The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from PR Newswire

Allstate Reports Strong Third Quarter 2012 Earnings

Wednesday, October 31, 2012

Allstate Reports Strong Third Quarter 2012 Earnings16:05 EDT Wednesday, October 31, 2012NORTHBROOK, Ill., Oct. 31, 2012 /PRNewswire/ -- The Allstate Corporation (NYSE: ALL) today reported financial results for the third quarter of 2012:The Allstate Corporation Consolidated HighlightsThree months endedSeptember 30,($ in millions, except per share amounts and ratios) 2012 2011% ChangeConsolidated revenues$  8,128$   8,242(1.4)Net income 723175NMNet income per diluted share1.480.34NMOperating income*71780NMOperating income per diluted share*1.460.16NMBook value per share42.6434.8422.4Book value per share, excluding the impact of unrealized net    capital gains and losses on fixed income securities*37.3132.6114.4Catastrophe losses2061,077NMProperty-Liability combined ratio90.2104.8(14.6) 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")*87.889.2(1.4) 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 in the "Definitions of Non-GAAP Measures" section of this document."We are on pace to achieve our 2012 operating priorities which resulted in strong financial performance in the third quarter with net income of $723 million.  Our strategy of serving four distinct customer segments is also working as the Esurance and Encompass brands increased policies in force," said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation.  "We improved underlying margins in both auto and homeowners insurance and benefited from lower catastrophe losses while growing overall written premiums. In particular, Allstate brand homeowners, Emerging Businesses, Encompass and Esurance continued their favorable premium growth trend, partially offset by a decline in standard auto insurance sold through Allstate agencies, reflecting the actions to improve homeowners' returns."Allstate Financial's profit declined due to expected reductions in the annuity business and lower investment margins.  The strategy of focusing on underwritten products is working as sales increased through Allstate agencies and Allstate Benefits.  Investment total returns continued to be strong this quarter.  Effective execution of our strategy resulted in a book value increase of 22.4% year-over-year to $42.64 per diluted share.  Through September, shareholder returns from stock price appreciation and dividends totaled 47.3%."Consolidated ResultsNet income for the quarter was $723 million, or $1.48 per diluted share, compared to $175 million, or $0.34 per diluted share in the third quarter of 2011.  An increase of $637 million in operating income was the primary driver of the net income improvement.  For the quarter, operating income was $717 million, or $1.46 per diluted share versus $80 million, or $0.16 per diluted share in last year's third quarter.  The increase in operating income was due to lower catastrophe losses and an improvement in the underlying combined ratio for property-liability.  Return on equity for the trailing twelve months was 13.6% on a net income basis and 15.0%* on an operating income basis.Property-Liability Premium Grew and Profitability Remained Strong Third quarter results reflected Allstate's commitment to maintaining auto margins while improving homeowners returns.  The total property-liability combined ratio was 90.2, an improvement of 14.6 points from third quarter 2011.  The underlying combined ratio was 87.8, an improvement of 1.4 points from the prior year quarter and below our annual outlook range of 88 to 91, reflecting favorable margins in the Allstate and Encompass brands.  The underlying margin in Esurance declined from second quarter.  Catastrophe losses in the third quarter 2012 were $206 million versus $1.1 billion in third quarter 2011.The combined ratio for Allstate brand standard auto was 91.9, an improvement of 2.2 points from the prior year quarter.  The underlying combined ratio improved to 93.7 from 94.4 in the same quarter a year ago as the positive effect of rate actions combined with a relatively flat loss cost trend.  Allstate brand homeowners combined ratio was 72.9, a significant improvement from the prior year quarter's 131.9.  The underlying combined ratio was 66.2, an improvement of 7.1 points from third quarter 2011, reflecting positive contributions from rate increases and the impact of favorable weather on loss cost trends.In the third quarter, Allstate continued to make progress on its priority to grow premiums. Total property-liability premiums written of $7.1 billion grew 5% from last year's third quarter primarily due to the acquisition of Esurance in October 2011. In addition, growth in Allstate brand homeowners, Emerging Businesses and Encompass contributed to this positive result, partially offset by a decline in Allstate brand standard auto. In total, policies in force declined 0.3% from the prior quarter as decreases in U.S. Allstate brand standard auto and homeowners were offset somewhat by a 7.8% increase in Esurance. Unit gains were also achieved in Canada, Encompass and Emerging Businesses. Allstate Financial Profits Decline; Growth in Premiums and Contract Charges Continues Net income for Allstate Financial was $131 million compared to $192 million in third quarter 2011 due primarily to net after-tax realized capital losses of $36 million versus $142 million in net after-tax realized capital gains in third quarter 2011.  Valuation changes on derivatives embedded in equity-indexed annuity contracts resulted in a $75 million after-tax gain in third quarter 2012 compared to $5 million after-tax loss in third quarter 2011.  Operating income was $97 million, a decrease of $32 million from the prior year quarter.  During the quarter, a $27 million pre-tax charge to net income was recorded related to our annual comprehensive review of assumptions for deferred policy acquisition costs (DAC), deferred sales inducement costs and secondary guarantee liability balances.  This compares to a $6 million pre-tax charge to income in first quarter 2011.Premiums and contract charges on underwritten products was $548 million in the third quarter, a growth rate of 3.6% from the prior year period.  Allstate agency life unit sales continued to increase in the third quarter with issued policies growing 6.9% compared to third quarter 2011.  Consistent with the strategy to reduce Allstate Financial's annuity business, contractholder funds declined $722 million from June 30, 2012 and $2.2 billion from year end 2011.Proactive Management Continues to Drive Investment ResultsAllstate delivered strong investment results for the first nine months of 2012 reflecting proactive management of investment risk and return.  We remain focused on balancing yield and return considerations in the low interest rate environment, and continue to favor intermediate corporate credit. In the third quarter, we opportunistically reduced portfolio risk through the sale of selected structured securities.Allstate's consolidated investment portfolio increased to $98.5 billion at September 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 managed reduction in Allstate Financial's liabilities.  Pre-tax net unrealized capital gains were $5.7 billion at September 30, 2012 compared to $2.9 billion at December 31, 2011 resulting from lower interest rates, tightened credit spreads and higher equity values.For the third quarter of 2012, net investment income totaled $940 million and the total portfolio yield was 4.3%, lower than both the prior quarter and the third quarter of 2011.  Excluding limited partnership results, third quarter 2012 net investment income was comparable to the prior quarter but lower than third quarter 2011, consistent with the reduction in Allstate Financial's liabilities and lower reinvestment rates.Pre-tax net realized capital losses for the third quarter of 2012 were $72 million compared to pre-tax net realized capital gains of $264 million for the third quarter of 2011.  Realized capital losses in the third quarter of 2012 reflect the sale of structured securities in connection with risk reduction activities but included significantly lower impairment write-downs than last year's third quarter.  Derivative losses totaled $2 million in third quarter 2012 compared to losses of $234 million in third quarter 2011.  The prior year quarter reflected interest rate derivative valuation losses driven by a significant decrease in interest rates.  Interest rate derivative positions used for overall risk management purposes were terminated in 2011.Capital Management Update"In the third quarter, we repurchased $153 million of our shares and paid a $0.22 per share dividend," said Steve Shebik, chief financial officer.  "Shares repurchased under the current $1 billion authorization totaled $834 million.  This program, along with earnings and portfolio valuation growth, enabled book value per diluted share to reach $42.64, 7.3% higher than it was at the end of last quarter, 17.9% higher than at year-end 2011, and 22.4% higher than at September 30, 2011."  Statutory surplus at September 30, 2012 was an estimated $17.0 billion for the combined insurance operating companies.  Property-liability surplus was an estimated $13.3 billion with Allstate Financial companies accounting for the remainder.  Deployable assets at the holding company level were $2.3 billion at September 30, 2012.Visit www.allstateinvestors.com to view additional information about Allstate's results, including a webcast of its quarterly conference call and the presentation discussed on the call.  The conference call will be held at 9 a.m. ET on Thursday, November 1.  The Allstate Corporation (NYSE: ALL) is the nation's largest publicly held personal lines insurer, serving approximately 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names and Allstate Financial business segment.  Allstate branded insurance products (auto, home, life and retirement) and services are offered through Allstate agencies, independent agencies, and Allstate exclusive financial representatives, as well as via www.allstate.com and 1-800 Allstate®, and are widely known through the slogan "You're In Good Hands With Allstate®." THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS($ in millions, except per share data)Three months endedSeptember 30,Nine months endedSeptember 30,2012201120122011(unaudited)(unaudited)Revenues   Property-liability insurance premiums$6,697$6,432$19,993$19,337   Life and annuity premiums and contract     charges5635521,6751,668   Net investment income9409942,9772,996   Realized capital gains and losses:Total other-than-temporary    impairment losses(39)(197)(195)(435)Portion of loss recognized in other   comprehensive income(7)(6)16(37)Net other-than-temporary    impairment losses recognized     in earnings(46)(203)(179)(472)Sales and other realized capital    gains and losses(26)467302889Total realized capital gains    and losses(72)2641234178,1288,24224,76824,418Costs and expenses   Property-liability insurance claims and      claims expense4,2935,13213,44215,963   Life and annuity contract benefits4534551,3541,331   Interest credited to contractholder funds2154059591,240   Amortization of deferred policy     acquisition costs1,0161,0462,9372,990   Operating costs and expenses1,0108883,0232,656   Restructuring and related charges982528   Interest expense93922812757,0898,02622,02124,483Gain (loss) on disposition of operations9315(10)Income (loss) from operations before income tax expense (benefit)1,0482192,762(75)Income tax expense (benefit)32544850(150)Net income $723$175$1,912$75Earnings per share:Net income per share - Basic$1.490.34$3.89$0.14Weighted average shares - Basic485.9512.0491.5520.4Net income per share - Diluted$1.48$0.34$3.86$0.14Weighted average shares - Diluted489.9514.2494.7522.9Cash dividends declared per share$0.22$0.21$0.66$0.63THE ALLSTATE CORPORATIONSEGMENT RESULTS($ in millions, except ratios)Three months endedNine months endedSeptember 30,September 30,2012201120122011Property-Liability  Premiums written $7,063$6,728$20,390$19,554  Premiums earned$6,697$6,432$19,993$19,337  Claims and claims expense (4,293)(5,132)(13,442)(15,963)  Amortization of deferred policy acquisition costs(870)(866)(2,613)(2,597)  Operating costs and expenses(866)(735)(2,597)(2,230)  Restructuring and related charges (9)(8)(25)(30)     Underwriting income (loss)*659(309)1,316(1,483)  Net investment income299298964892  Periodic settlements and accruals on non-hedge derivative instruments(1)(5)(4)(12)Business combination expenses and the amortization of purchased  intangible assets 26--99--  Income tax (expense) benefit on operations(316)38(750)320     Operating income (loss)667221,625(283)  Realized capital gains and losses, after-tax(11)1512547  Reclassification of periodic settlements and accruals on non-hedge       derivative instruments, after-tax1438Business combination expenses and the amortization of purchased    intangible assets, after-tax(18)--(65)--     Net income (loss)$639$41$1,688$(228)  Catastrophe losses$206$1,077$1,284$3,749  Operating ratios:     Claims and claims expense ratio64.179.867.282.6     Expense ratio26.125.026.225.1     Combined ratio 90.2104.893.4107.7     Effect of catastrophe losses on combined ratio3.116.76.419.4     Effect of prior year reserve reestimates on combined ratio(2.2)(1.8)(2.6)(1.1)     Effect of catastrophe losses included in prior year reserve reestimates        on combined ratio(1.1)(0.7)(1.7)(0.5)     Effect of business combination expenses and the amortization of         purchased intangible assets on combined ratio0.4--0.5--     Effect of Discontinued Lines and Coverages on combined ratio 0.70.20.20.1Allstate Financial  Investments$58,155$59,068$58,155$59,068  Premiums and contract charges$563$552$1,675$1,668  Net investment income 6326821,9822,060  Periodic settlements and accruals on non-hedge derivative instruments15184554  Contract benefits(453)(455)(1,354)(1,331)  Interest credited to contractholder funds(357)(395)(1,087)(1,232)  Amortization of deferred policy acquisition costs(117)(83)(279)(265)  Operating costs and expenses(147)(129)(424)(396)  Restructuring and related charges------2  Income tax expense on operations(39)(61)(173)(183)     Operating income97129385377  Realized capital gains and losses, after-tax (36)142(45)207  Valuation changes on embedded derivatives that are not hedged, after-tax97(4)881  DAC and DSI amortization relating to realized capital gains and      losses and valuation changes on embedded derivatives that are not     hedged, after-tax (28)(65)(38)(92)  DAC and DSI unlocking relating to realized capital gains and losses, after-tax4--43  Reclassification of periodic settlements and accruals on non-hedge       derivative instruments, after-tax(9)(12)(29)(35)  Gain (loss) on disposition of operations, after-tax6210(6)     Net income $131$192$375$455Corporate and Other  Net investment income$9$14$31$44  Operating costs and expenses(90)(116)(283)(305)  Income tax benefit on operations343110194     Operating loss(47)(71)(151)(167)  Realized capital gains and losses, after-tax --13--15     Net loss $(47)$(58)$(151)$(152)Consolidated net income$723$175$1,912$75THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION($ in millions, except par value data) September 30,December 31,20122011Assets(unaudited)Investments:     Fixed income securities, at fair value (amortized cost        $72,432 and $73,379)$77,729$76,113     Equity securities, at fair value (cost $3,429 and $4,203)3,8764,363     Mortgage loans6,9047,139     Limited partnership interests4,9744,697Short?term, at fair value (amortized cost $2,825 and    $1,291)2,8251,291     Other2,2082,015          Total investments98,51695,618Cash642776Premium installment receivables, net5,1084,920Deferred policy acquisition costs3,5783,871Reinsurance recoverables, net7,2787,251Accrued investment income835826Deferred income taxes--722Property and equipment, net928914Goodwill1,2421,242Other assets2,0412,069Separate Accounts6,8206,984              Total assets$126,988$125,193LiabilitiesReserve for property-liability insurance claims and claims expense$20,197$20,375Reserve for life?contingent contract benefits14,90014,406Contractholder funds40,11042,332Unearned premiums10,49410,057Claim payments outstanding763827Deferred income taxes689--Other liabilities and accrued expenses6,1215,978Long-term debt6,0575,908Separate Accounts6,8206,984              Total liabilities106,151106,867EquityPreferred stock, $1 par value, 25 million shares authorized,  none issued----Common stock, $.01 par value, 2.0 billion shares authorized   and 900 million issued, 483 million and 501 million shares  outstanding99Additional capital paid?in3,1543,189Retained income33,49631,909Deferred ESOP expense(41)(43)Treasury stock, at cost (417 million and 399 million shares)(17,368)(16,795)Accumulated other comprehensive income:Unrealized net capital gains and losses:Unrealized net capital losses on fixed income securities  with OTTI (42)(174)Other unrealized net capital gains and losses 3,7652,041Unrealized adjustment to DAC, DSI and insurance  reserves(843)(467)      Total unrealized net capital gains and losses2,8801,400     Unrealized foreign currency translation adjustments7056     Unrecognized pension and other postretirement benefit       cost(1,363)(1,427)              Total accumulated other comprehensive income1,58729              Total shareholders' equity20,83718,298Noncontrolling interest--28              Total equity20,83718,326              Total liabilities and equity$126,988$125,193THE ALLSTATE CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS($ in millions) Nine months endedSeptember 30,20122011Cash flows from operating activities(unaudited)Net income $1,912$75Adjustments to reconcile net income to net cash provided by operating    activities:                                                                Depreciation, amortization and other non-cash items293149Realized capital gains and losses(123)(417)(Gain) loss on disposition of operations(15)10Interest credited to contractholder funds9591,240Changes in:Policy benefits and other insurance reserves(769)546Unearned premiums421220Deferred policy acquisition costs13129Premium installment receivables, net(178)(158)Reinsurance recoverables, net(139)(275)Income taxes  669(183)Other operating assets and liabilities (425)335Net cash provided by operating activities 2,6181,671Cash flows from investing activitiesProceeds from sales     Fixed income securities13,95223,916     Equity securities1,3451,116     Limited partnership interests1,067762     Mortgage loans1174     Other investments104149Investment collections Fixed income securities 3,8923,864Mortgage loans682491Other investments 70105Investment purchasesFixed income securities(16,809)(21,900)Equity securities(385)(1,066)Limited partnership interests(1,232)(1,159)Mortgage loans(472)(896)Other investments(275)(199)Change in short-term investments, net(1,284)64Change in other investments, net(6)(357)Purchases of property and equipment, net (176)(160)Disposition of operations131Net cash provided by investing activities 4974,805Cash flows from financing activitiesProceeds from issuance of long-term debt493--Repayment of long-term debt(351)(1)Contractholder fund deposits1,5711,606Contractholder fund withdrawals(3,938)(6,439)Dividends paid(322)(327)Treasury stock purchases(729)(858)Shares reissued under equity incentive plans, net6018Excess tax benefits on share-based payment arrangements7(4)Other(40)(7)Net cash used in financing activities(3,249)(6,012)Net (decrease) increase in cash(134)464Cash at beginning of period776562Cash at end of period$642$1,026Definitions of Non-GAAP MeasuresWe believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP 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 September 30,Property-LiabilityAllstate FinancialConsolidatedPer diluted share20122011201220112012201120122011Operating income$667$22$97$129$717$80$1.46$0.16Realized capital  gains and losses(16)24(56)219(72)264Income tax  benefit (expense)5(9)20(77)25(94)Realized capital  gains and losses,  after-tax (11)15(36)142(47)170(0.09)0.33Valuation changes on embedded  derivatives that are not hedged,  after-tax----97(4)97(4)0.20(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----(28)(65)(28)(65)(0.06)(0.13)DAC and DSI unlocking relating to realized capital gains and losses, after-tax----4--4--0.01--Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax14(9)(12)(8)(8)(0.01)(0.01)Business combination expenses and the amortization of purchased intangible assets, after-tax(18)------(18)--(0.04)--Gain on disposition of operations, after-tax----62620.01-- Net income  $639 $41$131$192$723$175$1.48$0.34For the nine months ended September 30,Property-LiabilityAllstate FinancialConsolidatedPer diluted share20122011201220112012201120122011Operating income (loss)$1,625$(283)$385$377$1,859$(73)$3.76$(0.14)Realized capital gains and losses19273(69)320123417Income tax (expense) benefit(67)(26)24(113)(43)(148)Realized capital gains and losses, after-tax 12547(45)207802690.160.52Valuation changes on embedded derivatives that are not hedged, after-tax----8818810.18--DAC and DSI  amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged, after-tax----(38)(92)(38)(92)(0.08)(0.18)DAC and DSI unlocking relating to realized capital gains and losses, after-tax----43430.01--Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax38(29)(35)(26)(27)(0.06)(0.05)Business combination expenses and the amortization of purchased intangible assets, after-tax(65)------(65)--(0.13)--Gain (loss) on disposition of operations, after-tax----10(6)10(6)0.02(0.01) Net income (loss) $1,688 $(228)$375$455$1,912$75$3.86$0.14Operating 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 endedSeptember 30,20122011Return on shareholders' equityNumerator:   Net income$2,624$368 Denominator:   Beginning shareholders' equity$17,732$18,887   Ending shareholders' equity 20,83717,732  Average shareholders' equity$19,285$18,310    Return on shareholders' equity 13.6%2.0 %For the twelve months endedSeptember 30,20122011Operating income return on shareholders' equityNumerator:   Operating income$2,594$189Denominator:   Beginning shareholders' equity$17,732$18,887   Unrealized net capital gains and losses1,0651,313   Adjusted beginning shareholders' equity16,66717,574   Ending shareholders' equity20,83717,732   Unrealized net capital gains and losses2,8801,065   Adjusted ending shareholders' equity17,95716,667  Average adjusted shareholders' equity$17,312$17,121    Operating income return on shareholders' equity15.0%1.1 %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 as 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 endedSeptember 30,Nine months endedSeptember 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")87.889.2   87.488.9Effect of catastrophe losses3.116.76.419.4Effect of prior year non-catastrophe reserve reestimates(1.1)(1.1)(0.9)(0.6)Effect of business combination expenses and the amortization of   purchased intangible assets0.4-- 0.5--Combined ratio 90.2104.893.4107.7Effect of prior year catastrophe reserve reestimates (1.1)(0.7)(1.7)(0.5)Underwriting margin is calculated as 100% minus the combined ratio.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 endedSeptember 30,Nine months endedSeptember 30,2012201120122011Underlying combined ratio 93.794.494.094.3Effect of catastrophe losses1.32.92.13.3Effect of prior year non-catastrophe reserve reestimates(3.1)(3.2)(1.9)(1.8)Combined ratio 91.994.194.295.8Effect of prior year catastrophe reserve reestimates (0.1)(0.1)(0.3)(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 endedSeptember 30,Nine months endedSeptember 30,2012201120122011Underlying combined ratio 66.273.366.072.3Effect of catastrophe losses7.855.820.165.7Effect of prior year non-catastrophe reserve reestimates(1.1)2.8(0.1)1.0Combined ratio 72.9131.986.0139.0Effect of prior year catastrophe reserve reestimates (3.2)(2.8)(5.1)(1.8)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 September 30,20122011Book value per shareNumerator:  Shareholders' equity $20,837$17,732Denominator: Shares outstanding and dilutive potential shares outstanding488.7509.0Book value per share $42.64$34.84Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securitiesNumerator:  Shareholders' equity$20,837$17,732  Unrealized net capital gains and losses on fixed income securities2,6021,136Adjusted shareholders' equity$18,235$16,596Denominator:Shares outstanding and dilutive potential shares outstanding488.7509.0Book value per share, excluding the impact of unrealized net capital gains and losses  on fixed income securities $37.31 $32.61Forward-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 ligitation. 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, +1-847-402-5600; Robert Block, Investor Relations, +1-847-402-2800