Allstate Reports Strong Third Quarter 2012 Earnings

NORTHBROOK, Ill., Oct. 31, 2012 /PRNewswire/ -- The Allstate Corporation (NYSE: ALL) today reported financial results for the third quarter of 2012:

The Allstate Corporation Consolidated Highlights


Three months ended

September 30,

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

 

2012

 

2011

%

Change

Consolidated revenues

$  8,128

$   8,242

(1.4)

Net income

723

175

NM

Net income per diluted share

1.48

0.34

NM

Operating income*

717

80

NM

Operating income per diluted share*

1.46

0.16

NM

Book value per share

42.64

34.84

22.4

Book value per share, excluding the impact of unrealized net 

  capital gains and losses on fixed income securities*

37.31

32.61

14.4

Catastrophe losses

206

1,077

NM

Property-Liability combined ratio

90.2

104.8

(14.6) pts  

Property-Liability combined ratio excluding the effect of

  catastrophes, prior year reserve reestimates, business

  combination expenses and the amortization of purchased

  intangible assets ("underlying combined ratio")*

87.8

89.2

(1.4) pts  


NM = not meaningful

Measures used in this release that are not based on accounting principles generally accepted in the United States of America ("non-GAAP") are defined and reconciled to the most directly comparable GAAP measure in the "Definitions of Non-GAAP Measures" section of this document.

"We are on pace to achieve our 2012 operating priorities which resulted in strong financial performance in the third quarter with net income of $723 million.  Our strategy of serving four distinct customer segments is also working as the Esurance and Encompass brands increased policies in force," said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation.  "We improved underlying margins in both auto and homeowners insurance and benefited from lower catastrophe losses while growing overall written premiums. In particular, Allstate brand homeowners, Emerging Businesses, Encompass and Esurance continued their favorable premium growth trend, partially offset by a decline in standard auto insurance sold through Allstate agencies, reflecting the actions to improve homeowners' returns.

"Allstate Financial's profit declined due to expected reductions in the annuity business and lower investment margins.  The strategy of focusing on underwritten products is working as sales increased through Allstate agencies and Allstate Benefits.  Investment total returns continued to be strong this quarter.  Effective execution of our strategy resulted in a book value increase of 22.4% year-over-year to $42.64 per diluted share.  Through September, shareholder returns from stock price appreciation and dividends totaled 47.3%."

Consolidated Results

Net income for the quarter was $723 million, or $1.48 per diluted share, compared to $175 million, or $0.34 per diluted share in the third quarter of 2011.  An increase of $637 million in operating income was the primary driver of the net income improvement.  For the quarter, operating income was $717 million, or $1.46 per diluted share versus $80 million, or $0.16 per diluted share in last year's third quarter.  The increase in operating income was due to lower catastrophe losses and an improvement in the underlying combined ratio for property-liability.  Return on equity for the trailing twelve months was 13.6% on a net income basis and 15.0%* on an operating income basis.

Property-Liability Premium Grew and Profitability Remained Strong

Third quarter results reflected Allstate's commitment to maintaining auto margins while improving homeowners returns.  The total property-liability combined ratio was 90.2, an improvement of 14.6 points from third quarter 2011.  The underlying combined ratio was 87.8, an improvement of 1.4 points from the prior year quarter and below our annual outlook range of 88 to 91, reflecting favorable margins in the Allstate and Encompass brands.  The underlying margin in Esurance declined from second quarter.  Catastrophe losses in the third quarter 2012 were $206 million versus $1.1 billion in third quarter 2011.

The combined ratio for Allstate brand standard auto was 91.9, an improvement of 2.2 points from the prior year quarter.  The underlying combined ratio improved to 93.7 from 94.4 in the same quarter a year ago as the positive effect of rate actions combined with a relatively flat loss cost trend.  Allstate brand homeowners combined ratio was 72.9, a significant improvement from the prior year quarter's 131.9.  The underlying combined ratio was 66.2, an improvement of 7.1 points from third quarter 2011, reflecting positive contributions from rate increases and the impact of favorable weather on loss cost trends.

In the third quarter, Allstate continued to make progress on its priority to grow premiums. Total property-liability premiums written of $7.1 billion grew 5% from last year's third quarter primarily due to the acquisition of Esurance in October 2011. In addition, growth in Allstate brand homeowners, Emerging Businesses and Encompass contributed to this positive result, partially offset by a decline in Allstate brand standard auto. In total, policies in force declined 0.3% from the prior quarter as decreases in U.S. Allstate brand standard auto and homeowners were offset somewhat by a 7.8% increase in Esurance. Unit gains were also achieved in Canada, Encompass and Emerging Businesses.

Allstate Financial Profits Decline; Growth in Premiums and Contract Charges Continues

Net income for Allstate Financial was $131 million compared to $192 million in third quarter 2011 due primarily to net after-tax realized capital losses of $36 million versus $142 million in net after-tax realized capital gains in third quarter 2011.  Valuation changes on derivatives embedded in equity-indexed annuity contracts resulted in a $75 million after-tax gain in third quarter 2012 compared to $5 million after-tax loss in third quarter 2011.  Operating income was $97 million, a decrease of $32 million from the prior year quarter.  During the quarter, a $27 million pre-tax charge to net income was recorded related to our annual comprehensive review of assumptions for deferred policy acquisition costs (DAC), deferred sales inducement costs and secondary guarantee liability balances.  This compares to a $6 million pre-tax charge to income in first quarter 2011.

Premiums and contract charges on underwritten products was $548 million in the third quarter, a growth rate of 3.6% from the prior year period.  Allstate agency life unit sales continued to increase in the third quarter with issued policies growing 6.9% compared to third quarter 2011.  Consistent with the strategy to reduce Allstate Financial's annuity business, contractholder funds declined $722 million from June 30, 2012 and $2.2 billion from year end 2011.

Proactive Management Continues to Drive Investment Results

Allstate delivered strong investment results for the first nine months of 2012 reflecting proactive management of investment risk and return.  We remain focused on balancing yield and return considerations in the low interest rate environment, and continue to favor intermediate corporate credit. In the third quarter, we opportunistically reduced portfolio risk through the sale of selected structured securities.

Allstate's consolidated investment portfolio increased to $98.5 billion at September 30, 2012 compared to $95.6 billion at December 31, 2011, as solid investment returns and operating cash flow more than offset the impact of the managed reduction in Allstate Financial's liabilities.  Pre-tax net unrealized capital gains were $5.7 billion at September 30, 2012 compared to $2.9 billion at December 31, 2011 resulting from lower interest rates, tightened credit spreads and higher equity values.

For the third quarter of 2012, net investment income totaled $940 million and the total portfolio yield was 4.3%, lower than both the prior quarter and the third quarter of 2011.  Excluding limited partnership results, third quarter 2012 net investment income was comparable to the prior quarter but lower than third quarter 2011, consistent with the reduction in Allstate Financial's liabilities and lower reinvestment rates.

Pre-tax net realized capital losses for the third quarter of 2012 were $72 million compared to pre-tax net realized capital gains of $264 million for the third quarter of 2011.  Realized capital losses in the third quarter of 2012 reflect the sale of structured securities in connection with risk reduction activities but included significantly lower impairment write-downs than last year's third quarter.  Derivative losses totaled $2 million in third quarter 2012 compared to losses of $234 million in third quarter 2011.  The prior year quarter reflected interest rate derivative valuation losses driven by a significant decrease in interest rates.  Interest rate derivative positions used for overall risk management purposes were terminated in 2011.

Capital Management Update

"In the third quarter, we repurchased $153 million of our shares and paid a $0.22 per share dividend," said Steve Shebik, chief financial officer.  "Shares repurchased under the current $1 billion authorization totaled $834 million.  This program, along with earnings and portfolio valuation growth, enabled book value per diluted share to reach $42.64, 7.3% higher than it was at the end of last quarter, 17.9% higher than at year-end 2011, and 22.4% higher than at September 30, 2011." 

Statutory surplus at September 30, 2012 was an estimated $17.0 billion for the combined insurance operating companies.  Property-liability surplus was an estimated $13.3 billion with Allstate Financial companies accounting for the remainder.  Deployable assets at the holding company level were $2.3 billion at September 30, 2012.

Visit www.allstateinvestors.com to view additional information about Allstate's results, including a webcast of its quarterly conference call and the presentation discussed on the call.  The conference call will be held at 9 a.m. ET on Thursday, November 1. 

The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer, serving approximately 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names and Allstate Financial business segment.  Allstate branded insurance products (auto, home, life and retirement) and services are offered through Allstate agencies, independent agencies, and Allstate exclusive financial representatives, as well as via www.allstate.com and 1-800 Allstate®, and are widely known through the slogan "You're In Good Hands With Allstate®."

 

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS






($ in millions, except per share data)


Three months ended

September 30,


Nine months ended

September 30,



2012


2011


2012


2011



(unaudited)

(unaudited)

Revenues









   Property-liability insurance premiums

$

6,697

$

6,432

$

19,993

$

19,337

   Life and annuity premiums and contract

     charges


563


552


1,675


1,668

   Net investment income


940


994


2,977


2,996

   Realized capital gains and losses:









Total other-than-temporary

   impairment losses


(39)


(197)


(195)


(435)

Portion of loss recognized in other

   comprehensive income


(7)


(6)


16


(37)

Net other-than-temporary

   impairment losses recognized 

   in earnings


(46)


(203)


(179)


(472)

Sales and other realized capital

    gains and losses


(26)


467


302


889

Total realized capital gains

   and losses


(72)


264


123


417












8,128


8,242


24,768


24,418










Costs and expenses









   Property-liability insurance claims and

     claims expense


4,293


5,132


13,442


15,963

   Life and annuity contract benefits


453


455


1,354


1,331

   Interest credited to contractholder funds


215


405


959


1,240

   Amortization of deferred policy

     acquisition costs


1,016


1,046


2,937


2,990

   Operating costs and expenses


1,010


888


3,023


2,656

   Restructuring and related charges


9


8


25


28

   Interest expense


93


92


281


275



7,089


8,026


22,021


24,483

Gain (loss) on disposition of operations


9


3


15


(10)










Income (loss) from operations

 before income tax expense (benefit)


1,048


219


2,762


(75)










Income tax expense (benefit)


325


44


850


(150)










Net income

$

723

$

175

$

1,912

$

75










Earnings per share:


















Net income per share - Basic

$

1.49


0.34

$

3.89

$

0.14










Weighted average shares - Basic


485.9


512.0


491.5


520.4










Net income per share - Diluted

$

1.48

$

0.34

$

3.86

$

0.14










Weighted average shares - Diluted


489.9


514.2


494.7


522.9










Cash dividends declared per share

$

0.22

$

0.21

$

0.66

$

0.63

















THE ALLSTATE CORPORATION

SEGMENT RESULTS

($ in millions, except ratios)



Three months ended


Nine months ended




September 30,


September 30,




2012


2011


2012


2011










Property-Liability









  Premiums written

$

7,063

$

6,728

$

20,390

$