Allstate's results helped by fewer accidents, Prudential's hurt by low rates 


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