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Letter to the Editor

Allstate Q2 Profits Up 71%

Property-Liability Premiums written grew 6.3 percent over the second quarter of 2002, with the Allstate brand standard auto and homeowners lines growing 6.9 percent and 12.7 percent respectively. Allstate brand standard auto policies in force (PIF) grew 0.4 percent compared to the first quarter of 2003, which is its first sequential quarterly increase since the fourth quarter of 2001.

Allstate increases operating income guidance for 2003 (excluding restructuring charges and assuming the level of average expected catastrophe losses used in pricing for the remainder of the year) to the range of $3.50 to $3.65 per diluted share.(1)

"We have turned in another very solid quarter. Despite a tornado-plagued spring in many parts of the central and southern United States, our Property-Liability business generated much better than expected results," said Chairman, President and CEO Edward M. Liddy. "As anticipated, rate increases approved in previous quarters continue to flow through financial results. We will continue to be disciplined and take rate increases that support our projected loss cost trends and return targets. Just as important, we are seeing signs of positive, sustainable unit growth in both our core standard auto and homeowners insurance lines. We remain confident that we can grow without sacrificing profitability and that our strategy of becoming better and bigger in our core protection business and broader in our ability to provide a range of financial services to middle America continues to be the right one.

"The policies in force growth numbers for the quarter look especially encouraging in the core lines of standard auto and homeowners. For standard auto, 35 states showed sequential increases and 32 states showed sequential increases in homeowners. We remain on track to deliver consistent sequential quarter over quarter increases for standard auto and homeowners by the end of the year. Retention of current business also showed positive gains.

"Once again, excluding catastrophe losses, we experienced solid improvements in claim frequencies, which continue to offset relatively modest severity increases.

"We received good news from California in the quarter as our new auto rating plan was approved by the department of insurance. This particular approval has enabled us to increase our marketing efforts in the state and we have begun writing business under the new plan.

"It is still too early to declare victory, but our Encompass business turned in good underwriting results as compared to the second of quarter of 2002 as it works toward lowering its combined ratio. The non-standard auto business written by Deerbrook is growing and, like Encompass, is showing good underwriting results compared to the second quarter of 2002.

"We believe we have positive momentum developing within our agency force across the country. Several initiatives are contributing to the agency force's solid performance, including a new compensation package introduced this year that was designed to better align the business objectives of the agency force with those of the company. The formation of an agent advisory council has provided a valuable forum for the company and our agency force to review together new initiatives to enhance the success of the channel. New investments in marketing, advertising, training and technology support have helped drive an increase in sales leads. These moves have enhanced the improving relationship between the company and its agency force.

"Allstate Financial is maintaining strong levels of production and the breadth of its product offering has contributed to good results. In particular, fixed annuity sales were higher compared to the second quarter of 2002 and variable annuity and institutional sales showed a sequential increase from the first quarter of 2003. Allstate Financial operating income, compared to second quarter of 2002, declined 8.4 percent to $131 million as the business unit continues to be challenged by the current economic environment. Our investment portfolio yield continues to decline as premiums, deposits and investment cash flows are invested at yields that are below the current portfolio average. We have reduced crediting rates on our in-force fixed annuities to maintain investment margins. We are also making product modifications to achieve profit objectives on new business sold in this challenging economic environment."

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