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Wednesday February 6

Allstate Profits Fall Sharply on Restructuring, Claims

NORTHBROOK, Ill. -- Quarterly profits fell sharply for Allstate Corp. to $264 million, or 37 cents a share. That compares with $547 million, or 74 cents a share, in the year-earlier quarter. The No. 2 U.S. car and home insurer blamed the decline on a big restructuring charge for trimming operations and also on a rise in the cost of claims. Revenues rose 2 percent, to $7.4 billion.

"We are not pleased with our financial results in what was an uneven quarter." Allstate Chief Executive Edward Liddy said in a statement.

The insurer -- second only to mutual State Farm in U.S. car and home insurance -- had its numbers crushed by $107 million in restructuring charges, as the firm chopped back on its claims operations, one of the last stages of a two and a half year overhaul at the firm. It announced the charges last month.

Allstate was also hit by higher claims and costs, including large bills for toxic mold in Texas, settling a lawsuit with policyholders in Georgia and paying into state guaranty funds after the failure of rival Reliance Insurance Co.

Looking forward, Allstate said it was raising premium rates in its troubled homeowners' line, but that would not benefit the bottom line soon.

"Many of the pricing and underwriting actions we have been taking must work through a full renewal cycle, so the improvement in our results will not begin to emerge until the latter part of 2002," Liddy said. "We saw an encouraging 9.5 percent growth of written premium for the Allstate brand standard auto line in the quarter over the prior year fourth quarter. We also saw some pressure on Allstate standard auto frequency during the quarter, and have already responded to the frequency trends with increased rate activity and targeted underwriting programs in specific states. In this line, we finished the year with a loss ratio of approximately 75 percent and with these actions expect to improve that ratio over the course of 2002."

Liddy forecast operating profits of $2.50 to $2.70 per share for this year, broadly in line with analysts' estimates.

Excluding realized investments and restructuring charges, Allstate reported fourth-quarter operating profits of 53 cents a share, compared with 80 cents a year before.

Allstate's shares fell about 23 percent last year, underperforming the Standard & Poor's 500 index, which fell about 13 percent.

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