UNITED STATES
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, 1998
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, 1998, THE REGISTRANT HAD 828,521,224 COMMON SHARES, $.01 PAR
VALUE, OUTSTANDING.
<PAGE>
THE ALLSTATE CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
<TABLE>
<S> <C> <C>
Part I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations for the Three and
Six Month Periods Ended June 30, 1998 and 1997 (unaudited). 1
Condensed Consolidated Statements of Financial Position as of
June 30, 1998 (unaudited) and December 31, 1997. 2
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1998 and 1997 (unaudited). 3
Notes to Condensed Consolidated Financial Statements (unaudited). 4
Independent Accountants' Review Report. 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 10
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 23
Item 5. Other Information. 23
Item 6. Exhibits and Reports of Form 8-K. 24
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Unaudited)
(In millions except per share data)
REVENUES
Property-liability insurance premiums earned $ 4,818 $ 4,632 $ 9,565 $ 9,192
Life and annuity premiums and contract charges 388 366 741 721
Net investment income 975 967 1,939 1,911
Realized capital gains and losses 358 108 744 428
-------- -------- -------- --------
6,539 6,073 12,989 12,252
-------- -------- -------- --------
COSTS AND EXPENSES
Property-liability insurance claims and claims expense 3,456 3,374 6,759 6,742
Life and annuity contract benefits 596 598 1,171 1,181
Amortization of deferred policy acquisition costs 754 681 1,478 1,348
Operating costs and expenses 520 491 986 944
Interest expense 28 24 60 48
-------- -------- -------- --------
5,354 5,168 10,454 10,263
-------- -------- -------- --------
GAIN ON DISPOSITION OF OPERATIONS 87 -- 87 --
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE,
DIVIDENDS ON PREFERRED SECURITIES, AND EQUITY
IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 1,272 905 2,622 1,989
INCOME TAX EXPENSE 378 260 792 577
-------- -------- -------- --------
INCOME BEFORE DIVIDENDS ON PREFERRED SECURITIES AND
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 894 645 1,830 1,412
DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS (10) (10) (19) (19)
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 1 8 10 17
-------- -------- -------- --------
NET INCOME $ 885 $ 643 $ 1,821 $ 1,410
======== ======== ======== ========
EARNINGS PER SHARE:
NET INCOME PER SHARE - BASIC $ 1.06 $ 0.74 $ 2.16 $ 1.61
======== ======== ======== ========
WEIGHTED AVERAGE SHARES - BASIC 837.3 870.2 841.3 875.1
======== ======== ======== ========
NET INCOME PER SHARE - DILUTED $ 1.05 $ 0.73 $ 2.15 $ 1.60
======== ======== ======== ========
WEIGHTED AVERAGE SHARES - DILUTED 841.9 874.6 846.0 879.5
======== ======== ======== ========
<FN>
See notes to condensed consolidated financial statements
</FN>
</TABLE>
-1-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<S> <C> <C>
June 30, December 31,
(In millions) 1998 1997
-------------- --------------
(Unaudited)
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $49,037 and $47,715) $ 52,292 $ 50,860
Equity securities, at fair value (cost $4,525 and $4,587) 6,858 6,765
Mortgage loans 3,164 3,002
Real estate 651 686
Short-term 1,361 687
Other 559 548
-------------- --------------
TOTAL INVESTMENTS 64,885 62,548
Premium installment receivables, net 3,090 2,959
Deferred policy acquisition costs 2,943 2,826
Reinsurance recoverables, net 2,016 2,048
Property and equipment, net 762 741
Accrued investment income 756 711
Cash 301 220
Other assets 1,211 1,283
Separate Accounts 9,159 7,582
-------------- --------------
TOTAL ASSETS $ 85,123 $ 80,918
============== ==============
LIABILITIES
Reserve for property-liability insurance
claims and claims expense $ 17,357 $ 17,403
Reserve for life-contingent contract benefits 7,364 7,082
Contractholder funds 20,639 20,389
Unearned premiums 6,333 6,233
Claim payments outstanding 705 599
Other liabilities and accrued expenses 4,446 3,193
Deferred income taxes 311 381
Short-term debt 250 199
Long-term debt 1,341 1,497
Separate Accounts 9,159 7,582
-------------- --------------
TOTAL LIABILITIES 67,905 64,558
-------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 2 AND 4)
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, 2 billion and 1 billion shares
authorized, 900 million shares issued, 832 million
and 850 million shares outstanding 9 9
Additional capital paid-in 3,104 3,116
Retained income 13,237 11,646
Deferred ESOP expense (252) (281)
Treasury stock, at cost (68 million and 50 million shares) (2,493) (1,665)
Accumulated other comprehensive income:
Unrealized net capital gains 2,894 2,821
Unrealized foreign currency translation adjustments (31) (36)
-------------- --------------
Total accumulated other comprehensive income 2,863 2,785
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 16,468 15,610
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 85,123 $ 80,918
============== ==============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
(In millions) 1998 1997
------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,821 $ 1,410
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, amortization and other non-cash items (16) (5)
Realized capital gains and losses (744) (428)
Gain on disposition of operations (87) -
Interest credited to contractholder funds 627 604
Change in policy benefit and other insurance reserves (230) 82
Change in unearned premiums 45 (31)
Increase in deferred policy acquisition costs (109) (146)
Increase in premium installment receivables, net (94) (70)
Decrease in reinsurance recoverables, net 96 63
Change in deferred income taxes (103) 219
Changes in other operating assets and liabilities 52 23
------------- --------------
Net cash provided by operating activities 1,258 1,721
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities 7,431 6,153
Equity securities 2,569 1,556
Investment collections
Fixed income securities 3,144 2,307
Mortgage loans 189 244
Investment purchases
Fixed income securities (11,422) (10,242)
Equity securities (1,921) (1,178)
Mortgage loans (329) (175)
Change in short-term investments, net 375 559
Change in other investments, net 40 20
Acquisition of subsidiary (275) -
Proceeds from disposition of operations 49 -
Purchases of property and equipment, net (78) (65)
------------- --------------
Net cash used in investing activities (228) (821)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term debt, net 37 23
Repayment of long-term debt (300) -
Proceeds from issuance of long-term debt 501 2
Contractholder fund deposits 1,516 1,348
Contractholder fund withdrawals (1,652) (1,492)
Dividends paid (218) (211)
Treasury stock purchases (885) (535)
Other 52 31
------------- --------------
Net cash used in financing activities (949) (834)
------------- --------------
NET INCREASE IN CASH 81 66
CASH AT BEGINNING OF PERIOD 220 116
------------- --------------
CASH AT END OF PERIOD $ 301 $ 182
============= ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION
Conversion of Automatically Convertible Equity
Securities to common shares of The PMI Group, Inc. $ 357 $ -
============= ==============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
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,
1998 and for the three-month and six-month periods ended June 30, 1998 and 1997
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 Appendix A of the 1998 Proxy Statement and Annual Report on Form
10-K for 1997. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities", under the guidance of
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." As a result, the Company has recorded an asset and
corresponding liability representing the collateral received in connection with
the Company's securities lending program. The cash collateral received is
recorded in short-term investments with the offsetting liability being reflected
in other liabilities in the condensed consolidated statements of financial
position. In accordance with SFAS No. 127, the condensed consolidated statements
of financial position for prior periods have not been restated.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income is a measurement of certain changes
in shareholders' equity that result from transactions and other economic events
other than transactions with shareholders. For Allstate, these consist of
changes in unrealized gains and losses on the investment portfolio and
unrealized foreign currency translation adjustments. These amounts, presented as
other comprehensive income, net of related taxes, are combined with net income
which results in comprehensive income. The required disclosures are presented in
Note 5.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. Specifically, certain external,
payroll and payroll related costs should be capitalized during the application
development stage of a software development project and depreciated over the
computer software's useful life. The Company has adopted the SOP effective
January 1, 1998.
To conform with the 1998 presentation, certain amounts in the prior years'
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.
-4-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 losses experienced in any year cannot be
predicted and could be material to the results of operations and financial
position.
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 product 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 claim risks assumed, as well as
primary commercial coverages written, for most policies written in 1986 and all
policies written after 1986. Allstate's reserves for environmental and asbestos
claims were $1.05 billion and $1.10 billion at June 30, 1998 and December 31,
1997, net of reinsurance recoverables of $316 million and $388 million,
respectively.
Management believes its net loss reserves for environmental, asbestos and
mass tort claims 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>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Reinsurance
Property-liability insurance premiums and life and annuity premiums and
contract charges are net of the following reinsurance ceded:
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Property-liability premiums $114 $130 $224 $254
Life and annuity premiums and contract 43 34 89 73
charges
Property-liability insurance claims and claims expense and life and annuity
contract benefits are net of the following reinsurance recoveries:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Property-liability insurance claims and $ 77 $ 83 $143 $165
claims expense
Life and annuity contract benefits 13 12 29 23
</TABLE>
4. Regulation and Legal Proceedings
The Company's insurance businesses are subject to the effects of a changing
social, economic and regulatory environment. Public and regulatory initiatives
have varied and have included efforts to adversely influence and 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.
In April 1998, Federal Bureau of Investigation agents executed search
warrants at three offices of Allstate for documents relating to the handling of
some claims for losses resulting from the 1994 earthquake in Northridge,
California. Allstate received a subpoena issued on April 24, 1998, from the U.S.
District Court of the Central District of California, in connection with the Los
Angeles grand jury proceeding, for the production of documents and records
relating to the Northridge earthquake. Allstate is cooperating with the
investigation. The Company believes that the investigation may relate, in part,
to allegations in civil suits filed in California against Allstate. The
allegations in one lawsuit include statements by a former Allstate employee to
the effect that Allstate systematically pressured engineering firms retained by
Allstate to improperly alter their reports to reduce the amount of claims
payable to some insureds claiming losses as a result of the earthquake. Allstate
denies the allegations in each lawsuit and will vigorously defend the lawsuits.
The impact to the Company in resolving these matters is not presently
determinable.
Various other 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 the results of operations, liquidity or financial position of the
Company.
-6-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Comprehensive Income
The components of other comprehensive income on a pretax and after-tax basis
are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30,
(In millions) 1998 1997
------------------------- ---------------------------
Income Income
tax tax
Pretax effect After-tax Pretax effect After-tax
Unrealized capital gains and losses:
Unrealized holding gains
arising during the period $ 205 $ (72) $133 $ 1,289 $(451) $ 838
Less: reclassification adjustment
for realized net capital gains
included in net income 305 (107) 198 106 (37) 69
----- ---- ----- ------ ----- -----
Unrealized net capital gains (losses) (100) 35 (65) 1,183 (414) 769
Unrealized foreign currency
translation adjustments 8 (3) 5 - - -
------ ---- ----- ------ ----- ------
Other comprehensive income $ (92) $ 32 $ (60) $ 1,183 $(414) $ 769
====== ==== ----- ====== ====== ------
Net income 885 643
----- ------
Comprehensive income $ 825 $ 1,412
===== ======
SIX MONTHS ENDED JUNE 30,
(In millions) 1998 1997
------------------------- --------------------------
Income Income
tax tax
Pretax effect After-tax Pretax effect After-tax
Unrealized capital gains and losses:
Unrealized holding gains
arising during the period $ 791 $(277) $ 514 $661 $(232) $ 429
Less: reclassification adjustment
for realized net capital gains
included in net income 679 (238) 441 396 (139) 257
---- ---- ---- ---- ----- ----
Unrealized net capital gains (losses) 112 (39) 73 265 (93) 172
Unrealized foreign currency
translation adjustments 8 (3) 5 (9) 3 (6)
---- ----- ---- ---- ---- -----
Other comprehensive income $ 120 $ (42) $ 78 $256 $ (90) $ 166
==== ===== ---- === ==== -----
Net income 1,821 1,410
----- -----
Comprehensive income $1,899 $1,576
===== =====
</TABLE>
6. Acquisition of Pembridge Inc.
On April 14, 1998, the Company completed the purchase of Pembridge Inc.
("Pembridge") for approximately $275 million. Pembridge primarily sells
non-standard auto insurance in Canada through its wholly-owned subsidiary Pafco
Insurance Company. Pembridge's results were included in the Company's
consolidated results from the date of purchase.
-7-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. COMMON STOCK
An increase in the number of authorized shares of common stock of the
Company from 1 billion to 2 billion was approved at the annual meeting of
shareholders on May 19, 1998. Also on that date, the Board of Directors approved
a two-for-one stock split payable on July 1, 1998 to shareholders of record on
May 29, 1998. Common stock, additional capital paid-in, weighted average shares
and per share amounts have been retroactively adjusted to reflect the stock
split.
8. DEBT
In April 1998, $357 million of 6.76% Automatically Convertible Equity
Securities were converted into approximately 8.6 million common shares of The
PMI Group, Inc. ("PMI"). The number of shares tendered was based upon the
average market price of the PMI common stock on the 20 days immediately prior to
maturity. The Company recognized an after-tax gain on the conversion of these
securities of $56 million.
In May 1998, the Company issued $250 million of 6.75% senior debentures due
2018, and $250 million of 6.90% senior debentures due 2038, utilizing the
remainder of the shelf registration filed with the Securities and Exchange
Commission in October 1996. The net proceeds from the issuance were used to fund
the maturity of $300 million of 5.875% notes due June 15, 1998, and for general
corporate purposes.
-8-
<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,
1998, and the related condensed consolidated statements of operations for the
three-month and six-month periods ended June 30, 1998 and 1997 and the condensed
consolidated statements of cash flows for the six-month periods ended June 30,
1998 and 1997. 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, 1997, 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 20,
1998, 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, 1997
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, 1998
-9-
<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, 1998 AND 1997
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
contained herein and with the discussion, analysis, consolidated financial
statements and notes thereto in Part I. Item 1 and Part II. Item 7 and Item 8 of
The Allstate Corporation Annual Report on Form 10-K for 1997.
<TABLE>
CONSOLIDATED REVENUES
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Property-liability insurance premiums $ 4,818 $ 4,632 $ 9,565 $ 9,192
Life and annuity premiums and contract 388 366 741 721
charges
Net investment income 975 967 1,939 1,911
Realized capital gains and losses 358 108 744 428
------ ------ ------ ------
Total revenues $ 6,539 $ 6,073 $12,989 $12,252
====== ====== ====== ======
</TABLE>
Consolidated revenues increased 7.7% for the second quarter of 1998 and 6.0%
for the first half of 1998 compared to the same periods in 1997. The increases
were primarily the result of higher realized capital gains and growth in
property-liability premiums.
CONSOLIDATED NET INCOME
Net income for the second quarter of 1998 was $885 million, or $1.05 per
diluted share, compared with $643 million, or 73 cents per diluted share, for
the second quarter of 1997. Earnings per share amounts reflect the recent stock
split. The increase was due to higher realized capital gains, a gain on the
exchange of 6.76% Automatically Convertible Equity Securities ("ACES") for
shares of The PMI Group, Inc. ("PMI") common stock, growth in property-liability
earned premiums and favorable property-liability loss experience. The favorable
property-liability loss experience was due to lower auto claim frequency (rate
of occurrence) and improved severity trends (average cost per claim), partially
offset by higher catastrophe losses.
Net income for the first half of 1998 was $1.82 billion, or $2.15 per
diluted share, compared with $1.41 billion, or $1.60 per diluted share, for the
same period in 1997. The results for the first half of 1998 were impacted by
higher realized capital gains and increased property-liability underwriting
income. Property-liability results benefited from favorable auto frequency and
severity loss trends, which were partially offset by higher catastrophe losses.
-10-
<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, 1998 AND 1997
PROPERTY-LIABILITY OPERATIONS
Overview
The Company's property-liability operations consist 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 insurance, homeowners insurance and
commercial business written primarily through the Allstate agent distribution
channel. Discontinued Lines and Coverages consists of business no longer written
by Allstate, including results from environmental, asbestos and mass tort
losses, mortgage pool business and other commercial business in run-off.
Underwriting results for each of the property-liability areas of business
are discussed separately beginning on page 12.
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, are set forth in the following table:
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Premiums written $ 4,924 $ 4,726 $ 9,669 $ 9,277
====== ===== ====== ======
Premiums earned $ 4,818 $ 4,632 $ 9,565 $ 9,192
Claims and claims expense 3,456 3,374 6,759 6,742
Operating costs and expenses 1,089 1,029 2,130 2,005
----- ----- ----- -----
Underwriting income 273 229 676 445
Net investment income 431 441 869 861
Income tax expense on operations 183 181 419 344
--- --- --- ---
Operating income 521 489 1,126 962
Realized capital gains and losses, after-tax 147 66 329 225
Gain on disposition of operations, after-tax 25 - 25 -
Equity in net income of unconsolidated
subsidiary 1 8 10 17
- - -- --
Net income $ 694 $ 563 $ 1,490 $ 1,204
======= ======= ======= =======
Catastrophe losses $ 303 $ 121 $ 422 $ 231
======= ======= ======= =======
Operating ratios
Claims and claims expense ("loss") ratio 71.7 72.9 70.6 73.4
Expense ratio 22.6 22.2 22.3 21.8
----- ---- ----- -----
Combined ratio 94.3 95.1 92.9 95.2
===== ==== ===== =====
Effect of catastrophe losses on combined ratio 6.3 2.6 4.4 2.5
===== ==== ===== =====
</TABLE>
-11-
<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, 1998 AND 1997
NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS
The effects of lower investment yields continue to offset higher investment
balances resulting in a decrease of pretax net investment income of 2.3% to $431
million for the second quarter and a slight increase to $869 million for the
six-month period ended June 30, 1998. The increase to investment balances
resulting from positive cash flows from PP&C operations are offset by the impact
of increased dividends paid to The Allstate Corporation from Allstate Insurance
Company ("AIC"). 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
relatively low interest rate environments, funds from maturing investments may
be reinvested at lower interest rates than which prevailed when the funds were
previously invested.
Net realized capital gains for the second quarter of 1998 were $147 million
after-tax versus $66 million after-tax for the same period in 1997. For the
first six months of 1998, realized capital gains were $329 million after-tax
compared with $225 million after-tax for the same period in 1997. The increases
were primarily due to the sale of equity securities which generated $115 million
and $267 million of realized capital gains after-tax for the three-month and
six-month periods ended June 30, 1998, respectively. 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.
UNDERWRITING RESULTS
PP&C - Summarized financial data and key operating ratios for Allstate's
PP&C operations for the three-month and six-month periods ended June 30, are
presented in the following table:
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Premiums written $ 4,924 $ 4,725 $ 9,669 $ 9,276
===== ===== ===== =====
Premiums earned $ 4,818 $ 4,630 $ 9,565 $ 9,190
Claims and claims expense 3,454 3,371 6,755 6,737
Operating costs and expenses 1,080 1,025 2,116 1,997
----- ----- ----- -----
Underwriting income $ 284 $ 234 $ 694 $ 456
====== ====== ====== ======
Catastrophe losses $ 303 $ 121 $ 422 $ 231
======= ====== ====== ======
Operating ratios
Claims and claims expense ("loss") ratio 71.7 72.8 70.6 73.3
Expense ratio 22.4 22.1 22.1 21.7
---- ---- ---- ----
Combined ratio 94.1 94.9 92.9 95.0
==== ==== ==== ====
Effect of catastrophe losses on combined ratio 6.3 2.6 4.4 2.5
==== ==== ==== ====
</TABLE>
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.
-12-
<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, 1998 AND 1997
The Company's marketing strategy for standard auto and homeowners varies by
geographic area. The strategy for standard auto is to grow business more rapidly
in areas where the regulatory climate is more conducive to attractive returns.
The strategy for homeowners is to manage exposure on policies in areas where the
potential loss from catastrophes exceeds acceptable levels. The process to
designate geographic areas as growth and limited growth 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 and introduced.
Less than 6% of the total United States population resides in areas designated
by the Company as standard auto limited growth markets. As a result of the
Company's success in introducing policy changes and purchasing catastrophe
reinsurance coverage, the homeowners limited growth markets have been reduced to
areas where approximately 11% of the United States population resides. The
Company is pursuing a growth strategy throughout the United States and Canada in
the non-standard auto market.
PP&C premiums written for the second quarter and first half of 1998
increased 4.2% compared to the same periods in 1997. The increase for both
periods was primarily due to an increase in renewal policies in force (unit
sales) and, to a lesser extent, average premiums. Management believes favorable
loss trends, competitive considerations and regulatory pressures, in some states
will continue to impact the Company's ability to maintain rates at historical
levels, thereby resulting in a slower average premium growth rate for the auto
business.
Standard auto premiums written increased 3.8% to $2.75 billion in the second
quarter of 1998, from $2.65 billion for the same three-month period in 1997. For
the six-month period ending June 30, 1998, standard auto premiums increased 4.1%
to $5.56 billion from $5.34 billion in 1997. The increase for both periods was
primarily due to an increase in renewal policies in force and, to a lesser
extent, average premiums. Average premium increases were primarily attributable
to a shift to newer and more expensive autos and, to a lesser extent, rate
increases.
Non-standard auto premiums written increased 6.9% to $838 million in the
second quarter of 1998, from $784 million for the same period in 1997. For the
six-month period, non-standard auto premiums written increased 6.7% to $1.68
billion compared with $1.58 billion for 1997. The increase for both periods was
driven by an increase in renewal policies in force and, to a lesser extent,
average premiums. Management believes non-standard auto premiums written for the
first half of 1998 continue to be adversely impacted by competitive pressures
and administrative requirements, which were intended to improve retention and
decrease expenses related to the collection of premiums. In April, modifications
to these administrative requirements were implemented and are expected to
contribute to an increase in new business while reducing expenses related to the
collection of premiums.
Homeowners premiums written for the second quarter were $845 million, an
increase of 6.8% from second quarter 1997 premiums of $791 million. For the
first half of 1998, homeowners premiums written were $1.51 billion, an increase
of 6.5% compared to the same period last year. The increase for both periods was
driven by an increase in policies in force and, to a lesser extent, average
premiums. The higher average premiums were primarily due to rate increases.
For the second quarter of 1998, PP&C had underwriting income of $284 million
versus $234 million for the second quarter of 1997. Underwriting income for the
six-month period ended June 30, 1998 was $694 million compared to $456 million
for the first half of last year. Improved underwriting results for both periods
were primarily due to earned premium growth and favorable loss experience,
partially offset by increased catastrophe losses. Favorable loss experience
resulted from lower auto claim frequency and favorable auto and homeowners
severity trends. Auto injury claim severities improved compared to the second
quarter 1997 level and trended favorably compared to relevant medical services
cost indices. Auto physical damage coverage claim severities were comparable to
the prior year, driven by moderate inflationary pressure, but were below the
relevant Body Work and the Used Car price indices.
-13-
<PAGE>
CATASTROPHE LOSSES AND CATASTROPHE MANAGEMENT - Catastrophe losses for the
second quarter of 1998 were $303 million compared with $121 million for the same
period in 1997. For the first half of 1998, catastrophe losses were $422
million, an increase of $191 million compared to the same period last year. The
level of catastrophe losses experienced in any year cannot be predicted and
could be material to results of operations and financial position. The Company
has experienced two severe catastrophes in recent years which resulted in losses
of $2.33 billion (net of reinsurance) relating to Hurricane Andrew in 1992 and
$1.78 billion relating to the Northridge earthquake in 1994. While management
believes the Company's catastrophe management initiatives will greatly reduce
the severity of future losses, the Company continues to be exposed to
catastrophes which could be of similar or greater magnitude.
The establishment of appropriate reserves for catastrophes, as for all
outstanding 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 operations.
Allstate has implemented initiatives 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 initiatives include limits on new business production,
limitations on certain policy coverages, increases in deductibles, policy
brokering and participation in catastrophe pools. In addition, Allstate has
requested and received rate increases and expanded its use or the level of
deductibles in certain regions prone to catastrophes.
For Allstate, major areas of potential losses due to hurricanes include
major metropolitan centers near the eastern and gulf coasts of the United
States. Exposure to potential earthquake losses in California is limited by the
Company's participation in the California Earthquake Authority ("CEA"), except
for losses incurred on coverages not covered by the CEA. Other areas in the
United States for which Allstate faces exposure to potential earthquake losses
include areas surrounding the New Madrid fault system in the Midwest and faults
in and surrounding Seattle, Washington. Allstate continues to evaluate
alternative business strategies to more effectively manage its exposure to
catastrophe losses in these and other areas.
DISCONTINUED LINES AND COVERAGES - Underwriting results for Discontinued
Lines and Coverages for the three-month and six-month periods ended June 30, are
summarized below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Underwriting loss $ (11) $ (5) $ (18) $ (11)
==== === ==== ====
Discontinued Lines and Coverages consists of business no longer written by
Allstate, including results from environmental, asbestos and mass tort losses,
mortgage pool business and other commercial business in run-off.
-14-
<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 (which include life specialists), banks, independent agents,
brokers and direct response marketing.
Summarized financial data for Allstate Life's operations and investments at
or for the three-month and six-month periods ended June 30, are illustrated in
the following table:
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Statutory premiums and deposits $ 1,676 $ 1,348 $ 2,880 $ 2,463
======= ======= ======= =======
Investments $ 30,820 $ 28,658 $ 30,820 $ 28,658
Separate Account assets 9,159 6,655 9,159 6,655
------ ------ ------ ------
Investments including Separate Account $ 39,979 $ 35,313 $ 39,979 $ 35,313
====== ====== ====== ======
assets
Premiums and contract charges $ 388 $ 366 $ 741 $ 721
Net investment income 529 522 1,047 1,038
Contract benefits 596 598 1,171 1,181
Operating costs and expenses 173 147 325 297
------- ------ ------- -------
Income from operations 148 143 292 281
Income tax expense on operations 45 49 96 96
------- ------- ------- -------
Operating income 103 94 196 185
Realized capital gains and losses,
after-tax (1) 68 4 132 53
------- ------- ------- -------
Net income $ 171 $ 98 $ 328 $ 238
======= ======= ====== =======
<FN>
(1) Net of the effect of related amortization of deferred policy acquisition
costs in 1998.
</FN>
</TABLE>
-15-
<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, 1998 AND 1997
Statutory premiums and deposits, which include premiums and deposits for
all products, increased 24.3% in the second quarter and 16.9% for the first six
months of 1998 compared with the same periods last year. Statutory premiums and
deposits by product line for the three-month and six-month periods ended June
30, are presented in the following table:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1998 1997 1998 1997
---- ---- ---- ----
Life products
Universal $ 261 $ 177 $ 446 $ 356
Traditional 83 80 155 149
Other 56 57 113 113
Annuity products
Fixed 420 430 726 809
Variable 464 347 858 692
Group pension products 392 257 582 344
--- --- --- ---
Total $1,676 $1,348 $2,880 $2,463
====== ====== ====== ======
For the three-month and six-month periods ended June 30, 1998, sales of
group pension, variable annuity and life products increased while sales of fixed
annuity products declined, as the interest rate environment continued to make
variable annuity products more attractive to customers than fixed annuity
products. While premiums for group pension products increased in the first six
months of 1998, these sales are expected to fluctuate as they are based on
management's assessment of current market conditions.
Life and annuity premiums and contract charges under generally accepted
accounting principles ("GAAP") increased 6% in the second quarter and 2.8% for
the first six months of 1998. Under GAAP, revenues exclude deposits on most
annuities and premiums on universal life insurance policies and will vary with
the mix of products sold during the period. The increases in 1998 were primarily
attributable to the increase in revenues from universal life and variable
annuity products, partially offset by decreases in traditional and other life
product premiums on a GAAP basis.
Pretax net investment income increased slightly in the second quarter and
first six months of 1998 from the comparable 1997 periods as investment income
earned on higher investment balances was partially offset by lower portfolio
yields. Investments, excluding Separate Account assets and unrealized gains on
fixed income securities, grew by 4.3%. The overall portfolio yield declined
slightly, 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 relatively 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 9.6% during the second quarter and 5.9% during
the first six months of 1998 compared with the same periods in 1997, as
increased revenues on universal life and variable annuity products were
partially offset by increased expenses related to the amortization of deferred
policy acquisition costs in both periods.
Net realized capital gains after-tax increased to $68 million in the second
quarter and increased to $132 million for the first six months of 1998 due
primarily to gains from the sale of equity securities and fixed income
securities.
-16-
<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, 1998 AND 1997
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
The Company maintains two credit facilities totaling $1.55 billion as a
potential source of funds to meet short-term liquidity requirements, including a
$1.50 billion, five-year revolving line of credit, expiring in 2001 and a $50
million, one-year revolving line of credit expiring in 1999. In order to borrow
on the five-year line of credit, AIC is required to maintain a specified
statutory surplus level and the Company's debt to equity ratio (as defined in
the agreement) must not exceed a designated level. These requirements are
currently being met and management expects to continue to meet them in the
future. Allstate has a commercial paper program with an authorized borrowing
limit of up to $1.00 billion to cover its short-term cash needs. Total
borrowings under the combined commercial paper program and line of credit are
limited to $1.55 billion.
In April 1998, $357 million of 6.76% ACES were converted into approximately
8.6 million common shares of PMI. The number of shares tendered was based upon
the average market price of the PMI common stock on the 20 days immediately
prior to maturity. The Company recognized an after-tax gain on conversion of
these securities of $56 million.
In May 1998, the Company issued $250 million of 6.75% senior debentures due
2018 and $250 million of 6.90% senior debentures due 2038, utilizing the
remainder of the shelf registration filed with the Securities and Exchange
Commission in October 1996. The net proceeds from the issuance were used to fund
the maturity of $300 million of 5.875% notes due June 15, 1998, and for general
corporate purposes.
During the second quarter of 1998, the Company purchased approximately 9.4
million shares of its common stock, for its treasury, at a cost of $437 million.
At June 30, 1998, the Company held approximately 68 million shares of treasury
stock with an average cost per share of $36.47. In August 1998, the Company
announced an additional $2.00 billion stock repurchase program to be completed
on or before December 31, 2000.
On April 14, 1998, the Company completed the purchase of Pembridge Inc.
("Pembridge") for approximately $275 million. Pembridge primarily sells
non-standard auto insurance in Canada through its wholly-owned subsidiary Pafco
Insurance Company.
An increase in the number of authorized shares of common stock of the
Company from 1 billion to 2 billion was approved at the annual meeting of
shareholders on May 19, 1998. Also on that date, the Board of Directors approved
a two-for-one stock split payable on July 1, 1998 to shareholders of record on
May 29, 1998.
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company, receipt of dividends from
AIC and other relevant factors. The payment of shareholder dividends by AIC
without the prior approval of the state insurance regulator is limited to
formula amounts based on net income and capital and surplus, determined in
accordance with statutory accounting practices, as well as the timing and amount
of dividends paid in the preceding twelve months. The maximum amount of
dividends that AIC could distribute during 1998 without prior approval of the
Illinois Department of Insurance is $2.56 billion. In the past twelve months,
AIC has paid approximately $2.40 billion in dividends to The Allstate
Corporation. AIC intends to continue to pay dividends in advance of Corporate
funding requirements and up to the maximum amount allowed without requiring
prior approval. AIC has the capacity to pay up to $164 million of dividends as
of July 31, 1998. The dividends are used for general corporate purposes
including the Company's stock repurchase programs.
-17-
<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, 1998 AND 1997
FINANCIAL RATINGS AND STRENGTH
The following table summarizes the Company and its major subsidiaries debt
ratings, which were affirmed in the second quarter of 1998 by Standard & Poor's
rating agency:
The Allstate Corporation (debt) A+
Allstate Insurance Company
(claim-paying ability) AA
Allstate Life Insurance Company
(claim-paying ability) AA+
Liquidity
Surrenders and withdrawals for Allstate Life were $580 million and $1.08
billion for the three-month and six-month periods ended June 30, 1998,
respectively, compared to $466 million and $897 million in the respective 1997
periods. As the Company's interest-sensitive life policies and annuity contracts
in-force grow and age, the dollar amount of surrenders and withdrawals could
increase.
-18-
<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, 1998 AND 1997
INVESTMENTS
The composition of the investment portfolio at June 30, 1998, at financial
statement carrying values, is presented in the table below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property-liability Life and Annuity Corporate Total
Percent Percent Percent Percent
(In millions) to to to to
total total total total
Fixed income $26,029 77.8% $25,748 83.5% $ 515 81.1% $52,292 80.6%
securities (1)
Equity securities 5,902 17.7 861 2.8 95 15.0 6,858 10.6
Mortgage loans 128 .4 3,036 9.9 - - 3,164 4.9
Real estate 426 1.3 225 .7 - - 651 1.0
Short-term 928 2.8 408 1.3 25 3.9 1,361 2.0
Other 16 - 543 1.8 - - 559 .9
------ ----- ------ ----- ---- ----- ------ -----
Total $33,429 100.0% $30,821 100.0% $ 635 100.0% $64,885 100.0%
====== ===== ====== ===== ==== ===== ====== =====
<FN>
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $24.84 billion, $23.69 billion and $514 million for
property-liability, life and annuity, and corporate, respectively.
</FN>
</TABLE>
Total investments increased to $64.89 billion at June 30, 1998 from $62.55
billion at December 31, 1997. Property-liability investments increased $1.15
billion to $33.43 billion at June 30, 1998 from $32.28 billion at December 31,
1997. Allstate Life investments at June 30, 1998, increased $1.06 billion to
$30.82 billion from $29.76 billion at December 31, 1997. The increase in
investments was primarily attributable to amounts invested from positive cash
flows generated from operations and the addition to short-term investments of
approximately $901 million of collateral resulting from a change in accounting
treatment for securities lending programs.
Nearly 94.0% of the Company's fixed income securities portfolio is rated
investment grade, which 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.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, insurance processing, risk
analysis, underwriting, loss reserving and investment processing. Since many of
the Company's older computer software programs recognize only the last two
digits of the year in any date, some software may fail to operate properly in or
after the year 1999, if the software is not reprogrammed, remediated, or
replaced ("Year 2000 Issue"). Allstate believes that many of its counterparties
and suppliers also have Year 2000 Issues which could affect the Company. In
1995, Allstate commenced a plan intended to mitigate and/or prevent the adverse
effects of Year 2000 Issues. These strategies include normal development and
enhancement of new and existing systems, upgrades to operating systems already
covered by maintenance agreements and modifications to existing systems to make
them Year 2000 compliant. The plan also includes Allstate actively working with
its major external counterparties and suppliers to assess their compliance
efforts and the Company's exposure to them. The Company is in the process of
developing a contingency plan that will address possible adverse scenarios. The
Company presently believes that it will resolve the Year 2000 Issue in a timely
manner, and the financial impact will not materially affect its results of
operations, liquidity or financial position. In April 1998, the Company
announced its main premium application system, ALERT, which manages more than 20
million auto and property policies is completely Year 2000 compliant. Allstate
is relying on other remediation techniques for its midrange and personal
computer environments, and certain mainframe applications. Allstate is working
closely with its business partners, counterparties and suppliers in an effort to
bring all communications, facilities, software and systems into Year 2000
compliance. Year 2000 costs are expensed as incurred.
-19-
<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, 1998 AND 1997
OTHER DEVELOPMENTS
In 1997, the Company formed a new company, Allstate New Jersey Insurance
Company ("ANJ"), which will be dedicated to serving property and casualty
insurance consumers in New Jersey. At the beginning of 1998, ANJ started
offering coverage to customers and began receiving property and assigned risk
policies from AIC. In early 1999, ANJ expects to start receiving voluntary auto
policies from AIC and Allstate Indemnity Company.
The Financial Service Industry has experienced a substantial increase in
merger and acquisition activity which is leading to a consolidation of certain
industry segments and a broadening of the business scope of some competitors.
While the ultimate impact to the Company is not determinable, Allstate is
considering mergers, acquisitions, and business alliances in both the United
States and internationally in the pursuit of its business strategy.
PENDING ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 redefines how
segments are determined and requires additional segment disclosures for both
annual and quarterly reporting. Under this SFAS, 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 Company is currently reviewing
the requirements of this SFAS and has not determined the impact on its
current reporting segments. The requirements of this SFAS will be adopted
effective December 31, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
employers' disclosures about pension and other postretirement benefit plans,
requires additional information on changes in the benefit obligation and fair
value of plan assets and eliminates certain previously required disclosures. The
disclosure requirements of this SFAS will be adopted effective December
31,1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 replaces existing
pronouncements and practices with a single, integrated accounting framework for
derivatives and hedging activities. The requirements of this SFAS are effective
for fiscal years beginning after June 15, 1999. Earlier application of this SFAS
is encouraged but is only permitted as of the beginning of any fiscal quarter
after issuance. This SFAS requires that all derivatives be recognized on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company is currently reviewing these requirements and has not yet determined
the impact or the expected date of adoption.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. The
Company has not yet determined the date of adoption.
-20-
<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, 1998 AND 1997
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 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 auto severity trends (see "Consolidated Net Income" at
page 10 and "Underwriting Results" at page 12) as compared to medical services
cost indices and body work and used car price indices reflect statistical data
for the period indicated. Also, the reference to homeowners severity trends (see
"Underwriting Results" at page 12) reflects statistical data for the period
indicated. Such data for a following period or periods could well indicate that
such trends have reversed or that average severities have outpaced such indices
in such following period or periods.
2. Management believes that the initiatives implemented by Allstate to manage
its exposure to catastrophes will greatly reduce the severity of future losses.
(See "Underwriting Results" at page 12 and "Catastrophe Losses and Catastrophe
Management" at page 14). These beliefs are based in part on the efficacy of
techniques adopted by Allstate and the accuracy of the data used by Allstate
which are designed to predict the probability of catastrophes and the extent of
losses to Allstate resulting from catastrophes. Catastrophic events may occur in
the future which indicate that such techniques and data do not accurately
predict Allstate's losses from catastrophes. In that event, the probability and
extent of such losses may differ materially from that which would have been
predicted by such techniques and data.
3. In order to borrow on the five-year line of credit (see "Liquidity and
Capital Resources" at page 17), AIC is required to maintain a specified
statutory surplus level and the Allstate debt to equity ratio (as defined in the
credit agreement) must not exceed a designated level. Management expects to
continue to meet such borrowing requirements in the future. However, the ability
of AIC and Allstate to meet these requirements is dependent upon the economic
well-being of AIC. Should AIC sustain significant losses from catastrophes, its
and Allstate's ability to continue to meet these credit agreement requirements
could be lessened. Consequently, Allstate's right to draw upon the five-year
line of credit could be diminished or eliminated during a period when it would
be most in need of financial resources.
4. The Company presently believes that it will be able to timely resolve the
Year 2000 issues affecting its computer operations and that the cost of
addressing such matters will not have a material impact on Allstate's current
financial position, liquidity or results of operations (see "Year 2000" at page
19). However, the extent to which the computer operations of the Company's
external counterparties and suppliers are adversely affected could, in turn,
affect the Company's ability to communicate with such counterparties and
suppliers and could materially affect the Company's results of operations in any
period or periods.
5. With respect to non-standard auto, management expects that modifications
implemented in April 1998 to administrative requirements will contribute to an
increase in new business while reducing expenses related to the collection of
premiums (see "Underwriting Results" at page 12). These expectations are not
based on historical experience and such modifications could fail to contribute
to an increase in business and could fail to reduce expenses. In addition,
overriding factors could inhibit new business growth or lead to higher expenses.
6. Management believes that favorable loss trends, competitive considerations
and regulatory pressures, in some states will continue to impact the Company's
ability to maintain rates at historical levels,
-21-
<PAGE>
thereby resulting in a slower average premium growth rate for the auto
business. (See "Underwriting Results" at page 12). However, other factors that
affect the average premium growth rate, such as loss ratio deterioration, could
accelerate the rate.
See the Company's 1997 Annual Report on Form 10-K (the "1997
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 page 2 of the 1997 10-K.
-22-
<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, 1998 AND 1997
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders.
On May 19, 1998, Allstate held its annual meeting of stockholders at the
Chicago Botanic Garden in Glencoe, Illinois. Eight directors were elected for
terms expiring at the 1999 annual meeting of stockholders. In addition, the
stockholders approved the recommendation that Deloitte & Touche LLP be appointed
auditors for 1998 and approved the amendment of the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock to 2,000,000,000. The stockholders did not approve a stockholder
proposal for cumulative voting for the Board of Directors.
Election of Directors
Nominee Votes for Votes Withheld
James G. Andress 375,566,073 1,775,186
Warren L. Batts 375,505,403 1,835,856
Edward A. Brennan 374,347,304 2,993,955
Jerry D. Choate 375,511,003 1,830,256
James M. Denny 375,492,481 1,848,778
Michael A. Miles 375,529,196 1,812,063
Joshua I. Smith 373,297,285 4,043,974
Mary Alice Taylor 375,556,568 1,784,691
Approval of Deloitte & Touche LLP as Auditors for 1998
Votes For Votes Against Abstentions
375,826,649 746,092 768,518
Amendment of Restated Certificate of Incorporation to Increase the Number of
Authorized Shares of Common Stock to 2,000,000,000.
Votes For Votes Against Abstentions
330,715,382 44,183,506 2,442,371
Cumulative Voting for the Board of Directors
Votes For Votes Against Abstentions Non-Vote
95,100,330 202,546,074 42,783,525 36,911,330
Item 5. Other Information
Stockholder Proposals for 1999 Annual Meeting
If a stockholder desires to bring business before the 1999 annual meeting
without invoking SEC proxy rule 14a-8 (which concerns requirements for inclusion
of a proposal in the proxy statement), the stockholder must follow procedures
outlined in Allstate's By-Laws in order to personally present the proposal at
the meeting. A copy of these procedures is available upon request from the
Secretary of Allstate. One of the procedural requirements in the By-Laws is
timely notice in writing of the business the stockholder proposes to bring
before the meeting. Notice of business proposed to be brought before the 1999
annual meeting must be received by the Secretary of Allstate no earlier than
January 19, 1999 and no later than February 18, 1999 to be presented at the
-23-
<PAGE>
meeting. The notice must describe the business proposed to be brought before the
meeting, the reasons for bringing it, any material interest of the stockholder
in the business, the stockholder's name and address and the number of shares of
Allstate stock beneficially owned by the stockholder. It should be noted that
these By-Laws procedures govern proper submission of business to be put before a
stockholder vote at the Annual Meeting and do not preclude discussion by any
stockholder of any matters properly brought before the Annual Meeting.
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.
Registrant filed a Current Report on Form 8-K on May 20, 1998 (Items 5 and
7) and on June 1, 1998 (Item 5).
-24-
<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, 1998
By /s/ Samuel H. Pilch
Samuel H. Pilch, Controller
(Principal Accounting Officer and duly
authorized Officer of Registrant)
-25
<PAGE>
<TABLE>
<S> <C> <C> <C>
Sequentially
Exhibit No. Description Numbered Page
3 (a) Registrant's Restated Certificate of Incorporation, as
amended effective May 26, 1998.
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, 1998, 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>
<TABLE>
Exhibit 11
The Allstate Corporation and Subsidiary
Computation of Earnings Per Common Share
<S> <C> <C> <C> <C> <C>
FOR THE TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------
(In millions except per share data) 1997 1996 1995 1994 1993
Net Income $ 3,105 $ 2,075 $ 1,904 $ 484 $ 1,321
Basic earnings per common share computation:
Weighted average number of common shares 867.9 890.8 897.0 899.5 883.4
========= ======== ======== ======== =========
Net income per share - basic $ 3.58 $ 2.33 $ 2.12 $ 1.49 $ 1.49
========= ======== ======== ======== =========
Diluted earnings per common share computation:
Weighted average number of common shares 867.9 890.8 897.0 899.5 883.4
Assumed exercise of dilutive stock options 4.9 5.6 2.0 - -
-------- -------- -------- -------- ---------
Adjusted weighted average number of common
shares outstanding 872.8 896.4 899.0 899.5 883.4
======== ======== ======== ======== =========
Net income per share - diluted $ 3.56 $ 2.31 $ 2.12 $ 0.54 $ 1.49
========= ======== ======== ======== =========
</TABLE>
Weighted average shares and per share amounts have been retroactively
adjusted to reflect the stock split payable on July 1, 1998 to shareholders of
record on May 29, 1998.
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, 1998 and 1997, as indicated in our report dated
August 13, 1998; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred above, which is included in your Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, is incorporated by
reference in Registration Statement No. 333-34583 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, 333-23309, 333-40283, 333-40285 and 333-40289 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, 1998
E-3
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
THE ALLSTATE CORPORATION
The Allstate Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is The Allstate Corporation. The Allstate
Corporation was originally incorporated under the same name. The original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on November 5, 1992.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Restated Certificate of
Incorporation of this corporation as heretofore amended or supplemented.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
RESTATED CERTIFICATE OF INCORPORATION
OF
THE ALLSTATE CORPORATION
ARTICLE FIRST
The name of the corporation is The Allstate Corporation.
ARTICLE SECOND
The address of the corporation's registered office in the State of Delaware
is Corporation Trust Center, 1029 Orange Street in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE THIRD
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH
The total number of shares which the corporation shall have authority to
issue shall be 2,025,000,000, divided into two classes, namely: 25,000,000
shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"), and
2,000,000,000 shares of Common Stock, par value $.01 per share ("Common Stock").
The number of authorized shares of Preferred Stock and Common Stock may be
increased or decreased (but not below the number of shares thereof outstanding)
by the affirmative vote of the holders of a majority of the stock of the
corporation entitled to vote with respect to such matter without any class vote
required by the General Corporation Law of the State of Delaware.
The designation, relative rights, preferences and limitations of the shares
of each class, the authority of the board of directors of the corporation to
establish and to designate series of the Preferred Stock and to fix the
variations in the relative rights, preferences and limitations as between such
series, and the relative rights, preferences and limitations of each such
series, shall be as follows:
1. Preferred Stock.
(a) The board of directors of the corporation is authorized, subject to the
limitation prescribed by law and the provisions of this Section 1 of this
Article FOURTH, to provide for the issuance of the Preferred Stock in series, to
establish or change the number of shares to be included in each such series and
to fix the designation, relative rights, preferences and limitations of the
shares of each such series. The authority of the board of directors of the
corporation with respect to each series shall include, but not be limited to,
determination of the following:
(i) the number of shares constituting that series and the distinctive
designation of that series;
(ii) the dividend rate or rates on the shares of that series and/or the
method of determining such rate or rates, whether dividends shall be cumulative,
and if so, from which date or dates;
(iii) whether and to what extent the shares of that series shall have
voting rights in addition to the voting rights provided by law, which might
include the right to elect a specified number of directors in any case or if
dividends on such series were not paid for a specified period of time;
<PAGE>
(iv) whether the shares of that series shall be convertible into shares of
stock of any other series or class, and, if so, the terms and conditions of such
conversion, including the price or prices or the rate or rates of conversion and
the terms of adjustment thereof;
(v) whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation;
(vii) the obligation, if any, of the corporation to retire shares of that
series pursuant to a sinking fund; and
(viii) any other relative rights, preferences and limitations of the
Series.
(b) Subject to the designations, relative rights, preferences and
limitations provided pursuant to Subsection 1(a) of this Article FOURTH, each
share of Preferred Stock of a series shall be of equal rank with each other
share of Preferred Stock of such series.
2. Common Stock.
(a) Dividends. Subject to the express terms of the Preferred Stock
outstanding from time to time, such dividend or distribution as may be
determined by the board of directors of the corporation may from time to time be
declared and paid or made upon the Common Stock out of any source at the time
lawfully available for the payment of dividends.
(b) Voting. Except as otherwise provided by law, each share of Common Stock
shall entitle the holder thereof to one vote in any matter which is submitted to
a vote of the holders of shares of Common Stock of the corporation.
(c) Liquidation. The holders of Common Stock shall be entitled to share
ratably upon any liquidation, dissolution or winding up of the affairs of the
corporation (voluntary or involuntary) in all assets of the corporation, if any,
remaining after payment in full to the holders of Preferred Stock of the
preferential amounts, if any, to which they are entitled. Neither the
consolidation nor the merger of the corporation with or into any other
corporation or corporations, nor a reorganization of the corporation alone, nor
the sale or transfer by the corporation of all or any part of its assets, shall
be deemed to be a liquidation, dissolution or winding up of the corporation for
the purposes of this subparagraph (2)(c).
<PAGE>
3. General Provision with Respect to All Classes of Stock; Issuance of
Stock.
Shares of capital stock of the corporation may be issued by the corporation
from time to time in such amounts and proportions and for such consideration
(not less than the par value thereof in the case of capital stock having par
value) as may be fixed and determined from time to time by the board of
directors and as shall be permitted by law.
ARTICLE FIFTH
The corporation is to have perpetual existence.
ARTICLE SIXTH
In furtherance and not in limitation of the power conferred by statute, the
board of directors of the corporation is expressly authorized to adopt, amend or
repeal the by-laws of the corporation. The stockholders may adopt, amend or
repeal by-laws of the corporation only upon the affirmative vote of the holders
of not less than 66-2/3% of the total number of votes entitled to be cast
generally in the election of directors.
ARTICLE SEVENTH
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
Any action required or permitted to be taken by the holders of any class or
series of stock of the corporation entitled to vote generally in the election of
directors may be taken only by vote at an annual or special meeting at which
such action may be taken and may not be taken by written consent.
No director may be removed, with or without cause, by the stockholders
except by the affirmative vote of holders of not less than 66-2/3% of the total
number of votes entitled to be cast at an election of such director; provided,
however, that, whenever the holders of any class or series of Preferred Stock
issued pursuant to ARTICLE FOURTH, Section 1 hereof, are entitled, by the terms
of such class or series of Preferred Stock, voting separately by class or series
to elect one or more directors, the provisions of the preceding clause of this
sentence shall not apply with respect to such directors if the terms of such
class or series of Preferred Stock expressly provide otherwise. This paragraph
of ARTICLE SEVENTH may not be amended, modified or repealed except by the
affirmative vote of the holders of not less than 66-2/3% of the total number of
votes entitled to be cast generally in the election of directors.
<PAGE>
ARTICLE EIGHTH
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director.
Any repeal or modification of this ARTICLE EIGHTH shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
ARTICLE NINTH
The corporation expressly elects to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
ARTICLE TENTH
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
IN WITNESS WHEREOF, the corporation has caused this Restated Certificate of
Incorporation to be signed by its Chairman of the Board and Chief Executive
Officer and by its Vice President, Secretary and General Counsel on this 19th
day of May, 1998.
THE ALLSTATE CORPORATION
By: /s/ Robert W. Pike
<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 3O, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 52292
<DEBT-MARKET-VALUE> 52292
<EQUITIES> 6858
<MORTGAGE> 3164
<REAL-ESTATE> 651
<TOTAL-INVEST> 64885
<CASH> 301
<RECOVER-REINSURE> 2016
<DEFERRED-ACQUISITION> 2943
<TOTAL-ASSETS> 85123
<POLICY-LOSSES> 24721
<UNEARNED-PREMIUMS> 6333
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20639
<NOTES-PAYABLE> 1591
0
0
<COMMON> 9
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10306
<INVESTMENT-INCOME> 1939
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<INCOME-TAX> 792
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</TABLE>
