US P&C Q4'23 earnings recap – Allstate logs 1st net profit since Q1'22

The Allstate Corp. booked its first positive pretax net income in almost two years in the fourth quarter of 2023, on the strength of rate increases and improved property-liability underwriting income and ratios.

The insurer reported net income before taxes of $1.83 billion in the period compared to a net loss of $410 million in the fourth quarter of 2022, its first positive net profit since the first quarter of 2022. Earnings per share improved to $5.82 from a loss of $1.33 and the company's combined ratio improved to 89.5% from 109.1% as catastrophe losses decreased to $68 million from $779 million.

Allstate's brand implemented auto rate increases of 16.4% in 2023, including 6.9% in the fourth quarter, while its National General brand implemented rate increases of 12.8%, which includes 4.0% in the fourth quarter. The company also resumed writing new business in California after securing a 30% boost in private auto rates in December.

Those increases, combined with a 10.7% increase in earned premiums to $12.6 billion and an 18.3-percentage-point drop in its loss ratio to 68.4%, were the driving factors in the insurer's fourth-quarter surge, said Keefe, Bruyette & Woods analyst Meyer Shields.

"We're still seeing rate increases pile up ... and that's working," Shields said in an interview. "We also saw [loss] trends start to moderate and that was the big issue, and on the property side of personal lines, the weather was really good in the fourth quarter."

Path to sustained profitability

The key to Allstate's turnaround in the quarter was the performance of its auto segment, which had earned premiums of $8.57 billion, up 10.7% from $7.74 billion in 2022.

The numbers that stood out were the year-over-year improvement in the segment's ratios. Its combined ratio improved 13.7 percentage points to 98.9% from 112.6%, while the underlying combined ratio was 96.4% compared with 109.2% in 2022.

The improvement in auto underwriting profitability indicates that Allstate is "on its way to build up additional capital and turn towards growth," Morgan Stanley analyst Bob Huang said in a note. Huang noted strong pricing increases and improving losses, and the insurer's implementation of rate increases in states where rate adequacy has not yet been achieved.

"Based on fourth-quarter results, Allstate should be well-positioned to take advantage of better pricing and the lower loss environment in 2024," Huang said. "We see a solid path to sustained profitability."

While the moderation in loss trends is a positive for Allstate and its competitors, CFRA Research analyst Cathy Seifert said the trends are "more secular than they are cyclical," noting that driving patterns have changed with the presence of distracted driving and that vehicles have become more costly to repair.

"You've got these extremely expensive, increasingly complicated-to-repair cars on the road, and I believe the auto underwriting model is going to have to be revised," Seifert said in an interview. "Consumers who are expecting to get rate cuts in their auto insurance should probably not hold their breath."

Industrywide

American International Group Inc. booked a pretax loss of $1.35 billion, down from $760 million in 2022. The multiline carrier was the lone company in the analysis that booked a pretax loss for the quarter.

After Allstate, The Progressive Corp., Chubb Ltd. and The Travelers Cos. Inc. had the largest increases in pretax net income.

Progressive's income rose to $2.5 billion from $1.03 billion, while Chubb rose to $2.61 billion from $1.64 billion. Travelers more than doubled its income from $987 million a year ago to $2.02 billion in the fourth quarter.

Markel Group Inc. had the highest operating earnings per share in the analysis at $58.07, up from $54.25 a year ago. Chubb ($8.30 from $4.00) and Travelers ($7.01 from $3.40) more than doubled their EPS.

Rebounding ratios

Seven of the 10 companies in the analysis reported improvement in their combined ratios, led by Allstate's 19.6-percentage-point decrease to 89.5% from 109.1%. Travelers had the next strongest improvement, 85.8% from 94.5%, while Progressive's improved to 88.7% from 93.9%.

Markel Group had the steepest increase, from 93.3% a year ago to 106.9% in the fourth quarter. For 2023, the insurer booked a 79% drop in underwriting profit to $132.7 million from $626.6 million in 2022.

Tame cat losses

The mild weather that dominated the fourth quarter provided some much-needed relief to insurers' cat loss numbers. Eight companies in the analysis reported year-over-year decreases, led by Allstate's $711 million drop, to $68 million from $779 million.

Travelers' losses dropped $334 million, to $125 million from $459 million; AIG had $125 million in losses, down $114 million from $239 million.

Arch Capital Group Ltd. had the steepest increase in cat losses, going from $34.6 million a year ago to $137 million.

During a conference call to discuss fourth-quarter earnings, CFO Francois Morin said while there were no major catastrophes during the quarter, there was a series of "smaller events" around the globe that impacted catastrophe losses. However, Morin said the losses were below the insurer's expected catastrophe load.