UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11840
THE ALLSTATE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 36-3871531 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
3100 Sanders Road, Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (847) 402-5000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||
| Common Stock, par value $.01 per share | ALL | New York Stock Exchange Chicago Stock Exchange | ||||||
| 5.100% Fixed-to-Floating Rate Subordinated Debentures due 2053 | ALL.PR.B | New York Stock Exchange | ||||||
| Depositary Shares represent 1/1,000th of a share of 5.100% Noncumulative Preferred Stock, Series H | ALL PR H | New York Stock Exchange | ||||||
| Depositary Shares represent 1/1,000th of a share of 4.750% Noncumulative Preferred Stock, Series I | ALL PR I | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 17, 2023, the registrant had 262,851,915 common shares, $.01 par value, outstanding.
The Allstate Corporation
Index to Quarterly Report on Form 10-Q
March 31, 2023
Part I Financial Information | Page | |||||||
| Item 1. Financial Statements (unaudited) as of March 31, 2023 and December 31, 2022 and for the Three Month Periods Ended March 31, 2023 and 2022 | ||||||||
Property-Liability Operations | ||||||||
| Segment results | ||||||||
| Part II Other Information | ||||||||
Condensed Consolidated Financial Statements
Part I. Financial Information
Item 1. Financial Statements
The Allstate Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
| ($ in millions, except per share data) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||
| Property and casualty insurance premiums | $ | 12,173 | $ | 10,981 | ||||||||||
| Accident and health insurance premiums and contract charges | 463 | 468 | ||||||||||||
| Other revenue | 561 | 560 | ||||||||||||
| Net investment income | 575 | 594 | ||||||||||||
| Net gains (losses) on investments and derivatives | 14 | (267) | ||||||||||||
| Total revenues | 13,786 | 12,336 | ||||||||||||
| Costs and expenses | ||||||||||||||
| Property and casualty insurance claims and claims expense | 10,326 | 7,822 | ||||||||||||
| Accident, health and other policy benefits | 265 | 268 | ||||||||||||
| Amortization of deferred policy acquisition costs | 1,744 | 1,608 | ||||||||||||
| Operating costs and expenses | 1,716 | 1,902 | ||||||||||||
| Pension and other postretirement remeasurement (gains) losses | (53) | (247) | ||||||||||||
| Restructuring and related charges | 27 | 12 | ||||||||||||
| Amortization of purchased intangibles | 81 | 87 | ||||||||||||
| Interest expense | 86 | 83 | ||||||||||||
| Total costs and expenses | 14,192 | 11,535 | ||||||||||||
| (Loss) income from operations before income tax expense | (406) | 801 | ||||||||||||
| Income tax (benefit) expense | (85) | 151 | ||||||||||||
| Net (loss) income | (321) | 650 | ||||||||||||
| Less: Net loss attributable to noncontrolling interest | (1) | (10) | ||||||||||||
| Net (loss) income attributable to Allstate | (320) | 660 | ||||||||||||
| Less: Preferred stock dividends | 26 | 26 | ||||||||||||
| Net (loss) income applicable to common shareholders | $ | (346) | $ | 634 | ||||||||||
| Earnings per common share: | ||||||||||||||
| Net (loss) income applicable to common shareholders per common share - Basic | $ | (1.31) | $ | 2.28 | ||||||||||
| Weighted average common shares - Basic | 263.5 | 278.1 | ||||||||||||
| Net (loss) income applicable to common shareholders per common share - Diluted | $ | (1.31) | $ | 2.25 | ||||||||||
| Weighted average common shares - Diluted | 263.5 | 281.8 | ||||||||||||
See notes to condensed consolidated financial statements.
First Quarter 2023 Form 10-Q 1
Condensed Consolidated Financial Statements
The Allstate Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Net (loss) income | $ | (321) | $ | 650 | ||||||||||
| Other comprehensive income (loss), after-tax | ||||||||||||||
| Changes in: | ||||||||||||||
| Unrealized net capital gains and losses | 682 | (1,594) | ||||||||||||
| Unrealized foreign currency translation adjustments | 50 | — | ||||||||||||
| Unamortized pension and other postretirement prior service credit | (4) | (15) | ||||||||||||
Discount rate for reserve for future policy benefits | (9) | 95 | ||||||||||||
| Other comprehensive income (loss), after-tax | 719 | (1,514) | ||||||||||||
| Comprehensive income (loss) | 398 | (864) | ||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | 4 | (22) | ||||||||||||
| Comprehensive income (loss) attributable to Allstate | $ | 394 | $ | (842) | ||||||||||
See notes to condensed consolidated financial statements.
2 www.allstate.com
Condensed Consolidated Financial Statements
The Allstate Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Position (unaudited)
| ($ in millions, except par value data) | March 31, 2023 | December 31, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Investments | ||||||||||||||
Fixed income securities, at fair value (amortized cost, net $46,120 and $45,370) | $ | 44,103 | $ | 42,485 | ||||||||||
Equity securities, at fair value (cost $2,147 and $4,253) | 2,174 | 4,567 | ||||||||||||
| Mortgage loans, net | 781 | 762 | ||||||||||||
| Limited partnership interests | 7,971 | 8,114 | ||||||||||||
Short-term, at fair value (amortized cost $6,722 and $4,174) | 6,722 | 4,173 | ||||||||||||
| Other investments, net | 1,724 | 1,728 | ||||||||||||
| Total investments | 63,475 | 61,829 | ||||||||||||
| Cash | 662 | 736 | ||||||||||||
| Premium installment receivables, net | 9,483 | 9,165 | ||||||||||||
| Deferred policy acquisition costs | 5,471 | 5,442 | ||||||||||||
| Reinsurance and indemnification recoverables, net | 9,528 | 9,619 | ||||||||||||
| Accrued investment income | 436 | 423 | ||||||||||||
| Deferred income taxes | 345 | 382 | ||||||||||||
| Property and equipment, net | 971 | 987 | ||||||||||||
| Goodwill | 3,502 | 3,502 | ||||||||||||
| Other assets, net | 5,758 | 5,904 | ||||||||||||
| Total assets | 99,631 | 97,989 | ||||||||||||
| Liabilities | ||||||||||||||
| Reserve for property and casualty insurance claims and claims expense | 38,644 | 37,541 | ||||||||||||
| Reserve for future policy benefits | 1,338 | 1,322 | ||||||||||||
| Contractholder funds | 878 | 879 | ||||||||||||
| Unearned premiums | 22,499 | 22,299 | ||||||||||||
| Claim payments outstanding | 1,333 | 1,268 | ||||||||||||
| Other liabilities and accrued expenses | 9,114 | 9,353 | ||||||||||||
| Debt | 8,452 | 7,964 | ||||||||||||
| Total liabilities | 82,258 | 80,626 | ||||||||||||
Commitments and Contingent Liabilities (Note 14) | ||||||||||||||
| Equity | ||||||||||||||
Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 81.0 thousand shares issued and outstanding, $2,025 aggregate liquidation preference | 1,970 | 1,970 | ||||||||||||
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 263 million and 263 million shares outstanding | 9 | 9 | ||||||||||||
| Additional capital paid-in | 3,780 | 3,788 | ||||||||||||
| Retained income | 50,388 | 50,970 | ||||||||||||
Treasury stock, at cost (637 million and 637 million shares) | (36,980) | (36,857) | ||||||||||||
| Accumulated other comprehensive income: | ||||||||||||||
| Unrealized net capital gains and losses | (1,573) | (2,255) | ||||||||||||
| Unrealized foreign currency translation adjustments | (115) | (165) | ||||||||||||
| Unamortized pension and other postretirement prior service credit | 25 | 29 | ||||||||||||
Discount rate for reserve for future policy benefits | (10) | (1) | ||||||||||||
| Total accumulated other comprehensive income | (1,673) | (2,392) | ||||||||||||
| Total Allstate shareholders’ equity | 17,494 | 17,488 | ||||||||||||
| Noncontrolling interest | (121) | (125) | ||||||||||||
| Total equity | 17,373 | 17,363 | ||||||||||||
| Total liabilities and equity | $ | 99,631 | $ | 97,989 | ||||||||||
See notes to condensed consolidated financial statements.
First Quarter 2023 Form 10-Q 3
Condensed Consolidated Financial Statements
The Allstate Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity (unaudited)
| ($ in millions, except per share data) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Preferred stock par value | $ | — | $ | — | ||||||||||
| Preferred stock additional capital paid-in | 1,970 | 1,970 | ||||||||||||
| Common stock par value | 9 | 9 | ||||||||||||
| Common stock additional capital paid-in | ||||||||||||||
| Balance, beginning of period | 3,788 | 3,722 | ||||||||||||
| Equity incentive plans activity | (8) | (16) | ||||||||||||
| Balance, end of period | 3,780 | 3,706 | ||||||||||||
| Retained income | ||||||||||||||
| Balance, beginning of period | 50,970 | 53,288 | ||||||||||||
| Net (loss) income | (320) | 660 | ||||||||||||
Dividends on common stock (declared per share of $0.89 and $0.85) | (236) | (236) | ||||||||||||
| Dividends on preferred stock | (26) | (26) | ||||||||||||
| Balance, end of period | 50,388 | 53,686 | ||||||||||||
| Treasury stock | ||||||||||||||
| Balance, beginning of period | (36,857) | (34,471) | ||||||||||||
| Shares acquired | (153) | (794) | ||||||||||||
| Shares reissued under equity incentive plans, net | 30 | 57 | ||||||||||||
| Balance, end of period | (36,980) | (35,208) | ||||||||||||
| Accumulated other comprehensive income | ||||||||||||||
| Balance, beginning of period | (2,392) | 426 | ||||||||||||
| Change in unrealized net capital gains and losses | 682 | (1,594) | ||||||||||||
| Change in unrealized foreign currency translation adjustments | 50 | — | ||||||||||||
| Change in unamortized pension and other postretirement prior service credit | (4) | (15) | ||||||||||||
Change in discount rate for reserve for future policy benefits | (9) | 95 | ||||||||||||
| Balance, end of period | (1,673) | (1,088) | ||||||||||||
| Total Allstate shareholders’ equity | 17,494 | 23,075 | ||||||||||||
| Noncontrolling interest | ||||||||||||||
| Balance, beginning of period | (125) | (52) | ||||||||||||
| Change in unrealized net capital gains and losses | 5 | (12) | ||||||||||||
| Noncontrolling loss | (1) | (10) | ||||||||||||
| Balance, end of period | (121) | (74) | ||||||||||||
| Total equity | $ | 17,373 | $ | 23,001 | ||||||||||
See notes to condensed consolidated financial statements.
4 www.allstate.com
Condensed Consolidated Financial Statements
The Allstate Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Net (loss) income | $ | (321) | $ | 650 | ||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||
| Depreciation, amortization and other non-cash items | 177 | 236 | ||||||||||||
| Net (gains) losses on investments and derivatives | (14) | 267 | ||||||||||||
| Pension and other postretirement remeasurement (gains) losses | (53) | (247) | ||||||||||||
| Changes in: | ||||||||||||||
| Policy benefits and other insurance reserves | 1,080 | (111) | ||||||||||||
| Unearned premiums | 199 | 390 | ||||||||||||
| Deferred policy acquisition costs | (29) | (103) | ||||||||||||
| Premium installment receivables, net | (317) | (502) | ||||||||||||
| Reinsurance recoverables, net | 91 | 333 | ||||||||||||
| Income taxes | (125) | 93 | ||||||||||||
| Other operating assets and liabilities | (87) | (574) | ||||||||||||
| Net cash provided by operating activities | 601 | 432 | ||||||||||||
| Cash flows from investing activities | ||||||||||||||
| Proceeds from sales | ||||||||||||||
| Fixed income securities | 7,008 | 12,400 | ||||||||||||
| Equity securities | 3,739 | 5,216 | ||||||||||||
| Limited partnership interests | 414 | 300 | ||||||||||||
| Other investments | 55 | 208 | ||||||||||||
| Investment collections | ||||||||||||||
| Fixed income securities | 646 | 104 | ||||||||||||
| Mortgage loans | 22 | 3 | ||||||||||||
| Other investments | 25 | 49 | ||||||||||||
| Investment purchases | ||||||||||||||
| Fixed income securities | (8,424) | (13,220) | ||||||||||||
| Equity securities | (1,187) | (3,624) | ||||||||||||
| Limited partnership interests | (226) | (216) | ||||||||||||
| Mortgage loans | (41) | (37) | ||||||||||||
| Other investments | (73) | (186) | ||||||||||||
| Change in short-term and other investments, net | (2,675) | 114 | ||||||||||||
| Purchases of property and equipment, net | (79) | (130) | ||||||||||||
| Net cash (used in) provided by investing activities | (796) | 981 | ||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Proceeds from issuance of long-term debt | 744 | — | ||||||||||||
| Redemption and repayment of debt | (250) | — | ||||||||||||
| Contractholder fund deposits | 33 | 34 | ||||||||||||
| Contractholder fund withdrawals | (9) | (9) | ||||||||||||
| Dividends paid on common stock | (224) | (230) | ||||||||||||
| Dividends paid on preferred stock | (26) | (26) | ||||||||||||
| Treasury stock purchases | (153) | (802) | ||||||||||||
| Shares reissued under equity incentive plans, net | 6 | 17 | ||||||||||||
| Other | — | (30) | ||||||||||||
| Net cash provided by (used in) financing activities | 121 | (1,046) | ||||||||||||
| Net (decrease) increase in cash | (74) | 367 | ||||||||||||
| Cash at beginning of period | 736 | 763 | ||||||||||||
| Cash at end of period | $ | 662 | $ | 1,130 | ||||||||||
First Quarter 2023 Form 10-Q 5
Notes to Condensed Consolidated Financial Statements
The Allstate Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| Note 1 | General | ||||
Basis of presentation
The accompanying condensed consolidated financial statements include the accounts of The Allstate Corporation (the “Corporation”) and its wholly owned subsidiaries, primarily Allstate Insurance Company (“AIC”), a property and casualty insurance company (collectively referred to as the “Company” or “Allstate”) and variable interest entities (“VIEs”) in which the Company is considered a primary beneficiary. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The condensed consolidated financial statements and notes as of March 31, 2023 and for the three month periods ended March 31, 2023 and 2022 are unaudited. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods.
These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated.
To reflect the application of the new guidance to all in-scope long-duration insurance contracts, certain amounts in the condensed consolidated financial statements and notes for 2022 have been recast.
Macroeconomic impacts
The Novel Coronavirus Pandemic or COVID-19 (“Coronavirus”) and subsequent U.S. government fiscal and monetary policies have and may continue to effect economic activity through longer-term impacts such as supply chain disruptions, labor shortages and other macroeconomic factors that have increased inflation and affected our operations. These factors may continue to significantly affect results of operations, financial condition and liquidity. The impact from the pandemic and the ongoing effects should be considered when comparing the current period to prior periods.
Adopted accounting standard
Accounting for Long-Duration Insurance Contracts Effective January 1, 2023, the Company adopted the Financial Accounting Standards Board (”FASB”) guidance revising the accounting for certain long-duration insurance contracts using the modified retrospective approach to the transition date of January 1, 2021.
Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy lapses, are required to be reviewed at least annually, and updated as appropriate. In addition, reserves under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield that is updated through other comprehensive income (“OCI”) at each reporting date. Additionally, deferred policy acquisition costs (“DAC”) for all long-duration products will be amortized on a simplified basis. Also, the Company’s reserve for future policy benefits and DAC will be subject to new disclosure guidance.
In addition, the Company met the conditions included in Accounting Standards Update No. 2022-05, Transition for Sold Contracts, and elected to not apply the new guidance for contracts that were part of the 2021 sales of Allstate Life Insurance Company (“ALIC”) and Allstate Life Insurance Company of New York (“ALNY”).
After-tax cumulative effect of change in accounting principle on transition date | ||||||||
| ($ in millions) | January 1, 2021 | |||||||
| Decrease in retained income | $ | 21 | ||||||
| Decrease in accumulated other comprehensive income (“AOCI”) | 277 | |||||||
| Total decrease in equity | $ | 298 | ||||||
The decrease in AOCI is primarily attributable to a change in the discount rate used in measuring the reserve for future policy benefits for traditional life contracts and other long-term products with guaranteed terms from a portfolio-based rate at contract issuance to an upper-medium grade fixed income-based rate at the reporting date. The decrease in retained income primarily relates to certain cohorts of long-term contracts whose expected net premiums exceeded expected gross premiums which resulted in an increase in reserves and a decrease in retained income equal to the present value of expected future benefits less the present value of expected future premiums at the transition date.
6 www.allstate.com
Notes to Condensed Consolidated Financial Statements
Transition disclosures The following tables summarize the balance of and changes in the reserve for future policy benefits and DAC on January 1, 2021 upon the adoption of the guidance.
Impact of adoption for reserve for future policy benefits | ||||||||||||||||||||
| ( $ in millions) | Accident and health | Traditional life | Total | |||||||||||||||||
Pre-adoption 12/31/2020 balance (1) | $ | 728 | $ | 311 | $ | 1,039 | ||||||||||||||
| Adjustments: | ||||||||||||||||||||
Effect of the remeasurement of the reserve at upper-medium grade fixed income-based rate (2) | 232 | 153 | 385 | |||||||||||||||||
Adjustments for contracts with net premiums in excess of gross premiums (3) | 77 | — | 77 | |||||||||||||||||
| Total adjustments | 309 | 153 | 462 | |||||||||||||||||
| Post-adoption 1/1/2021 balance | 1,037 | 464 | 1,501 | |||||||||||||||||
Less: reinsurance recoverables (4) | 159 | 3 | 162 | |||||||||||||||||
| Post-adoption 1/1/2021 balance, after reinsurance recoverables | $ | 878 | $ | 461 | $ | 1,339 | ||||||||||||||
(1)Traditional life includes $11 million in reserves related to riders of traditional life insurance products reclassified from contractholder funds.
(2)Adjustment reflected with a corresponding decrease to AOCI.
(3)Adjustment reflected with a corresponding decrease to retained income.
(4)Represents post-adoption January 1, 2021 balance of reinsurance recoverables. Adjustments to reinsurance recoverables for accident and health products increased January 1, 2021 AOCI by $33 million due to the remeasurement of the reserve at upper-medium grade fixed income based rate and increased January 1, 2021 retained income by $51 million due to adjustments for contracts with net premiums in excess of gross premiums.
| Impact of adoption for DAC | ||||||||||||||||||||||||||
| ( $ in millions) | Accident and health | Traditional life | Interest- sensitive life | Total | ||||||||||||||||||||||
| Pre-adoption 12/31/2020 balance | $ | 343 | $ | 32 | $ | 95 | $ | 470 | ||||||||||||||||||
Adjustment for removal of impact of unrealized gains or losses (1) | — | — | 2 | 2 | ||||||||||||||||||||||
| Post-adoption 1/1/2021 balance | $ | 343 | $ | 32 | $ | 97 | $ | 472 | ||||||||||||||||||
(1)Adjustment reflected with a corresponding increase to AOCI.
Impacts of the adoption on the financial statements
| Consolidated Statements of Operations | ||||||||||||||||||||
| Three months ended March 31, 2022 | ||||||||||||||||||||
| ($ in millions, except per share data) | As reported | Impact of change | As adjusted | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Accident and health insurance premiums and contract charges | $ | 469 | $ | (1) | $ | 468 | ||||||||||||||
| Total revenues | 12,337 | (1) | 12,336 | |||||||||||||||||
| Costs and expenses | ||||||||||||||||||||
| Accident, health and other policy benefits | 269 | (1) | 268 | |||||||||||||||||
| Amortization of deferred policy acquisition costs | 1,612 | (4) | 1,608 | |||||||||||||||||
| Total costs and expenses | 11,540 | (5) | 11,535 | |||||||||||||||||
| Income from operations before income tax expense | 797 | 4 | 801 | |||||||||||||||||
| Income tax expense | 151 | — | 151 | |||||||||||||||||
| Net income | 646 | 4 | 650 | |||||||||||||||||
| Net income attributable to Allstate | 656 | 4 | 660 | |||||||||||||||||
| Net income applicable to common shareholders | $ | 630 | $ | 4 | $ | 634 | ||||||||||||||
| Earnings per common share: | ||||||||||||||||||||
| Net income applicable to common shareholders per common share - Basic | $ | 2.27 | $ | 0.01 | $ | 2.28 | ||||||||||||||
| Net income applicable to common shareholders per common share - Diluted | $ | 2.24 | $ | 0.01 | $ | 2.25 | ||||||||||||||
First Quarter 2023 Form 10-Q 7
Notes to Condensed Consolidated Financial Statements
| Condensed Consolidated Statements of Comprehensive Income (unaudited) | ||||||||||||||||||||
| Three months ended March 31, 2022 | ||||||||||||||||||||
| ($ in millions) | As reported | Impact of change | As adjusted | |||||||||||||||||
| Net income | $ | 646 | $ | 4 | $ | 650 | ||||||||||||||
| Other comprehensive income (loss), after-tax | ||||||||||||||||||||
| Changes in: | ||||||||||||||||||||
| Unrealized net capital gains and losses | (1,593) | (1) | (1,594) | |||||||||||||||||
Discount rate for reserve for future policy benefits | — | 95 | 95 | |||||||||||||||||
| Other comprehensive loss, after-tax | (1,608) | 94 | (1,514) | |||||||||||||||||
| Comprehensive loss | (962) | 98 | (864) | |||||||||||||||||
| Comprehensive loss attributable to Allstate | $ | (940) | $ | 98 | $ | (842) | ||||||||||||||
8 www.allstate.com
Notes to Condensed Consolidated Financial Statements
| Condensed Consolidated Statements of Shareholders’ Equity (unaudited) | ||||||||||||||||||||
| Three months ended March 31, 2022 | ||||||||||||||||||||
| ($ in millions) | As reported | Impact of change | As adjusted | |||||||||||||||||
| Retained income | ||||||||||||||||||||
| Balance, beginning of period | $ | 53,294 | $ | (6) | $ | 53,288 | ||||||||||||||
| Net income | 656 | 4 | 660 | |||||||||||||||||
| Balance, end of period | 53,688 | (2) | 53,686 | |||||||||||||||||
| Accumulated other comprehensive income (loss) | ||||||||||||||||||||
| Balance, beginning of period | 655 | (229) | 426 | |||||||||||||||||
| Change in unrealized net capital gains and losses | (1,593) | (1) | (1,594) | |||||||||||||||||
Change in discount rate for reserve for future policy benefits | — | 95 | 95 | |||||||||||||||||
| Balance, end of period | (953) | (135) | (1,088) | |||||||||||||||||
| Total Allstate shareholders’ equity | 23,212 | (137) | 23,075 | |||||||||||||||||
| Total equity | $ | 23,138 | $ | (137) | $ | 23,001 | ||||||||||||||
Changes to significant accounting policies
Reserve for future policy benefits
Long-duration voluntary accident and health insurance and traditional life insurance contracts The reserve for future policy benefits (“RFPB”) is calculated using the net premium reserving model, which uses the present value of insurance contract benefits less the present value of net premiums. Under the net premium reserving model, the Company computes a net premium ratio which is the present value of insurance contract benefits divided by the present value of gross premiums. The present value of contract benefits and gross premiums are determined using the discount rate at contract inception. The net premium ratio is applied to premiums due on a periodic basis to compute the RFPB. The net premium ratio is recomputed at least annually using both actual historical cash flows and future cash flows anticipated over the life of cohort of contracts subject to measurement. Assumptions including mortality, morbidity, and lapses affect the timing and amount of estimated cash flows used to calculate the RFPB.
The Company has grouped contracts into cohorts based on product type and issue year. Examples of insurance product types include whole life, term life, critical illness and disability. Issue year is based on the issuance date of the contract to the policyholder,
except in the case of contracts acquired in a business combination, where the issue date is based on the acquisition date of the business combination. The RFPB is calculated for contracts in force at the end of each period, which results in the Company recognizing the effects of actual experience in the period it occurs.
Annually, in the third quarter, the Company obtains historical premiums and benefits information and evaluates future cash flow assumptions that include mortality, morbidity, and terminations, and updates cash flow assumptions as necessary. The Company has elected to not update the expense assumption when annually reviewing and updating future cash flow assumptions. Actual premiums and benefits and any updates to future cash flow assumptions are incorporated into the calculation of an updated net premium ratio. Updates for actual premiums and benefits and changes to future cash flow assumptions will result in a liability remeasurement gain or loss that is recognized in net income. The first step to determining the liability remeasurement gain or loss is to calculate the RFPB using revised net premiums discounted at the locked-in discount rate set at contract issuance. The result of the first step is then compared to the carrying amount of the RFPB before the updates for actual experience and changes to future cash flow assumptions. The decrease (gain) or increase (loss) in the RFPB is reported as liability
First Quarter 2023 Form 10-Q 9
Notes to Condensed Consolidated Financial Statements
remeasurement gain or loss in net income and presented parenthetically as part of Accident, health and other policy benefits on the Consolidated Statements of Operations. The updated net premium ratio is used in future quarters to measure the RFPB until the next annual update or an earlier date if the Company determines it is necessary to revise future cash flow assumptions based on available evidence, including actual experience.
The discount rate assumption is determined using a yield curve approach. The yield curve consists of U.S. dollar-denominated senior unsecured fixed-income securities issued by U.S. companies that have an A credit rating based on the ratings provided by nationally recognized rating agencies that include Moody’s, Standard & Poor’s, and Fitch. For points on the yield curve that do not have observable yields, the Company uses linear interpolation which calculates the unobservable yield based on the two nearest observable yields, except for any points beyond the last observable yield at 30 years, where interest rates are held constant with the last observable point on the yield curve. The Company updates the current discount rate quarterly and the change in the RFPB resulting from the updated current discount rate is recognized in OCI.
Deferred policy acquisition costs
Deferred policy acquisition costs are related directly to the successful acquisition of new or renewal insurance contracts and are deferred and recognized as an expense over the life of the related contracts. These costs are principally agent and broker remuneration, premium taxes and certain underwriting expenses. All other acquisition costs are expensed as incurred and included in operating costs and expenses.
Long-duration voluntary accident and health insurance, traditional life insurance contracts, and interest-sensitive life insurance contracts Voluntary accident and health insurance and traditional life insurance contracts are grouped by product and issue year into cohorts consistent with the cohorts used to calculate the RFPB. Interest-sensitive life insurance contracts are grouped into cohorts by issue year, and the issue year is determined based on contract issue date. DAC is amortized on a constant level basis over the expected contract term and is included in Amortization of deferred policy acquisition costs on the Consolidated Statements of Operations. The constant level basis used for all cohorts is based on policies-in-force. The expected contract term and mortality, morbidity, and termination assumptions are used to calculate both DAC amortization and the RFPB. If actual contract terminations are greater than expected terminations for any cohort, each affected cohort’s DAC balance will be reduced in the current period based on the difference between the actual and expected terminations. No adjustments to DAC amortization are recorded if actual contract terminations are less than expected terminations for any cohort. If the Company makes an update to any of its mortality, morbidity, or termination assumptions, the Company will use the assumptions prospectively to amortize any cohort’s remaining DAC over the remaining expected contract term.
The costs assigned to the right to receive future cash flows from certain business purchased from other insurers are also classified as DAC in the Consolidated Statements of Financial Position. The costs capitalized represent the present value of future profits expected to be earned over the lives of the contracts acquired. The Company amortizes the present value of future profits using the same methodology and assumptions as the amortization of DAC. The present value of future profits is subject to premium deficiency testing.
10 www.allstate.com
Notes to Condensed Consolidated Financial Statements
| Note 2 | Earnings per Common Share | ||||
Basic earnings per common share is computed using the weighted average number of common shares outstanding, including vested unissued participating restricted stock units. Diluted earnings per common share is computed using the weighted average number of common and dilutive potential common shares outstanding.
For the Company, dilutive potential common shares consist of outstanding stock options, unvested
non-participating restricted stock units and contingently issuable performance stock awards. The effect of dilutive potential common shares does not include the effect of options with an anti-dilutive effect on earnings per common share because their exercise prices exceed the average market price of Allstate common shares during the period or for which the unrecognized compensation cost would have an anti-dilutive effect.
Computation of basic and diluted earnings per common share | ||||||||||||||
| (In millions, except per share data) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
Numerator: | ||||||||||||||
| Net (loss) income | $ | (321) | $ | 650 | ||||||||||
| Less: Net loss attributable to noncontrolling interest | (1) | (10) | ||||||||||||
| Net (loss) income attributable to Allstate | (320) | 660 | ||||||||||||
Less: Preferred stock dividends | 26 | 26 | ||||||||||||
| Net (loss) income applicable to common shareholders | $ | (346) | $ | 634 | ||||||||||
Denominator: | ||||||||||||||
Weighted average common shares outstanding | 263.5 | 278.1 | ||||||||||||
Effect of dilutive potential common shares (1): | ||||||||||||||
Stock options | — | 2.6 | ||||||||||||
Restricted stock units (non-participating) and performance stock awards | — | 1.1 | ||||||||||||
Weighted average common and dilutive potential common shares outstanding | 263.5 | 281.8 | ||||||||||||
| Earnings per common share - Basic | $ | (1.31) | $ | 2.28 | ||||||||||
Earnings per common share - Diluted (1) | $ | (1.31) | $ | 2.25 | ||||||||||
Anti-dilutive options excluded from diluted earnings per common share | 1.1 | 1.2 | ||||||||||||
Weighted average dilutive potential common shares excluded due to net loss applicable to common shareholders (1) | 2.6 | — | ||||||||||||
(1)As a result of the net loss reported for the three month period ended March 31, 2023, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because all dilutive potential common shares are anti-dilutive and are therefore excluded from the calculation.
| Note 3 | Reportable Segments | ||||
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 expenses (“losses”), amortization of DAC, operating costs and expenses, amortization or impairment of purchased intangibles and restructuring and related charges as determined using GAAP.
Adjusted net income is net income (loss) applicable to common shareholders, excluding:
| • | Net gains and losses on investments and derivatives | ||||
| • | Pension and other postretirement remeasurement gains and losses | ||||
| • | Amortization or impairment of purchased intangibles | ||||
| • | Gain or loss on disposition | ||||
| • | 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 | ||||
A reconciliation of these measures to net income (loss) applicable to common shareholders is provided below.
First Quarter 2023 Form 10-Q 11
Notes to Condensed Consolidated Financial Statements
Reportable segments financial performance | ||||||||||||||
| Three months ended March 31, | ||||||||||||||
| ($ in millions) | 2023 | 2022 | ||||||||||||
| Underwriting income (loss) by segment | ||||||||||||||
| Allstate Protection | $ | (998) | $ | 282 | ||||||||||
Run-off Property-Liability | (3) | (2) | ||||||||||||
| Total Property-Liability | (1,001) | 280 | ||||||||||||
| Adjusted net income (loss) by segment, after-tax | ||||||||||||||
| Protection Services | 34 | 53 | ||||||||||||
Allstate Health and Benefits | 56 | 57 | ||||||||||||
| Corporate and Other | (89) | (111) | ||||||||||||
| Reconciling items | ||||||||||||||
| Property-Liability net investment income | 509 | 558 | ||||||||||||
| Net gains (losses) on investments and derivatives | 14 | (267) | ||||||||||||
| Pension and other postretirement remeasurement gains (losses) | 53 | 247 | ||||||||||||
Amortization of purchased intangibles (1) | (24) | (29) | ||||||||||||
| Gain (loss) on disposition | 9 | (16) | ||||||||||||
| Income tax benefit (expense) on reconciling items | 92 | (148) | ||||||||||||
| Total reconciling items | 653 | 345 | ||||||||||||
Less: Net loss attributable to noncontrolling interest (2) | (1) | (10) | ||||||||||||
| Net (loss) income applicable to common shareholders | $ | (346) | $ | 634 | ||||||||||
(1)Excludes amortization of purchased intangibles in Property-Liability, which is included above in underwriting income.
(2)Reflects net loss attributable to noncontrolling interest in Property-Liability.
12 www.allstate.com
Notes to Condensed Consolidated Financial Statements
Reportable segments revenue information | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Property-Liability | ||||||||||||||
| Insurance premiums | ||||||||||||||
| Auto | $ | 7,908 | $ | 7,081 | ||||||||||
| Homeowners | 2,810 | 2,490 | ||||||||||||
| Other personal lines | 562 | 531 | ||||||||||||
| Commercial lines | 232 | 283 | ||||||||||||
| Other business lines | 123 | 113 | ||||||||||||
| Allstate Protection | 11,635 | 10,498 | ||||||||||||
Run-off Property-Liability | — | — | ||||||||||||
| Total Property-Liability insurance premiums | 11,635 | 10,498 | ||||||||||||
| Other revenue | 353 | 347 | ||||||||||||
| Net investment income | 509 | 558 | ||||||||||||
| Net gains (losses) on investments and derivatives | 12 | (203) | ||||||||||||
| Total Property-Liability | 12,509 | 11,200 | ||||||||||||
| Protection Services | ||||||||||||||
| Protection plans | 361 | 313 | ||||||||||||
| Roadside assistance | 49 | 53 | ||||||||||||
| Finance and insurance products | 128 | 117 | ||||||||||||
Intersegment premiums and service fees (1) | 33 | 41 | ||||||||||||
| Other revenue | 84 | 94 | ||||||||||||
| Net investment income | 16 | 9 | ||||||||||||
| Net gains (losses) on investments and derivatives | (1) | (13) | ||||||||||||
| Total Protection Services | 670 | 614 | ||||||||||||
Allstate Health and Benefits | ||||||||||||||
| Employer voluntary benefits | 255 | 263 | ||||||||||||
| Group health | 107 | 94 | ||||||||||||
| Individual health | 101 | 111 | ||||||||||||
| Other revenue | 101 | 95 | ||||||||||||
| Net investment income | 19 | 17 | ||||||||||||
| Net gains (losses) on investments and derivatives | 2 | (7) | ||||||||||||
Total Allstate Health and Benefits | 585 | 573 | ||||||||||||
| Corporate and Other | ||||||||||||||
| Other revenue | 23 | 24 | ||||||||||||
| Net investment income | 31 | 10 | ||||||||||||
| Net gains (losses) on investments and derivatives | 1 | (44) | ||||||||||||
| Total Corporate and Other | 55 | (10) | ||||||||||||
Intersegment eliminations (1) | (33) | (41) | ||||||||||||
| Consolidated revenues | $ | 13,786 | $ | 12,336 | ||||||||||
(1)Intersegment insurance premiums and service fees are primarily related to Arity and Allstate Roadside and are eliminated in the condensed consolidated financial statements.
First Quarter 2023 Form 10-Q 13
Notes to Condensed Consolidated Financial Statements
| Note 4 | Investments | ||||
Portfolio composition | ||||||||||||||
| ($ in millions) | March 31, 2023 | December 31, 2022 | ||||||||||||
| Fixed income securities, at fair value | $ | 44,103 | $ | 42,485 | ||||||||||
| Equity securities, at fair value | 2,174 | 4,567 | ||||||||||||
| Mortgage loans, net | 781 | 762 | ||||||||||||
| Limited partnership interests | 7,971 | 8,114 | ||||||||||||
| Short-term investments, at fair value | 6,722 | 4,173 | ||||||||||||
| Other investments, net | 1,724 | 1,728 | ||||||||||||
| Total | $ | 63,475 | $ | 61,829 | ||||||||||
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS is shown separately because of potential prepayment of principal prior to contractual maturity dates.
Net investment income | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Fixed income securities | $ | 390 | $ | 267 | ||||||||||
| Equity securities | 11 | 36 | ||||||||||||
| Mortgage loans | 8 | 8 | ||||||||||||
| Limited partnership interests | 134 | 292 | ||||||||||||
| Short-term investments | 66 | 2 | ||||||||||||
| Other investments | 41 | 40 | ||||||||||||
| Investment income, before expense | 650 | 645 | ||||||||||||
| Investment expense | (75) | (51) | ||||||||||||
Net investment income | $ | 575 | $ | 594 | ||||||||||
14 www.allstate.com
Notes to Condensed Consolidated Financial Statements
Net gains (losses) on investments and derivatives by asset type | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Fixed income securities | $ | (136) | $ | (152) | ||||||||||
| Equity securities | 167 | (347) | ||||||||||||
| Mortgage loans | — | (1) | ||||||||||||
| Limited partnership interests | 22 | (101) | ||||||||||||
| Derivatives | (52) | 318 | ||||||||||||
| Other investments | 13 | 16 | ||||||||||||
| Net gains (losses) on investments and derivatives | $ | 14 | $ | (267) | ||||||||||
Net gains (losses) on investments and derivatives by transaction type | ||||||||||||||
($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Sales | $ | (120) | $ | (127) | ||||||||||
| Credit losses | (12) | (11) | ||||||||||||
Valuation change of equity investments (1) | 198 | (447) | ||||||||||||
| Valuation change and settlements of derivatives | (52) | 318 | ||||||||||||
| Net gains (losses) on investments and derivatives | $ | 14 | $ | (267) | ||||||||||
(1)Includes valuation change of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.
| Gross realized gains (losses) on sales of fixed income securities | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Gross realized gains | $ | 46 | $ | 66 | ||||||||||
| Gross realized losses | (173) | (218) | ||||||||||||
| Net appreciation (decline) recognized in net income for assets that are still held | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Equity securities | $ | 20 | $ | (92) | ||||||||||
Limited partnership interests carried at fair value | 16 | 38 | ||||||||||||
| Total | $ | 36 | $ | (54) | ||||||||||
| Credit losses recognized in net income | ||||||||||||||
| ($ in millions) | Three months ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets | ||||||||||||||
| Fixed income securities: | ||||||||||||||
| Corporate | $ | (9) | $ | — | ||||||||||
| Total fixed income securities | (9) | — | ||||||||||||
| Mortgage loans | — | (1) | ||||||||||||
| Other investments | ||||||||||||||
| Bank loans | (3) | (10) | ||||||||||||
| Total credit losses by asset type | $ | (12) | $ | (11) | ||||||||||
| Liabilities | ||||||||||||||
| Commitments to fund commercial mortgage loans and bank loans | — | — | ||||||||||||
| Total | $ | (12) | $ | (11) | ||||||||||
First Quarter 2023 Form 10-Q 15
Notes to Condensed Consolidated Financial Statements
| Unrealized net capital gains and losses included in AOCI | ||||||||||||||||||||||||||
| ($ in millions) | Fair value | Gross unrealized | Unrealized net gains (losses) | |||||||||||||||||||||||
| March 31, 2023 | Gains | Losses | ||||||||||||||||||||||||
| Fixed income securities | $ | 44,103 | $ | 211 | $ | (2,228) | $ | (2,017) | ||||||||||||||||||
| Short-term investments | 6,722 | — | — | — | ||||||||||||||||||||||
| Derivative instruments | — | — | (2) | (2) | ||||||||||||||||||||||
Limited partnership interests (1) | 4 | |||||||||||||||||||||||||
| Unrealized net capital gains and losses, pre-tax | (2,015) | |||||||||||||||||||||||||
Other unrealized net capital gains and losses, pre-tax (2) | 18 | |||||||||||||||||||||||||
| Deferred income taxes | 424 | |||||||||||||||||||||||||
| Unrealized net capital gains and losses, after-tax | $ | (1,573) | ||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Fixed income securities | $ | 42,485 | $ | 92 | $ | (2,977) | $ | (2,885) | ||||||||||||||||||
| Short-term investments | 4,173 | — | (1) | (1) | ||||||||||||||||||||||
| Derivative instruments | — | — | (3) | (3) | ||||||||||||||||||||||
Limited partnership interests (1) | 2 | |||||||||||||||||||||||||
| Unrealized net capital gains and losses, pre-tax | (2,887) | |||||||||||||||||||||||||
Other unrealized net capital gains and losses, pre-tax (2) | 23 | |||||||||||||||||||||||||
| Deferred income taxes | 609 | |||||||||||||||||||||||||
| Unrealized net capital gains and losses, after-tax | $ | (2,255) | ||||||||||||||||||||||||
(1)Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of the equity method of accounting (“EMA”) limited partnerships’ OCI. Fair value and gross unrealized gains and losses are not applicable.
(2)Includes amounts recognized for the reclassification of unrealized gains and losses related to noncontrolling interest.
Change in unrealized net capital gains (losses) | ||||||||
| ($ in millions) | Three months ended March 31, 2023 | |||||||
| Fixed income securities | $ | 868 | ||||||
| Short-term investments | 1 | |||||||
| Derivative instruments | 1 | |||||||
| Limited partnership interests | 2 | |||||||
| Total | 872 | |||||||
| Other unrealized net capital gains and losses, pre-tax | (5) | |||||||
| Deferred income taxes | (185) | |||||||
| Increase in unrealized net capital gains and losses, after-tax | $ | 682 | ||||||
Carrying value for limited partnership interests | ||||||||||||||||||||||||||||||||||||||
| ($ in millions) | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| EMA | Fair Value | Total | EMA | Fair Value | Total | |||||||||||||||||||||||||||||||||
| Private equity | $ | 5,546 | $ | 1,199 | $ | 6,745 | $ | 5,372 | $ | 1,217 | $ | 6,589 | ||||||||||||||||||||||||||
| Real estate | 1,019 | 29 | 1,048 | 1,013 | 29 | 1,042 | ||||||||||||||||||||||||||||||||
Other (1) | 178 | — | 178 | 483 | — | 483 | ||||||||||||||||||||||||||||||||
| Total | $ | 6,743 | $ | 1,228 | $ | 7,971 | $ | 6,868 | $ | 1,246 | $ | 8,114 | ||||||||||||||||||||||||||
(1)Other consists of certain limited partnership interests where the underlying assets are predominately public equity and debt securities.
Short-term investments Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of March 31, 2023 and December 31, 2022, the fair value of short-term investments totaled $6.72 billion and $4.17 billion, respectively.
16 www.allstate.com
Notes to Condensed Consolidated Financial Statements
Other investments Other investments primarily consist of bank loans, real estate, policy loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost, net. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Derivatives are carried at fair value.
| Other investments by asset type | ||||||||||||||
| ($ in millions) | March 31, 2023 | December 31, 2022 | ||||||||||||
| Bank loans, net | $ | 698 | $ | 686 | ||||||||||
| Real estate | 790 | 813 | ||||||||||||
| Policy loans | 120 | 120 | ||||||||||||
| Derivatives | 10 | 1 | ||||||||||||
| Other | 106 | 108 | ||||||||||||
| Total | $ | 1,724 | $ | 1,728 | ||||||||||
Portfolio monitoring and credit losses
Fixed income securities The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with incremental losses recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate and is compared to the amortized cost of the security.
The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security is considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, credit ratings, financial condition of the bond insurer for insured fixed income
securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.
If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
When a security is sold or otherwise disposed or when the security is deemed uncollectible and written off, the Company removes amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received. Accrued interest excluded from the amortized cost of fixed income securities totaled $400 million and $389 million as of March 31, 2023 and December 31, 2022, respectively, and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position. The Company monitors accrued interest and writes off amounts when they are not expected to be received.
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. The process also includes the monitoring of other credit loss indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential credit losses using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of credit losses for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a
First Quarter 2023 Form 10-Q 17
Notes to Condensed Consolidated Financial Statements
decline in fair value requires a credit loss allowance are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that
a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the extent to which the fair value has been less than amortized cost.
Rollforward of credit loss allowance for fixed income securities | ||||||||||||||
| Three months ended March 31, | ||||||||||||||
| ($ in millions) | 2023 | 2022 | ||||||||||||
| Beginning balance | $ | (13) | $ | (6) | ||||||||||
| Credit losses on securities for which credit losses not previously reported | — | — | ||||||||||||
| Net increases related to credit losses previously reported | (9) | — | ||||||||||||
| Reduction of allowance related to sales | — | — | ||||||||||||
| Write-offs | — | — | ||||||||||||
| Ending balance | $ | (22) | $ | (6) | ||||||||||
| Components of credit loss allowance | ||||||||||||||
| Corporate bonds | $ | (20) | $ | (6) | ||||||||||
| ABS | (2) | — | ||||||||||||
| Total | $ | (22) | $ | (6) | ||||||||||
| Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | Less than 12 months | 12 months or more | Total unrealized losses | |||||||||||||||||||||||||||||||||||||||||
Number of issues | Fair value | Unrealized losses | Number of issues | Fair value | Unrealized losses | |||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies | 70 | $ | 2,576 | $ | (41) | 104 | $ | 3,216 | $ | (111) | $ | (152) | ||||||||||||||||||||||||||||||||
| Municipal | 1,183 | 1,632 | (27) | 1,860 | 2,376 | (213) | (240) | |||||||||||||||||||||||||||||||||||||
| Corporate | 970 | 8,673 | (286) | 1,777 | 14,543 | (1,501) | (1,787) | |||||||||||||||||||||||||||||||||||||
| Foreign government | 15 | 197 | (1) | 87 | 452 | (23) | (24) | |||||||||||||||||||||||||||||||||||||
| ABS | 74 | 160 | (5) | 152 | 669 | (20) | (25) | |||||||||||||||||||||||||||||||||||||
| Total fixed income securities | 2,312 | $ | 13,238 | $ | (360) | 3,980 | $ | 21,256 | $ | (1,868) | $ | (2,228) | ||||||||||||||||||||||||||||||||
| Investment grade fixed income securities | 2,132 | $ | 12,415 | $ | (313) | 3,601 | $ | 18,633 | $ | (1,509) | $ | (1,822) | ||||||||||||||||||||||||||||||||
| Below investment grade fixed income securities | 180 | 823 | (47) | 379 | 2,623 | (359) | (406) | |||||||||||||||||||||||||||||||||||||
| Total fixed income securities | 2,312 | $ | 13,238 | $ | (360) | 3,980 | $ | 21,256 | $ | (1,868) | $ | (2,228) | ||||||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies | 112 | $ | 4,900 | $ | (138) | 75 | $ | 2,393 | $ | (93) | $ | (231) | ||||||||||||||||||||||||||||||||
| Municipal | 3,015 | 3,944 | (215) | 507 | 740 | (111) | (326) | |||||||||||||||||||||||||||||||||||||
| Corporate | 2,085 | 18,072 | (1,389) | 845 | 6,105 | (956) | (2,345) | |||||||||||||||||||||||||||||||||||||
| Foreign government | 74 | 739 | (22) | 42 | 200 | (18) | (40) | |||||||||||||||||||||||||||||||||||||
| ABS | 194 | 874 | (27) | 83 | 109 | (8) | (35) | |||||||||||||||||||||||||||||||||||||
| Total fixed income securities | 5,480 | $ | 28,529 | $ | (1,791) | 1,552 | $ | 9,547 | $ | (1,186) | $ | (2,977) | ||||||||||||||||||||||||||||||||
| Investment grade fixed income securities | 4,959 | $ | 25,487 | $ | (1,409) | 1,437 | $ | 8,791 | $ | (1,009) | $ | (2,418) | ||||||||||||||||||||||||||||||||
| Below investment grade fixed income securities | 521 | 3,042 | (382) | 115 | 756 | (177) | (559) | |||||||||||||||||||||||||||||||||||||
| Total fixed income securities | 5,480 | $ | 28,529 | $ | (1,791) | 1,552 | $ | 9,547 | $ | (1,186) | $ | (2,977) | ||||||||||||||||||||||||||||||||
18 www.allstate.com
Notes to Condensed Consolidated Financial Statements
| Gross unrealized losses by unrealized loss position and credit quality as of March 31, 2023 | ||||||||||||||||||||
| ($ in millions) | Investment grade | Below investment grade | Total | |||||||||||||||||
Fixed income securities with unrealized loss position less than 20% of amortized cost, net (1) (2) | $ | (1,669) | $ | (296) | $ | (1,965) | ||||||||||||||
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost, net (3) (4) | (153) | (110) | (263) | |||||||||||||||||
| Total unrealized losses | $ | (1,822) | $ | (406) | $ | (2,228) | ||||||||||||||
(1)Below investment grade fixed income securities include $41 million that have been in an unrealized loss position for less than twelve months.
(2)Related to securities with an unrealized loss position less than 20% of amortized cost, net, the degree of which suggests that these securities do not pose a high risk of having credit losses.
(3)Below investment grade fixed income securities include $104 million that have been in an unrealized loss position for a period of twelve or more consecutive months.
(4)Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.
Investment grade is defined as a security having a National Association of Insurance Commissioners (“NAIC”) designation of 1 or 2, which is comparable to a rating of Aaa, Aa, A or Baa from Moody’s or AAA, AA, A or BBB from S&P Global Ratings (“S&P”), or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.
ABS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.
As of March 31, 2023, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.
Loans The Company establishes a credit loss allowance for mortgage loans and bank loans when they are originated or purchased, and for unfunded commitments unless they are unconditionally cancellable by the Company. The Company uses a probability of default and loss given default model for mortgage loans and bank loans to estimate current expected credit losses that considers all relevant
information available including past events, current conditions, and reasonable and supportable forecasts over the life of an asset. The Company also considers such factors as historical losses, expected prepayments and various economic factors. For mortgage loans the Company considers ori