Consequently, one of my responsibilities as CEO is to ensure Allstate has a diverse group of talented people. We made progress in 2007 despite a highly competitive environment and senior management retirements. Employees are embracing Our Shared Vision and believe in our direction. They earned good profit sharing company contributions. We did not do as well with Agency Owners, where satisfaction was down, reflecting a tougher competitive environment that led to lower growth and bonuses. Our senior management team is functioning well despite several significant retirements, most importantly the retirement of our Chairman, Ed Liddy. Ed’s exceptional leadership has created significant shareholder value and led to one of the smoothest leadership transitions of a major corporation. I will miss him.
Reinvent means to remake completely, to make anew. It will require us to operate outside of normal conventions by focusing more intently on the consumer. This will competitively differentiate Allstate and lead to long-term profitable growth.
Your Choice Auto®, which provides customers with accident forgiveness and deductible rewards, has been a fabulous product reinvention, having sold more than 3.2 million policies. Our latest new product is Allstate GreenSM, which addresses the reality that many consumers have to drive and buy insurance but don’t want to pollute.
We will push to reinvent all aspects of our business. Share the journey and fun with us by sending your ideas to reinventeveryday@allstate.com.
This is my 14th year at Allstate and the competitive market conditions we experienced in 2007 were the toughest I have seen. Nevertheless, we delivered our second-highest annual profit ever! While we had solid earnings, we did not achieve our growth goals. Although increased competition is a part of the story, we need to do a better job of exceeding our customers’ expectations.
Solid operating performance did not translate into shareholder return. We paid $901 million of dividends, repurchased almost 10 percent of the outstanding shares, and book value per share increased 11 percent in 2007. Total shareholder return was a negative 17 percent versus a decline of 13 percent in the S&P Property Casualty index. We did come off a great year in 2006, when total shareholder return was 23 percent, but 2007 was disappointing. We will persevere and stay highly focused on raising the value of our company.
Looking forward, continuation of a difficult operating environment in 2008 will play to our strengths. Our strategy of focusing on value and not just price in auto insurance enables us to invest in improving customer satisfaction and growth. Allstate Financial’s goal of raising returns will continue to be a challenge but this is a better environment to provide retirement security. We have a high-quality, well-diversified portfolio that should enable us to weather a soft U.S. economy, the unwinding of excess leverage, and tumultuous financial markets. One of our challenges will be having the fortitude to quickly seize opportunities in the face of an uncertain future.
Businesses need to step up and drive positive change in America. Allstate will continue to lead positive change in our country:
We are waging a campaign to better prepare and protect America through a broad-based coalition called ProtectingAmerica.org. It is imperative that our country improve the way it deals with large catastrophes. More than 300 organizations have joined the coalition and legislation has passed the U.S. House of Representatives. Until such time as a viable national solution is implemented, we will continue to responsibly reduce our catastrophe exposure to be sure we are financially strong for all of our 17 million customer households.
We also must focus on keeping American workers competitive in this rapidly changing global economy. Globalization has helped America grow and prosper, is good for our investment portfolio and enables us to leverage a broader set of skills to deliver good value for our customers. Allstate supports lifelong learning and education so our country can continue to prosper.
Government accountability and transparency also must be improved. Allstate owns $25 billion of municipal bonds and has a vested interest in financially sound public entities. The Sarbanes-Oxley Act of 2002 improved the accountability and transparency for our investments in the private sector. Similar legislation for government entities would improve our investments in the public sector.
The Allstate Foundation continues to help communities across America and more than 3,000 non-profit organizations. Our signature programs on teen driving and domestic violence have made meaningful differences in people’s lives. I have had tears in my eyes as I listen to stories of domestic violence victims. We give out more than money; we provide hope and freedom.
Reinventing protection and retirement for the consumer will further strengthen one of America’s most important financial institutions. We have the talent to deliver excellent shareholder returns. We will be bold and aggressive. We have the courage to take a stand and drive business and societal change. When we do this, a more diverse group of Americans will be included in our success. Along the way we will become better people. In the end, that will be the true measure of our success!
