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 MARCH 31, 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 APRIL 30, 1998, THE REGISTRANT HAD 419,817,896 COMMON SHARES, $.01 PAR
VALUE, OUTSTANDING.
<PAGE>
THE ALLSTATE CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1998
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1998 and 1997 1
(unaudited).
Condensed Consolidated Statements of Financial
Position as of March 31, 1998 (unaudited) and 2
December 31, 1997.
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31 ,1998 and 1997 3
(unaudited).
Notes to Condensed Consolidated Financial Statements 4
(unaudited).
Independent Accountants' Review Report. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K. 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Three months ended
March 31,
------------------
1998 1997
----- -----
(Unaudited)
(In millions except per share data)
REVENUES
Property-liability insurance premiums earned $4,747 $4,560
Life and annuity premiums and contract charges 353 355
Net investment income 964 944
Realized capital gains and losses 386 320
----- -----
6,450 6,179
----- -----
COSTS AND EXPENSES
Property-liability insurance claims and claims expense 3,303 3,368
Life and annuity contract benefits 575 583
Amortization of deferred policy acquisition costs 724 667
Operating costs and expenses 472 453
Interest expense 26 24
----- -----
5,100 5,095
----- -----
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE,
DIVIDENDS ON PREFERRED SECURITIES, AND EQUITY
IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 1,350 1,084
INCOME TAX EXPENSE 414 317
----- -----
INCOME BEFORE DIVIDENDS ON PREFERRED SECURITIES AND
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 936 767
DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS (9) (9)
EQUITY IN NET INCOME OF UNCONSOLIDATED SUBSIDIARY 9 9
----- -----
NET INCOME $ 936 $ 767
===== =====
EARNINGS PER SHARE:
NET INCOME PER SHARE - BASIC $ 2.21 $ 1.74
===== =====
WEIGHTED AVERAGE SHARES - BASIC 422.6 440.0
===== =====
NET INCOME PER SHARE - DILUTED $ 2.20 $ 1.73
===== =====
WEIGHTED AVERAGE SHARES - DILUTED 425.0 442.3
===== =====
<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>
March 31, December 31,
($ in millions) 1998 1997
--------- ----------
(Unaudited)
Assets
Investments
Fixed income securities, at fair value(amortized cost $48,603 and $47,715) $ 51,628 $ 50,860
Equity securities at fair value (cost $4,467 and $4,587) 6,968 6,765
Mortgage loans 3,066 3,002
Real estate 673 686
Short-term 2,001 687
Other 553 548
------- ------
Total investments 64,889 62,548
Premium installment receivables, net 3,062 2,959
Deferred policy acquisition costs 2,886 2,826
Reinsurance recoverables, net 2,050 2,048
Property and equipment, net 754 741
Accrued investment income 655 711
Cash 263 220
Other assets 1,422 1,283
Separate Accounts 8,555 7,582
-------- -------
Total assets $ 84,536 $ 80,918
========= =======
Liabilities
Reserve for property-liability insurance claims and claims expense $ 17,374 $ 17,403
Reserve for life-contingent contract benefits 7,141 7,082
Contractholder funds 20,525 20,389
Unearned premiums 6,223 6,233
Claim payments outstanding 621 599
Other liabilities and accrued expenses 4,978 3,193
Deferred income taxes 434 381
Short-term debt 251 199
Long-term debt 1,497 1,497
Separate Accounts 8,555 7,582
------- -------
Total liabilities $ 67,599 $ 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, 1 billion shares authorized and 450 million
issued, 420 million and 425 million shares outstanding 5 5
Additional capital paid-in 3,106 3,120
Retained income 12,468 11,646
Deferred ESOP expense (252) (281)
Treasury stock, at cost (30 million and 25 million) (2,063) (1,665)
Accumulated other comprehensive income:
Unrealized net capital gains 2,959 2,821
Unrealized foreign currency translation adjustments (36) (36)
------ ------
Total accumulated other comprehensive income 2,923 2,785
------ ------
Total shareholders' equity 16,187 15,610
------ -------
Total liabilities and shareholders' equity $84,536 $80,918
====== ======
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Three months ended
March 31,
-------------------
($ in millions) 1998 1997
----- -----
(Unaudited)
Cash flows from operating activities
Net income $ 936 $ 767
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, amortization and other non-cash items (5) 1
Realized capital gains and losses (386) (320)
Interest credited to contractholder funds 303 300
Change in policy benefit and other insurance reserves (55) 7
Decrease in unearned premiums (10) (63)
Increase in deferred policy acquisition costs (48) (67)
Increase in premium installment receivables, net (103) (45)
Change in reinsurance recoverables, net (2) (47)
Change in deferred income taxes (26) 182
Changes in other operating assets and liabilities 285 43
------ ------
Net cash provided by operating activities 889 758
------ ------
Cash flows from investing activities
Proceeds from sales
Fixed income securities 3,600 2,766
Equity securities 1,421 1,005
Investment collections
Fixed income securities 1,082 1,132
Mortgage loans 41 103
Investment purchases
Fixed income securities (5,189) (4,685)
Equity securities (1,018) (577)
Mortgage loans (103) (110)
Change in short-term investments, net (138) 193
Change in other investments, net 10 5
Purchases of property and equipment, net (43) (25)
------ ------
Net cash used in investing activities (337) (193)
------ ------
Cash flows from financing activities
Change in short-term debt, net 52 (54)
Contractholder fund deposits 695 591
Contractholder fund withdrawals (744) (687)
Dividends paid (114) (106)
Treasury stock purchases (444) (316)
Other 46 20
------ ------
Net cash used in financing activities (509) (552)
------ ------
Net increase in cash 43 13
Cash at beginning of period 220 116
------ ------
Cash at end of period $ 263 $ 129
====== ======
<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 March 31,
1998 and for the three-month periods ended March 31, 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 held 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 changes consist
of changes in unrealized gains and losses of the investment portfolio and
unrealized foreign currency translation adjustments. These amounts, presented as
other comprehensive income, net of related taxes, are added to 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 state of a 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.
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.
-4-
<PAGE>
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 Company's 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, net of reinsurance recoverables of $358 million and $388 million, were
$1.08 billion and $1.10 billion at March 31, 1998 and December 31, 1997,
respectively.
Management believes its net loss reserves for environmental, asbestos and
mass tort claims are appropriately established based on available facts,
technology, laws and regulations. However, due to the inconsistencies of court
coverage decisions, plaintiffs' expanded theories of liability, the risks
inherent in major litigation and other uncertainties, the ultimate cost of these
claims may vary materially from the amounts currently recorded, resulting in an
increase in the loss reserves. In addition, while the Company believes that
improved actuarial techniques and databases have assisted in its ability to
estimate environmental, asbestos and mass tort net loss reserves, these
refinements may subsequently prove to be inadequate indicators of the extent of
probable loss. Due to the uncertainties and factors described above, management
believes it is not practicable to develop a meaningful range for any such
additional net loss reserves that may be required.
-5-
<PAGE>
3. REINSURANCE
Property-liability insurance premiums and life and annuity premiums and
contract charges are net of reinsurance ceded for the three months ended March
31 as follows:
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Property-liability premiums $110 $124
Life and annuity premiums and
contract charges 46 39
</TABLE>
Property-liability insurance claims and claims expense and life and annuity
contract benefits are net of reinsurance recoveries for the three months ended
March 31 as follows:
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Property-liability insurance claims
and claims expense $66 $82
Life and annuity contract benefits 16 11
</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 April 24, 1998, from the U.S.
District Court for the Central District of California, in connection with a Los
Angeles grand jury preceeding, 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>
5. COMPREHENSIVE INCOME
The following summarizes the components of other comprehensive income on a
pretax and after-tax basis for the three months ended March 31 as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
($ in millions) 1998 1997
------------------------- ------------------------
Income Income
tax tax
Pretax effect After-tax Pretax effect After-tax
------ ------ --------- ------ ------ ---------
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $601 $(210) $ 391 $(603) $ 211 $(392)
Less: reclassification
adjustment for realized
net capital gains included
in net income 389 (136) 253 315 (110) 205
--- ----- --- ---- ----- ---
Unrealized net capital gains
(losses) 212 (74) 138 (918) 321 (597)
Unrealized foreign currency
translation adjustments - - - (9) 3 (6)
----- ----- ---- ---- ---- ----
Other comprehensive income $212 $(74) 138 $(927) $324 (603)
=== ==== ---- ===== === ----
Net income 936 767
---- ----
Comprehensive income $1,074 $164
===== ====
</TABLE>
6. ACQUISITION OF PEMBRIDGE INC.
In April 1998, the Company purchased a 93.6% controlling interest in
Pembridge Inc. ("Pembridge") as a result of shares tendered pursuant to the
Company's offer in January 1998, to purchase all of the outstanding shares of
Pembridge for approximately $275 million. Pembridge primarily sells non-standard
auto insurance in Canada through its wholly-owned subsidiary Pafco Insurance
Company. The Company intends to purchase the remaining outstanding shares by the
end of the second quarter.
-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 March 31,
1998, and the related condensed consolidated statements of operations and cash
flows for the three-month periods ended March 31, 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
May 13, 1998
-8-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three-Month Periods Ended March 31, 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 the consolidated financial statements and notes thereto
found under Part II. Item 8, with the discussion and analysis found under Part
II. Item 7 of The Allstate Corporation Annual Report on Form 10-K for 1997
("1997 10-K") and with Part I. Item 1 of the 1997 10-K.
CONSOLIDATED REVENUES
<TABLE>
THREE MONTHS ENDED
MARCH 31,
($ in millions) 1998 1997 CHANGE
---- ---- ------
<S> <C> <C> <C>
Property-liability insurance premiums $ 4,747 $4,560 $ 187
Life and annuity premiums and contract
charges 353 355 (2)
Net investment income 964 944 20
Realized capital gains and losses 386 320 66
--- --- ---
Total revenues $ 6,450 $ 6,179 $ 271
===== ===== ===
</TABLE>
Consolidated revenues for the first quarter of 1998 increased 4.4%,
reflecting growth in property-liability premiums and higher realized capital
gains.
CONSOLIDATED NET INCOME
Net income for the first quarter of 1998 was $936 million, or $2.20 per
diluted share, compared with $767 million, or $1.73 per diluted share, for the
first quarter of 1997. The increase was primarily due to growth in
property-liability earned premiums, favorable property-liability loss
experience and higher realized capital gains. The favorable property-liability
loss experience resulted from lower auto claim frequency (rate of occurrence)
due to mild weather and improved severity trends (average cost per claim) for
auto and homeowners.
-9-
<PAGE>
PROPERTY-LIABILITY OPERATIONS
OVERVIEW
The Company's property-liability operations consist of two principal areas
of business: personal property and casualty ("PP&C") and discontinued lines and
coverages ("Discontinued Lines and Coverages"). PP&C is principally engaged in
the sale of private passenger automobile insurance, homeowners insurance and
commercial business written primarily through the Allstate agent distribution
channel. Discontinued Lines and Coverages consists of business no longer written
by Allstate, including results from environmental, asbestos and mass tort
losses, mortgage pool business and other commercial business in run-off.
Underwriting results for each of the property-liability areas of business
are discussed separately beginning on page 11.
Unaudited summarized financial data and key operating ratios for the
Company's property-liability operations for the three-month periods ended March
31, are set forth in the following table.
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Premiums written $4,745 $ 4,551
===== =====
Premiums earned $4,747 $ 4,560
Claims and claims expense 3,303 3,368
Operating costs and expenses 1,041 976
------- ---
Underwriting income 403 216
Net investment income 438 420
Income tax expense on operations 236 163
----- -----
Operating income 605 473
Realized capital gains and losses,
after-tax 182 159
Equity in net income of unconsolidated
subsidiary 9 9
---- ----
Net income $ 796 $ 641
==== ====
Catastrophe losses $ 119 $ 110
==== ====
Operating ratios
Claims and claims expense ("loss")
ratio 69.6 73.9
Expense ratio 21.9 21.4
----- ----
Combined ratio 91.5 95.3
===== =====
Effect of catastrophe losses on
combined ratio 2.5 2.4
===== =====
</TABLE>
-10-
<PAGE>
NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS
Pretax net investment income for the three-month period ended March 31,
1998 increased 4.3% to $438 million compared to $420 million for the same period
last year due to increased investment balances partially offset by lower
investment yields. Higher investment balances resulting from positive cash flows
from operations were partially offset by the impact of dividends paid to The
Allstate Corporation. 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.
Realized capital gains and losses were $182 million after-tax for the first
quarter of 1998 versus $159 million for the same period in 1997. The increase
was primarily due to the sale of equity securities which generated $151 million
of realized capital gains in the first quarter of 1998 compared to $127 million
in 1997. Fluctuations in realized capital gains and losses are largely a
function of timing of sales decisions reflecting management's view of individual
securities and overall market conditions.
UNDERWRITING RESULTS
PP&C - Summarized financial data and key operating ratios for Allstate's
PP&C operations for the three-month periods ended March 31, are presented in the
following table.
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Premiums written $ 4,745 $4,551
===== =====
Premiums earned $ 4,747 $4,560
Claims and claims expense 3,301 3,366
Operating costs and expenses 1,036 972
----- -----
Underwriting income $ 410 $ 222
====== =====
Catastrophe losses $ 119 $ 110
==== ====
Operating ratios
Claims and claims expense ("loss")
ratio 69.5 73.8
Expense ratio 21.8 21.3
----- ----
Combined ratio 91.3 95.1
===== ====
Effect of catastrophe losses on
combined ratio 2.5 2.4
===== ====
</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.
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
-11-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE - MONTH PERIODS ENDED MARCH 31,
1998 AND 1997
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 efforts to introduce policy changes and purchase 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 in the
non-standard auto market.
PP&C premiums written increased 4.3% for the three-month period ended March
31, 1998, over the comparable period in 1997. Standard auto premiums written
increased 4.4% to $2.81 billion in the first quarter of 1998, from $2.69 billion
for the same three-month period in 1997. The increase in standard auto premiums
written was primarily due to an increase in renewal policies in force (unit
sales) 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. Rate increases are based in part on indicated
loss trends and are generally limited by regulatory and competitive
considerations.
Non-standard auto premiums written increased 6.6% to $844 million in the
first quarter of 1998, from $792 million for the same period in 1997. The
increase 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 quarter 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 first quarter were $669 million, an
increase of 6.2% from first quarter 1997 premiums of $630 million. The increase
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 first quarter of 1998, PP&C had underwriting income of $410 million
versus $222 million for the first quarter of 1997. Improved underwriting results
were primarily due to earned premium growth and favorable loss experience.
Favorable loss experience resulted from lower auto claim frequency due to mild
weather and favorable auto and homeowners severity trends. Auto injury claim
severities improved compared to the first 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.
CATASTROPHE LOSSES AND CATASTROPHE MANAGEMENT - Catastrophe losses for the
first quarter of 1998 were $119 million compared with $110 million for the same
period in 1997. 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
-12-
<PAGE>
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 periods ended March 31, are summarized
below.
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Underwriting loss $ (7) $ (6)
=== ===
</TABLE>
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.
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 periods ended March 31, are illustrated in the following
table.
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Statutory premiums and deposits $ 1,204 $ 1,115
====== ======
Investments $ 30,519 $27,716
Separate Account assets 8,555 5,747
------ -------
Investments including Separate Account assets $ 39,074 $33,463
Premiums and contract charges $ 353 $ 355
Net investment income 518 516
Contract benefits 575 583
Operating costs and expenses 152 150
------ ------
Income from operations 144 138
Income tax expense on operations 51 47
Operating income 93 91
Realized capital gains and losses, after-tax (1) 64 49
Net income $ 157 $ 140
===== =====
<FN>
(1) Net of the effect of related amortization of deferred policy acquisition
costs in 1998.
</FN>
</TABLE>
-13-
<PAGE>
Statutory premiums and deposits, which include premiums and deposits for
all products, increased by 8.0% in the first quarter of 1998 compared with the
same period last year. Statutory premiums and deposits by product line for the
three-month periods ended March 31, are presented in the following table.
<TABLE>
<S> <C> <C>
($ in millions) 1998 1997
---- ----
Life products
Universal $ 185 $ 179
Traditional 72 69
Other 57 56
Annuity products
Fixed 306 379
Variable 394 345
Group pension products 190 87
---- ----
Total $1,204 $1,115
====== ======
</TABLE>
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 quarter of 1998, these sales are based on management's assessment of
current market conditions.
Life and annuity premiums and contract charges under generally accepted
accounting principles ("GAAP") decreased slightly. 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 decrease in 1998
was primarily attributable to an increase in revenues from universal life and
variable annuity products being more than offset by decreases on traditional and
other life products premiums on a GAAP basis and sales of life-contingent
structured settlement annuities.
Pretax net investment income increased slightly in the first quarter of
1998 from the comparable 1997 period as investment income earned on higher
investment balances was offset by lower portfolio yields. Investments, excluding
Separate Account assets and unrealized gains on fixed income securities, grew by
5.4%. 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 2.2% during the first quarter of 1998 compared
with the first quarter of 1997 as increased revenues on universal life and
variable annuity products were partially offset by increased expenses related to
the amortization of deferred acquisition costs.
Net realized capital gains after-tax increased to $64 million for the three
months ended March 31, 1998 due to gains from the sale of equity securities and
fixed income securities.
-14-
<PAGE>
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 1998. In order to borrow
on the line of credit, Allstate Insurance Company ("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. Total borrowings under the combined commercial paper program
and line of credit are limited to $1.55 billion.
The Company exchanged $357 million of 6.76% Automatically Convertible
Equity Securities for shares of the PMI Group, Inc. common stock on April 15,
1998.
During the first quarter of 1998, the Company purchased approximately 5
million shares of its common stock, for its treasury, at a cost of $444 million.
At March 31, 1998, the Company held approximately 30 million shares of treasury
stock with an average cost per share of $69.69.
In April 1998, the Company purchased a 93.6% controlling interest in
Pembridge Inc. (Pembridge) as a result of shares tendered pursuant to the
Company's offer in January 1998, to purchase all of the outstanding shares of
Pembridge for approximately $275 million. Pembridge primarily sells non-standard
auto insurance in Canada through its wholly-owned subsidiary Pafco Insurance
Company. The Company intends to purchase the remaining outstanding shares by the
end of the second quarter.
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 $2.3 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 $257 million of dividends as
of April 30, 1998. The dividends are used for general corporate purposes
including the Company's stock repurchase programs and the acquisition of
Pembridge Inc.
Liquidity
Surrenders and withdrawals for Allstate Life were $502 million for the
first three months of 1998 compared with $431 million in 1997. As the Company's
interest-sensitive life policies and annuity contracts in-force grow and age,
the dollar amount of surrenders and withdrawals could increase.
-15-
<PAGE>
INVESTMENTS
The composition of the investment portfolio at March 31, 1998, at financial
statement carrying values, is presented in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY-LIABILITY LIFE AND ANNUITY CORPORATE TOTAL
------------------ ---------------- -------------- ------------
Percent Percent Percent Percent
to to to to
total total total total
($ in millions)
Fixed income securities (1) $26,216 77.1% $25,167 82.4% $ 245 68.6% $51,628 79.6%
Equity securities 6,008 17.7 960 3.1 - - 6,968 10.7
Mortgage loans 101 .3 2,965 9.7 - - 3,066 4.7
Real estate 443 1.3 230 .8 - - 673 1.0
Short-term 1,228 3.6 661 2.2 112 31.4 2,001 3.1
Other 17 .0 536 1.8 - - 553 .9
------- ---- ---- --- ---- ----- ----- ---
Total $34,013 100.0% $30,519 100.0% $ 357 100.0% $64,889 100.0%
======= ===== ======= ===== === ===== ====== =====
<FN>
(1) Fixed income securities are carried at fair value. Amortized cost for
these securities was $25.04 Billion, $23.32 Billion and $241 million for
property-liability, life and annuity and corporate, respectively.
</FN>
</TABLE>
Total investments increased to $64.89 billion at March 31, 1998 from $62.55
billion at December 31, 1997. Property-liability investments increased $1.73
billion to $34.01 billion at March 31, 1998 from $32.28 billion at December 31,
1997. Allstate Life investments at March 31, 1998, increased $76 million to
$30.52 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, the addition to short-term investments of
approximately $1 billion of collateral in connection with a change in accounting
treatment for securities lending programs and an increase in net unrealized
capital gains on property-liability equity securities.
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 and loss reserving. 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 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, 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 to make all
communications facilities, software and systems Year 2000 compliant. Year 2000
costs are expensed as incurred.
-16-
<PAGE>
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. ANJ expects to start receiving voluntary auto policies from
AIC and Allstate Indemnity Company when such policies begin to renew starting in
September, 1998.
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 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 Company is currently reviewing
the requirements of this SFAS and has not determined the impact on its current
reporting segments. The requirements of this statement 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
values of plan assets and eliminates certain previously required disclosures.
The disclosure requirements of this statement will be adopted effective December
31,1998.
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 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 SOP is expected to be adopted in 1999.
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 severity trends (see "Consolidated Net Income" at page 9
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 Result" 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 probability of severe
losses in the future. (See "Catastrophe Losses and Catastrophe Management" on
page 12). 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.
-17-
<PAGE>
3. In order to borrow on the line of credit (see "Liquidity and Capital
Resources" on page 15), 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 the credit agreement requirements would be lessened.
Consequently, Allstate's right to draw upon the 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. 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 and/or lead to higher
expenses.
See, generally, 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.
-18-
<PAGE>
PART II. OTHER INFORMATION
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
January 27, 1998 (Items 5 and 7).
-19-
<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)
May 13, 1998
By /s/Samuel H. Pilch
Samuel H. Pilch, Controller
(Principal Accounting Officer and duly
authorized Officer of Registrant)
-20-
<PAGE>
<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
May 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>
Exhibit 11
The Allstate Corporation and Subsidiary
Computation of Earnings Per Common Share
Three Months Ended March 31,
--------------------------------
($ in millions, except for per share data) 1998 1997
------------- -------------
Net Income $ 936 $ 767
============= =============
Basic earnings per common share computation:
Weighted average number of common shares 422.6 440.0
============= =============
Net income per share - basic $ 2.21 $ 1.74
============= =============
Diluted earnings per common share computation:
Weighted average number of common shares 422.6 440.0
Assumed exercise of dilutive stock options 2.4 2.3
------------- -------------
Adjusted weighted number of common shares 425.0 442.3
outstanding
============= =============
Net income per share - diluted $ 2.20 $ 1.73
============= =============
-E2-
<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
periods ended March 31, 1998 and 1997, as indicated in our report dated May 14,
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 March 31, 1998, is
incorporated by reference in Registration Statement Nos. 33-88540, 333-10857 and
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
May 13, 1998
-E3-
<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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 899051
<NAME> THE ALLSTATE CORPORATION
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<S> <C>
<PERIOD-TYPE> 3-MOS
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