The Allstate Corporation (NYSE: ALL) today reported financial results
for the second quarter of 2018.
($ in millions, except per share data and ratios)
* 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 businesses continue to deliver excellent results, growth is
accelerating and we are on pace to achieve 2018’s operating priorities,”
said Tom Wilson, Chairman, President and Chief Executive Officer of The
Allstate Corporation. “Net income increased to $637 million in the
second quarter of 2018 and return on equity was 17.0% for the latest
twelve months. Revenues rose to $10.1 billion for the quarter,
reflecting higher average premiums and increased policies in force.
Better serving customers increased the net promoter score for most
businesses which, when combined with higher new business levels,
supported policy growth for the Allstate and Esurance Property-Liability
businesses, SquareTrade and Allstate Benefits. Increased profitability
reflected operational excellence, a decline in auto accident frequency
and lower catastrophe losses. We are improving our underlying combined
ratio* outlook range by one point to 85 to 87(1) for the full
year 2018,” said Wilson.
_________
(1) A reconciliation of this non-GAAP measure to the combined
ratio, a GAAP measure, is not possible on a forward-looking basis
because it is not possible to provide a reliable forecast of
catastrophes, and prior year reserve reestimates are expected to be zero
because reserves are determined based on our best estimate of ultimate
loss reserves as of the reporting date.
“The strategy to deliver differentiated products to consumers by
leveraging our brands, customer base, technology and capital is also on
track. The Allstate brand is a leader in using technology and analytics
to offer telematics based auto insurance and settle claims. Esurance is
doing the same and has successfully expanded into homeowners insurance.
SquareTrade is on pace with its acquisition milestones and added 13.2
million policies in twelve months. While investment income is down
slightly in the quarter, this reflects very strong performance-based
returns last year. Allstate’s Life, Benefits and Annuities businesses
are on track to meet their goals. Shareholders have also benefited from
cash returns of almost three-quarters of a billion dollars in the
quarter through dividends and share repurchases,” concluded Wilson.
Second Quarter 2018 Results
(% to earned premiums)
($ in millions)
($ in millions, except ratios)
(1) Investment expenses are not allocated between
market-based and performance-based portfolios with the exception of
investee level expenses.(2) Excludes $1.2 billion
adjustment related to the adoption of recognition and measurement
accounting standard in 2018.
NM = not meaningful
Proactive Capital Management
“Allstate returned $722 million of capital to our shareholders during
the second quarter through a combination of $163 million in common stock
dividends and repurchasing $559 million of outstanding shares. As of
June 30, 2018, there was $376 million remaining on the $2 billion common
share repurchase authorization,” said Mario Rizzo, Chief Financial
Officer.
“During the quarter, Allstate redeemed $224 million in fixed-to-floating
rate junior subordinated debentures and repaid $176 million in senior
debentures. Our adjusted net income return on common shareholders’
equity* of 15.8% for the 12 months ended June 30, 2018, was an increase
of 2.3 points compared to the prior year period. Book value per diluted
common share of $59.16 was 9.9% higher than June 30, 2017.”
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 a.m. ET on Thursday, August 2.
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:
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,
valuation changes on embedded derivatives not hedged, business
combination expenses and the amortization of purchased intangible
assets, gain (loss) on disposition of operations and adjustments for
other significant non-recurring, infrequent or unusual items. Realized
capital 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. These instruments are used for economic hedges and
to replicate fixed income securities, and by including them in adjusted
net income, we are appropriately reflecting their trends in our
performance and in a manner consistent with the economically hedged
investments, product attributes (e.g. net investment income and interest
credited to contractholder funds) or replicated investments. Business
combination expenses are excluded because they are non-recurring in
nature and the amortization of purchased intangible assets is excluded
because it relates to the acquisition purchase price and is not
indicative of our underlying insurance 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 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 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 applicable to common shareholders and does not reflect
the overall profitability of our business.
The following tables reconcile net income applicable to common
shareholders and adjusted net income. Beginning January 1, 2018, the Tax
Legislation reduced the U.S. corporate income tax rate from 35% to 21%.
Taxes on adjustments to reconcile net income applicable to common
shareholders and adjusted net income generally use a 21% effective tax
rate for 2018 and 35% for 2017 and are reported net with the reconciling
adjustment.
Adjusted net income return on 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 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 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 above. We use average
common shareholders’ equity excluding the effect of unrealized net
capital gains and losses for the denominator as a representation of
common shareholders’ equity primarily attributable to the company’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 applicable to common
shareholders and return on 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 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 common shareholders’ equity from
return on 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 common shareholders’ equity in incentive
compensation. Therefore, we believe it is useful for investors to have
adjusted net income return on common shareholders’ equity and return on
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. Adjusted net income
return on common shareholders’ equity should not be considered a
substitute for return on common shareholders’ equity and does not
reflect the overall profitability of our business.
The following tables reconcile return on common shareholders’ equity and
adjusted net income return on common shareholders’ equity.
_____________
(1) Excludes equity related to preferred stock of $2,303
million as of June 30, 2018 and $1,746 million as of June 30, 2017 and
June 30, 2016.
Combined ratio excluding the effect of catastrophes, prior year
reserve reestimates and amortization of purchased intangible assets
(“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 of purchased intangible assets 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 of purchased intangible assets. 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.
Amortization of purchased intangible assets 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
Allstate brand – Total
Allstate brand – Auto Insurance
Allstate brand – Homeowners Insurance
Allstate brand – Other Personal Lines
Esurance brand – Total
Encompass brand – Total
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