Allstate Reports Third Quarter 2023 Results

Pursuing Health and Benefits divestiture

NORTHBROOK, Ill.–(BUSINESS WIRE)–The Allstate Corporation (NYSE: ALL) today reported financial results for the third quarter of 2023.

“Allstate’s focus on improving profitability while implementing our growth strategy made excellent progress this quarter,” said Tom Wilson, Chair, President and CEO of The Allstate Corporation. “Improved underwriting performance, strong investment income and profits from Protection Services and Health and Benefits generated adjusted net income* of $214 million, or $0.81 per diluted common share in the quarter. Property-Liability earned premium growth of 10.0% and execution of other components of the profit improvement plan improved the underlying combined ratio compared to the prior year quarter. Property-Liability had an underwriting loss in the quarter of $414 million, however, reflecting continued increases in auto insurance loss costs, elevated catastrophe losses and adverse prior year loss development. In response, we continue to raise auto and homeowners insurance prices, improve expense efficiencies, restrict growth in profit challenged states and enhance claims practices. The execution of these comprehensive actions will restore margins to target levels.”

“We are pursuing the sale of Allstate’s Health and Benefits businesses since substantial value can be realized when aligned with a broader set of complementary businesses and product offerings. Allstate’s voluntary workplace benefits business was combined with National General’s group and individual health business, creating a broad-based benefits platform that serves 4.3 million policyholders and generated $240 million of adjusted net income over the last twelve months. This value creation was integral to the National General acquisition plan and now positions the business for additional growth and value enhancement. A sale would likely be completed in 2024.”

“Significant progress has also been made in executing the strategy to increase property-liability market share and broaden protection provided to customers. Providing lowest cost protection requires continued cost reductions which is reflected in a lower expense ratio. Allstate exclusive agent productivity increased, excluding three states where profit improvement actions have reduced new business, and National General is growing through independent agents. Plans to increase growth in states that are achieving target auto insurance margins are now being initiated with further expansion planned for 2024. Allstate Protection Plans continues to grow its embedded protection offerings with U.S. retailers and internationally. Shareholder value will continue to grow with higher profitability, strategic capital allocation and organic long-term growth,” concluded Wilson.

Third Quarter 2023 Results

• Total revenues of $14.5 billion in the third quarter of 2023 increased 9.8%, or $1.3 billion, compared to the prior year quarter driven by a $1.1 billion increase in Property-Liability earned premium due to higher average premiums.

• Net loss applicable to common shareholders was $41 million in the third quarter of 2023 compared to $685 million in the prior year quarter, due to improved Property-Liability underwriting results. Adjusted net income* was $214 million, or $0.81 per diluted share, in the third quarter of 2023, compared to an adjusted net loss* of $411 million in the prior year quarter. Restructuring expenses of $87 million were incurred during the third quarter of 2023 primarily related to the organizational component of Transformative Growth designed to streamline the organization and outsource operations.

• Property-Liability earned premium of $12.3 billion increased 10.0% in the third quarter of 2023 compared to the prior year quarter, primarily driven by higher average premiums from rate increases. The $414 million underwriting loss in the quarter decreased by $878 million compared to the prior year quarter, due to increased premiums earned and lower unfavorable prior year reserve reestimates, partially offset by higher losses.

• Premiums written of $13.3 billion increased 10.5% compared to the prior year quarter driven by both the Allstate brand and National General. Allstate brand increased 6.9% primarily due to higher auto and homeowners average premium, partially offset by the impact of profitability actions on personal auto policies in force and commercial lines. National General increased 31.8% reflecting higher average premium and policies in force growth.

• Allstate brand underwriting loss in the third quarter of 2023 improved to $168 million compared to $1.0 billion in the prior year quarter, driven by higher earned premiums and favorable prior year reserve reestimates, excluding catastrophes, compared to unfavorable reestimates in the prior year, partially offset by higher catastrophe losses.

• National General underwriting loss of $167 million in the third quarter of 2023 increased by $43 million compared to the prior year quarter, reflecting higher incurred losses as well as unfavorable prior year reserve reestimates, primarily related to personal auto. These were partially offset by higher earned premiums and a 4.4 point improvement in the expense ratio.

• Property-Liability underlying combined ratio* of 91.9 in the third quarter of 2023 improved 4.5 points compared to the prior year quarter, primarily driven by improved loss and expense ratios in Allstate brand auto, reflecting higher earned premiums and operating efficiencies. While loss trends have stabilized, claim severity increases remain elevated relative to historical levels and auto accident frequency continues to normalize to pre-pandemic levels.

• Allstate Protection auto insurance results reflect the impact of inflation in loss costs and the comprehensive plan to restore margins through higher rates, lower expenses, underwriting actions and claims process enhancements. National General’s distribution capacity and a broader product portfolio is generating growth through independent agents.

• Earned and written premiums increased 10.6% and 11.6% compared to the prior year quarter, respectively. The increase was driven by higher average premium from rate increases, partially offset by a decline in policies in force.

• Allstate brand auto net written premium growth of 7.5% compared to the prior year quarter reflects a 15.7% increase in average gross written premium driven by rate increases, partially offset by a decline in policies in force from lower new business and retention.

• National General auto net written premium grew 35.3% compared to the prior year quarter driven by higher average premium and policies in force growth.

• Allstate brand auto rate increases were implemented in 25 locations in the third quarter at an average of 5.9%, resulting in an annualized total brand premium impact of 2.0% in the quarter and 9.5% through the first nine months of 2023. National General auto rate increases were implemented in 33 locations in the third quarter at an average of 6.2%, resulting in an annualized total brand premium impact of 3.3% in the quarter and 8.8% through the first nine months of 2023. We remain committed to the pursuit of additional rate increases as a core component of the profit improvement plan.

• The recorded auto insurance combined ratio of 102.1 in the third quarter of 2023 was 15.3 points lower than the prior year quarter, reflecting higher earned premiums, lower unfavorable prior year reserve reestimates and lower catastrophe losses.

• Prior year non-catastrophe reserve reestimates were unfavorable $27 million in the third quarter, reflecting adverse reserve development of $95 million for National General, partially offset by favorable Allstate brand reserve reestimates of $68 million.

• The underlying combined ratio* of 98.8 improved by 5.2 points from the prior year quarter as higher average premium and operating efficiencies were only partially offset by higher incurred losses from claim severity and accident frequency. Weighted average current report year incurred severity of Allstate brand major coverages is currently estimated to increase 9% compared to report year 2022, improving from estimates as of the second quarter 2023. The improvement in severity from claims reported in the first two quarters of the year represent a favorable impact of approximately 1.7 points on the third quarter underlying combined ratio. Excluding this impact, the third quarter underlying combined ratio* would have been 100.5.

• Allstate Protection homeowners insurance growth reflects higher rates and policies in force growth. Underwriting income was negatively impacted by elevated catastrophe losses and non-catastrophe claim severity.

• Earned premiums increased by 12.4% and written premiums increased 12.1% compared to the prior year quarter, primarily reflecting higher average premium and policies in force growth of 0.8% compared to the third quarter of 2022.

• Allstate brand net written premium increased 11.2% compared to the prior year quarter, primarily driven by an increase in average gross written premium due to implemented rate increases and inflation in insured home replacement costs.

• National General net written premium grew 19.0% compared to the prior year quarter primarily due to policies in force growth and higher average premium as rates were increased to improve underwriting margins.

• Allstate brand homeowners implemented rate increases in 12 locations in the third quarter at an average of 6.5%, resulting in an annualized total brand premium impact of 2.1% in the quarter and 9.5% through the first nine months of 2023. National General homeowners rate increases were implemented in 11 locations in the third quarter at an average of 17.6%, resulting in an annualized total brand premium impact of 1.2% in the quarter and 6.5% through the first nine months of 2023.

• The recorded homeowners insurance combined ratio of 104.4 was 14.5 points higher than the third quarter of 2022, due to higher catastrophe losses and severity, partially offset by premiums earned.

• Catastrophe losses of $878 million in the quarter increased $524 million compared to the prior year quarter, primarily related to the Maui wildfire and a large Texas hailstorm.

• The underlying combined ratio* of 72.9 decreased by 1.2 points compared to the prior year quarter, driven by higher earned premium and a lower expense ratio, partially offset by higher non-catastrophe claim severity reflecting increases in labor and materials costs.

• Allstate business insurance strategy is being advanced through an equity investment and commercial partnership with NEXT Insurance, a high-growth, digital-first insurer with a proprietary technology platform for small business insurance. The partnership will allow both companies to expand the availability of their products across a broad distribution network and provides opportunity to co-develop unique products to serve the unmet needs of 33 million U.S. small businesses that increasingly want to purchase insurance digitally.

• Protection Services continues to broaden the protection provided to an increasing number of customers largely through embedded distribution programs. Revenues increased to $697 million in the third quarter of 2023, 8.9% higher than the prior year quarter, primarily due to Allstate Protection Plans. Adjusted net income of $27 million decreased by $8 million compared to the prior year quarter, primarily due to higher claim severity at Allstate Protection Plans.

• Allstate Protection Plans’ expanded products and international growth resulted in revenue of $416 million, $67 million or 19.2% higher than the prior year quarter. Adjusted net income of $20 million in the third quarter of 2023 was $9 million lower than the prior year quarter, primarily due to the proportion of lower margin business and higher appliance and furniture claim severity.

• Allstate Dealer Services generated revenue of $146 million through auto dealers, which was 2.1% higher than the third quarter of 2022 due to higher earned premium. Adjusted net income of $5 million in the third quarter was $5 million lower than the prior year quarter driven by increased claim severity, higher expenses and restructuring charges.

• Allstate Roadside revenue of $69 million in the third quarter of 2023 increased 6.2% compared to the prior year quarter driven by price increases and new business growth. Adjusted net income was $6 million higher than the prior year quarter, primarily driven by increased pricing, lower loss severity from in-network sourcing and lower retail frequency.

• Arity revenue of $29 million decreased $20 million compared to the prior year quarter, primarily due to reductions in insurance client advertising. Adjusted net loss of $6 million in the third quarter of 2023 compared to a $2 million loss in the prior year quarter reflects lower revenue.

• Allstate Identity Protection revenue of $37 million in the third quarter of 2023 was 8.8% higher than the prior year quarter due to growth from new and existing clients. Adjusted net income of $1 million in the third quarter of 2023 compared to a $3 million loss in the prior year quarter reflects lower expenses.

• Allstate Health and Benefits premiums and contract charges were flat compared to the prior year quarter as growth in group health was offset by lower individual health. Adjusted net income of $69 million in the third quarter of 2023 increased $6 million compared to the prior year quarter, primarily due to increases in group and individual health and lower operating expenses.

• Allstate Investments $63.4 billion portfolio generated net investment income of $689 million in the third quarter of 2023, a decrease of $1 million from the prior year quarter due to lower performance-based results, mostly offset by higher market-based income.

• Market-based investment income was $567 million in the third quarter of 2023, an increase of $165 million, or 41.0%, compared to the prior year quarter, reflecting higher yields and extended duration of the $46.8 billion fixed income portfolio. Investment portfolio allocations, including extending duration and lowering equity risk over the last year, are based on expected risk adjusted returns and the enterprise risk and return position.

• Performance-based investment income totaled $186 million in the third quarter of 2023, a decrease of $149 million compared to the prior year quarter. Current quarter results reflect lower net gains on the sale of underlying investments than the prior year quarter. The portfolio allocation to performance-based assets has remained stable as these investments provide a diversifying source of higher long-term returns, despite volatility in reported results. Performance-based total return for the third quarter was 2.8% and was 5.4% through the first nine months of 2023. Quarterly total returns over the past 5 years have ranged from (2.3)% to 8.6%, while the 5- and 10-year IRR as of September 30, 2023 were 12.2% and 12.5%, respectively.

• Net losses on investments and derivatives totaled $86 million in the third quarter of 2023, compared to $167 million in the prior year quarter. Net losses in the third quarter of 2023 were driven by sales of fixed income securities.

• Unrealized net capital losses were $3.2 billion, $855 million more than the prior quarter, as higher interest rates resulted in lower fixed income valuations.

• Total return on the investment portfolio was negative 0.4% in the quarter and positive 4.6% over the latest twelve months ended September 30, 2023.

Proactive Capital Management

“Allstate continues to proactively manage capital and has the financial flexibility, liquidity and capital resources to navigate the challenging operating environment and invest in growth. Our capital position remains sound with statutory surplus in the insurance companies of $13.5 billion and over $2.9 billion of assets are held at the holding company, representing 2.2 times annual fixed charges,” said Jess Merten, Chief Financial Officer. “We are making progress on the comprehensive profit improvement plan and remain confident strategic actions will result in profitable growth and attractive shareholder returns,” concluded Merten.

Contacts

Al Scott

Media Relations

(847) 402-5600

Brent Vandermause

Investor Relations

(847) 402-2800

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