The Allstate CorporationALL reported first-quarter 2016 operating earnings per share of 84 cents that comfortably beat the Zacks Consensus Estimate of 75 cents by 12%. The bottom line, however, plunged 42.5% year over year due to lower investment income and catastrophe losses, partially offset by higher insurance premiums and favorable mortality experience.
The Allstate's total operating revenue increased2.3% year over year to $9 billion on higher Property-liability insurance premiums (up 4% to $7.7 billion) and Life and annuity premiums (Allstate Financial Premiums) and contract charges (up 5.4% year over year to $0.6 billion).Revenues comfortably surpassed the Zacks Consensus Estimate of $8 billion.
Net investment income declined 14% to $0.7 billion from the prior-year quarter. Lower income from performance-based and fixed income portfolios resulted in the underperformance .
Total revenues were affected by net realized losses of $149 million due to loss on sale of energy-related investments and higher impairment write-downs. The company had reported net realized gains of $139 million in the first quarter of 2015
Property-liability insurance claims and claim expenses rose 13.8% year over year to $5.7 billion in the first quarter, while operating expenses decreased 10% to $982 million.
During the quarter, the company incurred catastrophe losses of $827 million, wider than $294 million in the year-ago quarter. Two major hailstorms in the quarter resulted in the wider losses.
Quarter in Detail
Property-Liability net premiums earned were $7.5 billion, up 4% from the prior-year quarter. The upside was primarily driven by a 4.3% increase in Allstate brand premiums on the back of higher Allstate brand auto premiums. Also, a 2.5% increase in net premiums written from the Esurance brand due to an increase in auto average premiums boosted net premiums. These were partly offset by a 6.7% decline in premiums written from the Encompass brand due to policies in force.
The segment's combined ratio deteriorated 470 basis points (bps) year over year to 98.4% due to a 107 bps impact of catastrophe losses.
Operating income for Allstate Financial plunged 22.4% year over year to $104 million. The decline stemmed from lower yield on fixed income assets and a decrease in performance-based investment income despite a 9% year on year growth in policies in force.
Investment and Capital Position
As of Mar 31, 2016, Allstate's total investment portfolio expanded by 1.4% to $78.9 billion from $77.8 billion at year-end 2015.
Book value of $48.89 per share decreased 0.6% year over year.
As of Mar 31, 2016, total equity increased by 1.6% to $20.3 billion in the reported quarter, while total assets inched up 1.2% to $105.9 billion from that as of Dec 31 2015. Long-term debt slipped 0.3% to $5.1 billion from the 2015-end level.
Stock Repurchase and Dividend Update
Allstate's board has authorized a $1.5 billion share repurchase program which is expected to be completed by Nov 2017. The company declared a cash dividend of 33 cents per share. This represents a 10% hikes from the prior payout.
Allstate returned $565 million worth of capital to shareholders this quarter.
Zacks Rank and Performance of Other Insurers
Allstate carries a Zacks Rank #3 (Hold). The bottom line at RLI Corp. RLI outperformed the Zacks Consensus Estimate, while Travelers Companies Inc. TRV and Progressive Corp PGR missed the same during the first quarter.
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