Rate increases and good weather combined to bless Allstate Corp. with strong fourth quarter and year-end financial results, the company said Thursday. The Illinois-based insurance giant reported adjusted net income in the last year’s fourth quarter of $1.5 billion, or $5.82 per share, on revenues of $14.8 billion, up 8.7% from the same period in 2022.
For the full year, Allstate said it earned $251 million, compared to a loss of $239 million for the year 2022, on an 11% jump in revenues, to $57 billion.
Tom Wilson, Allstate’s chairman, president, and CEO, attributed to strong showing to improved auto insurance profitability and mild weather. He also cited improved underwriting performance and higher investment income, with property-liability premiums of $12.6 billion rising more than 10% in the fourth quarter of 2023.
“The transformation of Allstate’s personal property-liability business to generate higher growth also made significant progress by reducing expenses, expanding customer access and leveraging technology,” Wilson said.
He predicted significant improvement in auto insurance margins this year and increased spending on advertising. In addition, he said the corporation implemented underwriting actions to restrict new business where it was not achieving target returns.
“We are moving some underwriting restrictions as rate adequacy is achieved,” he said.
Catastrophe losses lower
Catastrophe losses of $68 million were $711 million, or 6.3 points, lower than prior year, due to the mild weather conditions experienced in the quarter, said Mario Rizzo, Allstate’s president of property and liability.
Better weather, which favorably influenced accident frequency, and rising premiums also raised the property-casualty combined ratio in the fourth quarter by 12.3 points, compared to the prior year, to 86.9. Combined ratio is a measure of profitability to gauge how well a company is performing in its daily operations. A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.
However, for the full year, Allstate’s combined ratio of 104.5 was significantly impacted by elevated catastrophe losses primarily from events in the first three quarters, resulting in a catastrophe loss ratio that was 4 points above the 10-year average from 2013 to 2022.
Loss costs ‘remain historically elevated’
“While loss cost trends remain historically elevated, the rate of increase moderated in the second half of the year, mainly in physical damage coverages,” Rizzo said.
“Allstate brand weighted-average major coverage severity expectations improved from 11% as of the end of the second quarter to 9% in the third quarter and now, that 8% to 9% at the end of the year,” said Rizzo. “This trend reflects our current best estimate for the year-over-year increase in average severity.”
On the auto insurance side, Rizzo said the combined ratio of 98.9 in the fourth quarter improved by 13.7 points compared to the prior year, reflecting higher earned premium, lower underlying losses, lower adverse prior year reserve re-estimates and expense efficiencies.
Four states – New York, New Jersey, Texas, and California – comprised 36% of Allstate’s total auto premiums in the U.S. during 2023. Rate increases were approved in California, New York and New Jersey in December so the company has yet to see the results in earned premiums.
“As of yesterday, we are writing business in California, across all channels and we feel comfortable writing business in California given the rate level that we are operating,” said Rizzo.
“In New Jersey, it’s kind of the opposite story. We filed for 29 points of rate; we got approval for just under 17%. And as a result of that, we are going to continue to take the more restrictive underwriting actions that we have been taking in New Jersey, which means we will continue to get smaller in New Jersey while we have two rates pending with the New Jersey Department.”
Allstate stock, which is up nearly 16% for the year, rose 2% in trading Thursday, to 161.75 per share.
“With the sun shining a little bit and a few less CATs [catastrophic events], it gave you the opportunity to see the benefits of all the hard work our team’s been doing to improve profitability in auto insurance and making sure we keep our homeowner business strong,” Wilson said.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at email@example.com.
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