Allstate 2008 Annual Report Download

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THE ALLSTATE CORPORATION NOTICE OF 2009 ANNUAL MEETING,
PROXY STATEMENT AND 2008 ANNUAL REPORT
Fellow Shareholders,
Great companies fight through tough
times and come out stronger. Our 2008
financial results were significantly lower
than the prior year’s due to an unusually high
number of catastrophes and capital losses
on the investment portfolio. Despite this,
we remained financially strong and made
progress on our strategy of reinventing
protection and retirement for the consumer.

Table of contents

  • Page 1
    THE ALLSTATE CORPORATION NOTICE OF 2009 ANNUAL MEETING, PROXY STATEMENT AND 2008 ANNUAL REPORT Fellow Shareholders, Great companies fight through tough times and come out stronger. Our 2008 financial results were significantly lower than the prior year's due to an unusually high number of ...

  • Page 2
    ... as we offer the broadest array of ways for customers to reduce their risks. We will also continue to invest in and motivate employees, agency owners, and exclusive financial specialists. People are the key to success. It is the people in our agencies, claim offices, operation centers, and support...

  • Page 3
    ... NET INCOME (LOSS) PER DILUTED SHARE in dollars 38.58 21.8 21.8 34.84 20.2 23.8 21.9 31.72 31.01 23.51 12.6 15.0 04 05 06 07 08 04 05 06 07 08 8.4 21.2 04 05 06 07 08 SHAREHOLDERS' EQUITY in billions of dollars BOOK VALUE PER SHARE in dollars RETURN ON EQUITY percent...

  • Page 4
    ... customer at the center of all of our work and provide the products and services they need in ways they want them. • Take an enterprise view of our people and processes and work as a single team to advance Allstate rather than our individual interests. • Provide superior returns to shareholders...

  • Page 5
    ... time, in the 8th floor auditorium of Harris Bank, Chicago, Illinois. We encourage you to review the notice of annual meeting, proxy statement, financial statements, and management's discussion and analysis provided in this booklet to learn more about your corporation. Under Securities and Exchange...

  • Page 6
    ...director nominees named in this proxy statement to serve until the 2010 annual meeting; To ratify the appointment of Deloitte & Touche LLP as Allstate's independent registered public accountant for 2009; To approve the material terms of the Annual Executive Incentive Plan; To approve the 2009 Equity...

  • Page 7
    ... Under Equity Compensation Plans Security Ownership of Directors and Executive Officers Security Ownership of Certain Beneficial Owners Audit Committee Report Section 16(a) Beneficial Ownership Reporting Compliance Related Person Transactions Stockholder Proposals for Year 2010 Annual Meeting Proxy...

  • Page 8
    ...for director listed in this proxy statement â- FOR the ratification of the appointment of Deloitte & Touche LLP as Allstate's independent registered public accountant for 2009 â- FOR approval of the material terms of the Annual Executive Incentive Plan â- FOR approval of the 2009 Equity Incentive...

  • Page 9
    ... against the matter. Item 4. To approve the 2009 Equity Incentive Plan, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the item is required, provided that the total number of votes cast on the proposal represents over...

  • Page 10
    ... 401(k) Savings Plan, your proxy card/voting instruction form for those shares will instruct the plan trustee how to vote those shares. If you are an employee who received your annual meeting materials electronically, and you hold Allstate common shares both through the plan and also directly as...

  • Page 11
    ... customer, employee, and member of the public be treated accordingly. Allstate's Code of Ethics applies to all employees, including the chief executive officer, the chief financial officer, the controller, and other senior financial and executive officers as well as the Board of Directors. The Code...

  • Page 12
    ... 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 13
    ... executive sessions without the need to designate a single presiding director and it also provides an opportunity for each director to assume the role of presiding director from time to time. Board Attendance Policy It is expected that Allstate Board members make every effort to attend all meetings...

  • Page 14
    ..., compensation, and oversight of the work of the independent registered public accountant in preparing or issuing an audit report or related work. The committee reviews Allstate's annual audited and quarterly financial statements and recommends to the Board of Directors whether the audited financial...

  • Page 15
    ... new compensation consultant, Towers Perrin. As part of the engagement, Towers Perrin met with each committee member and select members of senior management to gather and review information on Allstate's vision, strategy, and executive compensation program. Towers Perrin provided a report on current...

  • Page 16
    ... A3, Northbrook, Illinois 60062-6127. Our chief executive officer, general counsel, and secretary participate in the committee's meetings. However, the committee regularly meets in executive session without members of management present. Nomination Process for Election to the Board of Directors The...

  • Page 17
    ... the 2010 annual meeting of stockholders, he or she must provide advance notice to Allstate that must be received between January 19, 2010 and February 18, 2010. The notice must be sent to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite A3, Northbrook, Illinois 60062...

  • Page 18
    ... of Board service, or upon death or disability if earlier. The compensation cost recognized in our 2008 audited financial statements for stock option awards for 2008 and previous years, computed in accordance with FAS 123R disregarding any estimate of forfeitures. The fair value of each option grant...

  • Page 19
    ... Compensation Plan for Non-Employee Directors, as amended and restated. The number of restricted stock units granted each year will equal to $150,000 divided by the fair market value of a share of our stock on June 1 of such year. The annual award of an option to purchase 4,000 shares of Allstate...

  • Page 20
    ...Proxy Statement In accordance with the terms of the 2006 Equity Compensation Plan for Non-Employee Directors, the exercise price of the stock option awards is equal to the fair market value of Allstate common stock on the date of grant. For options granted prior to 2007, fair market value is equal...

  • Page 21
    ... and Chief Executive Officer of BellSouth Corporation from 1997 to 1998. Mr. Ackerman is also a director of Home Depot and UPS. Proxy Statement 13FEB200813593441 Robert D. Beyer (Age 49) Director since 2006 Chief Executive Officer of The TCW Group, Inc., an investment management firm, since...

  • Page 22
    ... The Coaching Group, a management consulting firm. He is also a director of Caterpillar, Inc., Comprehensive Care Corporation and FedEx Corporation. 8FEB200817323672 Judith A. Sprieser (Age 55) Director since 1999 Chief Executive Officer of Transora, a technology software and services company from...

  • Page 23
    ... retirement in 2000. Mrs. Taylor has served on several major public company boards. Currently, she serves on the Board of Blue Nile, Inc. 17MAR200418510711 Proxy Statement Thomas J. Wilson (Age 51) Director since 2006 Chairman since May 2008, and President and Chief Executive Officer of Allstate...

  • Page 24
    ... non-consolidated entities (i.e. employee benefit plans, various trusts, The Allstate Foundation, etc.) and are set forth below. 2008 Audits and other Attest Services for Non-consolidated Entities Due Diligence Adoption of new accounting standards Investment Related Research Other Audit Related Fees...

  • Page 25
    ..., revenues, premiums, financial product sales, earnings per share, stockholder return and/or value, funds from operations, operating income, gross income, net income, combined ratio, underwriting income, cash flow, return on equity, return on capital, return on assets, values of assets, market share...

  • Page 26
    ... Securities Exchange Act of 1934, we will review all awards paid to the officer under the Plan on the basis of having met or exceeded performance measures for fiscal years beginning after December 31, 2008 to the extent the awards relate to the periods with respect to which the financial statements...

  • Page 27
    ...and the key terms of awards, including performance targets, performance periods, and performance measures are established each year in the discretion of the Plan Administrator, it cannot be determined at this time what amounts, if any, will be paid under the Plan in the future. The Board unanimously...

  • Page 28
    ... The Plan Administrator may use either authorized but unissued shares or treasury shares to provide common stock for awards. As of March 12, 2009, the closing price of our common stock as reported on the New York Stock Exchange Composite Tape was $16.63. Among the amendments approved by the Board on...

  • Page 29
    ...in certain new hire situations that occur between regularly scheduled Committee meetings. In addition, in 2008 the Board delegated to the Equity Award Committee, consisting of the person who at any time holds the office of chief executive officer provided such person is a director of the Corporation...

  • Page 30
    ... agreement that specifies the number of shares subject to the award, the exercise price, the option term and exercise periods, the vesting schedule, and other terms the Plan Administrator may deem appropriate such as provisions relating to a change of control. No dividend equivalents may be provided...

  • Page 31
    ..., revenues, premiums, financial product sales, earnings per share, stockholder return and/or value, funds from operations, operating income, gross income, net income, combined ratio, underwriting income, cash flow, return on equity, return on capital, return on assets, values of assets, market share...

  • Page 32
    ... the number of shares available for issuance by 2.1 shares. Limits on Awards No more than 5,500,000 shares may be issued pursuant to incentive stock options. So that awards will qualify as ''performance-based compensation'' under Section 162(m) of the Internal Revenue Code, the Plan also contains...

  • Page 33
    ... shares acquired over the option exercise price, if any, on the date of exercise. We are generally entitled to a deduction equal to the compensation taxable to the employee as ordinary income, except to the extent such deduction is limited by applicable provisions of the Internal Revenue Code. Any...

  • Page 34
    ... an equal number of the option shares received. The fair market value of the shares received in excess of the tendered shares constitutes compensation taxable to the employee as ordinary income. We may be entitled to a tax deduction equal to the compensation income recognized by the employee. Use of...

  • Page 35
    ... or loss in an amount equal to the difference between the employee's basis in the shares sold and the total amount realized upon disposition. Other Information New Plan Benefits Resulting From Amendment. It is not possible at this time to determine the benefits or amounts of awards that will be made...

  • Page 36
    ..., Allstate Investments, LLC) Danny L. Hale (former Vice President and Chief Financial Officer) Samuel Pilch (former Acting Vice President and Chief Financial Officer, and Controller) All current executive officers as a group(1) All Directors (who are not executive officers) as a group Nominees...

  • Page 37
    ... of many public employee pension funds also favor this right. Governance ratings services, such as The Corporate Library and Governance Metrics International, have taken special meeting rights into consideration when assigning company ratings. Please encourage our board to respond positively...

  • Page 38
    ..., which is appropriate given the size and nature of Allstate's business. â- The annual stockholders' meeting is held every year after the financial statements for the prior year have been audited and provided to stockholders. Issues that are important to stockholders should be considered in light...

  • Page 39
    ...affect any compensation paid or awarded to any NEO. SUPPORTING STATEMENT In our view, senior executive compensation at Allstate has not always been structured in ways that best serve stockholders' interests. For example, while stockholders were experiencing negative total shareholder return for 2007...

  • Page 40
    ...and its impact on business performance. â- The Committee uses an independent executive compensation consultant each year to assess Allstate's executive pay levels, practices, overall program design, and financial performance as compared to its peer insurance companies. â- The Committee applies its...

  • Page 41
    ... The report shall be presented to the board of directors' audit committee or other relevant oversight committee and posted on the company's website to reduce costs to shareholders. Stockholder Supporting Statement As long-term shareholders of Allstate, we support transparency and accountability in...

  • Page 42
    ... In addition, political contributions are reported regularly to, and overseen by, senior management and reviewed on an annual basis by the Board. â- Our policy on political contributions is part of our Corporate Governance Guidelines, available on our website, www.allstate.com. 35 Proxy Statement

  • Page 43
    ...several changes to the compensation program for 2009 to improve effectiveness and reflect current market conditions. The annual cash incentive plans have been simplified by reducing the number of performance measures. Target goals have been tied to expected performance. The three year long-term cash...

  • Page 44
    ... provide our executive officers with the following core compensation elements: annual salary, annual cash-based short-term incentives, and long-term incentives. Starting in 2009, we are phasing out long-term cash-based incentives in favor of placing greater emphasis on long-term equity-based awards...

  • Page 45
    ... context of a total compensation package, including salary, annual cash incentive awards, long-term cash incentive awards, and equity incentive awards (including prior awards under equity compensation plans), and accrued pension benefits-as well as the value of Allstate stock holdings. The Committee...

  • Page 46
    ... and retirement for the consumer and our operating priorities: consumer focus, operational effectiveness, enterprise risk and return, and capital management. Our compensation design balances annual and long-term incentive awards to align with short and long-term business goals, respectively...

  • Page 47
    ... salary and annual and long-term incentive awards, at the 65th percentile of our peer insurance companies based on the competitive assessment provided by its executive compensation consultant. As a result, the Committee sets cash incentive target goals at levels representing better than projected...

  • Page 48
    ... for 2008. These annual incentive plans are designed to provide all of the executive officers with a cash award based on a combination of corporate and business unit performance measures for each of our main business units: Allstate Protection, Allstate Financial, and Allstate Investments. The same...

  • Page 49
    ...diluted share Proxy Statement Allstate Protection Performance Measures Customer loyalty index Financial product sales (production credits) Growth and profit matrix Allstate Financial Performance Measures Adjusted net income Adjusted operating income Financial product sales (production credits) Sales...

  • Page 50
    ...annual cash incentive award is the sum of the amounts calculated using Calculation A for the corporate-level adjusted operating income per diluted share performance measure, the Allstate Financial adjusted net income and adjusted operating income performance measures, and all of Allstate Investments...

  • Page 51
    ...of Plan-Based Awards table on page 54. Long-Term Incentive Awards-Balance and Integration of Cash and Equity As part of total core compensation, we provide three forms of long-term incentive awards: stock options, restricted stock units, and long-term cash incentive awards. For each executive, these...

  • Page 52
    ... the Compensation and Succession Committee grants equity incentive awards on an annual basis normally during a February meeting, after the issuance of our prior fiscal year-end earnings release. The Committee, the subcommittee, or the equity award committee may grant awards at other times throughout...

  • Page 53
    ... 2008 13MAR200920595536 Long-Term Incentive Awards-Cash Long-term cash incentive awards, which are being phased out starting in 2009, are designed to reward executives for collective results attained over a three-year performance cycle. The Compensation and Succession Committee approved performance...

  • Page 54
    ... 3-year cycle Allstate Financial return on total capital over the 3-year cycle (1) 25% 25% 5.0% 9.5% (0.4)% 9.1% Below threshold Between threshold and target Information regarding our performance measures is disclosed in the limited context of our annual and long-term cash incentive awards and...

  • Page 55
    ...weighting for each named executive is provided on page 47. Long-term cash incentive awards based on the achievement of the performance measures for the 2006-2008 cycle were paid in March 2009 and are included in the amounts reported in the Non-Equity Incentive Plan Compensation column of the Summary...

  • Page 56
    ... Other Officers and Regular and Certain Part-time Managers Employees Benefit or Perquisite Named Executives 401(k)(1) and defined benefit pension Supplemental retirement benefit Health and welfare benefits(2) Supplemental long-term disability and executive physical program Deferred compensation...

  • Page 57
    ...''Potential Payments as a Result of Termination or Change-in-Control'' section are not provided exclusively to the named executives. For example, certain cash severance benefits are provided to all regular full-time and regular part-time employees. In addition, a larger group of management employees...

  • Page 58
    ... of Plan-Based Awards table on page 54. The fair value of restricted stock units and restricted stock awards is based on the market value of Allstate's stock as of the date of grant. The compensation cost recognized in our audited financial statements for the relevant year for stock option awards...

  • Page 59
    ... with Financial Accounting Standards Board requirements. (See note 16 to our audited financial statements for 2008.) The change in pension plan measurement date significantly increased the Change in Pension Value reported for named executives who earn final average pay benefits. The increase results...

  • Page 60
    ... cell phone. We provide supplemental long-term disability coverage to regular full-time and regular part-time employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Group Long Term Disability Insurance Plan. This coverage is self-insured (funded...

  • Page 61
    ... Non-Equity Incentive Plan Awards(2) Name Grant Date Plan Name Threshold ($) Target ($) Maximum ($) Exercise or Base Price of Option Awards ($/Shr)(3) Grant Date Fair Value ($)(4) Stock Awards Option Awards Proxy Statement Mr. Wilson - Long-term cash incentive, 2008-2010 cycle - Annual cash...

  • Page 62
    ... the company, the Committee awarded him higher salary and larger equity and annual cash incentive awards as compared to the executive officers who report to him. In addition, because Mr. Wilson earns final average pay benefits under our defined benefit pension plans, the change in his pension value...

  • Page 63
    ... growth in policies in force over the 3-year cycle Allstate Financial return on total capital (1) 50% 25% 25% 5 position relative to peers 5% 9.5% th Information regarding our performance measures is disclosed in the limited context of our annual and long-term cash incentive awards and should...

  • Page 64
    ... approved by the Compensation and Succession Committee. Normally, the named executive must be employed at the time of vesting in order for the options to vest. If the named executive terminates on or after his normal retirement date under the stock option award agreements, stock options not vested...

  • Page 65
    ... EQUITY AWARDS AT FISCAL YEAR-END 2008 Option Awards(1) Number of Securities Underlying Unexercised Options (#) Exercisable(2) Number of Securities Underlying Unexercised Options (#) Unexercisable(3) Stock Awards Number of Shares or Units of Stock That Have Not Vested (#)(5) Market Value of Shares...

  • Page 66
    ... year after the reload option grant date. For option awards granted after 2003, the Compensation and Succession Committee eliminated the reload feature and no new option awards will be granted that contain a reload feature. The aggregate value and aggregate number of exercisable in-the-money options...

  • Page 67
    ... for payment. Accrued benefits were calculated as of December 31, 2008 and used to calculate the Present Value of Accumulated Benefits at December 31, 2008. December 31 is our pension plan measurement date used for financial statement reporting purposes. Mr. Civgin is not currently a member of...

  • Page 68
    ... benefits who terminates employment with at least 3 years of vesting service is entitled to a lump sum benefit equal to his cash balance account balance. Currently, only Mr. Ruebenson is eligible for an early retirement benefit. The benefit reduction for early payment of final average pay benefits...

  • Page 69
    ...short term disability, but does not include long-term cash incentive awards or income related to the exercise of stock options and the vesting of restricted stock and restricted stock units. Compensation used to determine benefits under the ARP is limited in accordance with the Internal Revenue Code...

  • Page 70
    ...in the Internal Revenue Code (e.g., $230,000 in 2008), to defer up to 80% of their salary and/or up to 100% of their annual cash incentive award that exceeds that amount under the Deferred Compensation Plan. Allstate does not match participant deferrals and does not guarantee a stated rate of return...

  • Page 71
    Potential Payments as a Result of Termination or Change-in-Control Termination of Employment All regular full-time and regular part-time employees are eligible to participate in the Severance Pay Plan, which is sponsored by Allstate Insurance Company. The Severance Pay Plan provides severance pay ...

  • Page 72
    ...'s policy or the terms of any of the Allstate compensation and benefit plans including the long-term cash incentive and equity incentive plans. If a participant dies, retires or is disabled during a performance cycle, the participant's award will be prorated based on the number of half months in...

  • Page 73
    ...present value of the monthly benefit payable until age 65. In the event of employment termination resulting from a lack of work, rearrangement of work, or reduction in workforce, the named executives would be eligible for a lump sum payment equal to two weeks of pay for each complete year of service...

  • Page 74
    ...named executive performs services, or a material breach of the change-in-control agreement by Allstate. The principal severance benefits payable on post-change-in-control terminations include: pro-rated annual cash incentive awards and long-term cash incentive awards (all at target); a payment equal...

  • Page 75
    ... employees, customers, and suppliers at any time until one year after termination of employment. The following table describes the estimated compensation or benefits that would be provided by Allstate Insurance Company or The Allstate Corporation to the named executives, except Mr. Hale who retired...

  • Page 76
    ..., Mr. Pilch's change-in-control agreement provides for two times his annual cash incentive award calculated at target; â- the named executive's pro-rata long-term cash incentive award for the 2007-2009 and 2008-2010 performance cycles calculated at target; and â- a lump sum payment equal to the...

  • Page 77
    ..., pension benefit enhancement, if applicable, and deferred compensation account balance. The present value of non-qualified pension benefits earned through December 31, 2008 is based on the lump sum methodology (i.e., interest rate and mortality table) used by the Allstate pension plans in 2009...

  • Page 78
    ... fund assessments related to the potential insolvency of Executive Life Insurance Company of New York. For disclosure of this Allstate Financial measure see footnote 18 to our audited financial statements. Adjusted operating income: This is a measure management uses to assess the profitability...

  • Page 79
    ... customized by Allstate's investments vintage year. Private Equity investments are held in Allstate Insurance Company, Allstate Life Insurance Company, Allstate Retirement Plan, and Allstate Pension Plan. â- Real Estate Funds IRR includes direct and fund of funds investments. The designated...

  • Page 80
    ... group of subsidiaries: Allstate Insurance Company, Allstate Financial, and Allstate Investment Management Company. Long-Term Cash Incentive Awards Average adjusted return on equity relative to peers: This measure is used to assess Allstate's financial performance against its peers. It is calculated...

  • Page 81
    ... Under Equity Compensation Plans The following table includes information as of December 31, 2008 with respect to The Allstate Corporation's equity compensation plans: Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) Number of Securities Remaining...

  • Page 82
    ... 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 prior to April 1, 2009 and...

  • Page 83
    ... beneficial ownership. Audit Committee Report Deloitte & Touche LLP was Allstate's independent registered public accountant for the year ended December 31, 2008. The Audit Committee has reviewed and discussed with management the audited financial statements for the fiscal year ended December 31...

  • Page 84
    ... Office of the Secretary or can be accessed on Allstate's website, allstate.com. One of the procedural requirements in the bylaws is timely notice in writing of the business the stockholder proposes to bring before the meeting. Notice of business proposed to be brought before the 2010 annual meeting...

  • Page 85
    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 these services, which will be performed in ...

  • Page 86
    ..., this policy 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...

  • Page 87
    ... Review of quarterly financial statements Statutory audits Attestation report on management's assessment of internal controls over financial reporting Consents, comfort letters, and reviews of documents filed with the Securities and Exchange Commission 5. Audit-Related Services 1. 2. 3. Accounting...

  • Page 88
    ..., revenues, premiums, financial product sales, earnings per share, stockholder return and/or value, funds from operations, operating income, gross income, net income, combined ratio, underwriting income, cash flow, return on equity, return on capital, return on assets, values of assets, market share...

  • Page 89
    ... soon as practicable after the end of the Fiscal Year (but in all events prior to payment of any Covered Employee's Award), the Committee shall certify in writing prior to payment of any Award that the performance goals and any other material terms were in fact satisfied. The Committee may condition...

  • Page 90
    ...c. To be entitled to receive payment of an Award earned pursuant to the terms of the Plan, except as provided in Section 5.e. below, a Participant must remain actively employed by the Company or a Subsidiary through the end of the Fiscal Year to which performance relates (or through such later date...

  • Page 91
    ... practices. c. Neither the Plan nor any action hereunder shall confer on any person any right to remain in the employ of the Company or any of its Subsidiaries or shall affect an employee's compensation not arising under the Plan. Neither the adoption of the Plan nor its operation shall in any way...

  • Page 92
    8. Effective Date. The Plan was adopted by the Board of Directors of the Company on February 24, 2009, and the material terms of the Plan were approved by the Company's stockholders at the Company's Annual Meeting of Stockholders on May 19, 2009. B-5 Proxy Statement

  • Page 93
    ...Award granted to a Participant under the Plan. 2.3 Base Value of an SAR means the Fair Market Value of a share of Stock on the date the SAR is granted.t 2.4 Board or Board of Directors means the Board of Directors of the Company. 2.5 Code means the Internal Revenue Code of 1986, as amended from time...

  • Page 94
    ..., revenues, premiums, financial product sales, earnings per share, stockholder return and/or value, funds from operations, operating income, gross income, net income, combined ratio, underwriting income, cash flow, return on equity, return on capital, return on assets, values of assets, market share...

  • Page 95
    ... a related Option, designated as an SAR, to receive a payment on the day the right is exercised, pursuant to the terms of Article 7 herein. Each SAR shall be denominated in terms of one share of Stock. 2.44 Subsidiary means any corporation, business trust, limited liability company or partnership...

  • Page 96
    ... or payment of cash shall be made upon a Termination of Employment with respect to any Award that constitutes deferred compensation for purposes of Section 409A unless the Termination of Employment constitutes a ''separation from service'' as that term is used in Section 409A(a)(2)(A)(i) of the Code...

  • Page 97
    ...remaining for awards pursuant to the terms of The Allstate Corporation Equity Incentive Plan. The number of shares of Stock to which an Award pertains shall be counted against the maximum share limitation of this Section 4.1 as two and one-tenth (2.1) shares of Stock for each Full Value Award and as...

  • Page 98
    ... be granted to any individual under the Plan or that may be granted pursuant to any Articles or types of Awards and (iii) the number and kind of shares or units subject to and the Option Exercise Price or Base Value (if applicable) of any then outstanding Awards of or related to shares of Stock. In...

  • Page 99
    ... to earlier termination thereof as provided in the Plan and in the applicable Award Agreement); and (iii) the terms of the Reload Option shall be the same as the terms of the Option to which it relates, except that (A) the Option Exercise Price shall be the Fair Market Value of the Stock on the...

  • Page 100
    ...for Reload Options granted under The Allstate Corporation Equity Incentive Plan. 6.5 Termination. Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company and its...

  • Page 101
    ..., or such method acceptable to the Company, setting forth the number of SARs being exercised. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount equal to the product of: (a) the excess of (i) the Fair Market Value of a share of Stock on the...

  • Page 102
    ... the number of Performance Units and/or shares of Performance Stock granted to each Eligible Person (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such Awards. 9.2 Performance Unit/Performance Stock Award Agreement...

  • Page 103
    ... or any Subsidiary. Nothing contained in the Plan shall constitute a guarantee that the assets of such companies shall be sufficient to pay any benefits to any Person. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any right as a stockholder...

  • Page 104
    ...If a Participant has a Termination of Employment, then, unless otherwise provided by the Committee or in the Award Agreement, the following provisions shall apply: (i) if the Participant's Termination of Employment is on account of death or Disability, then all outstanding Options, to the extent not...

  • Page 105
    ... Modification and Termination The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part, provided that no amendment shall be made which shall increase the total number of shares of Stock that may be issued under the Plan, materially modify the...

  • Page 106
    ... by the excess of the Fair Market Value per share of Stock at the time of such sale or disposition over the Option Exercise Price or Base Value, as applicable. The return of Proceeds is in addition to and separate from any other relief available to the Company or any other actions as may be taken by...

  • Page 107
    ...the extent applicable, it is intended that this Plan and any Awards granted hereunder comply with the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service...

  • Page 108
    ...of AIC (Claims). Senior Vice President of AIC; President of Allstate Protection and Interim President of Allstate Financial. Senior Vice President of AIC (Allstate Protection Product Operations). Senior Vice President of AIC (Corporate Relations and Interim Chief Marketing Officer). Samuel H. Pilch...

  • Page 109
    ...useful for investors to evaluate net (loss) income, operating income and their components separately and in the aggregate when reviewing and evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income...

  • Page 110
    ... Discontinued Lines and Coverages Segment Property-Liability Investment Results Property-Liability Claims and Claims Expense Reserves Allstate Financial 2008 Highlights Allstate Financial Segment Investments Fair Value of Financial Assets and Financial Liabilities Market Risk Pension Plans Deferred...

  • Page 111
    ... to update any forwardlooking statements as a result of new information or future events or developments. These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like ''plans,'' ''seeks,'' ''expects,'' ''will,'' ''should...

  • Page 112
    ... on our operating results and financial condition. Regulation limiting rate increases and requiring us to underwrite business and participate in loss sharing arrangements may decrease our profitability From time to time, political events and positions affect the insurance market, including efforts...

  • Page 113
    ... Allstate Financial Segment Changes in underwriting and actual experience could materially affect profitability and financial condition Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business...

  • Page 114
    ... in short-term rates without accompanying increases in medium- and long-term rates, can influence customer demand for fixed annuities, which could impact the level and profitability of new customer deposits. Increases in market interest rates can also have negative effects on Allstate Financial, for...

  • Page 115
    ...post retirement benefit plans to increase, either or both resulting in a decrease in the funded status of the plans and a reduction of shareholders' equity, increases in pension expense and increases in required contributions to the pension plans. A decline in the quality of our investment portfolio...

  • Page 116
    ... more cost conscious, they may choose lower levels of auto and homeowners insurance. In 2008, declining new car sales, weakness in the housing market and a highly competitive environment contributed to lower policies in force. In addition, holders of some of our life insurance and annuity products...

  • Page 117
    ... insurance regulation. 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 our exposure to catastrophes nationwide. Market...

  • Page 118
    ... a particular rating; an increase in the perceived risk of an insurer's investment portfolio; a reduced confidence in management or a host of other considerations that may or may not be under the insurer's control. The current insurance financial strength ratings of Allstate Insurance Company are...

  • Page 119
    ... impacts mortality rates and those changes do not match the long-term mortality assumptions in our product pricing, the results for our Allstate Financial segment would be impacted. Loss of key vendor relationships could affect our operations We rely on services and products provided by many vendors...

  • Page 120
    ... funds Short-term debt Long-term debt Shareholders' equity Shareholders' equity per diluted share Property-Liability Operations Premiums earned Net investment income Net income Operating ratios(1) Claims and claims expense (''loss'') ratio Expense ratio Combined ratio Allstate Financial Operations...

  • Page 121
    ...number of policies in force (''PIF''), retention, price changes, claim frequency (rate of claim occurrence per policy in force) and severity (average cost per claim), catastrophes, loss ratio, expenses, underwriting results and sales of all products and services; â- For Allstate Financial: premiums...

  • Page 122
    ... and losses Total revenues Costs and expenses Property-liability insurance claims and claims expense Life and annuity contract benefits Interest credited to contractholder funds Amortization of deferred policy acquisition costs Operating costs and expenses Restructuring and related charges Interest...

  • Page 123
    ...the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a single quote or by employing internal valuation models that are widely accepted in the financial services industry. Changing market conditions are...

  • Page 124
    form of a single fair value for individual securities for which a fair value has been requested under the terms of our agreements. For certain equity securities, valuation service providers provide market quotations for completed transactions on the measurement date. For other security types, fair ...

  • Page 125
    ... based on internal sources Fair value based on external sources(1) Total fixed income, equity and short-term securities Fair value of derivatives Mortgage loans, policy loans, bank loans and certain limited partnership and other investments, valued at cost, amortized cost and the equity method Total...

  • Page 126
    ... unanticipated new facts and circumstances emerge or existing facts and circumstances increase in significance and are anticipated to adversely impact a security's future valuations more than previously expected, including negative developments that would change the view of long term investors and...

  • Page 127
    ...of actual versus expected gross profits in a reporting period or when there is a change in total EGP. AGP and EGP consist primarily of the following components: contract charges for the cost of insurance less mortality costs and other benefits (benefit margin); investment income and realized capital...

  • Page 128
    ... of about two years to settle, 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...

  • Page 129
    ...each accident year, and the required reserves for each component are summed to create the reserve balance carried on our Consolidated Statements of Financial Position. Reserves are reestimated quarterly, by combining historical results with current actual results to calculate new development factors...

  • Page 130
    ... car prices. For auto physical damage coverages, we monitor our rate of increase in average cost per claim against a weighted average of the Maintenance and Repair price index and the Parts & Equipment price index. We believe our claim settlement initiatives, such as improvements to the claim review...

  • Page 131
    ... 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...

  • Page 132
    ...business segment, line of insurance, major components of losses (such as coverages and perils), and major states or groups of states for reported losses and IBNR forms the reserve liability recorded in the Consolidated Statements of Financial Position. Because of this detailed approach to developing...

  • Page 133
    ... liability policies issued in 1987 and thereafter contain annual aggregate limits 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...

  • Page 134
    ...many years; accordingly, the reserves are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses are used...

  • Page 135
    ... a lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in DAC. In 2007 and 2006, our reviews concluded that no premium deficiency adjustments were necessary, primarily due to projected income from traditional life insurance more than...

  • Page 136
    ... increase in the six month policy term average gross premium before reinsurance to $427 in 2008 from $422 in 2007 • 7.5% decrease in new issued applications in 2008 compared to 2007 â- Premium operating measures and statistics contributing to the overall Allstate brand homeowners premiums written...

  • Page 137
    ... and Discontinued Lines and Coverages. Allstate Protection comprises two brands, the Allstate brand and Encompassா brand. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto and homeowners insurance, to individuals in...

  • Page 138
    ... Premiums earned Net investment income Realized capital gains and losses Total revenues Costs and expenses Claims and claims expense Amortization of DAC Operating costs and expenses Restructuring and related charges Total costs and expenses Loss on disposition of operations Income tax benefit...

  • Page 139
    ..., insurance scoring based on information that is obtained from credit reports. We continue to expand the number of price points with successive rating program releases. Substantially all of new and approximately 88% of renewal business written for Allstate brand auto are rated using our pricing...

  • Page 140
    ... services and reduce infrastructure costs related to supporting agencies and handling claims. These actions and others are designed to optimize the effectiveness of our distribution and service channels by increasing the productivity of the Allstate brand's exclusive agencies and our direct channel...

  • Page 141
    ... business previously managed by Allstate Financial. Premiums written by brand are shown in the following table. Allstate brand 2008 2007 2006 Encompass brand 2008 2007 2006 Allstate Protection 2008 2007 2006 ($ in millions) Standard auto(1) Non-standard auto(1) Homeowners Other personal lines...

  • Page 142
    ... increase in average gross premium in 2008 compared to 2007, primarily due to rate changes, partially offset by deductible changes â- decline in the renewal ratio in 2008 compared to 2007 Our Allstate brand standard auto growth strategy includes actions such as the continued rollout of YCA policy...

  • Page 143
    ...certain agents and rate changes. Encompass brand strategy includes targeting high quality business including the package market and the continued rollout of Encompass Edge, which provides more segmented pricing of auto and homeowners coverage. Encompass brand standard auto premiums written decreased...

  • Page 144
    ... to new business production insufficient to offset the decline in polices available to renew â- 9.6% increase in new issued applications in 2007 compared to 2006 primarily due to the introduction of our Allstate Blue product â- comparable auto average gross premium in 2007 to 2006 Encompass brand...

  • Page 145
    ... and 2007. Examples of the impact of this strategy include our decision to cease writing new homeowners applications in California, to cease offering renewals on certain homeowners insurance policies in certain down-state locations in New York and to reduce PIF in coastal management areas (southern...

  • Page 146
    ...Other costs and expenses Restructuring and related charges Underwriting income Catastrophe losses Underwriting income by line of business Standard auto(1) Non-standard auto Homeowners Other personal lines(1) Underwriting income Underwriting income by brand Allstate brand Encompass brand Underwriting...

  • Page 147
    ... Ike and Gustav, respectively, on our auto, homeowners, commercial and other insurance products. These estimated claim counts include 129 thousand and 66 thousand for Hurricanes Ike and Gustav, respectively, that have been reported as of January 16, 2009. Catastrophe losses in 2008 also include...

  • Page 148
    ... auto to other personal lines to be consistent with the recording of excess liability policies' premiums and losses. Standard auto loss ratio for the Allstate brand increased 2.3 points in 2008 compared to 2007 due to increased catastrophe losses, unfavorable reserve reestimates in the current year...

  • Page 149
    ...spending on advertising and investments in marketing and technology for product and service innovations. The expense ratio for Encompass brand increased 1.2 points in 2008 compared to 2007 primarily due to lower earned premiums as well as increased state fund assessments and cost associated with the...

  • Page 150
    ..., including in Texas where we are ceding all wind exposure related to insured property located in all wind pool eligible areas along the coast including the Galveston Islands. â- We have ceased writing new homeowners business in California. We will continue to renew current policyholders and have...

  • Page 151
    ... basis for our personal lines property insurance in areas most exposed to hurricanes (for further information on our reinsurance program see the Property-Liability Claims and Claims Expense Reserves section of the MD&A); limiting personal homeowners new business writings in coastal areas in southern...

  • Page 152
    ... on preserving auto insurance margins by providing customer-focused products and services. Short-term growth will be limited reflecting a transition to a value-based strategy in the competitive environment as consumers buy fewer autos and choose lower product coverages, and reductions of catastrophe...

  • Page 153
    ... period and interim quarters. Amortized cost basis is used to calculate the average investment balance for fixed income securities and mortgage loans. Cost is used for equity securities. Cost or the equity method of accounting basis is used for limited partnership interests. Beginning in the fourth...

  • Page 154
    ... or increase of approximately $112 million in net income. The table below shows total net reserves as of December 31, 2008, 2007 and 2006 for Allstate brand, Encompass brand and Discontinued Lines and Coverages lines of business. ($ in millions) 2008 2007 2006 Allstate brand Encompass brand Total...

  • Page 155
    ...other personal lines to be consistent with the recording of excess liability policies' premiums and losses. Auto reserve reestimates in 2007 were primarily the result of auto severity development that was better than expected. Auto reserve reestimates in 2006 were primarily the result of auto injury...

  • Page 156
    ... table. Number of claims 2008 2007 2006 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, end of year Total Allstate Protection...

  • Page 157
    Management's Discussion and Analysis of Financial Condition and Results of Operations-(Continued) The following tables reflect the accident years to which the reestimates shown above are applicable for Allstate brand, Encompass brand and Discontinued Lines and Coverages lines of business. Favorable ...

  • Page 158
    ... Reserve reestimates Allstate brand underwriting income Reserve reestimates as a % of underwriting income Encompass brand settlement costs. $155 220 (70.5)% $ (167) $(1,085) 2,634 4,451 6.3% 24.4% Reserve reestimates in 2008, 2007 and 2006 were related to lower than anticipated claim The impact...

  • Page 159
    ... our ending reserves divided by payments made during the year. This is a commonly used but extremely simplistic and imprecise approach to measuring the adequacy of asbestos and environmental reserve levels. Many factors, such as mix of business, level of coverage provided and settlement procedures...

  • Page 160
    ...2007. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current and new policyholders and ceding companies. Pending, new, total closed and closed without payment claims for asbestos and environmental exposures for the years ended December 31...

  • Page 161
    ...MCCA'') National Flood Insurance Program (''NFIP'') New Jersey Unsatisfied Claim and Judgment Fund North Carolina Reinsurance Facility FHCF Other Total Asbestos, Environmental and Other Lloyd's of London (''Lloyd's'') Westport Insurance Corporation (formerly Employers Reinsurance Corporation) Harper...

  • Page 162
    ... Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes nationwide. Our program provides reinsurance protection to us for catastrophes including storms named or numbered by the National Weather Service...

  • Page 163
    ... securities and cash with a current market value less than $250 million. The Texas agreement provides coverage for Allstate Protection personal property excess catastrophe losses in Texas for hurricane catastrophe losses. The agreement was placed with Willow Re Ltd., which completed an offering...

  • Page 164
    ... June 1, 2009, should be similar in design to the current program, however containing limits based on reduced underlying exposure, assuming there is no further change in Florida insurance markets. Our current program comprises, four separate agreements entered into by Allstate Floridian for personal...

  • Page 165
    ... Continued focus on improving returns and reducing our concentration in spread based products, primarily fixed annuities and institutional markets products. â- Launched an initiative that will result in lower operating expenses in 2009 and 2010, and targeting annual savings of $90 million beginning...

  • Page 166
    ...structured settlement brokers. Allstate Bank products can also be obtained directly through a toll-free number. Our institutional product line consists primarily of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors...

  • Page 167
    ... in millions) 2006 Life and annuity premiums and contract charges Net investment income Realized capital gains and losses Total revenues Life and annuity contract benefits Interest credited to contractholder funds Amortization of deferred policy acquisition costs Operating costs and expenses Total...

  • Page 168
    ... reporting reclassification, total premiums decreased 2.3% in 2008 compared to 2007 as higher sales of accident and health insurance and traditional life insurance products were more than offset by lower sales of immediate annuities with life contingencies due to highly competitive market conditions...

  • Page 169
    ... arising from the sale of individual and institutional products, such as interest-sensitive life insurance, fixed annuities, funding agreements and bank deposits. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less...

  • Page 170
    ...by lower contract benefits on annuities. The increase in contract benefits on life insurance products was primarily due to unfavorable mortality experience, partially offset by the recognition in the prior year period of litigation related costs in the form of additional policy benefits. The decline...

  • Page 171
    ... by lower contract benefits on annuities. Increased contract benefits on life insurance products in 2007 were primarily due to unfavorable mortality experience, litigation related costs recognized in 2007 in the form of additional policy benefits on certain universal life policies written prior to...

  • Page 172
    ...other Reserve for life-contingent contract benefits Interest-sensitive life insurance Deferred fixed annuities Immediate fixed annuities without life contingencies Institutional products Allstate Bank Market value adjustments related to fair value hedges and other Contractholder funds $ 8,355 4,526...

  • Page 173
    ...for the present value of future profits related to a block of corporate owned life insurance policies that terminated due to the bankruptcy of the policyholder. The changes in the DAC asset are detailed in the following tables. Beginning balance Acquisition December 31, costs 2007 deferred Accretion...

  • Page 174
    ... research, product development, marketing and technology related to the effort to reinvent protection and retirement for consumers as well as increases in the net cost of benefits due to unfavorable investment results. In addition, the prior years benefitted to a greater degree from a servicing fee...

  • Page 175
    ...of Operations-(Continued) Amounts recoverable from reinsurers by type of policy or contract at December 31, are summarized in the following table. Reinsurance recoverable on paid and unpaid benefits 2008 2007 ($ in millions) Annuities(1) Life insurance Long-term care Other Total Allstate Financial...

  • Page 176
    ... 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. We employ a strategic asset allocation approach, which uses models that consider the nature of the liabilities and risk...

  • Page 177
    ... portfolio interest rate risk, credit spread risk, and equity market valuation declines. The equity hedge was designed to protect the equity portfolio from significant equity market valuation declines below targeted levels. The strategy employed equity indexed options which generated realized...

  • Page 178
    ...statements for investment accounting policies and additional information. Property-Liability Percent to total Allstate Financial(5) Percent to total Corporate and Other(5) Percent to total Total Percent to total ($ in millions) Fixed income securities(1) Equity securities(2) Mortgage loans Limited...

  • Page 179
    ... form of cash, in an amount generally equal to 102% to 105% of the fair value of domestic and foreign securities, respectively, and monitor the market value of the securities loaned on a daily basis with additional collateral obtained as necessary. The cash we receive is invested in short-term and...

  • Page 180
    ... includes 67 securities with a fair value totaling $317 million that have not yet received an NAIC rating, for which we have assigned a comparable internal rating. Due to lags between the funding of an investment, execution of final legal documents, filing with the Securities Valuation Office (''SVO...

  • Page 181
    ..., fair value of $1.73 billion and unrealized gains/ losses of $(176) million. Moody's equivalent rating will not necessarily tie to ratings distributions from the NAIC due to potential timing differences between the various rating suppliers and the number of external rating agencies used in the...

  • Page 182
    .... Privately placed securities primarily consist of corporate issued senior debt securities that are in unregistered form and are directly negotiated with the borrower. All privately placed corporate securities are rated by the NAIC based on information provided to them and are also internally rated...

  • Page 183
    ... security value of approximately $21 million. Privately placed corporate obligations generally benefit from increased yields and structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk...

  • Page 184
    ...by analyzing available market information including, but not limited to, collateral quality, anticipated cash flows, credit enhancements, default rates, loss severities, securities' relative position within their respective capital structures, and credit ratings from statistical rating agencies. 74...

  • Page 185
    ...3,681 137 2,296 $14,168 3,174 10 1,894 $12,524 Amortized cost includes other-than-temporary impairment charges, as applicable. The difference between par value and amortized cost of $1.64 billion is primarily attributable to write-downs. Par value has been reduced by principal payments. MD&A 75

  • Page 186
    ... order and are designed so that each security issued qualifies for a specific original rating. The security issue is typically referred to as the ''class''. For example, the ''senior'' portion or ''top'' of the capital structure which would originally qualify for a rating of Aaa is referred...

  • Page 187
    ... impairment charges, as applicable. May not be consistent with current ratings due to downgrades. CMBS totaled $3.85 billion, with 99.9% rated investment grade, at December 31, 2008. The CMBS portfolio is subject to credit risk, but unlike other structured securities, is generally not subject...

  • Page 188
    ... macro economic conditions and continued credit market deterioration. Credit spread widening occurred in all rating classes but was particularly evident in our subordinated senior Aaa, Pre-2005 Aaa-rated and lower rated securities. These holdings accounted for $1.66 billion, or approximately...

  • Page 189
    ... rate risk since ultimate realized yields are affected by the rate of prepayment of the underlying assets. ABS RMBS includes securities that are collateralized by mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history...

  • Page 190
    ... year ended December 31, 2008, there were no change in intent write-downs. 80 MD&A Other CDO totaled $778 million, with 94.0% rated investment grade, at December 31, 2008. Other CDO consist primarily of obligations secured by high yield and investment grade corporate credits including cash flow...

  • Page 191
    ...to enhance returns and the structure is governed by market value based tests. The managers are also offered more flexibility to purchase other asset types including secured leveraged loans, public and private high yield bonds, structured products, mezzanine investments, and equities. Project finance...

  • Page 192
    ...contractual cash flows. As of December 31, 2008, 48.2% of our insured municipal bond portfolio was insured by MBIA, Inc., 24.7% by Ambac Financial Group, Inc., 19.8% by Financial Security Assurance Inc. and 2.7% by Financial Guarantee Insurance Company. Credit ratings without the insurance guarantee...

  • Page 193
    ...due to the nature of the investment management style employed. There were no equity securities effectively carried on a lower of cost or fair value as of December 31, 2007. Mortgage loans Our mortgage loan portfolio, which is primarily held in the Allstate Financial portfolio, was $10.23 billion and...

  • Page 194
    ... calendar year investment market changes as they will ultimately impact the valuation of the underlying assets or liabilities within the partnerships. Limited partnership interests accounted for under the cost method of accounting recognize income only upon cash distributions by the partnership. 84...

  • Page 195
    ... cost. Policy loans are carried at the unpaid principal balances. Credit default swaps (''CDS'') are utilized for both buying and selling credit protection against a specified credit event. In selling protection, CDS are used to replicate fixed income securities and to complement the cash market...

  • Page 196
    ...balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although we evaluate premium deficiencies on the combined performance of our life insurance and immediate annuities...

  • Page 197
    ... terms. Credit spreads vary with the market's perception of risk and liquidity in a specific issuer or specific sectors. Credit spreads can widen (increase) or tighten (decrease) and may offset or add to the effects of risk-free interest rate changes in the valuation of fixed income securities...

  • Page 198
    ... using Moody's equivalent rating of the fixed income securities with gross unrealized losses at December 31, 2008. Rating(1) In or Total Caa or near unrealized lower default loss Fair value ($ in millions) Aaa Aa A Baa Ba B At December 31, 2008 Corporate: Banking Financial services Consumer...

  • Page 199
    Management's Discussion and Analysis of Financial Condition and Results of Operations-(Continued) For fixed income securities, 60.4% of the gross unrealized losses at December 31, 2008 were from $5.83 billion of securities with a fair value below 70% of amortized cost, or 8.5% of our fixed income ...

  • Page 200
    ... reasons such as negative developments that would change the view of long term investors and their intent to continue to hold the investment, subsequent credit deterioration of an issuer or holding, subsequent further deterioration of capital markets (i.e. debt and equity) and of economic conditions...

  • Page 201
    ... consecutive months prior to December 31, 2008. Included among the securities rated below investment grade are high-yield bonds and securities that were investment grade when originally acquired. We mitigate the credit risk of investing in below investment grade fixed income securities by limiting...

  • Page 202
    ... income and bank loan investments have rates and terms that are not consistent with market rates or terms prevailing at the time of the restructuring. Potential problem fixed income or bank loan investments are current with respect to contractual principal and/or interest, but because of other facts...

  • Page 203
    ... securities collateralized by residential and commercial mortgage loans, as well as market value, cash flow and synthetic CDO. Also contributing to the increase were financial sector-related holdings and corporates, primarily privately placed. The amortized cost of potential problem investments...

  • Page 204
    ... securities. Fair value at sales (''proceeds'') Gain/ loss on Sales Writedowns December 31, 2008 holdings(1) Net unrealized gain (loss) ($ in millions) Finance company Savings and loan MBS Alt-A Large international insurer Brokerage Synthetic CDO Exchange traded funds-Dow Jones Financial Index...

  • Page 205
    ... the securities until recovery. Impairment write-downs for the years ended December 31 are presented in the following table. ($ in millions) 2008 2007 2006 Fixed income securities Equity securities Limited partnership interests Short-term investments Other investments Total impairment write-downs...

  • Page 206
    ... Residual interest trust security Equity structured note Financials Subtotal(2) Future cash flows very uncertainOther CDO ABS RMBS Corporate Bond insurer Financials Other Subtotal Investments disposed Total fixed income securities(4) Total equity securities Total limited partnership interests Total...

  • Page 207
    ...our risk mitigation and return optimization programs, enterprise asset allocations and ongoing comprehensive reviews of our portfolios. Change in intent write-downs for year ended December 31, 2008 are presented in the table below. ($ in millions) Criteria Security type SFAS No. 157 level Fair value...

  • Page 208
    ... of our enterprise-wide asset allocation program and $688 million related to individual securities. The following table summarizes the activity related to investments for which we had changed our intent to hold. ($ in millions) Carrying value as of June 30, 2008 Re-designated as intent to hold to...

  • Page 209
    ..., including $510 million of losses for the accounting valuation of embedded options in equity indexed notes and convertible fixed income securities, partially offset by $486 million of gains on the settlement of derivative instruments. For the year ended December 31, 2007, net realized capital gains...

  • Page 210
    ... cash settled and can be exited at any time for minimal additional cost. The 2008 YTD settlement gains on futures offset the decline in our unrealized gains on equity securities as equity markets declined. Exchange traded put options provide an offset to significant declines in equity market values...

  • Page 211
    ...Liability Total Income generation Accounting Equity indexed notes- Allstate Financial - (1) (84) (43) (84) (44) 16 106 - (111) Settlement loss was a result of the decline in equity markets. The settlement losses are the result of decreasing returns on the underlying commodity index. There were...

  • Page 212
    ... and losses are detailed in the following table for the year ended December 31, 2008. ($ in millions) Valuation Settlement Total Portfolio duration management Interest rate spike exposure Hedging unrealized gains on equity securities Credit risk hedging Total $ 38 (81) (48) 25 $(66) 1 (16) 342...

  • Page 213
    ... government ABS-Credit card, auto and student loans Total fixed income securities Equity securities: U.S. equities International equities Other Total equity securities Short-term investments: Commercial paper and other Money market funds Total short-term investments Other investments: Free-standing...

  • Page 214
    ... Fixed income securities: Corporate Corporate privately placed securities Municipal Municipal-ARS ABS RMBS Alt-A Other CDO Other ABS ABS CDO CRE CDO CMBS Preferred stock MBS Foreign government ABS-Credit card, auto and student loans Total fixed income securities Equity securities Other investments...

  • Page 215
    ... Fixed income securities: Corporate Corporate privately placed securities Municipal Municipal-ARS ABS RMBS Alt-A Other CDO Other ABS ABS CDO CRE CDO CMBS Preferred stock MBS ABS-Credit card, auto and student loans Total fixed income securities Equity securities: U.S. equities International equities...

  • Page 216
    ... boards of directors. These ALM policies specify limits, ranges and/or targets for investments that best meet Allstate Financial's business objectives in light of its product liabilities. We manage our exposure to market risk through the use of asset allocation, duration and value-at-risk limits...

  • Page 217
    ... 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 spreads across a wide variety of interest rate and economic scenarios. To achieve this objective and limit interest rate risk for Allstate...

  • Page 218
    ... the calculation has decreased from the $7.77 billion reported at December 31, 2007 due to capital market changes. Based on assumptions described above, in the event of a 100 basis point immediate increase in interest rates, the assets supporting life insurance products would decrease in value by...

  • Page 219
    ... due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including real estate funds, and our Canadian operations. We also have certain funding agreement programs and a small amount of fixed income securities that are denominated...

  • Page 220
    ... Board Statement of Financial Accounting Standards (''SFAS'') No. 87, ''Employers' Accounting for Pensions,'' the market-related value component of expected returns recognizes plan losses and gains on equity securities over a five-year period, which we believe is consistent with the long-term...

  • Page 221
    ... in the expected long-term rate of return on plan assets would result in a decrease in net periodic pension cost of $48 million at December 31, 2008, compared to $48 million at January 1, 2008. We target funding levels that do not restrict the payment of plan benefits in our domestic plans and were...

  • Page 222
    ... assets and an increase in the discount rate of the pension plans, and lower than assumed claims experience in the other postretirement employee benefit plans. The favorable change to the unrecognized pension and other postretirement benefit cost had an impact on shareholders' equity of $580 million...

  • Page 223
    ... agency. Allstate New Jersey Insurance Company and Encompass Insurance Company of New Jersey, which write auto and homeowners insurance, are rated A- by A.M. Best. Allstate New Jersey Insurance Company also has a Demotech rating of A''. On October 29, 2008, A.M. Best placed The Allstate Corporation...

  • Page 224
    ... for calculating RBC for life insurance companies takes into account factors relating to insurance, business, asset and interest rate risks. At December 31, 2008, the RBC for each of our domestic insurance companies was within the range that we target. The NAIC has also developed a set of financial...

  • Page 225
    ... of investment repurchase agreements, securities lending, dollar roll, commercial paper and line of credit agreements Payment or repayment of inter-company loans Capital contributions to subsidiaries Dividends to shareholders/parent company Tax payments/settlements Share repurchases Debt service...

  • Page 226
    ... sales of certain Allstate Financial products. Additionally, we have existing intercompany agreements in place that facilitate liquidity management at an enterprise level and enhance flexibility across the Company. To increase new money for investing, we have initiated actions to accelerate the...

  • Page 227
    ... credit facility. â- A universal shelf registration statement was filed with the Securities and Exchange Commission in May 2006 and will expire May 2009. In April 2009, we expect to ask our board of directors for authority to file a replacement universal shelf registration. We can use our current...

  • Page 228
    ... current or unexpected need for cash or a change in life insurance coverage needs. Other key factors that may impact the likelihood of customer surrender include the level of the contract surrender charge, the length of time the contract has been in force, distribution channel, market interest rates...

  • Page 229
    ... annuity business. Cash flows provided by investing activities increased in 2008 compared to 2007, primarily due to decreased purchases of fixed income securities and mortgage loans, partially offset by lower investment collections and net change in short-term investments. Cash flows from investing...

  • Page 230
    ... annuities, traditional life and immediate annuities with life contingencies and voluntary accident and health insurance, involve payment obligations where a portion or all of the amount and timing of future payments is uncertain. For these contracts and bank deposits, the Company is not currently...

  • Page 231
    ...of achieving Allstate's objectives â- Allows Allstate to pursue a return commensurate with the risks taken Allstate's Board of Directors and Audit Committee provide enterprise risk management oversight by reviewing enterprise principles, guidelines and limits for Allstate's significant risks and by...

  • Page 232
    ... to credit exposures through credit value at risk measurements. As appropriate, consistent enterprise-wide measurement standards and limits are applied to key risks and are integrated into such processes as strategic and financial planning, capital management and enterprise risk reporting. Business...

  • Page 233
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2008 2007 2006 ($ in millions, except per share data) Revenues Property-liability insurance premiums (net of reinsurance ceded of $1,139, $1,356 and $1,113) Life and annuity premiums and ...

  • Page 234
    THE ALLSTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2008 2007 2006 ($ in millions, except per share data) Net (loss) income Other comprehensive loss, after-tax Changes in: Unrealized net capital gains and losses Unrealized foreign ...

  • Page 235
    ..., at fair value (amortized cost $77,104 and $93,495) Equity securities, at fair value (cost $3,137 and $4,267) Mortgage loans Limited partnership interests Short-term, at fair value (amortized cost $8,903 and $3,058) Other Total investments Cash Premium installment receivables, net Deferred policy...

  • Page 236
    ...a change in accounting principle Balance, end of year Deferred ESOP expense Balance, beginning of year Payments Balance, end of year Treasury stock Balance, beginning of year Shares acquired Shares reissued under equity incentive plans, net Balance, end of year Accumulated other comprehensive income...

  • Page 237
    ... Fixed income securities Equity securities Limited partnership interests Mortgage loans Other investments Change in short-term investments, net Change in other investments, net (Acquisition) disposition of operations Purchases of property and equipment, net Net cash provided by (used in) investing...

  • Page 238
    ..., life insurance, annuities, funding agreements, and select commercial property and casualty coverages. Allstate primarily distributes its products through exclusive agencies, financial specialists and independent agencies. The Allstate Protection segment principally sells private passenger auto and...

  • Page 239
    ... the Company's product lines by substantially increasing the number, size and financial strength of potential competitors. The Company currently benefits from agreements with financial services entities that market and distribute its products; change in control of these non-affiliated entities could...

  • Page 240
    ..., including money market funds, commercial paper and other short-term investments, are carried at fair value. Other investments consist primarily of policy loans and bank loans. Bank loans are comprised primarily of senior secured corporate loans which are carried at amortized cost. Policy loans are...

  • Page 241
    ... traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers. Level 2 measurements • Fixed income securities: Corporate, including privately placed: Valued based on inputs including quoted prices for identical or similar assets in markets that...

  • Page 242
    ... similar assets in markets that are not active. • Short-term: Commercial paper and other short-term investments are valued based on quoted prices for identical or similar assets in markets that are not active or amortized cost. • Other investments: Free-standing exchange listed derivatives that...

  • Page 243
    ... such quotations and market observable data. The fair value of privately placed fixed income securities was generally based on widely accepted pricing valuation models, which were developed internally. The valuation models used security specific information such as the credit rating of the issuer...

  • Page 244
    ...investment income or interest credited to contractholder funds. The amortized cost for fixed income securities, the carrying value for mortgage loans or the carrying value of the hedged liability is adjusted for the change in the fair value of the hedged risk. Cash flow hedges The Company designates...

  • Page 245
    ..., interest rate cap and floor agreements, swaptions, foreign currency forward and option contracts and credit default swaps. In addition to the use of credit default swaps for credit risk management strategies, the Company replicates fixed income securities using a combination of a credit default...

  • Page 246
    ... of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Benefits are reflected in life and annuity contract benefits and recognized in relation to premiums, so...

  • Page 247
    ... CONSOLIDATED FINANCIAL STATEMENTS-(Continued) are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed annuities and indexed funding agreements are generally based on a specified interest rate index...

  • Page 248
    ... 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 249
    ... in current results of operations (see Note 7). The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary health products, is computed on the basis of long-term actuarial assumptions...

  • Page 250
    ... service is rendered. The Company uses a binomial lattice model to determine the fair value of employee stock options. Off-balance-sheet financial instruments Commitments to invest, commitments to purchase private placement securities, commitments to fund mortgage loans, financial guarantees...

  • Page 251
    ... 548.7 million for the year ended December 31, 2008. The effect of dilutive potential common shares does not include the effect of options with an anti-dilutive effect on earnings per share because their exercise prices exceed the average market price of Allstate common shares during the period or...

  • Page 252
    ..., an option to report selected financial assets, including investment securities, and financial liabilities, including most insurance contracts, at fair value through earnings. SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that...

  • Page 253
    ...Certified Public Accountants (''AICPA'') issued SOP 05-1. SOP 05-1 provides accounting guidance for DAC associated with internal replacements of insurance and investment contracts other than those set forth in SFAS No. 97, ''Accounting and Reporting by Insurance Enterprises for Certain Long-Duration...

  • Page 254
    ...subsequent income recognition for impaired debt securities. The Company adopted FSP FAS 115-1/124-1 as of January 1, 2006 on a prospective basis. The effects of adoption did not have a material effect on the results of operations or financial position of the Company. SFAS No. 154, Accounting Changes...

  • Page 255
    ... of operations or financial position of the Company. FASB Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (''FSP FAS 123(R)-3'') FSP FAS 123(R)-3 provided companies an option to elect an alternative calculation method...

  • Page 256
    ...for derivatives currently accounted for in accordance with SFAS No. 133. The new disclosures are designed to enhance the understanding of how and why an entity uses derivative instruments and how derivative instruments affect an entity's financial position, results of operations, and cash flows. The...

  • Page 257
    ... on the Consolidated Statements of Operations. The coinsurance provisions of the Reinsurance Agreements were used to transfer the future rights and obligations related to fixed-return fund options and benefit guarantees. $1.37 billion of assets supporting general account liabilities have been...

  • Page 258
    ...products through the Allstate proprietary agency force for three years and a non-exclusive preferred provider for the following two years. During a transition period which ended May 2008, ALIC and ALNY continued to issue new variable annuity contracts, accept additional deposits on existing business...

  • Page 259
    ... for the years ended December 31 are as follows: ($ in millions) 2008 2007 2006 Net change in proceeds managed Net change in fixed income securities Net change in short-term investments Operating cash flow provided (used) Net change in cash Net change in proceeds managed Net change in liabilities...

  • Page 260
    5. Investments Fair values The amortized cost, gross unrealized gains and losses, and fair value for fixed income securities are as follows: Amortized cost Gross unrealized Gains Losses Fair value ($ in millions) At December 31, 2008 U.S. government and agencies Municipal Corporate Foreign ...

  • Page 261
    ... FINANCIAL STATEMENTS-(Continued) Net investment income Net investment income for the years ended December 31 is as follows: ($ in millions) 2008 2007 2006 Fixed income securities Equity securities Mortgage loans Limited partnership interests Other Investment income, before expense Investment...

  • Page 262
    ...balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although we evaluate premium deficiencies on the combined performance of our life insurance and immediate annuities...

  • Page 263
    ... value has been less than amortized cost for fixed income securities, or cost for equity securities; 4) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry conditions and trends, and implications of rating agency actions and offering prices...

  • Page 264
    The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position. Less than 12 months 12 months or more Number Number Total of Fair Unrealized of Fair ...

  • Page 265
    ... investment. In 2008 and 2007, the Company had write-downs of $29 million and $18 million, respectively, related to equity-method limited partnership interests. No write-downs were recognized in 2006. As of December 31, 2008 and 2007, the carrying value for cost-method limited partnership interests...

  • Page 266
    ... at December 31. (% of municipal bond portfolio carrying value) 2008 2007 California Texas Florida 12.1% 12.3% 10.3 11.4 5.5 5.0 The Company's mortgage loans are collateralized by a variety of commercial real estate property types located throughout the United States. Substantially all of the...

  • Page 267
    ... 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 include securities lending programs with third parties, mostly large banks. At December 31, 2008 and 2007, fixed income and...

  • Page 268
    ...securities Short-term investments Other investments: Free-standing derivatives Total recurring basis assets Non-recurring basis Valued at cost, amortized cost or using the equity method Counterparty and cash collateral netting(1) Total investments Separate account assets Other assets Total financial...

  • Page 269
    ... Net instruments Statement of and transfers in Balance as of still held at Financial settlements, and/or (out) December 31, December 31, Position net of Level 3 2008 2008(4) ($ in millions) Net income(1) Financial assets Fixed income securities Equity securities Other investments: Free-standing...

  • Page 270
    .... Financial assets December 31, 2008 Carrying value Fair value December 31, 2007 Carrying value Fair value ($ in millions) Fixed income securities Equity securities Mortgage loans Limited partnership interests-cost basis Short-term investments Bank loans Free-standing derivatives Separate accounts...

  • Page 271
    ...and financial futures and options for hedging the Company's equity exposure contained in equity indexed annuity product contracts that offer equity returns to contractholders. In addition, Allstate Financial also uses interest rate swaps to hedge interest rate risk inherent in funding agreements and...

  • Page 272
    ... netting agreements. The net impact to pre-tax income includes valuation and settlements of derivatives which are reported in net income as described in Note 2. For those derivatives which qualify for fair value hedge accounting, it also includes the changes in the fair value of the hedged risk, and...

  • Page 273
    ...-selling protection Embedded derivative financial instruments Guaranteed accumulation benefit Guaranteed withdrawal benefit Conversion options in fixed income securities Equity-indexed call options in fixed income securities Equity-indexed and forward starting options in life and annuity product...

  • Page 274
    ...-selling protection Embedded derivative financial instruments Guaranteed accumulation benefit Guaranteed withdrawal benefit Conversion options in fixed income securities Equity-indexed call options in fixed income securities Equity-indexed and forward starting options in life and annuity product...

  • Page 275
    ... or an index based on the credit risk of a group of entities (all commonly referred to as the ''reference entity'' or a portfolio of ''reference entities''), for a periodic premium. In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit...

  • Page 276
    ... settlement may afford the Company with recovery rights as the new owner of the asset. The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level. The ratings of individual...

  • Page 277
    ... investors that are managed by Allstate Investment Management Company, a subsidiary of the Company. Their assets primarily consist of investment securities and cash, and the liabilities consist primarily of long-term debt. The Company's maximum loss exposure related to the VIEs is the amortized cost...

  • Page 278
    ... claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, law changes, court decisions, changes to regulatory requirements and economic conditions. In the normal course of business, the Company may also supplement its claims processes...

  • Page 279
    ...for Life-Contingent Contract Benefits and Contractholder Funds At December 31, the reserve for life-contingent contract benefits consists of the following: ($ in millions) 2008 2007 Immediate fixed annuities: Structured settlement annuities Other immediate fixed annuities Traditional life insurance...

  • Page 280
    ... level premium reserve method using the Company's withdrawal experience rates Projected benefit ratio applied to cumulative assessments Unearned premium; additional contract reserves for traditional life insurance Other: Variable annuity guaranteed minimum death benefits(1) Accident and health 100...

  • Page 281
    ... to market value adjustment for discretionary withdrawals Not applicable Fixed annuities Funding agreements backing medium-term notes Other investment contracts: Variable guaranteed minimum income benefit(1) and secondary guarantees on interest-sensitive life insurance and fixed annuities Allstate...

  • Page 282
    ...' funds may not meet their stated investment objectives. The account balances of variable annuities contracts' separate accounts with guarantees included $7.07 billion and $13.32 billion of equity, fixed income and balanced mutual funds and $730 million and $661 million of money market mutual funds...

  • Page 283
    ... the liabilities for guarantees: Liability for guarantees related to death benefits and interestsensitive life products Liability for guarantees related to accumulation and withdrawal benefits ($ in millions) Liability for guarantees related to income benefits Total Balance, December 31, 2006...

  • Page 284
    ...964 The Company purchases reinsurance after evaluating the financial condition of the reinsurer, as well as the terms and price of coverage. Developments in the insurance and reinsurance industries have fostered a movement to segregate asbestos, environmental and other discontinued lines exposures...

  • Page 285
    ...$440 thousand per claim for the fiscal years ending June 30, 2008 and 2009, respectively. The MCCA is funded by assessments from member companies who, in turn, can recover assessments from policyholders. Ceded premiums earned under the Florida Hurricane Catastrophe Fund (''FHCF'') agreement were $26...

  • Page 286
    ...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. Allstate Financial cedes 100% of the morbidity risk on substantially all of its long-term care contracts. Allstate...

  • Page 287
    ...Annuities Life insurance Long-term care insurance Other Total Allstate Financial $1,734 1,475 746 96 $4,051 $1,423 1,373 619 97 $3,512 At December 31, 2008 and 2007, approximately 93% and 88%, respectively, of Allstate Financial's reinsurance recoverables are due from companies rated A- or better...

  • Page 288
    ... in Note 3, DAC and DSI balances were reduced during 2006 related to the disposal through reinsurance agreements of substantially all of the variable annuity business. DSI activity for Allstate Financial, which primarily relates to fixed annuities, for the years ended December 31 was as follows...

  • Page 289
    ...respectively. To manage short-term liquidity, Allstate can issue commercial paper, draw on its credit facilities and engage in securities repurchase agreements (see Note 2). The Company currently maintains a commercial paper program and a credit facility as a potential source of funds. These include...

  • Page 290
    ... these programs, and non-cash charges resulting from pension benefit payments made to agents in connection with the 1999 reorganization of Allstate's multiple agency programs to a single exclusive agency program and the Company's 2006 voluntary termination offer (''VTO''). The expenses related to...

  • Page 291
    ... of Florida property premiums industry-wide for the prior year. Prior to July 2008, the assessment rate was 10%. The base of ''assessable insurers'' includes all property and casualty premiums in the state, except workers' compensation, medical malpractice, accident and health insurance and policies...

  • Page 292
    ... losses. The CEA is a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Insurers selling homeowners insurance in California are required to offer earthquake insurance to their customers either through their company or by participation in...

  • Page 293
    ... to write new business and pay dividends under certain circumstances. Management does not believe this agreement will have a material adverse effect on results of operations, cash flows or financial position of the Company. Guarantees The Company provides residual value guarantees on Company leased...

  • Page 294
    ... and restrict premium rates, require premium refunds to policyholders, restrict the ability of insurers to cancel or non-renew policies, require insurers to continue to write new policies or limit their ability to write new policies, limit insurers' ability to change coverage terms or to impose...

  • Page 295
    ... a material adverse effect on the financial position of the Company. Proceedings There are a number of state and nationwide class action lawsuits pending in various state courts challenging the legal propriety of Allstate's medical bill review processes on a number of grounds, including the manner...

  • Page 296
    ...Mississippi. The Assistant U.S. Attorney has requested the Company to provide additional information with respect to claim handling. The Company is in the process of gathering this information. Other insurers have received similar subpoenas and requests for information. Allstate is defending various...

  • Page 297
    ... actions, including state market conduct exams, and other governmental and regulatory inquiries are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of a number of class action...

  • Page 298
    .... The Internal Revenue Service (''IRS'') is currently examining the Company's 2005 and 2006 federal income tax returns. The IRS examination of the Company's 2003 and 2004 tax returns is complete, and a closing agreement documenting the settlement of that audit was signed by the Company and the...

  • Page 299
    ... of limitations Balance-end of year $ 76 1 - 4 - (60) - $ 21 $48 2 - 15 - 11 - $76 The Company believes it is reasonably possible that the liability balance will not significantly increase or decrease within the next twelve months. Because of the impact of deferred tax accounting, recognition of...

  • Page 300
    ... in the Allstate Financial segment. The commissioner of the Illinois Division of Insurance has permitted ALIC to record its market value adjusted annuity assets and liabilities at book value pursuant to the Illinois Insurance Code which provides an alternative from market value accounting with...

  • Page 301
    ... plans Defined benefit pension plans cover most full-time employees, certain part-time employees and employeeagents. Benefits under the pension plans are based upon the employee's length of service and eligible annual compensation. A cash balance formula was added to the Allstate Retirement Plan...

  • Page 302
    ... net actuarial pension benefit losses not yet recognized as a component of net periodic pension cost in 2008 reflects the effect of unfavorable equity market conditions on the value of the pension plan assets, and to a lesser extent decreases in the discount rate in prior years. The increase of $161...

  • Page 303
    ...net pension cost and net postretirement benefit cost for the years ended December 31 are: Pension benefits 2007 Postretirement benefits 2008 2007 2006 Notes ($ in millions) 2008 2006 Weighted average discount rate Rate of increase in compensation levels Expected long-term rate of return on plan...

  • Page 304
    .... Pension benefits 2008 2007 Postretirement benefits 2008 2007 Discount rate Rate of increase in compensation levels 7.50% 4.0-4.5 6.50% 4.0-4.5 7.75% n/a 6.50% n/a The weighted average health care cost trend rate used in measuring the accumulated postretirement benefit cost is 8.0% for 2009...

  • Page 305
    ..., with the exception of those employed by the Company's international subsidiaries and Sterling Collision Centers (''Sterling'') subsidiary, are eligible to become members of The Savings and Profit Sharing Fund of Allstate Employees (''Allstate Plan''). The Company's contributions are based on the...

  • Page 306
    ... employees and directors of the Company. The total compensation expense related to equity awards was $85 million, $90 million and $98 million and the total income tax benefits were $29 million, $30 million and $34 million for the years ended December 31, 2008, 2007 and 2006, respectively. Total cash...

  • Page 307
    ...CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The expected dividends are based on the current dividend yield of the Company's stock as of the date of the grant. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of...

  • Page 308
    ...the commercial and reinsurance businesses sold in 1996. The Company evaluates the results of this segment based upon underwriting results. Allstate Financial sells life insurance, retirement and investment products and voluntary accident and health insurance to individual and institutional customers...

  • Page 309
    ... Standard auto Non-standard auto Homeowners Other personal lines Allstate Protection Discontinued Lines and Coverages Total property-liability insurance premiums earned Net investment income Realized capital gains and losses Total Property-Liability Allstate Financial Life and annuity premiums and...

  • Page 310
    ... Allstate Financial Life and annuity premiums and contract charges Net investment income Periodic settlements and accruals on non-hedge derivative financial instruments Contract benefits and interest credited to contractholder funds Operating costs and expenses and amortization of deferred policy...

  • Page 311
    ... FINANCIAL STATEMENTS-(Continued) Additional significant financial performance data for each of the Company's reportable segments for the years ended December 31 are as follows: ($ in millions) 2008 2007 2006 Amortization of DAC Property-Liability Allstate Financial Consolidated Income tax (benefit...

  • Page 312
    ... 2007 $7,320 (923) (1.71) (1.71) $8,992 978 1.70 1.70 Fourth Quarter 2008 2007 $ 6,569 (1,129) (2.11) (2.11) $8,991 760 1.38 1.36 ($ in millions, except per share data) Revenues Net income (loss) Net income (loss) earnings per share-Basic Net income (loss) earnings per share-Diluted 202 Notes

  • Page 313
    ...31, 2008 and 2007, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows for each of the three years in the period ended December 31, 2008. We also have audited the Company's internal control over financial reporting as of December 31, 2008...

  • Page 314
    ...Northbrook, IL 60062-6127 CODE OF ETHICS 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, 2008, by contacting: Investor...

  • Page 315
    The Allstate Corporation 2775 Sanders Road, Northbrook, IL 60062-6127 www.allstate.com/annualreport