Allstate 2005 Annual Report Download - page 5

Dear Fellow Shareholders:
In 2005 Allstate experienced
the worst hurricane season on
record—and the costliest in
your company’s 75-year
history. We sent 4,100
catastrophe specialists to
ravaged areas to do what
we do best: help customers
recover. We also refined
our risk management
models and continued to
execute our strategy to produce
profitable growth. By focusing
on our strengths, we fulfilled
our commitments to policy
holders, invested in growth
and rewarded our shareholders.
Although Allstate gen-
erated record revenues
in 2005, we incurred an
unprecedented $5.7
billion in catastrophe-
related costs as we
helped customers
rebuild their lives.
That’s a big number—
more than five times
our annual average over
the last decade. Return
on equity fell 6.6 points
for 2005, compared to
an increase of 0.8 points
in 2004. Operating
income per diluted
share* declined from
$4.41 in 2004 to $2.37
in 2005.
Though these losses
slowed our short-
term momentum,
the progress we made
implementing our
“better, bigger, broader”
strategy improved our
ability to create long-
term value.
Property-Liability
continued to benefit
from our focus on
profitable growth.
Premiums written
increased by 3.2 percent
from $26.5 billion in
2004 to $27.4 billion
in 2005. Our Allstate
brand standard auto
business produced 2.9
percent unit growth,
while Allstate home-
owners achieved 3.4
percent unit growth.
Total Property-
Liability revenues,
including investment
income, increased by
3.5 percent to a record
$29.3 billion. And,
excluding catastrophes,
that top-line growth
was generated while
continuing to improve
our underwriting
margins. Our Property-
Liability combined
ratio, excluding catas-
trophes*, improved
2.1 points in 2005
compared with 2004.
In 2005, Allstate
Financial premiums
and deposits* were
$14.4 billion, and its
operating income
increased by 5.4 percent
to $581 million.
Overall, we’re making
progress in Allstate
Financial and remain
focused on improving
returns that will deliver
profitable growth.
To that end, in March
2006 we announced the
decision to sell the
Allstate Financial
variable annuity business
and enter into an
exclusive distribution
arrangement, subject
to regulatory approvals.
This arrangement will
allow our distribution
channels to continue to
offer a full range of prod-
ucts, including variable
annuities, while we
dedicate our resources to
better deploy capital to
a more focused product
portfolio where we have
scale and a significant
market presence today.
Letter to Shareholders
Rising to the Challenge
Edward M. Liddy
Chairman and
Chief Executive Officer
Record Revenues,
Lower Earnings
Focus on Profitable
Growth
Amid a historic year
in catastrophes, our
businesses once again
rewarded Allstate share-
holders. We repurchased
$2.5 billion of our
stock and paid an
all-time high annual
dividend of $1.28 per
share, up 14 percent
from 2004— a testa-
ment to our disciplined
capital management.
Our stock price closed
2005 at $54.07, a 4.5
percent increase from
the $51.72 at the end of
2004. We also delivered
a total shareholder
return of 7 percent.
And, we maintained our
solid credit ratings from
major rating agencies.
Under the circum-
stances, we’re very
proud of these results.
They show that our
strategy is working, and
that the market remains
confident we can deliver
the attractive, steady
long-term returns
shareholders expect.
Increasing Total
Shareholder
Returns
1
*See page 17.