Despite a previously announced restructuring charge and elevated catastrophe losses of $990 million, The Allstate Corporation has reported a 26.7% rise in net income to $1.13 billion for the third-quarter of 2020.
At the start of October, Allstate warned that its third-quarter results would be negatively impacted by a restructuring charge, real estate exit costs and low interest rates. Later in the month, the company announced that September catastrophe losses of $339 million had taken its Q3 2020 cat bill to $990 million.
But in spite of these charges and cat losses, the firm has recorded an improved net income for the third-quarter of the year, driven mostly by higher auto insurance underwriting income and net realised capital gains.
Premiums written increased by just under 1% in Q3 2020 to $9.4 billion, while underwriting income increased slightly year-on-year to end the quarter at $753 million. As a result, Allstate’s combined ratio remained unchanged year-on-year at 91.6%. However, the underlying combined ratio improved by 6.6 percentage points year-over-year to 79.7%, reflecting lower non-cat losses and higher premiums earned.
Allstate notes that its underwriting income in the quarter was boosted by reserve reestimates, while the firm recovered $495 million for California wildfire subrogation settlements, which ultimately reduced cat losses.
At the same time, non-cat prior year reserve reestimates were an adverse $70 million in the third quarter of 2020, driven by a $132 million increase from the annual review of asbestos, environmental and other reserves in the Discontinued Lines and Coverages segment, explains the firm.
Allstate notes that this was partially offset by the restructuring charge and also increased bad debt expense from billing deferral options provided during the COVID-19 pandemic, which increased the Q3 expense ratio by 2.1 points and 0.2 points, respectively.
Tom Wilson, Chair, President, and Chief Executive Officer (CEO) of the company, commented: “Allstate delivered excellent returns while adapting to the pandemic and executing our strategy. We continue to operate virtually, including settlement of most claims, to better serve customers. Total policies in force increased 27% over the last 12 months, reflecting strong growth of Allstate Protection Plans and modest growth in Property-Liability policies.
“The Property-Liability underlying combined ratio was excellent, reflecting lower frequency of auto accidents as the pandemic reduced miles driven. Investment income was down slightly from the prior year quarter, and the total year-to-date portfolio return was 4.4%. Net income was $1.1 billion for the quarter despite high catastrophe losses, non-recurring charges for a cost reduction program and the impact of low interest rates on future income levels. The return on equity was 18.9% for the last 12 months.
“Our two-part strategy of increasing market share in personal property-liability and expanding the circle of protection for customers also improved results. Transformative Growth will increase market share in Property-Liability by expanding customer access, improving customer value, and investing in marketing and technology. In the Property-Liability businesses, direct customer access increased, costs were reduced and new Allstate advertising was launched.
“The circle of protection also expanded, with Allstate Protection Plans growing policies 40% since the prior year with adjusted net income increasing to $36 million for the quarter. The Allstate team has proactively adapted this year to the pandemic, wildfires, hurricanes and a tough economic environment while creating long-term value.”
Looking at the asset side of the balance sheet during the period, and Allstate has reported net investment income of $832 million, which represents a decline of 5.5% from the $880 million reported a year earlier.
