Allstate 2012 Annual Report Download

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The Allstate Corporation
2775 Sanders Road
Northbrook, IL 60062-6127
www.allstate.com/annualreport
The Allstate Corporation Notice of
2012 Annual Meeting, Proxy Statement
and 2011 Annual Report
Leading Change
The Allstate Corporation Notice of 2012 Annual Meeting, Proxy Statement and 2011 Annual Report
6005_Cover.indd 1 3/27/12 2:04 PM

Table of contents

  • Page 1
    Leading Change The Allstate Corporation Notice of 2012 Annual Meeting, Proxy Statement and 2011 Annual Report

  • Page 2
    ... ADVICE AND ASSISTANCE Encompass products are sold through independent agencies that serve brand-neutral customers who prefer personal service and support from an independent agent. Answer Financial, an independent personal lines insurance agency, serves self-directed, brand-neutral consumers who...

  • Page 3
    ...for the consumer with innovative products. We launched Drive Wise® which is a telematics offering that gives customers discounts based on their actual driving behaviors. Good HandsSM Roadside, the first pay-as-you-use roadside service, captured 400,000 members. The four-state test of the new Claim...

  • Page 4
    ...Financial Results Allstate achieved solid financial results in a year when the insurance industry faced continued high costs from extreme weather. While income was down from 2010 we still managed to increase book value per share by 4.5 percent and return nearly $1.4 billion to shareholders. • Net...

  • Page 5
    ... value per share ($) 11 11 11 11 11 Return on equity (%) Revenues ($ billions) 10 10 10 10 10 09 09 09 09 09 Bright Future Few companies match our rich history, iconic brand and deep commitment to customers, employees, Agency Owners and shareholders. The Allstate team of insurance...

  • Page 6
    ... • Engagement • Accountability • Superior performance CORPORATE GOAL We will grow the value of our company for our customers, our associates, our shareholders, our communities and society. • Consumer focus • Operational excellence • Enterprise risk and return • Capital management

  • Page 7
    ... statement. Reduced Change-in-Control Benefits - We revised our change-in-control arrangements. For senior executives, the new plan eliminates tax gross ups and pension enhancements. Severance benefits were lowered for senior executives, except the CEO. In addition, beginning in 2012, equity awards...

  • Page 8
    ...Range - We changed the benchmark target used for total direct compensation to the 50th percentile of the peer group we use for compensation purposes. The benchmark had previously been a range between the 50th and 75th percentiles. BOARD EFFECTIVENESS Restructured Lead Director Role - We expanded the...

  • Page 9
    ...: Allstate's 2012 annual meeting of stockholders will be held on Tuesday, May 22, 2012, at 11:00 a.m. (CDT) at our offices in Northbrook, Illinois. Your vote on the issues being considered at this meeting is important to our continued success. This proxy statement contains the information you...

  • Page 10
    ... Auditorium Allstate 3100 Sanders Road Northbrook, Illinois 60062 1. 2. 3. 4. To elect to the Board of Directors the 12 director nominees named in this proxy statement to serve until the 2013 annual meeting. To provide an advisory vote on the compensation of the named executive officers as disclosed...

  • Page 11
    ... Public Accountant ...Audit Committee Report ...10 23 23 23 35 36 54 56 57 57 58 ... 59 60 61 Other Items Stockholder proposal ...Stockholder proposals for the year 2013 annual Allstate 401(k) Savings Plan participants ...Proxy statement and annual report delivery ...Proxy solicitation ...meeting...

  • Page 12
    ... shares. If you hold shares through the Allstate 401(k) Savings Plan, see the instructions on page 64. Before your shares have been voted at the annual meeting by the proxies, you may change or revoke your vote by voting again by telephone, by internet, in writing, or in person at the annual meeting...

  • Page 13
    ... outstanding shares the right to call special meetings of stockholders. 5. 6. Ratification of auditors - ratification of the appointment of Deloitte & Touche LLP as Allstate's independent registered public accountant for 2012. * Stockholder proposal - stockholder proposal on reporting political...

  • Page 14
    ...that every customer, employee, 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...

  • Page 15
    ... consultant. • Administers our executive compensation plans. Monitors executive performance toward goals throughout the year; reviews executive compensation program design and executive pay levels annually. • Reviews management succession plans and executive organizational structure for Allstate...

  • Page 16
    ... management. In exercising this responsibility, the Board regularly reviews strategy; business plans for Allstate's property and casualty business, life insurance and annuity business, and investment portfolio; liquidity and use of capital; and legal, regulatory, and legislative issues. Twice a year...

  • Page 17
    ...Towers Watson assessed Allstate's executive compensation design, peer group selection, and relative pay for performance. In addition, Towers Watson provided a competitive assessment of total direct compensation (base salary and annual and long-term incentives) for senior management positions. Towers...

  • Page 18
    ... promoted. Our senior human resources officer attends committee meetings. He provides the committee with internal and external analyses of the basic structure and competitiveness of our compensation program and operational details on our various compensation and incentive plans, including the design...

  • Page 19
    ..., while PROXY STATEMENT understanding and balancing the concerns of other stakeholders, including agency owners, employees, customers, and communities. • In the light of their other commitments, including service on other public company boards, be willing and able to devote the time and effort...

  • Page 20
    ... Leadership and management Corporate governance and compliance Strategy formation Executive compensation and talent management Experience in financial services or regulated industries Customer service and innovation Investment management Risk management Technology Accounting and finance Board member...

  • Page 21
    ...the Board Leadership Structure section. • Changed the long-term equity incentive mix for senior executives from 65% stock options and 35% restricted stock units to 50% performance stock awards and 50% stock options. • Revised our change-in-control arrangements for senior executives. Our new plan...

  • Page 22
    ... • Strategy formation • Experience in financial services or regulated industries Allstate Committee Membership Audit Executive Nominating and Governance (Chair Technology Corporate governance and compliance Leadership and management Executive compensation and talent management Public Board...

  • Page 23
    ... • Corporate governance and compliance • Experience in financial services or regulated industries Allstate Committee Membership Audit Compensation and Succession • Accounting and finance • Risk management • Executive compensation and talent management • Strategy formation Public Board...

  • Page 24
    ... leadership and management expertise from more than ten years of experience as Chairman and CEO. His knowledge of global operations and economics gives him keen insight in evaluating the strategies and operating plans of Allstate's business units. His experience leading a large, publicly traded...

  • Page 25
    ... Corporate governance and compliance • Customer service and innovation • Risk management • Experience in financial services or regulated industries Allstate Committee Membership Audit Compensation and Succession • Accounting and finance • Strategy formation • Executive compensation and...

  • Page 26
    ... in financial services or regulated industries Allstate Committee Membership Audit Compensation and Succession • Investment management • Strategy formation • Executive compensation and talent management • Corporate governance and compliance Public Board Membership Imation Corporation 1996...

  • Page 27
    ... chief executive officers in a number of high profile companies across industries, including financial services, technology, transportation, consumer products, and health care. She also has recruited directors for public and private corporate boards. Ms. Redmond's exposure to business issues across...

  • Page 28
    ... management • Strategy formation • Experience in financial services or regulated industries Allstate Committee Membership Compensation and Succession Executive Nominating and Governance • Executive compensation and talent management • Corporate governance and compliance • Customer service...

  • Page 29
    ... Executive compensation and talent management • Customer service and innovation • Experience in financial services or regulated industries Allstate Committee Membership(1) • Leadership and management • Risk management • Strategy formation Public Board Membership Northern Trust Corporation...

  • Page 30
    ...• Corporate governance and compliance • Experience in financial services or regulated industries Allstate Committee Membership Compensation and Succession Nominating and Governance • Executive compensation and talent management • Leadership and management • Strategy formation Public Board...

  • Page 31
    ... Leadership and management • Strategy formation • Executive compensation and talent management Allstate Committee Membership Audit (Chair) Executive Nominating and Governance • Accounting and finance • Risk management • Experience in financial services or regulated industries Public Board...

  • Page 32
    ... corporate governance issues from her years working as an executive and serving on the boards of large publicly traded companies. Key Areas of Experience: • Technology • Strategy formation • Leadership and management • Experience in financial services or regulated industries Allstate...

  • Page 33
    ... • Marketing, innovation, and customer service • Experience in financial services or regulated industries Allstate Committee Membership Executive (Chair) • Executive compensation and talent management • Risk management • Accounting and finance • Investment management Public Board...

  • Page 34
    ... vote every year at the annual meeting. A say-on-pay vote is required by section 14A of the Securities Exchange Act. Although the say-on-pay vote is non-binding, the Board and the compensation and succession committee will consider the voting results as part of its annual evaluation of our executive...

  • Page 35
    ...beginning in 2012. We also implemented an additional requirement that 75% of net after-tax shares be retained until an executive meets the stock ownership guideline. See page 34 for more information. Base Salary Annual Incentive Awards Long-term Equity Incentives Change-in-Control Agreements Some...

  • Page 36
    ... executive compensation program for 2012. The following table lists the elements of target direct compensation for our 2011 executive compensation program. The design balances fixed and variable compensation elements and provides alignment with both short and long-term business goals through annual...

  • Page 37
    ... PROXY STATEMENT Our compensation program is designed to deliver compensation in accordance with corporate, business unit, and individual performance. A significant percentage of each named executive's target total direct compensation is ''pay at risk'' through long-term equity awards and annual...

  • Page 38
    ... our executive compensation program design, executive pay, and performance against a group of peer insurance companies that are publicly traded and comparable to Allstate in product offerings, market segment, annual revenues, assets, and market value. The Committee believes Allstate competes...

  • Page 39
    ... of our peer insurance companies as a guideline, which allows Allstate to compete effectively for executive talent. Annual merit increases for the named executives other than the CEO are based on evaluations of their performance by the CEO, Committee, and Board, using the average enterprise...

  • Page 40
    ... homeowners profitability as well as auto profitability in Florida and New York did reduce Allstate brand policies in force, but were necessary to protect stockholder value. Customer relationships were broadened through increased life insurance sales and Good HandsSM Roadside Assistance. Allstate...

  • Page 41
    ... and company performance data provided by senior management. The Committee reviews the various elements of the CEO's compensation in the context of his total compensation package, including salary, annual cash incentive awards, and long-term incentive awards, as well as the value of Allstate stock...

  • Page 42
    ... salary and long-term equity incentive target of 600% of salary places his target total direct compensation substantially below the 50th percentile of our peer group. Other Named Executives After year-end, Mr. Wilson evaluated the performance and contributions of each member of his senior leadership...

  • Page 43
    ... local market opportunities. As a result, Mr. Winter's responsibilities PROXY STATEMENT were expanded to include some Allstate Protection operational functions, such as claims and product operations, in addition to the oversight of Allstate Financial. • Salary. The Committee approved an increase...

  • Page 44
    ...(2) Including medical, dental, vision, life, accidental death and dismemberment, long term disability, and group legal insurance. (3) An executive physical program is available to all officers. (4) All officers are eligible for tax preparation services. Financial planning services were provided only...

  • Page 45
    ... on additional years of age, service, and compensation; and reduces for named executives other than the CEO the amount of cash severance payable from three to two times the sum of base salary and target annual incentive. As a point of reference, Mr. Wilson's change-in-control severance benefit on...

  • Page 46
    ...designed and administered so that payments to affected executives can be fully deductible. However, in light of the balance mentioned above and the need to maintain flexibility in administering compensation programs, we may authorize compensation in any year that exceeds $1 million and does not meet...

  • Page 47
    ...the Grants of Plan-Based Awards table on page 39. The fair value of restricted stock unit awards is based on the final closing price of Allstate's stock as of the date of grant, which in part reflects the payment of expected future dividends. (See note 18 to our audited financial statements for 2011...

  • Page 48
    ... resulted from $45,687 of annual pay credit and one year of interest with the remaining increase due to changes in the discount and interest rates. (13) All equity awards granted to Mr. Lacher since his hire date were forfeited upon his separation from the corporation on July 17, 2011. (14) Reflects...

  • Page 49
    ... in relation to his separation from Allstate. There was no incremental cost for the use of mobile phones. We provide supplemental long-term disability coverage to all regular full-time and regular part-time employees whose annual earnings exceed the level which produces the maximum monthly benefit...

  • Page 50
    ...OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2011(1) The following table provides information about non-equity incentive plan awards and equity awards granted to our named executives during fiscal year 2011. All Other Stock Awards: Number Estimated Future Payouts Under of Non-Equity Incentive Plan Shares...

  • Page 51
    ...our PROXY STATEMENT executives and our stockholders. In addition, restricted stock units provide a retention incentive because they have a real, current value that is forfeited in most circumstances if an executive terminates employment before the restricted stock units vest. Under the terms of the...

  • Page 52
    Executive Compensation Tables Outstanding Equity Awards at Fiscal Year-End 2011 PROXY STATEMENT The following table summarizes the outstanding equity awards of the named executives as of December 31, 2011. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2011 Option Awards(1) Number of Securities ...

  • Page 53
    Executive Compensation Tables Option Awards(1) Number of Securities Underlying Unexercised Options (#) Exercisable(2) 0 Number of Securities Underlying Unexercised Option Options (#) Exercise Unexercisable(3) Price 92,593 PROXY STATEMENT Stock Awards Number of Market Value Shares or of Shares or ...

  • Page 54
    ... in two different defined benefit pension plans. The following table summarizes the named 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 (#) 18.8 18...

  • Page 55
    ...mortality for annuitants using the 2012 Internal Revenue Service mandated annuitant table; these are the same as those used for financial reporting year-end disclosure as described in the notes to Allstate's consolidated financial statements. (See note 17 to our audited financial statements for 2011...

  • Page 56
    ... salary taxable for Social Security over the 35-year period ending the year the participant would reach Social Security retirement age) multiplied by credited service after 1988 (limited to 28 years of credited service) For participants eligible to earn cash balance benefits, pay credits are added...

  • Page 57
    ... Aggregate Balance at Last FYE column that previously were reported as compensation in the Summary Compensation Table. In order to remain competitive with other employers, we allow the named executives and other employees whose annual compensation exceeds the amount specified in the Internal Revenue...

  • Page 58
    ... to those available to the Pre 409A balances, except the earliest distribution date is six months following separation from service. Upon proof of unforeseen emergency, a plan participant may be allowed to access certain funds in a deferred compensation account earlier than the dates specified above...

  • Page 59
    ... per plan Distributions commence per participant election None Termination due to Changein-Control(7) Ceases Lump sum equal to Immediately two times salary and annual incentive at target, except for CEO who receives three times salary and annual incentive at target(8) One month salary paid...

  • Page 60
    ... the claim or acted in bad faith. (8) Under the change-in-control plan, severance benefits would be payable if a named executive's employment is terminated either by Allstate without cause or by the executive for good reason as defined in the plan during the two years following the change-in-control...

  • Page 61
    ... payable is the same for both the named executives and all salaried employees. (2) As of December 31, 2011, none of the named executives are eligible to retire in accordance with Allstate's policy and the terms of its equity incentive compensation and benefit plans. The Allstate Corporation | 50

  • Page 62
    ...Non-Qualified Deferred Compensation at Fiscal Year End 2011 table and footnote 2 to the Pension Benefits table in the Retirement Benefits section for details regarding the applicable amounts for each named executive. (4) Under the change-in-control plan, Mr. Winter's severance benefit was reduced by...

  • Page 63
    ... by management and reviewed by the chief risk officer. Performance-related incentive plans were analyzed using a process developed in conjunction with our independent executive compensation consultant. The 2011 risk assessment specifically noted that our compensation programs: • Provide a balanced...

  • Page 64
    ...scope and nature of coverage provided under insurance policies issued by such companies. • The after tax effects of catastrophe losses. Catastrophes are defined and reported in The Allstate Corporation 10-K. Book Value Per Share: This measure is used to assess financial performance. The measure is...

  • Page 65
    ... on June 1, 2011, the final closing price of Allstate stock on the grant date was $30.44. The aggregate grant date fair value of the annual 2011 restricted stock unit awards, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, was $150...

  • Page 66
    ... received an annual award of restricted stock units under the 2006 Equity Compensation Plan for Non-Employee Directors. The number of restricted stock units granted to each director was equal to $150,000 divided by the fair market value of a share of our stock on June 1, 2011. No meeting fees or...

  • Page 67
    ... 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 68
    ... of the Securities Exchange Act of 1934, as amended, requires Allstate's executive officers, directors, and persons who beneficially own more than ten percent of Allstate's common stock to file reports of securities ownership and changes in such ownership with the SEC. Based solely upon a review of...

  • Page 69
    ... by written consent were on the ballots for our last two annual meetings and received support from 67% and 52% of stockholders who voted. In response, the nominating and governance committee hired advisors to assist it in developing a right to act by written consent that would be fundamentally fair...

  • Page 70
    ... outstanding shares the right to call a special meeting of stockholders. The Board proposed that amendment in response to a stockholder proposal that had received support from a majority of votes cast at both the 2009 and 2010 annual meetings. actions should be initiated only to address significant...

  • Page 71
    ... and 2010, respectively. Reimbursements are expected to increase for 2011 largely due to the sharing of Esurance acquisition-related audit fees with the White Mountains Insurance Group. (2) Audit-related fees are for professional services, such as accounting consultations on new accounting standards...

  • Page 72
    ... 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, 2011, for filing with the Securities and Exchange Commission...

  • Page 73
    ... used for political purposes. This would bring our Company in line with a growing number of leading companies, including Merck, MetLife and Microsoft that support political disclosure and accountability and present this information on their websites. The Company's Board and its shareholders...

  • Page 74
    ...public policy initiatives, such as safe driving. • In addition, political contributions are reported regularly to, and overseen by, senior management and reviewed on an annual basis by the Board. • Our policy on political contributions is part of our Corporate Governance Guidelines. • Allstate...

  • Page 75
    ...the shares allocated to your plan account by voting in person at the meeting. You must instruct The Northern Trust Company, as trustee for the plan, how to vote your shares. Proxy Statement and Annual Report Delivery Allstate has adopted the ''householding'' procedure approved by the Securities and...

  • Page 76
    ... has been retained to assist in the solicitation of proxies for a fee not to exceed $16,500 plus expenses. Allstate will pay the cost of all proxy solicitation. By order of the Board, PROXY STATEMENT 16MAR200612392402 Mary J. McGinn Secretary Dated: April 11, 2012 65 | The Allstate Corporation

  • Page 77
    ... or officer, in or under any standard-form insurance policy or other financial product offered by the Allstate Group in the ordinary course of business. An Allstate director's relationship with another company that participates in a transaction with the Allstate Group (i) where the rates or...

  • Page 78
    ...Article 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...

  • Page 79
    ...board of directors or of other business to be brought before a meeting of stockholders, other than as permitted to be included in the corporation's proxy statement pursuant to applicable rules and regulations promulgated under the Securities Exchange Act of 1934 (the ''Exchange Act''), (ii) the text...

  • Page 80
    ...secretary of the corporation, or such other officer of the corporation as the board of directors of the corporation may designate (''Other Officer''), shall provide for the safe-keeping of such Consents and any related revocations and shall promptly conduct such ministerial review of the sufficiency...

  • Page 81
    ... 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. C-1 | The Allstate Corporation

  • Page 82
    ... audits PROXY STATEMENT 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 Audit-Related Services 1. 2. 3. Accounting consultations relating to accounting...

  • Page 83
    ... and General Counsel of The Allstate Corporation and AIC (Chief Legal Officer). Senior Group Vice President and Controller of The Allstate Corporation and AIC. Executive Vice President and Chief Financial Officer of The Allstate Corporation and of AIC. Executive Vice President and Chief Risk...

  • Page 84
    ... graph compares the performance of Allstate common stock total return during the five-year period from December 31, 2006, through December 31, 2011, 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...

  • Page 85
    ... assets primarily relate to the acquisition purchase price and are not indicative of our underlying insurance business results or trends. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide...

  • Page 86
    ... 5-Year Summary of Selected Financial Data Management's Discussion and Analysis Overview 2011 Highlights Consolidated Net Income Application of Critical Accounting Estimates Property-Liability 2011 Highlights Property-Liability Operations Allstate Protection Segment Discontinued Lines and Coverages...

  • Page 87
    ..., which apply to us as an insurer and a provider of other financial services. These risks constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that...

  • Page 88
    ... for cross-selling opportunities that cannot be fully replaced by our brokering arrangement to allow our agents to write property products with other carriers, new business growth in our auto lines could be lower than expected. A regulatory environment that limits rate increases and requires...

  • Page 89
    ... diminished value coverage was included in auto policies under Georgia law and the emergence of mold-related homeowners losses in the state of Texas during 2002. Although we pursue various loss management initiatives in the Allstate Protection segment in order to mitigate future increases in claim...

  • Page 90
    ... crediting rates offered on products in the Allstate Financial segment could make those products less attractive, leading to lower sales and/or changes in the level of policy loans, surrenders and withdrawals. Non-parallel shifts in interest rates, such as increases in short-term rates without...

  • Page 91
    ... or commercial mortgage delinquencies, loss severities or recovery rates, declining residential or commercial real estate prices, corporate loan delinquencies or recovery rates, changes in credit or bond insurer strength ratings and the quality of service provided by service providers on securities...

  • Page 92
    ..., securities firms, investment advisers, mutual funds, banks and other financial institutions. Many of our competitors have well-established national reputations and market similar products. Because of the competitive nature of the insurance industry, including competition for producers such...

  • Page 93
    ... or benefit purchasers or users of insurance products, not holders of securities issued by The Allstate Corporation. In many respects, these laws and regulations limit our ability to grow or to improve the profitability of our business. Regulatory reforms, and the more stringent application of...

  • Page 94
    ... 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 95
    ...estimate of net unrecognized tax benefits and the reasonably possible increase or decrease in its balance during the next 12 months in Note 15 of the consolidated financial statements. However, actual results may differ from our estimate for reasons such as changes in our position on specific issues...

  • Page 96
    ...affect holding company liquidity, including our ability to pay dividends to shareholders, service our debt, or complete share repurchase programs in the timeframe expected. The occurrence of events unanticipated in our disaster recovery systems and management continuity planning or a support failure...

  • Page 97
    ... share - basic Net income (loss) per share - diluted Cash dividends declared per share Consolidated Financial Position Investments Total assets Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds Long-term debt Shareholders' equity Shareholders' equity...

  • Page 98
    ... which we use financial information to evaluate business performance and to determine the allocation of resources. Allstate is focused on the following priorities in 2012 maintain auto profitability; raise returns in homeowners and annuity businesses; grow insurance premiums; and proactively manage...

  • Page 99
    ... 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 100
    ...value of financial assets Impairment of fixed income and equity securities Deferred policy acquisition costs amortization Reserve for property-liability insurance claims and claims expense estimation Reserve for life-contingent contract benefits estimation In making these determinations, management...

  • Page 101
    ... 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 102
    ... 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 103
    ... considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or...

  • Page 104
    ...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 105
    ... detail related to DAC, see the Allstate Financial Segment section of this document. Reserve for property-liability insurance claims and claims expense estimation Reserves are established to provide for the estimated costs of paying claims and claims expenses under insurance policies we have issued...

  • Page 106
    ... to develop over time. An accident year refers to classifying claims based on the year in which the claims occurred. A report year refers to classifying claims based on the year in which the claims are reported. Both classifications are used to prepare estimates of required reserves for payments to...

  • Page 107
    ... calculations. If claims reported, paid losses, or case reserve changes are greater or less than the levels estimated by previous development factors, reserve reestimates increase or decrease. When actual development of these data elements is different than the historical development pattern used...

  • Page 108
    ... 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 illustration of the uncertainty of future loss estimates...

  • Page 109
    ... 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 of Financial Position. Because of this detailed approach to developing our reserve estimates...

  • Page 110
    ... liability coverages on large U.S. companies. Additional exposure stems from direct primary commercial insurance written during the 1960s through the mid-1980s. Other discontinued lines exposures primarily relate to general liability and product liability mass tort claims, such as those for medical...

  • Page 111
    ...lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs...

  • Page 112
    ... Claims and Claims Expense Reserves section of this document. Reserve for life-contingent contract benefits estimation Due to the long term nature of traditional life insurance, life-contingent immediate annuities and voluntary accident and health products, benefits are payable over many years...

  • Page 113
    ...Protection and Discontinued Lines and Coverages. Allstate Protection comprises three brands: Allstate, Encompass and Esurance. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto and homeowners insurance, to individuals...

  • Page 114
    ... intangible assets to premiums earned. Effect of restructuring and related charges on combined ratio - 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 operating costs and...

  • Page 115
    ...the Encompass brand. We also sell auto insurance direct to consumers online, through a call center and through select agents, including Answer Financial, under the Esurance brand. Our strategy is to position our products and distribution systems to meet the changing needs of the customer in managing...

  • Page 116
    ... value-added customer interactions and expanding our presence in households with multiple products by providing financial protection for customer needs. In addition, we introduced a claim satisfaction guarantee that promises a return of premium to any Allstate Brand standard auto insurance customer...

  • Page 117
    ... strategy for Esurance brand focuses on self-directed and web-savvy customers. To best serve these customers, Esurance develops its technology and website to continuously improve its hassle-free purchase and claims experience. In 2012, Esurance plans to broaden its product offering and increase its...

  • Page 118
    ... auto Homeowners Other personal lines (1) Total Allstate brand Encompass brand: Standard auto Non-standard auto Homeowners Other personal lines (1) Total Encompass brand Esurance brand Standard auto (2) $ 4,120 216 3,314 1,293 8,943 311 - 202 47 560 208 Allstate Protection unearned premiums...

  • Page 119
    ...for Encompass brand standard auto) or 12 months prior for homeowners. New issued applications: Item counts of automobiles or homeowners insurance applications for insurance policies that were issued during the period. Does not include automobiles that are added by existing customers. Net items added...

  • Page 120
    ...issued applications increased in 17 states in 2011 compared to 2010. increase in average gross premium in 2011 compared to 2010. 0.3 point increase in the renewal ratio in 2011 compared to 2010. In 2011, 39 states are showing favorable comparisons to prior year. - - - Allstate brand standard auto...

  • Page 121
    ... decree to sell 50,000 new homeowners policies in Florida by November 2011. increase in average gross premium in 2011 compared to 2010, primarily due to rate changes 0.1 point decrease in the renewal ratio in 2011 compared to 2010 decrease in the cost of our catastrophe reinsurance program in 2011...

  • Page 122
    ... depreciated value versus replacement value and uses a number of factors to determine price, some of which relate to auto insurance risks. We expect to roll it out countrywide for new business gradually over the next three years. Allstate brand homeowners premiums written increased in 2010 compared...

  • Page 123
    ... Estimates and Property-Liability Claims and Claims Expense Reserves sections of the MD&A. Allstate Protection experienced underwriting income of $526 million in 2010 compared to $1.03 billion in 2009, primarily due to decreases in standard auto underwriting income and increases in homeowners...

  • Page 124
    ... and physical damage coverages have decreased compared to 2010. Bodily injury and physical damage coverages severity results in 2011 increased in line with historical Consumer Price Index (''CPI'') trends. Standard auto loss ratio for the Allstate brand increased 1.4 points in 2010 compared to 2009...

  • Page 125
    ...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 expenses and increases in net costs...

  • Page 126
    ... 439 289 1,287 Encompass brand 2011 52 - 34 7 93 $ 2010 55 - 36 7 98 Esurance brand 2011 $ 32 - - - 32 (1) Allstate Protection 2011 $ 617 26 473 296 1,412 $ 2010 596 25 473 283 1,377 Standard auto Non-standard auto Homeowners Other personal lines Total DAC (1) $ $ $ $ $ $ $ Includes $21...

  • Page 127
    ... losses, including our auto policies, and to fires following earthquakes. Allstate policyholders in the state of California are offered coverage through the CEA, a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to...

  • Page 128
    ...discontinued lines claims is reported in this segment. We have assigned management of this segment to a designated group of professionals with expertise in claims handling, policy coverage interpretation, exposure identification and reinsurance collection. As part of its responsibilities, this group...

  • Page 129
    ... total net reserves as of December 31 by line of business. ($ in millions) 2011 $ 14,792 859 429 16,080 1,707 $ 17,787 $ $ 2010 14,696 921 - 15,617 1,779 17,396 $ $ 2009 14,123 1,027 - 15,150 1,878 17,028 Allstate brand Encompass brand Esurance brand Total Allstate Protection Discontinued Lines...

  • Page 130
    ...779 $ 2011 17,396 2010 Effect on combined ratio Reserve reestimate (1) Reserve reestimate (1) Allstate brand Encompass brand Esurance brand Total Allstate Protection Discontinued Lines and Coverages Total Property-Liability Reserve reestimates, after-tax Net income Reserve reestimates as a % of...

  • Page 131
    ... of loss development higher than anticipated in previous estimates. Pending, new and closed claims for Allstate Protection are summarized in the following table for the years ended December 31. Number of claims Auto Pending, beginning of year New Total closed Pending, end of year Homeowners Pending...

  • Page 132
    ... accident years to which the reestimates shown above are applicable by line of business. Favorable reserve reestimates are shown in parentheses. 2011 Prior year reserve reestimates ($ in millions) 2001 & prior 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Allstate brand Encompass brand Total...

  • Page 133
    ...primarily for products related coverage due to increases for the assumed reinsurance portion of discontinued lines where we are reliant on our ceding companies to report claims. Reserve additions for asbestos in 2010 totaling $5 million were primarily for products related coverage. Asbestos reserves...

  • Page 134
    ... the claims and claims expense paid of $63 million for asbestos and $7 million for environmental attributable to commutation activity related to three reinsurers. In 2011, the asbestos net 3-year survival ratio increased due to lower average annual payments. In 2010, the asbestos net 3-year survival...

  • Page 135
    ..., 2010. 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 136
    ... industry to be concentrated among fewer companies. In addition, over the last several years the industry has increasingly segregated asbestos, environmental, and other discontinued lines exposures into separate legal entities with dedicated capital. Regulatory bodies in certain cases have supported...

  • Page 137
    ... to higher premium rates and an increase in policies written for the National Flood Insurance Program. For the year ended December 31, 2010, ceded property-liability premiums earned increased $36 million when compared to prior year, primarily due to the adoption of accounting guidance related to the...

  • Page 138
    ...wildfires. These reinsurance 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. We anticipate...

  • Page 139
    ... Top and Drop Excess Catastrophe Reinsurance agreement reinsures personal lines property and auto excess catastrophe losses caused by multiple perils under a three year term contract expiring May 31, 2014. The reinsurance limit may be used for Coverage A, Coverage B or a combination of both and is...

  • Page 140
    ... Benefits also afford opportunities to offer additional Allstate products. Our products include interest-sensitive, traditional and variable life insurance; fixed annuities such as deferred and immediate annuities; voluntary accident and health insurance; and funding agreements backing medium-term...

  • Page 141
    ... expenses Restructuring and related charges Total costs and expenses (Loss) gain on disposition of operations Income tax (expense) benefit Net income (loss) Investments as of December 31 Net income Life insurance Accident and health insurance Annuities and institutional and bank products Net income...

  • Page 142
    ...employees of one large company, and higher contract charges on interest-sensitive life insurance products resulting from a shift in the mix of policies in force to contracts with higher cost of insurance rates and policy administration fees. In addition, increased traditional life insurance premiums...

  • Page 143
    ...billion of funds to Allstate Bank account holders, partially offset by lower surrenders and partial withdrawals on interest-sensitive life insurance products. The increase for fixed annuities resulted from an increased number of contracts reaching the 30-45 day period (typically at their 5 or 6 year...

  • Page 144
    ... in 2009. Excluding Allstate Bank products, the surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 12.6% in 2011 compared to 10.1% in 2010 and 9.6% in 2009. Net investment income...

  • Page 145
    ... 3 30 16 205 380 Annuities and institutional products Life insurance Allstate Bank products Accident and health insurance Net investment income on investments supporting capital Total investment spread $ $ $ Investment spread increased 6.6% or $33 million in 2011 compared to 2010 as actions to...

  • Page 146
    ...equity-indexed, variable and immediate annuities, equity-indexed and variable life, and institutional products totaling $11.01 billion of contractholder funds, have been excluded from the analysis because management does not have the ability to change the crediting rate or the minimum crediting rate...

  • Page 147
    ...to equity-indexed annuities and was primarily due to an increase in projected investment margins. In 2010, our annual comprehensive review resulted in a deceleration of DAC amortization (credit to income) of $12 million. Amortization deceleration of $45 million related to variable life insurance and...

  • Page 148
    ... and lower net Allstate agencies distribution channel expenses reflecting increased fees from sales of third party financial products, partially offset by a charge related to the liquidation plan for Executive Life Insurance Company of New York. Non-deferrable acquisition costs increased 7.7% or $12...

  • Page 149
    ... half of 2012, we expect to cancel the bank's charter and deregister The Allstate Corporation as a savings and loan holding company. Income tax expense was $286 million in 2011 compared to income tax expense of $8 million in 2010 and an income tax benefit of $82 million in 2009. The change in 2011...

  • Page 150
    ... 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 underlying liabilities, asset-liability management...

  • Page 151
    ...by Allstate Insurance Company (''AIC'') to its parent, The Allstate Corporation (the ''Corporation''). The Allstate Financial investment portfolio decreased to $57.37 billion as of December 31, 2011, from $61.58 billion as of December 31, 2010, primarily due to net reductions in contractholder funds...

  • Page 152
    ... rating if an externally provided rating is not available. All of our fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners (''NAIC''), and/or internally rated. Our initial investment decisions and ongoing monitoring procedures...

  • Page 153
    ... fixed income securities by credit rating as of December 31, 2011. ($ in millions) Fair value Aaa Unrealized gain/(loss) Fair value Aa Unrealized gain/(loss) Fair value A Unrealized gain/(loss) U.S. government and agencies Municipal Tax exempt Taxable ARS Corporate Public Privately placed Foreign...

  • Page 154
    .... 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 155
    ...113 million had variable rate underlying collateral. Subprime includes securities collateralized by residential mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history. It also includes securities that are collateralized...

  • Page 156
    ... related to net increases in the valuation allowance on impaired loans in 2010. For further detail on our mortgage loan portfolio, see Note 5 of the consolidated financial statements. Limited partnership interests consist of investments in private equity/debt funds, real estate funds, hedge funds...

  • Page 157
    ... our 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) 2011 EMA $ 72 86 12 (11) 159 $ Total income 149 98 12 (12) 247 $ Impairment write...

  • Page 158
    ... securities (1) Equity securities EMA limited partnership interests Derivatives Unrealized net capital gains and losses, pre-tax (1) Unrealized net capital gains and losses for fixed income securities as of December 31, 2011 and 2010 comprise $(267) million and $(293) million, respectively, related...

  • Page 159
    ... income securities by type and sector are provided in the table below. ($ in millions) Par value (1) Corporate: Banking Financial services Capital goods Utilities Consumer goods (cyclical and non-cyclical) Transportation Communications Basic industry Energy Technology Other Total corporate fixed...

  • Page 160
    ... Fair value Financial services Emerging market equity funds Index-based funds Consumer goods (cyclical and non-cyclical) Emerging market fixed income funds Technology Basic industry Banking Energy Capital goods Real estate Communications Utilities Transportation Total equity securities $ 295...

  • Page 161
    ...losses related to Subprime RMBS. 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 fair value is less than the amortized cost of...

  • Page 162
    ... impairment evaluation. While our projections are developed internally and customized to our specific holdings, they are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling...

  • Page 163
    ...to be incurred Class-level Average remaining credit enhancement Security-specific Number of positions Par value Amortized cost Fair value Gross unrealized losses Total 12-24 months Over 24 months (4) Cumulative write-downs recognized Principal payments received during the period (1) 12.0% 38.2% 16...

  • Page 164
    ... over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period. We believe the unrealized losses on our Subprime securities, including those over 24 months...

  • Page 165
    ... first quarter of 2011, higher distributions from cost method limited partnerships and dividend income from equity securities. The 2010 decrease was primarily due to lower interest rates, risk reduction actions related to municipal bonds and commercial real estate, duration shortening actions taken...

  • Page 166
    ... ability to offer competitive rates and prices to customers while contributing to attractive and stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are a function of the underlying risks and product profiles of each business. Investment policies define...

  • Page 167
    ... 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 168
    ... described above, in the event of a 100 basis point immediate increase in interest rates, the assets supporting life insurance products would decrease in value by $660 million, compared to a decrease of $549 million as of December 31, 2010. To the extent that conditions differ from the assumptions...

  • Page 169
    ... related to variable life contracts were $716 million and $775 million in December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010 we had $3.86 billion and $4.70 billion, respectively, in equity-indexed annuity liabilities that provide customers with interest crediting rates...

  • Page 170
    ... 2010 primarily due to an increase in the market-related value of assets. Net periodic pension cost increased in 2010 due to the effect of equity losses during the 2008 fiscal year and the decrease in discount rates experienced at the end of 2009. In 2011 and 2010, net pension cost included non-cash...

  • Page 171
    ... million for the 2012 fiscal 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 172
    ...quoted market price of our outstanding common stock and includes a control premium, derived from historical insurance industry acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The discounted cash...

  • Page 173
    ... paid to shareholders and share repurchases. Debt The debt balance did not change during 2011 and decreased $2 million in 2010. On January 11, 2012, we issued $500 million of 5.20% Senior Notes due 2042, utilizing the registration statement filed with the Securities and Exchange Commission on...

  • Page 174
    ...given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. Allstate's domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements...

  • Page 175
    ... to shareholders/parent company Tax payments/settlements Share repurchases Debt service expenses and repayment Settlement payments of employee and agent benefit plans X X X X X X X X X X X X X X X X X X X X X Allstate Financial Corporate and Other X X X X X X X X X We actively manage our financial...

  • Page 176
    ... retail annuities increased 21.9% in 2011 compared to 2010. The annualized surrender and partial withdrawal rate on deferred annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 12.6% and 10.1% in 2011 and 2010, respectively. Allstate 90

  • Page 177
    ... and equity securities, partially offset by net change in short-term investments. Allstate Financial Lower cash provided by operating cash flows in 2011 was primarily due to income tax payments in 2011 compared to income tax refunds in 2010. Operating cash flows for Allstate Financial in 2010 were...

  • Page 178
    ... and institutional products. The reserve 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...

  • Page 179
    ... and analytics. This framework provides an enterprise view of risks and opportunities and is used by senior leaders and business managers to drive strategic and business decisions. Allstate's risk management strategies adapt to changes in business and market environments and seek to optimize...

  • Page 180
    ... business and enterprise strategies that seek to optimize returns on risk-adjusted capital. Examples include shifting Allstate Financial away from spread-based products toward underwritten products, implementing a suite of margin improvement and exposure reduction actions in homeowners insurance...

  • Page 181
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in millions, except per share data) Year Ended December 31, 2011 2010 2009 Revenues Property-liability insurance premiums (net of reinsurance ceded of $1,098, $1,092 and $1,056) Life and annuity premiums and ...

  • Page 182
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in millions) Year Ended December 31, 2011 2010 $ 928 $ 2009 854 $ 788 Net income Other comprehensive income, after-tax Changes in: Unrealized net capital gains and losses Unrealized foreign currency ...

  • Page 183
    ...Contractholder funds Unearned premiums Claim payments outstanding Other liabilities and accrued expenses Long-term debt Separate Accounts Total liabilities Commitments and Contingent Liabilities (Note 7, 8 and 14) Equity Preferred stock, $1 par value, 25 million shares authorized, none issued Common...

  • Page 184
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ in millions, except per share data) Year Ended December 31, 2011 2010 9 3,176 13 3,189 31,969 788 (436) - 32,321 (44) 1 (43) (15,910) (950) 65 (16,795) (184) - 428 (12) (239) (7) 18,674 28 - (4) 4 28 $ ...

  • Page 185
    ... 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 increase (decrease) in cash Cash at beginning of year Cash at end of year...

  • Page 186
    ...of private passenger auto and homeowners insurance. The Company also sells several other personal property and casualty insurance products, select commercial property and casualty coverages, life insurance, annuities, voluntary accident and health insurance and funding agreements. Allstate primarily...

  • Page 187
    ... limited partnership interests are accounted for in accordance with the equity method of accounting (''EMA''). Short-term investments, including money market funds, commercial paper and other short-term investments, are carried at fair value. Other investments primarily consist of policy loans, bank...

  • Page 188
    ...embedded in certain fixed income securities, equity-indexed life and annuity contracts, reinsured variable annuity contracts and certain funding agreements. All derivatives are accounted for on a fair value basis and reported as other investments, other assets, other liabilities and accrued expenses...

  • Page 189
    ... adjustment made to the amortized cost for fixed income securities or the carrying value for mortgage loans is subject to the accounting policies applied to other-than-temporarily impaired assets. When a derivative instrument used in a cash flow hedge of an existing asset or liability is no longer...

  • Page 190
    .... Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, and funding agreements (primarily backing medium-term notes) are considered investment contracts. Consideration received for such contracts is reported as...

  • Page 191
    ... of the Company's variable annuity business is ceded through reinsurance agreements and the contract charges and contract benefits related thereto are reported net of reinsurance ceded. Deferred policy acquisition and sales inducement costs Costs that vary with and are primarily related to acquiring...

  • Page 192
    ... Customers of the Company may exchange one insurance policy or investment contract for another offered by the Company, or make modifications to an existing investment, life or property-liability contract issued by the Company. These transactions are identified as internal replacements for accounting...

  • Page 193
    ... the quoted market price of the Company's outstanding common stock and includes a control premium, derived from historical insurance industry acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units...

  • Page 194
    ... annuity and variable life insurance contractholders bear the investment risk that the 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...

  • Page 195
    ... of diluted earnings per share in those years. Adopted accounting standards Consolidation Analysis Considering Investments Held through Separate Accounts In April 2010, the Financial Accounting Standards Board (''FASB'') issued guidance clarifying that an insurer is not required to combine...

  • Page 196
    ... personal lines insurance agency that offers comparison quotes for auto and homeowners insurance from more than a dozen insurance companies through its website and over the phone. Esurance expands the Company's ability to serve the self-directed, brand-sensitive market segment. Answer Financial...

  • Page 197
    ... for the years ended December 31 are as follows: ($ in millions) 2011 $ 21 21 1 $ $ $ 22 $ $ 2010 171 171 3 174 $ $ 2009 (316) (316) (2) (318) (340) (658) 318 Net change in proceeds managed Net change in short-term investments Operating cash flow provided (used) Net change in cash Net change in...

  • Page 198
    ... the years ended December 31 is as follows: ($ in millions) 2011 $ 3,484 122 359 88 6 95 4,154 (183) $ 3,971 $ $ 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 Fixed income securities Equity securities Mortgage loans Limited partnership interests...

  • Page 199
    ...-temporary impairment losses by asset type for the years ended December 31 are as follows: ($ in millions) Gross Fixed income securities: Municipal Corporate Foreign government RMBS CMBS ABS Total fixed income securities Equity securities Mortgage loans Limited partnership interests Other Other-than...

  • Page 200
    ... 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 201
    ... 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 the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities...

  • Page 202
    ... in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific...

  • Page 203
    ... value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position. ($ in millions) Less than 12 months Number of issues December 31, 2011 Fixed income securities U.S. government and agencies Municipal Corporate Foreign...

  • Page 204
    .... If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds. In 2011, 2010 and 2009, the Company had write-downs related to cost method...

  • Page 205
    ... payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company's credit monitoring process. The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized...

  • Page 206
    ... include securities lending programs with third parties, mostly large banks. As of December 31, 2011 and 2010, fixed income and equity securities with a carrying value of $406 million and $448 million, respectively, were on loan under these agreements. In return, the Company receives cash that...

  • Page 207
    ... date liquidity will return to this market, is not market observable. Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans and policy loans. Accordingly, such investments are only included...

  • Page 208
    ... traded, exchange-listed U.S. 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...

  • Page 209
    ...Corporate, including privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Also included are equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services...

  • Page 210
    ... Equity securities Short-term investments Other investments: Free-standing derivatives Separate account assets Other assets Total recurring basis assets Non-recurring basis (1) Total assets at fair value % of total assets at fair value Liabilities Contractholder funds: Derivatives embedded in life...

  • Page 211
    ... Equity securities Short-term investments Other investments: Free-standing derivatives Separate account assets Other assets Total recurring basis assets Non-recurring basis (1) Total assets at fair value % of total assets at fair value Liabilities Contractholder funds: Derivatives embedded in life...

  • Page 212
    ...stock Total fixed income securities Equity securities Other investments: Free-standing derivatives, net Other assets Total recurring Level 3 assets Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts Total recurring Level 3 liabilities $ OCI on Statement of Financial...

  • Page 213
    ... the market and a sustained increase in market activity for these assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation...

  • Page 214
    ... 2010 Assets Fixed income securities: Municipal Corporate RMBS CMBS ABS Total fixed income securities Equity securities Other investments: Free-standing derivatives, net Other assets Total recurring Level 3 assets Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts...

  • Page 215
    ... fair value of limited partnership interests accounted for on the cost basis is determined using reported net asset values of the underlying funds. The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market...

  • Page 216
    ...'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 observable data...

  • Page 217
    ...and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock. When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow...

  • Page 218
    ... Asset derivatives Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Balance sheet location Derivatives designated as accounting hedging instruments Interest rate swap agreements Foreign currency swap agreements Total Derivatives not designated as accounting...

  • Page 219
    ... 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 Total Total...

  • Page 220
    ... Asset derivatives Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Balance sheet location Derivatives designated as accounting hedging instruments Interest rate swap agreements Foreign currency swap agreements Total Derivatives not designated as accounting...

  • Page 221
    ... 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 Total Total...

  • Page 222
    ... 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 223
    ... 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 224
    ... contracts funds Investments $ (26) $ 164 12 150 $ 39 $ - (9) 30 $ (13) $ - - (13) $ - (164) - (164) $ The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (''MNAs...

  • Page 225
    ... 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 flows of the hedged risk component of the related assets, liabilities or...

  • Page 226
    ... expiration or termination of the agreement. With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity's public fixed maturity cash instruments and swap rates at the time the agreement is executed. With a FTD basket or...

  • Page 227
    ... in certain limited partnership investments. Because the equity investments in the limited partnerships are not actively traded, it is not practical to estimate the fair value of these commitments. Commitments to extend mortgage loans are agreements to lend to a borrower provided there is...

  • Page 228
    ... based on management's best estimates. Accordingly, management believes that it is not practical to develop a meaningful range for any such changes in losses incurred. During 2011, incurred claims and claims expense related to prior years was primarily composed of net decreases in auto reserves of...

  • Page 229
    ... value of expected future benefits based on historical experience Other immediate fixed annuities Traditional life insurance Interest rate assumptions range from 4.0% to 11.3% Net level premium reserve method using the Company's withdrawal experience rates; includes reserves for unpaid claims...

  • Page 230
    ... annuities Funding agreements backing medium-term notes Other investment contracts Allstate Bank deposits Total contractholder funds The following table highlights the key contract provisions relating to contractholder funds: Product Interest-sensitive life insurance Interest rate Interest rates...

  • Page 231
    ... may not meet their stated investment objectives. The account balances of variable annuities contracts' separate accounts with guarantees included $5.54 billion and $6.94 billion of equity, fixed income and balanced mutual funds and $837 million and $1.09 billion of money market mutual funds as of...

  • Page 232
    ... fund values, mortality, persistency and customer benefit utilization rates. These assumptions are periodically reviewed and updated. For guarantees related to death benefits, benefits represent the projected excess guaranteed minimum death benefit payments. For guarantees related to income benefits...

  • Page 233
    ...$480 thousand per claim for the fiscal years ending June 30, 2012 and 2011, 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 $27...

  • Page 234
    ... subject to two limits being available in any one contract year and is 95% placed. Five separate agreements for Castle Key Insurance Company and its subsidiaries (''Castle Key'') provide coverage for personal lines property excess catastrophe losses in Florida and coordinate coverage with the...

  • Page 235
    ...a net basis between the companies. Allstate Financial cedes 100% of the morbidity risk on substantially all of its long-term care contracts. For certain term life insurance policies issued prior to October 2009, Allstate Financial ceded up to 90% of the mortality risk depending on the year of policy...

  • Page 236
    As of December 31, 2011 and 2010, approximately 94% of Allstate Financial's reinsurance recoverables are due from companies rated A‫ מ‬or better by S&P. 11. Deferred Policy Acquisition and Sales Inducement Costs Deferred policy acquisition costs for the years ended December 31 are as follows: ...

  • Page 237
    DSI activity 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) 2011 $ 86 $ 2010 195 $ 2009 453 Balance, beginning of year Impact of adoption of new other-than-temporary ...

  • Page 238
    ...repaid on the advances, respectively. The Allstate Corporation will be assuming these obligations when the Bank is dissolved. To manage short-term liquidity, the Company maintains a commercial paper program and a credit facility as a potential source of funds. These include a $1.00 billion unsecured...

  • Page 239
    ... 1 million shares under equity incentive plans. 13. Company Restructuring The Company undertakes various programs to reduce expenses. These programs generally involve a reduction in staffing levels, and in certain cases, office closures. Restructuring and related charges include employee termination...

  • Page 240
    ... 6% of Florida property premiums industry-wide for the prior year. Prior to July 2008, the assessment rate was 10%. The base of assessable insurers includes all property and casualty premiums in the state, except workers' compensation, medical malpractice, accident and health insurance and policies...

  • Page 241
    ... publicly-managed state agency created to provide insurance coverage for earthquake damage. Insurers selling homeowners insurance in California are required to offer earthquake insurance to their customers either through their company or by participation in the CEA. The Company's homeowners policies...

  • Page 242
    ... 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 243
    ... otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its...

  • Page 244
    ... or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described below, as they are resolved over time, is not likely to have a material effect on the financial position of the Company. Claims related proceedings Allstate...

  • Page 245
    ... no discovery in connection with this matter. The Company has now filed a motion seeking to force the State to provide more specificity as to its claims in this matter. The Company believes that its adjusting practices in connection with Katrina homeowners claims were sound and in accordance with...

  • Page 246
    ...amounts and lost benefits of the putative class members also are subject to individual variation and determination dependent upon retirement dates, participation in employee benefit programs, and years of service. As in Romero I and EEOC I, discovery at this time is limited to issues relating to the...

  • Page 247
    ...lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs...

  • Page 248
    ... assets Unearned premium reserves Difference in tax bases of invested assets Discount on loss reserves Pension Alternative minimum tax credit carryforward Accrued compensation Net operating loss carryforwards Other postretirement benefits Life and annuity reserves Other assets Total deferred assets...

  • Page 249
    ... income tax rate 16. Statutory Financial Information Allstate's domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of...

  • Page 250
    ...employee service rendered as of the measurement date. The PBO is measured using the pension benefit formula and assumptions as to future compensation levels. A plan's funded status is calculated as the difference between the benefit obligation and the fair value of plan assets. The Company's funding...

  • Page 251
    ... in the discount rate and the effect of unfavorable equity market conditions on the value of the pension plan assets in prior years. The decrease of $111 million in the OPEB net actuarial gain during 2011 is primarily related to a decrease in the discount rate, higher than expected claim costs of...

  • Page 252
    ... pension benefit formula to employee service rendered at the measurement date. However, it differs from the PBO due to the exclusion of an assumption as to future compensation levels. The PBO, ABO and fair value of plan assets for the Company's pension plans with an ABO in excess of plan assets were...

  • Page 253
    ... 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 $21 million, respectively. Pension plan assets The change in pension plan assets for the years ended...

  • Page 254
    ...term investments Limited partnership interests: Real estate funds (1) Private equity funds (2) Hedge funds (3) Cash and cash equivalents Free-standing derivatives: Assets Liabilities Total plan assets at fair value % of total plan assets at fair value Securities lending obligation (4) Other net plan...

  • Page 255
    ...-term investments Limited partnership interests: Real estate funds Private equity funds Hedge funds Cash and cash equivalents Free-standing derivatives: Assets Liabilities Total plan assets at fair value % of total plan assets at fair value Securities lending obligation Other net plan assets Total...

  • Page 256
    ... ABS Limited partnership interests: Real estate funds Private equity funds Hedge funds Total Level 3 plan assets $ 4 344 10 61 32 135 149 368 $ 1,103 Balance as of December 31, 2010 6 222 10 48 - 167 166 373 992 The following table presents the rollforward of Level 3 plan assets for the year ended...

  • Page 257
    ... benefits Pension benefits 2012 2013 2014 2015 2016 2017-2021 Total benefit payments Allstate 401(k) Savings Plan Employees of the Company, with the exception of those employed by the Company's international, Sterling Collision Centers (''Sterling''), Esurance and Answer Financial subsidiaries...

  • Page 258
    ... Company uses its treasury shares for these issuances. The fair value of each option grant is estimated on the date of grant using a binomial lattice model. The Company uses historical data to estimate option exercise and employee termination within the valuation model. In addition, separate groups...

  • Page 259
    .... The total fair value of restricted stock units vested was $13 million, $16 million and $11 million during 2011, 2010 and 2009, respectively. The tax benefit realized in 2011, 2010 and 2009 related to tax deductions from stock option exercises and included in shareholders' equity was $3 million...

  • Page 260
    ...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 were previously offered to customers through the Allstate Bank...

  • Page 261
    ... revenue data for each of the Company's reportable segments for the years ended December 31 are as follows: ($ in millions) 2011 2010 2009 Revenues Property-Liability Property-liability insurance premiums Standard auto Non-standard auto Total auto Homeowners Other personal lines Allstate...

  • Page 262
    ... Allstate Financial Life and annuity premiums and contract charges Net investment income Periodic settlements and accruals on non-hedge derivative instruments Contract benefits and interest credited to contractholder funds Operating costs and expenses and amortization of deferred policy acquisition...

  • Page 263
    ... their use. Summarized data for total assets and investments for each of the Company's reportable segments as of December 31 are as follows: ($ in millions) 2011 $ 49,833 72,854 2,876 $ 2010 47,573 79,069 4,232 $ 2009 47,179 81,968 3,505 Assets Property-Liability Allstate Financial Corporate and...

  • Page 264
    ... of related offsets Less: reclassification adjustment of realized capital gains and losses Unrealized net capital gains and losses Unrealized foreign currency translation adjustments Unrecognized pension and other postretirement benefit cost Other comprehensive income $ 2011 Tax Aftertax Pretax 2010...

  • Page 265
    ... 31, 2011 and 2010, 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, 2011. We also have audited the Company's internal control over financial reporting as of December 31...

  • Page 266
    ...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, 2011, by contacting: Investor Relations The Allstate Corporation 2775 Sanders Road, Suite F3SE Northbrook, IL 60062-6127...

  • Page 267
    ... of each donation to support their interests and increase their impact. SOCIALLY RESPONSIBLE INVESTMENTS Over the years, Allstate has provided long-term, below-market rate loans to community organizations to fund critical services like affordable housing, health facilities, childcare, job training...

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    The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 www.allstate.com/annualreport