Allstate Earnings Top on Low CAT Loss - Analyst Blog


Allstate Corporation 's ( ALL ) fourth-quarter 2013 operating earnings per share of $1.70 noticeably outpaced the Zacks Consensus Estimate of $1.38 and the year-ago quarter figure of 59 cents.

Subsequently, operating net income surged over threefold to $781 million from $289 million in the year-ago quarter. Including extraordinary items, Allstate's reported net income stood at $810 million or $1.76 per share, up from $394 million or 81 cents per share in the prior-year quarter.

Results for the quarter reflected higher premiums, lower catastrophe (CAT) losses and underwriting results, all of which boosted the operating income across segments, operating cash flow, return on equity (ROE) and book value per share. However, lower investment income, loss on disposition of Lincoln Benefit Life Company (LBL) along with higher operating expenses partially offset the upsides.

Property-liability insurance claims and claim expenses declined 15.1% year over year to $4.28 billion, while operating costs and expenses scaled up 14.9% year over year to $1.26 billion. Particularly, catastrophe losses for the reported quarter plunged to $117 million from $1.06 billion in the year-ago period.

Allstate's net revenue grew 2.9% year over year to $8.79 billion. The results also topped the Zacks Consensus Estimate of $8.58 billion substantially.

Quarter in Detail

Property-Liability earned premiums were $7.01 billion, up 4% 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 3.9% year over year within the Allstate brand, whereas total policies inched up 0.4%. Additionally, the Encompass brand witnessed an increase of 6.1% in net written premiums and 6.5% growth in policies. Esurance posted 23% growth in net written premiums and 26.7% in policies.

The segment's combined ratio improved to 88.7% from 101.7% in the year-ago quarter, reflecting radically lower catastrophe losses.

However, the underlying combined ratio, which excludes catastrophes and prior-year reserve estimates, was 87.5% in the reported quarter, 0.8 points stronger than the year-ago quarter, due to higher underwriting expenses. Nonetheless, this was reasonably below management's outlook of underlying combined ratio of 88% to 90% for 2013.

Meanwhile, underwriting income escalated to $794 million from a loss of $116 million. Growth was driven by higher premiums along with lower claims expense, operating costs and catastrophe losses.

Subsequently, lower catastrophe losses along with higher underwriting income boosted Property-Liability's net income to $865 million from $280 million in the year-ago quarter. Operating income for this segment also ascended to $793 million against $200 million in the year-ago period. However, the Property-Liability expense ratio for the reported quarter deteriorated to 27.6% from 26.9% in the prior-year quarter.

On the other hand, operating income for Allstate Financial grew 11.1% year over year to $160 million. The increase reflected higher premiums and contract charges, stable investment income, slightly lower operating expenses and lower crediting rates. These were partially offset by higher contract benefits.

However, net income narrowed to $119 million against $166 million, primarily due to the loss of $44 million related to the disposition of LBL.

Corporate & Other segment reported a net loss of $174 million, significantly deteriorating from a loss of $52 million in the prior-year quarter. The deterioration was primarily due to higher total operating cost and expenses that stood at $258 million, as opposed to $96 million in the year-ago quarter.

Highlights of Full-Year 2013

For full-year 2013, Allstate reported operating earnings per share of $5.68, comfortably outpacing the Zacks Consensus Estimate of $5.37 and the 2012 equivalent of $4.36 a share. Operating earnings surged 24.3% year over year to $2.67 billion. Including one-time items, GAAP net income escalated to $2.26 billion or $4.81 per share in 2013 versus $2.31 billion or $4.68 per share in 2012.

Total revenue for the reported quarter climbed 3.6% year over year to $34.51 billion, also exceeding the Zacks Consensus Estimate of $34.29 billion. Property-liability insurance claims and claims expenses fell 3.1% to $17.91 billion, while operating costs and expenses increased 6.5% to $4.39 billion.

Investment and Capital Position

As of Dec 31, 2013, Allstate's total investment portfolio decreased to $81.16 billion from $97.28 billion at 2012-end, reflecting annual investment returns of 1.8% driven by lower valuations, primarily in fixed income portfolio. It also reflects the reclassification of $11.98 billion of classified investments due to the pending sale of LBL and decrease in net unrealized capital gains worth $2.85 billion, driven by the significant rate hikes since 2012-end.

Allstate's net investment income decreased 0.7% year over year to $1.03 billion during the reported quarter, primarily attributable to lower reinvestment rates. However, portfolio yields stood, at par with the prior-year, at 4.6% as of Dec 31, 2013.

Book value per share increased 6.9% year over year to $45.31 in the reported quarter. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, jumped 14.6% to $42.55 at the end of Dec 2013. Additionally, annualized operating ROE improved to 14.5% against 12.4% in the year-ago quarter.

Operating cash flow surged 38.9% year over year to $4.24 billion at the end of Dec 2013, while cash stood at $675 million against $806 million at 2012-end. Long-term debt increased to $6.2 billion and total equity increased to $21.48 billion, while total assets declined to $123.52 billion at the end of Dec 2013. The company's statutory surplus, at the end of Dec 2013, stood at $18.2 billion, higher than $17.2 billion at 2012-end.

Stock Repurchase Update

Allstate bought back shares worth about $449 million through open market operations during the reported quarter and $1.84 billion in 2013. At the end of Dec 2013, Allstate had shares worth $139 million available for repurchases under the total $2.0 billion authorization.

Additionally, Allstate held $2.56 billion as deployable assets as of Dec 31, 2013, higher than $2.06 at 2012-end.

Dividend Update

On Jan 2, 2014, Allstate paid a regular quarterly dividend of 25 cents per share to shareholders of record as on Nov 29, 2013. This dividend represented a hike of 13.6% in Feb 2013 from the prior payout of 22 cents.


While Allstate carries a Zacks Rank #2 (Buy), some other top-ranked insurers include RLI Corp. ( RLI ), Endurance Specialty Holdings Ltd. ( ENH ) and White Mountains Insurance Group Ltd. ( WTM ). All these stocks sport a Zacks Rank #1 (Strong Buy). 

ALLSTATE CORP (ALL): Free Stock Analysis Report

ENDURANCE SPLTY (ENH): Free Stock Analysis Report

RLI CORP (RLI): Free Stock Analysis Report

WHITE MTN INS (WTM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CAT , ALL , ENH , RLI , WTM

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