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allstate 2005 Summary Annual Report

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    allstate 2005 Summary Annual Report allstate 2005 Summary Annual Report Presentation Transcript

    • 2005 The Allstate Summary Corporation Annual Report 1. Manage catastrophic exposures? 2. Keep our business growing? How does Allstate: 3. Create loyal customers? 4. Deliver value and results?
    • Front Cover Compassion and Commitment Allstate employees and agents showed true com- passion and commitment in the wake of Hurricane Katrina. Kathleen and Lester Null fled their home in Meraux, Louisiana, just before the storm hit. Unable to find shelter after hours of driving, they made their way to the West Memphis, Arkansas, office of Allstate Agent David Tyler, who had posted signs throughout town offering to assist Allstate evacuees. Tyler, who ultimately helped more than 200 people, arranged for lodging as well as check-cashing and other services, and provided vital logistical and emotional support until their local agent could restore service to his agency. Tyler (far right) and claim adjuster Kim Eubanks (second from left) recently visited the Nulls’ damaged residence. As they surveyed the empty structure that used to be their home, Lester and Kathleen told the story of their unimagin- able loss and of the hope that came with the help of Agent Tyler. In Lester’s words,“I will thank that man until I die.”
    • Giving Back to the Community The Allstate Corporation 2005 Corporate Social Responsibility Report highlights the socially responsible measures that not only help create strong and vital commu- nities, but also help manage our risks and enhance our company's performance. The report is available online at www.allstate.com/csr.
    • Financial Highlights Measuring our Performance Highlights: In 2005, Net Income per Operating Income* Revenues Return on Equity Book Value per Diluted Shareholders’ Equity Allstate incurred In 2005, operating income Revenues rose 4.3 percent to Return on average Shareholders’ equity, which Diluted Share Share Excluding the Net $5.7 billion in losses Net income per diluted was $1.6 billion. This is a $35.4 billion in 2005. beginning and ending is the company’s total assets Impact of Unrealized Net share, which decreased 41.9 common measure used by Revenues indicate Allstate’s period shareholders’ equity, minus total liabilities, Capital Gains on Fixed primarily related to Income Securities* increased percent in 2005, divides net the investment community total premium and invest- which measures how well indicates the book value the three devastating income by the number of to analyze our results. ment results. Allstate used shareholders’ by 1.6 percent in 2005. of the ownership interest hurricanes in the Gulf weighted average diluted Operating income reveals equity to generate net This measure, commonly of Allstate shareholders. states. Nevertheless, shares outstanding. It trends in our insurance and income, decreased to used by insurance investors It declined 7.5 percent demonstrates net income financial services business 8.4 percent in 2005 from as a valuation technique, in 2005 to $20.2 billion we generated net during the year that is that may be obscured by 15.0 percent in 2004. is shareholders’ equity less from $21.8 billion in 2004, income of $1.8 attributable to each share business decisions and unrealized net capital gains reflecting a net return billion, which pro- of stock. economic developments on fixed income securities of capital to shareholders duced an 8.4 percent unrelated to the insurance divided by the number of through dividends and return on equity. underwriting process. diluted shares outstanding share repurchasing. on December 31. We also repurchased 43.8 million shares at (in dollars) (in billions) (in billions) (percent) (in dollars) (in billions) a cost of $2.5 billion. Our total shareholder $4.54 $3.1 $21.8 $35.4 15.0% $29.08 $28.62 return of 7.0 percent $33.9 outpaced the S&P $20.2 500 in 2005, as it has in each of the last five years, and as it has cumulatively since we became a public company in June 1993. $2.64 8.4% $1.6 *Measures we use that are not based on accounting principles generally accepted in the United States (non-GAAP) are defined and reconciled to the most directly comparable GAAP measure, and operating measures are defined in the “Definitions of non-GAAP and Operating Measures” section on page 17 of this report. 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005
    • Letter to Shareholders Rising to the Challenge Dear Fellow Shareholders: Record Revenues, Focus on Profitable Increasing Total Lower Earnings Growth Shareholder In 2005 Allstate experienced Returns the worst hurricane season on record—and the costliest in Although Allstate gen- Property-Liability Financial premiums Amid a historic year erated record revenues continued to benefit and deposits* were in catastrophes, our your company’s 75-year in 2005, we incurred an from our focus on $14.4 billion, and its businesses once again unprecedented $5.7 profitable growth. operating income rewarded Allstate share- history. We sent 4,100 billion in catastrophe- Premiums written increased by 5.4 percent holders. We repurchased related costs as we increased by 3.2 percent to $581 million. $2.5 billion of our catastrophe specialists to helped customers from $26.5 billion in Overall, we’re making stock and paid an ravaged areas to do what rebuild their lives. 2004 to $27.4 billion progress in Allstate all-time high annual That’s a big number— in 2005. Our Allstate Financial and remain dividend of $1.28 per we do best: help customers more than five times brand standard auto focused on improving share, up 14 percent our annual average over business produced 2.9 returns that will deliver from 2004—a testa- recover. We also refined the last decade. Return percent unit growth, profitable growth. ment to our disciplined on equity fell 6.6 points while Allstate home- To that end, in March capital management. our risk management for 2005, compared to owners achieved 3.4 2006 we announced the Our stock price closed an increase of 0.8 points percent unit growth. decision to sell the 2005 at $54.07, a 4.5 models and continued to in 2004. Operating Total Property- Allstate Financial percent increase from execute our strategy to produce income per diluted Liability revenues, variable annuity business the $51.72 at the end of share* declined from including investment and enter into an 2004. We also delivered profitable growth. By focusing $4.41 in 2004 to $2.37 income, increased by exclusive distribution a total shareholder in 2005. 3.5 percent to a record arrangement, subject return of 7 percent. on our strengths, we fulfilled to regulatory approvals. Though these losses $29.3 billion. And, And, we maintained our This arrangement will slowed our short- excluding catastrophes, solid credit ratings from our commitments to policy allow our distribution term momentum, that top-line growth major rating agencies. channels to continue to the progress we made was generated while Under the circum- holders, invested in growth offer a full range of prod- implementing our continuing to improve stances, we’re very ucts, including variable “better, bigger, broader” our underwriting proud of these results. and rewarded our shareholders. annuities, while we strategy improved our margins. Our Property- They show that our dedicate our resources to ability to create long- Liability combined strategy is working, and better deploy capital to term value. ratio, excluding catas- that the market remains trophes* improved , a more focused product confident we can deliver Edward M. Liddy 2.1 points in 2005 portfolio where we have the attractive, steady Chairman and compared with 2004. scale and a significant long-term returns Chief Executive Officer In 2005, Allstate market presence today. shareholders expect. *See page 17. 1
    • Letter to Shareholders Managing an Unpredictable Market Allstate responded to the severe catastrophes of 2005 with speed, efficiency and compassion. We also worked to decrease our exposures and applied leadership Re-examining Risk Finding New and innovative Opportunities thinking to create a better business climate. Shareholders expect us wide basis, before the for named storms, Though we can’t control By staying close to our new ways to connect to ask tough questions 2005 hurricane earthquakes and fires the weather, we can customers and markets, with consumers. For about the exposures we season, we chose to following earthquakes and will mitigate the we’re growing our example, over the last face and manage them invest our reinsurance in all states except weather’s impact on our customer base in a five years we’ve doubled aggressively to deliver dollars in high-density Florida. We also pur- business. As a result, highly competitive our investment in multi- consistent earnings. In coastal areas where our chased as additional we expect our long-term market. We compete cultural advertising. the aftermath of financial exposure is protection from hurri- exposure will decline. aggressively for high We’re also aggressively Hurricanes Katrina, much higher—and canes in Florida $900 Moreover, we’re lifetime value insurance tapping such channels Rita and Wilma, two where the probability million of reinsurance in calling for public policy customers in multi-line as NASCAR, Olympic questions warranted of payback is greatest. excess of amounts recov- change and a more households. But it takes and college football close attention. Second, what will erable from the Florida rational approach to more than price to win. sponsorships and First, why were we do in the future to Hurricane Catastrophe how Americans prepare To attract and retain placing greater emphasis Allstate’s losses so mitigate this risk so we Fund. In some other for and protect them- profitable customers, on cable TV, the significant in Louisiana can continue to generate states, we’re purchasing selves against the we also continue to Internet and customer- and Mississippi? reliable earnings growth more reinsurance to devastating and highly develop our product experience activities. Katrina’s wide path and increase our returns reduce our exposures. unpredictable effects of mix to meet their needs and unusual severity on capital? Each major In other markets, catastrophes. and back these products meant high payouts we’re increasing rates In 2006 these efforts storm teaches us new with fast response, on the hundreds of and deductibles on our will expand and acceler- lessons—and makes us financial strength and thousands of homes homeowners policies ate. By re-examining better able to manage integrity. In addition, we insure there. and limiting new our catastrophe risk risks. We factor new we anticipate and Reinsurance could business writing. on an ongoing basis, data into our risk respond to demo- have softened the blow, In markets where we we can protect our management strategy, graphic, regulatory and as it did in Texas, for cannot adequately cover business and generate including recent find- market trends to find Hurricane Rita. When our risks, we may be more consistent share- ings that point to a we considered our expo- able to help customers holder returns. period of more frequent sures on an enterprise- and severe hurricanes. find alternative coverage We purchased country- while we focus instead wide reinsurance that on auto and financial will reimburse Allstate services products. for $2 billion of losses in excess of $2 billion 2
    • The Future: Building on our Strengths Innovation at Work Value Driven Investing in People Innovation anchors suc- Specifically, we started Value means different basis so we can refine Allstate maintains its Each year we invest cess for any company to apply even more things to different processes and commu- reputation for a high- heavily in helping our that wants to survive sophisticated tiered people. For Allstate, nications based on performance culture by employees achieve new and thrive over the pricing not only to auto, it means doing feedback from agents attracting and retaining professional designations long-term. Allstate is no but across our home- everything we can to and customers. the best talent in our and academic degrees. exception. Our success owners portfolio to more optimize financial Strategies like this save industry. We provide And because diversity reflects our commit- finely segment risks and returns for shareholders. money and support our force of nearly is a cornerstone of ment to product and help attract customers The 2005 hurricane top-line growth. 70,000 employees, Allstate’s success, process innovation and with higher lifetime season reinforced the Our strong balance agents and agency staff we also invest in and efficient business prac- value. And, our Next importance of manag- sheet gives us the with many opportuni- value our diverse work- tices, and we have many Generation Claim ing our business with flexibility to invest ties to expand their force, who serve our industry firsts to our Systems will combine even greater precision responsibly in growth. knowledge, acquire new diverse customer base credit. new technologies with and sophistication. With one of the skills and position and stockholders in In recent years we’ve fast, simple, customer- Our performance also country’s most recog- themselves for new a highly competitive taken our investment in focused processes. This makes us even more nizable brands as a career and business marketplace. In return, innovation to a new investment will help us committed to build on foundation, we are opportunities. For our people demonstrate level. For example, we lower our loss adjust- the key strengths that building profitable example, we launched exceptional commit- developed Allstate® ment expenses, better drive shareholder relationships based on a new field leadership ment to our customers Your Choice Auto insur- manage loss costs and returns by enhancing competitively priced structure designed to and work hard to ance to give customers boost customer reten- our business perform- products and services, provide agency owners help Allstate win in greater flexibility and tion and satisfaction. ance and corporate innovation and a better with specialized support the marketplace. choice of packages. Even as we look reputation. customer experience. to help them operate These package features ahead, we keep a keen Our scale provides As a company, we more efficiently and are helping us win eye on the market built-in economies value strong communi- profitably. profitable market share, variables that affect that generate value ties and show this especially as we combine our performance and for agents, customers commitment through them with increasingly adjust our strategy and shareholders. ongoing investment sophisticated under- accordingly. For exam- For example, it enables in municipal bonds, writing tools to deliver ple, we use technology us to roll out new employee volunteerism competitive pricing. and local knowledge to products on a regional and continued support Innovation is also guide expansion of our of The Allstate making our product agency base into high- Foundation. support structure more growth areas. efficient and profitable. 3
    • Letter to Shareholders 75 Years and Growing Total Shareholder Returns Dividends per Share 75 Years and Strong (in dollars, adjusted for stock split in 1998) Since IPO on 6/3/1993 Allstate is proud to and agents are deliver- we outline the many celebrate 75 years of ing our Good Hands® steps we took to keep 373% providing protection Promise with commit- our enterprise growing, 1.40 350 and security for genera- ment and zeal. meet our customer tions of Americans. We I am grateful for the commitments and 1.28 are excited to embark support of an experi- deliver value and 300 1.20 306% on our next 75 years, enced leadership team results. 1.12 and we do so from a that is guiding Allstate In 2006 we will focus 250 1.00 strong foundation. The toward a dynamic on several business pri- 243% 239% company is growing future. Several leaders orities that are critical .92 profitably despite record of your company, to our future. The .84 200 .80 catastrophe losses. Our including our long-time progress we make to .76 financial position is senior management reduce our catastrophe .68 solid. We’re improving team member Robert exposure, accelerate 150 .60 .60 our competitive position W. Pike, retired in profitable growth, pro- .54 by taking many 2005 after decades of tect our brand, manage .48 100 .40 .43 initiatives to reduce outstanding service. expenses and improve .39 .36 costs. Consumers are I thank them for their the customer experience responding to the many contributions to will make us an even S&P Insurance 50 .20 consistent brand Allstate’s success. They stronger and better S&P 500 .18 S&P P/C Allstate experience we deliver, have left their very company. 93* 94 95 96 97 98 99 00 01 02 03 04 05 our competitive but capable successors with *IPO as of 6/3/1993 disciplined pricing and high standards to meet. Total Shareholder Returns our innovative new In 2005 Allstate products. Employees drew on its many Edward M. Liddy S&P strengths to overcome Chairman and Allstate S&P P/C Insurance S&P 500 adversity and generate Chief Executive Officer 7% 15% 14% 5% 1 Year, 12/31/2004 –12/31/2005 solid shareholder 31% 27% 22% 16% 2 Years, 12/31/2003–12/31/2005 returns. I’ve addressed 56% 60% 48% 49% 3 Years, 12/31/2002–12/31/2005 our strategy for manag- 75% 43% 17% 16% 4 Years, 12/31/2001–12/31/2005 ing catastrophic events. 5 Years, 12/31/2000–12/31/2005 39% 31% 3% 3% In the pages that follow, 10 Years, 12/31/1995–12/31/2005 218% 150% 193% 136% 373% 239% 306% 243% Since IPO, 6/3/1993–12/31/2005 4
    • Preparing and Protecting America How do we mitigate mega-catastrophe risk? Protecting America Allstate advocates preparation, not rear- view reaction. It’s not a matter of insurance; Why should Why is Allstate What is Allstate’s How will this What can Americans be advocating a new solution? solution benefit consumers do it’s a matter of economic vitality. concerned? system? Allstate share- to protect The fact is that America is holders? themselves? not as prepared as it should be, We initiated Protecting Allstate is reducing Consumers can take For most families, Simply put, the current America.org, a broad its catastrophe expo- advantage of new educa- the home represents a system does not ade- and mega-catastrophes appear coalition that seeks to sure to protect its tion programs that will primary and growing quately help Americans to be increasing in better prepare and financial strength and help them prepare for source of equity and effectively prepare for protect Americans generate consistent catastrophes before they the foundation of and efficiently recover frequency and from natural disasters. earnings. In the strike. They can learn their long-term from catastrophes. The goal is to improve short-term, this how to: financial security. Insurance premiums severity. consumer education, strategy will require • Ensure their insurance Yet today, one third rise as carriers try to mitigation and the us to provide less coverage includes of Americans live in cover the costs of first response capability protection to fewer replacement costs areas prone to earth- mega-catastrophes and of police and fire homeowners. With • Follow their commu- quake risk, and more reinsurance coverage. departments. We are a new risk-sharing nity’s public escape than half live in Some homeowners find also advocating a new mechanism in place, plan in an emergency coastal counties. it difficult to secure risk-sharing mechanism we can protect more • Develop a simple This is a precarious insurance coverage at whereby private insurers consumers at afford- family communication place to be at a time any price. As a result, would continue to able prices and enable and response plan when seven major too many consumers provide protection to them to benefit • Access available hurricanes struck the and businesses lack the consumers but there from our world-class resources to speed the Gulf and Atlantic comprehensive cover- would be a limit to service and claims recovery process coasts in a 15-month age they need. And their potential losses. expertise. Bringing You can learn more by span in 2004-05, when disaster strikes, Losses above this the Good Hands® visiting Protecting and resulted in they have nowhere to amount would be Promise to life will America.org. Equally insured losses that turn for immediate covered by a privately enable us to grow important, I encourage ranked among the support. Taxpayers funded government- profitably and you, your family and top 10 catastrophes also suffer when the sponsored catastrophe maintain our record friends to contact your in Allstate’s history. government spends pool at the state and of outstanding legislators and ask them billions in emergency federal levels. This shareholder returns. to join the effort to help funds on people and structure would pro- protect you and our businesses that may vide more protection country from the devas- never fully recover. We at a lower cost to tating consequences of need a new approach consumers. natural catastrophes. that gives consumers Thomas J. Wilson the protection and President and support they need. Chief Operating Officer 5
    • Product Innovation Allstate® Your Choice Auto insurance is re- inventing auto insurance by rewarding safe driving and offering more choice to meet individual needs. Features include a safe- driving bonus, accident forgiveness, a safe-driving deductible and new-car expanded protection. Allstate customers John and Kitty Vautier, shown here with their teenage drivers Jennifer and John Jr., protect all their family cars with Allstate® Your Choice Auto insurance. 6
    • How does Allstate keep its business growing? We compete vigorously A High Quality Expanded Innovation Drives A Rewarding Future Portfolio Distribution Opportunity on multiple fronts. Our sophisticated tiered We never rest when it Growth also requires a Demographic trends consumers prepare for pricing models are comes to building on clear view of the market are making personal the future. In 2005, creating a more stable our already powerful opportunities ahead— investment more new sales of financial and profitable portfolio. distribution engine. In and a focused strategy important than ever— products by Allstate exclusive agencies* Our rating plans have 2005 we had a net gain for capturing them. and providing growth multiple tiers that allow of 555 new exclusive For example, new opportunities for increased 5.7 percent us to more precisely agencies, bringing technology is making Allstate Financial. to $2.4 billion and have align premium with our U.S. total to cars much safer, while Life expectancy is grown at a compound risk. We compete 12,428. We’re also demographic shifts increasing. Health- annual rate of 42.1 vigorously for high life- helping our existing and tougher laws are care costs are rising. percent since 2000. time value customers. agencies grow bigger, creating a larger pool of Pensions and Social The result: improved more efficient and more safe, responsible drivers. Security benefits are underwriting profits, profitable. For example, These trends present a under pressure. Tens better retention and our U.S. licensed sales favorable climate for of millions of baby stable margins. professionals increased innovative new products boomers are at or The Good Hands® Promise to approximately like Allstate® Your near retirement age. As part of our overall growth 29,800 in 2005 from Choice Auto insurance, Allstate has the strategy, we focus on delivering 28,500 in 2004. As a which gives consumers financial expertise, on the five planks of the Good result, we’re reaching the flexibility to match innovative products and Hands® Promise to help cus- more new households the price they pay to the distribution network tomers feel better protected while cross-selling our coverage they need. to meet the growing today and better prepared for broad product portfolio demand for financial tomorrow. to the 17 million house- services that help holds we already serve. Opportunities for Establish relationships Differentiation that value customers Provide a knowledgeable and experienced team Offer products and services to help meet customer needs Foundational Be easy to do business with Elements Have competitive prices *See page 17. 7
    • How does Allstate meet its customer commitments? We’re creating loyal customers— Allstate is attract- ing and retaining one experience at a time. customers by responding fast, improving the claim experience and building a larger and better equipped agent Connecting with First to Respond Staking a Claim Tools to Excel network. Customers to Excellence Allstate’s Good Hands® Customers appreciate Allstate handles more Our vast and growing Promise makes a strong Allstate’s scale and than six million claims network of exclusive commitment to resources most when in a typical year—not agencies gives us nurture and protect disasters strike. Before including catastrophes. immediate access to our customers. We’re Katrina reached land, This means millions of consumers and commu- extending this promise we mobilized 1,500 opportunities each year nities across the country. by making our agency, claim adjusters just to execute efficiently As these agencies grow online and customer outside the impact and help customers bigger, more efficient service channels easier zone. We also posi- recover after a loss. and more profitable, to access and more sat- tioned 24 Mobile We have been looking they’re better equipped isfying to experience. Response Units, all at every phase of the to meet the protection We’re also sharpening equipped with satellite claim process—from and financial services communications to capability that allowed customer record- needs of our target better align our target- us to relay claim keeping to check market. Today, Allstate ed audiences with information from distribution. And we agents benefit from an media channels—and field adjusters to head- have been making efficient new technology to ensure we consis- quarters systems before dozens of changes to platform that makes tently reinforce brand local phone service was improve the entire doing business easier. value. In 2005 greater restored. Allstate experience. They can also access the customer focus helped agents and employees market intelligence, increase customer also showed their marketing support and loyalty for the second dedication by attending training they need to year in a row. to customers first— break away from the even though more than retail competition. 800 had lost their own We are also making homes and businesses technology and process or were otherwise investments to grow our severely affected by independent channel, the storm. which serves a market representing one third of all insurance customers and $45 billion in annual premium dollars. 8
    • Real Time Response Members of Allstate's dedicated National Catastrophe Team monitor storms before they strike, develop response strategies and coordinate on- the-ground activity. Team members (left to right) include Steve Pressley, Claim Process Specialist; Jerry Jimenez and Wendy Carrick, Market Claim Managers; and Les Mertins, Claim Field Director. 9
    • How does Allstate deliver value and results? We invest responsibly and Shareholders count on act with integrity. Allstate to act with integrity and initiative— the same attributes that help guide our business— when helping Disciplined Risk Management, Integrity in Strong Communities, the people and Reliable Returns Action Empowered Customers communities that we serve. In twelve-and-a-half Allstate has a sophis- both the Standard & Allstate’s reputation for Allstate is supporting the Annual Giving years as a public ticated formula for Poor’s Property & good governance and new generations of Campaign. company, Allstate has managing risks. By Casualty and Standard financial transparency customers by helping Each year, Allstate created significant viewing them strategi- & Poor’s 500 indices. creates additional value communities across funds The Allstate value by executing a cally, we can determine Allstate also has a by contributing to our America grow and Foundation, an inde- disciplined investment which risks to assume proven track record of long-term financial per- prosper. These activities pendent charitable strategy and managing and then the right returning free cash flow formance. We adopted express our core values corporation. In 2005 our risks with an amount to assume in to shareholders through many of our current and boost Allstate’s The Allstate Foundation enterprise-wide view. order to achieve dividends and stock corporate governance reputation as a responsi- awarded $16 million in We generate addi- attractive, reasonably repurchases. Our practices long before ble corporate citizen. grants to 508 national tional returns through predictable returns. dividend has increased corporate scandal led At the end of 2005, and regional not-for- prudent management of That means under- every year since 1993 to regulatory change. our investment portfolio profit organizations. our $118.3 billion standing how natural and it reached an all- These include rigorous included $27 billion These grants strengthen investment portfolio. disasters, changing time high of $1.28 per CEO evaluations in municipal bonds in communities in three We invest share- economic conditions, share in 2005. Since and detailed board urban areas that need important ways: they holders’ equity in areas operational challenges 1993 we have also evaluations. investment capital. promote community that drive profitable and market forces affect repurchased more than Our practices and Allstate also supports safety; create greater growth and generate our business. This $11 billion in Allstate our written policies— communities in need by economic empowerment; solid returns. These analysis helps us find stock. which are described funding programs that and encourage tolerance, include product the right balance online at allstate.com— encourage employees, inclusion and diversity. innovation, marketing, between maintaining earn high marks from agents and agency staff In 2005 The Allstate distribution and process liquidity and investing independent governance to reach out to others. Foundation launched improvement. In 2005 capital to fuel growth organizations and are In 2005, the $6 million new initiatives to shareholders’ equity was and reward investors. widely embraced donated by Allstate to educate teens on the $20.2 billion compared Between 1994 and throughout our organi- help hurricane victims importance of safe to $21.8 billion in the end of 2005, the zation. Our senior in the Gulf states driving, and to help 2004, reflecting a net total shareholder return management team leads included $2.6 million victims of domestic return of capital to on our stock has aver- by example, anchoring in contributions from violence transition to shareholders through aged 17 percent on a our culture by maintain- Allstate employees and safe, productive lives dividends and share compound annual basis. ing the highest personal agencies. Our people free of violence. repurchasing. These returns exceed standards for integrity also gave an additional and accountability. $2.8 million in 2005 to local charitable organizations through 10
    • Providing a Helping Hand Families in the New Orleans area are getting help rebuilding their lives in the wake of Hurricane Katrina. Shikanah Brown (fore- ground) is one of dozens of pre-schoolers at the East St. Tammany Rainbow Child Care Center in Slidell, Louisiana, helped by The Allstate Foundation Hurricane Recovery Fund at the Greater New Orleans Foundation. The daycare center received $20,000 to rebuild its battered site. “It’s been a Godsend,” says Rainbow executive director Charlotte Champagne, shown talking with Shikanah’s mother Celeste and (to her right) Maya Rollins with son Jasper Williams. 11
    • Financial Scorecard Better Bigger Broader For Allstate, trans- Net Income per Operating Income per Return on Equity Revenue Operating Income Premiums and Deposits parency means giving Return on equity measures This measure indicates This measure reveals This measure is used to Diluted Share Diluted Share This “bottom line” This is a common measure how well Allstate used Allstate’s total premium and trends in our insurance analyze the production investors clear and easy measure demonstrates used by the investment shareholders’ equity to investment results. In 2005, and financial services trends for Allstate Financial access to all the infor- net income during the year community to analyze our generate net income. Allstate generated record business that may be sales. It shows the progress mation they need to that is attributable to each results. Operating income revenue. obscured by business on meeting the goal of assess our performance. share of stock. This num- reveals trends in our insur- decisions and economic becoming a broader-based This financial scorecard ber declined in 2005 as ance and financial services developments unrelated company. severe catastrophe losses business that may be obscured to the insurance under- demonstrates our reduced net income. by business decisions and writing process. progress in executing economic developments our “better, bigger, unrelated to the insurance broader” strategy. underwriting process. Better (in dollars) (in dollars) (percent) (in billions) (in billions) (in billions) We’re striving to become more efficient and profitable 35.4 in our operations and 3.1 4.54 33.9 in our relationships with $4.50 $4.50 15.0 $18.0 $33.0 $3.0 4.41 15.0 customers. 32.1 14.2 15.9 Bigger 29.6 2.7 14.4 28.9 Our goal is to drive top line 3.83 13.2 2.5 3.75 3.75 12.5 15.0 27.5 3.77 growth in a way that also 11.6 delivers bottom line profits. 13.1 10.8 Broader 11.8 2.1 2.0 3.00 3.00 10.0 12.0 22.0 We seek to expand in 10.6 9.8 the personal lines, life 2.92 2.64 insurance, retirement 9.3 8.4 and investment products 1.6 2.37 marketplace. 1.5 2.25 2.25 7.5 9.0 16.5 1.5 2.06 6.7 6.5 1.60 1.60 1.0 1.50 1.50 5.0 6.0 11.0 0.5 .75 .75 2.5 3.0 5.5 2.7 2.8 2.3 2.0 1.3 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 Non-proprietary channels Proprietary channel 12
    • Leadership Team George E. Ruebenson Catherine S. Brune Casey J. Sylla Thomas J. Wilson Eric A. Simonson Joan H.Walker From left to right: Senior Vice President and Joseph V.Tripodi Senior Vice President, President, Allstate Financial President and Senior Vice President and Senior Vice President, Property-Casualty Claim Senior Vice President and Chief Information Officer Drives increasing returns Chief Operating Officer Chief Investment Officer Corporate Relations Service Organization Chief Marketing Officer Sets and implements and profitable growth by Leads the implementation of Manages Allstate’s invest- Stewards Allstate’s corporate Oversees a highly efficient Leverages Allstate’s market- an integrated, business- providing top-tier financial Allstate strategies that drive ment portfolios to generate image and reputation claim service organization ing power and highly valued aligned technology strategy products through Allstate profitable growth, customer attractive levels of risk- and sets and directs the that is continuously evolv- Good Hands® Promise to that supports business agencies and third-party loyalty and innovation. adjusted income and total company’s external and ing to better meet the needs strengthen and broaden objectives, protects and financial services return in support of overall internal communication Michael J. Roche of customers and agents. customer relationships and delivers information and professionals. financial objectives. strategy. attract new customers. enhances customer service. Senior Vice President, Michael J. McCabe Edward M. Liddy Ronald D. McNeil Allstate Protection Technology Dan Hale Joan M. Crockett Senior Vice President and Chairman and and Administration Senior Vice President, General Counsel Senior Vice President and Senior Vice President, Chief Executive Officer Leads all aspects of Protection Distribution Guides Allstate’s strategy to Chief Financial Officer Human Resources Sets and directs the corporate Protection technology Optimizes performance ensure sound compliance Develops financial strategy Develops and implements strategy that is transforming management and Allstate’s of Allstate’s distinct and and governance practices and ensures sound gover- workforce strategies to Allstate into a high-perform- agency and customer powerful distribution net- and to foster a healthy legal, nance practices, rigorous attract, retain and motivate ance insurance and financial support functions. works to deliver products economic, legislative and financial and risk manage- the best talent to drive services company. and services that meet regulatory environment. ment controls, appropriate business strategy. customers’ needs. reporting transparency and disciplined capital management. 13
    • Delivering Shareholder Value Leading the Way for 75 Years Sustaining Innovation For 75 years, Allstate has demonstrated that product and process innovation drives sustainable growth. We have created positive change for consumers by introducing new ideas, taking new risks and leading the industry in new directions. As we look to the future, our 1939 1939 First to tailor Introduces culture of innovation will help Allstate stand out. We’re moving forward rates by age, towing and with new market-focused products like Allstate® Your Choice Auto mileage, use emergency road insurance, new processes that improve the customer experience and new of car. service. ways to manage risks across the organization. 19 39 36 19 1942 1933 1942 1968 1968 Begins sales Advocates seat Offers “Business training courses belts, airbags Umbrella” package for women. and other for commercial 1930-1945 19 auto safety businesses. 30 45 19 measures. 1952 1952 1966 Forms The First drive-in Forms first 19 69 1931 1931 Allstate claim office industry research 66 19 Begins First Allstate Foundation revolutionizes and planning 1970 operations auto claim to support claim handling. center for market Encourages on April 17. paid on the communities. research. automakers spot. 1972 to produce 1963 19 54 tougher cars, 51 19 1950 including Launches “You’re uniform 1960-1975 In Good Hands bumpers. 19 60 with Allstate®” 75 19 slogan. 1957 1948 1957 1961 Starts selling Creates Allstate life insurance. Motor Club, first 1947 1945-1960 truly national It’s always about market Creates first 19 45 service. strategy and value 60 19 “illustrator policy” 1959 to explain insur- Market focus and disci- Establishes first ance coverages plined strategy generate “catastrophe using simple plan” to help profitable growth and language and customers. create long-term value. illustrations. 14
    • Strategy for the Future Creating a Climate for Success 1982 1983 Announces Introduces National Urban Universal Life Policy to support policy for savings 1995 19 84 Innovation and improve and investment. 81 19 Becomes a totally neighborhood New products and independent com- housing. improved processes pany after spin-off differentiate Allstate from Sears. Innovation in the marketplace 1987 1978 1999 1999 and help build prof- Introduces Establishes Good itable long-term Exclusive Agent Hands® Network, relationships. Contractor pro- giving customers 1975-1990 19 gram. 24-hour access to 75 90 19 Allstate services. 1990 19 99 Offers 96 19 1976 1976 Neighborhood Organizes Starts Tech-Cor Exclusive Helping Hands® operation for Contracts to Protect and program to research on Agents. promote auto/home Prepare 2002 1993 2002 1993 employee repairs. Consumers volunteerism. Expands Becomes largest tiered pric- publicly held ing in auto personal lines 1990-2005 and home- insurance 20 90 05 19 owners company. insurance. Protecting and Preparing 2005 Consumers Introduces Whether it’s their Allstate® Your personal assets or Choice Auto financial futures, insurance. Enjoying Scale Allstate has the scale and financial resources to Corporate Allstate will help its Corporate Citizen meet its commitments to customers and generate profitable growth. Citizen customers feel better Some things never To strengthen this foundation, we are investing in our distribution protected today and change. By investing channels, building a more efficient and customer-focused claim better prepared for in communities, operation and leveraging best practices to control costs and boost tomorrow’s challenges. Allstate generates a performance across our organization. return on invested capital and helps create brighter futures for new generations of customers. 15
    • Allstate Products Customers deserve protection today— To Access Allstate: • Allstate agents and a brighter future. That’s our stand. • allstate.com • Independent agents • 1-800-allstate • Allstate Bank • Financial institutions • Broker dealers • Workplaces Insurance Products and services that Financial Financial services products help customers protect that help customers Products Products their assets, wealth and prepare for the future. family. Asset Protection Wealth Transfer Family Protection Asset Management Asset Management Insurance and Accumulation Short-term Financial Objectives Fixed Annuities Auto Checking Accounts Estate Planning Term Life Variable Annuities Homeowners Savings Accounts Products Universal Life Equity Indexed Condominium Certificates of Deposit Business Succession Variable Universal Life Annuities Renters Money Market Accounts Planning Products Long-term Care* Single Premium Scheduled Personal Mortgages Fixed Survivorship Life Supplemental Health Immediate Annuities Property Variable Survivorship Universal Life Business Umbrella Life Variable Universal Life Commercial Auto Single Premium Life Commercial Inland Structured Settlement Marine Annuities Small Business Owner Mutual Funds* Customizer and Qualified Plans* such , Business Package as IRAs, 401(k)s, Policy 403(b)s Landlord Package Education Plans* Manufactured Home (529 and Coverdell Motor Home Education Savings Motorcycle Accounts) Boat Institutional Funding Personal Umbrella Agreements Recreational Vehicle Motor Club Flood* * Non-proprietary products distributed by Allstate 16
    • Definitions of Non-GAAP and Operating Measures We believe that investors’ understanding of Operating income Allstate’s performance is enhanced by our disclosure Allstate Financial Consolidated Per diluted share of the following non-GAAP and operating financial 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 ($ in millions, except per share data) measures. Our methods of calculating these meas- ures may differ from those used by other companies Operating income $ 551 $ 581 $1,492 $2,075 $2,662 $3,091 $1,582 $ 2.06 $ 2.92 $ 3.77 $ 4.41 $ 2.37 and therefore comparability may be limited. Realized capital gains and losses 1 19 (352) (924) 196 591 549 Income tax (expense) benefit (4) (7) 127 326 (62) (199) (189) Operating income is income before cumulative Realized capital gains and losses, after-tax (3) 12 (225) (598) 134 392 360 (0.31) (0.84) 0.19 0.56 0.54 effect of change in accounting principle, after-tax, Reclassification of periodic settlements and accruals on non-hedge derivative excluding: instruments, after-tax (32) (40) (4) (3) (15) (32) (40) (0.01) (0.01) (0.02) (0.04) (0.06) • realized capital gains and losses, after-tax, except for periodic settlements and accruals on non- DAC and DSI amortization related to realized capital gains and losses, after-tax (89) (103) (11) (1) (30) (89) (103) (0.01) — (0.05) (0.13) (0.16) hedge derivative instruments which are reported (Loss) gain on disposition of operations, after-tax (6) (12) (40) 2 (26) (6) (12) (0.06) — (0.04) (0.01) (0.02) with realized capital gains and losses but includ- Non-recurring increase in liability for future benefits, after-tax — (22) — — — — (22) — — — — (0.03) ed in operating income, Income before dividends on preferred securities and cumulative effect of change • amortization of deferred policy acquisition costs in accounting principle, after-tax 421 416 1,212 1,475 2,725 3,356 1,765 1.67 2.07 3.85 4.79 2.64 (“DAC”) and deferred sales inducements (“DSI”), Dividends on preferred securities of subsidiary trust, after tax — — (45) (10) (5) — — (0.06) (0.01) — — — to the extent they resulted from the recognition of certain realized capital gains and losses, Cumulative effect of change in accounting principle, after-tax (175) — (9) (331) (15) (175) — (0.01) (0.46) (0.02) (0.25) — • (loss) gain on disposition of operations, after-tax, Net income $ 246 $ 416 $1,158 $1,134 $2,705 $3,181 $1,765 $ 1.60 $ 1.60 $ 3.83 $ 4.54 $ 2.64 and • adjustments for other significant non-recurring, Premiums and deposits Premiums and deposits is an operat- net new deposits of Allstate Bank, which infrequent or unusual items, when a) the nature we account for under GAAP as increases ing measure that we use to analyze pro- of the charge or gain is such that it is reasonably 2001 2002 2003 2004 2005 ($ in millions) to liabilities rather than as revenue. duction trends for Allstate Financial unlikely to recur within two years, or (b) there Life and annuity premiums $ 1,345 $ 1,371 $ 1,365 $ 1,045 $ 918 The following table illustrates where sales. It includes premiums on insurance has been no similar charge or gain within the Deposits to contractholder funds 7,970 9,484 10,373 13,616 12,004 premiums and deposits are reflected in policies and annuities and all deposits prior two years. the consolidated financial statements for and other funds received from customers Deposits to separate accounts and other 1,290 979 1,357 1,258 1,473 the years ended December 31. on deposit-type products including the Net income is the GAAP measure that is most Total premiums and deposits $10,605 $11,834 $13,095 $15,919 $14,395 directly comparable to operating income. We use operating income to evaluate our results Book value per diluted share Book value per diluted share cantly from period to period and are of operations. It reveals trends in our insurance and excluding the net impact of unre- generally driven by economic develop- 2004 2005 As of December 31, ($ in millions, except per share data) financial services business that may be obscured by alized net capital gains on fixed ments, primarily market conditions, the the net effect of realized capital gains and losses, Book value per diluted share income securities is calculated by magnitude and timing of which are (loss) gain on disposition of operations and adjust- Numerator: Shareholders’ equity $21,823 $20,186 generally not influenced by manage- dividing shareholders’ equity after ments for other significant non-recurring, infre- ment, and we believe it enhances under- excluding the net impact of unrealized Denominator: Shares outstanding and dilutive potential shares outstanding 688.0 651.0 quent or unusual items. Realized capital gains and standing and comparability of perform- net capital gains on fixed income securi- Book value per diluted share $ 31.72 $ 31.01 losses and (loss) gain on disposition of operations ance by highlighting underlying ties and related DAC and life insurance may vary significantly between periods and are gen- Book value per diluted share, excluding the net impact of unrealized business activity and profitability driv- reserves by total shares outstanding plus net capital gains on fixed income securities erally driven by business decisions and economic ers. We note that book value per dilut- dilutive potential shares outstanding. developments such as market conditions, the tim- Numerator: Shareholders’ equity $21,823 $20,186 ed share excluding unrealized net capi- Book value per diluted share is the most ing of which is unrelated to the insurance under- Unrealized net capital gains on fixed income securities 2,134 1,255 tal gains on fixed income securities is a directly comparable GAAP measure. writing process. Moreover, we reclassify periodic measure commonly used by insurance We use the trend in book value per Adjusted shareholders’ equity $19,689 $18,931 settlements on non-hedge derivative instruments investors as a valuation technique. Book diluted share excluding unrealized net Denominator: Shares outstanding and dilutive potential shares outstanding 688.0 651.0 into operating income to report them in a manner value per diluted share excluding unre- capital gains on fixed income securities consistent with the economically hedged invest- Book value per diluted share, excluding the net impact of alized net capital gains on fixed income in conjunction with book value per ments, replicated assets or product attributes (e.g. unrealized net capital gains on fixed income securities $ 28.62 $ 29.08 securities should not be considered as a diluted share to identify and analyze the net investment income and interest credited to con- substitute for book value per diluted change in net worth attributable to tractholder funds) and by doing so, appropriately Combined ratio, excluding the separately and in the aggregate when share and does not reflect the recorded management efforts between periods. reflect trends in product performance. Non-recur- effect of catastrophe losses, is com- reviewing our underwriting perform- net worth of our business. The follow- We believe the non-GAAP ratio is use- ring items are excluded because, by their nature, ance. The combined ratio excluding ing table shows the reconciliation. puted as the difference between two ful to investors because it eliminates the they are not indicative of our business or economic the effect of catastrophe losses should operating ratios, combined ratio (a effect of items that can fluctuate signifi- trends. Therefore, we believe it is useful for not be considered a substitute for the GAAP measure) and the effect of catas- investors to evaluate these components separately combined ratio and does not reflect the trophes on the combined ratio. The and in the aggregate when reviewing our perform- New sales of financial products by deposits in the Allstate Bank and sales overall underwriting profitability of our most directly comparable GAAP meas- ance. We note that the price to earnings multiple Allstate exclusive agencies is an of other companies’ mutual funds, and business. The following table shows the ure is the combined ratio. We believe commonly used by insurance investors as a forward- excludes renewal premiums. New sales operating measure that we use to quan- reconciliation for the years ended that this ratio is useful to investors and looking valuation technique uses operating income of financial products by Allstate exclu- tify the current year sales of financial December 31. it is used by management to reveal the as the denominator. We use adjusted measures of sive agencies for the years ended products by the Allstate Agency propri- trends in our property-liability business 2004 2005 operating income and operating income per diluted December 31, 2005, 2004, 2003, 2002, etary distribution channel. New sales of that may be obscured by catastrophe share in incentive compensation. Operating income 2001 and 2000 totaled $2.40 billion, financial products by Allstate exclusive Combined ratio 93.0 102.4 losses, which cause our loss trends to should not be considered as a substitute for net $2.27 billion, $1.83 billion, $1.61 bil- agencies includes annual premiums on Effect of catastrophes on the combined ratio 9.5 21.0 vary significantly between periods as a income and does not reflect the overall profitability lion, $702 million and $414 million, new insurance policies, initial premi- result of their rate of occurrence and Combined ratio, excluding the effect of of our business. respectively. ums and deposits on annuities, net new magnitude. We believe it is useful for catastrophe losses 83.5 81.4 The following tables reconcile operating income investors to evaluate these components and net income for the years ended December 31. 17 17
    • The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 (800) 574-3553 www.allstate.com Shareholders may receive without charge a copy of The Allstate Corporation Form 10-K annual report (filed with the Securities and Exchange Commission) and other public financial information for the year ended December 31, 2005, by contacting: Investor Relations The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 (800) 416-8803 invrel@allstate.com The Allstate Corporation’s annual report is available online at: www.allstate.com/ investor/annual_report