) third-quarter 2013 operating earnings per share of $1.53
comfortably outpaced the Zacks Consensus Estimate of $1.37 and
the year-ago quarter figure of $1.46, primarily on lower share
However, operating net income dipped 0.6% to $713 million from
$717 million in the year-ago quarter. Including extraordinary
items, Allstate's reported net income stood at $310 million or 66
cents per share, down from $723 million or $1.48 per share in the
Results for the quarter reflected higher premiums, lower
catastrophe losses and benefits of changes made in employee
benefit plans, all of which boosted operating income across
segments, operating cash flow and book value per share. However,
lower investment income, loss on disposition of Lincoln Benefit
Life Company (LBL) along with higher claims and operating
expenses deteriorated the bottom line and return on equity
Property-liability insurance claims and claims expenses
climbed 3.1% year over year to $4.43 billion, while operating
costs and expenses dipped 7.2% year over year to $937 million.
Particularly, catastrophe losses for the reported quarter
declined 37.9% to $128 million from $206 million in the year-ago
Allstate's net revenue grew 4.1% year over year to $8.47
billion. The results also topped the Zacks Consensus Estimate of
$7.38 billion substantially.
Quarter in Detail
earned premiums were $6.97 billion, up 4.1% from the prior-year
quarter, primarily driven by modest performance across the
Allstate, Encompass and Esurance brands as well as modest growth
in standard auto, homeowners' and emerging businesses.
Moreover, net written premiums grew 4.1% year over year within
the Allstate brand, while total policies dipped 0.4%.
Additionally, the Encompass brand witnessed an increase of 10.8%
in net written premiums and 7.2% growth in policies. Esurance
posted 27% growth in net written premiums and 32% in
The segment's combined ratio improved to 90.0% from 90.2% in
the year-ago quarter, reflecting lower catastrophe losses.
However, the underlying combined ratio, which excludes
catastrophes and prior-year reserve estimates, was 86.9% in the
reported quarter, 0.9 points stronger than the year-ago quarter.
Nonetheless, this was well below management's outlook of
underlying combined ratio of 88% to 90% for 2013.
Meanwhile, underwriting income improved 5.8% year over year to
$697 million. Growth was driven by higher premiums, partially
offset by higher claims expense and operating costs.
Subsequently, lower catastrophe losses along with higher
underwriting income drove Property-Liability's net income to $656
million from $639 million in the year-ago quarter. Operating
income for this segment also ascended to $685 million against
$667 million in the year-ago period. The Property-Liability
expense ratio for the reported quarter deteriorated to 26.5 from
26.1 in the prior-year quarter.
On the other hand, operating income for
grew 30.9% year over year to $127 million. The increase reflected
higher premiums and contract charges, stable investment income,
slightly lower operating expenses, lower crediting rates and
liability reduction in spread-based business. These were
partially offset by higher contract benefits.
Moreover, improved mortality on life insurance and 4.4% growth
in underwriting products also drove results. However, net loss
amplified to $360 million against net income of $131 million,
primarily due to the loss of $472 million related to the
disposition of LBL.
Corporate & Other
segment reported a net income of $14 million, significantly
improving from a loss of $47 million in the prior-year quarter.
The rebound was primarily due to gain on post-retirement benefits
curtailment of $118 million. However, total operating cost and
expenses stood at $159 million, as opposed to $90 million in the
Investment and Capital Position
As of Sep 30, 2013, Allstate's total investment portfolio
decreased to $80.48 billion from $97.28 billion at 2012-end,
reflecting investment returns of 1% driven by lower valuations,
primarily in fixed income portfolio. It also reflects the
reclassification of $12.24 billion of investments due to the
pending sale of LBL and decrease in net unrealized capital gains
worth $2.72 billion, driven by the significant rate hikes since
Allstate's net investment income decreased to $950 million
during the reported quarter, primarily attributable to lower
reinvestment rates and continued focus on reduction in Allstate
Financial's liabilities. However, portfolio yields stood higher
than the prior-year quarter at 4.5% as of Sep 30, 2013.
Book value per share increased 2% year over year to $43.49 in
the reported quarter. Book value per share, excluding the impact
of unrealized net capital gains and losses on fixed income
securities, improved 8.2% to $40.37 at the end of Sep 2013.
Conversely, annualized operating ROE deteriorated to 12% against
15% in the year-ago quarter.
Operating cash flow surged 17.3% year over year to $3.07
billion at the end of Sep 2013, while cash stood at $1.07 billion
against $806 million at 2012-end. Long-term debt increased to
$6.23 billion and total equity increased to $20.78 billion, while
total assets declined to $122.29 billion at the end of Sep 2013.
The company's statutory surplus, at the end of Sep 2013, stood at
$17.3 billion, higher than $17.2 billion at 2012-end.
During the reported quarter, Allstate raised $800 million from
5.75% fixed-to-floating rate subordinated debentures, due to
mature in 2053, and another $385 million from 6.75%
non-cumulative perpetual preferred stock.
Stock Repurchase Update
Allstate bought back shares worth about $491 million through
open market operations during the reported quarter. At the end of
Sep 2013, Allstate had shares worth $589 million available for
repurchases under the total authorization.
On Feb 6, 2013, the board of Allstate sanctioned a new share
repurchase program worth $1.0 billion, commencing immediately and
set to expire by Mar 2014.
Additionally, Allstate held $2.8 billion as deployable assets
as of Sep 30, 2013, higher than $2.06 at 2012-end.
On Oct 1, 2013, Allstate paid a regular quarterly dividend of
25 cents to shareholders of record as on Aug 30, 2013. In Feb
2013, this was hiked by 13.6% from the prior payout of 22
Management expects to maintain the profitability of the auto
business as well as improve homeowners' profitability, resulting
in an underlying combined ratio outlook of 88% to 90% for
While Allstate carries a Zacks Rank #2 (Buy), other strong
CNA Financial Corp.
The Hanover Insurance Group Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ALLSTATE CORP (ALL): Free Stock Analysis
CNA FINL CORP (CNA): Free Stock Analysis
MARKEL CORP (MKL): Free Stock Analysis Report
HANOVER INSURAN (THG): Free Stock Analysis
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