Allstate Credits Risk Management During Q1; Eyes Second Coronavirus Driver Refund

May 6, 2020

Allstate Corp. reported that its adjusted net income rose 47% in the first quarter to $1.14 billion, a jump of 47%, thanks to higher underwriting income and lower catastrophe costs, compared with the quarter one year ago. The highlights for the quarter also included a 92% jump to $1.34 billion in the underwriting profit on its auto and home insurance lines.

The big insurer reported overall revenue of $10.08 billion in the first quarter of 2020, an 8.3% decrease from the prior year quarter, primarily driven by net realized capital losses.

Net investment income decreased 35.0% in the first quarter on lower performance-based results. Property/liability insurance premiums earned increased 4.4%.

The results include the effect of the company’s $600 million Shelter-in-Place Payback for policyholders that was made in response to reduced driving due to the pandemic. Allstate is recording a $210 million expense towards that payback in the first quarter of 2020. The payback increased the expense ratio by 2.4 points in the first quarter.

Another Allstate Auto Insurance Rebate Likely

By Suzanne Barlyn

May 5 (Reuters) – Insurer Allstate Corp. will likely grant an additional rebate to auto insurance customers due to reduced driving during the coronavirus outbreak, Chief Executive Officer Tom Wilson said in an interview on Tuesday.

A second round of rebates would be tailored to reflect the incidences of reduced driving in specific geographies, Wilson said.

Allstate Corp., one of the largest U.S. auto insurers, said on April 6 it would return more than $600 million in premiums to customers as many Americans were driving about 40% to 55% less due to stay-at-home orders aimed at curbing the spread of the coronavirus outbreak.

“I think it’s likely that there will be a next time and when we do it, we will be more precise,” Wilson told Reuters, noting that people are driving more than in mid-April, but still 30% to 40% less than before the pandemic.

Allstate is in the process of distributing the initial $600 million “payback” to most customers of 15% of their monthly premiums in April and May, Wilson said.

There has been an increase in driving in areas where people are no longer bound by stay-at-home orders, but also in places where such orders remain, Wilson said.

Driving patterns are also different in urban areas, where driving might be down by 50% to 60% than before the pandemic, compared to rural areas, which might be down by 20%, Wilson said.

Wilson declined to provide specifics on the possible timing of a second rebate, noting that a tailored approach to the issue would require more analysis than issuing a flat 15% rebate to all customers, he said.

Allstate developed the initial program in about 10 days, but more specificity will take longer, Wilson said.

The insurer based the initial driving frequency analysis partly on data that Allstate collects from tracking products that some customers agree to use in exchange for discounts, as well as other sources.

Geico Corp, part of billionaire Warren Buffett’s Berkshire Hathaway Inc, State Farm, Progressive Corp and USAA are among the U.S. insurers that have also issued rebates to auto insurance customers during the pandemic.

(Reporting by Suzanne Barlyn in Washington Crossing, Pennsylvania Editing by Chris Reese, Sonya Hepinstall and Kim Coghill)

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Lower accident frequency from reduced miles driven contributed to an improved auto combined ratio.

“Allstate’s proactive risk and return management served customers and shareholders exceptionally well as the coronavirus pandemic hit our shores,” said Tom Wilson, chair, president and CEO. “After 89 years in the catastrophe business, we know success is determined by acting decisively, quickly and putting people first.”

He cited the company’s $600 million return premium to policyholders since they are driving less due to social distancing requirements and that 95% of its employees and agents have been working from home to serve customers.

The firm also deployed its technology tools. “Virtual sales and support capabilities were expanded. We leveraged our digital innovations, such as QuickFoto Claim and Virtual Assist, to better protect our customers, employees and agents,” he said.

The company reduced its public equity holdings in February by $4 billion as it adjusted its risk and return profile, which Wilson said lowered the negative impact of the March equity market decline.

Q1 Results

Property/liability written premium of $8.59 billion increased 3.2% in the first quarter of 2020 compared to the prior year, driven by higher average premiums and policy growth in the Allstate brand. The recorded combined ratio of 84.9 in the first quarter of 2020 generated underwriting income of $1.35 billion, an increase of $645 million compared to the prior year quarter, primarily due to lower catastrophe losses, increased premiums earned and a decline in auto losses, partially offset by the company’s $600 million Shelter-in-Place Payback for policyholders that was made in response to reduced driving due to the pandemic. Excluding the 2.4 points impact of the payback, the expense ratio improved by 1.0 point to 23.4, compared to the first quarter of 2019.

Allstate brand auto insurance net written premium grew 3.3%, and policies in force increased 0.9% in the first quarter of 2020 compared to the prior year quarter. The recorded combined ratio of 88.2 in the first quarter of 2020 was 2.2 points below the prior year quarter. Higher premiums earned and lower accident frequency from reduced miles driven contributed to the improved ratio, partially offset by higher severity and the impact of the driver payback expense.

Allstate brand homeowners insurance net written premium grew 3.4%, and policies in force increased 0.9% in the first quarter of 2020 compared to the prior year quarter. The recorded combined ratio of 70.9 in the first quarter of 2020 was 21.3 points below the first quarter of 2019, primarily driven by lower catastrophe losses.

Esurance brand net written premium decreased 2.3% in the first quarter of 2020 compared to the prior year quarter, primarily driven by a decline in auto policies in force partially offset by higher average premiums.

Encompass brand net written premium decreased 0.9% in the first quarter of 2020, driven by a decline in policies in force. The recorded combined ratio of 94.5 in the first quarter of 2020 was 6.3 points lower than the prior year quarter, primarily driven by lower catastrophe losses.

Allstate Investments $84.8 billion portfolio generated net investment income of $421 million in the first quarter of 2020, a decrease of $227 million from the prior year quarter, due to lower performance-based results. Total return on the investment portfolio was -2.4% for the quarter, reflecting lower valuations for fixed income and equity investments.

Service Businesses policies in force grew to 113.7 million, and revenues increased to $430 million in the first quarter, 9.7% higher than the first quarter of 2019. Adjusted net income of $37 million increased by $26 million compared to the prior year quarter, primarily due to growth at Allstate Protection Plans and improved results at Allstate Roadside Services.

At Allstate’s mobility data unit Arity, revenue was $30 million in the first quarter of 2020, primarily from contracts with affiliates. The adjusted net loss of $3 million in the quarter includes investments in capabilities and growth.

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