01—Abstract
Summary
Summary of the 10-K filed March 27, 1998. Cited figures are marked; the original filing is the authoritative source.
The Allstate Corporation's 10-K for fiscal 1997 shows a company in strong financial shape, with net income of $3.105 billiona in 1997, up from $2.075 billion in 1996 and $1.904 billion in 1995.
Shareholders' equity rose to $15.61 billionb from $13.45 billion, driven by earnings and a large increase in unrealized net capital gains, which climbed to $2.82 billion from $2.00 billion. Allstate remains the second-largest property-liability insurer in the U.S. by 1996 statutory premiums, with about 12.4% and 11.7% national market shares in private passenger auto and homeowners insurance, respectively. Its core Personal Property & Casualty (PP&C) unit wrote $18.6 billion of premium revenue in 1997, and its Allstate Life unit had $194 billion of life insurance in force net of reinsurance.
The filing also highlights risks that investors should weigh. Catastrophe exposure is significant: Hurricane Andrew cost $2.33 billionc net of reinsurance and the Northridge earthquake cost $1.75 billion. Reserves for environmental, asbestos and mass tort claims from the Discontinued Lines and Coverages segment remain uncertain, though 1997 saw favorable net reserve development of $677 million.
Management is also pursuing growth initiatives, including a cash offer for Canadian auto insurer Pembridge (about $275 milliond), an application for a federal savings bank charter, and direct auto sales in Germany. The company repurchased $1.36 billion of its stock in 1997 and paid $0.96 per share in dividends.
The 10-K largely incorporates its financial statements and MD&A by reference from the 1998 Proxy Statement, so detailed financial data was not fully included in this document. Investors should therefore consult the proxy materials and the EX-27 financial data schedule for complete figures.
02—Key points
Key Highlights
- Net income rose 50% to $3.105 billion in 1997, up from $2.075 billion in 1996.
- Shareholders' equity grew to $15.61 billion from $13.45 billion, with unrealized net capital gains of $2.82 billion.
- Allstate is the second-largest U.S. property-liability insurer, with PP&C premium revenue of $18.6 billion in 1997 and national share of about 12.4% in auto and 11.7% in homeowners.
- Catastrophe exposure is material: Hurricane Andrew ($2.33 billion) and the Northridge earthquake ($1.75 billion) drove large losses, and the company is reducing exposure through Florida reorganization and reinsurance programs.
- Favorable reserve development of $677 million in 1997 reflects lower personal injury severity trends, but environmental, asbestos and mass tort reserves remain highly uncertain.
- Allstate Life had $194 billion of life insurance in force and $37.3 billion of investments, with growth planned through bank and broker distribution channels.
- The company repurchased $1.36 billion of common stock in 1997, and quarterly dividends rose to $0.24 per share in 1997 from $0.2125 in 1996.
03—Questions
Frequently Asked Questions
How profitable was Allstate in 1997?
Allstate reported net income of $3.105 billion for 1997, a 50% increase over the $2.075 billion reported in 1996. Earnings grew strongly as favorable reserve development and improved personal injury claim severity trends supported results, although catastrophe losses remain a key variable.
What are the biggest risks to Allstate's business?
The most significant risks are catastrophe losses from hurricanes and earthquakes, uncertainty in reserves for environmental, asbestos and mass tort claims, interest rate changes that affect investment income and Allstate Life products, and regulatory pressure on auto and homeowners rates. The company also depends on dividends from its insurance subsidiary, Allstate Insurance Company, to service its debt.
What is Allstate doing to reduce catastrophe exposure?
Allstate has limited new business in high-risk areas, raised deductibles, and reorganized its Florida property business through Floridian Insurance Company. It also secured catastrophe reinsurance in Florida and the Northeast and participates in the California Earthquake Authority, which limits its direct earthquake exposure in California.
What major transactions or developments were announced around the time of this filing?
Allstate made a cash offer of Cdn. $20 per share for Pembridge, Inc., a Canadian auto insurer, valued at about $275 million, with the offer set to expire on March 27, 1998. It also applied to the Office of Thrift Supervision to operate a federal savings bank focused on trust and cash management services, and issued $250 million of 7 1/8% QUIBS in December 1997.
How is Allstate returning capital to shareholders?
In 1997 Allstate paid dividends of $0.24 per share each quarter, up from $0.2125 in 1996, totaling about $323 million in dividends paid. It also repurchased $1.36 billion of its common stock during the year, reducing shares outstanding from about 442 million to 425 million.
04—Continue