Allstate’s Profitable Growth Continues in Second Quarter

Strategy generates attractive returns

NORTHBROOK, Ill.–(BUSINESS WIRE)–The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2019.

* 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 customer-driven strategy produced excellent results in the second quarter,” said Tom Wilson, Chair, President and Chief Executive Officer of The Allstate Corporation. “Revenues exceeded $11 billion and total policies in force grew to over 129 million, reflecting SquareTrade’s exceptional growth. The Allstate and Esurance brand strategies are working, with 793,000 policies added, which was a 2.5% increase compared to prior year. Property-Liability insurance premiums written increased by $985 million through the first six months. Investments, Allstate Life, Allstate Benefits and the Service Businesses also had strong results. Net income rose to $821 million, and adjusted net income* totaled $735 million in the quarter, or $2.18 per share.

“The strategy of increasing market share in Property-Liability products and expanding into other protection products is gaining momentum. This is supported by excellent operating results which have led us to improve our outlook for the 2019 Property-Liability underlying combined ratio* by 1.5 points to 84.5 to 86.5⁽¹⁾. Importantly, overall results generated a 13.5% adjusted net income return on equity*. Shareholders have also been provided strong cash returns with $643 million of common shareholder dividends and $1.8 billion of common share repurchases (5.6% of outstanding shares) over the last 12 months,” concluded Wilson.

Second Quarter 2019 Results

• Total revenue of $11.14 billion in the second quarter of 2019 increased 10.3% compared to the prior year quarter as Property-Liability insurance premiums earned increased 6.0%. Net investment income also grew by 14.3% and realized capital gains increased revenues by $324 million.

• Net income applicable to common shareholders was $821 million, or $2.44 per diluted share, in the second quarter of 2019, compared to net income of $678 million, or $1.91 per diluted share, in the second quarter of 2018. Adjusted net income* of $735 million for the second quarter was above the prior year quarter due to higher earned premium and net investment income, partially offset by increased catastrophe losses.

• Property-Liability underwriting income of $367 million in the second quarter of 2019 was $88 million below the prior year quarter, primarily due to higher catastrophe losses.

• The underlying combined ratio* of 84.4 for the second quarter of 2019 was 0.6 points below the prior year quarter due to lower operating expenses partially offset by increased claim severity. Auto insurance profitability continued to benefit from lower accident frequency.

• Non-catastrophe prior year reserve releases of $86 million in the second quarter of 2019 included favorable personal lines auto injury coverages development, partially offset by strengthening in commercial reserves.

• Allstate brand auto insurance net written premium grew 5.0% in the second quarter of 2019 compared to the prior year quarter, reflecting a 2.5% increase in policies in force and higher average premium. The recorded combined ratio of 92.8 in the second quarter of 2019 was 0.3 points higher than the prior year quarter. The underlying combined ratio* of 91.1 in the quarter was 1.2 points lower than the second quarter of 2018 due to higher premiums earned, reduced operating expenses and lower accident frequency, partially offset by increased claim severity.

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⁽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.

• Allstate brand homeowners insurance net written premium grew 6.5% in the second quarter of 2019 compared to the prior year quarter due to a 5.6% increase in average premiums and 1.6% growth in policies in force. The recorded combined ratio of 104.3 in the second quarter was 6.4 points higher than the second quarter of 2018, primarily driven by elevated catastrophe losses. The underlying combined ratio* of 62.1 was 0.8 points lower than the prior year quarter due to higher premiums earned, reduced operating expenses and lower frequency, partially offset by increased claim severity.

• Esurance brand policies in force increased 8.4% in the second quarter of 2019 compared to the prior year quarter, resulting in net written premium growth of 9.6%. The recorded combined ratio of 100.6 in the second quarter of 2019 was 1.3 points lower than the prior year quarter, while the underlying combined ratio* of 96.2 was 0.3 points higher than the second quarter of 2018, primarily due to increased claim severity partially offset by higher premiums earned.

• Encompass brand net written premium increased 1.1% in the second quarter of 2019 compared to the prior year quarter as higher average premiums offset a small decline in policies in force. The recorded combined ratio of 97.2 in the second quarter of 2019 was 0.8 points lower than the prior year quarter, due to lower catastrophe losses and reduced expenses, partially offset by higher non-catastrophe losses. The underlying combined ratio* of 89.8 in the second quarter was 4.6 points higher than the second quarter of 2018.

NA = not applicable

• Service Businesses policies in force grew to 89.7 million, and revenues increased 26.6% compared to the second quarter of 2018. Adjusted net income was $16 million, an increase of $14 million compared to the prior year quarter.
  • SquareTrade revenue was $170 million in the second quarter of 2019, reflecting policy growth of 39.5 million compared to the second quarter of 2018. Adjusted net income was $19 million in the second quarter of 2019, due to higher premiums and improved loss experience.

  • Allstate Roadside Services revenue was $73 million in the second quarter of 2019. The adjusted net loss of $3 million in the second quarter was comparable to the prior year quarter.

  • Allstate Dealer Services revenue grew 14.0% compared to the second quarter of 2018, and adjusted net income was $7 million, reflecting higher premiums and improved loss experience.

  • Arity revenue was $25 million in the second quarter of 2019, primarily from contracts with affiliates. The adjusted net loss of $1 million in the quarter includes product development costs.

  • InfoArmor had revenues of $23 million and an adjusted net loss of $6 million in the second quarter of 2019, related to growth and integration investments.

• Allstate Life adjusted net income was $68 million in the second quarter of 2019, $12 million lower than the prior year quarter, as higher contract benefits and expenses were partially offset by increased premiums.

• Allstate Benefits adjusted net income was $37 million in the second quarter of 2019, $1 million higher than the prior year quarter, as increased revenue was partially offset by higher operating costs and expenses.

• Allstate Annuities adjusted net income of $52 million in the second quarter of 2019 was $8 million higher than the prior year quarter due to increased performance-based investment income.

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

NM = not meaningful

• Allstate Investments $86 billion portfolio generated a strong total return of 2.8% in the second quarter of 2019, and net investment income was $942 million, an increase of $118 million from the prior year quarter.
  • Total return on the investment portfolio of 7.0% for the latest 12 months reflects proactive risk and return positioning.

  • Market-based investments contributed $731 million of investment income in the second quarter of 2019, an increase of $35 million, or 5.0%, compared to the prior year quarter. The market-based portfolio benefited from investment at higher market yields and a duration extension of the fixed income portfolio.

  • Performance-based investments generated investment income of $261 million in the second quarter of 2019, an increase of $85 million, or 48.3%, compared to the prior year quarter. Additionally, there were $37 million in capital gains, primarily from the sale of direct investments. The trailing 12-month performance-based return was 9.3%.

  • Net realized capital gains were $324 million in the second quarter of 2019, compared to losses of $25 million in the prior year quarter. Net realized gains for the quarter were primarily related to higher valuation of equity investments and gains related to the sale of market-based and performance-based investments.

  • Unrealized net capital gains increased $1.1 billion from the first quarter of 2019, as lower market yields resulted in higher fixed income valuations.

Proactive Capital Management

“Allstate’s shareholders benefited from excellent returns which resulted in strong cash proceeds and an increase in book value,” said Mario Rizzo, Chief Financial Officer. “Adjusted net income return on common shareholders’ equity* was 13.5% for the 12 months ended June 30, 2019. Allstate also returned $664 million of capital to shareholders during the second quarter through a combination of $166 million in common stock dividends and repurchasing $498 million of outstanding shares, including the settlement of the accelerated share repurchase program. Book value per diluted common share of $67.28 was 13.7% higher than June 30, 2018, reflecting strong income generation and appreciation of the investment portfolio.”

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 9:00 a.m. ET on Wednesday, July 31.

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.

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,
• pension and other postretirement remeasurement gains and losses, after-tax,
• 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 or impairment of purchased intangibles, after-tax,
• gain (loss) on disposition of operations, after-tax, and
• adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years.

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.

Contacts

Greg Burns

Media Relations

(847) 402-5600

John Griek

Investor Relations

(847) 402-2800

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