Allstate 2011 Annual Report Download

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Customers first.
The Allstate Corporation Notice of 2011 Annual Meeting,
Proxy Statement and 2010 Annual Report

Table of contents

  • Page 1
    Customers first. The Allstate Corporation Notice of 2011 Annual Meeting, Proxy Statement and 2010 Annual Report

  • Page 2
    ...line customers. Despite rate increases, this business significantly underperformed our goals for return on capital. At the same time, Allstate Financial undertook its "Focus To Win" initiative to downsize its annuity business and lower costs. We implemented modest increases in auto insurance prices...

  • Page 3
    ... severe accident benefits, and Good HandsSM Roadside Assistance, the first-ever free-to-join roadside assistance program. In addition, two exciting concepts, Drive WiseSM and the Allstate Claim Satisfaction GuaranteeSM, are being tested. Plans are also being developed to serve the customer segment...

  • Page 4
    ...-led means that we identify what matters most to consumers of protection and retirement services. And we're using our advantages in scale, brand, innovation and financial resources to bring our marketplace potential to life. By putting customers first, we intend to become their first choice.

  • Page 5
    ...insurance from one company. We also know that Allstate customers who have auto, home, and life insurance stay with us longer than any other customer. Financial services products include newly redesigned life and annuity offerings available locally from a trusted agency owner. To help employers meet...

  • Page 6
    ...%. Rates don't go up based on driving behavior-but participants in this pilot program can check their driving performance online and tend to drive more safely as a result. For instance, Good HandsSM Roadside Assistance revolutionizes emergency services as the first free-to-join, no-annual-fee, pay...

  • Page 7
    ... decision on the election of directors and seven governance proposals. Your vote is important. Please vote as soon as possible, by telephone, Internet, or mail, even if you plan to attend the meeting. Sincerely, 14MAR200818283772 Thomas J. Wilson Chairman, President and Chief Executive Officer

  • Page 8

  • Page 9
    ... meeting of stockholders of The Allstate Corporation (''Allstate'' or ''corporation'') will be held in the West Plaza Auditorium at Allstate's Home Office, 3100 Sanders Road, Northbrook, Illinois on Tuesday, May 17, 2011, at 11 a.m. for the following purposes: 1. To elect to the Board of Directors...

  • Page 10
    ... of Plan-Based Awards at Fiscal Year-End 2010 Outstanding Equity Awards at Fiscal Year-End 2010 Option Exercises and Stock Vested at Fiscal Year-End 2010 Pension Benefits Non-Qualified Deferred Compensation at Fiscal Year-End 2010 Potential Payments as a Result of Termination or Change-in-Control...

  • Page 11
    ... the annual meeting or you may instruct the proxies how to vote your shares in any of the following ways: â- By using the toll-free telephone number printed on the proxy card/voting instruction form. â- By using the Internet voting site and following the instructions provided there. â- By signing...

  • Page 12
    ... of American Election Services, LLC will act as the inspector of election and will count the votes. The representative is independent of Allstate and its directors, officers, and employees. Comments written on proxy cards, voting instruction forms, or ballots may be provided to the secretary...

  • Page 13
    ... the Allstate 401(k) Savings Plan. You should vote each proxy card/voting instruction form you receive. Proxy Statement and Annual Report Delivery Allstate has adopted the ''householding'' procedure approved by the Securities and Exchange Commission that allows us to deliver one Notice of Internet...

  • Page 14
    ..., and member of the public be treated accordingly. Allstate's Code of Ethics applies to all employees, including the chief executive officer, the chief financial officer, the controller, and other senior financial and executive officers as well as the Board of Directors. The Corporate Governance...

  • Page 15
    ... payments to, or received payments from, the Allstate Group for property or services in an amount which, in the last fiscal year, does not exceed the greater of $1 million or 2% of such other company's consolidated gross revenues for such year. An Allstate director's position as an executive officer...

  • Page 16
    ...Succession Committee is responsible for conducting an annual review of the management organization of the corporation and succession plans for senior officers of the corporation. The Compensation and Succession Committee confers with the chief executive officer in determining who may be qualified to...

  • Page 17
    ...Allstate's internal audit department. The internal audit department provides objective assurance and consulting services that are used to assure a systematic, disciplined approach to the evaluation and improvement of effective risk management, control, and governance processes. The committee reviews...

  • Page 18
    ... with the terms of our 2009 Equity Incentive Plan. The Board has delegated to an equity award committee, consisting of the chief executive officer, the authority to make awards of stock options or restricted stock units in connection with the hiring or promotion of an employee or recognition of an...

  • Page 19
    ... was paid for services related to Allstate's human resources work, including benefits and compensation consulting, and administrative work regarding retirement and health and welfare plans. The committee receives and reviews a report regarding the other services provided to the corporation by Towers...

  • Page 20
    ...for new Board members to address specific requirements or to fill a vacancy and for making recommendations to the Board. In evaluating candidates, the Board and the committee apply the following criteria from our Corporate Governance Guidelines. Allstate Board members should: â- â- Proxy Statement...

  • Page 21
    ...Skills and Experiences Leadership and Management Accounting and Finance Risk Management Investment Management Global Operations and Economics Executive Compensation and Talent Management Technology Innovation and Consumer Focus Corporate Governance and Compliance Strategy Formation Highly Regulated...

  • Page 22
    ... below. Meeting attendance rates are based on committee membership at the time of each meeting. Committee membership changed for some directors during 2010. Current committee membership is indicated in bold. Unless otherwise indicated, each nominee has served for at least five years in the business...

  • Page 23
    ... portfolio of operating, financial, and real estate assets. From 2005 to 2009, Mr. Beyer served as Chief Executive Officer of The TCW Group, Inc., a global investment management firm. Mr. Beyer previously served as President and Chief Investment Officer from 2000 until 2005 of Trust Company of the...

  • Page 24
    ... Public Accountants. Key Areas of Experience: • Innovation and Consumer Focus • Global Operations and Economics • Risk Management • Leadership and Management • Corporate Governance and Compliance Committee Membership Audit Compensation and Succession • Accounting and Finance • Strategy...

  • Page 25
    ... in developing operational plans and related change management initiatives. Mr. LeMay's experience in the telecommunications field provides him with insight into operating in a highly regulated industry, as well as the use of new technologies to drive innovation. His financial oversight experience...

  • Page 26
    ... chief executive officers in a number of high profile companies across industries including financial services, technology, transportation, consumer products, and health care. She has also served clients in the recruitment of directors for corporate boards, including those of a number of publicly...

  • Page 27
    ... governance issues as a director of three large publicly traded companies. His experience as a coach, advisor, and consultant to chief executive officers as Chairman and Managing Partner of The Coaching Group gives him insights into the requirements for effective executive leadership that make...

  • Page 28
    ... and Chief Financial Officer. Ms. Sprieser is a Certified Public Accountant. Ms. Sprieser's leadership of Transora, Inc., a start-up technology software development and services company, provides her with important insights in evaluating Allstate's business operations and initiatives to drive change...

  • Page 29
    ...depth understanding of Allstate's business, including its employees, agencies, products, investments, customers, and investors. Operating profits grew rapidly during his leadership of Allstate Financial. Allstate Protection grew auto market share and substantially increased underwriting income under...

  • Page 30
    ... Compensation Plan for Non-Employee Directors, directors may elect to defer their retainers to an account that generates earnings based on: (a) the market value of, and dividends paid on, Allstate common shares (common share units); (b) the average interest rate payable on 90-day dealer commercial...

  • Page 31
    ...the terms of the 2006 Equity Compensation Plan for Non-Employee Directors, the exercise price of the stock option awards is equal to the fair market value of Allstate common stock on the date of grant. For options granted in 2007 through 2008, the fair market value is equal to the closing sale price...

  • Page 32
    ... to be, billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, for professional services rendered to Allstate for the fiscal years ending December 31, 2010, and December 31, 2009. 2010 2009(5) Proxy Statement Audit Fees Audit Related Fees...

  • Page 33
    ... meetings and promotes good governance in a cost-effective and efficient manner. At the 2010 Annual Meeting, a stockholder proposal for the right of 10% of stockholders to call a special meeting received a 55% affirmative vote, which represented 40% of total outstanding shares. The Board supports...

  • Page 34
    ...4 Approval of Proposed Amendment to the Certificate of Incorporation Designating a Forum for Certain Actions The Board is proposing an amendment (the ''Amendment'') to the corporation's certificate of incorporation to add a new Article Tenth designating the Court of Chancery of the State of Delaware...

  • Page 35
    ... and 50% of target respectively in 2008 and 2009 reflecting strong financial results in 2006 and 2007. This plan is no longer in place based on a compensation program design change made in 2009. â- Stock options granted in February 2010 were essentially at-the-money at year-end as total stockholder...

  • Page 36
    ... out-of-the-money reflecting the decline in share price following the financial market meltdown in late 2008 and early 2009. â- The absolute level of equity awards as a percentage of salary was unchanged for the named executive officers over the 2009-2010 period. The Board believes these results...

  • Page 37
    ... program is designed so that 60 to 70% of total compensation is tied to long-term stockholder value. Only 30 to 40% is paid in salary or annual cash incentives. Evaluation of this structure over a three year period is appropriate given the annual volatility in equity valuations and financial markets...

  • Page 38
    ... Company Performance Allstate made continued progress on its business strategies in 2010 to position the corporation for long-term growth. Net income increased to $928 million in 2010 from $854 million in 2009. Book value per diluted share at December 31, 2010, was 14.5% higher than prior year end...

  • Page 39
    ... cash incentive plan has been discontinued. â- Long-Term Equity Incentives. Stock options granted in February 2010 were essentially at-the-money at year-end as total stockholder return was 8.8% for the entire year. Stock options granted in 2009 are in-the-money due to the significant stock price...

  • Page 40
    ... strong financial results in 2006 and 2007. This plan is no longer in place based on a compensation program design change made in 2009. Allstate has made changes to its executive compensation program for 2011. We have eliminated any excise tax gross-ups in new change-in-control agreements. Allstate...

  • Page 41
    ... independent executive compensation consultant and company performance data provided by senior management. The Committee reviews the various elements of the CEO's compensation in the context of a total compensation package, including salary, annual cash incentive awards, long-term incentive awards...

  • Page 42
    ... in fiscal 2009 revenue. These are publicly traded companies with which we compete for executive talent. Core Elements of Executive Compensation Program Our executive compensation program design balances fixed and variable compensation elements and provides alignment with both short and long term...

  • Page 43
    ...a one-year period. The Annual Executive Incentive Plan is designed to provide all of the named executives with cash awards based on a combination of corporate and business unit performance measures for each of our main business units: Allstate Protection, Allstate Financial, and Allstate Investments...

  • Page 44
    ... threshold and target Information regarding our performance measures is disclosed in the limited context of our annual cash incentive awards and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to...

  • Page 45
    ... leadership in addressing significant regulatory reforms and government relations. Reflective of plan results and her performance during 2010, Ms. Mayes earned an annual cash award of $350,000. â- Mr. Winter. Allstate Financial's adjusted operating income and adjusted operating return on equity...

  • Page 46
    ...business and lowering costs resulting in significantly increased operating profit. â- Allstate Investments strategies in 2010 were well executed and timed resulting in good total return but a decline in investment income. Long-Term Incentive Awards-Cash and Equity As part of total core compensation...

  • Page 47
    ... awards to current employees on an annual basis normally during a meeting in the first fiscal quarter, after the issuance of our prior fiscal year-end earnings release. Throughout the year, the Committee grants equity incentive awards in connection with new hires and promotions and in recognition...

  • Page 48
    ... nonqualified retirement benefit agreement which provides for additional cash balance pay credits. Ms. Mayes was provided with a pension enhancement to compensate for retirement benefits that she was foregoing from her prior employer when she joined Allstate in 2007. Change-in-Control and...

  • Page 49
    ... tax gross-up provision. As part of the change-in-control benefits, executives receive previously deferred compensation and equity awards that might otherwise be eliminated by new directors elected in connection with a change-in-control. We also provide certain protections for cash incentive awards...

  • Page 50
    ... of the named executives for the last three fiscal years. NON-EQUITY INCENTIVE PLAN COMPENSATION ($)(5) CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(6) Proxy Statement NAME(1) YEAR SALARY ($)(2) BONUS ($) STOCK AWARDS ($)(3) OPTION AWARDS ($)(4) ALL OTHER...

  • Page 51
    ... reflect the aggregate increase in actuarial value of the pension benefits as set forth in the Pension Benefits table, accrued during 2010, 2009, and 2008. These are benefits under the Allstate Retirement Plan (ARP) and the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP), and...

  • Page 52
    ...mobile phones. We provide supplemental long-term disability coverage to regular full-time and regular part-time employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Group Long Term Disability Insurance Plan. This coverage is self-insured (funded...

  • Page 53
    ... OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2010(1) The following table provides information about non-equity incentive plan awards and equity awards granted to our named executives during the fiscal year 2010. All Other Stock All Other Awards: Option Number Awards: of Number of Shares Securities of...

  • Page 54
    ... EQUITY AWARDS AT FISCAL YEAR-END 2010 Option Awards(1) Number of Securities Underlying Unexercised Options (#) Exercisable(2) Number of Securities Underlying Unexercised Options (#) Unexercisable(3) Stock Awards Number of Shares or Units of Stock That Have Not Vested (#)(4) Market Value of Shares...

  • Page 55
    ... executives' pension benefits, which are calculated in the same manner as the change in pension value reflected in the Summary Compensation Table. PENSION BENEFITS NUMBER OF YEARS CREDITED SERVICE (#) PRESENT VALUE OF ACCUMULATED BENEFIT(1)(2) ($) PAYMENTS DURING LAST FISCAL YEAR ($) NAME PLAN...

  • Page 56
    ... (limited to 28 years of credited service) For participants eligible to earn cash balance benefits, pay credits are added to the cash balance account on a quarterly basis as a percent of compensation and based on the participant's years of vesting service as follows: Cash Balance Plan Pay Credits...

  • Page 57
    ... annuity options. The lump sum under the final average pay benefit is calculated in accordance with the applicable interest rate and mortality as required under the Internal Revenue Code. The lump sum payment under the cash balance benefit is generally equal to a participant's cash balance account...

  • Page 58
    ..., Allstate has not granted additional service credit outside of the actual service used to calculate ARP and SRIP benefits. However, Ms. Mayes has a supplemental nonqualified retirement benefit agreement which provides for additional cash balance pay credits. Ms Mayes' enhanced pension benefit...

  • Page 59
    ... allowed to access certain funds in a deferred compensation account earlier than the dates specified above. Potential Payments as a Result of Termination or Change-in-Control The following table lists the compensation and benefits that Allstate would pay or provide to the named executives in various...

  • Page 60
    ...of employees, customers, and suppliers at any time until one year after termination of employment. During the two-year period following a change-in-control, the change-in-control agreements provide for a minimum salary, annual cash incentive awards, and other benefits. In addition, they provide that...

  • Page 61
    ...-in-control agreements will not include an excise tax gross-up provision. As of December 31, 2010, only Ms. Mayes is eligible to retire in accordance with Allstate's policy and the terms of its equity incentive compensation and certain benefit plans. (3) Footnotes continue 51 Proxy Statement

  • Page 62
    ...consultant each year to assess Allstate's executive pay levels, practices, and overall program design. A review and assessment of potential compensation-related risks was conducted by management and reviewed by the Chief Risk Officer. Performance-related incentive plans were analyzed using a process...

  • Page 63
    ... Allstate Exclusive Agency channel is used by management to assess the execution of our financial services strategy. This measure is calculated as the percent change in the total amount of production credits for current year transactions. Production credits are an internal sales statistic calculated...

  • Page 64
    ... calculated by dividing the sum of Allstate Financial's adjusted shareholder's equity at year-end 2009 and at the end of each quarter of 2010 by five. Allstate Exclusive Agency Proprietary and AWD Weighted Sales: This operating measure is used to quantify the current year sales of financial products...

  • Page 65
    ... Plan investments. Long-Term Cash Incentive Awards Average Adjusted Return on Equity Relative to Peers: This measure is used to assess Allstate's financial performance against its peers. It is calculated as Allstate's ranked position relative to the insurance company peer group based upon three-year...

  • Page 66
    ... number of shares of Allstate common stock beneficially owned by each director and named executive officer individually, and by all executive officers and directors of Allstate as a group. Shares reported as beneficially owned include shares held indirectly through the Allstate 401(k) Savings Plan...

  • Page 67
    .... Based on these reviews and discussions and other information considered by the committee in its judgment, the committee recommended to the Board of Directors that the audited financial statements be included in Allstate's annual report on Form 10-K for the fiscal year ended December 31, 2010...

  • Page 68
    ...common stock to file reports of securities ownership and changes in such ownership with the SEC. Based solely upon a review of copies of such reports or written representations that all such reports were timely filed, Allstate believes that each of its executive officers, directors, and greater than...

  • Page 69
    ... the operations and value of the corporation by forcing specialinterest demands. â- An activist stockholder could initiate a written consent solicitation to remove some or all members of the corporation's board-without cause-and effectively assume control without paying the control premium that...

  • Page 70
    ... Contributions and Payments to Trade Associations and Other Tax Exempt Organizations Resolved, that the shareholders of Allstate Corporation (''Company'') hereby request that the Company provide a report, updated semi-annually, disclosing the Company's: 1. 2. Policies and procedures for political...

  • Page 71
    ... and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value. Allstate contributed at least $5.4 million in corporate funds since the 2002 election cycle. (CQ: http://moneyline.cq.com/pml/home.do and National Institute on Money in...

  • Page 72
    ... contributions are reported regularly to, and overseen by, senior management and reviewed on an annual basis by the Board. â- Our policy on political contributions is part of our Corporate Governance Guidelines. Stockholder Proposals for Year 2012 Annual Meeting Proposals which stockholders...

  • Page 73
    ... since the Committee's last regularly scheduled meeting and (ii) an updated projection for the current fiscal year, presented in a manner consistent with the proxy disclosure requirements, of the estimated annual fees to be paid to the Independent Registered Public Accountant. A-1 Proxy Statement

  • Page 74
    ... Review of quarterly financial statements Statutory audits Attestation report on management's assessment of internal controls over financial reporting Consents, comfort letters, and reviews of documents filed with the Securities and Exchange Commission 5. Audit-Related Services 1. 2. 3. Accounting...

  • Page 75
    ... SEVENTH Meetings of stockholders may be held within or without the State of Delaware, as the bylaws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or...

  • Page 76
    (This page has been left blank intentionally.)

  • Page 77
    ... Group Vice President and Controller of AIC. Executive Vice President of AIC (Claims). Executive Vice President of AIC (Allstate Protection Product Operations). Executive Vice President of AIC (Corporate Relations). President and Chief Executive Officer Allstate Financial-Executive Vice President...

  • Page 78
    ... return during the five-year period from December 31, 2005, through December 31, 2010, with the performance of the S&P 500 Property/Casualty Index and the S&P 500 Index. The graph plots the cumulative changes in value of an initial $100 investment as of December 31, 2005, over the indicated time...

  • Page 79
    ... by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, operating income (loss) includes periodic settlements and...

  • Page 80
    ... Highlights Investments Market Risk Pension Plans Deferred Taxes Capital Resources and Liquidity 2010 Highlights Capital Resources and Liquidity Enterprise Risk and Return Management Regulation and Legal Proceedings Pending Accounting Standards Consolidated Financial Statements (Financial Statements...

  • Page 81
    ... things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However...

  • Page 82
    ... costs, auto parts prices and used car prices. Changes in homeowners claim severity are driven by inflation in the construction industry, in building materials and in home furnishings, and by other economic and environmental factors, including increased demand for services and supplies in areas...

  • Page 83
    ... could materially affect profitability and financial condition Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business. We establish target returns for each product based upon these factors...

  • Page 84
    ... members of the financial services industry that are not affiliated with us. Termination of one or more of these agreements due to, for example, a change in control of one of these distributors or market conditions that make it difficult to achieve our target return on certain products, resulting...

  • Page 85
    ... fair values of the fixed income securities that comprise a substantial majority of our investment portfolio. A declining equity market could also cause the investments in our pension plans to decrease or decreasing interest rates could cause the funding target and the projected benefit obligation...

  • Page 86
    ... a material adverse effect on our business, operating results or financial condition. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets. Our ability to successfully operate may also be impaired if we...

  • Page 87
    ... particular quarter or annual period and to our financial condition. We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs and limit our growth As insurance companies, broker-dealers, investment advisers, a federal stock savings bank and...

  • Page 88
    ... and prices, which may limit our ability to write new business Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes nationwide. Market conditions beyond our control impact the availability and cost of...

  • Page 89
    ... The Allstate Corporation is a holding company with no significant operations. The principal asset is the stock of its subsidiaries. State insurance regulatory authorities limit the payment of dividends by insurance subsidiaries, as described in Note 15 of the consolidated financial statements. In...

  • Page 90
    ... such as claim adjustment services and human resource benefits management services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect personal information of our customers, claimants or...

  • Page 91
    ... for claims and claims expense, life-contingent contract benefits and contractholder funds Short-term debt Long-term debt Shareholders' equity Shareholders' equity per diluted share Equity Property-Liability Operations Premiums earned Net investment income Net income Operating ratios (1) Claims and...

  • Page 92
    ..., stability of long-term returns, total returns, cash flows, and asset and liability duration; and For financial condition: liquidity, parent holding company level of deployable invested assets, financial strength ratings, operating leverage, debt leverage, book value per share, and return on equity...

  • Page 93
    ... and losses Total revenues Costs and expenses Property-liability insurance claims and claims expense Life and annuity contract benefits Interest credited to contractholder funds Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Interest...

  • Page 94
    ... to valuation. The fair value of certain financial assets, including privately placed corporate fixed income securities, auction rate securities (''ARS'') backed by student loans, equity-indexed notes, and certain free-standing derivatives, for which our valuation service providers or brokers do not...

  • Page 95
    ... inputs used in internal pricing models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions...

  • Page 96
    ...value using an internal pricing model. As of December 31, 2010 and 2009, we did not alter fair values provided by our valuation service providers or brokers or substitute them with an internal pricing model. The following table identifies fixed income and equity securities and short-term investments...

  • Page 97
    ...with the assumptions used to calculate the reserve for life-contingent contract benefits. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization...

  • Page 98
    ... increased DAC balance is determined to be recoverable based on facts and circumstances. Negative amortization was not recorded for certain fixed annuities during 2010, 2009 and 2008 periods in which significant capital losses were realized on their related investment portfolio. For products whose...

  • Page 99
    ..., while auto physical damage, homeowners property and other personal lines have an average settlement time of less than one year. Discontinued Lines and Coverages involve long-tail losses, such as those related to asbestos and environmental claims, which often involve substantial reporting lags and...

  • Page 100
    ... Statements of Operations in the period such changes are determined. Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables. The actuarial methods used...

  • Page 101
    ... to produce development factors based on two-year, three-year, or longer development periods to reestimate our reserves. For example, if a legal change is expected to have a significant impact on the development of claim severity for a coverage which is part of a particular line of insurance in...

  • Page 102
    ... to make our largest reestimates of losses for an accident year. After the second year, the losses that we pay for an accident year typically relate to claims that are more difficult to settle, such as those involving serious injuries or litigation. Private passenger auto insurance provides a good...

  • Page 103
    ...variability The aggregation of numerous micro-level estimates for each business segment, line of insurance, major components of losses (such as coverages and perils), and major states or groups of states for reported losses and IBNR forms the reserve liability recorded in the Consolidated Statements...

  • Page 104
    ... commercial insurance business did not include coverage to large asbestos manufacturers. This business comprises a cross section of policyholders engaged in many diverse business sectors located throughout the country. How reserve estimates are established and updated We conduct an annual review...

  • Page 105
    .... ($ in millions) 2010 $ 188 116 174 478 $ 2009 201 122 177 500 $ 2008 177 130 201 508 Other mass torts Workers' compensation Commercial and other Other discontinued lines $ $ $ Other mass torts describes direct excess and reinsurance general liability coverage provided for cumulative injury...

  • Page 106
    ... life-contingent contract benefits estimation Due to the long term nature of traditional life insurance, life-contingent immediate annuities and voluntary health products, benefits are payable over many years; accordingly, the reserves are calculated as the present value of future expected benefits...

  • Page 107
    ... two business segments: Allstate Protection and Discontinued Lines and Coverages. Allstate Protection comprises two brands, the Allstate brand and Encompassா brand. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto...

  • Page 108
    ...the percentage of restructuring and related charges to premiums earned. Effect of Discontinued Lines and Coverages on combined ratio - the ratio of claims and claims expense and other costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of...

  • Page 109
    ...centers and the internet under the Allstate brand. We also sell auto and homeowners insurance through independent agencies under both the Allstate brand and the Encompass brand. Our operating priorities for the Protection segment include achieving profitable market share growth for our auto business...

  • Page 110
    ... strategy for the Allstate brand aligns targeted marketing, product innovation, distribution effectiveness, and pricing toward acquiring and retaining an increased share of our target customers, which generally refers to consumers who want to purchase multiple products from one insurance provider...

  • Page 111
    ... Statements of Financial Position. Since the Allstate brand policy periods are typically 6 months for auto and 12 months for homeowners, and the Encompass standard auto and homeowners policy periods are typically 12 months and non-standard auto policy periods are typically 6 months, rate changes...

  • Page 112
    ... Premium operating measures and statistics that are used to analyze the business are calculated and described below. Measures and statistics presented for Allstate brand exclude Allstate Canada, loan protection and specialty auto. • • PIF: Policy counts are based on items rather than customers...

  • Page 113
    ... offer an auto discount (the Preferred Package Discount) for our target customer. increased average gross premium in 2010 compared to 2009, primarily due to rate changes, partially offset by customers electing to lower coverage levels of their policy 0.2 point decrease in the renewal ratio in 2010...

  • Page 114
    ... prior year-end premiums written in those states. (3) Based on historical premiums written in those states, rate changes approved for standard auto totaled $218 million in 2010 compared to $784 million in 2009. (4) Includes Washington D.C. (5) Includes targeted rate decreases in certain markets to...

  • Page 115
    ...to sell 50,000 new homeowners policies in Florida by November 2011. Excluding Florida, new issued applications on a countrywide basis decreased 12.4% to 487 thousand in 2010 from 556 thousand in 2009. increase in average gross premium in 2010 compared to 2009, primarily due to rate changes 0.3 point...

  • Page 116
    ...ratio in 2009 compared to 2008 in part driven by less non-renewal activity in coastal states that are more susceptible to major catastrophes decrease in the net cost of our catastrophe reinsurance program Rate changes that are indicated based on loss trend analysis to achieve a targeted return will...

  • Page 117
    ...see the Application of Critical Accounting Estimates and Property-Liability Claims and Claims Expense Reserves sections of the MD&A. Allstate Protection experienced underwriting income of $1.03 billion during 2009 compared to $189 million in 2008 primarily due to decreases in homeowners underwriting...

  • Page 118
    ... liability policies' premiums and losses. (2) Ratios are calculated using the premiums earned for the respective line of business. Standard auto loss ratio for the Allstate brand increased 1.4 points in 2010 compared to 2009 due to higher claim frequency and a $25 million litigation settlement...

  • Page 119
    ...by prior year costs associated with claim office consolidations, reorganization of Business Insurance and technology prioritization and efficiency efforts. Excluding restructuring, the expense ratio for Allstate Protection increased 0.8 points in 2010 compared to 2009, driven by additional marketing...

  • Page 120
    ...pools. For example, in Texas we are ceding significant wind exposure related to insured property located in wind pool eligible areas along the coast including the Galveston Islands. We have ceased writing new homeowners business in California. We will continue to renew current policyholders and have...

  • Page 121
    ... results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. Our exposure to asbestos, environmental and other discontinued lines claims is reported in this segment. We have assigned management of this segment to a designated group of...

  • Page 122
    ... balances at the beginning and end of period and interim quarters. (2) Amortized cost basis is used to calculate the average investment balance for fixed income securities and mortgage loans. Cost is used for equity securities. Cost or the equity method of accounting basis is used for limited...

  • Page 123
    ... 17,182 Allstate brand Encompass brand Total Allstate Protection Discontinued Lines and Coverages Total Property-Liability The tables below show reserves, net of reinsurance, representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2010, 2009 and 2008...

  • Page 124
    ... estimated cost of outstanding claims as they were recorded at the beginning of years 2010, 2009 and 2008, and the effect of reestimates in each year. ($ in millions) January 1 reserves 2010 2009 $ 10,220 2,824 2,207 15,251 2009 2008 $ 10,175 2,279 2,131 14,585 2008 Effect on combined ratio Auto...

  • Page 125
    ... and closed claims for Allstate Protection, for the years ended December 31, are summarized in the following table. Number of claims Auto Pending, beginning of year New Total closed Pending, end of year Homeowners Pending, beginning of year New Total closed Pending, end of year Other personal lines...

  • Page 126
    ... income Reserve reestimates as a % of underwriting income Encompass brand settlement costs. MD&A Reserve reestimates in 2010, 2009 and 2008 were related to lower than anticipated claim The impact of these reestimates on the Encompass brand underwriting (loss) income is shown in the table...

  • Page 127
    ... estimate for future claims reported. These trends are consistent with the trends of other carriers in the industry, which we believe are related to increased publicity and awareness of coverage, ongoing litigation and bankruptcy actions. The reserve additions for environmental in 2010 and 2009...

  • Page 128
    ... our ending reserves divided by payments made during the year. This is a commonly used but extremely simplistic and imprecise approach to measuring the adequacy of asbestos and environmental reserve levels. Many factors, such as mix of business, level of coverage provided and settlement procedures...

  • Page 129
    ..., 2009. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current and new policyholders and ceding companies. Pending, new, total closed and closed without payment claims for asbestos and environmental exposures for the years ended December...

  • Page 130
    ...liability insurance claims and claims expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. We calculate our ceded reinsurance estimate based on the terms of each applicable reinsurance agreement, including an estimate of...

  • Page 131
    ... the adoption of accounting guidance related to the consolidation of variable interest entities, which resulted in the consolidation of two insurance company affiliates, Allstate Texas Lloyds and Allstate County Mutual Insurance Company. For the year ended December 31, 2009, ceded property-liability...

  • Page 132
    ... agreements are part of our catastrophe management strategy, which is intended to provide our shareholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our customers. While our catastrophe management strategy...

  • Page 133
    ... premium is subject to redetermination for exposure changes at each anniversary. • The Top and Drop Excess Catastrophe Reinsurance agreement reinsures personal lines property and auto excess catastrophe losses caused by multiple perils. The reinsurance limit may be used for Coverage A, Coverage...

  • Page 134
    ... variable life insurance; fixed annuities such as deferred and immediate annuities; voluntary accident and health insurance; and funding agreements backing medium-term notes, which we offer on an opportunistic basis. Banking products and services have been offered to customers through the Allstate...

  • Page 135
    ... of changes in asset yields. Also, a significant amount of our invested assets are used to support our capital and non-spread based products, which do not provide this offsetting opportunity. Summarized financial data for the years ended December 31 is presented in the following 2010 $ 2,168...

  • Page 136
    ... in 2009 compared to 2008 due to higher sales of accident and health insurance through Allstate Benefits and higher contract charges on interest-sensitive life insurance products resulting from increases in certain policy administration fees, partially offset by lower sales of immediate annuities...

  • Page 137
    ... management's assessment of market conditions, investor demand and operational priorities such as our focus beginning in 2009 on reducing our concentration in spread based products. Deposits on fixed annuities decreased 48.3% in 2009 compared to 2008 due to pricing actions to improve returns on new...

  • Page 138
    ... funds and operating costs and expenses, partially offset by higher amortization of DAC and restructuring and related charges. Life and annuity contract benefits increased 12.2% or $198 million in 2010 compared to 2009 primarily due to higher contract benefits on accident and health insurance...

  • Page 139
    ...included as a component of life and annuity contract benefits on the Consolidated Statements of Operations (''investment spread''). The investment spread by product group is shown in the following table for the years ended December 31. ($ in millions) 2010 $ 179 35 31 18 234 497 $ 2009 126 3 30 16...

  • Page 140
    ... interest-sensitive life contracts where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities, equity-indexed and variable life, institutional products and Allstate Bank products totaling...

  • Page 141
    ... Our annual comprehensive review of the profitability of our products to determine DAC balances for our interestsensitive life, fixed annuities and other investment contracts covers assumptions for investment returns, including capital gains and losses, interest crediting rates to policyholders, the...

  • Page 142
    ... commissions related to accident and health insurance business sold through Allstate Benefits. Other operating costs and expenses increased 9.9% or $27 million in 2010 compared to 2009 primarily due to higher product development, marketing and technology costs, increased litigation expenses...

  • Page 143
    ... related to accident and health insurance business sold through Allstate Benefits. Other operating costs and expenses decreased 25.3% or $93 million in 2009 compared to 2008 primarily due to our expense reduction actions, which resulted in lower employee, professional services and sales support...

  • Page 144
    ... which has produced competitive returns over the long term, is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth. The Allstate Financial portfolio's investment strategy focuses on the total return of assets needed to support the...

  • Page 145
    ... financial statements for investment accounting policies and additional information. ($ in millions) PropertyLiability (5) Percent to total Fixed income securities (1) Equity securities (2) Mortgage loans Limited partnership interests (3) Short-term (4) Other Total (1) Allstate Financial...

  • Page 146
    ...of December 31, 2009, primarily due to higher valuations for equity and fixed income securities and positive operating cash flows, partially offset by dividends paid by Allstate Insurance Company (''AIC'') to its parent, The Allstate Corporation. The Allstate Financial investment portfolio decreased...

  • Page 147
    ... and losses for fixed income securities by credit rating as of December 31, 2010. ($ in millions) Fair value U.S. government and agencies Municipal Tax exempt Taxable ARS Corporate Public Privately placed Foreign government RMBS U.S. government sponsored entities (''U.S. Agency'') Prime residential...

  • Page 148
    .... Privately placed corporate obligations contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered...

  • Page 149
    ... valuations, which began to show signs of stabilization in certain geographic areas in 2010. The following table shows our RMBS portfolio as of December 31, 2010 based upon vintage year of the issuance of the securities. ($ in millions) U.S. Agency Fair value 2010 2009 2008 2007 2006 2005 Pre-2005...

  • Page 150
    ... of investments in private equity/debt funds, real estate funds, hedge funds and tax credit funds. The limited partnership interests portfolio is well diversified across a number of characteristics including fund sponsors, vintage years, strategies, geography (including international), and company...

  • Page 151
    ... limited partnership interests by fund type and accounting classification for the years ended December 31. ($ in millions) Cost Private equity/debt funds Real estate funds Hedge funds Tax credit funds Total (1) 2010 EMA $ 76 (34) 47 - 89 $ Total income 116 (32) 47 (2) 129 $ Impairment write-downs...

  • Page 152
    ...balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although we evaluate premium deficiencies on the combined performance of our life insurance and immediate annuities...

  • Page 153
    Gross unrealized gains and losses as of December 31, 2010 on fixed income securities by type and sector are provided in the table below. ($ in millions) Par value (1) Corporate: Banking Utilities Consumer goods (cyclical and non-cyclical) Financial services Capital goods Transportation Basic ...

  • Page 154
    ... credit and collateral and related estimates of future cash flows. The following table summarizes the fair value and gross unrealized losses of fixed income securities by type and investment grade classification as of December 31, 2010. ($ in millions) Investment grade Fair value U.S. government...

  • Page 155
    ... by the downgrade of certain securities to below investment grade during 2010. Fair values for our structured securities are obtained from third-party valuation service providers and are subject to review as disclosed in our Application of Critical Accounting Estimates. In accordance with GAAP, when...

  • Page 156
    ... the mortgage loan servicers. Current loan-to-value ratios of underlying collateral are not consistently available and accordingly they are not a primary factor in our impairment evaluation. While our projections are developed internally and customized to our specific holdings, they are informed by...

  • Page 157
    The following tables show trust-level, class-level and security-specific detailed information for our below investment grade Alt-A securities with gross unrealized losses, by credit rating. ($ in millions) December 31, 2010 With other-than-temporary impairments recorded in earnings Ba Trust-level ...

  • Page 158
    ... consecutive months. (6) Includes cumulative write-downs recorded in accordance with GAAP. (7) Reflects principal payments for the years ended December 31, 2010 and 2009, respectively. (2) The above tables include information about our below investment grade Alt-A securities with gross unrealized...

  • Page 159
    ... tables show trust-level, class-level and security-specific detailed information for our below investment grade Subprime securities with gross unrealized losses that are not reliably insured, by credit rating. ($ in millions) December 31, 2010 With other-than-temporary impairments recorded in...

  • Page 160
    ... write-downs recorded in accordance with GAAP. (7) Reflects principal payments for the years ended December 31, 2010 and 2009, respectively. The above tables include information only about below investment grade Subprime securities with gross unrealized losses that are not reliably insured...

  • Page 161
    ...current risk premium on these securities, which should continue to reverse over the securities' remaining lives, as demonstrated by improved valuations in 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities' recovery value...

  • Page 162
    ... commercial mortgage borrowers' ability to refinance obligations. While the projected cash flow assumptions for our below investment grade CMBS with gross unrealized losses have deteriorated since the securities were originated, as reflected by their current credit ratings, these securities continue...

  • Page 163
    ...the years ended December 31, 2010 and 2009, respectively. The above tables include information about below investment grade CMBS with gross unrealized losses as of each period presented. The par value and composition of securities included can vary significantly from period to period due to changes...

  • Page 164
    ... these securities is temporary and will reverse over time. The comparison indicates that recovery value is in line with amortized cost as impairment write-downs were recorded in the reporting period based on a comprehensive evaluation of financial, economic and capital markets assumptions developed...

  • Page 165
    ... expect the structures to have adequate cash flows to make all contractual payments due to the class of securities we own. Our comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period, supported by the applicable overcollateralization ratios...

  • Page 166
    ... of corporates (primarily privately placed), $10 million of bank loans and $9 million of Consumer and other ABS. Net investment income The following table presents net investment income for the years ended December 31. ($ in millions) 2010 $ 3,737 90 385 40 8 19 4,279 (177) $ 4,102 $ $ 2009 3,998...

  • Page 167
    ... 2010 related to fixed income securities for which future cash flows are not anticipated. Equity securities were written down primarily due to the length of time and extent to which fair value was below cost, considering our assessment of the financial condition and near-term and long-term prospects...

  • Page 168
    ... rate environment will drive changes in our portfolio duration targets. A duration target and range is established with an economic view of liabilities relative to a long-term investment portfolio view. Tactical duration management is accomplished through both cash market transactions, sales and new...

  • Page 169
    ... not increase above the strike rate, the maximum loss on swaptions and options on interest rate futures is limited to the amount of the premium paid. The program is routinely monitored and revised as capital market conditions change. Exchange traded put options and short equity index futures provide...

  • Page 170
    ... of our fixed income securities in OCI to the extent it relates to changes in risk-free rates. Futures and interest rate swaps are used to protect investment spread from interest rate changes during mismatches in the timing of cash flows between product sales and the related investment activity. The...

  • Page 171
    ... Total 2009 Total 2008 Total 2010 Explanations Accounting Equity indexed notes - Allstate Financial $ (17) $ - $ (17) $ 28 $ (290) Equity-indexed notes are fixed income securities that contain embedded options. The changes in valuation of the embedded equity indexed call options are reported in...

  • Page 172
    ... risk mitigation (''macro hedge'') program is contained within this line item. For the years ended December 31, 2010 and 2009, does not include $1 million of derivative gains related to the termination of fair value and cash flow hedges which are included in sales and reported with the hedged risk...

  • Page 173
    ...month-end valuation). Our current macro hedge program consists of derivatives for which we pay a premium at inception and others that do not require an up front premium payment. The premium payment component includes over-the-counter interest rate swaptions, exchange traded options on interest rate...

  • Page 174
    ... approved by their respective boards of directors. These ALM policies specify limits, ranges and/or targets for investments that best meet Allstate Financial's business objectives in light of its product liabilities. We manage our exposure to market risk through the use of asset allocation, duration...

  • Page 175
    ... property-liability policies. Based upon the information and assumptions used in the duration calculation, and interest rates in effect as of December 31, 2010, we estimate that a 100 basis point immediate, parallel increase in interest rates (''rate shock'') would decrease the net fair value of the...

  • Page 176
    ...decreases by 10%, the fair value of our equity investments will increase or decrease by 7.4%, respectively. Based upon the information and assumptions we used to calculate beta as of December 31, 2010, including the effect of the S&P 500 puts, we estimate that an immediate decrease in the S&P 500 of...

  • Page 177
    ... related to variable life contracts were $775 million and $708 million in December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009 we had $4.70 billion and $4.47 billion, respectively, in equity-indexed annuity liabilities that provide customers with interest crediting rates based...

  • Page 178
    ... average discount rate and the expected long-term rate of return on plan assets. The weighted average discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the...

  • Page 179
    ...$263 million for the 2011 plan year to maintain the plans' funded status. This estimate could change significantly following either a dramatic improvement or decline in investment markets. Other post employment benefits In 2010, the Patient Protection and Affordable Care Act was signed into law. One...

  • Page 180
    ... paper and insurance financial strength ratings as of December 31, 2010. Moody's The Allstate Corporation (senior long-term debt) The Allstate Corporation (commercial paper) Allstate Insurance Company (insurance financial strength) Allstate Life Insurance Company (insurance financial strength) A3...

  • Page 181
    ... point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and repurchase agreements to fund intercompany borrowings. Allstate's domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements...

  • Page 182
    ... lending, commercial paper and line of credit agreements Intercompany loans Capital contributions from parent Dividends from subsidiaries Tax refunds/settlements Funds from periodic issuance of additional securities Funds from the settlement of our benefit plans X X X X X X X X X Allstate Financial...

  • Page 183
    ... under it are based on the ratings of our senior, unsecured, nonguaranteed long-term debt. There were no borrowings under the credit facility during 2010. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed...

  • Page 184
    ... The annualized surrender and partial withdrawal rate on deferred annuities, interest-sensitive life insurance and Allstate Bank products, based on the beginning of year contractholder funds, was 12.2% and 11.8% in 2010 and 2009, respectively. Allstate Financial strives to promptly pay customers who...

  • Page 185
    ... for life-contingent contract benefits relates primarily to traditional life insurance, immediate annuities with life contingencies and voluntary accident and health insurance. These amounts reflect the present value of estimated cash payments to be made to contractholders and policyholders. Certain...

  • Page 186
    ... pension and other post employment benefits (''OPEB'') contributions are managed within the structure of our intermediate to long-term liquidity management program. Amount differs from the balance presented on the Consolidated Statements of Financial Position as of December 31, 2010 because the long...

  • Page 187
    ... based on contribution to enterprise risk, expected return and diversification benefit, and is used for ongoing evaluation of business units and products. We adapt our ERRM processes to be fluid and dynamic in changing business and market environments and evolve our risk strategies to target return...

  • Page 188
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2010 Revenues Property-liability insurance premiums (net of reinsurance ceded of $1,092, $1,056 and $1,139) Life and annuity premiums and contract charges (net of reinsurance ceded of $804, $838 ...

  • Page 189
    ... STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2010 Net income (loss) Other comprehensive income (loss), after-tax Changes in: Unrealized net capital gains and losses Unrealized foreign currency translation adjustments Unrecognized pension and other postretirement benefit cost...

  • Page 190
    ... CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in millions, except par value data) December 31, 2010 2009 Assets Investments Fixed income securities, at fair value (amortized cost $78,786 and $81,243) Equity securities, at fair value (cost $4,228 and $4,845) Mortgage loans Limited partnership...

  • Page 191
    ... per share) Effects of changing pension plan measurement date Cumulative effect of change in accounting principle Balance, end of year Deferred ESOP expense Balance, beginning of year Payments Balance, end of year Treasury stock Balance, beginning of year Shares acquired Shares reissued under equity...

  • Page 192
    ... Contractholder fund withdrawals Dividends paid Treasury stock purchases Shares reissued under equity incentive plans, net Excess tax benefits on share-based payment arrangements Other Net cash used in financing activities Net (decrease) increase in cash Cash at beginning of year Cash at end of year...

  • Page 193
    ... business. Allstate's primary business is the sale of private passenger auto and homeowners insurance. The Company also sells several other personal property and casualty insurance products, life insurance, annuities, voluntary accident and health insurance, funding agreements, and select commercial...

  • Page 194
    ... less costs to sell or the present value of the loan's expected future repayment cash flows discounted at the loan's original effective interest rate. Investments in limited partnership interests, including interests in private equity/debt funds, real estate funds, hedge funds and tax credit funds...

  • Page 195
    ... the Company's proportionate investment interest, and is recognized on a delay due to the availability of the related financial statements. Income recognition on hedge funds is generally on a one month delay and income recognition on private equity/debt funds, real estate funds and tax credit funds...

  • Page 196
    ... the swaps in net investment income or interest credited to contractholder funds. The amortized cost for fixed income securities, the carrying value for mortgage loans or the carrying value of the hedged liability is adjusted for the change in the fair value of the hedged risk. Cash flow hedges For...

  • Page 197
    ... term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Benefits are reflected in life and annuity contract benefits and recognized in relation to premiums, so that profits are recognized over the life of the policy. Immediate...

  • Page 198
    ... funds on the Consolidated Statements of Operations. DAC and DSI are periodically reviewed for recoverability and adjusted if necessary. For traditional life insurance, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business...

  • Page 199
    ...as of December 31, 2009 for the Allstate Protection segment and the Allstate Financial segment, respectively. The Company annually evaluates goodwill for impairment using a trading multiple analysis, which is a widely accepted valuation technique to estimate the fair value of its reporting units. If...

  • Page 200
    ... in current results of operations (see Note 7). The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health products, is computed on the basis of long-term actuarial...

  • Page 201
    ...separate accounts' funds may not meet their stated investment objectives. Substantially all of the Company's variable annuity business was reinsured beginning in 2006. Deferred Employee Stock Ownership Plan (''ESOP'') expense Deferred ESOP expense represents the remaining unrecognized cost of shares...

  • Page 202
    ... the year ended December 31, 2008. Adopted accounting standards Disclosures about Fair Value Measurements In January 2010, the Financial Accounting Standards Board (''FASB'') issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds...

  • Page 203
    ...fiscal years and interim periods beginning after December 15, 2010 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company's results of operations or financial position. Accounting for Costs Associated with Acquiring or Renewing Insurance...

  • Page 204
    ... of year Liabilities for collateral, end of year Operating cash flow (used) provided 4. Investments Fair values The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows: ($ in millions) Amortized cost December 31, 2010 U.S. government and...

  • Page 205
    ... for the years ended December 31 is as follows: ($ in millions) 2010 $ 3,737 90 385 40 8 19 4,279 (177) $ 4,102 $ $ 2009 3,998 80 498 17 27 (10) 4,610 (166) 4,444 $ $ 2008 4,783 120 618 62 195 54 5,832 (210) 5,622 Notes Fixed income securities Equity securities Mortgage loans Limited partnership...

  • Page 206
    ... type for the years ended December 31 are as follows: ($ in millions) 2010 $ (366) 153 (71) 57 (600) - (827) $ 2009 (302) 181 (144) (446) 206 (78) (583) $ 2008 (2,781) (1,149) (94) (194) (821) (51) (5,090) Fixed income securities Equity securities Mortgage loans Limited partnership interests...

  • Page 207
    ... to sell Change in credit loss due to accretion of increase in cash flows Ending balance The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security's original or current effective rate, as appropriate, to calculate...

  • Page 208
    ... at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life...

  • Page 209
    ... the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows...

  • Page 210
    ... A.M. Best, or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase. As of December 31, 2010, the remaining $1.37...

  • Page 211
    ... value, generally estimated to be equivalent to the reported net asset value of the underlying funds. The Company had write-downs related to cost method investments in 2010, 2009 and 2008 of $45 million, $297 million and $83 million, respectively. Notes Mortgage loans The Company's mortgage loans...

  • Page 212
    ... 5.0 California Illinois New York New Jersey Pennsylvania Texas The types of properties collateralizing the mortgage loans as of December 31 are as follows: (% of mortgage portfolio carrying value) 2010 32.1% 27.3 21.9 12.8 5.9 100.0% 2009 35.3% 24.2 23.2 11.9 5.4 100.0% Office buildings Retail...

  • Page 213
    ... past due Total past due Current loans Total mortgage loans Municipal bonds $ 12 78 90 6,589 $ 6,679 (% of municipal bond portfolio carrying value) 2010 12.3% 10.1 5.8 4.4 2009 13.3% 8.9 5.9 5.3 California Texas Florida Illinois 133 Notes The Company maintains a diversified portfolio of...

  • Page 214
    ... December 31, 2010 and 2009, fixed income securities with a carrying value of $448 million and $434 million, respectively, were on loan under these agreements. In return, the Company receives cash that it invests and includes in short-term investments and fixed income securities, with an offsetting...

  • Page 215
    ... and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. Short-term: Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access...

  • Page 216
    ... yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value. Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are...

  • Page 217
    ... inputs include interest rate yield curves and credit spreads. Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded...

  • Page 218
    ... and cash collateral netting Balance as of December 31, 2010 Assets Fixed income securities: U.S. government and agencies Municipal Corporate Foreign government RMBS CMBS ABS Redeemable preferred stock Total fixed income securities Equity securities Short-term investments Other investments: Free...

  • Page 219
    ... and cash collateral netting Balance as of December 31, 2009 Assets Fixed income securities: U.S. government and agencies Municipal Corporate Foreign government RMBS CMBS ABS Redeemable preferred stock Total fixed income securities Equity securities Short-term investments Other investments: Free...

  • Page 220
    ... 2010, including those related to Corporate fixed income securities, included situations where a broker quote was used in the prior period and a fair value quote became available from the Company's independent third-party valuation service provider in the current period. A quote utilizing the new...

  • Page 221
    ...) million in 2010 and are reported in the Consolidated Statements of Operations as follows: $(402) million in realized capital gains and losses, $86 million in net investment income, $2 million in interest credited to contractholder funds and $31 million in life and annuity contract benefits. 141...

  • Page 222
    ... and is reported in the Consolidated Statements of Operations as follows: $(889) million in realized capital gains and losses, $111 million in net investment income, $(3) million in interest credited to contractholder funds and $(148) million in life and annuity contract benefits. (2) Comprises $146...

  • Page 223
    ...investment income, $1 million in interest credited to contractholder funds and $270 million in life and annuity contract benefits. Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value. Financial assets ($ in millions) December 31, 2010...

  • Page 224
    ... and the Company's own credit risk. Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company's own credit risk. The fair value of long-term debt is based on market...

  • Page 225
    ... equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, Allstate Financial uses interest rate swaps to hedge interest rate risk inherent in funding agreements. When derivatives meet specific criteria, they may be designated as accounting hedges...

  • Page 226
    ...location in the Consolidated Statements of Financial Position as of December 31, 2010. ($ in millions, except number of contracts) Asset derivatives Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Balance sheet location Derivatives designated as accounting...

  • Page 227
    ... accumulation benefits Guaranteed withdrawal benefits Equity-indexed and forward starting options in life and annuity product contracts Other embedded derivative financial instruments Credit default contracts Credit default swaps - buying protection Credit default swaps - selling protection...

  • Page 228
    ...location in the Consolidated Statements of Financial Position as of December 31, 2009. ($ in millions, except number of contracts) Asset derivatives Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Balance sheet location Derivatives designated as accounting...

  • Page 229
    ... accumulation benefits Guaranteed withdrawal benefits Equity-indexed and forward starting options in life and annuity product contracts Other embedded derivative financial instruments Credit default contracts Credit default swaps - buying protection Credit default swaps - selling protection...

  • Page 230
    ... rate contracts Equity and index contracts Embedded derivative financial instruments Foreign currency contracts Credit default contracts Other contracts Subtotal Total $ Realized capital gains and losses Life and annuity contract benefits Interest credited to contractholder funds Operating costs...

  • Page 231
    ... rate contracts Equity and index contracts Embedded derivative financial instruments Foreign currency contracts Credit default contracts Other contracts Subtotal Total $ Realized capital gains and losses Life and annuity contract benefits Interest credited to contractholder funds Operating costs...

  • Page 232
    ... in market conditions. To limit this risk, the Company's senior management has established risk control limits. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash...

  • Page 233
    ... expensive than the cash market alternative. CDS typically have a five-year term. The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of December 31, 2010: ($ in millions) Notional amount AA Single name Investment grade corporate debt High yield...

  • Page 234
    ...-balance-sheet financial instruments The contractual amounts of off-balance-sheet financial instruments as of December 31 are as follows: ($ in millions) Notes 2010 $ $1,471 159 38 $ 2009 $1,432 7 19 Commitments to invest in limited partnership interests Private placement commitments Other loan...

  • Page 235
    ... estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported in property-liability insurance claims and claims expense in the Consolidated Statements of Operations...

  • Page 236
    ...) 2010 $ 6,522 2,215 2,938 1,720 87 13,482 $ 2009 6,406 2,048 2,850 1,514 92 12,910 Immediate fixed annuities: Structured settlement annuities Other immediate fixed annuities Traditional life insurance Accident and health insurance Other Total reserve for life-contingent contract benefits Notes...

  • Page 237
    ... the key assumptions generally used in calculating the reserve for life-contingent contract benefits: Product Structured settlement annuities Mortality U.S. population with projected calendar year improvements; mortality rates adjusted for each impaired life based on reduction in life expectancy...

  • Page 238
    ... are Allstate Life Funding, LLC, Allstate Financial Global Funding, LLC, Allstate Life Global Funding and Allstate Life Global Funding II, and their primary assets are funding agreements used exclusively to back medium-term note programs. Contractholder funds activity for the years ended December...

  • Page 239
    ... investment objectives. The account balances of variable annuities contracts' separate accounts with guarantees included $6.94 billion and $7.93 billion of equity, fixed income and balanced mutual funds and $1.09 billion and $568 million of money market mutual funds as of December 31, 2010 and 2009...

  • Page 240
    ...Net change Net balance as of December 31, 2009 Plus reinsurance recoverables Balance, December 31, 2009 (1) (1) $ 155 109 46 97 - 97 143 93 $ $ 236 115 81 34 13 (1) 12 46 109 $ 155 Included in the total liability balance as of December 31, 2009 are reserves for variable annuity death benefits...

  • Page 241
    ...$460 thousand per claim for the fiscal years ending June 30, 2011 and 2010, respectively. The MCCA is funded by assessments from member companies who, in turn, can recover assessments from policyholders. Ceded premiums earned under the Florida Hurricane Catastrophe Fund (''FHCF'') agreement were $15...

  • Page 242
    ... June 1, 2009 through May 31, 2012; and Eight separate agreements for Castle Key Insurance Company and its subsidiaries (''Castle Key''), for personal property excess catastrophe losses in Florida that coordinate coverage with the Company's participation in the FHCF, effective June 1, 2010 to May...

  • Page 243
    ... yearly renewable term agreements under which Allstate Financial cedes mortality in excess of its retention, which is consistent with how Allstate Financial generally reinsures its permanent life insurance business. The following table summarizes those retention limits by period of policy issuance...

  • Page 244
    ... Costs Deferred policy acquisition costs for the years ended December 31 are as follows: ($ in millions) 2010 Allstate Financial PropertyLiability $ 1,410 3,645 (3,678) - 1,377 2009 Allstate Financial PropertyLiability $ 1,453 - $ Total 8,542 (176) $ Total 5,470 4,128 (4,034) (795) 4,769 Balance...

  • Page 245
    ... for Allstate Financial, which primarily relates to fixed annuities and interest-sensitive life contracts, for the years ended December 31 was as follows: ($ in millions) 2010 $ 195 - $ 2009 453 (35) $ 2008 295 - Balance, beginning of year Impact of adoption of new OTTI accounting guidance...

  • Page 246
    ... 2006, the Company renewed the synthetic lease for a five-year term at a floating rate due 2011. The Company's Consolidated Statements of Financial Position include $42 million of property and equipment, net, and long-term debt as of both December 31, 2010 and 2009. The Allstate Bank received a $10...

  • Page 247
    ... Statements of Operations as restructuring and related charges, and totaled $30 million, $130 million and $23 million in 2010, 2009 and 2008, respectively. The following table presents changes in the restructuring liability during the year ended December 31, 2010. ($ in millions) Employee costs...

  • Page 248
    ... balances. Payment of these bonds is funded by emergency assessments on all property and casualty premiums in the state, except workers' compensation, medical malpractice, accident and health insurance and policies written under the NFIP. The FHCF emergency assessments are limited to 6% of premiums...

  • Page 249
    ... of business written. In September 2008, TWIA assessed the Company $66 million for losses relating to Hurricane Ike. The assessment was based on 2007 direct voluntary writings in the State of Texas. The Company expects to recoup $35 million of the assessment via premium tax offsets over a five year...

  • Page 250
    ... support agreement (''Runoff Support Agreement'') with PMI Mortgage Insurance Company (''PMI''), the primary operating subsidiary of PMI Group, related to the Company's disposition of PMI in prior years. Under the Runoff Support Agreement, the Company would be required to pay claims on PMI policies...

  • Page 251
    ..., to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify...

  • Page 252
    ...to dismiss and the plaintiffs filed a motion to remand the claims involving a Road Home subrogation agreement. In March 2009, the district court denied the State's request that its claims be remanded to state court. As for the defendant insurers' motion, the judge granted it in part and denied it in...

  • Page 253
    ... actions, including state market conduct exams, and other governmental and regulatory inquiries are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of a number of class action lawsuits...

  • Page 254
    ... effect on the results of operations, cash flows or financial position of the Company. The reconciliation of the change in the amount of unrecognized tax benefits for the years ended December 31 is as follows: ($ in millions) 2010 $ 22 1 - 2 - - - 25 $ 2009 21 - - 1 - - - 22 $ 2008 76 1 - 4 - (60...

  • Page 255
    .... The release of the valuation allowance is related to the reversal of previously recorded other-than-temporary impairment write-downs that would not have been recorded under the new OTTI accounting guidance. The Company received refunds of $8 million and $1.25 billion in 2010 and 2009, respectively...

  • Page 256
    ...surplus. 16. Benefit Plans Pension and other postretirement plans Defined benefit pension plans cover most full-time employees, certain part-time employees and employee-agents. Benefits under the pension plans are based upon the employee's length of service and eligible annual compensation. A Notes...

  • Page 257
    ...plan's participation requirements. The Company shares the cost of retiree medical benefits with non Medicare-eligible retirees based on years of service, with the Company's share being subject to a 5% limit on annual medical cost inflation after retirement. During 2009, the Company decided to change...

  • Page 258
    ... December 31, 2009. Included in the accrued benefit cost of the pension benefits are certain unfunded non-qualified plans with accrued benefit costs of $132 million and $156 million for 2010 and 2009, respectively. The changes in benefit obligations for all plans for the years ended December 31 are...

  • Page 259
    ... assumed health care cost trend rates would decrease the total of the service and interest cost components of net periodic benefit cost of other postretirement benefits and the APBO by $2 million and $19 million, respectively. Pension plan assets The change in pension plan assets for the years ended...

  • Page 260
    ... the target asset allocation, the pension plans participate in a securities lending program to enhance returns. U.S. government fixed income securities and U.S. equity securities are lent out and cash collateral is invested 35% in fixed income securities and 65% in short-term investments. Notes...

  • Page 261
    ...31, 2010 Assets Equity securities: U.S. International Fixed income securities: U.S. government and agencies Foreign government Municipal Corporate RMBS Short-term investments Limited partnership interests: Real estate funds (1) Private equity funds (2) Hedge funds (3) Cash and cash equivalents Free...

  • Page 262
    ...3) Balance as of December 31, 2009 Assets Equity securities: U.S. International Fixed income securities: U.S. government and agencies Municipal Corporate RMBS ABS Short-term investments Limited partnership interests: Real estate funds Private equity funds Hedge funds Cash and cash equivalents Free...

  • Page 263
    ... assets for the year ended December 31, 2009. ($ in millions) Balance as of January 1, 2009 Assets U. S. equity securities Fixed income securities: Municipal Corporate RMBS ABS Limited partnership interests: Real estate funds Private equity funds Hedge funds Total Level 3 plan assets $ 5 408 10 99...

  • Page 264
    ... ESOP benefit computed for the years ended December 31 as follows: ($ in millions) 2010 $ 2 (2) 2 2 11 $ (9) $ $ 2009 2 (2) 2 2 22 (20) $ $ 2008 2 (2) 2 2 12 (10) Interest expense recognized by ESOP Less: dividends accrued on ESOP shares Cost of shares allocated Compensation expense Reduction of...

  • Page 265
    ... for the years ended December 31, 2010, 2009 and 2008, respectively. The Company records compensation expense related to awards under these plans over the vesting period of each grant. The Company records compensation expense for employees eligible for continued vesting upon retirement over the...

  • Page 266
    ... tax benefit realized in 2010, 2009 and 2008 related to all stock-based compensation and credited directly to shareholders' equity was $0.5 million, $(6) million and $3 million, respectively. 18. Business Segments Allstate management is organized around products and services, and this structure is...

  • Page 267
    ... voluntary accident and health insurance. The institutional product line consists primarily of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors. Banking products and services have been offered to customers through...

  • Page 268
    ... the Company's business segments for the years ended December 31 are as follows: ($ in millions) 2010 2009 2008 Revenues Property-Liability Property-liability insurance premiums Standard auto Non-standard auto Total auto Homeowners Other personal lines Allstate Protection Discontinued Lines and...

  • Page 269
    ...-Liability net income Allstate Financial Life and annuity premiums and contract charges Net investment income Periodic settlements and accruals on non-hedge derivative financial instruments Contract benefits and interest credited to contractholder funds Operating costs and expenses and amortization...

  • Page 270
    .... A portion of these long-lived assets are used by entities included in the Allstate Financial and Corporate and Other segments and, accordingly, are charged expenses in proportion to their use. Summarized data for total assets and investments for each of the Company's reportable segments as of...

  • Page 271
    ... years ended December 31 are as follows: ($ in millions) Pretax Unrealized net holding gains (losses) arising during the period, net of related ... adjustments Unrecognized pension and other postretirement benefit cost Other comprehensive income (loss) 2010 Tax Aftertax Pretax 2009 Tax Aftertax Pretax...

  • Page 272
    ...December 31, 2010 and 2009, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows for each of the three years in the period ended December 31, 2010. We also have audited the Company's internal control over financial reporting as of December...

  • Page 273
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  • Page 274
    8JUN200412260886 Printed on recycled paper

  • Page 275
    ... of The Allstate Corporation Form 10-K annual report (filed with the U.S. Securities and Exchange Commission) and other public financial information for the year ended December 31, 2010, by contacting: Investor Relations The Allstate Corporation 2775 Sanders Road, Suite F3SE Northbrook, IL 60062...

  • Page 276
    Everything we do begins with our customers. The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 www.allstate.com/annualreport