Allstate (ALL)

Operational Excellence

“Operating excellence is the key to our success and is one of our core capabilities. Our balanced strategy of target marketing to high lifetime value customers, broad suite of innovative products, disciplined pricing and customer service is working in very competitive markets,” Wilson said.

The company completed the countrywide expansion of the Ballpark Estimating Tool during the quarter, enabling consumers to get on-line auto insurance premium estimates in 2-3 minutes. As part of an effort to integrate Allstate’s distribution channels, every Allstate-provided agency website now links to the Ballpark Estimating Tool. The company continued investments in claims and distribution systems aimed at improving customer service and loyalty.

During the quarter, Allstate adjusted pricing where needed and appropriate for an average rate increase of 4.5% for standard auto and 10.9% for homeowners in the states where rates were approved.

Operational Excellence

“Maintaining a consistent focus on profitable growth resulted in excellent results for our Property-Liability business in 2007,” Wilson said. “Our consumer focus enabled us to maintain pricing discipline in the face of tough competition, with average premiums increasing in our core lines.”  Margins for the year declined resulting in a combined ratio of 89.8, reflecting a smaller benefit from prior year reserve reestimates, higher catastrophe losses and higher loss costs.  Increased loss costs represented about one third of the margin reduction and were due to increased frequency and severity of auto and homeowners claims. For the year, the combined ratio, excluding the effects of catastrophes and reserve reestimates, was 85.7, within the previously provided outlook range of 84.0 to 86.0.

The combined ratio for the fourth quarter was 95.9 (88.6 excluding catastrophes and the effect of prior year reserve releases) reflecting the same trends as for the year. Also in the fourth quarter, expenses were up related to advertising, marketing and technology investments in product and service innovations.

Allstate Financial continued to focus on improving returns, with new business returns increasing significantly over prior year, and leveraging both the Allstate branded property-liability customer base and its non-proprietary distribution relationships. Allstate Financial operating income was $158 million for the quarter, up 11.3% from the fourth quarter of 2006.  To optimize its capital position and leverage the diversification benefits of the enterprise, Allstate Financial paid dividends of $657 million in the fourth quarter, bringing total dividends paid by Allstate Financial to its parent companies in 2007 to $742 million. New sales of financial products by Allstate exclusive agencies* increased to $2.9 billion in 2007, a 13.8 percent increase from 2006.

“Our disciplined investment approach generated solid returns and shielded the portfolio from significant losses in a tumultuous market,” Wilson said. Net investment income for the year was $6.44 billion; $1.63 billion of that was earned in the fourth quarter. Investments generated substantial capital gains of $1.24 billion for the year, including $98 million in the fourth quarter, with strong equity portfolio performance more than offsetting losses in the fixed income portfolio.

Operational Excellence

“Our consumer-focused strategy combined with disciplined pricing and expense management drove excellent returns.” Wilson said. Allstate’s Property-Liability combined ratio, excluding the effects of catastrophes and prior year reserve reestimates, for the first nine months of 2007 is comfortably within the outlook the company provided at the beginning of the year.

Allstate Financial is improving new business returns, particularly on its fixed annuity business. The focus on returns continues to impact deposits, which were down for the quarter compared to the prior year quarter, but provides a foundation that will be used to support the introduction of innovative consumer-driven products in 2008.

“Our investments team had exceptional results in a difficult market environment, reflecting disciplined and analytical investment strategies,” Wilson said.

Investment grade securities backed by sub-prime residential mortgages, Alt-A and asset-backed collateralized debt obligations represented less than five percent of the company’s $121.13 billion combined investment portfolios. The fair value of Allstate’s holdings in these securities declined by $304 million, or 5%, in the quarter. The company’s fixed income portfolio was well positioned for the quarter’s decline in interest rates and widening of credit spreads, yielding net fixed income portfolio unrealized gains comparable to the prior quarter.