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allstate Quarterly Investor Information Earnings Press Release 2004 3rd 

 

 
 
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Published:  September 05, 2010
 
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Slide 1: For Immediate Release Allstate Reports 2004 Third Quarter Results Underlying Business Continues to be Strong NORTHBROOK, Ill., October 20, 2004 – The Allstate Corporation (NYSE: ALL) today reported for the third quarter of 2004: Consolidated Highlights1 Three Months Ended September 30, Change ($ in millions, except per share amounts, ratios and percentages) Consolidated revenues Net income Net income per diluted share Operating income1 Operating income per diluted share1 Property-Liability combined ratio Effect of catastrophes on combined ratio Effect of catastrophes on Net income per diluted share Book value per diluted share Operating income return on equity1 • Est. 2004 $ 8,442 56 0.09 49 0.08 110.5 26.0 1.59 30.33 16.5 2003 $ 8,127 691 0.97 638 0.91 95.9 6.1 0.35 27.45 16.0 $ Amt $ 315 (635) (0.88) (589) (0.83) --1.24 2.88 -- % 3.9 % (91.9) % (90.7) % (92.3) % (91.2) % 14.6 pts 19.9 pts -10.5 % 0.5 pts Property-Liability premiums written1 grew 5.0% over the third quarter of 2003, driven largely by an increase in policies in force. Growth in policies in force for the core Allstate brand standard auto and homeowners lines accelerated to 5.4% and 6.2%, respectively, from the third quarter of 2003 and total Allstate brand policies in force increased 3.6%. Allstate brand standard auto and homeowners new business premiums written increased 7.7% and 10.5%, respectively, as compared to the third quarter of 2003, and retention for these lines increased by 0.6 pts and 0.8 pts, with total premiums written growing 6.0% and 7.9%, respectively. Property-Liability underwriting loss1 was $685 million compared to underwriting income of $255 million in the third quarter of 2003 due to higher catastrophes and prior year net unfavorable reserve re-estimates partially offset by increased premiums earned and continued favorable auto and homeowners loss frequencies excluding catastrophes. Pre-tax catastrophe losses in the third quarter totaled $1.71 billion compared to $378 million in the third quarter of 2003. Allstate Financial premiums and deposits1 increased to $4.02 billion in the third quarter of 2004. Operating income1 was $151 million, an increase of 11.9% over the third quarter of 2003. Allstate’s annual operating income per diluted share guidance1 for 2004 (assuming the level of average expected catastrophe losses used in pricing for the remainder of the year) is in the range of $4.15 to $4.40, compared to the range announced on July 19 of $5.40 to $5.65. The reduction in guidance corresponds to the amount of catastrophe losses incurred in the third quarter that were greater than the expected average used in pricing. • • • • 1 Measures used in this release that are not based on generally accepted accounting principles (“non-GAAP”) and operating measures are defined and reconciled to the most directly comparable GAAP measure in the “Definitions of Non-GAAP and Operating Measures” section of this document. 1
Slide 2: “This has been an exceptionally difficult quarter, particularly for our customers who filed more than 205,000 claims for damage to their property from four very powerful, destructive hurricanes. Our hearts truly go out to those who have suffered and endured the havoc caused by Hurricanes Charley, Frances, Ivan and Jeanne,” said Chairman, President and CEO Edward M. Liddy. “While the losses sustained from catastrophes are the dominant factor discussed in this quarter’s report, I also want our shareholders to know how very proud I am of the thousands of Allstate claim representatives, agents, and support staff that have rallied over the past few months to ensure that our policyholders were cared for in their time of need. We have managed through the storms quite well and while the work to help put people’s lives back together is not yet done, we are making good progress. We will continue to work to let our policyholder know they are in Good Hands® with Allstate. “Last week we announced that the losses from the four hurricanes are estimated to be approximately $1.06 billion after-tax, net of recoveries from the Florida Hurricane Catastrophe Fund. Despite catastrophe losses in the quarter that are nearly four times our expected average, our business and the execution of our strategy continues to be healthy and strong. “For Allstate Protection, net written premium and earned premium were up 5.0 percent and 5.2 percent, respectively over the third quarter of last year. Our trend of solid growth in policies-in-force (PIF) also continued in the quarter. Overall Allstate brand PIF was up 3.6 percent over the third quarter of 2003 with more than one million policies added compared to prior year. Most of the growth in PIF is the result of very solid growth for Allstate brand standard auto, which grew 5.4 percent compared to the third quarter of 2003. Allstate brand homeowners also showed strong results in the quarter with PIF increasing 6.2 percent over the prior year quarter. “Retention of auto and homeowners policies maintained the strong trends we have seen throughout the year and contributed to the good results we experienced in written and earned premium and growth in PIF. These good retention results are particularly encouraging given the increased marketing and advertising efforts we saw from some competitors.. “Auto and homeowners claim frequency trends excluding catastrophes in the quarter also continued their favorable pattern from previous quarters and as compared to the prior year quarter. Auto severities also continue to trend favorably. And despite the heavy the catastrophe losses in the third quarter, the combined ratio for Allstate brand homeowners was 97.8 for the nine months ended September 2004. “Allstate Financial results are encouraging. Operating income was up nearly 12 percent at $151 million compared to the third quarter of 2003. The improvement in operating income was primarily due to lower operating expenses and increased margins from higher assets under management. Premiums and deposits were more than $4 billion in the quarter as we achieved record premiums and deposits from our retail distribution channels. “In the quarter, Allstate exclusive agencies generated $520 million in new sales of financial products1, an increase of 20 percent as compared to the third quarter of 2003. “Though it is still early in the execution of our strategy for Allstate Financial, these solid results are an early indication of the progress we are making. “Overall, we are pleased with our underlying performance in the quarter. When tested by an unprecedented series of hurricanes, we fared well. Despite incurring more than $2 billion in catastrophe losses for the first nine months of 2004, we still grew operating income per diluted share by 10.3 percent compared to the nine months ended September 2003, which serves as evidence of our strong performance. We remain highly confident in our business strategy and execution capabilities.” 2
Slide 3: Consolidated Highlights Three Months Ended September 30, Est. 2003 2004 $ 8,442 $ 8,127 Nine Months Ended September 30, Est. 2004 2003 $ 25,057 $ 23,887 < Discussion of Results for the Three Months Ended September 30, 2004 (In millions, except per share and return amounts) Consolidated revenues Higher premiums earned in Property-Liability, higher net investment income, partially offset by lower realized capital gains and lower life and annuity premiums and contract charges. Decrease in Property-Liability operating income of $608. See the Components of realized capital gains and losses (pretax) table. Operating income Realized capital gains and losses, after-tax 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 49 37 (5) -56 0.09 0.08 689.1 638 73 (8) (1) 691 0.97 0.91 702.8 2,105 180 (22) (175) 2,039 2.90 2.99 689.1 1,910 76 (6) (1) 1,944 2.75 2.71 702.8 < < < Decrease in Property-Liability operating income. < During the third quarter of 2004, Allstate purchased 8.2 million shares of its stock for $387 million, leaving $396 million remaining in the current $1.5 billion authorization. Weighted average shares outstanding (diluted) Return on equity 696.8 13.9 706.0 12.9 703.5 13.9 705.9 12.9 < 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 September 30, 2004 and 2003, net unrealized gains on fixed income securities, after-tax, totaling $2,164 and $2,478, respectively, represented $3.12 and $3.51, respectively, of book value per diluted share. Operating income return on equity Book value per diluted share 16.5 16.0 16.5 16.0 < 30.33 27.45 30.33 27.45 < • Book value per diluted share increased 10.5% compared to September 30, 2003 and 4.4% compared to December 31, 2003. Book value per diluted share excluding the net impact of unrealized net capital gains on fixed income securities increased 13.7% to $27.21 at September 30, 2004 compared to September 30, 2003, and 5.5% compared to December 31, 2003. 3
Slide 4: Property-Liability Highlights Three Months Ended September 30, Est. 2004 2003 $ 6,958 7,094 (685) $ 6,629 6,756 255 Nine Months Ended September 30, Est. 2004 2003 $ 20,032 21,092 1,068 $ 18,988 19,794 849 Discussion of Results for the Three Months Ended September 30, 2004 ($ in millions, except ratios) Property-Liability net premiums written Property-Liability revenues Underwriting (loss) / income < < < See the Property-Liability premiums written by market segment table. Premiums earned increased $321 or 5.2%. Higher catastrophe losses and net unfavorable prior year reserve reestimates, partially offset by higher premiums earned and continued favorable auto and homeowners noncatastrophe loss frequencies. See the Allstate Protection market segment analysis table. Higher portfolio balances due to positive cash flows from operations, partially offset by lower yields. Decrease of $614 in underwriting results, after-tax. See the Components of realized capital gains and losses (pretax) table. Lower operating income. Net investment income 443 417 1,310 1,242 < Operating (loss) income Realized capital gains and losses, after-tax Net (loss) income Catastrophe losses Ratios: Property-Liability combined ratio Effect of Discontinued Lines and Coverages Allstate Protection combined ratio Effect of catastrophe losses (75) 69 (6) 1,706 533 70 603 378 1,773 272 2,045 2,056 1,647 120 1,769 1,077 < < < 110.5 4.9 105.6 26.0 95.9 7.6 88.3 6.1 94.5 3.3 91.2 10.6 95.4 3.1 92.3 5.9 • Allstate brand standard auto and homeowners policies in force (PIF) increased 5.4% and 6.2%, respectively, from September 30, 2003 levels compared to increases of 4.9% and 5.7%, respectively, in the second quarter of 2004 over the second quarter of 2003. Both standard auto and homeowners experienced growth in most states. Allstate brand standard auto and homeowners new business premiums written grew 7.7% and 10.5%, respectively, in the quarter. In addition to higher new business premiums written during the third quarter of 2004 compared to the prior year third quarter, the retention ratios for Allstate brand standard auto and homeowners increased to 90.9 and 88.6, respectively, in the third quarter of 2004. Prior year net unfavorable reserve re-estimates totaled $84 million, resulting from a $314 million unfavorable re-estimate for Discontinued Lines and Coverages, partially offset by a $230 million favorable re-estimate for Allstate Protection. The Allstate Protection net reserve re-estimates reflect lower actual claim severity trends than anticipated in previous estimates. See the Discontinued Lines and Coverages section of this document for more details on the reserve re-estimate in that segment. • • 4
Slide 5: Allstate Financial Highlights ($ in millions) Three Months Ended September 30, Est. 2004 2003 $4,017 $ 4,000 Nine Months Ended September 30, Est. 2004 2003 $ 11,756 $ 9,792 < Discussion of Results for the Three Months Ended September 30, 2004 Premiums and deposits Higher sales of fixed annuities, partially offset by lower sales of variable annuity products and funding agreements. See the Allstate Financial premiums and deposits table. Lower direct response premiums and higher realized capital losses partially offset by higher net investment income and contract charges. Lower operating expenses and higher gross margin, partially offset by the disposition of the majority of our direct response distribution business and increased amortization of DAC and DSI. See the Components of realized capital gains and losses (pretax) table. Loss on disposition of a portion of our direct response business. Allstate Financial revenues Operating income 1,323 1,358 3,893 4,051 < 151 135 409 348 < Realized capital gains and losses, after-tax Loss on disposition of operations, after-tax Cumulative effect of change in accounting principle, after-tax Net income (33) (5) -- 4 (9) -- (90) (22) (175) (42) (9) -- < < 88 119 73 267 < Higher operating income, offset by higher realized capital losses. • • Total investments as of September 30, 2004 increased 12.8% over year end due to strong sales of fixed annuities and funding agreements. The weighted average interest crediting rate on fixed annuity and interest-sensitive life products in force, excluding market value adjusted annuities, was approximately 50 basis points more than the underlying long-term guaranteed rates on these products for the quarter ended September 30, 2004. Operating income includes a $6 million increase in the third quarter of 2004 over the third quarter of 2003 due to lower net expenses related to the direct response distribution business. The disposition of the majority of this business reduced total revenues by $54 million, benefits by $34 million, operating costs and expenses by $19 million and amortization of deferred acquisition costs (DAC) by $9 million. • 5
Slide 6: THE ALLSTATE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, Est. 2004 Percent Change Nine Months Ended September 30, Est. 2004 Percent Change ($ 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 (Loss) income from operations before income tax expense, dividends on preferred securities and cumulative effect of change in accounting principle, after-tax Income tax (benefit) 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 (1) 2003 (1) $ 6,551 508 1,333 50 8,442 $ 6,230 538 1,246 113 8,127 5.2 (5.6) 7.0 (55.8) 3.9 $ 19,382 1,508 3,906 261 25,057 $ 18,375 1,710 3,697 105 23,887 5.5 (11.8) 5.7 148.6 4.9 5,661 401 505 1,124 738 (1) 76 8,504 (6) 4,506 424 467 1,015 716 19 70 7,217 (12) 25.6 (5.4) 8.1 10.7 3.1 (105.3) 8.6 17.8 50.0 13,668 1,174 1,455 3,251 2,241 26 223 22,038 (17) 13,184 1,380 1,380 2,989 2,197 56 204 21,390 (9) 3.7 (14.9) 5.4 8.8 2.0 (53.6) 9.3 3.0 (88.9) (68) (124) 898 206 (107.6) (160.2) 3,002 788 2,488 538 20.7 46.5 56 692 (91.9) 2,214 1,950 13.5 - - - - (5) 100.0 56 $ (1) 691 100.0 (91.9) $ (175) 2,039 $ (1) 1,944 4.9 Net income per share - Basic Weighted average shares - Basic Net income per share - Diluted Weighted average shares - Diluted $ 0.10 692.1 $ 0.98 703.3 $ 2.92 698.8 $ 2.76 703.5 $ 0.09 696.8 $ 0.97 706.0 $ 2.90 703.5 $ 2.75 705.9 (1) To conform to current period presentations, certain prior period balances have been reclassified. 6
Slide 7: THE ALLSTATE CORPORATION CONTRIBUTION TO INCOME Three Months Ended September 30, Est. 2004 Percent Change Nine Months Ended September 30, 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 (2) Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax 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 (1) 2003 (1) $ 48 (1) 49 37 (15) $ 650 12 638 73 (4) (92.6) (108.3) (92.3) (49.3) - $ 2,122 17 2,105 180 (28) $ 1,946 36 1,910 76 (20) 9.0 (52.8) 10.2 136.8 (40.0) (10) (5) 56 $ (7) (8) (1) 691 (42.9) 37.5 100.0 (91.9) $ (21) (22) (175) 2,039 $ (10) (6) (5) (1) 1,944 (110.0) 100.0 4.9 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 (2) Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax 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 $ $ $ 0.08 0.08 0.06 (0.02) $ 0.93 0.02 0.91 0.10 (0.01) (91.4) (100.0) (91.2) (40.0) (100.0) $ 3.01 0.02 2.99 0.26 (0.04) $ 2.76 0.05 2.71 0.10 (0.03) 9.1 (60.0) 10.3 160.0 (33.3) (0.02) (0.01) 0.09 30.33 $ $ (0.01) (0.01) (0.01) 0.97 27.45 (100.0) 100.0 (90.7) 10.5 $ $ (0.03) (0.03) (0.25) 2.90 30.33 $ $ (0.01) (0.01) (0.01) 2.75 27.45 5.5 10.5 (1) To conform to current period presentations, certain prior period balances have been reclassified. (2) Includes amortization expense on deferred policy acquisition costs ("DAC") and deferred sales inducements ("DSI") relating to realized capital gains and losses. 7
Slide 8: THE ALLSTATE CORPORATION COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX) Three Months Ended September 30, 2004 (Est.) ($ in millions) PropertyLiability $ (20) (50) 189 (19) 100 $ Allstate Financial (23) (4) 3 (27) (51) $ Corporate and Other 1 1 $ Total (43) (53) 192 (46) 50 Valuation of derivative instruments Settlements of derivative instruments Dispositions (2) Investment write-downs Total $ $ $ $ Nine Months Ended September 30, 2004 (Est.) ($ in millions) PropertyLiability $ (23) (65) 522 (34) 400 $ Allstate Financial (49) (4) (9) (73) (135) $ Corporate and Other (1) (2) (1) (4) $ Total (73) (69) 511 (108) 261 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ Three Months Ended September 30, 2003 (1) ($ in millions) PropertyLiability $ 1 (10) 126 (8) 109 $ Allstate Financial 35 14 (16) (26) 7 $ Corporate and Other (2) (1) (3) $ Total 36 4 108 (35) 113 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ Nine Months Ended September 30, 2003 (1) ($ in millions) PropertyLiability $ 6 (2) 254 (81) 177 $ Allstate Financial 10 20 48 (146) (68) $ Corporate and Other (3) (1) (4) $ Total 16 18 299 (228) 105 Valuation of derivative instruments Settlements of derivative instruments Dispositions Investment write-downs Total $ $ $ $ (1) To conform to current period presentations, certain prior period balances have been reclassified. (2) Includes $90 million of net capital gains from a repositioning of the equity portfolio and $49 million of net capital gains from the liquidation of the Allstate Floridian portfolio in anticipation of liquidity needs to settle hurricane catastrophe claims. 8
Slide 9: THE ALLSTATE CORPORATION SEGMENT RESULTS Three Months Ended September 30, ($ 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 (loss) income Net investment income Income tax (benefit) expense on operations Operating (loss) 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 (loss) 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 (2) Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax 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 Net loss Consolidated net income $ $ $ $ $ Est. 2004 $ $ 6,958 6,551 5,661 985 592 (2) (685) 443 (167) (75) 69 (6) 1,706 86.4 24.1 110.5 26.0 4.9 $ $ $ $ Nine Months Ended September 30, Est. 2004 $ $ 20,032 19,382 13,668 2,858 1,767 21 1,068 1,310 605 1,773 272 $ $ 2,045 2,056 70.5 24.0 94.5 10.6 0.1 3.3 $ $ $ $ 2003 (1) 6,629 6,230 4,506 905 546 18 255 417 139 533 70 1 (1) 603 378 72.3 23.6 95.9 6.1 0.3 7.6 2003 (1) 18,988 18,375 13,184 2,590 1,697 55 849 1,242 444 1,647 120 3 (1) 1,769 1,077 71.8 23.6 95.4 5.9 0.3 3.1 $ $ $ 4,017 84,247 508 866 15 401 505 116 143 1 72 151 (33) (15) (10) (5) 88 $ $ $ 4,000 74,890 538 813 10 424 467 104 169 1 61 135 4 (4) (7) (9) - $ $ $ 11,756 84,247 1,508 2,520 33 1,174 1,452 353 465 5 203 409 (90) (28) (21) (22) (175) $ $ $ 9,792 74,890 1,710 2,409 15 1,380 1,380 368 498 1 159 348 (42) (20) (10) (9) - $ 119 $ 73 $ 267 $ 24 79 (28) (27) 1 (26) 56 $ 16 71 (25) (30) (1) - $ 76 232 (79) (77) (2) - $ 46 206 (75) (85) (2) (5) $ $ (31) 691 $ $ (79) 2,039 $ $ (92) 1,944 (1) To conform to current period presentations, certain prior period balances have been reclassified. (2) Includes amortization expense on deferred policy acquisition costs ("DAC") and deferred sales inducements ("DSI") relating to realized capital gains and losses. 9
Slide 10: THE ALLSTATE CORPORATION UNDERWRITING RESULTS BY AREA OF BUSINESS Three Months Ended September 30, Est. 2004 Percent Change Nine Months Ended September 30, Est. 2004 Percent Change ($ in millions) Consolidated Underwriting Summary Allstate Protection Discontinued Lines and Coverages Underwriting (loss) 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 (1) Underwriting (loss) income Catastrophe losses Operating ratios Claims and claims expense ratio Expense ratio (2) 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 loss Effect of Discontinued Lines and Coverages on the Property-Liability combined ratio 2003 2003 $ $ (370) (315) (685) $ $ 726 (471) 255 (151.0) 33.1 - $ $ 1,707 (639) 1,068 $ $ 1,411 (562) 849 21.0 (13.7) 25.8 $ $ $ $ 6,957 6,550 5,347 986 589 (2) (370) 1,706 $ $ $ $ 6,627 6,228 4,036 905 543 18 726 378 5.0 5.2 32.5 9.0 8.5 (111.1) (151.0) - $ $ $ $ 20,029 19,378 13,032 2,858 1,760 21 1,707 2,056 $ $ $ $ 18,978 18,364 12,618 2,590 1,690 55 1,411 1,077 5.5 5.5 3.3 10.3 4.1 (61.8) 21.0 90.9 81.6 24.0 105.6 64.8 23.5 88.3 67.3 23.9 91.2 68.7 23.6 92.3 26.0 6.1 10.6 5.9 - 0.3 0.1 0.3 $ $ $ 1 1 314 2 (315) $ $ $ 2 2 470 3 (471) (50.0) (50.0) (33.2) (33.3) 33.1 $ $ $ 3 4 636 7 (639) $ $ $ 10 11 566 7 (562) (70.0) (63.6) 12.4 (13.7) 4.9 7.6 3.3 3.1 (1) In the third quarter of 2004, the Company released a prior year accrual of $10 million relating to post-exit rent expense as a result of the Company's decision to occupy previously vacant leased space for the remainder of the lease term. (2) Increases in expenses for agency incentive compensation and marketing added 0.8 points to the expense ratio for the nine months ended September 30, 2004. 10
Slide 11: THE ALLSTATE CORPORATION PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT Three Months Ended September 30, Est. 2004 Percent Change Nine Months Ended September 30, Est. 2004 Percent Change ($ in millions) Allstate brand Standard auto Non-standard auto Auto Involuntary auto Commercial lines Homeowners Other personal lines Encompass brand (2) Standard auto Non-standard auto (Deerbrook) Auto Involuntary auto Homeowners Other personal lines 2003 2003 $ 3,725 454 4,179 45 222 1,583 376 6,405 327 37 364 8 150 30 552 $ 3,515 491 4,006 60 210 1,467 350 6,093 315 42 357 10 139 28 534 6,627 2 6.0 (7.5) 4.3 (25.0) 5.7 7.9 7.4 5.1 3.8 (11.9) 2.0 (20.0) 7.9 7.1 3.4 5.0 (50.0) 5.0 $ 10,880 $ 1,381 12,261 183 694 4,235 1,074 18,447 932 119 1,051 31 416 84 1,582 20,029 3 10,216 1,520 11,736 179 639 3,874 1,005 17,433 925 128 1,053 30 387 75 1,545 18,978 10 18,988 6.5 (9.1) 4.5 2.2 8.6 9.3 6.9 5.8 0.8 (7.0) (0.2) 3.3 7.5 12.0 2.4 5.5 (70.0) 5.5 Allstate Protection Discontinued Lines and Coverages Property-Liability (1) $ 6,957 1 6,958 $ 6,629 $ 20,032 $ Allstate Protection Standard auto Non-standard auto Auto Involuntary auto Commercial lines Homeowners Other personal lines $ 4,052 491 4,543 53 222 1,733 406 $ 3,830 533 4,363 70 210 1,606 378 5.8 (7.9) 4.1 (24.3) 5.7 7.9 7.4 5.0 $ 11,812 $ 1,500 13,312 214 694 4,651 1,158 11,141 1,648 12,789 209 639 4,261 1,080 18,978 6.0 (9.0) 4.1 2.4 8.6 9.2 7.2 5.5 $ 6,957 $ 6,627 $ 20,029 $ (1) For the three months ended September 30, 2004, growth of Property-Liability premiums written was negatively impacted by 0.5% due to reinsurance transactions in the current year and reductions in assignments from the New York Assigned Risk Plan. In addition, growth of Property-Liability premiums earned was negatively impacted by 0.5% for these same reasons. For the nine months ended September 30, 2004, growth of Property-Liability premiums written and premiums earned were negatively impacted by 0.3% due to accruals for Texas rate refunds and reinsurance transactions in the current year. (2) The Encompass brand name was adopted in the third quarter of 2004 and replaces the previous name for this line of business, Ivantage. 11
Slide 12: THE ALLSTATE CORPORATION PROPERTY-LIABILITY NET RATE CHANGES APPROVED (1) Three Months Ended September 30, 2004 Annual Impact of Rate Changes on State Specific Premiums Written (%) 3.8 5.0 Number of States Allstate brand Standard auto Non-standard auto Homeowners Encompass brand (2) Standard auto Non-standard auto (Deerbrook) Homeowners 8 4 Weighted Average Rate Change (%) 0.4 0.3 11 2 11 1.0 (0.3) 0.9 7.7 (3.2) 4.2 Nine Months Ended September 30, 2004 Annual Impact of Rate Changes on State Specific Premiums Written (%) 2.7 4.6 3.2 Number of States Allstate brand Standard auto Non-standard auto Homeowners Encompass brand (2) Standard auto Non-standard auto (Deerbrook) Homeowners 18 3 9 Weighted Average Rate Change (%) 0.7 1.4 0.3 24 9 24 2.4 2.1 5.1 4.5 3.8 7.2 (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. (2) The Encompass brand name was adopted in the third quarter of 2004 and replaces the previous name for this line of business, Ivantage. 12
Slide 13: THE ALLSTATE CORPORATION ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS Three Months Ended September 30, ($ in millions) Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Premiums Earned Loss Ratio Loss Ratio Excluding the Effect of Catastrophe Losses Expense Ratio Allstate brand Standard auto Non-standard auto Auto Homeowners Other (1) Total Allstate brand Encompass brand (2) Standard auto Non-standard auto (Deerbrook) Auto Homeowners Other (1) Total Encompass brand $ 3,606 $ 451 4,057 1,347 628 6,032 3,392 507 3,899 1,242 586 5,727 62.6 48.8 61.1 128.7 123.1 82.6 65.7 55.0 64.3 59.7 71.2 64.0 61.5 47.2 59.9 42.2 54.9 55.4 64.8 54.2 63.5 37.4 65.4 58.0 23.8 20.6 23.4 23.4 27.2 23.8 23.7 19.8 23.2 22.8 23.2 23.2 309 39 348 136 34 518 299 44 343 124 34 501 61.1 79.5 63.2 86.0 73.5 69.9 68.6 84.1 70.6 83.9 73.5 74.1 60.5 76.9 62.4 41.2 70.6 57.3 67.6 84.1 69.7 58.1 73.5 67.1 25.6 25.6 25.6 28.7 26.5 26.4 23.7 27.3 24.2 25.0 76.5 27.9 Allstate Protection $ 6,550 $ 6,228 81.6 64.8 55.6 58.7 24.0 23.5 Nine Months Ended September 30, ($ in millions) Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Est. 2004 2003 Premiums Earned Loss Ratio Loss Ratio Excluding the Effect of Catastrophe Losses Expense Ratio Allstate brand Standard auto Non-standard auto Auto Homeowners Other (1) Total Allstate brand Encompass brand (2) Standard auto Non-standard auto (Deerbrook) Auto Homeowners Other (1) Total Encompass brand $ 10,639 $ 1,391 12,030 3,966 1,851 17,847 9,960 1,589 11,549 3,623 1,721 16,893 63.3 54.6 62.3 75.3 82.3 67.3 70.4 67.7 70.0 61.7 70.3 68.3 62.5 53.7 61.5 39.8 57.5 56.3 68.6 66.8 68.4 42.4 64.4 62.4 23.8 20.1 23.4 22.5 27.0 23.5 23.6 19.5 23.1 22.5 25.0 23.1 909 124 1,033 394 104 1,531 894 120 1,014 367 90 1,471 61.4 78.2 63.4 71.3 85.6 67.0 72.0 83.3 73.4 77.9 61.1 73.8 60.6 77.4 62.6 50.3 82.7 60.8 71.1 83.3 72.6 57.8 57.8 68.0 28.0 25.8 27.8 29.7 28.8 28.3 27.9 29.2 28.0 29.2 43.3 29.2 Allstate Protection $ 19,378 $ 18,364 67.3 68.7 56.6 62.8 23.9 23.6 (1) Other includes involuntary auto, commercial lines and other personal lines. (2) The Encompass brand name was adopted in the third quarter of 2004 and replaces the previous name of this line of business, Ivantage. 13
Slide 14: THE ALLSTATE CORPORATION PROPERTY-LIABILITY EFFECT OF PRETAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO Three Months Ended September 30, Effect of Pretax Reserve Re-estimates on the Combined Ratio Est. 2004 Pretax Reserve Re-estimates Est. 2004 ($ in millions) 2003 2003 Auto Homeowners Other Allstate Protection Discontinued Lines and Coverages Property-Liability Allstate brand Encompass brand (1) Allstate Protection $ (194) (5) (31) (230) 314 $ (139) (32) 31 (140) 471 (3.0) (0.1) (0.4) (3.5) 4.8 1.3 (3.6) 0.1 (3.5) (2.3) (0.5) 0.5 (2.3) 7.6 5.3 (2.2) (0.1) (2.3) $ $ 84 (233) 3 (230) $ $ 331 (138) (2) (140) $ $ Nine Months Ended September 30, Effect of Pretax Reserve Re-estimates on the Combined Ratio Est. 2004 Pretax Reserve Re-estimates Est. 2004 ($ in millions) 2003 2003 Auto Homeowners Other Allstate Protection Discontinued Lines and Coverages Property-Liability Allstate brand Encompass brand (1) Allstate Protection $ (551) (112) (14) (677) 636 $ (177) (17) 52 (142) 566 (2.8) (0.6) (0.1) (3.5) 3.3 (0.2) (3.5) (3.5) (1.0) (0.1) 0.3 (0.8) 3.1 2.3 (0.9) 0.1 (0.8) $ $ (41) (682) 5 (677) $ $ 424 (164) 22 (142) $ $ (1) The Encompass brand name was adopted in the third quarter of 2004 and replaces the previous name for this line of business, Ivantage. 14
Slide 15: THE ALLSTATE CORPORATION ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS Three Months Ended September 30, Est. 2004 Percent Change Nine Months Ended September 30, Est. 2004 Percent Change ($ in millions) 2003 2003 Life Products Interest-sensitive life Traditional Other $ 352 82 119 553 $ 272 105 166 543 29.4 (21.9) (28.3) 1.8 $ 1,023 238 375 1,636 $ 767 284 470 1,521 33.4 (16.2) (20.2) 7.6 Annuities Fixed annuities - deferred Fixed annuities - immediate Variable annuities 2,011 166 330 2,507 1,471 174 621 2,266 36.7 (4.6) (46.9) 10.6 4,613 554 1,220 6,387 3,751 617 1,555 5,923 23.0 (10.2) (21.5) 7.8 Institutional Products Indexed funding agreements Funding agreements backing medium-term notes Other 850 3 853 125 949 3 1,077 (100.0) (10.4) (20.8) 1 3,448 3 3,452 390 1,667 7 2,064 (99.7) 106.8 (57.1) 67.2 Bank Deposits 104 114 (8.8) 281 284 (1.1) Total $ 4,017 $ 4,000 0.4 $ 11,756 $ 9,792 20.1 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 $89,351 and $82,607) Equity securities, at fair value (cost $4,644 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, 689 million and 704 million shares outstanding Additional capital paid-in Retained income Deferred compensation expense Treasury stock, at cost (211 million and 196 million shares) Accumulated other comprehensive income: Unrealized net capital gains and losses and net gains and losses on derivative financial instruments Unrealized foreign currency translation adjustments Minimum pension liability adjustment Total accumulated other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity September 30, 2004 (Est.) December 31, 2003 $ 94,544 5,624 7,695 4,691 1,741 114,295 370 4,824 4,833 3,844 1,069 1,001 828 3,395 13,313 147,772 $ 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 $ $ $ 19,843 11,561 53,478 9,983 710 11,748 699 99 5,300 13,313 126,734 $ 17,714 11,020 47,071 9,187 698 8,283 1,103 3 5,073 13,425 113,577 - - 9 2,686 23,093 (166) (7,028) 9 2,614 21,641 (194) (6,261) $ 2,802 1 (359) 2,444 21,038 147,772 $ 3,125 (10) (359) 2,756 20,565 134,142 16
Slide 17: Discontinued Lines and Coverages Reserves The Discontinued Lines and Coverages segment includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. Our exposure to asbestos, environmental and other discontinued lines claims is reported in this segment. This segment is managed by a designated group of professionals with expertise in claims handling, policy coverage interpretation and exposure identification. As part of its responsibilities, this group is also regularly engaged in policy buybacks, settlements and reinsurance assumed and ceded commutations. Three Months Ended September 30, Est 2004 2003 $ $ 1 1 (314) (2) (315) $ $ 2 2 (470) (3) (471) $ $ Nine Months Ended September 30, Est. 2004 2003 3 4 (636) (7) (639) $ $ 10 11 (566) (7) (562) (in millions) Premiums written Premiums earned Claims and claims expense Other costs and expenses Underwriting loss $ $ $ $ Underwriting loss of $315 million in the third quarter was primarily related to a $247 million re-estimate of asbestos reserves and a related $61 million increase of the allowance for future uncollectible reinsurance recoverables. The underwriting loss in the first nine months of 2004 was primarily due to re-estimates of asbestos reserves and the allowance for future uncollectible reinsurance recoverables. The underwriting loss in the third quarter of 2003 and first nine months of 2003 was primarily due to re-estimates of asbestos reserves. During the third quarter, we completed our annual comprehensive “ground up” review of reserves for the Discontinued Lines and Coverages segment. This review employed established industry and actuarial best practices within the context of the legal, legislative and economic environment, and it was conducted in addition to quarterly assessments in which we review reserves to determine if any intervening significant events or developments require adjustments to reserves. Reserve re-estimates are recorded in the reporting period in which they are determined. Our net asbestos reserves by type of exposure and total reserve additions by quarter are shown in the following table. ($ in millions) Direct policyholders -Primary -Excess Total direct policyholders Assumed reinsurance Incurred but not reported claims (“IBNR”) Total net reserves Reserve additions -First Quarter -Second Quarter -Third Quarter Nine months ended September 30 Net survival ratio -Annual -3-Year Net survival ratio excluding commutations, policy buy-backs and settlement agreements -Annual -3-Year Est. September 30, 2004 Est. Net % of Number of Asbestos Asbestos Active Reserves Reserves Policyholders 54 315 369 $ 24 297 321 234 942 $ 1,497 $ $ 216 247 463 22.1 15.0 1% 20 21% 16 63 100% December 31, 2003 Number of Net % of Active Asbestos Asbestos Policyholders Reserves Reserves 52 286 338 28 201 229 191 659 $ 1,079 $ $ 34 38 442 514 14.2 10.9 $ 3% 19 22% 17 61 100% 28.4 30.0 24.2 22.2 17
Slide 18: During the first nine months of 2004, 50 direct primary and excess policyholders reported new claims, and claims of 19 policyholders were closed, so the number of direct policyholders with active claims increased by 31. Reserve additions for asbestos in the third quarter of 2004, totaling $247 million, and in the first nine months of 2004, totaling $463 million, were primarily for products-related coverage. They were essentially a result of a continuing level of increased claim activity being reported by excess insurance policyholders with existing active claims, and re-estimates of liabilities for increased assumed reinsurance cessions, as ceding companies (other insurance carriers) also experienced increased claim activity. Increased claim activity over prior estimates has also resulted in an increased estimate for future claims reported. These trends are consistent with the trends of other carriers in the industry, which we believe are related to increased publicity and awareness of coverage, ongoing litigation, potential congressional activity, and bankruptcy actions. IBNR now represents 63% of total net asbestos reserves, 2 points higher than at December 31, 2003. IBNR provides for estimated probable future unfavorable reserve development of known claims and future reporting of additional unknown claims from current and new direct active policyholders and ceding companies. Our exposure to non-products-related losses represents approximately 5% of total asbestos case reserves. We do not anticipate significant changes in this percentage as insureds’ retentions associated with excess insurance programs, which are our principal direct insurance, and assumed reinsurance exposure are seldom exceeded. We did not write direct primary insurance on policyholders with the potential for significant nonproducts-related loss exposure. Our survival ratios, as updated above, are at levels we consider indicative of a strong asbestos reserve position. To further limit our asbestos exposure, we have significant reinsurance, primarily to reduce our exposure to loss in our direct excess insurance business. Our reinsurance recoverables are estimated to be approximately 39% of our gross estimated loss reserves. To allow for potential uncollectible reinsurance related to the asbestos reserve increase, the allowance for uncollectible reinsurance was also increased by $61 million in the third quarter of 2004. In the second quarter of 2004, the allowance was increased by $76 million, as we refined our bad debt allowance to provide a greater allowance for companies in run-off and/or those who have reorganized to limit or wall off their liabilities. As of September 30, 2004, the allowance for uncollectible reinsurance is $229 million, or approximately 19% of total Discontinued Lines recoverables from reinsurers. We believe that our reserves are appropriately established based on assessments of pertinent factors and characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. 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 that 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. 18
Slide 19: 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 businesses 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 investment 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 nine months ended September 30, 2004 and 2003. For the three months ended September 30, PropertyLiability ($ in millions, except per share data) Operating (loss) / 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 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 (75) 100 (31) 69 $ 2003 533 109 (39) 70 $ Allstate Financial Est. 2004 151 (51) 18 (33) $ 2003 135 7 (3) 4 (4) $ Consolidated Est. 2004 49 50 (13) 37 $ 2003 638 113 (40) 73 $ Per diluted share Est. 2004 0.08 $ 2003 0.91 0.06 0.10 -- -- (15) (15) (4) (0.02) (0.01) --(6) -$ -(6) $ -1 604 -(1) 603 (10) (5) 88 --88 (7) (9) 119 --119 (10) (5) 56 --56 (7) (8) 692 -(1) 691 (0.02) (0.01) 0.09 --0.09 (0.01) (0.01) 0.98 -(0.01) 0.97 $ $ $ $ $ $ 19
Slide 20: For the nine months ended September 30, 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 1,773 400 (128) 272 -$ 2003 1,647 177 (57) 120 -$ Allstate Financial Est. 2004 409 (135) 45 (90) (28) $ 2003 348 (68) 26 (42) (20) $ Consolidated Est. 2004 2,105 261 (81) 180 (28) 2003 $ 1,910 105 (29) 76 (20) $ Per diluted share Est. 2004 2.99 $ 2003 2.71 0.26 (0.04) 0.10 (0.03) --- -3 (21) (22) (10) (9) (21) (22) (10) (6) (0.03) (0.03) (0.01) (0.01) 2,045 -$ -2,045 $ 1,770 -(1) 1,769 $ 248 -(175) 73 $ 267 --267 $ 2,214 -(175) 2,039 1,950 (5) (1) $ 1,944 $ 3.15 -(0.25) 2.90 $ 2.76 -(0.01) 2.75 In this press release, we provide guidance on operating income per diluted share for 2004 (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 nonhedge derivative instruments, which can vary substantially from one period to another and may have a significant impact on net income. Because a forecast of realized capital gains and losses is not possible, neither is a forecast of the effects of amortization of DAC and DSI on realized capital gains and losses nor income taxes. The other reconciling items between operating income and net income on a forward-looking basis are (loss) gain on disposition of operations, after-tax, and cumulative effect of changes in accounting principle, after-tax, which we assume to be zero for the 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 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: 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 two computations. 20
Slide 21: ($ in millions) Return on equity Numerator: Net income Denominator: Beginning shareholders’ equity Ending shareholders’ equity Average shareholders’ equity ROE $ $ For the twelve months ended September 30, Est. 2004 2003 2,800 $ 2,391 19,360 21,038 20,199 13.9% $ 17,766 19,360 18,563 12.9% ($ 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 September 30, Est. 2004 2003 2,857 $ 2,528 19,360 3,037 16,323 21,038 2,802 18,236 17,280 16.5% $ 17,766 2,446 15,320 19,360 3,037 16,323 15,822 16.0% 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 (a) shareholders’ equity after excluding the net impact of unrealized net capital gains on fixed income securities and related DAC and life insurance reserves by (b) 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 two computations: 21
Slide 22: (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 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 $ $ $ $ $ Est. 2004 As of September 30, 2003 $ 19,360 $ As of December 31, 2003 20,565 21,038 693.7 30.33 $ 705.3 27.45 $ 708.2 29.04 21,038 2,164 18,874 $ 19,360 2,478 $ 20,565 2,307 $ 16,882 $ 18,258 693.7 27.21 $ 705.3 23.94 $ 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, and maintenance 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: Three Months Ended September 30, ($ in millions) Life and annuity premiums and contract charges Net investment income Contract benefits 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 non-hedge 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) (2) (1) Nine Months Ended September 30, Est. 2004 $ 1,508 2,553 (1,174) (1,430) 1,457 (375) (465) (5) (203) (90) (28) (21) (22) (175) $ 73 $ $ 2003 1,710 2,424 (1,380) (1,380) 1,374 (368) (498) (1) (159) (42) (20) (10) (9) -267 Est. 2004 $ 508 881 (401) (501) 487 (120) (143) (1) (72) (33) (15) (10) (5) -$ 88 $ $ 2003 538 823 (424) (467) 470 (104) (169) (1) (61) 4 (4) (7) (9) -119 Net investment income includes periodic settlements and accruals on non-hedge derivative instruments, pretax, totaling $15 million for the third quarter of 2004, $10 million for the third quarter of 2003, $33 million for the nine months ended September 30, 2004 and $15 million for the nine months ended September 30, 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 $4 million in the third quarter of 2004 and $25 million for the nine months ended September 30, 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 excluding 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 risk during a fiscal period. 23
Slide 24: The components of gross margin are reconciled to the corresponding financial statement line items in the following tables. Investment Margin Est. 2004 2003 $ --881 (135) (501) 245 $ --823 (126) (467) 230 $ Benefit Margin Est. 2004 247 143 -(266) -124 $ Three Months Ended September 30, Maintenance Surrender Charges Charges Est. Est. 2003 2004 2003 2004 2003 309 127 -(298) -138 $ -101 ---101 $ -84 ---84 $ -17 ---17 $ -18 ---18 $ Gross Margin Est. 2004 247 261 881 (401) (501) 487 $ 2003 309 229 823 (424) (467) 470 (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 $15 million for the third quarter of 2004 and $10 million for the third 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 $4 million in the third quarter of 2004. Prior periods have not been restated. Nine Months Ended September 30, Maintenance Surrender Charges Charges Est. Est. 2003 2004 2003 2004 2003 1,018 388 -(1,000) -406 $ -289 ---289 $ -249 ---249 $ -55 ---55 $ -55 ---55 $ (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 $ --2,553 (396) (1,430) 727 $ --2,424 (380) (1,380) 664 $ Benefit Margin Est. 2004 745 419 -(778) -386 $ Gross Margin Est. 2004 745 763 2,553 (1,174) (1,430) 1,457 $ 2003 1,018 692 2,424 (1,380) (1,380) 1,374 $ (1) $ $ $ $ $ $ $ $ $ Net investment income includes periodic settlements and accruals on non-hedge derivative instruments, pretax, totaling $33 million for the nine months ended September 30, 2004 and $15 million for the nine months ended September 30, 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 $25 million for the nine months ended September 30, 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 that used by other companies and therefore comparability may be limited. 24
Slide 25: 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 September 30, Est. 2004 2003 6,958 $ 6,629 (450) 43 6,551 (421) 22 6,230 Nine Months Ended September 30, Est. 2004 2003 20,032 $ 18,988 (696) 46 19,382 (669) 56 18,375 ($ 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. Three Months Ended September 30, Est. 2004 2003 (1) ($ in millions) Life and annuity premiums Deposits to contractholder funds, separate accounts and other Total premiums and deposits (1) Nine Months Ended September 30, Est. 2004 2003 $ $ 745 11,011 11,756 $ $ 1,018 8,774 9,792 $ $ 247 3,770 4,017 $ $ 309 3,691 4,000 Life and annuity contract charges in the amount of est. $261 million and $229 million for the three months ended September 30, 2004 and 2003, respectively, and est. $763 million and $692 million for the nine months ended September 30, 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 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 three months ended September 30, 2004 and 2003 totaled est. $520 million and $435 million, respectively. New sales of financial products by Allstate exclusive agencies for the nine months ended September 30, 2004 and 2003 totaled est. $1.53 billion and $1.22 billion, respectively. This press release contains an estimate of The Allstate Corporation’s losses resulting from Hurricanes Charley, Frances, Ivan and Jeanne and an estimate of our annual operating income for 2004. These estimates are forward-looking statements based on management's current estimates, assumptions and projections and they are subject to the Private Securities Litigation Reform Act of 1995. With respect to the hurricane loss estimate, actual results may differ materially for a variety of reasons, including the following: • Most significantly, the reporting and evaluation of these hurricane losses has been complicated by the following facts: These storms occurred over a short period of time; Some communities were hit by more than one hurricane; and 25
Slide 26: • • • Property damage resulted from both flooding, which Allstate policies do not cover, and high winds, which Allstate policies typically do cover. Because the extent of damage is particularly difficult to assess in the initial stages of repairing residential property, our loss estimate may not accurately represent the extent of loss. Because of increased demand for services and supplies in the areas affected by the hurricanes, our loss estimate may not accurately reflect the costs of repair. The loss estimate could be affected by the amount of FHCF reimbursements actually received. With respect to the 2004 annual operating income estimate, actual results may differ materially for a variety of reasons, including the following: • Weighted average rate changes and the annual impact of rate changes on premiums written in our Property-Liability business may be lower than projected due to a decrease in PIF. • Loss costs in our Property-Liability business, including losses due to catastrophes such as hurricanes and earthquakes, may exceed management’s projections. • Claim frequency could be higher than expected. • Lower interest rates and equity market returns could increase DAC amortization and reduce contract charges, investment margins and the 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 12,900 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 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

   
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