EX-99 2 a08-12294_1ex99.htm EX-99

Exhibit 99

 

Allstate Reports 2008 First Quarter Results

High Catastrophe Losses Offset Strong Underwriting Results;

Net Income Affected by Investment Valuations

 

NORTHBROOK, Ill., April 23, 2008 — The Allstate Corporation (NYSE: ALL) today reported results for the first quarter of 2008:

 

 

 

Consolidated Highlights

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

Change

 

(in millions, except per share amounts and ratios)

 

Est.
2008

 

2007

 

$ Amt

 

%

 

Consolidated revenues

 

$

8,087

 

$

9,331

 

$

(1,244

)

(13.3

)

Net income

 

348

 

1,495

 

(1,147

)

(76.7

)

Net income per diluted share

 

0.62

 

2.41

 

(1.79

)

(74.3

)

Operating income*

 

747

 

1,197

 

(450

)

(37.6

)

Operating income per diluted share*

 

1.33

 

1.93

 

(0.60

)

(31.1

)

Return on equity

 

16.3

 

23.6

 

 

(7.3

) pts.

Operating income return on equity*

 

16.6

 

24.3

 

 

(7.7

) pts.

Book value per share

 

36.45

 

36.54

 

(0.09

)

(0.2

)

Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities*

 

37.37

 

34.93

 

2.44

 

7.0

 

Catastrophe losses

 

568

 

161

 

407

 

 

Property-Liability combined ratio

 

94.0

 

84.6

 

 

9.4

 pts.

Property-Liability combined ratio excluding the effect of catastrophes and prior year reserve reestimates (“underlying combined ratio”)*

 

85.8

 

84.1

 

 

1.7

 pts.

 

“Catastrophe losses offset the solid underlying performance of our insurance operations, where profitability exceeded the full year outlook we provided in January,” said Thomas J. Wilson, president, chief executive officer and chairman-elect of The Allstate Corporation. “Continued strong operating results enabled us to deliver a 16.6% operating income return on shareholders’ equity over the last 12 months.”

 

High catastrophe losses fueled by an unusual number of tornados contributed to a decline in the Corporation’s operating income to $747 million, down $450 million compared to the first quarter of 2007.  Catastrophe losses for the quarter were $568 million, a $407 million increase over the first quarter of 2007.  Operating income for the quarter also reflected a $107 million decline in favorable non-catastrophe reserve re-estimates to $16 million from $123 million in the same quarter of 2007.  For the quarter, the Property-Liability underlying combined ratio, which excludes the effects of catastrophes and prior year reserve re-estimates, was 85.8.  Allstate Financial experienced a $13 million decline in operating income compared to the same quarter prior year due to dividends paid last year, negative effects on investment spread by raising liquidity levels, and slightly unfavorable mortality levels.

 


*Measures used in this release that are not based on accounting principles generally accepted in the United States (“non-GAAP”) are defined and reconciled to the most directly comparable GAAP measure and operating measures are defined in the “Definitions of Non-GAAP and Operating Measures” section of this document.

 

1



 

Net income for the quarter was $348 million, down from $1.5 billion in the first quarter of 2007, reflecting lower operating income and realized capital losses stemming from the current condition of the global capital markets. “Our investment portfolio is diversified and high quality,” Wilson said. “While we did write down the value of our fixed income securities by $347 million, the majority of those securities are performing in accordance with contractual or expected cash flows.”

 

“Our cash flow and capital position remains strong and we continued our share repurchase program,” Wilson said. Book value per share was $36.45, comparable to the first quarter of 2007. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, was $37.37, an increase of 7.0% from the first quarter last year.

 

Consumer Focus

 

“Our unique mix of innovative products continues to differentiate us from the competition,” Wilson said. In addition to Allstate® Your Choice Auto Insurance (YCA), the company’s innovative auto insurance product, Allstate offers a number of consumer-focused products to attract new customers:

 

·                  Allstate’s product offering for higher risk drivers, Allstate BlueSM, was introduced in Arizona in the quarter, bringing the total number of states in which the product is available to 13.

·                  Encompass EdgeSM, a new product sold through independent agents, contributed to positive premium written growth in the brand’s standard auto line. The product was introduced in four states in the quarter, bringing the total number of states in which Encompass EdgeSM is available to 16.

·                  Allstate® Your Choice Home, the Company’s unique homeowners insurance product, is now available in 17 states.

·                  Allstate Financial is preparing to launch a new line of target date mutual funds that will add to the number of consumer-friendly retirement products available through Allstate personal financial representatives. Approximately two-thirds of Allstate’s agency force is licensed to sell mutual funds and variable annuities.

 

Operational Excellence

 

“Operating excellence is the key to our success and is one of our core capabilities. Our balanced strategy of target marketing to high lifetime value customers, broad suite of innovative products, disciplined pricing and customer service is working in very competitive markets,” Wilson said.

 

The company completed the countrywide expansion of the Ballpark Estimating Tool during the quarter, enabling consumers to get on-line auto insurance premium estimates in 2-3 minutes. As part of an effort to integrate Allstate’s distribution channels, every Allstate-provided agency website now links to the Ballpark Estimating Tool. The company continued investments in claims and distribution systems aimed at improving customer service and loyalty.

 

During the quarter, Allstate adjusted pricing where needed and appropriate for an average rate increase of 4.5% for standard auto and 10.9% for homeowners in the states where rates were approved.

 

Capital Management

 

“We remain focused on balancing three objectives: investing in the business to ensure future competitiveness, remaining financially strong for policyholders and returning capital to shareholders,” Wilson said.

 

In February, Allstate announced a quarterly dividend of $0.41 per share, representing a 7.9% increase over the first quarter 2007 dividend.  The announcement marked the 14th consecutive year that Allstate increased its dividend. In the first quarter, the Corporation repurchased 8.8 million shares for $424 million, completing its $4.0 billion share repurchase program, and beginning a new $2.0 billion share repurchase program announced in February that is expected to be completed by March 31, 2009.

 

2



 

People

 

“People are the key to our success. It is the experience of our leadership team, the talent of our employees, and the dedication of our agency owners and their staff that will enable us to achieve our goal of reinventing protection and retirement for the consumer,” Wilson said.  Allstate added to its senior management team in March when James DeVries joined the company as senior vice president of human resources, replacing Joan Crockett who retired after 35 years of service.

 

Outlook

 

“Our unique innovative products, disciplined pricing, financial strength and experienced management team give us an edge over the competition,” continued Wilson. “We believe this environment, while challenging, plays to Allstate’s strengths.”

 

Although auto frequency was lower in the first quarter, Allstate is leaving in place the expectation that its Property-Liability combined ratio, excluding the effect of catastrophes and prior year reserve re-estimates, will be within the range of 87.0 and 89.0 for the full year 2008. The company will continue to monitor results and, if appropriate, will revise its 2008 combined ratio outlook.

 

PERFORMANCE HIGHLIGHTS

 

Consolidated

 

·                  Consolidated revenues were $8.1 billion in the quarter, a decline from $9.3 billion in the first quarter of 2007, reflecting net realized capital losses in the current year compared to net realized capital gains in the first quarter of 2007.

 

·                  Operating income per diluted share was $1.33 in the quarter, a decline from $1.93 in the first quarter of 2007, reflecting higher catastrophe losses, representing $0.48 of the decline, and the effects of lower favorable prior year non-catastrophe reserve reestimates representing $0.11 of the decline.

 

·                  Net income per diluted share was $0.62 in the quarter, a decline from $2.41 in the first quarter of 2007, reflecting after-tax net realized capital losses in the current year quarter compared to net realized capital gains in the first quarter of 2007, representing $1.25 of the decline, and lower operating income, representing $0.60 of the decline.

 

BUSINESS HIGHLIGHTS

 

(in millions, except ratios)

 

Three months ended
March 31,

 

 

 

Est.
2008

 

2007

 

%
Change

 

Property-Liability

 

 

 

 

 

 

 

Premiums written

 

$

6,514

 

$

6,609

 

(1.4

)

Underwriting income*

 

408

 

1,046

 

(61.0

)

Net income

 

503

 

1,349

 

(62.7

)

Combined Ratio

 

94.0

 

84.6

 

9.4 pts

 

 

 

 

 

 

 

 

 

Allstate Financial

 

 

 

 

 

 

 

Premiums and deposits*

 

$

3,046

 

$

2,628

 

15.9

 

Operating income

 

143

 

156

 

(8.3

)

Net (loss) income

 

(111

)

164

 

(167.7

)

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

Net investment income

 

$

1,526

 

$

1,571

 

(2.9

)

Realized capital gains and losses

 

(655

)

471

 

 

 

3



 

Property-Liability

 

·                  Property-Liability premiums written declined 1.4% from the first quarter of 2007 reflecting a 0.6% increase in Allstate brand standard auto premiums written* offset by a decline in homeowners premiums written due to catastrophe management actions including the increased cost of the catastrophe reinsurance program.  The cost of the catastrophe reinsurance program was $227 million in the first quarter of 2008 compared to $216 million in the first quarter of 2007.  We estimate that the total annualized cost of all catastrophe reinsurance programs for the year beginning June 1, 2008 will be approximately $660 million compared to approximately $900 million per year for the year beginning June 1, 2007.

 

·                  Allstate brand standard auto premiums written grew 0.6% in the first quarter of 2008 compared to the prior year quarter.  Contributing to the overall change were the following:

 

                 0.1% decrease in policies in force (“PIF”)

                 0.8 point decline in the six month renewal ratio to 88.9%

                 1.9% increase in six month average premium before reinsurance to $428

                 13.7% decrease in new issued applications

 

·                  Allstate brand homeowners premiums written declined 2.3% in the first quarter of 2008, compared to the prior year quarter, primarily due to our catastrophe risk management actions.  Contributing to the overall change were the following:

 

                 3.9% decrease in PIF

                 0.3 point increase in the twelve month renewal ratio to 86.7%

                 2.4% increase in twelve month average premium before reinsurance to $867

                 28.2% decrease in new issued applications

 

·                  Standard auto property damage frequencies decreased 2.4% and bodily injury frequencies decreased 6.5% compared to the first quarter of 2007.  Auto property damage and bodily injury paid severities increased 4.1% and 8.6%, respectively.  The Allstate brand standard auto loss ratio increased 1.9 points compared to the first quarter of 2007 to 65.5 in the first quarter of 2008, due to increased catastrophe losses and the absence of prior year reserve reestimates.

 

·                  Homeowners gross claim frequency excluding catastrophes increased 1.5% compared to the first quarter of 2007.  Homeowners paid severity excluding catastrophes increased 3.1% compared to the first quarter of 2007.  The Allstate brand homeowners loss ratio increased 25.0 points compared to the first quarter of 2007 to 80.2 in the first quarter of 2008, largely attributable to higher catastrophes. The effect of catastrophe losses on the Allstate brand homeowners loss ratio totaled 29.7 in the first quarter of 2008 compared to 8.3 in the first quarter of 2007.

 

·                  Property-Liability prior year reserve reestimates for the first quarter of 2008 were an unfavorable $101 million, compared to favorable prior year reserve reestimates of $129 million in the first quarter of 2007.  The unfavorable prior year reserve reestimates for the quarter were primarily related to catastrophes totaling $117 million, as discussed below.

 

·                  Catastrophe losses for the quarter totaled $568 million, compared to $161 million in the first quarter of 2007, impacting the combined ratio by 8.4 points in the quarter and 2.4 points in the first quarter of 2007.  This increase was primarily related to severe winter weather experienced across the country, including tornado activity, resulting in 27 catastrophe events in the first quarter of 2008 compared to 18 in the first quarter of 2007.  Catastrophe losses, excluding prior year reserve reestimates, were $451 million in the quarter compared to $167 million in the first quarter of 2007.  Unfavorable reserve reestimates related to catastrophes from prior years totaled $117 million in the quarter, impacting the combined ratio by 1.7 points, primarily related to litigation in Louisiana for Hurricane Katrina, compared to favorable reserve reestimates related to catastrophes from prior years of $6 million in the first quarter of 2007.

 

4



 

·                  Underwriting income was $408 million during the first quarter of 2008 compared to $1.0 billion in the same period of 2007.  The decrease was primarily due to higher catastrophe losses and an unfavorable change in prior year reserve reestimates.

 

·                  Allstate expects the Property-Liability underlying combined ratio will be within the range of 87.0 and 89.0 for the full year 2008.  The calculation of the underlying combined ratio for the three months ended March 31 is shown in the table below.

 

 

 

Three months ended
March 31,

 

 

 

Est.
2008

 

2007

 

Combined ratio excluding the effect of catastrophes and prior year reserve reestimates (“underlying combined ratio”)

 

85.8

 

84.1

 

Effect of catastrophe losses

 

8.4

 

2.4

 

Effect of prior year non-catastrophe reserve reestimates

 

(0.2

)

(1.9

)

Combined ratio (GAAP)

 

94.0

 

84.6

 

 

 

 

 

 

 

Effect of prior year catastrophe reserve reestimates

 

1.7

 

 

 

Allstate Financial

 

·                  Premiums and deposits in the first quarter of 2008 were $3.0 billion, an increase of 15.9% from the prior year quarter.  This increase is primarily due to deposits on institutional products during the first quarter of 2008 and increased premiums on life products.

 

·                  Operating income for the first quarter of 2008 was $143 million, $13 million lower than the prior year quarter.  The decline was primarily due to lower investment spread, slightly unfavorable mortality levels and slightly increased operating expenses.  Favorably impacting operating income was lower amortization of deferred acquisition costs (“DAC”) and the absence of a prior year litigation settlement.  The decline in investment spreads was driven by lower net investment income resulting from lower investment balances reflecting dividends paid by Allstate Life Insurance Company in 2007, increased short-term investment balances to offset reduced liquidity in some asset classes, and lower investment yields.

 

·                  Net loss for the first quarter of 2008 was $111 million compared to net income of $164 million in the prior year quarter.  The decline was due to net realized capital losses, lower operating income and a loss on disposition of operations.  Net realized capital losses were driven by $209 million in impairment write-downs, $202 million decline in the valuation of derivative instruments, which includes the change in fair value of embedded options (derivatives) in equity-linked notes and convertible bonds, and $66 million in dispositions.  For further information on write-downs and the valuation of derivative instruments, see the Realized Capital Gains and Losses Analysis section.

 

Investments

 

·                  Net realized capital losses were $655 million on a pre-tax basis for the quarter, due to $415 million of impairment write-downs and $300 million of net losses related to the settlement and valuation of derivative instruments, partly offset by net gains totaling $60 million on dispositions. 

 

·                  Impairment write-downs totaled $415 million, comprised $347 million on fixed income securities, primarily related to residential mortgages and other structured securities, $52 million on equity securities, $13 million on limited partnership interests and $3 million on other investments.  Approximately 70% of the fixed income write-downs relate to impaired securities that are currently performing in line with anticipated or contractual cash flows, but which were written down primarily because of expected deterioration in the performance of the underlying collateral. The remaining 30% are primarily related to securities currently experiencing a significant departure from anticipated residual cash flows.

 

5



 

For further information on the types of securities experiencing write-downs, see the Realized Capital Gains and Losses Analysis section.

 

·                  Net realized capital losses on the valuation and settlement of derivative instruments totaled $300 million for the quarter, primarily comprised $162 million for the valuation of embedded equity options in fixed income securities and $105 million for the valuation of risk reduction programs.  For further information on the impact from the valuation and settlement of derivatives, see the Realized Capital Gains and Losses Analysis section.

 

·                  Allstate’s investment portfolios totaled $115.5 billion as of March 31, 2008, a decline of $3.5 billion from the end of 2007, due to unrealized net capital losses and net realized capital losses. 

 

·                  Unrealized net capital losses totaled $570 million as of March 31, 2008, compared to unrealized net capital gains of $1.9 billion at December 31, 2007.  The decline was primarily due to unrealized net capital losses on investment grade fixed income securities as the yields supporting fair values increased, resulting from widening credit spreads that more than offset the effects of declining risk free interest rates, and lower unrealized net capital gains on equity securities totaling $598 million.  As of March 31, 2008, unrealized net capital losses in our asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”) totaled $1.5 billion and $868 million, respectively, partly offset by unrealized net capital gains on U.S. government and agencies securities totaling $1.0 billion, municipal securities of $342 million and equity securities of $392 million.  We continue to experience volatility in the balance of our unrealized net capital gains and losses as we did between the years 2004/2005 and 2006/2007.  For further information on our sub-prime residential and commercial mortgage loan portfolio, see the Securities Experiencing Illiquid Markets section.

 

·                  Net investment income decreased 2.9% to $1.5 billion compared to the prior year quarter.  Property-Liability net investment income decreased 4.3% to $470 million, compared to the prior year quarter, due to decreased income on limited partnership interests, lower average asset balances and portfolio yields.  Allstate Financial net investment income declined 3.3% to $1.0 billion, compared to the prior year quarter, due to lower portfolio yields and lower average asset balances, partly offset by increased income from limited partnership interests. 

 

6



 

THE ALLSTATE CORPORATION

CONSOLIDATED AND SEGMENT HIGHLIGHTS

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

($ in millions, except per share amounts,

 

Est.

 

 

 

 

 

Percent

 

return data and ratios)

 

2008

 

2007

 

Change

 

Change

 

 

 

 

 

 

 

 

 

 

 

Consolidated Highlights

 

 

 

 

 

 

 

 

 

Revenues

 

$

8,087

 

$

9,331

 

(1,244

)

(13.3

)

Net income

 

348

 

1,495

 

(1,147

)

(76.7

)

Operating income

 

747

 

1,197

 

(450

)

(37.6

)

Income per diluted share

 

 

 

 

 

 

 

 

 

Net

 

0.62

 

2.41

 

(1.79

)

(74.3

)

Operating

 

1.33

 

1.93

 

(0.6

)

(31.1

)

Weighted average shares outstanding (diluted)

 

561.6

 

621.6

 

(60.0

)

(9.7

)

Net shares outstanding

 

554.1

 

610.9

 

(56.8

)

(9.3

)

Return on equity

 

 

 

 

 

 

 

 

 

Net income

 

16.3

 

23.6

 

 

(7.3

) pts.

Operating income

 

16.6

 

24.3

 

 

(7.7

) pts.

Book value per diluted share

 

36.45

 

36.54

 

(0.1

)

(0.2

)

Book value per diluted share, excluding the impact of unrealized net capital gains and losses on fixed income securities

 

37.37

 

34.93

 

2.44

 

7.0

 

 

 

 

 

 

 

 

 

 

 

Property-Liability Highlights

 

 

 

 

 

 

 

 

 

Property-Liability premiums written

 

$

6,514

 

$

6,609

 

(95

)

(1.4

)

Property-Liability revenues

 

7,040

 

7,741

 

(701

)

(9.1

)

Net income

 

503

 

1,349

 

(846

)

(62.7

)

Underwriting income

 

408

 

1,046

 

(638

)

(61.0

)

Net investment income

 

470

 

491

 

(21

)

(4.3

)

Operating income

 

629

 

1,062

 

(433

)

(40.8

)

Catastrophe losses

 

568

 

161

 

407

 

 

Ratios:

 

 

 

 

 

 

 

 

 

Allstate Protection loss ratio

 

69.1

 

61.1

 

 

8.0

 pts.

Allstate Protection expense ratio

 

24.8

 

24.1

 

 

0.7

 pts.

Allstate Protection combined ratio

 

93.9

 

85.2

 

 

8.7

 pts.

Effect of Discontinued Lines and Coverages on combined ratio

 

0.1

 

(0.6

)

 

0.7

 pts.

Property-Liability combined ratio

 

94.0

 

84.6

 

 

9.4

 pts.

Effect of catastrophe losses on combined ratio

 

8.4

 

2.4

 

 

6.0

 pts.

Property-Liability combined ratio excluding effect of catastrophes

 

85.6

 

82.2

 

 

3.4

 pts.

Effect of prior year reserve reestimates on combined ratio

 

1.5

 

(1.9

)

 

3.4

 pts.

Effect of catastrophe losses included in prior year reserve reestimates on combined ratio

 

(1.7

)

 

 

(1.7

) pts.

Property-Liability combined ratio excluding effect of catastrophes and prior year reserve reestimates

 

85.8

 

84.1

 

 

1.7

 pts.

 

 

 

 

 

 

 

 

 

 

Allstate Financial Highlights

 

 

 

 

 

 

 

 

 

Premiums and deposits

 

$

3,046

 

$

2,628

 

418

 

15.9

 

Allstate Financial revenues

 

1,035

 

1,556

 

(521

)

(33.5

)

Realized Capital Gains and Losses (Pre-tax)

 

(432

)

23

 

(455

)

 

Net (loss) income

 

(111

)

164

 

(275

)

(167.7

)

Operating income

 

143

 

156

 

(13

)

(8.3

)

Net Income Analysis

 

 

 

 

 

 

 

 

 

Benefit spread

 

111

 

110

 

1

 

0.9

 

Investment spread

 

253

 

264

 

(11

)

(4.2

)

 

 

 

 

 

 

 

 

 

 

Investment Highlights

 

 

 

 

 

 

 

 

 

Net Investment Income

 

$

1,526

 

$

1,571

 

(45

)

(2.9

)

Realized Capital Gains and Losses (Pre-tax)

 

(655

)

471

 

(1,126

)

 

Total Investments

 

115,470

 

122,382

 

(6,912

)

(5.6

)

 

7



 

THE ALLSTATE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

Est.

 

 

 

Percent

 

($ in millions, except per share data)

 

2008

 

2007

 

Change

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Property-liability insurance premiums

 

$

6,764

 

$

6,806

 

(0.6

)

Life and annuity premiums and contract charges

 

452

 

483

 

(6.4

)

Net investment income

 

1,526

 

1,571

 

(2.9

)

Realized capital gains and losses

 

(655

)

471

 

 

Total revenues

 

8,087

 

9,331

 

(13.3

)

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

Property-liability insurance claims and claims expense

 

4,676

 

4,117

 

13.6

 

Life and annuity contract benefits

 

397

 

428

 

(7.2

)

Interest credited to contractholder funds

 

624

 

649

 

(3.9

)

Amortization of deferred policy acquisition costs

 

1,075

 

1,153

 

(6.8

)

Operating costs and expenses

 

792

 

727

 

8.9

 

Restructuring and related charges

 

(1

)

(1

)

 

Interest expense

 

88

 

72

 

22.2

 

Total costs and expenses

 

7,651

 

7,145

 

7.1

 

 

 

 

 

 

 

 

 

Loss on disposition of operations

 

(9

)

 

 

 

 

 

 

 

 

 

 

Income from operations before income tax expense

 

427

 

2,186

 

(80.5

)

 

 

 

 

 

 

 

 

Income tax expense

 

79

 

691

 

(88.6

)

 

 

 

 

 

 

 

 

Net income

 

$

348

 

$

1,495

 

(76.7

)

 

 

 

 

 

 

 

 

Net income per share - Basic

 

$

0.62

 

$

2.42

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - Basic

 

558.9

 

616.8

 

 

 

 

 

 

 

 

 

 

 

Net income per share - Diluted

 

$

0.62

 

$

2.41

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - Diluted

 

561.6

 

621.6

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.41

 

$

0.38

 

 

 

 

8



 

THE ALLSTATE CORPORATION

CONTRIBUTION TO INCOME

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

Est.

 

 

 

Percent

 

($ in millions, except per share data)

 

2008

 

2007

 

Change

 

 

 

 

 

 

 

 

 

Contribution to income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before the impact of restructuring and related charges

 

$

746

 

$

1,196

 

(37.6

)

Restructuring and related charges, after-tax

 

(1

)

(1

)

 

 

 

 

 

 

 

 

 

Operating income

 

747

 

1,197

 

(37.6

)

 

 

 

 

 

 

 

 

Realized capital gains and losses, after-tax

 

(425

)

305

 

 

DAC and DSI amortization relating to realized capital gains and losses, after-tax

 

39

 

 

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

 

(7

)

(8

)

12.5

 

(Loss) gain on disposition of operations, after-tax

 

(6

)

1

 

 

 

 

 

 

 

 

 

 

Net income

 

$

348

 

$

1,495

 

(76.7

)

 

 

 

 

 

 

 

 

Income per share - Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before the impact of restructuring and related charges

 

$

1.33

 

$

1.93

 

(31.1

)

Restructuring and related charges, after-tax

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

1.33

 

1.93

 

(31.1

)

 

 

 

 

 

 

 

 

Realized capital gains and losses, after-tax

 

(0.76

)

0.49

 

 

DAC and DSI amortization relating to realized capital gains and losses, after-tax

 

0.07

 

 

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

 

(0.01

)

(0.01

)

 

Loss on disposition of operations, after-tax

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.62

 

$

2.41

 

(74.3

)

 

9



 

THE ALLSTATE CORPORATION

SEGMENT RESULTS

 

 

 

Three Months Ended
March 31,

 

($ in millions, except ratios)

 

Est.
2008

 

2007

 

 

 

 

 

 

 

Property-Liability

 

 

 

 

 

Premiums written

 

$

6,514

 

$

6,609

 

 

 

 

 

 

 

Premiums earned

 

$

6,764

 

$

6,806

 

Claims and claims expense

 

4,676

 

4,117

 

Amortization of deferred policy acquisition costs

 

1,011

 

1,024

 

Operating costs and expenses (1)

 

670

 

620

 

Restructuring and related charges

 

(1

)

(1

)

Underwriting income

 

408

 

1,046

 

 

 

 

 

 

 

Net investment income

 

470

 

491

 

Periodic settlements and accruals on non-hedge derivative instruments

 

1

 

 

Income tax expense on operations

 

250

 

475

 

 

 

 

 

 

 

Operating income

 

629

 

1,062

 

 

 

 

 

 

 

Realized capital gains and losses, after-tax

 

(125

)

287

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

 

(1

)

 

 

 

 

 

 

 

Net income

 

$

503

 

$

1,349

 

 

 

 

 

 

 

Catastrophe losses

 

$

568

 

$

161

 

 

 

 

 

 

 

Operating ratios:

 

 

 

 

 

Claims and claims expense ratio

 

69.1

 

60.5

 

Expense ratio (1)

 

24.9

 

24.1

 

Combined ratio

 

94.0

 

84.6

 

 

 

 

 

 

 

Effect of catastrophe losses on combined ratio

 

8.4

 

2.4

 

 

 

 

 

 

 

Effect of prior year reserve reestimates on combined ratio

 

1.5

 

(1.9

)

 

 

 

 

 

 

Effect of catastrophe losses included in prior year reserve reestimate on combined ratio

 

1.7

 

 

 

 

 

 

 

 

Effect of Discontinued Lines and Coverages on combined ratio

 

0.1

 

(0.6

)

 

 

 

 

 

 

Allstate Financial

 

 

 

 

 

Premiums and deposits

 

$

3,046

 

$

2,628

 

Investments

 

$

73,023

 

$

77,727

 

 

 

 

 

 

 

Premiums and contract charges

 

$

452

 

$

483

 

Net investment income

 

1,015

 

1,050

 

Periodic settlements and accruals on non-hedge derivative instruments

 

9

 

12

 

Contract benefits

 

397

 

428

 

Interest credited to contractholder funds

 

630

 

649

 

Amortization of deferred policy acquisition costs

 

117

 

129

 

Operating costs and expenses

 

118

 

105

 

Income tax expense on operations

 

71

 

78

 

 

 

 

 

 

 

Operating income

 

143

 

156

 

 

 

 

 

 

 

Realized capital gains and losses, after-tax

 

(281

)

15

 

DAC and DSI amortization relating to realized capital gains and losses, after-tax

 

39

 

 

Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax

 

(6

)

(8

)

(Loss) gain on disposition of operations, after-tax

 

(6

)

1

 

 

 

 

 

 

 

Net (loss) income

 

$

(111

)

$

164

 

 

 

 

 

 

 

Corporate and Other

 

 

 

 

 

Net investment income

 

$

41

 

$

30

 

Operating costs and expenses

 

92

 

74

 

Income tax benefit on operations

 

(26

)

(23

)

 

 

 

 

 

 

Operating loss

 

(25

)

(21

)

 

 

 

 

 

 

Realized capital gains and losses, after-tax

 

(19

)

3

 

 

 

 

 

 

 

Net loss

 

$

(44

)

$

(18

)

 

 

 

 

 

 

Consolidated net income

 

$

348

 

$

1,495

 

 


(1)   The increase was due to higher employee compensation, agent remuneration and the net cost of benefits.

 

10



 

THE ALLSTATE CORPORATION

UNDERWRITING RESULTS BY AREA OF BUSINESS

 

 

 

Three Months Ended
March 31,

 

 

 

($ in millions, except ratios)

 

Est.
2008

 

2007

 

Percent
Change

 

 

 

 

 

 

 

 

 

Property-Liability Underwriting Summary

 

 

 

 

 

 

 

Allstate Protection

 

$

415

 

$

1,006

 

(58.7

)

Discontinued Lines and Coverages

 

(7

)

40

 

(117.5

)

Underwriting income

 

$

408

 

$

1,046

 

(61.0

)

 

 

 

 

 

 

 

 

Allstate Protection Underwriting Summary

 

 

 

 

 

 

 

Premiums written

 

$

6,514

 

$

6,609

 

(1.4

)

Premiums earned

 

$

6,764

 

$

6,806

 

(0.6

)

Claims and claims expense

 

4,671

 

4,159

 

12.3

 

Amortization of deferred policy acquisition costs

 

1,011

 

1,024

 

(1.3

)

Operating costs and expenses

 

668

 

618

 

8.1

 

Restructuring and related charges

 

(1

)

(1

)

 

Underwriting income

 

$

415

 

$

1,006

 

(58.7

)

 

 

 

 

 

 

 

 

Catastrophe losses

 

$

568

 

$

161

 

 

 

 

 

 

 

 

 

 

Operating ratios:

 

 

 

 

 

 

 

Claims and claims expense ratio

 

69.1

 

61.1

 

 

 

Expense ratio

 

24.8

 

24.1

 

 

 

Combined ratio

 

93.9

 

85.2

 

 

 

 

 

 

 

 

 

 

 

Effect of catastrophe losses on combined ratio

 

8.4

 

2.4

 

 

 

 

 

 

 

 

 

 

 

Discontinued Lines and Coverages

 

 

 

 

 

 

 

Underwriting Summary

 

 

 

 

 

 

 

Premiums written

 

$

 

$

 

 

Premiums earned

 

$

 

$

 

 

Claims and claims expense

 

5

 

(42

)

111.9

 

Operating costs and expenses

 

2

 

2

 

 

Underwriting (loss) income

 

$

(7

)

$

40

 

(117.5

)

 

 

 

 

 

 

 

 

Effect of Discontinued Lines and Coverages on the Property-Liability combined ratio

 

0.1 

 

(0.6

)

 

 

 

11



 

THE ALLSTATE CORPORATION

PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

Est.

 

 

 

Percent

 

($ in millions)

 

2008

 

2007

 

Change

 

 

 

 

 

 

 

 

 

Allstate brand

 

 

 

 

 

 

 

Standard auto

 

$

4,077

 

$

4,051

 

0.6

 

Non-standard auto

 

274

 

321

 

(14.6

)

Involuntary auto

 

16

 

22

 

(27.3

)

Commercial lines

 

167

 

194

 

(13.9

)

Homeowners

 

1,185

 

1,213

 

(2.3

)

Other personal lines

 

371

 

365

 

1.6

 

 

 

 

 

 

 

 

 

 

 

6,090

 

6,166

 

(1.2

)

Encompass brand

 

 

 

 

 

 

 

Standard auto (1)

 

270

 

266

 

1.5

 

Non-standard auto

 

12

 

21

 

(42.9

)

Involuntary auto

 

3

 

6

 

(50.0

)

Homeowners

 

113

 

123

 

(8.1

)

Other personal lines

 

26

 

27

 

(3.7

)

 

 

 

 

 

 

 

 

 

 

424

 

443

 

(4.3

)

 

 

 

 

 

 

 

 

Allstate Protection

 

6,514

 

6,609

 

(1.4

)

 

 

 

 

 

 

 

 

Discontinued Lines and Coverages

 

 

 

 

 

 

 

 

 

 

 

 

Property-Liability

 

$

6,514

 

$

6,609

 

(1.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate Protection

 

 

 

 

 

 

 

Standard auto

 

$

4,347

 

$

4,317

 

0.7

 

Non-standard auto

 

286

 

342

 

(16.4

)

Involuntary auto

 

19

 

28

 

(32.1

)

Commercial lines

 

167

 

194

 

(13.9

)

Homeowners

 

1,298

 

1,336

 

(2.8

)

Other personal lines

 

397

 

392

 

1.3

 

 

 

 

 

 

 

 

 

 

 

$

6,514

 

$

6,609

 

(1.4

)

 


(1) Encompass Edge, a new independent agency product, contributed to growth.  It is now available in 16 states.

 

12



 

THE ALLSTATE CORPORATION

PROPERTY-LIABILITY

ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)

 

 

 

Three Months Ended
March 31, 2008 (Est.)

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

States

 

Countrywide (%) (2)

 

State Specific (%) (3)

 

Allstate brand

 

 

 

 

 

 

 

Standard auto

 

12

 

0.8

 

4.5

 

Non-standard auto

 

2

 

0.2

 

3.0

 

Homeowners

 

9

 

1.3

 

10.9

 

 

 

 

 

 

 

 

 

Encompass brand

 

 

 

 

 

 

 

Standard auto

 

17

 

0.3

 

1.4

 

Non-standard auto

 

 

 

 

Homeowners

 

9

 

0.6

 

7.5

 

 


(1)   Rate increases that are indicated based on a loss trend analysis to achieve a targeted return will continue to be pursued in all locations and for all products.  Rate changes include changes approved based on our net cost of reinsurance.  These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing new business.  Rate changes approved are estimated to total $217 million in premiums written.

 

(2)   Represents the impact in the states where rate changes were approved during 2008 as a percentage of total countrywide prior year-end premiums written.

 

(3)   Represents the impact in the states where rate changes were approved during 2008 as a percentage of total prior year-end premiums written in those states.

 

13



 

THE ALLSTATE CORPORATION

ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions, except ratios)

 

Est. 2008

 

2007

 

Est. 2008

 

2007

 

Est. 2008

 

2007

 

Est. 2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Catastrophe Losses

 

 

 

 

 

 

 

Premiums Earned

 

Loss Ratio (2)

 

on the Loss Ratio

 

Expense Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate brand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standard auto

 

$

4,011

 

$

3,951

 

65.5

 

63.6

 

1.4

 

0.3

 

24.1

 

23.4

 

Non-standard auto

 

278

 

322

 

65.1

 

60.3

 

0.7

 

 

23.7

 

21.7

 

Homeowners

 

1,426

 

1,438

 

80.2

 

55.2

 

29.7

 

8.3

 

24.6

 

24.8

 

Other (1)

 

592

 

611

 

69.6

 

60.1

 

10.0

 

3.6

 

28.0

 

26.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Allstate brand

 

6,307

 

6,322

 

69.2

 

61.2

 

8.6

 

2.4

 

24.6

 

23.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Encompass brand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standard auto (3)

 

280

 

284

 

51.1

 

64.8

 

0.4

 

0.4

 

26.4

 

26.4

 

Non-standard auto

 

14

 

22

 

71.4

 

77.3

 

 

 

35.7

 

22.7

 

Homeowners

 

133

 

142

 

65.4

 

49.3

 

18.8

 

4.9

 

30.8

 

28.9

 

Other (1) (3)

 

30

 

36

 

220.0

 

52.8

 

6.7

 

2.8

 

30.0

 

25.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Encompass brand

 

457

 

484

 

67.0

 

59.9

 

6.1

 

1.9

 

28.2

 

26.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allstate Protection

 

$

6,764

 

$

6,806

 

69.1

 

61.1

 

8.4

 

2.4

 

24.8

 

24.1

 

 


(1)          Other includes commercial lines, condominium, renters, involuntary auto and other personal lines.

(2)          Loss Ratio comparisons are impacted by the relative level of prior year reserve reestimates.  Please refer to the “Effect of Pre—tax Prior Year Reserve Reestimates on the Combined Ratio” table for detailed reserve reestimate information.

(3)          During the first quarter of 2008, $45 million of incurred losses related to IBNR were reclassified from the standard auto line to the other line to be consistent with the recording of excess policies premiums and losses.

 

14



 

THE ALLSTATE CORPORATION

PROPERTY-LIABILITY

EFFECT OF PRE-TAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of Pre-tax Reserve

 

 

 

Pre-tax

 

Reestimates on the

 

 

 

Reserve Reestimates (1)

 

Combined Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Est.

 

 

 

Est.

 

 

 

($ in millions, except ratios)

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Auto (3)

 

$

(54

)

$

(66

)

(0.8

)

(1.0

)

Homeowners

 

78

 

(3

)

1.1

 

 

Other (3)

 

72

 

(18

)

1.1

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

Allstate Protection (2)

 

96

 

(87

)

1.4

 

(1.3

)

 

 

 

 

 

 

 

 

 

 

Discontinued Lines and Coverages

 

5

 

(42

)

0.1

 

(0.6

)

 

 

 

 

 

 

 

 

 

 

Property-Liability

 

$

101

 

$

(129

)

1.5

 

(1.9

)

 

 

 

 

 

 

 

 

 

 

Allstate brand

 

$

96

 

$

(79

)

1.4

 

(1.2

)

Encompass brand

 

 

(8

)

 

(0.1

)

 

 

 

 

 

 

 

 

 

 

Allstate Protection (2)

 

$

96

 

$

(87

)

1.4

 

(1.3

)

 


(1)          Favorable reserve reestimates are shown in parentheses.

(2)          Unfavorable reserve reestimates included in catastrophe losses totaled $117 million in the three months ended March 31, 2008 and favorable reserve reestimates included in catastrophe losses totaled $6 million in the three months ended March 31, 2007.

(3)          During the first quarter of 2008, $45 million of incurred losses related to IBNR were reclassified from the Encompass standard auto line to the Encompass other line to be consistent with the recording of excess policies premiums and losses.

 

15



 

THE ALLSTATE CORPORATION

ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

Est.

 

 

 

Percent

 

($ in millions)

 

2008

 

2007

 

Change

 

 

 

 

 

 

 

 

 

Life Products

 

 

 

 

 

 

 

Interest-sensitive life

 

$

364

 

$

362

 

0.6

 

Traditional

 

89

 

92

 

(3.3

)

Other

 

101

 

89

 

13.5

 

 

 

554

 

543

 

2.0

 

 

 

 

 

 

 

 

 

Annuities

 

 

 

 

 

 

 

Indexed annuities

 

133

 

141

 

(5.7

)

Fixed deferred annuities

 

516

 

480

 

7.5

 

Sub-total

 

649

 

621

 

4.5

 

Fixed immediate annuities

 

67

 

152

 

(55.9

)

 

 

716

 

773

 

(7.4

)

 

 

 

 

 

 

 

 

Institutional Products

 

 

 

 

 

 

 

Funding agreements backing medium-term notes (1)

 

1,660

 

1,200

 

38.3

 

 

 

 

 

 

 

 

 

Bank Deposits

 

116

 

112

 

3.6

 

 

 

 

 

 

 

 

 

Total

 

$

3,046

 

$

2,628

 

15.9

 

 


(1)          Funding agreements backing medium term notes include an issuance during the first quarter of 2008 totaling $1.36 billion of extendible securities with an initial maturity of March 20, 2009 and a final maturity of March 20, 2013. Quarterly, beginning on June 20, 2008, investors have the right to extend the maturity date of all or a portion of these notes by three additional months, up to, and in no event later than, the final maturity date. Additionally, during the first quarter of 2008, Allstate Financial acquired and retired $1.25 billion of its outstanding extendible securities, which had elected to non-extend, in the secondary market.

 

16



 

THE ALLSTATE CORPORATION

ALLSTATE FINANCIAL ANALYSIS OF NET INCOME

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

Est.

 

 

 

Percent

 

($ in millions)

 

2008

 

2007

 

Change

 

 

 

 

 

 

 

 

 

Benefit spread

 

 

 

 

 

 

 

Premiums

 

$

198

 

$

242

 

(18.2

)

Cost of insurance contract charges (1)

 

172

 

159

 

8.2

 

Contract benefits excluding the implied interest on immediate annuities with life contingencies (2)

 

(259

)

(291

)

11.0

 

Benefit spread

 

111

 

110

 

0.9

 

 

 

 

 

 

 

 

 

Investment spread

 

 

 

 

 

 

 

Net investment income

 

1,015

 

1,050

 

(3.3

)

Implied interest on immediate annuities with life contingencies (2)

 

(138

)

(137

)

(0.7

)

Interest credited to contractholder funds

 

(624

)

(649

)

3.9

 

Investment spread

 

253

 

264

 

(4.2

)

 

 

 

 

 

 

 

 

Surrender charges and contract maintenance expense fees (1)

 

82

 

82

 

 

Realized capital gains and losses

 

(432

)

23

 

 

Amortization of deferred policy acquisition costs

 

(64

)

(129

)

50.4

 

Operating costs and expenses

 

(118

)

(105

)

(12.4

)

Loss on disposition of operations

 

(9

)

 

 

Income tax benefit (expense) on operations

 

66

 

(81

)

181.5

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(111

)

$

164

 

(167.7

)

 

 

 

 

 

 

 

 

Benefit spread by product group

 

 

 

 

 

 

 

Life insurance

 

$

129

 

$

118

 

9.3

 

Annuities

 

(18

)

(8

)

(125.0

)

Benefit spread

 

$

111

 

$

110

 

0.9

 

 

 

 

 

 

 

 

 

Investment spread by product group

 

 

 

 

 

 

 

Annuities

 

$

115

 

$

129

 

(10.9

)

Life insurance

 

19

 

19

 

 

Institutional products

 

27

 

25

 

8.0

 

Bank

 

5

 

4

 

25.0

 

Net investment income on investments supporting capital

 

87

 

87

 

 

Investment spread

 

$

253

 

$

264

 

(4.2

)

 

 

 

 

 

 

 

 

(1) Reconciliation of contract charges

 

 

 

 

 

 

 

Cost of insurance contract charges

 

$

172

 

$

159

 

8.2

 

Surrender charges and contract maintenance expense fees

 

82

 

82

 

 

Total contract charges

 

$

254

 

$

241

 

5.4

 

 

 

 

 

 

 

 

 

(2) Reconciliation of contract benefits

 

 

 

 

 

 

 

Contract benefits excluding the implied interest on immediate annuities with life contingencies

 

$

(259

)

$

(291

)

11.0

 

Implied interest on immediate annuities with life contingencies

 

(138

)

(137

)

(0.7

)

Total contract benefits

 

$

(397

)

$

(428

)

7.2

 

 

17



 

THE ALLSTATE CORPORATION

INVESTMENT RESULTS

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

 

 

Est.

 

 

 

($ in millions)

 

2008

 

2007

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

 

 

 

 

Fixed income securities:

 

 

 

 

 

Tax exempt

 

$

240

 

$

244

 

Taxable

 

1,039

 

1,102

 

Equity securities

 

32

 

27

 

Mortgage loans

 

160

 

143

 

Limited partnership interests

 

60

 

70

 

Short-term

 

40

 

49

 

Other

 

26

 

45

 

Investment income

 

1,597

 

1,680

 

Less: Investment expense

 

71

 

109

 

Net investment income

 

$

1,526

 

$

1,571

 

 

 

 

 

 

 

REALIZED CAPITAL GAINS AND LOSSES (PRE-TAX)

 

 

 

 

 

Investment write-downs

 

$

(415

)

$

(5

)

Dispositions

 

60

 

450

 

Valuation of derivative instruments

 

(325

)

(12

)

Settlements of derivative instruments

 

25

 

38

 

Realized capital gains and losses (pre-tax)

 

$

(655

)

$

471

 

 

 

 

March 31,

 

Dec. 31,

 

 

 

2008 (Est.)

 

2007

 

INVESTMENTS

 

 

 

 

 

Fixed income securities

 

 

 

 

 

Available for sale, at fair value

 

 

 

 

 

Tax exempt

 

$

19,149

 

$

19,038

 

Taxable

 

68,935

 

75,413

 

Total fixed income securities

 

88,084

 

94,451

 

Equity securities, at fair value

 

4,379

 

5,257

 

Mortgage loans

 

11,107

 

10,830

 

Limited partnership interests (1)

 

2,706

 

2,501

 

Short-term

 

6,572

 

3,058

 

Other

 

2,622

 

2,883

 

Total Investments

 

$

115,470

 

$

118,980

 

 

 

 

 

 

 

FIXED INCOME SECURITIES BY TYPE

 

 

 

 

 

U.S. government and agencies

 

$

4,304

 

$

4,421

 

Municipal

 

25,041

 

25,307

 

Corporate

 

35,862

 

38,467

 

Asset-backed securities

 

7,297

 

8,679

 

Commercial mortgage-backed securities

 

6,195

 

7,617

 

Mortgage-backed securities

 

6,500

 

6,959