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) April 18, 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 April 18, 2007 the registrant issued a press release announcing its financial results for the first quarter of 2007. 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 April 18, 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: April 18, 2007

 

 

3

Exhibit 99

For Immediate Release

Allstate Reports 2007 First Quarter 9% Increase in Net Income EPS

First Quarter Operating Income EPS of $1.93

NORTHBROOK, Ill., April 18, 2007 — The Allstate Corporation (NYSE: ALL) today reported for the first quarter of 2007:

Consolidated Highlights
			Three Months Ended March 31,
											Change
(in millions, except per share amounts and ratios)			Est. 2007				2006				$				%
Consolidated revenues			$	9,331			$	9,081			$	250			2.8
Net income			1,486				1,415				71				5.0
Net income per diluted share			2.39				2.19				0.20				9.1
Operating income1			1,197				1,304				(107		)		(8.2	)
Operating income per diluted share1			1.93				2.01				(0.08		)		(4.0	)
Return on equity			23.5				9.8				—				13.7 pts.
Operating income return on equity1			24.3				9.2				—				15.1 pts.
Book value per share			36.54				31.98				4.56				14.3
Book value per share, excluding the impact of unrealized net capital gains on fixed income securities1			34.93				30.90				4.03				13.0
Catastrophe losses			161				107				54				50.5
Property-Liability combined ratio			84.6				81.9				—				2.7 pts.

 

“Allstate is off to a strong start in 2007,” said Thomas J. Wilson, president and chief executive officer, The Allstate Corporation. “Our property-casualty, financial and investment operations delivered solid results, generating net income of $1.49 billion for the first quarter of 2007. Our return on equity for shareholders remained strong at 23.5 percent and book value increased 14.3 percent compared to first quarter 2006.

Consumer Focus

“Our highly successful marketing programs continue to distinguish us from our competitors and deliver quantifiable results for our auto insurance business. Allstate brand standard auto policies in force grew 2.6 percent in the first quarter of 2007 compared to the prior year and new issued applications increased 7.3 percent. Customer loyalty also remains a top priority and is the focus of several new initiatives.

Profitability

“Profitability remained strong in the first quarter of 2007,” added Wilson. Operating income in the quarter was $1.2 billion compared to $1.3 billion for last year’s first quarter. The Property-Liability combined ratio for the quarter was 84.6, an increase of 2.7 points compared with the first quarter of 2006, partly because of higher claim frequencies. “Winter weather in the central and northeast sections of the country partially contributed to the increase in claim frequency in standard auto property damage and in our homeowners line during the quarter. Property damage severity results in the quarter were moderate and better than we expected at the beginning of the year,” continued Wilson. Catastrophe losses for the quarter were $161 million,

(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

---

compared to $107 million in the first quarter of 2006. Allstate Financial generated $156 million of operating income for the quarter and is making progress in raising returns on new business.

Our investment portfolios generated strong results for both Property-Liability and Allstate Financial. Both business units benefited from growth in assets under management.  Allstate Financial’s portfolio yield, in particular, also benefited from a rise in yield on its floating rate investments. Realized capital gain activity also outpaced last year’s results and was primarily driven by non-recurring gains related to the disposition of certain limited partnership interests.

Capital Management

During the first quarter we repurchased $700 million of common stock, bringing the cumulative repurchases under the $3 billion repurchase program announced in October 2006 to $907 million. Allstate’s board of directors has also authorized the issuance of up to $1 billion of junior subordinated securities with the proceeds to be used to repurchase up to $1 billion of our common stock by March 31, 2008, in addition to the current $3 billion authorization. We plan to complete the hybrid offering during the second quarter (market conditions permitting). “We also will continue to focus on reducing our exposure to mega-catastrophes through a variety of initiatives while seeking alternative solutions for our customers,” added Wilson.

People

“The depth and strength of our management team across the company allowed us to seamlessly continue the leadership transitions we announced beginning in September 2006. In the quarter, we made some key executive appointments in Allstate Protection due to retirements and created a new organization with responsibility for emerging businesses. This new team will improve focus on lines of business that offer Allstate additional opportunities for profitable growth,” said Wilson.

Outlook

“Overall, we are pleased with our performance during the quarter. We remain focused on executing our multifaceted competitive strategy to continue generating strong returns for shareholders and delivering market-leading products and services to our customers. We continue to expect that the Property-Liability combined ratio, excluding the effect of catastrophes and assuming no prior year reserve reestimates, will be between 84.0 and 86.0 in 2007,” concluded Wilson.

BUSINESS SEGMENT HIGHLIGHTS

Property-Liability

·                           Property-Liability premiums written1 declined 1.7% from the first quarter of 2006, reflecting the increased cost of the Allstate Protection catastrophe reinsurance program.  The cost of the catastrophe reinsurance program was $216 million in the first quarter of 2007 compared to $73 million in the first quarter of last year.  Excluding this cost, premiums written grew 0.4% in the first quarter of 2007 when compared to the prior year quarter.

·                           Allstate brand standard auto premiums written grew 2.5% in the first quarter of 2007 compared to the prior year quarter.  Contributing to the overall change were the following:

—       2.6% increase in policies in force (“PIF”)

—       7.3% increase in new issued applications

2

---

 

 

(2) Hurricane exposure states are Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and Washington D.C.

—       0.2 point decline in the renewal ratio to 89.7% due to competitive pressures

—       0.2% increase in six month average premium to $420

 

·                  Allstate brand homeowners premiums written declined 5.8% in the first quarter of 2007 compared to the prior year quarter due to our catastrophe risk management actions.  Contributing to the overall change were the following:

—       0.5% decrease in PIF

—       11.8% decrease in new issued applications

 

(in thousands)		For the three months ended March 31,
		2007		2006		% Change
Hurricane Exposure States 2		97		114		(14.9	)
California		11		16		(31.3	)
All other states		101		107		(5.6	)
Homeowners new issued applications		209		237		(11.8	)

 

—       0.6 point decline in the renewal ratio to 86.4%

—       1.9% increase in twelve month average premium to $847.  Average premium is calculated using premiums written before reinsurance.

 

·                  We continue to aggressively seek to cover our reinsurance cost in premium rates.  Rates currently effective related to our reinsurance programs reflect approximately 45% of the ceded 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 ceded cost of our reinsurance programs by the end of 2007, and be included in premiums written during 2008.

·                  Standard auto property damage gross claim frequency increased 4.8% compared to the first quarter of 2006, partially due to weather-related frequency across the central and northeastern sections of the country, while bodily injury gross claim frequency decreased 1.1%.  Auto property damage and bodily injury paid severities increased 1.2% and 1.1% respectively, slightly better than we expected at the beginning of the year.  The Allstate brand standard auto loss ratio increased 5.6 points compared to the first quarter of last year to 63.6 in the first quarter of 2007.

·                  Homeowner gross claim frequency excluding catastrophes increased 14.7% compared to first quarter of 2006, primarily in weather-related perils.  Homeowners severity increased 8.6% compared to first quarter of 2006.  The Allstate brand homeowners loss ratio increased 3.4 points to 55.2 in the first quarter of 2007.

·                  The Property-Liability expense ratio declined 1.5 points to 24.1 in the first quarter of 2007 compared to the prior year quarter primarily reflecting lower restructuring charges.

·                  Property-Liability prior year favorable reserve reestimates for the quarter totaled $129 million, compared to $211 million in the prior year first quarter.  The current year favorable reserve reestimates resulted primarily from claim severity development that was better than anticipated in previous estimates in Allstate Protection and a reduction in the reinsurance recoverable valuation allowance for Discontinued Lines and Coverages

3

---

related to Equitas Limited’s (“Equitas”) improved financial position as a result of its reinsurance coverage with National Indemnity Company.

·                  Underwriting income was $1.05 billion during the first quarter of 2007 compared to $1.24 billion in the same period of 2006.  The decrease was due to the higher cost of the expanded catastrophe reinsurance program, higher catastrophe losses, increases in auto and homeowners claim frequency excluding catastrophes, increased current year severity, and lower favorable reserve estimates related to prior years, partially offset by increased premiums earned before the cost of the catastrophe reinsurance program, lower restructuring and related charges and operating costs and expenses.

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

 

		2007		2006
Combined ratio excluding the effect of catastrophes and prior year reserve reestimates1		84.1		82.5
Effect of catastrophe losses		2.4		1.6
Effect of prior year reserve reestimates		(1.9	)	(3.1	)
Catastrophe losses included in prior year reserve reestimates		—		0.9
Combined ratio (GAAP)		84.6		81.9

 

Allstate Financial

·                  Operating income for the first quarter of 2007 was $156 million compared to $144 million in the prior year quarter, driven by the following:

—       $9 million, after-tax, favorable impact related to the annual review of assumptions related to DAC amortization (commonly referred to as “unlocking”) and reserves for certain annuity guarantees

—   $10 million, after-tax, reduction in restructuring charges

—   Partially offset by $9 million, after-tax, of litigation-related expenses

·                  Deferred fixed annuity deposits in the first quarter of 2007 were $621 million (including indexed annuities), a decrease of 43.2% from the prior year quarter and 26.8% below the fourth quarter of 2006.  The decrease is indicative of lower industry-wide fixed annuity sales and our strategy to raise returns on capital for these products.

·                  Deposits on institutional products during the first quarter of 2007 were $1.20 billion compared to $350 million in deposits in the first quarter of 2006.  Allstate Financial generally 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, sales of our institutional products vary from period to period.

·                  Investments as of March 31, 2007 increased 3.2% from March 31, 2006 levels primarily due to growth in customer account values and higher unrealized capital gains, partially offset by the transfer of assets to Prudential Financial, Inc. upon the closing of the variable annuity disposition through reinsurance and dividends paid.

·                  The cumulative effect of change in accounting principle related to our adoption of Statement of Position 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” reduced net income by $9 million, after-tax, during the first quarter of 2007.

4

THE ALLSTATE CORPORATION

CONSOLIDATED AND SEGMENT HIGHLIGHTS

		Three Months Ended
		March 31,
($ in millions, except per share amounts,		Est.									Percent
return data and ratios)		2007			2006			Change			Change
Consolidated Highlights
Revenues		$	9,331		$	9,081		$	250		2.8
Net income		1,486			1,415			71			5.0
Operating income		1,197			1,304			(107		)	(8.2	)
Income per diluted share
Net		2.39			2.19			0.20			9.1
Operating		1.93			2.01			(0.08		)	(4.0	)
Net shares outstanding		610.9			638.3			(27.4		)	(4.3	)
Weighted average shares outstanding (diluted)		621.6			647.4			(25.8		)	(4.0	)
Return on equity
Net income		23.5			9.8			—			13.7		pts.
Operating income		24.3			9.2			—			15.1		pts.
Book value per diluted share		36.54			31.98			4.56			14.3
Book value per diluted share, excluding the impact of unrealized net capital gains on fixed income securities		34.93			30.90			4.03			13.0
Property-Liability Highlights
Property-Liability premiums written		$	6,609		$	6,725		$	(116	)	(1.7	)
Property-Liability revenues		7,741			7,566			175			2.3
Net income		1,349			1,321			28			2.1
Underwriting income		1,046			1,242			(196		)	(15.8	)
Net investment income		491			466			25			5.4
Operating income		1,062			1,176			(114		)	(9.7	)
Catastrophe losses		161			107			54			50.5
Ratios:
Allstate Protection loss ratio		61.1			56.2			—			4.9		pts.
Allstate Protection expense ratio		24.1			25.6			—			(1.5	)	pts.
Allstate Protection combined ratio		85.2			81.8			—			3.4		pts.
Effect of Discontinued Lines and Coverages on combined ratio		(0.6		)	0.1			—			(0.7	)	pts.
Property-Liability combined ratio		84.6			81.9			—			2.7		pts.
Effect of catastrophe losses on combined ratio		2.4			1.6			—			0.8		pts.
Property-Liability combined ratio excluding effect of catastrophes		82.2			80.3			—			1.9		pts.
Effect of prior year reserve reestimates on combined ratio		(1.9		)	(3.1		)	—			1.2		pts.
Catastrophe losses included in prior year reserve reestimates		—			0.9			—			(0.9	)	pts.
Property-Liability combined ratio excluding effect of catastrophes and prior year reserve reestimates		84.1			82.5			—			1.6		pts.
Allstate Financial Highlights
Premiums and deposits		$	2,628		$	2,676		$	(48	)	(1.8	)
Allstate Financial revenues		1,556			1,471			85			5.8
Net income		155			108			47			43.5
Operating income		156			144			12			8.3
Gross margin analysis
Investment margin		$	286		$	275		$	11		4.0
Benefit margin		110			115			(5		)	(4.3	)
Contract charges and fees		82			139			(57		)	(41.0	)
Gross margin		$	478		$	529		$	(51	)	(9.6	)

 

5

---

THE ALLSTATE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
		Est.						Percent
($ in millions, except per share data)		2007			2006			Change
Revenues
Property-liability insurance premiums		$	6,806		$	6,876		(1.0	)
Life and annuity premiums and contract charges		483			495			(2.4	)
Net investment income		1,571			1,511			4.0
Realized capital gains and losses		471			199			136.7
Total revenues		9,331			9,081			2.8
Costs and expenses
Property-liability insurance claims and claims expense		4,117			3,873			6.3
Life and annuity contract benefits		428			373			14.7
Interest credited to contractholder funds		649			620			4.7
Amortization of deferred policy acquisition costs		1,153			1,139			1.2
Operating costs and expenses		727			779			(6.7	)
Restructuring and related charges		(1		)	107			(100.9	)
Interest expense		72			81			(11.1	)
Total costs and expenses		7,145			6,972			2.5
Loss on disposition of operations		—			(53		)	100.0
Income from operations before income tax expense and cumulative effect of change in accounting principle, after-tax		2,186			2,056			6.3
Income tax expense		691			641			7.8
Income before cumulative effect of change in accounting principle, after-tax		1,495			1,415			5.7
Cumulative effect of change in accounting principle, after-tax		(9		)	—			—
Net income		$	1,486		$	1,415		5.0
Net income per share - Basic		$	2.41		$	2.20
Weighted average shares - Basic		616.8			643.2
Net income per share - Diluted		$	2.39		$	2.19
Weighted average shares - Diluted		621.6			647.4
Cash dividends declared per share		$	0.38		$	0.35

 

6

THE ALLSTATE CORPORATION

CONTRIBUTION TO INCOME

 

		Three Months Ended
		March 31,
		Est.						Percent
($ in millions, except per share data)		2007			2006			Change
Contribution to income
Operating income before the impact of restructuring and related charges		$	1,196		$	1,374		(13.0	)
Restructuring and related charges, after-tax		(1		)	70			(101.4	)
Operating income		1,197			1,304			(8.2	)
Realized capital gains and losses, after-tax		305			129			136.4
DAC and DSI amortization relating to realized capital gains and losses, after-tax		—			27			(100.0	)
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(8		)	(10		)	20.0
Gain (loss) on disposition of operations, after-tax		1			(35		)	102.9
Cumulative effect of change in accounting principle, after-tax		(9		)	—			—
Net income		$	1,486		$	1,415		5.0
Income per share - Diluted
Operating income before the impact of restructuring and related charges		$	1.93		$	2.12		(9.0	)
Restructuring and related charges, after-tax		—			0.11			(100.0	)
Operating income		1.93			2.01			(4.0	)
Realized capital gains and losses, after-tax		0.49			0.20			145.0
DAC and DSI amortization relating to realized capital gains and losses, after-tax		—			0.04			(100.0	)
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax		(0.01		)	(0.01		)	—
Gain (loss) on disposition of operations, after-tax		—			(0.05		)	100.0
Cumulative effect of change in accounting principle, after-tax		(0.02		)	—			—
Net income		$	2.39		$	2.19		9.1

 

7

---

THE ALLSTATE CORPORATION

COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRETAX)

		Three Months Ended March 31, 2007 (Est.)
($ in millions)		Property-			Allstate			Corporate
		Liability			Financial			and Other			Total
Investment write-downs		$	(4	)	$	(1	)	$	—		$	(5	)
Dispositions (1) (2)		411			35			4			450
Valuation of derivative instruments		8			(20		)	—			(12		)
Settlements of derivative instruments		29			9			—			38
Total		$	444		$	23		$	4		$	471

 

		Three Months Ended March 31, 2006
($ in millions)		Property-			Allstate			Corporate
		Liability			Financial			and Other			Total
Investment write-downs		$	(4	)	$	(5	)	$	—		$	(9	)
Dispositions		194			(76		)	3			121
Valuation of derivative instruments		32			36			—			68
Settlements of derivative instruments		2			17			—			19
Total		$	224		$	(28	)	$	3		$	199

 

(1)	In the first quarter of 2007, the Company recognized $27 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 was due to liquidity strategies and ongoing comprehensive reviews of the Allstate Protection and Allstate Financial portfolios. The Company identified $1.24 billion of securities for which we did not have the intent to hold until recovery to achieve these objectives.
(2)	In the first quarter of 2007, Property-Liability Dispositions included $387 million of equity securities, of which $188 million related to the liquidation of limited partnership interests accounted for in accordance with the equity method of accounting. Allstate Financial Dispositions included $34 million of equity securities related to the liquidation of limited partnership interests.

 

8

THE ALLSTATE CORPORATION

SEGMENT RESULTS

		Three Months Ended March 31,
($ in millions)		Est. 2007			2006
Property-Liability
Premiums written		$	6,609		$	6,725
Premiums earned		$	6,806		$	6,876
Claims and claims expense		4,117			3,873
Amortization of deferred policy acquisition costs		1,024			1,019
Operating costs and expenses		620			652
Restructuring and related charges		(1		)	90
Underwriting income		1,046			1,242
Net investment income		491			466
Income tax expense on operations		475			532
Operating income		1,062			1,176
Realized capital gains and losses, after-tax		287			145
Net income		$	1,349		$	1,321
Catastrophe losses		$	161		$	107
Operating ratios
Claims and claims expense ratio		60.5			56.3
Expense ratio		24.1			25.6
Combined ratio		84.6			81.9
Effect of catastrophe losses on combined ratio		2.4			1.6
Effect of prior year reserve reestimates on combined ratio		(1.9		)	(3.1		)
Effect of restructuring and related charges on combined ratio		—			1.3
Effect of Discontinued Lines and Coverages on combined ratio		(0.6		)	0.1
Allstate Financial
Premiums and deposits		$	2,628		$	2,676
Investments		$	77,727		$	75,342
Premiums and contract charges		$	483		$	495
Net investment income		1,050			1,004
Periodic settlements and accruals on non-hedge derivative instruments		12			16
Contract benefits		428			373
Interest credited to contractholder funds		649			623
Amortization of deferred policy acquisition costs		129			159
Operating costs and expenses		105			128
Restructuring and related charges		—			16
Income tax expense on operations		78			72
Operating income		156			144
Realized capital gains and losses, after-tax		15			(18		)
DAC and DSI amortization relating to realized capital gains and losses, after-tax		—			27
Reclassification of periodic settlements and accruals on non-hedge
derivative instruments, after-tax		(8		)	(10		)
Gain (loss) on disposition of operations, after-tax		1			(35		)
Cumulative effect of change in accounting principle, after-tax		(9		)	—
Net income		$	155		$	108
Corporate and Other
Net investment income		$	30		$	41
Operating costs and expenses		74			80
Restructuring and related charges		—			1
Income tax benefit on operations		(23		)	(24		)
Operating loss		(21		)	(16		)
Realized capital gains and losses, after-tax		3			2
Net loss		$	(18	)	$	(14	)
Consolidated net income		$	1,486		$	1,415

 

9

---

THE ALLSTATE CORPORATION

UNDERWRITING RESULTS BY AREA OF BUSINESS

		Three Months Ended March 31,
($ in millions)		Est. 2007			2006			Percent Change
Property-Liability Underwriting Summary
Allstate Protection		$	1,006		$	1,249		(19.5	)
Discontinued Lines and Coverages		40			(7		)	—
Underwriting income		$	1,046		$	1,242		(15.8	)
Allstate Protection Underwriting Summary
Premiums written		$	6,609		$	6,725		(1.7	)
Premiums earned		$	6,806		$	6,875		(1.0	)
Claims and claims expense		4,159			3,868			7.5
Amortization of deferred policy acquisition costs		1,024			1,019			0.5
Operating costs and expenses		618			649			(4.8	)
Restructuring and related charges		(1		)	90			(101.1	)
Underwriting income		$	1,006		$	1,249		(19.5	)
Catastrophe losses		$	161		$	107		50.5
Operating ratios
Claims and claims expense ratio		61.1			56.2
Expense ratio		24.1			25.6
Combined ratio		85.2			81.8
Effect of catastrophe losses on combined ratio		2.4			1.6
Effect of restructuring and related charges on combined ratio		—			1.3
Discontinued Lines and Coverages
Underwriting Summary
Premiums written		$	—		$	—		—
Premiums earned		$	—		$	1		(100.0	)
Claims and claims expense (1)		(42		)	5			—
Operating costs and expenses		2			3			(33.3	)
Underwriting income (loss) (1)		$	40		$	(7	)	—
Effect of Discontinued Lines and Coverages on the Property-Liability combined ratio		(0.6		)	0.1

 

(1) Includes a $46 million reduction in the reinsurance recoverable valuation allowance related to Equitas’ improved financial position as a result of its reinsurance coverage with National Indemnity Company.

10