10-QPeriod: Q1 FY2003

ALLSTATE CORP Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 9, 2003For Securities:ALLALL-PJALL-PBALL-PHALL-PI

Summary

Allstate Corporation reported a significant increase in net income for the first quarter of 2003, reaching $665 million compared to $95 million in the same period of 2002. This improvement was primarily driven by a strong recovery in the Property-Liability segment, which saw a substantial rise in underwriting income due to higher earned premiums, lower mold losses in Texas, and favorable prior year reserve reestimates. The Allstate Financial segment experienced a decline in net income, primarily due to accelerated amortization of deferred policy acquisition costs and a lower mortality margin, although investment income showed improvement. Total consolidated revenues grew by 7.7%, with Property-Liability premiums earned and Allstate Financial's life and annuity premiums and contract charges showing increases. The company is actively managing its product mix, with a strategic focus on profitable growth in standard auto and homeowners insurance, while intentionally slowing growth in non-standard auto lines. Despite ongoing legal proceedings and regulatory considerations, Allstate's liquidity remains strong, supported by substantial operating cash flows and available credit facilities.

Key Highlights

  • 1Net income increased substantially to $665 million from $95 million year-over-year, driven by strong Property-Liability segment performance.
  • 2Property-Liability underwriting income saw a significant improvement, increasing to $413 million from $43 million, with a combined ratio of 93.1%.
  • 3Premiums earned across the company rose by 7.7% to $7.86 billion, with Property-Liability premiums up 5.2% and Allstate Financial premiums and contract charges increasing.
  • 4Allstate Financial's net income declined to $50 million from $192 million (adjusted for accounting change in prior year), impacted by accelerated DAC amortization and lower mortality margins.
  • 5The company is strategically adjusting its product mix, focusing on profitable growth in standard auto and homeowners, while de-emphasizing certain non-standard lines.
  • 6Investments portfolio grew to $93.98 billion, with a notable increase in unrealized gains on fixed income securities.
  • 7Liquidity remains strong with substantial operating cash flows and ample credit facilities.

Frequently Asked Questions

The primary driver of the significant increase in net income was the strong performance of the Property-Liability segment, which benefited from higher earned premiums, reduced mold losses in Texas, and favorable prior year reserve reestimates. This offset the decline seen in the Allstate Financial segment.

The Allstate Protection segment showed improved underwriting income and a better combined ratio. The company is focusing on profitable growth in standard auto and homeowners insurance, evidenced by rate increases and efforts to slow growth in less profitable non-standard auto lines. They are also seeing positive trends in policy growth in several states.

The Allstate Financial segment experienced a decline in net income due to accelerated amortization of deferred policy acquisition costs (DAC) and a lower mortality margin. This was partly offset by an increase in investment income. Sales of certain products like funding agreements and variable annuities also decreased.

The total investment portfolio increased to $93.98 billion. The company is experiencing growth in unrealized gains on fixed income securities due to lower interest rates. The company actively monitors its investment quality and has seen a decline in problem, restructured, or potential problem securities.