) second-quarter 2013 operating earnings per share of $1.12
noticeably outpaced the Zacks Consensus Estimate of 98 cents and
the year-ago quarter figure of 87 cents.
Operating net income surged 22.5% to $529 million from $432
million in the year-ago quarter. Including extraordinary items,
Allstate's reported net income stood at $434 million or 92 cents
per share for the reported quarter, up from $423 million or 86
cents per share in the prior-year quarter.
Results for the quarter reflected lower claims along with
higher premiums and income from Allstate Financial, all of which
drove the improved bottom line, book value per share and return
on equity (ROE). However, lower investment income and higher
operating expenses deteriorated operating cash flow. Although
catastrophe losses were lower year-over-year, it maintained a
Property-liability insurance claims and claims expenses inched
down 1.4% year over year to $4.74 billion, while operating costs
and expenses climbed 9.4% year over year to $1.1 billion.
Particularly, catastrophe losses for the reported quarter
declined 21% to $647 million from $819 million in the year-ago
Allstate's net revenue grew 6.1% year over year to $8.79
billion. It also topped the Zacks Consensus Estimate of $7.38
Quarter in Detail
earned premiums were $6.86 billion, up 2.9% 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 4.2% year over year within
the Allstate brand. Additionally, the Encompass brand witnessed
an increase of 9.0% in net written premiums. Esurance posted
31.7% growth in net written premiums.
The segment's combined ratio improved to 96.1% from 98.0% 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, 0.6 points weaker 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 escalated 100.7% year over year
to $269 million. Growth was driven by higher premiums and lower
claims expense, partially offset by higher operating costs.
Subsequently, lower catastrophe losses along with higher
underwriting income drove Property-Liability's net income to $617
million from $354 million in the year-ago quarter. Operating
income for this segment also jumped to $433 million against $357
million in the year-ago period. The Property-Liability expense
ratio for the reported quarter deteriorated to 27.0 from 25.8 in
the prior-year quarter.
On the other hand, operating income for
grew 13.8% year over year to $157 million. The increase reflected
higher premiums and contract charges, lower crediting rates and
continued reduction in spread-based business in force. These were
partially offset by lower investment income and higher operating
expenses and contract benefits.
Moreover, consistent with shifting the focus to underwritten
products from spread-based products, contractholder funds were
reduced by $2.5 billion from Mar 2013-end to $31.7 billion.
Meanwhile, net income increased 43.9% year over year to $190
million, primarily driven by gains on realized capital and
derivatives against the prior-year quarter.
Corporate & Other
segment reported a net loss of $373 million, significantly wider
than a loss of $63 million in the prior-year quarter, primarily
due to loss of extinguishment of debt of $312 million. However,
total operating cost and expenses stood at $106 million, as
opposed to $107 million in the year-ago quarter.
Investment and Capital Position
As of Jun 30, 2013, Allstate's total investment portfolio
decreased to $92.32 billion from $97.28 billion at 2012-end,
reflecting negative investment returns of 1.5% driven by lower
valuations, primarily in fixed income portfolio.
Allstate's net investment income decreased to $984 million
during the reported quarter, while portfolio yields stood higher
than the prior quarter at 4.6% as of Jun 30, 2013. The decline
was primarily attributable to lower reinvestment rates and
continued focus on reduction in Allstate Financial's
Book value per share increased 4.8% year over year to $41.63
in the reported quarter. Book value per share, excluding the
impact of unrealized net capital gains and losses on fixed income
securities, improved 7.4% to $38.47 at the end of Jun 2013. As
well, annualized operating ROE improved to 11.6% against 11.0% in
the year-ago quarter.
Operating cash flow declined 12.5% year over year to $1.55
billion in the reported quarter, while cash stood at $634 million
against $806 million at 2012-end. Long-term debt decreased to
$5.48 billion and total equity dipped to $19.87 billion, while
total assets dipped to $121.5 billion at the end of Jun 2013. The
company's statutory surplus, at the end of Jun 2013, stood at
$17.0 billion, lower than $17.2 billion at 2012-end.
Stock Repurchase Update
Allstate bought back 4.9 million shares for $254 million
through open market operations during the reported quarter. At
the end of Jun 2013, Allstate had shares worth $1.08 billion
available for repurchases under the total authorization.
On Feb 6, 2013,the board of Allstate sanctioneda new share
repurchase program worth $1.0 billion, commencing immediately,
which is to expire by Mar 2014.
Earlier, on Dec 17, 2012, Allstate had authorized another $1.0
billionshare repurchase program.It is scheduled to culminate by
Dec 2013. While the share buyback will be made through open
market operations, the company has a total authorization to buy
back shares worth $2.0 billion.
Additionally, Allstate held $2.4 billion as deployable assets
as of Jun 30, 2013, higher than $2.06 at 2012-end.
On Jul 23, 2013, the board announced a regular quarterly
dividend to 25 cents a share, payable on Oct 1, 2013 to the
shareholders of record as on Aug 30, 2013.
On Apr 1, 2013, Allstate paid a regular quarterly dividend to
25 cents to shareholders of record as on Feb 28, 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 #3 (Hold), other strong
Assured Guaranty Ltd.
). All these stocks carry a Zacks Rank #2 (Buy).
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