ALLSTATE CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion highlights significant factors influencing the
consolidated financial position and results of operations of The Allstate
Corporation (referred to in this document as "we," "our," "us," the "Company" or
"Allstate"). It should be read in conjunction with the condensed consolidated
financial statements and related notes thereto found under Part I. Item 1.
contained herein, and with the discussion, analysis, consolidated financial
statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8.
of The Allstate Corporation annual report on Form 10-K for 2020, filed February
19, 2021.
Further analysis of our insurance segments is provided in the Property-Liability
Operations and Segment Results sections, including Allstate Protection and
Run-off Property-Liability (previously Discontinued Lines and Coverages),
Protection Services and Allstate Health and Benefits (previously Allstate
Benefits), of Management's Discussion and Analysis ("MD&A"). The segments are
consistent with the way in which the chief operating decision maker reviews
financial performance and makes decisions about the allocation of resources.
The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus")
The Coronavirus resulted in governments worldwide enacting emergency measures to
combat the spread of the virus, including travel restrictions,
government-imposed shelter-in-place orders, quarantine periods, social
distancing, and restrictions on large gatherings. These measures have moderated
in 2021 as vaccines have become more widely available in the United States and
Canada. There is no way of predicting with certainty how long the pandemic might
last. We continue to closely monitor and proactively adapt to developments and
changing conditions. Currently, it is not possible to reliably estimate the
impact to our operations, but the effects have been and could be material.
The Coronavirus has affected our operations and may continue to significantly
affect our results of operations, financial condition and liquidity, including:
•Sales of new and retention of existing policies
•Premium for transportation network products
•Driving behavior and auto accident frequency
•Supply chain disruptions and labor shortages could increase the cost of
settling claims
•Hospital and outpatient claim costs
•Investment valuations and returns
•Bad debt and credit allowance exposure
•Consumer utilization of Milewise®, our pay-per-mile insurance product
•Retail sales in Allstate Protection Plans
This list is not inclusive of all potential impacts and should not be treated as
such. Within the MD&A we
have included further disclosures related to the impacts of the Coronavirus on
our 2021 results.
Corporate Strategy
Our strategy has two components: increase personal property-liability market
share and expand protection offerings by leveraging the Allstate brand, customer
base and other core capabilities.
Transformative Growth is about creating business models, capabilities and
culture to build growth businesses that deliver affordable, simple and connected
protection solutions for consumers.
In the personal property-liability businesses this has four key components:
•Improving customer value
•Expanding customer access
•Increasing customer acquisition sophistication and investment
•Building new technology applications
The protection businesses are being expanded by leveraging enterprise
capabilities and resources such as distribution, brand, analytics, claims,
investment expertise, talent and capital.
Enhancing strategic position in the independent agent channel On January 4,
2021, we completed the acquisition of National General Holdings Corp. ("National
General"), significantly enhancing our strategic position in the independent
agency channel. The transaction increased our market share in personal
property-liability by over one percentage point and enhanced our independent
agent-facing technology. It will significantly expand our distribution
footprint, leading us to be a top five personal lines carrier in the independent
agency distribution channel.
As part of the acquisition, Allstate Independent Agency and Encompass
organizations will be integrated into National General by:
•Migrating Encompass policyholders and business operations to National General
and retiring Encompass's technology
•Transitioning Allstate Independent Agent new business to National General as
mid-market products roll out
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Discontinued operations and held for sale During the first quarter of 2021, we
announced the pending sales of Allstate Life Insurance Company ("ALIC"),
Allstate Life Insurance Company of New York ("ALNY") and certain affiliates. We
are no longer accepting new proprietary life insurance applications through
Allstate exclusive agents. On October 1, 2021, we closed the sale of ALNY to
Wilton Reassurance Company for $400 million. On November 1, 2021, we closed the
sale of ALIC and certain affiliates to entities managed by Blackstone for total
proceeds of $4 billion, including purchase price of $2.8 billion as well as
increases in statutory surplus.
A loss on disposition of $4 billion, after-tax, was recorded in the first
quarter of 2021 related to these transactions. For the nine months ended
September 30, 2021, the loss on disposition was $3.8 billion, after-tax, and
reflects purchase price adjustments associated with certain pre-close
transactions specified in the stock purchase agreements, changes in statutory
capital and surplus prior to the closing dates and the closing date equity of
the sold entities determined under GAAP, excluding unrealized gains and losses
on fixed income securities.
Beginning in the first quarter of 2021, the assets and liabilities of the
business were reclassified as held for sale and results are presented as
discontinued operations. This change was applied on a retrospective basis.
SafeAuto On June 1, 2021, we announced an agreement to acquire Safe Auto
Insurance Group, Inc., a non-standard auto insurance carrier. On October 1,
2021, we completed the acquisition for $262 million in cash.
See Note 3 of the condensed consolidated financial statements for further
information on acquisitions and dispositions.

Measuring segment profit or loss
The measure of segment profit or loss used in evaluating performance is
underwriting income for the Allstate Protection and Run-off Property-Liability
segments and adjusted net income for the Protection Services, Allstate Health
and Benefits and Corporate and Other segments.
Underwriting income is calculated as premiums earned and other revenue, less
claims and claims expense ("losses"), Shelter-in-Place Payback expense,
amortization of deferred policy acquisition costs ("DAC"), operating costs and
expenses, amortization or impairment of purchased intangibles and restructuring
and related charges, as determined using accounting principles generally
accepted in the United States of America ("GAAP"). We use this measure in our
evaluation of results of operations to analyze profitability.
Adjusted net income is net income (loss) applicable to common shareholders,
excluding:
  •   Realized capital gains and losses except for periodic settlements and accruals on
      non-hedge derivative instruments, which are reported with realized capital gains and
      losses but included in adjusted net income
  •   Pension and other postretirement remeasurement gains and losses
  •   Business combination expenses and the amortization or impairment of purchased
      intangibles
  •   Income or loss from discontinued operations
  •   Adjustments for other significant non-recurring, infrequent or unusual items, when (a)
      the nature of the charge or gain is such that it is reasonably unlikely to recur
      within two years, or (b) there has been no similar charge or gain within the prior two
      years
  •   Income tax expense or benefit on reconciling items


                                                 Third Quarter 2021 Form 10-Q 53

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Highlights

       Consolidated net income
($ in millions)


       Q1      Q2      Q3

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Consolidated net income applicable to common shareholders decreased 54.9% to $508 million
in the third quarter of 2021 compared to the same period of 2020 primarily due to higher
non-catastrophe and catastrophe losses, lower realized capital gains, partially offset by
higher property and casualty insurance premiums and higher net investment income.

Consolidated net income applicable to common shareholders decreased 75.7% to $695 million
in the first nine months of 2021 compared to the same period of 2020 primarily due to a
loss from discontinued operations and higher non-catastrophe losses. Partially offsetting
were higher property and casualty insurance premiums, net investment income, and pension
and other postretirement gains in 2021 compared to losses in 2020.

For the twelve months ended September 30, 2021, return on Allstate common shareholders'
equity was 13.2%, a decrease of 5.7 points from 18.9% for the twelve months ended
September 30, 2020.

         Total revenue
( ($ in millions)

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Total revenue increased 16.9% to $12.48 billion and 21.4% to $37.58 billion in the third
quarter and first nine months of 2021, respectively, compared to the same periods of 2020,
driven by 13.7% and 12.9% increase in property and casualty insurance premiums in the third
quarter and first nine months of 2021, respectively, and higher net investment income.
Insurance premiums earned increased in both Property-Liability, primarily due to the
acquisition of National General, and Protection Services.

       Net investment income
($ in millions)

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Net investment income increased $300 million to $764 million in the third quarter of 2021
compared to the same period of 2020 and increased $1.52 billion to $2.45 billion in the
first nine months of 2021 compared to the same period of 2020. The increase in both periods
was primarily due to increases in performance-based income results, mainly from limited
partnerships.

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Financial highlights
Investments totaled $61.84 billion as of September 30, 2021, increasing from
$59.54 billion as of December 31, 2020.
Allstate shareholders' equity As of September 30, 2021, Allstate shareholders'
equity was $26.73 billion.
Book value per common share (ratio of Allstate common shareholders' equity to
total common shares outstanding and dilutive potential common shares
outstanding) was $84.62, an increase of 2.7% from $82.39 as of September 30,
2020, and a decrease of 7.5% from $91.50 as of December 31, 2020.
Return on average Allstate common shareholders' equity For the twelve months
ended September 30, 2021, return on Allstate common shareholders' equity was
13.2%, a decrease of 5.7 points from 18.9% for the twelve months ended
September 30, 2020. The decrease was primarily due to lower net income
applicable to common shareholders for the trailing twelve-month period ended
September 30, 2021 and an increase in average Allstate common shareholders'
equity.
Pension and other postretirement remeasurement gains and losses We recorded
pension and other postretirement remeasurement losses of $40 million in the
third quarter of 2021 primarily related to unfavorable asset performance
compared to the expected return on plan assets, partially offset by an increase
in the liability discount rate. Pension and other postretirement remeasurement
gains of $404 million in the first nine months of 2021 primarily related to an
increase in the liability discount rate and favorable asset performance compared
to the expected return on plan assets.