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

Allstate Addresses Impact of Supply Chain Disruptions


The Allstate Corporation (NYSE: ALL) today reported financial results for the third quarter of 2021.

The Allstate Corporation Consolidated Highlights

 

Three months ended September 30,

 

Nine months ended September 30,

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

2021

2020

% / pts
Change

 

2021

2020

% / pts
Change

Consolidated revenues

$

12,480

 

$

10,678

 

16.9

%

 

$

37,577

 

$

30,947

 

21.4

%

Net income applicable to common shareholders

508

 

1,126

 

(54.9)

 

 

695

 

2,863

 

(75.7)

 

per diluted common share

1.71

 

3.58

 

(52.2)

 

 

2.30

 

9.01

 

(74.5)

 

Adjusted net income*

217

 

900

 

(75.9)

 

 

3,237

 

2,918

 

10.9

 

per diluted common share*

0.73

 

2.87

 

(74.6)

 

 

10.70

 

9.18

 

16.6

 

Return on Allstate common shareholders' equity (trailing twelve months)

 

 

 

 

 

Net income applicable to common shareholders

 

 

 

 

13.2

%

18.9

%

(5.7)

 

Adjusted net income*

 

 

 

 

21.2

%

17.9

%

3.3

 

Book value per common share

 

 

 

 

84.62

 

82.39

 

2.7

 

Property-Liability combined ratio

 

 

 

 

 

 

 

Recorded

105.3

 

91.6

 

13.7

 

 

94.8

 

88.8

 

6.0

 

Underlying combined ratio*

90.4

 

79.7

 

10.7

 

 

84.5

 

79.6

 

4.9

 

Property-Liability insurance premiums earned

10,159

 

8,952

 

13.5

 

 

30,064

 

26,696

 

12.6

 

Catastrophe losses

1,269

 

990

 

28.2

 

 

2,811

 

2,387

 

17.8

 

Shelter-in-Place Payback expense

?

 

?

 

?

 

 

29

 

948

 

(96.9)

 

Total policies in force (in thousands)

 

 

 

 

191,856

 

170,787

 

12.3

 

*

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.

"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

Property-Liability Results

 

Three months ended September 30,

 

Nine months ended September 30,

($ in millions, except ratios)

2021

2020

% / pts
Change

 

2021

2020

% / pts
Change

Premiums written

$

10,966

 

$

9,395

 

16.7

%

 

$

31,057

 

$

27,159

 

14.4

%

Allstate Brand

9,355

 

9,135

 

2.4

 

 

26,784

 

26,414

 

1.4

 

National General

1,611

 

260

 

NM

 

4,273

 

745

 

NM

 

 

 

 

 

 

 

 

Underwriting income (loss)

(534)

 

752

 

NM

 

1,552

 

3,002

 

(48.3)

 

Allstate Brand

(311)

 

842

 

NM

 

1,618

 

3,077

 

(47.4)

 

National General

(112)

 

43

 

NM

 

41

 

63

 

(34.9)

 

 

 

 

 

 

 

 

 

Recorded combined ratio

105.3

 

91.6

 

13.7

 

 

94.8

 

88.8

 

6.0

 

Allstate Protection auto

102.3

 

85.4

 

16.9

 

 

92.4

 

86.2

 

6.2

 

Allstate Protection homeowners

111.0

 

103.2

 

7.8

 

 

100.2

 

93.9

 

6.3

 

 

 

 

 

 

 

 

 

Underlying combined ratio*

90.4

 

79.7

 

10.7

 

 

84.5

 

79.6

 

4.9

 

Allstate Protection auto

97.6

 

84.3

 

13.3

 

 

89.9

 

85.1

 

4.8

 

Allstate Protection homeowners

71.6

 

64.8

 

6.8

 

 

69.6

 

62.6

 

7.0

 

NM = not meaningful

 

Protection Services Results

 

Three months ended September 30,

 

Nine months ended September 30,

($ in millions)

2021

2020

% / $
Change

 

2021

2020

% / $
Change

Total revenues (1)

$

597

 

$

484

 

23.3

%

 

$

1,730

 

$

1,395

 

24.0

%

Allstate Protection Plans

311

 

251

 

23.9

 

 

881

 

702

 

25.5

 

Allstate Dealer Services

129

 

121

 

6.6

 

 

382

 

356

 

7.3

 

Allstate Roadside

64

 

59

 

8.5

 

 

183

 

172

 

6.4

 

Arity

62

 

25

 

148.0

 

 

190

 

81

 

134.6

 

Allstate Identity Protection

31

 

28

 

10.7

 

 

94

 

84

 

11.9

 

Adjusted net income (loss)

$

45

 

$

40

 

$

5

 

 

$

150

 

$

115

 

$

35

 

Allstate Protection Plans

32

 

36

 

(4)

 

 

119

 

105

 

14

 

Allstate Dealer Services

7

 

7

 

?

 

 

25

 

22

 

3

 

Allstate Roadside

1

 

4

 

(3)

 

 

7

 

8

 

(1)

 

Arity

1

 

(3)

 

4

 

 

4

 

(9)

 

13

 

Allstate Identity Protection

4

 

(4)

 

8

 

 

(5)

 

(11)

 

6

 

(1) Excludes realized capital gains and losses

Allstate Health and Benefits Results

 

Three months ended September 30,

 

Nine months ended September 30,

($ in millions)

2021

2020

% Change

 

2021

2020

% Change

Premiums and contract charges

$

460

 

$

287

 

60.3

%

 

$

1,362

 

$

832

 

63.7

%

Employer voluntary benefits

251

 

287

 

(12.5)

 

 

769

 

832

 

(7.6)

 

Group health

90

 

?

 

NM

 

260

 

?

 

NM

Individual accident and health

119

 

?

 

NM

 

333

 

?

 

NM

Adjusted net income

33

 

33

 

?

 

 

160

 

62

 

158.1

 

Allstate Investment Results

 

Three months ended September 30,

 

Nine months ended September 30,

($ in millions, except ratios)

2021

2020

$ / pts
Change

 

2021

2020

$ / pts
Change

Net investment income

$

764

 

$

464

 

$

300

 

 

$

2,446

 

$

930

 

$

1,516

 

Market-based investment income (1)

352

 

358

 

(6)

 

1,061

 

1,070

 

(9)

Performance-based investment income (1)

437

 

129

 

308

 

1,464

 

(67)

 

1,531

Realized capital gains (losses)

105

 

319

 

(214)

 

818

 

597

 

221

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

(302)

 

198

 

NM

 

(1,352)

 

902

 

NM

Total return on investment portfolio

1.0

%

1.8

%

(0.8)

 

 

3.3

%

4.6

%

(1.3)

 

Total return on investment portfolio (trailing twelve months)

 

 

 

 

6.0

%

5.9

%

0.1

 

(1)

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

 

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.

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

 

 

 

 

($ in millions, except par value data)

 

September 30,
2021

 

December 31,
2020

Assets

 

 

 

Investments

 

 

 

Fixed income securities, at fair value (amortized cost, net $38,811 and $40,034)

$

39,989

 

 

$

42,565

 

Equity securities, at fair value (cost $2,939 and $2,740)

3,807

 

 

3,168

 

Mortgage loans, net

752

 

 

746

 

Limited partnership interests

7,578

 

 

4,563

 

Short-term, at fair value (amortized cost $6,428 and $6,807)

6,428

 

 

6,807

 

Other, net

3,286

 

 

1,691

 

Total investments

61,840

 

 

59,540

 

Cash

690

 

 

311

 

Premium installment receivables, net

8,406

 

 

6,463

 

Deferred policy acquisition costs

4,600

 

 

3,774

 

Reinsurance and indemnification recoverables, net

10,442

 

 

7,215

 

Accrued investment income

339

 

 

371

 

Property and equipment, net

965

 

 

1,057

 

Goodwill

3,389

 

 

2,369

 

Other assets, net

5,966

 

 

2,756

 

Assets held for sale

36,803

 

 

42,131

 

Total assets

$

133,440

 

 

$

125,987

 

Liabilities

 

 

 

Reserve for property and casualty insurance claims and claims expense

$

33,286

 

 

$

27,610

 

Reserve for future policy benefits

1,263

 

 

1,028

 

Contractholder funds

863

 

 

857

 

Unearned premiums

19,627

 

 

15,946

 

Claim payments outstanding

1,179

 

 

957

 

Deferred income taxes

711

 

 

382

 

Other liabilities and accrued expenses

9,403

 

 

7,840

 

Long-term debt

7,980

 

 

7,825

 

Liabilities held for sale

32,421

 

 

33,325

 

Total liabilities

106,733

 

 

95,770

 

Equity

 

 

 

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

1,970

 

 

1,970

 

Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 288 million and 304 million shares outstanding

9

 

 

9

 

Additional capital paid-in

3,700

 

 

3,498

 

Retained income

52,736

 

 

52,767

 

Treasury stock, at cost (612 million and 596 million shares)

(33,604

)

 

(31,331

)

Accumulated other comprehensive income:

 

 

 

Unrealized net capital gains and losses

1,828

 

 

3,180

 

Unrealized foreign currency translation adjustments

3

 

 

(7

)

Unamortized pension and other postretirement prior service credit

87

 

 

131

 

Total accumulated other comprehensive income

1,918

 

 

3,304

 

Total Allstate shareholders' equity

26,729

 

 

30,217

 

Noncontrolling interest

(22

)

 

?

 

Total equity

26,707

 

 

30,217

 

Total liabilities and equity

$

133,440

 

 

$

125,987

 

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,

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Property and casualty insurance premiums

$

10,615

 

 

$

9,336

 

 

$

31,366

 

 

$

27,794

 

Accident and health insurance premiums and contract charges

460

 

 

287

 

 

1,362

 

 

832

 

Other revenue

536

 

 

272

 

 

1,585

 

 

794

 

Net investment income

764

 

 

464

 

 

2,446

 

 

930

 

Realized capital gains (losses)

105

 

 

319

 

 

818

 

 

597

 

Total revenues

12,480

 

 

10,678

 

 

37,577

 

 

30,947

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

Property and casualty insurance claims and claims expense

8,264

 

 

6,072

 

 

21,514

 

 

16,635

 

Shelter-in-Place Payback expense

?

 

 

?

 

 

29

 

 

948

 

Accident and health insurance policy benefits

269

 

 

128

 

 

746

 

 

392

 

Interest credited to contractholder funds

8

 

 

8

 

 

25

 

 

26

 

Amortization of deferred policy acquisition costs

1,582

 

 

1,386

 

 

4,650

 

 

4,095

 

Operating costs and expenses

1,890

 

 

1,322

 

 

5,304

 

 

4,054

 

Pension and other postretirement remeasurement (gains) losses

40

 

 

(71

)

 

(404

)

 

320

 

Restructuring and related charges

23

 

 

196

 

 

145

 

 

213

 

Amortization of purchased intangibles

109

 

 

31

 

 

267

 

 

88

 

Interest expense

69

 

 

78

 

 

246

 

 

238

 

Total costs and expenses

12,254

 

 

9,150

 

 

32,522

 

 

27,009

 

 

 

 

 

 

 

 

 

Income from operations before income tax expense

226

 

 

1,528

 

 

5,055

 

 

3,938

 

 

 

 

 

 

 

 

 

Income tax expense

20

 

 

312

 

 

1,008

 

 

779

 

 

 

 

 

 

 

 

 

Net income from continuing operations

206

 

 

1,216

 

 

4,047

 

 

3,159

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

325

 

 

(63

)

 

(3,272

)

 

(207

)

 

 

 

 

 

 

 

 

Net income

531

 

 

1,153

 

 

775

 

 

2,952

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interest

(7

)

 

?

 

 

(7

)

 

?

 

 

 

 

 

 

 

 

 

Net income attributable to Allstate

538

 

 

1,153

 

 

782

 

 

2,952

 

 

 

 

 

 

 

 

 

Less: Preferred stock dividends

30

 

 

27

 

 

87

 

 

89

 

 

 

 

 

 

 

 

 

Net income applicable to common shareholders

$

508

 

 

$

1,126

 

 

$

695

 

 

$

2,863

 

 

 

 

 

 

 

 

 

Earnings per common share applicable to common shareholders

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

Continuing operations

$

0.62

 

 

$

3.82

 

 

$

13.31

 

 

$

9.77

 

Discontinued operations

1.11

 

 

(0.20

)

 

(10.98

)

 

(0.66

)

Total

$

1.73

 

 

$

3.62

 

 

$

2.33

 

 

$

9.11

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

Continuing operations

$

0.62

 

 

$

3.78

 

 

$

13.11

 

 

$

9.66

 

Discontinued operations

1.09

 

 

(0.20

)

 

(10.81

)

 

(0.65

)

Total

$

1.71

 

 

$

3.58

 

 

$

2.30

 

 

$

9.01

 

 

 

 

 

 

 

 

 

Weighted average common shares ? Basic

293.1

 

 

311.2

 

 

298.1

 

 

314.1

 

Weighted average common shares ? Diluted

297.9

 

 

314.1

 

 

302.6

 

 

317.9

 

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 (loss) applicable to common shareholders, excluding:

Net income (loss) 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, business combination expenses and the amortization or impairment of purchased intangibles, income or loss from discontinued operations and adjustments for other significant non-recurring, infrequent or unusual items and the related tax expense or benefit of these items. Realized capital gains and losses, and pension and other postretirement remeasurement gains and losses 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. Business combination expenses and income or loss from discontinued operations 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 (loss) 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 (loss) 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 (loss) applicable to common shareholders and does not reflect the overall profitability of our business.

The following tables reconcile net income (loss) applicable to common shareholders and adjusted net income. Taxes on adjustments to reconcile net income (loss) applicable to common shareholders and adjusted net income generally use a 21% effective tax rate.

($ in millions, except per share data)

Three months ended September 30,

 

Consolidated

 

Per diluted common share

 

2021

 

2020

 

2021

 

2020

Net income (loss) applicable to common shareholders

$

508

 

 

$

1,126

 

 

$

1.71

 

 

$

3.58

 

Realized capital (gains) losses

(105

)

 

(319

)

 

(0.35

)

 

(1.01

)

Pension and other postretirement remeasurement (gains) losses

40

 

 

(71

)

 

0.13

 

 

(0.22

)

Curtailment (gains) losses

?

 

 

(8

)

 

?

 

 

(0.02

)

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

?

 

 

1

 

 

?

 

 

?

 

Business combination expenses and the amortization of purchased intangibles

109

 

 

31

 

 

0.37

 

 

0.10

 

Business combination fair value adjustment

?

 

 

?

 

 

?

 

 

?

 

(Income) loss from discontinued operations

(235

)

 

86

 

 

(0.79

)

 

0.27

 

Income tax expense (benefit)

(100

)

 

54

 

 

(0.34

)

 

0.17

 

Adjusted net income *

$

217

 

 

$

900

 

 

$

0.73

 

 

$

2.87

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

Consolidated

 

Per diluted common share

 

2021

 

2020

 

2021

 

2020

Net income (loss) applicable to common shareholders

$

695

 

 

$

2,863

 

 

$

2.30

 

 

$

9.01

 

Realized capital (gains) losses

(818

)

 

(597

)

 

(2.70

)

 

(1.88

)

Pension and other postretirement remeasurement (gains) losses

(404

)

 

320

 

 

(1.34

)

 

1.01

 

Curtailment (gains) losses

?

 

 

(8

)

 

?

 

 

(0.03

)

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

1

 

 

1

 

 

?

 

 

?

 

Business combination expenses and the amortization of purchased intangibles

289

 

 

88

 

 

0.96

 

 

0.28

 

Business combination fair value adjustment

(6

)

 

?

 

 

(0.02

)

 

?

 

(Income) loss from discontinued operations

3,435

 

 

289

 

 

11.35

 

 

0.91

 

Income tax expense (benefit)

45

 

 

(38

)

 

0.15

 

 

(0.12

)

Adjusted net income *

$

3,237

 

 

$

2,918

 

 

$

10.70

 

 

$

9.18

 

Adjusted net income return on Allstate 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 Allstate 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 Allstate 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 previously. We use average Allstate common shareholders' equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of common shareholders' equity primarily applicable to Allstate'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 (loss) applicable to common shareholders and return on Allstate 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 Allstate 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 Allstate common shareholders' equity from return on Allstate 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 Allstate common shareholders' equity in incentive compensation. Therefore, we believe it is useful for investors to have adjusted net income return on Allstate common shareholders' equity and return on Allstate 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 Allstate common shareholders' equity goal. Adjusted net income return on Allstate common shareholders' equity should not be considered a substitute for return on Allstate common shareholders' equity and does not reflect the overall profitability of our business.

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

($ in millions)

For the twelve months ended
September 30,

 

2021

 

2020

Return on Allstate common shareholders' equity

 

 

 

Numerator:

 

 

 

Net income applicable to common shareholders

$

3,293

 

 

$

4,570

 

Denominator:

 

 

 

Beginning Allstate common shareholders' equity (1)

$

25,293

 

 

$

23,088

 

Ending Allstate common shareholders' equity (1)

24,759

 

 

25,293

 

Average Allstate common shareholders' equity

$

25,026

 

 

$

24,191

 

Return on Allstate common shareholders' equity

13.2

%

 

18.9

%

($ in millions)

For the twelve months ended
September 30,

 

2021

 

2020

Adjusted net income return on Allstate common shareholders' equity

 

 

 

Numerator:

 

 

 

Adjusted net income *

$

4,829

 

 

$

3,897

 

 

 

 

 

Denominator:

 

 

 

Beginning Allstate common shareholders' equity (1)

$

25,293

 

 

$

23,088

 

Less: Unrealized net capital gains and losses

2,744

 

 

2,023

 

Adjusted beginning Allstate common shareholders' equity

22,549

 

 

21,065

 

 

 

 

 

Ending Allstate common shareholders' equity (1)

24,759

 

 

25,293

 

Less: Unrealized net capital gains and losses

1,828

 

 

2,744

 

Adjusted ending Allstate common shareholders' equity

22,931

 

 

22,549

 

Average adjusted Allstate common shareholders' equity

$

22,740

 

 

$

21,807

 

Adjusted net income return on Allstate common shareholders' equity *

21.2

%

 

17.9

%

_____________

(1)

Excludes equity related to preferred stock of $1,970 million as of September 30, 2021, $1,970 million as of September 30, 2020 and $3,052 million as of September 30, 2019.

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
September 30,

 

Nine months ended
September 30,

 

2021

 

2020

 

2021

 

2020

Combined ratio

105.3

 

 

91.6

 

 

94.8

 

 

88.8

 

Effect of catastrophe losses

(12.5)

 

 

(11.1)

 

 

(9.4)

 

 

(8.9)

 

Effect of prior year non-catastrophe reserve reestimates

(1.6)

 

 

(0.8)

 

 

(0.4)

 

 

(0.3)

 

Effect of amortization of purchased intangibles

(0.8)

 

 

?

 

 

(0.5)

 

 

?

 

Underlying combined ratio*

90.4

 

 

79.7

 

 

84.5

 

 

79.6

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

?

 

 

(5.7)

 

 

(0.7)

 

 

(1.9)

 

Allstate Protection - Auto Insurance

Three months ended
September 30,

 

Nine months ended
September 30,

 

2021

 

2020

 

2021

 

2020

Combined ratio

102.3

 

 

85.4

 

 

92.4

 

 

86.2

 

Effect of catastrophe losses

(2.9

)

 

(1.6

)

 

(1.9

)

 

(1.4

)

Effect of prior year non-catastrophe reserve reestimates

(1.1

)

 

0.5

 

 

(0.1

)

 

0.3

 

Effect of amortization of purchased intangibles

(0.7

)

 

?

 

 

(0.5

)

 

?

 

Underlying combined ratio*

97.6

 

 

84.3

 

 

89.9

 

 

85.1

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

(0.1

)

 

(0.4

)

 

(0.1

)

 

(0.2

)

Allstate Protection - Homeowners Insurance

Three months ended
September 30,

 

Nine months ended
September 30,

 

2021

 

2020

 

2021

 

2020

Combined ratio

111.0

 

 

103.2

 

 

100.2

 

 

93.9

 

Effect of catastrophe losses

(38.0

)

 

(39.1

)

 

(29.8

)

 

(31.6

)

Effect of prior year non-catastrophe reserve reestimates

(0.6

)

 

0.7

 

 

(0.2

)

 

0.3

 

Effect of amortization of purchased intangibles

(0.8

)

 

?

 

 

(0.6

)

 

?

 

Underlying combined ratio*

71.6

 

 

64.8

 

 

69.6

 

 

62.6

 

 

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

0.1

 

 

(21.3

)

 

(2.3

)

 

(6.8

)

Underlying expense ratio is a non-GAAP ratio, which is computed as the difference between the expense ratio and the effect of amortization or impairment of purchased intangibles on the expense ratio. We believe that the measure provides investors with a valuable measure of ongoing performance because it reveals trends that may be obscured by the amortization or impairment of purchased intangible assets. Amortization or Impairment of purchased intangible assets is excluded because it relates to the acquisition purchase price and is not indicative of our 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. The most directly comparable GAAP measure is the expense ratio. The underlying expense ratio should not be considered a substitute for the expense ratio and does not reflect the overall expense ratio of our business.

The following tables reconciles the respective expense ratio to the underlying expense ratio.

Property-Liability

Three months ended
September 30,

 

Nine months ended
September 30,

 

2021

 

2020

 

2021

 

2020

Expense ratio

25.1

 

 

24.9

 

 

24.3

 

 

27.5

 

Effect of amortization of purchased intangibles

(0.8

)

 

?

 

 

(0.5

)

 

?

 

Underlying expense ratio*

24.3

 

 

24.9

 

 

23.8

 

 

27.5

 

Adjusted underwriting expense ratio is a non-GAAP ratio, which is computed as the difference between the expense ratio and the effect of advertising expense, restructuring and related charges, amortization or impairment of purchased intangibles and Coronavirus related expenses on the expense ratio. We believe that the measure provides investors with a valuable measure of ongoing performance because it reveals trends that may be obscured by the advertising expense, restructuring and related charges, amortization or impairment of purchased intangibles and Coronavirus related expenses. Advertising expense is excluded as it may vary significantly from period to period based on business decisions and competitive position. Restructuring and related charges are excluded because these items are not indicative of our business results or trends. Coronavirus related expenses are excluded because these items are related to programs offered during the peak of the pandemic that are no longer available. Amortization or impairment of purchased intangible assets is excluded because it relates to the acquisition purchase price. These are not indicative of our business results or trends. A reduction in expenses enables investment flexibility that can drive growth. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The most directly comparable GAAP measure is the expense ratio. The adjusted underwriting expense ratio should not be considered a substitute for the expense ratio and does not reflect the overall expense ratio of our business.

Adjusted expense ratio is a non-GAAP ratio, which is computed as the combination of adjusted underwriting expense ratio and claims expense ratio excluding catastrophe expense. We believe it is useful for investors to evaluate this ratio which is linked to a long-term expense ratio improvement commitment through 2024. The most directly comparable GAAP measure is the expense ratio. The adjusted expense ratio should not be considered a substitute for the expense ratio and does not reflect the overall expense ratio of our business.

Coronavirus related expenses includes shelter-in-place payback and special payment plan bad debt expenses.

Claims expense ratio excluding catastrophe expense: Incurred loss adjustment expenses, net of reinsurance, excluding expenses related to catastrophes. These expenses are embedded within the loss ratio.


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