

 

(0.03

)

 

?

 

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

23

 

 

26

 

 

0.07

 

 

0.08

 

Impairment of purchased intangibles, after-tax

?

 

 

43

 

 

?

 

 

0.13

 

Gain on disposition of operations, after-tax

(1

)

 

(1

)

 

?

 

 

?

 

Adjusted net income*

$

780

 

 

$

735

 

 

$

2.46

 

 

$

2.18

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

Consolidated

 

Per diluted common share

 

2020

 

2019

 

2020

 

2019

Net income applicable to common shareholders

$

1,737

 

 

$

2,082

 

 

$

5.43

 

 

$

6.17

 

Realized capital (gains) losses, after-tax

(188

)

 

(780

)

 

(0.59

)

 

(2.31

)

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

309

 

 

110

 

 

0.97

 

 

0.33

 

Valuation changes on embedded derivatives not hedged, after-tax

27

 

 

5

 

 

0.08

 

 

0.01

 

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

(8

)

 

3

 

 

(0.02

)

 

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

45

 

 

51

 

 

0.14

 

 

0.15

 

Impairment of purchased intangibles, after-tax

?

 

 

43

 

 

?

 

 

0.13

 

Gain on disposition of operations, after-tax

(2

)

 

(2

)

 

(0.01

)

 

(0.01

)

Adjusted net income*

$

1,920

 

 

$

1,511

 

 

$

6.00

 

 

$

4.48

 

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 June 30,

 

2020

 

2019

Return on common shareholders' equity

 

 

 

Numerator:

 

 

 

Net income applicable to common shareholders

$

4,333

 

 

$

2,439

 

Denominator:

 

 

 

Beginning common shareholders' equity (1)

$

22,546

 

 

$

20,819

 

Ending common shareholders' equity (1)

25,016

 

 

22,546

 

Average common shareholders' equity

$

23,781

 

 

$

21,683

 

Return on common shareholders' equity

18.2

%

 

11.2

%

 

($ in millions)

For the twelve months ended June 30,

 

2020

 

2019

Adjusted net income return on common shareholders' equity

 

 

 

Numerator:

 

 

 

Adjusted net income *

$

3,886

 

 

$

2,822

 

 

 

 

 

Denominator:

 

 

 

Beginning common shareholders' equity (1)

$

22,546

 

 

$

20,819

 

Less: Unrealized net capital gains and losses

1,654

 

 

54

 

Adjusted beginning common shareholders' equity

20,892

 

 

20,765

 

 

 

 

 

Ending common shareholders' equity (1)

25,016

 

 

22,546

 

Less: Unrealized net capital gains and losses

2,602

 

 

1,654

 

Adjusted ending common shareholders' equity

22,414

 

 

20,892

 

Average adjusted common shareholders' equity

$

21,653

 

 

$

20,829

 

Adjusted net income return on common shareholders' equity *

17.9

%

 

13.5

%

_____________

(1)

Excludes equity related to preferred stock of $1,970 million as of June 30, 2020, $1,930 million as of June 30, 2019 and $2,303 million as of June 30, 2018.

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
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

89.8

 

 

95.8

 

 

87.3

 

 

93.8

 

Effect of catastrophe losses

(13.4

)

 

(12.3

)

 

(7.9

)

 

(10.2

)

Effect of prior year non-catastrophe reserve reestimates

0.4

 

 

0.9

 

 

0.1

 

 

0.7

 

Underlying combined ratio*

76.8

 

 

84.4

 

 

79.5

 

 

84.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

0.3

 

 

?

 

 

?

 

 

0.3

 

 

Allstate brand - Total

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

89.7

 

 

95.4

 

 

86.8

 

 

93.2

 

Effect of catastrophe losses

(13.7

)

 

(13.0

)

 

(8.1

)

 

(10.7

)

Effect of prior year non-catastrophe reserve reestimates

0.5

 

 

1.0

 

 

0.1

 

 

0.8

 

Underlying combined ratio*

76.5

 

 

83.4

 

 

78.8

 

 

83.3

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

0.3

 

 

?

 

 

0.1

 

 

0.3

 

 

Allstate brand - Auto Insurance

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

83.9

 

 

92.8

 

 

86.0

 

 

91.6

 

Effect of catastrophe losses

(2.2

)

 

(3.3

)

 

(1.2

)

 

(2.3

)

Effect of prior year non-catastrophe reserve reestimates

0.8

 

 

1.6

 

 

0.3

 

 

1.4

 

Underlying combined ratio*

82.5

 

 

91.1

 

 

85.1

 

 

90.7

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

(0.1

)

 

(0.1

)

 

?

 

 

Allstate brand - Homeowners Insurance

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

106.1

 

 

104.3

 

 

88.6

 

 

98.3

 

Effect of catastrophe losses

(46.3

)

 

(42.6

)

 

(27.7

)

 

(35.5

)

Effect of prior year non-catastrophe reserve reestimates

0.3

 

 

0.4

 

 

0.1

 

 

0.1

 

Underlying combined ratio*

60.1

 

 

62.1

 

 

61.0

 

 

62.9

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

1.4

 

 

0.3

 

 

0.6

 

 

1.3

 

 

Esurance brand ? Total

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

86.2

 

 

100.6

 

 

91.3

 

 

100.0

 

Effect of catastrophe losses

(3.4

)

 

(4.8

)

 

(2.0

)

 

(3.0

)

Effect of prior year non-catastrophe reserve reestimates

(0.2

)

 

0.4

 

 

(0.2

)

 

(0.1

)

Effect of amortization of purchased intangibles

(0.2

)

 

?

 

 

(0.1

)

 

(0.1

)

Underlying combined ratio*

82.4

 

 

96.2

 

 

89.0

 

 

96.8

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

?

 

 

0.4

 

 

?

 

 

0.2

 

 

Encompass brand - Total

Three months ended
June 30,

 

Six months ended
June 30,

 

2020

 

2019

 

2020

 

2019

Combined ratio

97.6

 

 

97.2

 

 

96.1

 

 

99.0

 

Effect of catastrophe losses

(23.3

)

 

(10.2

)

 

(13.9

)

 

(11.0

)

Effect of prior year non-catastrophe reserve reestimates

0.4

 

 

2.8

 

 

0.1

 

 

1.2

 

Underlying combined ratio*

74.7

 

 

89.8

 

 

82.3

 

 

89.2

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

?

 

 

1.6

 

 

(0.4

)

 

1.6

 

 


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