Aallstate(ALL) - 2019 Q4 - Annual Report

Part I Overview of Allstate's business, strategy, segments, and regulatory environment, including executive information and forward-looking statements Item 1. Business Allstate Corporation's core operations in property, casualty, life, and protection plans, its market position, and transformative growth strategy Overview Allstate, incorporated in Delaware, is a major U.S. personal lines insurer protecting people from uncertainties with 145.9 million policies in force - The Allstate Corporation was incorporated in Delaware on November 5, 1992, as the holding company for Allstate Insurance Company, conducting business primarily through Allstate Insurance Company, Allstate Life Insurance Company, and other subsidiaries[7] - Allstate's purpose is to protect people from life's uncertainties and prepare them for the future, primarily engaging in property and casualty insurance in the United States and Canada, and offering life, accident, health insurance, and protection plans[7] - Allstate is one of the largest publicly held personal lines insurers in the U.S., ranking as the third largest personal property and casualty insurer based on 2018 statutory direct premiums written[7] - Allstate also holds strong market positions in life insurance (20th largest issuer by 2018 ordinary life insurance in force), voluntary benefits (top five carriers), consumer protection plans (leading position through major retailers with SquareTrade/Allstate Protection Plans), and identity protection (leading position through employers with InfoArmor/Allstate Identity Protection)[8] - As of December 31, 2019, Allstate had 145.9 million policies in force (PIF)[8] Strategy and Segment Information Allstate's strategy focuses on increasing market share and expanding protection businesses through a multi-year Transformative Growth Plan - Allstate's strategy focuses on two main components: increasing personal property-liability market share and expanding protection businesses, including Service Businesses, Allstate Life, and Allstate Benefits[9] - The company aims to create shareholder value through customer satisfaction, unit growth, attractive returns on capital, sustainable profitability, and a diversified business platform[9] - A multi-year Transformative Growth Plan is being implemented to leverage the Allstate brand, people, and technology, with goals to expand customer access (integrating Esurance into the Allstate brand in 2020), improve customer value (affordable, simple, connected products with sophisticated rating algorithms like telematics), and increase investments in marketing and technology[10][12] Allstate Reportable Segments | Reportable Segments | Description | |:-------------------------------|:----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Allstate Protection | Includes Allstate, Encompass, Esurance, and Answer Financial brands, offering private passenger auto, homeowners, other personal lines, and commercial insurance. Esurance will be integrated into the Allstate brand in 2020. | | Service Businesses | Includes Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside Services, Arity, and Allstate Identity Protection, offering consumer protection plans, finance and insurance products, roadside assistance, telematics data solutions, and identity protection. | | Allstate Life | Offers traditional, interest-sensitive, and variable life insurance products primarily through Allstate exclusive agents and financial specialists. |\ | Allstate Benefits | Offers voluntary benefits products (life, accident, critical illness, short-term disability, other health insurance) through independent agents, benefits brokers, and Allstate exclusive agents. |\n| Allstate Annuities | Consists of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements) in run-off. | | Discontinued Lines and Coverages | Relates to property and casualty insurance policies from the 1960s-mid-1980s with exposure to asbestos, environmental, and other claims in run-off. | | Corporate and Other | Includes holding company activities and certain non-insurance operations. | Allstate Protection This segment, accounting for 90.3% of 2019 premiums, offers auto, homeowners, and commercial insurance through various channels - The Allstate Protection segment accounted for 90.3% of Allstate's 2019 consolidated insurance premiums and contract charges and 23.1% of Allstate's December 31, 2019 PIF[14] - Products include private passenger auto, homeowners, other personal lines, and commercial insurance, distributed through agencies, contact centers, and online[14][25] - The segment's strategy is to grow profitably through exclusive agencies and direct channels, leveraging operational capabilities, differentiated products, analytical expertise, telematics, and an integrated digital enterprise[16][17] - Key strategic themes for the Allstate brand are: Available (broad access and comprehensive product portfolio), Competitive (affordable pricing through sophisticated algorithms and expense reduction), Simple (easy interaction across all touchpoints), and Connected (digital engagement and value-added interactions via Allstate Mobile and Arity)[18][19] - Esurance will be integrated into the Allstate brand in 2020, and the Encompass brand will be exclusively used for independent agent access, combining Allstate and Encompass independent agency businesses[15][21] - Answer Financial operates as a technology-enabled insurance agency, providing comparison shopping for non-proprietary products online[22] - Pricing and underwriting strategies aim for sustainable profitable growth, utilizing proprietary databases and risk evaluation factors (vehicle/driver characteristics for auto, property characteristics for home) and managing catastrophe exposure through reinsurance and loss mitigation measures[22][23] Allstate Protection Market Share (2018 Statutory Direct Written Premium) | Insurer | Personal Lines | Private Passenger Auto | Homeowners | |:-------------|:---------------|:-----------------------|:-----------| | State Farm | 17.3% | 17.1% | 17.9% | | Allstate | 8.9% | 9.2% | 8.0% | | GEICO | 9.5% | 13.4% | - | | Progressive | 8.1% | 11.0% | - | | Liberty Mutual | - | - | 6.6% | | USAA | - | - | 6.0% | | Other | 56.2% | 49.3% | 61.5% | Geographic Distribution of Premiums Earned (2019) | State | Percentage | |:-----------|:-----------| | Texas | 12.5% | | California | 10.1% | | New York | 8.6% | | Florida | 6.7% | | Other | 62.1% | Service Businesses This segment provides consumer protection plans, roadside assistance, telematics, and identity protection, representing 3.7% of 2019 revenue - The Service Businesses segment accounted for 3.7% of Allstate's 2019 consolidated total revenue and 72.6% of Allstate's December 31, 2019 PIF[32] - This segment includes Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside Services, Arity, and Allstate Identity Protection[32] - The strategy is to deliver superior value propositions and build strategic platforms to connect and engage with customers, expanding distribution through new and existing retail and mobile operator accounts, and pursuing strategic partnerships[32][33] - Products and services include consumer protection plans (mobile phones, electronics, appliances), finance and insurance products for auto dealerships (vehicle service contracts, tire/wheel protection), roadside assistance, data and analytics solutions using automotive telematics (Arity), and identity protection services[33] - Distribution channels vary by business, including major retailers, mobile operators, independent agencies, auto dealerships, Allstate exclusive agencies, wholesale partners, affinity groups, mobile applications, and workplace benefit programs[34] - The Service Businesses primarily operate in the U.S., with some services in Europe, Canada, and Puerto Rico[35] Allstate Life This segment offers traditional, interest-sensitive, and variable life insurance, contributing 4.4% of 2019 revenue and targeting middle-market consumers - The Allstate Life segment accounted for 4.4% of Allstate's 2019 consolidated total revenue and 1.3% of Allstate's December 31, 2019 PIF[35] - The strategy is to broaden customer relationships and value propositions for middle-market consumers with family and financial protection needs, offering traditional, interest-sensitive, and variable life insurance products[35] - Products are primarily distributed through Allstate exclusive agencies and exclusive financial specialists, who also sell non-proprietary products like mutual funds and annuities[36][37] - As of December 31, 2019, Allstate agencies managed approximately $16.5 billion in non-proprietary mutual funds and fixed/variable annuity account balances, with $2.4 billion in new deposits in 2019[37] - The segment primarily operates in all 50 U.S. states and D.C., with top geographic markets in New York, California, Texas, Florida, and Illinois based on 2019 statutory direct premiums[39] Allstate Benefits This segment provides voluntary benefits like life, accident, and critical illness insurance, accounting for 2.8% of 2019 revenue - The Allstate Benefits segment accounted for 2.8% of Allstate's 2019 consolidated total revenue and 2.9% of Allstate's December 31, 2019 PIF[40] - The segment provides financial protection against accidents, illness, and mortality through voluntary benefits products, including life, accident, critical illness, short-term disability, and other health insurance[40][41] - Allstate Benefits is among the industry leaders in the growing voluntary benefits market, targeting middle-market consumers employed by small, medium, and large firms[40] - Products are distributed through independent agents, benefits brokers, and Allstate exclusive agencies[41] - The strategy for growth focuses on innovative products, technology, tailored solutions, and exceptional service, with initiatives to expand into non-traditional products and become an integrated digital enterprise[40] - The segment primarily operates in all 50 U.S. states and D.C., and Canada, with top geographic markets in Florida, Texas, North Carolina, New York, and California based on 2019 statutory direct premiums[43] Allstate Annuities This segment, in run-off since 2006-2014, manages deferred and immediate fixed annuities, representing 2.9% of 2019 revenue - The Allstate Annuities segment accounted for 2.9% of Allstate's 2019 consolidated total revenue and 0.1% of Allstate's December 31, 2019 PIF[43] - This segment consists primarily of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements) and is in run-off, with sales of proprietary annuities discontinued from 2006 to 2014[43][44] - The segment's focus is on increasing lifetime economic value by proactively managing the investment portfolio and crediting rates to improve profitability, despite adverse impacts from historically low interest rates and annuitants living longer than anticipated[43] - The investment portfolio for immediate annuities is managed to match liability characteristics and provide long-term returns, utilizing performance-based investments like limited partnerships[43] Other Business Segments Includes Discontinued Lines and Coverages for asbestos/environmental claims and Corporate and Other for holding company activities - The Discontinued Lines and Coverages segment includes property and casualty insurance coverage primarily from policies written during the 1960s through the mid-1980s, with exposure to asbestos, environmental, and other claims in run-off[45] - Management of this segment involves a dedicated group of professionals focused on claims handling, policy coverage interpretation, exposure identification, litigation, and reinsurance collection, including pursuing settlement agreements and managing other direct commercial and assumed reinsurance business in run-off[45] - The Corporate and Other segment comprises holding company activities and certain non-insurance operations[45] Regulation Allstate is subject to extensive state-level regulation covering solvency, rates, investments, and data security, with federal oversight from FIO and FSOC - Allstate is subject to extensive regulation primarily at the state level, covering insurer solvency, reserve adequacy, licensing, rates, investments, claims practices, privacy, and data security[46] - The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Federal Insurance Office (FIO) to monitor the insurance industry and advise the Financial Stability Oversight Council (FSOC)[46] - New regulations or requirements from entities like the Federal Reserve Board, FIO, FSOC, NAIC, and IAIS could increase capital and liquidity requirements for insurance holding companies[46] - The Allstate Corporation, as a holding company, relies on dividends from its insurance subsidiaries, which are restricted by state laws (e.g., Illinois law for Allstate Insurance Company)[47] - Acquisition or change of 'control' (10% or more voting securities) of a domestic or commercially domiciled insurer requires prior approval from relevant state insurance regulators[47][48] - State insurance laws require personal property and casualty insurers to file rating plans and policy forms, with rate changes subject to prior approval, file-and-use, use-and-file, or no approval categories[48] 2019 Statutory Direct Written Premiums by State Rating Laws | Rating Law Category | Percentage of Premiums | |:--------------------|:-----------------------| | Prior approval | 39% | | File-and-use | 38% | | Use-and-file | 22% | | No approval | <1% | - Allstate participates in involuntary markets (assigned risk plans, reinsurance facilities, joint underwriting associations) and state-based industry pools/facilities (e.g., Michigan Catastrophic Claims Association - MCCA, Florida Hurricane Catastrophe Fund - FHCF) as a condition of maintaining licenses[49] - Recent Michigan legislation (May 30, 2019) reformed the no-fault auto insurance system, allowing choice of personal injury protection coverage levels, mandating rate reductions, and setting fee schedules for claims[50] - The sale and administration of variable life insurance and registered fixed annuities are subject to federal and state regulatory oversight, including the SEC and FINRA, with new best interest standards potentially impacting products and compensation[50] - Privacy and data security regulations, such as GDPR and CCPA, impose strict requirements for handling personal data and data breaches, with potential for future legislative measures impacting the business[51] - Environmental Clean-up Laws (ECLs) like Superfund govern waste site clean-up, leading to extensive litigation over insurance coverage issues, with uncertain exposure for Allstate[53] Website Allstate's official website and SEC filings are available online, along with corporate governance documents - Allstate's website is allstate.com, and its SEC filings (10-K, 10-Q, 8-K) are available free of charge on the Investor Relations section (www.allstateinvestors.com)[55](index=55&type=chunk) - Corporate Governance Guidelines, Global Code of Business Conduct, and committee charters are also available on the Investor Relations section[55] Other Information About Allstate Details on employee count, shared services, seasonality of claims, and recognized brands - As of December 31, 2019, Allstate had approximately 45,780 full-time and 510 part-time employees[56] - All seven reportable segments utilize shared services, including human resources, investment, finance, information technology, and legal services[56] - The insurance business is generally not seasonal, but claims and expenses for the Allstate Protection segment tend to be higher during periods of severe weather[56] - Allstate uses multiple well-recognized brands, including Allstate®, Esurance®, Encompass®, Answer Financial®, AllstateSM Protection Plans, Allstate Dealer Services®, Allstate Roadside Services®, Arity®, AllstateSM Identity Protection, and Allstate Benefits®[56] Information about our Executive Officers Provides a list of executive officers, their ages, positions, and years first elected Executive Officers as of February 1, 2020 | Name | Age | Position with Allstate and Business Experience | Year First Elected Officer | |:-------------------|:----|:-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|:---------------------------| | Thomas J. Wilson | 62 | Chair of the Board (May 2008 to present), President (June 2005 to January 2015 and February 2018 to present), and Chief Executive Officer (January 2007 to present) of The Allstate Corporation and AIC. | 1995 | | Carolyn D. Blair | 51 | Executive Vice President and Chief Human Resources Officer of AIC (October 2019 to present); President of Tartan Advisory Group, Inc. (November 2018 to October 2019); Executive Vice President, Chief Human Resources & Communications Officer of Sun Life Financial (April 2014 to June 2018). | 2019 | | Elizabeth A. Brady | 55 | Executive Vice President and Chief Marketing, Customer and Communications Officer of AIC (January 2020 to present); Executive Vice President and Chief Marketing, Innovation and Corporate Relations Officer of AIC (August 2018 to January 2020); Senior Vice President, Global Brand Management of Kohler Co. (November 2013 to July 2018). | 2018 | | Don Civgin | 58 | Chief Executive Officer, Protection Products and Services of AIC (January 2020 to present); President, Service Businesses of AIC (January 2018 to January 2020); President, Emerging Businesses of AIC (February 2015 to January 2018); President and Chief Executive Officer, Allstate Financial of AIC (March 2012 to February 2015). | 2008 | | John E. Dugenske | 53 | President, Investments and Financial Products of AIC (January 2020 to present); Executive Vice President and Chief Investment and Corporate Strategy Officer of AIC (January 2018 to January 2020); Executive Vice President and Chief Investment Officer of AIC (March 2017 to January 2018); Group Managing Director and Global Head of Fixed Income at UBS Global Asset Management (December 2008 to February 2017). | 2017 | | Mary Jane Fortin | 55 | President, Financial Products of AIC (January 2020 to present); President, Allstate Financial Businesses of AIC (February 2017 to January 2020); President, Allstate Life and Retirement of AIC (October 2015 to February 2017); Executive Vice President and Chief Financial Officer, Global Consumer Insurance of AIG (April 2012 to September 2015). | 2015 | | Suren Gupta | 58 | Executive Vice President, Chief Information Technology and Enterprise Services Officer of AIC (January 2020 to present); Executive Vice President, Enterprise Technology and Strategic Ventures of AIC (February 2015 to January 2020); Executive Vice President, Allstate Technology and Operations of AIC (April 2011 to February 2015). | 2011 | | Susan L. Lees | 62 | Executive Vice President, Chief Legal Officer, General Counsel, and Secretary of The Allstate Corporation and AIC (January 2020 to present); Executive Vice President, General Counsel, and Secretary of The Allstate Corporation (May 2013 to January 2020) and of AIC (June 2013 to January 2020); Executive Vice President and General Counsel of The Allstate Corporation (June 2012 to May 2013) and of AIC (June 2012 to June 2013). | 2008 | | Jesse E. Merten | 45 | Executive Vice President and Chief Risk Officer of AIC (December 2017 to present); Treasurer of The Allstate Corporation (January 2015 to April 2019) and of AIC (February 2015 to May 2019); Senior Vice President and Chief Financial Officer, Allstate Financial of AIC (January 2012 to February 2015). | 2012 | | John C. Pintozzi | 54 | Senior Vice President, Controller, and Chief Accounting Officer of The Allstate Corporation (August 2019 to present) and of AIC (September 2019 to present); Senior Vice President and Chief Financial Officer, Allstate Investments (May 2012 to August 2019) | 2005 | | Mario Rizzo | 53 | Executive Vice President and Chief Financial Officer of The Allstate Corporation and AIC (January 2018 to present); Senior Vice President and Chief Financial Officer, Allstate Personal Lines of AIC (February 2015 to January 2018); Senior Vice President and Treasurer of The Allstate Corporation (November 2010 to January 2015) and of AIC (November 2010 to February 2015). | 2010 | | Glenn T. Shapiro | 54 | President, Personal Property-Liability of AIC (January 2020 to present); President, Allstate Personal Lines of AIC (January 2018 to January 2020); Executive Vice President, Claims of AIC (April 2016 to January 2018); Executive Vice President and Chief Claims Officer of Liberty Mutual Commercial Insurance (May 2011 to March 2016). | 2016 | | Steven E. Shebik | 63 | Vice Chair of The Allstate Corporation and AIC (January 2018 to present); Executive Vice President and Chief Financial Officer of The Allstate Corporation (February 2012 to January 2018) and of AIC (March 2012 to January 2018). | 1999 | Forward-Looking Statements This report contains forward-looking statements based on estimates and assumptions, subject to risks and uncertainties - This report contains forward-looking statements based on estimates, assumptions, and plans, subject to uncertainty and made under the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995[60] - These statements address growth strategy, catastrophe exposure, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation, and reserves[60] - Forward-looking statements are not updated for new information or future events, and actual results may differ materially due to risks and uncertainties described in Item 1A. Risk Factors[60] Item 1A. Risk Factors Allstate faces a broad range of risks categorized into insurance, business operations, and macro/regulatory environments, managed through an Enterprise Risk and Return Management framework - Risks are categorized into (1) insurance and financial services, (2) business, strategy and operations, and (3) macro, regulatory and risk environment, with many risks affecting multiple categories[61] - Allstate manages these risks through an Enterprise Risk and Return Management framework on an integrated basis, following its risk and return principles[62] Summary Risks Key risks include claim volatility, catastrophes, competitive pressures, operational effectiveness, market conditions, cybersecurity, and regulatory changes Summary of Risk Categories | Insurance and financial services | Business, strategy and operations | Macro, regulatory and risk environment | |:----------------------------------------|:--------------------------------------------------------------------------|:--------------------------------------------------------------------| | Claim frequency and severity volatility | Highly competitive industry, impacted by new and changing technologies | Adverse changes in economic and capital market conditions | | Catastrophes and severe weather | Operating model effectiveness in light of changing customer preferences | Cybersecurity controls and privacy | | Loss cost estimates are complex | Ability to maintain catastrophe reinsurance programs and limits | Regulatory and political changes | | Investment results are subject to volatility | Fluctuations in financial strength and ratings | Loss of key business relationships and ability to attract talent | | Large-scale pandemic events | | | Insurance and financial services Risks include unexpected claim increases, catastrophic events, competitive pressures, reserve estimation uncertainty, investment volatility, and rating downgrades - Unexpected increases in claim frequency or severity (due to factors like medical costs, litigation, repair costs, inflation, catastrophic events) can adversely affect results[63] - Catastrophic events (wind, hail, wildfires, hurricanes, earthquakes, terrorism) can lead to significant losses, potentially exceeding pricing expectations and reinsurance limits, and impacting liquidity[63] - Limitations in analytical models used to assess catastrophe exposure may lead to inaccurate predictions of future losses[64] - The personal property-liability market is highly competitive, with carriers competing on underwriting, advertising, price, customer service, innovation, and distribution, which can impact Allstate's growth and profitability[64] - Actual claims costs may exceed current reserves due to changes in inflationary, regulatory, and litigation environments, as estimating claim reserves is an inherently uncertain and complex process[64] - Investment portfolios are subject to market risk (interest rates, credit spreads, equity prices, real estate values, currency exchange rates) and declines in quality, which can adversely affect investment income and cause losses[64][65] - Determination of fair value and realized capital losses for impairments involves subjective judgments and can materially impact financial results[66] - Changes in market interest rates or performance-based investment returns can significantly decrease the profitability of the annuity business, particularly fixed annuities sensitive to investment spreads[66] - Changes in reserve estimates and amortization of deferred acquisition costs (DAC) for life, voluntary benefits, and annuity businesses can materially affect results if experience differs significantly from long-term assumptions[66] - Participation in indemnification programs (e.g., Michigan Catastrophic Claim Association - MCCA) subjects Allstate to the risk that reimbursement for qualifying claims may not be received if the funds are insufficient[66][67] - Regulatory capital and reserving requirements may increase capital held in insurance companies, potentially requiring price increases, reduced sales, or lower returns on equity[67] - A downgrade in financial strength ratings could materially affect sales, competitiveness, customer retention, liquidity, access to capital, and financial results[67][68] - Changes in tax laws may adversely affect the sales and profitability of life insurance products[68] Business, strategy and operations Risks involve competitive markets, technological disruption, ineffective strategy implementation, reinsurance availability, acquisition challenges, and intellectual property infringement - Operating in highly competitive markets, Allstate must continually refine products and services; failure to generate new business or retain customers could adversely impact premiums and sales[69] - Technological changes (e.g., autonomous vehicles, ride-sharing) could disrupt demand for products, create coverage issues, impact loss frequency/severity, or reduce the auto insurance market size, significantly affecting Allstate's auto insurance business[70] - The Transformative Growth Plan, if not effectively or timely implemented, could adversely impact customer and growth objectives, lead to lost business opportunities, or have unintended negative effects[71] - Catastrophe risk management actions have negatively impacted homeowners business size and customer retention, potentially affecting future sales and premium growth rates[72] - The ability of subsidiaries to pay dividends is limited by state insurance regulatory authorities and financial strength rating requirements, which can affect holding company liquidity and ability to meet obligations or fund share repurchases[72] - Reinsurance may become unavailable at current levels and prices, limiting the ability to write new business or requiring acceptance of increased catastrophe exposure[72][73] - Reinsurance subjects Allstate to counterparty risk; inability to recover from a reinsurer could materially affect results[73] - Acquisitions or divestitures may not produce anticipated benefits, leading to operating difficulties, unforeseen liabilities, or asset impairments if integration is ineffective or performance is below projections[73][75] - Allstate may be subject to risks and costs associated with intellectual property infringement, misappropriation, and third-party claims, which could result in significant expense and liability[75] Macro, regulatory and risk environment Risks include adverse economic conditions, pandemics, cybersecurity failures, climate change, extensive regulation, legal actions, and accounting/tax law changes - Adverse global economic and capital market conditions (low growth, low interest rates, rising inflation, debt defaults, market downturns) could negatively impact demand for products, investment portfolio returns, and results of operations[76] - Stressed capital and credit market conditions may restrict liquidity and credit capacity, limiting access to financing or increasing its cost[76][77] - Large-scale pandemics, terrorism, or military actions could result in significant losses, property damage, disruptions to commerce, reduced economic activity, and adverse effects on sales, liquidity, and operating results[77] - Failure in cyber or information security controls, or unanticipated disaster events, could lead to loss/disclosure of confidential information, reputational damage, increased costs, regulatory penalties, and impaired business operations[77][78] - Losses from changing climate and weather conditions (increased frequency/severity of storms, wildfires, floods) may adversely affect financial condition, profitability, or cash flows, and impact insurability and investment portfolio valuations[78] - Extensive and potentially more restrictive regulation may increase operating costs, limit growth, and lead to additional expenses or legal exposure[79] - A regulatory environment that dictates underwriting practices, mandates participation in loss-sharing arrangements, or suppresses rates can adversely affect profitability and financial condition[81] - Losses from legal and regulatory actions, including class-action litigation and market conduct exams, may be material to results of operations, cash flows, and financial condition[81] - Changes in accounting standards or tax laws may adversely affect results of operations and financial condition, potentially leading to impairment charges, material effects on reserves, or increased tax expense[82] - Loss of key vendor relationships or vendor failure to protect data could adversely affect operations, and inability to attract/retain talent or misconduct by employees/agents may expose Allstate to financial loss and reputational harm[82][83] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments[83] Item 2. Properties Allstate's home office is in Northbrook, Illinois, supplemented by numerous administrative and support facilities across North America and internationally - Allstate's home office complex is owned and located in Northbrook, Illinois, consisting of 1.9 million square feet of office space on a 186-acre site[83] - The company operates from approximately 450 administrative, data processing, claims handling, and other support facilities in North America, with 825 thousand square feet owned and 6.1 million square feet leased[83] - Internationally, Allstate owns one and leases three properties in Northern Ireland (approx. 220 thousand sq ft), two leased facilities in India (approx. 434 thousand sq ft), and two leased facilities in London (7,182 sq ft)[83] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 14 of the consolidated financial statements - Information required for Item 3 is incorporated by reference to the discussion under the heading 'Regulation and compliance' and 'Legal and regulatory proceedings and inquiries' in Note 14 of the consolidated financial statements[83] Item 4. Mine Safety Disclosures This item is not applicable to The Allstate Corporation - Not applicable[83] Part II Covers market for common equity, selected financial data, management's discussion and analysis, and market risk disclosures Item 5. Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities Details common stock trading, shareholder information, and recent share repurchase programs - As of January 31, 2020, The Allstate Corporation had 67,204 holders of record for its common stock, which is principally traded on the New York Stock Exchange under the symbol 'ALL' and also listed on the Chicago Stock Exchange[84] Cumulative Total Shareholder Return (December 31, 2014 - December 31, 2019) | Index | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | |:-------------|:-----------|:-----------|:-----------|:-----------|:-----------|:-----------| | Allstate | $100.00 | $90.04 | $109.58 | $157.38 | $126.66 | $175.82 | | S&P P/C | $100.00 | $109.53 | $126.73 | $155.10 | $147.83 | $186.07 | | S&P 500 | $100.00 | $101.37 | $113.49 | $138.26 | $132.19 | $173.80 | - The $3.00 billion common share repurchase program, approved on October 31, 2018, was completed in January 2020[86] - In November 2019, Allstate entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC to purchase $500 million of common stock, initially delivering 4.01 million shares, and settling on January 8, 2020, for a total of 4.6 million shares at an average price of $109.51[86] Issuer Purchases of Equity Securities (Q4 2019) | Period | Total Shares Purchased | Average Price Paid per Share | |:--------------------------------------|:-----------------------|:-----------------------------| | October 1, 2019 - October 31, 2019 | 2,479,268 | $107.41 | | November 1, 2019 - November 30, 2019 | 122,866 | $106.19 | | ASR Agreement (November 2019) | 4,013,220 | — | | December 1, 2019 - December 31, 2019 | 54 | $110.14 | | Total | 6,615,408 | | Item 6. Selected Financial Data This section provides a 5-year summary of selected financial data for The Allstate Corporation, including consolidated operating results and financial position from 2015 to 2019 5-Year Summary of Selected Financial Data (2015-2019) | Indicator | 2019 | 2018 | 2017 | 2016 | 2015 | |:---------------------------------------------------|:------------|:------------|:------------|:------------|:------------| | Consolidated Operating Results ($ in millions): | | | | | | | Insurance premiums and contract charges | $38,577 | $36,513 | $34,678 | $33,582 | $32,467 | | Other revenue | 1,054 | 939 | 883 | 865 | 863 | | Net investment income | 3,159 | 3,240 | 3,401 | 3,042 | 3,156 | | Realized capital gains and losses | 1,885 | (877) | 445 | (90) | 30 | | Total revenues | 44,675 | 39,815 | 39,407 | 37,399 | 36,516 | | Net income applicable to common shareholders | 4,678 | 2,012 | 3,438 | 1,692 | 2,138 | | Net income applicable to common shareholders per common share - Basic | 14.25 | 5.78 | 9.50 | 4.54 | 5.33 | | Net income applicable to common shareholders per common share - Diluted | 14.03 | 5.70 | 9.35 | 4.48 | 5.26 | | Cash dividends declared per common share | 2.00 | 1.84 | 1.48 | 1.32 | 1.20 | | Consolidated Financial Position ($ in millions): | | | | | | | Investments | $88,362 | $81,260 | $82,803 | $81,799 | $77,758 | | Total assets | 119,950 | 112,249 | 112,422 | 108,610 | 104,656 | | Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds | 57,704 | 58,002 | 58,308 | 57,749 | 57,411 | | Long-term debt | 6,631 | 6,451 | 6,350 | 6,347 | 5,124 | | Shareholders' equity | 25,998 | 21,312 | 22,551 | 20,569 | 20,020 | | Shareholders' equity per diluted common share | 73.12 | 57.56 | 57.58 | 50.76 | 47.33 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Detailed analysis of Allstate's financial performance, segment results, investment strategies, and risk management for 2019, 2018, and 2017 2019 Highlights Allstate achieved increased customer satisfaction, significant policy growth, strong Property-Liability results, and higher net income in 2019 - Allstate's 2019 operating priorities focused on better serving customers, growing the customer base, achieving target returns on capital, proactively managing investments, and building long-term growth platforms[94] - In 2019, Allstate achieved an increased Enterprise Net Promoter Score, total policies in force reached 145.9 million (up 27.7% YoY), and Property-Liability policies increased 1.3% to 33.7 million[94] - The company reported strong Property-Liability insurance results with a combined ratio of 92.0 and a 21.7% return on average common shareholders' equity in 2019[94] - Net investment income was $3.2 billion in 2019, reflecting higher market-based portfolio yields, and the total return on the $88.4 billion investment portfolio was 9.2%[94] - Consolidated net income applicable to common shareholders increased by $2.67 billion in 2019 compared to 2018, primarily due to net realized capital gains in 2019 (compared to losses in 2018) from increased equity investment valuations and higher underwriting income in Allstate Protection[94] - Total revenue increased 12.2% in 2019 compared to 2018, driven by net realized capital gains and a 5.7% increase in insurance premiums and contract charges[95] - Net investment income decreased 2.5% in 2019 compared to 2018, mainly due to lower income from performance-based investments, partially offset by higher income from the market-based portfolio[96] Summarized Financial Results ($ in millions) | Revenues | 2019 | 2018 | 2017 | |:---------------------------------------|:---------|:---------|:---------| | Property and casualty insurance premiums | $36,076 | $34,048 | $32,300 | | Life premiums and contract charges | 2,501 | 2,465 | 2,378 | | Other revenue | 1,054 | 939 | 883 | | Net investment income | 3,159 | 3,240 | 3,401 | | Realized capital gains and losses | 1,885 | (877) | 445 | | Total revenues | 44,675 | 39,815 | 39,407 | | Costs and expenses | | | | | Property and casualty insurance claims and claims expense | (23,976) | (22,778) | (21,847) | | Life contract benefits and interest credited to contractholder funds | (2,679) | (2,627) | (2,613) | | Amortization of deferred policy acquisition costs | (5,533) | (5,222) | (4,784) | | Operating, restructuring and interest expenses | (6,058) | (5,993) | (5,627) | | Pension and other postretirement remeasurement gains and losses | (114) | (468) | 217 | | Amortization of purchased intangibles | (126) | (105) | (99) | | Impairment of goodwill and purchased intangibles | (106) | — | (125) | | Total costs and expenses | (38,592) | (37,193) | (34,878) | | Gain on disposition of operations | 6 | 6 | 20 | | Income tax expense | (1,242) | (468) | (995) | | Net income | 4,847 | 2,160 | 3,554 | | Preferred stock dividends | (169) | (148) | (116) | | Net income applicable to common shareholders | $4,678 | $2,012 | $3,438 | - Allstate Protection underwriting income increased 24.3% to $2.91 billion in 2019, driven by increased premiums earned and lower catastrophe losses, partially offset by higher non-catastrophe losses and DAC amortization[96] - Service Businesses adjusted net income improved to $38 million in 2019 (from $8 million in 2018), primarily due to growth in Allstate Protection Plans and favorable loss experience[96] - Allstate Life adjusted net income decreased to $261 million in 2019 (from $295 million in 2018), mainly due to higher DAC amortization and contract benefits, partially offset by higher premiums and net investment income[96] - Allstate Benefits adjusted net income decreased to $115 million in 2019 (from $124 million in 2018), primarily due to higher DAC amortization and operating costs, partially offset by higher premiums[97] - Allstate Annuities adjusted net income significantly decreased to $10 million in 2019 (from $131 million in 2018), mainly due to lower net investment income[97] - Investments totaled $88.36 billion as of December 31, 2019, up from $81.26 billion in 2018, driven by higher fixed income and equity valuations, positive cash flows, and preferred stock/senior debt issuance[98] - Unrealized net capital gains totaled $2.74 billion as of December 31, 2019, a significant increase from $33 million in 2018[98] - Book value per diluted common share increased 27.03% to $73.12 as of December 31, 2019, from $57.56 in 2018[98] - Return on average common shareholders' equity increased by 11.7 points to 21.7% for the twelve months ended December 31, 2019, compared to 10.0% in 2018[99] Property-Liability Operations This section analyzes the financial performance of Allstate's Property-Liability segments using key operating ratios - Property-Liability operations consist of the Allstate Protection and Discontinued Lines and Coverages segments, with performance evaluated using GAAP operating ratios: Loss ratio, Expense ratio, and Combined ratio[100] Property-Liability Summarized Financial Data ($ in millions, except ratios) | Indicator | 2019 | 2018 | 2017 | |:----------------------------------------|:------------|:------------|:------------| | Premiums written | $35,419 | $33,555 | $31,648 | | Premiums earned | $34,843 | $32,950 | $31,433 | | Total revenues | 38,587 | 34,513 | 34,015 | | Total costs and expenses | (32,780) | (31,435) | (29,931) | | Underwriting income | $2,804 | $2,253 | $2,205 | | Net income applicable to common shareholders | $4,611 | $2,465 | $2,813 | | Catastrophe losses | $2,557 | $2,855 | $3,228 | | Loss ratio | 67.8% | 68.1% | 68.4% | | Expense ratio | 24.2% | 25.1% | 24.6% | | Combined ratio | 92.0% | 93.2% | 93.0% | - Property-Liability underwriting income increased to $2.80 billion in 2019 from $2.25 billion in 2018, driven by higher premiums earned and lower catastrophe losses[103] - The combined ratio improved to 92.0% in 2019 from 93.2% in 2018, reflecting better underwriting performance[103] - Net investment income increased 4.7% or $69 million in 2019 compared to 2018, primarily due to higher income from market-based portfolios, partially offset by lower performance-based investment results[104] Property-Liability Net Investment Income ($ in millions) | Investment Type | 2019 | 2018 | 2017 | |:----------------------------|:--------|:--------|:--------| | Fixed income securities | $1,066 | $943 | $909 | | Equity securities | 155 | 121 | 122 | | Mortgage loans | 17 | 17 | 12 | | Limited partnership interests | 296 | 378 | 432 | | Short-term investments | 56 | 40 | 17 | | Other | 107 | 123 | 100 | | Investment income, before expense | 1,697 | 1,622 | 1,592 | | Investment expense | (164) | (158) | (114) |\n| Net investment income | $1,533| $1,464| $1,478| - Net realized capital gains were $1.47 billion in 2019, primarily from increased valuation of equity investments and gains on fixed income securities sales, a significant turnaround from net realized capital losses of $639 million in 2018[105] Property-Liability Realized Capital Gains and Losses ($ in millions) | Indicator | 2019 | 2018 | 2017 | |:----------------------------------------|:--------|:--------|:--------| | Impairment write-downs | $(26) | $(5) | $(56) | | Change in intent write-downs | — | — | (44) | | Net OTTI losses recognized in earnings | (26) | (5) | (100) | | Sales | 498 | (148) | 531 | | Valuation of equity investments | 1,024 | (522) | — | | Valuation and settlements of derivative instruments | (26) | 36 | (30) | | Realized capital gains and losses, pre-tax | 1,470 | (639) | 401 | | Income tax (expense) benefit | (309) | 139 | (129) | | Realized capital gains and losses, after-tax | $1,161| $(500)| $272 | Allstate Protection This segment's underwriting income increased in 2019 due to higher premiums and lower catastrophe losses, improving its combined ratio - Allstate Protection segment's underwriting income increased to $2.91 billion in 2019 from $2.34 billion in 2018, primarily due to higher premiums earned and lower catastrophe losses, partially offset by increased non-catastrophe losses and DAC amortization[108] Allstate Protection Underwriting Results ($ in millions) | Indicator | 2019 | 2018 | 2017 | |:----------------------------------|:------------|:------------|:------------| | Premiums written | $35,419 | $33,555 | $31,648 | | Premiums earned | $34,843 | $32,950 | $31,433 | | Other revenue | 741 | 738 | 703 | | Claims and claims expense | (23,517) | (22,348) | (21,388) | | Amortization of DAC | (4,649) | (4,475) | (4,205) | | Other costs and expenses | (4,417) | (4,462) | (4,161) | | Restructuring and related charges | (38) | (60) | (78) | | Impairment of purchased intangibles | (51) | — | — | | Underwriting income | $2,912 | $2,343 | $2,304 | | Catastrophe losses | $2,557 | $2,855 | $3,228 | Allstate Protection Underwriting Income (Loss) by Line of Business ($ in millions) | Line of Business | 2019 | 2018 | 2017 | |:---------------------|:--------|:--------|:--------| | Auto | $1,688 | $1,791 | $1,437 | | Homeowners | 914 | 483 | 689 | | Other personal lines | 224 | 110 | 141 | | Commercial lines | 14 | (83) | (13) | | Other business lines | 75 | 49 | 51 | | Answer Financial | (3) | (7) | (1) | | Total | $2,912| $2,343| $2,304| - Premiums written increased 5.6% to $35.42 billion in 2019 compared to 2018, with auto premiums up 4.7% and homeowners up 6.1%[112] - The combined ratio for Allstate Protection improved to 91.6% in 2019 from 92.9% in 2018, with the loss ratio decreasing to 67.5% and the expense ratio decreasing to 24.1%[114] - Catastrophe losses decreased 10.4% or $298 million in 2019 compared to 2018, totaling $2.56 billion[115] Catastrophe Losses in 2019 by Size of Event ($ in millions) | Size of Catastrophe Loss | Number of Events | Claims and Claims Expense | Combined Ratio Impact | |:-------------------------|:-----------------|:--------------------------|:----------------------| | Greater than $250 million | 1 | $362 | 1.0 | | $101 million to $250 million | 2 | $342 | 1.0 | | $50 million to $100 million | 9 | $662 | 1.9 | | Less than $50 million | 98 | $1,143 | 3.3 | | Total | 110 | $2,509 | 7.2 | | Prior year reserve reestimates | | $48 | 0.1 | | Total Catastrophe Losses | | $2,557 | 7.3 | Catastrophe Losses by Type of Event ($ in millions) | Type of Event | 2019 Number of Events | 2019 Claims and Claims Expense | 2018 Number of Events | 2018 Claims and Claims Expense | 2017 Number of Events | 2017 Claims and Claims Expense | |:-------------------------|:----------------------|:-------------------------------|:----------------------|:-------------------------------|:----------------------|:-------------------------------| | Hurricanes/Tropical storms | 3 | $86 | 3 | $200 | 3 | $613 | | Tornadoes | 6 | $551 | 3 | $17 | 3 | $100 | | Wind/Hail | 91 | $1,721 | 99 | $1,752 | 93 | $1,973 | | Wildfires | 4 | $28 | 10 | $745 | 10 | $536 | | Other events | 6 | $123 | 2 | $116 | 2 | $24 | | Prior year reserve reestimates | | $48 | | $25 | | $(18) | | Total Catastrophe Losses | 110 | $2,557 | 117 | $2,855 | 111 | $3,228 | - Allstate manages catastrophe exposure by limiting new homeowners business in certain coastal areas, increasing brokerage platform capacity, and purchasing reinsurance, with a current catastrophe reinsurance program supporting a risk tolerance of less than 1% likelihood of annual aggregate catastrophe losses exceeding $2 billion[23][118] - The expense ratio decreased 1.0 point in 2019 compared to 2018, primarily due to lower agent incentive compensation and decreased operating expenses from enterprise-wide cost reduction efforts[121][123] Discontinued Lines and Coverages This segment manages run-off property and casualty policies with exposure to asbestos, environmental, and other claims - The Discontinued Lines and Coverages segment includes property and casualty insurance coverage primarily from policies written during the 1960s through the mid-1980s, with exposure to asbestos, environmental, and other claims in run-off[167] Discontinued Lines and Coverages Underwriting Results ($ in millions) | Indicator | 2019 | 2018 | 2017 | |:----------------------------------|:--------|:--------|:--------| | Claims and claims expense | $(105) | $(87) | $(96) | | Operating costs and expenses | (3) | (3) | (3) | | Underwriting loss | $(108)| $(90) | $(99) | - Underwriting losses in 2019 primarily related to an annual reserve review, resulting in unfavorable reestimates of $95 million (**$28 million for asbesto