Allstate Reports 2006 Second Quarter Results; Net Income EPS Increased 10.5%; Operating Income EPS Increased 20.5%.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 second quarter of 2006:
Consolidated Highlights(1)
Three Months Ended June 30,
--------------------------------
Change
-----------------
(in millions, except per Est.
share amounts and ratios) 2006 2005 $ Amt %
------ ------ -------- ---------
Consolidated revenues $8,875 $8,791 $84 1.0
Net income 1,207 1,149 58 5.0
Net income per diluted share 1.89 1.71 0.18 10.5
Operating income(1) 1,272 1,117 155 13.9
Operating income per diluted share(1) 2.00 1.66 0.34 20.5
Property-Liability combined ratio 82.5 85.2 -- (2.7)
pts.
Catastrophe losses 255 146 109 74.7
Book value per share 32.43 33.48 (1.05) (3.1)
Return on equity 9.9 16.1 -- (6.2)
pts.
Operating income return on equity(1) 9.7 17.3 -- (7.6)
pts.
----------------------------------------------------------------------
-- Property-Liability premiums written(1) grew 1.2% over the
second quarter of 2005, driven by an Allstate brand standard
auto increase of 3.7%. Excluding the cost of the completed
Allstate Protection catastrophe reinsurance program and the
Florida Hurricane Catastrophe Fund ("FHCF"), premiums written
grew 2.2% in the second quarter compared to the second quarter
of last year. Policies in force ("PIF") increased 1.2% for
Allstate Protection, driven by an Allstate brand standard auto
increase of 2.9% from June 30, 2005 levels.
-- Property-Liability underwriting income(1) increased $205
million to $1.20 billion compared to $994 million in the
second quarter of 2005, driven by increased premiums earned,
continued favorable auto and homeowners loss frequencies
excluding catastrophes, and net favorable prior year reserve
reestimates, partially offset by higher catastrophe losses.
-- Allstate Financial operating income for the quarter was $160
million, compared to $137 million in the second quarter of
2005. Premiums and deposits(1), excluding variable annuities,
were $3.99 billion, an increase of 11.5% over the second
quarter of 2005, due primarily to increased fixed annuity
deposits. In June, we completed the disposal of substantially
all of our variable annuity business through reinsurance with
Prudential Financial, Inc.
-- Book value per share decreased 3.1% compared to June 30, 2005,
but increased 4.6% compared to December 31, 2005. Book value
per share, excluding the net impact of unrealized net capital
gains on fixed income securities(1) was $31.98 at June 30,
2006, reflecting an increase of 5.2% compared to June 30, 2005
and 10.0% when compared to December 31, 2005.
-- Allstate is increasing annual operating income per diluted
share guidance for 2006 (assuming no additional prior year
reserve reestimates and average expected catastrophe losses
for the remainder of the year) to a range of $6.70 to $7.00,
compared to the previously announced range of $6.00 to $6.40.
(1) Measures used in this release that are not based on accounting principles generally accepted in 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. ("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. "This was a very strong quarter for Allstate driven by excellent performance of our automobile automobile, self-propelled vehicle used for travel on land. The term is commonly applied to a four-wheeled vehicle designed to carry two to six passengers and a limited amount of cargo, as contrasted with a truck, which is designed primarily for the transportation of insurance line of business," said Edward M. Liddy Edward M. Liddy is Chairman, President and Chief Executive Officer of The Allstate Corporation. He is currently on the Board of 3M, Goldman Sachs and The Kroger Company. • • , chairman and chief executive officer, The Allstate Corporation. "Overall, we are growing our business and generating strong profitability while at the same time we are managing down our exposure to catastrophes in the lines of business and areas of the country where the risk is the greatest. Our results this quarter are a good indication that we can effectively accomplish both objectives." Allstate Property-Liability net premium written was up 1.2 percent compared to second quarter of 2005 with Allstate brand standard auto up 3.7 percent over the prior year's second quarter. Policies in force for standard auto were up 2.9 percent over last year. "Underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. for Allstate Protection was outstanding at $1.2 billion, an increase of 18.4 percent compared to the second quarter of 2005. Automobile accident Ask a Lawyer Question Country: United States of America State: Utah Say you're at a red light in a left hand turning lane and the light turns green so you let up slightly on the break antedating moving forward and the vehicle frequency continues to be favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. . Claim severities were in line with our expectations and general inflation trends," continued Liddy. "The company also had excellent profitability results from the Allstate brand homeowners line, which were driven by favorable claim frequency." "In the quarter we completed the final part of our 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. program for the current 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 to aggressively seek recovery of our reinsurance cost. Through the end of the second quarter, we have submitted more than 300 rate filings in 25 states related to the cost of our new 2006 reinsurance programs. We have implemented filings in 12 states covering over $65 million of the cost. Including rates approved in 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 other states related to our prior year reinsurance programs, our current effective rates reflect approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 35% of the total cost of our reinsurance programs. "Allstate(R) Your Choice Auto, the company's innovative auto insurance product, reached a milestone “Milemarker” redirects here. For the American indie rock band, see Milemarker (band). A milestone or kilometre sign is one of a series of numbered markers placed along a road at regular intervals, typically at the side of the road or in a median. in the quarter. Since its introduction, we now have more than one million policies in either our gold, platinum platinum (plăt`ənəm), metallic chemical element; symbol Pt; at. no. 78; at. wt. 195.08; m.p. 1,772°C;; b.p. 3,827±100°C;; sp. gr. 21.45 at 20°C;; valence +2 or +4. or value packages. While competition remains unabated un·a·bat·ed adj. Sustaining an original intensity or maintaining full force with no decrease: an unabated windstorm; a battle fought with unabated violence. in our auto insurance business, we remain confident in our Tiered tier 1 n. 1. One of a series of rows placed one above another: a stadium with four tiers of seats. 2. A rank or class. tr. & intr.v. Pricing and Allstate Your Choice Auto insurance product and their impact in helping us grow market share profitably over time," said Liddy. Allstate Financial generated 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. of $160 million compared to $137 million in the second quarter of 2005 from improved life insurance mortality results, higher investment margins(1) and lower expenses. Premiums and deposits, excluding variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. , were $3.99 billion, up 11.5 percent from the comparable amount in the second quarter of 2005 due primarily to increases in sales of fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. . In the quarter, Allstate Financial closed on our previously announced agreement to dispose of To determine the fate of; to exercise the power of control over; to fix the condition, application, employment, etc. of; to direct or assign for a use. See also: Dispose substantially all of our 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. business through a reinsurance agreement with Prudential Prudential is the name of two different companies and buildings named after them: Companies:
"Finally, we are increasing annual operating income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share guidance for 2006 (assuming no additional prior year reserve reestimates and average expected catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses for the remainder of the year) to a range of $6.70 to $7.00, compared to the previously announced range of $6.00 to $6.40. Overall I am very pleased with our results this quarter. Our businesses are executing well, our competitive position is strong and we have made great progress toward managing our exposure to catastrophes," concluded Liddy.
Consolidated Highlights
Discussion of
Results for the
Three Months Ended Six Months Ended Three Months Ended
June 30, June 30, June 30, 2006
----------------- ----------------- ------------------
($ in millions,
except per
share and
return Est. Est.
amounts) 2006 2005 2006 2005
-------- ------- -------- --------
Consolidated $8,875 $8,791 $17,956 $17,496 -- Growth of
revenues Property-
Liability
premiums earned
and higher net
investment
income.
Operating income 1,272 1,117 2,576 2,257
Realized capital (29) 87 100 167 -- See the
gains and Components of
losses, Realized Capital
after-tax Gains and Losses
(pretax) table.
DAC and DSI (3) (43) 24 (104)
amortization
relating to
realized
capital
gains and
losses,
after-tax
Non-recurring -- -- -- (22)
increase in
liability for
future
benefits,
after-tax
Reclassification (9) (10) (19) (22)
of periodic
settlements and
accruals on
non-hedge
derivative
instruments,
after-tax
Loss on (24) (2) (59) (4)
disposition of
operations,
after-tax
Net income 1,207 1,149 2,622 2,272
Income per
diluted share:
Net 1.89 1.71 4.08 3.35
Operating 2.00 1.66 4.01 3.33
Net shares 630.9 660.9 630.9 660.9 -- During the
outstanding second quarter of
2006, Allstate
purchased 8.9
million shares of
its stock for
$488 million,
leaving $603
million remaining
in the current $4
billion
authorization.
This program is
expected to be
completed in
2006.
Weighted average 638.5 672.6 642.9 677.8
shares
outstanding
(diluted)
Return on -- See the return
equity: on equity
Net income 9.9 16.1 calculation in
Operating 9.7 17.3 the Definitions
income of Non-GAAP and
Operating
Measures section
of this document.
Book value per 32.43 33.48 -- At June 30,
share 2006 and 2005,
net unrealized
gains on fixed
income securities
totaling $288
million and $2.06
billion,
respectively,
represented $0.45
and $3.08,
respectively, of
book value per
share.
--Book value per share decreased 3.1% compared to June June: see month. 30, 2005, but increased 1.4% when compared to March 31, 2006 and 4.6% when compared to December December: see month. 31, 2005. Book value per share, excluding the net impact of unrealized net capital gains on fixed income securities was $31.98 at June 30, 2006, reflecting increases of 5.2% compared to June 30, 2005, 10.0% when compared to December 31, 2005 and 3.5% when compared to March 31, 2006.
Property-Liability Highlights
Discussion of
Three Months Six Months Results for the
Ended Ended Three Months Ended
June 30, June 30, June 30, 2006
--------------- ----------------- ------------------
($ in millions, Est. Est.
except ratios) 2006 2005 2006 2005
------- ------- -------- --------
Property- $7,074 $6,993 $13,799 $13,575 -- See the
Liability net Property-
premiums written Liability
Premiums Written
by Market
Segment table.
Property- 7,364 7,288 14,930 14,521 -- Premiums
Liability earned increased
revenues $124 million or
1.8%.
Underwriting 1,199 994 2,441 1,975 -- Higher
income premiums earned,
continued
favorable auto
and homeowners
loss frequencies
excluding
catastrophes, and
net favorable
prior year
reserve
reestimates,
partially offset
by higher
catastrophe
losses. See the
Allstate
Protection Market
Segment Analysis
table.
Net investment 461 443 927 879 -- Increased
income partnership
income and higher
net interest and
dividends.
Operating income 1,135 1,002 2,311 2,021
Realized capital 30 71 175 149 -- See the
gains and Components of
losses, Realized Capital
after-tax Gains and Losses
(pretax) table.
Loss on (1) -- (1) --
disposition of
operations,
after-tax
Net income 1,164 1,073 2,485 2,170 -- Higher
operating income.
Catastrophe 255 146 362 310 -- Includes net
losses favorable reserve
reestimates of
$129 million
after reinsurance
related to the
prior year
hurricanes and
the expected FL
Citizens
assessment.
Ratios:
Allstate 82.4 84.9 82.1 85.0
Protection
combined ratio
Effect of 0.1 0.3 0.1 0.3
Discontinued
Lines and
Coverages on
combined ratio
Property- 82.5 85.2 82.2 85.3
Liability
combined ratio
Effect of 3.7 2.2 2.6 2.3
catastrophe
losses on
combined ratio
Property- 78.8 83.0 79.6 83.0
Liability
combined ratio
excluding the
effect of
catastrophes(1)
Effect of 0.1 0.1 0.7 0.2
restructuring
and related
charges on
combined ratio
--Allstate brand standard auto and homeowners 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 2.9% and 1.5%, respectively, from June 30, 2005 levels, compared to increases of 2.8% and 2.6%, respectively, in the first quarter of 2006 over the first quarter of 2005. --New issued applications for Allstate brand standard auto increased 3.6% compared to the second quarter of 2005. The roll-out of Allstate Your Choice Auto, refinements to Tiered Pricing and the continued emphasis on targeted marketing programs contributed to these results. New issued applications for Allstate brand homeowners decreased 17.5% compared to the second quarter of 2005 due to our catastrophe risk management actions. For detailed information on our catastrophe risk management actions, see the Allstate Protection Catastrophe Management Strategy Update section of this document. --Standard auto six month average premium of $420 grew 1.0%, while homeowners 12 month average premium of $828 grew 4.4% from the second quarter of 2005. Average premium is calculated using premiums written before reinsurance. --The renewal ratios for Allstate brand standard auto and homeowners were 90.2 and 87.1, respectively, compared to 90.8 and 88.3 in the prior year second quarter. The decline in the standard auto renewal ratio is due to competitive pressures in certain states and the decline in the homeowner renewal ratio is primarily due to our catastrophe risk management actions. The standard auto renewal ratio in the first quarter of 2006 was 89.9. --We completed our catastrophe reinsurance program during the second quarter with the acquisition of 80% of $500 million in additional reinsurance protection covering 10 southern and eastern coastal states The U.S. Coastal states are states in the United States that have a coastline. This can be an ocean coast, a gulf coast, or a Great Lake coast. There are twenty three ocean/gulf of Mexico states, and eight Great Lake states. (New York is both an ocean state and a Great Lake state. and the District of Columbia, 95% of $200 million in additional reinsurance coverage for 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. exposure in New Jersey and four new agreements for our exposure in Florida. We anticipate that the total annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. cost of all reinsurance programs will be approximately $840 million per year or $210 million per quarter. This represents an increase of approximately $600 million per year or $150 million per quarter over our total annualized cost during the 2005 hurricane season. Based on the effective dates of these agreements, our ceded premiums earned are expected to increase to approximately $210 million in the third and fourth quarters of 2006. For detailed information on our Allstate Protection catastrophe reinsurance program see http://media.corporate-ir. net/media_files/IROL/93/93125/reports/ALL_reinsurance.pdf. (Due to its length, this URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. may need to be copied/pasted into your Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the browser's address field. Remove the extra space if one exists.) --Prior year favorable reserve reestimates for the quarter totaled $355 million, compared to $92 million in the prior year second quarter, resulting from late reported loss development, claim severity and catastrophe estimate development that was better than anticipated in previous estimates in Allstate Protection. Reserve reestimates included in catastrophe losses were net favorable reserve reestimates of $72 million after reinsurance primarily related to lower than expected additional living expenses for Hurricane Katrina  Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. , and $57 million
related to a reduction in our expected assessment from Citizens Property
Insurance Corporation in Florida ("FL Citizens").
Allstate Financial Highlights
Discussion of
Three Months Six Months Results for the
Ended Ended Three Months Ended
June 30, June 30, June 30, 2006
---------------- --------------- ------------------
($ in millions) Est. Est.
2006 2005 2006 2005
------- -------- ------- -------
Premiums and $4,228 $4,032 $6,904 $8,011 -- See the
deposits Allstate
Financial
Premiums and
Deposits table.
Allstate Financial 1,483 1,469 2,954 2,909 -- Higher
revenues investment income
and premiums and
contract charges,
partially offset
by net realized
capital losses.
Operating income 160 137 304 286 -- Higher gross
margin(1) and
lower operating
costs and
expenses.
Realized capital (52) 15 (70) 16 -- See the
gains and Components of
losses, after-tax Realized Capital
Gains and Losses
(pretax) table.
DAC and DSI (3) (43) 24 (104)
amortization
relating to
realized capital
gains and losses,
after-tax
Non-recurring -- -- -- (22)
increase in
liability for
future benefits,
after-tax
Reclassification (9) (10) (19) (22)
of periodic
settlements and
accruals on non-
hedge derivative
instruments,
after-tax
Loss on (23) (2) (58) (4) -- Relates to
disposition of costs incurred on
operations, the disposition
after-tax of the variable
annuity business
to Prudential
Financial, Inc.,
which primarily
includes the
change in fair
value of the
derivatives used
to economically
hedge the ceding
commission
received at
closing.
Net income 73 97 181 150
--Deferred fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. deposits in the second quarter of 2006 were $1.74 billion, an increase of 43.4% from the prior year. This increase was driven primarily by deposits of $387 million, an increase of $274 million over the prior year quarter, on our innovative Allstate Treasury-Linked(R) 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. whose crediting rate is indexed to the 5-year treasury rate, which increases the crediting rate to the customer in a rising interest rate environment. --The increase in operating income reflects favorable life insurance mortality experience, higher investment margins and lower non-deferred expenses. --On June 1, 2006, we completed the disposal of substantially all of our variable annuity business through reinsurance with Prudential Financial, Inc. Total consideration was $628 million. The disposal resulted in the recognition of a deferred reinsurance gain in the amount of $88 million, pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta , resulting from the excess of the ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. commission over net liabilities and related reinsurance costs. The deferred gain will be amortized over the life of the reinsurance agreement, approximately 18 years, and reported as a 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 . The second quarter of 2006 also included a $24 million, after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. , loss on disposition of operations comprised of the change in fair value of the derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. the ceding commission as well as transaction-related costs incurred during the quarter. This disposition is expected to result in a lower gross margin in the future, which would be expected to be mostly offset by lower DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter and 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. amortization and 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. . --The variable annuity disposition resulted in an increase in statutory surplus of $361 million. During 2006, total dividends of $400 to $500 million are expected to be paid by Allstate Life Insurance Company to its parent, Allstate Insurance Company, as a result of this disposition, of which $125 million was paid during the second quarter. The payment of the additional remaining dividends in 2006 is subject to regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approval. --Investments as of June 30, 2006 decreased 2.1% from June 30, 2005 levels primarily due to lower unrealized capital gains and a transfer to Prudential Financial, Inc. upon the closing of the variable annuity disposition.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Six Months
Ended Ended
June 30, June 30,
------------- ---------------
($ in millions, except Est. Percent Est. Percent
per share data) 2006 2005 Change 2006 2005 Change
------ ------ -------- ------- ------- --------
Revenues
Property-liability
insurance premiums $6,860 $6,736 1.8 $13,736 $13,420 2.4
Life and annuity
premiums and
contract charges 515 499 3.2 1,010 1,020 (1.0)
Net investment income 1,548 1,423 8.8 3,059 2,807 9.0
Realized capital
gains and losses (48) 133 (136.1) 151 249 (39.4)
------ ------ ------- -------
Total revenues 8,875 8,791 1.0 17,956 17,496 2.6
------ ------ ------- -------
Costs and expenses
Property-liability
insurance claims and
claims expense 3,994 4,114 (2.9) 7,867 8,177 (3.8)
Life and annuity
contract benefits 374 403 (7.2) 747 814 (8.2)
Interest credited to
contractholder funds 652 585 11.5 1,272 1,176 8.2
Amortization of
deferred policy
acquisition costs 1,223 1,201 1.8 2,362 2,397 (1.5)
Operating costs and
expenses 747 753 (0.8) 1,526 1,553 (1.7)
Restructuring and
related charges 12 8 50.0 119 26 -
Interest expense 90 82 9.8 171 166 3.0
------ ------ ------- -------
Total costs and
expenses 7,092 7,146 (0.8) 14,064 14,309 (1.7)
------ ------ ------- -------
Loss on disposition of
operations (35) (4) - (88) (8) -
------ ------ ------- -------
Income from operations
before income
tax expense 1,748 1,641 6.5 3,804 3,179 19.7
Income tax expense 541 492 10.0 1,182 907 30.3
------ ------ ------- -------
Net income $1,207 $1,149 5.0 $ 2,622 $ 2,272 15.4
====== ====== ======= =======
Net income per share -
Basic $ 1.91 $ 1.72 $ 4.11 $ 3.38
====== ====== ======= =======
Weighted average
shares - Basic 634.1 666.5 638.6 672.1
====== ====== ======= =======
Net income per share -
Diluted $ 1.89 $ 1.71 $ 4.08 $ 3.35
====== ====== ======= =======
Weighted average
shares - Diluted 638.5 672.6 642.9 677.8
====== ====== ======= =======
Cash dividends
declared per share $ 0.35 $ 0.32 $ 0.70 $ 0.64
====== ====== ======= =======
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Six Months
Ended Ended
June 30, June 30,
------------- -------------
($ in millions, except Est. Percent Est. Percent
per share data) 2006 2005 Change 2006 2005 Change
------ ------ -------- ------ ------ --------
Contribution to income
Operating income before
the impact of
restructuring and
related charges $1,279 $1,122 14.0 $2,653 $2,274 16.7
Restructuring and
related charges,
after-tax 7 5 40.0 77 17 -
------ ------ ------ ------
Operating income 1,272 1,117 13.9 2,576 2,257 14.1
Realized capital gains
and losses, after-tax (29) 87 (133.3) 100 167 (40.1)
DAC and DSI
amortization relating
to realized capital
gains and losses,
after-tax (3) (43) 93.0 24 (104) 123.1
Non-recurring increase
in liability for
future benefits,
after-tax - - - - (22) 100.0
Reclassification of
periodic settlements
and accruals on
non-hedge derivative
instruments, after-tax (9) (10) 10.0 (19) (22) 13.6
Loss on disposition of
operations, after-tax (24) (2) - (59) (4) -
------ ------ ------ ------
Net income $1,207 $1,149 5.0 $2,622 $2,272 15.4
====== ====== ====== ======
Income per share -
Diluted
Operating income before
the impact of
restructuring and
related charges $ 2.01 $ 1.66 21.1 $ 4.13 $ 3.35 23.3
Restructuring and
related charges,
after-tax 0.01 - - 0.12 0.02 -
------ ------ ------ ------
Operating income 2.00 1.66 20.5 4.01 3.33 20.4
Realized capital gains
and losses, after-tax (0.05) 0.12 (141.7) 0.15 0.24 (37.5)
DAC and DSI
amortization relating
to realized capital
gains and losses,
after-tax - (0.06) 100.0 0.04 (0.15) 126.7
Non-recurring increase
in liability for
future benefits,
after-tax - - - - (0.03) 100.0
Reclassification of
periodic settlements
and accruals on
non-hedge derivative
instruments, after-tax (0.02) (0.01) (100.0) (0.03) (0.03) -
Loss on disposition of
operations, after-tax (0.04) - - (0.09) (0.01) -
------ ------ ------ ------
Net income $ 1.89 $ 1.71 10.5 $ 4.08 $ 3.35 21.8
====== ====== ====== ======
Book value per share -
Diluted $32.43 $33.48 (3.1)$32.43 $33.48 (3.1)
====== ====== ====== ======
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended June 30, 2006 (Est.)
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------ ---------- ---------- ------
Valuation of derivative
instruments $ (29) $ (22) $ - $ (51)
Settlements of derivative
instruments 28 21 - 49
Dispositions (1) 54 (75) (11) (32)
Investment write-downs (10) (4) - (14)
------------ ---------- ---------- ------
Total $ 43 $ (80) $ (11) $ (48)
============ ========== ========== ======
Six Months Ended June 30, 2006 (Est.)
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------ ---------- ---------- ------
Valuation of derivative
instruments $ 3 $ 14 $ - $ 17
Settlements of derivative
instruments 30 38 - 68
Dispositions (1) 248 (151) (8) 89
Investment write-downs (14) (9) - (23)
------------ ---------- ---------- ------
Total $ 267 $ (108) $ (8) $ 151
============ ========== ========== ======
Three Months Ended June 30, 2005
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------ ---------- ---------- ------
Valuation of derivative
instruments $ (14) $ (11) $ - $ (25)
Settlements of derivative
instruments (7) (17) - (24)
Dispositions 134 58 - 192
Investment write-downs (4) (6) - (10)
------------ ---------- ---------- ------
Total $ 109 $ 24 $ - $ 133
============ ========== ========== ======
Six Months Ended June 30, 2005
--------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
------------ ---------- ---------- ------
Valuation of derivative
instruments $ (27) $ (69) $ - $ (96)
Settlements of derivative
instruments 3 9 - 12
Dispositions 260 98 2 360
Investment write-downs (14) (13) - (27)
------------ ---------- ---------- ------
Total $ 222 $ 25 $ 2 $ 249
============ ========== ========== ======
(1) In the second quarter of 2006, the Company recognized $38 million
of losses related to a change in our intent to hold certain
securities with unrealized losses until they recover in value.
The change in our intent is primarily related to comprehensive
reviews of our portfolios for both Allstate Protection and
Allstate Financial, strategic asset allocations for Allstate
Protection, and a liquidity strategy review in the Corporate and
Other segment. The Company identified $3.0 billion of securities
that we expect to sell to achieve these objectives.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ----------------
($ in millions) Est. Est.
2006 2005 2006 2005
------- ------- ------- -------
Property-Liability
Premiums written $ 7,074 $ 6,993 $13,799 $13,575
======= ======= ======= =======
Premiums earned $ 6,860 $ 6,736 $13,736 $13,420
Claims and claims expense (3) 3,994 4,114 7,867 8,177
Amortization of deferred policy
acquisition costs 1,030 1,020 2,049 2,032
Operating costs and expenses 628 600 1,280 1,210
Restructuring and related
charges 9 8 99 26
------- ------- ------- -------
Underwriting income 1,199 994 2,441 1,975
------- ------- ------- -------
Net investment income 461 443 927 879
Income tax expense on operations 525 435 1,057 833
------- ------- ------- -------
Operating income 1,135 1,002 2,311 2,021
Realized capital gains and
losses, after-tax 30 71 175 149
Loss on disposition of
operations, after-tax (1) - (1) -
------- ------- ------- -------
Net income $ 1,164 $ 1,073 $ 2,485 $ 2,170
======= ======= ======= =======
Catastrophe losses $ 255 $ 146 $ 362 $ 310
======= ======= ======= =======
Operating ratios
Claims and claims expense
ratio (3) 58.2 61.1 57.3 60.9
Expense ratio 24.3 24.1 24.9 24.4
------- ------- ------- -------
Combined ratio 82.5 85.2 82.2 85.3
======= ======= ======= =======
Effect of catastrophe losses
on combined ratio 3.7 2.2 2.6 2.3
======= ======= ======= =======
Effect of restructuring and
related charges on combined
ratio 0.1 0.1 0.7 0.2
======= ======= ======= =======
Effect of Discontinued Lines
and Coverages on combined
ratio 0.1 0.3 0.1 0.3
======= ======= ======= =======
Allstate Financial
Premiums and deposits $ 4,228 $ 4,032 $ 6,904 $ 8,011
======= ======= ======= =======
Investments (1) $75,803 $77,396 $75,803 $77,396
======= ======= ======= =======
Premiums and contract
charges (2) $ 515 $ 499 $ 1,010 $ 1,020
Net investment income 1,048 946 2,052 1,864
Periodic settlements and
accruals on non-hedge
derivative instruments 14 16 30 35
Contract benefits 374 403 747 814
Interest credited to
contractholder funds 651 578 1,274 1,144
Amortization of deferred policy
acquisition costs 190 122 349 237
Operating costs and expenses (2) 119 152 247 312
Restructuring and related
charges 3 - 19 -
Income tax expense on operations 80 69 152 126
------- ------- ------- -------
Operating income (2) 160 137 304 286
Realized capital gains and
losses, after-tax (52) 15 (70) 16
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (3) (43) 24 (104)
Non-recurring increase in
liability for future benefits,
after-tax - - - (22)
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (9) (10) (19) (22)
Loss on disposition of
operations, after-tax (23) (2) (58) (4)
------- ------- ------- -------
Net income $ 73 $ 97 $ 181 $ 150
======= ======= ======= =======
Corporate and Other
Net investment income $ 39 $ 34 $ 80 $ 64
Operating costs and expenses 90 83 170 169
Restructuring and related
charges - - 1 -
Income tax benefit on operations (28) (27) (52) (55)
------- ------- ------- -------
Operating loss (23) (22) (39) (50)
Realized capital gains and
losses, after-tax (7) 1 (5) 2
------- ------- ------- -------
Net loss $ (30) $ (21) $ (44) $ (48)
======= ======= ======= =======
Consolidated net income $ 1,207 $ 1,149 $ 2,622 $ 2,272
======= ======= ======= =======
(1) To conform to the current period presentation, prior periods have
been reclassified.
(2) The decline in Allstate Financial operating costs and expenses
relates primarily to the impact of moving its loan protection
business to the Allstate Protection segment and a reclassification
of certain reinsurance expense allowances. The loan protection
business had premiums of $28 million, operating costs and expenses
of $15 million and a negligible impact to operating income in the
second quarter of 2005.
(3) For the three months ended June 30, 2005, claims and claims
expense and claims and claims expense ratio includes the effect of
$120 million or 1.8 points related to an accrual for a settlement
of a worker classification lawsuit challenging the overtime
exemption claimed by the Company under California wage and hour
laws.
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- ----------------
Est. Percent Est. Percent
($ in millions) 2006 2005 Change 2006 2005 Change
------ ------ ------- ------- ------- -------
Property-Liability
Underwriting
Summary
Allstate
Protection $1,207 $1,019 18.4 $ 2,456 $ 2,009 22.2
Discontinued Lines
and Coverages (8) (25) 68.0 (15) (34) 55.9
------ ------ ------- -------
Underwriting
income $1,199 $ 994 20.6 $ 2,441 $ 1,975 23.6
====== ====== ======= =======
Allstate Protection
Underwriting
Summary
Premiums written $7,073 $6,993 1.1 $13,798 $13,574 1.7
====== ====== ======= =======
Premiums earned $6,859 $6,739 1.8 $13,734 $13,421 2.3
Claims and claims
expense 3,987 4,094 (2.6) 7,855 8,149 (3.6)
Amortization of
deferred policy
acquisition costs 1,030 1,020 1.0 2,049 2,032 0.8
Operating costs
and expenses 626 598 4.7 1,275 1,205 5.8
Restructuring and
related charges 9 8 12.5 99 26 -
------ ------ ------- -------
Underwriting
income $1,207 $1,019 18.4 $ 2,456 $ 2,009 22.2
====== ====== ======= =======
Catastrophe losses $ 255 $ 146 74.7 $ 362 $ 310 16.8
====== ====== ======= =======
Operating ratios
Claims and
claims expense
ratio 58.1 60.8 57.2 60.7
Expense ratio 24.3 24.1 24.9 24.3
------ ------ ------- -------
Combined ratio 82.4 84.9 82.1 85.0
====== ====== ======= =======
Effect of
catastrophe
losses
on combined
ratio 3.7 2.2 2.6 2.3
====== ====== ======= =======
Effect of
restructuring and
related charges
on combined ratio 0.1 0.1 0.7 0.2
====== ====== ======= =======
Discontinued Lines
and Coverages
Underwriting
Summary
Premiums written $ 1 $ - - $ 1 $ 1 -
====== ====== ======= =======
Premiums earned $ 1 $ (3) 133.3 $ 2 $ (1) -
Claims and claims
expense 7 20 (65.0) 12 28 (57.1)
Operating costs
and expenses 2 2 - 5 5 -
------ ------ ------- -------
Underwriting
loss $ (8) $ (25) 68.0 $ (15) $ (34) 55.9
====== ====== ======= =======
Effect of
Discontinued
Lines and
Coverages
on the Property-
Liability
combined ratio 0.1 0.3 0.1 0.3
====== ====== ======= =======
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)
Three Months Ended
June 30, 2006 (Est.)
---------------------------------------
Number of Countrywide State Specific
States (%) (2) (%) (3)
----------- ----------- ---------------
Allstate brand
Standard auto(4) 10 (0.3) (2.0)
Non-standard auto 1 (1.0) (9.0)
Homeowners(5) 6 (0.4) (1.1)
Encompass brand
Standard auto 5 0.1 6.3
Non-standard auto (Deerbrook) 1 0.2 8.9
Homeowners 5 0.6 9.1
Six Months Ended
June 30, 2006 (Est.)
---------------------------------------
Number of Countrywide State Specific
States (%) (2) (%) (3)
----------- ----------- ---------------
Allstate brand
Standard auto 14 (0.2) (1.4)
Non-standard auto 1 (1.0) (9.0)
Homeowners 8 (0.1) (0.3)
Encompass brand
Standard auto 8 (0.7) (5.4)
Non-standard auto (Deerbrook) 1 0.2 8.9
Homeowners 9 0.7 8.2
(1) Rate increases that are indicated based on a loss trend analysis
to achieve a targeted return will continue to be pursued in all
locations and for all products. These rate changes do not reflect
initial rates filed for insurance subsidiaries initially writing
new business. These rate changes also do not reflect the more than
300 rate filings we have made in 25 states related to the cost of
our new reinsurance programs. We have implemented filings in 12
states covering over $65 million of the cost. Including rates
approved in Florida and other states related to our prior year
reinsurance programs, our current effective rates reflect
approximately 35% of the total cost of our reinsurance programs.
In 2005 we also received approval for homeowners rate increases in
the state of Florida averaging 7.9% in August and 18.2% in
October.
(2) Represents the impact in the states where rate changes were
approved during 2006 as a percentage of total countrywide prior
year-end premiums written.
(3) Represents the impact in the states where rate changes were
approved during 2006 as a percentage of total prior year-end
premiums written in those states.
(4) Rate changes include negotiated rate reductions in the states of
North Carolina and Texas.
(5) Rate changes include a negotiated rate reduction in the state of
Texas.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Six Months
Ended Ended
June 30, June 30,
------------- ---------------
Est. Percent Est. Percent
($ in millions) 2006 2005 Change 2006 2005 Change
------ ------ -------- ------- ------- -------
Allstate brand
Standard auto $3,873 $3,736 3.7 $ 7,825 $ 7,534 3.9
Non-standard auto 355 402 (11.7) 730 828 (11.8)
------ ------ ------- -------
Auto 4,228 4,138 2.2 8,555 8,362 2.3
Involuntary auto 34 45 (24.4) 71 98 (27.6)
Commercial lines 230 249 (7.6) 449 482 (6.8)
Homeowners 1,620 1,612 0.5 2,908 2,870 1.3
Other personal lines 433 392 10.5 814 716 13.7
------ ------ ------- -------
6,545 6,436 1.7 12,797 12,528 2.1
Encompass brand
Standard auto 303 313 (3.2) 576 595 (3.2)
Non-standard auto
(Deerbrook) 24 30 (20.0) 49 62 (21.0)
------ ------ ------- -------
Auto 327 343 (4.7) 625 657 (4.9)
Involuntary auto 6 15 (60.0) 14 27 (48.1)
Homeowners 163 165 (1.2) 302 300 0.7
Other personal lines 32 34 (5.9) 60 62 (3.2)
------ ------ ------- -------
528 557 (5.2) 1,001 1,046 (4.3)
------ ------ ------- -------
Allstate Protection 7,073 6,993 1.1 13,798 13,574 1.7
Discontinued Lines
and Coverages 1 - - 1 1 -
------ ------ ------- -------
Property-Liability $7,074 $6,993 1.2 $13,799 $13,575 1.7
====== ====== ======= =======
Allstate Protection
Standard auto $4,176 $4,049 3.1 $ 8,401 $ 8,129 3.3
Non-standard auto 379 432 (12.3) 779 890 (12.5)
------ ------ ------- -------
Auto 4,555 4,481 1.7 9,180 9,019 1.8
Involuntary auto 40 60 (33.3) 85 125 (32.0)
Commercial lines 230 249 (7.6) 449 482 (6.8)
Homeowners 1,783 1,777 0.3 3,210 3,170 1.3
Other personal lines 465 426 9.2 874 778 12.3
------ ------ ------- -------
$7,073 $6,993 1.1 $13,798 $13,574 1.7
====== ====== ======= =======
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended June 30,
----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2006 2005 2006 2005 2006 2005 2006 2005
------- ------- ----- ----- ------ ----- ----- -----
Effect of
Catastrophe
Losses
Premiums Loss Ratio on the Loss Expense
Earned (2) Ratio Ratio
--------------- ----------- ------------ -----------
Allstate brand
Standard
auto $ 3,880 $ 3,743 63.1 66.5 1.6 0.4 23.8 24.3
Non-standard
auto 371 416 55.0 54.6 0.8 0.3 21.8 21.6
------- -------
Auto 4,251 4,159 62.4 65.3 1.6 0.4 23.7 24.0
Homeowners 1,460 1,435 47.2 45.7 12.3 5.1 24.1 22.2
Other (1) 646 630 50.5 63.0 (2.3) 6.5 25.2 25.6
------- -------
Total
Allstate
brand 6,357 6,224 57.7 60.6 3.6 2.1 23.9 23.7
Encompass brand
Standard
auto 290 297 63.1 64.0 (2.1) (0.3) 27.2 28.9
Non-standard
auto
(Deerbrook) 24 32 87.5 78.1 - - 29.2 28.2
------- -------
Auto 314 329 65.0 65.3 (1.9) (0.4) 27.4 28.9
Homeowners 150 144 57.3 54.2 18.7 9.1 30.7 29.1
Other (1) 38 42 78.9 71.4 7.9 2.4 31.6 26.2
------- -------
Total
Encompass
brand 502 515 63.7 62.7 5.0 2.5 28.7 28.8
------- -------
Allstate
Protection $ 6,859 $ 6,739 58.1 60.8 3.7 2.2 24.3 24.1
======= =======
Six Months Ended June 30,
----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2006 2005 2006 2005 2006 2005 2006 2005
------- ------- ----- ----- ------ ----- ----- -----
Effect of
Catastrophe
Losses
Premiums Loss Ratio on the Loss Expense
Earned (2) Ratio Ratio
--------------- ----------- ------------ -----------
Allstate brand
Standard
auto $ 7,718 $ 7,434 60.6 65.7 0.8 0.6 24.7 24.3
Non-standard
auto 749 841 56.9 58.6 0.3 0.3 22.3 21.3
------- -------
Auto 8,467 8,275 60.2 64.9 0.8 0.5 24.5 24.0
Homeowners 2,951 2,860 49.6 47.8 9.7 6.6 24.3 22.5
Other (1) 1,302 1,259 49.5 60.9 (2.3) 4.3 26.2 25.7
------- -------
Total
Allstate
brand 12,720 12,394 56.7 60.6 2.5 2.3 24.6 23.8
Encompass brand
Standard
auto 581 598 64.2 63.9 (0.9) - 27.5 30.7
Non-standard
auto
(Deerbrook) 51 66 80.4 77.3 - - 31.4 28.8
------- -------
Auto 632 664 65.5 65.2 (0.8) - 27.9 30.6
Homeowners 303 283 56.8 54.1 13.9 7.5 30.0 30.0
Other (1) 79 80 77.2 70.0 6.3 3.7 30.4 27.5
------- -------
Total
Encompass
brand 1,014 1,027 63.8 62.5 4.1 2.3 28.7 30.2
------- -------
Allstate
Protection $13,734 $13,421 57.2 60.7 2.6 2.3 24.9 24.3
======= =======
(1) Other includes involuntary auto, commercial lines, condominium,
renters and other personal lines.
(2) Loss Ratio comparisons on this exhibit are impacted by the
relative level of prior year reserve reestimates. Please refer to
the "Effect of Pretax Prior Year Reserve Reestimates on the
Combined Ratio" table for detailed reserve reestimate information.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended June 30,
-----------------------------------------------
Effect of Pretax Reserve
Pretax Reestimates on the
Reserve Reestimates(1) Combined Ratio
---------------------- ------------------------
Est. Est.
($ in millions) 2006 2005 2006 2005
----------- ---------- ----------- ------------
Auto $ (196) $ (132) (2.9) (2.0)
Homeowners (100) (3) (1.5) -
Other (65) 23 (0.9) 0.3
----------- ---------- ----------- ------------
Allstate Protection (361) (112) (5.3) (1.7)
Discontinued Lines
and Coverages 6 20 0.1 0.3
----------- ---------- ----------- ------------
Property
-Liability(2) $ (355) $ (92) (5.2) (1.4)
=========== ========== ========== ============
Allstate brand $ (360) $ (123) (5.3) (1.8)
Encompass brand (1) 11 - 0.1
----------- ---------- ----------- ------------
Allstate
Protection $ (361) $ (112) (5.3) (1.7)
=========== ========== ========== ============
Six Months Ended June 30,
-----------------------------------------------
Effect of Pretax Reserve
Pretax Reestimates on the
Reserve Reestimates(1) Combined Ratio
---------------------- ------------------------
Est. Est.
($ in millions) 2006 2005 2006 2005
----------- ---------- ----------- ------------
Auto $ (359) $ (225) (2.6) (1.7)
Homeowners (130) 8 (0.9) 0.1
Other (89) 17 (0.7) 0.1
----------- ---------- ----------- ------------
Allstate Protection (578) (200) (4.2) (1.5)
Discontinued Lines
and Coverages 12 28 0.1 0.2
----------- ---------- ----------- ------------
Property-Liability $ (566) $ (172) (4.1) (1.3)
=========== ========== ========== ============
Allstate brand $ (580) $ (210) (4.2) (1.6)
Encompass brand 2 10 - 0.1
----------- ---------- ----------- ------------
Allstate Protection $ (578) $ (200) (4.2) (1.5)
=========== ========== ========== ============
(1) Favorable reserve reestimates are shown in parentheses.
(2) Reserve reestimates included in catastrophe losses were net
favorable reserve reestimates of $72 million after reinsurance
primarily related to lower than expected additional living
expenses for Hurricane Katrina, and $57 million related to a
reduction in our expected assessment from Citizens Property
Insurance Corporation in Florida ("FL Citizens").
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- --------------
Est. Percent Est. Percent
($ in millions) 2006 2005 Change 2006 2005 Change
------ ------ ------- ------- ------ -------
Life Products
Interest-sensitive
life $ 377 $ 368 2.4 $ 739 $ 727 1.7
Traditional 86 77 11.7 158 149 6.0
Other 83 104 (20.2) 167 207 (19.3)
------ ------ ------- ------
546 549 (0.5) 1,064 1,083 (1.8)
Annuities
Indexed
annuities(1) 207 186 11.3 394 347 13.5
Fixed deferred
annuities(1) 1,736 1,211 43.4 2,642 2,575 2.6
Fixed immediate
annuities 143 180 (20.6) 299 474 (36.9)
Variable annuities 243 459 (47.1) 678 863 (21.4)
------ ------ ------- ------
2,329 2,036 14.4 4,013 4,259 (5.8)
Institutional Products
Funding agreements
backing medium-term
notes 1,250 1,325 (5.7) 1,600 2,423 (34.0)
Bank Deposits 103 122 (15.6) 227 246 (7.7)
------ ------ ------- ------
Total $4,228 $4,032 4.9 $6,904 $8,011 (13.8)
====== ====== ======= ======
Total excluding
variable annuities $3,985 $3,573 11.5 $6,226 $7,148 (12.9)
====== ====== ======= ======
(1) To conform to the current period presentation, prior periods have
been reclassified.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, December
2006 31,
($ in millions, except par value data) (Est.) 2005
--------- ---------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $95,287 and $94,777) $ 95,935 $ 98,065
Equity securities, at fair value (cost $5,609
and $4,873) 6,864 6,164
Mortgage loans 9,205 8,748
Short-term 4,429 3,470
Other 2,083 1,850
--------- ---------
Total investments(1) 118,516 118,297
Cash 466 313
Premium installment receivables, net 4,844 4,739
Deferred policy acquisition costs 5,759 5,802
Reinsurance recoverables, net 6,004 5,180
Accrued investment income 1,071 1,074
Property and equipment, net 1,043 1,040
Goodwill 825 825
Other assets 3,194 3,567
Separate Accounts 15,372 15,235
--------- ---------
Total assets $ 157,094 $156,072
========= =========
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 19,492 $ 22,117
Reserve for life-contingent contract benefits 12,151 12,482
Contractholder funds 62,008 60,040
Unearned premiums 10,329 10,294
Claim payments outstanding 825 1,263
Other liabilities and accrued expenses 10,781 8,804
Deferred income taxes - 351
Short-term debt - 413
Long-term debt 5,531 4,887
Separate Accounts 15,372 15,235
--------- ---------
Total liabilities 136,489 135,886
--------- ---------
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, 631 million
and 646 million shares outstanding 9 9
Additional capital paid-in(2) 2,879 2,798
Retained income 27,138 24,962
Deferred ESOP expense(2) (84) (90)
Treasury stock, at cost (269 million and 254
million shares) (10,438) (9,575)
Accumulated other comprehensive income:
Unrealized net capital gains and losses 1,093 2,090
Unrealized foreign currency translation
adjustments 38 22
Minimum pension liability adjustment (30) (30)
--------- ---------
Total accumulated other comprehensive
income 1,101 2,082
--------- ---------
Total shareholders' equity 20,605 20,186
--------- ---------
Total liabilities and shareholders'
equity $ 157,094 $156,072
========= =========
(1) Total investments includes $39,909 for Property-Liability,
$75,803 for Allstate Financial and $2,804 for Corporate and
Other investments at June 30, 2006. Total investments includes
$39,574 for Property-Liability, $75,233 for Allstate Financial
and $3,490 for Corporate and Other investments at December 31,
2005.
(2) To conform to the current period presentation, the prior period
has been reclassified.
Allstate Protection Catastrophe Management Strategy Update During the first half of 2006, we continued implementing our strategy to manage our property catastrophe exposure to provide our shareholders an acceptable return on the risks assumed in our property business and to reduce the variability of our earnings, while providing protection to our customers. Although in many areas of the country we are currently achieving returns within acceptable risk tolerances Risk Tolerance The degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio. Notes: An investor's risk tolerance varies according to age, income requirements, financial goals, etc. , we continue to seek solutions to improve returns in areas that have known exposure to hurricanes, earthquakes 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. and other catastrophes. We will continue to reduce our catastrophe exposure over time while working to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. the impact of our actions on customers. We are also working for
changes in the regulatory environment, including fewer restrictions on
underwriting Underwriting1. 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. , recognizing the need for and improving appropriate risk based pricing and promoting the creation of government sponsored, privately funded solutions. Our property business includes personal homeowners, commercial property and other property lines. Catastrophe exposure actions we have taken in the second quarter of 2006 include, for example, the placement of additional reinsurance agreements for our personal lines property insurance in areas most exposed to hurricanes and the previously announced non-renewal of optional 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 coverage. For detailed information on our catastrophe reinsurance program, see http://media.corporate-ir.net/media_files/IROL/93/93125/reports/ALL_re insurance.pdf (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) at Allstate.com. In the quarter, 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. entered into a reinsurance agreement to cede losses incurred on 120,000 personal property policies in the state of Florida to Royal Palm Insurance Company. Allstate Floridian plans to no longer offer coverage on these policies after their contract terms expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. , at which time Royal Palm may offer coverage to these policyholders. Beginning in June, we began notifying no·ti·fy tr.v. no·ti·fied, no·ti·fy·ing, no·ti·fies 1. To give notice to; inform: notified the citizens of the curfew by posting signs. 2. customers in most states that we are removing the optional earthquake coverage of property policies upon renewal. This action will impact most of the approximately 400,000 customers with coverage and follows the discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance of offering new optional earthquake coverage on property lines in March in most states. While this is a countrywide coun·try·wide adv. & adj. Throughout a whole country; nationwide: launched a fundraising campaign countrywide; a countrywide search. Adj. 1. strategy, at this time we will continue to have the coverage available in certain states due to regulatory constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. . We also will continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses. Allstate policyholders in the state of California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). are offered coverage through 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) "), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain 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 . Allstate's premiums written attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to earthquake coverage totaled approximately $60 million in 2005. These actions have had an impact on our new business writings for homeowners insurance, as demonstrated in the following table by the decline in new issued applications. We expect this trend to continue as we continue to address our catastrophe exposure.
For the three months For the six months
ended June 30 ended June 30
-------------------------- --------------------------
% %
2006 2005 Change 2006 2005 Change
-------- -------- -------- -------- -------- --------
Allstate Brand
Homeowners
Hurricane
Exposure
States (1) 126,685 157,147 (19.4) 240,945 287,832 (16.3)
California 13,681 28,336 (51.7) 29,566 58,403 (49.4)
All other states 124,929 136,230 (8.3) 232,119 244,601 (5.1)
-------- -------- -------- --------
Total New Issued
Applications 265,295 321,713 (17.5) 502,630 590,836 (14.9)
======== ======== ======== ========
(1) Hurricane exposure states are 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). , 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). , Delaware Delaware, state, United States Delaware (dĕl`əwâr, –wər), one of the Middle Atlantic states of the United States, the country's second smallest state (after Rhode Island). , Florida, Georgia Georgia, country, Asia Georgia (jôr`jə), Georgian Sakartvelo, Rus. Gruziya, officially Republic of Georgia, republic (2005 est. pop. 4,677,000), c.26,900 sq mi (69,700 sq km), in W Transcaucasia. , Louisiana Louisiana (ləwē'zēăn`ə, l  ē'–), state in the S central United States. It is bounded by Mississippi, with the Mississippi R. , Maine Maine, shipMaine, U.S. battleship destroyed (Feb. 15, 1898) in Havana harbor by an explosion that killed 260 men. The incident helped precipitate the Spanish-American War (Apr., 1898). Commanded by Capt. Charles Sigsbee, the ship had been sent (Jan. , Maryland Maryland (mâr`ələnd), one of the Middle Atlantic states of the United States. It is bounded by Delaware and the Atlantic Ocean (E), the District of Columbia (S), Virginia and West Virginia (S, W), and Pennsylvania (N). , Mississippi Mississippi, state, United States Mississippi (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 , New Hampshire New Hampshire, one of the New England states of the NE United States. It is bordered by Massachusetts (S), Vermont, with the Connecticut R. forming the boundary (W), the Canadian province of Quebec (NW), and Maine and a short strip of the Atlantic Ocean (E). , 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. , Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York , Rhode Island Rhode Island, island, United States Rhode Island, island, 15 mi (24 km) long and 5 mi (8 km) wide, S R.I., at the entrance to Narragansett Bay. It is the largest island in the state, with steep cliffs and excellent beaches. , 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. , Texas, Virginia Virginia, state, United States Virginia, state of the south-central United States. It is bordered by the Atlantic Ocean (E), North Carolina and Tennessee (S), Kentucky and West Virginia (W), and Maryland and the District of Columbia (N and NE). and Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. , D.C. The decrease in Allstate brand homeowners new issued applications in the hurricane exposure states results from decreases in approximately 75% of such states as a result of our catastrophe management actions and includes the states of New York, Texas New York is a hamlet in Henderson County, Texas, USA, about 11 miles east of Athens. Geography New York lies at the intersection of FM 804 and FM 607 in a stereotypically flat portion of East Texas, surrounded mostly by farm land. and Louisiana. The decrease in California new issued applications is due to changes in our underwriting requirements. The decrease in all other states results from decreases in approximately 75% of such states and includes the impact of earthquake coverage-related actions. Actions we are taking 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. evaluating to attain an acceptable catastrophe exposure level in our personal and commercial property business include: --increased participation in various state facilities such as wind pools, through which we can transfer exposures to certain wind related events in states such as Texas; --changes in rates, deductibles and coverage; --limitations on new business writings; --changes to underwriting requirements, including limitations in coastal and adjacent counties; --not offering continuing coverage to some existing policyholders; --purchase of reinsurance or other forms of risk transfer arrangements; --discontinuing coverage for certain types of residences; --withdrawal from certain markets; and/or --pursuing alternative markets for our agencies to place with other insurance companies business or segments of risk exposure in certain areas, which will allow them to continue to offer coverage to our customers. While actions taken will be primarily focused on reducing the catastrophe exposure in our personal and commercial property business, we also consider their impact on our ability to market our auto lines. Standard auto new issued applications are shown in the table below.
For the three months For the six months
ended June 30 ended June 30
-------------------------- --------------------------
% %
2006 2005 Change 2006 2005 Change
-------- -------- -------- -------- -------- --------
Allstate Brand
Standard Auto
Hurricane
Exposure States 265,326 253,272 4.8 519,758 500,743 3.8
California 81,182 76,768 5.7 162,341 155,839 4.2
All other states 156,791 155,800 0.6 310,451 310,948 (0.2)
-------- -------- -------- --------
Total New Issued
Applications 503,299 485,840 3.6 992,550 967,530 2.6
======== ======== ======== ========
Allstate brand standard auto new issued applications in the hurricane exposure states declined 1.2%, excluding Florida, in the second quarter of 2006. New issued applications in Florida increased 40.7% in the second quarter of 2006 due to changes in underwriting requirements, marketing and agency growth. New issued applications in the hurricane exposure states continue to be impacted by catastrophe management actions on cross-sell opportunities and competitive pressures in certain markets. Our standard auto strategy includes actions such as the continued roll out of Allstate Your Choice Auto, increased marketing, the continued roll out and refinement of Tiered Pricing, underwriting actions and agency growth. These strategies are particularly emphasized em·pha·size tr.v. em·pha·sized, em·pha·siz·ing, em·pha·siz·es To give emphasis to; stress. [From emphasis.] Adj. 1. as applicable in states impacted by our catastrophe management actions such as Florida, New York Florida is the name of some places in the U.S. state of New York:
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, 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 combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income (loss) as a percentage of premiums earned. Effect of Discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Lines and Coverages on combined ratio is the ratio of claims and claims expense and other costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio. Effect of catastrophe losses on combined ratio is the percentage of catastrophe losses included in claims and claims expenses to premiums earned. Effect of pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern reserve reestimates on combined ratio is the percentage of pretax reserve reestimates included in claims and claims expense to premiums earned. Effect of restructuring and related charges on combined ratio is the percentage of restructuring and related charges to premiums earned. Definitions of Non-GAAP and Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP financial measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Operating income is net income 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"), to the extent they resulted from the recognition of certain realized capital gains and losses, --(loss) gain on disposition of operations, after-tax, and --adjustments for other significant non-recurring, infrequent in·fre·quent adj. 1. Not occurring regularly; occasional or rare: an infrequent guest. 2. or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate our results of operations. It reveals trends in our insurance and financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. business that may be obscured by the net effect of realized capital gains and losses, (loss) gain on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses and (loss) gain on disposition of operations may vary significantly between periods and are generally driven by business decisions and economic developments such as market conditions, the timing of which is unrelated to the insurance underwriting process. Moreover, we reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you periodic settlements on non-hedge derivative instruments into operating income to report them in a manner consistent with the economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. investments, replicated assets or product attributes (e.g. net investment income and interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. Non-recurring items are excluded because, by their nature, they are not indicative indicative: see mood. of our business or economic trends. Therefore, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. valuation technique uses operating income as the denominator denominator the bottom line of a fraction; the base population on which population rates such as birth and death rates are calculated. denominator . We use adjusted measures of operating income and operating income per diluted share in incentive compensation. Operating income should not be considered as a substitute for net income and does not reflect the overall profitability of our business. The following tables reconcile operating income and net income for the three months and six months ended June 30, 2006 and 2005.
For the three months ended
June 30, Property-Liability Allstate Financial
------------------ ------------------
($ in millions, except per Est. Est.
share data) 2006 2005 2006 2005
-------- -------- -------- --------
Operating income $ 1,135 $ 1,002 $ 160 $ 137
Realized capital gains and
losses 43 109 (80) 24
Income tax (expense) benefit (13) (38) 28 (9)
-------- -------- -------- --------
Realized capital gains and
losses, after-tax 30 71 (52) 15
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax -- -- (3) (43)
Non-recurring increase in
liability for future benefits -- -- -- --
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax -- -- (9) (10)
Loss on disposition of
operations, after-tax (1) -- (23) (2)
-------- -------- -------- --------
Net income (loss) $ 1,164 $ 1,073 $ 73 $ 97
======== ======== ======== ========
For the three months ended
June 30, Consolidated Per diluted share
------------------ ------------------
($ in millions, except per Est. Est.
share data) 2006 2005 2006 2005
-------- -------- -------- --------
Operating income $ 1,272 $ 1,117 $ 2.00 $ 1.66
Realized capital gains and
losses (48) 133
Income tax (expense) benefit 19 (46)
-------- --------
Realized capital gains and
losses, after-tax (29) 87 (0.05) 0.12
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (3) (43) -- (0.06)
Non-recurring increase in
liability for future benefits -- -- -- --
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (9) (10) (0.02) (0.01)
Loss on disposition of
operations, after-tax (24) (2) (0.04) --
-------- -------- -------- --------
Net income (loss) $ 1,207 $ 1,149 $ 1.89 $ 1.71
======== ======== ======== ========
For the six months ended
June 30, Property-Liability Allstate Financial
------------------ ------------------
($ in millions, except per Est. Est.
share data) 2006 2005 2006 2005
-------- -------- -------- --------
Operating income $ 2,311 $ 2,021 $ 304 $ 286
Realized capital gains and
losses 267 222 (108) 25
Income tax (expense) benefit (92) (73) 38 (9)
-------- -------- -------- --------
Realized capital gains and
losses, after-tax 175 149 (70) 16
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax -- -- 24 (104)
Non-recurring increase in
liability for future benefits -- -- -- (22)
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax -- -- (19) (22)
Loss on disposition of
operations, after-tax (1) -- (58) (4)
-------- -------- -------- --------
Net income (loss) $ 2,485 $ 2,170 $ 181 $ 150
======== ======== ======== ========
For the six months ended
June 30, Consolidated Per diluted share
------------------ ------------------
($ in millions, except per Est. Est.
share data) 2006 2005 2006 2005
-------- -------- -------- --------
Operating income $ 2,576 $ 2,257 $ 4.01 $ 3.33
Realized capital gains and
losses 151 249
Income tax (expense) benefit (51) (82)
-------- --------
Realized capital gains and
losses, after-tax 100 167 0.15 0.24
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax 24 (104) 0.04 (0.15)
Non-recurring increase in
liability for future benefits -- (22) -- (0.03)
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (19) (22) (0.03) (0.03)
Loss on disposition of
operations, after-tax (59) (4) (0.09) (0.01)
-------- -------- -------- --------
Net income (loss) $ 2,622 $ 2,272 $ 4.08 $ 3.35
======== ======== ======== ========
In this press release, we provide guidance on operating income per diluted share for 2006. A reconciliation of this measure to net income is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses including periodic settlements and accruals on non-hedge derivative instruments, which can vary substantially from one period to another and may have a significant impact on net income. Because a forecast of realized capital gains and losses is not possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. The other reconciling items between operating income and net income on a forward-looking basis are (loss) gain on disposition of operations, after-tax, and cumulative effect of changes in accounting principle, after-tax, which we assume to be zero for the year. Underwriting income (loss) is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs and expenses and restructuring and related charges as determined using GAAP. Management uses this measure in its evaluation of results of operations to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. the profitability of our Property-Liability insurance operations separately from investment results. It is also an integral component of incentive compensation. It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance. Net income is the most directly comparable GAAP measure. Underwriting income (loss) should not be considered as a substitute for net income and does not reflect the overall profitability of our business. A reconciliation of Property-Liability underwriting income (loss) to net income is provided in the Segment Results table. Combined ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between the two operating ratios, combined ratio (a GAAP measure) and the effect of catastrophes on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our property-liability business that may be obscured by catastrophe losses, which cause our loss trends to vary significantly between periods as a result of their rate of occurrence and magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the . We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The combined ratio excluding the effect of catastrophes should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. A reconciliation of combined ratio excluding the effect of catastrophes to combined ratio is provided in the Property-Liability Highlights table. Operating income return on equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at the beginning and at the end of the 12-month period, after excluding the effect of unrealized net capital gains. We use it to supplement our evaluation of net income and return on equity. We believe that this measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management: the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of change in accounting principle, and non-recurring items that are not indicative of our business or economic trends. Return on equity is the most directly comparable GAAP measure. The following table shows the reconciliation.
($ in millions) For the twelve months
ended June 30,
-------------------------
Est. 2006 2005
----------- -----------
Return on equity
Numerator:
Net income $ 2,115 $ 3,470
=========== ==========
Denominator:
Beginning shareholders' equity 22,324 20,683
Ending shareholders' equity 20,605 22,324
Average shareholders' equity $ 21,465 $ 21,504
=========== ==========
Return on equity 9.9% 16.1%
=========== ==========
For the twelve months
ended June 30,
-------------------------
Est. 2006 2005
----------- -----------
Operating income return on equity
Numerator:
Operating income $ 1,901 $ 3,292
=========== ==========
Denominator:
Beginning shareholders' equity 22,324 20,683
Unrealized net capital gains 2,836 2,035
----------- ----------
Adjusted beginning shareholders'
equity 19,488 18,648
Ending shareholders' equity 20,605 22,324
Unrealized net capital gains 1,093 2,836
----------- ----------
Adjusted ending shareholders' equity 19,512 19,488
Average shareholders' equity $ 19,500 $ 19,068
=========== ==========
Operating income return on equity 9.7% 17.3%
=========== ==========
Book value per 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 share is the most directly comparable GAAP measure. We use the trend in book value per 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 share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per 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 share, excluding unrealized net capital gains on fixed income securities should not be considered as a substitute for book value per 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) June 30,
-----------------------
Est.
2006 2005
---------- ----------
Book value per share
Numerator:
Shareholders' equity $ 20,605 $ 22,324
========== ==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 635.4 666.7
========== ==========
Book value per share $ 32.43 $ 33.48
========== ==========
Book value per share, excluding the
net impact of unrealized net capital gains
on fixed income securities
Numerator:
Shareholders' equity $ 20,605 $ 22,324
Unrealized net capital gains on fixed
income securities 288 2,059
---------- ----------
Adjusted shareholders' equity $ 20,317 $ 20,265
========== ==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 635.4 666.7
========== ==========
Book value per share, excluding
unrealized net capital gains on fixed income
securities $ 31.98 $ 30.40
========== ==========
As of
(in millions, except per share data) December 31, 2005
-------------------
Book value per share
Numerator:
Shareholders' equity $ 20,186
==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 651.0
==========
Book value per share $ 31.01
==========
Book value per share, excluding the
net impact of unrealized net capital gains
on fixed income securities
Numerator:
Shareholders' equity $ 20,186
Unrealized net capital gains on fixed
income securities 1,255
----------
Adjusted shareholders' equity $ 18,931
==========
Denominator:
Shares outstanding and dilutive potential
shares outstanding 651.0
==========
Book value per share, excluding
unrealized net capital gains on fixed income
securities $ 29.08
==========
Gross margin represents life and annuity premiums and contract charges and net investment income and periodic settlements and accruals on non-hedge derivative instruments, less contract benefits and interest credited to contractholder funds excluding amortization of DSI. We reclassify periodic settlements and accruals on non-hedge derivative instruments into gross margin to report them in a manner consistent with the economically hedged investments, replicated assets or product attributes (e.g. net investment income or interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. We use gross margin as a component of our evaluation of the profitability of Allstate Financial's life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities, variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of three components that are utilized to further analyze the business; they include the investment margin, benefit margin(1), 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 Ended Six Months Ended
June 30, June 30,
------------------ ------------------
Est. Est.
($ in millions) 2006 2005 2006 2005
-------- -------- -------- --------
Life and annuity premiums and
contract charges $ 515 $ 499 $ 1,010 $ 1,020
Net investment income 1,048 946 2,052 1,864
Periodic settlements and
accruals on non-hedge
derivative instruments 14 16 30 35
Contract benefits (374) (403) (747) (814)
Interest credited to
contractholder funds (2) (636) (570) (1,249) (1,122)
-------- -------- -------- --------
Gross margin 567 488 1,096 983
Amortization of DAC and DSI (205) (130) (374) (259)
Operating costs and expenses (119) (152) (247) (312)
Restructuring and related
charges (3) -- (19) --
Income tax expense (80) (69) (152) (126)
Realized capital gains and
losses, after-tax (52) 15 (70) 16
DAC and DSI amortization
relating to realized capital
gains and losses, after-tax (3) (43) 24 (104)
Non-recurring increase in
liability for future
benefits, after-tax -- -- -- (22)
Reclassification of periodic
settlements and accruals on
non-hedge derivative
instruments, after-tax (9) (10) (19) (22)
Loss on disposition of
operations, after-tax (23) (2) (58) (4)
-------- -------- -------- --------
Allstate Financial net income $ 73 $ 97 $ 181 $ 150
======== ======== ======== ========
(2) Amortization of DSI was excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled est. $16 million in the second quarter of 2006 and $23 million for the first six months of 2006 compared to $15 million in the second quarter of 2005 and $54 million for the first six months of 2005. 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 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 June 30,
--------------------------------------
Investment Benefit
Margin Margin
------------------ ------------------
Est. Est.
(in millions) 2006 2005 2006 2005
-------- -------- -------- --------
Life and annuity
premiums $ -- $ -- $ 225 $ 222
Contract charges -- -- 167 155
Net investment Income 1,048 946 -- --
Periodic settlements and
accruals on non-hedge
derivative instruments 14 16 -- --
Contract benefits (134) (129) (240) (274)
Interest credited to
contractholder funds (3) (636) (570) -- --
-------- -------- -------- --------
$ 292 $ 263 $ 152 $ 103
======== ======== ======== ========
Three Months Ended June 30,
---------------------------------------
Contract Charges Gross
and Fees Margin
------------------ ------------------
Est. Est.
(in millions) 2006 2005 2006 2005
-------- -------- -------- --------
Life and annuity
premiums $ -- $ -- $ 225 $ 222
Contract charges 123 122 290 277
Net investment Income -- -- 1,048 946
Periodic settlements and
accruals on non-hedge
derivative instruments -- -- 14 16
Contract benefits -- -- (374) (403)
Interest credited to
contractholder funds (3) -- -- (636) (570)
-------- -------- -------- --------
$ 123 $ 122 $ 567 $ 488
======== ======== ======== ========
(3) Amortization of DSI was excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled est. $16 million in the second quarter of 2006 and $15 million in the second quarter of 2005.
Six Months Ended June 30,
--------------------------------------
Investment Benefit
Margin Margin
------------------ ------------------
Est. Est.
(in millions) 2006 2005 2006 2005
-------- -------- -------- --------
Life and annuity
premiums $ -- $ -- $ 420 $ 471
Contract charges -- -- 328 307
Net investment Income 2,052 1,864 -- --
Periodic settlements and
accruals on non-hedge
derivative instruments 30 35 -- --
Contract benefits (266) (263) (481) (551)
Interest credited to
contractholder funds (3) (1,249) (1,122) -- --
-------- -------- -------- --------
$ 567 $ 514 $ 267 $ 227
======== ======== ======== ========
Six Months Ended June 30,
----------------------------------------
Contract Charges Gross
and Fees Margin
------------------ -----------------
Est. Est.
(in millions) 2006 2005 2006 2005
-------- -------- -------- --------
Life and annuity
premiums $ -- $ -- $ 420 $ 471
Contract charges 262 242 590 549
Net investment Income -- -- 2,052 1,864
Periodic settlements and
accruals on non-hedge
derivative instruments -- -- 30 35
Contract benefits -- -- (747) (814)
Interest credited to
contractholder funds (3) -- -- (1,249) (1,122)
-------- -------- -------- --------
$ 262 $ 242 $ 1,096 $ 983
======== ======== ======== ========
(3) Amortization of DSI was excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled est. $23 million in the first six months of 2006 and $54 million in the first six months of 2005. Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
($ in millions) Est. Est.
2006 2005 2006 2005
-------- -------- -------- --------
Premiums written $ 7,074 $ 6,993 $ 13,799 $ 13,575
Change in Property-Liability
unearned premiums (244) (264) (257) (155)
Other 30 7 194 --
-------- -------- -------- --------
Premiums earned $ 6,860 $ 6,736 $ 13,736 $ 13,420
======== ======== ======== ========
Premiums and deposits is an operating measure that we use to analyze production trends for Allstate Financial sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products including the net new deposits of Allstate Bank, which we account for under GAAP as increases to liabilities rather than as revenue. The following table illustrates where premiums and deposits are reflected in the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge .
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
($ in millions) Est. Est.
2006 2005 2006 2005
-------- -------- -------- --------
Premiums and deposits
excluding variable annuities $ 3,985 $ 3,573 $ 6,226 $ 7,148
Variable annuity deposits 243 459 678 863
-------- -------- -------- --------
Total premiums and deposits 4,228 4,032 6,904 8,011
Deposits to contractholder
funds (3,765) (3,438) (5,849) (6,831)
Deposits to separate accounts (243) (379) (648) (722)
Change in unearned premiums
and other adjustments 5 7 13 13
-------- -------- -------- --------
Life and annuity premiums (4) $ 225 $ 222 $ 420 $ 471
======== ======== ======== ========
(4) Life and annuity contract Annuity Contract The written agreement between an insurance company and a customer outlining each party's obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any charges in the amount of est. $290 million and $277 million for the three months ended June 30, 2006 and 2005, respectively, and est. $590 million and $549 million for the six months ended June 30, 2006 and 2005, respectively, which are also revenues recognized for GAAP, have been excluded from the table above, but are a component of the Consolidated Statements of Operations line item life and annuity premiums and contract charges. New sales of financial products by Allstate exclusive agencies is an operating measure that we use to quantify Quantify - A performance analysis tool from Pure Software. the current year sales of financial products by the Allstate Agency proprietary distribution channel. New sales of financial products by Allstate exclusive agencies includes proprietary products such as annual premiums on new life insurance policies, premiums and deposits on annuities, net new deposits in the Allstate Bank and sales of variable annuities, and non-proprietary products such as mutual funds. New sales of financial products by Allstate exclusive agencies excludes renewal premiums on life insurance policies. New sales of financial products by Allstate exclusive agencies for the three months and six months ended June 30, 2006 and 2005 are presented in the following table.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
($ in millions) Est. Est.
2006 2005 2006 2005
-------- -------- -------- --------
Proprietary (excluding
variable annuities) $ 305 $ 323 $ 577 $ 609
Proprietary variable
annuities(5) 110 85 206 156
Non-proprietary 204 180 374 337
-------- -------- -------- --------
Total $ 619 $ 588 $ 1,157 $ 1,102
======== ======== ======== ========
(5) Disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. through reinsurance effective June 1, 2006. 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. and Risk Factors This press release contains forward-looking statements about our operating income per share for 2006 and our catastrophe exposure management strategies. These statements are subject to the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 and are based on management's estimates, assumptions and projections. Actual results may differ materially from those projected based on the risk factors described below. --While we believe that the actions we are taking to earn an acceptable return on the risks assumed in our property business and to reduce the associated variability of our earnings will be successful over the long term, it is possible that they will have a negative impact on near-term near-term adj. Of, for, or involving a short period of time in the near future. growth and earnings. Homeowners premium growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. and retention could be adversely impacted by adjustments to our business structure, size and underwriting practices in markets with significant catastrophe risk exposure. In addition, due to the diminished di·min·ish v. di·min·ished, di·min·ish·ing, di·min·ish·es v.tr. 1. a. To make smaller or less or to cause to appear so. b. potential for cross-selling Cross-selling is the term used to describe the sale of additional products or services to a customer. Less frequently it is used to describe the sale of services to additional business units at an account or to different geographic units of a customer. opportunities, new business growth in our auto lines could be lower than expected. --We may continue to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. catastrophe losses in our property business in amounts in excess of those experienced in prior years, in excess of those that management projects would be incurred 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 basis, in excess of those that modelers estimate would be incurred based on other levels of probability, in excess of the average expected level, and in excess of our current reinsurance coverage limits. To maintain our current ratings, rating agencies may require us to maintain our current level of capital despite our reductions in exposure to catastrophic risk. --Lower than projected interest rates and equity market returns could decrease consolidated net investment income, and investment margins and the profitability of the Allstate Financial segment. --Higher than projected interest rates could increase surrenders and withdrawals and reduce the competitive position and profitability of the Allstate Financial segment. --Unexpected claims payment patterns and the resulting impact to cash flows, or results from the management and review of our investment portfolios could cause lower than expected net investment income. --Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company's business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. or change the outlook on an insurer's ratings due to, for example, a change in an insurer's statutory capital; a change in a rating agency's determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived per·ceive tr.v. per·ceived, per·ceiv·ing, per·ceives 1. To become aware of directly through any of the senses, especially sight or hearing. 2. To achieve understanding of; apprehend. risk of an insurer's investment portfolio; a reduced confidence in management or a host of other considerations that may or may not be under the insurer's control. --The completion of the $4 billion stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program that we announced in November November: see month. 2004 is subject to the risks identified above and their impact on net income and cash flows, as well as management discretion and assessment of alternative uses of funds and the market price of Allstate's common stock from time to time. We undertake no obligation to publicly correct or update any forward-looking statements. This press release contains unaudited financial information. Now celebrating the 75th anniversary of the founding of Allstate Insurance Company, The Allstate Corporation (NYSE:ALL) is the nation's largest publicly held personal lines insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. . Widely known through the "You're you're Contraction of you are. you're you are you're be In Good Hands With Allstate((R))" slogan 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 approximately 14,100 exclusive agencies and financial professionals in the U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Customers can access Allstate products and services 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 agents. The Allstate Financial Group provides life insurance, supplemental accident and health insurance, annuity, banking and retirement products designed for individual, institutional and worksite customers that are distributed through Allstate agencies, independent agencies, financial institutions and broker-dealers. We post an investor supplement on our web site. You can access it by going to allstate.com and clicking on "Investor Relations Investor relations The process by which the corporation communicates with its investors. ." From there, go to the "Quarterly Investor Info INFO Information INFO Information (logging abbreviation) INFO Inform(ed/ation) INFO Ionic Difluoroamino Oxidizer " button. We will post additional information to the supplement over the next 30 days as it becomes available. |
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