NORTHBROOK, Ill., April 15 /PRNewswire-FirstCall/ -- The Allstate
Corporation (NYSE: ALL) today reported for the first quarter of 2003:
Consolidated Highlights
Quarter Ended March 31,
($ in millions, except per share amounts and ratios)
Change
Est. 2003 2002 $ Amt %
Consolidated revenues 7,861 7,298 563 7.7
Net income 665 95 570 --
Net income per diluted
share 0.94 0.14 0.80 --
Operating income(1) 673 488 185 37.9
Operating income per
diluted share(1) 0.95 0.68 0.27 39.7
Property-Liability
combined ratio 93.1 99.2 (6.1)pts --
Book value per diluted
share 25.42 23.66 1.76 7.4
(1) Measures used in this release that are not based on generally
accepted accounting principles ("non-GAAP") are defined and
reconciled to the most directly comparable GAAP measure and operating
measures are defined in the Definitions of Non-GAAP and Operating
Measures section of this document.
* Operating income increased sequentially for the 3rd consecutive quarter
to $673 million and Operating income per diluted share was $0.95.
* Property-Liability Premiums earned increased $295 million or 5.2% to
$6.0 billion from $5.7 billion in first quarter of 2002. While total
Premiums written (1) grew 3.9%, the core lines grew at a faster pace in
the quarter, with the Allstate brand standard auto and homeowners lines
growing 4.7% and 10.6% respectively, reflecting our focus on profitable
growth.
* Catastrophe losses increased 20.9% compared to the first quarter of
2002 to $133 million, but still significantly below the historical
average.
* Property-Liability Underwriting income (1) increased $370 million to
$413 million from $43 million in the first quarter of 2002 due to
higher premiums earned, lower mold losses, and lower prior year reserve
strengthening, partially offset by higher operating expenses. The
combined ratio improved 6.1 points.
* Revised guidance for operating income for 2003 per diluted share
(excluding restructuring charges and assuming the level of average
expected catastrophe losses used in pricing) is $3.35 to $3.50
compared with the previous guidance of $3.20 to $3.40 per diluted
share. (1)
"We are extremely pleased with our results this quarter," said chairman,
president and CEO Edward M. Liddy. "Our Property-Liability business is clearly
performing well, and benefiting from the targeted management actions we
implemented across the business over the last two years. Our Allstate auto and
homeowners lines are hitting their return targets. Our strategic risk
management (SRM) process is working well and is enabling us to attract
excellent customers whom we expect to retain for the long term.
"In early 2002, we told investors that it would take between two and seven
quarters to return the homeowners line to acceptable profitability. Now that
we have delivered on that statement, we remain committed to the disciplined
pricing strategy that enabled this result. We will continue to focus on taking
rate increases that support our projected loss cost trends and return targets.
"In the quarter, the profitability of our auto insurance line continued to
improve significantly. We saw claim frequencies continue to trend downward,
offsetting modest increases in claims severity. The retention rate in our
Allstate standard auto book of business is also trending positively. We
intend to maintain the momentum we have achieved through our successful use of
SRM and well-executed underwriting actions and to take rate increases as they
become necessary.
"While the lower growth in Premiums written is the result of actions taken
to intentionally slow growth, we are getting excellent bottom line results and
we are comfortable with our ability to grow profitably in those markets that
offer the opportunity to generate acceptable returns. The pace of decline in
policies-in-force (PIF) has slowed, with 23 states already having showed a
sequential increase in PIF in the Allstate standard auto line while 28 states
showed a sequential increase in Allstate homeowners. Our PIF rate is on pace
with our expectation of sequential quarter over quarter increases by the end
of the year. We will increase our marketing spending in the coming quarters
to drive more business to our agents' offices and compete for a broader
section of the available market.
"Lastly, our personal lines business benefited from generally mild
weather, with catastrophes coming in significantly below the historical
averages, but 21% over the first quarter of 2002.
"The story is a bit different for Allstate Financial. That business
continues to deal with a very difficult economic environment that has been
plagued with weakness in the U.S. economy and geopolitical uncertainty.
However, operating income decreased by 42.7% from the first quarter of 2002 to
$82 million primarily due to a $53 million after-tax accelerated amortization
of deferred policy acquisition costs (DAC) as a result of significantly
lowering the future rate of return assumption on funds supporting our variable
annuity contracts. Resetting this assumption substantially lessens the
likelihood of additional variable annuity DAC unlocking in the future.
"We saw continued good sales of our Treasury-linked and other fixed
annuities and our workplace products in the first quarter of 2003 as compared
to the same period last year, but a lackluster stock market continued to
depress variable annuity sales. New sales of financial products by Allstate
exclusive agencies (1) were $350 million during the first quarter of 2003, an
increase of 46.4% over the first quarter of 2002. Bank channel sales continued
to shift to a broader range of investment-oriented products. With funding
agreement sales down from the prior year and the continued pricing discipline
maintained for all product lines, total Premiums and deposits(1) were 10.5%
below the first quarter of 2002.
"Following our strong underwriting performance for the first quarter and
the improved quality of our book of business, we are increasing our 2003
guidance for Operating income per diluted share. We are now forecasting 2003
Operating income per diluted share in a range between $3.35 and $3.50
(excluding restructuring charges and assuming the level of average annual
expected catastrophes losses used in pricing) compared with the previous
estimate of $3.20 to $3.40."
Summary of Consolidated Results
Quarter Ended March 31,
($ in millions except per share amounts)
Change
Est. 2003 2002 Amt %
Consolidated revenues $7,861 $7,298 $563 7.7 < Higher Premiums
earned in
Property-
Liability
and Allstate
Financial,
higher Net
investment
income,
and lower
realized
capital losses.
Operating income 673 488 185 37.9 < Increase in
Property-
Liability
Underwriting
income, after-tax
of $239, $61 of
lower Allstate
Financial
Operating income.
Realized capital gains
and losses, after-tax (5) (64) 59 (92.2) < See the
Components of
realized capital
gains and losses
(pre-tax) table.
Cumulative effect of change
in accounting principle,
after-tax -- (331) 331 (100.0) < Adoption of SFAS
No. 142 for
goodwill
impairment in
2002.
Net income 665 95 570 -- < Increased
Operating income,
lower realized
capital losses,
and 2002
accounting
change.
Net income per share
(diluted) 0.94 0.14 0.80 --
Operating income per
share (diluted) 0.95 0.68 0.27 39.7 < Compared to
First Call mean
estimate of
$0.78, with a
range of $0.74 to
$0.84.
Weighted average shares
outstanding (diluted) 705.2 713.8 (8.6) (1.2) < During the first
quarter of 2003,
Allstate
purchased 1.7
million shares of
its stock for
$53.7 million, or
an average cost
per share of
$31.53.
Net income return on
equity 9.8 4.4 5.4 -- < Higher Net income
pts and a sequential
increase over the
prior 5 quarters.
Operating income return
on equity(1) 14.8 9.2 5.6 -- < Higher Operating
pts income and a
sequential
increase over the
prior 5 quarters.
Book value per diluted
share 25.42 23.66 1.76 7.4 < At March 31, 2003
and 2002 the
effect of
unrealized gains
and losses on
fixed income
securities,
after-tax,
totaling
$2.34 billion and
$1.06 billion,
respectively,
increased book
value per diluted
share by $3.32
and $1.48,
respectively.
* Book value per diluted share is up 2.7% over December 31, 2002.
Property-Liability Highlights
Quarter Ended March 31,
($ in millions, except ratios)
Change
Est. 2003 2002 Amt %
Property-Liability
Premiums written $5,937 $5,716 $221 3.9 < See the
Property-Liability
Premiums Written by
market segment and
the Net rate changes
approved tables.
Property-Liability
revenues 6,444 6,088 356 5.8 < Premiums earned up
$295 and 5.2%.
Net investment income 408 399 9 2.3 < Higher portfolio
balances from
positive cash flows
from operations
Underwriting income 413 43 370 -- < Higher Premiums
earned, lower mold
losses, less prior
year reserve
strengthening, higher
operating expenses.
Operating income 618 374 244 65.2 < Underwriting income
after-tax up $239.
Realized capital gains
and losses, after-tax 27 (12) 39 -- < See the Components of
realized capital gains
and losses (pre-
tax)table.
Cumulative effect of
change in accounting
principle, after-tax -- (48) 48 (100.0) < Adoption of SFAS No.
142 for goodwill
impairment in 2002.
Net income 645 319 326 102.2 < Higher Operating
income, realized
capital gains and
2002 accounting
change.
Catastrophe losses 133 110 23 20.9 < Lower than historical
experience as a result
of favorable weather.
Combined ratio before
impact of
catastrophes 90.9 97.3 (6.4) -- < See the Effect of
pts prior year reserve
reestimates on the
combined ratio table.
Impact of catastrophes 2.2 1.9 0.3 --
pts
Combined ratio 93.1 99.2 (6.1) -- < Includes the
pts Allstate Protection
Combined ratio of 92.5
compared to 99.2 in
the first
quarter of 2002.
* Allstate brand standard auto and homeowners policies-in-force (PIF)
decreased 0.7% and increased 0.1% from December 31, 2002 levels,
respectively. For Allstate brand standard auto, 29 states representing
76% of our PIF had positive sequential growth or slowing levels of
decline and 23 of those states, representing 46% of the PIF had
positive sequential growth. The states of California and Texas showed a
slowing level of decline in the quarter, while the state of Florida
continued to decline.
For Allstate brand homeowners, 28 states representing 67% of the PIF
had positive sequential growth. The states of California and Florida
both showed positive sequential growth during the quarter, while the
state of Texas showed a slowing level of decline.
* Allstate brand has achieved targeted profitability in most states and
plans to increase marketing and advertising expenditures, invest in
agency productivity such as new sales and retention, while continuing
the implementation of strategic risk management practices.
* Operating expenses increased as a result of employee-related benefit
and incentive expenses, accruals for charitable contributions and
advertising.
Allstate Financial Highlights
Quarter Ended March 31,
Change
($ in millions) Est. 2003 2002 Amt %
Premiums and deposits $2,496 $2,790 $(294) (10.5) < Continued strong
fixed annuity
sales. Lower
sales of
variable
annuities and
institutional
products.(See
the Allstate
Financial
Premiums
and deposits
table.)
Allstate Financial
GAAP Revenues 1,402 1,194 208 17.4 < Higher Life and
annuity premiums
and Net
investment income.
Operating income 82 143 (61) (42.7) < Higher investment
margin, lower
mortality margins,
accelerated
amortization of DAC
totaling $53
after-tax and
higher operating
expenses.
Realized capital gains
and losses after-tax (32) (52) 20 (38.5) < See the components
of realized capital
gains and losses
table.
Cumulative effect of
change in accounting
principle, after-tax -- (283) 283 (100.0) < Adoption of SFAS No.
142 for goodwill
impairment in 2002.
Net income 50 (192) 242 (126.0) < Lower Operating
income, lower
realized capital
losses, and 2002
accounting change.
* In the first quarter of 2003, we performed our annual comprehensive
evaluation of the assumptions used in our DAC amortization models for
all investment products, including variable and fixed annuities and
universal life insurance products. We concluded that, due to the
sustained poor performance of the equity markets coupled with an
expectation of moderate future performance due to continuing weakness
in the U.S. economy and uncertainty in the geopolitical environment, it
was no longer reasonably possible that the variable annuity fund
returns would revert to the expected long term mean within the time
horizon used in our reversion to the mean model. As a result, we
unlocked our DAC assumptions as of March 31, 2003 for all investment
products.
The unlocking of DAC assumptions in the first quarter resulted in an
aggregate acceleration of DAC amortization amounting to $89 million
before tax and other recoveries, which included $124 million of pre-tax
acceleration associated with variable annuities partially offset by the
effect of favorable investment margins on fixed annuities and favorable
persistency on universal life products. The most significant assumption
changes were resetting our variable annuity reversion to the mean
calculation as of March 31, 2003, such that future equity market
performance during the five year reversion period was reduced from
13.25% to the long-term assumed return of 8% after fees, and increasing
the assumed lapse rate on variable annuity contracts. We will continue
to employ a seven-year reversion evaluation process in succeeding
periods with an assumed long-term return after fees of 8%, a reversion
to the mean floor of 0% and a revised lower cap of 12.75%.
We believe that as a result of this unlocking, the carrying value of
the variable annuity DAC asset is appropriate for the current economic
environment. With moderate movements in the equity markets, the
likelihood of future DAC unlocking is substantially reduced since the
projected return in the mean reversion period is no longer at the
maximum.
* For substantially all new variable products issued after January 1,
2003, Allstate Financial is entering into various derivative
instruments to hedge variable annuity guaranteed minimum death benefits
(GMDB) during the entire lifetime of these contracts. For
in-force variable annuities issued prior to 2003, a portion of the GMDB
risk is hedged through December 31, 2003.
Net cash payments for Allstate Financial's variable annuity GMDB were
$21 million for the first quarter of 2003, net of reinsurance, hedging
gains and losses, and other contractual arrangements. This is
$10 million above the first quarter of 2002, but similar to the fourth
quarter of 2002.
* Fixed annuities and life insurance products in force continued to
perform well in the first quarter with attractive investment spreads
and better than expected persistency. The weighted average interest
crediting rate on fixed annuity and interest-sensitive life products
in force, excluding market value adjusted annuities, was approximately
120 basis points more than the underlying long term guaranteed rates
on these products.
* Operating expenses increased as a result of employee related benefit
expenses, investments in technology and higher non-deferrable
commissions.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
Est. Percent
($ in millions except per share data) 2003 2002 Change
Revenues
Property-liability insurance premiums $5,999 $5,704 5.2
Life and annuity premiums
and contract charges 639 538 18.8
Net investment income 1,225 1,159 5.7
Realized capital gains and losses (2) (103) (98.1)
Total revenues 7,861 7,298 7.7
Costs and expenses
Property-liability insurance
claims and claims expense 4,151 4,369 (5.0)
Life and annuity contract benefits 530 376 41.0
Interest credited to contractholder funds 453 429 5.6
Amortization of deferred policy
acquisition costs 1,013 885 14.5
Operating costs and expenses 753 640 17.7
Restructuring and related charges 23 20 15.0
Interest expense 67 69 (2.9)
Total costs and expenses 6,990 6,788 3.0
Gain on disposition of operations -- 7 (100.0)
Income from operations before income tax
expense, dividends on preferred securities
and cumulative effect of change in
accounting principle, after-tax 871 517 68.5
Income tax expense 203 88 130.7
Income before dividends on preferred
securities and cumulative effect of
change in accounting principle, after-tax 668 429 55.7
Dividends on preferred securities
of subsidiary trust (3) (3) --
Cumulative effect of change in
accounting principle, after-tax -- (331) (100.0)
Net income $665 $95 --
Net income per share - Basic $0.95 $0.14
Weighted average shares - Basic 703.3 711.7
Net income per share - Diluted $0.94 $0.14
Weighted average shares - Diluted 705.2 713.8
THE ALLSTATE CORPORATION
CONTRIBUTION TO INCOME
Three Months Ended
March 31,
($ in millions except per share data) Est. Percent
2003 2002 Change
Contribution to income
Operating income $673 $488 37.9
Realized capital gains and losses (5) (64) (92.2)
Gain on disposition of operations -- 5 (100.0)
Dividends on preferred securities
of subsidiary trust (3) (3) --
Cumulative effect of change in
accounting principle -- (331) (100.0)
Net income $665 $95 --
Operating income before the impact
of restructuring and related charges $688 $501 37.3
Income per share (Diluted)
Operating income $0.95 $0.68 39.7
Realized capital gains and losses (0.01) (0.09) (88.9)
Gain on disposition of operations -- 0.01 (100.0)
Dividends on preferred securities
of subsidiary trust -- -- --
Cumulative effect of change in
accounting principle -- (0.46) (100.0)
Net income $0.94 $0.14 --
Operating income before the impact
of restructuring and related charges 0.98 0.70 40.0
Book value per share - Diluted $25.42 $23.66 7.4
THE ALLSTATE CORPORATION
COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)
Three Months Ended March 31, 2003 (Est.)
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
Valuation of derivative instruments $(6) $(5) $-- $(11)
Settlements of derivative instruments 8 2 -- 10
Sales 60 23 -- 83
Investment write-downs (25) (59) -- (84)
Total $37 $(39) $-- $(2)
Three Months Ended March 31, 2002
($ in millions) Property- Allstate Corporate
Liability Financial and Other Total
Valuation of derivative instruments $(14) $(22) $-- $(36)
Settlements of derivative instruments (6) 1 -- (5)
Sales 23 (40) (1) (18)
Investment write-downs (18) (26) -- (44)
Total $(15) $(87) $(1) $(103)
* Sales of fixed income securities resulted from actions taken to reduce
our credit exposure to certain issuers or industries, to take advantage
of tax carryforwards, and to provide liquidity for the purchase of
investments which better meet our investment objectives.
THE ALLSTATE CORPORATION
SEGMENT RESULTS
Three Months Ended
March 31,
Est.
($ in millions except ratios) 2003 2002
Property-Liability
Premiums written $5,937 $5,716
Premiums earned $5,999 $5,704
Claims and claims expense 4,151 4,369
Amortization of deferred policy
acquisition costs 827 783
Operating costs and expenses 585 489
Restructuring and related charges 23 20
Underwriting income 413 43
Net investment income 408 399
Income tax expense on operations 203 68
Operating income 618 374
Realized capital gains and losses, after-tax 27 (12)
Gain on disposition of operations, after-tax -- 5
Cumulative effect of change in
accounting principle, after-tax -- (48)
Net income $645 $319
Catastrophe losses $133 $110
Operating ratios
Claims and claims expense ratio 69.2 76.6
Expense ratio 23.9 22.6
Combined ratio 93.1 99.2
Effect of catastrophe
losses on combined ratio 2.2 1.9
Effect of restructuring and
related charges on combined ratio 0.4 0.4
Effect of Discontinued Lines and
Coverages on combined ratio 0.6 --
Allstate Financial
Premiums and deposits $2,496 $2,790
Investments including
Separate Account assets $68,211 $61,662
Premiums and contract charges $639 $538
Net investment income 802 743
Contract benefits 530 376
Interest credited to contractholder funds 453 429
Amortization of deferred policy
acquisition costs 172 108
Operating costs and expenses 168 150
Income tax expense on operations 36 75
Operating income 82 143
Realized capital gains and losses, after-tax (32) (52)
Cumulative effect of change in
accounting principle, after-tax -- (283)
Net income (loss) $50 $(192)
Corporate and Other
Net investment income $15 $17
Operating costs and expenses 67 70
Income tax benefit on operations (25) (24)
Operating loss (27) (29)
Dividends on preferred securities
of subsidiary trust (3) (3)
Net loss $(30) $(32)
Consolidated Net Income $665 $95
THE ALLSTATE CORPORATION
UNDERWRITING RESULTS BY AREA OF BUSINESS
Three Months Ended
($ in millions except ratios) March 31,
Est. Percent
2003 2002 Change
Consolidated Underwriting Summary
Allstate Protection $451 $47 --
Discontinued Lines and Coverages (38) (4) --
Underwriting income $413 $43 --
Allstate Protection Underwriting Summary
Premiums written $5,936 $5,713 3.9
Premiums earned $5,997 $5,701 5.2
Claims and claims expense 4,113 4,366 (5.8)
Amortization of deferred policy
acquisition costs 827 783 5.6
Other costs and expenses 583 485 20.2
Restructuring and related charges 23 20 15.0
Underwriting income $451 $47 --
Catastrophe losses $133 $110
Operating ratios
Claims and claims expense ratio 68.6 76.6
Expense ratio 23.9 22.6
Combined ratio 92.5 99.2
Effect of catastrophe losses
on combined ratio 2.2 1.9
Effect of restructuring and related
charges on combined ratio 0.4 0.4
Discontinued Lines and Coverages
Underwriting Summary
Premiums written $1 $3 (66.7)
Premiums earned $2 $3 (33.3)
Claims and claims expense 38 3 --
Other costs and expenses 2 4 (50.0)
Underwriting loss $(38) $(4) --
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT
Three Months Ended
March 31,
Est. Percent
($ in millions) 2003 2002 Change
ALLSTATE BRAND
Standard auto $3,344 $3,195 4.7
Non-standard auto 531 627 (15.3)
Involuntary auto 50 50 --
Commercial lines 206 188 9.6
Homeowners 1,042 942 10.6
Other personal lines 298 278 7.2
5,471 5,280 3.6
IVANTAGE
Standard auto 285 286 (0.3)
Non-standard auto 41 19 115.8
Involuntary auto 9 -- --
Homeowners 110 108 1.9
Other personal lines 20 20 --
465 433 7.4
ALLSTATE PROTECTION 5,936 5,713 3.9
DISCONTINUED LINES AND COVERAGES 1 3 (66.7)
PROPERTY-LIABILITY $5,937 $5,716 3.9
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
NET RATE CHANGES APPROVED
Three Months Ended
March 31, 2003
# of Weighted Average
States Rate Change (%)
ALLSTATE BRAND
Standard Auto 18 7.3
Non-standard Auto 6 4.7
Homeowners 12 8.6
IVANTAGE
Standard Auto (Encompass) 22 6.5
Non-standard Auto (Deerbrook) 3 15.0
Homeowners (Encompass) 22 12.4
* The increase in Premiums written is due to rates taken in 2003 and 2002.
The rate of decline in policies in force slowed due to modest gains in
agency productivity, such as new sales and retention.
THE ALLSTATE CORPORATION
ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS
Three Months Ended March 31,
($ in millions) Est. Est. Est. Est.
2003 2002 2003 2002 2003 2002 2003 2002
Premiums Loss Loss Ratio Expense
Earned Ratio Excluding Ratio
the Effect of
CAT Losses
ALLSTATE BRAND
Standard auto $3,240 $3,094 71.5 74.4 71.5 73.9
Non-standard
auto 548 625 75.2 75.5 75.2 75.4
Homeowners 1,174 1,007 56.6 85.0 47.6 76.7
Other (2) 556 522 68.0 77.0 65.3 76.2
Total
Allstate-
brand 5,518 5,248 68.4 76.8 66.2 74.8 23.3 21.8
IVANTAGE
Standard auto 296 300 73.6 77.0 73.6 77.3
Non-standard auto 36 13 83.3 92.3 83.3 92.3
Homeowners 121 116 64.5 81.0 55.4 75.0
Other (2) 26 24 53.8 (12.5) 50.0 (12.5)
Total Ivantage 479 453 71.0 73.7 68.5 72.4 30.5 31.3
ALLSTATE PROTECTION $5,997 $5,701 68.6 76.6 66.4 74.7 23.9 22.6
(2) Other includes involuntary auto, commercial lines and other
personal lines.
THE ALLSTATE CORPORATION
PROPERTY-LIABILITY
EFFECT OF PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO
Three Months Ended March 31,
Effect of Reserve
Reserve Reestimates on the
Reestimates Combined Ratio
(Pretax $ in millions) 2003 2002 2003 Change
Est. Est.
Auto $(32) $78 (0.5) (1.9)
Homeowners 14 150 0.2 (2.4)
Other 25 20 0.4 0.1
Allstate Protection 7 248 0.1 (4.2)
Discontinued Lines and Coverages 38 5 0.6 0.5
Property-Liability $45 $253 0.7 (3.7)
Allstate Brand $1 $248 -- (4.3)
Ivantage 6 -- 0.1 0.1
Allstate Protection $7 $248 0.1 (4.2)
* Asbestos Reserves for Discontinued Lines and Coverages were increased
due to new information received for two manufacturers in bankruptcy.
* Incurred losses related to mold claims in Texas, have been:
2003 2002 2001
First Quarter $16 $119 $7
Second Quarter -- 103 25
Third Quarter -- 90 74
Fourth Quarter -- 14 78
Year to Date $16 $326 $184
THE ALLSTATE CORPORATION
ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS
Three Months Ended
March 31,
Est. Percent
($ in millions) 2003 2002 (3) Change
Life Products
Interest-sensitive life $243 $247 (1.6)
Traditional 87 87 --
Other 152 135 12.6
Subtotal 482 469 2.8
Annuities
Fixed annuities 926 644 43.8
Immediate annuities 265 184 44.0
Variable annuities 389 607 (35.9)
Subtotal 1,580 1,435 10.1
Institutional Products
Indexed funding agreements 114 99 15.2
Funding agreements backing medium-term notes 235 698 (66.3)
Other 4 9 (55.6)
Subtotal 353 806 (56.2)
Bank deposits 81 80 1.3
Total $2,496 $2,790 (10.5)
(3) To conform to current period presentations, certain prior period
balances have been reclassified.
THE ALLSTATE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, Dec. 31,
(In millions except par value data) 2003 2002
Est.
Assets
Investments
Fixed income securities, at fair value
(amortized cost $74,226 and $72,123) $79,480 $77,152
Equity securities, at fair value
(cost $3,306 and $3,223) 3,688 3,683
Mortgage loans 6,165 6,092
Short-term 3,119 2,215
Other 1,530 1,508
Total investments 93,982 90,650
Cash 390 462
Premium installment receivables, net 4,094 4,075
Deferred policy acquisition costs 4,288 4,385
Reinsurance recoverables, net 2,899 2,883
Accrued investment income 994 946
Property and equipment, net 981 989
Goodwill 930 927
Other assets 1,151 984
Separate Accounts 10,553 11,125
Total assets $120,262 $117,426
Liabilities
Reserve for property-liability insurance
claims and claims expense $16,772 $16,690
Reserve for life-contingent contract benefits 10,544 10,256
Contractholder funds 41,820 40,751
Unearned premiums 8,566 8,578
Claim payments outstanding 650 739
Other liabilities and accrued expenses 8,891 7,150
Deferred income taxes 276 259
Short-term debt 120 279
Long-term debt 3,943 3,961
Separate Accounts 10,553 11,125
Total liabilities 102,135 99,788
Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 200 200
Shareholders' equity
Preferred stock, $1 par value,
25 million shares authorized, none issued -- --
Common stock, $.01 par value,
2 billion shares authorized and
900 million issued, 704 million
and 702 million shares outstanding 9 9
Additional capital paid-in 2,608 2,599
Retained income 20,087 19,584
Deferred compensation expense (251) (178)
Treasury stock, at cost
(196 million and 198 million shares) (6,255) (6,309)
Accumulated other comprehensive income:
Unrealized net capital gains and
losses and net gains and losses on
derivative financial instruments 2,590 2,602
Unrealized foreign currency
translation adjustments (41) (49)
Minimum pension liability adjustment (820) (820)
Total accumulated other
comprehensive income 1,729 1,733
Total shareholders' equity 17,927 17,438
Total liabilities and
shareholders' equity $120,262 $117,426
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 method 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
the effects of Realized capital gains and losses, after-tax, and Gain on
disposition of operations, after-tax. We use this measure and we believe
that it is useful to investors because it excludes the net effect of
Realized capital gains and losses, which are volatile between periods and
because investors often exclude such data when evaluating the performance
of insurers. In this computation we exclude Realized capital gains and
losses, after-tax, net of the effects of Allstate Financial's deferred
policy acquisition cost amortization and additional future policy
benefits only to the extent that such effects resulted from the
recognition of Realized capital gains and losses. We believe that using
this information along with net income provides for a more complete
analysis of results of operations. Net income is the most directly
comparable GAAP measure. The following is a reconciliation of operating
income to Net income for the first quarter of 2002 and 2003.
(in millions, except per share amounts)
Consolidated Per diluted share
2003 2002 2003 2002
Operating income $673 $488 $0.95 $0.68
Realized capital gains
and losses (2) (103)
Reclassification of DAC
amortization (14) 6
Income tax benefit
(expense) 11 33
Realized capital gains and
losses, after-tax (5) (64) (0.01) (0.09)
Gain on disposition of
operations, after-tax -- 5 -- 0.01
Dividends on preferred
securities of subsidiary
trust(s), after-tax (3) (3) -- --
Cumulative effect of change
in accounting principle,
after-tax -- (331) -- (0.46)
Net income (loss) $665 $95 $0.94 $0.14
Property-Liability Allstate Financial Consolidated
(in millions) 2003 2002 2003 2002 2003 2002
Operating income $618 $374 $82 $143 $673 $488
Realized capital
gains and losses 37 (15) (39) (87) (2) (103)
Reclassification of
DAC amortization -- -- (14) 6 (14) 6
Income tax benefit
(expense) (10) 3 21 29 11 33
Realized capital
gains and losses,
after-tax 27 (12) (32) (52) (5) (64)
Gain on disposition
of operations,
after-tax -- 5 -- -- -- 5
Dividends on preferred
securities of
subsidiary trust(s),
after-tax -- -- -- -- (3) (3)
Cumulative effect of
change in accounting
principle, after-tax -- (48) -- (283) -- (331)
Net income (loss) $645 $319 $50 $(192) $665 $95
In this press release, we provide guidance of operating income per diluted
share for 2003 (excluding restructuring charges and assuming a level of
average expected catastrophe losses used in pricing). A reconciliation of
Operating income per diluted share to Net income is not accessible on a
forward-looking basis because it is not possible to provide a reliable
forecast of Realized capital gains and losses, 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 accessible,
neither is a forecast of the effects of Realized capital gains and losses on
DAC amortization, additional future policy benefits and income tax benefits. A
variance in these effects also could have a significant impact on Net income.
The other reconciling items between Operating income and Net income on a
forward-looking basis are Gains (loss) on disposition of operations after-tax
which is assumed to be zero in 2003 and Dividends on preferred securities of
subsidiary trusts, which are estimated to be $0.02 per diluted share for 2003.
We also compute Operating income excluding restructuring where Operating
income is adjusted to exclude the after-tax effects of restructuring charges.
We use this measure to compare Operating income to our projected Operating
income per diluted share for 2003, which excludes restructuring charges
because a forecast is not accessible. The following table reconciles
Operating income to Operating income excluding restructuring for the first
quarter of 2003 and 2002.
($ in millions, Consolidated Per Diluted Share
except per share amounts) 2003 2002 2003 2002
Operating income $673 $488 $0.95 $0.68
Restructuring charges,
net of tax 15 13 0.03 0.02
Operating income,
excluding restructuring $688 $501 $0.98 $0.70
Underwriting income is "Premiums earned, less claims and claims expense
and underwriting expenses as determined using GAAP." We exclude the effects
of Net investment income, Realized capital gains and losses and other items in
order to analyze the profitability of the insurance business without taking
into account any investment results and because investors often exclude such
data when evaluating the performance of insurers. We believe that using this
information along with Net income provides investors with a more complete
analysis of results of operations. Net income is the most directly
comparable GAAP measure. A reconciliation of Property-Liability Underwriting
income to Net income is provided in the Segment results table.
Operating income return on equity is a ratio we calculate using non-GAAP
measures. It is calculated by dividing the rolling 12-month operating income
by the average of the beginning and end of the 12-month period shareholders'
equity after excluding the after-tax effect of unrealized net capital gains.
We use it to supplement our evaluation of net income and return on equity and
because investors often use this measure when evaluating the performance of
insurers. It enhances investor understanding by eliminating the after-tax
effects of realized and unrealized capital gains and losses and the cumulative
effect of changes in accounting, which can fluctuate significantly. Return on
Equity is the most directly comparable GAAP measure. The following table
shows the two computations.
($ in millions)
For the twelve months
ended March 31,
Est.
2003 2002
Return on equity
Numerator:
Net income $1,704 $753
Denominator:
Beginning shareholders' equity 16,887 17,544
Ending shareholders' equity 17,927 16,887
Average shareholders' equity $17,407 $17,216
ROE 9.8 % 4.4 %
Operating income return on equity
Numerator:
Operating income $2,260 $1,428
Denominator:
Beginning shareholders' equity 16,887 17,544
Unrealized net capital gains 1,606 1,903
Adjusted beginning
shareholders' equity 15,281 15,641
Ending shareholders' equity 17,927 16,887
Unrealized net capital gains 2,590 1,606
Adjusted ending shareholders'
equity 15,337 15,281
Average shareholders' equity $15,309 $15,461
Operating income ROE 14.8 % 9.2 %
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.
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.
The following table presents a reconciliation of premiums written to
premiums earned for the three months ended March 31.
(in millions) 2003 2002
Premiums written $5,937 $5,716
(Increase) decrease in Unearned Premiums 22 (9)
Other 40 (3)
Premiums earned $5,999 $5,704
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, which we account for as liabilities
rather than as revenue, including the net new deposits of Allstate Bank.
The following table illustrates where Premiums and deposits are reflected
in the consolidated financial statements.
For the three months ended March 31,
(in millions) 2003 2002
Life and annuity premiums (1) $412 $308
Deposits to contractholder funds,
separate accounts and other 2,084 2,482
Total Premiums and deposits $2,496 $2,790
(1) Life and annuity contract charges in the amount of $227 million and
$230 million for the three months ended March 31, 2003 and 2002,
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 premium 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, deposits
in the Allstate Bank, sales of other company's mutual funds, and generally
excludes renewal premiums.
This press release contains forward-looking statements about our operating
income for 2003, DAC amortization, increases in policies in force, and rate
changes in our Property-Liability business. 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. Projected weighted average rate changes in our Property-
Liability business may be lower than projected due to a decrease in the number
of policies in force. Loss costs in our Property-Liability business, including
losses due to catastrophes such as hurricanes and earthquakes, may exceed
management's projections. Competitive pressures could lead to sales of
Property-Liability products, including private passenger auto and homeowners
insurance, that are lower than we have projected, due to our increased prices
and our modified underwriting practices. Investment income may not meet
management's projections due to poor stock market performance or lower returns
on the fixed income portfolio due to worsening credit conditions.
Significantly lower interest rates and equity markets could increase DAC
amortization, reduce contract charges, the DAC asset, investment margins and
the profitability of the Allstate Financial segment. We encourage you to
review the other risk factors facing Allstate that we disclosed in our Notice
of Annual Meeting and Proxy Statement dated March 28, 2003. 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(R)" slogan, Allstate provides insurance products to more than 16
million households and has approximately 12,300 exclusive agents and financial
specialists in the U.S. and Canada. Customers can access Allstate products
and services through Allstate agents, or in select states at allstate.com and
1-800-Allstate(R). Encompass(SM) and Deerbrook(R) Insurance brand property and
casualty products are sold exclusively through independent agents. Allstate
Financial Group includes the businesses that provide life and supplemental
insurance, retirement, banking and investment products through distribution
channels that include Allstate agents, independent agents, and banks and
securities firms.
We post an interim investor supplement on our web site. You can access it
by going to allstate.com and clicking on "About Allstate." From there, go to
the "Find Financial Information" button. We will post additional information
to the supplement over the next 30 days as it becomes available.
SOURCE The Allstate Corporation
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Related links:
http://www.allstate.com
Company News On-Call:
http://www.prnewswire.com/gh/cnoc/comp/109885.html
CONTACT:
Michael Trevino, Media Relations,
+1-847-402-5600, Robert Block, Larry Moews, Phil Dorn, Investor
Relations, +1-847-402-2800, all of The Allstate Corporation
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