Allstate 2015 Annual Report Download

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Building the 22nd
Century Corporation
POSITIVE
SOCIETAL
CHANGE STRONGER
RELATIONSHIPS
STRATEGIC
PLATFORMS
The Allstate Corporation Notice of 2016 Annual Meeting,
Proxy Statement and 2015 Annual Report

Table of contents

  • Page 1
    Building the 22nd Century Corporation POSITIVE SOCIETAL CHANGE STRONGER RELATIONSHIPS STRATEGIC PLATFORMS The Allstate Corporation Notice of 2016 Annual Meeting, Proxy Statement and 2015 Annual Report

  • Page 2
    ... generate an appropriate return on capital for shareholjers every year. Gooj progress was maje on the five 2015 operating priorities. • Grow insurance policies in force. The strategy to jeliver unique value propositions to the four segments of the personal lines market through Allstate, Esurance,

  • Page 3
    ...Casualty Index return of 108.6%. SELF-SERVE Allstate brand products are sold primarily through Allstate exclusive agencies and serve brand-sensitive customers who prefer local personal advice and service. Esurance brand products are sold directly to self-directed, brand-sensitive consumers online...

  • Page 4
    ... the "company pays, and employee or business partner does" model for many of its relationships. Allstate employees and agency owners are "customers" to whom we sell job opportunities and they pay us with their talent, time and passion. One example of our approach is the Energy for Life program that...

  • Page 5
    ... 2011 Operating income* per diluted common share ($) 5.19 5.40 5.68 4.36 1.27 2015 2014 2013 2012 2011 Return on equity (%) 10.6 13.3 11.0 11.9 4.3 In 2016, we are raising the minimum starting compensation for U.S. corporate employees to the equivalent of $15 per hour. This is good business, not...

  • Page 6
    ... providing the best products and services to protect them from life's uncertainties and prepare them for the future. OUR STRATEGIC VISION Deliver substantially more value than the competition by reinventing protection and retirement to improve customers' lives. OUR CORPORATE GOAL Create long-term...

  • Page 7
    ... shares and takes appropriate action based on Allstate's circumstances. • Proxy Access - Allstate's bylaws were amended to give significant long-term stockholders the right to nominate prospective Board members in the company's proxy statement beginning with next year's annual meeting. • Board...

  • Page 8
    ... share repurchase program over an 18 month period was approved as capital generated from earnings and the 2014 sale of Lincoln Benefit Life exceeded growth needs. • Total cash returned to stockholders was $3.3 billion in 2015, which represents 12.3% of Allstate's average market capitalization...

  • Page 9
    ... Allstate common stock at the close of business on March 28, 2016. Each share of common stock is entitled to one vote for each director position and one vote for each of the other proposals. Attending Stockholders who wish to attend the the meeting in person should review Meeting: pages 76-77. Date...

  • Page 10
    ... and FedEx Corporation Chairman & CEO of The Allstate Corporation 18 1 C • • Thomas J. Wilson 10 1 C AC = Audit Committee CSC = Compensation and Succession Committee NGC = Nominating and Governance Committee (1) (2) RRC = Risk and Return Committee EC = Executive Committee C = Chair...

  • Page 11
    ... to the Allstate boardroom See "Letter to Stockholders from Your Board of Directors" for a description of the actions Allstate took during the past year related to strategy, corporate governance, executive compensation, and returns to stockholders. The Allstate Corporation 2016 Proxy Statement 5

  • Page 12
    ...World's Most Ethical Companies®. NEW Director education. The Board formalized and expanded its director development program. Equity ownership and retention requirements for executives. Our executives are subject to rigorous stock ownership and retention requirements. One year holding period after...

  • Page 13
    ... auto accidents. See pages 28-64 for further information about our executive compensation programs Business Highlights In 2015, Allstate delivered on its strategy to serve its four customer segments with unique value propositions. We met our near-term financial commitments and invested in long-term...

  • Page 14
    ... most directly comparable GAAP measure (net income applicable to common shareholders per diluted common share) in Appendix C. As reported in the "Total" column of the Summary Compensation Table. Other Executive Compensation Takeaways Further Information (pages) Total 2015 compensation for the CEO...

  • Page 15
    ... under federal, state, and local laws, as well as internal guidelines. • An almost identical proposal at the 2014 annual meeting received less than 10% support from stockholders. See pages 70-71 for further information about this proposal The Allstate Corporation 2016 Proxy Statement 9

  • Page 16
    ... our executives are compensated, including how we set challenging performance targets and align management and stockholder interests. NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS How To Vote In Advance PROXY SUMMARY CORPORATE GOVERNANCE Director Nominees Board Composition Board Leadership Structure...

  • Page 17
    ... meeting. CEO or President experience: 8 of 10 Diversity: 5 of 10 Allstate Board Tenure: - Under five years: 6 of 10 - Over five years: 4 of 10 Public company board experience: 8 of 10 Core Competencies Exhibited by All Director Nominees CTORS ALL DIRE Corporate Governance Extensive service...

  • Page 18
    ... director of UPS. Allstate Board Service • Tenure: 2 years (2014) • Audit committee member • Compensation and succession committee member Relevant Capabilities • Effectively developed and executed a transformational strategy while managing the worldwide operations for a global, customer...

  • Page 19
    ...Company, a commercial manufacturer of industrial products. • Former President and Chief Operating Officer of Textron, Inc., a global manufacturing company. • Former director of Visteon Corporation. Allstate Board Service • Tenure: 3 years (2013) • Compensation and succession committee member...

  • Page 20
    ..., President and Chief Investment Officer of Geode Capital Management, LLC, a global asset manager and independent institutional investment firm and sub-advisor to Fidelity. • Current trustee of New York Life Insurance Company's MainStay Mutual Funds. Allstate Board Service • Elected to the Board...

  • Page 21
    ... NV. Allstate Board Service • Tenure: 17 years (1999) • Lead director • Nominating and governance committee member • Risk and return committee member • Executive committee member Relevant Capabilities • Extensive service on boards of publicly traded and international companies, including...

  • Page 22
    ..., products, investments, customers, and investors. • Developed Allstate's strategy to provide differentiated customer value propositions to four consumer segments. • Created and implemented Allstate's risk and return optimization program, allowing Allstate to withstand the 2008 financial market...

  • Page 23
    ... seek directors with corporate operating experience, relevant industry experience, financial expertise, and compensation and succession experience. The Board and committee also consider experience in the following areas: investment management, technology, risk management, innovation, customer focus...

  • Page 24
    ... any time of the year by writing to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite F7, Northbrook, Illinois 60062-6127. NEW • The nominating and governance committee discusses the desired skills and perspectives. Following an initial screening, management conducts...

  • Page 25
    ... for the oversight of Allstate's strategy, business results, and management, including risk management. Board meetings include discussions of long-term strategic initiatives and topics. The Board formally reviews Allstate's overall risk position twice a year and uses external resources when...

  • Page 26
    ...'s executive pay levels, practices, and overall program design. Based on this annual review, we believe our compensation policies and practices are appropriately structured and do not provide incentives for employees to take unnecessary and excessive risks. Our compensation plans provide a balanced...

  • Page 27
    ... with the terms of our 2013 Equity Incentive Plan. The Board has delegated limited authority to the CEO to grant equity awards to non-executive officers. All awards granted between compensation and succession committee meetings are reported at the next meeting. The compensation and succession...

  • Page 28
    ... - Review vote proposals and solicit support for Board recommendations. THOUGHTFUL BALANCED After Annual Meeting - Reï¬,ect on results from annual meeting vote. - Discuss potential actions in response to results and new governance and compensation topics of interest for the upcoming year. ANNUAL...

  • Page 29
    ...accounting, internal accounting controls, and auditing matters. The communication process and the methods to communicate with directors are posted on the "Corporate Governance" and "Management & Directors" sections of www.allstateinvestors.com. The Allstate Board welcomes your input on compensation...

  • Page 30
    ... Board of Directors Chair: Thomas J. Wilson Independent Lead Director: Judith A. Sprieser 10 of 11 Allstate directors are independent Meetings in 2015: 9 Key Responsibilities: • Strategic oversight • Corporate governance • Stockholder advocacy • Leadership Audit Committee Compensation...

  • Page 31
    ... benchmarking review and to account for the increased time commitments and resource demands on our directors, particularly our lead director. The following table describes each component of our non-employee director compensation program for 2015. No meeting fees or other professional fees were paid...

  • Page 32
    ... lieu of cash. Also, under Allstate's Deferred Compensation Plan for Non-Employee Directors, directors may elect to defer their retainers to an account that is credited or debited, as applicable, based on (a) the fair market value of, and dividends paid on, Allstate common shares (common share units...

  • Page 33
    ... December 31, 2015. All outstanding options were awarded under 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...

  • Page 34
    ...pages 29-64 of the Notice of 2016 Annual Meeting and Proxy Statement. Please read the following Executive Compensation section prior to voting on this proposal. 2 Allstate faced a challenging operating environment for auto insurance in 2015, which impacted 2015 performance and led to lower payouts...

  • Page 35
    ... achieved target • Total return was 1.0% reflecting low interest rates, higher credit spreads and a decline in equity markets • Reduced interest rate risk • Repositioned Allstate Financial portfolio supporting long-dated liabilities to drive higher long-term returns Modernize the Operating...

  • Page 36
    ... Program Structure and Goal-Setting Process The committee designs 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...

  • Page 37
    ... Stock Unit Awards - To create greater alignment with stockholder returns, restricted stock unit awards will now be replaced with PSAs for all senior vice presidents, which increases the number of executives receiving PSAs by almost four times. NEW The Allstate Corporation 2016 Proxy Statement 31

  • Page 38
    ...to operating priorities designed to create long-term stockholder value. Independent Compensation Consultant. The committee retains an independent compensation consultant to review the executive compensation programs and practices. Targeted Pay at 50th Percentile of Peers. The committee targets total...

  • Page 39
    ... our 2015 executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term Fixed Base Salary Percentage of Total Compensation Key Characteristics • CEO: 9% • Other...

  • Page 40
    ... salary adjustments and annual incentive and equity targets for executive officers Ongoing • Review compensation philosophy and objectives in light of company performance, company goals and strategy, stockholder feedback, and external benchmarking • Monitor compensation estimates in comparison...

  • Page 41
    ... comparison to position-specific compensation targets and overall company performance. Each executive's performance is evaluated against goals established at the beginning of the year that are specifically developed to support the company's annual operating priorities and long-term strategy. • In...

  • Page 42
    ...will depend on Average Adjusted Operating Income ROE (70% of the award) and a new performance measure, Earned Book Value (30% of the award). This additional measure was added to create greater alignment with the increase in performance-based assets in the investment portfolio. For both measures, the...

  • Page 43
    ... guidelines apply to 90 of our 189 senior executives and other officers as of December 31, 2015 and require these executives to hold 75% of net shares received as a result of equity compensation awards until their salary multiple guidelines are met. The Allstate Corporation 2016 Proxy Statement 37

  • Page 44
    ... executive compensation program design, executive pay, and performance against a group of peer companies that are publicly traded. Product mix, market segment, annual revenues, premiums, assets, and market value were considered when identifying peer companies. The committee believes Allstate...

  • Page 45
    EXECUTIVE COMPENSATION Peer Companies(1) Property and Casualty Insurance Products Life Insurance and Financial Products Company Name Revenue ($ in billions) Market Cap ($ in billions) Assets ($ in billions) Premiums ($ in billions) ACE Ltd.(2) AFLAC Inc. American International Group, Inc. The...

  • Page 46
    ..., long-term disability, and group legal insurance. For named executives and other officers, Allstate offers an executive physical program. All officers are eligible for tax preparation services. Financial planning services were provided only to senior executives. The Board encourages the CEO to...

  • Page 47
    ...Cash Incentive Awards In 2015, the total corporate pool was based on three measures: Adjusted Operating Income, Total Premiums, and Net Investment Income. The 2015 annual incentive plan targets for Adjusted Operating Income and Net Investment Income were lower than actual 2014 performance to account...

  • Page 48
    ... number of PSAs for the measurement period, as well as actual results, are set forth in the table below. Performance Stock Awards Ranges of Performance Adjusted Operating Income Return on Equity Threshold Target Maximum Actual Results 2013-2015 PSA Performance Cycle 2013 Measurement Period 2014...

  • Page 49
    ... good returns in homeowners insurance and reducing expenses. Additionally, Allstate grew total policies in force in 2015 compared to the previous year despite actions taken to increase auto pricing and executing on Encompass profitability initiatives. • Allstate proactively managed the investment...

  • Page 50
    ... a review of Mr. Civgin's performance in 2014, the committee granted him equity awards with a grant date fair value of $2,386,012, which is $100,000 above his target equity incentive award opportunity. Ms. Greffin, Executive Vice President and Chief Investment Officer of Allstate Insurance Company...

  • Page 51
    ... 2014, the committee granted him equity awards with a grant date fair value of $3,100,038, which is $100,000 above his target equity incentive opportunity. • • COMPENSATION COMMITTEE REPORT The compensation and succession committee has reviewed and discussed with management the Compensation...

  • Page 52
    ... Position Year Salary Bonus ($) ($) Stock Awards ($)(2) Non-Equity Incentive Option Plan Awards Compensation ($) ($)(3) Total ($) Thomas J. Wilson Chairman and Chief 2015 1,191,346 Executive Officer 2014 1,141,346 2013 1,100,000 Steven E. Shebik Executive Vice 2015 750,000 President and Chief...

  • Page 53
    ... Compensation Plan does not provide above-market earnings. The pension plan measurement date is December 31. (See note 17 to our audited financial statements for 2015.) The following table reflects the respective change in the actuarial value of the benefits provided to the named executives in 2015...

  • Page 54
    ... plan and whose annual earnings exceed the level which produces the maximum monthly benefit provided by the long-term disability plan. This coverage is self-insured (funded and paid for by Allstate when obligations are incurred). No obligations for the named executives were incurred in 2015...

  • Page 55
    ... Equity Incentive Securities (2) (3) Plan Awards Plan Awards Underlying Options Threshold Target Maximum Threshold Target Maximum Name Mr. Wilson Grant Date Plan Awards(1) Exercise or Base Price of Option Awards ($/Shr)(4) Grant Date Fair Value ($)(5) Stock Awards Option Awards - Annual cash...

  • Page 56
    ... Stock options represent an opportunity to buy shares of our stock at a fixed exercise price at a future date. We use them to align the interests of our executives with long-term stockholder value, as the stock price must appreciate from the grant date for the executives to profit. 50 www.allstate...

  • Page 57
    ...Options (#) Option Options (#) Price ($) Grant Date Exercisable(3) Unexercisable(3) Market Number Value of of Shares Shares or or Units Units of of Stock Stock Option That Have That Have Expiration Stock Award Not Vested Not Vested Date Grant Date (#)(4) ($)(5) Equity Incentive Plan Awards: Number...

  • Page 58
    ...Option Options (#) Options (#) Price Grant Date Exercisable(3) Unexercisable(3) ($) Market Number Value of of Shares Shares or or Units Units of of Stock Stock Option That Have That Have Expiration Stock Award Not Vested Not Vested (#)(4) Date Grant Date ($)(5) Equity Incentive Plan Awards: Number...

  • Page 59
    ...,314 85,367 18,292,653 1,525,329 4,527,901 4,273,607 5,950,501 Of the options exercised in 2015 by Mr. Wilson, Mr. Shebik and Ms. Greffin, 290,000, 24,464, and 24,642 options, respectively, were due to expire in 2015 or the first quarter of 2016. The Allstate Corporation 2016 Proxy Statement 53

  • Page 60
    ... table provides information about the pension plans in which the named executives participate. Each of the named executives participates in the Allstate Retirement Plan (ARP) and the Supplemental Retirement Income Plan (SRIP). Pension Benefits Number of Years Credited Service (#) Present Value of...

  • Page 61
    ... 1/1/14 All named executives earned benefits under the cash balance formula in 2015. Under this formula, participants receive pay credits while employed at Allstate, based on a percentage of eligible annual compensation and years of service, plus interest credits. Pay credits are allocated to...

  • Page 62
    ... 100% of their annual cash incentive award that exceeds the Internal Revenue Code limit. Allstate does not match participant deferrals and does not guarantee a stated rate of return. Deferrals under the Deferred Compensation Plan are credited with earnings or debited for losses based on the results...

  • Page 63
    ...a plan participant may be allowed to access certain funds in a deferred compensation account earlier than the dates specified above. Potential Payments as a Result of Termination or Change in Control (CIC) The following table lists the compensation and benefits that Allstate would generally provide...

  • Page 64
    ... duties. Good reason includes a material diminution in a named executive's base compensation, authority, duties, or responsibilities, or a material change in the geographic location where the named executive performs services. Named executives who receive an equity award or an annual cash incentive...

  • Page 65
    ... estates or surviving families of peer executives of Allstate. In the event of termination due to disability during the two years after the date of a change in control, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage...

  • Page 66
    ..., 2015, employment termination date. Restricted Stock Units and Performance Stock Awards - Unvested and Accelerated ($) Name Severance ($) Annual Incentive Plan(2) ($) Stock Options - Unvested and Accelerated ($) Welfare Benefits and Outplacement Services ($) Total ($) Mr. Wilson Termination...

  • Page 67
    ... to exclude factors over which our executives have little influence or control. The committee monitors compensation estimates during the year based on actual performance on these measures, and the internal audit department reviews the final results. The Allstate Corporation 2016 Proxy Statement 61

  • Page 68
    ... to net income applicable 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 2015-2017 2013-2015 2014-2016 Performance Performance Performance...

  • Page 69
    ...the Allstate Protection 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...

  • Page 70
    ... Premiums measure for the Annual Incentive Plan is adjusted for foreign exchange rates (if the impact exceeds a threshold). • Earned Book Value (measure weighted at 30%): This measure is used to assess financial performance. Earned book value is the increase between common shareholders' equity...

  • Page 71
    ... approvals, but the decisions of the chair must be reported to the audit committee at its next regularly scheduled meeting. All services provided by Deloitte & Touche LLP in 2014 and 2015 were approved in accordance with the pre-approval policy. The Allstate Corporation 2016 Proxy Statement 65

  • Page 72
    ... 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, 2015, for filing with the Securities and Exchange Commission, and furnished to stockholders with this Notice of Annual Meeting and Proxy...

  • Page 73
    ... - "2015 Board Practices," April 12, 2015. This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix. It is the responsibility of the Board of Directors to protect shareholders' long-term interests by providing independent oversight of management. By...

  • Page 74
    ... this time, Allstate is well-served by having the Chairman role performed by Mr. Wilson. This structure provides unified leadership and direction for management to execute Allstate's strategy and business plans and enhances the transparency between management and the Board. • Allstate's Board has...

  • Page 75
    ... operates under a written charter that has been approved by the Board and that details the oversight of key matters, such as the integrity of Allstate's financial statements, executive compensation, CEO performance, nomination of directors, evaluation of the Board, and risk and return management...

  • Page 76
    ...-making. The report shall be presented to the Board of Directors or relevant board committee and posted on the Company's website within 12 months from the date of the annual meeting. Supporting Statement: As long-term shareholders of Allstate, we support transparency and accountability in corporate...

  • Page 77
    ...impose requirements on Allstate that are not dictated by law or our own internal requirements and that are not standard among other companies. An almost identical proposal at the 2014 annual meeting received less than 10% support from stockholders. The Allstate Corporation 2016 Proxy Statement 71

  • Page 78
    ..., Illinois 60062-6127 and must meet the requirements set forth in the corporation's bylaws. For proxy access nominees to be considered at the 2017 annual meeting, the nomination notice must be received by the Office of the Secretary no earlier than the close of business on November 11, 2016 and...

  • Page 79
    ... 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. It also includes shares subject to stock options exercisable on or before April 30, 2016, and...

  • Page 80
    ... to Allstate an investment technology software system widely used by investors. The terms of these arrangements are customary and the aggregate related fees are not material. Reflects shares beneficially owned as of December 31, 2015, as set forth in a schedule 13G/A filed on February 10, 2016. Of...

  • Page 81
    ... person. To ensure there will be a quorum, the Allstate Board asks you to vote before the meeting, which allows your Allstate stock to be represented at the annual meeting. Who can vote at the annual meeting? The Allstate Board has set the close of business on March 28, 2016 as the record date for...

  • Page 82
    ... stockholder and through the Allstate 401(k) Savings Plan. You should vote each proxy card/voting instruction form you receive. How do I attend the annual meeting? If you plan to attend the meeting, you must be a holder of Allstate shares as of the record date of March 28, 2016. We encourage you to...

  • 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
    ... 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. 3. An Allstate director's relationship with another company that participates...

  • Page 85
    ... our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income results in their evaluation of our and our industry's financial performance and in their investment The Allstate Corporation 2016 Proxy Statement 79

  • Page 86
    ... year reserve reestimates are caused by unexpected loss development on historical reserves. Amortization of purchased 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...

  • Page 87
    ... the company and management's utilization of capital. Operating income return on common shareholders' equity should not be considered a substitute for return on common shareholders' equity and does not reflect the overall profitability of our business. The Allstate Corporation 2016 Proxy Statement...

  • Page 88
    ... shareholders' equity and operating income return on common shareholders' equity for the years ended December 31. ($ in millions) Return on common shareholders' equity 2015 2014 2013 2012 2011 Numerator: Net income applicable to common shareholders Denominator: Beginning common shareholders' equity...

  • Page 89
    ... Investments 2015 Highlights Investments Market Risk Pension and Other Postretirement Plans Goodwill Capital Resources and Liquidity 2015 Highlights Capital Resources and Liquidity Enterprise Risk and Return Management Application of Critical Accounting Estimates Regulation and Legal...

  • Page 90
    ... Allstate common stock total return during the fiveyear period from December 31, 2010, through December 31, 2015, with the performance of the S&P 500 Property/ Casualty Index and the S&P 500 Index . The graph plots the cumulative changes in value of an initial $100 investment as of December 31, 2010...

  • Page 91
    ... net income applicable to common shareholders for the years ended December 31 . ($ in millions) Underwriting income: Auto Homeowners Other Allstate Protection Discontinued Lines and Coverages Total Property-Liability underwriting income Net investment income Income tax expense on operations Realized...

  • Page 92
    ... to obtain approval for rate changes that may be required to achieve targeted levels of profitability and returns on equity . We are pursuing auto insurance rate increases in 2016 . Our ability to purchase reinsurance required to reduce our catastrophe risk in designated areas may be dependent upon...

  • Page 93
    ... variability as actual results may differ from pricing assumptions . Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued . The Allstate Corporation 2015 Annual...

  • Page 94
    ...the management of market and credit risks associated with investments, and the management of operating costs and expenses within anticipated pricing allowances . Legislation and regulation of the insurance marketplace and products could also affect our profitability and financial condition . Changes...

  • Page 95
    ... LBL's financial strength ratings could lead to an increase in policy lapses . This could adversely affect our results of operations by decreasing future premiums . Risks Relating to Investments We are subject to market risk from changes in interest rates, equity prices, currency exchange rates and...

  • Page 96
    ...-based long-term investments, including private equity, real estate, infrastructure, timber and agriculture-related assets, tends to be uneven as a result of the performance of the underlying investments . The timing of distributions depends on particular events, schedules for making distributions...

  • Page 97
    ...be material to our operating results, cash flows and financial condition We are involved in various legal actions, including class action litigation challenging a range of company practices and coverage provided by our insurance products, some of which involve claims for substantial or indeterminate...

  • Page 98
    ... business, or limit our ability to grow or to achieve profitability . Reinsurance 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...

  • Page 99
    ...confidence in management or our business strategy; as well as a number of other considerations that may or may not be under our control . The insurance financial strength ratings of Allstate Insurance Company and Allstate Life Insurance Company and The Allstate Corporation's senior debt ratings from...

  • Page 100
    ... 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 enterprise economic capital as a combination of statutory surplus and invested assets at the parent holding company...

  • Page 101
    ...middle of the year in some locations . Loss of key vendor relationships or failure of a vendor to protect our data, confidential and proprietary information, or personal information of our customers, claimants or employees could affect our operations We rely on services and products provided by many...

  • Page 102
    ... share Consolidated Financial Position Investments (1) Total assets (2) Reserves for claims and claims expense, lifeâ€'contingent contract benefits and contractholder funds(1) Longâ€'term debt (2) Shareholders' equity Shareholders' equity per diluted common share Equity Property-Liability Operations...

  • Page 103
    ... target economic returns on capital; grow insurance policies in force; proactively manage investments; and build and acquire long-term growth platforms . For Allstate Protection: premium, the number of policies in force ("PIF"), new business sales, policy retention, price changes, claim frequency...

  • Page 104
    ... and losses Total revenues Costs and expenses Propertyâ€'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 on...

  • Page 105
    ...strategy for structured settlements includes increasing investments in which we have ownership interests and a greater proportion of return is derived from idiosyncratic asset or operating performance . We stopped selling new fixed annuity products January 1, 2014 and structured settlement annuities...

  • Page 106
    ... 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 107
    ... 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...

  • Page 108
    ...and 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 Allstate®, Esurance® and Encompass® brand names . Our strategy...

  • Page 109
    ...through new business writings in states where the risk return opportunities meet our requirements, while aggressively executing pricing, underwriting, and other actions to manage risk and ensure adequate profitability . Answer Financial, a personal lines insurance agency, serves self-directed, brand...

  • Page 110
    ... products and services to our customers while maintaining pricing discipline . Allstate Protection will continue to take actions to improve auto profitability by increasing prices, evaluating underwriting standards, managing expenses, and managing loss cost through focus on claims process...

  • Page 111
    ... premium balance as of December 31 and the time frame in which we expect to recognize these premiums as earned . ($ in millions) 2015 Allstate brand: Auto Homeowners Other personal lines Commercial lines Other business lines Total Allstate brand Esurance brand: Auto Homeowners Other personal lines...

  • Page 112
    ... 50 (6) 5.3 7.6 Policy term is six months for Allstate and Esurance brands and twelve months for Encompass brand . Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued . Rate changes do not include rating plan enhancements, including...

  • Page 113
    ... rate (the percentage of completed quotes to actual issued policies) primarily due to rate actions . Rate actions are taken where profit margin targets are not being achieved . The rate changes in 2014 were taken in states and risk categories to improve profit margin while managing customer...

  • Page 114
    ... excess and surplus lines carrier North Light as well as non-proprietary products will remain a critical component to our overall homeowners strategy to profitably grow and serve our customers . Allstate brand homeowners premiums written totaled $6 .54 billion in 2014, a 3 .9% increase from $6 .29...

  • Page 115
    ...a new business owner policy product . Other business lines premiums written totaled $756 million in 2015, a 5 .4% increase from $717 million in 2014, following a 19 .1% increase in 2014 from $602 million in 2013 . The increase in 2015 was primarily due to increased sales of vehicle service contracts...

  • Page 116
    ... and related charges Underwriting income Catastrophe losses 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...

  • Page 117
    ... 2015 2014 2013 75.1 76.8 78.5 35.2 40.9 39.0 110.3 117.7 117.5 Encompass brand 2015 2014 2013 73.5 76.0 65.4 28.5 30.1 30.5 102.0 106.1 95.9 Allstate Protection 2015 2014 2013 69.2 66.8 64.4 25.5 26.7 27.1 94.7 93.5 91.5 Loss ratio Expense ratio Combined ratio The Allstate Corporation 2015 Annual...

  • Page 118
    ... line of business . Auto loss ratio for the Allstate brand increased 5.3 points in 2015 compared to 2014, primarily due to higher claim frequency and severity and unfavorable reserve reestimates, partially offset by increased premiums earned and decreased catastrophe losses. Auto loss ratio...

  • Page 119
    ... to changes in state mix and payment timing . Bodily injury and property damage coverage paid claim severities increased 2 .7% and 4 .1%, respectively, in 2014 compared to 2013 . Severity results in 2014 increased in line with historical Consumer Price Index trends . Esurance brand auto loss ratio...

  • Page 120
    ... related to actions that could be modified as margins return to targeted underwriting results . Amortization of DAC primarily includes agent remuneration and premium taxes . Allstate agency total incurred base commissions, variable compensation and bonuses in 2015 were higher than 2014 . Allstate...

  • Page 121
    ... 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 1 .6 points in 2015 compared to 2014 primarily due to agency compensation, employee compensation and technology costs...

  • Page 122
    ...Florida). New Jersey auto losses are included in our New Jersey reinsurance program. Designed a homeowners new business offering, Allstate House and Home, that provides options of coverage for roof damage including graduated coverage and pricing based on roof type and age. Allstate House and Home is...

  • Page 123
    ... 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 a designated...

  • Page 124
    ... claims and claims expense reserves . For a description of our reserve process, see Note 8 of the consolidated financial statements and for a further description of our reserving policies and the potential variability in our reserve estimates, see the Application of Critical Accounting Estimates...

  • Page 125
    ...the estimated cost of outstanding claims as they were recorded at the beginning of years 2015, 2014 and 2013 and the effect of reestimates in each year. ($ in millions) Allstate brand Esurance brand Encompass brand Total Allstate Protection Discontinued Lines and Coverages Total Propertyâ€'Liability...

  • Page 126
    2014 Prior year reserve reestimates ($ in millions) Allstate brand Esurance brand Encompass brand Total Allstate Protection Discontinued Lines and Coverages Total Propertyâ€'Liability 2004 & prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total $ (38) $ (10) $ (11) $ 2 $ (20) $ 37 $ (86) $ (35) $...

  • Page 127
    ... representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2015, 2014, and 2013, and the effect of reestimates in each year. ($ in millions) Auto Homeowners Other personal lines Commercial lines Other business lines Total Allstate Protection ($ in millions...

  • Page 128
    ... increase in pending claims as of December 31, 2014 compared to December 31, 2013 relates to growth and auto frequency . 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...

  • Page 129
    ... 273 166 575 1,014 87 1% 26 27 16 57 100% 53 $ 301 354 7 267 274 171 572 1,017 74 1% 26 27 17 56 100% 123 Direct policyholders: Primary Excess Total Assumed reinsurance IBNR Total net reserves Total reserve additions $ $ $ $ $ $ The Allstate Corporation 2015 Annual Report

  • Page 130
    ... 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 131
    ... . Changes in estimates could result in additional changes to the Consolidated Statements of Operations . The allowance for uncollectible reinsurance primarily relates to Discontinued Lines and Coverages reinsurance recoverables and was $80 million and $95 million as of December 31, 2015 and 2014...

  • Page 132
    ... claims and claims expense decreased in 2014 primarily due to lower amounts ceded to the National Flood Insurance Program and lower reserve increases for the PLIGA program . Reserve increases in the PLIGA program in 2015 are attributable to limited personal injury protection coverage on policies...

  • Page 133
    ... in 2014 . Allstate Financial premiums and contract charges on underwritten products, including traditional life, interestsensitive life and accident and health insurance, totaled $2 .14 billion in 2015, an increase of 0 .5% from $2 .13 billion in 2014 . Allstate Financial investments totaled $36...

  • Page 134
    ... 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 in three principal ways: through improving the economics of the Protection business...

  • Page 135
    ...) Revenues Life and annuity premiums and contract charges Net investment income Realized capital gains and losses Total revenues Costs and expenses Life and annuity contract benefits Interest credited to contractholder funds Amortization of DAC Operating costs and expenses Restructuring and related...

  • Page 136
    ..., and accident and health insurance products that have significant mortality or morbidity risk. Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities...

  • Page 137
    ... 2014, primarily due to growth in Allstate Benefits accident and health insurance business as well as increased traditional life insurance renewal premiums . The growth at Allstate Benefits primarily relates to accident, critical illness and hospital indemnity products . Total premiums and contract...

  • Page 138
    ... partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 7 .1% in 2015 compared to 9 .9% in 2014 and 10 .2% in 2013 . Maturities of and interest payments on institutional products included a $1 .75...

  • Page 139
    ... credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of life and annuity contract benefits on the Consolidated Statements of Operations ("investment spread"). The Allstate Corporation 2015 Annual Report 133

  • Page 140
    ...Life Life insurance Accident and health insurance Net investment income on investments supporting capital Subtotal - Allstate Benefits Annuities and institutional products Net investment income on investments supporting capital Subtotal - Allstate Annuities Investment spread before valuation changes...

  • Page 141
    ...on accident and health insurance resulting from growth. Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life, fixed annuities and other investment contracts covers assumptions for persistency, mortality, expenses, investment returns...

  • Page 142
    ... increased expenses at Allstate Benefits relating to employee costs, reinsurance expense allowances paid to LBL for business reinsured to Allstate Life Insurance Company ("ALIC") after the sale, and a guaranty fund accrual release in the prior year period, partially offset by lower technology costs...

  • Page 143
    ..., within a total return framework. This approach has produced competitive returns over the long term and is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth. Products with lower The Allstate Corporation 2015 Annual Report 137

  • Page 144
    ... includes private equity, real estate, infrastructure, timber and agriculturerelated assets, is diversified across a number of characteristics, including managers or partners, vintage years, strategies, geographies (including international) and industry sectors or property types. These investments...

  • Page 145
    ... December 31, 2014, primarily due to dividends paid by Allstate Insurance Company ("AIC") to The Allstate Corporation (the "Corporation") and a decline in fixed income and equity valuations, partially offset by positive operating cash flows. The Allstate Financial investment portfolio totaled $36.79...

  • Page 146
    ...below these designations are considered low credit quality or below investment grade, which includes high yield bonds. Fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners ("NAIC"), and/or are internally rated. Market prices for...

  • Page 147
    ... is rated investment grade. Corporate bonds, including publicly traded and privately placed, totaled $41.83 billion as of December 31, 2015, with an unrealized net capital gain of $153 million. Privately placed securities primarily consist of corporate issued senior debt securities that are directly...

  • Page 148
    ... as privately placed, small balance transactions. Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. The equity securities portfolio was $5.08 billion as of December 31, 2015, with...

  • Page 149
    ... of the consolidated financial statements. Unrealized net capital gains totaled $1.03 billion as of December 31, 2015 compared to $3.17 billion as of December 31, 2014. The decrease for fixed income securities was primarily due to wider credit spreads, an increase in risk-free interest rates and the...

  • Page 150
    ... fixed income securities portfolio as of December 31, 2015 . In general, the gross unrealized losses are related to widening credit spreads or increasing risk-free interest rates since the time of initial purchase . Global oil prices have declined significantly since September 30, 2014 and natural...

  • Page 151
    ... Utilities Technology Communications Capital goods Banking Transportation Financial services Other Total corporate fixed income portfolio Foreign government ABS RMBS CMBS Total fixed income securities $ $ $ $ $ $ $ $ The following table summarizes the fair value and gross unrealized losses...

  • Page 152
    ...) Banking Financial services Capital goods Basic industry Technology Communications Transportation Utilities Indexâ€'based funds Real estate Emerging market equity funds Total equity securities Amortized cost $ 255 1,319 352 822 415 160 500 259 74 114 393 121 22 $ 4,806 Gross unrealized Gains Losses...

  • Page 153
    ... impacted by the decline in natural gas prices. Impairment write-downs in the above table include $97 million and $18 million of investments with exposure to the energy sector and metals and mining exposure in the basic industry sector, respectively. The Allstate Corporation 2015 Annual Report 147

  • Page 154
    ...the portfolio, as well as a higher allocation to our market-based active strategy. Change in intent losses are primarily related to equity securities that we may not hold for a period of time sufficient to recover unrealized losses. As of December 31, 2015, these holdings totaled $1.7 billion and we...

  • Page 155
    ... â€' other Total Private equity Real estate Timber and agricultureâ€'related Total PBLT Asset level operating expenses (2) (1) $ $ $ $ $ $ Other limited partnership interests are located in the market-based core investing strategy and are not included in the performance-based long-term table...

  • Page 156
    ...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 use quantitative and qualitative market-based approaches to measure, monitor and manage market risk...

  • Page 157
    ...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 158
    ... assets related to variable annuity and variable life contracts with account values totaling $3.66 billion and $4.40 billion, respectively. Equity risk exists for contract charges based on separate account balances and guarantees for death and/or income benefits provided by our variable products...

  • Page 159
    ... 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 are recognized into the market-related value of plan assets over a five year period...

  • Page 160
    ... determine the discount rate and the expected long-term rate of return on plan assets . The discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date . We develop the assumed...

  • Page 161
    ... million for the 2016 fiscal year to maintain the plans' funded status . This estimate could change significantly following either an improvement or decline in investment markets . Participating subsidiaries fund the Plans' contributions under our master services cost sharing agreement . In addition...

  • Page 162
    ... company data for the respective reporting units . The peer company price to earnings multiples analysis takes into consideration the price earnings multiples of peer companies for each reporting unit and estimated income from our strategic plan . The discounted cash flow analysis utilizes long term...

  • Page 163
    ... of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total common shares outstanding has decreased by 518 million shares or 57.6%, primarily due to our repurchase programs. Financial ratings and strength...

  • Page 164
    ... Company ("AAC"), to write certain life insurance business sold by Allstate exclusive agencies and exclusive financial specialists . As AAC launched its products throughout the nation, LBL ceased writing that type of new business for Allstate Financial . LBL life business sold through the Allstate...

  • Page 165
    ... 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 We actively manage our financial position and liquidity levels in light of changing market...

  • Page 166
    ... 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 2015, AIC paid dividends totaling $2.31 billion to its parent, Allstate Insurance Holdings, LLC...

  • Page 167
    ... company owned life insurance and higher income tax payments, partially offset by increased premiums and lower contributions to benefit plans. Cash used in investing activities in 2015 compared to cash provided by investing activities in 2014 was primarily the result of decreased sales of securities...

  • Page 168
    Allstate Financial Lower cash provided by operating activities in 2015 compared to 2014 was primarily due to lower net investment income and higher income tax payments, partially offset by higher premiums on accident and health and traditional life insurance products. Lower cash provided by ...

  • Page 169
    ...of 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...

  • Page 170
    ... strategic value and optimize risks and returns . ERRM governance includes board oversight, an executive management committee structure, and chief risk officers ("CROs") . The Allstate Corporation Board of Directors ("Allstate Board") has overall responsibility for oversight of management's design...

  • Page 171
    ...these estimates, see the referenced sections of this document . For a complete summary of our significant accounting policies, see the notes to the consolidated financial statements . Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to...

  • Page 172
    ... and supportable assumptions and forecasts, are 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...

  • Page 173
    ...for DAC related to Allstate Financial policies and contracts includes significant assumptions and estimates. DAC related to traditional life insurance is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Significant assumptions...

  • Page 174
    ... 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 and expense margin during the years ended December 31 . ($ in millions) Investment margin Benefit margin...

  • Page 175
    ... independently of business segment management for each business segment and line of business based on estimates of the ultimate cost to settle claims, less losses that have been paid. The significant lines of business are auto, homeowners, and other personal lines for Allstate Protection, and...

  • Page 176
    ... as an increase or decrease in property-liability insurance claims and claims expense in the Consolidated Statements of Operations. Total PropertyLiability net reserve reestimates, after-tax, as a percent of net income applicable to common shareholders were (2.6)% unfavorable in 2015, 2.0% favorable...

  • Page 177
    ... including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When we...

  • Page 178
    ... 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 179
    ... review and interpretation of MCCA actuarial reports, other MCCA members' reports and our personal injury protection loss trends which have increased in severity over time. We refined our ultimate claim reserve estimation techniques in 2011 through 2014, including relying more on paid loss...

  • Page 180
    unlimited personal injury protection coverage for policies covered by the PLIGA . We continue to update our estimates for these claims as the status of claimants changes . However unlimited coverage was no longer offered after 1991, therefore no new claimants are being added . Reserve estimates by ...

  • Page 181
    ... lines 2015 162 88 127 $ 377 $ 2014 167 94 134 $ 395 $ 2013 183 105 133 $ 421 $ Other mass torts describes direct excess and reinsurance general liability coverage provided for cumulative injury losses other than asbestos and environmental. Workers' compensation and commercial and other include run...

  • Page 182
    ... financial statements and the Property-Liability Claims and Claims Expense Reserves section of the MD&A. 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 insurance...

  • Page 183
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in millions, except per share data) Revenues Propertyâ€'liability insurance premiums (net of reinsurance ceded of $1,006, $1,030 and $1,069) Life and annuity premiums and contract charges (net of reinsurance ceded of ...

  • Page 184
    ... benefit cost Other comprehensive loss, after-tax Comprehensive income $ Year Ended December 31, 2015 2014 2013 2,171 $ 2,850 $ 2,280 $ (1,306) (58) 48 (1,316) 855 $ 280 (40) (725) (485) 2,365 $ (1,188) (32) 1,091 (129) 2,151 See notes to consolidated financial statements . 178 www.allstate...

  • Page 185
    ... investment income Property and equipment, net Goodwill Other assets Separate Accounts Total assets Liabilities Reserve for propertyâ€'liability insurance claims and claims expense Reserve for lifeâ€'contingent contract benefits Contractholder funds Unearned premiums Claim payments outstanding...

  • Page 186
    ... Balance, beginning of year Change in unrealized net capital gains and losses Change in unrealized foreign currency translation adjustments Change in unrecognized pension and other postretirement benefit cost Balance, end of year Total shareholders' equity $ Year Ended December 31, 2015 2014 2013...

  • Page 187
    ... purchases Fixed income securities Equity securities Limited partnership interests Mortgage loans Other investments Change in shortâ€'term investments, net Change in other investments, net Purchases of property and equipment, net Disposition (acquisition) of operations Net cash provided by investing...

  • Page 188
    ...primary business is the sale 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 and voluntary accident and health insurance . Allstate primarily...

  • Page 189
    ...'s financial position or Allstate Financial's ability to sell such products and could result in the surrender of some existing contracts and policies . In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning...

  • Page 190
    ... 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 191
    ... under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to repossess the securities loaned on short notice. Recognition of premium revenues and contract charges, and related benefits and interest credited Property-liability premiums are...

  • Page 192
    ... life-contingent benefit payments in excess of the contractholder account balance . Contracts that do not subject 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...

  • Page 193
    ...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 194
    ... 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 195
    ...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 . The Allstate Corporation 2015 Annual Report...

  • Page 196
    ...Commitments to invest, commitments to purchase private placement securities, commitments to extend loans, financial guarantees and credit guarantees have off-balance sheet risk because their contractual amounts are not recorded in the Company's Consolidated Statements of Financial Position (see Note...

  • Page 197
    ... issued December 31, 2014 consolidated statement of financial position was a $54 million decrease in both other assets and long-term debt . The adoption had no impact on the Company's results of operations . Pending accounting standards Revenue from Contracts with Customers In May 2014, the FASB...

  • Page 198
    ...not expected to be material to the Company's results of operations or 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...

  • Page 199
    ... well as mergers completed with equity securities in 2015, 2014 and 2013, respectively, and a $89 million obligation to fund a limited partnership investment in 2015 . Non-cash financing activities include $74 million, $47 million and $94 million related to the issuance of Allstate common shares for...

  • Page 200
    5. Investments Fair values The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows: ($ in millions) December 31, 2015 U.S. government and agencies Municipal Corporate Foreign government ABS RMBS CMBS Redeemable preferred stock Total fixed ...

  • Page 201
    ... losses by asset type for the years ended December 31 are as follows: ($ in millions) 2015 Included Gross in OCI $ (17) $ (61) (33) 1 (1) (111) (279) 4 (51) (15) 2014 Included Gross in OCI 2013 Included Gross in OCI Net Net Net Fixed income securities: Municipal Corporate ABS RMBS CMBS Total...

  • Page 202
    ... and supportable assumptions and forecasts, are 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...

  • Page 203
    ...'s share of EMA limited partnerships' other comprehensive income . Fair value and gross unrealized gains and losses are not applicable . (3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product...

  • Page 204
    ... and losses The change in unrealized net capital gains and losses for the years ended December 31 is as follows: ($ in millions) Fixed income securities Equity securities Derivative instruments EMA limited partnerships Investments classified as held for sale Total Amounts recognized for: Insurance...

  • Page 205
    ... imply higher or lower credit quality than the current third party rating . Unrealized losses on investment grade securities are principally related to increasing riskfree interest rates or widening credit spreads since the time of initial purchase . The Allstate Corporation 2015 Annual Report 199

  • Page 206
    ... down to fair value, generally estimated to be equivalent to the reported net asset value . Mortgage loans The Company's mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation...

  • Page 207
    ... the property available to the borrower to meet principal 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 Allstate Corporation 2015 Annual Report 201

  • Page 208
    ... loans with a debt service coverage ratio below 1 .0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered...

  • Page 209
    ... comparing 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 The Allstate Corporation 2015 Annual Report...

  • Page 210
    ...bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access . Separate account assets: Comprise actively traded mutual...

  • Page 211
    .... • Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements. The Allstate Corporation 2015 Annual Report 205

  • Page 212
    ... and cash collateral netting Balance as of December 31, 2015 Assets Fixed income securities: U.S. government and agencies Municipal Corporate â€' public Corporate â€' privately placed Foreign government ABS â€' CDO ABS â€' consumer and other RMBS CMBS Redeemable preferred stock Total fixed...

  • Page 213
    ... and cash collateral netting Balance as of December 31, 2014 Assets Fixed income securities: U.S. government and agencies Municipal Corporate â€' public Corporate â€' privately placed Foreign government ABS â€' CDO ABS â€' consumer and other RMBS CMBS Redeemable preferred stock Total fixed...

  • Page 214
    ... 2.0% 1.76% The embedded derivatives are equity-indexed and forward starting options in certain life and annuity products that provide customers with interest crediting rates based on the performance of the S&P 500 . If the projected option cost increased (decreased), it would result in a higher...

  • Page 215
    ... capital gains and losses, $13 million in net investment income, $26 million in interest credited to contractholder funds and $(7) million in life and annuity contract benefits . (2) Comprises $1 million of assets and $8 million of liabilities . The Allstate Corporation 2015 Annual Report 209

  • Page 216
    ... CMBS Redeemable preferred stock Total fixed income securities Equity securities Shortâ€'term investments Freeâ€'standing derivatives, net Other assets Assets held for sale Total recurring Level 3 assets Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts Liabilities...

  • Page 217
    ... funds, $74 million in life and annuity contract benefits and $(6) million in loss on disposition of operations . (2) Represents purchases for assets and issues for liabilities . (3) Comprises $9 million of assets and $14 million of liabilities . The Allstate Corporation 2015 Annual Report...

  • Page 218
    ... and losses total $17 million in 2015 and are reported as follows: $(20) million in realized capital gains and losses, $18 million in net investment income, $26 million in interest credited to contractholder funds and $(7) million in life and annuity contract benefits . These gains and losses total...

  • Page 219
    ...the market risk related to deferred compensation liability contracts . Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations . The Allstate Corporation 2015 Annual Report 213

  • Page 220
    ...in Allstate Financial's equity indexed life and annuity product contracts that offer equity returns to contractholders . In addition, Allstate Financial uses equity index futures to offset valuation losses in the equity portfolio during periods of declining equity market values . Interest rate swaps...

  • Page 221
    ... benefits Guaranteed withdrawal benefits Equityâ€'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 Subtotal Total...

  • Page 222
    ... benefits Guaranteed withdrawal benefits Equityâ€'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 Subtotal Total...

  • Page 223
    ... contracts Total 2014 Interest rate contracts Equity and index contracts Embedded derivative financial instruments Foreign currency contracts Credit default contracts Other contracts Total $ 1 1 $ Life and annuity contract benefits - - $ Interest credited to contractholder funds Total gain (loss...

  • Page 224
    ... and credit support annex agreements . Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC's, ALIC's or Allstate Life Insurance Company of New York's ("ALNY") financial strength credit ratings by...

  • Page 225
    ... CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default ("FTD") structure or credit derivative index ("CDX") that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement . With...

  • Page 226
    ... involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions . In the normal course of business, the Company may also supplement its claims processes by...

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    ...meaningful range for any such changes in losses incurred . During 2015, incurred claims and claims expense related to prior years was primarily composed of net increases in auto reserves of $30 million primarily due to claim severity development for bodily injury coverage that was more than expected...

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    ... claims arising from losses which had occurred by the date of the Consolidated Statements of Financial Position based on available facts, technology, laws and regulations . For further discussion of asbestos and environmental reserves, see Note 14 . 9. Reserve for Life-Contingent Contract Benefits...

  • Page 229
    ... 22,529 The following table highlights the key contract provisions relating to contractholder funds: Product Interestâ€'sensitive life insurance Interest rate Interest rates credited range from 0% to 10.5% for equityâ€'indexed life (whose returns are indexed to the S&P 500) and 1.0% to 6.0% for all...

  • Page 230
    ... wherein the Company guarantees either a minimum return or account value upon death, a specified contract anniversary date, partial withdrawal or annuitization, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts' funds may not meet their...

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    ... of $43 million, variable annuity withdrawal benefits of $13 million and other guarantees of $302 million . 10. Reinsurance The effects of reinsurance on property-liability insurance premiums written and earned and life and annuity premiums and contract charges for the years ended December 31 are...

  • Page 232
    ... operated by uninsured or "hit and run" drivers . The UCJF also provides private passenger stranger pedestrian personal injury protection benefits when no other coverage is available . The fund provides reimbursement to insurers for the medical benefits portion of personal injury protection coverage...

  • Page 233
    ... Catastrophe Fund ("FHCF") agreement were $13 million, $11 million and $16 million in 2015, 2014 and 2013, respectively . There were no ceded losses incurred in 2015, 2014 or 2013 . The Company has access to reimbursement provided by the FHCF for 90% of qualifying personal property losses that...

  • Page 234
    ... living expenses on policies covered by this program . The agreement reinsures only shake damage resulting from earthquake peril . The Pennsylvania Excess Catastrophe Reinsurance agreement comprises a three-year term contract that provides coverage for Allstate Protection personal lines property...

  • Page 235
    ... from Prudential related to the disposal of substantially all of its variable annuity business that was effected through reinsurance agreements . In 2015, life and annuity premiums and contract charges of $94 million, contract benefits of $40 million, interest credited to contractholder funds of $21...

  • Page 236
    ... gains and losses Classified as held for sale Balance, end of year Allstate Financial $ 2,225 364 (328) 229 (743) $ 1,747 $ $ Total 3,621 4,267 (4,002) 229 (743) 3,372 DSI activity for Allstate Financial, which primarily relates to fixed annuities and interest-sensitive life contracts, for the...

  • Page 237
    ... price, 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 . The Allstate Corporation 2015 Annual Report...

  • Page 238
    ... of funds . These include a $1 .00 billion unsecured revolving credit facility and a commercial paper program with a borrowing limit of $1 .00 billion . In April 2014, the Company amended the maturity date of the facility to April 2019 and also amended the option to extend the expiration by one year...

  • Page 239
    ... be paid or declared on the Company's common stock and no shares of the Company's common stock may be repurchased unless the full dividends for the latest completed dividend period on the preferred stock have been declared and paid or provided for . The Allstate Corporation 2015 Annual Report 233

  • Page 240
    ...from pension benefit payments made to agents and certain legal expenses incurred in connection with the 1999 reorganization of Allstate's multiple agency programs to a single exclusive agency program . The expenses related to these activities are included in the Consolidated Statements of Operations...

  • Page 241
    ... pays annual premiums to the FHCF for this reimbursement protection . The FHCF has the authority to issue bonds to pay its obligations to insurers participating in the mandatory coverage in excess of its capital balances . Payment of these bonds is funded The Allstate Corporation 2015 Annual Report...

  • Page 242
    ... 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 per year beginning the first year in which reimbursements...

  • Page 243
    ...the Company . New Jersey Property-Liability Insurance Guaranty Association The PLIGA, as the statutory administrator of the UCJF, provides compensation to qualified claimants for personal injury protection, bodily injury, or death caused by private passenger automobiles operated by uninsured or "hit...

  • Page 244
    ... obligation . Management does not believe these indemnifications will have a material effect on results of operations, cash flows or financial position of the Company . Related to the disposal through reinsurance of substantially all of Allstate Financial's variable annuity business to Prudential...

  • Page 245
    ... 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 246
    ... adjusters under New York Labor Law and refused to decertify a Fair Labor Standards Act class of no-fault adjusters . Notice to the class was issued in December 2015 . The class members will have sixty days from the date of mailing to opt out of the class . In the Company's judgment a loss is not...

  • Page 247
    ... in Illinois in which the plaintiffs allege that Allstate's personal injury protection policies failed to include sufficient language providing notice of Allstate's election to apply the fee schedules . This case is brought on behalf of health care providers and insureds who submitted claims for...

  • Page 248
    ... 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 249
    ... . The Internal Revenue Service ("IRS") is currently examining the Company's 2013 and 2014 federal income tax returns . The IRS completed the audit of the Company's 2011 and 2012 federal income tax returns and issued a final Revenue Agent's Report on June 10, 2015 . The Company's tax years prior to...

  • Page 250
    ... of income tax expense related to the change in accounting guidance for investments in qualified affordable housing projects adopted in 2015 . 16. Statutory Financial Information and Dividend Limitations Allstate's domestic property-liability and life insurance subsidiaries prepare their statutory...

  • Page 251
    ... Corporation to pay dividends is dependent on business conditions, income, cash requirements of the Company, receipt of dividends from AIC and other relevant factors . The payment of shareholder dividends by AIC without the prior approval of the Illinois Department of Insurance ("IL DOI") is limited...

  • Page 252
    ... pension plans cover most full-time employees, certain part-time employees and employee-agents . Benefits under the pension plans are based upon the employee's length of service, eligible annual compensation and, prior to January 1, 2014, either a cash balance or final average pay formula . A cash...

  • Page 253
    ... value of all benefits attributed by the 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...

  • Page 254
    ... 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 248 www.allstate.com

  • Page 255
    ...of plan assets utilizes a financial reporting view excluding exposure provided through derivatives . (2) The actual percentage of plan assets for equity securities include private equity investments that are subject to the limited partnership interests target allocation of 2% and 1% in 2015 and 2014...

  • Page 256
    ...term investments Limited partnership interests: Real estate funds Private equity funds Hedge funds Cash and cash equivalents Freeâ€'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 257
    ...: Real estate funds Private equity funds Hedge funds Total Level 3 plan assets $ The following table presents the rollforward of Level 3 plan assets for the year ended December 31, 2014 . ($ in millions) Actual return on plan assets: Relating to Relating assets still Purchases, Net Balance as...

  • Page 258
    ... type of data blended together using the asset allocation policy weights for the Company's pension plans; asset class return forecasts from a large global independent asset management firm that specializes in providing multi-asset class investment fund products which were blended together using the...

  • Page 259
    ... to certain employees and directors of the Company . The total compensation expense related to equity awards was $81 million, $88 million and $93 million and the total income tax benefits were $28 million, $30 million and $32 million for 2015, 2014 and 2013, respectively . Total cash received from...

  • Page 260
    .... The total fair value of performance stock awards vested was $56 million during 2015 . None of the performance stock awards vested during 2014 or 2013 . The tax benefit realized in 2015, 2014 and 2013 related to tax deductions from stock option exercises and included in shareholders' equity was $23...

  • Page 261
    ... Property-Liability . The Company does not allocate Property-Liability investment income, realized capital gains and losses, or assets to the Allstate Protection and Discontinued Lines and Coverages segments . Management reviews assets at the Property-Liability, Allstate Financial, and Corporate...

  • Page 262
    ... Auto Homeowners Other personal lines Commercial lines Other business lines Allstate Protection Discontinued Lines and Coverages Total propertyâ€'liability insurance premiums Net investment income Realized capital gains and losses Total Propertyâ€'Liability Allstate Financial Life and annuity...

  • Page 263
    ... Propertyâ€'Liability net income applicable to common shareholders Allstate Financial Life and annuity premiums and contract charges Net investment income Periodic settlements and accruals on nonâ€'hedge derivative instruments Contract benefits and interest credited to contractholder funds Operating...

  • Page 264
    ... . 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 265
    ... 648 587 Second Quarter 2015 2014 $ 8,982 $ 8,860 326 614 Third Quarter 2015 2014 $ 9,028 $ 8,936 621 750 Fourth Quarter 2015 2014 $ 8,691 $ 8,759 460 795 1.56 1.31 0.80 1.41 1.56 1.77 1.19 1.89 1.53 1.30 0.79 1.39 1.54 1.74 1.18 1.86 The Allstate Corporation 2015 Annual Report 259

  • Page 266
    ...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 of December 31, 2015 and 2014, and the related Consolidated...

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    ... 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, 2015, by contacting: Investor Relations The Allstate Corporation 2775 Sanders Road, Suite F3SE Northbrook, IL 60062...

  • Page 271
    ...to create a 22nd Century Corporation - a company that people pant to do business pith because it connects pith consumers, sparks social change, empopers people and is a force for good. Allstate believes that corporations should address pressing social problems and create positive change in the porld...

  • Page 272
    The Allstate Corporation 2775 Sanders Road Northbrook, IL 60062-6127 www.allstate.com/annualreport