SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11840
THE ALLSTATE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3871531
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2775 SANDERS ROAD, NORTHBROOK, ILLINOIS 60062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 847/402-5000
REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES /X/ NO
AS OF JULY 31, 1997, THE REGISTRANT HAD 433,726,850 COMMON SHARES, $.01
PAR VALUE, OUTSTANDING.
<PAGE>
THE ALLSTATE CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1997
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations
for the Three- and Six-Months Ended June 30, 1997
and 1996 (unaudited). 1
Condensed Consolidated Statements of Financial
Position as of June 30, 1997 (unaudited)
and December 31, 1996. 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 (unaudited). 3
Notes to Condensed Consolidated Financial
Statements (unaudited). 4
Independent Certified Public Accountants'
Review Report. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports of Form 8-K. 23
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ALLSTATE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited)
(In millions except per share data)
<S> <C> <C> <C> <C>
REVENUES
Property-liability insurance premiums earned $ 4,632 $ 4,650 $ 9,192 $ 9,194
Life and annuity premiums and contract charges 366 304 721 612
Net investment income 967 949 1,911 1,884
Realized capital gains and losses 108 421 428 537
---------- ---------- ---------- ----------
6,073 6,324 12,252 12,227
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Property-liability insurance claims and claims expense 3,374 3,529 6,742 7,216
Life and annuity contract benefits 598 557 1,181 1,107
Amortization of deferred policy acquisition costs 681 573 1,348 1,137
Operating costs and expenses 491 599 944 1,157
Interest expense 24 24 48 47
---------- ---------- ---------- ----------
5,168 5,282 10,263 10,664
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE,
DIVIDENDS ON PREFERRED SECURITIES, AND EQUITY
IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 905 1,042 1,989 1,563
INCOME TAX EXPENSE 260 286 577 389
---------- ---------- ---------- ----------
INCOME BEFORE DIVIDENDS ON PREFERRED SECURITIES AND
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 645 756 1,412 1,174
DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS (10) - (19) -
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 8 8 17 14
---------- ---------- ---------- ----------
NET INCOME $ 643 $ 764 $ 1,410 $ 1,188
========== ========== ========== ==========
NET INCOME PER SHARE $ 1.47 $ 1.71 $ 3.20 $ 2.65
========== ========== ========== ==========
WEIGHTED-AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 437.3 448.2 439.8 449.1
========== ========== ========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-1-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, December 31,
($ in millions) 1997 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Investments
Fixed income securities, at fair value
(amortized cost $46,915 and $45,057) $ 48,853 $ 47,095
Equity securities, at fair value (cost $3,988 and $3,999) 5,924 5,561
Mortgage loans 3,073 3,146
Real estate 716 738
Short-term 725 1,278
Other 525 511
------------------ -----------------
Total investments 59,816 58,329
Premium installment receivables, net 2,956 2,886
Deferred policy acquisition costs 2,767 2,614
Reinsurance recoverables, net 2,084 2,147
Property and equipment, net 718 714
Accrued investment income 717 715
Deferred income taxes - 232
Cash 182 116
Other assets 1,211 1,204
Separate Accounts 6,655 5,551
------------------ -----------------
Total assets $ 77,106 $ 74,508
================== =================
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 17,480 $ 17,382
Reserve for life-contingent contract benefits 6,470 6,287
Contractholder funds 20,364 20,120
Unearned premiums 6,143 6,174
Claim payments outstanding 552 594
Other liabilities and accrued expenses 2,887 2,824
Deferred income taxes 84 -
Short-term debt 175 152
Long-term debt 1,236 1,234
Separate Accounts 6,647 5,539
------------------ -----------------
Total liabilities 62,038 60,306
------------------ -----------------
Commitments and Contingent Liabilities (Notes 2 and 4)
Company obligated mandatorily redeemable
preferred securities of subsidiary trusts 750 750
Shareholders' equity
Preferred stock, $1 par value, 25 million
shares authorized, none issued - -
Common stock, $.01 par value, 1 billion shares
authorized and 450 million issued, 434 million
and 442 million shares outstanding 5 5
Additional capital paid-in 3,139 3,133
Unrealized net capital gains 2,175 2,003
Unrealized foreign currency translation adjustments 15 21
Retained income 10,157 8,958
Deferred ESOP expense (281) (280)
Treasury stock, at cost (16 million and 8 million shares) (892) (388)
------------------ -----------------
Total shareholders' equity 14,318 13,452
------------------ -----------------
Total liabilities and shareholders' equity $ 77,106 74,508
================== =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
------------------------------
($ in millions) 1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,410 $ 1,188
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, amortization and other non-cash items (5) (11)
Realized capital gains and losses (428) (537)
Interest credited to contractholder funds 604 589
Increase in policy benefit and other insurance reserves 82 392
Change in unearned premiums (31) 79
Increase in deferred policy acquisition costs (146) (178)
Increase in premium installment receivables, net (70) (64)
Change in reinsurance recoverables, net 63 (35)
Change in deferred income taxes 219 85
Changes in other operating assets and liabilities 23 79
------------ -----------
Net cash provided by operating activities 1,721 1,587
------------ -----------
Cash flows from investing activities
Proceeds from sales
Fixed income securities 6,153 5,257
Equity securities 1,556 2,305
Investment collections
Fixed income securities 2,307 1,872
Mortgage loans 244 180
Investment purchases
Fixed income securities (10,242) (9,730)
Equity securities (1,178) (1,089)
Mortgage loans (175) (137)
Change in short-term investments, net 559 (330)
Change in other investments, net 20 28
Purchases of property and equipment, net (65) (60)
------------ -----------
Net cash used in investing activities (821) (1,704)
------------ ------------
Cash flows from financing activities
Change in short-term debt, net 23 231
Repayment of long-term debt - (2)
Proceeds from issuance of long-term debt 2 -
Contractholder fund deposits 1,348 1,643
Contractholder fund withdrawals (1,492) (1,438)
Dividends paid (211) (190)
Treasury stock purchases (535) (95)
Other 31 30
------------- ------------
Net cash (used in) provided by financing activities (834) 179
------------- ------------
Net increase in cash 66 62
Cash at beginning of period 116 90
------------ ------------
Cash at end of period $ 182 $ 152
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of The Allstate Corporation and its wholly owned subsidiaries,
primarily Allstate Insurance Company ("AIC"), a property-liability insurance
company with various property-liability and life and annuity subsidiaries,
including Allstate Life Insurance Company (collectively referred to as the
"Company" or "Allstate").
The condensed consolidated financial statements and notes as of June 30, 1997
and for the three-month and six-month periods ended June 30, 1997 and 1996 are
unaudited. The condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for the fair presentation of the financial
position, results of operations and cash flows for the interim periods. These
condensed consolidated financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in The Allstate Corporation Annual Report to Shareholders and Annual
Report on Form 10-K for 1996. The results of operations for the interim periods
should not be considered indicative of results to be expected for the full year.
To conform with the 1997 presentation, certain items in the prior year's
financial statements and notes have been reclassified.
2. RESERVE FOR PROPERTY-LIABILITY INSURANCE CLAIMS AND CLAIMS EXPENSE
The Company establishes reserves for claims and claims expense on reported
and unreported claims of insured losses. These reserve estimates are based on
known facts and interpretation of circumstances, including the Company's
experience with similar cases and historical trends involving claim payment
patterns, loss payments, pending levels of unpaid claims and product mix, as
well as other factors including court decisions, economic conditions and public
attitudes.
The establishment of appropriate reserves, including reserves for
catastrophes, is an inherently uncertain process. Allstate regularly updates its
reserve estimates as new facts become known and further events occur which may
impact the resolution of unsettled claims. Changes in prior year reserve
estimates, which may be material, are reflected in the results of operations in
the period such changes are determined to be needed.
Catastrophes are an inherent risk of the property-liability insurance
business which have contributed, and will continue to contribute, to material
year-to-year fluctuations in the Company's results of operations and financial
position. The level of catastrophe loss experienced in any year cannot be
predicted and could be material to the results of operations and financial
position.
-4-
<PAGE>
Reserves for environmental, asbestos and mass tort exposures are comprised of
reserves for reported claims, incurred but not reported claims and related
expenses. Establishing net loss reserves for these types of claims is subject to
uncertainties that are greater than those presented by other types of claims.
Among the complications are a lack of historical data, long reporting delays,
uncertainty as to the number and identity of insureds with potential exposure,
unresolved legal issues regarding policy coverage, availability of reinsurance
and the extent and timing of any such contractual liability. The legal issues
concerning the interpretation of various insurance policy provisions and whether
these losses are, or were ever intended to be covered, are complex. Courts have
reached different and sometimes inconsistent conclusions as to when losses are
deemed to have occurred and which policies provide coverage; what types of
losses are covered; whether there is an insured obligation to defend; how policy
limits are determined; how policy exclusions are applied and interpreted; and
whether environmental and asbestos clean-up costs represent insured property
damage. Management believes these issues are not likely to be resolved in the
near future.
In 1986, the general liability policy form used by Allstate and others in
the property-liability industry was amended to introduce an "absolute pollution
exclusion" which excluded coverage for environmental damage claims and added an
asbestos exclusion. Most general liability policies issued prior to 1987 contain
annual aggregate limits for products liability coverage, and policies issued
after 1986 also have an annual aggregate limit as to all coverages. Allstate's
experience to date is that these policy form changes have effectively limited
its exposure to environmental and asbestos claims risks assumed as well as
primary commercial coverages written, for most policies written in 1986 and all
policies written after 1986. Allstate's reserves, net of reinsurance
recoverables of $441 million and $489 million, for environmental and asbestos
claims were $1.16 billion and $1.23 billion at June 30, 1997 and December 31,
1996, respectively.
During 1996, Allstate gained access to complex databases developed by
outside experts to estimate the cost of liabilities for environmental claims.
The Company also refined its own estimation techniques, which were tested and
validated by outside actuaries, to estimate environmental and asbestos losses.
In addition to environmental and asbestos exposures, the studies also included
an assessment of current claims for mass tort exposures.
Management believes its net loss reserves for environmental, asbestos, and
mass tort exposures are appropriately established based on available facts,
technology, laws and regulations. However, due to the inconsistencies of court
coverage decisions, plaintiffs' expanded theories of liability, the risks
inherent in major litigation and other uncertainties, the ultimate cost of these
claims may vary materially from the amounts currently recorded, resulting in an
increase in the loss reserves. In addition, while the Company believes the
improved actuarial techniques and databases have assisted in its ability to
estimate environmental, asbestos and mass tort net loss reserves, these
refinements may subsequently prove to be inadequate indicators of the extent of
probable loss. Due to the uncertainties and factors described above, management
believes it is not practicable to develop a meaningful range for any such
additional net loss reserves that may be required.
-5-
<PAGE>
3. REINSURANCE
Property-liability insurance premiums and life and annuity premiums and
contract charges are net of reinsurance ceded as follows:
Three Six
Months Ended Months Ended
June 30, June 30,
($ in millions)
1997 1996 1997 1996
---- ---- ---- ----
Property-liability premiums...........$111 $147 $254 $285
Life and annuity premiums
and contract charges ................. 34 16 73 29
Property-liability insurance claims and claims expense and life and annuity
contract benefits are net of reinsurance recoveries as follows:
Three Six
Months Ended Months Ended
June 30, June 30,
($ in millions)
1997 1996 1997 1996
---- ---- ---- ----
Property-liability insurance
claims and claims expense........... $83 $93 $165 $189
Life and annuity contract
benefits............................ 12 6 23 24
4. REGULATION AND LEGAL PROCEEDINGS
The Company's insurance businesses are subject to the effects of a changing
social, economic and regulatory environment. Public regulatory initiatives have
varied and have included efforts to restrict premium rates, restrict the
Company's ability to cancel policies, impose underwriting standards and expand
overall regulation. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.
Various legal and regulatory actions are currently pending that involve
Allstate and specific aspects of its conduct of business. In the opinion of
management, the ultimate liability, if any, in one or more of these actions in
excess of amounts currently reserved is not expected to have a material effect
on results of operations, liquidity or capital resources.
-6-
<PAGE>
5. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS
In November 1996 Allstate Financing I ("AF I"), a wholly-owned subsidiary of
the Company, issued 22 million shares of 7.95 percent Quarterly Income Preferred
Securities ("QUIPS") at $25 per share. The sole assets of AF I are $550 million
of 7.95 percent Junior Subordinated Deferrable Interest Debentures ("QUIDS")
issued by the Company. The QUIDS held by AF I will mature on December 31, 2026
and are redeemable by the Company in whole or in part beginning on November 25,
2001, at which time the QUIPS are callable. Net proceeds from the issuance of
the QUIPS were used for general corporate purposes including the Company's stock
repurchase program. AF I may elect to extend the maturity of its QUIPS to
December 31, 2045.
In November 1996 Allstate Financing II ("AF II"), a wholly-owned subsidiary
of the Company, issued 200,000 shares of 7.83 percent preferred securities
("trust preferred securities") at $1,000 per share. The sole assets of AF II are
$200 million of 7.83 percent Junior Subordinated Deferrable Interest Debentures
("junior subordinated debentures") issued by the Company. The junior
subordinated debentures held by AF II will mature on December 1, 2045 and are
redeemable by the Company in whole or in part beginning on December 1, 2006, at
which time the trust preferred securities are callable. Net proceeds from the
issuance of the trust preferred securities were used for general corporate
purposes including the Company's stock repurchase program.
The obligations of the Company with respect to the QUIDS and junior
subordinated debentures constitute full and unconditional guarantees by the
Company of AF I's and AF II's obligations under the respective preferred
securities including the payment of the liquidation or redemption price and any
accumulated and unpaid interest, but only to the extent of funds held by the
trusts. The preferred securities are classified in the Company's balance sheet
as company obligated mandatorily redeemable preferred securities of subsidiary
trust (representing the minority interest in the trusts) at their face value and
redemption amount of $750 million. The preferred securities have a liquidation
value of $25 per share for the QUIPS and $1,000 per share for the trust
preferred securities. Dividends on the preferred securities are cumulative,
payable quarterly in arrears for the QUIPS and cumulative, payable semi-annually
in arrears for the trust preferred securities, and are deferrable at the
Company's option for up to five years. The Company cannot pay dividends on its
preferred and common stocks during such deferments. Dividends on the preferred
securities have been classified as minority interest in the statements of
operations.
-7-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
The Allstate Corporation:
We have reviewed the accompanying condensed consolidated statement of financial
position of The Allstate Corporation and subsidiaries as of June 30, 1997, and
the related condensed consolidated statements of operations for the three-month
and six-month periods ended June 30, 1997 and 1996, and the condensed
consolidated statements of cash flows for the six-month periods ended June 30,
1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of The Allstate
Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended, not presented herein. In our report dated February 21,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated statement of financial position as of December 31, 1996
is fairly stated, in all material respects, in relation to the consolidated
statement of financial position from which it has been derived.
Deloitte & Touche LLP
Chicago, Illinois
August 13, 1997
-8-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED
JUNE 30, 1997 AND 1996
The following discussion highlights significant factors influencing results
of operations and changes in financial position of The Allstate Corporation (the
"Company" or "Allstate"). It should be read in conjunction with the condensed
consolidated financial statements and notes thereto found under Part I. Item 1
and with the discussion and analysis found under Part 2. Item 7 of The Allstate
Corporation Annual Report on Form 10-K for 1996.
CONSOLIDATED REVENUES
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Property-liability insurance
premiums.......................... $4,632 $4,650 $ 9,192 $ 9,194
Life and annuity premiums and
contract charges.................. 366 304 721 612
Net investment income............... 967 949 1,911 1,884
Realized capital gains and losses .. 108 421 428 537
----- ----- ------ ------
Total revenues...................... $6,073 $6,324 $12,252 $12,227
===== ===== ====== ======
Consolidated revenues for the second quarter decreased by 4.0%, reflecting the
absence of premium due to the sales of the commercial and reinsurance businesses
in 1996, lower realized capital gains and the impact on property-liability
insurance premiums of catastrophe management initiatives.
CONSOLIDATED NET INCOME
Net income for the second quarter of 1997 was $643 million, or $1.47 per
share, compared with $764 million, or $1.71 per share, for the same period of
1996, as increased property-liability underwriting income and life operating
income were more than offset by lower realized capital gains. Property-liability
underwriting income benefited from lower catastrophe losses and favorable
frequency (rate of claim occurrence) and severity (average cost per claim) loss
trends.
Net income for the first half of 1997 was $1.41 billion, or $3.20 per share,
compared with $1.19 billion, or $2.65 per share, for the same period of 1996.
The results for the first half of 1997 were favorably impacted by increased
property-liability underwriting income which benefited from lower catastrophe
losses and favorable claim frequencies and severities.
-9-
<PAGE>
PROPERTY-LIABILITY OPERATIONS
OVERVIEW
The Company's property-liability operations consists of two principal areas
of business: personal property and casualty ("PP&C") and discontinued lines and
coverages ("Discontinued Lines and Coverages"). PP&C is principally engaged in
the sale of private passenger automobile and homeowners insurance. Discontinued
Lines and Coverages consists of business no longer written by Allstate.
Underwriting results for each of the property-liability areas of business are
discussed separately beginning on page 12.
The following table sets forth certain unaudited summarized financial data
and key operating ratios for the Company's property-liability operations for the
three-month and six-month periods ended June 30, 1997 and 1996.
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Premiums written.....................$4,726 $4,772 $9,277 $9,265
===== ===== ===== =====
Premiums earned......................$4,632 $4,650 $9,192 $9,194
Claims and claims expense............ 3,374 3,529 6,742 7,216
Operating costs and expenses......... 1,029 1,052 2,005 2,058
----- ----- ----- -----
Underwriting income (loss)........... 229 69 445 (80)
Net investment income ............... 441 440 861 867
Realized capital gains and
losses, after-tax................... 66 252 225 328
Income tax expense on operations 181 104 344 123
----- ----- ----- -----
Income before equity in net
income of unconsolidated
subsidiary.......................... 555 657 1,187 992
Equity in net income of
unconsolidated subsidiary........... 8 8 17 14
- ---- ----- -----
Net income...........................$ 563 $665 $1,204 $1,006
=== ==== ===== =====
Catastrophe losses...................$ 121 $279 $ 231 $ 511
=== ==== ===== =====
Operating ratios
Claims and claims expense
("loss") ratio.................... 72.9 75.9 73.4 78.5
Expense ratio...................... 22.2 22.6 21.8 22.4
---- ---- ----- -----
Combined ratio..................... 95.1 98.5 95.2 100.9
==== ==== ===== =====
Effect of catastrophe losses
on combined ratio................. 2.6 6.0 2.5 5.6
=== === ===== =====
-10-
<PAGE>
NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS
Pretax net investment income increased slightly to $441 million for the
second quarter and decreased slightly to $861 million for the six-month period
ended June 30, 1997. Higher investment balances, the result of positive cash
flows from operations net of the effect of sold businesses, were offset by lower
investment yields. The lower investment yields are due, in part, to the
investment of proceeds from calls and maturities and the investment of positive
cash flows from operations in securities yielding less than the average
portfolio rate. In low interest rate environments, funds from maturing
investments may be reinvested at substantially lower interest rates than which
prevailed when the funds were previously invested. The sale of the commercial
and reinsurance operations in the second half of 1996 reduced investments by
$1.59 billion.
Realized capital gains after-tax for the second quarter of 1997 were $66
million compared with $252 million for the same period in 1996. For the first
half of 1997, realized capital gains after-tax were $225 million compared with
$328 million for the comparable period in 1996. The repositioning of the
Company's property-liability investment portfolio during the second quarter of
1996 contributed approximately $234 million of realized capital gains after-tax.
At June 30, 1997 the property-liability operations had $1.64 billion of
unrealized capital gains on equity securities versus $1.35 billion at December
31, 1996. Fluctuations in realized capital gains and losses are largely a
function of timing of sales decisions reflecting management's view of individual
securities and overall market conditions.
-11-
<PAGE>
UNDERWRITING RESULTS
PP&C - Underwriting results and key operating ratios for the Company's
personal property and casualty insurance area of business for the three-month
and six-month periods ended June 30, 1997 and 1996 are summarized in the
following table.
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Premiums written.....................$4,725 $4,542 $9,276 $8,829
===== ===== ===== =====
Premiums earned......................$4,630 $4,398 $9,190 $8,705
Claims and claims expense............ 3,371 3,304 6,737 6,749
Operating costs and expenses......... 1,025 959 1,997 1,883
----- ---- ----- -----
Underwriting income..................$ 234 $135 $ 456 $ 73
=== ==== ===== =====
Catastrophe losses...................$ 121 $278 $ 231 $ 506
=== ==== ===== =====
Operating ratios
Claims and claims expense
("loss") ratio.................... 72.8 75.1 73.3 77.5
Expense ratio...................... 22.1 21.8 21.7 21.6
---- ---- ---- ----
Combined ratio..................... 94.9 96.9 95.0 99.1
==== ==== ==== ====
Effect of catastrophe losses
on combined ratio................. 2.6 6.3 2.5 5.8
=== === === ===
PP&C provides primarily private-passenger auto and homeowners insurance to
individuals. PP&C also includes the ongoing commercial business written through
the Allstate agent distribution channel. The Company separates the voluntary
personal auto insurance business into two categories for underwriting purposes
according to insurance risks: the standard market and the non-standard market.
The standard market consists of drivers who meet certain criteria which classify
them as having low to average risk of loss expectancy. The non-standard market
consists of drivers who have higher-than-average risk profiles due to their
driving records, lack of prior insurance or the types of vehicles they own.
These policies are written at rates higher than standard auto rates.
The Company is pursuing a segmented growth marketing strategy with respect to
geographic areas in the standard auto and homeowners markets. It is attempting
to grow standard auto business more rapidly in areas where the regulatory
climate is more conducive to attractive returns and is reducing or limiting its
homeowners business exposure in areas where the risk of loss from catastrophes
does not provide appropriate returns. The process of designating geographic
areas as growth and limited growth markets is dynamic and may be revised as
changes occur in the legal, regulatory and economic environments, as catastrophe
exposure is reduced and as new products are approved. Less than 6.0% of the
total United States population reside in areas currently designated by the
Company as standard auto limited growth markets. The Company is attempting to
reduce or limit homeowners growth in areas where approximately 20.0% of the
United States population reside. The Company is
-12-
<PAGE>
pursuing a growth strategy throughout the United States in the non-standard auto
market by expanding through the independent agency channel and broadening the
non-standard product line.
PP&C premiums written for the second quarter increased 4.0% over the second
quarter of 1996. For the first half of 1997, PP&C premiums written increased
5.1% over the comparable period for 1996. Standard auto premiums written
increased 2.7% to $2.65 billion for the second quarter of 1997, compared with
$2.58 billion for the same period in 1996. For the six-month period ending June
30, 1997, standard auto premiums increased 3.4% to $5.34 billion from $5.16
billion in 1996. The increase for both periods in standard auto premiums written
was primarily due to an increase in average premium and to a lesser extent,
policies in force. Average premium increases were primarily attributable to a
shift to newer and more expensive autos and, to a lesser extent, rate increases.
Rate increases generally are limited by regulatory and competitive
considerations.
Non-standard auto premiums written increased 17.5% to $784 million in the
second quarter of 1997, from $667 million for the same period in 1996. For the
six-month period, non-standard auto premiums written increased 20.4% to $1.58
billion compared with $1.31 billion for 1996. The increase for both periods was
driven by an increase in renewal policies in force and, to a lesser extent,
average premium. The rate of growth is expected to gradually decline as the
non-standard auto market matures.
Homeowners premiums written for the three-month period ended June 30, 1997
was $791 million, a decrease of 1.6% over second quarter 1996 premiums of $804
million. For the first half of 1997 homeowners premiums written were $1.42
billion a decrease of 2.1% over the same period of 1996. The decrease is
primarily due to the impacts of the Company's catastrophe management initiatives
in California, Florida, and the Northeastern portion of the United States.
Excluding California and Florida, homeowners premiums written increased 6.8% and
5.4% for the three-month and six-month periods ended June 30, 1997,
respectively. As a result of the California Earthquake Authority formation this
year the Company will non-renew approximately $117 million of property premiums
related to earthquake coverage, $39 million and $67 million of which occurred in
the three-month and six-month periods ended June 30, 1997. The decrease in
premiums due to the non-renewal of earthquake coverage was partially offset by
increased premiums resulting from Allstate's re-entry into the California
property market. Florida homeowners premiums decreased approximately $28 million
and $43 million for the three-month and six-month periods of 1997 as lower
premiums resulting from the sale of renewal rights to Clarendon National
Insurance Company, the purchase of catastrophe reinsurance, policy deductible
modifications, and the transfer of the wind damage portion of property policies
in Florida to the Florida Windstorm Underwriting Association were partially
offset by rate increases.
For the second quarter of 1997, PP&C had underwriting income of $234 million
compared with underwriting income of $135 million for the same period in 1996.
The improved underwriting results were primarily due to lower catastrophe
losses, favorable loss frequency and auto injury severity trends and increased
auto average earned premiums. Favorable auto and homeowners frequency was
partially impacted by mild weather. Auto physical damage coverage claim
severities increased over the prior year, driven by
-13-
<PAGE>
moderate inflationary pressure. Auto injury claim severities were slightly
higher than second quarter 1996 levels while continuing to trend favorably
compared to relevant medical services indices.
For the first six months of 1997, PP&C had underwriting income of $456
million compared with $73 million for the comparable period of 1996. The
improved underwriting results for the first half of 1997 were primarily due to
lower catastrophe losses, favorable loss frequency and auto injury severity
trends, and increased auto average earned premiums.
CATASTROPHE MANAGEMENT AND CATASTROPHE LOSSES
Allstate has implemented strategies to limit, over time, subject to the
requirements of insurance laws and regulations and as limited by competitive
considerations, its insurance exposures in certain regions prone to
catastrophes. These strategies include limits on new business production,
limitations on certain policy coverages, increases in deductibles, policy
brokering, reinsurance, and participation in catastrophe pools. In addition,
Allstate has requested and received rate increases in certain regions prone to
catastrophes. The Company continues to make substantial progress in reducing its
exposure to catastrophes in California, Florida, and the Northeast as strategies
initiated in 1996 and 1997 continue to be implemented.
Allstate has entered into a three-year excess reinsurance contract covering
property policies in the Northeastern portion of the United States, effective
June 1, 1997. The reinsurance program provides up to 95% of $500 million of
reinsurance protection for catastrophe losses in excess of an estimated $750
million retention subject to a limit of $500 million in any one year and an
aggregate limit of $1.0 billion over the three-year contract period.
The Company announced its intention to start a Florida only non-standard
property insurance subsidiary. This company will remove approximately 49,000
policies from the Florida Residential Property & Casualty Joint Underwriting
Association and write new policies in the northern coastal and interior
counties of Florida.
For Allstate, major areas of potential losses due to hurricanes include major
metropolitan centers near the eastern and gulf coasts of the United States. The
major areas of exposure to potential losses due to earthquakes in California
include population centers in and around Los Angeles and San Francisco. Other
areas in the United States with significant exposure to potential earthquake
losses include areas surrounding the New Madrid fault system in the midwest and
faults in and surrounding Seattle, Washington. Allstate will continue to
evaluate business strategies and options in the reinsurance market for
appropriate coverage at acceptable rates and the financial markets, to more
effectively manage its exposure to catastrophe losses in these and other areas.
Catastrophes are an inherent risk of the property-liability insurance
business which have contributed, and will continue to contribute, to material
year-to-year fluctuations in Allstate's results of operations and financial
position. The level of catastrophe losses experienced in any year cannot be
predicted and could be material to the Company's results of operations and
financial position. The Company has experienced two individual catastrophes
-14-
<PAGE>
in the last five years which resulted in losses over $1.00 billion ($2.33
billion related to Hurricane Andrew and $1.72 billion related to the Northridge
earthquake). While management believes the ongoing implementation of the
Company's catastrophe management strategies will greatly reduce the probability
of individual losses over $1.00 billion in the future, the Company will continue
to be exposed to similar or greater catastrophes.
Catastrophe losses for the second quarter of 1997 were $121 million compared
with $279 million for the same period in 1996. For the first half of 1997,
catastrophe losses were $231 million versus $511 million for the same period in
1996. The first half of 1996 was impacted by losses caused by snow and ice
storms in the eastern portion of the United States during the first quarter.
The establishment of appropriate reserves for catastrophes, as for all
property-liability claims, is an inherently uncertain process. Catastrophe
reserve estimates are regularly reviewed and updated, using the most current
information. Any resulting adjustments, which may be material, are reflected in
current year operations.
DISCONTINUED LINES AND COVERAGES - Discontinued Lines and Coverages consists of
business no longer written by Allstate, including results from environmental,
asbestos and mass tort losses and other commercial business in run-off, and the
historical results of the mortgage pool business and the commercial and
reinsurance businesses sold in 1996.
Underwriting results for the Company's Discontinued Lines and Coverages area
of business for the three-month and six-month periods ended June 30, 1997 and
1996 are summarized below.
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Underwriting loss...................... $(5) $(66) $(11) $(153)
=== ==== ==== =====
Underwriting losses in both the three-month and six-month periods ended June 30,
1996 were primarily related to additional environmental and asbestos claims
being reported and continued reevaluation and adjustment of the estimated
ultimate cost of settling these claims.
-15-
<PAGE>
LIFE AND ANNUITY OPERATIONS
The life and annuity operations of Allstate ("Allstate Life") market a broad
line of life insurance, annuity and group pension products through a combination
of Allstate agents, including life specialists, banks, independent agencies,
brokers and direct response marketing.
The following table sets forth certain unaudited summarized financial data
for Allstate Life's operations and investments at or for the three-month and
six-month periods ended June 30, 1997 and 1996.
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Statutory premiums and deposits......$ 1,348 $1,336 $ 2,463 $ 2,649
===== ===== ====== ======
Investments..........................$28,658 $26,809 $28,658 $26,809
Separate Account assets.............. 6,655 4,613 6,655 4,613
----- ----- ------ ------
Investments including Separate
Account assets......................$35,313 $31,422 $35,313 $31,422
====== ====== ====== ======
Premiums and contract charges........$ 366 $304 $ 721 $ 612
Net investment income................ 522 508 1,038 1,015
Policy benefits...................... 598 557 1,181 1,107
Operating costs and expenses......... 147 124 297 246
--- --- ------ ------
Income from operations............... 143 131 282 274
Income tax expense on operations..... 49 45 97 94
-- -- ------ ------
Operating income..................... 94 86 185 180
Realized capital gains and
losses, after-tax.................... 4 21 53 21
----- ------ ------ ------
Net income........................... $98 $107 $ 238 $ 201
== === ====== ======
Statutory premiums and deposits, which include premiums and deposits for all
products, increased slightly during the second quarter and decreased 7% for the
first six months of 1997 compared with the same periods last year. The following
table presents statutory premiums and deposits by product line.
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions) 1997 1996 1997 1996
---- ---- ---- ----
Universal..........................$ 177 $181 $ 356 $ 354
Traditional........................ 80 79 149 151
Other.............................. 57 61 113 116
Annuity products
Fixed.............................. 430 495 809 911
Variable........................... 347 310 692 553
Group pension products................ 257 210 344 564
--- --- ----- -----
Total.................................$1,348 $1,336 $2,463 $2,649
===== ===== ===== =====
-16-
<PAGE>
For the quarter, increased sales of group pensions and variable annuity
products were offset by decreased sales of fixed annuity products, as the
interest rate environment continues to make variable annuity products more
attractive than fixed annuity products. For the six-month period, increased
sales of variable annuity products were more than offset by decreased sales of
group pension and fixed annuity products. The level of pension product sales
continues to be based on Allstate Life's assessment of market opportunities.
Life and annuity premiums and contract charges under generally accepted
accounting principles ("GAAP") increased 20% in the second quarter and 18% for
the first six months of 1997. Under GAAP, revenues exclude deposits on most
annuities and premiums on universal life insurance policies. The increase for
the second quarter and first six months of 1997 was attributable to increased
sales of structured settlement annuities with life contingencies and traditional
life insurance and growth in contract charges on variable annuities and
universal life products. GAAP premium and contract charges will vary with the
mix of products sold during the period.
Pretax net investment income increased by 2.8% and 2.3% for the second
quarter and the first six months of 1997, respectively, primarily due to a 2.6%
growth in investments, excluding Separate Account assets and unrealized gains on
fixed income securities. The increase in investment income reflects higher
investment balances, partially offset by lower yields on fixed income securities
as proceeds from calls and maturities as well as positive cash flows from
operating activities were invested in securities yielding less than the average
portfolio rate. In low interest rate environments, funds from maturing
investments may be reinvested at lower interest rates than those which prevailed
when the funds were previously invested.
Operating income increased 9.3% and 2.8% during the second quarter and the
first six months of 1997, respectively. The increases were due to growth in
investment and mortality margins in the life and annuity businesses, partially
offset by increased amortization of deferred policy acquisition costs. During
the first half of 1997, increased capital gains impacted the recognition of
gross profits causing an acceleration of the amortization of deferred policy
acquisition costs.
Net realized capital gains after-tax were $4 million and $53 million, for the
three-month and the six-month periods of 1997, respectively. For the quarter,
gains realized from the sale of equity securities were offset by losses on fixed
income securities. For the six-month period, gains were realized from the sale
of equity securities and from the receipt of prepayments of privately-placed
corporate fixed income obligations.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
The Company has a commercial paper program under which it may borrow up to
$1.00 billion for short-term cash needs. At June 30, 1997, the Company had
outstanding commercial paper of $175 million with a weighted-average interest
rate of 5.79%.
-17-
<PAGE>
The Company maintains two credit facilities totaling $1.55 billion as a
potential source of funds to meet short-term liquidity requirements. A $1.50
billion, five-year revolving line of credit, expiring December 20, 2001 and a
$50 million, one-year revolving line of credit, expiring April 14, 1998. During
the six months ended June 30, 1997, there were no borrowings under these credit
facilities. Total borrowings under the combined commercial paper program and the
Company's credit facilities are limited to $1.55 billion.
During the second quarter of 1997, the Company purchased approximately 3
million shares of its common stock, for its treasury, at a cost of $219 million.
At June 30, 1997, the Company held approximately 16 million shares of treasury
stock with an average cost per share of $55.84. During the third quarter of
1997, the Company completed the expanded stock repurchase program of $750
million initiated in the fourth quarter of 1996.
Financial Ratings and Strength
In the second quarter of 1997, A.M. Best upgraded Allstate Insurance
Company's claims-paying ability rating to A+. During the third quarter of 1997,
Moody's Investors Service upgraded the debt and insurance claims-paying rating
of the Company and its major subsidiaries. The Allstate Corporation debt rating
was upgraded to A1. Allstate Insurance Company and Allstate Life Insurance
Company's claims-paying ability was upgraded to Aa2.
Liquidity
Surrenders and withdrawals for Allstate Life were $466 million and $897
million for the three-month and six-month periods ended June 30, 1997,
respectively, compared to $379 million and $765 million in the respective 1996
periods. As the Company's interest-sensitive life and annuity contracts in-force
grow and age, the dollar amount of surrenders and withdrawals could increase.
Cash transactions relating to derivative financial instruments are included
in the Consolidated Statements of Cash Flows. Amounts settled under derivative
contracts are primarily shown as part of cash flows from investing activities in
accordance with the underlying item.
-18-
<PAGE>
INVESTMENTS
The composition of the investment portfolio at June 30, 1997, at financial
statement carrying values, is presented in the table below.
<TABLE>
Property-liability Allstate Life Total
<S> <C> <C> <C> <C> <C> <C>
Fixed income
securities (1) ....... $25,100 80.8% $23,753 82.9% $48,853 81.7%
Equity securities...... 5,078 16.4 846 3.0 5,924 9.9
Mortgage loans......... 92 .3 2,981 10.4 3,073 5.1
Real estate............ 448 1.4 268 .9 716 1.2
Short-term (2)......... 324 1.0 302 1.1 725 1.2
Other.................. 17 .1 508 1.7 525 .9
------ ----- ------ ----- ------ -----
Total............... $31,059 100.0% $28,658 100.0% $59,816 100.0%
====== ===== ====== ===== ====== =====
<FN>
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $24.25 billion and $22.66 billion for property-liability and life
operations, respectively. (2) Total short-term investments includes $99 million
of Corporate short-term investments.
</FN>
</TABLE>
Total investments increased to $59.82 billion at June 30, 1997 from $58.33
billion at December 31, 1996. Property-liability investments increased $1.35
billion to $31.06 billion at June 30, 1997 from $29.71 billion at December 31,
1996. Allstate Life investments at June 30, 1997, increased $622 million to
$28.66 billion from $28.04 billion at December 31, 1996. The increase in
investments was primarily attributable to amounts invested from positive cash
flows generated from operations and increased unrealized capital gains of $291
million on property-liability equity securities.
The Company's fixed income securities portfolio is 94.0% rated investment
grade. Investment grade is defined by the Company as a security having an NAIC
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating.
The Company primarily uses derivative financial instruments to reduce its
exposure to market risk (principally interest rate and equity price risk) in
conjunction with asset/liability management in its life and annuity operations.
The Company does not hold or issue these instruments for trading purposes. The
Company is exposed to credit-related losses in the event of nonperformance by
counterparties to financial instruments. However, such nonperformance is not
expected because the Company utilizes highly-rated counterparties, establishes
risk control limits and measures, and maintains ongoing monitoring procedures.
There have been no significant changes in the risk profile of the Company's
derivative portfolio since December 31, 1996.
PENDING ACCOUNTING STANDARDS
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48 ("FRR 48") "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
-19-
<PAGE>
Disclosure of Quantitative and Qualitative Information about Market
Risk Inherent in Derivative Financial Instruments, Other Financial Instruments,
and Derivative Commodity Instruments".
Effective in the second quarter of 1997, FRR 48 requires additional
disclosures in the footnotes to the financial statements about the Company's
accounting policies for derivative financial instruments. The Company
substantially adopted this requirement at December 31, 1996. In addition, FRR 48
requires annual disclosure of quantitative and qualitative information about the
market risk inherent in the Company's market risk sensitive instruments,
including but not limited to, equity and fixed income securities and derivative
financial instruments. The quantitative and qualitative disclosures are
effective for the Company's year-end 1997 reporting.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share" and SFAS
No. 129 "Disclosure of Information about Capital Structure".
SFAS No. 128 is intended to simplify the existing procedures of computing
earnings per share ("EPS") currently prescribed by Accounting Principles Board
("APB") Opinion No. 15, "Earnings Per Share". This standard eliminates the
concept of primary EPS and requires dual presentation of basic and diluted EPS.
Diluted EPS defined by SFAS No. 128 is similar to primary EPS prescribed by APB
Opinion No. 15. The requirements of this statement will be adopted in December
1997 and are not expected to materially impact the Company's earnings per share
calculation.
SFAS No. 129 clarifies the disclosure requirements related to the type and
nature of securities contained in an entity's capital structure. The Company is
presently in compliance with the requirements of SFAS No. 129 which becomes
effective December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information".
SFAS No. 130 requires the presentation of comprehensive income in the
financial statements. Comprehensive income is a measurement of all changes in
equity that result from transactions and other economic events other than
transactions with stockholders. The requirements of this statement will be
adopted effective January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires additional
segment disclosures for both annual and quarterly reporting. Under this
statement, segments are determined using the "management approach" for financial
statement reporting. The management approach is based on the way an enterprise
makes operating decisions and assesses performance of its businesses. The
requirements of this statement will be adopted effective December 31, 1998.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking statements that are based
-20-
<PAGE>
on management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward- looking statements. In
order to comply with the terms of the safe harbor, the Company notes several
important factors that could cause the Company's actual results and experience
with respect to forward-looking statements to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements:
1. The references to favorable loss frequency (rate of claim occurrence) and
severity (average cost per claim) trends compared with the second quarter of
1996 (see "Consolidated Net Income" at page 9 and "Underwriting Results" at page
13) and the reference to auto injury claim severities being higher than second
quarter 1996 levels while continuing to trend favorably compared to relevant
medical cost indices (see "Underwriting Results" at page 13) reflect statistical
data for the periods indicated. Such data for a following period or periods
could indicate that such trends have reversed or that average severities have
outpaced medical cost indices in such subsequent period or periods.
2. The reference to the management's belief that the implementation of the
Company's catastrophe management strategies will greatly reduce the probability
of individual losses over $1 billion in the future (see "Catastrophe Losses and
Catastrophe Management" at page 14) depends in large measure upon the
reliability of the catastrophe simulation models used by the Company to estimate
the probability and the levels of losses which may result from catastrophes.
These models reflect the most current available information on climatology and
seismology, building codes, and policyholder demographics. However, the models
cannot factor in all possible outcomes and could fail to accurately predict the
level of losses associated with any future catastrophe, and the Company could
sustain losses from such catastrophe which materially exceed $1 billion.
See, generally, the Company's 1996 Annual Report on Form 10-K (the "1996 10-K")
for other important risk factors which may affect the results of operations and
financial condition of the Company. For those risk factors affecting the Company
as a regulated insurance holding company, see "Risk Factors Affecting Allstate"
at pages 4-5 of the 1996 10-K.
-21-
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders.
On May 20, 1997, the Company held its annual meeting of stockholders at the
Chicago Botanic Garden in Glencoe, Illinois.
Nine directors were elected for terms expiring at the 1998 annual meeting
of stockholders. The stockholders approved the recommendation that Deloitte &
Touche LLP be appointed auditors for 1997.
Election of Directors
---------------------
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C> <C>
James G. Andress 392,849,636 1,588,654
Warren L. Batts 392,851,678 1,586,612
Edward A. Brennan 391,646,458 2,791,832
Jerry D. Choate 392,746,413 1,691,876
James M. Denny 392,795,351 1,642,938
Christopher F. Edley 392,733,887 1,704,402
Michael A. Miles 392,823,334 1,614,955
Joshua I. Smith 392,640,376 1,797,913
Mary Alice Taylor 392,811,880 1,626,409
Approval of Deloitte & Touche LLP as Auditors for 1997
------------------------------------------------------
Votes For Votes Against Abstentions
--------- ------------- -----------
392,037,846 824,642 1,575,801
</TABLE>
-22-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An Exhibit Index has been filed as part of this Report on Page
E-1.
(b) Reports on Form 8-K.
None.
-23-
<PAGE>
SIGNATURE
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)
August 13, 1997
By /s/Samuel H. Pilch
---------------------
Samuel H. Pilch
Controller
(Principal Accounting Officer
and duly authorized Officer of
Registrant)
-24-
<PAGE>
EXHIBIT INDEX
THE ALLSTATE CORPORATION
QUARTER ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
Sequentially
Exhibit No. Description Numbered Page
4 Registrant hereby agrees to furnish the Commission, upon request,
with the instruments defining the rights of holders of each issue
of long-term debt of the Registrant and its consolidated
subsidiaries.
11 Computation of earnings per common share for The Allstate
Corporation and consolidated subsidiaries.
15 Acknowledgment of awareness from Deloitte & Touche LLP, dated
August 13, 1997, concerning unaudited interim financial
information.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
</TABLE>
E-1
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
THE ALLSTATE CORPORATION AND SUBSIDIARY
COMPUTATION OF EARNINGS PER COMMON SHARE
($ in millions, except for per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Income $643 $764 $1,410 $1,188
========= ========= ========= ==========
Primary earnings per common share computation:
Weighted average number of common shares 435.1 445.8 437.5 446.6
Assumed exercise of dilutive stock options 2.2 2.4 2.3 2.5
--------- --------- --------- ----------
Adjusted weighted number of common shares
outstanding 437.3 448.2 439.8 449.1
========= ========= ========= =========
Primary net income per share $1.47 $1.71 $3.20 $2.65
========= ========= ========= ==========
Fully diluted earnings per common share computation:
Weighted average number of common shares 435.1 445.8 437.5 446.6
Assumed exercise of dilutive stock options 2.3 2.8 2.3 2.8
--------- --------- --------- ----------
Adjusted weighted number of common shares
outstanding 437.4 448.6 439.8 449.4
========= ========= ========= ==========
Fully diluted net income per share $1.47 $1.70 $3.20 $2.64
========= ========= ========= ==========
</TABLE>
E-2
<PAGE>
EXHIBIT 15
To the Board of Directors and Shareholders of The Allstate Corporation:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of The Allstate Corporation and subsidiaries for the three-month and
six-month periods ended June 30, 1997 and 1996, as indicated in our report dated
August 13, 1997; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in Registration Statement Nos. 33-88540 and 333-10857
on Form S-3 and Registration Statement Nos. 33-77928, 33-93758, 33-93760,
33-93762, 33-99132, 33-99136, 33-99138, 333-04919, 333-16129, and 333-23309 on
Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Chicago, Illinois
August 13, 1997
E-3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ALLSTATE CORPORATION FINANCIAL STATEMENTS INCLUDED IN SUCH COMPANY'S
QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 899051
<NAME> THE ALLSTATE CORPORATION
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 48853
<EQUITIES> 5924
<MORTGAGE> 3073
<REAL-ESTATE> 716
<TOTAL-INVEST> 59816
<CASH> 182
<RECOVER-REINSURE> 2084
<DEFERRED-ACQUISITION> 2767
<TOTAL-ASSETS> 77106
<POLICY-LOSSES> 23950
<UNEARNED-PREMIUMS> 6143
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20364
<NOTES-PAYABLE> 175
0
0
<COMMON> 5
<OTHER-SE> 14313
<TOTAL-LIABILITY-AND-EQUITY> 77106
9913
<INVESTMENT-INCOME> 1911
<INVESTMENT-GAINS> 428
<OTHER-INCOME> 0
<BENEFITS> 7923
<UNDERWRITING-AMORTIZATION> 1348
<UNDERWRITING-OTHER> 944
<INCOME-PRETAX> 1989
<INCOME-TAX> 577
<INCOME-CONTINUING> 1412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1410
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
