Allstate delivered stronger policy growth and higher investment income in the third quarter, but catastrophe losses and investment losses cut both GAAP and adjusted earnings. The insurer also returned about US$1.5 billion to shareholders while expanding its protection-services businesses.
- US$2.1 billion GAAP net income, down 44.8%
- US$2.5 billion adjusted net income, down 16.2%
- Catastrophe losses nearly tripled to US$1.65 billion
- Property-Liability policies in force rose 3.3%
- About US$1.5 billion returned through buybacks and dividends
Catastrophe losses nearly tripled to US$1.65 billion in the September quarter, turning a strong operating performance into a sharply weaker bottom line for The Allstate Corporation (NYSE:ALL). Allstate reported US$2.1 billion of net income applicable to common shareholders, down 44.8% from the prior-year quarter, while adjusted net income, a non-GAAP measure, fell 16.2% to US$2.5 billion, or US$9.76 per diluted share.
Catastrophe losses overwhelm underwriting improvement
Property-Liability earned premiums rose 3.8% to US$15.1 billion and policies in force increased 3.3%. Yet underwriting income fell 30.1% to US$2.0 billion as catastrophe losses rose from US$558 million to US$1.65 billion. The recorded combined ratio consequently widened to 86.6 from 80.1, although a ratio below 100% still indicates underwriting profitability.
The underlying combined ratio, an Allstate non-GAAP measure that excludes catastrophe losses, prior-year reserve re-estimates and purchased-intangible amortisation, was 80.5 compared with 78.7 a year earlier. That points to some deterioration even before the quarter’s severe catastrophe impact. Auto’s underlying combined ratio rose to 89.8 from 86.0, while homeowners remained comparatively resilient at 60.1 against 59.8.
Homeowners growth meets a heavier catastrophe bill
Homeowners provided much of the premium momentum. Written premiums increased 7.4%, average gross written premium rose 4.9% and new business climbed 10.2%. But catastrophe losses reached US$1.33 billion, compared with US$479 million in the prior-year quarter, cutting homeowners underwriting income to US$452 million from US$1.1 billion despite the broadly stable underlying combined ratio.
Auto policies in force grew 3.4%, helped by a 6.3% increase in new business and wider distribution of Allstate’s Affordable, Simple and Connected products. Premium growth was modest, however, with written premiums up just 0.2% as lower average premiums offset the increase in policy numbers. The filing does not provide earnings guidance or a measure of analyst expectations, leaving the next test centred on whether policy growth can continue without worsening underlying loss trends.
Protection Services expands while investments turn volatile
Protection Services revenue rose 6.9% to US$964 million and adjusted net income increased to US$64 million from US$46 million. Protection Plans generated US$631 million of revenue and US$47 million of adjusted net income, while Roadside revenue rose 18.6% to US$70 million. Arity remained loss-making, with revenue up 11.8% to US$76 million and an adjusted net loss of US$6 million. Arity has agreed to acquire the remaining ownership of Replica, subject to customary closing conditions, after acquiring mobility analytics provider INRIX in October.
Investment income provided a useful offset, increasing US$228 million to US$1.18 billion as market-based and performance-based returns improved. However, Allstate recorded US$545 million of net losses on investments and derivatives, compared with a US$252 million gain a year earlier, and reported US$2.48 billion of pre-tax unrealised net capital losses at quarter-end, primarily reflecting lower fixed-income valuations as interest rates rose.
Capital returns continue despite earnings pressure
Allstate returned approximately US$1.5 billion to shareholders through repurchases and dividends during the quarter. It had US$1.3 billion remaining under its US$4.0 billion buyback authorisation at 30 September, while common shares outstanding fell 5.1% from a year earlier to 248.8 million. Adjusted net income return on equity was 39.7% over the trailing 12 months, compared with 34.7% a year earlier, although that non-GAAP measure excludes several volatile items and should be read alongside the 41.3% GAAP return on equity.
The immediate tension is clear: Allstate is adding policies, growing ancillary protection businesses and supporting per-share results with buybacks, but weather losses and rising rates remain capable of overwhelming those gains in any individual quarter. The next results will show whether the third-quarter catastrophe burden was an isolated earnings shock or part of a more persistent cost of expanding homeowners exposure.
Bottom Line?
Allstate’s growth engine is working, but catastrophe severity and auto loss trends remain the variables that can decide whether that growth converts into durable earnings.
Questions in the middle?
- Can Allstate sustain 3.3% Property-Liability policy growth without further deterioration in auto’s underlying combined ratio?
- Were the third quarter’s US$1.65 billion catastrophe losses unusually concentrated, or do they signal a higher recurring claims burden?
- Will the Replica acquisition and ALLIE deployment generate measurable Protection Services benefits before capital returns become less flexible?