Allstate Reports 22% Increase in 2005 First Quarter Net Income EPS, 16% Increase in First Quarter Operating Income EPS and Record Property-Liability Underwriting Profitability.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 first quarter of 2005:
Consolidated Highlights(1)
Three Months Ended March 31,
------------------------------------
Change
-------------------
(in millions, except per share
amounts and ratios) Est.
2005 2004 $ Amt %
-------- ------- -------- ----------
Consolidated revenues $8,705 $8,311 $394 4.7
Net income 1,123 949 174 18.3
Net income per diluted share 1.64 1.34 0.30 22.4
Operating income(1) 1,140 1,020 120 11.8
Operating income per diluted
share(1) 1.67 1.44 0.23 16.0
Property-Liability combined ratio 85.3 86.4 -- (1.1) pts.
Book value per diluted share 31.48 30.48 1.00 3.3
Return on equity 15.6 15.1 -- 0.5 pts.
Operating income return on
equity(1) 17.2 18.0 -- (0.8) pts.
-- Property-Liability premiums written(1) grew 3.9% over the first
quarter of 2004, 4.2% adjusted for reinsurance and accruals for
premium refunds, driven by an increase in Allstate brand standard
auto and homeowners premiums written, which grew 5.3% and 8.4%,
respectively. Allstate brand standard auto and homeowners PIF,
excluding impacts from Allstate Canada, increased 4.9% and 6.0%,
respectively, from March 31, 2004 levels.
-- Property-Liability underwriting income(1) increased 13.4% over the
first quarter of 2004 to $981 million, due to increased premiums
earned and continued favorable auto and homeowners loss
frequencies.
-- Pre-tax catastrophe losses totaled $164 million in the first
quarter of 2005 compared to $102 million in the first quarter of
2004. The effect of catastrophe losses on the combined ratio was
2.5 points in the first quarter of 2005 compared to 1.6 points in
the first quarter of 2004. The effect of catastrophes on net
income per diluted share was $0.16 in the first quarter of 2005
compared to $0.09 in the first quarter of 2004. No adjustments
were made to our previous estimate of losses related to hurricanes
Charley, Frances, Ivan and Jeanne.
-- Allstate Financial premiums and deposits(1) increased 15.2% over
the first quarter of 2004 to $3.98 billion. Operating income for
the quarter was $149 million, an increase of 12.9% over the first
quarter of 2004.
-- Allstate is confirming annual operating income per diluted share
guidance for 2005 (assuming the level of average expected
catastrophe losses used in pricing for the remainder of the year)
in the range of $5.40 to $5.80.
(1) Measures used in this release that are not based on generally
accepted accounting principles ("non-GAAP") are defined and
reconciled to the most directly comparable GAAP measure and
operating measures are defined in the "Definitions of Non-GAAP and
Operating Measures" section of this document.
"This is a strong start for Allstate in 2005, " 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. • • , Allstate chairman, president, and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . " We generated solid net and 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. in this first quarter of 2005 on good revenue growth. Seeking profitable growth is our objective and results this quarter provide more evidence that our focus continues to benefit our shareholders. "Allstate Protection generated almost $1 billion of underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. in the quarter, an increase of more than 13 percent over the first quarter of 2004. Contributing to that record underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. result was an improvement in frequency trends for both Allstate brand standard auto and homeowners compared to the first quarter of 2004. Premium written for Allstate Protection increased almost 4% over the first quarter of 2004 while premium written for Allstate brand standard auto and homeowners increased 5.3% and 8.4%, respectively, compared to first quarter of 2004. Policies in force (PIF (Program Information File) A data file in Windows 3.x and NT that stores window settings for DOS applications. It allows screen size, fonts and other options to be selected in order to customize the way the DOS app appears under Windows. ) for Allstate brand standard auto and homeowners grew 4.9 percent and 6 percent, respectively, compared to the first quarter of 2004. Our retention rate in the quarter remained strong and continued near historical highs. "I remain very encouraged by these excellent results for Allstate Protection. As competition within our industry increases, 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 efforts will continue to serve us well and the new business we bring on our books should generate profitable growth. "In the first quarter, we began our introduction in certain markets of the next iteration One repetition of a sequence of instructions or events. For example, in a program loop, one iteration is once through the instructions in the loop. See iterative development. (programming) iteration - Repetition of a sequence of instructions. of Tiered Pricing for our auto insurance line. We are also introducing new versions of Tiered Pricing for homeowners and our other lines of business in the coming months. The changes we have made to Tiered Pricing will allow us to segment risks with even more sophistication so·phis·ti·cate v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates v.tr. 1. To cause to become less natural, especially to make less naive and more worldly. 2. , which will help us achieve the profitable growth we seek. Through our marketing and advertising, we are continuing to communicate the benefits and advantages Allstate offers customers and are doing so with a more targeted approach. We are also introducing a new auto insurance product that we believe will significantly increase customer choice and further enhance the value proposition Allstate offers to consumers. "Allstate Financial also turned in a solid performance for the quarter. Premium and deposits of almost $4 billion were 15.2% over the first quarter of 2004 with double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" 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. experienced in our Allstate agency, bank, broker-dealer Broker-Dealer A person or firm in the business of buying and selling securities operating as both a broker and dealer depending on the transaction. Notes: Technically, a broker is only an agent who executes orders on behalf of clients, whereas a dealer acts as a principal and independent agency distribution systems. Operating income of $149 million was 12.9% over the first quarter of 2004, driven by investment and benefit margin growth. "In the quarter, we repurchased 13.4 million shares at $706 million, which is an excellent start to our previously announced $4.0 billion share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program to be completed in 2006. As previously announced, we also increased our quarterly dividend to $0.32 per share, a 14.3% increase over prior year. We will use capital to grow profitably and achieve our targeted returns. In addition, as history has shown, we will return capital to shareholders when we are unable to effectively deploy all the capital we are generating in our various businesses. Profitable business growth in addition to these capital management strategies will continue to drive growth in EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. and book value per share in the future. "Our operating income return on equity for the past four quarters was a very attractive 17.2%, after absorbing ab·sorb tr.v. ab·sorbed, ab·sorb·ing, ab·sorbs 1. To take (something) in through or as through pores or interstices. 2. To occupy the full attention, interest, or time of; engross. the unusually high level of catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses in the third quarter of 2004. Overall, the first quarter was an outstanding start to the year. We remain very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the remainder of 2005 and beyond."
Consolidated Highlights
Three Months Ended Discussion of Results for the
March 31, Three Months Ended March 31, 2005
------------------ ---------------------------------
($ in millions,
except per share
and return Est.
amounts) 2005 2004
--------- --------
Consolidated $8,705 $8,311 Growth of Property-Liability
revenues premiums earned, higher life and
annuity premiums and contract
charges and higher net
investment income, partially
offset by lower net realized
capital gains due to anticipated
disposition write-downs.
Operating income 1,140 1,020 Increase in Property-Liability
operating income of $107 and
Allstate Financial operating
income of $17.
Realized capital 80 120 See the Components of Realized
gains and Capital Gains and Losses
losses, after-tax (pretax) table.
DAC and DSI (61) (10) Amortization related to certain
amortization realized capital gains.
relating to
realized
capital gains
and losses,
after-tax
Non-recurring (22) -- Increase in liability for future
increase in benefits for a discontinued
liability for benefit plan.
future benefits,
after-tax
Cumulative effect -- (175) Adoption of AICPA SOP 03-1,
of change in "Accounting and Reporting by
accounting Insurance Enterprises for
principle, Certain Nontraditional Long-
after-tax Duration Contracts and for
Separate Accounts" in the first
quarter of 2004.
Net income 1,123 949 Increase in Property-Liability
and Allstate Financial operating
income.
Net income per 1.64 1.34 See discussion of Exposure to
share (diluted) Potential Subsequent Event for
Citizens Property Insurance
Corporation Assessment of up to
$0.04 per diluted share.
Operating income 1.67 1.44
per share
(diluted)
Net shares 672.1 703.2 During the first quarter of 2005,
outstanding Allstate purchased 13.4 million
shares of its stock for $706
million.
Weighted average 683.1 709.2
shares
outstanding
(diluted)
Return on equity 15.6 15.1 See the return on equity
calculation in the Definitions
of Non-GAAP and Operating
Measures section of this
document.
Operating income 17.2 18.0 See the return on equity
return on equity calculation in the Definitions
of Non-GAAP and Operating
Measures section of this
document.
Book value per 31.48 30.48 At March 31, 2005 and 2004, net
diluted share unrealized gains on fixed income
securities, after-tax, totaling
$1,385 and $2,611, respectively,
represented $2.05 and $3.69,
respectively, of book value per
diluted share.
-- Book value per diluted share increased 3.3% compared to March 31,
2004. Book value per diluted share excluding the net impact of
unrealized net capital gains on fixed income securities(1) was
$29.44 at March 31, 2005, reflecting increases of 9.9% and 2.9%
compared to March 31, 2004 and December 31, 2004, respectively.
Property-Liability Highlights
Three Months Ended Discussion of Results for the
March 31, Three Months Ended March 31, 2005
------------------ ---------------------------------
($ in millions, Est.
except ratios) 2005 2004
--------- --------
Property-Liability $6,582 $6,333 See the Property-Liability
net premiums Premiums Written by Market
written Segment table.
Property-Liability 7,233 6,986 Premiums earned increased $313 or
revenues 4.9%, partially offset by lower
realized net capital gains.
Underwriting 981 865 Higher premiums earned and
income / (loss) continued favorable auto and
homeowners loss frequencies.
See the Allstate Protection
Market Segment Analysis table.
Net investment 436 424 Higher portfolio balances due to
income positive cash flows from
operations, partially offset by
lower yields.
Operating income 1,019 912 Increase of $75 in underwriting
results, after-tax and a
reduction of $27 of prior year
tax liabilities.
Realized capital 78 132 See the Components of Realized
gains and losses, Capital Gains and Losses
after-tax (pretax) table.
Net income 1,097 1,044 Higher operating income. See
discussion of Exposure to
Potential Subsequent Event for
Citizens Property Insurance
Corporation Assessment.
Catastrophe losses 164 102
Ratios:
Property-Liability
combined ratio 85.3 86.4
Effect of
Discontinued
Lines and
Coverages 0.1 0.1
Allstate
Protection
combined ratio 85.2 86.3
Effect of
catastrophe
losses 2.5 1.6
-- Allstate brand standard auto and homeowners PIF increased 4.9% and
6.0%, respectively, from March 31, 2004 levels, compared to
increases of 5.5% and 6.4%, respectively in the fourth quarter of
2004 over the fourth quarter of 2003. Both standard auto and
homeowners experienced PIF growth in most states. These results
exclude impacts from Allstate Canada.
-- Allstate brand standard auto and homeowners retention ratio,
excluding the impacts of Allstate Canada, increased to 90.7 and
88.5, respectively, from 90.4 and 87.8 in the prior year first
quarter.
-- Allstate brand standard auto and homeowners new business premiums
declined 2.3% and 3.5%, respectively, as compared to the first
quarter of 2004, primarily due to declines in certain markets from
competitive pressures due to risk selection and pricing
strategies. We are experiencing a decline of standard auto new
business due to new entrants in a major market. In homeowners, we
are curtailing our writings of new business in some markets due to
catastrophe exposure management. We will continue our disciplined
risk and pricing approach, seeking profitable growth on a
market-by-market basis. These results exclude impacts from
Allstate Canada.
Allstate Financial Highlights
Three Months Ended Discussion of Results for the
March 31, Three Months Ended March 31, 2005
------------------ ---------------------------------
($ in millions) Est.
2005 2004
--------- --------
Premiums and $3,979 $3,455 See the Allstate Financial
deposits Premiums and Deposits table.
Allstate Financial 1,440 1,294 Higher investment income, life
revenues and annuity premiums and
contract charges and realized
net capital gains.
Operating income 149 132 Higher gross margins and lower
income taxes due to a reduction
of $14 of prior years tax
liabilities, partially offset by
higher non-deferred expenses,
DAC and DSI unlocking of $7 and
an increase in variable annuity
reserves of $9.
Realized capital 1 (14) See the Components of Realized
gains and losses, Capital Gains and Losses
after-tax (pretax) table.
DAC and DSI (61) (10) Amortization related to certain
amortization realized capital gains.
relating to
realized capital
gains and losses,
after-tax
Non-recurring (22) -- Increase in liability for future
increase in benefits for a discontinued
liability for benefit plan.
future benefits,
after-tax
Cumulative effect -- (175) Adoption of AICPA SOP 03-1,
of change in "Accounting and Reporting by
accounting Insurance Enterprises for
principle, Certain Nontraditional Long-
after-tax Duration Contracts and for
Separate Accounts" in the first
quarter of 2004.
Net income 53 (73) Cumulative effect of change in
accounting principle, after-tax
in 2004, higher operating
income, higher realized net
capital gains, after-tax,
partially offset by DAC and DSI
amortization related to these
capital gains.
-- Investments including Separate Account assets as of March 31, 2005
increased 10.0% over March 31, 2004 primarily due to strong sales
of fixed annuities and funding agreements.
-- As of March 31, 2005, 77% of our interest-sensitive life and fixed
annuity contracts, excluding market value adjusted annuities, have
a guaranteed crediting rate of 3% or higher. Of these contracts,
76% have crediting rates that are at the minimum as of March 31,
2005. For all interest-sensitive life and fixed annuity contracts,
excluding market value adjusted annuities, the approximate
difference between the weighted average crediting rate and the
average guaranteed crediting rate is 51 basis points as of March
31, 2005 compared to 52 basis points as of December 31, 2004.
-- In the first quarter of 2005, we performed our annual
comprehensive evaluation of the assumptions used in our valuation
models for all investment products, including variable and fixed
annuities and interest-sensitive and variable life products. This
evaluation resulted in a net reduction of operating income of $16
million pre-tax, primarily consisting of the following
adjustments:
-- Deferred acquisition costs ("DAC") and deferred sales
inducements ("DSI") unlocking adjustment of $7 million. The
DAC and DSI unlocking includes amortization acceleration on
fixed annuities of $62 million and $3 million on
interest-sensitive and variable life products, partially
offset by amortization deceleration on variable annuities of
$58 million. The amortization acceleration on fixed annuities
was primarily due to higher than expected lapses on market
value adjusted annuities during the 30-45 day window in which
there were no surrender charges or market value adjustments,
and faster than anticipated portfolio yield declines. The
amortization deceleration on variable annuities was mostly
attributable to better than anticipated equity market
performance and persistency.
-- The reserves for guarantees related to variable contracts were
increased $9 million due primarily to a refined measurement of
exposure, partially offset by better than anticipated equity
market performance.
-- In the first quarter of 2004, the comparable DAC and DSI
unlocking was a net acceleration of amortization of $0.5
million, which included deceleration of amortization related
to interest-sensitive life and acceleration of amortization
related to fixed annuities. There was no comparable adjustment
to reserves for variable contract guarantees, because the
reserves were established in the first quarter of 2004 as part
of the cumulative effect of the change in accounting for such
guarantees.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
--------------------
Est. Percent
($ in millions, except per share data) 2005 2004 Change
--------- --------- ---------
Revenues
Property-liability insurance
premiums $ 6,684 $ 6,371 4.9
Life and annuity premiums
and contract charges 521 496 5.0
Net investment income 1,384 1,274 8.6
Realized capital gains and losses 116 170 (31.8)
--------- ---------
Total revenues 8,705 8,311 4.7
--------- ---------
Costs and expenses
Property-liability insurance
claims and claims expense 4,063 3,986 1.9
Life and annuity contract benefits 411 395 4.1
Interest credited to contractholder
funds 591 470 25.7
Amortization of deferred policy
acquisition costs 1,196 1,055 13.4
Operating costs and expenses 800 733 9.1
Restructuring and related charges 18 11 63.6
Interest expense 84 74 13.5
--------- ---------
Total costs and expenses 7,163 6,724 6.5
--------- ---------
Loss on disposition of operations (4) (3) (33.3)
Income from operations before income
tax expense and cumulative effect of
change in accounting principle,
after-tax 1,538 1,584 (2.9)
Income tax expense 415 460 (9.8)
--------- ---------
Income before cumulative effect of
change in accounting principle,
after-tax 1,123 1,124 (0.1)
Cumulative effect of change in
accounting principle, after-tax - (175) 100.0
--------- ---------
Net income $ 1,123 $ 949 18.3
========= =========
Net income per share - Basic $ 1.66 $ 1.35
========= =========
Weighted average shares - Basic 677.7 704.5
========= =========
Net income per share - Diluted $ 1.64 $ 1.34
========= =========
Weighted average shares - Diluted 683.1 709.2
========= =========
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Ended
March 31,
--------------------
Est. Percent
($ in millions, except per share data) 2005 2004 Change
--------- --------- ---------
Contribution to income
Operating income before the impact of
restructuring and related charges $ 1,152 $ 1,027 12.2
Restructuring and related charges,
after-tax 12 7 71.4
--------- ---------
Operating income 1,140 1,020 11.8
Realized capital gains and losses,
after-tax 80 120 (33.3)
DAC and DSI amortization relating to
realized capital gains and losses,
after-tax (61) (10) -
Non-recurring increase in liability
for future benefits, after-tax (1) (22) - -
Reclassification of periodic
settlements and accruals on non-hedge
derivative instruments, after-tax (12) (4) -
Loss on disposition of operations,
after-tax (2) (2) -
Cumulative effect of change in
accounting principle, after-tax - (175) 100.0
--------- ---------
Net income $ 1,123 $ 949 18.3
========= =========
Income per share (Diluted)
Operating income before the impact of
restructuring and related charges $ 1.69 $ 1.45 16.6
Restructuring and related charges,
after-tax 0.02 0.01 100.0
--------- ---------
Operating income 1.67 1.44 16.0
Realized capital gains and losses,
after-tax 0.12 0.17 (29.4)
DAC and DSI amortization relating to
realized capital gains and losses,
after-tax (0.09) (0.01) -
Non-recurring increase in liability
for future benefits, after-tax (1) (0.03) - -
Reclassification of periodic
settlements and accruals on non-hedge
derivative instruments, after-tax (0.02) (0.01) (100.0)
Loss on disposition of operations,
after-tax (0.01) - -
Cumulative effect of change in
accounting principle, after-tax - (0.25) 100.0
--------- ---------
Net income $ 1.64 $ 1.34 22.4
========= =========
Book value per share - Diluted $ 31.48 $ 30.48 3.3
========= =========
(1) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended March 31, 2005 (Est.)
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ----------- ---------- ---------
Valuation of derivative
instruments $ (13) $ (58) $ - $ (71)
Settlements of
derivative instruments 10 26 - 36
Dispositions 196 70 2 268
Write-downs (10) (7) - (17)
Anticipated disposition
write-downs (1) (70) (30) - (100)
---------- ----------- ---------- ---------
Total $ 113 $ 1 $ 2 $ 116
========== =========== ========== =========
Three Months Ended March 31, 2004
----------------------------------------------
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
---------- ----------- ---------- ---------
Valuation of derivative
instruments $ (11) $ (16) $ (1) $ (28)
Settlements of
derivative instruments (11) (8) (1) (20)
Dispositions 220 36 4 260
Write-downs (7) (35) - (42)
---------- ----------- ---------- ---------
Total $ 191 $ (23) $ 2 $ 170
========== =========== ========== =========
(1) Because of rising interest rates, continued asset-liability
management strategies and on-going comprehensive reviews of our
portfolios, changes were made in the first quarter to our
strategic asset allocations, and our view of duration for our
Property-Liability portfolio. We also pursued yield enhancement
strategies for the Allstate Financial portfolio. These changes
primarily resulted in anticipated disposition write-downs of
certain securities with unrealized loss positions due to a change
in intent to hold these securities until recovery.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Ended
March 31,
---------------------
($ in millions) Est.
2005 2004
--------- ---------
Property-Liability
Premiums written $ 6,582 $ 6,333
========= =========
Premiums earned $ 6,684 $ 6,371
Claims and claims expense 4,063 3,986
Amortization of deferred policy
acquisition costs 1,012 924
Operating costs and expenses 610 585
Restructuring and related charges 18 11
--------- ---------
Underwriting income 981 865
--------- ---------
Net investment income 436 424
Income tax expense on operations 398 377
--------- ---------
Operating income 1,019 912
Realized capital gains and losses, after-tax 78 132
--------- ---------
Net income $ 1,097 $ 1,044
========= =========
Catastrophe losses $ 164 $ 102
========= =========
Operating ratios
Claims and claims expense ratio 60.8 62.6
Expense ratio 24.5 23.8
--------- ---------
Combined ratio 85.3 86.4
========= =========
Effect of catastrophe losses on combined
ratio 2.5 1.6
========= =========
Effect of restructuring and related charges
on combined ratio 0.3 0.2
========= =========
Effect of Discontinued Lines and Coverages
on combined ratio 0.1 0.1
========= =========
Allstate Financial
Premiums and deposits $ 3,979 $ 3,455
========= =========
Investments including Separate Accounts
assets $ 88,105 $ 80,122
========= =========
Premiums and contract charges $ 521 $ 496
Net investment income 918 821
Periodic settlements and accruals on non-hedge
derivative instruments 19 6
Contract benefits 411 395
Interest credited to contractholder funds 566 469
Amortization of deferred policy acquisition
costs 115 117
Operating costs and expenses 160 145
Income tax expense on operations 57 65
--------- ---------
Operating income 149 132
Realized capital gains and losses, after-tax 1 (14)
DAC and DSI amortization relating to realized
capital gains and losses, after-tax (61) (10)
Non-recurring increase in liability for future
benefits, after-tax (1) (22) -
Reclassification of periodic settlements and
accruals on non-hedge derivative instruments,
after-tax (12) (4)
Loss on disposition of operations, after-tax (2) (2)
Cumulative effect of change in accounting
principle, after-tax - (175)
--------- ---------
Net income (loss) $ 53 $ (73)
========= =========
Corporate and Other
Net investment income $ 30 $ 29
Operating costs and expenses 86 77
Income tax benefit on operations (28) (24)
--------- ---------
Operating loss (28) (24)
Realized capital gains and losses, after-tax 1 2
--------- ---------
Net loss $ (27) $ (22)
========= =========
Consolidated net income $ 1,123 $ 949
========= =========
(1) The non-recurring increase in liability for future benefits is for
a discontinued benefit plan.
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Ended
March 31,
--------------------
Est. Percent
($ in millions) 2005 2004 Change
--------- --------- ---------
Consolidated Underwriting Summary
Allstate Protection $ 990 $ 870 13.8
Discontinued Lines and Coverages (9) (5) (80.0)
--------- ---------
Underwriting income $ 981 $ 865 13.4
========= =========
Allstate Protection Underwriting Summary
Premiums written $ 6,581 $ 6,332 3.9
========= =========
Premiums earned $ 6,682 $ 6,370 4.9
Claims and claims expense 4,055 3,982 1.8
Amortization of deferred policy
acquisition costs 1,012 924 9.5
Operating costs and expenses 607 583 4.1
Restructuring and related charges 18 11 63.6
--------- ---------
Underwriting income $ 990 $ 870 13.8
========= =========
Catastrophe losses $ 164 $ 102 60.8
========= =========
Operating ratios
Claims and claims expense ratio 60.7 62.5
Expense ratio 24.5 23.8
--------- ---------
Combined ratio 85.2 86.3
========= =========
Effect of catastrophe losses
on combined ratio 2.5 1.6
========= =========
Effect of restructuring and related
charges on combined ratio 0.3 0.2
========= =========
Discontinued Lines and Coverages
Underwriting Summary
Premiums written $ 1 $ 1 -
========= =========
Premiums earned $ 2 $ 1 100.0
Claims and claims expense 8 4 100.0
Operating costs and expenses 3 2 50.0
--------- ---------
Underwriting loss $ (9) $ (5) (80.0)
========= =========
Effect of Discontinued Lines and
Coverages on the Property-Liability
combined ratio 0.1 0.1
========= =========
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Ended
March 31,
--------------------
Est. Percent
($ in millions) 2005 2004 Change
--------- --------- ---------
Allstate brand
Standard auto $ 3,798 $ 3,607 5.3
Non-standard auto 426 473 (9.9)
--------- ---------
Auto 4,224 4,080 3.5
Involuntary auto 53 60 (11.7)
Commercial lines 233 229 1.7
Homeowners 1,258 1,161 8.4
Other personal lines 324 324 -
--------- ---------
6,092 5,854 4.1
Encompass brand
Standard auto 282 280 0.7
Non-standard auto (Deerbrook) 32 43 (25.6)
--------- ---------
Auto 314 323 (2.8)
Involuntary auto 12 12 -
Homeowners 135 119 13.4
Other personal lines 28 24 16.7
--------- ---------
489 478 2.3
Allstate Protection (1) 6,581 6,332 3.9
Discontinued Lines
and Coverages 1 1 -
--------- ---------
Property-Liability (1) $ 6,582 $ 6,333 3.9
========= =========
Allstate Protection
Standard auto $ 4,080 $ 3,887 5.0
Non-standard auto 458 516 (11.2)
--------- ---------
Auto 4,538 4,403 3.1
Involuntary auto 65 72 (9.7)
Commercial lines 233 229 1.7
Homeowners 1,393 1,280 8.8
Other personal lines 352 348 1.1
--------- ---------
$ 6,581 $ 6,332 3.9
========= =========
(1) In the first quarter of 2005, growth in premiums written was
negatively impacted by accruals for premium refunds and
reinsurance transactions totaling 0.3%.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY NET RATE CHANGES APPROVED (1)
Three Months Ended
March 31, 2005 (Est.)
------------------------------------------------
Annual Impact
of Rate Changes on
Weighted Average State Specific
Number of Rate Change Premiums Written
States (%) (2) (%) (3)
------------ ---------------- ------------------
Allstate brand
Standard auto 7 0.1 2.7
Non-standard auto 1 0.0 4.6
Homeowners 6 0.3 4.8
Encompass brand
Standard auto 10 0.1 0.3
Homeowners 6 0.4 4.0
(1) Rate increases that are indicated based on a loss trend analysis
to achieve a targeted return, will continue to be pursued in all
locations and for all products.
(2) Represents the impact in the states where rate changes were
approved during the first quarter of 2005 as a percentage of total
countrywide year-end premiums written.
(3) Represents the impact in the states where rate changes were
approved during the first quarter of 2005 as a percentage of total
year-end premiums written in those states.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended March 31,
-----------------------------------------------------
($ in millions) Est. Est. Est. Est.
2005 2004 2005 2004 2005 2004 2005 2004
------- ------- ----- ----- ------ ------ ----- -----
Effect of
Catastrophe
Losses on the Expense
Premiums Earned Loss Ratio Loss Ratio Ratio
--------------- ----------- ------------- -----------
Allstate brand
Standard
auto $ 3,691 $ 3,486 64.8 66.8 0.7 (0.4) 24.3 23.6
Non-standard
auto 425 474 62.6 62.4 0.5 0.2 20.9 19.7
------- -------
Auto 4,116 3,960 64.5 66.3 0.6 (0.3) 24.0 23.1
Homeowners 1,425 1,300 49.8 48.6 7.9 7.2 22.9 22.6
Other (1) 629 604 58.7 63.1 2.1 2.2 25.9 26.8
------- -------
Total
Allstate
brand 6,170 5,864 60.6 62.0 2.5 1.5 23.9 23.4
Encompass brand
Standard auto 301 300 63.8 68.7 0.3 - 32.5 29.3
Non-standard
auto
(Deerbrook) 34 43 76.5 79.1 - - 29.4 27.9
------- -------
Auto 335 343 65.1 70.0 0.3 - 32.2 29.1
Homeowners 139 128 54.0 57.8 5.8 6.2 30.9 30.5
Other (1) 38 35 68.4 85.7 5.2 2.8 29.0 28.6
------- -------
Total
Encompass
brand 512 506 62.3 68.0 2.1 1.8 31.6 29.4
------- -------
Allstate
Protection $ 6,682 $ 6,370 60.7 62.5 2.5 1.6 24.5 23.8
======= =======
(1) Other includes involuntary auto, commercial lines and other
personal lines.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended March 31,
--------------------------------------------------
Effect of Pretax Reserve
Pretax Re-estimates on the
Reserve Re-estimates (1) Combined Ratio
------------------------ ------------------------
Est. Est.
($ in millions) 2005 2004 2005 2004
----------- ----------- ----------- -----------
Auto $ (93) $ (47) (1.4) (0.7)
Homeowners 11 (2) 0.2 -
Other (6) (3) (0.1) (0.1)
----------- ----------- ----------- -----------
Allstate
Protection (88) (52) (1.3) (0.8)
Discontinued
Lines and
Coverages 8 4 0.1 0.1
----------- ----------- ----------- -----------
Property-
Liability $ (80) $ (48) (1.2) (0.7)
=========== =========== =========== ===========
Allstate brand $ (87) $ (52) (1.3) (0.8)
Encompass brand (1) - - -
----------- ----------- ----------- -----------
Allstate
Protection $ (88) $ (52) (1.3) (0.8)
=========== =========== =========== ===========
(1) Favorable reserve reestimates are shown in parentheses.
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Ended
March 31,
--------------------
Est. Percent
($ in millions) 2005 2004 Change
--------- --------- ---------
Life Products (1)
Interest-sensitive life $ 359 $ 362 (0.8)
Traditional 72 82 (12.2)
Other 103 81 27.2
--------- ---------
534 525 1.7
Annuities
Fixed annuities - deferred 1,525 1,084 40.7
Fixed annuities - immediate 294 206 42.7
Variable annuities 404 451 (10.4)
--------- ---------
2,223 1,741 27.7
Institutional Products
Indexed funding agreements - 1 (100.0)
Funding agreements backing
medium-term notes 1,098 1,100 (0.2)
--------- ---------
1,098 1,101 (0.3)
Bank Deposits 124 88 40.9
--------- ---------
Total $ 3,979 $ 3,455 15.2
========= =========
(1) To conform to current period presentations, certain prior period
balances have been reclassified.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, December 31,
($ in millions, except par value data) 2005 (Est.) 2004
------------ ------------
Assets
Investments
Fixed income securities, at fair value
(amortized cost $93,024 and $90,657) $ 96,695 $ 95,715
Equity securities, at fair value
(cost $4,618 and $4,566) 5,749 5,895
Mortgage loans 8,161 7,856
Short-term 4,427 4,133
Other 1,851 1,931
------------ ------------
Total investments 116,883 115,530
Cash 339 414
Premium installment receivables, net 4,810 4,721
Deferred policy acquisition costs 5,375 4,968
Reinsurance recoverables, net 4,307 4,323
Accrued investment income 1,093 1,014
Property and equipment, net 1,013 1,018
Goodwill 825 825
Other assets 2,734 2,535
Separate Accounts 14,087 14,377
------------ ------------
Total assets $ 151,466 $ 149,725
============ ============
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 18,958 $ 19,338
Reserve for life-contingent contract
benefits 12,131 11,754
Contractholder funds 57,494 55,709
Unearned premiums 9,810 9,932
Claim payments outstanding 718 787
Other liabilities and accrued expenses 11,332 9,842
Deferred income taxes 256 829
Short-term debt 75 43
Long-term debt 5,280 5,291
Separate Accounts 14,087 14,377
------------ ------------
Total liabilities 130,141 127,902
------------ ------------
Shareholders' equity
Preferred stock, $1 par value, 25 million
shares authorized, none issued - -
Common stock, $.01 par value, 2.0 billion
shares authorized and 900 million issued,
672 million and 683 million shares outstanding 9 9
Additional capital paid-in 2,763 2,685
Retained income 24,950 24,043
Deferred compensation expense (152) (157)
Treasury stock, at cost (228 million and
217 million shares) (7,980) (7,372)
Accumulated other comprehensive income:
Unrealized net capital gains and losses 2,111 2,988
Unrealized foreign currency translation
adjustments 13 16
Minimum pension liability adjustment (389) (389)
------------ ------------
Total accumulated other
comprehensive income 1,735 2,615
------------ ------------
Total shareholders' equity 21,325 21,823
------------ ------------
Total liabilities and shareholders'
equity $ 151,466 $ 149,725
============ ============
Homeowners Catastrophe Management Strategy Our overarching o·ver·arch·ing adj. 1. Forming an arch overhead or above: overarching branches. 2. Extending over or throughout: "I am not sure whether the missing ingredient . . . intent is to support the continued strong growth of our homeowners business in a profitable and prudent fashion. While in many areas of the country we are currently achieving acceptable returns within acceptable risk management tolerances, our aim is to find solutions that support continued presence in all catastrophe prone markets. As part of our continued commitment to effective management of our capital, returns and risk profile, Allstate is in the early stages of introducing integrated enterprise risk management ("ERM (Enterprise Relationship Management) An umbrella term with many shades of meaning over the years. It may refer to the management of information from any or all of an organization's customers, suppliers, business partners and employees. ") capabilities. A principal ERM goal is to further increase our return on equity by reducing our exposure to catastrophe losses, and thereby lessen less·en v. less·ened, less·en·ing, less·ens v.tr. 1. To make less; reduce. 2. Archaic To make little of; belittle. v.intr. To become less; decrease. our earnings volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the and our capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . In these early stages of introducing integrated ERM capabilities, we are considering and adopting new performance measurements for managing our property business. These measurements include establishing limits on exposure to 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. and earthquake earthquake, trembling or shaking movement of the earth's surface. Most earthquakes are minor tremors. Larger earthquakes usually begin with slight tremors but rapidly take the form of one or more violent shocks, and end in vibrations of gradually diminishing force losses with a 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 one percent on an annual aggregate basis, developing acceptable targeted rates of return by line and by state to determine acceptable premium growth, and evaluating potential capital impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. measurements. Potential actions resulting from further evaluation of these measurements may limit our catastrophe risk 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. improve returns through increased purchases of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. and changes in rates and deductibles; limitations on new business writings; pursuit of alternative markets for placement of business in certain areas; and/or non-renewal or withdrawal from certain markets. At the same time, we will continue to pursue public policy solutions for catastrophes. We are currently actively engaged in activity in each of these areas. For example, for 2005 we expect to increase our purchase of reinsurance to reduce the risk of catastrophe losses in: --Florida, where we expect to reinsure re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.0 billion of capacity estimated in excess of those losses covered by the Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and Hurricane Catastrophe Fund; --New York York, former name of Toronto, Canada York, Ont.: see Toronto, Ont., Canada. York, city, England York, city (1991 pop. 123,126) and district, North Yorkshire, N England, at the confluence of the Ouse and Foss rivers. , where we expect to reinsure $1 billion of capacity in excess of a retention of $750 million of loss; --New Jersey, 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). , Texas, 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. and 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. . The 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 the multi-year program, which is expected to be effective from June June: see month. 1, is anticipated to be approximately $190 million, some $100 million higher than the annualized cost of the 2004 reinsurance program, with the largest portion of the increase attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to Florida and 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 . While we believe our actions will, over time, achieve our objectives of supporting continued growth in the homeowners business in a profitable, prudent manner, it is possible that they will impact near-term near-term adj. Of, for, or involving a short period of time in the near future. growth and earnings. Exposure to Potential Subsequent Event for Citizens Property Insurance Corporation Assessment Allstate Floridian Flor·i·da Abbr. FL or Fla. A state of the southeast United States bordering on the Atlantic Ocean and the Gulf of Mexico. It was admitted as the 27th state in 1845. Insurance Company and its subsidiaries are subject to assessments from Citizens Property Insurance Corporation ("Citizens"), which was created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Citizens, at the discretion and direction of its Board of Directors ("Citizens Board"), can levy To assess; raise; execute; exact; tax; collect; gather; take up; seize. Thus, to levy a tax; to levy a Nuisance; to levy a fine; to levy war; to levy an execution, i.e., to levy or collect a sum of money on an execution. A seizure. a regular assessment on participating companies for a deficit in any calendar year up to the greater of 10% of the deficit or 10% of Florida property premiums industry-wide for the prior year. An insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. may recoup recoup To sell an asset at a price sufficient to recover the original outlay or to offset a previous loss. a regular assessment through a surcharge An overcharge or additional cost. A surcharge is an added liability imposed on something that is already due, such as a tax on tax. It also refers to the penalty a court can impose on a fiduciary for breaching a duty. to policyholders. In order to recoup its Citizens regular assessment, an insurer must file for a policy surcharge with the Florida Department Florida is a department (departamento) of Uruguay. Population and Demographics As of the census of 2004, there were 68,181 people and 21,938 households in the department. The average household size was 3.1. For every 100 females, there were 100.4 males. of Insurance at least fifteen days prior to imposing the surcharge on policies. If a deficit remains after the regular assessment, Citizens can also fund the remaining deficit by issuing bonds. The costs of these bonds are then funded through emergency assessments in subsequent years. Companies are required to collect the emergency assessments directly from residential property policyholders and remit To transmit or send. To relinquish or surrender, such as in the case of a fine, punishment, or sentence. An individual, for example, might remit money to pay bills. TO REMIT. To annul a fine or forfeiture. 2. them to Citizens as they are collected. Participating companies are obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to purchase any unsold bonds issued by Citizens. Citizens is designed so that the ultimate cost is borne by policyholders, however the exposure to assessments and the availability of recoupments may not offset each other. Moreover, even if they do offset each other, they may not offset each other in the same fiscal period's financial statements. This would be due to the ultimate timing of the assessments and recoupments, as well as the possibility of policies not being renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. in subsequent years. Citizens is expected to report higher losses from the hurricanes that struck Florida in the third quarter of 2004 and a deficit for the 2004 plan year. The Citizens Board met on March 30; however, they took no action to declare TO DECLARE. To make known or publish. By tho constitution of the United States, congress have power to declare war. In this sense the word, declare, signifies, not merely to make it known that war exists, but also to make war and to carry it on. 4 Dall. 37; 1 Story, Const. Sec. a deficit or levy an assessment. Instead, they deferred making a decision until the completion of the external audit by Ernst & Young LLP LLP - Lower Layer Protocol , which was to have been completed by April 15, and until a determination is made as to whether any appropriations are going to be received from the state of Florida. In its legislative session scheduled to end May 6, the state of Florida is expected to consider if an appropriation The designation by the government or an individual of the use to which a fund of money is to be applied. The selection and setting apart of privately owned land by the government for public use, such as a military reservation or public building. will be made to offset or eliminate the deficit and the need for an assessment, and therefore, any potential appropriation is not estimable es·ti·ma·ble adj. 1. Possible to estimate: estimable assets; an estimable distance. 2. Deserving of esteem; admirable: an estimable young professor. . As a result of the timing of these potential decisions, we are not in a position to estimate or accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. a potential assessment from Citizens. The Citizens Board will meet again on April 21 at which time a decision may be made. The agenda for the April 21 meeting indicates that Citizens officers will recommend to the Citizens Board that the audited financial statements be accepted, but that no action be taken on the deficit disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). by those statements, until such time as the legislature legislature, representative assembly empowered to enact statute law. Generally the representatives who compose a legislature are constitutionally elected by a broad spectrum of the population. has taken action or has failed to take action by May 6. Based on currently available information regarding the amount of the estimated deficiency A shortage or insufficiency. The amount by which federal Income Tax due exceeds the amount reported by the taxpayer on his or her return; also, the amount owed by a taxpayer who has not filed a return. and our market share, we believe that our maximum exposure to a regular assessment is $45 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta , which would be recorded as a catastrophe loss when approved by the Citizens Board. This assessment would then be recouped through subsequent billing to insureds in addition to their premium. These recoupments will be reportable in our financial results as they are billed. The table below presents the estimated maximum impact of a regular assessment on the financial statements. (in millions, except per share amounts and ratios) Catastrophe losses $45 Effect on combined ratio 0.7 pts Net income $29 Net income per diluted share $0.04 If the Citizens Board declares the assessment before May 3, our anticipated Form 10-Q Form 10-Q See 10-Q. filing date, our results will be adjusted for our best estimate at that time. Otherwise the impact of this assessment will be included in our results when estimable. Definitions of GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Operating Ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: Claims and claims expense ("loss") ratio is the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses. Expense ratio is the ratio of amortization of DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter , operating costs operating costs npl → gastos mpl operacionales and expenses and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and related charges to premiums earned. Combined Ratio is the ratio of claims and claims expense, amortization of DAC, operating costs and expenses and restructuring and related charges to premiums earned. The difference between 100% and the combined ratio represents underwriting income 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 loss ratio is the percentage of catastrophe losses included in claims and claims expenses to premiums earned. Effect of restructuring and related charges on expense ratio is the percentage of restructuring and related charges to premiums earned. Definitions of Non-GAAP and Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP financial measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Operating income is income before cumulative effect of change in accounting principle, after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. , excluding: --realized capital gains and losses, after-tax, except for periodic settlements and accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. on non-hedge derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. which are reported with realized capital gains and losses but included in operating income, --amortization of deferred policy acquisition costs ("DAC") and deferred sales inducements ("DSI (Dynamic Systems Initiative) An umbrella term for a suite of Microsoft products that help manage the Windows environment in large enterprises. DSI was introduced in 2003. "), to the extent they resulted from the recognition of certain realized capital gains and losses, --(loss) gain on disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of operations, after-tax, and --adjustments for other significant non-recurring, infrequent in·fre·quent adj. 1. Not occurring regularly; occasional or rare: an infrequent guest. 2. or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate our results of operations. It reveals trends in our insurance and financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. business that may be obscured by the net effect of realized capital gains and losses, (loss) gain on disposition of operations and adjustments for other significant non-recurring infrequent or unusual items. Realized capital gains and losses and (loss) gain on disposition of operations may vary significantly between periods and are generally driven by business decisions and economic developments such as market conditions, the timing of which is unrelated to the insurance underwriting process. Moreover, we reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you periodic settlements on non-hedge derivative instruments into operating income to report them in a manner consistent with the economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. investments, replicated assets or product attributes (e.g. net investment income and interest credited to contractholder funds) and by doing so, appropriately reflect trends in product performance. Non-recurring items are excluded because, by their nature, they are not indicative indicative: see mood. of our business or economic trends. Therefore, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. valuation technique uses operating income as the denominator denominator the bottom line of a fraction; the base population on which population rates such as birth and death rates are calculated. denominator . We use adjusted measures of operating income and operating income per diluted 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 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 table reconciles operating income and net income for the three months ended March 31, 2005 and 2004.
For the three
months ended Property- Allstate Per diluted
March 31, Liability Financial Consolidated share
------------- ---------- ------------- -------------
($ in millions,
except per share Est. Est. Est. Est.
data) 2005 2004 2005 2004 2005 2004 2005 2004
----- ------- ---- ----- ----- ------- ----- -------
Operating income $1,019 $ 912 $149 $ 132 $1,140 $1,020 $ 1.67 $ 1.44
Realized capital
gains and losses 113 191 1 (23) 116 170
Income tax
benefit
(expense) (35) (59) - 9 (36) (50)
------ ------ ---- ----- ------ ------
Realized capital
gains and
losses,
after-tax 78 132 1 (14) 80 120 0.12 0.17
DAC and DSI
amortization
relating to
realized capital
gains and losses,
after-tax - - (61) (10) (61) (10) (0.09) (0.01)
Non-recurring
increase in
liability for
future benefits - - (22) - (22) - (0.03) -
Reclassification
of periodic
settlements and
accruals on
non-hedge
derivative
instruments,
after-tax - - (12) (4) (12) (4) (0.02) (0.01)
Loss on
disposition of
operations,
after-tax - - (2) (2) (2) (2) (0.01) -
------ ------ ---- ----- ------ ------ ------ ------
Income before
cumulative
effect of change
in accounting
principle,
after-tax 1,097 1,044 53 102 1,123 1,124 1.64 1.59
Cumulative effect
of change in
accounting
principle,
after-tax - - - (175) - (175) - (0.25)
------ ------ ---- ----- ------ ------ ------ ------
Net income (loss)$1,097 $1,044 $ 53 $ (73)$1,123 $ 949 $ 1.64 $ 1.34
====== ====== ==== ===== ====== ====== ====== ======
In this press release, we provide guidance on operating income per diluted share for 2005 (assuming a level of average expected catastrophe losses used in pricing for the remainder of the year). A reconciliation of this measure to net income is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses including periodic settlements and accruals on non-hedge derivative instruments, which can vary substantially from one period to another and may have a significant impact on net income. Because a forecast of realized capital gains and losses is not possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. The other reconciling items between operating income and net income on a forward-looking basis are a non-recurring increase in liability for future benefits, after-tax, loss on disposition of operations, after-tax, and cumulative effect of changes in accounting principle, after-tax, which we assume to be zero for the remainder of the year. Underwriting 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 to net income is provided in the Segment Results table. Operating income return on equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at the beginning and at the end of the 12-month period, after excluding the after-tax effect of unrealized net capital gains. We use it to supplement our evaluation of net income and return on equity. We believe that this measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and that are driven by developments, the magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the and timing of which are generally not influenced by management: the after-tax effects of realized and unrealized capital gains and losses and the cumulative effect of change in accounting principle, and non-recurring items that are not indicative of our business or economic trends. Return on equity is the most directly comparable GAAP measure. The following table shows the reconciliation.
For the twelve months ended
($ in millions) March 31,
---------------------------
Est. 2005 2004
------------- -------------
Return on equity
Numerator:
Net income $ 3,355 $ 2,989
============= =============
Denominator:
Beginning shareholders' equity 21,580 17,983
Ending shareholders' equity 21,325 21,580
Average shareholders' equity $ 21,453 $ 19,782
============= =============
ROE 15.6% 15.1%
============= =============
For the twelve months ended
($ in millions) March 31,
---------------------------
Est. 2005 2004
------------- -------------
Operating income return on equity
Numerator:
Operating income $ 3,211 $ 3,009
============= =============
Denominator:
Beginning shareholders' equity 21,580 17,983
Unrealized net capital gains 3,428 2,646
------------- -------------
Adjusted beginning shareholders' equity 18,152 15,337
Ending shareholders' equity 21,325 21,580
Unrealized net capital gains 2,111 3,428
------------- -------------
Adjusted ending shareholders' equity 19,214 18,152
Average shareholders' equity $ 18,683 $ 16,745
============= =============
ROE 17.2% 18.0%
============= =============
Book value per diluted share excluding the net impact of unrealized net capital gains on fixed income securities is a ratio that uses a non-GAAP measure. It is calculated by dividing shareholders' equity after excluding the net impact of unrealized net capital gains on fixed income securities and related DAC and life insurance reserves by total shares outstanding plus dilutive potential shares outstanding. Book value per diluted share is the most directly comparable GAAP ratio. We use the trend in book value per diluted share excluding unrealized net capital gains on fixed income securities in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with book value per diluted share to identify and analyze the change in net worth attributable 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 not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per diluted share excluding unrealized net capital gains on fixed income securities is a measure commonly used by insurance investors as a valuation technique. Book value per diluted share excluding unrealized net capital gains on fixed income securities should not be considered as a substitute for book value per diluted share and does not reflect the recorded net worth of our business. The following table shows the reconciliation:
As of
(in millions, except per share data) March 31,
---------------------------
Est.
2005 2004
------------- -------------
Book value per diluted share
Numerator:
Shareholders' equity $ 21,325 $ 21,580
============= =============
Denominator:
Shares outstanding and dilutive
potential shares outstanding 677.4 707.9
============= =============
Book value per diluted share $ 31.48 $ 30.48
============= =============
Book value per diluted share, excluding
the net impact of unrealized
net capital gains on fixed income
securities
Numerator:
Shareholders' equity $ 21,325 $ 21,580
Unrealized net capital gains on fixed
income securities 1,385 2,611
------------- -------------
Adjusted shareholders' equity $ 19,940 $ 18,969
============= =============
Denominator:
Shares outstanding and dilutive
potential shares outstanding 677.4 707.9
============= =============
Book value per diluted share, excluding
the net impact of unrealized net
capital gains on fixed income securities $ 29.44 $ 26.80
============= =============
Gross margin represents life and annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. premiums and contract charges and net investment income, less contract benefits and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of Allstate Financial's life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. , variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of three components that are utilized to further analyze the business; they include the investment margin, benefit margin, and contract charges and fees. We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to Allstate Financial's GAAP net income in the following table.
Three Months Ended
March 31,
---------------------------
($ in millions) Est. 2005 2004
------------- -------------
Life and annuity premiums and contract
charges $ 521 $ 496
Net investment income 918 821
Periodic settlements and accruals on non-
hedge derivative instruments 19 6
Contract benefits (411) (395)
Interest credited to contractholder
funds(1) (552) (456)
------------- -------------
Gross margin 495 472
Amortization of DAC and DSI (129) (130)
Operating costs and expenses (160) (145)
Income tax expense (57) (65)
Realized capital gains and losses,
after-tax 1 (14)
DAC and DSI amortization relating to
capital gains and losses, after-tax (61) (10)
Non-recurring increase in liability for
future benefits (22) -
Reclassification of periodic settlements
and accruals on non-hedge
derivative instruments, after-tax (12) (4)
Loss on disposition of operations,
after-tax (2) (2)
Cumulative effect of change in accounting
principle, after-tax - (175)
------------- -------------
Allstate Financial net income $ 53 $ (73)
============= =============
(1) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled $39 million in the first quarter of
2005 and $14 million for the first quarter of 2004.
Investment margin is a component of gross margin. Investment margin represents the excess of net investment income over interest credited to contractholder funds and the implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. interest on life contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the immediate annuities immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. included in Allstate Financial's reserve for life-contingent contract benefits. We use investment margin to evaluate Allstate Financial's profitability related to the difference between investment returns on assets supporting certain products and the amounts credited to customers ("spread") during a fiscal period. Benefit margin is a component of gross margin. Benefit margin represents life and life-contingent immediate annuity premiums, cost of insurance contract charges and variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. fees for contract guarantees less contract benefits. Benefit margin excludes the implied interest on life-contingent immediate annuities, which is included in the calculation of investment margin. We use benefit margin to evaluate Allstate Financial's underwriting performance, as it reflects the profitability of our products with respect to mortality or morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. risk during a fiscal period. The components of gross margin are reconciled to the corresponding financial statement line items in the following table.
Three Months Ended March 31,
-----------------------------------------------------
Contract
Investment Benefit Charges and Gross
Margin Margin Fees Margin
------------- ------------- ------------- -----------
(in millions) Est. Est. Est. Est.
2005 2004(2) 2005 2004(2) 2005 2004(2) 2005 2004
----- ------- ----- ------- ----- ------- ----- -----
Life and annuity
premiums $ - $ - $ 249 $ 246 $ - $ - $ 249 $ 246
Contract charges - - 152 135 120 115 272 250
Net investment
income 918 821 - - - - 918 821
Periodic
settlements and
accruals on
non-hedge
derivative
instruments 19 6 - - - - 19 6
Contract
benefits (134) (132) (277) (263) - - (411) (395)
Interest
credited to
contractholder
funds(1) (552) (456) - - - - (552) (456)
----- ------- ----- ------- ----- ------- ----- -----
$ 251 $ 239 $ 124 $ 118 $ 120 $ 115 $ 495 $ 472
===== ======= ===== ======= ===== ======= ===== =====
(1) Amortization of DSI was excluded from interest credited to
contractholder funds for purposes of calculating gross margin.
Amortization of DSI totaled $39 million in the first quarter of
2005 and $14 million in the first quarter of 2004.
(2) Prior periods have been restated to conform to current period
presentations. In connection therewith, fees related to guaranteed
minimum death and income benefits on variable annuities have been
reclassified to benefit margin from maintenance charges.
Additionally, amounts previously presented as maintenance charges
and surrender charges are now presented in the aggregate as
contract charges and fees. Further, the Allstate Workplace
Division margins were conformed. These reclassifications did not
result in a change in gross margin.
Operating Measures We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata Pro-rata Used to describe a proportionate allocation. Notes: For example, a pro-rata dividend means that every shareholder gets an equal proportion for each share they own. See also: Dividend basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.
Three Months Ended
March 31,
--------------------
($ in millions) Est.
2005 2004
--------- ---------
Premiums written $ 6,582 $ 6,333
Change in Property-Liability unearned
premiums 109 42
Other (7) (4)
--------- ---------
Premiums earned $ 6,684 $ 6,371
========= =========
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
March 31,
--------------------
($ in millions) Est.
2005 2004
--------- ---------
Life and annuity premiums(1) $ 249 $ 246
Deposits to contractholder funds 3,393 2,856
Deposits to separate accounts 343 367
Change in unearned premiums and other
adjustments (6) (14)
--------- ---------
Total Premiums and deposits $ 3,979 $ 3,455
========= =========
(1) Life and annuity contract charges in the amount of est. $272
million and $250 million for the three months ended March 31, 2005
and 2004, respectively, which are also revenues recognized for
GAAP, have been excluded from the table above, but are a component
of the Consolidated Statements of Operations line item life and
annuity premiums and contract charges.
New sales of financial products by Allstate exclusive agencies is an operating measure that we use to quantify Quantify - A performance analysis tool from Pure Software. the current year sales of financial products by the Allstate Agency proprietary distribution channel. New sales of financial products by Allstate exclusive agencies includes annual premiums on new insurance policies, initial premiums and deposits on annuities, net new deposits in the Allstate Bank, sales of other companies' mutual funds, and excludes renewal premiums. New sales of financial products by Allstate exclusive agencies for the first quarter of 2005 and 2004 totaled $514 million and $491 million, respectively. Forward Looking Statements This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. about our operating income for 2005. These statements are subject to the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 and are based on management's estimates, assumptions and projections. Actual results may differ materially from those projected in the forward-looking statements for a variety of reasons: --Actual levels of PIF may be lower than projected if we are not able to grow or maintain our retention levels and new business levels due to competitive pressures. --Loss costs in our Property-Liability business, including losses due to catastrophes such as hurricanes and earthquakes Earthquakes See also geology. bathyseism an earthquake occurring at very deep levels of the earth. bradyseism the slow upward and downward motion of the earth’s crust. — bradyseismic, adj. , may exceed management's projections. In particular, losses due to catastrophes may exceed the average expected level used in pricing. --If we are unable to obtain 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 of rate increases in a timely manner and at adequate levels to cover reinsurance costs, we may refrain from writing new homeowners policies or non-renew homeowners policies in certain markets. In turn, such steps could possibly lead to a decline in standard auto PIF. --Claim frequency could be higher than expected. --Lower than projected interest rates and equity market returns could decrease consolidated net investment income, increase DAC amortization, reduce contract charges, investment margins and the profitability of the Allstate Financial segment. --Higher than projected interest rates could increase surrenders and withdrawals, increase DAC amortization and reduce the competitive position and profitability of the Allstate Financial segment. --Results from the management and review of our portfolios could cause lower than expected net investment income. We undertake no obligation to publicly correct or update any forward-looking statements. Our projection projection, in psychology: see defense mechanism. See rear-projection TV, front-projection TV and LCD panel. (theory) projection - In domain theory, a function, f, which is (a) idempotent, i.e. of operating income includes the estimated increased cost of the reinsurance and the maximum estimated regular assessment from Citizens as discussed above. This press release contains unaudited financial information. The Allstate Corporation (NYSE:ALL) is the nation's largest publicly held personal lines insurer. Widely known through the "You're you're Contraction of you are. you're you are you're be In Good Hands With Allstate(R)" slogan A slogan is a memorable motto or phrase used in a political, commercial, religious and other context as a repetitive expression of an idea or purpose. Slogans vary from the written and the visual to the chanted and the vulgar. , Allstate helps individuals in approximately 17 million households protect what they have today and better prepare for tomorrow through nearly 13,600 exclusive agencies and financial professionals in the U.S. and Canada 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 agencies. Allstate Financial Group provides life and 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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