Allstate Reports Strong Second Quarter 2012 Earnings

NORTHBROOK, Ill., July 31, 2012 /PRNewswire/ -- The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2012:

The Allstate Corporation Consolidated Highlights


Three months ended

June 30,

($ in millions, except per share amounts and ratios)

 

2012

 

2011

%

Change

Consolidated revenues

$    8,278

$    8,081

2.4

Net income (loss)

423

(624)

NM

Net income (loss) per diluted share

0.86

(1.19)

NM

Operating income (loss)*

432

(647)

NM

Operating income (loss) per diluted share*

0.87

(1.24)

NM

Book value per share

39.73

35.21

12.8

Book value per share, excluding the impact of unrealized

    net capital gains and losses on fixed income securities*

35.81

33.12

 

8.1

Catastrophe losses

819

2,339

(65.0)

Property-Liability combined ratio

98.0

123.3

 (25.3) pts  

Property-Liability combined ratio excluding the effect of

    catastrophes, prior year reserve reestimates, business

    combination expenses and the amortization of purchased

    intangible assets ("underlying combined ratio")*

86.3

 

 

 

87.5

 

(1.2) pts  

NM = not meaningful

*     Measures used in this release that are not based on accounting principles generally accepted in the United States of America ("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.

"We made good progress this quarter on our 2012 operating priorities of maintaining auto profitability, improving returns in homeowners insurance and annuities, growing insurance premiums, and proactively managing our investments and capital," said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation. "We improved our underlying margins in both auto and homeowners insurance. Our investment portfolio generated solid returns in a challenging interest rate environment. During the quarter, we repurchased 8.2 million shares of common stock for $275 million. With an increase in book value per share of 9.8% since year-end 2011 and a dividend yield around 2.5%, we are generating solid value for our shareholders.

"Our strategy of offering unique products to different customer segments continued to show positive results," Wilson said. "Overall, we grew insurance premiums in the second quarter despite the negative impact of raising returns in homeowners insurance. Total Allstate brand premiums written grew compared to last year as higher average homeowners premiums and growth in emerging businesses more than offset a decline in Allstate brand homeowners and standard auto policies. Allstate Financial increased unit sales of life insurance through our Allstate agency channel. Esurance's premium growth accelerated with its policies in force increasing 13.5% since year-end 2011. Encompass premiums written increased 5.9% compared to prior year on the strength of improved package policy sales."

Consolidated Results

Net income for the quarter was $423 million, or $0.86 per diluted share, compared to a net loss of $624 million, or a loss of $1.19 per diluted share in the second quarter of 2011. The increase in operating income of $1.1 billion was the primary driver of the improvement in net income. For the quarter, operating income was $432 million, or $0.87 per diluted share versus an operating loss of $647 million, or a loss of $1.24 per diluted share for the second quarter of 2011. The increase in operating income was due to lower catastrophe losses and an improvement in the underlying property-liability combined ratio. Return on equity was 11.0% on a net income basis and 11.4%* on an operating income basis.

Property-Liability Premiums Grow while Profits Improve

Allstate's priority to grow premiums showed positive results in the second quarter.  Total property-liability premiums written* of $6.86 billion grew 3.8% from the second quarter of 2011 due to the acquisition of Esurance in early October 2011 and to a lesser extent, growth in both the Allstate and Encompass brands.  Allstate brand standard auto premiums written declined slightly from the prior year quarter as an expected reduction in units was partially offset by an increase in average premium.  Allstate brand homeowners, Emerging Businesses and Encompass contributed to the positive premiums written growth in the second quarter.  Overall policies in force declined by 0.6% from year-end 2011 as reductions in Allstate brand standard auto and homeowners were partially offset by growth in Canada, Emerging Businesses, Encompass and Esurance.

Allstate continued to execute successfully on its strategy to maintain auto margins while improving homeowners returns.  In the second quarter, the property-liability combined ratio was 98.0 compared to 123.3 in the prior year quarter.  The underlying combined ratio was 86.3, an improvement of 1.2 points from the second quarter of 2011 and below the outlook range of 88 to 91 for the full year 2012.  Catastrophe losses of $819 million in the quarter were substantial, but were significantly less than the catastrophe losses of $2.3 billion incurred in last year's second quarter.

For Allstate brand standard auto, the combined ratio was 95.5, an improvement of 2.8 points from the second quarter of 2011.  The underlying combined ratio for Allstate brand standard auto of 93.4 improved slightly from the second quarter of 2011 as implemented rate actions essentially matched the increase in loss costs.  Allstate brand homeowners combined ratio was 104.9 for the second quarter, a significant improvement from the combined ratio of 193.3 in the prior year quarter, driven by lower catastrophe losses and continued improvement in the underlying margin.  For the second quarter, the underlying combined ratio was 64.6, 4.8 points better than the 69.4 underlying combined ratio recorded in the prior year quarter, reflecting the impact of implemented rate changes as well as moderating loss costs. Also contributing to the second quarter's positive results were improvements in the underlying margins for the other personal lines which comprise Emerging Businesses.

Allstate Financial Results Consistent with Strategy Execution

Allstate Financial continued to make progress on improving returns on attributed equity and shifting its focus to underwritten products from spread-based products.  Net income for the second quarter was $132 million, a $29 million decline from the prior year quarter driven by lower net realized capital gains.  Operating income increased 2.2% to $138 million in the second quarter of 2012, helped by the inclusion of equity method limited partnership results in operating income this year as well as lower crediting rates that were partially offset by worse mortality in both life insurance and annuities, lower yields on fixed income securities, and the continued managed reduction in spread business.

Premiums and contract charges on underwritten products totaled $540 million in the second quarter, an increase of 3.1% from the prior year period. Consistent with the strategic direction to reduce Allstate Financial's annuity business, contractholder funds declined by $771 million from March 31, 2012 and $1.5 billion from year-end 2011. Allstate agencies increased life unit sales, with issued policies growing 2.5% in the second quarter compared to the prior year quarter.

Proactive Management Drives Investment Results

Allstate delivered solid total returns on investments, reflecting continued proactive management of investment risk and return. We remain focused on balancing yield and return considerations in this low rate environment, favoring corporate credit over Treasuries and equities, and intermediate over long-dated maturities.

Allstate's consolidated investment portfolio totaled $97.3 billion at June 30, 2012 compared to $95.6 billion at December 31, 2011, as solid investment returns and operating cash flow more than offset the impact of the ongoing managed reduction in Allstate Financial's liabilities. For the second quarter of 2012, net investment income was $1.0 billion and total portfolio yield was 4.6%, higher than the second quarter of 2011 and consistent with the first quarter of 2012.  Inclusion of equity method limited partnership results in 2012, along with a higher amount, were the primary drivers of the favorable variance to the prior year quarter. Excluding the limited partnership results, second quarter 2012 net investment income and portfolio yield were lower than the prior year, consistent with the reduction in Allstate Financial's liabilities and lower reinvestment rates.

Pre-tax net realized capital gains for the second quarter of 2012 were $27 million compared to $57 million in the second quarter of 2011.  Realized capital gains in the second quarter of 2012 reflect lower gains from sales of fixed income and equity securities and included lower impairment write-downs than last year's second quarter and derivative gains compared to losses in the prior year quarter. Pre-tax net unrealized capital gains were $4.2 billion at June 30, 2012 compared to $2.9 billion at December 31, 2011, as a result of lower interest rates, tightened credit spreads and higher equity values.

Book Value per Share Increased 3% Sequentially; Repurchased $275 Million in Shares

"We continue to focus on effective capital management as a key priority," said Steve Shebik, chief financial officer.  "In the second quarter, Allstate repurchased shares worth $275 million, bringing total purchases to $681 million under the current $1 billion authorization.  With our strong operating performance, increased portfolio valuation and an active share repurchase program, book value per diluted share increased to $39.73." 

Book value per diluted share increased 3% from March 31, 2012, 9.8% from year-end 2011, and 12.8% from June 30, 2011.

Statutory surplus at June 30, 2012 was an estimated $16.5 billion for the combined insurance operating companies.  Property-liability surplus was an estimated $12.9 billion with Allstate Financial companies accounting for the remainder.  Deployable assets at the holding company level were $2.3 billion at June 30, 2012.  Also during the quarter, Allstate maintained its dividend of $0.22 per share.

Visit www.allstateinvestors.com to view additional information about Allstate's results, including a webcast of its quarterly conference call and the presentation discussed on the call.  The conference call will be held at 9 a.m. ET on Wednesday, August 1st. 

The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer, serving approximately 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names and Allstate Financial business segment.  Allstate branded insurance products (auto, home, life and retirement) and services are offered through Allstate agencies, independent agencies, and Allstate exclusive financial representatives, as well as via www.allstate.com and 1-800 Allstate®, and are widely known through the slogan "You're In Good Hands With Allstate®."


THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS






($ in millions, except per share data)


Three months ended

June 30,


Six months ended

June 30,



2012


2011


2012


2011



(unaudited)

(unaudited)

Revenues









   Property-liability insurance premiums

$

6,666

$

6,457

$

13,296

$

12,905

   Life and annuity premiums

       and contract charges


559


547


1,112


1,116

   Net investment income


1,026


1,020


2,037


2,002

   Realized capital gains and losses:









Total other-than-temporary
            impairment losses


(69)


(82)


(156)


(238)

Portion of loss recognized in other
            comprehensive income


19


(4)


23


(31)

Net other-than-temporary
                impairment losses recognized 

    in earnings


(50)


(86)


(133)


(269)

Sales and other realized capital
            gains and losses


77


143


328


422

Total realized capital gains
                        and losses


27


57


195


153












8,278


8,081


16,640


16,176










Costs and expenses









   Property-liability insurance claims
       and claims expense


4,810


6,355


9,149


10,831

   Life and annuity contract benefits


462


422


901


876

   Interest credited to contractholder
       funds


366


417


744


835

   Amortization of deferred policy

       acquisition costs


942


960


1,921


1,944

   Operating costs and expenses


996


868


2,013


1,768

   Restructuring and related charges


10


11


16


20

   Interest expense


93


91


188


183



7,679


9,124


14,932


16,457

Gain (loss) on disposition of operations


3


7


6


(13)










Income (loss) from operations 

    before income tax expense 

    (benefit)


602


(1,036)


1,714


(294)










Income tax expense (benefit)


179


(412)


525


(194)










Net income (loss)

$

423

$

(624)

$

1,189

$

(100)










Earnings per share:


















Net income (loss) per share - Basic

$

0.86

$

(1.19)

$

2.40

$

(0.19)










Weighted average shares - Basic


490.6


523.1


494.9


528.2










Net income (loss) per share - Diluted

$

0.86

$

(1.19)

$

2.39

$

(0.19)










Weighted average shares - Diluted


493.8


523.1


497.9


528.2










Cash dividends declared per share

$

0.22

$

0.21

$

0.44

$

0.42
















THE ALLSTATE CORPORATION

SEGMENT RESULTS


($ in millions, except ratios)



Three months ended


Six months ended




June 30,


June 30,




2012


2011


2012


2011










Property-Liability









  Premiums written

$

6,864

$

6,611

$

13,327

$

12,826











  Premiums earned

$

6,666

$

6,457

$

13,296

$

12,905

  Claims and claims expense


(4,810)


(6,355)


(9,149)


(10,831)

  Amortization of deferred policy acquisition costs


(865)


(867)


(1,743)


(1,731)

  Operating costs and expenses


(847)


(726)


(1,731)


(1,495)

  Restructuring and related charges


(10)


(11)


(16)


(22)

     Underwriting income (loss)


134


(1,502)


657


(1,174)

  Net investment income


352


310


665


594

  Periodic settlements and accruals on non-hedge derivative instruments


(2)


(3)


(3)


(7)

Business combination expenses and the amortization of purchased









 intangible assets


26


--


73


--

  Income tax (expense) benefit on operations


(153)


463


(434)


282

     Operating income (loss)


357


(732)


958


(305)











  Realized capital gains and losses, after-tax


12


(6)


136


32

  Reclassification of periodic settlements and accruals on non-hedge 









     derivative instruments, after-tax


1


1


2


4

Business combination expenses and the amortization of purchased









   intangible assets, after-tax


(16)


--


(47)


--

     Net income (loss)

$

354

$

(737)

$

1,049

$

(269)

  Catastrophe losses

$

819

$

2,339

$

1,078

$

2,672

  Operating ratios:









     Claims and claims expense ratio


72.2


98.4


68.8


83.9

     Expense ratio


25.8


24.9


26.3


25.2

     Combined ratio


98.0


123.3


95.1


109.1

     Effect of catastrophe losses on combined ratio


12.3


36.2


8.1


20.7

     Effect of prior year reserve reestimates on combined ratio


(2.4)


(0.7)


(2.7)


(0.7)

     Effect of catastrophe losses included in prior year reserve reestimates









        on combined ratio


(1.4)


(0.3)


(1.9)


(0.4)

     Effect of business combination expenses and the amortization of









        purchased intangible assets on combined ratio


0.4


--


0.6


--

     Effect of Discontinued Lines and Coverages on combined ratio


0.1


0.1


0.1


0.1

Allstate Financial









  Investments

$

57,734

$

59,659

$

57,734

$

59,659

  Premiums and contract charges

$

559

$

547

$

1,112

$

1,116

  Net investment income


663


694


1,350


1,378

  Periodic settlements and accruals on non-hedge derivative instruments


15


19


30


36

  Contract benefits


(462)


(422)


(901)


(876)

  Interest credited to contractholder funds


(362)


(412)


(730)


(837)

  Amortization of deferred policy acquisition costs


(76)


(87)


(162)


(182)

  Operating costs and expenses


(135)


(135)


(277)


(267)

  Restructuring and related charges


--


--


--


2

  Income tax expense on operations


(64)


(69)


(134)


(122)

     Operating income


138


135


288


248











  Realized capital gains and losses, after-tax


5


40


(9)


65

  Valuation changes on embedded derivatives that are not hedged, after-tax


(3)


(3)


(9)


5

  DAC and DSI amortization relating to realized capital gains and









     losses and valuation changes on embedded derivatives that are not









     hedged, after-tax


--


(5)


(10)


(27)

  DAC and DSI unlocking relating to realized capital gains and losses, after-tax


--


--


--


3

  Reclassification of periodic settlements and accruals on non-hedge 









     derivative instruments, after-tax


(10)


(11)


(20)


(23)

  Gain (loss) on disposition of operations, after-tax


2


5


4


(8)

     Net income

$

132

$

161

$

244

$

263

Corporate and Other









  Net investment income

$

11

$

16

$

22

$

30

  Operating costs and expenses


(107)


(98)


(193)


(189)

  Income tax benefit on operations


33


32


67


63

     Operating loss


(63)


(50)


(104)


(96)

  Realized capital gains and losses, after-tax


--


2


--


2

     Net loss

$

(63)

$

(48)

$

(104)

$

(94)

Consolidated net income (loss)

$

423

$

(624)

$

1,189

$

(100)



THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION






($ in millions, except par value data) 


June 30,


December 31,



2012


2011

Assets


(unaudited)


Investments:





     Fixed income securities, at fair value (amortized cost
       73,925 and $73,379)

$

77,926

$

76,113

     Equity securities, at fair value (cost $3,430 and $4,203)


3,681


4,363

     Mortgage loans


6,928


7,139

     Limited partnership interests


4,694


4,697

Short‑term, at fair value (amortized cost $1,867 and $1,291)


1,867


1,291

     Other


2,224


2,015

          Total investments


97,320


95,618

Cash


571


776

Premium installment receivables, net


4,929


4,920

Deferred policy acquisition costs


3,644


3,871

Reinsurance recoverables, net


7,120


7,251

Accrued investment income


846


826

Deferred income taxes


--


722

Property and equipment, net


909


914

Goodwill


1,242


1,242

Other assets


2,164


2,069

Separate Accounts


6,790


6,984

              Total assets

$

125,535

$

125,193

Liabilities





Reserve for property-liability insurance claims and claims expense

$

20,395

$

20,375

Reserve for life‑contingent contract benefits


14,640


14,406

Contractholder funds


40,832


42,332

Unearned premiums


10,085


10,057

Claim payments outstanding


813


827

Deferred income taxes


53


--

Other liabilities and accrued expenses


6,394


5,978

Long-term debt


6,058


5,908

Separate Accounts


6,790


6,984

              Total liabilities


106,060


106,867

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, 486 million and 501 million shares outstanding


9


9

Additional capital paid‑in


3,154


3,189

Retained income


32,880


31,909

Deferred ESOP expense


(41)


(43)

Treasury stock, at cost (414 million and 399 million shares)


(17,272)


(16,795)

Accumulated other comprehensive income:





Unrealized net capital gains and losses:





Unrealized net capital losses on fixed income securities with OTTI


(105)


(174)

Other unrealized net capital gains and losses


2,859


2,041

Unrealized adjustment to DAC, DSI and insurance reserves


(684)


(467)

      Total unrealized net capital gains and losses


2,070


1,400

     Unrealized foreign currency translation adjustments


58


56

     Unrecognized pension and other postretirement benefit cost


(1,383)


(1,427)

              Total accumulated other comprehensive income


745


29

              Total shareholders' equity


19,475


18,298

Noncontrolling interest


--


28

              Total equity


19,475


18,326

              Total liabilities and equity

$

125,535

$

125,193



THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




($ in millions)

 


Six months ended

June 30,



2012


2011

Cash flows from operating activities


(unaudited)

Net income (loss)

$

1,189

$

(100)

Adjustments to reconcile net income (loss) to net cash provided by operating

   activities:                                                               





Depreciation, amortization and other non-cash items


201


89

Realized capital gains and losses


(195)


(153)

(Gain) loss on disposition of operations


(6)


13

Interest credited to contractholder funds


744


835

Changes in:





Policy benefits and other insurance reserves


(377)


665

Unearned premiums


27


(87)

Deferred policy acquisition costs


6


60

Premium installment receivables, net


(9)


(22)

Reinsurance recoverables, net


27


(40)

Income taxes 


341


(226)

Other operating assets and liabilities


(174)


226

Net cash provided by operating activities


1,774


1,260

Cash flows from investing activities





Proceeds from sales





     Fixed income securities


9,918


14,140

     Equity securities


1,275


854

     Limited partnership interests


796


335

     Mortgage loans


11


65

     Other investments


88


109

Investment collections





Fixed income securities


2,141


2,385

Mortgage loans


458


308

Other investments


39


92

Investment purchases





Fixed income securities


(12,345)


(13,934)

Equity securities


(290)


(781)

Limited partnership interests


(664)


(765)

Mortgage loans


(267)


(536)

Other investments


(243)


(146)

Change in short-term investments, net


(392)


1,166

Change in other investments, net


(57)


(170)

Purchases of property and equipment, net


(116)


(106)

Disposition of operations


--


(1)

Net cash provided by investing activities


352


3,015

Cash flows from financing activities





Proceeds from issuance of long-term debt


493


--

Repayment of long-term debt


(351)


(1)

Contractholder fund deposits


1,005


1,120

Contractholder fund withdrawals


(2,665)


(4,508)

Dividends paid


(215)


(218)

Treasury stock purchases


(583)


(544)

Shares reissued under equity incentive plans, net


26


17

Excess tax benefits on share-based payment arrangements


4


(3)

Other


(45)


(7)

Net cash used in financing activities


(2,331)


(4,144)

Net (decrease) increase in cash


(205)


131

Cash at beginning of period


776


562

Cash at end of period

$

571

$

693


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 and operating financial measures.  Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Operating income (loss) is net income (loss), 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 (loss),
  • valuation changes on embedded derivatives that are not hedged, after-tax,
  • amortization of DAC and deferred sales inducements (DSI), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives that are not hedged, after-tax,
  • business combination expenses and the amortization of purchased intangible assets, after-tax,
  • gain (loss) on disposition of operations, after-tax, and 
  • adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years. 

Net income (loss) is the GAAP measure that is most directly comparable to operating income (loss).

We use operating income (loss) as an important measure to evaluate our results of operations.  We believe that the measure provides investors with a valuable measure of the company's ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, valuation changes on embedded derivatives that are not hedged, business combination expenses and the amortization of purchased intangible assets, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items.  Realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process.  Consistent with our intent to protect results or earn additional income, operating income (loss) includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes.  These instruments are used for economic hedges and to replicate fixed income securities, and by including them in operating income (loss), we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g., net investment income and interest credited to contractholder funds) or replicated investments.  Business combination expenses are excluded because they are non-recurring in nature and the amortization of purchased intangible assets is excluded because it relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends.  Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends.  Accordingly, operating income (loss) excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business.  A byproduct of excluding these items to determine operating income (loss) is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods.  Operating income (loss) is used by management along with the other components of net income (loss) to assess our performance.  We use adjusted measures of operating income (loss) and operating income (loss) per diluted share in incentive compensation.  Therefore, we believe it is useful for investors to evaluate net income (loss), operating income (loss) and their components separately and in the aggregate when reviewing and evaluating our performance.  We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income (loss) results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's performance.  We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses operating income (loss) as the denominator.  Operating income (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of our business.

The following tables reconcile operating income (loss) and net income (loss).

($ in millions, except per share data)


For the three months ended June 30,



Property-Liability


Allstate Financial


Consolidated


Per diluted share



2012


2011


2012


2011


2012


2011


2012


2011

Operating 

    income (loss)

$

357

$

(732)

$

138

$

135

$

432

$

(647)

$

0.87

$

(1.24)

Realized capital

    gains and losses


19


(8)


8


62


27


57





Income tax

    (expense) 

    benefit


(7)


2


(3)


(22)


(10)


(21)





Realized capital

    gains and losses,

    after-tax


12


(6)


5


40


17


36


0.04


0.07

Valuation changes

    on embedded

    derivatives that

    are not hedged,

    after-tax


--


--


(3)


(3)


(3)


(3)


(0.01)


(0.01)

DAC and DSI

    amortization 

    relating to 

    realized capital

    gains and losses

    and valuation

    changes on

     embedded

     derivatives that

     are not hedged,

     after-tax


--


--


--


(5)


--


(5)


--


(0.01)

DAC and DSI

     unlocking

     relating to

     realized capital

     gains and

     losses, after-tax


--


--


--


--


--


--


--


--

Reclassification of

     periodic

     settlements and

     accruals on

     non-hedge

     derivative

     instruments,

     after-tax


1


1


(10)


(11)


(9)


(10)


(0.02)


(0.02)

Business

    combination

    expenses and

    the amortization

    of purchased

    intangible assets,

    after-tax


(16)


--


--


--


(16)


--


(0.03)


--

Gain on disposition

    of operations,

    after-tax


--


--


2


5


2


5


0.01


0.02

 

Net income (loss)

 

$

354

 

$

(737)

 

$

132

 

$

161

 

$

423

 

$

(624)

 

$

0.86

 

$

(1.19)

 



For the six months ended June 30,



Property-Liability


Allstate Financial


Consolidated


Per diluted share



2012


2011


2012


2011


2012


2011


2012


2011

Operating income (loss)

$

958

$

(305)

$

288

$

248

$

1,142

$

(153)

$

2.29

$

(0.29)

Realized capital gains and losses


208


49


(13)


101


195


153





Income tax (expense) benefit


(72)


(17)


4


(36)


(68)


(54)





Realized capital gains and losses,

    after-tax


136


32


(9)


65


127


99


0.26


0.19

Valuation changes on embedded

    derivatives that are not hedged,

    after-tax


--


--


(9)


5


(9)


5


(0.02)


0.01

DAC and DSI amortization relating to

    realized capital gains and losses and

    valuation changes on embedded

    derivatives that are not hedged,

    after-tax


--


--


(10)


(27)


(10)


(27)


(0.02)


(0.05)

DAC and DSI unlocking relating to

    realized capital gains and losses,

    after-tax


--


--


--


3


--


3


--


0.01

Reclassification of periodic settlements

    and accruals on non-hedge

    derivative instruments, after-tax


2


4


(20)


(23)


(18)


(19)


(0.04)


(0.04)

Business combination expenses and

    the amortization of purchased

    intangible assets, after-tax


(47)


--


--


--


(47)


--


(0.09)


--

Gain (loss) on disposition of operations,

    after-tax


--


--


4


(8)


4


(8)


0.01


(0.02)

 

Net income (loss)

 

$

1,049

 

$

(269)

 

$

244

 

$

263

 

$

1,189

 

$

(100)

 

$

2.39

 

$

(0.19)

 

Operating income (loss) return on shareholders' equity is a ratio that uses a non-GAAP measure.  It is calculated by dividing the rolling 12-month operating income (loss) by the average of shareholders' equity at the beginning and at the end of the 12-months, after excluding the effect of unrealized net capital gains and losses.  Return on shareholders' equity is the most directly comparable GAAP measure.  We use operating income (loss) as the numerator for the same reasons we use operating income (loss), as discussed above.  We use average shareholders' equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of shareholders' equity primarily attributable to the company's earned and realized business operations because it eliminates the effect of items that are unrealized and vary significantly between periods due to external economic developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process.  We use it to supplement our evaluation of net income (loss) and return on shareholders' equity because it excludes the effect of items that tend to be highly variable from period to period.  We believe that this measure is useful to investors and that it provides a valuable tool for investors when considered along with net income (loss) return on shareholders' equity because it eliminates the after-tax effects of realized and unrealized net capital gains and losses that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management.  In addition, it eliminates non-recurring items that are not indicative of our ongoing business or economic trends.  A byproduct of excluding the items noted above to determine operating income (loss) return on shareholders' equity from return on shareholders' equity is the transparency and understanding of their significance to return on shareholders' equity variability and profitability while recognizing these or similar items may recur in subsequent periods.  Therefore, we believe it is useful for investors to have operating income (loss) return on shareholders' equity and return on shareholders' equity when evaluating our performance.  We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income (loss) return on shareholders' equity results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's utilization of capital.  Operating income (loss) return on shareholders' equity should not be considered as a substitute for return on shareholders' equity and does not reflect the overall profitability of our business. 

The following table reconciles return on shareholders' equity and operating income return on shareholders' equity.

($ in millions)

For the twelve months ended

June 30,



2012


2011

Return on shareholders' equity





Numerator:





   Net income

$

2,076

$

554

 

Denominator:





   Beginning shareholders' equity

$

18,382

$

17,619

   Ending shareholders' equity


19,475


18,382

  Average shareholders' equity

$

18,929

$

18,001

    Return on shareholders' equity


11.0%


3.1%

 



For the twelve months ended

June 30,



2012


2011

Operating income return on shareholders' equity





Numerator:





   Operating income

$

1,957

$

555






Denominator:





   Beginning shareholders' equity

$

18,382

$

17,619

   Unrealized net capital gains and losses


1,475


312

   Adjusted beginning shareholders' equity


16,907


17,307

   Ending shareholders' equity


19,475


18,382

   Unrealized net capital gains and losses


2,070


1,475

   Adjusted ending shareholders' equity


17,405


16,907

  Average adjusted shareholders' equity

$

17,156

$

17,107

    Operating income return on shareholders'  equity


11.4%


3.2%

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 the 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 (loss) is the most directly comparable GAAP measure.  Underwriting income (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of our business.  A reconciliation of Property-Liability underwriting income (loss) to net income (loss) is provided in the "Segment Results" page.

Combined ratio excluding the effect of catastrophes, prior year reserve reestimates, business combination expenses and the amortization of purchased intangible assets ("underlying combined ratio") is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio, the effect of prior year non-catastrophe reserve reestimates on the combined ratio, the effect of business combination expenses and the amortization of purchased intangible assets on the combined ratio.  We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses, prior year reserve reestimates, business combination expenses and the amortization of purchased intangible assets.  Catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio.  Prior year reserve reestimates are caused by unexpected loss development on historical reserves.  Business combination expenses and the amortization of purchased intangible assets primarily relate to the acquisition purchase price and are not indicative of our underlying insurance business results or trends.   We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance.  We also provide it to facilitate a comparison to our outlook on the underlying combined ratio.  The most directly comparable GAAP measure is the combined ratio.  The underlying combined ratio should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. 

A reconciliation of the Property-Liability underlying combined ratio to the Property-Liability combined ratio is provided in the following table.


Three months ended

June 30,


Six months ended

June 30,


2012


2011


2012


2011

Combined ratio excluding the effect of catastrophes,

    prior year reserve reestimates, business

    combination expenses and the amortization of

    purchased intangible assets ("underlying 

    combined ratio")

86.3


87.5


 

 

 

87.2


88.7

Effect of catastrophe losses

12.3


36.2


8.1


20.7

Effect of prior year non-catastrophe reserve reestimates

(1.0)


(0.4)


(0.8)


(0.3)

Effect of business combination expense and the amortization

    of purchased intangible assets

0.4


--


 

0.6


--

Combined ratio

98.0


123.3


95.1


109.1









Effect of prior year catastrophe reserve reestimates

(1.4)


(0.3)


(1.9)


(0.4)

Underwriting margin is calculated as 100% minus the combined ratio.

The Property-Liability underlying combined ratio by brand is provided in the following table.


Three months ended

June 30,


Six months ended

June 30,


2012


2011


2012


2011

Allstate brand

85.1


87.1


86.0


88.4

Encompass brand

97.0


96.3


96.8


94.7

Esurance brand

106.0


--


107.5


--

In this news release, we provide our outlook range on the Property-Liability 2012 underlying combined ratio.  A reconciliation of this measure to the combined ratio is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of catastrophes.  Future prior year reserve reestimates are expected to be zero because reserves are determined based on our best estimate of ultimate loss reserves as of the reporting date.

A reconciliation of the Allstate brand standard auto underlying combined ratio to the Allstate brand standard auto combined ratio is provided in the following table.


Three months ended

June 30,


Six months ended

June 30,


2012


2011


2012


2011

Underlying combined ratio

93.4


93.7


94.2


94.2

Effect of catastrophe losses

3.9


6.7


2.6


3.6

Effect of prior year non-catastrophe reserve reestimates

(1.8)


(2.1)


(1.4)


(1.1)

Combined ratio

95.5


98.3


95.4


96.7









Effect of prior year catastrophe reserve reestimates

(0.2)


(0.1)


(0.2)


(0.2)

A reconciliation of the Allstate brand homeowners underlying combined ratio to the Allstate brand homeowners combined ratio is provided in the following table.


Three months ended

June 30,


Six months ended

June 30,


2012


2011


2012


2011

Underlying combined ratio

64.6


69.4


65.8


71.7

Effect of catastrophe losses

40.2


123.2


26.4


70.6

Effect of prior year non-catastrophe reserve reestimates

0.1


0.7


0.4


0.2

Combined ratio

104.9


193.3


92.6


142.5









Effect of prior year catastrophe reserve reestimates

(3.6)


(0.4)


(6.1)


(1.4)

Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, is a ratio that uses a non-GAAP measure.  It is calculated by dividing shareholders' equity after excluding the impact of unrealized net capital gains and losses on fixed income securities and related DAC, DSI and life insurance reserves by total shares outstanding plus dilutive potential shares outstanding.  We use the trend in book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, in conjunction with book value per share to identify and analyze the change in net worth attributable to management efforts between periods.  We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers.  We note that book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, is a measure commonly used by insurance investors as a valuation technique.  Book value per share is the most directly comparable GAAP measure.  Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, should not be considered as a substitute for book value per share, and does not reflect the recorded net worth of our business.  The following table shows the reconciliation.

($ in millions, except per share data)


As of June 30,



2012


2011

Book value per share





Numerator:





  Shareholders' equity

$

19,475

$

18,382

Denominator:





 Shares outstanding and dilutive potential shares  outstanding


490.2


522.0

Book value per share

$

39.73

$

35.21






Book value per share, excluding the impact of unrealized net capital

    gains and losses on fixed income securities





Numerator:





  Shareholders' equity

$

19,475

$

18,382

  Unrealized net capital gains and losses on fixed income securities


1,919


1,091

Adjusted shareholders' equity

$

17,556

$

17,291

Denominator:





Shares outstanding and dilutive potential shares outstanding


490.2


522.0

Book value per share, excluding the impact of unrealized net capital gains

    and losses on fixed income securities

 

$

35.81

 

$

33.12

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 Condensed Consolidated Statements of Financial Position.  A reconciliation of premiums written to premiums earned is presented in the following table.

($ in millions)


Three months ended

June 30,


Six months ended

June 30,




2012


2011


2012


2011

Property-Liability premiums written

$

6,864

$

6,611

$

13,327

$

12,826

(Increase) decrease in unearned premiums


(198)


(165)


(31)


69

Other


--


11


--


10

Property-Liability premiums earned

$

6,666

$

6,457

$

13,296

$

12,905











Forward-Looking Statements and Risk Factors
This news release contains forward-looking statements about our outlook for the Property-Liability combined ratio excluding the effect of catastrophes, prior year reserve reestimates, business combination expenses, and the amortization of purchased intangible assets for 2012.  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 based on the risk factors described below.

  • Premiums written and premiums earned, the denominator of the underlying combined ratio, may be materially less than projected.  Policyholder attrition may be greater than anticipated resulting in a lower amount of insurance in force.
  • Unanticipated increases in the severity or frequency of standard auto insurance claims may adversely affect our underwriting results.  Changes in the severity or frequency of claims may affect the profitability of our Allstate Protection segment.  Changes in bodily injury claim severity are driven primarily by inflation in the medical sector of the economy and litigation.  Changes in auto physical damage claim severity are driven primarily by inflation in auto repair costs, auto parts prices and used car prices.  The short-term level of claim frequency we experience may vary from period to period and may not be sustainable over the longer term.  A decline in gas prices, increase in miles driven, and higher unemployment are examples of factors leading to a short-term frequency change.  A significant long-term increase in claim frequency could have an adverse effect on our underwriting results.

We undertake no obligation to publicly correct or update any forward-looking statements.  This news release contains unaudited financial information.

SOURCE The Allstate Corporation

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