Allstate’s auto insurance coverage revenue margins have been finest within the trade till about 18 months in the past, however inflation in automotive restore, alternative costs, and medical prices have since introduced the insurer “nicely into the purple.” These losses have impacted capital ranges at Allstate’s core insurance coverage subsidiary, which historically supplies a lot of the money that covers debt service, shareholder dividends, and buybacks.
Allstate additionally noticed its statutory surplus plunge to $12.2 billion in 2022, down 34% from $18.4 billion the yr earlier than, based on a separate firm submitting. In the meantime, the premiums that it collects from policyholders have been rising, which suggests there’s much less capital to again extra of the corporate’s danger publicity.
Allstate urged to hit pause on buybacks
Allstate has stopped vacuuming money from its insurance coverage unit since mid-2022 in response to those reductions, based on the Crain’s Chicago Enterprise report. Capital for the insurer’s holding firm remained at $4 billion as of year-end, however Wells Fargo analysts Elyse Greenspan mentioned dividends, curiosity funds, and deliberate buybacks for the rest of this yr will cut back this determine to $1.4 billion.
“We imagine it is prudent for Allstate to pause its buyback, leaving capital within the (insurance coverage subsidiaries) whereas underwriting outcomes get well, particularly as inflationary impacts on severity (alternative prices, medical, authorized) are nonetheless regarding,” Greenspan mentioned in a report titled “Cease the Buyback” final October.
This notice was adopted by warnings from credit score scores companies Fitch Rankings and Customary & Poor’s, which each put Allstate on detrimental watch.
Allstate is the insurance coverage trade’s most aggressive purchaser of its personal inventory. It has repurchased 789 million shares at a price of $42.8 billion since 1995, whereas issuing 154 million shares, based on its SEC submitting.
CEO Tim Wilson has dismissed considerations about diminishing capital and mentioned that Allstate is “very well capitalized” after the corporate reported a fourth quarter web lack of $310 million earlier this week.
Allstate has hiked its annual dividend by 5% to $3.56 per share and redeemed its Sequence G most well-liked inventory for $575 million.
