Allstate Corporation

founded: 1931

Contact Information:

headquarters: 2775 sanders road
northbrook, il 60062 phone: (847)402-5000 fax: (847)402-2351 toll free: (800)547-3553 url: http://www.allstate.com

OVERVIEW

Coming in behind insurance giant State Farm, Allstate Corporation ranks as the second-largest U.S. home and auto insurance company, holding 13 percent of the market share. It also ranks number 17 as the largest life insurer and holds the largest market capitalization ($24 billion) of all personal line insurers in the nation. The company operates two main business segments: Allstate Personal Property and Casualty and Allstate Financial. Allstate Personal Property and Casualty provides private passenger auto and homeowners' insurance along with other specialty coverage to more than 14 million households, serviced by approximately 13,000 exclusive Allstate agents in the United States and Canada. Auto insurance accounts make up 70 percent of its insurance premiums revenue. Allstate Financial offers life and annuity products, such as whole life, traditional term, and variable life, as well as fixed and variable annuities, through Allstate Life, Deerbrook Insurance, and Glen-brook Life. As of September 20, 2001, Allstate's assets totaled $108.6 billion dollars and the company held $17.3 billion in equity.

COMPANY FINANCES

Allstate's net income for 2001 was $1.2 billion on revenues of $28.9 billion. These figures reflect a 47.6 percent decrease in net income and a less than one percent decrease in revenues compared to the previous year's net income of $2.2 billion on $29.1 in revenues. In turn, the $2.2 billion profit posted in 2000 was down from a net income of more than $2.7 billion in 1999. Shares of Allstate stock were trading at $33.70 per share at the end of 2001, down 23 percent from $43.56 per share at the end of 2000. Despite the recent losses, primarily due to increased claims and cost of repairs, property and liability premium revenues increased from $18.9 billion in 1997 to $22.6 billion in 2001. Similarly, Allstate Financial operations premiums and contracts totaled more than $2.2 billion in 2001, compared to $1.5 billion in 1997. However, within the same time period, the company's debt load increased from $1.7 billion to $3.9 billion.

ANALYSTS' OPINION

Although Allstate reacted quickly to its financially disappointing performance in 2001 by altering policies, increasing premiums, and streamlining operations, most analysts believe that the repercussions from the poor year have not come to an end. The company's poor underlying trends, along with lower investment income available for 2002, put Allstate at risk for ongoing financial woes in the immediate future. Analysts are concerned about the deterioration of the profitability of homeowners' insurance due to the increasing number of claims filed and the severity of the damage incurred. Also Allstate's auto insurance business has suffered from increased losses, caused in part by lower gas prices and the trend toward travel by auto rather than air after the terrorist attacks of September 11, 2001. The result was an increase in miles driven, which in turn translated into more accidents and claims. Increased competition and a slow economy adversely affected Allstate Financial. Nonetheless, analysts tend to place significant weight on Allstate's name recognition, excellent claims management system, and its large customer base. Although the company has suffered setbacks, analysts contend that it takes time to turn a ship as big as Allstate, and positive results from changes already implemented should be realized in the foreseeable future.

HISTORY

Allstate was formed in 1931 as a unit of Sears, Roe-buck & Company to sell auto insurance through the Sears catalog and by direct mail. During its first year of business, Allstate sold 4,217 policies, bringing in premiums of $118,323. A staff of 20 employees ran the operation, housed in the Sears headquarters in Chicago. Although the new company posted underwriting losses for the first two years, in 1933 active policies reached 22,000, and the company posted its first profit of $93,000.

Allstate came on the scene at a time when Sears was making the transition from catalog sales into the retail business. When Sears, which was previously only a catalog operation, began to open retail stores, Allstate expanded by opening sales offices within the Sears stores. Although the venture into traditional insurance marketing added the new expense of sales commissions, overhead was limited by the use of Sears' facilities. The business grew slowly but steadily during the Depression years, with premiums reaching $1.8 million in 1936. Over the next five years, premium revenues more than tripled to $6.8 million on 189,000 active policies. In 1941 only one quarter of all drivers owned auto insurance, but then the state of New York passed a law requiring auto insurance, and other states soon followed suit. The new legislation created new customers, which offset the loss of business due to the slow-down in auto production and sales during World War II.

FAST FACTS: About Allstate Corporation

Ownership: Allstate is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: ALL

Officers: Edward M. Liddy, Chmn., Pres., and CEO, 55, 2001 base salary $990,000, 2001 bonus $103,356; John L. Carl, VP and CFO, 53, 2001 base salary $473,200, 2001 bonus $265,687; Thomas J. Wilson II, Pres. Allstate Financial, 43, 2001 base salary $510,050, 2001 bonus $404,485; Richard I. Cohen, SVP and Pres. Allstate Property & Casualty, 56, 2001 base salary $540,000, 2001 bonus $206,464

Employees: 41,800

Principal Subsidiary Companies: Allstate Corporation serves as a holding company for its two main divisions: Allstate Personal Property and Casualty; and Allstate Financial. Its other interests include Allstate Bank, American Heritage Life Investment Corporation, Deerbrook Insurance Company, Encompass Insurance, and Sterling Collision Centers, Inc.

Chief Competitors: Allstate's primary competition for its auto and homeowner products comes from State Farm, which leads the industry. Increasingly tough competition is also coming from discount insurance companies, such as GEICO and Progressive. Allstate Financial competes with a variety of companies offering financial services, including MetLife, Mutual of Omaha, and Prudential.

During the 10 years following the end of World War II, Allstate grew dramatically. Spurred by the post-war economy, the company nearly doubled its size every two years. In 1945 revenues were $12 million; in 1955 that number swelled to $252 million. Allstate reacted to its rapid expansion by decentralizing its operations and instituting a three-tiered structure that stretched from the company's headquarters to its zone offices and ultimately to the regional offices. Some regional offices were further broken down into district service offices and local sales centers. Free-standing agencies joined Sears store offices as sales outlets.

In 1950 Allstate premiered its long-standing advertising campaign, "You're in Good Hands with Allstate." The slogan, coupled with the use of easy-to-understand policies complete with pictures, helped make Allstate a household name. In 1953 Allstate became a multinational corporation by opening its first Canadian office. The company also expanded its product line, introducing personal liability insurance in 1952 and residential fire insurance in 1954. In 1957 commercial fire, personal theft, and homeowners insurance were offered to customers, followed by personal health and commercial liability insurance in 1958. Boat, group life, and group health insurance followed in 1959. Also, in 1957 Allstate formed the subsidiary Allstate Life Insurance Company, which grew at an astronomical rate, bringing in $1 billion in life insurance revenues after just six years in business. In 1960 Allstate launched Allstate Enterprises, Inc., as the umbrella for a number of non-insurance based activities including a motor club, and finance businesses such as vehicle financing, mortgage banking, and mutual fund management.

Throughout the 1960s, Allstate continued to expand its product line, introducing workers compensation in 1964, surety bonds in 1966, ocean marine insurance in 1967, and a business package in 1968. Two new subsidiaries formed in 1964 to manage Allstate's Canadian interests: Allstate Insurance Company of Canada and Allstate Life Insurance Company of Canada. In 1966 the Judson B. Branch Research Center (later renamed the Allstate Research and Planning Center) opened in California, and the following year, company headquarters moved into spacious new offices in the Chicago suburb of Northbrook, Illinois. By 1970, Allstate employed some 6,500 insurance agents to sell Allstate products.

The 1970s brought continued growth and expansion. The 1972 acquisition of National First Corp. put Allstate in the mortgage banking business, and the acquisition of PMI Mortgage Insurance Co. the following year marked the company's entrance into the mortgage insurance business. In 1975 Allstate expanded globally, opening Seibu Allstate Life Insurance Company, Ltd., a joint venture in Japan with The Saison Group. In the same year Allstate bought Lippman & Moen, a group of Dutch insurers. Allstate also formed Tech-Cor,Inc., an auto-body research and reclamation business, in 1976. In 1978 the company established two wholly owned subsidiaries: Northbrook Property and Casualty Insurance Company and Allstate Reinsurance Company, Ltd., a London-based subsidiary of Allstate's international operations. A new commercial insurance division (later renamed Allstate Business Insurance) was also formed in the same year.

By 1980 Allstate was the sixth largest U.S. insurance group, posting a net income of $450 million on revenues of $6.2 billion and a maintaining a workforce of 12,500, the largest in the industry. In 1981 Allstate purchased Surety Life Insurance Company and Lincoln Benefit Life Company from the Dean Witter Reynolds group. The following year Allstate teamed with Dean Witter and Coldwell Banker to form the Sears Financial Network. In 1987 net income was $946 million. Facilitating the growth was the introduction of Allstate's Neighborhood Office Agent program, which placed more than 1,500 agents in more than 900 locations. A new, aggressive advertising campaign launched using the motto, "Leave It to the Good Hands People." The company's rapid growth finally caught up to earnings, and in 1990 the company posted a decreased net income, barely surpassing $700 million. Two years later, large premiums paid to cover damages caused by Hurricane Andrew left Allstate with a net loss of $825 million.

Rebounding from the loss, Allstate offered 20 percent of its stock to the public in 1993, generating $2.4 billion in capital. Revenues for the year jumped to $1.3 billion. However, in 1994 a major earthquake in California cost the company much of its profits as insurance claims surpassed $1 billion. In June of 1995 Sears decided to spin off Allstate and allow it to operate independently. Despite damage done by Hurricane Opal in 1995, Allstate posted a record $1.9 billion in income on $22.8 billion in revenues. Business continued to flourish for the next several years, as Allstate sold off some of its smaller interests to focus on its major business components.

By the late 1990s, new competition from discount insurance companies began to cut into Allstate's market, and automobile insurance rates dropped for the first time in a quarter of a century. Allstate responded by introducing Internet and telemarketing sales in 1999, which quickly sparked the ire of agents bypassed in the new process. Then, Allstate restructured its sales force so that agents were no longer Allstate employees, but instead independent contractors. The changes prompted a class action lawsuit filed by agents against the company.

STRATEGY

In 1950 Allstate launched its highly successful advertising campaign with the tag line, "You're in Good Hands with Allstate," which has remained a consistent theme for more than 50 years. In the 1980s the slogan "Leave it to the Good Hands People" built on the original campaign, producing an extraordinarily high level of name recognition for the company. In December 2001, Allstate added another twist to the original line. Using notable sports personalities, and advertising in such venues as Sports Illustrated, Allstate promoted its financial services with the line, "The right hands make all the difference." The goal of the new campaign was to transition the public's perception of Allstate from a protective insurance provider to a viable choice for proactive financial planning. A master of the tag line, Allstate has also developed a motto to tie together its insurance and financial services: "Insure Today. Secure Tomorrow." Allstate also began experimenting with a targeted advertising strategy by supplementing its mass-market approach with direct mail campaigns aimed at specific groups.

INFLUENCES

Allstate's strategy to transform itself from a traditional personal property and liability company into a major player in the financial services industry is not without risk. Allstate has yet to prove that customers will be comfortable buying mutual funds from the same agent that provides their auto and homeowners' insurance. The company is also moving away from its long history of success in traditional insurance for a less certain future in the highly competitive financial arena. However, management feels that this is a necessary risk; given the pressure from shrinking profits in traditional insurance, despite a steady growth in premium revenues. State Farm has led the insurance industry toward rock-bottom prices that have cut profit margins to near zero. Discount insurance providers, such as GEICO and Progressive, have added to the downward trend in insurance pricing. Allstate has determined that the higher profit margins of financial services are worth the risk of entering the competitive field. Its chief rival, State Farm, is also making a move into mutual funds.

CURRENT TRENDS

Allstate's chief executive officer Edward Liddy set the company on a clear course for the future in 1998, announcing that Allstate was working to become a major player in the financial services industry. By 2002 Allstate was pushing its agents to obtain securities licenses and begin selling financial services, especially targeting its existing base of insurance customers. By 2002 almost half of Allstate's 13,000 agents held securities licenses. Allstate also increased its staff of exclusive financial agents by half to assist its entrance into the financial field. Allstate Bank began operating in October 2001 and offered products and services such as savings accounts, certificates of deposit, and insured money-market accounts. Additionally, Allstate began to use independent agents and brokers much more extensively. Four of every five new dollars earned by the financial service business during 2001 were generated by independent agents. Allstate is also pushing its own exclusive Allstate agents to sell financial products by increasing commissions for financial sales; lowering them for traditional insurance products; and, for the first time in company history, setting sales quotas.

CHRONOLOGY: Key Dates for Allstate Corporation

1931:

Allstate Insurance Company is founded by Sears, Roebuck and Co. Allstate offers auto insurance through the Sears catalog

1934:

First sales office opens in a Sears store in Chicago

1945:

Revenues top $12 million

1950:

Launches "You're in Good Hands with Allstate" campaign

1953:

Becomes international by opening first office in Canada

1957:

Expands insurance offerings to include commercial fire, personal theft, and homeowners insurance along with life insurance through the establishment of Allstate Life Insurance Company

1975:

Expands into Japan

1978:

Becomes sixth largest U.S. insurance group with net income of $450 million on revenues of $6.2 billion

1985:

Institutes the Neighborhood Office Agent program

1992:

Damage from Hurricane Andrew causes Allstate to post a net loss of $825 million

1995:

Sears spins off its 80 percent ownership for $9 billion and Allstate becomes 100 percent publicly owned

1998:

Auto insurance rates drop nationwide for the first time in 25 years, and Allstate faces new competition from discount auto insurers such as Geico

2002:

Allstate is the second-largest personal property-casualty insurer in the United States, providing insurance to more than 14 million American households

To cut costs and improve customer service, Liddy also instituted the Good Hands Network, which combined the Allstate agent force with allstate.com and 1-800-Allstate. By the end of 2001 the Good Hands Network extended to 30 states plus Washington DC and reached nearly 90 percent of the U.S. population. Allstate's entrance, albeit late, into Internet-based services and toll-free customer service was well received; in 2001 allstate.com recorded approximately 1 million hits every month and the toll-free help line answered 170,000 calls per week.

Allstate's restructuring has not been wholly endorsed by its force of agents. In 2000 Liddy fired all 6,200 agents as employees of the company and offered them positions as independent agent contracts. About 3,800 accepted the offer. Then Liddy cut an additional 4,000 jobs, representing approximately 10 percent of the company's workforce. As a result, dozens of former employees and the Equal Employment Opportunity Commission have threatened to file suit, claiming Allstate violated federal employment laws when it repositioned its agent workforce to independent contractor status and required them to sign waivers agreeing not to sue the company. Some of those agents who continued with Allstate in the new contractor role have expressed concerns regarding the company's demands that they sell financial products; an area in which they lack knowledge, skill, and training. Although the company is taking the problem seriously, Allstate describes the tension as a typical, yet temporary reaction to an aggressive change.

PRODUCTS

Allstate divides their product line into five segments: asset protection, family life protection, short-term financial objectives, asset management and accumulation, and wealth transfer. Asset protection products consist of Allstate's fundamental auto and homeowner insurance products. Within this product category, Allstate also places such specialty insurance as renter insurance, residential fire, boats, commercial package policies, and emergency roadside assistance. Family life protection products include life, long-term care, and disability insurance. Services provided under the umbrella of short-term financial objectives consist of banking products, such as checking, savings, and mortgages, as well as certificates of deposit and money market accounts. Asset management and accumulation refers to all products used for retirement fund management, such as fixed and variable life insurance and annuities, mutual funds, and individual retirement accounts. Wealth transfer services provide estate planning products such as life insurance and trust funds.

CORPORATE CITIZENSHIP

Allstate conducts its community service activities through the Allstate Foundation, an independent corporation created in 1952 funded by Allstate Insurance. It acts as the service arm of Allstate to fulfill the company's three-point community mission: tolerance, inclusion, and diversity; safe and vital communities; and economic empowerment. During 2001 the Allstate Foundation contributed $7.1 million to nonprofit organizations. In the areas of tolerance, inclusion, and diversity, Allstate has focused its resources on teaching tolerance to youth, alleviating discrimination, and ending hate crimes through corporate sponsorship of mentoring, education, and community-building organizations such as the National Urban Council. In the spirit of creating safe and vital communities, Allstate offers support to organizations and programs such as the American Red Cross; Street SMART, a program sponsored by the Boys and Girls Club of America that teaches children to resist violence and gangs; and Allstate's Neighborhood Partnership Program, which promotes neighborhood development. To fulfill its third objective of economic empowerment, Allstate engages directly and indirectly in providing financial and insurance education and economic literacy training. The company also sponsors initiatives aimed at increasing women's roles in the business world.

CARD TALK TO ALLSTATE

During a bridge game on a Chicago commuter train in 1930, insurance broker Carl L. Odell suggested to his neighbor and morning card partner, Robert E. Wood, the idea of selling auto insurance by direct mail, thus cutting out the commission costs paid to agents and thereby greatly increasing profits. Wood, as the president and chief executive officer of Sears, Roebuck and Co., liked the idea and subsequently offered the idea to his board of directors. The result was the formation of the Allstate Insurance Company in April 1931, named after an automobile tire sold by Sears. Allstate offered auto insurance by direct mail and through the Sears catalog. The first claim settled was for $1.65 to replace a broken car door handle. By 2002 Allstate insured one of every eight cars on the road in the United States.

GLOBAL PRESENCE

Allstate Canada, in operation for more than 45 years, offers auto and home insurance through its Canadian Allstate agents and via the Allstate Canadian Web site: www.allstate.ca. The Canadian Allstate network employs 1,500 people, including 450 agents who serve 250 communities. Financial and saving products, as well as life, travel, and home security insurance, are also sold through partnerships with Clarica, Unum, Travel Underwriters, and Voxcom Security.

EMPLOYMENT

Allstate has consistently earned kudos for the diversity of its employee base. More than 60 percent of its workforce is made up of women. Even more impressive is the fact that nearly 40 percent of the company's professional staff is female. On February 13, 2002, the National Association for Female Executives recognized Allstate Corporation on their "Top 25" list of the nation's best companies for executive women. Noting Allstate's large number of female officials and managers, the organization also acknowledged Allstate for it programs that groom women for upper management positions, flexible work arrangements, and child-care benefits. Allstate has also received recognition from such publications as Careers and the disABLED, Hispanic, Minority MBA, and Working Mother.

SOURCES OF INFORMATION

Bibliography

Barr, Aaron. "Allstate Plays a Broader Hand." Adweek, 10 December 2001.

Daniels, Steve. "Allstate Puts Teeth into Revamp Plan." Crain's Chicago Business, 4 February 2002.

Gogoi, Pallavi. "Is Allstate in Good Hands?" Business Week, 21 May 2001.

Grant, Tina, ed. International Directory of Company Histories, Vol. 27. Detroit: St. James Press, 1999.

Regent, Nancy, ed. Hoover's Handbook of American Business. Austin, TX: Hoover's Business Press, 2001.

Roman, Monica. "Is Allstate Covered for This?" Business Week, 14 January 2002.

For an annual report:

on the Internet at: http://www.allstate.com/investor/annual_report/or telephone: (800) 416-8803 or write: Allstate Insurance Company, Investor Relations, Northbrook, IL 60062

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Allstate Corporation's primary SICs are:

6311 Life Insurance

6331 Fire, Marine, and Casualty Insurance

6371 Pension, Health, and Welfare Funds

Also investigate companies by their North American Industry Classification System codes, also known as NAICS codes. Allstate Corporation's primary NAICS codes are:

524113 Direct Life Insurance Carriers

524126 Direct Property and Casualty Insurance Carriers

551112 Offices of Other Holding Companies