Emerson Cammack Lecture Series University of Illinois October 19, 2007

Emerson Cammack Lecture SeriesUniversity of Illinois

October 19, 2007

Assessing Shareholder Value Creationin the P&C Industry

This presentation contains confidential information. Allstate's policies prohibit you from disclosing or discussing such information with anyone –except other employees who need the information to do their work. Do not reproduce or redistribute this presentation. Make sure you store this presentation

in a secure manner or destroy it. Remember that Allstate employees are prohibited from trading on the basis of material nonpublic information.

2

Today’s Discussion

• Industry analysis

• Financial and market analysis

• Investor analysis

• Governance and management analysis

3

Industry analysis

Whether they misclassify risk or allow risk pricing to be driven by the market instead of underwriting discipline … is the fundamental driver of low returns in this industry.

– McKinsey & Company, The Journey, Revisited

4For management discussion only. Contains information from third-party sources that does not necessarily represent the opinions, business objectives, or business strategies of Allstate Insurance Company or its affiliates.

According to McKinsey & Company, “The Journey, Revisited”: Drivers of Poor Returns in P&C Industry

1 Fundamental characteristics of P&C business

2 External forces that put pressure on the industry

3Failure to step up to core challenges

• Undifferentiated, commodity-like products• Ease of shopping and switching• No barriers to entry; real barriers to exit• Decentralized decision making that pushes too much to

the front line, where experience and expertise is thinnest

• Slow rate-making engines that lag exposure levels• Complexity of the business, particularly the number and

interrelationships of risk drivers• Runaway, unpredictable litigation costs driven by

the fact that many rulings are applied retrospectively and interpretations vary by jurisdiction

• Fragmented, unsupportive regulatory system that frequently delays product design, underwriting, and pricing changes and holds down prices

• Indiscriminate rating agencies• Naïve investors

• Underinvestment in talent, particularly shortage of general management and financial talent

• Failure to build strong financial disciplines• No single voice in Washington

These factors contribute to the trailing returns of the P&C industry vis-à-vis other financial services sector

17.3

16.8

15.7

15.0

14.0

12.2

6.2

Asset management

Investment banks

Credit cards

Brokerages

Commercial banks

Life

P&C

ROE by industry, 1988-2002Percent

Key drivers

5

Financial and market analysis

All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.

– Charles T. Munger,Vice Chairman, Berkshire Hathaway

6

Overview of Analytical Approach

1

2

3

Map P&C universe of publicly traded companies

Develop point of view on shareholder value creation

Analyze investor base of P&C companies

• Gather 12-year data on 52 financial variables

• Examine correlations between financial performance and share price performance

• Examine correlations between financial performance and relative valuation

• Profile typical investors • Summarize investment focus of major

investors

Key activities

7

P&C Market Map100% = $142.7 billion

Source: WSJ Online: Allstate analysis

16-20

11-15

6-10

0-5

Price appreciation 12-year Percent

Allstate

Safeco

Mercury General

The Hartford

Cincinnati Financial

American Financial

Hanover InsuranceCommerce Group

Chubb

Progressive

21st CenturyOhio Casualty

Horace Mann

HarleysvilleSelective

8

Comparison of Market and Performance Metrics

Company Ticker

Price

SharesMillions

Market cap $Millions

Percent change 2006-2008E

Price/earnings multiple

10/16/0752-week high

52-week low

52-week highPercent

Earnings per share

2006 2007E 2008E 2006 2007E 2008E

Allstate ALL 57.52 66.14 50.25 87.0% 607.41 34,938 7.84 6.97 6.84 -12.8% 7.3 8.3 8.4

21st Century TW 22.00 22.00 63.00 100.0% 87.92 1,934 1.12 0.88 0.88 -21.4% 19.6 25.0 25.0

American Financial AFG 29.50 36.84 23.94 80.1% 119.55 3,527 3.55 3.37 3.38 -4.8% 8.3 8.8 8.7

Chubb CB 54.16 55.99 45.65 96.7% 401.48 21,744 5.98 5.58 5.49 -8.2% 9.1 9.7 9.9

Cincinnati Financial CINF 43.69 49.19 36.00 88.8% 171.68 7,501 5.30 2.90 2.85 -46.2% 8.2 15.1 15.3

Commerce Group CGI 28.94 35.95 26.92 80.5% 65.53 1,896 3.55 3.26 2.90 -18.3% 8.2 8.9 10.0

Hanover Insurance THG 43.95 51.00 36.52 86.2% 51.48 2,263 3.67 4.19 4.21 14.7% 12.0 10.5 10.4

Harleysville HGIC 34.54 38.72 27.57 89.2% 31.93 1,103 3.49 2.88 3.02 -13.5% 9.9 12.0 11.4

Horace Mann HMN 20.68 23.23 17.61 89.0% 43.19 893 2.19 1.88 1.89 -13.7% 9.4 11.0 10.9

Mercury General MCY 52.85 59.06 50.48 89.5% 54.68 2,890 3.92 4.34 4.32 10.2% 13.5 12.2 12.2

Ohio Casualty OCAS 44.20 44.20 24.59 100.0% 60.00 2,652 3.44 2.95 2.63 -23.5% 12.8 15.0 16.8

Progressive PGR 19.22 25.34 18.88 75.8% 736.22 14,150 2.10 1.87 1.75 -16.7% 9.2 10.3 11.0

Safeco SAF 60.53 69.15 54.46 87.5% 105.61 6,393 7.51 6.20 6.07 -19.2% 8.1 9.8 10.0

Selective SIGI 21.21 29.10 19.04 72.9% 54.86 1,164 2.65 2.31 2.41 -9.1% 8.0 9.2 8.8

The Hartford HIG 94.95 106.23 83.00 89.4% 316.00 30,004 8.69 9.85 10.38 19.4% 10.9 9.6 9.1

Average 87.5% -10.9% 10.3 11.7 11.9

9

Overview of Statistical Methodology and Data AnalysisStatistical methodology• Exploratory data analysis: descriptive statistics (numbers and graphs) were calculated on Y (dependent) variable and each of

the X (independent) variables. Scatterplots identified correlations between Y and each X, in addition to correlated X variables.• Model building, selection and refinement

– Find a set of predictor variables that will be included in the model: (R Squared, Adjusted R Squared, Cp criterion, etc.); stepwise procedure; forward, backward selection; decision trees

• Model selection and refinement: model adequacy, addition of interaction terms, outlying observations, model assumptions

Data analysis

A broad array of historical and financial/accounting data was reviewed in order to determine which measurements strongly correlated with stock price performance. 180 data points were collected for each variable listed below

Income statement dataAutomobile earned premiumHomeowners earned premiumLife earned premiumInvestment incomeCapital gainsTotal revenueClaims and claims expenseAmortization of deferred policy acquisitions costsOperating costs and expensesInterest expenseTotal costs and expensesUnderwriting incomeNet incomeEarnings per share basicEarnings per share dilutedReinsurance: direct premiums earnedReinsurance: premiums assumedReinsurance: premiums ceded

Balance sheet dataFixed income securitiesEquity securitiesTotal investmentsInvestment yieldOther assetsReinsurance recoverablesTotal assets

Long-term debtTotal liabilitiesRetained incomeTotal equityShares outstanding

Reserves

Cash flow dataDividends paidTreasury Stock Repurchases

Calculated data and other variables Book value per shareDividend payoutDividend yieldDow Jones Industrial AverageExpense ratioLiabilities/assetsLiabilities/equityLoss ratioMarket capMarket shareNet marginPremium/surplusPrice/book valuePrice/EPSReserves/surplusReturn on assetsReturn on equityS&P 500 IndexSustainable growth rate

Correlation coefficients

10

0.81

0.80

0.75

0.71

0.69

0.63

Aggregate

Summary of Correlation Coefficients

Top 6 performersBottom 7 performers

* Absolute values

Book value per share

Equity

Revenue

Net income

Combined ratio*

Earned premium

0.87

0.88

0.87

0.78

0.82

0.56

0.58

0.49

0.26

0.65

0.19

0.60

11

Drivers of Return on Equity1995-2006 Averages

CompanyProfit

marginAsset

turnoverROA

Financial leverage

ROE

Allstate 8.7% 0.27 2.4% 6.2 14.3%

21st Century 5.9% 0.66 3.9% 2.4 9.2%American Financial 4.8% 0.22 1.0% 10.2 9.5%Chubb 9.8% 0.29 2.8% 4.0 11.0%Cincinnati Financial 12.5% 0.22 2.7% 2.3 6.6%Commerce 10.8% 0.49 5.3% 2.9 15.1%Hanover 2.5% 0.14 0.4% 10.6 3.6%Harleysville 5.5% 0.38 2.1% 4.1 8.3%Hartford 5.9% 0.09 0.6% 20.9 11.1%Horace Mann 7.0% 0.17 1.2% 9.2 10.7%Mercury General 9.8% 0.67 6.6% 2.3 14.6%Ohio Casualty 6.1% 0.35 2.2% 3.9 7.7%Progressive 8.0% 0.67 5.4% 3.4 18.2%Safeco 5.8% 0.26 1.5% 5.7 6.9%Selective 6.2% 0.38 2.3% 4.5 10.3%

Average 7.3% 0.35 2.7% 6.2 10.5%

• A company’s ROE is affected by two factors: how profitably it employs its assets and how big the firm’s asset base is relative to shareholders’ investment

• On average over long periods, large publicly traded firms in the U.S. generate ROEs in the range of 12%

• Compared to historical trends, this peer group’s collective performance can be viewed as below average, and is likely not adequate to cover reasonable estimates of its equity cost of capital

Net income/revenue – profitability of a company’s operating and financing decisions

Revenue/assets – revenue dollars that a company is able to generate for each dollar of its assets

Net income/assets – profits that a company is able to generate for each dollar of assets invested

Assets/shareholders’ equity – how many dollars of assets a company is able to deploy for each dollar invested by its shareholders

12

Beta

Equity cost of

capital* ROEAllstate 0.67 10.6 14.321 Century 0.87 12.2 9.2American Financial 0.99 13.2 9.5Chubb 0.78 11.5 11.0Cincinnati Financial

0.55 9.7 6.6

Commerce Group 0.59 10.0 15.1Hanover 1.03 13.5 3.6Harleysville 0.53 9.5 8.3Hartford 0.69 10.8 11.1Horace Mann 0.73 11.1 10.7Mercury 0.61 10.2 14.6Ohio Casualty 1.00 13.3 7.7Progressive 0.77 11.4 18.2Safeco 0.62 10.2 6.9Selective 1.16 14.6 10.3 Average 11.5 10.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-15 -10 -5 0 5 10

Market/book

Spread

*Assumes market risk premium of 8.0% and risk-free rate of 5.275%. CAPM likely understates true cost of equity for this peer group. Using the Fama-French three factor model would yield higher estimates, given that all are value and/or small cap companies

Note:Excluding 21st Century

Source:Bloomberg; www.federalreserve.gov

AllstateAmerican Financial

Chubb

Cincinnati Financial

Commerce Group

Hanover

Harleysville

Hartford

Horace Mann

Ohio Casualty

SafecoSelective

Mercury

Progressive

R2 = 0.81

Return on Equity and Cost of Equity Differential

13

THGSAF

PGR

HIG

CGI

MCY

SIGI

CBHGIC

CINFALL

TWHMN

OCASAFG

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0.0 5.0 10.0 15.0 20.0

Book value growth

Price appreciation

Price change r² = 0.80

1996-2006

Price appreciation is strongly correlated with changes in book value

ALLCBHIGHMN

SIGIAFG

HGICCINF

SAF

OCASTHG

CGI

PGR

TWMCY

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0 5.0 10.0 15.0 20.0

ROE

Multiple expansion

Market value/ book value r² = 0.74

Market-to-book multiples are strongly correlated with return on equity

Drivers of Price and Multiples

14

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 100,000 200,000 300,000 400,000

Total assets$ Thousands

Market/book multiple

Number of employees

Market value/ book value

Other indicators of size (i.e., in addition to revenue) correlate poorly with relative market valuation

PGR

ALL HIGCB

SAFAFGCINF

THGHGICOCAS

SIGI

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 10,000 20,000 30,000 40,000 50,000

TWMCYHMNCGI

PGR

ALLHIG

CB

SAF

THGSIGI

TWMCY

HMNCGI

CINFHGICOCAS

AFG

Source: Wall Street Journal; Company 10-K filings

r² = 0.05 r² = 0.43

Impact of Size on Relative Valuation

15

Investor analysis

One of the biggest risks in owning growth stocks is not that their growth will stop, but merely that it will slow down. And in the long run, that is not merely a risk, but a virtual certainty.

– Benjamin Graham, The Intelligent Investor

16

Overview of Investor BaseCompany Major investors Primary investment focus

AllstateBarrow HanleyVanguard Windsor II Fund

Large cap value/index

21st CenturyAsset Allocation & Management DFA U.S. Small Cap Value Series

Small cap value

HartfordFidelity Management & ResearchVanguard 500 Index Fund

Large cap indexDividend growth/income

ChubbDodge & CoxVanguard 500 Index Fund

Large cap index

ProgressiveRuane, Cunniff & GoldfarbDavis New York Venture Fund

Growth

Cincinnati FinancialVanguard GroupJP Morgan Mid Cap Value Fund

Mid cap value/index

SafecoDodge & CoxLord Abbett Mid Cap Value Fund

Mid cap value/index

American FinancialLSV Asset ManagementAllianz NFJ Small Cap Value Fund

Small cap value

Mercury GeneralEubel Brady & SuttmanJanus Mid Cap Value Fund

Mid cap valueRising dividends

Hanover InsuranceHotchkis and Wiley Capital ManagementAmerican Beacon Small Cap Value Fund

Small cap value

Commerce GroupBarclays Global InvestorsFidelity Low-Priced Stock Fund

Small cap value/index

Ohio CasualtyDimensional Fund AdvisorsDFA U.S. Small Cap Value Series

Small cap value

Horace MannAriel Capital ManagementDFA U.S. Small Cap Value Series

Small cap value

HarleysvilleDimensional Fund AdvisorsDFA U.S. Small Cap Value Series

Small cap value

SelectiveDimensional Fund AdvisorsColumbia Acorn Fund

Small cap value

17

The Fund seeks to provide long-term growth of capital. As a secondary objective, the Fund seeks to provide some dividend income. Focus is on stocks with below-average price/earnings ratios and above-average yields.

Vanguard Windsor II Fund

This relatively conservative fund invests only in stocks that have paid dividends in nine of the most recent 10 years. If you want a fund with low expenses, low portfolio turnover and conservative stock picking, Washington Mutual Investors might be your cup of tea.

Paul Merriman, Fund Advice.com

The Fund seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks.

Vanguard 500 Index Fund

Institutional investorsBarrow Hanley 4State Street Global Advisors 4Fidelity Management 4Barclays Global Investors 3Vanguard Group 3MFS Investment Management 3Pzena Investment Management 3Wellington Management 2Capital Research & Management 1LSV Asset Management 1

28

Mutual fundsVanguard Windsor II Fund 3Fidelity Contrafund 1American Funds Washington Mutual 1John Hancock Funds Classic Value 1Vanguard 500 Index Fund 1MFS Value Fund 1Vanguard Total Stock Market Index

2Vanguard Institutional Index FundSPDR Trust SeriesCREF Stock Account

10 Total 38

Major Institutional Holders of Allstate

18

Institutional investorsDavis Selected Advisers 11Ruane Cunniff & Goldfarb 9TCW Asset Management 5State Street 3Vanguard Group 3Barclays Global Investors 3Horizon Asset Management 2Baillie Gifford 2T. Rowe Price 1Capital Guardian 1

40

Mutual fundsDavis New York Venture Fund 5Sequoia Fund 3Selected American Shares 1Vanguard 500 Index Fund 1TCW Select Equities Fund 1T. Rowe Price Equity Income Fund 1Vanguard Total Stock Market Index 1CREF Stock Account 1Vanguard Institutional Index Fund 1Eaton Vance Tax-Managed Growth 1

16 Total 56

Like most portfolio managers, we believe in understanding the financial condition of companies inside and out. Where we gain a competitive edge is by focusing on finding top-quality management teams who respond innovatively to change. We see our job as separating the doers from the bluffers.

Christopher Davis, Portfolio Manager,

Davis New York Venture Fund

A bottom-up approach is emphasized that focuses primarily on assessing the operating prospects of each prospective holding. Companies targeted for investment are believed to have strong and enduring business models, inherent advantages over their competitors and unique business franchise characteristics.

The following characteristics are emphasized: Superior management teams, specific plans to capitalize on positive fundamental changes, and low-cost production and/or distribution capability.

TCW Galileo Select Equities Fund

Major Institutional Holders of Progressive

19Source:Wall Street Journal; Market Watch; www.sec.gov; Sequoia Fund 2006 Annual Meeting transcript

Progressive’s Recent Quarterly Performance

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-06

Apr-06

Jul-06 Oct-06 Jan-07

Apr-07

Jul-07 7-Sep

10

15

20

25

30

Price/book

Multiple

Price

$

A

B

C D

ARuane Cunniff, along with its affiliated Sequoia Fund, files Schedule 13-G, reporting beneficial ownership of 124 million Progressive shares, approximately 17% of total shares outstanding

BJohn Harris, the investment analyst at Ruane Cunniff responsible for Progressive, responds at Sequoia Fund annual meeting to fundholder questioning Progressive’s recent slide, “I don’t think our view of the company’s prospects has changed. We think they are bright. We are perfectly happy to wait a few years while the earnings are flattish or possibly decline so long as we think that management is doing what it needs to do to maximize the company’s ability to earn money far into the future. I think that Glenn Renwick, who is just an outstanding CEO, and his team are doing just that. As long as they continue to do that, we’re very happy to hold the stock.”

C Ruane Cunniff and Sequoia divest over 13 million Progressive shares

DProgressive reports a 29% drop in second quarter earnings. Shares experience 1-day decline of almost 4%. Goldman Sachs analyst, Tom Cholnoky, comments, “Progressive’s more aggressive pricing actions have yet to generate meaningful improvements in new business production.”

• Over recent history, Progressive has been the only P&C stock that has been widely held by growth investors

• Investors are particularly unforgiving of companies that have positioned themselves as growth plays and are subsequently unable to fulfill growth expectations

• Progressive’s plight highlights two fundamental forces at play– Inability of any one company to defy

powerful industry dynamics and to overcome industry structure/barriers

– Reversion to the mean

Key drivers

E

E Progressive reports a 21% drop in third-quarter earnings

20

Governance and management analysis

It’s the people, stupid. – Ram Shriram,

Early Google Investor

21

Name Title Age Tenure Previous experience Education

Edward M. Liddy Chairman & CEO

61 12 • COO, Allstate, 94-99• CFO, Sears, 88-94• EVP, ADT, 86-88• CFO, GD Searle, 81-88

• BA, Catholic University, 68• MBA, George Washington, 72

Thomas J. Wilson COO 49 11 • VP, Sears, 93-95• Dean Witter, 86-93• Amoco, 80-86

• BS, Michigan• MBA, Kellogg

Danny L. Hale CFO 61 3 • CFO, Promus Hotel, 98-99• CFO, USF&G, 91-98• Chase, 88-91• GE, 66-88

• BA, Yale, 66

Joan H. Walker SVP, Corporate Relations

59 1 • EVP, Qwest• SVP, Pharmacia• SVP, Monsanto• SVP, Ameritech, 96-99• Partner, Bozell Sawyer

• BA, Rutgers• MA, Rutgers

Michael J. Roche SVP, Technology

55 4 • CIO, Heller Financial, 90-02

• Continental Bank, 73-90

• BS, Northern Illinois• MBA, Northern Illinois

Michael J. McCabe SVP, General Counsel

61 35 • U.S. Civil Aeronautics Board

• BA, Northern Colorado• JD, Catholic University

Executive Leadership – Allstate

22


Samuel H. Pilch Group VP, Controller

60 11 • Travelers

Joan M. Crockett SVP, Human Resources

56 34 • BA, John Carroll

Ronald D. McNeil SVP, Distribution

54 30 • Controller • BS, Wayne State, 75

Casey J. Sylla SVP, Allstate Financial

63 11 • EVP, Northwestern Mutual, 71-95

• BS, Wisconsin, 66• MS, Missouri, 69

Eric A. Simonson SPV, Investments

61 4 • SVP, John Hancock, 96-02• Prudential, 75-96

• BA, Princeton

Catherine S. Brune SPV, Technology

53 30 • BA, South Carolina, 74

Joseph J. Tripodi SVP, Marketing

51 3 • CMO, Bank of New York, 02-03

• CMO, Seagram, 99-02• CMO, Master Card, 89-98• Mobil Oil, 81-88• IBM, 77-81

• MS, London School of Economics, 81

• BA, Harvard, 77

George E. Ruebenson SVP, Claims 58 36 • Controller • BS, Bradley, 70

Executive Leadership – Allstate, continued

23


Edward M. Liddy 61 7 CEO, Allstate

Goldman Sachs3M

• Nominating & governance

Edward A. Brennan 73 13 Former CEO, Sears

AMRExelonMcDonald’s3M

• Nominating & governance (chair)

• Compensation & succession

James G. Andress 68 13 CEO, Warner Chilcott

Dade BehringSepracorXoma Corp.

• Audit (chair)• Nominating & governance

Joshua I. Smith 66 9 Chairman, Coaching Group

CaterpillarFedEx

• Audit• Nominating & governance

Mary A. Taylor 57 6 Former executive, Citigroup

AutodeskBlue NileSabre


W. James Farrell 64 7 CEO, Illinois Tool Works

KraftSearsUAL

• Compensation & succession• Nominating & governance

Ronald T. LeMay 61 7 Former COO, Sprint

CeridianImation


Board of Directors – Allstate

24


H. John Riley 66 8 CEO, Cooper Industries

Baker Hughes • Compensation & succession (chair)


F. Duane Ackerman 64 7 CEO, Bell South

• Audit• Compensation & succession

Judith A. Sprieser 53 7 CEO, TransoraEVP, Sara Lee

Kohl’sReckitt Benckiser


Jack M. Greenberg 64 4 Former CEO, McDonald’s

AbbottFirst DataHasbroManpower

• Audit• Compensation & succession

J. Christopher Reyes 54 4 Chairman, Reyes Holdings

Fortune BrandsTribune


Board of Directors – Allstate, continued

25


Peter B. Lewis Non-executive Chairman

73 41 • BA, Princeton

Glenn M. Renwick CEO 51 20 • CIO• Marketing

• BA, Canterbury (New Zealand)• MA, University of Florida

(engineering)

W. Thomas Forrester CFO 58 22 • Central States Division President

• Price Waterhouse, 76-84

• BS, University of South Florida• MBA, Dartmouth

Brian J. Passell Group President, Claims

50 • General Manager – Pennsylvania

Richard H. Watts Group President, Sales & Service

52 • General Manager – Ohio

John A. Barbagallo President, Drive

47 20 • General Manager – Atlantic/Great Plains

Brian A. Silva President, Commercial Auto

54

Executive Leadership – Progressive

26


John P. Sauerland President, Direct

42 15 • Claims General Manager – Midwest

Jeffrey W. Basch Chief Accounting Officer

48

Thomas A. King Treasurer 47 19 • General Manager – Minnesota/Wisconsin

• Arthur Andersen, 82-85

• BA, Harvard• MS, NYU• MBA, Harvard

Charles E. Jarrett Chief Legal Officer

49 6 • Partner, Baker & Hostetler

William M. Cody Chief Investment Officer

43

Susan P. Griffith Chief Human Resources Officer

42 • Process Manager - Claims

Raymond M. Voelker Chief Information Officer

43 21 • BS, Case Western• MBA, Case Western

Executive Leadership – Progressive, continued

27


Peter B. Lewis 73 41 Chairman, Progressive

• Executive (chair)

Glenn M. Renwick 51 7 CEO, Progressive Fiserv

Charles A. Davis 58 10 CEO, Stone Point CapitalCEO, MMC CapitalPartner, Goldman Sachs

Media GeneralMerchants BanksharesAxis Capital

• Compensation (chair)• Nominating

Stephen R. Hardis 71 18 Chairman, Axcelis Technologies

AxcelisNordsonLexmarkAmerican Greetings

• Executive• Nominating• Investment & capital

Norman S. Matthews 74 25 Former President, Federated Department Stores

Finlay EnterprisesHenry Schein

• Nominating (chair)• Compensation

Donald B. Shackelford 74 30 Chairman, Fifth Third Diamond Hill • Investment & capital

Jeffrey D. Kelly 53 6 CFO, National City • Investment & capital• Executive

Board of Directors – Progressive

28


Philip A. Laskawy 66 5 CEO, Ernst & Young General MotorsLoewsHenry ScheinCap Gemini

• Audit (chair)

Bernadine P. Healy 62 4 CEO, American Red Cross

AshlandNational CityInvacave

• Audit

Bradley T. Sheares 50 3 Merck Honeywell

Patrick H. Nettles 63 2 Chairman, Ciena AxcelisCiena

• Audit

Abby F. Kohnstamm 53 0 CMO, IBMAmerican Express

Tiffany & Co.

Board of Directors – Progressive, continued

Appendix

October 19, 2007

Assessing Shareholder Value Creationin the P&C Industry

This presentation contains confidential information. Allstate's policies prohibit you from disclosing or discussing such information with anyone –except other employees who need the information to do their work. Do not reproduce or redistribute this presentation. Make sure you store this presentation

in a secure manner or destroy it. Remember that Allstate employees are prohibited from trading on the basis of material nonpublic information.

30Source: SEC Form S-1; Wall Street Journal; A.M. Best

Business summary Key observations

Profile of 21st Century Insurance GroupOverview Summary financials

ManagementAge

Title Background

Bruce W. Marlow 58 President, CEO

COO Progressive Corporation, SVP Allstate Corporation

Steven P. Erwin 63 CFO, Senior VP

Principal with Interim CFO Resources, EVP and CFO at Health Net, Inc.

Michael J. Cassanego

56 SVP, General Counsel

Industrial Indemnity Company, Fremont

Richard A. Andre 57 SVP, Human Resources

Fidelity National Title Insurance Company, Safeco Corporation

Address 6301 Owensmouth Ave Ste 700Woodland Hills, CA 91367

Business description

21st Century is a direct-to-consumer provider of personal auto insurance. Insures over 1.5 million vehicles.

Business strategy

Direct-to-consumer focus. Since 2003, management has articulated a four-point strategy: geographic expansion, superior product and service offerings, sophisticated pricing segmentation and maintaining its position as a low-cost provider. Implementing a multi-year strategy for national expansion.

Business segmentsAutomobile insurance in 17 states and personal auto, motorcycle and umbrella in California.

Ticker TWA.M. Best rating A+Market capitalization $1.92 billionIncome statement information (millions)

Revenue $1,375

Operating expense 1,234

Operating income 141

Net income after tax 97

Total assets $1,952 millionShareholder’s equity $899 millionEmployees 2,344

• On May 15, 2007 21st Century and AIG announced a definitive merger agreement. AIG currently owns approximately 62% of the outstanding shares of 21st Century. Upon completion of the transaction, 21st Century will become a wholly owned subsidiary of AIG.

• Bruce Marlow will lead AIG’s direct private passenger auto operations, which will be comprised of 21st Century and AIG Direct.

• In 2006, 21st Century entered eight new states, increasing the total to 17 states and raising the percentage of the US market in which it operates from 34% at year-end 2005 to 60% at year-end 2006.

• Non-California direct premiums written increased 77.3% in 2006

• Long-term financial goals include: 96% combined ratio, 15% growth in DPW, 15% ROE and strong financial ratings.

• Over 90% of their current customers renew their policy each year

31Source: SEC Form 10-K; Wall Street Journal; A.M. Best


Profile of Allstate Corp.Overview Summary financials

ManagementAge

Title Background

Thomas Wilson 50 President & CEO

COO; President of Allstate Protection and Allstate Financial; Dean Witter; Sears

George Ruebenson

59 President of Allstate Insurance

Joined Allstate in 1970, held various positions including Sr. VP of Claims

James Hohmann 51 President of Allstate Financial

President & COO of Conseco Inc., President & COO of XL Life & Annuity

Dan Hale 63 VP & CFO EVP & CFO of Promus Hotel Corp., EVP & CFO of USF&G

Address 2775 Sanders RoadNorthbrook, IL 60062


The largest publicly held personal lines insurer in the US., Allstate provides insurance products to over 17M households through a network that utilizes about 14,800 exclusive agencies and exclusive financial specialists in the US and Canada.

Business strategy

Allstate's goal is to become better, bigger and broader in personal property and casualty insurance and in life insurance, retirement and investment products.

Business segments Allstate Protection and Allstate Financial

Ticker ALLA.M. Best rating A+ (Allstate Insurance Company)Market capitalization $37.1 billionIncome statement information (millions)

Revenue $35,796


Operating income 7,271

Net income after tax 4,993

Total assets $157.5 billionShareholder’s equity $21.8 billionEmployees 36,800

• Protection’s policies-in-force increased by 2.6% during 1Q07 v. 1Q06. New business applications grew 7.3%; operating income was $1.2 billion

• Second quarter operating earnings per share come in at $0.80, or 4 cents less than expectations. Shares declined 5%, for a total decline in 2007 of 12%

• On analyst conference call, CEO highlighted areas of focus for future growth: Emerging Businesses, Allstate Blue, direct channel and Allstate Financial retirement products

• July 13, 2007: Merrill Lynch downgrades stock from “buy” to “neutral”

• July 20, 2007: FBR lowers twelve-month price target from $67 to $63

32Source: SEC Form S-1; Wall Street Journal; A.M. Best, Smith Barney


Profile of American Financial GroupOverview Summary financials

ManagementAge

Title Background

Carl H. Lindner III 53 Co-CEO / President & Director

Responsible for P&C since 1987

S. Craig Lindner 52 Co-CEO / President & Director

Various roles since 1977

Keith A. Jensen 56 Senior VP & CFO

CPA

James E. Evans 61 Senior VP, General Counsel

Joined in 1976 as Vice President & General Counsel

Address 250 East Fifth StreetCincinnati, OH 45202


Provides P&C insurance, traditional fixed, indexed and variable annuities and a variety of supplemental insurance products.

Business strategyOperates units independently and stresses an entrepreneurial spirit so that individual segments can focus on local issues.

Business segments

Property & Casualty Insurance, Annuity & Supplemental Insurance and Other (holding company assets and the assets and operations of collateralized debt obligation).

Ticker AFGA.M. Best rating AMarket capitalization $3.9 BillionIncome statement information (millions)

Revenue $4,250




Total assets $25 billionShareholder’s equity $2.9 billionEmployees 5,200

• Lindner family owns approximately 35% of the company; employees own another 7% through AFG’s retirement plans.

• AFG’s stated strategy is to grow and expand in the specialty insurance niche markets through organic growth and targeted acquisitions.

• American Financial’s ROE from 1995 – 2006 has not consistently met its cost of capital.

• 1Q07 was the most profitable quarter in the history of American Financial. Net earnings were $.92 per share.

33Source: SEC Form 10-K; Wall Street Journal; A.M. Best, Chubb.com, Morningstar

Profile of Chubb Group, Inc.

ManagementAge

Title Background

John Finnegan 58 President & CEO

EVP of General Motors, President GMAC

Michael O’Reilly 64 Vice President & CFO

Joined Chubb in 1969, held various positions including CIO

Thomas Motamed 58 Vice Chairman & COO

Joined Chubb in 1977, assumed EVP and COO roles in 1997

John Degnan 62 Vice Chairman & CAO

Joined Chubb in 1990 as General Counsel, formerly Attorney General of NJ

Address 15 Mountain View RoadWarren, NJ 07061


Provides P&C insurance though the following business units: Chubb Commercial Insurance, Chubb Personal Insurance, Chubb Surety and Chubb Specialty Insurance.

Business strategy

Focus on niches within the insurance industry. For example, Chubb focuses on insuring “fine homes” and “specialized management and professional liability products for privately and publicly owned companies.”

Business segmentsChubb Commercial Insurance, Chubb Personal Insurance, Chubb Surety and Chubb Specialty Insurance.

Ticker CBA.M. Best rating A++Market capitalization $21.3 billionIncome statement information (millions)

Revenue $14,003





• Homeowners line accounts for 60% of Chubb Personal Insurance’s business

• Chubb has had difficulties sustaining consistent underwriting profit. ROE from 1995 – 2006 is 11%

• Chubb has been criticized for some of its underwriting decisions, including $1 billion of exposure to credit derivatives and the $1.91 per share of asbestos exposure

• Net written premium for 1Q07 declined 2% to $2.9 billion. Combined ratio for the quarter was 83.4%, a slight increase from the 82.9% that was achieved in 1Q06

• John Degnan: “Chubb, as you know, is a brand that is sold, it’s not bought. So we go for the more selective, cream-of-the-crop agents who can sell Chubb and the various niches that we perform in”


Overview Summary financials

34Source: SEC Form 10-K; Wall Street Journal; A.M. Best, Smith Barney

Profile of Cincinnati Financial

ManagementAge

Title Background

John Schiff 63 Chairman & CEO

Director at Cincinnati Financial since 1968

James Benoski 68 Vice Chairman, President & COO

Director at Cincinnati Financial since 2000

Kenneth Stecher 60 EVP, CFO SVP, TreasurerKenneth Miller 51 SVP & CIO President and COO of CFC

Investment Company

Address 6200 S. Gilmore RoadFairfield, OH 45014


Cincinnati Financial Corp. underwrites and sells property-casualty insurance primarily in the Midwest and Southeast, through a network of independent agents

Business strategy

Founded by agents, Cincinnati Financial is a agent-centric culture. Its strategy centers on providing superior service to agents and product stability in hopes of retaining the number one or two positions within its agencies

Business segments Commercial, Personal and Life

Ticker CINFA.M. Best rating A++Market capitalization $7.5 billionIncome statement information (millions)

Revenue $4,550





• Cincinnati Financial’s investment record is very strong. Firm focuses on buying stocks with strong prospects of increasing earning and dividends. Based primarily on its investment in Fifth Third Bancorp, the company had record net income of $930 million in 2006.

• Cincinnati’s growth plans center primarily on two points:– More agent appointments within existing markets– Entering new markets

• Cincinnati Financial’s value proposition centers on an agent-centric culture. Cincinnati looks to be the dominant carrier within new agent appointments within 5 years

• July 10, 2007: Citigroup commences coverage of CINF, rating the stock a “buy”



35Source: Wall Street Journal; A.M. Best, Smith Barney, Standard & Poor’s

Profile of Commerce Group Inc.

ManagementAge

Title Background

Gerald Fels 64 President, CEO

COO, Treasurer, CFO, Director of American Nuclear Insurers, CPA

Randall V. Becker 46 CFO, Director Treasurer and Chief Accounting Officer, CPA

James A. Ermilio 52 Senior VP, General Counsel

Associate with the law firm Bingham McCuthen prior to 1993

Artur J. Remillard 51 Executive VP, Policyholder Benefits

Vice Chairman of Board of Governors of the Insurance Fraud Bureau

Address 211 Main StreetWebster, MA 01570


The Commerce Group, Inc. provides personal and commercial property and casualty insurance products. The company markets its products through its network of independent agents primarily in Massachusetts and New Hampshire

Business strategyOften thought of as a Massachusetts only company, Commerce Group is increasing its reach through acquisitions

Business segments

Commerce Group is organized regionally. Commerce Group runs in the east, Commerce West operates in CA and OR and ACI in the Midwest

Ticker CGIA.M. Best rating A+Market capitalization $2.1 billionIncome statement information (millions)

Revenue $1,949





• Acquisitions of Western Pioneer Insurance Company and Automobile Insurance Club of Columbus, Ohio helped Commerce Group increase earned premium by about 85% from YE2000 to YE2006

• Total revenues rose 12% from 1Q06 to 1Q07 to $531.2 million. Income before taxes rose 9% over same period

• Commerce Group’s ROE average has been greater than its cost of capital from 1995-2006

• In June, Commerce West entered into an agreement with Stonewood Insurance Services, Inc. of Rancho Cordova, CA. Under terms of the agreement Stonewood is placing $170 Million of California personal passenger auto insurance with Commerce West over a three year period

• July 10, 2007: Citigroup commences coverage with a “hold” rating




Profile of Hanover Insurance Group Inc.

ManagementAge

Title Background

Frederick H. Eppinger

48 President, CEO & Director

Executive VP at The Hartford Financial Services Inc., Partner at McKinsey & Co., CPA

Marita Zuraitis 46 Executive VP, President of P&C Companies

President and CEO of Commercial division of St. Paul Companies

J. Kendall Huber 52 Senior VP General Counsel

Promus Hotel Corporation, Legg Mason Inc., USF&G Corp.

Gregory D. Tranter 50 Vice President, Chief Information Officer

Travelers P&C Company, Aetna Life and Casualty Company

Address 440 Lincoln StreetWorcester, MA 01653


Businesses include property and casualty insurers Hanover Insurance Company and Citizens Insurance Company of America; Life Companies, which primarily consist of a block of traditional life insurance products; and certain other insurance and non-insurance subsidiaries

Business strategy

With the hiring of new CEO Fred Eppinger, Hanover set out on a “journey” to create an outstanding “super regional property & casualty company”

Business segments Personal, Commercial and Life

Ticker THG

A.M. Best rating A- / B+

Market capitalization $2.48 billion

Income statement information (millions)

Revenue $2,644




Total assets $9,856 millionShareholder’s equity $1,999 millionEmployees 4,000

• Over the course of the last three to four years, Hanover has focused on strengthening its balance sheet, improving its business mix and running off unprofitable business. Hanover’s upper management has changed significantly as well

• Hanover appears to be at the end of their turnaround. 2006 was a successful year for the company with net income of $192 million

• Hanover was able to grow the past few years by increasing operational efficiency and capturing market share from weak P&C competitors. The next few year will determine if Hanover can capture share from larger, more established competitors

• Fred Eppinger, CEO: “I remain convinced our best-of-both strategy that combines the product, technology, and people quality of the best nationals, with a local presence and responsiveness of the best regionals, makes up a distinctive carrier for winning independent agents that are consolidating their markets”




Profile of Harleysville Group Inc.

ManagementAge

Title Background

Michael L. Browne 60 President, CEO, Director

US Marine Corps, US Secretary of Transportation, law firm Reed Smith LLP

Arthur E. Chandler 50 CFO, Senior VP XL America, Kemper Insurance, CIGNA

Mark R. Cummins 50 Chief Investment Officer, Exec VP and Treasurer

Selective Insurance Company

Robert G. Whitlock 50 Chief Underwriting Officer

Joined Harleysville in 1991, FCAS, MAAA

Address 355 Maple AvenueHarleysville, PA 19438


Insurance holding company that is engaged in property and casualty insurance.

Business strategy

Strong relationship with independent agency partners strengthened by a field organizational structure that drives greater authority to the front line decision makers.

Business segments

Personal lines, Commercial lines and investment function including automobile, homeowners, commercial multi-peril and workers compensation.

Ticker HGICA.M. Best rating A- (excellent)Market capitalization $1.04 billionIncome statement information (millions)

Revenue $ 999

Operating expense 843




• Consolidated property and casualty operations produced $1.2 billion of net written premiums in 2006

• Operating ROE of 13% for 2006; long-term objective is ROE greater than 12%

• Ranks as one of the top 60 P&C insurance companies according to A.M.Best Company

• Further expanded field sales and underwriting presence with opening a new office in Charlotte, N.C.

• Focused primarily on three types of growth: acquisition, start-up operations and internal growth

• Michael Browne, CEO: “Our number of agents overall has stayed steady around 1,500. We think we will probably make about 100 appointments this year, but we will probably terminate around 100 agents. We are constantly trying to upgrade the quality of our agents. And we think that is going to be our focus, not the number, but the quality and the consistency and the relationships in trying to drive more business through our most important partnerships”



38Source: SEC Form 10-K; Wall Street Journal; A.M. Best, Smith Barney

Profile of The Hartford Financial Services, Inc.

ManagementAge

Title Background

Ramani Ayer 60 Chairman & CEO

Joined HIG in 1973, held numerous positions including EVP and COO

Thomas Marra 48 President & COO

Joined HIG in 1980, most recently served as President of HIG’s Life division

Neal Wolin 45 President & COO of P&C

EVP & General Counsel of HIG, General Counsel of US Dept. of Treasury

David Johnson 47 EVP & CFO CFO of Cendant, Managing Director of Investment Banking at Merrill Lynch

Address One Hartford PlazaHartford, CT 06115


Diversified insurance and financial services company. The Company provides investment products, individual life, group life and group disability insurance products, and property and casualty insurance products in the United States.

Business strategy

Develop and maintain a diversified income stream (P&C and Life). Continue to build scale, expand product breadth and distribution capabilities.

Business segments Life, Property & Casualty

Ticker HIGA.M. Best rating A+Market capitalization $30.9 billionIncome statement information (millions)

Revenue $26,500





• Net Income for the company’s Life’s division increased 27% over 1Q06. It is commonly believed The Hartford is well positioned to take advantage’s of the Life sector’s current growth phase.

• 1Q07 ROE was approximately 17% and book value per diluted share increased approximately 13%.

• Property & Casualty continues to provide solid earnings. 1Q07 combined ratio was 88.8%. The Hartford’s personal lines business grew at a solid pace. Written premium grew at 10% over 1Q06 for the AARP channel and 8% for the Independent Agent channel.

• The Hartford recently announced a change in leadership. Tom Marra, previously President of the Life Division has been promoted to President of COO of the corporation. Ramani Ayer relinquished his position as President but remains as Chairman and CEO. David Zwiener, President of Property & Casualty, is leaving the company to join The Carlyle Group.



39Source: Wall Street Journal; A.M. Best, Horace Mann

Profile of Horace Mann Educators Corp.

ManagementAge

Title Background

Louis G. Lower 61 President, CEO, Director

CEO Allstate Life Insurance, over 30 years of insurance experience

Peter H. Heckman 61 CFO, Executive VP

Various positions at Allstate Insurance Co. since 1972

Douglas W. Reynolds

53 Executive VP Property & Casualty

Regional VP AIG, VP of Allstate Insurance Company

Ann M. Caparros 54 Chief Compliance Officer, General Counsel

Over 25 years of industry experience

Address 1 Horace Mann PlazaSpringfield, IL 62715


Markets and underwrites personal lines of property and casualty and life insurance and retirement annuities in the U.S. P&C operations are licensed to write in 48 states

Business strategyCompany utilizes a captive agent force to target employees of the education field.

Business segments Property & Casualty, Annuity, Life

Ticker HMNA.M. Best rating A-Market capitalization $906 millionIncome statement information (millions)

Revenue $ 847

Operating expense 734




• From the period of 1995 – 2006 Horace Mann’s average cost of capital has exceeded its return on equity

• Horace Mann had an outstanding 1Q07 from a auto sales standpoint. New auto policies increased 19% over prior year. Despite this auto growth, net income for the company remained flat to prior year

• Since 2002, Horace Mann has increased its premium production by only 4.6%

• Core educator market represents approximately three-quarters of in-force auto business




Profile of Mercury General Corp.

ManagementAge

Title Background

Gabriel Tirador 42 President, CEO & Director

Over 20 years of P&C industry experience, CPA

Theodore R. Stalick

43 CFO, Vice President

Joined as Corporate Controller in 1997, Chief Accounting Officer for one year, CPA

Joanna Y. Moore 51 Senior VP & Chief Claims Officer

Joined in 1981 in the Claims department

Christopher Graves 41 Vice President, Chief Investment Officer

Joined the Investments department in 1986

Address 4484 Wilshire Blvd.Los Angeles, CA 90010


Writes primarily private passenger automobile insurance and commercial automobile insurance in California. Mercury also writes homeowners, mechanical breakdown, commercial and dwelling fire, and commercial property insurance.

Business strategy

Emphasizes data-intensive underwriting processes to price accurately and reduce fraud. Mercury is currently expanding beyond California.

Business segmentsPersonal and Commercial insurance, mechanical breakdown insurance, dwelling fire insurance

Ticker MCYA.M. Best rating A+Market capitalization $2.96 billionIncome statement information (millions)

Revenue $3,168





• Mercury is expanding nationally and has stated a goal of writing more than 50% of its business outside of California. Currently, about 75% of all premiums are from California

• Business written outside of California is not yet profitable. The combined ratio for business outside of California was 108.3% in 2006 while California business had a 90.3% combined ratio

• Mercury’s commission for agents is higher than industry average

• Premium growth has slowed significantly. Premium volume increased just 3% in 2006 versus an 11% increase in 2005



41Source: Wall Street Journal; A.M. Best, Smith Barney

Profile of Ohio Casualty Corp.

ManagementAge

Title Background

Dan R. Carmichael 62 President, CEO, Director

CEO and Director of several subsidiaries, Director of Allegheny Corp., Platinum Underwriters Holdings Ltd.

Michael A. Winner 41 CFO VP of Finance at Nationwide, KPMG Peat Marwick, CPA

Ralph S. Michael III 52 COO US Bank, PNC Financial Services Group

Debra K. Krane 49 Senior VP, General Counsel

Assistant Treasurer 1996-1999

Address 9450 Seward StreetFairfield, OH 45014


Offers insurance for personal auto, homeowners, commercial property, commercial auto, workers' compensation, and other miscellaneous lines in the United States.

Business strategy

Ohio Casualty is currently focused on three initiatives. The first, Product Development seeks to establish targeted niches for customers. Distribution Management calls for a focus on growth agencies. Third, Agent-Centric Services calls for helping growth agencies meet their goals.

Business segmentsCommercial Lines, Specialty Lines and Personal Lines

Ticker OCASA.M. Best rating AMarket capitalization $2.6 billionIncome statement information (millions)

Revenue $1,676




Total assets $5,699 billionShareholder’s equity $1,556 billionEmployees 2,100

• In May, Ohio Casualty agreed to be purchased by Liberty Mutual. Liberty Mutual has stated that it plans to fold Ohio Casualty into its Agency Markets unit

• Liberty Mutual paid about a 32% premium to Ohio Casualty’s stock price

• Book value increased over 14% in 2006 and the CAGR over the last 3 years exceeds 11%

• Dan Carmichael, CEO: “Our book value is up 17%. I believe that real, long-term shareholder value is primarily created by growing book value, and we have an excellent record”

• “Our new strategic plan describes one of our major goals: to become a stronger marketing company. A key ingredient of that is the development of differentiated products and services that will strengthen our agency franchise and enhance the value of an agency agreement with Ohio Casualty”



42Source: SEC Form 10-K; Wall Street Journal; A.M. Best, Chubb.com, Morningstar

Profile of Progressive Corp.

ManagementAge

Title Background

Glenn Renwick 51 President & CEO

Joined Progressive in 1986 and has held numerous positions there

Brian Domeck 48 Vice President & CFO

Joined Progressive in 2003, served as Demand Manager for Direct & Senior Controller for Agency

Jeffrey Basch 49 Vice President & CAO

Appointed Vice President in 1999

Charles Jarrett 50 Chief Legal Officer

Appointed Vice President and Secretary of PGR in 2001

Address 6300 Wilson Mills RoadMayfield Village, OH 44143


Provides personal and commercial automobile insurance and other specialty property-casualty insurance and related services throughout the United States.

Business strategyMaintain pricing sophistication leadership and provide a fast, fair and better customer value proposition.

Business segmentsAgency and Direct for Personal Lines, Commercial Auto

Ticker PGRA.M. Best rating A+Market capitalization $16.0 billionIncome statement information (millions)

Revenue $14, 786





• Historically, Progressive has been an outstanding performer within the P&C sector. Progressive’s average ROE from 1995 to 2006 is 18.2%

• Progressive’s meteoric rise in growth and profit has slowed significantly of late. Through the second quarter Progressive’s net written premium has shrunk 3% and combined ratio has deteriorated by 8.3 percentage points. Progressive’s recent rate reductions have yet to pay dividends

• Progressive’s declining new written premium is driven primarily by its agency and commercial auto business. The Direct Channel is essentially flat to prior year.



43Source: SEC Form 10-K; Wall Street Journal; A.M. Best, Safeco.com, Morningstar

Profile of Safeco Corp.

ManagementAge

Title Background

Paula Reynolds 50 President & CEO

President & CEO of AGL Resources, CEO of Duke Energy North America

Ross Kari 48 EVP & CFO EVP & CFO of Federal Home Loan Bank of San Francisco

Mike Hughes 52 EVP – Insurance Operations

EVP of Affinity Personal Lines for The Hartford

Arthur Chong 53 EVP & Chief Legal Officer

Deputy General Counsel for McKesson

Address 4333 Brooklyn Avenue NESeattle, WA 98185


Safeco sells insurance to drivers, homeowners, renters and operators of small- and mid-sized businesses.

Business strategySafeco is committed to sustaining profitability after Observations section for CEO’s four publicly stated objectives for Safeco.

Business segments

Safeco Personal, Safeco Business, Safeco Surety and Safeco P&C Other (assumed reinsurance & large commercial accounts in run-off)

Ticker SAFA.M. Best rating AMarket capitalization $6.5 billionIncome statement information (millions)

Revenue $ 6,290





• Safeco had a profitable 1Q07 with a combined ratio of 89.8% a decline from a year prior of 86.9%. While profits have been solid, Safeco’s net written premiums declined 2% from 1Q06.

• Safeco experienced significant profitability challenges in the late 1990s. New leadership returned the company to profitability. Paula Reynolds joined Safeco as CEO in 2006 and is focusing on the following goals– Market products that mirror diversity of customers and their

buying preferences– Higher operating efficiency / lower expenses– Use company capital to increase shareholder returns– Achieve best-in-class infrastructure and technological capabilities




Profile of Selective Insurance Group Inc.

ManagementAge

Title Background

Gregory E. Murphy 51 President, CEO, Chairman of the Board

Various positions with Selective since 1980, CPA

Dale A. Thatcher 45 CFO, Executive VP & Treasurer

CAO, Ohio Casualty Insurance Company, CPA

Kerry A. Guthrie 49 Chief Financial Officer, Executive VP

Joined Selective in 1987 and held various positions in investments

Richard F. Connell 61 Chief Information Officer

CTO for Liberty Mutual Group

Address 40 Wantage AvenueBranchville, NJ 07890


Provides P&C insurance through seven subsidiaries, investment portfolio consisting of fixed-maturity investments, equity securities, short term and other investments, human resource administration and federal flood insurance administrative services

Business strategySelective’s goal is to be the market of choice for each of the independent agents who distribute its products and services.

Business segmentsInsurance Operations (P&C), Investments, Diversified Insurance Services

Ticker SIGIA.M. Best rating A+ (superior)Market capitalization $1.22 billionIncome statement information (millions)

Revenue $ 1,808




Total assets $4,768 millionShareholder’s equity $1,077 millionEmployees 2,344

• Rated A+ (superior) by A.M.Best for the 45th consecutive year• Selective 1Q07 results were disappointing compared to 1Q06

– Net income declined to $37.3M from $40.0 million– Net written premiums declined to $417.2 million from $432.o

million– Selective attributed the poor profits to higher than expected

weather related losses• Uses “High Tech, High Touch”. “High Tech” is advanced technology

used for independent insurance agents to transact and process business with Selective and customers to access real-time information, manage their accounts and pay their bills through an on-line customer portal



Emerson Cammack Lecture Series University of Illinois October 19, 2007

Documents

Transcript of Emerson Cammack Lecture Series University of Illinois October 19, 2007