EX-99.1 2 allcorp33115earningsreleas.htm EXHIBIT 99.1 Allcorp 3.31.15 Earnings Release - Exhibit 99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contacts:    
Greg Burns                Pat Macellaro
Media Relations          Investor Relations
(847) 402-5600                (847) 402-2800

Allstate’s Broad-Based Business Model Generates Profitable Growth
NORTHBROOK, Ill., May 5, 2015 – The Allstate Corporation (NYSE: ALL) today reported financial results for the first quarter of 2015. The financial highlights were:
The Allstate Corporation Consolidated Highlights
 
Three months ended
March 31,
($ millions, except per share amounts and ratios)
2015
2014
% / pts
Change
Consolidated revenues
$
8,952

$
8,684

3.1

Net income available to common shareholders
648

587

10.4

   per diluted common share
1.53

1.30

17.7

Operating income*
616

588

4.8

   per diluted common share*
1.46

1.30

12.3

Return on common shareholders’ equity
 
 
 
   Net income available to common shareholders
13.7
%
10.4
%
3.3 pts

   Operating income*
13.0
%
14.4
%
(1.4) pts

Book value per common share
49.19

46.70

5.3

   Book value per common share, excluding the impact of unrealized net capital gains and losses on fixed income securities*
44.68

42.98

4.0

Property-Liability combined ratio
 
 
 
   Recorded
93.7

94.7

(1.0) pts

   Underlying combined ratio* (excludes catastrophes, prior year reserve reestimates and amortization of purchased intangibles)
89.0

88.4

0.6 pts

Catastrophe losses
294

445

(33.9
)
*
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.


“Allstate’s strategy of building a broad-based business model continued to generate profitable growth,” said Thomas J. Wilson, chairman and chief executive officer of The Allstate Corporation. “The Allstate brand had good growth and returns in auto, home and other lines of insurance. The strength of homeowners returns, including low catastrophe losses, more than offset the impact of increased economic activity on auto margins which is being factored into our pricing. Esurance targets self-serve customers and has intentionally slowed its growth until the loss ratio improves. Encompass has been raising its rates to improve profitability. Our customer-focused strategy resulted in a Property-Liability underlying combined ratio of 89.0 in the first quarter and policy in force growth of 875,000, or 2.6% versus the prior year quarter,” said Wilson.
“We also did well managing investments and shareholders’ capital,” continued Wilson. “A proactive risk and return approach to investing resulted in a 2.0% increase in investment income after factoring in the sale of Lincoln Benefit Life Company. Net income available to shareholders was $648 million and operating income return on equity was 13.0% over the trailing twelve months. Net income and operating income per share increased by 17.7% and 12.3%, respectively, versus the first quarter of 2014. These results enabled us to both invest in long-term growth initiatives

1

and provide excellent current returns to shareholders. Total cash returned to shareholders in common stock dividends and share repurchases was $1.0 billion for the quarter. Overall, it was a good start to 2015,” concluded Wilson.
First Quarter Operating Results
The Property-Liability combined ratio of 93.7 in the first quarter was 1.0 point favorable to the prior year quarter, and resulted in underwriting income* of $467 million, an increase of 25.5% compared with the prior year quarter. The underlying combined ratio of 89.0 for the first quarter was 0.6 points unfavorable compared with the same period of last year.
Auto losses were elevated in the first quarter, reflecting seasonal winter weather and higher non-weather levels of frequency and severity in all three brands where we underwrite risk. Allstate brand auto had a first quarter combined ratio of 96.8, and an underlying combined ratio of 95.6, which was 1.8 points unfavorable to the prior year quarter. Allstate brand bodily injury frequency increased 6.8% from low levels in the first quarter of 2014. Property damage frequency increased 2.1%, and was impacted in part by adverse winter weather experienced predominantly in the east, as well as higher frequency trends broadly across the country. Prior year reserve reestimates negatively impacted the Allstate brand auto recorded combined ratio by 0.8 points in the first quarter of 2015, with approximately half due to litigation settlement accruals. While losses were elevated in the quarter, Allstate brand auto continued to generate a good combined ratio. Price increases in auto insurance originally planned for later in 2015 have been accelerated due to increased non-weather related loss trends.
Allstate brand homeowners margins were excellent, with strong results during a quarter with moderate levels of catastrophe losses. The first quarter 2015 recorded combined ratio for Allstate brand homeowners was 78.7, resulting in $348 million in underwriting income. The underlying combined ratio of 64.5 was 1.3 points better than the first quarter of 2014. Allstate brand other personal lines also had a strong first quarter, recording a combined ratio of 89.3, and an underlying combined ratio of 82.1.
Allstate Financial generated $134 million in operating income in the first quarter of 2015, $21 million lower than the prior year quarter after adjusting 2014’s first quarter results for the disposition of Lincoln Benefit Life Company (LBL). The reduction in Allstate Financial operating income was due primarily to lower investment income, worse mortality, and higher expenses.
Total portfolio net investment income rose 2.0% in the first quarter compared with the same quarter a year ago, excluding the LBL results in the 2014 quarter. Income from limited partnership interests rose 39.4% to $198 million in the first quarter compared to the prior year quarter, driven primarily by favorable real estate valuations.
Net income available to common shareholders was $1.53 per diluted share, or $648 million, versus $1.30 per share in the first quarter of last year. Operating income was $1.46 per share, or $616 million, compared to $1.30 in the first quarter of 2014.
2015 Operating Priorities
Allstate is focused on five operating priorities in 2015 to both deliver solid near-term operating results and invest in long-term strategic growth.
•
Grow insurance policies in force
•
Maintain the underlying combined ratio
•
Proactively manage investments
•
Modernize the operating model
•
Build long-term growth platforms




2

Grow Insurance Policies in Force
Property-Liability net written premium grew 4.8% while policies in force grew by 875,000, or 2.6% in the first quarter of 2015, reflecting the operating priorities in each of the three brands where we underwrite risk. The Allstate brand accounted for the majority of growth in Property-Liability in the first quarter of 2015, as it increased net written premium by 4.9%, and policies in force by 752,000, or 2.4%, compared with the first quarter of 2014.
•
Allstate brand auto policies were 623,000, or 3.2%, higher in the first quarter of 2015 than the same quarter a year ago.
•
Allstate brand homeowner policies increased 51,000, or 0.8% in the first quarter of 2015 compared to the prior year quarter.
•
Allstate brand other personal lines increased by 103,000 policies in the first quarter of 2015, 2.6% higher than the prior year quarter, reflecting increased household penetration.
•
Esurance grew net written premium by 8.6% and policies in force by 8.9% in the first quarter of 2015 compared with the prior year quarter, as we purposefully slowed growth by lowering advertising expenses and implementing pricing and underwriting actions to ensure long-term returns are at acceptable levels.
•
Encompass continued to implement profit improvement actions which reduced the size of the business in the first quarter 2015. Net written premium was 1.4% below the first quarter of 2014, and policies in force were 0.2% lower compared with the prior year quarter.
Maintain the Underlying Combined Ratio
The underlying combined ratio was 89.0 for the first quarter of 2015, within the full-year outlook range of 87 - 89.
•
Recorded combined ratios: Total Property-Liability 93.7, Allstate brand auto 96.8, Allstate brand homeowners 78.7, Allstate brand other personal lines 89.3, Esurance 117.8, Encompass 95.6

•
Underlying combined ratios: Total Property-Liability 89.0, Allstate brand auto 95.6, Allstate brand homeowners 64.5, Allstate brand other personal lines 82.1, Esurance 116.5, Encompass 90.6
Proactively Manage Investments
The investment portfolio’s pre-tax yield increased to 4.6% in the first quarter, up from 4.5% in the first quarter of 2014.
Investing in Sustainable Value Creation
Long-term shareholder value will be created by modernizing the operating model and building long-term growth platforms.
•
We are building a more effective and efficient operating model by simplifying technology platforms, implementing continuous improvement processes and optimizing the worldwide deployment of resources.
•
The Allstate agency business model is being revised to reduce low value-added activities while increasing agencies’ ability to provide trusted advice to customers.
•
Esurance’s advertising investment remains significantly above a long-term sustainable level relative to premiums, as we grow market share in the self-serve consumer segment. Esurance also continues to invest in expanding its product offerings and geographic reach.
•
The Allstate Drivewise® and Esurance DriveSense® telematics offerings continue to expand their reach and now have 779,000 customers.




3

Excellent Capital Management
“We made significant progress in the first quarter on our commitment to proactively manage our shareholders’ capital,” said Steve Shebik, chief financial officer. “We returned $1.0 billion in cash to shareholders in the first quarter of 2015 through a combination of share repurchases and common stock dividends. After completing our 2014 $2.5 billion common share repurchase authorization in February, we initiated a new $3 billion authorization, including a $500 million accelerated share repurchase program (ASR). We also finalized the terms of our 2015 catastrophe reinsurance program, excluding Florida, which is expected to be placed in the second quarter of 2015.”
As of March 31, 2015, $2.4 billion remained on our common share repurchase program. The $500 million ASR initiated in March 2015 is expected to be completed by the end of the second quarter. Book value per diluted common share increased 5.3% from a year ago, to $49.19 as of March 31.


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, May 6.

The Allstate Corporation (NYSE: ALL) is the nation’s largest publicly held personal lines insurer, protecting approximately 16 million households from life’s uncertainties through auto, home, life and other insurance offered through its Allstate, Esurance, Encompass and Answer Financial brand names. Allstate is widely known through the slogan “You’re In Good Hands With Allstate®.” The Allstate brand’s network of small businesses offers auto, home, life and retirement products and services to customers in the United States and Canada.

Financial information, including material announcements about The Allstate Corporation, is routinely posted on www.allstateinvestors.com.

Forward-Looking Statements 
This news release contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty.  These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings.  We believe these statements are based on reasonable estimates, assumptions and plans.  However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.  Factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements may be found in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our most recent Annual Report on Form 10-K. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statement.


4

THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
($ in millions, except per share data)
Three months ended
March 31,
 
2015
 
2014
 
(unaudited)
Revenues
 
 
 
Property-liability insurance premiums
$
7,426

 
$
7,064

Life and annuity premiums and contract charges
537

 
607

Net investment income
850

 
959

Realized capital gains and losses:
 
 
 
Total other-than-temporary impairment (“OTTI”) losses
(53
)
 
(80
)
OTTI losses reclassified to (from) other comprehensive income
4

 
(1
)
Net OTTI losses recognized in earnings
(49
)
 
(81
)
Sales and other realized capital gains and losses
188

 
135

Total realized capital gains and losses
139

 
54

 
8,952

 
8,684

 
 
 
 
Costs and expenses
 
 
 
Property-liability insurance claims and claims expense
4,993

 
4,759

Life and annuity contract benefits
441

 
488

Interest credited to contractholder funds
199

 
307

Amortization of deferred policy acquisition costs
1,070

 
1,035

Operating costs and expenses
1,090

 
1,094

Restructuring and related charges
4

 
6

Interest expense
73

 
87

 
7,870

 
7,776

 
 
 
 
Loss on disposition of operations
(1
)
 
(59
)
 
 
 
 
Income from operations before income tax expense
1,081

 
849

 
 
 
 
Income tax expense
404

 
249

 
 
 
 
Net income
677

 
600

 
 
 
 
Preferred stock dividends
29

 
13

 
 
 
 
Net income available to common shareholders
$
648

 
$
587

 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Net income available to common shareholders per   
common share – Basic
$
1.56

 
$
1.31

 
 
 
 
Weighted average common shares – Basic
415.8

 
446.4

 
 
 
 
Net income available to common shareholders per    
common share – Diluted
$
1.53

 
$
1.30

 
 
 
 
Weighted average common shares – Diluted
422.6

 
452.8

 
 
 
 
Cash dividends declared per common share
$
0.30

 
$
0.28







5

THE ALLSTATE CORPORATION
BUSINESS RESULTS
($ in millions, except ratios)
Three months ended
 
March 31,
 
2015
 
2014
Property-Liability
 
 
 
Premiums written
$
7,306

 
$
6,969

Premiums earned
$
7,426

 
$
7,064

Claims and claims expense
(4,993
)
 
(4,759
)
Amortization of deferred policy acquisition costs
(1,000
)
 
(961
)
Operating costs and expenses
(962
)
 
(968
)
Restructuring and related charges 
(4
)
 
(4
)
   Underwriting income
467

 
372

Net investment income
358

 
312

Periodic settlements and accruals on non-hedge derivative instruments
(1
)
 
(3
)
Amortization of purchased intangible assets
12

 
17

Income tax expense on operations
(281
)
 
(230
)
   Operating income
555

 
468

Realized capital gains and losses, after-tax
18

 
34

Reclassification of periodic settlements and accruals on non-hedge
 
 
 
  derivative instruments, after-tax
1

 
2

Amortization of purchased intangible assets, after-tax
(8
)
 
(11
)
Change in accounting for investments in qualified affordable
 
 
 
  housing projects, after-tax
(28
)
 
—

   Net income available to common shareholders
$
538

 
$
493

Catastrophe losses
$
294

 
$
445

Operating ratios:
 
 
 
   Claims and claims expense ratio
67.2

 
67.4

   Expense ratio
26.5

 
27.3

   Combined ratio 
93.7

 
94.7

   Effect of catastrophe losses on combined ratio
4.0

 
6.3

   Effect of prior year reserve reestimates on combined ratio
0.5

 
(0.2
)
   Effect of catastrophe losses included in prior year reserve reestimates
 
 
 
      on combined ratio
(0.1
)
 
—

   Effect of amortization of purchased intangible assets on combined ratio
0.1

 
0.2

   Effect of Discontinued Lines and Coverages on combined ratio
—

 
—

 
 
 
 
Allstate Financial
 
 
 
Premiums and contract charges
$
537

 
$
607

Net investment income
484

 
640

Contract benefits
(441
)
 
(488
)
Interest credited to contractholder funds
(192
)
 
(291
)
Amortization of deferred policy acquisition costs
(69
)
 
(74
)
Operating costs and expenses
(123
)
 
(118
)
Restructuring and related charges
—

 
(2
)
Income tax expense on operations
(62
)
 
(85
)
   Operating income
134

 
189

Realized capital gains and losses, after-tax
72

 
—

Valuation changes on embedded derivatives that are not hedged, after-tax
(5
)
 
(11
)
Loss on disposition of operations, after-tax
(1
)
 
(16
)
Change in accounting for investments in qualified affordable housing
 
 
 
   projects, after-tax
(17
)
 
—

    Net income available to common shareholders
$
183

 
$
162

 
 
 
 
Corporate and Other
 
 
 
Net investment income
$
8

 
$
7

Operating costs and expenses
(78
)
 
(95
)
Income tax benefit on operations
26

 
32

Preferred stock dividends
(29
)
 
(13
)
   Operating loss
(73
)
 
(69
)
Realized capital gains and losses, after-tax
—

 
1

   Net loss available to common shareholders
$
(73
)
 
$
(68
)
Consolidated net income available to common shareholders
$
648

 
$
587




6

THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in millions, except par value data)
March 31,
 
December 31,
 
2015
 
2014
Assets
(unaudited)
 
 
Investments:
 
 
 
   Fixed income securities, at fair value (amortized cost $58,235 and $59,672)
$
61,403

 
$
62,440

   Equity securities, at fair value (cost $3,752 and $3,692)
4,166

 
4,104

   Mortgage loans
4,276

 
4,188

   Limited partnership interests
4,699

 
4,527

   Short-term, at fair value (amortized cost $2,497 and $2,540)
2,497

 
2,540

   Other
3,396

 
3,314

      Total investments
80,437

 
81,113

Cash
916

 
657

Premium installment receivables, net
5,502

 
5,465

Deferred policy acquisition costs
3,527

 
3,525

Reinsurance recoverables, net
8,408

 
8,490

Accrued investment income
597

 
591

Property and equipment, net
1,026

 
1,031

Goodwill
1,219

 
1,219

Other assets
2,128

 
2,046

Separate Accounts
4,304

 
4,396

           Total assets
$
108,064

 
$
108,533

Liabilities
 
 
 
Reserve for property-liability insurance claims and claims expense
$
23,103

 
$
22,923

Reserve for life-contingent contract benefits
12,318

 
12,380

Contractholder funds
22,267

 
22,529

Unearned premiums
11,489

 
11,655

Claim payments outstanding
796

 
784

Deferred income taxes
779

 
715

Other liabilities and accrued expenses
5,635

 
5,653

Long-term debt
5,194

 
5,194

Separate Accounts
4,304

 
4,396

           Total liabilities
85,885

 
86,229

Equity
 
 
 
Preferred stock and additional capital paid-in, $1 par value, 72.2 thousand shares issued and outstanding, $1,805 aggregate liquidation preference
1,746

 
1,746

Common stock, $.01 par value, 900 million issued, 409 million and 418 million shares outstanding
9

 
9

Additional capital paid-in
3,109

 
3,199

Retained income
38,363

 
37,842

Deferred ESOP expense
(23
)
 
(23
)
Treasury stock, at cost (491 million and 482 million shares)
(21,799
)
 
(21,030
)
Accumulated other comprehensive income:
 
 
 
  Unrealized net capital gains and losses:
 
 
 
Unrealized net capital gains and losses on fixed income securities with
   OTTI
71

 
72

Other unrealized net capital gains and losses
2,255

 
1,988

Unrealized adjustment to DAC, DSI and insurance reserves
(189
)
 
(134
)
   Total unrealized net capital gains and losses
2,137

 
1,926

  Unrealized foreign currency translation adjustments
(29
)
 
(2
)
  Unrecognized pension and other postretirement benefit cost
(1,334
)
 
(1,363
)
           Total accumulated other comprehensive income
774

 
561

           Total shareholders’ equity
22,179

 
22,304

           Total liabilities and shareholders’ equity
$
108,064

 
$
108,533


7

THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
Three months ended
March 31,
 
2015
 
2014
Cash flows from operating activities
(unaudited)
Net income
$
677

 
$
600

Adjustments to reconcile net income to net cash provided by
   operating activities:
 
 
 
Depreciation, amortization and other non-cash items
87

 
98

Realized capital gains and losses
(139
)
 
(54
)
Loss on disposition of operations
1

 
59

Interest credited to contractholder funds
199

 
307

Changes in:
 
 
 
Policy benefits and other insurance reserves
115

 
(18
)
Unearned premiums
(117
)
 
(92
)
Deferred policy acquisition costs
(35
)
 
3

Premium installment receivables, net
(66
)
 
(46
)
Reinsurance recoverables, net
(24
)
 
(45
)
Income taxes
59

 
(68
)
Other operating assets and liabilities
(191
)
 
(270
)
Net cash provided by operating activities
566

 
474

Cash flows from investing activities
 
 
 
Proceeds from sales
 
 
 
   Fixed income securities
9,453

 
6,483

   Equity securities
1,152

 
1,328

   Limited partnership interests
296

 
238

   Mortgage loans
—

 
10

   Other investments
47

 
30

Investment collections
 
 
 
   Fixed income securities
1,213

 
849

   Mortgage loans
114

 
324

   Other investments
60

 
50

Investment purchases
 
 
 
   Fixed income securities
(9,210
)
 
(6,252
)
   Equity securities
(1,172
)
 
(1,330
)
   Limited partnership interests
(365
)
 
(277
)
   Mortgage loans
(202
)
 
(2
)
   Other investments
(193
)
 
(243
)
Change in short-term investments, net
(63
)
 
189

Change in other investments, net
2

 
36

Purchases of property and equipment, net
(59
)
 
(55
)
Disposition (acquisition) of operations
—

 
(2
)
Net cash provided by investing activities
1,073

 
1,376

Cash flows from financing activities
 
 
 
Repayment of long-term debt
—

 
(1
)
Proceeds from issuance of preferred stock
—

 
725

Contractholder fund deposits
261

 
403

Contractholder fund withdrawals
(572
)
 
(1,084
)
Dividends paid on common stock
(118
)
 
(113
)
Dividends paid on preferred stock
(29
)
 
(12
)
Treasury stock purchases
(1,010
)
 
(1,115
)
Shares reissued under equity incentive plans, net
64

 
77

Excess tax benefits on share-based payment arrangements
26

 
13

Other
(2
)
 
(6
)
Net cash used in financing activities
(1,380
)
 
(1,113
)
Cash classified as held for sale
—

 
(242
)
Net increase in cash
259

 
495

Cash at beginning of period
657

 
675

Cash at end of period
$
916

 
$
1,170



8

Definitions of Non-GAAP Measures
We 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 is net income available to common shareholders, 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,
•
valuation changes on embedded derivatives that are not hedged, after-tax,
•
amortization of deferred policy acquisition costs (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,
•
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 available to common shareholders is the GAAP measure that is most directly comparable to operating income.
We use operating income 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, 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 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, 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. 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 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 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 is used by management along with the other components of net income available to common shareholders to assess our performance. We use adjusted measures of operating income in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income available to common shareholders, operating income 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 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 as the denominator. Operating income should not be considered a substitute for net income available to common shareholders and does not reflect the overall profitability of our business.
The following table reconciles operating income and net income available to common shareholders.
($ in millions, except per share data)
For the three months ended March 31,
 
Property-Liability
 
Allstate Financial
 
Consolidated
 
Per diluted common share
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Operating income
$
555

 
$
468

 
$
134

 
$
189

 
$
616

 
$
588

 
$
1.46

 
$
1.30

Realized capital gains and losses,
   after-tax
18

 
34

 
72

 
—

 
90

 
35

 
0.21

 
0.08

Valuation changes on embedded derivatives that are not hedged,
   after-tax
—

 
—

 
(5
)
 
(11
)
 
(5
)
 
(11
)
 
(0.01
)
 
(0.02
)
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax
1

 
2

 
—

 
—

 
1

 
2

 
—

 
—

Amortization of purchased intangible assets, after-tax
(8
)
 
(11
)
 
—

 
—

 
(8
)
 
(11
)
 
(0.02
)
 
(0.02
)
Loss on disposition of operations, after-tax
—

 
—

 
(1
)
 
(16
)
 
(1
)
 
(16
)
 
—

 
(0.04
)
Change in accounting for investments in qualified affordable housing projects, after-tax
(28
)
 
—

 
(17
)
 
—

 
(45
)
 
—

 
(0.11
)
 
—

Net income available to common shareholders
$
538

 
$
493

 
$
183

 
$
162

 
$
648

 
$
587

 
$
1.53

 
$
1.30





9

Operating income return on common shareholders’ equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of common 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 common shareholders’ equity is the most directly comparable GAAP measure. We use operating income as the numerator for the same reasons we use operating income, as discussed above. We use average common shareholders’ equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of common 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 available to common shareholders and return on common 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 return on common 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 return on common shareholders’ equity from return on common shareholders’ equity is the transparency and understanding of their significance to return on common shareholders’ equity variability and profitability while recognizing these or similar items may recur in subsequent periods. We use adjusted measures of operating income return on common shareholders’ equity in incentive compensation. Therefore, we believe it is useful for investors to have operating income return on common shareholders’ equity and return on common shareholders’ equity when evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income return on common 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 return on common shareholders’ equity should not be considered a substitute for return on common shareholders’ equity and does not reflect the overall profitability of our business.
The following tables reconcile return on common shareholders’ equity and operating income return on common shareholders’ equity.
($ in millions)
For the twelve months ended
March 31,
 
2015
 
2014
Return on common shareholders’ equity
 
 
 
Numerator:
 
 
 
   Net income available to common shareholders
$
2,807

 
$
2,141

Denominator:
 
 
 
   Beginning common shareholders’ equity (1)
$
20,600

 
$
20,619

   Ending common shareholders’ equity (1)
20,433

 
20,600

   Average common shareholders’ equity
$
20,517

 
$
20,610

    Return on common shareholders’ equity
13.7
%
 
10.4
%

 
For the twelve months ended
March 31,
 
2015
 
2014
Operating income return on common shareholders’ equity
 
 
 
Numerator:
 
 
 
   Operating income
$
2,395

 
$
2,611

 
 
 
 
Denominator:
 
 
 
   Beginning common shareholders’ equity
$
20,600

 
$
20,619

   Unrealized net capital gains and losses
2,091

 
2,905

   Adjusted beginning common shareholders’ equity
18,509

 
17,714

 
 
 
 
   Ending common shareholders’ equity
20,433

 
20,600

   Unrealized net capital gains and losses
2,137

 
2,091

   Adjusted ending common shareholders’ equity
18,296

 
18,509

   Average adjusted common shareholders’ equity
$
18,403

 
$
18,112

    Operating income return on common shareholders’ equity
13.0
%
 
14.4
%
_____________
(1) Excludes equity related to preferred stock of $1,746 million and $1,505 million as of March 31, 2015 and 2014, respectively.




10

Underwriting income 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 available to common shareholders is the most directly comparable GAAP measure. Underwriting income should not be considered a substitute for net income available to common shareholders and does not reflect the overall profitability of our business. A reconciliation of Property-Liability underwriting income to net income available to common shareholders is provided in the “Business Results” page.
Combined ratio excluding the effect of catastrophes, prior year reserve reestimates and 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, and the effect of 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 and 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. Amortization of purchased intangible assets relates to the acquisition purchase price and is 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.
The following table reconciles the Property-Liability underlying combined ratio to the Property-Liability combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Combined ratio excluding the effect of catastrophes, prior year reserve reestimates and amortization of purchased intangible assets (“underlying combined ratio”)
89.0

 
88.4

Effect of catastrophe losses
4.0

 
6.3

Effect of prior year non-catastrophe reserve reestimates
0.6

 
(0.2
)
Effect of amortization of purchased intangible assets
0.1

 
0.2

Combined ratio
93.7

 
94.7

 
 
 
 
Effect of prior year catastrophe reserve reestimates
(0.1
)
 
—

Underwriting margin is calculated as 100% minus the combined ratio.
In this news release, we provide our outlook range on the Property-Liability 2015 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.
The following table reconciles the Allstate brand underlying combined ratio to the Allstate brand combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying combined ratio
87.4

 
86.4

Effect of catastrophe losses
4.1

 
6.4

Effect of prior year non-catastrophe reserve reestimates
0.7

 
(0.2
)
Combined ratio
92.2

 
92.6

 
 
 
 
Effect of prior year catastrophe reserve reestimates
—

 
—

The following table reconciles the Allstate brand auto underlying combined ratio to the Allstate brand auto combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying combined ratio
95.6

 
93.8

Effect of catastrophe losses
0.3

 
0.4

Effect of prior year non-catastrophe reserve reestimates
0.9

 
(0.8
)
Combined ratio
96.8

 
93.4

 
 
 
 
Effect of prior year catastrophe reserve reestimates
(0.1
)
 
(0.1
)



11

The following table reconciles the Allstate brand homeowners underlying combined ratio to the Allstate brand homeowners combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying combined ratio
64.5

 
65.8

Effect of catastrophe losses
13.9

 
21.3

Effect of prior year non-catastrophe reserve reestimates
0.3

 
0.2

Combined ratio
78.7

 
87.3

 
 
 
 
Effect of prior year catastrophe reserve reestimates
(0.1
)
 
0.6

The following table reconciles the Allstate brand other personal lines underlying combined ratio to the Allstate brand other personal lines combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying combined ratio
82.1

 
83.4

Effect of catastrophe losses
7.4

 
12.7

Effect of prior year non-catastrophe reserve reestimates
(0.2
)
 
4.4

Combined ratio
89.3

 
100.5

 
 
 
 
Effect of prior year catastrophe reserve reestimates
(0.3
)
 
(0.5
)
The following table reconciles the Encompass brand underlying combined ratio to the Encompass brand combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying combined ratio
90.6

 
91.8

Effect of catastrophe losses
6.3

 
11.2

Effect of prior year non-catastrophe reserve reestimates
(1.3
)
 
(0.4
)
Combined ratio
95.6

 
102.6

 
 
 
 
Effect of prior year catastrophe reserve reestimates
(0.9
)
 
(0.3
)
Esurance brand underlying loss ratio is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the loss ratio, the effect of catastrophes on the combined ratio and the effect of prior year non-catastrophe reserve reestimates on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in the Esurance business that may be obscured by catastrophe losses and prior year reserve reestimates. 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. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The most directly comparable GAAP measure is the loss ratio. The underlying loss ratio should not be considered a substitute for the loss ratio and does not reflect the overall loss ratio of our business.
The following table reconciles the Esurance brand underlying loss ratio and underlying combined ratio to the Esurance brand combined ratio.
 
Three months ended
March 31,
 
2015
 
2014
Underlying loss ratio
78.2

 
76.4

Expense ratio, excluding the effect of amortization of purchased intangible assets
38.3

 
47.8

Underlying combined ratio
116.5

 
124.2

Effect of catastrophe losses
—

 
0.3

Effect of prior year non-catastrophe reserve reestimates
(1.0
)
 
(0.9
)
Effect of amortization of purchased intangible assets
2.3

 
3.5

Combined ratio
117.8

 
127.1

Book value per common 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 common 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 common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of unrealized net capital gains and losses on fixed income securities, in conjunction with book value per common 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

12

comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per common 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 common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of unrealized net capital gains and losses on fixed income securities, should not be considered a substitute for book value per common 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 March 31,
 
2015
 
2014
Book value per common share
 
 
 
Numerator:
 
 
 
  Common shareholders’ equity
$
20,433

 
$
20,600

Denominator:
 
 
 
Common shares outstanding and dilutive potential common shares outstanding
415.4

 
441.1

Book value per common share
$
49.19

 
$
46.70

 
 
 
 
Book value per common share, excluding the impact of unrealized net capital gains and losses on fixed income securities
 
 
 
Numerator:
 
 
 
  Common shareholders’ equity
$
20,433

 
$
20,600

  Unrealized net capital gains and losses on fixed income
     securities
1,871

 
1,640

Adjusted common shareholders’ equity
$
18,562

 
$
18,960

Denominator:
 
 
 
Common shares outstanding and dilutive potential
   common shares outstanding
415.4

 
441.1

Book value per common share, excluding the impact of unrealized net capital gains and losses on fixed income securities
$
44.68

 
$
42.98


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13