Allstate Reports 2004 Third Quarter Results; Underlying Business Continues to be Strong.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. -- 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 2004:
Consolidated Highlights(1)
Three Months Ended September 30,
--------------------------------
Change
---------------
($ in millions, except per share Est.
amounts, ratios and percentages) 2004 2003 $ Amt %
-------- ------- ------ --------
Consolidated revenues $8,442 $8,127 $315 3.9 %
Net income 56 691 (635) (91.9) %
Net income per diluted share 0.09 0.97 (0.88) (90.7) %
Operating income(1) 49 638 (589) (92.3) %
Operating income per diluted share(1) 0.08 0.91 (0.83) (91.2) %
Property-Liability combined ratio 110.5 95.9 -- 14.6 pts
Effect of catastrophes on combined
ratio 26.0 6.1 -- 19.9 pts
Effect of catastrophes on Net income
per diluted share 1.59 0.35 1.24 --
Book value per diluted share 30.33 27.45 2.88 10.5 %
Operating income return on equity(1) 16.5 16.0 -- 0.5 pts
--Property-Liability premiums written(1) grew 5.0% over the third quarter of 2003, driven largely by an increase in policies in force. Growth in policies in force for the core Allstate brand standard auto and homeowners lines accelerated to 5.4% and 6.2%, respectively, from the third quarter of 2003 and total Allstate brand policies in force increased 3.6%. Allstate brand standard auto and homeowners new business premiums written increased 7.7% and 10.5%, respectively, as compared to the third quarter of 2003, and retention for these lines increased by 0.6 pts and 0.8 pts, with total premiums written growing 6.0% and 7.9%, respectively. --Property-Liability 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. loss(1) was $685 million compared to underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. of $255 million in the third quarter of 2003 due to higher catastrophes and prior year net unfavorable reserve re-estimates partially offset by increased premiums earned and continued favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. auto and homeowners loss frequencies excluding catastrophes. --Pre-tax catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses in the third quarter totaled $1.71 billion compared to $378 million in the third quarter of 2003. --Allstate Financial premiums and deposits(1) increased to $4.02 billion in the third quarter of 2004. 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. (1) was $151 million, an increase of 11.9% over the third quarter of 2003. --Allstate's annual 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 guidance(1) for 2004 (assuming the level of average expected catastrophe losses used in pricing for the remainder of the year) is in the range of $4.15 to $4.40, compared to the range announced on July July: see month. 19 of $5.40 to $5.65. The reduction in guidance corresponds to the amount of catastrophe losses incurred in the third quarter that were greater than the expected average used in pricing. (1) Measures used in this release that are not based on generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("non-GAAP") and operating measures are defined and reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure in the "Definitions of Non-GAAP and Operating Measures" section of this document. "This has been an exceptionally difficult quarter, particularly for our customers who filed more than 205,000 claims for damage to their property from four very powerful, destructive hurricanes. Our hearts truly go out to those who have suffered and endured the havoc caused by Hurricanes Charley Charley elderly poodle that accompanied Steinbeck on trip across U.S. [Am. Lit.: John Steinbeck Travels with Charley in Weiss, 471] See : Dogs , Frances, Ivan Ivan - A Diana-like language making up part of VHDL. ["VHDL - The Designer Environment", A. Gilman, IEEE Design & Test 3, (Apr 1986)]. and Jeanne Jeanne is a French female name, equivalent to the English Joan, Jane, Jean and several historical figures in English named Joanna. (Feminine forms of John) Historical people who have been called simply Jeanne: • • . "While the losses sustained from catastrophes are the dominant factor discussed in this quarter's report, I also want our shareholders to know how very proud I am of the thousands of Allstate claim representatives, agents, and support staff that have rallied over the past few months to ensure that our policyholders were cared for in their time of need. We have managed through the storms quite well and while the work to help put people's lives back together is not yet done, we are making good progress. We will continue to work to let our policyholders know they are in Good Hands(R) with Allstate. "Last week we announced that the losses from the four hurricanes are estimated to be approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.06 billion 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. , net of recoveries from the Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and Hurricane hurricane, tropical cyclone in which winds attain speeds greater than 74 mi (119 km) per hr. Wind speeds reach over 190 mi (289 km) per hr in some hurricanes. Catastrophe Fund. Despite catastrophe losses in the quarter that are nearly four times our expected average, our business and the execution of our strategy continues to be healthy and strong. "For Allstate Protection, net written premium and earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. were up 5.0 percent and 5.2 percent, respectively over the third quarter of last year. Our trend of solid growth in policies-in-force (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. ) also continued in the quarter. Overall Allstate brand PIF was up 3.6 percent over the third quarter of 2003 with more than one million policies added compared to prior year. Most of the growth in PIF is the result of very solid growth for Allstate brand standard auto, which grew 5.4 percent compared to the third quarter of 2003. Allstate brand homeowners also showed strong results in the quarter with PIF increasing 6.2 percent over the prior year quarter. "Retention of auto and homeowners policies maintained the strong trends we have seen throughout the year and contributed to the good results we experienced in written and earned premium and growth in PIF. These good retention results are particularly encouraging given the increased marketing and advertising efforts we saw from some competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. . "Auto and homeowners claim frequency trends excluding catastrophes in the quarter also continued their favorable pattern from previous quarters and as compared to the prior year quarter. Auto severities also continue to trend favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. . And despite the heavy the catastrophe losses in the third quarter, the combined ratio for Allstate brand homeowners was 97.8 for the nine months ended September September: see month. 2004. "Allstate Financial results are encouraging. Operating income was up nearly 12 percent at $151 million compared to the third quarter of 2003. The improvement in operating income was primarily due to lower operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. and increased margins from higher assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. . Premiums and deposits were more than $4 billion in the quarter as we achieved record premiums and deposits from our retail distribution channels. "In the quarter, Allstate exclusive agencies generated $520 million in new sales of financial products(1), an increase of 20 percent as compared to the third quarter of 2003. "Though it is still early in the execution of our strategy for Allstate Financial, these solid results are an early indication of the progress we are making. "Overall, we are pleased with our underlying performance in the quarter. When tested by an unprecedented series of hurricanes, we fared well. Despite incurring in·cur tr.v. in·curred, in·cur·ring, in·curs 1. To acquire or come into (something usually undesirable); sustain: incurred substantial losses during the stock market crash. 2. more than $2 billion in catastrophe losses for the first nine months of 2004, we still grew operating income per diluted share by 10.3 percent compared to the nine months ended September 2003, which serves as evidence of our strong performance. We remain highly confident in our business strategy and execution capabilities."
Consolidated Highlights
Discussion of
Results for the
Three Months Ended Nine Months Ended Three Months Ended
September 30, September 30, September 30, 2004
------------------ ----------------- -------------------
(In millions,
except per
share and
return Est. Est.
amounts) 2004 2003 2004 2003
--------- -------- -------- --------
Consolidated $8,442 $8,127 $25,057 $23,887 Higher premiums
revenues earned in
Property-
Liability, higher
net investment
income, partially
offset by lower
realized capital
gains and lower
life and annuity
premiums and
contract charges.
Operating 49 638 2,105 1,910 Decrease in
income Property-Liability
operating income
of $608.
Realized 37 73 180 76 See the Components
capital gains of realized
and losses, capital gains and
after-tax losses (pretax)
table.
Loss on
disposition
of operations,
after-tax (5) (8) (22) (6)
Cumulative
effect of
change in
accounting
principle,
after-tax -- (1) (175) (1)
Net income 56 691 2,039 1,944 Decrease in
Property-Liability
operating income.
Net income per
share
(diluted) 0.09 0.97 2.90 2.75
Operating
income per
share
(diluted) 0.08 0.91 2.99 2.71
Net shares 689.1 702.8 689.1 702.8 During the third
outstanding quarter of 2004,
Allstate purchased
8.2 million shares
of its stock for
$387 million,
leaving $396
million remaining
in the current
$1.5 billion
authorization.
Weighted
average
shares
outstanding
(diluted) 696.8 706.0 703.5 705.9
Return on 13.9 12.9 13.9 12.9 See the return on
equity equity calculation
in the Definitions
of Non-GAAP and
Operating Measures
section of this
document.
Operating 16.5 16.0 16.5 16.0 See the return on
income return equity calculation
on equity in the Definitions
of Non-GAAP and
Operating Measures
section of this
document.
Book value per 30.33 27.45 30.33 27.45 At September 30,
diluted share 2004 and 2003, net
unrealized gains
on fixed income
securities, after-
tax, totaling
$2,164 and $2,478,
respectively,
represented $3.12
and $3.51,
respectively, of
book value per
diluted share.
-- Book value per diluted share increased 10.5% compared to September
30, 2003 and 4.4% compared to December 31, 2003. Book value per
diluted share excluding the net impact of unrealized net capital
gains on fixed income securities increased 13.7% to $27.21 at
September 30, 2004 compared to September 30, 2003, and 5.5%
compared to December 31, 2003.
Property-Liability Highlights
Discussion of
Results for the
Three Months Ended Nine Months Ended Three Months Ended
September 30, September 30, September 30, 2004
------------------ ----------------- -------------------
($ in
millions,
except Est. Est.
ratios) 2004 2003 2004 2003
-------- --------- -------- --------
Property- $6,958 $6,629 $20,032 $18,988 See the Property-
Liability net Liability premiums
premiums written by market
written segment table.
Property- 7,094 6,756 21,092 19,794 Premiums earned
Liability increased $321 or
revenues 5.2%.
Underwriting (685) 255 1,068 849 Higher catastrophe
(loss) / losses and net
income unfavorable prior
year reserve re-
estimates,
partially offset
by higher premiums
earned and
continued
favorable auto and
homeowners non-
catastrophe loss
frequencies. See
the Allstate
Protection market
segment analysis
table.
Net investment 443 417 1,310 1,242 Higher portfolio
income balances due to
positive cash
flows from
operations,
partially offset
by lower yields.
Operating (75) 533 1,773 1,647 Decrease of $614 in
(loss) income underwriting
results, after-
tax.
Realized 69 70 272 120 See the Components
capital gains of realized
and losses, capital gains and
after-tax losses (pretax)
table.
Net (loss) (6) 603 2,045 1,769 Lower operating
income income.
Catastrophe
losses 1,706 378 2,056 1,077
Ratios:
Property-
Liability
combined
ratio 110.5 95.9 94.5 95.4
Effect of
Discontinued
Lines and
Coverages 4.9 7.6 3.3 3.1
Allstate
Protection
combined
ratio 105.6 88.3 91.2 92.3
Effect of
catastrophe
losses 26.0 6.1 10.6 5.9
-- Allstate brand standard auto and homeowners policies in force
(PIF) increased 5.4% and 6.2%, respectively, from September 30,
2003 levels compared to increases of 4.9% and 5.7%, respectively,
in the second quarter of 2004 over the second quarter of 2003.
Both standard auto and homeowners experienced growth in most
states.
-- Allstate brand standard auto and homeowners new business premiums
written grew 7.7% and 10.5%, respectively, in the quarter. In
addition to higher new business premiums written during the third
quarter of 2004 compared to the prior year third quarter, the
retention ratios for Allstate brand standard auto and homeowners
increased to 90.9 and 88.6, respectively, in the third quarter of
2004.
-- Prior year net unfavorable reserve re-estimates totaled $84
million, resulting from a $314 million unfavorable re-estimate for
Discontinued Lines and Coverages, partially offset by a $230
million favorable re-estimate for Allstate Protection. The
Allstate Protection net reserve re-estimates reflect lower actual
claim severity trends than anticipated in previous estimates. See
the Discontinued Lines and Coverages section of this document for
more details on the reserve re-estimate in that segment.
Allstate Financial Highlights
Discussion of
Results for the
Three Months Ended Nine Months Ended Three Months Ended
September 30, September 30, September 30, 2004
------------------ ----------------- -------------------
($ in Est. Est.
millions) 2004 2003 2004 2003
-------- --------- -------- --------
Premiums and $4,017 $4,000 $11,756 $9,792 Higher sales of
deposits fixed annuities,
partially offset
by lower sales of
variable annuity
products and
funding
agreements. See
the Allstate
Financial premiums
and deposits
table.
Allstate 1,323 1,358 3,893 4,051 Lower direct
Financial response premiums
revenues and higher
realized capital
losses partially
offset by higher
net investment
income and
contract charges.
Operating 151 135 409 348 Lower operating
income expenses and
higher gross
margin, partially
offset by the
disposition of the
majority of our
direct response
distribution
business and
increased
amortization of
DAC and DSI.
Realized (33) 4 (90) (42) See the Components
capital gains of realized
and losses, capital gains and
after-tax losses (pretax)
table.
Loss on (5) (9) (22) (9) Loss on disposition
disposition of a portion of
of operations, our direct
after-tax response business.
Cumulative
effect of
change in
accounting
principle,
after-tax -- -- (175) --
Net income 88 119 73 267 Higher operating
income, offset by
higher realized
capital losses.
-- Total investments as of September 30, 2004 increased 12.8% over
year end due to strong sales of fixed annuities and funding
agreements.
-- The weighted average interest crediting rate on fixed annuity and
interest-sensitive life products in force, excluding market value
adjusted annuities, was approximately 50 basis points more than
the underlying long-term guaranteed rates on these products for
the quarter ended September 30, 2004.
-- Operating income includes a $6 million increase in the third
quarter of 2004 over the third quarter of 2003 due to lower net
expenses related to the direct response distribution business. The
disposition of the majority of this business reduced total
revenues by $54 million, benefits by $34 million, operating costs
and expenses by $19 million and amortization of deferred
acquisition costs (DAC) by $9 million.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
($ in millions,
except per Est. Percent Est. Percent
share data) 2004 2003(1) Change 2004 2003(1) Change
------- ------- ------- ------- ------- --------
Revenues
Property-
liability
insurance
premiums $ 6,551 $ 6,230 5.2 $19,382 $18,375 5.5
Life and
annuity
premiums
and contract
charges 508 538 (5.6) 1,508 1,710 (11.8)
Net investment
income 1,333 1,246 7.0 3,906 3,697 5.7
Realized
capital gains
and losses 50 113 (55.8) 261 105 148.6
------- ------- ------- -------
Total revenues 8,442 8,127 3.9 25,057 23,887 4.9
------- ------- ------- -------
Costs and
expenses
Property-
liability
insurance
claims and
claims
expense 5,661 4,506 25.6 13,668 13,184 3.7
Life and
annuity
contract
benefits 401 424 (5.4) 1,174 1,380 (14.9)
Interest
credited to
contractholder
funds 505 467 8.1 1,455 1,380 5.4
Amortization of
deferred
policy
acquisition
costs 1,124 1,015 10.7 3,251 2,989 8.8
Operating costs
and expenses 738 716 3.1 2,241 2,197 2.0
Restructuring
and related
charges (1) 19 (105.3) 26 56 (53.6)
Interest
expense 76 70 8.6 223 204 9.3
------- ------- ------- -------
Total costs
and expenses 8,504 7,217 17.8 22,038 21,390 3.0
------- ------- ------- -------
Loss on
disposition of
operations (6) (12) 50.0 (17) (9) (88.9)
(Loss) income
from operations
before income
tax expense,
dividends on
preferred
securities and
cumulative
effect of change
in accounting
principle,
after-tax (68) 898 (107.6) 3,002 2,488 20.7
Income tax
(benefit)
expense (124) 206 (160.2) 788 538 46.5
------- ------- ------- -------
Income before
dividends on
preferred
securities and
cumulative
effect of change
in accounting
principle,
after-tax 56 692 (91.9) 2,214 1,950 13.5
Dividends on
preferred
securities
of subsidiary
trust - - - - (5) 100.0
Cumulative
effect of
change in
accounting
principle,
after-tax - (1) 100.0 (175) (1) -
------- ------- ------- -------
Net income $ 56 $ 691 (91.9) $ 2,039 $ 1,944 4.9
======= ======= ======= =======
Net income per
share - Basic $ 0.10 $ 0.98 $ 2.92 $ 2.76
======= ======= ======= =======
Weighted average
shares - Basic 692.1 703.3 698.8 703.5
======= ======= ======= =======
Net income per
share - Diluted $ 0.09 $ 0.97 $ 2.90 $ 2.75
======= ======= ======= =======
Weighted average
shares -
Diluted 696.8 706.0 703.5 705.9
======= ======= ======= =======
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
($ in millions,
except per share Est. Percent Est. Percent
data) 2004 2003(1) Change 2004 2003(1) Change
------- ------- ------- ------- ------- --------
Contribution to
income
Operating income
before the
impact of
restructuring
and related
charges $ 48 $ 650 (92.6) $ 2,122 $ 1,946 9.0
Restructuring
and related
charges,
after-tax (1) 12 (108.3) 17 36 (52.8)
------- ------- ------- -------
Operating income 49 638 (92.3) 2,105 1,910 10.2
Realized capital
gains and
losses,
after-tax 37 73 (49.3) 180 76 136.8
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax (2) (15) (4) - (28) (20) (40.0)
Reclassification
of periodic
settlements
and accruals on
non-hedge
derivative
instruments,
after-tax (10) (7) (42.9) (21) (10) (110.0)
Loss on
disposition of
operations,
after-tax (5) (8) 37.5 (22) (6) -
Dividends on
preferred
securities of
subsidiary
trust - - - - (5) 100.0
Cumulative
effect of
change in
accounting
principle,
after-tax - (1) 100.0 (175) (1) -
------- ------- ------- -------
Net income $ 56 $ 691 (91.9) $ 2,039 $ 1,944 4.9
======= ======= ======= =======
Income per share
(Diluted)
Operating income
before the
impact of
restructuring
and related
charges $ 0.08 $ 0.93 (91.4) $ 3.01 $ 2.76 9.1
Restructuring
and related
charges,
after-tax - 0.02 (100.0) 0.02 0.05 (60.0)
------- ------- ------- -------
Operating income 0.08 0.91 (91.2) 2.99 2.71 10.3
Realized capital
gains and
losses,
after-tax 0.06 0.10 (40.0) 0.26 0.10 160.0
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax (2) (0.02) (0.01) (100.0) (0.04) (0.03) (33.3)
Reclassification
of periodic
settlements
and accruals on
non-hedge
derivative
instruments,
after-tax (0.02) (0.01) (100.0) (0.03) (0.01) -
Loss on
disposition of
operations,
after-tax (0.01) (0.01) - (0.03) (0.01) -
Dividends on
preferred
securities of
subsidiary
trust - - - - - -
Cumulative
effect of
change in
accounting
principle,
after-tax - (0.01) 100.0 (0.25) (0.01) -
------- ------- ------- -------
Net income $ 0.09 $ 0.97 (90.7) $ 2.90 $ 2.75 5.5
======= ======= ======= =======
Book value per
share -
Diluted $ 30.33 $ 27.45 10.5 $ 30.33 $ 27.45 10.5
======= ======= ======= =======
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
(2) Includes amortization expense on deferred policy acquisition costs
("DAC") and deferred sales inducements ("DSI") relating to
realized capital gains and losses.
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended September 30, 2004 (Est.)
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- ---------- ----------
Valuation of derivative
instruments $ (20) $ (23) $ - $ (43)
Settlements of
derivative instruments (50) (4) 1 (53)
Dispositions (2) 189 3 - 192
Investment write-downs (19) (27) - (46)
---------- ---------- ---------- ----------
Total $ 100 $ (51) $ 1 $ 50
========== ========== ========== ==========
Nine Months Ended September 30, 2004 (Est.)
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- ---------- ----------
Valuation of derivative
instruments $ (23) $ (49) $ (1) $ (73)
Settlements of
derivative instruments (65) (4) - (69)
Dispositions 522 (9) (2) 511
Investment write-downs (34) (73) (1) (108)
---------- ---------- ---------- ----------
Total $ 400 $ (135) $ (4) $ 261
========== ========== ========== ==========
Three Months Ended September 30, 2003 (1)
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- ---------- ----------
Valuation of derivative
instruments $ 1 $ 35 $ - $ 36
Settlements of
derivative instruments (10) 14 - 4
Dispositions 126 (16) (2) 108
Investment write-downs (8) (26) (1) (35)
---------- ---------- ---------- ----------
Total $ 109 $ 7 $ (3) $ 113
========== ========== ========== ==========
Nine Months Ended September 30, 2003 (1)
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ---------- ---------- ----------
Valuation of derivative
instruments $ 6 $ 10 $ - $ 16
Settlements of
derivative instruments (2) 20 - 18
Dispositions 254 48 (3) 299
Investment write-downs (81) (146) (1) (228)
---------- ---------- ---------- ----------
Total $ 177 $ (68) $ (4) $ 105
========== ========== ========== ==========
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
(2) Includes $90 million of net capital gains from a repositioning of
the equity portfolio and $49 million of net capital gains from the
liquidation of the Allstate Floridian portfolio in anticipation of
liquidity needs to settle hurricane catastrophe claims.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
($ in millions) Est. Est.
2004 2003 (1) 2004 2003 (1)
-------- -------- -------- --------
Property-Liability
Premiums written $ 6,958 $ 6,629 $ 20,032 $ 18,988
======== ======== ======== ========
Premiums earned $ 6,551 $ 6,230 $ 19,382 $ 18,375
Claims and claims expense 5,661 4,506 13,668 13,184
Amortization of deferred
policy acquisition costs 985 905 2,858 2,590
Operating costs and expenses 592 546 1,767 1,697
Restructuring and related
charges (2) 18 21 55
-------- -------- -------- --------
Underwriting (loss) income (685) 255 1,068 849
-------- -------- -------- --------
Net investment income 443 417 1,310 1,242
Income tax (benefit) expense
on operations (167) 139 605 444
-------- -------- -------- --------
Operating (loss) income (75) 533 1,773 1,647
Realized capital gains and
losses, after-tax 69 70 272 120
Gain on disposition of
operations, after-tax - 1 - 3
Cumulative effect of change
in accounting principle,
after-tax - (1) - (1)
-------- -------- -------- --------
Net (loss) income $ (6) $ 603 $ 2,045 $ 1,769
======== ======== ======== ========
Catastrophe losses $ 1,706 $ 378 $ 2,056 $ 1,077
======== ======== ======== ========
Operating ratios
Claims and claims expense
ratio 86.4 72.3 70.5 71.8
Expense ratio 24.1 23.6 24.0 23.6
-------- -------- -------- --------
Combined ratio 110.5 95.9 94.5 95.4
======== ======== ======== ========
Effect of catastrophe
losses on combined ratio 26.0 6.1 10.6 5.9
======== ======== ======== ========
Effect of restructuring
and related charges on
combined ratio - 0.3 0.1 0.3
======== ======== ======== ========
Effect of Discontinued
Lines and Coverages on
combined ratio 4.9 7.6 3.3 3.1
======== ======== ======== ========
Allstate Financial
Premiums and deposits $ 4,017 $ 4,000 $ 11,756 $ 9,792
======== ======== ======== ========
Investments including
Separate Accounts assets $ 84,247 $ 74,890 $ 84,247 $ 74,890
======== ======== ======== ========
Premiums and contract charges$ 508 $ 538 $ 1,508 $ 1,710
Net investment income 866 813 2,520 2,409
Periodic settlements and
accruals on non-hedge
derivative instruments 15 10 33 15
Contract benefits 401 424 1,174 1,380
Interest credited to
contractholder funds 505 467 1,452 1,380
Amortization of deferred
policy acquisition costs 116 104 353 368
Operating costs and expenses 143 169 465 498
Restructuring and related
charges 1 1 5 1
Income tax expense on
operations 72 61 203 159
-------- -------- -------- --------
Operating income 151 135 409 348
Realized capital gains and
losses, after-tax (33) 4 (90) (42)
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (2) (15) (4) (28) (20)
Reclassification of periodic
settlements and accruals on
non-hedge
derivative instruments,
after-tax (10) (7) (21) (10)
Loss on disposition of
operations, after-tax (5) (9) (22) (9)
Cumulative effect of change
in accounting principle,
after-tax - - (175) -
-------- -------- -------- --------
Net income $ 88 $ 119 $ 73 $ 267
======== ======== ======== ========
Corporate and Other
Net investment income $ 24 $ 16 $ 76 $ 46
Operating costs and expenses 79 71 232 206
Income tax benefit on
operations (28) (25) (79) (75)
-------- -------- -------- --------
Operating loss (27) (30) (77) (85)
Realized capital gains and
losses, after-tax 1 (1) (2) (2)
Dividends on preferred
securities of subsidiary
trust - - - (5)
-------- -------- -------- --------
Net loss $ (26) $ (31) $ (79) $ (92)
======== ======== ======== ========
Consolidated net income $ 56 $ 691 $ 2,039 $ 1,944
======== ======== ======== ========
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
(2) Includes amortization expense on deferred policy acquisition costs
("DAC") and deferred sales inducements ("DSI") relating to
realized capital gains and losses.
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
Est. Percent Est. Percent
($ in millions) 2004 2003 Change 2004 2003 Change
------- ------- ------- ------- ------- -------
Consolidated
Underwriting
Summary
Allstate
Protection $ (370) $ 726 (151.0) $ 1,707 $ 1,411 21.0
Discontinued
Lines and
Coverages (315) (471) 33.1 (639) (562) (13.7)
------- ------- ------- -------
Underwriting
(loss) income $ (685) $ 255 - $ 1,068 $ 849 25.8
======= ======= ======= =======
Allstate Protection
Underwriting
Summary
Premiums written $ 6,957 $ 6,627 5.0 $20,029 $18,978 5.5
======= ======= ======= =======
Premiums earned $ 6,550 $ 6,228 5.2 $19,378 $18,364 5.5
Claims and claims
expense 5,347 4,036 32.5 13,032 12,618 3.3
Amortization of
deferred policy
acquisition
costs 986 905 9.0 2,858 2,590 10.3
Operating costs
and expenses 589 543 8.5 1,760 1,690 4.1
Restructuring and
related charges
(1) (2) 18 (111.1) 21 55 (61.8)
------- ------- ------- -------
Underwriting
(loss) income $ (370) $ 726 (151.0) $ 1,707 $ 1,411 21.0
======= ======= ======= =======
Catastrophe
losses $ 1,706 $ 378 - $ 2,056 $ 1,077 90.9
======= ======= ======= =======
Operating ratios
Claims and claims
expense ratio 81.6 64.8 67.3 68.7
Expense ratio(2) 24.0 23.5 23.9 23.6
------- ------- ------- -------
Combined ratio 105.6 88.3 91.2 92.3
======= ======= ======= =======
Effect of
catastrophe
losses on
combined ratio 26.0 6.1 10.6 5.9
======= ======= ======= =======
Effect of
restructuring
and related
charges on
combined ratio - 0.3 0.1 0.3
======= ======= ======= =======
Discontinued Lines
and Coverages
Underwriting
Summary
Premiums written $ 1 $ 2 (50.0) $ 3 $ 10 (70.0)
======= ======= ======= =======
Premiums earned $ 1 $ 2 (50.0) $ 4 $ 11 (63.6)
Claims and claims
expense 314 470 (33.2) 636 566 12.4
Operating costs
and expenses 2 3 (33.3) 7 7 -
------- ------- ------- -------
Underwriting
loss $ (315) $ (471) 33.1 $ (639) $ (562) (13.7)
======= ======= ======= =======
Effect of
Discontinued
Lines and
Coverages
on the
Property-
Liability
combined ratio 4.9 7.6 3.3 3.1
======= ======= ======= =======
(1) In the third quarter of 2004, the Company released a prior year
accrual of $10 million relating to post-exit rent expense as a
result of the Company's decision to occupy previously vacant
leased space for the remainder of the lease term.
(2) Increases in expenses for agency incentive compensation and
marketing added 0.8 points to the expense ratio for the nine
months ended September 30, 2004.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
Est. Percent Est. Percent
($ in millions) 2004 2003 Change 2004 2003 Change
------- ------- ------- ------- ------- -------
Allstate brand
Standard auto $ 3,725 $ 3,515 6.0 $10,880 $10,216 6.5
Non-standard
auto 454 491 (7.5) 1,381 1,520 (9.1)
------- ------- ------- -------
Auto 4,179 4,006 4.3 12,261 11,736 4.5
Involuntary auto 45 60 (25.0) 183 179 2.2
Commercial lines 222 210 5.7 694 639 8.6
Homeowners 1,583 1,467 7.9 4,235 3,874 9.3
Other personal
lines 376 350 7.4 1,074 1,005 6.9
------- ------- ------- -------
6,405 6,093 5.1 18,447 17,433 5.8
Encompass brand (2)
Standard auto 327 315 3.8 932 925 0.8
Non-standard
auto
(Deerbrook) 37 42 (11.9) 119 128 (7.0)
------- ------- ------- -------
Auto 364 357 2.0 1,051 1,053 (0.2)
Involuntary auto 8 10 (20.0) 31 30 3.3
Homeowners 150 139 7.9 416 387 7.5
Other personal
lines 30 28 7.1 84 75 12.0
------- ------- ------- -------
552 534 3.4 1,582 1,545 2.4
Allstate Protection 6,957 6,627 5.0 20,029 18,978 5.5
Discontinued Lines
and Coverages 1 2 (50.0) 3 10 (70.0)
------- ------- ------- -------
Property-Liability
(1) $ 6,958 $ 6,629 5.0 $20,032 $18,988 5.5
======= ======= ======= =======
Allstate Protection
Standard auto $ 4,052 $ 3,830 5.8 $11,812 $11,141 6.0
Non-standard
auto 491 533 (7.9) 1,500 1,648 (9.0)
------- ------- ------- -------
Auto 4,543 4,363 4.1 13,312 12,789 4.1
Involuntary auto 53 70 (24.3) 214 209 2.4
Commercial lines 222 210 5.7 694 639 8.6
Homeowners 1,733 1,606 7.9 4,651 4,261 9.2
Other personal
lines 406 378 7.4 1,158 1,080 7.2
------- ------- ------- -------
$ 6,957 $ 6,627 5.0 $20,029 $18,978 5.5
======= ======= ======= =======
(1) For the three months ended September 30, 2004, growth of Property-
Liability premiums written was negatively impacted by 0.5% due to
reinsurance transactions in the current year and reductions in
assignments from the New York Assigned Risk Plan. In addition,
growth of Property- Liability premiums earned was negatively
impacted by 0.5% for these same reasons. For the nine months ended
September 30, 2004, growth of Property-Liability premiums written
and premiums earned were negatively impacted by 0.3% due to
accruals for Texas rate refunds and reinsurance transactions in
the current year.
(2) The Encompass brand name was adopted in the third quarter of 2004
and replaces the previous name for this line of business,
Ivantage.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY NET RATE CHANGES APPROVED (1)
Three Months Ended
September 30, 2004
-------------------------------------------------
Annual Impact
of Rate Changes on
Number of Weighted Average State Specific
States Rate Change (%) Premiums Written (%)
--------- ---------------- --------------------
Allstate brand
Standard auto 8 0.4 3.8
Non-standard auto - - -
Homeowners 4 0.3 5.0
Encompass brand (2)
Standard auto 11 1.0 7.7
Non-standard auto
(Deerbrook) 2 (0.3) (3.2)
Homeowners 11 0.9 4.2
Nine Months Ended
September 30, 2004
-------------------------------------------------
Annual Impact
of Rate Changes on
Number of Weighted Average State Specific
States Rate Change (%) Premiums Written (%)
--------- ---------------- --------------------
Allstate brand
Standard auto 18 0.7 2.7
Non-standard auto 3 1.4 4.6
Homeowners 9 0.3 3.2
Encompass brand (2)
Standard auto 24 2.4 4.5
Non-standard auto
(Deerbrook) 9 2.1 3.8
Homeowners 24 5.1 7.2
(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.
(2) The Encompass brand name was adopted in the third quarter of 2004
and replaces the previous name for this line of business,
Ivantage.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended September 30,
-----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2004 2003 2004 2003 2004 2003 2004 2003
------- ------- ------ ----- ----- ------ ----- -----
Loss Ratio
Excluding
the Effect of
Catastrophe Expense
Premiums Earned Loss Ratio Losses Ratio
--------------- ------------ ------------ -----------
Allstate brand
Standard
auto $ 3,606 $ 3,392 62.6 65.7 61.5 64.8 23.8 23.7
Non-standard
auto 451 507 48.8 55.0 47.2 54.2 20.6 19.8
------- -------
Auto 4,057 3,899 61.1 64.3 59.9 63.5 23.4 23.2
Homeowners 1,347 1,242 128.7 59.7 42.2 37.4 23.4 22.8
Other (1) 628 586 123.1 71.2 54.9 65.4 27.2 23.2
------- -------
Total
Allstate
brand 6,032 5,727 82.6 64.0 55.4 58.0 23.8 23.2
Encompass brand (2)
Standard auto 309 299 61.1 68.6 60.5 67.6 25.6 23.7
Non-standard
auto
(Deerbrook) 39 44 79.5 84.1 76.9 84.1 25.6 27.3
------- -------
Auto 348 343 63.2 70.6 62.4 69.7 25.6 24.2
Homeowners 136 124 86.0 83.9 41.2 58.1 28.7 25.0
Other (1) 34 34 73.5 73.5 70.6 73.5 26.5 76.5
------- -------
Total
Encompass
brand 518 501 69.9 74.1 57.3 67.1 26.4 27.9
------- -------
Allstate
Protection $ 6,550 $ 6,228 81.6 64.8 55.6 58.7 24.0 23.5
======= =======
Nine Months Ended September 30,
-----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2004 2003 2004 2003 2004 2003 2004 2003
------- ------- ------ ----- ----- ------ ----- -----
Loss Ratio
Excluding
the Effect of
Catastrophe Expense
Premiums Earned Loss Ratio Losses Ratio
--------------- ------------ ------------ -----------
Allstate brand
Standard
auto $10,639 $ 9,960 63.3 70.4 62.5 68.6 23.8 23.6
Non-standard
auto 1,391 1,589 54.6 67.7 53.7 66.8 20.1 19.5
------- -------
Auto 12,030 11,549 62.3 70.0 61.5 68.4 23.4 23.1
Homeowners 3,966 3,623 75.3 61.7 39.8 42.4 22.5 22.5
Other (1) 1,851 1,721 82.3 70.3 57.5 64.4 27.0 25.0
------- -------
Total
Allstate
brand 17,847 16,893 67.3 68.3 56.3 62.4 23.5 23.1
Encompass brand (2)
Standard auto 909 894 61.4 72.0 60.6 71.1 28.0 27.9
Non-standard
auto
(Deerbrook) 124 120 78.2 83.3 77.4 83.3 25.8 29.2
------- -------
Auto 1,033 1,014 63.4 73.4 62.6 72.6 27.8 28.0
Homeowners 394 367 71.3 77.9 50.3 57.8 29.7 29.2
Other (1) 104 90 85.6 61.1 82.7 57.8 28.8 43.3
------- -------
Total
Encompass
brand 1,531 1,471 67.0 73.8 60.8 68.0 28.3 29.2
------- -------
Allstate
Protection $19,378 $18,364 67.3 68.7 56.6 62.8 23.9 23.6
======= =======
(1) Other includes involuntary auto, commercial lines and other
personal lines.
(2) The Encompass brand name was adopted in the third quarter of 2004
and replaces the previous name of this line of business, Ivantage.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended September 30,
---------------------------------------------
Effect of
Pretax Reserve
Pretax Re-estimates on the
Reserve Re-estimates Combined Ratio
-------------------- ----------------------
Est. Est.
($ in millions) 2004 2003 2004 2003
--------- --------- ---------- ----------
Auto $ (194) $ (139) (3.0) (2.3)
Homeowners (5) (32) (0.1) (0.5)
Other (31) 31 (0.4) 0.5
--------- --------- ---------- ----------
Allstate
Protection (230) (140) (3.5) (2.3)
Discontinued Lines
and Coverages 314 471 4.8 7.6
--------- --------- ---------- ----------
Property-
Liability $ 84 $ 331 1.3 5.3
========= ========= ========== ==========
Allstate brand $ (233) $ (138) (3.6) (2.2)
Encompass
brand (1) 3 (2) 0.1 (0.1)
--------- --------- ---------- ----------
Allstate
Protection $ (230) $ (140) (3.5) (2.3)
========= ========= ========== ==========
Nine Months Ended September 30,
---------------------------------------------
Effect of
Pretax Reserve
Pretax Re-estimates on the
Reserve Re-estimates Combined Ratio
-------------------- ----------------------
Est. Est.
($ in millions) 2004 2003 2004 2003
--------- --------- ---------- ----------
Auto $ (551) $ (177) (2.8) (1.0)
Homeowners (112) (17) (0.6) (0.1)
Other (14) 52 (0.1) 0.3
--------- --------- ---------- ----------
Allstate
Protection (677) (142) (3.5) (0.8)
Discontinued Lines
and Coverages 636 566 3.3 3.1
--------- --------- ---------- ----------
Property-
Liability $ (41) $ 424 (0.2) 2.3
========= ========= ========== ==========
Allstate brand $ (682) $ (164) (3.5) (0.9)
Encompass
brand (1) 5 22 - 0.1
--------- --------- ---------- ----------
Allstate
Protection $ (677) $ (142) (3.5) (0.8)
========= ========= ========== ==========
(1) The Encompass brand name was adopted in the third quarter of 2004
and replaces the previous name for this line of business,
Ivantage.
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
Est. Percent Est. Percent
($ in millions) 2004 2003 Change 2004 2003 Change
------- ------- ------- ------- ------- -------
Life Products
Interest-
sensitive
life $ 352 $ 272 29.4 $ 1,023 $ 767 33.4
Traditional 82 105 (21.9) 238 284 (16.2)
Other 119 166 (28.3) 375 470 (20.2)
------- ------- ------- -------
553 543 1.8 1,636 1,521 7.6
Annuities
Fixed
annuities
- deferred 2,011 1,471 36.7 4,613 3,751 23.0
Fixed
annuities
- immediate 166 174 (4.6) 554 617 (10.2)
Variable
annuities 330 621 (46.9) 1,220 1,555 (21.5)
------- ------- ------- -------
2,507 2,266 10.6 6,387 5,923 7.8
Institutional
Products
Indexed
funding
agreements - 125 (100.0) 1 390 (99.7)
Funding
agreements
backing
medium-
term notes 850 949 (10.4) 3,448 1,667 106.8
Other 3 3 - 3 7 (57.1)
------- ------- ------- -------
853 1,077 (20.8) 3,452 2,064 67.2
Bank Deposits 104 114 (8.8) 281 284 (1.1)
------- ------- ------- -------
Total $ 4,017 $ 4,000 0.4 $11,756 $ 9,792 20.1
======= ======= ======= =======
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
($ in millions, except par value data) 2004 (Est.) 2003
------------ ------------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $89,351 and $82,607) $ 94,544 $ 87,741
Equity securities, at fair value
(cost $4,644 and $4,028) 5,624 5,288
Mortgage loans 7,695 6,539
Short-term 4,691 1,815
Other 1,741 1,698
------------ ------------
Total investments 114,295 103,081
Cash 370 366
Premium installment receivables, net 4,824 4,386
Deferred policy acquisition costs 4,833 4,842
Reinsurance recoverables, net 3,844 3,121
Accrued investment income 1,069 1,068
Property and equipment, net 1,001 1,046
Goodwill 828 929
Other assets 3,395 1,878
Separate Accounts 13,313 13,425
------------ ------------
Total assets $ 147,772 $ 134,142
============ ============
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 19,843 $ 17,714
Reserve for life-contingent contract
benefits 11,561 11,020
Contractholder funds 53,478 47,071
Unearned premiums 9,983 9,187
Claim payments outstanding 710 698
Other liabilities and accrued expenses 11,748 8,283
Deferred income taxes 699 1,103
Short-term debt 99 3
Long-term debt 5,300 5,073
Separate Accounts 13,313 13,425
------------ ------------
Total liabilities 126,734 113,577
------------ ------------
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,
689 million and 704 million shares
outstanding 9 9
Additional capital paid-in 2,686 2,614
Retained income 23,093 21,641
Deferred compensation expense (166) (194)
Treasury stock, at cost (211 million and
196 million shares) (7,028) (6,261)
Accumulated other comprehensive income:
Unrealized net capital gains and losses
and net gains and losses on
derivative financial instruments 2,802 3,125
Unrealized foreign currency translation
adjustments 1 (10)
Minimum pension liability adjustment (359) (359)
------------ ------------
Total accumulated other
comprehensive income 2,444 2,756
------------ ------------
Total shareholders' equity 21,038 20,565
------------ ------------
Total liabilities and
shareholders' equity $ 147,772 $ 134,142
============ ============
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 Reserves The Discontinued Lines and Coverages segment includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → . Our exposure to 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. , environmental and other discontinued lines claims is reported in this segment. This segment is managed by a designated group of professionals with expertise in claims handling, policy coverage interpretation and exposure identification. As part of its responsibilities, this group is also regularly engaged in policy buybacks, settlements and 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. assumed and ceded commutations.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
Est. Est.
(in millions) 2004 2003 2004 2003
-------- ---------- -------- ---------
Premiums written $ 1 $ 2 $ 3 $ 10
======== ========== ======== =========
Premiums earned $ 1 $ 2 $ 4 $ 11
Claims and claims
expense (314) (470) (636) (566)
Other costs and expenses (2) (3) (7) (7)
-------- ---------- -------- ---------
Underwriting loss $ (315) $ (471) $ (639) $ (562)
======== ========== ======== =========
Underwriting loss of $315 million in the third quarter was primarily related to a $247 million re-estimate of asbestos reserves and a related $61 million increase of the allowance for future uncollectible Adj. 1. uncollectible - not capable of being collected; "a bad (or uncollectible) debt" bad invalid - having no cogency or legal force; "invalid reasoning"; "an invalid driver's license" reinsurance recoverables. The underwriting loss in the first nine months of 2004 was primarily due to re-estimates of asbestos reserves and the allowance for future uncollectible reinsurance recoverables. The underwriting loss in the third quarter of 2003 and first nine months of 2003 was primarily due to re-estimates of asbestos reserves. During the third quarter, we completed our annual comprehensive "ground up" review of reserves for the Discontinued Lines and Coverages segment. This review employed established industry and actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin best practices within the context of the legal, legislative and economic environment, and it was conducted in addition to quarterly assessments in which we review reserves to determine if any intervening in·ter·vene intr.v. in·ter·vened, in·ter·ven·ing, in·ter·venes 1. To come, appear, or lie between two things: You can't see the lake from there because the house intervenes. 2. significant events or developments require adjustments to reserves. Reserve re-estimates are recorded in the reporting period in which they are determined. Our net asbestos reserves by type of exposure and total reserve additions by quarter are shown in the following table.
Est. September 30, 2004
----------------------------------
($ in millions) Number of Est. Net % of
Active Asbestos Asbestos
Policyholders Reserves Reserves
-------------- --------- ---------
Direct policyholders
-Primary 54 $24 1%
-Excess 315 297 20
-------------- --------- ---------
Total direct policyholders 369 321 21%
==============
Assumed reinsurance 234 16
Incurred but not reported claims
("IBNR") 942 63
--------- ---------
Total net reserves $1,497 100%
========= =========
Reserve additions
-First Quarter $-
-Second Quarter 216
-Third Quarter 247
---------
Nine months ended September 30 $463
=========
Net survival ratio
-Annual 22.1
-3-Year 15.0
Net survival ratio excluding
commutations, policy buy-backs
and settlement agreements
-Annual 28.4
-3-Year 30.0
December 31, 2003
----------------------------------
($ in millions) Number of Net % of
Active Asbestos Asbestos
Policyholders Reserves Reserves
-------------- --------- ---------
Direct policyholders
-Primary 52 $28 3%
-Excess 286 201 19
-------------- --------- ---------
Total direct policyholders 338 229 22%
==============
Assumed reinsurance 191 17
Incurred but not reported claims
("IBNR") 659 61
--------- ---------
Total net reserves $1,079 100%
========= =========
Reserve additions
-First Quarter $34
-Second Quarter 38
-Third Quarter 442
---------
Nine months ended September 30 $514
=========
Net survival ratio
-Annual 14.2
-3-Year 10.9
Net survival ratio excluding
commutations, policy buy-backs
and settlement agreements
-Annual 24.2
-3-Year 22.2
During the first nine months of 2004, 50 direct primary and excess policyholders reported new claims, and claims of 19 policyholders were closed, so the number of direct policyholders with active claims increased by 31. Reserve additions for asbestos in the third quarter of 2004, totaling $247 million, and in the first nine months of 2004, totaling $463 million, were primarily for products-related coverage. They were essentially a result of a continuing level of increased claim activity being reported by excess insurance policyholders with existing active claims, and re-estimates of liabilities for increased assumed reinsurance 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. Increased claim activity over prior estimates has also resulted in an increased estimate for future claims reported. These trends are consistent with the trends of other carriers in the industry, which we believe are 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. IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant now represents 63% of total net asbestos reserves, 2 points higher than at December December: see month. 31, 2003. IBNR provides for estimated 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 asbestos case 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. Our survival ratios, as updated above, are at levels we consider indicative indicative: see mood. of a strong asbestos reserve position. To further limit our asbestos exposure, we have significant reinsurance, primarily to reduce our exposure to loss in our direct excess insurance business. Our reinsurance recoverables are estimated to be approximately 39% of our gross estimated loss reserves. To allow for potential uncollectible reinsurance related to the asbestos reserve increase, the allowance for uncollectible reinsurance was also increased by $61 million in the third quarter of 2004. In the second quarter of 2004, the allowance was increased by $76 million, as we refined our bad debt allowance to provide a greater allowance for companies in run-off and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. those who have reorganized re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. to limit or wall off their liabilities. As of September 30, 2004, the allowance for uncollectible reinsurance is $229 million, or approximately 19% of total Discontinued Lines recoverables from reinsurers. We believe that our reserves are appropriately established based on assessments of 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 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. 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 methods 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 cumulative effect of change in accounting principle, after-tax, excluding: --realized capital gains and losses, after-tax, except for periodic settlements and accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. on non-hedge derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. which are reported with realized capital gains and losses but included in operating income, --amortization of deferred policy acquisition costs ("DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ") and deferred sales inducements ("DSI (Dynamic Systems Initiative) An umbrella term for a suite of Microsoft products that help manage the Windows environment in large enterprises. DSI was introduced in 2003. "), to the extent that they resulted from the recognition of realized capital gains and losses, 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. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate our results of operations and as an integral component for incentive compensation. It reveals trends in our insurance and 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. businesses 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 process. Moreover, we reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you periodic settlements on non-hedge derivative instruments into operating income to report them in a manner consistent with the economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. investment or product attributes (e.g. net investment income and interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. 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 three months and nine months ended September 30, 2004 and 2003.
For the three months ended September 30,
Property- Allstate Per diluted
Liability Financial Consolidated share
---------- ---------- ------------ -------------
($ in millions,
except per share Est. Est. Est. Est.
data) 2004 2003 2004 2003 2004 2003 2004 2003
---- ----- ---- ----- ------ ----- ------ ------
Operating (loss) /
income $(75)$ 533 $151 $ 135 $ 49 $ 638 $ 0.08 $ 0.91
Realized capital
gains and losses 100 109 (51) 7 50 113
Income tax benefit
(expense) (31) (39) 18 (3) (13) (40)
---- ----- ---- ----- ------ -----
Realized capital
gains and losses,
after-tax 69 70 (33) 4 37 73 0.06 0.10
DAC and DSI
amortization
relating to
realized capital
gains and losses,
after-tax -- -- (15) (4) (15) (4) (0.02) (0.01)
Reclassification of
periodic
settlements and
accruals on non-
hedge derivative
instruments,
after-tax -- -- (10) (7) (10) (7) (0.02) (0.01)
(Loss) gain on
disposition of
operations,
after-tax -- 1 (5) (9) (5) (8) (0.01) (0.01)
---- ----- ---- ----- ------ ----- ------ ------
Income before
cumulative effect of
change in accounting
principle, after-tax (6) 604 88 119 56 692 0.09 0.98
Dividends on
preferred securities
of subsidiary trust,
after-tax -- -- -- -- -- -- -- --
Cumulative effect of
change in accounting
principle, after-tax -- (1) -- -- -- (1) -- (0.01)
---- ----- ---- ----- ------ ----- ------ ------
Net income (loss) $ (6)$ 603 $ 88 $ 119 $ 56 $ 691 $ 0.09 $ 0.97
==== ===== ==== ===== ====== ===== ====== ======
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) 2004 2003 2004 2003 2004 2003 2004 2003
------ ------ ----- ----- ------ ------ ------ ------
Operating
income $1,773 $1,647 $ 409 $ 348 $2,105 $1,910 $ 2.99 $ 2.71
Realized capital
gains and
losses 400 177 (135) (68) 261 105
Income tax
benefit
(expense) (128) (57) 45 26 (81) (29)
------ ------ ----- ----- ------ ------
Realized capital
gains and
losses,
after-tax 272 120 (90) (42) 180 76 0.26 0.10
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax -- -- (28) (20) (28) (20) (0.04) (0.03)
Reclassification
of periodic
settlements
and accruals
on non-hedge
derivative
instruments,
after-tax -- -- (21) (10) (21) (10) (0.03) (0.01)
(Loss) gain on
disposition of
operations,
after-tax -- 3 (22) (9) (22) (6) (0.03) (0.01)
------ ------ ----- ----- ------ ------ ------ ------
Income before
dividends on
preferred
securities and
cumulative
effect of
change in
accounting
principle,
after-tax 2,045 1,770 248 267 2,214 1,950 3.15 2.76
Dividends on
preferred
securities of
subsidiary
trust,
after-tax -- -- -- -- -- (5) -- --
Cumulative
effect of
change in
accounting
principle,
after-tax -- (1) (175) -- (175) (1) (0.25) (0.01)
------ ------ ----- ----- ------ ------ ------ ------
Net income
(loss) $2,045 $1,769 $ 73 $ 267 $2,039 $1,944 $ 2.90 $ 2.75
====== ====== ===== ===== ====== ====== ====== ======
In this press release, we provide guidance on operating income per diluted share for 2004 (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 possible on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses including periodic settlements and accruals on non-hedge derivative instruments, 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 possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. 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, after-tax, which we assume to be zero for the remainder of the year. Underwriting income (loss) is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs operating costs npl → gastos mpl operacionales and expenses and 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 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. It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance. Net income is the most directly comparable GAAP measure. Underwriting income (loss) should not be considered as a substitute for net income and does not reflect the overall profitability of our business. 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 that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of 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. at the beginning and at the end of the 12-month period, 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. We believe that this measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period: the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of change in accounting principle. Return on equity is the most directly comparable GAAP measure. The following table shows the two computations.
For the twelve months
($ in millions) ended September 30,
-------------------------
Est. 2004 2003
------------ -----------
Return on equity
Numerator:
Net income $ 2,800 $ 2,391
============ ===========
Denominator:
Beginning shareholders' equity 19,360 17,766
Ending shareholders' equity 21,038 19,360
Average shareholders' equity $ 20,199 $ 18,563
============ ===========
ROE 13.9% 12.9%
============ ===========
($ in millions) For the twelve months
ended September 30,
-------------------------
Est. 2004 2003
------------ -----------
Operating income return on equity
Numerator:
Operating income $ 2,857 $ 2,528
============ ===========
Denominator:
Beginning shareholders' equity 19,360 17,766
Unrealized net capital gains 3,037 2,446
------------ -----------
Adjusted beginning shareholders'
equity 16,323 15,320
Ending shareholders' equity 21,038 19,360
Unrealized net capital gains 2,802 3,037
------------ -----------
Adjusted ending shareholders'
equity 18,236 16,323
Average shareholders' equity $ 17,280 $ 15,822
============ ===========
Operating income ROE 16.5% 16.0%
============ ===========
Book value per diluted share excluding the net impact of unrealized net capital gains on fixed income securities is a ratio that uses a non-GAAP measure. It is calculated by dividing (a) shareholders' equity after excluding the net impact of unrealized net capital gains on fixed income securities and related DAC and life insurance reserves by (b) total shares outstanding plus dilutive potential shares outstanding. Book value per diluted share is the most directly comparable GAAP ratio. We use the trend in Book value per diluted share excluding unrealized net capital gains on fixed income securities in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with Book value per diluted share to identify and analyze the change in net worth attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily market conditions, the magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the and timing of which are not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that Book value per diluted share excluding unrealized net capital gains on fixed income securities is a measure commonly used by insurance investors as a valuation technique. Book value per diluted share excluding unrealized net capital gains on fixed income securities should not be considered as a substitute for Book value per diluted share and does not reflect the recorded net worth of our business. The following table shows the two computations:
As of As of
(in millions, except per share data) September 30, December 31,
----------------- -------------
Book value per diluted share Est.
2004 2003 2003
------- ------- -------------
Numerator:
Shareholders' equity $21,038 $19,360 $ 20,565
======= ======= =============
Denominator:
Shares outstanding and dilutive
potential shares outstanding 693.7 705.3 708.2
======= ======= =============
Book value per diluted share $ 30.33 $ 27.45 $ 29.04
======= ======= =============
Book value per diluted share,
excluding the net impact of
unrealized net capital gains on
fixed income securities
Numerator:
Shareholders' equity $21,038 $19,360 $ 20,565
Unrealized net capital gains
on fixed income securities 2,164 2,478 2,307
------- ------- -------------
Adjusted shareholders' equity $18,874 $16,882 $ 18,258
======= ======= =============
Denominator:
Shares outstanding and dilutive
potential shares outstanding 693.7 705.3 708.2
======= ======= =============
Book value per diluted share,
excluding unrealized net
capital gains on fixed income
securities $ 27.21 $ 23.94 $ 25.78
======= ======= =============
Gross margin represents life and 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. premiums and contract charges and net investment income, less contract benefits and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of Allstate Financial's life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. , variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of four components that are utilized to further analyze the business; they include the investment margin, benefit margin, and maintenance and surrender charges Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. . We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled to Allstate Financial's GAAP net income in the following tables.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
($ in millions) Est. Est.
2004 2003 2004 2003
--------- -------- --------- ---------
Life and annuity premiums and
contract charges $ 508 $ 538 $ 1,508 $ 1,710
Net investment income(1) 881 823 2,553 2,424
Contract benefits (401) (424) (1,174) (1,380)
Interest credited to
contractholder funds(2) (501) (467) (1,430) (1,380)
--------- -------- --------- ---------
Gross margin 487 470 1,457 1,374
Amortization of DAC and DSI (120) (104) (375) (368)
Operating costs and expenses (143) (169) (465) (498)
Restructuring and related
charges (1) (1) (5) (1)
Income tax expense (72) (61) (203) (159)
Realized capital gains and
losses, after-tax (33) 4 (90) (42)
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (15) (4) (28) (20)
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (10) (7) (21) (10)
Loss on disposition of
operations, after-tax (5) (9) (22) (9)
Cumulative effect of change in
accounting principle, after-
tax -- -- (175) --
--------- -------- --------- ---------
Allstate Financial net income $ 88 $ 119 $ 73 $ 267
========= ======== ========= =========
(1) Net investment income includes periodic settlements and accruals
on non-hedge derivative instruments, pretax, totaling $15 million
for the third quarter of 2004, $10 million for the third quarter
of 2003, $33 million for the nine months ended September 30, 2004
and $15 million for the nine months ended September 30, 2003.
(2) Beginning in 2004, amortization of DSI is excluded from interest
credited to contractholder funds for purposes of calculating gross
margin. Amortization of DSI totaled $4 million in the third
quarter of 2004 and $25 million for the nine months ended
September 30, 2004. Prior periods have not been restated.
Investment margin is a component of gross margin. Investment margin represents the excess of net investment income over interest credited to contractholder funds and the implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. interest on life contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the immediate annuities immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. included in Allstate Financial's reserve for life-contingent contract benefits. We use investment margin to evaluate Allstate Financial's profitability related to the difference between investment returns on assets supporting certain products and the amounts credited to customers ("spread") during a fiscal period. Benefit margin is a component of gross margin. Benefit margin represents life and life contingent immediate annuity premiums and cost of insurance contract charges less contract benefits excluding the implied interest on life-contingent immediate annuities, which is included in the calculation of investment margin. We use benefit margin to evaluate Allstate Financial's underwriting performance, as it reflects the profitability of our products with respect to mortality or morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. risk during a fiscal period. The components of gross margin are reconciled to the corresponding financial statement line items in the following tables.
Three Months Ended September 30,
-----------------------------------------------------------
Investment Benefit Maintenance Surrender Gross
Margin Margin Charges Charges Margin
------------ ----------- ----------- ---------- -----------
(in Est. Est. Est. Est. Est.
millions) 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
----- ------ ----- ----- ---- ------ ---- ----- ----- -----
Life and
annuity
premiums $ -- $ -- $ 247 $ 309 $ -- $ -- $ -- $ -- $ 247 $ 309
Contract
charges -- -- 143 127 101 84 17 18 261 229
Net
investment
income(1) 881 823 -- -- -- -- -- -- 881 823
Contract
benefits (135) (126) (266) (298) -- -- -- -- (401) (424)
Interest
credited
to
contract-
holder
funds (2) (501) (467) -- -- -- -- -- -- (501) (467)
----- ------ ----- ----- ---- ------ ---- ----- ----- -----
$ 245 $ 230 $ 124 $ 138 $101 $ 84 $ 17 $ 18 $ 487 $ 470
===== ====== ===== ===== ==== ====== ==== ===== ===== =====
(1) Net investment income includes periodic settlements and accruals
on non-hedge derivative instruments, pretax, totaling $15 million
for the third quarter of 2004 and $10 million for the third
quarter of 2003.
(2) Beginning in 2004, amortization of DSI is excluded from interest
credited to contractholder funds for purposes of calculating gross
margin. Amortization of DSI totaled $4 million in the third
quarter of 2004. Prior periods have not been restated.
Nine Months Ended September 30,
---------------------------------------------------------------
Investment Benefit Maintenance Surrender Gross
Margin Margin Charges Charges Margin
------------- ----------- ---------- --------- --------------
(in Est. Est. Est. Est. Est.
millions)2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
------ ------ ---- ---- ---- ---- ---- ---- ------ -------
Life and
annuity
premiums$ -- $ -- $745 $1,018 $ -- $ -- $ -- $ -- $745 $1,018
Contract
charges -- -- 419 388 289 249 55 55 763 692
Net
investment
income
(1) 2,553 2,424 -- -- -- -- -- -- 2,553 2,424
Contract
benefits(396) (380)(778)(1,000) -- -- -- -- (1,174)(1,380)
Interest
credited
to
contract-
holder
funds
(2) (1,430)(1,380) -- -- -- -- -- -- (1,430)(1,380)
------ ------ ---- ---- ---- ---- ---- ---- ------ -------
$727 $664 $386 $406 $289 $249 $55 $55 $1,457 $1,374
====== ====== ==== ==== ==== ==== ==== ==== ====== =======
(1) Net investment income includes periodic settlements and accruals
on non-hedge derivative instruments, pretax, totaling $33 million
for the nine months ended September 30, 2004 and $15 million for
the nine months ended September 30, 2003.
(2) Beginning in 2004, amortization of DSI is excluded from interest
credited to contractholder funds for purposes of calculating gross
margin. Amortization of DSI totaled $25 million for the nine
months ended September 30, 2004. Prior periods have not been
restated.
Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from that used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
($ in millions) Est. Est.
2004 2003 2004 2003
--------- -------- --------- --------
Premiums written $ 6,958 $ 6,629 $ 20,032 $ 18,988
Change in Property-Liability
unearned premiums (450) (421) (696) (669)
Other 43 22 46 56
--------- -------- --------- --------
Premiums earned $ 6,551 $ 6,230 $ 19,382 $ 18,375
========= ======== ========= ========
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.
2004 2003 2004 2003
--------- -------- --------- --------
Life and annuity premiums(1) $ 247 $ 309 $ 745 $ 1,018
Deposits to contractholder
funds, separate accounts and
other 3,770 3,691 11,011 8,774
--------- -------- --------- --------
Total premiums and deposits $ 4,017 $ 4,000 $ 11,756 $ 9,792
========= ======== ========= ========
(1) Life and annuity contract charges in the amount of est. $261
million and $229 million for the three months ended September 30,
2004 and 2003, respectively, and est. $763 million and $692
million for the nine months ended September 30, 2004 and 2003,
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 companies' mutual funds, and excludes renewal premiums. New sales of financial products by Allstate exclusive agencies for the three months ended September 30, 2004 and 2003 totaled est. $520 million and $435 million, respectively. New sales of financial products by Allstate exclusive agencies for the nine months ended September 30, 2004 and 2003 totaled est. $1.53 billion and $1.22 billion, respectively. This press release contains an estimate of The Allstate Corporation's losses resulting from Hurricanes Charley, Frances, Ivan and Jeanne and an estimate of our annual operating income for 2004. These estimates are 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. based on management's current estimates, assumptions and projections and they 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. With respect to the hurricane loss estimate, actual results may differ materially for a variety of reasons, including the following:
-- Most significantly, the reporting and evaluation of these
hurricane losses has been complicated by the following facts:
-- These storms occurred over a short period of time;
-- Some communities were hit by more than one hurricane; and
-- Property damage resulted from both flooding, which
Allstate policies do not cover, and high winds, which
Allstate policies typically do cover.
-- Because the extent of damage is particularly difficult to
assess in the initial stages of repairing residential
property, our loss estimate may not accurately represent the
extent of loss.
-- Because of increased demand for services and supplies in the
areas affected by the hurricanes, our loss estimate may not
accurately reflect the costs of repair.
-- The loss estimate could be affected by the amount of FHCF
reimbursements actually received.
With respect to the 2004 annual operating income estimate, actual
results may differ materially for a variety of reasons, including the
following:
-- Weighted average rate changes and the annual impact of rate
changes on premiums written in our Property-Liability business
may be lower than projected due to a decrease in PIF.
-- Loss costs in our Property-Liability business, including
losses due to catastrophes such as hurricanes and earthquakes,
may exceed management's projections.
-- Claim frequency could be higher than expected.
-- Lower interest rates and equity market returns could increase
DAC amortization and 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 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. . 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 helps individuals in more than 16 million households protect what they have today and better prepare for tomorrow through more than 12,900 exclusive agencies 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 agencies, 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 agencies. Allstate Financial Group provides life insurance, annuity, retirement, banking and investment products through distribution channels that include Allstate agencies, independent agencies, financial institutions and broker-dealers. We post an investor supplement on our web site. You can access it by going to allstate.com and clicking on "Investor Relations Investor relations The process by which the corporation communicates with its investors. ." 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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