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Edward M. Liddy
Chairman, President and CEO
The Allstate Corporation |
At the core of our company
are only two things: people and capital. With
the right people and sound stewardship of our
financial resources, we can confidently deliver
on our promise - to give our customers peace of
mind by protecting their property and their lives,
and to help them achieve financial security.
Having the assurance of one of the industry’s
strongest balance sheets helps give us, and our
customers, that confidence. But more importantly,
I’m fortunate to work with the finest employees
and agencies in the business, and to have the
support and good sense of the best management
team in the insurance industry. Together, we have
fashioned a strategy that worked very well in
2002, and has us readied for the future.
I’m honored to lead the work ahead.
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On behalf of our
Allstate employees and dedicated agencies, I am
pleased to report that your company had a very
good year in 2002. We significantly improved our
financial results, while some of our competitors
continued to struggle. This has enabled us to
advance our strategy of helping to protect and
secure the financial future of our customers,
and enhanced the value of your shares.
Just as important, we continued to transform Allstate
by getting better and bigger in the personal lines
insurance market and by broadening our financial
services offerings. By doing so, we were able
to give our customers more ways to protect and
grow their assets. Allstate’s successful
implementation of our business plan should provide
for more predictable and sustained growth, create
additional opportunities for our employees and
agencies and ultimately translate into a reliable
and rewarding picture for our investors.
In a time of corporate mistrust, you should feel
confident that your board worked diligently over
the past year to further strengthen our corporate
governance processes. These processes were recently
recognized by a leading investor services group
as being among the very best in corporate America.
With the 10-year anniversary of our initial public
offering only months away, Allstate is well-positioned
for both accelerated growth and sustained profitability.
Over the past decade, we have continuously refined
our strategy to meet the ever-changing expectations
of the marketplace.
We have broadened our business so that, as we
reach out in new directions, our journey will
take us both further and faster in our quest to
reassure you, our shareholders, that Allstate
has the right strategy at the right time. Our
performance in 2002 represents another milestone
in achieving those goals that we set for ourselves
and we’ll endeavor to build on those accomplishments
in 2003.
2002 Results
Allstate today has a window
of opportunity we can use to strengthen and consolidate
our competitive position. We’re determined
to seize that advantage. Execution will be the key.
As usual, numbers help tell the
story:
- In our Allstate brand standard
auto insurance, our largest single product,
Premiums written (2) rose 5.9 percent last year
and loss ratios moderated compared with 2001.
- The improvement was even more
dramatic in our Allstate brand homeowners product,
where Premiums written were up 18 percent. As
promised, we’re on track to bring profitability
to targeted levels by mid-2003.
- Our Ivantage independent agency
business increased Premiums written by 4.5 percent
and cut its Underwriting loss (3) approximately
in half. We’re on schedule to achieve
targeted levels of profitability.
- In financial services, we performed
well despite one of the most difficult market
environments in memory.
Overall Property-Liability Premiums
written rose 5.8 percent and Operating income jumped
54.8 percent, driven largely by decisive pricing
and risk management actions. Premiums and deposits
(4) in our Allstate Financial business rose 11.6
percent and Operating income gained 5.5 percent.
For the company as a whole, Operating income increased
39.1 percent, from $1.49 billion to $2.08 billion.
A solid performance.
These accomplishments helped drive up the value
of your Allstate stock during 2002. Total return
for the year increased 12.3 percent over 2001, compared
with an average loss of 22 percent among companies
in the Standard & Poor’s 500 (S&P),
as well as outperforming all insurance indices that
S&P tracks. Your dividend increased for the
ninth straight year, while we completed one share
repurchase program and authorized another in early
2003.
Of course, not everything was perfect. We had our
challenges: Declining interest rates reduced our
investment income and, as a result of deteriorating
capital markets, losses on securities in our investment
portfolio cut into Net income.
Elsewhere, regulation and other factors slowed opportunities
for growth in key states such as California, Texas
and Florida. Issues like medical inflation and mold
claims, as well as adverse trends in environmental
and asbestos litigation, caused us to strengthen
reserves.
In all of these areas, we acted quickly to confront
concerns. We did the same with respect to rate increases
in auto and homeowners. Because we were ahead of
the industry curve, we are hitting profitability
targets faster and gaining greater strategic flexibility
than many of our competitors for 2003 and beyond.
Other trendlines are pointed in similarly positive
directions:
- In our protection business, the
focus of our customer base is shifting. We’re
increasing the number of more profitable customers
while decreasing the number of less profitable
ones.
- In financial services, our mix
of business likewise is expanding from a primary
reliance on life insurance products toward more
asset accumulation products across a range of
distribution channels.
- We continue to refine our organization
to reflect the company’s business strategy.
In September 2002, we joined our Allstate property
and casualty and Ivantage businesses to leverage
their resources. We intend to strengthen and
deepen the relationships with agencies and customers
in both channels.
- Our protection claims organization
successfully completed a national consolidation
of claims offices, substantially reducing overhead
costs while allowing us to focus our people
and resources on front-line customer service
and severity control.
This progress reflects the
effort and expertise of everyone in the organization.
Change is never easy, even when it’s working.
But what we’ve accomplished has created
real momentum. Allstate today has a window of
opportunity we can use to strengthen and consolidate
our competitive position.
We’re determined to seize that advantage.
Execution will be the key. Underlying our better,
bigger and broader strategy are seven priorities
that will help make Allstate the company customers
prefer to help bring alive their version of the
American Dream.
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