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Letter to the Editor

Allstate Reports Profitable Second Quarter

The Allstate Corporation has reported its best quarter in over a year with net income of $344 million ($0.48 per diluted share) for the second quarter of 2002 compared to $168 million ($0.23 per diluted share) for the second quarter of 2001. Operating income was $453 million ($0.64 per diluted share), for the second quarter of 2002, compared to $230 million ($0.31 per diluted share) for the second quarter of 2001.

"We had a very solid quarter and our performance improvement strategies are working," said Chairman, President and CEO Edward M. Liddy. "With two quarters behind us, we now anticipate that operating income per diluted share for 2002 will be in the range of $2.70 to $2.90 (excluding restructuring charges and assuming normal catastrophes) -- $.20 higher than the estimate we issued at the beginning of the year.

"The rate increases we have taken in our auto and homeowners lines continue to push premium written growth over prior year levels. We also continue to see improvements in loss frequencies in the auto and homeowners lines. Our underwriting strategies in targeted areas are proving successful. And expense control efforts are also favorably impacting margins.

"Catastrophe losses in the quarter were $288 million, an amount that is within the normal experience for a second quarter, and includes the impact of the early season fires in Colorado and Arizona. In the second quarter of 2001 we experienced $537 million in catastrophe losses.

"We saw an encouraging 6.3 percent growth rate in written premium for the Allstate brand standard auto line in the quarter over the prior year second quarter. In this line, the loss ratio for the quarter was 75.4 and we expect this ratio to improve in the second half of 2002.

"We strengthened our reserve position by $68 million after tax ($0.10 per diluted share) for upward development of prior year claims, primarily in the homeowners line. Texas water and mold claims remain a challenge, playing a prominent role in our reserve actions this quarter. However, we remain on track to return the Allstate branded homeowners line to acceptable levels of profitability by mid-2003.

"We are making good progress on controlling expenses. Excluding restructuring charges, our expense ratio for the second quarter of 2002 was 22.4, a 1.2 point decline from the second quarter of 2001 as expenses were flat with the prior year.

"Allstate Financial's operating income of $143 million for the second quarter of 2002 was up 20.2 percent over the second quarter of 2001 due to increased investment and mortality margins. Statutory premium and deposits, including Allstate Bank deposits, were up 13.2 percent over the second quarter of 2001.

"In the second quarter of 2002 compared to the second quarter of 2001, Allstate Financial saw sales of fixed annuities rise 47 percent while variable annuity sales were down 22 percent reflecting a change in investing attitudes among consumers. It is clear that there is considerable consumer interest in products that offer greater stability and guaranteed returns and Allstate Financial's broad product portfolio has allowed it to capitalize on those changing consumer attitudes.

"We continue to be encouraged with the progress that our exclusive agents are making in helping transform the company to a personal financial services company. Through the first six months of 2002 our exclusive agents have more than doubled their sales of Allstate Financial products compared to the same period in the prior year.

"Overall, Allstate Financial continues to perform well in the very difficult market conditions in which we are operating."

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