The Allstate Corporation has warned of a restructuring charge of approximately $290 million (pre-tax) to be recognised in the final two quarters of the year, alongside real estate exit costs of around $80 million (pre-tax) and the negative impact of low interest rates on third-quarter earnings.
The insurer has provided some details on the impacts of its multi-year Transformative Growth Plan and the persistent low interest rate environment on its earnings in Q3 2020.
Allstate says that the aim of its Transformative Growth Plan is to grow its personal property-liability market share by expanding customer access, while at the same time improving value for customers and investing in both marketing and technology.
The firm explains how customer access has already been expanded via the merger of the Esurance and Allstate brand direct operations. Improving customer value, says Allstate, includes improving the competitive price position of auto insurance coverage, which ultimately requires cost reductions in order to maintain desirable margins.
In order to lower costs, Allstate is implementing a restructuring plan which will impact some 3,800 employees primarily in claims, sales, service and support functions.
Tom Wilson, Chair, President and Chief Executive Officer (CEO) of Allstate, commented: “Implementing this plan is difficult as we still deal with the impact of the pandemic but necessary to provide customers the best value. We have expanded transition support for impacted employees including prioritized internal hiring, extended medical coverage, expanded retraining support and help in employment searches.”
Allstate has announced that as a result of these actions, it expects to incur a restructuring charge of around $290 million (pre-tax), of which between $210 million and $220 million (pre-tax) will be recognised in the third-quarter of 2020, with $50 million to $60 million (pre-tax) to be recognised in the final quarter of the year. Any remaining charges will be recognised in the first-quarter of 2021.
Allstate warns that these charges will have a negative impact on both net income and adjusted net income. The primary costs, approximately $210 million (pre-tax) of this total, relates to severance and employee benefits. Additionally, notes the insurer, it expects to incur real estate exist costs of around $80 million (pre-tax), resulting from office closures.
The company also discusses the impact of the low interest rate environment on its third-quarter 2020 earnings. Highlighting that a premium deficiency reserve for immediate annuities with life contingencies will be recognised in light of updated investment and actuarial assumptions, which will lower net income but not adjusted net income.
“The annual review of assumptions for life insurance, other annuities and Discontinued Lines and Coverages will reduce both net income and adjusted net income,” explains Allstate.
Overall, these items are expected to lower the company’s net income by approximately $450 million to $550 million (pre-tax), and adjusted net income by between $240 million and $280 million (pre-tax).
