allstate 2003 Summary Annual Report


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allstate 2003 Summary Annual Report

  1. 1. The Allstate Corporation 2003 SUMMARY ANNUAL REPORT Clearly Different Table of Contents A POWERFUL COMPETITIVE POSITION; Do the Math 2 A Different Direction 3 AN INNOVATIVE STRATEGY; Reaching America 4 People + Capital 5 Best Foot Forward 6 Chairman’s Letter 7 PROVEN, PRINCIPLED MANAGEMENT Investor Experience 8 AND OUTSTANDING EXECUTION CREATED STRONG RESULTS. LEARN MORE ABOUT HOW YOUR COMPANY PERFORMED IN 2003. This icon denotes that additional information is available online at annual_report. Additional information is also avail- able in the 2003 Annual Report and Notice of 2004 Annual Meeting and Proxy Statement. © The Allstate Corporation
  2. 2. The Allstate Corporation 2003 DO THE MATH USE THESE FINANCIAL HIGHLIGHTS TO Allstate encourages you to review the short- and long-term financial highlights to assess its performance and make an TRACK YOUR COMPANY’S PROGRESS. informed decision about the company as an investment. Operating In 2003, operating income rose to 139.4% a record $2.7 billion. Allstate uses Income* this measure to evaluate our ($ in millions) results and for incentive com- % 2003 2002 change pensation. This is a common $2,662 $2,075 28.3 measure used by the investment + 28.3% community to analyze our results. Operating income reveals trends + that may be obscured by busi- ness decisions and economic developments unrelated to the Net Income Per insurance underwriting process. Diluted Share (In dollars) % 2003 2002 change $3.83 $1.60 139.4 8.7 Net income per diluted share, which more than doubled in 2003, divides net income Total Shareholder Return Over 11 Years by the number of weighted average diluted shares out- standing. It demonstrates the Total shareholder return, charted over 11 years, 258.2 growth of net income during measures the total investment value of Allstate the year that is attributable stock for a shareholder since the company’s + % to each share of stock. June 1993 initial public offering. Compared with + % the total value of the Standard & Poor’s 500 and Standard & Poor’s Property & Casualty indices, it shows that Allstate’s total shareholder return exceeded many of its corporate and industry peers. The chart assumes quarterly reinvestment of all dividends. 400 Allstate: 258.2% S&P 500: 191.1% 300 S&P P/C: 171.0% 200 Revenues ($ in millions) % 100 2003 2002 change Index: 6.03.93 =100 $ 32,149 $ 29,579 8.7 14.2% Revenues rose nearly nine 0 6.03.93 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 percent to $32.1 billion in Dividend per share (in dollars) Dividends per share, charted over 11 years, represents the 2003. Revenues indicate profit per share that Allstate returned to our shareholders. It has increased by an average of Allstate’s total premium and nearly 10 percent per year. investment results. Return on Equity 1.00 0.92 0.84 0.76 0.68 0.60 0.54 0.18 (percent) 0.48 0.43 0.50 0.39 0 2003 2002 0.36 14.2% 6.5% 0 6.03.93 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Return on equity, which measures how well Allstate used shareholders’ equity to generate additional earnings, increased to 14.2 percent in 2003 from 6.5 percent in 2002. $20,565,000,000 Book Value Per Book value per share, which rose 17 percent in 2003, is Diluted Share Shareholders’ shareholders’ equity divided by Shareholders’ equity, which the number of diluted shares (In dollars) is the company’s total % Equity 2003 2002 change outstanding on December 31. assets minus total liabilities, $ 29.04 $ 24.75 17.3 This demonstrates an increas- indicates the value of the ($ in millions) % View comprehensive 2003 2002 change ing ownership interest in ownership interest of five-year financial Allstate on a per share basis. $20,565 $17,438 17.9 Allstate shareholders. It information online at increased 17.9 percent in 2003 to $20.6 billion from dothemath, or see the 17.3% 5-Year Summary $17.4 billion in 2002. section of the 2003 + Annual Report and Notice of 2004 Annual *Measures we use that are not based on generally accepted accounting principles (“non-GAAP”) are defined and reconciled to Meeting and Proxy the most directly comparable GAAP measure, and operating measures we use are defined in the “Definitions of non-GAAP and Statement. Operating Measures” section on page eight of this report. 2
  3. 3. The Allstate Corporation 2003 A DIFFERENT DIRECTION As a long-term Difference pays investment, Allstate dividends outperforms the By rewriting the rules, your competition. From company is applying a rare combination: best-in-class our June 3, 1993 pricing and underwriting; a initial public offering broad portfolio of protection through December and retirement products; and access through almost every 31, 2003, $1,000 available channel—exclusive invested in the agents, exclusive financial Standard & Poor’s specialists, independent agents, non-proprietary 500 and Standard & channels, 1-800-Allstate and Poor’s Property & And exe- Casualty indices cution has been outstanding. The result: Not growth or increased in value profit, but growth and profit. by $911 and $710, Last year was a good example. respectively. During Revenues rose 8.7 percent in 2003. Net income per diluted that time, the same share increased 139.4 percent. investment in And return on equity increased Allstate exceeded to 14.2 percent in 2003 from 6.5 percent in 2002. those values and increased by $1,582. A different opportunity Different from We recognize past perform- the competition ance is no guarantee of future success so we’re Conventional wisdom often not resting on our laurels. implies that insurance com- Having positioned the panies cannot consistently company for continued increase revenues and profits profitable growth, Allstate at the same time. In a slow intends to take full advan- growth, competitive business, tage of its experience and it has to be one or the other. its unique opportunities. Starting several years ago, The rest of this report Allstate took a different details how Allstate is reach- approach. Two decisions ing more Americans, manag- were key: ing its capital more effectively and leading more decisively 1 Allstate sharpened its to deliver strong, sustained pricing and underwriting returns on your investment. skills to attract higher lifetime value households because these customers are more loyal and more likely to buy additional products. This improved our opportunity to gener- ate both revenue and income. 17,000,000 2 The company expanded in the faster-growing Estimated U.S. private financial services market, passenger auto drivers adding a variety of protected by Allstate retirement and savings brand insurance. products. The move met a real need, especially 1 of 6 among middle-market customers, while balanc- ing traditional strengths in the slower-but-steady personal lines insurance market. Allstate has a relationship with about one of every ONOURWAY six American households. View additional information about strategic risk manage- ment and trends shaping retirement at com/direction. Strategic risk management is also dis- cussed in “Property-Liability 2003 Highlights” in the MD&A section of the 2003 Annual Report and Notice of 2004 Annual Meeting and Proxy Statement. 3
  4. 4. The Allstate Corporation 2003 People need insurance to protect themselves and their families. Auto and homeowners coverage is required for most consumers, either by law or by lenders. People also need life insurance, retirement and savings products to protect their future during these uncertain times. This is especially true for the millions of Baby Boomers rapidly approaching retirement. Reaching America View additional information about Allstate’s strategies for growth and the com- pany’s wide array of prod- ucts at reachingamerica, or see “Allstate Protection Segment” and “Allstate Financial Segment” in the MD&A section of the 2003 Annual Report and Notice of 2004 Annual Meeting and Proxy Statement and view the company’s wide array of products on the inside front cover. Size to match An altogether the market different experience Meeting these consumer demands for financial A better experience starts with protection are a range of attractive prices for specific companies in the $211 billion customers, those looking for auto and homeowners insur- good value and a real relation- ance market, plus a wide ship and who need to protect array of providers in the their valued assets today and broad financial services prepare for a financially secure arena. But Allstate is among future. It also requires a higher the biggest in the insurance standard of service, delivered business, able to reach nearly whenever and wherever cus- every one of America’s 106 tomers require. That’s why million households through Allstate offers 24-hour access several retail and wholesale through distribution channels. In 2003, and 1-800-Allstate. And a Allstate had a relationship satisfying customer experience with more than 16 million includes an ongoing relation- American households, pro- ship with a local agency, act- viding life insurance, retire- ing as a trusted partner. ment and savings products to more than 2.5 million of Thinking and those households through acting locally Allstate agencies, financial institutions, broker-dealers, One more difference: Allstate independent agents and is focused on delivering the direct marketing. customer experience block- by-block. We are providing Expanding our local market leaders more our reach flexibility with their marketing, pricing and underwriting even further strategies. That helps make us Growing these existing rela- more nimble, precise and tionships means demon- competitive. Similarly, Allstate strating to consumers that offers a product portfolio with Allstate is different from, and a wide range of options. better than the competition. The result: Every relationship Historically, industry satis- is customized, depending on faction levels have been low. who customers are, what they Yet experience shows that need and where they live. customers make decisions By focusing on what mat- mostly on the basis of price, ters most, and by tailoring our service and relationships. So offerings to individual needs, Allstate is intensely focused Allstate attracts new cus- on strengthening our offering tomers and broadens relation- in all three areas. ships with existing ones. Turning those opportunities into earnings demands wise Odds are, one of these homes is insured by Allstate. use of people and capital. 4
  5. 5. The Allstate Corporation 2003 PEOPLE + CAPITAL = SMART COMPANY Financial The power of strength: people + capital the critical Doing all this well, and doing it consistently, difference helped Allstate grow Weather and accidents aren’t operating income per the only uncertainties in diluted share* and Allstate’s business. The shareholder dividends on a company has to manage for compounded annual basis by nearly 12 percent and regulatory and rate changes 10 percent, respectively, where it does business. It has during the past decadeó — all to earn solid returns on its while providing financial investments in a recuperating, protection for our yet uncertain, financial customers today and marketplace. It’s all part of preparing them for running an efficient, intelli- tomorrow through our gent company that protects retirement and savings our customers and rewards product offerings. our shareholders. In 2003, Building on and total investments rose to improving that record is the $103 billion, up from $91 Allstate leadership billion in 2002. challenge for the next And Allstate continued to decade. manage capital effectively, as evidenced by high ratings for financial stability by primary rating agencies including A.M. Best, Moody’s and Standard & Poor’s. The net result: Your company is financially strong—able to pay claims and to produce profits for investors. The people of Allstate Risk is our are its most powerful business asset. In 2003, the Allstate is an industry leader at managing risk because we company’s nearly never stop evolving and 40,000 employees improving. Risk is assessed continued to operate and tracked on an individual basis, one customer at a time. as the industry’s Multiply that by millions of finest professionals. households, and distinct And 12,900 agents patterns emerge. Drawing on this extensive data and and their staff were using its Strategic Risk the trustworthy face Management (SRM) tool, of Allstate in the Allstate manages risk unlike most in the industry. SRM’s cities where we do business. Result: They level of sophistication pays off for investors and customers generated a record as we can become more competitively priced in our $32.1 billion in total customer segments. revenue. They man- aged $134.1 billion in assets. How Allstate manages people and capital to balance View additional information about Allstate’s business of risk—whether it’s managing risk at www. allstate. planning for a natural com/peoplepluscapital or see “Allstate Protection disaster or for retire- Segment” and “Allstate ment—makes it a dif- Financial Segment” in the MD&A section of the 2003 ferent, more valuable Annual Report and Notice of company. 2004 Annual Meeting and Proxy Statement. View the company’s financial strength ratings at com/peoplepluscapital or see “Capital Resources and Liquidity” in the MD&A section of the 2003 Annual Report and Notice of 2004 Annual Meeting and Proxy Statement. 5
  6. 6. The Allstate Corporation 2003 For Allstate employees and agencies, leadership is more than words. It’s actions. Delivering exceptional products and services to customers. Improving communities through active corporate citizenship. Rewarding investors with sustained, profitable growth. A different Walking the talk standard of In 2003, the company took BEST FOOT action to extend its brand governance leadership and improve its In 2003, Allstate was market position by launching acknowledged for its strength Our Stand, a marketing in the area of corporate campaign that positions governance. Third-party Allstate as the advocate for governance rating services customers seeking quality recognized the company’s protection and peace of practices as among the best mind. Advertisements artic- in America. Our diversity ulate the Allstate difference strategy as an employer was and challenge consumers to similarly praised. And the expect more from their doubling of funds available existing providers. Reaction, through The Allstate as measured by increased Foundation demonstrated contact with agencies, our commitment to doing and 1-800- the right thing in communi- Allstate, has been positive. ties where we live and do business. Leading Allstate into the FORWARD future is a management team that has evolved both in structure and composition. Today, approximately one of every four Allstate corporate officers has been appointed from outside the company— a notable contrast to a decade ago. The difference helps add perspective and balance to our loyal, experi- enced leadership ranks. Leaders are accountable. Actor Dennis Haysbert delivers a Leaders are experienced. direct, powerful message in Leaders get results. For Allstate’s Our Stand advertisements. Allstate, those are not just Allstate also took action to words. They are promises extend its leadership in local made and kept. Our Stand: Do the right thing for our customers and communities areas across the country. When competitive conditions changed and many compa- nies exited markets, your company was different. It stayed the course as a multi-line provider, increas- ing its opportunity to estab- lish and retain customer ▼ Allstate catastrophe management relationships. team members and Allstate And Allstate took action in Protection President Tom Wilson 2003 to extend its leadership (near right) meet with Leo Maller. position as the largest publicly held personal lines insurer in America. Compared with 2002, the company not only increased already strong profitability, it also grew revenue and policies in force in its core Allstate brand standard auto and homeowners lines. The results position Allstate well for 2004 and beyond. Learn more about Allstate’s advertising campaign Allstate customer Leo Maller stands before the ruins of his To support relief and rebuilding efforts, a $1 million Allstate “Allstate’s Stand,” our home that the October 2003 California fires reduced to ash Foundation California Wildfire Relief Fund was distributed corporate governance practices and our people at and rubble. Times don’t often get more trying. But these are in partnership with the California Community Foundation. the moments when Allstate stands by its communities. We’re This is just one example of our commitment to support the Or see “Corporate in the business of restoring lives. Not only Mr. Maller’s—and communities we call home. Governance Practices” the thousands of Allstate customers affected by the fires—but When customers and communities raise their hands for in the Proxy Statement also the greater Southern California community. help, ours are there to do the right thing. section of the 2003 Annual Report and Notice of 2004 That’s Allstate’s stand. Annual Meeting and Proxy Statement. 6
  7. 7. The Allstate Corporation 2003 MAKING A DIFFERENCE KE E P AS KI NG QU E STION S. What makes Allstate clearly different? Four things: exclusive agents and exclusive financial specialists a powerful competitive position; an innovative have become licensed to sell registered financial strategy; proven, principled management and products. In 2003, new sales of financial products by outstanding execution. Allstate exclusive agencies* increased 14 percent to In 2003, this combination produced strong results. $1.8 billion. Allstate recorded a record $32.1 billion in revenue. For Allstate Financial as a whole, premiums and Net income more than doubled to $2.7 billion. deposits* reached a record $13.1 billion in 2003. But it Operating income was up 28 percent to $2.7 was a more difficult year from a profit perspective, billion—another record level. Return on equity rose and management is taking steps to achieve much to 14.2 percent and operating income return on better performance in 2004. equity* rose to 16.5 percent. Your company’s overall performance last year was These results are built on a solid foundation. We’ve outstanding. But it was not unusual. In fact, what makes continued to expand our exclusive distribution net- Allstate truly different is its record for long-term results. work, which grew by 600 this year to 12,900 exclusive For the period beginning with our initial public offering agencies and exclusive financial specialists. We’ve in June of 1993 through the end of 2003, the total value added a pipeline of thousands more independent of Allstate’s return to shareholders exceeded both the producers. And we’ve nurtured one of the best-known Standard & Poor’s Property & Casualty and the brands in American business to help us form relation- Standard & Poor’s 500 indices. To sustain momentum ships with more than 16 million households. in 2004, your company will refine and improve SRM in “What makes Allstate clearly different? A powerful Deepening and adding to those relationships is its protection business. It will grow the number of competitive position; an innovative strategy; proven, how Allstate grows profitably for the future. We’re more exclusive agencies. It will invest in marketing and principled management and outstanding execution.” precisely matching the premiums individuals pay to the advertising. It will help agencies be more productive risks they represent, and reaching out to largely over- by introducing streamlined technology platforms and looked middle income Americans who want to protect what they have today and programs to help recruit and train support staff. In claims, Allstate will improve prepare for tomorrow. Allstate has the size and the precision, the tools and the customer satisfaction and performance through more efficient processes. tactics, to win with this strategy. And we have momentum. Allstate Financial will continue to simplify and standardize its product suite. Last year, for example, we launched new offerings like the multi-manager Allstate® Leading the effort is a talented, experienced management team that stands among the finest in the industry. And your company’s record on corporate gover- Adviser variable annuity, while retiring more than 36 products that didn’t gain suf- nance shows it does not trade integrity for expediency. Allstate is among ficient scale. In 2004, Allstate Financial will refocus on profitably growing its share America’s highly-rated companies for corporate governance. For investors, that’s of wallet with the top 75 banks as well as the primary base of broker-dealers and a must. agencies that drive most of our volume. And we will manage our cost structure, Equally important, and the key to the company’s success in 2003, was out- delivering quality products and services to our customers with the least standing execution on our “better, bigger, broader” strategy. In our Allstate possible expense. Protection business, Strategic Risk Management (SRM) again gave Allstate an Allstate also will continue to manage capital wisely. In early 2004, the company edge. This sophisticated pricing and underwriting process helps the company announced a dividend increase of 22 percent. And we announced an addition to be more competitively priced in targeted customer segments. Result: we’re our current share repurchase program of $1 billion, to be completed in 2005. increasing our share of customers who are more likely to renew with Allstate Sound capital management has helped Allstate consistently deliver on its promis- and to buy additional products. es to customers, invest for growth and generate solid returns for investors—all at We executed on countrywide marketing and distribution programs as well as the same time. We expect more of the same in 2004 and beyond. We leave 2003 specific underwriting, regulatory and marketing efforts to improve our business with a debt of gratitude to Michael Miles, an invaluable director for our board opportunity in California, Texas and Florida—among our largest markets. As a over the past decade who will not stand for re-election at the annual sharehold- result, policies in force for our Allstate brand standard auto and homeowners ers’ meeting in May. Michael made many contributions during his tenure, and I lines trended upward beginning in the second quarter of 2003. Moving forward, thank him for his loyal service. our focus will continue to be on improving customer retention in all of our What makes Allstate different, now and in the future? Review the financial business lines to aid growth. results on this page, which demonstrate how we are executing on our strategy of Allstate’s claims management performance was again best-in-class in getting better and bigger in our protection business and broadening into financial 2003. The company’s Property-Liability claims and claims expense ratio, which services. And ask questions. The more active and interested you are as an owner, decreased to 70.6 percent in 2003 from 75.6 percent in 2002, marked an the more successful you and your company can be. improvement for the second straight year. Steps taken to strengthen Allstate agencies continued in 2003. In recent years, we transitioned from multiple agent contracts and programs to a single exclusive agency program. The move helped create a more entrepreneurial environment, as did linking agencies’ economic interest with the company’s through an increased Edward M. Liddy focus on growth and profitability. At the same time, approximately 7,000 Allstate Chairman, President & Chief Executive Officer Better—Allstate’s effort to be efficient and profitable in its operations and in its Broader—Allstate is expand- Bigger—Allstate’s goal is to drive top line growth in a way relationships with customers. ing in the life, retirement and that also delivers bottom line profits. savings marketplace. Operating income Total revenues Operating income Premiums and deposits Net income per Return on equity ($ in millions) ($ in millions) ($ in millions) (percent) per diluted share diluted share (in dollars) (in dollars) 4.00 4.00 15.0 35,000 3,000 12,500 3.77 14.2 2,662 3.83 10,809 32,149 3.40 3.40 12.0 32,500 2,400 10,000 2,075 2.92 9,794 9,335 2.80 2.80 9.0 30,000 1,800 7,500 29,579 6.7 2.06 28,865 1,200 1,492 2.20 2.20 6.0 27,500 5,000 6.5 2,286 1.60 1.60 3.0 25,000 600 2,500 1.60 1.60 2,040 1,270 0 1.00 1.00 0 22,500 0 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 Allstate uses operating income Net income per diluted share Allstate uses this measure to evalu- Return on equity measures how well Revenues indicate Allstate’s total Non-proprietary channels to evaluate our results and for divides net income by the num- ate our results and for incentive Allstate used shareholders’ equity to premium and investment results. Proprietary channel incentive compensation. Operating ber of weighted average diluted compensation. Operating income generate additional earnings. Allstate uses this measure to analyze income reveals trends that may be shares outstanding. It demon- reveals trends that may be obscured production trends for Allstate obscured by business decisions strates the growth of net income by business decisions and economic Financial sales. and economic developments during the year that is attributa- developments unrelated to the unrelated to the insurance ble to each share of stock. insurance underwriting process. underwriting process. 7