Allstate 2014 Annual Report Download

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GROWING TODAY,
SHAPING THE FUTURE
GROWING TODAY,
SHAPING THE FUTURE
The Allstate Corporation Notice of 2015 Annual Meeting,
Proxy Statement and 2014 Annual Report

Table of contents

  • Page 1
    GROWING TODAY, SHAPING THE FUTURE The Allstate Corporation Notice of 2015 Annual Meeting, Proxy Statement and 2014 Annual Report

  • Page 2
    ... cars and the Internet of Things are changing the ways we serve and interact with customers. This creates tremendous opportunity for a company with Allstate's market position, customer relationships, capabilities and financial resources. THOMAS J. WILSON Chairman and Chief Executive Officer

  • Page 3
    ... force grew BRAND-NEUTRAL 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...

  • Page 4
    ... our customer-focused strategy, the life insurance business is being integrated into the Allstate Personal Lines organization. • Build long-term growth platforms. We also continue to invest in long-term growth in existing and adjacent businesses. - In 2014, the Allstate exclusive agency footprint...

  • Page 5
    ...governance of Allstate's outstanding board of directors, we are building a new type of corporation. It is a bold vision, but one we will achieve. Indeed, we are already well on the way to shaping the future! THOMAS J. WILSON Chairman and Chief Executive Officer April 6, 2015 Allstate is innovative...

  • Page 6
    ... more value than the competition by reinventing protection and retirement to improve customers' lives. OUR CORPORATE GOAL Create long-term value by serving our stakeholders, taking appropriate risks, and leveraging our capabilities and strategic assets. OUR VALUES • Honesty, caring and...

  • Page 7
    ... of providing unique value propositions to different segments of the personal lines insurance market. This strategy is working as the company has grown policies in force and improved customer satisfaction while maintaining excellent profitability. CAPITAL UTILIZATION In 2014, Allstate returned $2.78...

  • Page 8
    ... did adopt a policy prohibiting the pledging of Allstate securities for senior executives and directors. CORPORATE GOVERNANCE We continued our practice of interacting with stockholders on governance issues three times a year: before, during, and after annual stockholder voting. Each Board committee...

  • Page 9
    ... the 2016 Annual Meeting Allstate 401(k) Savings Plan Participants Proxy Statement and Annual Report Delivery Procedures for Attending the Annual Meeting Proxy Solicitation 64 67 68 Executive Overview of Compensation. Review our 2014 performance; how we align pay with performance; and changes to our...

  • Page 10

  • Page 11
    ... attend the meeting in person should review page 74. On April 6, 2015, Allstate began mailing its notice of Internet availability of proxy materials, proxy statement and annual report, and proxy card/voting instruction form to stockholders and to participants in the Allstate 401(k) Savings Plan. By...

  • Page 12
    ... to Stockholders from Your Board of Directors'' for an overview describing Allstate's strategy, capital utilization, executive compensation, and governance in 2014. Board Highlights Added a new director in 2014: Mr. Eskew adds operating, technology, and corporate governance leadership experience to...

  • Page 13
    ... about the audit committee's oversight and engagement of the independent auditor. Page 69 To attend the annual meeting, you must follow certain procedures. Page 74 The titles and responsibilities of certain executive officers changed effective January 2015. Appendix C The Allstate Corporation 3

  • Page 14
    ... are entitled to vote if you were a stockholder of record at the close of business on March 20, 2015. On that date, there were 408,878,853 Allstate common shares outstanding and entitled to vote at the annual meeting. If you hold shares in your own name as a registered stockholder, you may vote in...

  • Page 15
    ... of management. • Strong oversight by compensation and succession committee. • Excellent 2014 business results. • Pay for performance alignment. • Independent with few ancillary services. • Reasonable fees. • The audit committee has solicited requests for information from other auditing...

  • Page 16
    9MAR201204034531 Proxy and Voting Information PROXY STATEMENT Vote Required to Approve Proposals Shares of common stock represented by a properly completed proxy card/voting instruction form will be counted as present at the meeting for purposes of determining a quorum, even if the stockholder is...

  • Page 17
    ...to Governance. Allstate has a continuous process of reviewing emerging corporate governance issues and trends. The Board created a risk and return committee in 2013. ߜ ߜ ߜ Formal director evaluation process. Each year, the performance of each director is assessed by the lead director, chairman of...

  • Page 18
    ... compensation and work of the independent registered public accountant, and with the Board, evaluates its qualifications, performance, and independence. • Evaluates Allstate's internal audit function through semi-annual reviews of its audit plan, policies and procedures, resources, risk assessment...

  • Page 19
    ... for election to the Board. All nominees satisfy requirements of Allstate's bylaws and corporate governance guidelines. The Board ultimately is responsible for naming nominees for election or appointing directors to serve until election at the next annual meeting. The Allstate Corporation 9

  • Page 20
    ..., financial expertise, or compensation and succession experience. The Board and committee also consider experience in the following areas: investment management, technology, risk management, innovation, customer focus, and global operations. The Board and committee expect each non-employee director...

  • Page 21
    ... risk and return operating experience as CEO of The TCW Group, Inc. • Global investment management expertise. Chairman of the Board Thomas J. Wilson • Successful operating leadership at Allstate for 20 years, including eight years as CEO. • Led continuous improvement in corporate governance...

  • Page 22
    ... that meeting, she will serve on one other public company board (as defined by SEC regulations) in addition to Allstate, and two other boards. RRC = Risk and Return Committee EC = Executive Committee C = Chair of Committee 15MAR201510311246 AC = Audit Committee CSC = Compensation and Succession...

  • Page 23
    ...former audit committee member of The Kroger Company board of directors. • Previously held oversight responsibility for TCW's accounting and finance functions. Other Public Board Service • The Kroger Company • Leucadia National Corporation 1999-present 2013-present The Allstate Corporation 13

  • Page 24
    ... Benefit Management Services of Walgreen Company. Allstate Board Service • Tenure: 2 years (2013) • Audit committee member • Nominating and governance committee member QUALIFICATIONS Core Capabilities ߜ Corporate governance - senior leadership at a public company and service on the boards...

  • Page 25
    ... director of UPS. Allstate Board Service • Elected to the Board on July 21, 2014 • Audit committee member • Compensation and succession committee member QUALIFICATIONS Core Capabilities ߜ Corporate governance - former chairman and CEO; extensive public company board service. ߜ Stockholder...

  • Page 26
    ... and Chief Operating Officer of Textron, Inc., a global manufacturing company. • Former director of AT&T Corporation and Visteon Corporation. Allstate Board Service • Tenure: 2 years (2013) • Compensation and succession committee member • Risk and return committee member QUALIFICATIONS...

  • Page 27
    ...America Holdings, Inc. • Former Chief Executive Officer, HSBC Finance Corporation. • Former director of MasterCard International, Inc. • Current director at Piramal Enterprises Ltd. Allstate Board Service • Tenure: 1 year (2014) • Audit committee member • Risk and return committee member...

  • Page 28
    ... insurance practice, and member of financial services practice at Russell Reynolds Associates Inc., a global executive search firm, with 20 years of experience at the firm. • Independent consultant providing executive recruiting, succession planning, and talent management services. Allstate Board...

  • Page 29
    ... regulatory system in which Allstate operates. • Lead director on the board of Northern Trust Corporation and a former director of Unum Provident, providing insight on and experience in financial services and insurance. COMMITTEE EXPERTISE HIGHLIGHTS Compensation and Succession Committee Member...

  • Page 30
    ... marketer of brand-name consumer goods. • Current director at Experian plc, Reckitt Benckiser Group plc, and Royal Ahold NV (until April 2015). • Former director at USG Corporation. Allstate Board Service • Tenure: 16 years (1999) • Audit committee chair • Risk and return committee member...

  • Page 31
    ... business executive. Allstate Board Service • Tenure: 17 years (1996-1998; 2000-present) • Audit committee member • Nominating and governance committee member QUALIFICATIONS Core Capabilities ߜ Corporate governance - public company board experience, including lead director responsibilities...

  • Page 32
    ... understanding of Allstate's business, including its employees, agencies, products, investments, customers, and investors. • Creation and implementation of Allstate's risk and return optimization program, allowing Allstate to withstand the 2008 financial market crisis and adapt to increases in...

  • Page 33
    ... by Mr. Wilson, who provides unified leadership and direction for management to execute our strategy and business plans. Lead Director The Board has an independent lead director who: • Works with the chairman in developing Board meeting agendas and information provided to shape Board dialogue...

  • Page 34
    ... to benchmark market practices and to evaluate changes to the design of our executive compensation program. • Allstate's executive compensation design is also reviewed by the chief risk officer to ensure that it aligns with Board-approved risk and return principles. The compensation and succession...

  • Page 35
    ... is available at meetings to provide input on the legal and regulatory environment and corporate governance, and to ensure the proxy materials accurately reflect the committee's actions. • The chief risk officer reports on compensation plan alignment with Board-approved risk and return principles...

  • Page 36
    ...• Review vote proposals and solicit support for Board recommendations. Annual Stockholder Engagement annual meeting vote. • Discuss potential actions in response to results and new governance and compensation topics of interest for the upcoming year. Before Annual Meeting • Preview plans...

  • Page 37
    ...to inform your vote on this proposal. ߜ Total stockholder return in 2014 of 30.9% resulting in three- and five-year returns of 171.0% and 161.2%, respectively, outperforming our property and casualty and life insurance peers. ߜ The annual incentive compensation plan was funded at 118.9% of target...

  • Page 38
    ... model. • Improved the agency and customer experience through technology simplification. + Build long-term growth platforms • Increased Esurance's market share. • Strategically invested in usage-based telematics insurance programs. • New business written premiums for Allstate Benefits...

  • Page 39
    ... Performance The committee designed the executive compensation program to deliver pay in accordance with corporate, business unit and individual performance. A large percentage of total target compensation is ''at-risk'' through long-term equity awards and annual cash incentive awards. These awards...

  • Page 40
    ... Executive Compensation - Overview PROXY STATEMENT In addition to the compensation structure at target, the 2014 compensation paid to our named executives reflects strong pay for performance alignment for the following reasons: • Annual cash incentive. Given the company's solid financial...

  • Page 41
    ... Pay for Performance. A significant percentage of total target direct compensation is pay at-risk that is connected to performance. X X No Employment Agreements for Executive Officers. Our executive officers are at-will employees with no employment contracts. No Guaranteed Annual Salary Increases...

  • Page 42
    ... options. Why We Pay This Element • Provide a base level of competitive cash compensation for executive talent. • Motivate and reward executives for performance on key strategic, operational, and financial measures during the year, and on key metrics to drive long-term strategy in the areas...

  • Page 43
    ...of a natural catastrophe or extreme financial market conditions. • Target annual incentive compensation percentages for each named executive are based on market data pay levels of peer insurance companies and our benchmark target for total direct compensation at the 50th percentile. • Individual...

  • Page 44
    ... established by the Annual Executive Incentive Plan and the award pool. • We paid the 2014 cash incentive awards in March 2015. Further information on annual cash incentive award decisions can be found in the Compensation Decisions for 2014 section on pages 45-46. 34 The Allstate Corporation

  • Page 45
    PROXY STATEMENT Executive Compensation - Design 9MAR201204034531 Annual Cash Incentive Awards • Total Corporate Pool Determined by Performance Measures • Individual Awards - Actual payments based on pool funding and individual performance GOAL SETTING PROCESS • Committee reviews Allstate ...

  • Page 46
    ... of overall performance while limiting the effects of factors management cannot influence, such as extreme weather conditions. • Correlates to changes in long-term stockholder value. • For the 2012-2014 and 2013-2015 performance cycles, performance is measured in three separate one-year periods...

  • Page 47
    ... 63. 2015-2017 Performance Stock Award Range of Performance Three-Year Average Adjusted Operating Income Return on Equity Threshold 2015-2017 Measurement Period Payout 6.0% 0% Target 13.5% 100% Maximum 14.5% 200% Subject to positive net income hurdle 15MAR201517143126 The Allstate Corporation 37

  • Page 48
    ... short or buying or selling options. We charts show the salary multiple guidelines and the 15MAR201510311246instituted a new policy in 2014 that prohibits senior equity holdings that count towards the requirement. executives and directors from pledging Allstate The current stock ownership guidelines...

  • Page 49
    ... our executive compensation program design, executive pay, and PEER INSURANCE COMPANIES(1) Property and Casualty Insurance Products Life Insurance and Financial Products Company Name ACE Ltd. AFLAC Inc. American International Group, Inc. The Chubb Corporation The Hartford Financial Services Group...

  • Page 50
    ... pay). (2) Including medical, dental, vision, life, accidental death and dismemberment, long-term disability, and group legal insurance. (3) All officers are eligible for tax preparation services. Financial planning services were provided only to senior executives. (4) The Board encourages the CEO...

  • Page 51
    ... in the Potential Payments as a Result of Termination or Change in Control section are not provided exclusively to the named executives. A larger group of management employees is eligible to receive many of the post-termination benefits described in that section. The Allstate Corporation 41

  • Page 52
    9MAR201204034531 Executive Compensation - Earned Awards PROXY STATEMENT Annual Cash Incentive Awards In 2014, the total corporate pool was calculated based on three measures: Adjusted Operating Income, Total Premiums, and Net Investment Income. The 2014 annual incentive plan targets for Adjusted ...

  • Page 53
    ... Performance Adjusted Operating Income Return on Equity Threshold 2012-2014 PSA Performance Cycle 2012 Measurement Period 2013 Measurement Period 2014 Measurement Period 2013-2015 PSA Performance Cycle 2013 Measurement Period 2014 Measurement Period 2015 Measurement Period 2014-2016 PSA Performance...

  • Page 54
    9MAR201204034531 Executive Compensation - Earned Awards PROXY STATEMENT The following tables show the target number of PSAs granted to each of our named executives for the 2012-2014, 2013-2015, and 2014-2016 performance cycles, and the number of PSAs earned based on achievement of the performance...

  • Page 55
    ... low levels in 2013. The combination of a unique strategy and strong operational results improved Allstate's competitive position and created value for stockholders. The Allstate brand increased both auto and homeowners policies, reflecting the execution of a comprehensive growth plan. Both Esurance...

  • Page 56
    ... awards with a grant date fair value of $2,100,014, which is aligned with his target equity incentive award opportunity. Ms. Greffin, Served as Executive Vice President and Chief Investment Officer of Allstate Insurance Company during 2014 • Salary. The committee approved an increase from $640,000...

  • Page 57
    ...ASC 718). The fair value of PSAs and RSUs is based on the final closing price of Allstate's common stock on the grant date, which in part reflects the payment of expected future dividends. (See note 18 to our audited financial statements for 2014.) This amount reflects an accounting expense and does...

  • Page 58
    ... plan measurement date is December 31. (See note 17 to our audited financial statements for 2014.) Beginning in 2014, all eligible employees earn pension benefits under a new cash balance formula only. The following table reflects the respective change in the actuarial value of the benefits provided...

  • Page 59
    ... Under Equity Incentive Plan Awards(3) Threshold (#) Target (#) Maximum (#) All Other Option Awards: Number of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/Shr)(4) Grant Date Fair Value ($)(5) Stock Awards Option Awards Mr. Wilson - Annual cash incentive 02/18/2014...

  • Page 60
    ... our executives with long-term stockholder value, as the stock price must appreciate from the grant date for the executives to profit. Under our stockholder-approved equity incentive plan, the exercise price cannot be less than the closing price of a share on the grant date. Stock option repricing...

  • Page 61
    ... grant date. For options granted in 2007 and thereafter, fair market value is equal to the closing sale price on the grant date. In each case, if there was no sale on the grant date, the closing price is calculated as of the last previous day on which there was a sale. The Allstate Corporation 51

  • Page 62
    ... vested on March 5, 2015. (5) Amount is based on the closing price of our common stock of $70.25 on December 31, 2014. (6) The PSAs vest in one installment on the third anniversary of the grant date. The number of shares that ultimately vest may range from 0 to 200% of the target depending on actual...

  • Page 63
    ... using these factors in 2014 or 2015. • Annuity calculations were done using the RP-2014 white collar mortality table for annuitants projected with the MP-2014 projection table. See note 17 to our audited financial statements for 2014 for additional information. The Allstate Corporation 53

  • Page 64
    ... 31, 2013. Beginning on January 1, 2014, participants receive pay credits while employed at all eligible participants earn benefits under a new cash Allstate, based on a percentage of eligible annual balance formula only. compensation and years of service, plus interest credits. Pay credits are...

  • Page 65
    PROXY STATEMENT Executive Compensation - Tables 9MAR201204034531 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 ...

  • Page 66
    ... competitive with other employers, we allow the named executives and other employees whose annual compensation exceeds the amount specified in the Internal Revenue Code ($260,000 in 2014), to defer under the Deferred Compensation Plan up to 80% of their salary and/or up to 100% of their annual cash...

  • Page 67
    ...in basic long term disability plan Deferred Distributions Compensation(12) commence per participant election Health, Welfare and Other Benefits None Distributions commence per participant election Immediately payable upon a CIC None Outplacement services None provided; lump sum payment equal to...

  • Page 68
    ... purposes of the Annual Executive Incentive Plan is defined as voluntary termination on or after the date the named executive attains age 55 with at least 10 years of service or age 60 with five years of service. (6) Named executives who receive an equity award on or after May 21, 2013, that remains...

  • Page 69
    ... date of a change in control, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to disabled peer executives. The Allstate Corporation...

  • Page 70
    ... annual incentive plan payment upon termination due to a change in control is shown at target as defined in the change-in-control severance plan. (3) As of December 31, 2014, Messrs. Shebik and Wilson are the only named executives eligible to retire in accordance with Allstate's policy and the terms...

  • Page 71
    .... The value of outplacement services is $40,000 for Mr. Wilson and $25,000 for each other named executive. (7) The named executives who participate in the long-term disability plan are eligible to participate in Allstate's supplemental long-term disability plan for employees whose annual earnings...

  • Page 72
    ... to net income available to common shareholders as reported in the Allstate Corporation annual report on Form 10-K adjusted for the after-tax effect of the items indicated below: Performance Stock Awards Annual Cash Incentive Awards 2012-2014 Performance Cycle 2013-2015 Performance Cycle 2014-2016...

  • Page 73
    ... net premiums written as reported in management's discussion and analysis in The Allstate Corporation annual report on Form 10-K. Allstate Financial premiums and contract charges are equal to life and annuity premiums and contract charges reported in the consolidated statement of operations. Total...

  • Page 74
    ... board during a quarter. * Effective January 1, 2015, the amount of the quarterly cash retainer was increased to $26,250, and the payment dates were revised to be the first day of January, April, July, and October. Due to the change in payment dates, on December 1, 2014, the non-employee directors...

  • Page 75
    ... share units. (3) Grant date fair value for restricted stock units granted in 2014 is based on the final closing price of Allstate common stock on the grant dates, which in part also reflects the payment of expected future dividend equivalent rights. (See note 18 to our audited financial statements...

  • Page 76
    ... the terms of the 2006 Equity Compensation Plan for Non-Employee Directors, which specifies that the exercise price for the option awards is equal to the fair market value of Allstate common stock on the grant date. For options granted in 2007 and 2008, the fair market value is equal to the closing...

  • Page 77
    ... 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 and other shares held indirectly, as well as shares subject to stock options exercisable on or before April 30, 2015, and...

  • Page 78
    ... various investment management agreements and has licensed an investment technology software system widely used by investors to Allstate. The terms of these arrangements are customary and the aggregate related fees are not material. (2) As of December 31, 2014, The Vanguard Group held 727,580 shares...

  • Page 79
    ..., and review of documents filed with the Securities and Exchange Commission. The amount disclosed does not reflect separate account audit fees expected to be reimbursed by the managing entity in the amounts of $304,000 and $216,400 for 2013 and 2014, respectively. The Allstate Corporation 69

  • Page 80
    ... 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, 2014, for filing with the Securities and Exchange...

  • Page 81
    ... long-term stock price performance.'' Our clearly improvable executive pay structure (as reported in 2014) is an added incentive to vote for this proposal: GMI Ratings, an independent investment research firm, gave Allstate a D for executive pay. Thomas Wilson had $19 million in 2013 Total Realized...

  • Page 82
    ... with the 2014 stock option awards: Stock options vest over three years, and after exercise at least 75% of the net after-tax shares must be held for an additional year. • These changes addressed concerns raised by stockholders that management would sell equity immediately upon vesting. The Board...

  • Page 83
    ... your annual meeting materials electronically, and you hold Allstate common shares both through the plan and also directly as a registered stockholder, the voting instructions you provide electronically will be applied to both your plan shares and your registered shares. If you return a signed proxy...

  • Page 84
    ... account or you may hold shares both as a registered stockholder and through the Allstate 401(k) Savings Plan. You should vote each proxy card/voting instruction form you receive. Procedures for Attending the Annual Meeting If you plan to attend the meeting, you must be a holder of Allstate shares...

  • Page 85
    PROXY STATEMENT Proxy Solicitation Officers and other employees of Allstate and its subsidiaries may solicit proxies by mail, personal interview, telephone, facsimile, electronic means, or via the Internet. None of these individuals will receive special compensation for soliciting votes, which will ...

  • Page 86
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  • Page 87
    ... in which the director is an employee, director, partner, stockholder 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...

  • Page 88
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  • Page 89
    ... sets forth guidelines and procedures to be followed by this Committee when approving services to be provided by the Independent Registered Public Accountant. Policy Statement Audit Services, Audit-Related Services, Tax Services, Other Services, and Prohibited Services are described in the attached...

  • Page 90
    ... 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 Audit-Related Services 1. 2. 3. Accounting consultations relating...

  • Page 91
    ...Executive Officer of The Allstate Corporation and of AIC. President, Emerging Businesses of AIC. Executive Vice President and Chief Investment Officer of AIC. Executive Vice President, Marketing, Innovation and Corporate Relations of AIC. Executive Vice President, Enterprise Technology and Strategic...

  • Page 92
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  • Page 93
    ... net investment income and interest credited to contractholder funds) or replicated investments. Business combination expenses are excluded because they are non-recurring in nature and the amortization of purchased intangible assets is excluded because it relates to the acquisition purchase price...

  • Page 94
    ...intangible assets relates to the acquisition purchase price and is 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 it...

  • Page 95
    ... the performance of Allstate common stock total return during the five-year period from December 31, 2009, through December 31, 2014, 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...

  • Page 96
    ... net investment income and interest credited to contractholder funds) or replicated investments. Business combination expenses are excluded because they are non-recurring in nature and the amortization of purchased intangible assets is excluded because it relates to the acquisition purchase price...

  • Page 97
    ...developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process. We use it to supplement our evaluation of net income available to common shareholders and return on common shareholders...

  • Page 98
    ... income return on common shareholders' equity and return on common shareholders' equity when evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income return on common shareholders' equity results...

  • Page 99
    ... Financial Data ...Management's Discussion and Analysis Overview ...2014 Highlights ...Consolidated Net Income ...Impact of Low Interest Rate Environment ...Application of Critical Accounting Estimates ...Property-Liability 2014 Highlights ...Property-Liability Operations ...Allstate Protection...

  • Page 100
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  • Page 101
    ... for cross-selling opportunities that cannot be fully replaced by brokering arrangements that allow our agents to write property products with other carriers, new business growth in our auto lines has been and could be lower than expected. A regulatory environment that limits rate increases and...

  • Page 102
    product lines, to obtain approval for rate changes that may be required to achieve targeted levels of profitability and returns on equity. Our ability to afford reinsurance required to reduce our catastrophe risk in designated areas may be dependent upon the ability to adjust rates for its cost. In ...

  • Page 103
    ... condition. Changes in reserve estimates may adversely affect our operating results The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is...

  • Page 104
    ...to increase prices, reduce sales of term or universal life products, and/or a return on equity below original levels assumed in pricing To support statutory reserves for certain term and universal life insurance products with secondary guarantees, we currently utilize reinsurance and capital markets...

  • Page 105
    ...a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness. We are also subject to market risk related to investments in real estate, loans and securities...

  • Page 106
    ... company structure and therefore may have dissimilar profitability and return targets. Additionally, many of our voluntary benefits products are underwritten annually. There is a risk that employers may be able to obtain more favorable terms from competitors than they could by renewing coverage...

  • Page 107
    ... of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow or to improve the profitability of our business. Furthermore...

  • Page 108
    ... may be unavailable at current levels 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...

  • Page 109
    ...amounts paid for acquiring businesses over the fair value of the net assets acquired. Goodwill is evaluated for impairment annually, or more frequently if conditions warrant, by comparing the carrying value (attributed equity) of a reporting unit to its estimated fair value. Market declines or other...

  • Page 110
    ... to make dividend payments. Limits on the ability of the subsidiaries to pay dividends could adversely affect holding company liquidity, including our ability to pay dividends to shareholders, service our debt, or complete share repurchase programs in the timeframe expected. Management views...

  • Page 111
    ...An inability to protect our intellectual property could have a material effect on our business. We may be subject to claims by third parties...from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses....

  • Page 112
    ...Financial Position Investments (1) Total assets Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds (1) Long-term debt Shareholders' equity Shareholders' equity per diluted common share Equity Property-Liability Operations Premiums earned Net investment...

  • Page 113
    ... to market risk, credit quality/experience, total return, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns, and asset and liability duration. For financial condition: liquidity, parent holding company level...

  • Page 114
    ... to $95 million in 2013. On April 1, 2014, we closed the sale of LBL's life insurance business generated through independent master brokerage agencies, and all of LBL's deferred fixed annuity and long-term care insurance business to Resolution Life Holdings, Inc. Total revenues were $35.24 billion...

  • Page 115
    ...gains 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 Loss...

  • Page 116
    ... equity-indexed, variable and immediate annuities, equity-indexed and variable life, and institutional products totaling $6.22 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 117
    ... models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested under the terms of our agreements. The inputs used by the valuation service providers include, but are not limited to, market prices...

  • Page 118
    ..., we place little, if any, weight on the transaction price and will estimate fair value using an internal model. As of December 31, 2014 and 2013, we did not adjust fair values provided by our valuation service providers or brokers or substitute them with an internal model for such securities. The...

  • Page 119
    .... Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of...

  • Page 120
    ... in immediate annuities with life contingencies. DAC related to interest-sensitive life, fixed annuities and other investment contracts is amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits (''AGP'') and estimated...

  • Page 121
    ...current period increase to earnings. A decrease to earnings generally occurs when the assumption update causes the total EGP to decrease. The following table provides the effect on DAC amortization of changes in assumptions relating to the gross profit components of investment margin, benefit margin...

  • Page 122
    ..., 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 123
    ... an increase or decrease in property-liability insurance claims and claims expense in the Consolidated Statements of Operations. Total Property-Liability net reserve reestimates, after-tax, as a percent of net income available to common shareholders were favorable 2.0%, 3.5%, and 18.7% in 2014, 2013...

  • Page 124
    ...Repair price index and the Parts and Equipment price index. We believe our claim settlement initiatives, such as improvements to the claim review and settlement process, the use of special investigative units to detect fraud and handle suspect claims, litigation management and defense strategies, as...

  • Page 125
    ... 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: our typical annual percentage payout of...

  • Page 126
    ... does not provide participating companies with its estimate of a company's claim costs. We provide similar PIP coverage in New Jersey for auto policies issued or renewed in New Jersey prior to 1991 that is administered by the New Jersey Unsatisfied Claim and Judgment Fund (''NJUCJF''). In 2013, we...

  • Page 127
    ...for product liability coverage and annual aggregate limits for all coverages. Our experience to date is that these policy form changes have limited the extent of our exposure to environmental and asbestos claim risks. Our exposure to liability for asbestos, environmental and other discontinued lines...

  • Page 128
    ... financial statements and the Property-Liability 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...

  • Page 129
    ... Lines and Coverages. Allstate Protection comprises three brands where we accept underwriting risk: Allstate, Esurance and Encompass. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto and homeowners insurance...

  • Page 130
    ... of purchased 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...

  • Page 131
    ...revenues Costs and expenses Claims and claims expense Amortization of DAC Operating costs and expenses Restructuring and related charges Total costs and expenses Gain (loss) on disposition of operations Income tax expense Net income available to common shareholders Underwriting income Net investment...

  • Page 132
    ... strategy The Allstate Protection segment primarily sells private passenger auto and homeowners insurance to individuals through agencies and directly through contact centers and the internet. These products are marketed under the Allstateா, Esuranceா and Encompassா brand names. Our strategy...

  • Page 133
    ...business writings in states where the risk return opportunities meet its requirements, while aggressively executing pricing, underwriting, and other actions to manage risk and ensure adequate profitability. Answer Financial, an independent personal lines insurance agency, serves self-directed, brand...

  • Page 134
    ... brand: Auto Homeowners Other personal lines (1) Commercial lines Other business lines (2) Total Allstate brand Esurance brand: Auto Homeowners Other personal lines Total Esurance brand Encompass brand: Auto Homeowners Other personal lines Total Encompass brand Allstate Protection unearned premiums...

  • Page 135
    ...-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate and Esurance brands are 6 months for auto and 12 months for homeowners. Encompass brand is 12 months for auto and homeowners. Renewal ratio: Renewal policies issued...

  • Page 136
    ... in 2014 were taken in states and risk categories to improve profit margin while managing customer retention. Average premium increased 2.9% in 2014 compared to 2013. Esurance brand renewal ratio decreased 1.2 points in 2014 compared to 2013. The renewal ratio for the direct to consumer business is...

  • Page 137
    ...new issued applications and retention. 16.0% increase in new issued applications to 725 thousand in 2014 from 625 thousand in 2013. 2.2% increase in average premium in 2014 compared to 2013 primarily due to rate changes as well as increasing insured home valuations. 0.7 point increase in the renewal...

  • Page 138
    ... rate changes. 0.3 point increase in the renewal ratio in 2013 compared to 2012. $56 million decrease in the cost of our catastrophe reinsurance program to $425 million in 2013 from $481 million in 2012. Esurance brand homeowners premiums written totaled $9 million in 2014. New issued applications...

  • Page 139
    ... Underwriting income (loss) by line of business Auto Homeowners Other personal lines Commercial lines Other business lines Answer Financial Underwriting income Underwriting income (loss) by brand Allstate brand Esurance brand Encompass brand Answer Financial Underwriting income $ $ $ 604 $ 1,097...

  • Page 140
    ... 70 5 7 (410) 2,345 $ Catastrophe losses, including prior year reserve reestimates, excluding hurricanes named or numbered by the National Weather Service, fires following earthquakes and earthquakes, totaled $2.00 billion, $1.35 billion and $1.32 billion in 2014, 2013 and 2012, respectively. 40

  • Page 141
    ... margins. Esurance brand auto loss ratio decreased 1.7 points in 2014 compared to 2013, primarily due to rate actions and favorable reserve reestimates related to personal injury protection losses. We manage the business so that it is profitable over the life of the business, taking rate increases...

  • Page 142
    ... mix of preferred insureds and higher favorable reserve reestimates. Homeowners loss ratio for the Allstate brand increased 5.3 points to 58.7 in 2014 from 53.4 in 2013, primarily due to higher catastrophe losses, partially offset by increased premiums earned. Claim frequency excluding catastrophe...

  • Page 143
    ... all acquisition costs are incurred), driven by pricing changes and customer mix. We manage the direct to consumer business based on its profitability over the life-time of the policy. Encompass brand expense ratio decreased 0.4 points in 2014 compared to 2013 primarily due to lower employee related...

  • Page 144
    ... financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting associations providing insurance for wind related property losses. We have addressed our risk of hurricane loss by, among other actions, purchasing...

  • Page 145
    ... results from property-liability 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...

  • Page 146
    ...Equity securities Mortgage loans Limited partnership interests Total portfolio 2.6% 3.8 2.9 2.9 4.3 13.1 3.6 2013 3.4% 5.0 3.2 3.8 4.2 12.2 4.0 2012 4.3% 6.3 3.7 3.5 4.3 6.3 3.9 Net investment income decreased 5.4% or $74 million to $1.30 billion in 2014 from $1.38 billion in 2013, after increasing...

  • Page 147
    ...278 Allstate brand Esurance 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 2014, 2013...

  • Page 148
    ... shown above are applicable by line of business. Favorable reserve reestimates are shown in parentheses. 2014 Prior year reserve reestimates ($ in millions) Allstate brand Esurance brand Encompass brand Total Allstate Protection Discontinued Lines and Coverages Total Property- Liability $ 2004...

  • Page 149
    2012 Prior year reserve reestimates ($ in millions) Allstate brand Esurance brand Encompass brand Total Allstate Protection Discontinued Lines and Coverages Total Property- Liability $ 2002 & prior $ 102 - - 102 51 153 $ $ 2003 (9) - (1) (10) - (10) $ $ 2004 (10) - - (10) - (10) $ 2005 (36) - (12) (...

  • Page 150
    ... of non-catastrophe loss development higher than anticipated in previous estimates. Commercial lines reserve reestimates in 2014, 2013 and 2012 were primarily due to favorable non-catastrophe reserve reestimates. Pending, new and closed claims for Allstate Protection are summarized in the following...

  • Page 151
    ... 31, 2013 compared to December 31, 2012 relates to catastrophes. 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 Pending, beginning of year New Total closed Pending...

  • Page 152
    ... were 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 environmental in 2014 were primarily related to greater reported loss activity than expected...

  • Page 153
    ..., 2014 IBNR represented 57% of total net asbestos reserves, compared to 56% as of December 31, 2013. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current policyholders and ceding companies. Pending, new, total closed and closed without...

  • Page 154
    ... the insurance financial strength ratings of certain subsidiaries such as Castle Key Insurance Company and Allstate New Jersey Insurance Company. We purchase significant reinsurance to manage our aggregate countrywide exposure to an acceptable level. The price and terms of reinsurance and the credit...

  • Page 155
    ... rates, acquiring reinsurance in the capital markets and lower limits placed in our catastrophe reinsurance program, partially offset by higher MCCA reinsurance premiums due to an increase in policies written in Michigan. MCCA ceded premiums were $99 million, $101 million and $78 million in 2014...

  • Page 156
    ... the NJUCJF program in 2014 and 2013 are attributable to unlimited personal injury protection coverage on policies written prior to 1991. The ceded claims reflects increased longer term paid loss trends due to increased costs of medical care and increased longevity of claimants. New claims for this...

  • Page 157
    ... agencies and exclusive financial specialists have a portfolio of non-proprietary products to sell, including mutual funds, fixed and variable annuities, disability insurance and long-term care insurance, to help meet customer needs. Allstate Financial brings value to The Allstate Corporation...

  • Page 158
    ...and account management personnel and expanding independent agent distribution in targeted geographic locations for increased new sales. Additionally, we are increasing Allstate exclusive agency engagement to drive cross selling of voluntary benefits products, and developing opportunities for revenue...

  • Page 159
    ... funds Amortization of DAC Operating costs and expenses Restructuring and related charges Total costs and expenses (Loss) gain on disposition of operations Income tax expense Net income available to common shareholders Life insurance Accident and health insurance Annuities and institutional products...

  • Page 160
    ... on immediate annuities with life contingencies due to discontinuing new sales January 1, 2014. The growth at Allstate Benefits primarily relates to accident and critical illness products and an increase in the number of employer groups. Total premiums and contract charges increased 5.0% in 2013...

  • Page 161
    ...1, 2014, as well as lower deposits on interest-sensitive life insurance due to the LBL sale. Contractholder deposits increased 7.3% in 2013 compared to 2012, primarily due to increased fixed annuity deposits driven by the new equity-indexed annuity products and higher deposits on immediate annuities...

  • Page 162
    ...of the LBL business for second through fourth quarter 2013 of $173 million, life and annuity contract benefits increased $21 million in 2014 compared to 2013, primarily due to worse mortality experience on life insurance and growth at Allstate Benefits. Our 2014 annual review of assumptions resulted...

  • Page 163
    ... Life insurance Accident and health insurance Subtotal - Allstate Life Life insurance Accident and health insurance Subtotal - Allstate Benefits Allstate Annuities Total benefit spread Benefit spread increased 4.3% or $25 million in 2014 compared to 2013. Excluding results of the LBL business for...

  • Page 164
    ... hedged increased $105 million in 2014 compared to 2013, primarily due to higher limited partnership income, higher fixed income yields and lower crediting rates, partially offset by the continued managed reduction in our spread-based business in force. Investment spread before valuation changes on...

  • Page 165
    ...and losses, interest crediting rates to policyholders, and the effect of any hedges in all product lines. In 2014, the review resulted in a deceleration of DAC amortization (credit to income) of $8 million. Amortization deceleration of $10 million related to interest-sensitive life insurance and was...

  • Page 166
    ...an increase in projected persistency. The changes in DAC for the years ended December 31 are detailed in the following table. ($ in millions) Traditional life and accident and health 2014 2013 Interest-sensitive life insurance 2014 2013 Fixed annuities 2014 2013 2014 Total 2013 Balance, beginning...

  • Page 167
    ...variable annuity business in 2006, and the sale of Surety Life Insurance Company, which was not used for new business, in third quarter 2012. Reinsurance ceded We enter into reinsurance agreements with unaffiliated reinsurers to limit our risk of mortality and morbidity losses. In addition, Allstate...

  • Page 168
    ... 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 169
    ... Company (''AIC'') to The Allstate Corporation (the ''Corporation'') and the reclassification of tax credit funds from limited partnership interests to other assets, partially offset by positive operating cash flows and a $700 million return of capital paid by ALIC to AIC. The Allstate Financial...

  • Page 170
    ... summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of December 31, 2014. ($ in millions) Investment grade Fair value U.S. government and agencies Municipal Tax exempt Taxable Corporate Public Privately placed Foreign government ABS...

  • Page 171
    ...is rated investment grade. Corporate bonds, including publicly traded and privately placed, totaled $42.14 billion as of December 31, 2014, with an unrealized net capital gain of $1.76 billion. Privately placed securities primarily consist of corporate issued senior debt securities that are directly...

  • Page 172
    ...the consolidated financial statements. Limited partnership interests consist of investments in private equity/debt, real estate and other funds. The limited partnership interests portfolio is diversified across a number of characteristics including fund managers, vintage years, strategies, geography...

  • Page 173
    ... favorable equity and real estate valuations which increased the carrying value of the partnerships. Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements. The recognition of income on private equity/debt funds and real estate funds...

  • Page 174
    ... in our corporate fixed income securities portfolio as of December 31, 2014. In general, the gross unrealized losses are related to increasing risk-free interest rates or widening credit spreads since the time of initial purchase. The unrealized net capital gain for the equity portfolio totaled $412...

  • Page 175
    ... in the energy, financial services and consumer goods sectors. The unrealized losses were company and sector specific. As of December 31, 2014, we have the intent and ability to hold our equity securities with unrealized losses until recovery. Global oil prices have declined significantly in...

  • Page 176
    .... The change in intent write-downs in 2014 and 2013 were primarily related to the repositioning and ongoing portfolio management of our equity securities. For certain equity securities managed by third parties, we do not retain decision making authority as it pertains to selling securities that are...

  • Page 177
    ... 7 of the consolidated financial statements. Overview In formulating and implementing guidelines for investing funds, we seek to earn returns that enhance our ability to offer competitive rates and prices to customers while contributing to attractive and stable profits and long-term capital growth...

  • Page 178
    ... stability for paying claims, while maximizing economic value and surplus growth. For the Allstate Financial business, we seek to invest premiums, contract charges and deposits to generate future cash flows that will fund future claims, benefits and expenses, and that will earn stable returns across...

  • Page 179
    ... annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc. and therefore mitigated this aspect of our risk. Equity risk for our variable life business relates to contract charges and policyholder benefits. Total...

  • Page 180
    ... by the plans benefit formula to services rendered by the employees during the period. Interest cost is the increase in the PBO in the period due to the passage of time at the discount rate. Interest cost fluctuates as the discount rate changes and is also impacted by the related change in the...

  • Page 181
    ... market-related value of plan assets. To determine the market-related value, the fair value of plan assets is adjusted annually so that differences between changes in the fair value of equity securities and hedge fund limited partnerships and the expected long-term rate of return on these securities...

  • Page 182
    ... or decline in investment markets. Participating subsidiaries fund the Plans' contributions under our master services cost sharing agreement. In addition, as a result of joint and several pension liability rules under the Internal Revenue Code and the Employee Retirement Income Security Act of 1974...

  • Page 183
    ... our strategic plan. The discounted cash flow analysis utilizes long term assumptions for revenue growth, capital growth, earnings projections including those used in our strategic plan, and an appropriate discount rate. We apply significant judgment when determining the fair value of our reporting...

  • Page 184
    ...part of various stock repurchase programs. We have reissued 121 million common shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities...

  • Page 185
    ...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 186
    ... to subsidiaries Dividends or return of capital to shareholders/parent company Tax payments/settlements Common share repurchases Debt service expenses and repayment Payments related to 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...

  • Page 187
    ... the parent company's fixed charges and other corporate purposes. In addition, we have access to $1.00 billion of funds from either commercial paper issuance or an unsecured revolving credit facility. In 2014, AIC paid dividends totaling $2.47 billion to its parent, Allstate Insurance Holdings, LLC...

  • Page 188
    ... and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 9.9% and 10.2% in 2014 and 2013, respectively. Allstate Financial strives to promptly pay customers who request cash surrenders; however...

  • Page 189
    ...to benefit plans. Higher cash provided by operating activities in 2013 compared to 2012 was primarily due to lower claim payments, increased premiums and the surrender of company owned life insurance, partially offset by higher expenses and tax payments. Cash provided by investing activities in 2014...

  • Page 190
    ... our off-balance sheet arrangements, see Note 7 of the consolidated financial statements. ENTERPRISE RISK AND RETURN MANAGEMENT In addition to the normal risks of business, Allstate is subject to significant risks as an insurer and a provider of other products and financial services. These risks are...

  • Page 191
    ... chief financial officers, general counsel and treasurer. Allstate's Board of Directors, Risk and Return Committee and Audit Committee provide ERRM oversight by reviewing enterprise principles, guidelines and limits for Allstate's significant risks and by monitoring strategies and actions management...

  • Page 192
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in millions, except per share data) Year Ended December 31, 2014 2013 2012 Revenues Property-liability insurance premiums (net of reinsurance ceded of $1,030, $1,069 and $1,090) Life and annuity premiums and ...

  • Page 193
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in millions) Year Ended December 31, 2014 2013 $ 2,280 $ 2012 2,306 $ 2,850 Net income Other comprehensive (loss) income, after-tax Changes in: Unrealized net capital gains and losses Unrealized foreign ...

  • Page 194
    ... Total assets Liabilities Reserve for property-liability insurance claims and claims expense Reserve for life-contingent contract benefits Contractholder funds Unearned premiums Claim payments outstanding Deferred income taxes Other liabilities and accrued expenses Long-term debt Separate Accounts...

  • Page 195
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ in millions) Year Ended December 31, 2014 2013 $ - - - - 780 780 9 3,162 (19) 3,143 33,783 2,280 (466) (17) 35,580 (41) 10 (31) (17,508) (1,845) 306 (19,047) 1,175 (1,188) (32) 1,091 1,...

  • Page 196
    ... purchases Fixed income securities Equity securities Limited partnership interests Mortgage loans Other investments Change in short-term investments, net Change in other investments, net Purchases of property and equipment, net Disposition (acquisition) of operations Net cash provided by investing...

  • Page 197
    ... in 2015, voluntary accident and health insurance products are planned to be sold in Canada. For 2014, the top geographic locations for statutory premiums and annuity considerations for the Allstate Financial segment were California, Texas, Florida and New York. No other jurisdiction accounted for...

  • Page 198
    ... Consolidated Statements of Cash Flows. Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Equity securities are designated as available for sale and are carried at fair value. The...

  • Page 199
    ...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 200
    ... because of their relatively short-term nature. The Company monitors the market value of securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to repossess...

  • Page 201
    ... the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, and funding agreements (primarily backing medium-term...

  • Page 202
    ... funds. 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. Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued...

  • Page 203
    ... that fair value to individual reporting units. The discounted cash flow analysis utilizes long term assumptions for revenue growth, capital growth, earnings projections including those used in the Company's strategic plan, and an appropriate discount rate. The peer company price to earnings...

  • Page 204
    ... for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality...

  • Page 205
    ... cash flows. Absent any contract provision wherein the Company provides a guarantee, variable 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...

  • Page 206
    ... be material to the Company's results of operations and financial position. Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period In June 2014, the FASB issued guidance which clarifies that a performance...

  • Page 207
    ...independent master brokerage agencies, and all of LBL's deferred fixed annuity and long-term care insurance business to Resolution Life Holdings, Inc. The gross sale price was $797 million, representing $596 million of cash and the retention of tax benefits. The loss on disposition increased by $101...

  • Page 208
    ...) 2014 $ (167) $ (167) 9 $ $ $ (158) $ (624) $ (782) 158 $ 2013 190 190 (6) 184 $ $ 2012 (341) (341) (5) (346) (462) (808) 346 Net change in proceeds managed Net change in short-term investments Operating cash flow (used) provided Net change in cash Net change in proceeds managed Net change in...

  • Page 209
    ...(211) 4,010 Fixed income securities Equity securities Mortgage loans Limited partnership interests Short-term investments Other Investment income, before expense Investment expense Net investment income Realized capital gains and losses Realized capital gains and losses by asset type for the years...

  • Page 210
    ... during 2014, 2013 and 2012, respectively. Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows: ($ in millions) Gross Fixed income securities: Municipal Corporate ABS RMBS CMBS Total fixed income securities Equity securities Mortgage loans Limited...

  • Page 211
    .... Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of...

  • Page 212
    ... 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 the Company evaluates premium deficiencies on the combined performance of life insurance and immediate...

  • Page 213
    ... 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 reasons that a security is in an...

  • Page 214
    ..., or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to increasing risk-free interest rates or widening credit spreads since the time of initial purchase. As of December 31, 2014, the remaining...

  • Page 215
    ... to the reported net asset value of the underlying funds. Tax credit funds were reclassified from limited partnership interests to other assets during 2014 since the return on these funds is in the form of tax credits rather than investment income. These tax credit funds totaled $560 million...

  • Page 216
    ... and interest 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...

  • Page 217
    ... 6.3 Texas California New York Florida Concentration of credit risk As of December 31, 2014, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company's shareholders' equity. Securities loaned The Company's business activities...

  • Page 218
    ... information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market...

  • Page 219
    ... 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. Separate account...

  • Page 220
    ... market. 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...

  • Page 221
    ... and cash collateral netting Balance as of December 31, 2014 Assets Fixed income securities: U.S. government and agencies Municipal Corporate Foreign government ABS RMBS CMBS Redeemable preferred stock Total fixed income securities Equity securities Short-term investments Other investments: Free...

  • Page 222
    ... and cash collateral netting Balance as of December 31, 2013 Assets Fixed income securities: U.S. government and agencies Municipal Corporate Foreign government ABS RMBS CMBS Redeemable preferred stock Total fixed income securities Equity securities Short-term investments Other investments: Free...

  • Page 223
    ... party credit rating agencies. As of December 31, 2013, Level 3 fair value measurements for assets held for sale include $319 million of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. The Company does not develop...

  • Page 224
    ... Corporate ABS RMBS CMBS Redeemable preferred stock Total fixed income securities Equity securities Short-term investments Free-standing derivatives, net Other assets Assets held for sale Total recurring Level 3 assets $ Liabilities Contractholder funds: Derivatives embedded in life and annuity...

  • Page 225
    ... and agencies Municipal Corporate ABS RMBS CMBS Redeemable preferred stock Total fixed income securities Equity securities Free-standing derivatives, net Other assets Assets held for sale Total recurring Level 3 assets Liabilities Contractholder funds: Derivatives embedded in life and annuity...

  • Page 226
    ... and agencies Municipal Corporate ABS RMBS CMBS Redeemable preferred stock Total fixed income securities Equity securities Free-standing derivatives, net Other assets Total recurring Level 3 assets Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts Total recurring...

  • Page 227
    ... in the market and a sustained increase in the market activity for these assets. Transfers into Level 3 during 2014, 2013 and 2012 included situations where a fair value quote was not provided by the Company's independent third-party valuation service provider and as a result the price was stale...

  • Page 228
    ... in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company's own credit risk. Immediate annuities without life contingencies and fixed rate funding agreements are valued at the...

  • Page 229
    ... to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income. The Company's primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders...

  • Page 230
    ... financial instruments Credit default contracts Credit default swaps - buying protection Credit default swaps - selling protection Subtotal Total liability derivatives Total derivatives (1) Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Other investments...

  • Page 231
    ... location in the Consolidated Statement of Financial Position as of December 31, 2013. ($ in millions, except number of contracts) Volume (1) Notional amount Number of contracts Fair value, net Gross asset Gross liability Balance sheet location Asset derivatives Derivatives designated as accounting...

  • Page 232
    ... master netting agreements. ($ in millions) Offsets Counterparty netting Cash collateral (received) pledged Net amount on balance sheet Securities collateral (received) pledged Gross amount Net amount December 31, 2014 Asset derivatives Liability derivatives December 31, 2013 Asset derivatives...

  • Page 233
    ...2013 Interest rate contracts Equity and index contracts Embedded derivative financial instruments Foreign currency contracts Credit default contracts Other contracts Total 2012 Derivatives in fair value accounting hedging relationships Interest rate contracts Derivatives not designated as accounting...

  • Page 234
    ..., cross-default provisions and credit support annex agreements. Credit-risk-contingent termination events allow the counterparties to terminate the derivative on certain dates if AIC's, ALIC's or Allstate Life Insurance Company of New York's (''ALNY'') financial strength credit ratings by Moody's or...

  • Page 235
    ... notional amounts by credit rating and fair value of protection sold. ($ in millions) Notional amount AA A BBB BB and lower Total Fair value December 31, 2014 Single name Corporate debt First-to-default Basket Municipal Index Corporate debt Total December 31, 2013 Single name Corporate debt First...

  • Page 236
    ...commitments to purchase private placement debt and equity securities at a specified future date. The Company enters into these agreements in the normal course of business. The fair value of these commitments generally cannot be estimated on the date the commitment is made as the terms and conditions...

  • Page 237
    ... for any such changes in losses incurred. During 2014, incurred claims and claims expense related to prior years was primarily composed of net decreases in auto reserves of $238 million primarily due to claim severity development that was better than expected, net increases in homeowners reserves of...

  • Page 238
    ... value of expected future benefits based on historical experience Other immediate fixed annuities Traditional life insurance Interest rate assumptions range from 2.5% to 11.3% Net level premium reserve method using the Company's withdrawal experience rates; includes reserves for unpaid claims...

  • Page 239
    ... insurance or fixed annuity contract In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential. Contractholder funds include funding agreements held by VIEs issuing medium-term notes. The VIEs are Allstate Life Funding, LLC...

  • Page 240
    ... the total account balances of variable annuity contracts' separate accounts with guarantees. ($ in millions) December 31, 2014 In the event of death Separate account value Net amount at risk (1) Average attained age of contractholders At annuitization (includes income benefit guarantees) Separate...

  • Page 241
    ... 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 242
    ... is $530 thousand per claim for the fiscal years ending June 30, 2015 and 2014. The MCCA operates similar to a reinsurance program and is funded by participating companies through a per vehicle annual assessment. This assessment is included in the premiums charged to the Company's customers and when...

  • Page 243
    ... injury or death caused by private passenger automobiles operated by uninsured or ''hit and run'' drivers. The fund also provides reimbursement to insurers for the medical benefits portion of personal injury protection coverage paid in excess of $75,000 with no limits for policies issued or renewed...

  • Page 244
    ... each year. The reinsurance premium and retention applicable to the agreement are subject to redetermination for exposure changes annually. The Kentucky Earthquake Excess Catastrophe Reinsurance agreement provides coverage for Allstate Protection personal lines property excess catastrophe losses in...

  • Page 245
    ..., except that the cash and investments that support the liability for contract benefits are not transferred to the assuming company and settlements are made on a net basis between the companies. For certain term life insurance policies issued prior to October 2009, Allstate Financial ceded up to 90...

  • Page 246
    ...2,872 Annuities Life insurance Long-term care insurance Other Total Allstate Financial $ $ As of December 31, 2014 and 2013, approximately 94% and 92%, respectively, of Allstate Financial's reinsurance recoverables are due from companies rated A- or better by S&P. 11. Deferred Policy Acquisition...

  • Page 247
    ... long-term debt Short-term debt (2) Total debt (1) Senior Notes are subject to redemption at the Company's option in whole or in part at any time at the greater of either 100% of the principal amount plus accrued and unpaid interest to the redemption date or the discounted sum of the present values...

  • Page 248
    ..., plus accrued and unpaid interest to, but excluding, the date of redemption. The 5.75% Subordinated Debentures have this make-whole redemption price provision only when a reduction of equity credit assigned by a rating agency has occurred. Interest on the 5.10% Subordinated Debentures is payable...

  • Page 249
    ..., 2013 related to the synthetic lease. In 2014, the Company repaid the synthetic lease long-term debt in conjunction with the sale of Sterling Collision Centers, Inc. To manage short-term liquidity, the Company maintains a commercial paper program and a credit facility as a potential source of funds...

  • Page 250
    ...declaration date, either: (1) the risk-based capital ratios of the largest U.S. property-casualty insurance subsidiaries that collectively account for 80% or more of the net written premiums of U.S. property-casualty insurance business on a weighted average basis were less than 175% of their company...

  • Page 251
    ... 2019 Thereafter Total Present value of minimum capital lease payments Shared markets and state facility assessments $ $ $ The Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations in various states that provide insurance coverage to...

  • Page 252
    ... 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 253
    ... injury or death caused by private passenger automobiles operated by uninsured or ''hit and run'' drivers. The fund also provides reimbursement to insurers for the medical benefits portion of personal injury protection coverage paid in excess of $75,000 with no limits for policies issued or renewed...

  • Page 254
    ... not any policies issued on or after that date. In the event any amounts are so paid, the Company would receive a commensurate amount of preferred stock or subordinated debt of PMI Group or PMI. The Runoff Support Agreement also restricts PMI's ability to write new business and pay dividends under...

  • Page 255
    ...underlying variable annuity contracts to Prudential, including those related to benefit guarantees. Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company. In the normal course of business, the Company provides...

  • Page 256
    ... policy The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for such matters at management's best estimate when the Company...

  • Page 257
    ..., 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 is vigorously defending...

  • Page 258
    ... as to release-related issues did not resolve whether issues relating to the merits of plaintiffs' claims may be subject to class certification at a later time, and (b) holding that the court's October 6, 2014 order restarted the running of the statute of limitation for any former employee agent who...

  • Page 259
    ... 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' evolving...

  • Page 260
    ... assets Unearned premium reserves Pension Discount on loss reserves Accrued compensation Other postretirement benefits Difference in tax bases of invested assets Sale of subsidiary Other assets Total deferred assets Deferred liabilities DAC Unrealized net capital gains Life and annuity reserves...

  • Page 261
    ... rate Tax-exempt income Tax credits Sale of subsidiary Other Effective income tax rate 16. Statutory Financial Information and Dividend Limitations Allstate's domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting...

  • Page 262
    ...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 policy for the pension plans is to make annual contributions at a level that is in accordance with regulations under the Internal...

  • Page 263
    ... of new Society of Actuaries mortality assumptions. The majority of the $2.71 billion net actuarial pension benefit losses not yet recognized in 2014 reflects decreases in the discount rate and the effect of unfavorable equity market conditions on the value of the pension plan assets in prior...

  • Page 264
    ...December 31 are: ($ in millions) Pension benefits 2014 2013 4.60% 3.5 7.75 2012 5.25% 4.5 8.5 5.00% 3.5 7.36 Postretirement benefits 2014 5.11% n/a n/a 2013 3.75% n/a n/a 2012 5.25% n/a n/a Discount rate Rate of increase in compensation levels Expected long-term rate of return on plan assets 164

  • Page 265
    ... the plans' long-term ability to meet benefit obligations by prudently investing plan assets and Company contributions, while taking into consideration regulatory and legal requirements and current market conditions. The investment policies are reviewed periodically and specify target plan asset...

  • Page 266
    ...-term investments Limited partnership interests: Real estate funds (1) Private equity funds (2) 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...

  • Page 267
    ...Corporate RMBS Short-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...

  • Page 268
    ..., 2013. ($ in millions) Balance as of December 31, 2012 Equity securities Fixed income securities: Municipal Corporate Limited partnership interests: Real estate funds Private equity funds Hedge funds Total Level 3 plan assets $ 314 129 10 214 199 80 $ 946 $ $ Actual return on plan assets: Relating...

  • Page 269
    ...2015 2016 2017 2018 2019 2020-2024 Total benefit payments Allstate 401(k) Savings Plan $ $ Employees of the Company, with the exception of those employed by the Company's international, Esurance and Answer Financial subsidiaries, are eligible to become members of the Allstate 401(k) Savings Plan...

  • Page 270
    ... terms. As of December 31, 2014, 29.7 million shares were reserved and remained available for future issuance under these plans. The 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...

  • Page 271
    ... market value of the Company's stock as of the date of the grant. The market value in part reflects the payment of future dividends expected. The weighted average grant date fair value of restricted stock units granted was $52.70, $45.78 and $31.89 during 2014, 2013 and 2012, respectively. The total...

  • Page 272
    ...-sensitive and variable life insurance and voluntary accident and health insurance products. Allstate Financial previously offered and continues to have in force fixed annuities such as deferred and immediate annuities, and institutional products consisting of funding agreements sold to unaffiliated...

  • Page 273
    ... premiums Auto Homeowners Other personal lines Commercial lines Other business lines Allstate Protection Discontinued Lines and Coverages Total property-liability insurance premiums Net investment income Realized capital gains and losses Total Property-Liability Allstate Financial Life and annuity...

  • Page 274
    ... 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 275
    .... 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 276
    ... millions, except per share data) Revenues Net income available to common shareholders Net income available to common shareholders earnings per common share - Basic Net income available to common shareholders earnings per common share - Diluted First Quarter 2014 $ 8,684 587 2013 $ 8,463 709 Second...

  • Page 277
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The Allstate Corporation Northbrook, Illinois 60062 We have audited the accompanying Consolidated Statements of Financial Position of The Allstate Corporation and subsidiaries (the ''Company'') as ...

  • Page 278
    ... Reports Shareholders may receive without charge a copy 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, 2014, by contacting: Investor Relations The Allstate Corporation...

  • Page 279
    ...in our lives and our work. In 2014, The Allstate Foundation, Allstate, its employees and agency owners gave $34 million to support local communities. Allstate employees and agency owners donated 200,000 hours of service across the country. Over a longer period of time, we've helped our customers and...

  • Page 280
    The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 www.allstate.com/annualreport