Allstate Q3 Earnings Fall Y/Y on CAT Loss; Buyback Raised
Allstate Corporation (ALL) reported third-quarter 2014 operating earnings per share of $1.39, which comfortably beat the Zacks Consensus Estimate of $1.36 by 2.2%, as most of the projected catastrophe (CAT) loss was absorbed in the estimate. Moreover, the results enabled the company to keep its earnings streak alive with the trailing four-quarter average beat of 16.4%.
The Allstate Corporation - Quarterly EPS (:BNRI) | FindTheBest
However, the reported figure lagged the year-ago quarter figure of $1.53 by 9.2% due to higher CAT losses. Operating net income plunged 16.1% to $598 million. Including extraordinary items, Allstate’s reported net income surged to $750 million or $1.74 per share from $310 million or 66 cents per share in the prior-year quarter.
Property-liability insurance claims and claim expenses rose 10.9% year over year to $4.91 billion, while operating costs and expenses increased 14% to $1.07 billion. Notably, pre-tax CAT losses for the reported quarter spiked to $517 million from $128 million a year-ago.
Allstate’s net revenue climbed 5.6% year over year to $8.94 billion. The upside was led by higher property-liability premiums and net realized investment gains, partially offset by lower net investment income and life, annuity premiums and contract charges.
Quarter in Detail
Property-Liability’s earned premiums were $7.31 billion, up 4.8% from the prior-year quarter, primarily driven by decent performance across the Allstate, Encompass and Esurance brands, modest growth in new business and customer retention across standard auto and personal lines’ businesses. However, policy rates continued to remain sluggish in the homeowners’ segment.
Moreover, net written premiums grew 4.5% year over year within the Allstate brand, while total policies inched up 1.9% reflecting improvement in auto and personal lines. Additionally, the Encompass brand witnessed an increase of 4.3% in net written premiums and 3.1% in policies. Esurance posted 14% growth in net written premiums and 14.1% in policies.
The segment’s combined ratio deteriorated to 93.5% from 90.0% in the year-ago quarter, reflecting radically high CAT losses.
However, the underlying combined ratio, which excludes catastrophes and prior-year reserve estimates, was 86.1% in the reported quarter, down 0.8 points from the year-ago quarter due to improvement in underlying loss costs. This was also lower than management’s outlook of underlying combined ratio of 87% to 89% for 2014.
Meanwhile, underwriting income tanked 32% to $474 million owing to higher claims, operating expenses and CAT losses. However, the Property-Liability expense ratio for the reported quarter was marginally lower at 26.3% against 26.5% in the prior-year quarter.
Subsequently, higher catastrophe losses, along with lower underwriting, dragged Property-Liability’s operating income to $553 million from $685 million in the year-ago period. These negatives were partly offset by improved investment income. However, net income for this segment improved to $714 million from $656 million in the year-ago quarter, primarily due to higher realized capital gains.
On the other hand, operating income for Allstate Financial dipped to $125 million from $127 million a year-ago. Lower net investment income, premiums and contract charges were partly offset by lower benefits and interests charged against contract funds, along with lower operating expenses and deferred amortization costs.
However, net income grew to $116 million against a loss of $360 million, primarily owing to lower loss on disposition of operations and higher capital gains.
Corporate & Other segment reported a net loss of $80 million versus an income of $14 million in the prior-year quarter. The deceleration primarily came on the back of a post-retirement benefits curtailment gain recorded in the year-ago period.
Investment and Capital Position
As of Sep 30, 2014, Allstate’s total investment portfolio decreased to $80.72 billion from $81.16 billion at 2013-end, reflecting total portfolio returns of 0.4%. However, annualized portfolio yields were 4.4% at Sep 2014-end, unchanged from the prior-year quarter but slightly down from 4.6% at 2013-end.
Allstate’s net investment income declined 13.4% year over year to $898 million in the reported quarter primarily owing to reduction of $12 billion in the portfolio related to the LBL divestiture, the decision to shorten the duration of property-liability fixed income portfolio and lower prepayment fees and litigation proceeds. This also included $162 million from limited partnership interests.
Book value per share increased 11% year over year to $48.28 in the reported quarter. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, jumped 10.7% to $44.67 at the end of Sep 2014. Additionally, annualized operating ROE improved to 13% from 12% in the year-ago quarter.
Operating cash flow plunged 16.5% year over year to $2.57 billion at the end of Sep 2014, while cash stood at $885 million against $675 million at 2013-end. Long-term debt decreased to $5.2 billion from $6.2 billion at 2013-end, and total equity increased to $22.33 billion from $21.48 billion at 2013-end. Meanwhile total assets declined to $108.31 billion at the end of Sep 2014 from $123.52 billion at 2013-end.
The company’s statutory surplus, at the end of Sep 2014, came in at $18.0 billion, lower than $18.2 billion at 2013-end. Further, total debt to capital ratio improved to 18.9% at Sep 2014-end from 22.4% at 2013-end, as the company redeemed 5% senior notes worth $650 million during the reported quarter.
Stock Repurchase Update
Allstate bought back shares worth about $926 million through open market operations during the reported quarter. The board further expanded the $2.5 billion share repurchase program, authorized in Feb 2014, by another $750 million. The buyback is projected to be executed by Dec 2015.
Allstate should likely have shares about $1.32 billion available for repurchase under the current authorization.
Dividend Update
On Oct 1, 2014, the company paid a regular quarterly dividend of 28 cents per share to shareholders of record as on Aug 29. In Feb 2014, this dividend was hiked by 12% from the prior payout of 25 cents. Thus, the company is now shelling out $1.12 per share annually.
Stocks to Consider
Currently, Allstate carries a Zacks Rank #2 (Buy). Other insurance stocks like HCI Group Inc. (HCI), Endurance Specialty Holdings Ltd. (ENH) and AmTrust Financial Services, Inc. (AFSI), all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning as well.
Read the Full Research Report on ALL
Read the Full Research Report on AFSI
Read the Full Research Report on ENH
Read the Full Research Report on HCI
Zacks Investment Research
