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Slide 1: For Immediate Release Allstate Reports 52% Increase in 2004 Fourth Quarter Net Income EPS, 34% Increase in Fourth Quarter Operating Income EPS, Record 2004 Full Year Net and Operating Income EPS NORTHBROOK, Ill., Feb. 2, 2005 – The Allstate Corporation (NYSE: ALL) today reported for the fourth quarter of 2004: Consolidated Highlights 1 Three Months Ended December 31, Change (in millions, except per share amounts and ratios) Consolidated revenues Net income Net income per diluted share 1 Operating income 1 Operating income per diluted share Property-Liability combined ratio Effect of catastrophes on combined ratio Effect of catastrophes on Net Income per diluted share Book value per diluted share Return on equity 1 Operating income return on equity Est. 2004 $8,879 1,142 1.64 986 1.42 88.5 6.2 0.39 2003 $8,262 761 1.08 752 1.06 92.3 6.5 0.38 $ Amt $617 381 0.56 234 0.36 --0.01 % 7.5 50.1 51.9 31.1 34.0 (3.8) pts. (0.3) pts. 2.6 Twelve Months Ended December 31, Change Est. 2004 $33,936 3,181 4.54 3,091 4.41 93.0 9.5 2.29 31.72 15.0 17.0 2003 $32,149 2,705 3.83 2,662 3.77 94.6 6.0 1.37 29.04 14.2 16.5 $ Amt $1,787 476 0.71 429 0.64 --0.92 2.68 --% 5.6 17.6 18.5 16.1 17.0 (1.6) pts. 3.5 pts. 67.2 9.2 0.8 pts. 0.5 pts. • Property-Liability premiums written1 grew 4.8% over the fourth quarter of 2003, 5.6% adjusted for reinsurance and accruals for premium refunds, driven by an increase in policies in force (“PIF”). Growth in policies in force for Allstate brand standard auto and homeowners lines remained strong at 5.5% and 6.4%, respectively, from the fourth quarter of 2003. This represents the highest growth rate achieved in the last 10 years. Total Allstate brand policies in force increased 3.9%. Allstate brand standard auto and homeowners premiums written grew 5.7% and 9.8%, respectively. These PIF results exclude impacts from Allstate Canada. Property-Liability underwriting income1 increased 57.8% over the fourth quarter of 2003 to $762 million, due to increased premiums earned, continued favorable auto and homeowners loss frequencies and favorable prior year reserve reestimates. Pre-tax catastrophe losses totaled $412 million in both the fourth quarter of 2004 and 2003, with $367 million in 2004 attributable to reestimates of third quarter 2004 hurricane losses. See the Allstate Protection Reestimates of Hurricane Catastrophe Losses section of this document for more details. Allstate Financial premiums and deposits1 increased 26.0% over the fourth quarter of 2003 to $4.16 billion. Operating income for the quarter was $142 million, an increase of 40.6% over the fourth quarter of 2003. For the total year, Allstate earned record levels of operating income ($3.1 billion, up 16.1%), net income per diluted share ($4.54, up 18.5%) and operating income per diluted share ($4.41, up 17.0%). Allstate’s annual operating income per diluted share guidance for 2005 (assuming the level of average expected catastrophe losses used in pricing for the year) is in the range of $5.40 to $5.80. • • • • • 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. 1 1
Slide 2: “It was a great quarter and a great year for Allstate,” said Chairman, President and CEO Edward M. Liddy. “We’re growing and generating solid returns for our shareholders thanks to a proven business strategy that we believe is sustainable into the future. In short, we are very pleased with our results and confident about our prospects.” “Allstate Protection continues to make steady progress, growing faster than the marketplace in a very competitive environment. Helping to fuel solid increases in premiums for the quarter was growth in policies in force (PIF). These PIF increases also represent an increase in the rate of change in PIF growth we reported for the third quarter of 2004 and both Allstate brand standard auto and homeowners experienced PIF growth in most states. “In the quarter, Allstate Protection’s overall underwriting income increased 58% over the prior year fourth quarter. Both the Allstate brand and our Encompass business continued to contribute excellent underwriting results. Allstate brand customer retention remained strong in the fourth quarter at near record levels, which we believe is a result of the service and value we provide our customers. Also contributing to our strong customer retention are the investments we continue to make in our business. Allstate brand standard auto retention improved almost a half point compared to the prior year quarter and homeowners retention levels exceeded prior year fourth quarter results by more than a full point. Our advertising campaign has focused on educating consumers about Allstate’s strong competitive position in the marketplace, which has helped fuel solid gains in new business production. “Our strategic risk management efforts continue to be extremely effective. Although we believe that Allstate is well ahead of most of our competitors in pricing sophistication, we will continue to add new and enhanced rating variables and additional refinements of our insurance scoring algorithms as competition continues to implement tiered rating programs. We believe our strategies have put Allstate in a great position going into 2005 to continue to grow profitably. "I am very encouraged by the loss cost trends in our business during the fourth quarter and all of 2004. As I have said before, we might see occasional fluctuations in the frequency trends due to weather, but the underlying frequency trend remains favorable. Severity trends continue to be moderate, and our claims employees continue to provide excellent service to improve customer satisfaction. “Allstate Financial also turned in a solid performance for the quarter. We generated strong and broad top line results delivering our second highest level of quarterly premiums and deposits ever. In particular, the Allstate Agency channel finished the year on a very strong note by generating one-third of its total 2004 sales of financial products in the fourth quarter. For the year, Allstate Financial delivered record retail, institutional, and total premiums and deposits. In January 2005, we launched our new SureIncomeSM withdrawal benefit on our variable annuity products which, combined with our TrueReturnSM accumulation benefit, should boost sales in 2005. Allstate Financial also had improved bottom line results with operating income of $142 million in the quarter, in line with our expectations. Overall, the implementation of Allstate Financial’s business strategy is progressing well. “In the quarter, we completed our $1.5 billion share repurchase program one year ahead of schedule and in January 2005, began our previously announced $4.0 billion share repurchase program to be completed in 2006. Additionally, The Allstate Corporation board of directors will meet later this month to determine the dividend for the first quarter of 2005. “Overall, 2004 was a very good year. Even after absorbing an unusually high level of catastrophe losses of $2.5 billion in 2004, net income per diluted share and operating income per diluted share increased 18.5% and 17.0%, respectively, over the prior year, book value per diluted share increased 9.2% to $31.72 compared to prior year, and operating income return on equity increased 0.5 points to 17.0% compared to prior year. We are very pleased with the consistent performance we have generated over time. We remain committed as ever to not rest on past performance. We are optimistic about 2005 and plan to use the momentum we have generated across the enterprise to ensure our company remains a powerful force that continues to deliver solid, consistent value to customers and shareholders. We expect to generate operating earnings per diluted share growth of 22% to 32%. This assumes our combined ratio, with an average expected level of catastrophe losses used in pricing for the year and no reserve reestimates, does not change materially from that experienced in 2004, which is in the low 90s. Further, our expectation for top-line growth will be consistent with our objective of maintaining margins. The resulting operating income return on equity is expected to exceed 18%.” 2
Slide 3: Consolidated Highlights Three Months Ended December 31, Est. 2003 2004 $8,879 $8,262 Twelve Months Ended December 31, Est. 2004 2003 $33,936 $32,149 < Discussion of Results for the Three Months Ended December 31, 2004 ($ in millions, except per share and return amounts) Consolidated revenues Higher premiums earned in Property-Liability, higher net realized capital gains due to increased dispositions and fewer write-downs, higher net investment income, partially offset by lower life and annuity premiums and contract charges. Increase in Property-Liability operating income of $195 and Allstate Financial operating income of $41. See the Components of Realized Capital Gains and Losses (pretax) table. Primarily a tax gain from disposition of a life insurance subsidiary. Operating income Realized capital gains and losses, after-tax Gain/(loss) on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income Net income per share (diluted) Operating income per share (diluted) Net shares outstanding 986 212 16 -1,142 1.64 1.42 682.7 752 58 (20) (14) 761 1.08 1.06 704.0 3,091 392 (6) (175) 3,181 4.54 4.41 682.7 2,662 134 (26) (15) 2,705 3.83 3.77 704.0 < < < < Increase in Property-Liability and Allstate Financial operating income and increase in realized capital gains and losses, after-tax. < During the fourth quarter of 2004, Allstate purchased 8.0 million shares of its stock for $396.3 million, completing the current $1.5 billion program. Allstate started a $4.0 billion program in January 2005. Weighted average shares outstanding (diluted) Return on equity 690.7 707.2 700.3 15.0 706.2 14.2 < See the return on equity calculation in the Definitions of Non-GAAP and Operating Measures section of this document. See the return on equity calculation in the Definitions of Non-GAAP and Operating Measures section of this document. At December 31, 2004 and 2003, net unrealized gains on fixed income securities, after-tax, totaling $2,134 and $2,307, respectively, represented $3.10 and $3.26, respectively, of book value per diluted share. Operating income return on equity Book value per diluted share 17.0 16.5 < 31.72 29.04 < • Book value per diluted share increased 9.2% compared to December 31, 2003. Book value per diluted share excluding the net impact of unrealized net capital gains on fixed income securities1 increased 11.0% to $28.62 at December 31, 2004 compared to December 31, 2003. 3
Slide 4: Property-Liability Highlights Three Months Ended December 31, Est. 2004 2003 $6,499 $6,199 Twelve Months Ended December 31, Est. 2004 2003 $26,531 $25,187 < Discussion of Results for the Three Months Ended December 31, 2004 ($ in millions, except ratios) Property-Liability net premiums written Property-Liability revenues Underwriting income / (loss) See the Property-Liability Premiums Written by Market Segment table. Premiums earned increased $305 or 4.8%. Higher premiums earned, continued favorable auto and homeowners loss frequencies and favorable reserve reestimates. See the Allstate Protection Market Segment Analysis table. Higher portfolio balances due to positive cash flows from operations, partially offset by lower yields. Increase of $180 in underwriting results, aftertax. See the Components of Realized Capital Gains and Losses (pretax) table. 7,262 762 6,848 483 28,354 1,830 26,642 1,332 < < Net investment income 463 435 1,773 1,677 < Operating income Realized capital gains and losses, after-tax Gain on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income Catastrophe losses 875 125 --- 680 72 --- 2,648 397 --- 2,327 192 3 (1) < < 1,000 412 752 412 3,045 2,468 2,521 1,489 < < Higher operating income and realized capital gains and losses, after-tax. Included $367 million reestimate of third quarter hurricane losses bringing total pre-tax net loss for the four storms to $2.0 billion. See the Allstate Protection Reestimates of Hurricane Catastrophe Losses section for further details. Ratios: Property-Liability combined ratio Effect of Discontinued Lines and Coverages Allstate Protection combined ratio Effect of catastrophe losses 88.5 -88.5 6.2 92.3 0.1 92.2 6.5 93.0 2.5 90.5 9.5 94.6 2.3 92.3 6.0 • Allstate brand standard auto and homeowners PIF increased 5.5% and 6.4%, respectively, from December 31, 2003 levels, compared to increases of 5.4% and 6.2%, respectively in the third quarter of 2004 over the third quarter of 2003. Both standard auto and homeowners experienced growth in most states. These results exclude impacts from Allstate Canada. Allstate brand standard auto and homeowners new business premiums written grew 5.5% and 4.3%, respectively, in the quarter, while the retention ratio increased to 90.6 and 88.7 respectively, from 90.2 and 87.5 in the prior year fourth quarter. In September, we began curtailing our acceptance of new business in Florida, which had an adverse impact on our growth of Allstate brand homeowners new business premiums. These results exclude impacts from Allstate Canada. Prior year net favorable reserve re-estimates in the quarter totaled $189 million for Property-Liability, reflecting lower actual claim severity trends than anticipated in previous estimates. • • 4
Slide 5: Allstate Financial Highlights Three Months Ended December 31, Est. 2004 2003 $4,163 $3,303 Twelve Months Ended December 31, Est. 2004 2003 $15,919 $13,095 < Discussion of Results for the Three Months Ended December 31, 2004 ($ in millions) Premiums and deposits Higher sales of fixed annuities, partially offset by lower sales of variable annuities and funding agreements. See the Allstate Financial Premiums and Deposits table. Higher net realized capital gains and investment income, partially offset by lower life and annuity premiums due to the disposition of substantially all of our direct response distribution business. Higher gross margins, lower operating expenses from the disposition of substantially all of our direct response distribution business and lower income taxes as 2003 income taxes included a $23 non-recurring adjustment of prior years tax liabilities. See the Components of Realized Capital Gains and Losses (pretax) table. Primarily a tax gain from the disposition of a life insurance company subsidiary. Allstate Financial Revenues 1,590 1,401 5,483 5,452 < Operating income 142 101 551 449 < Realized capital gains and losses, after-tax Gain (loss) on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income 87 16 -173 (11) (20) (17) 38 (3) (6) (175) 246 (53) (29) (17) 305 < < < Higher operating income and higher realized capital gains and losses, after-tax. • • • Delivered record retail premium and deposits of $3.58 billion in the fourth quarter and $11.88 billion for the year. Investments including Separate Account assets as of December 31, 2004 increased 13.9% over December 31, 2003 primarily due to strong sales of fixed annuities and funding agreements. The approximate difference between the weighted average credited rate and the average guaranteed rate on interest sensitive life and annuity contracts is 52 basis points compared to 50 basis points from the prior quarter due to sales of new contracts containing significantly lower guaranteed rates than the inforce block of business. The crediting rates on approximately 62% of all such in-force contracts were at the minimum guaranteed rate at December 31, 2004. Completed the disposal of substantially all of our direct response distribution business in the fourth quarter of 2004. The disposition of this business reduced fourth quarter total revenues by $62 million, benefits by $35 million, operating costs and expenses by $17 million and amortization of deferred acquisition costs (“DAC”) by $11 million. • 5
Slide 6: THE ALLSTATE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended December 31, Est. 2004 Percent Change Twelve Months Ended December 31, Est. 2004 Percent Change ($ in millions, except per share data) Revenues Property-liability insurance premiums Life and annuity premiums and contract charges Net investment income Realized capital gains and losses Total revenues Costs and expenses Property-liability insurance claims and claims expense Life and annuity contract benefits Interest credited to contractholder funds Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Interest expense Total costs and expenses Loss on disposition of operations Income from operations before income tax expense, dividends on preferred securities and cumulative effect of change in accounting principle, after-tax Income tax expense Income before dividends on preferred securities and cumulative effect of change in accounting principle, after-tax Dividends on preferred securities of subsidiary trust Cumulative effect of change in accounting principle, after-tax Net income $ 2003 2003 $ 6,607 564 1,378 330 8,879 $ 6,302 594 1,275 91 8,262 4.8 (5.1) 8.1 7.5 $ 25,989 2,072 5,284 591 33,936 $ 24,677 2,304 4,972 196 32,149 5.3 (10.1) 6.3 5.6 4,175 444 546 1,214 799 25 85 7,288 (7) 4,248 471 466 1,069 804 18 71 7,147 (32) (1.7) (5.7) 17.2 13.6 (0.6) 38.9 19.7 2.0 78.1 17,843 1,618 2,001 4,465 3,040 51 308 29,326 (24) 17,432 1,851 1,846 4,058 3,001 74 275 28,537 (41) 2.4 (12.6) 8.4 10.0 1.3 (31.1) 12.0 2.8 41.5 1,584 442 1,083 308 46.3 43.5 4,586 1,230 3,571 846 28.4 45.4 1,142 775 47.4 3,356 2,725 23.2 - - - - (5) 100.0 1,142 $ (14) 761 100.0 50.1 $ (175) 3,181 $ (15) 2,705 17.6 Net income per share - Basic Weighted average shares - Basic Net income per share - Diluted Weighted average shares - Diluted $ 1.65 685.8 $ 1.08 703.5 $ 4.57 695.6 $ 3.85 703.5 $ 1.64 690.7 $ 1.08 707.2 $ 4.54 700.3 $ 3.83 706.2 6
Slide 7: THE ALLSTATE CORPORATION CONTRIBUTION TO INCOME Three Months Ended December 31, Est. 2004 Percent Change Twelve Months Ended December 31, Est. 2004 Percent Change ($ in millions, except per share data) Contribution to income Operating income before the impact of restructuring and related charges Restructuring and related charges, after-tax Operating income Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax Gain (loss) on disposition of operations, after-tax Dividends on preferred securities of subsidiary trust Cumulative effect of change in accounting principle, after-tax Net income $ 2003 2003 $ 1,002 16 986 212 (61) $ 764 12 752 58 (10) 31.2 33.3 31.1 - $ 3,124 33 3,091 392 (89) $ 2,710 48 2,662 134 (30) 15.3 (31.3) 16.1 192.5 (196.7) (11) 16 1,142 $ (5) (20) (14) 761 (120.0) 180.0 100.0 50.1 $ (32) (6) (175) 3,181 $ (15) (26) (5) (15) 2,705 (113.3) 76.9 100.0 17.6 Income per share (Diluted) Operating income before the impact of restructuring and related charges Restructuring and related charges, after-tax Operating income Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax Gain (loss) on disposition of operations, after-tax Dividends on preferred securities of subsidiary trust Cumulative effect of change in accounting principle, after-tax Net income Book value per share - Diluted $ $ $ 1.45 0.03 1.42 0.30 (0.09) $ 1.08 0.02 1.06 0.09 (0.02) 34.3 50.0 34.0 - $ 4.46 0.05 4.41 0.56 (0.13) $ 3.84 0.07 3.77 0.19 (0.05) 16.1 (28.6) 17.0 194.7 (160.0) (0.01) 0.02 1.64 31.72 $ $ (0.01) (0.03) (0.01) 1.08 29.04 166.7 100.0 51.9 9.2 $ $ (0.04) (0.01) (0.25) 4.54 31.72 $ $ (0.02) (0.04) (0.02) 3.83 29.04 (100.0) 75.0 18.5 9.2 7
Slide 8: THE ALLSTATE CORPORATION COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX) Three Months Ended December 31, 2004 (Est.) ($ in millions) PropertyLiability $ 33 (4) 175 (12) 192 $ Allstate Financial (6) 11 140 (9) 136 $ Corporate and Other 2 2 $ Total 27 7 317 (21) 330 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ Twelve Months Ended December 31, 2004 (Est.) ($ in millions) PropertyLiability $ 10 (69) 697 (46) 592 $ Allstate Financial (55) 7 131 (82) 1 $ Corporate and Other (1) (1) (2) $ Total (46) (62) 828 (129) 591 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ Three Months Ended December 31, 2003 ($ in millions) PropertyLiability $ 4 5 131 (29) 111 $ Allstate Financial (4) (2) 23 (34) (17) $ Corporate and Other (3) (3) $ Total 3 154 (66) 91 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ Twelve Months Ended December 31, 2003 ($ in millions) PropertyLiability $ 10 3 385 (110) 288 $ Allstate Financial 6 18 71 (180) (85) $ Corporate and Other (3) (4) (7) $ Total 16 21 453 (294) 196 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ 8
Slide 9: THE ALLSTATE CORPORATION SEGMENT RESULTS Three Months Ended December 31, ($ in millions) Property-Liability Premiums written Premiums earned Claims and claims expense Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Underwriting income Net investment income Income tax expense on operations Operating income Realized capital gains and losses, after-tax Gain on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income Catastrophe losses Operating ratios Claims and claims expense ratio Expense ratio Combined ratio Effect of catastrophe losses on combined ratio Effect of restructuring and related charges on combined ratio Effect of Discontinued Lines and Coverages on combined ratio Allstate Financial Premiums and deposits Investments including Separate Accounts assets Premiums and contract charges Net investment income Periodic settlements and accruals on non-hedge derivative instruments Contract benefits Interest credited to contractholder funds Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Income tax expense on operations Operating income Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax Gain (loss) on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income Corporate and Other Net investment income Operating costs and expenses Income tax benefit on operations Operating loss Realized capital gains and losses, after-tax Dividends on preferred securities of subsidiary trust Cumulative effect of change in accounting principle, after-tax Net loss Consolidated net income $ $ $ $ $ Est. 2004 $ $ 6,499 6,607 4,175 1,016 629 25 762 463 350 875 125 1,000 412 63.2 25.3 88.5 6.2 0.4 $ $ $ $ Twelve Months Ended December 31, Est. 2004 $ $ 26,531 25,989 17,843 3,874 2,396 46 1,830 1,773 955 2,648 397 $ $ 3,045 2,468 68.7 24.3 93.0 9.5 0.2 2.5 $ $ $ $ 2003 6,199 6,302 4,248 930 629 12 483 435 238 680 72 752 412 67.4 24.9 92.3 6.5 0.2 0.1 2003 25,187 24,677 17,432 3,520 2,326 67 1,332 1,677 682 2,327 192 3 (1) 2,521 1,489 70.6 24.0 94.6 6.0 0.3 2.3 $ $ $ 4,163 86,907 564 890 16 444 531 118 169 66 142 87 (61) (11) 16 173 $ $ $ 3,303 76,320 594 824 8 471 466 124 174 6 84 101 (11) (10) (5) (20) (17) $ $ $ 15,919 86,907 2,072 3,410 49 1,618 1,983 471 634 5 269 551 (3) (89) (32) (6) (175) $ $ $ 13,095 76,320 2,304 3,233 23 1,851 1,846 492 672 7 243 449 (53) (30) (15) (29) (17) $ 38 $ 246 $ 305 $ 25 86 (30) (31) (31) 1,142 $ 16 72 (27) (29) (3) 3 $ 101 318 (109) (108) (2) - $ 62 278 (102) (114) (5) (5) 3 $ $ (29) 761 $ $ (110) 3,181 $ $ (121) 2,705 9
Slide 10: THE ALLSTATE CORPORATION UNDERWRITING RESULTS BY AREA OF BUSINESS Three Months Ended December 31, Est. 2004 Percent Change Twelve Months Ended December 31, Est. 2004 Percent Change ($ in millions) Consolidated Underwriting Summary Allstate Protection Discontinued Lines and Coverages Underwriting income Allstate Protection Underwriting Summary Premiums written Premiums earned Claims and claims expense Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Underwriting income Catastrophe losses Operating ratios Claims and claims expense ratio Expense ratio Combined ratio Effect of catastrophe losses on combined ratio Effect of restructuring and related charges on combined ratio Discontinued Lines and Coverages Underwriting Summary Premiums written Premiums earned Claims and claims expense Operating costs and expenses Underwriting income (loss) Effect of Discontinued Lines and Coverages on the Property-Liability combined ratio 2003 2003 $ $ 761 1 762 $ $ 492 (9) 483 54.7 111.1 57.8 $ $ 2,468 (638) 1,830 $ $ 1,903 (571) 1,332 29.7 (11.7) 37.4 $ $ $ $ 6,498 6,605 4,176 1,016 627 25 761 412 $ $ $ $ 6,197 6,300 4,240 930 626 12 492 412 4.9 4.8 (1.5) 9.2 0.2 108.3 54.7 - $ $ $ $ 26,527 25,983 17,208 3,874 2,387 46 2,468 2,468 $ $ $ $ 25,175 24,664 16,858 3,520 2,316 67 1,903 1,489 5.4 5.3 2.1 10.1 3.1 (31.3) 29.7 65.7 63.2 25.3 88.5 67.3 24.9 92.2 66.2 24.3 90.5 68.4 23.9 92.3 6.2 6.5 9.5 6.0 0.4 0.2 0.2 0.3 $ $ $ 1 2 (1) 2 1 $ $ $ 2 2 8 3 (9) (50.0) (112.5) (33.3) 111.1 $ $ $ 4 6 635 9 (638) $ $ $ 12 13 574 10 (571) (66.7) (53.8) 10.6 (10.0) (11.7) - 0.1 2.5 2.3 10
Slide 11: THE ALLSTATE CORPORATION PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT Three Months Ended December 31, Est. 2004 Percent Change Twelve Months Ended December 31, Est. 2004 Percent Change ($ in millions) Allstate brand Standard auto Non-standard auto Auto Involuntary auto Commercial lines Homeowners Other personal lines Encompass brand Standard auto Non-standard auto (Deerbrook) Auto Involuntary auto Homeowners Other personal lines 2003 2003 $ 3,611 396 4,007 49 228 1,404 323 6,011 280 34 314 9 136 28 487 $ 3,416 455 3,871 47 215 1,279 308 5,720 277 42 319 10 123 25 477 6,197 2 5.7 (13.0) 3.5 4.3 6.0 9.8 4.9 5.1 1.1 (19.0) (1.6) (10.0) 10.6 12.0 2.1 4.9 (50.0) 4.8 $ 14,491 1,777 16,268 232 922 5,639 1,397 24,458 1,212 153 1,365 40 552 112 2,069 26,527 4 $ 13,632 1,975 15,607 226 854 5,153 1,313 23,153 1,202 170 1,372 40 510 100 2,022 25,175 12 6.3 (10.0) 4.2 2.7 8.0 9.4 6.4 5.6 0.8 (10.0) (0.5) 8.2 12.0 2.3 5.4 (66.7) 5.3 Allstate Protection (1) Discontinued Lines and Coverages Property-Liability (1) $ 6,498 1 6,499 $ 6,199 $ 26,531 $ 25,187 Allstate Protection Standard auto Non-standard auto Auto Involuntary auto Commercial lines Homeowners Other personal lines $ 3,891 430 4,321 58 228 1,540 351 $ 3,693 497 4,190 57 215 1,402 333 5.4 (13.5) 3.1 1.8 6.0 9.8 5.4 4.9 $ 15,703 1,930 17,633 272 922 6,191 1,509 $ 14,834 2,145 16,979 266 854 5,663 1,413 5.9 (10.0) 3.9 2.3 8.0 9.3 6.8 5.4 $ 6,498 $ 6,197 $ 26,527 $ 25,175 (1) In the fourth quarter of 2004, growth in premiums written was negatively impacted by accruals for premium refunds in standard auto and reinsurance transactions in homeowners totaling 0.7% for Allstate Protection and 0.8% for Property-Liability. 11
Slide 12: THE ALLSTATE CORPORATION PROPERTY-LIABILITY NET RATE CHANGES APPROVED (1) Three Months Ended December 31, 2004 Annual Impact of Rate Changes on State Specific Premiums Written (%) 4.6 4.4 4.4 Number of States Allstate brand Standard auto Non-standard auto Homeowners Encompass brand Standard auto Homeowners 11 5 2 Weighted Average Rate Change (%) 0.6 0.2 - 6 8 0.4 4.3 3.7 5.3 Twelve Months Ended December 31, 2004 Annual Impact of Rate Changes on State Specific Premiums Written (%) 3.3 4.6 3.3 Number of States Allstate brand Standard auto Non-standard auto Homeowners Encompass brand Standard auto Non-standard auto (Deerbrook) Homeowners 23 8 11 Weighted Average Rate Change (%) 1.3 1.6 0.3 29 9 31 2.8 2.1 9.3 4.4 3.8 6.2 (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. 12
Slide 13: THE ALLSTATE CORPORATION ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS Three Months Ended December 31, ($ in millions) Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Premiums Earned Loss Ratio Effect of Catastrophe Losses on the Loss Ratio Expense Ratio Allstate brand Standard auto Non-standard auto Auto Homeowners Other (1) Total Allstate brand Encompass brand Standard auto Non-standard auto (Deerbrook) Auto Homeowners Other (1) Total Encompass brand $ 3,651 $ 432 4,083 1,383 631 6,097 3,446 486 3,932 1,269 595 5,796 67.5 51.4 65.8 44.8 91.3 63.6 69.1 59.1 67.9 67.4 61.7 67.1 0.5 0.5 0.5 11.2 36.3 6.5 0.2 0.5 0.2 28.7 4.9 6.9 24.7 21.5 24.4 24.5 27.7 24.8 24.1 20.5 23.6 23.9 31.6 24.5 299 37 336 135 37 508 301 43 344 127 33 504 61.2 67.6 61.9 41.5 81.1 57.9 61.5 88.4 64.8 73.2 100.0 69.2 3.0 13.5 1.8 2.4 0.3 6.3 6.1 2.1 32.1 24.3 31.3 31.1 29.7 31.1 28.9 30.2 29.1 29.2 33.3 29.4 Allstate Protection $ 6,605 $ 6,300 63.2 67.3 6.2 6.5 25.3 24.9 Twelve Months Ended December 31, ($ in millions) Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Premiums Earned Loss Ratio Effect of Catastrophe Losses on the Loss Ratio Expense Ratio Allstate brand Standard auto Non-standard auto Auto Homeowners Other (1) Total Allstate brand Encompass brand Standard auto Non-standard auto (Deerbrook) Auto Homeowners Other (1) Total Encompass brand $ 14,290 $ 1,823 16,113 5,349 2,482 23,944 13,406 2,075 15,481 4,892 2,316 22,689 64.4 53.9 63.2 67.4 84.6 66.3 70.1 65.6 69.5 63.2 68.1 68.0 0.7 0.9 0.7 29.2 27.7 9.8 1.4 0.7 1.3 21.8 5.6 6.2 24.0 20.4 23.6 23.0 27.2 23.9 23.7 19.8 23.2 22.8 26.7 23.5 1,208 161 1,369 529 141 2,039 1,195 163 1,358 494 123 1,975 61.3 75.8 63.1 63.7 84.4 64.7 69.4 84.7 71.2 76.7 71.5 72.6 0.5 0.6 0.6 16.4 5.7 5.1 0.7 0.7 0.7 16.6 4.0 4.9 29.1 25.4 28.6 30.1 29.1 29.0 28.1 29.4 28.3 29.2 40.7 29.3 Allstate Protection $ 25,983 $ 24,664 66.2 68.4 9.5 6.0 24.3 23.9 (1) Other includes involuntary auto, commercial lines and other personal lines. 13
Slide 14: THE ALLSTATE CORPORATION PROPERTY-LIABILITY EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO Three Months Ended December 31, Effect of Pretax Reserve Re-estimates on the Combined Ratio Est. 2004 Pretax Reserve Re-estimates (1) Est. 2004 ($ in millions) 2003 2003 Auto Homeowners Other Allstate Protection Discontinued Lines and Coverages Property-Liability Allstate brand Encompass brand Allstate Protection $ (106) (57) (25) (188) (1) $ (44) 30 (17) (31) 8 (1.6) (0.9) (0.4) (2.9) (2.9) (2.9) (2.9) (0.7) 0.5 (0.3) (0.5) 0.1 (0.4) (0.7) 0.2 (0.5) $ $ (189) (190) 2 (188) $ $ (23) (45) 14 (31) $ $ Twelve Months Ended December 31, Effect of Pretax Reserve Re-estimates on the Combined Ratio Est. 2004 Pretax Reserve Re-estimates (1) Est. 2004 ($ in millions) 2003 2003 Auto Homeowners Other Allstate Protection Discontinued Lines and Coverages Property-Liability Allstate brand Encompass brand Allstate Protection $ (657) (169) (39) (865) 635 $ (221) 13 35 (173) 574 (2.5) (0.7) (0.1) (3.3) 2.4 (0.9) (3.3) (3.3) (0.9) 0.1 0.1 (0.7) 2.3 1.6 (0.8) 0.1 (0.7) $ $ (230) (872) 7 (865) $ $ 401 (209) 36 (173) $ $ (1) Favorable reserve reestimates are shown in parentheses. 14
Slide 15: THE ALLSTATE CORPORATION ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS Three Months Ended December 31, Est. 2004 Percent Change Twelve Months Ended December 31, Est. 2004 Percent Change ($ in millions) 2003 2003 Life Products Interest-sensitive life Traditional Other $ 370 89 138 597 $ 323 105 177 605 14.6 (15.2) (22.0) (1.3) $ 1,393 327 513 2,233 $ 1,090 389 647 2,126 27.8 (15.9) (20.7) 5.0 Annuities Fixed annuities - deferred Fixed annuities - immediate Variable annuities 2,137 277 411 2,825 1,083 225 596 1,904 97.3 23.1 (31.0) 48.4 6,750 831 1,631 9,212 4,834 842 2,151 7,827 39.6 (1.3) (24.2) 17.7 Institutional Products Indexed funding agreements Funding agreements backing medium-term notes Other 50 535 585 50 601 651 (11.0) (10.1) 51 3,983 3 4,037 440 2,268 7 2,715 (88.4) 75.6 (57.1) 48.7 Bank Deposits 156 143 9.1 437 427 2.3 Total $ 4,163 $ 3,303 26.0 $ 15,919 $ 13,095 21.6 15
Slide 16: THE ALLSTATE CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in millions, except par value data) Assets Investments Fixed income securities, at fair value (amortized cost $90,657 and $82,607) Equity securities, at fair value (cost $4,566 and $4,028) Mortgage loans Short-term Other Total investments Cash Premium installment receivables, net Deferred policy acquisition costs Reinsurance recoverables, net Accrued investment income Property and equipment, net Goodwill Other assets Separate Accounts Total assets Liabilities Reserve for property-liability insurance claims and claims expense Reserve for life-contingent contract benefits Contractholder funds Unearned premiums Claim payments outstanding Other liabilities and accrued expenses Deferred income taxes Short-term debt Long-term debt Separate Accounts Total liabilities 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, 683 million and 704 million shares outstanding Additional capital paid-in Retained income Deferred compensation expense Treasury stock, at cost (217 million and 196 million shares) Accumulated other comprehensive income: Unrealized net capital gains and losses Unrealized foreign currency translation adjustments Minimum pension liability adjustment Total accumulated other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity December 31, 2004 (Est.) December 31, 2003 $ 95,715 5,895 7,856 4,133 1,931 115,530 414 4,721 4,968 4,323 1,014 1,018 825 2,535 14,377 149,725 $ 87,741 5,288 6,539 1,815 1,698 103,081 366 4,386 4,842 3,121 1,068 1,046 929 1,878 13,425 134,142 $ $ $ 19,338 11,754 55,709 9,932 787 9,842 829 43 5,291 14,377 127,902 $ 17,714 11,020 47,071 9,187 698 8,283 1,103 3 5,073 13,425 113,577 - - 9 2,685 24,043 (157) (7,372) 2,988 16 (389) 2,615 21,823 149,725 9 2,614 21,641 (194) (6,261) 3,125 (10) (359) 2,756 20,565 134,142 $ $ 16
Slide 17: THE ALLSTATE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash items Realized capital gains and losses Loss on disposition of operations Cumulative effect of change in accounting principle Interest credited to contractholder funds Changes in: Policy benefit and other insurance reserves Unearned premiums Deferred policy acquisition costs Premium installment receivables, net Reinsurance recoverables, net Income taxes payable Other operating assets and liabilities Net cash provided by operating activities Cash flows from investing activities Proceeds from sales Fixed income securities Equity securities Investment collections Fixed income securities Mortgage loans Investment purchases Fixed income securities Equity securities Mortgage loans Change in short-term investments, net Change in other investments, net Purchases of property and equipment, net Net cash used in investing activities Cash flows from financing activities Change in short-term debt, net Proceeds from issuance of long-term debt Repayment of long-term debt Contractholder fund deposits Contractholder fund withdrawals Dividends paid Treasury stock purchases Other Net cash provided by financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year December 31, 2004 (Est.) December 31, 2003 $ 3,181 $ 2,705 (4) (591) 24 175 2,001 1,680 614 (443) (345) (1,052) 11 217 5,468 (3) (196) 41 15 1,846 1,127 546 (414) (284) (227) 582 (47) 5,691 19,839 4,580 5,904 772 (33,720) (4,659) (337) (1,098) (1,804) (200) (10,723) 20,298 2,700 6,652 733 (35,627) (3,351) (1,175) 419 56 (169) (9,464) 40 647 (19) 13,616 (7,088) (756) (1,373) 236 5,303 48 366 414 (276) 410 (332) 10,373 (5,794) (633) (153) 82 3,677 (96) 462 366 $ $ 17
Slide 18: Allstate Protection Reestimates of Hurricane Catastrophe Losses Catastrophe losses for the fourth quarter of 2004 and the twelve month period ended December 31, 2004 include $367 million and $2.00 billion, respectively, net of recoveries from the Florida Hurricane Catastrophe Fund (“FHCF”), related to hurricanes Charley, Frances, Ivan, and Jeanne. These storms struck significant portions of Florida, the southeastern seaboard and other parts of the United States during August and September of 2004. These estimates include net losses incurred on personal lines auto and property policies and net losses on commercial policies. As a result of these four hurricanes and their very adverse financial impacts, we are currently evaluating various measures in Florida, including proposals for legislative reform, purchasing additional reinsurance and rate actions. We are also continuing to reevaluate our countrywide catastrophe risk management strategies for hurricanes and earthquake exposures. Estimates of losses for these storms were increased $239 million after-tax ($367 million pre-tax) and $0.33 per diluted share in the fourth quarter due to increased estimates of claim severity on personal lines and commercial property claims in Florida. When the initial estimates were prepared in the third quarter, these storms had only recently occurred, very few losses had been paid, and due to the extensive devastation and massive scale of these storms, it was not possible to gain access to and physically inspect a sufficiently large portion of claims. During the fourth quarter, property inspections were completed by claim adjusters and, consequently, we were able to develop more accurate assessments of the actual cost of physical damages. A significant amount of these losses have been paid. Estimates of losses from these storms are shown in the table below: Estimate as of 12/31/2004 ($ in millions) Personal Lines Charley (August 13) Frances (September 3) Ivan (September 14) Jeanne (September 25) Subtotal Commercial Total Loss Estimate Memo: Allstate Floridian group $2,016 ($605) $1,411 $1,247 $164 $756 650 576 __330 2,312 393 $2,705 ($323) (235) (47) ___-(605) (98) ($703) $433 415 529 __330 1,707 __295 $2,002 $400 375 452 __298 1,525 __110 $1,635 $33 40 77 __32 182 _185 $367 Gross Losses FHCF Recoveries Net Losses Estimate as of 9/30/2004 Estimate Change Estimates of gross qualifying personal property losses for Charley, Frances and Ivan have exceeded the $312 million per occurrence FHCF retention, thus permitting reimbursement of 90% of qualifying losses above the retention. For Jeanne, estimated qualifying property losses are $279 million, which is below the FHCF retention. Estimates of qualifying commercial habitational property losses for Charley and Frances have exceeded the $30 million per occurrence FHCF retention. For Ivan and Jeanne, estimated qualifying commercial habitational property losses are $27 million and $14 million, respectively, which are below the FHCF retention. For all of the storms, any adverse development of losses not qualifying for FHCF reimbursement will adversely impact net income if and when determined. Allstate Floridian Insurance Company and its subsidiaries (the “Allstate Floridian group”) sell personal property insurance in Florida. The Allstate Floridian group is separately capitalized, maintains distinct ratings and is not reinsured by other Allstate subsidiaries or affiliates that are not part of the group. During 2004, the Allstate Floridian group received $411 million in capital from Allstate Insurance Company. The current estimates of losses for these storms have a much greater degree of certainty than previous estimates, which were prepared shortly after these storms occurred. However, there are still factors and complications that may cause future development of these estimates to be either favorable or unfavorable. Among other things, there are still claims that may be reported; we are still evaluating the impact in 18
Slide 19: communities that were hit by more than one hurricane; and our evaluation of losses is complicated by the fact that property damage resulted from both flooding, which Allstate policies do not cover, and high winds, which Allstate policies typically do cover. In addition, because of increased demand for services and supplies in the areas affected by the hurricanes and the length of time required to repair the damage, our loss estimate may not accurately reflect inflated costs of repair. Finally, the loss estimates could be affected by the amount of FHCF reimbursements actually received. Definitions of GAAP Operating Ratios 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 and expenses and restructuring 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 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. Definitions of Non-GAAP and Operating Measures We believe that investors’ understanding of Allstate’s performance is enhanced by our disclosure of the following non-GAAP financial measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. Operating income is income before dividends on preferred securities and cumulative effect of change in accounting principle, after-tax, excluding: • realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments 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 realized capital gains and losses, and • (loss) gain on disposition of operations, after-tax. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate our results of operations and as an integral component for incentive compensation. It reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses and (loss) gain on disposition of operations. These items may vary significantly between periods and are generally driven by business decisions and economic developments such as market conditions, the timing of which is unrelated to the insurance underwriting process. Moreover, we reclassify periodic settlements on non-hedge derivative instruments into operating income to report them in a manner consistent with the economically hedged 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. 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 valuation technique uses operating income as the denominator. Operating income should not be considered as a substitute for net income and does not reflect the overall profitability of our business. The following tables reconcile operating income and net income for the three months and twelve months ended December 31, 2004 and 2003. 19
Slide 20: For the three months ended December 31, PropertyLiability ($ in millions, except per share data) Operating income Realized capital gains and losses Income tax benefit (expense) Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax Reclassification of periodic settlements and accruals on nonhedge derivative instruments, aftertax Gain (loss) on disposition of operations, after-tax Income before cumulative effect of change in accounting principle, after-tax Cumulative effect of change in accounting principle, after-tax Net income (loss) $ Est. 2004 875 192 (67) 125 -$ 2003 680 111 (39) 72 -$ Allstate Financial Est. 2004 142 136 (49) 87 (61) $ 2003 101 (17) 6 (11) (10) $ Consolidated Est. 2004 986 330 (118) 212 (61) $ 2003 752 91 (33) 58 (10) $ Per diluted share Est. 2004 1.42 $ 2003 1.06 0.30 (0.09) 0.09 (0.02) --1,000 $ -1,000 $ --752 -752 $ (11) 16 173 -173 $ (5) (20) 55 (17) 38 $ (11) 16 1,142 -1,142 $ (5) (20) 775 (14) 761 $ (0.01) 0.02 1.64 -1.64 $ (0.01) (0.03) 1.09 (0.01) 1.08 For the twelve months ended December 31, PropertyLiability ($ in millions, except per share data) Operating income Realized capital gains and losses Income tax benefit (expense) Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax. Reclassification of periodic settlements and accruals on nonhedge derivative instruments, aftertax (Loss) gain on disposition of operations, after-tax Income before dividends on preferred securities and cumulative effect of change in accounting principle, after-tax Dividends on preferred securities of subsidiary trust, after-tax Cumulative effect of change in accounting principle, after-tax Net income (loss) $ Est. 2004 2,648 592 (195) 397 -$ 2003 2,327 288 (96) 192 -- Allstate Financial Est. 2004 $ 551 1 (4) (3) (89) 2003 $ 449 (85) 32 (53) (30) Consolidated Est. 2004 $ 3,091 591 (199) 392 (89) 2003 $ 2,662 196 (62) 134 (30) $ Per diluted share Est. 2004 4.41 $ 2003 3.77 0.56 (0.13) 0.19 (0.05) --- -3 (32) (6) (15) (29) (32) (6) (15) (26) (0.04) (0.01) (0.02) (0.04) 3,045 -$ -3,045 $ 2,522 -(1) 2,521 $ 421 -(175) 246 $ 322 -(17) 305 $ 3,356 -(175) 3,181 $ 2,725 (5) (15) 2,705 $ 4.79 -(0.25) 4.54 $ 3.85 -(0.02) 3.83 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 year). A reconciliation of this measure to net income is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses including periodic settlements and accruals on non-hedge derivative instruments, which can vary substantially from one period to another and may have a significant impact on net income. Because a forecast of realized capital gains and losses is not possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. The other reconciling items between operating income and net income on a forward-looking basis are (loss) gain on 20
Slide 21: 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 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 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 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. Return on equity is the most directly comparable GAAP measure. The following table shows the reconciliation. ($ in millions) Return on equity Numerator: Net income Denominator: Beginning shareholders’ equity Ending shareholders’ equity Average shareholders’ equity ROE $ 3,181 $ 2,705 For the twelve months ended December 31, Est. 2004 2003 $ 20,565 21,823 21,194 15.0 $ 17,438 20,565 19,002 14.2 ($ in millions) Operating income return on equity Numerator: Operating income Denominator: Beginning shareholders’ equity Unrealized net capital gains Adjusted beginning shareholders’ equity Ending shareholders’ equity Unrealized net capital gains Adjusted ending shareholders’ equity Average shareholders’ equity Operating income ROE For the twelve months ended December 31, Est. 2004 2003 $ 3,091 $ 2,662 $ 20,565 3,125 17,440 21,823 2,988 18,835 18,138 17.0 $ 17,438 2,602 14,836 20,565 3,125 17,440 16,138 16.5 In this press release, we provide guidance on operating income return on equity for 2005. A reconciliation of this measure to return on equity is not possible on a forward-looking basis because it is not possible to provide a reliable reconciliation of operating income to net income on a forward looking basis for the reasons stated above or a reliable reconciliation of shareholders’ equity excluding unrealized net capital gains and losses to shareholders’ equity because unrealized net capital gains and losses can vary substantially from one period to another. The potential variability of the above reconciling items could have a significant impact on return on equity. 21
Slide 22: 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 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 December 31, (in millions, except per share data) Book value per diluted share Numerator: Shareholders’ equity Denominator: Shares outstanding and dilutive potential shares outstanding Book value per diluted share Est. 2004 2003 $ 21,823 688.0 31.72 $ 20,565 708.2 29.04 $ $ Book value per diluted share, excluding the net impact of unrealized net capital gains on fixed income securities Numerator: Shareholders’ equity $ Unrealized net capital gains on fixed income securities Adjusted shareholders’ equity $ Denominator: Shares outstanding and dilutive potential shares outstanding Book value per diluted share, excluding unrealized net capital gains on fixed income securities $ 21,823 2,134 19,689 688.0 28.62 $ $ 20,565 2,307 18,258 708.2 $ 25.78 Gross margin represents life and annuity premiums and contract charges and net investment income, less contract benefits and interest credited to contractholder funds. We use gross margin as a component of our evaluation of the profitability of Allstate Financial’s life insurance and financial product portfolio. Additionally, for many of our products, including fixed annuities, variable life and annuities, and interest-sensitive life insurance, the amortization of DAC and DSI is determined based on actual and expected gross margin. Gross margin is comprised of four components that are utilized to further analyze the business; they include the investment margin, benefit margin, maintenance charges and surrender charges. We believe gross margin and its components are useful to investors because they allow for the evaluation of income components separately and in the aggregate when reviewing performance. Gross margin, investment margin and benefit margin should not be considered as a substitute for net income and do not reflect the overall profitability of the business. Net income is the GAAP measure that is most directly comparable to these margins. Gross margin is reconciled to Allstate Financial’s GAAP net income in the following tables. 22
Slide 23: ($ in millions) Life and annuity premiums and contract charges 1 Net investment income Contract benefits 2 Interest credited to contractholder funds Gross margin Amortization of DAC and DSI Operating costs and expenses Restructuring and related charges Income tax expense Realized capital gains and losses, after-tax DAC and DSI amortization relating to realized capital gains and losses, after-tax Reclassification of periodic settlements and accruals on nonhedge derivative instruments, after-tax Loss on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Allstate Financial net income 1 Three Months Ended December 31, Est. 2003 2004 $ 564 906 (444) (526) 500 (123) (169) -(66) 87 (61) (11) 16 -173 $ 594 $ 832 (471) (466) 489 (124) (174) (6) (84) (11) (10) (5) (20) (17) 38 $ Twelve Months Ended December 31, Est. 2003 2004 2,072 3,459 (1,618) (1,956) 1,957 (498) (634) (5) (269) (3) (89) (32) (6) (175) 246 $ 2,304 3,256 (1,851) (1,846) 1,863 (492) (672) (7) (243) (53) (30) (15) (29) (17) 305 $ $ $ Net investment income includes periodic settlements and accruals on non-hedge derivative instruments, pretax, totaling $16 million for the fourth quarter of 2004, $8 million for the fourth quarter of 2003, $49 million for the twelve months ended December 31, 2004 and $23 million for the twelve months ended December 31, 2003. 2 Beginning in 2004, amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled $20 million in the fourth quarter of 2004 and $45 million for the twelve months ended December 31, 2004. Prior periods have not been restated. Investment margin is a component of gross margin. Investment margin represents the excess of net investment income over interest credited to contractholder funds and the implied interest on life contingent immediate annuities included in Allstate Financial’s reserve for life-contingent contract benefits. We use investment margin to evaluate Allstate Financial’s profitability related to the difference between investment returns on assets supporting certain products and the amounts credited to customers (“spread”) during a fiscal period. Benefit margin is a component of gross margin. Benefit margin represents life and life-contingent immediate annuity premiums and cost of insurance contract charges less contract benefits. Benefit margin excludes the implied interest on life-contingent immediate annuities, which is included in the calculation of investment margin, and mortality charges on variable annuities, which are included as a component of maintenance charges. 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 risk during a fiscal period. The components of gross margin are reconciled to the corresponding financial statement line items in the following tables. Investment Margin Est. 2004 2003 $ --906 (142) (526) 238 $ --832 (134) (466) 232 $ Benefit Margin Est. 2004 300 139 -(302) -137 $ Three Months Ended December 31, Maintenance Surrender Charges Charges Est. Est. 2003 2004 2003 2004 2003 347 130 -(337) -140 $ -104 ---104 $ -93 ---93 $ -21 ---21 $ -24 ---24 $ Gross Margin Est. 2004 300 264 906 (444) (526) 500 $ 2003 347 247 832 (471) (466) 489 (in millions) Life and annuity premiums Contract charges Net investment (1) Income Contract benefits Interest credited to contractholder (2) funds (1) $ $ $ $ $ $ $ $ $ $ Net investment income includes periodic settlements and accruals on non-hedge derivative instruments, pretax, totaling $16 million for the fourth quarter of 2004 and $8 million for the fourth quarter of 2003. (2) Beginning in 2004, amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled $20 million in the fourth quarter of 2004. Prior periods have not been restated. 23
Slide 24: (in millions) Life and annuity premiums Contract charges Net investment 1 income Contract benefits Interest credited to contractholder 2 funds Investment Margin Est. 2004 2003 $ --3,459 (538) (1,956) 965 $ --3,256 (514) (1,846) 896 $ Benefit Margin Est. 2004 1,045 558 -(1,080) -523 $ Twelve Months Ended December 31, Maintenance Surrender Charges Charges Est. Est. 2003 2004 2003 2004 2003 1,365 518 $ -393 ---393 $ -342 ---342 $ -76 ---76 $ -79 ---79 $ Gross Margin Est. 2004 1,045 1,027 3,459 (1,618) (1,956) 1,957 $ 2003 1,365 939 3,256 (1,851) (1,846) 1,863 -(1,337) -546 $ 1 $ $ $ $ $ $ $ $ $ Net investment income includes periodic settlements and accruals on non-hedge derivative instruments, pretax, totaling $49 million for the twelve months ended December 31, 2004 and $23 million for the twelve months ended December 31, 2003. 2 Beginning in 2004, amortization of DSI is excluded from interest credited to contractholder funds for purposes of calculating gross margin. Amortization of DSI totaled $45 million for the twelve months ended December 31, 2004. Prior periods have not been restated. Operating Measures We believe that investors’ understanding of Allstate’s performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from 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 basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table. Three Months Ended December 31, Est. 2004 2003 6,499 $ 6,199 88 88 20 15 6,607 $ 6,302 Twelve Months Ended December 31, Est. 2004 2003 26,531 $ 25,187 (608) (581) 66 71 25,989 $ 24,677 ($ in millions) Premiums written Change in Property-Liability unearned Premiums Other Premiums earned $ $ $ $ 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. 24
Slide 25: ($ in millions) Life and annuity premiums Deposits to contractholder funds Deposits to separate accounts Change in unearned premiums and other adjustments Total Premiums and deposits 1 1 Three Months Ended December 31, Est. 2004 2003 $ 300 $ 3,536 319 8 4,163 $ 347 $ 2,528 436 (8) 3,303 $ Twelve Months Ended December 31, Est. 2004 2003 1,045 $ 13,616 1,268 (10) 15,919 $ 1,365 10,373 1,391 (34) 13,095 $ Life and annuity contract charges in the amount of est. $264 million and $247 million for the three months ended December 31, 2004 and 2003, respectively, and est. $1.03 billion and $939 million for the twelve months ended December 31, 2004 and 2003, respectively, which are also revenues recognized for GAAP, have been excluded from the table above, but are a component of the Consolidated Statements of Operations line item life and annuity premiums and contract charges. New sales of financial products by Allstate exclusive agencies is an operating measure that we use to quantify 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 fourth quarter of 2004 and 2003 totaled $737 million and $609 million, respectively. New sales of financial products by Allstate exclusive agencies for the twelve months ended December 31, 2004 and 2003 totaled est. $2.27 billion and $1.83 billion, respectively. Forward Looking Statements This press release contains forward-looking statements about our operating income for 2005. These statements are subject to the Private Securities Litigation Reform Act 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, may exceed management’s projections. In particular, losses due to catastrophes may exceed the average expected level used in pricing for the year. 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 and lower equity market returns could increase surrenders and withdrawals, increase DAC amortization and reduce the competitive position and profitability of the Allstate Financial segment. • • • We undertake no obligation to publicly correct or update any forward-looking statements. This press release contains unaudited financial information. The Allstate Corporation (NYSE: ALL) is the nation’s largest publicly held personal lines insurer. Widely known through the “You’re In Good Hands With Allstate®” slogan, Allstate helps individuals in more than 16 million households protect what they have today and better prepare for tomorrow through more than 13,600 exclusive agencies and financial specialists in the U.S. and Canada. Customers can access Allstate products and services through Allstate agencies, or in select states at allstate.com and 1-800-Allstate®. EncompassSM and Deerbrook® Insurance brand property and casualty products are sold exclusively through independent agencies. Allstate Financial Group provides life insurance, annuity, retirement, banking and investment 25
Slide 26: products through distribution channels that include Allstate agencies, independent agencies, financial institutions and broker-dealers. We post an investor supplement on our web site. You can access it by going to allstate.com and clicking on “Investor Relations.” From there, go to the “Quarterly Investor Info” button. We will post additional information to the supplement over the next 30 days as it becomes available. Contact: Michael Trevino Media Relations (847) 402-5600 Robert Block, Larry Moews, Phil Dorn Investor Relations (847) 402-2800 ### 26