Good afternoon. Allstate just dropped a monster quarter — net income doubled while they cut rates in 32 states. Here's how they're pulling it off.
Today's newsletter is 478 words, a 5-minute read.
1 big thing: Allstate doubles net income while slashing prices
Allstate reported Q4 net income of $3.8 billion (up from $1.9 billion prior year) with a 72.9% combined ratio — then announced rate cuts in 32 states.
Why it matters: They're proving you can harvest profitability and manufacture affordability simultaneously if you front-loaded the pain.
By the numbers:
Adjusted EPS: $14.31 vs. consensus $9.60 (beat by $4.71)
P&L underwriting income: $4.0B, up 118.7% YoY
Full-year ROE: 38.3%
Auto combined ratio improved 10 points YoY
7.8M customers got 17% premium cuts via "SAVE" program
Between the lines: Allstate took 40%+ rate hikes in 2023-2024, bled unprofitable customers, and now they're buying growth back at lower prices with better margins.
What's next: $4 billion buyback authorization signals management thinks the margin story holds. Watch whether they reinvest in markets that weren't profitable 18 months ago.
Chubb sets profitability ceiling at 85.7% combined ratio
Full-year P&C underwriting income hit $6.53B (up 11.6%) with an 85.7% combined ratio despite absorbing $2.92B in CAT losses.
Why it matters: This is the benchmark. No diversified carrier is running better.
The catch: CEO Greenberg signaled "incrementally more competitive" conditions at 1/1 renewals. Easy comps are over.
For investors: At 15x P/E, any 2026 guide below double-digit EPS growth disappoints. Margin expansion story is done.
WR Berkley CEO signals reinsurance is softening
Q4 operating earnings hit $450M (up 9.5%, 21.4% ROE), but Rob Berkley's earnings call commentary matters more: "Some version of history may be repeating itself" in reinsurance.
What he means: Excess capital is flooding reinsurance, rates are softening, Berkley's rotating to primary insurance.
Why it matters: If the smartest specialty underwriter is exiting, the softening is real.
For buyers: You finally have leverage. Push back on attachment points and pricing in Q1-Q2 renewals.
Industry forecast: 96-97% combined ratio in 2026
Fitch, S&P, and PwC consensus: 2025's ~94% combined ratio was the peak.
What's changing:
CAT losses normalize from anomalously light 2025
Favorable reserve development slows
Rate momentum fades in commercial lines
Personal auto holds at ~95%, homeowners deteriorates to 106%+
The bottom line: Outperformers in 2026 grind it out through expense management and underwriting discipline, not reserve releases.
M&A snapshot: 93% of deal value in 7 megadeals
PwC reports $31.8B across 207 deals in H2 2025, but 93% of value came from seven $1B+ transactions.
The trend: Distribution consolidation accelerates as brokers offset slowing organic growth. Mid-market disappearing.
Notable moves:
Brown & Brown: $9.8B for Accession Risk
AIG/Onex: $7B for Convex
Travelers: Exited Canadian personal lines
Everest: Sold retail primary to AIG
For mid-sized brokers: You're either buying with PE backing or you're a target.
What we're watching: Hartford's Q4 results (expected soon) and whether personal auto profitability holds as they ramp growth.