UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

 

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) January 30, 2007

The Allstate Corporation

(Exact name of registrant as specified in charter)

 

 

Registrant’s telephone number, including area code  (847) 402-5000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.below):

o               Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o               Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o               Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o               Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2. – Financial Information

Item 2.02.              Results of Operations and Financial Condition.

On January 30, 2007 the registrant issued a press release announcing its financial results for the fourth quarter of 2006. A copy of the press release is furnished as Exhibit 99 to this report.

Section 9. – Financial Statements and Exhibits

Item 9.01.              Financial Statements and Exhibits.

(d)	Exhibits
99	Registrant’s press release dated January 30, 2007

 

2

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE ALLSTATE CORPORATION
	(registrant)
	By	/s/  Samuel H. Pilch
	Name:  Samuel H. Pilch
	Title: Controller
Dated: January 30, 2007

 

3

Exhibit 99

For Immediate Release

Allstate Reports 2006 Fourth Quarter Net Income EPS of $1.93
Fourth Quarter Operating Income EPS of $1.78

NORTHBROOK, Ill., January, 30, 2007 – The Allstate Corporation (NYSE: ALL) today reported for the fourth quarter of 2006:

		Consolidated Highlights(1)
		Three Months Ended December 31,											Twelve Months Ended December 31,
(in millions, except per share amounts		Est.						Change					Est.						Change
and ratios)		2006			2005			$ Amt			%		2006			2005			$ Amt			%
Consolidated revenues		$	9,102		$	8,945		$	157		1.8		$	35,796		$	35,383		$	413		1.2
Net income		1,213			1,041			172			16.5		4,993			1,765			3,228			182.9
Net income per diluted share		1.93			1.59			0.34			21.4		7.84			2.64			5.20			197.0
Operating income(1)		1,121			975			146			15.0		4,888			1,582			3,306			—
Operating income per diluted share(1)		1.78			1.49			0.29			19.5		7.67			2.37			5.30			—
Property-Liability combined ratio		85.7			89.0			—			(3.3	)pts.	83.6			102.4			—			(18.8	)pts.
Catastrophe losses		279			657			(378		)	(57.5	)	810			5,674			(4,864		)	(85.7	)
Book value per share													34.84			31.01			3.83			12.4
Return on equity													23.8			8.4			—			15.4	pts.
Operating income return on equity(1)													25.8			8.6			—			17.2	pts.

 

·                  Consolidated revenues increased 1.8% from the fourth quarter of 2005 and were up 1.2% for the year compared to 2005.

·                  Property-Liability premiums written(1) declined 0.8% from the fourth quarter of 2005, reflecting the cost of the Allstate Protection catastrophe reinsurance program. Excluding the cost of the reinsurance program, premiums written grew 1.4% in the fourth quarter compared to the fourth quarter of last year, driven by an Allstate brand standard auto increase of 4.1%.  Policies in force (“PIF”) increased 0.6% for Allstate Protection, driven by an Allstate brand standard auto increase of 2.7% from December 31, 2005 levels.

·                  Allstate Financial premiums and deposits(1), excluding variable annuities, were $2.24 billion, a decrease of 37.3% over the fourth quarter of 2005, due primarily to reduced issuance of institutional products and lower fixed annuity deposits.

·                  Net income increased 16.5% and operating income increased 15% in the quarter compared to fourth quarter of 2005. Net income per diluted share increased 21.4% and operating income per diluted share increased 19.5% in the quarter compared to fourth quarter of 2005. Property-Liability underwriting income(1) was $978 million in the fourth quarter of 2006 compared to $752 million in the fourth quarter of 2005.

·                  Catastrophe losses, net of reinsurance, totaled $279 million in the fourth quarter of 2006 compared to $657 million in the fourth quarter of 2005.  The effect of catastrophe losses on net income per diluted share was $0.29 in the fourth quarter of 2006 compared to $0.65 in the fourth quarter of 2005.

·                  Full year 2006 operating income per diluted share was $7.67 compared to $2.37 in 2005.  The $5.30 per diluted share increase was primarily due to lower catastrophe losses and favorable prior year reserve reestimates.

·                  Book value per share increased 12.4% compared to December 31, 2005.  Book value per share, excluding the impact of unrealized net capital gains on fixed income securities(1) was $33.33 at December 31, 2006, reflecting an increase of 14.6% compared to December 31, 2005.  The net funded status of our pension and other postretirement plans recognized upon adoption of FASB Statement No. 158 reduced book value per share by $1.77.

(1) Measures used in this release 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 of this document.

1

---

 

·                  Allstate is no longer providing guidance on operating income earnings per diluted share.  See the “Consolidated Highlights” section of this press release for our Property-Liability outlooks for 2007.

“Allstate had a great fourth quarter and outstanding performance for the entire year,” said Thomas J. Wilson, president and chief executive officer, The Allstate Corporation. “We grew and strengthened the Allstate brand by offering innovative products and improving customer satisfaction. The strong operating results of our property-casualty, financial and investment operations generated net income of $1.2 billion for the quarter and a record of $4.99 billion for 2006.  This enabled us to deliver a 24 percent return on equity for shareholders and reward our employees with an increased profit sharing contribution.

Increased Consumer Focus

“Allstate continues to be the market leader in creating innovative products for consumers. The launch of Allstate® Your Choice Auto when combined with great marketing led to a 2.7 percent increase in standard auto policies in force in 2006. We will continue to introduce new offerings to consumers in 2007. Customer loyalty improved for the third straight year although our competition has also improved, which means this will remain a top priority.

Record Profitability

“Virtually every area of our company had an outstanding year,” added Wilson. Operating income of $1.1 billion for the fourth quarter was 15 percent above last year’s fourth quarter result reflecting the operational strength of our talented employees. The Property-Liability combined ratio for the year was 83.6 reflecting our pricing and claims expertise and the benefits of low claim frequencies.  We also had a much needed relief from mega-catastrophes with total catastrophe losses in the quarter of $279 million versus $657 million in the fourth quarter of 2005.  Catastrophe losses for the year were $810 million, $4.9 billion below the losses realized due largely to Hurricanes Katrina, Rita and Wilma in 2005.  Allstate Financial earned $142 million for the quarter and a record $594 million for the year and is making progress in raising returns on new business.

Excellent Capital Management

“Allstate remains disciplined stewards of our shareholders’ capital.  We repurchased $501 million of common stock in the quarter completing our prior $4 billion share repurchase program and started on the recently approved $3 billion share repurchase authorization. Shareholders received $220 million in dividends this quarter.  We also continue to make progress reducing our exposure to mega-catastrophes and recently completed major 2007 reinsurance agreements at an acceptable cost.

Great People

“Our ability to grow profitably is driven by our diverse group of talented Allstate associates across the country.  We increased the number of Allstate Agency Owners by 513 in 2006 further expanding our local presence to serve customers.  Our non-bonus eligible employees were rewarded with a profit sharing match of $1.50 for every $1.00 they contributed to the Allstate Profit Sharing Fund.  We are pleased to have Jim Hohmann join us as CEO of Allstate Financial replacing Casey Sylla, whose 12 years of service has made us a stronger company,” said Wilson.

Outlook

“We expect our multifaceted competitive strategy to continue to generate strong returns for shareholders in 2007.  After seeking input from a wide range of stakeholders, we have decided to stop our practice of giving operating income per share guidance.  Allstate will continue to be a leader in the amount and quality of our financial disclosures and will provide an outlook on key operating trends.  The combined ratio excluding catastrophes (assuming no prior year reserve reestimates)(1) for Property-Liability is expected to be between 84.0 and 86.0 in 2007,” concluded Wilson.

2

---

Consolidated Highlights

		Three Months Ended December 31,						Twelve Months Ended December 31,
($ in millions, except per share and return amounts)		Est. 2006			2005			Est. 2006			2005			Discussion of Results for the Three Months Ended December 31, 2006
Consolidated revenues		$	9,102		$	8,945		$	35,796		$	35,383		·    Higher net investment income and net realized capital gains.
Operating income		1,121			975			4,888			1,582			·    Higher Property-Liability underwriting income which reflects lower catastrophe losses in 2006.
Realized capital gains and losses, after-tax		125			72			186			360			·    See the Components of Realized Capital Gains and Losses (pretax) table.
DAC and DSI amortization relating to realized capital gains and losses, after-tax		(4		)	3			36			(103		)
Non-recurring items, after-tax		(18		)	—			(18		)	(22		)	·    Write-off of deferred costs related to a block of corporate owned life insurance policies that terminated due to bankruptcy of the policyholder.
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(8		)	(8		)	(36		)	(40		)
Loss on disposition of operations, after-tax		(3		)	(1		)	(63		)	(12		)
Net income		1,213			1,041			4,993			1,765
Income per diluted share:
Net		1.93			1.59			7.84			2.64
Operating		1.78			1.49			7.67			2.37
Net shares outstanding		621.7			646.2			621.7			646.2			·    During the fourth quarter of 2006, Allstate purchased 7.9 million shares of its stock for $501 million. $294 million of these repurchases completed the previous $4 billion authorization and $207 million was purchased on the current $3 billion authorization which is expected to be completed by March 31, 2008.
Weighted average shares outstanding (diluted)		629.4			653.0			637.2			667.3
Return on equity:
Net income								23.8			8.4			·    See the return on equity calculation in the
Operating income								25.8			8.6			Definitions of Non-GAAP and Operating Measures section of this document.document.
Book value per share								34.84			31.01

 

·                  Book value per share increased 12.4% compared to December 31, 2005 and decreased 0.7% when compared to September 30, 2006.  Book value per share, excluding the impact of unrealized net capital gains on fixed income securities was $33.33 at December 31, 2006, reflecting an increase of 14.6% compared to December 31, 2005 and a decrease of 0.4% when compared to September 30, 2006.   The net funded status of our pension and other postretirement plans recognized upon adoption of FASB Statement No. 158 reduced book value per share by $1.77.

·                  Our outlook for the Property-Liability 2007 combined ratio excluding the effect of catastrophe losses (assuming no prior year reserve reestimates) is in the range of 84.0 to 86.0.  This outlook is based on various assumptions, the most important of which are listed below:

·            premiums written slightly higher than 2006 levels due to auto growth being partially offset by the estimated effects of catastrophe management actions on homeowners and other property premiums, including an increase in ceded premium for catastrophe reinsurance totaling approximately $165 million;

3

---

·            auto and homeowners frequencies, excluding catastrophes, are projected to remain flat with 2006 results; and

·            auto and homeowners severity increases are expected to be consistent with relevant indices.

4

---

Property-Liability Highlights

		Three Months Ended December 31,						Twelve Months Ended December 31,
($ in millions, except ratios)		Est. 2006			2005			Est. 2006			2005			Discussion of Results for the Three Months Ended December 31, 2006
Property-Liability net premiums written		$	6,604		$	6,658		$	27,526		$	27,391		·    See the Property-Liability Premiums Written by  Market Segment table.
Property-Liability revenues		7,419			7,427			29,571			29,346			·    Lower premiums earned due to ceded reinsurance and lower net realized capital gains, partially offset by increased net investment income.
Underwriting income (loss)		978			752			4,497			(636		)	·    Significantly lower catastrophe losses, continued favorable auto loss frequencies excluding catastrophes, and net favorable prior year reserve reestimates, partially offset by the cost of the catastrophe reinsurance program. See the Allstate Protection Market Segment Analysis table.
Net investment income		472			458			1,854			1,791
Operating income		1,010			856			4,388			1,092
Realized capital gains and losses, after-tax		74			91			227			339			·    See the Components of Realized Capital Gains and Losses (pretax) table.
Loss on disposition of operations, after-tax		—			—			(1		)	—
Net income		1,084			947			4,614			1,431			·    Higher operating income.
Catastrophe losses		279			657			810			5,674
Ratios:
Allstate Protection combined ratio		85.6			88.9			83.1			101.7
Effect of Discontinued Lines and Coverages on combined ratio		0.1			0.1			0.5			0.7
Property-Liability combined ratio		85.7			89.0			83.6			102.4
Effect of catastrophe losses on combined ratio		4.1			9.6			3.0			21.0
Property-Liability combined ratio excluding the effect of catastrophes		81.6			79.4			80.6			81.4
Effect of restructuring and related charges on combined ratio		0.2			0.1			0.6			0.1

 

·                  The impact of the cost of the catastrophe reinsurance program on premiums written totaled $209 million in the fourth quarter of 2006 compared to $211 million in the third quarter of 2006 and $60 million in the fourth quarter of last year.  Excluding this cost, premiums written grew 1.4% and 1.6% in the fourth quarter and third quarter of 2006, respectively, when compared to the prior year quarters.

·                  We continue to aggressively seek to cover our reinsurance cost in premium rates.  We have submitted more than 350 rate filings in 29 states related to the cost of our reinsurance programs. Including rates approved in Florida and other states related to our reinsurance programs, rates currently effective reflect approximately 40% of the total cost of our reinsurance programs, and will be included in premiums written during 2007.  We expect rates will be in effect which will reflect over 50% of the total cost of these reinsurance programs by the end of 2007, and be included in premiums written during 2008.

·                  Allstate brand standard auto and homeowners PIF increased 2.7% and 0.1%, respectively, from December 31, 2005 levels, compared to increases of 2.6% and 0.6%, respectively, in the third quarter of 2006 over the third quarter of 2005.

·                  New issued applications for Allstate brand standard auto increased 8.5% compared to the fourth quarter of 2005.  New issued applications for Allstate brand homeowners decreased 16.1% compared to the fourth quarter of

5

---

2005 due to our catastrophe risk management actions.  For detailed information on our catastrophe risk management actions, see the Allstate Protection Catastrophe Management Strategy section of this document.

·                  Standard auto six month average premium of $421 grew 0.2%, while homeowners 12 month average premium of $834 grew 2.5% from the fourth quarter of 2005.  Average premium is calculated using premiums written before reinsurance.

·                  The renewal ratios for Allstate brand standard auto and homeowners were 89.7 and 87.8, respectively, compared to 90.0 and 87.5 in the prior year fourth quarter.  The decline in the standard auto renewal ratio is due to competitive pressures in certain states.

·                  Property-Liability prior year favorable reserve reestimates for the quarter totaled $184 million, compared to $146 million in the prior year fourth quarter, resulting primarily from claim severity and late reported loss development that was better than anticipated in previous estimates in Allstate Protection.

·                  The Property-Liability combined ratio was impacted by catastrophe losses and prior year reserve reestimates.  The impacts for the three months ended December 31, are shown in the table below.

		2006		2005
Combined ratio excluding the effect of catastrophes and prior year reserve reestimates		84.3		81.5
Effect of catastrophe losses		4.1		9.6
Effect of pre-tax reserve reestimates(1)		(2.7	)	(2.1	)
Combined ratio (GAAP)		85.7		89.0

 

(1) Prior year catastrophe reserve reestimates are included in impact of catastrophe losses.

6

---

Allstate Financial Highlights

		Three Months Ended December 31,						Twelve Months Ended December 31,
($ in millions)		Est. 2006			2005			Est. 2006			2005			Discussion of Results for the Three Months Ended December 31, 2006
Premiums and deposits		$	2,243		$	4,007		$	11,678		$	14,395		·    See the Allstate Financial Premiums and Deposits table.
Allstate Financial revenues		1,629			1,483			6,060			5,898			·    Higher investment income and realized net capital gains partially offset by lower premiums and contract charges following the reinsurance of substantially all of our variable annuity business.
Operating income		142			139			594			581
Realized capital gains and losses, after-tax		39			(21		)	(50		)	12			·    See the Components of Realized Capital Gains and Losses (pretax) table.
DAC and DSI amortization relating to realized capital gains and losses, after-tax		(4		)	3			36			(103		)
Non-recurring items, after-tax		(18		)	—			(18		)	(22		)	·    Write-off of deferred costs related to a block of corporate owned life insurance policies that terminated due to bankruptcy of the policyholder.
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(8		)	(8		)	(36		)	(40		)
Loss on disposition of operations, after-tax		(3		)	(1		)	(62		)	(12		)
Net income		148			112			464			416

 

·                  Deferred fixed annuity deposits in the fourth quarter of 2006 were $848 million (including indexed annuities), a decrease of 32.4% from the prior year quarter and 52.1% below the third quarter of 2006.  The decrease in the fourth quarter of 2006 reflects reduced consumer demand as competing short-term deposit and equity-based investment alternatives were relatively attractive.  Additionally, pricing actions were taken to improve expected returns on new business.

·                  Dividends of $250 million were paid by Allstate Life Insurance Company (“ALIC”) to its parent, Allstate Insurance Company (“AIC”), in the fourth quarter, bringing total 2006 dividends paid to $675 million. The majority of the dividend payments related to the variable annuity disposition through reinsurance completed in the second quarter.  These dividends complement other proactive efforts to improve ALIC’s returns.

·                  Investments as of December 31, 2006 increased 1.0% from December 31, 2005 levels primarily due to growth in new business partially offset by lower unrealized capital gains, the transfer of assets to Prudential Financial, Inc. upon the closing of the variable annuity disposition through reinsurance and dividends paid.

·                  Allstate Financial prioritizes the allocation of fixed income investments to support sales of those retail products with the best sustainable growth and contribution margins, and to maintain our retail market presence. As a result of this effort, sales of our institutional products vary from period to period.

7

THE ALLSTATE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		Est.						Percent		Est.						Percent
($in millions, except per share data)		2006			2005			Change		2006			2005			Change
Revenues
Property-liability insurance premiums		$	6,832		$	6,838		(0.1	)	$	27,369		$	27,039		1.2
Life and annuity premiums and contract charges		510			524			(2.7	)	1,964			2,049			(4.1	)
Net investment income		1,564			1,482			5.5		6,177			5,746			7.5
Realized capital gains and losses		196			101			94.1		286			549			(47.9	)
Total revenues		9,102			8,945			1.8		35,796			35,383			1.2
Costs and expenses
Property-liability insurance claims and claims expense		4,138			4,469			(7.4	)	16,017			21,175			(24.4	)
Life and annuity contract benefits		435			406			7.1		1,570			1,615			(2.8	)
Interest credited to contractholder funds		670			619			8.2		2,609			2,403			8.6
Amortization of deferred policy acquisition costs		1,235			1,164			6.1		4,757			4,721			0.8
Operating costs and expenses		781			731			6.8		3,033			2,997			1.2
Restructuring and related charges		11			5			120.0		182			41			—
Interest expense		96			79			21.5		357			330			8.2
Total costs and expenses		7,366			7,473			(1.4	)	28,525			33,282			(14.3	)
Loss on disposition of operations		(4		)	(1		)	—		(93		)	(13		)	—
Income from operations before income tax expense		1,732			1,471			17.7		7,178			2,088			—
Income tax expense		519			430			20.7		2,185			323			—
Net income		$	1,213		$	1,041		16.5		$	4,993		$	1,765		182.9
Net income per share - Basic		$	1.94		$	1.61				$	7.89		$	2.67
Weighted average shares - Basic		624.0			648.1					632.5			661.7
Net income per share - Diluted (1)		$	1.93		$	1.59				$	7.84		$	2.64
Weighted average shares - Diluted (1)		629.4			653.0					637.2			667.3
Cash dividends declared per share		$	0.35		$	0.32				$	1.40		$	1.28

 

(1)          For the period ended December 31, 2005, as prescribed by generally accepted accounting principles, the quarter income per share amounts were computed discretely. Because of our third quarter 2005 net loss, the antidilutive effects of potential common shares outstanding totaling 5.6 million were excluded from weighted average shares - diluted in that quarter.  Accordingly, the sum of our income per share amounts for the four quarters of 2005 does not equal the year to date per share amount.

8

---

THE ALLSTATE CORPORATION

CONTRIBUTION TO INCOME

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		Est.						Percent		Est.						Percent
($ in millions, except per share data)		2006			2005			Change		2006			2005			Change
Contribution to income
Operating income before the impact of restructuring and related charges		$	1,128		$	979		15.2		$	5,006		$	1,609		—
Restructuring and related charges, after-tax		7			4			75.0		118			27			—
Operating income		1,121			975			15.0		4,888			1,582			—
Realized capital gains and losses, after-tax		125			72			73.6		186			360			(48.3	)
DAC and DSI amortization relating to realized capital gains and losses, after-tax		(4		)	3			—		36			(103		)	135.0
Non-recurring items, after-tax (2)		(18		)	—			—		(18		)	(22		)	18.2
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(8		)	(8		)	—		(36		)	(40		)	10.0
Loss on disposition of operations, after-tax		(3		)	(1		)	—		(63		)	(12		)	—
Net income		$	1,213		$	1,041		16.5		$	4,993		$	1,765		182.9
Income per share - Diluted (1)
Operating income before the impact of restructuring and related charges		$	1.80		$	1.50		20.0		$	7.86		$	2.41		—
Restructuring and related charges, after-tax		0.02			0.01			100.0		0.19			0.04			—
Operating income		1.78			1.49			19.5		7.67			2.37			—
Realized capital gains and losses, after-tax		0.20			0.11			81.8		0.29			0.54			(46.3	)
DAC and DSI amortization relating to realized capital gains and losses, after-tax		—			—			—		0.06			(0.16		)	137.5
Non-recurring items, after-tax (2)		(0.03		)	—			—		(0.03		)	(0.03		)	—
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(0.01		)	(0.01		)	—		(0.05		)	(0.06		)	16.7
Loss on disposition of operations, after-tax		(0.01		)	—			—		(0.10		)	(0.02		)	—
Net income		$	1.93		$	1.59		21.4		$	7.84		$	2.64		197.0
Book value per share - Diluted		$	34.84		$	31.01		12.4		$	34.84		$	31.01		12.4

 

(1)          For the period ended December 31, 2005, as prescribed by generally accepted accounting principles, the quarter income per share amounts were computed discretely. Because of our third quarter 2005 net loss, the antidilutive effects of potential common shares outstanding totaling 5.6 million were excluded from weighted average shares - diluted in that quarter. Accordingly, the sum of our income per share amounts for the four quarters of 2005 does not equal the year to date per share amount.

(2)          Non-recurring items were a write-off of deferred costs related to a block of corporate owned life insurance policies that terminated due to bankruptcy of the policyholder in the fourth quarter of 2006 and an increase in liability for future benefits from a discontinued benefit plan in the first quarter of 2005.

9

---

THE ALLSTATE CORPORATION

COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)

		Three Months Ended December 31, 2006 (Est.)
		Property-			Allstate			Corporate
($ in millions)		Liability			Financial			and Other			Total
Investment write-downs		$	(4	)	$	(4	)	$	—		$	(8	)
Dispositions (1)		142			31			20			193
Valuation of derivative instruments		21			16			—			37
Settlements of derivative instruments (2)		(44		)	18			—			(26		)
Total		$	115		$	61		$	20		$	196

 

		Twelve Months Ended December 31, 2006 (Est.)
		Property-			Allstate			Corporate
($ in millions)		Liability			Financial			and Other			Total
Investment write-downs		$	(26	)	$	(21	)	$	—		$	(47	)
Dispositions		451			(87		)	15			379
Valuation of derivative instruments		43			(17		)	—			26
Settlements of derivative instruments		(120		)	48			—			(72		)
Total		$	348		$	(77	)	$	15		$	286

 

		Three Months Ended December 31, 2005
		Property-			Allstate			Corporate
($ in millions)		Liability			Financial			and Other			Total
Investment write-downs		$	(10	)	$	(1	)	$	(1	)	$	(12	)
Dispositions		131			(34		)	4			101
Valuation of derivative instruments		14			(4		)	—			10
Settlements of derivative instruments		(4		)	6			—			2
Total		$	131		$	(33	)	$	3		$	101

 

		Twelve Months Ended December 31, 2005
		Property-			Allstate			Corporate
($ in millions)		Liability			Financial			and Other			Total
Investment write-downs		$	(30	)	$	(24	)	$	(1	)	$	(55	)
Dispositions		516			88			15			619
Valuation of derivative instruments		10			(105		)	—			(95		)
Settlements of derivative instruments		20			60			—			80
Total		$	516		$	19		$	14		$	549

 

(1)          In the fourth quarter of 2006, the Company recognized $6 million of losses related to a change in our intent to hold certain securities with unrealized losses until they recover in value.  The change in our intent is primarily related to comprehensive reviews of our portfolios for both Allstate Protection and Allstate Financial.  The Company identified $375 million of securities that we expect to sell to achieve these objectives.

(2)          The loss for the three months ended December 31, 2006 on the settlement of derivative instruments was primarily driven by $32 million of realized losses from commodity-based excess return swaps and futures contracts.

10

---

THE ALLSTATE CORPORATION

SEGMENT RESULTS

		Three Months Ended						Twelve Months Ended
		December 31,						December 31,
		Est.						Est.
($ in millions)		2006			2005			2006			2005
Property-Liability
Premiums written		$	6,604		$	6,658		$	27,526		$	27,391
Premiums earned		$	6,832		$	6,838		$	27,369		$	27,039
Claims and claims expense (2)		4,138			4,469			16,017			21,175
Amortization of deferred policy acquisition costs		1,043			1,031			4,131			4,092
Operating costs and expenses		662			582			2,567			2,369
Restructuring and related charges		11			4			157			39
Underwriting income (loss)		978			752			4,497			(636		)
Net investment income		472			458			1,854			1,791
Income tax expense on operations		440			354			1,963			63
Operating income		1,010			856			4,388			1,092
Realized capital gains and losses, after-tax		74			91			227			339
Loss on disposition of operations, after-tax		—			—			(1		)	—
Net income		$	1,084		$	947		$	4,614		$	1,431
Catastrophe losses		$	279		$	657		$	810		$	5,674
Operating ratios
Claims and claims expense ratio (2)		60.6			65.4			58.5			78.3
Expense ratio (3)		25.1			23.6			25.1			24.1
Combined ratio		85.7			89.0			83.6			102.4
Effect of catastrophe losses on combined ratio		4.1			9.6			3.0			21.0
Effect of restructuring and related charges on combined ratio		0.2			0.1			0.6			0.1
Effect of Discontinued Lines and Coverages on combined ratio		0.1			0.1			0.5			0.7
Allstate Financial
Premiums and deposits		$	2,243		$	4,007		$	11,678		$	14,395
Investments		$	75,951		$	75,233		$	75,951		$	75,233
Premiums and contract charges		$	510		$	524		$	1,964		$	2,049
Net investment income		1,058			992			4,173			3,830
Periodic settlements and accruals on non-hedge derivative instruments		12			14			56			63
Contract benefits		435			406			1,570			1,615
Interest credited to contractholder funds		669			619			2,614			2,371
Amortization of deferred policy acquisition costs		158			138			649			503
Operating costs and expenses		119			150			468			604
Restructuring and related charges		—			1			24			2
Income tax expense on operations		57			77			274			266
Operating income		142			139			594			581
Realized capital gains and losses, after-tax		39			(21		)	(50		)	12
DAC and DSI amortization relating to realized capital gains and losses, after-tax		(4		)	3			36			(103		)
Non-recurring items, after-tax (1)		(18		)	—			(18		)	(22		)
Reclassification of periodic settlements and accruals on non-hedge
derivative instruments, after-tax		(8		)	(8		)	(36		)	(40		)
Loss on disposition of operations, after-tax		(3		)	(1		)	(62		)	(12		)
Net income		$	148		$	112		$	464		$	416
Corporate and Other
Net investment income		$	34		$	32		$	150		$	125
Operating costs and expenses		96			78			355			326
Restructuring and related charges		—			—			1			—
Income tax benefit on operations		(31		)	(26		)	(112		)	(110		)
Operating loss		(31		)	(20		)	(94		)	(91		)
Realized capital gains and losses, after-tax		12			2			9			9
Net loss		$	(19	)	$	(18	)	$	(85	)	$	(82	)
Consolidated net income		$	1,213		$	1,041		$	4,993		$	1,765

 

(1)          Non-recurring items were a write-off of deferred costs related to a block of corporate owned life insurance policies that terminated due to bankruptcy of the policyholder in the fourth quarter of 2006 and an increase in liability for future benefits from a discontinued benefit plan in the first quarter of 2005.

(2)          For the twelve months ended December 31, 2005, claims and claims expense and claims and claims expense ratio include the effect of $120 million or 0.4 points related to an accrual for a settlement of a worker classification lawsuit challenging the overtime exemption claimed by the Company under California wage and hour laws.

(3)          For the three months ended December 31, 2006, the expense ratio was primarily impacted by higher costs of the reinsurance program, agent and employee incentives, and advertising.

11

---

THE ALLSTATE CORPORATION

UNDERWRITING RESULTS BY AREA OF BUSINESS

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		Est.						Percent		Est.						Percent
($ in millions)		2006			2005			Change		2006			2005			Change
Property-Liability Underwriting Summary
Allstate Protection		$	984		$	757		30.0		$	4,636		$	(461	)	—
Discontinued Lines and Coverages		(6		)	(5		)	(20.0	)	(139		)	(175		)	20.6
Underwriting income (loss)		$	978		$	752		30.1		$	4,497		$	(636	)	—
Allstate Protection Underwriting Summary
Premiums written		$	6,604		$	6,661		(0.9	)	$	27,525		$	27,393		0.5
Premiums earned		$	6,831		$	6,837		(0.1	)	$	27,366		$	27,038		1.2
Claims and claims expense (1)		4,133			4,465			(7.4	)	15,885			21,008			(24.4	)
Amortization of deferred policy acquisition costs		1,043			1,031			1.2		4,131			4,092			1.0
Operating costs and expenses		660			580			13.8		2,557			2,360			8.3
Restructuring and related charges		11			4			175.0		157			39			—
Underwriting income (loss)		$	984		$	757		30.0		$	4,636		$	(461	)	—
Catastrophe losses		$	279		$	657		(57.5	)	$	810		$	5,674		(85.7	)
Operating ratios
Claims and claims expense ratio (1)		60.5			65.3					58.1			77.7
Expense ratio (2)		25.1			23.6					25.0			24.0
Combined ratio		85.6			88.9					83.1			101.7
Effect of catastrophe losses on combined ratio		4.1			9.6					3.0			21.0
Effect of restructuring and related charges on combined ratio		0.2			0.1					0.6			0.1
Discontinued Lines and Coverages Underwriting Summary
Premiums written		$	—		$	(3	)	100.0		$	1		$	(2	)	150.0
Premiums earned		$	1		$	1		—		$	3		$	1		—
Claims and claims expense		5			4			25.0		132			167			(21.0	)
Operating costs and expenses		2			2			—		10			9			11.1
Underwriting loss		$	(6	)	$	(5	)	(20.0	)	$	(139	)	$	(175	)	20.6
Effect of Discontinued Lines and Coverages on the Property-Liability combined ratio		0.1			0.1					0.5			0.7

 

(1)          For the twelve months ended December 31, 2005, claims and claims expense and claims and claims expense ratio include the effect of $120 million or 0.4 points related to an accrual for a settlement of a worker classification lawsuit challenging the overtime exemption claimed by the Company under California wage and hour laws.

(2)          For the three months ended December 31, 2006, the expense ratio was primarily impacted by higher costs of the reinsurance program, agent and employee incentives, and advertising.

12

---

THE ALLSTATE CORPORATION

PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
		Est.						Percent		Est.						Percent
($ in millions)		2006			2005			Change		2006			2005			Change
Allstate brand
Standard auto		$	3,891		$	3,738		4.1		$	15,704		$	15,173		3.5
Non-standard auto		310			361			(14.1	)	1,386			1,587			(12.7	)
Auto		4,201			4,099			2.5		17,090			16,760			2.0
Involuntary auto		19			30			(36.7	)	114			163			(30.1	)
Commercial lines		190			220			(13.6	)	834			926			(9.9	)
Homeowners		1,383			1,492			(7.3	)	5,926			6,040			(1.9	)
Other personal lines		362			335			8.1		1,600			1,434			11.6
		6,155			6,176			(0.3	)	25,564			25,323			1.0
Encompass brand
Standard auto		266			274			(2.9	)	1,138			1,174			(3.1	)
Non-standard auto (Deerbrook)		22			26			(15.4	)	94			116			(19.0	)
Auto		288			300			(4.0	)	1,232			1,290			(4.5	)
Involuntary auto		3			7			(57.1	)	22			43			(48.8	)
Homeowners		131			148			(11.5	)	589			611			(3.6	)
Other personal lines		27			30			(10.0	)	118			126			(6.3	)
		449			485			(7.4	)	1,961			2,070			(5.3	)
Allstate Protection		6,604			6,661			(0.9	)	27,525			27,393			0.5
Discontinued Lines and Coverages		—			(3		)	100.0		1			(2		)	150.0
Property-Liability		$	6,604		$	6,658		(0.8	)	$	27,526		$	27,391		0.5
Allstate Protection
Standard auto		$	4,157		$	4,012		3.6		$	16,842		$	16,347		3.0
Non-standard auto		332			387			(14.2	)	1,480			1,703			(13.1	)
Auto		4,489			4,399			2.0		18,322			18,050			1.5
Involuntary auto		22			37			(40.5	)	136			206			(34.0	)
Commercial lines		190			220			(13.6	)	834			926			(9.9	)
Homeowners		1,514			1,640			(7.7	)	6,515			6,651			(2.0	)
Other personal lines		389			365			6.6		1,718			1,560			10.1
		$	6,604		$	6,661		(0.9	)	$	27,525		$	27,393		0.5

 

13

---

THE ALLSTATE CORPORATION

PROPERTY-LIABILITY

ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)

		Three Months Ended
		December 31, 2006 (Est.)
		Number of
		States		Countrywide (%) (2)		State Specific (%) (3)
Allstate brand
Standard auto		7		0.1		1.9
Non-standard auto		2		(0.6	)	(1.7	)
Auto		7		0.1		0.8
Homeowners (5)		6		0.5		8.5
Encompass brand
Standard auto		6		0.3		4.1
Non-standard auto (Deerbrook)		—		—		—
Auto		6		0.2		4.1
Homeowners		5		0.6		9.8

 

		Twelve Months Ended
		December 31, 2006 (Est.)
		Number of
		States		Countrywide (%) (2)		State Specific (%) (3)
Allstate brand
Standard auto		26		(0.2	)	(0.5	)
Non-standard auto		3		(1.6	)	(3.5	)
Auto		26		(0.3	)	(0.9	)
Homeowners (4) (5)		26		2.4		2.6
Encompass brand
Standard auto		16		(0.4	)	(1.6	)
Non-standard auto (Deerbrook)		3		—		(0.2	)
Auto		18		(0.3	)	(1.6	)
Homeowners (5)		22		2.3		4.9

 

(1)      Rate increases that are indicated based on a loss trend analysis to achieve a targeted return will continue to be pursued in all locations and for all products.  Rate changes include changes approved based on our net cost of reinsurance.  These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing new business.

(2)      Represents the impact in the states where rate changes were approved during 2006 as a percentage of total countrywide prior year-end premiums written.

(3)      Represents the impact in the states where rate changes were approved during 2006 as a percentage of total prior year-end premiums written in those states.

(4)      Rate changes include a rate reduction in the state of Texas following an administrative hearing and order issued by the Department of Insurance.

(5)      Includes Washington D.C.

14