Allstate's field business operations are conducted substantially from 17 offices located principally in metropolitan areas throughout the United States and Canada. Allstate also has approximately 250 claim service offices, sales facilities at approximately 10,500 locations, and approximately 650 automobile damage inspection locations, most of which are located at claim service offices and sales facilities.
Incorporated by reference to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 34-56 of the 1996 Annual Report.
The statements contained in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" portion of the 1996 Annual Report, which portion has been incorporated herein by reference in response to Item 7 hereof, that are not historical information are forward-looking statements that are based on management's estimates, assumptions and projections. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and The Securities Exchange Act of 1934 for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes several important factors that could cause the Company's actual results and experience with respect to forward-looking statements to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements:
As noted under "Catastrophe Management" at pages 36-38 of the 1996 Annual Report and "Catastrophe Exposure" in this Form 10-K, there are areas of the United States, other than Florida and California, in which the Company remains exposed to the possibility of sustaining material losses from catastrophes due to hurricanes and earthquakes. These other areas of potential losses due to hurricanes include major metropolitan centers near the eastern and gulf coasts of the United States; and other areas in the United States with exposure to potential earthquake losses include areas surrounding the New Madrid fault system in the Midwest and faults in and surrounding Seattle, Washington.
2. Personal Injury Severity Trends - The references to favorable personal injury ------------------------------- severity trends which management believes may be due in part to the redesign of the Company's bodily injury claim processes (see "PP&C Underwriting Results" at pages 39-40 of the 1996 Annual Report and "Property-Liability Insurance Claims and Claims Expense Reserves" in this Form 10-K) reflect statistical data for the periods indicated. As additional statistical data for these periods becomes available as claims are settled, new estimates of average personal injury severities will be developed and may be materially higher or lower than the current estimates. Moreover, the recent favorable trends may be reversed in the future because of the increased costs of settlements and adverse judgments in cases which proceed to litigation. In the meantime, however, the current data of reduced personal injury severities may influence state insurance regulators to deny Allstate rate increases which could reduce the growth of the Company's revenues.
Management has stated (see "Property-Liability Claims and Claims Expense Reserves," at pages 42-46 of the 1996 Annual Report and "Property-Liability Insurance Claims and Claims Expense Reserves" in this Form 10-K) that although the redesign of the claims processes for personal injury claims has resulted in an increased number of claims outstanding, the rate of increase in such outstanding claims has declined and the Company believes the rate of increase will continue to decline in 1997. This supposition is based on statistical records of less than a year's duration and continuation of normal frequency trends. The statistics on outstanding personal injury claims in 1997 could indicate an acceleration of the rate of such claims pending which would increase the uncertainty associated with the statistical methods used to establish reserves.
3. Increase in Property-Liability Net Investment Income - Management expects ------------------------------------------------------- that net investment income from its property-liability operations will increase in 1997, but not at as high a rate as the 7.9% increase in pretax net investment income in 1996 over 1995 (see "Net Investment Income and Realized Capital Gains," at pages 35-36 of the 1996 Annual Report). Any increase in net investment income will be highly dependent on the interest rate environment that exists in 1997.
4. Liquidity of Allstate Life Portfolio - Management believes that the assets in ------------------------------------ the Allstate Life portfolio are sufficiently liquid to meet future obligations to life insurance and annuity policyholders in various interest rate scenarios (see "Liquidity" at pages 51-52 of the 1996 Annual Report). However, an unexpected increase in surrenders and withdrawals, coupled with a significant increase in interest rates could make it difficult for Allstate Life to liquidate a sufficient portion of its portfolio to meet such obligations and also maintain its risk-based capital at acceptable levels.
5. Contingent Payment for Potential Deficiency in Northbrook Reserves - As ----------------------------------------------------------------------- stated in "Discontinued Lines and Coverages Underwriting Summary," at pages 41-42 of the 1996 Annual Report, the agreement under which Allstate sold the Northbrook companies to St. Paul in 1996 contains a provision which could require Allstate to pay St. Paul up to $100 million should Northbrook's reserves as of July 31, 1996 be determined, as of July 31, 2000, to have been understated. Management does not expect that it will be required to make a payment to St. Paul based on current trends, conditions and claim settlement processes. The establishment of appropriate reserves, including Northbrook's reserves, is an inherently uncertain process. Accordingly, the Company could be required to pay as much as $100 million to St. Paul when the July 31, 2000 calculation is agreed to, if the reserves should develop unfavorably.
right to draw upon the line of credit could be diminished or eliminated during a period when it would be most in need of financial resources.