Allstate’s auto insurance coverage revenue margins had 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 “well into the red.” These losses have impacted capital ranges at Allstate’s core insurance coverage subsidiary, which historically offers 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 12 months earlier than, based on a separate firm submitting. Meanwhile, the premiums that it collects from policyholders have been rising, which suggests there may be much less capital to again extra of the corporate’s threat 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 Business report. Capital for the insurer’s holding firm remained at $4 billion as of year-end, however Wells Fargo analysts Elyse Greenspan stated dividends, curiosity funds, and deliberate buybacks for the rest of this 12 months will cut back this determine to $1.4 billion.
“We believe it’s prudent for Allstate to pause its buyback, leaving capital in the (insurance subsidiaries) while underwriting results recover, especially as inflationary impacts on severity (replacement costs, medical, legal) are still concerning,” Greenspan stated in a report titled “Stop the Buyback” final October.
This word was adopted by warnings from credit score rankings companies Fitch Ratings and Standard & Poor’s, which each put Allstate on adverse watch.
Allstate is the insurance coverage trade’s most aggressive purchaser of its personal inventory. It has repurchased 789 million shares at a value 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 stated that Allstate is “really well capitalized” after the corporate reported a fourth quarter internet lack of $310 million earlier this week.
Allstate has hiked its annual dividend by 5% to $3.56 per share and redeemed its Series G most popular inventory for $575 million.