Allstate Reports 2005 Third Quarter Results; Catastrophes of $3.06 Billion, after-tax; Underwriting Profitability Excluding Catastrophes Remains Very Strong.NORTHBROOK Northbrook, village (1990 pop. 32,308), Cook co., NE Ill., a suburb of Chicago; settled 1836. It was incorporated as Shermerville in 1901 and was reincorporated as Northbrook in 1923. , Ill. -- The Allstate This article is about the American insurance company. For the line of automobiles, see Allstate (automobile). The Allstate Corporation NYSE: ALL is the largest publicly held personal lines insurer in the United States. Corporation (NYSE NYSE See: New York Stock Exchange :ALL) today reported for the third quarter of 2005:
Consolidated Highlights(1)
Three Months Ended September 30,
---------------------------------
(in millions, except per share
amounts and ratios) Est.
2005 2004 Change
---- ---- ------
Consolidated revenues $8,942 $8,442 $500
Net (loss) income (1,548) 56 $(1,604)
Net (loss) income per diluted share (2.36) 0.09 $(2.45)
Operating (loss) income(1) (1,650) 49 $(1,699)
Operating (loss) income per diluted
share(1) (2.52) 0.08 $(2.60)
Property-Liability combined ratio 149.6 110.5 39.1 pts.
Effect of catastrophes on combined
ratio 69.4 26.0 43.4 pts.
Effect of catastrophes on Net (loss)
income per diluted share (4.67) (1.59) $3.08
Book value per diluted share 29.66 30.33 $(0.67)
Return on equity 9.2 13.9 (4.7) pts.
Operating income return on equity(1) 9.0 16.5 (7.5) pts.
--After-tax catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses, net of 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. , totaled $3.06 billion in the third quarter of 2005 compared to $1.11 billion in the third quarter of 2004. The effect of catastrophes on net (loss) 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 $4.67 in the third quarter of 2005 compared to $1.59 in the third quarter of 2004. Catastrophe losses in the quarter included the impacts of Hurricanes Katrina KATRINA Keeping All the Resources in New Orleans Alive KATRINA Krewe Aiding Trash Removal In the New Orleans Area ($3.68 billion pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta or $2.39 billion after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. ), Rita ($850 million pre-tax or $553 million after-tax, net of reinsurance), Dennis Dennis is a male first name derived from the Greco-Roman name Dionysius meaning "servant of Dionysus", the Thracian god of wine, which is ultimately derived from the Greek Dios (Διος, "of Zeus") combined with Nysos or Nysa (Νυσα), where the and Ophelia Ophelia, in astronomy, one of the natural satellites, or moons, of Uranus. Ophelia goes mad after father’s death. [Br. Lit.: Hamlet] See : Madness Ophelia . For further information, see the Impacts of Hurricanes Katrina and Rita section. --Property-Liability premiums written(1) grew 2.9% over the third quarter of 2004, driven by an increase in Allstate brand standard auto and homeowners premiums written, which grew 4.7% and 6.0%, respectively. Premiums written grew 3.7%, excluding the cost of catastrophe reinsurance programs purchased in 2005, impacts of Hurricane Katrina  Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. and
business ceded to 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. ("Universal"). Allstate brand standard auto and homeowners
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 3.6% and 4.4%,
respectively, from September September: see month. 30, 2004 levels.--Property-Liability underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. loss was $3.36 billion compared to an underwriting loss of $685 million in the third quarter of 2004, due to higher catastrophes, partially offset by increased premiums earned, 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 net favorable prior year reserve reestimates. --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 $156 million, an increase of 3.3% over the third quarter of 2004. Premiums and deposits(1) were $2.38 billion, a decrease of 40.8% over the third quarter of 2004 due to lower institutional product deposits and pricing actions taken to ensure adequate returns. --Allstate's annual operating income per diluted share guidance for 2005 (assuming the level of average expected catastrophe losses used in pricing for the remainder of the year) is in the range of $2.35 to $2.50, compared to the previously announced range of $6.00 to $6.40, due to the level of catastrophe losses in the third quarter of 2005. (1) Measures used in this release that are not based on generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("non-GAAP") are defined and reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure and operating measures are defined in the "Definitions of Non-GAAP and Operating Measures" section of this document. "The destructive and 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. effects of Hurricane Katrina significantly overshadowed Allstate's strong underlying performance trends in the quarter," 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 CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of The Allstate Corporation. "This unprecedented 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. is the United States' costliest catastrophe in history, surpassing Hurricane Andrew This article is about the 1992 hurricane; there was also a Tropical Storm Andrew during the 1986 Atlantic hurricane season. Hurricane Andrew is the second-most-destructive hurricane in U.S. history, and the last of three Category 5 hurricanes that made U.S. by a wide margin. "For Allstate, pre-tax catastrophe losses, including claims from Hurricanes Katrina, Rita, Dennis and Ophelia, were more than $4.7 billion net of reinsurance in the quarter. This represents nearly a ten-fold Adj. 1. ten-fold - containing ten or ten parts denary, tenfold multiple - having or involving or consisting of more than one part or entity or individual; "multiple birth"; "multiple ownership"; "made multiple copies of the speech"; "his multiple increase from what we would normally expect in catastrophe losses in a quarter. For Hurricanes Katrina and Rita, the company expects to handle more than 300,000 claims from customers primarily in Louisiana Louisiana (ləwē'zēăn`ə, l  ē'–), state in the S central United States. It is bounded by Mississippi, with the Mississippi R. , Mississippi Mississippi, state, United StatesMississippi (mĭs'əsĭp`ē), one of the Deep South states of the United States. It is bordered by Alabama (E), the Gulf of Mexico (S), Arkansas and Louisiana, with most of the border formed by , Alabama Alabama, indigenous people of North America Alabama (ăləbăm`ə), indigenous people of North America whose language belongs to the Muskogean branch of the Hokan-Siouan linguistic stock (see Native American languages). , 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 Texas. "Allstate has nearly 4,000 claim professionals along the gulf coast working as fast and as hard as possible to bring aid to the many thousands of people impacted by the terrible 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:
"We continue working on our homeowners catastrophe management strategy through a variety of strong proactive risk management actions to better address significant potential 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. We have made progress to reduce our exposure to catastrophe losses, but we will do much more and do it on an accelerated basis. "In addition, it is also clear to Allstate that how this country prepares for and offers protection against mega-catastrophes must be re-thought and changed. We have all seen on our television screens that the current system is inadequate. America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. cannot continue to look into the rear-view mirror rear-view mirror Noun a mirror on a motor vehicle enabling the driver to see the traffic behind rear-view mirror rear n (Aut) → rétroviseur m to manage catastrophes such as hurricanes and earthquakes Earthquakes See also geology. bathyseism an earthquake occurring at very deep levels of the earth. bradyseism the slow upward and downward motion of the earth’s crust. — bradyseismic, adj. . "We believe it's time It's Time was a successful political campaign run by the Australian Labor Party (ALP) under Gough Whitlam at the 1972 election in Australia. Campaigning on the perceived need for change after 23 years of conservative (Liberal Party of Australia) government, Labor put forward a to develop a new system to plan ahead and become better prepared for catastrophes. Allstate is aggressively pursuing a broadened dialogue and stands ready to help develop a solution that more effectively protects people, families, communities and our national economy from these horrific hor·rif·ic adj. Causing horror; terrifying. [Latin horrificus : horr  re, to tremble + -ficus, -fic. catastrophes."Absent the impact of the hurricanes, it was a strong quarter for Allstate Protection. Net written premiums were up 2.9 percent with Allstate brand standard auto and homeowners premiums written growing 4.7 percent and 6.0 percent, respectively. Allstate brand standard auto and homeowners policies in force grew 3.6 and 4.4 percent, respectively. And the retention ratio for Allstate brand standard auto and homeowners remained strong. "Allstate brand standard auto and homeowners loss costs, excluding catastrophes, continued to trend favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. as compared to prior quarters. Frequencies continue to improve and severities remain manageable with modest levels of increase, well within our pricing assumptions. The impact of catastrophes on the third quarter combined ratio accounted for 69.4 points of the total combined ratio of 149.6, indicating the outstanding underlying profitability performance of the business. "Allstate Financial generated operating income in the quarter of $156 million, an increase of $5 million or 3.3 percent compared to the third quarter of 2004. Non-deferred operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were held flat compared to the third quarter of 2004. Total premiums and deposits were down $1.6 billion in the quarter compared to the third quarter of 2004, primarily due to declines in sales of traditional fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. and the absence of 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. sales of institutional products. The reduced retail sales reflect our strategy to focus on improving returns. "We continued to make significant progress on our share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program in the quarter, buying back 12.1 million shares for $717 million. We have now bought back a total of 39.5 million shares this year at a total cost of $2.22 billion toward the current $4.0 billion share repurchase program to be completed in 2006." "The effects of the 2005 hurricane season will likely be with us for some time to come as we work to settle claims and help restore our customers' lives."
Consolidated Highlights
Discussion of
Three Months Nine Months Results for the
Ended Ended Three Months Ended
September 30, September 30, September 30, 2005
----------------- ----------------- -------------------
($ in millions,
except per
share and
return Est. Est.
amounts) 2005 2004 2005 2004
-------- -------- -------- --------
Consolidated $8,942 $8,442 $26,438 $25,057 Growth of
revenues Property-Liability
premiums earned,
higher net
investment income
and higher net
realized capital
gains, partially
offset by lower
life and annuity
premiums and
contract charges.
Operating (1,650) 49 607 2,105 Decrease in
(loss) income Property-Liability
operating income
of $1,710 and an
increase in
Allstate Financial
operating income
of $5.
Realized 121 37 288 180 See the Components
capital gains of Realized
and losses, Capital Gains and
after-tax Losses (pretax)
table.
DAC and DSI (2) (15) (106) (28) Amortization
amortization related to certain
relating to realized capital
realized gains.
capital
gains and
losses, after-tax
Cumulative -- -- -- (175)
effect of
change in
accounting
principle,
after-tax
Net (loss) (1,548) 56 724 2,039 Decrease in
income Property-Liability
and increase in
Allstate Financial
net income.
Net (loss) (2.36) 0.09 1.08 2.90
income per
diluted
share (1)
Operating (2.52) 0.08 0.90 2.99
(loss) income
per diluted
share (1)
Net shares 650.4 689.1 650.4 689.1 During the third
outstanding quarter of 2005,
Allstate purchased
12.1 million
shares of its
stock for $717
million, leaving
$1.78 billion
remaining in the
current $4 billion
authorization.
Weighted 654.8 696.8 671.9 703.5
average shares
outstanding
(diluted) (1)
Return on 9.2 13.9 9.2 13.9 See the return on
equity equity calculation
in the Definitions
of Non-GAAP and
Operating Measures
section of this
document.
Operating 9.0 16.5 9.0 16.5 See the return on
income return equity calculation
on equity in the Definitions
of Non-GAAP and
Operating Measures
section of this
document.
Book value per 29.66 30.33 29.66 30.33 At September 30,
diluted share 2005 and 2004, net
unrealized gains
on fixed income
securities
totaling $1,447
and $2,164,
respectively,
represented $2.21
and $3.12,
respectively, of
book value per
diluted share.
(1) As prescribed by generally accepted accounting principles the
quarter earnings per share amounts were computed discretely and
the antidilutive effects of potential common shares outstanding
totaling 5.6 million were excluded from weighted average
shares-diluted due to the third quarter 2005 net loss.
Accordingly, the sum of the per share amounts for the three
quarters of 2005 does not equal the year to date per share amount.
-- Book value per diluted share decreased 2.2% compared to
September 30, 2004. Book value per diluted share excluding the
net impact of unrealized net capital gains on fixed income
securities(1) was $27.45 at September 30, 2005, reflecting an
increase of 0.9% and a decrease of 4.1% compared to September
30, 2004 and December 31, 2004, respectively.
Property-Liability Highlights
Discussion of
Three Months Nine Months Results for the
Ended Ended Three Months Ended
September 30, September 30, September 30, 2005
----------------- ----------------- ------------------
($ in millions, Est. Est.
except ratios) 2005 2004 2005 2004
-------- -------- -------- --------
Property- $7,158 $6,958 $20,733 $20,032 See the Property-
Liability net Liability
premiums Premiums Written
written by Market Segment
table.
Property- 7,398 7,094 21,919 21,092 Premiums earned
Liability increased $230 or
revenues 3.5%.
Underwriting (3,363) (685) (1,388) 1,068 Higher
(loss) income catastrophe
losses partially
offset by higher
premiums earned,
continued
favorable auto
and homeowners
loss frequencies,
excluding
catastrophes, and
net favorable
prior year
reserve
reestimates. See
the Allstate
Protection Market
Segment Analysis
table.
Net investment 454 443 1,333 1,310 Higher portfolio
income balances due to
positive cash
flows from
operations and
higher
partnership
income, partially
offset by lower
yields.
Operating (loss) (1,785) (75) 236 1,773 Decrease of
income $1,741 in
underwriting
results, after-
tax.
Realized capital 99 69 248 272 See the
gains and Components of
losses, after- Realized
tax Capital Gains and
Losses (pretax)
table.
Net (loss) (1,686) (6) 484 2,045 Higher operating
income loss.
Catastrophe
losses 4,707 1,706 5,017 2,056
Ratios:
Property-
Liability
combined ratio 149.6 110.5 106.9 94.5
Effect of
Discontinued
Lines and
Coverages on
combined ratio 2.0 4.9 0.9 3.3
Allstate
Protection
combined ratio 147.6 105.6 106.0 91.2
Effect of
catastrophe
losses on
combined ratio 69.4 26.0 24.8 10.6
--Allstate brand standard auto and homeowners PIF increased 3.6% and 4.4%, respectively, from September 30, 2004 levels, compared to increases of 4.2% and 5.4%, respectively, in the second quarter of 2005 over the second 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 . --The retention ratios for Allstate brand standard auto and homeowners were 90.5 and 88.5, respectively, compared to 90.9 and 88.6 in the prior year third quarter. Retention ratios exclude Allstate Canada. --New business premiums written for the Allstate brand standard auto increased 2.0% while homeowners declined 6.5%, as compared to the third quarter of 2004. The decline in homeowners new business premiums is primarily due to our proactive catastrophe risk management actions and competitive pressures in certain states.
-- Standard auto new business premiums grew 3.3%, excluding
New Jersey. In New Jersey, we continue to experience a
decline due to new entrants in the market. New business
premiums written, which represented 9.2% of the total
standard auto premiums written, increased in approximately
65% of the states.
-- Homeowners new business premiums grew 2.8%, excluding
Florida, California and New York. Declines in these
markets are due to our proactive catastrophe risk
management actions. New business premiums written, which
represented 12.8% of the total homeowners premiums
written, increased in approximately 60% of the states.
We will continue our disciplined risk and pricing approach,
seeking profitable growth on a market-by-market basis. For
further information, see the Homeowners Catastrophe Management
Strategy section.
--Prior year net favorable reserve re-estimates totaled $150 million, resulting from a $284 million favorable re-estimate for Allstate Protection, partially offset by a $134 million unfavorable re-estimate for Discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Lines and Coverages. The Allstate Protection net reserve reestimate reflects lower actual claim severity trends and late reported loss development than anticipated in previous estimates. For further information, see the Discontinued Lines and Coverages Reserves section.
Allstate Financial Highlights
Discussion of
Results for
the Three
Three Months Nine Months Months Ended
Ended Ended September
September 30, September 30, 30, 2005
----------------- ----------------- -------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Premiums and deposits $2,377 $4,017 $10,388 $11,756 See the
Allstate
Financial
Premiums and
Deposits
table.
Allstate Financial 1,506 1,323 4,415 3,893 Higher
revenues investment
income and
realized net
capital
gains,
partially
offset by
lower life
and annuity
premiums and
contract
charges.
Operating income 156 151 442 409 Primarily
due to lower
income
taxes.
Realized capital 17 (33) 33 (90) See the
gains and Components
losses, after-tax of Realized
Capital
Gains and
Losses
(pretax)
table.
DAC and DSI (2) (15) (106) (28) Amortization
amortization related to
relating to certain
realized capital realized
gains and losses, capital
after-tax gains.
Cumulative effect of -- -- -- (175)
change in
accounting
principle, after-tax
Net income 154 88 304 73 Higher
realized net
capital
gains,
after-tax,
and higher
operating
income,
partially
offset by
higher DAC
and DSI
amortization
related to
higher
realized net
capital
gains.
--Investments including Separate Account assets as of September 30, 2005 increased 7.8% over September 30, 2004 primarily due to sales of fixed annuities 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 September 30, 2005, 73% of our interest-sensitive life and 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. contracts, excluding market value adjusted annuities, have a guaranteed crediting rate of 3% or higher. Of these contracts, 80% have crediting rates that are at the minimum as of September 30, 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 48 basis points as of September 30, 2005 compared to 49 basis points as of June June: see month. 30, 2005. --New sales of financial products by Allstate exclusive agencies increased 5.0% over the third quarter of 2004 to $546 million. --Total fixed annuity deposits were $1.23 billion, a decrease of 43.6% from the third quarter of 2004 and 22.2% below the second quarter of 2005. Due primarily to our strategy focused on achieving higher returns, deposits of traditional fixed annuities were $875 million, a decrease of 53.1% from the third quarter of 2004. This decrease was partially offset by deposits of equity indexed annuities of $187 million, a 27.2% increase over the third 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 $452 million in the quarter, an increase of 37.0% over the third quarter of 2004 and 1.5% lower than the second quarter of 2005. --Allstate Financial prioritizes the allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of fixed income investments to support sales of retail products with the best sustainable growth and contribution margins and to maintain our retail market presence. There were no sales of institutional products during the quarter. Our institutional business remains opportunistic.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
($ in millions,
except per Est. Percent Est. Percent
share data) 2005 2004 Change 2005 2004 Change
-------- ------- -------- --------- -------- --------
Revenues
Property-
liability
insurance
premiums $6,781 $6,551 3.5 $20,201 $19,382 4.2
Life and
annuity
premiums
and contract
charges 505 508 (0.6) 1,525 1,508 1.1
Net investment
income 1,457 1,333 9.3 4,264 3,906 9.2
Realized
capital gains
and losses 199 50 - 448 261 71.6
-------- ------- --------- --------
Total revenues 8,942 8,442 5.9 26,438 25,057 5.5
-------- ------- --------- --------
Costs and
expenses
Property-
liability
insurance
claims and
claims
expense 8,529 5,661 50.7 16,706 13,668 22.2
Life and
annuity
contract
benefits 395 401 (1.5) 1,209 1,174 3.0
Interest
credited to
contractholder
funds 608 505 20.4 1,784 1,455 22.6
Amortization of
deferred
policy
acquisition
costs 1,160 1,124 3.2 3,557 3,251 9.4
Operating costs
and expenses 713 738 (3.4) 2,266 2,241 1.1
Restructuring
and related
charges 10 (1) - 36 26 38.5
Interest
expense 85 76 11.8 251 223 12.6
-------- ------- --------- --------
Total costs
and expenses 11,500 8,504 35.2 25,809 22,038 17.1
-------- ------- --------- --------
Loss on
disposition of
operations (4) (6) 33.3 (12) (17) 29.4
-------- ------- --------- --------
(Loss) income
from operations
before income
tax (benefit)
expense and
cumulative
effect of
change
in accounting
principle,
after-tax (2,562) (68) - 617 3,002 (79.4)
Income tax
(benefit)
expense (1,014) (124) - (107) 788 (113.6)
-------- ------- --------- --------
(Loss) income
before
cumulative
effect of
change
in accounting
principle,
after-tax (1,548) 56 - 724 2,214 (67.3)
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (175) 100.0
-------- ------- --------- --------
Net (loss)
income $(1,548) $56 - $724 $2,039 (64.5)
======== ======= ========= ========
Net (loss)
income per
share - Basic $(2.36) $0.10 $1.09 $2.92
======== ======= ========= ========
Weighted average
shares - Basic 654.8 692.1 666.3 698.8
======== ======= ========= ========
Net (loss)
income per
share -
Diluted (1) $(2.36) $0.09 $1.08 $2.90
======== ======= ========= ========
Weighted average
shares -
Diluted (1) 654.8 696.8 671.9 703.5
======== ======= ========= ========
Cash dividends
declared per
share $0.32 $0.28 $0.96 $0.84
======== ======= ========= ========
(1) As prescribed by generally accepted accounting principles the
quarter earnings per share amounts were computed discretely and
the antidilutive effects of potential common shares outstanding
totaling 5.6 million were excluded from weighted average
shares-diluted due to the third quarter 2005 net loss.
Accordingly, the sum of the per share amounts for the three
quarters of 2005 does not equal the year to date per share amount.
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions,
except per share Est. Percent Est. Percent
data) 2005 2004 Change 2005 2004 Change
-------- -------- -------- ------- --------- --------
Contribution to
income
Operating (loss)
income before
the impact of
restructuring
and related
charges $(1,644) $48 - $630 $2,122 (70.3)
Restructuring
and related
charges,
after-tax 6 (1) - 23 17 35.3
-------- -------- ------- ---------
Operating (loss)
income (1,650) 49 - 607 2,105 (71.2)
Realized capital
gains and
losses,
after-tax 121 37 - 288 180 60.0
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax (2) (15) 86.7 (106) (28) -
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 (10) (10) - (32) (21) (52.4)
Loss on
disposition of
operations,
after-tax (7) (5) (40.0) (11) (22) 50.0
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (175) 100.0
-------- -------- ------- ---------
Net (loss)
income $(1,548) $56 - $724 $2,039 (64.5)
======== ======== ======= =========
(Loss) income per
share (Diluted) (2)
Operating (loss)
income before
the impact of
restructuring
and related
charges $(2.51) $0.08 - $0.94 $3.01 (68.8)
Restructuring
and related
charges,
after-tax 0.01 - - 0.04 0.02 100.0
-------- -------- ------- ---------
Operating (loss)
income (2.52) 0.08 - 0.90 2.99 (69.9)
Realized capital
gains and
losses,
after-tax 0.18 0.06 - 0.43 0.26 65.4
DAC and DSI
amortization
relating to
realized
capital
gains and
losses,
after-tax - (0.02) 100.0 (0.16) (0.04) -
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) (0.02) 50.0 (0.05) (0.03) (66.7)
Loss on
disposition of
operations,
after-tax (0.01) (0.01) - (0.01) (0.03) 66.7
Cumulative
effect of
change in
accounting
principle,
after-tax - - - - (0.25) 100.0
-------- -------- ------- ---------
Net (loss)
income $(2.36) $0.09 - $1.08 $2.90 (62.8)
======== ======== ======= =========
Book value per
share - Diluted $29.66 $30.33 (2.2) $29.66 $30.33 (2.2)
======== ======== ======= =========
(1) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
(2) As prescribed by generally accepted accounting principles the
quarter earnings per share amounts were computed discretely and
the antidilutive effects of potential common shares outstanding
totaling 5.6 million were excluded from weighted average
shares-diluted due to the third quarter 2005 net loss.
Accordingly, the sum of the per share amounts for the three
quarters of 2005 does not equal the year to date per share amount.
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended September 30, 2005 (Est.)
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
----------- ---------- ---------- ----------
Valuation of derivative
instruments $23 $(32) $- $(9)
Settlements of derivative
instruments 21 45 - 66
Dispositions (1) (2) 125 24 9 158
Investment write-downs (6) (10) - (16)
----------- ---------- ---------- ----------
Total $163 $27 $9 $199
=========== ========== ========== ==========
Nine Months Ended September 30, 2005 (Est.)
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
----------- ---------- ---------- ----------
Valuation of derivative
instruments $(4) $(101) $- $(105)
Settlements of derivative
instruments 24 54 - 78
Dispositions (1) (2) 385 122 11 518
Investment write-downs (20) (23) - (43)
----------- ---------- ---------- ----------
Total $385 $52 $11 $448
=========== ========== ========== ==========
Three Months Ended September 30, 2004
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
----------- ---------- ---------- ----------
Valuation of derivative
instruments $(20) $(23) $- $(43)
Settlements of derivative
instruments (50) (4) 1 (53)
Dispositions 189 3 - 192
Investment write-downs (19) (27) - (46)
----------- ---------- ---------- ----------
Total $100 $(51) $1 $50
=========== ========== ========== ==========
Nine Months Ended September 30, 2004
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
----------- ---------- ---------- ----------
Valuation of derivative
instruments $(23) $(49) $(1) $(73)
Settlements of derivative
instruments (65) (4) - (69)
Dispositions 522 (9) (2) 511
Investment write-downs (34) (73) (1) (108)
----------- ---------- ---------- ----------
Total $400 $(135) $(4) $261
=========== ========== ========== ==========
(1) Because of the level of catastrophe losses experienced during the
quarter and the possibility that we may need to have additional
cash available to pay claims, we identified a portfolio of
approximately $13.2 billion of securities from which we would
consider selecting specific securities to sell to meet these
needs. Approximately $2.0 billion of these securities were in an
unrealized loss position, and, therefore, with the change in our
intention to hold these investments, we recognized $15 million of
anticipated disposition write-downs during the quarter.
(2) Because of an anticipated rise in interest rates, as well as
changes in existing market conditions and asset return
assumptions, certain changes are planned within various investment
portfolios impacting approximately $492 million of securities.
These changes result from continued asset-liability management
strategies, on-going comprehensive reviews of our portfolios, and
changes being made to our strategic asset allocations.
Approximately $215 million of these securities were in an
unrealized loss position, and, therefore, with the change in our
intention to hold these investments, we recognized $14 million of
anticipated disposition write-downs during the quarter.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- ---------
Property-Liability
Premiums written $7,158 $6,958 $20,733 $20,032
======== ======== ======== =========
Premiums earned $6,781 $6,551 $20,201 $19,382
Claims and claims expense (1) 8,529 5,661 16,706 13,668
Amortization of deferred policy
acquisition costs 1,029 985 3,061 2,858
Operating costs and expenses 577 592 1,787 1,767
Restructuring and related
charges 9 (2) 35 21
-------- -------- -------- ---------
Underwriting (loss) income (3,363) (685) (1,388) 1,068
-------- -------- -------- ---------
Net investment income 454 443 1,333 1,310
Income tax (benefit) expense on
operations (1,124) (167) (291) 605
-------- -------- -------- ---------
Operating (loss) income (1,785) (75) 236 1,773
Realized capital gains and
losses, after-tax 99 69 248 272
-------- -------- -------- ---------
Net (loss) income $(1,686) $(6) $484 $2,045
======== ======== ======== =========
Catastrophe losses $4,707 $1,706 $5,017 $2,056
======== ======== ======== =========
Operating ratios
Claims and claims expense
ratio (1) 125.8 86.4 82.7 70.5
Expense ratio 23.8 24.1 24.2 24.0
-------- -------- -------- ---------
Combined ratio 149.6 110.5 106.9 94.5
======== ======== ======== =========
Effect of catastrophe losses
on combined ratio 69.4 26.0 24.8 10.6
======== ======== ======== =========
Effect of restructuring and
related charges on combined
ratio 0.1 - 0.2 0.1
======== ======== ======== =========
Effect of Discontinued Lines
and Coverages on combined
ratio 2.0 4.9 0.9 3.3
======== ======== ======== =========
Allstate Financial
Premiums and deposits $2,377 $4,017 $10,388 $11,756
======== ======== ======== =========
Investments including Separate
Accounts assets $90,787 $84,247 $90,787 $84,247
======== ======== ======== =========
Premiums and contract charges $505 $508 $1,525 $1,508
Net investment income 974 866 2,838 2,520
Periodic settlements and
accruals on non-hedge
derivative instruments 14 15 49 33
Contract benefits 395 401 1,209 1,174
Interest credited to
contractholder funds 608 505 1,752 1,452
Amortization of deferred policy
acquisition costs 128 116 365 353
Operating costs and expenses 142 143 454 465
Restructuring and related
charges 1 1 1 5
Income tax expense on
operations 63 72 189 203
-------- -------- -------- ---------
Operating income 156 151 442 409
Realized capital gains and
losses, after-tax 17 (33) 33 (90)
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (2) (15) (106) (28)
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 (10) (10) (32) (21)
Loss on disposition of
operations, after-tax (7) (5) (11) (22)
Cumulative effect of change in
accounting principle,
after-tax - - - (175)
-------- -------- -------- ---------
Net income $154 $88 $304 $73
======== ======== ======== =========
Corporate and Other
Net investment income $29 $24 $93 $76
Operating costs and expenses 79 79 248 232
Income tax benefit on
operations (29) (28) (84) (79)
-------- -------- -------- ---------
Operating loss (21) (27) (71) (77)
Realized capital gains and
losses, after-tax 5 1 7 (2)
-------- -------- -------- ---------
Net loss $(16) $(26) $(64) $(79)
======== ======== ======== =========
Consolidated net (loss) income $(1,548) $56 $724 $2,039
======== ======== ======== =========
(1) For the nine months ended September 30, 2005, claims and claims
expense and claims and claims expense ratio include the effect of
$120 million or 0.6 points related to an accrual for a pending
settlement of a worker classification lawsuit challenging the
overtime exemption claimed by the Company under California wage
and hour laws.
(2) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- -----------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
-------- ------- ------- -------- -------- -------
Property-Liability
Underwriting
Summary
Allstate
Protection $(3,227) $(370) - $(1,218) $1,707 (171.4)
Discontinued Lines
and Coverages (136) (315) 56.8 (170) (639) 73.4
-------- ------- -------- --------
Underwriting
(loss) income $(3,363) $(685) - $(1,388) $1,068 -
======== ======= ======== ========
Allstate Protection
Underwriting
Summary
Premiums written $7,158 $6,957 2.9 $20,732 $20,029 3.5
======== ======= ======== ========
Premiums earned $6,780 $6,550 3.5 $20,201 $19,378 4.2
Claims and claims
expense (1) 8,394 5,347 57.0 16,543 13,032 26.9
Amortization of
deferred policy
acquisition costs 1,029 986 4.4 3,061 2,858 7.1
Operating costs
and expenses 575 589 (2.4) 1,780 1,760 1.1
Restructuring and
related charges 9 (2) - 35 21 66.7
-------- ------- -------- --------
Underwriting
(loss) income $(3,227) $(370) - $(1,218) $1,707 (171.4)
======== ======= ======== ========
Catastrophe losses $4,707 $1,706 175.9 $5,017 $2,056 144.0
======== ======= ======== ========
Operating ratios
Claims and
claims expense
ratio (1) 123.8 81.6 81.9 67.3
Expense ratio 23.8 24.0 24.1 23.9
-------- ------- -------- --------
Combined ratio 147.6 105.6 106.0 91.2
======== ======= ======== ========
Effect of
catastrophe
losses on
combined ratio 69.4 26.0 24.8 10.6
======== ======= ======== ========
Effect of
restructuring and
related charges on
combined ratio 0.1 - 0.2 0.1
======== ======= ======== ========
Discontinued Lines
and Coverages
Underwriting
Summary
Premiums written $- $1 (100.0) $1 $3 (66.7)
======== ======= ======== ========
Premiums earned $1 $1 - $- $4 (100.0)
Claims and claims
expense 135 314 (57.0) 163 636 (74.4)
Operating costs
and expenses 2 2 - 7 7 -
-------- ------- -------- --------
Underwriting
loss $(136) $(315) 56.8 $(170) $(639) 73.4
======== ======= ======== ========
Effect of
Discontinued
Lines and
Coverages
on the
Property-
Liability
combined ratio 2.0 4.9 0.9 3.3
======== ======= ======== ========
(1) For the nine months ended September 30, 2005, claims and claims
expense and claims and claims expense ratio include the effect of
$120 million or 0.6 points related to an accrual for a pending
settlement of a worker classification lawsuit challenging the
overtime exemption claimed by the Company under California wage
and hour laws.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- -----------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
------- ------- ------- -------- -------- -------
Allstate brand
Standard auto $3,901 $3,725 4.7 $11,435 $10,880 5.1
Non-standard auto 398 454 (12.3) 1,226 1,381 (11.2)
------- ------- -------- --------
Auto 4,299 4,179 2.9 12,661 12,261 3.3
Involuntary auto 35 45 (22.2) 133 183 (27.3)
Commercial lines 224 222 0.9 706 694 1.7
Homeowners 1,678 1,583 6.0 4,548 4,235 7.4
Other personal
lines 383 376 1.9 1,099 1,074 2.3
------- ------- -------- --------
6,619 6,405 3.3 19,147 18,447 3.8
Encompass brand
Standard auto 305 327 (6.7) 900 932 (3.4)
Non-standard auto
(Deerbrook) 28 37 (24.3) 90 119 (24.4)
------- ------- -------- --------
Auto 333 364 (8.5) 990 1,051 (5.8)
Involuntary auto 9 8 12.5 36 31 16.1
Homeowners 163 150 8.7 463 416 11.3
Other personal
lines 34 30 13.3 96 84 14.3
------- ------- -------- --------
539 552 (2.4) 1,585 1,582 0.2
Allstate Protection 7,158 6,957 2.9 20,732 20,029 3.5
Discontinued Lines
and Coverages - 1 (100.0) 1 3 (66.7)
------- ------- -------- --------
Property-Liability
(1) $7,158 $6,958 2.9 $20,733 $20,032 3.5
======= ======= ======== ========
Allstate Protection
Standard auto $4,206 $4,052 3.8 $12,335 $11,812 4.4
Non-standard auto 426 491 (13.2) 1,316 1,500 (12.3)
------- ------- -------- --------
Auto 4,632 4,543 2.0 13,651 13,312 2.5
Involuntary auto 44 53 (17.0) 169 214 (21.0)
Commercial lines 224 222 0.9 706 694 1.7
Homeowners 1,841 1,733 6.2 5,011 4,651 7.7
Other personal
lines 417 406 2.7 1,195 1,158 3.2
------- ------- -------- --------
$7,158 $6,957 2.9 $20,732 $20,029 3.5
======= ======= ======== ========
(1) In the third quarter of 2005, growth in premiums written was
negatively impacted by reinsurance transactions and Hurricane
Katrina totaling 0.8%.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)
Three Months Ended September 30, 2005 (Est.)
------------------------------------------------------
Number of
States Countrywide (%) (2) State Specific (%) (3)
----------- ------------------- ----------------------
Allstate brand
Standard auto 6 0.1 3.8
Homeowners 4 0.6 6.6
Encompass brand
Standard auto 8 0.3 2.1
Homeowners 4 0.7 4.9
Nine Months Ended September 30, 2005 (Est.)
------------------------------------------------------
Number of
States Countrywide (%) (2) State Specific (%) (3)
----------- ------------------- ----------------------
Allstate brand
Standard auto
(4) 22 0.4 0.9
Non-standard
auto 4 (0.4) (1.7)
Homeowners 11 1.0 5.8
Encompass brand
Standard auto 21 0.6 1.3
Homeowners 18 1.5 3.6
(1) Rate increases that are indicated based on a loss trend analysis
to achieve a targeted return will continue to be pursued in all
locations and for all products.
(2) Represents the impact in the states where rate changes were
approved as a percentage of total countrywide year-end premiums
written.
(3) Represents the impact in the states where rate changes were
approved as a percentage of total year-end premiums written in
those states.
(4) Excluding the impact of a rate reduction in the state of New York
effective July 2005, for the first nine months, the countrywide
rate change is 0.7% and the state specific rate change is 2.5%.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended September 30,
--------------------------------------------------------
($ in Est. Est. Est. Est.
millions) 2005 2004 2005 2004 2005 2004 2005 2004
-------- -------- ------ ------ ------ ----- ----- -----
Effect of
Catastrophe
Losses on the Expense
Premiums Earned Loss Ratio(2) Loss Ratio Ratio
----------------- ------------- ------------- ----------
Allstate
brand
Standard
auto $3,791 $3,606 64.8 62.6 6.5 1.1 23.2 23.8
Non-standard
auto 407 451 59.5 48.8 5.9 1.6 20.4 20.6
-------- --------
Auto 4,198 4,057 64.3 61.1 6.4 1.2 22.9 23.4
Homeowners 1,441 1,347 298.1 128.7 257.9 86.5 23.5 23.4
Other (1) 626 628 148.6 123.1 91.3 68.2 25.5 27.2
-------- --------
Total
Allstate
brand 6,265 6,032 126.5 82.6 72.8 27.2 23.3 23.8
Encompass
brand
Standard
auto (3) 295 309 75.3 61.1 5.8 0.6 30.5 25.6
Non-standard
auto
(Deerbrook) 31 39 64.5 79.5 3.2 2.6 25.8 25.6
-------- --------
Auto 326 348 74.2 63.2 5.5 0.8 30.1 25.6
Homeowners 148 136 124.3 86.0 78.4 44.8 29.1 28.7
Other (1) 41 34 102.4 73.5 34.1 2.9 29.3 26.5
-------- --------
Total
Encompass
brand 515 518 90.9 69.9 28.8 12.6 29.7 26.4
-------- --------
Allstate
Protection $6,780 $6,550 123.8 81.6 69.4 26.0 23.8 24.0
======== ========
Nine Months Ended September 30,
--------------------------------------------------------
($ in Est. Est. Est. Est.
millions) 2005 2004 2005 2004 2005 2004 2005 2004
-------- -------- ------ ------ ------ ----- ----- -----
Effect of
Catastrophe
Losses on the Expense
Premiums Earned Loss Ratio(2) Loss Ratio Ratio
----------------- ------------- ------------- ----------
Allstate
brand
Standard
auto $11,225 $10,639 65.4 63.3 2.6 0.8 23.9 23.8
Non-standard
auto 1,248 1,391 58.9 54.6 2.2 0.9 21.0 20.1
-------- --------
Auto 12,473 12,030 64.8 62.3 2.6 0.8 23.6 23.4
Homeowners 4,301 3,966 131.6 75.3 90.7 35.5 22.9 22.5
Other (1) 1,885 1,851 89.9 82.3 33.1 24.8 25.7 27.0
-------- --------
Total
Allstate
brand 18,659 17,847 82.7 67.3 26.0 11.0 23.7 23.5
Encompass
brand
Standard
auto 893 909 67.6 61.4 1.9 0.8 30.7 28.0
Non-standard
auto
(Deerbrook) 97 124 73.2 78.2 1.0 0.8 27.8 25.8
-------- --------
Auto 990 1,033 68.2 63.4 1.8 0.8 30.4 27.8
Homeowners 431 394 78.2 71.3 31.8 21.0 29.7 29.7
Other (1) 121 104 81.0 85.6 14.1 2.9 28.1 28.8
-------- --------
Total
Encompass
brand 1,542 1,531 72.0 67.0 11.2 6.2 30.0 28.3
-------- --------
Allstate
Protection $20,201 $19,378 81.9 67.3 24.8 10.7 24.1 23.9
======== ========
(1) Other includes involuntary auto, commercial lines and other
personal lines.
(2) Loss Ratio comparisons on this exhibit are impacted by the
relative level of prior year reserve reestimates. Please refer to
the "Effect of Pretax Prior Year Reserve Reestimates on the
Combined Ratio" table (page 14) for detailed reserve reestimate
information. The Total Allstate brand combined ratio comparisons
to prior period are adversely impacted by 1.1 points for the nine
months ending September 30.
(3) The Encompass brand standard auto loss ratio in the third quarter
of 2005 was unfavorably impacted as a result of adopting
procedures for establishing loss reserve estimates consistent with
those used for the Allstate brand. In the third quarter of 2004
Encompass brand standard auto loss ratio included lower estimates
of current year claim severity.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended September 30,
-------------------------------------------------
Effect of Pretax Reserve
Pretax Re-estimates on the
Reserve Re-estimates (1) Combined Ratio
------------------------ ------------------------
Est. Est.
($ in millions) 2005 2004 2005 2004
------------ ----------- ----------- ------------
Auto $(276) $(194) (4.1) (3.0)
Homeowners (12) (5) (0.2) (0.1)
Other 4 (31) 0.1 (0.4)
------------ ----------- ----------- ------------
Allstate
Protection (284) (230) (4.2) (3.5)
Discontinued
Lines and
Coverages (2) 134 314 2.0 4.8
------------ ----------- ----------- ------------
Property-
Liability $(150) $84 (2.2) 1.3
============ =========== =========== ============
Allstate brand $(275) $(233) (4.1) (3.6)
Encompass brand (9) 3 (0.1) 0.1
------------ ----------- ----------- ------------
Allstate Protection $(284) $(230) (4.2) (3.5)
============ =========== =========== ============
Nine Months Ended September 30,
-------------------------------------------------
Effect of Pretax Reserve
Pretax Re-estimates on the
Reserve Re-estimates (1) Combined Ratio
------------------------ ------------------------
Est. Est.
($ in millions) 2005 2004 2005 2004
------------ ----------- ----------- ------------
Auto $(501) $(551) (2.5) (2.8)
Homeowners (4) (112) - (0.6)
Other 21 (14) 0.1 (0.1)
------------ ----------- ----------- ------------
Allstate
Protection (484) (677) (2.4) (3.5)
Discontinued
Lines and
Coverages 162 636 0.8 3.3
------------ ----------- ----------- ------------
Property-
Liability $(322) $(41) (1.6) (0.2)
============ =========== =========== ============
Allstate brand $(485) $(682) (2.4) (3.5)
Encompass brand 1 5 - -
------------ ----------- ----------- ------------
Allstate Protection $(484) $(677) (2.4) (3.5)
============ =========== =========== ============
(1) Favorable reserve reestimates are shown in parentheses.
(2) For further information see the Discontinued Lines and Coverages
Reserves section.
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------ -----------------
Est. Percent Est. Percent
($ in millions) 2005 2004 Change 2005 2004 Change
---------- ------- ------- -------- -------- -------
Life Products (1)
Interest-sensitive
life $380 $375 1.3 $1,107 $1,095 1.1
Traditional 86 94 (8.5) 235 273 (13.9)
Other 110 84 31.0 317 268 18.3
---------- ------- -------- --------
576 553 4.2 1,659 1,636 1.4
Annuities
Fixed annuities
- deferred 1,062 2,011 (47.2) 3,984 4,613 (13.6)
Fixed annuities
- immediate 165 166 (0.6) 639 554 15.3
Variable
annuities 452 330 37.0 1,315 1,220 7.8
---------- ------- -------- --------
1,679 2,507 (33.0) 5,938 6,387 (7.0)
Institutional
Products (2)
Indexed funding
agreements - - - - 1 (100.0)
Funding
agreements
backing
medium-term
notes - 850 (100.0) 2,423 3,448 (29.7)
Other - 3 (100.0) - 3 (100.0)
---------- ------- -------- --------
- 853 (100.0) 2,423 3,452 (29.8)
Bank Deposits 122 104 17.3 368 281 31.0
---------- ------- -------- --------
Total $2,377 $4,017 (40.8) $10,388 $11,756 (11.6)
========== ======= ======== ========
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
(2) There were no sales of institutional products during the third
quarter of 2005. Institutional product sales are viewed as
opportunistic.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
($ in millions, except par value data) 2005 (Est.) 2004
------------- ------------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $95,934 and $90,657) $99,707 $95,715
Equity securities, at fair value (cost
$4,770 and $4,566) 6,095 5,895
Mortgage loans 8,485 7,856
Short-term 3,274 4,133
Other 1,845 1,931
------------- ------------
Total investments (1) 119,406 115,530
Cash 408 414
Premium installment receivables, net 4,959 4,721
Deferred policy acquisition costs 5,610 4,968
Reinsurance recoverables, net 4,552 4,323
Accrued investment income 1,094 1,014
Property and equipment, net 1,024 1,018
Goodwill 825 825
Other assets 3,347 2,535
Separate Accounts 14,906 14,377
------------- ------------
Total assets $156,131 $149,725
============= ============
Liabilities
Reserve for property-liability insurance
claims and claims expense $23,469 $19,338
Reserve for life-contingent contract
benefits 12,390 11,754
Contractholder funds 58,952 55,709
Unearned premiums 10,490 9,932
Claim payments outstanding 708 787
Other liabilities and accrued expenses 10,576 9,842
Deferred income taxes 329 829
Short-term debt - 43
Long-term debt 4,892 5,291
Separate Accounts 14,906 14,377
------------- ------------
Total liabilities 136,712 127,902
------------- ------------
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,
650 million and 683 million shares
outstanding 9 9
Additional capital paid-in 2,823 2,685
Retained income 24,129 24,043
Deferred compensation expense (135) (157)
Treasury stock, at cost (250 million and
217 million shares) (9,343) (7,372)
Accumulated other comprehensive income:
Unrealized net capital gains and losses 2,301 2,988
Unrealized foreign currency translation
adjustments 24 16
Minimum pension liability adjustment (389) (389)
------------- ------------
Total accumulated other
comprehensive income 1,936 2,615
------------- ------------
Total shareholders' equity 19,419 21,823
------------- ------------
Total liabilities and shareholders'
equity $156,131 $149,725
============= ============
(1) Total investments includes $41,007 for Property-Liability, $75,881
for Allstate Financial and $2,518 for Corporate and Other
investments at September 30, 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.
Homeowners Catastrophe Management Strategy The overarching o·ver·arch·ing adj. 1. Forming an arch overhead or above: overarching branches. 2. Extending over or throughout: "I am not sure whether the missing ingredient . . . intent of our catastrophe management strategy is to support profitable growth of our homeowners business. While in many areas of the country we are currently achieving returns within acceptable risk management tolerances, our goal is to find solutions that support a continued yet prudent presence in catastrophe prone markets. Allstate is in the early stages of introducing integrated enterprise risk management ("ERM (Enterprise Relationship Management) An umbrella term with many shades of meaning over the years. It may refer to the management of information from any or all of an organization's customers, suppliers, business partners and employees. ") capabilities as part our continued commitment to effective management of our capital, returns and risk profile. A principal ERM goal is to validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data where and how we insure Insure can mean:
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 capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . In introducing integrated ERM capabilities, we are considering and adopting new performance measurements for managing our homeowners business. These measurements currently include establishing an exposure limit based on hurricane and earthquake losses which have a one percent 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 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, refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar acceptable targeted rates of return by line and by state and evaluating 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. measurements. Actions resulting from the evaluation of these measurements will reduce our catastrophe risk and improve long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. returns. We consider the greatest areas of potential catastrophe losses due to hurricanes to be major metropolitan centers near 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. , and the greatest areas of potential catastrophe losses due to earthquakes to be 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). , areas surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the New Madrid fault system New Madrid Fault System: see under New Madrid, Mo. in the Midwest Midwest or Middle West, region of the United States centered on the western Great Lakes and the upper-middle Mississippi valley. It is a somewhat imprecise term that has been applied to the northern section of the land between the Appalachians and faults in and surrounding Seattle, Washington  This page is protected from moves until disputes have been resolved on the .The reason for its protection is listed on the protection policy page. and Charleston Charleston, cities, United States Charleston. 1 City (1990 pop. 20,398), seat of Coles co., E Ill.; inc. 1835. Charleston is an industrial, rail, and trade center located in an agricultural area; shoes are also made. Eastern Illinois Univ. , 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. . In addition, in various states we are required to participate in assigned risk plans An insurance plan created and imposed by state statute under which persons who normally would be denied insurance coverage as bad risks are permitted to purchase insurance from a pool of insurers who must offer coverage to such individuals. , reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation, we may be exposed to losses that surpass the 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. of these facilities 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. to assessments from these facilities. Possible actions we may undertake to reduce our catastrophe exposure include additional purchases of reinsurance to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. potential exposure to major hurricane and earthquake catastrophe risks,
including assessments from 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) "); changes in rates, deductibles and coverage; limitations on new business writings; changes to underwriting requirements; non-renewal or withdrawal from certain markets; and/or pursuing alternative markets for placement of business or segments of risk exposure in certain areas. We utilize reinsurance in order to reduce exposure to catastrophe risk and to support the required statutory surplus and the insurance financial strength ratings of certain subsidiaries, such as 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 Allstate New Jersey Insurance Company. We purchase significant reinsurance where we believe the greatest benefit will be achieved in terms of our aggregate countrywide exposure limits based on our ERM model. The price and terms of reinsurance are also considered in the purchase process, and whether the price can be included in future rates charged to policyholders. Effective June 1, 2005, multi-year 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 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 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 , 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, Texas and Florida. The cost of these treaties is approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $190 million per year, or $48 million per quarter. The retentions and limits on these treaties are shown in the following table.
State % Placed Retention Limit
----------------------------------------------------------------------
Connecticut 95 $100,000,000 $200,000,000
New Jersey 95 100,000,000 100,000,000
New York 90 750,000,000 1,000,000,000
North Carolina 10 80,000,000 175,000,000
South Carolina 10 97,000,000 435,000,000
Texas(2) 95 320,000,000 550,000,000
Florida 90 Excess of FHCF 900,000,000
Reimbursement(1)
(1) The Florida Hurricane Catastrophe Fund ("FHCF") provides 90%
reimbursement of qualifying losses up to an estimated maximum. For
the current season this maximum is estimated to be $871 million in
excess of Allstate's retention of $233 million for the two largest
hurricanes and $78 million for other hurricanes.
(2) Reinsurance is recoverable by Allstate Texas Lloyd's, a syndicate
insurance company, which has a 100% reinsurance agreement with
Allstate Insurance Company ("AIC") providing net benefits to AIC
as reinsurer.
These reinsurance treaties provide coverage per occurrence 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. Each of these treaties also has a reinstatement Reinstatement The restoration of an insurance policy after it has lapsed for nonpayment of premiums. provision. Our exposure to certain potential losses from catastrophes is limited by our participation in various state facilities, such as the CEA, which provides insurance for California earthquake losses; the FHCF FHCF Florida Hurricane Catastrophe Fund FHCF Flying Horse Cracking Force (hacking) , which provides reimbursements on certain qualifying Florida hurricane losses; and other state facilities, such as wind pools. We also continue to advocate advocate: see attorney. for public policy solutions to help the country become better prepared for and protected from catastrophes. These solutions include the development of state and national catastrophe funds; 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. Impacts of Hurricanes Katrina and Rita Hurricane Katrina Catastrophe Claims and Claims Expense Hurricane Katrina made initial 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 Florida on August 25, 2005 and again in the states of Louisiana CODE, OF LOUISIANA. In 1822, Peter Derbigny, Edward Livingston, and Moreau Lislet, were selected by the legislature to revise and amend the civil code, and to add to it such laws still in force as were not included therein. , Mississippi and Alabama on August 29, 2005. Hurricane Katrina is the costliest catastrophe in the United States' history. Based on historical recorded tropical storm tropical storm n. A cyclonic storm having winds ranging from approximately 48 to 121 kilometers (30 to 75 miles) per hour. tropical storm activity, a catastrophe modeler estimated that the likelihood of a hurricane surpassing this level of losses in Louisiana, Mississippi and Alabama will occur has an annual probability of 0.2%. Our pre-tax estimate of Hurricane Katrina catastrophe claims and claims expense is $3.68 billion. Catastrophe claims and claims expense estimates include losses from approximately 216,000 expected claims of which over 175,000 claims have been reported as of October October: see month. 13 on our standard auto, non-standard auto, homeowners, commercial and other products. The pre-tax estimates of catastrophe claims and claims expense by product are shown in the following table.
($ in millions) Allstate brand Encompass brand Total
Hurricane Katrina
Standard auto $219 $16 $235
Non-standard auto 17 -- 17
Homeowners 2,886 101 2,987
Other 316 13 329
------------------------------------------------
Total personal lines $3,438 $130 $3,568
Commercial 115 N/A 115
------------------------------------------------
Total loss estimate $3,553 $130 $3,683
================================================
Our total catastrophe claims and claims expense estimate by state is approximately 70% in Louisiana, 24% in Mississippi, 4% in Alabama and 2% in Florida and other states. Hurricane Rita Hurricane Rita was the fourth-most intense Atlantic hurricane ever recorded and the most intense tropical cyclone ever observed in the Gulf of Mexico. Rita caused $11.3 billion in damage on the U.S. Gulf Coast in September 2005. Catastrophe Claims and Claims Expense Hurricane Rita made landfall near the border of Texas and Louisiana on September 24, 2005. Our pre-tax estimate of Hurricane Rita catastrophe claims and claims expense is $850 million, net of reinsurance. It is expected to be in the top seven most expensive hurricanes in United States history. Catastrophe claims and claims expense estimates include losses from approximately 90,000 expected claims of which over 62,000 claims have been reported as of October 13, on our standard auto, non-standard auto, homeowners, commercial and other products. The pre-tax estimates of claims and claims expense by product are shown in the following table.
($ in millions) Allstate brand Encompass brand Total
Hurricane Rita
Standard auto $21 $1 $22
Non-standard auto 6 -- 6
Homeowners 672 11 683
Other 102 -- 102
------------------------------------------------
Total personal lines $801 $12 $813
Commercial 37 N/A 37
------------------------------------------------
Total loss estimate,
net of reinsurance $838 $12 $850
================================================
------------------------------------------------
Total loss estimate,
gross of reinsurance $1,043 $12 $1,055
Reinsurance
recoverable(1) 205 -- 205
------------------------------------------------
Total loss estimate,
net of reinsurance $838 $12 $850
================================================
(1) Reinsurance is recoverable by Allstate Texas Lloyd's, a syndicate
insurance company, which has a 100% reinsurance agreement with
Allstate Insurance Company ("AIC") providing net benefits to AIC
as reinsurer.
Our total loss estimate by state is approximately 50% in Louisiana, 49% in Texas and 1% in other states. For details of our reinsurance program in Texas, see the Homeowners Catastrophe Management Strategy section. Loss Estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. Methodology Our estimates of catastrophe claims and claims expense ("loss") are generally based on claim adjuster inspections and the application of historical loss development factors to the extent we have been able to complete inspections in areas impacted by the hurricanes. However, in areas where we have not yet been able to complete inspections, or we have reason to believe that our historical loss development factors may not be predictive, we have relied on analysis of actual claim notices received compared to the total policies in force, as well as visual, governmental and third party information including aerial aerial: see antenna, in electronics. photos, area observations and data on wind speeds and flood flood, in hydrology flood, inundation of land by the rise and overflow of a body of water. Floods occur most commonly when water from heavy rainfall, from melting ice and snow, or from a combination of these exceeds the carrying capacity of the river depth to the extent available. In the normal course of business, we may also supplement our claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, other professionals and information sources to assess and settle catastrophe claims. Our catastrophe claims and claims expense estimates are calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the coverage provided by our policies. Allstate's homeowners policies specifically exclude coverage for losses caused by flood, but generally provide coverage for physical damage caused by wind or wind driven rain. Our homeowners estimates, therefore, do not include estimates for losses caused by flood. Auto policyholders generally have coverage for physical damage due to flood if they have purchased optional auto comprehensive coverage. Catastrophe claims and claims expense estimates also include an accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. of $37 million for anticipated assessments from various state facilities, including $33 million for a regular assessment from the Louisiana Citizens Property Insurance Corporation ("LA Citizens"). LA Citizens was created to provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. LA Citizens has estimated plan losses, and is thereby able to 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. regular and emergency assessments to participating companies and policyholders, respectively. Insurers are permitted to recoup recoup To sell an asset at a price sufficient to recover the original outlay or to offset a previous loss. a regular assessment through a surcharge An overcharge or additional cost. A surcharge is an added liability imposed on something that is already due, such as a tax on tax. It also refers to the penalty a court can impose on a fiduciary for breaching a duty. to policyholders. These recoupments will be recorded 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 as they are billed. Insurers are required to collect the emergency assessments, of which there have been none, directly from residential property policyholders and remit To transmit or send. To relinquish or surrender, such as in the case of a fine, punishment, or sentence. An individual, for example, might remit money to pay bills. TO REMIT. To annul a fine or forfeiture. 2. them to LA Citizens as they are collected. Our reserving process takes into account known facts and interpretations of 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 , factors including our experience with similar catastrophes, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix, contractual terms A contractual term is "[a]ny provision forming part of a contract"[1] Each term gives rise to a contractual obligation, breach of which will can give rise to litigation. , law changes, court decisions, changes to regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. and economic conditions. The effects of inflation are implicitly im·plic·it adj. 1. Implied or understood though not directly expressed: an implicit agreement not to raise the touchy subject. 2. considered in the reserving process. The establishment of appropriate reserves is an inherently complex process. Estimates must be made for losses that have been incurred but not yet settled. The highest degree of uncertainty is associated with reserves for the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. We believe our estimates for catastrophe claims and claims expense reserves are appropriately established based on available facts, technology, laws and regulations. We calculate and record a single best reserve estimate, in conformance con·for·mance n. Conformity. Noun 1. conformance - correspondence in form or appearance conformity agreement, correspondence - compatibility of observations; "there was no agreement between theory and with generally accepted actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin principles, and as a result we believe that no other estimate is better than our recorded amount. Due to the uncertainties involved, including the factors described in the Forward Looking Statements and Risk Factors section of this document, the ultimate cost of losses may vary materially from recorded amounts, which are based on our best estimates. Accordingly, we believe that it is not practicable practicable adj. when something can be done or performed. to develop a meaningful range for any such changes in losses incurred. We regularly update our reserve estimates as new information becomes available and as events unfold unfold - inline that may affect the resolution of unsettled claims. Changes in prior reserve estimates, which may be material, are reported in property-liability insurance claims and claims expenses in the Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Operations in the period such changes are determined. At September 30, 2005, a reserve reestimation resulting in a one percent increase or decrease in net reserves for Hurricane Katrina would impact net income by approximately $24 million, after tax, and a reserve reestimation resulting in a one percent increase or decrease in net reserves for Hurricane Rita would impact net income by approximately $6 million, after tax. Management expects that AIC AIC Association des Infermières Canadiennes. will have sufficient liquidity to pay estimated catastrophe claims and claims expenses from existing sources of funds including operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. , proceeds from the issuance of commercial paper and maturities and sales of investments. Management also expects that The Allstate Corporation will have sufficient liquidity in 2005 and 2006 to fund shareholder dividends, debt service and the remainder of the current share repurchase program. Other Underwriting Impacts Underwriting losses were also impacted by an estimate of billed but uncollectible Adj. 1. uncollectible - not capable of being collected; "a bad (or uncollectible) debt" bad invalid - having no cogency or legal force; "invalid reasoning"; "an invalid driver's license" premiums and policies expected to be canceled by the policyholder Policyholder An individual who owns an insurance policy. , which decreased Property-Liability premiums earned by $2 million and premiums written by $14 million. In addition, as a result of lower anticipated financial results for 2005, expenses related to employee incentives have been reduced by $35 million. Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. Allstate is defending several matters filed in the aftermath AFTERMATH. A right to have the last crop of grass or pasturage. 1 Chit. Pr. 181. of Hurricanes Katrina and Rita. Several statewide class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax are pending against Allstate in Louisiana and Mississippi, as well as a suit by the Mississippi Attorney General, asserting as·sert tr.v. as·sert·ed, as·sert·ing, as·serts 1. To state or express positively; affirm: asserted his innocence. 2. To defend or maintain (one's rights, for example). that the flood exclusion exclusion /ex·clu·sion/ (eks-kloo´zhun) 1. a shutting out or elimination. 2. surgical isolation of a part, as of a segment of intestine, without removal from the body. found in Allstate's and other insurance companies' policies is either ambiguous, unenforceable Adj. 1. unenforceable - not enforceable; not capable of being brought about by compulsion; "an unenforceable law"; "unenforceable reforms" enforceable - capable of being enforced as unconscionable Unusually harsh and shocking to the conscience; that which is so grossly unfair that a court will proscribe it. When a court uses the word unconscionable to describe conduct, it means that the conduct does not conform to the dictates of conscience. or contrary to public policy, or inapplicable in·ap·pli·ca·ble adj. Not applicable: rules inapplicable to day students. in·ap to the damage suffered in the wake of Hurricane Katrina. The suits seek primarily declaratory relief declaratory relief n. a judge's determination (called a "declaratory judgment") of the parties' rights under a contract or a statute often requested (prayed) for information in a lawsuit over a contract. and, in some cases, damages in an unspecified Adj. 1. unspecified - not stated explicitly or in detail; "threatened unspecified reprisals" specified - clearly and explicitly stated; "meals are at specified times" amount. Additionally, in connection with a petition petition Written instrument directed to an individual, government official, legislative body, or court in order to seek redress of grievances or to request a favour. for injunctive relief injunctive relief n. a court-ordered act or prohibition against an act or condition which has been requested, and sometimes granted, in a petition to the court for an injunction. filed by the Texas Attorney General, Allstate is subject to an order temporarily preventing it from denying claims for loss of use (additional living expense) caused by Hurricane Rita if the 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. property is rendered untenantable, regardless of whether direct physical loss or physical damage to the property occurred. A temporary injunction temporary injunction n. a court order prohibiting an action by a party to a lawsuit until there has been a trial or other court action. A temporary injunction differs from a "temporary restraining order" which is a short-term, stop-gap injunction issued pending a hearing is set for October 20 and October 24, 2005. Allstate denies that there is coverage under these circumstances. These lawsuits are in various stages of development and Allstate intends to vigorously vig·or·ous adj. 1. Strong, energetic, and active in mind or body; robust. See Synonyms at healthy. 2. Marked by or done with force and energy. See Synonyms at active. defend them. The outcome of these disputes is currently uncertain. Discontinued Lines and Coverages Reserves The Discontinued Lines and Coverages segment includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → . Our exposure to asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. , environmental and other discontinued lines claims is reported in this segment. This segment is managed by a designated group of professionals with expertise in claims handling, policy coverage interpretation and exposure identification. As part of its responsibilities, this group is also regularly engaged in policy buybacks, settlements and reinsurance assumed and ceded commutations. The underwriting results of this segment are shown in the following table.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
($ in millions) Est. 2005 2004 Est. 2005 2004
--------- --------- --------- ---------
Premiums written $- $1 $1 $3
========= ========= ========= =========
Premiums earned 1 1 - 4
Claims and claims expense (135) (314) (163) (636)
Other costs and expenses (2) (2) (7) (7)
--------- --------- --------- ---------
Underwriting loss $(136) $(315) $(170) $(639)
========= ========= ========= =========
Underwriting loss of $136 million in the third quarter of 2005 was primarily related to a $139 million re-estimate of asbestos reserves. The underwriting loss in the third quarter of 2004 and the first nine months of 2004 was primarily related to re-estimates of asbestos reserves and a related increase in the allowance for future uncollectible reinsurance recoverables. During the quarter, we completed our annual comprehensive "ground up" review of reserves for the Discontinued Lines and Coverages segment. This review employed established industry and actuarial best practices within the context of the legal, legislative and economic environment, and it was conducted in addition to quarterly assessments in which we review reserves to determine if any intervening in·ter·vene intr.v. in·ter·vened, in·ter·ven·ing, in·ter·venes 1. To come, appear, or lie between two things: You can't see the lake from there because the house intervenes. 2. significant events or developments require adjustments to reserves. Reserve re-estimates are recorded in the reporting period in which they are determined. Our net asbestos reserves by type of exposure and total reserve additions by quarter are shown in the following table.
Est. September 30, 2005
--------------------------------------
($ in millions) Number of Est. Net % of
Active Asbestos Asbestos
Policyholders Reserves Reserves
------------- ------------- ----------
Direct policyholders(1)
-Primary 50 $19 1%
-Excess 333 242 16
------------- ------------- ----------
Total direct policyholders 383 261 17%
=============
Assumed reinsurance 230 16
Incurred but not reported claims
("IBNR") 1,001 67
------------- ----------
Total net reserves $1,492 100%
============= ==========
Reserve additions
-First Quarter $-
-Second Quarter -
-Third Quarter 139
-------------
Nine months ended September 30 $139
=============
Net survival ratio(2)
-Annual 10.4
-3-Year 11.7
Net survival ratio excluding
commutations, policy buy-backs
and settlement agreements(2)
-Annual 31.9
-3-Year 29.2
December 31, 2004
--------------------------------------
($ in millions) Number of Net % of
Active Asbestos Asbestos
Policyholders Reserves Reserves
------------- ------------- ----------
Direct policyholders(1)
-Primary 52 $23 2%
-Excess 322 297 20
------------- ------------- ----------
Total direct policyholders 374 320 22%
=============
Assumed reinsurance 222 15
Incurred but not reported claims
("IBNR") 922 63
------------- ----------
Total net reserves $1,464 100%
============= ==========
Reserve additions
-First Quarter $-
-Second Quarter 216
-Third Quarter 247
-------------
Nine months ended September 30 $463
=============
Net survival ratio(2)
-Annual 18.8
-3-Year 13.9
Net survival ratio excluding
commutations, policy buy-backs
and settlement agreements(2)
-Annual 25.5
-3-Year 28.4
(1) During the first nine months of 2005, 34 direct primary and excess
policyholders reported new claims, and claims of 25 policyholders
were closed, so the number of direct policyholders with active
claims increased by 9.
(2) Our survival ratios are at levels we consider indicative of a
strong asbestos reserve position.
Reserve additions for asbestos in the third quarter of 2005, totaling $139 million, were primarily for products-related coverage. They were essentially a result of a continuing level of increased claim activity being reported by excess insurance policyholders with existing active claims, excess policyholders with new claims, and re-estimates of liabilities for increased assumed reinsurance cessions, as ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. companies (other insurance carriers) also experienced increased claim activity. Increased claim activity over prior estimates has also resulted in an increased estimate for future claims reported. These trends are consistent with the trends of other carriers in the industry, which we believe are related to increased publicity and awareness of coverage, ongoing litigation, potential congressional activity, and bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most actions. However, we are somewhat encouraged that the pace of industry asbestos claim activity seems to be slowing, perhaps reflecting various recent state legislative actions and increased legal scrutiny Scrutiny (Fr. scrutin, Late Lat. scrutinium, from scrutari, to search or examine thoroughly) is a careful examination or inquiry (as though there was a mistake). of the legitimacy LEGITIMACY. The state of being born in wedlock; that is, in a lawful manner. 2. Marriage is considered by all civilized nations as the only source of legitimacy; the qualities of husband and wife must be possessed by the parents in order to make the offspring of claims. IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant now represents 67% of total net asbestos reserves, 4 points higher than at December December: see month. 31, 2004. IBNR provides for estimated probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. future unfavorable reserve development of known claims and future reporting of additional unknown claims from current and new policyholders and ceding companies. Our exposure to non-products-related losses represents approximately 5% of total asbestos case reserves. We do not anticipate significant changes in this percentage as insureds' retentions associated with excess insurance programs, which are our principal direct insurance, and assumed reinsurance exposure are seldom exceeded. We did not write direct primary insurance on policyholders with the potential for significant non-products-related loss exposure. To further limit our asbestos exposure, we have significant reinsurance, primarily to reduce our exposure to loss in our direct excess insurance business. Our reinsurance recoverables are estimated to be approximately 38% of our gross estimated loss reserves. As of September 30, 2005, the allowance for uncollectible reinsurance is $213 million, or approximately 17% of total recoverables from reinsurers in the Discontinued Lines and Coverages segment. We believe that our reserves are appropriately established based on assessments of pertinent PERTINENT, evidence. Those facts which tend to prove the allegations of the party offering them, are called pertinent; those which have no such tendency are called impertinent, 8 Toull. n. 22. By pertinent is also meant that which belongs. Willes, 319. factors and characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders. The ultimate cost of losses may vary materially from recorded amounts, which are based on our best estimates, due to uncertainties, such as changes in the legal, legislative or economic environment, which we are unable to predict. Definitions of 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 operating costs npl → gastos mpl operacionales and expenses and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and related charges 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 difference between 100% and the combined ratio represents underwriting (loss) income as a percentage of premiums earned. Effect of Discontinued 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 (loss) income is (loss) 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 (loss) income is the GAAP measure that is most directly comparable to operating (loss) income. We use operating (loss) 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 (loss) 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 (loss) 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 (loss) income and operating (loss) income per diluted share in incentive compensation. Operating (loss) income should not be considered as a substitute for net income and does not reflect the overall profitability of our business. The following table reconciles operating income and net income for the three months and nine months ended September 30, 2005 and 2004.
For the three
months ended Property- Allstate Per diluted
September 30, Liability Financial Consolidated share
------------- ---------- ------------- -------------
($ in millions,
except per share Est. Est. Est. Est.
data) 2005 2004 2005 2004 2005 2004 2005 2004
------- ----- ---- ----- ------- ----- ------ ------
Operating (loss)
income $(1,785) $(75)$156 $151 $(1,650) $49 $(2.52) $0.08
Realized capital
gains and losses 163 100 27 (51) 199 50
Income tax
benefit
(expense) (64) (31) (10) 18 (78) (13)
------- ----- ---- ----- ------- -----
Realized capital
gains and
losses, after-
tax 99 69 17 (33) 121 37 0.18 0.06
DAC and DSI
amortization
relating to
realized capital
gains and
losses,
after-tax - - (2) (15) (2) (15) - (0.02)
Non-recurring
increase in
liability for
future benefits,
after-tax - - - - - - - -
Reclassification
of periodic
settlements and
accruals on
non-hedge
derivative
instruments,
after-tax - - (10) (10) (10) (10) (0.01) (0.02)
Loss on
disposition of
operations,
after-tax - - (7) (5) (7) (5) (0.01) (0.01)
------- ----- ---- ----- ------- ----- ------ ------
(Loss) income
before
cumulative
effect of change
in accounting
principle,
after-tax (1,686) (6) 154 88 (1,548) 56 (2.36) 0.09
Cumulative effect
of change in
accounting
principle,
after-tax - - - - - - - -
------- ----- ---- ----- ------- ----- ------ ------
Net (loss)
income $(1,686) $(6) $154 $88 $(1,548) $56 $(2.36) $0.09
======= ===== ==== ===== ======= ===== ====== ======
For the nine
months ended Property- Allstate Per diluted
September 30, Liability Financial Consolidated share
------------- ----------- ------------ -------------
($ in millions,
except per share Est. Est. Est. Est.
data) 2005 2004 2005 2004 2005 2004 2005 2004
------ ------ ----- ----- ----- ------ ------ ------
Operating income $236 $1,773 $442 $409 $607 $2,105 $0.90 $2.99
Realized capital
gains and losses 385 400 52 (135) 448 261
Income tax
benefit
(expense) (137) (128) (19) 45 (160) (81)
------ ------ ----- ----- ----- ------
Realized capital
gains and
losses,
after-tax 248 272 33 (90) 288 180 0.43 0.26
DAC and DSI
amortization
relating to
realized capital
gains and
losses,
after-tax - - (106) (28) (106) (28) (0.16) (0.04)
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 - - (32) (21) (32) (21) (0.05) (0.03)
Loss on
disposition of
operations,
after-tax - - (11) (22) (11) (22) (0.01) (0.03)
------ ------ ----- ----- ----- ------ ------ ------
Income before
cumulative
effect of change
in accounting
principle,
after-tax 484 2,045 304 248 724 2,214 1.08 3.15
Cumulative effect
of change in
accounting
principle,
after-tax - - - (175) - (175) - (0.25)
------ ------ ----- ----- ----- ------ ------ ------
Net income $484 $2,045 $304 $73 $724 $2,039 $1.08 $2.90
====== ====== ===== ===== ===== ====== ====== ======
In this press release, we provide guidance on operating income per diluted share for 2005 (assuming a level of average expected catastrophe losses used in pricing for the remainder of the year). A reconciliation of this measure to net income is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses including periodic settlements and accruals on non-hedge derivative instruments, which can vary substantially from one period to another and may have a significant impact on net income. Because a forecast of realized capital gains and losses is not possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. The other reconciling items between operating income and net income on a forward-looking basis are a non-recurring increase in liability for future benefits, after-tax, loss on disposition of operations, after-tax, and cumulative effect of changes in accounting principle, after-tax, which we assume to be zero for the remainder of the year. Underwriting (loss) income 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 (loss) income is the most directly comparable GAAP measure. Underwriting (loss) income should not be considered as a substitute for net (loss) income and does not reflect the overall profitability of our business. A reconciliation of Property-Liability underwriting (loss) income to net (loss) income is provided in the Segment Results table. Operating income return on equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at the beginning and at the end of the 12-month period, after excluding the 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 magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the and timing of which are 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) September 30,
------------------------------
Est. 2005 2004
-------------- --------------
Return on equity
Numerator:
Net income $1,866 $2,800
============== ==============
Denominator:
Beginning shareholders' equity 21,038 19,360
Ending shareholders' equity 19,419 21,038
Average shareholders' equity $20,229 $20,199
============== ==============
ROE 9.2% 13.9%
============== ==============
For the twelve months ended
($ in millions) September 30,
------------------------------
Est. 2005 2004
-------------- --------------
Operating income return on equity
Numerator:
Operating income $1,593 $2,857
============== ==============
Denominator:
Beginning shareholders' equity 21,038 19,360
Unrealized net capital gains 2,802 3,037
-------------- --------------
Adjusted beginning shareholders'
equity 18,236 16,323
21,038
Ending shareholders' equity 19,419 21,038
Unrealized net capital gains 2,301 2,802
-------------- --------------
Adjusted ending shareholders'
equity 17,118 18,236
Average shareholders' equity $17,677 $17,280
============== ==============
ROE 9.0% 16.5%
============== ==============
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 ratio. We use the trend in book value per diluted share excluding unrealized net capital gains on fixed income securities in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with book value per diluted share to identify and analyze the change in net worth attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily market conditions, the magnitude 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.
As of
(in millions, except per share data) September 30,
----------------------
Est.
2005 2004
---------- ----------
Book value per diluted share
Numerator:
Shareholders' equity $19,419 $21,038
========== ==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 654.8 693.7
========== ==========
Book value per diluted share $29.66 $30.33
========== ==========
Book value per diluted share, excluding the net
impact of unrealized net capital gains on
fixed income securities
Numerator:
Shareholders' equity $19,419 $21,038
Unrealized net capital gains on fixed income
securities 1,447 2,164
---------- ----------
Adjusted shareholders' equity $17,972 $18,874
========== ==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 654.8 693.7
========== ==========
Book value per diluted share, excluding the net
impact of unrealized net capital gains on
fixed income securities $27.45 $27.21
========== ==========
Gross margin represents life and annuity premiums and contract charges and net investment income, less contract benefits and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of Allstate Financial's life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities, variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of three components that are utilized to further analyze the business; they include the investment margin, benefit margin, and contract charges and fees. We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled to Allstate Financial's GAAP net income in the following table.
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Life and annuity premiums and
contract charges $505 $508 $1,525 $1,508
Net investment income 974 866 2,838 2,520
Periodic settlements and accruals
on non-hedge derivative
instruments 14 15 49 33
Contract benefits (395) (401) (1,209) (1,174)
Interest credited to
contractholder funds(1) (597) (501) (1,719) (1,430)
-------- -------- -------- --------
Gross margin 501 487 1,484 1,457
Amortization of DAC and DSI (139) (120) (398) (375)
Operating costs and expenses (142) (143) (454) (465)
Restructuring and related charges (1) (1) (1) (5)
Income tax expense (63) (72) (189) (203)
Realized capital gains and losses,
after-tax 17 (33) 33 (90)
DAC and DSI amortization relating
to capital gains and losses,
after-tax (2) (15) (106) (28)
Non-recurring increase in
liability for future benefits,
after-tax - - (22) -
Reclassification of periodic
settlements and accruals on
non-hedge derivative instruments,
after-tax (10) (10) (32) (21)
Loss on disposition of operations,
after-tax (7) (5) (11) (22)
Cumulative effect of change in
accounting principle, after-tax - - - (175)
-------- -------- -------- --------
Allstate Financial net income $154 $88 $304 $73
======== ======== ======== ========
(1) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled $11 million in the third quarter of
2005 and $65 million for the first nine months of 2005 compared to
$4 million in the third quarter of 2004 and $25 million in the
first nine 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 September 30,
-------------------------------------------------------
Contract
Investment Benefit Charges and Gross
Margin Margin Fees Margin
------------- -------------- -------------- -----------
(in millions) Est. Est. Est. Est.
2005 2004(2) 2005 2004(2) 2005 2004(2) 2005 2004
----- ------- ------ ------- ------ ------- ----- -----
Life and
annuity
premiums $- $- $218 $247 $- $- $218 $247
Contract
charges - - 158 147 129 114 287 261
Net investment
income 974 866 - - - - 974 866
Periodic
settlements
and
accruals on
non-hedge
derivative
instruments 14 15 - - - - 14 15
Contract
benefits (135) (133) (260) (268) - - (395) (401)
Interest
credited to
contract-
holder
funds(1) (597) (501) - - - - (597) (501)
----- ------- ------ ------- ------ ------- ----- -----
$256 $247 $116 $126 $129 $114 $501 $487
===== ======= ====== ======= ====== ======= ===== =====
(1) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled $11 million in the third quarter of
2005 and $4 million in the third quarter of 2004.
(2) 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.
Nine Months Ended September 30,
-----------------------------------------------------------
Contract
Investment Benefit Charges and Gross
Margin Margin Fees Margin
--------------- ------------- ------------- ---------------
(in Est. Est. Est. Est.
millions) 2005 2004(2) 2005 2004(2) 2005 2004(2) 2005 2004
------- ------- ----- ------- ----- ------- ------- -------
Life and
annuity
premiums $- $- $689 $745 $- $- $689 $745
Contract
charges - - 465 420 371 343 836 763
Net
investment
income 2,838 2,520 - - - - 2,838 2,520
Periodic
settlements
and
accruals on
non-hedge
derivative
instruments 49 33 - - - - 49 33
Contract
benefits (398) (391) (811) (783) - - (1,209) (1,174)
Interest
credited to
contract-
holder
funds(1) (1,719) (1,430) - - - - (1,719) (1,430)
------- ------- ----- ------- ----- ------- ------- -------
$770 $732 $343 $382 $371 $343 $1,484 $1,457
======= ======= ===== ======= ===== ======= ======= =======
(1) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled $65 million in the first nine months
of 2005 and $25 million in the first nine months of 2004.
(2) Prior periods have been restated to conform to current period
presentations. In connection therewith, fees related to guaranteed
minimum death, accumulation, withdrawal and income benefits on
variable annuities have been reclassified to benefit margin from
maintenance charges. Additionally, amounts previously presented as
maintenance charges and surrender charges are now presented in the
aggregate as contract charges and fees. Further, the Allstate
Workplace Division margins were conformed. These reclassifications
did not result in a change in gross margin.
Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Condensed Consolidated Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Premiums written $7,158 $6,958 $20,733 $20,032
Change in Property-Liability
unearned premiums (393) (450) (548) (696)
Other 16 43 16 46
-------- -------- -------- --------
Premiums earned $6,781 $6,551 $20,201 $19,382
======== ======== ======== ========
Premiums and deposits is an operating measure that we use to analyze production trends for Allstate Financial sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products including the net new deposits of Allstate Bank, which we account for under GAAP as increases to liabilities rather than as revenue. The following table illustrates where premiums and deposits are reflected in the consolidated financial statements.
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
($ in millions) Est. Est.
2005 2004 2005 2004
-------- -------- -------- --------
Total Premiums and deposits $2,377 $4,017 $10,388 $11,756
Deposits to contractholder funds (1,783) (3,520) (8,614) (10,080)
Deposits to separate accounts (379) (259) (1,101) (949)
Change in unearned premiums and
other adjustments 3 9 16 18
-------- -------- -------- --------
Life and annuity premiums(1) $218 $247 $689 $745
======== ======== ======== ========
(1) Life and annuity contract charges in the amount of est. $287
million and $261 million for the three months ended September 30,
2005 and 2004, respectively, and est. $836 million and $763
million for the nine months ended September 30, 2005 and 2004,
respectively, which are also revenues recognized for GAAP, have
been excluded from the table above, but are a component of the
Condensed 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 third quarter of 2005 and third quarter of 2004 totaled est. $546 million and $520 million, respectively. New sales of financial products by Allstate exclusive agencies for the nine months ended September 30, 2005 and 2004 totaled est. $1.65 billion and $1.53 billion, respectively. Forward Looking Statements and Risk Factors This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. about our operating income for 2005 and about Allstate's ability to pay dividends, service debt, and repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. stock in the future. These statements are subject to the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 and are based on management's estimates, assumptions and projections. Actual results may differ materially from those projected in the forward-looking statements based on the risk factors described below. In addition to the normal risk of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. and a provider of financial services. --Management believes the estimated impacts of Hurricanes Katrina and Rita, including 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:
-- These hurricanes occurred near the end of the quarter,
with Rita following relatively soon after Katrina.
-- Our policyholders' ability to report and our ability to
adjust claims have been impeded by the extent of the
devastation, the size of the area affected and the fact
that some communities were hit by both storms.
-- Extensive and widespread floods in the New Orleans area
and related government restrictions on access to the area
have lengthened the claims adjusting process, complicating
our ability to estimate losses.
-- It is 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 not
prove to be correct because of increased demand for
services and supplies in the areas affected by a
hurricane.
-- The number of IBNR claims may be greater or less than
anticipated.
-- The large number and nature of the claims and the need to
have more claims adjusters to handle claims has increased
pressure on our catastrophe claims settlement management
process.
-- Litigation has been filed by several parties including
policyholders and state attorneys general, which if
ultimately decided against us, could lead to a material
increase in our catastrophe claims and claims expense
estimate.
--We are currently monitoring developments with respect to various state facilities such as guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. funds, LA Citizens, the Mississippi Windstorm wind·storm n. A storm with high winds or violent gusts but little or no rain. windstorm A storm with high winds or violent gusts but little or no rain. Underwriting Association, the Mississippi Residential Underwriting Association, the Alabama Insurance Underwriting Association, the Texas FAIR Plan Association and the Texas Windstorm Insurance Association. The ultimate impact of Hurricanes Katrina and Rita on these facilities is currently uncertain, but could result in the facilities recognizing a financial deficit or a financial deficit greater than the level currently estimated. They may, in turn, have the ability to assess participating insurers when financial deficits occur, adversely affecting our results of operations. These facilities are generally designed so that the ultimate cost is borne by policyholders, however the exposure to assessments and the availability of recoupments or premium rate increases may not offset each other in our financial statements. Moreover, even if they do offset each other, they may not offset each other in the financial statements for the same fiscal period due to the ultimate timing of the assessments and recoupments or premium rate increases, as well as the possibility that affected policies will not be 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. in subsequent years. --We expect the productivity of our Allstate agents and independent agents in portions of the states of Louisiana, Mississippi, Alabama and Texas, to be severely affected by the catastrophes that occurred in the quarter. --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. In September 2005, Standard and Poor's Noun 1. Standard and Poor's - a broadly based stock market index Standard and Poor's Index placed the ratings of The Allstate Corporation, AIC, ALIC ALIC Advanced Learning Infrastructure Consortium ALIC Arid Lands Information Center ALIC Allstate Life Insurance Company ALIC Aircraft Launcher Interface Computer ALIC Asset Limited, Income Constrained and all rated affiliates on "CreditWatch Negative" as a result of Hurricane Katrina. The insurance financial strength ratings of both AIC and ALIC are A+, AA and Aa2 from A.M. Best, Standard and Poor's and Moody's Moody's Corporation (NYSE: MCO) is the holding company for Moody's Investors Service which performs financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. , respectively. Several other affiliates have been assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. their own financial strength ratings by one or more rating agencies. Because all of these ratings are subject to continuous review, the retention of these ratings cannot be assured. A multiple level downgrade in any of these ratings could have a material adverse effect on our sales, our competitiveness, the marketability Marketability A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold. marketability The ease with which an investment may be bought and sold in the secondary market. of our product offerings, and our liquidity, operating results and financial condition. --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 homeowners insurance 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, and in excess of those that modelers estimate would be incurred based on other levels of probability. In addition, while we believe that the actions we are taking to support continued growth in the homeowners business in a profitable and prudent manner 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 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 elimination of 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. --Loss costs in our Property-Liability business, including losses due to catastrophes such as hurricanes and earthquakes in the fourth quarter of 2005, may exceed management's projections. In particular, losses due to catastrophes may exceed the average expected level used in pricing. --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. --Results from the management and review of our investment portfolios could cause lower than expected net investment income. --The declaration of dividends, 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 November: see month. 2004, and our ability to service debt are subject to the risks identified above and their impact on net income and cash flows. In addition, the declaration of dividends is subject to the discretion of our board of directors and its assessment of alternative uses of available funds. The completion of the stock repurchase program is subject to 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. The Allstate Corporation (NYSE:ALL) is the nation's largest publicly held personal lines insurer. Widely known through the "You're you're Contraction of you are. you're you are you're be In Good Hands With Allstate(R)" slogan A slogan is a memorable motto or phrase used in a political, commercial, religious and other context as a repetitive expression of an idea or purpose. Slogans vary from the written and the visual to the chanted and the vulgar. , Allstate helps individuals in approximately 17 million households protect what they have today and better prepare for tomorrow through nearly 13,600 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 ENCOMPASS Enhanced Consequence Management Planning and Support System (DARPA) (SM) and Deerbrook(R) Insurance brand property and casualty products are sold exclusively through independent agencies. Allstate Financial Group provides life insurance, 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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