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Letter to the Editor

Allstate Reports $1.55 Billion Loss in Q3 Due to Hurricanes

After-tax catastrophe losses, net of reinsurance, totaled $3.06 billion in the third quarter of 2005 compared to $1.11 billion in the third quarter of 2004. The effect of catastrophes on net (loss) income per diluted share was $4.67 in the third quarter of 2005 compared to $1.59 in the third quarter of 2004. Catastrophe losses in the quarter included the impacts of Hurricanes Katrina ($3.68 billion pre-tax or $2.39 billion after-tax), Rita ($850 million pre-tax or $553 million after-tax, net of reinsurance), Dennis and Ophelia.

Property-Liability premiums written(1) grew 2.9 percent over the third quarter of 2004, driven by an increase in Allstate brand standard auto and homeowners premiums written, which grew 4.7 percent and 6.0 percent, respectively. Premiums written grew 3.7 percent, excluding the cost of catastrophe reinsurance programs purchased in 2005, impacts of Hurricane Katrina and business ceded to Universal Insurance Company of North America.

Allstate brand standard auto and homeowners policies in force (PIF) increased 3.6 percent and 4.4 percent, respectively, from September 30, 2004 levels.

Property-Liability underwriting loss was $3.36 billion compared to an underwriting loss of $685 million in the third quarter of 2004, due to higher catastrophes, partially offset by increased premiums earned, continued favorable auto and homeowners loss frequencies, excluding catastrophes, and net favorable prior year reserve re-estimates.

Allstate Financial operating income for the quarter was $156 million, an increase of 3.3 percent over the third quarter of 2004. Premiums and deposits were $2.38 billion, a decrease of 40.8 percent over the third quarter of 2004 due to lower institutional product deposits and pricing actions taken to ensure adequate returns.

Allstate's annual operating income per diluted share guidance for 2005 (assuming the level of average expected catastrophe losses used in pricing for the remainder of the year) is in the range of $2.35 to $2.50, compared to the previously announced range of $6.00 to $6.40, due to the level of catastrophe losses in the third quarter of 2005.

"The destructive and devastating effects of Hurricane Katrina significantly overshadowed Allstate's strong underlying performance trends in the quarter," said Edward M. Liddy, chairman and CEO of The Allstate Corporation. "This unprecedented hurricane is the United States' costliest catastrophe in history, surpassing Hurricane Andrew by a wide margin.

"For Allstate, pre-tax catastrophe losses, including claims from Hurricanes Katrina, Rita, Dennis and Ophelia, were more than $4.7 billion net of reinsurance in the quarter. This represents nearly a ten-fold increase from what we would normally expect in catastrophe losses in a quarter. For Hurricanes Katrina and Rita, the company expects to handle more than 300,000 claims from customers primarily in Louisiana, Mississippi, Alabama, Florida and Texas.

"Allstate has nearly 4,000 claim professionals along the gulf coast working as fast and as hard as possible to bring aid to the many thousands of people impacted by the terrible hurricane season. We remain absolutely committed to helping our affected customers return to some semblance of a normal way of life as soon as possible.

"We continue working on our homeowners catastrophe management strategy through a variety of strong proactive risk management actions to better address significant potential hurricane and earthquake losses. We have made progress to reduce our exposure to catastrophe losses, but we will do much more and do it on an accelerated basis.

"In addition, it is also clear to Allstate that how this country prepares for and offers protection against mega-catastrophes must be re-thought and changed. We have all seen on our television screens that the current system is inadequate. America cannot continue to look into the rear-view mirror to manage catastrophes such as hurricanes and earthquakes.

"We believe it's time to develop a new system to plan ahead and become better prepared for catastrophes. Allstate is aggressively pursuing a broadened dialogue and stands ready to help develop a solution that more effectively protects people, families, communities and our national economy from these horrific catastrophes," concluded Liddy.

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