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Press release from PR Newswire

Allstate Reports Strong Second Quarter 2012 Earnings

Tuesday, July 31, 2012

Allstate Reports Strong Second Quarter 2012 Earnings16:05 EDT Tuesday, July 31, 2012NORTHBROOK, Ill., July 31, 2012 /PRNewswire/ -- The Allstate Corporation (NYSE: ALL) today reported financial results for the second quarter of 2012:The Allstate Corporation Consolidated HighlightsThree months endedJune 30,($ in millions, except per share amounts and ratios) 2012 2011% ChangeConsolidated revenues$    8,278$    8,0812.4Net income (loss)423(624)NMNet income (loss) per diluted share0.86(1.19)NMOperating income (loss)*432(647)NMOperating income (loss) per diluted share*0.87(1.24)NMBook value per share39.7335.2112.8Book value per share, excluding the impact of unrealized    net capital gains and losses on fixed income securities*35.8133.12 8.1Catastrophe losses8192,339(65.0)Property-Liability combined ratio98.0123.3 (25.3) pts  Property-Liability combined ratio excluding the effect of     catastrophes, prior year reserve reestimates, business    combination expenses and the amortization of purchased    intangible assets ("underlying combined ratio")*86.3   87.5 (1.2) pts  NM = not meaningful*     Measures used in this release that are not based on accounting principles generally accepted in the United States of America ("non-GAAP") are defined and reconciled to the most directly comparable GAAP measure and operating measures are defined in the "Definitions of Non-GAAP and Operating Measures" section of this document."We made good progress this quarter on our 2012 operating priorities of maintaining auto profitability, improving returns in homeowners insurance and annuities, growing insurance premiums, and proactively managing our investments and capital," said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation. "We improved our underlying margins in both auto and homeowners insurance. Our investment portfolio generated solid returns in a challenging interest rate environment. During the quarter, we repurchased 8.2 million shares of common stock for $275 million. With an increase in book value per share of 9.8% since year-end 2011 and a dividend yield around 2.5%, we are generating solid value for our shareholders."Our strategy of offering unique products to different customer segments continued to show positive results," Wilson said. "Overall, we grew insurance premiums in the second quarter despite the negative impact of raising returns in homeowners insurance. Total Allstate brand premiums written grew compared to last year as higher average homeowners premiums and growth in emerging businesses more than offset a decline in Allstate brand homeowners and standard auto policies. Allstate Financial increased unit sales of life insurance through our Allstate agency channel. Esurance's premium growth accelerated with its policies in force increasing 13.5% since year-end 2011. Encompass premiums written increased 5.9% compared to prior year on the strength of improved package policy sales."Consolidated ResultsNet income for the quarter was $423 million, or $0.86 per diluted share, compared to a net loss of $624 million, or a loss of $1.19 per diluted share in the second quarter of 2011. The increase in operating income of $1.1 billion was the primary driver of the improvement in net income. For the quarter, operating income was $432 million, or $0.87 per diluted share versus an operating loss of $647 million, or a loss of $1.24 per diluted share for the second quarter of 2011. The increase in operating income was due to lower catastrophe losses and an improvement in the underlying property-liability combined ratio. Return on equity was 11.0% on a net income basis and 11.4%* on an operating income basis.Property-Liability Premiums Grow while Profits ImproveAllstate's priority to grow premiums showed positive results in the second quarter.  Total property-liability premiums written* of $6.86 billion grew 3.8% from the second quarter of 2011 due to the acquisition of Esurance in early October 2011 and to a lesser extent, growth in both the Allstate and Encompass brands.  Allstate brand standard auto premiums written declined slightly from the prior year quarter as an expected reduction in units was partially offset by an increase in average premium.  Allstate brand homeowners, Emerging Businesses and Encompass contributed to the positive premiums written growth in the second quarter.  Overall policies in force declined by 0.6% from year-end 2011 as reductions in Allstate brand standard auto and homeowners were partially offset by growth in Canada, Emerging Businesses, Encompass and Esurance. Allstate continued to execute successfully on its strategy to maintain auto margins while improving homeowners returns.  In the second quarter, the property-liability combined ratio was 98.0 compared to 123.3 in the prior year quarter.  The underlying combined ratio was 86.3, an improvement of 1.2 points from the second quarter of 2011 and below the outlook range of 88 to 91 for the full year 2012.  Catastrophe losses of $819 million in the quarter were substantial, but were significantly less than the catastrophe losses of $2.3 billion incurred in last year's second quarter.For Allstate brand standard auto, the combined ratio was 95.5, an improvement of 2.8 points from the second quarter of 2011.  The underlying combined ratio for Allstate brand standard auto of 93.4 improved slightly from the second quarter of 2011 as implemented rate actions essentially matched the increase in loss costs.  Allstate brand homeowners combined ratio was 104.9 for the second quarter, a significant improvement from the combined ratio of 193.3 in the prior year quarter, driven by lower catastrophe losses and continued improvement in the underlying margin.  For the second quarter, the underlying combined ratio was 64.6, 4.8 points better than the 69.4 underlying combined ratio recorded in the prior year quarter, reflecting the impact of implemented rate changes as well as moderating loss costs. Also contributing to the second quarter's positive results were improvements in the underlying margins for the other personal lines which comprise Emerging Businesses.Allstate Financial Results Consistent with Strategy ExecutionAllstate Financial continued to make progress on improving returns on attributed equity and shifting its focus to underwritten products from spread-based products.  Net income for the second quarter was $132 million, a $29 million decline from the prior year quarter driven by lower net realized capital gains.  Operating income increased 2.2% to $138 million in the second quarter of 2012, helped by the inclusion of equity method limited partnership results in operating income this year as well as lower crediting rates that were partially offset by worse mortality in both life insurance and annuities, lower yields on fixed income securities, and the continued managed reduction in spread business.Premiums and contract charges on underwritten products totaled $540 million in the second quarter, an increase of 3.1% from the prior year period. Consistent with the strategic direction to reduce Allstate Financial's annuity business, contractholder funds declined by $771 million from March 31, 2012 and $1.5 billion from year-end 2011. Allstate agencies increased life unit sales, with issued policies growing 2.5% in the second quarter compared to the prior year quarter.Proactive Management Drives Investment ResultsAllstate delivered solid total returns on investments, reflecting continued proactive management of investment risk and return. We remain focused on balancing yield and return considerations in this low rate environment, favoring corporate credit over Treasuries and equities, and intermediate over long-dated maturities.Allstate's consolidated investment portfolio totaled $97.3 billion at June 30, 2012 compared to $95.6 billion at December 31, 2011, as solid investment returns and operating cash flow more than offset the impact of the ongoing managed reduction in Allstate Financial's liabilities. For the second quarter of 2012, net investment income was $1.0 billion and total portfolio yield was 4.6%, higher than the second quarter of 2011 and consistent with the first quarter of 2012.  Inclusion of equity method limited partnership results in 2012, along with a higher amount, were the primary drivers of the favorable variance to the prior year quarter. Excluding the limited partnership results, second quarter 2012 net investment income and portfolio yield were lower than the prior year, consistent with the reduction in Allstate Financial's liabilities and lower reinvestment rates.Pre-tax net realized capital gains for the second quarter of 2012 were $27 million compared to $57 million in the second quarter of 2011.  Realized capital gains in the second quarter of 2012 reflect lower gains from sales of fixed income and equity securities and included lower impairment write-downs than last year's second quarter and derivative gains compared to losses in the prior year quarter. Pre-tax net unrealized capital gains were $4.2 billion at June 30, 2012 compared to $2.9 billion at December 31, 2011, as a result of lower interest rates, tightened credit spreads and higher equity values.Book Value per Share Increased 3% Sequentially; Repurchased $275 Million in Shares"We continue to focus on effective capital management as a key priority," said Steve Shebik, chief financial officer.  "In the second quarter, Allstate repurchased shares worth $275 million, bringing total purchases to $681 million under the current $1 billion authorization.  With our strong operating performance, increased portfolio valuation and an active share repurchase program, book value per diluted share increased to $39.73."  Book value per diluted share increased 3% from March 31, 2012, 9.8% from year-end 2011, and 12.8% from June 30, 2011.Statutory surplus at June 30, 2012 was an estimated $16.5 billion for the combined insurance operating companies.  Property-liability surplus was an estimated $12.9 billion with Allstate Financial companies accounting for the remainder.  Deployable assets at the holding company level were $2.3 billion at June 30, 2012.  Also during the quarter, Allstate maintained its dividend of $0.22 per share.Visit www.allstateinvestors.com to view additional information about Allstate's results, including a webcast of its quarterly conference call and the presentation discussed on the call.  The conference call will be held at 9 a.m. ET on Wednesday, August 1st.  The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer, serving approximately 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names and Allstate Financial business segment.  Allstate branded insurance products (auto, home, life and retirement) and services are offered through Allstate agencies, independent agencies, and Allstate exclusive financial representatives, as well as via www.allstate.com and 1-800 Allstate®, and are widely known through the slogan "You're In Good Hands With Allstate®."THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS($ in millions, except per share data)Three months endedJune 30,Six months endedJune 30,2012201120122011(unaudited)(unaudited)Revenues   Property-liability insurance premiums$6,666$6,457$13,296$12,905   Life and annuity premiums       and contract charges5595471,1121,116   Net investment income1,0261,0202,0372,002   Realized capital gains and losses:Total other-than-temporary            impairment losses(69)(82)(156)(238)Portion of loss recognized in other            comprehensive income19(4)23(31)Net other-than-temporary                impairment losses recognized      in earnings(50)(86)(133)(269)Sales and other realized capital            gains and losses77143328422Total realized capital gains                        and losses27571951538,2788,08116,64016,176Costs and expenses   Property-liability insurance claims       and claims expense4,8106,3559,14910,831   Life and annuity contract benefits462422901876   Interest credited to contractholder       funds366417744835   Amortization of deferred policy       acquisition costs9429601,9211,944   Operating costs and expenses9968682,0131,768   Restructuring and related charges10111620   Interest expense93911881837,6799,12414,93216,457Gain (loss) on disposition of operations376(13)Income (loss) from operations     before income tax expense      (benefit)602(1,036)1,714(294)Income tax expense (benefit)179(412)525(194)Net income (loss)$423$(624)$1,189$(100)Earnings per share:Net income (loss) per share - Basic$0.86$(1.19)$2.40$(0.19)Weighted average shares - Basic490.6523.1494.9528.2Net income (loss) per share - Diluted$0.86$(1.19)$2.39$(0.19)Weighted average shares - Diluted493.8523.1497.9528.2Cash dividends declared per share$0.22$0.21$0.44$0.42THE ALLSTATE CORPORATIONSEGMENT RESULTS($ in millions, except ratios)Three months endedSix months endedJune 30,June 30,2012201120122011Property-Liability  Premiums written $6,864$6,611$13,327$12,826  Premiums earned$6,666$6,457$13,296$12,905  Claims and claims expense (4,810)(6,355)(9,149)(10,831)  Amortization of deferred policy acquisition costs(865)(867)(1,743)(1,731)  Operating costs and expenses(847)(726)(1,731)(1,495)  Restructuring and related charges (10)(11)(16)(22)     Underwriting income (loss)134(1,502)657(1,174)  Net investment income352310665594  Periodic settlements and accruals on non-hedge derivative instruments(2)(3)(3)(7)Business combination expenses and the amortization of purchased  intangible assets 26--73--  Income tax (expense) benefit on operations(153)463(434)282     Operating income (loss)357(732)958(305)  Realized capital gains and losses, after-tax12(6)13632  Reclassification of periodic settlements and accruals on non-hedge       derivative instruments, after-tax1124Business combination expenses and the amortization of purchased    intangible assets, after-tax(16)--(47)--     Net income (loss)$354$(737)$1,049$(269)  Catastrophe losses$819$2,339$1,078$2,672  Operating ratios:     Claims and claims expense ratio72.298.468.883.9     Expense ratio25.824.926.325.2     Combined ratio 98.0123.395.1109.1     Effect of catastrophe losses on combined ratio12.336.28.120.7     Effect of prior year reserve reestimates on combined ratio(2.4)(0.7)(2.7)(0.7)     Effect of catastrophe losses included in prior year reserve reestimates        on combined ratio(1.4)(0.3)(1.9)(0.4)     Effect of business combination expenses and the amortization of         purchased intangible assets on combined ratio0.4--0.6--     Effect of Discontinued Lines and Coverages on combined ratio 0.10.10.10.1Allstate Financial  Investments$57,734$59,659$57,734$59,659  Premiums and contract charges$559$547$1,112$1,116  Net investment income 6636941,3501,378  Periodic settlements and accruals on non-hedge derivative instruments15193036  Contract benefits(462)(422)(901)(876)  Interest credited to contractholder funds(362)(412)(730)(837)  Amortization of deferred policy acquisition costs(76)(87)(162)(182)  Operating costs and expenses(135)(135)(277)(267)  Restructuring and related charges------2  Income tax expense on operations(64)(69)(134)(122)     Operating income138135288248  Realized capital gains and losses, after-tax 540(9)65  Valuation changes on embedded derivatives that are not hedged, after-tax(3)(3)(9)5  DAC and DSI amortization relating to realized capital gains and      losses and valuation changes on embedded derivatives that are not     hedged, after-tax --(5)(10)(27)  DAC and DSI unlocking relating to realized capital gains and losses, after-tax------3  Reclassification of periodic settlements and accruals on non-hedge       derivative instruments, after-tax(10)(11)(20)(23)  Gain (loss) on disposition of operations, after-tax254(8)     Net income $132$161$244$263Corporate and Other  Net investment income$11$16$22$30  Operating costs and expenses(107)(98)(193)(189)  Income tax benefit on operations33326763     Operating loss(63)(50)(104)(96)  Realized capital gains and losses, after-tax --2--2     Net loss $(63)$(48)$(104)$(94)Consolidated net income (loss)$423$(624)$1,189$(100)THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION($ in millions, except par value data) June 30,December 31,20122011Assets(unaudited)Investments:     Fixed income securities, at fair value (amortized cost       73,925 and $73,379)$77,926$76,113     Equity securities, at fair value (cost $3,430 and $4,203)3,6814,363     Mortgage loans6,9287,139     Limited partnership interests4,6944,697Short?term, at fair value (amortized cost $1,867 and $1,291)1,8671,291     Other2,2242,015          Total investments97,32095,618Cash571776Premium installment receivables, net4,9294,920Deferred policy acquisition costs3,6443,871Reinsurance recoverables, net7,1207,251Accrued investment income846826Deferred income taxes--722Property and equipment, net909914Goodwill1,2421,242Other assets2,1642,069Separate Accounts6,7906,984              Total assets$125,535$125,193LiabilitiesReserve for property-liability insurance claims and claims expense$20,395$20,375Reserve for life?contingent contract benefits14,64014,406Contractholder funds40,83242,332Unearned premiums10,08510,057Claim payments outstanding813827Deferred income taxes53--Other liabilities and accrued expenses6,3945,978Long-term debt6,0585,908Separate Accounts6,7906,984              Total liabilities106,060106,867EquityPreferred stock, $1 par value, 25 million shares authorized, none    issued----Common stock, $.01 par value, 2.0 billion shares authorized and 900   million issued, 486 million and 501 million shares outstanding99Additional capital paid?in3,1543,189Retained income32,88031,909Deferred ESOP expense(41)(43)Treasury stock, at cost (414 million and 399 million shares)(17,272)(16,795)Accumulated other comprehensive income:Unrealized net capital gains and losses:Unrealized net capital losses on fixed income securities with OTTI (105)(174)Other unrealized net capital gains and losses 2,8592,041Unrealized adjustment to DAC, DSI and insurance reserves(684)(467)      Total unrealized net capital gains and losses2,0701,400     Unrealized foreign currency translation adjustments5856     Unrecognized pension and other postretirement benefit cost(1,383)(1,427)              Total accumulated other comprehensive income74529              Total shareholders' equity19,47518,298Noncontrolling interest--28              Total equity19,47518,326              Total liabilities and equity$125,535$125,193THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS($ in millions) Six months endedJune 30,20122011Cash flows from operating activities(unaudited)Net income (loss) $1,189$(100)Adjustments to reconcile net income (loss) to net cash provided by operating    activities:                                                                Depreciation, amortization and other non-cash items20189Realized capital gains and losses(195)(153)(Gain) loss on disposition of operations(6)13Interest credited to contractholder funds744835Changes in:Policy benefits and other insurance reserves(377)665Unearned premiums27(87)Deferred policy acquisition costs660Premium installment receivables, net(9)(22)Reinsurance recoverables, net27(40)Income taxes  341(226)Other operating assets and liabilities (174)226Net cash provided by operating activities 1,7741,260Cash flows from investing activitiesProceeds from sales     Fixed income securities9,91814,140     Equity securities1,275854     Limited partnership interests796335     Mortgage loans1165     Other investments88109Investment collections Fixed income securities 2,1412,385Mortgage loans458308Other investments 3992Investment purchasesFixed income securities(12,345)(13,934)Equity securities(290)(781)Limited partnership interests(664)(765)Mortgage loans(267)(536)Other investments(243)(146)Change in short-term investments, net(392)1,166Change in other investments, net(57)(170)Purchases of property and equipment, net (116)(106)Disposition of operations--(1)Net cash provided by investing activities 3523,015Cash flows from financing activitiesProceeds from issuance of long-term debt493--Repayment of long-term debt(351)(1)Contractholder fund deposits1,0051,120Contractholder fund withdrawals(2,665)(4,508)Dividends paid(215)(218)Treasury stock purchases(583)(544)Shares reissued under equity incentive plans, net2617Excess tax benefits on share-based payment arrangements4(3)Other(45)(7)Net cash used in financing activities(2,331)(4,144)Net (decrease) increase in cash(205)131Cash at beginning of period776562Cash at end of period$571$693Definitions of Non-GAAP and Operating MeasuresWe believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP and operating financial measures.  Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.Operating income (loss) is net income (loss), excluding: realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in operating income (loss), valuation changes on embedded derivatives that are not hedged, after-tax, amortization of DAC and deferred sales inducements (DSI), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives that are not hedged, after-tax, business combination expenses and the amortization of purchased intangible assets, after-tax, gain (loss) on disposition of operations, after-tax, and  adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years.  Net income (loss) is the GAAP measure that is most directly comparable to operating income (loss).We use operating income (loss) as an important measure to evaluate our results of operations.  We believe that the measure provides investors with a valuable measure of the company's ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, valuation changes on embedded derivatives that are not hedged, business combination expenses and the amortization of purchased intangible assets, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items.  Realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process.  Consistent with our intent to protect results or earn additional income, operating income (loss) includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes.  These instruments are used for economic hedges and to replicate fixed income securities, and by including them in operating income (loss), we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g., net investment income and interest credited to contractholder funds) or replicated investments.  Business combination expenses are excluded because they are non-recurring in nature and the amortization of purchased intangible assets is excluded because it relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends.  Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends.  Accordingly, operating income (loss) excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business.  A byproduct of excluding these items to determine operating income (loss) is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods.  Operating income (loss) is used by management along with the other components of net income (loss) to assess our performance.  We use adjusted measures of operating income (loss) and operating income (loss) per diluted share in incentive compensation.  Therefore, we believe it is useful for investors to evaluate net income (loss), operating income (loss) and their components separately and in the aggregate when reviewing and evaluating our performance.  We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income (loss) results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's performance.  We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses operating income (loss) as the denominator.  Operating income (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of our business. The following tables reconcile operating income (loss) and net income (loss).($ in millions, except per share data)For the three months ended June 30,Property-LiabilityAllstate FinancialConsolidatedPer diluted share20122011201220112012201120122011Operating     income (loss)$357$(732)$138$135$432$(647)$0.87$(1.24)Realized capital    gains and losses19(8)8622757Income tax    (expense)      benefit(7)2(3)(22)(10)(21)Realized capital    gains and losses,     after-tax 12(6)54017360.040.07Valuation changes    on embedded    derivatives that    are not hedged,    after-tax----(3)(3)(3)(3)(0.01)(0.01)DAC and DSI    amortization      relating to      realized capital    gains and losses    and valuation    changes on     embedded     derivatives that     are not hedged,     after-tax------(5)--(5)--(0.01)DAC and DSI     unlocking     relating to     realized capital     gains and     losses, after-tax----------------Reclassification of     periodic     settlements and     accruals on      non-hedge     derivative     instruments,     after-tax11(10)(11)(9)(10)(0.02)(0.02)Business    combination    expenses and    the amortization    of purchased    intangible assets,    after-tax(16)------(16)--(0.03)--Gain on disposition    of operations,     after-tax----25250.010.02 Net income (loss) $354 $(737) $132 $161 $423 $(624) $0.86 $(1.19) For the six months ended June 30,Property-LiabilityAllstate FinancialConsolidatedPer diluted share20122011201220112012201120122011Operating income (loss)$958$(305)$288$248$1,142$(153)$2.29$(0.29)Realized capital gains and losses20849(13)101195153Income tax (expense) benefit(72)(17)4(36)(68)(54)Realized capital gains and losses,    after-tax 13632(9)65127990.260.19Valuation changes on embedded    derivatives that are not hedged,    after-tax----(9)5(9)5(0.02)0.01DAC and DSI amortization relating to    realized capital gains and losses and    valuation changes on embedded    derivatives that are not hedged,    after-tax----(10)(27)(10)(27)(0.02)(0.05)DAC and DSI unlocking relating to    realized capital gains and losses,    after-tax------3--3--0.01Reclassification of periodic settlements    and accruals on non-hedge    derivative instruments, after-tax24(20)(23)(18)(19)(0.04)(0.04)Business combination expenses and    the amortization of purchased    intangible assets, after-tax(47)------(47)--(0.09)--Gain (loss) on disposition of operations,    after-tax----4(8)4(8)0.01(0.02) Net income (loss) $1,049 $(269) $244 $263 $1,189 $(100) $2.39 $(0.19) Operating income (loss) return on shareholders' equity is a ratio that uses a non-GAAP measure.  It is calculated by dividing the rolling 12-month operating income (loss) by the average of shareholders' equity at the beginning and at the end of the 12-months, after excluding the effect of unrealized net capital gains and losses.  Return on shareholders' equity is the most directly comparable GAAP measure.  We use operating income (loss) as the numerator for the same reasons we use operating income (loss), as discussed above.  We use average shareholders' equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of shareholders' equity primarily attributable to the company's earned and realized business operations because it eliminates the effect of items that are unrealized and vary significantly between periods due to external economic developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process.  We use it to supplement our evaluation of net income (loss) and return on shareholders' equity because it excludes the effect of items that tend to be highly variable from period to period.  We believe that this measure is useful to investors and that it provides a valuable tool for investors when considered along with net income (loss) return on shareholders' equity because it eliminates the after-tax effects of realized and unrealized net capital gains and losses that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management.  In addition, it eliminates non-recurring items that are not indicative of our ongoing business or economic trends.  A byproduct of excluding the items noted above to determine operating income (loss) return on shareholders' equity from return on shareholders' equity is the transparency and understanding of their significance to return on shareholders' equity variability and profitability while recognizing these or similar items may recur in subsequent periods.  Therefore, we believe it is useful for investors to have operating income (loss) return on shareholders' equity and return on shareholders' equity when evaluating our performance.  We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income (loss) return on shareholders' equity results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's utilization of capital.  Operating income (loss) return on shareholders' equity should not be considered as a substitute for return on shareholders' equity and does not reflect the overall profitability of our business.  The following table reconciles return on shareholders' equity and operating income return on shareholders' equity.($ in millions)For the twelve months endedJune 30,20122011Return on shareholders' equityNumerator:   Net income$2,076$554 Denominator:   Beginning shareholders' equity$18,382$17,619   Ending shareholders' equity 19,47518,382  Average shareholders' equity$18,929$18,001    Return on shareholders' equity 11.0%3.1% For the twelve months endedJune 30,20122011Operating income return on shareholders' equityNumerator:   Operating income$1,957$555Denominator:   Beginning shareholders' equity$18,382$17,619   Unrealized net capital gains and losses1,475312   Adjusted beginning shareholders' equity16,90717,307   Ending shareholders' equity19,47518,382   Unrealized net capital gains and losses2,0701,475   Adjusted ending shareholders' equity17,40516,907  Average adjusted shareholders' equity$17,156$17,107    Operating income return on shareholders'  equity11.4%3.2%Underwriting income (loss) is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs and expenses and restructuring and related charges as determined using GAAP.  Management uses this measure in its evaluation of the results of operations to analyze the profitability of our Property-Liability insurance operations separately from investment results.  It is also an integral component of incentive compensation.  It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance.   Net income (loss) is the most directly comparable GAAP measure.  Underwriting income (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of our business.  A reconciliation of Property-Liability underwriting income (loss) to net income (loss) is provided in the "Segment Results" page.Combined ratio excluding the effect of catastrophes, prior year reserve reestimates, business combination expenses and the amortization of purchased intangible assets ("underlying combined ratio") is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio, the effect of prior year non-catastrophe reserve reestimates on the combined ratio, the effect of business combination expenses and the amortization of purchased intangible assets on the combined ratio.  We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses, prior year reserve reestimates, business combination expenses and the amortization of purchased intangible assets.  Catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio.  Prior year reserve reestimates are caused by unexpected loss development on historical reserves.  Business combination expenses and the amortization of purchased intangible assets primarily relate to the acquisition purchase price and are not indicative of our underlying insurance business results or trends.   We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance.  We also provide it to facilitate a comparison to our outlook on the underlying combined ratio.  The most directly comparable GAAP measure is the combined ratio.  The underlying combined ratio should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.  A reconciliation of the Property-Liability underlying combined ratio to the Property-Liability combined ratio is provided in the following table.Three months endedJune 30,Six months endedJune 30,2012201120122011Combined ratio excluding the effect of catastrophes,     prior year reserve reestimates, business    combination expenses and the amortization of    purchased intangible assets ("underlying      combined ratio")86.387.5   87.288.7Effect of catastrophe losses12.336.28.120.7Effect of prior year non-catastrophe reserve reestimates(1.0)(0.4)(0.8)(0.3)Effect of business combination expense and the amortization    of purchased intangible assets0.4-- 0.6--Combined ratio 98.0123.395.1109.1Effect of prior year catastrophe reserve reestimates (1.4)(0.3)(1.9)(0.4)Underwriting margin is calculated as 100% minus the combined ratio.The Property-Liability underlying combined ratio by brand is provided in the following table.Three months endedJune 30,Six months endedJune 30,2012201120122011Allstate brand85.187.186.088.4Encompass brand97.096.396.894.7Esurance brand106.0--107.5--In this news release, we provide our outlook range on the Property-Liability 2012 underlying combined ratio.  A reconciliation of this measure to the combined ratio is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of catastrophes.  Future prior year reserve reestimates are expected to be zero because reserves are determined based on our best estimate of ultimate loss reserves as of the reporting date.A reconciliation of the Allstate brand standard auto underlying combined ratio to the Allstate brand standard auto combined ratio is provided in the following table.Three months endedJune 30,Six months endedJune 30,2012201120122011Underlying combined ratio 93.493.794.294.2Effect of catastrophe losses3.96.72.63.6Effect of prior year non-catastrophe reserve reestimates(1.8)(2.1)(1.4)(1.1)Combined ratio 95.598.395.496.7Effect of prior year catastrophe reserve reestimates (0.2)(0.1)(0.2)(0.2)A reconciliation of the Allstate brand homeowners underlying combined ratio to the Allstate brand homeowners combined ratio is provided in the following table.Three months endedJune 30,Six months endedJune 30,2012201120122011Underlying combined ratio 64.669.465.871.7Effect of catastrophe losses40.2123.226.470.6Effect of prior year non-catastrophe reserve reestimates0.10.70.40.2Combined ratio 104.9193.392.6142.5Effect of prior year catastrophe reserve reestimates (3.6)(0.4)(6.1)(1.4)Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, is a ratio that uses a non-GAAP measure.  It is calculated by dividing shareholders' equity after excluding the impact of unrealized net capital gains and losses on fixed income securities and related DAC, DSI and life insurance reserves by total shares outstanding plus dilutive potential shares outstanding.  We use the trend in book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, in conjunction with book value per share to identify and analyze the change in net worth attributable to management efforts between periods.  We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers.  We note that book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, is a measure commonly used by insurance investors as a valuation technique.  Book value per share is the most directly comparable GAAP measure.  Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, should not be considered as a substitute for book value per share, and does not reflect the recorded net worth of our business.  The following table shows the reconciliation.($ in millions, except per share data)As of June 30,20122011Book value per shareNumerator:  Shareholders' equity $19,475$18,382Denominator: Shares outstanding and dilutive potential shares  outstanding490.2522.0Book value per share $39.73$35.21Book value per share, excluding the impact of unrealized net capital     gains and losses on fixed income securitiesNumerator:  Shareholders' equity$19,475$18,382  Unrealized net capital gains and losses on fixed income securities1,9191,091Adjusted shareholders' equity$17,556$17,291Denominator:Shares outstanding and dilutive potential shares outstanding490.2522.0Book value per share, excluding the impact of unrealized net capital gains     and losses on fixed income securities $35.81 $33.12Premiums written is the amount of premiums charged for policies issued during a fiscal period.  Premiums earned  is a GAAP measure.  Premiums are considered earned and are included in financial results on a pro-rata basis over the policy period.  The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Condensed Consolidated Statements of Financial Position.  A reconciliation of premiums written to premiums earned is presented in the following table.($ in millions)Three months endedJune 30,Six months endedJune 30,2012201120122011Property-Liability premiums written$6,864$6,611$13,327$12,826(Increase) decrease in unearned premiums(198)(165)(31)69Other --11--10Property-Liability premiums earned$6,666$6,457$13,296$12,905Forward-Looking Statements and Risk FactorsThis news release contains forward-looking statements about our outlook for the Property-Liability combined ratio excluding the effect of catastrophes, prior year reserve reestimates, business combination expenses, and the amortization of purchased intangible assets for 2012.  These statements are subject to the Private Securities Litigation Reform Act of 1995 and are based on management's estimates, assumptions and projections.  Actual results may differ materially from those projected based on the risk factors described below. Premiums written and premiums earned, the denominator of the underlying combined ratio, may be materially less than projected.  Policyholder attrition may be greater than anticipated resulting in a lower amount of insurance in force. Unanticipated increases in the severity or frequency of standard auto insurance claims may adversely affect our underwriting results.  Changes in the severity or frequency of claims may affect the profitability of our Allstate Protection segment.  Changes in bodily injury claim severity are driven primarily by inflation in the medical sector of the economy and litigation.  Changes in auto physical damage claim severity are driven primarily by inflation in auto repair costs, auto parts prices and used car prices.  The short-term level of claim frequency we experience may vary from period to period and may not be sustainable over the longer term.  A decline in gas prices, increase in miles driven, and higher unemployment are examples of factors leading to a short-term frequency change.  A significant long-term increase in claim frequency could have an adverse effect on our underwriting results.We undertake no obligation to publicly correct or update any forward-looking statements.  This news release contains unaudited financial information.SOURCE The Allstate CorporationFor further information: Maryellen Thielen, Media Relations , (847) 402-5600, or Robert Block, Investor Relations, (847) 402-2800