What was the primary driver behind the significant increase in net income for the nine months ended September 30, 2003?

The substantial increase in net income was driven by two main factors: a significant positive swing in realized capital gains (compared to losses in the prior year) and improved underwriting results in the Property-Liability business. Additionally, the prior year's results were impacted by a $331 million after-tax cumulative effect of a change in accounting principle related to goodwill, which did not occur in the current year.

How did catastrophe losses impact the company's results?

Catastrophe losses increased significantly, totaling $1.08 billion for the nine months ended September 30, 2003, which was $583 million higher than the same period in 2002. While these increased losses presented a headwind, the company's improved underwriting performance and strong investment gains were sufficient to more than offset this impact, leading to overall net income growth.

What is the company's stance on the asbestos reserves and the Discontinued Lines and Coverages segment?

The Discontinued Lines and Coverages segment experienced significant underwriting losses, primarily due to a substantial strengthening of asbestos reserves by $442 million in the third quarter and $514 million for the first nine months of 2003. The company completed a comprehensive review of these reserves and believes they are appropriately established based on the current environment, although the inherent uncertainties remain.

Are there any significant accounting standard changes impacting the financial statements?

Yes, the company adopted FASB Interpretation No. 46 (FIN 46), 'Consolidation of Variable Interest Entities,' effective July 1, 2003. This adoption led to the consolidation of certain entities, increasing long-term debt and property and equipment. The adoption also resulted in the deconsolidation of another entity, decreasing long-term debt and 'Mandatorily redeemable preferred securities of subsidiary trust' by $200 million. The company also began expensing the fair value of stock options granted on or after January 1, 2003, as required by SFAS No. 148.

ALLSTATE CORP 10-Q Quarterly Report Q3 FY2003

Summary

The Allstate Corporation's third quarter and nine-month results for 2003 show a significant improvement in net income compared to the prior year. For the third quarter, net income rose to $691 million ($0.97 per diluted share) from $248 million ($0.35 per diluted share) in Q3 2002. For the nine months, net income reached $1.94 billion ($2.75 per diluted share), a substantial increase from $687 million ($0.97 per diluted share) in the same period of 2002. This growth was driven by a strong rebound in realized capital gains, which were losses in the prior year, and improved underwriting results in the Property-Liability segment, particularly in the Allstate Protection business. Despite increased catastrophe losses, the company demonstrated resilience and enhanced profitability. The company's balance sheet also strengthened, with total assets growing to $130.3 billion and shareholders' equity increasing to $19.4 billion. Investment income remained robust, and the Allstate Financial segment also contributed positively to overall performance. Management highlighted strategic pricing actions and favorable claim frequency in auto and homeowners insurance as key drivers for the improved underwriting income. However, significant asbestos reserve strengthening in the Discontinued Lines segment impacted underwriting results there, while regulatory and legal matters continue to be closely monitored.

Key Highlights

1Net income significantly increased to $691 million ($0.97/share) in Q3 2003 and $1.94 billion ($2.75/share) for the nine months, compared to $248 million ($0.35/share) and $687 million ($0.97/share) in the prior year periods, respectively.
2Property-Liability Underwriting income saw substantial improvement, rising to $255 million in Q3 and $849 million year-to-date, driven by higher premiums and favorable loss frequencies, partially offset by increased catastrophe losses.
3Realized capital gains in the current year significantly contrasted with realized capital losses in the prior year, contributing substantially to the improved net income.
4Premiums written for the Allstate Protection segment increased by 5.1% for both the quarter and the nine months, with strong new business growth in standard auto and homeowners lines.
5The Allstate Financial segment reported a net income of $119 million in Q3 2003, a notable improvement from $9 million in Q3 2002, primarily due to lower realized capital losses and improved investment margins.
6Total assets grew to $130.3 billion and shareholders' equity increased to $19.4 billion as of September 30, 2003.
7The company announced plans to terminate its Shareholder Rights Agreement and buy back share purchase rights for approximately $7 million.

ALLSTATE CORP Quarterly Report for Q3 Ended Sep 30, 2003

Summary

Key Highlights

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