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Allstate Reports Solid Second Quarter 2013 Earnings Reflecting Successful
Execution of Customer
"We are successfully executing our customerfocused strategy to offer unique
products and services to distinct consumer segments," said Thomas J. Wilson,
chairman, president and chief executive officer of The Allstate Corporation.
"Propertyliability premiums written increased 4.2% from the second quarter of
2012, with positive trends in all consumer segments which are served under the
Allstate, Encompass and Esurance brands. We maintained profitability with an
underlying combined ratio better than our fullyear outlook and operating income
of $529 million. Proactive execution of the investment strategy to reduce risk
related to increases in interest rates proved beneficial as rates moved up in
the quarter. We also made progress in strengthening our capital position by
repurchasing outstanding debt, issuing new lowercost financing, while
maintaining share repurchases. Shortly after the quarter ended, we announced
several other significant strategic actions: the pending sale of Lincoln Benefit
Life, a change in employee benefit plans and a decision to cease issuing fixed
annuities at yearend 2013."
Net income available to common shareholders for the second quarter 2013 was
$434 million, or $0.92 per diluted common share, compared to $423 million, or
$0.86 per diluted common share in the second quarter 2012. The increase in net
income available to common shareholders was driven by higher aftertax realized
capital gains and operating income which more than offset the aftertax loss of
$312 million on extinguishment of $1.83 billion of debt. Operating income for
the second quarter 2013 increased to $529 million, or $1.12 per diluted common
share, from $432 million, or $0.87 per diluted common share, in the second
quarter 2012. The improvement was due primarily to lower catastrophe losses in
the second quarter compared to the prior year quarter.
In the second quarter 2013, propertyliability net income was $617 million
versus $354 million in the prior year quarter. The propertyliability combined
ratio was 96.1, improving 1.9 points. Pretax catastrophe losses in the quarter
totaled $647 million compared to $819 million in the second quarter 2012. The
underlying combined ratio for the quarter was 86.9, 0.6 points higher than the
prior year quarter, and better than the full year outlook of 88 to 90. Should
trends continue, the underlying combined ratio could be at the low end or below
the full year outlook range. Allstate Financial net income for the quarter was
$190 million, an improvement of $58 million from the prior year quarter, due
primarily to an increase in aftertax realized capital gains and improved
operating income results.
Continued Progress on CustomerFocused Strategy Carson Palmer Black Jersey and Achievement of 2013
Priorities
The results for the second quarter 2013 reflect successful execution of our
2013 priorities: growing insurance premiums, maintaining auto profitability,
raising returns in homeowner and annuities, proactively managing investments,
and reducing the cost structure.
The company experienced positive momentum in growing insurance premiums in
the second quarter. Total propertyliability net written premium increased 4.2%
over prior year quarter and Allstate Financial grew 3.6% in total premiums and
contract charges, including 4.8% in underwritten products. For the Allstate
brand, which serves consumers who prefer local advice from Allstate agencies and
a wide range of products, net written premium increased 3.0% due to higher
retention and new business issuance of standard auto and homeowners policies,
and solid growth in emerging businesses. While Allstate brand units declined
from the prior year quarter, they increased sequentially by 91,000 policies in
force. Encompass net written premium and units grew 9.0% and 6.8%, respectively,
from the prior year quarter. Esurance, serving the selfdirected customer
segment, continued to grow rapidly with net written premium increasing 31.7% and
units up 36.5% from the prior year quarter.
Allstate maintained auto profitability in the second quarter with a combined
ratio for standard auto of 97.0, slightly better than the prior year quarter.
For the Allstate brand, which comprises the majority of the auto earned premium,
the recorded combined ratio was 94.9, 0.6 points better than prior year, with an
underlying combined ratio of 94.2, 0.8 points higher than the second quarter
2012. Frequency was essentially flat while severity increased modestly. The
Encompass brand recorded a standard auto combined ratio of 104.4, an improvement
of 4.8 points, reflecting the impact of price increases. The Esurance brand
standard auto combined ratio increased 2.8 points to 119.5 due to the increased
volume of new business, higher bodily injury severities and increased
utilization of price discounts. Esurance is adjusting pricing and underwriting
to ensure its growth investments create shareholder value.
Higher returns were realized in the homeowners and annuities businesses. In
the second quarter, Allstate homeowners recorded a combined ratio of 95.3, a 9.1
point improvement from the prior year quarter, primarily due to reduced
catastrophe losses. The Allstate brand homeowners underlying combined ratio was
62.7, a 1.9 point improvement from the second quarter 2012. Rate increases
continued to positively impact results and both frequency and severity exhibited
modest increases in the quarter. Returns in annuities improved slightly in the
second quarter, but remain under pressure from continued low interest rates.
Contractholder funds declined $2.5 billion from March 31, 2013, primarily due to
a large institutional product maturity.
Proactive management of the investment portfolio mitigated the impact of
rising interest rates, but total returns were negative for the quarter. Interest
rate risk mitigation actions over the past several quarters reduced the maturity
profile of the propertyliability portfolio to make it less sensitive to higher
interest rates. Allstate's consolidated investment portfolio totaled $92.32
billion at June 30, 2013 compared to $97.28 billion at December 31, 2012. The
lower portfolio value reflects a $2.73 billion decrease in net unrealized
capital gains driven by the significant increase in interest rates in the second
quarter. Total returns for the quarter of 1.5% reflect a consistent contribution
from net investment income offset by lower investment valuations, particularly
for fixed income securities. For the second quarter, net investment income
totaled $984 million, which included $37 million related to prepayment fee
income and litigation proceeds. The total portfolio yield was 4.6%, an increase
from prior quarter, and comparable to the second quarter of 2012.
Propertyliability net investment income was $343 million and portfolio yield
was 4.0%. This was an increase from the prior quarter, reflecting higher limited
partnership results and the timing of equity dividends, but was below the second
quarter of 2012 due to the impact of interest rate risk reduction actions and
low investment yields. Allstate Financial net investment income was $633 million
and the portfolio yield was 5.1%. Allstate Financial's net investment income
declined from the prior year quarter, primarily due to the managed reduction in
spreadbased liabilities, which will continue with the pending sale of Lincoln
Benefit Life. Allstate Financial's portfolio yield has been less impacted by low
reinvestment rates as its investment cash flows have largely been used to fund
the liability outflows. Progress was made in reducing the company's cost
structure while investing for growth. The closure of a call center and a change
to employee benefits were announced, which will improve effectiveness and
efficiency. The propertyliability expense ratio increased in the quarter,
reflecting higher technology and marketing expenses.
Continued Focus on Capital Management
During the second quarter of 2013, Allstate repurchased principal amounts of
$1.83 billion of debt and recognized a pretax loss on extinguishment http://www.cardinalsofficialnflstore.co m/3_carson_palmer_jersey_authentic_blac k_limited_cheap.html
of $480 million. Also during the quarter, Allstate issued shares of 5.625%
noncumulative perpetual preferred stock with liquidation value of $287.5
million, $500 million of 3.15% senior notes due 2023 and $500 million of 4.50%
senior notes due 2043. "These capital actions took advantage of the current low
cost of capital and will help ensure Allstate's strategic flexibility," said
Steve Shebik, chief financial officer. "In addition, Allstate repurchased 4.9
million common shares at a cost of $254 million in the second quarter of 2013.
As of June 30, 2013, $1.08 billion remained in our share repurchase programs.
Allstate's earnings and repurchases increased book value per diluted common
share by 4.8% from a year ago, to $41.63 at the end of the second quarter of
2013."
Statutory surplus at June 30, 2013 was an estimated $17.0 billion for the
combined insurance operating companies. Propertyliability surplus was an
estimated $13.6 billion, with Allstate Financial companies accounting for the
remainder. Deployable assets at the holding company level totaled $2.4 billion
at June 30, 2013.
In July 2013, the company approved amendments to its pension plans to
introduce a new cash balance formula to replace the current formulas under which
eligible employees accrue benefits, effective January 1, 2014. The company also
will eliminate certain life insurance benefits currently provided to eligible
employees and effective January 1, 2016 for all retirees who retired after 1989.
Finally, on July 17, 2013, the company entered into a definitive agreement to
sell Lincoln Benefit Life, which serves consumer segments who want independent
advice and a choice of life insurance and annuity products. This transaction is
expected to close by the end of this year, subject to regulatory approval. ET on
Thursday, August 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. Our methods for calculating these measures may
differ from those used by other companies and therefore comparability may be www.cardinalsofficialnflstore.com limited.
Operating income is net income available to common shareholders,
excluding:
realized capital gains and losses, aftertax, www.cardinalsofficialnflstore.com/28_ra shard_mendenhall_jersey_authentic_black _limited_cheap.html
except for periodic settlements and accruals on nonhedge derivative instruments,
which are reported with realized capital gains and losses but included in
operating income,
valuation changes on embedded derivatives that are not hedged, aftertax,
amortization of 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 that are not hedged, aftertax,
business combination expenses and the amortization of purchased intangible
assets, aftertax,
gain on disposition of operations, aftertax, and
adjustments for other significant nonrecurring, infrequent or unusual items,
when (a) the nature of the charge or gain is such that it is reasonably Rashard Mendenhall Black Jersey unlikely to recur within two
years, or (b) there has been no similar charge or gain within the prior two
years.
Net income available to common shareholders is the GAAP measure that is most
directly comparable to operating income.
We use operating 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
that are not hedged, business combination expenses and the amortization of
purchased intangible assets, gain on disposition of operations and adjustments
for other significant nonrecurring, infrequent or unusual items. Realized
capital gains and losses, valuation changes on embedded derivatives that are not
hedged and gain 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, operating 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. net
investment income and interest credited to contractholder funds) or replicated
investments. Business combination expenses are excluded because they are
nonrecurring 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. Nonrecurring
items are excluded because, by their nature, they are not indicative of our
business or economic trends. Accordingly, operating 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 operating 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. Operating income is used by management along with the
other components of net income available to common shareholders to assess our
performance. We use adjusted measures of operating income and operating income
per diluted common share in incentive compensation. Therefore, we believe it is
useful for investors to evaluate net income available to common shareholders,
operating 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
operating 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 forwardlooking valuation technique uses operating income as the denominator.
Operating income should not be considered a substitute for net income available
to common shareholders and does not reflect the overall profitability of our
business.
The following tables reconcile operating income and net income available to
common shareholders.
Operating income return on common shareholders' equity is a ratio that uses a
nonGAAP measure. It is calculated by dividing the rolling 12month operating
income by the average of common shareholders' equity at the beginning and at the
end of the 12months, 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 operating income as the numerator for the same
reasons we use operating 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 available 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 net income return on common
shareholders' equity because it eliminates the aftertax 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 nonrecurring items that are not indicative of our ongoing business or
economic trends. A byproduct of excluding the items noted above to determine
operating 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. Therefore,
we believe it is useful for investors to have operating income return on common
shareholders' equity and return on common shareholders' equity when evaluating
our performance. note that investors, financial analysts, financial and business
media organizations and rating agencies utilize operating 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. Operating 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.
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