10-QPeriod: Q1 FY2006

ALLSTATE CORP Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 3, 2006For Securities:ALLALL-PJALL-PBALL-PHALL-PI

Summary

The Allstate Corporation reported a strong first quarter for 2006, with net income rising by 26.0% to $1.42 billion, or $2.19 per diluted share, compared to $1.12 billion, or $1.64 per diluted share, in the prior year. This performance was driven by a 4.3% increase in total revenues to $9.08 billion. The Property-Liability segment demonstrated robust underwriting income, increasing by over 26% to $1.24 billion, supported by higher premiums earned and favorable claims development. Allstate Financial also saw significant improvement, with net income more than doubling to $108 million from $53 million in the prior year. This growth was partly attributed to increased investment income and disciplined cost management, though offset by a planned disposition of the variable annuity business. The company's strategic initiatives to manage catastrophe exposure and enhance pricing are showing positive early results, contributing to a healthier combined ratio in the Property-Liability segment.

Key Highlights

  • 1Net income increased by 26.0% to $1.42 billion ($2.19 per diluted share) in Q1 2006, up from $1.12 billion ($1.64 per diluted share) in Q1 2005.
  • 2Total revenues grew by 4.3% to $9.08 billion in Q1 2006.
  • 3Property-Liability premiums earned increased by 2.9% to $6.88 billion.
  • 4The Property-Liability combined ratio improved to 81.9 in Q1 2006 from 85.3 in Q1 2005.
  • 5Allstate Financial segment's net income more than doubled, reaching $108 million in Q1 2006.
  • 6The company announced an agreement to dispose of substantially all of its variable annuity business through reinsurance with Prudential Financial, Inc.

Frequently Asked Questions

The primary driver of the increase in net income was the strong performance in the Property-Liability segment, which saw a significant rise in underwriting income due to increased premiums earned and favorable claims development. Additionally, Allstate Financial's net income more than doubled, contributing to the overall improvement.

The Property-Liability segment reported higher underwriting income and a better combined ratio of 81.9 in Q1 2006 compared to 85.3 in Q1 2005. This improvement was driven by increased premiums earned, lower claim frequency (excluding catastrophes), and favorable reserve reestimates. The company's strategic actions to manage catastrophe exposure and refine pricing also contributed.

Allstate entered into an agreement to reinsure substantially all of its variable annuity business with Prudential Financial. This disposition is expected to streamline operations within Allstate Financial and drive future improvements in its return on equity over time, although it will reduce future gross margin from this specific business line.

In auto insurance, Allstate brand standard auto premiums written increased, supported by growth in policies in force and higher average premiums, though renewal ratios saw a slight decline due to competitive pressures. In homeowners insurance, premiums written increased, but new business application growth slowed, particularly in catastrophe-prone areas, reflecting the company's ongoing efforts to manage catastrophe exposure through actions like reinsurance, limitations on new business, and rate adjustments.