10-QPeriod: Q3 FY2005

ALLSTATE CORP Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 1, 2005For Securities:ALLALL-PJALL-PBALL-PHALL-PI

Summary

Allstate Corporation (ALL) reported a significant net loss of $1.548 billion for the third quarter of 2005, a sharp contrast to the $56 million net income in the same period of 2004. This substantial decline was overwhelmingly driven by massive catastrophe losses, primarily from Hurricanes Katrina and Rita, totaling $4.71 billion pre-tax. These events severely impacted the Property-Liability segment, leading to a combined ratio of 149.6% for the quarter. Despite the catastrophic impact on earnings, the company's core insurance operations showed some resilience. Property-Liability earned premiums increased by 3.5% year-over-year, indicating continued policy growth. The Allstate Financial segment demonstrated stronger performance, with net income rising to $154 million from $88 million in the prior year's quarter. However, the overall financial health was significantly strained by these natural disasters, leading to a substantial drop in return on equity to 9.2% for the twelve months ending September 30, 2005, down from 13.9% a year prior.

Key Highlights

  • 1Third-quarter 2005 net loss of $1.548 billion compared to a net income of $56 million in the prior year, primarily due to massive catastrophe losses.
  • 2Catastrophe losses in Q3 2005 totaled $4.71 billion, significantly impacted by Hurricanes Katrina and Rita.
  • 3Property-Liability combined ratio deteriorated to 149.6% in Q3 2005 from 110.5% in Q3 2004 due to catastrophe losses.
  • 4Property-Liability earned premiums increased 3.5% year-over-year in Q3 2005, indicating underlying business growth.
  • 5Allstate Financial segment showed improved performance with net income of $154 million in Q3 2005, up from $88 million in Q3 2004.
  • 6Return on equity for the trailing twelve months decreased to 9.2% as of September 30, 2005, from 13.9% a year earlier, reflecting the impact of catastrophe losses.
  • 7The company had $1.00 billion in unused capacity under its commercial paper program and a $1.00 billion revolving credit facility, providing liquidity.

Frequently Asked Questions

The primary driver of the significant net loss was the unprecedented level of catastrophe losses, primarily from Hurricanes Katrina and Rita, which amounted to $4.71 billion pre-tax. These losses heavily impacted the Property-Liability segment's profitability.

Despite the heavy impact of the hurricanes, the Property-Liability earned premiums increased by 3.5% in the third quarter, indicating continued policy growth. The Allstate Financial segment also showed improved net income, rising to $154 million from $88 million in the prior year's quarter, suggesting resilience in its diversified operations.

Allstate maintained a solid liquidity position. It had $1.00 billion in unused capacity under its commercial paper program and an additional $1.00 billion available through its revolving credit facility. The company also stated its expectation that it would have sufficient liquidity to cover estimated catastrophe claims from existing funds, operating cash flows, and investment sales.

The substantial catastrophe losses significantly impacted profitability and shareholder returns. The return on equity for the twelve months ending September 30, 2005, declined to 9.2% from 13.9% for the same period in the prior year. This highlights the direct impact of major disaster events on the company's overall financial performance.