Allstate Reports 2003 Third Quarter Net Income of $691 Million, 177% Increase in Net Income EPS, 25% Increase in Operating Income EPS.Business Editors NORTHBROOK Northbrook, village (1990 pop. 32,308), Cook co., NE Ill., a suburb of Chicago; settled 1836. It was incorporated as Shermerville in 1901 and was reincorporated as Northbrook in 1923. , Ill.--(BUSINESS WIRE)--Oct. 15, 2003 The Allstate This article is about the American insurance company. For the line of automobiles, see Allstate (automobile). The Allstate Corporation NYSE: ALL is the largest publicly held personal lines insurer in the United States. Corporation (NYSE NYSE See: New York Stock Exchange :ALL) today reported for the third quarter of 2003:
Consolidated Highlights(1)
Three Months Ended September 30,
------------------------------------
Change
(in millions, except per ---------------
share amounts and ratios) Est. 2003 2002 $ Amt %
--------- ------ ------- -----
Consolidated revenues $8,127 $7,239 888 12.3
Net income 691 248 443 178.6
Net income per diluted share 0.97 0.35 0.62 177.1
Operating income(1) 638 516 122 23.6
Operating income per diluted
share (1) 0.91 0.73 0.18 24.7
Property-Liability combined ratio 95.9 98.1 -- (2.2)pts
Book value per diluted share 27.45 25.17 2.28 9.1
----------------------------------------------------------------------
-- Property-Liability Premiums written(1) grew 5% over the third
quarter of 2002. Allstate brand standard auto and homeowners new
business premiums written increased 33% and 55%, respectively.
-- Property-Liability Underwriting income(1) increased $144 million
in the third quarter to $255 million from $111 million in the
third quarter of 2002 due to higher premiums earned, continued
favorable auto and homeowners loss frequencies and severities and
favorable Allstate Protection prior year reserve reestimates,
partially offset by prior year reserve strengthening in the
Discontinued Lines and Coverages segment and higher catastrophes.
-- Asbestos reserves were strengthened by $442 million, significantly
improving the three-year average survival ratio.
-- Catastrophe losses in the third quarter increased significantly to
$378 million compared to an unusually low $96 million in the third
quarter of 2002.
-- Allstate Financial had record Premiums and deposits(1) of $4.0
billion, 35% over the prior year third quarter.
-- Allstate is increasing operating income per diluted share
guidance(1) for 2003 (excluding restructuring charges and assuming
the level of average expected catastrophe losses used in pricing
for the remainder of the year) to the range of $3.65 to $3.80.
(1) Measures used in this release that are not based on generally
accepted accounting principles ("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.
----------------------------------------------------------------------
"This has been an outstanding quarter for Allstate," said Chairman, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Edward M. Liddy Edward M. Liddy is Chairman, President and Chief Executive Officer of The Allstate Corporation. He is currently on the Board of 3M, Goldman Sachs and The Kroger Company. • • . "Our goal has been to drive consistent top line and bottom line growth, and we have clearly demonstrated our ability to do just that. This quarter marks the second in a row that we have shown stronger unit growth in our core businesses and each passing quarter yields additional evidence that we are strongly positioned for long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. sustainable profitability and growth. In particular, our core Allstate brand standard auto and homeowners insurance lines policies in force showed overall positive unit growth compared to the second quarter, and new business growth in these two lines were especially strong. Standard auto and homeowners new business premiums written increased 33% and 55%, respectively over the third quarter of last year. The increase for standard auto is due, in part, to our new standard auto rating plan in the state of California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , which is allowing us to be more competitive and to offer insurance to more consumers in the state. Our homeowners new business written premium reflects increases across the country. For both lines, in most markets we are competitively priced and have improving growth trends, which we expect to continue as we fully execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution our marketing and advertising strategies. "We remain disciplined about running our business as efficiently as possible and continue to pay close attention to expenses. Our strategy of better aligning a·lign v. a·ligned, a·lign·ing, a·ligns v.tr. 1. To arrange in a line or so as to be parallel: align the tops of a row of pictures; aligned the car with the curb. our agency force with the goals of the company is proving effective and as we improve our profitability we will continue to reward our agents and share our success with them. "We have been successful in seeking and gaining approvals for rate increases that support our projected loss cost trends and return targets and we remain committed to growing without sacrificing profitability. In September September: see month. , we announced an agreement with the Texas Department of Insurance to take a rate decrease for homeowners insurance. We believe this to be an isolated situation that is largely driven by the uniqueness of that state's regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. environment. "During the quarter, Allstate Protection continued to benefit from better than expected auto and homeowners loss frequency and severity trends. Catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses were much higher this quarter, largely a result of losses suffered by our policyholders in the path of Hurricane Isabel This article is about the 2003 hurricane; there was also a Tropical Storm Isabel during the 1985 Atlantic hurricane season Hurricane Isabel was the costliest and deadliest hurricane in the 2003 Atlantic hurricane season. in September and the severe weather in the Midwest Midwest or Middle West, region of the United States centered on the western Great Lakes and the upper-middle Mississippi valley. It is a somewhat imprecise term that has been applied to the northern section of the land between the Appalachians in July July: see month. . This is the nature of our business and thousands of Allstate agents and claim adjusters have been committed to restoring the lives of our customers during the quarter. "As is our practice in the third quarter, we completed our annual comprehensive "ground up" review of Discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Lines and Coverages, resulting in strengthened reserves for our asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. liabilities. We believe that our reserves are appropriately established based on assessments of all pertinent PERTINENT, evidence. Those facts which tend to prove the allegations of the party offering them, are called pertinent; those which have no such tendency are called impertinent, 8 Toull. n. 22. By pertinent is also meant that which belongs. Willes, 319. factors and assuming no change in the legal, legislative or economic environment. These reserve actions significantly improved our survival ratio to a level we consider a strong asbestos reserve position. "Allstate Financial achieved record levels for premiums and deposits, reaching $4 billion in the quarter. Allstate Financial launched a new suite of registered fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. , including an innovative equity indexed annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. , late in the third quarter. As with Allstate Protection, Allstate Financial is committed to growing the business while maintaining pricing and risk management discipline. Allstate Financial operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , compared to third quarter of 2002, was up 21% to $135 million. The third quarter of 2002, however, included a charge for acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. of deferred acquisition costs for certain investment and retirement products. "We are very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the future of the business. Our strategy of becoming better and bigger in our protection business and broader in our ability to provide a range of financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. to middle America Middle America 1 A region of southern North America comprising Mexico, Central America, and sometimes the West Indies. Middle American adj. & n. remains sound and we continue to successfully execute the strategy. Simply put -- we very much like our competitive position in all our businesses and remain very focused on delivering sustainable results. We are confident in our ability to do just that."
Summary of Consolidated Results
Discussion of
Three Months Nine Months Results for the
Ended Ended Three Months
September 30, September 30, Ended September 30
------------- --------------- ------------------
($ in millions,
except per share Est. Est.
amounts) 2003 2002 2003 2002
---- ---- ---- ----
Consolidated
revenues $8,127 $7,239 $23,887 $21,992 - Realized capital
gains and higher
Premiums earned
in Property-
Liability.
Operating income 638 516 1,910 1,457 - Increased
Property-
Liability
Underwriting
income,
after-tax of $93
and Allstate
Financial
Operating income
of $23.
Realized capital
gains and losses,
after-tax 62 (266) 46 (437) - See the
Components of
realized capital
gains and losses
(pretax) table.
Cumulative effect of
change in accounting
principle, after-tax (1) -- (1) (331) - Adoption of FIN
No. 46 for
variable
interest
entities in 2003
and SFAS No. 142
for goodwill
impairment in
2002.
Net income 691 248 1,944 687 - Realized capital
gains and higher
operating
income.
Net income per
share (diluted) 0.97 0.35 2.75 0.97
Operating income
per share (diluted) 0.91 0.73 2.71 2.05 - Compared to
First Call mean
estimate of
$0.88, with a
range of $0.74
to $1.01.
Weighted average
shares outstanding
(diluted) 706.0 708.1 705.9 711.3 - During the first
nine months of
2003, Allstate
purchased 3.26
million shares
of its stock for
$111.12 million,
or an average
cost per share
of $34.03.
Return on equity 12.9 5.4 12.9 5.4 - See the return
on equity
calculation in
the Definitions
of Non-GAAP and
Operating
Measures section
of this
document.
Operating income
return on equity(1) 16.0 11.5 16.0 11.5 - See the return
on equity
calculation in
the Definitions
of Non-GAAP and
Operating
Measures section
of this
document.
Book value per
diluted share 27.45 25.17 27.45 25.17 - At September 30,
2003 and 2002
unrealized gains
and losses on
fixed income
securities,
after-tax,
totaling est.
$2,478 and
$2,307,
respectively,
represented
$3.51 and $3.27,
respectively, of
book value per
diluted share.
-- Book value per diluted share increased 10.9% compared to December
31, 2002.
Property-Liability Highlights
Discussion of
Three Months Nine Months Results for the
Ended Ended Three Months
September 30, September 30, Ended September 30
------------- --------------- ------------------
($ in millions, Est. Est.
except ratios) 2003 2002 2003 2002
---- ---- ---- ----
Property-Liability
Premiums written $6,629 $6,305 $18,988 $18,063 - See the
Property-
Liability
Premiums written
by market
segment table
and the
Property-
Liability net
rate changes
approved table.
Property-Liability
revenues 6,756 6,082 19,794 18,287 - Premiums earned
up $326 or 5.5%
in the third
quarter.
Underwriting income 255 111 849 133 - Higher Premiums
earned,
continued
favorable auto
and homeowners
frequencies and
severities and
favorable
Allstate
Protection prior
year reserve
reestimates,
partially offset
by higher
Discontinued
Lines and
Coverages prior
year reserve
strengthening
and
catastrophes.
See the Effect
of pretax prior
year reserve
reestimates on
the combined
ratio table and
the Discontinued
Lines and
Coverages
Reserves section
of this
document.
Net investment
income 417 429 1,242 1,256 - Higher portfolio
balances due to
positive cash
flows from
operations,
offset by lower
yields and lower
income from
partnerships.
Operating income 533 430 1,647 1,139 - Underwriting
income after-tax
up $93.
Realized capital
gains and losses,
after-tax 70 (160) 120 (240) - See the
Components of
realized capital
gains and losses
(pretax) table.
Cumulative effect
of change in
accounting principle,
after-tax (1) -- (1) (48) - Adoption of FIN
No. 46 for
variable
interest
entities in 2003
and SFAS No. 142
for goodwill
impairment in
2002.
Net income 603 270 1,769 856 - Realized capital
gains and higher
operating
income.
Catastrophe losses 378 96 1,077 494 - Higher losses
due to Hurricane
Isabel in
September and
severe weather
in the Midwest
in July.
Ratios:
Property-Liability
combined ratio 95.9 98.1 95.4 99.2
Effect of Discontinued
Lines and Coverages 7.6 2.7 3.1 0.9
Allstate Protection
combined ratio 88.3 95.4 92.3 98.3
Effect of catastrophe
losses 6.1 1.6 5.9 2.8
-- Allstate brand standard auto and homeowners policies in force
(PIF) increased 0.9% and 1.3%, respectively, from June 30,
2003 levels, driving the second sequential quarterly increase
in standard auto PIF and the fourth consecutive quarterly
increase in homeowners PIF. For standard auto, 35 states
representing 88.1% of the PIF had positive sequential growth
compared to June 30, 2003 levels. For homeowners, 38 states
representing 92.1% of the PIF had positive sequential growth
compared to June 30, 2003. Three of the largest states,
California, Texas and Florida, each had positive sequential
PIF growth in both of these lines in the third quarter.
-- In addition to higher new business premiums written during the
third quarter of 2003 compared to the prior year third
quarter, retention ratios also increased for the Allstate
brand to 90.3 for standard auto and 87.8 for homeowners as of
September 30, 2003. This compares to 89.1 for standard auto
and 87.7 for homeowners as of September 30, 2002, and 89.9 for
standard auto and 87.3 for homeowners as of June 30, 2003.
Allstate Financial Highlights
Discussion of
Three Months Nine Months Results for the
Ended Ended Three Months
September 30, September 30, Ended September 30
------------- --------------- ------------------
($ in millions) Est. Est.
2003 2002 2003 2002
---- ---- ---- ----
Premiums and
deposits $4,000 $2,958 $9,792 $9,073 - Strong sales
across all
products, with
significant
increases in
institutional
products and
fixed annuities.
See the Allstate
Financial
Premiums and
deposits table.
Allstate Financial
Revenues 1,358 1,142 4,051 3,657 - Lower realized
capital losses,
higher net
investment
income and
higher premiums
and contract
charges.
Operating income 135 112 348 398 - DAC unlocking in
2002 and
increased
investment
margin partially
offset by lower
mortality margin
in 2003.
Realized capital
gains and losses,
after-tax (7) (103) (72) (192) - See the
Components of
realized capital
gains and losses
(pretax) table.
Cumulative effect
of change in
accounting principle,
after-tax -- -- -- (283) - Adoption of SFAS
No. 142 for
goodwill
impairment in
2002.
Net income 119 9 267 (77) - Lower realized
capital losses
and higher
operating
income.
-- Premiums and deposits were at a record level in the third
quarter of 2003. Total premiums and deposits for the third
quarter of 2003 increased 35.2% over the prior year third
quarter due to strong sales across all products, with
significant increases in institutional products and fixed
annuities.
-- Net cash payments for Allstate Financial's variable annuity
guaranteed minimum death benefits (GMDB) were $18 million for
the third quarter of 2003, net of reinsurance, hedging gains
and losses, and other contractual arrangements. This is $7
million more than payments made in the third quarter of 2002,
and $9 million less than the second quarter of 2003 payments.
GMDB values in excess of contractholders' account values,
payable if all contractholders were to have died at September
30, 2003, were estimated to be $3.13 billion net of
reinsurance, compared to $3.33 billion at June 30, 2003 and
$4.07 billion at December 31, 2002.
-- The weighted average interest crediting rate on fixed annuity
and interest-sensitive life products in force, excluding
market value adjusted annuities, was approximately 85 basis
points more than the underlying long term guaranteed rates on
these products.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
($ in millions,
except per share Est. Percent Est. Percent
data) 2003 2002 Change 2003 2002 Change
------ ------ -------- ------- ------- --------
Revenues
Property-
liability
insurance
premiums $6,230 $5,904 5.5 $18,375 $17,411 5.5
Life and annuity
premiums
and contract
charges 538 512 5.1 1,710 1,632 4.8
Net investment
income 1,256 1,242 1.1 3,712 3,624 2.4
Realized capital
gains and losses 103 (419) (124.6) 90 (675) (113.3)
------ ------ ------- -------
Total revenues 8,127 7,239 12.3 23,887 21,992 8.6
------ ------ ------- -------
Costs and expenses
Property-
liability
insurance
claims and
claims expense 4,506 4,391 2.6 13,184 13,253 (0.5)
Life and annuity
contract
benefits 424 388 9.3 1,380 1,213 13.8
Interest
credited to
contractholder
funds 467 464 0.6 1,380 1,316 4.9
Amortization of
deferred policy
acquisition
costs 1,015 966 5.1 2,989 2,777 7.6
Operating costs
and expenses 716 710 0.8 2,197 2,008 9.4
Restructuring and
related charges 19 40 (52.5) 56 95 (41.1)
Interest expense 70 67 4.5 204 204 -
------ ------ ------- -------
Total costs and
expenses 7,217 7,026 2.7 21,390 20,866 2.5
------ ------ ------- -------
(Loss) gain on
disposition of
operations (12) - - (9) 7 -
Income from
operations before
income
tax expense
(benefit),
dividends on
preferred
securities and
cumulative
effect of change
in accounting
principle, after
tax 898 213 - 2,488 1,133 119.6
Income tax expense
(benefit) 206 (37) - 538 108 -
------ ------ ------- -------
Income before
dividends on
preferred
securities and
cumulative
effect of change
in accounting
principle, after
tax 692 250 176.8 1,950 1,025 90.2
Dividends on
preferred
securities
of subsidiary
trust - (2) (100.0) (5) (7) (28.6)
Cumulative effect
of change in
accounting
principle, after
tax (1) - - (1) (331) (99.7)
------ ------ ------- -------
Net income $ 691 $ 248 178.6 $ 1,944 $ 687 183.0
====== ====== ======= =======
Net income per
share - Basic $ 0.98 $ 0.35 $ 2.76 $ 0.97
====== ====== ======= =======
Weighted average
shares - Basic 703.3 705.4 703.5 708.6
====== ====== ======= =======
Net income per
share - Diluted $ 0.97 $ 0.35 $ 2.75 $ 0.97
====== ====== ======= =======
Weighted average
shares - Diluted 706.0 708.1 705.9 711.3
====== ====== ======= =======
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
($ in millions,
except per share Est. Percent Est. Percent
data) 2003 2002 Change 2003 2002 Change
------ ------ -------- ------- ------- --------
Contribution to
income
Operating income
before the
impact of
restructuring
and related
charges $ 650 $ 542 19.9 $1,946 $1,519 28.1
Restructuring
and related
charges,
after-tax 12 26 (53.8) 36 62 (41.9)
------ ------ ------- -------
Operating income 638 516 23.6 1,910 1,457 31.1
Realized capital
gains and losses 62 (266) (123.3) 46 (437) (110.5)
(Loss) gain on
disposition of
operations (8) - - (6) 5 -
Dividends on
preferred
securities
of subsidiary
trust - (2) (100.0) (5) (7) (28.6)
Cumulative effect
of change in
accounting
principle (1) - - (1) (331) (99.7)
------ ------ ------- -------
Net income $ 691 $ 248 178.6 $1,944 $ 687 183.0
====== ====== ======= =======
Income per share
(Diluted)
Operating income
before the
impact of
restructuring
and related
charges $ 0.93 $ 0.77 20.8 $ 2.76 $ 2.14 29.0
Restructuring
and related
charges,
after-tax 0.02 0.04 (50.0) 0.05 0.09 (44.4)
------ ------ ------- -------
Operating income 0.91 0.73 24.7 2.71 2.05 32.2
Realized capital
gains and losses 0.08 (0.38) (121.1) 0.06 (0.62) (109.7)
(Loss) gain on
disposition of
operations (0.01) - - (0.01) 0.01 -
Dividends on
preferred
securities
of subsidiary
trust - - - - (0.01) (100.0)
Cumulative effect
of change in
accounting
principle (0.01) - - (0.01) (0.46) (97.8)
------ ------ ------- -------
Net income $ 0.97 $ 0.35 177.1 $ 2.75 $ 0.97 183.5
====== ====== ======= =======
Book value per
share - Diluted $27.45 $25.17 9.1 $27.45 $25.17 9.1
====== ====== ======= =======
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended September 30, 2003 (Est.)
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- --------- -----
Valuation of derivative
instruments $ 1 $ 33 $ - $ 34
Settlements of derivative
instruments (10) 6 - (4)
Sales 126 (16) (2) 108
Investment write-downs (8) (26) (1) (35)
---------- ---------- --------- -----
Total $ 109 $ (3) $ (3) $ 103
========== ========== ========= =====
Nine Months Ended September 30, 2003 (Est.)
-------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- --------- -----
Valuation of derivative
instruments $ 6 $ 11 $ - $ 17
Settlements of derivative
instruments (2) 4 - 2
Sales 254 48 (3) 299
Investment write-downs (81) (146) (1) (228)
---------- ---------- --------- -----
Total $ 177 $ (83) $ (4) $ 90
========== ========== ========= =====
Three Months Ended September 30, 2002
----------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- --------- -----
Valuation of derivative
instruments $ (8) $ 3 $ - $ (5)
Settlements of derivative
instruments (97) (9) - (106)
Sales (115) (51) 1 (165)
Investment write-downs (31) (107) (5) (143)
---------- ---------- --------- -----
Total $ (251) $ (164) $ (4) $(419)
========== ========== ========= =====
Nine Months Ended September 30, 2002
----------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- --------- -----
Valuation of derivative
instruments $ (32) $ (23) $ - $ (55)
Settlements of derivative
instruments (163) (6) - (169)
Sales (109) (94) - (203)
Investment write-downs (76) (165) (7) (248)
---------- ---------- --------- -----
Total $ (380) $ (288) $ (7) $(675)
========== ========== ========= =====
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
($ in millions) Est. Est.
2003 2002 2003 2002
------- ------- ------- -------
Property-Liability
Premiums written $ 6,629 $ 6,305 $18,988 $18,063
======= ======= ======= =======
Premiums earned $ 6,230 $ 5,904 $18,375 $17,411
Claims and claims expense 4,506 4,391 13,184 13,253
Amortization of deferred policy
acquisition costs 905 814 2,590 2,399
Operating costs and expenses 546 548 1,697 1,532
Restructuring and related
charges 18 40 55 94
------- ------- ------- -------
Underwriting income 255 111 849 133
------- ------- ------- -------
Net investment income 417 429 1,242 1,256
Income tax expense on
operations 139 110 444 250
------- ------- ------- -------
Operating income 533 430 1,647 1,139
Realized capital gains and
losses, after-tax 70 (160) 120 (240)
Gain on disposition of
operations, after-tax 1 - 3 5
Cumulative effect of change in
accounting principle,
after-tax (1) - (1) (48)
------- ------- ------- -------
Net income $ 603 $ 270 $ 1,769 $ 856
======= ======= ======= =======
Catastrophe losses $ 378 $ 96 $ 1,077 $ 494
======= ======= ======= =======
Operating ratios
Claims and claims expense
ratio 72.3 74.4 71.8 76.1
Expense ratio 23.6 23.7 23.6 23.1
------- ------- ------- -------
Combined ratio 95.9 98.1 95.4 99.2
======= ======= ======= =======
Effect of catastrophe losses
on combined ratio 6.1 1.6 5.9 2.8
======= ======= ======= =======
Effect of restructuring and
related charges on combined
ratio 0.3 0.7 0.3 0.5
======= ======= ======= =======
Effect of Discontinued Lines
and Coverages on combined
ratio 7.6 2.7 3.1 0.9
======= ======= ======= =======
Allstate Financial
Premiums and deposits $ 4,000 $ 2,958 $ 9,792 $ 9,073
======= ======= ======= =======
Investments including
Separate Accounts assets $74,890 $65,082 $74,890 $65,082
======= ======= ======= =======
Premiums and contract charges $ 538 $ 512 $ 1,710 $ 1,632
Net investment income 823 794 2,424 2,313
Contract benefits 424 388 1,380 1,213
Interest credited to
contractholder funds 467 464 1,380 1,316
Amortization of deferred policy
acquisition costs 104 158 368 380
Operating costs and expenses 169 159 498 472
Restructuring and related
charges 1 - 1 1
Income tax expense on
operations 61 25 159 165
------- ------- ------- -------
Operating income 135 112 348 398
Realized capital gains and
losses, after-tax (7) (103) (72) (192)
Loss on disposition of
operations, after-tax (9) - (9) -
Cumulative effect of change in
accounting principle,
after-tax - - - (283)
------- ------- ------- -------
Net income (loss) $ 119 $ 9 $ 267 $ (77)
======= ======= ======= =======
Corporate and Other
Net investment income $ 16 $ 19 $ 46 $ 55
Operating costs and expenses 71 69 206 208
Income tax benefit on
operations (25) (24) (75) (73)
------- ------- ------- -------
Operating loss (30) (26) (85) (80)
Realized capital gains and
losses, after-tax (1) (3) (2) (5)
Dividends on preferred
securities
of subsidiary trust - (2) (5) (7)
------- ------- ------- -------
Net loss $ (31) $ (31) $ (92) $ (92)
======= ======= ======= =======
Consolidated net income $ 691 $ 248 $ 1,944 $ 687
======= ======= ======= =======
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
Est. Percent Est. Percent
($ in millions) 2003 2002 Change 2003 2002 Change
------ ------ -------- ------- ------- --------
Consolidated
Underwriting
Summary
Allstate
Protection $ 726 $ 269 169.9 $ 1,411 $ 301 -
Discontinued
Lines and
Coverages (471) (158) 198.1 (562) (168) -
------ ------ ------- -------
Underwriting
income $ 255 $ 111 129.7 $ 849 $ 133 -
====== ====== ======= =======
Allstate Protection
Underwriting
Summary
Premiums
written $6,627 $6,303 5.1 $18,978 $18,056 5.1
====== ====== ======= =======
Premiums earned $6,228 $5,902 5.5 $18,364 $17,403 5.5
Claims and
claims expense 4,036 4,232 (4.6) 12,618 13,082 (3.5)
Amortization of
deferred policy
acquisition costs 905 814 11.2 2,590 2,399 8.0
Other costs and
expenses 543 547 (0.7) 1,690 1,527 10.7
Restructuring and
related charges 18 40 (55.0) 55 94 (41.5)
------ ------ ------- -------
Underwriting
income $ 726 $ 269 169.9 $ 1,411 $ 301 -
====== ====== ======= =======
Catastrophe
losses $ 378 $ 96 - $ 1,077 $ 494 118.0
====== ====== ======= =======
Operating ratios
Claims and
claims expense
ratio 64.8 71.7 68.7 75.2
Expense ratio 23.5 23.7 23.6 23.1
------ ------ ------- -------
Combined ratio 88.3 95.4 92.3 98.3
====== ====== ======= =======
Effect of
catastrophe
losses on
combined
ratio 6.1 1.6 5.9 2.8
====== ====== ======= =======
Effect of
restructuring
and related
charges on
combined ratio 0.3 0.7 0.3 0.5
====== ====== ======= =======
Discontinued Lines
and Coverages
Underwriting
Summary
Premiums
written $ 2 $ 2 - $ 10 $ 7 42.9
====== ====== ======= =======
Premiums earned $ 2 $ 2 - $ 11 $ 8 37.5
Claims and
claims expense 470 159 195.6 566 171 -
Other costs and
expenses 3 1 - 7 5 40.0
------ ------ ------- -------
Underwriting
loss $ (471) $ (158) 198.1 $ (562) $ (168) -
====== ====== ======= =======
Effect of
Discontinued
Lines and
Coverages
on the Property-
Liability
combined ratio 7.6 2.7 3.1 0.9
====== ====== ======= =======
Note: Discontinued Lines and Coverages third quarter 2003 incurred
losses include reserve strengthening recorded in conjunction with
the Company's annual comprehensive "ground-up" review of the
segment's reserve adequacy. Detailed information regarding the
review can be found in the Discontinued Lines and Coverages
section of this document.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
Est. Percent Est. Percent
($ in millions) 2003 2002 Change 2003 2002 Change
------ ------ -------- ------- ------- --------
ALLSTATE BRAND
Standard auto $3,515 $3,314 6.1 $10,216 $9,650 5.9
Non-standard
auto 491 584 (15.9) 1,520 1,813 (16.2)
Involuntary auto 60 54 11.1 179 151 18.5
Commercial lines 210 191 9.9 639 580 10.2
Homeowners 1,467 1,327 10.6 3,874 3,480 11.3
Other personal
lines 350 330 6.1 1,005 942 6.7
------ ------ ------- -------
6,093 5,800 5.1 17,433 16,616 4.9
IVANTAGE
Standard auto 315 314 0.3 925 919 0.7
Non-standard auto 42 36 16.7 128 80 60.0
Involuntary auto 10 3 - 30 5 -
Homeowners 139 128 8.6 387 368 5.2
Other personal
lines 28 22 27.3 75 68 10.3
------ ------ ------- -------
534 503 6.2 1,545 1,440 7.3
------ ------ ------- -------
ALLSTATE
PROTECTION 6,627 6,303 5.1 18,978 18,056 5.1
DISCONTINUED LINES
AND COVERAGES 2 2 - 10 7 42.9
------ ------ ------- -------
PROPERTY-
LIABILITY $6,629 $6,305 5.1 $18,988 $18,063 5.1
====== ====== ======= =======
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY NET RATE CHANGES APPROVED
Three Months Ended Nine Months Ended
September 30, 2003 September 30, 2003
------------------------ ------------------------
# of Weighted Average # of Weighted Average
States Rate Change (%) States Rate Change (%)
------ ---------------- ------ ----------------
ALLSTATE BRAND
Standard auto 6 4.0 23 6.0
Non-standard auto 8 11.2 13 8.4
Homeowners 8 (1.2) 19 1.5
IVANTAGE
Standard auto
(Encompass) 13 8.4 40 8.1
Non-standard auto
(Deerbrook) 5 1.8 12 6.8
Homeowners
(Encompass) 16 9.8 40 11.7
Note: Rate increases that are indicated based on a loss trend analysis
to achieve a targeted return, will continue to be pursued in all
locations and for all products.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended September 30,
-----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2003 2002 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ---- ---- ----
Loss Ratio
Excluding the
Effect of
Catastrophe Expense
Premiums Earned Loss Ratio Losses Ratio
--------------- ------------ ------------- ----------
ALLSTATE BRAND
Standard auto $ 3,392 $ 3,203 65.7 72.8 64.8 72.7
Non-standard
auto 507 599 55.0 68.3 54.2 68.1
Homeowners 1,242 1,091 59.7 71.1 37.4 64.4
Other 586 543 71.2 66.1 65.4 63.9
------- -------
Total
Allstate
brand 5,727 5,436 64.0 71.3 58.0 69.7 23.2 22.9
IVANTAGE
Standard auto 299 298 68.6 74.8 67.6 74.5
Non-standard
auto 44 26 84.1 130.8 84.1 130.8
Homeowners 124 118 83.9 73.7 58.1 67.8
Other 34 24 73.5 54.2 73.5 54.2
------- -------
Total
Ivantage 501 466 74.1 76.6 67.1 74.9 27.9 33.5
------- -------
ALLSTATE
PROTECTION $ 6,228 $ 5,902 64.8 71.7 58.7 70.1 23.5 23.7
======= =======
Nine Months Ended September 30,
------------------------------------------------------
($ in millions) Est. Est. Est. Est.
2003 2002 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ---- ---- ----
Loss Ratio
Excluding the
Effect of
Catastrophe Expense
Premiums Earned Loss Ratio Losses Ratio
--------------- ------------ ------------- ----------
ALLSTATE BRAND
Standard auto $ 9,960 $ 9,448 70.4 74.2 68.6 73.5
Non-standard
auto 1,589 1,844 67.7 73.2 66.8 72.9
Homeowners 3,623 3,139 61.7 80.6 42.4 70.1
Other 1,721 1,595 70.3 70.5 64.4 67.6
------- -------
Total
Allstate
brand 16,893 16,026 68.3 74.9 62.4 72.2 23.1 22.3
IVANTAGE
Standard auto 894 896 72.0 76.1 71.1 75.3
Non-standard
auto 120 57 83.3 117.5 83.3 117.5
Homeowners 367 350 77.9 85.7 57.8 73.4
Other 90 74 61.1 29.7 57.8 27.0
------- -------
Total
Ivantage 1,471 1,377 73.8 77.8 68.0 74.0 29.2 32.7
------- -------
ALLSTATE
PROTECTION $18,364 $17,403 68.7 75.2 62.8 72.4 23.6 23.1
======= =======
Note: Other includes involuntary auto, commercial lines and other
personal lines.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended September 30,
-----------------------------------------
Effect of Pretax
Pretax Reserve Reserve Reestimates
Reestimates on the Combined Ratio
------------------- ---------------------
Est. Est.
($ in millions) 2003 2002 2003 Change
---------- ------- ---------- --------
Auto $ (139) $ (78) (2.3) (1.0)
Homeowners (32) 106 (0.5) (2.3)
Other 31 6 0.5 0.4
---------- ------- ---------- --------
Allstate Protection (140) 34 (2.3) (2.9)
Discontinued Lines and
Coverages 471 159 7.6 4.9
---------- ------- ---------- --------
Property-Liability $ 331 $ 193 5.3 2.0
========== ======= ========== ========
Allstate Brand $ (138) $ 3 (2.2) (2.3)
Ivantage (2) 31 (0.1) (0.6)
---------- ------- ---------- --------
Allstate Protection $ (140) $ 34 (2.3) (2.9)
========== ======= ========== ========
Nine Months Ended September 30,
-----------------------------------------
Effect of Pretax
Pretax Reserve Reserve Reestimates
Reestimates on the Combined Ratio
------------------- ---------------------
Est. Est.
($ in millions) 2003 2002 2003 Change
---------- ------- ---------- --------
Auto $ (177) $ 9 (1.0) (1.1)
Homeowners (17) 339 (0.1) (2.0)
Other 52 35 0.3 0.1
---------- ------- ---------- --------
Allstate Protection (142) 383 (0.8) (3.0)
Discontinued Lines and
Coverages 566 171 3.1 2.1
---------- ------- ---------- --------
Property-Liability $ 424 $ 554 2.3 (0.9)
========== ======= ========== ========
Allstate Brand $ (164) $ 352 (0.9) (2.9)
Ivantage 22 31 0.1 (0.1)
---------- ------- ---------- --------
Allstate Protection $ (142) $ 383 (0.8) (3.0)
========== ======= ========== ========
Note: Allstate Protection third quarter 2003 reserve reestimates
include the impact of better than expected auto injury severity
development and the release of $38 million of IBNR reserves due to
lower than anticipated losses in Texas related to mold claims.
Note: Discontinued Lines and Coverages third quarter 2003 pretax
reserve reestimates include reserve strengthening recorded in
conjunction with the Company's annual comprehensive "ground-up"
review of the segment's reserve adequacy. Detailed information
regarding the review can be found in the Discontinued Lines and
Coverages section of this document.
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
Est. Percent Est. Percent
($ in millions) 2003 2002 Change 2003 2002 Change
------ ------ ------- ------ ------ -------
Life Products
Interest-sensitive
life $ 272 $ 244 11.5 $ 767 $ 747 2.7
Traditional 105 100 5.0 284 288 (1.4)
Other 166 149 11.4 470 427 10.1
------ ------ ------ ------
Subtotal 543 493 10.1 1,521 1,462 4.0
Annuities
Fixed annuities -
deferred 1,471 1,395 5.4 3,751 3,170 18.3
Fixed annuities -
immediate 174 138 26.1 617 491 25.7
Variable annuities 621 609 2.0 1,555 1,805 (13.9)
------ ------ ------ ------
Subtotal 2,266 2,142 5.8 5,923 5,466 8.4
Institutional
Products
Indexed funding
agreements 125 100 25.0 390 275 41.8
Funding agreements
backing medium-
term notes 949 85 - 1,667 1,462 14.0
Other 3 - - 7 39 (82.1)
------ ------ ------ ------
Subtotal 1,077 185 - 2,064 1,776 16.2
Bank Deposits 114 138 (17.4) 284 369 (23.0)
------ ------ ------ ------
Total $4,000 $2,958 35.2 $9,792 $9,073 7.9
====== ====== ====== ======
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, Dec. 31,
(in millions, except par value data) 2003 (Est.) 2002
------------ -----------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $79,634 and $72,123) $ 85,222 $ 77,152
Equity securities, at fair value (cost
$3,886 and $3,223) 4,744 3,683
Mortgage loans 6,426 6,092
Short-term 3,526 2,215
Other 1,581 1,508
------------ -----------
Total investments 101,499 90,650
Cash 247 462
Premium installment receivables, net 4,455 4,075
Deferred policy acquisition costs 4,610 4,385
Reinsurance recoverables, net 3,113 2,883
Accrued investment income 1,033 946
Property and equipment, net 1,049 989
Goodwill 930 927
Other assets 1,149 984
Separate Accounts 12,177 11,125
------------ -----------
Total assets $ 130,262 $ 117,426
============ ===========
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 17,681 $ 16,690
Reserve for life-contingent contract
benefits 10,903 10,256
Contractholder funds 45,522 40,751
Unearned premiums 9,260 8,578
Claim payments outstanding 685 739
Other liabilities and accrued expenses 9,640 7,150
Deferred income taxes 656 259
Short-term debt - 279
Long-term debt 4,378 3,961
Separate Accounts 12,177 11,125
------------ -----------
Total liabilities 110,902 99,788
------------ -----------
Mandatorily Redeemable Preferred Securities
of Subsidiary Trust - 200
Shareholders' equity
Preferred stock, $1 par value, 25 million
shares authorized, none issued - -
Common stock, $.01 par value, 2.0 billion
shares authorized and 900 million issued,
703 million and 702 million shares
outstanding 9 9
Additional capital paid-in 2,612 2,599
Retained income 21,043 19,584
Deferred compensation expense (214) (178)
Treasury stock, at cost (197 million and 198
million shares) (6,291) (6,309)
Accumulated other comprehensive income:
Unrealized net capital gains and losses
and net gains and losses on
derivative financial instruments 3,037 2,602
Unrealized foreign currency translation
adjustments (16) (49)
Minimum pension liability adjustment (820) (820)
------------ -----------
Total accumulated other comprehensive
income 2,201 1,733
------------ -----------
Total shareholders' equity 19,360 17,438
------------ -----------
Total liabilities and shareholders'
equity $ 130,262 $ 117,426
============ ===========
Discontinued Lines and Coverages Reserves During the third quarter, we completed our annual comprehensive "ground up" review of reserves for the Discontinued Lines and Coverages segment. Reserve reestimates are recorded in the reporting period in which they are determined. This review employed established industry and actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin best practices within the context of the legal, legislative and economic environment. Our net asbestos reserves by type of exposure and total reserve additions by quarter and year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. are shown in the following table.
September 30, 2003 December 31, 2002
Number Number
($ in millions) of Est. Net % of of Net % of
Active Asbestos Asbestos Active Asbestos Asbestos
Policy- Reserves Reserves Policy- Reserves Reserves
holders holders (2) (2)
Direct
policyholders
-Primary 49 $ 30 3% 40 $ 16 2%
-Excess 274 208 19 240 87 14
--- --- -- --- --- --
Total direct
policyholders 323 238 22% 280 103 16%
Assumed reinsurance 191 17 173 27
Incurred but not
reported claims
("IBNR") 673 61 359 57
---- --- --- ---
Total net reserves $1,102 100% $ 635 100%
Reserve additions
First Quarter $ 34 $ --
Second Quarter 38 --
Third Quarter 442 121
--- ---
Nine months ended
September 30 $ 514 $ 121
Survival ratio excluding
commutations, policy
buy-backs and settlement
agreements as of
December 31, 2002
Current year 19.1 (1) 10.3
Three year average 23.3 (1) 12.5
(1) For these calculations, est. reserve additions of $514 million
have been added to the $635 million of asbestos reserves at
December 31, 2002 to facilitate an updated calculation of survival
ratios with comparable, annual financial data.
(2) To conform to the current year presentation, $8 million of
asbestos reserves at December 31, 2002 has been reclassified from
direct excess insurance policyholders to direct primary insurance
policyholders.
During the first nine months of 2003, 65 direct primary and excess policyholders reported new claims, and claims of 22 policyholders' were closed, so that the number of direct policyholders with active claims increased by 43. Reserve additions for asbestos in the third quarter of 2003, totaling est. $442 million, were primarily for products-related coverage. This increase essentially was a result of more claimants being reported by excess insurance policyholders with existing active claims and new claims being reported in our assumed reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. business. This trend is consistent with the trends of other carriers in the industry. We believe it is related to increased publicity and awareness of coverage, ongoing litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , potential congressional activity and bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most actions. Reserve additions for asbestos for the nine-months ended September 30, 2003, totaled est. $514 million. -- Increased net reserves for direct primary insurance of est. $14 million were comprised of $12 million for policyholders with existing active claims and $2 million for policyholders that previously had no active claims. We were not a significant direct primary insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. and did not insure Insure can mean:
the large asbestos manufacturers on a direct primary basis. -- Increased net reserves for direct excess insurance of est. $121 million were due to policyholders with existing active claims. The increase on existing active claims is attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to an increase in the number of claims filed against our direct excess insureds. -- Increased net reserves for assumed reinsurance of est. $18 million reflect increased cessions as ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. companies (other insurance carriers) also experienced increased claim activity. Approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 85% of the assumed reinsurance reserves are for small participations in excess of loss reinsurance programs of other carriers. The remainder result from pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend reinsurance. Many of the same insureds that have reported claims to us on their direct excess insurance coverages have also reported claims to carriers included in our assumed reinsurance exposure. The number of reported new claims is shown in the following table.
Nine months ended Year ended Year ended
September 30, 2003 December 31, 2002 December 31, 2001
New Claims (1) 206 197 182
(1) New claims are defined as the aggregate number of policyholders
with claims reported by all ceding companies.
-- Increased net reserves for IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant of est. $314 million were in anticipation The performance of an act or obligation before it is legally due. In patent law, the publication of the existence of an invention that has already been patented or has a patent pending, of continued claims activity. IBNR now represents 61% of total asbestos reserves, 4 points higher than at December December: see month. 31, 2002. IBNR reserves are estimated to provide for probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. future unfavorable reserve development of known claims and future reporting of additional unknown claims from current and new direct active policyholders and ceding companies. Our exposure to non-products-related losses represents approximately 5% of total reserves. We do not anticipate significant changes in this percentage as insureds' retentions associated with excess insurance programs, which are our principal direct insurance, and assumed reinsurance exposure are seldom exceeded. We did not write direct primary insurance on policyholders with the potential for significant non-products-related loss exposure. Liability for actual and potential asbestos losses has caused a number of companies to file for bankruptcy protection. Of 63 companies with significant asbestos exposure, all but one of which are in bankruptcy, on a direct basis, we: -- Did not insure 44 -- Settled with 12 -- Reserved to excess insurance policy limits on 3 -- Reserved to maximum mutual agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations" stipulatory noncontroversial, uncontroversial - not likely to arouse controversy exposure on 1 -- Appropriately reserved for the remaining 3 Although we do not believe a greater exposure is probable for the remaining 3, our maximum additional exposure to full policy limits for the remaining 3 in the aggregate is est. $26 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. . Reserves related to asbestos manufacturers in bankruptcy, whose claims are still in the process of resolution, are established based on claims that have occurred and other related information. We also establish reserves for assumed reinsurance written by another carrier on these manufacturers in proportion to our participation share in the reinsurance agreements. The claim resolution process in these bankruptcies is lengthy and involves, among other factors, filing notices of claim by all current claimants, evaluating pre-petition and post-petition claims, negotiations among the various creditor An individual to whom an obligation is owed because he or she has given something of value in exchange. One who may legally demand and receive money, either through the fulfillment of a contract or due to injury sustained as a result of another's Negligence groups and the debtors and, if necessary, evidentiary ev·i·den·tia·ry adj. Law 1. Of evidence; evidential. 2. For the presentation or determination of evidence: an evidentiary hearing. Adj. 1. hearings by the bankruptcy court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties. . Management will continue to monitor the relevant bankruptcies. Our pending, new, total closed and closed without payment claims for asbestos since December 31, 2002 are summarized in the following table:
Number of Asbestos Claims
Pending as of December 31, 2002 6,900
New 1,973
Total closed 852
---
Pending as of September 30, 2003 8,021
=====
Closed without payment 556
===
The changes in claim counts may not correlate directly to the change in recorded reserves because estimated net loss reserves for asbestos are subject to uncertainties that are greater than those presented by other types of claims as described in the Company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. dated December 31, 2002. To further limit our asbestos exposure, we have purchased significant reinsurance, primarily to reduce our exposure to loss in our direct excess insurance business. Our reserves recoverable from reinsurers are estimated to be approximately 32.1% of our gross estimated losses, after a reduction for known reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. insolvencies. Our three-year average survival ratio, as updated above, is viewed to be a more representative prospective measure of current reserve adequacy than other survival ratio calculations. Now at 23.3 years as of December 31, 2002, our survival ratio is at a level we consider a strong asbestos reserve position. A one-year adj. 1. completing its life cycle within a year. Adj. 1. one-year - completing its life cycle within a year; "a border of annual flowering plants" annual phytology, botany - the branch of biology that studies plants increase in the three-year average asbestos survival ratio at December 31, 2002 would require an after-tax increase in reserves of approximately $31 million. In addition to asbestos reserve actions taken in the quarter, we also increased the allowance for future uncollectible Adj. 1. uncollectible - not capable of being collected; "a bad (or uncollectible) debt" bad invalid - having no cogency or legal force; "invalid reasoning"; "an invalid driver's license" reinsurance by est. $14.1 million, reserves for environmental exposure by est. $0.4 million and other discontinued lines and coverages reserves by est. $8.4 million. We believe that our reserves are appropriately established based on assessments of pertinent factors and characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. Another comprehensive "ground up" review will be completed in the third quarter next year, as well as assessments each quarter to determine if any intervening in·ter·vene intr.v. in·ter·vened, in·ter·ven·ing, in·ter·venes 1. To come, appear, or lie between two things: You can't see the lake from there because the house intervenes. 2. significant events or developments require an interim adjustment to reserves. Definitions of Non-GAAP and Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Operating income is Income before dividends on preferred securities and the cumulative effect of change in accounting principle, after-tax, excluding the effects of Realized capital gains and losses, after-tax, and (Loss) gain on disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of operations, after-tax. Upon the adoption of Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). Interpretation No. 46 on July 1, 2003, Operating income is defined as Income before the cumulative effect of change in accounting principle, after-tax, excluding the effects of Realized capital gains and losses, after-tax, and (Loss) gain on disposition of operations, after-tax. In our operating income computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. , the net effect of Realized capital gains and losses, after-tax, includes Allstate Financial's DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter amortization only to the extent that it resulted from the recognition of Realized capital gains and losses. Net income is the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure. We use this measure to evaluate our results of operations and as an integral component for incentive compensation. It reveals trends in our insurance and financial services business that may be obscured by the net effect of Realized capital gains and losses and (Loss) gain on disposition of operations. These items may vary significantly between periods and are generally driven by business decisions and economic developments such as market conditions, the timing of which is unrelated to the insurance underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. process. Therefore, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. valuation technique uses operating income as the denominator denominator the bottom line of a fraction; the base population on which population rates such as birth and death rates are calculated. denominator . Operating income should not be considered as a substitute for Net income and does not reflect the overall profitability of our business. The following tables reconcile Operating income and Net income for the third quarter and first nine months of 2003 and 2002.
For the three months ended September 30,
Property- Allstate Per diluted
Liability Financial Consolidated share
------------ ------------ ------------ -----------
($ in millions, Est. Est. Est. Est.
except per 2003 2002 2003 2002 2003 2002 2003 2002
share data) ---- ---- ---- ---- ---- ---- ---- ----
Operating income $ 533 $ 430 $ 135 $ 112 $ 638 $ 516 $0.91 $0.73
Realized capital
gains and losses 109 (251) (3) (164) 103 (419)
Reclassification
of DAC
amortization -- -- (6) 5 (6) 5
Income tax benefit
(expense) (39) 91 2 56 (35) 148
----- ----- ---- ----- ----- -----
Realized capital
gains and losses,
after-tax 70 (160) (7) (103) 62 (266) 0.08 (0.38)
(Loss) gain on
disposition of
operations,
after-tax 1 -- (9) -- (8) -- (0.01) --
----- ----- ---- ----- ----- ----- ------ ----
Income before
dividends on
preferred
securities and
cumulative effect
of change in
accounting
principle,
after-tax 604 270 119 9 692 250 0.98 0.35
Dividends on
preferred
securities
of subsidiary
trust(s),
after-tax -- -- -- -- -- (2) -- --
Cumulative effect
of change in
accounting
principle,
after-tax (1) -- -- -- (1) -- (0.01) --
----- ----- ----- ----- ----- ----- ------ -----
Net income
(loss) $ 603 $ 270 $ 119 $ 9 $ 691 $ 248 $0.97 $0.35
====== ===== ====== ===== ====== ====== ===== ======
For the nine months ended September 30,
Property- Allstate Per diluted
Liability Financial Consolidated share
------------ ------------ ------------ -----------
($ in millions,
except per Est. Est. Est. Est.
share data) 2003 2002 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ---- ---- ----
Operating
income $1,647 $1,139 $ 348 $ 398 $1,910 $1,457 $2.71 $2.05
Realized capital
gains and losses 177 (380) (83) (288) 90 (675)
Reclassification
of DAC
amortization -- -- (31) 2 (31) 2
Income tax benefit
(expense) (57) 140 42 94 (13) 236
----- ----- ----- ----- ----- -----
Realized capital
gains and losses,
after-tax 120 (240) (72) (192) 46 (437) 0.06 (0.62)
(Loss) gain on
disposition of
operations,
after-tax 3 5 (9) -- (6) 5 (0.01) 0.01
----- ----- ----- ----- ----- ----- ------ ----
Income before
dividends on
preferred
securities and
cumulative effect
of change in
accounting
principle,
after-tax 1,770 904 267 206 1,950 1,025 2.76 1.44
Dividends on
preferred
securities
of subsidiary
trust(s),
after-tax -- -- -- -- (5) (7) -- (0.01)
Cumulative effect
of change in
accounting
principle,
after-tax (1) (48) -- (283) (1) (331) (0.01)(0.46)
----- ----- ----- ----- ----- ----- ----- ------
Net income
(loss) $1,769 $856 $267 $(77) $1,944 $687 $2.75 $0.97
======= ====== ====== ===== ====== ===== ===== =====
In this press release, we provide guidance on operating income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share for 2003 (excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and related charges and assuming a level of average expected catastrophe losses used in pricing for the remainder of the year). A reconciliation of this measure to Net income is not accessible on a forward-looking basis because it is not possible to provide a reliable forecast of Realized capital gains and losses, which can vary substantially from one period to another and may have a significant impact on Net income. Because a forecast of Realized capital gains and losses is not accessible, neither is a forecast of the effects of Realized capital gains and losses on DAC amortization and income taxes. We estimate that the year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 2003 restructuring and related charges will be $0.05 per diluted share. The other reconciling items between Operating income and Net income on a forward-looking basis are (Loss) gain on disposition of operations after-tax and Cumulative effect of changes in accounting principle, which we assume to be zero for the remainder of 2003. Underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. (loss) is Premiums earned, less Claims and claims expense ("losses"), Amortization of DAC, Operating costs operating costs npl → gastos mpl operacionales and expenses and Restructuring and related charges as determined using GAAP. Management uses this measure in its evaluation of results of operations to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. the profitability of our Property-Liability insurance operations separately from investment results. It is also an integral component of incentive compensation. We believe it is useful for investors to evaluate the components of income separately and in the aggregate when reviewing our performance. Underwriting income (loss) should not be considered as a substitute for Net income and does not reflect the overall profitability of our business. Net income is the most directly comparable GAAP measure. A reconciliation of Property-Liability Underwriting income to Net income is provided in the Segment Results table. Operating income return on equity is a ratio found useful by investors that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of the beginning and end of the 12-month period shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. after excluding the after-tax effect of unrealized net capital gains. We use it to supplement our evaluation of net income and return on equity and because investors often use this measure when evaluating the performance of insurers. Moreover, it enhances investor understanding by eliminating the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of changes in accounting, which can fluctuate significantly. Return on Equity is the most directly comparable GAAP measure. The following table shows the two computations.
---------------------------
($ in millions) For the twelve months ended
September 30,
---------------------------
Est. 2003 2002
--------- ---------
Return on equity
Numerator:
Net income $ 2,391 $ 951
========= =========
Denominator:
Beginning shareholders' equity 17,766 17,293
Ending shareholders' equity 19,360 17,766
Average shareholders' equity $ 18,563 $ 17,530
========= =========
ROE 12.9 5.4
========= =========
Operating income return on equity
Numerator:
Operating income $ 2,528 $ 1,766
========= =========
Denominator:
Beginning shareholders' equity 17,766 17,293
Unrealized net capital gains 2,446 1,905
--------- ---------
Adjusted beginning shareholders' equity 15,320 15,388
Ending shareholders' equity 19,360 17,766
Unrealized net capital gains 3,037 2,446
--------- ---------
Adjusted ending shareholders' equity 16,323 15,320
Average shareholders' equity $ 15,822 $ 15,354
========= =========
Operating income ROE 16.0 11.5
========= =========
Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from that used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as Unearned premiums on our Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Financial Position. The following table presents a reconciliation of premiums written to premiums earned.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions) Est. Est.
2003 2002 2003 2002
---- ---- ---- ----
Premiums written $ 6,629 $ 6,305 $18,988 $18,063
(Increase) decrease in
Unearned Premiums (421) (397) (669) (654)
Other 22 (4) 56 2
------ ------ ------- -------
Premiums earned $ 6,230 $ 5,904 $18,375 $17,411
====== ====== ======= =======
Premiums and deposits is an operating measure that we use to analyze production trends for Allstate Financial sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products including the net new deposits of Allstate Bank, which we account for under GAAP as increases to liabilities rather than as revenue. The following table illustrates where Premiums and deposits are reflected in the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge .
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions) Est. Est.
2003 2002 2003 2002
---- ---- ---- ----
GAAP premiums (1) $ 309 $ 284 $ 1,018 $ 940
Deposits to contractholder
funds, separate accounts
and other 3,691 2,674 8,774 8,133
------- ------- ------- ------
Total Premiums and deposits $ 4,000 $ 2,958 $ 9,792 $ 9,073
======= ======= ======= =======
(1) Life and annuity contract charges in the amount of est. $229
million and $228 million for the three months ended September 30,
2003 and 2002, respectively and est. $692 million and $692 million
for the nine months ended September 30, 2003 and 2002,
respectively, which are also revenues recognized for GAAP, have
been excluded from the table above, but are a component of the
Consolidated Statements of Operations line item Life and annuity
premiums and contract charges.
New sales of financial products by Allstate exclusive agencies is an operating measure that we use to quantify Quantify - A performance analysis tool from Pure Software. the current year sales of financial products by the Allstate proprietary distribution channel. New sales of financial products by Allstate exclusive agencies includes annual premiums on new insurance policies, initial premiums and deposits on annuities, net new deposits in the Allstate Bank, sales of other company's mutual funds, and excludes renewal premiums. New sales of financial products by Allstate exclusive agencies for the nine months ended September 30, 2003 and 2002 totaled est. $1.22 billion and $1.15 billion, respectively. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. about our operating income for 2003. These statements are subject to the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 and are based on management's estimates, assumptions and projections. Actual results may differ materially from those projected in the forward-looking statements for a variety of reasons. Projected weighted average rate changes in our Property-Liability business may be lower than projected due to a decrease in PIF (Program Information File) A data file in Windows 3.x and NT that stores window settings for DOS applications. It allows screen size, fonts and other options to be selected in order to customize the way the DOS app appears under Windows. . Loss costs in our Property-Liability business, including losses due to catastrophes such as hurricanes and earthquakes Earthquakes See also geology. bathyseism an earthquake occurring at very deep levels of the earth. bradyseism the slow upward and downward motion of the earth’s crust. — bradyseismic, adj. , may exceed management's projections. Competitive pressures could lead to sales of Property-Liability products, including private passenger auto and homeowners insurance, that are lower than we have projected, due to our increased prices and our modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. underwriting practices. Investment income may not meet management's projections due to poor stock market performance or lower returns on the fixed income portfolio. Significantly lower interest rates and equity markets could increase deferred acquisition cost amortization, reduce contract charges, investment margins and the profitability of the Allstate Financial segment. We undertake no obligation to publicly correct or update any forward-looking statements. This press release contains unaudited financial information. The Allstate Corporation (NYSE:ALL) is the nation's largest publicly held personal lines insurer. Widely known through the "You're you're Contraction of you are. you're you are you're be In Good Hands With Allstate(R)" slogan A slogan is a memorable motto or phrase used in a political, commercial, religious and other context as a repetitive expression of an idea or purpose. Slogans vary from the written and the visual to the chanted and the vulgar. , Allstate provides insurance products to more than 16 million households and has approximately 12,300 exclusive agents and financial specialists in the U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Customers can access Allstate products and services through Allstate agents, or in select states at allstate.com and 1-800-Allstate(R). Encompass ENCOMPASS Enhanced Consequence Management Planning and Support System (DARPA) (SM) and Deerbrook(R) Insurance brand property and casualty products are sold exclusively through independent agents. Allstate Financial Group includes the businesses that provide life and supplemental insurance, retirement, banking and investment products through distribution channels that include Allstate agents, independent agents, and banks and securities firms. We post an interim investor supplement on our web site. You can access it by going to allstate.com and clicking on "Investor Relation." From there, go to the "Quarterly Investor Info INFO Information INFO Information (logging abbreviation) INFO Inform(ed/ation) INFO Ionic Difluoroamino Oxidizer " button. We will post additional information to the supplement over the next 30 days as it becomes available. |
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