Supporting growth – in our customer base, in our distribution networks and in our product portfolio – is the financial strength that has made us a stable company for decades. When we tell our customers, our investors and our employees, “You’re In Good Hands with Allstate,®” the commitment carries with it an awesome responsibility. While some companies today find their resources and reputations declining, financial strength ensures that Allstate will be able to keep its promises.

Strength comes from strategy and focus. Since our public offering, we sold non-core businesses, including large commercial accounts, reinsurance and mortgage insurance. That channeled our energies and resources to markets where we had the best chance of winning, while limiting our catastrophe exposure and shielding our asset base against multi-billion-dollar losses.

Financial strength comes from sound governance, transparency and a commitment to integrity. Our board is recognized as one of the most independent in America. In recent years we’ve increased the transparency of our financial reporting. What’s more, we operate in one of the most regulated industries anywhere. Our principles, accounting and otherwise, are sound. So when I sign our financial statements every quarter, I do it with a steady hand.

Strength also comes from sound investment decisions that help improve returns for shareholders. Allstate Investments, LLC, an Allstate subsidiary, manages our $91 billion portfolio. We believe in being diversified and value-oriented. While almost no one emerged unscathed from economic downturns in recent years – Allstate fared far better than most. In 2002, for example, our investment writedowns, while substantial, amounted to only one half of 1 percent of the average portfolio for the year. And while the major rating agencies downgraded the life operations of many other companies in the industry, our ratings from A.M. Best Company, Moody’s Investors Service and Standard & Poor’s remained unchanged at the same high levels that we have consistently enjoyed over the past five years.

Finally, financial strength comes from always being conscious of costs. In 2002, our Property-Liability expense ratio declined again, from 23.9 percent to 23.3 percent. The reduction reflected premium increases and companywide efforts by individuals at all levels. Six Sigma initiatives implemented in Allstate Financial and a more rigorous procurement governance process also yielded incremental savings.

Staying true to these priorities while making prudent moves to ensure that our reserves are sufficient to address liquidity requirements will help keep us financially strong far into the future.

Chairman’s Message
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