The Allstate Corporation (ALL, NYSE)
Industry: Insurance - Property & Casualty
Annual report, fiscal year 2010



## Customers first.

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




## Fellow shareholders,

In this time of rapid economic, political and physical changes in our world, a report on the twelve months of 2010 seems incomplete. While 2010 was a year of harvesting and building, one cannot fully appreciate what that means without discussing the prior several years. So instead of just one year,

I will cover Allstate’s journey since 2007 and the new initiatives underway to further increase the value of your investment.

## PROACTIVE ACTIONS PROTECTED ALLSTATE

Looking back to 2007, the U.S. economy was growing, investment markets were stable and we had a relatively light year of catastrophe losses. Our concern at the time was that our growth strategy was not yielding strong enough results and the investment markets were overleveraged. In response, we introduced Our Shared Vision to reinvent protection and retirement for the consumer. Our belief at the time—which remains so today—was that we must differentiate ourselves from the competition by putting the customer at the center of our business model. In my letter that year, I also talked of how we instituted a risk mitigation and return optimization program and began reducing our investment holdings in financial institutions and real estate. We finished 2007 with strong financial results, as net income was $4.6 billion. The stock price closed the year at $52.23, which represented a book value multiple of 1.4 times.

The two subsequent years were filled with turmoil in the financial markets and high catastrophe losses. We proactively protected shareholder value and adapted our business to the changing environment. Risk mitigation efforts were accelerated by further reducing investments in financial firms and real estate and initiating interest rate and equity hedges to protect the company’s capital. We were right about the direction of the investment markets, but underestimated the severity of the economic implications.

The emergence of high catastrophe losses from regional events also led us to adapt by significantly increasing prices on homeowners insurance and focusing our efforts on multi-line customers. Despite rate increases, this business significantly underperformed our goals for return on capital. At the same time, Allstate Financial undertook its “Focus To Win” initiative to downsize its annuity business and lower costs. We implemented modest increases in auto insurance prices to maintain profitability even though we knew this would negatively impact growth.
From all accounts, it was a tough two years, but Allstate recovered. Net income went from a loss of $1.7 billion in 2008 to a profit of $854 million in 2009. We remained financially strong and avoided the need to utilize TARP funding that was accessed by some of our competitors. To protect capital levels, a share repurchase program was stopped and the annualized dividend was reduced to 80 cents per share. Book value ended 2009 at $30.84 and the share price was $30.04, a book value multiple of 0.97.

## ACHIEVED OUR 2010 FINANCIAL GOALS

2010 benefited from the proactive steps taken over the prior three years. Net income improved by 9% to $928 million in 2010 versus 2009 and operating income* was $1.5 billion, despite another year of high regional catastrophe losses. We also accelerated our efforts to differentiate ourselves from the competition by launching new products and refining strategies for different customer segments. A share repurchase program was initiated with the goal of returning $1 billion to shareholders. Overall book value increased by 14.5% to $35.32 per share and the total return to shareholders was 8.8%.

Allstate Protection met its profit goals with an underlying combined ratio \( ^{*} \)  within the annual range communicated at the beginning of the year. The combined ratio was higher than in 2009, however, reflecting an increase in the frequency of auto claims. We continued to increase prices on homeowners insurance to improve returns. Marketing efforts to grow auto insurance performed well with the addition of the “Mayhem” ads, which made the brand more contemporary and increased new business levels. New business, however, was more than offset by lower retention levels of existing customers, leading to a decline in the size of our auto business. Improving customer loyalty is key to growth, so the customer improvements made in most markets must be expanded to the entire country.



Allstate Financial achieved its goals in the “Focus to Win” strategy, and 2010 operating income* was $476 million, a $136 million increase from the prior year. We exited the annuity business through banks and broker-dealers based on an assessment of future returns and a desire to have a larger portion of profits coming from underwritten products. Allstate Benefits continued to grow, with premiums increasing by 33% in 2010, putting us in the number two market share position in U.S. workplace voluntary benefits. We recently announced the strategic decision to wind down Allstate Bank, which, when completed, will not subject the corporation to thrift holding company regulation.

The investment strategies were well-executed and timed as the market returned to more “normal” levels. We continued to stay long on corporate credit. As part of the risk reduction strategy, commercial real estate holdings were reduced by $2.3 billion of amortized cost and municipal bond holdings were lowered by $5.5 billion of amortized cost in 2010. Given continued economic uncertainty, hedges against declines in equity prices and higher interest rates were maintained throughout the year. As a result of these actions and lower interest rates, investment income declined by 8%, which negatively impacted net income and return on equity. The overall value of our portfolio, however, did exceptionally well and moved into an unrealized gain position from an unrealized loss, a $3.7 billion increase.

## REINVENTION: THE KEY TO OUR FUTURE

Allstate is hard at work reinventing protection and retirement for the consumer. We are investing in “go-to-market” strategies to differentiate us from the competition and grow market share. Several new products were launched, including GoodForLife \( ^{SM} \) , which combines life insurance with critical illness and severe accident benefits, and Good Hands \( ^{SM} \)  Roadside Assistance, the first-ever free-to-join roadside assistance program. In addition, two exciting concepts, Drive Wise \( ^{SM} \)  and the Allstate Claim Satisfaction Guarantee \( ^{SM} \) , are being tested. Plans are also being developed to serve the customer segment that is more self-directed and price-sensitive than those customers attracted to Allstate agencies.

## PEOPLE AND CULTURE ARE CRITICAL TO OUR SUCCESS

Allstate is powered by a remarkable group of talented individuals that come together with a purpose and mission to help customers. The senior leadership team provides the right high-performance environment for 36,000 employees and 12,000 agency owners and exclusive financial representatives. About half of the senior team has joined us since 2007, which, when combined with a wealth of Allstate experience, provides breadth and depth of leadership. The performance bar gets higher each year and this team continues to rise to the occasion and deliver results. You are also well-served by an experienced board, with 10 independent directors, that utilizes leading corporate governance practices.

## IMPROVING OUR REPUTATION AND COMMUNITY LEADERSHIP

Allstate’s corporate reputation improved again last year. By taking a stakeholder and shareholder approach to reputation, our relative industry position improved in 2010. Allstate also makes a difference in the broader community. The Allstate Foundation invests with thousands of organizations in communities in every state, and thousands of Allstate agency owners and employees serve their communities every day.

Leading Allstate is a privilege and an honor. In the year ahead, we will deliver value to shareholders and make an even bigger difference in the lives of those we protect. After all—we are The Good Hands \( ^{®} \)  People!



Thomas J. Wilson
Chairman, President and Chief Executive Officer
April 1, 2011















# Everything we do begins
with our customers.

At Allstate, that’s not just a service principle—it’s a principle for building loyalty, growing our business, and reinventing to differentiate ourselves. Being customer-led means that we identify what matters most to consumers of protection and retirement services. And we’re using our advantages in scale, brand, innovation and financial resources to bring our marketplace potential to life. By putting customers first, we intend to become their first choice.



## Improve customer loyalty

There’s no stronger foundation for growth than loyalty. It protects our core business, delivers opportunities for expanded offerings and attracts new customers to the Allstate family.

Customers tell us they want Allstate to protect them, serve them with respect and empathy, provide products and services that are easy to understand, and help them save money.

To deliver this, Allstate maintains a strong, personalized presence in local communities across the country, where customers can find 11,500 exclusive Allstate agencies, 1,200 exclusive financial specialists and 15,000 claims professionals ready to serve them.
From individualized financial and coverage advice to guidance through the claims process, we continue to enhance the Allstate experience with easier and faster ways for customers and agency owners to do business with us, such as online claim information and auto inspection appointments.

We’ve increased our e-business capabilities with our Allstate Mobile application, allowing customers to pay their bills, view policy information, initiate a claim or find an agent from their mobile devices. Our call center capabilities have expanded with a third customer service center in San Antonio and a fourth to come in Pocatello, Idaho.

## Grow our business

For millions of Americans, Allstate means insurance. Our job is to expand that definition. Raise their expectations. And deepen our relationship. By doing so, Allstate will grow.

More than 90% of consumers say they want to purchase all their insurance from one company. We also know that Allstate customers who have auto, home, and life insurance stay with us longer than any other customer.

These insights are why our growth strategy calls on Allstaters to bring more offerings and deliver more value to more customers in more integrated ways.

To meet customers’ combined protection and retirement needs, we offer an expansive range of products and services, such as motorcycle, RV, boat and other protection products, which we can combine to create attractive discounts. Financial services products include newly redesigned life and annuity offerings available locally from a trusted agency owner.

To help employers meet their employees’ need for workplace benefits, Allstate Benefits provides life, health, disability income, vision and dental coverage and has become the second-largest U.S. provider of voluntary employee benefits.



## Reinvent to differentiate

# When you put your customers first, you see the world from their perspective. At Allstate, that means we challenge convention and develop deep customer insight to deliver innovative products and services.

Every day, 70,000 Allstaters are focused on finding innovative ways to meet the needs of our 16 million households. Large or small, we expect these initiatives to raise consumer expectations of our industry and to drive marketplace differentiation for Allstate.

For instance, Good Hands \( ^{SM} \)  Roadside Assistance revolutionizes emergency services as the first free-to-join, no-annual-fee, pay-per-use service tailored to the 35 million American households that don’t have roadside support.
GoodForLife \( ^{SM} \)  is an affordable and easy-to-understand product that combines life insurance with critical illness and severe accident benefits, including paying money back to the policyholder at age 65.

In addition, Allstate continues to test innovative insurance concepts, such as Drive Wise \( ^{SM} \) , a voluntary program that rewards safe, low-mileage drivers with discounts of up to 30%. Rates don’t go up based on driving behavior—but participants in this pilot program can check their driving performance online and tend to drive more safely as a result.

## Our Foundation for Success

Our Shared Vision provides the “why, how and what” behind everything we do at Allstate. It leverages our strengths while providing the roadmap for our continued success. When we achieve this vision, we will truly put the customer at the center of everything we do. We will become an even more valuable company to our customers, associates, investors, our communities and society... a company with strong earnings potential and financial performance that sets the benchmark for our industry.

## Our Purpose

We are the Good Hands \( ^{®} \) : We help people realize their hopes and dreams through products and services designed to protect them from life’s uncertainties and to prepare them for the future.

## Strategic Vision

To reinvent protection and retirement for the consumer.

## Our Values

• Honesty, caring and integrity

• Inclusive diversity

• Engagement

• Accountability

• Superior performance

## Corporate Goal

We will grow the value of our company for our customers, our associates, our shareholders, our communities and society.

## Our Principles

• Put the 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 by growing and leveraging risk and return trade-offs.

• Focus relentlessly on those few things that will provide the greatest impact.

• Execute well-considered decisions with precision and speed.

• Hire carefully, develop and inspire aggressively, manage respectfully, empower, reward and celebrate appropriately.

• Be a learning organization.

## Our Operating Priorities

• Consumer focus

• Operational excellence

• Enterprise risk and return

• Capital management



# THE ALLSTATE CORPORATION
2775 Sanders Road
Northbrook, Illinois 60062-6127

April 1, 2011

Notice of 2011 Annual Meeting and Proxy Statement

Dear Stockholder:

Allstate’s 2011 annual meeting of stockholders will be held on Tuesday, May 17, 2011, at 11:00 a.m. (CST) at our home office in Northbrook, Illinois. Your vote on the issues being considered at this meeting is important to our continued success. This proxy statement contains the information you will need to make an informed and independent decision on the election of directors and seven governance proposals.

Your vote is important. Please vote as soon as possible, by telephone, Internet, or mail, even if you plan to attend the meeting.

Sincerely,



Thomas J. Wilson

Chairman, President and Chief Executive Officer



Powered by TCPDF (www.tcpdf.org)



# THE ALLSTATE CORPORATION
2775 Sanders Road
Northbrook, Illinois 60062-6127
April 1, 2011

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 17, 2011. The Notice of 2011 Annual Meeting, Proxy Statement, and 2010 Annual Report and the means to vote by Internet are available at www.proxyvote.com.

Notice of 2011 Annual Meeting of Stockholders

The annual meeting of stockholders of The Allstate Corporation (“Allstate” or “corporation”) will be held in the West Plaza Auditorium at Allstate’s Home Office, 3100 Sanders Road, Northbrook, Illinois on Tuesday, May 17, 2011, at 11 a.m. for the following purposes:

1. To elect to the Board of Directors the 11 director nominees named in this proxy statement to serve until the 2012 annual meeting.

2. To ratify the appointment of Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2011.

3. To approve the proposed amendment to the corporation’s certificate of incorporation granting holders of not less than 20% of outstanding shares the right to call a special meeting of stockholders.

4. To approve the proposed amendment to the corporation’s certificate of incorporation to designate a forum for certain legal actions.

5. To provide an advisory vote on the compensation of the named executive officers as disclosed in this proxy statement.

6. To provide an advisory vote on the frequency of future advisory votes on the compensation of the named executive officers.

7. To consider two stockholder proposals, if properly presented.

In addition, any other business properly presented may be acted upon at the meeting.

Registration will begin at 10:00 a.m. Each stockholder may be asked to present picture identification and proof of stock ownership. Stockholders holding Allstate stock in street name (that is, through a bank, brokerage, or other record holder) will need to bring their account statement showing ownership as of the record date, March 18, 2011.

We are providing most of our stockholders with proxy materials through the Internet. Most stockholders will not receive printed copies of this proxy statement and the 2010 annual report unless they so request. Instead, they will receive by mail a notice (“Notice of Internet Availability of Proxy Materials”) with instructions on how to review all of the proxy materials on the Internet and how to submit voting instructions. If you would like to receive the proxy materials electronically or in paper form, you should follow the instructions in the Notice of Internet Availability of Proxy Materials.

Allstate began mailing its Notice of Internet Availability of Proxy Materials, proxy statement and annual report, and proxy card/voting instruction form to stockholders and to participants in its Allstate 401(k) Savings Plan on April 1, 2011.

By Order of the Board,



Mary J. McGinn
Secretary



## Table of Contents

Proxy and Voting Information 1
Proxy Statement and Annual Report Delivery 3
Corporate Governance Practices and Code of Ethics 4
Determinations of Independence of Nominees 4
Board Leadership Structure 5
Board Role in Risk Oversight 5
Board Role in Management Succession 6
Board Meetings and Committees 6
Board Attendance Policy 7
Communications with the Board 7
Board Committees 7
Compensation Committee Interlocks and Insider Participation 9
Nomination Process for Election to the Board of Directors 10
Majority Votes in Director Elections 11
Management Proposals to be Voted On 12
Proposal 1. Election of Directors 12
Director Compensation 20
Proposal 2. Ratification of Appointment of Independent Registered Public Accountant 22
Proposal 3. Approval of Proposed Amendment to the Certificate of Incorporation Granting to Holders of Not Less than 20% of the Corporation's Outstanding Shares the Right to Call a Special Meeting of Stockholders 23
Proposal 4. Approval of Proposed Amendment to the Certificate of Incorporation to Designate a Forum for Certain Legal Actions 24
Proposal 5. Advisory Vote on the Executive Compensation of the Named Executive Officers 25
Proposal 6. Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation 27
Executive Compensation 28
Compensation Committee Report 28
Compensation Discussion and Analysis 28
Summary Compensation Table 40
All Other Compensation for 2010–Supplemental Table 42
Grants of Plan-Based Awards at Fiscal Year-End 2010 43
Outstanding Equity Awards at Fiscal Year-End 2010 44
Option Exercises and Stock Vested at Fiscal Year-End 2010 45
Pension Benefits 45
Non-Qualified Deferred Compensation at Fiscal Year-End 2010 48
Potential Payments as a Result of Termination or Change-in-Control 49
Risk Management and Compensation 52
Performance Measures 53
Security Ownership of Directors and Executive Officers 56
Security Ownership of Certain Beneficial Owners 57
Audit Committee Report 57
Section 16(a) Beneficial Ownership Reporting Compliance 58
Related Person Transactions 58
Stockholder Proposals to be Voted On 59
Proposal 7. Stockholder proposal on Stockholder Action by Written Consent 59
Proposal 8. Stockholder proposal on Political Contributions and Payments to Trade Associations and Other Tax Exempt Organizations 60
Stockholder Proposals for Year 2012 Annual Meeting 62
Proxy Solicitation 62
Appendix A–Policy Regarding Pre-Approval of Independent Registered Public Accountant's Services A-1
Appendix B–Proposed Amendments to the Certificate of Incorporation B-1
Appendix C–List of Executive Officers C-1



# Proxy and Voting Information

## Who is asking for your vote and why

The annual meeting will be held only if there is a quorum, which means that a majority of the outstanding common stock entitled to vote is represented at the meeting by proxy or in person. If you vote before the meeting, your shares will be counted for the purpose of determining whether there is a quorum. To ensure that there will be a quorum, the Allstate Board of Directors is requesting that you vote before the meeting and allow your Allstate stock to be represented at the annual meeting by the proxies named on the proxy card/voting instruction form.

## Who can vote

You are entitled to vote if you were a stockholder of record at the close of business on March 18, 2011. On March 18, 2011, there were 525,399,085 Allstate common shares outstanding and entitled to vote at the annual meeting.

## How to vote

If you hold shares in your own name as a registered stockholder, you may vote in person by attending the annual meeting or you may instruct the proxies how to vote your shares in any of the following ways:

● By using the toll-free telephone number printed on the proxy card/voting instruction form.

● By using the Internet voting site and following the instructions provided there.

● By signing and dating the proxy card/voting instruction form and mailing it in the postage-paid envelope enclosed with the printed copies of the proxy statement, or by returning it to The Allstate Corporation, c/o Broadridge Financial Solutions, 51 Mercedes Way, Edgewood, N.Y. 11717.

You may vote by telephone or Internet 24 hours a day, seven days a week.

If you hold shares in street name (that is, through a broker, bank, or other record holder), you should follow the instructions provided by your broker, bank, or other record holder to vote your shares. If you hold shares through the Allstate 401(k) Savings Plan, see the instructions on page 3.

## Providing voting instructions and discretionary voting authority of proxies

With respect to each of the proposals, you may instruct the proxies to vote “FOR” or “AGAINST,” or you may instruct the proxies to “ABSTAIN” from voting.

The Board recommends you vote on the proposals set forth in this proxy statement as follows:

FOR all of the nominees for director listed in this proxy statement.

FOR the ratification of the appointment of Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2011.

FOR the proposed amendment to the corporation’s certificate of incorporation granting holders of not less than 20% of the outstanding shares the right to call a special meeting of stockholders.

FOR the proposed amendment to the corporation’s certificate of incorporation designating a forum for certain legal actions.

FOR the advisory resolution to ratify the compensation of the named executive officers.

FOR the three year option for the frequency of future votes on executive compensation.

AGAINST the stockholder proposal seeking the right to act by written consent.

AGAINST the stockholder proposal seeking a report on political contributions and payments to trade associations and other tax exempt organizations.

If you return a signed proxy card/voting instruction form to allow your shares to be represented at the annual meeting, but do not indicate how your shares should be voted on one or more proposals listed above, then the proxies will vote your shares as the Board of Directors recommends on those proposals. Other than the matters



listed above, Allstate knows of no other matters to be presented at the meeting. If any other matters are properly presented at the meeting, the proxies may vote your shares in accordance with their best judgment.

## How votes are counted

Each share of our common stock outstanding on the record date will be entitled to one vote on each of the 11 director nominees and one vote on each other matter.

Proposal 1. To be elected by stockholders, each director must receive the affirmative vote of the majority of the votes cast. A majority of votes cast means the number of shares voted “FOR” a director exceeds 50% of the votes cast with respect to that director. Each nominee for director receiving a majority of votes cast will be elected. Abstentions will not be counted as votes cast for purposes of director elections and will have no impact on the outcome of the vote. Broker non-votes will not be counted as shares entitled to vote on the matter and will have no impact on the outcome of the vote.

Proposal 2. To ratify the appointment of Allstate’s independent registered public accountant, the proposal requires 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 proposal. Abstentions will be counted as shares present at the meeting and will have the effect of a vote against the matter.

Proposals 3 and 4. To approve the proposed amendments to the certificate of incorporation, the affirmative vote of a majority of outstanding shares entitled to vote is required. Abstentions will be counted as shares outstanding and will have the effect of a vote against the matter.

Proposal 5. To approve the compensation of the named executive officers, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the proposal is required. Abstentions will be counted as shares present at the meeting and will have the effect of a vote against the matter. Broker non-votes will not be counted as shares entitled to vote on the matter and will have no impact on the outcome of the vote.

Proposal 6. The choice that receives the greatest number of votes will be the frequency preferred by stockholders. Abstentions and broker non-votes will have no impact on the outcome of the vote.

Proposals 7 and 8. To approve a stockholder proposal, 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 proposal is required. Abstentions will be counted as shares present at the meeting and will have the effect of a vote against the broker non-votes will not be counted as shares entitled to vote on the matter and will have no impact on the outcome of the vote.

Rules of the New York Stock Exchange (“NYSE”) determine whether proposals presented at stockholder meetings are “routine” or “non-routine.” If a proposal is determined to be routine, the NYSE provides brokerage firms with discretionary authority to vote on the proposal without receiving voting instructions from their clients. Proposals 2, 3, and 4 are considered routine matters. Broker non-votes occur when a brokerage firm does not have discretionary voting authority and is unable to vote on a proposal because it is non-routine and the client has not provided voting instructions. Proposals 1 and 5 through 8 are considered non-routine matters. Abstentions and broker non-votes are counted for quorum purposes.

## How to change your vote

Before your shares have been voted at the annual meeting by the proxies, you may change or revoke your vote in the following ways:

• Voting again by telephone, by Internet, or in writing.

● Attending the meeting and voting your shares in person if you are a registered stockholder.

## Confidentiality

All proxies, ballots, and tabulations that identify the vote of a particular stockholder are confidential, except as necessary to allow the inspector of election to certify the voting results or to meet certain legal requirements. A representative of American Election Services, LLC will act as the inspector of election and will count the votes. The representative is independent of Allstate and its directors, officers, and employees.

Comments written on proxy cards, voting instruction forms, or ballots may be provided to the secretary of Allstate with the name and address of the stockholder. The comments will be provided without reference to the



vote of the stockholder, unless the vote is mentioned in the comment or unless disclosure of the vote is necessary to understand the comment. At Allstate’s request, the distribution agent or the solicitation agent may provide Allstate with periodic status reports on the aggregate vote. These status reports may include a list of stockholders who have not voted and breakdowns of vote totals by different types of stockholders, as long as Allstate is not able to determine how a particular stockholder voted.

## Allstate 401(k) Savings Plan Participants

If you hold Allstate common shares through the Allstate 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 a registered stockholder, the voting instructions you provide electronically will be applied to both your plan shares and your registered shares. If you return a signed proxy card/voting instruction form or vote by telephone or the Internet on a timely basis, the trustee shall vote as instructed for all Allstate common shares allocated to your plan account unless to do so would be inconsistent with the trustee's duties.

If your voting instructions are not received on a timely basis for the shares allocated to your plan account, those shares will be considered “unvoted.” If you return a signed proxy card/voting instruction form but do not indicate how your shares should be voted on a matter, the shares represented by your signed proxy card/voting instruction form will be voted as the Board of Directors recommends. The trustee will vote all unvoted shares and all unallocated shares held by the plan as follows:

- If the trustee receives instructions (through voting instruction forms or through telephonic or Internet instruction) on a timely basis for at least 50% of the votable allocated shares in the plan, then it will vote all unvoted shares and unallocated shares in the same proportion and in the same manner as the shares for which timely instructions have been received, unless to do so would be inconsistent with the trustee’s duties.

- If the trustee receives instructions for less than 50% of the votable shares, the trustee shall vote all unvoted and unallocated shares in its sole discretion. However, the trustee will not use its discretionary authority to vote on adjournment of the meeting in order to solicit further proxies.

Plan votes receive the same level of confidentiality as all other votes. You may not vote the shares allocated to your plan account by attending the meeting and voting in person. You must instruct The Northern Trust Company, as trustee for the plan, how to vote your shares.

## If You Receive More Than One Proxy Card/Voting Instruction Form

If you receive more than one proxy card/voting instruction form, your shares are probably registered in more than one account or you may hold shares both as a registered stockholder and through the Allstate 401(k) Savings Plan. You should vote each proxy card/voting instruction form you receive.

## Proxy Statement and Annual Report Delivery

Allstate has adopted the “householding” procedure approved by the Securities and Exchange Commission that allows us to deliver one Notice of Internet Availability of Proxy Materials, or if applicable, one proxy statement and annual report, to a household of stockholders instead of delivering a set of documents to each stockholder in the household. This procedure is more environmentally friendly and cost effective because it reduces the number of materials to be printed and mailed. We may elect to send only one Notice of Internet Availability of Proxy Materials, or if applicable, one proxy statement and annual report to stockholders who share the same last name and address, or where shares are held through the same nominee or record holder (for example, when you have multiple accounts at the same brokerage firm), unless we have been instructed otherwise. Stockholders that receive proxy materials in paper form will continue to receive separate proxy cards/voting instruction forms to vote their shares. Stockholders that receive the Notice of Internet Availability of Proxy Materials will receive instructions on submitting their proxy cards/voting instruction form via the Internet.



Please contact our distribution agent, Broadridge Financial Solutions, by calling (800) 542-1061 or by writing to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717:

- If you would like to receive a separate copy of the Notice of Internet Availability of Proxy Materials, or if applicable, a separate proxy statement and annual report for this year. Upon receipt of your request, we will promptly deliver the requested materials to you.

- If you and other Allstate registered stockholders of record with whom you share an address currently receive multiple sets of the Notice of Internet Availability of Proxy Materials, or if applicable, the proxy statement and annual report, and you would like to receive only a single copy of each in the future.

If you hold your shares in street name, please contact your bank, broker, or other record holder to request information about householding.

You may also revoke your consent to householding by contacting Broadridge at the phone number and address listed above. You will be removed from the householding program within 30 days of receipt of the revocation of your consent.

## Corporate Governance Practices and Code of Ethics

Allstate has a history of strong corporate governance which is firmly grounded in the belief that governance best practices are critical to our goal of driving sustained stockholder value. The Board of Directors has established Corporate Governance Guidelines and Director Independence Standards. Each of its standing committees operates under a written charter that has been approved by the Board.

Allstate is committed to operating its business with honesty and integrity and maintaining the highest level of ethical conduct. These absolute values are embodied in our Code of Ethics and require that every customer, employee, and member of the public be treated accordingly. Allstate’s Code of Ethics applies to all employees, including the chief executive officer, the chief financial officer, the controller, and other senior financial and executive officers as well as the Board of Directors.

The Corporate Governance Guidelines, Director Independence Standards, Code of Ethics, and the charters of each standing committee of the Board are available on the Corporate Governance portion of allstate.com. They are also available in print upon request made to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite A3, Northbrook, Illinois 60062-6127.

## Determinations of Independence of Nominees

The Board of Directors has determined that each nominee, with the exception of Mr. Wilson, is independent according to applicable law, the listing standards of the NYSE, and the Board’s Director Independence Standards. In accordance with the Director Independence Standards, the Board has determined that the nature of the following relationships with the corporation do not create a conflict of interest that would impair a director’s independence.

## Categorical Standards of Independence

1. An Allstate director’s relationship arising from (i) only such director’s position as a director of another corporation or organization; (ii) only such director’s direct or indirect ownership of a 5% or less equity interest in another corporation or organization (other than a partnership); (iii) both such position and such ownership; or (iv) such director’s position only as a limited partner in a partnership in which he or she has an interest of 5% or less.

2. An Allstate director’s relationship arising from an interest of the director, or any entity in which the director is an employee, director, partner, stockholder or officer, in or under any standard-form insurance policy or other financial product offered by the Allstate Group in the ordinary course of business.

3. An Allstate director’s relationship with another company that participates in a transaction with the Allstate Group (i) where the rates or charges involved are determined by competitive bid or (ii) where the transaction involves the rendering of services as a common or contract carrier (including any airline) or public utility at rates or charges fixed in conformity with law or governmental authority.



4. An Allstate director’s relationship with another company that has made payments to, or received payments from, the Allstate Group for property or services in an amount which, in the last fiscal year, does not exceed the greater of $1 million or 2% of such other company’s consolidated gross revenues for such year.

5. An Allstate director’s position as an executive officer of a tax exempt organization to which the aggregate amount of discretionary contributions (other than employee matching contributions) made by the Allstate Group and The Allstate Foundation in any of the last three fiscal years of the tax exempt organization were equal to or less than the greater of $1 million or 2% of such organization’s consolidated gross revenues for such year.

6. An Allstate director’s relationship with another company (i) in which the Allstate Group makes investments or (ii) which invests in securities issued by the Allstate Group or securities backed by any product issued by the Allstate Group, all in the ordinary course of such entity’s investment business and on terms and under circumstances similar to those available to or from entities unaffiliated with such director.

## Board Leadership Structure

Thomas J. Wilson is the chairman of the Board as well as the chief executive officer of Allstate. Allstate’s Corporate Governance Guidelines allow the Board to determine the roles of chairman and chief executive officer including whether they are held by separate individuals or by the same person. The Board believes that flexibility in the allocation of the responsibilities of these two roles enables the Board to adapt the leadership function to Allstate’s needs. Currently, Allstate is well-served by having these roles performed by Mr. Wilson, who provides strategic and operating leadership for both the corporation and the Board. At other times, Allstate has split the roles of chairman and chief executive officer between two individuals, such as it did when Mr. Wilson initially took the position of chief executive officer.

The Board has a strong set of principles and practices to ensure independence and proper Board focus and oversight. The only director who is an insider is Mr. Wilson. In addition, the Board meets in executive session without management after each non-telephonic meeting to provide a formal venue to discuss issues among only the independent directors. The leadership of these sessions rotates amongst the independent directors. The Board selected this governance structure, after considering the approach supported by some proxy advisory firms of utilizing one permanent lead director, based on the directors' experiences on other public company boards and Allstate's current position. Allstate's structure requires each board member to assume the responsibility of Board leadership and enables the independent committee chairs to execute fully their responsibilities. This practice provides all independent directors the opportunity to assume a leadership role in the executive sessions. Furthermore, the Board believes that this practice is appropriate in light of the fact that currently only one of the directors is an Allstate employee, all of the other directors are independent, and that the Audit, Compensation and Succession, and Nominating and Governance Committees are comprised solely of independent directors. The chairman and chief executive officer is advised of the issues discussed during these sessions immediately upon conclusion of the meeting.

## Board Role in Risk Oversight

The Board is responsible for the oversight of Allstate’s business and management, including risk management. In exercising its management oversight responsibility, the Board regularly reviews management’s strategy and the business plans for Allstate’s property and casualty business, life insurance and annuity business, and investment portfolio, as well as the corporation’s liquidity and use of capital, and the general counsel’s assessment of legal, regulatory, and legislative issues. Twice a year, the Board reviews the corporation’s risk management objectives and processes. This includes how management measures, evaluates, and manages the corporation’s exposure to risks posed by a wide variety of events and conditions, including turmoil in the capital markets and natural catastrophes such as hurricanes. The Board also reviews third-party assessments of these risk management processes, including a comparison with peer organizations, leading industry practices, and emerging trends. The Audit Committee plays an integral role in risk management oversight by reviewing quarterly reports on risk management and, as provided in its charter, discussing risk assessment and management processes with Allstate’s executives, including the chief risk officer. In the performance of their oversight responsibilities, the directors monitor whether Allstate’s strategies reflect a balance of risk and return, whether such strategies are formulated within a clear set of risk tolerances, and whether risk management processes are executed as designed.



## Board Role in Management Succession

One of the Board’s responsibilities is to oversee the recruitment, development, and retention of executive talent to successfully pursue the corporation’s strategic vision and operating priorities. Management succession is discussed by the Board, in executive session or in committee meetings, as appropriate. The Board and chief executive officer collaborate on succession planning, as described in our Corporate Governance Guidelines. The chief executive officer meets at least annually with the Compensation and Succession Committee and the Nominating and Governance Committee, either separately or jointly, as appropriate, to discuss succession planning and management development for senior executives. The chief executive officer provides input to the Nominating and Governance Committee and the Board regarding succession plans under various circumstances and scenarios, such as if the chief executive officer becomes unexpectedly unable to perform his duties. Under its charter, the Nominating and Governance Committee is responsible for recommending individuals for the roles of chairman and chief executive officer when leadership transitions occur. Under its charter, the Compensation and Succession Committee is responsible for conducting an annual review of the management organization of the corporation and succession plans for senior officers of the corporation. The Compensation and Succession Committee confers with the chief executive officer in determining who may be qualified to fill senior management vacancies. The Compensation and Succession Committee recommends officer elections to the Board.

## Board Meetings and Committees

The Board held seven meetings during 2010. Each incumbent director attended at least 75% of the combined board meetings and meetings of committees of which he or she was a member. Attendance at board and committee meetings during 2010 averaged 97% for directors as a group. Individual attendance records are included with each director's biography beginning on page 13.

Currently, the Board has four standing committees: Audit, Compensation and Succession, Executive, and Nominating and Governance committees. The following table identifies each standing committee, its members, and the number of meetings held during 2010. The members of the Audit, Compensation and Succession, and Nominating and Governance Committees have been determined to be independent by the Board within the meaning of applicable laws, the listing standards of the NYSE, and the Director Independence Standards as in effect at the time of determination. In addition to the standing committees, the Board appointed the Demand Review Committee in April of 2009 to be a non-standing committee, chaired by Ms. Sprieser and including Mr. Smith, to address a shareholder demand for board action. The Demand Review Committee met two times in 2010 before it was dissolved in July.

<table><tr><td>Director</td><td>Audit</td><td>Compensation and Succession</td><td>Executive</td><td>Nominating and Governance</td></tr><tr><td>F. Duane Ackerman</td><td>✓</td><td></td><td></td><td>✓</td></tr><tr><td>Robert D. Beyer</td><td>✓</td><td>✓</td><td></td><td></td></tr><tr><td>W. James Farrell</td><td></td><td>✓</td><td>✓</td><td>✓*</td></tr><tr><td>Jack M. Greenberg</td><td>✓</td><td>✓</td><td></td><td></td></tr><tr><td>Ronald T. LeMay</td><td>✓</td><td>✓</td><td></td><td></td></tr><tr><td>Andrea Redmond</td><td></td><td>✓</td><td></td><td>✓</td></tr><tr><td>H. John Riley, Jr.</td><td></td><td>✓*</td><td>✓</td><td>✓</td></tr><tr><td>Joshua I. Smith</td><td></td><td>✓</td><td></td><td>✓</td></tr><tr><td>Judith A. Sprieser</td><td>✓*</td><td></td><td>✓</td><td>✓</td></tr><tr><td>Mary Alice Taylor</td><td>✓</td><td></td><td></td><td>✓</td></tr><tr><td>Thomas J. Wilson</td><td></td><td></td><td>✓*</td><td></td></tr><tr><td>Number of Meetings in 2010</td><td>8</td><td>7</td><td>1</td><td>6</td></tr><tr><td colspan="5">* Committee chair</td></tr></table>



## Board Attendance Policy

Board members are expected to make every effort to attend all meetings of the Board and the committees on which they serve and to actively participate in the discussion of the matters before them. Board members are also expected to make every effort to attend the annual meeting of stockholders. All directors who stood for election at the 2010 annual meeting of stockholders were in attendance at our 2010 annual meeting of stockholders.

## Communications with the Board

The Board has established a process to facilitate communications by stockholders and other interested parties with directors as a group. Written communications may be sent by mail or by e-mail to the Board. Communications received will be processed under the direction of the general counsel. The general counsel reports regularly to the Nominating and Governance Committee on all correspondence received that, in her opinion, involves functions of the Board or its committees or that she otherwise determines merits its attention. The communication process is posted on the Corporate Governance portion of allstate.com.

## Board Committees

## Audit Committee

Allstate’s Board of Directors has established an audit committee in accordance with the requirements of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee is chaired by Ms. Sprieser and includes Mrs. Taylor and Messrs. Ackerman, Beyer, Greenberg, and LeMay. The Board has determined that Ms. Sprieser and Mr. Greenberg are each individually qualified as an audit committee financial expert, as defined in Regulation S-K, Item 407(d)(5) under the Securities Exchange Act of 1934.

The committee is responsible for, among other things, appointment, compensation, retention, 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 statements should be included in Allstate's annual report on Form 10-K and in the annual report to stockholders. The committee reviews Allstate's accounting and auditing principles and practices affecting the financial statements and discusses with the independent registered public accountant those matters required to be discussed in accordance with generally accepted auditing standards and applicable Securities and Exchange Commission regulations. The committee also reviews the scope of the audits conducted by the independent registered public accountant and the internal auditors as well as the qualifications, independence, and performance of the independent registered public accountant. The committee is responsible for the review and approval of Allstate's Code of Ethics as well as the adoption of procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, and auditing matters. The committee has authority to conduct independent inquiries when deemed necessary to discharge its duties. The committee has the authority to retain independent outside counsel and other advisers it determines to be necessary to carry out its duties. The committee discusses with management the corporation's processes of risk assessment and risk management, including the corporation's major financial risk exposures and the steps management has taken to monitor and control them.

The committee provides functional oversight to Allstate’s internal audit department. The internal audit department provides objective assurance and consulting services that are used to assure a systematic, disciplined approach to the evaluation and improvement of effective risk management, control, and governance processes. The committee reviews the overall adequacy and effectiveness of the corporation’s legal, regulatory, and ethical compliance programs.

Our chief executive officer, chief financial officer, chief risk officer, general counsel, secretary, controller, and senior internal audit officer participate in the committee’s meetings. However, executive sessions of the committee are scheduled and held throughout the year, including sessions in which the committee meets with the independent registered public accountant and the senior internal audit officer. The committee reviews its performance at the end of each non-telephonic meeting and reviews its charter each year. The Audit Committee Report is on page 57.

## Executive Committee

The Executive Committee is chaired by Mr. Wilson and includes Ms. Sprieser and Messrs. Farrell and Riley. The committee is responsible for performing the duties of the Board between meetings of the Board. The committee has the powers of the Board in the management of the business affairs of the corporation to the



extent permitted under the bylaws, excluding any powers granted by the Board, from time to time, to any other committee of the Board.

## Nominating and Governance Committee

The Nominating and Governance Committee is chaired by Mr. Farrell and includes Ms. Sprieser, Ms. Redmond, Mrs. Taylor, and Messrs. Ackerman, Riley, and Smith. The committee is responsible for recommending candidates to be nominated by the Board for election as directors. In connection with its selection process, the committee is responsible for recommending appropriate criteria and independence standards for adoption by the Board. The committee is responsible for making recommendations with respect to the periodic review of the performance of the chief executive officer as well as succession planning to the Board of Directors, including recommending nominees for chief executive officer. The committee advises and makes recommendations to the Board on matters of corporate governance including periodic reviews of the corporation's Corporate Governance Guidelines. The committee is also responsible for reviewing the corporation's structural defenses from time to time. The committee determines and recommends the criteria to be used for the assessment of the Board's performance and oversees the assessment of the Board. With Board oversight, the committee also administers non-employee director compensation. The committee may retain independent consultants as needed to assist it with its responsibilities.

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. The committee reviews its performance at the end of each non-telephonic meeting.

## Compensation and Succession Committee

The Compensation and Succession Committee is chaired by Mr. Riley and includes Ms. Redmond and Messrs. Beyer, Farrell, Greenberg, LeMay, and Smith. The committee assists the Board in fulfilling its oversight responsibilities with respect to the compensation of the chief executive officer and other executive officers. The committee annually reviews the management organization and succession plans for Allstate, including each of its significant operating subsidiaries, and recommends nominees for certain officer positions. The committee is responsible for recommending executive officer salaries and compensation packages to the Board.

The committee administers the incentive compensation plans pursuant to which officers of The Allstate Corporation and its principal operating subsidiaries at the vice president level and above are eligible to earn annual cash incentive compensation awards. The committee determines the performance measures for earning awards and the amount of awards payable upon the achievement of threshold, target, and maximum goals with respect to the performance measures. At the end of the relevant performance period, the committee reviews the extent to which the goals have been achieved and approves the actual amount of the cash incentive awards for executive officers.

The committee has authority to grant equity awards to eligible employees in accordance with the terms of our 2009 Equity Incentive Plan. The Board has delegated to an equity award committee, consisting of the chief executive officer, the authority to make awards of stock options or restricted stock units in connection with the hiring or promotion of an employee or recognition of an employee's particular achievement. The equity award committee has authority to determine the number of shares subject to such options and the number of restricted stock units, subject to limits recommended by the Compensation and Succession Committee and approved by the Board. All awards granted by the equity award committee are reported to the Compensation and Succession Committee at the next meeting. The equity award committee is not permitted to grant such awards to those who are designated as executive officers for purposes of Section 16 of the Securities Exchange Act of 1934 or covered employees as defined in Section 162(m)(3) of the Internal Revenue Code. Awards made by the equity award committee have a fixed grant date of the first business day of a month following committee action and must be made pursuant to the terms of award agreements previously approved by the Compensation and Succession Committee.

In addition, the committee administers our deferred compensation plan for eligible employees and makes recommendations to the Board regarding pension benefit enhancements and change-in-control agreements.

The committee has sole authority to retain and terminate its compensation consultants, including sole authority to approve the consultants' fees. In 2010, the committee retained Towers Watson as its compensation consultant. As part of the engagement, Towers Watson provided a report assessing Allstate's executive compensation design, peer group selection, and relative pay for performance. In addition, Towers Watson provided



a competitive assessment of total direct compensation (base salary and annual and long-term incentives) for senior management positions. Towers Watson also assessed changes proposed by management for the executive compensation program designed to address the relationship between pay and performance and risk and reward, to reflect a desired level of alignment with competitive market levels and practices. The aggregate amount of fees for executive compensation consulting services paid to Towers Watson in 2010 was $133,130. Towers Watson representatives participated in portions of three committee meetings in 2010.

In addition to executive compensation consulting services, Towers Watson provided the corporation with non-executive compensation consulting and software maintenance services in 2010, with aggregate fees of $2,248,000. Specifically, actuarial services and software maintenance services represent fees paid of $612,000, while the balance of the fees, $1,636,000, was paid for services related to Allstate’s human resources work, including benefits and compensation consulting, and administrative work regarding retirement and health and welfare plans. The committee receives and reviews a report regarding the other services provided to the corporation by Towers Watson or its affiliates, to the extent that the fees for such services exceed $120,000 in a fiscal year.

In designing the various elements and amounts of compensation, the Compensation and Succession Committee draws upon the expertise of our chief executive officer and senior human resources officer and confers with our general counsel, secretary, and chief financial officer on matters that fall within their respective responsibilities.

Our chief executive officer attends committee meetings and advises the committee regarding the alignment of our incentive plan performance measures with our overall strategy, the alignment of the weightings of the performance measures with the responsibilities of each executive, and the impact of the design of our equity incentive awards on our ability to attract, motivate, and retain highly talented executives. In providing this advice, the chief executive officer provides context regarding our products, business risks, financial results, and stockholder return. The chief executive officer also makes recommendations to the committee regarding executive merit increases and compensation packages selected for executives being hired or promoted. In addition, the committee looks to our chief executive officer for his evaluation of the performance of the executives who report to him.

Our senior human resources officer attends committee meetings and provides the committee with internal and external analyses regarding the basic structure and competitiveness of our compensation program and the details of the operations of our various compensation and incentive plans, including the design of performance measures for our annual cash incentive plan and the design of our equity awards. Annually, the senior human resources officer also provides the committee with a detailed review of the estimated and actual results for each of the corporate and business unit performance measures compared to threshold, target, and maximum goals and the resulting estimated and actual payments to the executive officers.

Our chief financial officer attends meetings to explain details of financial results relevant to incentive compensation or other financial measures or accounting rules. The general counsel is available at meetings to provide input on the legal and regulatory environment. The secretary attends meetings to respond to questions about corporate governance and to assist in the preparation of minutes.

For both the chief executive officer and the chief financial officer, committee meeting participation is one of the ways in which they assure themselves that the Compensation Discussion and Analysis included in this proxy statement is accurate so that they can provide the certification required by the Sarbanes-Oxley Act of 2002.

The committee regularly meets in executive session without management present. The committee reviews its performance at the end of each non-telephonic meeting and reviews its charter each year. The Compensation Committee Report is included herein on page 28.

## Compensation Committee Interlocks and Insider Participation

During 2010, the Compensation and Succession Committee consisted of Mr. Riley, Chairman, Mrs. Taylor, Ms. Redmond, and Messrs. Ackerman, Beyer, Farrell, Greenberg, LeMay, and Smith, several of whom were members for a portion of the year. None is a current or former officer or employee of Allstate or any of its subsidiaries. There were no committee interlocks with other companies in 2010 within the meaning of the Securities and Exchange Commission’s proxy rules.



## Nomination Process for Election to the Board of Directors

The Nominating and Governance Committee has responsibility for assessing the need for new Board members to address specific requirements or to fill a vacancy and for making recommendations to the Board. In evaluating candidates, the Board and the committee apply the following criteria from our Corporate Governance Guidelines. Allstate Board members should:

● Demonstrate integrity and be willing and able to exercise independent judgment.

• Have held positions of leadership.

- Have business or professional skills and experience that will contribute to the effectiveness of the Board and its committees, taking into consideration the skills and experience of current directors.

- Have an expressed interest in serving as a director in order to foster long-term value for the corporation’s stockholders and have the ability to understand, and exercise sound judgment on, issues related to the corporation’s goals.

- Understand the interests of the corporation’s key stakeholders, including stockholders, customers, employees, and communities, and intend to act in the interest of all stockholders rather than any particular stockholder constituency.

- In the light of their other commitments, including service on other public company boards, be willing and able to devote the time and effort necessary to serve as an effective director, including preparation for Board and committee meetings.

In addition, the Board and the committee look for nominees who reflect a diversity of experience and viewpoints. The Board expects each non-employee director to be free of interests or affiliations that could give rise to a biased approach to directorship responsibilities or a conflict of interest and free of any significant relationship with the corporation which would interfere with the director’s exercise of independent judgment. All nominees for election also must comply with the applicable requirements of the corporation’s bylaws, which are posted on allstate.com. Executive officers of the corporation may not serve on boards of other corporations whose executive officers serve on the Board of the corporation.

Periodically, the Nominating and Governance Committee reviews our director selection criteria to ensure that they continue to appropriately reflect the issues that should be considered in evaluating director candidates as new developments affect Allstate, the economy, and the regulatory environment.

The skills and experiences reviewed by the Nominating and Governance Committee in naming nominees for election at the 2011 annual meeting of stockholders are set forth in the matrix below. The matrix reflects the current skills and experiences of the directors that are important to achieving the corporation’s strategic vision and operating priorities, including improving our operating results, growing our businesses profitably, and differentiating ourselves from the competition by reinventing our business. An “✓” in the chart indicates that director possesses that particular skill or experience. The lack of a “✓” does not mean the director does not



possess that qualification or skill, but rather that the Nominating and Governance Committee did not consider that skill or experience when evaluating that particular nominee for election.

<table><tr><td rowspan="2">Skills and Experiences</td><td colspan="12">Board of Directors</td></tr><tr><td>F. Duane Ackerman</td><td>Robert D. Beyer</td><td>W. James Farrell</td><td>Jack M. Greenberg</td><td>Ronald T. LeMay</td><td>Andrea Redmond</td><td>H. John Riley, Jr.</td><td>Joshua L. Smith</td><td>Judith A. Springer</td><td>Mary Alice Taylor</td><td>Thomas J. Wilson</td><td></td></tr><tr><td>Leadership and Management</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✗</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Accounting and Finance</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Risk Management</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Investment Management</td><td></td><td>✓</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>✓</td></tr><tr><td>Global Operations and Economics</td><td></td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Executive Compensation and Talent Management</td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td>✓</td></tr><tr><td>Technology</td><td>✓</td><td></td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Innovation and Consumer Focus</td><td></td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Corporate Governance and Compliance</td><td>✓</td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Strategy Formation</td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td>✓</td><td></td><td>✓</td><td>✓</td></tr><tr><td>Highly Regulated Industries</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td></td><td></td><td></td><td>✓</td></tr><tr><td>Civic Involvement</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td>✓</td><td>✓</td></tr></table>

The Nominating and Governance Committee initiates a director search by seeking input from the chief executive officer and other directors. The committee also may retain a third party search firm to identify potential candidates. The committee initiates contact with preferred candidates and keeps the full Board informed of the status of candidate evaluations. The committee approves final candidates who are then presented to the Board for endorsement and approval. The invitation to join the Board may be extended by the full Board, the committee chair, or the chairman of the Board. The Board is ultimately responsible for naming the nominees for election.

The Nominating and Governance Committee will consider candidates recommended by a stockholder in the same manner as all other candidates recommended by other sources. A stockholder may make a director candidate recommendation at any time of the year by writing to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite A3, Northbrook, Illinois 60062-6127. A stockholder also may directly nominate someone for election as a director at a stockholders meeting. Under our bylaws, a stockholder may nominate a candidate at the 2012 annual meeting of stockholders by providing advance notice to Allstate that is received between January 18, 2012, and February 17, 2012. The notice must be sent to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite A3, Northbrook, Illinois 60062-6127 and must meet the requirements set forth in the corporation’s bylaws. A copy of the bylaws is available from the Office of the Secretary upon request or can be accessed on the Corporate Governance portion of allstate.com.

## Majority Votes in Director Elections

In accordance with Allstate’s bylaws, each director must be elected by a majority of the votes cast.



## Proposal 1
Election of Directors

The Board is recommending 11 nominees for election to the Allstate Board for one year terms beginning May 2011. This is a talented slate of nominees both individually and as a team. They bring a full complement of business and leadership skills to their oversight responsibilities. One-half have been CEOs of public companies for an average of eight years, which facilitates a thoughtful but diverse decision making process. Best practices from other companies are also adapted to Allstate’s specific circumstances as many of the nominees serve on other public company boards.

The nominees are both individually and collectively fully committed to Allstate. Board attendance has averaged 97% for committee and board meetings. The Board fulfills its fiduciary obligations to stockholders with great expertise, care, and diligence. This independent strength is important to serving Allstate’s stockholders.

Each nominee for the Board was previously elected by the stockholders at Allstate’s annual meeting of stockholders on May 18, 2010, and has served continuously since then. The terms of all directors will expire at this annual meeting in May 2011. The Board expects all nominees named in this proxy statement to be available for election. If any nominee is not available, then the proxies may vote for a substitute. Background information on each individual nominee and the rationale for their nomination is listed below. Meeting attendance rates are based on committee membership at the time of each meeting. Committee membership changed for some directors during 2010. Current committee membership is indicated in bold. Unless otherwise indicated, each nominee has served for at least five years in the business position currently or most recently held.

The Board recommends that you vote for all of the director nominees listed in this proxy statement.




Chairman Emeritus of BellSouth Corporation, a communication services company, from December 2006 until his retirement in April 2007. Mr. Ackerman served as Chairman and Chief Executive Officer of BellSouth from mid-2005 through 2006, when it was merged into AT&T. He previously served BellSouth as Chairman, President and CEO from 1998 through mid-2005 and as President and CEO from 1997 to 1998. Mr. Ackerman is a past chairman of the National Council on Competitiveness, as well as a past chair of the National Security Telecommunications Advisory Committee.

Having served as a CEO of a publicly traded company for nearly a decade, Mr. Ackerman brings extensive executive leadership and management experience to his role as a director. Moreover, his experience as CEO of a highly regulated company like BellSouth gives him insight into how the complex insurance and financial services regulatory environment impacts Allstate. His telecommunications background is useful in evaluating management's increasing use of technology to connect employees, agencies, and customers. In addition, his experience in risk management, evaluating financial statements, and supervising the chief financial officer of BellSouth make him a valued member of the Audit Committee. As a member of the Nominating and Governance Committee, he draws on his experience leading BellSouth, as well as his tenure as a director at both Home Depot and United Parcel Service, in evaluating corporate governance issues.

<table><tr><td colspan="5">Key Areas of Experience:</td></tr><tr><td colspan="2">• Highly Regulated Industries• Accounting and Finance• Risk Management</td><td colspan="3">• Technology• Corporate Governance and Compliance• Leadership and Management</td></tr><tr><td colspan="2">Committee Membership</td><td>Attendance</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>Audit</td><td>8 of 8</td><td>100%</td><td>UPS Corporation</td><td>2007—present</td></tr><tr><td>Nominating and Governance</td><td>3 of 3</td><td>100%</td><td>Home Depot</td><td>2007—present</td></tr><tr><td>Compensation and Succession</td><td>4 of 4</td><td>100%</td><td></td><td></td></tr></table>



Chairman of Chaparal Investments LLC, a private investment firm and holding company which he founded in 2009. Chaparal manages a diverse portfolio of operating, financial, and real estate assets. From 2005 to 2009, Mr. Beyer served as Chief Executive Officer of The TCW Group, Inc., a global investment management firm. Mr. Beyer previously served as President and Chief Investment Officer from 2000 until 2005 of Trust Company of the West, the principal operating subsidiary of TCW. Mr. Beyer is a former director of Société Générale Asset Management, S.A. and The TCW Group, Inc.

As the former CEO of TCW and the leader of its principal operating subsidiary, Mr. Beyer has extensive executive leadership and management experience with investment portfolios comparable in size to Allstate's and with highly regulated industries like insurance. He has exceptional insight into Allstate's investment operations and the regulatory complexity of the financial services industry. While at TCW, he also conceived and developed the firm's risk management infrastructure, an experience which is useful to the Allstate Board in performing its risk management oversight functions. His experience leading a global investment management firm provides him insight into today's global economy. His experience as a CEO and as a member of the Kroger board with respect to overseeing compensation programs makes him a valued member of the Compensation and Succession Committee. As a member of the Audit Committee, he draws on his experience as Chair of Kroger's Financial Policy Committee, as well as his prior experience in evaluating financial statements and supervising financial and accounting executives. His abilities and service as a director were recognized by his peers, who selected Mr. Beyer as an Outstanding Director in 2008 as part of the Outstanding Directors Program of the Financial Times.

<table><tr><td colspan="5">Key Areas of Experience:</td></tr><tr><td colspan="2">• Investment Management• Highly Regulated Industries• Executive Compensation and Talent Management</td><td colspan="3">• Accounting and Finance• Risk Management• Global Operations and Economics• Leadership and Management</td></tr><tr><td colspan="2">Committee Membership</td><td>Attendance</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td colspan="2">Audit</td><td>5 of 5</td><td>100%</td><td rowspan="2">The Kroger Company 1999—present</td></tr><tr><td colspan="2">Compensation and Succession</td><td>7 of 7</td><td>100%</td></tr></table>




W. James Farrell
Age 68
Director since 1999
Independent

From May 1996 until his retirement in May 2006, Mr. Farrell served as Chairman of Illinois Tool Works Inc., a manufacturer of highly engineered fasteners, components, assemblies, and systems, with operations in 54 countries and over 65,000 employees. He served Illinois Tool Works as Chief Executive Officer from September 1995 until August of 2005. Previously, he served in many leadership positions at Illinois Tool Works, including a number of general manager and vice president positions.

Mr. Farrell has considerable leadership and management expertise from over ten years of experience as Chairman and CEO of Illinois Tool Works. That knowledge of global operations and economics gives him keen insight in evaluating the strategies and operating plans of Allstate’s business units. His experience leading a large, publicly traded company gives him an in-depth understanding of corporate governance issues, which is critical in his service as Chair of the Nominating and Governance Committee and as a member of the Executive Committee. His experience in managing compensation programs and talent makes him a valued member of the Compensation and Succession Committee.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td>• Corporate Governance and Compliance• Executive Compensation and Talent Management• Leadership and Management</td><td colspan="3">• Global Operations and Economics• Risk Management• Strategy Formation</td></tr><tr><td>Committee Membership</td><td>Attendance</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>Compensation and Succession Executive Nominating and Governance (Chair)</td><td>7 of 7 1 of 1 6 of 6</td><td>100% 100% 100%</td><td>3M Corporation Abbott Laboratories UAL Corporation</td></tr></table>



Jack M. Greenberg
Age 68
Director since 2002
Independent

Chairman of The Western Union Company, a money transfer service firm, since September 2006. Chairman of Innerworkings, Inc., a global provider of print and promotional services, since June of 2010. Chairman and Chief Executive Officer of McDonald's Corporation from May 1999 until his retirement in 2002.

Having served in leadership positions of two publicly traded companies, Mr. Greenberg brings extensive executive leadership and management experience to the Board. Mr. Greenberg's experience leading McDonald's Corporation, with its large franchise organization, and serving as Chairman and a board member of Western Union, with its worldwide independent network, provides valuable perspective in understanding today's global economy and its effect on Allstate, its customers, its agencies, as well as its operations across the U.S. and Canada. As leader of both McDonald's and Western Union, Mr. Greenberg has experience in consumer focused businesses, which is particularly relevant to Allstate's current operating priority to differentiate ourselves from the competition by reinventing our business. His experience in managing compensation programs and talent makes him a valued member of the Compensation and Succession Committee. As a member of the Audit Committee, he draws on his extensive experience in evaluating financial statements and supervising financial and accounting executives as the Chief Financial Officer at McDonald's Corporation and his expertise as an attorney, a certified public accountant, and a member of the American Institute of Certified Public Accountants.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td>• Innovation and Consumer Focus• Global Operations and Economics• Risk Management• Leadership and Management• Corporate Governance and Compliance</td><td colspan="3">• Accounting and Finance• Strategy Formation• Executive Compensation and Talent Management• Highly Regulated Industries</td></tr><tr><td>Committee Membership</td><td>Attendance \( ^{(1)} \)</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>Audit Compensation and Succession</td><td>7 of 87 of 7</td><td>87% 100%</td><td>Hasbro, Inc. 2003—presentInnerworkings, Inc. 2007—presentManpower, Inc. 2003—presentThe Western Union Company 2006—presentAbbott Laboratories 2001—2007</td></tr></table>

(1) Mr. Greenberg missed one audit committee meeting due to a prior business commitment.




Ronald T. LeMay
Age 66
Director since 1999
Independent
Chairman of Aircell Corporation since July 2006, Mr. LeMay also served as its Chief Executive Officer from July 2009 to February 2010. Executive Chairman of E-Recycling Corporation since 2010. Mr. LeMay previously served as Industrial Partner of Ripplewood Holdings, LLC, a private equity fund, from October 2003 until February of 2009, and as Executive Chairman and Chief Executive Officer of Last Mile Connections, Inc. from September 2005 and October 2006, respectively, until August 2009. Mr. LeMay also has been Chairman of October Capital since February 2000, and Chairman of Razorback Capital since August 2006. Both companies are private investment companies. He serves in various board and executive capacities in the portfolio companies of October Capital and Razorback Capital. Mr. LeMay is also President and Managing Director of OpenAir Ventures, a venture capital firm he formed in September 2008 to make early stage investments in wireless communications companies. Previously, Mr. LeMay served as Representative Executive Officer of Japan Telecom from November 2003 until the sale of the company in July 2004 and as President and Chief Operating Officer of Sprint Corporation from October 1997 until April 2003.

Mr. LeMay has broad operational and leadership experience from serving as the chief operating officer of Sprint for over five years and as Chairman of October Capital for over ten years. His counsel is helpful in developing operational plans and related change management initiatives. Mr. LeMay’s experience in the telecommunications field provides him with insight into operating in a highly regulated industry, as well as the use of new technologies to drive innovation. His financial oversight experience and his experience with compensation issues make him an effective member of both the Audit Committee and the Compensation and Succession Committee.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td>• Technology• Highly Regulated Industries• Innovation and Consumer Focus• Leadership and Management• Risk Management</td><td colspan="3">• Accounting and Finance• Strategy Formation• Executive Compensation and Talent Management• Corporate Governance and Compliance</td></tr><tr><td>Committee Membership</td><td>Attendance \( ^{(1)} \)</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>Audit</td><td>7 of 8</td><td>87%</td><td rowspan="2">Imation Corporation</td></tr><tr><td>Compensation and Succession</td><td>6 of 7</td><td>87%</td></tr></table>

(1) Mr. LeMay did not attend the February board and committee meetings due to an emergency medical situation in his family.




Andrea Redmond
Age 55
Director since 2010
Independent

Independent consultant with over twenty years of experience providing executive recruiting, succession planning, and talent management services. Previously, Ms. Redmond was Managing Director and Co-Head of the CEO/Board Services Practice at Russell Reynolds Associates Inc., a global executive search firm, and led the firm's insurance practice for more than ten years. Ms. Redmond's civic involvement includes service as a director of Children's Memorial Hospital, Northwestern Memorial Hospital, and LivingWell Cancer Resource Center.

Ms. Redmond’s extensive experience with succession planning and talent management results from conducting numerous assignments to recruit and place chief executive officers in a number of high profile companies across industries including financial services, technology, transportation, consumer products, and health care. She has also served clients in the recruitment of directors for corporate boards, including those of a number of publicly traded companies. Ms. Redmond’s exposure to business issues across a wide range of industries provides a broad perspective on strategic and operational priorities. Her experience helping companies identify and recruit leaders capable of building high performance organizations is also useful to the Board in evaluating Allstate’s current leadership as well as recruiting new executives and directors, and has been valuable in her service on both the Compensation and Succession Committee and Nominating and Governance Committee.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td colspan="2">• Executive Compensation and Talent Management• Leadership and Management</td><td colspan="2">• Strategy Formation• Corporate Governance and Compliance</td></tr><tr><td colspan="2">• Committee Membership</td><td>Attendance</td><td>Public Board Membership of Previous Five Years:</td></tr><tr><td>Compensation and Succession Nominating and Governance</td><td>5 of 5 5 of 5</td><td>100% 100%</td><td>None</td></tr></table>



H. John Riley, Jr.
Age 70
Director since 1998
Independent

Chairman of Cooper Industries, Ltd., a diversified manufacturer of electrical products, tools, and hardware, from April 1996 until his retirement in February 2006. Mr. Riley previously served Cooper Industries as Chairman and Chief Executive Officer from April 1996 until May 2005 and as Chairman, President and CEO from April 1996 until August 2004.

Mr. Riley has extensive executive leadership and management experience from nearly a decade of leading Cooper Industries, Ltd., a large publicly traded company. This experience, which is enhanced by his service on the board of Baker Hughes Incorporated as its lead director and as chair of its compensation committee, serves him well as Chair of the Compensation and Succession Committee and as a member of the Nominating and Governance Committee and Executive Committee. Mr. Riley's background as former head of a worldwide manufacturer of electrical products, tools, and hardware is valuable in evaluating how Allstate's operations and technology connect employees, agencies, and customers.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td colspan="2">• Executive Compensation and Talent Management• Leadership and Management</td><td colspan="2">• Technology• Corporate Governance and Compliance</td></tr><tr><td colspan="2">• Committee Membership</td><td>Attendance</td><td>Public Board Membership of Previous Five Years:</td></tr><tr><td rowspan="2">Compensation and Succession (Chair)ExecutiveNominating and Governance</td><td>7 of 7</td><td>100%</td><td>Baker Hughes, Inc. 2007-present</td></tr><tr><td>1 of 1</td><td>100%</td><td>Westlake Chemical Corporation 2007-present</td></tr></table>




Joshua I. Smith
Age 70
Director since 1997
Independent

Chairman and Managing Partner since 1999 of The Coaching Group, a management consulting firm. Previously, he was founder, Chairman and Chief Executive Officer of The MAXIMA Corporation, a 20-year old consultancy that achieved a national reputation as one of the top African-American owned and fastest-growing firms in the United States. Appointed by President George H.W. Bush, he has served as Chairman of the U.S. Commission on Minority Business Development, as a member of the Executive Committee of the 1990 Economic Summit of Industrialized Nations, and as a director of the John F. Kennedy Center for the Performing Arts. He was a Member of the Board of the Maryland Small Business Development Finance Authority and Chairman of a special Task Force on Minority Business Reform for the Governor of the State of Maryland. He was also Chairman of the National Urban Coalition and a member of the National Fund Raising Campaign Committee of the NAACP.

With over a decade of experience leading The Coaching Group, Mr. Smith has extensive executive leadership and management experience. In addition, he has considerable expertise with entrepreneurial enterprises, specifically with small, minority and women owned businesses, an important asset in considering Allstate's relationships with its agencies in pursuit of Allstate's goals. As a member of the Nominating and Governance Committee, Mr. Smith draws on his experience in evaluating corporate governance issues as a director of three large publicly traded companies. His experience as a coach, advisor, and consultant to chief executive officers as Chairman and Managing Partner of The Coaching Group gives him insights into the requirements for effective executive leadership that make him a valued member of the Compensation and Succession Committee.

## Key Areas of Experience:

• Innovation and Consumer Focus
• Corporate Governance and Compliance

• Strategy Formation

• Executive Compensation and Talent Management

• Leadership and Management

<table><tr><td>Committee Membership</td><td colspan="2">Attendance \( ^{(1)} \)</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Compensation and Succession Nominating and Governance Audit</td><td>3 of 3 5 of 6 3 of 3</td><td>100% 83% 100%</td><td>Caterpillar, Inc. 1993—present Comprehensive Care Corporation 2009—present Federal Express Corporation 1989—present</td><td></td></tr></table>

(1) Mr. Smith missed a nominating and governance committee meeting because of a conflicting business obligation abroad.




Judith A. Sprieser
Age 57
Director since 1999
Independent

Chief Executive Officer of Transora, Inc., a technology software and services company from September 2000 until March 2005. Previously, Ms. Sprieser served in a number of key leadership roles for the Sara Lee Corporation from 1987 until 2000, including Executive Vice President, Chief Executive Officer of Sara Lee's Food Group, and Chief Financial Officer. Ms. Sprieser is a Certified Public Accountant.

Ms. Sprieser’s leadership of Transora, Inc., a start-up technology software development and services company, provides her with important insights in evaluating Allstate’s business operations and initiatives to drive change and innovation in the insurance and financial services markets. Her considerable experience in evaluating financial statements and supervising financial and accounting executives, which includes several years of service as Chief Financial Officer of the Sara Lee Corporation, makes her particularly well-suited to serve as Chair of the Audit Committee and as a member of the Executive Committee. As a member of the Nominating and Governance Committee she draws on her extensive experience in evaluating corporate governance issues on the boards of other publicly traded companies. Moreover, her service on the boards of international companies gives her insight into the global economy and its effect on Allstate’s business operations across the U.S. and Canada.

## Key Areas of Experience:

• Technology

• Leadership and Management

• Innovation and Consumer Focus

• Global Operations and Economics

• Accounting and Finance

• Risk Management

• Corporate Governance and Compliance

<table><tr><td>Committee Membership</td><td>Attendance</td><td>Public Board Membership of Previous Five Years:</td></tr><tr><td>Audit (Chair)ExecutiveNominating and Governance</td><td>8 of 81 of 16 of 6</td><td>100%100%100%</td></tr></table>




Mary Alice Taylor
Age 61
Director since 2000
Independent

Mrs. Taylor is an active independent business executive with extensive experience in senior executive positions with Fortune 100 companies. Before her retirement in 2000, she served as Chairman and Chief Executive Officer of Webvan Group, Inc. and as Chairman and Chief Executive Officer of HomeGrocer.com. Prior to that, she was Corporate Executive Vice President of Citicorp and Senior Vice President at FedEx Corporation. Mrs. Taylor has served on several major public company boards. Currently, she sits on the board of Blue Nile, Inc., where she has been lead independent director since 2004, is the Chairperson of the Nominating and Governance Committee, and is a member of the Audit Committee.

Allstate benefits from Mrs. Taylor’s experience in top level executive positions, including roles in technology, finance, operations, and distribution logistics at large publicly traded companies such as Citigroup and FedEx Corporation. Furthermore, Mrs. Taylor’s supervisory experience in financial management roles makes her an effective member of the Audit Committee. As a member of the Nominating and Governance Committee, Ms. Taylor draws on her experience in evaluating corporate governance issues from her years working as an executive and serving on the boards of large publicly traded companies.

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td>• Technology• Strategy Formation• Innovation and Consumer Focus• Leadership and Management</td><td colspan="3">• Accounting and Finance• Risk Management• Corporate Governance and Compliance</td></tr><tr><td>Committee Membership</td><td>Attendance</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>AuditNominating and GovernanceCompensation and Succession</td><td>8 of 83 of 34 of 4</td><td>100%100%100%</td><td>Blue Nile, Inc.1999—present</td></tr></table>



Thomas J. Wilson
Age 53
Director since 2006
Not Independent—
Management

Chairman since May 2008 and President and Chief Executive Officer of Allstate since January 2007. Mr. Wilson previously served as President and Chief Operating Officer (June 2005 until January 2007), President of Allstate Protection (2002 to 2006), and as Chairman and President of Allstate Financial (1999 to 2002). He joined Allstate in 1995 from Sears, Roebuck and Co., where he was vice president of strategy and analysis.

Mr. Wilson’s 16-year career with Allstate, culminating in his appointment as Chairman, President and Chief Executive Officer, is one in which he has been entrusted with a number of key leadership roles throughout the enterprise. Through these roles he has developed a thorough and in-depth understanding of Allstate’s business, including its employees, agencies, products, investments, customers, and investors. Operating profits grew rapidly during his leadership of Allstate Financial. Allstate Protection grew auto market share and substantially increased underwriting income under Mr. Wilson’s leadership from 2002 through 2006. In 2007, as President and Chief Executive Officer, he led the creation and implementation of a risk and return optimization program which helped Allstate weather the financial market crisis which began in 2008. He also assembled and leads the senior management team.

Mr. Wilson also actively represents Allstate in industry and the community. He holds leadership positions in leading business organizations including The Financial Services Roundtable (Chair-Elect), the U.S. Chamber of Commerce (Executive Committee), and the Property-Casualty CEO Roundtable (Deputy Chair). His civic involvement includes the Federal Reserve Bank of Chicago (Deputy Chair), The Economic Club of Chicago (Executive Committee), and board memberships at Rush University Medical Center, the Museum of Science and Industry, and Catalyst (a non-profit organization working to advance women in business).

<table><tr><td colspan="4">Key Areas of Experience:</td></tr><tr><td>• Leadership and Management• Strategy Formation• Innovation and Consumer Focus• Executive Compensation and Talent Management</td><td colspan="3">• Risk Management• Highly Regulated Industries• Accounting and Finance• Global Operations and Economics• Investment Management</td></tr><tr><td>Committee Membership</td><td>Attendance</td><td colspan="2">Public Board Membership of Previous Five Years:</td></tr><tr><td>Executive (Chair)</td><td>1 of 1</td><td>100%</td><td>None</td></tr></table>



## Director Compensation

The following table summarizes the compensation of each of our non-employee directors during 2010 for his or her services as a member of the Board and its committees.

<table><tr><td>Name</td><td>Fees Earned or Paid in Cash (\()</td><td>Stock Awards (\)) (1)</td><td>Total (\))</td></tr><tr><td>Mr. Ackerman</td><td>52,500</td><td>150,020</td><td>202,520</td></tr><tr><td>Mr. Beyer</td><td>52,500</td><td>150,020</td><td>202,520</td></tr><tr><td>Mrs. Farrell (2)</td><td>63,750 (3)</td><td>150,020</td><td>213,770</td></tr><tr><td>Mr. Greenberg</td><td>52,500</td><td>150,020</td><td>202,520</td></tr><tr><td>Mr. LeMay</td><td>52,500</td><td>150,020</td><td>202,520</td></tr><tr><td>Ms. Redmond</td><td>52,500</td><td>212,534</td><td>265,034</td></tr><tr><td>Mr. Riley, Jr. (4)</td><td>63,750</td><td>150,020</td><td>213,770</td></tr><tr><td>Mr. Smith</td><td>52,500</td><td>150,020</td><td>202,520</td></tr><tr><td>Ms. Sprieser (5)</td><td>67,500</td><td>150,020</td><td>217,520</td></tr><tr><td>Mrs. Taylor</td><td>52,500 (6)</td><td>150,020</td><td>202,520</td></tr></table>

(1) The aggregate grant date fair value of restricted stock units is based on the market value of Allstate stock as of the date of the grant. The final closing price in part reflects the payment of future dividends expected. For the annual restricted stock unit awards granted to each director on June 1, 2010, the market value of Allstate stock on the grant date was $29.66. The aggregate grant date fair value of the annual 2010 restricted stock unit awards, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, was $150,020 for each director. Pursuant to the director compensation policy, Ms. Redmond received an award when she joined the Board in January 2010. The market value of Allstate stock on the grant date was $30.04. The aggregate grant date fair value of the award, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, was $62,514. Each restricted stock unit entitles the director to receive one share of Allstate stock on the conversion date. The aggregate number of restricted stock units outstanding as of December 31, 2010, for each director is as follows: Mr. Ackerman–20,797, Mr. Beyer–16,797, Mr. Farrell–20,797, Mr. Greenberg–20,797, Mr. LeMay–20,797, Ms. Redmond–7,139, Mr. Riley–20,797, Mr. Smith–20,797, Ms. Sprieser–20,797, and Mrs. Taylor–20,797. Restricted stock unit awards granted before September 15, 2008, convert into stock one year after termination of Board service, or upon death or disability if earlier. Restricted stock unit awards granted on or after September 15, 2008, convert into stock upon termination of Board service, or upon death or disability if earlier.

Non-employee directors no longer receive stock options as part of their compensation and no option awards were granted in 2009 and 2010. The aggregate number of options outstanding as of December 31, 2010, under prior option awards for each director is as follows: Mr. Ackerman–32,000, of which 30,666 were exercisable, Mr. Beyer–10,667, of which 9,333 were exercisable, Mr. Farrell–32,000, of which 30,666 were exercisable, Mr. Greenberg–29,000, of which 27,666 were exercisable, Mr. LeMay–32,000, of which 30,666 were exercisable, Ms. Redmond–0 of which 0 were exercisable, Mr. Riley–32,000, of which 30,666 were exercisable, Mr. Smith–27,999, of which 26,665 were exercisable, Ms. Sprieser–32,000, of which 30,666 were exercisable, and Mrs. Taylor–32,000, of which 30,666 were exercisable.

(2) Chair of the Nominating and Governance Committee.

(3) Mr. Farrell elected to receive 20% of his cash retainer in stock.

(4) Chair of the Compensation and Succession Committee.

(5) Chair of the Audit Committee; Chair of a non-standing committee of the Board until July 13, 2010.

(6) Mrs. Taylor elected to receive 100% of her cash retainer in stock.

Beginning June 1, 2010, the timing of our director cash retainer payments changed from annual to quarterly payments to better align service periods and payments. On June 1, September 1, and December 1, 2010, each non-employee director was entitled to a $17,500 quarterly cash retainer and each committee chair was entitled to an additional $3,750 quarterly cash retainer. On June 1, 2010, each non-employee director received an annual award of restricted stock units under the 2006 Equity Compensation Plan for Non-Employee Directors, as amended and restated. The number of restricted stock units granted to each director was equal to $150,020 divided by the fair market value of a share of our stock on June 1, 2010. No meeting fees or other professional fees are paid to the directors. In addition, under Allstate’s Deferred Compensation Plan for Non-Employee Directors, directors may elect to defer their retainers to an account that generates earnings based on: (a) the market value of, and dividends paid on, Allstate common shares (common share units); (b) the average interest rate payable on 90-day dealer commercial paper; (c) Standard & Poor’s 500 Composite Stock Price Index, with dividends reinvested; or (d) a money market fund. No director has voting or investment powers in common share units, which are payable solely in cash. Subject to certain restrictions, amounts deferred under the plan, together



with earnings thereon, may be transferred between accounts and are distributed after the director leaves the Board in a lump sum or over a period not to exceed ten years.

In September 2010, the Board approved an increase in director cash retainers. Beginning June 1, 2011, each non-employee director will be entitled to a quarterly cash retainer of $22,500, and each non-employee director who serves as a chair of a Board committee, other than the Audit Committee, shall be entitled to receive an additional quarterly chair fee for each such chair in the amount of $5,000, and the non-employee director who serves as a chair of the Audit Committee shall be entitled to receive an additional quarterly chair fee in the amount of $6,250.

Restricted stock unit awards granted on or after September 15, 2008, provide for delivery of the underlying shares of Allstate common stock upon the earlier of (a) the date of the director's death or disability or (b) the date the director leaves the Board. Restricted stock unit awards granted before September 15, 2008, provide for delivery of the underlying shares of Allstate common stock upon the earlier of (a) the date of the director's death or disability or (b) one year after the date the director leaves the Board. Each restricted stock unit includes a dividend equivalent right that entitles the director to receive a payment equal to regular cash dividends paid on Allstate common stock. Under the terms of the restricted stock unit awards, directors have only the rights of general unsecured creditors of Allstate and no rights as stockholders until delivery of the underlying shares.

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 in 2007 through 2008, the fair market value is equal to the closing sale price on the date of the grant, and for options granted prior to 2007, fair market value is equal to the average of high and low sale prices on the date of grant, and, in each case, if there was no such sale on the date of grant, then on the last previous day on which there was a sale. The options become exercisable in three substantially equal annual installments and expire ten years after grant. The unvested portions of a director's outstanding options fully vest upon his or her mandatory retirement pursuant to Board policies. Stock option repricing is not permitted. An outstanding stock option will not be amended to reduce the option exercise price. However, the plan permits repricing in an event such as equity restructuring (such as a split) or a change in corporate capitalization (such as a merger).

As detailed in our Corporate Governance Guidelines, the corporation maintains stock ownership guidelines for our non-employee directors. Within five years of joining the Board, each director is expected to accumulate an ownership position in Allstate securities equal to five times the value of the annual cash retainer paid for board service. Except for Ms. Redmond, every director has met the ownership guideline. Ms. Redmond joined the Board on January 1, 2010, and has until January 1, 2015, to meet the guideline.



# Proposal 2
Ratification of Appointment of
Independent Registered Public Accountant

The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2011. The Board is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification consistent with its long-standing prior practice. If the selection is not ratified by the stockholders, the committee may reconsider its selection.

The Audit Committee has adopted a Policy Regarding Pre-Approval of Independent Registered Public Accountant’s Services. The Policy is attached as Appendix A to this Notice of Annual Meeting and Proxy Statement. All of the services provided by Deloitte & Touche LLP in 2010 and 2009 were approved by the committee.

The following fees have been, or are anticipated to be, billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, for professional services rendered to Allstate for the fiscal years ending December 31, 2010, and December 31, 2009.

<table><tr><td></td><td>2010</td><td>2009 \( ^{(1)} \)</td></tr><tr><td>Audit Fees \( ^{(1)} \)</td><td>8,859,500</td><td>8,424,515</td></tr><tr><td>Audit Related Fees \( ^{(2)} \)</td><td>$ 735,300</td><td>$ 1,024,775</td></tr><tr><td>Tax Fees \( ^{(3)} \)</td><td>$ 5,500</td><td>$ 48,200</td></tr><tr><td>All Other Fees \( ^{(4)} \)</td><td>$ 25,300</td><td>$ 27,345</td></tr><tr><td>Total Fees</td><td>$9,625,600</td><td>$ 9,524,835</td></tr></table>

(1) Fees for audits of annual financial statements, reviews of quarterly financial statements, statutory audits, attest services, comfort letters, consents, and review of documents filed with the Securities and Exchange Commission. Audit Fees for 2009 reflect a credit for a fee reduction of $310,735. The amount disclosed does not reflect reimbursed audit fees received from non-Deloitte entities in the amounts of $90,000 and $305,400 for 2010 and 2009, respectively.

(2) Audit Related Fees pertain to professional services such as accounting consultations relating to new accounting standards, and audits and other attest services for non-consolidated entities (i.e. employee benefit plans, various trusts, The Allstate Foundation, etc.) and are set forth below.

<table><tr><td></td><td>2010</td><td>2009</td></tr><tr><td>Audits and other Attest Services for Non-consolidated Entities</td><td>$435,300</td><td>$ 438,670</td></tr><tr><td>Adoption of new accounting standards</td><td>$246,600</td><td>$ 181,995</td></tr><tr><td>Investment Related Research</td><td>$ -</td><td>$ 89,760</td></tr><tr><td>Other Audit Related Fees</td><td>$ 53,400</td><td>$ 314,350</td></tr><tr><td>Audit Related Fees</td><td>$735,300</td><td>$1,024,775</td></tr></table>

(3) Tax Fees include income tax return preparation and compliance assistance.

(4) All Other Fees relate to coordination of work for a department of insurance exam.

(5) Total Fees for 2009 have been adjusted to reflect an increase of $161,630 not included in the prior year's proxy statement. The adjusted amount reflects $233,140 not billed until 2010, partially offset by reimbursements of fees totaling $71,510.

Representatives of Deloitte & Touche LLP will be present at the meeting, will be available to respond to questions, and may make a statement if they so desire.

The Board of Directors recommends that stockholders vote for the ratification of the appointment of Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2011 as proposed.



# Proposal 3
Approval of Proposed Amendment
to the Certificate of Incorporation
Granting to Holders of not Less than 20% of the
Corporation’s Outstanding Shares the Right to Call
a Special Meeting of Stockholders

The Board is proposing an amendment (the “Amendment”) to Article Seventh of the corporation’s certificate of incorporation to grant holders of not less than 20% of the outstanding common stock the right to require that a special meeting be called, subject to the bylaw procedures described below. The Board undertook a review of this governance issue in 2010 and, upon the recommendation of the Nominating and Governance Committee, has unanimously adopted a resolution declaring the advisability of the Amendment and recommending its approval by the stockholders.

The proposed Amendment demonstrates the Board’s responsiveness to stockholders’ support for the right to call special meetings and promotes good governance in a cost-effective and efficient manner. At the 2010 Annual Meeting, a stockholder proposal for the right of 10% of stockholders to call a special meeting received a 55% affirmative vote, which represented 40% of total outstanding shares. The Board supports the concept of greater stockholder access, but believes that a 20% threshold strikes a better balance than a 10% threshold in terms of enhancing stockholder rights and protecting against the risk that a small percentage of stockholders could trigger a meeting to pursue special interests at significant expense and distraction to the corporation. In arriving at the ownership threshold, the Board engaged the services of legal and investment banking experts to ensure a holistic analysis was used to set a threshold that would be most appropriate for Allstate and its stockholders. The Board’s analysis took into account the composition of its stockholder base and the size of their holdings, as well as the ability of opportunistic investors with short-term goals to accumulate large positions in Allstate’s stock easily. The Board also received direct input from some of Allstate’s largest investors about the ownership threshold that they recommended would be most suitable for Allstate. The proposed threshold is also consistent with the proposition that special meetings should be limited to extraordinary matters or significant strategic concerns that require stockholder attention between annual meetings of stockholders. The Board believes it has chosen the appropriate threshold for Allstate and its stockholders.

If the Amendment is approved, holders of not less than 20% of the outstanding common stock will have the right to require that a special meeting be called, subject to certain bylaw procedures. These bylaw procedures will be amendments to the current bylaws and include, among other things, the procedural requirements for one or more stockholders to require that a special meeting be called, including information identifying such stockholders; the purpose of the meeting and the matters proposed to be acted upon at the meeting; the text of any resolutions proposed for consideration; any material interest of each such stockholder in such business; and a description of any agreement, arrangement, or understanding between each such stockholder and any other person or persons in connection with such proposal or business or the shares of any such stockholder. The corporation believes its bylaw requirements will help protect stockholders' interests generally and are not unduly burdensome. The Board will adopt these bylaw amendments to become effective upon stockholder approval of the Amendment.

To be approved, the Amendment must receive the affirmative vote of a majority of the shares of our common stock outstanding and entitled to vote on the Amendment. If the Amendment is approved by the stockholders, it will become effective upon its being filed with the Secretary of State of the State of Delaware, which the corporation intends to do promptly following action by stockholders at the 2011 Annual Meeting. If the Amendment is not approved by the requisite vote, then the Amendment will not be filed with the Secretary of State of the State of Delaware and the bylaw amendments will not become effective. Absent the approval of the Amendment, our stockholders will not have the ability to require that a special meeting of stockholders be called.

A copy of the Amendment is attached as Appendix B to this proxy statement.

The Board of Directors recommends that stockholders vote for the approval of the amendment to the certificate of incorporation.



# Proposal 4
Approval of Proposed Amendment
to the Certificate of Incorporation Designating
a Forum for Certain Actions

The Board is proposing an amendment (the “Amendment”) to the corporation’s certificate of incorporation to add a new Article Tenth designating the Court of Chancery of the State of Delaware the sole and exclusive forum for certain legal actions unless otherwise consented to by the corporation. This designation of the Court of Chancery would apply to any derivative action or proceeding brought on behalf of the corporation, any action asserting a claim of breach of fiduciary duty owed by any director, officer, or other employee of the corporation to the corporation or its stockholders, any action asserting a claim against the corporation arising out of a provision of the General Corporation Law of the State of Delaware or the corporation’s certificate of incorporation or bylaws, or any action asserting a claim against the corporation governed by the internal affairs doctrine.

The proposed amendment provides numerous benefits to the corporation and its stockholders. Specifically, the corporation and its stockholders benefit from having disputes resolved by the Delaware Court of Chancery, which is widely regarded as the preeminent court for the determination of disputes involving a corporation’s internal affairs in terms of precedent, experience, and focus. The Delaware Chancery Court is comprised of experienced jurists who have a deep understanding of Delaware corporate law and long standing precedents regarding corporate governance. Delaware’s well-developed body of case law provides stockholders with more certainty with respect to the outcome of intra-corporate disputes. By ensuring that intra-corporate disputes are heard in a Delaware court, the corporation and its stockholders avoid costly and duplicative litigation, the risk that Delaware law would be misapplied by a court in another jurisdiction, and the risk of inconsistent outcomes when two similar cases proceed in different courts. Lastly, the Delaware Court of Chancery is typically able to resolve corporate disputes on an accelerated schedule, limiting the time, cost, and uncertainty of protracted litigation.

To be approved, the Amendment must receive the affirmative vote of a majority of the shares of our common stock outstanding and entitled to vote on the Amendment. If the Amendment is approved by the stockholders, it will become effective upon its being filed with the Secretary of State of the State of Delaware, which the corporation intends to do promptly following action by stockholders at the 2011 Annual Meeting. If the Amendment is not approved by the requisite vote, then the Amendment will not be filed with the Secretary of State of the State of Delaware.

A copy of the Amendment is attached as Appendix B to this proxy statement.

The Board of Directors recommends that stockholders vote for the approval of the amendment to the certificate of incorporation.



# Proposal 5
Advisory Vote on the Executive Compensation
of the Named Executive Officers

In accordance with the recently adopted Dodd-Frank Wall Street Reform and Consumer Protection Act, stockholders may vote to approve or not approve the following advisory resolution on the executive compensation of the named executive officers.

RESOLVED, on an advisory basis, the stockholders of The Allstate Corporation approve the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis and accompanying tables and narrative on pages 28-52 of the Notice of 2011 Annual Meeting and Proxy Statement.

The Board of Directors recommends that stockholders vote for the resolution to approve the compensation of the named executive officers.

Allstate’s executive compensation program has been designed to attract, motivate, and retain highly talented executives to compete in our complex and highly regulated industry. Our compensation program includes base salary, annual cash incentives, and long term equity incentives. We encourage stockholders to read the Executive Compensation portion of this proxy statement for detailed discussion of our compensation program and policies. We believe our compensation program is appropriate and effective in implementing our compensation philosophy.

● Executive compensation should be aligned with performance. Performance and compensation should be evaluated on an absolute basis and in comparison to similar companies.

● Compensation should vary with Allstate’s performance in achieving strategic and annual operating goals and long-term total stockholder return. As a result, executive compensation is divided between salary, annual cash incentives, and equity incentives (restricted stock units and stock options).

● A significant portion of named executive compensation should be at risk. Consequently, the largest component of earned compensation is dependent on share price appreciation. Senior executives also have stock ownership guidelines. The chief executive officer is required to hold Allstate stock worth seven times salary, and each other named executive is required to hold four times salary.

● Governance of our executive compensation program and payouts is vested in the Compensation and Succession Committee, which is comprised of independent directors and utilizes an independent third party compensation consultant. This committee modifies the program if necessary to improve effectiveness and adapt to changing market conditions. For example, a clawback feature was added to the Annual Executive Incentive Plan in 2009 and change-in-control agreements executed after 2010 will not have excise tax gross-up features.

The compensation of named executives has been consistent with our compensation philosophy over the last three years.

● In 2010, annual cash incentive payments for Messrs. Wilson, Civgin, and Lacher and Ms. Mayes were below target as adjusted operating income per diluted share for the corporation and Allstate Protection measures were below targets. Mr. Winter’s annual cash incentive was the highest amongst the named executive officers as Allstate Financial’s results were above target on all measures.

● Mr. Wilson’s annual cash incentive in 2008 was only 12% of target payout reflecting the negative impact the financial market meltdown had on annual results.

● For 2010, there was no payout on the long-term cash incentive plan for the 2008-2010 cycle since the three year return on equity did not exceed the minimum hurdle rate due to the impact of 2008 results. This plan paid out at 45% and 50% of target respectively in 2008 and 2009 reflecting strong financial results in 2006 and 2007. This plan is no longer in place based on a compensation program design change made in 2009.

● Stock options granted in February 2010 were essentially at-the-money at year-end as total stockholder return was 8.8% for the entire year. Stock options granted in 2009 are in-the-money due to the significant



stock price appreciation in 2009. Stock options granted in 2008 are significantly out-of-the-money reflecting the decline in share price following the financial market meltdown in late 2008 and early 2009.

● The absolute level of equity awards as a percentage of salary was unchanged for the named executive officers over the 2009-2010 period.

The Board believes these results warrant approval of this advisory resolution on the compensation of the named executive officers. Although this advisory vote is non-binding, the Board and the Compensation and Succession Committee will carefully review and consider the voting results when evaluating our executive compensation program.

The Board of Directors recommends that stockholders vote for the resolution to approve the compensation of the named executive officers.



# Proposal 6
Advisory Vote on the Frequency of
Future Advisory Votes on Executive Compensation

In accordance with the recently adopted Dodd-Frank Wall Street Reform and Consumer Protection Act, in this Proposal 6 we are asking stockholders to vote on whether future advisory votes on executive compensation should occur every year, every two years, or every three years.

After careful consideration, the Board of Directors recommends that future advisory votes on executive compensation occur every three years. We believe that this frequency is appropriate for a number of reasons, including:

● A three year view is consistent with the nature of the insurance business and provides for a more appropriate view of our pay as it relates to performance. Evaluation on a shorter time frame would not be appropriate because of the inherent volatility of the property-casualty business caused by weather and catastrophes. In addition, since property-casualty claim costs are estimated annually the adjustments for actual costs are made over the subsequent years. The investment horizon for our investment portfolio is also typically longer than one year. The distinctive nature of the insurance business aligns appropriately with the multi-year horizon of a three year advisory vote on executive compensation.

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

● The Compensation and Succession Committee evaluates and approves executive compensation plans annually. All committee members are independent and they are assisted by an independent third party compensation consultant. Adjustments necessary to adapt to market changes between advisory votes can be effectively implemented with this governance structure.

For these reasons, we encourage our stockholders to evaluate our executive compensation program over a three year horizon and to review our named executives' compensation over the past three fiscal years as reported in the Summary Compensation Table in the Executive Compensation portion of this proxy statement.

Stockholders will be able to specify one of four choices for this proposal: three years, two years, one year, or abstain. Stockholders are not voting to approve or disapprove the Board’s recommendation. While this advisory vote is non-binding on the Board of Directors, the Board intends to adopt the frequency that receives the support of stockholders.

The Board of Directors recommends that you vote to conduct future advisory votes on executive compensation every three years.



# Executive Compensation

## Compensation Committee Report

The Compensation and Succession Committee (“the Committee”) has reviewed and discussed the Compensation Discussion and Analysis, contained on pages 28 through 39 of this proxy statement, with management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

## THE COMPENSATION AND SUCCESSION COMMITTEE

H. John Riley, Jr. (Chairman)
Robert D. Beyer
W. James Farrell
Jack M. Greenberg
Ronald T. LeMay
Andrea Redmond
Joshua I. Smith

## Compensation Discussion and Analysis (“CD&A”)

## Executive Summary

## Company Performance

Allstate made continued progress on its business strategies in 2010 to position the corporation for long-term growth. Net income increased to $928 million in 2010 from $854 million in 2009. Book value per diluted share at December 31, 2010, was 14.5% higher than prior year end. Also in 2010, total stockholder return was 8.8%. In November, we commenced a $1.0 billion share repurchase program.

Allstate Protection’s 2010 results reflect its strategic initiatives and the continued impact of high catastrophe losses and increased auto claim frequency. Positive momentum in new business and in retention rates was offset by the effects of efforts to improve profitability in several large states. Allstate brand standard auto new issued applications increased 12.9% on a countrywide basis excluding Florida and California. Overall customer retention declined due in part to efforts to raise profitability in several large states. Underwriting profit was below the prior year due to increased auto claim frequency and higher catastrophe losses.

Allstate Financial made great progress in strategically repositioning the business and lowering costs. Allstate Financial premiums and contract charges for underwritten products increased 12.2% in 2010. Allstate Financial reported net income of $58 million in 2010 compared to a net loss of $483 million in 2009.

Our investment strategies were well timed and executed as we continued to stay long on corporate credit while reducing our municipal bond and real estate portfolios. As a result, the consolidated investment portfolio ended the year at $100.5 billion, $650 million higher than the end of 2009, with the improved valuation of the portfolio more than offsetting the impact of lower contractholder funds for Allstate Financial. Investment income was lower reflecting lower reinvestment rates and aggressive risk mitigation programs. These programs did lead to a positive $3.71 billion valuation increase as unrealized net capital gains were $1.39 billion as of December 31, 2010, improving from unrealized net capital losses of $2.32 billion as of December 31, 2009.

## Pay for Performance

Each year the Committee reviews the overall design of our executive compensation program to ensure compensation is aligned with both annual and long-term performance. At target levels of performance, annual and long-term incentive awards are designed to constitute a significant percentage of an executive’s total core compensation and provide a strong link to Allstate’s performance. Additionally, the delivery of the largest portion of incentive compensation through stock options provides even greater alignment with stockholder interests because the stock price must appreciate from the date of grant for any value to be delivered to executives. The



following two charts demonstrate the pay mix at target for the chief executive officer and the average at target for the other named executives.



Average of Other Named Executives



## Compensation of Chief Executive Officer

The incentive compensation paid to our chief executive officer over the last three years has varied with corporate performance.

● Annual Incentives. Annual incentive payments to Mr. Wilson have been below target for each of the last three years as the financial market crisis beginning in 2008 and high catastrophe losses have impacted results. The weighted results stated as a percentage of target payouts were 12% in 2008, 60% in 2009, and 67% in 2010.

● Long Term Cash Incentives. The weighted results stated as a percentage of target payouts were 45% for the 2006-2008 cycle, 50% for the 2007-2009 cycle, and 0% for the 2008-2010 cycle. These weighted results reflect strong results in 2006 and 2007 which were partially offset by results in 2008 and 2009. The long-term cash incentive plan has been discontinued.

● Long-Term Equity Incentives. Stock options granted in February 2010 were essentially at-the-money at year-end as total stockholder return was 8.8% for the entire year. Stock options granted in 2009 are in-the-money due to the significant stock price appreciation in 2009. Stock options granted in 2008 are significantly out-of-the-money reflecting the decline in share price following the financial market meltdown in late 2008 and early 2009.

In determining the 2010 merit adjustment and incentive payouts for Mr. Wilson, the Committee reviewed corporate and individual performance.

● Salary. Taking into consideration performance and current economic conditions, the Committee established a new base salary for Mr. Wilson of $1,100,000, effective in March 2010, a 3.7% increase from his previous salary which was established in 2008 when he assumed the role of chairman.

● Annual Incentive. The 2010 annual incentive award payout for Mr. Wilson is below target based on actual performance against a set of performance measures set at the beginning of the year. The 2010 annual incentive payout was 12% higher than the annual incentive payout in 2009, largely due to the strong results of Allstate Financial.

● Long-Term Cash Incentive. The Committee approved a zero payout for the 2008-2010 cycle of the long-term cash incentive plan due to performance levels below threshold.

● Long-Term Equity Incentives. To provide a competitive level of long-term incentives, the Committee granted the target level of equity for Mr. Wilson, set at 600% of salary. As shown in the summary compensation table, the value of the equity awards granted by the Committee to Mr. Wilson in 2010 was substantially similar to the value granted in 2009.

● Total Direct Compensation. As a result of these compensation decisions, the total direct compensation for Mr. Wilson decreased in 2010, as demonstrated in the summary compensation table.

## Compensation of Other Named Executives

The 2010 incentive awards for the other named executives are consistent with performance.

● Annual Incentives. In 2010, annual cash incentive payments for Messrs. Civgin, our chief financial officer, and Lacher, president of Allstate Protection, and Ms. Mayes, our general counsel, were below target as adjusted operating income per diluted share for the corporation and Allstate Protection measures were



below targets. Mr. Winter’s annual cash incentive, as president of Allstate Financial, was the highest amongst the named executives as Allstate Financial’s results were above target on all measures.

- Long-Term Equity Incentives. As of December 31, 2010, the value of stock options granted in 2010 is essentially at-the-money as total stockholder return was 8.8% for the entire year.

- Long-Term Cash Incentive. There was no payout on the long-term cash incentive plan for the 2008-2010 cycle due to performance levels below threshold. This plan paid out at 45% and 50% of target respectively in 2008 and 2009 reflecting strong financial results in 2006 and 2007. This plan is no longer in place based on a compensation program design change made in 2009.

Allstate has made changes to its executive compensation program for 2011. We have eliminated any excise tax gross-ups in new change-in-control agreements. Allstate has also made changes to the annual incentive program for 2011 to continue to better align executive compensation with enterprise performance. The key program change, which will apply to all bonus eligible employees across the enterprise, will be to reduce the number of measures and provide for greater use of enterprise-wide corporate goals. We believe this action will focus employees on those goals which will more effectively drive sustainable long-term growth for stockholders.

## Compensation Philosophy

Our compensation philosophy is based on these central beliefs:

● Executive compensation should be aligned with performance and stockholder value. Accordingly, a significant amount of executive compensation should be in the form of equity.

● The compensation of our executives should vary both with appreciation in the price of Allstate stock and with Allstate’s performance in achieving strategic short and long-term business goals designed to drive stock price appreciation.

● Our compensation program should inspire our executives to strive for performance that is better than the industry average.

● A greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate’s performance.

● We should provide competitive levels of compensation for competitive levels of performance and superior levels of compensation for superior levels of performance.

Our executive compensation program has been designed around these beliefs and includes programs and practices that ensure alignment between the interests of our stockholders and executives and delivery of compensation consistent with the corresponding level of performance. These objectives are balanced with the goal of attracting, motivating, and retaining highly talented executives to compete in our complex and highly regulated industry.

Some key practices we believe support this approach include:

● Providing a significant portion of executive pay through stock options, creating direct alignment with stockholder interests.

● Establishment of stock ownership guidelines for senior executives that drive further alignment with stockholder interests. The chief executive officer is required to hold Allstate stock worth seven times salary, and each other named executive is required to hold four times salary.

● Stock option repricing is not permitted.

● A robust governance process for the design, approval, administration, and review of our overall compensation program.

● Utilization of annual incentive plan caps to limit maximum award opportunities and support enterprise risk management strategies.

● Inclusion of a clawback feature in the Annual Executive Incentive Plan and the 2009 Equity Incentive Plan that provides the ability to recover compensation from the senior management team in the event of certain financial restatements.

● Incorporation of discretion in the Annual Executive Incentive Plan to allow for the adjustment of awards to reflect individual performance.



Our philosophy and practices have provided us with the tools to create an effective executive compensation program as detailed below.

## Named Executives

This CD&A describes the executive compensation program at Allstate and specifically describes total 2010 compensation for the following named executives:

● Thomas J. Wilson–Chairman, President and Chief Executive Officer

● Don Civgin–Executive Vice President and Chief Financial Officer

● Joseph P. Lacher, Jr.–President, Allstate Protection

● Michele C. Mayes–Executive Vice President and General Counsel

● Matthew E. Winter–President and Chief Executive Officer, Allstate Financial

## CEO Compensation

As stated in its charter, one of the Committee’s most important responsibilities is making recommendations to the Board regarding the CEO’s compensation. The Committee establishes the goals against which the CEO’s performance for the year will be evaluated and, in conjunction with the Nominating and Governance Committee, evaluates the CEO’s performance relative to these goals. When reviewing performance relative to these goals, the Board discusses the Committee’s recommendations in executive session, without the CEO present. The Committee fulfills its oversight responsibilities and provides meaningful recommendations to the Board for its consideration by analyzing competitive compensation data provided by its independent executive compensation consultant and company performance data provided by senior management. The Committee reviews the various elements of the CEO’s compensation in the context of a total compensation package, including salary, annual cash incentive awards, long-term incentive awards, and accrued pension benefits, as well as the value of Allstate stock holdings and prior long-term incentive awards, and then presents its recommendations to the Board within this total compensation framework.

Mr. Wilson’s total compensation and the amount of each compensation element are driven by the design of our compensation plans, his years of experience, the scope of his duties, including his responsibilities for Allstate’s overall strategic direction, performance, and operations, and the Committee’s analysis of competitive compensation for CEOs of peer insurance companies and general industry CEO compensation practices. Because of his leadership responsibilities, his leadership experience, and his ultimate accountability for performance of the company, the Committee set a higher level of target total compensation as compared to the executive officers who report to him.

## Compensation Practices

The Committee reviews the design of our executive compensation program and executive pay levels on an annual basis and performance and goal attainment within this design throughout the year. As part of that review, the Committee engages Towers Watson, an independent compensation consultant, to conduct a marketplace review of our executive compensation program. Towers Watson provided the Committee with relevant market data and alternatives to consider when making compensation decisions for the named executives. In benchmarking our executive compensation program the Committee utilizes a group of peer insurance companies as the primary data source. The Committee selected these insurance companies based on the fact that they are publicly-traded and their comparability to Allstate in product offerings, market segment, annual revenues, assets, and market value. The Committee believes that these are companies against which Allstate competes for executive talent and stockholder investment. Towers Watson recommended modifications to the peer insurance companies that the Committee uses in benchmarking executive compensation for 2010, including program design, executive pay, and performance comparisons. The Committee approved removing from the peer insurance companies Cincinnati Financial Corporation due to its relative size and CNA Financial Corporation because it is closely held. ACE Ltd, AFLAC Inc., and Manulife Financial Corporation were added to augment the peer insurance companies with similarly sized insurers.



<table><tr><td colspan="2">Peer Insurance Companies</td></tr><tr><td>ACE Ltd.*</td><td>Manulife Financial Corporation*</td></tr><tr><td>AFLAC Inc.*</td><td>MetLife Inc.</td></tr><tr><td>The Chubb Corporation</td><td>The Progressive Corporation</td></tr><tr><td>The Hartford Financial Services Group, Inc.</td><td>Prudential Financial, Inc.</td></tr><tr><td>Lincoln National Corporation</td><td>The Travelers Companies, Inc.</td></tr></table>

* Added in 2010

In addition, in its executive pay discussions, the Committee considers proxy information from select S&P 100 companies that had between $15 and $60 billion in fiscal 2009 revenue. These are publicly traded companies with which we compete for executive talent.

## Core Elements of Executive Compensation Program

Our executive compensation program design balances fixed and variable compensation elements and provides alignment with both short and long term business goals through annual and long-term incentives. Our incentives are designed to balance overall corporate, business unit, and individual performance with respect to measures we believe correlate to the creation of stockholder value and align with our strategic vision and operating priorities. The following table lists the core elements of our executive compensation program.

<table><tr><td>Core Element</td><td>Purpose</td><td>Potential for Variability with Performance</td></tr><tr><td>Annual salary</td><td>Provides a base level of competitive cash compensation for executive talent</td><td>Low</td></tr><tr><td>Annual cash incentive awards</td><td>Reward performance on key strategic, operational, and financial measures over the year</td><td>High</td></tr><tr><td>Long-term equity incentive awards</td><td>Align the interests of executives with long-term shareholder value and retain executive talent</td><td>Moderate to High</td></tr></table>

## Salary

Executive salaries are set by the Board based on the recommendations of the Committee. In recommending executive base salary levels, the Committee uses the 50 \( ^{th} \)  percentile of our peer insurance companies as a guideline to align with Allstate’s pay philosophy for competitive positioning in the market for executive talent.

- The average enterprise-wide merit and promotional increases are based on a combination of U.S. general and insurance industry market data and are set at levels intended to be competitive.

● Annual merit increases for the named executives other than the CEO are based on evaluations of their performance by the CEO, the Committee, and the Board, using the average enterprise-wide merit increase as a guideline. An annual merit increase for the CEO is based on an evaluation by the Committee and the Board of his performance and market conditions.

- Mr. Wilson began fiscal year 2010 with an annual base salary of $1,060,000, which was established in 2008 when he assumed the role of Chairman. The Committee established a new base salary of $1,100,000, effective in March of 2010, taking into consideration his performance and current economic conditions.

- The Committee reviewed the base salaries for each other named executive in February of 2010. The Committee established a new base salary for Mr. Civgin and Ms. Mayes based on individual performance and in line with the enterprise-wide merit increase. Mr. Civgin’s salary was $550,000, and the Committee approved an increase to $565,000. Ms. Mayes’ salary was $554,190, and the Committee approved an increase to $568,000.

- The Committee did not adjust the base salaries for Messrs. Lacher and Winter, which had just been established in the last quarter of 2009 when they joined the corporation.

## Incentive Compensation

The Committee approves performance measures and goals for cash incentive awards during the first quarter of the year. The performance measures and goals are aligned with Allstate’s objectives and tied to our strategic



vision and our operating priorities. They are designed to reward our executives for actual performance, to reflect objectives that will require significant effort and skill to achieve, and to drive stockholder value.

After the end of the year for annual cash incentive awards and after the end of the three-year cycle for long-term cash incentive awards, the Committee reviews the extent to which we have achieved the various performance measures and approves the actual amount of all cash incentive awards for executive officers. The Committee may adjust the amount of an annual cash incentive award but has no authority to increase the amount of an award payable to any of the named executives, other than Mr. Civgin, above the described plan limits. We pay the cash incentive awards in March, after the end of the year for the annual cash incentive awards and after the end of the three-year cycle for the long-term cash incentive awards. Long-term cash incentives have been discontinued, and the last three year cycle ended in 2010.

Typically the Committee also approves grants of equity awards on an annual basis during a meeting in the first quarter. By making these awards and approving performance measures and goals for the annual cash incentive awards during the first quarter, the Committee is able to balance these elements of core compensation to align with our business goals.

## Annual Cash Incentive Awards

In 2010 executives had the opportunity to earn an annual cash incentive award based on the achievement of performance measures over a one-year period. The Annual Executive Incentive Plan is designed to provide all of the named executives with cash awards based on a combination of corporate and business unit performance measures for each of our main business units: Allstate Protection, Allstate Financial, and Allstate Investments.

The aggregate annual incentive awards for the named executives, except for Mr. Civgin, cannot exceed 1.0% of Operating Income. Operating Income is defined under the “Performance Measures” caption on page 53. The maximum amount of the individual awards for each named executive, except for Mr. Civgin, was the lesser of a stockholder approved maximum under the Annual Executive Incentive Plan of $8.5 million or a percentage of the 1.0% of Operating Income pool. Mr. Civgin does not participate in the Operating Income pool. The percentage for the CEO is 40% of the pool, while the percentage for the other named executives is 25% for the highest paid, 20% for the second highest paid, and 15% for the third highest paid. These limits established the maximum annual cash incentive awards that could be paid. However, the Committee retained complete discretion to pay any lesser amounts. Actual awards to the named executives were based on the achievement of certain performance measures as detailed below, including an assessment of individual performance, and resulted in substantially lower amounts than the plan maximums.

For 2010, the Committee adopted corporate and business unit level annual performance measures and weighted them as applied to each of the named executives in accordance with their responsibilities for our overall corporate performance and the performance of each business unit. There are multiple performance measures at the business unit level and each measure is assigned a weight expressed as a percentage of the total annual cash incentive award opportunity, with all weights for any particular named executive adding to 100%. The weighting of the performance measures at the corporate and business unit level for each named executive is shown in the following table.

ANNUAL CASH INCENTIVE AWARD PERFORMANCE MEASURES AND WEIGHTING

<table><tr><td></td><td colspan="3">Messrs. Civgin and Wilson and Ms. Mayes</td><td>Mr. Lacher</td><td>Mr. Winter</td></tr><tr><td>Corporate</td><td>50%</td><td></td><td>20%</td><td></td><td>20%</td></tr><tr><td>Allstate Protection</td><td>25%</td><td></td><td>80%</td><td></td><td></td></tr><tr><td>Allstate Financial</td><td>15%</td><td></td><td></td><td></td><td>80%</td></tr><tr><td>Allstate Investments</td><td>10%</td><td></td><td></td><td></td><td></td></tr></table>

Each of the named executives bears varying degrees of responsibility for the achievement of our corporate adjusted operating income per diluted share measure, therefore part of each named executive’s annual cash incentive award opportunity was tied to our performance on that measure. Performance measures for Mr. Wilson as CEO, Mr. Civgin as chief financial officer, and Ms. Mayes as general counsel are aligned to the entire organization because of their broad oversight and management responsibilities. Accordingly, portions of their award opportunities were based on the achievement of the performance measures for all three business units. Because Mr. Lacher and Mr. Winter each lead one of our business units, Allstate Protection and Allstate Financial



respectively, a much larger portion of their award opportunity was tied to the achievement of their units' performance measures.

The following table lists the performance measures and related target goals for 2010 as well as the actual results. The performance measures were designed to focus executive attention on key strategic, operational, and financial measures including top line growth and profitability. For each performance measure, the Committee approved a threshold, target, and maximum goal. The target goals for the performance measures were based on evaluations of our historical performance and plans to drive projected performance. A description of each performance measure is provided under the “Performance Measures” caption on page 53.

<table><tr><td colspan="4">Annual Cash Incentive Award Performance Measures(1)</td></tr><tr><td>Performance Measure</td><td>Target</td><td>Actual(2)</td><td>Achievement relative to threshold, target, maximum goals</td></tr><tr><td>Corporate-Level Performance Measure</td><td></td><td></td><td></td></tr><tr><td>Adjusted Operating Income Per Diluted Share</td><td>$4.30</td><td>$3.00</td><td>Between threshold and target</td></tr><tr><td>Allstate Protection Performance Measures</td><td></td><td></td><td></td></tr><tr><td>Financial Product Sales (percent growth)</td><td>0%</td><td>(3.4)%</td><td>Between threshold and target</td></tr><tr><td>Property Profitability (combined ratio)</td><td>97.4</td><td>102.3</td><td>Between threshold and target</td></tr><tr><td>Auto Growth and Profit Matrix</td><td>See Performance Measures</td><td>0% of target</td><td>Below threshold</td></tr><tr><td>Allstate Financial Performance Measures</td><td></td><td></td><td></td></tr><tr><td>Adjusted Operating Income</td><td>$425 million</td><td>$474 million</td><td>Exceeded maximum</td></tr><tr><td>Adjusted Operating Return on Equity</td><td>6.6%</td><td>7.7%</td><td>Exceeded maximum</td></tr><tr><td>Allstate Exclusive Agency Proprietary and AWD Weighted Sales</td><td>$256 million</td><td>$262 million</td><td>Between target and maximum</td></tr><tr><td>Allstate Financial Portfolio Excess Total Return (in basis points)</td><td>55</td><td>63</td><td>Between target and maximum</td></tr><tr><td>Allstate Investments Performance Measures</td><td></td><td></td><td></td></tr><tr><td>Adjusted Net Investment Income</td><td>$4,257 million</td><td>$4,090 million</td><td>Below threshold</td></tr><tr><td>Portfolio Relative Total Return</td><td></td><td></td><td></td></tr><tr><td>Property Liability Portfolio Relative Total Return (in basis points)</td><td>55</td><td>(39)</td><td>Below threshold</td></tr><tr><td>Allstate Financial Portfolio Relative Total Return (in basis points)</td><td>55</td><td>63</td><td>Between target and maximum</td></tr><tr><td>Allstate Pension Plans Portfolio Relative Total Return (in basis points)</td><td>70</td><td>36</td><td>Between threshold and target</td></tr><tr><td colspan="4">(1) Information regarding our performance measures is disclosed in the limited context of our annual cash incentive awards and should not be understood to be statements of management&#x27;s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.</td></tr><tr><td colspan="4">(2) Stated as a percentage of target goals with a range from 0% to 250%, the actual performance comprises 54% for Adjusted Operating Income Per Diluted Share performance, 39% for Allstate Protection performance, 189% for Allstate Financial performance, and 39% for Allstate Investments performance. The weighted results stated as a percentage of the target payouts for each named executive are as follows: Messrs. Wilson and Civgin and Ms. Mayes-67%, Mr. Lacher-42%, and Mr. Winter-162%.</td></tr></table>



Target award opportunities approved by the Committee are stated as a percentage of annual base salary. Annual cash incentive awards are calculated using base salary, as adjusted by any merit and promotional increases granted during the year on a prorated basis. In setting target incentive levels for named executives, the Committee gives the most consideration to market data primarily focusing on pay levels at peer group companies with which we directly compete for executive talent and stockholder investment. As a result of leveraging external market data, Mr. Wilson has the highest target award opportunity of 150%, followed by Messrs. Lacher and Winter, heads of Allstate Protection and Allstate Financial, respectively, with a target award opportunity of 125%, followed by Mr. Civgin, our chief financial officer, with a target award opportunity of 100%, followed by Ms. Mayes, our general counsel, with a target award opportunity of 85%.

In calculating the annual cash incentive awards, our achievement with respect to each performance measure is expressed as a percentage of the target goal, with interpolation applied between the threshold and target goals and between the target and maximum goals. Unless otherwise adjusted by the Committee, the amount of each named executive's annual cash incentive award is the sum of the amounts calculated using the calculation below for all of the performance measures.

<table><tr><td>Actual performance interpolated relative to threshold and target on a range of 50% to 100% and relative to target and maximum on a range of 100% to 250%*</td><td>X Weighting X</td><td>Target award opportunity as a percentage of salary**</td><td>X Salary**</td></tr><tr><td>* Actual performance below threshold results in 0%</td><td></td><td></td><td></td></tr><tr><td>** Base salary, as adjusted by any merit and promotional increases granted during the year on a prorated basis.</td><td></td><td></td><td></td></tr></table>

Following the end of the performance year, Mr. Wilson conducted an evaluation of the performance of each member of his senior management team, including each other named executive. Based on his subjective evaluation of each executive’s contributions and performance, Mr. Wilson made recommendations to the Committee regarding individual adjustments to the formula driven annual incentive amounts. The recommendations were considered and approved by the Committee. The annual cash award for each named executive for 2010 is based on the plan mechanics, performance results, and individual performance assessments by the CEO, which reflect progress made against established goals.

- Mr. Civgin. Under Mr. Civgin’s leadership Allstate continued to demonstrate excellent capital management results, improved its enterprise risk and return practices, and provided strong overall governance. Mr. Civgin demonstrated strong leadership in winding down Allstate Bank and continued to develop stronger relationships with Allstate’s shareholders. Mr. Civgin’s annual cash award of $400,000 reflects plan results and his performance during 2010.

- Mr. Lacher. Allstate Protection’s profitability was within the annual outlook range but was negatively impacted by high catastrophes and increased auto claim frequency. Momentum gained in new auto business through a new advertising program was offset by effects of profitability improvement efforts in several large states. Progress was made in implementing a new organization structure, recruiting new leadership to the business and improving agency loyalty. Mr. Lacher’s annual cash bonus award of $250,000 is reflective of the plan results and his performance in leading the Allstate Protection business.

- Ms. Mayes. Ms. Mayes continued to drive process improvements and expense management in her leadership of Allstate’s Law & Regulation department. Ms. Mayes continued to provide expert leadership in addressing significant regulatory reforms and government relations. Reflective of plan results and her performance during 2010, Ms. Mayes earned an annual cash award of $350,000.

- Mr. Winter. Allstate Financial’s adjusted operating income and adjusted operating return on equity exceeded maximum. Allstate Financial continued executing on its strategy to serve its customers by focusing on Allstate agencies and Allstate Benefits (formerly the Allstate Workplace Division), including the launch of the new GoodforLife \( ^{SM} \)  product. Mr. Winter’s leadership re-energized the organization through his strategic vision and driving performance and accountability. Reflecting plan results and his performance, Mr. Winter’s annual cash bonus award is $1,212,300.



The Committee determined Mr. Wilson’s annual incentive award for 2010 based on the 2010 plan mechanics and performance results and made an annual cash award of $1,091,096. This award is below the target of $1,640,466 for Mr. Wilson.

- Mr. Wilson. Under Mr. Wilson’s leadership Allstate continued to make progress on its strategic initiatives in 2010 designed to position the company for long-term growth.

- Allstate Protection’s profitability was within its annual outlook range but was negatively impacted by high catastrophes and increased auto claim frequency. In spite of momentum gained in new auto business, auto market share declined due to the offsetting effects of profitability improvement efforts in several large states.

- Allstate Financial made great progress in repositioning the business and lowering costs resulting in significantly increased operating profit.

- Allstate Investments strategies in 2010 were well executed and timed resulting in good total return but a decline in investment income.

## Long-Term Incentive Awards—Cash and Equity

As part of total core compensation, we historically have provided three forms of long-term incentive awards: stock options, restricted stock units, and long-term cash incentive awards. In 2009, we discontinued future cycles of the long-term cash incentive plan. The relative mix of various forms of these awards is driven by our objectives in providing the specific form of award, as described below.

## Long-Term Incentive Awards—Equity

We grant larger equity awards to executives with the broadest scope of responsibility, consistent with our philosophy that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate’s performance. However, from time to time, larger equity awards are granted to attract new executives. The Committee annually reviews the mix of equity incentives provided to the named executives. Since 2009, the mix has consisted of 65% stock options and 35% restricted stock units. The majority of equity incentives are granted in stock options, which are performance-based, requiring growth in the stock price to deliver any value to an executive. The restricted stock units provide alignment with stockholder interests along with providing an effective retention tool.

## Stock options

Stock options represent the opportunity to buy shares of our stock at a fixed exercise price at a future date. We use them to align the interests of our executives with long-term stockholder value as the stock price must appreciate from the date of grant for any value to be delivered to executives.

## Key elements:

- Under our stockholder-approved equity incentive plan, the exercise price cannot be less than the fair market value of a share on the date of grant.

- Stock option repricing is not permitted. In other words, absent an event such as a stock split, if the Committee cancels an award and substitutes a new award, the exercise price of the new award cannot be less than the exercise price of the cancelled award.

- All stock option awards have been made in the form of nonqualified stock options.

- The options granted to the named executives in 2010 become exercisable in three installments, 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates, and expire in ten years, except in certain change-in-control situations or under other special circumstances approved by the Committee.

## Restricted stock units

Each restricted stock unit represents our promise to transfer one fully vested share of stock in the future if and when the restrictions expire (when the unit “vests”). Because restricted stock units are based on and payable in stock, they serve to reinforce the alignment of interests of our executives and our stockholders. In addition, because restricted stock units have a real, current value that is forfeited, except in some circumstances, if an executive terminates employment before the restricted stock units vest, they provide a retention incentive. Under



the terms of the restricted stock unit awards, the executives have only the rights of general unsecured creditors of Allstate and no rights as stockholders until delivery of the underlying shares.

Key elements:

- The restricted stock units granted to the named executives in 2010 vest in three installments, 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates, except in certain change-in-control situations or under other special circumstances approved by the Committee.

- The restricted stock units granted to the named executives in 2010 include the right to receive previously accrued dividend equivalents when the underlying restricted stock unit vests.

Timing of Equity Awards and Grant Practices

The Committee grants equity incentive awards to current employees on an annual basis normally during a meeting in the first fiscal quarter, after the issuance of our prior fiscal year-end earnings release. Throughout the year, the Committee grants equity incentive awards in connection with new hires and promotions and in recognition of achievements. The grant date for these awards is fixed as the first business day of a month following the Committee action.

Pursuant to authority delegated by the Board and the Committee, equity incentive awards to employees other than executive officers also may be granted by an equity award committee which currently consists of the CEO. The Committee is provided with an update of equity awards granted by the equity award committee at each regularly scheduled meeting. In 2010, 71,056 stock options and 11,558 restricted stock units were granted by the equity award committee. The equity award committee may grant restricted stock units and stock options in connection with new hires and promotions and in recognition of achievements. The grant date for these awards is fixed as the first business day of a month following the committee action. For additional information on the Committee’s practices, see the Corporate Governance Practices and Code of Ethics section of this proxy statement.

## Stock Ownership Guidelines

Because we believe management’s interests must be linked with those of our stockholders, we instituted stock ownership guidelines in 1996 that require each of the named executives to own common stock, including restricted stock units, worth a multiple of base salary, as of March 1 following the fifth year after assuming a senior management position. Unexercised stock options do not count towards meeting the stock ownership guidelines. Mr. Wilson has met his goal of seven times salary. For the other named executives, the goal is four times salary. Mr. Civgin has until March 2014 to meet his goal. Ms. Mayes has until March of 2013 to meet her goal. Messrs. Lacher and Winter have until March 2015 to meet their goals. After a named executive meets the guideline for the position, if the value of his or her shares does not equal the specified multiple of base salary solely due to the fact that the value of the shares has declined, the executive is still deemed to be in compliance with the guideline. However, an executive in that situation may not sell shares acquired upon the exercise of an option or conversion of an equity award except to satisfy tax withholding obligations, until the value of his or her shares again equals the specified multiple of base salary. In accordance with our policy on insider trading, all officers, directors, and employees are prohibited from engaging in transactions with respect to any securities issued by Allstate or any of its subsidiaries that might be considered speculative or regarded as hedging, such as selling short or buying or selling options.

## Long-Term Incentive Awards—Cash

There were no pay-outs on any long-term cash incentive awards for the 2008-2010 cycle, the final cycle under the Long-Term Executive Incentive Compensation Plan. Long-term cash incentive awards were originally designed to reward executives for collective results attained over a three-year performance cycle. There were three performance measures for the 2008-2010 cycle: average adjusted return on equity relative to peers, which was weighted at 50% of the potential award, Allstate Protection growth in policies in force, and Allstate Financial return on total capital, both weighted at 25% of the potential award. The Allstate Protection growth in policies in force measure had target set at 5.0%, with actual performance of -5.9%. The Allstate Financial return on total capital measure had target set at 9.5%, with actual performance of -12.6%. The selection and weighting of these measures was intended to focus executive attention on the collective achievement of Allstate’s long-term financial goals across its various product lines. A description of each performance measure is provided under the “Performance Measures” caption on page 53.



The average adjusted return on equity relative to peers measure compared Allstate’s performance to a group of other insurance companies. If the average adjusted return on equity had exceeded the average risk free rate of return on three-year Treasury notes over the three-year cycle, plus 200 basis points, Allstate’s ranked position relative to the peer group would have determined the percentage of the total target award for this performance measure to be paid. However, the average adjusted return on equity did not exceed the average risk free rate of return, plus 200 basis points, resulting in no payout.

## Other Elements of Compensation

To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we provide the benefits listed in the following table. Our Board encourages the CEO to use our corporate aircraft in order to deal with job responsibilities and time constraints.

<table><tr><td>Benefit or Perquisite</td><td>Named Executives</td><td>Other Officers and Certain Managers</td><td>All Full-time and Regular Part-time Employees</td></tr><tr><td>401(k)(1) and defined benefit pension</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Supplemental retirement benefit</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Health and welfare benefits(2)</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Supplemental long-term disability and executive physical program</td><td>✓</td><td>✓(3)</td><td></td></tr><tr><td>Deferred compensation</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Tax preparation and financial planning services</td><td>✓</td><td>✓(4)</td><td></td></tr><tr><td>Mobile phones, ground transportation and personal use of aircraft(5)</td><td>✓</td><td>✓</td><td></td></tr><tr><td colspan="4">(1) Allstate contributed $5.50 for every dollar of basic pre-tax deposits made in 2010 on the first 3 percent of eligible pay and $2.25 for every dollar of basic pre-tax deposits made in 2010 on the next 2 percent of eligible pay for eligible participants, including the named executives.</td></tr><tr><td colspan="4">(2) Including medical, dental, vision, life, accidental death and dismemberment, long-term disability, and group legal insurance.</td></tr><tr><td colspan="4">(3) An executive physical program is available to all officers.</td></tr><tr><td colspan="4">(4) All officers are eligible for tax preparation services. Financial planning services were provided to the senior management team only (the senior officers who sit on the Board of Allstate Insurance Company).</td></tr><tr><td colspan="4">(5) Ground transportation is available to members of the senior management team only. In limited circumstances approved by the CEO, members of our senior management team are permitted to use our corporate aircraft for personal purposes. Mobile phones are available to members of the senior management team, other officers, certain managers, and certain employees depending on their job responsibilities.</td></tr></table>

## Retirement Benefits

Each named executive participates in two different defined benefit pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined benefit pension plan available to all of our regular full-time and regular part-time employees who meet certain age and service requirements. The ARP provides an assured retirement income related to an employee's level of compensation and length of service at no cost to the employee. As the ARP is a tax qualified plan, federal tax law places limits on (1) the amount of an individual's compensation that can be used to calculate plan benefits and (2) the total amount of benefits payable to a participant under the plan on an annual basis. These limits may result in a lower benefit under the ARP than would have been payable if the limits did not exist for certain of our employees. Therefore, the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP) was created for the purpose of providing ARP-eligible employees whose compensation or benefit amount exceeds the federal limits with an additional defined benefit in an amount equal to what would have been payable under the ARP if the federal limits described above did not exist.

In addition to the ARP and SRIP, Ms. Mayes has a supplemental nonqualified retirement benefit agreement which provides for additional cash balance pay credits. Ms. Mayes was provided with a pension enhancement to compensate for retirement benefits that she was foregoing from her prior employer when she joined Allstate in 2007.

## Change-in-Control and Post-Termination Benefits

Since a change-in-control or other triggering event may never occur, we do not view change-in-control benefits or post-termination benefits as compensation. Consistent with our compensation objectives, we offer



these benefits to attract, motivate, and retain highly talented executives. A change-in-control of Allstate could have a disruptive impact on both Allstate and our executives. Our change-in-control benefits and post-termination benefits are designed to mitigate that impact and to maintain the connection between the interests of our executives and our stockholders. Change-in-control agreements entered into prior to January 1, 2011, provide an excise tax gross-up to mitigate the possible disparate tax treatment for similarly situated employees. However, starting in 2011, new change-in-control agreements will not include an excise tax gross-up provision.

As part of the change-in-control benefits, executives receive previously deferred compensation and equity awards that might otherwise be eliminated by new directors elected in connection with a change-in-control. We also provide certain protections for cash incentive awards and benefits if an executive’s employment is terminated within a two-year period after a change-in-control. The change-in-control and post-termination arrangements which are described in the “Potential Payments as a Result of Termination or Change-in-Control” section are not provided exclusively to the named executives. A larger group of management employees is eligible to receive many of the post-termination benefits described in that section.

## Impact of Tax Considerations on Compensation

We are subject to a limit of $1 million per executive on the amount of the tax deduction we are entitled to take for compensation paid in a year to our CEO and the three other most highly compensated executives, excluding our CFO, as of the last day of the fiscal year in which the compensation is paid unless the compensation meets specific standards. We may deduct more than $1 million in compensation if the standards are met, including that the compensation is “performance based” and is paid pursuant to a plan that meets certain requirements. The Committee considers the impact of this rule in developing, implementing, and administering our compensation programs and balances this rule with our goal of structuring compensation programs that attract, motivate, and retain highly talented executives.

Our compensation programs are designed and administered so that payments to affected executives can be fully deductible. However, in light of the balance mentioned above and the need to maintain flexibility in administering compensation programs, in any year we may authorize compensation in excess of $1 million that does not meet the required standards for deductibility. The amount of compensation paid in 2010 that was not deductible for tax purposes was $1,008,718.



## SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the compensation of the named executives for the last three fiscal years.

<table><tr><td>NAME(1)</td><td>YEAR</td><td>SALARY ($)(2)</td><td>BONUS ($)</td><td>STOCK AWARDS ($)(3)</td><td>OPTION AWARDS ($)(4)</td><td>NON-EQUITY INCENTIVE PLAN COMPENSATION ($)(5)</td><td>CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(6)</td><td>ALL OTHER COMPENSATION ($)(7)</td><td>TOTAL ($)</td></tr><tr><td>Thomas J. Wilson</td><td>2010</td><td>1,093,846</td><td>—</td><td>2,225,995</td><td>4,134,002</td><td>1,091,096</td><td>679,359(9)</td><td>75,322</td><td>9,299,620</td></tr><tr><td>(Chairman, President</td><td>2009</td><td>1,100,769</td><td>—</td><td>2,226,003</td><td>4,261,776</td><td>1,713,361</td><td>1,050,579</td><td>68,072</td><td>10,420,560</td></tr><tr><td>and Chief Executive Officer)</td><td>2008</td><td>1,040,769</td><td>—</td><td>1,791,938</td><td>3,393,309</td><td>736,261</td><td>945,884</td><td>49,938</td><td>7,958,099</td></tr><tr><td>Don Civgin</td><td>2010</td><td>562,692</td><td>—</td><td>596,759</td><td>1,108,246</td><td>400,000</td><td>20,648(10)</td><td>27,013</td><td>2,715,358</td></tr><tr><td>(Executive Vice President</td><td>2009</td><td>571,154</td><td>—</td><td>596,758</td><td>1,142,505</td><td>281,962</td><td>6,629</td><td>37,718</td><td>2,636,726</td></tr><tr><td>and Chief Financial Officer)</td><td>2008</td><td>158,654</td><td>221,501(9)</td><td>292,824</td><td>594,100</td><td>16,750</td><td>0</td><td>7,594</td><td>1,291,423</td></tr><tr><td>Joseph P. Lacher, Jr.</td><td>2010</td><td>650,000</td><td>—</td><td>796,244</td><td>1,478,753</td><td>250,000</td><td>3,908(11)</td><td>42,490</td><td>3,221,395</td></tr><tr><td>(President—Allstate Protection)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Michele C. Mayes</td><td>2010</td><td>565,875</td><td>—</td><td>494,613</td><td>918,572</td><td>350,000</td><td>63,474(12)</td><td>35,791</td><td>2,428,325</td></tr><tr><td>(Executive Vice President</td><td>2009</td><td>573,930</td><td>—</td><td>487,313</td><td>932,970</td><td>371,054</td><td>50,490</td><td>40,260</td><td>2,456,017</td></tr><tr><td>and General Counsel)</td><td>2008</td><td>541,962</td><td>—</td><td>380,796</td><td>723,163</td><td>46,008</td><td>55,906</td><td>42,892</td><td>1,790,727</td></tr><tr><td>Matthew E. Winter</td><td>2010</td><td>600,000</td><td>—</td><td>734,994</td><td>1,365,002</td><td>1,212,300</td><td>3,833(13)</td><td>35,159</td><td>3,951,288</td></tr><tr><td>(President and Chief Executive Officer—Allstate Financial)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) Messrs. Lacher and Winter were not named executives for fiscal years 2008 or 2009.

(2) Reflects amounts for 2009 that were paid in 2009 which, due to the timing of Allstate’s payroll cycle, included amounts earned in 2008.

(3) The aggregate grant date fair value of restricted stock unit awards computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC 718"). The number of restricted stock units granted in 2010 to each named executive is provided in the Grants of Plan-Based Awards table on page 43. The fair value of restricted stock unit awards is based on the final closing price of Allstate's stock as of the date of grant. The final closing price in part reflects the payment of future dividends expected.

(4) The aggregate grant date fair value of option awards computed in accordance with FASB ASC 718. The fair value of each option award is estimated on the date of grant using a binomial lattice model. The fair value of each option award is estimated on the date of grant using the assumptions as set forth in the following table:

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Weighted average expected term</td><td>7.8 years</td><td>8.1 years</td><td>8.1 years</td></tr><tr><td>Expected volatility</td><td>23.7 - 52.3%</td><td>26.3 - 79.2%</td><td>16.9 - 58.6%</td></tr><tr><td>Weighted average volatility</td><td>35.1%</td><td>38.3%</td><td>23.1%</td></tr><tr><td>Expected dividends</td><td>2.4 - 2.8%</td><td>2.6%</td><td>3.1 - 5.8%</td></tr><tr><td>Weighted average expected dividends</td><td>2.6%</td><td>2.6%</td><td>3.1%</td></tr><tr><td>Risk-free rate</td><td>0.1 - 3.9%</td><td>0.0 - 3.7%</td><td>0.2 - 4.1%</td></tr></table>

The number of options granted in 2010 to each named executive is provided in the Grants of Plan-Based Awards table on page 43.



(5) Amounts earned under the Annual Executive Incentive Plan (the Annual Executive Incentive Compensation Plan and the Annual Covered Employee Incentive Compensation Plan for 2009 and 2008) are paid in the year following performance. Amounts earned under the Long-Term Executive Incentive Compensation Plan are paid in the year following the performance cycle. The amounts shown in the table above include amounts earned in 2010, 2009, and 2008 and payable under these plans in 2011, 2010, and 2009, respectively. The break-down for each component is as follows:

<table><tr><td>Name</td><td>Year</td><td>Annual Cash Incentive Award Amount</td><td>Cycle</td><td>Long-Term Cash Incentive Award Amount</td></tr><tr><td rowspan="3">Mr. Wilson</td><td>2010</td><td>$1,091,096</td><td>2008-2010</td><td>$ 0</td></tr><tr><td>2009</td><td>$ 950,000</td><td>2007-2009</td><td>$763,361</td></tr><tr><td>2008</td><td>$ 151,685</td><td>2006-2008</td><td>$584,576</td></tr><tr><td rowspan="3">Mr. Civgin</td><td>2010</td><td>$ 400,000</td><td>2008-2010</td><td>$ 0</td></tr><tr><td>2009</td><td>$ 281,962</td><td>2007-2009</td><td>$ 0</td></tr><tr><td>2008</td><td>$ 16,750</td><td>2006-2008</td><td>$ 0</td></tr><tr><td>Mr. Lacher</td><td>2010</td><td>$ 250,000</td><td>2008-2010</td><td>$ 0</td></tr><tr><td rowspan="3">Ms. Mayes</td><td>2010</td><td>$ 350,000</td><td>2008-2010</td><td>$ 0</td></tr><tr><td>2009</td><td>$ 240,898</td><td>2007-2009</td><td>$130,156</td></tr><tr><td>2008</td><td>$ 46,008</td><td>2006-2008</td><td>$ 0</td></tr><tr><td>Mr. Winter</td><td>2010</td><td>$1,212,300</td><td>2008-2010</td><td>$ 0</td></tr></table>

(6) Amounts reflect the aggregate increase in actuarial value of the pension benefits as set forth in the Pension Benefits table, accrued during 2010, 2009, and 2008. These are benefits under the Allstate Retirement Plan (ARP) and the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP), and under the pension benefit enhancement for Ms. Mayes. Non-qualified deferred compensation earnings are not reflected since our Deferred Compensation Plan does not provide above-market earnings. The pension plan measurement date is December 31. (See note 16 to our audited financial statements for 2010.)

(7) The “All Other Compensation for 2010–Supplemental Table” provides details regarding the amounts for 2010 for this column.

(8) When Mr. Civgin joined Allstate in 2008, he was paid a bonus of $100,000. In addition, because he was guaranteed an annual cash incentive award at target, a portion of that award, $121,501, is treated as bonus.

(9) Reflects increases in the actuarial value of the benefits provided to Mr. Wilson pursuant to the ARP and SRIP of $72,910 and $606,449, respectively.

(10) Reflects increases in the actuarial value of the benefits provided to Mr. Civgin pursuant to the ARP and SRIP of $5,882 and $14,766, respectively.

(11) Reflects increases in the actuarial value of the benefits provided to Mr. Lacher pursuant to the SRIP of $3,908.

(12) Reflects increases in the actuarial value of the benefits provided to Ms. Mayes pursuant to the ARP, SRIP, and pension benefit enhancement of $6,587, $14,763, and $42,124, respectively.

(13) Reflects increases in the actuarial value of the benefits provided to Mr. Winter pursuant to the SRIP of $3,833.



# ALL OTHER COMPENSATION FOR 2010–SUPPLEMENTAL TABLE
(In dollars)

The following table describes the incremental cost of other benefits provided in 2010 that are included in the “All Other Compensation” column.

<table><tr><td>Name</td><td>Personal Use of Aircraft \( ^{(1)} \)</td><td>401(k) Match \( ^{(2)} \)</td><td>Other \( ^{(3)} \)</td><td>Total All Other Compensation</td></tr><tr><td>Mr. Wilson</td><td>2010</td><td>37,438</td><td>4,900</td><td>32,984</td></tr><tr><td>Mr. Civgin</td><td>2010</td><td>0</td><td>4,900</td><td>22,113</td></tr><tr><td>Mr. Lacher</td><td>2010</td><td>0</td><td>4,900</td><td>37,590</td></tr><tr><td>Ms. Mayes</td><td>2010</td><td>0</td><td>4,900</td><td>30,891</td></tr><tr><td>Mr. Winter</td><td>2010</td><td>0</td><td>4,877</td><td>30,282</td></tr></table>

(1) The amount reported for personal use of aircraft is based on the incremental cost method. The incremental cost of aircraft use is calculated based on average variable costs to Allstate. Variable operating costs include fuel, maintenance, on-board catering, landing/ramp fees, and other miscellaneous variable costs. The total annual variable costs are divided by the annual number of flight hours flown by the aircraft to derive an average variable cost per flight hour. This average variable cost per flight hour is then multiplied by the flight hours flown for personal use to derive the incremental cost. This method of calculating the incremental cost excludes fixed costs that do not change based on usage, such as pilots' and other employees' salaries, costs incurred in purchasing the aircraft, and non-trip related hangar expenses.

(2) Each of the named executives participated in our 401(k) plan during 2010. The amount shown is the amount allocated to their accounts as employer matching contributions. Messrs. Lacher and Winter are not vested in the employer matching contribution until they have completed three years of vesting service.

(3) “Other” consists of premiums for group life insurance and personal benefits and perquisites consisting of mobile phones, tax preparation services, financial planning, executive physics, ground transportation, and supplemental long-term disability coverage, and for Mr. Lacher, a $7,788 reimbursement for payment of taxes related to his relocation expenses (tax assistance for certain relocation benefits is a standard component of our relocation program available to all employees). Mr. Lacher received amounts for relocation that are not reflected in other compensation because they are part of the standard relocation package available to all employees. There was no incremental cost for the use of mobile phones. We provide supplemental long-term disability coverage to regular full-time and regular part-time employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Group Long Term Disability Insurance Plan. This coverage is self-insured (funded and paid for by Allstate when obligations are incurred). No obligations for the named executives were incurred in 2010 and so no incremental cost is reflected in the table.



## GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2010 \( ^{(1)} \) 

The following table provides information about non-equity incentive plan awards and equity awards granted to our named executives during the fiscal year 2010.

<table><tr><td>Name</td><td>Grant Date</td><td>Plan Name</td><td>Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2)</td><td>All Other Stock Awards: Number of Shares of Stock or Units (#)</td><td>All Other Option Awards: Number of Securities Underlying Options (#)</td><td>Exercise or Base Price of Option Awards ($/Shr)(3)</td><td>Grant Date Fair Value ($)(4)</td><td>Stock Awards</td><td>Option Awards</td></tr><tr><td rowspan="2">Mr. Wilson</td><td>—</td><td>Annual cash incentive</td><td>820,233</td><td>1,640,466</td><td>6,156,000</td><td>70,869</td><td></td><td>2,225,995</td><td></td></tr><tr><td>Feb. 22, 2010</td><td>Restricted stock units</td><td></td><td></td><td></td><td></td><td>417,576</td><td>$31.41</td><td>4,134,002</td></tr><tr><td rowspan="2">Mr. Civgin</td><td>Feb. 22, 2010</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Feb. 22, 2010</td><td>Stock options</td><td>281,308</td><td>562,616</td><td>1,406,540</td><td>18,999</td><td></td><td>596,759</td><td></td></tr><tr><td rowspan="2">Mr. Lacher</td><td>—</td><td>Annual cash incentive</td><td>406,250</td><td>812,500</td><td>3,078,000</td><td></td><td>111,944</td><td>$31.41</td><td>1,108,246</td></tr><tr><td>Feb. 22, 2010</td><td>Restricted stock units</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td rowspan="2">Ms. Mayes</td><td>—</td><td>Annual cash incentive</td><td>240,468</td><td>480,935</td><td>2,308,500</td><td>15,747</td><td></td><td>494,613</td><td></td></tr><tr><td>Feb. 22, 2010</td><td>Restricted stock units</td><td></td><td></td><td></td><td></td><td>92,785</td><td>$31.41</td><td>918,572</td></tr><tr><td rowspan="2">Mr. Winter</td><td>—</td><td>Annual cash incentive</td><td>375,000</td><td>750,000</td><td>3,847,500</td><td></td><td></td><td></td><td></td></tr><tr><td>Feb. 22, 2010</td><td>Restricted stock units</td><td></td><td></td><td></td><td>23,400</td><td></td><td>734,994</td><td></td></tr><tr><td></td><td>Feb. 22, 2010</td><td>Stock options</td><td></td><td></td><td></td><td>137,879</td><td>$31.41</td><td>1,365,002</td><td></td></tr></table>

(2) The amounts in these columns consist of the threshold, target, and maximum annual cash incentive awards for the named executives. The threshold amount for each named executive is fifty percent of target, as the minimum amount payable if threshold performance is achieved. If threshold is not achieved the payment to named executives would be zero. The target amount is based upon achievement of certain performance measures set forth in the "Annual Cash Incentive Awards" section. The maximum amount payable to the named executives, except Mr. Civgin, is the lesser of a stockholder approved maximum under the Annual Executive Incentive Plan of $8.5 million or a percentage of the award pool. The award pool is equal to 1.0% of Operating Income with award opportunities capped at 40% of the pool for Mr. Wilson, 25% of the pool for Mr. Winter, 20% of the pool for Mr. Lacher, and 15% of the pool for Ms. Mayes. Mr. Civgin does not participate in the operating income pool. A description of the Operating Income performance measure is provided under the "Performance Measures" caption on page 53.

(3) The exercise price of each option is equal to the fair market value of Allstate's common stock on the date of grant. Fair market value is equal to the closing sale price on the date of grant or, if there was no such sale on the date of grant, then on the last previous day on which there was a sale.

(3) The exercise price of each option is equal to the fair market value of Allstate's common stock on the date of grant. Fair market value is equal to the closing sale price on the date of grant or, if there was no such sale on the date of grant, then on the last previous day on which there was a sale.



## Outstanding Equity Awards at Fiscal Year-End 2010

The following table summarizes the outstanding equity awards of the named executives as of December 31, 2010.

<table><tr><td rowspan="2">Name</td><td colspan="7">OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2010</td></tr><tr><td colspan="3">Option Awards(1)</td><td colspan="4">Stock Awards</td></tr><tr><td></td><td>Option Grant Date</td><td>Number of Securities Underlying Unexercised Options (#) Exercisable(2)</td><td>Number of Securities Underlying Unexercised Options (#) Unexercisable(3)</td><td>Option Exercise Price</td><td>Option Expiration Date</td><td>Stock Award Grant Date</td><td>Number of Shares or Units of Stock That Have Not Vested (#)(4)</td></tr><tr><td rowspan="10">Mr. Wilson</td><td>May 15, 2001</td><td>112,892</td><td>0</td><td>$42.00</td><td>May 15, 2011</td><td></td><td></td></tr><tr><td>Feb. 07, 2002</td><td>97,750</td><td>0</td><td>$33.38</td><td>Feb. 07, 2012</td><td></td><td></td></tr><tr><td>Feb. 07, 2003</td><td>101,000</td><td>0</td><td>$31.78</td><td>Feb. 07, 2013</td><td></td><td></td></tr><tr><td>Feb. 06, 2004</td><td>97,100</td><td>0</td><td>$45.96</td><td>Feb. 06, 2014</td><td></td><td></td></tr><tr><td>Feb. 22, 2005</td><td>98,976</td><td>0</td><td>$52.57</td><td>Feb. 22, 2015</td><td></td><td></td></tr><tr><td>June 01, 2005</td><td>100,000</td><td>0</td><td>$58.47</td><td>June 01, 2015</td><td></td><td></td></tr><tr><td>Feb. 21, 2006</td><td>66,000</td><td>0</td><td>$53.84</td><td>Feb. 21, 2016</td><td></td><td></td></tr><tr><td>Feb. 21, 2006</td><td>124,000</td><td>0</td><td>$53.84</td><td>Feb. 21, 2016</td><td></td><td></td></tr><tr><td>Feb. 20, 2007</td><td>196,751</td><td>65,584</td><td>$62.24</td><td>Feb. 20, 2017</td><td>Feb. 20, 2007</td><td>22,385</td></tr><tr><td>Apr. 30, 2007</td><td>27,818*</td><td>9,273*</td><td>$62.32</td><td>Feb. 07, 2012</td><td></td><td></td></tr><tr><td>Feb. 26, 2008</td><td>169,158</td><td>169,158</td><td>$48.82</td><td>Feb. 26, 2018</td><td>Feb. 26, 2008</td><td>36,705</td></tr><tr><td>Feb. 27, 2009</td><td>187,909</td><td>563,727</td><td>$16.83</td><td>Feb. 27, 2019</td><td>Feb. 27, 2009</td><td>132,264</td></tr><tr><td>Feb. 22, 2010</td><td>0</td><td>417,576</td><td>$31.41</td><td>Feb. 22, 2020</td><td>Feb. 22, 2010</td><td>70,869</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Aggregate Market Value</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>$8,359,669</td></tr><tr><td rowspan="3">Mr. Civgin</td><td>Sep. 08, 2008</td><td>32,500</td><td>32,500</td><td>$46.48</td><td>Sep. 08, 2018</td><td>Sep. 08, 2008</td><td>4,300(6)</td></tr><tr><td>Feb. 27, 2009</td><td>50,375</td><td>151,125</td><td>$16.83</td><td>Feb. 27, 2019</td><td>Feb. 27, 2009</td><td>35,458</td></tr><tr><td>Feb. 22, 2010</td><td>0</td><td>111,944</td><td>$31.41</td><td>Feb. 22, 2020</td><td>Feb. 22, 2010</td><td>18,999</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Aggregate Market Value</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>$1,873,173</td></tr><tr><td rowspan="3">Mr. Lacher</td><td>Dec. 1, 2009</td><td>26,125</td><td>78,377</td><td>$28.52</td><td>Dec. 1, 2019</td><td>Dec. 1, 2009</td><td>18,408(7)</td></tr><tr><td>Feb. 22, 2010</td><td>0</td><td>149,369</td><td>$31.41</td><td>Feb. 22, 2020</td><td>Feb. 22, 2010</td><td>25,350</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>Aggregate Market Value</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td>$1,395,005</td></tr><tr><td rowspan="3">Ms. Mayes</td><td>Nov. 12, 2007</td><td>75,000</td><td>25,000</td><td>$53.18</td><td>Nov. 12, 2017</td><td>Nov. 12, 2007</td><td>6,250(8)</td></tr><tr><td>Feb. 26, 2008</td><td>36,050</td><td>36,050</td><td>$48.82</td><td>Feb. 26, 2018</td><td>Feb. 26, 2008</td><td>7,800</td></tr><tr><td>Feb. 27, 2009</td><td>0</td><td>123,409</td><td>$16.83</td><td>Feb. 27, 2019</td><td>Feb. 27, 2009</td><td>28,955</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td rowspan="3">Mr. Winter</td><td>Nov. 02, 2009</td><td>8,385</td><td>25,155</td><td>$29.64</td><td>Nov. 02, 2019</td><td>Nov. 02, 2009</td><td>5,904</td></tr><tr><td>Feb. 22, 2010</td><td>0</td><td>137,879</td><td>$31.41</td><td>Feb. 22, 2020</td><td>Feb. 22, 2010</td><td>23,400</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>Aggregate Market Value</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>$1,873,014</td></tr><tr><td rowspan="3">Mr. Winter</td><td>Nov. 02, 2009</td><td>8,385</td><td>25,155</td><td>$29.64</td><td>Nov. 02, 2019</td><td>Nov. 02, 2009</td><td>5,904</td></tr><tr><td>Feb. 22, 2010</td><td>0</td><td>137,879</td><td>$31.41</td><td>Feb. 22, 2020</td><td>Feb. 22, 2010</td><td>23,400</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>Aggregate Market Value</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>$934,212</td></tr></table>



## Option Exercises and Stock Vested at Fiscal Year-End 2010

The following table summarizes the options exercised by the named executives during 2010 and the restricted stock and restricted stock unit awards that vested during 2010.

<table><tr><td colspan="5">OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2010</td></tr><tr><td></td><td colspan="2">Option Awards (as of 12/31/10)</td><td colspan="2">Stock Awards</td></tr><tr><td></td><td>Number of Shares Acquired on Exercise (#)</td><td>Value Realized on Exercise ($)</td><td>Number of Shares Acquired on Vesting (#)</td><td>Value Realized on Vesting ($)</td></tr><tr><td>Name</td><td>0</td><td>0</td><td>23,450</td><td>732,109</td></tr><tr><td>Mr. Wilson</td><td>0</td><td>0</td><td>2,000</td><td>57,400</td></tr><tr><td>Mr. Civgin</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Mr. Lacher</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Ms. Mayes</td><td>41,136</td><td>525,245</td><td>0</td><td>0</td></tr><tr><td>Mr. Winter</td><td>0</td><td>0</td><td>0</td><td>0</td></tr></table>

## Retirement Benefits

Each named executive participates in two different defined benefit pension plans, and one of the named executives participates in a third arrangement that provides additional supplemental pension benefits, referred to as the pension benefit enhancement. The following table summarizes the named executives' pension benefits, which are calculated in the same manner as the change in pension value reflected in the Summary Compensation Table.

<table><tr><td colspan="5">PENSION BENEFITS</td></tr><tr><td>NAME</td><td>PLAN NAME</td><td>NUMBER OF YEARS CREDITED SERVICE (#)</td><td>PRESENT VALUE OF ACCUMULATED BENEFIT(1)(2) ($)</td><td>PAYMENTS DURING LAST FISCAL YEAR ($)</td></tr><tr><td rowspan="2">Mr. Wilson</td><td>Allstate Retirement Plan</td><td>17.8</td><td>419,777</td><td>0</td></tr><tr><td>Supplemental Retirement Income Plan</td><td>17.8</td><td>4,476,573</td><td>0</td></tr><tr><td rowspan="2">Mr. Civgin(3)</td><td>Allstate Retirement Plan</td><td>2.3</td><td>5,882</td><td>0</td></tr><tr><td>Supplemental Retirement Income Plan</td><td>2.3</td><td>21,395</td><td>0</td></tr><tr><td rowspan="2">Mr. Lacher(3)</td><td>Allstate Retirement Plan</td><td>1.2</td><td>0</td><td>0</td></tr><tr><td>Supplemental Retirement Income Plan</td><td>1.2</td><td>3,908</td><td>0</td></tr><tr><td rowspan="3">Ms. Mayes</td><td>Allstate Retirement Plan</td><td>3.2</td><td>12,705</td><td>0</td></tr><tr><td>Supplemental Retirement Income Plan</td><td>3.2</td><td>27,111</td><td>0</td></tr><tr><td>Ms. Mayes&#x27; pension benefit enhancement(4)</td><td>3.2</td><td>137,043</td><td>0</td></tr><tr><td rowspan="2">Mr. Winter(3)</td><td>Allstate Retirement Plan</td><td>1.2</td><td>0</td><td>0</td></tr><tr><td>Supplemental Retirement Income Plan</td><td>1.2</td><td>3,833</td><td>0</td></tr></table>

(1) These amounts are estimates and do not necessarily reflect the actual amounts that will be paid to the named executives, which will only be known at the time they become eligible for payment. Accrued benefits were calculated as of December 31, 2010, and used to calculate the present value of accumulated benefits at December 31, 2010. December 31 is our pension plan measurement date used for financial statement reporting purposes.

The amounts listed in this column are based on the following assumptions:

- Discount rate of 6%, payment form assuming 80% paid as a lump sum and 20% paid as an annuity, lump-sum/annuity conversion segmented interest rates of 5.0% for the first five years, 6.5% for the next 15 years, and 7% for all years after 20 and the 2011 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females (as required under the Internal Revenue Code), and post-retirement mortality for annuitants using the 2011 Internal Revenue Service mandated annuitant table; these are the same as those used for financial reporting year-end disclosure as described in the notes to Allstate’s consolidated financial statements. (See note 16 to our audited financial statements for 2010.)

- Based on guidance provided by the Securities and Exchange Commission, we have assumed normal retirement age which is age 65 under both the ARP and SRIP, regardless of any announced or anticipated retirements.

• No assumption for early termination, disability, or pre-retirement mortality.

(2) The figures shown in the table above reflect the present value of the current accrued pension benefits calculated using the assumptions described in the preceding footnote. If the named executives' employment terminated on December 31, 2010, the lump



sum present value of the non-qualified pension benefits for each named executive earned through December 31, 2010, is shown in the following table:

<table><tr><td>NAME</td><td>PLAN NAME</td><td>LUMP SUM AMOUNT ($)</td></tr><tr><td>Mr. Wilson</td><td>Supplemental Retirement Income Plan</td><td>6,093,640</td></tr><tr><td>Mr. Civgin</td><td>Supplemental Retirement Income Plan</td><td>23,009</td></tr><tr><td>Mr. Lacher</td><td>Supplemental Retirement Income Plan</td><td>4,375</td></tr><tr><td>Ms. Mayes</td><td>Supplemental Retirement Income Plan</td><td>27,566</td></tr><tr><td></td><td>Ms. Mayes&#x27; pension benefit enhancement</td><td>139,343</td></tr><tr><td>Mr. Winter</td><td>Supplemental Retirement Income Plan</td><td>4,038</td></tr></table>

The amount shown is based on the lump sum methodology (i.e., interest rate and mortality table) used by the Allstate pension plans in 2011, as required under the Pension Protection Act. Specifically, the interest rate for 2011 is based on 20% of the average August 30-year Treasury Bond rate from the prior year and 80% of the average corporate bond segmented yield curve from August of the prior year. The mortality table for 2011 is the 2011 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females, as required under the Internal Revenue Code.

(3) Messrs. Civgin, Lacher, and Winter are not currently vested in the Allstate Retirement Plan or the Supplemental Retirement Income Plan.

(4) See narrative under the heading “Extra Service and Pension Benefit Enhancement” on page 48 for the explanation of the years of credited service with respect to Ms. Mayes’ pension benefit enhancement.

The benefits and value of benefits shown in the Pension Benefits table are based on the following material factors:

## Allstate Retirement Plan (“ARP”)

The ARP has two different types of benefit formulas (final average pay and cash balance) which apply to participants based on their date of hire or individual choice made prior to the January 1, 2003 introduction of a cash balance design. Of the named executives, Ms. Mayes and Messrs. Civgin, Lacher, and Winter are eligible to earn cash balance benefits. Benefits under the final average pay formula are earned and stated in the form of a straight life annuity payable at the normal retirement date (age 65). Participants who earn final average pay benefits may do so under one or more benefit formulas based on when they become members of the ARP and their years of service.

Mr. Wilson has earned ARP benefits under the post-1988 final average pay formula which is the sum of the Base Benefit and the Additional Benefit, as defined as follows:

● Base Benefit =1.55% of the participant’s average annual compensation, multiplied by credited service after 1988 (limited to 28 years of credited service)

● Additional Benefit =0.65% of the amount, if any, of the participant’s average annual compensation that exceeds the participant’s covered compensation (the average of the maximum annual salary taxable for Social Security over the 35-year period ending the year the participant would reach Social Security retirement age) multiplied by credited service after 1988 (limited to 28 years of credited service)

For participants eligible to earn cash balance benefits, pay credits are added to the cash balance account on a quarterly basis as a percent of compensation and based on the participant’s years of vesting service as follows:

<table><tr><td colspan="2">Cash Balance Plan Pay Credits</td></tr><tr><td>Vesting Service</td><td>Pay Credit %</td></tr><tr><td>Less than 1 year</td><td>0%</td></tr><tr><td>1 year, but less than 5 years</td><td>2.5%</td></tr><tr><td>5 years, but less than 10 years</td><td>3%</td></tr><tr><td>10 years, but less than 15 years</td><td>4%</td></tr><tr><td>15 years, but less than 20 years</td><td>5%</td></tr><tr><td>20 years, but less than 25 years</td><td>6%</td></tr><tr><td>25 years or more</td><td>7%</td></tr></table>



## Supplemental Retirement Income Plan (“SRIP”)

SRIP benefits are generally determined using a two-step process: (1) determine the amount that would be payable under the ARP formula specified above if the federal limits described above did not apply, then (2) reduce the amount described in (1) by the amount actually payable under the ARP formula. The normal retirement date under the SRIP is age 65. If eligible for early retirement under the ARP, an eligible employee is also eligible for early retirement under the SRIP.

## Other Aspects of the Pension Plans

For the ARP and SRIP, eligible compensation consists of salary, annual cash incentive awards, pre-tax employee deposits made to our 401(k) plan and our cafeteria plan, holiday pay, and vacation pay. Eligible compensation also includes overtime pay, payment for temporary military service, and payments for 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. For final average pay benefits, average annual compensation is the average compensation of the five highest consecutive calendar years within the last ten consecutive calendar years preceding the actual retirement or termination date.

Payment options under the ARP include a lump sum, straight life annuity, and various survivor annuity options. The lump sum under the final average pay benefit is calculated in accordance with the applicable interest rate and mortality as required under the Internal Revenue Code. The lump sum payment under the cash balance benefit is generally equal to a participant's cash balance account balance. Payments from the SRIP are paid in the form of a lump sum using the same interest rate and mortality assumptions used under the ARP.

## Timing of Payments

The earliest retirement age that a named executive may retire with unreduced retirement benefits under the ARP and SRIP is age 65. However, a participant earning final average pay benefits is entitled to an early retirement benefit on or after age 55 if he or she terminates employment after the completion of 20 or more years of service. A participant earning cash balance benefits who terminates employment with at least three years of vesting service is entitled to a lump sum benefit equal to his or her cash balance account balance. Currently, none of the named executives are eligible for an early retirement benefit.

SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits) are generally payable at age 65, the normal retirement date under the ARP. Pre 409A SRIP Benefits may be payable earlier upon reaching age 50 if disabled, following early retirement at age 55 or older with 20 years of service, or following death in accordance with the terms of the SRIP. SRIP benefits earned after December 31, 2004 (Post 409A SRIP Benefits) are paid on the January 1 following termination of employment after reaching age 55 (a minimum six month deferral period applies), or following death in accordance with the terms of the SRIP.

Eligible employees are vested in the normal retirement benefit under the ARP and the SRIP on the earlier of the completion of five years of service or upon reaching age 65 for participants with final average pay benefits or the completion of three years of service or upon reaching age 65 for participants whose benefits are calculated under the cash balance formula.

- Mr. Wilson’s Pre 409A SRIP benefit would become payable at age 65 or following death or disability. Mr. Wilson’s Post 409A Benefit would be paid on January 1, 2013, or following death. Mr. Wilson will turn 65 on October 15, 2022.

- Mr. Civgin’s SRIP benefit is not currently vested but would become payable following death. Mr. Civgin will turn 65 on May 17, 2026.

- Mr. Lacher’s SRIP benefit is not currently vested but would become payable following death. Mr. Lacher will turn 65 on November 11, 2034.

- Ms. Mayes’ Post 409A Benefit would be paid on January 1, 2012, or following death. Ms. Mayes’ pension enhancement is payable following death, six months after separation from service, or upon a change-in-control. Ms. Mayes will turn 65 on July 9, 2014.

- Mr. Winter’s SRIP benefit is not currently vested but would become payable following death. Mr. Winter will turn 65 on January 22, 2022.



## Extra Service and Pension Benefit Enhancement

No additional service is granted under the ARP or the SRIP. Generally, Allstate has not granted additional service credit outside of the actual service used to calculate ARP and SRIP benefits. However, Ms. Mayes has a supplemental nonqualified retirement benefit agreement which provides for additional cash balance pay credits. Ms Mayes’ enhanced pension benefit assumes the maximum 7% pay credits under the cash balance formula less any amounts payable from ARP or SRIP. Eligible service is calculated from Ms. Mayes’ employment date.

Mr. Wilson has 17.8 years of combined service with Sears, Roebuck and Co., Allstate’s former parent company, and Allstate. As a result of his prior Sears service, a portion of Mr. Wilson’s retirement benefits will be paid from the Sears pension plan. Similar to the pension benefits of other employees with prior Sears service who were employed by Allstate at the time of the spin-off from Sears in 1995, Mr. Wilson’s pension benefits under the ARP final average pay benefit and the SRIP are calculated as if he had worked his combined Sears-Allstate career with Allstate, and then are reduced by the amounts earned under the Sears pension plan.

## Non-Qualified Deferred Compensation

The following table summarizes the non-qualified deferred compensation contributions, earnings, and account balances of our named executives in 2010. All amounts relate to The Allstate Corporation Deferred Compensation Plan (“Deferred Compensation Plan”).

NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2010

<table><tr><td>Name</td><td>Executive Contributions in Last FY ($)</td><td>Registrant Contributions in Last FY ($)</td><td>Aggregate Earnings in Last FY ($) \( ^{(1)} \)</td><td>Aggregate Withdrawals/ Distributions ($)</td><td>Aggregate Balance at Last FYE ($) \( ^{(2)} \)</td></tr><tr><td>Mr. Wilson</td><td>0</td><td>0</td><td>83,104</td><td>0</td><td>462,459</td></tr><tr><td>Mr. Civgin</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Mr. Lacher</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Ms. Mayes</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Mr. Winter</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr></table>

(1) Aggregate earnings were not included in the named executive’s prior year compensation.

(2) There are no amounts reported in the Aggregate Balance at Last FYE column that were reported in the 2010, 2009 or 2008 Summary Compensation Tables.

In order to remain competitive with other employers, we allow employees, including the named executives, whose annual compensation exceeds the amount specified in the Internal Revenue Code (e.g., $245,000 in 2010), 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.

Deferrals under the Deferred Compensation Plan are credited with earnings, or are subject to losses, based on the results of the investment option or options selected by the participants. The investment options available in 2010 under the Deferred Compensation Plan are Stable Value, S&P 500, International Equity, Russell 2000, and Bond Funds—options available in 2010 under our 401(k) plan. Under the Deferred Compensation Plan, deferrals are not actually invested in these funds, but instead are credited with earnings or losses based on the funds' investment experience, which are net of administration and investment expenses. Because the rate of return is based on actual investment measures in our 401(k) plan, no above-market earnings are paid. Similar to participants in our 401(k) plan, participants can change their investment elections daily. Investment changes are effective the next business day. The Deferred Compensation Plan is unfunded; participants have only the rights of general unsecured creditors.

Deferrals under the Deferred Compensation Plan are segregated into Pre 409A balances and Post 409A balances. A named executive may elect to begin receiving a distribution of a Pre 409A balance upon separation from service or in one of the first through fifth years after separation from service. In either event, the named executive may elect to receive payment of a Pre 409A balance in a lump sum or in annual cash installment payments over a period of two to ten years. An irrevocable distribution election is required before making any Post 409A deferrals into the plan. The distribution options available to the Post 409A balances are similar to those available to the Pre 409A balances, except the earliest distribution date is six months following separation from



service. Upon a showing of unforeseeable emergency, a plan participant may be allowed to access certain funds in a deferred compensation account earlier than the dates specified above.

## Potential Payments as a Result of Termination or Change-in-Control

The following table lists the compensation and benefits that Allstate would pay or provide to the named executives in various scenarios involving a termination of employment, other than compensation and benefits generally available to all salaried employees.

<table><tr><td rowspan="2">Termination Scenarios</td><td colspan="8">Compensation Elements</td></tr><tr><td>Base Salary</td><td>Severance Pay</td><td>Annual Incentive</td><td>Stock Options</td><td>Restricted Stock Units</td><td>Non-Qualified Pension Benefits(1)</td><td>Deferred Compensation(2)</td><td>Health, Welfare and Other Benefits</td></tr><tr><td>Voluntary Termination</td><td>Ceases immediately</td><td>None</td><td>Forfeited unless terminated on last day of fiscal year</td><td>Unvested are forfeited, vested expire at the expiry of three months or normal expiration</td><td>Forfeited</td><td>Distributions commence per plan</td><td>Distributions commence per participant election</td><td>None</td></tr><tr><td>Involuntary Termination(3)</td><td>Ceases immediately</td><td>None</td><td>Forfeited unless terminated on last day of fiscal year</td><td>Unvested are forfeited, vested expire at the expiry of three months or normal expiration</td><td>Forfeited</td><td>Distributions commence per plan</td><td>Distributions commence per participant election</td><td>None</td></tr><tr><td>Retirement(4)</td><td>Ceases Immediately</td><td>None</td><td>Pro rated for the year based on actual performance for the year</td><td>Continue to vest upon normal or health retirement; unvested forfeited upon early retirement. All retiree expirate earlier of five years or normal expiration.</td><td>RSUs continue to vest upon normal retirement. Forfeited in early retirement.</td><td>Distributions commence per plan</td><td>Distributions commence per participant election</td><td>None</td></tr><tr><td>Termination due to Change-in-Control(5)</td><td>Ceases Immediately</td><td>Lump sum equal to three times salary, three times annual incentive at target and pension enhancement(6)</td><td>Pro rated at target (reduced by any actually paid)</td><td>Vest immediately upon a change in control</td><td>Vest immediately upon a change in control</td><td>Immediately payable upon a change in control</td><td>Immediately payable upon a change in control</td><td>Outplacement services provided; continuation coverage subsidized(7)</td></tr><tr><td>Death</td><td>One month salary paid upon death</td><td>None</td><td>Pro rated for year based on actual performance for the year</td><td>Vest immediately and expire at earlier of two years or normal expiration</td><td>Vest immediately</td><td>Distributions commence per plan</td><td>Payable within 90 days</td><td>None</td></tr><tr><td>Disability</td><td>Ceases Immediately</td><td>None</td><td>Pro rated for year based on actual performance for the year</td><td>Vest immediately and expire at earlier of two years or normal expiration</td><td>Forfeited</td><td>Participant may request payment if age 50 or older</td><td>Distributions commence per participant election</td><td>Supplemental Long Term Disability benefits</td></tr></table>

(1) See the section titled Pension Benefits for further detail on non-qualified pension benefits and timing of payments.



(2) See the Non-Qualified Deferred Compensation section for additional information on the Deferred Compensation Plan and distribution options available.

(3) Examples of “Involuntary Termination” independent of a change-in-control include performance-related terminations; terminations for employee dishonesty and violation of Allstate rules, regulations, or policies; and terminations resulting from lack of work, rearrangement of work, and reduction in force.

(4) Retirement for purposes of the annual cash incentive plan is defined as voluntary termination on or after the date the named executive attains age 55 with at least twenty 20 years of service. The “normal retirement date” under the equity awards is the date on or after the date the named executive attains age 60 with at least one year of service. The “health retirement date” is the date on which the named executive terminates for health reasons after attaining age 50, but before attaining age 60, with at least ten years of continuous service. The “early retirement date” is the date the named executive attains age 55 with 20 years of service.

(5) In general, a change-in-control is one or more of the following events: (1) any person acquires 30% or more of the combined voting power of Allstate common stock within a 12-month period; (2) any person acquires more than 50% of the combined voting power of Allstate common stock; (3) certain changes are made to the composition of the Board; or (4) the consummation of a merger, reorganization, or similar transaction. These triggers were selected because, in a widely held company the size of Allstate, they could each result in a substantial change in management. Effective upon a change-in-control, the named executives become subject to covenants prohibiting competition and solicitation of employees, customers, and suppliers at any time until one year after termination of employment. During the two-year period following a change-in-control, the change-in-control agreements provide for a minimum salary, annual cash incentive awards, and other benefits. In addition, they provide that the named executives' positions, authority, duties, and responsibilities will be at least commensurate in all material respects with those held prior to the change-in-control. If a named executive incurs legal fees or other expenses in an effort to enforce the change-in-control agreement, Allstate will reimburse the named executive for these expenses unless it is established by a court that the named executive had no reasonable basis for the claim or acted in bad faith.

(6) Under the change-in-control agreements, severance benefits would be payable if a named executive’s employment is terminated either by Allstate without “cause” or by the executive for “good reason” as defined in the agreements during the two-year period following the change-in-control. Cause means the named executive has been convicted of a felony or other crime involving fraud or dishonesty, has willfully or intentionally breached the change-in-control agreement, has habitually neglected his or her duties, or has engaged in willful or reckless material misconduct in the performance of his or her duties. Good reason includes a material diminution in a named executive’s base compensation, authority, duties, or responsibilities, a material change in the geographic location where the named executive performs services, or a material breach of the change-in-control agreement by Allstate.

The pension enhancement is a lump sum payment equal to the positive difference, if any, between: (a) the sum of the lump-sum values of each maximum annuity that would be payable to the named executive under any defined benefit plan (whether or not qualified under Section 401(a) of the Internal Revenue Code) if the named executive had: (i) become fully vested in all such benefits, (ii) attained as of the named executive's termination date an age that is three years greater than named executive's actual age, (iii) accrued a number of years of service that is three years greater than the number of years of service actually accrued by the named executive as of the named executive's termination date, and (iv) received a lump-sum severance benefit consisting of three times base salary, three times annual incentive cash compensation calculated at target, plus the 2010 annual incentive cash award as covered compensation in equal monthly installments during the three-year period following the named executive's termination date; and (b) the lump-sum values of the maximum annuity benefits vested and payable to named executive under each defined benefit plan that is qualified under Section 401(a) of the Internal Revenue Code plus the aggregate amounts simultaneously or previously paid to the named executive under the defined benefit plans (whether or not qualified under Section 401(a)). The calculation of the lump sum amounts payable under this formula does not impact the benefits payable under the ARP, or the SRIP.

(7) If a named executive’s employment is terminated by reason of death during the two-year period commencing on the date of a change-in-control, the named executive’s estate or beneficiary will be entitled to survivor and other benefits, including retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to the estates or surviving families of peer executives of Allstate. In the event of termination by reason of disability, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to disabled peer executives. In addition, such survivor or disability benefits shall not be materially less favorable, in the aggregate, than the most favorable benefits in effect during the 90-day period preceding the change-in-control.



(4) The values in this change-in-control row represent amounts paid if both the change-in-control and termination occur on December 31, 2010. If there was a change-in-control that did not result in a termination, the amounts payable to each named executive would be as follows:

<table><tr><td>Name</td><td>Stock Options—Unvested and Accelerated ( \( )</td><td>Restricted stock units—Unvested and Accelerated ( \) )</td><td>Total—Unvested and Accelerated ( \( )</td></tr><tr><td>Mr. Wilson</td><td>8,680,352</td><td>8,359,669</td><td>17,040,021</td></tr><tr><td>Mr. Civgin</td><td>2,327,045</td><td>1,873,173</td><td>4,200,218</td></tr><tr><td>Mr. Lacher</td><td>333,550</td><td>1,395,005</td><td>1,728,555</td></tr><tr><td>Ms. Mayes</td><td>1,900,914</td><td>1,873,014</td><td>3,773,928</td></tr><tr><td>Mr. Winter</td><td>121,150</td><td>934,212</td><td>1,055,362</td></tr></table>

A change-in-control also would accelerate the distribution of each named executive’s non-qualified deferred compensation and SRIP benefits. Within five business days after the effective date of a change-in-control, each named executive would receive any deferred compensation account balances and a lump sum payment equal to the present value of the named executive’s SRIP benefit and, for Ms. Mayes, pension benefit enhancement. Please see the Non-Qualified Deferred Compensation at Fiscal Year End 2010 table and footnote 2 to the Pension Benefits table in the Retirement Benefits section for details regarding the applicable amounts for each named executive.

(5) The Welfare Benefits and Outplacement Services amount includes the cost to provide certain welfare benefits to the named executive and family during the period which the named executive is eligible for continuation coverage under applicable law. The amount shown reflects Allstate’s costs for these benefits or programs assuming an 18-month continuation period. The value of outplacement services for Mr. Wilson is $40,000 and $20,000 for each other named executive.

(6) The named executives are eligible to participate in Allstate’s supplemental long-term disability plan for employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Allstate Long Term Disability Plan (Basic Plan). The benefit is equal to 50% of the named executive’s qualified annual earnings divided by twelve and rounded to the nearest one hundred dollars, reduced by $7,500, which is the maximum monthly benefit payment that can be received under the Basic Plan. The amount reflected assumes the named executive remains totally disabled until age 65 and represents the present value of the monthly benefit payable until age 65.

## Risk Management and Compensation

We have reviewed our compensation policies and practices, and we believe that they are appropriately structured, that they are consistent with our key operating priority of keeping the company financially strong, and that they avoid providing incentives for employees to engage in unnecessary and excessive risk taking. We believe that executive compensation has to be examined in the larger context of an effective risk management framework and strong internal controls. As described in the Board Role in Risk Oversight section of the Corporate Governance Practices and Code of Ethics portion of this proxy statement, the Board and Audit Committee both play an important role in risk management oversight, including reviewing how management measures, evaluates, and manages the corporation’s exposure to risks posed by a wide variety of events and conditions. In addition, the Compensation and Succession Committee employs an independent executive compensation consultant each year to assess Allstate’s executive pay levels, practices, and overall program design.

A review and assessment of potential compensation-related risks was conducted by management and reviewed by the Chief Risk Officer. Performance-related incentive plans were analyzed using a process developed in conjunction with our independent executive compensation consultant.

The 2010 risk assessment specifically noted that our compensation programs:

● Provide a balanced mix of cash and equity through annual and long-term incentives to align with short-term and long-term business goals.

● Utilize a full range of performance measures that we believe correlate to long-term shareholder value creation.

● Incorporate strong governance practices, including paying cash incentive awards only after a review of executive and corporate performance.

● Enable the use of negative discretion to adjust annual incentive compensation payments when formulaic payouts are not warranted due to other circumstances.

Furthermore, to ensure our compensation programs do not motivate imprudent risk taking, awards to the executive officers made after May 19, 2009, under the 2009 Equity Incentive Plan and awards made under the Annual Executive Incentive Plan are subject to clawback in the event of certain financial restatements.



## Performance Measures

Information regarding our performance measures is disclosed in the limited context of our annual and long-term cash incentive awards and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

The following are descriptions of the performance measures used for our annual cash incentive awards for 2010 and our long-term cash incentive awards for the 2008-2010 cycle. These measures are not GAAP measures. They were developed uniquely for incentive compensation purposes and are not reported items in our financial statements. Some of these measures use non-GAAP measures and operating measures. The Committee has approved the use of non-GAAP and operating measures when appropriate to drive executive focus on particular strategic, operational, or financial factors or to exclude factors over which our executives have little influence or control, such as capital market conditions.

## Annual Cash Incentive Awards for 2010

Operating Income: This measure is used to assess financial performance. This measure is equal to net income adjusted to exclude the after tax effects of the items listed below:

● Realized capital gains and losses (which includes the related effect on the amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments.

● Gains and losses on disposed operations.

● Adjustments for other significant non-recurring, infrequent, or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or (b) there has been no similar charge or gain within the prior two years.

## Corporate Measure

Adjusted Operating Income Per Diluted Share: This measure is used to assess financial performance. The measure is equal to net income adjusted to exclude the after-tax effects of the items listed below, divided by the weighted average shares outstanding on a diluted basis:

● Realized capital gains and losses (which includes the related effect on the amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments.

● Gains and losses on disposed operations.

● Adjustments for other significant non-recurring, infrequent, or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or (b) there has been no similar charge or gain within the prior two years.

● Restructuring and related charges.

● Effects of acquiring businesses.

● Negative operating results of sold businesses.

● Underwriting results of the Discontinued Lines and Coverages segment.

● Any settlement, awards, or claims paid as a result of lawsuits and other proceedings brought against Allstate subsidiaries regarding the scope and nature of coverage provided under insurance policies issued by such companies.

## Allstate Protection Measures

Financial Product Sales (“Production Credits”): This measure of sales and related profitability of proprietary and non-proprietary financial products sold through the Allstate Exclusive Agency channel is used by management to assess the execution of our financial services strategy. This measure is calculated as the percent change in the total amount of production credits for current year transactions. Production credits are an internal sales statistic calculated as a percent of premium or deposits to life insurance, annuities, or mutual funds which vary based on the expected profitability of the specific financial product.



Total Property Profitability: A financial measure used by management to assess profitability. The Allstate Protection combined ratio adjusted to exclude the total auto combined ratio and the effect of restructuring and related charges. For disclosure of Allstate Protection combined ratio, see discussion of the Allstate Protection segment in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this booklet.

Total Auto Growth and Profit Matrix: A matrix used by management that combines financial measures in order to emphasize a balanced approach to premium growth and profit. The matrix utilizes (a) the percent increase in items-in-force for Allstate brand standard and non-standard auto and Encompass brand auto (excluding Deerbrook business and certain business sold by a national agency that has been discontinued) and (b) the combined ratio for Allstate brand standard and non-standard auto, Encompass brand auto (including Deerbrook and certain business sold by a national agency that has been discontinued), business insurance auto, involuntary auto, and Allstate Canada auto, and excluding the effect of restructuring and related charges. For disclosure of Allstate Protection auto combined ratio and items-in-force, see the discussion of the Allstate Protection segment in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this booklet.

## Allstate Financial Measures

Adjusted Operating Income: This is a measure management uses to assess the profitability of the business. The Allstate Financial segment measure, operating income, is adjusted to exclude the after tax effects of restructuring and related charges and the potential amount by which 2010 guaranty fund assessments related to insured solvencies exceed $6 million. For disclosure of the Allstate Financial segment measure see footnote 18 to our audited financial statements.

Adjusted Operating Return on Equity: This is a measure management uses to assess profitability and capital efficiency. This measure is calculated using adjusted operating income, as defined above, as the numerator, and Allstate Financial’s adjusted average subsidiary shareholder’s equity as the denominator. Adjusted subsidiary shareholder’s equity is the sum of subsidiaries’ shareholder’s equity for Allstate Life Insurance Company, Allstate Bank, a proportionate share of American Heritage Life Investment Corporation and certain other minor entities and excludes the effect of unrealized net capital gains and losses, net of tax and deferred acquisition costs. The average adjusted shareholder’s equity is calculated by dividing the sum of Allstate Financial’s adjusted shareholder’s equity at year-end 2009 and at the end of each quarter of 2010 by five.

Allstate Exclusive Agency Proprietary and AWD Weighted Sales: This operating measure is used to quantify the current year sales of financial products through Allstate’s Exclusive Agency proprietary distribution channel, including agencies and direct, and the Allstate Workplace Division. The measure is calculated by applying a percentage or factor against the premium or deposits of life insurance, annuities and Allstate Workplace Division products that vary based on the relative expected profitability of the specific product. For non-Allstate Workplace Division proprietary products sold through Allstate Financial Services channel, the percentage or factors are consistent with those used for production credits by Allstate Protection.

Allstate Financial Portfolio Relative Total Return: See definition under “Allstate Investments Measures” below.

## Allstate Investments Measures

Adjusted Net Investment Income: Management uses this measure to assess the financial operating performance provided from investments relative to internal goals. Net investment income consists of certain amounts reported in the consolidated financial statements as net investment income. It excludes the difference between actual and planned expenses for certain employee benefit and incentive expenses.

Portfolio Relative Total Return: Management uses the three following measures to assess the value of active portfolio management relative to the total return of a market based benchmark. The measure is calculated as the difference, in basis points, of the specific portfolio total return from a designated benchmark. Total return is principally determined using industry standards and the same sources used in preparing the financial statements to determine fair value. (See footnotes to our audited financial statements for our methodologies for estimating the fair value of our investments.) In general, total return represents the annualized increase or decrease, expressed as a percentage, in the value of the portfolio. Time weighted returns are utilized. The designated benchmark is a composite of pre-determined, customized indices which reflect the investment risk parameters established in investment policies by the boards of the relevant subsidiaries, weighted in proportion to our



investment plan, in accordance with our investment policy. The specific measures and investments included are listed below:

● Property Liability Portfolio Relative Total Return: Total return for Property-liability investments and Kennett investments.

● Allstate Financial Portfolio Relative Total Return: Total return for Allstate Financial investments.

● Allstate Pension Plans Portfolio Relative Total Return: Total return for the Allstate Retirement Plan and Agents Pension Plan investments.

## Long-Term Cash Incentive Awards

Average Adjusted Return on Equity Relative to Peers: This measure is used to assess Allstate’s financial performance against its peers. It is calculated as Allstate’s ranked position relative to the insurance company peer group based upon three-year average adjusted return on equity, calculated on the same basis for Allstate and each of the peer insurance companies. Three-year average adjusted return on equity is the sum of the annual adjusted return on equity for each of the three years in the cycle divided by three. The annual adjusted return on equity is calculated as the ratio of net income divided by the average of shareholders’ equity at the beginning and at the end of the year after excluding the component of accumulated other comprehensive income for unrealized net capital gains and losses.

Allstate Financial Return on Total Capital: This is a measure management uses to measure the efficiency of capital utilized in the business. Three-year Allstate Financial return on total capital is the sum of the annual adjusted return on subsidiaries' shareholder's equity for each of the three years divided by three. The annual adjusted return on subsidiaries' shareholder's equity is the Allstate Financial measure, net income, divided by the average subsidiaries' shareholder's equity at the beginning and at the end of the year. The subsidiaries' shareholder's equity is the sum of the subsidiaries' shareholder's equity for Allstate Life Insurance Company, Allstate Bank, American Heritage Life Investment Corporation, and certain other minor entities, adjusted to exclude the loan protection business and excluding the component of accumulated other comprehensive income for unrealized net capital gains. (See note 18 to our audited financial statements for Allstate Financial net income.)

Allstate Protection Growth in Policies in Force Over Three-Year Cycle: This is a measure used by management to assess growth in the number of policies in force, which is a driver of premiums written. The measure is calculated as the sum of the percent increase in each of the three years in the total number of policies in force at the end of the year over the beginning of the year. The measure excludes property insurance, Allstate Motor Club, and the loan protection business and includes Allstate Canada.



# Security Ownership of Directors and Executive Officers

The following table shows the number of shares of Allstate common stock beneficially owned by each director and named executive officer individually, and by all executive officers and directors of Allstate as a group. Shares reported as beneficially owned include shares held indirectly through the Allstate 401(k) Savings Plan and other shares held indirectly, as well as shares subject to stock options exercisable on or prior to May 9, 2011, and restricted stock units for which restrictions expire on or prior to May 9, 2011. The percentage of Allstate shares of common stock beneficially owned by any Allstate director or nominee or by all directors and executive officers of Allstate as a group does not exceed 1%. The following share amounts are as of March 10, 2011. As of March 10, 2011, none of these shares were pledged as security.

<table><tr><td>Name of Beneficial Owner</td><td>Amount and Nature of Beneficial Ownership of Allstate Common Stock (a)</td><td>Common Stock Subject to Options Exercisable and Restricted Stock Units for which restrictions expire on or prior to May 9, 2011- Included in Column (a) (b)</td></tr><tr><td>F. Duane Ackerman</td><td>54,759</td><td>30,666</td></tr><tr><td>Robert D. Beyer</td><td>58,899</td><td>9,333</td></tr><tr><td>Don Civgin</td><td>135,254</td><td>133,250</td></tr><tr><td>W. James Farrell</td><td>41,212</td><td>30,666</td></tr><tr><td>Jack M. Greenberg</td><td>30,166</td><td>27,666</td></tr><tr><td>Joseph P. Lacher, Jr.</td><td>26,427</td><td>26,125</td></tr><tr><td>Ronald T. LeMay</td><td>36,736</td><td>30,666</td></tr><tr><td>Michele C. Mayes</td><td>175,697</td><td>170,211</td></tr><tr><td>Andrea Redmond</td><td>0</td><td>0</td></tr><tr><td>H. John Riley, Jr.</td><td>51,041</td><td>30,666</td></tr><tr><td>Joshua I. Smith</td><td>32,031</td><td>26,665</td></tr><tr><td>Judith A. Sprieser</td><td>31,910</td><td>30,666</td></tr><tr><td>Mary Alice Taylor</td><td>51,788</td><td>30,666</td></tr><tr><td>Thomas J. Wilson</td><td>1,920,239</td><td>1,726,699</td></tr><tr><td>Matthew E. Winter</td><td>8,539</td><td>8,385</td></tr><tr><td>All directors and executive officers as a group</td><td>4,334,739</td><td>3,857,773</td></tr></table>



## Security Ownership of Certain Beneficial Owners

<table><tr><td>Title of Class</td><td>Name and Address of Beneficial Owner</td><td>Amount and Nature of Beneficial Ownership</td><td>Percent of Class</td></tr><tr><td>Common</td><td>BlackRock, Inc.40 East 52 \( ^{\text{nd}} \)  StreetNew York, NY 10022</td><td>32,380,427 \( ^{(1)} \)</td><td>6.02%</td></tr><tr><td>Common</td><td>Northern Trust Corporation50 S. LaSalle StreetChicago, IL 60675</td><td>31,063,158 \( ^{(2)} \)</td><td>5.77%</td></tr></table>

(1) As of December 31, 2010. BlackRock held all shares with sole voting power and sole investment power. Information is provided for reporting purposes only and should not be construed as an admission of actual beneficial ownership.

(2) As of December 31, 2010. Held by Northern Trust Corporation together with certain subsidiaries (collectively “Northern”). Of such shares, Northern held 2,639,875 with sole voting power; 28,348,257 with shared voting power; 5,606,570 with sole investment power; and 3,229,863 with shared investment power. 21,987,890 of such shares were held by The Northern Trust Company as trustee on behalf of participants in Allstate’s 401(k) Savings Plan. Information is provided for reporting purposes only and should not be construed as an admission of actual beneficial ownership.

## Audit Committee Report

Deloitte & Touche LLP (“Deloitte”) was Allstate’s independent registered public accountant for the year ended December 31, 2010.

The Audit Committee has reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2010.

The committee has discussed with Deloitte the matters required to be discussed by the statement of Auditing Standards No. 114 (The Auditor’s Communication with Those Charged with Governance) (formerly, Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T).

The committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the committee concerning independence and has discussed with Deloitte its independence.

Based on these reviews and discussions and other information considered by the committee in its judgment, the committee recommended to the Board of Directors that the audited financial statements be included in Allstate’s annual report on Form 10-K for the fiscal year ended December 31, 2010, for filing with the Securities and Exchange Commission and furnished to stockholders with this Notice of Annual Meeting and Proxy Statement.

Judith A. Sprieser (Chair)
F. Duane Ackerman
Robert D. Beyer
Jack M. Greenberg
Ronald T. LeMay
Mary Alice Taylor



## Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Allstate’s executive officers, directors, and persons who beneficially own more than ten percent of Allstate’s common stock to file reports of securities ownership and changes in such ownership with the SEC.

Based solely upon a review of copies of such reports or written representations that all such reports were timely filed, Allstate believes that each of its executive officers, directors, and greater than ten-percent beneficial owners complied with all Section 16(a) filing requirements applicable to them during 2010.

## Related Person Transactions

The Nominating and Governance Committee of Allstate’s Board has adopted a written policy regarding the review, approval, or ratification of transactions with related persons, which is available on the Corporate Governance portion of allstate.com. In accordance with the policy, the committee or the committee chair reviews transactions with the corporation in which the amount involved exceeds $120,000 and in which any “related person” had, has, or will have a direct or indirect material interest. In general, “related persons” are directors, executive officers, their immediate family members, and stockholders beneficially owning five percent or more of our outstanding stock. The committee or chair approves or ratifies only those transactions that are in, or not inconsistent with, the best interests of the corporation and its stockholders. Transactions are reviewed and approved or ratified by the chair when it is not practicable or desirable to delay review of a transaction until a committee meeting. The chair reports to the committee any transactions so approved. Annually, the committee will review any previously approved or ratified related person transactions that remain ongoing. There were no related person transactions identified for 2010.



# Proposal 7
Stockholder Proposal on
Stockholder Action by Written Consent

Mr. Kenneth Steiner, 14 Stoner Ave., 2M, Great Neck, NY 11021, beneficial owner of 2100 shares of Allstate common stock as of October 12, 2010, intends to propose the following resolution at the Annual Meeting.

The Board of Directors does not support the adoption of this proposal and asks stockholders to consider management’s response following the proponent’s statement. The Board recommends that stockholders vote against this proposal.

## 7–Shareholder Action by Written Consent

RESOLVED, Shareholders hereby request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting (to the fullest extent permitted by law).

We gave greater than 67%-support to a 2010 shareholder proposal on this same topic. The Council of Institutional Investors <www.cii.org>, whose members have investments of $3 trillion, recommends that management adopt a shareholder proposal upon receiving its first 50%-plus vote.

This proposal topic won majority shareholder support at 13 major companies in 2010. This included 67%-support at both Allstate (ALL) and Sprint (S). Hundreds of major companies enable shareholder action by written consent.

Taking action by written consent in lieu of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle. A study by Harvard professor Paul Gompers supports the concept that shareholder dis-empowering governance features, including restrictions on shareholder ability to act by written consent, are significantly related to reduced shareholder value.

The merit of this Shareholder Action by Written Consent proposal should also be considered in the context of the need for additional improvement in our company’s 2010 reported corporate governance status.

Please encourage our board to respond positively to this proposal to enable shareholder action by written consent–Yes on 7.

The Board recommends that stockholders vote against this proposal for the following reasons:

- This proposal would harm Allstate by giving a powerful weapon to aggressive, self-interested stockholders who could undermine the operations and value of the corporation by forcing special-interest demands.

- An activist stockholder could initiate a written consent solicitation to remove some or all members of the corporation’s board—without cause—and effectively assume control without paying the control premium that stockholders deserve.

- In a contest for corporate control, a stockholder right to act by written consent undermines the full realization of stockholder value by constraining the board’s ability to solicit competing bids and capture an appropriate control premium for stockholders.

- The written consent process can be used to deny you the right to vote on important corporate matters.

- Approval of action by written consent could occur with little or no advance notice to the corporation, minority stockholders, and the market. Stockholders representing a bare majority could take action without giving notice to other stockholders or issuing a proxy statement that provides a full discussion of the issues that are the subject of the consent solicitation. You may not even be asked to vote. The



board may not even have a meaningful opportunity to consider the merits of the proposed action, to consider alternative courses of action, or to communicate its views to stockholders.

## For issues that need to be addressed between annual meetings, the interests of all stockholders are better served by special stockholder meetings.

- As presented in Proposal 3—Amendment to the Restated Certificate of Incorporation, the Board is recommending the approval of an amendment to the certificate of incorporation to allow stockholders owning at least 20% of the outstanding shares of the corporation the right to call a special meeting of stockholders.

- To the extent that a significant issue arises outside of the normal annual meeting cycle, a special meeting of stockholders preserves protections for all stockholders to be involved in the process.

## ● Allstate’s corporate governance should be tailored for Allstate.

- Every year, Mr. Steiner submits nearly identical corporate governance reform proposals to various corporations with little regard for whether they are suitable for any particular corporation. Mr. Steiner and his family submitted at least 34 proposals to various corporations in 2010 and at least 43 proposals in 2009. On a given topic, these proposals essentially mirror each other.

## ● The study cited by the proponent does not support his premise.

- The Paul Gompers’ 2004 study cited in the proponent’s supporting statement above noted a correlation between broad groups of stockholder rights and stock returns during the 1990s but the study also acknowledged that its results do not prove the assertion that the addition of certain stockholder rights causes performance or returns to improve.

## Proposal 8

## Stockholder Proposal on Political Contributions and Payments to Trade Associations and Other Tax Exempt Organizations

The City of Philadelphia Public Employees Retirement System, Two Penn Center Plaza, Philadelphia, Pennsylvania, 19102-1721, beneficial owner of 93,413 shares of Allstate common stock as of November 29, 2010, intends to propose the following resolution at the Annual Meeting.

The Board of Directors does not support the adoption of this proposal and asks stockholders to consider management’s response following the proponent’s statement. The Board recommends that stockholders vote against this proposal.

## Political Contributions and Payments to Trade Associations and Other Tax Exempt Organizations

Resolved, that the shareholders of Allstate Corporation (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s:

1. Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds.

2. Monetary and non-monetary contributions and expenditures (direct and indirect) used to participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, and used in any attempt to influence the general public, or segments thereof, with respect to elections or referenda. The report shall include:

a. An accounting through an itemized report that includes the identity of the recipient as well as the amount paid to each recipient of the Company’s funds that are used for political contributions or expenditures as described above; and

b. The title(s) of the person(s) in the Company who participated in making the decisions to make the political contribution or expenditure.

The report shall be presented to the board of directors' audit committee or other relevant oversight committee and posted on the Company's website.



## Stockholder Supporting Statement

As long-term shareholders of Allstate, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code, such as direct and indirect political contributions to candidates, political parties, or political organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates.

Disclosure is consistent with public policy, in the best interest of the company and its shareholders, and critical for compliance with federal ethics laws. Moreover, the Supreme Court’s Citizens United decision recognized the importance of political spending disclosure for shareholders when it said “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value.

Allstate contributed at least $5.4 million in corporate funds since the 2002 election cycle. (CQ: http://moneyline.cq.com/pml/home.do and National Institute on Money in State Politics: http://www.followthemoney.org/index.phtml.)

However, relying on publicly available data does not provide a complete picture of the Company’s political expenditures. For example, the Company’s payments to trade associations used for political activities are undisclosed and unknown. In many cases, even management does not know how trade associations use their company’s money politically. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax exempt organizations for political purposes. This would bring our Company in line with a growing number of leading companies, including Aetna, American Electric Power and Microsoft that support political disclosure and accountability and present this information on their websites.

The Company’s Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support for this critical governance reform.

## The Board recommends that stockholders vote against this proposal for the following reasons:

● Political contributions already are subject to disclosure by state and federal law and information about them is publicly available in the vast majority of cases. As stockholders, you have an ownership stake in a corporation that is subject to legislation that significantly impacts its operations, including its profitability. Therefore, Allstate is committed to participating in the political process in a responsible way that serves the best interests of the corporation, its stockholders, and its customers.

● Publicly available disclosures already provide ample information about Allstate’s contributions, as so clearly demonstrated by the proponent’s reference to figures on contributions previously made by Allstate.

● Allstate believes it is in the best interest of stockholders for Allstate to support the legislative process by making corporate political contributions prudently to candidates and political organizations when such contributions are consistent with business objectives and are permitted by federal, state, and local laws.

● Allstate supports certain trade associations to further its interests on general business, industry, and technical issues. Allstate does not necessarily agree with all positions taken by any particular trade organization, and trade associations do not develop positions with only Allstate’s concerns in mind.

● Allstate demonstrates its support for transparency in the political contribution process by complying with all disclosure requirements pertaining to political contributions under federal, state, and local laws. The proposal would subject Allstate to additional requirements and unnecessary expenses that do nothing to advance stockholder interests.

● We believe that any requirements that go beyond those imposed by law should be applicable to all participants in the political process and not just to Allstate. Adoption of this proposal would put Allstate at a competitive disadvantage relative to its competitors that do not face the additional time, resource, and money drains from the new reporting burdens called for in this proposal.



- In addition, political contributions are reported regularly to, and overseen by, senior management and reviewed on an annual basis by the Board.

• Our policy on political contributions is part of our Corporate Governance Guidelines.

## Stockholder Proposals for Year 2012 Annual Meeting

Proposals which stockholders intend to be included in Allstate’s proxy material for presentation at the 2012 annual meeting of stockholders must be received by the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite A3, Northbrook, Illinois 60062-6127 by December 3, 2011, and must otherwise comply with rules promulgated by the Securities and Exchange Commission in order to be eligible for inclusion in the proxy material for the 2012 annual meeting.

If a stockholder desires to bring a matter before the meeting which is not the subject of a proposal meeting the SEC proxy rule requirements for inclusion in the proxy statement, the stockholder must follow procedures outlined in Allstate’s bylaws in order to personally present the proposal at the meeting. A copy of these procedures is available upon request from the 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 2012 annual meeting must be received by the Office of the Secretary no earlier than January 18, 2012, and no later than February 17, 2012. Among other things described fully in the bylaws, the notice must describe the business proposed to be brought before the meeting, the reasons for conducting the business at the meeting, and any material interest of the stockholder in the business. It should be noted that these bylaw procedures govern proper submission of business to be put before a stockholder vote at the annual meeting.

## 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 addition to their regular duties, and some of them may not necessarily solicit proxies. Allstate has also made arrangements with brokerage firms, banks, record holders, and other fiduciaries to forward proxy solicitation materials for shares held of record by them to the beneficial owners of such shares. Allstate will reimburse them for reasonable out-of-pocket expenses. Georgeson Inc., 17 State Street, New York, NY 10004 has been retained to assist in the solicitation of proxies for a fee not to exceed $170,000 plus expenses. Allstate will pay the cost of all proxy solicitation.

By order of the Board,



Mary J. McGinn
Secretary

Dated: April 1, 2011



# Appendix A

## POLICY REGARDING PRE-APPROVAL OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT'S SERVICES

## Purpose and Applicability

The Audit Committee recognizes the importance of maintaining the independent and objective stance of our Independent Registered Public Accountant. We believe that maintaining independence, both in fact and in appearance, is a shared responsibility involving management, the Audit Committee, and the Independent Registered Public Accountant.

The Committee recognizes that the Independent Registered Public Accountant possess a unique knowledge of the Corporation and its subsidiaries and can provide necessary and valuable services to the Corporation in addition to the annual audit. The provision of these services is subject to three basic principles of auditor independence: (i) auditors cannot function in the role of management, (ii) auditors cannot audit their own work; and (iii) auditors cannot serve in an advocacy role for their client. Consequently, 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 in the attached appendix. All services to be provided by the Independent Registered Public Accountant must be approved by the Audit Committee or the Chair of the Audit Committee. Neither the Audit Committee nor the Chair will approve the provision of any Prohibited Services by the Independent Registered Public Accountant.

## Procedures

In connection with the approval by the Audit Committee of the engagement of the Independent Registered Public Accountant to provide Audit Services for the upcoming fiscal year, the Independent Registered Public Accountant will submit to the Committee for approval schedules detailing all of the specific proposed Audit, Audit-Related, Tax, and Other Services, together with estimated fees for such services that are known as of that date. Subsequent to the Audit Committee's approval of audit engagement, Corporation management may submit to the Committee or the Chair for approval schedules of additional specific proposed Audit, Audit-Related, Tax, and Other Services that management recommends be provided by the Independent Registered Public Accountant during the audit and professional engagement period. Regardless of when proposed to the Committee or the Chair, each specific service will require approval by the Committee or the Chair before commencement of the specified service. The Independent Registered Public Accountant will confirm to the Committee or the Chair that each specific proposed service is permissible under applicable regulatory requirements.

Prior to approval of any specific Tax Service, the Independent Registered Public Accountant shall also provide to the Committee or the Chair a written description of (i) the scope of the service and the related fee structure, (ii) any side letter or other agreement between the Independent Registered Public Accountant and the Corporation or any subsidiary regarding the service, and (iii) any compensation arrangement or other agreement between the Independent Accountant and any person with respect to promoting, marketing, or recommending a transaction covered by the service.

## Delegation to Chair

In addition to the Audit Committee, the Chair of the Audit Committee has the authority to grant approvals of services to be provided by the Independent Registered Public Accountant. The decisions of the Chair to approve services shall be reported to the Audit Committee at each of its regularly scheduled meetings.

## Review of Services

At each regularly scheduled Audit Committee meeting, the Audit Committee shall review a report containing (i) a summary of any services approved by the Chair since the Committee’s last regularly scheduled meeting and (ii) an updated projection for the current fiscal year, presented in a manner consistent with the proxy disclosure requirements, of the estimated annual fees to be paid to the Independent Registered Public Accountant.



## Appendix

## Audit Services

1. Annual financial statement audit

2. Review of quarterly financial statements

3. Statutory audits

4. Attestation report on management’s assessment of internal controls over financial reporting

5. Consents, comfort letters, and reviews of documents filed with the Securities and Exchange Commission

## Audit-Related Services

1. Accounting consultations relating to accounting standards, financial reporting, and disclosure issues

2. Due diligence assistance pertaining to potential acquisitions, dispositions, mergers, and securities offerings

3. Financial statement audits and attest services for non-consolidated entities including employees benefit and compensation plans

## Tax Services

1. Domestic and international tax compliance, planning, and advice

2. Expatriate tax assistance and compliance

## Other Services

Any service that is not a Prohibited Service, Audit Service, Audit-Related Service, or Tax Service

## Prohibited Services

The following services, as more fully described in Regulation S-X, Rule 2-01, of the Securities and Exchange Commission, are Prohibited Services; provided however, that the services described in items 1 through 5 are not Prohibited Services if it is reasonable to conclude that the results of such services will not be subject to audit procedures during an audit of the Corporation’s financial statements:

1. Bookkeeping or other services related to the accounting records or financial statements

2. Financial information systems design and implementation

3. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports

4. Actuarial services

5. Internal audit outsourcing services

6. Management functions or human resources

7. Broker or dealer, investment adviser, or investment banking services

8. Legal services and expert services unrelated to the audit

9. Any other services that the PCAOB determines, by regulation, to impair independence



# Appendix B
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
OF THE ALLSTATE CORPORATION

(Proposed additions indicated in bold with underline)

If Proposal 3 is approved by stockholders, the amendments to Article Seventh will be approved. If Proposal 4 is approved by stockholders, the amendment to Article Tenth will be approved.

## ARTICLE SEVENTH

Meetings of stockholders may be held within or without the State of Delaware, as the bylaws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the bylaws of the corporation. Election of directors need not be by written ballot unless the bylaws of the corporation so provide.

Any action required or permitted to be taken by the holders of any class or series of stock of the corporation entitled to vote generally in the election of directors may be taken only by vote at an annual or special meeting at which such action may be taken and may not be taken by written consent.

Special meetings of stockholders of the corporation, for any purpose or purposes, may be called only by (i) the Chairman of the board of directors of the corporation or (ii) the Secretary of the corporation upon the written request of the holders of record owning not less than 20% of all outstanding shares of common stock of the corporation, in accordance with the applicable requirements and procedures of the bylaws of the corporation. Each special meeting shall be held at such date, time and place as may be stated in the written notice of the special meeting.

No director may be removed, with or without cause, by the stockholders except by the affirmative vote of holders of not less than a majority of the total number of votes entitled to be cast at an election of such director; provided, however, that, whenever the holders of any class or series of Preferred Stock issued pursuant to ARTICLE FOURTH, Section 1 hereof, are entitled, by the terms of such class or series of Preferred Stock, voting separately by class or series to elect one or more directors, the provisions of the preceding clause of this sentence shall not apply with respect to such directors if the terms of such class or series of Preferred Stock expressly provide otherwise.

## ARTICLE TENTH

Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim against the corporation arising pursuant to any provision of the General Corporation Law of the State of Delaware or the corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this ARTICLE TENTH.



(This page has been left blank intentionally.)



## Appendix C

## Executive Officers

The following table sets forth the names of our executive officers and their positions. “AIC” refers to Allstate Insurance Company.

<table><tr><td>Name</td><td>Principal Positions and Offices Held</td></tr><tr><td>Thomas J. Wilson</td><td>Chairman of the Board, President, and Chief Executive Officer of The Allstate Corporation and of AIC. Mr. Wilson is also a director of The Allstate Corporation.</td></tr><tr><td>Catherine S. Brune</td><td>Executive Vice President of AIC (Chief Information Officer).</td></tr><tr><td>Don Civgin</td><td>Executive Vice President and Chief Financial Officer of The Allstate Corporation and of AIC.</td></tr><tr><td>James D. DeVries</td><td>Executive Vice President of AIC (Human Resources).</td></tr><tr><td>Judith P. Greffin</td><td>Executive Vice President and Chief Investment Officer of AIC.</td></tr><tr><td>Joseph P. Lacher, Jr.</td><td>President Allstate Protection—Executive Vice President of AIC.</td></tr><tr><td>Mark R. LaNeve</td><td>Executive Vice President and Chief Marketing Officer of AIC.</td></tr><tr><td>Michele C. Mayes</td><td>Executive Vice President and General Counsel of The Allstate Corporation and of AIC (Chief Legal Officer).</td></tr><tr><td>Samuel H. Pilch</td><td>Controller of The Allstate Corporation and Senior Group Vice President and Controller of AIC.</td></tr><tr><td>Michael J. Roche</td><td>Executive Vice President of AIC (Claims).</td></tr><tr><td>Steven P. Sorenson</td><td>Executive Vice President of AIC (Allstate Protection Product Operations).</td></tr><tr><td>Joan H. Walker</td><td>Executive Vice President of AIC (Corporate Relations).</td></tr><tr><td>Matthew E. Winter</td><td>President and Chief Executive Officer Allstate Financial—Executive Vice President of AIC.</td></tr></table>



The following performance graph compares the performance of Allstate common stock total return during the five-year period from December 31, 2005, through December 31, 2010, with the performance of the S&P 500 Property/Casualty Index and the S&P 500 Index. The graph plots the cumulative changes in value of an initial $100 investment as of December 31, 2005, over the indicated time periods, assuming all dividends are reinvested quarterly.



Value at each year-end of a $100 initial investment made on December 31, 2005

<table><tr><td></td><td>12/31/05</td><td>12/31/06</td><td>12/31/07</td><td>12/31/08</td><td>12/31/09</td><td>12/31/10</td></tr><tr><td>Allstate</td><td>$100</td><td>$123.01</td><td>$101.55</td><td>$66.88</td><td>$62.96</td><td>$ 68.49</td></tr><tr><td>S&amp;P P/C</td><td>$100</td><td>$112.64</td><td>$ 97.99</td><td>$69.43</td><td>$77.63</td><td>$ 84.75</td></tr><tr><td>S&amp;P 500</td><td>$100</td><td>$115.61</td><td>$121.95</td><td>$77.38</td><td>$97.44</td><td>$111.89</td></tr></table>



## Definitions of Non-GAAP Measures

Measures that are not based on accounting principles generally accepted in the United States of America (“non-GAAP”) are defined and reconciled to the most directly comparable GAAP measure. We believe that investors’ understanding of Allstate’s performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

DEFINITION OF OPERATING INCOME (LOSS) Operating income (loss) ("operating profit") is net income (loss), excluding:

- realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in operating income (loss).

• amortization of deferred policy acquisition costs (“DAC”) and deferred sales inducements (“DSI”), to the extent they resulted from the recognition of certain realized capital gains and losses,

• gain (loss) on disposition of operations, after-tax, and
• adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years.

Net income (loss) is the GAAP measure that is most directly comparable to operating income (loss).

We use operating income (loss) as an important measure to evaluate our results of operations. We believe that the measure provides investors with a valuable measure of the company's ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, operating income (loss) includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes. These instruments are used for economic hedges and to replicate fixed income securities, and by including them in operating income (loss), we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g. net investment income and interest credited to contractholder funds) or replicated investments. Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends. Accordingly, operating income (loss) excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business. A byproduct of excluding these items to determine operating income is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods. Operating income (loss) is used by management along with the other components of net income (loss) to assess our performance. We use adjusted measures of operating income (loss) and operating income (loss) per diluted share in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income (loss), operating income (loss) 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 results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the company and management's performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses operating income (loss) as the denominator. Operating income (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of our business.

The following table reconciles operating income and net income (loss) for the years ended December 31.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Operating income</td><td>$1,539</td><td>$1,881</td></tr><tr><td>Realized capital gains and losses</td><td>(827)</td><td>(583)</td></tr><tr><td>Income tax benefit (expense)</td><td>290</td><td>(45)</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>(537)</td><td>(628)</td></tr><tr><td>DAC and DSI amortization relating to realized capital gains and losses, after-tax</td><td>(34)</td><td>(177)</td></tr><tr><td>DAC and DSI unlocking relating to realized capital gains and losses, after-tax</td><td>(18)</td><td>(224)</td></tr><tr><td>Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax</td><td>(29)</td><td>(2)</td></tr><tr><td>Gain on disposition of operations, after tax</td><td>7</td><td>4</td></tr><tr><td>Net income</td><td>$928</td><td>$854</td></tr></table>

DEFINITION OF UNDERLYING COMBINED RATIO Combined ratio excluding the effect of catastrophes and prior year reserve reestimates ("underlying combined ratio") is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio and the effect of prior year non-catastrophe reserve reestimates on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses and prior year reserve reestimates. These catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year reserve reestimates are caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide it to facilitate a comparison to our outlook on the combined ratio excluding the effect of catastrophe losses and prior year reserve reestimates. The combined ratio excluding the effect of catastrophes and prior year reserve reestimates should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. The following table reconciles the Property-Liability combined ratio excluding the effect of catastrophes and prior year reserve reestimates to the combined ratio.

<table><tr><td rowspan="2"></td><td colspan="2">Year ended December 31,</td></tr><tr><td>2010</td><td>2009</td></tr><tr><td>Combined ratio excluding the effect of catastrophes and prior year reserve reestimates</td><td></td><td></td></tr><tr><td>(“underlying combined ratio”)</td><td>89.6</td><td>88.1</td></tr><tr><td>Effect of catastrophe losses</td><td>8.5</td><td>7.9</td></tr><tr><td>Effect of prior year non-catastrophe reserve reestimates</td><td>—</td><td>0.2</td></tr><tr><td>Combined ratio</td><td>98.1</td><td>96.2</td></tr></table>

Underwriting margin is calculated as 100% minus the combined ratio.



## 2010 Annual Report

Page
Risk Factors (Risk Factors) 1
5-Year Summary of Selected Financial Data (5-Year Summary) 11
Management's Discussion and Analysis (MD&A)
Overview 12
2010 Highlights 12
Consolidated Net Income (Loss) 13
Application of Critical Accounting Estimates 13
Property-Liability 2010 Highlights 26
Property-Liability Operations 27
Allstate Protection Segment 29
Discontinued Lines and Coverages Segment 41
Property-Liability Investment Results 42
Property-Liability Claims and Claims Expense Reserves 43
Allstate Financial 2010 Highlights 54
Allstate Financial Segment 54
Investments 2010 Highlights 64
Investments 64
Market Risk 94
Pension Plans 97
Deferred Taxes 99
Capital Resources and Liquidity 2010 Highlights 99
Capital Resources and Liquidity 100
Enterprise Risk and Return Management 106
Regulation and Legal Proceedings 107
Pending Accounting Standards 107
Consolidated Financial Statements (Financial Statements)
Consolidated Statements of Operations 108
Consolidated Statements of Comprehensive Income 109
Consolidated Statements of Financial Position 110
Consolidated Statements of Shareholders' Equity 111
Consolidated Statements of Cash Flows 112
Notes to Consolidated Financial Statements (Notes) 113
Report of Independent Registered Public Accounting Firm (Accountants' Report) 192



## RISK FACTORS

This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking 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,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.

In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer and a provider of other financial services. These risks constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and historical trends. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the Securities and Exchange Commission (“SEC”) or in materials incorporated therein by reference.

## Risks Relating to the Property-Liability business

## As a property and casualty insurer, we may face significant losses from catastrophes and severe weather events

Because of the exposure of our property and casualty business to catastrophic events, our operating results and financial condition may vary significantly from one period to the next. Catastrophes can be caused by various natural and man-made disasters, including earthquakes, volcanoes, wildfires, tornadoes, hurricanes, tropical storms and certain types of terrorism. We may incur catastrophe losses in our auto and property business in excess of: (1) those experienced in prior years, (2) those that we project would be incurred based on hurricane and earthquake losses which have a one percent probability of occurring on an annual aggregate countrywide basis, (3) those that external modeling firms estimate would be incurred based on other levels of probability, (4) the average expected level used in pricing or (5) our current reinsurance coverage limits. Despite our catastrophe management programs, we are exposed to catastrophes that could have a material adverse effect on operating results and financial condition. For example, our historical catastrophe experience includes losses relating to Hurricane Katrina in 2005 totaling $3.6 billion, the Northridge earthquake of 1994 totaling $2.1 billion and Hurricane Andrew in 1992 totaling $2.3 billion. We are also exposed to assessments from the California Earthquake Authority and various state-created catastrophe insurance facilities, and to losses that could surpass the capitalization of these facilities. Our liquidity could be constrained by a catastrophe, or multiple catastrophes, which result in extraordinary losses or a downgrade of our debt or financial strength ratings.

In addition, we are subject to claims arising from weather events such as winter storms, rain, hail and high winds. The incidence and severity of weather conditions are largely unpredictable. There is generally an increase in the frequency and severity of auto and property claims when severe weather conditions occur.

## The nature and level of catastrophes in any period cannot be predicted and could be material to our operating results and financial condition

Along with others in the industry, we use models developed by third party vendors in assessing our property exposure to catastrophe losses. These models assume various conditions and probability scenarios. Such models do not necessarily accurately predict future losses or accurately measure losses currently incurred. Catastrophe models, which have been evolving since the early 1990s, use historical information about hurricanes and earthquakes and also utilize detailed information about our in-force business. While we use this information in connection with our pricing and risk management activities, there are limitations with respect to its usefulness in predicting losses in any reporting period. These limitations are evident in significant variations in estimates between models and modelers, material increases and decreases in model results due to changes and refinements of the underlying data elements, assumptions which lead to questionable predictive capability, and actual event conditions that have not been well understood previously.



and not incorporated into the models. In addition, the models are not necessarily reflective of actual demand surge, loss adjustment expenses and the occurrence of mold losses, which are subject to wide variation by event or location.

## Impacts of catastrophes and our catastrophe management strategy may adversely affect premium growth

Due to our catastrophe risk management efforts, the size of our homeowners business has been negatively impacted and may continue to be negatively impacted if we take further actions. Homeowners premium growth rates and retention could be more adversely impacted than we expect by adjustments to our business structure, size and underwriting practices in markets with significant catastrophe risk exposure. In addition, due to the diminished potential for cross-selling opportunities, new business growth in our auto lines could be lower than expected.

## Unanticipated increases in the severity or frequency of claims may adversely affect our operating results and financial condition

Changes in the severity or frequency of claims may affect the profitability of our Allstate Protection segment. Changes in bodily injury claim severity are driven primarily by inflation in the medical sector of the economy and litigation. Changes in auto physical damage claim severity are driven primarily by inflation in auto repair costs, auto parts prices and used car prices. Changes in homeowners claim severity are driven by inflation in the construction industry, in building materials and in home furnishings, and by other economic and environmental factors, including increased demand for services and supplies in areas affected by catastrophes. However, changes in the level of the severity of claims are not limited to the effects of inflation and demand surge in these various sectors of the economy. Increases in claim severity can arise from unexpected events that are inherently difficult to predict. Examples of such events include a decision in 2001 by the Georgia Supreme Court which held that diminished value coverage was included in auto policies under Georgia law and the emergence of mold-related homeowners losses in the state of Texas during 2002. Although we pursue various loss management initiatives in the Allstate Protection segment in order to mitigate future increases in claim severity, there can be no assurances that these initiatives will successfully identify or reduce the effect of future increases in claim severity.

Our Allstate Protection segment may experience volatility in claim frequency from time to time, and short-term trends may not continue over the longer term. A spike in gas prices and a significant decline in miles driven, both of which occurred in 2008, are examples of factors contributing to a short-term frequency change. A significant increase in claim frequency could have an adverse effect on our operating results and financial condition.

## Actual claims incurred may exceed current reserves established for claims and may adversely affect our operating results and financial condition

Recorded claim reserves in the Property-Liability business are based on our best estimates of losses, both reported and incurred but not reported (“IBNR”), after considering known facts and interpretations of circumstances. Internal factors are considered including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix and contractual terms. External factors are also considered which include, but are not limited to, law changes, court decisions, changes to regulatory requirements and economic conditions. Because reserves are estimates of the unpaid portion of losses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded reserves and such variance may adversely affect our operating results and financial condition.

## Predicting claim expense relating to asbestos, environmental and other discontinued lines is inherently uncertain and may have a material adverse effect on our operating results and financial condition

The process of estimating asbestos, environmental and other discontinued lines liabilities is complicated by complex legal issues concerning, among other things, the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and whether losses could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Asbestos-related bankruptcies and other asbestos litigation are complex, lengthy proceedings that involve substantial uncertainty for insurers. Actuarial techniques and databases used in estimating asbestos, environmental and other discontinued lines net loss reserves may prove to be inadequate indicators of the extent of probable loss. Ultimate net losses from these discontinued lines could materially exceed established loss reserves and expected recoveries and have a material adverse effect on our operating results and financial condition.



## Regulation limiting rate increases and requiring us to underwrite business and participate in loss sharing arrangements may adversely affect our operating results and financial condition

From time to time, political events and positions affect the insurance market, including efforts to suppress rates to a level that may not allow us to reach targeted levels of profitability. For example, if Allstate Protection’s loss ratio compares favorably to that of the industry, state regulatory authorities may impose rate rollbacks, require us to pay premium refunds to policyholders, or resist or delay our efforts to raise rates even if the property and casualty industry generally is not experiencing regulatory resistance to rate increases. Such resistance affects our ability, in all product lines, to obtain approval for rate changes that may be required to achieve targeted levels of profitability and returns on equity. Our ability to afford reinsurance required to reduce our catastrophe risk in designated areas may be dependent upon the ability to adjust rates for its cost.

In addition to regulating rates, certain states have enacted laws that require a property-liability insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities and joint underwriting associations or require the insurer to offer coverage to all consumers, often restricting an insurer’s ability to charge the price it might otherwise charge. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired rates, possibly leading to an unacceptable return on equity, or as the facilities recognize a financial deficit, they may in turn have the ability to assess participating insurers, adversely affecting our results of operations and financial condition. Laws and regulations of many states also limit an insurer’s ability to withdraw from one or more lines of insurance in the state, except pursuant to a plan that is approved by the state insurance department. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.

## The potential benefits of our sophisticated risk segmentation process may not be fully realized

We believe that pricing sophistication and underwriting (including Strategic Risk Management which, in some situations, considers information that is obtained from credit reports among other factors) has allowed us to be more competitive and operate more profitably. However, because many of our competitors have adopted underwriting criteria and sophisticated pricing models similar to those we use and because other competitors may follow suit, our competitive advantage could decline or be lost. Further, the use of insurance scoring from information that is obtained from credit reports as a factor in underwriting and pricing has at times been challenged by regulators, legislators, litigants and special interest groups in various states. Competitive pressures could also force us to modify our pricing sophistication model. Furthermore, we cannot be assured that these pricing sophistication models will accurately reflect the level of losses that we will ultimately incur.

## Allstate Protection’s operating results and financial condition may be adversely affected by the cyclical nature of the property and casualty business

The property and casualty market is cyclical and has experienced periods characterized by relatively high levels of price competition, less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. A downturn in the profitability cycle of the property and casualty business could have a material adverse effect on our operating results and financial condition.

## Risks Relating to the 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. We establish target returns for each product based upon these factors and the average amount of capital that we must hold to support in-force contracts taking into account rating agencies and regulatory requirements. We monitor and manage our pricing and overall sales mix to achieve target new business returns on a portfolio basis, which could result in the discontinuation or de-emphasis of products or distribution relationships and a decline in sales. Profitability from new business emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued.

Our profitability in this segment depends on the adequacy of investment spreads, the management of market and credit risks associated with investments, the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the persistency of policies to ensure recovery of acquisition expenses, and the management of



operating costs and expenses within anticipated pricing allowances. Legislation and regulation of the insurance marketplace and products could also affect our profitability and financial condition.

## Changes in reserve estimates may adversely affect our operating results

The reserve for life-contingent contract benefits is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, persistency and expenses. We periodically review the adequacy of these reserves on an aggregate basis and if future experience differs significantly from assumptions, adjustments to reserves and amortization of deferred policy acquisition costs (“DAC”) may be required which could have a material adverse effect on our operating results.

## Changes in market interest rates may lead to a significant decrease in the sales and profitability of spread-based products

Our ability to manage the Allstate Financial spread-based products, such as fixed annuities and institutional products, is dependent upon maintaining profitable spreads between investment yields and interest crediting rates. When market interest rates decrease or remain at relatively low levels, proceeds from investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by market conditions, regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Decreases in the interest crediting rates offered on products in the Allstate Financial segment could make those products less attractive, leading to lower sales and/or changes in the level of policy loans, surrenders and withdrawals. Non-parallel shifts in interest rates, such as increases in short-term rates without 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 example by increasing the attractiveness of other investments to our customers, which can lead to higher surrenders at a time when the segment's fixed income investment asset values are lower as a result of the increase in interest rates. This could lead to the sale of fixed income securities at a loss. For certain products, principally fixed annuity and interest-sensitive life products, the earned rate on assets could lag behind rising market yields. We may react to market conditions by increasing crediting rates, which could narrow spreads and reduce profitability. Unanticipated surrenders could result in accelerated amortization of DAC or affect the recoverability of DAC and thereby increase expenses and reduce profitability.

## Changes in estimates of profitability on interest-sensitive life, fixed annuities and other investment products may adversely affect our profitability and financial condition through the amortization of DAC

DAC related to interest-sensitive life, fixed annuities and other investment contracts is amortized in proportion to actual historical gross profits and estimated future gross profits (“EGP”) over the estimated lives of the contracts. The principal assumptions for determining the amount of EGP are investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of persistency, mortality, expenses, and hedges if applicable. Updates to these assumptions (commonly referred to as “DAC unlocking”) could adversely affect our profitability and financial condition.

## Reducing our concentration in fixed annuities and funding agreements may adversely affect reported results

We have been pursuing strategies to reduce our concentration in fixed annuities and funding agreements. Lower new sales of these products, as well as our ongoing risk mitigation and return optimization programs, could negatively impact investment portfolio levels, complicate settlement of expiring contracts including forced sales of assets with unrealized capital losses, and affect goodwill impairment testing and insurance reserves deficiency testing.

## A loss of key product distribution relationships could materially affect sales, results of operations or cash flows

Certain products in the Allstate Financial segment are distributed under agreements with other members of the financial services industry that are not affiliated with us. Termination of one or more of these agreements due to, for example, a change in control of one of these distributors or market conditions that make it difficult to achieve our target return on certain products, resulting in relatively uncompetitive pricing, or a decision by us to discontinue selling products through a distribution channel, could have a detrimental effect on the sales, results of operations or cash flows if it were to result in an elevated level of surrenders of in-force contracts sold through terminated distribution relationships.



## Changes in tax laws may decrease sales and profitability of products and adversely affect our financial condition

Under current federal and state income tax law, certain products we offer, primarily life insurance and annuities, receive favorable tax treatment. This favorable treatment may give certain of our products a competitive advantage over noninsurance products. Congress from time to time considers legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress also considers proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products making them less competitive. Such proposals, if adopted, could have a material adverse effect on our profitability and financial condition or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.

## Risks Relating to Investments

We are subject to market risk and declines in credit quality which may adversely affect investment income, cause additional realized losses, and cause increased unrealized losses

Although we continually reevaluate our risk mitigation and return optimization programs, we remain subject to the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices or foreign currency exchange rates. Adverse changes to these rates, spreads and prices may occur due to changes in the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness and/or risk tolerance.

We are subject to risks associated with potential declines in credit quality related to specific issuers or specific industries and a general weakening in the economy, which are typically reflected through credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically defined as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. Credit spreads vary (i.e. increase or decrease) in response to the market's perception of risk and liquidity in a specific issuer or specific sector and are influenced by the credit ratings, and the reliability of those ratings, published by external rating agencies. Although we use derivative financial instruments to manage these risks, the effectiveness of such instruments is subject to the same risks.

A decline in market interest rates or credit spreads could have an adverse effect on our investment income as we invest cash in new investments that may earn less than the portfolio’s average yield. In a declining interest rate environment, borrowers may prepay or redeem securities more quickly than expected as they seek to refinance at lower rates. A decline could also lead us to purchase longer-term or riskier assets in order to obtain adequate investment yields resulting in a duration gap when compared to the duration of liabilities. An increase in market interest rates or credit spreads could have an adverse effect on the value of our investment portfolio by decreasing the fair values of the fixed income securities that comprise a substantial majority of our investment portfolio. A declining equity market could also cause the investments in our pension plans to decrease or decreasing interest rates could cause the funding target and the projected benefit obligation of our pension plans or the accumulated benefit obligation of our other postretirement benefit plans to increase, either or both resulting in a decrease in the funded status of the pension plans and a reduction of shareholders’ equity, increases in pension and other postretirement benefit expense and increases in required contributions to the pension plans. A decline in the quality of our investment portfolio as a result of adverse economic conditions or otherwise could cause additional realized losses on securities, including realized losses relating to equity and derivative strategies.

Deteriorating financial performance impacting securities collateralized by residential and commercial mortgage loans, collateralized corporate loans, and commercial mortgage loans may lead to write-downs and impact our results of operations and financial condition

Changes in residential or commercial mortgage delinquencies, loss severities or recovery rates, declining residential or commercial real estate prices, corporate loan delinquencies or recovery rates, changes in credit or bond insurer strength ratings and the quality of service provided by service providers on securities in our portfolios could lead us to determine that write-downs are necessary in the future.

The impact of our investment strategies may be adversely affected by developments in the financial markets

The impact of our investment portfolio risk mitigation and return optimization programs may be adversely affected by unexpected developments in the financial markets. For example, derivative contracts may result in coverage that is



not as effective as intended thereby leading to the recognition of losses without the recognition of gains expected to mitigate the losses.

## Concentration of our investment portfolios in any particular segment of the economy may have adverse effects on our operating results and financial condition

The concentration of our investment portfolios in any particular industry, collateral type, group of related industries or geographic sector could have an adverse effect on our investment portfolios and consequently on our results of operations and financial condition. Events or developments that have a negative impact on any particular industry, group of related industries or geographic region may have a greater adverse effect on the investment portfolios to the extent that the portfolios are concentrated rather than diversified.

## The determination of the amount of realized capital losses recorded for impairments of our investments is highly subjective and could materially impact our operating results and financial condition

The determination of the amount of realized capital losses recorded for impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in our results of operations. The assessment of whether other-than-temporary impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value. There can be no assurance that we have accurately assessed the level of or amounts recorded for other-than-temporary impairments taken in our financial statements. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.

## The determination of the fair value of our fixed income and equity securities is highly subjective and could materially impact our operating results and financial condition

In determining fair values we generally utilize market transaction data for the same or similar instruments. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets' fair values. The difference between amortized cost or cost and fair value, net of deferred income taxes, certain life and annuity DAC, certain deferred sales inducement costs (“DSI”), and certain reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income in shareholders' equity. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly. Determining fair value is highly subjective and could materially impact our operating results and financial condition.

## Risks Relating to the Insurance Industry

## Our future results are dependent in part on our ability to successfully operate in an insurance industry that is highly competitive

The insurance industry is highly competitive. Our competitors include other insurers and, because some of our products include a savings or investment component, securities firms, investment advisers, mutual funds, banks and other financial institutions. Many of our competitors have well-established national reputations and market similar products. Because of the competitive nature of the insurance industry, including competition for producers such as exclusive and independent agents, there can be no assurance that we will continue to effectively compete with our industry rivals, or that competitive pressures will not have a material adverse effect on our business, operating results or financial condition. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets. Our ability to successfully operate may also be impaired if we are not effective in filling critical leadership positions, in developing the talent and skills of our human resources, in assimilating new executive talent into our organization, or in deploying human resource talent consistently with our business goals.

## Difficult conditions in the economy generally could adversely affect our business and operating results

As with most businesses, we believe difficult conditions in the economy, such as significant negative macroeconomic trends, including relatively high and sustained unemployment, reduced consumer spending, lower home prices, substantial increases in delinquencies on consumer debt, including defaults on home mortgages, and the relatively low availability of credit could have an adverse effect on our business and operating results.



General economic conditions could adversely affect us in the form of consumer behavior and pressure investment results. Consumer behavior changes could include decreased demand for our products. For example, as consumers purchase fewer automobiles, our sales of auto insurance may decline. Also, as consumers become more cost conscious, they may choose lower levels of auto and homeowners insurance. In addition, holders of some of our interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Our investment results could be adversely affected as deteriorating financial and business conditions affect the issuers of the securities in our investment portfolio.

## There can be no assurance that actions of the U.S. federal government, Federal Reserve and other governmental and regulatory bodies for the purpose of stabilizing the financial markets and stimulating the economy will achieve the intended effect

In response to the financial crises affecting the banking system, the financial markets and the broader economy in recent years, the U.S. federal government, the Federal Reserve and other governmental and regulatory bodies have taken actions such as purchasing mortgage-backed and other securities from financial institutions, investing directly in banks, thrifts and bank and savings and loan holding companies and increasing federal spending to stimulate the economy. There can be no assurance as to the long term impact such actions will have on the financial markets or on economic conditions, including potential inflationary affects. Continued volatility and any further economic deterioration could materially and adversely affect our business, financial condition and results of operations.

## Losses from litigation may be material to our operating results or cash flows and financial condition

As is typical for a large company, we are involved in various legal actions, including class action litigation challenging a range of company practices and coverage provided by our insurance products. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently reserved and may be material to our operating results or cash flows for a particular quarter or annual period and to our financial condition.

## We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs and limit our growth

As insurance companies, broker-dealers, investment advisers, a federal stock savings bank and/or investment companies, many of our subsidiaries are subject to extensive laws and regulations. These laws and regulations are complex and subject to change. Moreover, they are administered and enforced by a number of different governmental authorities, including state insurance regulators, state securities administrators, the SEC, the FINRA, the Office of Thrift Supervision, the U.S. Department of Justice, and state attorneys general, each of which exercises a degree of interpretive latitude. Consequently, we are subject to the risk that compliance with any particular regulator's or enforcement authority's interpretation of a legal issue may not result in compliance with another's interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator's or enforcement authority's interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator's or enforcement authority's interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow and improve the profitability of our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products, not holders of securities issued by The Allstate Corporation. In many respects, these laws and regulations limit our ability to grow and improve the profitability of our business.

In recent years, the state insurance regulatory framework has come under public scrutiny and members of Congress have discussed proposals to provide for federal chartering of insurance companies. We can make no assurances regarding the potential impact of state or federal measures that may change the nature or scope of insurance regulation.

## Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business

The federal government has enacted comprehensive regulatory reforms for financial services entities. As part of a larger effort to strengthen the regulation of the financial services market, certain reforms are applicable to the insurance industry, including the establishment of a Federal Insurance Office within the Department of Treasury.



We are a diversified unitary savings and loan holding company for Allstate Bank, a federal stock savings bank and a member of the FDIC. The principal supervisory authority for the diversified unitary savings and loan holding company activities and the bank is the OTS. We are subject to OTS regulation, examination, supervision and reporting requirements and its enforcement authority. Among other things, this permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness and stability of Allstate Bank. The reforms will abolish the OTS and transfer those responsibilities to the OCC and the Federal Reserve Board within an established time period.

These regulatory reforms and any additional legislation or regulatory requirements imposed upon us in connection with the federal government’s regulatory reform of the financial services industry or arising from reform related to the international regulatory capital framework for banking firms, and any more stringent enforcement of existing regulations by federal authorities, may make it more expensive for us to conduct our business.

## 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 conditions beyond our control impact the availability and cost of the reinsurance we purchase. No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as is currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk in designated areas may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available next year. If we were unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we would have to either accept an increase in our exposure risk, reduce our insurance writings, or develop or seek other alternatives.

## Reinsurance subjects us to the credit risk of our reinsurers and may not be adequate to protect us against losses arising from ceded insurance, which could have a material adverse effect on our operating results and financial condition

The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Our inability to collect a material recovery from a reinsurer could have a material adverse effect on our operating results and financial condition.

A large scale pandemic, the continued threat of terrorism or ongoing military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, marketability of product offerings, liquidity and operating results

A large scale pandemic, the continued threat of terrorism, within the United States and abroad, or ongoing military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from declines in the equity markets and from interest rate changes in the United States, Europe and elsewhere, and result in loss of life, property damage, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets and reduced economic activity caused by a large scale pandemic or the continued threat of terrorism. Additionally, in the Allstate Protection and Allstate Financial business segments, a large scale pandemic or terrorist act could have a material adverse effect on the sales, profitability, competitiveness, marketability of product offerings, liquidity, and operating results.

## A downgrade in our financial strength ratings may have an adverse effect on our competitive position, the marketability of our product offerings, and our liquidity, operating results and financial condition

Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade or change the outlook on an insurer’s ratings due to, for example, a change in an insurer’s statutory capital; a change in a rating agency’s determination of the amount of risk-adjusted capital required to maintain 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 insurance financial strength ratings of Allstate Insurance Company and Allstate Life Insurance Company and The Allstate Corporation’s senior debt ratings from A.M. Best, Standard & Poor’s and Moody’s are subject



to continuous review, and the retention of current ratings cannot be assured. A downgrade in any of these ratings could have a material adverse effect on our sales, our competitiveness, the marketability of our product offerings, and our liquidity, operating results and financial condition.

## Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms

In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. In such circumstances, our ability to obtain capital to fund operating expenses, financing costs, capital expenditures or acquisitions may be limited, and the cost of any such capital may be significant. Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders' perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient and in such case, we may not be able to successfully obtain additional financing on favorable terms.

## Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our results of operations and financial condition

Our financial statements are subject to the application of generally accepted accounting principles, which are periodically revised, interpreted and/or expanded. Accordingly, we are required to adopt new guidance or interpretations, or could be subject to existing guidance as we enter into new transactions, which may have a material adverse effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected. For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 2 of the consolidated financial statements.

## The change in our unrecognized tax benefit during the next 12 months is subject to uncertainty

We have disclosed our estimate of net unrecognized tax benefits and the reasonably possible increase or decrease in its balance during the next 12 months in Note 14 of the consolidated financial statements. However, actual results may differ from our estimate for reasons such as changes in our position on specific issues, developments with respect to the governments' interpretations of income tax laws or changes in judgment resulting from new information obtained in audits or the appeals process.

## The realization of deferred tax assets is subject to uncertainty

The realization of our deferred tax assets, net of valuation allowance, is based on our assumption that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes. However, actual results may differ from our assumptions if adequate levels of taxable income are not attained.

## The ability of our subsidiaries to pay dividends may affect our liquidity and ability to meet our obligations

The Allstate Corporation is a holding company with no significant operations. The principal asset is the stock of its subsidiaries. State insurance regulatory authorities limit the payment of dividends by insurance subsidiaries, as described in Note 15 of the consolidated financial statements. In addition, competitive pressures generally require the subsidiaries to maintain insurance financial strength ratings. These restrictions and other regulatory requirements affect the ability of the subsidiaries to make dividend payments. Limits on the ability of the subsidiaries to pay dividends could adversely affect holding company liquidity, including our ability to pay dividends to shareholders, service our debt, or complete share repurchase programs in the timeframe expected.

## The occurrence of events unanticipated in our disaster recovery systems and management continuity planning or a support failure from external providers during a disaster could impair our ability to conduct business effectively

The occurrence of a disaster such as a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems. In the event that a significant number of our managers could be unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.



## Changing climate conditions may adversely affect our financial condition, profitability or cash flows

Allstate recognizes the scientific view that the world is getting warmer. Climate change, to the extent it produces rising temperatures and changes in weather patterns, could impact the frequency or severity of weather events and wildfires, the affordability and availability of homeowners insurance, and the results for our Allstate Protection segment.

Loss of key vendor relationships or failure of a vendor to protect personal information of our customers, claimants or employees could affect our operations

We rely on services and products provided by many vendors in the United States and abroad. These include, for example, vendors of computer hardware and software and vendors of services such as claim adjustment services and human resource benefits management services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect personal information of our customers, claimants or employees, we may suffer operational impairments and financial losses.



## 5-YEAR SUMMARY OF SELECTED FINANCIAL DATA

<table><tr><td>($ in millions, except per share data and ratios)</td><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td></tr><tr><td>Consolidated Operating Results</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance premiums and contract charges</td><td>$ 28,125</td><td>$ 28,152</td><td>$ 28,862</td><td>$ 29,099</td><td>$ 29,333</td></tr><tr><td>Net investment income</td><td>4,102</td><td>4,444</td><td>5,622</td><td>6,435</td><td>6,177</td></tr><tr><td>Realized capital gains and losses</td><td>(827)</td><td>(583)</td><td>(5,090)</td><td>1,235</td><td>286</td></tr><tr><td>Total revenues</td><td>31,400</td><td>32,013</td><td>29,394</td><td>36,769</td><td>35,796</td></tr><tr><td>Net income (loss)</td><td>928</td><td>854</td><td>(1,679)</td><td>4,636</td><td>4,993</td></tr><tr><td>Net income (loss) per share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income (loss) per share - basic</td><td>1.72</td><td>1.58</td><td>(3.06)</td><td>7.80</td><td>7.88</td></tr><tr><td>Net income (loss) per share - diluted</td><td>1.71</td><td>1.58</td><td>(3.06)</td><td>7.76</td><td>7.83</td></tr><tr><td>Cash dividends declared per share</td><td>0.80</td><td>0.80</td><td>1.64</td><td>1.52</td><td>1.40</td></tr><tr><td>Consolidated Financial Position</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investments</td><td>$100,483</td><td>$ 99,833</td><td>$ 95,998</td><td>$118,980</td><td>$119,757</td></tr><tr><td>Total assets</td><td>130,874</td><td>132,652</td><td>134,798</td><td>156,408</td><td>157,554</td></tr><tr><td>Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds</td><td>81,145</td><td>84,659</td><td>90,750</td><td>94,052</td><td>93,683</td></tr><tr><td>Short-term debt</td><td>-</td><td>-</td><td>-</td><td>-</td><td>12</td></tr><tr><td>Long-term debt</td><td>5,908</td><td>5,910</td><td>5,659</td><td>5,640</td><td>4,650</td></tr><tr><td>Shareholders&#x27; equity</td><td>19,016</td><td>16,692</td><td>12,641</td><td>21,851</td><td>21,846</td></tr><tr><td>Shareholders&#x27; equity per diluted share</td><td>35.32</td><td>30.84</td><td>23.47</td><td>38.54</td><td>34.80</td></tr><tr><td>Equity</td><td>19,044</td><td>16,721</td><td>12,673</td><td>21,902</td><td>21,937</td></tr><tr><td>Property-Liability Operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Premiums earned</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td><td>$ 27,233</td><td>$ 27,369</td></tr><tr><td>Net investment income</td><td>1,189</td><td>1,328</td><td>1,674</td><td>1,972</td><td>1,854</td></tr><tr><td>Net income</td><td>1,054</td><td>1,543</td><td>228</td><td>4,258</td><td>4,614</td></tr><tr><td>Operating ratios (1)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Claims and claims expense (“loss”) ratio</td><td>73.0</td><td>71.6</td><td>74.4</td><td>64.9</td><td>58.5</td></tr><tr><td>Expense ratio</td><td>25.1</td><td>24.6</td><td>25.0</td><td>24.9</td><td>25.1</td></tr><tr><td>Combined ratio</td><td>98.1</td><td>96.2</td><td>99.4</td><td>89.8</td><td>83.6</td></tr><tr><td>Allstate Financial Operations</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Premiums and contract charges</td><td>$ 2,168</td><td>$ 1,958</td><td>$ 1,895</td><td>$ 1,866</td><td>$ 1,964</td></tr><tr><td>Net investment income</td><td>2,853</td><td>3,064</td><td>3,811</td><td>4,297</td><td>4,173</td></tr><tr><td>Net income (loss)</td><td>58</td><td>(483)</td><td>(1,721)</td><td>465</td><td>464</td></tr><tr><td>Investments</td><td>61,582</td><td>62,216</td><td>61,449</td><td>74,256</td><td>75,951</td></tr></table>

(1) We use operating ratios to measure the profitability of our Property-Liability results. We believe that they enhance an investor's understanding of our profitability. They are calculated as follows: Claims and claims expense (“loss”) ratio is the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses. Expense ratio is the ratio of amortization of deferred policy acquisition costs, operating costs and expenses and restructuring and related charges to premiums earned. Combined ratio is the ratio of claims and claims expense, amortization of deferred policy acquisition costs, operating costs and expenses and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.



## Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we”, “our”, “us”, the “Company” or “Allstate”). It should be read in conjunction with the 5-year summary of selected financial data, consolidated financial statements and related notes found under Part II, Item 6 and Item 8 contained herein. Further analysis of our insurance segments is provided in the Property-Liability Operations (which includes the Allstate Protection and the Discontinued Lines and Coverages segments) and in the Allstate Financial Segment sections of Management’s Discussion and Analysis (“MD&A”). The segments are consistent with the way in which we use financial information to evaluate business performance and to determine the allocation of resources.

Allstate is focused on three priorities in 2011:

• improve our operating results;

• grow our businesses profitably; and

• differentiate ourselves from the competition by reinventing our business.

The most important factors we monitor to evaluate the financial condition and performance of our company include:

- For Allstate Protection: premium written, the 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;

- For Allstate Financial: benefit and investment spread, amortization of deferred policy acquisition costs (“DAC”), expenses, operating income, net income, invested assets, and premiums and contract charges;

- For Investments: credit quality/experience, realized capital gains and losses, investment income, unrealized capital gains and losses, stability of long-term returns, total returns, cash flows, and asset and liability duration; and

- For financial condition: liquidity, parent holding company level of deployable invested assets, financial strength ratings, operating leverage, debt leverage, book value per share, and return on equity.

## 2010 HIGHLIGHTS

- Consolidated net income was $928 million in 2010 compared to $854 million in 2009. Net income per diluted share was $1.71 in 2010 compared to $1.58 in 2009.

• Property-Liability net income was $1.05 billion in 2010 compared to $1.54 billion in 2009.

• The Property-Liability combined ratio was 98.1 in 2010 compared to 96.2 in 2009.

• Allstate Financial had net income of $58 million in 2010 compared to a net loss of $483 million in 2009.

• Total revenues were $31.40 billion in 2010 compared to $32.01 billion in 2009.

• Property-Liability premiums earned in 2010 totaled $25.96 billion, a decrease of 0.9% from $26.19 billion in 2009.

• Net realized capital losses were $827 million in 2010 compared to $583 million in 2009.

• Investments as of December 31, 2010 totaled $100.48 billion, an increase of 0.7% from $99.83 billion as of December 31, 2009. Net investment income in 2010 was $4.10 billion, a decrease of 7.7% from $4.44 billion in 2009.

- Book value per diluted share (ratio of shareholders’ equity to total shares outstanding and dilutive potential shares outstanding) was $35.32 as of December 31, 2010, an increase of 14.5% from $30.84 as of December 31, 2009.

- For the twelve months ended December 31, 2010, return on the average of beginning and ending period shareholders' equity was 5.2%, a decrease of 0.6 points from 5.8% for the twelve months ended December 31, 2009.

- As of December 31, 2010, we had $19.02 billion in capital. This total included $3.84 billion in deployable invested assets at the parent holding company level.



<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Property-liability insurance premiums</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td></tr><tr><td>Life and annuity premiums and contract charges</td><td>2,168</td><td>1,958</td><td>1,895</td></tr><tr><td>Net investment income</td><td>4,102</td><td>4,444</td><td>5,622</td></tr><tr><td>Realized capital gains and losses:</td><td></td><td></td><td></td></tr><tr><td>Total other-than-temporary impairment losses</td><td>(937)</td><td>(2,376)</td><td>(3,735)</td></tr><tr><td>Portion of loss recognized in other comprehensive income</td><td>(64)</td><td>457</td><td>—</td></tr><tr><td>Net other-than-temporary impairment losses recognized in earnings</td><td>(1,001)</td><td>(1,919)</td><td>(3,735)</td></tr><tr><td>Sales and other realized capital gains and losses</td><td>174</td><td>1,336</td><td>(1,355)</td></tr><tr><td>Total realized capital gains and losses</td><td>(827)</td><td>(583)</td><td>(5,090)</td></tr><tr><td>Total revenues</td><td>31,400</td><td>32,013</td><td>29,394</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Property-liability insurance claims and claims expense</td><td>(18,951)</td><td>(18,746)</td><td>(20,064)</td></tr><tr><td>Life and annuity contract benefits</td><td>(1,815)</td><td>(1,617)</td><td>(1,612)</td></tr><tr><td>Interest credited to contractholder funds</td><td>(1,807)</td><td>(2,126)</td><td>(2,411)</td></tr><tr><td>Amortization of deferred policy acquisition costs</td><td>(4,034)</td><td>(4,754)</td><td>(4,679)</td></tr><tr><td>Operating costs and expenses</td><td>(3,281)</td><td>(3,007)</td><td>(3,273)</td></tr><tr><td>Restructuring and related charges</td><td>(30)</td><td>(130)</td><td>(23)</td></tr><tr><td>Interest expense</td><td>(367)</td><td>(392)</td><td>(351)</td></tr><tr><td>Total costs and expenses</td><td>(30,285)</td><td>(30,772)</td><td>(32,413)</td></tr><tr><td>Gain (loss) on disposition of operations</td><td>11</td><td>7</td><td>(6)</td></tr><tr><td>Income tax (expense) benefit</td><td>(198)</td><td>(394)</td><td>1,346</td></tr><tr><td>Net income (loss)</td><td>$ 928</td><td>$ 854</td><td>$ (1,679)</td></tr><tr><td>Property-Liability</td><td>$ 1,054</td><td>$ 1,543</td><td>$ 228</td></tr><tr><td>Allstate Financial</td><td>58</td><td>(483)</td><td>(1,721)</td></tr><tr><td>Corporate and Other</td><td>(184)</td><td>(206)</td><td>(186)</td></tr><tr><td>Net income (loss)</td><td>$ 928</td><td>$ 854</td><td>$ (1,679)</td></tr></table>

## APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining:

• Fair value of financial assets

• Impairment of fixed income and equity securities

• Deferred policy acquisition costs amortization

• Reserve for property-liability insurance claims and claims expense estimation

• Reserve for life-contingent contract benefits estimation

In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our businesses and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our consolidated financial statements.

A brief summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our consolidated financial statements, and the judgments and assumptions related to these



estimates, see the referenced sections of this document. For a complete summary of our significant accounting policies, see Note 2 of the consolidated financial statements.

Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We categorize our financial assets measured at fair value into a three-level hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Financial asset values are based on unadjusted quoted prices for identical assets in an active market that we can access.

Level 2: Financial asset values are based on the following:

(a) Quoted prices for similar assets in active markets;

(b) Quoted prices for identical or similar assets in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset.

Level 3: Financial asset values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the financial assets.

Observable inputs are inputs that reflect the assumptions market participants would use in valuing financial assets that are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs reflect our estimates of the assumptions market participants would use in valuing financial assets and are developed based on the best information available in the circumstances. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information.

We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We gain assurance on the overall reasonableness and consistent application of valuation input assumptions, valuation methodologies and compliance with accounting standards for fair value determination through the execution of various processes and controls designed to ensure that our financial assets are appropriately valued. We monitor fair values received from third parties and those derived internally on an ongoing basis.

We employ independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We obtain or calculate only one single quote or price for each financial instrument.

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the 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 values are derived from the valuation service providers' proprietary valuation models. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information.

For certain of our financial assets measured at fair value, where our valuation service providers cannot provide fair value determinations, we obtain a single non-binding price quote from a broker familiar with the security who, similar to our valuation service providers, may consider transactions or activity in similar securities among other information. The brokers providing price quotes are generally from the brokerage divisions of leading financial institutions with market making, underwriting and distribution expertise regarding the security subject to valuation.

The fair value of certain financial assets, including privately placed corporate fixed income securities, auction rate securities (“ARS”) backed by student loans, equity-indexed notes, and certain free-standing derivatives, for which our valuation service providers or brokers do not provide fair value determinations, is determined using valuation methods



and models widely accepted in the financial services industry. Internally developed valuation models, which include inputs that may not be market observable and as such involve some degree of judgment, are considered appropriate for each class of security to which they are applied.

Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities, published credit spreads, and other applicable market data. Additional inputs that are used include internally-derived assumptions such as liquidity premium and credit ratings, as well as instrument-specific characteristics that include, but are not limited to, coupon rate, expected cash flows, sector of the issuer, and call provisions. Our internally assigned credit ratings are developed at a more detailed level than externally published ratings and allow for a more precise match of these ratings to other market observable valuation inputs, such as credit and sector spreads, when performing these valuations. Due to the existence of non-market observable inputs, such as liquidity premiums, judgment is required in developing these fair values. As a result, the fair value of these financial assets may differ from the amount actually received to sell an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the financial assets' fair values.

For the majority of our financial assets measured at fair value, all significant inputs are based on market observable data and significant management judgment does not affect the periodic determination of fair value. The determination of fair value using discounted cash flow models involves management judgment when significant model inputs are not based on market observable data. However, where market observable data is available, it takes precedence, and as a result, no range of reasonably likely inputs exists from which the basis of a sensitivity analysis could be constructed.

There is one primary situation where a discounted cash flow model utilizes a significant input that is not market observable, and it relates to the determination of fair value for our ARS backed by student loans. The significant input utilized is the anticipated date liquidity will return to this market (that is, when auction failures will cease). Determination of this assumption allows for matching to market observable inputs when performing these valuations.

The following table displays the sensitivity of reasonably likely changes in the anticipated date liquidity will return to the student loan ARS market as of December 31, 2010. The selection of these hypothetical scenarios represents an illustration of the estimated potential proportional effect of alternate assumptions and should not be construed as either a prediction of future events or an indication that it would be reasonably likely that all securities would be similarly affected.

## ($ in millions)

ARS backed by student loans at fair value $ 1,230

Percentage change in fair value resulting from:

Decrease in the anticipated date liquidity will return to this market by six months

Increase in the anticipated date liquidity will return to this market by six months

1.1%

(1.1)%

We believe our most significant exposure to changes in fair value is due to market risk. Our exposure to changes in market conditions is discussed fully in the Market Risk section of the MD&A.

We employ specific control processes to determine the reasonableness of the fair value of our financial assets. Our processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. For example, on a continuing basis, we assess the reasonableness of individual security values received from valuation service providers and those derived from internal models that exceed certain thresholds as compared to previous values received from those valuation service providers or derived from internal models. In addition, we may validate the reasonableness of fair value by comparing information obtained from our valuation service providers to other third party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal pricing models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.



We also perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal pricing model. As of December 31, 2010 and 2009, we did not alter fair values provided by our valuation service providers or brokers or substitute them with an internal pricing model.

The following table identifies fixed income and equity securities and short-term investments as of December 31, 2010 by source of fair value determination:

<table><tr><td>($ in millions)</td><td>Fair value</td><td>Percent to total</td></tr><tr><td>Fair value based on internal sources</td><td>$ 7,971</td><td>9.1%</td></tr><tr><td>Fair value based on external sources  \( {}^{(1)} \)</td><td>79,731</td><td>90.9</td></tr><tr><td>Total</td><td>$ 87,702</td><td>100.0%</td></tr></table>

 \( ^{(1)} $  Includes $4.20 billion that are valued using broker quotes.

For more detailed information on our accounting policy for the fair value of financial assets and the financial assets by level in the fair value hierarchy, see Notes 2 and 5 of the consolidated financial statements.

Impairment of fixed income and equity securities For investments classified as available for sale, the difference between fair value and amortized cost for fixed income securities and cost for equity securities, net of certain other items and deferred income taxes (as disclosed in Note 4), is reported as a component of accumulated other comprehensive income on the Consolidated Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a write-down is recorded due to an other-than-temporary decline in fair value. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, we assess whether management with the appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.

If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We use our best estimate of future cash flows expected to be collected from the fixed income security discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If we determine that the fixed income security does not have sufficient cash



flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

There are a number of assumptions and estimates inherent in evaluating impairments of equity securities and determining if they are other than temporary, including: 1) our ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value; 2) the length of time and extent to which the fair value has been less than cost; 3) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; and 4) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity.

Once assumptions and estimates are made, any number of changes in facts and circumstances could cause us to subsequently determine that a fixed income or equity security is other-than-temporarily impaired, including: 1) general economic conditions that are worse than previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuer's ability to meet all of its contractual obligations; and 3) changes in facts and circumstances that result in changes to management's intent to sell or result in our assessment that it is more likely than not we will be required to sell before recovery of the amortized cost basis of a fixed income security or causes a change in our ability or intent to hold an equity security until it recovers in value. Changes in assumptions, facts and circumstances could result in additional charges to earnings in future periods to the extent that losses are realized. The charge to earnings, while potentially significant to net income, would not have a significant effect on shareholders' equity, since our securities are designated as available for sale and carried at fair value and as a result, any related unrealized loss, net of deferred income taxes and related DAC, deferred sales inducement costs ("DSI") and reserves for life-contingent contract benefits, would already be reflected as a component of accumulated other comprehensive income in shareholders' equity.

The determination of the amount of other-than-temporary impairment is an inherently subjective process based on periodic evaluation of the factors described above. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in results of operations as such evaluations are revised. The use of different methodologies and assumptions in the determination of the amount of other-than-temporary impairments may have a material effect on the amounts presented within the consolidated financial statements.

For additional detail on investment impairments, see Note 4 of the consolidated financial statements.

Deferred policy acquisition costs amortization We incur significant costs in connection with acquiring insurance policies and investment contracts. In accordance with GAAP, costs that vary with and are primarily related to acquiring insurance policies and investment contracts are deferred and recorded as an asset on the Consolidated Statements of Financial Position.

DAC related to property-liability contracts is amortized into income as premiums are earned, typically over periods of six or twelve months. The amortization methodology for DAC related to Allstate Financial policies and contracts includes significant assumptions and estimates.

DAC related to traditional life insurance is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Significant assumptions relating to estimated premiums, investment returns, as well as mortality, persistency and expenses to administer the business are established at the time the policy is issued and are generally not revised during the life of the policy. The assumptions for determining the timing and amount of DAC amortization are consistent with the assumptions used to calculate the reserve for life-contingent contract benefits. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies. The recovery of DAC is dependent upon the future profitability of the business. We periodically review the adequacy of reserves and recoverability of DAC for these policies on an aggregate basis using actual experience. We aggregate all traditional life insurance products and immediate annuities with life contingencies in the analysis. In the event actual experience is significantly adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not recoverable and a premium deficiency reserve may be required if the remaining DAC balance is insufficient to absorb the deficiency. In 2010 and 2009, our reviews concluded that no premium deficiency adjustments were necessary, primarily due to projected profit from traditional life insurance more than offsetting the projected losses in immediate



annuities with life contingencies. In 2008, for traditional life insurance and immediate annuities with life contingencies, an aggregate premium deficiency of $336 million pre-tax ($219 million after-tax) resulted primarily from a study indicating that the annuitants on certain life-contingent contracts are projected to live longer than we anticipated when the contracts were issued and, to a lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in DAC.

DAC related to interest-sensitive life, fixed annuities and other investment contracts is amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits ("AGP") and estimated future gross profits ("EGP") expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life and 5-10 years for fixed annuities. The cumulative DAC amortization is reestimated and adjusted by a cumulative charge or credit to results of operations when there is a difference between the incidence 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 gains and losses less interest credited (investment margin); and surrender and other contract charges less maintenance expenses (expense margin). The principal assumptions for determining the amount of EGP are investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of persistency, mortality, expenses, and hedges if applicable, and these assumptions are reasonably likely to have the greatest impact on the amount of DAC amortization. Changes in these assumptions can be offsetting and we are unable to reasonably predict their future movements or offsetting impacts over time.

Each reporting period, DAC amortization is recognized in proportion to AGP for that period adjusted for interest on the prior period DAC balance. This amortization process includes an assessment of AGP compared to EGP, the actual amount of business remaining in force and realized capital gains and losses on investments supporting the product liability. The impact of realized capital gains and losses on amortization of DAC depends upon which product liability is supported by the assets that give rise to the gain or loss. If the AGP is greater than EGP in the period, but the total EGP is unchanged, the amount of DAC amortization will generally increase, resulting in a current period decrease to earnings. The opposite result generally occurs when the AGP is less than the EGP in the period, but the total EGP is unchanged. However, when DAC amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC balance) as a result of negative AGP, the specific facts and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the consolidated financial statements. Negative amortization is only recorded when the increased DAC balance is determined to be recoverable based on facts and circumstances. Negative amortization was not recorded for certain fixed annuities during 2010, 2009 and 2008 periods in which significant capital losses were realized on their related investment portfolio. For products whose supporting investments are exposed to capital losses in excess of our expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC amortization may be modified to exclude the excess capital losses.

Annually, we review and update all assumptions underlying the projections of EGP, including investment returns, comprising investment income and realized capital gains and losses, interest crediting rates, persistency, mortality, expenses and the effect of any hedges. At each reporting period, we assess whether any revisions to assumptions used to determine DAC amortization are required. These reviews and updates may result in amortization acceleration or deceleration, which are commonly referred to as “DAC unlocking”. If the update of assumptions causes total EGP to increase, the rate of DAC amortization will generally decrease, resulting in a current period increase to earnings. A decrease to earnings generally occurs when the assumption update causes the total EGP to decrease.

Over the past three years, our most significant DAC assumption updates that resulted in a change to EGP and the amortization of DAC have been revisions to expected future investment returns, primarily realized capital losses, mortality, expenses and the number of contracts in force or persistency. The following table provides the effect on DAC



amortization of changes in assumptions relating to the gross profit components of investment margin, benefit margin and expense margin during the years ended December 31.

<table><tr><td>(\ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Investment margin</td><td>$ 15</td><td>$ (399)</td><td>$ (303)</td></tr><tr><td>Benefit margin</td><td>(45)</td><td>129</td><td>35</td></tr><tr><td>Expense margin</td><td>42</td><td>(7)</td><td>(59)</td></tr><tr><td>Net deceleration (acceleration)</td><td>$ 12</td><td>$ (277)</td><td>$ (327)</td></tr></table>

In 2010, DAC amortization deceleration related to changes in the investment margin component of EGP primarily related to interest-sensitive life insurance and was due to higher than previously projected investment income and lower interest credited, partially offset by higher projected realized capital losses. The acceleration related to benefit margin was primarily due to lower projected renewal premium (which is also expected to reduce persistency) on interest-sensitive life insurance, partially offset by higher than previously projected revenues associated with variable life insurance due to appreciation in the underlying separate account valuations. The deceleration related to expense margin resulted from current and expected expense levels lower than previously projected. DAC amortization acceleration related to changes in the investment margin component of EGP in the first quarter of 2009 was primarily due to an increase in the level of expected realized capital losses in 2009 and 2010. The deceleration related to benefit margin was due to more favorable projected life insurance mortality. The acceleration related to expense margin resulted from current and expected expense levels higher than previously projected. DAC amortization acceleration related to changes in the investment margin component of EGP in 2008 was primarily due to the level of realized capital losses impacting actual gross profits in 2008 and the impact of realized capital losses on expected gross profits in 2009. The deceleration related to benefit margin was due to more favorable projected life insurance mortality. The acceleration related to expense margin resulted from current and expected expense levels higher than previously projected.

The following table displays the sensitivity of reasonably likely changes in assumptions included in the gross profit components of investment margin or benefit margin to amortization of the DAC balance as of December 31, 2010.

<table><tr><td>(\ in millions)</td><td>December 31, 2010 Increase/(reduction) in DAC</td></tr><tr><td>Increase in future investment margins of 25 basis points</td><td>$ 70</td></tr><tr><td>Decrease in future investment margins of 25 basis points</td><td>$ (78)</td></tr><tr><td>Decrease in future life mortality by 1%</td><td>$ 19</td></tr><tr><td>Increase in future life mortality by 1%</td><td>$ (20)</td></tr></table>

Any potential changes in assumptions discussed above are measured without consideration of correlation among assumptions. Therefore, it would be inappropriate to add them together in an attempt to estimate overall variability in amortization.

For additional detail related to DAC, see the Allstate Financial Segment section of this document.

Reserve for property-liability insurance claims and claims expense estimation Reserves are established to provide for the estimated costs of paying claims and claims expenses under insurance policies we have issued. Property-Liability underwriting results are significantly influenced by estimates of property-liability insurance claims and claims expense reserves. These reserves are an estimate of amounts necessary to settle all outstanding claims, including claims that have been incurred but not reported (“IBNR”), as of the financial statement date.

Characteristics of reserves Reserves are established independently of business segment management for each business segment and line of business based on estimates of the ultimate cost to settle claims, less losses that have been paid. The significant lines of business are auto, homeowners, and other lines for Allstate Protection, and asbestos, environmental, and other discontinued lines for Discontinued Lines and Coverages. Allstate Protection’s claims are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss is reported. Auto and homeowners liability losses generally take an average 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 substantial reporting lags and extended times to settle.



Reserves are the difference between the estimated ultimate cost of losses incurred and the amount of paid losses as of the reporting date. Reserves are estimated for both reported and unreported claims, and include estimates of all expenses associated with processing and settling all incurred claims. We update most of our reserve estimates quarterly and as new information becomes available or as events emerge that may affect the resolution of unsettled claims. Changes in prior year reserve estimates (reserve reestimates), which may be material, are determined by comparing updated estimates of ultimate losses to prior estimates, and the differences are recorded as property-liability insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined. Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables.

The actuarial methods used to develop reserve estimates Reserve estimates are derived by using several different actuarial estimation methods that are variations on one primary actuarial technique. The actuarial technique is known as a “chain ladder” estimation process in which historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves established by claim adjusters) for an accident year or a report year to create an estimate of how losses are likely to develop over time. An accident year refers to classifying claims based on the year in which the claims occurred. A report year refers to classifying claims based on the year in which the claims are reported. Both classifications are used to prepare estimates of required reserves for payments to be made in the future. The key assumptions affecting our reserve estimates comprise data elements including claim counts, paid losses, case reserves, and development factors calculated with this data.

In the chain ladder estimation technique, a ratio (development factor) is calculated which compares current period results to results in the prior period for each accident year. A three-year or two-year average development factor, based on historical results, is usually multiplied by the current period experience to estimate the development of losses of each accident year into the next time period. The development factors for the future time periods for each accident year are compounded over the remaining future periods to calculate an estimate of ultimate losses for each accident year. The implicit assumption of this technique is that an average of historical development factors is predictive of future loss development, as the significant size of our experience data base achieves a high degree of statistical credibility in actuarial projections of this type. The effects of inflation are implicitly considered in the reserving process, the implicit assumption being that a multi-year average development factor includes an adequate provision. Occasionally, unusual aberrations in loss patterns are caused by external and internal factors such as changes in claim reporting, settlement patterns, unusually large losses, process changes, legal or regulatory changes, and other influences. In these instances, analyses of alternate development factor selections are performed to evaluate the effect of these factors and actuarial judgment is applied to make appropriate development factor assumptions needed to develop a best estimate of ultimate losses.

How reserve estimates are established and updated Reserve estimates are developed at a very detailed level, and the results of these numerous micro-level best estimates are aggregated to form a consolidated reserve estimate. For example, over one thousand actuarial estimates of the types described above are prepared each quarter to estimate losses for each line of insurance, major components of losses (such as coverages and perils), major states or groups of states and for reported losses and IBNR. The actuarial methods described above are used to analyze the settlement patterns of claims by determining the development factors for specific data elements that are necessary components of a reserve estimation process. Development factors are calculated quarterly for data elements such as claim counts reported and settled, paid losses, and paid losses combined with case reserves. The calculation of development factors from changes in these data elements also impacts claim severity trends, which is a common industry reference used to explain changes in reserve estimates. The historical development patterns for these data elements are used as the assumptions to calculate reserve estimates.

Often, several different estimates are prepared for each detailed component, incorporating alternative analyses of changing claim settlement patterns and other influences on losses, from which we select our best estimate for each component, occasionally incorporating additional analyses and actuarial judgment, as described above. These micro-level estimates are not based on a single set of assumptions. Actuarial judgments that may be applied to these components of certain micro-level estimates generally do not have a material impact on the consolidated level of reserves. Moreover, this detailed micro-level process does not permit or result in a compilation of a company-wide roll up to generate a range of needed loss reserves that would be meaningful. Based on our review of these estimates, our best estimate of required reserves for each state/line/coverage component is recorded for 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. This process incorporates the historic and latest actual trends, and other underlying changes in the data elements used to calculate reserve estimates. New development factors are likely to differ from previous development factors used in prior reserve estimates because actual results (claims reported or settled, losses paid, or changes to case reserves) occur differently than the implied assumptions contained in the previous development factor calculations. If claims reported, paid losses, or case reserve changes are greater or less than the levels estimated by previous development factors, reserve restatements increase or decrease. When actual development of these data elements is different than the historical development pattern used in a prior period reserve estimate, a new reserve is determined. The difference between indicated reserves based on new reserve estimates and recorded reserves (the previous estimate) is the amount of reserve restatement and is recognized as an increase or decrease in property-liability insurance claims and claims expense in the Consolidated Statements of Operations. Total Property-liability reserve restatements, after-tax, as a percent of net income in 2010, 2009 and 2008 were 11.1%, 8.5%, and (6.6)%, respectively. For Property-Liability, the 3-year average of reserve restatements as a percentage of total reserves was a favorable 0.2%, for Allstate Protection, the 3-year average of reserve estimates was a favorable 0.4% and for Discontinued Lines and Coverages, the 3-year average of reserve restatements was an unfavorable 1.2%, each of these results being consistent within a reasonable actuarial tolerance for our respective businesses. A more detailed discussion of reserve restatements is presented in the Property-Liability Claims and Claims Expense Reserves section of this document.

The following table shows net claims and claims expense reserves by operating segment and line of business as of December 31:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Allstate Protection</td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 11,034</td><td>$ 10,606</td><td>$ 10,220</td></tr><tr><td>Homeowners</td><td>2,442</td><td>2,399</td><td>2,824</td></tr><tr><td>Other lines</td><td>2,141</td><td>2,145</td><td>2,207</td></tr><tr><td>Total Allstate Protection</td><td>15,617</td><td>15,150</td><td>15,251</td></tr><tr><td>Discontinued Lines and Coverages</td><td></td><td></td><td></td></tr><tr><td>Asbestos</td><td>1,100</td><td>1,180</td><td>1,228</td></tr><tr><td>Environmental</td><td>201</td><td>198</td><td>195</td></tr><tr><td>Other discontinued lines</td><td>478</td><td>500</td><td>508</td></tr><tr><td>Total Discontinued Lines and Coverages</td><td>1,779</td><td>1,878</td><td>1,931</td></tr><tr><td>Total Property-Liability</td><td>$ 17,396</td><td>$ 17,028</td><td>$ 17,182</td></tr></table>

## Allstate Protection reserve estimates

Factors affecting reserve estimates Reserve estimates are developed based on the processes and historical development trends as previously described. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases, actual claims paid, differing payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When we experience changes of the type previously mentioned, we may need to apply actuarial judgment in the determination and selection of development factors considered more reflective of the new trends, such as combining shorter or longer periods of historical results with current actual results to produce development factors based on two-year, three-year, or longer development periods to restimate our reserves. For example, if a legal change is expected to have a significant impact on the development of claim severity for a coverage which is part of a particular line of insurance in a specific state, actuarial judgment is applied to determine appropriate development factors that will most accurately reflect the expected impact on that specific estimate. Another example would be when a change in economic conditions is expected to affect the cost of repairs to damaged autos or property for a particular line, coverage, or state, actuarial judgment is applied to determine appropriate development factors to use in the reserve estimate that will most accurately reflect the expected impacts on severity development.

As claims are reported, for certain liability claims of sufficient size and complexity, the field adjusting staff establishes case reserve estimates of ultimate cost, based on their assessment of facts and circumstances related to each individual claim. For other claims which occur in large volumes and settle in a relatively short time frame, it is not practical or efficient to set case reserves for each claim, and a statistical case reserve is set for these claims based on estimation techniques previously described. In the normal course of business, we may also supplement our claims



processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims.

Historically, the case reserves set by the field adjusting staff have not proven to be an entirely accurate estimate of the ultimate cost of claims. To provide for this, a development reserve is estimated using previously described processes, and allocated to pending claims as a supplement to case reserves. Typically, the case and supplemental development reserves comprise about 90% of total reserves.

Another major component of reserves is IBNR. Typically, IBNR comprises about 10% of total reserves.

Generally, the initial reserves for a new accident year are established based on severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators, and reserves for prior accident years are statistically determined using processes previously described. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy. We mitigate these effects through various loss management programs. Injury claims are affected largely by medical cost inflation while physical damage claims are affected largely by auto repair cost inflation and used 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 and Equipment price index. We believe our claim settlement initiatives, such as improvements to the claim review and settlement process, the use of special investigative units to detect fraud and handle suspect claims, litigation management and defense strategies, as well as various other loss management initiatives underway, contribute to the mitigation of injury and physical damage severity trends.

Changes in homeowners current year claim severity are generally influenced by inflation in the cost of building materials, the cost of construction and property repair services, the cost of replacing home furnishings and other contents, the types of claims that qualify for coverage, deductibles and other economic and environmental factors. We employ various loss management programs to mitigate the effect of these factors.

As loss experience for the current year develops for each type of loss, it is monitored relative to initial assumptions until it is judged to have sufficient statistical credibility. From that point in time and forward, reserves are reestimated using statistical actuarial processes to reflect the impact actual loss trends have on development factors incorporated into the actuarial estimation processes. Statistical credibility is usually achieved by the end of the first calendar year; however, when trends for the current accident year exceed initial assumptions sooner, they are usually determined to be credible, and reserves are increased accordingly.

The very detailed processes for developing reserve estimates, and the lack of a need and existence of a common set of assumptions or development factors, limits aggregate reserve level testing for variability of data elements. However, by applying standard actuarial methods to consolidated historic accident year loss data for major loss types, comprising auto injury losses, auto physical damage losses and homeowner losses, we develop variability analyses consistent with the way we develop reserves by measuring the potential variability of development factors, as described in the section titled “Potential Reserve Estimate Variability” below.

Causes of reserve estimate uncertainty Since reserves are estimates of unpaid portions of claims and claims expenses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, requires regular reevaluation and refinement of estimates to determine our ultimate loss estimate.

At each reporting date, the highest degree of uncertainty in estimates of losses arises from claims remaining to be settled for the current accident year and the most recent preceding accident year. The greatest degree of uncertainty exists in the current accident year because the current accident year contains the greatest proportion of losses that have not been reported or settled but must be estimated as of the current reporting date. Most of these losses relate to damaged property such as automobiles and homes, and medical care for injuries from accidents. During the first year after the end of an accident year, a large portion of the total losses for that accident year are settled. When accident year losses paid through the end of the first year following the initial accident year are incorporated into updated actuarial estimates, the trends inherent in the settlement of claims emerge more clearly. Consequently, this is the point in time at which we tend to make our largest reestimates of losses for an accident year. After the second year, the losses that we pay for an accident year typically relate to claims that are more difficult to settle, such as those involving serious injuries or litigation. Private passenger auto insurance provides a good illustration of the uncertainty of future loss estimates: our typical annual percentage payout of reserves for an accident year is approximately 45% in the first year after the end of the accident year, 20% in the second year, 15% in the third year, 10% in the fourth year, and the remaining 10% thereafter.



Reserves for catastrophe losses Property-Liability claims and claims expense reserves also include reserves for catastrophe losses. Catastrophe losses are an inherent risk of the property-liability insurance industry that have contributed, and will continue to contribute, to potentially material year-to-year fluctuations in our results of operations and financial position. We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain acts of terrorism or industrial accidents. The nature and level of catastrophes in any period cannot be predicted.

The estimation of claims and claims expense reserves for catastrophes also comprises estimates of losses from reported claims and IBNR, primarily for damage to property. In general, our estimates for catastrophe reserves are based on claim adjuster inspections and the application of historical loss development factors as described previously. However, depending on the nature of the catastrophe, as noted above, the estimation process can be further complicated. For example, for hurricanes, complications could include the inability of insureds to promptly report losses, limitations placed on claims adjusting staff affecting their ability to inspect losses, determining whether losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or specifically excluded coverage caused by flood, estimating additional living expenses, and assessing the impact of demand surge, exposure to mold damage, and the effects of numerous other considerations, including the timing of a catastrophe in relation to other events, such as at or near the end of a financial reporting period, which can affect the availability of information needed to estimate reserves for that reporting period. In these situations, we may need to adapt our practices to accommodate these circumstances in order to determine a best estimate of our losses from a catastrophe. As an example, in 2005 to complete an estimate for certain areas affected by Hurricane Katrina and not yet inspected by our claims adjusting staff, or where we believed our historical loss development factors were not predictive, we relied on analysis of actual claim notices received compared to total PIF, as well as visual, governmental and third party information, including aerial photos, area observations, and data on wind speed and flood depth to the extent available.

Potential reserve estimate variability The aggregation of numerous micro-level estimates for each business segment, line of insurance, major components of losses (such as coverages and perils), and major states or groups of states for reported losses and IBNR forms the reserve liability recorded in the Consolidated Statements of Financial Position. Because of this detailed approach to developing our reserve estimates, there is not a single set of assumptions that determine our reserve estimates at the consolidated level. Given the numerous micro-level estimates for reported losses and IBNR, management does not believe the processes that we follow will produce a statistically credible or reliable actuarial reserve range that would be meaningful. Reserve estimates, by their very nature, are very complex to determine and subject to significant judgment, and do not represent an exact determination for each outstanding claim. Accordingly, as actual claims, and/or paid losses, and/or case reserve results emerge, our estimate of the ultimate cost to settle will be different than previously estimated.

To develop a statistical indication of potential reserve variability within reasonably likely possible outcomes, an actuarial technique (stochastic modeling) is applied to the countrywide consolidated data elements for paid losses and paid losses combined with case reserves separately for injury losses, auto physical damage losses, and homeowners losses excluding catastrophe losses. Based on the combined historical variability of the development factors calculated for these data elements, an estimate of the standard error or standard deviation around these reserve estimates is calculated within each accident year for the last eleven years for each type of loss. The variability of these reserve estimates within one standard deviation of the mean (a measure of frequency of dispersion often viewed to be an acceptable level of accuracy) is believed by management to represent a reasonable and statistically probable measure of potential variability. Based on our products and coverages, historical experience, the statistical credibility of our extensive data and stochastic modeling of actuarial chain ladder methodologies used to develop reserve estimates, we estimate that the potential variability of our Allstate Protection reserves, excluding reserves for catastrophe losses, within a reasonable probability of other possible outcomes, may be approximately plus or minus 4%, or plus or minus $425 million in net income. A lower level of variability exists for auto injury losses, which comprise approximately 75% of reserves, due to their relatively stable development patterns over a longer duration of time required to settle claims. Other types of losses, such as auto physical damage, homeowners losses and other losses, which comprise about 25% of reserves, tend to have greater variability but are settled in a much shorter period of time. Although this evaluation reflects most reasonably likely outcomes, it is possible the final outcome may fall below or above these amounts. Historical variability of reserve estimates is reported in the Property-Liability Claims and Claims Expense Reserves section of this document.



Adequacy of reserve estimates We believe our net claims and claims expense reserves are appropriately established based on available methodology, facts, technology, laws and regulations. We calculate and record a single best reserve estimate, in conformance with generally accepted actuarial standards, for each line of insurance, its components (coverages and perils) and state, for reported losses and for IBNR losses, and as a result we believe that no other estimate is better than our recorded amount. Due to the uncertainties involved, the ultimate cost of losses may vary materially from recorded amounts, which are based on our best estimates.

## Discontinued Lines and Coverages reserve estimates

Characteristics of Discontinued Lines exposure We continue to receive asbestos and environmental claims. Asbestos claims relate primarily to bodily injuries asserted by people who were exposed to asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.

Our exposure to asbestos, environmental and other discontinued lines claims arises principally from assumed reinsurance coverage written during the 1960s through the mid-1980s, including reinsurance on primary insurance written on large U.S. companies, and from direct excess insurance written from 1972 through 1985, including substantial excess general liability coverages on large U.S. companies. Additional exposure stems from direct primary commercial insurance written during the 1960s through the mid-1980s. Other discontinued lines exposures primarily relate to general liability and product liability mass tort claims, such as those for medical devices and other products.

In 1986, the general liability policy form used by us and others in the property-liability industry was amended to introduce an “absolute pollution exclusion,” which excluded coverage for environmental damage claims, and to add an asbestos exclusion. Most general liability policies issued prior to 1987 contain annual aggregate limits for product liability coverage. General 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.

Our exposure to liability for asbestos, environmental and other discontinued lines losses manifests differently depending on whether it arises from assumed reinsurance coverage, direct excess insurance or direct primary commercial insurance. The direct insurance coverage we provided that covered asbestos, environmental and other discontinued lines was substantially “excess” in nature.

Direct excess insurance and reinsurance involve coverage written by us for specific layers of protection above retentions and other insurance plans. The nature of excess coverage and reinsurance provided to other insurers limits our exposure to loss to specific layers of protection in excess of policyholder retention on primary insurance plans. Our exposure is further limited by the significant reinsurance that we had purchased on our direct excess business.

Our assumed reinsurance business involved writing generally small participations in other insurers' reinsurance programs. The reinsured losses in which we participate may be a proportion of all eligible losses or eligible losses in excess of defined retentions. The majority of our assumed reinsurance exposure, approximately 85%, is for excess of loss coverage, while the remaining 15% is for pro-rata coverage.

Our direct primary commercial insurance business did not include coverage to large asbestos manufacturers. This business comprises a cross section of policyholders engaged in many diverse business sectors located throughout the country.

How reserve estimates are established and updated We conduct an annual review in the third quarter to evaluate and establish asbestos, environmental and other discontinued lines reserves. Changes to reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines asbestos reserves based on assessments of the characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, and determines environmental reserves based on assessments of the characteristics of exposure (i.e. environmental damages, respective shares of liability of potentially responsible parties, appropriateness and cost of remediation) to pollution and related clean-up costs. The number and cost of these claims is affected by intense advertising by trial lawyers seeking asbestos plaintiffs, and entities with asbestos exposure seeking bankruptcy protection as a result of asbestos liabilities, initially causing a delay in the reporting of claims, often followed by an acceleration and an increase in claims and claims expenses as settlements occur.

After evaluating our insureds’ probable liabilities for asbestos and/or environmental claims, we evaluate our insureds’ coverage programs for such claims. We consider our insureds’ total available insurance coverage, including



the coverage we issued. We also consider relevant judicial interpretations of policy language and applicable coverage defenses or determinations, if any.

Evaluation of both the insureds’ estimated liabilities and our exposure to the insureds depends heavily on an analysis of the relevant legal issues and litigation environment. This analysis is conducted by our specialized claims adjusting staff and legal counsel. Based on these evaluations, case reserves are established by claims adjusting staff and actuarial analysis is employed to develop an IBNR reserve, which includes estimated potential reserve development and claims that have occurred but have not been reported. As of December 31, 2010 and 2009, IBNR was 60.1% and 62.3%, respectively, of combined asbestos and environmental reserves.

For both asbestos and environmental reserves, we also evaluate our historical direct net loss and expense paid and incurred experience to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and incurred activity.

Other Discontinued Lines and Coverages The following table shows reserves for other discontinued lines which provide for remaining loss and loss expense liabilities related to business no longer written by us, other than asbestos and environmental, as of December 31.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Other mass torts</td><td>$ 188</td><td>$ 201</td><td>$ 177</td></tr><tr><td>Workers’ compensation</td><td>116</td><td>122</td><td>130</td></tr><tr><td>Commercial and other</td><td>174</td><td>177</td><td>201</td></tr><tr><td>Other discontinued lines</td><td>$ 478</td><td>$ 500</td><td>$ 508</td></tr></table>

Other mass torts describe direct excess and reinsurance general liability coverage provided for cumulative injury losses other than asbestos and environmental. Workers’ compensation and commercial and other include run-off from discontinued direct primary, direct excess and reinsurance commercial insurance operations of various coverage exposures other than asbestos and environmental. Reserves are based on considerations similar to those previously described, as they relate to the characteristics of specific individual coverage exposures.

Potential reserve estimate variability Establishing Discontinued Lines and Coverages net loss reserves for asbestos, environmental and other discontinued lines claims is subject to uncertainties that are much greater than those presented by other types of claims. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs' evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Our reserves for asbestos and environmental exposures could be affected by tort reform, class action litigation, and other potential legislation and judicial decisions. Environmental exposures could also be affected by a change in the existing federal Superfund law and similar state statutes. There can be no assurance that any reform legislation will be enacted or that any such legislation will provide for a fair, effective and cost-efficient system for settlement of asbestos or environmental claims. We believe these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. Historical variability of reserve estimates is demonstrated in the Property-Liability Claims and Claims Expense Reserves section of this document.

Adequacy of reserve estimates Management believes its net loss reserves for environmental, asbestos and other discontinued lines exposures are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. Due to the uncertainties and factors described above, management believes it is not practicable to develop a meaningful range for any such additional net loss reserves that may be required.



Further discussion of reserve estimates For further discussion of these estimates and quantification of the impact of reserve estimates, reserve reestimates and assumptions, see Notes 7 and 13 to the consolidated financial statements and the Property-Liability Claims and Claims Expense Reserves section of this document.

Reserve for life-contingent contract benefits estimation Due to the long term nature of traditional life insurance, life-contingent immediate annuities and voluntary health products, benefits are payable over 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 when establishing the reserve for life-contingent contract benefits payable under these insurance policies. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. Future investment yield assumptions are determined based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination assumptions are based on our experience and industry experience. Expense assumptions include the estimated effects of inflation and expenses to be incurred beyond the premium-paying period. These assumptions are established at the time the policy is issued, are consistent with assumptions for determining DAC amortization for these policies, and are generally not changed during the policy coverage period. However, if actual experience emerges in a manner that is significantly adverse relative to the original assumptions, adjustments to DAC or reserves may be required resulting in a charge to earnings which could have a material adverse effect on our operating results and financial condition. We periodically review the adequacy of reserves and recoverability of DAC for these policies on an aggregate basis using actual experience. In the event actual experience is significantly adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required. In 2010 and 2009, our reviews concluded that no premium deficiency adjustments were necessary, primarily due to profit from traditional life insurance more than offsetting the projected losses in immediate annuities with life contingencies. In 2008, for traditional life insurance and immediate annuities with life contingencies, an aggregate premium deficiency of $336 million pre-tax ($219 million after-tax) resulted primarily from a study indicating that the annuitants on certain life-contingent contracts are projected to live longer than we anticipated when the contracts were issued and, to a lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in DAC. We will continue to monitor the experience of our traditional life insurance and immediate annuities. We anticipate that mortality, investment and reinvestment yields, and policy terminations are the factors that would be most likely to require premium deficiency adjustments to these reserves or related DAC.

For further detail on the reserve for life-contingent contract benefits, see Note 8 of the consolidated financial statements.

## PROPERTY-LIABILITY 2010 HIGHLIGHTS

- Premiums written, an operating measure that is defined and reconciled to premiums earned in the Property-Liability Operations section of the MD&A, decreased 0.2% to $25.91 billion in 2010 from $25.97 billion in 2009.

Allstate brand standard auto premiums written increased 0.5% to $15.84 billion in 2010 from $15.76 billion in 2009.

- Allstate brand homeowners premiums written increased 2.1% to $5.75 billion in 2010 from $5.64 billion in 2009.

- Encompass brand premiums written decreased 17.5% to $1.10 billion in 2010 from $1.33 billion in 2009.

- Premium operating measures and statistics contributing to overall Allstate brand standard auto premiums written increase were the following:

- 1.5% decrease in PIF as of December 31, 2010 compared to December 31, 2009

- 2.1% increase in the six month policy term average gross premium before reinsurance to $443 in 2010 from $434 in 2009

- 0.2 point decrease in the six month renewal ratio to 88.7% in 2010 compared to 88.9% in 2009

- 0.2% decrease in new issued applications in 2010 compared to 2009

- Premium operating measures and statistics contributing to overall Allstate brand homeowners premiums written increase were the following:

- 4.1% decrease in PIF as of December 31, 2010 compared to December 31, 2009

- 6.8% increase in the twelve month policy term average gross premium before reinsurance to $943 in 2010 from $883 in 2009

- 0.3 point increase in the twelve month renewal ratio to 88.4% in 2010 compared to 88.1% in 2009

- 3.6% decrease in new issued applications in 2010 compared to 2009

- $27 million decrease in catastrophe reinsurance costs to $534 million in 2010 from $561 million in 2009



• Factors comprising the Allstate brand standard auto loss ratio increase of 1.4 points to 70.7 in 2010 from 69.3 in 2009 were the following:

- 2.0% increase in standard auto claim frequency for property damage in 2010 compared to 2009

- 6.2% increase in standard auto claim frequency for bodily injury in 2010 compared to 2009

- 0.5% decrease in auto paid claim severities for property damage in 2010 compared to 2009

- 0.3% decrease in auto paid claim severities for bodily injury in 2010 compared to 2009

• Factors comprising the Allstate brand homeowners loss ratio, which includes catastrophes, increase of 2.5 points to 82.1 in 2010 from 79.6 in 2009 were the following:

- 2.3 point increase in the effect of catastrophe losses to 31.3 points in 2010 compared to 29.0 points in 2009

- 1.1% decrease in homeowner claim frequency, excluding catastrophes, in 2010 compared to 2009

- 1.6% increase in paid claim severity, excluding catastrophes, in 2010 compared to 2009

• Factors comprising the $138 million increase in catastrophe losses to $2.21 billion in 2010 compared to $2.07 billion in 2009 were the following:

- 90 events with losses of $2.37 billion in 2010 compared to 82 events with losses of $2.24 billion in 2009

- $163 million favorable prior year reserve reestimates in 2010 compared to $169 million favorable reserve reestimates in 2009

• Factors comprising prior year reserve reestimates of $159 million favorable in 2010 compared to $112 million favorable in 2009 included:

- prior year reserve reestimates related to auto, homeowners and other personal lines in 2010 contributed $179 million favorable, $23 million favorable and $15 million unfavorable, respectively, compared to prior year reserve reestimates in 2009 of $57 million favorable, $168 million favorable and $89 million unfavorable, respectively

- prior year reestimates in 2010 are attributable to favorable prior year catastrophe reestimates and severity development that was better than expected, partially offset by litigation settlements

• Property-Liability underwriting income was $495 million in 2010 compared to $995 million in 2009. Underwriting income, a measure not based on GAAP, is defined below.

• Property-Liability investments as of December 31, 2010 were $35.05 billion, an increase of 1.5% from $34.53 billion as of December 31, 2009. Net investment income was $1.19 billion in 2010, a decrease of 10.5% from $1.33 billion in 2009.

• Net realized capital losses were $321 million in 2010 compared to $168 million in 2009.

## PROPERTY-LIABILITY OPERATIONS

Overview Our Property-Liability operations consist of two business segments: Allstate Protection and Discontinued Lines and Coverages. Allstate Protection comprises two brands, the Allstate brand and Encompass \( ^{®} \)  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 the United States and Canada. Discontinued Lines and Coverages includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.

Underwriting income, a measure that is not based on GAAP and is reconciled to net income below, is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs and expenses and restructuring and related charges, as determined using GAAP. We use this measure in our evaluation of results of operations to analyze the profitability of the Property-Liability insurance operations separately from investment results. It is also an integral component of incentive compensation. It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance. Net income is the GAAP measure most directly comparable to underwriting income. Underwriting income should not be considered as a substitute for net income and does not reflect the overall profitability of the business.

The table below includes GAAP operating ratios we use to measure our profitability. We believe that they enhance an investor’s understanding of our profitability. They are calculated as follows:

- Claims and claims expense (“loss”) ratio – the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.

- Expense ratio – the ratio of amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned.

- Combined ratio – the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the



expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.

We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between fiscal periods.

- Effect of catastrophe losses on combined ratio – the percentage of catastrophe losses included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.

- Effect of prior year reserve reestimates on combined ratio – the percentage of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.

- Effect of restructuring and related charges on combined ratio – the percentage of restructuring and related charges to premiums earned.

- Effect of Discontinued Lines and Coverages on combined ratio – the ratio of claims and claims expense and other costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio.



Summarized financial data, a reconciliation of underwriting income to net income, and GAAP operating ratios for our Property-Liability operations are presented in the following table.

<table><tr><td>(\( in millions, except ratios)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Premiums written</td><td>$ 25,907</td><td>$ 25,971</td><td>$ 26,584</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Premiums earned</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td></tr><tr><td>Net investment income</td><td>1,189</td><td>1,328</td><td>1,674</td></tr><tr><td>Realized capital gains and losses</td><td>(321)</td><td>(168)</td><td>(1,858)</td></tr><tr><td>Total revenues</td><td>26,825</td><td>27,354</td><td>26,783</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Claims and claims expense</td><td>(18,951)</td><td>(18,746)</td><td>(20,064)</td></tr><tr><td>Amortization of DAC</td><td>(3,678)</td><td>(3,789)</td><td>(3,975)</td></tr><tr><td>Operating costs and expenses</td><td>(2,800)</td><td>(2,559)</td><td>(2,742)</td></tr><tr><td>Restructuring and related charges</td><td>(33)</td><td>(105)</td><td>(22)</td></tr><tr><td>Total costs and expenses</td><td>(25,462)</td><td>(25,199)</td><td>(26,803)</td></tr><tr><td>Gain on disposition of operations</td><td>5</td><td>—</td><td>—</td></tr><tr><td>Income tax (expense) benefit</td><td>(314)</td><td>(612)</td><td>248</td></tr><tr><td>Net income</td><td>$ 1,054</td><td>$ 1,543</td><td>$ 228</td></tr><tr><td>Underwriting income</td><td>$ 495</td><td>$ 995</td><td>$ 164</td></tr><tr><td>Net investment income</td><td>1,189</td><td>1,328</td><td>1,674</td></tr><tr><td>Income tax expense on operations</td><td>(426)</td><td>(558)</td><td>(401)</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>(207)</td><td>(222)</td><td>(1,209)</td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>3</td><td>—</td><td>—</td></tr><tr><td>Net income</td><td>$ 1,054</td><td>$ 1,543</td><td>$ 228</td></tr><tr><td>Catastrophe losses (1)</td><td>$ 2,207</td><td>$ 2,069</td><td>$ 3,342</td></tr><tr><td>GAAP operating ratios</td><td></td><td></td><td></td></tr><tr><td>Claims and claims expense ratio</td><td>73.0</td><td>71.6</td><td>74.4</td></tr><tr><td>Expense ratio</td><td>25.1</td><td>24.6</td><td>25.0</td></tr><tr><td>Combined ratio</td><td>98.1</td><td>96.2</td><td>99.4</td></tr><tr><td>Effect of catastrophe losses on combined ratio (1)</td><td>8.5</td><td>7.9</td><td>12.4</td></tr><tr><td>Effect of prior year reserve reestimates on combined ratio (1)</td><td>(0.6)</td><td>(0.4)</td><td>0.7</td></tr><tr><td>Effect of restructuring and related charges on combined ratio</td><td>0.1</td><td>0.4</td><td>0.1</td></tr><tr><td>Effect of Discontinued Lines and Coverages on combined ratio</td><td>0.1</td><td>0.1</td><td>0.1</td></tr></table>

(1) Prior year reserve reestimates included in catastrophe losses totaled $163 million favorable in 2010, $169 million favorable in 2009 and $125 million unfavorable in 2008.

## ALLSTATE PROTECTION SEGMENT

Overview and strategy The Allstate Protection segment sells primarily private passenger auto and homeowners insurance to individuals through Allstate Exclusive Agencies and directly through call centers and the internet under the Allstate brand. We also sell auto and homeowners insurance through independent agencies under both the Allstate brand and the Encompass brand.

Our operating priorities for the Protection segment include achieving profitable market share growth for our auto business as well as earning acceptable returns on our homeowners business. Key goals include:

• Improving customer loyalty and retention

• Deepening customer product relationships

• Improving competitive position through pricing sophistication, claims efficiency and expense management



• Investing in the effectiveness and reach of our multiple distribution channels

• Maintaining a strong capital foundation through risk management and effective resource allocation

Our customer-focused strategy for the Allstate brand aligns targeted marketing, product innovation, distribution effectiveness, and pricing toward acquiring and retaining an increased share of our target customers, which generally refers to consumers who want to purchase multiple products from one insurance provider including auto, homeowners and financial products, who have better retention and potentially present more favorable prospects for profitability over the course of their relationships with us.

The Allstate brand utilizes marketing delivered to target customers to promote our strategic priorities, with messaging that continues to communicate affordability and ease of doing business with Allstate, as well as the importance of having proper coverage by highlighting our comprehensive product and coverage options.

At Allstate we differentiate ourselves from competitors by offering a comprehensive range of innovative product options and features as well as product customization, including Allstate Your Choice Auto \( ^{®} \)  with options such as accident forgiveness, safe driving deductible rewards and a safe driving bonus. We will continue to focus on developing and introducing products and services that benefit today’s consumers and further differentiate Allstate and enhance the customer experience. We will deepen customer relationships through value-added customer interactions and expanding our presence in households with multiple products by providing financial protection for customer needs.

Within our multiple distribution channels we are undergoing a focused effort to enhance our capabilities by implementing uniform processes and standards to elevate the level and consistency of our customer experience.

We continue to enhance technology to integrate our distribution channels, improve customer service, facilitate the introduction of new products and 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.

Our pricing and underwriting strategies and decisions, made in conjunction within a program called Strategic Risk Management, are designed to enhance both our competitive position and our profit potential. Pricing sophistication, which underlies our Strategic Risk Management program, uses a number of risk evaluation factors including insurance scoring, to the extent permissible by regulations, based on information that is obtained from credit reports. Our updated auto risk evaluation pricing model was implemented for 9 states in 2010 and these implementations will continue in other states throughout 2011. Our pricing strategy involves marketplace pricing and underwriting decisions that are based on these risk evaluation models and an evaluation of competitors.

We will also continue to provide a range of discounts to attract more target customers. For Allstate brand auto and homeowners business, we continue to improve our mix of customers towards those customers that have better retention and thus potentially present more favorable prospects for profitability over the course of their relationships with us. For homeowners, we will address rate adequacy and improve underwriting and claim effectiveness.

Our strategy for the Encompass brand includes enhancing our premier package policy (providing customers with the ability to simplify their insurance needs by consolidating their coverage into one policy, with one bill, one premium and one renewal date) to appeal to customers with broad personal lines coverage needs and that value an independent agent. Additionally, Encompass is focused on increasing distribution effectiveness and improving agency technology interfaces to become the package carrier of choice for aligned agencies to generate stable, consistent earnings growth.

The Allstate Protection segment also includes a separate organization called Emerging Businesses which comprises Business Insurance (commercial products for small business owners), Consumer Household (specialty products including motorcycle, boat, renters and condominium insurance policies), Allstate Dealer Services (insurance and non-insurance products sold primarily to auto dealers), Allstate Roadside Services (retail and wholesale roadside assistance products) and Ivantage (insurance agency). Premiums written by Emerging Businesses, through all channels including the direct channel, were $2.43 billion in 2010. We expect to accelerate profitable growth in Emerging Businesses during 2011.

We continue to manage our property catastrophe exposure in order to provide our shareholders an acceptable return on the risks assumed in our property business and to reduce the variability of our earnings, while providing protection to our customers. Our property business includes personal homeowners, commercial property and other property lines. As of December 31, 2010, we continue to be within our goal to have no more than a 1% likelihood of exceeding annual aggregate catastrophe losses by $2 billion, net of reinsurance, from hurricanes and earthquakes, based on modeled assumptions and applications currently available. The use of different assumptions and updates to industry models could materially change the projected loss.



Property catastrophe exposure management includes purchasing reinsurance to provide coverage for known exposure to hurricanes, earthquakes, wildfires, fires following earthquakes and other catastrophes. We are also working for changes in the regulatory environment, including recognizing the need for and improving appropriate risk based pricing and promoting the creation of government sponsored, privately funded solutions for mega-catastrophes. While the actions that we take will be primarily focused on reducing the catastrophe exposure in our property business, we also consider their impact on our ability to market our auto lines.

Pricing of property products is typically intended to establish returns that we deem acceptable over a long-term period. Losses, including losses from catastrophic events and weather-related losses (such as wind, hail, lightning and freeze losses not meeting our criteria to be declared a catastrophe) are accrued on an occurrence basis within the policy period. Therefore, in any reporting period, loss experience from catastrophic events and weather-related losses may contribute to negative or positive underwriting performance relative to the expectations we incorporated into the products' pricing. We pursue rate increases where indicated using a newly re-designed methodology that appropriately addresses the changing costs of losses from catastrophes such as severe weather and the net cost of reinsurance.

## Allstate Protection outlook

- Allstate Protection will emphasize attracting and retaining our target customers while maintaining pricing discipline.

- We expect that volatility in the level of catastrophes we experience will contribute to variation in our underwriting results; however, this volatility will be mitigated due to our catastrophe management actions, including the purchase of reinsurance.

- We will continue to study the efficiencies of our operations and cost structure for additional areas where costs may be reduced.

Premiums written, an operating measure, is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in the financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position. Since the Allstate brand policy periods are typically 6 months for auto and 12 months for homeowners, and the Encompass standard auto and homeowners policy periods are typically 12 months and non-standard auto policy periods are typically 6 months, rate changes will generally be recognized in premiums earned over a period of 6 to 24 months.

The following table shows the unearned premium balance as of December 31 and the timeframe in which we expect to recognize these premiums as earned.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">2010</td><td rowspan="2">2009</td><td colspan="4">% earned after</td></tr><tr><td>90 days</td><td>180 days</td><td>270 days</td><td>360 days</td></tr><tr><td>Allstate brand:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Standard auto</td><td>$ 4,103</td><td>$ 4,060</td><td>72.8%</td><td>97.7%</td><td>99.4%</td><td>100.0%</td></tr><tr><td>Non-standard auto</td><td>239</td><td>250</td><td>69.5%</td><td>95.4%</td><td>99.0%</td><td>100.0%</td></tr><tr><td>Homeowners</td><td>3,259</td><td>3,193</td><td>43.5%</td><td>75.6%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Other personal lines  \( {}^{(1)} \)</td><td>1,276</td><td>1,295</td><td>40.0%</td><td>69.7%</td><td>87.9%</td><td>94.8%</td></tr><tr><td>Total Allstate brand</td><td>8,877</td><td>8,798</td><td>57.3%</td><td>85.6%</td><td>95.9%</td><td>99.2%</td></tr><tr><td>Encompass brand:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Standard auto</td><td>327</td><td>399</td><td>44.0%</td><td>75.7%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Non-standard auto</td><td>1</td><td>4</td><td>75.9%</td><td>100.0%</td><td>100.0%</td><td>100.0%</td></tr><tr><td>Homeowners</td><td>206</td><td>233</td><td>44.0%</td><td>76.0%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Other personal lines  \( {}^{(1)} \)</td><td>47</td><td>52</td><td>43.8%</td><td>75.7%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Total Encompass brand</td><td>581</td><td>688</td><td>44.1%</td><td>75.8%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Allstate Protection unearned premiums</td><td>$ 9,458</td><td>$ 9,486</td><td>56.5%</td><td>85.0%</td><td>95.8%</td><td>99.3%</td></tr></table>

 \( ^{(1)} \)  Other personal lines include commercial, condominium, renters, involuntary auto and other personal lines.



A reconciliation of premiums written to premiums earned is shown in the following table.

<table><tr><td>(\\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Premiums written:</td><td></td><td></td><td></td></tr><tr><td>Allstate Protection</td><td>$ 25,906</td><td>$ 25,972</td><td>$ 26,584</td></tr><tr><td>Discontinued Lines and Coverages</td><td>1</td><td>(1)</td><td>—</td></tr><tr><td>Property-Liability premiums written</td><td>25,907</td><td>25,971</td><td>26,584</td></tr><tr><td>Decrease in unearned premiums</td><td>19</td><td>200</td><td>383</td></tr><tr><td>Other</td><td>31</td><td>23</td><td>—</td></tr><tr><td>Property-Liability premiums earned</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td></tr><tr><td>Premiums earned:</td><td></td><td></td><td></td></tr><tr><td>Allstate Protection</td><td>$ 25,955</td><td>$ 26,195</td><td>$ 26,967</td></tr><tr><td>Discontinued Lines and Coverages</td><td>2</td><td>(1)</td><td>—</td></tr><tr><td>Property-Liability</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td></tr></table>

Premiums written by brand are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Allstate brand</td><td colspan="4">Encompass brand</td><td colspan="4">Allstate Protection</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Standard auto</td><td>$ 15,842</td><td>$ 15,763</td><td>$ 15,918</td><td>$ 644</td><td>$ 800</td><td>$ 1,025</td><td>$ 16,486</td><td>$ 16,563</td><td>$ 16,943</td><td></td><td></td><td></td></tr><tr><td>Non-standard auto</td><td>883</td><td>927</td><td>1,018</td><td>6</td><td>22</td><td>40</td><td>889</td><td>949</td><td>1,058</td><td></td><td></td><td></td></tr><tr><td>Homeowners</td><td>5,753</td><td>5,635</td><td>5,639</td><td>357</td><td>408</td><td>471</td><td>6,110</td><td>6,043</td><td>6,110</td><td></td><td></td><td></td></tr><tr><td>Other personal lines</td><td>2,331</td><td>2,317</td><td>2,358</td><td>90</td><td>100</td><td>115</td><td>2,421</td><td>2,417</td><td>2,473</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 24,809</td><td>$ 24,642</td><td>$ 24,933</td><td>$ 1,097</td><td>$ 1,330</td><td>$ 1,651</td><td>$ 25,906</td><td>$ 25,972</td><td>$ 26,584</td><td></td><td></td><td></td></tr></table>

Allstate brand premiums written, excluding Allstate Canada, by the direct channel increased 19.8% to $745 million in 2010 from $622 million in 2009, reflecting an impact by profitability management actions taken in New York, Florida, California and North Carolina, following a 25.4% increase from $496 million in 2008. The direct channel includes call centers and the internet.

Premiums earned by brand are shown in the following tables.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Allstate brand</td><td colspan="4">Encompass brand</td><td colspan="4">Allstate Protection</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Standard auto</td><td>$ 15,814</td><td>$ 15,735</td><td>$ 15,957</td><td>$ 716</td><td>$ 907</td><td>$ 1,091</td><td>$ 16,530</td><td>$ 16,642</td><td>$ 17,048</td><td></td><td></td><td></td></tr><tr><td>Non-standard auto</td><td>896</td><td>939</td><td>1,055</td><td>9</td><td>27</td><td>45</td><td>905</td><td>966</td><td>1,100</td><td></td><td></td><td></td></tr><tr><td>Homeowners</td><td>5,693</td><td>5,633</td><td>5,758</td><td>385</td><td>444</td><td>503</td><td>6,078</td><td>6,077</td><td>6,261</td><td></td><td></td><td></td></tr><tr><td>Other personal lines</td><td>2,348</td><td>2,402</td><td>2,434</td><td>94</td><td>108</td><td>124</td><td>2,442</td><td>2,510</td><td>2,558</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 24,751</td><td>$ 24,709</td><td>$ 25,204</td><td>$ 1,204</td><td>$ 1,486</td><td>$ 1,763</td><td>$ 25,955</td><td>$ 26,195</td><td>$ 26,967</td><td></td><td></td><td></td></tr></table>

Premium operating measures and statistics that are used to analyze the business are calculated and described below. Measures and statistics presented for Allstate brand exclude Allstate Canada, loan protection and specialty auto.

- PIF: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy.

- Average premium-gross written: Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts and surcharges, and exclude the impacts from mid-term premium adjustments, ceded reinsurance premiums, and premium refund accruals. Allstate brand average gross premiums represent the appropriate policy term for each line, which is 6 months for standard and non-standard auto and 12 months for homeowners. Encompass brand average gross premiums represent the appropriate policy term for each line, which is 12 months for standard auto and homeowners and 6 months for non-standard auto.

- Renewal ratio: Renewal policies issued during the period, based on contract effective dates, divided by the total policies issued 6 months prior for standard and non-standard auto (12 months prior for Encompass brand standard auto) or 12 months prior for homeowners.



- New issued applications: Item counts of automobiles or homeowners insurance applications for insurance policies that were issued during the period. Does not include automobiles that are added by existing customers.

• Net items added to existing policies: Net increases in insured cars by policy endorsement activity.

Standard auto premiums written totaled $16.49 billion in 2010, a decrease of 0.5% from $16.56 billion in 2009, following a 2.2% decrease in 2009 from $16.94 billion in 2008.

<table><tr><td rowspan="2">Standard Auto</td><td colspan="3">Allstate brand</td><td colspan="3">Encompass brand</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>PIF (thousands)</td><td>17,484</td><td>17,744</td><td>17,924</td><td>689</td><td>859</td><td>1,090</td></tr><tr><td>Average premium-gross written  \( {}^{(1)} \)</td><td>$ 443</td><td>$ 434</td><td>$ 427</td><td>$ 979</td><td>$ 972</td><td>$ 961</td></tr><tr><td>Renewal ratio (%)  \( {}^{(1)} \)</td><td>88.7</td><td>88.9</td><td>88.9</td><td>69.2</td><td>69.6</td><td>73.9</td></tr></table>

 \( ^{(1)} \)  Policy term is six months for Allstate brand and twelve months for Encompass brand.

Allstate brand standard auto premiums written totaled $15.84 billion in 2010, an increase of 0.5% from $15.76 billion in 2009, following a 1.0% decrease in 2009 from $15.92 billion in 2008. Contributing to the Allstate brand standard auto premiums written increase were the following:

- decrease in PIF as of December 31, 2010 compared to December 31, 2009, due to fewer policies available to renew and a 0.7% decrease in net items added to existing policies to 1,498 thousand from 1,509 thousand, reflecting industry economic trends for declines in the number of cars per household

- 0.2% decrease in new issued applications on a countrywide basis to 2,025 thousand in 2010 from 2,029 thousand in 2009 impacted by decreases in Florida and California, due in part to rate actions that were approved in 2009 in these markets and other actions to improve profitability. Excluding Florida and California, new issued applications on a countrywide basis increased 12.9% to 1,606 thousand in 2010 from 1,423 thousand in 2009. New issued application increased in 40 states, most of which offer an auto discount (the Preferred Package Discount) for our target customer.

- increased average gross premium in 2010 compared to 2009, primarily due to rate changes, partially offset by customers electing to lower coverage levels of their policy

- 0.2 point decrease in the renewal ratio in 2010 compared to 2009, reflects profit management actions in California, New York and Georgia as well as the effects of the direct channel which has a lower renewal ratio. Excluding these items the renewal ratio had a 0.3 point increase.

Allstate brand standard auto premiums written decreased in 2009 compared to 2008. Contributing to the Allstate brand standard auto premiums written decrease in 2009 compared to 2008 were the following:

- decrease in PIF as of December 31, 2009 compared to December 31, 2008, due to fewer policies available to renew and a 10.1% decrease in net items added to existing policies to 1,509 thousand from 1,678 thousand, reflecting industry economic trends for declines in the number of cars per household

- 12.3% increase in new issued applications on a countrywide basis to 2,029 thousand in 2009 from 1,807 thousand in 2008

- increase in average gross premium in 2009 compared to 2008, primarily due to rate changes, partially offset by customers electing to change coverage levels of their policy

The level of Encompass premiums written continues to be impacted by comprehensive actions designed to improve Encompass brand profitability, which will continue through 2011. Some of the actions contributing to the Encompass brand standard auto premiums written decrease in 2010 compared to 2009 were the following:

• Implemented rate increases where indicated

• Strengthened underwriting guidelines

• Revised renewal down payment requirements

• Terminated relationships with certain independent agencies

• Non-renewal of underperforming business segments

- Discontinued writing the Special Value product (middle market auto product focused on segment auto) and Deerbrook (non-standard auto) in certain states

• Non-renewal of property in Florida



These actions have allowed Encompass to position itself with aligned agencies as the package policy carrier of choice for customers with broad personal lines coverage needs in order to drive stable, consistent earnings growth over time.

Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. The following table shows the rate changes that were approved for standard auto and does not include rating plan enhancements, including the introduction of discounts and surcharges, that result in no change in the overall rate level in the state. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a state.

<table><tr><td rowspan="2"></td><td colspan="2"># of States</td><td colspan="2">Countrywide (%)  \( {}^{(1)} \)</td><td colspan="2">State Specific (%)  \( {}^{(2)(3)} \)</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Allstate brand  \( {}^{(4)} \)</td><td>45  \( {}^{(5)} \)</td><td>36</td><td>1.4</td><td>4.6</td><td>2.2</td><td>7.2</td></tr><tr><td>Encompass brand</td><td>24</td><td>36</td><td>1.4</td><td>7.3</td><td>2.7</td><td>9.3</td></tr></table>

 \( ^{(1)} \)  Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of total countrywide prior year-end premiums written.

 \( ^{(2)} \)  Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of its respective total prior year-end premiums written in those states.

 \( ^{(3)} \)  Based on historical premiums written in those states, rate changes approved for standard auto totaled 218 million in 2010 compared to 578 million in 2009.

 \( ^{(4)} \)  Includes Washington D.C.

 \( ^{(5)} \)  Includes targeted rate decreases in certain markets to improve our competitive position for target customers.

Non-standard auto premiums written totaled $889 million in 2010, a decrease of 6.3% from $949 million in 2009, following a 10.3% decrease in 2009 from $1.06 billion in 2008.

<table><tr><td rowspan="2">Non-Standard Auto</td><td colspan="4">Allstate brand</td><td colspan="4">Encompass brand</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td></td><td></td></tr><tr><td>PIF (thousands)</td><td>640</td><td>719</td><td>745</td><td>5</td><td>20</td><td>39</td><td></td><td></td></tr><tr><td>Average premium-gross written (6 months)</td><td>$ 624</td><td>$ 616</td><td>$ 624</td><td>$ 426</td><td>$ 476</td><td>$ 479</td><td></td><td></td></tr><tr><td>Renewal ratio (%) (6 months)</td><td>71.4</td><td>72.5</td><td>73.7</td><td>46.9</td><td>67.1</td><td>68.3</td><td></td><td></td></tr></table>

Allstate brand non-standard auto premiums written totaled $883 million in 2010, a decrease of 4.7% from $927 million in 2009, following a 8.9% decrease in 2009 from $1.02 billion in 2008. Contributing to the Allstate brand non-standard auto premiums written decrease in 2010 compared to 2009 were the following:

- decrease in PIF as of December 31, 2010 compared to December 31, 2009, due to a decline in the number of policies available to renew and fewer new issued applications

- 14.9% decrease in new issued applications to 309 thousand in 2010 from 363 thousand in 2009

- increase in average gross premium in 2010 compared to 2009

- 1.1 point decrease in the renewal ratio in 2010 compared to 2009

Allstate brand non-standard auto premiums written decreased in 2009 compared to 2008. Contributing to the Allstate brand non-standard auto premiums written decrease in 2009 compared to 2008 were the following:

- decrease in PIF as of December 31, 2009 compared to December 31, 2008, due to new business production that was insufficient to offset declines in the renewal ratio and polices available to renew

- 10.7% increase in new issued applications to 363 thousand in 2009 from 328 thousand in 2008

- decrease in average gross premium in 2009 compared to 2008

- decrease in the renewal ratio in 2009 compared to 2008

Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. The following table shows the rate changes that were approved for non-standard auto and does not include rating plan enhancements, including the introduction of discounts and surcharges, that result in no change in the



overall rate level in the state. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a state.

<table><tr><td rowspan="2"></td><td colspan="2"># of States</td><td colspan="2">Countrywide (%) (1)</td><td colspan="2">State Specific (%) (2)(3)</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Allstate brand</td><td>11 (4)</td><td>11</td><td>4.6</td><td>2.6</td><td>9.6</td><td>6.5</td></tr><tr><td>Encompass brand</td><td>—</td><td>1</td><td>—</td><td>0.9</td><td>—</td><td>31.7</td></tr></table>

(1) Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of total countrywide prior year-end premiums written.

(2) Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of its respective total prior year-end premiums written in those states.

(3) Based on historical premiums written in those states, rate changes approved for non-standard auto totaled $41 million in 2010 compared to $25 million in 2009.

(4) Includes Washington D.C.

Homeowners premiums written totaled $6.11 billion in 2010, an increase of 1.1% from $6.04 billion in 2009, following a 1.1% decrease in 2009 from $6.11 billion in 2008. Excluding the cost of catastrophe reinsurance, premiums written increased 0.6% in 2010 compared to 2009. For a more detailed discussion on reinsurance, see the Property-Liability Claims and Claims Expense Reserves section of the MD&A and Note 9 of the consolidated financial statements.

<table><tr><td rowspan="2">Homeowners</td><td colspan="4">Allstate brand</td><td colspan="4">Encompass brand</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td></td><td></td></tr><tr><td>PIF (thousands)</td><td>6,690</td><td>6,973</td><td>7,255</td><td>314</td><td>371</td><td>446</td><td></td><td></td></tr><tr><td>Average premium-gross written (12 months)</td><td>$ 943</td><td>$ 883</td><td>$ 861</td><td>$ 1,298</td><td>$ 1,265</td><td>$ 1,206</td><td></td><td></td></tr><tr><td>Renewal ratio (%) (12 months)</td><td>88.4</td><td>88.1</td><td>87.0</td><td>78.1</td><td>78.9</td><td>80.6</td><td></td><td></td></tr></table>

Allstate brand homeowners premiums written totaled $5.75 billion in 2010, an increase of 2.1% from $5.64 billion in 2009, following a 2009 comparable to 2008. Contributing to the Allstate brand homeowners premiums written increase in 2010 compared to 2009 were the following:

- decrease in PIF of 4.1% as of December 31, 2010 compared to December 31, 2009, following a 3.9% decrease as of December 31, 2009 compared to December 31, 2008, due to fewer policies available to renew and fewer new issued applications

- 3.6% decrease in new issued applications to 536 thousand in 2010 from 556 thousand in 2009. Our Castle Key Indemnity Company subsidiary continues to have a favorable impact on new issued applications, due to a 2008 regulatory consent decree to sell 50,000 new homeowners policies in Florida by November 2011. Excluding Florida, new issued applications on a countrywide basis decreased 12.4% to 487 thousand in 2010 from 556 thousand in 2009.

- increase in average gross premium in 2010 compared to 2009, primarily due to rate changes

- 0.3 point increase in the renewal ratio in 2010 compared to 2009

- decrease in the net cost of our catastrophe reinsurance program in 2010 compared to 2009

As of December 31, 2010, an increased Home and Auto discount is now available in 40 states. This has successfully shifted our mix of new business towards target customers.

Actions taken to manage our catastrophe exposure in areas with known exposure to hurricanes, earthquakes, wildfires, fires following earthquakes and other catastrophes have had an impact on our new business writings and retention for homeowners insurance, and this impact will continue in 2011, although to a lesser degree. For a more detailed discussion on exposure management actions, see the Catastrophe Management section of the MD&A.

Allstate brand homeowners premiums written in 2009 were comparable to 2008. Contributing to the Allstate brand homeowners premiums written in 2009 compared to 2008 were the following:

- decrease in PIF as of December 31, 2009 compared to December 31, 2008, due to fewer policies available to renew and fewer new issued applications

- 6.4% decrease in new issued applications to 556 thousand in 2009 from 594 thousand in 2008

- increase in average gross premium in 2009 compared to 2008, primarily due to rate increases, partially offset by the impact of reduced PIF in catastrophe management areas with higher average gross premiums and a state insurance department initiated rate reduction in California



- increase in the renewal ratio in 2009 compared to 2008 in part driven by less non-renewal activity in coastal states that are more susceptible to major catastrophes

- decrease in the net cost of our catastrophe reinsurance program

Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. The following table shows the rate changes that were approved for homeowners, including rate changes approved based on our net cost of reinsurance, and does not include rating plan enhancements, including the introduction of discounts and surcharges, that result in no change in the overall rate level in the state.

<table><tr><td rowspan="2"></td><td colspan="2"># of States</td><td colspan="2">Countrywide (%) (1)</td><td colspan="2">State Specific (%) (2)(3)</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Allstate brand (4)</td><td>32</td><td>40</td><td>7.0</td><td>8.4</td><td>10.0</td><td>10.7</td></tr><tr><td>Encompass brand (4)</td><td>23</td><td>36</td><td>0.7</td><td>4.4</td><td>1.4</td><td>5.9</td></tr></table>

(1) Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of total countrywide prior year-end premiums written.

(2) Represents the impact in the states where rate changes were approved during 2010 and 2009, respectively, as a percentage of its respective total prior year-end premiums written in those states.

(3) Based on historical premiums written in those states, rate changes approved for homeowners totaled $424 million in 2010 compared to $534 million in 2009.

 \( ^{(4)} \)  Includes Washington D.C.

Underwriting results are shown in the following table.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Premiums written</td><td>$ 25,906</td><td>$ 25,972</td><td>$ 26,584</td></tr><tr><td>Premiums earned</td><td>$ 25,955</td><td>$ 26,195</td><td>$ 26,967</td></tr><tr><td>Claims and claims expense</td><td>(18,923)</td><td>(18,722)</td><td>(20,046)</td></tr><tr><td>Amortization of DAC</td><td>(3,678)</td><td>(3,789)</td><td>(3,975)</td></tr><tr><td>Other costs and expenses</td><td>(2,795)</td><td>(2,552)</td><td>(2,735)</td></tr><tr><td>Restructuring and related charges</td><td>(33)</td><td>(105)</td><td>(22)</td></tr><tr><td>Underwriting income</td><td>$ 526</td><td>$ 1,027</td><td>$ 189</td></tr><tr><td>Catastrophe losses</td><td>$ 2,207</td><td>$ 2,069</td><td>$ 3,342</td></tr><tr><td>Underwriting income (loss) by line of business</td><td></td><td></td><td></td></tr><tr><td>Standard auto (1)</td><td>$ 692</td><td>$ 987</td><td>$ 1,247</td></tr><tr><td>Non-standard auto</td><td>74</td><td>76</td><td>136</td></tr><tr><td>Homeowners</td><td>(335)</td><td>(125)</td><td>(1,175)</td></tr><tr><td>Other personal lines (1)</td><td>95</td><td>89</td><td>(19)</td></tr><tr><td>Underwriting income</td><td>$ 526</td><td>$ 1,027</td><td>$ 189</td></tr><tr><td>Underwriting income (loss) by brand</td><td></td><td></td><td></td></tr><tr><td>Allstate brand</td><td>$ 569</td><td>$ 1,022</td><td>$ 220</td></tr><tr><td>Encompass brand</td><td>(43)</td><td>5</td><td>(31)</td></tr><tr><td>Underwriting income</td><td>$ 526</td><td>$ 1,027</td><td>$ 189</td></tr></table>

(1) During 2008, $45 million of IBNR losses were reclassified from standard auto to other personal lines to be consistent with the recording of excess liability policies' premiums and losses.

Allstate Protection experienced underwriting income of $526 million in 2010 compared to $1.03 billion in 2009, primarily due to decreases in standard auto underwriting income and increases in homeowners underwriting losses, partially offset by increases in other personal lines underwriting income. Standard auto underwriting income decreased 29.9% to an underwriting income of $692 million in 2010 from an underwriting income of $987 million in 2009 primarily due to increases in auto claim frequency and expenses and a $25 million litigation settlement, partially offset by favorable reserve reestimates and decreases in catastrophe losses. Homeowners underwriting loss increased $210 million to an underwriting loss of $335 million in 2010 from an underwriting loss of $125 million in 2009 primarily due to a $75 million unfavorable prior year reserve restimate related to a litigation settlement and increases in



expenses and catastrophe losses, including prior year reestimates for catastrophes, partially offset by average earned premiums increasing faster than loss costs. Other personal lines underwriting income increased 6.7% to an underwriting income of $95 million in 2010 from an underwriting income of $89 million in 2009 primarily due to lower unfavorable reserve reestimates. For further discussion and quantification of the impact of reserve estimates and assumptions, see the Application of Critical Accounting Estimates and Property-Liability Claims and Claims Expense Reserves sections of the MD&A.

Allstate Protection experienced underwriting income of $1.03 billion during 2009 compared to $189 million in 2008 primarily due to decreases in homeowners underwriting loss, partially offset by decreases in standard auto underwriting income. Homeowners underwriting loss decreased 89.4% to an underwriting loss of $125 million in 2009 from an underwriting loss of $1.18 billion in 2008, primarily due to lower catastrophes losses, partially offset by increases in homeowner claim frequency and claim severities excluding catastrophes. Standard auto underwriting income decreased 20.9% to $987 million in 2009 from $1.25 billion in 2008, primarily due to increases in auto claim frequency and lower premiums earned.

Catastrophe losses in 2010 were $2.21 billion as detailed in the table below. This compares to catastrophe losses in 2009 of $2.07 billion.

We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain acts of terrorism or industrial accidents. The nature and level of catastrophes in any future period cannot be reliably predicted.

Catastrophe losses related to events that occurred by the size of the event are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="6">2010</td></tr><tr><td>Number of events</td><td colspan="2">Claims and claims expense</td><td>Combined ratio impact</td><td>Average catastrophe loss per event</td><td></td></tr><tr><td>Size of catastrophe</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Greater than $250 million</td><td>1</td><td>1.1%</td><td>$ 355</td><td>16.1%</td><td>1.4</td><td>$ 355</td></tr><tr><td>$101 million to $250 million</td><td>4</td><td>4.4</td><td>$ 610</td><td>27.6</td><td>2.3</td><td>153</td></tr><tr><td>$50 million to $100 million</td><td>8</td><td>8.9</td><td>$ 511</td><td>23.2</td><td>2.0</td><td>64</td></tr><tr><td>Less than $50 million</td><td>77</td><td>85.6</td><td>$ 894</td><td>40.5</td><td>3.4</td><td>12</td></tr><tr><td>Total</td><td>90</td><td>100.0%</td><td>2,370</td><td>107.4</td><td>9.1</td><td>26</td></tr><tr><td>Prior year reserve reestimates</td><td></td><td></td><td>(163)</td><td>(7.4)</td><td>(0.6)</td><td></td></tr><tr><td>Total catastrophe losses</td><td></td><td></td><td>$ 2,207</td><td>100.0%</td><td>8.5</td><td></td></tr></table>

Catastrophe losses incurred by the type of event are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">2010</td><td colspan="3">2009</td><td colspan="2">2008</td></tr><tr><td colspan="3">Number of events</td><td colspan="3">Number of events</td><td colspan="2">Number of events</td></tr><tr><td>Hurricanes/Tropical storms</td><td>$ 15</td><td>1</td><td>$ 48</td><td>1</td><td>$ 1,381</td><td>5</td><td></td><td></td></tr><tr><td>Tornadoes</td><td>174</td><td>7</td><td>384</td><td>4</td><td>628</td><td>19</td><td></td><td></td></tr><tr><td>Wind/Hail</td><td>1,908</td><td>74</td><td>1,561</td><td>67</td><td>960</td><td>81</td><td></td><td></td></tr><tr><td>Wildfires</td><td>15</td><td>1</td><td>83</td><td>5</td><td>169</td><td>9</td><td></td><td></td></tr><tr><td>Other events</td><td>258</td><td>7</td><td>162</td><td>5</td><td>79</td><td>9</td><td></td><td></td></tr><tr><td>Prior year reserve reestimates</td><td>(163)</td><td colspan="3">(169)</td><td colspan="2">125</td><td></td><td></td></tr><tr><td>Total catastrophe losses</td><td>$ 2,207</td><td>90</td><td>$ 2,069</td><td>82</td><td>$ 3,342</td><td>123</td><td></td><td></td></tr></table>



Combined ratio Loss ratios are a measure of profitability. Loss ratios by product, and expense and combined ratios by brand, are shown in the following table. These ratios are defined in the Property-Liability Operations section of the MD&A.

<table><tr><td rowspan="2"></td><td colspan="4">Loss ratio (2)</td><td colspan="4">Effect of catastrophe losses on the loss ratio</td><td colspan="4">Effect of pre-tax reserve reestimates on the combined ratio</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Allstate brand loss ratio:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Standard auto</td><td>70.7</td><td>69.3</td><td>68.1</td><td>1.0</td><td>1.2</td><td>1.5</td><td>(0.9)</td><td>(0.3)</td><td>0.1</td><td></td><td></td><td></td></tr><tr><td>Non-standard auto</td><td>67.2</td><td>67.1</td><td>62.3</td><td>0.3</td><td>0.7</td><td>0.9</td><td>(3.6)</td><td>(1.6)</td><td>(0.1)</td><td></td><td></td><td></td></tr><tr><td>Homeowners</td><td>82.1</td><td>79.6</td><td>96.3</td><td>31.3</td><td>29.0</td><td>46.5</td><td>(0.3)</td><td>(2.6)</td><td>2.1</td><td></td><td></td><td></td></tr><tr><td>Other personal lines</td><td>66.4</td><td>67.3</td><td>69.3</td><td>7.2</td><td>7.0</td><td>10.6</td><td>0.7</td><td>3.5</td><td>0.6</td><td></td><td></td><td></td></tr><tr><td>Total Allstate brand loss ratio</td><td>72.8</td><td>71.4</td><td>74.4</td><td>8.5</td><td>8.1</td><td>12.6</td><td>(0.7)</td><td>(0.5)</td><td>0.6</td><td></td><td></td><td></td></tr><tr><td>Allstate brand expense ratio</td><td>24.9</td><td>24.5</td><td>24.7</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allstate brand combined ratio</td><td>97.7</td><td>95.9</td><td>99.1</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Encompass brand loss ratio:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Standard auto (1)</td><td>75.4</td><td>75.4</td><td>66.3</td><td>0.8</td><td>0.3</td><td>0.9</td><td>—</td><td>0.7</td><td>(4.2)</td><td></td><td></td><td></td></tr><tr><td>Non-standard auto</td><td>100.0</td><td>74.1</td><td>88.9</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(11.1)</td><td>—</td><td></td><td></td><td></td></tr><tr><td>Homeowners</td><td>74.3</td><td>66.0</td><td>76.4</td><td>23.1</td><td>14.6</td><td>27.8</td><td>(1.3)</td><td>(4.3)</td><td>0.4</td><td></td><td></td><td></td></tr><tr><td>Other personal lines (1)</td><td>73.4</td><td>75.9</td><td>112.9</td><td>4.3</td><td>1.9</td><td>8.9</td><td>(1.1)</td><td>5.6</td><td>33.1</td><td></td><td></td><td></td></tr><tr><td>Total Encompass brand loss ratio</td><td>75.1</td><td>72.6</td><td>73.0</td><td>8.2</td><td>4.7</td><td>9.1</td><td>(0.5)</td><td>(0.7)</td><td>(0.2)</td><td></td><td></td><td></td></tr><tr><td>Encompass brand expense ratio</td><td>28.5</td><td>27.1</td><td>28.8</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Encompass brand combined ratio</td><td>103.6</td><td>99.7</td><td>101.8</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allstate Protection loss ratio</td><td>72.9</td><td>71.5</td><td>74.3</td><td>8.5</td><td>7.9</td><td>12.4</td><td>(0.7)</td><td>(0.5)</td><td>0.6</td><td></td><td></td><td></td></tr><tr><td>Allstate Protection expense ratio</td><td>25.1</td><td>24.6</td><td>25.0</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allstate Protection combined ratio</td><td>98.0</td><td>96.1</td><td>99.3</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) During 2008, $45 million of IBNR losses were reclassified from standard auto to other personal lines to be consistent with the recording of excess liability policies' premiums and losses.

(2) Ratios are calculated using the premiums earned for the respective line of business.

Standard auto loss ratio for the Allstate brand increased 1.4 points in 2010 compared to 2009 due to higher claim frequency and a $25 million litigation settlement, partially offset by favorable reserve reestimates and lower catastrophe losses. The increase is primarily driven by increases in Florida and New York, which have higher loss ratios than the countrywide average. In 2010, claim frequencies in the bodily injury and physical damage coverages have increased compared to 2009, but remain within historical norms. Bodily injury and physical damage coverages severity results increased in line with historical Consumer Price Index (“CPI”) trends. Standard auto loss ratio for the Allstate brand increased 1.2 points in 2009 compared to 2008 due to higher claim frequencies. In 2009, claim frequencies in the physical damage and bodily injury coverages have returned to historical norms following exceptionally low levels in 2008. Bodily injury severity results in 2009 increased in line with historical CPI trends. Claims severity decreased in 2009 for the physical damage coverages, partially offsetting the increased frequencies.

Non-standard auto loss ratio for the Allstate brand increased 0.1 point in 2010 compared to 2009 due to higher claim frequencies, partially offset by higher favorable reserve reestimates and lower catastrophe losses. Bodily injury and physical damage coverages severity results increased in line with historical CPI trends. Non-standard auto loss ratio for the Allstate brand increased 4.8 points in 2009 compared to 2008 due to higher claim frequencies. Claim frequencies increased for both physical damage and casualty coverages in 2009 compared to 2008. Bodily injury severity results in 2009 increased in line with historical CPI trends. Claims severity decreased in 2009 for the physical damage coverages, partially offsetting the increased frequencies.

Homeowners loss ratio for the Allstate brand increased 2.5 points to 82.1 in 2010 from 79.6 in 2009 due to a $75 million unfavorable prior year reserve reestimate related to a litigation settlement and higher catastrophe losses including prior year reserve reestimates for catastrophes, partially offset by average earned premiums increasing faster than loss costs. Homeowners loss ratio for the Allstate brand decreased 16.7 points to 79.6 in 2009 from 96.3 in 2008 due to lower catastrophe losses, partially offset by higher frequencies excluding catastrophes and severities. Frequencies excluding catastrophes increased in 2009 compared to 2008, in part, due to inclement weather in 2009, including an



increase in freeze related claims, driven by winter weather in the first quarter of 2009. Theft claims also drove part of the increase in frequencies in 2009 compared to 2008. In 2009, homeowner claims severity, excluding catastrophes, increased compared to 2008.

Expense ratio for Allstate Protection increased 0.5 points in 2010 compared to 2009. Restructuring costs decreased 0.3 points in 2010 compared to 2009, driven by prior year costs associated with claim office consolidations, reorganization of Business Insurance and technology prioritization and efficiency efforts. Excluding restructuring, the expense ratio for Allstate Protection increased 0.8 points in 2010 compared to 2009, driven by additional marketing expenses and increases in net costs of employee benefits, partially offset by reduced guaranty fund accrual levels and improved operational efficiencies. The expense ratio for Allstate Protection decreased 0.4 points in 2009 compared to 2008 primarily due to the impact of lower earned premium offset by improved operational efficiencies and more focused spending, particularly on technology, and decreases in the net cost of benefits due to favorable investment results.

The impact of specific costs and expenses on the expense ratio are included in the following table.

<table><tr><td rowspan="2"></td><td colspan="3">Allstate brand</td><td colspan="3">Encompass brand</td><td colspan="3">Allstate Protection</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Amortization of DAC</td><td>14.0</td><td>14.2</td><td>14.4</td><td>18.3</td><td>18.5</td><td>19.9</td><td>14.2</td><td>14.5</td><td>14.7</td></tr><tr><td>Other costs and expenses</td><td>10.8</td><td>9.9</td><td>10.2</td><td>9.7</td><td>8.3</td><td>8.9</td><td>10.8</td><td>9.7</td><td>10.2</td></tr><tr><td>Restructuring and related charges</td><td>0.1</td><td>0.4</td><td>0.1</td><td>0.5</td><td>0.3</td><td>—</td><td>0.1</td><td>0.4</td><td>0.1</td></tr><tr><td>Total expense ratio</td><td>24.9</td><td>24.5</td><td>24.7</td><td>28.5</td><td>27.1</td><td>28.8</td><td>25.1</td><td>24.6</td><td>25.0</td></tr></table>

The expense ratio for the standard auto and homeowners businesses generally approximates the total Allstate Protection expense ratio. The expense ratio for the non-standard auto business generally is lower than the total Allstate Protection expense ratio due to lower agent commission rates and higher average premiums for non-standard auto as compared to standard auto. The Encompass brand DAC amortization is higher on average than Allstate brand DAC amortization due to higher commission rates.

DAC We establish a DAC asset for costs that vary with and are primarily related to acquiring business, principally agents' remuneration, premium taxes, certain underwriting costs and direct mail solicitation expenses. For the Allstate Protection business, DAC is amortized to income over the period in which premiums are earned. The balance of DAC for each product type as of December 31 is included in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Allstate brand</td><td colspan="3">Encompass brand</td><td colspan="3">Allstate Protection</td></tr><tr><td colspan="2">2010</td><td colspan="2">2009</td><td colspan="2">2010</td><td colspan="2">2009</td><td>2009</td></tr><tr><td>Standard auto</td><td>$</td><td>541</td><td>$</td><td>542</td><td>$</td><td>55</td><td>$</td><td>68</td><td>$</td></tr><tr><td>Non-standard auto</td><td></td><td>25</td><td></td><td>35</td><td></td><td>—</td><td></td><td>—</td><td>25</td></tr><tr><td>Homeowners</td><td></td><td>437</td><td></td><td>426</td><td></td><td>36</td><td></td><td>42</td><td>473</td></tr><tr><td>Other personal lines</td><td></td><td>276</td><td></td><td>290</td><td></td><td>7</td><td></td><td>7</td><td>283</td></tr><tr><td>Total DAC</td><td>$</td><td>1,279</td><td>$</td><td>1,293</td><td>$</td><td>98</td><td>$</td><td>117</td><td>$</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>1,410</td></tr></table>

## Catastrophe management

Historical catastrophe experience Since the beginning of 1992, the average annual impact of catastrophes on our Property-Liability loss ratio was 7.5 points. However, this average does not reflect the impact of some of the more significant actions we have taken to limit our catastrophe exposure. Consequently, it is useful to consider the impact of catastrophes after excluding losses that are now partially or substantially covered by the California Earthquake Authority (“CEA”), the Florida Hurricane Catastrophe Fund (“FHCF”) or placed with a third party, such as hurricane coverage in Hawaii. The average annual impact of all catastrophes, excluding losses from Hurricanes Andrew and Iniki and losses from California earthquakes, on our Property-Liability loss ratio was 6.5 points since the beginning of 1992.



Comparatively, the average annual impact of catastrophes on the homeowners loss ratio for the years 1992 through 2010 is shown in the following table.

<table><tr><td></td><td>Average annual impact of catastrophes on the homeowners loss ratio</td><td>Average annual impact of catastrophes on the homeowners loss ratio excluding losses from hurricanes Andrew and Iniki, and losses from California earthquakes</td></tr><tr><td>Florida</td><td>97.9</td><td>47.5</td></tr><tr><td>Other hurricane exposure states</td><td>28.2</td><td>28.0</td></tr><tr><td>Total hurricane exposure states</td><td>33.8</td><td>29.6</td></tr><tr><td>All other</td><td>23.9</td><td>19.2</td></tr><tr><td>Total</td><td>29.2</td><td>24.8</td></tr></table>

Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes. Limitations include our participation in various state facilities, such as the CEA, which provides insurance for California earthquake losses; the FHCF, which provides reimbursements to participating insurers for certain qualifying Florida hurricane losses; and other state facilities, such as wind pools. However, the impact of these actions may be diminished by the growth in insured values, and the effect of state insurance laws and regulations. In addition, in various states we are required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation in these and other state facilities such as wind pools, we may be exposed to losses that surpass the capitalization of these facilities and to assessments from these facilities.

We continue to take actions to maintain an appropriate level of exposure to catastrophic events, including the following:

- We have increased our utilization of wind storm pools. For example, in Texas we are ceding significant wind exposure related to insured property located in wind pool eligible areas along the coast including the Galveston Islands.

• We have ceased writing new homeowners business in California. We will continue to renew current policyholders and have a renewal ratio of approximately 92% in California.

• Encompass Floridian Insurance Company and Encompass Floridian Indemnity Company ceased providing property insurance in the State of Florida.

• We ceased offering renewals on certain homeowners insurance policies in New York in certain down-state geographical locations. The level of non-renewals in New York is limited by state statute.

## Hurricanes

We consider the greatest areas of potential catastrophe losses due to hurricanes generally to be major metropolitan centers in counties along the eastern and gulf coasts of the United States. Usually, the average premium on a property policy near these coasts is greater than in other areas. However, average premiums are not considered commensurate with the inherent risk of loss. In addition and as explained in Note 13 of the consolidated financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting associations providing insurance for wind related property losses.

We have addressed our risk of hurricane loss by, among other actions, purchasing reinsurance for specific states and on a countrywide basis for our personal lines property insurance in areas most exposed to hurricanes; limiting personal homeowners new business writings in coastal areas in southern and eastern states; and not offering continuing coverage on certain policies in coastal counties in certain states. We continue to seek appropriate returns for the risks we write. This may require further actions, similar to those already taken, in geographies where we are not getting appropriate returns. However, we may maintain or opportunistically increase our presence in areas where we achieve adequate returns and do not materially increase our hurricane risk.

## Earthquakes

Actions taken to reduce our exposure from earthquake coverage are substantially complete. These actions included purchasing reinsurance on a countrywide basis and in the state of Kentucky; no longer offering new optional earthquake coverage in most states; removing optional earthquake coverage upon renewal in most states; and entering into arrangements in many states to make earthquake coverage available through other insurers for new and renewal business.



We expect to retain approximately 30,000 PIF with earthquake coverage due to regulatory and other reasons. We also will continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses, including our auto policies, and to fires following earthquakes. Allstate policyholders in the state of California are offered coverage through the CEA, a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain circumstances as explained in Note 13 of the consolidated financial statements.

## Fires Following Earthquakes

Actions taken related to our risk of loss from fires following earthquakes include changing homeowners underwriting requirements in California and purchasing reinsurance for Kentucky and purchasing nationwide occurrence reinsurance excluding Florida and New Jersey.

## Wildfires

Actions we are taking to reduce our risk of loss from wildfires include changing homeowners underwriting requirements in certain states and purchasing nationwide occurrence reinsurance. Catastrophe losses related to the Southern California wildfires occurred during 2009 and 2008 and totaled $76 million and $166 million, respectively.

## Reinsurance

A description of our current catastrophe reinsurance program appears in Note 9 of the consolidated financial statements and a description of program changes as of June 1, 2011 appears in the Property-Liability Claims and Claims Expense Reserves section of the MD&A.

## DISCONTINUED LINES AND COVERAGES SEGMENT

Overview The Discontinued Lines and Coverages segment includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. Our exposure to asbestos, environmental and other discontinued lines claims is reported in this segment. We have assigned management of this segment to a designated group of professionals with expertise in claims handling, policy coverage interpretation, exposure identification and reinsurance collection. As part of its responsibilities, this group is also regularly engaged in policy buybacks, settlements and reinsurance assumed and ceded commutations.

Summarized underwriting results for the years ended December 31 are presented in the following table.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Premiums written</td><td>$ 1</td><td>$ (1)</td><td>$ -</td></tr><tr><td>Premiums earned</td><td>$ 2</td><td>$ (1)</td><td>$ -</td></tr><tr><td>Claims and claims expense</td><td>(28)</td><td>(24)</td><td>(18)</td></tr><tr><td>Operating costs and expenses</td><td>(5)</td><td>(7)</td><td>(7)</td></tr><tr><td>Underwriting loss</td><td>$ (31)</td><td>$ (32)</td><td>$ (25)</td></tr></table>

Underwriting losses of $31 million in 2010 related to an $18 million unfavorable reestimate of environmental reserves and a $5 million unfavorable reestimate of asbestos reserves, partially offset by a $4 million favorable reestimate of other reserves, primarily as a result of our annual review using established industry and actuarial best practices. The cost of administering claims settlements totaled $13 million for each of the years ended December 31, 2010, 2009 and 2008.

Underwriting losses of $32 million in 2009 were primarily related to a $13 million unfavorable reestimate of environmental reserves and a $28 million unfavorable reestimate of other reserves, partially offset by an $8 million favorable reestimate of asbestos reserves, primarily as a result of our annual review using established industry and actuarial best practices.

Underwriting losses of $25 million in 2008 primarily related to an $8 million unfavorable reestimate of asbestos reserves and a $13 million unfavorable reestimate of other reserves as a result of our annual 2008 review, partially offset by a $16 million reduction of our allowance for future uncollectible reinsurance.

See the Property-Liability Claims and Claims Expense Reserves section of the MD&A for a more detailed discussion.



## Discontinued Lines and Coverages outlook

- We may continue to experience asbestos and/or environmental losses in the future. These losses could be due to the potential adverse impact of new information relating to new and additional claims or the impact of resolving unsettled claims based on unanticipated events such as litigation or legislative, judicial and regulatory actions. Environmental losses may also increase as the result of additional funding for environmental site cleanup. Because of our annual grounds up review, we believe that our reserves are appropriately established based on available information, technology, laws and regulations.

- We continue to be encouraged that the pace of industry asbestos claim activity has slowed, perhaps reflecting various state legislative and judicial actions with respect to medical criteria and increased legal scrutiny of the legitimacy of claims.

## PROPERTY-LIABILITY INVESTMENT RESULTS

Net investment income decreased 10.5% or $139 million to $1.19 billion in 2010 from $1.33 billion in 2009, after decreasing 20.7% in 2009 compared to 2008. The 2010 decrease was primarily due to lower yields and duration shortening actions taken to protect the portfolio from rising interest rates, partially offset by higher average investment balances. The 2009 decrease was primarily due to reduced portfolio yields, actions to shorten duration and maintain additional liquidity in the portfolio, lower average investment balances and capital contributions to Allstate Life Insurance Company ("ALIC").

The following table presents the average pre-tax investment yields for the year ended December 31.

<table><tr><td></td><td>2010 (1)(2)</td><td>2009 (1)(2)</td><td>2008 (1)(2)</td></tr><tr><td>Fixed income securities: tax-exempt</td><td>4.9%</td><td>5.1%</td><td>5.1%</td></tr><tr><td>Fixed income securities: tax-exempt equivalent</td><td>7.1</td><td>7.4</td><td>7.4</td></tr><tr><td>Fixed income securities: taxable</td><td>3.5</td><td>4.1</td><td>5.6</td></tr><tr><td>Equity securities</td><td>2.3</td><td>2.1</td><td>3.0</td></tr><tr><td>Mortgage loans</td><td>5.7</td><td>4.7</td><td>6.1</td></tr><tr><td>Limited partnership interests (3)(4)</td><td>3.1</td><td>1.5</td><td>2.6</td></tr><tr><td>Total portfolio (4)</td><td>3.8</td><td>4.2</td><td>4.8</td></tr></table>

(1) Pre-tax yield is calculated as investment income (including dividend income in the case of equity securities) divided by the average of the investment balances at the beginning and end of period and interim quarters.

(2) Amortized cost basis is used to calculate the average investment balance for fixed income securities and mortgage loans. Cost is used for equity securities. Cost or the equity method of accounting basis is used for limited partnership interests.

(3) Beginning in the fourth quarter of 2008, income from limited partnerships accounted for on the equity method of accounting (“EMA LP”) is reported in realized capital gains and losses and is therefore excluded from the determination of pre-tax investment yields on limited partnership interests. EMA LP income for periods prior to the fourth quarter of 2008 is reported in net investment income and included in the determination of pre-tax investment yields on limited partnership interests. For periods beginning with the fourth quarter of 2008, EMA LP’s have been removed from the yield calculation.

(4) To conform to the current period presentation, prior periods have been reclassified.

Net realized capital gains and losses are presented in the following table.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Impairment write-downs</td><td>$ (295)</td><td>$ (534)</td><td>$ (638)</td></tr><tr><td>Change in intent write-downs</td><td>(62)</td><td>(89)</td><td>(501)</td></tr><tr><td>Net other-than-temporary impairment losses recognized in earnings</td><td>(357)</td><td>(623)</td><td>(1,139)</td></tr><tr><td>Sales</td><td>455</td><td>611</td><td>(635)</td></tr><tr><td>Valuation of derivative instruments</td><td>(331)</td><td>52</td><td>(296)</td></tr><tr><td>Settlements of derivative instruments</td><td>(143)</td><td>(203)</td><td>289</td></tr><tr><td>EMA limited partnership income</td><td>55</td><td>(5)</td><td>(77)</td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>(321)</td><td>(168)</td><td>(1,858)</td></tr><tr><td>Income tax benefit (expense)</td><td>114</td><td>(54)</td><td>649</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>$ (207)</td><td>$ (222)</td><td>$ (1,209)</td></tr></table>

For a further discussion of net realized capital gains and losses, see the Investments section of the MD&A.



## PROPERTY-LIABILITY CLAIMS AND CLAIMS EXPENSE RESERVES

Property-Liability underwriting results are significantly influenced by estimates of property-liability claims and claims expense reserves. For a description of our reserve process, see Note 7 of the consolidated financial statements and for a further description of our reserving policies and the potential variability in our reserve estimates, see the Application of Critical Accounting Estimates section of the MD&A. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR claims, as of the reporting date.

The facts and circumstances leading to our reestimates of reserves relate to revisions to the development factors used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Reestimates occur because actual losses are likely different than that predicted by the estimated development factors used in prior reserve estimates. As of December 31, 2010, the impact of a reserve reestimation corresponding to a one percent increase or decrease in net reserves would be a decrease or increase of approximately $113 million in net income.

The table below shows total net reserves as of December 31 for Allstate brand, Encompass brand and Discontinued Lines and Coverages lines of business.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Allstate brand</td><td>$ 14,696</td><td>$ 14,123</td><td>$ 14,118</td></tr><tr><td>Encompass brand</td><td>921</td><td>1,027</td><td>1,133</td></tr><tr><td>Total Allstate Protection</td><td>15,617</td><td>15,150</td><td>15,251</td></tr><tr><td>Discontinued Lines and Coverages</td><td>1,779</td><td>1,878</td><td>1,931</td></tr><tr><td>Total Property-Liability</td><td>$ 17,396</td><td>$ 17,028</td><td>$ 17,182</td></tr></table>

The tables below show reserves, net of reinsurance, representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2010, 2009 and 2008, and the effect of reestimates in each year.

<table><tr><td colspan="5">(\( in millions)</td><td colspan="3">January 1 reserves</td></tr><tr><td></td><td>2010</td><td>2009</td><td>2008</td><td></td><td></td><td></td><td></td></tr><tr><td>Allstate brand</td><td>$ 14,123</td><td>$ 14,118</td><td>$ 13,456</td><td></td><td></td><td></td><td></td></tr><tr><td>Encompass brand</td><td>1,027</td><td>1,133</td><td>1,129</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Allstate Protection</td><td>15,150</td><td>15,251</td><td>14,585</td><td></td><td></td><td></td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td>1,878</td><td>1,931</td><td>2,075</td><td></td><td></td><td></td><td></td></tr><tr><td>Total Property-Liability</td><td>$ 17,028</td><td>$ 17,182</td><td>$ 16,660</td><td></td><td></td><td></td><td></td></tr></table>

<table><tr><td rowspan="2">(\( in millions, except ratios)</td><td colspan="2">2010</td><td colspan="2">2009</td><td colspan="2">2008</td></tr><tr><td>Reserve reestimate (1)</td><td>Effect on combined ratio</td><td>Reserve reestimate (1)</td><td>Effect on combined ratio</td><td>Reserve reestimate (1)</td><td>Effect on combined ratio</td></tr><tr><td>Allstate brand</td><td>$ (181)</td><td>(0.7)</td><td>$ (126)</td><td>(0.5)</td><td>$ 155</td><td>0.6</td></tr><tr><td>Encompass brand</td><td>(6)</td><td>—</td><td>(10)</td><td>—</td><td>(3)</td><td>—</td></tr><tr><td>Total Allstate Protection</td><td>(187)</td><td>(0.7)</td><td>(136)</td><td>(0.5)</td><td>152</td><td>0.6</td></tr><tr><td>Discontinued Lines and Coverages</td><td>28</td><td>0.1</td><td>24</td><td>0.1</td><td>18</td><td>0.1</td></tr><tr><td>Total Property-Liability</td><td>$ (159)</td><td>(0.6)</td><td>$ (112)</td><td>(0.4)</td><td>$ 170</td><td>0.7</td></tr><tr><td>Reserve reestimates, after-tax</td><td>$ (103)</td><td></td><td>$ (73)</td><td></td><td>$ 111</td><td></td></tr><tr><td>Net income (loss)</td><td>$ 928</td><td></td><td>$ 854</td><td></td><td>$ (1,679)</td><td></td></tr><tr><td>Reserve reestimates as a % of net income (loss)</td><td>11.1%</td><td></td><td>8.5%</td><td></td><td>(6.6)%</td><td></td></tr></table>

(1) Favorable reserve reestimates are shown in parentheses.



## Allstate Protection

The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2010, 2009 and 2008, and the effect of reestimates in each year.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">January 1 reserves</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Auto</td><td>$ 10,606</td><td>$ 10,220</td><td>$ 10,175</td><td></td></tr><tr><td>Homeowners</td><td>2,399</td><td>2,824</td><td>2,279</td><td></td></tr><tr><td>Other personal lines</td><td>2,145</td><td>2,207</td><td>2,131</td><td></td></tr><tr><td>Total Allstate Protection</td><td>$ 15,150</td><td>$ 15,251</td><td>$ 14,585</td><td></td></tr></table>

<table><tr><td rowspan="2">(\( in millions, except ratios)</td><td colspan="2">2010</td><td colspan="2">2009</td><td colspan="2">2008</td></tr><tr><td>Reserve reestimate</td><td>Effect on combined ratio</td><td>Reserve reestimate</td><td>Effect on combined ratio</td><td>Reserve reestimate</td><td>Reserve reestimate</td></tr><tr><td>Auto</td><td>$ (179)</td><td>(0.7)</td><td>$ (57)</td><td>(0.2)</td><td>$ (27)</td><td>(0.1)</td></tr><tr><td>Homeowners</td><td>(23)</td><td>(0.1)</td><td>(168)</td><td>(0.6)</td><td>124</td><td>0.5</td></tr><tr><td>Other personal lines</td><td>15</td><td>0.1</td><td>89</td><td>0.3</td><td>55</td><td>0.2</td></tr><tr><td>Total Allstate Protection</td><td>$ (187)</td><td>(0.7)</td><td>$ (136)</td><td>(0.5)</td><td>$ 152</td><td>0.6</td></tr><tr><td>Underwriting income</td><td>$ 526</td><td></td><td>$ 1,027</td><td></td><td>$ 189</td><td></td></tr><tr><td>Reserve reestimates as a % of underwriting income</td><td>35.6%</td><td></td><td>13.2%</td><td></td><td>(80.4)%</td><td></td></tr></table>

Auto reserve reestimates in 2010 and 2009 were primarily due to claim severity development that was better than expected. 2010 was also impacted by a litigation settlement. Auto reserve reestimates in 2008 were primarily the result of a $45 million reclassification of IBNR losses from standard auto to other personal lines to be consistent with the recording of excess liability policies' premiums and losses.

Favorable homeowners reserve reestimates in 2010 were primarily due to favorable catastrophe reserve reestimates, partially offset by a litigation settlement. Favorable homeowners reserve reestimates in 2009 were primarily due to favorable reserve reestimates from Hurricanes Ike and Gustav and a catastrophe related subrogation recovery. Unfavorable homeowners reserve reestimates in 2008 were primarily due to litigation filed in conjunction with a Louisiana deadline for filing suits related to Hurricane Katrina.

Other personal lines reserve reestimates in 2010 and 2009 were primarily the result of loss development different than anticipated in previous estimates. Other personal lines reserve reestimates in 2008 were primarily the result of a $45 million reclassification of IBNR losses from standard auto to other personal lines to be consistent with the recording of excess liability policies' premiums and losses.



Pending, new and closed claims for Allstate Protection, for the years ended December 31, are summarized in the following table.

<table><tr><td>Number of claims</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Auto</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>540,424</td><td>566,394</td><td>551,598</td></tr><tr><td>New</td><td>5,571,199</td><td>5,482,941</td><td>5,323,072</td></tr><tr><td>Total closed</td><td>(5,621,164)</td><td>(5,508,911)</td><td>(5,308,276)</td></tr><tr><td>Pending, end of year</td><td>490,459</td><td>540,424</td><td>566,394</td></tr><tr><td>Homeowners</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>59,685</td><td>74,772</td><td>80,229</td></tr><tr><td>New</td><td>991,962</td><td>997,954</td><td>1,242,007</td></tr><tr><td>Total closed</td><td>(1,000,616)</td><td>(1,013,041)</td><td>(1,247,464)</td></tr><tr><td>Pending, end of year</td><td>51,031</td><td>59,685</td><td>74,772</td></tr><tr><td>Other personal lines</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>36,537</td><td>41,001</td><td>39,951</td></tr><tr><td>New</td><td>282,137</td><td>278,978</td><td>301,363</td></tr><tr><td>Total closed</td><td>(285,286)</td><td>(283,442)</td><td>(300,313)</td></tr><tr><td>Pending, end of year</td><td>33,388</td><td>36,537</td><td>41,001</td></tr><tr><td>Total Allstate Protection</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>636,646</td><td>682,167</td><td>671,778</td></tr><tr><td>New</td><td>6,845,298</td><td>6,759,873</td><td>6,866,442</td></tr><tr><td>Total closed</td><td>(6,907,066)</td><td>(6,805,394)</td><td>(6,856,053)</td></tr><tr><td>Pending, end of year</td><td>574,878</td><td>636,646</td><td>682,167</td></tr></table>

We believe the net loss reserves for Allstate Protection exposures are appropriately established based on available facts, technology, laws and regulations.

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 reserve reestimates are shown in parentheses.

## 2010 Prior year reserve reestimates

<table><tr><td>($ in millions)</td><td colspan="2">2000 &amp; prior</td><td>2001</td><td>2002</td><td>2003</td><td>2004</td><td>2005</td><td>2006</td><td>2007</td><td>2008</td><td>2009</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ 262</td><td>$ (1)</td><td>$ (7)</td><td>$ (18)</td><td>$ (15)</td><td>$ (51)</td><td>$ (106)</td><td>$ (86)</td><td>$ (45)</td><td>$ (114)</td><td>$ (181)</td><td></td></tr><tr><td>Encompass brand</td><td>1</td><td>—</td><td>1</td><td>1</td><td>2</td><td>6</td><td>—</td><td>(6)</td><td>(1)</td><td>(10)</td><td>(6)</td><td></td></tr><tr><td>Total Allstate Protection</td><td>263</td><td>(1)</td><td>(6)</td><td>(17)</td><td>(13)</td><td>(45)</td><td>(106)</td><td>(92)</td><td>(46)</td><td>(124)</td><td>(187)</td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td>28</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>−</td><td>—</td><td>28</td><td></td></tr><tr><td>Total Property-Liability</td><td>$ 291</td><td>$ (1)</td><td>$ (6)</td><td>$ (17)</td><td>$ (13)</td><td>$ (45)</td><td>$ (106)</td><td>$ (92)</td><td>$ (46)</td><td>$ (124)</td><td>$ (159)</td><td></td></tr></table>

## 2009 Prior year reserve reestimates

<table><tr><td>($ in millions)</td><td colspan="2">1999 &amp; prior</td><td>2000</td><td>2001</td><td>2002</td><td>2003</td><td>2004</td><td>2005</td><td>2006</td><td>2007</td><td>2008</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ 247</td><td>$ 46</td><td>$ 58</td><td>$ 44</td><td>$ 37</td><td>$ 85</td><td>$ 74</td><td>$ (149)</td><td>$ (151)</td><td>$ (417)</td><td>$ (126)</td><td></td></tr><tr><td>Encompass brand</td><td>—</td><td>3</td><td>1</td><td>3</td><td>6</td><td>5</td><td>10</td><td>8</td><td>(7)</td><td>(39)</td><td>(10)</td><td></td></tr><tr><td>Total Allstate Protection</td><td>247</td><td>49</td><td>59</td><td>47</td><td>43</td><td>90</td><td>84</td><td>(141)</td><td>(158)</td><td>(456)</td><td>(136)</td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td>24</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>−</td><td>—</td><td>24</td><td></td></tr><tr><td>Total Property-Liability</td><td>$ 271</td><td>$ 49</td><td>$ 59</td><td>$ 47</td><td>$ 43</td><td>$ 90</td><td>$ 84</td><td>$ (141)</td><td>$ (158)</td><td>$ (456)</td><td>$ (112)</td><td></td></tr></table>



## 2008 Prior year reserve reestimates

<table><tr><td>(&#x27;s in millions)</td><td>1998 &amp; prior</td><td>1999</td><td>2000</td><td>2001</td><td>2002</td><td>2003</td><td>2004</td><td>2005</td><td>2006</td><td>2007</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ 56</td><td>$ (7)</td><td>$ 9</td><td>$ 34</td><td>$ 1</td><td>$ (5)</td><td>$ 13</td><td>$ 152</td><td>$ (71)</td><td>$ (27)</td><td>$ 155</td></tr><tr><td>Encompass brand</td><td>2</td><td>—</td><td>2</td><td>(1)</td><td>2</td><td>1</td><td>(1)</td><td>10</td><td>(20)</td><td>2</td><td>(3)</td></tr><tr><td>Total Allstate Protection</td><td>58</td><td>(7)</td><td>11</td><td>33</td><td>3</td><td>(4)</td><td>12</td><td>162</td><td>(91)</td><td>(25)</td><td>152</td></tr><tr><td>Discontinued Lines and Coverages</td><td>18</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>-</td><td>-</td><td>18</td></tr><tr><td>Total Property-Liability</td><td>$ 76</td><td>$ (7)</td><td>$ 11</td><td>$ 33</td><td>$ 3</td><td>$ (4)</td><td>$ 12</td><td>$ 162</td><td>$ (91)</td><td>$ (25)</td><td>$ 170</td></tr></table>

Allstate brand prior year reserve reestimates were $181 million favorable in 2010, $126 million favorable in 2009 and $155 million unfavorable in 2008, respectively. In 2010, this was primarily due to favorable catastrophe reserve reestimates and severity development that was better than expected, partially offset by litigation settlements. The increased reserves in accident years 2000 & prior is due to the litigation settlements of $100 million, a reclassification of injury reserves to older years and reserve strengthening. In 2009, this was primarily due to favorable reserve reestimates from Hurricanes Ike and Gustav and a catastrophe related subrogation recovery. The shift of reserves to older accident years is attributable to a reallocation of reserves related to employee postretirement benefits to more accident years, and a reclassification of injury and 2008 non-injury reserves to older years. In 2008, this was primarily due to litigation filed in conjunction with a Louisiana deadline for filing suits related to Hurricane Katrina.

These trends are primarily responsible for revisions to loss development factors, as previously described, used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Because these trends cause actual losses to differ from those predicted by the estimated development factors used in prior reserve estimates, reserves are revised as actuarial studies validate new trends based on the indications of updated development factor calculations.

The impact of these reestimates on the Allstate brand underwriting income is shown in the table below.

<table><tr><td>(&#x27;s in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Reserve reestimates</td><td>$ (181)</td><td>$ (126)</td><td>$ 155</td></tr><tr><td>Allstate brand underwriting income</td><td>569</td><td>1,022</td><td>220</td></tr><tr><td>Reserve reestimates as a % of underwriting income</td><td>31.8%</td><td>12.3%</td><td>(70.5)%</td></tr></table>

Encompass brand Reserve reestimates in 2010, 2009 and 2008 were related to lower than anticipated claim settlement costs.

The impact of these reestimates on the Encompass brand underwriting (loss) income is shown in the table below.

<table><tr><td>(&#x27;s in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Reserve reestimates</td><td>$ (6)</td><td>$ (10)</td><td>$ (3)</td></tr><tr><td>Encompass brand underwriting (loss) income</td><td>(43)</td><td>5</td><td>(31)</td></tr><tr><td>Reserve reestimates as a % of underwriting (loss) income</td><td>14.0%</td><td>200.0%</td><td>9.7%</td></tr></table>

Discontinued Lines and Coverages We conduct an annual review in the third quarter of each year to evaluate and establish asbestos, environmental and other discontinued lines reserves. Reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive grounds up methodology determines reserves based on assessments of the characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by policyholders.



Reserve reestimates for the Discontinued Lines and Coverages, as shown in the table below, were increased primarily for environmental in 2010 and other discontinued lines in both 2009 and 2008.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">2010</td><td colspan="3">2009</td><td colspan="3">2008</td></tr><tr><td>January 1 reserves</td><td>Reserve reestimate</td><td>January 1 reserves</td><td>Reserve reestimate</td><td>January 1 reserves</td><td>Resource reestimate</td><td>January 1 reserves</td><td>Resource reestimate</td><td></td></tr><tr><td>Asbestos Claims</td><td>$ 1,180</td><td>$ 5</td><td>$ 1,228</td><td>$ (8)</td><td>$ 1,302</td><td>$ 8</td><td></td><td></td><td></td></tr><tr><td>Environmental Claims</td><td>198</td><td>18</td><td>195</td><td>13</td><td>232</td><td>—</td><td></td><td></td><td></td></tr><tr><td>Other Discontinued Lines</td><td>500</td><td>5</td><td>508</td><td>19</td><td>541</td><td>10</td><td></td><td></td><td></td></tr><tr><td>Total Discontinued Lines and coverages</td><td>$ 1,878</td><td>$ 28</td><td>$ 1,931</td><td>$ 24</td><td>$ 2,075</td><td>$ 18</td><td></td><td></td><td></td></tr><tr><td>Underwriting loss</td><td></td><td>$ (31)</td><td></td><td>$ (32)</td><td></td><td>$ (25)</td><td></td><td></td><td></td></tr><tr><td>Reserve reestimates as a % of underwriting loss</td><td></td><td>(90.3)%</td><td></td><td>(75.0)%</td><td></td><td></td><td>(72.0)%</td><td></td><td></td></tr></table>

Reserve additions for asbestos in 2010 totaling $5 million were primarily for products related coverage. Asbestos reserves reestimates in 2009 were $8 million favorable. Reserve additions for asbestos in 2008 totaling $8 million were primarily for products-related coverage and were a result of a continuing level of increased claim activity being reported by excess and primary insurance policyholders with existing active claims, excess policyholders with new claims, and reestimates of liabilities for increased assumed reinsurance cessions, as ceding companies (other insurance carriers) also experienced increased claim activity. Higher claim activity over prior estimates has also resulted in an increased estimate for future claims reported. These trends are consistent with the trends of other carriers in the industry, which we believe are related to increased publicity and awareness of coverage, ongoing litigation and bankruptcy actions.

The reserve additions for environmental in 2010 and 2009 were primarily related to site-specific remediations where the clean-up cost estimates and responsibility for the clean-up were more fully determined. Normal environmental claim activity resulted in essentially no change in estimated reserves for 2008. IBNR now represents 62% of total net environmental reserves, 3 points lower than as of December 31, 2009.



The table below summarizes reserves and claim activity for asbestos and environmental claims before (Gross) and after (Net) the effects of reinsurance for the past three years.

<table><tr><td rowspan="2">(\( in millions, except ratios)</td><td colspan="2">2010</td><td colspan="2">2009</td><td colspan="2">2008</td></tr><tr><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td></tr><tr><td>Asbestos claims</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning reserves</td><td>$ 1,780</td><td>$ 1,180</td><td>$ 1,933</td><td>$ 1,228</td><td>$ 2,053</td><td>$ 1,302</td></tr><tr><td>Incurred claims and claims expense</td><td>(7)</td><td>5</td><td>(3)</td><td>(8)</td><td>4</td><td>8</td></tr><tr><td>Claims and claims expense paid</td><td>(118)</td><td>(85)</td><td>(150)</td><td>(40)</td><td>(124)</td><td>(82)</td></tr><tr><td>Ending reserves</td><td>$ 1,655</td><td>$ 1,100</td><td>$ 1,780</td><td>$ 1,180</td><td>$ 1,933</td><td>$ 1,228</td></tr><tr><td>Annual survival ratio</td><td>14.0</td><td>12.9</td><td>11.9</td><td>11.5</td><td>15.4</td><td>15.1</td></tr><tr><td>3-year survival ratio</td><td>12.6</td><td>12.2</td><td>12.4</td><td>12.9</td><td>13.4</td><td>14.4</td></tr><tr><td>Environmental claims</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning reserves</td><td>$ 247</td><td>$ 198</td><td>$ 250</td><td>$ 195</td><td>$ 340</td><td>$ 232</td></tr><tr><td>Incurred claims and claims expense</td><td>19</td><td>18</td><td>16</td><td>13</td><td>(34)</td><td>-</td></tr><tr><td>Claims and claims expense paid</td><td>(18)</td><td>(15)</td><td>(19)</td><td>(10)</td><td>(56)</td><td>(37)</td></tr><tr><td>Ending reserves</td><td>$ 248</td><td>$ 201</td><td>$ 247</td><td>$ 198</td><td>$ 250</td><td>$ 195</td></tr><tr><td>Annual survival ratio</td><td>13.8</td><td>13.4</td><td>12.7</td><td>12.1</td><td>4.5</td><td>5.2</td></tr><tr><td>3-year survival ratio</td><td>8.0</td><td>8.7</td><td>7.1</td><td>7.5</td><td>6.8</td><td>7.0</td></tr><tr><td>Combined environmental and asbestos claims</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual survival ratio</td><td>14.0</td><td>13.0</td><td>12.0</td><td>11.6</td><td>12.1</td><td>12.0</td></tr><tr><td>3-year survival ratio</td><td>11.7</td><td>11.6</td><td>11.4</td><td>11.7</td><td>12.1</td><td>12.6</td></tr><tr><td>Percentage of IBNR in ending reserves</td><td></td><td>60.1%</td><td></td><td>62.3%</td><td></td><td>63.8%</td></tr></table>

The survival ratio is calculated by taking 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 have significant impacts on the amount of environmental and asbestos claims and claims expense reserves, claim payments and the resultant ratio. As payments result in corresponding reserve reductions, survival ratios can be expected to vary over time. The 2009 net survival ratios in the table above have been adjusted to remove the claims and claims expense paid of $63 million for asbestos and $7 million for environmental attributable to commutation activity related to three reinsurers.

In both 2010 and 2009, the asbestos net 3-year survival ratio decreased due to lower reserve levels as the result of loss settlements. The environmental net 3-year survival ratio increased in both 2010 and 2009 due to lower average annual payments.



Our net asbestos reserves by type of exposure and total reserve additions are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">December 31, 2010</td><td colspan="4">December 31, 2009</td><td colspan="4">December 31, 2008</td></tr><tr><td>Active policy-holders</td><td>Net reserves</td><td>% of reserves</td><td>Active policy-holders</td><td>Net reserves</td><td>% of reserves</td><td>Active policy- holders</td><td>Net reserves</td><td>% of reserves</td><td>Active policy- holders</td><td>Net reserves</td><td></td></tr><tr><td>Direct policyholders:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>-Primary</td><td>51</td><td>$ 17</td><td>1%</td><td>51</td><td>$ 19</td><td>1%</td><td>54</td><td>$ 21</td><td>2%</td><td></td><td></td><td></td></tr><tr><td>-Excess</td><td>319</td><td>261</td><td>24</td><td>318</td><td>256</td><td>22</td><td>330</td><td>216</td><td>17</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>370</td><td>278</td><td>25</td><td>369</td><td>275</td><td>23</td><td>384</td><td>237</td><td>19</td><td></td><td></td><td></td></tr><tr><td>Assumed reinsurance</td><td></td><td>165</td><td>15</td><td></td><td>176</td><td>15</td><td></td><td>205</td><td>17</td><td></td><td></td><td></td></tr><tr><td>IBNR</td><td></td><td>657</td><td>60</td><td></td><td>729</td><td>62</td><td></td><td>786</td><td>64</td><td></td><td></td><td></td></tr><tr><td>Total net reserves</td><td></td><td>$ 1,100</td><td>100%</td><td></td><td>$ 1,180</td><td>100%</td><td></td><td>$ 1,228</td><td>100%</td><td></td><td></td><td></td></tr><tr><td>Total reserve additions</td><td></td><td>$ 5</td><td></td><td></td><td>$ (8)</td><td></td><td></td><td>$ 8</td><td></td><td></td><td></td><td></td></tr></table>

During the last three years, 56 direct primary and excess policyholders reported new claims, and claims of 79 policyholders were closed, decreasing the number of active policyholders by 23 during the period. The 23 decrease comprised 1 from 2010, (15) from 2009 and (9) from 2008. The increase of 1 from 2010 included 21 new policyholders reporting new claims and the closing of 20 policyholders' claims.

IBNR net reserves decreased by $72 million. As of December 31, 2010 IBNR represented 60% of total net asbestos reserves, 2 points lower than as of December 31, 2009. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current and new policyholders and ceding companies.

Pending, new, total closed and closed without payment claims for asbestos and environmental exposures for the years ended December 31, are summarized in the following table.

<table><tr><td>Number of claims</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Asbestos</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>8,252</td><td>8,780</td><td>9,256</td></tr><tr><td>New</td><td>788</td><td>814</td><td>601</td></tr><tr><td>Total closed</td><td>(619)</td><td>(1,342)</td><td>(1,077)</td></tr><tr><td>Pending, end of year</td><td>8,421</td><td>8,252</td><td>8,780</td></tr><tr><td>Closed without payment</td><td>336</td><td>469</td><td>800</td></tr><tr><td>Environmental</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>4,114</td><td>4,603</td><td>4,747</td></tr><tr><td>New</td><td>498</td><td>389</td><td>291</td></tr><tr><td>Total closed</td><td>(315)</td><td>(878)</td><td>(435)</td></tr><tr><td>Pending, end of year</td><td>4,297</td><td>4,114</td><td>4,603</td></tr><tr><td>Closed without payment</td><td>181</td><td>416</td><td>307</td></tr></table>

Property-Liability reinsurance ceded For Allstate Protection, we utilize reinsurance to reduce exposure to catastrophe risk and manage capital, and to support the required statutory surplus and the insurance financial strength ratings of certain subsidiaries such as Castle Key Insurance Company and Allstate New Jersey Insurance Company. We purchase significant reinsurance to manage our aggregate countrywide exposure to an acceptable level. The price and terms of reinsurance and the credit quality of the reinsurer are considered in the purchase process, along with whether the price can be appropriately reflected in the costs that are considered in setting future rates charged to policyholders. We also participate in various reinsurance mechanisms, including industry pools and facilities, which are backed by the financial resources of the property-liability insurance company market participants, and have historically purchased reinsurance to mitigate long-tail liability lines, including environmental, asbestos and other discontinued lines exposures. We retain primary liability as a direct insurer for all risks ceded to reinsurers.



The impacts of reinsurance on our reserve for claims and claims expense as of December 31 are summarized in the following table, net of allowances we have established for uncollectible amounts.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">Reserve for property-liability insurance claims and claims expense</td><td colspan="2">Reinsurance recoverables, net</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Industry pools and facilities</td><td>1,990</td><td>2,000</td><td>1,419</td><td>1,408</td></tr><tr><td>Asbestos and environmental</td><td>1,903</td><td>2,027</td><td>628</td><td>683</td></tr><tr><td>Other including allowance for future uncollectible reinsurance recoverables</td><td>15,575</td><td>15,140</td><td>105</td><td>121</td></tr><tr><td>Total Property-Liability</td><td>19,468</td><td>19,167</td><td>2,152</td><td>2,212</td></tr></table>

Reinsurance recoverables include an estimate of the amount of property-liability insurance claims and claims expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. We calculate our ceded reinsurance estimate based on the terms of each applicable reinsurance agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We also consider other limitations and coverage exclusions under our reinsurance agreements. Accordingly, our estimate of reinsurance recoverables is subject to similar risks and uncertainties as our estimate of reserve for property-liability claims and claims expense. We believe the recoverables are appropriately established; however, as our underlying reserves continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We regularly evaluate the reinsurers and the respective amounts recoverable, and a provision for uncollectible reinsurance is recorded if needed. The establishment of reinsurance recoverables and the related allowance for uncollectible reinsurance is also an inherently uncertain process involving estimates. Changes in estimates could result in additional changes to the Consolidated Statements of Operations.

The allowance for uncollectible reinsurance relates to Discontinued Lines and Coverages reinsurance recoverables and was $142 million as of both December 31, 2010 and 2009. This amount represents 17.6% and 16.2% of the related reinsurance recoverable balances as of December 31, 2010 and 2009, respectively. The allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, and other relevant factors. In addition, in the ordinary course of business, we may become involved in coverage disputes with certain of our reinsurers which may ultimately result in lawsuits and arbitrations brought by or against such reinsurers to determine the parties' rights and obligations under the various reinsurance agreements. We employ dedicated specialists to manage reinsurance collections and disputes. We also consider recent developments in commutation activity between reinsurers and cedants, and recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers in seeking to maximize our reinsurance recoveries.

Adverse developments in the insurance industry have led to a decline in the financial strength of some of our reinsurance carriers, causing amounts recoverable from them and future claims ceded to them to be considered a higher risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry to be concentrated among fewer companies. In addition, over the last several years the industry has increasingly segregated asbestos, environmental, and other discontinued lines exposures into separate legal entities with dedicated capital. Regulatory bodies in certain cases have supported these actions. We are unable to determine the impact, if any, that these developments will have on the collectability of reinsurance recoverables in the future.



The largest reinsurance recoverable balances are shown in the following table as of December 31, net of the allowance we have established for uncollectible amounts.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Standard &amp; Poor&#x27;s financial strength rating (1)</td><td colspan="2">Reinsurance recoverable on paid and unpaid claims, net</td></tr><tr><td>2010</td><td>2009</td></tr><tr><td>Industry pools and facilities</td><td></td><td></td><td></td></tr><tr><td>Michigan Catastrophic Claim Association (“MCCA”)</td><td>N/A</td><td>$ 1,243</td><td>$ 1,173</td></tr><tr><td>North Carolina Reinsurance Facility</td><td>N/A</td><td>65</td><td>60</td></tr><tr><td>New Jersey Unsatisfied Claim and Judgment Fund</td><td>N/A</td><td>55</td><td>66</td></tr><tr><td>FHCF</td><td>N/A</td><td>41</td><td>53</td></tr><tr><td>Other</td><td></td><td>15</td><td>56</td></tr><tr><td>Total</td><td></td><td>1,419</td><td>1,408</td></tr><tr><td>Asbestos, Environmental and Other</td><td></td><td></td><td></td></tr><tr><td>Lloyd&#x27;s of London (“Lloyd&#x27;s”)</td><td>A+</td><td>183</td><td>190</td></tr><tr><td>Westport Insurance Corporation (formerly Employers Reinsurance Corporation)</td><td>A+</td><td>56</td><td>77</td></tr><tr><td>New England Reinsurance Corporation</td><td>N/A</td><td>37</td><td>37</td></tr><tr><td>R&amp;Q Reinsurance Company</td><td>N/A</td><td>34</td><td>28</td></tr><tr><td>Clearwater Insurance Company</td><td>BB+</td><td>30</td><td>34</td></tr><tr><td>St. Paul Fire and Marine Insurance Company</td><td>AA-</td><td>19</td><td>21</td></tr><tr><td>Other, including allowance for future uncollectible reinsurance recoverables</td><td></td><td>374</td><td>417</td></tr><tr><td>Total</td><td></td><td>733</td><td>804</td></tr><tr><td>Total Property-Liability</td><td></td><td>$ 2,152</td><td>$ 2,212</td></tr></table>

(1) N/A reflects no rating available.

The effects of reinsurance ceded on our property-liability premiums earned and claims and claims expense for the years ended December 31 are summarized in the following table.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Ceded property-liability premiums earned</td><td>$ 1,092</td><td>$ 1,056</td><td>$ 1,139</td></tr><tr><td>Ceded property-liability claims and claims expense</td><td></td><td></td><td></td></tr><tr><td>Industry pool and facilities</td><td></td><td></td><td></td></tr><tr><td>FHCF</td><td>$ 10</td><td>$ 47</td><td>$ 28</td></tr><tr><td>National Flood Insurance Program</td><td>50</td><td>111</td><td>344</td></tr><tr><td>MCCA</td><td>142</td><td>133</td><td>148</td></tr><tr><td>Other</td><td>64</td><td>59</td><td>60</td></tr><tr><td>Subtotal industry pools and facilities</td><td>266</td><td>350</td><td>580</td></tr><tr><td>Asbestos, Environmental and Other</td><td>5</td><td>65</td><td>40</td></tr><tr><td>Ceded property-liability claims and claims expense</td><td>$ 271</td><td>$ 415</td><td>$ 620</td></tr></table>

For the year ended December 31, 2010, ceded property-liability premiums earned increased $36 million when compared to prior year, primarily due to the adoption of accounting guidance related to the consolidation of variable interest entities, which resulted in the consolidation of two insurance company affiliates, Allstate Texas Lloyds and Allstate County Mutual Insurance Company. For the year ended December 31, 2009, ceded property-liability premiums earned decreased $83 million when compared to prior year, primarily as a result of favorable market conditions which were reflected in our catastrophe reinsurance pricing.



Ceded property-liability claims and claims expense decreased in 2010 and 2009 primarily due to amounts ceded to National Flood Insurance Program.

For a detailed description of the MCCA, FHCF and Lloyd's, see Note 9 of the consolidated financial statements. As of December 31, 2010, other than the recoverable balances listed above, no other amount due or estimated to be due from any single Property-Liability reinsurer was in excess of $17 million.

We enter into certain intercompany insurance and reinsurance transactions for the Property-Liability operations in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation.

## Catastrophe reinsurance

Our catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes nationwide. Our program provides reinsurance protection for catastrophes including storms named or numbered by the National Weather Service, fires following earthquakes, earthquakes and wildfires including California wildfires. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our shareholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our customers.

While our catastrophe management strategy remains substantially unchanged we have redesigned our catastrophe reinsurance program in 2011. Our new reinsurance program continues to support our goal to have no more than a 1% likelihood of exceeding annual aggregate catastrophe losses by $2 billion, net of reinsurance, from hurricanes and earthquakes, based on modeled assumptions and applications currently available. Since the 2006 inception of Allstate's catastrophe reinsurance program, our exposure to wind loss has been materially reduced and we have nearly eliminated our exposure to earthquake loss. Our redesigned program for 2011 responds to these exposure changes by including coverage for multiple perils, in addition to hurricanes and earthquakes, in all but one of the contracts comprising the program. In addition, the per occurrence structure effective June 1, 2011 facilitates the program's administration while providing greater potential with respect to loss recovery.

The new program, as described below, provides $3.25 billion of reinsurance coverage, above the retention, with reinstatements of limits. It includes a Per Occurrence Excess Catastrophe Reinsurance agreement reinsuring our personal lines property and auto excess catastrophe losses resulting from multiple perils, including those perils currently reinsured under our existing program, in every state other than New Jersey and Florida. For June 1, 2011 to May 31, 2012, the program consists of two agreements: a Per Occurrence Excess Catastrophe Reinsurance agreement providing coverage in six layers and a Top and Drop Excess Catastrophe Reinsurance agreement which includes Coverage A and Coverage B.

The Per Occurrence Excess Catastrophe Reinsurance agreement provides an initial $3.25 billion per occurrence limit in excess of a $500 million retention and after the Company has incurred $250 million in losses “otherwise recoverable.” The $250 million in losses otherwise recoverable applies once each contract year to the First Layer only and losses from multiple qualifying occurrences can apply to this $250 million threshold in excess of $500 million per occurrence. The Top and Drop Excess Catastrophe Reinsurance agreement provides $250 million of reinsurance limits which may be used for Coverage A, Coverage B, or a combination of both. Coverage A reinsures the “Top” of the program and provides 50% of $500 million excess of a $3.25 billion retention. Coverage B allows the program limit to “Drop” and provides reinsurance for $250 million in limits excess of a $750 million retention and after the Company has incurred $500 million in losses “otherwise recoverable” under the agreement. Losses from multiple qualifying occurrences, in excess of $750 million per occurrence, can apply to this $500 million threshold.

The New Jersey and Florida components of the reinsurance program are designed separately from the other components of the program to address the distinct needs of our separately capitalized legal entities in those states. New Jersey catastrophe losses will be reinsured under a newly placed per occurrence agreement and under existing agreements which expire respectively on May 31, 2012 and 2013. The Florida component will be placed in May of 2011. Allstate Protection’s separate reinsurance programs in Pennsylvania and Kentucky will continue to address exposures.



unique to those states. A description of the catastrophe reinsurance treaties that will reinsure Allstate Protection as of June 1, 2011 follows:

Nationwide excluding Florida and New Jersey

- The Per Occurrence Excess Catastrophe Reinsurance agreement reinsures personal lines property and auto excess catastrophe losses caused by multiple perils under Six Layers of coverage as follows:

First Layer $250 million limit in excess of a $500 million retention and after an initial $250 million in losses “otherwise recoverable” has been satisfied, 1 reinstatement

Second Layer $250 million limit in excess of a $750 million retention, 1 reinstatement

Third Layer $500 million limit in excess of a $1 billion retention, 1 reinstatement

Fourth Layer $750 million limit in excess of a $1.5 billion retention, 1 reinstatement

Fifth Layer $1 billion limit in excess of a $2.25 billion retention, 1 reinstatement

Sixth Layer $500 million limit in excess of a $3.25 billion retention

Coverage for the First through the Fifth Layers are 95% placed. Each Layer comprises three contracts, each contract providing one third of the total limit and expiring as of May 31, 2012, 2013 and 2014, respectively. Coverage for the 6 \( ^{th} \)  Layer is 47.5% placed and, unlike the other layers, does not have a reinstatement limit. Reinsurance premium is subject to redetermination for exposure changes at each anniversary.

- The Top and Drop Excess Catastrophe Reinsurance agreement reinsures personal lines property and auto excess catastrophe losses caused by multiple perils. The reinsurance limit may be used for Coverage A, Coverage B or a combination of both and is not subject to reinstatement. Coverage A of the Top and Drop provides 47.5% of $500 million in limits in excess of a $3.25 billion retention. Coverage B provides 95% of $250 million in limits in excess of a $750 million retention. In addition to this retention, the Company must incur $500 million in losses, “otherwise recoverable”, under Coverage B during the contract year before Coverage B attaches. Losses from multiple qualifying occurrences can apply to this $500 million threshold. Coverage B essentially is a third limit for the Second Layer of the Per Occurrence Excess Catastrophe Reinsurance agreement described above. For June 1, 2011 to May 31, 2012, the placement of the Top and Drop Excess Catastrophe Reinsurance agreement consists of an annual contract and a three year term contract which in the aggregate provide 47.5% of the $500 million Coverage A limit and 95% of the $250 million Coverage B limit. For June 1, 2012 to May 31, 2013, the three year term contract provides 12.66% of Coverage A’s and 25% of Coverage B’s placement and for June 1, 2013 to May 31, 2014, it provides 6% of Coverage A’s and 12.66% of Coverage B’s placement. Reinsurance premium is subject to redetermination for exposure changes.

## New Jersey

- The Excess Catastrophe Reinsurance contract reinsures personal lines property excess catastrophe losses in New Jersey caused by multiple perils. The newly placed contract is effective June 1, 2011 to May 31, 2014 and provides 32% of $400 million of limits excess of a $150 million retention and includes one reinstatement per contract year. In addition, the existing New Jersey agreement consisting of two contracts each providing two Layers of coverage will remain in place. The agreement expiring May 31, 2012 provides a First Layer of 31% of $300 million of limits in excess of a $200 million retention, and a Second Layer of 26% of $200 million of limits in excess of a $500 million retention. The agreement expiring May 31, 2013 provides a First Layer of 32% of $300 million of limits in excess of a $184 million retention and a Second Layer of 42% of $200 million in limits excess of a $484 million retention. Each Layer includes one reinstatement per contract year. The reinsurance premium and retention are subject to redetermination for exposure changes at each anniversary.

## Pennsylvania

- The Excess Catastrophe Reinsurance Contract reinsures personal lines property losses in Pennsylvania caused by multiple perils. This agreement will remain in effect until May 31, 2012 and provides 95% of $100 million of limits in excess of a $100 million retention with two limits being available for the remaining term of the contract. The reinsurance premium and retention are not subject to redetermination for exposure changes.

## Kentucky

- The Earthquake Excess Catastrophe Reinsurance Contract reinsures personal lines property losses in Kentucky caused by earthquakes or fires following earthquakes. The agreement is effective June 1, 2011 for three years and provides 95% of $25 million of limits in excess of a $5 million retention. The agreement provides three limits over its three year term subject to two limits being available in any one contract year. The reinsurance premium and retention are not subject to redetermination for exposure changes.



The redesigned catastrophe reinsurance program for 2011 will require the cancellation of the contracts comprising the 2010 program with the exception of the Pennsylvania agreement which has one year remaining on its three year term and the New Jersey agreement which has two years remaining on its three year term. The current Kentucky and Texas agreements will expire respectively on May 31, 2011 and June 17, 2011. See Note 9 for further details of the existing 2010 program.

We estimate that the total annualized cost of all catastrophe reinsurance programs for the year beginning June 1, 2011 will be approximately $550 million compared to $560 million annualized cost for the year beginning June 1, 2010. The total cost of our catastrophe reinsurance programs in 2010 was $593 million compared to $626 million in 2009. We continue to attempt to capture our reinsurance cost in premium rates as allowed by state regulatory authorities.

## ALLSTATE FINANCIAL 2010 HIGHLIGHTS

• Net income was $58 million in 2010 compared to net loss of $483 million in 2009.

- Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled $2.03 billion in 2010, an increase of 12.2% or $221 million from $1.81 billion in 2009.

• Net realized capital losses totaled $517 million in 2010 compared to $431 million in 2009.

- During 2010, amortization deceleration (credit to income) of $12 million was recorded related to our annual comprehensive review of the DAC and DSI balances and assumptions for our interest-sensitive life, fixed annuities and other investment contracts. This compares to DAC and DSI amortization acceleration (charge to income) of $322 million in 2009.

- Investments as of December 31, 2010 totaled $61.58 billion, reflecting a decrease in carrying value of $634 million from $62.22 billion as of December 31, 2009. Net investment income decreased 6.9% to $2.85 billion in 2010 from $3.06 billion in 2009.

- Contractholder funds as of December 31, 2010 totaled $48.19 billion, reflecting a decrease of $4.39 billion from $52.58 billion as of December 31, 2009.

## ALLSTATE FINANCIAL SEGMENT

Overview and strategy The Allstate Financial segment is a major provider of life insurance, retirement and investment products, and voluntary accident and health insurance. We serve our customers through Allstate exclusive agencies, workplace distribution and non-proprietary distribution channels. Allstate Financial’s strategic vision is to reinvent protection and retirement for the consumer and its purpose is to create financial value on a standalone basis and to add strategic value to the organization.

To fulfill its purpose, Allstate Financial’s primary objectives are to deepen relationships with Allstate customers by adding financial services to their suite of products with Allstate, dramatically expand Allstate Benefits (our workplace distribution business) and improve profitability by decreasing earnings volatility, increasing our returns, and improving our capital position. Allstate Financial brings value to The Allstate Corporation (the “Corporation”) in three principal ways: through profitable growth of Allstate Financial, improving the economics of the Protection business through increased customer loyalty and renewal rates by cross selling Allstate Financial products to existing customers, and by bringing new customers to Allstate. We continue to shift our mix of products in force by decreasing spread based products, principally fixed annuities and institutional products, and through growth of underwritten products having mortality or morbidity risk, principally life insurance and accident and health products. In addition to focusing on higher return markets, products, and distribution channels, Allstate Financial continues to emphasize capital efficiency and enterprise risk and return management strategies and actions.

Allstate Financial’s strategy provides a platform to profitably grow its business. Based upon Allstate’s strong financial position and brand, we have a unique opportunity to cross-sell to our customers. Through our Allstate exclusive agencies we will leverage the trusted customer relationships to serve those who are looking for assistance in meeting their protection and retirement needs by providing them with the information, products and services that they need. Our employer relationships through Allstate Benefits also afford opportunities to offer additional Allstate products.

Our products include interest-sensitive, traditional and variable life insurance; fixed annuities such as deferred and immediate annuities; voluntary accident and health insurance; and funding agreements backing medium-term notes, which we offer on an opportunistic basis. Banking products and services have been offered to customers through the Allstate Bank. Our products are sold through multiple distribution channels including Allstate exclusive agencies, which include exclusive financial specialists, independent agents (including master brokerage agencies and workplace enrolling agents), and specialized structured settlement brokers. 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. On February 8, 2011, we announced that we had reached an agreement to sell substantially all of the deposits of Allstate Bank to Discover Bank and our plans to enter into a multi-year distribution and marketing agreement whereby Discover Bank will provide banking products and services to Allstate customers in the future. Allstate Financial does not intend to originate banking products or services after the transaction closes, which is expected to be by mid-year 2011, pending regulatory approval.

## Allstate Financial outlook

- We plan to continue to increase sales of underwritten insurance products and tailor the focus of product offerings to better serve the needs of everyday Americans.

- Our growth initiatives will be focused on increasing the number of customers served through our proprietary and Allstate Benefits (workplace distribution) channels.

- We will continue to focus on improving returns and reducing our concentration in spread based products resulting in net reductions in contractholder funds obligations.

- We expect lower investment spread due to reduced contractholder funds and the continuing low interest rate environment. As interest rates remain below the aggregate portfolio yield, the amount by which the low interest rate environment will reduce our investment spread is contingent on our ability to maintain the portfolio yield and lower interest crediting rates on spread based products, which could be limited by market conditions, regulatory minimum rates or contractual minimum rate guarantees, and may not match the timing or magnitude of changes in asset yields. Also, a significant amount of our invested assets are used to support our capital and non-spread based products, which do not provide this offsetting opportunity.

Summary analysis Summarized financial data for the years ended December 31 is presented in the following table.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Life and annuity premiums and contract charges</td><td>$ 2,168</td><td>$ 1,958</td><td>$ 1,895</td></tr><tr><td>Net investment income</td><td>2,853</td><td>3,064</td><td>3,811</td></tr><tr><td>Realized capital gains and losses</td><td>(517)</td><td>(431)</td><td>(3,127)</td></tr><tr><td>Total revenues</td><td>4,504</td><td>4,591</td><td>2,579</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Life and annuity contract benefits</td><td>(1,815)</td><td>(1,617)</td><td>(1,612)</td></tr><tr><td>Interest credited to contractholder funds</td><td>(1,807)</td><td>(2,126)</td><td>(2,411)</td></tr><tr><td>Amortization of DAC</td><td>(356)</td><td>(965)</td><td>(704)</td></tr><tr><td>Operating costs and expenses</td><td>(469)</td><td>(430)</td><td>(520)</td></tr><tr><td>Restructuring and related charges</td><td>3</td><td>(25)</td><td>(1)</td></tr><tr><td>Total costs and expenses</td><td>(4,444)</td><td>(5,163)</td><td>(5,248)</td></tr><tr><td>Gain (loss) on disposition of operations</td><td>6</td><td>7</td><td>(6)</td></tr><tr><td>Income tax (expense) benefit</td><td>(8)</td><td>82</td><td>954</td></tr><tr><td>Net income (loss)</td><td>$ 58</td><td>$ (483)</td><td>$ (1,721)</td></tr><tr><td>Investments as of December 31</td><td>$ 61,582</td><td>$ 62,216</td><td>$ 61,499</td></tr></table>

Net income in 2010 was $58 million compared to a net loss of $483 million in 2009. The favorable change of $541 million was primarily due to lower amortization of DAC, decreased interest credited to contractholder funds and higher premiums and contract charges, partially offset by lower net investment income, higher contract benefits and increased net realized capital losses.

Net loss was $483 million in 2009 compared to $1.72 billion in 2008. The improvement of $1.24 billion in 2009 compared to 2008 was primarily due to lower net realized capital losses and, to a lesser extent, decreased interest credited to contractholder funds and operating costs and expenses, partially offset by lower net investment income, higher amortization of DAC and a $142 million increase in the valuation allowance relating to the deferred tax asset on capital losses that was recorded in the first quarter of 2009. This valuation allowance was released in connection with our adoption of new OTTI accounting guidance on April 1, 2009; however, the release was recorded as an increase to retained income and therefore did not reverse the amount recorded in income tax expense.



Analysis of revenues Total revenues decreased 1.9% or $87 million in 2010 compared to 2009 due to lower net investment income and higher net realized capital losses, partially offset by higher premiums and contract charges. Total revenues increased 78.0% or $2.01 billion in 2009 compared to 2008 primarily due to a $2.70 billion decrease in net realized capital losses, partially offset by a $747 million decline in net investment income.

Life and annuity premiums and contract charges Premiums represent revenues generated from traditional life insurance, immediate annuities with life contingencies, and accident and health insurance products that have significant mortality or morbidity risk. Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.

The following table summarizes life and annuity premiums and contract charges by product for the years ended December 31.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Underwritten products</td><td></td><td></td><td></td></tr><tr><td>Traditional life insurance premiums</td><td>$ 420</td><td>$ 407</td><td>$ 399</td></tr><tr><td>Accident and health insurance premiums</td><td>621</td><td>460</td><td>412</td></tr><tr><td>Interest-sensitive life insurance contract charges</td><td>991</td><td>944</td><td>896</td></tr><tr><td>Subtotal</td><td>2,032</td><td>1,811</td><td>1,707</td></tr><tr><td>Annuities</td><td></td><td></td><td></td></tr><tr><td>Immediate annuities with life contingencies premiums</td><td>97</td><td>102</td><td>132</td></tr><tr><td>Other fixed annuity contract charges</td><td>39</td><td>45</td><td>56</td></tr><tr><td>Subtotal</td><td>136</td><td>147</td><td>188</td></tr><tr><td>Life and annuity premiums and contract charges (1)</td><td>$ 2,168</td><td>$ 1,958</td><td>$ 1,895</td></tr></table>

(1) Total contract charges include contract charges related to the cost of insurance totaling $637 million, $616 million and $595 million in 2010, 2009 and 2008, respectively.

Total premiums and contract charges increased 10.7% in 2010 compared to 2009 primarily due to higher sales of accident and health insurance through Allstate Benefits, with a significant portion of the increase resulting from sales to employees of one large company, and higher contract charges on interest-sensitive life insurance products resulting from a shift in the mix of policies in force to contracts with higher cost of insurance rates and policy administration fees. In addition, increased traditional life insurance premiums in 2010 were primarily due to lower reinsurance premiums resulting from higher retention, partially offset by lower renewal premiums and decreased sales.

Total premiums and contract charges increased 3.3% in 2009 compared to 2008 due to higher sales of accident and health insurance through Allstate Benefits and higher contract charges on interest-sensitive life insurance products resulting from increases in certain policy administration fees, partially offset by lower sales of immediate annuities with life contingencies.

Contractholder funds represent interest-bearing liabilities 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



cumulative contract maturities, benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. The following table shows the changes in contractholder funds for the years ended December 31.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Contractholder funds, beginning balance</td><td>$ 52,582</td><td>$ 58,413</td><td>$ 61,975</td></tr><tr><td>Deposits</td><td></td><td></td><td></td></tr><tr><td>Fixed annuities</td><td>932</td><td>1,964</td><td>3,802</td></tr><tr><td>Institutional products (funding agreements)</td><td>—</td><td>—</td><td>4,158</td></tr><tr><td>Interest-sensitive life insurance</td><td>1,512</td><td>1,438</td><td>1,404</td></tr><tr><td>Bank and other deposits</td><td>994</td><td>1,178</td><td>1,038</td></tr><tr><td>Total deposits</td><td>3,438</td><td>4,580</td><td>10,402</td></tr><tr><td>Interest credited</td><td>1,794</td><td>2,025</td><td>2,405</td></tr><tr><td>Maturities, benefits, withdrawals and other adjustments</td><td></td><td></td><td></td></tr><tr><td>Maturities and retirements of institutional products</td><td>(1,833)</td><td>(4,773)</td><td>(8,599)</td></tr><tr><td>Benefits</td><td>(1,552)</td><td>(1,588)</td><td>(1,710)</td></tr><tr><td>Surrenders and partial withdrawals</td><td>(5,203)</td><td>(5,172)</td><td>(5,313)</td></tr><tr><td>Contract charges</td><td>(983)</td><td>(918)</td><td>(870)</td></tr><tr><td>Net transfers from separate accounts</td><td>11</td><td>11</td><td>19</td></tr><tr><td>Fair value hedge adjustments for institutional products</td><td>(196)</td><td>25</td><td>(56)</td></tr><tr><td>Other adjustments (1)</td><td>137</td><td>(21)</td><td>160</td></tr><tr><td>Total maturities, benefits, withdrawals and other adjustments</td><td>(9,619)</td><td>(12,436)</td><td>(16,369)</td></tr><tr><td>Contractholder funds, ending balance</td><td>$ 48,195</td><td>$ 52,582</td><td>$ 58,413</td></tr></table>

(1) The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Consolidated Statements of Operations. As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line.

Contractholder funds decreased 8.3%, 10.0% and 5.8% in 2010, 2009 and 2008, respectively. Average contractholder funds decreased 9.2% in 2010 compared to 2009 and 7.8% in 2009 compared to 2008.

Contractholder deposits decreased 24.9% in 2010 compared to 2009 primarily due to lower deposits on fixed annuities. Deposits on fixed annuities decreased 52.5% in 2010 compared to 2009 due to our strategic decision to discontinue distributing fixed annuities through banks and broker-dealers and our goal to reduce our concentration in spread based products and improve returns on new business.

Contractholder deposits decreased 56.0% in 2009 compared to 2008 because there were no issuances of institutional products in 2009 compared to $4.16 billion in 2008 and due to lower deposits on fixed annuities in 2009. Sales of our institutional products vary from period to period based on management's assessment of market conditions, investor demand and operational priorities such as our focus beginning in 2009 on reducing our concentration in spread based products. Deposits on fixed annuities decreased 48.3% in 2009 compared to 2008 due to pricing actions to improve returns on new business and reduce our concentration in spread based products.

Maturities and retirements of institutional products decreased 61.6% to $1.83 billion in 2010 from $4.77 billion in 2009. During 2009, we retired all of our remaining outstanding extendible institutional market obligations totaling $1.45 billion. In addition, 2009 included the redemption of $1.39 billion of institutional product liabilities in conjunction with cash tender offers.

Maturities and retirements of institutional products decreased 44.5% to $4.77 billion in 2009 from $8.60 billion in 2008. The decrease was primarily due to lower retirements of extendible institutional market obligations in 2009 compared to 2008, partially offset by the redemption in 2009 of institutional product liabilities in accordance with the cash tender offers.

Surrenders and partial withdrawals on deferred fixed annuities, interest-sensitive life insurance products and Allstate Bank products (including maturities of certificates of deposit) increased 0.6% to $5.20 billion in 2010 from $5.17 billion in 2009, and decreased 2.7% in 2009 from $5.31 billion in 2008. In 2010, the increase was primarily due to higher surrenders and partial withdrawals on fixed annuities, partially offset by lower surrenders and partial withdrawals on Allstate Bank products. In 2009, the decrease was due to lower surrenders and partial withdrawals on traditional fixed annuities, partially offset by higher surrenders and partial withdrawals on market value adjusted



annuities and interest-sensitive life insurance. The surrender and partial withdrawal rate on deferred fixed annuities, interest-sensitive life insurance products and Allstate Bank products, based on the beginning of year contractholder funds, was 12.2% in 2010 compared to 11.8% in 2009 and 12.2% in 2008.

Net investment income decreased 6.9% or $211 million to $2.85 billion in 2010 from $3.06 billion in 2009 primarily due to lower yields, reduced average investment balances and risk reduction actions.

Net investment income decreased 19.6% or $747 million to $3.06 billion in 2009 from $3.81 billion in 2008. The decline was primarily due to lower yields, actions to shorten duration and maintain additional liquidity in the portfolio, along with reduced average investment balances resulting primarily from reduced contractholder obligations.

Net realized capital gains and losses are presented in the following table for the years ended December 31.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Impairment write-downs</td><td>$ (501)</td><td>$ (1,021)</td><td>$ (1,256)</td></tr><tr><td>Change in intent write-downs</td><td>(142)</td><td>(268)</td><td>(1,247)</td></tr><tr><td>Net other-than-temporary impairment losses recognized in earnings</td><td>(643)</td><td>(1,289)</td><td>(2,503)</td></tr><tr><td>Sales</td><td>219</td><td>638</td><td>178</td></tr><tr><td>Valuation of derivative instruments</td><td>(94)</td><td>315</td><td>(985)</td></tr><tr><td>Settlements of derivative instruments</td><td>(31)</td><td>41</td><td>197</td></tr><tr><td>EMA limited partnership income</td><td>32</td><td>(136)</td><td>(14)</td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>(517)</td><td>(431)</td><td>(3,127)</td></tr><tr><td>Income tax benefit</td><td>180</td><td>14</td><td>1,093</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>$ (337)</td><td>$ (417)</td><td>$ (2,034)</td></tr></table>

For further discussion of realized capital gains and losses, see the Investments section of the MD&A.

Analysis of costs and expenses Total costs and expenses decreased 13.9% or $719 million in 2010 compared to 2009 primarily due to lower amortization of DAC and interest credited to contractholder funds, partially offset by higher contract benefits. Total costs and expenses decreased 1.6% or $85 million in 2009 compared to 2008 primarily due to lower interest credited to contractholder funds and operating costs and expenses, partially offset by higher amortization of DAC and restructuring and related charges.

Life and annuity contract benefits increased 12.2% or $198 million in 2010 compared to 2009 primarily due to higher contract benefits on accident and health insurance and interest-sensitive life insurance products, partially offset by lower contract benefits on immediate annuities with life contingencies. Higher contract benefits on accident and health insurance were proportionate to growth in premiums. The increase in contract benefits on interest-sensitive life insurance was primarily due to the reestimation of reserves for certain secondary guarantees on universal life insurance policies and higher mortality experience resulting from an increase in average claim size and higher incidence of claims. Lower contract benefits on immediate annuities with life contingencies were due to the reestimation of reserves for benefits payable to certain annuitants to reflect current contractholder information.

The reserve reestimations utilized more refined policy level information and assumptions in the second quarter of 2010. The increase in reserves for certain secondary guarantees on universal life insurance policies resulted in a charge to contract benefits of $68 million and a related reduction in amortization of DAC of $50 million. The decrease in reserves for immediate annuities resulted in a credit to contract benefits of $26 million. The net impact was an increase to income of $8 million, pre-tax.

Life and annuity contract benefits increased 0.3% or $5 million in 2009 compared to 2008 due to higher contract benefits on life insurance products and accident and health insurance business, partially offset by lower contract benefits on annuities. The increase in contract benefits on life insurance products was primarily due to higher mortality experience on interest-sensitive life insurance products resulting from an increase in claim experience and policy growth while higher contract benefits on accident and health insurance business was proportionate to growth in premiums. The decrease in contract benefits for annuities was due to improved mortality experience and the impact of lower sales of immediate annuities with life contingencies.

We analyze our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and life and annuity contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies (“benefit spread”). This implied interest totaled $549 million, $558 million and $552 million in 2010, 2009 and 2008, respectively.



The benefit spread by product group is disclosed in the following table for the years ended December 31.

<table><tr><td>(\ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Life insurance</td><td>$ 282</td><td>$ 363</td><td>$ 363</td></tr><tr><td>Accident and health insurance</td><td>252</td><td>196</td><td>177</td></tr><tr><td>Annuities</td><td>(25)</td><td>(33)</td><td>(62)</td></tr><tr><td>Total benefit spread</td><td>$ 509</td><td>$ 526</td><td>$ 478</td></tr></table>

Benefit spread decreased 3.2% or $17 million in 2010 compared to 2009. The decrease was primarily due to higher mortality experience on interest-sensitive life insurance, reestimations of reserves that increased contract benefits for interest-sensitive life insurance and decreased contract benefits for immediate annuities, partially offset by growth in accident and health insurance sold through Allstate Benefits.

Benefit spread increased 10.0% or $48 million in 2009 compared to 2008 primarily due to improved mortality experience on annuities and higher premiums on accident and health insurance business sold through Allstate Benefits.

Interest credited to contractholder funds decreased 15.0% or $319 million in 2010 compared to 2009 primarily due to lower average contractholder funds and management actions to reduce interest crediting rates on deferred fixed annuities and interest-sensitive life insurance. In addition, the decline in 2010 also reflects lower amortization of DSI.

Amortization of DSI in 2010 was $27 million compared to $129 million in 2009. The decline in amortization of DSI in 2010 was primarily due to a $46 million decrease in amortization relating to realized capital gains and losses and a $38 million reduction in amortization acceleration for changes in assumptions.

Interest credited to contractholder funds decreased 11.8% or $285 million in 2009 compared to 2008 primarily due to lower average contractholder funds and, to a lesser extent, decreased weighted average interest crediting rates on deferred fixed annuities and institutional products, partially offset by higher amortization of DSI. Amortization of DSI in 2009 and 2008 was $129 million and $53 million, respectively. The increase primarily relates to an unfavorable change in amortization relating to realized capital gains and losses of $132 million, partially offset by a $32 million decline in amortization acceleration due to changes in assumptions, which in 2009 and 2008 increased interest credited to contractholder funds by $38 million and $70 million, respectively.

In order to analyze the impact of net investment income and interest credited to contractholders on net income, we monitor the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of life and annuity contract benefits on the Consolidated Statements of Operations (“investment spread”).

The investment spread by product group is shown in the following table for the years ended December 31.

<table><tr><td>(\ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Annuities and institutional products</td><td>$ 179</td><td>$ 126</td><td>$ 460</td></tr><tr><td>Life insurance</td><td>35</td><td>3</td><td>48</td></tr><tr><td>Allstate Bank products</td><td>31</td><td>30</td><td>22</td></tr><tr><td>Accident and health insurance</td><td>18</td><td>16</td><td>12</td></tr><tr><td>Net investment income on investments supporting capital</td><td>234</td><td>205</td><td>306</td></tr><tr><td>Total investment spread</td><td>$ 497</td><td>$ 380</td><td>$ 848</td></tr></table>

Investment spread increased 30.8% or $117 million in 2010 compared to 2009 as lower net investment income was more than offset by decreased interest credited to contractholder funds, which includes lower amortization of DSI. Excluding amortization of DSI, investment spread increased 2.9% or $15 million in 2010 compared to 2009.

Investment spread declined 55.2% or $468 million in 2009 compared to 2008. These declines reflect lower net investment income, partially offset by decreased interest credited to contractholder funds.



To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities and capital, interest crediting rates and investment spreads for 2010, 2009 and 2008.

<table><tr><td rowspan="2"></td><td colspan="3">Weighted average investment yield</td><td colspan="3">Weighted average interest crediting rate</td><td colspan="3">Weighted average investment spreads</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2010</td></tr><tr><td>Interest-sensitive life insurance</td><td>5.5%</td><td>5.5%</td><td>6.0%</td><td>4.4%</td><td>4.6%</td><td>4.6%</td><td>1.1%</td><td>0.9%</td><td>1.4%</td></tr><tr><td>Deferred fixed annuities and institutional products</td><td>4.4</td><td>4.5</td><td>5.2</td><td>3.2</td><td>3.4</td><td>3.7</td><td>1.2</td><td>1.1</td><td>1.5</td></tr><tr><td>Immediate fixed annuities with and without life contingencies</td><td>6.4</td><td>6.3</td><td>6.8</td><td>6.4</td><td>6.5</td><td>6.5</td><td>—</td><td>(0.2)</td><td>0.3</td></tr><tr><td>Investments supporting capital, traditional life and other products</td><td>3.7</td><td>3.7</td><td>5.3</td><td>n/a</td><td>n/a</td><td>n/a</td><td>n/a</td><td>n/a</td><td>n/</td></tr></table>

The following table summarizes our product liabilities as of December 31 and indicates the account value of those contracts and policies in which an investment spread is generated.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Immediate fixed annuities with life contingencies</td><td>$ 8,696</td><td>$ 8,454</td><td>$ 8,355</td></tr><tr><td>Other life contingent contracts and other</td><td>4,786</td><td>4,456</td><td>4,526</td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>$ 13,482</td><td>$ 12,910</td><td>$ 12,881</td></tr><tr><td>Interest-sensitive life insurance</td><td>$ 10,675</td><td>$ 10,276</td><td>$ 9,957</td></tr><tr><td>Deferred fixed annuities</td><td>29,367</td><td>32,194</td><td>33,766</td></tr><tr><td>Immediate fixed annuities without life contingencies</td><td>3,799</td><td>3,869</td><td>3,894</td></tr><tr><td>Institutional products</td><td>2,650</td><td>4,370</td><td>8,974</td></tr><tr><td>Allstate Bank products</td><td>1,091</td><td>1,085</td><td>949</td></tr><tr><td>Market value adjustments related to fair value hedges and other</td><td>613</td><td>788</td><td>873</td></tr><tr><td>Contractholder funds</td><td>$ 48,195</td><td>$ 52,582</td><td>$ 58,413</td></tr></table>

The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates for certain fixed annuities and interest-sensitive life contracts where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities, equity-indexed and variable life, institutional products and Allstate Bank products totaling $13.74 billion of contractholder funds, have been excluded from the analysis because management does not have the ability to change the crediting rate or the minimum crediting rate is not considering meaningful in this context.

<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">As of December 31, 2010</td></tr><tr><td>Weighted average guaranteed crediting rates</td><td>Weighted average current crediting rates</td><td>Contractholder funds</td></tr><tr><td>Annuities with annual crediting rate resets</td><td>3.06%</td><td>3.08%</td><td>12,718</td></tr><tr><td>Annuities with multi-year rate guarantees: (1)</td><td></td><td></td><td></td></tr><tr><td>Resetable in next 12 months</td><td>1.62</td><td>4.37</td><td>2,597</td></tr><tr><td>Resetable after 12 months</td><td>1.76</td><td>3.98</td><td>8,503</td></tr><tr><td>Interest-sensitive life</td><td>3.99</td><td>4.46</td><td>10,637</td></tr></table>

(1) These contracts include interest rate guarantee periods which are typically 5 or 6 years.



Amortization of DAC decreased 63.1% or $609 million in 2010 compared to 2009 and increased 37.1% or $261 million in 2009 compared to 2008. The components of amortization of DAC are summarized in the following table for the years ended December 31.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Amortization of DAC before amortization relating to realized capital gains and losses and changes in assumptions and premium deficiency</td><td>$ (326)</td><td>$ (472)</td><td>$ (556)</td></tr><tr><td>(Amortization) accretion relating to realized capital gains and losses</td><td>(42)</td><td>(216)</td><td>515</td></tr><tr><td>Amortization deceleration (acceleration) for changes in assumptions (“DAC unlocking”)</td><td>12</td><td>(277)</td><td>(327)</td></tr><tr><td>Amortization charge relating to premium deficiency</td><td>—</td><td>—</td><td>(336)</td></tr><tr><td>Total amortization of DAC</td><td>$ (356)</td><td>$ (965)</td><td>$ (704)</td></tr></table>

The decrease of $609 million in 2010 was primarily due to a favorable change in amortization acceleration/deceleration for changes in assumptions, lower amortization relating to realized capital gains and losses, a decreased amortization rate on fixed annuities and lower amortization from decreased benefit spread on interest-sensitive life insurance due to the reestimation of reserves. The increase of $261 million in 2009 compared to 2008 was primarily due to an unfavorable change in amortization relating to realized capital gains and losses, partially offset by the absence of additional amortization recorded in 2008 in connection with a premium deficiency assessment, lower amortization resulting from decreased investment spread on deferred fixed annuities, and a decline in amortization acceleration due to changes in assumptions.

The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits. In 2010, DAC amortization relating to realized capital gains and losses resulted primarily from realized capital gains on derivatives and sales of fixed income securities. In 2009, DAC amortization relating to realized capital gains and losses resulted primarily from realized capital gains on derivatives. Additionally, DAC amortization in 2010 and 2009 reflects our decision in the second half of 2009 not to recapitalize DAC for credit or derivative losses on investments supporting certain fixed annuities following concerns that an increase in the level of expected realized capital losses may reduce EGP and adversely impact the product DAC recoverability. In 2008, DAC accretion resulted primarily from realized capital losses on derivatives and other-than-temporary impairment losses.

Our annual comprehensive review of the profitability of our products to determine DAC balances for our interest-sensitive life, fixed annuities and other investment contracts covers assumptions for investment returns, including capital gains and losses, interest crediting rates to policyholders, the effect of any hedges, persistency, mortality and expenses in all product lines. In the first quarter of 2010, the review resulted in a deceleration of DAC amortization (credit to income) of $12 million. Amortization deceleration of $45 million related to variable life insurance and was primarily due to appreciation in the underlying separate account valuations. Amortization acceleration of $32 million related to interest-sensitive life insurance and was primarily due to an increase in projected realized capital losses and lower projected renewal premium (which is also expected to reduce persistency), partially offset by lower expenses.

In 2009, our annual comprehensive review resulted in the acceleration of DAC amortization (charge to income) of $277 million. $289 million related to fixed annuities, of which $210 million was attributable to market value adjusted annuities, and $18 million related to variable life insurance. Partially offsetting these amounts was amortization deceleration (credit to income) for interest-sensitive life insurance of $30 million. The principal assumption impacting fixed annuity amortization acceleration was an increase in the level of expected realized capital losses in 2009 and 2010. For interest-sensitive life insurance, the amortization deceleration was due to a favorable change in our mortality assumptions, partially offset by increased expected capital losses.

In 2008, DAC amortization acceleration for changes in assumptions recorded in connection with comprehensive reviews of the DAC balances resulted in an increase to amortization of DAC of $327 million. The principle assumption impacting the amortization acceleration in 2008 was the level of realized capital losses impacting actual gross profits in 2008 and the impact of realized capital losses on EGP in 2009. During the fourth quarter of 2008, our assumptions for EGP were impacted by a view of higher impairments in our investment portfolio.



During 2008, indicators emerged that suggested a study of mortality experience for our immediate annuities with life contingences was warranted. At the same time, the underlying profitability of the traditional life insurance business deteriorated due to lower investment returns and growth. For traditional life insurance and immediate annuities with life contingencies, an aggregate premium deficiency of $336 million resulted primarily from the experience study indicating that the annuitants on certain life contingent contracts are projected to live longer than we anticipated when the contracts were issued and, to a lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in DAC. There was no similar charge to income recorded in 2010 or 2009.

The changes in the DAC asset are detailed in the following table.

<table><tr><td rowspan="3">($ in millions)</td><td colspan="3">Traditional life and accident and health</td><td colspan="3">Interest-sensitive life insurance</td><td colspan="3">Fixed annuities</td><td colspan="3">Other</td><td colspan="3">Total</td></tr><tr><td rowspan="2">2010</td><td rowspan="2">2009</td><td rowspan="2">2010</td><td rowspan="2">2009</td><td colspan="3">2010</td><td rowspan="2">2009</td><td rowspan="2">2010</td><td rowspan="2">2009</td><td rowspan="2"></td><td rowspan="2">2010</td><td rowspan="2">2009</td><td></td><td></td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td></td><td></td></tr><tr><td>Beginning balance</td><td>$ 650</td><td>$ 595</td><td>$ 2,246</td><td>$ 2,449</td><td>$ 1,159</td><td>$ 4,037</td><td>$ 5</td><td>$ 8</td><td>$ 4,060</td><td>$ 7,089</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Acquisition costs deferred</td><td>156</td><td>162</td><td>275</td><td>230</td><td>52</td><td>103</td><td>-</td><td>-</td><td>-</td><td>483</td><td>495</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of adoption of new OTTI accounting before unrealized impact (1)</td><td>-</td><td>-</td><td>-</td><td>(6)</td><td>-</td><td>(170)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(176)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of adoption of new OTTI accounting effect of unrealized capital gains and losses (2)</td><td>-</td><td>-</td><td>-</td><td>6</td><td>-</td><td>170</td><td>-</td><td>-</td><td>-</td><td>-</td><td>176</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amortization of DAC before amortization relating to realized capital gains and losses and changes in assumptions (3)</td><td>(113)</td><td>(107)</td><td>(140)</td><td>(176)</td><td>(71)</td><td>(186)</td><td>(2)</td><td>(3)</td><td>(326)</td><td>(472)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Accretion (amortization) relating to realized capital gains and losses (3)</td><td>-</td><td>-</td><td>15</td><td>(4)</td><td>(57)</td><td>(212)</td><td>-</td><td>-</td><td>(42)</td><td>(216)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amortization deceleration (acceleration) for changes in assumptions (“DAC unlocking”) (3)</td><td>-</td><td>-</td><td>13</td><td>12</td><td>(1)</td><td>(289)</td><td>-</td><td>-</td><td>12</td><td>(277)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Effect of unrealized capital gains and losses (4)</td><td>-</td><td>-</td><td>(144)</td><td>(265)</td><td>(651)</td><td>(2,294)</td><td>-</td><td>-</td><td>(795)</td><td>(2,559)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ending balance</td><td>$ 693</td><td>$ 650</td><td>$ 2,265</td><td>$ 2,246</td><td>$ 431</td><td>$ 1,159</td><td>$ 3</td><td>$ 5</td><td>$ 3,392</td><td>$ 4,060</td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) The adoption of new OTTI accounting guidance resulted in an adjustment to DAC to reverse previously recorded DAC accretion related to realized capital losses that were reclassified to other comprehensive income upon adoption on April 1, 2009. The adjustment was recorded as a reduction of the DAC balance and retained income.

(2) The adoption of new OTTI accounting guidance resulted in an adjustment to DAC due to the change in unrealized capital gains and losses that occurred upon adoption on April 1, 2009 when previously recorded realized capital losses were reclassified to other comprehensive income. The adjustment was recorded as an increase of the DAC balance and unrealized capital gains and losses.

(3) Included as a component of amortization of DAC on the Consolidated Statements of Operations.

(4) Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment balance was $75 million and $870 million as of December 31, 2010 and 2009, respectively, and represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized. Recapitalization of DAC is limited to the originally deferred policy acquisition costs plus interest.

Operating costs and expenses increased 9.1% or $39 million in 2010 compared to 2009 and decreased 17.3% or $90 million in 2009 compared to 2008. The following table summarizes operating costs and expenses.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Non-deferrable acquisition costs</td><td>$ 168</td><td>$ 156</td><td>$ 153</td></tr><tr><td>Other operating costs and expenses</td><td>301</td><td>274</td><td>367</td></tr><tr><td>Total operating costs and expenses</td><td>$ 469</td><td>$ 430</td><td>$ 520</td></tr><tr><td>Restructuring and related charges</td><td>$ (3)</td><td>$ 25</td><td>$ 1</td></tr></table>

Non-deferrable acquisition costs increased 7.7% or $12 million in 2010 compared to 2009 primarily due to higher non-deferrable commissions related to accident and health insurance business sold through Allstate Benefits. Other operating costs and expenses increased 9.9% or $27 million in 2010 compared to 2009 primarily due to higher product development, marketing and technology costs, increased litigation expenses, lower reinsurance expense allowances resulting from higher retention and increases in the net cost of employee benefits. In 2010, these increased costs were partially offset by our expense reduction actions, which resulted in lower employee, professional services and sales support expenses.



Non-deferrable acquisition costs increased 2.0% or $3 million in 2009 compared to 2008 primarily due to higher non-deferrable commissions related to accident and health insurance business sold through Allstate Benefits. Other operating costs and expenses decreased 25.3% or $93 million in 2009 compared to 2008 primarily due to our expense reduction actions, which resulted in lower employee, professional services and sales support expenses.

During 2009, restructuring and related charges of $25 million were recorded in connection with our previously announced plan to improve efficiency and narrow our focus of product offerings. In accordance with this plan, among other actions, we eliminated approximately 1,000 workforce positions relative to December 31, 2008 levels through a combination of attrition, position elimination and outsourcing. This reduction reflected approximately 30% of Allstate Financial's work force at the time the plan was initiated. Through our actions completed as of December 31, 2010, we anticipate that we will exceed our targeted annual savings of $90 million beginning in 2011.

Income tax expense of $8 million was recognized for 2010 compared to income tax benefits of $82 million and $954 million in 2009 and 2008, respectively. Income tax benefit for 2009 included expense of $142 million attributable to an increase in the valuation allowance relating to the deferred tax asset on capital losses recorded in the first quarter of 2009. This valuation allowance was released in connection with the adoption of new OTTI accounting guidance on April 1, 2009; however, the release was recorded as an increase to retained income and therefore did not reverse the amount recorded in income tax benefit.

Reinsurance ceded We enter into reinsurance agreements with unaffiliated reinsurers to limit our risk of mortality and morbidity losses. In addition, Allstate Financial has used reinsurance to effect the acquisition or disposition of certain blocks of business. We retain primary liability as a direct insurer for all risks ceded to reinsurers. As of December 31, 2010 and 2009, 45% and 47%, respectively, of our face amount of life insurance in force was reinsured. Additionally, we ceded substantially all of the risk associated with our variable annuity business and we cede 100% of the morbidity risk on substantially all of our long-term care contracts.

Our reinsurance recoverables, summarized by reinsurer as of December 31, are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Standard &amp; Poor&#x27;s Financial Strength Rating  \( {}^{(3)} \)</td><td colspan="2">Reinsurance recoverable on paid and unpaid benefits</td></tr><tr><td>2010</td><td>2009</td></tr><tr><td>Prudential Insurance Company of America</td><td>AA-</td><td>$ 1,633</td><td>$ 1,507</td></tr><tr><td>Employers Reassurance Corporation</td><td>A+</td><td>853</td><td>745</td></tr><tr><td>Transamerica Life Group</td><td>AA-</td><td>402</td><td>374</td></tr><tr><td>RGA Reinsurance Company</td><td>AA-</td><td>360</td><td>352</td></tr><tr><td>Swiss Re Life and Health America, Inc.</td><td>A+</td><td>210</td><td>200</td></tr><tr><td>Paul Revere Life Insurance Company</td><td>A-</td><td>140</td><td>146</td></tr><tr><td>Scottish Re Group  \( {}^{(1)} \)</td><td>N/A</td><td>136</td><td>137</td></tr><tr><td>Munich American Reassurance</td><td>AA-</td><td>124</td><td>119</td></tr><tr><td>Mutual of Omaha Insurance</td><td>AA-</td><td>98</td><td>101</td></tr><tr><td>Security Life of Denver</td><td>A</td><td>79</td><td>91</td></tr><tr><td>Manulife Insurance Company</td><td>AA-</td><td>68</td><td>71</td></tr><tr><td>Lincoln National Life Insurance</td><td>AA-</td><td>64</td><td>65</td></tr><tr><td>Triton Insurance Company</td><td>N/A</td><td>58</td><td>61</td></tr><tr><td>American Health &amp; Life Insurance Co.</td><td>N/A</td><td>50</td><td>51</td></tr><tr><td>Other  \( {}^{(2)} \)</td><td></td><td>125</td><td>123</td></tr><tr><td>Total</td><td></td><td>$ 4,400</td><td>$ 4,143</td></tr></table>

(1) The reinsurance recoverable on paid and unpaid benefits related to the Scottish Re Group as of December 31, 2010 comprised $73 million related to Scottish Re Life Corporation and $63 million related to Scottish Re (U.S.), Inc. The reinsurance recoverable on paid and unpaid benefits related to the Scottish Re Group as of December 31, 2009 comprised $74 million related to Scottish Re Life Corporation and $63 million related to Scottish Re (U.S.), Inc.
(2) As of December 31, 2010 and 2009, the other category includes $106 million and $100 million, respectively, of recoverables due from reinsurers with an investment grade credit rating from Standard & Poor's ("S&P").
(3) N/A reflects no rating available.

Certain of our reinsurers experienced rating downgrades in 2010 by S&P, including Security Life of Denver and Manulife Insurance Company. We continuously monitor the creditworthiness of reinsurers in order to determine our risk



of recoverability on an individual and aggregate basis, and a provision for uncollectible reinsurance is recorded if needed. No amounts have been deemed unrecoverable in the three-years ended December 31, 2010.

We enter into certain intercompany reinsurance transactions for the Allstate Financial operations in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation.

## INVESTMENTS 2010 HIGHLIGHTS

• Investments as of December 31, 2010 totaled $100.48 billion, an increase of 0.7% from $99.83 billion as of December 31, 2009.

- Unrealized net capital gains totaled $1.39 billion as of December 31, 2010, improving from unrealized net capital losses of $2.32 billion as of December 31, 2009.

- As of December 31, 2010, the fair value for our below investment grade fixed income securities with gross unrealized losses totaled $3.29 billion compared to $3.51 billion as of December 31, 2009. The gross unrealized losses for these securities totaled $1.08 billion as of December 31, 2010, an improvement of 40.4% from $1.81 billion as of December 31, 2009.

• Net investment income was $4.10 billion in 2010, a decrease of 7.7% from $4.44 billion in 2009.

• Net realized capital losses were $827 million in 2010 compared to net realized capital losses of $583 million in 2009.

- Derivative net realized capital losses totaled $601 million in 2010 compared to net realized capital gains of $205 million in 2009. Derivative net realized capital losses in 2010 resulted primarily from our risk management actions.

- During 2010, our fixed income and mortgage loan portfolio generated $10.19 billion of cash flows from interest and maturities.

## INVESTMENTS

Overview and strategy The return on our investment portfolios is an important component of our financial results. Investment portfolios are segmented between the Property-Liability, Allstate Financial and Corporate and Other operations. While taking into consideration the investment portfolio in aggregate, we manage the underlying portfolios based upon the nature of each respective business and its corresponding liability structure.

We employ a strategic asset allocation approach which uses models that consider the nature of the liabilities and risk tolerances, as well as the risk and return parameters of the various asset classes in which we invest. This asset allocation is informed by our global economic and market outlook, as well as other inputs and constraints, including diversification effects, duration, liquidity and capital considerations. Within the ranges set by the strategic asset allocation model, tactical investment decisions are made in consideration of prevailing market conditions. We continue to manage risks associated with interest rates, credit and credit spreads, equity markets, and real estate and municipal bonds.

The Property-Liability portfolio’s investment strategy emphasizes protection of principal and consistent income generation, within a total return framework. This approach, which has produced competitive returns over the long term, is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth.

The Allstate Financial portfolio’s investment strategy focuses on the total return of assets needed to support the underlying liabilities, asset-liability management and achieving an appropriate return on capital.

The Corporate and Other portfolio’s investment strategy balances the pursuit of competitive returns with the unique liquidity needs of the portfolio in relation to the overall corporate capital structure. The portfolio is primarily invested in high quality, liquid fixed income and short-term securities with additional investments in less liquid holdings in order to enhance overall returns.

## Risk mitigation

We continue to focus our strategic risk mitigation efforts towards managing interest rate, credit and credit spreads, equity and real estate and municipal bond investment risks, while our return optimization efforts focus on investing in new opportunities to generate income and capital appreciation. As a result, during 2010 we took the following actions:

- Reduced our municipal bond exposure by 25.3% or $5.48 billion of amortized cost primarily through targeted dispositions, prepayments and scheduled maturities.



- Reduced our commercial real estate exposure by 18.7% or $2.31 billion of amortized cost primarily through targeted dispositions and principal repayments from borrowers.

- Maintained hedges to protect our portfolio, primarily against interest rate spikes and equity price declines, which performed consistently with our positions in relation to the movement in the underlying market indices. The resulting realized capital losses from our interest rate and equity hedges were offset by the increase in fair value of our fixed income and equity securities, which is reflected in other comprehensive income (“OCI”).

## Investments outlook

For 2011, we expect the U.S. and other developed economies to recover at a moderate pace, with greater growth in developing and emerging countries. These increasing growth expectations should move equity prices higher. Expected tightening of monetary policy will drive interest rates moderately higher. With expected growth in the economy, credit markets should continue to improve, but challenges will remain in certain segments such as municipal bonds. As a result, we plan to focus on the following priorities:

• Optimizing our allocation of assets to align with changes in Allstate Financial’s liabilities.

• Continuing to explore global investments in areas of emerging opportunity with higher prospects for growth.

• Managing the impact of gradually rising rates on our fixed income portfolio.

• Continuing to favor credit risk, while managing our municipal exposure.

As a result of these actions and market conditions:

- Invested assets and income are expected to decline in line with reductions in contractholder obligations for the Allstate Financial segment.

• Our risk and return optimization actions will allow us to maintain portfolio yields comparable to 2010.

Portfolio composition The composition of the investment portfolios as of December 31, 2010 is presented in the table below. Also see Notes 2 and 4 of the consolidated financial statements for investment accounting policies and additional information.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">Property-Liability  \( {}^{(5)} \)</td><td colspan="2">Allstate Financial  \( {}^{(5)} \)</td><td colspan="2">Corporate and Other  \( {}^{(5)} \)</td><td colspan="2">Total</td></tr><tr><td></td><td>Percent to total</td><td></td><td>Percent to total</td><td></td><td>Percent to total</td><td></td><td>Percent to Total</td></tr><tr><td>Fixed income securities  \( {}^{(1)} \)</td><td>$ 27,413</td><td>78.2%</td><td>$ 49,934</td><td>81.1%</td><td>$ 2,265</td><td>58.8%</td><td>$ 79,612</td><td>79.2%</td></tr><tr><td>Equity securities  \( {}^{(2)} \)</td><td>4,578</td><td>13.1</td><td>233</td><td>0.4</td><td>—</td><td>—</td><td>4,811</td><td>4.8</td></tr><tr><td>Mortgage loans</td><td>18</td><td>0.1</td><td>6,661</td><td>10.8</td><td>—</td><td>—</td><td>6,679</td><td>6.6</td></tr><tr><td>Limited partnership interests  \( {}^{(3)} \)</td><td>2,506</td><td>7.1</td><td>1,274</td><td>2.1</td><td>36</td><td>0.9</td><td>3,816</td><td>3.8</td></tr><tr><td>Short-term  \( {}^{(4)} \)</td><td>430</td><td>1.2</td><td>1,297</td><td>2.1</td><td>1,552</td><td>40.3</td><td>3,279</td><td>3.3</td></tr><tr><td>Other</td><td>103</td><td>0.3</td><td>2,183</td><td>3.5</td><td>—</td><td>—</td><td>2,286</td><td>2.3</td></tr><tr><td>Total</td><td>$ 35,048</td><td>100.0%</td><td>$ 61,582</td><td>100.0%</td><td>$ 3,853</td><td>100.0%</td><td>$ 100,483</td><td>100.0%</td></tr></table>

(1) Fixed income securities are carried at fair value. Amortized cost basis for these securities was $27.38 billion, $49.19 billion and $2.22 billion for Property-Liability, Allstate Financial and Corporate and Other, respectively.

(2) Equity securities are carried at fair value. Cost basis for these securities was $4.04 billion and $185 million for Property-Liability and Allstate Financial, respectively.

(3) We have commitments to invest in additional limited partnership interests totaling $740 million and $731 million for Property-Liability and Allstate Financial, respectively.

(4) Short-term investments are carried at fair value. Amortized cost basis for these investments was $430 million, $1.30 billion and $1.55 billion for Property-Liability, Allstate Financial and Corporate and Other, respectively.

 \( ^{(5)} \)  Balances reflect the elimination of related party investments between segments.

Total investments increased to $100.48 billion as of December 31, 2010, from $99.83 billion as of December 31, 2009, primarily due to higher valuations for fixed income securities, partially offset by net reductions in contractholder obligations. Valuations of fixed income securities are typically driven by a combination of changes in relevant risk-free interest rates and credit spreads over the period. Risk-free interest rates are typically defined as the yield on U.S. Treasury securities, whereas credit spread is the additional yield on fixed income securities above the risk-free rate that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. The increase in valuation of fixed income securities during 2010 was mainly due to declining risk-free interest rates and tightening of credit spreads in certain sectors.



The Property-Liability investment portfolio increased to $35.05 billion as of December 31, 2010, from $34.53 billion as of December 31, 2009, primarily due to higher valuations for equity and fixed income securities and positive operating cash flows, partially offset by dividends paid by Allstate Insurance Company (“AIC”) to its parent, The Allstate Corporation.

The Allstate Financial investment portfolio decreased to $61.58 billion as of December 31, 2010, from $62.22 billion as of December 31, 2009, primarily due to net reductions in contractholder obligations of $4.39 billion, partially offset by higher valuations for fixed income securities.

The Corporate and Other investment portfolio increased to $3.85 billion as of December 31, 2010, from $3.09 billion as of December 31, 2009, primarily due to dividends of $1.30 billion paid by AIC to the Corporation and higher valuations for fixed income securities, partially offset by dividends paid to shareholders, interest paid on debt and share repurchases.

Fixed income securities by type are listed in the table below.

<table><tr><td>(\( in millions)</td><td>Fair value as of December 31, 2010</td><td>Percent to total investments</td><td>Fair value as of December 31, 2009</td><td>Percent to total investments</td></tr><tr><td>U.S. government and agencies</td><td>$ 8,596</td><td>8.6%</td><td>$ 7,536</td><td>7.6%</td></tr><tr><td>Municipal</td><td>15,934</td><td>15.9</td><td>21,280</td><td>21.3</td></tr><tr><td>Corporate</td><td>37,655</td><td>37.5</td><td>33,115</td><td>33.2</td></tr><tr><td>Foreign government</td><td>3,158</td><td>3.1</td><td>3,197</td><td>3.2</td></tr><tr><td>Residential mortgage-backed securities (“RMBS”)</td><td>7,993</td><td>7.9</td><td>7,987</td><td>8.0</td></tr><tr><td>Commercial mortgage-backed securities (“CMBS”)</td><td>1,994</td><td>2.0</td><td>2,586</td><td>2.6</td></tr><tr><td>Asset-backed securities (“ABS”)</td><td>4,244</td><td>4.2</td><td>3,026</td><td>3.0</td></tr><tr><td>Redeemable preferred stock</td><td>38</td><td>—</td><td>39</td><td>—</td></tr><tr><td>Total fixed income securities</td><td>$ 79,612</td><td>79.2%</td><td>$ 78,766</td><td>78.9%</td></tr></table>

As of December 31, 2010, 91.6% of the consolidated fixed income securities portfolio was rated investment grade, which is defined as a security having a rating of Aaa, Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion, or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available.



portfolio substantially reflects the decline in the value of the insurance, and further related valuation declines, if any, are not expected to be material. Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently expect to receive all contractual cash flows from the primary obligor and are not relying on bond insurers for payments.

Included in our municipal bond holdings as of December 31, 2010 are $925 million of municipal securities which are not rated by third party credit rating agencies, but are rated by the National Association of Insurance Commissioners (“NAIC”) and are also internally rated. These holdings include $490 million of below investment grade municipal bonds, most of which were purchased to provide the opportunity to achieve incremental returns. Our initial investment decisions and ongoing monitoring procedures for these securities are based on a thorough due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure, and liquidity risks of each issue.

ARS totaled $1.27 billion with an unrealized net capital loss of $107 million as of December 31, 2010. Our holdings primarily have a credit rating of Aaa. $1.23 billion of our holdings are collateralized by pools of student loans for which at least 85% of the collateral was insured by the U.S. Department of Education at the time we purchased the security. As of December 31, 2010, $840 million of our ARS backed by student loans was 100% insured by the U.S. Department of Education, $223 million was 90% to 99% insured and $118 million was 80% to 89% insured. All of our student loan ARS holdings are experiencing failed auctions and we receive the failed auction rate or, for those which contain maximum reset rate formulas, we receive the contractual maximum rate. We anticipate that failed auctions may persist and most of our holdings will continue to pay the failed auction rate or, for those that contain maximum rate reset formulas, the maximum rate. Auctions continue to be conducted as scheduled for each of the securities.

Corporate bonds, including publicly traded and privately placed, totaled $37.66 billion as of December 31, 2010 with an unrealized net capital gain of $1.40 billion. Privately placed securities primarily consist of corporate issued senior debt securities that are in unregistered form or are directly negotiated with the borrower. 53.7% of the privately placed corporate securities in our portfolio are rated by an independent rating agency and substantially all are rated by the NAIC.

Our portfolio of privately placed securities is broadly diversified by issuer, industry sector and country. The portfolio is made up of 576 issuers. Privately placed corporate obligations contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered debt securities. Additionally, investments in these securities are made after extensive due diligence of the issuer, typically including direct discussions with senior management and on-site visits to company facilities. Ongoing monitoring includes direct periodic dialog with senior management of the issuer and continuous monitoring of operating performance and financial position. Every issue not rated by an independent rating agency is internally rated with a formal rating affirmation at least once a year.

Foreign government securities totaled $3.16 billion, with 100% rated investment grade, as of December 31, 2010. Of these securities, 44.1% are backed by the U.S. government, 18.7% are in Canadian governmental securities held in our Canadian subsidiary and the remaining 37.2% are highly diversified in other foreign governments.

RMBS, CMBS and ABS are structured securities that are primarily collateralized by residential and commercial real estate loans and other consumer or corporate borrowings. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a "class", qualifies for a specific original rating. For example, the "senior" portion or "top" of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages ("ARM")) or may contain features of both fixed and variable rate mortgages.

RMBS, including U.S. Agency, Prime, Alt-A and Subprime, totaled $7.99 billion, with 78.2% rated investment grade, as of December 31, 2010. The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is



Additionally subject to significant prepayment risk from the underlying residential mortgage loans. The credit risk associated with our RMBS portfolio is mitigated due to the fact that 59.2% of the portfolio consists of securities that were issued by or have underlying collateral guaranteed by U.S. government agencies. The unrealized net capital loss of $516 million as of December 31, 2010 was the result of wider credit spreads than at initial purchase on the non-U.S. Agency portion of our RMBS portfolio, largely due to higher risk premiums caused by macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations, which began to show signs of stabilization in certain geographic areas in 2010. The following table shows our RMBS portfolio as of December 31, 2010 based upon vintage year of the issuance of the securities.

<table><tr><td>($ in millions)</td><td colspan="3">U.S. Agency</td><td colspan="3">Prime</td><td colspan="3">Alt-A</td><td colspan="3">Subprime</td><td colspan="3">Total RMBS</td></tr><tr><td></td><td>Fair value</td><td>Unrealized gain/(loss)</td><td>Fair value</td><td>Unrealized gain/(loss)</td><td>Fair value</td><td>Fair value</td><td>Unrealized gain/(loss)</td><td>Fair value</td><td>F</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2010</td><td>$ 538</td><td>$ -</td><td>$ 221</td><td>$ 6</td><td>$ 63</td><td>$ 2</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ 822</td><td>$ 8</td><td></td><td></td><td></td><td></td></tr><tr><td>2009</td><td>753</td><td>12</td><td>81</td><td>1</td><td>8</td><td>-</td><td>-</td><td>-</td><td>-</td><td>842</td><td>13</td><td></td><td></td><td></td><td></td></tr><tr><td>2008</td><td>737</td><td>16</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td>737</td><td>16</td><td></td><td></td><td></td><td></td></tr><tr><td>2007</td><td>434</td><td>8</td><td>242</td><td>6</td><td>101</td><td>(59)</td><td>315</td><td>(184)</td><td>1,092</td><td>(229)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2006</td><td>310</td><td>10</td><td>212</td><td>-</td><td>188</td><td>(20)</td><td>397</td><td>(155)</td><td>1,107</td><td>(165)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2005</td><td>618</td><td>23</td><td>191</td><td>(14)</td><td>134</td><td>(13)</td><td>416</td><td>(134)</td><td>1,359</td><td>(138)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Pre-2005</td><td>1,338</td><td>78</td><td>280</td><td>1</td><td>155</td><td>(23)</td><td>261</td><td>(77)</td><td>2,034</td><td>(21)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 4,728</td><td>$ 147</td><td>$ 1,227</td><td>$ -</td><td>$ 649</td><td>$ (113)</td><td>$ 1,389</td><td>$ (550)</td><td>$ 7,993</td><td>$ (516)</td><td></td><td></td><td></td><td></td><td></td></tr></table>

Prime are collateralized by residential mortgage loans issued to prime borrowers. As of December 31, 2010, $913 million of the Prime had fixed rate underlying collateral and $314 million had variable rate underlying collateral.

Alt-A includes securities collateralized by residential mortgage loans issued to borrowers who do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation, but have stronger credit profiles than subprime borrowers. As of December 31, 2010, $473 million of the Alt-A had fixed rate underlying collateral and $176 million had variable rate underlying collateral.

Subprime includes securities collateralized by residential mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history. It also includes securities that are collateralized by certain second lien mortgages regardless of the borrower's credit history. The Subprime portfolio consisted of $1.13 billion and $260 million of first lien and second lien securities, respectively. As of December 31, 2010, $659 million of the Subprime had fixed rate underlying collateral and $730 million had variable rate underlying collateral.

CMBS totaled $1.99 billion, with 93.1% rated investment grade, as of December 31, 2010. The CMBS portfolio is subject to credit risk, but unlike certain other structured securities, is generally not subject to prepayment risk due to protections within the underlying commercial mortgage loans. Of the CMBS investments, 94.8% are traditional conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and geographical area. The remainder consists of non-traditional CMBS such as small balance transactions, large loan pools and single borrower transactions.

The following table shows our CMBS portfolio as of December 31, 2010 based upon vintage year of the underlying collateral.

<table><tr><td>($ in millions)</td><td>Fair value</td><td>Unrealized gain/(loss)</td></tr><tr><td>2010</td><td>$ 22</td><td>$ (1)</td></tr><tr><td>2007</td><td>276</td><td>(17)</td></tr><tr><td>2006</td><td>598</td><td>(166)</td></tr><tr><td>2005</td><td>315</td><td>(40)</td></tr><tr><td>Pre-2005</td><td>783</td><td>5</td></tr><tr><td>Total CMBS</td><td>$ 1,994</td><td>$ (219)</td></tr></table>

The unrealized net capital loss of $219 million as of December 31, 2010 on our CMBS portfolio was the result of wider credit spreads than at initial purchase, largely due to the macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations, which began to show signs of stabilization in certain geographic areas in 2010. While CMBS spreads tightened during 2009 and 2010, credit spreads in most rating classes remain wider than at initial purchase, which is particularly evident in our 2005-2007 vintage year CMBS.



ABS, including CDO and Consumer and other ABS, totaled $4.24 billion, with 87.9% rated investment grade, as of December 31, 2010. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees and/or insurance. The unrealized net capital loss of $181 million as of December 31, 2010 on our ABS portfolio was the result of wider credit spreads than at initial purchase.

CDO totaled $1.91 billion, with 74.4% rated investment grade, as of December 31, 2010. CDO consist primarily of obligations collateralized by high yield and investment grade corporate credits including $1.48 billion of cash flow collateralized loan obligations (“CLO”) with unrealized losses of $80 million. The remaining $434 million of securities consisted of synthetic CDO, trust preferred CDO, market value CDO, project finance CDO, collateralized bond obligations and other CLO with unrealized losses of $121 million.

Cash flow CLO are structures collateralized primarily by below investment grade senior secured corporate loans. The underlying collateral is actively managed by external managers that monitor the collateral’s performance and is well diversified across industries and among issuers. A transaction will typically issue notes with various capital structure classes (i.e. Aaa, Aa, A, etc.) as well as equity-like tranches. In general, these securities are structured with overcollateralization ratios and performance is impacted primarily by defaults and recoveries of the underlying collateral within the structures, which reduce overcollateralization ratios over time. A violation of the senior overcollateralization test could result in an event of default of the structure which would give the controlling class, generally defined as the majority of the senior lenders, certain rights, including the ability to divert cash flows or liquidate the underlying portfolio to pay off the senior liabilities.

Consumer and other ABS totaled $2.33 billion, with 98.9% rated investment grade, as of December 31, 2010. Consumer and other ABS consists of $1.49 billion of auto and $847 million of other ABS with unrealized gains of $10 million and $10 million, respectively.

Equity securities Equity securities include common stocks, exchange traded funds, non-redeemable preferred stocks and real estate investment trust equity investments. The equity securities portfolio was $4.81 billion as of December 31, 2010 compared to $5.02 billion as of December 31, 2009. Net unrealized gains totaled $583 million as of December 31, 2010 compared to $179 million as of December 31, 2009.

Mortgage loans Our mortgage loan portfolio, which is primarily held in the Allstate Financial portfolio, totaled $6.68 billion as of December 31, 2010, compared to $7.94 billion as of December 31, 2009, and primarily comprises loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification by state and metropolitan area.

We recognized $65 million of realized capital losses related to net increases in the valuation allowance on impaired mortgage loans in 2010, primarily due to deteriorating debt service coverage resulting from a decrease in occupancy and the risk associated with refinancing near-term maturities due to declining underlying collateral valuations. We recognized $97 million of realized capital losses related to net increases in the valuation allowance on impaired loans in 2009.

For further detail on our mortgage loan portfolio, see Note 4 to the consolidated financial statements.

Limited partnership interests consist of investments in private equity/debt funds, real estate funds, hedge funds and tax credit funds. The limited partnership interests portfolio is well diversified across a number of characteristics including fund sponsors, vintage years, strategies, geography (including international), and company/property types. The following table presents information about our limited partnership interests as of December 31, 2010.

<table><tr><td>(&#x27;s in millions)</td><td>Private equity/debt funds</td><td>Real estate funds</td><td>Hedge funds</td><td>Tax credit funds</td><td>Total</td></tr><tr><td>Cost method of accounting (“Cost”)</td><td>$ 937</td><td>$ 320</td><td>$ 83</td><td>$ 8</td><td>$ 1,348</td></tr><tr><td>Equity method of accounting (“EMA”)</td><td>658</td><td>309</td><td>1,266</td><td>235</td><td>2,468</td></tr><tr><td>Total</td><td>$ 1,595</td><td>$ 629</td><td>$ 1,349</td><td>$ 243</td><td>$ 3,816</td></tr><tr><td>Number of sponsors</td><td>90</td><td>41</td><td>12</td><td>7</td><td></td></tr><tr><td>Number of individual funds</td><td>142</td><td>86</td><td>104</td><td>7</td><td></td></tr><tr><td>Largest exposure to single fund</td><td>$ 49</td><td>$ 34</td><td>$ 87</td><td>$ 50</td><td></td></tr></table>



Our aggregate limited partnership exposure represented 3.8% and 2.8% of total invested assets as of December 31, 2010 and 2009, respectively.

The following table shows the results from our limited partnership interests by fund type and accounting classification for the years ended December 31.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="6">2010</td><td colspan="6">2009</td></tr><tr><td>Cost</td><td>EMA</td><td>Total income</td><td>Impairment write-downs (1)</td><td>Cost</td><td>EMA</td><td>Total income</td><td>Impairment write-downs (1</td><td></td><td></td><td></td><td></td></tr><tr><td>Private equity/debt funds</td><td>$ 40</td><td>$ 76</td><td>$ 116</td><td>$ (9)</td><td>$ 16</td><td>$ (61)</td><td>$ (45)</td><td>$ (79)</td><td></td><td></td><td></td><td></td></tr><tr><td>Real estate funds</td><td>2</td><td>(34)</td><td>(32)</td><td>(35)</td><td>1</td><td>(181)</td><td>(180)</td><td>(223)</td><td></td><td></td><td></td><td></td></tr><tr><td>Hedge funds</td><td>-</td><td>47</td><td>47</td><td>(2)</td><td>-</td><td>101</td><td>101</td><td>(6)</td><td></td><td></td><td></td><td></td></tr><tr><td>Tax credit funds</td><td>(2)</td><td>-</td><td>(2)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 40</td><td>$ 89</td><td>$ 129</td><td>$ (46)</td><td>$ 17</td><td>$ (141)</td><td>$ (124)</td><td>$ (308)</td><td></td><td></td><td></td><td></td></tr></table>

(1) Impairment write-downs related to Cost limited partnerships were $45 million and $297 million in 2010 and 2009, respectively. Impairment write-downs related to EMA limited partnerships were $1 million and $11 million in 2010 and 2009, respectively.

Limited partnership interests, excluding impairment write-downs, produced income of $129 million in 2010 compared to losses of $124 million in 2009. Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements. The recognition of income on hedge funds is primarily on a one-month delay and the income recognition on private equity/debt funds, real estate funds and tax credit funds are generally on a three-month delay. Income on Cost limited partnerships is recognized only upon receipt of amounts distributed by the partnerships.

Short-term investments Our short-term investment portfolio was $3.28 billion and $3.06 billion as of December 31, 2010 and 2009, respectively.

Other investments Our other investments as of December 31, 2010 primarily comprise $1.14 billion of policy loans, $439 million of certain derivatives and $363 million of bank loans. Policy loans are carried at the unpaid principal balances. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. For further detail on our use of derivatives, see the Net Realized Capital Gains and Losses section of the MD&A and Note 6 of the consolidated financial statements.

Unrealized net capital gains totaled $1.39 billion as of December 31, 2010 compared to unrealized net capital losses of $2.32 billion as of December 31, 2009. The improvement since December 31, 2009 for fixed income securities was primarily a result of declining risk-free interest rates and tightening of credit spreads in certain sectors. The



improvement for equity securities was primarily due to improved equity valuations. The following table presents unrealized net capital gains and losses, pre-tax and after-tax as of December 31.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>U.S. government and agencies</td><td>$ 276</td><td>$ 203</td></tr><tr><td>Municipal</td><td>(267)</td><td>(403)</td></tr><tr><td>Corporate</td><td>1,395</td><td>345</td></tr><tr><td>Foreign government</td><td>337</td><td>291</td></tr><tr><td>RMBS</td><td>(516)</td><td>(1,500)</td></tr><tr><td>CMBS</td><td>(219)</td><td>(925)</td></tr><tr><td>ABS</td><td>(181)</td><td>(488)</td></tr><tr><td>Redeemable preferred stock</td><td>1</td><td>—</td></tr><tr><td>Fixed income securities (1)</td><td>826</td><td>(2,477)</td></tr><tr><td>Equity securities</td><td>583</td><td>179</td></tr><tr><td>Derivatives</td><td>(22)</td><td>(23)</td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td>1,387</td><td>(2,321)</td></tr><tr><td>Amounts recognized for:</td><td></td><td></td></tr><tr><td>Insurance reserves (2)</td><td>(41)</td><td>—</td></tr><tr><td>DAC and DSI (3)</td><td>97</td><td>990</td></tr><tr><td>Amounts recognized</td><td>56</td><td>990</td></tr><tr><td>Deferred income taxes</td><td>(508)</td><td>461</td></tr><tr><td>Unrealized net capital gains and losses, after-tax</td><td>$ 935</td><td>$ (870)</td></tr></table>

(1) Unrealized net capital gains and losses for fixed income securities as of December 31, 2010 and 2009 comprise $293 million and $679 million, respectively, related to unrealized net capital losses on fixed income securities with other-than-temporary impairment and $1.12 billion and $1.80 billion, respectively, related to other unrealized net capital gains and losses.

(2) The insurance reserves adjustment represents the amount by which the reserve 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 with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(3) The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized. Only the unrealized net capital gains and losses on the Allstate Financial fixed annuity and interest-sensitive life product portfolios are used in this calculation. The DAC and DSI adjustment balance, subject to limitations, is determined by applying the DAC and DSI amortization rate to unrealized net capital gains or losses. Recapitalization of the DAC and DSI balances is limited to the originally deferred costs plus interest.

The unrealized net capital gains for the fixed income portfolio totaled $826 million and comprised $3.26 billion of gross unrealized gains and $2.43 billion of gross unrealized losses as of December 31, 2010. This is compared to unrealized net capital losses for the fixed income portfolio totaling $2.48 billion, comprised of $2.47 billion of gross unrealized gains and $4.95 billion of gross unrealized losses as of December 31, 2009.



Gross unrealized gains and losses as of December 31, 2010 on fixed income securities by type and sector are provided in the table below.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Par value (1)</td><td rowspan="2">Amortized cost</td><td colspan="2">Gross unrealized</td><td rowspan="2">Fair value</td><td rowspan="2">Amortized cost as a percent of par value (2)</td><td rowspan="2">Fair value as a percent of par value (2)</td></tr><tr><td>Gains</td><td>Losses</td></tr><tr><td>Corporate:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Banking</td><td>$ 4,378</td><td>$ 4,282</td><td>$ 118</td><td>$ (154)</td><td>$ 4,246</td><td>97.8%</td><td>97.0%</td></tr><tr><td>Utilities</td><td>6,209</td><td>6,227</td><td>433</td><td>(58)</td><td>6,602</td><td>100.3</td><td>106.3</td></tr><tr><td>Consumer goods (cyclical and non-cyclical)</td><td>6,236</td><td>6,318</td><td>305</td><td>(53)</td><td>6,570</td><td>101.3</td><td>105.4</td></tr><tr><td>Financial services</td><td>3,619</td><td>3,553</td><td>141</td><td>(36)</td><td>3,658</td><td>98.2</td><td>101.1</td></tr><tr><td>Capital goods</td><td>3,862</td><td>3,867</td><td>238</td><td>(34)</td><td>4,071</td><td>100.1</td><td>105.4</td></tr><tr><td>Transportation</td><td>1,911</td><td>1,925</td><td>99</td><td>(29)</td><td>1,995</td><td>100.7</td><td>104.4</td></tr><tr><td>Basic industry</td><td>1,726</td><td>1,750</td><td>91</td><td>(14)</td><td>1,827</td><td>101.4</td><td>105.9</td></tr><tr><td>Technology</td><td>1,613</td><td>1,641</td><td>72</td><td>(14)</td><td>1,699</td><td>101.7</td><td>105.3</td></tr><tr><td>Energy</td><td>2,455</td><td>2,480</td><td>136</td><td>(9)</td><td>2,607</td><td>101.0</td><td>106.2</td></tr><tr><td>Communications</td><td>2,139</td><td>2,117</td><td>115</td><td>(9)</td><td>2,223</td><td>99.0</td><td>103.9</td></tr><tr><td>FDIC guaranteed</td><td>721</td><td>724</td><td>3</td><td>—</td><td>727</td><td>100.4</td><td>100.8</td></tr><tr><td>Other</td><td>1,502</td><td>1,376</td><td>65</td><td>(11)</td><td>1,430</td><td>91.6</td><td>95.2</td></tr><tr><td>Total corporate fixed income portfolio</td><td>36,371</td><td>36,260</td><td>1,816</td><td>(421)</td><td>37,655</td><td>99.7</td><td>103.5</td></tr><tr><td>U.S. government and agencies</td><td>8,904</td><td>8,320</td><td>327</td><td>(51)</td><td>8,596</td><td>93.4</td><td>96.5</td></tr><tr><td>Municipal</td><td>20,323</td><td>16,201</td><td>379</td><td>(646)</td><td>15,934</td><td>79.7</td><td>78.4</td></tr><tr><td>Foreign government</td><td>3,270</td><td>2,821</td><td>347</td><td>(10)</td><td>3,158</td><td>86.3</td><td>96.6</td></tr><tr><td>RMBS</td><td>9,231</td><td>8,509</td><td>216</td><td>(732)</td><td>7,993</td><td>92.2</td><td>86.6</td></tr><tr><td>CMBS</td><td>2,227</td><td>2,213</td><td>58</td><td>(277)</td><td>1,994</td><td>99.4</td><td>89.5</td></tr><tr><td>ABS</td><td>4,796</td><td>4,425</td><td>113</td><td>(294)</td><td>4,244</td><td>92.3</td><td>88.5</td></tr><tr><td>Redeemable preferred stock</td><td>38</td><td>37</td><td>1</td><td>—</td><td>38</td><td>97.4</td><td>100.0</td></tr><tr><td>Total fixed income securities</td><td>$ 85,160</td><td>$ 78,786</td><td>$ 3,257</td><td>$ (2,431)</td><td>$ 79,612</td><td>92.5</td><td>93.5</td></tr></table>

(1) Included in par value are zero-coupon securities that are generally purchased at a deep discount to the par value that is received at maturity. These primarily included corporate, U.S. government and agencies, municipal and foreign government zero-coupon securities with par value of $723 million, $1.70 billion, $5.82 billion and $1.36 billion, respectively.

(2) Excluding the impact of zero-coupon securities, the percentage of amortized cost to par value would be 100.1% for corporates, 101.8% for U.S. government and agencies, 99.6% for municipals and 103.7% for foreign governments. Similarly, excluding the impact of zero-coupon securities, the percentage of fair value to par value would be 103.9% for corporates, 103.2% for U.S. government and agencies, 98.8% for municipals and 109.7% for foreign governments.

The banking, utilities, consumer goods, financial services and capital goods sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of December 31, 2010. In general, credit spreads remain wider than at initial purchase for most of the securities with gross unrealized losses in these categories.

The unrealized net capital gain for the equity portfolio totaled $583 million and comprised $646 million of gross unrealized gains and $63 million of gross unrealized losses as of December 31, 2010. This is compared to an unrealized net capital gain for the equity portfolio totaling $179 million, comprised of $381 million of gross unrealized gains and $202 million of gross unrealized losses as of December 31, 2009.



Gross unrealized gains and losses as of December 31, 2010 on equity securities are provided in the table below.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Amortized cost</td><td colspan="3">Gross unrealized</td><td rowspan="2">Fair value</td></tr><tr><td>Gains</td><td>Losses</td><td></td></tr><tr><td>Consumer goods (cyclical and non-cyclical)</td><td>$ 832</td><td>$ 102</td><td>$ (16)</td><td>$ 918</td><td></td></tr><tr><td>Banking</td><td>303</td><td>50</td><td>(13)</td><td>340</td><td></td></tr><tr><td>Financial services</td><td>349</td><td>35</td><td>(11)</td><td>373</td><td></td></tr><tr><td>Technology</td><td>370</td><td>54</td><td>(6)</td><td>418</td><td></td></tr><tr><td>Communications</td><td>217</td><td>37</td><td>(6)</td><td>248</td><td></td></tr><tr><td>Utilities</td><td>119</td><td>7</td><td>(4)</td><td>122</td><td></td></tr><tr><td>Capital goods</td><td>265</td><td>43</td><td>(3)</td><td>305</td><td></td></tr><tr><td>Energy</td><td>311</td><td>64</td><td>(1)</td><td>374</td><td></td></tr><tr><td>Basic industry</td><td>220</td><td>66</td><td>(1)</td><td>285</td><td></td></tr><tr><td>Real estate</td><td>110</td><td>11</td><td>(1)</td><td>120</td><td></td></tr><tr><td>Transportation</td><td>61</td><td>11</td><td>(1)</td><td>71</td><td></td></tr><tr><td>Other (1)</td><td>1,071</td><td>166</td><td>—</td><td>1,237</td><td></td></tr><tr><td>Total equity securities</td><td>$ 4,228</td><td>$ 646</td><td>$ (63)</td><td>$ 4,811</td><td></td></tr></table>

(1) Other consists primarily of index-based securities.

Within the equity portfolio, the losses were primarily concentrated in consumer goods, banking, financial services, technology and communications sectors. The unrealized losses in these sectors were company and sector specific. As of December 31, 2010, we have the intent and ability to hold our equity securities with unrealized losses until recovery.

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security that may be other-than-temporarily impaired. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated based on facts and circumstances for inclusion on our watch-list. All investments in an unrealized loss position as of December 31, 2010 were included in our portfolio monitoring process for determining whether declines in value were other than temporary.

The extent and duration of a decline in fair value for fixed income securities have become less indicative of actual credit deterioration with respect to an issue or issuer. While we continue to use declines in fair value and the length of time a security is in an unrealized loss position as indicators of potential credit deterioration, our determination of whether a security’s decline in fair value is other than temporary has placed greater emphasis on our analysis of the underlying credit and collateral and related estimates of future cash flows.

The following table summarizes the fair value and gross unrealized losses of fixed income securities by type and investment grade classification as of December 31, 2010.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Investment grade</td><td colspan="3">Below investment grade</td><td colspan="2">Total</td></tr><tr><td>Fair value</td><td>Unrealized losses</td><td>Fair value</td><td>Unrealized losses</td><td>Fair value</td><td>Unrealized losses</td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>2,081</td><td>(51)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>2,081</td><td>$ (51)</td><td></td></tr><tr><td>Municipal</td><td>6,226</td><td>(480)</td><td>619</td><td>(166)</td><td>6,845</td><td>(646)</td><td></td><td></td></tr><tr><td>Corporate</td><td>7,049</td><td>(356)</td><td>937</td><td>(65)</td><td>7,986</td><td>(421)</td><td></td><td></td></tr><tr><td>Foreign government</td><td>287</td><td>(10)</td><td>—</td><td>—</td><td>287</td><td>(10)</td><td></td><td></td></tr><tr><td>RMBS</td><td>1,320</td><td>(150)</td><td>1,202</td><td>(582)</td><td>2,522</td><td>(732)</td><td></td><td></td></tr><tr><td>CMBS</td><td>858</td><td>(143)</td><td>135</td><td>(134)</td><td>993</td><td>(277)</td><td></td><td></td></tr><tr><td>ABS</td><td>1,676</td><td>(161)</td><td>399</td><td>(133)</td><td>2,075</td><td>(294)</td><td></td><td></td></tr><tr><td>Total</td><td>$ 19,497</td><td>$ (1,351)</td><td>$ 3,292</td><td>$ (1,080)</td><td>$ 22,789</td><td>$ (2,431)</td><td></td><td></td></tr></table>

We have experienced declines in the fair values of fixed income securities primarily due to wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations, which began to show signs of



stabilization in certain geographic areas in 2010. Consistent with their ratings, our portfolio monitoring process indicates that investment grade securities have a low risk of default. Securities rated below investment grade, comprising securities with a rating of Ba, B and Ca or lower, have a higher risk of default.

As of December 31, 2010, 68% of our below investment grade gross unrealized losses were concentrated in RMBS, specifically Alt-A and Subprime, CMBS and ABS, specifically cash flow CLO. The fair value of these securities totaled $1.39 billion, an increase of 7.8%, compared to $1.29 billion as of December 31, 2009, due to improved valuations resulting from tighter credit spreads driven by lower risk premiums. Gross unrealized losses on these securities totaled $736 million as of December 31, 2010, a decrease of 42.6%, compared to $1.28 billion as of December 31, 2009, due to improved valuations, impairment write-downs, sales and principal collections, partially offset by the downgrade of certain securities to below investment grade during 2010.

Fair values for our structured securities are obtained from third-party valuation service providers and are subject to review as disclosed in our Application of Critical Accounting Estimates. In accordance with GAAP, when fair value is less than the amortized cost of a security and we have not made the decision to sell the security and it is not more likely than not we will be required to sell the security before recovery of its amortized cost basis, we evaluate if we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value by discounting our best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compare this to the amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors (“non-credit-related”) recognized in OCI.

The non-credit-related unrealized losses for our structured securities, including our below investment grade Alt-A, Subprime, CMBS and cash flow CLO, are heavily influenced by risk factors other than those related to our best estimate of future cash flows. The difference between these securities' original or current effective rates and the yields implied by their fair value indicates that a higher risk premium is included in the valuation of these securities than existed at initial issue or purchase. This risk premium represents the return that a market participant requires as compensation to assume the risk associated with the uncertainties regarding the future performance of the underlying collateral. The risk premium is comprised of: default risk, which reflects the probability of default and the uncertainty related to collection of contractual principal and interest; liquidity risk, which reflects the risk associated with exiting the investment in an illiquid market, both in terms of timeliness and cost; and volatility risk, which reflects the potential valuation volatility during an investor's holding period. Other factors reflected in the risk premium include the costs associated with underwriting, monitoring and holding these types of complex securities. Certain aspects of the default risk are included in the development of our best estimate of future cash flows, as appropriate. Other aspects of the risk premium are considered to be temporary in nature and are expected to reverse over the remaining lives of the securities as future cash flows are received.

## Other-than-temporary impairment assessment for below investment grade Alt-A and Subprime RMBS

As of December 31, 2010, the fair value of our below investment grade Alt-A securities with gross unrealized losses totaled $288 million, a decrease of 7.4% compared to $311 million as of December 31, 2009. As of December 31, 2010, gross unrealized losses for our below investment grade Alt-A portfolio totaled $116 million, a decrease of 45.3% compared to $212 million as of December 31, 2009. The improvement over prior year was primarily due to improved valuations resulting from lower risk premiums, impairment write-downs and principal collections. For our below investment grade Alt-A securities with gross unrealized gains of $20 million, we have recognized cumulative write-downs in earnings totaling $45 million as of December 31, 2010.

As of December 31, 2010, the fair value of our below investment grade Subprime securities with gross unrealized losses totaled $796 million, an increase of 10.2% compared to $722 million as of December 31, 2009. As of December 31, 2010, gross unrealized losses for our below investment grade Subprime portfolio totaled $438 million, a decrease of 48.4% compared to $849 million as of December 31, 2009. The improvement over prior year was primarily due to improved valuations resulting from lower risk premiums, impairment write-downs, sales and principal collections, partially offset by downgrades of certain Subprime securities to below investment grade during 2010. For our below investment grade Subprime with gross unrealized gains totaling $4 million, we have recognized cumulative write-downs in earnings totaling $95 million as of December 31, 2010.

The credit loss evaluation for Alt-A and Subprime securities with gross unrealized losses is performed in two phases. The first phase estimates the future cash flows of the entire securitization trust from which our security was issued. A critical part of this estimate involves forecasting default rates and loss severities of the residential mortgage loans that collateralize the securitization trust. The factors that affect the default rates and loss severities include, but are



not limited to, historical collateral performance, collateral type, transaction vintage year, geographic concentrations, borrower credit quality, origination practices of the transaction sponsor, and practices of the mortgage loan servicers. Current loan-to-value ratios of underlying collateral are not consistently available and accordingly they are not a primary factor in our impairment evaluation. While our projections are developed internally and customized to our specific holdings, they are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. The default rate and loss severity forecasts result in an estimate of trust-level projected additional collateral loss.

We then analyze the actual cumulative collateral losses incurred to date by the securitization trust, our projected additional collateral losses expected to be incurred and the position of the class of securities we own in the securitization trust relative to the trust's other classes to determine whether any of the collateral losses will be applied to our class. If our class has remaining credit enhancement sufficient to withstand the projected additional collateral losses, no collateral losses will be realized by our class and we expect to collect all contractual principal and interest of the security we own. Remaining credit enhancement is measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security we own and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to our class, such as overcollateralization and excess spread.

For securities where there is insufficient remaining credit enhancement for the class of securities we own, a recovery value is calculated based on our best estimate of future cash flows specific to that security. This estimate is based on the contractual principal payments and current interest payments of the securities we own, adjusted for actual cumulative collateral losses incurred to date and the projected additional collateral losses expected to be incurred. This estimate also takes into consideration additional secondary sources of credit support, such as reliable bond insurance. For securities without secondary sources of credit support or for which the secondary sources do not fully offset the actual and projected additional collateral losses applied to them, a credit loss is recorded in earnings to the extent amortized cost exceeds recovery value.

98.8% and 1.2% of the fair value of our below investment grade Alt-A securities with gross unrealized losses were issued with Aaa and Aa original ratings and capital structure classifications, respectively. 87.4%, 10.7% and 1.9% of the fair value of our below investment grade Subprime securities with gross unrealized losses were issued with Aaa, Aa and A original ratings and capital structure classifications, respectively. As described previously, Alt-A and Subprime securities with higher original ratings typically have priority in receiving the principal repayments on the underlying collateral compared to those with lower original ratings. While the projected cash flow assumptions for our below investment grade Alt-A and Subprime securities with gross unrealized losses have deteriorated since the securities were originated, as reflected by their current credit ratings, these securities continue to retain the payment priority features that existed at the origination of the securitization trust.



The following tables show trust-level, class-level and security-specific detailed information for our below investment grade Alt-A securities with gross unrealized losses, by credit rating.

($ in millions)

December 31, 2010

<table><tr><td rowspan="3">(\( in millions)</td><td colspan="12">December 31, 2010</td></tr><tr><td colspan="4">With other-than-temporary impairments recorded in earnings</td><td colspan="4">Without other-than-temporary impairments recorded in earnings</td><td rowspan="2">Total</td><td rowspan="2">Total</td><td rowspan="2">Total</td><td rowSpan="2"></td></tr><tr><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td></tr><tr><td>Trust-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td>0.5%</td><td>0.7%</td><td>8.1%</td><td>8.0%</td><td>0.1%</td><td>3.1%</td><td>3.7%</td><td>3.0%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td>9.9%</td><td>22.5%</td><td>24.6%</td><td>24.5%</td><td>4.8%</td><td>16.6%</td><td>17.8%</td><td>15.4%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td>9.9%</td><td>19.0%</td><td>6.8%</td><td>6.9%</td><td>5.3%</td><td>27.1%</td><td>23.9%</td><td>20.7%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td>1</td><td>1</td><td>27</td><td>29</td><td>2</td><td>2</td><td>8</td><td>12</td><td>41</td><td></td><td></td><td></td></tr><tr><td>Par value</td><td>$ 4</td><td>$ 3</td><td>$ 439</td><td>$ 446</td><td>$ 16</td><td>$ 4</td><td>$ 68</td><td>$ 88</td><td>$ 534</td><td></td><td></td><td></td></tr><tr><td>Amortized cost</td><td>$ 4</td><td>$ 2</td><td>$ 316</td><td>$ 322</td><td>$ 16</td><td>$ 4</td><td>$ 62</td><td>$ 82</td><td>$ 404</td><td></td><td></td><td></td></tr><tr><td>Fair value</td><td>$ 1</td><td>$ 1</td><td>$ 220</td><td>$ 222</td><td>$ 13</td><td>$ 2</td><td>$ 51</td><td>$ 66</td><td>$ 288</td><td></td><td></td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ (3)</td><td>$ (1)</td><td>$ (96)</td><td>$ (100)</td><td>$ (3)</td><td>$ (2)</td><td>$ (11)</td><td>$ (16)</td><td>$ (116)</td><td></td><td></td><td></td></tr><tr><td>12-24 months (4)</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$  -</td><td>$ -</td><td>$ -</td><td></td><td></td><td></td></tr><tr><td>Over 24 months (5)</td><td>$ (3)</td><td>$ (1)</td><td>$ (90)</td><td>$ (94)</td><td>$ (3)</td><td>$ (2)</td><td>$ (10)</td><td>$ (15)</td><td>$ (109)</td><td></td><td></td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td>$ -</td><td>$ (1)</td><td>$ (92)</td><td>$ (93)</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ (93)</td><td></td><td></td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td>$ -</td><td>$ -</td><td>$ 59</td><td>$ 59</td><td>$ 1</td><td>$ 1</td><td>$ 6</td><td>$ 8</td><td>$ 67</td><td></td><td></td><td></td></tr></table>

<table><tr><td rowspan="3">Trust-level</td><td colspan="12">December 31, 2009</td></tr><tr><td colspan="4">With other-than-temporary impairments recorded in earnings</td><td colspan="4">Without other-than-temporary impairments recorded in earnings</td><td>Total</td><td>Total</td><td></td><td></td></tr><tr><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td></td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td>0.2%</td><td>4.3%</td><td>4.2%</td><td>4.2%</td><td>0.8%</td><td>1.4%</td><td>2.5%</td><td>1.6%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td>12.1%</td><td>26.1%</td><td>25.7%</td><td>25.6%</td><td>3.9%</td><td>23.8%</td><td>16.1%</td><td>10.6%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td>11.3%</td><td>24.7%</td><td>7.6%</td><td>9.7%</td><td>7.1%</td><td>29.2%</td><td>16.6%</td><td>12.8%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td>1</td><td>4</td><td>24</td><td>29</td><td>6</td><td>5</td><td>5</td><td>16</td><td>45</td><td></td><td></td><td></td></tr><tr><td>Par value</td><td>$ 4</td><td>$ 56</td><td>$ 413</td><td>$ 473</td><td>$ 90</td><td>$ 12</td><td>$ 79</td><td>$ 181</td><td>$ 654</td><td></td><td></td><td></td></tr><tr><td>Amortized cost</td><td>$ 4</td><td>$ 52</td><td>$ 289</td><td>$ 345</td><td>$ 88</td><td>$ 12</td><td>$ 78</td><td>$ 178</td><td>$ 523</td><td></td><td></td><td></td></tr><tr><td>Fair value</td><td>$ 1</td><td>$ 32</td><td>$ 158</td><td>$ 191</td><td>$ 62</td><td>$ 5</td><td>$ 53</td><td>$ 120</td><td>$ 311</td><td></td><td></td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ (3)</td><td>$ (20)</td><td>$ (131)</td><td>$ (154)</td><td>$ (26)</td><td>$ (7)</td><td>$ (25)</td><td>$ (58)</td><td>$ (212)</td><td></td><td></td><td></td></tr><tr><td>12-24 months (4)</td><td>$ (3)</td><td>$ (4)</td><td>$ (33)</td><td>$ (40)</td><td>$ (20)</td><td>$ -</td><td>$ (24)</td><td>$ (44)</td><td>$ (84)</td><td></td><td></td><td></td></tr><tr><td>Over 24 months (5)</td><td>$ -</td><td>$ (16)</td><td>$ (98)</td><td>$ (114)</td><td>$ (6)</td><td>$ (7)</td><td>$ (1)</td><td>$ (14)</td><td>$ (128)</td><td></td><td></td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td>$ -</td><td>$ (4)</td><td>$ (92)</td><td>$ (96)</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ (96)</td><td></td><td></td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td>$ -</td><td>$ 5</td><td>$ 43</td><td>$ 48</td><td>$ 9</td><td>$ 2</td><td>$ 23</td><td>$ 34</td><td>$ 82</td><td></td><td></td><td></td></tr></table>

(1) Weighted average actual cumulative collateral losses incurred to date as of period end are based on the actual principal losses incurred as a percentage of the remaining principal amount of the loans in the trust. The weighting calculation is based on the par value of each security. Actual losses on the securities we hold are less than the losses on the underlying collateral as presented in this table. Actual cumulative realized principal losses on the below investment grade Alt-A securities we own, as reported by the trust servicers, were $3 million as of December 31, 2010.



(2) Weighted average projected additional collateral losses to be incurred as of period end are based on our projections of future losses to be incurred by the trust, taking into consideration the actual cumulative collateral losses incurred to date, as a percentage of the remaining principal amount of the loans in the trust. Our projections are developed internally and customized to our specific holdings and are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. Projected additional collateral losses to be incurred are compared to average remaining credit enhancement for each security. For securities where the projected additional collateral losses exceed remaining credit enhancement, a recovery value is calculated to determine whether impairment losses should be recorded in earnings. The weighting calculation is based on the par value of each security.

(3) Weighted average remaining credit enhancement as of period end is based on structural subordination and the expected impact of other structural features existing in the securitization trust beneficial to our class and reflects our projection of future principal losses that can occur as a percentage of the remaining principal amount of the loans in the trust before the class of the security we own will incur its first dollar of principal loss. The weighting calculation is based on the par value of each security.

(4) Includes total gross unrealized losses on securities in an unrealized loss position for a period of 12 to 24 consecutive months.
(5) Includes total gross unrealized losses on securities in an unrealized loss position for a period more than 24 consecutive months. As of December 31, 2010, $70 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $11 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities' amortized cost for a period of more than 24 consecutive months. As of December 31, 2009, there were no Alt-A securities with gross unrealized losses greater than or equal to 20% for a period of more than 24 consecutive months.
(6) Includes cumulative write-downs recorded in accordance with GAAP.
(7) Reflects principal payments for the years ended December 31, 2010 and 2009, respectively.

The above tables include information about our below investment grade Alt-A securities with gross unrealized losses as of each period presented. The par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales, purchases and realized principal losses.

As of December 31, 2010, our below investment grade Alt-A securities with gross unrealized losses and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 3.0%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 33.7% and a projected weighted average loss severity of 47.4%, which resulted in projected additional collateral losses of 15.4%. As the average remaining credit enhancement for these securities of 20.7% exceeds the projected additional collateral losses of 15.4%, these securities have not been impaired.

As of December 31, 2010, our below investment grade Alt-A securities with gross unrealized losses and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 8.0%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 43.5% and a projected weighted average loss severity of 55.3%, which resulted in projected additional collateral losses of 24.5%. As the average remaining credit enhancement for these securities of 6.9% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on these securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was 74.0% and exceeded these securities' current average amortized cost as a percentage of par of 72.1%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.

The following table shows actual trust-level key metrics specific to the trusts from which our below investment grade Alt-A securities with gross unrealized losses were issued, as reported by the trust servicers.

<table><tr><td></td><td>December 31, 2010</td><td>September 30, 2010</td><td>June 30, 2010</td><td>March 31, 2010</td><td>December 31, 2009</td></tr><tr><td>Trust-level statistics</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Delinquency rates</td><td>29.4%</td><td>28.0%</td><td>27.9%</td><td>28.1%</td><td>25.9%</td></tr><tr><td>Actual cumulative collateral losses incurred to date</td><td>7.2%</td><td>6.5%</td><td>5.5%</td><td>4.3%</td><td>3.5%</td></tr></table>

We believe the unrealized losses on our Alt-A securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities' remaining lives, as demonstrated by improved valuations in 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities' recovery value. As of December 31, 2010, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about



collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

The following tables show trust-level, class-level and security-specific detailed information for our below investment grade Subprime securities with gross unrealized losses that are not reliably insured, by credit rating.

($ in millions)

<table><tr><td rowspan="3">($ in millions)</td><td colspan="11">December 31, 2010</td></tr><tr><td colspan="4">With other-than-temporary impairments recorded in earnings</td><td colspan="7">Without other-than-temporary impairments recorded in earnings</td></tr><tr><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Total</td><td></td><td></td></tr><tr><td>Trust-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td></td><td>-10%</td><td>12.0%</td><td>16.1%</td><td>16.0%</td><td>13.2%</td><td>12.5%</td><td>12.6%</td><td>12.7%</td><td>n/a</td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td></td><td>-10%</td><td>38.2%</td><td>43.2%</td><td>43.0%</td><td>46.5%</td><td>42.7%</td><td>40.8%</td><td>42.1%</td><td>n/a</td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td></td><td>-10%</td><td>26.0%</td><td>22.6%</td><td>22.8%</td><td>72.7%</td><td>63.6%</td><td>50.5%</td><td>56.7%</td><td>n/a</td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td></td><td>-</td><td>5</td><td>81</td><td>86</td><td>11</td><td>10</td><td>35</td><td>56</td><td>142</td><td></td></tr><tr><td>Par value</td><td></td><td>-</td><td>42</td><td>952</td><td>994</td><td>73</td><td>69</td><td>265</td><td>407</td><td>1,401</td><td></td></tr><tr><td>Amortized cost</td><td></td><td>-</td><td>33</td><td>650</td><td>683</td><td>73</td><td>69</td><td>265</td><td>407</td><td>1,090</td><td></td></tr><tr><td>Fair value</td><td></td><td>-</td><td>21</td><td>425</td><td>446</td><td>62</td><td>54</td><td>158</td><td>274</td><td>720</td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td></td><td>-</td><td>(12)</td><td>(225)</td><td>(237)</td><td>(11)</td><td>(15)</td><td>(107)</td><td>(133)</td><td>(370)</td><td></td></tr><tr><td>12-24 months (4)</td><td></td><td>-</td><td>-</td><td>(9)</td><td>(9)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(9)</td><td></td></tr><tr><td>Over 24 months (5)</td><td></td><td>-</td><td>(12)</td><td>(216)</td><td>(228)</td><td>(11)</td><td>(15)</td><td>(107)</td><td>(133)</td><td>(361)</td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td></td><td>-</td><td>(9)</td><td>(293)</td><td>(302)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(302)</td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td></td><td>-</td><td>4</td><td>62</td><td>66</td><td>18</td><td>4</td><td>11</td><td>33</td><td>99</td><td></td></tr></table>

<table><tr><td rowspan="3">Trust-level</td><td colspan="11">December 31, 2009</td></tr><tr><td colspan="4">With other-than-temporary impairments recorded in earnings</td><td colspan="7">Without other-than-temporary impairments recorded in earnings</td></tr><tr><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Total</td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td>15.0%</td><td>13.8%</td><td>17.2%</td><td>16.9%</td><td>8.8%</td><td>8.1%</td><td>9.5%</td><td>9.1%</td><td>n/a</td><td></td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td>41.2%</td><td>33.5%</td><td>46.2%</td><td>45.2%</td><td>36.5%</td><td>35.3%</td><td>40.0%</td><td>38.2%</td><td>n/a</td><td></td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td>38.1%</td><td>30.1%</td><td>38.6%</td><td>38.0%</td><td>49.6%</td><td>45.4%</td><td>42.6%</td><td>45.4%</td><td>n/a</td><td></td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td>1</td><td>4</td><td>53</td><td>58</td><td>20</td><td>13</td><td>37</td><td>70</td><td>128</td><td></td><td></td></tr><tr><td>Par value</td><td>30</td><td>52</td><td>798</td><td>880</td><td>213</td><td>59</td><td>315</td><td>587</td><td>1,467</td><td></td><td></td></tr><tr><td>Amortized cost</td><td>24</td><td>48</td><td>581</td><td>653</td><td>213</td><td>59</td><td>314</td><td>586</td><td>1,239</td><td></td><td></td></tr><tr><td>Fair value</td><td>10</td><td>28</td><td>230</td><td>268</td><td>112</td><td>32</td><td>144</td><td>288</td><td>556</td><td></td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>(14)</td><td>(20)</td><td>(351)</td><td>(385)</td><td>(101)</td><td>(27)</td><td>(170)</td><td>(298)</td><td>(683)</td><td></td><td></td></tr><tr><td>12-24 months (4)</td><td>-</td><td>(4)</td><td>(53)</td><td>(57)</td><td>(2)</td><td>(1)</td><td>-</td><td>(3)</td><td>(60)</td><td></td><td></td></tr><tr><td>Over 24 months (5)</td><td>(14)</td><td>(12)</td><td>(294)</td><td>(320)</td><td>(99)</td><td>(26)</td><td>(170)</td><td>(295)</td><td>(615)</td><td></td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td>(6)</td><td>(4)</td><td>(217)</td><td>(227)</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(227)</td><td></td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td>-</td><td>13</td><td>40</td><td>53</td><td>17</td><td>11</td><td>33</td><td>61</td><td>114</td><td></td><td></td></tr></table>

(1) Weighted average actual cumulative collateral losses incurred to date as of period end are based on the actual principal losses incurred as a percentage of the remaining principal amount of the loans in the trust. The weighting calculation is based on the par value of each security. Actual



losses on the securities we hold are less than the losses on the underlying collateral as presented in this table. Actual cumulative realized principal losses on the below investment grade Subprime securities we own, as reported by the trust servicers, were $20 million as of December 31, 2010.

 \( ^{(2)} \)  Weighted average projected additional collateral losses to be incurred as of period end are based on our projections of future losses to be incurred by the trust, taking into consideration the actual cumulative collateral losses incurred to date, as a percentage of the remaining principal amount of the loans in the trust. Our projections are developed internally and customized to our specific holdings and are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. Projected additional collateral losses to be incurred are compared to average remaining credit enhancement for each security. For securities where the projected additional collateral losses exceed remaining credit enhancement, a recovery value is calculated to determine whether impairment losses should be recorded in earnings. The weighting calculation is based on the par value of each security.

 \( ^{(3)} \)  Weighted average remaining credit enhancement as of period end is based on structural subordination and the expected impact of other structural features existing in the securitization trust beneficial to our class and reflects our projection of future principal losses that can occur as a percentage of the remaining principal amount of the loans in the trust before the class of the security we own will incur its first dollar of principal loss. The weighting calculation is based on the par value of each security.

 \( ^{(4)} \)  Includes total gross unrealized losses on securities in an unrealized loss position for a period of 12 to 24 consecutive months.

 \( ^{(5)} \)  Includes total gross unrealized losses on securities in an unrealized loss position for a period more than 24 consecutive months. As of December 31, 2010, $168 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $108 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities' amortized cost for a period of more than 24 consecutive months. As of December 31, 2009, $95 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings had been greater than or equal to 20% of those securities' amortized cost for a period of more than 24 consecutive months.

 \( ^{(6)} \)  Includes cumulative write-downs recorded in accordance with GAAP.

 \( ^{(7)} \)  Reflects principal payments for the years ended December 31, 2010 and 2009, respectively.

The above tables include information only about below investment grade Subprime securities with gross unrealized losses that are not reliably insured as of each period presented. As such, the par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales, purchases and realized principal losses.

As of December 31, 2010, our Subprime securities that are reliably insured include 10 below investment grade Subprime securities with a total fair value of $76 million and aggregate gross unrealized losses of $68 million, all of which are rated B. These securities are insured by one bond insurer rated B that we estimate has sufficient claims paying capacity to service its obligations on these securities. The securitization trusts from which our securities were issued are currently receiving contractual payments from the bond insurer and considering the combination of expected future payments from the bond insurer and cash flows available from the underlying collateral, we expect the trust to have adequate cash flows to make all contractual payments due to the class of securities we own. As a result, our security-specific estimates of future cash flows indicate that these securities' estimated recovery values equal or exceed their amortized cost. Accordingly, no other-than-temporary impairments have been recognized on these securities. As of December 31, 2009, our Subprime securities that were reliably insured by two bond insurers included 23 below investment grade securities with a total fair value of $166 million and aggregate gross unrealized losses of $166 million.

As of December 31, 2010, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 12.7%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 60.8% and a projected weighted average loss severity of 70.0%, which resulted in projected additional collateral losses of 42.1%. As the average remaining credit enhancement for these securities of 56.7% exceeds the projected additional collateral losses of 42.1%, these securities have not been impaired.

As of December 31, 2010, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 16.0%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 57.1% and a projected weighted average loss severity of 77.0%, which resulted in projected additional collateral losses of 43.0%. As the average remaining credit enhancement for these securities of 22.8% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on the securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was 71.2% and exceeded these securities' current average amortized cost as a percentage of par of 68.7%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.



The following table shows actual trust-level key metrics specific to the trusts from which our below investment grade Subprime securities with gross unrealized losses were issued, as reported by the trust servicers.

<table><tr><td></td><td>December 31, 2010</td><td>September 30, 2010</td><td>June 30, 2010</td><td>March 31, 2010</td><td>December 31, 2009</td></tr><tr><td>Trust-level statistics</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Delinquency rates</td><td>28.8%</td><td>28.6%</td><td>29.3%</td><td>31.7%</td><td>30.9%</td></tr><tr><td>Actual cumulative collateral losses incurred to date</td><td>16.5%</td><td>15.4%</td><td>14.7%</td><td>14.4%</td><td>13.5%</td></tr></table>

We believe the unrealized losses on our Subprime securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities' remaining lives, as demonstrated by improved valuations in 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities' recovery value. As of December 31, 2010, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

## Other-than-temporary impairment assessment for below investment grade CMBS

As of December 31, 2010, the fair value of our below investment grade CMBS with gross unrealized losses totaled $135 million compared to $67 million as of December 31, 2009. As of December 31, 2010, gross unrealized losses for our below investment grade CMBS portfolio totaled $134 million, an increase of 9.8% compared to $122 million as of December 31, 2009. The increase over prior year was primarily due to downgrades of certain CMBS to below investment grade during 2010, partially offset by improved valuations and sales during 2010 in anticipation of negative capital treatment by certain regulatory and rating agencies. There were no gross unrealized gains for this portfolio as of December 31, 2010.

The credit loss evaluation for CMBS with gross unrealized losses is performed in two phases. The first phase estimates the future cash flows of the entire securitization trust from which our security was issued. A critical part of this estimate involves forecasting the collateral losses of the commercial mortgage loans that collateralize the securitization trust. Factors affecting these estimates include, but are not limited to, estimates of current and future commercial property prices, current and projected rental incomes, the propensity of the mortgage loans to default under these assumptions and loss severities in cases of default. Estimates of future property prices and rental incomes consider specific property-type and geographic economic trends such as employment, property vacancy and rental rates, and forecasts of new supply in the commercial real estate markets. Estimates of default rates and loss severities consider factors such as borrower payment history, the origination practices of the transaction sponsor, overall collateral quality and diversification, transaction vintage year, maturity date, overall transaction structure and other factors that may influence performance. Realized losses in the CMBS market have historically been low and, we believe, are not predictive of future losses. Therefore, our projections of collateral performance rely on probability-weighted scenarios informed by credit opinions obtained from third parties, such as nationally recognized credit rating agencies, industry analysts and CMBS loss modeling advisory services.

We then analyze the actual cumulative collateral losses incurred to date by the securitization trust, our projected additional collateral losses expected to be incurred and the position of the class of securities we own in the securitization trust relative to the trust's other classes to determine whether any of the collateral losses will be applied to our class. If our class has remaining credit enhancement sufficient to withstand the projected additional collateral losses, no collateral losses will be realized by our class and we expect to collect all contractual principal and interest of the security we own. Remaining credit enhancement is measured in terms of subordination from other classes of securities in the trust being contractually obligated to absorb losses before the class of security we own.

For securities where there is insufficient remaining credit enhancement for the class of securities we own, a recovery value is calculated based on our best estimate of future cash flows specific to that security. This estimate is based on the contractual principal payments and current interest payments of the securities we own, adjusted for actual cumulative collateral losses incurred to date and the projected additional collateral losses expected to be incurred. In instances where the recovery value of the security is less than its amortized cost, a credit loss is recorded in earnings.

26.6%, 60.9% and 9.4% of the fair value of our below investment grade CMBS with gross unrealized losses were issued with Aaa, Aa and A original ratings and capital structure classifications, respectively. As described previously,



CMBS with higher original ratings typically have priority in receiving the principal repayments on the underlying collateral compared to those with lower original ratings. Tight credit markets and conservative underwriting standards continue to stress commercial mortgage borrowers' ability to refinance obligations. While the projected cash flow assumptions for our below investment grade CMBS with gross unrealized losses have deteriorated since the securities were originated, as reflected by their current credit ratings, these securities continue to retain the payment priority features that existed at the origination of the securitization trust.

The following tables show trust-level, class-level and security-specific detailed information for our below investment grade CMBS with gross unrealized losses, by credit rating.

($ in millions)

December 31, 2010

<table><tr><td rowspan="2"></td><td colspan="12">December 31, 2010</td></tr><tr><td colspan="4">With other-than-temporary impairments recorded in earnings</td><td colspan="4">Without other-than-temporary impairments recorded in earnings</td><td colspan="4">Total</td></tr><tr><td>Trust-level</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td></td><td></td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td>0.6%</td><td>3.2%</td><td>2.5%</td><td>2.3%</td><td>1.1%</td><td>0.3%</td><td>0.4%</td><td>0.9%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td>12.2%</td><td>7.0%</td><td>38.1%</td><td>29.2%</td><td>7.0%</td><td>4.4%</td><td>7.2%</td><td>6.4%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td>12.5%</td><td>7.0%</td><td>25.5%</td><td>20.7%</td><td>9.1%</td><td>7.5%</td><td>9.0%</td><td>8.7%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td>2</td><td>1</td><td>5</td><td>8</td><td>14</td><td>5</td><td>2</td><td>21</td><td>29</td><td></td><td></td><td></td></tr><tr><td>Par value</td><td>$ 22</td><td>$ 16</td><td>$ 79</td><td>$ 117</td><td>$ 138</td><td>$ 46</td><td>$ 7</td><td>$ 191</td><td>$ 308</td><td></td><td></td><td></td></tr><tr><td>Amortized cost</td><td>$ 17</td><td>$ 15</td><td>$ 39</td><td>$ 71</td><td>$ 143</td><td>$ 47</td><td>$ 8</td><td>$ 198</td><td>$ 269</td><td></td><td></td><td></td></tr><tr><td>Fair value</td><td>$ 13</td><td>$ 6</td><td>$ 13</td><td>$ 32</td><td>$ 75</td><td>$ 25</td><td>$ 3</td><td>$ 103</td><td>$ 135</td><td></td><td></td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ (4)</td><td>$ (9)</td><td>$ (26)</td><td>$ (39)</td><td>$ (68)</td><td>$ (22)</td><td>$ (5)</td><td>$ (95)</td><td>$ (134)</td><td></td><td></td><td></td></tr><tr><td>12-24 months (4)</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$  -</td><td>$ -</td><td>$ -</td><td></td><td></td><td></td></tr><tr><td>Over 24 months (5)</td><td>$ (4)</td><td>$ (9)</td><td>$ (26)</td><td>$ (39)</td><td>$ (68)</td><td>$ (22)</td><td>$ (5)</td><td>$ (95)</td><td>$ (134)</td><td></td><td></td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td>$ (5)</td><td>$ (2)</td><td>$ (41)</td><td>$ (48)</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ (48)</td><td></td><td></td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td>$ -</td><td>$ -</td><td>$ 1</td><td>$ 1</td><td>$ -</td><td>$ 1</td><td>$ -</td><td>$ 1</td><td>$ 2</td><td></td><td></td><td></td></tr></table>



<table><tr><td rowspan="3"></td><td colspan="12">December 31, 2009</td></tr><tr><td colspan="6">With other-than-temporary impairments recorded in earnings</td><td colspan="6">Without other-than-temporary impairments recorded in earnings</td></tr><tr><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Ba</td><td>B</td><td>Caa or lower</td><td>Total</td><td>Total</td><td></td><td></td><td></td></tr><tr><td>Trust-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Actual cumulative collateral losses incurred to date (1)</td><td>1.4%</td><td>0.6%</td><td>—%</td><td>0.8%</td><td>—%</td><td>—%</td><td>—%</td><td>—%</td><td>—%</td><td>n/a</td><td></td><td></td></tr><tr><td>Projected additional collateral losses to be incurred (2)</td><td>20.1%</td><td>13.5%</td><td>—%</td><td>15.0%</td><td>6.1%</td><td>7.7%</td><td>—%</td><td>6.7%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Class-level</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Average remaining credit enhancement (3)</td><td>17.4%</td><td>9.8%</td><td>—%</td><td>11.5%</td><td>9.1%</td><td>8.5%</td><td>—%</td><td>8.9%</td><td>n/a</td><td></td><td></td><td></td></tr><tr><td>Security-specific</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Number of positions</td><td>1</td><td>5</td><td>—</td><td>6</td><td>6</td><td>6</td><td>—</td><td>12</td><td>18</td><td></td><td></td><td></td></tr><tr><td>Par value</td><td>$ 20</td><td>$ 69</td><td>$ —</td><td>$ 89</td><td>$ 87</td><td>$ 49</td><td>$ —</td><td>$ 136</td><td>$ 225</td><td></td><td></td><td></td></tr><tr><td>Amortized cost</td><td>$ 14</td><td>$ 41</td><td>$ —</td><td>$ 55</td><td>$ 84</td><td>$ 50</td><td>$ —</td><td>$ 134</td><td>$ 189</td><td></td><td></td><td></td></tr><tr><td>Fair value</td><td>$ 9</td><td>$ 16</td><td>$ —</td><td>$ 25</td><td>$ 29</td><td>$ 13</td><td>$ —</td><td>$ 42</td><td>$ 67</td><td></td><td></td><td></td></tr><tr><td>Gross unrealized losses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ (5)</td><td>$ (25)</td><td>$ —</td><td>$ (30)</td><td>$ (55)</td><td>$ (37)</td><td>$ —</td><td>$ (92)</td><td>$ (122)</td><td></td><td></td><td></td></tr><tr><td>12-24 months (4)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (13)</td><td>$ —</td><td>$ —</td><td>$ (13)</td><td>$ (13)</td><td></td><td></td><td></td></tr><tr><td>Over 24 months (5)</td><td>$ (5)</td><td>$ (25)</td><td>$ —</td><td>$ (30)</td><td>$ (42)</td><td>$ (37)</td><td>$ —</td><td>$ (79)</td><td>$ (109)</td><td></td><td></td><td></td></tr><tr><td>Cumulative write-downs recognized (6)</td><td>$ (7)</td><td>$ (34)</td><td>$ —</td><td>$ (41)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (41)</td><td></td><td></td><td></td></tr><tr><td>Principal payments received during the period (7)</td><td>$ 1</td><td>$ —</td><td>$ —</td><td>$ 1</td><td>$ 1</td><td>$ —</td><td>$ —</td><td>$ 1</td><td>1</td><td>2</td><td></td><td></td></tr></table>

(1) Weighted average actual cumulative collateral losses incurred to date as of period end are based on the actual principal losses incurred as a percentage of the remaining principal amount of the loans in the trust. The weighting calculation is based on the par value of each security. Actual losses on the securities we hold are less than the losses on the underlying collateral as presented in this table. There were no actual cumulative realized principal losses on the below investment grade CMBS we own, as reported by the trust servicers, as of December 31, 2010.

(2) Weighted average projected additional collateral losses to be incurred as of period end are based on our projections of future losses to be incurred by the trust, taking into consideration the actual cumulative collateral losses incurred to date, as a percentage of the remaining principal amount of the loans in the trust. Our projections are developed internally and customized to our specific holdings and are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and CMBS loss modeling advisory services. Projected additional collateral losses to be incurred are compared to average remaining credit enhancement for each security. For securities where the projected additional collateral losses exceed remaining credit enhancement, a recovery value is calculated to determine whether impairment losses should be recorded in earnings. The weighting calculation is based on the par value of each security.

(3) Weighted average remaining credit enhancement as of period end is based on structural subordination and reflects our projection of future principal losses that can occur as a percentage of the remaining principal amount of the loans in the trust before the class of the security we own will incur its first dollar of principal loss. The weighting calculation is based on the par value of each security.

(4) Includes total gross unrealized losses on securities in an unrealized loss position for a period of 12 to 24 consecutive months.

(5) Includes total gross unrealized losses on securities in an unrealized loss position for a period more than 24 consecutive months. As of December 31, 2010, $39 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $93 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities' amortized cost for a period of more than 24 consecutive months. As of December 31, 2009, there were no CMBS with gross unrealized losses greater than or equal to 20% for a period of more than 24 consecutive months.

(6) Includes cumulative write-downs recorded in accordance with GAAP.

(7) Reflects principal payments for the years ended December 31, 2010 and 2009, respectively.

The above tables include information about below investment grade CMBS with gross unrealized losses as of each period presented. The par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales and purchases.

Our impairment evaluation for CMBS forecasts more severe assumptions than the trusts are actually experiencing. We assume that all loans delinquent 60 days or more default and project default rates on otherwise performing loans. Projected loss severities are then applied against the resulting default rates, arriving at our projected additional collateral loss rates. The projected additional collateral loss rates by vintage year of our CMBS portfolio range from a low of 1.5% for holdings with a vintage year of 2001 to a high of 11.1% for holdings with a vintage year of 2005.

As of December 31, 2010, our below investment grade CMBS with gross unrealized losses and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 0.9%, and the projected additional collateral loss rate for these securities as of December 31, 2010 was 6.4%. As the average remaining credit enhancement for these securities of 8.7% exceeds the projected additional collateral losses of 6.4%, these securities have not been impaired.



As of December 31, 2010, our below investment grade CMBS with gross unrealized losses and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 2.3%. The projected additional collateral loss rate for these securities as of December 31, 2010 was 29.2%. As the average remaining credit enhancement for these securities of 20.7% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on these securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was 61.3% and exceeded these securities' current average amortized cost as a percentage of par of 61.2%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value is in line with amortized cost as impairment write-downs were recorded in the reporting period based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.

The following table shows actual trust-level key metrics specific to the trusts from which our below investment grade CMBS with gross unrealized losses were issued, as reported by the trust servicers.

<table><tr><td></td><td>December 31, 2010</td><td>September 30, 2010</td><td>June 30, 2010</td><td>March 31, 2010</td><td>December 31, 2009</td></tr><tr><td>Trust-level statistics</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Delinquency rates</td><td>7.2%</td><td>8.3%</td><td>8.5%</td><td>8.6%</td><td>5.2%</td></tr><tr><td>Actual cumulative collateral losses incurred to date</td><td>1.4%</td><td>2.9%</td><td>1.6%</td><td>0.8%</td><td>0.3%</td></tr></table>

We believe the unrealized losses on our CMBS, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities' remaining lives, as demonstrated by improved valuations during 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities' recovery value. As of December 31, 2010, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

## Other-than-temporary impairment assessment for below investment grade cash flow CLO ABS

As of December 31, 2010, the fair value for our below investment grade cash flow CLO portfolio with gross unrealized losses totaled $169 million compared to $188 million as of December 31, 2009. The gross unrealized losses for these securities totaled $48 million as of December 31, 2010, a decrease of 51.5%, compared to $99 million as of December 31, 2009, primarily due to higher valuations resulting from lower risk premiums and upgrades of certain cash flow CLO to investment grade during 2010. Gross unrealized gains for these securities were $53 million as of December 31, 2010. For below investment grade cash flow CLO with gross unrealized gains, we have recognized cumulative write-downs in earnings totaling $85 million.

As of December 31, 2010, none of our below investment grade cash flow CLO portfolio with gross unrealized losses have other-than-temporary impairments recorded in earnings and all of the gross unrealized losses are aged over 24 months.

Cash flow CLO are collateralized primarily by below investment grade senior secured corporate loans and are structured with overcollateralization which serves as credit enhancement for the class of securities we own. Overcollateralization ratios are based on the par value of the collateral in the underlying portfolio as a percentage of the notes issued as cash flow CLO securities. The performance of these securities is impacted primarily by defaults and recoveries of the underlying collateral within the structures, which reduce overcollateralization ratios over time. A violation of the senior overcollateralization test could result in an event of default of the structure which would give the controlling class, generally defined as the majority of the senior lenders, certain rights, including the ability to divert cash flows or liquidate the underlying portfolio to pay off the senior liabilities.

The credit loss evaluation for cash flow CLO is performed in two phases. The first phase evaluates the overcollateralization that exists for the class of securities we own. A critical part of this estimate involves projections of future losses formulated through our assessment of the corporate loan markets, and considers opinions from third parties, such as industry analysts and strategists, credit rating agencies, our own participation in these markets, as well as our overall economic outlook for indicators such as unemployment and GDP. The expected performance of each security considers anticipated collateral losses and credit enhancement levels, as well as factors including default rates,



anticipated recoveries, prepayment rates, changes in interest rates and other characteristics. In addition, the performance of collateral underlying certain of our securities is actively monitored by external managers, allowing for enhanced collateral management actions which help mitigate the risk of loss. If the overcollateralization that exists for our class exceeds 100%, our class has remaining credit enhancement sufficient to withstand the projected future losses, and we expect to collect all contractual principal and interest of the security we own.

For securities where there is insufficient remaining credit enhancement for the class of securities we own, a recovery value is calculated based on our best estimate of future cash flows specific to that security. This estimate is based on the contractual principal payments and current interest payments of the securities we own, adjusted for actual cumulative collateral losses incurred to date and the projected future losses expected to be incurred. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security, a credit loss is recorded to the extent amortized cost exceeds recovery value.

The weighted average overcollateralization ratio as reported by the trust servicers for our below investment grade cash flow CLO securities with gross unrealized losses was 117.0% as of December 31, 2010, compared to 117.5% at original issuance. As of December 31, 2009, the weighted average overcollateralization ratio for our below investment grade cash flow CLO securities with gross unrealized losses was 113.6%. As the average overcollateralization ratios exceed 100%, this indicates that projected future collateral losses will be absorbed by lower classes and we expect the structures to have adequate cash flows to make all contractual payments due to the class of securities we own. Our comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period, supported by the applicable overcollateralization ratios, indicates that the nature of the unrealized loss on these securities is temporary.

We believe the unrealized losses on our cash flow CLO securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities' remaining lives, as demonstrated by improved valuations in 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities' recovery value. As of December 31, 2010, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

## Problem, restructured, or potential problem securities

We also monitor the quality of our fixed income and bank loan portfolios by categorizing certain investments as “problem,” “restructured,” or “potential problem.” Problem fixed income securities and bank loans are in default with respect to principal or interest and/or are investments issued by companies that have gone into bankruptcy subsequent to our acquisition or loan. Fixed income and bank loan investments are categorized as restructured when the debtor is experiencing financial difficulty and we grant a concession. Potential problem fixed income or bank loan investments are current with respect to contractual principal and/or interest, but because of other facts and circumstances, we have concerns regarding the borrower’s ability to pay future principal and interest according to the original terms, which causes us to believe these investments may be classified as problem or restructured in the future.

The following table summarizes problem, restructured and potential problem fixed income securities and bank loans, which are reported in other investments, as of December 31.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="6">2010</td></tr><tr><td>Par value (1)</td><td>Amortized cost (1)</td><td>Amortized cost as a percent of par value</td><td>Fair value (2)</td><td>Fair value as a percent of par value</td><td>Percent of total fixed income and bank loan portfolios</td></tr><tr><td>Restructured</td><td>$ 99</td><td>$ 83</td><td>83.8%</td><td>$ 79</td><td>79.8%</td><td>0.1%</td></tr><tr><td>Problem</td><td>665</td><td>214</td><td>32.2</td><td>188</td><td>28.3</td><td>0.2</td></tr><tr><td>Potential problem</td><td>3,441</td><td>1,485</td><td>43.2</td><td>1,171</td><td>34.0</td><td>1.5</td></tr><tr><td>Total</td><td>$ 4,205</td><td>$ 1,782</td><td>42.4</td><td>$ 1,438</td><td>34.2</td><td>1.8%</td></tr><tr><td>Cumulative write-downs recognized (3)</td><td></td><td>$ 1,005</td><td></td><td></td><td></td><td></td></tr></table>



<table><tr><td rowspan="2"></td><td colspan="6">2009</td></tr><tr><td>Par value (1)</td><td>Amortized cost (1)</td><td>Amortized cost as a percent of par value</td><td>Fair value (2)</td><td>Fair value as a percent of par value</td><td>Percent of total fixed income and bank loan portfolios</td></tr><tr><td>Restructured</td><td>$ 107</td><td>$ 85</td><td>79.4%</td><td>$ 75</td><td>70.1%</td><td>0.1%</td></tr><tr><td>Problem</td><td>823</td><td>321</td><td>39.0</td><td>221</td><td>26.9</td><td>0.3</td></tr><tr><td>Potential problem</td><td>2,630</td><td>1,651</td><td>62.8</td><td>977</td><td>37.1</td><td>1.2</td></tr><tr><td>Total</td><td>$ 3,560</td><td>$ 2,057</td><td>57.8</td><td>$ 1,273</td><td>35.8</td><td>1.6%</td></tr><tr><td>Cumulative write-downs recognized (3)</td><td></td><td>$ 1,188</td><td></td><td></td><td></td><td></td></tr></table>

(1) The difference between par value and amortized cost of $2.42 billion as of December 31, 2010 is primarily attributable to write-downs and a deep discount zero-coupon security. The difference between par value and amortized cost of $1.50 billion as of December 31, 2009 is primarily attributable to write-downs. Par value has been reduced by principal payments.

(2) Bank loans are reflected at amortized cost.

(3) Cumulative write-downs recognized only reflect impairment write-downs related to investments within the problem, potential problem and restructured categories.

As of December 31, 2010, amortized cost for the problem category was $214 million and comprised $90 million of Subprime, $70 million of municipal bonds, $40 million of Alt-A, $6 million of corporates (primarily privately placed), $5 million of CDO and $3 million of Consumer and other ABS.

As of December 31, 2010, amortized cost for the potential problem category was $1.49 billion and comprised $606 million of Subprime, $331 million of Alt-A, $213 million of Prime, $125 million of municipal bonds, $79 million of CDO, $71 million of CMBS, $41 million of corporates (primarily privately placed), $10 million of bank loans and $9 million of Consumer and other ABS.

Net investment income The following table presents net investment income for the years ended December 31.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ 3,737</td><td>$ 3,998</td><td>$ 4,783</td></tr><tr><td>Equity securities</td><td>90</td><td>80</td><td>120</td></tr><tr><td>Mortgage loans</td><td>385</td><td>498</td><td>618</td></tr><tr><td>Limited partnership interests</td><td>40</td><td>17</td><td>62</td></tr><tr><td>Short-term investments</td><td>8</td><td>27</td><td>195</td></tr><tr><td>Other</td><td>19</td><td>(10)</td><td>54</td></tr><tr><td>Investment income, before expense</td><td>4,279</td><td>4,610</td><td>5,832</td></tr><tr><td>Investment expense</td><td>(177)</td><td>(166)</td><td>(210)</td></tr><tr><td>Net investment income</td><td>$ 4,102</td><td>$ 4,444</td><td>$ 5,622</td></tr></table>

Net investment income decreased 7.7% or $342 million in 2010 compared to 2009, after decreasing 21.0% or $1.18 billion in 2009 compared to 2008. The 2010 decrease was primarily due to lower interest rates, risk reduction actions related to municipal bonds and commercial real estate, duration shortening actions taken to protect the portfolio from rising interest rates and lower average investment balances. The 2009 decrease was primarily due to lower yields, actions to shorten duration and maintain additional liquidity in the portfolio, along with reduced average investment balances. Also contributing to the decline in 2009 was lower income on limited partnership interests and decreased dividends on equity securities.



Realized capital gains and losses The following table presents the components of realized capital gains and losses and the related tax effect for the years ended December 31.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Impairment write-downs</td><td>$ (797)</td><td>$ (1,562)</td><td>$ (1,983)</td></tr><tr><td>Change in intent write-downs</td><td>(204)</td><td>(357)</td><td>(1,752)</td></tr><tr><td>Net other-than-temporary impairment losses recognized in earnings</td><td>(1,001)</td><td>(1,919)</td><td>(3,735)</td></tr><tr><td>Sales</td><td>686</td><td>1,272</td><td>(464)</td></tr><tr><td>Valuation of derivative instruments</td><td>(427)</td><td>367</td><td>(1,280)</td></tr><tr><td>Settlements of derivative instruments</td><td>(174)</td><td>(162)</td><td>486</td></tr><tr><td>EMA limited partnership income</td><td>89</td><td>(141)</td><td>(97)</td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>(827)</td><td>(583)</td><td>(5,090)</td></tr><tr><td>Income tax benefit (expense)</td><td>290</td><td>(45)</td><td>1,779</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>$ (537)</td><td>$ (628)</td><td>$ (3,311)</td></tr></table>

Impairment write-downs for the years ended December 31 are presented in the following table.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ (626)</td><td>$ (886)</td><td>$ (1,507)</td></tr><tr><td>Equity securities</td><td>(57)</td><td>(237)</td><td>(328)</td></tr><tr><td>Mortgage loans</td><td>(65)</td><td>(97)</td><td>(4)</td></tr><tr><td>Limited partnership interests</td><td>(46)</td><td>(308)</td><td>(112)</td></tr><tr><td>Other investments</td><td>(3)</td><td>(34)</td><td>(32)</td></tr><tr><td>Impairment write-downs</td><td>$ (797)</td><td>$ (1,562)</td><td>$ (1,983)</td></tr></table>

Impairment write-downs in 2010 were primarily driven by RMBS, which experienced deterioration in expected cash flows; investments with commercial real estate exposure, including CMBS, mortgage loans, limited partnership interests and certain housing related municipal bonds, which were impacted by lower real estate valuations or experienced deterioration in expected cash flows; and privately placed corporate bonds and municipal bonds impacted by issuer specific circumstances. Impairment write-downs on below investment grade RMBS, CMBS and ABS in 2010 were $332 million, $118 million and $29 million, respectively.

Impairment write-downs that were related primarily to securities subsequently disposed were $99 million for the year ended December 31, 2010. Of the remaining write-downs in 2010, $386 million or 73.2% of the fixed income security write-downs related to impaired securities that were performing in line with anticipated or contractual cash flows but were written down primarily because of expected deterioration in the performance of the underlying collateral or our assessment of the probability of future default. For these securities, as of December 31, 2010, there were either no defaults or defaults only impacted classes lower than our position in the capital structure. $138 million of the fixed income security write-downs in 2010 related to securities experiencing a significant departure from anticipated cash flows; however, we believe they retain economic value. $3 million in 2010 related to fixed income securities for which future cash flows are not anticipated.

Equity securities were written down primarily due to the length of time and extent to which fair value was below cost, considering our assessment of the financial condition and near-term and long-term prospects of the issuer, including relevant industry conditions and trends.

Limited partnership impairment write-downs primarily related to Cost limited partnerships, which experienced declines in portfolio valuations and we could not assert the recovery period would be temporary. To determine if an other-than-temporary impairment has occurred related to a Cost limited partnership, we evaluate whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital.



Impairment write-downs in 2009 were primarily the result of recovery assessments related to investments with commercial real estate exposure, including limited partnership interests, equity securities, mortgage loans and CMBS; RMBS which experienced deterioration in expected cash flows; ABS, including CDO squared, cash flow CDO and synthetic CDO, and hybrid corporate fixed income securities.

Change in intent write-downs for the years ended December 31 are presented in the following table.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ (198)</td><td>$ (318)</td><td>$ (1,555)</td></tr><tr><td>Equity securities</td><td>-</td><td>(27)</td><td>(120)</td></tr><tr><td>Mortgage loans</td><td>(6)</td><td>(6)</td><td>(74)</td></tr><tr><td>Other investments</td><td>-</td><td>(6)</td><td>(3)</td></tr><tr><td>Change in intent write-downs</td><td>$ (204)</td><td>$ (357)</td><td>$ (1,752)</td></tr></table>

The change in intent write-downs in 2010 and 2009 were primarily a result of ongoing comprehensive reviews of our portfolios resulting in write-downs of individually identified investments, primarily municipal bonds and RMBS.

Sales generated $686 million of net realized gains in 2010 primarily due to $595 million of net gains on sales of corporate, U.S. government, foreign government and municipal fixed income securities and $210 million of net gains on sales of equity securities, partially offset by $139 million of net losses on sales of CMBS and ABS. Net realized gains from sales of $1.27 billion in 2009 were primarily due to $445 million and $636 million of gains on sales of equity and U.S. and foreign government fixed income securities, respectively. Sales of equity securities in 2009 were primarily in connection with a change in strategy that uses a more passive portfolio management approach with a greater emphasis on asset allocation decisions.

Valuation and settlement of derivative instruments recorded as net realized capital losses totaling $601 million in 2010 included $427 million of losses on the valuation of derivative instruments and $174 million of losses on the settlement of derivative instruments. In 2009, net realized capital gains on the valuation and settlement of derivative instruments totaled $205 million.

Net realized capital gains and losses from our risk management derivative programs are primarily driven by changes in risk-free interest rates, equity market valuations, volatility and credit spreads during a given period. Net realized capital gains and losses from our income generation derivative programs are primarily driven by changes in the fair value of the reference entities or indices underlying the derivative instruments.

A changing interest rate environment will drive changes in our portfolio duration targets. A duration target and range is established with an economic view of liabilities relative to a long-term investment portfolio view. Tactical duration management is accomplished through both cash market transactions, sales and new purchases, and derivative activities that generate realized gains and losses. As a component of our approach to managing portfolio duration, realized gains and losses on certain derivative instruments are most appropriately considered in conjunction with the unrealized gains and losses on the fixed income portfolio. This approach mitigates the impacts of general interest rate changes to our overall financial condition.

As of December 31, 2010, our securities with embedded derivatives totaled $1.26 billion, a decrease in fair value of $152 million from December 31, 2009, comprising realized capital losses on valuation of $3 million, net sales activity of $320 million, unrealized net capital gains reported in OCI of $123 million for the host securities and an increase of $48 million due to the adoption of new accounting guidance. Unrealized net capital gains were further decreased by $30 million due to amortization of the host securities. The change in fair value of embedded derivatives is bifurcated from the host securities, separately valued and reported in realized capital gains and losses, while the change in the difference between the fair value and the amortized cost of the host securities is reported in OCI. Total fair value exceeded total amortized cost by $41 million as of December 31, 2010. Valuation gains and losses for securities with embedded derivatives are converted into cash upon our election to sell these securities. In the event the economic value of the embedded options is not realized, we will recover the par value if held to maturity unless the issuer of the security defaults. In the event there are defaults by the referenced credit entities of the embedded credit default swap, our loss is limited to the par value of the combined fixed income security, net of applicable recoveries. Total par value exceeded fair value by $45 million as of December 31, 2010.



The table below presents the realized capital gains and losses (pre-tax) on the valuation and settlement of derivative instruments shown by underlying exposure and derivative strategy for the years ended December 31.

<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">2010</td><td>2009</td><td>2008</td><td colspan="2">2010 Explanations</td></tr><tr><td>Valuation</td><td>Settlements</td><td>Total</td><td>Total</td><td>Total</td><td>Interest rate swaps, municipal interest rate swaps and short interest rate futures are used to offset the effects of changing interest rates on a portion of the Property-Liability fixed income portfolio that is reported in unrealized net capital gains or losses in OCI. The futures contracts are exchange traded, daily cash settled and can be exited at any time for minimal additional cost. The 2010 losses, resulting from decreasing interest rates are offset in unrealized net capital gains and losses in OCI to the extent it relates to changes in risk-free rates.</td><td></td></tr><tr><td>Risk management</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Portfolio duration</td><td>$ (96)</td><td>$ (78)</td><td>$ (174)</td><td>$ 33</td><td>$ (10)</td><td></td><td></td></tr><tr><td>management (1)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate spike</td><td>(173)</td><td>(11)</td><td>(184)</td><td>(58)</td><td>(97)</td><td></td><td></td></tr><tr><td>exposure (1)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>



<table><tr><td rowspan="2">(\$ in millions)</td><td colspan="3">2010</td><td>2009</td><td>2008</td><td colspan="2">2010 Explanations</td></tr><tr><td>Valuation</td><td>Settlements</td><td>Total</td><td>Total</td><td>Total</td><td></td><td></td></tr><tr><td>Allstate Financial</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Duration gap management</td><td>(111)</td><td>(43)</td><td>(154)</td><td>288</td><td>(503)</td><td>Interest rate caps, floors, swaptions and swaps are used by Allstate Financial to balance interest-rate sensitivities of its assets and liabilities. The contracts settle based on differences between current market rates and a contractually specified fixed rate through expiration. The contracts can be terminated and settled at any time with minimal additional cost. The maximum loss on caps, floors and swaptions is limited to the amount of premiums paid. The change in valuation reflects the changing value of expected future settlements from changing interest rates, which may vary over the period of the contracts. The 2010 losses, resulting from decreasing interest rates, are offset in unrealized capital gains and losses of our fixed income securities in OCI to the extent it relates to changes in risk-free rates.</td><td></td><td></td><td></td></tr><tr><td>Anticipatory hedging</td><td>24</td><td>8</td><td>32</td><td>(18)</td><td>153</td><td>Futures and interest rate swaps are used to protect investment spread from interest rate changes during mismatches in the timing of cash flows between product sales and the related investment activity. The futures contracts are exchange traded, daily cash settled and can be exited at any time for minimal additional cost. If the cash flow mismatches are such that a positive net investment position is being hedged, there is an offset for the related investment&#x27;s unrealized loss in OCI. The 2010 gains resulted from a decrease in risk-free interest rates over the life of the net short position as liability issuances exceeded asset acquisitions.</td><td></td></tr><tr><td>Hedging of interest rate exposure in annuity contracts</td><td>(16)</td><td>-</td><td>(16)</td><td>10</td><td>(29)</td><td>Value of expected future settlements on interest rate caps and the associated value of future credited interest, which is reportable in future periods when incurred, decreased due to a decrease in interest rates.</td><td></td></tr><tr><td>Hedging unrealized gains on equity indexed notes</td><td>-</td><td>-</td><td>-</td><td>-</td><td>7</td><td></td><td></td></tr><tr><td>Hedge ineffectiveness</td><td>7</td><td>-</td><td>7</td><td>(1)</td><td>(4)</td><td>The hedge ineffectiveness of $7 million includes $74 million in realized capital losses on swaps that were offset by $81 million in realized capital gains on the hedged risk.</td><td></td></tr><tr><td>Foreign currency contracts</td><td>(2)</td><td>6</td><td>4</td><td>3</td><td>(1)</td><td>Currency forwards are used to protect our foreign bond portfolio from changes in currency rates.</td><td></td></tr><tr><td>Credit risk reduction (1)</td><td>6</td><td>(13)</td><td>(7)</td><td>(50)</td><td>17</td><td>Valuation gain is the result of widening credit spreads on referenced credit entities.</td><td></td></tr><tr><td>Other</td><td>-</td><td>-</td><td>-</td><td>-</td><td>1</td><td></td><td></td></tr><tr><td>Total Risk management</td><td>$ (417)</td><td>$ (195)</td><td>$ (612)</td><td>$ (58)</td><td>$ (54)</td><td></td><td></td></tr><tr><td>Income generation</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Asset replication - credit exposure</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 5</td><td>$ 10</td><td>$ 15</td><td>$ 13</td><td>$ (41)</td><td>The 2010 changes in valuation on the Property-Liability segment are due to the tightening of credit spreads on referenced credit entities. The gains are primarily on single name credit default swaps (“CDS”). The 2010 changes in valuation on the Allstate Financial segment are due to the widening credit spreads on referenced credit entities. The losses are primarily on first-to-default CDS and credit derivative index CDS. The changes in valuation would only be converted to cash upon disposition, which can be done at any time, or if the credit event specified in the contract occurs. For further discussion on CDS, see Note 6 of the consolidated financial statements.</td><td></td></tr><tr><td>Allstate Financial</td><td>(10)</td><td>11</td><td>1</td><td>64</td><td>(62)</td><td></td><td></td></tr><tr><td>Total</td><td>(5)</td><td>21</td><td>16</td><td>77</td><td>(103)</td><td></td><td></td></tr><tr><td>Asset replication - equity exposure</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>-</td><td>-</td><td>-</td><td>66</td><td>(84)</td><td></td><td></td></tr><tr><td>Commodity derivatives - Property-Liability</td><td>-</td><td>-</td><td>-</td><td>-</td><td>(44)</td><td></td><td></td></tr><tr><td>Total Income generation</td><td>$ (5)</td><td>$ 21</td><td>$ 16</td><td>$ 143</td><td>$ (231)</td><td></td><td></td></tr></table>



<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">2010</td><td>2009</td><td>2008</td><td colspan="3">2010 Explanations</td></tr><tr><td>Valuation</td><td>Settlements</td><td>Total</td><td>Total</td><td>Total</td><td></td><td></td><td></td></tr><tr><td>Accounting</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity indexed notes - Allstate Financial</td><td>$ (17)</td><td>$ -</td><td>$ (17)</td><td>$ 28</td><td>$ (290)</td><td>Equity-indexed notes are fixed income securities that contain embedded options. The changes in valuation of the embedded equity indexed call options are reported in realized capital gains and losses. The results generally track the performance of underlying equity indices. Valuation gains and losses are converted into cash upon sale or maturity. In the event the economic value of the options is not realized, we will recover the par value of the host fixed income security if held to maturity unless the issuer of the note defaults. Par value exceeded fair value by $21 million as of December 31, 2010. Equity-indexed notes are subject to our comprehensive portfolio monitoring and watchlist processes to identify and evaluate when the carrying value may be other-than-temporarily impaired. The following table compares the December 31, 2010 and 2009 holdings, respectively.</td><td></td><td></td><td></td></tr><tr><td>($ in millions)</td><td></td><td></td><td></td><td></td><td></td><td>Change due to net sale activity</td><td>December 31, 2009</td></tr><tr><td>Par value</td><td>$ 300</td><td>$ -</td><td>$ -</td><td>$ (175)</td><td>$ 475</td><td></td><td></td></tr><tr><td>Amortized cost of host contract</td><td>$ 224</td><td>$ 15</td><td>$ (135)</td><td>$ 344</td><td></td><td></td><td></td></tr><tr><td>Fair value of equity-indexed call option</td><td>47</td><td>(17)</td><td>(25)</td><td>89</td><td></td><td></td><td></td></tr><tr><td>Total amortized cost</td><td>$ 271</td><td>$ (2)</td><td>$ (160)</td><td>$ 433</td><td></td><td></td><td></td></tr><tr><td>Total fair value</td><td>$ 279</td><td>$ 22</td><td>$ (173)</td><td>$ 430</td><td></td><td></td><td></td></tr><tr><td>Unrealized gain/loss</td><td>$ 8</td><td>$ 24</td><td>$ (13)</td><td>$ (3)</td><td></td><td></td><td></td></tr><tr><td>Convertible bonds are fixed income securities that contain embedded options. Changes in valuation of the embedded option are reported in realized capital gains and losses. The results generally track the performance of underlying equities. Valuation gains and losses are converted into cash upon our election to sell these securities. In the event the economic value of the options is not realized, we will recover the par value of the host fixed income security if held to maturity unless the issuer of the note defaults. Fair value exceeded par value by $80 million as of December 31, 2010. Convertible bonds are subject to our comprehensive portfolio monitoring and watchlist processes to identify and evaluate when the carrying value may be other-than-temporarily impaired. The following table compares the December 31, 2010 and 2009 holdings, respectively.</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>($ in millions)</td><td></td><td></td><td></td><td></td><td></td><td>Change due to net sale activity</td><td>December 31, 2009</td></tr><tr><td>Par value</td><td>$ 820</td><td>$ -</td><td>$ (116)</td><td>$ 936</td><td></td><td></td><td></td></tr><tr><td>Amortized cost of host contract</td><td>$ 619</td><td>$ 19</td><td>$ (64)</td><td>$ 664</td><td></td><td></td><td></td></tr><tr><td>Fair value of conversion option</td><td>236</td><td>(22)</td><td>(54)</td><td>312</td><td></td><td></td><td></td></tr><tr><td>Total amortized cost</td><td>$ 855</td><td>$ (3)</td><td>$ (118)</td><td>$ 976</td><td></td><td></td><td></td></tr><tr><td>Total fair value</td><td>$ 900</td><td>$ 69</td><td>$ (147)</td><td>$ 978</td><td></td><td></td><td></td></tr><tr><td>Unrealized gain/loss</td><td>$ 45</td><td>$ 72</td><td>$ (29)</td><td>$ 2</td><td></td><td></td><td></td></tr></table>






<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">2010</td><td>2009</td><td>2008</td></tr><tr><td>Valuation</td><td>Settlements</td><td>Total</td><td>Total</td><td>Total</td></tr><tr><td>CDS in fixed income securities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Allstate Financial</td><td>36</td><td>—</td><td>36</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>36</td><td>—</td><td>36</td><td>—</td><td>—</td></tr></table>

<table><tr><td>Total Accounting</td><td>$</td><td>(3)</td><td>$</td><td>-</td><td>$</td><td>(3)</td><td>$</td><td>120</td><td>$</td><td>(510)</td></tr><tr><td>Other</td><td></td><td>(2)</td><td></td><td>-</td><td>(2)</td><td></td><td>-</td><td></td><td>1</td><td></td></tr><tr><td></td><td>Total</td><td>(427)</td><td>$</td><td>(174)</td><td>$</td><td>(601)</td><td>(2)</td><td>$</td><td>205</td><td>(2)</td></tr><tr><td>Total Property-Liability</td><td>$</td><td>(331)</td><td>$</td><td>(143)</td><td>$</td><td>(474)</td><td>$</td><td>(151)</td><td>$</td><td>(7)</td></tr><tr><td>Total Allstate Financial</td><td>(94)</td><td></td><td>(31)</td><td></td><td>(125)</td><td></td><td>356</td><td></td><td>(788)</td><td></td></tr><tr><td>Other</td><td>(2)</td><td></td><td>-</td><td></td><td>(2)</td><td></td><td>-</td><td></td><td>1</td><td></td></tr><tr><td></td><td>Total</td><td>(427)</td><td>$</td><td>(174)</td><td>$</td><td>(601)</td><td>(2)</td><td>$</td><td>205</td><td>(2)</td></tr><tr><td></td><td>Total</td><td>(427)</td><td>$</td><td>(174)</td><td>$</td><td>(601)</td><td>(2)</td><td>$</td><td>205</td><td>(2)</td></tr></table>

(1) A portion of the risk mitigation ("macro hedge") program is contained within this line item.

(2) For the years ended December 31, 2010 and 2009, does not include $1 million of derivative gains related to the termination of fair value and cash flow hedges which are included in sales and reported with the hedged risk.

Synthetic CDO’s are fixed income securities that contain embedded CDS. Effective July 1, 2010, when new accounting guidance requiring bifurcation of these derivatives was adopted, changes in valuation of the embedded credit default swap are reported in realized capital gains and losses. The embedded credit default swap increases or decreases in value as referenced credit entities’ credit spreads tighten or widen, respectively. Credit events, changes in interest rates, correlations of the referenced entities and assumed recovery rates are among some of the other factors affecting the value of the embedded credit default swap. In the event a referenced credit entity experiences a credit event, our loss is limited to the par value of the fixed income security. Losses on credit events are net of recovery. Par value exceeded fair value by $104 million as of December 31, 2010. Synthetic CDO’s are subject to our comprehensive portfolio monitoring and watchlist processes to identify and evaluate when the carrying value may be other-than-temporarily impaired. The following table compares the December 31, 2010 and July 1, 2010 holdings, respectively.

<table><tr><td>($ in millions)</td><td>December 31, 2010</td><td>Change in fair value</td><td>Change due to net sale activity</td><td>July 1, 2010</td></tr><tr><td>Par value</td><td>$ 181</td><td>$ -</td><td>$ -</td><td>$ 181</td></tr><tr><td>Amortized cost of host contract</td><td>$ 177</td><td>$ (4)</td><td>$ -</td><td>$ 181</td></tr><tr><td>Fair value of credit default swap</td><td>(88)</td><td>36</td><td>-</td><td>(124)</td></tr><tr><td>Total amortized cost</td><td>$ 89</td><td>$ 32</td><td>$ -</td><td>$ 57</td></tr><tr><td>Total fair value</td><td>$ 77</td><td>$ 29</td><td>$ -</td><td>$ 48</td></tr><tr><td>Unrealized gain/loss</td><td>$ (12)</td><td>$ (3)</td><td>$ -</td><td>$ (9)</td></tr></table>



Included in the risk management section of the table above are net realized capital gains and losses on the valuation and settlement of derivative instruments related to our macro hedge program. Additional information regarding our macro hedge program, including these realized capital gains and losses, is included in the following table.

<table><tr><td>(\( in millions)</td><td>Fair value as of December 31, 2009</td><td>Net cash paid (received) for premiums</td><td>Net cash paid (received) for settlement</td><td>Gain (loss) on valuation (1)</td><td>Gain (loss) on settlement (2)</td><td>Fair value as of December 31, 2010</td></tr><tr><td>Premium based instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate hedges</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Swaptions</td><td>$ 114</td><td>$ 166</td><td>$ (57)</td><td>$ (147)</td><td>$ (12)</td><td>$ 64</td></tr><tr><td>Options on interest rate futures</td><td>12</td><td>23</td><td>(7)</td><td>(26)</td><td>1</td><td>3</td></tr><tr><td>Equity hedges</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity index options</td><td>50</td><td>83</td><td>(26)</td><td>(47)</td><td>(29)</td><td>31</td></tr><tr><td></td><td>176</td><td>272</td><td>(90)</td><td>(220)</td><td>(40)</td><td>98</td></tr><tr><td>Non-premium based instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate hedges</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Futures</td><td>-</td><td>-</td><td>40</td><td>-</td><td>(42)</td><td>(2)</td></tr><tr><td>Interest rate swaps</td><td>(12)</td><td>-</td><td>(8)</td><td>21</td><td>(1)</td><td>-</td></tr><tr><td>Credit hedges</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchased CDS</td><td>(40)</td><td>-</td><td>32</td><td>7</td><td>(6)</td><td>(7)</td></tr><tr><td></td><td>(52)</td><td>-</td><td>64</td><td>28</td><td>(49)</td><td>(9)</td></tr><tr><td>Total</td><td>$ 124</td><td>$ 272</td><td>$ (26)</td><td>$ (192)</td><td>$ (89)</td><td>$ 89</td></tr></table>

(1) In general, for premium based instruments, valuation gains and losses represent changes in fair value on open contracts and contracts that expired by their contractual terms during the period. If a premium based instrument terminates prior to expiration, the inception to date change in fair value is reversed out of valuation and reclassified to settlement gain or loss. For non-premium based instruments, valuation gains and losses represent changes in fair value that occurred while the contract was open but do not include gains and losses on termination (represented by the change in fair value of a terminated contract since its last month-end valuation).

(2) In general, for premium based instruments, settlement gains and losses represent the inception to date change in fair value for early-terminated contracts. For non-premium based instruments, settlement gains and losses represent the net realized capital gain or loss resulting from periodic payments required by the contracts during the period, as well as any gain or loss on contract termination (represented by the change in fair value of a terminated contract since its last month-end valuation).

Our current macro hedge program consists of derivatives for which we pay a premium at inception and others that do not require an up front premium payment. The premium payment component includes over-the-counter interest rate swaptions, exchange traded options on interest rate futures, and options on equity indices. These programs are designed to protect against the “tail risk” associated with both interest rate spikes above, and equity market declines below, targeted thresholds, so that derivative valuation gains will be realized to partially offset corresponding declines in value for our fixed income and equity portfolios, respectively.

Premiums paid are reflected in realized capital losses as changes in valuation over the life of the derivative. The maximum loss on our premium based instruments is limited to the remaining fair value as of December 31, 2010. Scheduled expirations for our premium based instruments are $89 million in 2011 and $9 million in 2012.

The derivatives in our current macro hedge program that do not require an up front premium payment are related to interest rate and credit risk hedging. These positions currently include municipal interest rate swaps, eurodollar futures, and purchased CDS. Although interest rate swaps and purchased CDS typically do not require up front premiums, they do involve periodic payments throughout the life of the contract. The fair value and resulting gains and losses from these instruments are dependent on the size of the notional amounts and direction of our positions relative to the performance of the underlying markets and credit-referenced entities. As of December 31, 2010, our non-premium based interest rate hedges had aggregate outstanding notional amounts of $125 million, decreasing from $200 million as of December 31, 2009. As of December 31, 2010, our non-premium based credit hedges had aggregate outstanding notional amounts of $125 million, decreasing from $678 million as of December 31, 2009. As of December 31, 2010, we had 15,000 eurodollar futures contracts outstanding. Futures contracts were not utilized in our macro hedge program in 2009.

The macro hedge program is routinely monitored and revised as capital market conditions change.



## MARKET RISK

Market risk is the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices, or currency exchange rates. Adverse changes to these rates and prices may occur due to changes in the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants or changes in market perceptions of credit worthiness and/or risk tolerance. Our primary market risk exposures are to changes in interest rates, credit spreads and equity prices.

The active management of market risk is integral to our results of operations. We may use the following approaches to manage exposure to market risk within defined tolerance ranges: 1) rebalancing existing asset or liability portfolios, 2) changing the character of investments purchased in the future and 3) using derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased. For a more detailed discussion of our use of derivative financial instruments, see Note 6 of the consolidated financial statements.

Overview In formulating and implementing guidelines for investing funds, we seek to earn returns that enhance our ability to offer competitive rates and prices to customers while contributing to attractive and stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are a function of the underlying risks and product profiles of each business.

Investment policies define the overall framework for managing market and other investment risks, including accountability and controls over risk management activities. Subsidiaries that conduct investment activities follow policies that have been approved by their respective boards of directors. These investment policies specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile and regulatory requirements of the subsidiary. Executive oversight of investment activities is conducted primarily through subsidiaries' boards of directors and investment committees. For Allstate Financial, its asset-liability management (“ALM”) policies further define the overall framework for managing market and investment risks. ALM focuses on strategies to enhance yields, mitigate market risks and optimize capital to improve profitability and returns for Allstate Financial. Allstate Financial ALM activities follow asset-liability policies that have been approved by their respective boards of directors. These ALM policies specify limits, ranges and/or targets for investments that best meet Allstate Financial's business objectives in light of its product liabilities.

We manage our exposure to market risk through the use of asset allocation, duration, simulation, and as appropriate, through the use of stress tests. We have asset allocation limits that place restrictions on the total funds that may be invested within an asset class. We have duration limits on the Property-Liability and Allstate Financial investment portfolios and, as appropriate, on individual components of these portfolios. These duration limits place restrictions on the amount of interest rate risk that may be taken. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. For Allstate Financial, this day-to-day management is integrated with and informed by the activities of the ALM organization. This integration is intended to result in a prudent, methodical and effective adjudication of market risk and return, conditioned by the unique demands and dynamics of Allstate Financial's product liabilities and supported by the continuous application of advanced risk technology and analytics.

Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments differ considerably between the Property-Liability and Allstate Financial businesses affecting investment decisions and risk parameters.

Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of our interest bearing assets and liabilities. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets and issue interest-sensitive liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields.

We manage the interest rate risk in our assets relative to the interest rate risk in our liabilities. One of the measures used to quantify this exposure is duration. Duration measures the price sensitivity of the assets and liabilities to changes in interest rates. For example, if interest rates increase 100 basis points, the fair value of an asset with a duration of 5 is expected to decrease in value by 5%. As of December 31, 2010, the difference between our asset and liability duration was (0.64) gap, compared to a (0.24) gap as of December 31, 2009. A negative duration gap indicates that the fair value of our liabilities is more sensitive to interest rate movements than the fair value of our assets. The Property-Liability segment generally maintains a positive duration gap between its assets and liabilities due to the relatively short duration of auto and homeowners claims, which are its primary liabilities. The Allstate Financial segment may have a positive or



negative duration gap, as the duration of its assets and liabilities vary with its product mix and investing activity. As of December 31, 2010, Property-Liability had a positive duration gap while Allstate Financial had a negative duration gap.

In the management of investments supporting the Property-Liability business, we adhere to an objective of emphasizing safety of principal and consistency of income within a total return framework. This approach is designed to ensure our financial strength and stability for paying claims, while maximizing economic value and surplus growth.

For the Allstate Financial business, we seek to invest premiums, contract charges and deposits to generate future cash flows that will fund future claims, benefits and expenses, and that will earn stable spreads across a wide variety of interest rate and economic scenarios. To achieve this objective and limit interest rate risk for Allstate Financial, we adhere to a philosophy of managing the duration of assets and related liabilities within predetermined tolerance levels. This philosophy is executed using duration targets for fixed income investments in addition to interest rate swaps, futures, forwards, caps, floors and swaptions to reduce the interest rate risk resulting from mismatches between existing assets and liabilities, and financial futures and other derivative instruments to hedge the interest rate risk of anticipated purchases and sales of investments and product sales to customers.

We pledge and receive collateral on certain types of derivative contracts. For futures and option contracts traded on exchanges, we have pledged securities and cash as margin deposits totaling $37 million as of December 31, 2010. For OTC derivative transactions including interest rate swaps, foreign currency swaps, interest rate caps, interest rate floors, CDS, forwards and certain options (including swaptions), master netting agreements are used. These agreements allow us to net payments due for transactions covered by the agreements and, when applicable, we are required to post collateral. As of December 31, 2010, we held $58 million of cash and securities pledged by counterparties as collateral for OTC instruments, and we pledged $193 million of cash and securities as collateral to counterparties.

We performed a sensitivity analysis on OTC derivative collateral by assuming a hypothetical 100 basis point decline in interest rates. The analysis indicated that we would have to post an estimated $194 million in additional collateral with 55% attributable to Allstate Financial. The selection of these hypothetical scenarios should not be construed as our prediction of future events, but only as an illustration of the estimated potential effect of such events. We also actively manage our counterparty credit risk exposure by monitoring the level of collateral posted by our counterparties with respect to our receivable positions.

To calculate the duration gap between assets and liabilities, we project asset and liability cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate fair value. The cash flows used in this calculation include the expected maturity and repricing characteristics of our derivative financial instruments, all other financial instruments, and certain other items including unearned premiums, property-liability insurance claims and claims expense reserves, annuity liabilities and other interest-sensitive liabilities. The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, leverage and/or option features of instruments, where applicable. The preceding assumptions relate primarily to mortgage-backed securities, municipal housing bonds, callable municipal and corporate obligations, and fixed rate single and flexible premium deferred annuities. Additionally, the calculations include assumptions regarding the renewal of property-liability policies.

Based upon the information and assumptions used in the duration calculation, and interest rates in effect as of December 31, 2010, we estimate that a 100 basis point immediate, parallel increase in interest rates (“rate shock”) would decrease the net fair value of the assets and liabilities by $1 million, compared to $378 million as of December 31, 2009, reflecting year to year changes in duration. Reflected in the duration calculation are the effects of a program that uses swaps, eurodollar futures, options on Treasury futures and interest rate swaptions to manage interest rate risk. In calculating the impact of a 100 basis point increase on the value of the derivatives, we have assumed interest rate volatility remains constant. Based on the swaps, eurodollar futures, options on Treasury futures and interest rate swaptions in place as of December 31, 2010, we would recognize realized capital gains totaling $327 million in the event of a 100 basis point immediate, parallel interest rate increase and $126 million in realized capital losses in the event of a 100 basis point immediate, parallel interest rate decrease on these derivatives. The selection of a 100 basis point immediate parallel change in interest rates should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. There are $8.71 billion of assets supporting life insurance products such as traditional and interest-sensitive life that are not financial instruments. These assets and the associated liabilities have not been included in the above estimate. The $8.71 billion of assets excluded from the calculation has increased from $8.12 billion as of December 31, 2009, due to an increase in interest-sensitive life contractholder funds and improved fixed income valuations as a result of declining risk-free interest rates and



tightening of credit spreads in certain sectors. 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 $549 million, compared to a decrease of $459 million as of December 31, 2009.

To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. Additionally, our calculations assume that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates and/or large changes in interest rates.

Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads (“spreads”). This risk arises from many of our primary activities, as we invest substantial funds in spread-sensitive fixed income assets.

We manage the spread risk in our assets. One of the measures used to quantify this exposure is spread duration. Spread duration measures the price sensitivity of the assets to changes in spreads. For example, if spreads increase 100 basis points, the fair value of an asset exhibiting a spread duration of 5 is expected to decrease in value by 5%.

Spread duration is calculated similarly to interest rate duration. As of December 31, 2010, the spread duration of Property-Liability assets was 4.45, compared to 5.02 as of December 31, 2009 and the spread duration of Allstate Financial assets was 4.97, compared to 4.79 as of December 31, 2009. Based upon the information and assumptions we use in this spread duration calculation, and spreads in effect as of December 31, 2010, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors and credit ratings (“spread shock”) would decrease the net fair value of the assets by $3.61 billion, compared to $3.85 billion as of December 31, 2009. Reflected in the duration calculation are the effects of our risk mitigation actions that use CDS to manage spread risk. Based on contracts in place as of December 31, 2010, we would recognize realized capital gains totaling $64 million in the event of a 100 basis point immediate, parallel spread increase and $64 million in realized capital losses in the event of a 100 basis point immediate, parallel spread decrease. The selection of a 100 basis point immediate parallel change in spreads should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.

Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the equity markets. As of December 31, 2010, we held $4.67 billion in common stocks and Exchange Traded Funds (“ETFs”) and $4.88 billion in other securities with equity risk (including primarily convertible securities, limited partnership interests, non-redeemable preferred securities and equity-linked notes), compared to $4.77 billion and $3.86 billion, respectively, as of December 31, 2009. 95.5% and 63.1% of these totals, respectively, represented assets of the Property-Liability operations as of December 31, 2010, compared to 97.3% and 57.1%, respectively, as of December 31, 2009. Additionally, we had 18,000 contracts in long Standard & Poor’s 500 Composite Price Index (“S&P 500”) puts as of December 31, 2010 with a fair value of $34 million.

As of December 31, 2010, our portfolio of common stocks and other securities with equity risk had a cash market portfolio beta of 0.74, compared to a beta of 0.73 as of December 31, 2009. Beta represents a widely used methodology to describe, quantitatively, an investment's market risk characteristics relative to an index such as the S&P 500. Based on the beta analysis, we estimate that if the S&P 500 increases or decreases by 10%, the fair value of our equity investments will increase or decrease by 7.4%, respectively. Based upon the information and assumptions we used to calculate beta as of December 31, 2010, including the effect of the S&P 500 puts, we estimate that an immediate decrease in the S&P 500 of 10% would decrease the net fair value of our equity investments identified above by $695 million, compared to $605 million as of December 31, 2009, and an immediate increase in the S&P 500 of 10% would increase the net fair value by $708 million compared to $615 million as of December 31, 2009. In calculating the impact of a 10% S&P index perturbation on the value of the puts, we have assumed index volatility remains constant. Based on the S&P 500 index put options in place as of December 31, 2010, we would recognize losses totaling $14 million in the event of a 10% increase in the S&P 500 index and $22 million in gains in the event of a 10% decrease. The selection of a 10% immediate decrease or increase in the S&P 500 should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.

The beta of our common stocks and other securities with equity risk was determined by calculating the change in the fair value of the portfolio resulting from stressing the equity market up and down 10%. The illustrations noted above may not reflect our actual experience if the future composition of the portfolio (hence its beta) and correlation relationships differ from the historical relationships.

As of December 31, 2010 and 2009, we had separate accounts assets related to variable annuity and variable life contracts with account values totaling $8.68 billion and $9.07 billion, respectively. Equity risk exists for contract charges



based on separate account balances and guarantees for death and/or income benefits provided by our variable products. In 2006, we disposed of substantially all of the variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc. and therefore mitigated this aspect of our risk. Equity risk for our variable life business relates to contract charges and policyholder benefits. Total variable life contract charges for 2010 and 2009 were $80 million and $85 million, respectively. Separate account liabilities related to variable life contracts were $775 million and $708 million in December 31, 2010 and 2009, respectively.

As of December 31, 2010 and 2009 we had $4.70 billion and $4.47 billion, respectively, in equity-indexed annuity liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. We hedge the risk associated with these liabilities using equity-indexed options and futures, interest rate swaps, and eurodollar futures, maintaining risk within specified value-at-risk limits.

Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including real estate funds and private equity funds, and our Canadian and Northern Ireland operations. We also have certain funding agreement liabilities and fixed income securities that are denominated in foreign currencies; however, derivatives are used to hedge the foreign currency risk of these funding agreements and approximately 77% of the fixed income securities. As of December 31, 2010 and 2009, we had $435 million and $713 million, respectively, in funding agreements denominated in foreign currencies.

As of December 31, 2010, we had $1.70 billion in foreign currency denominated equity investments, $773 million net investment in our foreign subsidiaries, and $91 million in unhedged non-dollar pay fixed income securities. These amounts were $1.38 billion, $686 million, and $148 million, respectively, as of December 31, 2009. 90.5% of the foreign currency exposure is in the Property-Liability business.

Based upon the information and assumptions used as of December 31, 2010, we estimate that a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed would decrease the value of our foreign currency denominated instruments by $257 million, compared with an estimated $222 million decrease as of December 31, 2009. The selection of a 10% immediate decrease in all currency exchange rates should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. Our currency exposure is diversified across 32 currencies as of December 31, 2010, compared to 39 currencies as of December 31, 2009. Our largest individual foreign currency exposures as of December 31, 2010 were to the Canadian dollar (37.0%) and the British Pound (13.3%). The largest individual foreign currency exposures as of December 31, 2009 were to the Canadian dollar (35.5%) and the Euro (22.9%). Our primary regional exposure is to Canada, with 37.0% as of December 31, 2010, compared to Western Europe, with 40.5% as of December 31, 2009.

The modeling technique we use to report our currency exposure does not take into account correlation among foreign currency exchange rates. Even though we believe it is very unlikely that all of the foreign currency exchange rates that we are exposed to would simultaneously decrease by 10%, we nonetheless stress test our portfolio under this and other hypothetical extreme adverse market scenarios. Our actual experience may differ from these results because of assumptions we have used or because significant liquidity and market events could occur that we did not foresee.

Commodity price risk is the risk that we will incur economic losses due to adverse changes in the prices of commodities. This risk arises from commodity linked investments, such as the Dow Jones AIG Commodity Index and Goldman Sachs Commodity Index which is a broad based, oil dominated index. As of December 31, 2010 and 2009, we had no exposure to the indices.

## PENSION PLANS

We have defined benefit pension plans, which cover most full-time and certain part-time employees and employees-agents. See Note 16 of the consolidated financial statements for a complete discussion of these plans and their effect on the consolidated financial statements. The pension and other postretirement plans may be amended or terminated at any time. Any revisions could result in significant changes to our obligations and our obligation to fund the plans.

We report unrecognized pension and other postretirement benefit cost in the Consolidated Statements of Financial Position as a component of accumulated other comprehensive income in shareholders' equity. It represents differences between the fair value of plan assets and the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement plans that have not yet been recognized as a component of net periodic cost. The measurement of the unrecognized pension and other postretirement benefit cost can vary based upon the fluctuations in the fair value of the plan assets and the actuarial assumptions used for the plans as discussed.



below. The unrecognized pension and other postretirement benefit cost as of December 31, 2010 was $1.19 billion, a decrease of $94 million from $1.28 billion as of December 31, 2009. The decrease was the result of the recognition of a portion of unrecognized pension and other postretirement benefit cost through pension expense during 2010, which was partially offset by actuarial losses incurred during the year.

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 nature of pension obligations. As a result, the effect of changes in fair value of equity securities on our net periodic pension cost may be experienced in periods subsequent to those in which the fluctuations actually occur.

Net periodic pension cost in 2011 is estimated to be $293 million based on current assumptions, including settlement charges. This represents a decrease compared to 2010 due to favorable asset performance during 2010 and lower than expected salary increases. Net periodic pension cost increased in 2010 due to the effect of equity losses during the 2008 fiscal year and the decrease in discount rates experienced at the end of 2009. Net periodic pension cost decreased in 2009 due to the increase in discount rate for each pension plan, which resulted in lower amortization of net actuarial loss. In 2010 and 2008, net pension cost included non-cash settlement charges primarily resulting from lump sum distributions made to agents. Settlement charges also occurred during 2010, 2009 and 2008 related to the Supplemental Retirement Income Plan as a result of lump sum payments made from the plan. Settlement charges are likely to continue for some period in the future as we settle our remaining agent pension obligations by making lump sum distributions to agents.

Amounts recorded for pension cost and accumulated other comprehensive income are significantly affected by fluctuations in the returns on plan assets and the amortization of unrecognized actuarial gains and losses. Plan assets sustained net losses in prior periods primarily due to declines in equity and credit markets. These asset losses, combined with all other unrecognized actuarial gains and losses, resulted in amortization of net actuarial loss (and additional net periodic pension cost) of $160 million in 2010 and $15 million in 2009. We anticipate that the unrealized loss for our pension plans will exceed 10% of the greater of the projected benefit obligations or the market-related value of assets in 2011 and into the foreseeable future, resulting in additional amortization and net periodic pension cost.

Amounts recorded for net periodic pension cost and accumulated other comprehensive income are also significantly affected by changes in the assumptions used to determine the weighted average discount rate and the expected long-term rate of return on plan assets. The weighted average discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the assumed weighted average discount rate by utilizing the weighted average yield of a theoretical dedicated portfolio derived from non-callable bonds available in the Barclays corporate bond universe having ratings of at least "AA" by S&P or at least "Aa" by Moody's on the measurement date with cash flows that match expected plan benefit requirements. Significant changes in discount rates, such as those caused by changes in the credit spreads, yield curve, the mix of bonds available in the market, the duration of selected bonds and expected benefit payments, may result in volatility in pension cost and accumulated other comprehensive income.

Holding other assumptions constant, a hypothetical decrease of 100 basis points in the weighted average discount rate would result in an increase of $43 million in net periodic pension cost and a $392 million increase in the unrecognized pension and other postretirement benefit cost liability of our pension plans recorded as accumulated other comprehensive income as of December 31, 2010, compared to an increase of $43 million in net periodic pension cost and a $373 million increase in the unrecognized pension and other postretirement benefit cost liability as of December 31, 2009. A hypothetical increase of 100 basis points in the weighted average discount rate would decrease net periodic pension cost by $38 million and would decrease the unrecognized pension and other postretirement benefit cost liability of our pension plans recorded as accumulated other comprehensive income by $331 million as of December 31, 2010, compared to a decrease in net periodic pension cost of $38 million and a $317 million decrease in the unrecognized pension and other postretirement benefit cost liability of our pension plans recorded as accumulated other comprehensive income as of December 31, 2009. This non-symmetrical range results from the non-linear relationship between discount rates and pension obligations, and changes in the amortization of unrealized net actuarial gains and losses.

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. While this rate reflects long-term assumptions and is consistent with long-term historical returns, sustained changes in the market or changes in the mix of plan assets may lead to revisions in the assumed long-term rate of return on plan assets that may result in variability of pension cost. Differences between the actual return on plan assets and the expected long-term rate of return on plan assets are a component of unrecognized gains or losses, which may be amortized as a component of net actuarial gains and losses and recorded in accumulated other comprehensive income.



As a result, the effect of changes in fair value on our pension cost may be experienced in results of operations in periods subsequent to those in which the fluctuations actually occur.

Holding other assumptions constant, a hypothetical decrease of 100 basis points in the expected long-term rate of return on plan assets would result in an increase of $44 million in pension cost as of December 31, 2010, compared to $39 million as of December 31, 2009. A hypothetical increase of 100 basis points in the expected long-term rate of return on plan assets would result in a decrease in net periodic pension cost of $44 million as of December 31, 2010, compared to $39 million as of December 31, 2009.

We target funding levels that do not restrict the payment of plan benefits in our domestic plans and were within our targeted range as of December 31, 2010. In 2010, we contributed $443 million to our pension plans. We expect to contribute $263 million for the 2011 plan year to maintain the plans' funded status. This estimate could change significantly following either a dramatic improvement or decline in investment markets.

## Other post employment benefits

In 2010, the Patient Protection and Affordable Care Act was signed into law. One aspect of this legislation is the introduction of an excise tax, effective in 2018, on “high cost” plans. The liabilities as of December 31, 2010 for the postretirement medical plans include an estimate of this additional liability, which amounts to $3 million.

## DEFERRED TAXES

The total deferred tax valuation allowance was $6 million as of December 31, 2010 compared to $11 million as of December 31, 2009. We evaluate whether a valuation allowance for our deferred tax assets is required each reporting period. A valuation allowance is established if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. In determining whether a valuation allowance is needed, all available evidence is considered. This includes the potential for capital and ordinary loss carryback, future reversals of existing taxable temporary differences, tax planning strategies that we may employ to avoid a tax benefit from expiring unused and future taxable income exclusive of reversing temporary differences.

With respect to our evaluation of the need for a valuation allowance related to the deferred tax asset on capital losses that have been realized but have not yet been recognized for tax purposes, we utilize prudent and feasible tax planning strategies that optimize the ability to carry back capital losses as well as the ability to offset future capital losses with unrealized capital gains that could be recognized for tax purposes. We have remaining capital loss carryback capacity of $439 million and $9 million from 2009 and 2010, respectively.

With respect to our evaluation of the need for a valuation allowance related to the deferred tax asset on unrealized capital losses on fixed income and equity securities, our tax planning strategies first consider the availability of unrealized capital gains to offset future capital losses and then we rely on our assertion that we have the intent and ability to hold certain securities with unrealized losses to recovery. As a result, the unrealized losses on these securities would not be expected to materialize and no valuation allowance on the associated deferred tax asset is needed.

## CAPITAL RESOURCES AND LIQUIDITY 2010 HIGHLIGHTS

- Shareholders’ equity as of December 31, 2010 was $19.02 billion, an increase of 13.9% from $16.69 billion as of December 31, 2009.

- On January 5, 2010, April 1, 2010, July 1, 2010 and October 1, 2010, we paid a quarterly shareholder dividend of $0.20, respectively. On November 9, 2010, we declared a quarterly shareholder dividend of $0.20 payable on January 3, 2011.

- In November 2010, we commenced a $1.00 billion share repurchase program. As of December 31, 2010, this program had $840 million remaining and is expected to be completed by March 31, 2012.



## CAPITAL RESOURCES AND LIQUIDITY

Capital resources consist of shareholders’ equity and debt, representing funds deployed or available to be deployed to support business operations or for general corporate purposes. The following table summarizes our capital resources as of December 31.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Common stock, retained income and other shareholders’ equity items</td><td>$ 19,200</td><td>$ 18,798</td><td>$ 17,442</td></tr><tr><td>Accumulated other comprehensive loss</td><td>(184)</td><td>(2,106)</td><td>(4,801)</td></tr><tr><td>Total shareholders’ equity</td><td>19,016</td><td>16,692</td><td>12,641</td></tr><tr><td>Debt</td><td>5,908</td><td>5,910</td><td>5,659</td></tr><tr><td>Total capital resources</td><td>$ 24,924</td><td>$ 22,602</td><td>$ 18,300</td></tr><tr><td>Ratio of debt to shareholders’ equity</td><td>31.1%</td><td>35.4%</td><td>44.8%</td></tr><tr><td>Ratio of debt to capital resources</td><td>23.7%</td><td>26.1%</td><td>30.9%</td></tr></table>

Shareholders’ equity increased in 2010, primarily due to unrealized net capital gains on investments and net income, partially offset by dividends paid to shareholders and share repurchases. Shareholders’ equity increased in 2009, due primarily to decreases in unrealized net capital losses on investments and net income, partially offset by dividends paid to shareholders.

Debt decreased $2 million in 2010 due to decreases in long-term debt. Debt increased $251 million in 2009 due to net increases in long-term debt. In May 2009, we issued $300 million of 6.20% Senior Notes due 2014 and $700 million of 7.45% Senior Notes due 2019. The proceeds of this issuance were used for general corporate purposes, including to facilitate the repayment of the $750 million of 7.20% Senior Notes that matured on December 1, 2009. Except for $42 million in long-term debt related to the synthetic leases scheduled to mature in 2011, we do not have any required principal payments until 2012 when $350 million of 6.125% Senior Notes are due. For further information on debt issuances, see Note 11 of the consolidated financial statements.

As of December 31, 2010 and 2009, there were no outstanding commercial paper borrowings.

Share repurchases In November 2010, we commenced a $1.00 billion share repurchase program. As of December 31, 2010, this program had $840 million remaining and is expected to be completed by March 31, 2012.

Since 1995, we have acquired 463 million shares of our common stock at a cost of $19.25 billion, primarily as part of various stock repurchase programs. We have reissued 97 million shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total shares outstanding has decreased by 363 million shares or 40.5%, primarily due to our repurchase programs.

Financial ratings and strength The following table summarizes our debt, commercial paper and insurance financial strength ratings as of December 31, 2010.

<table><tr><td></td><td>Moody&#x27;s</td><td>Standard &amp; Poor&#x27;s</td><td>A.M. Best</td></tr><tr><td>The Allstate Corporation (senior long-term debt)</td><td>A3</td><td>A-</td><td>a-</td></tr><tr><td>The Allstate Corporation (commercial paper)</td><td>P-2</td><td>A-2</td><td>AMB-1</td></tr><tr><td>Allstate Insurance Company (insurance financial strength)</td><td>Aa3</td><td>AA-</td><td>A+</td></tr><tr><td>Allstate Life Insurance Company (insurance financial strength)</td><td>A1</td><td>A+</td><td>A+</td></tr></table>

Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage.

On January 24, 2011, Moody’s affirmed The Allstate Corporation’s debt and commercial paper ratings of A3, and P-2, respectively, AIC’s financial strength rating of Aa3 and ALIC’s financial strength rating of A1. The outlook for the Moody’s ratings remained stable. On December 15, 2010, A.M. Best affirmed The Allstate Corporation’s debt and commercial paper ratings of a- and AMB-1, respectively, as well as the A+ financial strength ratings of AIC and ALIC. The outlook for The Allstate Corporation and AIC remained stable while the outlook for ALIC remained negative. On November 17, 2010, S&P affirmed The Allstate Corporation’s debt and commercial paper ratings of A- and A-2,



respectively, as well as the AA- financial strength rating of AIC. S&P downgraded the financial strength rating for ALIC to A+ from AA-. The outlook for all S&P ratings was revised to stable from negative.

We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty insurance in New Jersey and Florida that maintain separate group ratings. The ratings of these groups are influenced by the risks that relate specifically to each group. Many mortgage companies require property owners to have insurance from an insurance carrier with a secure financial strength rating from an accredited rating 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 Financial Stability Rating \( ^{®} \)  of A \( ^{™} \)  from Demotech. The outlook for these ratings is stable. Castle Key Insurance Company and its subsidiaries, which underwrote personal lines property insurance in Florida, are rated B- by A.M. Best. The outlook for the ratings of Castle Key Insurance Company and its subsidiaries is negative. Castle Key Insurance Company and its subsidiaries also have Financial Stability Ratings \( ^{®} \)  of A \( ^{™} \)  from Demotech.

ALIC, AIC and the Corporation are party to the Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) which allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. ALIC and AIC each serve as a lender and borrower and the Corporation serves only as a lender. AIC also has a capital support agreement with ALIC. Under the capital support agreement, AIC is committed to provide capital to ALIC to maintain an adequate capital level. The maximum amount of potential funding under each of these agreements is $1.00 billion.

In addition to the Liquidity Agreement, the Corporation also has an intercompany loan agreement with certain of its subsidiaries, which include, but are not limited to, AIC and ALIC. The amount of intercompany loans available to the Corporation’s subsidiaries is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and repurchase agreements to fund intercompany borrowings.

Allstate’s domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Statutory surplus is a measure that is often used as a basis for determining dividend paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in determining their ratings. As of December 31, 2010, AIC’s statutory surplus is approximately $15.38 billion compared to $15.03 billion as of December 31, 2009. These amounts include ALIC’s statutory surplus of approximately $3.34 billion as of December 31, 2010, compared to $3.47 billion as of December 31, 2009.

The ratio of net premiums written to statutory surplus is a common measure of operating leverage used in the property-casualty insurance industry and serves as an indicator of a company’s premium growth capacity. Ratios in excess of 3 to 1 are typically considered outside the usual range by insurance regulators and rating agencies. AIC’s premium to surplus ratio was 1.6x on December 31, 2010 compared to 1.7x in the prior year.

State laws specify regulatory actions if an insurer’s risk-based capital (“RBC”), a measure of an insurer’s solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC. The formula for calculating RBC for property-liability companies takes into account asset and credit risks but places more emphasis on underwriting factors for reserving and pricing. The formula for calculating RBC for life insurance companies takes into account factors relating to insurance, business, asset and interest rate risks. As of December 31, 2010, 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 relationships or tests known as the Insurance Regulatory Information System to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by insurance regulatory authorities. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined “usual ranges”. Generally, regulators will begin to monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the amount of insurance it can issue. The ratios of our domestic insurance companies are within these ranges.



Liquidity sources and uses Our potential sources of funds principally include activities shown in the following table.

<table><tr><td></td><td>Property-Liability</td><td>Allstate Financial</td><td>Corporate and Other</td></tr><tr><td>Receipt of insurance premiums</td><td>X</td><td>X</td><td></td></tr><tr><td>Contractholder fund deposits</td><td></td><td>X</td><td></td></tr><tr><td>Reinsurance recoveries</td><td>X</td><td>X</td><td></td></tr><tr><td>Receipts of principal, interest and dividends on investments</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Sales of investments</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Funds from securities lending, commercial paper and line of credit agreements</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Intercompany loans</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Capital contributions from parent</td><td>X</td><td>X</td><td></td></tr><tr><td>Dividends from subsidiaries</td><td>X</td><td></td><td>X</td></tr><tr><td>Tax refunds/settlements</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Funds from periodic issuance of additional securities</td><td></td><td></td><td>X</td></tr><tr><td>Funds from the settlement of our benefit plans</td><td></td><td></td><td>X</td></tr></table>

Our potential uses of funds principally include activities shown in the following table.

<table><tr><td></td><td>Property-Liability</td><td>Allstate Financial</td><td>Corporate and Other</td></tr><tr><td>Payment of claims and related expenses</td><td>X</td><td></td><td></td></tr><tr><td>Payment of contract benefits, maturities, surrenders and withdrawals</td><td></td><td>X</td><td></td></tr><tr><td>Reinsurance cessions and payments</td><td>X</td><td>X</td><td></td></tr><tr><td>Operating costs and expenses</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Purchase of investments</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Repayment of securities lending, commercial paper and line of credit agreements</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Payment or repayment of intercompany loans</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Capital contributions to subsidiaries</td><td>X</td><td></td><td>X</td></tr><tr><td>Dividends to shareholders/parent company</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Tax payments/settlements</td><td>X</td><td>X</td><td></td></tr><tr><td>Share repurchases</td><td></td><td></td><td>X</td></tr><tr><td>Debt service expenses and repayment</td><td>X</td><td>X</td><td>X</td></tr><tr><td>Settlement payments of employee and agent benefit plans</td><td>X</td><td>X</td><td>X</td></tr></table>

We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company, and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility.

Parent company capital capacity At the parent holding company level, we have deployable invested assets totaling $3.84 billion as of December 31, 2010. These assets include investments that are generally saleable within one quarter totaling $3.43 billion. The substantial earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation. In 2011, AIC will have the capacity to pay dividends currently estimated at $1.54 billion without prior regulatory approval. We do not anticipate that ALIC will pay dividends to AIC in 2011. In addition, we have access to $1.00 billion of funds from either commercial paper issuance or an unsecured revolving credit facility. This provides funds for the parent company’s relatively low fixed charges.

In 2010, dividends totaling $1.30 billion were paid by AIC to its parent, the Corporation. There were no dividends paid by AIC to the Corporation in 2009. In 2008, dividends totaling $3.40 billion were paid by AIC to the Corporation. There were no capital contributions paid by the Corporation to AIC in both 2010 and 2009. In 2008, capital contributions paid by the Corporation to AIC totaled $1.00 billion.

In 2010 and 2009, a return of capital by American Heritage Life Investment Corporation to the Corporation totaled $24 million and $13 million, respectively. There were no dividends paid by Allstate Financial in 2008.



There were no capital contributions by AIC to ALIC in 2010. In 2009, capital contributions were paid in cash by AIC to ALIC totaling $250 million. 2009 also included capital contributions to ALIC comprising the transfer to ALIC from AIC of non-cash assets totaling $448 million and the transfer of a $25 million surplus note to Kennett Capital Inc. from ALIC in exchange for a note receivable with a principal sum equal to that of the surplus note, which was originally issued to ALIC by a subsidiary of ALIC. In 2008, funds paid by AIC to ALIC totaled $1.41 billion. The $1.41 billion includes capital contributions paid in cash totaling $607 million and the issuance of two surplus notes, each with a principal sum of $400 million, to AIC in exchange for cash totaling $800 million. 2008 also included capital contributions to ALIC comprising the transfer to ALIC from AIC of non-cash assets totaling $342 million and the transfer of a $50 million surplus note to Kennett Capital Inc. from ALIC in exchange for a note receivable with a principal sum equal to that of the surplus note, which was originally issued to ALIC by a subsidiary of ALIC. One of the surplus notes issued to AIC in 2008 was subsequently canceled and forgiven by AIC resulting in the recognition of a capital contribution equal to the outstanding principal balance of the surplus note of $400 million.

The Corporation has access to additional borrowing to support liquidity as follows:

• A commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs. As of December 31, 2010, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion; however, the outstanding balance can fluctuate daily.

- Our primary credit facility is available for short-term liquidity requirements and backs our commercial paper facility. Our $1.00 billion unsecured revolving credit facility has an initial term of five years expiring in 2012 with two optional one-year extensions that can be exercised at the end of any of the remaining anniversary years of the facility upon approval of existing or replacement lenders providing more than two-thirds of the commitments to lend. The program is fully subscribed among 11 lenders with the largest commitment being $185 million. The commitments of the lenders are several and no lender is responsible for any other lender's commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing provided the increased portion could be fully syndicated at a later date among existing or new lenders. This facility has a financial covenant requiring that we not exceed a 37.5% debt to capital resources ratio as defined in the agreement. This ratio as of December 31, 2010 was 19.4%. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of our senior, unsecured, nonguaranteed long-term debt. There were no borrowings under the credit facility during 2010. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility.
- A universal shelf registration statement was filed with the Securities and Exchange Commission on May 8, 2009. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 367 million shares of treasury stock as of December 31, 2010), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.

Liquidity exposure Contractholder funds as of December 31, 2010 were $48.20 billion. The following table summarizes contractholder funds by their contractual withdrawal provisions as of December 31, 2010.

<table><tr><td>(\( in millions)</td><td></td><td>Percent to total</td></tr><tr><td>Not subject to discretionary withdrawal</td><td>$ 6,998</td><td>14.5%</td></tr><tr><td>Subject to discretionary withdrawal with adjustments:</td><td></td><td></td></tr><tr><td>Specified surrender charges  \( {}^{(1)} \)</td><td>19,815</td><td>41.1</td></tr><tr><td>Market value adjustments  \( {}^{(2)} \)</td><td>7,805</td><td>16.2</td></tr><tr><td>Subject to discretionary withdrawal without adjustments  \( {}^{(3)} \)</td><td>13,577</td><td>28.2</td></tr><tr><td>Total contractholder funds  \( {}^{(4)} \)</td><td>$ 48,195</td><td>100.0%</td></tr></table>



While we are able to quantify remaining scheduled maturities for our institutional products, anticipating retail product surrenders is less precise. Retail life and annuity products may be surrendered by customers for a variety of reasons. Reasons unique to individual customers include a 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, equity market conditions and potential tax implications. In addition, the propensity for retail life insurance policies to lapse is lower than it is for fixed annuities because of the need for the insured to be re-underwritten upon policy replacement. Surrenders and partial withdrawals for our retail annuities increased 2.2% in 2010 compared to 2009. The annualized surrender and partial withdrawal rate on deferred annuities, interest-sensitive life insurance and Allstate Bank products, based on the beginning of year contractholder funds, was 12.2% and 11.8% in 2010 and 2009, respectively. Allstate Financial strives to promptly pay customers who request cash surrenders; however, statutory regulations generally provide up to six months in most states to fulfill surrender requests.

Our institutional products are primarily funding agreements sold to unaffiliated trusts used to back medium-term notes. As of December 31, 2010, total institutional products outstanding were $2.64 billion. The following table presents the remaining scheduled maturities for our institutional products outstanding as of December 31, 2010.

<table><tr><td>(\( in millions)</td><td></td></tr><tr><td>2011</td><td>$ 760</td></tr><tr><td>2012</td><td>40</td></tr><tr><td>2013</td><td>1,750</td></tr><tr><td>2016</td><td>85</td></tr><tr><td></td><td>$ 2,635</td></tr></table>

Our asset-liability management practices limit the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance, annuity and institutional product obligations.

Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade in our long-term debt rating of A3, A- and a-(from Moody's, S&P and A.M. Best, respectively) to non-investment grade status of below Baa3/BBB-/bb, a downgrade in AIC's financial strength rating from Aa3, AA- and A+ (from Moody's, S&P and A.M. Best, respectively) to below Baa2/BBB-/A-, or a downgrade in ALIC's financial strength ratings from A1, A+ and A+ (from Moody's, S&P and A.M. Best, respectively) to below A3/A-/A-. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.

The following table summarizes consolidated cash flow activities by business segment.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Property-Liability (1)</td><td colspan="3">Allstate Financial (1)</td><td colspan="3">Corporate and Other (1)</td><td colspan="3">Consolidated</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Net cash provided by (used in):</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating activities</td><td>$ 1,373</td><td>$ 2,183</td><td>$ 1,746</td><td>$ 2,407</td><td>$ 2,196</td><td>$ 2,203</td><td>$ (91)</td><td>$ (78)</td><td>$ (39)</td><td>$ 3,689</td><td>$ 4,301</td><td>$ 3,910</td></tr><tr><td>Investing activities</td><td>(44)</td><td>(1,919)</td><td>2,012</td><td>3,096</td><td>4,755</td><td>2,779</td><td>(720)</td><td>604</td><td>(1,003)</td><td>2,332</td><td>3,440</td><td>3,788</td></tr><tr><td>Financing activities</td><td>(8)</td><td>(6)</td><td>(16)</td><td>(5,510)</td><td>(7,246)</td><td>(5,510)</td><td>(553)</td><td>(292)</td><td>(2,179)</td><td>(6,071)</td><td>(7,544)</td><td>(7,705)</td></tr><tr><td>Net (decrease) increase in consolidated cash</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr></table>

(1) Business unit cash flows reflect the elimination of intersegment dividends, contributions and borrowings.

Property-Liability Lower cash provided by operating activities for Property-Liability in 2010 compared to 2009 was primarily due to income tax payments in 2010 compared to income tax refunds in 2009 and lower claim payments. Higher cash provided by operating activities for Property-Liability in 2009 compared to 2008 was primarily due to income tax refunds in 2009 compared to tax payments in 2008 and lower claim payments.

Lower cash used in investing activities in 2010 compared to 2009 was primarily due to decreased net purchases of fixed income and equity securities and higher net sales of fixed income and equity securities, partially offset by net change in short-term investments. Cash used in investing activities in 2009 compared to cash provided by investing activities in 2008 was primarily due to increased net purchases of fixed income and equity securities, partially offset by net change in short-term investments.



Allstate Financial Operating cash flows for Allstate Financial in 2010 were higher than 2009 as higher premiums and tax refunds received were partially offset by lower investment income and higher contract benefits paid. Operating cash flows for Allstate Financial in 2009 were consistent with 2008 as higher income tax refunds and lower expenses were offset by lower net investment income. The increase in income tax refunds received in 2009 was related to the carryback of 2008 ordinary losses to prior tax years.

Cash flows provided by investing activities in 2010 and 2009 were impacted by reductions of investments to fund reductions in contractholder fund liabilities.

Lower cash flows used in financing activities in 2010 compared to 2009 were primarily due to decreased maturities and retirements of institutional products, partially offset by lower deposits on fixed annuities. Higher cash flows used in financing activities in 2009 compared to 2008 were primarily due to the absence of issuances of institutional products in 2009 compared to $4.16 billion in 2008 and lower deposits on fixed annuities, partially offset by lower maturities and retirements of institutional products. For quantification of the changes in contractholder funds, see the Allstate Financial Segment section of the MD&A.

Corporate and Other Fluctuations in the Corporate and Other operating cash flows were primarily due to the timing of intercompany settlements. Investing activities primarily relate to investments in the portfolios of Kennett Capital Holdings, LLC. Financing cash flows of the Corporate and Other segment reflect actions such as fluctuations in short-term debt, repayment of debt, proceeds from the issuance of debt, dividends to shareholders of The Allstate Corporation and share repurchases; therefore, financing cash flows are affected when we increase or decrease the level of these activities.

Contractual obligations and commitments Our contractual obligations as of December 31, 2010 and the payments due by period are shown in the following table.

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Total</td><td colspan="2">Less than</td><td rowspan="2">1-3 years</td><td rowspan="2">4-5 years</td><td colspan="2">Over</td></tr><tr><td>1 year</td><td></td><td>5 years</td><td></td></tr><tr><td>Liabilities for collateral (1)</td><td>$ 484</td><td>$ 484</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td></td></tr><tr><td>Contractholder funds (2)</td><td>57,525</td><td>8,761</td><td>14,232</td><td>9,310</td><td>25,222</td><td></td><td></td></tr><tr><td>Reserve for life-contingent contract benefits (2)</td><td>38,070</td><td>1,413</td><td>2,711</td><td>2,587</td><td>31,359</td><td></td><td></td></tr><tr><td>Long-term debt (3)</td><td>12,443</td><td>403</td><td>1,280</td><td>1,530</td><td>9,230</td><td></td><td></td></tr><tr><td>Capital lease obligations (3)</td><td>45</td><td>7</td><td>15</td><td>8</td><td>15</td><td></td><td></td></tr><tr><td>Operating leases (3)</td><td>632</td><td>199</td><td>260</td><td>109</td><td>64</td><td></td><td></td></tr><tr><td>Unconditional purchase obligations (3)</td><td>322</td><td>118</td><td>157</td><td>40</td><td>7</td><td></td><td></td></tr><tr><td>Defined benefit pension plans and other postretirement benefit plans (3)(4)</td><td>3,035</td><td>299</td><td>266</td><td>274</td><td>2,196</td><td></td><td></td></tr><tr><td>Reserve for property-liability insurance claims and claims expense (5)</td><td>19,468</td><td>8,388</td><td>5,886</td><td>2,224</td><td>2,970</td><td></td><td></td></tr><tr><td>Other liabilities and accrued expenses (6)(7)</td><td>3,351</td><td>3,076</td><td>202</td><td>43</td><td>30</td><td></td><td></td></tr><tr><td>Net unrecognized tax benefits (8)</td><td>25</td><td>25</td><td>—</td><td>—</td><td>—</td><td></td><td></td></tr><tr><td>Total contractual cash obligations</td><td>$ 135,400</td><td>$ 23,173</td><td>$ 25,009</td><td>$ 16,125</td><td>$ 71,093</td><td></td><td></td></tr></table>

(1) Liabilities for collateral are typically fully secured with cash or short-term investments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity as disclosed previously.

(2) Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life, fixed annuities, including immediate annuities without life contingencies, bank deposits and institutional products. The reserve for life-contingent contract benefits relates primarily to traditional life insurance, immediate annuities with life contingencies and voluntary accident and health insurance. These amounts reflect the present value of estimated cash payments to be made to contractholders and policyholders. Certain of these contracts, such as immediate annuities without life contingencies and institutional products, involve payment obligations where the amount and timing of the payment is essentially fixed and determinable. These amounts relate to (i) policies or contracts where we are currently making payments and will continue to do so and (ii) contracts where the timing of a portion or all of the payments has been determined by the contract. Other contracts, such as interest-sensitive life, fixed deferred annuities, traditional life insurance, 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, we are not currently making payments and will not make payments until (i) the occurrence of an insurable event such as death or illness or (ii) the occurrence of a payment triggering event such as the surrender or partial withdrawal on a policy or deposit contract, which is outside of our control. We have estimated the timing of payments related to these contracts based on historical experience and our expectation of future payment patterns. Uncertainties relating to these liabilities include mortality, morbidity, expenses, customer lapse and withdrawal activity, estimated additional deposits for interest-sensitive life contracts, and renewal premium for life policies, which may significantly impact both the



timing and amount of future payments. Such cash outflows reflect adjustments for the estimated timing of mortality, retirement, and other appropriate factors, but are undiscounted with respect to interest. As a result, the sum of the cash outflows shown for all years in the table exceeds the corresponding liabilities of $48.20 billion for contractholder funds and $13.48 billion for reserve for life-contingent contract benefits as included in the Consolidated Statements of Financial Position as of December 31, 2010. The liability amount in the Consolidated Statements of Financial Position reflects the discounting for interest as well as adjustments for the timing of other factors as described above.

 \( ^{(3)} \)  Our payment obligations relating to long-term debt, capital lease obligations, operating leases, unconditional purchase obligations and pension and other post employment benefits (“OPEB”) contributions are managed within the structure of our intermediate to long-term liquidity management program. Amount differs from the balance presented on the Consolidated Statements of Financial Position as of December 31, 2010 because the long-term debt amount above includes interest.

 \( ^{(4)} \)  The pension plans’ obligations in the next 12 months represent our planned contributions, and the remaining years’ contributions are projected based on the average remaining service period using the current underfunded status of the plans. The OPEB plans’ obligations are estimated based on the expected benefits to be paid. These liabilities are discounted with respect to interest, and as a result the sum of the cash outflows shown for all years in the table exceeds the corresponding liability amount of $1.57 billion included in other liabilities and accrued expenses on the Consolidated Statements of Financial Position.

 \( ^{(5)} \)  Reserve for property-liability insurance claims and claims expense is an estimate of amounts necessary to settle all outstanding claims, including claims that have been IBNR as of the balance sheet date. We have estimated the timing of these payments based on our historical experience and our expectation of future payment patterns. However, the timing of these payments may vary significantly from the amounts shown above, especially for IBNR claims. The ultimate cost of losses may vary materially from recorded amounts which are our best estimates. The reserve for property-liability insurance claims and claims expense includes loss reserves related to asbestos and environmental claims as of December 31, 2010, of $1.66 billion and $248 million, respectively.

 \( ^{(6)} \)  Other liabilities primarily include accrued expenses and certain benefit obligations and claim payments and other checks outstanding. Certain of these long-term liabilities are discounted with respect to interest, as a result the sum of the cash outflows shown for all years in the table exceeds the corresponding liability amount of $3.34 billion.

 \( ^{(7)} \)  Balance sheet liabilities not included in the table above include unearned and advance premiums of 10.59 billion and deferred tax liabilities of 1.71 billion netted in the net deferred tax asset of 784 million. These items were excluded as they do not meet the definition of a contractual liability as we are not contractually obligated to pay these amounts to third parties. Rather, they represent an accounting mechanism that allows us to present our financial statements on an accrual basis. In addition, other liabilities of 461 million were not included in the table above because they did not represent a contractual obligation or the amount and timing of their eventual payment was sufficiently uncertain.

 \( ^{(8)} \)  Net unrecognized tax benefits represent our potential future obligation to the taxing authority for a tax position that was not recognized in the consolidated financial statements. We believe it is reasonably possible that the liability balance will be reduced by 25 million within the next twelve months upon the resolution of an outstanding issue resulting from the 2005-2006 Internal Revenue Service examination. The resolution of this obligation may be for an amount different than what we have accrued.

Our contractual commitments as of December 31, 2010 and the periods in which the commitments expire are shown in the following table.

<table><tr><td rowspan="2"></td><td rowspan="2">Total</td><td colspan="2">Less than</td><td rowspan="2">1-3 years</td><td rowspan="2">4-5 years</td><td colspan="2">Over</td></tr><tr><td>1 year</td><td>1-3 years</td><td>5 years</td><td>5 years</td></tr><tr><td>Other commitments - conditional</td><td>$ 196</td><td>$ 144</td><td>$ 1</td><td>$ 3</td><td>$ 48</td><td></td><td></td></tr><tr><td>Other commitments - unconditional</td><td>1,472</td><td>215</td><td>665</td><td>449</td><td>143</td><td></td><td></td></tr><tr><td>Total commitments</td><td>$ 1,668</td><td>$ 359</td><td>$ 666</td><td>$ 452</td><td>$ 191</td><td></td><td></td></tr></table>

Contractual commitments represent investment commitments such as private placements, limited partnership interests and other loans.

We have agreements in place for services we conduct, generally at cost, between subsidiaries relating to insurance, reinsurance, loans and capitalization. All material intercompany transactions have appropriately been eliminated in consolidation. Intercompany transactions among insurance subsidiaries and affiliates have been approved by the appropriate departments of insurance as required.

For a more detailed discussion of our off-balance sheet arrangements, see Note 6 of the consolidated financial statements.

## ENTERPRISE RISK AND RETURN MANAGEMENT

Enterprise Risk and Return Management’s (“ERRM”) role is to support Allstate’s continued financial health and success. ERRM is a disciplined, holistic, integrated and interactive approach to risk that:

• Identifies potential risks and events that could significantly impact the Company

• Provides a shared viewpoint and thorough understanding of risks and opportunities

• Creates value by providing analysis of risk-return interrelationships and tradeoff opportunities

• Increases transparency and provides greater assurance of achieving objectives

At Allstate, we have ERRM programs, risk committees and control structures to manage our enterprise portfolio of risk and return. These programs include governance policies with established tolerances and risk limits, Board and



senior management involvement, enterprise modeling, risk-return analytics and communication and reporting. Our perspective of risk, return and capital needs promotes capital and financial management.

Allstate’s senior management risk committee, the Enterprise Risk & Return Council, drives ERRMI by establishing enterprise risk tolerance and risk-return requirements and directing integrated strategies and actions from a holistic enterprise perspective. Allstate’s Board of Directors and Audit Committee provide ERRMI oversight by reviewing enterprise principles, guidelines and limits for Allstate’s significant risks and by monitoring strategies and actions management has taken to control these risks.

Managers, risk professionals and chief risk officers in the various business units design and execute individual risk-return strategies that align with our overall enterprise standards. These include managing exposure to hurricanes and other severe weather events; managing impacts to invested assets and liabilities related to changes in risk-free interest rates, credit spreads, and equity markets; optimizing liquidity levels in light of changing market, economic and business conditions; and implementing practices to effectively identify, monitor and control operational and strategic risks.

Our comprehensive enterprise stochastic model captures the unique and specific nature and interaction of risks inherent in our various businesses and serves as the foundation of our economic capital framework. We determine an appropriate level of enterprise economic capital to hold considering a broad range of risk perspectives, including capital stress scenarios, risks of financial distress and insolvency, volatility, shareholder value, rating agency constraints and regulatory RBC requirements. Strategic allocation of economic capital to lines of business is based on contribution to enterprise risk, expected return and diversification benefit, and is used for ongoing evaluation of business units and products.

We adapt our ERRMI processes to be fluid and dynamic in changing business and market environments and evolve our risk strategies to target return opportunities as they arise. For continuous ERRMI validation and improvement, we benchmark and secure external perspectives on our processes.

## REGULATION AND LEGAL PROCEEDINGS

We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 13 of the consolidated financial statements.

## PENDING ACCOUNTING STANDARDS

There are several pending accounting standards that we have not implemented either because the standard has not been finalized or the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 of the consolidated financial statements.

The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.



## THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<table><tr><td rowspan="2">($ in millions, except per share data)</td><td colspan="4">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Revenues</td><td></td><td></td><td></td><td></td></tr><tr><td>Property-liability insurance premiums (net of reinsurance ceded of $1,092, $1,056 and $1,139)</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td><td></td></tr><tr><td>Life and annuity premiums and contract charges (net of reinsurance ceded of $804, $838 and $900)</td><td>2,168</td><td>1,958</td><td>1,895</td><td></td></tr><tr><td>Net investment income</td><td>4,102</td><td>4,444</td><td>5,622</td><td></td></tr><tr><td>Realized capital gains and losses:</td><td></td><td></td><td></td><td></td></tr><tr><td>Total other-than-temporary impairment losses</td><td>(937)</td><td>(2,376)</td><td>(3,735)</td><td></td></tr><tr><td>Portion of loss recognized in other comprehensive income</td><td>(64)</td><td>457</td><td>—</td><td></td></tr><tr><td>Net other-than-temporary impairment loss recognized in earnings</td><td>(1,001)</td><td>(1,919)</td><td>(3,735)</td><td></td></tr><tr><td>Sales and other realized capital gains and losses</td><td>174</td><td>1,336</td><td>(1,355)</td><td></td></tr><tr><td>Total realized capital gains and losses</td><td>(827)</td><td>(583)</td><td>(5,090)</td><td></td></tr><tr><td></td><td>31,400</td><td>32,013</td><td>29,394</td><td></td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td><td></td></tr><tr><td>Property-liability insurance claims and claims expense (net of reinsurance ceded of $271, $415 and $620)</td><td>18,951</td><td>18,746</td><td>20,064</td><td></td></tr><tr><td>Life and annuity contract benefits (net of reinsurance ceded of $702, $642 and $1,150)</td><td>1,815</td><td>1,617</td><td>1,612</td><td></td></tr><tr><td>Interest credited to contractholder funds (net of reinsurance ceded of $32, $32 and $43)</td><td>1,807</td><td>2,126</td><td>2,411</td><td></td></tr><tr><td>Amortization of deferred policy acquisition costs</td><td>4,034</td><td>4,754</td><td>4,679</td><td></td></tr><tr><td>Operating costs and expenses</td><td>3,281</td><td>3,007</td><td>3,273</td><td></td></tr><tr><td>Restructuring and related charges</td><td>30</td><td>130</td><td>23</td><td></td></tr><tr><td>Interest expense</td><td>367</td><td>392</td><td>351</td><td></td></tr><tr><td></td><td>30,285</td><td>30,772</td><td>32,413</td><td></td></tr><tr><td>Gain (loss) on disposition of operations</td><td>11</td><td>7</td><td>(6)</td><td></td></tr><tr><td>Income (loss) from operations before income tax expense (benefit)</td><td>1,126</td><td>1,248</td><td>(3,025)</td><td></td></tr><tr><td>Income tax expense (benefit)</td><td>198</td><td>394</td><td>(1,346)</td><td></td></tr><tr><td>Net income (loss)</td><td>$ 928</td><td>$ 854</td><td>$ (1,679)</td><td></td></tr><tr><td>Earnings per share:</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income (loss) per share - Basic</td><td>$ 1.72</td><td>$ 1.58</td><td>$ (3.06)</td><td></td></tr><tr><td>Weighted average shares - Basic</td><td>540.3</td><td>539.6</td><td>548.3</td><td></td></tr><tr><td>Net income (loss) per share - Diluted</td><td>$ 1.71</td><td>$ 1.58</td><td>$ (3.06)</td><td></td></tr><tr><td>Weighted average shares - Diluted</td><td>542.5</td><td>540.9</td><td>548.3</td><td></td></tr><tr><td>Cash dividends declared per share</td><td>$ 0.80</td><td>$ 0.80</td><td>$ 1.64</td><td></td></tr></table>



## THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Net income (loss)</td><td>$     928</td><td>$     854</td><td>$      (1,679)</td><td></td></tr><tr><td>Other comprehensive income (loss), after-tax</td><td></td><td></td><td></td><td></td></tr><tr><td>Changes in:</td><td></td><td></td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses</td><td>1,785</td><td>3,446</td><td>(4,626)</td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>23</td><td>41</td><td>(74)</td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost</td><td>94</td><td>(214)</td><td>(724)</td><td></td></tr><tr><td>Other comprehensive income (loss), after-tax</td><td>1,902</td><td>3,273</td><td>(5,424)</td><td></td></tr><tr><td>Comprehensive income (loss)</td><td>$     2,830</td><td>$     4,127</td><td>$      (7,103)</td><td></td></tr></table>



## THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

<table><tr><td rowspan="2">(\( in millions, except par value data)</td><td colspan="2">December 31,</td></tr><tr><td>2010</td><td>2009</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Investments</td><td></td><td></td></tr><tr><td>Fixed income securities, at fair value (amortized cost $78,786 and $81,243)</td><td>$79,612</td><td>$ 78,766</td></tr><tr><td>Equity securities, at fair value (cost $4,228 and $4,845)</td><td>4,811</td><td>5,024</td></tr><tr><td>Mortgage loans</td><td>6,679</td><td>7,935</td></tr><tr><td>Limited partnership interests</td><td>3,816</td><td>2,744</td></tr><tr><td>Short-term, at fair value (amortized cost $3,279 and $3,056)</td><td>3,279</td><td>3,056</td></tr><tr><td>Other</td><td>2,286</td><td>2,308</td></tr><tr><td>Total investments</td><td>100,483</td><td>99,833</td></tr><tr><td>Cash</td><td>562</td><td>612</td></tr><tr><td>Premium installment receivables, net</td><td>4,839</td><td>4,839</td></tr><tr><td>Deferred policy acquisition costs</td><td>4,769</td><td>5,470</td></tr><tr><td>Reinsurance recoverables, net</td><td>6,552</td><td>6,355</td></tr><tr><td>Accrued investment income</td><td>809</td><td>864</td></tr><tr><td>Deferred income taxes</td><td>784</td><td>1,870</td></tr><tr><td>Property and equipment, net</td><td>921</td><td>990</td></tr><tr><td>Goodwill</td><td>874</td><td>875</td></tr><tr><td>Other assets</td><td>1,605</td><td>1,872</td></tr><tr><td>Separate Accounts</td><td>8,676</td><td>9,072</td></tr><tr><td>Total assets</td><td>$ 130,874</td><td>$ 132,652</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Reserve for property-liability insurance claims and claims expense</td><td>$ 19,468</td><td>$ 19,167</td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>13,482</td><td>12,910</td></tr><tr><td>Contractholder funds</td><td>48,195</td><td>52,582</td></tr><tr><td>Unearned premiums</td><td>9,800</td><td>9,822</td></tr><tr><td>Claim payments outstanding</td><td>737</td><td>742</td></tr><tr><td>Other liabilities and accrued expenses</td><td>5,564</td><td>5,726</td></tr><tr><td>Long-term debt</td><td>5,908</td><td>5,910</td></tr><tr><td>Separate Accounts</td><td>8,676</td><td>9,072</td></tr><tr><td>Total liabilities</td><td>111,830</td><td>115,931</td></tr><tr><td>Commitments and Contingent Liabilities (Note 6, 7 and 13)</td><td></td><td></td></tr><tr><td>Equity</td><td></td><td></td></tr><tr><td>Preferred stock, $1 par value, 25 million shares authorized, none issued</td><td>-</td><td>-</td></tr><tr><td>Common stock, $0.01 par value, 2.0 billion shares authorized and 900 million issued, 533 million and 537 million shares outstanding</td><td>9</td><td>9</td></tr><tr><td>Additional capital paid-in</td><td>3,176</td><td>3,172</td></tr><tr><td>Retained income</td><td>31,969</td><td>31,492</td></tr><tr><td>Deferred ESOP expense</td><td>(44)</td><td>(47)</td></tr><tr><td>Treasury stock, at cost (367 million and 363 million shares)</td><td>(15,910)</td><td>(15,828)</td></tr><tr><td>Accumulated other comprehensive income:</td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses:</td><td></td><td></td></tr><tr><td>Unrealized net capital losses on fixed income securities with OTTI</td><td>(190)</td><td>(441)</td></tr><tr><td>Other unrealized net capital gains and losses</td><td>1,089</td><td>(1,072)</td></tr><tr><td>Unrealized adjustment to DAC, DSI and insurance reserves</td><td>36</td><td>643</td></tr><tr><td>Total unrealized net capital gains and losses</td><td>935</td><td>(870)</td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>69</td><td>46</td></tr><tr><td>Unrecognized pension and other postretirement benefit cost</td><td>(1,188)</td><td>(1,282)</td></tr><tr><td>Total accumulated other comprehensive loss</td><td>(184)</td><td>(2,106)</td></tr><tr><td>Total shareholders&#x27; equity</td><td>19,016</td><td>16,692</td></tr><tr><td>Noncontrolling interest</td><td>28</td><td>29</td></tr><tr><td>Total equity</td><td>19,044</td><td>16,721</td></tr><tr><td>Total liabilities and equity</td><td>$ 130,874</td><td>$ 132,652</td></tr></table>



## THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<table><tr><td rowspan="2">($ in millions, except per share data)</td><td colspan="4">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Common stock</td><td>$ 9</td><td>$ 9</td><td>$ 9</td><td>$ 9</td></tr><tr><td>Additional capital paid-in</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>3,172</td><td>3,130</td><td>3,052</td><td></td></tr><tr><td>Equity incentive plans activity</td><td>4</td><td>42</td><td>78</td><td></td></tr><tr><td>Balance, end of year</td><td>3,176</td><td>3,172</td><td>3,130</td><td></td></tr><tr><td>Retained income</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>31,492</td><td>30,207</td><td>32,796</td><td></td></tr><tr><td>Net income (loss)</td><td>928</td><td>854</td><td>(1,679)</td><td></td></tr><tr><td>Dividends ($0.80, $0.80 and $1.64 per share)</td><td>(433)</td><td>(432)</td><td>(897)</td><td></td></tr><tr><td>Effects of changing pension plan measurement date</td><td>—</td><td>—</td><td>(13)</td><td></td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>(18)</td><td>863</td><td>—</td><td></td></tr><tr><td>Balance, end of year</td><td>31,969</td><td>31,492</td><td>30,207</td><td></td></tr><tr><td>Deferred ESOP expense</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(47)</td><td>(49)</td><td>(55)</td><td></td></tr><tr><td>Payments</td><td>3</td><td>2</td><td>6</td><td></td></tr><tr><td>Balance, end of year</td><td>(44)</td><td>(47)</td><td>(49)</td><td></td></tr><tr><td>Treasury stock</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(15,828)</td><td>(15,855)</td><td>(14,574)</td><td></td></tr><tr><td>Shares acquired</td><td>(166)</td><td>(3)</td><td>(1,323)</td><td></td></tr><tr><td>Shares reissued under equity incentive plans, net</td><td>84</td><td>30</td><td>42</td><td></td></tr><tr><td>Balance, end of year</td><td>(15,910)</td><td>(15,828)</td><td>(15,855)</td><td></td></tr><tr><td>Accumulated other comprehensive income</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(2,106)</td><td>(4,801)</td><td>623</td><td></td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>20</td><td>(578)</td><td>—</td><td></td></tr><tr><td>Change in unrealized net capital gains and losses</td><td>1,785</td><td>3,446</td><td>(4,626)</td><td></td></tr><tr><td>Change in unrealized foreign currency translation adjustments</td><td>23</td><td>41</td><td>(74)</td><td></td></tr><tr><td>Change in unrecognized pension and other postretirement benefit cost</td><td>94</td><td>(214)</td><td>(724)</td><td></td></tr><tr><td>Balance, end of year</td><td>(184)</td><td>(2,106)</td><td>(4,801)</td><td></td></tr><tr><td>Total shareholders&#x27; equity</td><td>19,016</td><td>16,692</td><td>12,641</td><td></td></tr><tr><td>Noncontrolling interest</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>29</td><td>32</td><td>51</td><td></td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>10</td><td>—</td><td>—</td><td></td></tr><tr><td>Change in noncontrolling interest ownership</td><td>(14)</td><td>(3)</td><td>(19)</td><td></td></tr><tr><td>Noncontrolling gain</td><td>3</td><td>—</td><td>—</td><td></td></tr><tr><td>Balance, end of year</td><td>28</td><td>29</td><td>32</td><td></td></tr><tr><td>Total Equity</td><td>$ 19,044</td><td>$ 16,721</td><td>$ 12,673</td><td></td></tr></table>



## THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Year Ended December 31,</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td></td></tr><tr><td>Cash flows from operating activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$ 928</td><td>$ 854</td><td>$ (1,679)</td><td></td></tr><tr><td>Adjustments to reconcile net income (loss) to net cash provided by operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Depreciation, amortization and other non-cash items</td><td>94</td><td>(91)</td><td>(376)</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>827</td><td>583</td><td>5,090</td><td></td></tr><tr><td>(Gain) loss on disposition of operations</td><td>(11)</td><td>(7)</td><td>6</td><td></td></tr><tr><td>Interest credited to contractholder funds</td><td>1,807</td><td>2,126</td><td>2,411</td><td></td></tr><tr><td>Changes in:</td><td></td><td></td><td></td><td></td></tr><tr><td>Policy benefits and other insurance reserves</td><td>238</td><td>(577)</td><td>626</td><td></td></tr><tr><td>Unearned premiums</td><td>(40)</td><td>(247)</td><td>(359)</td><td></td></tr><tr><td>Deferred policy acquisition costs</td><td>(94)</td><td>514</td><td>141</td><td></td></tr><tr><td>Premium installment receivables, net</td><td>10</td><td>26</td><td>18</td><td></td></tr><tr><td>Reinsurance recoverables, net</td><td>(265)</td><td>(85)</td><td>(269)</td><td></td></tr><tr><td>Income taxes</td><td>200</td><td>1,660</td><td>(1,864)</td><td></td></tr><tr><td>Other operating assets and liabilities</td><td>(5)</td><td>(455)</td><td>165</td><td></td></tr><tr><td>Net cash provided by operating activities</td><td>3,689</td><td>4,301</td><td>3,910</td><td></td></tr><tr><td>Cash flows from investing activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from sales</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>22,881</td><td>21,359</td><td>22,936</td><td></td></tr><tr><td>Equity securities</td><td>4,349</td><td>6,894</td><td>9,535</td><td></td></tr><tr><td>Limited partnership interests</td><td>505</td><td>369</td><td>371</td><td></td></tr><tr><td>Mortgage loans</td><td>124</td><td>340</td><td>279</td><td></td></tr><tr><td>Other investments</td><td>121</td><td>520</td><td>171</td><td></td></tr><tr><td>Investment collections</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>5,147</td><td>5,556</td><td>4,269</td><td></td></tr><tr><td>Mortgage loans</td><td>1,076</td><td>1,764</td><td>844</td><td></td></tr><tr><td>Other investments</td><td>137</td><td>117</td><td>98</td><td></td></tr><tr><td>Investment purchases</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>(25,745)</td><td>(29,573)</td><td>(14,448)</td><td></td></tr><tr><td>Equity securities</td><td>(3,564)</td><td>(8,496)</td><td>(9,477)</td><td></td></tr><tr><td>Limited partnership interests</td><td>(1,342)</td><td>(784)</td><td>(982)</td><td></td></tr><tr><td>Mortgage loans</td><td>(120)</td><td>(26)</td><td>(500)</td><td></td></tr><tr><td>Other investments</td><td>(181)</td><td>(64)</td><td>(140)</td><td></td></tr><tr><td>Change in short-term investments, net</td><td>(382)</td><td>5,981</td><td>(8,283)</td><td></td></tr><tr><td>Change in other investments, net</td><td>(519)</td><td>(340)</td><td>(474)</td><td></td></tr><tr><td>Disposition (acquisition) of operations</td><td>7</td><td>12</td><td>(120)</td><td></td></tr><tr><td>Purchases of property and equipment, net</td><td>(162)</td><td>(189)</td><td>(291)</td><td></td></tr><tr><td>Net cash provided by investing activities</td><td>2,332</td><td>3,440</td><td>3,788</td><td></td></tr><tr><td>Cash flows from financing activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from issuance of long-term debt</td><td>—</td><td>1,003</td><td>20</td><td></td></tr><tr><td>Repayment of long-term debt</td><td>(2)</td><td>(752)</td><td>(1)</td><td></td></tr><tr><td>Contractholder fund deposits</td><td>2,980</td><td>4,150</td><td>9,984</td><td></td></tr><tr><td>Contractholder fund withdrawals</td><td>(8,470)</td><td>(11,406)</td><td>(15,480)</td><td></td></tr><tr><td>Dividends paid</td><td>(430)</td><td>(542)</td><td>(889)</td><td></td></tr><tr><td>Treasury stock purchases</td><td>(152)</td><td>(4)</td><td>(1,323)</td><td></td></tr><tr><td>Shares reissued under equity incentive plans, net</td><td>28</td><td>3</td><td>33</td><td></td></tr><tr><td>Excess tax benefits on share-based payment arrangements</td><td>(7)</td><td>(5)</td><td>3</td><td></td></tr><tr><td>Other</td><td>(18)</td><td>9</td><td>(52)</td><td></td></tr><tr><td>Net cash used in financing activities</td><td>(6,071)</td><td>(7,544)</td><td>(7,705)</td><td></td></tr><tr><td>Net (decrease) increase in cash</td><td>(50)</td><td>197</td><td>(7)</td><td></td></tr><tr><td>Cash at beginning of year</td><td>612</td><td>415</td><td>422</td><td></td></tr><tr><td>Cash at end of year</td><td>$ 562</td><td>$ 612</td><td>$ 415</td><td></td></tr></table>



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## 1. General

## Basis of presentation

The accompanying consolidated financial statements include the accounts of The Allstate Corporation and its wholly owned subsidiaries, primarily Allstate Insurance Company ("AIC"), a property-liability insurance company with various property-liability and life and investment subsidiaries, including Allstate Life Insurance Company ("ALIC") (collectively referred to as the "Company" or "Allstate"). These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All significant intercompany accounts and transactions have been eliminated.

To conform to the current year presentation, certain amounts in the prior years' consolidated financial statements and notes have been reclassified.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

## Nature of operations

Allstate is engaged, principally in the United States, in the property-liability insurance, life insurance, retirement and investment product business. Allstate's primary business is the sale of private passenger auto and homeowners insurance. The Company also sells several other personal property and casualty insurance products, life insurance, annuities, voluntary accident and health insurance, funding agreements, and select commercial property and casualty coverages. Allstate primarily distributes its products through exclusive agencies, financial specialists and independent agencies. Certain products are also sold through call centers and the internet.

The Allstate Protection segment principally sells private passenger auto and homeowners insurance, with earned premiums accounting for 83% of Allstate's 2010 consolidated revenues. Allstate was the country's second largest insurer for both private passenger auto and homeowners insurance as of December 31, 2009. Allstate Protection, through several companies, is authorized to sell certain property-liability products in all 50 states, the District of Columbia and Puerto Rico. The Company is also authorized to sell certain insurance products in Canada. For 2010, the top geographic locations for premiums earned by the Allstate Protection segment were New York, California, Texas, Florida and Pennsylvania. No other jurisdiction accounted for more than 5% of premiums earned for Allstate Protection.

Allstate has exposure to catastrophes, an inherent risk of the property-liability insurance business, which have contributed, and will continue to contribute, to material year-to-year fluctuations in the Company's results of operations and financial position (see Note 7). The nature and level of catastrophic loss caused by natural events (high winds, winter storms, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes) and man-made events (terrorism and industrial accidents) experienced in any period cannot be predicted and could be material to results of operations and financial position. The Company considers the greatest areas of potential catastrophe losses due to hurricanes to generally be major metropolitan centers in counties along the eastern and gulf coasts of the United States. The Company considers the greatest areas of potential catastrophe losses due to earthquakes and fires following earthquakes to be major metropolitan areas near fault lines in the states of California, Oregon, Washington, South Carolina, Missouri, Kentucky and Tennessee. The Company also has exposure to asbestos, environmental and other discontinued lines claims (see Note 13).

The Allstate Financial segment sells life insurance, retirement and investment products and voluntary accident and health insurance. The principal individual products are interest-sensitive, traditional and variable life insurance; fixed annuities; and voluntary accident and health insurance. The institutional product line, which the Company offers on an opportunistic basis, consists primarily of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors. Banking products and services have been offered to customers through the Allstate Bank. On February 8, 2011, the Company announced that they reached an agreement to sell substantially all of the deposits of Allstate Bank to Discover Bank and plan to enter into a multi-year distribution and marketing agreement whereby Discover Bank will provide banking products and services to Allstate customers in the future. Allstate Financial does not intend to originate banking products or services after the transaction closes, which is expected to be by mid-year 2011, pending regulatory approval.

Allstate Financial, through several companies, is authorized to sell life insurance and retirement products in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam. For 2010, the top geographic locations for statutory premiums and annuity considerations for the Allstate Financial segment were California, Florida, Texas, New York and Nebraska. No other jurisdiction accounted for more than 5% of statutory premiums and annuity considerations for Allstate Financial. Allstate Financial distributes its products to individuals through multiple



distribution channels, including Allstate exclusive agencies, which include exclusive financial specialists, independent agents (including master brokerage agencies and workplace enrolling agents), and specialized structured settlement brokers.

Allstate has exposure to market risk as a result of its investment portfolio. Market risk is the risk that the Company will incur realized and unrealized net capital losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices, or currency exchange rates. The Company's primary market risk exposures are to changes in interest rates, credit spreads and equity prices. Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of its interest bearing assets and liabilities. This risk arises from many of the Company's primary activities, as it invests substantial funds in interest-sensitive assets and issues interest-sensitive liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. Credit spread risk is the risk that the Company will incur a loss due to adverse changes in credit spreads. This risk arises from many of the Company's primary activities, as the Company invests substantial funds in spread-sensitive fixed income assets. Equity price risk is the risk that the Company will incur losses due to adverse changes in the general levels of the equity markets.

The Company monitors economic and regulatory developments that have the potential to impact its business. The ability of banks to affiliate with insurers may have a material adverse effect on all of the Company's product lines by substantially increasing the number, size and financial strength of potential competitors. Furthermore, federal and state laws and regulations affect the taxation of insurance companies and life insurance and annuity products. Congress from time to time considers legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress also considers proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company's products making them less competitive. Such proposals, if adopted, could have an adverse effect on the Company's financial position or Allstate Financial's ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.

## 2. Summary of Significant Accounting Policies

## Investments

Fixed income securities include bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), asset-backed securities (“ABS”) and redeemable preferred stocks. Fixed income securities, which may be sold prior to their contractual maturity, are designated as available for sale and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, certain life and annuity deferred policy acquisition costs (“DAC”), certain deferred sales inducement costs (“DSI”) and certain reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income. Cash received from calls, principal payments and make-whole payments is reflected as a component of proceeds from sales and cash received from maturities and pay-downs is reflected as a component of investment collections within the Consolidated Statements of Cash Flows.

Equity securities primarily include common stocks, exchange traded funds, non-redeemable preferred stocks and real estate investment trust equity investments. Equity securities are designated as available for sale and are carried at fair value. The difference between cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income.

Mortgage loans are carried at outstanding principal balances, net of unamortized premium or discount and valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected. Valuation allowances for impaired loans reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan's expected future repayment cash flows discounted at the loan's original effective interest rate.

Investments in limited partnership interests, including interests in private equity/debt funds, real estate funds, hedge funds and tax credit funds, where the Company's interest is so minor that it exercises virtually no influence over operating and financial policies, are accounted for in accordance with the cost method of accounting; otherwise, investments in limited partnership interests are accounted for in accordance with the equity method of accounting.

Short-term investments, including money market funds, commercial paper and other short-term investments, are carried at fair value. Other investments consist primarily of policy loans, derivatives and bank loans. Policy loans are carried at the unpaid principal balances and were $1.14 billion and $1.13 billion as of December 31, 2010 and 2009,



respectively. Derivatives are carried at fair value. Bank loans are primarily senior secured corporate loans and are carried at amortized cost.

Investment income consists primarily of interest, dividends, income from certain limited partnership interests and income from certain derivative transactions. Interest is recognized on an accrual basis using the effective yield method and dividends are recorded at the ex-dividend date. Interest income for certain RMBS, CMBS and ABS is determined considering estimated principal repayments obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For beneficial interests in securitized financial assets not of high credit quality, the effective yield is recalculated on a prospective basis. For all other RMBS, CMBS and ABS, the effective yield is recalculated on a retrospective basis. For other-than-temporarily impaired fixed income securities, the effective yield method utilizes the difference between the amortized cost basis at impairment and the cash flows expected to be collected. Accrual of income is suspended for other-than-temporarily impaired fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable. Accrual of income is suspended for mortgage loans and bank loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on investments on nonaccrual status are generally recorded as a reduction of carrying value. Income from investments in limited partnership interests accounted for utilizing the cost method of accounting is recognized upon receipt of amounts distributed by the partnerships as investment income. Subsequent to October 1, 2008, income from investments in limited partnership interests accounted for utilizing the equity method of accounting (“EMA limited partnerships”) is reported in realized capital gains and losses.

Realized capital gains and losses include gains and losses on investment sales, write-downs in value due to other-than-temporary declines in fair value, adjustments to valuation allowances on mortgage loans, periodic changes in the fair value and settlements of certain derivatives including hedge ineffectiveness, and income from EMA limited partnerships. Realized capital gains and losses on investment sales include calls and prepayments and are determined on a specific identification basis. Income from EMA limited partnerships is recognized based on the financial results of the partnership and the Company's proportionate investment interest, and is recognized on a delay due to the availability of the related financial statements. Income recognition on hedge funds is generally on a one month delay and income recognition on private equity/debt funds, real estate funds and tax credit funds is generally on a three month delay.

The Company recognizes other-than-temporary impairment losses on fixed income securities in earnings when a security’s fair value is less than its amortized cost and the Company has made the decision to sell or it is more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis. Additionally, if the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of a fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income (“OCI”). The Company recognizes other-than-temporary impairment losses on equity securities in earnings when the decline in fair value is considered other than temporary including when the Company does not have the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis.

## Derivative and embedded derivative financial instruments

Derivative financial instruments include interest rate swaps, credit default swaps, futures (interest rate, equity and commodity), options (including swaptions), interest rate caps and floors, warrants and rights, forward contracts to hedge foreign currency risk, certain investment risk transfer reinsurance agreements, forward sale commitments and certain bond forward purchase commitments. Derivatives required to be separated from the host instrument and accounted for as derivative financial instruments (“subject to bifurcation”) are embedded in certain fixed income securities, equity-indexed life and annuity contracts, reinsured variable annuity contracts and certain funding agreements (see Note 6).

All derivatives are accounted for on a fair value basis and reported as other investments, other assets, other liabilities and accrued expenses or contractholder funds. Embedded derivative instruments subject to bifurcation are also accounted for on a fair value basis and are reported together with the host contract. The change in fair value of derivatives embedded in certain fixed income securities and subject to bifurcation is reported in realized capital gains and losses. The change in fair value of derivatives embedded in life and annuity product contracts and subject to bifurcation is reported in life and annuity contract benefits or interest credited to contractholder funds. Cash flows from embedded derivatives requiring bifurcation and derivatives receiving hedge accounting are reported consistently with the host contracts and hedged risks, respectively, within the Consolidated Statements of Cash Flows. Cash flows from other derivatives are reported in cash flows from investing activities within the Consolidated Statements of Cash Flows.



When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. The hedged item may be either all or a specific portion of a recognized asset, liability or an unrecognized firm commitment attributable to a particular risk for fair value hedges. At the inception of the hedge, the Company formally documents the hedging relationship and risk management objective and strategy. The documentation identifies the hedging instrument, the hedged item, the nature of the risk being hedged and the methodology used to assess the effectiveness of the hedging instrument in offsetting the exposure to changes in the hedged item's fair value attributable to the hedged risk. For a cash flow hedge, this documentation includes the exposure to changes in the variability in cash flows attributable to the hedged risk. The Company does not exclude any component of the change in fair value of the hedging instrument from the effectiveness assessment. At each reporting date, the Company confirms that the hedging instrument continues to be highly effective in offsetting the hedged risk. Ineffectiveness in fair value hedges and cash flow hedges, if any, is reported in realized capital gains and losses.

Fair value hedges For hedging instruments used in fair value hedges, when the hedged items are investment assets or a portion thereof, the change in fair value of the derivatives is reported in net investment income, together with the change in the fair value of the hedged items. The change in fair value of hedging instruments used in fair value hedges of contractholder funds liabilities or a portion thereof is reported in interest credited to contractholder funds, together with the change in the fair value of the hedged items. Accrued periodic settlements on swaps are reported together with the changes in fair value of the swaps in net investment income or interest credited to contractholder funds. The amortized cost for fixed income securities, the carrying value for mortgage loans or the carrying value of the hedged liability is adjusted for the change in the fair value of the hedged risk.

Cash flow hedges For hedging instruments used in cash flow hedges, the changes in fair value of the derivatives representing the effective portion of the hedge are reported in accumulated other comprehensive income. Amounts are reclassified to net investment income, realized capital gains and losses or interest expense as the hedged or forecasted transaction affects net income. Accrued periodic settlements on derivatives used in cash flow hedges are reported in net investment income. The amount reported in accumulated other comprehensive income for a hedged transaction is limited to the lesser of the cumulative gain or loss on the derivative less the amount reclassified to net income, or the cumulative gain or loss on the derivative needed to offset the cumulative change in the expected future cash flows on the hedged transaction from inception of the hedge less the derivative gain or loss previously reclassified from accumulated other comprehensive income to net income. If the Company expects at any time that the loss reported in accumulated other comprehensive income would lead to a net loss on the combination of the hedging instrument and the hedged transaction which may not be recoverable, a loss is recognized immediately in realized capital gains and losses. If an impairment loss is recognized on an asset or an additional obligation is incurred on a liability involved in a hedge transaction, any offsetting gain in accumulated other comprehensive income is reclassified and reported together with the impairment loss or recognition of the obligation.

Termination of hedge accounting If, subsequent to entering into a hedge transaction, the derivative becomes ineffective (including if the hedged item is sold or otherwise extinguished, the occurrence of a hedged forecasted transaction is no longer probable or the hedged asset becomes other-than-temporarily impaired), the Company may terminate the derivative position. The Company may also terminate derivative instruments or redesignate them as non-hedge as a result of other events or circumstances. If the derivative instrument is not terminated when a fair value hedge is no longer effective, the future gains and losses recognized on the derivative are reported in realized capital gains and losses. When a fair value hedge is no longer effective, is redesignated as non-hedge or when the derivative has been terminated, the fair value gain or loss on the hedged asset, liability or portion thereof which has already been recognized in income while the hedge was in place and used to adjust the amortized cost for fixed income securities, the carrying value for mortgage loans or the carrying value of the hedged liability, is amortized over the remaining life of the hedged asset, liability or portion thereof, and reflected in net investment income or interest credited to contractholder funds beginning in the period that hedge accounting is no longer applied. If the hedged item in a fair value hedge is an asset which has become other-than-temporarily impaired, the adjustment made to the amortized cost for fixed income securities or the carrying value for mortgage loans is subject to the accounting policies applied to other-than-temporarily impaired assets.

When a derivative instrument used in a cash flow hedge of an existing asset or liability is no longer effective or is terminated, the gain or loss recognized on the derivative is reclassified from accumulated other comprehensive income to net income as the hedged risk impacts net income. If the derivative instrument is not terminated when a cash flow hedge is no longer effective, the future gains and losses recognized on the derivative are reported in realized capital gains and losses. When a derivative instrument used in a cash flow hedge of a forecasted transaction is terminated because it is probable the forecasted transaction will not occur, the gain or loss recognized on the derivative is



immediately reclassified from accumulated other comprehensive income to realized capital gains and losses in the period that hedge accounting is no longer applied.

Non-hedge derivative financial instruments The Company has certain derivatives for which hedge accounting is not applied. The income statement effects, including fair value gains and losses and accrued periodic settlements, of these derivatives are reported on the Consolidated Statements of Operations either in realized capital gains and losses or in a single line item together with the results of the associated asset or liability for which risks are being managed.

## Securities loaned

The Company’s business activities include securities lending transactions, which are used primarily to generate net investment income. The proceeds received in conjunction with securities lending transactions are reinvested in short-term investments or fixed income securities. These transactions are short-term in nature, usually 30 days or less.

The Company receives cash collateral for securities loaned in an amount generally equal to 102% and 105% of the fair value of domestic and foreign securities, respectively, and records the related obligations to return the collateral in other liabilities and accrued expenses. The carrying value of these obligations approximates fair value because of their relatively short-term nature. The Company monitors the market value of securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to redeem the securities loaned on short notice. Substantially all of the Company's securities loaned are placed with large banks.

## Recognition of premium revenues and contract charges, and related benefits and interest credited

Property-liability premiums are deferred and earned on a pro-rata basis over the terms of the policies, typically periods of six or twelve months. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums. Premium installment receivables, net, represent premiums written and not yet collected, net of an allowance for uncollectible premiums. The Company regularly evaluates premium installment receivables and adjusts its valuation allowance as appropriate. The valuation allowance for uncollectible premium installment receivables was $75 million and $77 million as of December 31, 2010 and 2009, respectively.

Traditional life insurance products consist principally 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 that profits are recognized over the life of the policy.

Immediate annuities with life contingencies, including certain structured settlement annuities, provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. Profits from these policies come from investment income, which is recognized over the life of the contract.

Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder, interest credited to the contractholder account balance and contract charges assessed against the contractholder account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the contract prior to contractually specified dates. These contract charges are recognized as revenue when assessed against the contractholder account balance. Life and annuity contract benefits include life-contingent benefit payments in excess of the contractholder account balance.

Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, and funding agreements (primarily backing medium-term notes) are considered investment contracts. Consideration received for such contracts is reported as contractholder fund deposits. Contract charges for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the contractholder account balance.

Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life contracts and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts 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, such as LIBOR, or an equity index, such as the Standard & Poor's ("S&P") 500 Index. Interest credited also



includes amortization of DSI expenses. DSI is amortized into interest credited using the same method used to amortize DAC.

Contract charges for variable life and variable annuity products consist of fees assessed against the contractholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Contract benefits incurred for variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. Substantially all of the Company’s variable annuity business is ceded through reinsurance agreements and the contract charges and contract benefits related thereto are reported net of reinsurance ceded.

## Deferred policy acquisition and sales inducement costs

Costs that vary with and are primarily related to acquiring property-liability insurance, life insurance and investment contracts are deferred and recorded as DAC. These costs are principally agents' and brokers' remuneration, premium taxes, inspection costs, and certain underwriting and direct mail solicitation expenses. DSI costs, which are deferred and recorded as other assets, relate to sales inducements offered on sales to new customers, principally on annuity and interest-sensitive life contracts. These sales inducements are primarily in the form of additional credits to the customer's account balance or enhancements to interest credited for a specified period which are in excess of the rates currently being credited to similar contracts without sales inducements. All other acquisition costs are expensed as incurred and included in operating costs and expenses on the Consolidated Statements of Operations. DAC associated with property-liability insurance is amortized into income as premiums are earned, typically over periods of six or twelve months, and is included in amortization of deferred policy acquisition costs on the Consolidated Statements of Operations. Future investment income is considered in determining the recoverability of DAC. Amortization of DAC associated with life insurance and investment contracts is included in amortization of deferred policy acquisition costs on the Consolidated Statements of Operations and is described in more detail below. DSI is amortized into income using the same methodology and assumptions as DAC and is included in interest credited to contractholder funds on the Consolidated Statements of Operations. DAC and DSI are periodically reviewed for recoverability and adjusted if necessary.

For traditional life insurance, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued and are generally not revised during the life of the policy. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies.

For interest-sensitive life, fixed annuities and other investment contracts, DAC and DSI are amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits ("AGP") and estimated future gross profits ("EGP") expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life and 5-10 years for fixed annuities. The cumulative DAC and DSI amortization is reestimated and adjusted by a cumulative charge or credit to results of operations when there is a difference between the incidence of actual versus expected gross profits in a reporting period or when there is a change in total EGP. When DAC or DSI amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC or DSI balance) as a result of negative AGP, the specific facts and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the consolidated financial statements. Negative amortization is only recorded when the increased DAC or DSI balance is determined to be recoverable based on facts and circumstances. Recapitalization of DAC and DSI is limited to the originally deferred costs plus interest.

AGP and EGP consist primarily of the following components: contract charges for the cost of insurance less mortality costs and other benefits; investment income and realized capital gains and losses less interest credited; and surrender and other contract charges less maintenance expenses. The principal assumptions for determining the amount of EGP are investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of persistency, mortality, expenses, and hedges if applicable. For products whose supporting investments are exposed to capital losses in excess of the Company’s expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC and DSI amortization may be modified to exclude the excess capital losses.



The Company performs quarterly reviews of DAC and DSI recoverability for interest-sensitive life, fixed annuities and other investment contracts in the aggregate using current assumptions. If a change in the amount of EGP is significant, it could result in the unamortized DAC and DSI not being recoverable, resulting in a charge which is included as a component of amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.

The DAC and DSI balances presented include adjustments to reflect the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized capital gains or losses in the respective product investment portfolios were actually realized. The adjustments are recorded net of tax in accumulated other comprehensive income. DAC, DSI and deferred income taxes determined on unrealized capital gains and losses and reported in accumulated other comprehensive income recognize the impact on shareholders' equity consistently with the amounts that would be recognized in the income statement on realized capital gains and losses.

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 purposes. Internal replacement transactions determined to result in replacement contracts that are substantially unchanged from the replaced contracts are accounted for as continuations of the replaced contracts. Unamortized DAC and DSI related to the replaced contracts continue to be deferred and amortized in connection with the replacement contracts. For interest-sensitive life insurance and investment contracts, the EGP of the replacement contracts are treated as a revision to the EGP of the replaced contracts in the determination of amortization of DAC and DSI. For traditional life and property-liability insurance policies, any changes to unamortized DAC that result from replacement contracts are treated as prospective revisions. Any costs associated with the issuance of replacement contracts are characterized as maintenance costs and expensed as incurred.

Internal replacement transactions determined to result in a substantial change to the replaced contracts are accounted for as an extinguishment of the replaced contracts, and any unamortized DAC and DSI related to the replaced contracts are eliminated with a corresponding charge to amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.

The costs assigned to the right to receive future cash flows from certain business purchased from other insurers are also classified as DAC in the Consolidated Statements of Financial Position. The costs capitalized represent the present value of future profits expected to be earned over the lives of the contracts acquired. These costs are amortized as profits emerge over the lives of the acquired business and are periodically evaluated for recoverability. The present value of future profits was $133 million and $158 million as of December 31, 2010 and 2009, respectively. Amortization expense of the present value of future profits was $23 million, $28 million and $21 million in 2010, 2009 and 2008, respectively.

## Reinsurance

In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance (see Note 9). The Company has also used reinsurance to effect the acquisition or disposition of certain blocks of business. The amounts reported in the Consolidated Statements of Financial Position as reinsurance recoverables include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities and contractholder funds that have not yet been paid. Reinsurance recoverables on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverables. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. For catastrophe coverage, the cost of reinsurance premiums is recognized ratably over the contract period to the extent coverage remains available. Reinsurance does not extinguish the Company's primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and commutations, and establishes allowances for uncollectible reinsurance as appropriate.

## Goodwill

Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired. The goodwill balances were $456 million and $418 million as of December 31, 2010 and $457 million and $418 million as of December 31, 2009 for the Allstate Protection segment and the Allstate Financial segment, respectively. The Company annually evaluates goodwill for impairment using a trading multiple analysis, which is a widely accepted valuation technique to estimate the fair value of its reporting units. If conditions warrant, a discounted cash flow analysis may also be used. The Company also reviews its goodwill for impairment whenever events or



changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill may exceed its implied fair value. Goodwill impairment evaluations indicated no impairment as of December 31, 2010 or 2009.

## Property and equipment

Property and equipment is carried at cost less accumulated depreciation. Included in property and equipment are capitalized costs related to computer software licenses and software developed for internal use. These costs generally consist of certain external payroll and payroll related costs. Certain facilities and equipment held under capital leases are also classified as property and equipment with the related lease obligations recorded as liabilities. Property and equipment depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally 3 to 10 years for equipment and 40 years for real property. Depreciation expense is reported in operating costs and expenses. Accumulated depreciation on property and equipment was $2.41 billion and $2.32 billion as of December 31, 2010 and 2009, respectively. Depreciation expense on property and equipment was $239 million, $256 million and $240 million in 2010, 2009 and 2008, respectively. The Company reviews its property and equipment for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

## Income taxes

The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses on certain investments, differences in tax bases of invested assets, insurance reserves, unearned premiums, DAC, accrued compensation and other postretirement benefits. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized (see Note 14).

## Reserves for property-liability insurance claims and claims expense and life-contingent contract benefits

The reserve for property-liability insurance claims and claims expense is the estimate of amounts necessary to settle all reported and unreported claims for the ultimate cost of insured property-liability losses, based upon the facts of each case and the Company's experience with similar cases. Estimated amounts of salvage and subrogation are deducted from the reserve for claims and claims expense. The establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. Reserve estimates are regularly reviewed and updated, using the most current information available. Any resulting reestimates are reflected in current results of operations (see Note 7).

The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses (see Note 8). These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. To the extent that unrealized gains on fixed income securities would result in a premium deficiency if those gains were realized, the related increase in reserves for certain immediate annuities with life contingencies is recorded net of tax as a reduction of unrealized net capital gains included in accumulated other comprehensive income.

## Contractholder funds

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life, fixed annuities, bank deposits and funding agreements. Contractholder funds are comprised primarily of deposits received and interest credited to the benefit of the contractholder less surrenders and withdrawals, mortality charges and administrative expenses (see Note 8). Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on reinsured variable annuity contracts.

## Separate accounts

Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders' claims to the related assets and are carried at an amount equal to the separate accounts assets. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and therefore, are not included in the Company's Consolidated Statements of Operations. Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in consolidated cash flows.



Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts' funds may not meet their stated investment objectives. Substantially all of the Company's variable annuity business was reinsured beginning in 2006.

## Deferred Employee Stock Ownership Plan (“ESOP”) expense

Deferred ESOP expense represents the remaining unrecognized cost of shares acquired by the Allstate ESOP to pre-fund a portion of the Company’s contribution to the Allstate 401(k) Savings Plan (see Note 16).

## Equity incentive plans

The Company currently has equity incentive plans that permit the Company to grant nonqualified stock options, incentive stock options, restricted or unrestricted shares of the Company’s stock and restricted stock units (“equity awards”) to certain employees and directors of the Company (see Note 17). The Company recognizes the fair value of equity awards computed at the award date over the period in which the requisite 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 extend loans, financial guarantees and credit guarantees have off-balance-sheet risk because their contractual amounts are not recorded in the Company’s Consolidated Statements of Financial Position (see Note 6 and Note 13).

## Consolidation of variable interest entities (“VIEs”)

The Company consolidates VIEs when it is the primary beneficiary. A primary beneficiary is the entity with both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE (see Note 11).

## Foreign currency translation

The local currency of the Company’s foreign subsidiaries is deemed to be the functional currency of the country in which these subsidiaries operate. The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of a reporting period for assets and liabilities and at average exchange rates during the period for results of operations. The unrealized gains and losses from the translation of the net assets are recorded as unrealized foreign currency translation adjustments and included in accumulated other comprehensive income in the Consolidated Statements of Financial Position. Changes in unrealized foreign currency translation adjustments are included in other comprehensive income. Gains and losses from foreign currency transactions are reported in operating costs and expenses and have not been material.

## Earnings per share

Basic earnings per share is computed using the weighted average number of common shares outstanding, including unvested participating restricted stock units. Diluted earnings per share is computed using the weighted average number of common and dilutive potential common shares outstanding. For the Company, dilutive potential common shares consist of outstanding stock options and unvested non-participating restricted stock units.



The computation of basic and diluted earnings per share for the years ended December 31 is presented in the following table.

<table><tr><td>($ in millions, except per share data)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Numerator:</td><td></td><td></td><td></td></tr><tr><td>Net income (loss)</td><td>$     928</td><td>$     854</td><td>$    (1,679)</td></tr><tr><td>Denominator:</td><td></td><td></td><td></td></tr><tr><td>Weighted average common shares outstanding</td><td>540.3</td><td>539.6</td><td>548.3</td></tr><tr><td>Effect of dilutive potential common shares:</td><td></td><td></td><td></td></tr><tr><td>Stock options</td><td>2.0</td><td>1.3</td><td>—</td></tr><tr><td>Restricted stock units (non-participating)</td><td>0.2</td><td>—</td><td>—</td></tr><tr><td>Weighted average common and dilutive potential common shares outstanding</td><td>542.5</td><td>540.9</td><td>548.3</td></tr><tr><td>Earnings per share - Basic</td><td>$     1.72</td><td>$     1.58</td><td>$    (3.06)</td></tr><tr><td>Earnings per share - Diluted</td><td>$     1.71</td><td>$     1.58</td><td>$    (3.06)</td></tr></table>

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 for which the unrecognized compensation cost would have an anti-dilutive effect. Options to purchase 26.7 million, 25.9 million and 27.1 million Allstate common shares, with exercise prices ranging from $27.36 to $64.53, $23.13 to $65.38 and $28.41 to $65.38, were outstanding for the years ended December 31, 2010, 2009 and 2008, respectively, but were not included in the computation of diluted earnings per share in those years.

As a result of the net loss for the year ended December 31, 2008, weighted average dilutive potential common shares outstanding resulting from stock options of 1.3 million were not included in the computation of diluted earnings per share since inclusion of these securities would have an anti-dilutive effect. In the absence of the net loss, weighted average common and dilutive potential common shares outstanding would have totaled 549.6 million for the year ended December 31, 2008.

## Adopted accounting standards

## Disclosures about Fair Value Measurements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and requires gross rather than net disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance also provides clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The Company adopted the provisions of the new guidance as of March 31, 2010, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are required for fiscal years beginning after December 15, 2010. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only; and therefore, the adoption had no impact on the Company’s results of operations or financial position.

## Consolidation of Variable Interest Entities

In June 2009, the FASB issued new accounting guidance which requires an entity to perform a qualitative analysis to determine whether it holds a controlling financial interest (i.e., is a primary beneficiary) in a VIE. The analysis identifies the primary beneficiary of a VIE as the entity that has both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company adopted the new guidance as of January 1, 2010. The adoption resulted in the consolidation of four VIEs for which the Company concluded it is the primary beneficiary as of January 1, 2010.

Two of the consolidated VIEs hold investments managed by Allstate Investment Management Company (“AIMCO”), a subsidiary of the Company. Consolidation as of January 1, 2010 resulted in an increase in total assets of $696 million, an increase in total liabilities of $679 million, an increase in retained income of $7 million and an increase in noncontrolling interest of $10 million. During the first quarter of 2010, the Company sold substantially all its variable



interests in these two VIEs. As a result, the Company deconsolidated the VIEs as of March 26, 2010. The Consolidated Statement of Operations for the year ended December 31, 2010 reflects the effect of the consolidation for the portion of the year the Company was the primary beneficiary, which was not material.

The adoption also resulted in the consolidation of two insurance company affiliates, Allstate Texas Lloyds and Allstate County Mutual Insurance Company, that underwrote homeowners and auto insurance policies, respectively, and reinsure all of their net business to AIC. Consolidation as of January 1, 2010 resulted in an increase in total assets of $38 million, an increase in total liabilities of $34 million, an increase in retained income of $3 million and an increase in unrealized net capital gains and losses of $1 million.

In the normal course of investing activities, the Company invests in variable interests issued by VIEs. These variable interests include structured investments such as RMBS, CMBS and ABS as well as limited partnerships, special purpose entities and trusts. For these variable interests, the Company concluded it is not the primary beneficiary due to the amount of the Company's interest in the VIEs and the Company's lack of power to direct the activities that are most significant to the economic performance of the VIEs. The Company's maximum exposure to loss on these interests is limited to the amount of the Company's investment, including future funding commitments, as applicable.

## Embedded Credit Derivatives Scope Exception

In March 2010, the FASB issued accounting guidance clarifying the scope exception for embedded credit derivative features, including those in certain collateralized debt obligations and synthetic collateralized debt obligations. Embedded credit derivative features related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another continue to qualify for the scope exception. Other embedded credit derivative features must be analyzed for potential bifurcation and separate accounting as a derivative, with periodic changes in fair value recorded in net income. The adoption of the new guidance as of July 1, 2010 resulted in the bifurcation of the credit default swaps embedded in synthetic collateralized debt obligations purchased after January 1, 2007, and the related net unrealized capital losses were reclassified from accumulated other comprehensive income to retained income. The cumulative effect of adoption, net of related DAC, DSI and tax adjustments, was a $19 million increase in unrealized net capital gains and losses, a $9 million decrease in total assets and a $28 million decrease in retained income.

## Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued guidance requiring expanded disclosures relating to the credit quality of financing receivables and the related allowances for credit losses. The new guidance requires a greater level of disaggregated information, as well as additional disclosures about credit quality indicators, past due information and modifications of its financing receivables. The new guidance is effective for reporting periods ending after December 15, 2010, except for disclosures related to troubled debt restructurings which have been deferred until reporting periods ending after December 15, 2011. The new guidance affects disclosures only; and therefore, the adoption as of December 31, 2010 had no impact on the Company’s results of operations or financial position.

## Pending accounting standards

## Consolidation Analysis Considering Investments Held through Separate Accounts

In April 2010, the FASB issued guidance clarifying that an insurer is not required to combine interests in investments held in a qualifying separate account with its interests in the same investments held in the general account when performing a consolidation evaluation. The guidance is effective for fiscal years and interim periods beginning after December 15, 2010 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

## Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued guidance modifying the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The guidance specifies that the costs must be based on successful efforts. The guidance also specifies that advertising costs only should be included as deferred acquisition costs if the direct-response advertising accounting criteria are met. The new guidance is effective for reporting periods beginning after December 15, 2011 and should be applied prospectively, with retrospective application permitted. The Company is in process of evaluating the impact of adoption on the Company’s results of operations and financial position.



In December 2010, the FASB issued disclosure guidance for entities that enter into business combinations that are material. The guidance specifies that if an entity presents comparative financial statements, the entity should disclose proforma revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination. The guidance is effective prospectively for business combinations entered into on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company will adopt the guidance for any business combinations entered into on or after January 1, 2011.

## 3. Supplemental Cash Flow Information

Non-cash investment exchanges, including modifications of certain mortgage loans, fixed income securities, limited partnerships and other investments, as well as mergers completed with equity securities, totaled $664 million, $485 million and $37 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending activities were $461 million, $449 million and $320 million as of December 31, 2010, 2009 and 2008, respectively, and are reported in other liabilities and accrued expenses in the Consolidated Statements of Financial Position. Obligations to return cash collateral for over-the-counter (“OTC”) derivatives were $23 million, $209 million and $20 million as of December 31, 2010, 2009 and 2008, respectively, and are reported in other liabilities and accrued expenses or other investments. The accompanying cash flows are included in cash flows from operating activities in the Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which for the years ended December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Net change in proceeds managed</td><td></td><td></td><td></td></tr><tr><td>Net change in fixed income securities</td><td>$ -</td><td>$ -</td><td>$ 559</td></tr><tr><td>Net change in short-term investments</td><td>171</td><td>(316)</td><td>2,562</td></tr><tr><td>Operating cash flow provided (used)</td><td>171</td><td>(316)</td><td>3,121</td></tr><tr><td>Net change in cash</td><td>3</td><td>(2)</td><td>-</td></tr><tr><td>Net change in proceeds managed</td><td>$ 174</td><td>$ (318)</td><td>$ 3,121</td></tr><tr><td>Net change in liabilities</td><td></td><td></td><td></td></tr><tr><td>Liabilities for collateral, beginning of year</td><td>$ (658)</td><td>$ (340)</td><td>$ (3,461)</td></tr><tr><td>Liabilities for collateral, end of year</td><td>(484)</td><td>(658)</td><td>(340)</td></tr><tr><td>Operating cash flow (used) provided</td><td>$ (174)</td><td>$ 318</td><td>$ (3,121)</td></tr></table>

## 4. Investments

## Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

<table><tr><td rowspan="2"></td><td rowspan="2">Amortized cost</td><td colspan="2">Gross unrealized</td><td rowspan="2">Fair value</td></tr><tr><td>Gains</td><td>Losses</td></tr><tr><td>December 31, 2010</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 8,320</td><td>$ 327</td><td>$ (51)</td><td>$ 8,596</td></tr><tr><td>Municipal</td><td>16,201</td><td>379</td><td>(646)</td><td>15,934</td></tr><tr><td>Corporate</td><td>36,260</td><td>1,816</td><td>(421)</td><td>37,655</td></tr><tr><td>Foreign government</td><td>2,821</td><td>347</td><td>(10)</td><td>3,158</td></tr><tr><td>RMBS</td><td>8,509</td><td>216</td><td>(732)</td><td>7,993</td></tr><tr><td>CMBS</td><td>2,213</td><td>58</td><td>(277)</td><td>1,994</td></tr><tr><td>ABS</td><td>4,425</td><td>113</td><td>(294)</td><td>4,244</td></tr><tr><td>Redeemable preferred stock</td><td>37</td><td>1</td><td>-</td><td>38</td></tr><tr><td>Total fixed income securities</td><td>$ 78,786</td><td>$ 3,257</td><td>$ (2,431)</td><td>$ 79,612</td></tr></table>



<table><tr><td rowspan="2"></td><td rowspan="2">Amortized cost</td><td colspan="2">Gross unrealized</td><td rowspan="2">Fair value</td></tr><tr><td>Gains</td><td>Losses</td></tr><tr><td>December 31, 2009</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 7,333</td><td>$ 219</td><td>$ (16)</td><td>$ 7,536</td></tr><tr><td>Municipal</td><td>21,683</td><td>537</td><td>(940)</td><td>21,280</td></tr><tr><td>Corporate</td><td>32,770</td><td>1,192</td><td>(847)</td><td>33,115</td></tr><tr><td>Foreign government</td><td>2,906</td><td>306</td><td>(15)</td><td>3,197</td></tr><tr><td>RMBS</td><td>9,487</td><td>130</td><td>(1,630)</td><td>7,987</td></tr><tr><td>CMBS</td><td>3,511</td><td>30</td><td>(955)</td><td>2,586</td></tr><tr><td>ABS</td><td>3,514</td><td>62</td><td>(550)</td><td>3,026</td></tr><tr><td>Redeemable preferred stock</td><td>39</td><td>1</td><td>(1)</td><td>39</td></tr><tr><td>Total fixed income securities</td><td>$ 81,243</td><td>$ 2,477</td><td>$ (4,954)</td><td>$ 78,766</td></tr></table>

## Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of December 31, 2010:

<table><tr><td>($ in millions)</td><td>Amortized cost</td><td>Fair value</td></tr><tr><td>Due in one year or less</td><td>$ 3,147</td><td>$ 3,185</td></tr><tr><td>Due after one year through five years</td><td>23,905</td><td>24,688</td></tr><tr><td>Due after five years through ten years</td><td>16,551</td><td>17,484</td></tr><tr><td>Due after ten years</td><td>22,249</td><td>22,018</td></tr><tr><td></td><td>65,852</td><td>67,375</td></tr><tr><td>RMBS and ABS</td><td>12,934</td><td>12,237</td></tr><tr><td>Total</td><td>$ 78,786</td><td>$ 79,612</td></tr></table>

Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity. CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk.

## Net investment income

Net investment income for the years ended December 31 is as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ 3,737</td><td>$ 3,998</td><td>$ 4,783</td></tr><tr><td>Equity securities</td><td>90</td><td>80</td><td>120</td></tr><tr><td>Mortgage loans</td><td>385</td><td>498</td><td>618</td></tr><tr><td>Limited partnership interests</td><td>40</td><td>17</td><td>62</td></tr><tr><td>Short-term investments</td><td>8</td><td>27</td><td>195</td></tr><tr><td>Other</td><td>19</td><td>(10)</td><td>54</td></tr><tr><td>Investment income, before expense</td><td>4,279</td><td>4,610</td><td>5,832</td></tr><tr><td>Investment expense</td><td>(177)</td><td>(166)</td><td>(210)</td></tr><tr><td>Net investment income</td><td>$ 4,102</td><td>$ 4,444</td><td>$ 5,622</td></tr></table>



## Realized capital gains and losses

Realized capital gains and losses by asset type for the years ended December 31 are as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ (366)</td><td>$ (302)</td><td>$ (2,781)</td></tr><tr><td>Equity securities</td><td>153</td><td>181</td><td>(1,149)</td></tr><tr><td>Mortgage loans</td><td>(71)</td><td>(144)</td><td>(94)</td></tr><tr><td>Limited partnership interests</td><td>57</td><td>(446)</td><td>(194)</td></tr><tr><td>Derivatives</td><td>(600)</td><td>206</td><td>(821)</td></tr><tr><td>Other</td><td>—</td><td>(78)</td><td>(51)</td></tr><tr><td>Realized capital gains and losses</td><td>$ (827)</td><td>$ (583)</td><td>$ (5,090)</td></tr></table>

Realized capital gains and losses by transaction type for the years ended December 31 are as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Impairment write-downs</td><td>$ (797)</td><td>$ (1,562)</td><td>$ (1,983)</td></tr><tr><td>Change in intent write-downs</td><td>(204)</td><td>(357)</td><td>(1,752)</td></tr><tr><td>Net other-than-temporary impairment (“OTTI”)</td><td></td><td></td><td></td></tr><tr><td>losses recognized in earnings</td><td>(1,001)</td><td>(1,919)</td><td>(3,735)</td></tr><tr><td>Sales</td><td>686</td><td>1,272</td><td>(464)</td></tr><tr><td>Valuation of derivative instruments</td><td>(427)</td><td>367</td><td>(1,280)</td></tr><tr><td>Settlements of derivative instruments</td><td>(174)</td><td>(162)</td><td>486</td></tr><tr><td>EMA limited partnership income</td><td>89</td><td>(141)</td><td>(97)</td></tr><tr><td>Realized capital gains and losses</td><td>$ (827)</td><td>$ (583)</td><td>$ (5,090)</td></tr></table>

Gross gains of $819 million, $1.21 billion and $718 million and gross losses of $435 million, $373 million and $485 million were realized on sales of fixed income securities during 2010, 2009 and 2008, respectively.

Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">2010</td><td colspan="4">2009</td></tr><tr><td>Gross</td><td colspan="2">Included in OCI</td><td>Net</td><td colspan="2">Gross</td><td colspan="2">Included in OCI</td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ (203)</td><td>$ 24</td><td>$ (179)</td><td>$ (140)</td><td>$ 10</td><td>$ (130)</td><td></td><td></td></tr><tr><td>Corporate</td><td>(68)</td><td>2</td><td>(66)</td><td>(213)</td><td>(13)</td><td>(226)</td><td></td><td></td></tr><tr><td>Foreign government</td><td>—</td><td>—</td><td>—</td><td>(17)</td><td>—</td><td>(17)</td><td></td><td></td></tr><tr><td>RMBS</td><td>(381)</td><td>(47)</td><td>(428)</td><td>(672)</td><td>384</td><td>(288)</td><td></td><td></td></tr><tr><td>CMBS</td><td>(94)</td><td>(27)</td><td>(121)</td><td>(411)</td><td>102</td><td>(309)</td><td></td><td></td></tr><tr><td>ABS</td><td>(14)</td><td>(16)</td><td>(30)</td><td>(208)</td><td>(26)</td><td>(234)</td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>(760)</td><td>(64)</td><td>(824)</td><td>(1,661)</td><td>457</td><td>(1,204)</td><td></td><td></td></tr><tr><td>Equity securities</td><td>(57)</td><td>—</td><td>(57)</td><td>(264)</td><td>—</td><td>(264)</td><td></td><td></td></tr><tr><td>Mortgage loans</td><td>(71)</td><td>—</td><td>(71)</td><td>(103)</td><td>—</td><td>(103)</td><td></td><td></td></tr><tr><td>Limited partnership interests</td><td>(46)</td><td>—</td><td>(46)</td><td>(308)</td><td>—</td><td>(308)</td><td></td><td></td></tr><tr><td>Other</td><td>(3)</td><td>—</td><td>(3)</td><td>(40)</td><td>—</td><td>(40)</td><td></td><td></td></tr><tr><td>Other-than-temporary impairment losses</td><td>$ (937)</td><td>$ (64)</td><td>$ (1,001)</td><td>$ (2,376)</td><td>$ 457</td><td>$ (1,919)</td><td></td><td></td></tr></table>

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities as of December 31, which were not included in earnings, are presented in the following table. The amount excludes $322 million and $192 million as of December 31, 2010 and



2009, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Municipal</td><td>$ (27)</td><td>$ (10)</td></tr><tr><td>Corporate</td><td>$ (31)</td><td>$ (51)</td></tr><tr><td>RMBS</td><td>$ (467)</td><td>$ (594)</td></tr><tr><td>CMBS</td><td>$ (49)</td><td>$ (127)</td></tr><tr><td>ABS</td><td>$ (41)</td><td>$ (89)</td></tr><tr><td>Total</td><td>$ (615)</td><td>$ (871)</td></tr></table>

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Beginning balance</td><td>$ (1,187)</td><td>$ —</td></tr><tr><td>Beginning balance of cumulative credit loss for securities held as of April 1, 2009</td><td>—</td><td>(1,357)</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>81</td><td>—</td></tr><tr><td>Additional credit loss for securities previously other-than-temporarily impaired</td><td>(314)</td><td>(136)</td></tr><tr><td>Additional credit loss for securities not previously other-than-temporarily impaired</td><td>(312)</td><td>(518)</td></tr><tr><td>Reduction in credit loss for securities disposed or collected</td><td>638</td><td>824</td></tr><tr><td>Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell</td><td>43</td><td>—</td></tr><tr><td>Change in credit loss due to accretion of increase in cash flows</td><td>5</td><td>—</td></tr><tr><td>Ending balance</td><td>$ (1,046)</td><td>$ (1,187)</td></tr></table>

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.



## Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Fair value</td><td colspan="3">Gross unrealized</td><td rowspan="2">Unrealized net gains (losses)</td></tr><tr><td>Gains</td><td>Losses</td><td></td></tr><tr><td>December 31, 2010</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities (1)</td><td>$ 79,612</td><td>$ 3,257</td><td>$ (2,431)</td><td>$ 826</td><td></td></tr><tr><td>Equity securities</td><td>4,811</td><td>646</td><td>(63)</td><td>583</td><td></td></tr><tr><td>Short-term investments</td><td>3,279</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Derivative instruments (2)</td><td>(17)</td><td>2</td><td>(24)</td><td>(22)</td><td></td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td></td><td></td><td></td><td>1,387</td><td></td></tr><tr><td>Amounts recognized for:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance reserves (3)</td><td></td><td></td><td></td><td>(41)</td><td></td></tr><tr><td>DAC and DSI (4)</td><td></td><td></td><td></td><td>97</td><td></td></tr><tr><td>Amounts recognized</td><td></td><td></td><td></td><td>56</td><td></td></tr><tr><td>Deferred income taxes</td><td></td><td></td><td></td><td>(508)</td><td></td></tr><tr><td>Unrealized net capital gains and losses, after-tax</td><td></td><td></td><td></td><td>$ 935</td><td></td></tr></table>

(1) Unrealized net capital gains and losses for fixed income securities as of December 31, 2010 comprises $293 million related to unrealized net capital losses on fixed income securities with OTTI and $1.12 billion related to other unrealized net capital gains and losses.

(2) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

(3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

<table><tr><td rowspan="2">December 31, 2009</td><td rowspan="2">Fair value</td><td colspan="3">Gross unrealized</td><td rowspan="2">Unrealized net gains (losses)</td></tr><tr><td>Gains</td><td>Losses</td><td></td></tr><tr><td>Fixed income securities (1)</td><td>$ 78,766</td><td>$ 2,477</td><td>$ (4,954)</td><td>$ (2,477)</td><td></td></tr><tr><td>Equity securities</td><td>5,024</td><td>381</td><td>(202)</td><td>179</td><td></td></tr><tr><td>Short-term investments</td><td>3,056</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Derivative instruments (2)</td><td>(20)</td><td>2</td><td>(25)</td><td>(23)</td><td></td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td></td><td></td><td></td><td>(2,321)</td><td></td></tr><tr><td>Amounts recognized for:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance reserves</td><td></td><td></td><td></td><td>—</td><td></td></tr><tr><td>DAC and DSI</td><td></td><td></td><td></td><td>990</td><td></td></tr><tr><td>Amounts recognized</td><td></td><td></td><td></td><td>990</td><td></td></tr><tr><td>Deferred income taxes</td><td></td><td></td><td></td><td>461</td><td></td></tr><tr><td>Unrealized net capital gains and losses, after-tax</td><td></td><td></td><td></td><td>(870)</td><td></td></tr></table>



## Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the years ended December 31 is as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Fixed income securities</td><td>$ 3,303</td><td>$ 6,019</td><td>$ (9,452)</td></tr><tr><td>Equity securities</td><td>404</td><td>511</td><td>(1,322)</td></tr><tr><td>Short-term investments</td><td>—</td><td>(3)</td><td>3</td></tr><tr><td>Derivative instruments</td><td>1</td><td>(34)</td><td>44</td></tr><tr><td>Total</td><td>3,708</td><td>6,493</td><td>(10,727)</td></tr><tr><td>Amounts recognized for:</td><td></td><td></td><td></td></tr><tr><td>Insurance reserves</td><td>(41)</td><td>378</td><td>681</td></tr><tr><td>DAC and DSI</td><td>(893)</td><td>(2,510)</td><td>2,988</td></tr><tr><td>(Decrease) increase in amounts recognized</td><td>(934)</td><td>(2,132)</td><td>3,669</td></tr><tr><td>Deferred income taxes</td><td>(969)</td><td>(1,493)</td><td>2,432</td></tr><tr><td>Increase (decrease) in unrealized net capital gains and losses</td><td>$ 1,805</td><td>$ 2,868</td><td>$ (4,626)</td></tr></table>

## Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings. For equity securities managed by a third party, the Company has contractually retained its decision making authority as it pertains to selling equity securities that are in an unrealized loss position.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.



condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $1.37 billion, $868 million are related to below investment grade fixed income securities and $11 million are related to equity securities. Of these amounts, $794 million of the below investment grade fixed income securities had been in an unrealized loss position for a period of twelve or more consecutive months as of December 31, 2010. Unrealized losses on below investment grade securities are principally related to RMBS, CMBS and ABS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations.

RMBS, CMBS and ABS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities' positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for RMBS and ABS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable. Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities, taking into consideration credit enhancements from reliable bond insurers, where applicable. Unrealized losses on equity securities are primarily related to equity market fluctuations.

As of December 31, 2010, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. As of December 31, 2010, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

## Limited partnerships

As of December 31, 2010 and 2009, the carrying value of equity method limited partnership interests totaled $2.47 billion and $1.64 billion, respectively. The Company recognizes an impairment loss for equity method investments when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. In 2010, 2009 and 2008, the Company had write-downs related to equity method limited partnership interests of $1 million, $11 million and $29 million, respectively.

As of December 31, 2010 and 2009, the carrying value for cost method limited partnership interests was $1.35 billion and $1.10 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee's capital. Additionally, the Company's portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds. The Company had write-downs related to cost method investments in 2010, 2009 and 2008 of $45 million, $297 million and $83 million, respectively.

## Mortgage loans

The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located throughout the United States and totaled, net of valuation allowance, $6.68 billion and $7.94 billion as of December 31, 2010 and 2009, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower. The following table shows the principal geographic distribution of commercial real estate



represented in the Company’s mortgage portfolio. No other state represented more than 5% of the portfolio as of December 31.

<table><tr><td>(% of mortgage portfolio carrying value)</td><td>2010</td><td>2009</td></tr><tr><td>California</td><td>23.2%</td><td>22.6%</td></tr><tr><td>Illinois</td><td>9.4</td><td>9.4</td></tr><tr><td>New York</td><td>6.6</td><td>6.3</td></tr><tr><td>New Jersey</td><td>6.5</td><td>5.9</td></tr><tr><td>Pennsylvania</td><td>5.6</td><td>6.0</td></tr><tr><td>Texas</td><td>5.3</td><td>5.0</td></tr></table>

The types of properties collateralizing the mortgage loans as of December 31 are as follows:

<table><tr><td>(% of mortgage portfolio carrying value)</td><td>2010</td><td>2009</td></tr><tr><td>Office buildings</td><td>32.1%</td><td>35.3%</td></tr><tr><td>Retail</td><td>27.3</td><td>24.2</td></tr><tr><td>Warehouse</td><td>21.9</td><td>23.2</td></tr><tr><td>Apartment complex</td><td>12.8</td><td>11.9</td></tr><tr><td>Other</td><td>5.9</td><td>5.4</td></tr><tr><td>Total</td><td>100.0%</td><td>100.0%</td></tr></table>

The contractual maturities of the mortgage loan portfolio as of December 31, 2010, excluding $62 million of mortgage loans in the process of foreclosure, are as follows:

<table><tr><td>($ in millions)</td><td>Number of loans</td><td>Carrying value</td><td>Percent</td></tr><tr><td>2011</td><td>55</td><td>624</td><td>9.4%</td></tr><tr><td>2012</td><td>85</td><td>806</td><td>12.2</td></tr><tr><td>2013</td><td>76</td><td>655</td><td>9.9</td></tr><tr><td>2014</td><td>77</td><td>1,029</td><td>15.5</td></tr><tr><td>Thereafter</td><td>347</td><td>3,503</td><td>53.0</td></tr><tr><td>Total</td><td>640</td><td>6,617</td><td>100.0%</td></tr></table>

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Mortgage loan valuation allowances are charged off when there is no reasonable expectation of recovery.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process. The



following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans as of December 31, 2010, summarized by debt service coverage ratio distribution:

<table><tr><td>($ in millions)</td><td>Fixed rate</td><td>Variable rate</td><td></td></tr><tr><td>Debt service coverage ratio distribution</td><td>mortgage loans</td><td>mortgage loans</td><td>Total</td></tr><tr><td>Below 1.0</td><td>$ 280</td><td>$ —</td><td>$ 280</td></tr><tr><td>1.0 - 1.25</td><td>1,583</td><td>16</td><td>1,599</td></tr><tr><td>1.26 - 1.50</td><td>1,520</td><td>5</td><td>1,525</td></tr><tr><td>Above 1.50</td><td>2,540</td><td>546</td><td>3,086</td></tr><tr><td>Total non-impaired mortgage loans</td><td>$ 5,923</td><td>$ 567</td><td>$ 6,490</td></tr></table>

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans as of December 31 is as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Impaired mortgage loans with a valuation allowance</td><td>$ 168</td><td>$ 367</td></tr><tr><td>Impaired loans without a valuation allowance</td><td>21</td><td>16</td></tr><tr><td>Total impaired mortgage loans</td><td>$ 189</td><td>$ 383</td></tr><tr><td>Valuation allowance on impaired mortgage loans</td><td>$ 84</td><td>$ 95</td></tr></table>

The average balance of impaired loans was $278 million, $327 million and $44 million during 2010, 2009 and 2008, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Beginning balance</td><td>$ 95</td><td>$ 4</td><td>$ —</td></tr><tr><td>Net increase in valuation allowance</td><td>65</td><td>97</td><td>4</td></tr><tr><td>Charge offs</td><td>(76)</td><td>(6)</td><td>—</td></tr><tr><td>Ending balance</td><td>$ 84</td><td>$ 95</td><td>$ 4</td></tr></table>

Past due mortgage loans carrying value as of December 31, 2010 is as follows:

<table><tr><td>(\( in millions)</td><td></td><td></td><td></td></tr><tr><td>Less than 90 days past due</td><td>$ 12</td><td></td><td></td></tr><tr><td>90 days or greater past due</td><td>78</td><td></td><td></td></tr><tr><td>Total past due</td><td>90</td><td></td><td></td></tr><tr><td>Current loans</td><td>6,589</td><td></td><td></td></tr><tr><td>Total mortgage loans</td><td>$ 6,679</td><td></td><td></td></tr></table>

## Municipal bonds

The Company maintains a diversified portfolio of municipal bonds. The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31. No other state represents more than 5% of the portfolio.

<table><tr><td>(% of municipal bond portfolio carrying value)</td><td>2010</td><td>2009</td></tr><tr><td>California</td><td>12.3%</td><td>13.3%</td></tr><tr><td>Texas</td><td>10.1</td><td>8.9</td></tr><tr><td>Florida</td><td>5.8</td><td>5.9</td></tr><tr><td>Illinois</td><td>4.4</td><td>5.3</td></tr></table>



## Concentration of credit risk

As of December 31, 2010, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholders’ equity.

## Securities loaned

The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2010 and 2009, fixed income securities with a carrying value of $448 million and $434 million, respectively, were on loan under these agreements. In return, the Company receives cash that it invests and includes in short-term investments and fixed income securities, with an offsetting liability recorded in other liabilities and accrued expenses to account for the Company’s obligation to return the collateral. Interest income on collateral, net of fees, was $2 million in both 2010 and 2009 and $48 million in 2008.

## Other investment information

Included in fixed income securities are below investment grade assets totaling $6.66 billion and $4.98 billion as of December 31, 2010 and 2009, respectively.

As of December 31, 2010, fixed income securities and short-term investments with a carrying value of $281 million were on deposit with regulatory authorities as required by law.

As of December 31, 2010, the carrying value of fixed income securities that were non-income producing was $35 million.

## 5. Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining



whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.

The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable. This occurs in two primary instances. The first relates to the Company’s use of broker quotes. The second relates to auction rate securities (“ARS”) backed by student loans for which a key input, the anticipated date liquidity will return to this market, is not market observable.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans and policy loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the consolidated financial statements. In addition, derivatives embedded in fixed income securities are not disclosed in the hierarchy as free-standing derivatives since they are presented with the host contracts in fixed income securities. As of December 31, 2010, 74.1% of total assets are measured at fair value and 0.9% of total liabilities are measured at fair value.

In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.

Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

## Level 1 measurements

- Fixed income securities: Comprise U.S. Treasuries. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

- Equity securities: Comprise actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

- Short-term: Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

- Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

## Level 2 measurements

• Fixed income securities:

U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

RMBS – U.S. government sponsored entities (“U.S. Agency”), Prime residential mortgage-backed securities (“Prime”) and Alt-A residential mortgage-backed securities (“Alt-A”); ABS – auto and student loans and other: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.



CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

• Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.

- Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value.

- Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

OTC derivatives, including interest rate swaps, foreign currency swaps, foreign exchange forward contracts, and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

## Level 3 measurements

## • Fixed income securities:

Municipal: ARS primarily backed by student loans that have become illiquid due to failures in the auction market are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including estimates of future coupon rates if auction failures continue, the anticipated date liquidity will return to the market and illiquidity premium. Also included are municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners ("NAIC"), and other high-yield municipal bonds. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed: Primarily valued based on non-binding broker quotes. Also included are equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, such as volatility. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

Foreign government: Valued based on non-binding broker quotes.

RMBS – Subprime residential mortgage-backed securities (“Subprime”) and Alt-A: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Also included are Subprime and Alt-A securities that are valued based on non-binding broker quotes. Due to the reduced availability of actual market prices or relevant observable inputs as a result of the decrease in liquidity that has been experienced in the market for these securities, Subprime and certain Alt-A securities are categorized as Level 3.

CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields, collateral performance and credit spreads. Also included are CMBS that are valued based on non-binding broker quotes. Due to the reduced availability of actual market prices or relevant observable inputs as a result of the decrease in liquidity that has been experienced in the market for these securities, certain CMBS are categorized as Level 3.

ABS – Collateralized debt obligations (“CDO”): Valued based on non-binding broker quotes received from brokers who are familiar with the investments. Due to the reduced availability of actual market prices or



relevant observable inputs as a result of the decrease in liquidity that has been experienced in the market for these securities, all CDO are categorized as Level 3.

ABS – student loans and other: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Also included are ABS that are valued based on non-binding broker quotes. Due to the reduced availability of actual market prices or relevant observable inputs as a result of the decrease in liquidity that has been experienced in the market for these securities, certain ABS are categorized as Level 3.

- Other investments: Certain OTC derivatives, such as interest rate caps and floors, certain credit default swaps and OTC options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

- Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.

## Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are valued using net asset values.



The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2010:

<table><tr><td>($ in millions)</td><td>Quoted prices in active markets for identical assets (Level 1)</td><td>Significant other observable inputs (Level 2)</td><td>Significant unobservable inputs (Level 3)</td><td>Counterparty and cash collateral netting</td><td>Balance as of December 31, 2010</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 4,976</td><td>$ 3,620</td><td>$ —</td><td></td><td>$ 8,596</td></tr><tr><td>Municipal</td><td>—</td><td>13,918</td><td>2,016</td><td></td><td>15,934</td></tr><tr><td>Corporate</td><td>—</td><td>35,747</td><td>1,908</td><td></td><td>37,655</td></tr><tr><td>Foreign government</td><td>—</td><td>3,158</td><td>—</td><td></td><td>3,158</td></tr><tr><td>RMBS</td><td>—</td><td>6,199</td><td>1,794</td><td></td><td>7,993</td></tr><tr><td>CMBS</td><td>—</td><td>1,071</td><td>923</td><td></td><td>1,994</td></tr><tr><td>ABS</td><td>—</td><td>1,827</td><td>2,417</td><td></td><td>4,244</td></tr><tr><td>Redeemable preferred stock</td><td>—</td><td>37</td><td>1</td><td></td><td>38</td></tr><tr><td>Total fixed income securities</td><td>4,976</td><td>65,577</td><td>9,059</td><td></td><td>79,612</td></tr><tr><td>Equity securities</td><td>4,316</td><td>432</td><td>63</td><td></td><td>4,811</td></tr><tr><td>Short-term investments</td><td>174</td><td>3,105</td><td>—</td><td></td><td>3,279</td></tr><tr><td>Other investments:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives</td><td>—</td><td>651</td><td>74</td><td>$ (286)</td><td>439</td></tr><tr><td>Separate account assets</td><td>8,676</td><td>—</td><td>—</td><td></td><td>8,676</td></tr><tr><td>Other assets</td><td>—</td><td>—</td><td>1</td><td></td><td>1</td></tr><tr><td>Total recurring basis assets</td><td>18,142</td><td>69,765</td><td>9,197</td><td>(286)</td><td>96,818</td></tr><tr><td>Non-recurring basis (1)</td><td>—</td><td>—</td><td>120</td><td></td><td>120</td></tr><tr><td>Total assets at fair value</td><td>$ 18,142</td><td>$ 69,765</td><td>$ 9,317</td><td>$ (286)</td><td>$ 96,938</td></tr><tr><td>% of total assets at fair value</td><td>18.7%</td><td>72.0%</td><td>9.6%</td><td>(0.3)%</td><td>100.0%</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts</td><td>$ —</td><td>$ —</td><td>$ (653)</td><td>—</td><td>$ (653)</td></tr><tr><td>Other liabilities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives</td><td>(2)</td><td>(529)</td><td>(95)</td><td>$ 263</td><td>(363)</td></tr><tr><td>Total liabilities at fair value</td><td>$ (2)</td><td>$ (529)</td><td>$ (748)</td><td>$ 263</td><td>$ (1,016)</td></tr><tr><td>% of total liabilities at fair value</td><td>0.2%</td><td>52.1%</td><td>73.6%</td><td>(25.9)%</td><td>100.0%</td></tr></table>

(1) Includes $111 million of mortgage loans and $9 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.



The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2009:

<table><tr><td>($ in millions)</td><td>Quoted prices in active markets for identical assets (Level 1)</td><td>Significant other observable inputs (Level 2)</td><td>Significant unobservable inputs (Level 3)</td><td>Counterparty and cash collateral netting</td><td>Balance as of December 31, 2009</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 4,415</td><td>$ 3,121</td><td>$ —</td><td></td><td>$ 7,536</td></tr><tr><td>Municipal</td><td>—</td><td>18,574</td><td>2,706</td><td></td><td>21,280</td></tr><tr><td>Corporate</td><td>—</td><td>30,874</td><td>2,241</td><td></td><td>33,115</td></tr><tr><td>Foreign government</td><td>—</td><td>3,177</td><td>20</td><td></td><td>3,197</td></tr><tr><td>RMBS</td><td>—</td><td>6,316</td><td>1,671</td><td></td><td>7,987</td></tr><tr><td>CMBS</td><td>—</td><td>1,182</td><td>1,404</td><td></td><td>2,586</td></tr><tr><td>ABS</td><td>—</td><td>1,025</td><td>2,001</td><td></td><td>3,026</td></tr><tr><td>Redeemable preferred stock</td><td>—</td><td>37</td><td>2</td><td></td><td>39</td></tr><tr><td>Total fixed income securities</td><td>4,415</td><td>64,306</td><td>10,045</td><td></td><td>78,766</td></tr><tr><td>Equity securities</td><td>4,821</td><td>134</td><td>69</td><td></td><td>5,024</td></tr><tr><td>Short-term investments</td><td>278</td><td>2,778</td><td>—</td><td></td><td>3,056</td></tr><tr><td>Other investments:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives</td><td>—</td><td>882</td><td>146</td><td>$ (482)</td><td>546</td></tr><tr><td>Separate account assets</td><td>9,072</td><td>—</td><td>—</td><td></td><td>9,072</td></tr><tr><td>Other assets</td><td>—</td><td>—</td><td>2</td><td></td><td>2</td></tr><tr><td>Total recurring basis assets</td><td>18,586</td><td>68,100</td><td>10,262</td><td>(482)</td><td>96,466</td></tr><tr><td>Non-recurring basis (1)</td><td>—</td><td>—</td><td>235</td><td></td><td>235</td></tr><tr><td>Total assets at fair value</td><td>$ 18,586</td><td>$ 68,100</td><td>$ 10,497</td><td>$ (482)</td><td>$ 96,701</td></tr><tr><td>% of total assets at fair value</td><td>19.2%</td><td>70.4%</td><td>10.9%</td><td>(0.5)%</td><td>100.0%</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts</td><td>$ —</td><td>$ (217)</td><td>$ (110)</td><td></td><td>$ (327)</td></tr><tr><td>Other liabilities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives</td><td>(2)</td><td>(596)</td><td>(91)</td><td>$ 276</td><td>(413)</td></tr><tr><td>Total liabilities at fair value</td><td>$ (2)</td><td>$ (813)</td><td>$ (201)</td><td>$ 276</td><td>$ (740)</td></tr><tr><td>% of total liabilities at fair value</td><td>0.3%</td><td>109.9%</td><td>27.1%</td><td>(37.3)%</td><td>100.0%</td></tr></table>

(1) Includes $211 million of mortgage loans and $24 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.



The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2010.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="8">Total realized and unrealized gains (losses) included in:</td></tr><tr><td>Balance as of December 31, 2009</td><td>Net income (1)</td><td>OCI on Statement of Financial Position</td><td>Purchases, sales, issuances and settlements, net</td><td>Transfers into Level 3</td><td>Transfers out of Level 3</td><td>Balance as of December 31, 2010</td><td></td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 2,706</td><td>$ (40)</td><td>$ 46</td><td>$ (588)</td><td>$ 38</td><td>$ (146)</td><td>$ 2,016</td><td></td></tr><tr><td>Corporate</td><td>2,241</td><td>5</td><td>115</td><td>(167)</td><td>444</td><td>(730)</td><td>1,908</td><td></td></tr><tr><td>Foreign government</td><td>20</td><td>—</td><td>—</td><td>(20)</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>RMBS</td><td>1,671</td><td>(421)</td><td>736</td><td>(135)</td><td>—</td><td>(57)</td><td>1,794</td><td></td></tr><tr><td>CMBS</td><td>1,404</td><td>(233)</td><td>592</td><td>(526)</td><td>107</td><td>(421)</td><td>923</td><td></td></tr><tr><td>ABS</td><td>2,001</td><td>55</td><td>275</td><td>553</td><td>—</td><td>(467)</td><td>2,417</td><td></td></tr><tr><td>Redeemable preferred stock</td><td>2</td><td>—</td><td>—</td><td>(1)</td><td>—</td><td>—</td><td>1</td><td></td></tr><tr><td>Total fixed income securities</td><td>10,045</td><td>(634)</td><td>1,764</td><td>(884)</td><td>589</td><td>(1,821)</td><td>9,059</td><td></td></tr><tr><td>Equity securities</td><td>69</td><td>8</td><td>5</td><td>(12)</td><td>—</td><td>(7)</td><td>63</td><td></td></tr><tr><td>Other investments:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>55</td><td>(202)</td><td>—</td><td>126</td><td>—</td><td>—</td><td>(21) (2)</td><td></td></tr><tr><td>Other assets</td><td>2</td><td>(1)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1</td><td></td></tr><tr><td>Total recurring</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Level 3 assets</td><td>$ 10,171</td><td>$ (829)</td><td>$ 1,769</td><td>$ (770)</td><td>$ 589</td><td>$ (1,828)</td><td>$ 9,102</td><td></td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts</td><td>$ (110)</td><td>$ (31)</td><td>$ —</td><td>$ 3</td><td>$ (515)</td><td>$ —</td><td>$ (653)</td><td></td></tr><tr><td>Total recurring</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Level 3 liabilities</td><td>$ (110)</td><td>$ (31)</td><td>$ —</td><td>$ 3</td><td>$ (515)</td><td>$ —</td><td>$ (653)</td><td></td></tr></table>

(1) The effect to net income totals $ (860) $  million and is reported in the Consolidated Statements of Operations as follows: $ (901) $  million in realized capital gains and losses, $ 73 $  million in net investment income, $ 1 $  million in interest credited to contractholder funds and $ 31 $  million in life and annuity contract benefits.

(2) Comprises $74 million of assets and $95 million of liabilities.

Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.

There were no transfers between Level 1 and Level 2 during 2010.

During 2010, certain CMBS and ABS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and the availability of market observable quoted prices for similar assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation approach. Accordingly, for securities included within this group, there was no change in fair value in conjunction with the transfer resulting in a realized or unrealized gain or loss.

Transfers into Level 3 during 2010, including those related to Corporate fixed income securities, included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote resulting in the security being classified as Level 3. Transfers out of Level 3 during 2010, including those related to Corporate fixed income securities, included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was



not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.

Transfers into Level 3 during 2010 also included derivatives embedded in equity-indexed life and annuity contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs.

The following table provides the total gains and (losses) included in net income during 2010 for Level 3 assets and liabilities still held as of December 31, 2010.

<table><tr><td>($ in millions)</td><td></td><td></td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td></tr><tr><td>Municipal</td><td>$ (33)</td><td></td></tr><tr><td>Corporate</td><td>40</td><td></td></tr><tr><td>RMBS</td><td>(292)</td><td></td></tr><tr><td>CMBS</td><td>(28)</td><td></td></tr><tr><td>ABS</td><td>60</td><td></td></tr><tr><td>Total fixed income securities</td><td>(253)</td><td></td></tr><tr><td>Equity securities</td><td></td><td></td></tr><tr><td>Other investments:</td><td>(3)</td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>(61)</td><td></td></tr><tr><td>Other assets</td><td>(1)</td><td></td></tr><tr><td>Total recurring Level 3 assets</td><td>$ (318)</td><td></td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Contractholder funds:</td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts</td><td>$ (31)</td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>$ (31)</td><td></td></tr></table>

The amounts in the table above represent gains and losses included in net income during 2010 for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total $349 million in 2010 and are reported in the Consolidated Statements of Operations as follows: $402 million in realized capital gains and losses, $86 million in net investment income, $2 million in interest credited to contractholder funds and $31 million in life and annuity contract benefits.



The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2009.

<table><tr><td>($ in millions)</td><td colspan="4">Total realized and unrealized gains (losses) included in:</td></tr></table>

(1) The effect to net income totals $627 million and is reported in the Consolidated Statements of Operations as follows: $889 million in realized capital gains and losses, $111 million in net investment income, $3 million in interest credited to contractholder funds and $148 million in life and annuity contract benefits.

(2) Comprises $146 million of assets and $91 million of liabilities.

(3) The amounts represent gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total $226 million and are reported in the Consolidated Statements of Operations as follows: $486 million in realized capital gains and losses, $106 million in net investment income, $6 million in interest credited to contractholder funds and $148 million in life and annuity contract benefits.



The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2008.

<table><tr><td>($ in millions)</td><td colspan="4">Total realized and unrealized gains (losses) included in:</td><td rowspan="2">Purchases, sales, issuances and settlements, net</td><td rowspan="2">Net transfers in and/or (out) of Level 3</td><td rowspan="2">Balance as of December 31, 2008</td><td rowspan="2">Total gains (losses) included in net income for financial instruments still held as of December 31, 2008 (3)</td></tr><tr><td></td><td>Balance as of January 1, 2008</td><td>Net income (1)</td><td>OCI on Statement of Financial Position</td><td>Balance as of December 31, 2008</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 1,477</td><td>$ 3</td><td>$ (385)</td><td>$ (205)</td><td>$ 1,573</td><td>$ 2,463</td><td>$ (5)</td><td></td></tr><tr><td>Corporate</td><td>12,868</td><td>(426)</td><td>(1,402)</td><td>(1,371)</td><td>526</td><td>10,195</td><td>(379)</td><td></td></tr><tr><td>Foreign government</td><td>19</td><td>1</td><td>—</td><td>(6)</td><td>(14)</td><td>—</td><td>—</td><td></td></tr><tr><td>RMBS</td><td>5,405</td><td>(971)</td><td>(731)</td><td>(1,058)</td><td>343</td><td>2,988</td><td>(708)</td><td></td></tr><tr><td>CMBS</td><td>833</td><td>(479)</td><td>(291)</td><td>(383)</td><td>777</td><td>457</td><td>(202)</td><td></td></tr><tr><td>ABS</td><td>3,769</td><td>(316)</td><td>(1,106)</td><td>(853)</td><td>220</td><td>1,714</td><td>(300)</td><td></td></tr><tr><td>Redeemable preferred stock</td><td>1</td><td>1</td><td>—</td><td>—</td><td>—</td><td>2</td><td>—</td><td></td></tr><tr><td>Total fixed income securities</td><td>24,372</td><td>(2,187)</td><td>(3,915)</td><td>(3,876)</td><td>3,425</td><td>17,819</td><td>(1,594)</td><td></td></tr><tr><td>Equity securities</td><td>129</td><td>(102)</td><td>5</td><td>20</td><td>22</td><td>74</td><td>(5)</td><td></td></tr><tr><td>Other investments:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>10</td><td>(235)</td><td>—</td><td>124</td><td>—</td><td>(101) (2)</td><td>(106)</td><td></td></tr><tr><td>Other assets</td><td>2</td><td>(1)</td><td>—</td><td>—</td><td>—</td><td>1</td><td>(1)</td><td></td></tr><tr><td>Total recurring Level 3 assets</td><td>$ 24,513</td><td>$ (2,525)</td><td>$ (3,910)</td><td>$ (3,732)</td><td>$ 3,447</td><td>$ 17,793</td><td>$ (1,706)</td><td></td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts</td><td>$ 4</td><td>$ (270)</td><td>$ —</td><td>$ 1</td><td>$ —</td><td>$ (265)</td><td>$ (270)</td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>$ 4</td><td>$ (270)</td><td>$ —</td><td>$ 1</td><td>$ —</td><td>$ (265)</td><td>$ (270)</td><td></td></tr></table>

(1) The effect to net income totals $2.79 billion and is reported in the Consolidated Statements of Operations as follows: $2.65 billion in realized capital gains and losses, $134 million in net investment income, $6 million in interest credited to contractholder funds and $270 million in life and annuity contract benefits.

(2) Comprises $13 million of assets and $114 million of liabilities.

(3) The amounts represent gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total $1.98 billion and are reported in the Consolidated Statements of Operations as follows: $1.81 billion in realized capital gains and losses, $103 million in net investment income, $1 million in interest credited to contractholder funds and $270 million in life and annuity contract benefits.

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

## Financial assets

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">December 31, 2010</td><td colspan="2">December 31, 2009</td></tr><tr><td>Carrying value</td><td>Fair value</td><td>Carrying value</td><td>Fair value</td><td></td></tr><tr><td>Mortgage loans</td><td>$ 6,679</td><td>$ 6,439</td><td>$ 7,935</td><td>$ 6,336</td><td></td></tr><tr><td>Limited partnership interests - cost basis</td><td>1,348</td><td>1,481</td><td>1,103</td><td>1,098</td><td></td></tr><tr><td>Bank loans</td><td>363</td><td>355</td><td>420</td><td>391</td><td></td></tr></table>

The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell. Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as



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

## Financial liabilities

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">December 31, 2010</td><td colspan="2">December 31, 2009</td></tr><tr><td>Carrying value</td><td>Fair value</td><td>Carrying value</td><td>Fair value</td><td></td></tr><tr><td>Contractholder funds on investment contracts</td><td>$ 36,163</td><td>$ 35,194</td><td>$ 40,943</td><td>$ 39,328</td><td></td></tr><tr><td>Long-term debt</td><td>5,908</td><td>6,325</td><td>5,910</td><td>6,016</td><td></td></tr><tr><td>Liability for collateral</td><td>484</td><td>484</td><td>658</td><td>658</td><td></td></tr></table>

The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk. Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk. Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk.

The fair value of long-term debt is based on market observable data (such as the fair value of the debt when traded as an asset) or, in certain cases, is determined using discounted cash flow calculations based on current interest rates for instruments with comparable terms and considers the Company’s own credit risk. The liability for collateral is valued at carrying value due to its short-term nature.

## 6. Derivative Financial Instruments and Off-balance-sheet Financial Instruments

The Company primarily uses derivatives for risk management, to partially mitigate potential adverse impacts from changes in risk-free interest rates, negative equity market valuations and increases in credit spreads, and asset replication. In addition, the Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company's derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis. The Company does not use derivatives for trading purposes. Non-hedge accounting is generally used for "portfolio" level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting.

Property-Liability uses interest rate swaption contracts and exchange traded options on interest rate futures to offset potential declining fixed income market values resulting from potential rising interest rates. Property-Liability also uses interest rate swaps to mitigate municipal bond interest rate risk within the municipal bond portfolio. Exchange traded equity put options are utilized by Property-Liability for overall equity portfolio protection from significant declines in equity market values below a targeted level. Equity index futures are used by Property-Liability to offset valuation losses in the equity portfolio during periods of declining equity market values. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio.

Portfolio duration management is a risk management strategy that is principally employed by Property-Liability wherein, depending on the current portfolio duration relative to a designated target and the expectations of future interest rate movements, financial futures and interest rate swaps are utilized to change the duration of the portfolio in order to offset the economic effect that interest rates would otherwise have on the fair value of its fixed income securities.

Property-Liability uses futures to hedge the market risk related to deferred compensation liability contracts and forward contracts to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations.

Allstate Financial uses foreign currency swaps primarily to reduce the foreign currency risk associated with issuing foreign currency denominated funding agreements and holding foreign currency denominated investments. Credit default swaps are also typically used to mitigate the credit risk within the Allstate Financial fixed income portfolio.



Asset-liability management is a risk management strategy that is principally employed by Allstate Financial to balance the respective interest-rate sensitivities of its assets and liabilities. Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, floors, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates. Allstate Financial uses financial futures and interest rate swaps to hedge anticipated asset purchases and liability issuances and futures and options for hedging the equity exposure contained in its equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, Allstate Financial uses interest rate swaps to hedge interest rate risk inherent in funding agreements.

When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. Allstate Financial designates certain of its interest rate and foreign currency swap contracts and certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item. Allstate Financial designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income. Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives and primarily investment grade host bonds to replicate securities that are either unavailable in the cash markets or more economical to acquire in synthetic form. The Company replicates fixed income securities using a combination of a credit default swap and one or more highly rated fixed income securities to synthetically replicate the economic characteristics of one or more cash market securities. The Company also creates “synthetic” exposure to equity markets through the use of exchange traded equity index future contracts and an investment grade host bond.

The Company’s primary embedded derivatives are conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock; equity options in Allstate Financial life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; and credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection.

The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements. However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries.

Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of legally enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Consolidated Statements of Financial Position. For certain exchange traded derivatives, the exchange requires margin deposits as well as daily cash settlements of margin accounts. As of December 31, 2010, the Company pledged $37 million of securities and cash in the form of margin deposits.

For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness. For cash flow hedges, gains and losses are amortized from accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income. For embedded derivatives in fixed income securities, net income includes the change in fair value of the embedded derivative and accretion income related to the host instrument. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable.



The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statements of Financial Position as of December 31, 2010.

<table><tr><td rowspan="3">(\( in millions, except number of contracts)</td><td colspan="6">Asset derivatives</td></tr><tr><td colspan="3">Volume (1)</td><td rowspan="2">Fair value, net</td><td rowspan="2">Gross asset</td><td rowspan="2">Gross liability</td></tr><tr><td>Notional amount</td><td>Number of contracts</td><td></td></tr><tr><td>Derivatives designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other investments</td><td>$ 156</td><td>n/a</td><td>$ (18)</td><td>$ -</td><td>$ (18)</td></tr><tr><td>Foreign currency swap agreements</td><td>Other investments</td><td>64</td><td>n/a</td><td>2</td><td>3</td><td>(1)</td></tr><tr><td>Total</td><td></td><td>$ 220</td><td>n/a</td><td>$ (16)</td><td>$ 3</td><td>$ (19)</td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other investments</td><td>$ 1,469</td><td>n/a</td><td>$ 65</td><td>$ 81</td><td>$ (16)</td></tr><tr><td>Interest rate swap agreements</td><td>Other investments</td><td>4,161</td><td>n/a</td><td>50</td><td>50</td><td>-</td></tr><tr><td>Interest rate cap and floor agreements</td><td>Other investments</td><td>226</td><td>n/a</td><td>(2)</td><td>1</td><td>(3)</td></tr><tr><td>Financial futures contracts and options</td><td>Other investments</td><td>n/a</td><td>8,000</td><td>3</td><td>3</td><td>-</td></tr><tr><td>Financial futures contracts and options</td><td>Other assets</td><td>n/a</td><td>1,420</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Equity and index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Options, futures and warrants (2)</td><td>Other investments</td><td>64</td><td>38,451</td><td>359</td><td>359</td><td>-</td></tr><tr><td>Options, futures and warrants</td><td>Other assets</td><td>n/a</td><td>292</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Foreign currency contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency swap agreements</td><td>Other investments</td><td>90</td><td>n/a</td><td>6</td><td>6</td><td>-</td></tr><tr><td>Foreign currency forwards and options</td><td>Other investments</td><td>257</td><td>n/a</td><td>6</td><td>7</td><td>(1)</td></tr><tr><td>Embedded derivative financial instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Conversion options</td><td>Fixed income securities</td><td>820</td><td>n/a</td><td>236</td><td>238</td><td>(2)</td></tr><tr><td>Equity-indexed call options</td><td>Fixed income securities</td><td>300</td><td>n/a</td><td>47</td><td>47</td><td>-</td></tr><tr><td>Credit default swaps</td><td>Fixed income securities</td><td>181</td><td>n/a</td><td>(88)</td><td>-</td><td>(88)</td></tr><tr><td>Other embedded derivative financial instruments</td><td>Other investments</td><td>1,000</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Credit default contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Credit default swaps - buying protection</td><td>Other investments</td><td>299</td><td>n/a</td><td>(5)</td><td>2</td><td>(7)</td></tr><tr><td>Credit default swaps - selling protection</td><td>Other investments</td><td>150</td><td>n/a</td><td>(8)</td><td>2</td><td>(10)</td></tr><tr><td>Other contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other contracts</td><td>Other investments</td><td>13</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other contracts</td><td>Other assets</td><td>5</td><td>n/a</td><td>1</td><td>1</td><td>-</td></tr><tr><td>Total</td><td></td><td>$ 9,035</td><td>48,163</td><td>$ 670</td><td>$ 797</td><td>$ (127)</td></tr><tr><td>Total asset derivatives</td><td></td><td>$ 9,255</td><td>48,163</td><td>$ 654</td><td>$ 800</td><td>$ (146)</td></tr></table>

(1) Volume for OTC derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)

(2) In addition to the number of contracts presented in the table, the Company held 2,768 stock rights and 1,379,932 stock warrants. Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.



<table><tr><td rowspan="3"></td><td colspan="7">Liability derivatives</td></tr><tr><td rowspan="2">Balance sheet location</td><td colspan="3">Volume (1)</td><td rowspan="2">Fair value, net</td><td rowspan="2">Gross asset</td><td rowspan="2">Gross liability</td></tr><tr><td>Notional amount</td><td>Number of contracts</td></tr><tr><td>Derivatives designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>$ 3,345</td><td>n/a</td><td>$ (181)</td><td>$ 20</td><td>$ (201)</td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Contractholder funds</td><td>—</td><td>n/a</td><td>2</td><td>2</td><td>—</td><td></td></tr><tr><td>Foreign currency swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>138</td><td>n/a</td><td>(20)</td><td>—</td><td>(20)</td><td></td></tr><tr><td>Foreign currency and interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>435</td><td>n/a</td><td>34</td><td>34</td><td>—</td><td></td></tr><tr><td>Foreign currency and interest rate swap agreements</td><td>Contractholder funds</td><td>—</td><td>n/a</td><td>28</td><td>28</td><td>—</td><td></td></tr><tr><td>Total</td><td></td><td>$ 3,918</td><td>n/a</td><td>$ (137)</td><td>$ 84</td><td>$ (221)</td><td></td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rateswap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>$ 4,543</td><td>n/a</td><td>$ 29</td><td>$ 97</td><td>$ (68)</td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>4,400</td><td>n/a</td><td>18</td><td>18</td><td>—</td><td></td></tr><tr><td>Interest rate cap and floor agreements</td><td>Other liabilities &amp; accrued expenses</td><td>3,216</td><td>n/a</td><td>(22)</td><td>1</td><td>(23)</td><td></td></tr><tr><td>Financial futures contracts and options</td><td>Other liabilities &amp; accrued expenses</td><td>n/a</td><td>15,150</td><td>(1)</td><td>—</td><td>(1)</td><td></td></tr><tr><td>Equity and index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Options and futures</td><td>Other liabilities &amp; accrued expenses</td><td>64</td><td>21,585</td><td>(168)</td><td>2</td><td>(170)</td><td></td></tr><tr><td>Foreign currency contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forwards and options</td><td>Other liabilities &amp; accrued expenses</td><td>316</td><td>n/a</td><td>1</td><td>2</td><td>(1)</td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Guaranteed accumulation benefits</td><td>Contractholder funds</td><td>1,067</td><td>n/a</td><td>(88)</td><td>—</td><td>(88)</td><td></td></tr><tr><td>Guaranteed withdrawal benefits</td><td>Contractholder funds</td><td>739</td><td>n/a</td><td>(47)</td><td>—</td><td>(47)</td><td></td></tr><tr><td>Equity-indexed and forward starting options in life and annuity product contracts</td><td>Contractholder funds</td><td>4,694</td><td>n/a</td><td>(515)</td><td>—</td><td>(515)</td><td></td></tr><tr><td>Other embedded derivative financial instruments</td><td>Contractholder funds</td><td>85</td><td>n/a</td><td>(3)</td><td>—</td><td>(3)</td><td></td></tr><tr><td>Credit default contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Credit default swaps - buying protection</td><td>Other liabilities &amp; accrued expenses</td><td>1,127</td><td>n/a</td><td>(13)</td><td>6</td><td>(19)</td><td></td></tr><tr><td>Credit default swaps - selling protection</td><td>Other liabilities &amp; accrued expenses</td><td>482</td><td>n/a</td><td>(66)</td><td>1</td><td>(67)</td><td></td></tr><tr><td>Total</td><td></td><td>$ 20,733</td><td>36,735</td><td>$ (875)</td><td>$ 127</td><td>$ (1,002)</td><td></td></tr><tr><td>Total liability derivatives</td><td></td><td>$ 24,651</td><td>36,735</td><td>$ (1,012)</td><td>$ 211</td><td>$ (1,223)</td><td></td></tr><tr><td>Total derivatives</td><td></td><td>$ 33,906</td><td>84,898</td><td>$ (358)</td><td></td><td></td><td></td></tr></table>



The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statements of Financial Position as of December 31, 2009.

<table><tr><td rowspan="3">($ in millions, except number of contracts)</td><td colspan="7">Asset derivatives</td></tr><tr><td colspan="3">Volume (1)</td><td rowspan="2">Fair value, net</td><td rowspan="2">Gross asset</td><td rowspan="2">Gross liability</td><td></td></tr><tr><td>Balance sheet location</td><td>Notional amount</td><td>Number of contracts</td><td></td></tr><tr><td>Derivatives designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other investments</td><td>$ 45</td><td>n/a</td><td>$ (3)</td><td>$</td><td>-</td><td>$ (3)</td></tr><tr><td>Foreign currency swap agreements</td><td>Other investments</td><td>23</td><td>n/a</td><td>(2)</td><td>-</td><td>-</td><td>(2)</td></tr><tr><td>Total</td><td></td><td>$ 68</td><td>n/a</td><td>$ (5)</td><td>$</td><td>-</td><td>$ (5)</td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rateswap agreements</td><td>Other investments</td><td>$ 1,206</td><td>n/a</td><td>$ 49</td><td>$ 62</td><td>$ (13)</td><td></td></tr><tr><td>Interest rate swaption agreements</td><td>Other investments</td><td>8,500</td><td>n/a</td><td>95</td><td>95</td><td>-</td><td></td></tr><tr><td>Interest rate cap and floor agreements</td><td>Other investments</td><td>52</td><td>n/a</td><td>2</td><td>2</td><td>-</td><td></td></tr><tr><td>Financial futures contracts and options</td><td>Other investments</td><td>n/a</td><td>30,000</td><td>12</td><td>12</td><td>-</td><td></td></tr><tr><td>Financial futures contracts and options</td><td>Other assets</td><td>n/a</td><td>404</td><td>-</td><td>-</td><td>-</td><td></td></tr><tr><td>Equity and index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Options, futures and warrants (2)</td><td>Other investments</td><td>62</td><td>43,850</td><td>435</td><td>435</td><td>-</td><td></td></tr><tr><td>Options, futures and warrants</td><td>Other assets</td><td>n/a</td><td>102</td><td>-</td><td>-</td><td>-</td><td></td></tr><tr><td>Foreign currency contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency swap agreements</td><td>Other investments</td><td>53</td><td>n/a</td><td>1</td><td>1</td><td>-</td><td></td></tr><tr><td>Foreign currency forwards and options</td><td>Other investments</td><td>476</td><td>n/a</td><td>5</td><td>8</td><td>(3)</td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Conversion options</td><td>Fixed income securities</td><td>936</td><td>n/a</td><td>312</td><td>316</td><td>(4)</td><td></td></tr><tr><td>Equity-indexed call options</td><td>Fixed income securities</td><td>475</td><td>n/a</td><td>89</td><td>89</td><td>-</td><td></td></tr><tr><td>Other embedded derivative financial instruments</td><td>Other investments</td><td>1,000</td><td>n/a</td><td>2</td><td>2</td><td>-</td><td></td></tr><tr><td>Credit default contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Credit default swaps - buying protection</td><td>Other investments</td><td>329</td><td>n/a</td><td>(6)</td><td>2</td><td>(8)</td><td></td></tr><tr><td>Credit default swaps - selling protection</td><td>Other investments</td><td>93</td><td>n/a</td><td>(8)</td><td>2</td><td>(10)</td><td></td></tr><tr><td>Other contracts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other contracts</td><td>Other investments</td><td>75</td><td>n/a</td><td>-</td><td>-</td><td>-</td><td></td></tr><tr><td>Other contracts</td><td>Other assets</td><td>6</td><td>n/a</td><td>2</td><td>2</td><td>-</td><td></td></tr><tr><td>Total</td><td></td><td>$ 13,263</td><td>74,356</td><td>$ 990</td><td>$ 1,028</td><td>$ (38)</td><td></td></tr><tr><td>Total asset derivatives</td><td></td><td>$ 13,331</td><td>74,356</td><td>$ 985</td><td>$ 1,028</td><td>$ (43)</td><td></td></tr></table>

(1) Volume for OTC derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)

(2) In addition to the number of contracts presented in the table, the Company held 101,255 stock rights and 1,352,432 stock warrants. Stock rights and stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.



<table><tr><td rowspan="3"></td><td colspan="6">Liability derivatives</td></tr><tr><td rowspan="2">Balance sheet location</td><td colspan="2">Volume (1)</td><td rowspan="2">Fair value, net</td><td rowspan="2">Gross asset</td><td rowspan="2">Gross liability</td></tr><tr><td>Notional amount</td><td>Number of contracts</td></tr><tr><td>Derivatives designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>$ 2,443</td><td>n/a</td><td>$ (230)</td><td>$ -</td><td>$ (230)</td></tr><tr><td>Foreign currency swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>179</td><td>n/a</td><td>(18)</td><td>3</td><td>(21)</td></tr><tr><td>Foreign currency and interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>870</td><td>n/a</td><td>231</td><td>231</td><td>-</td></tr><tr><td>Foreign currency and interest rate swap agreements</td><td>Contractholder funds</td><td>-</td><td>n/a</td><td>44</td><td>44</td><td>-</td></tr><tr><td>Total</td><td></td><td>$ 3,492</td><td>n/a</td><td>$ 27</td><td>$ 278</td><td>$ (251)</td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>$ 6,187</td><td>n/a</td><td>$ 28</td><td>$ 68</td><td>$ (40)</td></tr><tr><td>Interest rate swaption agreements</td><td>Other liabilities &amp; accrued expenses</td><td>2,000</td><td>n/a</td><td>34</td><td>34</td><td>-</td></tr><tr><td>Interest rate cap and floor agreements</td><td>Other liabilities &amp; accrued expenses</td><td>3,896</td><td>n/a</td><td>(16)</td><td>9</td><td>(25)</td></tr><tr><td>Equity and index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Options, futures and warrants</td><td>Other liabilities &amp; accrued expenses</td><td>45</td><td>21,098</td><td>(214)</td><td>3</td><td>(217)</td></tr><tr><td>Foreign currency contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency swap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>54</td><td>n/a</td><td>3</td><td>3</td><td>-</td></tr><tr><td>Foreign currency forwards and options</td><td>Other liabilities &amp; accrued expenses</td><td>185</td><td>n/a</td><td>2</td><td>2</td><td>-</td></tr><tr><td>Embedded derivative financial instruments</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Guaranteed accumulation benefits</td><td>Contractholder funds</td><td>1,113</td><td>n/a</td><td>(66)</td><td>-</td><td>(66)</td></tr><tr><td>Guaranteed withdrawal benefits</td><td>Contractholder funds</td><td>810</td><td>n/a</td><td>(41)</td><td>-</td><td>(41)</td></tr><tr><td>Equity-indexed and forward starting options in life and annuity product contracts</td><td>Contractholder funds</td><td>4,321</td><td>n/a</td><td>(217)</td><td>-</td><td>(217)</td></tr><tr><td>Other embedded derivative financial instruments</td><td>Contractholder funds</td><td>85</td><td>n/a</td><td>(3)</td><td>-</td><td>(3)</td></tr><tr><td>Credit default contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Credit default swaps - buying protection</td><td>Other liabilities &amp; accrued expenses</td><td>839</td><td>n/a</td><td>(40)</td><td>5</td><td>(45)</td></tr><tr><td>Credit default swaps - selling protection</td><td>Other liabilities &amp; accrued expenses</td><td>1,195</td><td>n/a</td><td>(65)</td><td>7</td><td>(72)</td></tr><tr><td>Total</td><td></td><td>$ 20,730</td><td>21,098</td><td>$ (595)</td><td>$ 131</td><td>$ (726)</td></tr><tr><td>Total liability derivatives</td><td></td><td>$ 24,222</td><td>21,098</td><td>$ (568)</td><td>$ 409</td><td>$ (977)</td></tr><tr><td>Total derivatives</td><td></td><td>$ 37,553</td><td>95,454</td><td>$ 417</td><td></td><td></td></tr></table>



The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships in the Consolidated Statements of Operations and the Consolidated Statements of Financial Position for the years ended December 31. Amortization of net gains from accumulated other comprehensive income related to cash flow hedges is expected to be $2 million during the next twelve months.

<table><tr><td>($ in millions)</td><td></td><td></td><td></td></tr><tr><td>Effective portion</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Gain (loss) recognized in OCI on derivatives during the period</td><td>$     3</td><td>$      (35)</td><td></td></tr><tr><td>Loss recognized in OCI on derivatives during the term of the hedging relationship</td><td>(22)</td><td>(23)</td><td></td></tr><tr><td>Gain reclassified from AOCI into income (net investment income)</td><td>-</td><td>2</td><td></td></tr><tr><td>Gain (loss) reclassified from AOCI into income (realized capital gains and losses)</td><td>2</td><td>(3)</td><td></td></tr><tr><td>Ineffective portion and amount excluded from effectiveness testing</td><td></td><td></td><td></td></tr><tr><td>Gain recognized in income on derivatives (realized capital gains and losses)</td><td>-</td><td>-</td><td></td></tr></table>

For cash flow hedges, unrealized net pre-tax gains and losses included in accumulated other comprehensive income were $22 million and $23 million as of December 31, 2010 and 2009, respectively. The net pre-tax changes in accumulated other comprehensive income due to cash flow hedges were $1 million, $34 million and $44 million in 2010, 2009 and 2008, respectively.

The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Consolidated Statements of Operations for the years ended December 31.

<table><tr><td rowspan="2">($ in millions)</td><td colspan="8">2010</td></tr><tr><td>Net investment income</td><td>Realized capital gains and losses</td><td>Life and annuity contract benefits</td><td>Interest credited to contractholder funds</td><td>Operating costs and expenses</td><td>Total gain (loss) recognized in net income on derivatives</td><td></td><td></td></tr><tr><td>Derivatives in fair value accounting hedging relationships</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>$ (139)</td><td>$ 9</td><td>$ -</td><td>$ 11</td><td>$ -</td><td>$ (119)</td><td></td><td></td></tr><tr><td>Foreign currency and interest rate contracts</td><td>-</td><td>(2)</td><td>-</td><td>(18)</td><td>-</td><td>(20)</td><td></td><td></td></tr><tr><td>Subtotal</td><td>(139)</td><td>7</td><td>-</td><td>(7)</td><td>-</td><td>(139)</td><td></td><td></td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>-</td><td>(496)</td><td>-</td><td>-</td><td>-</td><td>(496)</td><td></td><td></td></tr><tr><td>Equity and index contracts</td><td>-</td><td>(91)</td><td>-</td><td>113</td><td>18</td><td>40</td><td></td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td>-</td><td>(3)</td><td>(28)</td><td>34</td><td>-</td><td>3</td><td></td><td></td></tr><tr><td>Foreign currency contracts</td><td>-</td><td>(10)</td><td>-</td><td>-</td><td>(3)</td><td>(13)</td><td></td><td></td></tr><tr><td>Credit default contracts</td><td>-</td><td>(8)</td><td>-</td><td>-</td><td>-</td><td>(8)</td><td></td><td></td></tr><tr><td>Other contracts</td><td>-</td><td>-</td><td>-</td><td>3</td><td>-</td><td>3</td><td></td><td></td></tr><tr><td>Subtotal</td><td>-</td><td>(608)</td><td>(28)</td><td>150</td><td>15</td><td>(471)</td><td></td><td></td></tr><tr><td>Total</td><td>$ (139)</td><td>$ (601)</td><td>$ (28)</td><td>$ 143</td><td>$ 15</td><td>$ (610)</td><td></td><td></td></tr></table>



<table><tr><td rowspan="2"></td><td colspan="9">2009</td></tr><tr><td>Net investment income</td><td>Realized capital gains and losses</td><td>Life and annuity contract benefits</td><td>Interest credited to contractholder funds</td><td>Operating costs and expenses</td><td>Total gain (loss) recognized in net income on derivatives</td><td></td><td></td><td></td></tr><tr><td>Derivatives in fair value accounting hedging relationships</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>$ 30</td><td>$ 12</td><td>$ -</td><td>$ (13)</td><td>$ -</td><td>$ 29</td><td></td><td></td><td></td></tr><tr><td>Foreign currency and interest rate contracts</td><td>-</td><td>(9)</td><td>-</td><td>77</td><td>-</td><td>68</td><td></td><td></td><td></td></tr><tr><td>Subtotal</td><td>30</td><td>3</td><td>-</td><td>64</td><td>-</td><td>97</td><td></td><td></td><td></td></tr><tr><td>Derivatives not designated as accounting hedging instruments</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>-</td><td>255</td><td>-</td><td>-</td><td>-</td><td>255</td><td></td><td></td><td></td></tr><tr><td>Equity and index contracts</td><td>-</td><td>(160)</td><td>-</td><td>115</td><td>24</td><td>(21)</td><td></td><td></td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td>-</td><td>122</td><td>158</td><td>(184)</td><td>-</td><td>96</td><td></td><td></td><td></td></tr><tr><td>Foreign currency contracts</td><td>-</td><td>7</td><td>-</td><td>-</td><td>(10)</td><td>(3)</td><td></td><td></td><td></td></tr><tr><td>Credit default contracts</td><td>-</td><td>(18)</td><td>-</td><td>-</td><td>-</td><td>(18)</td><td></td><td></td><td></td></tr><tr><td>Other contracts</td><td>(1)</td><td>-</td><td>-</td><td>3</td><td>-</td><td>2</td><td></td><td></td><td></td></tr><tr><td>Subtotal</td><td>(1)</td><td>206</td><td>158</td><td>(66)</td><td>14</td><td>311</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$ 29</td><td>$ 209</td><td>$ 158</td><td>$ (2)</td><td>$ 14</td><td>$ 408</td><td></td><td></td><td></td></tr></table>

The hedge ineffectiveness reported in realized capital gains and losses amounted to gains of $7 million in 2010 and losses of $1 million and $4 million in 2009 and 2008, respectively.

The following tables provide a summary of the changes in fair value of the Company’s fair value hedging relationships in the Consolidated Statements of Operations for the years ended December 31.

<table><tr><td rowspan="2">($ in millions)</td><td colspan="4">2010</td></tr><tr><td>Gain (loss) on derivatives</td><td colspan="3">Gain (loss) on hedged risk</td></tr><tr><td>Location of gain or (loss) recognized in net income on derivatives</td><td>Interest rate contracts</td><td>Foreign currency &amp; interest rate contracts</td><td>Contractholder funds</td><td>Investments</td></tr><tr><td>Interest credited to contractholder funds</td><td>$ -</td><td>(48)</td><td>$ 48</td><td>$ -</td></tr><tr><td>Net investment income</td><td>(33)</td><td>-</td><td>-</td><td>33</td></tr><tr><td>Realized capital gains and losses</td><td>9</td><td>(2)</td><td>-</td><td>-</td></tr><tr><td>Total</td><td>(24)</td><td>(50)</td><td>48</td><td>33</td></tr><tr><td></td><td colspan="4">2009</td></tr><tr><td></td><td>Gain (loss) on derivatives</td><td colspan="3">Gain (loss) on hedged risk</td></tr><tr><td>Location of gain or (loss) recognized in net income on derivatives</td><td>Interest rate contracts</td><td>Foreign currency &amp; interest rate contracts</td><td>Contractholder funds</td><td>Investments</td></tr><tr><td>Interest credited to contractholder funds</td><td>$ (26)</td><td>$ 39</td><td>$ (13)</td><td>-</td></tr><tr><td>Net investment income</td><td>164</td><td>-</td><td>-</td><td>(164)</td></tr><tr><td>Realized capital gains and losses</td><td>12</td><td>(9)</td><td>-</td><td>-</td></tr><tr><td>Total</td><td>$ 150</td><td>$ 30</td><td>$ (13)</td><td>$ (164)</td></tr></table>

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate.



The Company uses MNAs for OTC derivative transactions, including interest rate swap, foreign currency swap, interest rate cap, interest rate floor, credit default swap, forward and certain option agreements (including swaptions). These agreements permit either party to net payments due for transactions covered by the agreements. Under the provisions of the agreements, collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of December 31, 2010, counterparties pledged $58 million in cash and securities to the Company, and the Company pledged $193 million in cash and securities to counterparties which includes $171 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $22 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk.

Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of legally enforceable master netting agreements.

The following table summarizes the counterparty credit exposure as of December 31 by counterparty credit rating as it relates to interest rate swap, foreign currency swap, interest rate cap, interest rate floor, free-standing credit default swap, forward and certain option agreements (including swaptions).

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="5">2010</td><td colspan="5">2009</td></tr><tr><td>Number of counter-parties</td><td>Notional amount (2)</td><td>Credit exposure (2)</td><td>Exposure, net of collateral (2)</td><td>Number of counter-parties</td><td>Notional amount (2)</td><td>Credit exposure (2)</td><td>Exposure, net of collateral (2)</td><td></td><td></td></tr><tr><td>Rating (1)</td><td>2</td><td>$ 2,322</td><td>$ 43</td><td>$ 16</td><td>2</td><td>$ 3,269</td><td>$ 26</td><td>$ 1</td><td></td><td></td></tr><tr><td>A+</td><td>5</td><td>3,189</td><td>16</td><td>10</td><td>5</td><td>12,359</td><td>204</td><td>57</td><td></td><td></td></tr><tr><td>A</td><td>3</td><td>3,479</td><td>17</td><td>17</td><td>3</td><td>2,551</td><td>62</td><td>30</td><td></td><td></td></tr><tr><td>A-</td><td>1</td><td>89</td><td>31</td><td>31</td><td>1</td><td>145</td><td>23</td><td>23</td><td></td><td></td></tr><tr><td>Total</td><td>11</td><td>$ 9,079</td><td>$ 107</td><td>$ 74</td><td>11</td><td>$ 18,324</td><td>$ 315</td><td>$ 111</td><td></td><td></td></tr></table>

(1) Rating is the lower of S&P or Moody's ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.

Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements. Credit-risk-contingent termination events allow the counterparties to terminate the derivative on certain dates if AIC’s, ALIC’s or Allstate Life Insurance Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level or in the event AIC, ALIC or ALNY are no longer rated by both Moody’s and S&P. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative instruments if the Company defaults by pre-determined threshold amounts on certain debt instruments. Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on AIC’s, ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event AIC, ALIC or ALNY are no longer rated by both Moody’s and S&P.



The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position as of December 31, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Gross liability fair value of contracts containing credit-risk-contingent features</td><td>$ 448</td><td>$ 429</td></tr><tr><td>Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs</td><td>(255)</td><td>(265)</td></tr><tr><td>Collateral posted under MNAs for contracts containing credit-risk-contingent features</td><td>(171)</td><td>(122)</td></tr><tr><td>Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently</td><td>$ 22</td><td>$ 42</td></tr></table>

## Credit derivatives – selling protection

Free-standing credit default swaps (“CDS”) are utilized for selling credit protection against a specified credit event. A credit default swap is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), 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”), in return for a periodic premium. In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative. CDS typically have a five-year term.

The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of December 31, 2010:

<table><tr><td rowspan="2"></td><td colspan="6">Notional amount</td><td rowspan="2">Fair value</td></tr><tr><td>AA</td><td>A</td><td>BBB</td><td>BB and lower</td><td>Total</td></tr><tr><td>Single name</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>$ 50</td><td>$ 148</td><td>$ 103</td><td>$ 25</td><td>$ 326</td><td>$ (4)</td><td></td></tr><tr><td>High yield debt</td><td>—</td><td>—</td><td>—</td><td>6</td><td>6</td><td>—</td><td></td></tr><tr><td>Municipal</td><td>135</td><td>—</td><td>—</td><td>—</td><td>135</td><td>(14)</td><td></td></tr><tr><td>Subtotal</td><td>185</td><td>148</td><td>103</td><td>31</td><td>467</td><td>(18)</td><td></td></tr><tr><td>Baskets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Tranche</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>—</td><td>—</td><td>—</td><td>65</td><td>65</td><td>(19)</td><td></td></tr><tr><td>First-to-default</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>—</td><td>100</td><td>—</td><td>—</td><td>100</td><td>(37)</td><td></td></tr><tr><td>Subtotal</td><td>—</td><td>100</td><td>—</td><td>65</td><td>165</td><td>(56)</td><td></td></tr><tr><td>Total</td><td>$ 185</td><td>$ 248</td><td>$ 103</td><td>$ 96</td><td>$ 632</td><td>$ (74)</td><td></td></tr></table>



The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of December 31, 2009:

<table><tr><td rowspan="2"></td><td colspan="7">Notional amount</td><td rowspan="2">Fair value</td></tr><tr><td>AA</td><td>A</td><td>BBB</td><td>BB and lower</td><td>Total</td><td></td><td></td></tr><tr><td>Single name</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>$ 63</td><td>$ 86</td><td>$ 84</td><td>$ 30</td><td>$ 263</td><td>$ (12)</td><td></td><td></td></tr><tr><td>High yield debt</td><td>—</td><td>—</td><td>—</td><td>10</td><td>10</td><td>—</td><td></td><td></td></tr><tr><td>Municipal</td><td>135</td><td>—</td><td>—</td><td>—</td><td>135</td><td>(10)</td><td></td><td></td></tr><tr><td>Subtotal</td><td>198</td><td>86</td><td>84</td><td>40</td><td>408</td><td>(22)</td><td></td><td></td></tr><tr><td>Baskets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Tranche</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>—</td><td>—</td><td>—</td><td>65</td><td>65</td><td>(27)</td><td></td><td></td></tr><tr><td>First-to-default</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>—</td><td>45</td><td>15</td><td>—</td><td>60</td><td>—</td><td></td><td></td></tr><tr><td>Municipal</td><td>20</td><td>135</td><td>—</td><td>—</td><td>155</td><td>(28)</td><td></td><td></td></tr><tr><td>Subtotal</td><td>20</td><td>180</td><td>15</td><td>65</td><td>280</td><td>(55)</td><td></td><td></td></tr><tr><td>Index</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investment grade corporate debt</td><td>14</td><td>159</td><td>408</td><td>19</td><td>600</td><td>4</td><td></td><td></td></tr><tr><td>Total</td><td>$ 232</td><td>$ 425</td><td>$ 507</td><td>$ 124</td><td>$ 1,288</td><td>$ (73)</td><td></td><td></td></tr></table>

In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or a specific tranche of a basket, or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement. With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed. With a FTD basket or a tranche of a basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names. CDX index is utilized to take a position on multiple (generally 125) reference entities. Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities. If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement. In a physical settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset. When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement. When a credit event occurs in a tranche of a basket, there is no immediate impact to the Company until cumulative losses in the basket exceed the contractual subordination. To date, realized losses have not exceeded the subordination. For CDX index, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration. The maximum payout on a CDS is the contract notional amount. A physical 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 names for which protection has been sold are also monitored.

In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain embedded credit default swaps which sell protection on a basket of reference entities. The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps. The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.

## Off-balance-sheet financial instruments

The contractual amounts of off-balance-sheet financial instruments as of December 31 are as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Commitments to invest in limited partnership interests</td><td>$ 1,471</td><td>$ 1,432</td></tr><tr><td>Private placement commitments</td><td>159</td><td>7</td></tr><tr><td>Other loan commitments</td><td>38</td><td>19</td></tr></table>



In the preceding table, the contractual amounts represent the amount at risk if the contract is fully drawn upon, the counterparty defaults and the value of any underlying security becomes worthless. Unless noted otherwise, the Company does not require collateral or other security to support off-balance-sheet financial instruments with credit risk.

Commitments to invest generally represent commitments to acquire financial interests or instruments. The Company enters into these agreements to allow for additional participation in certain limited partnership investments. Because the equity investments in the limited partnerships are not actively traded, it is not practical to estimate the fair value of these commitments.

Private placement commitments represent conditional commitments to purchase private placement debt and equity securities at a specified future date. The Company regularly enters into these agreements in the normal course of business. The fair value of these commitments generally cannot be estimated on the date the commitment is made as the terms and conditions of the underlying private placement securities are not yet final.

Other loan commitments are agreements to lend to a borrower provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at predetermined interest rates. Commitments generally have fixed or varying expiration dates or other termination clauses. The fair value of these commitments is insignificant.

## 7. Reserve for Property-Liability Insurance Claims and Claims Expense

As described in Note 2, the Company establishes reserves for claims and claims expense (“loss”) on reported and unreported claims of insured losses. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.

Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not reported (“IBNR”) losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported in property-liability insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined.

Activity in the reserve for property-liability insurance claims and claims expense is summarized as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Balance as of January 1</td><td>$ 19,167</td><td>$ 19,456</td><td>$ 18,865</td></tr><tr><td>Less reinsurance recoverables</td><td>2,139</td><td>2,274</td><td>2,205</td></tr><tr><td>Net balance as of January 1</td><td>17,028</td><td>17,182</td><td>16,660</td></tr><tr><td>Incurred claims and claims expense related to:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>19,110</td><td>18,858</td><td>19,894</td></tr><tr><td>Prior years</td><td>(159)</td><td>(112)</td><td>170</td></tr><tr><td>Total incurred</td><td>18,951</td><td>18,746</td><td>20,064</td></tr><tr><td>Claims and claims expense paid related to:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>12,012</td><td>11,905</td><td>12,658</td></tr><tr><td>Prior years</td><td>6,571</td><td>6,995</td><td>6,884</td></tr><tr><td>Total paid</td><td>18,583</td><td>18,900</td><td>19,542</td></tr><tr><td>Net balance as of December 31</td><td>17,396</td><td>17,028</td><td>17,182</td></tr><tr><td>Plus reinsurance recoverables</td><td>2,072</td><td>2,139</td><td>2,274</td></tr><tr><td>Balance as of December 31</td><td>$ 19,468</td><td>$ 19,167</td><td>$ 19,456</td></tr></table>



Incurred claims and claims expense represents the sum of paid losses and reserve changes in the calendar year. This expense includes losses from catastrophes of $2.21 billion, $2.07 billion and $3.34 billion in 2010, 2009 and 2008, respectively, net of reinsurance and other recoveries (see Note 9). In 2008, losses from catastrophes included $1.31 billion, net of recoveries, related to Hurricanes Ike and Gustav. These estimates include net losses in personal lines auto and property policies and net losses on commercial policies. Included in 2008 losses from catastrophes are accruals for assessments from the Texas Windstorm Insurance Association ("TWIA") (see Note 13).

Catastrophes are an inherent risk of the property-liability insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position.

The Company calculates and records a single best reserve estimate for losses from catastrophes, in conformance with generally accepted actuarial standards. As a result, management believes that no other estimate is better than the recorded amount. Due to the uncertainties involved, including the factors described above, the ultimate cost of losses may vary materially from recorded amounts, which are based on management's best estimates. Accordingly, management believes that it is not practical to develop a meaningful range for any such changes in losses incurred.

During 2010, incurred claims and claims expense related to prior years was primarily composed of net decreases in auto reserves of $179 million primarily due to claim severity development that was better than expected partially offset by a litigation settlement, net decreases in homeowners reserves of $23 million due to favorable catastrophe reserve reestimates partially offset by a litigation settlement, and net increases in other reserves of $15 million. Incurred claims and claims expense includes favorable catastrophe loss reestimates of $163 million, net of reinsurance and other recoveries.

During 2009, incurred claims and claims expense related to prior years was primarily composed of net decreases in homeowners and auto reserves of $168 million and $57 million, respectively, partially offset by increases in other reserves of $89 million. Incurred claims and claims expense includes favorable catastrophe loss reestimates of $169 million, net of reinsurance and other recoveries, primarily attributable to favorable reserve reestimates from Hurricanes Ike and Gustav and a catastrophe related subrogation recovery.

During 2008, incurred claims and claims expense related to prior years was primarily composed of net decreases in auto reserves of $27 million offset by increases in homeowners reserves of $124 million due to catastrophe loss reestimates, and increases in other reserves of $55 million. The $27 million favorable decreases in auto reserves and $55 million unfavorable increases in other reserves includes $45 million of IBNR losses reclassified from auto reserves to other reserves to be consistent with the recording of excess liability policy premiums and losses. Incurred claims and claims expense includes unfavorable catastrophe loss reestimates of $125 million, net of reinsurance and other recoveries, primarily attributable to increased claim loss and expense reserves for litigation filed in conjunction with a Louisiana deadline for filing suits related to Hurricane Katrina.

Management believes that the reserve for property-liability insurance claims and claims expense, net of reinsurance recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Consolidated Statements of Financial Position based on available facts, technology, laws and regulations.

For further discussion of asbestos and environmental reserves, see Note 13.

## 8. Reserve for Life-Contingent Contract Benefits and Contractholder Funds

As of December 31, the reserve for life-contingent contract benefits consists of the following:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Immediate fixed annuities:</td><td></td><td></td></tr><tr><td>Structured settlement annuities</td><td>$ 6,522</td><td>$ 6,406</td></tr><tr><td>Other immediate fixed annuities</td><td>2,215</td><td>2,048</td></tr><tr><td>Traditional life insurance</td><td>2,938</td><td>2,850</td></tr><tr><td>Accident and health insurance</td><td>1,720</td><td>1,514</td></tr><tr><td>Other</td><td>87</td><td>92</td></tr><tr><td>Total reserve for life-contingent contract benefits</td><td>$ 13,482</td><td>$ 12,910</td></tr></table>



The following table highlights the key assumptions generally used in calculating the reserve for life-contingent contract benefits:

<table><tr><td>Product</td><td>Mortality</td><td>Interest rate</td><td>Estimation method</td></tr><tr><td>Structured settlement annuities</td><td>U.S. population with projected calendar year improvements; mortality rates adjusted for each impaired life based on reduction in life expectancy</td><td>Interest rate assumptions range from 1.6% to 9.9%</td><td>Present value of contractually specified future benefits</td></tr><tr><td>Other immediate fixed annuities</td><td>1983 group annuity mortality table with internal modifications; 1983 individual annuity mortality table; Annuity 2000 mortality table with internal modifications; 1983 individual annuity mortality table with internal modifications</td><td>Interest rate assumptions range from 0.9% to 11.5%</td><td>Present value of expected future benefits based on historical experience</td></tr><tr><td>Traditional life insurance</td><td>Actual company experience plus loading</td><td>Interest rate assumptions range from 4.0% to 11.3%</td><td>Net level premium reserve method using the Company&#x27;s withdrawal experience rates</td></tr><tr><td>Accident and health insurance</td><td>Actual company experience plus loading</td><td></td><td>Unearned premium; additional contract reserves for mortality risk</td></tr><tr><td>Other:</td><td></td><td></td><td></td></tr><tr><td>Variable annuity guaranteed minimum death benefits (1)</td><td>100% of Annuity 2000 mortality table</td><td>Interest rate assumptions range from 4.2% to 5.2%</td><td>Projected benefit ratio applied to cumulative assessments</td></tr></table>

(1) In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”).

To the extent that unrealized gains on fixed income securities would result in a premium deficiency had those gains actually been realized, a premium deficiency reserve is recorded for certain immediate annuities with life contingencies. A liability of $41 million is included in the reserve for life-contingent contract benefits with respect to this deficiency as of December 31, 2010. The offset to this liability is recorded as a reduction of the unrealized net capital gains included in accumulated other comprehensive income. The liability was zero as of December 31, 2009.

As of December 31, contractholder funds consist of the following:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Interest-sensitive life insurance</td><td>$ 10,675</td><td>$ 10,276</td></tr><tr><td>Investment contracts:</td><td></td><td></td></tr><tr><td>Fixed annuities</td><td>33,166</td><td>36,063</td></tr><tr><td>Funding agreements backing medium-term notes</td><td>2,749</td><td>4,699</td></tr><tr><td>Other investment contracts</td><td>514</td><td>459</td></tr><tr><td>Allstate Bank deposits</td><td>1,091</td><td>1,085</td></tr><tr><td>Total contractholder funds</td><td>$ 48,195</td><td>$ 52,582</td></tr></table>



The following table highlights the key contract provisions relating to contractholder funds:

<table><tr><td>Product</td><td>Interest rate</td><td>Withdrawal/surrender charges</td></tr><tr><td>Interest-sensitive life insurance</td><td>Interest rates credited range from 0% to 11.5% for equity-indexed life (whose returns are indexed to the S&amp;P 500) and 2.0% to 6.0% for all other products</td><td>Either a percentage of account balance or dollar amount grading off generally over 20 years</td></tr><tr><td>Fixed annuities</td><td>Interest rates credited range from 0% to 9.9% for immediate annuities; (8.0)% to 14.0% for equity-indexed annuities (whose returns are indexed to the S&amp;P 500); and 0.2% to 8.5% for all other products</td><td>Either a declining or a level percentage charge generally over nine years or less. Additionally, approximately 26.5% of fixed annuities are subject to market value adjustment for discretionary withdrawals</td></tr><tr><td>Funding agreements backing medium-term notes</td><td>Interest rates credited range from 0% to 6.5% (excluding currency-swapped medium-term notes)</td><td>Not applicable</td></tr><tr><td>Other investment contracts: Guaranteed minimum income, accumulation and withdrawal benefits on variable annuities (1) and secondary guarantees on interest-sensitive life insurance and fixed annuities</td><td>Interest rates used in establishing reserves range from 1.8% to 10.3%</td><td>Withdrawal and surrender charges are based on the terms of the related interest-sensitive life insurance or fixed annuity contract</td></tr><tr><td>Allstate Bank deposits</td><td>Interest rates credited range from 0% to 5.5%</td><td>A percentage of principal balance for time deposits withdrawn prior to maturity</td></tr></table>

 \( ^{(1)} \)  In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.

Contractholder funds include funding agreements held by VIEs issuing medium-term notes. The VIEs are Allstate Life Funding, LLC, Allstate Financial Global Funding, LLC, Allstate Life Global Funding and Allstate Life Global Funding II, and their primary assets are funding agreements used exclusively to back medium-term note programs.

Contractholder funds activity for the years ended December 31 is as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Balance, beginning of year</td><td>$ 52,582</td><td>$ 58,413</td></tr><tr><td>Deposits</td><td>3,438</td><td>4,580</td></tr><tr><td>Interest credited</td><td>1,794</td><td>2,025</td></tr><tr><td>Benefits</td><td>(1,552)</td><td>(1,588)</td></tr><tr><td>Surrenders and partial withdrawals</td><td>(5,203)</td><td>(5,172)</td></tr><tr><td>Maturities and retirements of institutional products</td><td>(1,833)</td><td>(4,773)</td></tr><tr><td>Contract charges</td><td>(983)</td><td>(918)</td></tr><tr><td>Net transfers from separate accounts</td><td>11</td><td>11</td></tr><tr><td>Fair value hedge adjustments for institutional products</td><td>(196)</td><td>25</td></tr><tr><td>Other adjustments</td><td>137</td><td>(21)</td></tr><tr><td>Balance, end of year</td><td>$ 48,195</td><td>$ 52,582</td></tr></table>

The Company offered various guarantees to variable annuity contractholders. Liabilities for variable contract guarantees related to death benefits are included in the reserve for life-contingent contract benefits and the liabilities related to the income, withdrawal and accumulation benefits are included in contractholder funds in the Consolidated Statements of Financial Position. All liabilities for variable contract guarantees are reported on a gross basis on the balance sheet with a corresponding reinsurance recoverable asset for those contracts subject to reinsurance. In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.



Absent any contract provision wherein the Company guarantees either a minimum return or account value upon death, a specified contract anniversary date, partial withdrawal or annuitization, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts' funds may not meet their stated investment objectives. The account balances of variable annuities contracts' separate accounts with guarantees included $6.94 billion and $7.93 billion of equity, fixed income and balanced mutual funds and $1.09 billion and $568 million of money market mutual funds as of December 31, 2010 and 2009, respectively.

The table below presents information regarding the Company’s variable annuity contracts with guarantees. The Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts’ separate accounts with guarantees.

<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">December 31,</td></tr><tr><td>2010</td><td>2009</td><td></td></tr><tr><td>In the event of death</td><td></td><td></td><td></td></tr><tr><td>Separate account value</td><td>$ 8,029</td><td>$ 8,496</td><td></td></tr><tr><td>Net amount at risk (1)</td><td>$ 1,402</td><td>$ 2,153</td><td></td></tr><tr><td>Average attained age of contractholders</td><td>66 years</td><td>65 years</td><td></td></tr><tr><td>At annuitization (includes income benefit guarantees)</td><td></td><td></td><td></td></tr><tr><td>Separate account value</td><td>$ 1,945</td><td>$ 2,101</td><td></td></tr><tr><td>Net amount at risk (2)</td><td>$ 580</td><td>$ 906</td><td></td></tr><tr><td>Weighted average waiting period until annuitization options available</td><td>2 years</td><td>3 years</td><td></td></tr><tr><td>For cumulative periodic withdrawals</td><td></td><td></td><td></td></tr><tr><td>Separate account value</td><td>$ 735</td><td>$ 786</td><td></td></tr><tr><td>Net amount at risk (3)</td><td>$ 21</td><td>$ 42</td><td></td></tr><tr><td>Accumulation at specified dates</td><td></td><td></td><td></td></tr><tr><td>Separate account value</td><td>$ 1,100</td><td>$ 1,113</td><td></td></tr><tr><td>Net amount at risk (4)</td><td>$ 64</td><td>$ 97</td><td></td></tr><tr><td>Weighted average waiting period until guarantee date</td><td>7 years</td><td>8 years</td><td></td></tr></table>

(1) Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date.

(2) Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance.

(3) Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date.

(4) Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance.

The liability for death and income benefit guarantees is equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract benefits divided by the present value of all expected contract charges. The establishment of reserves for these guarantees requires the projection of future separate account fund performance, mortality, persistency and customer benefit utilization rates. These assumptions are periodically reviewed and updated. For guarantees related to death benefits, benefits represent the current guaranteed minimum death benefit payments in excess of the current account balance. For guarantees related to income benefits, benefits represent the present value of the minimum guaranteed annuitization benefits in excess of the current account balance.

Projected benefits and contract charges used in determining the liability for certain guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected gross profits. Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based on factors such as the extent of benefit to the potential annuitant, eligibility conditions and the annuitant's attained age. The liability for guarantees is re-evaluated periodically, and adjustments are made to the liability balance through a charge or credit to life and annuity contract benefits.

Guarantees related to withdrawal and accumulation benefits are considered to be derivative financial instruments; therefore, the liability for these benefits is established based on its fair value.



The following table summarizes the liabilities for guarantees:

<table><tr><td>($ in millions)</td><td>Liability for guarantees related to death benefits and interest-sensitive life products</td><td>Liability for guarantees related to income benefits</td><td>Liability for guarantees related to accumulation and withdrawal benefits</td><td>Total</td></tr><tr><td>Balance, December 31, 2009 (1)</td><td>$ 155</td><td>$ 287</td><td>$ 108</td><td>$ 550</td></tr><tr><td>Less reinsurance recoverables</td><td>109</td><td>268</td><td>107</td><td>484</td></tr><tr><td>Net balance as of December 31, 2009</td><td>46</td><td>19</td><td>1</td><td>66</td></tr><tr><td>Incurred guaranteed benefits</td><td>97</td><td>(2)</td><td>-</td><td>95</td></tr><tr><td>Paid guarantee benefits</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Net change</td><td>97</td><td>(2)</td><td>-</td><td>95</td></tr><tr><td>Net balance as of December 31, 2010</td><td>143</td><td>17</td><td>1</td><td>161</td></tr><tr><td>Plus reinsurance recoverables</td><td>93</td><td>210</td><td>135</td><td>438</td></tr><tr><td>Balance, December 31, 2010 (2)</td><td>$ 236</td><td>$ 227</td><td>$ 136</td><td>$ 599</td></tr><tr><td>Balance, December 31, 2008 (3)</td><td>$ 115</td><td>$ 220</td><td>$ 266</td><td>$ 601</td></tr><tr><td>Less reinsurance recoverables</td><td>81</td><td>201</td><td>266</td><td>548</td></tr><tr><td>Net balance as of December 31, 2008</td><td>34</td><td>19</td><td>-</td><td>53</td></tr><tr><td>Incurred guaranteed benefits</td><td>13</td><td>-</td><td>1</td><td>14</td></tr><tr><td>Paid guarantee benefits</td><td>(1)</td><td>-</td><td>-</td><td>(1)</td></tr><tr><td>Net change</td><td>12</td><td>-</td><td>1</td><td>13</td></tr><tr><td>Net balance as of December 31, 2009</td><td>46</td><td>19</td><td>1</td><td>66</td></tr><tr><td>Plus reinsurance recoverables</td><td>109</td><td>268</td><td>107</td><td>484</td></tr><tr><td>Balance, December 31, 2009 (1)</td><td>$ 155</td><td>$ 287</td><td>$ 108</td><td>$ 550</td></tr></table>



## 9. Reinsurance

The effects of reinsurance on property-liability insurance premiums written and earned and life and annuity premiums and contract charges for the years ended December 31 are as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Property-liability insurance premiums written</td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 26,984</td><td>$ 26,980</td><td>$ 27,667</td></tr><tr><td>Assumed</td><td>29</td><td>41</td><td>85</td></tr><tr><td>Ceded</td><td>(1,106)</td><td>(1,050)</td><td>(1,168)</td></tr><tr><td>Property-liability insurance premiums written, net of reinsurance</td><td>$ 25,907</td><td>$ 25,971</td><td>$ 26,584</td></tr><tr><td>Property-liability insurance premiums earned</td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 27,015</td><td>$ 27,200</td><td>$ 28,021</td></tr><tr><td>Assumed</td><td>34</td><td>50</td><td>85</td></tr><tr><td>Ceded</td><td>(1,092)</td><td>(1,056)</td><td>(1,139)</td></tr><tr><td>Property-liability insurance premiums earned, net of reinsurance</td><td>$ 25,957</td><td>$ 26,194</td><td>$ 26,967</td></tr><tr><td>Life and annuity premiums and contract charges</td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 2,935</td><td>$ 2,757</td><td>$ 2,754</td></tr><tr><td>Assumed</td><td>37</td><td>39</td><td>41</td></tr><tr><td>Ceded</td><td>(804)</td><td>(838)</td><td>(900)</td></tr><tr><td>Life and annuity premiums and contract charges, net of reinsurance</td><td>$ 2,168</td><td>$ 1,958</td><td>$ 1,895</td></tr></table>

## Property-Liability

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 into separate legal entities with dedicated capital. Regulatory bodies in certain cases have supported these actions. The Company is unable to determine the impact, if any, that these developments will have on the collectability of reinsurance recoverables in the future.

## Property-Liability reinsurance recoverable

Total amounts recoverable from reinsurers as of December 31, 2010 and 2009 were $2.15 billion and $2.21 billion, respectively, including $81 million and $72 million, respectively, related to property-liability losses paid by the Company and billed to reinsurers, and $2.07 billion and $2.14 billion, respectively, estimated by the Company with respect to ceded unpaid losses (including IBNR), which are not billable until the losses are paid.

With the exception of the recoverable balances from the Michigan Catastrophic Claim Association (“MCCA”), Lloyd’s of London and other industry pools and facilities, the largest reinsurance recoverable balance the Company had outstanding was $56 million and $77 million from Westport Insurance Corporation (formerly Employers’ Reinsurance Company) as of December 31, 2010 and 2009, respectively. No other amount due or estimated to be due from any single property-liability reinsurer was in excess of $37 million as of both December 31, 2010 and 2009.

The allowance for uncollectible reinsurance was $142 million as of both December 31, 2010 and 2009, and is related to the Company’s Discontinued Lines and Coverages segment. In 2010 there were no net recoveries and in 2009 there were $26 million of net recoveries.

## Industry pools and facilities

Reinsurance recoverable on paid and unpaid claims including IBNR as of December 31, 2010 and 2009 includes $1.24 billion and $1.17 billion, respectively, from the MCCA. The MCCA is a mandatory reinsurance mechanism for personal injury protection losses over a retention level that increases each MCCA fiscal year. The retention levels are $480 thousand per claim and $460 thousand per claim for the fiscal years ending June 30, 2011 and 2010, respectively. The MCCA is funded by assessments from member companies who, in turn, can recover assessments from policyholders.

Ceded premiums earned under the Florida Hurricane Catastrophe Fund (“FHCF”) agreement were $15 million, $13 million and $26 million in 2010, 2009 and 2008, respectively. Ceded losses incurred include $10 million, $47 million and $28 million in 2010, 2009 and 2008, respectively. The Company has access to reimbursement provided by the FHCF.



for 90% of qualifying personal property losses that exceed its current retention of $70 million for the two largest hurricanes and $23 million for other hurricanes, up to a maximum total of $272 million effective from June 1, 2010 to May 31, 2011. Reinsurance recoverables include $41 million and $53 million recoverable from the FHCF for qualifying property losses as of December 31, 2010 and 2009, respectively.

Allstate sells and administers policies as a participant in the National Flood Insurance Program (“NFIP”). The total amounts recoverable as of December 31, 2010 and 2009 were $10 million and $43 million, respectively. Ceded premiums earned include $306 million, $298 million and $257 million in 2010, 2009 and 2008, respectively. Ceded losses incurred include $50 million, $111 million and $344 million in 2010, 2009 and 2008, respectively. Under the arrangement, the Federal Government is obligated to pay all claims.

## Catastrophe reinsurance

The Company has the following catastrophe reinsurance treaties in effect as of December 31, 2010:

• an aggregate excess agreement comprising two contracts (one contract effective June 1, 2009 to May 31, 2011, and one contract effective June 1, 2010 to May 31, 2012) for Allstate Protection personal lines auto and property business countrywide, except for Florida. The contracts cover losses from storms named or numbered by the National Weather Service, fires following earthquakes, and California wildfires in excess of $2.00 billion in aggregated losses per contract year. The contract expiring May 31, 2011 represents 47.5% of the placement or $950 million of the $2.00 billion limit. The contract expiring May 31, 2012, represents the remaining 47.5% of the placement with the Company retaining the option in 2011 to place up to the entire $2.00 billion limit. For the year June 1, 2010 to May 31, 2011, the Company retains 5% of the $2.00 billion reinsurance limit;

The Company’s multi-peril, California fires following earthquakes, Gulf States, Atlantic States, Texas Hurricane and Kentucky agreements are deemed in place, and losses recoverable under these agreements, if any, are excluded when determining coverage under the aggregate excess agreement.

• multi-year reinsurance treaties that cover Allstate Protection personal lines property excess catastrophe losses for multiple perils in Connecticut, Rhode Island, New Jersey, New York, Pennsylvania and California effective June 1, 2008 to May 31, 2013;

• a Gulf States agreement that covers Allstate Protection personal lines property excess catastrophe losses for storms named or numbered by the National Weather Service in Texas, Louisiana, Mississippi and Alabama effective June 1, 2010 to May 31, 2013;

• an Atlantic States agreement that covers Allstate Protection personal lines property excess catastrophe losses for storms named or numbered by the National Weather Service in Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware and the District of Columbia effective June 1, 2010 to May 31, 2013;

• a Texas agreement for additional hurricane coverage for Allstate Protection personal lines property excess catastrophe losses in the state effective June 18, 2008 to June 17, 2011;

• a California fires following earthquakes agreement that covers Allstate Protection personal lines property excess catastrophe losses in California, effective June 1, 2008 to May 31, 2012;

• a Kentucky agreement that provides coverage for Allstate Protection personal lines property excess catastrophe losses in the state for earthquakes and fires following earthquakes effective June 1, 2008 to May 31, 2011;

• a Pennsylvania agreement that covers Allstate Protection personal lines property excess catastrophe losses for multi-perils effective June 1, 2009 through May 31, 2012; and

• Eight separate agreements for Castle Key Insurance Company and its subsidiaries (“Castle Key”), for personal property excess catastrophe losses in Florida that coordinate coverage with the Company’s participation in the FHCF, effective June 1, 2010 to May 31, 2011.

The Company ceded premiums earned of $582 million, $616 million and $679 million under catastrophe reinsurance agreements in 2010, 2009 and 2008, respectively.

## Asbestos, environmental and other

Reinsurance recoverables include $183 million and $190 million from Lloyd’s of London as of December 31, 2010 and 2009, respectively. Lloyd’s of London, through the creation of Equitas Limited, implemented a restructuring plan in 1996 to solidify its capital base and to segregate claims for years prior to 1993.



## Allstate Financial

The Company’s Allstate Financial segment reinsures certain of its risks to other insurers primarily under yearly renewable term, coinsurance, modified coinsurance and coinsurance with funds withheld agreements. These agreements result in a passing of the agreed-upon percentage of risk to the reinsurer in exchange for negotiated reinsurance premium payments. Modified coinsurance and coinsurance with funds withheld are similar to coinsurance, except that the cash and investments that support the liability for contract benefits are not transferred to the assuming company and settlements are made on a net basis between the companies. Allstate Financial cedes 100% of the morbidity risk on substantially all of its long-term care contracts.

For certain term life insurance policies issued prior to October 2009, Allstate Financial ceded up to 90% of the mortality risk depending on the year of policy issuance under coinsurance agreements to a pool of fourteen unaffiliated reinsurers. Effective October 2009, mortality risk on term business is ceded under yearly renewable term agreements under which Allstate Financial cedes mortality in excess of its retention, which is consistent with how Allstate Financial generally reinsures its permanent life insurance business. The following table summarizes those retention limits by period of policy issuance.

<table><tr><td>Period</td><td>Retention limits</td></tr><tr><td>July 2007 through current</td><td>$5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteria</td></tr><tr><td>September 1998 through June 2007</td><td>$2 million per life, in 2006 the limit was increased to $5 million for instances when specific criteria were met</td></tr><tr><td>August 1998 and prior</td><td>Up to $1 million per life</td></tr></table>

In addition, Allstate Financial has used reinsurance to effect the acquisition or disposition of certain blocks of business. Allstate Financial had reinsurance recoverables of $1.63 billion and $1.51 billion as of December 31, 2010 and 2009, respectively, due from Prudential related to the disposal of substantially all of its variable annuity business that was effected through reinsurance agreements. In 2010, life and annuity premiums and contract charges of $171 million, contract benefits of $152 million, interest credited to contractholder funds of $29 million, and operating costs and expenses of $31 million were ceded to Prudential. In 2009, life and annuity premiums and contract charges of $170 million, contract benefits of $44 million, interest credited to contractholder funds of $27 million, and operating costs and expenses of $28 million were ceded to Prudential. In 2008, life and annuity premiums and contract charges of $238 million, contract benefits of $467 million, interest credited to contractholder funds of $36 million, and operating costs and expenses of $47 million were ceded to Prudential. In addition, as of December 31, 2010 and 2009 Allstate Financial had reinsurance recoverables of $170 million and $175 million, respectively, due from subsidiaries of Citigroup (Triton Insurance and American Health and Life Insurance), and Scottish Re (U.S.) Inc. in connection with the disposition of substantially all of the direct response distribution business in 2003.

As of December 31, 2010, the gross life insurance in force was $532.89 billion of which $238.75 billion was ceded to the unaffiliated reinsurers.

Allstate Financial’s reinsurance recoverables on paid and unpaid benefits as of December 31 are summarized in the following table.

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Annuities</td><td>$ 1,785</td><td>$ 1,667</td></tr><tr><td>Life insurance</td><td>1,569</td><td>1,535</td></tr><tr><td>Long-term care insurance</td><td>957</td><td>851</td></tr><tr><td>Other</td><td>89</td><td>90</td></tr><tr><td>Total Allstate Financial</td><td>$ 4,400</td><td>$ 4,143</td></tr></table>

As of December 31, 2010 and 2009, approximately 94% and 93%, respectively, of Allstate Financial's reinsurance recoverables are due from companies rated A- or better by S&P.



## 10. Deferred Policy Acquisition and Sales Inducement Costs

Deferred policy acquisition costs for the years ended December 31 are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">2010</td></tr><tr><td>Allstate Financial</td><td>Property-Liability</td><td>Total</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 4,060</td><td>$ 1,410</td><td>$ 5,470</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>483</td><td>3,645</td><td>4,128</td><td></td></tr><tr><td>Amortization charged to income</td><td>(356)</td><td>(3,678)</td><td>(4,034)</td><td></td></tr><tr><td>Effect of unrealized gains and losses</td><td>(795)</td><td>—</td><td>(795)</td><td></td></tr><tr><td>Balance, end of year</td><td>$ 3,392</td><td>$ 1,377</td><td>$ 4,769</td><td></td></tr><tr><td></td><td colspan="4">2009</td></tr><tr><td></td><td>Allstate Financial</td><td>Property-Liability</td><td>Total</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 7,089</td><td>$ 1,453</td><td>$ 8,542</td><td></td></tr><tr><td>Impact of adoption of new OTTI accounting guidance before unrealized impact (1)</td><td>(176)</td><td>—</td><td>(176)</td><td></td></tr><tr><td>Impact of adoption of new OTTI accounting guidance effect of unrealized capital gains and losses (2)</td><td>176</td><td>—</td><td>176</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>495</td><td>3,746</td><td>4,241</td><td></td></tr><tr><td>Amortization charged to income</td><td>(965)</td><td>(3,789)</td><td>(4,754)</td><td></td></tr><tr><td>Effect of unrealized gains and losses</td><td>(2,559)</td><td>—</td><td>(2,559)</td><td></td></tr><tr><td>Balance, end of year</td><td>$ 4,060</td><td>$ 1,410</td><td>$ 5,470</td><td></td></tr><tr><td></td><td colspan="4">2008</td></tr><tr><td></td><td>Allstate Financial</td><td>Property-Liability</td><td>Total</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 4,291</td><td>$ 1,477</td><td>$ 5,768</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>684</td><td>3,951</td><td>4,635</td><td></td></tr><tr><td>Amortization charged to income</td><td>(704)</td><td>(3,975)</td><td>(4,679)</td><td></td></tr><tr><td>Effect of unrealized gains and losses</td><td>2,818</td><td>—</td><td>2,818</td><td></td></tr><tr><td>Balance, end of year</td><td>$ 7,089</td><td>$ 1,453</td><td>$ 8,542</td><td></td></tr></table>

(1) The adoption of new OTTI accounting guidance on April 1, 2009 resulted in an adjustment to DAC to reverse previously recorded DAC accretion related to realized capital losses that were reclassified to other comprehensive income upon adoption.

(2) The adoption of new OTTI accounting guidance resulted in an adjustment to DAC due to the change in unrealized capital gains and losses that occurred upon adoption on April 1, 2009 when previously recorded realized capital losses were reclassified to other comprehensive income. The adjustment was recorded as an increase of the DAC balance and unrealized capital gains and losses.



DSI activity for Allstate Financial, which primarily relates to fixed annuities and interest-sensitive life contracts, for the years ended December 31 was as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Balance, beginning of year</td><td>$ 195</td><td>$ 453</td><td>$ 295</td></tr><tr><td>Impact of adoption of new OTTI accounting guidance before unrealized impact  \( {}^{(1)} \)</td><td>—</td><td>(35)</td><td>—</td></tr><tr><td>Impact of adoption of new OTTI accounting guidance effect of unrealized capital gains and losses  \( {}^{(2)} \)</td><td>—</td><td>35</td><td>—</td></tr><tr><td>Sales inducements deferred</td><td>14</td><td>28</td><td>47</td></tr><tr><td>Amortization charged to income</td><td>(27)</td><td>(129)</td><td>(53)</td></tr><tr><td>Effect of unrealized gains and losses</td><td>(96)</td><td>(157)</td><td>164</td></tr><tr><td>Balance, end of year</td><td>$ 86</td><td>$ 195</td><td>$ 453</td></tr></table>

(1) The adoption of new OTTI accounting guidance on April 1, 2009 resulted in an adjustment to DSI to reverse previously recorded DSI accretion related to realized capital losses that were reclassified to other comprehensive income upon adoption.

(2) The adoption of new OTTI accounting guidance resulted in an adjustment to DSI due to the change in unrealized capital gains and losses that occurred upon adoption on April 1, 2009 when previously recorded realized capital losses were reclassified to other comprehensive income. The adjustment was recorded as an increase of the DSI balance and unrealized capital gains and losses.

## 11. Capital Structure

## Debt outstanding

Total debt outstanding as of December 31 consisted of the following:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>6.125% Senior Notes, due 2012 (1)</td><td>350</td><td>350</td></tr><tr><td>7.50% Debentures, due 2013</td><td>250</td><td>250</td></tr><tr><td>5.00% Senior Notes, due 2014 (1)</td><td>650</td><td>650</td></tr><tr><td>6.20% Senior Notes, due 2014 (1)</td><td>300</td><td>300</td></tr><tr><td>6.75% Senior Debentures, due 2018</td><td>250</td><td>250</td></tr><tr><td>7.45% Senior Notes, due 2019 (1)</td><td>700</td><td>700</td></tr><tr><td>6.125% Senior Notes, due 2032 (1)</td><td>250</td><td>250</td></tr><tr><td>5.350% Senior Notes due 2033 (1)</td><td>400</td><td>400</td></tr><tr><td>5.55% Senior Notes due 2035 (1)</td><td>800</td><td>800</td></tr><tr><td>5.95% Senior Notes, due 2036 (1)</td><td>650</td><td>650</td></tr><tr><td>6.90% Senior Debentures, due 2038</td><td>250</td><td>250</td></tr><tr><td>6.125% Junior Subordinated Debentures, due 2067</td><td>500</td><td>500</td></tr><tr><td>6.50% Junior Subordinated Debentures, due 2067</td><td>500</td><td>500</td><td rowspan="2">500</td></tr><tr><td>Synthetic lease VIE obligations, floating rates, due 2011</td><td>42</td><td>42</td></tr><tr><td>Federal Home Loan Bank (“FHLB”) advances, due 2018</td><td>16</td><td>18</td></tr><tr><td>Total long-term debt</td><td>5,908</td><td>5,910</td></tr><tr><td>Short-term debt (2)</td><td>—</td><td>—</td></tr><tr><td>Total debt</td><td>5,908</td><td>5,910</td></tr></table>

(1) Senior Notes are subject to redemption at the Company's option in whole or in part at any time at the greater of either 100% of the principal amount plus accrued and unpaid interest to the redemption date or the discounted sum of the present values of the remaining scheduled payments of principal and interest and accrued and unpaid interest to the redemption date.

(2) The Company classifies any borrowings which have a maturity of twelve months or less at inception as short-term debt.



Total debt outstanding by maturity as of December 31 consisted of the following:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Due within one year or less</td><td>$ 42</td><td>$ —</td></tr><tr><td>Due after one year through 5 years</td><td>1,550</td><td>1,592</td></tr><tr><td>Due after 5 years through 10 years</td><td>966</td><td>968</td></tr><tr><td>Due after 10 years through 20 years</td><td>—</td><td>—</td></tr><tr><td>Due after 20 years</td><td>3,350</td><td>3,350</td></tr><tr><td>Total debt</td><td>$ 5,908</td><td>$ 5,910</td></tr></table>

In May 2009, the Company issued $300 million of 6.20% Senior Notes due 2014 and $700 million of 7.45% Senior Notes due 2019. The proceeds of this issuance were used for general corporate purposes, including to facilitate the repayment of the $750 million of 7.20% Senior Notes that matured on December 1, 2009.

The Company has outstanding $500 million of Series A 6.50% and $500 million of Series B 6.125% Fixed-to-Floating Rate Junior Subordinated Debentures (together the “Debentures”). The scheduled maturity dates for the Debentures are May 15, 2057 and May 15, 2037 for Series A and Series B, respectively, with a final maturity date of May 15, 2067. The Debentures may be redeemed (i) in whole or in part, at any time on or after May 15, 2037 or May 15, 2017 for Series A and Series B, respectively, at their principal amount plus accrued and unpaid interest to the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to May 15, 2037 and May 15, 2017 for Series A and Series B, respectively, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, a make-whole price.

Interest on the Debentures is payable semi-annually at the stated fixed annual rate to May 15, 2037 and May 15, 2017 for Series A and Series B, respectively, and then payable quarterly at an annual rate equal to the three-month LIBOR plus 2.12% and 1.935% for Series A and Series B, respectively. The Company may elect at one or more times to defer payment of interest on the Debentures for one or more consecutive interest periods that do not exceed 10 years. Interest compounds during such deferral periods at the rate in effect for each period. The interest deferral feature obligates the Company in certain circumstances to issue common stock or certain other types of securities if it cannot otherwise raise sufficient funds to make the required interest payments. The Company has reserved 75 million shares of its authorized and unissued common stock to satisfy this obligation.

In connection with the issuance of the Debentures, the Company entered into replacement capital covenants. These covenants are not intended for the benefit of the holders of the Debentures and may not be enforced by them. Rather, they are for the benefit of holders of one or more other designated series of the Company's indebtedness, initially the 6.90% Senior Debentures due 2038. Pursuant to these covenants, the Company has agreed that it will not repay, redeem, or purchase the Debentures on or before May 15, 2067 and May 15, 2047 for Series A and Series B, respectively, unless, subject to certain limitations, the Company has received proceeds in specified amounts from the issuance of specified securities. These covenants terminate in 2067 and 2047 for Series A and Series B, respectively, or earlier upon the occurrence of certain events, including an acceleration of the Debentures of the particular series due to the occurrence of an event of default. An event of default, as defined by the supplemental indentures, includes default in the payment of interest or principal and bankruptcy proceedings.

The Company is the primary beneficiary of a consolidated VIE used to acquire up to 38 automotive collision repair stores (“synthetic lease”). In 2006, the Company renewed the synthetic lease for a five-year term at a floating rate due 2011. The Company’s Consolidated Statements of Financial Position include $42 million of property and equipment, net, and long-term debt as of both December 31, 2010 and 2009.

The Allstate Bank received a $10 million long-term advance from the FHLB in April 2008, and another $10 million advance in September 2008. The FHLB advances are secured with fixed income securities pledged to the FHLB. During 2010, 2009 and 2008, $2 million, $1 million and $1 million was repaid on the advances, respectively.

To manage short-term liquidity, the Company maintains a commercial paper program and a credit facility as a potential source of funds. These include a $1.00 billion unsecured revolving credit facility and a commercial paper program with a borrowing limit of $1.00 billion. The credit facility has an initial term of five years expiring in 2012 with two optional one-year extensions that can be exercised at the end of any of the remaining anniversary years of the facility upon approval of existing or replacement lenders providing more than two-thirds of the commitments to lend. This facility also contains an increase provision that would allow up to an additional $500 million of borrowing provided the increased portion could be fully syndicated at a later date among existing or new lenders. This facility has a financial



covenant requiring the Company not to exceed a 37.5% debt to capital resources ratio as defined in the agreement. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of the Company's senior, unsecured, nonguaranteed long-term debt. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility. No amounts were outstanding under the credit facility as of December 31, 2010 and 2009. The Company had no commercial paper outstanding as of December 31, 2010 and 2009.

The Company paid $363 million, $383 million and $347 million of interest on debt in 2010, 2009 and 2008, respectively.

During 2009, the Company filed a universal shelf registration statement with the Securities and Exchange Commission (“SEC”) that expires in 2012. The registration statement covers an unspecified amount of securities and can be used to issue debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries.

## Capital stock

The Company had 900 million shares of issued common stock of which 533 million shares were outstanding and 367 million shares were held in treasury as of December 31, 2010. In 2010, the Company reacquired 5 million shares at an average cost of $30.59 and reissued 2 million shares under equity incentive plans.

## 12. Company Restructuring

The Company undertakes various programs to reduce expenses. These programs generally involve a reduction in staffing levels, and in certain cases, office closures. Restructuring and related charges include employee termination and relocation benefits, and post-exit rent expenses in connection with 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. In 2010, restructuring programs primarily relate to Allstate Protection's claim and field sales office consolidations and realignment of litigation services. The expenses related to these activities are included in the Consolidated Statements of Operations as restructuring and related charges, and totaled $30 million, $130 million and $23 million in 2010, 2009 and 2008, respectively.

The following table presents changes in the restructuring liability during the year ended December 31, 2010.

<table><tr><td>(\( in millions)</td><td>Employee costs</td><td>Exit costs</td><td>Total liability</td></tr><tr><td>Balance as of December 31, 2009</td><td>$ 45</td><td>$ 6</td><td>$ 51</td></tr><tr><td>Expense incurred</td><td>20</td><td>2</td><td>22</td></tr><tr><td>Adjustments to liability</td><td>(16)</td><td>(1)</td><td>(17)</td></tr><tr><td>Payments applied against liability</td><td>(36)</td><td>(4)</td><td>(40)</td></tr><tr><td>Balance as of December 31, 2010</td><td>$ 13</td><td>$ 3</td><td>$ 16</td></tr></table>

The payments applied against the liability for employee costs primarily reflect severance costs, and the payments for exit costs generally consist of post-exit rent expenses and contract termination penalties. As of December 31, 2010, the cumulative amount incurred to date for active programs totaled $161 million for employee costs and $45 million for exit costs.

## 13. Commitments, Guarantees and Contingent Liabilities

## Leases

The Company leases certain office facilities and computer equipment. Total rent expense for all leases was $256 million, $267 million and $294 million in 2010, 2009 and 2008, respectively.



Minimum rental commitments under noncancelable capital and operating leases with an initial or remaining term of more than one year as of December 31, 2010 are as follows:

<table><tr><td>($ in millions)</td><td>Capital leases</td><td>Operating leases</td></tr><tr><td>2011</td><td>7</td><td>199</td></tr><tr><td>2012</td><td>7</td><td>157</td></tr><tr><td>2013</td><td>8</td><td>103</td></tr><tr><td>2014</td><td>6</td><td>62</td></tr><tr><td>2015</td><td>2</td><td>47</td></tr><tr><td>Thereafter</td><td>15</td><td>64</td></tr><tr><td>Total</td><td>45</td><td>632</td></tr><tr><td>Present value of minimum capital lease payments</td><td>35</td><td></td></tr></table>

## Shared markets and state facility assessments

The Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations in various states that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to the Company's results of operations. Because of the Company's participation, it may be exposed to losses that surpass the capitalization of these facilities and/or assessments from these facilities.

Castle Key is subject to assessments from Citizens Property Insurance Corporation in the state of Florida (“FL Citizens”), which was initially created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. FL Citizens, at the discretion and direction of its Board of Governors (“FL Citizens Board”), can levy a regular assessment on assessable insurers and assessable insureds for a deficit in any calendar year up to a maximum of the greater of 6% of the deficit or 6% of Florida property premiums industry-wide for the prior year. Prior to July 2008, the assessment rate was 10%. The base of assessable insurers includes all property and casualty premiums in the state, except workers’ compensation, medical malpractice, accident and health insurance and policies written under the NFIP. An insurer may recoup a regular assessment through a surcharge to policyholders. In order to recoup this assessment, an insurer must file for a policy surcharge with the Florida Office of Insurance Regulation (“FL OIR”) at least fifteen days prior to imposing the surcharge on policies. If a deficit remains after the regular assessment, FL Citizens can also levy emergency assessments in the current and subsequent years. Companies are required to collect the emergency assessments directly from residential property policyholders and remit to FL Citizens as collected.

FL Citizens reported losses from Hurricane Wilma in 2005, which followed a deficit for the 2004 plan year. The FL Citizens Board certified the 2005 FL Citizens deficit at $1.73 billion of which $920 million was to be funded through a regular assessment. The Company paid its portion of the deficit assessment totaling $14 million during 2006 and has recouped $12 million as of December 31, 2010. The remainder of the deficit was funded by bonds issued in 2006.

The Company is also subject to assessments from Louisiana Citizens Property Insurance Corporation (“LA Citizens”). LA Citizens can levy a regular assessment on participating companies for a deficit in any calendar year up to a maximum of the greater of 10% of the calendar year deficit or 10% of Louisiana direct property premiums industry-wide for the prior calendar year.

## Florida Hurricane Catastrophe Fund

Castle Key participates in the mandatory coverage provided by the FHCF and therefore has access to reimbursements on certain qualifying Florida hurricane losses from the FHCF (see Note 9), has exposure to assessments and pays annual premiums to the FHCF for this reimbursement protection. The FHCF has the authority to issue bonds to pay its obligations to insurers participating in the mandatory coverage in excess of its capital balances. Payment of these bonds is funded by emergency assessments on all property and casualty premiums in the state, except workers' compensation, medical malpractice, accident and health insurance and policies written under the NFIP. The FHCF emergency assessments are limited to 6% of premiums per year beginning the first year in which reimbursements require bonding, and up to a total of 10% of premiums per year for assessments in the second and subsequent years, if required to fund additional bonding. The FHCF issued $625 million in bonds in 2008, and the FL OIR ordered an emergency assessment of 1% of premiums collected for all policies renewed after January 1, 2007. The FHCF issued $676 million in bonds in 2010 and the FL OIR ordered an emergency assessment of 1.3% of premiums collected



for all policies written or renewed after January 1, 2011. As required, companies will collect the FHCF emergency assessments directly from policyholders and remit them to the FHCF as they are collected.

Facilities such as FL Citizens, LA Citizens and the FHCF are generally designed so that the ultimate cost is borne by policyholders; however, the exposure to assessments and the availability of recoupments or premium rate increases from these facilities may not offset each other in the Company’s financial statements. Moreover, even if they do offset each other, they may not offset each other in financial statements for the same fiscal period due to the ultimate timing of the assessments and recoupments or premium rate increases, as well as the possibility of policies not being renewed in subsequent years.

## California Earthquake Authority

Exposure to certain potential losses from earthquakes in California is limited by the Company’s participation in the California Earthquake Authority (“CEA”), which provides insurance for California earthquake 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 the CEA. The Company’s homeowners policies continue to include coverages for losses caused by explosions, theft, glass breakage and fires following an earthquake, which are not underwritten by the CEA.

As of October 31, 2010, the CEA’s capital balance was approximately $3.68 billion. Should losses arising from an earthquake cause a deficit in the CEA, additional funding would be obtained from the proceeds of revenue bonds the CEA may issue, an existing $3.12 billion reinsurance layer, and finally, if needed, assessments on participating insurance companies. The authority of the CEA to assess participating insurers extends through December 1, 2018. Participating insurers are required to pay an assessment, currently estimated not to exceed $1.56 billion, if the capital of the CEA falls below $350 million. Participating insurers are required to pay a second additional assessment, currently estimated not to exceed $1.09 billion, if aggregate CEA earthquake losses exceed $9.77 billion and the capital of the CEA falls below $350 million. Within the limits previously described, the assessment could be intended to restore the CEA’s capital to a level of $350 million. There is no provision that allows insurers to recover assessments through a premium surcharge or other mechanism. The CEA’s projected aggregate claim paying capacity is $9.77 billion as of October 31, 2010 and if an event were to result in claims greater than its capacity, affected policyholders would be paid a prorated portion of their covered losses.

All future assessments on participating CEA insurers are based on their CEA insurance market share as of December 31 of the preceding year. As of April 1, 2010, the Company’s share of the CEA was 17.2%. The Company does not expect its CEA market share to materially change. At this level, the Company’s maximum possible CEA assessment would be $456 million during 2011. Accordingly, assessments from the CEA for a particular quarter or annual period may be material to the results of operations and cash flows, but not the financial position of the Company. Management believes the Company’s exposure to earthquake losses in California has been significantly reduced as a result of its participation in the CEA.

## Texas Windstorm Insurance Association

The Company participates in the mandatory coverage provided by the TWIA, for losses relating to hurricane activity. Amounts assessed to each company are allocated based upon its proportion of business written. In September 2008, TWIA assessed the Company $66 million for losses relating to Hurricane Ike. The assessment was based on 2007 direct voluntary writings in the State of Texas. The Company expects to recoup $35 million of the assessment via premium tax offsets over a five year period. $7 million of the total recoupable amount was realized via premium tax offsets in both 2009 and 2010. The remaining $31 million of the assessment was eligible for cession under the Company’s reinsurance program. The TWIA board has not indicated the likelihood of any possible future assessments to insurers at this time. However, assessments from the TWIA for a particular quarter or annual period may be material to the results of operations and cash flows, but not the financial position of the Company. Management believes the Company’s exposure to losses in Texas has been significantly reduced as a result of its participation in the TWIA.

## Guaranty funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. Amounts assessed to each company are typically related to its proportion of business written in each state. The Company’s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written. In most states, the definition is met with a declaration of financial insolvency by a court of competent



jurisdiction. In certain states there must also be a final order of liquidation. As of December 31, 2010 and 2009, the liability balance included in other liabilities and accrued expenses was $46 million and $106 million, respectively. The related premium tax offsets included in other assets were $25 million and $28 million as of December 31, 2010 and 2009, respectively.

## PMI runoff support agreement

The Company has certain limited rights and obligations under a capital support agreement (“Runoff Support Agreement”) with PMI Mortgage Insurance Company (“PMI”), the primary operating subsidiary of PMI Group, related to the Company’s disposition of PMI in prior years. Under the Runoff Support Agreement, the Company would be required to pay claims on PMI policies written prior to October 28, 1994 if PMI fails certain financial covenants and fails to pay such claims. The agreement only covers these policies and not any policies issued on or after that date. In the event any amounts are so paid, the Company would receive a commensurate amount of preferred stock or subordinated debt of PMI Group or PMI. The Runoff Support Agreement also restricts PMI’s ability to write new business and pay dividends under 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 owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities. In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as measured by the amount of the aggregate initial investment, was $64 million as of December 31, 2010. The obligations associated with these fixed income securities expire at various dates on or before July 26, 2016.

Related to the disposal through reinsurance of substantially all of Allstate Financial’s variable annuity business to Prudential in 2006, the Company and its consolidated subsidiaries, ALIC and ALNY, have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of ALIC and ALNY and liabilities specifically excluded from the transaction) that ALIC and ALNY have agreed to retain. In addition, the Company, ALIC and ALNY will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of ALIC, ALNY and their agents, including in connection with ALIC’s and ALNY’s provision of transition services. The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees. Management does not believe this agreement will have a material adverse effect on results of operations, cash flows or financial position of the Company.

The Company provides residual value guarantees on Company leased automobiles. If all outstanding leases were terminated effective December 31, 2010, the Company’s maximum obligation pursuant to these guarantees, assuming the automobiles have no residual value, would be $10 million as of December 31, 2010. The remaining term of each residual value guarantee is equal to the term of the underlying lease that ranges from less than one year to three years. Historically, the Company has not made any material payments pursuant to these guarantees.

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material as of December 31, 2010.

## Regulation and Compliance

The Company is subject to changing social, economic and regulatory conditions. From time to time, regulatory authorities or legislative bodies seek to influence and restrict premium rates, require premium refunds to policyholders, require reinstatement of terminated policies, 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 underwriting standards, impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance.



with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.

## Legal and regulatory proceedings and inquiries

## Background

The Company and certain subsidiaries are involved in a number of lawsuits, regulatory inquiries, and other legal proceedings arising out of various aspects of its business. As background to both the “Claims related proceedings” and “Other proceedings” subsections below, please note the following:

- These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard, or investigated; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation, or otherwise; the fact that some of the lawsuits are putative class actions in which a class has not been certified and in which the purported class may not be clearly defined; the fact that some of the lawsuits involve multi-state class actions in which the applicable law(s) for the claims at issue is in dispute and therefore unclear; and the current challenging legal environment faced by large corporations and insurance companies.

- The outcome of these matters may be affected by decisions, verdicts, and settlements, and the timing of such decisions, verdicts, and settlements, in other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state or federal legislation, the timing or substance of which cannot be predicted.

- In the lawsuits, plaintiffs seek a variety of remedies which may include equitable relief in the form of injunctive and other remedies and monetary relief in the form of contractual and extra-contractual damages. In some cases, the monetary damages sought may include punitive or treble damages. Often specific information about the relief sought, such as the amount of damages, is not available because plaintiffs have not requested specific relief in their pleadings. When specific monetary demands are made, they are often set just below a state court jurisdictional limit in order to seek the maximum amount available in state court, regardless of the specifics of the case, while still avoiding the risk of removal to federal court. In Allstate’s experience, monetary demands in pleadings bear little relation to the ultimate loss, if any, to the Company.

- In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution, and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding.

- For the reasons specified above, it is not possible to make meaningful estimates of the amount or range of loss that could result from the matters described below in the “Claims related proceedings” and “Other proceedings” subsections. The Company reviews these matters on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on its assessment of the ultimate outcome following all appeals.

- Due to the complexity and scope of the matters disclosed in the “Claims related proceedings” and “Other proceedings” subsections below and the many uncertainties that exist, the ultimate outcome of these matters cannot be reasonably predicted. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently reserved, if any, and may be material to the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described below, as they are resolved over time, is not likely to have a material adverse effect on the financial position of the Company.

## Claims related proceedings

The Company is vigorously defending a number of matters in various stages of development filed in the aftermath of Hurricane Katrina, including individual lawsuits and a statewide putative class action in Louisiana. The Louisiana



Attorney General filed a putative class action lawsuit in state court against Allstate and other insurers on behalf of Road Home fund recipients alleging that the insurers have failed to pay all damages owed under their policies. The insurers removed the matter to federal court. The district court denied plaintiffs' motion to remand the matter to state court and the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") affirmed that ruling. The defendants filed a motion to dismiss and the plaintiffs filed a motion to remand the claims involving a Road Home subrogation agreement. In March 2009, the district court denied the State's request that its claims be remanded to state court. As for the defendant insurers' motion, the judge granted it in part and denied it in part. Dismissal of all of the extra-contractual claims, including the bad faith and breach of fiduciary duty claims, was granted. Dismissal also was granted of all claims based on the Valued Policy Law and all flood loss claims based on the levee breaches finding that the insurers flood exclusions precluded coverage. The remaining claims are for breach of contract and for declaratory relief on the alleged underpayment of claims by the insurers. The judge did not dismiss the class action allegations. The defendants also had moved to dismiss the complaint on grounds that the State had no standing to bring the lawsuit as an assignee of insureds because of anti-assignment language in the insurers' policies. The judge denied the defendants' motion for reconsideration on the assignment issue but found the matter was ripe for consideration by the federal appellate court. The defendants have filed a petition for permission to appeal to the Fifth Circuit. The Fifth Circuit has accepted review. After the Fifth Circuit accepted review, plaintiffs filed a motion to remand the case to state court, asserting that the class claims on which federal jurisdiction was premised have now effectively been dismissed as a result of a ruling in a related case. The Fifth Circuit has denied the motion for remand, without prejudice to plaintiffs' right to refile the motion for remand after the Fifth Circuit disposes of the pending appeal. On July 28, 2010, the Fifth Circuit issued an order stating that since there is no controlling Louisiana Supreme Court precedent on the issue of whether an insurance policy's anti-assignment clause prohibits post-loss assignments, the Fifth Circuit is certifying that issue to the Louisiana Supreme Court. The issue has been briefed to the Louisiana Supreme Court. That court will hold oral argument on the appeal on March 14, 2011.

There are one nationwide and several statewide class action lawsuits pending against Allstate alleging that it failed to properly pay general contractors overhead and profit on many homeowner structural loss claims. Most of these lawsuits contain counts for breach of contract, as well as one or more counts asserting other theories of liability such as bad faith, fraud, unjust enrichment, or unfair claims practices. General contractors overhead and profit is an amount that is added to payments on claims where the services of a general contractor are reasonably likely to be required. To a large degree, these lawsuits mirror similar lawsuits filed against other carriers in the industry, some of which have settled. These lawsuits are pending in various state and federal courts, and they are in different stages of development. The Company has reached an agreement to settle on a 48-state basis the nationwide class action. This settlement received preliminary approval from the court on December 6, 2010, and the case was certified as a class for settlement purposes only. The settlement was accrued as a prior year reserve reestimate in property-liability insurance claims and claims expense in 2010. No other classes have been certified against Allstate on this issue. The hearing for final approval of the settlement is scheduled for May 6, 2011.

Allstate has been vigorously defending a lawsuit in regards to certain claims employees involving worker classification issues. This lawsuit is a certified class action challenging a state wage and hour law. In this case, plaintiffs sought monetary relief, such as penalties and liquidated damages, and non-monetary relief, such as injunctive relief. In December 2009, the liability phase of the case was tried, and, on July 6, 2010, the court issued its decision finding in favor of Allstate on all claims. The plaintiffs are appealing the decision.

## Other proceedings

The Company is defending certain matters relating to the Company’s agency program reorganization announced in 1999. These matters are in various stages of development.

- These matters include a lawsuit filed in 2001 by the U.S. Equal Employment Opportunity Commission (“EEOC”) alleging retaliation under federal civil rights laws (the “EEOC I” suit) and a class action filed in 2001 by former employee agents alleging retaliation and age discrimination under the Age Discrimination in Employment Act (“ADEA”), breach of contract and ERISA violations (the “Romero I” suit). In 2004, in the consolidated EEOC I and Romero I litigation, the trial court issued a memorandum and order that, among other things, certified classes of agents, including a mandatory class of agents who had signed a release, for purposes of effecting the court’s declaratory judgment that the release is voidable at the option of the release signer. The court also ordered that an agent who voids the release must return to Allstate “any and all benefits received by the [agent] in exchange for signing the release.” The court also stated that, “on the undisputed facts of record, there is no basis for claims of age discrimination.” The EEOC and plaintiffs asked the court to clarify and/or reconsider its memorandum and order and in January 2007, the judge denied their request. In June 2007, the court granted the Company’s motions for summary judgment. Following plaintiffs’ filing of a notice of appeal, the U.S. Court of



Appeals for the Third Circuit (“Third Circuit”) issued an order in December 2007 stating that the notice of appeal was not taken from a final order within the meaning of the federal law and thus not appealable at this time. In March 2008, the Third Circuit decided that the appeal should not summarily be dismissed and that the question of whether the matter is appealable at this time will be addressed by the Third Circuit along with the merits of the appeal. In July 2009, the Third Circuit vacated the decision which granted the Company’s summary judgment motions, remanded the cases to the trial court for additional discovery, and directed that the cases be reassigned to another trial court judge. In January 2010, the cases were assigned to a new judge for further proceedings in the trial court.

- A putative nationwide class action has also been filed by former employee agents alleging various violations of ERISA, including a worker classification issue. These plaintiffs are challenging certain amendments to the Agents Pension Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit purposes. This matter was dismissed with prejudice by the trial court, was the subject of further proceedings on appeal, and was reversed and remanded to the trial court in 2005. In June 2007, the court granted the Company’s motion to dismiss the case. Following plaintiffs’ filing of a notice of appeal, the Third Circuit issued an order in December 2007 stating that the notice of appeal was not taken from a final order within the meaning of the federal law and thus not appealable at this time. In March 2008, the Third Circuit decided that the appeal should not summarily be dismissed and that the question of whether the matter is appealable at this time will be addressed by the Third Circuit along with the merits of the appeal. In July 2009, the Third Circuit vacated the decision which granted the Company’s motion to dismiss the case, remanded the case to the trial court for additional discovery, and directed that the case be reassigned to another trial court judge. In January 2010, the case was assigned to a new judge for further proceedings in the trial court.

In these agency program reorganization matters, plaintiffs seek compensatory and punitive damages, and equitable relief. Allstate has been vigorously defending these lawsuits and other matters related to its agency program reorganization.

## Other Matters

Various other legal, governmental, and regulatory actions, including state market conduct exams, and other governmental and regulatory inquiries are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of a number of class action lawsuits and other types of proceedings, some of which involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and target a range of the Company’s practices. The outcome of these disputes is currently unpredictable.

One or more of these matters could have an adverse effect on the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described in this “Other Matters” subsection, in excess of amounts currently reserved, if any, as they are resolved over time, is not likely to have a material effect on the operating results, cash flows or financial position of the Company.

## Asbestos and environmental

Allstate’s reserves for asbestos claims were $1.10 billion and $1.18 billion, net of reinsurance recoverables of $555 million and $600 million, as of December 31, 2010 and 2009, respectively. Reserves for environmental claims were $201 million and $198 million, net of reinsurance recoverables of $47 million and $49 million, as of December 31, 2010 and 2009, respectively. Approximately 60% and 62% of the total net asbestos and environmental reserves as of December 31, 2010 and 2009, respectively, were for incurred but not reported estimated losses.

Management believes its net loss reserves for asbestos, environmental and other discontinued lines exposures are appropriately established based on available facts, technology, laws and regulations. However, establishing net loss reserves for asbestos, environmental and other discontinued lines claims is subject to uncertainties that are much greater than those presented by other types of claims. The ultimate cost of losses may vary materially from recorded amounts, which are based on management's best estimate. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs' evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be



covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Management believes these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. In addition, while the Company believes that improved actuarial techniques and databases have assisted in its ability to estimate asbestos, environmental, and other discontinued lines net loss reserves, these refinements may subsequently prove to be inadequate indicators of the extent of probable losses. Due to the uncertainties and factors described above, management believes it is not practicable to develop a meaningful range for any such additional net loss reserves that may be required.

## 14. Income Taxes

The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.

The Internal Revenue Service (“IRS”) is currently examining the Company’s 2007 and 2008 federal income tax returns. The IRS has completed its examination of the Company’s federal income tax returns for 2005-2006 and the case is under consideration at the IRS Appeals Office. The Company’s tax years prior to 2005 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.

The reconciliation of the change in the amount of unrecognized tax benefits for the years ended December 31 is as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Balance - beginning of year</td><td>$ 22</td><td>$ 21</td><td>$ 76</td></tr><tr><td>Increase for tax positions taken in a prior year</td><td>1</td><td>—</td><td>1</td></tr><tr><td>Decrease for tax positions taken in a prior year</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Increase for tax positions taken in the current year</td><td>2</td><td>1</td><td>4</td></tr><tr><td>Decrease for tax positions taken in the current year</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Increase (decrease) for settlements</td><td>—</td><td>—</td><td>(60)</td></tr><tr><td>Reductions due to lapse of statute of limitations</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Balance - end of year</td><td>$ 25</td><td>$ 22</td><td>$ 21</td></tr></table>

The Company believes it is reasonably possible that the liability balance will be reduced by $25 million within the next twelve months upon the resolution of an outstanding issue resulting from the 2005-2006 IRS examination. Because of the impact of deferred tax accounting, recognition of previously unrecognized tax benefits is not expected to impact the Company’s effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company did not record interest income or expense relating to unrecognized tax benefits in income tax expense in 2010. The Company recorded $0.1 million and $5 million of interest income relating to unrecognized tax benefits in income tax expense in 2009 and 2008, respectively. As of December 31, 2010 and 2009, there was no interest accrued with respect to unrecognized tax benefits. No amounts have been accrued for penalties.



The components of the deferred income tax assets and liabilities as of December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Deferred assets</td><td></td><td></td></tr><tr><td>Unearned premium reserves</td><td>$ 637</td><td>$ 642</td></tr><tr><td>Difference in tax bases of invested assets</td><td>521</td><td>346</td></tr><tr><td>Discount on loss reserves</td><td>310</td><td>328</td></tr><tr><td>Pension</td><td>229</td><td>289</td></tr><tr><td>Life and annuity reserves</td><td>227</td><td>375</td></tr><tr><td>Accrued compensation</td><td>201</td><td>199</td></tr><tr><td>Alternative minimum tax credit carryforward</td><td>168</td><td>99</td></tr><tr><td>Other postretirement benefits</td><td>157</td><td>173</td></tr><tr><td>Other assets</td><td>50</td><td>128</td></tr><tr><td>Unrealized net capital losses</td><td>—</td><td>466</td></tr><tr><td>Total deferred assets</td><td>2,500</td><td>3,045</td></tr><tr><td>Valuation allowance</td><td>(6)</td><td>(11)</td></tr><tr><td>Net deferred assets</td><td>2,494</td><td>3,034</td></tr><tr><td>Deferred liabilities</td><td></td><td></td></tr><tr><td>DAC</td><td>(1,139)</td><td>(1,095)</td></tr><tr><td>Unrealized net capital gains</td><td>(504)</td><td>—</td></tr><tr><td>Other liabilities</td><td>(67)</td><td>(69)</td></tr><tr><td>Total deferred liabilities</td><td>(1,710)</td><td>(1,164)</td></tr><tr><td>Net deferred asset</td><td>$ 784</td><td>$ 1,870</td></tr></table>

Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowance, will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized. The valuation allowance for deferred tax assets decreased by $5 million in 2010.

The components of income tax expense (benefit) for the years ended December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Current</td><td>$ 133</td><td>$ (18)</td><td>$ (874)</td></tr><tr><td>Deferred (including $208 million tax benefit of operating loss carryforward in 2008)</td><td>65</td><td>412</td><td>(472)</td></tr><tr><td>Total income tax expense (benefit)</td><td>$ 198</td><td>$ 394</td><td>$ (1,346)</td></tr></table>

As of December 31, 2010, the Company has tax credit carryforwards of $6 million which will be available to offset future tax liabilities. These carryforwards will expire at the end of 2029 and 2030. In addition, the Company has an alternative minimum tax credit carryforward of $168 million which will be available to offset future tax liabilities indefinitely.

Income tax expense for the year ended December 31, 2009 includes expense of $254 million attributable to an increase in the valuation allowance relating to the deferred tax asset on capital losses recorded in the first quarter of 2009. This valuation allowance was released in connection with the adoption of new OTTI accounting guidance on April 1, 2009; however, the release was recorded as an increase to retained income and therefore did not reverse the amount recorded in income tax expense. The release of the valuation allowance is related to the reversal of previously recorded other-than-temporary impairment write-downs that would not have been recorded under the new OTTI accounting guidance.

The Company received refunds of $8 million and $1.25 billion in 2010 and 2009, respectively, and paid income taxes of $511 million in 2008. The Company had a current income tax receivable of $129 million and $264 million as of December 31, 2010 and 2009, respectively.



A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Statutory federal income tax rate - expense (benefit)</td><td>35.0%</td><td>35.0%</td><td>(35.0)%</td></tr><tr><td>Tax-exempt income</td><td>(15.6)</td><td>(20.2)</td><td>(9.4)</td></tr><tr><td>Adjustment to prior year tax liabilities</td><td>(0.2)</td><td>(2.7)</td><td>(0.4)</td></tr><tr><td>Other</td><td>(1.6)</td><td>(0.4)</td><td>0.2</td></tr><tr><td>Valuation allowance</td><td>—</td><td>19.9</td><td>0.1</td></tr><tr><td>Effective income tax rate - expense (benefit)</td><td>17.6%</td><td>31.6%</td><td>(44.5)%</td></tr></table>

## 15. Statutory Financial Information

Allstate’s domestic property-liability and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.

All states require domiciled insurance companies to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director.

Statutory accounting practices differ from GAAP primarily since they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis.

Statutory net income and capital and surplus of Allstate’s domestic insurance subsidiaries, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Net income</td><td colspan="3">Capital and surplus</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Amounts by major business type:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability (1)</td><td>$ 1,064</td><td>$ 1,318</td><td>$ 624</td><td>$ 12,185</td><td>$ 11,679</td><td></td></tr><tr><td>Allstate Financial</td><td>(430)</td><td>(911)</td><td>(1,983)</td><td>3,454</td><td>3,588</td><td></td></tr><tr><td>Amount per statutory accounting practices</td><td>$ 634</td><td>$ 407</td><td>$ (1,359)</td><td>$ 15,639</td><td>$ 15,267</td><td></td></tr></table>

(1) The Property-Liability statutory capital and surplus balances exclude wholly-owned subsidiaries included in the Allstate Financial segment.

There were no permitted practices utilized as of December 31, 2010 or 2009.

## Dividends

The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements of the Company, receipt of dividends from AIC and other relevant factors. The payment of shareholder dividends by AIC without the prior approval of the state insurance regulator is limited to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. AIC paid dividends of $1.30 billion in 2010, which was less than the maximum amount allowed under Illinois insurance law without the prior approval of the Illinois Department of Insurance ("IL DOI") based on 2009 formula amounts. The maximum amount of dividends AIC will be able to pay without prior IL DOI approval at a given point in time during 2011 is $1.54 billion, less dividends paid during the preceding twelve months measured at that point in time.

Notification and approval of intercompany lending activities is also required by the IL DOI for transactions that exceed a level that is based on a formula using statutory admitted assets and statutory surplus.

## 16. Benefit Plans

## Pension and other postretirement plans

Defined benefit pension plans cover most full-time employees, certain part-time employees and employee-agents. Benefits under the pension plans are based upon the employee’s length of service and eligible annual compensation. A



cash balance formula was added to the Allstate Retirement Plan effective January 1, 2003. All eligible employees hired before August 1, 2002 were provided with a one-time opportunity to choose between the cash balance formula and the final average pay formula. The cash balance formula applies to all eligible employees hired after August 1, 2002.

The Company also provides certain health care subsidies for eligible employees hired before January 1, 2003 when they retire and their eligible dependents and certain life insurance benefits for eligible employees hired before January 1, 2003 when they retire (“postretirement benefits”). Qualified employees may become eligible for these benefits if they retire in accordance with the Company’s established retirement policy and are continuously insured under the Company’s group plans or other approved plans in accordance with the plan’s participation requirements. The Company shares the cost of retiree medical benefits with non Medicare-eligible retirees based on years of service, with the Company’s share being subject to a 5% limit on annual medical cost inflation after retirement. During 2009, the Company decided to change its approach for delivering benefits to Medicare-eligible retirees. The Company no longer offers medical benefits for Medicare-eligible retirees but instead provides a fixed Company contribution (based on years of service and other factors), which is not subject to adjustments for inflation.

The Company has reserved the right to modify or terminate its benefit plans at any time and for any reason.

## Obligations and funded status

The Company calculates benefit obligations based upon generally accepted actuarial methodologies using the projected benefit obligation (“PBO”) for pension plans and the accumulated postretirement benefit obligation (“APBO”) for other postretirement plans. The determination of pension costs and other postretirement obligations as of December 31, 2010 and 2009 are determined using a December 31 measurement date. The benefit obligations represent the actuarial present value of all benefits attributed to employee service rendered as of the measurement date. The PBO is measured using the pension benefit formula and assumptions as to future compensation levels. A plan’s funded status is calculated as the difference between the benefit obligation and the fair value of plan assets. The Company’s funding policy for the pension plans is to make annual contributions at a level that is in accordance with regulations under the Internal Revenue Code (“IRC”) and generally accepted actuarial principles. The Company’s postretirement benefit plans are not funded.

The components of the plans’ funded status that are reflected in the Consolidated Statements of Financial Position as of December 31 are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Pension benefits</td><td colspan="3">Postretirement benefits</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td></td><td></td></tr><tr><td>Fair value of plan assets</td><td>$ 4,669</td><td>$ 4,127</td><td>$ —</td><td>$ —</td><td></td><td></td></tr><tr><td>Less: Benefit obligation</td><td>5,545</td><td>5,233</td><td>628</td><td></td><td>666</td><td></td></tr><tr><td>Funded status</td><td>(876)</td><td>(1,106)</td><td>(628)</td><td>(666)</td><td></td><td></td></tr><tr><td>Items not yet recognized as a component of net periodic cost:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net actuarial loss (gain)</td><td>$ 2,311</td><td>$ 2,442</td><td>$ (322)</td><td>$ (286)</td><td></td><td></td></tr><tr><td>Prior service credit</td><td>(5)</td><td>(8)</td><td>(175)</td><td></td><td></td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost, pre-tax</td><td>2,306</td><td>2,434</td><td>(497)</td><td>(483)</td><td></td><td></td></tr><tr><td>Deferred income tax</td><td>(807)</td><td>(852)</td><td>186</td><td>183</td><td></td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost</td><td>$ 1,499</td><td>$ 1,582</td><td>$ (311)</td><td>$ (300)</td><td></td><td></td></tr></table>

The decrease of $131 million in the pension net actuarial loss during 2010 is related to higher than expected returns and higher unrecognized loss amortization through pension expense, partially offset by a decrease in the discount rate. The majority of the $2.31 billion net actuarial pension benefit losses not yet recognized as a component of net periodic pension cost in 2010 reflects the effect of unfavorable equity market conditions on the value of the pension plan assets in prior years, and to a lesser extent decreases in the discount rate. The increase of $36 million in the OPEB net actuarial gain during 2010 is primarily related to a decrease in enrollment of Medicare-eligible retirees and lower claim costs of future retirees. The decrease of $22 million in the OPEB prior service credit is primarily related to amortization of prior service cost.



The change in 2010 in items not yet recognized as a component of net periodic cost, which is recorded in unrecognized pension and other postretirement benefit cost, is shown in the table below.

<table><tr><td>($ in millions)</td><td>Pension benefits</td><td>Postretirement benefits</td></tr><tr><td>Items not yet recognized as a component of net periodic cost -</td><td></td><td></td></tr><tr><td>December 31, 2009</td><td>$ 2,434</td><td>$ (483)</td></tr><tr><td>Net actuarial loss (gain) arising during the period</td><td>74</td><td>(58)</td></tr><tr><td>Net actuarial (loss) gain amortized to net periodic benefit cost</td><td>(208)</td><td>22</td></tr><tr><td>Prior service cost arising during the period</td><td>—</td><td>—</td></tr><tr><td>Prior service credit amortized to net periodic benefit cost</td><td>2</td><td>22</td></tr><tr><td>Translation adjustment and other</td><td>4</td><td>—</td></tr><tr><td>Items not yet recognized as a component of net periodic cost -</td><td></td><td></td></tr><tr><td>December 31, 2010</td><td>$ 2,306</td><td>$ (497)</td></tr></table>

The net actuarial loss (gain) is recognized as a component of net periodic cost amortized over the average remaining service period of active employees expected to receive benefits. Estimates of the net actuarial loss (gain) and prior service credit expected to be recognized as a component of net periodic benefit cost during 2011 are shown in the table below.

<table><tr><td>($ in millions)</td><td>Pension benefits</td><td>Postretirement benefits</td></tr><tr><td>Net actuarial loss (gain)</td><td>$ 154</td><td>$ (30)</td></tr><tr><td>Prior service credit</td><td>(2)</td><td>(23)</td></tr></table>

The accumulated benefit obligation (“ABO”) for all defined benefit pension plans was $4.82 billion and $4.50 billion as of December 31, 2010 and 2009, respectively. The ABO is the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered at the measurement date. However, it differs from the PBO due to the exclusion of an assumption as to future compensation levels.

The PBO, ABO and fair value of plan assets for the Company’s pension plans with an ABO in excess of plan assets were $4.48 billion, $3.79 billion and $3.54 billion, respectively, as of December 31, 2010 and $4.99 billion, $4.28 billion and $3.85 billion, respectively, as of December 31, 2009. Included in the accrued benefit cost of the pension benefits are certain unfunded non-qualified plans with accrued benefit costs of $132 million and $156 million for 2010 and 2009, respectively.

The changes in benefit obligations for all plans for the years ended December 31 are as follows:

<table><tr><td rowspan="3">(\( in millions)</td><td colspan="3">Pension benefits</td><td colspan="3">Postretirement benefits</td></tr><tr><td rowspan="2">2010</td><td rowspan="2">2009</td><td rowspan="2">2010</td><td rowspan="2">2009</td><td colspan="2"></td></tr><tr><td></td></tr><tr><td>Benefit obligation, beginning of year</td><td>$ 5,233</td><td>$ 4,566</td><td>$ 666</td><td>$ 762</td><td></td><td></td></tr><tr><td>Service cost</td><td>150</td><td>125</td><td>12</td><td>13</td><td></td><td></td></tr><tr><td>Interest cost</td><td>320</td><td>331</td><td>40</td><td>52</td><td></td><td></td></tr><tr><td>Participant contributions</td><td>1</td><td>1</td><td>22</td><td>38</td><td></td><td></td></tr><tr><td>Actuarial loss (gain)</td><td>239</td><td>537</td><td>(58)</td><td>105</td><td></td><td></td></tr><tr><td>Benefits paid (1)</td><td>(407)</td><td>(356)</td><td>(57)</td><td>(77)</td><td></td><td></td></tr><tr><td>Plan amendment (2)</td><td>—</td><td>—</td><td>—</td><td>(232)</td><td></td><td></td></tr><tr><td>Translation adjustment and other</td><td>9</td><td>29</td><td>3</td><td>5</td><td></td><td></td></tr><tr><td>Benefit obligation, end of year</td><td>$ 5,545</td><td>$ 5,233</td><td>$ 628</td><td>$ 666</td><td></td><td></td></tr></table>



## Components of net periodic cost

The components of net periodic cost for all plans for the years ended December 31 are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Pension benefits</td><td colspan="4">Postretirement benefits</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td><td></td><td></td></tr><tr><td>Service cost</td><td>$ 150</td><td>$ 125</td><td>$ 145</td><td>$ 12</td><td>$ 13</td><td>$ 18</td><td></td><td></td></tr><tr><td>Interest cost</td><td>320</td><td>331</td><td>313</td><td>40</td><td>52</td><td>58</td><td></td><td></td></tr><tr><td>Expected return on plan assets</td><td>(331)</td><td>(398)</td><td>(397)</td><td>-</td><td>-</td><td>-</td><td></td><td></td></tr><tr><td>Amortization of:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service (credit) cost</td><td>(2)</td><td>(3)</td><td>(2)</td><td>(22)</td><td>(6)</td><td>2</td><td></td><td></td></tr><tr><td>Net actuarial loss (gain)</td><td>160</td><td>15</td><td>37</td><td>(22)</td><td>(29)</td><td>(24)</td><td></td><td></td></tr><tr><td>Settlement loss</td><td>48</td><td>22</td><td>57</td><td>-</td><td>-</td><td>-</td><td></td><td></td></tr><tr><td>Net periodic cost</td><td>$ 345</td><td>$ 92</td><td>$ 153</td><td>$ 8</td><td>$ 30</td><td>$ 54</td><td></td><td></td></tr></table>

## Assumptions

Weighted average assumptions used to determine net pension cost and net postretirement benefit cost for the years ended December 31 are:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Pension benefits</td><td colspan="3">Postretirement benefits</td></tr><tr><td>2010</td><td>2009</td><td>2008</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Weighted average discount rate</td><td>6.25%</td><td>7.50%</td><td>6.50%</td><td>6.25%</td><td>6.50%</td><td>6.75%</td></tr><tr><td>Rate of increase in compensation levels</td><td>4.0-4.5</td><td>4.0-4.5</td><td>4.0-4.5</td><td>n/a</td><td>n/a</td><td>n/a</td></tr><tr><td>Expected long-term rate of return on plan assets</td><td>8.5</td><td>8.5</td><td>8.5</td><td>n/a</td><td>n/a</td><td>n/a</td></tr></table>

Weighted average assumptions used to determine benefit obligations as of December 31 are listed in the following table.

<table><tr><td rowspan="2"></td><td colspan="2">Pension benefits</td><td colspan="2">Postretirement benefits</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td></tr><tr><td>Discount rate</td><td>6.00%</td><td>6.25%</td><td>6.00%</td><td>6.25%</td></tr><tr><td>Rate of increase in compensation levels</td><td>4.0-4.5</td><td>4.0-4.5</td><td>n/a</td><td>n/a</td></tr></table>

The weighted average health care cost trend rate used in measuring the accumulated postretirement benefit cost is 7.40% for 2011, gradually declining to 4.5% in 2024 and remaining at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. A one percentage-point increase in assumed health care cost trend rates would increase the total of the service and interest cost components of net periodic benefit cost of other postretirement benefits and the APBO by $3 million and $27 million, respectively. A one percentage-point decrease in assumed health care cost trend rates would decrease the total of the service and interest cost components of net periodic benefit cost of other postretirement benefits and the APBO by $2 million and $19 million, respectively.

## Pension plan assets

The change in pension plan assets for the years ended December 31 is as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td></tr><tr><td>Fair value of plan assets, beginning of year</td><td>$ 4,127</td><td>$ 3,399</td></tr><tr><td>Actual return on plan assets</td><td>496</td><td>531</td></tr><tr><td>Employer contribution</td><td>443</td><td>526</td></tr><tr><td>Benefits paid</td><td>(407)</td><td>(356)</td></tr><tr><td>Translation adjustment and other</td><td>10</td><td>27</td></tr><tr><td>Fair value of plan assets, end of year</td><td>$ 4,669</td><td>$ 4,127</td></tr></table>

In general, the Company’s pension plan assets are managed in accordance with investment policies approved by pension investment committees. The purpose of the policies is to ensure the plans’ long-term ability to meet benefit obligations by prudently investing plan assets and Company contributions, while taking into consideration regulatory and legal requirements and current market conditions. The investment policies are reviewed periodically and specify



target plan asset allocation by asset category. In addition, the policies specify various asset allocation and other risk limits. The pension plans' asset exposure within each asset category is tracked against widely accepted established benchmarks for each asset class with limits on variation from the benchmark established in the investment policy. Pension plan assets are regularly monitored for compliance with these limits and other risk limits specified in the investment policies.

The pension plans’ target asset allocation and the actual percentage of plan assets, by asset category as of December 31 are as follows:

<table><tr><td></td><td>Target asset allocation</td><td colspan="2">Actual percentage of plan assets</td></tr><tr><td>Asset category</td><td>2010</td><td>2010</td><td>2009</td></tr><tr><td>U.S. equity securities</td><td>25 - 33%</td><td>25%</td><td>25%</td></tr><tr><td>International equity securities</td><td>17 - 23</td><td>18</td><td>16</td></tr><tr><td>Fixed income securities</td><td>35 - 48</td><td>38</td><td>34</td></tr><tr><td>Real estate funds</td><td>3 - 7</td><td>4</td><td>3</td></tr><tr><td>Private equity funds</td><td>3 - 7</td><td>3</td><td>4</td></tr><tr><td>Hedge funds</td><td>6 - 9</td><td>8</td><td>9</td></tr><tr><td>Short-term investments and other</td><td>1 - 3</td><td>4</td><td>9</td></tr><tr><td>Total (1)</td><td></td><td>100%</td><td>100%</td></tr></table>

(1) Securities lending collateral reinvestment is excluded from target and actual percentage of plan assets.

In general, exposures to an asset category may be achieved either through direct investment holdings or through replication using derivative instruments (e.g., futures or swaps). The notional amount of derivatives used for replication is targeted at 10% and limited to 15% of total assets.

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



The following table presents the fair values of pension plan assets as of December 31, 2010.

<table><tr><td>($ in millions)</td><td>Quoted prices in active markets for identical assets (Level 1)</td><td>Significant other observable inputs (Level 2)</td><td>Significant unobservable inputs (Level 3)</td><td>Balance as of December 31, 2010</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S.</td><td>$ 922</td><td>$ 216</td><td>$ 6</td><td>$ 1,144</td></tr><tr><td>International</td><td>688</td><td>154</td><td>-</td><td>842</td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>722</td><td>71</td><td>-</td><td>793</td></tr><tr><td>Foreign government</td><td>-</td><td>14</td><td>-</td><td>14</td></tr><tr><td>Municipal</td><td>-</td><td>-</td><td>222</td><td>222</td></tr><tr><td>Corporate</td><td>-</td><td>836</td><td>10</td><td>846</td></tr><tr><td>RMBS</td><td>-</td><td>89</td><td>48</td><td>137</td></tr><tr><td>Short-term investments</td><td>89</td><td>574</td><td>-</td><td>663</td></tr><tr><td>Limited partnership interests:</td><td></td><td></td><td></td><td></td></tr><tr><td>Real estate funds (1)</td><td>-</td><td>-</td><td>167</td><td>167</td></tr><tr><td>Private equity funds (2)</td><td>-</td><td>-</td><td>166</td><td>166</td></tr><tr><td>Hedge funds (3)</td><td>-</td><td>-</td><td>373</td><td>373</td></tr><tr><td>Cash and cash equivalents</td><td>33</td><td>-</td><td>-</td><td>33</td></tr><tr><td>Free-standing derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>-</td><td>9</td><td>-</td><td>9</td></tr><tr><td>Liabilities</td><td>(2)</td><td>-</td><td>-</td><td>(2)</td></tr><tr><td>Total plan assets at fair value</td><td>$ 2,452</td><td>$ 1,963</td><td>$ 992</td><td>5,407</td></tr><tr><td>% of total plan assets at fair value</td><td>45.4%</td><td>36.3%</td><td>18.3%</td><td>100.0%</td></tr><tr><td>Securities lending obligation (4)</td><td></td><td></td><td></td><td>(772)</td></tr><tr><td>Other net plan assets (5)</td><td></td><td></td><td></td><td>34</td></tr><tr><td>Total reported plan assets</td><td></td><td></td><td></td><td>$ 4,669</td></tr></table>

(1) Real estate funds held by the pension plans are primarily invested in U.S. commercial real estate.

(2) Private equity funds held by the pension plans are primarily comprised of North American buyout funds.

(3) Hedge funds held by the pension plans primarily comprise fund of funds investments in diversified pools of capital across funds with underlying strategies such as convertible arbitrage, equity market neutral, fixed income arbitrage, global macro, commodity trading advisors, long short equity, short biased equity, and event driven strategies.

(4) The securities lending obligation represents the plan’s obligation to return securities lending collateral received under a securities lending program. The terms of the program allow both the plan and the counterparty the right and ability to redeem/return the securities loaned on short notice. Due to its relatively short-term nature, the outstanding balance of the obligation approximates fair value.

(5) Other net plan assets represent interest and dividends receivable and net receivables related to settlements of investment transactions, such as purchases and sales.



The following table presents the fair values of pension plan assets as of December 31, 2009.

<table><tr><td>($ in millions)</td><td>Quoted prices in active markets for identical assets (Level 1)</td><td>Significant other observable inputs (Level 2)</td><td>Significant unobservable inputs (Level 3)</td><td>Balance as of December 31, 2009</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S.</td><td>$ 888</td><td>$ 137</td><td>$ 4</td><td>$ 1,029</td></tr><tr><td>International</td><td>542</td><td>121</td><td>-</td><td>663</td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>774</td><td>72</td><td>-</td><td>846</td></tr><tr><td>Municipal</td><td>-</td><td>-</td><td>344</td><td>344</td></tr><tr><td>Corporate</td><td>-</td><td>565</td><td>10</td><td>575</td></tr><tr><td>RMBS</td><td>-</td><td>-</td><td>61</td><td>61</td></tr><tr><td>ABS</td><td>-</td><td>-</td><td>32</td><td>32</td></tr><tr><td>Short-term investments</td><td>60</td><td>657</td><td>-</td><td>717</td></tr><tr><td>Limited partnership interests:</td><td></td><td></td><td></td><td></td></tr><tr><td>Real estate funds</td><td>-</td><td>-</td><td>135</td><td>135</td></tr><tr><td>Private equity funds</td><td>-</td><td>-</td><td>149</td><td>149</td></tr><tr><td>Hedge funds</td><td>-</td><td>-</td><td>368</td><td>368</td></tr><tr><td>Cash and cash equivalents</td><td>10</td><td>-</td><td>-</td><td>10</td></tr><tr><td>Free-standing derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>13</td><td>-</td><td>-</td><td>13</td></tr><tr><td>Liabilities</td><td>(7)</td><td>-</td><td>-</td><td>(7)</td></tr><tr><td>Total plan assets at fair value</td><td>$ 2,280</td><td>$ 1,552</td><td>$ 1,103</td><td>4,935</td></tr><tr><td>% of total plan assets at fair value</td><td>46.2%</td><td>31.4%</td><td>22.4%</td><td>100.0%</td></tr><tr><td>Securities lending obligation</td><td></td><td></td><td></td><td>(840)</td></tr><tr><td>Other net plan assets</td><td></td><td></td><td></td><td>32</td></tr><tr><td>Total reported plan assets</td><td></td><td></td><td></td><td>$ 4,127</td></tr></table>



The fair values of pension plan assets are estimated using the same methodologies and inputs as those used to determine the fair values for the respective asset category of the Company. These methodologies and inputs are disclosed in Note 5.

The following table presents the rollforward of Level 3 plan assets for the year ended December 31, 2010.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="9">Actual return on plan assets:</td></tr><tr><td>Balance as of December 31, 2009</td><td>Relating to assets sold during the period</td><td>Relating to assets still held at the reporting date</td><td>Purchases, sales, issuances and settlements, net</td><td>Transfers into Level 3</td><td>Transfers out of Level 3</td><td>Balance as of December 31, 2010</td><td></td><td></td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U. S. equity securities</td><td>$ 4</td><td>$ -</td><td>$ 2</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ 6</td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>344</td><td>-</td><td>(2)</td><td>(114)</td><td>-</td><td>(6)</td><td></td><td>222</td><td></td></tr><tr><td>Corporate</td><td>10</td><td>-</td><td>-</td><td>-</td><td>-</td><td>-</td><td></td><td>10</td><td></td></tr><tr><td>RMBS</td><td>61</td><td>(10)</td><td>23</td><td>(26)</td><td>-</td><td>-</td><td></td><td>48</td><td></td></tr><tr><td>ABS</td><td>32</td><td>(1)</td><td>-</td><td>(31)</td><td>-</td><td>-</td><td></td><td>-</td><td></td></tr><tr><td>Limited partnership interests:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Real estate funds</td><td>135</td><td>(4)</td><td>3</td><td>33</td><td>-</td><td>-</td><td></td><td>167</td><td></td></tr><tr><td>Private equity funds</td><td>149</td><td>-</td><td>19</td><td>(2)</td><td>-</td><td>-</td><td></td><td>166</td><td></td></tr><tr><td>Hedge funds</td><td>368</td><td>(58)</td><td>73</td><td>(10)</td><td>-</td><td>-</td><td></td><td>373</td><td></td></tr><tr><td>Total Level 3 plan assets</td><td>$ 1,103</td><td>$ (73)</td><td>$ 118</td><td>$ (150)</td><td>$ -</td><td>$ (6)</td><td>$ 992</td><td></td><td></td></tr></table>

The following table presents the rollforward of Level 3 plan assets for the year ended December 31, 2009.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="9">Actual return on plan assets:</td></tr><tr><td>Balance as of January 1, 2009</td><td>Relating to assets sold during the period</td><td>Relating to assets still held at the reporting date</td><td>Purchases, sales, issuances and settlements, net</td><td>Net transfers in and/or (out) of Level 3</td><td>Balance as of December 31, 2009</td><td></td><td></td><td></td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U. S. equity securities</td><td>$ 5</td><td>$ -</td><td>$ (3)</td><td>$ 2</td><td>$ -</td><td>$ 4</td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>408</td><td>-</td><td>22</td><td>(48)</td><td>(38)</td><td></td><td></td><td>344</td><td></td></tr><tr><td>Corporate</td><td>10</td><td>2</td><td>-</td><td>17</td><td>(19)</td><td></td><td></td><td>10</td><td></td></tr><tr><td>RMBS</td><td>99</td><td>-</td><td>2</td><td>(40)</td><td>-</td><td></td><td></td><td>61</td><td></td></tr><tr><td>ABS</td><td>-</td><td>-</td><td>-</td><td>32</td><td>-</td><td></td><td></td><td>32</td><td></td></tr><tr><td>Limited partnership interests:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Real estate funds</td><td>142</td><td>-</td><td>(47)</td><td>40</td><td>-</td><td></td><td></td><td>135</td><td></td></tr><tr><td>Private equity funds</td><td>133</td><td>-</td><td>4</td><td>12</td><td>-</td><td></td><td></td><td>149</td><td></td></tr><tr><td>Hedge funds</td><td>341</td><td>10</td><td>37</td><td>(20)</td><td>-</td><td></td><td></td><td>368</td><td></td></tr><tr><td>Total Level 3 plan assets</td><td>$ 1,138</td><td>$ 12</td><td>$ 15</td><td>$ (5)</td><td>$ (57)</td><td>$ 1,103</td><td></td><td></td><td></td></tr></table>

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. The Company’s assumption for the expected long-term rate of return on plan assets is reviewed annually giving consideration to appropriate financial data including, but not limited to, the plan asset allocation, forward-looking expected returns for the period over which benefits will be paid, historical returns on plan assets and other relevant market data. Given the long-term forward looking nature of this assumption, the actual returns in any one year do not immediately result in a change. In giving consideration to the targeted plan asset allocation, the Company evaluated returns using the same sources it has used historically which include: historical average asset class returns from an independent nationally recognized vendor of this type of data blended together using the asset allocation policy weights for the Company’s pension plans; asset class return forecasts from a large global independent asset management firm that specializes in providing multi-asset class index fund products which were blended together using the asset allocation policy weights; and expected portfolio returns from a proprietary simulation methodology of a widely recognized external investment consulting firm that performs asset allocation and actuarial services for corporate pension plan sponsors. This same methodology has been applied on a consistent basis each year. All of these were consistent with the Company’s long-term rate of return on plan assets assumption of 8.5% as of December 31, 2010 and 2009. As of the 2010 measurement date, the arithmetic average of the annual actual return on plan assets for the most recent 10 and 5 years was 3.5% and 6.0%, respectively.

Pension plan assets did not include any of the Company’s common stock as of December 31, 2010 or 2009.



## Cash flows

There was no required cash contribution necessary to satisfy the minimum funding requirement under the IRC for the tax qualified pension plans as of December 31, 2010. The Company currently plans to contribute $263 million to its pension plans in 2011.

The Company contributed $35 million and $39 million to the postretirement benefit plans in 2010 and 2009, respectively. Contributions by participants were $22 million and $38 million in 2010 and 2009.

## Estimated future benefit payments

Estimated future benefit payments expected to be paid in the next 10 years, based on the assumptions used to measure the Company’s benefit obligation as of December 31, 2010 are presented in the table below. Effective January 1, 2010, the Company no longer participates in the Retiree Drug Subsidy program due to the change in the Company’s retiree medical plan for Medicare-eligible retirees.

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Postretirement benefits</td></tr><tr><td>Pension benefits</td><td>Gross benefit payments</td><td></td></tr><tr><td>2011</td><td>$ 292</td><td>$ 36</td><td></td></tr><tr><td>2012</td><td>313</td><td>38</td><td></td></tr><tr><td>2013</td><td>321</td><td>39</td><td></td></tr><tr><td>2014</td><td>356</td><td>42</td><td></td></tr><tr><td>2015</td><td>375</td><td>43</td><td></td></tr><tr><td>2016-2020</td><td>2,408</td><td>247</td><td></td></tr><tr><td>Total benefit payments</td><td>$ 4,065</td><td>$ 445</td><td></td></tr></table>

## Allstate 401(k) Savings Plan

Employees of the Company, 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 Allstate 401(k) Savings Plan (“Allstate Plan”). The Company’s contributions are based on the Company’s matching obligation and certain performance measures. The Company is responsible for funding its anticipated contribution to the Allstate Plan, and may, at the discretion of management, use the ESOP to pre-fund certain portions. In connection with the Allstate Plan, the Company has a note from the ESOP with a principal balance of $22 million as of December 31, 2010. The ESOP note has a fixed interest rate of 7.9% and matures in 2019. The Company records dividends on the ESOP shares in retained income and all the shares held by the ESOP are included in basic and diluted weighted average common shares outstanding.

The Company’s contribution to the Allstate Plan was $36 million, $78 million and $48 million in 2010, 2009 and 2008, respectively. These amounts were reduced by the ESOP benefit computed for the years ended December 31 as follows:

<table><tr><td>(\( in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Interest expense recognized by ESOP</td><td>$ 2</td><td>$ 2</td><td>$ 2</td></tr><tr><td>Less: dividends accrued on ESOP shares</td><td>(2)</td><td>(2)</td><td>(2)</td></tr><tr><td>Cost of shares allocated</td><td>2</td><td>2</td><td>2</td></tr><tr><td>Compensation expense</td><td>2</td><td>2</td><td>2</td></tr><tr><td>Reduction of defined contribution due to ESOP</td><td>11</td><td>22</td><td>12</td></tr><tr><td>ESOP benefit</td><td>$ (9)</td><td>$ (20)</td><td>$ (10)</td></tr></table>

The Company made no contributions to the ESOP in 2010 and 2009. The Company contributed $5 million to the ESOP in 2008. As of December 31, 2010, total committed to be released, allocated and unallocated ESOP shares were 0.2 million, 34 million and 5 million, respectively.

Allstate has defined contribution plans for eligible employees of its Canadian insurance subsidiaries and Sterling. Expense for these plans was $5 million, $6 million and $2 million in 2010, 2009 and 2008, respectively.

## 17. Equity Incentive Plans

The Company currently has two equity incentive plans that permit it to grant nonqualified stock options, incentive stock options, restricted or unrestricted shares of the Company’s stock and restricted stock units to certain employees



and directors of the Company. The total compensation expense related to equity awards was $68 million, $74 million and $85 million and the total income tax benefits were $23 million, $25 million and $29 million for the years ended December 31, 2010, 2009 and 2008, respectively. Total cash received from the exercise of options was $28 million, $3 million and $33 million for the years ended December 31, 2010, 2009 and 2008, respectively. Total tax benefit realized on options exercised and stock unrestricted was $11 million, $3 million and $12 million for the years ended December 31, 2010, 2009 and 2008, respectively.

The Company records compensation expense related to awards under these plans over the vesting period of each grant. The Company records compensation expense for employees eligible for continued vesting upon retirement over the vesting period to the date that the employee is eligible for retirement. As of December 31, 2010, total unrecognized compensation cost related to all nonvested awards was $107 million, of which $63 million related to nonqualified stock options which are expected to be recognized over the weighted average vesting period of 2.36 years and $44 million is related to restricted stock units which are expected to be recognized over the weighted average vesting period of 2.47 years.

Options are granted under the plans with exercise prices equal to the closing share price of the Company's common stock on the applicable grant date. Options granted to employees under the Allstate plan generally vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. Options granted prior to 2010 vest ratably over a four year period. Options may be exercised once vested and will expire ten years after the date of grant unless the employee retires. For a retirement, employee stock options vest as scheduled. When the options become vested, they may be exercised on or before the earlier of the option expiration date or the fifth anniversary of the employee's retirement. Restricted stock units generally vest and unrestrict 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date, except for directors which vest immediately and unrestrict after leaving the board. Restricted stock and restricted stock units granted to employees prior to 2010 vest and unrestrict in full on the fourth anniversary of the grant date. Employee awards are subject to forfeiture upon termination. For terminations due to employee retirement, restricted stock units continue to unrestrict as provided for in the original grant.

A total of 71.0 million shares of common stock were authorized to be used for awards under the plans, subject to adjustment in accordance with the plans' terms. As of December 31, 2010, 21.2 million shares were reserved and remained available for future issuance under these plans. The Company uses its treasury shares for these issuances.

The fair value of each option grant is estimated on the date of grant using a binomial lattice model. The Company uses historical data to estimate option exercise and employee termination within the valuation model. In addition, separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the binomial lattice model and represents the period of time that options granted are expected to be outstanding. The expected volatility of the price of the underlying shares is implied based on traded options and historical volatility of the Company's common stock. The expected dividends for 2010 were based on the current dividend yield of the Company's stock as of the date of the grant. The expected dividends for 2009 were based on a graded average of the current and historical long-term dividend yield of the Company's stock as of the date of the grant. The expected dividends for 2008 were 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 grant. The assumptions used are shown in the following table.

<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Weighted average expected term</td><td>7.8 years</td><td>8.1 years</td><td>8.1 years</td></tr><tr><td>Expected volatility</td><td>23.7 - 52.3%</td><td>26.3 - 79.2%</td><td>16.9 - 58.6%</td></tr><tr><td>Weighted average volatility</td><td>35.1%</td><td>38.3%</td><td>23.1%</td></tr><tr><td>Expected dividends</td><td>2.4 - 2.8%</td><td>2.6%</td><td>3.1 - 5.8%</td></tr><tr><td>Weighted average expected dividends</td><td>2.6%</td><td>2.6%</td><td>3.1%</td></tr><tr><td>Risk-free rate</td><td>0.1 - 3.9%</td><td>0.0 - 3.7%</td><td>0.2 - 4.1%</td></tr></table>



A summary of option activity for the year ended December 31, 2010 is shown in the following table.

<table><tr><td></td><td>Number (in 000s)</td><td>Weighted average exercise price</td><td>Aggregate intrinsic value (in 000s)</td><td>Weighted average remaining contractual term (years)</td></tr><tr><td>Outstanding as of January 1, 2010</td><td>34,910</td><td>$ 39.64</td><td></td><td></td></tr><tr><td>Granted</td><td>4,014</td><td>31.40</td><td></td><td></td></tr><tr><td>Exercised</td><td>(1,403)</td><td>20.28</td><td></td><td></td></tr><tr><td>Forfeited</td><td>(949)</td><td>28.68</td><td></td><td></td></tr><tr><td>Expired</td><td>(1,276)</td><td>49.90</td><td></td><td></td></tr><tr><td>Outstanding as of December 31, 2010:</td><td>35,296</td><td>39.39</td><td>$ 124,033</td><td>5.3</td></tr><tr><td>Outstanding, net of expected forfeitures</td><td>34,968</td><td>39.51</td><td>121,995</td><td>5.3</td></tr><tr><td>Outstanding, exercisable (“vested”)</td><td>21,470</td><td>45.92</td><td>22,910</td><td>3.7</td></tr></table>

The weighted average grant date fair value of options granted was $9.89, $5.74 and $9.98 during the years ended December 31, 2010, 2009 and 2008, respectively. The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $16 million, $428 thousand and $9 million during the years ended December 31, 2010, 2009 and 2008, respectively.

The changes in restricted stock and restricted stock units are shown in the following table for the year ended December 31, 2010.

<table><tr><td></td><td>Number (in 000s)</td><td>Weighted average grant date fair value</td></tr><tr><td>Nonvested as of January 1, 2010</td><td>3,368</td><td>34.83</td></tr><tr><td>Granted</td><td>1,143</td><td>31.32</td></tr><tr><td>Vested</td><td>(527)</td><td>52.65</td></tr><tr><td>Forfeited</td><td>(227)</td><td>30.66</td></tr><tr><td>Nonvested as of December 31, 2010</td><td>3,757</td><td>31.50</td></tr></table>

The fair value of restricted stock and restricted stock units is based on the market value of the Company’s stock as of the date of the grant. The market value in part reflects the payment of future dividends expected. The weighted average grant date fair value of restricted stock and restricted stock units granted was $31.32, $17.47 and $48.00 during the years ended December 31, 2010, 2009 and 2008, respectively. The total fair value of restricted stock and restricted stock units vested was $16 million, $11 million and $25 million during the years ended December 31, 2010, 2009 and 2008, respectively.

The tax benefit realized in 2010, 2009 and 2008 related to tax deductions from stock option exercises and included in shareholders' equity was $4 million, zero and $3 million, respectively. The tax benefit realized in 2010, 2009 and 2008 related to all stock-based compensation and credited directly to shareholders' equity was $0.5 million, $(6) million and $3 million, respectively.

## 18. Business Segments

Allstate management is organized around products and services, and this structure is considered in the identification of its four reportable segments. These segments and their respective operations are as follows:

Allstate Protection sells principally private passenger auto and homeowners insurance in the United States and Canada. Revenues from external customers generated outside the United States were $741 million, $619 million and $665 million in 2010, 2009 and 2008, respectively. The Company evaluates the results of this segment based upon underwriting results.

Discontinued Lines and Coverages consists of business no longer written by Allstate, including results from asbestos, environmental and other discontinued lines claims, and certain commercial and other businesses in run-off. This segment also includes the historical results of 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. The principal individual products are interest-sensitive, traditional and variable life insurance; fixed annuities; and voluntary accident and health insurance. The institutional product line consists primarily of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors. Banking products and services have been offered to customers through the Allstate Bank. Allstate Financial had no revenues from external customers generated outside the United States in 2010, 2009 and 2008. The Company evaluates the results of this segment based upon operating income.

Corporate and Other comprises holding company activities and certain non-insurance operations.

Allstate Protection and Discontinued Lines and Coverages comprise Property-Liability. The Company does not allocate Property-Liability investment income, realized capital gains and losses, or assets to the Allstate Protection and Discontinued Lines and Coverages segments. Management reviews assets at the Property-Liability, Allstate Financial, and Corporate and Other levels for decision-making purposes.

The accounting policies of the business segments are the same as those described in Note 2. The effects of certain inter-segment transactions are excluded from segment performance evaluation and therefore are eliminated in the segment results.

## Measuring segment profit or loss

The measure of segment profit or loss used by Allstate’s management in evaluating performance is underwriting income (loss) for the Allstate Protection and Discontinued Lines and Coverages segments and operating income for Allstate Financial and Corporate and Other segments. A reconciliation of these measures to net income (loss) is provided below.

Underwriting income (loss) is calculated as premiums earned, less claims and claims expenses (“losses”), amortization of DAC, operating costs and expenses, and restructuring and related charges as determined using GAAP.

Operating income (loss) is net income (loss) excluding:

- realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in operating income (loss),

- (amortization) accretion of DAC and DSI, to the extent they resulted from the recognition of certain realized capital gains and losses,

• gain (loss) on disposition of operations, after-tax, and

- adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years.



Summarized revenue data for each of the Company’s business segments for the years ended December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td></td><td></td><td></td></tr><tr><td>Property-liability insurance premiums</td><td></td><td></td><td></td></tr><tr><td>Standard auto</td><td>$ 16,530</td><td>$ 16,642</td><td>$ 17,048</td></tr><tr><td>Non-standard auto</td><td>905</td><td>966</td><td>1,100</td></tr><tr><td>Total auto</td><td>17,435</td><td>17,608</td><td>18,148</td></tr><tr><td>Homeowners</td><td>6,078</td><td>6,077</td><td>6,261</td></tr><tr><td>Other personal lines</td><td>2,442</td><td>2,510</td><td>2,558</td></tr><tr><td>Allstate Protection</td><td>25,955</td><td>26,195</td><td>26,967</td></tr><tr><td>Discontinued Lines and Coverages</td><td>2</td><td>(1)</td><td>—</td></tr><tr><td>Total property-liability insurance premiums</td><td>25,957</td><td>26,194</td><td>26,967</td></tr><tr><td>Net investment income</td><td>1,189</td><td>1,328</td><td>1,674</td></tr><tr><td>Realized capital gains and losses</td><td>(321)</td><td>(168)</td><td>(1,858)</td></tr><tr><td>Total Property-Liability</td><td>26,825</td><td>27,354</td><td>26,783</td></tr><tr><td>Allstate Financial</td><td></td><td></td><td></td></tr><tr><td>Life and annuity premiums and contract charges</td><td></td><td></td><td></td></tr><tr><td>Traditional life insurance</td><td>420</td><td>407</td><td>399</td></tr><tr><td>Immediate annuities with life contingencies</td><td>97</td><td>102</td><td>132</td></tr><tr><td>Accident and health insurance</td><td>621</td><td>460</td><td>412</td></tr><tr><td>Total life and annuity premiums</td><td>1,138</td><td>969</td><td>943</td></tr><tr><td>Interest-sensitive life insurance</td><td>991</td><td>944</td><td>896</td></tr><tr><td>Fixed annuities</td><td>39</td><td>45</td><td>56</td></tr><tr><td>Total contract charges</td><td>1,030</td><td>989</td><td>952</td></tr><tr><td>Total life and annuity premiums and contract charges</td><td>2,168</td><td>1,958</td><td>1,895</td></tr><tr><td>Net investment income</td><td>2,853</td><td>3,064</td><td>3,811</td></tr><tr><td>Realized capital gains and losses</td><td>(517)</td><td>(431)</td><td>(3,127)</td></tr><tr><td>Total Allstate Financial</td><td>4,504</td><td>4,591</td><td>2,579</td></tr><tr><td>Corporate and Other</td><td></td><td></td><td></td></tr><tr><td>Service fees</td><td>11</td><td>9</td><td>10</td></tr><tr><td>Net investment income</td><td>60</td><td>52</td><td>137</td></tr><tr><td>Realized capital gains and losses</td><td>11</td><td>16</td><td>(105)</td></tr><tr><td>Total Corporate and Other before reclassification of service fees</td><td>82</td><td>77</td><td>42</td></tr><tr><td>Reclassification of service fees (1)</td><td>(11)</td><td>(9)</td><td>(10)</td></tr><tr><td>Total Corporate and Other</td><td>71</td><td>68</td><td>32</td></tr><tr><td>Consolidated revenues</td><td>$ 31,400</td><td>$ 32,013</td><td>$ 29,394</td></tr></table>

(1) For presentation in the Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses.



Summarized financial performance data for each of the Company’s reportable segments for the years ended December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Net income</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td></td><td></td><td></td></tr><tr><td>Underwriting income (loss)</td><td></td><td></td><td></td></tr><tr><td>Allstate Protection</td><td>$ 526</td><td>$ 1,027</td><td>$ 189</td></tr><tr><td>Discontinued Lines and Coverages</td><td>(31)</td><td>(32)</td><td>(25)</td></tr><tr><td>Total underwriting income</td><td>495</td><td>995</td><td>164</td></tr><tr><td>Net investment income</td><td>1,189</td><td>1,328</td><td>1,674</td></tr><tr><td>Income tax expense on operations</td><td>(426)</td><td>(558)</td><td>(401)</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>(207)</td><td>(222)</td><td>(1,209)</td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>3</td><td>—</td><td>—</td></tr><tr><td>Property-Liability net income</td><td>1,054</td><td>1,543</td><td>228</td></tr><tr><td>Allstate Financial</td><td></td><td></td><td></td></tr><tr><td>Life and annuity premiums and contract charges</td><td>2,168</td><td>1,958</td><td>1,895</td></tr><tr><td>Net investment income</td><td>2,853</td><td>3,064</td><td>3,811</td></tr><tr><td>Periodic settlements and accruals on non-hedge derivative financial instruments</td><td>51</td><td>14</td><td>20</td></tr><tr><td>Contract benefits and interest credited to contractholder funds</td><td>(3,613)</td><td>(3,655)</td><td>(4,029)</td></tr><tr><td>Operating costs and expenses and amortization of deferred policy acquisition costs</td><td>(755)</td><td>(867)</td><td>(1,051)</td></tr><tr><td>Restructuring and related charges</td><td>3</td><td>(25)</td><td>(1)</td></tr><tr><td>Income tax expense on operations</td><td>(231)</td><td>(149)</td><td>(207)</td></tr><tr><td>Operating income</td><td>476</td><td>340</td><td>438</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>(337)</td><td>(417)</td><td>(2,034)</td></tr><tr><td>DAC and DSI (amortization) accretion related to realized capital gains and losses, after-tax</td><td>(34)</td><td>(177)</td><td>385</td></tr><tr><td>DAC and DSI unlocking related to realized capital gains and losses, after-tax</td><td>(18)</td><td>(224)</td><td>(274)</td></tr><tr><td>Non-recurring items, after-tax (1)</td><td>—</td><td>—</td><td>(219)</td></tr><tr><td>Reclassification of periodic settlements and accruals on non-hedge financial instruments, after-tax</td><td>(33)</td><td>(9)</td><td>(13)</td></tr><tr><td>Gain (loss) on disposition of operations, after-tax</td><td>4</td><td>4</td><td>(4)</td></tr><tr><td>Allstate Financial net income (loss)</td><td>58</td><td>(483)</td><td>(1,721)</td></tr><tr><td>Corporate and Other</td><td></td><td></td><td></td></tr><tr><td>Service fees (2)</td><td>11</td><td>9</td><td>10</td></tr><tr><td>Net investment income</td><td>60</td><td>52</td><td>137</td></tr><tr><td>Operating costs and expenses (2)</td><td>(390)</td><td>(419)</td><td>(372)</td></tr><tr><td>Income tax benefit on operations</td><td>128</td><td>141</td><td>107</td></tr><tr><td>Operating loss</td><td>(191)</td><td>(217)</td><td>(118)</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>7</td><td>11</td><td>(68)</td></tr><tr><td>Corporate and Other net loss</td><td>(184)</td><td>(206)</td><td>(186)</td></tr><tr><td>Consolidated net income (loss)</td><td>$ 928</td><td>$ 854</td><td>$ (1,679)</td></tr></table>

(1) During the fourth quarter of 2008, for traditional life insurance and immediate annuities with life contingencies, an aggregate premium deficiency of $336 million, pre-tax ($219 million, after-tax) resulted primarily from an experience study indicating that the annuitants on certain life-contingent contracts are projected to live longer than the Company anticipated when the contracts were issued, and, to a lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in DAC.

(2) For presentation in the Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses.



Additional significant financial performance data for each of the Company’s reportable segments for the years ended December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Amortization of DAC</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 3,678</td><td>$ 3,789</td><td>$ 3,975</td></tr><tr><td>Allstate Financial</td><td>356</td><td>965</td><td>704</td></tr><tr><td>Consolidated</td><td>$ 4,034</td><td>$ 4,754</td><td>$ 4,679</td></tr><tr><td>Income tax expense (benefit)</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 314</td><td>$ 612</td><td>$ (248)</td></tr><tr><td>Allstate Financial</td><td>8</td><td>(82)</td><td>(954)</td></tr><tr><td>Corporate and Other</td><td>(124)</td><td>(136)</td><td>(144)</td></tr><tr><td>Consolidated</td><td>$ 198</td><td>$ 394</td><td>$ (1,346)</td></tr></table>

Interest expense is primarily incurred in the Corporate and Other segment. Capital expenditures for long-lived assets are generally made in the Property-Liability segment. A portion of these long-lived assets are used by entities included in the Allstate Financial and Corporate and Other segments and, accordingly, are charged expenses in proportion to their use.

Summarized data for total assets and investments for each of the Company’s reportable segments as of December 31 are as follows:

<table><tr><td>($ in millions)</td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Assets</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 47,573</td><td>$ 47,179</td><td>$ 45,967</td></tr><tr><td>Allstate Financial</td><td>79,069</td><td>81,968</td><td>84,929</td></tr><tr><td>Corporate and Other</td><td>4,232</td><td>3,505</td><td>3,902</td></tr><tr><td>Consolidated</td><td>$ 130,874</td><td>$ 132,652</td><td>$ 134,798</td></tr><tr><td>Investments</td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 35,048</td><td>$ 34,526</td><td>$ 30,837</td></tr><tr><td>Allstate Financial</td><td>61,582</td><td>62,216</td><td>61,499</td></tr><tr><td>Corporate and Other</td><td>3,853</td><td>3,091</td><td>3,662</td></tr><tr><td>Consolidated</td><td>$ 100,483</td><td>$ 99,833</td><td>$ 95,998</td></tr></table>

The balances above reflect the elimination of related party investments between segments.



## 19. Other Comprehensive Income

The components of other comprehensive income (loss) on a pre-tax and after-tax basis for the years ended December 31 are as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">2010</td><td colspan="4">2009</td><td colspan="4">2008</td></tr><tr><td>Pre-tax</td><td>Tax</td><td>After-tax</td><td>Pre-tax</td><td>Tax</td><td>After-tax</td><td>Pre-tax</td><td>Tax</td><td>Tax</td><td>Pre-tax</td><td>Tax</td><td>After-tax</td></tr><tr><td>Unrealized net holding gains (losses) arising during the period, net of related offsets</td><td>$ 2,523</td><td>$ (882)</td><td>$ 1,641</td><td>$ 5,015</td><td>$ (1,754)</td><td>$ 3,261</td><td>$ (10,567)</td><td>$ 3,660</td><td>$ (6,907)</td><td></td><td></td><td></td></tr><tr><td>Less: reclassification adjustment of realized capital gains and losses</td><td>(221)</td><td>77</td><td>(144)</td><td>(284)</td><td>99</td><td>(185)</td><td>(3,509)</td><td>1,228</td><td>(2,281)</td><td></td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses</td><td>2,744</td><td>(959)</td><td>1,785</td><td>5,299</td><td>(1,853)</td><td>3,446</td><td>(7,058)</td><td>2,432</td><td>(4,626)</td><td></td><td></td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>35</td><td>(12)</td><td>23</td><td>63</td><td>(22)</td><td>41</td><td>(114)</td><td>40</td><td>(74)</td><td></td><td></td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost</td><td>142</td><td>(48)</td><td>94</td><td>(292)</td><td>78</td><td>(214)</td><td>(1,103)</td><td>379</td><td>(724)</td><td></td><td></td><td></td></tr><tr><td>Other comprehensive income (loss)</td><td>$ 2,921</td><td>$ (1,019)</td><td>$ 1,902</td><td>$ 5,070</td><td>$ (1,797)</td><td>$ 3,273</td><td>$ (8,275)</td><td>$ 2,851</td><td>$ (5,424)</td><td></td><td></td><td></td></tr></table>

## 20. Quarterly Results (unaudited)

<table><tr><td rowspan="2">($ in millions, except per share data)</td><td colspan="2">First Quarter</td><td colspan="2">Second Quarter</td><td colspan="2">Third Quarter</td><td colspan="2">Fourth Quarter</td></tr><tr><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2010</td><td>2009</td><td>2010</td><td>2010</td></tr><tr><td>Revenues</td><td>$ 7,749</td><td>$ 7,883</td><td>$ 7,656</td><td>$ 8,490</td><td>$ 7,908</td><td>$ 7,582</td><td>$ 8,087</td><td>$ 8,058</td></tr><tr><td>Net income (loss)</td><td>120</td><td>(274)</td><td>145</td><td>389</td><td>367</td><td>221</td><td>296</td><td>518</td></tr><tr><td>Net income (loss) earnings per share - Basic</td><td>0.22</td><td>(0.51)</td><td>0.27</td><td>0.72</td><td>0.68</td><td>0.41</td><td>0.55</td><td>0.96</td></tr><tr><td>Net income (loss) earnings per share - Diluted</td><td>0.22</td><td>(0.51)</td><td>0.27</td><td>0.72</td><td>0.68</td><td>0.41</td><td>0.55</td><td>0.96</td></tr></table>



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of The Allstate Corporation
Northbrook, IL 60062

We have audited the accompanying Consolidated Statements of Financial Position of The Allstate Corporation and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows for each of the three years in the period ended December 31, 2010. We also have audited the Company's internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A. Controls and Procedures. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Allstate Corporation and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In 2009, the Company changed its recognition and presentation for other-than-temporary impairments of debt securities.

/s/ Deloitte & Touche LLP

Chicago, Illinois
February 24, 2011



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## Corporate Headquarters/

## Home Office

The Allstate Corporation
2775 Sanders Road
Northbrook, IL 60062-6127
(800) 574-3553
www.allstate.com

## Annual Meeting

Shareholders of record are invited to attend the annual meeting of The Allstate Corporation on Tuesday, May 17, 2011, 11:00 a.m. (doors open at 10:00 a.m.) at Allstate West Plaza 3100 Sanders Road Northbrook, Illinois 60062-7154

Holders of common stock of record at the close of business on March 18, 2011 are entitled to vote at the meeting. A notice of meeting, proxy statement and proxy card and/or voting instructions were provided to shareholders with this annual report.

## Transfer Agent/Shareholder Records

For information or assistance regarding individual stock records, dividend reinvestment, dividend checks, 1099DIV and 1099B tax forms, direct deposit of dividend payments, or stock certificates, contact Wells Fargo Shareowner Services, in any of the following ways:

BY TELEPHONE:
(800) 355-5191 within the U.S. or
(651) 450-4064 outside the U.S.

BY FAX:
(651) 450-4033

BY MAIL:
Wells Fargo Bank, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854

BY CERTIFIED/OVERNIGHT MAIL: Wells Fargo Bank, N.A.
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075-1139

ON THE INTERNET—
ACCOUNT INFORMATION:
www.shareowneronline.com

## Allstate 401(k) Savings Plan

For information about the Allstate 401(k) Savings Plan, call the Allstate Benefits Center at (888) 255-7772.

## Investor Relations

Security analysts, portfolio managers and representatives of financial institutions seeking information about the company should contact:

## Investor Relations

The Allstate Corporation
2775 Sanders Road, Suite F3SE
Northbrook, IL 60062-6127
(800) 416-8803
invre@allstate.com

## Communications to the Board of Directors

Shareholders or other interested parties who wish to communicate to the Board of Directors may do so by mail or e-mail as follows. Please let us know if you are a shareholder.

BY E-MAIL:
directors@allstate.com

## BY MAIL:

The Allstate Corporation
Nominating & Governance
Committee
c/o General Counsel
Allstate Insurance Company
2775 Sanders Road, Suite F7
Northbrook, IL 60062-6127

## Code of Ethics

Allstate’s Code of Ethics is available on the Corporate Governance portion of the company’s website, www.allstate.com.

Common Stock and Dividend Information

<table><tr><td>(in dollars)</td><td>HIGH</td><td>LOW</td><td>CLOSE</td><td>DIVIDENDS DECLARED</td></tr><tr><td>2010</td><td></td><td></td><td></td><td></td></tr><tr><td>First Quarter</td><td>32.48</td><td>28.13</td><td>32.31</td><td>.20</td></tr><tr><td>Second Quarter</td><td>35.51</td><td>28.41</td><td>28.73</td><td>.20</td></tr><tr><td>Third Quarter</td><td>32.36</td><td>26.86</td><td>31.55</td><td>.20</td></tr><tr><td>Fourth Quarter</td><td>33.29</td><td>29.00</td><td>31.88</td><td>.20</td></tr><tr><td>2009</td><td></td><td></td><td></td><td></td></tr><tr><td>First Quarter</td><td>33.50</td><td>13.77</td><td>19.15</td><td>.20</td></tr><tr><td>Second Quarter</td><td>28.73</td><td>18.50</td><td>24.40</td><td>.20</td></tr><tr><td>Third Quarter</td><td>31.74</td><td>22.82</td><td>30.62</td><td>.20</td></tr><tr><td>Fourth Quarter</td><td>32.23</td><td>27.52</td><td>30.04</td><td>.20</td></tr></table>

Stock price ranges are from the New York Stock Exchange Composite listing. As of 4:00 p.m. (EST) on February 1, 2011, the closing price of Allstate common stock as reported on the New York Stock Exchange was $31.60 and there were 108,052 shareholders of record.

## Media Inquiries

Allstate Media Relations
2775 Sanders Road
Northbrook, IL 60062-6127
(847) 402-5600

## Form 10-K, Other Reports

Shareholders may receive without charge a copy of The Allstate Corporation Form 10-K annual report (filed with the U.S. Securities and Exchange Commission) and other public financial information for the year ended December 31, 2010, by contacting:

## Investor Relations

The Allstate Corporation
2775 Sanders Road, Suite F3SE
Northbrook, IL 60062-6127
(800) 416-8803
invre@allstate.com

The Allstate Corporation’s Annual Report is available online at: www.allstate.com/annualreport

## Stock Exchange Listing

The Allstate Corporation common stock is listed on the New York Stock Exchange under the trading symbol "ALL." Common stock is also listed on the Chicago Stock Exchange.

## Independent Registered

Public Accounting Firm
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606-4301

## Online Information

You can access financial and other information about Allstate on our website, www.allstateinvestors.com, including executive speeches, investor conference calls and quarterly investor information.



Everything we do begins with our customers.

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