Allstate Reports 2005 Fourth Quarter Net Income EPS of $1.59; Fourth Quarter Operating Income EPS of $1.49; Provides Guidance on 2006.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 fourth quarter of 2005:
Consolidated Highlights(1)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------- ------------------------------
(in millions,
except per Change Change
share ---------- -----------
amounts Est. Est.
and ratios) 2005 2004 $ Amt % 2005 2004 $ Amt %
---- ---- ----- --- ---- ---- ----- ---
Consolidated
revenues $8,945 $8,879 $66 0.7 $35,383 $33,936 $1,447 4.3
Net income 1,041 1,142 (101) (8.8) 1,765 3,181 (1,416) (44.5)
Net income
per diluted
share 1.59 1.64 (0.05) (3.0) 2.64 4.54 (1.90) (41.9)
Operating
income (1) 975 986 (11) (1.1) 1,582 3,091 (1,509) (48.8)
Operating
income per
diluted
share (1) 1.49 1.42 0.07 4.9 2.37 4.41 (2.04) (46.3)
Property-
Liability
combined
ratio 89.0 88.5 -- 0.5 102.4 93.0 -- 9.4
pts. pts.
Catastrophe
losses 657 412 245 59.5 5,674 2,468 3,206 129.9
Effect of
catastrophes
on combined
ratio 9.6 6.2 -- 3.4 21.0 9.5 -- 11.5
pts. pts.
Book value
per diluted
share 31.01 31.72 (0.71) (2.24)
Return on
equity 8.4 15.0 -- (6.6)
pts.
Operating
income
return on
equity (1) 8.6 17.0 -- (8.4)
pts.
--Property-Liability premiums written(1) grew 2.4% over the fourth quarter of 2004, driven by Allstate brand standard auto and homeowners increases of 3.5% and 6.3%, respectively. Excluding the cost of catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). 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. programs premiums written grew 2.8% in the fourth quarter compared to the fourth quarter of last year. 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. ") increased for the Allstate brand standard auto and homeowners 2.9% and 3.4%, respectively, from December December: see month. 31, 2004 levels. --Property-Liability underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. (1) decreased $10 million to $752 million compared to $762 million in the fourth quarter of 2004, driven 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, and lower operating costs operating costs npl → gastos mpl operacionales , offset by higher catastrophe losses of $245 million. --Catastrophe losses, net of reinsurance and other recoveries, totaled $427 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. ($657 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta ) in the fourth quarter of 2005, compared to $268 million after-tax ($412 million pre-tax) in the fourth quarter of 2004. The effect of catastrophes on net 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 was $0.65 compared to $0.39 per diluted share in the fourth quarter of 2004. Catastrophe losses include Hurricane Wilma Hurricane Wilma was the most intense hurricane ever recorded in the Atlantic basin. Exceeding the 21 storms of the 1933 season, Wilma was the twenty-second storm (including the subtropical storm discovered in reanalysis), thirteenth hurricane, sixth major hurricane, and fourth totaling $330 million after-tax ($508 pre-tax), net of recoveries, an accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. of $50 million after-tax ($77 million pre-tax) for anticipated assessments from Citizens Property Insurance Corporation in the state of 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 , and net favorable reestimates of losses related to Hurricanes Katrina KATRINA Keeping All the Resources in New Orleans Alive KATRINA Krewe Aiding Trash Removal In the New Orleans Area and Rita totaling $29 million after-tax ($45 million pre-tax), net of recoveries. --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. for the quarter was $139 million, compared to $142 million in the fourth quarter of 2004. Premiums and deposits(1) were $4.01 billion, a decrease of 3.7% over the fourth quarter of 2004, due to lower fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. deposits reflecting reduced consumer demand in the current interest rate environment and pricing actions taken to achieve higher returns. --Full year 2005 operating income per diluted share was $2.37 compared to $4.41 in 2004. The $2.04 per diluted share decrease was more than accounted for by substantial increases in catastrophe losses, which were $3.12 per diluted share higher in 2005 compared to 2004. --Allstate's annual operating income per diluted share guidance for 2006 (assuming the level of average expected catastrophe losses used in pricing for the year) is in the range of $5.60 to $6.00. For further details about some of the important assumptions on which this guidance is based see the "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: Highlights" section of this press release.
(1) Measures used in this release that are not based on accounting
principles generally accepted in the United States ("non-GAAP")
are defined and reconciled to the most directly comparable GAAP
measure and operating measures are defined in the "Definitions of
Non-GAAP and Operating Measures" section of this document.
"Allstate finished the year with a solid performance in the quarter. Operating income was $975 million despite the sizeable influence on our results from catastrophe losses," said 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. • • , chairman and chief executive officer, The Allstate Corporation. "Hurricane Wilma, which struck south Florida as a category 3 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. in late October October: see month. 2005, cost Allstate more than $500 million and will be one of the ten most costly catastrophes in U.S. history. Catastrophe losses in the quarter exceeded the average expected catastrophe losses we use in pricing by $0.30 per diluted share. Our book value per share increased by a strong 4.6 percent over the third quarter of 2005. "Overall, our property-liability written premium grew 2.4 percent in the fourth quarter compared to the fourth quarter of 2004. Allstate brand standard auto and homeowners written premium grew 3.5 percent and 6.3 percent, respectively in the quarter compared to the prior year's quarter. Excluding the effects of catastrophe losses, the combined ratio of 79.4 was an exceptional result. "In particular, our auto insurance business generated very good profitability helped by the favorable trends we continue to see in the frequency and severity of automobile accidents Ask a Lawyer Question Country: United States of America State: Utah Say you're at a red light in a left hand turning lane and the light turns green so you let up slightly on the break antedating moving forward and the vehicle . Our superior claim handling practices over the long term are an important differentiator Dif`fer`en´ti`a`tor n. 1. One who, or that which, differentiates. Noun 1. differentiator - a person who (or that which) differentiates discriminator between Allstate and the rest of the industry and the principal reason why our severity experience is better than our 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. . "For the year, we were able to earn a profit after being hit by three of the ten most costly natural disasters in U.S. history. Our ability to be profitable in such a difficult year is a testament to the effectiveness of our strategy, our focus on superior execution and the diversity of our product offerings. In the quarter, we continued to make great progress in rolling out the company's newest generation of our sophisticated 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. and pricing process for automobile automobile, self-propelled vehicle used for travel on land. The term is commonly applied to a four-wheeled vehicle designed to carry two to six passengers and a limited amount of cargo, as contrasted with a truck, which is designed primarily for the transportation of and homeowners insurance. Allstate(R) Your Choice Auto insurance is continuing its introduction into more states. "I am especially proud of how our employees and agency owners responded to our customers during the 2005 hurricane season Hurricane season refers to a period in a year when hurricanes usually form. For more information see: Tropical cyclone#Times of formation. For a lists of past seasons, see:
Dispatched was formed just before New Year's Eve of 1991 by Daniel Lundberg and Krister Andersson. thousands of employees to help those who suffered losses from these terrible storms. Agency owners, many of whom were personally affected, also did tremendous work on behalf of their customers during this difficult time. To date, we've we've Contraction of we have. we've have made significant progress in helping our customers impacted by Hurricanes Katrina, Rita, and Wilma. We have closed approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 75 percent of the property claims and 97 percent of the auto claims filed from these three huge storms. I am pleased to say that we are once again able to demonstrate how well we deliver on the simple notion expressed by our 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 customers are most certainly in "Good Hands(R)." "We have made great progress on our property catastrophe management strategy by completing the placement of a new catastrophe aggregate excess of loss reinsurance agreement for our personal lines property and auto insurance business. This agreement covers the entire country, excluding Florida, and has a $2 billion limit on losses in excess of $2 billion, with a retention of 5 percent. This will significantly reduce our exposure to 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. as well as the probability probability, in mathematics, assignment of a number as a measure of the "chance" that a given event will occur. There are certain important restrictions on such a probability measure. of experiencing a loss in excess of $2 billion. "We are also intentionally in·ten·tion·al adj. 1. Done deliberately; intended: an intentional slight. See Synonyms at voluntary. 2. Having to do with intention. slowing the writing of new property insurance business in certain markets to help limit our exposure to catastrophe losses caused by hurricanes and earthquakes. Written premium for our homeowners line of business has slowed and may turn negative as we accelerate our implementation of the company's property catastrophe management strategy. "While we manage down our exposure to property insurance in areas that are highly susceptible susceptible /sus·cep·ti·ble/ (su-sep´ti-b'l) 1. readily affected or acted upon. 2. lacking immunity or resistance and thus at risk of infection. sus·cep·ti·ble adj. to significant catastrophe loss, we are continuing our call for public policy change and a more rational approach to how Americans prepare for and protect themselves against the devastating dev·as·tate tr.v. dev·as·tat·ed, dev·as·tat·ing, dev·as·tates 1. To lay waste; destroy. 2. To overwhelm; confound; stun: was devastated by the rude remark. and highly unpredictable effects of catastrophes. "Allstate Financial generated operating income in the quarter of $139 million compared to $142 million in the fourth quarter of 2004. For the full year, operating income increased 5 percent to $581 million from $551 million in 2004. Total premiums and deposits were down slightly in the fourth quarter of 2005 to $4.01 billion from $4.16 billion in the fourth quarter of 2004. The reduced retail sales are a reflection of lower industry-wide fixed annuity sales and our continued discipline in pricing. Overall, we remain focused on our strategy of improving returns at Allstate Financial. We are making progress and will continue our efforts to improve returns and drive profitable growth." Allstate's annual operating income per diluted share guidance for 2006 is in the range of $5.60 to $6.00. This guidance is based on several important assumptions, which you will find in the "Consolidated Highlights" section of this press release.
Consolidated Highlights
Discussion of
Three Months Twelve Months Results for the
Ended Ended Three Months Ended
December 31, December 31, December 31, 2005
----------------- --------------- -------------------
($ in millions,
except per share
and return Est. Est.
amounts) 2005 2004 2005 2004
---- ---- ---- ----
Consolidated $8,945 $8,879 $35,383 $33,936 Growth of
revenues Property-
Liability premiums
earned and higher
net investment
income, partially
offset by lower
net realized
capital gains and
life and annuity
premiums and
contract charges.
Operating income 975 986 1,582 3,091
Realized capital 72 212 360 392 See the Components
gains and losses, of Realized
after-tax table. Capital Gains and
Losses (pretax)
table.
DAC and DSI 3 (61) (103) (89)
amortization
relating to
realized capital
gains and
losses,
after-tax
Cumulative effect -- -- -- (175)
of change in
accounting
principle,
after-tax
Net income 1,041 1,142 1,765 3,181
Income per
diluted share:
Net 1.59 1.64 2.64 4.54
Operating 1.49 1.42 2.37 4.41
Net shares 646.2 682.7 646.2 682.7 During the fourth
outstanding quarter of 2005,
Allstate purchased
Weighted average 653.0 690.7 667.3 700.3 4.3 million shares
shares of its stock for
outstanding $236 million,
(diluted) leaving $1.55
billion remaining
in the current $4
billion
authorization.
Return on equity: See the return on
Net income 8.4 15.0 equity calculation
Operating 8.6 17.0 in the Definitions
income of Non-GAAP and
Operating Measures
section of this
document.
Book value per 31.01 31.72 At December 31,
diluted share 2005 and 2004, net
unrealized gains
on fixed income
securities
totaling $1,255
and $2,134,
respectively,
represented $1.93
and $3.10,
respectively, of
book value per
diluted share.
--Book value per diluted share decreased 2.2% compared to December 31, 2004, but increased 4.6% when compared to September September: see month. 30, 2005. Book value per diluted share excluding the net impact of unrealized net capital gains on fixed income securities(1) was $29.08 at December 31, 2005, reflecting an increase of 1.6% compared to December 31, 2004 and 5.9% when compared to September 30, 2005. --Guidance on operating income per diluted share for 2006 is based on a variety of assumptions, the most important of which are listed below:
-- premiums written comparable to 2005 levels due to the
estimated effects of catastrophe management actions on
homeowners and other property premiums, including an
increase in ceded premium for catastrophe reinsurance
totaling approximately $300 million (we intend to seek
regulatory approvals to include these costs in premium
rates in subsequent years);
-- average expected catastrophe losses used in pricing of
approximately 6% of earned premium;
-- auto and homeowners frequency, excluding catastrophes,
consistent with the level in 2005;
-- no prior year reserve reestimates;
-- a slight decline in Property-Liability net investment
income due to higher cash outflows; and
-- the completion of the current $4 billion share repurchase
program.
Property-Liability Highlights
Discussion of
Three Months Twelve Months Results for the
Ended Ended Three Months Ended
December 31, December 31, December 31, 2005
---------------- ---------------- ------------------
($ in millions, Est. Est.
except ratios) 2005 2004 2005 2004
---- ---- ---- ----
Property-Liability $6,658 $6,499 $27,391 $26,531 See the Property-
premiums written Liability
Premiums Written
by Market Segment
table.
Property-Liability 7,427 7,262 29,346 28,354 Premiums earned
revenues increased $231 or
3.5%.
Underwriting 752 762 (636) 1,830 Higher
income (loss) catastrophe
losses partially
offset by higher
premiums earned,
and continued
favorable auto
and homeowners
loss frequencies,
excluding
catastrophes.
See the Allstate
Protection Market
Segment Analysis
table.
Net investment 458 463 1,791 1,773 Lower dividend
income income.
Operating income 856 875 1,092 2,648
Realized capital 91 125 339 397 See the
gains and losses, Components of
after-tax Realized Capital
Gains and Losses
(pretax) table.
Net income 947 1,000 1,431 3,045 Lower operating
income and lower
net realized
capital gains.
Catastrophe losses 657 412 5,674 2,468
Ratios:
Allstate
Protection
combined ratio 88.9 88.5 101.7 90.5
Effect of
Discontinued
Lines and
Coverages on
combined ratio 0.1 -- 0.7 2.5
Property-Liability
combined ratio 89.0 88.5 102.4 93.0
Effect of
catastrophe
losses on
combined ratio 9.6 6.2 21.0 9.5
Property-Liability
combined ratio
excluding the
effect of
catastrophes 79.4 82.3 81.4 83.5
--Allstate brand standard auto and homeowners PIF increased 2.9% and 3.4%, respectively, from December 31, 2004 levels, compared to increases of 3.6% and 4.4%, respectively, in the third quarter of 2005 over the third quarter of 2004. PIF results exclude Allstate 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 . --New business premiums written for the Allstate brand standard auto increased 2.9% while new business applications declined 7.3%. The difference in those trends was primarily due to growth in average premiums. New business premiums include customers who are new to a particular Allstate subsidiary, even if such customers were previously insured The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy. insured n. by another Allstate subsidiary. New business premiums written for Allstate brand homeowners decreased by 7.8% due to our proactive catastrophe risk management actions. --The renewal ratios for Allstate brand standard auto and homeowners were 90.0 and 87.5, respectively, compared to 90.6 and 88.7 in the prior year fourth quarter. The standard auto declines are due to competitive pressures in certain states and the homeowner declines are primarily due to our proactive catastrophe risk management actions. Renewal ratios exclude Allstate Canada. --Prior year favorable reserve re-estimates for the quarter totaled $146 million, compared to $189 million in the prior year fourth quarter, resulting from lower actual claim severity trends and late reported loss development than anticipated in previous estimates in Allstate Protection.
Allstate Financial Highlights
Discussion of
Results for the
Three Months
Three Months Twelve Months Ended
Ended Ended December 31,
December 31, December 31, 2005
---------------- ---------------- --------------
($ in millions) Est. Est.
2005 2004 2005 2004
---- ---- ---- ----
Premiums and deposits $4,007 $4,163 $14,395 $15,919 See the
Allstate
Financial
Premiums and
Deposits
table.
Allstate Financial 1,483 1,590 5,898 5,483 Net realized
revenues capital
losses and
lower life
and annuity
premiums and
contract
charges
partially
offset by
higher
investment
income.
Operating income 139 142 581 551 A one time
$15 accrual
for
additional
benefits
related to a
regulatory
matter
reduced gross
margin(1),
partially
offset by
higher
investment
income and
lower
operating
costs and
expenses.
Realized capital gains (21) 87 12 (3) See the
and losses, after-tax Components of
Realized
Capital Gains
and Losses
(pretax)
table.
DAC and DSI 3 (61) (103) (89)
amortization
relating to
realized capital
gains and losses,
after-tax
Cumulative effect of -- -- -- (175)
change in accounting
principle, after-tax
Net income 112 173 416 246 Realized net
capital
losses,
after-tax,
partially
offset by
lower DAC and
DSI
amortization
related to
realized
capital gains
and losses.
--Investments including Separate Account assets as of December 31, 2005 increased 4.1% over December 31, 2004 primarily due to sales of fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. and funding agreements Funding Agreement Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a predetermined period of time. Notes: Funding agreements are marketed to mutual fund companies and municipal reinvestments. . --As of December 31, 2005, 71% of our interest-sensitive life and fixed annuity contracts, excluding market value adjusted annuities, have a guaranteed crediting rate of 3% or higher. Of these contracts, 79% have crediting rates that are at the minimum as of December 31, 2005. For all interest-sensitive life and fixed annuity contracts, excluding market value adjusted annuities, the approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. difference between the weighted average crediting rate and the average guaranteed crediting rate is 46 basis points as of December 31, 2005 compared to 48 basis points as of September 30, 2005. --New sales of financial products by Allstate exclusive agencies(1) increased 2.4% over the fourth quarter of 2004 to $755 million. --Total fixed annuity deposits were $1.50 billion, a decrease of 37.9% from the fourth quarter of 2004 and 22.1% above the third quarter of 2005. Consumer demand for fixed annuities has declined due to increased competition from certificates of deposit and other short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. instruments in the current interest rate environment. Additionally, pricing actions taken to achieve higher returns contributed to lower fixed annuity deposits. Traditional deferred fixed annuity deposits in the fourth quarter of 2005 were $1.04 billion, a decrease of 46.8% from the prior year. This decrease was partially offset by deposits on equity indexed annuities of $213 million, a 17.0% increase over the fourth quarter of 2004. --Variable 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. deposits were $431 million in the quarter, an increase of 4.9% over the fourth quarter of 2004 and 4.6% below the third quarter of 2005. --Allstate Financial had total institutional products deposits of $1.35 billion during the fourth quarter, more than double the fourth quarter of 2004. Our institutional business remains opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. . --Allstate Financial paid intercompany dividends totaling $250 million in the fourth quarter of 2005. We will continue to seek ways to more efficiently utilize the capital of Allstate Financial.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
($ in millions,
except per Est. Percent Est. Percent
share data) 2005 2004 Change 2005 2004 Change
-------- -------- -------- -------- -------- --------
Revenues
Property-
liability
insurance
premiums $6,838 $6,607 3.5 $27,039 $25,989 4.0
Life and
annuity
premiums
and contract
charges 524 564 (7.1) 2,049 2,072 (1.1)
Net investment
income 1,482 1,378 7.5 5,746 5,284 8.7
Realized
capital gains
and losses 101 330 (69.4) 549 591 (7.1)
-------- -------- -------- --------
Total revenues 8,945 8,879 0.7 35,383 33,936 4.3
-------- -------- -------- --------
Costs and
expenses
Property-
liability
insurance
claims and
claims expense 4,469 4,175 7.0 21,175 17,843 18.7
Life and
annuity
contract
benefits 406 444 (8.6) 1,615 1,618 (0.2)
Interest
credited to
contractholder
funds 619 546 13.4 2,403 2,001 20.1
Amortization of
deferred
policy
acquisition
costs 1,164 1,214 (4.1) 4,721 4,465 5.7
Operating costs
and expenses 731 799 (8.5) 2,997 3,040 (1.4)
Restructuring
and related
charges 5 25 (80.0) 41 51 (19.6)
Interest
expense 79 85 (7.1) 330 308 7.1
-------- -------- -------- --------
Total costs
and expenses 7,473 7,288 2.5 33,282 29,326 13.5
-------- -------- -------- --------
Loss on
disposition of
operations (1) (7) 85.7 (13) (24) 45.8
-------- -------- -------- --------
Income from
operations
before income
tax expense and
cumulative effect
of change in
accounting
principle,
after-tax 1,471 1,584 (7.1) 2,088 4,586 (54.5)
Income tax
expense 430 442 (2.7) 323 1,230 (73.7)
-------- -------- -------- --------
Income before
cumulative
effect of
change in
accounting
principle,
after-tax 1,041 1,142 (8.8) 1,765 3,356 (47.4)
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (175) 100.0
-------- -------- -------- --------
Net income $1,041 $1,142 (8.8) $1,765 $3,181 (44.5)
======== ======== ======== ========
Net income per
share -
Basic (1) $1.61 $1.65 $2.67 $4.57
======== ======== ======== ========
Weighted average
shares - Basic 648.1 685.8 661.7 695.6
======== ======== ======== ========
Net income per
share -
Diluted (1) $1.59 $1.64 $2.64 $4.54
======== ======== ======== ========
Weighted average
shares -
Diluted 653.0 690.7 667.3 700.3
======== ======== ======== ========
Cash dividends
declared per
share $0.32 $0.28 $1.28 $1.12
======== ======== ======== ========
(1) As prescribed by accounting principles generally accepted in the
United States, the quarter income per share amounts have been
computed discretely. Because of our third quarter 2005 net loss,
the antidilutive effects of potential common shares outstanding
totaling 5.6 million were excluded from weighted average shares-
diluted in that quarter. Accordingly, the sum of our income per
share amounts for the four quarters of 2005 does not equal the
year-to-date per share amount.
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
($ in millions,
except per Est. Percent Est. Percent
share data) 2005 2004 Change 2005 2004 Change
-------- -------- -------- -------- -------- --------
Contribution to
income
Operating
income before
the impact of
restructuring
and related
charges $979 $1,002 (2.3) $1,609 $3,124 (48.5)
Restructuring
and related
charges,
after-tax 4 16 (75.0) 27 33 (18.2)
-------- -------- -------- --------
Operating
income 975 986 (1.1) 1,582 3,091 (48.8)
Realized
capital gains
and losses,
after-tax 72 212 (66.0) 360 392 (8.2)
DAC and DSI
amortization
relating to
realized
capital gains
and losses,
after-tax 3 (61) 104.9 (103) (89) (15.7)
Non-recurring
increase in
liability for
future
benefits,
after-tax (1) - - - (22) - -
Reclassification
of periodic
settlements
and accruals
on non-hedge
derivative
instruments,
after-tax (8) (11) 27.3 (40) (32) (25.0)
(Loss) gain on
disposition of
operations,
after-tax (1) 16 (106.3) (12) (6) (100.0)
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (175) 100.0
-------- -------- -------- --------
Net income $1,041 $1,142 (8.8) $1,765 $3,181 (44.5)
======== ======== ======== ========
Income per share
- Diluted (2)
Operating
income before
the impact of
restructuring
and related
charges $1.50 $1.45 3.4 $2.41 $4.46 (46.0)
Restructuring
and related
charges,
after-tax 0.01 0.03 (66.7) 0.04 0.05 (20.0)
-------- -------- -------- --------
Operating
income 1.49 1.42 4.9 2.37 4.41 (46.3)
Realized
capital gains
and losses,
after-tax 0.11 0.30 (63.3) 0.54 0.56 (3.6)
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax - (0.09) 100.0 (0.16) (0.13) (23.1)
Non-recurring
increase in
liability for
future
benefits,
after-tax (1) - - - (0.03) - -
Reclassification
of periodic
settlements
and accruals
on non-hedge
derivative
instruments,
after-tax (0.01) (0.01) - (0.06) (0.04) (50.0)
(Loss) gain on
disposition of
operations,
after-tax - 0.02 (100.0) (0.02) (0.01) (100.0)
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (0.25) 100.0
-------- -------- -------- --------
Net income $1.59 $1.64 (3.0) $2.64 $4.54 (41.9)
======== ======== ======== ========
Book value per
share -
Diluted $31.01 $31.72 (2.2) $31.01 $31.72 (2.2)
======== ======== ======== ========
(1) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
(2) As prescribed by accounting principles generally accepted in the
United States, the quarter income per share amounts have been
computed discretely. Because of our third quarter 2005 net loss,
the antidilutive effects of potential common shares outstanding
totaling 5.6 million were excluded from weighted average
shares-diluted in that quarter. Accordingly, the sum of our income
per share amounts for the four quarters of 2005 does not equal the
year-to-date per share amount.
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended December 31, 2005 (Est.)
---------------------------------------------
($ in millions) Property- Allstate Corporate
Liability (1) Financial and Other Total
------------- ---------- ---------- ---------
Valuation of derivative
instruments $14 $(4) $- $10
Settlements of
derivative instruments (4) 6 - 2
Dispositions (2) 131 (34) 4 101
Investment write-downs (10) (1) (1) (12)
------------- ---------- ---------- ---------
Total $131 $(33) $3 $101
============= ========== ========== =========
Twelve Months Ended December 31, 2005 (Est.)
---------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------- ---------- ---------- ---------
Valuation of derivative
instruments $10 $(105) $- $(95)
Settlements of
derivative instruments 20 60 - 80
Dispositions 516 88 15 619
Investment write-downs (30) (24) (1) (55)
------------- ---------- ---------- ---------
Total $516 $19 $14 $549
============= ========== ========== =========
Three Months Ended December 31, 2004
---------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------- ---------- ---------- ---------
Valuation of derivative
instruments $33 $(6) $- $27
Settlements of
derivative instruments (4) 11 - 7
Dispositions 175 140 2 317
Investment write-downs (12) (9) - (21)
------------- ---------- ---------- ---------
Total $192 $136 $2 $330
============= ========== ========== =========
Twelve Months Ended December 31, 2004
---------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------- ---------- ---------- ---------
Valuation of derivative
instruments $10 $(55) $(1) $(46)
Settlements of
derivative instruments (69) 7 - (62)
Dispositions 697 131 - 828
Investment write-downs (46) (82) (1) (129)
------------- ---------- ---------- ---------
Total $592 $1 $(2) $591
============= ========== ========== =========
(1) Because of the level of catastrophe losses experienced during 2005
and the possibility that we may need to have additional cash
available to pay claims, we identified a portfolio of
approximately $12.60 billion of securities from which we would
consider selecting specific securities to sell to meet these
needs. Approximately $2.72 billion of these securities were in an
unrealized loss position, and, therefore, with the change in our
intention to hold these investments, we recognized $19 million of
anticipated disposition write-downs during the fourth quarter of
2005.
(2) Because changes in existing market conditions and long-term asset
return assumptions, certain changes are planned within various
portfolios. We identified, in total, approximately $1.14 billion
of securities we would consider selling to achieve these
objectives. Of that $1.14 billion, approximately $533 million of
securities were in an unrealized loss position, for which we
recognized $54 million of write-downs during the fourth quarter of
2005 due to a change in intent to hold these securities until
recovery.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
($ in millions) Est. Est.
2005 2004 2005 2004
--------- --------- --------- ---------
Property-Liability
Premiums written $6,658 $6,499 $27,391 $26,531
========= ========= ========= =========
Premiums earned $6,838 $6,607 $27,039 $25,989
Claims and claims
expense (1) 4,469 4,175 21,175 17,843
Amortization of deferred
policy acquisition costs 1,031 1,016 4,092 3,874
Operating costs and expenses 582 629 2,369 2,396
Restructuring and related
charges 4 25 39 46
--------- --------- --------- ---------
Underwriting income
(loss) 752 762 (636) 1,830
--------- --------- --------- ---------
Net investment income 458 463 1,791 1,773
Income tax expense on
operations 354 350 63 955
--------- --------- --------- ---------
Operating income 856 875 1,092 2,648
Realized capital gains and
losses, after-tax 91 125 339 397
--------- --------- --------- ---------
Net income $947 $1,000 $1,431 $3,045
========= ========= ========= =========
Catastrophe losses $657 $412 $5,674 $2,468
========= ========= ========= =========
Operating ratios
Claims and claims expense
ratio (1) 65.4 63.2 78.3 68.7
Expense ratio 23.6 25.3 24.1 24.3
--------- --------- --------- ---------
Combined ratio 89.0 88.5 102.4 93.0
========= ========= ========= =========
Effect of catastrophe
losses on combined ratio 9.6 6.2 21.0 9.5
========= ========= ========= =========
Effect of restructuring
and related charges on
combined ratio 0.1 0.4 0.1 0.2
========= ========= ========= =========
Effect of Discontinued
Lines and Coverages on
combined ratio 0.1 - 0.7 2.5
========= ========= ========= =========
Allstate Financial
Premiums and deposits $4,007 $4,163 $14,395 $15,919
========= ========= ========= =========
Investments including
Separate Accounts assets $90,468 $86,907 $90,468 $86,907
========= ========= ========= =========
Premiums and contract
charges $524 $564 $2,049 $2,072
Net investment income 992 890 3,830 3,410
Periodic settlements and
accruals on non-hedge
derivative instruments 14 16 63 49
Contract benefits 406 444 1,615 1,618
Interest credited to
contractholder funds 619 531 2,371 1,983
Amortization of deferred
policy acquisition costs 138 118 503 471
Operating costs and expenses 150 169 604 634
Restructuring and related
charges 1 - 2 5
Income tax expense on
operations 77 66 266 269
--------- --------- --------- ---------
Operating income 139 142 581 551
Realized capital gains and
losses, after-tax (21) 87 12 (3)
DAC and DSI amortization
relating to realized
capital gains and losses,
after-tax 3 (61) (103) (89)
Non-recurring increase in
liability for future
benefits, after-tax (2) - - (22) -
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (8) (11) (40) (32)
(Loss) gain on disposition
of operations, after-tax (1) 16 (12) (6)
Cumulative effect of change
in accounting principle,
after-tax - - - (175)
--------- --------- --------- ---------
Net income $112 $173 $416 $246
========= ========= ========= =========
Corporate and Other
Net investment income $32 $25 $125 $101
Operating costs and expenses 78 86 326 318
Income tax benefit on
operations (26) (30) (110) (109)
--------- --------- --------- ---------
Operating loss (20) (31) (91) (108)
Realized capital gains and
losses, after-tax 2 - 9 (2)
--------- --------- --------- ---------
Net loss $(18) $(31) $(82) $(110)
========= ========= ========= =========
Consolidated net income $1,041 $1,142 $1,765 $3,181
========= ========= ========= =========
(1) For the twelve months ended December 31, 2005, claims and claims
expense and claims and claims expense ratio include the effect of
$120 million or 0.4 points related to an accrual for a settlement
of a worker classification lawsuit challenging the overtime
exemption claimed by the Company under California wage and hour
laws.
(2) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
-------- -------- ------- -------- -------- -------
Property-Liability
Underwriting
Summary
Allstate
Protection $757 $761 (0.5) $(461) $2,468 (118.7)
Discontinued
Lines and
Coverages (5) 1 - (175) (638) 72.6
-------- -------- -------- --------
Underwriting
income (loss) $752 $762 (1.3) $(636) $1,830 (134.8)
======== ======== ======== ========
Allstate
Protection
Underwriting
Summary
Premiums written $6,661 $6,498 2.5 $27,393 $26,527 3.3
======== ======== ======== ========
Premiums earned $6,837 $6,605 3.5 $27,038 $25,983 4.1
Claims and claims
expense (1) 4,465 4,176 6.9 21,008 17,208 22.1
Amortization of
deferred policy
acquisition
costs 1,031 1,016 1.5 4,092 3,874 5.6
Operating costs
and expenses 580 627 (7.5) 2,360 2,387 (1.1)
Restructuring
and related
charges 4 25 (84.0) 39 46 (15.2)
-------- -------- -------- --------
Underwriting
income (loss) $757 $761 (0.5) $(461) $2,468 (118.7)
======== ======== ======== ========
Catastrophe
losses $657 $412 59.5 $5,674 $2,468 129.9
======== ======== ======== ========
Operating ratios
Claims and
claims expense
ratio (1) 65.3 63.2 77.7 66.2
Expense ratio 23.6 25.3 24.0 24.3
-------- -------- -------- --------
Combined ratio 88.9 88.5 101.7 90.5
======== ======== ======== ========
Effect of
catastrophe
losses on
combined ratio 9.6 6.2 21.0 9.5
======== ======== ======== ========
Effect of
restructuring
and related
charges on
combined ratio 0.1 0.4 0.1 0.2
======== ======== ======== ========
Discontinued Lines
and Coverages
Underwriting
Summary
Premiums written $(3) $1 - $(2) $4 (150.0)
======== ======== ======== ========
Premiums earned $1 $2 (50.0) $1 $6 (83.3)
Claims and
claims expense 4 (1) - 167 635 (73.7)
Operating costs
and expenses 2 2 - 9 9 -
-------- -------- -------- --------
Underwriting
(loss) income $(5) $1 - $(175) $(638) 72.6
======== ======== ======== ========
Effect of
Discontinued
Lines and
Coverages on
the Property-
Liability
combined ratio 0.1 - 0.7 2.5
======== ======== ======== ========
(1) For the twelve months ended December 31, 2005, claims and claims
expense and claims and claims expense ratio include the effect of
$120 million or 0.4 points related to an accrual for a settlement
of a worker classification lawsuit challenging the overtime
exemption claimed by the Company under California wage and hour
laws.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
-------- -------- ------- -------- -------- -------
Allstate brand
Standard auto $3,738 $3,611 3.5 $15,173 $14,491 4.7
Non-standard auto 361 396 (8.8) 1,587 1,777 (10.7)
-------- -------- -------- --------
Auto 4,099 4,007 2.3 16,760 16,268 3.0
Involuntary auto 30 49 (38.8) 163 232 (29.7)
Commercial lines 220 228 (3.5) 926 922 0.4
Homeowners 1,492 1,404 6.3 6,040 5,639 7.1
Other personal
lines 335 323 3.7 1,434 1,397 2.6
-------- -------- -------- --------
6,176 6,011 2.7 25,323 24,458 3.5
Encompass brand
Standard auto 274 280 (2.1) 1,174 1,212 (3.1)
Non-standard auto
(Deerbrook) 26 34 (23.5) 116 153 (24.2)
-------- -------- -------- --------
Auto 300 314 (4.5) 1,290 1,365 (5.5)
Involuntary auto 7 9 (22.2) 43 40 7.5
Homeowners 148 136 8.8 611 552 10.7
Other personal
lines 30 28 7.1 126 112 12.5
-------- -------- -------- --------
485 487 (0.4) 2,070 2,069 -
Allstate
Protection (1) 6,661 6,498 2.5 27,393 26,527 3.3
Discontinued Lines
and Coverages (3) 1 - (2) 4 (150.0)
-------- -------- -------- --------
Property-
Liability (1) $6,658 $6,499 2.4 $27,391 $26,531 3.2
======== ======== ======== ========
Allstate
Protection
Standard auto $4,012 $3,891 3.1 $16,347 $15,703 4.1
Non-standard auto 387 430 (10.0) 1,703 1,930 (11.8)
-------- -------- -------- --------
Auto 4,399 4,321 1.8 18,050 17,633 2.4
Involuntary auto 37 58 (36.2) 206 272 (24.3)
Commercial lines 220 228 (3.5) 926 922 0.4
Homeowners 1,640 1,540 6.5 6,651 6,191 7.4
Other personal
lines 365 351 4.0 1,560 1,509 3.4
-------- -------- -------- --------
$6,661 $6,498 2.5 $27,393 $26,527 3.3
======== ======== ======== ========
(1) In the fourth quarter of 2005, growth in premiums written was
negatively impacted by reinsurance transactions totaling 0.4%.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)
Three Months Ended
December 31, 2005 (Est.)
--------------------------------------------------
Number of State
States Countrywide(%)(2) Specific(%)(3)
-------------- ------------------- ---------------
Allstate brand
Standard auto 4 0.1 2.8
Non-standard auto 2 0.1 2.2
Homeowners (5) 2 - (1.5)
Encompass brand
Standard auto 2 0.2 6.4
Non-standard auto
(Deerbrook) 1 (0.1) (0.2)
Homeowners 1 0.1 3.0
Twelve Months Ended
December 31, 2005 (Est.)
--------------------------------------------------
Number of State
States Countrywide(%)(2) Specific(%)(3)
-------------- ------------------- ---------------
Allstate brand
Standard auto (4) 23 0.4 1.0
Non-standard auto 6 (0.3) (1.4)
Homeowners (5) 13 1.0 5.0
Encompass brand
Standard auto 22 0.7 1.6
Non-standard auto
(Deerbrook) 1 (0.1) (0.2)
Homeowners 19 1.5 3.6
(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. These rate changes do not reflect
initial rates filed for new insurance subsidiaries.
(2) Represents the impact in the states where rate changes were
approved during 2005 as a percentage of total countrywide prior
year-end premiums written.
(3) Represents the impact in the states where rate changes were
approved during 2005 as a percentage of total prior year-end
premiums written in those states.
(4) Excluding the impact of a rate reduction in the state of New York
effective July 2005, the countrywide rate change is 0.8% and the
state specific rate change is 2.5%.
(5) Including the impact of a rate increase in the state of Florida
approved in January 2006, effective in October 2005, the
countrywide rate change for the three months and twelve months
ended December 31, 2005 is 1.2% and 2.2%, respectively, and the
state specific rate change for the three months and twelve months
ended December 31, 2005 is 13.6% and 8.4%, respectively. The
impact of these rate increases may offset some portion of our
increased reinsurance costs.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended December 31,
------------------------------------------------------
($ in millions) Est. Est. Est. Est.
2005 2004 2005 2004 2005 2004 2005 2004
------- -------- ------ ----- ------ ----- ----- -----
Effect of
Catastrophe
Losses
on the Loss Expense
Premiums Earned Loss Ratio(2) Ratio Ratio
---------------- ------------ ------------ -----------
Allstate brand
Standard auto $3,809 $3,651 66.6 67.5 3.7 0.5 23.2 24.7
Non-standard
auto 394 432 54.3 51.4 3.8 0.5 20.8 21.5
------- --------
Auto 4,203 4,083 65.5 65.8 3.8 0.5 23.0 24.4
Homeowners 1,491 1,383 50.1 44.8 11.9 11.2 22.7 24.5
Other (1) 629 631 96.8 91.3 41.6 36.3 25.4 27.7
------- --------
Total
Allstate
brand 6,323 6,097 65.0 63.6 9.5 6.5 23.1 24.8
Encompass brand
Standard auto 293 299 64.8 61.2 1.3 - 29.4 32.1
Non-standard
auto
(Deerbrook)(3) 28 37 46.4 67.6 - - 32.2 24.3
------- --------
Auto 321 336 63.2 61.9 1.2 - 29.6 31.3
Homeowners 152 135 77.0 41.5 27.7 3.0 29.6 31.1
Other (1) 41 37 85.3 81.1 29.2 13.5 29.3 29.7
------- --------
Total
Encompass
brand 514 508 69.0 57.9 11.2 1.8 29.6 31.1
------- --------
Allstate
Protection $6,837 $6,605 65.3 63.2 9.6 6.2 23.6 25.3
======= ========
Twelve Months Ended December 31,
------------------------------------------------------
($ in millions) Est. Est. Est. Est.
2005 2004 2005 2004 2005 2004 2005 2004
------- -------- ------ ----- ------ ----- ----- -----
Effect of
Catastrophe
Losses
on the Loss Expense
Premiums Earned Loss Ratio(2) Ratio Ratio
---------------- ------------ ------------ -----------
Allstate brand
Standard auto $15,034 $14,290 65.7 64.4 2.9 0.7 23.7 24.0
Non-standard
auto 1,642 1,823 57.8 53.9 2.6 0.9 20.9 20.4
------- --------
Auto 16,676 16,113 64.9 63.2 2.8 0.7 23.5 23.6
Homeowners 5,792 5,349 110.7 67.4 70.5 29.2 22.8 23.0
Other (1) 2,514 2,482 91.7 84.6 35.3 27.7 25.6 27.2
------- --------
Total
Allstate
brand 24,982 23,944 78.2 66.3 21.8 9.8 23.5 23.9
Encompass brand
Standard auto 1,186 1,208 66.9 61.3 1.7 0.5 30.4 29.1
Non-standard
auto
(Deerbrook) 125 161 67.2 75.8 0.8 0.6 28.8 25.4
------- --------
Auto 1,311 1,369 67.0 63.1 1.7 0.6 30.2 28.6
Homeowners 583 529 77.8 63.7 30.6 16.4 29.7 30.1
Other (1) 162 141 82.1 84.4 17.9 5.7 28.4 29.1
------- --------
Total
Encompass
brand 2,056 2,039 71.3 64.7 11.2 5.1 29.9 29.0
------- --------
Allstate
Protection $27,038 $25,983 77.7 66.2 21.0 9.5 24.0 24.3
======= ========
(1) Other includes involuntary auto, commercial lines, condominium,
renters and other personal lines.
(2) Loss Ratio comparisons on this exhibit are impacted by the
relative level of prior year reserve reestimates. Please refer to
the "Effect of Pretax Prior Year Reserve Reestimates on the
Combined Ratio" table (page 15) for detailed reserve reestimate
information. The Total Allstate brand combined ratio comparisons
to prior period are adversely impacted by 1.1 points for the
twelve months ending December 31.
(3) Total catastrophe losses for the year ended December 31, 2005 for
Encompass brand non-standard auto were $1 million. Approximately
half of the catastrophe losses were incurred in the fourth quarter
of 2005 but do not appear in the fourth quarter catastrophe effect
due to rounding.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended December 31,
-----------------------------------------------
Effect of Pretax Reserve
Pretax Reserve Reestimates on the
Reestimates (1) Combined Ratio
--------------------- -------------------------
Est. Est.
($ in millions) 2005 2004 2005 2004
---------- ---------- ------------ ------------
Auto $(160) $(106) (2.4) (1.6)
Homeowners 11 (57) 0.2 (0.9)
Other (2) (25) - (0.4)
---------- ---------- ------------ ------------
Allstate Protection (151) (188) (2.2) (2.9)
Discontinued Lines
and Coverages 5 (1) 0.1 -
---------- ---------- ------------ ------------
Property-
Liability $(146) $(189) (2.1) (2.9)
========== ========== ============ ============
Allstate brand $(128) $(190) (1.9) (2.9)
Encompass brand (23) 2 (0.3) -
---------- ---------- ------------ ------------
Allstate Protection $(151) $(188) (2.2) (2.9)
========== ========== ============ ============
Twelve Months Ended December 31,
-----------------------------------------------
Effect of Pretax Reserve
Pretax Reserve Reestimates on the
Reestimates (1) Combined Ratio
--------------------- -------------------------
Est. Est.
($ in millions) 2005 2004 2005 2004
---------- ---------- ------------ ------------
Auto $(661) $(657) (2.4) (2.5)
Homeowners 7 (169) - (0.7)
Other 19 (39) 0.1 (0.1)
---------- ---------- ------------ ------------
Allstate Protection (635) (865) (2.3) (3.3)
Discontinued Lines
and Coverages 167 635 0.6 2.4
---------- ---------- ------------ ------------
Property-
Liability $(468) $(230) (1.7) (0.9)
========== ========== ============ ============
Allstate brand $(613) $(872) (2.2) (3.3)
Encompass brand (22) 7 (0.1) -
---------- ---------- ------------ ------------
Allstate Protection $(635) $(865) (2.3) (3.3)
========== ========== ============ ============
(1) Favorable reserve reestimates are shown in parentheses.
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- ------------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
--------- ------- ------- --------- -------- -------
Life Products (1)
Interest-
sensitive life $375 $392 (4.3) $1,482 $1,487 (0.3)
Traditional 102 101 1.0 337 374 (9.9)
Other 113 104 8.7 430 372 15.6
--------- ------- --------- --------
590 597 (1.2) 2,249 2,233 0.7
Annuities
Fixed annuities
- deferred 1,254 2,137 (41.3) 5,238 6,750 (22.4)
Fixed annuities
- immediate 244 277 (11.9) 883 831 6.3
Variable
annuities 431 411 4.9 1,746 1,631 7.1
--------- ------- --------- --------
1,929 2,825 (31.7) 7,867 9,212 (14.6)
Institutional
Products
Indexed funding
agreements - 50 (100.0) - 51 (100.0)
Funding
agreements
backing medium-
term notes 1,350 535 152.3 3,773 3,983 (5.3)
Other - - - - 3 (100.0)
--------- ------- --------- --------
1,350 585 130.8 3,773 4,037 (6.5)
Bank Deposits 138 156 (11.5) 506 437 15.8
--------- ------- --------- --------
Total $4,007 $4,163 (3.7) $14,395 $15,919 (9.6)
========= ======= ========= ========
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, December 31,
($ in millions, except par value data) 2005 (Est.) 2004
------------ ------------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $94,777 and $90,657) $98,065 $95,715
Equity securities, at fair value (cost
$4,873 and $4,566) 6,164 5,895
Mortgage loans 8,748 7,856
Short-term 3,470 4,133
Other 1,850 1,931
------------ ------------
Total investments (1) 118,297 115,530
Cash 313 414
Premium installment receivables, net 4,739 4,721
Deferred policy acquisition costs 5,802 4,968
Reinsurance recoverables, net 5,180 4,323
Accrued investment income 1,074 1,014
Property and equipment, net 1,040 1,018
Goodwill 825 825
Other assets 3,567 2,535
Separate Accounts 15,235 14,377
------------ ------------
Total assets $156,072 $149,725
============ ============
Liabilities
Reserve for property-liability insurance
claims and claims expense $22,117 $19,338
Reserve for life-contingent contract benefits 12,482 11,754
Contractholder funds 60,040 55,709
Unearned premiums 10,294 9,932
Claim payments outstanding 1,263 787
Other liabilities and accrued expenses 8,804 9,842
Deferred income taxes 351 829
Short-term debt 413 43
Long-term debt 4,887 5,291
Separate Accounts 15,235 14,377
------------ ------------
Total liabilities 135,886 127,902
------------ ------------
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,
646 million and 683 million shares
outstanding 9 9
Additional capital paid-in 2,836 2,685
Retained income 24,962 24,043
Deferred compensation expense (128) (157)
Treasury stock, at cost (254 million and
217 million shares) (9,575) (7,372)
Accumulated other comprehensive income:
Unrealized net capital gains and losses 2,090 2,988
Unrealized foreign currency translation
adjustments 22 16
Minimum pension liability adjustment (30) (389)
------------ ------------
Total accumulated other comprehensive
income 2,082 2,615
------------ ------------
Total shareholders' equity 20,186 21,823
------------ ------------
Total liabilities and shareholders'
equity $156,072 $149,725
============ ============
(1) Total investments includes $39,574 for Property-Liability, $75,233
for Allstate Financial and $3,490 for Corporate and Other
investments at December 31, 2005. Total investments includes
$40,267 for Property-Liability, $72,530 for Allstate Financial and
$2,733 for Corporate and Other investments at December 31, 2004.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, December 31,
(in millions) 2005 (Est.) 2004
------------ ------------
Cash flows from operating activities
Net income $1,765 $3,181
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and other
non-cash items (67) (4)
Realized capital gains and losses (549) (591)
Loss on disposition of operations 13 24
Cumulative effect of change in
accounting principle - 175
Interest credited to contractholder
funds 2,403 2,001
Changes in:
Policy benefit and other insurance
reserves 2,868 1,680
Unearned premiums 354 614
Deferred policy acquisition costs (243) (443)
Premium installment receivables,
net (15) (345)
Reinsurance recoverables, net (858) (1,052)
Income taxes payable (744) 11
Other operating assets and
liabilities 678 217
------------ ------------
Net cash provided by operating
activities 5,605 5,468
------------ ------------
Cash flows from investing activities
Proceeds from sales
Fixed income securities 21,926 19,839
Equity securities 4,829 4,580
Investment collections
Fixed income securities 6,038 5,904
Mortgage loans 1,267 772
Investment purchases
Fixed income securities (31,144) (33,720)
Equity securities (4,895) (4,659)
Mortgage loans (2,171) (2,106)
Change in short-term investments, net (621) (1,098)
Change in other investments, net (124) (35)
Acquisitions, net of cash received (60) -
Purchases of property and equipment, net (196) (200)
------------ ------------
Net cash used in investing activities (5,151) (10,723)
------------ ------------
Cash flows from financing activities
Change in short-term debt, net 370 40
Proceeds from issuance of long-term debt 789 647
Repayment of long-term debt (1,205) (19)
Contractholder fund deposits 12,004 13,616
Contractholder fund withdrawals (9,444) (7,088)
Dividends paid (830) (756)
Treasury stock purchases (2,484) (1,373)
Other 245 236
------------ ------------
Net cash (used in) provided by financing
activities (555) 5,303
------------ ------------
Net (decrease) increase in cash (101) 48
Cash at beginning of year 414 366
------------ ------------
Cash at end of year $313 $414
============ ============
Allstate Protection Catastrophe Losses Catastrophe losses, net of recoveries, totaled $657 million in the fourth quarter of 2005. Included in catastrophe losses are losses related to Hurricane Wilma totaling $508 million, net of recoveries, and an accrual of $77 million for anticipated assessments from Citizens Property Insurance Corporation in the state of Florida. Catastrophe losses also include net favorable reestimates of losses related to Hurricanes Katrina and Rita, totaling $45 million, net of recoveries. Through January January: see month. 30, 2006, approximately 75% of the property claims and 97% of the auto claims related to each of these events are closed, and we expect substantially all of our remaining estimated net losses related to the 2005 hurricane season will be paid during 2006.
Estimate as of 12/31/2005
----------------------------
($ in millions) Gross Recoveries Net Estimate Fourth
Losses Losses as of Quarter
9/30/2005 Impact
Hurricane Katrina $3,626 $2 $3,624 $3,683 $(59)
Hurricane Rita 1,114 250 864 850 14
Hurricane Wilma 721 213 508 N/A 508
--------- ---------- --------- --------- ----------
Total Loss Estimate $5,461 $465 $4,996 $4,533 $463
========= ========== ========= =========
Citizens accrual -
2005 77
Other catastrophes 117
----------
$657
==========
Hurricane Wilma Hurricane Wilma made landfall land·fall n. 1. The act or an instance of sighting or reaching land after a voyage or flight. 2. The land sighted or reached after a voyage or flight. in the state of Florida on October 24, 2005. Catastrophe claims and claims expense estimates include losses from approximately 103,000 expected claims of which over 93,000 claims have been reported. The estimates of claims and claims expense by product are shown in the following table.
($ in millions) Allstate Encompass
brand brand Total
Hurricane Wilma
Standard auto $95 $2 $97
Non-standard auto 10 -- 10
Homeowners 160 3 163
Other 144 2 146
---------- ---------- ----------
Total personal lines 409 7 416
Commercial 92 N/A 92
---------- ---------- ----------
Total loss estimate, net of recoveries $501 $7 $508
========== ========== ==========
Total loss estimate, gross $712 $9 $721
Recoveries 211 2 213
---------- ---------- ----------
Total loss estimate, net of recoveries $501 $7 $508
========== ========== ==========
Estimates of residential property losses for Hurricane Wilma have exceeded the Florida Hurricane Catastrophe Fund ("FHCF FHCF Florida Hurricane Catastrophe Fund FHCF Flying Horse Cracking Force (hacking) ") estimated retention of $262 million, thus permitting reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. of 90% of qualifying losses above the retention up to an estimated maximum of $945 million. In addition, Allstate Floridian Flor·i·da Abbr. FL or Fla. A state of the southeast United States bordering on the Atlantic Ocean and the Gulf of Mexico. It was admitted as the 27th state in 1845. Insurance Company and its subsidiaries ("Allstate Floridian") have reinsurance on certain personal homeowners policies in Florida with Universal Insurance Company of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . Citizens Property Insurance Corporation Citizens Property Insurance Corporation ("Citizens") was created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Citizens can levy To assess; raise; execute; exact; tax; collect; gather; take up; seize. Thus, to levy a tax; to levy a Nuisance; to levy a fine; to levy war; to levy an execution, i.e., to levy or collect a sum of money on an execution. A seizure. an assessment on participating companies for a financial deficit. Citizens reported losses from Hurricane Wilma in the fourth quarter of 2005, which followed losses from the hurricanes that struck Florida in the third quarter of 2004 and a deficit for the 2004 plan year. Communications made by the Citizens board and other government officials indicate that a future assessment as a result of Citizens' current financial deficit is both probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. and can be reasonably estimated. We have estimated our assessment will be $77 million. After paying this assessment, we expect that our subsidiaries will be able to recoup recoup To sell an asset at a price sufficient to recover the original outlay or to offset a previous loss. approximately $65 million through premiums written in Florida. These recoupments will be recorded as an offset to catastrophe losses in the period that the related premiums are written. Also during the second quarter of 2005, we estimated that we would be assessed $43 million by Citizens for the 2004 year. That assessment was paid in September 2005, of which $36 million is expected to begin to be recouped in the first quarter of 2006. The differences between our assessments from Citizens and our expected recoupments is primarily due to our exit from the commercial property market in Florida announced in May of 2005 and expected to be completed in 2007. Similarly, during the third quarter of 2005, we estimated that we would be assessed $34 million from Louisiana Louisiana (ləwē'zēăn`ə, l  ē'–), state in the S central United States. It is bounded by Mississippi, with the Mississippi R. Citizens Property Insurance
Corporation ("LA Citizens") related to LA Citizens'
estimated plan losses related to Hurricanes Katrina and Rita. This
assessment was paid in November November: see month. 2005 and we expect to recoup the entire
amount.These recoupments are expected to be primarily recorded over the next two years. Property Catastrophe Management Strategy The fundamental goals of The Allstate Corporation's catastrophe management strategy are to enable our shareholders to earn an acceptable return on the risks assumed in our property business and to reduce the variability in our earnings, so that we can continue to provide quality protection to our customers. While in many areas of the country we are currently achieving returns within acceptable risk tolerances Risk Tolerance The degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio. Notes: An investor's risk tolerance varies according to age, income requirements, financial goals, etc. , we continue to seek solutions to improve returns in areas that have known exposure to hurricanes, earthquakes and other catastrophes. We will significantly reduce our catastrophe exposure while working to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. the impact of our actions on customers. We are
also working for changes in the 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, including fewer restrictions on underwriting, recognizing the need for and improving appropriate risk based pricing, and promoting the creation of government sponsored, privately funded solutions. Our property business includes personal homeowners, commercial property and other property lines. Actions we are taking and evaluating to attain an acceptable catastrophe exposure level in our personal and commercial property businesses include: additional purchases of reinsurance; increased participation in various state facilities such as wind pools; changes in rates, deductibles and coverage; limitations on new business writings; changes to underwriting requirements; non-renewal; discontinuing coverage for certain types of residences; withdrawal from certain markets; 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. pursuing alternative markets for placement of business or segments of risk exposure in certain areas. While actions taken will be primarily directed at reducing the catastrophe exposure in our personal and commercial property businesses, we also consider their impact on our ability to market our auto lines when evaluating the feasibility fea·si·ble adj. 1. Capable of being accomplished or brought about; possible: a feasible plan. See Synonyms at possible. 2. of their implementation. In order to assess and monitor our actions, we are considering and adopting new performance measurements for managing our property business. These measurements currently include exposure limits based on hurricane and earthquake earthquake, trembling or shaking movement of the earth's surface. Most earthquakes are minor tremors. Larger earthquakes usually begin with slight tremors but rapidly take the form of one or more violent shocks, and end in vibrations of gradually diminishing force losses which have a one percent probability of occurring on an annual aggregate countrywide coun·try·wide adv. & adj. Throughout a whole country; nationwide: launched a fundraising campaign countrywide; a countrywide search. Adj. 1. basis, acceptable targeted rates of return by line and by state and potential capital impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. . As part of our catastrophe management efforts, we are involved with a newly created coalition called ProtectingAmerica.org See .org. (networking) org - The top-level domain for organisations or individuals that don't fit any other top-level domain (national, com, edu, or gov). Though many have .org domains, it was never intended to be limited to non-profit organisations. RFC 1591. . The coalition is dedicated to raising awareness Raising awareness is a common phrase advocacy groups use to justify a particular event, brochure or even the entire organization. Raising awareness refers to alerting the general public that a certain issue exists and should be approached the way the group desires. , educating the public and policymakers, and offering solutions that will better prepare and protect consumers, taxpayers and the American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of economy from major catastrophes in a sensible sensible /sen·si·ble/ (sen´si-b'l) 1. capable of sensation. 2. perceptible to the senses. sen·si·ble adj. 1. Perceptible by the senses or by the mind. , cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. fashion. A comprehensive solution is being advanced that includes the development of government sponsored, privately funded catastrophe funds at the state and national levels; improved prevention and mitigation MITIGATION. To make less rigorous or penal. 2. Crimes are frequently committed under circumstances which are not justifiable nor excusable, yet they show that the offender has been greatly tempted; as, for example, when a starving man steals bread to satisfy measures, including the adoption of more effective land use policies and stronger building codes; enhanced public education about catastrophe risk; better catastrophe relief, recovery and rebuilding processes; and a rigorous process of continuous improvement for catastrophe preparedness pre·par·ed·ness n. The state of being prepared, especially military readiness for combat. Noun 1. preparedness - the state of having been made ready or prepared for use or action (especially military action); "putting them and response programs and processes. Hurricanes We consider the greatest areas of potential catastrophe losses due to hurricanes to generally be major metropolitan centers in counties along the eastern and gulf coasts of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Policies in force attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to counties along the eastern and gulf coasts, including the entire state of Florida, represented approximately 25% of total homeowners policies in force during 2005. Generally, the average premium on a property policy near these coasts is greater than other areas. During 2005, premiums written by Allstate Floridian totaled $426 million and PIF was approximately 750,000 as of December 31, 2005. Examples of actions taken in 2005 and early 2006 to reduce our exposure in these areas include purchasing reinsurance as discussed below; a moratorium A suspension of activity or an authorized period of delay or waiting. A moratorium is sometimes agreed upon by the interested parties, or it may be authorized or imposed by operation of law. on personal homeowners new business writings in eight coastal counties in the state of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of ; a definitive agreement with Universal Insurance Company of North America whereby a portion of existing customers in Florida will have new policies available when their policies expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. and are not renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. ; and exiting the commercial property market in Florida beginning in May 2005. We have also received approval for homeowners premium rate increases in the state of Florida averaging 7.9% implemented in August 2005, followed by an additional rate increase averaging 18.2% implemented in October 2005. Many mortgage companies require property owners to have insurance from an insurance carrier with a financial strength rating no lower than B+. Allstate maintains separate financial strength ratings for Allstate Insurance Company ("AIC AIC Association des Infermières Canadiennes. "), Allstate New Jersey ("ANJ ANJ Associação Nacional de Jornais (Brazil) ANJ Anjouan, Comoros (Airport Code) ") and Allstate Floridian, which write substantially all of our property business. Such ratings are an important factor in establishing competitive position. AIC and ANJ have A.M. Best ratings of A+ and A-, respectively. Allstate Floridian has an A.M. Best rating of B+ with a negative outlook, and remains under review currently. The resolution of A.M. Best's review will be influenced by developments prior to the 2006 hurricane season, including Florida regulatory and legislative actions, Allstate and Allstate Floridian management actions, A.M. Best's assessment of the timing and nature of such developments and their view on the amount of capital and risk-adjusted capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. deemed necessary to support the ratings. Allstate Floridian Insurance Company and its subsidiary, Allstate Floridian Indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. Company, also have a Demotech rating of A'. Encompass ENCOMPASS Enhanced Consequence Management Planning and Support System (DARPA) Floridian Insurance Company and Encompass Floridian Indemnity Company, both subsidiaries of Allstate Floridian, have Demotech ratings of A. In addition to the actions in the state of Florida described above, in May 2005 Allstate Floridian received a commitment from its parent company, Allstate Insurance Company, to make as much as $375 million of additional capital available for one year under specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , under which $159 million was contributed to Allstate Floridian in December 2005. While hurricanes can also be devastating to inland INLAND. Within the same country. 2. It seems not to be agreed whether the term inland applies to all the United States or only to one state. It has been holden in Now York that a bill of exchange by one person in one state, on another person in another, is an areas, we anticipate that our actions will be less extensive in these areas and they will be determined based on an assessment of our local exposure. Our exposure to certain potential losses from hurricanes is also limited by our participation in various state facilities, including the Florida Hurricane Catastrophe Fund ("FHCF"), which provides reimbursements on certain qualifying Florida hurricane losses and other state facilities such as wind pools. Earthquakes We consider the greatest areas of potential catastrophe losses due to earthquakes to be major metropolitan areas near fault lines in the states 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). , Oregon Oregon, city, United States Oregon, city (1990 pop. 18,334), Lucas co., NW Ohio, a suburb adjacent to Toledo, on Lake Erie; inc. 1958. It is a port with railroad-owned and -operated docks. The city has industries producing oil, chemicals, and metal products. , Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. , South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. , Missouri Missouri, state, United States Missouri (mĭz  r`ē, –ə), one of the midwestern states of the United States. ,
Kentucky Kentucky, state, United StatesKentucky (kəntŭk`ē, kĭn–), one of the so-called border states of the S central United States. It is bordered by West Virginia and Virginia (E); Tennessee (S); the Mississippi R. and Tennessee Tennessee, state, United States Tennessee (tĕn`əsē', tĕn'əsē`), state in the south-central United States. . Premiums written attributable to earthquake coverage totaled approximately $60 million in 2005. Earthquake coverage is generally written as an option or as a standard covered peril The designated contingency, risk, or hazard against which an insured seeks to protect himself or herself when purchasing a policy of insurance. Among the various types of perils for which insurance coverage is available are fire, theft, illness, and death. PERIL. depending on policy language requirements in each state. Our current strategy of significantly reducing earthquake exposure includes pursuing alternative markets for placement of this coverage and purchasing reinsurance. The implementation of the alternative markets strategy is subject to the identification and negotiation of arrangements with other companies to allow our agencies to place the coverage. Our initial focus will be in states with the highest earthquake exposure. Examples of actions we have already taken in these areas include our discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance of writing earthquake coverage in California following the formation of the California Earthquake Authority Established in September 1996 by the California Legislature, the California Earthquake Authority is a privately funded, publicly managed organization that sells California earthquake insurance policies through participating insurance companies. ("CEA CEA carcinoembryonic antigen. CEA abbr. carcinoembryonic antigen CEA (Carcinoembryonic antigen) ") in 1996, and allowing our agents to place new business earthquake coverage with another carrier in the state of South Carolina beginning in 2005. We also continue to evaluate purchases of reinsurance, in addition to those discussed below, including coverage for potential assessments from the CEA. We anticipate that implementation of limitations on new and renewal optional earthquake coverage will not adversely impact either auto or homeowners production and that it will cause a relatively immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance. immaterial adj. decline in premiums written, but will result in a material reduction of exposure from catastrophic earthquake losses. We also expect that this reduction in exposure will allow for some reduction in our capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . Reinsurance We utilize reinsurance to reduce exposure to catastrophe risk and to help manage capital, while lessening earnings volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the and improving shareholder return, and to support the required statutory surplus and the insurance financial strength ratings of certain subsidiaries. We purchase significant reinsurance where we believe the greatest benefit will be achieved relative to our aggregate countrywide exposure. The price and terms of reinsurance and the credit quality of the 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. are considered in the purchase process, along with whether the price can be appropriately reflected in the costs that are considered in setting future rates charged to policyholders. Our catastrophe reinsurance program has been designed to coordinate Belonging to a system of indexing by two or more terms. For example, points on a plane, cells in a spreadsheet and bits in dynamic RAM chips are identified by a pair of coordinates. Points in space are identified by sets of three coordinates. coverage provided under various treaties. As discussed below, our reinsurance program is composed of treaties that provide coverage for state specific personal lines property catastrophe exposures, with various retentions and limits. In addition, the program includes an aggregate excess agreement that limits Allstate Protection's personal lines property and auto catastrophe losses for storms named or numbered by the National Weather Service, earthquakes, and fires following earthquakes in excess of $2 billion in aggregated losses up to the treaty limit of $2 billion, excluding Florida. Losses recovered, if any, from the state specific treaties are excluded when determining the retention of the aggregate excess agreement. We have placed these programs in the global reinsurance market, with the majority of the limits of these programs placed with reinsurers that currently have an A.M. Best rating of A+ or better. The remaining limits are placed with reinsurers that currently have an A.M. Best rating no lower than A-. Multi-year individual state reinsurance treaties Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that cover personal property excess catastrophe losses in seven states: Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). , New Jersey, New York, North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. , South Carolina and Texas through May 31, 2008 and Florida through May 31, 2007 (the "multi-year treaties"). The annual retentions and limits on these treaties in effect since June June: see month. 1, 2005 are shown in the following table.
Limit
Annual Retention (in
State % Placed (in millions) millions)
-------------- ---------- -------------------------------- -----------
Connecticut 95 $100 $200
New Jersey 95 100 100
New York 90 750 1,000
North Carolina 10 80 175
South Carolina 10 97 435
Texas(2) 95 320 550
Florida 90 Excess of FHCF Reimbursement(1) 900
(1) The Florida Hurricane Catastrophe Fund ("FHCF") provides 90%
reimbursement of qualifying losses up to an estimated maximum. For
the 6/1/2005 - 5/31/2006 hurricane season, this maximum is
estimated to be $945 million in excess of Allstate's retention of
$262 million for the two largest hurricanes and $87 million for
other hurricanes.
(2) Reinsurance is recoverable by Allstate Texas Lloyd's ("ATL"), a
syndicate insurance company. ATL also has a 100% reinsurance
agreement with Allstate Insurance Company ("AIC") covering losses
in excess of and/or not reinsured by the Texas treaty.
The multi-year treaties provide coverage per occurrence for covered losses above each respective retention to the respective maximum coverage limit according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the percent placed on Allstate brand policies in each state except for Florida. The Florida treaty provides coverage for policies written by Allstate Floridian. Each of these treaties also has a provision for reinstatement Reinstatement The restoration of an insurance policy after it has lapsed for nonpayment of premiums. and annual measurement of exposures, which may produce changes in retentions, limits and/or reinsurance premiums as a result of increases or decreases in our exposure levels from the previous year. Under the current New Jersey and Texas treaties, we have the option to expand coverage limits by $100 million per year in each of the two subsequent years, and we expect to exercise the first $100 million limit increase option under both contracts effective June 1, 2006. We also expect to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. the existing treaties in the states of North Carolina and South Carolina on May 31, 2006. We are also considering additional reinsurance that covers Allstate Protection's personal property excess catastrophe losses in New Jersey, effective June 1, 2006 (the "New Jersey agreement"). This new agreement could provide as much as $300 million of coverage in excess of the New Jersey multi-year treaty limit on an annual basis. We have also entered into a reinsurance agreement that covers Allstate Protection's personal property excess losses in California for fires following earthquakes, effective February February: see month. 1, 2006 and expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. May 31, 2008 (the "California fire following agreement"). This agreement provides coverage not to exceed $1.5 billion for any one loss occurrence in excess of $500 million, with Allstate retaining a 5% share of the agreement's limit. With respect to all loss occurrences, this agreement provides in total $3 billion of coverage for all qualifying losses without limitation except when a qualifying loss occurrence exceeds $2 billion, then for 21 days no additional recovery can occur for any losses within the same seismic geographically ge·o·graph·ic also ge·o·graph·i·cal adj. 1. Of or relating to geography. 2. Concerning the topography of a specific region. ge affected area. The agreement allows for annual measurements, which may produce changes in retention as a result of increases or decreases in our exposure levels from a previous year. We have entered into a catastrophe aggregate excess of loss reinsurance agreement with respect to storms named or numbered by the National Weather Service, earthquakes, and fires following earthquakes covering our personal lines property and auto business countrywide, excluding Florida, for a period of one year, with an effective date of June 1, 2006 (the "aggregate excess agreement"). In December 2005, we placed $750 million of a limit of $2 billion in excess of $2 billion of aggregate losses during the agreement's 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 term. In January 2006, we completed the balance of the program, placing an additional $1.15 billion of the limit while retaining a 5% share. The aggregate excess agreement applies to Allstate and Encompass brand policies. The annual retentions and limits on the agreements expected to be in place during 2006 are shown in the following table.
Limit
Effective % Reinstatement/ Annual Retention (in
Date Placed Limits (in millions) millions)
--------- ------ -------------- ---------------- ---------
Aggregate
excess(1) 6/1/2006 95 None $2,000 $2,000
California 2/1/2006 95 2 limits over 500 1,500
fire 28 month term
following (2) and as noted
above
Multi- 6/1/2005
year(3): (as revised
effective
6/1/2006)
Connecticut 95 2 limits over 100 200
3-year term
New Jersey 95 1 100 200
reinstatement
over 3-year
term with
reinstatement
premium
required
New York(4) 90 2 limits over 750 1,000
3-year term
Texas(5) 95 2 limits for 320 650
each year
over 3-year
term
Florida 90 2 limits over Excess of FHCF 900
2-year term Reimbursement(6)
New
Jersey(7) 6/1/2006 95 Excess of New 300
Jersey Multi-
year treaty
(1) Aggregate Excess Agreement - This agreement is effective 6/1/2006
for 1 year and covers storms named or numbered by the National
Weather Service, earthquakes, and fires following earthquakes for
the Allstate and Encompass brand personal lines auto and property
business countrywide except for Florida. Losses recovered, if any,
from our California fire following agreement, multi-year treaties
and any new New Jersey agreement are excluded when determining the
retention of this agreement.
(2) California Fire Following Agreement - This agreement is effective
2/1/2006 and expires 5/31/2008. This agreement covers Allstate and
Encompass brand personal property losses in California for fires
following earthquakes. This agreement provides in total $3 billion
of coverage for all qualifying losses except when a qualifying
loss occurrence exceeds $2 billion, then for 21 days no additional
recovery can occur for any losses within the same seismic
geographically affected area.
(3) Multi-year Treaties - These treaties have been in effect since
6/1/2005 and cover the Allstate brand personal property
catastrophe losses, expiring 5/31/2008, except for the treaty in
Florida. The Florida treaty provides coverage for property
policies written by Allstate Floridian and it expires 5/31/2007.
This chart reflects our expectation that we will expand coverage
limits by $100 million per year on the New Jersey and Texas
treaties effective 6/1/2006, and that we expect to terminate the
existing treaties in North Carolina and South Carolina on
5/31/2006. The retentions, limits and/or reinsurance premiums on
these treaties are also subject to annual measurements on their
anniversary dates.
(4) Two separate reinsurance treaties provide coverage for catastrophe
risks in the State of New York: Allstate Insurance Company ("AIC")
has a $500,000,000 retention and a $550,000,000 limit, and
Allstate Indemnity Company has a $250,000,000 retention and a
$450,000,000 limit.
(5) The Texas treaty is with Allstate Texas Lloyd's ("ATL"), a
syndicate insurance company. ATL also has a 100% reinsurance
agreement with AIC covering losses in excess of and/or not
reinsured by the Texas treaty.
(6) FHCF - The Florida Hurricane Catastrophe Fund ("FHCF") provides
90% reimbursement of qualifying losses up to an estimated maximum.
For the 6/1/2005 - 5/31/2006 hurricane season, this maximum is
estimated to be $945 million in excess of Allstate's retention of
$262 million for the two largest hurricanes and $87 million for
other hurricanes. These estimates are subject to annual
measurements at the beginning of the FHCF fiscal year of 6/1. This
is an annual program with a first season and second season
coverage provision.
(7) New Jersey Agreement - This agreement is being contemplated, but
has not yet been placed. This agreement is expected to be
effective 6/1/2006.
We anticipate that the total cost of these agreements will be approximately $600 million per year or $150 million per quarter. This represents an increase of approximately $400 million per year or $100 million per quarter over our current cost, once these agreements are fully implemented and effective. Based on the effective dates of these agreements, our total costs are expected to be approximately $60 million in the first quarter of 2006, $100 million in the second quarter of 2006 and $150 million in the third and fourth quarters of 2006. We will aggressively seek regulatory approvals, as necessary based on the challenging regulatory environment in each state, to include reinsurance costs in our premium rates in order to mitigate the impact of this increase. We currently expect that this level or a similar level of reinsurance coverage will be purchased or renewed for 2007. We also continue to study the efficiencies of our operations and cost structure, which may offset some portion of the increased reinsurance costs. Definitions of GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Operating Ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: Claims and claims expense ("loss") ratio is the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses. Expense ratio is the ratio of amortization of DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter , operating costs 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 to premiums earned. Combined ratio is the ratio of claims and claims expense, amortization of DAC, operating costs and expenses and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income (loss) as a percentage of premiums earned. Effect 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 on combined ratio is the ratio of claims and claims expense and other costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio. Effect of catastrophe losses on combined ratio is the percentage of catastrophe losses included in claims and claims expenses to premiums earned. Effect of pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern reserve reestimates on combined ratio is the percentage of pretax reserve reestimates included in claims and claims expense to premiums earned. Effect of restructuring and related charges on combined ratio is the percentage of restructuring and related charges to premiums earned. 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 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") 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 they resulted from the recognition of certain realized capital gains and losses, --(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, and --adjustments for other significant non-recurring, infrequent in·fre·quent adj. 1. Not occurring regularly; occasional or rare: an infrequent guest. 2. or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate our results of operations. 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. business that may be obscured by the net effect of realized capital gains and losses, (loss) gain on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses and (loss) gain on disposition of operations 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. investments, replicated assets or product attributes (e.g. net investment income and interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. Non-recurring items are excluded because, by their nature, they are not indicative indicative: see mood. of our business or economic trends. 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 . We use adjusted measures of operating income and operating income per diluted share in incentive compensation. 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 twelve months ended December 31, 2005 and 2004.
For the three months ended December 31,
Property- Allstate Per diluted
Liability Financial Consolidated share
--------------- ----------- --------------- -------------
($ in
millions,
except per Est. Est. Est. Est.
share data) 2005 2004 2005 2004 2005 2004 2005 2004
------- ------- ----- ----- ------- ------- ------ ------
Operating
income $856 $875 $139 $142 $975 $986 $1.49 $1.42
Realized
capital
gains and
losses 131 192 (33) 136 101 330
Income tax
(expense)
benefit (40) (67) 12 (49) (29) (118)
------- ------- ----- ----- ------- -------
Realized
capital
gains and
losses,
after-tax 91 125 (21) 87 72 212 0.11 0.30
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax - - 3 (61) 3 (61) - (0.09)
Non-recurring
increase in
liability
for
future
benefits,
after-tax - - - - - - - -
Reclassification
of periodic
settlements
and accruals
on non-hedge
derivative
instruments,
after-tax - - (8) (11) (8) (11) (0.01) (0.01)
(Loss) gain
on disposition
of operations,
after-tax - - (1) 16 (1) 16 - 0.02
------- ------- ----- ----- ------- ------- ------ ------
Income before
cumulative
effect of
change
in accounting
principle,
after-tax 947 1,000 112 173 1,041 1,142 1.59 1.64
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - - - - -
------- ------- ----- ----- ------- ------- ------ ------
Net income $947 $1,000 $112 $173 $1,041 $1,142 $1.59 $1.64
======= ======= ===== ===== ======= ======= ====== ======
For the twelve months ended December 31,
Property- Allstate Per diluted
Liability Financial Consolidated share
--------------- ----------- --------------- -------------
($ in
millions,
except per Est. Est. Est. Est.
share data) 2005 2004 2005 2004 2005 2004 2005 2004
------- ------- ----- ----- ------- ------- ------ ------
Operating
income $1,092 $2,648 $581 $551 $1,582 $3,091 $2.37 $4.41
Realized
capital
gains and
losses 516 592 19 1 549 591
Income tax
expense (177) (195) (7) (4) (189) (199)
------- ------- ----- ----- ------- -------
Realized
capital
gains and
losses,
after-tax 339 397 12 (3) 360 392 0.54 0.56
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax - - (103) (89) (103) (89) (0.16) (0.13)
Non-recurring
increase in
liability
for
future
benefits,
after-tax - - (22) - (22) - (0.03) -
Reclassification
of periodic
settlements
and accruals
on non-hedge
derivative
instruments,
after-tax - - (40) (32) (40) (32) (0.06) (0.04)
Loss on
disposition
of
operations,
after-tax - - (12) (6) (12) (6) (0.02) (0.01)
------- ------- ----- ----- ------- ------- ------ ------
Income before
cumulative
effect of
change
in accounting
principle,
after-tax 1,431 3,045 416 421 1,765 3,356 2.64 4.79
Cumulative
effect of
change in
accounting
principle,
after-tax - - - (175) - (175) - (0.25)
------- ------- ----- ----- ------- ------- ------ ------
Net income $1,431 $3,045 $416 $246 $1,765 $3,181 $2.64 $4.54
======= ======= ===== ===== ======= ======= ====== ======
In this press release, we provide guidance on operating income per diluted share for 2006 (assuming a level of average expected catastrophe losses used in pricing for 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 year. Underwriting income (loss) is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs 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. 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 (loss) to net income is provided in the Segment Results table. Combined ratio excluding the effect of catastrophe losses is a non-GAAP ratio, which is computed as the difference between the two operating ratios, combined ratio (a GAAP measure) and the effect of catastrophes on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our property-liability business that may be obscured by catastrophe losses, which cause our loss trends to vary significantly between periods as a result of their rate of occurrence and 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 . We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The combined ratio excluding the effect of catastrophe losses should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. A reconciliation of combined ratio excluding the effect of catastrophe losses to combined ratio is provided in the Property-Liability Highlights 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 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 and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management: the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of change in accounting principle, and non-recurring items that are not indicative of our business or economic trends. Return on equity is the most directly comparable GAAP measure. The following table shows the reconciliation.
For the twelve
months ended
($ in millions) December 31,
--------------------
Est. 2005 2004
--------- ---------
Return on equity
Numerator:
Net income $1,765 $3,181
========= =========
Denominator:
Beginning shareholders' equity 21,823 20,565
Ending shareholders' equity 20,186 21,823
Average shareholders' equity $21,005 $21,194
========= =========
Return on equity 8.4% 15.0%
========= =========
For the twelve
months ended
($ in millions) December 31,
--------------------
Est. 2005 2004
--------- ---------
Operating income return on equity
Numerator:
Operating income $1,582 $3,091
========= =========
Denominator:
Beginning shareholders' equity 21,823 20,565
Unrealized net capital gains 2,988 3,125
--------- ---------
Adjusted beginning shareholders' equity 18,835 17,440
Ending shareholders' equity 20,186 21,823
Unrealized net capital gains 2,090 2,988
--------- ---------
Adjusted ending shareholders' equity 18,096 18,835
Average shareholders' equity $18,466 $18,138
========= =========
Operating income return on equity 8.6% 17.0%
========= =========
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 shareholders' equity after excluding the net impact of unrealized net capital gains on fixed income securities and related DAC and life insurance reserves by total shares outstanding plus dilutive potential shares outstanding. Book value per diluted share is the most directly comparable GAAP measure. 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 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 and timing of which are generally 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 reconciliation.
(in millions, except per share data) As of December 31,
--------------------
Est.
2005 2004
--------- ---------
Book value per diluted share
Numerator:
Shareholders' equity $20,186 $21,823
========= =========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 651.0 688.0
========= =========
Book value per diluted share $31.01 $31.72
========= =========
Book value per diluted share, excluding the
net impact of unrealized net capital gains
on fixed income securities
Numerator:
Shareholders' equity $20,186 $21,823
Unrealized net capital gains on fixed income
securities 1,255 2,134
--------- ---------
Adjusted shareholders' equity $18,931 $19,689
========= =========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 651.0 688.0
========= =========
Book value per diluted share, excluding the
net impact of unrealized net capital gains
on fixed income securities $29.08 $28.62
========= =========
Gross margin represents life and annuity premiums and contract charges and net investment income and periodic settlements and accruals on non-hedge derivative instruments, less contract benefits and interest credited to contractholder funds excluding amortization of DSI. We reclassify periodic settlements and accruals on non-hedge derivative instruments into gross margin to report them in a manner consistent with the economically hedged investments, replicated assets or product attributes (e.g. net investment income or interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. We use gross margin as a component of our evaluation of the profitability of Allstate Financial's life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities, variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of three components that are utilized to further analyze the business; they include the investment margin, benefit margin, and contract charges and fees. We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to Allstate Financial's GAAP net income in the following table.
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ---------------
($ in millions) Est. Est.
2005 2004 2005 2004
------- ------- ------- -------
Life and annuity premiums and contract
charges $524 $564 $2,049 $2,072
Net investment income 992 890 3,830 3,410
Periodic settlements and accruals on
non-hedge derivative instruments 14 16 63 49
Contract benefits (406) (444) (1,615) (1,618)
Interest credited to contractholder
funds(2) (610) (526) (2,329) (1,956)
------- ------- ------- -------
Gross margin 514 500 1,998 1,957
Amortization of DAC and DSI (147) (123) (545) (498)
Operating costs and expenses (150) (169) (604) (634)
Restructuring and related charges (1) - (2) (5)
Income tax expense (77) (66) (266) (269)
Realized capital gains and losses,
after-tax (21) 87 12 (3)
DAC and DSI amortization relating to
capital gains and losses, after-tax 3 (61) (103) (89)
Non-recurring increase in liability for
future benefits, after-tax - - (22) -
Reclassification of periodic
settlements and accruals on non-hedge
derivative instruments, after-tax (8) (11) (40) (32)
(Loss) gain on disposition of
operations, after-tax (1) 16 (12) (6)
Cumulative effect of change in
accounting principle, after-tax - - - (175)
------- ------- ------- -------
Allstate Financial net income $112 $173 $416 $246
======= ======= ======= =======
(2) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled est. $9 million in the fourth quarter
of 2005 and est. $74 million for the first twelve months of 2005
compared to $20 million in the fourth quarter of 2004 and $45
million in the first twelve months of 2004.
Investment margin is a component of gross margin. Investment margin represents the excess of net investment income and periodic settlements and accruals on non-hedge derivative instruments 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. Amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating investment margin. 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, cost of insurance contract charges and variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. fees for contract guarantees less contract benefits. Benefit margin excludes 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 December 31,
----------------------------------------------------------
Contract
Investment Benefit Charges and Gross
Margin Margin Fees Margin
-------------- -------------- -------------- -------------
(in Est. Est. Est. Est.
millions) 2005 2004(4) 2005 2004(4) 2005 2004(4) 2005 2004
------ ------- ------ ------- ------ ------- ------ ------
Life and
annuity
premiums $- $- $229 $300 $- $- $229 $300
Contract
charges - - 166 142 129 122 295 264
Net
investment
income 992 890 - - - - 992 890
Periodic
settlements
and
accruals on
non-hedge
derivative
instruments 14 16 - - - - 14 16
Contract
benefits (132) (142) (274) (302) - - (406) (444)
Interest
credited to
contractholder
funds(3) (610) (526) - - - - (610) (526)
------ ------- ------ ------- ------ ------- ------ ------
$264 $238 $121 $140 $129 $122 $514 $500
====== ======= ====== ======= ====== ======= ====== ======
(3) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled est. $9 million in the fourth quarter
of 2005 and $20 million in the fourth quarter of 2004.
(4) Prior periods have been restated to conform to current period
presentations. In connection therewith, fees related to guaranteed
minimum death, accumulation, withdrawal and income benefits on
variable annuities have been reclassified to benefit margin from
maintenance charges. Additionally, amounts previously presented as
maintenance charges and surrender charges are now presented in the
aggregate as contract charges and fees. Further, the Allstate
Workplace Division margins were conformed. These reclassifications
did not result in a change in gross margin.
Twelve Months Ended December 31,
-----------------------------------------------------------
Contract
Investment Benefit Charges Gross
Margin Margin and Fees Margin
--------------- --------------- ----------- ---------------
(in Est. 2004 Est. 2004 Est. 2004 Est.
millions) 2005 (6) 2005 (6) 2005 (6) 2005 2004
------- ------- ------- ------- ----- ----- ------- -------
Life and
annuity
premiums $- $- $918 $1,045 $- $- $918 $1,045
Contract
charges - - 631 562 500 465 1,131 1,027
Net
investment
income 3,830 3,410 - - - - 3,830 3,410
Periodic
settlements
and
accruals on
non-hedge
derivative
instruments 63 49 - - - - 63 49
Contract
benefits (530) (533) (1,085) (1,085) - - (1,615) (1,618)
Interest
credited
to
contractholder
funds(5) (2,329) (1,956) - - - - (2,329) (1,956)
------- ------- ------- ------- ----- ----- ------- -------
$1,034 $970 $464 $522 $500 $465 $1,998 $1,957
======= ======= ======= ======= ===== ===== ======= =======
(5) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled est. $74 million in the first twelve
months of 2005 and $45 million in the first twelve months of 2004.
(6) Prior periods have been restated to conform to current period
presentations. In connection therewith, fees related to guaranteed
minimum death, accumulation, withdrawal and income benefits on
variable annuities have been reclassified to benefit margin from
maintenance charges. Additionally, amounts previously presented as
maintenance charges and surrender charges are now presented in the
aggregate as contract charges and fees. Further, the Allstate
Workplace Division margins were conformed. These reclassifications
did not result in a change in gross margin.
Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Premiums written $6,658 $6,499 $27,391 $26,531
Change in Property-Liability
unearned premiums 199 88 (349) (608)
Other (19) 20 (3) 66
-------- -------- -------- --------
Premiums earned $6,838 $6,607 $27,039 $25,989
======== ======== ======== ========
Premiums and deposits is an operating measure that we use to analyze production trends for Allstate Financial sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products including the net new deposits of Allstate Bank, which we account for under GAAP as increases to liabilities rather than as revenue. The following table illustrates where premiums and deposits are reflected in the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge .
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Total Premiums and deposits $4,007 $4,163 $14,395 $15,919
Deposits to contractholder funds (3,390) (3,536) (12,004) (13,616)
Deposits to separate accounts (381) (319) (1,482) (1,268)
Change in unearned premiums and
other adjustments (7) (8) 9 10
-------- -------- -------- --------
Life and annuity premiums(7) $229 $300 $918 $1,045
======== ======== ======== ========
(7) Life and annuity contract charges in the amount of est. $295
million and $264 million for the three months ended December 31,
2005 and 2004, respectively, and est. $1.13 billion and $1.03
billion for the twelve months ended December 31, 2005 and 2004,
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 Agency proprietary distribution channel. New sales of financial products by Allstate exclusive agencies includes annual premiums on new life 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 fourth quarter of 2005 and fourth quarter of 2004 totaled est. $755 million and $737 million, respectively. New sales of financial products by Allstate exclusive agencies for the twelve months ended December 31, 2005 and 2004 totaled est. $2.40 billion and $2.27 billion, respectively. Forward Looking Statements and Risk Factors This press release contains an estimate of The Allstate Corporation's losses resulting from Hurricanes Katrina, Rita and Wilma, the impact of steps we are taking to reduce our catastrophe exposure, and 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 per share for 2006. 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 based on the risk factors described below. With respect to Hurricanes Katrina, Rita and Wilma, management believes the estimated net loss reserves are appropriately established and recorded based on available facts, information, laws and regulations. However, actual results may differ materially from the amounts recorded for a variety of reasons, including the following: --Our policyholders' ability to report and our ability to adjust claims were impeded im·pede tr.v. im·ped·ed, im·ped·ing, im·pedes To retard or obstruct the progress of. See Synonyms at hinder1. [Latin imped by the extent of the devastation, the size of the area affected and the fact that some communities were hit by more than one storm. --It was particularly difficult to assess the extent of damage in the initial stages of adjusting residential property losses. --Our estimate for the ultimate costs of repairs may increase due to the increased demand for services and supplies in the areas affected by a hurricane. --The number of IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant claims may be greater or less than anticipated. --The need to have more claims adjusters to handle the large number and nature of claims has increased pressure on our catastrophe claims settlement management process. --Litigation has been filed, which if ultimately decided against us, could lead to a material increase in our catastrophe claims and claims expense estimate. With respect to the impact of steps we are taking to reduce our catastrophe exposure and the 2006 annual operating income per share estimate, actual results may differ materially for a variety of reasons, including the following: --While we believe that the actions we are taking to earn an acceptable return on the risks assumed in our property business and to reduce the associated variability in our earnings will be successful over the long term, it is possible that they will have a negative impact on near-term near-term adj. Of, for, or involving a short period of time in the near future. growth and earnings. Homeowners and other property premium growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. and retention could be adversely impacted by adjustments to our business structure, size and underwriting practices in markets with significant catastrophe risk exposure. In addition, due to the diminished di·min·ish v. di·min·ished, di·min·ish·ing, di·min·ish·es v.tr. 1. a. To make smaller or less or to cause to appear so. b. potential for cross-selling Cross-selling is the term used to describe the sale of additional products or services to a customer. Less frequently it is used to describe the sale of services to additional business units at an account or to different geographic units of a customer. opportunities, new business growth in our auto lines could be lower than expected. --We may continue to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. catastrophe losses in our property business in amounts in excess of those experienced this year, in excess of those that management projects would be incurred based on hurricane and earthquake losses which have a one percent probability of occurring on an annual aggregate countrywide basis, in excess of those that modelers estimate would be incurred based on other levels of probability, in excess of the average expected level used in pricing, and in excess of our current reinsurance coverage limits. Rating agencies may require us to maintain our current level of capital despite our reductions in exposure to catastrophic risk. --Actual placement of the remainder of our reinsurance program, related premium and cost reductions may differ from our expectations due to our ongoing negotiations with participants in the reinsurance market, and our ability to reduce expenses to the desired level. --Lower than projected interest rates and equity market returns could decrease consolidated net investment income, increase DAC amortization and reduce contract charges, investment margins and the profitability of the Allstate Financial segment. --Higher than projected interest rates could increase surrenders and withdrawals, increase DAC amortization and reduce the competitive position and profitability of the Allstate Financial segment. --Unexpected claims payment patterns and the resulting impact to cash flows, or results from the management and review of our investment portfolios could cause lower than expected net investment income. --Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company's business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. or change the outlook on an insurer's ratings due to, for example, a change in an insurer's statutory capital; a change in a rating agency's determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived per·ceive tr.v. per·ceived, per·ceiv·ing, per·ceives 1. To become aware of directly through any of the senses, especially sight or hearing. 2. To achieve understanding of; apprehend. risk of an insurer's investment portfolio; a reduced confidence in management or a host of other considerations that may or may not be under the insurer's control. --The completion of the $4 billion stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program that we announced in November 2004 is subject to the risks identified above and their impact on net income and cash flows, as well as management discretion and assessment of alternative uses of funds and the market price of Allstate's common stock from time to time. We undertake no obligation to publicly correct or update any forward-looking statements. This press release contains unaudited financial information. Now celebrating the 75th anniversary of the founding of Allstate Insurance Company, 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, Allstate helps individuals in approximately 17 million households protect what they have today and better prepare for tomorrow through approximately 14,100 exclusive agencies and financial professionals in the U.S. and Canada. Customers can access Allstate products and services such as auto insurance and homeowners insurance through Allstate agencies, or in select states at allstate.com and 1-800 Allstate(R). Encompass(SM) and Deerbrook(R) Insurance brand property and casualty products are sold exclusively through independent agents. The Allstate Financial Group provides life insurance, supplemental accident and health insurance, annuity, banking and retirement products designed for individual, institutional and worksite customers that are distributed through 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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