Allstate Reports 2008 Second Quarter Results

Business Wire, July 23, 2008

Strong Underwriting Results Generate Profit Despite Record Second Quarter Catastrophes and Investment Valuation Declines

NORTHBROOK, Ill. -- The Allstate Corporation (NYSE:ALL) today reported results for the second quarter of 2008:

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(a) 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.

"Our continued focus on profitability in our insurance operations served us well during the quarter," said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation. "This strategy generated solid operating profit despite record catastrophe losses. This performance offset lower earnings in our financial services operations and a shift in the accounting of unrealized investment losses to realized losses for change in intent write-downs largely resulting from expanded investment risk mitigation programs."

Allstate's second quarter operating income of $683 million was affected by $698 million in pre-tax catastrophe losses, the highest level of second quarter catastrophe losses the Corporation has recorded in its 77-year history. Operating income for the quarter was $389 million lower than the prior year quarter due to higher catastrophe losses and the absence of favorable reserve re-estimates. Allstate's net income for the quarter was $25 million, reflecting the impact of realized after-tax capital losses of $788 million and lower operating income.

"Solid insurance operation results enabled us to maintain our strength for customers and continue to return capital to shareholders," Wilson added. During the quarter, Allstate repurchased 8.8 million shares for $434 million; $1.4 billion remains of the $2 billion share repurchase program which the Corporation expects to complete in the first quarter of 2009. Earlier this week, Allstate announced a quarterly dividend of forty-one cents ($0.41) on each outstanding share of the Corporation's common stock.

Protection

During the quarter, Allstate's Property-Liability operations benefitted from reduced claim frequency and moderate severity, resulting in profitability levels better than expected for the full year. For the quarter, the Property-Liability underlying combined ratio, which excludes the effects of catastrophes and prior year reserve re-estimates, was 84.1, significantly below the full-year outlook of 87.0 to 89.0 provided in January.

Financial Services

Allstate Financial posted operating income of $118 million for the quarter, a decline from $154 million in the prior year quarter due in part to lower investment spreads and increased costs related to the effort to reinvent retirement for consumers. "Our life insurance products continued to perform well and our asset accumulation retirement products had a good quarter with increased new business returns," Wilson said. "Our challenge and opportunity in financial services is increasing consistency in achieving desired results quarter to quarter, especially in light of continued pressures on the economy and investment markets."

Investments

Commenting on Allstate's investment portfolio, which generated $1.4 billion in net investment income for the quarter, Wilson said: "Our investment philosophy emphasizes diversified exposure, high quality assets and continual attention to risk mitigation and return optimization. This approach has helped us to minimize impairments in the face of unprecedented market volatility. As market conditions change, we will continue to adapt our risk and return strategies."

Reflecting its view that pressures on the economy and investment markets will be prolonged, Allstate augmented risk mitigation and return optimization programs in its investment portfolios. "We're positioning our portfolio to further reduce our risk in certain market segments and hedge against significant adverse developments," said Allstate Chief Investment Officer Ric Simonson. The expanded programs are strategically reducing exposure to certain real estate and financial services-related asset classes and guarding against significant adverse moves in equity valuations, interest rates and credit spreads through macro-hedging. Two-thirds of the after-tax realized losses ($557 million) Allstate incurred in the quarter are related to change in intent write-downs resulting from this strategic review of investments in certain sectors. "These strategic actions largely affect assets that are current and continue to pay interest, but we believe these steps better insulate our portfolio and provide greater flexibility to take advantage of new opportunities in the investment markets,"

Outlook

In light of positive first half 2008 performance, Allstate is adjusting the outlook for its Property-Liability underlying combined ratio, excluding the effect of catastrophes and prior year reserve re-estimates. The Corporation now expects its underlying combined ratio will be within 86.0 - 88.0 for the full year of 2008, an improvement from the full-year outlook of 87.0 - 89.0 provided in January.