By Leslie Scism
Two giant sellers of insurance to consumers -- Allstate Corp.
and Prudential Financial Inc. -- reported second-quarter results
that reflected the far-ranging impact of Covid-19. Allstate's
profit surged from fewer vehicle accidents on the road while
ultralow interest rates weighed on Prudential.
The two insurers' results show the first full quarter of the
coronavirus's unprecedented toll on the U.S. economy. Across all
U.S. life and property-casualty insurers, analysts and investors'
focus has been on the costs that insurers are bearing -- and the
unexpected benefits some have enjoyed-as business activity slowed
under government shutdown directives.
Allstate's net income surged 49% to $1.2 billion from $821
million in the prior-year quarter, as the insurer, one of the five
biggest U.S. car insurers by premium volume, enjoyed heady profits
from fewer miles being driven. The trend emerged as government
stay-at-home orders took effect near the end of the first quarter.
While traffic volume increased significantly as some shutdown
orders ended, traffic remains below year-earlier levels in some
parts of the country.
The mileage declines led Allstate, and many other big insurers,
to announce plans in early spring for premium refunds to
policyholders as credits on their April and May bills. Allstate's
so-called Shelter-in-Place Payback program was one of the first
announced and ran through June, distributing approximately $1
billion in billed premiums.
Even after sending that money out the door, Allstate generated
property-casualty underwriting income from both its car and
home-insurance businesses of $904 million in the second quarter, an
increase of $537 million over the prior-year quarter.
Early Tuesday, insurer USAA, a top-10 insurer by premium volume,
said it is returning an additional $270 million in a dividend to
auto-insurance policyholders. That brings to just over $1 billion
the amount it has refunded in owed premiums. This new dividend will
reflect 10% of up to two months' worth of premiums in June and
July, it said.
The Newark, N.J.,-based Prudential swung to a loss of $2.41
billion, or $6.12 a share, on mark-to-market adjustments of
financial hedges that are related to interest rates and are valued
quarterly. In its core businesses, Prudential raised prices on some
products to compensate for the lower interest rates and took a $266
million charge to reflect the long-term impact of reduced
investment returns.
Insurers earn much of their profit by investing customers'
premiums until claims come due, much of it in high-quality
conservative bonds. With lower interest rates, the firms earn less
on their investment portfolios, and they sometimes need to charge
customers more to make up for the difference.
Noticeably absent in Prudential's earnings release was any
reference to Covid-19 death claims as a driving force in its lower
year-over-year results. An outsize number of such claims was one of
the originally anticipated big costs of the pandemic to U.S. life
insurers. But deaths due to the pandemic haven't been a significant
influence to date, insurance executives have said.
One factor is that many of the Covid-19 deaths have been of
older people. People in their working years, who are among the
chief customers of life insurance, haven't been large in the
fatality counts.
Charles Lowrey, Prudential's chief executive, said in the
release that more "aggressive repricing" of products to offset low
interest rates is ahead, and the firm is exploring additional cost
cutting.
This spring, Prudential was among a wave of insurers that
suspended sales of some popular products, raised prices, scaled
back policy sizes and reduced benefits. Allstate said it paid out
83.9 cents of every $1 of premium in car-insurance claims and
claims-handling costs in the most recent quarter, down from 92.8
cents in the year-earlier quarter. The improvement in profit "more
than offset the negative pandemic impact on reported investment
income and life mortality," the company said.
Consumer-advocacy groups such as the Consumer Federation of
America have decried car insurers' anticipated large profits this
quarter as windfalls that should be distributed to consumers in
far-bigger refund packages than have been generally announced.
Of such criticism and this quarter's robust profits, Allstate
Chief Executive Tom Wilson said, "I don't think it was so
abnormally high you would think it was unfair." He added that "one
quarter does not a customer relationship make." He said Allstate
has taken some risk in returning the money because "nobody knew how
long this would go on, and how much people would drive or not
drive.... What we've said we'll do is treat our customers fairly:
We gave money back before we realized the impact."
The pair's results followed an earnings report on Monday
afternoon by global insurance conglomerate American International
Group Inc., one of the nation's biggest sellers of
property-casualty insurance to businesses. AIG reported $458
million of second-quarter pretax pandemic-related losses in its
core property-casualty unit.
Unlike Prudential, AIG cited higher-than-usual death claims in
its life-insurance business. In an earnings call Tuesday morning,
Kevin Hogan, an AIG senior executive, said the company estimates
that about 40% of those Covid-19 death claims "reflect an
acceleration of claims we would have otherwise experienced in the
next five years," adding that the company doesn't expect the
pandemic to have a long-term impact on life-insurance claims.
AIG's Life and Retirement unit reported a 16% drop in adjusted
pretax income to $881 million for the quarter, as premiums and
deposits fell 21%. The firm attributed the declines partly to
"broad industry sales disruptions caused by Covid-19 and the lower
interest-rate environment."
In the call, AIG CEO Brian Duperreault said the company is
"seeing signs that the second quarter will represent a low
watermark in sales" in the life-Insurance and retirement unit.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
August 04, 2020 19:08 ET (23:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Prudential Financial (NYSE:PRU)
Historical Stock Chart
From Sep 2024 to Oct 2024
Prudential Financial (NYSE:PRU)
Historical Stock Chart
From Oct 2023 to Oct 2024