Allstate Delivers Strong Second Quarter Operating Performance

NORTHBROOK, Ill., Aug. 1, 2017 /PRNewswire/ -- The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2017.

"Allstate delivered strong financial performance in the second quarter as a result of excellent progress on our five 2017 Operating Priorities," said Tom Wilson, chairman and chief executive officer of The Allstate Corporation. "Net income applicable to common shareholders was $550 million, $1.49 per share, in the second quarter of 2017 compared to $242 million in the same period last year, reflecting improved auto insurance margins and strong investment results. Operating income* was $510 million, $1.38 per share, for the quarter and the underlying combined ratio* of 85.5 continued to be better than the annual outlook range of 87 to 89⁽¹⁾. The recorded combined ratio was 97.2 and underwriting results were good for auto, homeowners and other personal lines despite $993 million of catastrophe losses. Allstate Financial generated operating income of $153 million in the quarter due to higher investment income in the annuities business. Total return on the investment portfolio of 1.8% in the quarter reflects favorable fixed income and equity market conditions and increased income from the performance-based portfolio.

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"We also advanced our goal to better serve customers and the customer base grew to 75 million policies in force. The strategy to leverage consumer insurance platforms to build a broader consumer focused business also progressed. Operating income return on common shareholders' equity* was 13.5% for the twelve months ended June 30, 2017, due to strong earnings. Reflecting these positive results, the board approved a new $2 billion share repurchase program. Allstate's long-term objective is to create prosperity for customers, shareholders, employees, financial specialists and agency owners by delivering excellent operating results while pursuing a broader set of goals. See 'How Corporations Can Be A Force For Good,' " concluded Wilson.

Operating Results: Second Quarter 2017

• Total revenue of $9.6 billion in the second quarter of 2017 increased by 4.6% compared to the prior year quarter.
• Property-liability insurance premiums increased 2.6%
• Allstate Financial premiums and contract charges rose 4.8%
• Net investment income increased 17.7%
• Realized capital gains were $81 million compared to $24 million in the prior year quarter
  
  
• Net income applicable to common shareholders was $550 million, or $1.49 per diluted share, in the second quarter of 2017, compared to $242 million, or $0.64 per diluted share, in the second quarter of 2016. Operating income* was $510 million in the second quarter of 2017, compared to $235 million in the second quarter of 2016.
  
  
• Property-Liability underwriting income of $227 million was $293 million above the prior year quarter, due to increased auto insurance underwriting income reflecting higher average premiums, lower claims frequency and favorable prior year reserve reestimates. This was partially offset by an increased expense ratio which included $52 million of restructuring expenses. The majority of these expenses are related to Allstate brand claims process changes and office closures due to the expansion of virtual auto claim estimating capabilities.
  
• The underlying combined ratio* of 85.5 for the second quarter and 85.1 for the first six months of 2017 were significantly lower than the prior year periods, reflecting improvement in the auto underlying combined ratio across all three underwritten brands and strong homeowners underlying margins. Assuming current loss trends continue, we expect to be at or below the lower end of the annual outlook range of 87-89 for the full year.

• Allstate brand auto net written premium grew 3.3% in the second quarter of 2017, reflecting a 5.4% increase in average premium compared to the prior year quarter, which was partially offset by a 2.6% decline in policies in force. Actions taken to improve auto insurance margins continue to impact average premium and policy in force trends. As margins have improved, we expanded the number of states in which we are implementing growth plans, and in the second quarter the rate of decline in policies slowed compared to the first quarter. New issued applications grew 9.8% in the second quarter over the prior year quarter, and the renewal ratio of 87.4 was consistent with the first quarter of 2017. The recorded combined ratio of 95.8 in the second quarter of 2017 was 5.4 points better than the prior year quarter and was favorably impacted by increased premiums earned, lower claim frequency, and favorable prior year reserve reestimates primarily related to injury coverages. The underlying combined ratio* in the second quarter of 2017 was 5.0 points better than the second quarter of 2016.
  
  
• Allstate brand homeowners net written premium increased 0.9% in the second quarter of 2017 compared to the prior year quarter, reflecting a 1.8% increase in average premium that was partially offset by a 1.3% decline in policies in force. Homeowners policy growth has been adversely impacted by actions taken to improve auto margins, but new issued applications grew by 1.0% in the second quarter over the prior year quarter, and the renewal ratio of 87.0 was comparable to the first quarter of 2017. The recorded combined ratio of 97.2 in the second quarter of 2017 increased by 0.2 points compared to the prior year quarter and the underlying combined ratio* of 59.8 continued to reflect strong underlying profitability.
  
  
• Allstate brand other personal lines net written premium of $441 million increased 3.0% in the second quarter of 2017 compared to the second quarter 2016. The recorded combined ratio of 90.8 in the second quarter of 2017 improved by 0.4 points compared to the prior year quarter, driven by an improved loss ratio, partially offset by a higher expense ratio. The underlying combined ratio* was 77.1 in the second quarter of 2017, an improvement of 0.2 points compared to the prior year quarter.
  
  
• Esurance net written premium growth of 4.1% compared to the prior year quarter reflects increased average premium in auto and homeowners. Policy growth was 0.3% in the second quarter of 2017 compared to the second quarter of 2016, as an increase in homeowners more than offset a slight decline in auto policies. The recorded combined ratio of 106.1 was 2.8 points better in the second quarter of 2017 compared to the second quarter of 2016, as a lower expense ratio was partially offset by a higher loss ratio. The underlying combined ratio* of 100.5 improved by 4.3 points compared to the prior year quarter.
  
  
• Encompass net written premium declined by 9.5% and policies in force were 14.9% lower in the second quarter of 2017 compared to the prior year quarter, as we exit unprofitable markets and raise prices. The recorded combined ratio of 104.4 in the second quarter of 2017 was 0.5 points below the second quarter of 2016. The underlying combined ratio* of 87.6 improved by 5.2 points compared to the prior year quarter, due to improvement in the underlying loss ratio partially offset by a higher expense ratio.
  
  
• SquareTrade net written premium was $85 million in the second quarter of 2017 and generated an underwriting loss of $22 million. Policies in force were 31.3 million, an increase of 1.4 million policies in this quarter, due to continued growth in the U.S retail channel. Operating income* of $1 million excludes the $23 million ($15 million, after-tax) impact of the amortization of purchased intangible assets related to the acquisition. During the second quarter, Allstate Insurance Company executed a 100% quota share reinsurance agreement with SquareTrade's largest third-party insurer which should result in higher underwriting and investment income.
  
  
• Allstate Financial net income was $146 million and operating income was $153 million in the second quarter of 2017. Operating income was $33 million higher than the prior year quarter, largely due to higher investment returns in Allstate Annuities.
  

• Allstate Life net income was $60 million and operating income was $63 million in the second quarter of 2017. Operating income was $1 million lower than the prior year quarter primarily due to higher contract benefits and expenses, partially offset by higher premiums and net investment income.
  
  
• Allstate Benefits net income and operating income were both $25 million in the second quarter of 2017. Operating income was $4 million lower than the prior year quarter primarily due to higher contract benefits and higher expenses related to growth, partially offset by higher premiums.
  
  
• Allstate Annuities net income was $61 million and operating income was $65 million in the second quarter of 2017. Operating income was $38 million higher than the prior year quarter, primarily due to higher performance-based net investment income including private equity value appreciation.
  
  
• Allstate Investments generated net investment income of $897 million, which was 17.7% above the prior year quarter, reflecting higher performance-based results and stable income from the market-based portfolios.

• Net investment income increased by $135 million in the second quarter of 2017 compared to the prior year quarter, due to a $130 million increase in performance-based income, including private equity ($97 million) and real estate ($33 million) investments.
  
  
• Net realized capital gains were $81 million in the second quarter of 2017, compared to $24 million in the prior year quarter, and primarily comprised net gains on sales of $139 million, partially offset by write-downs of $50 million.
  
  
• Change in unrealized net capital gains of $448 million in the second quarter of 2017 were primarily due to a decrease in market yields resulting from tighter credit spreads and lower long-term risk-free interest rates and favorable equity market performance.
  
  
• Total return on the investment portfolio was 1.8% for the second quarter of 2017, which included a strong contribution from net investment income and increased fixed income and equity valuations. The trailing twelve months total return was 4.0%.

Proactive Capital Management
"Allstate continued to provide strong returns to our shareholders during the first half of 2017 through a combination of $257 million in common stock dividends and repurchasing $646 million of outstanding shares. A new $2 billion share repurchase program, approved today, will begin following the completion of our current program and is expected to conclude by February 2019," said Steve Shebik, chief financial officer. "In addition, with the objective of providing more transparency into the performance of our business, we are planning to adopt a new segment reporting structure effective in the fourth quarter 2017. The new reporting structure will change from our current four segments to seven segments that will include a separate segment for service businesses, broken out from traditional property and casualty, and Allstate Financial will transition to individual segments for Life, Benefits and Annuities."

Visit www.allstateinvestors.com to view additional information about Allstate's results, including a webcast of its quarterly conference call and the call presentation. The conference call will be held at 9 a.m. ET on Wednesday, August 2.

The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer, protecting people from life's uncertainties with 75 million proprietary policies. Allstate offers a broad array of protection products through multiple brands and diverse distribution channels, including auto, home, life and other insurance offered through its Allstate, Esurance, Encompass and Answer Financial brands. The company provides additional protection products and services through Allstate Benefits, Allstate Roadside Services, Allstate Dealer Services, Arity and SquareTrade. Allstate is widely known from the slogan "You're In Good Hands With Allstate^®." Allstate agencies are in virtually every local community in America. The Allstate Foundation, Allstate, its employees and agency owners have a proud history of caring for local communities.

Financial information, including material announcements about The Allstate Corporation, is routinely posted on www.allstateinvestors.com.

Forward-Looking Statements
This news release contains "forward-looking statements" that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like "plans," "seeks," "expects," "will," "should," "anticipates," "estimates," "intends," "believes," "likely," "targets" and other words with similar meanings. We believe these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements may be found in our filings with the U.S. Securities and Exchange Commission, including the "Risk Factors" section in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statement.

The following table presents the investment portfolio by strategy as of June 30, 2017.

The following table presents investment income by investment strategy for the three months and six months ended June 30.

Definitions of Non-GAAP Measures
We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Operating income is net income applicable to common shareholders, excluding:

• realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in operating income,
• valuation changes on embedded derivatives that are not hedged, after-tax,
• amortization of deferred policy acquisition costs (DAC) and deferred sales inducements (DSI), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives that are not hedged, after-tax,
• business combination expenses and the amortization of purchased intangible assets, after-tax,
• gain (loss) on disposition of operations, after-tax, and
• 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.

Net income applicable to common shareholders is the GAAP measure that is most directly comparable to operating income.

We use operating income as an important measure to evaluate our results of operations. We believe that the measure provides investors with a valuable measure of the company's ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, valuation changes on embedded derivatives that are not hedged, business combination expenses and the amortization of purchased intangible assets, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, operating income includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes. These instruments are used for economic hedges and to replicate fixed income securities, and by including them in operating income, we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g. net investment income and interest credited to contractholder funds) or replicated investments. Business combination expenses are excluded because they are non-recurring in nature and the amortization of purchased intangible assets is excluded because it relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends. Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends. Accordingly, operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business. A byproduct of excluding these items to determine operating income is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods. Operating income is used by management along with the other components of net income applicable to common shareholders to assess our performance. We use adjusted measures of operating income in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income applicable to common shareholders, operating income and their components separately and in the aggregate when reviewing and evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses operating income as the denominator. Operating income should not be considered a substitute for net income applicable to common shareholders and does not reflect the overall profitability of our business.

The following tables reconcile net income applicable to common shareholders and operating income. Taxes on adjustments to reconcile net income applicable to common shareholders and operating income generally use a 35% effective tax rate and are reported net with the reconciling adjustment. If the effective tax rate is other than 35%, this is specified in the disclosure.