Excellent Operating Performance

Allstate’s team of employees, agency owners and licensed sales professionals achieved all four key 2012 priorities:

  • Maintaining auto profitability was central to having sufficient resources to compete aggressively, develop new products, expand support for local agencies and generate returns for shareholders. We exceeded this goal with a property-liability underlying combined ratio* better than the prior year and the annual outlook range established for 2012.
  • Improving returns in the homeowners and annuity businesses is essential to raise the overall corporate return on equity. We exceeded the 2012 goal as the homeowners business had strong profitability, reflecting five years of hard work in combination with unusually good weather outside of catastrophes.The annuity business also improved due to good investment returns from limited partnerships, although current record low interest rates will continue to challenge future investment results.
  • Growth is the lifeblood of longevity. The dramatic increases in severe weather since 2008 necessitated that we reduce the size of the homeowners business. However, in this past year, we established a goal to begin to grow insurance premiums. We exceeded this goal through the acquisition of Esurance; policy growth in Encompass, Allstate Canada and Emerging Businesses; and higher average auto and homeowners premiums in the Allstate brand. Overall items in force in the Allstate agency customer segment declined, reflecting our strategy to improve overall homeowners returns and auto profitability in New York and Florida. Building a stronger base for growth remains a priority.
  • Proactively managing investments and capital is critical to generating adequate risk-adjusted returns. Investment returns exceeded expectations with a total return of 7.3 percent on a portfolio of $97 billion. Shareholders received more than $1.3 billion as a result of a 5 percent increase in the quarterly dividend and completion of a $1 billion share repurchase program.

Executing a Consumer-Focused Strategy

Allstate’s strategy is to provide unique and innovative offerings to the four segments of the consumer insurance market shown here.

On the left-hand side are consumers who prefer to get local advice and assistance as it relates to their insurance needs. On the right-hand side are those customers who feel comfortable dealing with insurance on their own. On the bottom half are people who value insurance and see a difference between the various brands in the marketplace. On the top half are brand-neutral consumers, who are more concerned about how insurance products can meet their needs than about brands.

More than 9,300 Allstate agency owners serve customers who prefer local advice and assistance under the Allstate brand. This represents approximately 90 percent of our business and a little less than half the insurance market. Allstate agencies know their customers. They provide personalized service and a broad set of competitively differentiated products and services. Agency owners help ensure customers use their hard-earned money to protect what matters most to them. Our plans include strengthening Allstate agencies, improving the customer experience and launching new innovative products.

Esurance was acquired in late 2011 to serve customers who are comfortable handling their own insurance needs but still see a difference among insurance companies. In the first full year of our ownership, this business has grown items in force by 31 percent and is on target to achieve the additional benefits that come from being a part of Allstate. Esurance will grow by expanding its target customer base and offering a broader set of products.

Encompass provides products to customers who want advice in handling their insurance needs but see little difference among companies. These consumers typically utilize independent agents and often comparison shop between companies. Encompass has a unique packaged auto and home insurance policy that is targeted toward a somewhat more affluent household.

Answer Financial serves customers who also see little difference among insurance companies but handle their own transactions. Today, this is a small segment of the U.S. market.

Allstate is the only insurance company that serves all four segments of the consumer marketplace with unique customer offerings. Focusing our insurance expertise, innovative products and talented people on the specific needs of each segment will result in stronger competitive positions, satisfied customers and higher growth..

Excellent Governance

The Allstate board listens to shareholders, provides advice and counsel to management, promotes transparency and governs the corporation. This experienced team continued to perform at a high level, adapting its practices to ensure that shareholders are well represented, as highlighted in our letter in the annual proxy statement.

Improving Communities

Allstate continues to be a leading corporate citizen that improves communities throughout America. The Allstate Foundation, Allstate employees, agency owners, together with the corporation, invested $29 million in 2012 with more than 7,000 local organizations that help the less fortunate and address important causes. I am particularly proud of the involvement and sacrifices made by employees and agency personnel in times of crisis. After the East Coast was hit by Superstorm Sandy, local agencies and claims employees worked tirelessly, going door to door to let customers know we were there for them. Call center employees, technology experts and the entire organization also worked throughout the time of need. Disasters, however, don’t always happen in bulk. Allstate is there for individual disasters as well – home fires, car accidents, and life’s unexpected problems. Quite simply, Allstaters are heroes! This is who we are and what we do.

Commitment to Success

Allstate’s continued success energizes us to build on a rich heritage, iconic brand and talented people. Our future will be even brighter as we continue to meet the unique needs of each customer segment, innovate and strengthen local Allstate agencies. The Allstate team will reach higher and compete harder to create value for customers, employees, agency owners and shareholders.

Thomas Wilson

Thomas J. Wilson

Chairman, President and
Chief Executive Officer