The Allstate Corporation (ALL, NYSE)
Industry: Insurance - Property & Casualty
Annual report, fiscal year 2019


## We are the Good Hands \( ^{®} \) 
Prosperity Report



## Our Shared Purpose

## OUR STRATEGIC VISION

Deliver substantially more value than the competition by reinventing protection to improve customers' lives.

## OUR VALUES

• Honesty, caring and integrity

• Inclusive diversity

• Engagement

• Accountability

• Superior performance

## OUR OPERATING PRINCIPLES

• Put the customer at the center of all our actions.

• Use consumer insights, data, technology and people to better serve customers and generate growth.

• Execute well-considered decisions with precision and speed.

## We are the Good Hands \( ^{®} \) 

We help customers realize their hopes and dreams by providing the best products and services to protect them from life’s uncertainties and prepare them for the future.

## OUR CORPORATE GOAL

Create long-term value by serving our stakeholders, taking appropriate risks and leveraging our capabilities and strategic assets.

## OUR PRIORITIES

• Customer focus

• Operational excellence

• Enterprise risk and return

• Sustainable growth

• Capital management

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

• Be a learning organization that leverages successes, learns from failures and continuously improves.

## OUR LEADERSHIP PRINCIPLES

We empower every employee to lead and drive change.

• We’re here to serve.

• We win together.

• We drive results.

• We’re transparent.

• We continuously get better.

• We develop each other.

• Provide employees, agents and financial specialists fulfilling opportunities, personal growth and performance-based rewards.

• Take an enterprise view of our people and processes, and work as a single team to advance Allstate rather than our individual interests.



# Transforming Allstate and improving society



Allstate’s role in society is to serve customers, earn a return for shareholders, create economic growth and strengthen communities. This Prosperity Report highlights our successes and challenges in accomplishing these objectives.

Allstate has been in the catastrophe business for 89 years and helped rebuild communities after hurricanes, earthquakes and wildfires. Islands cut in half by wind, roads turned into asphalt pretzels and homes melted by heat have been rebuilt with America’s massive resources, a can-do attitude and Allstate financial support of $48 billion over the last 25 years. The impact of these events was more geographically concentrated than the coronavirus pandemic yet the lessons from past disasters are valuable in helping customers cope with this crisis. Putting people first, we are giving money back to auto insurance customers as they drive less due to social distancing. Financially struggling customers can defer their payments. The Allstate Foundation and our people are supporting many social service organizations. We will get through this pandemic and be stronger.

Allstate’s strategy to stay strong is to increase market share in personal property-liability insurance and provide customers with a circle of protection through life, worksite, consumer product protection plans and identity protection. This is consistent with Our Shared Purpose, which is to protect people from life’s uncertainties. Our Transformative Growth Plan will provide customers with simple, affordable and connected products that will differentiate us from the competition. This multi-year undertaking increases operational risk but lowers strategic risk. As technology enables us to serve customers faster and better it will also require employees and Allstate agents to build new capabilities and embrace change.
We begin this transformation from a position of strength with excellent results on 2019’s operating and financial priorities. An intense customer focus enabled us to raise the Enterprise Net Promoter Score, a measure of customer satisfaction, for the third straight year. Property-liability written premiums reached $35.4 billion, an increase of approximately $2 billion. Adjusted net income* was $3.48 billion, reflecting excellent underwriting results in the property-liability businesses and strong earnings from other businesses and the investment portfolio. The adjusted net income return on equity* was 16.9%, in the range of our long-term goal of 14% to 17%. Shareholders also received $653 million in dividends and the percentage ownership of a share of stock in the company increased by 4.1% due to $1.8 billion of share repurchases.

While a sound strategy, excellent operating capabilities and significant capital are all critical to success, it is Allstate’s culture that ensures we stay successful. Our Shared Purpose articulates five core values which have resulted in recognition for strong ethics, inclusive diversity and innovation. We define culture as “a self-sustaining system of shared values, principles and priorities that shapes beliefs, drives behavior and influences decision-making within an organization.” The Transformative Growth Plan requires us to put even more focus on customers, empowerment and operational excellence. The Board has also elevated culture to one of Allstate’s primary risk and return categories.

I believe purpose-driven companies are powered by purpose-driven people. Everybody at Allstate must be a leader and 44% of active employees have completed the Energy for Life program. We also have assembled a senior leadership team that will drive success far into the future. I want to thank Vice Chair Steve Shebik, who has been an outstanding compatriot for 25 years and has decided to retire.

Allstate is a positive force in America and it is my responsibility to ensure it stays that way. We have successfully advocated at the state level for addressing the impacts of climate change by strengthening building codes, expanding emergency response capabilities and creating catastrophe insurance pools. Allstate’s Board governance has been recognized as amongst the best for public companies. The Allstate Foundation helps empower millions of youth and supports survivors of domestic violence. With your support, Allstate will continue to protect people from life’s uncertainties and help build a better world.

I am proud to have the opportunity to serve you and the millions of people who depend on Allstate.



TOM WILSON, CHAIR, PRESIDENT AND CEO



## Generating
attractive returns

Allstate creates long-term value through customer focus, operational excellence and proactive capital management.



MARIO RIZZO
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER

Shareholders were well served in 2019 as Allstate paid $653 million in common dividends and their ownership in a share of stock increased 4.1% through $1.8 billion in share repurchases.

## PROPERTY-LIABILITY
WRITTEN PREMIUM



## ADJUSTED NET INCOME \( ^{*} \) 



## ADJUSTED NET INCOME RETURN ON COMMON EQUITY \( ^{*} \) 



*For definition of this term, please see the definitions of non-GAAP measures on pages 88–91 of our 2020 Proxy Statement.
• The Enterprise Net Promoter Score, a measure of customer satisfaction, reached an all-time high.

• Total policies in force grew 32 million to 146 million, with 100 million of those from Allstate Protection Plans. Personal property-liability policies reached 34 million, a 1.3% increase from the prior year.

• Adjusted net income \( ^{*} $  was $3.48 billion.

• Adjusted net income return on equity \( ^{*} \)  was 16.9%.

BOOK VALUE PER COMMON SHARE



## TOTAL SHAREHOLDER RETURN
VS. PEER AND MARKET INDEXES

- Total shareholder return was 38.8% in 2019, in part reflecting the downturn in overall equity markets in the fourth quarter of 2018.

• Three- and five-year shareholder returns have been attractive.






# Protecting
people from life's
uncertainties

Allstate has thrived for 89 years by adapting to better serve customers. Our Transformative Growth Plan for the personal property-liability businesses builds on that success by expanding customer access, improving customer value and increasing investments in marketing and technology. Our objective is to increase market share and improve sustainability.



Redesigning products and business processes.

“Customer focus is at the center of Our Shared Purpose.”



GLENN SHAPIRO
PRESIDENT, PERSONAL PROPERTY-LIABILITY

## EXPAND CUSTOMER ACCESS

Consumers can currently access Allstate-branded property-liability products through Allstate agencies, contact centers and online. Access is being expanded to enable consumers to move between channels more easily so we no longer need both the Allstate and Esurance brands for direct sales. Esurance will be integrated into Allstate later in 2020.

## IMPROVE CUSTOMER VALUE

Property-liability products are being redesigned to be simple, affordable and connected. Affordability will be improved by using centralized service capabilities and reducing expenses. Connectivity will be expanded through improved mobile access, telematics and increased communication.

## INCREASE INVESTMENTS IN MARKETING AND TECHNOLOGY

We will increase Allstate brand marketing investments and reallocate Esurance spending to the Allstate brand. New technology ecosystems are being built to support increased connectivity, new products and operational adaptability.



## Expanding the circle of protection

We offer customers a circle of protection that includes everything from workplace benefits and commercial insurance to life insurance and identity protection.



DON CIVGIN
VICE CHAIR, THE ALLSTATE CORPORATION

Allstate is in the business of providing peace of mind. While we are best known for auto and home insurance, we provide a wide range of protection to customers. We offer innovative products and services for today’s connected consumer.

- Allstate Life leverages technology and data and analytics to meet the life and retirement needs of consumers.

- Allstate Benefits provides customers financial protection through the workplace in case of accident, illness or death. It is among the leaders in the growing voluntary benefits market and helps fill increasing coverage gaps for employees.

- Allstate Protection Plans, formerly known as SquareTrade, covers consumer goods like cellphones, tablets, computers and appliances. It has a leading position in distribution through major U.S. retailers and is expanding in Europe.
- Allstate Business Insurance provides protection to small businesses. It is rapidly expanding by providing protection to shared economy companies.

- Allstate Identity Protection is reinventing privacy and identity protection by giving people the tools to see, control and protect their digital lives. Our team helps them fully restore their identity if they are hacked.

- Arity is a mobility data and analytics company that turns billions of miles of driving data into predictive insights to make transportation safer and improve the accuracy of auto insurance pricing.

- Avail is a peer-to-peer car-sharing platform that we created to help owners and users economically benefit by improving car utilization.



## Investing for the future

“Allstate executes well-considered decisions with precision and speed. We act with confidence and do not settle for complacency.”



JOHN DUGENSKE
PRESIDENT, INVESTMENTS AND FINANCIAL PRODUCTS

The return on our investment portfolio is an important component of our ability to offer good value to customers, fund business improvements and create value for shareholders.

In 2019, the $88 billion portfolio generated $3.2 billion of net investment income, reflecting higher market-based portfolio yields offset by lower performance-based results. Total return on the portfolio was 9.2%, reflecting increased valuation of fixed-income investments and public equities.

## ALLSTATE USES TWO PRIMARY STRATEGIES IN OUR PORTFOLIO

- The market-based strategy includes investments primarily in public fixed-income and equity securities. It seeks to deliver predictable earnings aligned to business needs and take advantage of short-term opportunities.

- The performance-based strategy aims to provide attractive risk-adjusted returns and supplement market risk with idiosyncratic risk. The portfolio, which primarily includes private equity and real estate, with a majority being limited partnerships, is broadly diversified by geography, sectors and partners, as well as asset type.

## ALLSTATE INVESTMENTS HAS THREE PRIORITIES

• Enhance investment portfolio returns through the use of a dynamic capital allocation framework and a focus on tax efficiency.

• Invest for specific needs and characteristics of Allstate’s businesses, including its corresponding liability profile.

• Leverage our broad capabilities to shift the portfolio mix to earn higher risk-adjusted returns on capital.

## ALLSTATE INVEST'S RESPONSIBLY

- Allstate has roughly $900 million invested in socially responsible strategies, like a low-income housing tax credit portfolio and a Diversity and Emerging Managers program.

- The company manages these investments to produce solid returns and meet business objectives, while advancing the social goals of environmental protection, homeownership, community development and opportunities for diverse talent.

9.2%

TOTAL PORTFOLIO
RETURN IN 2019

3.7%

NET INVESTMENT
INCOME CONTRIBUTION

5.5%

FIXED-INCOME AND EQUITY
VALUATION CONTRIBUTION



## Addressing
climate change and
the environment

Allstate has advocated for addressing the impacts of climate change over the last 25 years. At the state level, we have helped strengthen building codes, enhance emergency response capabilities and create catastrophe insurance pools.



JESS MERTEN
EXECUTIVE VICE PRESIDENT,
CHIEF RISK OFFICER

Climate change has a broad impact on Allstate’s business. Understanding weather exposure and underlying trends is important for the property protection products we provide to customers.

- Allstate adapts to changes in weather and helps develop solutions for uninsurable risk. We use reinsurance and third-party products to continue providing protection to customers.

• A risk evaluation framework is in place to identify and monitor business risks related to climate change.

• Increased severe weather has raised loss costs for homeowners insurance, requiring changes in pricing, product coverages, underwriting practices and reinsurance utilization. Over the last 15 years, it has also led us to reduce our number of homeowners policies, which negatively impacts sales growth of both homeowners and auto insurance.
• Material risks, including those affected by climate, are regularly identified, measured, managed, monitored and reported to senior management and the Board.

- Risk is evaluated in six key areas: insurance, investments, financial, operational, culture and strategic execution. The effects of climate change, including catastrophes and severe weather events, are included in several of these areas.

- Allstate Investments has a Responsible Investing Committee to monitor ESG (Environmental, Social and Governance) investing and continually evaluate our ESG practices.

## AMERICA'S RISK IS INCREASING

• Median U.S. home size increased 55% from 1975 to 2018.

• Housing units in Dallas, for example, increased 230% over the same period.



THE SAME TORNADO OR
HAILSTORM COULD RESULT IN
AN OVERALL LOSS EXPOSURE
THAT IS 4X GREATER THAN
IT WAS 40+ YEARS AGO.



## Doing the
right thing

“At Allstate, everyone has an obligation to ask questions, raise concerns and report violations of our Global Code of Business Conduct. We demonstrate these values when we engage with regulators and legislators to fulfill Our Shared Purpose.”



SUSIE LEES
EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER,
GENERAL COUNSEL AND SECRETARY

We have a history of strong corporate governance guided by the principles of dialogue, transparency and responsiveness. The Board continually enhances governance policies and was given a top rating by a proxy advisory organization.

Allstate engages in regulatory and political processes to ensure we meet the needs of customers and shareholders.

We engage in public policy advocacy at the state and federal levels to foster market innovation, fight for consumers, promote safety and security, ensure a healthy regulatory system, promote fiscal responsibility and advocate for small businesses.

The chief risk officer’s assessment of Allstate’s political engagement reached three key conclusions:

• Allstate’s decisions on how to engage in the political process appropriately balance risk and return.

• Our control framework appropriately manages the risks, and Board governance ensures activities are aligned with Allstate’s risk and return principles. The Board’s nominating and governance committee oversees political contributions and activities, including in a joint session with the Board.

• Failure to engage in the political process could result in unfavorable policies and legislation or adverse business outcomes, negatively impacting Allstate’s strategic position.
The Allstate Global Code of Business Conduct contains the values and principles of The Allstate Corporation and subsidiaries. Employees are required to affirm understanding and compliance with the code, including political activities, and officers are required to identify political activity semiannually.

• In 2019, 100% of our employees completed ethics and compliance training on our Global Code of Business Conduct during the annual compliance confirmation process.

• The 2019 Integrity Index measures the ethical health of our corporate culture, and our results consistently score above external benchmarks.



## Embracing
inclusive diversity



## 2019 EMPLOYEE DIVERSITY

<table><tr><td>Female</td><td>55.7%</td></tr><tr><td>Minority</td><td>37.4%</td></tr><tr><td>African-American</td><td>17.7%</td></tr><tr><td>Hispanic</td><td>11.1%</td></tr><tr><td>Asian/Pacific Islander</td><td>5.9%</td></tr><tr><td>Native American</td><td>0.3%</td></tr><tr><td>Two or more races</td><td>2.3%</td></tr></table>

## 2019 LEADERSHIP DIVERSITY

<table><tr><td>Board of Directors</td><td>50.0%</td></tr><tr><td>Officers</td><td>39.0%</td></tr><tr><td>Managers</td><td>57.0%</td></tr></table>

• We have 11 Employee Resource Groups with over 15,300 members that provide training and education to self-identified employee communities.

• 11,893 courses in inclusive diversity were completed in 2019.
Creating opportunities for our employees to thrive is critical to our success. This starts with attracting a diverse workforce that embraces our purpose-driven culture.

CARRIE BLAIR
EXECUTIVE VICE PRESIDENT, CHIEF HUMAN
RESOURCES OFFICER

In 2019, we expanded our pay equity analysis by using an external consultant to supplement internal analytics presented to the Board that identify policies, practices or systemic issues that may contribute to pay gaps. Allstate compared favorably to similar companies. In the few employee groups where gaps were identified, Allstate established adjustment plans to ensure pay equity.

Allstate defines culture as a self-sustaining system of shared values, principles and priorities that shapes beliefs, drives behavior and influences decision-making within an organization.

Culture was elevated to one of six key risk categories overseen by the Board. Our Shared Purpose is the foundation on which Allstate’s culture is built. The Transformative Growth Plan requires us to put even more focus on customers, empowerment and operational excellence.



# Empowering every employee to lead and drive change

“At Allstate, we challenge ourselves to find our purpose, get out of our comfort zone, try new things, question convention and seek out different perspectives.”



MARY JANE FORTIN
PRESIDENT, FINANCIAL PRODUCTS

Purpose-driven companies are powered by purpose-driven people. Through our collective power, we harness our diverse talent to better serve customers and shareholders and make the world a better place.

## TOTAL ALLSTATE EMPLOYEE SURVEY SCORES

<table><tr><td></td><td>2019 Inspire Culture*</td></tr><tr><td>Engagement (favorability)</td><td>84%</td></tr><tr><td>I believe strongly in Allstate’s Shared Purpose</td><td>89%</td></tr></table>

*The Inspire Culture survey is one of two biannual engagement surveys that make up Allstate’s “employee listening strategy.”

• 5,889 employees received performance-based bonuses.

• Allstate evaluates its executive compensation program annually to ensure alignment with the long-term interests of shareholders.
• More than 44,000 employees completed 391,000 hours of learning in 2019.

• We retained 85% of our employees.

• Allstate invests in ongoing education, contributing $3.7 million in tuition reimbursement.

• Through a partnership with Northwestern University, 4,532 leaders across Allstate participated in a data and analytics training program to increase evidence-based decision-making.

• Energy for Life (EFL) enables Allstaters to articulate and pursue their individual purpose. This creates more personal energy and engages them in Allstate’s purpose. In 2019, 5,092 Allstaters completed EFL, and almost 37,000 have taken it since 2010, including 44% of active employees and 57% of active managers.

## ENERGY FOR LIFE PARTICIPANTS






## Building stronger
communities

One of the roles of business is to strengthen communities, so they can prosper. Allstaters take a stand to empower youth, uplift and educate survivors of domestic violence and support the communities where we live and work.
Allstate helps create prosperous communities to inspire and empower people to fulfill their hopes and dreams.





ELIZABETH BRADY
EXECUTIVE VICE PRESIDENT, CHIEF MARKETING,
CUSTOMER AND COMMUNICATIONS OFFICER

## COMMUNITY ENGAGEMENT

• 15,956 nonprofit organizations benefited from employee and agency force giving and volunteering in 2019.

• Employee and agency owner volunteerism: 207,000 hours.

• 66% of the agency force served as community leaders by donating their time, expertise or charitable resources.

• The Allstate Foundation and corporate giving: $39 million.

## YOUTH EMPOWERMENT

• Number of youth empowered by The Allstate Foundation: 14 million.

• Number of schools involved in WE Schools: 6,926 (+18%).

• Investment in social and emotional learning programs for youth: $10 million.

## DOMESTIC VIOLENCE

• Number of domestic violence survivors who received financial education from The Allstate Foundation: 55,000.

## INVESTING WITH PURPOSE

• Purchases of municipal bonds by Allstate’s portfolio: $3.08 billion.

• Purchases of federal low-income tax credits: $281 million.

• Spending with diverse suppliers: $311 million, 7% of total supplier spending.



## Honors and recognition

“Allstate is recognized as an employer of choice and as a corporate champion for leadership in ethics, diversity, innovation and corporate responsibility. We are proud to be listed as a great place to work by several independent organizations, and will continue to invest in our people.”



SUREN GUPTA
EXECUTIVE VICE PRESIDENT, CHIEF INFORMATION
TECHNOLOGY AND ENTERPRISE SERVICES OFFICER

People want companies to be better. To take risks for the greater good simply because it’s the right thing to do. To make sure each new culture shift and tech innovation makes their lives not just different, but better.

## Leadership

THE WALL STREET JOURNAL/DRUCKER INSTITUTE
Management Top 250: Best-Managed Companies
(No. 24, up 15 spots from 2018)
Top scores in Innovation and Social Responsibility

DOW JONES SUSTAINABILITY INDEX
Member, North American Index (2018, 2019)

ETHISPHERE
World’s Most Ethical Companies (2015–20)

FORTUNE
World’s Most Admired Companies (2020)

POINTS OF LIGHT
The Civic 50 (2018, 2019)

NEWSWEEK
Most Responsible Companies (2020)

## Workforce

DIVERSITYINC
Top 50 Companies for Diversity
(2019, 16-time honoree)

HUMAN RIGHTS CAMPAIGN FOUNDATION
Corporate Equality Index (2009–20)

FORBES
America’s Best Employers for Diversity (2020)
America’s Best Employers for Women (2019)

MILITARY FRIENDLY COMPANY
Military Friendly Employer
(No. 1 in 2020, 4-time honoree)



# We create long-term
value by serving our
stakeholders, taking
appropriate risks and
leveraging our capabilities
and strategic assets.

What's Inside

Letter from Independent Directors to Stockholders

Information on Three Voting Issues

Election of Directors

Advisory Vote on Compensation

Ratification of External Auditor



# Letter from
Independent Directors

April 6, 2020

## Fellow Stockholders,

On your behalf, we oversee Allstate’s responsibilities to stockholders, customers, employees and communities. This oversight includes reviewing strategy, human capital and culture, and risk and return policies. We utilize extensive dialogue with stockholders and continually improve governance practices. While a long-term perspective guides this work, our letter summarizes the Board’s efforts over the last year.

## Strategy

Allstate’s purpose is to help customers realize their hopes and dreams by protecting them from life’s uncertainties. Our strategy is to increase market share of the personal property-liability businesses and expand the protection products offered to customers. The Board discusses strategy at every Board meeting and has a 21½ day session that focuses solely on long-term strategy.

Allstate initiated a bold Transformative Growth Plan in 2019 to increase market share in personal property-liability, which reduces long-term strategic risk. The plan has three components: expand customer access, enhance the customer value proposition and invest in marketing and technology. Measurements are in place to assess progress against these important efforts and will be reviewed by the Board.

Substantial success has been achieved in broadening Allstate’s protection offerings, with total policies in force increasing over 27% to 145.9 million in 2019. Allstate Protection Plans, formerly SquareTrade, accounted for the majority of this growth. In late 2018, we approved the acquisition of an identity protection business, now Allstate Identity Protection, which also had rapid growth last year. New insurance relationships have been established with shared economy companies that are further driving growth.

Innovation is an engine of strategic success and we are proud that Allstate was ranked one of the top 10 innovative companies in 2019, out of 640 candidates, by the Drucker Institute.
Accelerated Transformative Growth Plan with three components:

Expanding customer access

Enhancing customer value

Investing in marketing and technology



## Human Capital and Culture

As a service organization, Allstate’s success is highly dependent on human capital and an ethical culture that is fair and performance-oriented. A comprehensive review of organizational health is discussed every year and covers employee engagement, development, retention, compensation and inclusive diversity. This year we utilized an outside consultant to review pay equity and were pleased that Allstate’s pay practices compare favorably to companies of similar size and scope.

Culture is vital to serving your interests. Allstate was once again named “A Most Ethical Company” by Ethisphere as a result of focus from the boardroom to frontline employees. We define culture as “a self-sustaining system of shared values, principles and priorities that shapes beliefs, drives behavior and influences decision making within an organization.” This definition creates a foundation for the risk and return committee, which added culture as a key risk category.

Leadership is also critical to success. Substantial time is spent interacting with the senior leaders and reviewing their performance. Senior leadership succession was discussed multiple times in 2019, including using scenario planning so succession alternatives exist for unplanned departures.

## Risk and Return

The risk and return committee and the full Board ensure strategic, operational and financial risks are balanced with generating attractive returns on capital. We continue the industry leading practices of using an independent consultant to assess cybersecurity preparedness and the chief risk officer to assess Allstate’s political engagement using Principles and Guidance for Responsible Corporate Political Engagement published by Transparency International UK.

Climate change has a significant impact on Allstate’s business and for 25 years the company has successfully advocated for addressing the impacts of climate change. Hurricane and earthquake insurance pools, stronger building codes, new insurance products and pricing approaches, and reinsurance have been used to serve both customers and stockholders. Allstate discloses significant information related to climate-related risks, including the Board’s oversight, the impact on the company’s business and strategy, and the practices to assess, identify and manage these risks.

In 2019, the oversight of sustainability was formally assigned to the nominating and governance committee, which reviews sustainability twice a year including once in conjunction with the full Board.
External pay equity review determined Allstate’s pay practices compare favorably to companies of similar size and scope.



## Governance

As a Board, we oversaw and participated in a comprehensive dialogue throughout the year with stockholders representing 40% of Allstate’s outstanding shares. This dialogue led us to broaden and accelerate disclosure of political activity, modify the performance stock award metrics to include Relative Total Shareholder Return, and expand executive compensation clawback policies.

Board performance is evaluated at every meeting and annually for the full Board and individual members. Feedback is acted on, including modifying topics, agendas and materials. Future Board involvement is now discussed with every member every year instead of biennially.

We were pleased that these efforts resulted in a top score on governance from a significant proxy advisory firm.

The roles of corporations and capitalism in society are being actively debated in many venues. Allstate is at the forefront and building a better future by serving customers, making a profit, creating jobs and improving communities. As your representatives, we take these conversations seriously and actively debate the trade-offs in fulfilling these broad responsibilities.

We welcome your feedback on this letter or other matters of importance to Allstate. You can reach us by email at directors@allstate.com. We pledge to continue to independently represent your interests. Thank you for your continued support.
Stockholder feedback informed the Board’s decisions, which resulted in changes to governance and compensation practices.



For more information on how we measure up, see Allstate's Prosperity Report.



KERMIT R. CRAWFORD



SIDDHARTH N. (BOBBY) MEHTA



MICHAEL L. ESKEW



JACQUES P. PEROLD



MARGARET M. KEANE



ANDREA REDMOND



GREGG M. SHERRILL



JUDITH A. SPRIESER



PERRY M. TRAQUINA



# Notice of 2020 Annual Meeting
of Stockholders

## When

Tuesday, May 19, 2020, at 11:00 a.m.
Central time. Registration begins
at 10:00 a.m.

## Where

www.virtualshareholdermeeting.com/AL2020

As part of our precautions regarding the coronavirus (COVID-19) and to support the health and well-being of our stockholders, the 2020 Annual Meeting of Stockholders will be held in a virtual meeting format only. You will not be able to attend the annual meeting physically. The accompanying proxy materials include instructions on how to participate in the meeting and how you may vote your shares.

## How To Vote In Advance

Your vote is important. Please vote as soon as possible by one of the methods shown to the right. Make sure to have your proxy card, voting instruction form, or notice of Internet availability in hand and follow the instructions.





NEW
To express our appreciation for your participation, Allstate will make a $1 charitable donation to the American Red Cross on behalf of every stockholder account that votes.

## Items of Business



1 Election of 10 directors.

2 Say-on-pay: advisory vote on the compensation of the named executives.

3 Ratification of appointment of Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2020.

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



## By Telephone:

In the U.S. or Canada, you can vote your shares toll-free by calling 1-800-690-6903.

## By Mail:



You can vote by mail by marking, dating, and signing your proxy card or voting instruction form and returning it in the postage-paid envelope.

## By Internet:

You can vote your shares online at proxyvote.com.

## By Tablet or Smartphone:

You can vote your shares with your tablet or smartphone by scanning the QR code.

## Who Can Vote

Holders of Allstate common stock at the close of business on March 20, 2020. Each share of common stock is entitled to one vote for each director position and one vote for each of the other proposals.

## Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 19, 2020

The Notice of 2020 Annual Meeting, Proxy Statement, and 2019 Annual Report and the means to vote by Internet are available at proxyvote.com.

## Date of Mailing

On or about April 6, 2020, these proxy materials and annual report are being mailed or made available to stockholders and to participants in the Allstate 401(k) Savings Plan.

By Order of the Board,



SUSAN L. LEES
SECRETARY
APRIL 6, 2020



# Allstate's Shared Purpose
Guides the Company

## Our Shared Purpose



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

## Our Corporate Goal

Create long-term value by serving our stakeholders, taking appropriate risks and leveraging our capabilities and strategic assets.

## Our Values

▶ Honesty, caring and integrity

▶ Inclusive diversity

▶ Engagement

▶ Accountability

▶ Superior performance

## Our Priorities

▶ Customer focus

▶ Operational excellence

▶ Enterprise risk and return

▶ Sustainable growth

▶ Capital management

## Our Leadership Principles

We’re here to serve.

We win together.

We drive results.

We’re transparent.

We continuously get better.

We develop each other.

Deliver substantially more value than the competition by reinventing protection to improve customers' lives.



## Our Operating Principles

Put the customer at the center of all our actions.

▶ Use consumer insights, data, technology and people to better serve customers and generate growth.

▶ Execute well-considered decisions with precision and speed.

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

Be a learning organization that leverages successes, learns from failures and continuously improves.

Provide employees, agents and financial specialists fulfilling opportunities, personal growth and performance-based awards.

Take an enterprise view of our people and processes, and work as a single team to advance Allstate rather than our individual interests.



## Financial Highlights

ADJUSTED NET INCOME \( ^{*} $ 

2019 $3.48B
2018 $3.13B
2017 $2.69B

POLICIES IN FORCE

2019 46.3M 99.6M
2018 45.7M 68.6M
2017 43.6M 38.7M

Excluding Allstate Protection Plans (formerly known as SquareTrade)

Allstate Protection Plans

ADJUSTED NET INCOME PER COMMON SHARE \( ^{*} $ 

2019 $10.43
2018 $8.86
2017 $7.31

TOTAL SHAREHOLDER RETURN VS. PEER \( ^{(1)} \)  RETURNS
5 Yr 3 Yr 1 Yr

75.8%
41.4%
65.0%
60.5%

60.4%

25.0%

35.9%

34.4%

16.9%

16.2%

14.6%

BOOK VALUE PER COMMON SHARE

2019 $73.12
2018 $57.56
2017 $57.58

Allstate
Life Peers \( ^{(2)} \) 
P&C Peers \( ^{(2)} \) 
Peers \( ^{(2)} \) 

## 2019 Highlights

## Operating Priorities

Better serve customers - Enterprise net promoter score increased with improvement at most businesses.

Grow customer base - Property-Liability policies increased 1.3% from prior year to 33.7 million. Total policies in force increased 27.7% to 145.9 million.

Achieve target returns on capital - Adjusted Net Income Return on Common Equity \( ^{*} \)  of 16.9%.

Proactively manage investments - Total return of 9.2% on $88.4 billion investment portfolio in 2019.

Build long-term growth platforms - Accelerating Transformative Growth Plan, a multi-year initiative to increase property-liability market share. Expanding circle of protection with Allstate Protection Plans, Allstate Identity Protection and Aritty.

## Innovation

Recognized as a top 10 innovative company by the Drucker Institute two years in a row.

Expanded shared economy solutions with commercial coverage for drivers of a transportation networking company to 15 states.

Expanded use of telematics-based auto insurance products to more accurately price insurance and encourage safe driving.

Allstate brand Drivewise \( ^{®} \)  available in 50 states and the District of Columbia.

Allstate brand Milewise \( ^{®} \)  available in 14 states.

✓ Assurance brand DriveSense \( ^{®} \)  available in 37 states.

Encompass brand Route Report \( ^{SM} \)  available in 16 states.

## Human Capital Management

Living into inclusive diversity, with 69% diverse employees and 30% female and 12% minority officer representation.

Invested in re-skilling opportunities, with over 10,000 employees attending Allstate’s Global Learning Week and 3,600 participating in quarterly skill building sessions.

11 employee resource groups (voluntary, employee-led groups designed to foster an inclusive workplace) increased to 9,166 members in 2019 (29% higher than the prior year).

## Corporate Responsibility

Gave nearly $46 million in charitable contributions throughout the nation, including contributions from Allstate, The Allstate Foundation, employees and agency owners.

Helped over 14 million youth participate in service-based and social-emotional learning through The Allstate Foundation’s youth empowerment program.

Empowered more than 2 million domestic violence survivors since 2005 through The Allstate Foundation’s program focused on breaking the cycle of domestic violence through financial empowerment.

Supported state and local communities through investments in $3.08 billion of municipal bonds.

Expanded access to affordable housing by investing in $281 million of federal low-income housing tax credits and $57 million in state low-income housing tax credits.

Amplified Allstate’s community connections with more than 35% of our executives serving on nonprofit boards.

See our Prosperity Report for more information on how Allstate is building a better future.

Measures used in this proxy statement that are not based on generally accepted accounting principles (“non-GAAP”) are denoted with an asterisk (*). For definitions of these terms, please see the definitions of non-GAAP measures on pages 88-91 of our 2020 Proxy Statement.

 \( ^{(1)} \)  The peers are listed on page 58.

(2) Market Cap Weighted Average



## Proxy Voting Roadmap

This section highlights selected information about the items to be voted on at the annual meeting. It does not contain all information that you should consider in deciding how to vote. You should read the entire proxy statement carefully before voting.

## PROPOSAL

## Election of 10 Directors

## The Board recommends a vote FOR each nominee.

All candidates are highly successful executives with relevant skills and expertise.

▶ Average tenure of 7.5 years, with 9 of 10 directors independent of management.

## See

▶ Diverse slate of directors with broad leadership experience; three out of four committee chairs and the independent Lead Director bring gender or ethnic diversity.

## pages 13-18
for further

▶ Industry-leading stockholder engagement program and highly-rated corporate governance practices.

information

## A Balanced Board

The Board is composed of 10 directors with a broad and complementary set of business skills, educational and professional experiences, personalities, backgrounds, perspectives and genders.

## INDEPENDENT DIRECTOR TENURE

## 6.8 years

average independent director tenure



4 Newer directors (0-4 years)



5 Tenured directors (5+ years)

## BOARD DIVERSITY

## 50% diverse



3 Female



2 Ethnically diverse

## RELEVANT SKILLS AND EXPERIENCE

## 80%

Board governance experience



8 Currently serve on other public company boards

## 90%

Corporate leadership experience



9 Served as a CEO or President

## NOMINATION PROCESS FOR BOARD ELECTION

The Board regularly considers potential director candidates in anticipation of retirements, resignations, or changing business dynamics. This graphic describes the process to identify highly qualified candidates for Board service.

## CONSIDER CURRENT
BOARD SKILL SET
AND NEEDS

▶ Ensure Board is strong in strategic oversight, corporate governance, stockholder advocacy, and leadership and has diversity of expertise, perspectives and backgrounds



## MEET WITH QUALIFIED CANDIDATES

The nominating and governance committee, Lead Director, Board Chair and others meet candidates to ensure desired qualities such as independence of mind, tenacity and skill set to meet existing and future business needs



## CHECK CONFLICTS OF INTEREST

▶ All candidates are screened for conflicts of interest and independence



## BOARD DIALOGUE

▶ After deliberations, recommend director candidates; added four highly qualified directors in the past five years



## The Director Nominees at a Glance

<table><tr><td colspan="2"></td><td>Career Highlights</td><td>Committees</td></tr><tr><td rowspan="4">INDEPENDENT DIRECTORS</td><td>THOMAS J. WILSONChair, President, and CEO ofThe Allstate Corporation</td><td>Industry thought leader with a thorough understanding of Allstate&#x27;s business, industry, risk management processes, and strategic initiatives through holding key leadership roles over a 25-year career at Allstate</td><td>B</td></tr><tr><td>JUDITH A. SPRIESERFormer CEO of Transora Inc. and senior executive at Sara Lee CorporationIndependent Lead Director</td><td>Wide-ranging operational and leadership experience at technology services and consumer goods companies and significant experience serving on public company boards</td><td>B N R</td></tr><tr><td>KERMIT R. CRAWFORDFormer President and Chief Operating Officer of Rite Aid CorporationAudit Committee Chair</td><td>Managed strategy, performance and operational change of highly competitive consumer-focused service businesses where he championed affordable and accessible healthcare that led to delivery innovations, including regulatory changes allowing pharmacists to administer vaccines</td><td>A E R</td></tr><tr><td>MICHAEL L. ESKEWFormer Chairman and CEO of United Parcel Service, Inc.Compensation and SuccessionCommittee Chair</td><td>Guided the successful transformation of a customer-focused global delivery company through the use of digital technologies to more effectively deliver service</td><td>A B</td></tr><tr><td rowspan="4">Committee Leadership</td><td>SIDDHARTH N. MEHTAFormer President and CEO of TransUnionRisk and Return Committee Chair</td><td>Extensive strategic and operational leadership experience in the financial services industry, and proven success in expanding global reach through the use of technology and advanced analytics</td><td>R A B</td></tr><tr><td>ANDREA REDMONDFormer Managing Director of Russell Reynolds Associates Inc.Nominating and GovernanceCommittee Chair</td><td>Expertise in public company CEO and senior management succession planning, human capital management, and executive compensation across a wide range of industries, including financial services</td><td>N O E</td></tr><tr><td>MARGARET M. KEANECEO of Synchrony Financial</td><td>Directs the strategy and operations of a financial services business, expanding its focus on e-commerce and mobile capabilities to deliver an innovative consumer experience</td><td>O N</td></tr><tr><td>JACQUES P. PEROLDFormer President of Fidelity Management &amp; Research Company</td><td>Strong investment expertise in the financial services industry, and led the strategy and operations of one of the world&#x27;s largest asset management firms</td><td>N R</td></tr><tr><td rowspan="2">Committee Chair</td><td>GREGG M. SHERRILLNon-Executive Chair and former Chair and CEO of Tenneco Inc.</td><td>Broad strategic and operational leadership experience in the automotive industry, and brings valuable insights into anticipated transformation of the personal transportation system</td><td>A N</td></tr><tr><td>PERRY M. TRAQUINAFormer Chairman, CEO, and Managing Partner of Wellington Management Company LLP</td><td>Strong financial services and investment management expertise as leader of one of the world&#x27;s largest global investment management firms</td><td>G R</td></tr></table>

Committee Chair

Audit Committee

Compensation and Succession Committee

Executive Committee

Nominating and Governance Committee

Risk and Return Committee




## Say-on-Pay: Advisory Vote on the Compensation of the Named Executives

## The Board recommends a vote FOR this proposal.





▶ Independent oversight by compensation and succession committee with the assistance of an independent consultant.

Executive compensation targeted at 50 \( ^{th} \)  percentile of peers and aligned with short- and long-term business goals and strategy.

▶ Compensation programs are working effectively. Annual incentive compensation funding for our named executives in 2019 was 117.5% of target, reflecting above target performance on Performance Net Income and below target performance on Total Premiums and Net Investment Income.

## Executive Compensation Highlights

We compensated our named executive officers (“NEOs”) using the following elements for total target direct compensation in 2019:

<table><tr><td rowspan="2"></td><td>Element</td><td>Description</td><td colspan="2">Target Compensation Mix</td></tr><tr><td>Salary</td><td>Targeted at 50th percentile of peers to support Allstate&#x27;s goal of attracting and retaining executive talent</td><td>CEO</td><td>Other NEOs</td></tr><tr><td rowspan="3">Targeted at 50th percentile of peers</td><td>Annual Cash Incentive</td><td>Targets established based on company performance against three performance measures: Total Premiums, Performance Net Income, and Net Investment Income
▶ Amounts awarded to each NEO based on pool funding and individual performance</td><td>9%</td><td>18%</td></tr><tr><td>Long-term Equity Incentive</td><td>The mix of equity incentives granted in 2019 was 60% performance stock awards (“PSAs”) and 40% stock options
▶ Awards granted were based on target amounts and individual performance
▶ Actual PSAs vesting will be determined by Average Performance Net Income Return on Equity (“ROE”) (70%) and Earned Book Value (30%) results (both measured over a three-year period)
▶ For the 2020-2022 PSAs, a Relative Total Shareholder Return (TSR) performance measure replaced the Earned Book Value measure. The 2020 award will vest based on results for Average Performance Net Income ROE (70% weighting) and Relative TSR (30% weighting).</td><td>26%</td><td>26%</td></tr><tr><td></td><td></td><td>65%</td><td>56%</td></tr></table>

Allstate had excellent performance on all five 2019 Operating Priorities, and financial results improved, with adjusted net income \( ^{*} $  rising to 3.48 billion in 2019 from 3.13 billion in the prior year. TSR exceeded peer indices in 2019.

Total 2019 compensation for the CEO declined from 2018 by 1,552,937 to 16,261,139, excluding the change in pension value, as shown in the Summary Compensation Table.

Based on company and individual performance, the named executives received the following annual incentive payments during the last three years:

<table><tr><td>Named Executive</td><td>2017 Annual Incentive (\()</td><td>2018 Annual Incentive (\))</td><td>2019 Annual Incentive (\))</td></tr><tr><td>Mr. Wilson</td><td>6,759,264</td><td>6,719,194</td><td>4,730,100</td></tr><tr><td>Mr. Rizzo \( ^{(1)} \)</td><td>—</td><td>1,510,788</td><td>1,053,000</td></tr><tr><td>Mr. Civgin</td><td>1,806,645</td><td>1,900,000</td><td>1,400,000</td></tr><tr><td>Mr. Shapiro \( ^{(1)} \)</td><td>—</td><td>2,050,000</td><td>1,366,000</td></tr><tr><td>Mr. Shebik</td><td>2,600,000</td><td>2,945,289</td><td>2,037,000</td></tr></table>

 \( ^{*} \)  This measure is defined and reconciled to the most directly comparable GAAP measures in Appendix A.

 \( ^{(1)} \)  For Messrs. Rizzo and Shapiro, only the last two fiscal years are shown as this is their second year as named executives.



## Ratification of Deloitte & Touche LLP as the Independent Registered Public Accountant for 2020

## The Board recommends a vote FOR ratification of Deloitte & Touche LLP for 2020.





See

pages 79-81
for further
information
Independent firm with few ancillary services and reasonable fees.

▶ Significant industry and financial reporting expertise.

The audit committee annually evaluates Deloitte & Touche LLP and determined that its retention continues to be in the best interests of Allstate and its stockholders.



## Table of Contents

2 Letter from Independent Directors
5 Notice of 2020 Annual Meeting of Stockholders
8 Proxy Voting Roadmap
13 Corporate Governance
13 Proposal 1 Election of 10 Directors
13 Director Nominees' Skills and Experience
19 Effective Board Governance at Allstate
20 Board Composition
21 Board Effectiveness
24 Board Oversight
31 Board Accountability
33 Board Structure
34 Board Meetings and Committees
38 Board Independence and Related Person Transactions
39 Director Compensation
42 Executive Compensation
42 Proposal 2 Say-on-Pay: Advisory Vote on the Compensation of the Named Executives
42 Compensation Discussion and Analysis
61 Compensation Committee Report
62 Summary Compensation Table
64 Grants of Plan-Based Awards at Fiscal Year-end 2019
66 Outstanding Equity Awards at Fiscal Year-end 2019
67 Option Exercises and Stock Vested During 2019
68 Retirement Benefits
70 Non-Qualified Deferred Compensation at Fiscal Year-end 2019
71 Potential Payments as a Result of Termination or Change in Control ('CIC')
74 Estimate of Potential Payments Upon Termination
75 Performance Measures for 2019
78 CEO Pay Ratio
79 Audit Committee Matters
79 Proposal 3 Ratification of Deloitte & Touche LLP as the Independent Registered Public Accountant for 2020
81 Audit Committee Report
82 Stock Ownership Information
82 Security Ownership of Directors and Executive Officers
83 Security Ownership of Certain Beneficial Owners
84 Other Information
84 Proxy and Voting Information
88 Appendix A – Definitions of Non-GAAP Measures
92 Appendix B – Categorical Standards of Independence
93 Appendix C – Executive Officers



## About Allstate

Allstate is one of the nation's largest insurers with 145.9 million policies in force, protecting cars, homes, motorcycles, lives, personal devices and identities. Its products are sold through Allstate agents, independent agents, call centers, online, major retailers and voluntary benefits brokers. The company harnesses the talent of approximately 88,000 Allstaters. It recently was included in the Drucker Institute list of the nation's 250 best managed companies.

## NEW Report Highlights



See information about the Board’s oversight of sustainability initiatives and human capital management on pages 28-30



See information about Allstate’s comprehensive process for ensuring pay equity page 28



See information about increased oversight of culture on page 27



# Corporate Governance

## PROPOSAL

## Election of 10 Directors

## The Board recommends a vote FOR each nominee.

All candidates are highly successful executives with relevant skills and expertise.

▶ Average tenure of 7.5 years, with 9 of 10 directors independent of management.

▶ Diverse slate of directors with broad leadership experience; three out of four committee chairs and the independent Lead Director bring gender or ethnic diversity.

▶ Industry-leading stockholder engagement program and highly-rated corporate governance practices.

The Board recommends 10 nominees for election to the Allstate Board for one-year terms beginning in May 2020 and until a successor is duly elected and qualified or his or her earlier resignation or removal.

Each nominee was previously elected at Allstate’s annual meeting of stockholders on May 21, 2019, for a one-year term. 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. On the following pages, we list the reasons for nominating each individual.

## Director Nominees' Skills and Experience

Our Board selected the nominees based on their diverse set of skills and experience, which align with our business strategy and contribute to the effective oversight of Allstate. Our nominees are talented, both as individual business leaders and as a team. Fifty percent of our Board is ethnically or gender diverse. They bring a full array of business and leadership skills to their oversight responsibilities. Most nominees serve on other public company boards, enabling our Board to more quickly adopt best practices from other companies. Their diversity of experience and expertise facilitates robust dialogue and thoughtful decision-making on Allstate's Board.

## Core Competencies Required of All Director Nominees

STRATEGIC
OVERSIGHT
100% of Directors

STOCKHOLDER
ADVOCACY
100% of Directors

CORPORATE
GOVERNANCE
100% of Directors

LEADERSHIP
100% of Directors

## Additional Capabilities that Facilitate Oversight of Our Business

## Financial Services

Assists with understanding the business and strategy of our company.

## Risk Management

Aids in the Board’s role in overseeing the risks facing our company and provides effective oversight of our enterprise risk and return management (“ERRM”) program.

## Accounting and Finance

Financial reporting, audit knowledge, and experience in capital markets are elements of Allstate’s success.

## Technology and/or Cybersecurity

Relevant to how Allstate approaches improving its internal operations and the customer experience and protects customer information.

## Global Perspective

Provides valuable insights on how Allstate should continue to grow and manage its businesses outside the United States.











## Complex, Highly Regulated Businesses

Our business is regulated in all 50 states and is subject to government regulations by the U.S. federal government, Canada and the United Kingdom.

## Sustainability

Sustainability drives long-term value creation and as a public company and good corporate citizen, stockholders expect effective oversight and transparency.

## Succession Planning and Human Capital Management

Important for ensuring Allstate has sufficient talent available for all senior management positions and supporting our commitment to be a great place to work.

## Innovation and Customer Focus

Helps Allstate grow its brand, enhance its reputation, generate disruptive innovation, and extend or create new business models.

## Government, Public Policy and Regulatory Affairs

Assists in identifying and understanding compliance issues and the effect of governmental actions on our business.














## Director Nominees

## Kermit R. Crawford

Independent
Age 60



Kermit effectively transformed the pharmacy experience from a model focused primarily on drug delivery to a pharmacist-patient centric model.

## Professional Experience

Former President and Chief Operating Officer of Rite Aid Corporation, which operates one of the leading retail drugstore chains in the United States.

Former Executive Vice President and President, Pharmacy, Health and Wellness for Walgreen Co., which operates one of the largest drugstore chains in the United States.

Former Director at LifePoint Health.

## Relevant Skills

Expertise assessing the strategies and performance of a geographically distributed and consumer-focused service business in a highly competitive industry.

Effectively led operational change, including through the use of technology, and established strong platforms for long-term stockholder value creation.

Extensive knowledge of analyzing consumer experience and insights.

## Other Public Board Service

TransUnion (2019–present)



## Allstate Board Service

Director since 2013 (7 years of tenure)

Committee Assignments and Rationale
Audit Committee (Chair)

Responsibility for all aspects of strategic, operational, and profit and loss management of one of the largest drugstore chains in the United States.

Board leadership and seven years tenure on Allstate Board.

Former member of the audit and compliance committee at LifePoint Health.

## Risk and Return Committee

Operational experience at large, geographically dispersed service organizations.

Chair of Allstate audit committee.

## Michael L. Eskew

Independent
Age 70



Michael led the redesign of UPS’ operational platforms using digital technologies to more effectively and efficiently deliver a customer-focused worldwide service.

## Professional Experience

Former Chairman and CEO of United Parcel Service, Inc., a provider of specialty transportation and logistics services.

Lead director at International Business Machines Corporation since May 2014 and Lead Director at 3M Company since 2012.

## Relevant Skills

Expertise in strategy, leadership development, human capital management and corporate culture.

Oversight of a highly regulated company as a director of Eli Lilly and Company.

## Other Public Board Service

Eli Lilly and Company (2008–present)

IBM (2005–present)

3M Company (2003–present)



## Allstate Board Service

Director since 2014 (6 years of tenure)

## Committee Assignments and Rationale

Compensation and Succession Committee (Chair)

▶ Significant management experience as former Chairman and CEO of UPS from 2002 to 2007 and director of other publicly traded companies.

▶ Former chair of the 3M compensation committee and member of the Eli Lilly compensation committee.

## Audit Committee

Chair of the IBM audit committee, former chair of Eli Lilly audit committee, member of the Eli Lilly audit committee and a past member of the 3M audit committee.

▶ Successful execution of financial oversight responsibilities as CEO of UPS.



## Margaret M. Keane

Independent
Age 60



Margaret is an active CEO leading strategic, operational, and technology transformation in the rapidly changing consumer payments industry.

## Professional Experience

Current CEO and former President of Synchrony Financial, a consumer financial services company.

Former President and CEO of GE Capital Retail Finance.

## Relevant Skills

Extensive operational and strategic experience in the financial services industry as CEO of Synchrony Financial.

Valuable insights into innovation, technology transformation, human capital management and employee development.

Successful leadership experience across roles spanning consumer finance, vendor financial services, operations and quality.

## Other Public Board Service

Synchrony Financial (2014–present)



## Allstate Board Service

Director since 2018 (2 years of tenure)

Committee Assignments and Rationale
Compensation and Succession Committee

Substantial experience in establishing management performance objectives and specific goals.

▶ Significant current market knowledge of executive compensation as CEO of Synchrony Financial.

Nominating and Governance Committee

▶ Significant management experience as the CEO of Synchrony Financial.

▶ Thought leader and driver of inclusion and diversity initiatives.

## Siddharth N. (Bobby) Mehta



Independent
Age 61

As a CEO, Bobby demonstrated successful leadership that increased revenues and global reach through the use of technology and advanced analytics.

## Professional Experience

Former President, CEO, and current director of TransUnion, a global provider of credit information and risk management solutions.

Former Chairman and CEO, HSBC North America Holdings Inc.

Former CEO, HSBC Finance Corporation.

Former Director of Piramal Enterprises Ltd.

## Relevant Skills

Extensive operational and strategic experience in the financial services industry, including in banking and the credit markets, which provides valuable insights into the highly regulated insurance industry and investment activities.

## Other Public Board Service

JLL (Jones Lang LaSalle Incorporated) (2019–present)

Northern Trust Corp. (2019–present)

TransUnion (2012–present)



## Allstate Board Service

Director since 2014 (6 years of tenure)

## Committee Assignments and Rationale
Risk and Return Committee (Chair)

▶ Significant experience in financial markets and utilization of data and analytics.

▶ In-depth understanding and experience in risk and return management as a director and former chief executive officer.

## Audit Committee

▶ Multiple leadership positions with financial oversight responsibility, including President and CEO of TransUnion, CEO of HSBC Finance Corporation, and Chairman and CEO of HSBC North America Holdings Inc.

▶ Chair of Allstate risk and return committee.



## Jacques P. Perold

Independent
Age 61



Jacques successfully led the investments and operations for Fidelity’s family of mutual funds with over $1.8 trillion in assets under management.

## Professional Experience

Former President of Fidelity Management & Research Company, a privately-held investment and asset management company serving clients worldwide.

Founder, former President and Chief Investment Officer of Geode Capital Management LLC, a global asset manager and independent institutional investment firm and sub-advisor to Fidelity.

Current trustee of New York Life Insurance Company’s MainStay Funds.

## Relevant Skills

30 years of successful leadership of strategy and operations and investment expertise in the financial services industry.

Leader of one of the world’s largest asset management firms.

## Other Public Board Service

MSCI Inc. (2017–present)



## Allstate Board Service

Director since 2015 (4 years of tenure)

Committee Assignments and Rationale Nominating and Governance Committee

▶ Investor perspective on corporate governance as a result of asset management expertise.

▶ Significant governance experience as President of Geode Capital, which involved interlocking financial and operating relationships.

## Risk and Return Committee

▶ Significant experience in management and oversight of risk for three large asset management firms.

▶ Current trustee of several mutual funds.

## Andrea Redmond

Independent
Age 64



Andrea’s insights and judgment on leadership helped companies and high-performance organizations execute their corporate strategies.

## Professional Experience

Former Managing Director, co-head of the CEO/board services practice, founder and leader of global insurance practice, and member of financial services practice at Russell Reynolds Associates Inc., a global executive search firm, with 20 years of experience at the firm.

Independent consultant providing executive recruiting, succession planning, and human capital management services.

## Relevant Skills

Expert in public company succession planning, human capital management, and executive compensation across a wide range of industries.

Substantial experience in financial services leadership selection and executive development.

Extensive experience in assessing required board capabilities and evaluating director candidates.

## Other Public Board Service

None



## Allstate Board Service

Director since 2010 (10 years of tenure)

## Committee Assignments and Rationale

Nominating and Governance Committee (Chair)

▶ Significant expertise recruiting and evaluating directors for a variety of public companies.

A senior partner at a highly regarded global executive search firm, Russell Reynolds Associates, from 1986 to 2007, including significant tenure as co-head of the CEO/board services practice.

## Compensation and Succession Committee

Experience in executive recruiting, succession planning, and human capital management.

Extensive experience working with numerous publicly traded companies to recruit and place senior executives.



## Gregg M. Sherrill

Independent
Age 67



Gregg created the strategies and implemented operating plans to increase revenues and profitability during his tenure at Tenneco.

## Professional Experience

Current Non-Executive Chair and former Chair and CEO of Tenneco Inc., a producer of automotive emission control and ride control products and systems.

Former Corporate Vice President and President of Power Solutions at Johnson Controls Inc., a global diversified technology and industrial company.

## Relevant Skills

Extensive operational and strategic experience in the automotive industry as Chair and CEO at Tenneco, which provides valuable insights into Allstate’s strategic discussions related to the rapid changes in the personal transportation system.

Successful experience managing international operations as CEO at a global public company with employees in 23 countries.

## Other Public Board Service

▶ Snap-on Inc. (2010–present)

Tenneco Inc. (2007–present)



## Allstate Board Service

Director since 2017 (2 years of tenure)

## Committee Assignments and Rationale
Audit Committee

▶ Multiple leadership positions with financial oversight responsibility, including as Chairman and CEO at Tenneco.

## Nominating and Governance Committee

▶ Significant board leadership experience as the Chairman and former CEO of Tenneco, including oversight over sustainability and governance matters.

▶ Experience on boards of publicly traded and international companies.

## Judith A. Sprieser

Independent Lead Director
Age 66



Judith has extensive service on boards of publicly traded and international companies, and significant operating experience.

## Professional Experience

Former CEO of Transora Inc., a technology software and services company.

Former CFO and other senior operating executive positions at Sara Lee Corporation, a global manufacturer and marketer of brand-name consumer goods.

Former director at Royal Ahold NV, Experian, Reckitt Benckiser Group plc and Jimmy Choo plc.

## Relevant Skills

More than 20 years of operational experience in executive positions at Sara Lee Corporation and other consumer goods and services companies.

Extensive evaluation of financial statements and supervision of financial executives.

## Other Public Board Service

▶ Newell Brands Inc. (2018–present)

Intercontinental Exchange Inc. (2004–present)



## Allstate Board Service

## Director since 1999 (21 years of tenure)

The Board has determined that Ms. Sprieser’s independence from management has not been diminished by her tenure on the Board. She is a valued leader who fulfills her responsibilities with integrity and independence of thought and has significant experience serving at Allstate under different operating environments and management teams.

## Committee Assignments and Rationale

## Lead Director

▶ Prior chair of audit committee (7 years).

Board service at Allstate during many different external operating environments and two CEOs.

## Nominating and Governance Committee

▶ Significant experience on boards of publicly traded and international companies.

▶ Current member of nominating and governance committee at Intercontinental Exchange Inc. and former member of nominating and governance committee at Newell Brands.

## Risk and Return Committee

▶ Insight from service as prior chair of Allstate’s audit committee and current audit committee chair at Intercontinental Exchange Inc.

Tenure as an Allstate director has provided experience through multiple operating environments.



## Perry M. Traquina

Independent
Age 63



Perry had significant success as an investor, building a world-class investment organization and overseeing the strategies and operating performance of public companies.

## Professional Experience

▶ Former Chairman, CEO and Managing Partner of Wellington Management Company LLP, one of the world’s largest global investment management firms with over $900 billion of assets under management.

▶ Held a series of positions of increasing responsibility at Wellington, including Partner and President.

## Relevant Skills

Extensive leadership and management experience as CEO of one of the world’s largest institutional investors.

▶ Strong financial services and global investment management expertise through 34 years at Wellington.

▶ Oversaw the globalization of Wellington’s investment platform.

During ten-year leadership tenure, Wellington more than doubled its assets under management.

▶ Fostered a culture of diversity and inclusion at Wellington.

Brings valuable market-oriented investor perspective.

## Other Public Board Service

Morgan Stanley (2015–present)

eBay Inc. (2015–present)



## Allstate Board Service

Director since 2016 (3 years of tenure)

## Committee Assignments and Rationale Compensation and Succession Committee

▶ Significant management experience as former Chairman and CEO of Wellington Management Company LLP from 2004 through June 2014.

▶ Stockholder perspective on compensation and succession as a significant investor and director of other public companies.

## Risk and Return Committee

▶ In-depth understanding of financial markets, asset allocation strategies, and investment performance management.

▶ Current chair of the risk committee at Morgan Stanley.

## Thomas J. Wilson

Board Chair, President, and Chief Executive Officer
Age 62



Tom possesses a thorough and in-depth understanding of Allstate’s business, including its employees, agencies, products, investments, customers, and investors.

## Professional Experience

CEO since January 2007 and Chair of Board since May 2008.

President from June 2005 to January 2015, and from February 23, 2018, to present.

▶ Held senior executive roles other than CEO, having led all major operating units.

▶ Former director at State Street Corporation.

## Relevant Skills

Key leadership roles throughout Allstate over 25 years.

▶ Developed Allstate’s Shared Purpose and corporate strategy to grow market share in protecting people from life’s uncertainties.

▶ Created and implemented Allstate’s risk and return optimization program, allowing Allstate to simultaneously withstand the 2008 financial market crisis and adapt to increases in severe weather and hurricanes.

▶ In-depth understanding of the insurance industry.

▶ Industry and community leadership, including former chair of the Financial Services Roundtable, chair of the U.S. Chamber of Commerce, co-chair of a public-private partnership to reduce violence in Chicago, and national and Illinois co-chair for WE.

## Other Public Board Service

None



## Allstate Board Service

Director since 2006 (14 years of tenure)

## Committee Assignments and Rationale
Executive Committee (Chair)

▶ Comprehensive knowledge of Allstate’s business and industry, with 25 years of leadership experience at the Company.



## Effective Board Governance at Allstate

1

Regularly consider candidates in light of current skill sets and needs

All candidates evaluated and considered for their diversity, including gender, ethnicity, background, expertise and perspective

Page 20

Clearly defined roles for Board Leadership

Strong Board independence

Independent Board Committees with frequent executive sessions

Appropriate director compensation structured in a manner that is aligned with stockholder interests

Page 33

Board evaluation process includes multiple assessments and reviews of the Board, committees, meetings and individual directors

Robust director orientation and continuing director education program

Adheres to high standards of corporate governance

Page 21

Board Effectiveness

Engaged Oversight

Frequent reviews of Allstate’s significant risks, including culture and cybersecurity risk

Enhanced oversight of political contributions and sustainability

Ongoing reviews of human capital management, inclusive diversity and succession planning

Page 24

Transparent lines of accountability to our stakeholders

A stockholder engagement program based on dialogue, transparency, and responsiveness

Interactive investor dialogue provides perspective on investor concerns

Page 31



## Board Composition

In addition to fulfilling the core competencies and additional capabilities listed on page 13, the Board and nominating and governance committee expect non-employee directors to be free of interests or affiliations that could give rise to a biased approach to directorship responsibilities or a conflict of interest and to be free of any significant relationship with Allstate that would interfere with the director's exercise of independent judgment. The Board and committee also expect each director to devote the time and effort necessary to serve as an effective director and act in a manner consistent with a director's fiduciary duties of loyalty and care. Allstate executive officers may not serve on boards of other corporations whose executive officers serve on Allstate's Board.

All candidates are evaluated and considered for their diversity, including gender, ethnic and diversity of background, expertise, and perspective, as well as the criteria described in our Corporate Governance Guidelines at www.allstateinvestors.com.

The Board has limits on the number of other public boards on which our directors may sit. Directors who are active executives may serve on the board of no more than two other public companies, and other directors may serve on the board of no more than four other public companies (in addition to Allstate’s Board in each case).

Board nominees are identified through a retained search firm, suggestions from current directors and stockholders, and through other methods, including self-nominations.

The nominating and governance committee will consider director candidates recommended by a stockholder in the same manner as all other candidates recommended by other sources. A stockholder may recommend a candidate at any time of the year by writing to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite F7, Northbrook, IL 60062-6127.

A stockholder or group of up to 20 stockholders owning 3% or more of Allstate’s outstanding common stock continuously for at least three years can nominate director candidates constituting up to 20% of the Board in the company’s annual meeting proxy materials.

## Nomination Process for Board Election

The Board continually considers potential director candidates in anticipation of retirements, resignations, or the need for additional capabilities. The graphic below describes the ongoing process to identify highly qualified candidates for Board service.

## CONSIDER CURRENT BOARD SKILL SETS AND NEEDS

Ensure Board is strong in core competencies of strategic oversight, corporate governance, stockholder advocacy and leadership and has diversity of expertise and perspectives to meet existing and future business needs

## CHECK CONFLICTS OF INTEREST AND REFERENCES

All candidates are screened for conflicts of interest and independence

## NOMINATING AND GOVERNANCE COMMITTEE DIALOGUE

Considered 194 candidates since 2010

## MEET WITH QUALIFIED CANDIDATES

To ensure appropriate personal qualities, such as independence of mind, tenacity, and skill set to meet existing or future business needs

## NOMINATING AND GOVERNANCE COMMITTEE DIALOGUE

To consider shortlisted candidates, and after deliberations, recommend candidates for election to the Board

## BOARD DIALOGUE AND DECISION

Added four highly qualified directors in the past five years



## Evaluation Process

Allstate’s Board evaluation process includes multiple assessments and reviews performed throughout the year. This process ensures that the Board’s governance and oversight responsibilities are updated to reflect best practices and are well executed. These evaluations include discussions after every meeting, an annual Board assessment and individual director evaluations.

## Steps to Achieve Board Effectiveness

<table><tr><td colspan="4">Board and Committees</td></tr><tr><td>FREQUENCY</td><td>Evaluation at every in-person meeting</td><td>Annual Evaluation</td><td>Biennial review of responsibilities and time allocation</td></tr><tr><td>PERFORMED BY</td><td>Independent Directors</td><td>Board</td><td>Board and Committees</td></tr><tr><td>DESCRIPTION</td><td>▶ Measures effectiveness of Board and committee oversight▶ Ensures objectives were satisfied, all agenda items sufficiently considered and information presented was complete, understandable and organized▶ Identifies issues that need additional dialogue</td><td>▶ Ensures Board and committees are functioning effectively▶ Results reviewed by nominating and governance committee and summarized for full Board; recommendations for improvement are reviewed and plans initiated</td><td>▶ Ensures all necessary agenda items were considered to fulfill Board and committee responsibilities▶ Adjustments made to future agendas and timelines</td></tr></table>

<table><tr><td colspan="3">Individual Directors</td></tr><tr><td>FREQUENCY</td><td>Annual evaluation</td><td>Change in circumstances</td></tr><tr><td>PERFORMED BY</td><td>Lead Director, nominating and governance committee chair, and Board Chair</td><td>Board</td></tr><tr><td>DESCRIPTION</td><td>▶ Review contributions and performance in light of Allstate’s business and strategies and confirm continued independence▶ Feedback provided to each director by the Lead Director, nominating and governance committee chair, or Board Chair▶ Discuss each director’s future plans for continued Board service▶ Determine whether overall skills align with business strategy</td><td>▶ Determine appropriateness of director’s continued membership on the Board after a change in primary employment▶ Review potential conflicts and whether change impacts director’s ability to devote the necessary time and effort to Board service</td></tr></table>

2019 OUTCOME
Based on the Board’s annual evaluation process, the nominating and governance committee reviewed feedback and established action items for the upcoming year. Results of individual director evaluations were used by the nominating and governance committee in connection with the annual nomination process. Specific action plans were discussed with each director.



## 2019 Annual Evaluation Feedback and Action Items

## FEEDBACK ON EVALUATIONS IS PROVIDED TO THE NOMINATING AND GOVERNANCE COMMITTEE AND ACTION ITEMS ARE DEVELOPED FOR THE UPCOMING YEAR.

## Strategy and Operational

Oversight. Directors value the annual 21/2 day strategy session and the materials and discussions related to management succession, financial performance and risk and return management.

## Action Item - Management will

provide additional reports to the Board on the implementation of the Transformative Growth Strategy.

## Board Structure and

Governance. Directors believe their governance processes are effective, particularly those related to involving the Lead Director and committee chairs in the formulation of meeting agendas and materials.

## Action Item - The committee

agendas and charters will be reviewed to ensure the clear delineation of responsibilities for environmental, social and governance (“ESG”) matters among the committees.

## Information and Resources.

Directors value the information, resources and support they receive from management.

## Action Item – Management

will provide quarterly education materials to directors, which could include significant developments related to investors, customers, employees, agents and competitors.

## Director Onboarding and Continuing Education

## ORIENTATION

All new directors participate in a robust director orientation and onboarding process to ensure a working knowledge of Allstate’s business, strategies, operating performance and culture and a successful integration into boardroom discussions as soon as possible. To assist with their development, all new directors are invited to attend all committee meetings prior to their appointment to a particular committee.

As part of their onboarding and during their tenure, directors regularly meet with senior leaders and employees below the senior leadership level. These interactions are offered in various forums, including one-on-one meetings and larger group sessions.

## CONTINUING
PERSONAL
DEVELOPMENT

Allstate encourages and facilitates director participation in continuing education programs, and each director is given the opportunity to become a member of the National Association of Corporate Directors.

## BEYOND THE BOARDROOM

Throughout their tenure, directors continue to participate in informal meetings with other directors and senior leaders to share ideas, build stronger working relationships, gain broader perspectives, and strengthen their working knowledge of Allstate’s business, strategy, operating performance and culture. In 2019, more than 20 additional meetings were held.



## Our Commitment to Effective Governance

Allstate has a history of strong corporate governance guided by three primary principles: dialogue, transparency and responsiveness. The Board has enhanced governance policies over time to align with best practices, drive sustained stockholder value and serve the interests of stockholders. Allstate’s key governance practices are included below.

## STOCKHOLDER RIGHTS

▶ Annual election of directors with a majority vote standard in uncontested elections

▶ Proxy access rights permitting a stockholder or group of up to 20 stockholders owning 3% or more of Allstate’s outstanding common stock continuously for at least three years to nominate director candidates constituting up to 20% of the Board

▶ No stockholder rights plan (“poison pill”) and no supermajority voting provisions

▶ Confidential voting

▶ Right to call a special meeting and request action by written consent for stockholders with 10% or more of outstanding shares

## GOOD GOVERNANCE

▶ Extensive Board dialogue with formal processes for stockholder engagement and frequent cross-committee communications

▶ Annual letter to stockholders from the directors on Board accomplishments since 2012

▶ Requests for stockholder engagement with holders of at least 1/3 of outstanding shares each year

▶ Robust Board and committee self-evaluation process, including at the end of each in-person meeting and annual reviews for the entire Board and each individual director

NEW Enhanced comprehensive Sustainability Report with information on public policy (including political contributions), climate change, information security, environmental, social, and governance performance and management, and inclusive diversity

▶ Robust Global Code of Business Conduct and ethics training for all directors

▶ Effective director education program

▶ Strong equity ownership requirements for executives and directors

NEW CEO emergency succession plan reviewed and formalized

## INDEPENDENT OVERSIGHT

▶ Strong independent Lead Director and committee chair roles with clearly articulated responsibilities

▶ Independent Board committees

▶ Nine out of ten directors are independent

Executive sessions at every in-person Board and committee meeting without management present

▶ Independent reviews by the Board, audit, and risk and return committees of Allstate’s strategy, business, and the related key risks and mitigation activities

NEW See pages 27-30 for information on expanded Board oversight of culture and sustainability initiatives

▶ Use of outside experts such as independent auditors, compensation consultants, governance specialists, cybersecurity experts, board search firm representatives, and financial advisors

NEW See page 28 for information about the external pay equity analysis completed in 2019



## INVESTOR STEWARDSHIP GROUP

Allstate believes that strong and effective governance practices are critical to long-term value creation. To achieve that goal, Allstate follows the six corporate governance principles set out by the Investor Stewardship Group for U.S.-listed companies. These principles are:

(1) boards are accountable to stockholders;

(2) stockholders should be entitled to voting rights in proportion to their economic interest;

(3) boards should be responsive to stockholders and be proactive in order to understand their perspectives;

(4) boards should have a strong, independent leadership structure;

(5) boards should adopt structures and practices that enhance their effectiveness; and

(6) boards should develop management incentive structures that are aligned with the long-term strategy of the company.



## 3 Board Oversight

## Risk Management

The Board oversees Enterprise Risk and Return Management (“ERRM”), including management’s design and implementation of ERRM practices. The chief risk officer’s assessment of Allstate’s overall risk position and alignment with risk and return principles is reviewed throughout the year. Significant risks, including those affected by climate change, financial markets, cybersecurity and privacy threats, are regularly identified, measured, managed, and reported. Risk and return perspectives are shared with the Board across six risk types: financial, insurance, investment, operational, strategic, and culture (elevated to a risk category in 2019). The key risk areas overseen by each Board committee are included below.

## Board of Directors

## REVIEWS ENTERPRISE RISK AND RETURN AT LEAST TWICE A YEAR

## Risk and Return Committee

## REVIEWS RISK AND RETURN AT LEAST FIVE TIMES ANNUALLY

Oversees the effectiveness of Allstate’s ERRM framework, governance structure and decision making

Reported at each meeting through a risk summary report that identifies key risks, measurement of the risk profile, and alignment with risk and return principles

Includes a review of the chief risk officer’s assessment of strategic and operating plans

Reviews extremely low frequency scenarios (“ELFs”) at least annually

Reviews regulatory Own Risk and Solvency Assessment (“ORSA”) report

Reviews risk factors included in our Form 10-K, including risks related to climate change and severe weather

The audit committee chair is a risk and return committee member to enhance cross-committee communication

The chief risk officer attends all meetings and has regular executive sessions with the committee

The chief audit executive attends all meetings

NEW ▶ Culture was elevated to a key risk category in Allstate’s enterprise risk and return management framework and was reviewed over multiple meetings

## Compensation and Succession Committee
REVIEWS RISK AT LEAST ONCE ANNUALLY

Oversees executive compensation programs (including the design, performance measures and ranges in incentive plans)

Includes a review of the chief risk officer’s assessment of incentive compensation programs

Oversees talent development and senior executive succession planning to ensure they appropriately align with Allstate’s risk and return principles

NEW ▶ Senior leadership development programs were enhanced and a CEO Emergency Succession Plan was formalized

## Audit Committee

## REVIEWS RISK AT LEAST FOUR TIMES ANNUALLY

Oversees Allstate’s internal controls related to key risks and the major financial risk exposures

Reported through a semi-annual risk control dashboard

Conducts quarterly reviews to oversee the efficacy of cybersecurity risk initiatives and related policies and procedures

Receives regular reports from the chief risk officer, chief information security officer, and outside experts

Utilizes an external, independent cybersecurity advisor

Reviews risk factors included in our Form 10-K

The risk and return committee chair is an audit committee member to enhance cross-committee communication

The chief audit executive attends all meetings and has regular executive sessions with the committee

The chief risk officer attends all meetings

Regular data privacy reviews were added to the committee’s agenda and were formalized in the committee’s charter

## Nominating and Governance Committee
REVIEWS RISK AS NEEDED

Oversees director elections and corporate governance practices to ensure they appropriately align with Allstate’s risk and return principles

Includes a review of the chief risk officer’s assessment of political activities

Oversees the company’s political contributions and activities, as well as its sustainability practices

NEW ▶ Allstate’s major sustainability programs were reviewed, including in joint session with the Board given the importance of sustainability to Allstate’s long-term success



## Risk Management and Participation in the Political Process

Allstate engages in public policy advocacy at the state and federal levels to foster market innovation, fight for consumers, promote safety and security, ensure a healthy regulatory system, promote fiscal responsibility, and advocate for small businesses.

Allstate is regulated in all 50 states and at the federal level on many aspects of its business, including customer communications, privacy, sales practices, underwriting standards, insurance pricing, claims practices, investments and capital. As a result, it must participate in public policy issues to appropriately serve customers and generate adequate returns for stockholders. The scope of issues is expanding as Allstate introduces innovative products and services through Arity, Allstate Protection Plans, Allstate Identity Protection and Avail (car sharing).

Allstate participates in political activities through direct and indirect advocacy, corporate political contributions and Allstate’s political action committee. Allstate contributes less than $1,000,000 annually in corporate funds to political organizations, including federal, state and local candidates and committees, in comparison to total revenues of almost $45 billion. The types of expenditures are consistent from year to year.

The chief risk officer conducts an annual risk and return assessment of Allstate’s political activities for the Board to ensure there is appropriate oversight and management of corporate political engagement. In addition, the Board’s nominating and governance committee provides oversight of Allstate’s political contributions and activities, including in a joint session with the Board.

## Chief Risk Officer's Assessment

The chief risk officer’s assessment approach is based on Principles and Guidance for Responsible Corporate Political Engagement published by Transparency International UK. The political activities and associated risks identified by Transparency International UK were expanded to address Allstate’s specific activities and risk profile. These political activities were grouped for assessment as follows: i) political expenditures, ii) lobbying, iii) trade associations, social welfare groups and research organizations, iv) state based regulatory and legislation management, v) political activities in the workplace and vi) disclosure.

The chief risk officer’s assessment concluded the following:

## 1. Allstate’s decisions on how to engage in the political process appropriately balance risk and return

Allstate’s first risk and return principle, Maintain Strong Foundation, includes ensuring the political and regulatory environment supports the operating model. Engaging in political activity helps the company adhere to this principle. While engaging in political activity exposes Allstate to legal and reputational risks, controls are in place to manage these risks and consider the return implications of engaging in political activity.

## 2. Allstate’s control framework appropriately manages the risks and sufficient governance and oversight exists to ensure activities are aligned with Allstate’s risk and return principles

The control framework includes robust governance and processes that are designed to identify, monitor and evaluate the risks resulting from Allstate’s political activities.

Senior leaders meet quarterly to designate priorities and receive updates on public policy initiatives and focus areas.

The legal department ensures that corporate political expenditures are compliant with state regulations, and leadership reviews activity to confirm regulations are followed and corruption or conflicts of interest do not influence Allstate’s actions.

The nominating and governance committee semi-annually (including in one joint session with the Board) reviews the company’s involvement in public policy and candidate contributions.

The Allstate Global Code of Business Conduct contains the values and principles of The Allstate Corporation and subsidiaries.

Employees are required to affirm understanding and compliance with the Code, including political activities and officers are required to identify political activity semi-annually.

Employees in high risk areas of political corruption receive specialized training.



The human resources and legal departments establish policies and oversee political activities in the workplace to confirm they are aligned with Allstate’s principles for responsible corporate political engagement; policies include notification if seeking public office.

The public policy program is disclosed to stockholders annually in the Allstate Sustainability Report.

## 3. Failure to engage in the political process could result in unfavorable policies, legislation or adverse business outcomes, negatively impacting Allstate’s strategic position

Political activity is aligned with important business initiatives and advance strategic objectives. The risk of not engaging to influence these issues is more significant than the risks presented by engaging. Examples of focus areas include fighting for customers (assignment of benefit and no-fault auto reform), promoting safety and security (driver safety, storm-chaser legislation, California wildfire liability laws, and privacy regulations) and ensuring a healthy regulatory environment (building codes, National Flood Insurance Program and capital standards).



## Risk Management and Cybersecurity

The Board recognizes that the quality of Allstate’s security program affects our reputation and customers’ trust in us. Allstate’s strategy revolves around protecting our customers, and customers must feel that their most personal data is safe in our hands.

Accordingly, the Board prioritizes its responsibility to oversee our data protection efforts, including our policies and systems designed to prevent and, if necessary, respond to cyber threats. We are continually enhancing our information security capabilities in order to protect against emerging threats, while increasing our ability to detect system compromise and recovery should a cyber-attack or unauthorized access occur.

The Board dedicates significant time to the oversight of cybersecurity risk management. The audit committee regularly receives reports from its independent advisor regarding our program. Our cybersecurity program is regularly reviewed and tested by Allstate’s internal audit function with status reports provided to the Audit Committee and the full Board.

## NEW 2019 CYBERSECURITY GOVERNANCE HIGHLIGHTS

Simulated a crisis to prepare senior leaders to respond to a cyber attack

▶ Amended the audit committee charter to highlight the importance of the Board’s data privacy oversight efforts

▶ Retained a cybersecurity advisor for 4th year in a row to provide objective assessments of Allstate’s capabilities and to conduct advanced attack simulations

▶ Cross-functional approach to overseeing and addressing cybersecurity risk, with input from technology, risk, legal, and audit functions



## Risk Management and Compensation

Compensation policies and practices are structured to provide incentives for employees to successfully execute the company’s strategies and achieve annual operating goals while adhering to our risk and return principles.

Analysis provided by an external consultant and the chief risk officer for the compensation and succession committee concluded the compensation plans are also structured to ensure management does not take unnecessary or excessive risk. Based on this analysis, Allstate’s compensation policies ensure appropriate levels of risk-taking, while avoiding unnecessary risks that could have a material adverse effect on Allstate. Compensation plans provide a balanced mix of cash and equity through annual and long-term incentives that align with short- and long-term business goals. No one, regardless of eligibility, is guaranteed an award under the annual cash incentive program. Multiple performance measures are utilized that correlate with long-term stockholder value creation and diversify the risk associated with any single performance indicator. In addition, the annual incentive program contains a funding adjustment for senior executives in the event of a net loss, which reduces the corporate pool funding for those officers by 50% of actual performance. Likewise, for the performance stock award program, the committee requires positive net income for executives to earn awards above target. Equity awards granted in 2019 and annual cash incentive awards for the 2019 performance year for executive officers whose fraud or intentional misconduct resulted in a restatement to correct a material error or inaccuracy are subject to clawback. The clawback policy was expanded by the compensation and succession committee to provide for the recovery of equity awards granted after February 18, 2020, and annual cash incentive awards paid after March 15, 2020, to executive officers and other executive vice presidents. If the



performance results leading to an award or payment are later subject to a downward adjustment as a result of a material financial restatement, prior compensation is clawed back. It also provides for recovery of equity and annual cash incentive awards in certain circumstances if an executive is terminated for improper conduct that leads to a material adverse impact on the reputation of, or a material adverse economic consequence for, the company.

## NEW



## Risk Management and Culture

In 2019, culture was upgraded to a key risk category to be monitored and measured by management’s ERRM framework and overseen by the risk and return committee and Board. The Board oversees culture, setting the “tone at the top” and holding management accountable for its maintenance of high ethical standards and protecting our reputation, assets, and business. By adding culture as a key risk category, it expands the Board’s involvement at a more granular level. Accordingly, the Board reviewed culture over multiple meetings in 2019.

## 2019 Board Review of Culture

Allstate defines culture as a “Self-sustaining system of shared values, principles and priorities that shapes beliefs, drives behavior and influences decision making within an organization.”

## Defined culture and identified core cultural elements (including specific measures for each core cultural element to support measurements and dialogue)

## Completed a baseline assessment of Allstate’s culture

Reviewed internal surveys, internal data (exit interviews), external data (social media activity), regulatory reviews, and operating performance measures (market share growth and number of customer complaints)

## Established measures and governance reviews

## Evaluated potential focus areas for cultural improvement

## Management initiatives focused on culture

## CULTURE

Establishing core elements of culture provides a basis for assessment and measurement and ensures alignment with Our Shared Purpose. The core cultural elements at Allstate are:

Honesty

Integrity and ethics

Customer focus

People (how Allstate meets the needs and expectations of employees)

Empowerment and responsibility

Performance expectations and rewards

Engagement

Transparency and personal interactions

Adaptability and innovation

Decision-making processes

Core cultural elements will be measured using various sources and modified as this process matures

## OUTCOME

Allstate is prioritizing three core cultural elements in the near-term: customer focus, empowerment and responsibility, and decision-making processes



## Human Capital Management and Management Succession

The Board engages in ongoing reviews of human capital management practices since they are vital to Allstate’s continued success. The wellbeing of employees is a key priority and includes a dynamic and welcoming workplace that promotes inclusive diversity, fosters collaboration and encourages employees to bring their best ideas to work every day. Allstate retains talent by providing employees with training, mentoring and career development; emphasizing inclusive diversity; attracting new employees; encouraging work-life balance; and monitoring engagement through annual employee surveys.

Our human capital management focuses on the following priorities:

## Career & Leadership Development

Allstate’s Shared Purpose is based on the premise that all employees must exercise leadership.

## Talent Attraction & Retention

Providing employees with rewarding work, professional growth and educational opportunities improves morale and engagement.

## Inclusive Diversity

We strive for a workforce where the breadth of our diversity makes us a better company. We’re committed to being a force for positive change.

## Employee Well-Being & Safety

As part of our ongoing mission to be an employer of choice, we take seriously our responsibility to care for their well-being, devoting resources to employee health and safety.



of employees are proud to work at Allstate

As part of Allstate’s commitment to fair and equitable compensation practices, an internal pay equity analysis has been completed on an annual basis. This past year Allstate engaged an outside firm to provide a more detailed pay equity analysis to identify potential pay gaps across substantially similar employee groups as well as identify policies, practices and/or systematic issues that may contribute to pay gaps now or over time. The external analysis found that Allstate’s results compare well to benchmarks for companies of similar size and scope. In the few employee groups where pay gaps were identified, these were remediated and we have established policies to ensure pay equity continues in the future.

The Board’s involvement in leadership development and succession planning is systematic and ongoing. Management succession is discussed four times annually in compensation and succession committee meetings, Board meetings, and executive sessions. Discussions cover the CEO and other senior executive roles. The Board also has regular and direct exposure to senior leadership and high-potential officers in meetings held throughout the year.



## Board Review of Succession Planning and Talent Development Practices

LEADERSHIP SUCCESSION IS REVIEWED CONTINUOUSLY THROUGHOUT THE YEAR





APRIL
CEO Succession

Topic:
CEO succession planning

Primary Focus:
▶ Internal succession alternatives across multiple time periods – immediate, less than 2 years, and 3-5 years

▶ Alternatives are evaluated under different strategic and operating scenarios

## JULY
Talent Development

## Topic:

Organizational health and pay fairness analyses – how the organization recruits, develops and retains people, including its inclusive diversity commitments

## Primary Focus:

▶ Systematic approach to talent acquisition, development, and retention



## SEPTEMBER

## Key Leader Succession

## Topic:

Senior leadership succession alternatives, including CEO

## Primary Focus:

Key leader development and retention



## NOVEMBER

## Scenario Planning

## Topic:

CEO and senior leadership succession – “what if” scenario planning

## Primary Focus:

Board dialogue in advance of unexpected succession issues

## OUTCOME

In 2019, the Board concluded that Allstate has a strong CEO succession profile with succession options across the full timescale. The Board also reviewed enhanced senior leadership development programs and formalized an emergency succession plan for the CEO, which provides for an orderly communication and succession process in the event of an unplanned departure.

## Board Role in Setting Compensation

The compensation and succession committee makes recommendations to the Board on compensation for the CEO and executive officers and the structure of plans used for executive officers. The compensation and succession committee reviews the executive compensation program throughout the year with the assistance of an independent compensation consultant, Compensation Advisory Partners (“CAP”). CAP benchmarks Allstate’s plans and compensation payments to the market and evaluates changes to the executive compensation program. The compensation consultant also assesses Allstate’s executive compensation design, peer group selection, relative pay for performance, and total direct compensation for individual senior executive positions. Representatives of the compensation consultant participated in six out of seven compensation and succession committee meetings in 2019. The compensation and succession committee annually evaluates the compensation consultant’s performance and independence.

The compensation and succession committee grants all equity awards to individuals designated as executive officers for purposes of Section 16 of the Securities Exchange Act of 1934 or covered employees as defined in Internal Revenue Code Section 162(m). The compensation and succession committee has authority to grant equity awards to eligible employees in accordance with the terms of our 2019 Equity Incentive Plan. The Board has delegated limited authority to the CEO to grant equity awards to non-executive officers. All awards granted between compensation and succession committee meetings are reported at the next meeting. The compensation consultant also provides the nominating and governance committee with competitive information on director compensation, including updates on practices and emerging trends.

## Corporate Sustainability

The Board believes sustainability benefits Allstate’s stakeholders and drives long-term value creation. While the Board of Directors is responsible for the overall performance of Allstate, the nominating and governance committee has oversight responsibility for Allstate’s sustainability initiatives. Leadership from across the company guides Allstate’s corporate responsibility and sustainability efforts.
“In 2019, Board discussions increased around sustainability and its importance to the long-term prosperity of Allstate. The nominating and governance committee formalized its oversight responsibility of this important area and reviewed sustainability initiatives and disclosures at two meetings. Allstate’s internal governance over sustainability is also robust and involves senior leaders and several cross-functional teams to ensure appropriate focus on the issues most important to Allstate’s long-term success.”

— ANDREA REDMOND, NOMINATING AND GOVERNANCE COMMITTEE CHAIR



## Governance of Sustainability

## Board of Directors

## Nominating and Governance Committee

NEW In 2019, the nominating and governance committee reviewed sustainability matters at two meetings, including in one joint session with the Board.

## Our CEO and Senior Executive Leaders

## The Corporate Responsibility and Sustainability Team

The Corporate Responsibility and Sustainability team develops the annual sustainability report, responds to ratings and rankings questionnaires, drives employee awareness and engagement with corporate sustainability initiatives and

They report to our senior executives on the status of Allstate’s environmental, social and governance progress.

## The Allstate Sustainability Council

Allstate has maintained a Sustainability Council since 2007. This cross-functional council reviews opportunities regarding operational efficiency, climate change and employee-focused sustainability initiatives.

The council is comprised of individuals from operations, accounting, administration and real estate, technology, claims, corporate relations, enterprise risk and return management, human resources, legal, investments, marketing, product and sourcing and procurement.

Allstate’s vice president of corporate relations leads the council, which meets periodically, and updates senior executives on its activities annually.

## Enterprise Diversity Leadership Council (EDLC)

The EDLC is made up of senior leaders throughout the enterprise focused on advancing inclusive diversity at Allstate. The EDLC helps drive targeted results for inclusive diversity across the company by:

▶ Identifying and prioritizing actions

▶ Taking accountability for achieving target results

▶ Ensuring clarity and understanding of the business relevance of inclusive diversity

The EDLC provides updates to the CEO.

## Recognitions

Allstate is recognized as an employer of choice and as a corporate champion for leadership in ethics, diversity, innovation and corporate responsibility. We are proud to be recognized as a great place to work by several independent organizations, and we will continue to make investments in our people to make Allstate a world-class workplace.



DIVERSITYINC.
Top 50
Companies
for Diversity
(2019, 16-time
award winner)



ETHISPHERE
World's Most
Ethical Companies
(2015-2019)



THE CIVIC 50
(2017-2019)



HUMAN RIGHTS
CAMPAIGN
Corporate
Equality Index
rating (2009-2019)



NEWSWEEK
Most Responsible
Companies (2020)

* DRUCKER INSTITUTE

DRUCKER
INSTITUTE
250 Best-Managed
Companies (2019)

To learn more about our corporate sustainability efforts, please view Allstate's Sustainability Report at http://allstatesustainability.com.



## 4 Board Accountability

## Stakeholder Input and Responsiveness

Allstate continually seeks stakeholder input to make sure focus is on what matters most and to gauge progress against our purpose. We regularly engage our stockholders, as well as the following groups: customers and consumers, employees, Allstate agents, nongovernmental organizations, opinion leaders, policymakers and suppliers. Allstate partners with Reputation Institute, a global research firm, to study how stakeholders perceive the company. We survey customers, consumers, agency owners and employees every quarter, as well as investors, policymakers and opinion leaders each year. Feedback is collected across these stakeholder groups, key topics are identified, and strategies are developed to address gaps. There are also stakeholder-specific avenues for engagement.

## Stockholder Engagement

Allstate proactively engages with significant stockholders throughout the year. Dialogue, transparency, and responsiveness are the cornerstones of our stockholder engagement program.

## How We Engage

Direct engagement involves reaching out to our largest stockholders representing over one-third of our total outstanding shares. We also engage with proxy and other investor advisory firms that represent the interests of various stockholders.

Discussions with stockholders include our Lead Director, chair of the nominating and governance committee, Board Chair, and other committee chairs or directors as necessary.

## STOCKHOLDER ENGAGEMENT CYCLE

## BALANCED-TRANSPARENT-RESPONSIVE-THOUGHTFUL

## JANUARY-MARCH

## Before Annual Meeting

Discuss with investors governance and compensation issues and potential responses.

Discuss stockholder proposals with proponents, on case-by-case basis.

Discuss governance trends.

## APRIL-MAY

## During Stockholder Voting

Follow up on previous conversations and discuss final Board decisions and reasoning.

Review vote proposals and solicit support for Board recommendations.

## MAY

## Annual Meeting of Stockholders

▶ Stockholders vote on issues such as directors, say-on-pay, auditor ratification and stockholder proposals.

Provides forum for direct engagement among Board members, senior management, and stockholders.

## JUNE-DECEMBER

## After Annual Meeting

Discuss with investors responses to vote results and new topics of interest for the upcoming year.

Discuss stockholder proposals with proponents, on case-by-case basis.

## OUTCOME

During 2019, Allstate reached out to stockholders representing 40% of outstanding shares and spent a significant amount of time discussing Allstate’s Board leadership structure, executive compensation practices, political contribution disclosures, and the company’s sustainability initiatives, including human capital management strategy. Stockholder feedback was integrated into Board discussions and decisions.



## Corporate Governance > Board Accountability

In addition to input on current governance and executive compensation topics specific to Allstate, we invite discussion on any other topics or trends stockholders may wish to share with us. Their input is reported to the nominating and governance committee, which in turn allocates specific issues to relevant Board committees for further consideration. Each Board committee reviews relevant feedback and determines if additional discussion or actions are necessary by the respective committee or full Board. In addition, broader investor surveys provide perspective on investor concerns. As part of our commitment to constructive engagement with investors, we evaluate and respond to the views voiced by our stockholders, including vote results at our annual meetings of stockholders. Our dialogue has led to enhancements in our environmental, social, governance and executive compensation practices, which our Board believes are in the best interest of our company and our stockholders.

## More Information

You can learn more about our corporate governance by visiting www.allstateinvestors.com, where you will find our Corporate Governance Guidelines, each standing committee charter, and Director Independence Standards. Allstate has adopted a comprehensive Global Code of Business Conduct that applies to the CEO, CFO, vice chair, controller, and other senior financial and executive officers, as well as the Board of Directors and other employees. It is also available at www.allstateinvestors.com. Each of the above documents is available in print upon request to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite F7, Northbrook, IL 60062-6127.

## Communication with the Board

The Board has established a process to facilitate communication by stockholders and other interested parties with directors as a group. The general counsel and chief legal officer 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 Board attention. Activity on social media is also monitored and reported to the nominating and governance committee.

In addition, the audit committee has established procedures for the receipt, retention, and treatment of any complaints about accounting, internal accounting controls, or auditing matters. The communication process and the methods to communicate with directors are posted on the “Corporate Governance” and “Management & Directors” sections of www.allstateinvestors.com.
The Allstate Board welcomes your input on compensation, governance, and other matters.



directors@allstate.com



The Allstate Corporation,
Nominating & Governance Committee,
2775 Sanders Road, Suite F7
Northbrook, IL 60062-6127
c/o General Counsel



## Board Structure

## Independent Lead Director

Allstate’s Board places great importance on strong independent Board leadership and has had a strong Lead Director role in place for over nine years. Allstate’s Corporate Governance Guidelines describe the responsibilities of the Lead Director and the selection process, including the characteristics that the Board considers important in a Lead Director.

The Lead Director is elected annually by the independent directors, and it is expected that the Lead Director serve more than one year.



## Judith A. Sprieser
Lead Director

Lead Director since 2015

Member of the nominating and governance, risk and return and executive committees

▶ Prior chair of audit committee for seven years

Allstate Board experience in multiple operating environments and under two CEOs

## Considerations in Selecting the Current Lead Director

The independent directors consider several factors, including the director’s corporate governance expertise, operational and leadership experience, Board service and tenure, integrity, prior Board leadership roles, and ability to meet the required time commitment. It is preferable that the Lead Director hold a previous position as chair of a Board committee, either at Allstate or another company.

Ms. Sprieser was chosen by the independent directors as she exemplified Lead Director qualifications. She has devoted significant time fulfilling her duties as Lead Director since May 2015. During her tenure on Allstate’s Board, she has cultivated an expansive knowledge of Allstate in multiple operating environments and has experienced various financial market cycles. Her long-term perspective complements the perspectives of newer Board members, four of whom have joined in the last five years. The independent directors believe that Ms. Sprieser is exceptionally well-qualified to serve as Allstate’s independent Lead Director.

## Independent Lead Director Responsibilities

## Board Meetings and Executive Sessions

Has the authority to call meetings of the independent directors

Approves meeting agendas and schedules and information sent to the Board to ensure there is sufficient time for discussion of all items and that directors have the information necessary to perform their duties

Chairs executive sessions of independent directors at every Board meeting

Presides at all Board meetings when the Chair is not present

## Duties to the Board

Has regular communications with the CEO about Allstate’s strategy and performance

Performs additional duties designated by the independent directors

## CEO Performance Evaluation

Facilitates and communicates the Board’s performance evaluation of the Chair and CEO with the chair of the compensation and succession committee

## Succession Plans

Facilitates the development of a succession plan for the Chair and CEO

## Communication Between Chair and Independent Directors

▶ Serves as liaison between the Chair and independent directors

▶ Consults with the Chair and discusses items raised in executive sessions

## Communication with Stockholders

Communicates with significant stockholders and other stakeholders on matters involving broad corporate policies and practices, when appropriate

## Committee Involvement

Works with the Chair and committee chairs to ensure coordinated coverage of Board responsibilities and ensures effective functioning of all committees

Ensures the implementation of a committee self-evaluation process and regular committee reports to the Board

## Board and Individual Director Evaluations

Facilitates the evaluation of individual director, Board and committee performance with the chair of the nominating and governance committee and the Chair



## Board Chair

The independent directors periodically review Allstate’s leadership structure and whether separating the roles of Chair and CEO is in the best interests of Allstate and its stockholders. When making this determination, the independent directors consider the recommendation of the nominating and governance committee, the current circumstances at Allstate, the skills and experience of the individuals involved and the leadership composition of the Board. The roles of Chair and CEO were split during a transition of leadership in 2007 and 2008. The independent directors also appoint an independent Lead Director with robust powers and responsibilities. A strong Lead Director role provides an effective independent counterbalance if the independent directors choose to combine the Chair and CEO roles.

At present, the independent directors have determined Allstate is well-served by having these roles performed by Mr. Wilson, who provides excellent leadership and direction for both management and the Board. This promotes a strong connection between the Board and management that is subject to strong independent oversight by Allstate’s independent Lead Director and the other independent directors. The Board believes it benefits from the considerable knowledge and perspective that Mr. Wilson has acquired from more than 25 years of insurance industry experience. Given his extensive company knowledge and successful leadership of many external boards, he is highly qualified to fulfill both roles simultaneously.

## Board Meetings and Committees

## Board Attendance

Each director attended at least 75% of the combined Board meetings and meetings of committees of which he or she was a member. Directors are expected to attend Board and committee meetings and the annual meeting of stockholders. All directors who stood for election at the 2019 annual meeting of stockholders attended the annual meeting.
99%

Average attendance of directors as a group at Board and committee meetings during 2019.



## Management Participation in Committee Meetings

Key members of management regularly attend and participate in Board meetings. Regular attendees include the CEO, vice chair, CFO, general counsel and chief legal officer, president of Personal Property-Liability, president of Allstate Financial Businesses, president of Investments and Financial Products, and chief risk officer. Other senior leaders attend as meeting topics warrant. In addition, senior leadership also participates in committee meetings.

## Audit Committee

The CFO, chief audit executive, chief compliance executive, chief risk officer, CEO, vice chair, general counsel and chief legal officer, and controller all actively participate in meetings. Senior business unit and technology executives, including the chief information security officer, are present when appropriate. Executive sessions of the committee are held at all in-person meetings, in which the committee meets privately with the independent registered public accountant, independent cybersecurity advisor, chief audit executive, and chief compliance executive.

## Compensation and Succession Committee

The executive vice president and chief human resources officer, general counsel and chief legal officer, CFO and CEO participate in meetings. The committee regularly meets in executive sessions that include just the independent compensation consultant or chief human resources officer.

The chief human resources officer provides the committee with internal and external analyses of the structure of compensation programs. Throughout the year, the estimated and actual results under our incentive compensation plans are reviewed.

The CFO discusses financial results relevant to incentive compensation, other financial measures, and accounting rules.

The CEO advises on the alignment of incentive plan performance measures with strategy and the design of equity incentive awards. He also provides the committee with performance evaluations of senior executives and recommends merit increases and compensation awards.

## Nominating and Governance Committee

The CEO and general counsel and chief legal officer participate in meetings. The committee regularly meets in executive session without management present. The chief risk officer provides risk assessments on political contributions and activities.

## Risk and Return Committee

The chief risk officer, CFO, general counsel and chief legal officer, CEO, vice chair, and chief audit executive participate in meetings. The committee regularly meets in executive session, including sessions with the chief risk officer.



## The Allstate Corporation Board of Directors



Judith A. Sprieser,
Independent
Lead Director



Thomas J. Wilson,
Chair

Meetings in 2019: 6

▶ Succession planning discussed at four meetings annually

The Board met for 21/2 days in September to focus solely on strategy.

## Highly Independent Board

Nine out of ten directors on the Board are independent. Each director has input into Board and committee meeting schedules, agendas and materials. In addition, directors are provided opportunities throughout the year for independent discussion and reflection. The directors hold executive sessions without management present at every in-person Board and committee meeting.

## Audit
Committee \( ^{(1)} \) 



Report, pg. 81

Chair: Kermit R. Crawford Meetings in 2019: 10

Other Members:

Michael L. Eskew
Siddharth N. Mehta
Gregg M. Sherrill



“Data privacy oversight became an area of focus, in addition to the frequent cybersecurity updates received by the committee. We continued an industry leading practice of engaging an independent cybersecurity advisor for the fourth year in a row and reviewed a cyber crisis simulation exercise that was used by our senior leaders to prepare for a possible cyber crisis.”

— KERMIT R. CRAWFORD, CHAIR

## Key Responsibilities:

▶ Overseas integrity of financial statements and other financial information and disclosures

▶ Overseas the system of internal control over accounting and financial reporting and disclosure controls and procedures

▶ Reviews the enterprise risk control assessment and guidelines, including cybersecurity and data privacy risk and the major financial risk exposures and management’s steps to monitor and control those risks

▶ Overseas the ethics and compliance program and compliance with legal and regulatory requirements

▶ Appoints, retains, and oversees the independent registered public accountant, and evaluates its qualifications, performance and independence

▶ Evaluates retaining an independent cybersecurity advisor

▶ Overseas Allstate’s internal audit function

NEW ▶ Overseas Allstate’s data privacy programs

Has authority to engage independent counsel and other advisors to carry out its duties

## Compensation and
Succession Committee



Report, pg. 61

Chair: Michael L. Eskew

Meetings in 2019: 7

Other Members:
Margaret M. Keane
Andrea Redmond

Perry M. Traquina



“We considered the views of significant stockholders when we determined our compensation priorities during the year, which resulted in adding a Relative TSR performance measure to the performance stock award program and revising the company’s clawback policy. We also spent considerable time discussing management development and succession. We engaged in ongoing reviews of our human capital management practices and received an independent assessment of pay equity practices. We also formalized an emergency succession plan for the CEO, in the event of an unplanned departure.”

— MICHAEL L. ESKEW, CHAIR

## Key Responsibilities:

▶ Overseas Allstate’s executive compensation plans

Has authority to retain the committee’s independent compensation consultant

▶ Assists the Board in determining all compensation elements of the executive officers, including the CEO

▶ Reviews the Compensation Discussion and Analysis and prepares the Compensation Committee Report in this proxy statement

▶ Reviews management succession plans, evaluation processes and organizational strength

▶ Reviews CEO’s performance in light of approved goals and objectives

(1) The Board determined that all members of the audit committee are independent under the New York Stock Exchange (“NYSE”) and Securities and Exchange Commission (“SEC”) requirements, and that Messrs. Eskew, Mehta, and Sherrill are each an audit committee financial expert as defined under SEC rules.



## Robust Role for Independent Committee Chairs

Each of the committee chairs approves meeting agendas and reviews committee materials. Prior to each meeting, each committee chair has a conversation with the Board Chair and CEO and relevant operating executives. The committee chairs discuss meeting materials and agendas in advance of each meeting, which fosters independence and successful execution of each committee’s responsibilities.

## Use of Independent Advisors

Each committee operates under a written charter and has the ability to hire third-party advisors. Outside experts such as independent auditors, compensation consultants, governance specialists, cybersecurity experts, board search firm representatives, and financial advisors attend meetings to provide directors with additional information on issues. All standing committees regularly use independent external consultants.

In 2019, an outside firm was engaged to provide an independent assessment of Allstate’s pay equity practices.
“Over the past year, we engaged with management on strategic topics at every Board meeting. We considered the long-term trends in the property-liability insurance industry, including greater customer connectivity and use of technology. Management also initiated a Transformative Growth Plan, a multi-year effort to increase property-liability market share. The Board is actively engaged in this initiative.”

— JUDITH A. SPRIESER
INDEPENDENT LEAD DIRECTOR

## Nominating and Governance Committee

Chair: Andrea Redmond Meetings in 2019: 5

Other Members:
Margaret M. Keane
Jacques P. Perold
Gregg M. Sherrill
Judith A. Sprieser



“We focused on the company’s significant sustainability initiatives and disclosures, including Allstate’s approach to political contribution activity. We reviewed Allstate’s political contributions at two meetings, including in one joint meeting with the Board. Board composition and skills also continue to be areas of focus.”

## — ANDREA REDMOND, CHAIR

## Key Responsibilities:

Recommends candidates for Board election and nominees for Board committees

Recommends candidates for Lead Director and Chair

Recommends criteria for selecting directors and the Lead Director, and determines director independence

Reviews the Corporate Governance Guidelines and advises the Board on corporate governance issues

Determines performance criteria and oversees the performance assessment of the Board, Board committees, and Lead Director

Reviews Allstate’s non-employee director compensation program

Has authority to retain a director search firm and director compensation consultant

NEW Reviews Allstate’s political contributions and sustainability initiatives

## Risk and Return Committee

Chair: Siddharth N. Mehta

Other Members:
Kermit R. Crawford
Jacques P. Perold



Meetings in 2019: 6

Judith A. Sprieser
Perry M. Traquina

“We elevated culture to a key risk category in the enterprise risk and return management framework. New risk and performance measures are also being used for the Transformative Growth Plan. Allstate’s risk and return management program continued to be refined as management advanced the maturity of Allstate’s operational risk-return management framework.”

— SIDDHARTH N. MEHTA, CHAIR

## Key Responsibilities:

Assists the Board in risk and return governance and oversight

Reviews risk and return processes, policies, and guidelines used by management to evaluate, monitor, and manage enterprise risk and return

Reviews Allstate’s enterprise risk and return management function, including its performance, organization, practices, budgeting, and staffing

Supports the audit committee in its oversight of risk assessment and management policies

Has authority to retain outside advisors to assist in its duties

Enhanced oversight around culture as a key risk category

## EXECUTIVE COMMITTEE

The Board has an Executive Committee made up of the Lead Director, committee chairs and Board Chair. The Executive Committee is chaired by Mr. Wilson and has the powers of the Board in the management of Allstate’s business affairs to the extent permitted under the bylaws, excluding any powers granted by the Board to any other committee of the Board. In addition, the Executive Committee provides Board oversight if outside the scope of established committees or if an accelerated process is necessary. No meetings of the Executive Committee were necessary in 2019.



## Board Independence and Related Person Transactions

## Nominee Independence Determinations

The Board has determined that all directors who served during 2019, other than Mr. Wilson, are independent according to applicable law, the NYSE listing standards, and the Board's Director Independence Standards (which are included on www.allstateinvestors.com). In accordance with the Director Independence Standards, the Board has determined that the nature of the relationships with the corporation that are set forth in Appendix B do not create a conflict of interest that would impair a director's independence. The Board also determined that the members of the audit, compensation and succession, nominating and governance, and risk and return committees are independent within the meaning of applicable laws, the NYSE listing standards, and the Director Independence Standards.

When evaluating the independence of director nominees, the Board weighs numerous factors, including tenure. In particular, the Board weighed the potential impact of tenure on the independence of our longest-serving director, Ms. Sprieser. Ms. Sprieser has significant experience serving at Allstate under different operating environments, management teams and financial market cycles, and served on the Board under two CEOs and prior to Mr. Wilson's appointment. The Board concluded that Ms. Sprieser is an effective director who fulfills her responsibilities with integrity and independence of thought. She appropriately challenges management and the status quo, and is reasoned, balanced, and thoughtful in Board deliberations and in communications with management. The Board determined that her independence from management has not been diminished by her years of service.

## Related Person Transactions

The nominating and governance committee has adopted a written policy on the review, approval, or ratification of transactions with related persons, which is posted on the Corporate Governance section of www.allstateinvestors.com.

There were no related person transactions identified for 2019.

The committee or committee chair reviews transactions with Allstate 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 more than 5% of our outstanding stock. The committee or committee chair approves or ratifies only those transactions that are in, or not inconsistent with, the best interest of Allstate and its stockholders. Transactions are reviewed and approved or ratified by the committee chair when it is not practicable or desirable to delay review of a transaction until a committee meeting. The committee chair reports any approved transactions to the committee. Any ongoing, previously approved, or ratified related person transactions are reviewed annually.



## Director Compensation

## Director Compensation Program

The director compensation program is designed to appropriately compensate non-employee directors for serving on the board of a large, complex, and highly regulated company and to align their interests with stockholders. The nominating and governance committee reviews non-employee director compensation annually including benchmark information from peer companies, advice from an independent compensation consultant, and relevant compensation surveys. The following charts describe each component of our non-employee director compensation program for 2019. No changes were recommended after the 2019 annual review as director total compensation continues to be aligned with the insurance peer group and survey median.

NON-EMPLOYEE DIRECTOR



(1) Paid quarterly in advance on the first day of January, April, July, and October. The retainer is prorated for a director who joins the Board during a quarter.

(2) The Board believes that a meaningful portion of a director’s compensation should be in the form of equity securities to create a linkage with corporate performance and stockholder interests. Directors are granted restricted stock units on June 1 equal in value to $155,000 divided by the closing price of a share of Allstate common stock on such grant date, rounded to the nearest whole share.

## Director Equity Compensation

Equity makes up a meaningful portion of the directors’ overall compensation mix to align interests with stockholders.

A robust stock ownership guideline of five times the annual Board membership cash retainer supports alignment with stockholders’ interests.

Annual restricted stock units are granted under a fixed-value formula and in accordance with the stockholder approved 2017 Equity Compensation Plan for Non-Employee Directors. The aggregate grant date fair value of any award during a calendar year may not exceed $800,000.

## ADDITIONAL ANNUAL CASH RETAINERS \( ^{(1)} \) 

$50,000
Lead Director

Audit Committee Chair and Risk and Return Committee Chair

Compensation and Succession Committee Chair

$20,000
Nominating and Governance Committee Chair

## Further Director

## Compensation Highlights

Director total compensation, Lead Director and committee chair retainers, and equity grant practices are all benchmarked against insurance industry peer group and relevant compensation surveys to target total compensation at the median.

No additional fees are paid for Board meeting attendance.



## Director Stock Ownership Guidelines

Each director is expected, within five years of joining the Board or within five years of an increase in annual retainer, if applicable, to accumulate an ownership position in Allstate common stock equal to five times the annual value of the cash retainer. Allstate’s stock ownership guidelines specify that Allstate shares owned personally and beneficially, as well as unvested restricted stock units, count toward meeting the requirement.

Each director has met the ownership guideline, except for Mr. Sherrill, who joined the Board in the last five years.

## 2019 Director Compensation

The following table summarizes the compensation for each of our non-employee directors who served as a member of the Board and its committees in 2019.

<table><tr><td>Name</td><td>Leadership Roles Held During 2019</td><td>Fees Earned or Paid in Cash (\()^{(1)}</td><td>Stock Awards (\))^{(2)(3)}</td><td>All Other Compensation (\))</td><td>Total ($)</td></tr><tr><td>Kermit R. Crawford</td><td>Audit Committee Chair</td><td>160,000</td><td>155,013</td><td>—</td><td>315,013</td></tr><tr><td>Michael L. Eskew</td><td>Compensation and Succession Committee Chair</td><td>155,000</td><td>155,013</td><td>—</td><td>310,013</td></tr><tr><td>Margaret M. Keane</td><td></td><td>125,000</td><td>155,013</td><td>—</td><td>280,013</td></tr><tr><td>Siddharth N. Mehta</td><td>Risk and Return Committee Chair</td><td>160,000</td><td>155,013</td><td>—</td><td>315,013</td></tr><tr><td>Jacques P. Perold</td><td></td><td>125,000</td><td>155,013</td><td>—</td><td>280,013</td></tr><tr><td>Andrea Redmond</td><td>Nominating and Governance Committee Chair</td><td>145,000</td><td>155,013</td><td>—</td><td>300,013</td></tr><tr><td>Gregg M. Sherrill</td><td></td><td>125,000</td><td>155,013</td><td>—</td><td>280,013</td></tr><tr><td>Judith A. Sprieser</td><td>Lead Director</td><td>175,000</td><td>155,013</td><td>—</td><td>330,013</td></tr><tr><td>Perry M. Traquina</td><td></td><td>125,000</td><td>155,013</td><td>—</td><td>280,013</td></tr></table>

(1) Under the 2017 Equity Compensation Plan for Non-Employee Directors, directors may elect to receive Allstate common stock in lieu of cash compensation. In 2019, Margaret Keane elected to receive 100% of her retainer in stock. Also, under Allstate's Deferred Compensation Plan for Non-Employee Directors, directors may elect to defer their retainers to an account that is credited or debited, as applicable, based on (a) the fair market value of, and dividends paid on, Allstate common shares (common share units); (b) an average interest rate calculated on 90-day dealer commercial paper; (c) S&P 500 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 in excess of ten years in accordance with the director's instructions. For 2019, Messrs. Eskew and Traquina elected to defer their cash retainer into common share units. The accumulated amount of Allstate common share units as of December 31, 2019, for directors previously electing to defer their cash retainer, is reflected in the table below.

<table><tr><td>Amounts Deferred under Deferred Compensation Plan for Non-Employee Directors</td><td>Allstate Common Share Units (#)</td></tr><tr><td>Mr. Eskew</td><td>8,827</td></tr><tr><td>Mr. Traquina</td><td>4,218</td></tr></table>

(2) Grant date fair value for restricted stock units granted in 2019 is based on the final closing price of Allstate common stock on the grant date, which in part also reflects the payment of expected future dividend equivalent rights. (See note 18 to our audited financial statements for 2019.) The final grant date closing price was $95.51. The values were computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. Each restricted stock unit entitles the director to receive one share of Allstate common stock on the conversion date (see footnote 3).



(3) The following table provides outstanding restricted stock units as of December 31, 2019, for each director. The value of the restricted stock units is based on the closing price of our common stock of $112.45 on December 31, 2019.

<table><tr><td>Name</td><td>Restricted Stock Units (#)</td><td>Value of Restricted Stock Units as of 12/31/19 ($)</td><td>Multiple of Annual Cash Retainer</td></tr><tr><td>Mr. Crawford</td><td>16,341</td><td>1,837,545</td><td>14.7</td></tr><tr><td>Mr. Eskew</td><td>11,680</td><td>1,313,416</td><td>10.5</td></tr><tr><td>Ms. Keane</td><td>3,892</td><td>437,655</td><td>3.5 \( ^{(1)} \)</td></tr><tr><td>Mr. Mehta</td><td>12,819</td><td>1,441,497</td><td>11.5</td></tr><tr><td>Mr. Perold</td><td>8,465</td><td>951,889</td><td>7.6</td></tr><tr><td>Ms. Redmond</td><td>31,813</td><td>3,577,372</td><td>28.6</td></tr><tr><td>Mr. Sherrill</td><td>4,400</td><td>494,780</td><td>4.0</td></tr><tr><td>Ms. Sprieser</td><td>43,246</td><td>4,863,013</td><td>38.9</td></tr><tr><td>Mr. Traquina</td><td>7,024</td><td>789,849</td><td>6.3</td></tr></table>

(1) Ms. Keane has met the stock ownership guideline through her direct ownership of common stock.

Restricted stock unit awards granted before September 15, 2008, convert into common stock one year after termination of Board service. Restricted stock unit awards granted on or after September 15, 2008, and before June 1, 2016, convert into common stock upon termination of Board service. Restricted stock units granted on or after June 1, 2016, convert into common stock on the earlier of the third anniversary of the date of grant or upon termination of Board service. Directors had the option to defer the conversion of the restricted stock units granted on June 1, 2016, for ten years from the date of grant or the later of termination of Board service or June 1, 2024. The conversion of restricted stock units granted after June 1, 2016, may be deferred for ten years or until termination of Board service. In addition to the conversion periods described above, restricted stock units will convert upon death or disability. 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.

Non-employee directors do not receive stock options as part of their compensation as a result of a policy change effective on June 1, 2009. There were no outstanding stock options as of year-end 2019.



# Executive Compensation

## PROPOSAL

## Say-on-Pay: Advisory Vote on the Compensation of the Named Executives

## The Board recommends a vote FOR this proposal.

▶ Independent oversight by compensation and succession committee with the assistance of an independent consultant.

Executive compensation targeted at 50th percentile of peers and aligned with short- and long-term business goals and strategy.

▶ Compensation programs are working effectively. Annual incentive compensation funding for our named executives in 2019 was 117.5% of target, reflecting above target performance on Performance Net Income and below target performance on Total Premiums and Net Investment Income.

We conduct a say-on-pay vote every year at the annual meeting. While the vote is non-binding, the Board and the compensation and succession committee (the “committee” as referenced throughout the Compensation Discussion and Analysis and Executive Compensation sections) consider the results as part of their annual evaluation of our executive compensation program.

You may vote to approve or not approve the following advisory resolution on the executive compensation of the named executives:

RESOLVED, on an advisory basis, the stockholders of The Allstate Corporation approve the compensation of the named executives, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis and accompanying tables and narrative on pages 42-77 of the Notice of 2020 Annual Meeting and Proxy Statement.

## Compensation Discussion and Analysis

## Executive Overview

Our Compensation Discussion and Analysis describes Allstate’s executive compensation program, including total 2019 compensation for our named executives listed below \( ^{(1)} \) :

THOMAS J. WILSON
Chair, President,
and Chief Executive
Officer (CEO)
MARIO RIZZO
Executive Vice
President and Chief
Financial Officer (CFO)
DON CIVGIN
President, Service
Businesses
GLENN T. SHAPIRO
President, Allstate
Personal Lines
STEVEN E. SHEBIK
Vice Chair

(1) The titles and responsibilities changed for certain of these officers in 2020. See Appendix C for a full list of Allstate’s executive officers and current titles.



## Business Highlights

In 2019, Allstate delivered strong results and implemented multiple initiatives to drive long-term profitable growth. Our management team continued to advance all five Operating Priorities:
$2.5 billion
Distributed to stockholders in cash through stock repurchases and common stock dividends

<table><tr><td>Operating Priorities</td><td>Results</td></tr><tr><td>Better serve customers</td><td>▶ Enterprise net promoter score increased with improvement at most businesses</td></tr><tr><td>Grow customer base</td><td>▶ Total policies in force reached 145.9 million, a 27.7% increase from prior year
▶ Property-Liability policies increased 1.3% from prior year to 33.7 million</td></tr><tr><td>Achieve target returns on capital</td><td>▶ Adjusted net income return on common shareholders&#x27; equity* of 16.9% in 2019</td></tr><tr><td>Proactively manage investments</td><td>▶ Net investment income of $3.2 billion in 2019 reflects higher market-based yields
▶ Performance-based results were below expectations, but long-term results have been strong
▶ Total return of 9.2% on $88.4 billion investment portfolio in 2019</td></tr><tr><td>Build long-term growth platforms</td><td>▶ Accelerating Transformative Growth Plan
▶ Arity continued to expand telematics usage and capabilities
▶ Expanding Allstate Identity Protection
▶ Avail, a car sharing business, initiated operations</td></tr></table>

* This measure is defined and reconciled to the most directly comparable GAAP measure in Appendix A.

Allstate’s one, three, and five-year total shareholder return was 38.8%, 60.4%, and 75.8%, respectively. The following chart shows Allstate’s total shareholder return over one, three and five years relative to the market cap weighted average of the peer group used for 2019 compensation benchmarking (identified on page 58).

COMPARISON OF TOTAL SHAREHOLDER RETURN (%)






## Compensation Highlights

The committee actively solicits the views of our significant stockholders on executive compensation matters. In determining the structure and amount of executive pay, the committee carefully considered this feedback. At our last stockholder meeting, 89% of votes cast supported our executive compensation program. Investors generally believed that Allstate utilized many best practices and focused on pay for performance, but some questioned certain elements of the performance measures and targets established by the committee.

The committee considered the vote results, investor input and current market practices and made changes to respond to that feedback, as described below.

## What We Heard

As a general rule, incentive targets for the annual incentive plan should not be set below prior year actual results. If in the committee's discretion that is deemed warranted, the committee should ensure full and transparent disclosure of the process used and rationale for setting targets below prior year results.

Investors generally like to see little to no discretion applied in the annual incentive program, particularly annual incentive awards paid to the CEO.

Performance awards should be aligned with stockholder value, and the committee should consider whether total shareholder return would be an appropriate performance measure for the incentive program.

## What We Do

The committee assesses highly variable components of the performance measures, such as catastrophe losses, to establish targets using probability and scenario analysis.

Total Premiums target was set above the prior year as it has been for over ten years.

▶ Performance Net Income target for 2019 was above 2018 reflecting top-line growth and consistent margins. Catastrophe losses were assumed to be higher than the prior year, reflecting long-term weather patterns.

Net Investment Income target was set above 2018 based on higher market-based income.

A detailed summary of the goal setting process and the 2019 ranges for each performance measure are included on page 53.

The annual incentive compensation pool is calculated based on three numerical measures and no positive discretion has been applied to the pool in the last five years. Individual discretion is utilized to reward high performers, but this is funded by reducing amounts paid to other executives.

The annual cash incentive awards for the CEO and three other NEOs were equal to the calculated funding level, with no discretion applied.

A detailed description of how the annual incentive corporate pool is funded and distributed to individual participants is included on pages 54-55.

For the 2020-2022 performance stock awards, the committee replaced the Earned Book Value measure with a Relative TSR measure.

For additional detail on the 2020 performance stock award design, see page 56.



## Alignment of Pay with Performance

## ANNUAL CASH INCENTIVE



 \( ^{(1)} \)  For a description of how these measures are determined, see pages 75-77

Reflects 2018 actual results of Total Premiums of $37,451, Performance Net Income of $3,095, and Net Investment Income of $3,240

## ANNUAL INCENTIVE PLAN % OF TARGET











## 2017-2019 PERFORMANCE STOCK AWARDS



 \( ^{(1)} \)  For a description of how these measures are determined, see pages 75-77








## 2019 Compensation Mix

The committee designs the executive compensation program to award pay in accordance with corporate, business unit and individual performance. A large percentage of total target compensation is at risk through long-term equity awards and annual cash incentive awards. These awards are linked to performance measures that correlate with long-term stockholder value creation. The mix of target total direct compensation for 2019 for our CEO and the average of our other named executives is shown in the chart below.



## Allstate's Executive Compensation Principles

Allstate’s executive compensation program is designed to ensure that the interests of our executives are aligned with our stockholders:

## We Pay for Performance

The majority of our CEO’s and other NEOs’ compensation opportunity is at-risk and based on measurable performance goals.

## We Establish a Strong Link Between Performance Measures and Strategic Objectives

Performance measures are linked to operating priorities designed to create long-term stockholder value.



Moreover, our program adheres to high standards of compensation governance.

## ✓ What We Do

Benchmark to Peers of Similar Industry, Size and Business Complexity.

Target Pay at 50th Percentile of Peers.

Independent Compensation Consultant.

Double Trigger in the Event of a Change in Control.

▶ Maximum Payout Caps for Annual Cash Incentive Compensation and Performance Stock Awards (“PSAs”).

Robust Equity Ownership Requirements.

Clawback or Cancellation of Certain Compensation.

One-Year Minimum Equity Vesting Provision in the Equity Plan.

Use Clear, Quantitative Measures to Fund the Annual Incentive Plan.

## What We Do Not Do

No Employment Agreements for Executive Officers.

No Guaranteed Annual Salary Increases or Bonuses.

No Special Tax Gross Ups.

No Repricing or Exchange of Underwater Stock Options.

No Plans that Encourage Excessive Risk-Taking.

No Hedging or Pledging of Allstate Securities.

No Inclusion of Equity Awards in Pension Calculations.

No Excessive Perks.



## Compensation Elements

The following table lists the elements of target direct compensation for our 2019 executive compensation program.

<table><tr><td>Short-Term</td><td>Mid-Term</td><td>Long-Term</td></tr><tr><td>FIXED</td><td>VARIABLE</td><td></td></tr><tr><td>Base Salary</td><td>Annual Cash Incentive Awards</td><td>Performance Stock Awards</td></tr><tr><td>Cash</td><td>Cash</td><td>Equity</td></tr><tr><td><img src="imgs/img_in_image_box_204_520_384_690.jpg" ></td><td><img src="imgs/img_in_image_box_550_520_730_690.jpg" ></td><td><img src="imgs/img_in_image_box_1004_520_1288_690.jpg" ></td></tr><tr><td>Why We Pay This Element</td><td></td><td></td></tr><tr><td>Attract and retain executives with competitive level of cash compensation.</td><td>Motivate and reward executives for performance on key strategic, operational, and financial measures during the year.</td><td>Motivate and reward executives for performance on key long-term measures.</td></tr><tr><td></td><td></td><td>Align the interests of executives with long-term stockholder value.</td></tr><tr><td></td><td></td><td>Retain executive talent.</td></tr><tr><td>Key Characteristics</td><td></td><td></td></tr><tr><td>Reviewed annually and adjusted when appropriate.</td><td>A corporate-wide funding pool based on performance on three measures:</td><td>PSAs vest on the day before the third anniversary of the grant date.</td></tr><tr><td></td><td>Total Premiums(2)</td><td>Actual amounts of PSAs vesting based on performance on three-year Performance Net Income Return on Equity(2) and Earned Book Value(2) with a requirement of positive net income for any payout above target.</td></tr><tr><td></td><td>Performance Net Income(2)</td><td></td></tr><tr><td></td><td>Net Investment Income(2)</td><td></td></tr><tr><td></td><td>Pool is then allocated based on business unit and individual performance; positive net income required for any payout above target.</td><td></td></tr></table>

(1) Represents the average of the target direct compensation elements for all of the named executives in 2019.

(2) For a description of how these measures are determined, see pages 75-77. For 2020 awards, Earned Book Value was replaced with Relative Total Shareholder Return.



## Compensation Decisions for 2019

## Thomas J. Wilson

## Chair, President, and Chief Executive Officer

## Key Responsibilities

Our Chair, President, and CEO is responsible for managing the company’s strategic direction, operating results, organizational health, ethics and compliance, and corporate responsibility.

## 2019 Performance

Mr. Wilson’s total compensation and the amount of each compensation element are driven by the design of our compensation program, his responsibilities, experience and performance, and peer company CEO compensation. The committee’s independent compensation consultant annually reviews Mr. Wilson’s compensation payments to advise the committee if any changes are warranted.

Mr. Wilson’s performance as Chair, President, and CEO is evaluated under five categories: operating results, developing and implementing long-term strategy, maintaining and motivating a high-performance team, corporate stewardship and Board effectiveness. Performance is assessed over one- and three-year time periods.

▶ Operating Results. Excellent results on all five 2019 Operating Priorities.

Insurance premiums and contract charges increased by $2.1 billion (5.7%), and policies in force grew by 27.7% to 145.9 million.

Adjusted net income \( ^{*} $  rose to $3.48 billion in 2019 from $3.13 billion in the prior year.

Allstate’s annual total shareholder return in 2019 was 38.8%. Allstate’s three-year period total return was 60.4%, which exceeds both the three-year return of peers (34.4%), and the three-year return of the S&P 500 index (53.1%).
Long-term Strategy. Improved competitive position of existing businesses while continuing to build long-term growth platforms.

Initiated Transformative Growth Plan to grow personal property-liability market share

Strategy to grow other protection offerings being driven by rapid growth of Allstate Protection Products and Allstate Identity Protection

▶ High-Performance Team. Talented, experienced and highly engaged team with excellent collaboration to achieve strategic vision.

## 2019 COMPENSATION
(in millions)



Corporate Stewardship. Corporate reputation is at an all-time high. Allstate is a leader in supporting youth empowerment and ending domestic violence.

Board Effectiveness. Excellent governance processes, Board diversity, and stockholder engagement.

## 2019 Compensation Decisions

Mr. Wilson’s annual cash incentive target of 300% of salary and long-term equity incentive target of 775% of salary remained unchanged.

Salary. The committee approved an increase from $1,300,000 to $1,350,000 during 2019 based on evaluation of his performance, level of responsibility, experience and target compensation as compared to the peer group.
Annual Cash Incentive Award.
Mr. Wilson’s target annual incentive payment of 300% of base salary with a maximum funding opportunity for the award pool of 200% of target was unchanged in 2019. The committee approved an annual cash incentive award of $4,730,100, which was equal to the funding level as determined by the actual results for the three performance measures of 117.5% of target.
Equity Incentive Awards. In February 2019, based on its assessment of Mr. Wilson’s performance in delivering strong business results in 2018, his job scope, and market data, the committee granted him equity awards with a grant date fair value of $10,075,000, which was Mr. Wilson’s target equity incentive award opportunity of 775% of salary.



## Mario Rizzo
Executive Vice President and Chief Financial Officer

## Key Responsibilities

Our CFO has primary responsibility for the management of the company’s overall financial condition, system of internal controls, capital allocation, financial reporting, investor relations, acquisitions and divestitures, and capital market transactions.

## 2019 Performance

Mr. Rizzo’s annual performance is evaluated on four criteria: overall corporate results, area of responsibility results, developing and implementing long-term strategy and corporate leadership. In 2019, Mr. Rizzo’s compensation was at target funding with no discretion applied based on the following accomplishments:

The Annual Incentive Plan funded at 117.5% based on a $2.0 billion (5.4%) Total Premium increase over the prior year being below an aggressive target, Performance Net Income of $3.57 billion being $421 million above target and Net Investment Income being $55 million below target despite having a total portfolio return of 9.2%.

Enhanced operational performance by coordinating expense reductions, providing strong operational oversight and measurement and maintaining strong internal controls.

Created shareholder value by increasing use of preferred stock, optimizing capital allocation and overseeing the share repurchase program.

## 2019 Compensation Decisions

Salary. The committee approved an increase from $700,000 to $720,000 during 2019 based on evaluation of his performance, level of responsibility, experience and target compensation as compared to the peer group.
▶ Incentive Targets. Mr. Rizzo’s annual incentive target was 125% of salary and his target equity incentive opportunity was 300% of salary.

Annual Cash Incentive Award. The committee approved an annual cash incentive award of $1,053,000 for Mr. Rizzo, which was equal to the funding level as determined by the actual results for the three performance measures of 117.5% of target.

## 2019 COMPENSATION
(in millions)



## Equity Incentive Awards.

In February 2019, based on its assessment of Mr. Rizzo’s performance in delivering strong business results in 2018, his job scope, and market data, the committee granted him equity awards with a grant date fair value of $2,100,000, which was Mr. Rizzo’s target equity incentive award opportunity.

## Don Civgin

## President, Service Businesses \( ^{(1)} \) 

## Key Responsibilities

Mr. Civgin was President, Service Businesses, and is a member of Allstate’s Operating Committee. In this role, he oversees the leadership of Allstate Dealer Services, Allstate Roadside Services, Answer Financial, Arity, Allstate Protection Plans and Avail.

## 2019 Performance

Mr. Civgin’s annual performance is evaluated on four criteria: overall corporate results, area of responsibility results, developing and implementing long-term strategy and corporate leadership. In 2019, Mr. Civgin’s compensation was above target funding with positive discretion applied based on the following accomplishments:

The Annual Incentive Plan funded at 117.5% based on a $2.0 billion (5.4%) Total Premium increase over the prior year being below an aggressive target, Performance Net Income of $3.57 billion being $421 million above target and Net Investment Income being $55 million below target despite having a total portfolio return of 9.2%.

Allstate Protection Plans policy growth of 45% reaching 99 million with increased Adjusted Net Income. Continued progress in building Arity and Avail businesses.

## 2019 COMPENSATION
(in millions)






## 2019 Compensation Decisions

Salary. The committee approved an increase from $820,000 to $840,000 during 2019, based on evaluation of his performance, level of responsibility, experience and target compensation as compared to the peer group.

▶ Incentive Targets. Mr. Civgin’s annual incentive target was 125% of salary and his target equity incentive opportunity was 300% of salary.
Annual Cash Incentive Award. The committee approved an annual cash incentive award of $1,400,000 for Mr. Civgin, which was 133.9% of target and above the funding level as determined by the actual results for the three performance measures.

Equity Incentive Awards. In February 2019, based on its assessment of Mr. Civgin’s performance in delivering strong business results in 2018, his job scope, and market data, the committee granted him equity awards with a grant date fair value of $2,460,000, which was Mr. Civgin’s target equity incentive award opportunity.

## Glenn T. Shapiro

President, Allstate Personal Lines \( ^{(1)} \) 

## Key Responsibilities

Mr. Shapiro was President of Allstate Personal Lines and led the product, claims, operations, risk, finance and distribution for this business, which comprises approximately 80% of Allstate’s total insurance premiums and contract charges.

## 2019 Performance

Mr. Shapiro’s annual performance is evaluated on four criteria: overall corporate results, area of responsibility results, developing and implementing long-term strategy and corporate leadership. In 2019, Mr. Shapiro’s compensation was at target funding with no discretion applied based on the following accomplishments:

The Annual Incentive Plan funded at 117.5% based on a $2.0 billion (5.4%) Total Premium increase over the prior year being below an aggressive target, Performance Net Income of $3.57 billion being $421 million above target and Net Investment Income being $55 million below target despite having a total portfolio return of 9.2%.

Enhanced Allstate brand personal lines competitive position by improving customer service, reducing expenses and enhancing analytics.

## 2019 Compensation Decisions

Salary. The committee approved an increase from $750,000 to $780,000 during 2019 based on evaluation of his performance, level of responsibility, experience and target compensation as compared to the peer group.
▶ Incentive Targets. Mr. Shapiro’s annual incentive target was 150% of salary and his target equity incentive opportunity was 325% of salary.

Annual Cash Incentive Award. The committee approved an annual cash incentive award of $1,366,000 for Mr. Shapiro, which was equal to the funding level as determined by the actual results for the three performance measures of 117.5% of target.

## 2019 COMPENSATION
(in millions)



Equity Incentive Awards. In February 2019, based on its assessment of Mr. Shapiro’s performance in delivering strong business results in 2018, his job scope, and market data, the committee granted him equity awards with a grant date fair value of $2,437,500, which was Mr. Shapiro’s target equity incentive award opportunity.



## Steven E. Shebik
Vice Chair \( ^{(1)} \) 

## Key Responsibilities

As Vice Chair, Mr. Shebik had primary responsibility for oversight of Allstate Life and Retirement, Allstate Benefits, Allstate Identity Protection, Encompass, Esurance, Allstate Business Insurance, Corporate Business Transformation, Discontinued Lines, and D3, a corporate analytics team.

## 2019 Performance

Mr. Shebik’s annual performance is evaluated on four criteria: overall corporate results, area of responsibility results, developing and implementing long-term strategy and corporate leadership. In 2019, Mr. Shebik’s compensation was at target funding with no discretion applied based on the following accomplishments:

The Annual Incentive Plan funded at 117.5% based on a $2.0 billion (5.4%) Total Premium increase over the prior year being below an aggressive target, Performance Net Income of $3.57 billion being $421 million above target and Net Investment Income being $55 million below target despite having a total portfolio return of 9.2%.

▶ Strong operating results including expansion of shared economy insurance, life profitability and improved returns for the Esurance and Encompass brands.

## 2019 Compensation Decisions

Salary. The committee approved an increase from $850,000 to $870,000 during 2019 based on evaluation of his performance, level of responsibility, experience and target compensation as compared to the peer group.

▶ Incentive Targets. Mr. Shebik’s annual incentive target was 200% of salary and his target equity incentive opportunity was 350% of salary.
Annual Cash Incentive Award. The committee approved an annual cash incentive award of $2,037,000 for Mr. Shebik, which was equal to the funding level as determined by the actual results for the three performance measures of 117.5% of target.

Equity Incentive Awards. In February 2019, based on its assessment of Mr. Shebik’s performance in delivering strong business results in 2018, his job scope, and market data, the committee granted him equity awards with a grant date fair value of $2,975,000, which was Mr. Shebik’s target equity incentive award opportunity.



## Incentive Design and Goal Setting

For the annual and long-term incentive programs, the committee oversees a rigorous and comprehensive goal-setting process. The committee uses performance measures in the annual and long-term programs that (1) align with the company's strategy, operating principles and priorities, and stockholder interests, (2) support the achievement of corporate goals, and (3) reflect the company's overall performance. The following timeline of key events reflects the committee's process:

## Incentive Design, Payout, and Goal-Setting Process

## ONGOING

Review compensation philosophy and objectives in light of company performance, goals and strategy, stockholder feedback, and external benchmarking

▶ Monitor compensation estimates in comparison to actual and relative performance

▶ Monitor compliance with management equity ownership requirements



## APRIL-JULY
Benchmarking

▶ Evaluate peer group to determine if any changes are required for the next performance cycle

Compare against peers’ actual compensation paid, operating results, and stockholder returns over one, three and five years as provided by the independent compensation consultant’s pay for performance analysis

Review feedback from stockholders and governance firms on compensation

▶ Independent compensation consultant provides advice on incentive design and overall executive compensation program and executive pay levels

The consultant also provides information on current market practices and industry trends

## Salary

In setting executive salary levels, the committee uses the 50th percentile of total target direct compensation of our peer companies as a guideline, which supports Allstate’s ability to compete effectively for and to retain executive talent. Annual merit increases for named executives are based on their performance and external benchmarking as provided by the independent compensation consultant.



## Annual Cash Incentive Awards

The committee sets annual cash incentive performance goals based on the annual operating plan. Target performance is equal to the operating plan. Threshold and maximum measures are based on a range of sensitivities relative to the operating plan. To further test the appropriateness of the ranges, the committee’s independent consultant provides advice based on peer performance, market expectations and industry trends. The chief risk officer reviews the performance measures and ranges to ensure they are consistent with Allstate’s risk and return principles.

▶ Actual performance on the previously approved measures determines the overall funding level of the corporate pool and the aggregate total award budget for eligible employees. In 2019, the pool was funded based on the collective results of three measures: Total Premiums, Performance Net Income, and Net Investment Income. Funding for each measure is equal to 0% below threshold, 50% at threshold, 100% at target and 200% at maximum, and results between threshold, target and maximum are subject to interpolation.

In the event of a net loss, the corporate pool funding is reduced by 50% of actual performance for senior executives, including the named executive officers. For example, if performance measures ordinarily would fund the corporate pool at 60% and there was a net loss, then the corporate pool would be funded at 30% for senior executives. This mechanism ensures alignment of pay and performance in the event of multiple large natural catastrophes and/or extreme financial market conditions.

Target annual incentive percentages for each named executive are based on pay levels of peer companies and our benchmark target for total direct compensation at the 50th percentile.

We paid the 2019 cash incentive awards in March 2020. The following description shows how this corporate pool was funded and distributed to individual participants:

## STEP

## Determine Calculation of Corporate Funding Pool

## Formulaic with calculation based on three performance measures established at beginning of period

The total pool available for distribution was calculated based on three performance measures established by the committee at the beginning of the performance period:

Total Premiums (43%) \( ^{(1)} \)  – captures growth and competitive position of the businesses

▶ Performance Net Income (43%) \( ^{(1)} \)  – aligns with stockholders’ expectations of operating profitability

Net Investment Income (14%) \( ^{(1)} \)  – reflects a significant component of profitability

The committee approved the total company funding after the end of the performance period based on the actual results on these performance measures. For the actual results and detail on how each measure was defined and calculated, see pages 75-76.

 \( ^{(1)} \)  The numbers reflect the approximate percentage that each performance measure contributed to the total pool.

## Determine Annual Incentive Payments to the Named Executives and other Executive Officers

## Minimal discretion was applied to the Named Executives by the committee in 2019

Committee’s compensation recommendations for the CEO are reviewed and approved by the independent directors of our Board in executive session.

▶ Committee reviews and approves CEO recommendations for executive officers based on pool funding, the target annual incentive percentages for each NEO, and individual performance.

The individual performance factors considered by the committee for both CEO and executive officer performance are outlined on pages 49-52.
The payout for the Named Executives ranged from $1.1 million to $4.7 million and the average was 119% of target.



## Determine Annual Incentive Payment for Other Eligible Participants
The committee was not involved with annual incentive decisions below executive officers

The CEO allocated the corporate pool between the market-facing businesses and areas of responsibility based on relative performance against annual operating goals and other key business success metrics

Individual awards for eligible employees were determined by senior leaders and were subject to approval by the CEO

▶ Senior leaders were tasked to ensure the highest quartile performing participants earned awards that were at least two times the awards earned by the lower quartile performing participants on a relative basis.
For 2019, the CEO exercised discretion in allocating pool funding.

For 2019, actual differentiation for the top quartile was 2.2 times the lowest quartile.

## Performance Stock Awards and Stock Options

We grant equity awards annually to executives consistent with market practice and our philosophy that a significant amount of compensation should be in the form of equity. Additionally, from time to time, equity awards are granted to attract new executives and to retain existing executives.

Since 2016, the mix of equity incentives for senior executives has been 60% PSAs and 40% stock options. We believe both PSAs and stock options are forms of performance-based incentive compensation because PSAs are earned based on achieving established performance goals and stock options require stock price appreciation to deliver value to an executive. For awards prior to 2020, the PSAs vest based on results for Average Performance Net Income ROE (70%) and Earned Book Value (30%) over the three-year measurement period. The actual number of PSAs vesting is between 0% to 200% of the target number of PSAs granted.

The committee selected Performance Net Income ROE as one performance measure because it:

☑ Measures performance in a way that is tracked and understood by investors.

☑ Captures both income statement and balance sheet impacts, including capital management actions.

☑ Correlates to changes in long-term stockholder value.

Earned Book Value was selected as the second measure since it includes unrealized changes in the value of the investment portfolio and excludes the impacts in utilization of debt.

In 2020, a Relative TSR measure was selected as the second measure replacing Earned Book Value. This is consistent with market practice. Payouts under this performance measure are defined as 0% for performance less than 25 \( ^{th} \)  percentile, 50% for performance at the 25 \( ^{th} \)  percentile, 100% for performance at the 55 \( ^{th} \)  percentile, and 200% for performance at the 90 \( ^{th} \)  percentile, relative to a custom TSR peer group. The TSR peer group consists of The Allstate Corporation, the compensation peers (page 58), S&P 500 Index, and S&P Financial Index.

The measures are further described on page 77. For each measure, the committee considered historical and expected performance, market expectations and industry trends when approving the range of performance.

All PSA awards include a minimum or maximum amount of after-tax catastrophe losses if actual catastrophe losses are less than or exceed those amounts, respectively, which serves to decrease volatility and stabilize the measure.

The committee requires positive net income in order for senior executives to earn PSAs based on Average Performance Net Income ROE above target. If Allstate has a cumulative net loss in a measurement period, the number of PSAs vested would not exceed target, regardless of the Average Performance Net Income ROE. This positive net income hurdle is included to prevent misalignment between Allstate reported net income and the PSAs vested based on the Average Performance Net Income ROE result. This situation could occur if, for example, catastrophe losses or capital losses that are not included in Performance Net Income ROE result in a net loss for the period. For a description of the calculation, see page 77.

At the end of each measurement period, the committee certifies the level of achievement on each performance measure.



For the 2020-2022 award, the Average Performance Net Income ROE and Relative TSR measures are calculated, respectively, as follows:

Performance Net Income \( ^{(1)} \) 
Average for three years in the performance cycle

## Catastrophe Losses

Adjusted to reflect a minimum or maximum amount of catastrophe losses

## Adjusted Common Shareholders' Equity \( ^{(2)} \) 

Average of common shareholders' equity excluding unrealized gains and losses, after tax, at December 2019, and at the end of each year in the performance cycle

Final Average Adjusted Close Price \( ^{(3)} \) 

Initial Average Adjusted Stock Price \( ^{(4)} \) 

Initial Average Adjusted Stock Price \( ^{(4)} \) 

Total Shareholder Return (TSR)

Average Performance Net Income ROE
70% of PSA Performance Measure

TSR is ranked relative to 11 peer companies (including Allstate), S&P 500 Index, and S&P Financial Index
30% of PSA Performance Measure

(1) Performance Net Income for the 2020-2022 PSA award is defined on pages 75-77.

(2) Adjusted Common Shareholders' Equity for the 2020-2022 PSA award is defined on page 77.

(3) Final Average Adjusted Close Price is the average Adjusted Close Price over the 20 trading days prior to and including the final day of the Performance Period.

(4) Initial Average Adjusted Stock Price is the average Adjusted Stock Price over the 20 trading days prior to the first day of the Performance Period.

## 2020-2022 PERFORMANCE STOCK AWARD RANGE OF PERFORMANCE

<table><tr><td rowspan="2"></td><td colspan="3">Performance Measures</td></tr><tr><td>Threshold</td><td>Target</td><td>Maximum</td></tr><tr><td>Average Performance Net Income ROE (70%) \( ^{(1)} \)</td><td>7%</td><td>14%</td><td>17%</td></tr><tr><td>Relative Percentile Rank TSR (30%) \( ^{(2)} \)</td><td>&lt; 25 \( ^{th} \)</td><td>55 \( ^{th} \)</td><td>90 \( ^{th} \)</td></tr><tr><td>Payout</td><td>0%</td><td>100%</td><td>200%</td></tr></table>

(1) Subject to positive net income hurdle. For a description of how this measure is determined, see page 77.

(2) The 25 \( ^{th} \)  percentile would result in a 50% payout. If greater than the 25 \( ^{th} \)  percentile, results would be interpolated.

## Equity Ownership Requirements

Instituted in 1996, stock ownership requirements oblige each of the named executives to own Allstate common stock worth a multiple of base salary to link management and stockholders' interests. The following chart shows the salary multiple requirement and the equity holdings that count toward the requirement.

The current stock ownership requirements apply to 105 of our senior executives and other officers as of December 31, 2019, and require these executives to hold 75% of net shares received as a result of equity compensation awards until their salary multiple requirements are met.



## STOCK OWNERSHIP AS MULTIPLE OF BASE SALARY AS OF DECEMBER 31, 2019

<table><tr><td rowspan="2">Named Executive</td><td colspan="2">Stock Ownership</td><td rowspan="2">Vested in the Money Option Value (after-tax)</td></tr><tr><td>Requirement</td><td>Actual</td></tr><tr><td>Mr. Wilson</td><td>6</td><td>58</td><td>61.6</td></tr><tr><td>Mr. Rizzo</td><td>3</td><td>2</td><td>2.5</td></tr><tr><td>Mr. Civgin</td><td>3</td><td>20</td><td>1.2</td></tr><tr><td>Mr. Shapiro</td><td>3</td><td>2</td><td>0.3</td></tr><tr><td>Mr. Shebik</td><td>3</td><td>17</td><td>12.5</td></tr></table>

## 58 times annual salary

The value of shares of Allstate’s common stock held by Mr. Wilson as of December 31, 2019

## What Counts Toward the Requirement

Allstate shares owned personally and beneficially

Shares held in the Allstate 401(k) Savings Plan

Unvested restricted stock units

## What Does Not Count Toward the Requirement

Unexercised stock options

Unvested performance stock awards

## Policies on Hedging and Pledging Securities

We have a policy that prohibits all officers, directors, and employees from engaging in transactions in securities issued by Allstate or any of its subsidiaries that might be considered speculative and engaging in derivative or other transactions designed to hedge or offset any decrease in market value of the securities held by them, such as selling short or buying or selling options, puts or calls, and entering into prepaid variable forward contracts, equity swaps or collars. We also have a policy that prohibits senior executives and directors from pledging Allstate securities as collateral for a loan or holding such securities in a margin account, unless an exception is granted by the Chair or Lead Director (or by the Lead Director in the case of a request by the Chair).

## Timing of Equity Awards and Grant Practices

Typically, the committee approves grants of equity awards during a meeting in the first fiscal quarter. The timing allows the committee to align awards with our annual performance and business goals.

Throughout the year, the committee may grant equity incentive awards to newly hired or promoted executives or to retain or recognize executives. The grant date for these awards was fixed as the third business day of a month following the later of committee action or the date of hire or promotion.

For additional information on the committee’s practices, see portions of the Board Oversight and Board Meetings and Committees sections of this proxy statement on pages 29 and 35, respectively.

## Peer Benchmarking

The committee monitors performance toward goals throughout the year and reviews the executive compensation program design and executive pay levels annually. As part of that evaluation, CAP, the committee’s independent compensation consultant, provided executive compensation data, information on current market practices, and alternatives to consider when determining compensation for our named executives. The committee benchmarks executive compensation program design, executive pay, and performance against a group of peer companies that are publicly traded. Product mix, market segment, annual revenues, premiums, assets, and market value were considered when identifying peer companies. The committee believes Allstate competes against these companies for executive talent, business and stockholder investment. The committee reviews the composition of the peer group annually with the assistance of its compensation consultant.

The compensation consultant’s recommendation has been to use a peer group that reflects Allstate’s business and operations. Currently, eight out of ten of Allstate’s peer companies also include Allstate in their respective peer company lists. The following table reflects the peer group used for 2019 compensation benchmarking. No changes were made to the peer group for 2020.



## PEER COMPANIES \( ^{(1)} \) 

<table><tr><td rowspan="2">Company Name</td><td rowspan="2">Revenue ($ in billions)</td><td rowspan="2">Market Cap ($ in billions)</td><td rowspan="2">Assets ($ in billions)</td><td rowspan="2">Premiums ($ in billions)</td><td colspan="3">Total Shareholder Return (%)</td></tr><tr><td>One Year</td><td>Three Years</td><td>Five Years</td></tr><tr><td>AFLAC Inc.</td><td>22.3</td><td>38.4</td><td>152.8</td><td>18.8</td><td>18.6</td><td>62.4</td><td>94.5</td></tr><tr><td>American International Group Inc.</td><td>49.7</td><td>44.7</td><td>525.1</td><td>33.6</td><td>33.6</td><td>-15.5</td><td>2.1</td></tr><tr><td>Chubb Limited</td><td>34.2</td><td>70.4</td><td>176.9</td><td>31.3</td><td>22.9</td><td>25.3</td><td>50.9</td></tr><tr><td>CNA Financial Corporation</td><td>10.8</td><td>12.2</td><td>60.6</td><td>7.4</td><td>9.5</td><td>33.2</td><td>69.4</td></tr><tr><td>The Hartford Financial Services Group Inc.</td><td>20.7</td><td>21.9</td><td>70.8</td><td>17.2</td><td>39.7</td><td>35.7</td><td>61.0</td></tr><tr><td>Manulife Financial Corporation</td><td>58.6</td><td>39.6</td><td>623.8</td><td>26.8</td><td>49.2</td><td>27.6</td><td>27.6</td></tr><tr><td>MetLife Inc.</td><td>69.6</td><td>46.7</td><td>740.5</td><td>47.8</td><td>28.8</td><td>17.7</td><td>25.2</td></tr><tr><td>The Progressive Corporation</td><td>39.0</td><td>42.3</td><td>54.9</td><td>36.2</td><td>25.1</td><td>121.0</td><td>207.1</td></tr><tr><td>Prudential Financial Inc.</td><td>64.8</td><td>37.4</td><td>896.6</td><td>40.2</td><td>20.1</td><td>0.3</td><td>23.2</td></tr><tr><td>The Travelers Companies Inc.</td><td>31.6</td><td>35.0</td><td>110.1</td><td>28.3</td><td>17.0</td><td>19.9</td><td>45.1</td></tr><tr><td>Allstate</td><td>44.7</td><td>35.8</td><td>120.0</td><td>38.6</td><td>38.8</td><td>60.4</td><td>75.8</td></tr><tr><td colspan="8">Allstate Ranking Relative to Peers:</td></tr><tr><td>Property and Casualty Insurance Products</td><td>3 of 8</td><td>5 of 8</td><td>4 of 8</td><td>2 of 8</td><td>2 of 8</td><td>2 of 8</td><td>2 of f8</td></tr><tr><td>Life Insurance and Financial Products</td><td>5 of 7</td><td>6 of 7</td><td>6 of 7</td><td>3 of 7</td><td>3 of 7</td><td>2 of 7</td><td>2 of 7</td></tr><tr><td>All Peer Companies</td><td>5 of 11</td><td>8 of 11</td><td>7 of 11</td><td>3 of 11</td><td>3 of 11</td><td>3 of 11</td><td>3 of f11</td></tr></table>

(1) Information as of year-end 2019.

The committee uses compensation surveys for certain executives that provide information on companies of similar size and business mix as Allstate, as well as companies with a broader market context.

The committee uses the 50th percentile of our peer group as a guideline in setting the target total direct compensation of our named executives. Within the guideline, the committee balances the various elements of compensation based on individual experience, job scope and responsibilities, performance, tenure, and market practices.

## Other Elements of Compensation

To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we offer the benefits listed in the following table.

<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</td><td>●</td><td>●</td><td></td></tr><tr><td>Deferred compensation</td><td>●</td><td>●</td><td></td></tr><tr><td>Tax preparation and financial planning services \( ^{(3)} \)</td><td>●</td><td>●</td><td></td></tr><tr><td>Personal use of aircraft, ground transportation, and mobile devices \( ^{(4)} \)</td><td>●</td><td>●</td><td></td></tr><tr><td>Tickets to Allstate events \( ^{(5)} \)</td><td>●</td><td>●</td><td>●</td></tr></table>

(1) Allstate contributed $0.80 for every dollar of matchable pre-tax or Roth 401(k) deposits made in 2019 (up to 5% of eligible pay).

(2) Including medical, dental, vision, life, accidental death and dismemberment, long-term disability, and group legal insurance. For named executives and other officers, Allstate offers an executive physical program.

(3) All officers are eligible for tax preparation services. Financial planning services were provided only to senior executives.

(4) The Board encourages the CEO to use our corporate aircraft when it improves his efficiency in managing the company, even if it is for personal purposes. Personal usage is counted as taxable compensation. In limited circumstances approved by the CEO, other senior executives are permitted to use our corporate aircraft for personal purposes. Ground transportation is available to senior executives. Mobile devices are available to senior executives, other officers, and certain managers and employees depending on their job responsibilities.

(5) Tickets to Allstate-sponsored events or the Allstate Arena are offered as recognition for service.



## 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 part-time employees who meet certain age and service requirements. The ARP provides an assured retirement income based on 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 limits (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 plan participant on an annual basis. For certain employees, these limits may result in a lower benefit under the ARP than would have been payable otherwise. Therefore, the Supplemental Retirement Income Plan (SRIP) is used to provide 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 did not exist. Effective January 1, 2014, Allstate modified its defined benefit pension plans so that thereafter, all eligible employees earn pension benefits under a new cash balance formula.

## Change in Control and Post-Termination Benefits

Consistent with our compensation objectives, we offer these benefits to attract, motivate, and retain executives. Change in control benefits and post-termination benefits are designed to maintain alignment between the interests of our executives and our stockholders in the event of a sale or merger of the company.

The following summarizes Allstate’s change-in-control benefits for the executive officers:

For the CEO, the amount of cash severance payable is three times the sum of base salary and target annual incentive. For the other executive officers, the amount of cash severance payable is two times the sum of base salary and target annual incentive.

The change in control severance plan (“CIC Plan”) does not include excise tax gross ups or a lump sum cash pension enhancement.

In order to receive the cash severance benefits under the CIC Plan, a participant must have been terminated (other than for cause, death, or disability) or the participant must have terminated employment for good reason (such as adverse changes in the terms or conditions of employment, including a material reduction in base compensation, a material change in authority, duties, or responsibilities, or a material change in job location) within two years following a change in control.

Long-term equity incentive awards vest on an accelerated basis due to a change in control only if the participant has been terminated (other than for cause, death, or disability) or the participant terminated employment for good reason (as defined above) within two years following a change in control.

The change in control and post-termination arrangements that are described in the Potential Payments as a Result of Termination or Change in Control section on pages 71-73 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.

## Clawback of Compensation

NEW Equity awards granted in 2019 and annual cash incentive awards for the 2019 performance year for executive officers whose fraud or intentional misconduct resulted in a restatement to correct a material error or inaccuracy are subject to clawback. A new clawback policy was approved by the committee that provides for the recovery of certain equity awards granted after February 18, 2020, and annual cash incentive awards paid after March 15, 2020, to executive officers and other executive vice presidents. If performance results are later subject to a downward adjustment as a result of a material financial restatement, irrespective of cause, then the paid awards are recalculated with revised results with the compensation overpayment subject to clawback. It also provides for recovery of equity and annual cash incentive awards in certain circumstances if an executive is terminated for improper conduct that leads to a material adverse impact on the reputation of, or a material adverse economic consequence for, the company.

## Impact of Tax Considerations on Compensation

Internal Revenue Code Section 162(m) generally precludes Allstate from taking a tax deduction for compensation paid in excess of $1 million annually to certain current and former executive officers, including our CEO, CFO and the three other most highly compensated executives, unless the compensation is paid pursuant to certain “grandfathered” arrangements entered into prior to November 2, 2017. Prior to the passage of the Tax Cuts and Jobs Act of 2017 (the



“Tax Legislation”), we were able to deduct more than $1 million in compensation if the compensation was performance-based, was paid under a plan that met certain performance-based requirements and otherwise met certain requirements under Internal Revenue Code Section 162(m).

In determining compensation for our executive officers, the committee considers the extent to which the compensation is deductible, including the effect of Internal Revenue Code Section 162(m). In prior years, the committee generally sought to structure our executive incentive compensation so that it qualified as performance-based compensation under Section 162(m) where doing so was consistent with Allstate’s compensation objectives, but it reserved the right to award nondeductible compensation and on occasion did so. The committee continues to evaluate the changes to Internal Revenue Code Section 162(m) and their significance to Allstate’s compensation programs, but in any event its primary focus in its compensation decisions will remain on most productively furthering Allstate’s business objectives and not on whether the compensation is deductible.

## Earned Annual Cash Incentive Awards

In 2019, the total corporate pool was based on three measures: Total Premiums, Performance Net Income, and Net Investment Income. The 2019 annual incentive plan targets for each of the measures were above 2018 actual results. Total Premiums target was set above the prior year as it has been for at least the last decade. Performance Net Income target for 2019 was above 2018 reflecting top-line growth and margin maintenance. Net Investment Income target was set above 2018 driven by market-based income increases.

The 2020 annual incentive plan targets are not included since those targets do not relate to 2019 pay, and because target performance is set at the 2020 operating plan, which is proprietary information.

<table><tr><td rowspan="2">Measure</td><td colspan="4">2018</td><td colspan="4">2019</td></tr><tr><td>Target</td><td>Actual</td><td>Payout %</td><td>Target</td><td>Actual</td><td>Payout %</td><td>Target</td><td>Actual</td></tr><tr><td>Total Premiums (\( in millions)</td><td>36,100</td><td>37,451</td><td>200.0%</td><td>39,800</td><td>39,455</td><td>75.4%</td><td></td><td></td></tr><tr><td>Performance Net Income (\) in millions)</td><td>2,800</td><td>3,095</td><td>149.2%</td><td>3,150</td><td>3,571</td><td>164.8%</td><td></td><td></td></tr><tr><td>Net Investment Income ($ in millions)</td><td>3,100</td><td>3,240</td><td>162.2%</td><td>3,315</td><td>3,260</td><td>87.5%</td><td></td><td></td></tr><tr><td>Aggregate Payout Percentage for Named Executives</td><td>—</td><td>—</td><td>173.4%</td><td>—</td><td>—</td><td>117.5%</td><td></td><td></td></tr></table>

For a description of how the 2019 measures are determined, see pages 75-76. The ranges of performance and 2019 actual results are shown in the following table.

## 2019 ANNUAL CASH INCENTIVE AWARD RANGES OF PERFORMANCE

<table><tr><td rowspan="2">Measure</td><td rowspan="2">2018 Actual Results</td><td colspan="5">Increase/(Decrease)</td></tr><tr><td>Threshold</td><td>Target</td><td>Maximum</td><td>Actual Results</td><td>Versus 2018 Actual Results</td></tr><tr><td>Total Premiums (\( in millions)</td><td>37,451</td><td>39,100</td><td>39,800</td><td>40,200</td><td>39,455</td><td>2,004</td></tr><tr><td>Performance Net Income (\) in millions)</td><td>3,095</td><td>2,350</td><td>3,150</td><td>3,800</td><td>3,571</td><td>476</td></tr><tr><td>Net Investment Income (\( in millions)</td><td>3,240</td><td>3,095</td><td>3,315</td><td>3,535</td><td>3,260</td><td>20</td></tr><tr><td>Payout Percentages</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Named Executives(1)</td><td></td><td>50%(2)</td><td>100%</td><td>200%</td><td></td><td>117.5%</td></tr></table>

(1) Payout percentages reflect contribution to incentive compensation pool.

(2) Actual performance below threshold results in a 0% payout.

## Performance Stock Awards (“PSAs”)

For the last five PSA grants, the performance measures and levels of performance needed to earn the threshold, target and maximum number of PSAs, as well as actual results and payout percentages, are set forth in the table below. The total shareholder returns for Allstate and its peers are also shown for completed cycles.



## PERFORMANCE STOCK AWARDS RANGES OF PERFORMANCE

<table><tr><td>Performance Cycle \( ^{(1)} \)</td><td>Threshold</td><td>Target</td><td>Maximum</td><td>Actual Results</td><td>Payout Percentage</td><td colspan="2">Total Shareholder Return</td></tr><tr><td>Vested Awards</td><td></td><td></td><td></td><td></td><td></td><td>Allstate</td><td>Peers</td></tr><tr><td>2015-2017</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>- Performance Net Income ROE</td><td>6.0%</td><td>13.5%</td><td>14.5%</td><td>12.2%</td><td>82.7%</td><td>56.8%</td><td>40.0%</td></tr><tr><td>2016-2018</td><td></td><td></td><td></td><td></td><td>161.5%</td><td>40.7%</td><td>25.3%</td></tr><tr><td>- Performance Net Income ROE (70%)</td><td>6.0%</td><td>13.0%</td><td>14.0%</td><td>13.9%</td><td>190%</td><td></td><td></td></tr><tr><td>- Earned Book Value (30%)</td><td>6.0%</td><td>12.0%</td><td>15.0%</td><td>11.7%</td><td>95%</td><td></td><td></td></tr><tr><td>2017-2019</td><td></td><td></td><td></td><td></td><td>200%</td><td>60.4%</td><td>34.4%</td></tr><tr><td>- Performance Net Income ROE (70%)</td><td>6.0%</td><td>11.0%</td><td>13.0%</td><td>16.2%</td><td>200%</td><td></td><td></td></tr><tr><td>- Earned Book Value (30%)</td><td>6.0%</td><td>9.0%</td><td>11.0%</td><td>17.2%</td><td>200%</td><td></td><td></td></tr></table>

<table><tr><td>Performance Cycle \( ^{(1)} \)</td><td>Threshold</td><td>Target</td><td>Maximum</td><td>Actual Results</td><td>Payout Percentage</td></tr><tr><td>Outstanding Awards</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2018-2020</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>- Performance Net Income ROE (70%)</td><td>7.0%</td><td>13.5%</td><td>15.0%</td><td colspan="2">Two year results are above target for both measures \( ^{(2)} \)</td></tr><tr><td>- Earned Book Value (30%)</td><td>7.0%</td><td>12.5%</td><td>14.0%</td><td colspan="2"></td></tr><tr><td>2019-2021</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>- Performance Net Income ROE (70%)</td><td>7.0%</td><td>14.0%</td><td>16.0%</td><td colspan="2">One year results are above target for both measures \( ^{(2)} \)</td></tr><tr><td>- Earned Book Value (30%)</td><td>7.0%</td><td>12.0%</td><td>14.0%</td><td colspan="2"></td></tr><tr><td>Payout Percentages</td><td>0%</td><td>100%</td><td>200%</td><td colspan="2"></td></tr></table>

Subject to positive net income hurdle

For Performance Net Income ROE

For the performance cycles prior to 2016, Average Performance Net Income ROE was the performance measure. In 2016, Earned Book Value was added as a second performance measure.

(2) Payouts under the PSAs are based on performance over the three-year period, and actual results will not be known until the end of the performance period.

The following table shows the target number of PSAs granted to each of our named executives for the 2017-2019, 2018-2020, and 2019-2021 performance cycles.

## PERFORMANCE CYCLE \( ^{(1)} \) 

<table><tr><td rowspan="2">Named Executive</td><td colspan="3">Target Number of PSAs for</td></tr><tr><td>2017-2019 Performance Cycle</td><td>2018-2020 Performance Cycle</td><td>2019-2021 Performance Cycle</td></tr><tr><td>Mr. Wilson</td><td>68,922</td><td>62,635</td><td>65,380</td></tr><tr><td>Mr. Rizzo</td><td>2,929</td><td>13,578</td><td>13,628</td></tr><tr><td>Mr. Civgin</td><td>17,920</td><td>15,517</td><td>15,964</td></tr><tr><td>Mr. Shapiro</td><td>11,966</td><td>15,760</td><td>15,818</td></tr><tr><td>Mr. Shebik</td><td>25,463</td><td>19,235</td><td>19,306</td></tr></table>

(1) The actual number of PSAs that will vest will vary from 0% to 200% of the target PSAs based on Average Performance Net Income ROE and Earned Book Value for the measurement period. The number of PSAs that vest will be determined in 2020, 2021, and 2022 respectively.

## Compensation Committee Report

The committee has reviewed and discussed with management the Compensation Discussion and Analysis contained on pages 42-61 of this proxy statement. 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

Michael D. D. D. D.

Mugure M. D. D. D.

MICHAEL L. ESKEW (CHAIR)

MARGARET M. KEANE

Culkin Reborn

ANDREA REDMOND

Perry M. Taplin

PERRY M. TRAQUINA



## Summary Compensation Table

The following table summarizes the compensation of the named executives for the last three fiscal years. However, for Messrs. Rizzo and Shapiro, only the last two fiscal years are shown since this is their second year as a named executive. The titles and responsibilities for certain of the officers listed below changed in 2020. See Appendix C for a complete list of current titles.

<table><tr><td>Name and Principal Position</td><td>Year</td><td>Salary (\()</td><td>Bonus (\))</td><td>Stock Awards (\)) (1)</td><td>Option Awards (\)) (2)</td><td>Non-Equity Incentive Plan Compensation (\))</td><td>Change in Pension Value and Non-qualified Deferred Compensation Earnings (\)) (3)</td><td>All Other Compensation (\)) (4)</td><td>Total (\))</td><td>Total Without Change in Pension Value (\)) (5)</td></tr><tr><td>Thomas J. Wilson</td><td>2019</td><td>1,340,385</td><td>—</td><td>6,045,035</td><td>4,030,005</td><td>4,730,100</td><td>3,354,557</td><td>115,614</td><td>19,615,696</td><td>16,261,139</td></tr><tr><td>Chair, President, and Chief Executive Officer</td><td>2018</td><td>1,290,385</td><td>—</td><td>5,812,528</td><td>3,874,998</td><td>6,719,194</td><td>873,170</td><td>116,971</td><td>18,687,246</td><td>17,814,076</td></tr><tr><td></td><td>2017</td><td>1,241,346</td><td>—</td><td>5,400,039</td><td>3,599,997</td><td>6,759,264</td><td>1,688,142</td><td>68,541</td><td>18,757,329</td><td>17,069,187</td></tr><tr><td>Mario Rizzo</td><td>2019</td><td>716,154</td><td>—</td><td>1,260,045</td><td>840,002</td><td>1,053,000</td><td>531,414</td><td>25,530</td><td>4,426,145</td><td>3,894,731</td></tr><tr><td>Executive Vice President and Chief Financial Officer</td><td>2018</td><td>690,577</td><td>—</td><td>1,260,038</td><td>840,004</td><td>1,510,788</td><td>—</td><td>25,391</td><td>4,326,798</td><td>4,326,798</td></tr><tr><td>Don Civgin</td><td>2019</td><td>836,154</td><td>—</td><td>1,476,031</td><td>983,993</td><td>1,400,000</td><td>111,961</td><td>33,101</td><td>4,841,240</td><td>4,729,279</td></tr><tr><td>President, Service Businesses</td><td>2018</td><td>816,154</td><td>—</td><td>1,439,978</td><td>960,000</td><td>1,900,000</td><td>80,984</td><td>37,580</td><td>5,234,696</td><td>5,153,712</td></tr><tr><td></td><td>2017</td><td>796,538</td><td>—</td><td>1,404,032</td><td>935,996</td><td>1,806,645</td><td>83,779</td><td>27,730</td><td>5,054,720</td><td>4,970,941</td></tr><tr><td>Glenn T. Shapiro</td><td>2019</td><td>774,231</td><td>—</td><td>1,462,532</td><td>974,999</td><td>1,366,000</td><td>77,506</td><td>35,281</td><td>4,690,549</td><td>4,613,043</td></tr><tr><td>President, Allstate Personal Lines</td><td>2018</td><td>743,942</td><td>—</td><td>1,462,528</td><td>974,995</td><td>2,050,000</td><td>46,564</td><td>38,270</td><td>5,316,299</td><td>5,269,735</td></tr><tr><td>Steven E. Shebik</td><td>2019</td><td>866,154</td><td>—</td><td>1,785,033</td><td>1,190,001</td><td>2,037,000</td><td>1,063,345</td><td>37,415</td><td>6,978,948</td><td>5,915,603</td></tr><tr><td>Vice Chair</td><td>2018</td><td>848,654</td><td>—</td><td>1,785,008</td><td>1,190,005</td><td>2,945,289</td><td>351,319</td><td>37,560</td><td>7,157,835</td><td>6,806,516</td></tr><tr><td></td><td>2017</td><td>795,673</td><td>—</td><td>1,995,026</td><td>1,329,994</td><td>2,600,000</td><td>512,201</td><td>38,398</td><td>7,271,292</td><td>6,759,091</td></tr></table>

The aggregate grant date fair value of PSAs granted in 2019, 2018, and 2017, is computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 718 (ASC 718). The fair value of PSAs is based on the final closing price of Allstate's common stock on the grant date, which in part reflects the payment of expected future dividends. (See note 18 to our audited financial statements for 2019.) This amount reflects an accounting expense and does not correspond to actual value that will be realized by the named executives. The value of PSAs assumes target-level performance, which is the probable achievement level of the performance conditions. The number of PSAs granted in 2019 to each named executive is provided in the Grants of Plan-Based Awards table on page 64. The value of the PSAs granted in 2019 at grant date fair value share price if maximum corporate performance were to be achieved is as follows: Mr. Wilson $12,090,070, Mr. Rizzo $2,520,090, Mr. Civgin $2,952,062, Mr. Shapiro $2,925,064, and Mr. Shebik $3,570,066.

(2) The aggregate grant date fair value of option awards is computed in accordance with FASB ASC 718. The fair value of each option award is estimated on the grant date using a binomial lattice model and the assumptions (see note 18 to our audited financial statements for 2019) as set forth in the following table:

<table><tr><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Weighted average expected term</td><td>5.8 years</td><td>5.7 years</td><td>6.1 years</td></tr><tr><td>Expected volatility</td><td>15.6 - 28.9%</td><td>15.6-30.7%</td><td>15.7-32.7%</td></tr><tr><td>Weighted average volatility</td><td>18.4%</td><td>19.8%</td><td>21.0%</td></tr><tr><td>Expected dividends</td><td>1.9 - 2.2%</td><td>1.5-2.2%</td><td>1.4-1.9%</td></tr><tr><td>Weighted average expected dividends</td><td>2.2%</td><td>2.0%</td><td>1.9%</td></tr><tr><td>Risk-free rate</td><td>1.3 - 2.7%</td><td>1.3-3.2%</td><td>0.5-2.5%</td></tr></table>

This amount reflects an accounting expense and does not correspond to actual value that will be realized by the named executives. The number of options granted in 2019 to each named executive is provided in the Grants of Plan-Based Awards table on page 64.

(3) Amounts reflect the aggregate increase in actuarial value of the pension benefits as set forth in the Pension Benefits table, accrued during 2019, 2018, and 2017. These are benefits under the Allstate Retirement Plan (ARP) and the Supplemental Retirement Income Plan (SRIP). 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 17 to our audited financial statements for 2019.)



The following table reflects the respective change in the actuarial value of the benefits provided to the named executives in 2019:

<table><tr><td>Name</td><td>ARP (\()</td><td>SRIP (\))</td></tr><tr><td>Mr. Wilson</td><td>230,185</td><td>3,124,372</td></tr><tr><td>Mr. Rizzo</td><td>293,521</td><td>237,893</td></tr><tr><td>Mr. Civgin</td><td>11,766</td><td>100,195</td></tr><tr><td>Mr. Shapiro</td><td>7,676</td><td>69,830</td></tr><tr><td>Mr. Shebik</td><td>257,725</td><td>805,620</td></tr></table>

Interest rates and other assumptions can have a significant impact on the change in pension value from one year to another. Effective January 1, 2014, Allstate modified its pension plans so that all eligible employees earn future pension benefits under a new cash balance formula. Had these pension benefit changes not been made, the change in actuarial value of benefits provided for each named executive in 2019 would have been as indicated in the following table under the prior formula:

<table><tr><td>Name</td><td>ARP ($)</td><td>SRIP ($)</td></tr><tr><td>Mr. Wilson</td><td>391,648</td><td>8,195,450</td></tr><tr><td>Mr. Rizzo</td><td>371,831</td><td>2,363,968</td></tr><tr><td>Mr. Civgin</td><td>11,643</td><td>99,401</td></tr><tr><td>Mr. Shapiro</td><td>6,955</td><td>63,402</td></tr><tr><td>Mr. Shebik</td><td>327,557</td><td>4,033,369</td></tr></table>

(4) The following table describes the incremental cost of other benefits provided in 2019 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>71,704</td><td>11,200</td><td>32,710</td><td>115,614</td></tr><tr><td>Mr. Rizzo</td><td>0</td><td>11,200</td><td>14,330</td><td>25,530</td></tr><tr><td>Mr. Civgin</td><td>0</td><td>11,200</td><td>21,901</td><td>33,101</td></tr><tr><td>Mr. Shapiro</td><td>0</td><td>11,200</td><td>24,081</td><td>35,281</td></tr><tr><td>Mr. Shebik</td><td>0</td><td>11,200</td><td>26,215</td><td>37,415</td></tr></table>

(1) The amount reported for personal use of aircraft is based on the incremental cost method, which is calculated based on Allstate's average variable costs per flight hour. Variable 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 2019. The amount shown is the amount allocated to their accounts as employer matching contributions.

(3) “Other” consists of personal benefits and perquisites related to mobile devices, tax preparation services, financial planning, ground transportation, executive physical related items and supplemental long-term disability coverage. There was no incremental cost for the use of mobile devices. We provide supplemental long-term disability coverage to all regular full- and part-time employees who participate in the long-term disability plan and whose annual earnings exceed the level that produces the maximum monthly benefit provided by the long-term disability plan. This coverage is self-insured (funded and paid for by Allstate when obligations are incurred). No obligations for the named executives were incurred in 2019, and therefore, no incremental cost is reflected in the table.

(5) We have included an additional column to show total compensation minus the change in pension value. The amounts reported in this column may differ substantially from, and are not a substitute for, the amounts reported in the “Total” column required under SEC rules. The change in pension value is subject to several external variables, including interest rates, that are not related to company or individual performance and may differ significantly based on the formula under which the benefits were earned.



## Grants of Plan-Based Awards at Fiscal Year-end 2019

The following table provides information about awards granted to our named executives during fiscal year 2019.

<table><tr><td>Name</td><td>Grant Date</td><td>Plan Awards \( ^{(1)} \)</td><td>Threshold ( \( )</td><td>Target (\) )</td><td>Maximum (\( )</td><td>Estimated Future Payouts Under Equity Incentive Plan Awards \( ^{(3)} \)</td><td>Estimated Future Payouts Under Equity Incentive Plan Awards \( ^{(3)} \)</td><td>All Other Option Awards: Number of Securities Underlying Options (#)</td><td>Exercise or Base Price of Option Awards (\)/Sh) \( ^{(4)} \)</td><td>Grant Date Fair Value (\)/\()</td><td>Stock Awards</td><td>Option Awards</td></tr><tr><td>Mr. Wilson</td><td>—</td><td>Annual cash incentive</td><td>2,012,466</td><td>4,024,932</td><td>16,099,728</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>02/08/2019</td><td>PSAs</td><td></td><td></td><td></td><td>0</td><td>65,380</td><td>130,760</td><td></td><td></td><td>6,045,035</td><td></td></tr><tr><td></td><td>02/08/2019</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td>269,746</td><td>92.46</td><td></td><td>4,030,005</td></tr><tr><td>Mr. Rizzo</td><td>—</td><td>Annual cash incentive</td><td>447,911</td><td>895,822</td><td>3,583,288</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>02/08/2019</td><td>PSAs</td><td></td><td></td><td></td><td>0</td><td>13,628</td><td>27,256</td><td></td><td></td><td>1,260,045</td><td></td></tr><tr><td></td><td>02/08/2019</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td>56,225</td><td>92.46</td><td></td><td>840,002</td></tr><tr><td>Mr. Civgin</td><td></td><td>Annual cash incentive</td><td>522,911</td><td>1,045,822</td><td>4,183,288</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>02/08/2019</td><td>PSAs</td><td></td><td></td><td></td><td>0</td><td>15,964</td><td>31,928</td><td></td><td></td><td>1,476,031</td><td></td></tr><tr><td></td><td>02/08/2019</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td>65,863</td><td>92.46</td><td></td><td>983,993</td></tr><tr><td>Mr. Shapiro</td><td>—</td><td>Annual cash incentive</td><td>581,240</td><td>1,162,480</td><td>4,649,918</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>02/08/2019</td><td>PSAs</td><td></td><td></td><td></td><td>0</td><td>15,818</td><td>31,636</td><td></td><td></td><td>1,462,532</td><td></td></tr><tr><td></td><td>02/08/2019</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td>65,261</td><td>92.46</td><td></td><td>974,999</td></tr><tr><td>Mr. Shebik</td><td>—</td><td>Annual cash incentive</td><td>866,658</td><td>1,733,315</td><td>6,933,261</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>02/08/2019</td><td>PSAs</td><td></td><td></td><td></td><td>0</td><td>19,306</td><td>38,612</td><td></td><td></td><td>1,785,033</td><td></td></tr><tr><td></td><td>02/08/2019</td><td>Stock options</td><td></td><td></td><td></td><td></td><td></td><td></td><td>79,652</td><td>92.46</td><td></td><td>1,190,001</td></tr></table>

(1) Awards under the Annual Executive Incentive Plan and the 2019 Equity Incentive Plan. An explanation of the amount of salary and bonus in proportion to total compensation can be found under the Compensation Elements and Compensation Decisions for 2019 captions on pages 48-52.

(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 50% of target, as the minimum amount payable (subject to individual performance) if threshold performance is achieved. If the threshold is not achieved, the payment to the named executives would be zero. The target amount is based upon achievement of the performance measures listed under the Earned Annual Cash Incentive Awards caption on page 60. The maximum amount is equal to 200% of target plus an additional individual performance factor of 200% of plan funding to recognize extraordinary performance. In 2019, one named executive received positive discretion for a cash incentive award greater than the pool payout percentage as calculated at 117.5%. For a description of the ranges of performance established by the committee for the 2019 annual incentive, see page 60.

(3) The amounts shown in these columns reflect the threshold, target, and maximum PSAs for the named executives. The threshold amount for each named executive is 0% payout. The target and maximum amounts are based upon achievement of the performance measures listed under the Performance Stock Awards caption on pages 60-61.

(4) The exercise price of each option is equal to the closing sale price on the NYSE on the grant date or, if there was no such sale on the grant date, then on the last previous day on which there was a sale.

(5) The aggregate grant date fair value of the PSAs was $92.46 and for stock option awards was $14.94, computed in accordance with FASB ASC 718 based on the probable satisfaction of the performance conditions. The assumptions used in the valuation are discussed in footnotes 1 and 2 to the Summary Compensation Table on page 62.



## Performance Stock Awards (“PSAs”)

PSAs represent our promise to transfer shares of common stock in the future if certain performance measures are met. For the awards granted in 2019, the actual number of PSAs that vest will vary from 0% to 200% of target PSAs based on Average Performance Net Income ROE (70%) and Earned Book Value (30%) results for a three-year measurement period. For a definition of how those measures are calculated, see page 77. Vested PSAs will be converted into shares of Allstate common stock and dividend equivalents accrued on these shares will be paid in cash. No dividend equivalents will be paid prior to vesting. PSAs will vest following the end of the three-year performance cycle if the performance conditions are met, subject to continued employment (other than in the event of death, disability, retirement, or a qualifying termination following a change in control).

## Stock Options

Stock options represent an opportunity to buy shares of Allstate common stock at a fixed exercise price at a future date. Stock options align the interests of executives with long-term stockholder value since the stock price must appreciate from the grant date for the executives to earn compensation.

Under our stockholder-approved equity incentive plan, the exercise price cannot be less than the closing price of a share on the grant date. Stock option repricing is not permitted.

All stock option awards have been made in the form of non-qualified stock options. The options granted to the named executives become exercisable over three years. One-third of the stock options become exercisable on the anniversary of the grant date for each of the three years subject to continued employment through each anniversary date, except in the event of retirement, change in control, death or disability. All of the options expire ten years from the grant date, unless an earlier date has been approved by the committee in connection with certain change-in-control situations or other special circumstances such as termination, death, or disability.



## Outstanding Equity Awards at Fiscal Year-end 2019

The following table summarizes the outstanding equity awards of the named executives as of December 31, 2019.

<table><tr><td rowspan="2">Name</td><td colspan="5">Option Awards(1)</td><td colspan="5">Stock Awards</td></tr><tr><td>Option Grant Date</td><td>Number of Securities Underlying Unexercised Options (#) Exercisable(2)</td><td>Number of Securities Underlying Unexercised Options (#) Unexercisable(2)</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 (#)(3)</td><td>Market Value of Shares or Units of Stock That Have Not Vested (#)(4)</td><td>Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights that Have Not Vested (#)(5)</td><td>Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights that Have Not Vested (#)(4)</td></tr><tr><td rowspan="8">Mr. Wilson</td><td>02/22/2011</td><td>447,808</td><td>0</td><td>31.74</td><td>02/22/2021</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/21/2012</td><td>444,060</td><td>0</td><td>31.56</td><td>02/21/2022</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/12/2013</td><td>363,409</td><td>0</td><td>45.61</td><td>02/12/2023</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/18/2014</td><td>309,237</td><td>0</td><td>52.18</td><td>02/18/2024</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/18/2015</td><td>294,494</td><td>0</td><td>70.71</td><td>02/18/2025</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/11/2016</td><td>295,324</td><td>0</td><td>62.32</td><td>02/11/2026</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/09/2017</td><td>165,631</td><td>82,816</td><td>78.35</td><td>02/09/2027</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/22/2018</td><td>75,802</td><td>151,604</td><td>92.80</td><td>02/22/2028</td><td></td><td>02/09/2017</td><td>137,844</td><td>15,500,558</td><td></td></tr><tr><td rowspan="6">Mr. Rizzo</td><td>02/08/2019</td><td>0</td><td>269,746</td><td>92.46</td><td>02/08/2029</td><td></td><td>02/22/2018</td><td></td><td>125,270</td><td>14,086,612</td></tr><tr><td>02/22/2011</td><td>10,804</td><td>0</td><td>31.74</td><td>02/22/2021</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/21/2012</td><td>12,763</td><td>0</td><td>31.56</td><td>02/21/2022</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/18/2015</td><td>5,202</td><td>0</td><td>70.71</td><td>02/18/2025</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/11/2016</td><td>9,887</td><td>0</td><td>62.32</td><td>02/11/2026</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/09/2017</td><td>7,039</td><td>3,520</td><td>78.35</td><td>02/09/2027</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td rowspan="4">Mr. Civgin</td><td>02/22/2018</td><td>16,432</td><td>32,864</td><td>92.80</td><td>02/22/2028</td><td></td><td>02/09/2017</td><td>5,858</td><td>658,732</td><td></td></tr><tr><td>02/08/2019</td><td>0</td><td>56,225</td><td>92.46</td><td>02/08/2029</td><td></td><td>02/22/2018</td><td></td><td>27,156</td><td>3,053,692</td></tr><tr><td>02/09/2017</td><td>43,064</td><td>21,532</td><td>78.35</td><td>02/09/2027</td><td></td><td>02/08/2019</td><td></td><td>27,256</td><td>3,064,937</td></tr><tr><td>02/22/2018</td><td>18,779</td><td>37,559</td><td>92.80</td><td>02/22/2028</td><td></td><td>02/09/2017</td><td>35,840</td><td>4,030,208</td><td></td></tr><tr><td rowspan="4">Mr. Shapiro</td><td>02/08/2019</td><td>0</td><td>65,863</td><td>92.46</td><td>02/08/2029</td><td></td><td>02/22/2018</td><td></td><td>31,034</td><td>3,489,773</td></tr><tr><td>02/09/2017</td><td>0</td><td>14,378</td><td>78.35</td><td>02/09/2027</td><td></td><td>02/08/2019</td><td></td><td>31,928</td><td>3,590,304</td></tr><tr><td>02/22/2018</td><td>19,072</td><td>38,146</td><td>92.80</td><td>02/22/2028</td><td></td><td>02/09/2017</td><td>23,932</td><td>2,691,153</td><td></td></tr><tr><td>02/08/2019</td><td>0</td><td>65,261</td><td>92.46</td><td>02/08/2029</td><td></td><td>02/22/2018</td><td></td><td>31,520</td><td>3,544,424</td></tr><tr><td rowspan="7">Mr. Shebik</td><td>02/12/2013</td><td>75,188</td><td>0</td><td>45.61</td><td>02/12/2023</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/18/2014</td><td>72,289</td><td>0</td><td>52.18</td><td>02/18/2024</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/18/2015</td><td>72,023</td><td>0</td><td>70.71</td><td>02/18/2025</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/11/2016</td><td>90,238</td><td>0</td><td>62.32</td><td>02/11/2026</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>02/09/2017</td><td>61,191</td><td>30,596</td><td>78.35</td><td>02/09/2027</td><td></td><td>02/09/2017</td><td>50,926</td><td>5,726,629</td><td></td></tr><tr><td>02/22/2018</td><td>23,278</td><td>46,558</td><td>92.80</td><td>02/22/2028</td><td></td><td>02/22/2018</td><td></td><td>38,470</td><td>4,325,952</td></tr><tr><td>02/08/2019</td><td>0</td><td>79,652</td><td>92.46</td><td>02/08/2029</td><td></td><td>02/08/2019</td><td></td><td>38,612</td><td>4,341,919</td></tr></table>

(1) The options vest over three years: one-third will become exercisable on the anniversary of the grant date for each of the three years. The exercise price of each option is equal to the closing price of Allstate's common stock on the grant date.

(2) The aggregate value and aggregate number of exercisable and unexercisable in-the-money options as of December 31, 2019, for each of the named executives are as follows:



<table><tr><td rowspan="2">Name</td><td colspan="2">Exercisable</td><td colspan="2">Unexercisable</td></tr><tr><td>Aggregate Number (#)</td><td>Aggregate Value ($)</td><td>Aggregate Number (#)</td><td>Aggregate Value ($)</td></tr><tr><td>Mr. Wilson</td><td>2,395,765</td><td>149,224,867</td><td>504,166</td><td>11,195,267</td></tr><tr><td>Mr. Rizzo</td><td>62,127</td><td>3,180,075</td><td>92,609</td><td>1,889,747</td></tr><tr><td>Mr. Civgin</td><td>61,843</td><td>1,837,490</td><td>124,954</td><td>2,788,877</td></tr><tr><td>Mr. Shapiro</td><td>19,072</td><td>374,765</td><td>117,785</td><td>2,544,426</td></tr><tr><td>Mr. Shebik</td><td>394,207</td><td>19,456,321</td><td>156,806</td><td>3,550,432</td></tr></table>

(3) The PSAs vested in one installment on the day before the third anniversary of the grant date, February 8, 2020.

(4) Amount is based on the closing price of our common stock of $112.45 on December 31, 2019.

(5) The PSAs vest in one installment on the day before the third anniversary of the grant date. The number of shares that ultimately vest may range from 0 to 200% of the target depending on actual performance during the three-year performance period. For a description of the PSA program and the performance measures used, see pages 55-56 and 60-61. The number of PSAs reflected in this column for the 2018 and 2019 awards is the number of shares that would vest if the maximum level of performance is achieved. Final payouts under the PSAs will not be known until the respective performance period is completed.

## Option Exercises and Stock Vested During 2019

The following table summarizes the options exercised by the named executives during 2019 and the PSAs or restricted stock units that vested during 2019.

<table><tr><td rowspan="2">Name</td><td colspan="2">Option Awards</td><td colspan="2">Stock Awards</td></tr><tr><td>Number of Shares Acquired on Exercise (#)</td><td>Value Realized on Exercise ($) \( ^{(1)} \)</td><td>Number of Shares Acquired on Vesting (#)</td><td>Value Realized on Vesting ($)</td></tr><tr><td>Mr. Wilson</td><td>0</td><td>0</td><td>139,940</td><td>12,938,852</td></tr><tr><td>Mr. Rizzo</td><td>0</td><td>0</td><td>4,685</td><td>433,175</td></tr><tr><td>Mr. Civgin</td><td>261,396</td><td>11,571,090</td><td>37,318</td><td>3,450,422</td></tr><tr><td>Mr. Shapiro</td><td>26,647</td><td>781,333</td><td>9,176</td><td>881,538</td></tr><tr><td>Mr. Shebik</td><td>61,460</td><td>4,447,684</td><td>42,759</td><td>3,953,497</td></tr></table>

(1) The dollar amount realized upon exercise of the option is determined based on the difference between the market price of the underlying securities at exercise and the exercise price of the options.



## Retirement Benefits

The following table provides information about the pension plans in which the named executives participate. Each of the named executives participates in the Allstate Retirement Plan (ARP) and the Supplemental Retirement Income Plan (SRIP).

## PENSION BENEFITS

<table><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>ARP</td><td>26.8</td><td>1,411,440</td><td>0</td></tr><tr><td>SRIP</td><td>26.8</td><td>20,000,199</td><td>0</td></tr><tr><td rowspan="2">Mr. Rizzo</td><td>ARP</td><td>30.9</td><td>1,272,535</td><td>0</td></tr><tr><td>SRIP</td><td>30.9</td><td>851,524</td><td>0</td></tr><tr><td rowspan="2">Mr. Civgin</td><td>ARP</td><td>11.3</td><td>98,002</td><td>0</td></tr><tr><td>SRIP</td><td>11.3</td><td>624,700</td><td>0</td></tr><tr><td rowspan="2">Mr. Shapiro</td><td>ARP</td><td>3.8</td><td>23,387</td><td>0</td></tr><tr><td>SRIP</td><td>3.8</td><td>139,168</td><td>0</td></tr><tr><td rowspan="2">Mr. Shebik</td><td>ARP</td><td>31.2</td><td>1,695,144</td><td>0</td></tr><tr><td>SRIP</td><td>31.2</td><td>5,174,518</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 be known only at the time they become eligible for payment. The present value of the accumulated benefit was determined using the same measurement date (December 31, 2019) and material assumptions that we use for year-end financial reporting purposes, except that we made no assumptions for early termination, disability, or pre-retirement mortality. Other assumptions include the following:

▶ Retirement at the normal retirement age as defined in the plans (age 65).

▶ Discount rate of 3.33%.

Other assumptions for the final average pay formula include the following:

ARP benefits are assumed to be paid 80% as a lump sum, 10% as a life annuity, and 10% as a joint and survivor annuity.

ARP and SRIP benefits are converted to a lump sum. For participants assumed to commence their benefits in 2020, the assumed lump-sum conversion interest rates are based on 100% of the average corporate bond segmented yield curve from August 2019. Specifically, the rates are 2.09% for the first 5 years, 3.00% for the next 15 years, and 3.61% thereafter. For participants assumed to commence their benefits after 2020, the assumed lump sum conversion interest rate is assumed to be equal to the discount rate of 3.33%.

Lump-sum calculations were performed using the Internal Revenue Code Section 417(e)(3) mortality table with a static projection to each future year using the MP-2019 projection table.

Annuity calculations were performed using the Pri-2012 white-collar mortality table for healthy retirees projected generationally from 2012 with the MP-2019 projection scale.

Other assumptions for the cash balance formula include the following:

ARP benefits are assumed to be paid as a lump sum.

SRIP benefits are paid as a lump sum.

Accounts were projected to retirement using the actual interest rate for ARP and SRIP for 2020, specifically the average 30-year Treasury rate from August 2019 of 2.12%. After 2020, accounts are projected using the spot 30-year Treasury rate as of December 31, 2019 of 2.39%.

See note 17 to our audited financial statements for 2019 for additional information.

(2) The following table shows the lump-sum present value of the non-qualified pension benefits for each named executive earned through December 31, 2019, if the named executive's employment terminated on that date.

<table><tr><td>Name</td><td>Plan Name</td><td>Lump Sum Amount (\))</td></tr><tr><td>Mr. Wilson</td><td>SRIP</td><td>20,177,274</td></tr><tr><td>Mr. Rizzo</td><td>SRIP</td><td>790,685</td></tr><tr><td>Mr. Civgin</td><td>SRIP</td><td>664,179</td></tr><tr><td>Mr. Shapiro</td><td>SRIP</td><td>154,410</td></tr><tr><td>Mr. Shebik</td><td>SRIP</td><td>5,288,921</td></tr></table>

The amount shown is based on the lump-sum methodology used by ARP and SRIP in 2020. The lump-sum conversion interest rates are based on 100% of the average corporate bond segmented yield curve from August 2019. Specifically, the rates are 2.09% for the first 5 years, 3.00% for the next 15 years, and 3.61% thereafter. The mortality table used for 2020 is the 2020 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females.



## Allstate Retirement Plan (ARP)

Contributions to the ARP are made entirely by Allstate and are paid into a trust fund from which benefits are paid. Before January 1, 2014, ARP participants earned benefits under one of two formulas (final average pay or cash balance) based on their date of hire or their choice at the time Allstate introduced the cash balance formula. In order to better align our pension benefits with market practices, provide future pension benefits more equitably to Allstate employees, and reduce costs, final average pay benefits were frozen as of December 31, 2013. As of January 1, 2014, all eligible participants earn benefits under a cash balance formula only.

## Final Average Pay Formula — Frozen as of 12/31/13

Benefits under the final average pay formula were earned and are stated in the form of a straight life annuity payable at the normal retirement age of 65. Messrs. Rizzo, Shebik and Wilson have earned final average pay benefits equal to the sum of a Base Benefit and an Additional Benefit. The Base Benefit equals 1.55% of the participant's average annual compensation, multiplied by credited service after 1988 through 2013. The Additional Benefit equals 0.65% of the amount of the participant's average annual compensation that exceeds the participant's covered compensation, multiplied by credited service after 1988 through 2013. Covered compensation is 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. Messrs. Rizzo, Shebik and Wilson are eligible for a reduced early retirement benefit that would reduce their Base Benefit by 4.8% for each year of early payment before age 65 and their Additional Benefit by 8% for each year of early payment from age 62 to age 65 and 4% for each year of early payment from age 55 to age 62, prorated on a monthly basis based on age at the date payments begin.

## Cash Balance Formula — For All Participants Beginning 1/1/14

All named executives earned benefits under the cash balance formula in 2019. Under this formula, participants receive pay credits while employed at Allstate, based on a percentage of eligible annual compensation and years of service, plus interest credits. Pay credits are allocated to a hypothetical account in an amount equal to 3% to 5% of eligible annual compensation, depending on years of vesting service. Interest credits are allocated to the hypothetical account based on the interest crediting rate in effect for that plan year as published by the Internal Revenue Service. The interest crediting rate is set annually and is currently based on the average yield for 30-year U.S. Treasury securities for August of the prior year.

## 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(s) specified above if Internal Revenue Code limits did not apply, then (2) reduce the amount described in (1) by the amount actually payable under the applicable ARP formula(s). The normal retirement date under the SRIP is age 65. If eligible for early retirement under the ARP, the employee also is eligible for early retirement under the SRIP. SRIP benefits are not funded and are paid out of Allstate’s general assets.

## Credited Service

No additional service credit beyond service with Allstate or its predecessors is granted under the ARP or the SRIP to any of the named executives. Messrs. Shebik and Wilson have combined service with Allstate and its former parent company, Sears, Roebuck and Co., of 31.2 and 26.8 years, respectively. As a result, a portion of their retirement benefits will be paid from the Sears pension plan. Consistent with the pension benefits of other employees with Sears service who were employed by Allstate at the time of the spin-off from Sears in 1995, Messrs. Shebik's and Wilson's final average pay pension benefits under the ARP and the SRIP are calculated as if each had worked his combined Sears-Allstate career with Allstate through December 31, 2013, and then are reduced by amounts earned under the Sears pension plan.



## Eligible Compensation

Under both the ARP and SRIP, eligible compensation consists of salary, annual cash incentive awards, and certain other forms of compensation, but does not include long-term cash incentive awards or income related to equity awards. 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 through 2013.

## Payment Options

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 assumptions as required under the Internal Revenue Code. The lump-sum payment under the cash balance benefit is generally equal to a participant's 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

Eligible employees are vested in the normal ARP and SRIP retirement benefits on the earlier of the completion of three years of service or upon reaching age 65.

Final average pay benefits are payable at age 65. A participant with final average pay benefits may be entitled to a reduced early retirement benefit on or after age 55 if he or she terminates employment after completing 20 or more years of vesting 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.

The following SRIP payment dates assume a retirement or termination date of December 31, 2019:

Messrs. Shebik’s and Wilson’s SRIP benefits earned prior to 2005 would become payable as early as January 1, 2020. Benefits earned after 2004 would be paid on July 1, 2020, or following death.

Messrs. Rizzo’s and Shapiro’s SRIP benefits would be paid on January 1, 2022, or following death.

Mr. Civgin’s SRIP benefits would be paid on July 1, 2020, or following death.

## Non-Qualified Deferred Compensation at Fiscal Year-End 2019

The following table summarizes the non-qualified deferred compensation contributions, earnings, and account balances of our named executives in 2019. All amounts relate to The Allstate Corporation Deferred Compensation Plan.

<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 in Last FY ($)</td><td>Aggregate Balance at Last FYE ($) \( ^{(2)} \)</td></tr><tr><td>Mr. Wilson</td><td>0</td><td>0</td><td>269,254</td><td>0</td><td>1,230,045</td></tr><tr><td>Mr. Rizzo</td><td>464,928</td><td>0</td><td>67,465</td><td>0</td><td>774,528</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. Shapiro</td><td>504,000</td><td>0</td><td>41,553</td><td>0</td><td>1,917,261</td></tr><tr><td>Mr. Shebik</td><td>0</td><td>0</td><td>42,701</td><td>0</td><td>208,622</td></tr></table>

(1) Aggregate earnings were not included in the named executive’s compensation in the last completed fiscal year in the Summary Compensation Table.

(2) There are no amounts reported in the Aggregate Balance at Last FYE column that previously were reported as compensation in the Summary Compensation Table.



In order to remain competitive with other employers, we allow the named executives and other employees whose annual compensation exceeds the amount specified in the Internal Revenue Code ($280,000 in 2019), to defer under the Deferred Compensation Plan up to 80% of their salary and/or up to 100% of their annual cash incentive award that exceeds the Internal Revenue Code limit. Allstate does not match participant deferrals and does not guarantee a stated rate of return.

Deferrals under the Deferred Compensation Plan are credited with earnings or debited for losses based on the results of the notional investment option or options selected by the participants. The notional investment options available in 2019 under the Deferred Compensation Plan are: stable value, S&P 500, international equity, Russell 2000, mid-cap, and bond funds. Under the Deferred Compensation Plan, deferrals are not actually invested in these funds, but instead are credited with earnings or debited for losses based on the funds' investment returns. Because the rate of return is based on actual investment measures in our 401(k) plan, no above-market earnings are credited, recorded, or paid. Our Deferred Compensation Plan and 401(k) plan allow participants to change their investment elections daily, subject to certain trading restrictions.

The Deferred Compensation Plan is unfunded. This means that Allstate does not set aside funds for the plan in a trust or otherwise. Participants have only the rights of general unsecured creditors and may lose their balances in the event of the company’s bankruptcy. Account balances are 100% vested at all times.

An irrevocable distribution election is required before making any deferrals into the Deferred Compensation Plan. Generally, a named executive may elect to begin receiving a distribution of his or her account balance immediately upon separation from service or in one of the first through fifth years after separation from service or, for amounts deferred on or after January 1, 2019, in the fifth year after separation from service. The earliest distribution date for deferrals made on or after January 1, 2005, and earnings and losses on these amounts, is six months following separation from service. The named executive may elect to receive payment in a lump sum or in annual cash installment payments over a period of two to ten years, or, for amounts deferred on or after January 1, 2019, over a period of up to five years. In addition, a named executive may elect an in-service withdrawal of his or her entire balance earned and vested prior to January 1, 2005, and earnings and losses on these amounts, subject to forfeiture of 10% of such balance. A named executive may also elect an in-service withdrawal of all or a portion of the deferrals he or she made on or after January 1, 2019, together with earnings and losses on those amounts. Upon proof of an unforeseen 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 (“CIC”)

The following table lists the compensation and benefits that Allstate would generally provide to the named executives in various scenarios involving a termination of employment, other than compensation and benefits generally available to salaried employees. The table describes equity granting practices for the 2019 equity incentive awards. Relevant prior practices are described in the footnotes.

<table><tr><td rowspan="2">Compensation Elements</td><td colspan="5">Termination Scenarios</td></tr><tr><td>Termination \( ^{(1)} \)</td><td>Retirement</td><td>Termination due to Change in Control \( ^{(2)} \)</td><td>Death</td><td>Disability</td></tr><tr><td>Base Salary</td><td>Ceases immediately</td><td>Ceases immediately</td><td>Ceases immediately</td><td>Ceases immediately</td><td>Ceases immed</td></tr><tr><td>Severance Pay</td><td>None</td><td>None</td><td>Lump sum equal to two times salary and annual incentive at target, except for CEO, who receives three times salary and annual incentive at target \( ^{(3)} \)</td><td>None</td><td>None</td></tr><tr><td>Annual Incentive \( ^{(4)} \)</td><td>Forfeited</td><td>Prorated for the year and subject to discretionary adjustments \( ^{(5)} \)</td><td>Prorated at target (reduced by any amounts actually paid)</td><td>Prorated for the year and subject to discretionary adjustments</td><td>Prorated for the year and subject to discretionary adjustments</td></tr></table>



Executive Compensation > Potential Payments as a Result of Termination or Change in Control (“CIC”)

<table><tr><td rowspan="2">Compensation Elements</td><td colspan="5">Termination Scenarios</td></tr><tr><td>Termination(1)</td><td>Retirement</td><td>Termination due to Change in Control(2)</td><td>Death</td><td>Disability</td></tr><tr><td>Stock Options(4)(6)</td><td>Unvested are forfeited, vested expire at the earlier of three months or normal expiration</td><td>Awards granted more than 12 months before, and pro rata portion of award granted within 12 months of retirement, continue to vest. All expire at earlier of five years or normal expiration(7)</td><td>Awards vest upon qualifying termination after a CIC</td><td>Awards vest immediately and expire at earlier of two years or normal expiration</td><td>Awards vest immediately and expire at earlier of two years or normal expiration</td></tr><tr><td>Restricted Stock Units (no NEO has Restricted Stock Units)(4)(6)</td><td>Forfeited</td><td>Awards granted more than 12 months before, and pro rata portion of awards granted within 12 months of retirement, continue to vest(7)</td><td>Awards vest upon qualifying termination after a CIC</td><td>Awards vest and are payable immediately</td><td>Awards vest and are payable immediately</td></tr><tr><td>Performance Stock Awards(4)(6)</td><td>Forfeited</td><td>Awards granted more than 12 months before, and pro rata portion of awards granted within 12 months of retirement, continue to vest and are paid out based on actual performance(7)</td><td>Awards vest based on performance upon a qualifying termination after a CIC(8)</td><td>Awards vest and are payable immediately(9)</td><td>Awards vest and are payable immediately(9)</td></tr><tr><td>Non-Qualified Pension Benefits(10)</td><td>Distributions commence per plan</td><td>Distributions commence per plan</td><td>Immediately payable upon a CIC</td><td>Distributions commence per plan</td><td>Participant may request payment if age 50 or older</td></tr><tr><td>Deferred Compensation(11)</td><td>Distributions commence per participant election</td><td>Distributions commence per participant election</td><td>Immediately payable upon a CIC</td><td>Payable within 90 days</td><td>Distributions commence per participant election</td></tr><tr><td>Health, Welfare and Other Benefits</td><td>None</td><td>None</td><td>Outplacement services provided; lump sum payment equal to additional cost of welfare benefits continuation coverage for 18 months(12)</td><td>None</td><td>Supplemental Long Term Disability benefits if enrolled in basic long-term disability plan</td></tr></table>

(1) Includes both voluntary and involuntary termination other than due to retirement, change in control, death or disability. 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, or reduction in force.

(2) 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 any of these could cause a substantial change in management in a widely held company the size of Allstate. Effective upon a change in control, the named executives become subject to covenants prohibiting solicitation of employees, customers, and suppliers until one year after termination of employment. If a named executive incurs legal fees or other expenses in an effort to enforce the change-in-control plan, 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.



(3) Under the change-in-control plan, severance benefits would be payable if a named executive's employment is terminated either by Allstate without cause or by the executive for good reason as defined in the plan during the two years following the change in control. Cause means the named executive has been convicted of a felony or other crime involving fraud or dishonesty, has willfully or intentionally breached the restrictive covenants in the change-in-control plan, 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, or a material change in the geographic location where the named executive performs services.

(4) Named executives who receive an equity award or an annual cash incentive award after May 19, 2009, are subject to a non-solicitation covenant while they are employed and for the one-year period following termination of employment. If a named executive violates the non-solicitation covenant, to the extent permitted by applicable law, compensation provided to the named executive (including cancellation of outstanding awards or recovery of all or a portion of any gain realized upon vesting, settlement, or exercise of an award or recovery of all or a portion of any proceeds resulting from any disposition of shares received pursuant to an award) may be recovered if the vesting, settlement, or exercise of the award or the receipt of the sale proceeds occurred during the 12-month period prior to the violation.

(5) Retirement for purposes of the Annual Executive Incentive Plan is defined as termination on or after the date the named executive attains age 55 with at least 10 years of service or age 60 with five years of service.

(6) Named executives who receive an equity award on or after May 21, 2013, that remains subject to a period of restriction or other performance or vesting condition are subject to a non-compete provision for the one-year period following termination of employment. If a named executive violates the non-competition covenant, to the extent permitted by applicable law, any or all of the named executive's outstanding awards that remain subject to a period of restriction or other performance or vesting condition as of the date on which the named executive first violated the non-competition provision may be canceled.

(7) Retirement definitions and treatment for purposes of stock options, restricted stock units, and performance stock awards are as follows:

<table><tr><td>Definition</td><td>Normal Retirement: age 55 with 10 years of service or age 60 with at least five years of service</td></tr><tr><td>Treatment</td><td>Unvested awards not granted within 12 months of retirement continue to vest.</td></tr><tr><td></td><td>Prorated portion of unvested awards granted within 12 months of the retirement date continue to vest.</td></tr><tr><td></td><td>Vested stock options expire at the earlier of five years from the date of retirement or the expiration date of the option.</td></tr></table>

(8) The committee will determine the number of PSAs that continue to vest based on actual performance up to the change in control.

(9) For open cycles, the payout is based on the target number of PSAs.

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

(11) See the Non-Qualified Deferred Compensation at Fiscal Year-end 2019 section for additional information on the Deferred Compensation Plan and distribution options available.

(12) If a named executive’s employment is terminated due to death during the two years after 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 due to disability during the two years after the date of a change in control, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to disabled peer executives.



## Estimate of Potential Payments Upon Termination \( ^{(1)} \) 

The table below describes the value of compensation and benefits payable to each named executive upon termination that would exceed the compensation or benefits generally available to salaried employees in each termination scenario. The total column in the following table does not reflect compensation or benefits previously accrued or earned by the named executives, such as deferred compensation and non-qualified pension benefits. Benefits and payments are calculated assuming a December 31, 2019, employment termination date.

<table><tr><td>Name</td><td>Severance (\()</td><td>Annual Incentive Plan(2) (\))</td><td>Stock Options - Unvested and Accelerated (\))</td><td>Performance Stock Awards - Unvested and Accelerated (\))</td><td>Welfare Benefits and Outplacement Services (\))</td><td>Total (\))</td></tr><tr><td>Mr. Wilson</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Termination/Retirement(3)</td><td>0</td><td>4,730,100</td><td>10,633,888</td><td>29,130,397</td><td>0</td><td>44,494,385</td></tr><tr><td>Termination due to Change in Control(4)</td><td>16,200,000</td><td>4,050,000</td><td>11,195,267</td><td>29,895,845</td><td>64,328(5)</td><td>61,405,440</td></tr><tr><td>Death</td><td>0</td><td>4,730,100</td><td>11,195,267</td><td>29,895,845</td><td>0</td><td>45,821,212</td></tr><tr><td>Disability</td><td>0</td><td>4,730,100</td><td>11,195,267</td><td>29,895,845</td><td>12,508,010(6)</td><td>58,329,222</td></tr><tr><td>Mr. Rizzo</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Termination/Retirement(3)</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Termination due to Change in Control(4)</td><td>2,498,935(7)</td><td>900,000</td><td>1,889,747</td><td>3,718,047</td><td>71,001(5)</td><td>9,077,730</td></tr><tr><td>Death</td><td>0</td><td>1,053,000</td><td>1,889,747</td><td>3,718,047</td><td>0</td><td>6,660,794</td></tr><tr><td>Disability</td><td>0</td><td>1,053,000</td><td>1,889,747</td><td>3,718,047</td><td>11,839,260(6)</td><td>18,500,054</td></tr><tr><td>Mr. Civgin</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Termination/Retirement(3)</td><td>0</td><td>1,400,000</td><td>2,651,805</td><td>7,383,355</td><td>0</td><td>11,435,160</td></tr><tr><td>Termination due to Change in Control(4)</td><td>3,780,000</td><td>1,050,000</td><td>2,788,877</td><td>7,570,246</td><td>71,001(5)</td><td>15,260,124</td></tr><tr><td>Death</td><td>0</td><td>1,400,000</td><td>2,788,877</td><td>7,570,246</td><td>0</td><td>11,759,123</td></tr><tr><td>Disability</td><td>0</td><td>1,400,000</td><td>2,788,877</td><td>7,570,246</td><td>8,749,125(6)</td><td>20,508,248</td></tr><tr><td>Mr. Shapiro</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Termination/Retirement(3)</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td></tr><tr><td>Termination due to Change in Control(4)</td><td>3,900,000</td><td>1,170,000</td><td>2,544,426</td><td>6,242,100</td><td>64,279(5)</td><td>13,920,805</td></tr><tr><td>Death</td><td>0</td><td>1,366,000</td><td>2,544,426</td><td>6,242,100</td><td>0</td><td>10,152,526</td></tr><tr><td>Disability</td><td>0</td><td>1,366,000</td><td>2,544,426</td><td>6,242,100</td><td>14,468,282(6)</td><td>24,620,808</td></tr><tr><td>Mr. Shebik</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Termination/Retirement(3)</td><td>0</td><td>2,037,000</td><td>3,384,655</td><td>9,834,540</td><td>0</td><td>15,256,195</td></tr><tr><td>Termination due to Change in Control(4)</td><td>5,220,000</td><td>1,740,000</td><td>3,550,432</td><td>10,060,564</td><td>70,956(5)</td><td>20,641,952</td></tr><tr><td>Death</td><td>0</td><td>2,037,000</td><td>3,550,432</td><td>10,060,564</td><td>0</td><td>15,647,996</td></tr><tr><td>Disability</td><td>0</td><td>2,037,000</td><td>3,550,432</td><td>10,060,564</td><td>3,119,351(6)</td><td>18,767,347</td></tr></table>

(1) A “0” indicates either that there is no amount payable to the named executive, or the amount payable is the same for both the named executives and all salaried employees.

(2) The 2019 annual incentive plan payment is payable to all named executives as a result of death and disability. In addition, it is payable to Messrs. Wilson, Civgin and Shebik in the event of retirement. The amount listed for the annual incentive plan payment upon termination due to a change in control is shown at target as defined in the CIC Plan.

(3) As of December 31, 2019, Messrs. Wilson and Shebik are the only named executives eligible to retire in accordance with Allstate’s policy and the terms of its equity and annual incentive compensation and benefit plans. Mr. Civgin is retirement eligible under the terms of the equity and annual incentive compensation plans.

(4) The values in this change-in-control row represent amounts paid if both the change in control and qualifying termination occur on December 31, 2019. PSAs are paid out based on actual performance; for purposes of this table, the 2017-2019 cycle is shown at 200% of target, 2018-2020, and 2019-2021 cycles are reflected at target.

Beginning with awards granted in 2012, equity awards do not accelerate in the event of a change in control unless also accompanied by a qualifying termination of employment. A change in control also would accelerate the distribution of each named executive's non-qualified deferred compensation and SRIP benefits. Please see the Non-Qualified Deferred Compensation at Fiscal Year-end 2019 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 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 is $50,000 for each named executive.



(6) The named executives who participate in the long-term disability plan are eligible to participate in Allstate's supplemental long-term disability plan for employees whose annual earnings exceed the level that produces the maximum monthly benefit provided by the long-term disability plan (basic plan). The monthly benefit is equal to 60% of the named executive's qualified annual earnings divided by twelve and rounded to the nearest $100, 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.

(7) Under the change in control plan, severance benefits for Mr. Rizzo were reduced by $741,065, to avoid the imposition of excise taxes and maximize the severance benefit available under the plan.

## Performance Measures for 2019

The following pages contain descriptions of the performance measures used for executive incentive compensation. They were developed uniquely for incentive compensation purposes, are non-GAAP measures and are not reported in our financial statements. The committee has approved the use of non-GAAP 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. The committee monitors compensation estimates during the year based on actual performance on these measures, and the internal audit department reviews the final results.

Performance Net Income: This measure is calculated uniquely for annual cash incentive awards and each PSA performance cycle. For each plan, Performance Net Income is equal to net income applicable to common stockholders as reported in The Allstate Corporation Annual Report on Form 10-K adjusted for the after-tax effect of the items indicated below:

<table><tr><td>Indicates adjustments to Net Income</td><td>Annual Cash Incentive Awards</td><td>Performance Stock Awards \( ^{(1)} \)</td></tr><tr><td>Net income applicable to common stockholders, excluding:</td><td></td><td></td></tr><tr><td>Realized capital gains and losses (which includes the related effect on amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments</td><td>✓</td><td>✓</td></tr><tr><td>Pension and other post retirement remeasurement gains and losses</td><td>✓</td><td>✓</td></tr><tr><td>Valuation changes on embedded derivatives not hedged (which includes the related effect on amortization of deferred acquisition and deferred sales inducement costs)</td><td>✓</td><td>✓</td></tr><tr><td>Business combination expenses and amortization or impairment of purchased intangible assets</td><td>✓</td><td>✓</td></tr><tr><td>Gain (loss) on disposition of operations</td><td>✓</td><td>✓</td></tr><tr><td>Other significant non-recurring, infrequent or unusual items, when the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or there has been no similar charge or gain within the prior two years</td><td></td><td>✓</td></tr><tr><td>Goodwill impairment</td><td></td><td>✓</td></tr><tr><td>Tax Legislation benefit</td><td></td><td>✓</td></tr><tr><td>Adjusted Net Income subtotal (See Appendix A)</td><td></td><td></td></tr><tr><td>Restructuring and related charges</td><td>✓</td><td>✓</td></tr><tr><td>Underwriting results of Discontinued Lines and Coverages segment</td><td>✓</td><td>✓</td></tr><tr><td>Effects of acquiring and selling businesses in excess of $20 million after-tax</td><td></td><td>✓</td></tr></table>



## Executive Compensation > Performance Measures for 2019

<table><tr><td>Indicates adjustments to Net Income</td><td>Annual Cash Incentive Awards</td><td>Performance Stock Awards \( ^{(1)} \)</td></tr><tr><td>Adjustments to be consistent with financial reporting used in establishing the measure for items exceeding 20 million after-tax</td><td>✓</td><td>✓</td></tr><tr><td>Adjustments for other significant, non-recurring, infrequent or unusual items for items exceeding 20 million after-tax</td><td>✓</td><td>✓</td></tr><tr><td>Adjustment to exclude income associated with parent holding company level deployable assets in excess of 1 billion \( ^{(2)} \)</td><td></td><td>✓</td></tr><tr><td>Performance Net Income before adjustment for volatile items \( ^{(3)} \)</td><td></td><td></td></tr><tr><td>Adjustment for after-tax volatile items</td><td>Adjusted to include minimum or maximum amount of after-tax catastrophe losses and income from performance-based (“PB”) investments</td><td>Three-year average adjusted to include a minimum or maximum amount of after-tax catastrophe losses</td></tr></table>

(1) Performance Net Income is a performance measure for the 2017-2019, 2018-2020, 2019-2021, and 2020-2022 performance cycles. The 2018-2020, 2019-2021, and 2020-2019 performance cycles do not qualify for final measurement as of December 31, 2019; the items checked above and after-tax volatile items indicate items that by definition may impact the final measurement when the three-year cycle and final measurement is completed.

(2) Adjustment for 2019-2021 and 2020-2022 performance cycles.

(3) Volatile items include catastrophe losses and income from performance-based investments (“PB income”) depending on the measure.

## Annual Cash Incentive Award Performance Measures for 2019

Total Premiums: This measure is used to assess growth within the Allstate Protection, Service Businesses, Allstate Life, Allstate Benefits, and Allstate Annuities businesses. It is equal to the sum of Allstate Protection and Service Businesses premiums written and Allstate Life, Benefits, and Annuities premiums and contract charges as described below.

Premiums written is equal to the Allstate Protection and Service Businesses net premiums written as reported in management’s discussion and analysis in The Allstate Corporation Annual Report on Form 10-K.

Premiums and contract charges are equal to life premiums and contract charges reported in the consolidated statement of operations in The Allstate Corporation Annual Report on Form 10-K.

Total Premiums is subject to adjustment for the following individual items to the extent they exceed 30 million: adjustments to be consistent with financial reporting and foreign exchange rates used in establishing the measure and adjustments to exclude the effects of acquiring and selling businesses. No such adjustments were necessary in 2019.

Total Premiums of $39,455 million were equal to reported Total Premiums in 2019.

Performance Net Income: This measure is used to assess financial performance. In 2019, Performance Net Income was $3,571 million compared to reported Adjusted Net Income* of $3,477 million, an increase of $94 million. It was adjusted to remove the impacts of the underwriting loss of the Discontinued Lines and Coverages segment, restructuring and related charges, certain pension fair value accounting changes, a pension plan merger, and the write-off of issuance costs related to the preferred stock redemptions.

Net Investment Income: This measure is used to assess the financial operating performance provided from investments. Net Investment Income as reported in the consolidated statement of operations is adjusted to include a minimum or maximum amount of PB income if the actual amounts are less than or exceed those amounts, respectively. Net Investment Income is also subject to adjustments to be consistent with the financial reporting used in establishing the measure and to exclude the effects of acquiring and selling businesses in excess of a threshold.

In 2019, an adjustment to reflect a minimum amount of PB income was necessary, resulting in Net Investment Income of $3,260 million, compared to reported net investment income of $3,159 million.



## Performance Stock Award Performance Measures for the 2017-2019, 2018-2020, 2019-2021, and 2020-2022 Performance Cycles

Three-Year Average Performance Net Income Return on Equity (measure weighted at 70%): It is calculated as the ratio of the average Performance Net Income for the three years in the period divided by the average of Adjusted Common Shareholders' Equity at December 31 of the year-end immediately preceding the period and at the end of each year in the three-year period. It is adjusted to reflect the foreign exchange rate used in establishing the measure (in place of actual foreign currency translation) for any period if the Total Premiums measure for the annual incentive plan is adjusted for foreign exchange rates. Starting with the 2019-2021 performance cycles, average common shareholders' equity will also be adjusted to remove the impact of other significant non-recurring, infrequent or unusual items in excess of a threshold and parent holding company level deployable assets in excess of $1 billion. The 2019-2021 and 2020-2022 performance cycles will also be adjusted for unplanned utilization of alternative capital exceeding $20 million after-tax.

Adjusted Common Shareholders’ Equity is equal to common shareholders’ equity excluding the net effects of unrealized net capital gains and losses. It is subject to adjustments to be consistent with the financial reporting used in establishing the measure and to exclude the net effects of acquiring and selling businesses in excess of a threshold. Adjusted Common Shareholders’ Equity at December 31 of the year-end immediately preceding the period is not subject to adjustment.

Three-year Average Performance Net Income Return on Equity for the 2017-2019 performance cycle was 16.2%, compared to our reported Adjusted Net Income return on equity \( ^{1} \)  of 16.9%, 16.2% and 14.6% for the years ended 2019, 2018, and 2017, respectively, and the three-year average of 15.9%. The adjustments relate to underwriting loss of the Discontinued Lines and Coverages segment, restructuring and related charges, net effects of acquiring or selling businesses, employee share-based accounting tax benefit, pension settlement charges, changes in investment accounting rules, and pension accounting changes.

The committee requires positive net income in order for our executives to earn PSAs for Average Performance Net Income ROE above target. For the 2019-2021 and 2020-2022 performance cycles, net income is adjusted to exclude gains and losses related to fair value accounting for pension and post-retirement plans, after-tax valuation of equity securities included in realized capital gains and losses, and the effects of acquiring and selling businesses.

Earned Book Value (for awards prior to 2020, measure weighted at 30%): Earned Book Value is the increase between common shareholders' equity at December 31 of the year-end immediately preceding the three-year period and adjusted common shareholders' equity at December 31 of the last year of the three-year period expressed as a compound annual growth rate. Adjusted common shareholders' equity is equal to common shareholders' equity at December 31 of the last year of the three-year period adjusted to:

Add back reductions for common share repurchases and declared common shareholder dividends during the three-year period.

▶ Remove the impact of other significant non-recurring, infrequent or unusual items exceeding $20 million after-tax.

Reflect a minimum or maximum amount of after-tax catastrophe losses if the actual pre-tax catastrophe losses are more or less than +/- 20% respectively of the three years of catastrophe losses used to establish the measure.

Be consistent with the financial reporting used in establishing the measure for items exceeding $20 million after-tax.

Exclude the effects of acquiring and selling businesses exceeding $20 million after-tax.

Reflect the foreign exchange rate used in establishing the measure (in place of actual foreign currency translation) for any period if the Total Premiums measure for the annual incentive plan is adjusted for foreign exchange rates.

For the 2019-2021 performance cycle, Earned Book Value will also be adjusted for unplanned utilization of alternative capital exceeding $20 million after-tax.

Relative Total Shareholder Return (for awards made in 2020, measure weighted at 30%): Relative Total Shareholder Return is the company’s Total Shareholder Return (“TSR”) relative to the TSR of other peer companies, expressed in terms of the company’s TSR percentile rank among the peer companies. The peer companies consist of the compensation peers included on page 58 (including The Allstate Corporation), S&P 500 Index, and S&P Financial Index. TSR is determined by dividing (i) the average Adjusted Close Price of the applicable company’s stock or applicable index’s price over the 20 trading days prior to and including the final day of the performance period (“Final Average Adjusted Close Price”) minus the average Adjusted Close Price of the applicable company’s stock or applicable index’s price over the 20 trading days prior to the first day of the performance period (“Initial Average Adjusted Close Price”) by (ii) the Initial Average Adjusted Close Price. In calculating TSR, all dividends are assumed to have been reinvested on the ex-dividend date. “Adjusted Close Price” is the closing price per share of the applicable company’s stock or the applicable index’s closing price after adjustments for all splits and dividend distributions.



## CEO Pay Ratio

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing information about the relationship of the annual total compensation of our employees to the annual total compensation of Mr. Wilson, our CEO. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules.

For 2019:

the annual total compensation of our median employee was $61,860; and

the annual total compensation of our CEO, as reported in the Summary Compensation Table in this Proxy Statement, was $19,615,696.

The ratio of the annual total compensation of Mr. Wilson to our median employee was 317:1.

As required by SEC rules, the annual total compensation for both the CEO and median employee includes the change in pension value during the year. The change in pension value is subject to several external variables, including interest rates, that are not related to company or individual performance and may differ significantly based on the formula under which the benefits were earned. If we eliminated the change in pension value from our median employee and CEO’s total compensation, our CEO to median employee pay ratio would have been 268:1.

We also note that, in contrast to the compensation of the median employee, a significant portion of our CEO’s compensation is tied to company performance. If we were to calculate the ratio using Mr. Wilson’s target annual cash incentive (as opposed to the actual cash incentive award paid to him based on 2019 company performance), our CEO to median employee pay ratio would have been 305:1.

To calculate the ratio, we followed SEC permitted rules and used the following methodology and material assumptions, adjustments, and estimates:

December 31, 2019 was selected as the determination date as it enabled us to choose a pay date that aligned across our enterprise.

▶ Employees in all countries were included and as of December 31, 2019, our U.S. and non-U.S. employee population consisted of 47,526 full-time, part-time, seasonal and temporary employees.

The agent population was excluded since they are not employees of Allstate or its subsidiaries.

Total cash (base salary plus incentive compensation) was selected as the most appropriate and consistently applied compensation measure to determine the median worker since equity awards are not broadly distributed.

Employee compensation was measured using a twelve-month look-back period ending December 31, 2019.

Permanent employees hired in 2019 that did not work for the entire period had their compensation adjusted as if they were employed for the entire twelve-month period.

For non-U.S. employees, an annual average was used for each of the exchange rates.

After identifying the median worker based on total cash compensation, annual total compensation was calculated for that person using the same methodology used for the named executives in the Summary Compensation Table on page 62.

As noted above, the median employee’s annual total compensation was $61,860. The median employee was a claims consultant in the United States with total cash compensation of $60,682 and a change in pension value of $1,178.

The SEC rules for identifying the median of our employees and calculating the pay ratio allow companies to use a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect a company's employee population and compensation practices. For that reason, the pay ratio reported by other companies may not be comparable to the pay ratio reported above. Neither the committee nor management of the company used the pay ratio measure in making compensation decisions.



# Audit Committee Matters

## PROPOSAL

## Ratification of Deloitte & Touche LLP as the Independent Registered Public Accountant for 2020

## The Board recommends a vote FOR ratification of Deloitte & Touche LLP for 2020.

▶ Independent firm with few ancillary services and reasonable fees.

▶ Significant industry and financial reporting expertise.

The audit committee annually evaluates Deloitte & Touche LLP and determined that its retention continues to be in the best interests of Allstate and its stockholders.

The audit committee has established strong practices to evaluate the qualifications, compensation, performance, and independence of the independent registered public accountant both on an ongoing basis throughout the year and through the completion of an annual evaluation. Additional information regarding the audit committee’s duties and responsibilities is available in the committee’s charter located under the Governance section of Allstate’s investor relations website at www.allstateinvestors.com. Deloitte & Touche LLP has been Allstate’s independent registered public accountant since Allstate became a publicly traded entity in 1993.

As a starting point for the annual evaluation, a survey of management and the audit committee is administered by a Deloitte & Touche LLP partner who is not affiliated with the Allstate account. The survey assesses Allstate’s general satisfaction with the quality and efficiency of the services provided. Results are reported to the audit committee for its discussion and analysis.

In addition, the audit committee reviews and discusses the results of the firm’s reports on its quality controls and external assessments, including results of inspections conducted by the Public Company Accounting Oversight Board (PCAOB).

Rotation of the independent registered public accounting firm is explicitly considered each year by the committee in addition to the regular mandated rotation of audit partners. The committee and its chair approve the selection of Deloitte & Touche LLP’s lead engagement partner.

The audit committee has adopted a policy regarding its pre-approval of all audit and permissible non-audit services provided by the independent registered public accountant. The policy identifies the basic principles that must be considered by the audit committee in approving services to ensure that the registered public accountant’s independence is not impaired, describes the type of audit, audit-related, tax and other services that may be provided, and lists the non-audit services that may not be performed. The independent registered public accountant or management submits to the audit committee detailed schedules with all of the proposed services within each category, together with the estimated fees. Each specific service requires approval before service can begin.

Prior to requesting approval from the audit committee, the registered public accountant and management consider and conclude that the services are permissible in that they: (1) do not place the registered public accountant in the position of auditing their own work, (2) do not result in the registered public accountant’s personnel acting as management or an employee of Allstate, (3) do not place the registered public accountant in a position of being an advocate for Allstate, (4) do not create a mutual or conflicting interest between the registered public accountant and Allstate and (5) are not based on a contingent fee arrangement. The audit committee’s policy delegates to the committee chair the authority to grant approvals, but the decisions of the committee chair must be reported to the audit committee at its next regularly scheduled meeting. All services provided by Deloitte & Touche LLP in 2018 and 2019 were approved in accordance with this pre-approval policy.



Based on the results of the annual evaluation, the audit committee has appointed Deloitte & Touche LLP as Allstate’s independent registered public accountant for 2020. The factors considered by the audit committee include:

Focus on independence, objectivity, and professional skepticism;

Insurance and technical expertise and capability in handling the breadth and complexity of Allstate’s operations and industry;

Professionalism and responsiveness;

Sharing industry insights, trends, and latest practices;

Quality and efficiency of the work performed;

Quality of discussions and feedback sessions;

External data on audit quality and performance, including the results from the PCAOB; and

Reasonableness of fees.

The audit committee and the Board believe it is in the best interests of Allstate and its stockholders to continue to retain Deloitte & Touche LLP as Allstate’s independent registered public accountant.

The audit committee oversees and is ultimately responsible for the negotiation of audit fees associated with the retention of Deloitte & Touche LLP. 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, 2018, and December 31, 2019.

<table><tr><td></td><td>2018</td><td>2019</td></tr><tr><td>Audit fees \( ^{(1)} \)</td><td>10,606,000</td><td>11,032,000</td></tr><tr><td>Audit-related fees \( ^{(2)} \)</td><td>818,000</td><td>816,000</td></tr><tr><td>Tax fees \( ^{(3)} \)</td><td>351,000</td><td>629,000</td></tr><tr><td>All other fees \( ^{(4)} \)</td><td>475,000</td><td>266,000</td></tr><tr><td>Total fees</td><td>12,250,000</td><td>12,743,000</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 SEC. The amounts disclosed do not reflect reimbursements expected to be received for certain separate account audit fees from the managing entity in the amounts of $158,000 and $160,000 for 2018 and 2019, respectively. Total fees have been adjusted to reflect actual expenditures for the year.

(2) Audit-related fees relate to professional services, such as accounting consultations relating to new accounting standards and audits, Service Organization Controls audit reports and other attest services for non-consolidated affiliates (i.e., employee benefit plans, various trusts, etc.) and are set forth below.

<table><tr><td></td><td>2018</td><td>2019</td></tr><tr><td>Audits and other attest services for non-consolidated entities</td><td>$358,000</td><td>$358,000</td></tr><tr><td>Other audit-related fees</td><td>$460,000</td><td>$458,000</td></tr><tr><td>Total audit-related fees</td><td>$818,000</td><td>$816,000</td></tr></table>

(3) Tax fees include income tax return preparation, compliance assistance, tax studies and research, and international tax planning.

(4) “All other fees” includes all fees paid that are not audit, audit-related, or tax services. These fees relate to advisory services.

Representatives of Deloitte & Touche LLP will be present at the 2020 Annual Meeting to respond to questions and may make a statement if they choose. If stockholders fail to ratify the appointment, the audit committee will reconsider the appointment, but no assurance can be given that the audit committee will be able to change the appointment while enabling timely completion of the 2020 audited financial statements.



## Audit Committee Report

Deloitte & Touche LLP (Deloitte) was Allstate’s independent registered public accountant for the year ended December 31, 2019.

The audit committee reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2019.

The committee discussed with Deloitte the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. The committee received the written disclosures and letter from Deloitte that is 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, 2019, for filing with the Securities and Exchange Commission, and furnished to stockholders with this Notice of Annual Meeting and Proxy Statement.



KERMIT R. CRAWFORD (CHAIR)



MICHAEL L. ESKEW



SIDDHARTH N. MEHTA



GREGG M. SHERRILL



# Stock Ownership Information

## Security Ownership of Directors and Executive Officers

The following table shows the Allstate common shares beneficially owned as of March 1, 2020, by each director and named executive 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. It also includes shares subject to stock options exercisable, and restricted stock units subject to conversion into common shares, within sixty days of March 1. As of March 1, 2020, 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(1)</td><td>Common Stock Subject to Options Exercisable on or Prior to April 29, 2020</td><td>Restricted Stock Units(2)</td><td>Total Stock-Based Ownership(3)</td><td>Percent of Class</td></tr><tr><td>Kermit R. Crawford</td><td>1,000</td><td>0</td><td>14,116</td><td>15,116</td><td>*</td></tr><tr><td>Michael L. Eskew</td><td>190</td><td>0</td><td>9,455</td><td>9,645</td><td>*</td></tr><tr><td>Margaret M. Keane</td><td>2,218</td><td>0</td><td>3,892</td><td>6,110</td><td>*</td></tr><tr><td>Siddharth N. Mehta</td><td>0</td><td>0</td><td>10,594</td><td>10,594</td><td>*</td></tr><tr><td>Jacques P. Perold</td><td>35</td><td>0</td><td>6,240</td><td>6,275</td><td>*</td></tr><tr><td>Andrea Redmond</td><td>4,000</td><td>0</td><td>24,530</td><td>28,530</td><td>*</td></tr><tr><td>Gregg M. Sherrill</td><td>0</td><td>0</td><td>4,400</td><td>4,400</td><td>*</td></tr><tr><td>Judith A. Sprieser</td><td>0</td><td>0</td><td>35,246</td><td>35,246</td><td>*</td></tr><tr><td>Perry M. Traquina</td><td>808</td><td>0</td><td>5,058</td><td>5,866</td><td>*</td></tr><tr><td>Thomas J. Wilson</td><td>770,886</td><td>2,644,298</td><td>0</td><td>3,415,184</td><td>1.08%</td></tr><tr><td>Mario Rizzo</td><td>18,891</td><td>100,820</td><td>0</td><td>119,711</td><td>*</td></tr><tr><td>Don Civgin</td><td>168,565</td><td>124,108</td><td>0</td><td>292,673</td><td>*</td></tr><tr><td>Glenn T. Shapiro</td><td>30,839</td><td>74,276</td><td>0</td><td>105,115</td><td>*</td></tr><tr><td>Steven E. Shebik</td><td>159,542</td><td>474,632</td><td>0</td><td>634,174</td><td>*</td></tr><tr><td>All directors and executive officers as a group (22 total)</td><td>1,392,556</td><td>4,195,242</td><td>113,531</td><td>5,701,329</td><td>1.80%</td></tr></table>

 \( ^{*} \)  Less than 1% of the outstanding shares of common stock.

 \( ^{(1)} \)  This column includes restricted stock units held by executive officers that convert into common shares by April 29, 2020.

(2) All non-employee directors hold restricted stock units granted under Allstate’s equity compensation plans for non-employee directors. This column lists those restricted stock units that would be distributed to directors in the form of shares of common stock within 60 days if any of them were to have retired as a director on March 1, 2020. In addition, some directors hold additional restricted stock units that are not reflected in the table above because common stock would not be distributed to directors until at least one year following his or her retirement as a director, or in some cases, as many as ten years following the date of grant. For more information regarding the restricted stock units held by each director at the end of 2019, please see the details on page 41.

 \( ^{(3)} \)  These amounts are the sum of the number of shares shown in the prior columns.



## 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 rowspan="3">Common</td><td>BlackRock Inc.</td><td>26,153,711 \( ^{(1)} \)</td><td>8.10%</td></tr><tr><td>55 East 52nd Street</td><td></td><td></td></tr><tr><td>New York, NY 10055</td><td></td><td></td></tr><tr><td rowspan="3">Common</td><td>The Vanguard Group</td><td>24,981,977 \( ^{(2)} \)</td><td>7.71%</td></tr><tr><td>100 Vanguard Boulevard</td><td></td><td></td></tr><tr><td>Malvern, PA 19355</td><td></td><td></td></tr><tr><td rowspan="3">Common</td><td>State Street Corporation</td><td>16,224,366 \( ^{(3)} \)</td><td>5.02%</td></tr><tr><td>One Lincoln Street</td><td></td><td></td></tr><tr><td>Boston, MA 02111</td><td></td><td></td></tr></table>

(1) Reflects shares beneficially owned as of December 31, 2019, as set forth in a Schedule 13G/A filed on February 5, 2020. Of these shares, BlackRock reported it held 21,708,554 shares with sole voting power; 0 shares with shared voting power; 26,153,711 shares with sole dispositive power; and 0 shares with shared dispositive power.

(2) Reflects shares beneficially owned as of December 31, 2019, as set forth in a Schedule 13G/A filed on February 12, 2020. Of these shares, The Vanguard Group reported it held 484,886 shares with sole voting power; 124,219 shares with shared voting power; 24,404,143 shares with sole dispositive power; and 577,834 shares with shared dispositive power.

(3) Reflects shares beneficially owned as of December 31, 2019, as set forth in a Schedule 13G filed on February 13, 2020. Of these shares, State Street Corporation reported it held 0 shares with sole voting power; 14,360,036 shares with shared voting power; 0 shares with sole dispositive power; and 16,224,366 shares with shared dispositive power.



# Other Information

## Proxy and Voting Information

## Who is asking for my vote and why?

The Allstate Board of Directors is soliciting proxies for use at the Annual Meeting of stockholders to be held on May 19, 2020, and any adjournments or postponements of the meeting. 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. To ensure there will be a quorum, the Allstate Board asks you to vote before the meeting, which allows your Allstate stock to be represented at the Annual Meeting.

NEW To express our appreciation for your participation, Allstate will make a $1 charitable donation to the American Red Cross on behalf of every stockholder account that votes.

## Who can vote at the Annual Meeting?

The Allstate Board has set the close of business on March 20, 2020, as the record date for the meeting. This means that you are entitled to vote if you were a stockholder of record at the close of business on March 20, 2020. On that date, there were 316,405,354 shares of Allstate common stock outstanding and entitled to vote at the Annual Meeting.

## Why did I receive a notice of Internet availability of proxy materials instead of the proxy materials?

We distribute our proxy materials to certain stockholders over the Internet using “Notice and Access” delivery, as permitted by the rules of the SEC. We elected to use this method for certain stockholders as it reduces our print and mail costs and the environmental impact of our annual stockholders’ meeting.

## How do I vote?

Instructions on how to vote your shares are included on the Notice on page 5. If you hold shares in your own name as a registered stockholder, you may vote by participating in the annual meeting, or you may instruct the proxies how to vote your shares by following the instructions on the proxy card/voting instruction form. If you plan to participate in the meeting, please see the details on pages 85-86.

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, please see the instructions on page 87.

## Can I change my vote?

Before your shares have been voted at the Annual Meeting by the proxies, you may change or revoke your voting instructions by providing instructions again by telephone, by Internet, in writing, or, if you are a registered stockholder, by voting at the Annual Meeting.

## Are the votes kept confidential?

All proxies 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.

If you write a comment on your proxy card or voting instruction form, it may be provided to our Secretary along with your name and address.



Your comments will be provided without reference to how you voted, unless the vote is mentioned in your comment or unless disclosure of the vote is necessary to understand your comment. At our request, the distribution agent or the solicitation agent will provide us 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 we are not able to determine how a particular stockholder voted.

## What happens if I submit a signed proxy card but do not indicate how I want to vote?

You may instruct the proxies to vote “FOR” or “AGAINST” on each proposal, or you may instruct the proxies to “ABSTAIN” from voting. If you submit 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, then the proxies will vote your shares as the Board of Directors recommends on those proposals. Other than the proposals listed on pages 8-11, we do not know of any 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.

## What vote is needed to approve each item?

Shares of common stock represented by a properly completed proxy card/voting instruction form will be counted as present at the meeting for purposes of determining a quorum, even if the stockholder is abstaining from voting.

Proposal 1. To be elected under Allstate’s majority vote standard, each director must receive an affirmative vote of the majority of the votes cast. In other words, the number of shares voted “FOR” a director must exceed 50% of the votes cast on that director. Abstentions will not be counted as votes cast and will have no impact on the vote’s outcome.

Proposals 2 – 3. A majority of the shares present in person or represented by proxy at the meeting and entitled to vote must be voted “FOR” the proposal. Abstentions will have the effect of a vote against the proposal.

## Are broker non-votes counted at the meeting?

Brokers and banks have discretionary authority to vote shares in the absence of instructions on matters the NYSE considers “routine,” such as the ratification of the appointment of the auditors. They do not have discretionary authority to vote shares in the absence of instructions on “non-routine” matters, such as the election of directors or say-on-pay. Broker non-votes will not be counted as shares entitled to vote on any of the foregoing non-routine matters and will have no impact on the vote’s outcome.

## What is “householding” and how does it affect me?

Allstate has adopted the “householding” procedure approved by the SEC, which allows us to deliver one set of documents to a household of stockholders instead of delivering a set to each stockholder in a household, unless we have been instructed otherwise. This procedure is more environmentally friendly and cost-effective because it reduces the number of copies to be printed and mailed. Stockholders who receive proxy materials in paper form will continue to receive separate proxy cards/voting instruction forms to vote their shares. Stockholders who receive the Notice of Internet Availability of Proxy Materials will receive instructions on submitting their proxy cards/voting instruction form via the Internet.

If you would like to change your householding election, request that a single copy of the proxy materials be sent to your address, or request a separate copy of the proxy materials, please contact our distribution agent, Broadridge Financial Solutions, by calling (866) 540-7095 or by writing to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. We will promptly deliver the proxy materials to you upon receipt of your request. If you hold your shares in street name, please contact your bank, broker, or other record holder to request information about householding.

If you receive more than one proxy card/voting instruction form, your shares probably are 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.

## How do I attend the Annual Meeting?

As part of our precautions regarding the coronavirus (COVID-19) and to support the health and well-being of our stockholders, the 2020 Annual Meeting of Stockholders will be held in a virtual meeting format only. You will not be able to



attend the annual meeting physically. We have worked to offer the same participation opportunities as were provided at our past in-person meetings while further enhancing the online experience available to all stockholders.

If you plan to participate in the annual meeting, you must be a holder of Allstate shares as of the record date of March 20, 2020, or hold a legal proxy for the meeting provided by your bank, broker, or nominee. To be admitted to the annual meeting at www.virtualshareholdermeeting.com/ALL2020, you must enter the 16-digit control number found on your proxy card, voting instruction form or notice of Internet availability. You may begin to log into the meeting platform beginning at 10:30 a.m. Central time on May 19, 2020. The meeting will begin promptly at 11 a.m. Central time on May 19, 2020. The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets and cell phones) running the most updated version of applicable software. Participants should ensure that they have a strong WiFi connection wherever they intend to participate in the meeting. Participants should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the start of the meeting.

You may vote during the annual meeting by following the instructions available on the meeting website during the meeting. Whether or not you participate in the annual meeting, we encourage you to vote and submit your proxy in advance of the meeting by one of the methods described in these proxy materials. The proxy card included with the proxy materials may be used to vote your shares in connection with the annual meeting.

This year’s stockholders’ question and answer session will include questions submitted in advance of, and questions submitted live during, the annual meeting. You may submit a question in advance of the meeting beginning at 8:30 a.m. Central time on May 15, 2020, and until 11:59 p.m. Central time on May 18, 2020, at www.proxyvote.com after logging in with your 16-digit control number. Once past the login screen, click on “Question for Management”, typing your question and clicking “Submit.” Alternatively, questions may be submitted during the annual meeting through www.virtualshareholdermeeting.com/ALL2020, by typing your question into the “Ask a Question” field and clicking “Submit.” Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints. Any questions pertinent to meeting matters that cannot be answered during the meeting due to time constraints will be posted online at www.allstateinvestors.com.

If you encounter any difficulties accessing the meeting during the meeting time, please call the technical support number that will be posted on the meeting website.

Following completion of the meeting, a webcast replay will be posted online to our Investor Relations website at www.allstateinvestors.com for at least one year.

## Where can I find the results of the Annual Meeting?

Preliminary results will be announced at the meeting, and final results will be reported in a current report on Form 8-K, which is expected to be filed with the SEC within four business days after the meeting.

## Who will pay the cost of this proxy solicitation?

Allstate pays the cost of this proxy solicitation. Officers and other employees of Allstate and its subsidiaries may solicit proxies by mail, personal interview, telephone, facsimile, electronic means, or via the Internet. None of these individuals will receive special compensation for soliciting votes, which will be performed in addition to their regular duties, and some of them may not necessarily solicit proxies. Allstate also has made arrangements with brokerage firms, banks, record holders, and other fiduciaries to forward proxy solicitation materials to the beneficial owners of shares they hold on your behalf. Allstate will reimburse these intermediaries for reasonable out-of-pocket expenses. Alliance Advisors, 200 Broadacres Drive, 3 \( ^{rd} \)  Floor, Bloomfield, NJ 07003 has been retained to assist in the solicitation of proxies for a fee of 20,000 plus expenses.

## How do I submit stockholder proposals or director nominations for the 2021 annual meeting?

Proposals that stockholders would like to include in Allstate’s proxy materials for presentation at the 2021 annual meeting of stockholders must be received by the Office of the Secretary by December 7, 2020, and must otherwise comply with SEC rules in order to be eligible for inclusion in the proxy materials for the 2021 Annual Meeting.



If a stockholder would like to bring a matter before the meeting that is not the subject of a proposal that meets the SEC proxy rule requirements for inclusion in the proxy statement, the stockholder must follow procedures in Allstate’s bylaws in order to personally present the proposal at the meeting.

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 2021 annual meeting must be received by the Office of the Secretary no earlier than the close of business on January 19, 2021, and no later than the close of business on February 18, 2021. Among other things, 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.

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 2021 annual meeting by providing advance notice to Allstate to the Office of the Secretary that is received no earlier than the close of business on January 19, 2021, and no later than the close of business on February 18, 2021. For proxy access nominees to be considered at the 2021 annual meeting, the nomination notice must be received by the Office of the Secretary no earlier than the close of business on November 7, 2020, and no later than the close of business on December 7, 2020. Among other things, the notice must include the information and documents described in Section 20 of the company's bylaws.

A copy of the procedures and requirements related to the above matters is available upon request from the Office of the Secretary or can be found on Allstate’s website, www.allstateinvestors.com. The notices required above must be sent to the Office of the Secretary, The Allstate Corporation, 2775 Sanders Road, Suite F7, Northbrook, IL 60062-6127.

## How do I vote if I hold shares through the 401(k) Savings Plan?

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 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 will follow your voting instructions for all Allstate common shares allocated to your plan account unless that would be inconsistent with the trustee’s duties.

If your voting instructions are not received on a timely basis, the shares allocated to your plan account 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 given matter, the shares represented by your 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 allocated shares, the trustee will vote all unvoted and unallocated shares at 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 high level of confidentiality as all other votes. You may not vote the shares allocated to your plan account by voting at the meeting. You must instruct The Northern Trust Company, as trustee for the plan, how to vote your shares.

By order of the Board,



SUSAN L. LEES
SECRETARY
APRIL 6, 2020



## Appendix A – 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.

Adjusted Net Income is net income applicable to common shareholders, 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 Adjusted Net Income,

▶ pension and other postretirement remeasurement gains and losses, after-tax,

valuation changes on embedded derivatives not hedged, after-tax,

▶ 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 or valuation changes on embedded derivatives not hedged, after-tax,

▶ business combination expenses and the amortization or impairment of purchased intangibles, after-tax,

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 applicable to common shareholders is the GAAP measure that is most directly comparable to Adjusted Net Income.

We use Adjusted Net Income 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, pension and other postretirement remeasurement gains and losses, valuation changes on embedded derivatives not hedged, business combination expenses and the amortization or impairment of purchased intangibles, impairment of goodwill, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses, pension and other postretirement remeasurement gains and losses, valuation changes on embedded derivatives not hedged 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, Adjusted Net Income 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 Adjusted Net Income, 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.

Business combination expenses are excluded because they are non-recurring in nature and impairment of goodwill as well as the amortization or impairment of purchased intangibles is excluded because it relates to the acquisition purchase price and is not indicative of our underlying business results or trends.

Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends.

Accordingly, Adjusted Net Income 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 Adjusted Net 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.

Adjusted Net Income is used by management along with the other components of net income applicable to common shareholders to assess our performance. We use adjusted measures of Adjusted Net Income in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income applicable to common shareholders, Adjusted Net Income and their components separately and in the aggregate when reviewing and evaluating our performance.



We note that investors, financial analysts, financial and business media organizations and rating agencies utilize Adjusted Net 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 Adjusted Net Income as the denominator. Adjusted Net Income should not be considered a substitute for net income applicable to common shareholders and does not reflect the overall profitability of our business.

The following table reconciles net income applicable to common shareholders and Adjusted Net Income for the years ended December 31. Beginning January 1, 2018, the Tax Legislation reduced the U.S. corporate income tax rate from 35% to 21%. Taxes on adjustments to reconcile net income applicable to common shareholders and Adjusted Net Income generally use a 21% effective tax rate for 2019, 2018 and 35% for 2017 and prior periods and are reported net of income taxes as the reconciling adjustment, except for 2017 goodwill impairment that has no income tax benefit and the Tax Legislation benefit and change in accounting for investments in qualified affordable housing projects that are adjustments directly related to tax.

<table><tr><td rowspan="2">($ in millions, except per share data)</td><td rowspan="2">2019</td><td rowspan="2">2018</td><td rowspan="2">2017</td><td rowspan="2">2016</td><td rowspan="2">2015</td><td colspan="6">Per diluted common share</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td><td></td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,678</td><td>$2,012</td><td>$3,438</td><td>$1,692</td><td>$2,138</td><td>$14.03</td><td>$ 5.70</td><td>$ 9.35</td><td>$ 4.48</td><td>$ 5.26</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>(1,488)</td><td>688</td><td>(298)</td><td>56</td><td>(19)</td><td>(4.46)</td><td>1.95</td><td>(0.81)</td><td>0.15</td><td>(0.05)</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses, after-tax</td><td>90</td><td>370</td><td>(141)</td><td>175</td><td>49</td><td>0.27</td><td>1.05</td><td>(0.38)</td><td>0.46</td><td>0.12</td><td></td></tr><tr><td>Valuation changes on embedded derivatives not hedged, after-tax</td><td>15</td><td>(3)</td><td>—</td><td>2</td><td>1</td><td>0.05</td><td>(0.01)</td><td>—</td><td>0.01</td><td>—</td><td></td></tr><tr><td>DAC and DSI amortization relating to realized capital gains and losses and valuation changes on embedded derivatives not hedged, after-tax</td><td>5</td><td>7</td><td>10</td><td>4</td><td>3</td><td>0.01</td><td>0.02</td><td>0.03</td><td>0.01</td><td>0.01</td><td></td></tr><tr><td>Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax</td><td>(2)</td><td>(2)</td><td>(3)</td><td>(3)</td><td>(2)</td><td>(0.01)</td><td>(0.01)</td><td>(0.01)</td><td>(0(0.01)</td><td>—</td><td></td></tr><tr><td>Business combination expenses and the amortization of purchased intangibles, after-tax</td><td>100</td><td>90</td><td>79</td><td>21</td><td>32</td><td>0.30</td><td>0.25</td><td>0.21</td><td>0.06</td><td>0.08</td><td></td></tr><tr><td>Impairment of goodwill and purchased intangibles, after-tax</td><td>83</td><td>—</td><td>125</td><td>—</td><td>—</td><td>0.25</td><td>—</td><td>0.34</td><td>—</td><td>—</td><td></td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>(4)</td><td>(4)</td><td>(13)</td><td>(3)</td><td>(2)</td><td>(0.01)</td><td>(0.01)</td><td>(0.04)</td><td>(0.01)</td><td>(0.01)</td><td></td></tr><tr><td>Tax Legislation (benefit)</td><td>—</td><td>(29)</td><td>(509)</td><td>—</td><td>—</td><td>—</td><td>(0.08)</td><td>(1.38)</td><td>—</td><td>—</td><td></td></tr><tr><td>Change in accounting for investments in qualified affordable housing projects</td><td>—</td><td>—</td><td>—</td><td>—</td><td>45</td><td>—</td><td>—</td><td>—</td><td>—</td><td>0.11</td><td></td></tr><tr><td>Adjusted Net Income</td><td>$ 3,477</td><td>$ 3,129</td><td>$2,688</td><td>$ 1,944</td><td>$2,245</td><td>$ 10.43</td><td>$ 8.86</td><td>$ 7.31</td><td>$ 5.15</td><td>$ 5.52</td><td></td></tr></table>

Combined ratio excluding the effect of catastrophes, prior year reserve reestimates and amortization or impairment of purchased intangibles (“underlying combined ratio”) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio, the effect of prior year non-catastrophe reserve reestimates on the combined ratio, and the effect of amortization or impairment of purchased intangibles on 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, prior year reserve reestimates and amortization or impairment of purchased intangibles. 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, which could increase or decrease current year Net Income. Amortization or impairment of purchased intangibles relates to the acquisition purchase price and is not indicative of our underlying insurance business results or trends. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide it to facilitate a comparison to our outlook on the underlying combined ratio. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio 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 to the Property-Liability underlying combined ratio for the years ended December 31.

<table><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td></tr><tr><td>Combined Ratio</td><td>92.0</td><td>93.2</td><td>93.0</td><td>95.5</td><td>94.1</td></tr><tr><td>Effect of catastrophe losses</td><td>(7.3)</td><td>(8.7)</td><td>(10.3)</td><td>(8.4)</td><td>(5.8)</td></tr><tr><td>Effect of prior year non-catastrophe reserve reestimates</td><td>0.4</td><td>0.8</td><td>1.5</td><td>0.2</td><td>(0.3)</td></tr><tr><td>Effect of amortization of purchased intangibles</td><td>—</td><td>—</td><td>—</td><td>(0.1)</td><td>(0.2)</td></tr><tr><td>Effect of impairment of purchased intangibles</td><td>(0.1)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Underlying combined ratio</td><td>85.0</td><td>85.3</td><td>84.2</td><td>87.2</td><td>87.8</td></tr><tr><td>Effect of prior year catastrophe reserve reestimates</td><td>0.1</td><td>0.1</td><td>(0.1)</td><td>—</td><td>—</td></tr></table>

Adjusted Net Income return on common shareholders' equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month Adjusted Net Income by the average of common shareholders' equity at the beginning and at the end of the 12-months, after excluding the effect of unrealized net capital gains and losses. Return on common shareholders' equity is the most directly comparable GAAP measure. We use Adjusted Net Income as the numerator for the same reasons we use Adjusted Net Income, as discussed above. We use average common shareholders' equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of common shareholders' equity primarily attributable to the company's earned and realized business operations because it eliminates the effect of items that are unrealized and vary significantly between periods due to external economic developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process. We use it to supplement our evaluation of net income applicable to common shareholders and return on common shareholders' equity because it excludes the effect of items that tend to be highly variable from period to period. We believe that this measure is useful to investors and that it provides a valuable tool for investors when considered along with return on common shareholders' equity because it eliminates the after-tax effects of realized and unrealized net capital gains and losses that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management. In addition, it eliminates non-recurring items that are not indicative of our ongoing business or economic trends. A byproduct of excluding the items noted above to determine Adjusted Net Income return on common shareholders' equity from return on common shareholders' equity is the transparency and understanding of their significance to return on common shareholders' equity variability and profitability while recognizing these or similar items may recur in subsequent periods. We use adjusted measures of Adjusted Net Income return on common shareholders' equity in incentive compensation. Therefore, we believe it is useful for investors to have Adjusted Net Income return on common shareholders' equity and return on common shareholders' equity when evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize Adjusted Net Income return on common shareholders' equity 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 utilization of capital. We also provide it to facilitate a comparison to our long-term Adjusted net income return on common shareholders' equity goal. Adjusted Net Income return on common shareholders' equity should not be considered a substitute for return on common shareholders' equity and does not reflect the overall profitability of our business.



The following tables reconcile return on common shareholders' equity and Adjusted Net Income return on common shareholders' equity for the years ended December 31.

<table><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td></tr><tr><td>Return on common shareholders&#x27; equity</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Numerator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,678</td><td>$ 2,012</td><td>$ 3,438</td><td>$ 1,692</td><td>$ 2,138</td></tr><tr><td>Denominator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning common shareholders&#x27; equity(1)</td><td>$ 19,382</td><td>$ 20,805</td><td>$ 18,823</td><td>$ 18,274</td><td>$ 20,557</td></tr><tr><td>Ending common shareholders&#x27; equity(1)</td><td>23,750</td><td>19,382</td><td>20,805</td><td>18,823</td><td>18,274</td></tr><tr><td>Average common shareholders&#x27; equity</td><td>$ 21,566</td><td>$ 20,094</td><td>$ 19,814</td><td>$ 18,549</td><td>$ 19,416</td></tr><tr><td>Return on common shareholders&#x27; equity</td><td>21.7%</td><td>10.0%</td><td>17.4%</td><td>9.1%</td><td>11.0%</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2016</td><td>2015</td></tr><tr><td>Adjusted Net Income return on common shareholders&#x27; equity</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Numerator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted Net Income</td><td>$ 3,477</td><td>$ 3,129</td><td>$ 2,688</td><td>$ 1,944</td><td>$ 2,245</td></tr><tr><td>Denominator:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning common shareholders&#x27; equity</td><td>$ 19,382</td><td>$ 20,805</td><td>$ 18,823</td><td>$ 18,274</td><td>$ 20,557</td></tr><tr><td>Less: Unrealized net capital gains and losses</td><td>(2)</td><td>1,662</td><td>1,053</td><td>620</td><td>1,926</td></tr><tr><td>Adjusted beginning common shareholders&#x27; equity</td><td>19,384</td><td>19,143</td><td>17,770</td><td>17,654</td><td>18,631</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Ending common shareholders&#x27; equity</td><td>23,750</td><td>19,382</td><td>20,805</td><td>18,823</td><td>18,274</td></tr><tr><td>Less: Unrealized net capital gains and losses</td><td>1,887</td><td>(2)</td><td>1,662</td><td>1,053</td><td>620</td></tr><tr><td>Adjusted ending common shareholders&#x27; equity</td><td>21,863</td><td>19,384</td><td>19,143</td><td>17,770</td><td>17,654</td></tr><tr><td>Average adjusted common shareholders&#x27; equity</td><td>$ 20,624</td><td>$ 19,264</td><td>$ 18,457</td><td>$ 17,712</td><td>$ 18,143</td></tr><tr><td>Adjusted Net Income return on common shareholders&#x27; equity</td><td>16.9%</td><td>16.2%</td><td>14.6%</td><td>11.0%</td><td>12.4%</td></tr></table>

(1) Excludes equity related to preferred stock of $2,248 million at December 31, 2019, $1,930 million at December 31, 2018 and $1,746 million for all other periods presented.



## Appendix B – Categorical Standards of Independence

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.

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.



## Appendix C – Executive Officers

The following table lists the names and titles of our executive officers as of December 31, 2019. 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>Chair of the Board, President, and Chief Executive Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Steven E. Shebik</td><td>Vice Chair of The Allstate Corporation and AIC.</td></tr><tr><td>Carolyn D. Blair</td><td>Executive Vice President and Chief Human Resources Officer of AIC.</td></tr><tr><td>Elizabeth A. Brady</td><td>Executive Vice President and Chief Marketing, Innovation, and Corporate Relations Officer of AIC.</td></tr><tr><td>Don Civgin</td><td>President, Service Businesses of AIC.</td></tr><tr><td>John E. Dugenske</td><td>Executive Vice President and Chief Investment and Corporate Strategy Officer of AIC.</td></tr><tr><td>Mary Jane Fortin</td><td>President, Allstate Financial Businesses of AIC.</td></tr><tr><td>Suren Gupta</td><td>Executive Vice President, Enterprise Technology and Strategic Ventures of AIC.</td></tr><tr><td>Susan L. Lees</td><td>Executive Vice President, General Counsel, and Secretary of The Allstate Corporation and AIC (Chief Legal Officer).</td></tr><tr><td>Jesse E. Merten</td><td>Executive Vice President and Chief Risk Officer of AIC.</td></tr><tr><td>John C. Pintozzi</td><td>Senior Vice President, Controller and Chief Accounting Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Mario Rizzo</td><td>Executive Vice President and Chief Financial Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Glenn T. Shapiro</td><td>President, Allstate Personal Lines of AIC.</td></tr></table>

The following table lists the names and titles of our executive officers as of March 31, 2020. 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>Chair of the Board, President, and Chief Executive Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Steven E. Shebik</td><td>Vice Chair of The Allstate Corporation and AIC.</td></tr><tr><td>Carolyn D. Blair</td><td>Executive Vice President and Chief Human Resources Officer of AIC.</td></tr><tr><td>Elizabeth A. Brady</td><td>Executive Vice President, Chief Marketing, Customer and Communications Officer of AIC.</td></tr><tr><td>Don Civgin</td><td>Vice Chair of The Allstate Corporation and AIC, and Chief Executive Officer, Protection Products and Services of AIC.</td></tr><tr><td>John E. Dugenske</td><td>President, Investments and Financial Products of AIC.</td></tr><tr><td>Mary Jane Fortin</td><td>President, Financial Products of AIC.</td></tr><tr><td>Suren Gupta</td><td>Executive Vice President, Chief Information Technology and Enterprise Services Officer of AIC.</td></tr><tr><td>Susan L. Lees</td><td>Executive Vice President, Chief Legal Officer, General Counsel, and Secretary of The Allstate Corporation and AIC.</td></tr><tr><td>Jesse E. Merten</td><td>Executive Vice President and Chief Risk Officer of AIC.</td></tr><tr><td>John C. Pintozzi</td><td>Senior Vice President, Controller and Chief Accounting Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Mario Rizzo</td><td>Executive Vice President and Chief Financial Officer of The Allstate Corporation and AIC.</td></tr><tr><td>Glenn T. Shapiro</td><td>President, Personal Property-Liability of AIC.</td></tr></table>



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## 2019 Annual Report

## Table of Contents

<table><tr><td>Business</td><td>Page</td></tr><tr><td>• Overview</td><td>96</td></tr><tr><td>• Strategy and Segment Information</td><td>97</td></tr><tr><td>- Allstate Protection</td><td>99</td></tr><tr><td>- Service Businesses</td><td>105</td></tr><tr><td>- Allstate Life</td><td>106</td></tr><tr><td>- Allstate Benefits</td><td>107</td></tr><tr><td>- Allstate Annuities</td><td>108</td></tr><tr><td>- Other Business Segments</td><td>108</td></tr><tr><td>Forward-Looking Statements</td><td>109</td></tr><tr><td>Common Stock Performance Graph</td><td>110</td></tr><tr><td>Selected Financial Data</td><td>111</td></tr><tr><td>Management&#x27;s Discussion and Analysis of Financial Condition and Results of Operations</td><td>112</td></tr><tr><td>2019 Highlights</td><td>112</td></tr><tr><td>Property-Liability Operations</td><td>116</td></tr><tr><td>Allstate Protection</td><td>119</td></tr><tr><td>Discontinued Lines and Coverages</td><td>136</td></tr><tr><td>Service Businesses</td><td>138</td></tr><tr><td>Claims and Claims Expense Reserves</td><td>140</td></tr><tr><td>Allstate Benefits</td><td>153</td></tr><tr><td>Allstate Annuities</td><td>156</td></tr><tr><td>Investments</td><td>160</td></tr><tr><td>Market Risk</td><td>168</td></tr><tr><td>Capital Resources and Liquidity</td><td>172</td></tr><tr><td>Enterprise Risk and Return Management</td><td>179</td></tr><tr><td>Application of Critical Accounting Estimates</td><td>182</td></tr><tr><td>Regulation and Legal Proceedings</td><td>196</td></tr><tr><td>Pending Accounting Standards</td><td>196</td></tr><tr><td>Consolidated Financial Statements</td><td></td></tr><tr><td>Consolidated Statements of Operations</td><td>197</td></tr><tr><td>Consolidated Statements of Comprehensive Income</td><td>198</td></tr><tr><td>Consolidated Statements of Financial Position</td><td>199</td></tr><tr><td>Consolidated Statements of Shareholders&#x27; Equity</td><td>200</td></tr><tr><td>Consolidated Statements of Cash Flows</td><td>201</td></tr><tr><td>Notes to Consolidated Financial Statements</td><td>202</td></tr><tr><td>Report of Independent Registered Public Accounting Firm</td><td>288</td></tr></table>



## Business

The Allstate Corporation was incorporated under the laws of the State of Delaware on November 5, 1992, to serve as the holding company for Allstate Insurance Company. Its business is conducted principally through Allstate Insurance Company, Allstate Life Insurance Company and other subsidiaries (collectively, including The Allstate Corporation, “Allstate”).

Allstate’s purpose is to protect people from life’s uncertainties and prepare them for the future so they can realize their hopes and dreams. Allstate is primarily engaged in the property and casualty insurance business in the United States and Canada. Additionally, Allstate provides customers other protection offerings such as life, accident and health insurance and protection plans that cover electronic devices and personal identities.

The Allstate Corporation is one of the largest publicly held personal lines insurers in the United States. Allstate’s personal property-liability strategy is to increase market share by providing auto insurance with a competitive value proposition and offering a circle of protection. The Allstate brand is widely known through the “You’re In Good Hands With Allstate \( ^{®} \) ” slogan. Allstate is the third largest personal property and casualty insurer in the United States on the basis of 2018 statutory direct premiums written according to A.M. Best.
In addition, Allstate also has strong market positions in other protection products. According to A.M. Best, Allstate is the nation’s 20 \( ^{th} \)  largest issuer of life insurance business on the basis of 2018 ordinary life insurance in force and 40 \( ^{th} \)  largest on the basis of 2018 statutory admitted assets. Allstate Benefits provides accident, health and life insurance through employers and is one of the top five voluntary benefits carriers in the market based on a 2018 voluntary/worksite industry survey. SquareTrade, which sells consumer protection plans using the Allstate Protection Plans name in the U.S., provides protection plans on a wide variety of consumer goods such as cell phones, tablets, computers and appliances, and has a leading position in distribution through major retailers. InfoArmor, which provides identity protection through employers using the Allstate Identity Protection name, has a leading position in this distribution channel. In total, Allstate had 145.9 million policies in force (“PIF”) as of December 31, 2019.

In this Annual Report on Form 10-K, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not required to prepare financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We frequently use industry publications containing statutory financial information to assess our competitive position.



## Strategy and Segment Information

NEW Allstate’s strategy has two components: increase personal property-liability market share and expand protection businesses including Service Businesses, Allstate Life and Allstate Benefits. We create shareholder value through customer satisfaction, unit growth, attractive returns on capital, sustainable profitability and a diversified business platform.



## Transformative Growth Plan

We have implemented a multi-year Transformative Growth Plan that leverages the Allstate brand, people and technology. The Transformative Growth Plan will enable us to better serve customers in a changing world. The plan will ensure Allstate remains a strong competitor and local agencies continue to provide high value to customers. Winning is our past, our present and our future.

Allstate has thrived for 88 years by adapting to better serve customers. Our Transformative Growth Plan builds on our success by leveraging the Allstate brand, people and technology to improve our long-term competitive position and accelerate growth. The plan has three components:

Expanded customer access — Consumers currently can access Allstate branded property-liability products through Allstate agencies, contact centers and online. Access will be expanded to enable consumers to select a method of interaction. All consumers will have the opportunity to decide if they want access to an Allstate agency, so we will no longer need to use both the Allstate and Eurance brands for direct sales and Eurance will be integrated into the Allstate brand in 2020.

Improved customer value — Property-liability products will be redesigned to be affordable, simple and connected. Insurance pricing will utilize sophisticated rating algorithms, such as telematics, and reflect the service model a customer chooses.

Centralized customer service capabilities are being expanded to improve consistency, reduce costs and enable Allstate agencies to focus on acquiring new customers and developing relationships with existing customers.



## Business Segment Information

We will improve our expense position by focusing on reducing spending while eliminating redundancies. Simplification efforts will continue to eliminate the need for manual work and optimize our operating model.

Increased investments in marketing and technology — Investments in marketing the Allstate brand will be increased by reallocating Insurance spending. New technology ecosystems are being built to support increased connectivity, new products and operational adaptability.

This plan is focused on the customer experience, providing a circle of protection through people and technology along with increased connectivity, combined with distribution, product, and technology enhancements.

We are expanding protection businesses utilizing enterprise capabilities and resources such as distribution, analytics, claims, investment expertise, talent and capital. Using innovative growth platforms (such as telematics and identity protection) and broad distribution including Allstate exclusive agencies, contact centers, online, retailers, workplace benefits brokers, auto dealers, original equipment manufacturers and telecom providers further enhance our customer value proposition.

We evaluate performance and make resource and capital decisions across seven reportable segments.

<table><tr><td colspan="2">Reportable segments</td></tr><tr><td>Allstate Protection (1)</td><td>Includes the Allstate, Encompass and Assurance brands and Answer Financial. Offers private passenger auto, homeowners, other personal lines and commercial insurance through agencies, contact centers and online. Assurance will be integrated into the Allstate brand in 2020 as we are repositioning the Allstate brand for broader customer access.</td></tr><tr><td>Service Businesses</td><td>Includes Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside Services, Arity and Allstate Identity Protection, which offer a broad range of products and services that expand and enhance our customer value propositions.</td></tr><tr><td>Allstate Life</td><td>Offers traditional, interest-sensitive and variable life insurance products primarily through Allstate exclusive agents and exclusive financial specialists.</td></tr><tr><td>Allstate Benefits</td><td>Offers voluntary benefits products, including life, accident, critical illness, short-term disability and other health insurance products sold through independent agents, benefits brokers and Allstate exclusive agents.</td></tr><tr><td>Allstate Annuities</td><td>Consists of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements) in run-off.</td></tr><tr><td>Discontinued Lines and Coverages (1)</td><td>Relates to property and casualty insurance policies written during the 1960&#x27;s through the mid-1980&#x27;s with exposure to asbestos, environmental and other claims in run-off.</td></tr><tr><td>Corporate and Other</td><td>Includes holding company activities and certain non-insurance operations.</td></tr></table>

 \( ^{(1)} \)  Allstate Protection and Discontinued Lines and Coverages segments comprise Property-Liability.



## Allstate Protection Segment

Our Allstate Protection segment accounted for 90.3% of Allstate's 2019 consolidated insurance premiums and contract charges and 23.1% of Allstate's December 31, 2019 PIF. Private passenger auto, homeowners, other personal lines and commercial insurance products offered through agencies and directly through contact centers and online are included in this segment. Our strategy is to position product offerings, distribution and technology to meet customers' evolving needs and protect them from life's uncertainties.

## Strategy

Allstate Protection currently has four market-facing property-liability businesses with products and services that cater to different customer preferences for advice and brand recognition to improve our competitive position and performance. As part of the Transformative Growth Plan, we will enable consumers to select a method of interaction and Assurance will be integrated into the Allstate brand in 2020. Investments in marketing for the Allstate brand will be increased by reallocating Assurance spending.



We currently serve our consumers using differentiated products, analytical expertise, telematics and an integrated digital enterprise that leverages data and technology to redesign our processes with a focus on greater effectiveness and efficiencies and long-term expense savings.

## Allstate brand strategy

Our strategy is to grow profitably through exclusive agencies and direct channels, while leveraging best-in-class operational capabilities to gain market share and efficiencies. The Allstate brand differentiates itself by offering comprehensive product options and features with access to agencies that provide local advice and service, including a partnership with exclusive financial specialists to deliver life and retirement solutions.

This strategy focuses on four customer-centric themes to expand and deliver profitable growth:

<table><tr><td>Available</td><td>Competitive</td><td>Simple</td><td>Connected</td></tr><tr><td>Provide products and services that protect what matters most</td><td>Offer products that make good use of our customers&#x27; hard-earned money</td><td>Easy to interact with</td><td>Know our customers and proactively interact in value-added ways</td></tr><tr><td>Innovative and integrated distribution system that provides consumers with broad points of presence across all channels and offers a comprehensive product portfolio</td><td>Improve price competitiveness through advancing sophistication and reducing our expenses</td><td>Provide easy, seamless and unified customer experience with open access across all touchpoints</td><td>Digitally connected with customers, enabling continual interactions that deepen relationships and provide value</td></tr></table>

Available Being available is about making sure customers can find us whenever, wherever and however they choose. And once they do, offer them the protection they need as effectively as possible. In 2020, we are expanding access by allowing customers to choose how they interact with us.

Consumers will have the opportunity to select an Allstate agency to get tailored solutions and support based on their needs from Allstate's 10,800 exclusive agencies or interact directly with Allstate through mobile, online or contact centers. Agencies are established in 10,700 locations, supported by 27,100 licensed sales professionals and 1,000 exclusive financial specialists.

Allstate exclusive agents also offer life and retirement solutions and can partner with exclusive



## Business Segment Information

financial specialists who provide expertise with more complex life and retirement solutions and other financial needs of our customers.

Exclusive agencies and financial specialists are supported through marketing assistance, service and business processes, technology, education, offering financing to grow their businesses and other resources to help them enhance the customer experience and to acquire and retain more customers.

Focus areas include improving the effectiveness of the sales and distribution systems through integrated support, tools and technology and reinventing products and services, supported by people and technology.

Affordable Leveraging the Allstate brand, people and technology to improve our long-term competitive position and accelerate growth.

Data, analytics and technology support advances in pricing sophistication for all lines of business. Pricing and underwriting strategies and decisions are designed to generate sustainable profitable growth.

Targeted marketing includes messaging that communicates the value of our Good Hands \( ^{®} \) , the importance of having proper coverage, product options, and the ease of doing business with Allstate.

Enhanced loss cost management and expense control are priorities. To achieve this, we are continuing to modernize our operating platform (including enhanced digital capabilities) and optimizing vendor relationships. Investments are being made to increase efficiencies and reduce expenses.

Simple The strategy to keep things simple for customers and improve their experience with us across the board, giving them open access to shop, get service or file a claim in whatever channel is convenient.

Focus areas include streamlined quoting and binding processes, intelligent services allowing customers to easily find the optimal channel to address their service needs, expanded customer self-service, and continued claims transformation.

Emerging technologies and predictive analytics are being used to simplify the customer experience and expedite the quoting, underwriting and claims processes.

Connected We are enhancing customer connectivity by broadening and deepening the way we stay connected, providing compelling features to customers that connect to us through our Allstate Mobile application while continually developing solutions to enhance offerings and make Allstate Mobile core to the customer experience.

Current capabilities are being expanded through our partnership with Arity, which uses telematics to offer personalized, engaging programs that empower drivers with insights about their vehicle’s health, costs and safety.
Exclusive agent compensation structure The compensation structure for Allstate exclusive agents rewards them for delivering high value to customers and achieving certain business outcomes such as profitable growth and household penetration. Allstate exclusive agent remuneration comprises a base commission, variable compensation and a bonus.

• Agents receive a monthly base commission payment as a percentage of their total eligible written premium.

• Variable compensation rewards agents for acquiring new customers by exceeding a base production goal.

• Bonus compensation is based on a percentage of premiums and can be earned by agents who are meeting certain sales goals and selling additional policies to meet customer needs profitably.

Compensation changes for 2020 shift variable compensation toward new business and eliminates variable compensation for renewing customers. We are aligning agent compensation to emphasize growth while simultaneously improving customer service consistency.

Agents have the ability to earn commissions and additional bonuses on non-proprietary products provided to customers when an Allstate product is not available. In 2019 Ivantage, which provides access to these products, had $1.90 billion non-proprietary premiums under management and is a leading provider of property and casualty brokerage services.

Allstate agents and exclusive financial specialists receive commissions for proprietary and non-proprietary life and retirement sales and are eligible for a quarterly bonus based on the volume of non-proprietary sales.

Allstate independent agent remuneration comprises a base commission and a bonus that can be earned by agents who achieve sales goals and a target loss ratio.

Commercial lines strategy We are actively pursuing profitable expansion of our commercial lines business in the shared economy, including transportation and home-sharing network companies. Profit improvement actions have been implemented for our traditional commercial lines insurance products, emphasizing pricing, claims, governance and operational improvements.

## Esurance strategy

Esurance has grown in the direct channel with a focus on making insurance surprisingly painless by innovating to make it simple, transparent and affordable with a seamless online and mobile experience. Esurance is 2.4 times bigger, as measured by premiums written, than when it was acquired eight years ago. Esurance will be integrated into the Allstate brand in 2020.



## Encompass strategy

Currently, customers who prefer an independent agent can access products under either the Encompass or Allstate brand. As part of Allstate’s multi-year Transformative Growth Plan, independent agent access will be increased as we combine our Allstate and Encompass brand independent agency businesses and go to market exclusively with the Encompass brand. In addition to bringing the organizations together, we will expand the independent agency footprint, provide a superior agency and customer experience, and offer contemporary products with sophisticated pricing.

Over the past several years, Encompass has been executing a profit improvement plan emphasizing pricing, governance and operational improvements at both the state and countrywide levels. These actions have improved underlying profitability but led to a reduction of policies in force compared to prior years for both auto and homeowners. We expect these profit improvement actions to continue as we implement the Transformative Growth Plan.

## Answer Financial strategy

Answer Financial is an insurance agency that sells other insurance companies’ products directly to customers online. Our strategy as a technology-enabled insurance agency is to provide comparison shopping and related services for businesses, offering customers choice, convenience and ease of use.

## Allstate Protection pricing and risk management strategies

Our pricing and underwriting strategies and decisions are designed to generate sustainable profitable growth.

A proprietary database of underwriting and loss experience enables sophisticated pricing algorithms and methodologies to more accurately price risks while also seeking to attract and retain customers in multiple risk segments.

- For auto insurance, risk evaluation factors can include, but are not limited to: vehicle make, model and year; driver age and marital status; territory; years licensed; loss history; years insured with prior carrier; prior liability limits; prior lapse in coverage; and insurance scoring utilizing telematics data and other consumer information.

- For property insurance, risk evaluation factors can include, but are not limited to: the amount of insurance purchased; geographic location of the property; loss history; age, condition and construction characteristics of the property; and characteristics of the insured including insurance scoring utilizing other consumer information.
A combination of underwriting information, pricing and discounts are also used to achieve a more competitive position and growth. The pricing strategy involves local marketplace pricing and underwriting decisions based on risk evaluation factors to the extent permissible by applicable law and an evaluation of competitors.

Pricing of property products is intended to generate risk-adjusted returns that are acceptable over a long-term period. Rate increases are pursued to keep pace with loss trends, including losses from catastrophic events and those that are weather-related (such as wind, hail, lightning and freeze not meeting our criteria to be declared a catastrophe). We also take into consideration potential customer disruption, the impact on our ability to market our products, regulatory limitations, our competitive position and profitability.

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 incorporated into product pricing.

Property catastrophe exposure is managed with the goal of providing shareholders an acceptable return on the risks assumed in the property business. Catastrophe exposure management includes purchasing reinsurance to provide coverage for known exposure to hurricanes, earthquakes and fires following earthquakes, wildfires and other catastrophes. Our current catastrophe reinsurance program supports our risk tolerance framework that targets less than a 1% likelihood of annual aggregate catastrophe losses from hurricanes and earthquakes, net of reinsurance, exceeding $2 billion.

The use of different assumptions and updates to industry models and to our risk transfer program could materially change the projected loss. Growth strategies include areas where we believe diversification can be enhanced and an appropriate return can be earned for the risk. As a result, our modeled exposure may increase, but in aggregate remain lower than $2 billion as noted above. In addition, we have exposure to other severe weather events and wildfires, which impact catastrophe losses.

We are promoting measures to prevent and mitigate losses and make homes and communities more resilient, including enactment of stronger building codes and effective enforcement of those codes, adoption of sensible land use policies, and development of effective and affordable methods of improving the resilience of existing structures.



## Products and distribution

Allstate Protection differentiates itself by offering solutions to meet broad-based household protection needs and a comprehensive range of innovative product options and features across distribution channels that best suit each consumer segment.

<table><tr><td colspan="2">Products</td></tr><tr><td rowspan="5">Insurance products  \( {}^{(1)} \)</td><td>Auto</td></tr><tr><td>Homeowners</td></tr><tr><td>Specialty auto (motorcycle, trailer, motor home and off-road vehicle)</td></tr><tr><td>Other personal lines (renters, condominium, landlord, boat, umbrella, manufactured home and stand-alone scheduled personal property)</td></tr><tr><td>Commercial lines</td></tr><tr><td>Answer Financial</td><td>Comparison quotes and sales of non-proprietary auto, homeowners and other personal lines (condominium, renters, motorcycle, recreational vehicle and boat)</td></tr></table>

 \( ^{(1)} \)  Insurance products are offered by the Allstate, Esurance and Encompass brands.

<table><tr><td colspan="2">Distribution channels</td></tr><tr><td>Allstate brand</td><td>In the U.S., we offer products through 10,800 Allstate exclusive agencies operating in 10,700 locations, supported by 27,100 licensed sales professionals, and 1,000 exclusive financial specialists. We also offer products through 3,400 independent agencies, contact centers and online. In Canada, we offer Allstate brand products through 1,000 employee producers.</td></tr><tr><td>Esurance brand</td><td>Sold to customers online and through contact centers. (Esurance will be integrated into the Allstate brand in 2020.)</td></tr><tr><td>Encompass brand</td><td>Distributed through 2,800 independent agencies.</td></tr><tr><td>Answer Financial</td><td>Comparison quotes and sales offered to customers online or through contact centers.</td></tr></table>

Allstate exclusive agencies also support the Service Businesses, Allstate Life and Allstate Benefits segments through offering roadside assistance, consumer protection plans, identity protection, life insurance and voluntary benefits products.

When an Allstate product is not available, we may offer non-proprietary products to consumers through Ivantage and arrangements made with other companies, agencies, and brokers. As of December 31, 2019, Allstate agencies had approximately $1.7 billion of non-proprietary personal insurance premiums under management, primarily related to property business in hurricane exposed areas, and approximately $225 million of non-proprietary commercial insurance premiums under management. Additionally, we offer a homeowners product through our excess and surplus lines carrier, North Light Specialty Insurance Company, in certain areas with higher risk of catastrophes or where customers do not meet the Allstate brand standard underwriting profile.



<table><tr><td colspan="3">Innovative product offerings and features</td></tr><tr><td colspan="3">Market-leading solutions</td></tr><tr><td rowspan="5">Allstate brand</td><td>Your Choice Auto®</td><td>Qualified customers choose from a variety of options, such as Accident Forgiveness, Deductible Rewards®, Safe Driving Bonus® and New Car Replacement.</td></tr><tr><td>Allstate House and Home®</td><td>Featured options include Claim RateGuard®, Claim-Free Bonus, Deductible Rewards™ and flexibility in options and coverages, including graduated roof coverage and pricing based on roof type and age for damage related to wind and hail events.</td></tr><tr><td>Claim Satisfaction Guarantee®</td><td>Promised return of premium to standard auto insurance customers dissatisfied with their claims experience.</td></tr><tr><td>Bundling Benefits</td><td>Auto customers with a qualifying property policy are provided an auto renewal guarantee and a deductible waiver (when the same event, with the same covered cause of loss, damages both auto and property). Offered in 39 states as of December 31, 2019.</td></tr><tr><td>New Car Replacement Protection</td><td>Replaces a qualifying customer&#x27;s vehicle (two model years old or less) involved in a total loss accident with a vehicle of the same or similar make and model. Offered in 39 states as of December 31, 2019.</td></tr><tr><td rowspan="2">Encompass brand</td><td>EncompassOne® Policy</td><td>Packaged insurance product with one premium, one bill, one policy deductible and one renewal date. Broad coverage options include customizable features such as enhanced accident forgiveness, new-car replacement coverage, walk-away home coverage option should the insured decide not to rebuild, flexible additional living expense coverage, water-sewer backup coverage options and roadside assistance. This product is offered in 36 states and the District of Columbia (“D.C.”) as of December 31, 2019.</td></tr><tr><td>Surround Solutions by Encompass®</td><td>Offers auto (6-months), homeowner and specialty lines products, pricing, services and support designed to provide flexibility and be customized based on consumer needs. Offered exclusively in four states for Encompass as of December 31, 2019.</td></tr><tr><td colspan="3">Telematics offerings</td></tr><tr><td rowspan="2">Allstate brand</td><td>Drivewise®</td><td>Telematics-based program, available in 50 states and the District of Columbia as of December 31, 2019, that uses a mobile application or an in-car device to capture driving behaviors and encourage safe driving. It provides customers with information and tools, incentives and driving challenges. For example, in most states, Allstate Rewards® provides reward points for safe driving.</td></tr><tr><td>Milweise®</td><td>Usage-based insurance product, available in 14 states as of December 31, 2019, that gives customers flexibility to customize their insurance and pay based on the number of miles they drive.</td></tr><tr><td>Esurance brand</td><td>DriveSense®</td><td>Telematics-based insurance program, available in 37 states as of December 31, 2019, that primarily uses a mobile application to capture driving behaviors and reward customers for safe driving.</td></tr><tr><td>Encompass brand</td><td>Route ReportSM</td><td>Telematics application, available in 16 states as of December 31, 2019, used to capture driving behaviors and reward customer participation.</td></tr><tr><td colspan="3">Shared economy solutions</td></tr><tr><td rowspan="2">Allstate brand</td><td>Transportation Network Company Commercial Auto</td><td>Commercial coverage of transportation networking company independent drivers during various phases of the ride sharing service.</td></tr><tr><td>Allstate Ride for Hire®/HostAdvantage®</td><td>Supplemental personal insurance coverage for those using their vehicle to drive for a transportation network company or their house for peer-to-peer property sharing.</td></tr></table>



## Competition

The personal lines insurance markets, including private passenger auto and homeowners insurance, are highly competitive. The following charts provide Allstate Protection’s combined market share compared to our principal U.S. competitors using statutory direct written premium for the year ended December 31, 2018, according to A.M. Best.



## Geographic markets

We primarily operate in the U.S (all 50 states and D.C.) and Canada. Our top geographic markets based on 2019 statutory direct written premiums are reflected below.






## Service Businesses Segment

Our Service Businesses segment accounted for 3.7% of Allstate's 2019 consolidated total revenue and 72.6% of Allstate's December 31, 2019 PIF. Service Businesses includes Allstate Protection Plans \( ^{®} \) , Allstate Dealer Services \( ^{®} \) , Allstate Roadside Services \( ^{®} \) , Arity \( ^{®} \)  and Allstate Identity Protection \( ^{®} \) , which offer a broad range of products and services that expand and enhance customer value propositions.

Strategy - To deliver superior value propositions and build strategic platforms to connect and engage with customers and effectively address their changing needs and preferences.

<table><tr><td>Allstate \( ^{SM} \)  Protection Plans</td><td>Expand distribution of consumer protection plan and technical support products through new and existing retail and mobile operator accounts while increasing profitability and returns.</td></tr><tr><td>Allstate Dealer Services \( ^{®} \)</td><td>Expand distribution of Allstate branded finance and insurance products and services to auto dealerships, while pursuing additional distribution through strategic partnerships.</td></tr><tr><td>Allstate Roadside Services \( ^{®} \)</td><td>Modernize the roadside assistance business through technology and enhance capabilities to deliver a superior customer experience while improving efficiency and returns.</td></tr><tr><td>Arity \( ^{®} \)</td><td>Leverage analytics and deep understanding of driver risk to create a strategic platform. The platform will be used by those industries affected most by the changing face of transportation, including insurance companies, shared mobility companies and the automotive ecosystem.</td></tr><tr><td>Allstate \( ^{SM} \)  Identity Protection</td><td>Create a leading position in the identity protection market, offering full identity protection monitoring with proactive alerts, digital exposure reporting and identity theft reimbursement as well as expanding into other distribution channels.</td></tr></table>

## Products and distribution

<table><tr><td colspan="2">Products and services</td></tr><tr><td>Allstate Protection Plans</td><td>Provides consumer protection plans and related technical support for mobile phones, consumer electronics and appliances which provide customers protection from mechanical or electrical failure, and in certain cases, accidental damage from handling.</td></tr><tr><td>Allstate Dealer Services</td><td>Offers finance and insurance products, including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel protection, and paintless dent repair protection.</td></tr><tr><td>Allstate Roadside Services</td><td>Offers towing, jump-start, lockout, fuel delivery and tire change services to retail customers and customers of our wholesale partners. Good Hands Rescue \( ^{\circledR} \)  is a pay-per-use mobile application service that connects users to a select countrywide network of third-party providers and a proprietary crowdsourced network to assist with emergencies.</td></tr><tr><td>Arity</td><td>Provides data and analytics solutions with the Arity platform using automotive telematics information. Customers receive value from our solutions either by using web-based software tools, white labeled mobile applications or through embedding our technology in their mobile applications.</td></tr><tr><td>Allstate Identity Protection</td><td>Provides identity protection services including monitoring, alerts, remediation and a proprietary indicator of identity health.</td></tr><tr><td colspan="2">Distribution channels</td></tr><tr><td>Allstate Protection Plans</td><td>Major retailers in the U.S. and mobile operators in Europe.</td></tr><tr><td>Allstate Dealer Services</td><td>Independent agencies and brokers through auto dealerships in the U.S. in conjunction with the purchase of a new or used vehicle.</td></tr><tr><td>Allstate Roadside Services</td><td>Allstate exclusive agencies, wholesale partners, affinity groups and a mobile application.</td></tr><tr><td>Arity</td><td>Sells directly to affiliate and non-affiliate customers and through strategic partners.</td></tr><tr><td>Allstate Identity Protection</td><td>Primarily through workplace benefit programs.</td></tr></table>

## Geographic markets

The Service Businesses primarily operate in the U.S., with certain businesses offering services in Europe, Canada, and Puerto Rico.

## Competition

We compete on a variety of factors, including product offerings, brand recognition, financial strength, price, distribution and the customer experience. The market for these services is highly fragmented and competitive.



## Allstate Life Segment

## Strategy

Our Allstate Life segment accounted for 4.4% of Allstate’s 2019 consolidated total revenue and 1.3% of Allstate’s December 31, 2019 PIF. Our overall strategy is to broaden Allstate’s customer relationships and value proposition. We also distribute non-proprietary retirement products offered by third-party providers. Our target customers are middle market consumers with family and financial protection needs.

Our product positioning provides solutions to help meet customer needs during various phases of life. Term and whole life insurance products offer basic life protection solutions while universal life and retirement products cover more advanced needs. Many Allstate exclusive agencies partner with exclusive financial specialists to deliver life and retirement solutions to their customers. These specialists have expertise with advanced life and retirement cases and other more complex customer needs. Successful partnerships assist agencies with building stronger and deeper customer relationships. Improvements in sales education and technology are being made to ensure agencies have the tools and information needed to help customers meet their needs and build personal relationships.

The operating model is being modernized through investments in data and analytics and technology capabilities, tailoring distribution support, product innovation and enhancing the underwriting process.

## Products and distribution

<table><tr><td colspan="2">Insurance products</td></tr><tr><td>Term life</td><td>Interest-sensitive life</td></tr><tr><td>Whole life</td><td>Variable life</td></tr><tr><td colspan="2"></td></tr><tr><td colspan="2">Distribution channel</td></tr><tr><td colspan="2">Allstate exclusive agencies and exclusive financial specialists.</td></tr></table>

Allstate exclusive agencies and exclusive financial specialists also sell certain non-proprietary products, including mutual funds, fixed and variable annuities, disability insurance, and long-term care insurance to provide a broad suite of protection and retirement products. As of December 31, 2019, Allstate agencies had approximately $16.5 billion of non-proprietary mutual funds and fixed and variable annuity account balances under management. New and additional deposits into these non-proprietary products were $2.4 billion in 2019.

## Competition

We compete on a variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and customer service. The market for life insurance continues to be highly fragmented and competitive. As of December 31, 2018, there were approximately 350 groups of life insurance companies in the United States.

## Geographic markets

We primarily operate in the U.S. (all 50 states and D.C.). Our top geographic markets based on 2019 statutory direct premiums are reflected below.

Top geographic markets






## Allstate Benefits Segment

## Strategy

Our Allstate Benefits segment accounted for 2.8% of Allstate's 2019 consolidated total revenue and 2.9% of Allstate's December 31, 2019 PIF. The Allstate Benefits segment provides consumers with financial protection against the risk of accidents, illness and mortality. We are among the industry leaders in the growing voluntary benefits market, offering a broad range of products through workplace enrollment. Our life insurance portfolio includes individual and group permanent life solutions. Target customers are middle market consumers with family and financial protection needs employed by small, medium and large sized firms. Allstate Benefits is well represented in all market segments and is a leader in the large and mega (over 10,000 employees) market segments.

Our products are offered through independent agents, benefits brokers and Allstate exclusive agencies. Allstate Benefits is differentiated through its broad product portfolio, flexible enrollment solutions, strong national accounts team and well-recognized brand.

Our strategy for growth is to deliver substantially more value through innovative products and technology, tailored solutions and exceptional service. Initiatives are focused on expanding into non-traditional products and becoming an integrated digital enterprise through investments in future-state technologies and data and analytics capabilities.

## Products and distribution

<table><tr><td colspan="2">Voluntary benefits products</td></tr><tr><td>Life</td><td>Short-term disability</td></tr><tr><td>Accident</td><td>Other health</td></tr><tr><td colspan="2">Critical illness</td></tr></table>

## Distribution channels

4,960 workplace enrolling independent agents and benefits brokers.

Allstate exclusive agencies, focusing on small employers.

## Competition

We compete on a wide variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and customer service.

The market for voluntary benefits is growing as these products help employees fill the increasing gaps associated with continued medical cost inflation and the shifting of costs from employers to employees to cover co-pays and deductibles. Favorable industry and economic trends have increased competitive pressure and attracted new traditional and non-traditional entrants to the voluntary benefits market. Recent entrants, including large group medical, life and disability insurance carriers, are leveraging core benefit capabilities by bundling and discounting to capture voluntary market share.

## Geographic markets

We primarily operate in the U.S. (all 50 states and D.C.) and Canada. The top geographic markets based on 2019 statutory direct premiums are reflected below.

Top geographic markets






## Allstate Annuities Segment

## Strategy

Our Allstate Annuities segment accounted for 2.9% of Allstate's 2019 consolidated total revenue and 0.1% of Allstate's December 31, 2019 PIF. The Allstate Annuities segment consists primarily of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements). The segment is in run-off and is focused on increasing lifetime economic value. Both the deferred and immediate annuity businesses have been adversely impacted by the historically low interest rate environment. Our immediate annuity business has also been impacted by medical advancements that have resulted in annuitants living longer than anticipated when many of these contracts were originated.

Allstate Annuities focuses on the distinct risk and return profiles of the specific products when developing investment and liability management strategies. The level of legacy deferred annuities in force has been significantly reduced and the investment portfolio and crediting rates are proactively managed to improve profitability of the business while providing appropriate levels of liquidity.

The investment portfolio supporting our immediate annuities is managed to ensure the assets match the characteristics of the liabilities and provide the long-term returns needed to support this business. To better match the long-term nature of our immediate annuities, we use performance-based investments (primarily limited partnership investments) in which we have ownership interests and a greater proportion of return is derived from idiosyncratic asset or operating performance.

We continue to review strategic options to reduce exposure and improve returns of the business. As a result, we may take additional operational and financial actions that offer return improvement and risk reduction opportunities.

## Products and distribution

We previously offered and continue to have in force deferred fixed annuities and immediate fixed annuities. We discontinued the sale of proprietary annuities over an eight-year period from 2006 to 2014, reflecting our expectations of declining returns. In 2006, we disposed of substantially all of the variable annuity business through reinsurance agreements. For discussion of non-proprietary retirement and investment products sold through our Allstate exclusive agencies and exclusive financial specialists, see the Allstate Life Segment of this report.

## Other Business Segments

## Discontinued Lines and Coverages Segment

The Discontinued Lines and Coverages segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s.

Strategy Management of this segment has been assigned to a designated group of professionals with expertise in claims handling, policy coverage interpretation, exposure identification, litigation and reinsurance collection. As part of its responsibilities, this group pursues settlement agreements including policy buybacks on direct excess commercial business when appropriate to improve the certainty of the liabilities. At the end of 2019, 72.2% of the direct excess gross case reserves were attributable to settlement agreements. This group also manages other direct commercial and assumed reinsurance business in runoff and engages in reinsurance ceded and assumed commutations as required or when considered economically advantageous.

Changes in the reserves established for asbestos, environmental and other discontinued lines losses have occurred and may continue. Reserve changes can be caused by new information relating to new and additional claims, new exposures or the impact of resolving unsettled claims based on unanticipated events such as arbitrations, litigation, legislative, judicial or regulatory actions. Environmental losses may also increase as the result of additional funding for environmental site clean-up.

Challenges related to the concentration of insurance and reinsurance claims from companies who specialize in this business continue to be addressed.

## Corporate and Other Segment

Our Corporate and Other segment is comprised of holding company activities and certain non-insurance operations.



## Forward-Looking Statements

This report 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. 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. We believe these statements are based on reasonable estimates, assumptions and plans. 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. Factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements include risks related to:

Insurance and Financial Services (1) unexpected increases in claim frequency and severity; (2) catastrophes and severe weather events; (3) limitations in analytical models used for loss cost estimates; (4) price competition and changes in underwriting standards (5) actual claims costs exceeding current reserves; (6) market risk and declines in credit quality of our investment portfolio; (7) our subjective determination of fair value and the amount of realized capital losses recorded for impairments of our investments; (8) the impact of changes in market interest rates or performance-based investment returns on our annuity business; (9) the impact of changes in reserve estimates and amortization of deferred acquisition costs on our life, benefits and annuity businesses; (10) our participation in indemnification programs, including state industry pools and facilities; (11) our ability to mitigate the capital impact associated with statutory reserving and capital requirements; (12) a downgrade in financial strength ratings; (13) changes in tax laws;

Business, Strategy and Operations (14) competition in the insurance industry and new or changing technologies; (15) implementation of our transformative growth plan; (16) our catastrophe management strategy; (17) restrictions on our subsidiaries' ability to pay dividends; (18) restrictions under terms of certain of our securities on our ability to pay dividends or repurchase our stock; (19) the availability of reinsurance at current level and prices; (20) counterparty risk related to reinsurance; (21) acquisitions and divestitures of businesses; (22) intellectual property infringement, misappropriation and third-party claims;

Macro, Regulatory and Risk Environment (23) conditions in the global economy and capital and credit markets; (24) a large scale pandemic, or occurrence of terrorism or military actions; (25) the failure in cyber or other information security controls, or the occurrence of events unanticipated in our disaster recovery processes and business continuity planning; (26) changing climate and weather conditions; (27) restrictive regulations and regulatory reforms, including limitations on rate increases and requirements to underwrite business and participate in loss sharing arrangements; (28) losses from legal and regulatory actions; (29) changes in or the application of accounting standards; (30) loss of key vendor relationships or failure of a vendor to protect our data or confidential, proprietary and personal information; (31) our ability to attract, develop and retain key personnel; and (32) misconduct or fraudulent acts by employees, agents and third parties.

Additional information concerning these and other factors may be found in our filings with the Securities and Exchange Commission, including the “Risk Factors” section in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statement.



## Common stock performance graph

The following performance graph compares the cumulative total shareholder return on Allstate common stock for a five-year period (December 31, 2014 to December 31, 2019) with the cumulative total return of the S&P Property and Casualty Insurance Index (S&P P/C) and the S&P's 500 stock index.

Value at Each Year-End
of $100 Initial Investment Made on December 31, 2014



<table><tr><td colspan="9">Value at each year-end of $100 initial investment made on December 31, 2014</td></tr><tr><td></td><td colspan="2">12/31/2014</td><td colspan="2">12/31/2015</td><td colspan="2">12/31/2016</td><td colspan="2">12/31/2017</td></tr><tr><td>Allstate</td><td>$</td><td>100.00</td><td>$</td><td>90.04</td><td>$</td><td>109.58</td><td>$</td><td>157.38</td></tr><tr><td>S&amp;P P/C</td><td>$</td><td>100.00</td><td>$</td><td>109.53</td><td>$</td><td>126.73</td><td>$</td><td>155.10</td></tr><tr><td>S&amp;P 500</td><td>$</td><td>100.00</td><td>$</td><td>101.37</td><td>$</td><td>113.49</td><td>$</td><td>138.26</td></tr></table>



<table><tr><td colspan="6">5-year summary of selected financial data</td></tr><tr><td>($ in millions, except per share data)</td><td>2019</td><td>2018</td><td>2017</td><td>2016</td><td>2015</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>$ 38,577</td><td>$ 36,513</td><td>$ 34,678</td><td>$ 33,582</td><td>$ 32,467</td></tr><tr><td>Other revenue</td><td>1,054</td><td>939</td><td>883</td><td>865</td><td>863</td></tr><tr><td>Net investment income</td><td>3,159</td><td>3,240</td><td>3,401</td><td>3,042</td><td>3,156</td></tr><tr><td>Realized capital gains and losses (1)</td><td>1,885</td><td>(877)</td><td>445</td><td>(90)</td><td>30</td></tr><tr><td>Total revenues</td><td>44,675</td><td>39,815</td><td>39,407</td><td>37,399</td><td>36,516</td></tr><tr><td>Net income applicable to common shareholders</td><td>4,678</td><td>2,012</td><td>3,438</td><td>1,692</td><td>2,138</td></tr><tr><td>Net income applicable to common shareholders per common share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income applicable to common shareholders per common share - Basic</td><td>14.25</td><td>5.78</td><td>9.50</td><td>4.54</td><td>5.33</td></tr><tr><td>Net income applicable to common shareholders per common share - Diluted</td><td>14.03</td><td>5.70</td><td>9.35</td><td>4.48</td><td>5.26</td></tr><tr><td>Cash dividends declared per common share</td><td>2.00</td><td>1.84</td><td>1.48</td><td>1.32</td><td>1.20</td></tr><tr><td>Consolidated Financial Position</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Investments</td><td>$ 88,362</td><td>$ 81,260</td><td>$ 82,803</td><td>$ 81,799</td><td>$ 77,758</td></tr><tr><td>Total assets</td><td>119,950</td><td>112,249</td><td>112,422</td><td>108,610</td><td>104,656</td></tr><tr><td>Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds</td><td>57,704</td><td>58,002</td><td>58,308</td><td>57,749</td><td>57,411</td></tr><tr><td>Long-term debt</td><td>6,631</td><td>6,451</td><td>6,350</td><td>6,347</td><td>5,124</td></tr><tr><td>Shareholders&#x27; equity</td><td>25,998</td><td>21,312</td><td>22,551</td><td>20,569</td><td>20,020</td></tr><tr><td>Shareholders&#x27; equity per diluted common share</td><td>73.12</td><td>57.56</td><td>57.58</td><td>50.76</td><td>47.33</td></tr></table>

(1) Due to the adoption of a new accounting standard for the recognition and measurement of financial assets and financial liabilities, the periodic change in fair value of equity investments is recognized within realized capital gains and losses on the Consolidated Statements of Operations effective January 1, 2018. As a result, 2019 and 2018 net realized capital gains and losses are not comparable to other periods presented.



## 2019 Highlights

## 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 consolidated financial statements and related notes.

This section of this Form 10-K generally discusses 2019 and 2018 results and year-to-year comparisons between 2019 and 2018. Discussions of 2017 results and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis (“MD&A”) in Part II, Item 7 of our annual report on Form 10-K for 2018, filed February 15, 2019, and the Company’s Current Report on Form 8-K filed on May 16, 2019, Exhibit 99.1, reflecting the Company’s 2018 Form 10-K with adjustments to Part II. Item 6., Item 7. and Item 8. for the Company’s change in accounting principle for pension and other postretirement benefit plans.

The most important factors we monitor to evaluate the financial condition and performance for our reportable segments and the Company include:

- Allstate Protection: premium, policies in force (“PIF”), new business sales, policy retention, price changes, claim frequency and severity, catastrophes, loss ratio, expenses, underwriting results, and relative competitive position.

- Service Businesses: revenues, premium written, PIF, adjusted net income and net income.

- Allstate Life: premiums and contract charges, new business sales, PIF, benefit spread, investment spread, expenses, adjusted net income and net income.

- Allstate Benefits: premiums, new business sales, PIF, benefit ratio, expenses, adjusted net income and net income.

- Allstate Annuities: investment spread, asset-liability matching, contract benefits, expenses, adjusted net income, net income and invested assets.

- Investments: exposure to market risk, asset allocation, credit quality/experience, total return, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns, and asset and liability duration.

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

## Measuring segment profit or loss

The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Discontinued Lines and Coverages segments and adjusted net income for the Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other segments.

Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense (“losses”), amortization of deferred policy acquisition costs (“DAC”), operating costs and expenses, restructuring and related charges and amortization or impairment of purchased intangibles, as determined using accounting principles generally accepted in the United States of America (“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. Underwriting income is reconciled to net income applicable to common shareholders in the Property-Liability Operations section of Management’s Discussion and Analysis (“MD&A”).

Adjusted net income is net income applicable to common shareholders, 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 adjusted net income

• Pension and other postretirement remeasurement gains and losses, after-tax

• Valuation changes on embedded derivatives not hedged, after-tax

• Amortization of DAC and deferred sales inducement costs (“DSI”), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives not hedged, after-tax

• Business combination expenses and the amortization or impairment of purchased intangible assets, after-tax

• Gain (loss) on disposition of operations, after-tax

- 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

Adjusted net income is reconciled to net income applicable to common shareholders in the Service Businesses, Allstate Life, Allstate Benefits and Allstate Annuities Segment sections of MD&A.



<table><tr><td colspan="2">Allstate Delivered on 2019 Operating Priorities (1)</td></tr><tr><td>Better Serve Customers</td><td>Enterprise Net Promoter Score increased with improvement at most businesses</td></tr><tr><td>Grow Customer Base</td><td>Total policies in force reached 145.9 million, a 27.7% increase from prior year</td></tr><tr><td>Achieve Target Returns on Capital</td><td>Property-Liability policies increased 1.3% from prior year to 33.7 million</td></tr><tr><td>Proactively Manage Investments</td><td>Strong results in Property-Liability insurance with a combined ratio of 92.0</td></tr><tr><td></td><td>21.7% return on average common shareholders&#x27; equity in 2019</td></tr><tr><td></td><td>Net investment income of $3.2 billion in 2019 reflects higher market-based portfolio yields</td></tr><tr><td></td><td>Performance-based results were below expectations, but long-term returns have been strong</td></tr><tr><td></td><td>Total return of 9.2% on $88.4 billion investment portfolio in 2019</td></tr><tr><td></td><td>Accelerating Transformative Growth Plan</td></tr><tr><td>Build Long-Term Growth Platforms</td><td>Arity continued to expand telematics usage and capabilities</td></tr><tr><td></td><td>Expanding Allstate Identity Protection</td></tr></table>

(1) 2020 operating priorities will remain consistent with the 2019 priorities.

<table><tr><td colspan="3">Consolidated Net Income</td></tr><tr><td colspan="3">($ in millions)</td></tr><tr><td>$6,000</td><td>$4,678</td><td></td></tr><tr><td>$4,000</td><td>$2,012</td><td>$3,438</td></tr><tr><td>$2,000</td><td></td><td></td></tr><tr><td>$0</td><td>2019</td><td>2018</td></tr><tr><td>2017</td><td></td><td></td></tr></table>

<table><tr><td colspan="3">Total Revenue</td></tr><tr><td colspan="3">(\( in millions)</td></tr><tr><td>$60,000</td><td>$44,675</td><td>$39,815</td></tr><tr><td>$40,000</td><td></td><td></td></tr><tr><td>$20,000</td><td></td><td></td></tr><tr><td>$0</td><td>2019</td><td>2018</td></tr><tr><td>2017</td><td></td><td></td></tr></table>

<table><tr><td colspan="3">Net Investment Income</td></tr><tr><td colspan="3">(\( in millions)</td></tr><tr><td>$4,000</td><td>$3,159</td><td>$3,240</td></tr><tr><td>$2,000</td><td></td><td></td></tr><tr><td>$0</td><td>2019</td><td>2018</td></tr></table>



## Summarized financial results

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">Years Ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Property and casualty insurance premiums</td><td>$ 36,076</td><td>$ 34,048</td><td>$ 32,300</td></tr><tr><td>Life premiums and contract charges</td><td>2,501</td><td>2,465</td><td>2,378</td></tr><tr><td>Other revenue</td><td>1,054</td><td>939</td><td>883</td></tr><tr><td>Net investment income</td><td>3,159</td><td>3,240</td><td>3,401</td></tr><tr><td>Realized capital gains and losses</td><td>1,885</td><td>(877)</td><td>445</td></tr><tr><td>Total revenues</td><td>44,675</td><td>39,815</td><td>39,407</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Property and casualty insurance claims and claims expense</td><td>(23,976)</td><td>(22,778)</td><td>(21,847)</td></tr><tr><td>Life contract benefits and interest credited to contractholder funds</td><td>(2,679)</td><td>(2,627)</td><td>(2,613)</td></tr><tr><td>Amortization of deferred policy acquisition costs</td><td>(5,533)</td><td>(5,222)</td><td>(4,784)</td></tr><tr><td>Operating, restructuring and interest expenses</td><td>(6,058)</td><td>(5,993)</td><td>(5,627)</td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>(114)</td><td>(468)</td><td>217</td></tr><tr><td>Amortization of purchased intangibles</td><td>(126)</td><td>(105)</td><td>(99)</td></tr><tr><td>Impairment of goodwill and purchased intangibles</td><td>(106)</td><td>—</td><td>(125)</td></tr><tr><td>Total costs and expenses</td><td>(38,592)</td><td>(37,193)</td><td>(34,878)</td></tr><tr><td>Gain on disposition of operations</td><td>6</td><td>6</td><td>20</td></tr><tr><td>Income tax expense</td><td>(1,242)</td><td>(468)</td><td>(995)</td></tr><tr><td>Net income</td><td>4,847</td><td>2,160</td><td>3,554</td></tr><tr><td>Preferred stock dividends</td><td>(169)</td><td>(148)</td><td>(116)</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,678</td><td>$ 2,012</td><td>$ 3,438</td></tr></table>

## Segment Highlights

Allstate Protection underwriting income totaled $2.91 billion in 2019, a 24.3% increase from $2.34 billion in 2018, primarily due to increased premiums earned and lower catastrophe losses, partially offset by higher non-catastrophe losses and amortization of DAC.

Catastrophe losses were $2.56 billion in 2019 compared to $2.86 billion in 2018.

Premiums written increased 5.6% to $35.42 billion in 2019 compared to 2018.

Service Businesses adjusted net income was $38 million in 2019 compared to $8 million in 2018. The improvement in 2019 was primarily due to growth of Allstate Protection Plans, favorable loss experience of both Allstate Protection Plans and Allstate Dealer Services, partially offset by higher operating expenses related to investing in growth and developing new products and distribution channels for Allstate Protection Plans and Allstate Identity Protection.

Total revenues increased 25.1% or $331 million to $1.65 billion in 2019 from $1.32 billion in 2018.

Allstate Life adjusted net income was $261 million in 2019 compared to $295 million in 2018. The decrease was primarily due to higher amortization of DAC related to our annual review of assumptions and higher contract benefits, partially offset by higher premiums and net investment income, and lower operating costs and expenses.

Premiums and contract charges totaled $1.34 billion in 2019, an increase of 2.1% from $1.32 billion in 2018.
Allstate Benefits adjusted net income was $115 million in 2019 compared to $124 million in 2018. The decrease was primarily due to higher DAC amortization related primarily to the non-renewal of a large underperforming account and increased operating costs and expenses, partially offset by higher premiums.

Premiums and contract charges totaled $1.15 billion in 2019, an increase of 0.9% from $1.14 billion in 2018.

Allstate Annuities adjusted net income was $10 million in 2019 compared to $131 million in 2018. The decrease was primarily due to lower net investment income, partially offset by lower interest credited to contractholder funds.

Net investment income decreased 16.3% to $917 million in 2019 from $1.10 billion in 2018. The decrease was primarily due to lower performance-based investment results, mainly from limited partnerships, and lower average investment balances.



## Financial Highlights

Investments totaled $88.36 billion as of December 31, 2019, increasing from $81.26 billion as of December 31, 2018. Unrealized net capital gains totaled $2.74 billion as of December 31, 2019 compared to net unrealized capital gains of $33 million as of December 31, 2018.

Shareholders’ equity As of December 31, 2019, shareholders’ equity was $26.00 billion. This total included $2.30 billion in deployable assets at the parent holding company level comprising cash and investments that are generally saleable within one quarter.

Book value per diluted common share (ratio of common shareholders' equity to total common shares outstanding and dilutive potential common shares outstanding) was $73.12 as of December 31, 2019, an increase of 27.03% from $57.56 as of December 31, 2018.
Return on average common shareholders’ equity For the twelve months ended December 31, 2019, net income applicable to common shareholders’ return on the average of beginning and ending period common shareholders’ equity of 21.7% increased by 11.7 points from 10.0% for the twelve months ended December 31, 2018, primarily due to higher net income applicable to common shareholders, partially offset by an increase in average common shareholders’ equity.

Pension and other postretirement measurement gains and losses Pension and other postretirement measurement losses were $114 million in 2019 compared to losses of $468 million in 2018. The decrease was primarily related to favorable asset performance compared to the expected return on plan assets, partially offset by a decrease in the discount rate used to value the liabilities. See Note 17 of the consolidated financial statements for further information.



## Property-Liability Operations

Overview Property-Liability operations consist of two reportable segments: Allstate Protection and Discontinued Lines and Coverages. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.

We do 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 level for decision-making purposes.

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:

- 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, amortization or impairment of purchased intangibles and restructuring and related charges, less other revenue to premiums earned.

- 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 ratio 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 ratio 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 amortization of purchased intangibles on combined ratio: the ratio of amortization of purchased intangibles to premiums earned.

- Effect of impairment of purchased intangibles on combined ratio: the ratio of impairment of purchased intangibles to premiums earned.

- Effect of restructuring and related charges on combined ratio: the ratio of restructuring and related charges to premiums earned.

- Effect of Discontinued Lines and Coverages on combined ratio: the ratio of claims and claims expense and operating costs and 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.



<table><tr><td colspan="4">Summarized financial data</td></tr><tr><td>($ in millions, except ratios)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Premiums written</td><td>$ 35,419</td><td>$ 33,555</td><td>$ 31,648</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Premiums earned</td><td>$ 34,843</td><td>$ 32,950</td><td>$ 31,433</td></tr><tr><td>Other revenue</td><td>741</td><td>738</td><td>703</td></tr><tr><td>Net investment income</td><td>1,533</td><td>1,464</td><td>1,478</td></tr><tr><td>Realized capital gains and losses</td><td>1,470</td><td>(639)</td><td>401</td></tr><tr><td>Total revenues</td><td>38,587</td><td>34,513</td><td>34,015</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Claims and claims expense</td><td>(23,622)</td><td>(22,435)</td><td>(21,484)</td></tr><tr><td>Amortization of DAC</td><td>(4,649)</td><td>(4,475)</td><td>(4,205)</td></tr><tr><td>Operating costs and expenses</td><td>(4,420)</td><td>(4,465)</td><td>(4,164)</td></tr><tr><td>Restructuring and related charges</td><td>(38)</td><td>(60)</td><td>(78)</td></tr><tr><td>Impairment of purchased intangibles (1)</td><td>(51)</td><td>—</td><td>—</td></tr><tr><td>Total costs and expenses</td><td>(32,780)</td><td>(31,435)</td><td>(29,931)</td></tr><tr><td>Gain on disposition of operations</td><td>—</td><td>—</td><td>14</td></tr><tr><td>Income tax expense</td><td>(1,196)</td><td>(613)</td><td>(1,285)</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,611</td><td>$ 2,465</td><td>$ 2,813</td></tr><tr><td>Underwriting income</td><td>$ 2,804</td><td>$ 2,253</td><td>$ 2,205</td></tr><tr><td>Net investment income</td><td>1,533</td><td>1,464</td><td>1,478</td></tr><tr><td>Income tax expense on operations</td><td>(887)</td><td>(747)</td><td>(1,187)</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>1,161</td><td>(500)</td><td>272</td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>—</td><td>—</td><td>9</td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(5)</td><td>36</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,611</td><td>$ 2,465</td><td>$ 2,813</td></tr><tr><td>Catastrophe losses</td><td></td><td></td><td></td></tr><tr><td>Catastrophe losses, excluding reserve reestimates</td><td>$ 2,509</td><td>$ 2,830</td><td>$ 3,246</td></tr><tr><td>Catastrophe reserve reestimates (2)</td><td>48</td><td>25</td><td>(18)</td></tr><tr><td>Total catastrophe losses</td><td>$ 2,557</td><td>$ 2,855</td><td>$ 3,228</td></tr><tr><td>Non-catastrophe reserve reestimates (2)</td><td>(176)</td><td>(278)</td><td>(487)</td></tr><tr><td>Prior year reserve reestimates (2)</td><td>(128)</td><td>(253)</td><td>(505)</td></tr><tr><td>GAAP operating ratios</td><td></td><td></td><td></td></tr><tr><td>Loss ratio</td><td>67.8</td><td>68.1</td><td>68.4</td></tr><tr><td>Expense ratio (3)</td><td>24.2</td><td>25.1</td><td>24.6</td></tr><tr><td>Combined ratio</td><td>92.0</td><td>93.2</td><td>93.0</td></tr><tr><td>Effect of catastrophe losses on combined ratio</td><td>7.3</td><td>8.7</td><td>10.3</td></tr><tr><td>Effect of prior year reserve reestimates on combined ratio</td><td>(0.3)</td><td>(0.7)</td><td>(1.6)</td></tr><tr><td>Effect of catastrophe losses included in prior year reserve reestimates on combined ratio</td><td>0.1</td><td>0.1</td><td>(0.1)</td></tr><tr><td>Effect of restructuring and related charges on combined ratio</td><td>0.1</td><td>0.2</td><td>0.2</td></tr><tr><td>Effect of impairment of purchased intangibles (1)</td><td>0.1</td><td>—</td><td>—</td></tr><tr><td>Effect of Discontinued Lines and Coverages on combined ratio</td><td>0.4</td><td>0.3</td><td>0.3</td></tr></table>

(1) Our Transformative Growth Plan included a decision to reposition the Allstate brand for broader customer access, resulting in a $51 million impairment for the Assurance brand trade name. See the Assurance section of the MD&A for further details.

(2) Favorable reserve reestimates are shown in parentheses.

(3) Other revenue is deducted from operating costs and expenses in the expense ratio calculation.



## Property-Liability

Net investment income increased 4.7% or $69 million in 2019 compared to 2018, due to higher income from market-based portfolios, partially offset by lower performance-based investment results, mainly from limited partnerships. 2019 performance-based investment results included lower valuations in the fourth quarter, on two private equity investments totaling $37 million. We increased the maturity profile of fixed income securities in our Property-Liability portfolio to a duration of 5.2 years as of December 31, 2019 compared to 4.1 years as of December 31, 2018.

<table><tr><td colspan="5">Net investment income</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Fixed income securities</td><td>$ 1,066</td><td>$ 943</td><td>$ 909</td><td></td></tr><tr><td>Equity securities</td><td>155</td><td>121</td><td>122</td><td></td></tr><tr><td>Mortgage loans</td><td>17</td><td>17</td><td>12</td><td></td></tr><tr><td>Limited partnership interests</td><td>296</td><td>378</td><td>432</td><td></td></tr><tr><td>Short-term investments</td><td>56</td><td>40</td><td>17</td><td></td></tr><tr><td>Other</td><td>107</td><td>123</td><td>100</td><td></td></tr><tr><td>Investment income, before expense</td><td>1,697</td><td>1,622</td><td>1,592</td><td></td></tr><tr><td>Investment expense (1) (2)</td><td>(164)</td><td>(158)</td><td>(114)</td><td></td></tr><tr><td>Net investment income</td><td>$ 1,533</td><td>$ 1,464</td><td>$ 1,478</td><td></td></tr></table>

(1) Investment expense includes $51 million and $45 million of investee level expenses in 2019 and 2018, respectively. Investee level expenses include depreciation and asset level operating expenses on directly held real estate and other consolidated investments.

(2) Investment expense includes $27 million and $18 million related to the portion of reinvestment income on securities lending collateral paid to the counterparties in 2019 and 2018, respectively.

Realized capital gains and losses Net realized capital gains in 2019, primarily related to increased valuation of equity investments and gains on sales of fixed income securities. Valuation of equity investments for 2019 includes $883 million of appreciation in the valuation of equity securities and $141 million of appreciation primarily related to certain limited partnerships where the underlying assets are predominantly public equity securities. Net realized capital losses in 2018, primarily related to decreases in the valuation of equity investments and losses on sales of fixed income securities.

<table><tr><td colspan="5">Realized capital gains and losses</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Impairment write-downs</td><td>$ (26)</td><td>$ (5)</td><td>$ (56)</td><td></td></tr><tr><td>Change in intent write-downs</td><td>—</td><td>—</td><td>(44)</td><td></td></tr><tr><td>Net OTTI losses recognized in earnings</td><td>(26)</td><td>(5)</td><td>(100)</td><td></td></tr><tr><td>Sales</td><td>498</td><td>(148)</td><td>531</td><td></td></tr><tr><td>Valuation of equity investments</td><td>1,024</td><td>(522)</td><td>—</td><td></td></tr><tr><td>Valuation and settlements of derivative instruments</td><td>(26)</td><td>36</td><td>(30)</td><td></td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>1,470</td><td>(639)</td><td>401</td><td></td></tr><tr><td>Income tax (expense) benefit</td><td>(309)</td><td>139</td><td>(129)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>$ 1,161</td><td>$ (500)</td><td>$ 272</td><td></td></tr></table>

Beginning January 1, 2018, equity securities are reported at fair value with changes in fair value recognized in realized capital gains and losses. Limited partnerships previously reported using the cost method are reported at fair value with changes in fair value recognized in net investment income. As a result, 2017 net investment income and net realized capital gains and losses are not comparable to other periods presented.



## Allstate Protection Segment

Private passenger auto, homeowners, and other personal lines insurance products are offered to consumers through agencies and directly through contact centers and online. Our strategy is to position product offerings and distribution channels to meet customers' needs and protect them from life's uncertainties. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="5">Underwriting results</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td>$ 35,419</td><td>$ 33,555</td><td>$ 31,648</td><td></td></tr><tr><td>Premiums earned</td><td>$ 34,843</td><td>$ 32,950</td><td>$ 31,433</td><td></td></tr><tr><td>Other revenue</td><td>741</td><td>738</td><td>703</td><td></td></tr><tr><td>Claims and claims expense</td><td>(23,517)</td><td>(22,348)</td><td>(21,388)</td><td></td></tr><tr><td>Amortization of DAC</td><td>(4,649)</td><td>(4,475)</td><td>(4,205)</td><td></td></tr><tr><td>Other costs and expenses</td><td>(4,417)</td><td>(4,462)</td><td>(4,161)</td><td></td></tr><tr><td>Restructuring and related charges</td><td>(38)</td><td>(60)</td><td>(78)</td><td></td></tr><tr><td>Impairment of purchased intangibles</td><td>(51)</td><td>—</td><td>—</td><td></td></tr><tr><td>Underwriting income</td><td>$ 2,912</td><td>$ 2,343</td><td>$ 2,304</td><td></td></tr><tr><td>Catastrophe losses</td><td>$ 2,557</td><td>$ 2,855</td><td>$ 3,228</td><td></td></tr><tr><td colspan="5"></td></tr><tr><td colspan="5">Underwriting income (loss) by line of business</td></tr><tr><td>Auto</td><td>$ 1,688</td><td>$ 1,791</td><td>$ 1,437</td><td></td></tr><tr><td>Homeowners</td><td>914</td><td>483</td><td>689</td><td></td></tr><tr><td>Other personal lines (1)</td><td>224</td><td>110</td><td>141</td><td></td></tr><tr><td>Commercial lines</td><td>14</td><td>(83)</td><td>(13)</td><td></td></tr><tr><td>Other business lines (2)</td><td>75</td><td>49</td><td>51</td><td></td></tr><tr><td>Answer Financial</td><td>(3)</td><td>(7)</td><td>(1)</td><td></td></tr><tr><td>Underwriting income</td><td>$ 2,912</td><td>$ 2,343</td><td>$ 2,304</td><td></td></tr></table>

(1) Other personal lines include renters, condominium, landlord and other personal lines products.

(2) Other business lines primarily represent Ivantage, a general agency for Allstate exclusive agencies. Ivantage provides agencies a solution for their customers when coverage through Allstate brand underwritten products is not available.



Changes in underwriting results from prior year by component and by line of business \( ^{(1)} \) 

<table><tr><td rowspan="3">($ in millions)</td><td colspan="12">For the year ended December 31,</td></tr><tr><td colspan="3">Auto</td><td colspan="3">Homeowners</td><td colspan="3">Other personal lines</td><td colspan="3">Commercial lines</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2020</td><td>2019</td><td>2020</td><td>2019</td><td>2020</td></tr><tr><td>Underwriting income (loss) - prior year</td><td>$1,791</td><td>$1,437</td><td>$ 483</td><td>$ 689</td><td>$ 110</td><td>$ 141</td><td>$ (83)</td><td>$ (13)</td><td>$2,343</td><td>$2,304</td><td></td><td></td><td></td></tr><tr><td>Changes in underwriting income (loss) from:</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><tr><td>Increase (decrease) premiums earned</td><td>1,218</td><td>1,092</td><td>395</td><td>207</td><td>53</td><td>58</td><td>227</td><td>160</td><td>1,893</td><td>1,517</td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) other revenue</td><td>1</td><td>30</td><td>—</td><td>3</td><td>(1)</td><td>4</td><td>—</td><td>(2)</td><td>3</td><td>35</td><td></td><td></td><td></td></tr><tr><td>(Increase) decrease incurred claims and claims expense (“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><td></td></tr><tr><td>Incurred losses, excluding catastrophe losses and reserve reestimates</td><td>(1,002)</td><td>(642)</td><td>(183)</td><td>(263)</td><td>21</td><td>(72)</td><td>(219)</td><td>(138)</td><td>(1,383)</td><td>(1,115)</td><td></td><td></td><td></td></tr><tr><td>Catastrophe losses, excluding reserve reestimates</td><td>(33)</td><td>336</td><td>294</td><td>92</td><td>51</td><td>(13)</td><td>9</td><td>1</td><td>321</td><td>416</td><td></td><td></td><td></td></tr><tr><td>Catastrophe reserve reestimates</td><td>(22)</td><td>24</td><td>(1)</td><td>(72)</td><td>(1)</td><td>4</td><td>1</td><td>1</td><td>(23)</td><td>(43)</td><td></td><td></td><td></td></tr><tr><td>Non-catastrophe reserve reestimates</td><td>(110)</td><td>(59)</td><td>(50)</td><td>(73)</td><td>(14)</td><td>4</td><td>90</td><td>(90)</td><td>(84)</td><td>(218)</td><td></td><td></td><td></td></tr><tr><td>Losses subtotal</td><td>(1,167)</td><td>(341)</td><td>60</td><td>(316)</td><td>57</td><td>(77)</td><td>(119)</td><td>(226)</td><td>(1,169)</td><td>(960)</td><td></td><td></td><td></td></tr><tr><td>(Increase) decrease expenses</td><td>(155)</td><td>(427)</td><td>(24)</td><td>(100)</td><td>5</td><td>(16)</td><td>(11)</td><td>(2)</td><td>(158)</td><td>(553)</td><td></td><td></td><td></td></tr><tr><td>Underwriting income (loss)</td><td>$1,688</td><td>$1,791</td><td>$ 914</td><td>$ 483</td><td>$ 224</td><td>$ 110</td><td>$ 14</td><td>$ (83)</td><td>$ 2,912</td><td>$ 2,343</td><td></td><td></td><td></td></tr></table>

(1) The 2019 column presents changes in 2019 compared to 2018. The 2018 column presents changes in 2018 compared to 2017.

(2) Includes other business lines underwriting income of $75 million and $49 million in 2019 and 2018, respectively, and Answer Financial underwriting loss of $3 million and $7 million in 2019 and 2018, respectively.

Underwriting income increased 24.3% or $569 million in 2019 compared to 2018, primarily due to increased premiums earned and lower catastrophe losses, partially offset by higher non-catastrophe losses and amortization of DAC.



Premiums written is the amount of premiums charged for policies issued during a fiscal period. 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 term of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position.

<table><tr><td colspan="5">Premiums written and earned by line of business</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 24,462</td><td>$ 23,367</td><td>$ 22,042</td><td></td></tr><tr><td>Homeowners</td><td>8,165</td><td>7,698</td><td>7,350</td><td></td></tr><tr><td>Other personal lines</td><td>1,890</td><td>1,831</td><td>1,768</td><td></td></tr><tr><td>Subtotal - Personal lines</td><td>34,517</td><td>32,896</td><td>31,160</td><td></td></tr><tr><td>Commercial lines</td><td>902</td><td>659</td><td>488</td><td></td></tr><tr><td>Total premiums written</td><td>$ 35,419</td><td>$ 33,555</td><td>$ 31,648</td><td></td></tr><tr><td>Reconciliation of premiums written to premiums earned:</td><td></td><td></td><td></td><td></td></tr><tr><td>Increase in unearned premiums</td><td>(614)</td><td>(544)</td><td>(258)</td><td></td></tr><tr><td>Other</td><td>38</td><td>(61)</td><td>43</td><td></td></tr><tr><td>Total premiums earned</td><td>$ 34,843</td><td>$ 32,950</td><td>$ 31,433</td><td></td></tr><tr><td>Auto</td><td>$ 24,188</td><td>$ 22,970</td><td>$ 21,878</td><td></td></tr><tr><td>Homeowners</td><td>7,912</td><td>7,517</td><td>7,310</td><td></td></tr><tr><td>Other personal lines</td><td>1,861</td><td>1,808</td><td>1,750</td><td></td></tr><tr><td>Subtotal - Personal lines</td><td>33,961</td><td>32,295</td><td>30,938</td><td></td></tr><tr><td>Commercial lines</td><td>882</td><td>655</td><td>495</td><td></td></tr><tr><td>Total premiums earned</td><td>$ 34,843</td><td>$ 32,950</td><td>$ 31,433</td><td></td></tr></table>

Auto insurance premiums written increased 4.7% or $1.10 billion in 2019 compared to 2018.

Homeowners insurance premiums written increased 6.1% or $467 million in 2019 compared to 2018.

<table><tr><td colspan="7">Unearned premium balance and the time frame in which we expect to recognize these premiums as earned</td></tr><tr><td></td><td colspan="3">As of December 31,</td><td colspan="3">% earned after</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>Three months</td><td>Six months</td><td>Nine months</td><td>Twelve months</td></tr><tr><td>Allstate brand:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 5,916</td><td>$ 5,635</td><td>70.9%</td><td>96.4%</td><td>99.1%</td><td>100.0%</td></tr><tr><td>Homeowners</td><td>4,158</td><td>3,908</td><td>43.3%</td><td>75.5%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Other personal lines</td><td>950</td><td>917</td><td>43.5%</td><td>75.5%</td><td>94.1%</td><td>100.0%</td></tr><tr><td>Commercial lines</td><td>270</td><td>250</td><td>43.4%</td><td>74.7%</td><td>93.7%</td><td>100.0%</td></tr><tr><td>Total Allstate brand</td><td>11,294</td><td>10,710</td><td>58.0%</td><td>86.6%</td><td>96.8%</td><td>100.0%</td></tr><tr><td>Eurance brand:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>489</td><td>471</td><td>74.4%</td><td>99.1%</td><td>99.8%</td><td>100.0%</td></tr><tr><td>Homeowners</td><td>62</td><td>53</td><td>43.4%</td><td>75.6%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Other personal lines</td><td>2</td><td>2</td><td>43.6%</td><td>75.5%</td><td>94.2%</td><td>100.0%</td></tr><tr><td>Total Eurance brand</td><td>553</td><td>526</td><td>70.8%</td><td>96.3%</td><td>99.1%</td><td>100.0%</td></tr><tr><td>Encompass brand:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>276</td><td>275</td><td>44.1%</td><td>75.9%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Homeowners</td><td>214</td><td>212</td><td>43.9%</td><td>75.8%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Other personal lines</td><td>41</td><td>42</td><td>44.2%</td><td>76.0%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Total Encompass brand</td><td>531</td><td>529</td><td>44.0%</td><td>75.9%</td><td>94.3%</td><td>100.0%</td></tr><tr><td>Allstate Protection unearned premiums</td><td>$ 12,378</td><td>$ 11,765</td><td>57.9%</td><td>86.5%</td><td>96.8%</td><td>100.0%</td></tr></table>



<table><tr><td colspan="11">Combined ratios by line of business</td></tr><tr><td rowspan="2"></td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Expense ratio \( ^{(1)} \)</td><td colspan="4">Combined ratio</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Auto</td><td>68.2</td><td>66.8</td><td>68.5</td><td>24.8</td><td>25.4</td><td>24.9</td><td>93.0</td><td>92.2</td><td>93.4</td><td></td></tr><tr><td>Homeowners</td><td>65.1</td><td>69.4</td><td>67.0</td><td>23.3</td><td>24.2</td><td>23.6</td><td>88.4</td><td>93.6</td><td>90.6</td><td></td></tr><tr><td>Other personal lines</td><td>61.1</td><td>66.0</td><td>63.8</td><td>26.9</td><td>27.9</td><td>28.1</td><td>88.0</td><td>93.9</td><td>91.9</td><td></td></tr><tr><td>Commercial lines</td><td>81.3</td><td>91.3</td><td>75.1</td><td>17.1</td><td>21.4</td><td>27.5</td><td>98.4</td><td>112.7</td><td>102.6</td><td></td></tr><tr><td>Total</td><td>67.5</td><td>67.8</td><td>68.1</td><td>24.1</td><td>25.1</td><td>24.6</td><td>91.6</td><td>92.9</td><td>92.7</td><td></td></tr></table>

 \( ^{(1)} \)  Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

<table><tr><td rowspan="3"></td><td colspan="12">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Effect of catastrophe losses on combined ratio</td><td colspan="3">Effect of prior year reserve reestimates on combined ratio</td><td colspan="3">Effect of catastrophe losses included in prior year reserve reestimates on combined ratio</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>68.2</td><td>66.8</td><td>68.5</td><td>1.7</td><td>1.6</td><td>3.3</td><td>(1.4)</td><td>(2.0)</td><td>(2.3)</td><td>(0.1)</td><td>(0.2)</td><td>(0.1)</td></tr><tr><td>Homeowners</td><td>65.1</td><td>69.4</td><td>67.0</td><td>24.8</td><td>30.0</td><td>31.1</td><td>0.8</td><td>0.2</td><td>(1.7)</td><td>0.8</td><td>0.8</td><td>(0.1)</td></tr><tr><td>Other personal lines</td><td>61.1</td><td>66.0</td><td>63.8</td><td>9.0</td><td>12.1</td><td>11.9</td><td>0.5</td><td>(0.4)</td><td>0.1</td><td>—</td><td>—</td><td>0.2</td></tr><tr><td>Commercial lines</td><td>81.3</td><td>91.3</td><td>75.1</td><td>1.4</td><td>3.4</td><td>4.8</td><td>1.9</td><td>16.5</td><td>3.9</td><td>(0.1)</td><td>—</td><td>0.2</td></tr><tr><td>Total</td><td>67.5</td><td>67.8</td><td>68.1</td><td>7.3</td><td>8.7</td><td>10.3</td><td>(0.7)</td><td>(1.0)</td><td>(1.9)</td><td>0.1</td><td>0.1</td><td>(0.1)</td></tr></table>

Catastrophe losses decreased 10.4% or $298 million in 2019 compared to 2018. 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 a winter weather 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 and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, wildfires or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.

<table><tr><td colspan="7">Catastrophe losses in 2019 by the size of event</td></tr><tr><td>($ in millions)</td><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 loss</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>1.0%</td><td>$362</td><td>14.1%</td><td>1.0</td><td>$362</td></tr><tr><td>$101 million to $250 million</td><td>2</td><td>1.8</td><td>342</td><td>13.4</td><td>1.0</td><td>171</td></tr><tr><td>$50 million to $100 million</td><td>9</td><td>8.2</td><td>662</td><td>25.9</td><td>1.9</td><td>74</td></tr><tr><td>Less than $50 million</td><td>98</td><td>89.0</td><td>1,143</td><td>44.7</td><td>3.3</td><td>12</td></tr><tr><td>Total</td><td>110</td><td>100.0%</td><td>2,509</td><td>98.1</td><td>7.2</td><td>23</td></tr><tr><td>Prior year reserve reestimates</td><td></td><td></td><td>48</td><td>1.9</td><td>0.1</td><td></td></tr><tr><td>Total catastrophe losses</td><td></td><td></td><td>$2,557</td><td>100.0%</td><td>7.3</td><td></td></tr></table>

<table><tr><td colspan="7">Catastrophe losses by the type of event</td></tr><tr><td></td><td colspan="6">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>Number of events</td><td>2019</td><td>Number of events</td><td>2018</td><td>Number of events</td><td>2017</td></tr><tr><td>Hurricanes/Tropical storms</td><td>3</td><td>$ 86</td><td>3</td><td>$ 200</td><td>3</td><td>$ 613</td></tr><tr><td>Tornadoes</td><td>6</td><td>551</td><td>3</td><td>17</td><td>3</td><td>100</td></tr><tr><td>Wind/Hail</td><td>91</td><td>1,721</td><td>99</td><td>1,752</td><td>93</td><td>1,973</td></tr><tr><td>Wildfires</td><td>4</td><td>28</td><td>10</td><td>745</td><td>10</td><td>536</td></tr><tr><td>Other events</td><td>6</td><td>123</td><td>2</td><td>116</td><td>2</td><td>24</td></tr><tr><td>Prior year reserve reestimates</td><td></td><td>48</td><td></td><td>25</td><td></td><td>(18)</td></tr><tr><td>Total catastrophe losses</td><td>110</td><td>$2,557</td><td>117</td><td>$2,855</td><td>111</td><td>$3,228</td></tr></table>



## Catastrophe management

Historical catastrophe experience For the last ten years, the average annual impact of catastrophes on our loss ratio was 8.3 points, but it has varied from 4.5 points to 14.7 points. The average annual impact of catastrophes on the homeowners loss ratio for the last ten years was 26.8 points. 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 by our participation in various state facilities. For further discussion of these facilities, see Note 14 of the consolidated financial statements. 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 have continued to take actions to maintain an appropriate level of exposure to catastrophic events while continuing to meet the needs of our customers, including the following:

• Continuing to limit or not offer new homeowners, manufactured home and landlord package policy business in certain coastal geographies.

• Increased capacity in our brokerage platform for customers not offered an Allstate policy.

• We began to write a limited number of homeowners policies in select areas of California in 2016, additionally we:

– Continue to renew current policyholders and allow replacement policies for existing customers who buy a new home or change their residence to rental property

– Have decreased our overall homeowner exposures in California by more than 50% since 2007

– Write homeowners coverage through our excess and surplus lines carrier, North Light Specialty Insurance Company (“North Light”), which includes earthquake coverage (other than fire following earthquakes) that is currently ceded via quota share reinsurance.

- In certain states, we have been ceding wind exposure related to insured property located in wind pool eligible areas.

- Starting in the second quarter of 2017, we began writing a limited number of homeowners policies in select areas of Florida and continue to support existing customers who replace their currently-insured home with an acceptable property. Encompass withdrew from property lines in Florida in 2009.
- Tropical cyclone deductibles are generally higher than all peril deductibles and are in place for a large portion of coastal insured properties.

• Auto comprehensive damage coverage generally includes coverage for flood-related loss. We have additional catastrophe exposure, beyond the property lines, for auto customers who have purchased comprehensive damage coverage.

• We offer a homeowners policy available in 43 states, Allstate House and Home \( ^{®} \) , that provides options of coverage for roof damage, including graduated coverage and pricing based on roof type and age. In 2019, premiums written totaled 3.44 billion or 42.1% of homeowners premiums written compared to 2.84 billion or 36.9% in 2018.

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. The average premium on a property policy near these coasts is generally greater than in other areas. However, average premiums are often not considered commensurate with the inherent risk of loss. In addition, as explained in Note 14 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, landlord package policy and manufactured home new business writings in coastal areas in southern and eastern states, implementing tropical cyclone deductibles where appropriate, 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 adequate risk adjusted returns can be achieved.

Earthquakes We do not offer earthquake coverage in most states. We retain approximately 22,000 PIF with earthquake coverage, primarily in Kentucky, due to regulatory and other reasons. We purchase reinsurance in Kentucky and enter into arrangements in many states to make earthquake coverage available through our brokerage platform.

We 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 California are offered homeowners coverage through the California Earthquake Authority (“CEA”), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to



## Allstate Protection

assessments from the CEA under certain circumstances as explained in Note 14 of the consolidated financial statements. While North Light writes property policies in California, which can include earthquake coverage, this coverage is 100% ceded via quota share reinsurance.

Fires following earthquakes Under a standard homeowners policy we cover fire losses, including those caused by an earthquake. Actions taken related to our risk of loss from fires following earthquakes include restrictive underwriting guidelines in California for new business writings, purchasing reinsurance for Kentucky personal lines property risks, and purchasing nationwide occurrence reinsurance, excluding Florida.

Wildfires Actions taken related to managing our risk of loss from wildfires include purchasing nationwide occurrence reinsurance, new and renewal inspection programs to identify and remediate wildfire risk as well as leveraging contemporary underwriting tools in select areas. While these programs are designed to mitigate risk, the exposure to wildfires still exists. We continue to manage our exposure and seek appropriate returns for the risks we write.

To manage the exposure, this may require further actions, similar to those already taken, in geographies where we are not achieving appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved.
Reinsurance A description of our current catastrophe reinsurance program appears in Note 10 of the consolidated financial statements.

California wildfire subrogation PG&E Corporation and Pacific Gas and Electric Company (together, "PG&E") have reached agreements to resolve insurance subrogation and tort claimants' claims arising from the 2017 Northern California wildfires and the 2018 Camp Fire for $11 billion and $13.5 billion, respectively. Allstate is one of the insurance companies that is party to the agreement with subrogating insurers. PG&E has also reached agreement to settle claims of its bondholders.

The settlements with insurers and tort claimants have been approved by the bankruptcy court overseeing PG&E's Chapter 11 case. The settlement with the bondholders has not yet been approved. All will be subject to confirmation of a Plan of Reorganization, which has not yet occurred. There remain other uncertainties with respect to the ultimate resolution of all claims, including the allocation of benefits among claimants and the amount of recovery, if any, that we may receive. Accordingly, we have not recorded any benefit related to the potential proceeds from the subrogation settlement agreement in the consolidated financial statements. We will continue to monitor this matter.

Expense ratio decreased 1.0 point in 2019 compared to 2018.

<table><tr><td colspan="4">Impact of specific costs and expenses on the expense ratio</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Amortization of DAC</td><td>13.4</td><td>13.6</td><td>13.4</td></tr><tr><td>Advertising expense</td><td>2.4</td><td>2.5</td><td>2.2</td></tr><tr><td>Other costs and expenses</td><td>8.1</td><td>8.8</td><td>8.8</td></tr><tr><td>Restructuring and related charges</td><td>0.1</td><td>0.2</td><td>0.2</td></tr><tr><td>Impairment of purchased intangibles</td><td>0.1</td><td>—</td><td>—</td></tr><tr><td>Total expense ratio</td><td>24.1</td><td>25.1</td><td>24.6</td></tr></table>

Deferred acquisition costs We establish a DAC asset for costs that are related directly to the successful acquisition of new or renewal insurance policies, principally agency remuneration and premium taxes. DAC is amortized to income over the period in which premiums are earned.

<table><tr><td colspan="4">DAC balance as of December 31 by product type</td></tr><tr><td>($ in millions)</td><td colspan="2">2019</td><td>2018</td></tr><tr><td>Auto</td><td>$     849</td><td>$     845</td><td></td></tr><tr><td>Homeowners</td><td></td><td>600</td><td>599</td></tr><tr><td>Other personal lines</td><td></td><td>141</td><td>141</td></tr><tr><td>Commercial lines</td><td></td><td>34</td><td>33</td></tr><tr><td>Total DAC</td><td>$     1,624</td><td>$     1,618</td><td></td></tr></table>



The following table presents premiums written, PIF and underwriting income (loss) by line of business for Allstate brand, Esurance brand, Encompass brand and Allstate Protection as of or for the year ended December 31, 2019. Detailed analysis of underwriting results, premiums written and earned, and the combined ratios, including loss and expense ratios, are discussed in the brand sections.

<table><tr><td colspan="9">Premiums written, policies in force and underwriting income (loss)</td></tr><tr><td rowspan="2">($ in millions)</td><td colspan="2">Allstate brand</td><td colspan="2">Esurance brand</td><td colspan="2">Encompass brand</td><td colspan="2">Allstate Protection</td></tr><tr><td>Amount</td><td>Percent to total brand</td><td>Amount</td><td>Percent to total brand</td><td>Amount</td><td>Percent to total brand</td><td>Total</td><td>Percent to total</td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$21,936</td><td>67.9%</td><td>$1,986</td><td>94.0%</td><td>$540</td><td>52.9%</td><td>$24,462</td><td>69.1%</td></tr><tr><td>Homeowners</td><td>7,645</td><td>23.7</td><td>119</td><td>5.6</td><td>401</td><td>39.3</td><td>8,165</td><td>23.1</td></tr><tr><td>Other personal lines</td><td>1,803</td><td>5.6</td><td>8</td><td>0.4</td><td>79</td><td>7.8</td><td>1,890</td><td>5.3</td></tr><tr><td>Commercial lines</td><td>902</td><td>2.8</td><td>—</td><td>—</td><td>—</td><td>—</td><td>902</td><td>2.5</td></tr><tr><td>Total</td><td>$32,286</td><td>100.0%</td><td>$2,113</td><td>100.0%</td><td>$1,020</td><td>100.0%</td><td>$35,419</td><td>100.0%</td></tr><tr><td>Percent to total Allstate Protection</td><td></td><td>91.1%</td><td></td><td>6.0%</td><td></td><td>2.9%</td><td></td><td>100.0%</td></tr><tr><td>PIF (thousands)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>20,398</td><td>65.4%</td><td>1,515</td><td>90.9%</td><td>493</td><td>61.4%</td><td>22,406</td><td>66.5%</td></tr><tr><td>Homeowners</td><td>6,254</td><td>20.0</td><td>105</td><td>6.3</td><td>234</td><td>29.1</td><td>6,593</td><td>19.6</td></tr><tr><td>Other personal lines</td><td>4,344</td><td>13.9</td><td>46</td><td>2.8</td><td>76</td><td>9.5</td><td>4,466</td><td>13.2</td></tr><tr><td>Commercial lines</td><td>227</td><td>0.7</td><td>—</td><td>—</td><td>—</td><td>—</td><td>227</td><td>0.7</td></tr><tr><td>Total</td><td>31,223</td><td>100.0%</td><td>1,666</td><td>100.0%</td><td>803</td><td>100.0%</td><td>33,692</td><td>100.0%</td></tr><tr><td>Percent to total Allstate Protection</td><td></td><td>92.7%</td><td></td><td>4.9%</td><td></td><td>2.4%</td><td></td><td>100.0%</td></tr><tr><td>Underwriting income (loss)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$1,727</td><td>58.5%</td><td>$(47)</td><td>(1)</td><td>109.4%</td><td>$8</td><td>114.3%</td><td>$1,688</td></tr><tr><td>Homeowners</td><td>910</td><td>30.9</td><td>2</td><td>(4.7)</td><td>2</td><td>28.6</td><td>914</td><td>31.4</td></tr><tr><td>Other personal lines</td><td>225</td><td>7.6</td><td>2</td><td>(4.7)</td><td>(3)</td><td>(42.9)</td><td>224</td><td>7.6</td></tr><tr><td>Commercial lines</td><td>14</td><td>0.5</td><td>—</td><td>—</td><td>—</td><td>—</td><td>14</td><td>0.5</td></tr><tr><td>Other business lines</td><td>75</td><td>2.5</td><td>—</td><td>—</td><td>—</td><td>—</td><td>75</td><td>2.6</td></tr><tr><td>Answer Financial</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(3)</td><td>(0.1)</td></tr><tr><td>Total</td><td>$2,951</td><td>100.0%</td><td>$(43)</td><td>100.0%</td><td>$7</td><td>100.0%</td><td>$2,912</td><td>100.0%</td></tr></table>

 \( ^{(1)} \)  Our Transformative Growth Plan included a decision to reposition the Allstate brand for broader customer access, resulting in a $51 million impairment for the Esurance brand trade name. See the Esurance section of the MD&A for further details.

When analyzing premium measures and statistics for all three brands the following calculations are used as described below.

- 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 while Commercial lines PIF counts for shared economy agreements typically reflect contracts that cover multiple rather than individual drivers.

- New issued applications: Item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate Protection brand. Allstate brand includes automobiles added by existing customers when they exceed the number allowed (currently 10) on a policy.

• Average premium-gross written (“average premium”): Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate and Esurance brand policy terms are 6 months for auto and 12 months for homeowners. Encompass brand policy terms are generally 12 months for auto and homeowners.

• Renewal ratio: Renewal policy item counts issued during the period, based on contract effective dates, divided by the total policy item counts issued 6 months prior for auto (generally 12 months prior for Encompass brand) or 12 months prior for homeowners.

• Approved rate changes: Based on historical premiums written in locations where the brands operate, not including rate plan enhancements (such as the introduction of discounts and surcharges that result in no change in the overall rate level) and initial rates filed for insurance subsidiaries initially writing business in a location. Includes rate changes approved based on our net cost of reinsurance. The rate change percentages are calculated using approved rate changes during the period as a percentage of:

– Total brand premiums written

– Premiums written in respective locations with rate changes



Allstate brand products are sold primarily through Allstate exclusive agencies and serve customers who prefer local personalized advice and service and are brand-sensitive. In 2019, the Allstate brand represented 91.1% of the Allstate Protection segment's written premium. For additional information on our strategy and outlook, see Business Strategy and Segment Information.

<table><tr><td colspan="5">Underwriting results</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td>$ 32,286</td><td>$ 30,591</td><td>$ 28,885</td><td></td></tr><tr><td>Premiums earned</td><td>$ 31,738</td><td>$ 30,058</td><td>$ 28,631</td><td></td></tr><tr><td>Other revenue</td><td>583</td><td>582</td><td>559</td><td></td></tr><tr><td>Claims and claims expense</td><td>(21,178)</td><td>(20,237)</td><td>(19,273)</td><td></td></tr><tr><td>Amortization of DAC</td><td>(4,411)</td><td>(4,242)</td><td>(3,963)</td><td></td></tr><tr><td>Other costs and expenses</td><td>(3,748)</td><td>(3,752)</td><td>(3,497)</td><td></td></tr><tr><td>Restructuring and related charges</td><td>(33)</td><td>(52)</td><td>(70)</td><td></td></tr><tr><td>Underwriting income</td><td>$ 2,951</td><td>$ 2,357</td><td>$ 2,387</td><td></td></tr><tr><td>Catastrophe losses</td><td>$ 2,391</td><td>$ 2,701</td><td>$ 2,985</td><td></td></tr><tr><td>Underwriting income (loss) by line of business</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 1,727</td><td>$ 1,788</td><td>$ 1,465</td><td></td></tr><tr><td>Homeowners</td><td>910</td><td>496</td><td>754</td><td></td></tr><tr><td>Other personal lines  \( {}^{(1)} \)</td><td>225</td><td>107</td><td>130</td><td></td></tr><tr><td>Commercial lines</td><td>14</td><td>(83)</td><td>(13)</td><td></td></tr><tr><td>Other business lines  \( {}^{(2)} \)</td><td>75</td><td>49</td><td>51</td><td></td></tr><tr><td>Underwriting income</td><td>$ 2,951</td><td>$ 2,357</td><td>$ 2,387</td><td></td></tr></table>

 \( ^{(1)} \)  Other personal lines include renters, condominium, landlord and other personal lines products.

 \( ^{(2)} \)  Other business lines represent Ivantage.

<table><tr><td colspan="3">Changes in underwriting results from prior year by component  \( {}^{(1)} \)</td></tr><tr><td></td><td colspan="2">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Underwriting income - prior year</td><td>$ 2,357</td><td>$ 2,387</td></tr><tr><td>Changes in underwriting income (loss) from:</td><td></td><td></td></tr><tr><td>Increase (decrease) premiums earned</td><td>1,680</td><td>1,427</td></tr><tr><td>Increase (decrease) other revenue</td><td>1</td><td>23</td></tr><tr><td>(Increase) decrease incurred claims and claims expense (“losses”):</td><td></td><td></td></tr><tr><td>Incurred losses, excluding catastrophe losses and reserve reestimates</td><td>(1,185)</td><td>(1,022)</td></tr><tr><td>Catastrophe losses, excluding reserve reestimates</td><td>337</td><td>311</td></tr><tr><td>Catastrophe reserve reestimates</td><td>(27)</td><td>(27)</td></tr><tr><td>Non-catastrophe reserve reestimates</td><td>(66)</td><td>(226)</td></tr><tr><td>Losses subtotal</td><td>(941)</td><td>(964)</td></tr><tr><td>(Increase) decrease expenses</td><td>(146)</td><td>(516)</td></tr><tr><td>Underwriting income</td><td>$ 2,951</td><td>$ 2,357</td></tr></table>

 \( ^{(1)} \)  The 2019 column presents changes in 2019 compared to 2018. The 2018 column presents changes in 2018 compared to 2017.

Underwriting income increased 25.2% or $594 million in 2019 compared to 2018, primarily due to increased premiums earned and lower catastrophe losses, partially offset by higher non-catastrophe losses and amortization of DAC.



<table><tr><td colspan="5">Premiums written and earned by line of business</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 21,936</td><td>$ 20,991</td><td>$ 19,859</td><td></td></tr><tr><td>Homeowners (1)</td><td>7,645</td><td>7,199</td><td>6,865</td><td></td></tr><tr><td>Other personal lines</td><td>1,803</td><td>1,742</td><td>1,673</td><td></td></tr><tr><td>Subtotal - Personal lines</td><td>31,384</td><td>29,932</td><td>28,397</td><td></td></tr><tr><td>Commercial lines</td><td>902</td><td>659</td><td>488</td><td></td></tr><tr><td>Total</td><td>$ 32,286</td><td>$ 30,591</td><td>$ 28,885</td><td></td></tr><tr><td>Premiums earned</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 21,680</td><td>$ 20,662</td><td>$ 19,676</td><td></td></tr><tr><td>Homeowners</td><td>7,403</td><td>7,025</td><td>6,811</td><td></td></tr><tr><td>Other personal lines</td><td>1,773</td><td>1,716</td><td>1,649</td><td></td></tr><tr><td>Subtotal - Personal lines</td><td>30,856</td><td>29,403</td><td>28,136</td><td></td></tr><tr><td>Commercial lines</td><td>882</td><td>655</td><td>495</td><td></td></tr><tr><td>Total</td><td>$ 31,738</td><td>$ 30,058</td><td>$ 28,631</td><td></td></tr></table>

(1) The cost of our catastrophe reinsurance program increased $22 million to $286 million in 2019 from $264 million in 2018. Catastrophe placement premiums are recorded primarily in the Allstate brand and are a reduction of premium. For a more detailed discussion on reinsurance, see the Claims and Claims Expense Reserves section of the MD&A and Note 10 of the consolidated financial statements.

<table><tr><td colspan="7">Auto premium measures and statistics</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td><td></td></tr><tr><td>PIF (thousands)</td><td>20,398</td><td>20,104</td><td>19,580</td><td>1.5%</td><td>2.7%</td><td></td></tr><tr><td>New issued applications (thousands)</td><td>2,942</td><td>2,933</td><td>2,520</td><td>0.3%</td><td>16.4%</td><td></td></tr><tr><td>Average premium</td><td>$ 586</td><td>$ 570</td><td>$ 550</td><td>2.8%</td><td>3.6%</td><td></td></tr><tr><td>Renewal ratio (%)</td><td>88.6</td><td>88.5</td><td>87.6</td><td>0.1</td><td>0.9</td><td></td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 574</td><td>$ 215</td><td>$ 773</td><td>$ 359</td><td>$ (558)</td><td></td></tr><tr><td># of locations (1)</td><td>47</td><td>47</td><td>49</td><td>—</td><td>(2)</td><td></td></tr><tr><td>Total brand (%)</td><td>2.7</td><td>1.1</td><td>4.0</td><td>1.6</td><td>(2.9)</td><td></td></tr><tr><td>Location specific (%)</td><td>4.6</td><td>2.9</td><td>6.0</td><td>1.7</td><td>(3.1)</td><td></td></tr></table>

(1) Allstate brand operates in 50 states, D.C. and 5 Canadian provinces.

Auto insurance premiums written increased 4.5% or $945 million in 2019 compared to 2018, primarily due to an increase in average premium and growth.
PIF increased by 294 thousand policies compared to the prior year with increases in 33 states, including 6 of our largest 10 states.

<table><tr><td colspan="7">Homeowners premium measures and statistics</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td><td></td></tr><tr><td>PIF (thousands)</td><td>6,254</td><td>6,186</td><td>6,088</td><td>1.1%</td><td>1.6%</td><td></td></tr><tr><td>New issued applications (thousands)</td><td>848</td><td>826</td><td>733</td><td>2.7%</td><td>12.7%</td><td></td></tr><tr><td>Average premium</td><td>$ 1,295</td><td>$ 1,231</td><td>$ 1,197</td><td>5.2%</td><td>2.8%</td><td></td></tr><tr><td>Renewal ratio (%)</td><td>88.3</td><td>88.0</td><td>87.3</td><td>0.3</td><td>0.7</td><td></td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 239</td><td>$ 189</td><td>$ 122</td><td>$ 50</td><td>$ 67</td><td></td></tr><tr><td># of locations (1)</td><td>39</td><td>40</td><td>30</td><td>(1)</td><td>10</td><td></td></tr><tr><td>Total brand (%)</td><td>3.2</td><td>2.7</td><td>1.8</td><td>0.5</td><td>0.9</td><td></td></tr><tr><td>Location specific (%)</td><td>5.1</td><td>4.3</td><td>3.7</td><td>0.8</td><td>0.6</td><td></td></tr></table>

(1) Allstate brand operates in 50 states, D.C., and 5 Canadian provinces.

Homeowners insurance premiums written increased 6.2% or $446 million in 2019 compared to 2018, primarily due to higher average premiums, including rate changes and inflation in insured home valuations, and growth. PIF increased 68 thousand policies with increases in 31 states, including 6 of our largest 10 states.
Other personal lines premiums written increased 3.5% or $61 million in 2019 compared to 2018. The increase in 2019 was primarily due to increases in personal umbrella and condominium insurance premiums.



Commercial lines premiums written increased 36.9% or $243 million in 2019 compared to 2018. The increase in 2019 was primarily due to expansion in our shared economy business, including growth in our current agreements and addition of new customers.

Growth in premiums written is not reflected in growth in policies in force as the shared economy agreements typically reflect contracts that cover multiple drivers as opposed to individual drivers.

## Combined ratios by line of business

<table><tr><td rowspan="3"></td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Expense ratio (1)</td><td colspan="4">Combined ratio</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2</td><td>017</td></tr><tr><td>Auto</td><td>67.3</td><td>65.9</td><td>67.9</td><td>24.7</td><td>25.4</td><td>24.7</td><td>92.0</td><td>91.3</td><td>92.6</td><td></td></tr><tr><td>Homeowners</td><td>64.9</td><td>69.3</td><td>66.0</td><td>22.8</td><td>23.6</td><td>22.9</td><td>87.7</td><td>92.9</td><td>88.9</td><td></td></tr><tr><td>Other personal lines</td><td>60.6</td><td>66.3</td><td>64.1</td><td>26.7</td><td>27.5</td><td>28.0</td><td>87.3</td><td>93.8</td><td>92.1</td><td></td></tr><tr><td>Commercial lines</td><td>81.3</td><td>91.3</td><td>75.1</td><td>17.1</td><td>21.4</td><td>27.5</td><td>98.4</td><td>112.7</td><td>102.6</td><td></td></tr><tr><td>Total</td><td>66.7</td><td>67.3</td><td>67.3</td><td>24.0</td><td>24.9</td><td>24.4</td><td>90.7</td><td>92.2</td><td>91.7</td><td></td></tr></table>

 \( ^{(1)} \)  Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

## Loss ratios by line of business

<table><tr><td rowspan="3"></td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Effect of catastrophe losses</td><td colspan="3">Effect of prior year reserve reestimates</td><td colspan="2">Effect of catastrophe losses included in prior year reserve reestimates</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2</td><td>017</td><td></td></tr><tr><td>Auto</td><td>67.3</td><td>65.9</td><td>67.9</td><td>1.7</td><td>1.6</td><td>3.4</td><td>(1.5)</td><td>(2.2)</td><td>(2.4)</td><td>(0.1)</td><td>(0.2)</td></tr><tr><td>Homeowners</td><td>64.9</td><td>69.3</td><td>66.0</td><td>24.8</td><td>30.5</td><td>30.7</td><td>0.7</td><td>—</td><td>(2.0)</td><td>0.8</td><td>0.8</td></tr><tr><td>Other personal lines</td><td>60.6</td><td>66.3</td><td>64.1</td><td>9.2</td><td>12.3</td><td>12.2</td><td>0.6</td><td>0.5</td><td>0.7</td><td>0.1</td><td>(0.1)</td></tr><tr><td>Commercial lines</td><td>81.3</td><td>91.3</td><td>75.1</td><td>1.4</td><td>3.4</td><td>4.8</td><td>1.9</td><td>16.5</td><td>3.9</td><td>(0.1)</td><td>—</td></tr><tr><td>Total</td><td>66.7</td><td>67.3</td><td>67.3</td><td>7.5</td><td>9.0</td><td>10.4</td><td>(0.7)</td><td>(1.1)</td><td>(2.0)</td><td>0.1</td><td>—</td></tr></table>

Frequency and severity statistics, which are influenced by driving patterns, inflation and other factors, are provided to describe the trends in loss costs of the business. Our reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine our best estimate of recorded reserves. We use the following statistics to evaluate losses:

• Paid claim frequency  \( {}^{(1)} \)  is calculated as annualized notice counts closed with payment in the period divided by the average of PIF with the applicable coverage during the period.

• Gross claim frequency  \( {}^{(1)} \)  is calculated as annualized notice counts received in the period divided by the average of PIF with the applicable coverage during the period. Gross claim frequency includes all actual notice counts, regardless of their current status (open or closed) or their ultimate disposition (closed with a payment or closed without payment).

• Paid claim severity is calculated by dividing the sum of paid losses and loss expenses by claims closed with a payment during the period.

• Percent change in frequency or severity statistics is calculated as the amount of increase or decrease in the paid or gross claim frequency or severity in the current period compared to the same period in the prior year divided by the prior year paid or gross claim frequency or severity.

 \( ^{(1)} \)  Frequency statistics exclude counts associated with catastrophe events.

Paid claim frequency trends will often differ from gross claim frequency trends due to differences in the timing of when notices are received and when claims are settled. For property damage claims, paid frequency trends reflect smaller differences as timing between opening and settlement is generally less. For bodily injury, gross frequency trends reflect emerging trends since the difference in timing between opening and settlement is much greater and gross frequency does not typically experience the same volatility in quarterly fluctuations seen in paid frequency. In evaluating frequency, we typically rely upon paid frequency trends for physical damage coverages such as property damage and gross frequency for casualty coverages such as bodily injury to provide an indicator of emerging trends in overall claim frequency while also providing insights for our analysis of severity.

We are continuing to implement new technology and process improvements that provide continued loss cost accuracy, efficient processing and enhanced customer experiences that are simple, fast and produce high degrees of satisfaction. We use Digital Operating Centers to handle auto physical damage claims countrywide utilizing our virtual estimation capabilities, which includes estimating damage with photos and video through the use of QuickFoto Claim \( ^{®} \)  and Virtual Assist \( ^{®} \) . We are also leveraging virtual capabilities to handle property claims by estimating damage through video with Virtual Assist and aerial imagery using satellites, airplanes and drones. These organizational and process changes impact frequency and severity statistics as changes in claim opening and closing practices and shifts in timing, if any, can impact comparisons to prior periods.

Auto loss ratio increased 1.4 points in 2019 compared to 2018, primarily due to higher claim severity and lower favorable non-catastrophe prior



year reserve reestimates, partially offset by higher premiums earned and lower claim frequency.

Property damage paid claim frequency decreased 2.2% in 2019 compared to 2018. Property damage paid claim severities increased 6.5% in 2019 compared to 2018 due to the impact of higher costs to repair more sophisticated, newer model vehicles, higher third-party subrogation demands and increased number of total losses.

Bodily injury gross claim frequency decreased 1.8% in 2019 compared to 2018. Bodily injury severity trends increased at a rate above medical care inflation indices in 2019.

Homeowners loss ratio decreased 4.4 points in 2019 compared to 2018, primarily due to lower catastrophes, increased premiums earned and improved claim frequency, partially offset by increased claim severity. Paid claim frequency excluding catastrophe losses decreased 6.0% in 2019 compared to 2018. Paid claim severity excluding catastrophe losses increased 11.8% in 2019 compared to 2018 as we experienced increased claim severity in fire and water perils. Homeowner paid claim severity can be impacted by both the mix of perils and the magnitude of specific losses paid during the year.

Other personal lines loss ratio decreased 5.7 points in 2019 compared to 2018, primarily due to lower catastrophe losses and increased premiums earned.

Commercial lines loss ratio decreased 10.0 points in 2019 compared to 2018, primarily due to increased premiums earned and lower unfavorable non-catastrophe prior year reserve reestimates, partially offset by higher severity. Commercial lines recorded losses related to the shared economy agreements are primarily based on original pricing expectations given limited loss experience.

## Impact of specific costs and expenses on the expense ratio

<table><tr><td rowspan="2"></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Amortization of DAC</td><td>13.9</td><td>14.1</td><td>13.8</td></tr><tr><td>Advertising expense</td><td>2.2</td><td>2.2</td><td>2.0</td></tr><tr><td>Other costs and expenses</td><td>7.8</td><td>8.4</td><td>8.4</td></tr><tr><td>Restructuring and related charges</td><td>0.1</td><td>0.2</td><td>0.2</td></tr><tr><td>Total expense ratio</td><td>24.0</td><td>24.9</td><td>24.4</td></tr></table>

Expense ratio decreased 0.9 points in 2019 compared to 2018, primarily due to lower agent incentive compensation and decreased operating expenses driven by enterprise-wide cost reduction efforts. Amortization of DAC primarily includes agent remuneration and premium taxes. Allstate agency total incurred base commissions, variable compensation and bonuses in 2019 were lower than 2018.
Commercial lines expense ratio decreased 4.3 points in 2019 compared to 2018, primarily due to growth in our shared economy business, which has a lower expense ratio.



Eurazone brand products are sold directly to self-directed, brand-sensitive consumers online and through contact centers. We manage the direct-to-customer business based on its profitability over the lifetime of the customer relationship. In 2019, the Eurazone brand represented 6.0% of the Allstate Protection segment's written premium. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="5">Underwriting results</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td>$ 2,113</td><td>$ 1,948</td><td>$ 1,728</td><td></td></tr><tr><td>Premiums earned</td><td>$ 2,087</td><td>$ 1,869</td><td>$ 1,712</td><td></td></tr><tr><td>Other revenue</td><td>83</td><td>80</td><td>67</td><td></td></tr><tr><td>Claims and claims expense</td><td>(1,650)</td><td>(1,443)</td><td>(1,329)</td><td></td></tr><tr><td>Amortization of DAC</td><td>(46)</td><td>(43)</td><td>(41)</td><td></td></tr><tr><td>Other costs and expenses</td><td>(465)</td><td>(487)</td><td>(462)</td><td></td></tr><tr><td>Restructuring and related charges</td><td>(1)</td><td>(1)</td><td>(3)</td><td></td></tr><tr><td>Impairment of purchased intangibles</td><td>(51)</td><td>—</td><td>—</td><td></td></tr><tr><td>Underwriting loss</td><td>$ (43)</td><td>$ (25)</td><td>$ (56)</td><td></td></tr><tr><td>Catastrophe losses</td><td>$ 51</td><td>$ 52</td><td>$ 50</td><td></td></tr><tr><td>Underwriting income (loss) by line of business</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ (47)</td><td>$ (11)</td><td>$ (37)</td><td></td></tr><tr><td>Homeowners</td><td>2</td><td>(14)</td><td>(20)</td><td></td></tr><tr><td>Other personal lines</td><td>2</td><td>—</td><td>1</td><td></td></tr><tr><td>Underwriting loss</td><td>$ (43)</td><td>$ (25)</td><td>$ (56)</td><td></td></tr></table>

<table><tr><td colspan="3">Changes in underwriting results from prior year by component (1)</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Underwriting income (loss) - prior year</td><td>$ (25)</td><td>$ (56)</td></tr><tr><td>Changes in underwriting income (loss) from:</td><td></td><td></td></tr><tr><td>Increase (decrease) premiums earned</td><td>218</td><td>157</td></tr><tr><td>Increase (decrease) other revenue</td><td>3</td><td>13</td></tr><tr><td>(Increase) decrease incurred claims and claims expense (“losses”):</td><td></td><td></td></tr><tr><td>Incurred losses, excluding catastrophe losses and reserve reestimates</td><td>(207)</td><td>(110)</td></tr><tr><td>Catastrophe losses, excluding reserve reestimates</td><td>—</td><td>1</td></tr><tr><td>Catastrophe reserve reestimates</td><td>1</td><td>(3)</td></tr><tr><td>Non-catastrophe reserve reestimates</td><td>(1)</td><td>(2)</td></tr><tr><td>Losses subtotal</td><td>(207)</td><td>(114)</td></tr><tr><td>(Increase) decrease expenses:</td><td></td><td></td></tr><tr><td>Expenses, excluding impairment of purchased intangibles</td><td>19</td><td>(25)</td></tr><tr><td>Impairment of purchased intangibles</td><td>(51)</td><td>—</td></tr><tr><td>Expenses subtotal</td><td>(32)</td><td>(25)</td></tr><tr><td>Underwriting loss</td><td>$ (43)</td><td>$ (25)</td></tr></table>

 \( ^{(1)} \)  The 2019 column presents changes in 2019 compared to 2018. The 2018 column presents changes in 2018 compared to 2017.

Underwriting loss increased 72.0% or $18 million in 2019 compared to 2018, primarily due to the impairment of purchased intangibles of $51 million for the Eurazone brand trade name as we integrate Eurazone into the Allstate brand.

Excluding the impairment of purchased intangibles, Eurazone underwriting income totaled $8 million in 2019, an increase of $33 million from an underwriting loss of $25 million in 2018. The improvement was primarily due to increased premiums earned and lower operating expenses, partially offset by increased loss costs.



<table><tr><td colspan="5">Premiums written and earned by line of business</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 1,986</td><td>$ 1,839</td><td>$ 1,641</td><td></td></tr><tr><td>Homeowners</td><td>119</td><td>101</td><td>79</td><td></td></tr><tr><td>Other personal lines</td><td>8</td><td>8</td><td>8</td><td></td></tr><tr><td>Total</td><td>$ 2,113</td><td>$ 1,948</td><td>$ 1,728</td><td></td></tr><tr><td>Premiums earned</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 1,969</td><td>$ 1,771</td><td>$ 1,636</td><td></td></tr><tr><td>Homeowners</td><td>110</td><td>90</td><td>68</td><td></td></tr><tr><td>Other personal lines</td><td>8</td><td>8</td><td>8</td><td></td></tr><tr><td>Total</td><td>$ 2,087</td><td>$ 1,869</td><td>$ 1,712</td><td></td></tr></table>

<table><tr><td colspan="7">Auto premium measures and statistics</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td><td></td></tr><tr><td>PIF (thousands)</td><td>1,515</td><td>1,488</td><td>1,352</td><td>1.8%</td><td>10.1%</td><td></td></tr><tr><td>New issued applications (thousands)</td><td>593</td><td>633</td><td>484</td><td>(6.3)%</td><td>30.8%</td><td></td></tr><tr><td>Average premium</td><td>$ 620</td><td>$ 605</td><td>$ 574</td><td>2.5%</td><td>5.4%</td><td></td></tr><tr><td>Renewal ratio (%)</td><td>82.8</td><td>83.3</td><td>81.5</td><td>(0.5)</td><td>1.8</td><td></td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 92</td><td>$ 28</td><td>$ 78</td><td>$ 64</td><td>$ (50)</td><td></td></tr><tr><td># of locations (1)</td><td>30</td><td>30</td><td>39</td><td>—</td><td>(9)</td><td></td></tr><tr><td>Total brand (%)</td><td>5.0</td><td>1.8</td><td>4.8</td><td>3.2</td><td>(3.0)</td><td></td></tr><tr><td>Location specific (%)</td><td>5.7</td><td>2.7</td><td>5.5</td><td>3.0</td><td>(2.8)</td><td></td></tr></table>

 \( ^{(1)} \)  Assurance brand operates in 43 states.

Auto insurance premiums written increased 8.0% or $147 million in 2019 compared to 2018 due to higher average premium primarily due to rate changes approved and PIF growth, partially offset by a lower renewal ratio.
PIF increased 1.8% or 27 thousand in 2019 compared to 2018. New issued applications decreased 6.3% in 2019 compared to 2018 due to lower advertising spend.

<table><tr><td colspan="7">Homeowners premium measures and statistics</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td><td></td></tr><tr><td>PIF (thousands)</td><td>105</td><td>95</td><td>79</td><td>10.5 %</td><td>20.3 %</td><td></td></tr><tr><td>New issued applications (thousands)</td><td>29</td><td>32</td><td>34</td><td>(9.4)%</td><td>(5.9)%</td><td></td></tr><tr><td>Average premium</td><td>$ 1,055</td><td>$ 982</td><td>$ 917</td><td>7.4 %</td><td>7.1 %</td><td></td></tr><tr><td>Renewal ratio (%)  \( {}^{(1)} \)</td><td>84.5</td><td>85.3</td><td>85.5</td><td>(0.8)</td><td>(0.2)</td><td></td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 5</td><td>$ 2</td><td>$ 3</td><td>$ 3</td><td>$ (1)</td><td></td></tr><tr><td># of locations  \( {}^{(2)} \)</td><td>5</td><td>6</td><td>3</td><td>(1)</td><td>3</td><td></td></tr><tr><td>Total brand (%)</td><td>4.7</td><td>2.1</td><td>4.5</td><td>2.6</td><td>(2.4)</td><td></td></tr><tr><td>Location specific (%)</td><td>17.1</td><td>6.9</td><td>18.5</td><td>10.2</td><td>(11.6)</td><td></td></tr></table>

(1) Assurance’s renewal ratios exclude the impact of risk related cancellations. Customers can enter into a policy without a physical inspection. During the underwriting review period, a number of policies may be canceled if upon inspection the condition is unsatisfactory.

 \( ^{(2)} \)  Assurance brand operates in 31 states.

Homeowners insurance premiums written increased 17.8% or 18 million in 2019 compared to 2018 due to higher average premium primarily due to approved rate changes. As of December 31, 2019, Insurance continues to write homeowners insurance in 31 states with lower hurricane risk, contributing to lower average premium compared to the industry.

PIF increased 10.5% or 10 thousand in 2019 compared to 2018.



<table><tr><td colspan="10">Combined ratios by line of business</td></tr><tr><td rowspan="2"></td><td colspan="9">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Expense ratio  \( {}^{(1)} \)</td><td colspan="3">Combined ratio</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2016</td><td>2017</td></tr><tr><td>Auto</td><td>79.4</td><td>77.0</td><td>77.5</td><td>23.0</td><td>23.6</td><td>24.8</td><td>102.4</td><td>100.6</td><td>102.3</td></tr><tr><td>Homeowners</td><td>74.6</td><td>83.4</td><td>83.8</td><td>23.6</td><td>32.2</td><td>45.6</td><td>98.2</td><td>115.6</td><td>129.4</td></tr><tr><td>Total</td><td>79.1</td><td>77.2</td><td>77.6</td><td>23.0</td><td>24.1</td><td>25.7</td><td>102.1</td><td>101.3</td><td>103.3</td></tr></table>

 \( ^{(1)} \)  Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

<table><tr><td rowspan="2"></td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Effect of catastrophe losses</td><td colspan="3">Effect of prior year reserve reestimates</td><td colspan="2">Effect of catastrophe losses included in prior year reserve reestimates</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2016</td><td>2017</td><td>2019</td><td>2018</td></tr><tr><td>Auto</td><td>79.4</td><td>77.0</td><td>77.5</td><td>1.2</td><td>1.5</td><td>2.1</td><td>0.1</td><td>0.1</td><td>0.1</td><td>—</td><td>—</td></tr><tr><td>Homeowners</td><td>74.6</td><td>83.4</td><td>83.8</td><td>24.6</td><td>27.8</td><td>23.5</td><td>0.9</td><td>2.2</td><td>(3.0)</td><td>0.9</td><td>2.2</td></tr><tr><td>Total</td><td>79.1</td><td>77.2</td><td>77.6</td><td>2.4</td><td>2.8</td><td>2.9</td><td>0.1</td><td>0.2</td><td>(0.1)</td><td>—</td><td>0.1</td></tr></table>

Auto loss ratio increased 2.4 points in 2019 compared to 2018, primarily due to higher claim severity and to a lesser extent higher frequency, partially offset by higher premiums earned.

Homeowners loss ratio decreased 8.8 points in 2019 compared to 2018, primarily due to lower frequency and higher premiums earned, partially offset by higher claims severity.

<table><tr><td rowspan="2"></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Amortization of DAC</td><td>2.2</td><td>2.3</td><td>2.4</td></tr><tr><td>Advertising expense</td><td>7.0</td><td>8.7</td><td>8.3</td></tr><tr><td>Amortization of purchased intangibles</td><td>0.1</td><td>0.1</td><td>0.2</td></tr><tr><td>Other costs and expenses</td><td>11.2</td><td>12.9</td><td>14.6</td></tr><tr><td>Restructuring and related charges</td><td>—</td><td>0.1</td><td>0.2</td></tr><tr><td>Impairment of purchased intangibles</td><td>2.5</td><td>—</td><td>—</td></tr><tr><td>Total expense ratio</td><td>23.0</td><td>24.1</td><td>25.7</td></tr></table>

Expense ratio decreased 1.1 points in 2019 compared to 2018. Excluding the impairment of purchased intangibles, the expense ratio decreased by 3.6 points compared to 2018.

Other costs and expenses, including salaries of telephone sales personnel and other underwriting costs related to customer acquisition, were 1.7 points lower in 2019 compared to 2018 reflecting continued implementation of digital self-service capabilities and premium growth.
Insurance uses a direct distribution model, therefore its primary acquisition-related costs are advertising as opposed to commissions. Insurance advertising expense ratio decreased 1.7 points in 2019 compared to 2018.



Encompass products are sold through independent agencies that serve brand-neutral customers who prefer personal service and support from an independent agent. In 2019, the Encompass brand represented 2.9% of the Allstate Protection segment's written premium. For additional information on our strategy and outlook, see Business Strategy and Segment Information.

<table><tr><td colspan="5">Underwriting results</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td>$ 1,020</td><td>$ 1,016</td><td>$ 1,035</td><td></td></tr><tr><td>Premiums earned</td><td>$ 1,018</td><td>$ 1,023</td><td>$ 1,090</td><td></td></tr><tr><td>Other revenue</td><td>5</td><td>5</td><td>6</td><td></td></tr><tr><td>Claims and claims expense</td><td>(689)</td><td>(668)</td><td>(786)</td><td></td></tr><tr><td>Amortization of DAC</td><td>(192)</td><td>(190)</td><td>(201)</td><td></td></tr><tr><td>Other costs and expenses</td><td>(131)</td><td>(145)</td><td>(130)</td><td></td></tr><tr><td>Restructuring and related charges</td><td>(4)</td><td>(7)</td><td>(5)</td><td></td></tr><tr><td>Underwriting income (loss)</td><td>$ 7</td><td>$ 18</td><td>$ (26)</td><td></td></tr><tr><td>Catastrophe losses</td><td>$ 115</td><td>$ 102</td><td>$ 193</td><td></td></tr></table>

<table><tr><td colspan="5">Underwriting income (loss) by line of business</td></tr><tr><td>Auto</td><td>$ 8</td><td>$ 14</td><td>$ 9</td><td></td></tr><tr><td>Homeowners</td><td>2</td><td>1</td><td>(45)</td><td></td></tr><tr><td>Other personal lines</td><td>(3)</td><td>3</td><td>10</td><td></td></tr><tr><td>Underwriting income (loss)</td><td>$ 7</td><td>$ 18</td><td>$ (26)</td><td></td></tr></table>

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Underwriting income (loss) - prior year</td><td>$ 18</td><td>$ (26)</td></tr><tr><td>Changes in underwriting income (loss) from:</td><td></td><td></td></tr><tr><td>Increase (decrease) premiums earned</td><td>(5)</td><td>(67)</td></tr><tr><td>Increase (decrease) other revenue</td><td>—</td><td>(1)</td></tr><tr><td>(Increase) decrease incurred claims and claims expense (“losses”):</td><td></td><td></td></tr><tr><td>Incurred losses, excluding catastrophe losses and reserve reestimates</td><td>9</td><td>17</td></tr><tr><td>Catastrophe losses, excluding reserve reestimates</td><td>(16)</td><td>104</td></tr><tr><td>Catastrophes reserve reestimates</td><td>3</td><td>(13)</td></tr><tr><td>Non-catastrophe reserve reestimates</td><td>(17)</td><td>10</td></tr><tr><td>Losses subtotal</td><td>(21)</td><td>118</td></tr><tr><td>(Increase) decrease expenses</td><td>15</td><td>(6)</td></tr><tr><td>Underwriting income</td><td>$ 7</td><td>$ 18</td></tr></table>

 \( ^{(1)} \)  The 2019 column presents changes in 2019 compared to 2018. The 2018 column presents changes in 2018 compared to 2017.

Underwriting income decreased 61.1% or $11 million in 2019 compared to 2018, primarily due to higher catastrophe losses and lower favorable non-catastrophe prior year reestimates, partially offset by lower operating expenses.



<table><tr><td colspan="5">Premiums written and earned by line of business</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td></td><td>$ 540</td><td>$ 537</td><td>$ 542</td></tr><tr><td>Homeowners</td><td></td><td>401</td><td>398</td><td>406</td></tr><tr><td>Other personal lines</td><td></td><td>79</td><td>81</td><td>87</td></tr><tr><td>Total</td><td></td><td>$ 1,020</td><td>$ 1,016</td><td>$ 1,035</td></tr><tr><td>Premiums earned</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td></td><td>$ 539</td><td>$ 537</td><td>$ 566</td></tr><tr><td>Homeowners</td><td></td><td>399</td><td>402</td><td>431</td></tr><tr><td>Other personal lines</td><td></td><td>80</td><td>84</td><td>93</td></tr><tr><td>Total</td><td></td><td>$ 1,018</td><td>$ 1,023</td><td>$ 1,090</td></tr></table>

<table><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td></tr><tr><td>PIF (thousands)</td><td>493</td><td>502</td><td>530</td><td>(1.8)%</td><td>(5.3)%</td></tr><tr><td>New issued applications (thousands)</td><td>82</td><td>76</td><td>52</td><td>7.9 %</td><td>46.2 %</td></tr><tr><td>Average premium</td><td>$ 1,134</td><td>$ 1,118</td><td>$ 1,079</td><td>1.4 %</td><td>3.6 %</td></tr><tr><td>Renewal ratio (%)  \( {}^{(1)} \)</td><td>78.1</td><td>74.9</td><td>73.4</td><td>3.2</td><td>1.5</td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 8</td><td>$ 13</td><td>$ 37</td><td>$ (5)</td><td>$ (24)</td></tr><tr><td># of locations  \( {}^{(2)} \)</td><td>17</td><td>17</td><td>27</td><td>—</td><td>(10)</td></tr><tr><td>Total brand (%)</td><td>1.5</td><td>2.4</td><td>6.2</td><td>(0.9)</td><td>(3.8)</td></tr><tr><td>Location specific (%)</td><td>4.1</td><td>4.8</td><td>7.8</td><td>(0.7)</td><td>(3.0)</td></tr></table>

(1) Encompass announced a plan to exit business in Massachusetts in the second quarter of 2017 and previously announced a plan to exit business in North Carolina in the first half of 2016, which impacted the renewal ratio. Excluding Massachusetts and North Carolina, the renewal ratios were 76.5 points in 2018 compared to 74.5 points in 2017.

(2) Encompass brand operates in 40 states and D.C.

Auto insurance premiums written increased 0.6% or $3 million in 2019 compared to 2018, primarily due to higher average premiums due to rate changes over the past 12 months, with the top 10 states representing approximately 70% of premiums written. PIF decreased 1.8% or 9 thousand in 2019 compared to 2018.

<table><tr><td colspan="7">Homeowners premium measure and statistics</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019 vs. 2018</td><td>2018 vs. 2017</td><td></td></tr><tr><td>PIF (thousands)</td><td>234</td><td>239</td><td>254</td><td>(2.1)%</td><td>(5.9)%</td><td></td></tr><tr><td>New issued applications (thousands)</td><td>42</td><td>37</td><td>30</td><td>13.5%</td><td>23.3%</td><td></td></tr><tr><td>Average premium</td><td>$ 1,795</td><td>$ 1,724</td><td>$ 1,684</td><td>4.1%</td><td>2.4%</td><td></td></tr><tr><td>Renewal ratio (%)  \( {}^{(1)} \)</td><td>82.5</td><td>80.0</td><td>78.5</td><td>2.5</td><td>1.5</td><td></td></tr><tr><td>Approved rate changes:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Impact of rate changes (\) in millions)</td><td>$ 38</td><td>$ 20</td><td>$ 23</td><td>$ 18</td><td>$ (3)</td><td></td></tr><tr><td># of locations  \( {}^{(2)} \)</td><td>27</td><td>20</td><td>21</td><td>7</td><td>(1)</td><td></td></tr><tr><td>Total brand (%)</td><td>9.2</td><td>4.7</td><td>4.8</td><td>4.5</td><td>(0.1)</td><td></td></tr><tr><td>Location specific (%)</td><td>10.9</td><td>8.1</td><td>8.4</td><td>2.8</td><td>(0.3)</td><td></td></tr></table>

(1) Encompass announced a plan to exit business in Massachusetts in the second quarter of 2017 and previously announced a plan to exit business in North Carolina in the first half of 2016, which has impacted the renewal ratio. Excluding Massachusetts and North Carolina, the renewal ratios were 80.8 points in 2018 compared to 79.0 points in 2017.

(2) Encompass brand operates in 40 states and D.C.

Homeowners insurance premiums written increased 0.8% or $3 million in 2019 compared to 2018, primarily due to higher average premiums due to rate changes over the past 12 months, with the top 10

states representing approximately 70% of premiums written. PIF decreased 2.1% or 5 thousand in 2019 compared to 2018.



<table><tr><td colspan="11">Combined ratios by line of business</td></tr><tr><td rowspan="2"></td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Expense ratio (1)</td><td colspan="4">Combined ratio</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2017</td><td>2018</td><td>2017</td></tr><tr><td>Auto</td><td>66.8</td><td>65.0</td><td>68.0</td><td>31.7</td><td>32.4</td><td>30.4</td><td>98.5</td><td>97.4</td><td>98.4</td><td></td></tr><tr><td>Homeowners</td><td>68.2</td><td>66.7</td><td>80.3</td><td>31.3</td><td>33.1</td><td>30.1</td><td>99.5</td><td>99.8</td><td>110.4</td><td></td></tr><tr><td>Other personal lines</td><td>71.3</td><td>60.7</td><td>59.1</td><td>32.5</td><td>35.7</td><td>30.1</td><td>103.8</td><td>96.4</td><td>89.2</td><td></td></tr><tr><td>Total</td><td>67.7</td><td>65.3</td><td>72.1</td><td>31.6</td><td>32.9</td><td>30.3</td><td>99.3</td><td>98.2</td><td>102.4</td><td></td></tr></table>

 \( ^{(1)} \)  Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

<table><tr><td rowspan="2"></td><td colspan="12">For the years ended December 31,</td></tr><tr><td colspan="3">Loss ratio</td><td colspan="3">Effect of catastrophe losses</td><td colspan="3">Effect of prior year reserve reestimates</td><td colspan="3">Effect of catastrophe losses included in prior year reserve reestimates</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2017</td><td>2018</td><td>2017</td><td>2019</td><td>2017</td></tr><tr><td>Auto</td><td>66.8</td><td>65.0</td><td>68.0</td><td>1.9</td><td>1.1</td><td>2.1</td><td>(1.9)</td><td>(1.9)</td><td>(1.1)</td><td>—</td><td>(0.2)</td><td>(0.2)</td></tr><tr><td>Homeowners</td><td>68.2</td><td>66.7</td><td>80.3</td><td>25.1</td><td>22.1</td><td>40.1</td><td>3.7</td><td>3.3</td><td>0.5</td><td>2.5</td><td>3.0</td><td>—</td></tr><tr><td>Other personal lines</td><td>71.3</td><td>60.7</td><td>59.1</td><td>6.3</td><td>8.3</td><td>8.6</td><td>(2.5)</td><td>(16.7)</td><td>(10.8)</td><td>(1.2)</td><td>1.2</td><td>—</td></tr><tr><td>Total</td><td>67.7</td><td>65.3</td><td>72.1</td><td>11.3</td><td>10.0</td><td>17.7</td><td>0.3</td><td>(1.1)</td><td>(1.3)</td><td>0.9</td><td>1.2</td><td>(0.1)</td></tr></table>

Auto loss ratio increased 1.8 points in 2019 compared to 2018, primarily due to increased claim severity and higher catastrophe losses, partially offset by favorable claim frequency.

Homeowners loss ratio increased 1.5 points in 2019 compared to 2018, primarily due to higher catastrophe losses and unfavorable prior year reserve reestimates, partially offset by lower non-catastrophe losses driven by favorable claim frequency.

<table><tr><td colspan="4">Impact of specific costs and expenses on the expense ratio</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Amortization of DAC</td><td>18.8</td><td>18.5</td><td>18.3</td></tr><tr><td>Advertising expense</td><td>0.2</td><td>0.2</td><td>0.2</td></tr><tr><td>Other costs and expenses</td><td>12.2</td><td>13.5</td><td>11.3</td></tr><tr><td>Restructuring and related charges</td><td>0.4</td><td>0.7</td><td>0.5</td></tr><tr><td>Total expense ratio</td><td>31.6</td><td>32.9</td><td>30.3</td></tr></table>

Expense ratio decreased 1.3 points in 2019 compared to 2018, primarily due to lower technology and employee-related costs.



## Discontinued Lines and Coverages Segment

The Discontinued Lines and Coverages segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s. Our exposure to asbestos, environmental and other discontinued lines claims arises principally from direct excess commercial insurance, assumed reinsurance coverage, direct primary commercial insurance and other businesses in run-off. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="5">Underwriting results</td></tr><tr><td></td><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>(\$ in millions)</td><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Claims and claims expense \( ^{(1)} \)</td><td></td><td>$ (105)</td><td>$ (87)</td><td>$ (96)</td></tr><tr><td>Operating costs and expenses</td><td></td><td>(3)</td><td>(3)</td><td>(3)</td></tr><tr><td>Underwriting loss</td><td></td><td>$ (108)</td><td>$ (90)</td><td>$ (99)</td></tr></table>

 \( ^{(1)} \)  The cost of administering claims settlements totaled 11 million for all periods presented.

Underwriting losses in 2019 primarily related to our annual reserve review using established industry and actuarial best practices. The annual review resulted in unfavorable reestimates of 95 million, including 28 million for asbestos exposures, primarily related to new reported information and settlement agreements, including bankruptcy proceedings; 36 million for environmental exposures primarily related to the reporting of additional clean-up sites; 37 million for other exposures based on new reported information, partially offset by a 6 million decrease in the allowance for future uncollectible reinsurance.
Underwriting losses in 2018 primarily related to our annual reserve review, which resulted in unfavorable reestimates of 76 million, including 44 million for asbestos exposures, 20 million for environmental exposures and 13 million for other exposures, partially offset by a 1 million decrease in the allowance for future uncollectible reinsurance.

<table><tr><td colspan="3">Reserves for asbestos, environmental and other discontinued lines claims before and after the effects of reinsurance</td></tr><tr><td>(\$ in millions)</td><td>December 31, 2019</td><td>December 31, 2018</td></tr><tr><td>Asbestos claims</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>$ 1,172</td><td>$ 1,266</td></tr><tr><td>Reinsurance</td><td>(362)</td><td>(400)</td></tr><tr><td>Net reserves</td><td>810</td><td>866</td></tr><tr><td>Environmental claims</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>219</td><td>209</td></tr><tr><td>Reinsurance</td><td>(40)</td><td>(39)</td></tr><tr><td>Net reserves</td><td>179</td><td>170</td></tr><tr><td>Other discontinued lines</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>427</td><td>389</td></tr><tr><td>Reinsurance</td><td>(51)</td><td>(34)</td></tr><tr><td>Net reserves</td><td>376</td><td>355</td></tr><tr><td>Total</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>1,818</td><td>1,864</td></tr><tr><td>Reinsurance</td><td>(453)</td><td>(473)</td></tr><tr><td>Net reserves</td><td>$ 1,365</td><td>$ 1,391</td></tr></table>



<table><tr><td colspan="3">Reserves by type of exposure before and after the effects of reinsurance</td></tr><tr><td>($ in millions)</td><td>December 31, 2019</td><td>December 31, 2018</td></tr><tr><td>Direct excess commercial insurance</td><td></td><td></td></tr><tr><td>Gross reserves (1)</td><td>$     948</td><td>$     973</td></tr><tr><td>Reinsurance (2)</td><td>(332)</td><td>(355)</td></tr><tr><td>Net reserves</td><td>616</td><td>618</td></tr><tr><td>Assumed reinsurance coverage</td><td></td><td></td></tr><tr><td>Gross reserves (3)</td><td>606</td><td>625</td></tr><tr><td>Reinsurance (4)</td><td>(53)</td><td>(53)</td></tr><tr><td>Net reserves</td><td>553</td><td>572</td></tr><tr><td>Direct primary commercial insurance</td><td></td><td></td></tr><tr><td>Gross reserves (5)</td><td>169</td><td>171</td></tr><tr><td>Reinsurance (6)</td><td>(54)</td><td>(48)</td></tr><tr><td>Net reserves</td><td>115</td><td>123</td></tr><tr><td>Other run-off business</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>15</td><td>19</td></tr><tr><td>Reinsurance</td><td>(13)</td><td>(16)</td></tr><tr><td>Net reserves</td><td>2</td><td>3</td></tr><tr><td>Unallocated loss adjustment expenses</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>80</td><td>76</td></tr><tr><td>Reinsurance</td><td>(1)</td><td>(1)</td></tr><tr><td>Net reserves</td><td>79</td><td>75</td></tr><tr><td>Total</td><td></td><td></td></tr><tr><td>Gross reserves</td><td>1,818</td><td>1,864</td></tr><tr><td>Reinsurance</td><td>(453)</td><td>(473)</td></tr><tr><td>Net reserves</td><td>$     1,365</td><td>$     1,391</td></tr></table>

(1) Gross reserves as of December 31, 2019 comprised 68% case reserves and 32% incurred but not reported (“IBNR”) reserves. Approximately 72% of the total gross case reserves are subject to settlement agreements. In 2019, total gross payments from case reserves were $122 million with approximately 83% attributable to settlements. Reserves as of December 31, 2018, comprised 67% case reserves and 33% IBNR reserves.

(2) Ceded reserves as of December 31, 2019 comprised 78% case reserves and 22% IBNR reserves. Approximately 79% of the total ceded case reserves are subject to settlement agreements. In 2019, reinsurance billings of ceded case reserves were $53 million with approximately 87% attributable to settlements. Reserves as of December 31, 2018, comprised 78% case reserves and 22% IBNR reserves.

(3) Gross reserves as of December 31, 2019 comprised 34% case reserves and 66% IBNR reserves. In 2019, total gross payments from case reserves were $43 million. Reserves as of December 31, 2018, comprised 34% case reserves and 66% IBNR reserves.

(4) Ceded reserves as of December 31, 2019 comprised 35% case reserves and 65% IBNR reserves. In 2019, reinsurance billings of ceded case reserves were $3 million. Reserves as of December 31, 2018, comprised 37% case reserves and 63% IBNR reserves.

(5) Gross reserves as of December 31, 2019 comprised 56% case reserves and 44% IBNR reserves. In 2019, total gross payments from case reserves were $15 million. Reserves as of December 31, 2018, comprised 58% case reserves and 42% IBNR reserves.

(6) Ceded reserves as of December 31, 2019 comprised 78% case reserves and 22% IBNR reserves. In 2019, reinsurance billings of ceded case reserves were $2 million. Reserves as of December 31, 2018, comprised 78% case reserves and 22% IBNR reserves.

Total net reserves as of December 31, 2019, included $660 million or 48% of estimated IBNR reserves compared to $693 million or 50% of estimated IBNR reserves as of December 31, 2018.

Total gross payments were $183 million and $156 million for 2019 and 2018, respectively, primarily related to payments on settlement agreements reached with several insureds on large claims, mainly asbestos related losses, where the scope of coverages has been agreed upon.
The claims associated with these settlement agreements are expected to be substantially paid out over the next several years as qualified claims are submitted by these insureds. Reinsurance collections were $49 million and $62 million for 2019 and 2018, respectively.

See the Claims and Claims Expense Reserves section of the MD&A for a more detailed discussion.



## Service Businesses Segment



Allstate \( ^{®} \)  PROTECTION PLANS



Dealer Services



founded by Allstate





IDENTITY PROTECTION





ROADSIDE

Service Businesses comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside Services, Arity and Allstate Identity Protection. In 2019, Service Businesses represented 3.7% of total revenue, 72.6% of total PIF and 1.1% of total adjusted net income. We offer consumer product protection plans, finance and insurance products (including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information and identity protection. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="5">Summarized financial information</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Premiums written</td><td>$ 1,535</td><td>$ 1,431</td><td>$ 1,094</td><td></td></tr><tr><td>Revenues</td><td></td><td></td><td></td><td></td></tr><tr><td>Premiums</td><td>$ 1,233</td><td>$ 1,098</td><td>$ 867</td><td></td></tr><tr><td>Other revenue</td><td>188</td><td>82</td><td>66</td><td></td></tr><tr><td>Intersegment insurance premiums and service fees (1)</td><td>154</td><td>122</td><td>110</td><td></td></tr><tr><td>Net investment income</td><td>42</td><td>27</td><td>16</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>32</td><td>(11)</td><td>—</td><td></td></tr><tr><td>Total revenues</td><td>1,649</td><td>1,318</td><td>1,059</td><td></td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td><td></td></tr><tr><td>Claims and claims expense</td><td>(363)</td><td>(350)</td><td>(369)</td><td></td></tr><tr><td>Amortization of DAC</td><td>(543)</td><td>(463)</td><td>(296)</td><td></td></tr><tr><td>Operating costs and expenses</td><td>(661)</td><td>(505)</td><td>(460)</td><td></td></tr><tr><td>Restructuring and related charges (2)</td><td>—</td><td>(4)</td><td>(13)</td><td></td></tr><tr><td>Amortization of purchased intangibles</td><td>(122)</td><td>(94)</td><td>(92)</td><td></td></tr><tr><td>Impairment of purchased intangibles</td><td>(55)</td><td>—</td><td>—</td><td></td></tr><tr><td>Total costs and expenses</td><td>(1,744)</td><td>(1,416)</td><td>(1,230)</td><td></td></tr><tr><td>Income tax benefit</td><td>18</td><td>19</td><td>194</td><td></td></tr><tr><td>Net (loss) income applicable to common shareholders</td><td>$ (77)</td><td>$ (79)</td><td>$ 23</td><td></td></tr><tr><td>Adjusted net income (loss)</td><td>$ 38</td><td>$ 8</td><td>$ (54)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>25</td><td>(9)</td><td>—</td><td></td></tr><tr><td>Amortization of purchased intangibles, after-tax</td><td>(97)</td><td>(74)</td><td>(60)</td><td></td></tr><tr><td>Impairment of purchased intangibles, after-tax</td><td>(43)</td><td>—</td><td>—</td><td></td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(4)</td><td>137</td><td></td></tr><tr><td>Net (loss) income applicable to common shareholders</td><td>$ (77)</td><td>$ (79)</td><td>$ 23</td><td></td></tr><tr><td>Allstate Protection Plans (3)</td><td>$ 60</td><td>$ 23</td><td>$ (22)</td><td></td></tr><tr><td>Allstate Dealer Services</td><td>26</td><td>15</td><td>(1)</td><td></td></tr><tr><td>Allstate Roadside Services</td><td>(15)</td><td>(20)</td><td>(17)</td><td></td></tr><tr><td>Arity</td><td>(7)</td><td>(11)</td><td>(14)</td><td></td></tr><tr><td>Allstate Identity Protection (4)</td><td>(26)</td><td>1</td><td>—</td><td></td></tr><tr><td>Adjusted net income (loss)</td><td>$ 38</td><td>$ 8</td><td>$ (54)</td><td></td></tr><tr><td>Allstate Protection Plans</td><td>99,632</td><td>68,588</td><td>38,719</td><td></td></tr><tr><td>Allstate Dealer Services</td><td>4,205</td><td>4,338</td><td>4,088</td><td></td></tr><tr><td>Allstate Roadside Services</td><td>599</td><td>663</td><td>699</td><td></td></tr><tr><td>Allstate Identity Protection</td><td>1,511</td><td>1,040</td><td>—</td><td></td></tr><tr><td>Policies in force as of December 31 (in thousands)</td><td>105,947</td><td>74,629</td><td>43,506</td><td></td></tr></table>

Primarily related to Arity and Allstate Roadside Services and are eliminated in our consolidated financial statements.

 \( ^{(2)} $  2018 related to organizational changes at Allstate Roadside Services and 2017 related to a one-time vendor contract termination.

 \( ^{(3)} \)  SquareTrade, which sells consumer protection plans using the Allstate Protection Plans name in the U.S., acquired PlumChoice on November 30, 2018 and iCracked on February 12, 2019.

 \( ^{(4)} \)  InfoArmor, which sells identity protection plans using the Allstate Identity Protection name was acquired on October 5, 2018.



Net loss applicable to common shareholders decreased 2.5% or $2 million in 2019 compared to 2018. 2019 results included a $55 million intangible asset impairment related to the change in trade name from SquareTrade to Allstate Protection Plans.

Adjusted net income increased $30 million in 2019 compared to 2018. The improvement in 2019 was primarily due to growth of Allstate Protection Plans, favorable loss experience of both Allstate Protection Plans and Allstate Dealer Services, partially offset by higher operating expenses related to investing in growth and developing new products and distribution channels for Allstate Protection Plans and Allstate Identity Protection.

Total revenues increased 25.1% or $331 million in 2019 compared to 2018, primarily due to Allstate Protection Plan’s growth through its U.S. retail and international channels, higher Allstate Identity Protection revenue due to its acquisition in fourth quarter 2018 and increased premiums earned on Allstate Dealer Services’ vehicle service contracts.

Premiums written increased 7.3% or $104 million in 2019 compared to 2018, primarily due to growth at Allstate Protection Plans and increased premiums written by Allstate Dealer Services, partially offset by declines in Allstate Roadside Services wholesale and retail business.

PIF increased 42.0% or 31 million in 2019 compared to 2018 due to continued growth at Allstate Protection Plans.

Intersegment premiums and service fees increased 26.2% or $32 million in 2019 compared to 2018, primarily related to increased auto connections and device sales through Ariity’s device and mobile data collection services and analytic solutions.

Other revenue increased $106 million in 2019 compared to 2018, primarily due to the acquisition of Allstate Identity Protection and Allstate Protection Plans' acquisitions of PlumChoice and iCracked. All of the revenue from these acquired businesses is reported as other revenue. See Note 3 of the consolidated financial statements for further details.
Claims and claims expense increased 3.7% or $13 million in 2019 compared to 2018, primarily due to higher loss costs at Allstate Protection Plans driven by growth of the business, partially offset by improved loss experience at both Allstate Protection Plans and Allstate Dealer Services.

Amortization of DAC increased 17.3% or $80 million in 2019 compared to 2018. The increase is in line with the growth experienced at Allstate Protection Plans and Allstate Dealer Services.

Operating costs and expenses increased 30.9% or $156 million in 2019 compared to 2018, primarily due to the acquisitions of Allstate Identity Protection, PlumChoice and iCracked, product development costs, investments in growing Allstate Protection Plans and expanding Allstate Identity Protection.

Amortization and impairment of purchased intangibles relates to the acquisitions of Allstate Protection Plans in 2017 and Allstate Identity Protection in 2018. We recognized $486 million and $257 million of intangible assets subject to amortization for Allstate Protection Plans and Allstate Identity Protection, respectively. We recorded amortization expense of $122 million in 2019 compared to $94 million in 2018.

During 2019, we made the decision to phase-out the use of the SquareTrade trade name in the United States and sell consumer protection plans under the Allstate Protection Plans name. The SquareTrade trade name will continue to be used outside of the United States. This resulted in a $55 million impairment in 2019 of the intangible asset related to the trade name established in 2017 when SquareTrade was acquired.



## Claims and Claims Expense Reserves

Underwriting results are significantly influenced by estimates of claims and claims expense reserves. For a description of our reserve process, see Note 8 of the consolidated financial statements. Further, for a 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 reestimates of reserves relate to changes in claim activity and 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 when actual losses differ from those predicted by the estimated development factors used in prior reserve estimates.

We believe the net loss reserves exposures are appropriately established based on available facts, technology, laws and regulations.

<table><tr><td colspan="5">Total reserves, net of recoverables (“net reserves”), as of December 31, by line of business</td></tr><tr><td>($ in millions)</td><td colspan="2">2019</td><td>2018</td><td>2017</td></tr><tr><td>Allstate brand</td><td>$     17,809</td><td>$     17,272</td><td>$     16,826</td><td></td></tr><tr><td>Esurance brand</td><td>941</td><td>862</td><td>777</td><td></td></tr><tr><td>Encompass brand</td><td>646</td><td>691</td><td>758</td><td></td></tr><tr><td>Total Allstate Protection</td><td>19,396</td><td>18,825</td><td>18,361</td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td>1,365</td><td>1,391</td><td>1,407</td><td></td></tr><tr><td>Total Property-Liability</td><td>20,761</td><td>20,216</td><td>19,768</td><td></td></tr><tr><td>Service Businesses</td><td>39</td><td>52</td><td>86</td><td></td></tr><tr><td>Total net reserves</td><td>$     20,800</td><td>$     20,268</td><td>$     19,854</td><td></td></tr></table>

The year-end 2019 gross reserves of $27.71 billion for insurance claims and claims expense were $8.34 billion more than the net reserve balance of $19.37 billion recorded on the basis of statutory accounting practices for reports provided to state regulatory authorities. The principal differences are recoverables from third parties totaling $6.91 billion, including $5.46 billion of indemnification recoverables related to the Michigan Catastrophic Claims Association (“MCCA”), that reduce reserves for statutory reporting, but are recorded as assets for GAAP reporting, and a liability for the reserves of the Canadian subsidiaries for $1.33 billion that are a component of our consolidated reserves, but not included in our U.S. statutory reserves. The tables below show net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2019, 2018 and 2017, and the effect of reestimates in each year.

<table><tr><td colspan="4">Net reserves</td></tr><tr><td></td><td colspan="3">January 1 reserves</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Allstate brand</td><td>$ 17,272</td><td>$ 16,826</td><td>$ 16,108</td></tr><tr><td>Esurance brand</td><td>862</td><td>777</td><td>740</td></tr><tr><td>Encompass brand</td><td>691</td><td>758</td><td>749</td></tr><tr><td>Total Allstate Protection</td><td>18,825</td><td>18,361</td><td>17,597</td></tr><tr><td>Discontinued Lines and Coverages</td><td>1,391</td><td>1,407</td><td>1,445</td></tr><tr><td>Total Property-Liability</td><td>20,216</td><td>19,768</td><td>19,042</td></tr><tr><td>Service Businesses</td><td>52</td><td>86</td><td>24</td></tr><tr><td>Total net reserves</td><td>$ 20,268</td><td>$ 19,854</td><td>$ 19,066</td></tr></table>



Impact of reserve reestimates by brand on combined ratio and net income applicable to common shareholders \( ^{(1)(2)} \) 

<table><tr><td rowspan="2">(\( in millions, except ratios)</td><td colspan="2">2019</td><td colspan="2">2018</td><td colspan="2">2017</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>Effec on combined ratio</td></tr><tr><td>Allstate brand</td><td>$ (239)</td><td>(0.7)</td><td>$ (332)</td><td>(1.0)</td><td>$ (585)</td><td>(1.8)</td></tr><tr><td>Esurance brand</td><td>3</td><td>—</td><td>3</td><td>—</td><td>(2)</td><td>—</td></tr><tr><td>Encompass brand</td><td>3</td><td>—</td><td>(11)</td><td>—</td><td>(14)</td><td>(0.1)</td></tr><tr><td>Total Allstate Protection</td><td>(233)</td><td>(0.7)</td><td>(340)</td><td>(1.0)</td><td>(601)</td><td>(1.9)</td></tr><tr><td>Discontinued Lines and Coverages</td><td>105</td><td>0.4</td><td>87</td><td>0.3</td><td>96</td><td>0.3</td></tr><tr><td>Total Property-Liability</td><td>(128)</td><td>(0.3)</td><td>(253)</td><td>(0.7)</td><td>(505)</td><td>(1.6)</td></tr><tr><td>Service Businesses</td><td>(2)</td><td>—</td><td>(2)</td><td>—</td><td>2</td><td>—</td></tr><tr><td>Total</td><td>$ (130)</td><td></td><td>$ (255)</td><td></td><td>$ (503)</td><td></td></tr><tr><td>Reserve reestimates, after-tax</td><td>$ (103)</td><td></td><td>$ (201)</td><td></td><td>$ (327)</td><td></td></tr><tr><td>Consolidated net income applicable to common shareholders</td><td>$ 4,678</td><td></td><td>$ 2,012</td><td></td><td>$ 3,438</td><td></td></tr><tr><td>Reserve reestimates as a % impact on consolidated net income applicable to common shareholders</td><td>2.2%</td><td></td><td>10.0%</td><td></td><td>9.5%</td><td></td></tr><tr><td>Property-Liability prior year reserve reestimates included in catastrophe losses</td><td>$ 48</td><td></td><td>$ 25</td><td></td><td>$ (18)</td><td></td></tr></table>

 \( ^{(1)} \)  Favorable reserve reestimates are shown in parentheses.

 \( ^{(2)} \)  Ratios are calculated using property and casualty premiums earned.

The following tables reflect the accident years to which the reestimates shown above are applicable. Favorable reserve reestimates are shown in parentheses.

2019 prior year reserve reestimates

<table><tr><td>(\( in millions)</td><td>2014 &amp; prior</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ (133)</td><td>$ (44)</td><td>$ (25)</td><td>$ (96)</td><td>$ 59</td><td>$ (239)</td></tr><tr><td>Esurance brand</td><td>(5)</td><td>(2)</td><td>(1)</td><td>(3)</td><td>14</td><td>3</td></tr><tr><td>Encompass brand</td><td>(2)</td><td>2</td><td>(2)</td><td>4</td><td>1</td><td>3</td></tr><tr><td>Total Allstate Protection</td><td>(140)</td><td>(44)</td><td>(28)</td><td>(95)</td><td>74</td><td>(233)</td></tr><tr><td>Discontinued Lines and Coverages</td><td>105</td><td>—</td><td>—</td><td>—</td><td>—</td><td>105</td></tr><tr><td>Total Property-Liability</td><td>(35)</td><td>(44)</td><td>(28)</td><td>(95)</td><td>74</td><td>(128)</td></tr><tr><td>Service Businesses</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(2)</td><td>(2)</td></tr><tr><td>Total</td><td>$ (35)</td><td>$ (44)</td><td>$ (28)</td><td>$ (95)</td><td>$ 72</td><td>$ (130)</td></tr></table>

2018 prior year reserve reestimates

<table><tr><td>(\( in millions)</td><td>2013 &amp; prior</td><td>2014</td><td>2015</td><td>2016</td><td>2017</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ (61)</td><td>$ (50)</td><td>$ (25)</td><td>$ (146)</td><td>$ (50)</td><td>$ (332)</td></tr><tr><td>Esurance brand</td><td>(5)</td><td>(6)</td><td>9</td><td>13</td><td>(8)</td><td>3</td></tr><tr><td>Encompass brand</td><td>(12)</td><td>(11)</td><td>(15)</td><td>1</td><td>26</td><td>(11)</td></tr><tr><td>Total Allstate Protection</td><td>(78)</td><td>(67)</td><td>(31)</td><td>(132)</td><td>(32)</td><td>(340)</td></tr><tr><td>Discontinued Lines and Coverages</td><td>87</td><td>—</td><td>—</td><td>—</td><td>—</td><td>87</td></tr><tr><td>Total Property-Liability</td><td>9</td><td>(67)</td><td>(31)</td><td>(132)</td><td>(32)</td><td>(253)</td></tr><tr><td>Service Businesses</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(2)</td><td>(2)</td></tr><tr><td>Total</td><td>$ 9</td><td>$ (67)</td><td>$ (31)</td><td>$ (132)</td><td>$ (34)</td><td>$ (255)</td></tr></table>

2017 prior year reserve reestimates

<table><tr><td>(\( in millions)</td><td>2012 &amp; prior</td><td>2013</td><td>2014</td><td>2015</td><td>2016</td><td>Total</td></tr><tr><td>Allstate brand</td><td>$ 3</td><td>$ (99)</td><td>$ (103)</td><td>$ (121)</td><td>$ (265)</td><td>$ (585)</td></tr><tr><td>Esurance brand</td><td>(3)</td><td>(1)</td><td>(12)</td><td>1</td><td>13</td><td>(2)</td></tr><tr><td>Encompass brand</td><td>(6)</td><td>(1)</td><td>(4)</td><td>(1)</td><td>(2)</td><td>(14)</td></tr><tr><td>Total Allstate Protection</td><td>(6)</td><td>(101)</td><td>(119)</td><td>(121)</td><td>(254)</td><td>(601)</td></tr><tr><td>Discontinued Lines and Coverages</td><td>96</td><td>—</td><td>—</td><td>—</td><td>—</td><td>96</td></tr><tr><td>Total Property-Liability</td><td>90</td><td>(101)</td><td>(119)</td><td>(121)</td><td>(254)</td><td>(505)</td></tr><tr><td>Service Businesses</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2</td><td>2</td></tr><tr><td>Total</td><td>$ 90</td><td>$ (101)</td><td>$ (119)</td><td>$ (121)</td><td>$ (252)</td><td>$ (503)</td></tr></table>



## 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 2019, 2018, and 2017, and the effect of reestimates in each year.

<table><tr><td colspan="6">Net reserves by line</td></tr><tr><td></td><td></td><td colspan="4">January 1 reserves</td></tr><tr><td>($ in millions)</td><td></td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Auto</td><td></td><td>$     14,378</td><td>$     14,051</td><td>$     13,530</td><td></td></tr><tr><td>Homeowners</td><td></td><td>2,157</td><td>2,205</td><td>1,990</td><td></td></tr><tr><td>Other personal lines</td><td></td><td>1,489</td><td>1,489</td><td>1,456</td><td></td></tr><tr><td>Commercial lines</td><td></td><td>801</td><td>616</td><td>621</td><td></td></tr><tr><td>Total Allstate Protection</td><td></td><td>$     18,825</td><td>$     18,361</td><td>$     17,597</td><td></td></tr></table>

<table><tr><td colspan="7">Impact of reserve reestimates by line on combined ratio and underwriting income</td></tr><tr><td></td><td colspan="2">2019</td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td>($ in millions, except ratios)</td><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>Effective on combined ratio</td></tr><tr><td>Auto</td><td>$ (323)</td><td>(0.9)</td><td>$ (455)</td><td>(1.3)</td><td>$ (490)</td><td>(1.6)</td></tr><tr><td>Homeowners</td><td>65</td><td>0.2</td><td>14</td><td>—</td><td>(131)</td><td>(0.4)</td></tr><tr><td>Other personal lines</td><td>8</td><td>—</td><td>(7)</td><td>—</td><td>1</td><td>—</td></tr><tr><td>Commercial lines</td><td>17</td><td>—</td><td>108</td><td>0.3</td><td>19</td><td>0.1</td></tr><tr><td>Total Allstate Protection</td><td>$ (233)</td><td>(0.7)</td><td>$ (340)</td><td>(1.0)</td><td>$ (601)</td><td>(1.9)</td></tr><tr><td>Underwriting income</td><td>$ 2,912</td><td></td><td>$ 2,343</td><td></td><td>$ 2,304</td><td></td></tr><tr><td>Reserve reestimates as a % impact on underwriting income</td><td>8.0%</td><td></td><td>14.5%</td><td></td><td>26.1%</td><td></td></tr></table>

Prior year reserve reestimates are developed based on factors that are calculated quarterly and periodically throughout the year for data elements such as claims reported and settled, paid losses and paid losses combined with case reserves. We use significant judgment and these data elements to make revisions to loss development factors that predict how losses are likely to develop from the end of a reporting period until all claims have been paid. When actual development of these data elements is different than the historical development pattern used in a prior period reserve estimate, reserves are revised as actuarial studies validate new trends based on the indications of updated development factor calculations. On-going claims organizational and process changes that are occurring are considered within our estimation process.

Favorable reserve reestimates for auto in 2019 primarily related to continued favorable personal lines auto injury coverage development, offset by strengthening in our homeowners lines. Auto liability claims process changes implemented in prior years, including a program requiring enhanced documentation of injuries and related medical treatments, have resulted in favorable severity trends compared to those originally estimated as we continue to develop greater experience in settling claims under these programs. The impact of these program changes continues to moderate. Unfavorable results for homeowners lines in 2019 were primarily due to catastrophe development being higher than anticipated in previous estimates.

Favorable reserve reestimates for auto in 2018 primarily related to continued favorable personal lines auto injury coverage development, offset by strengthening in our commercial lines and personal injury protection (“PIP”) coverage, including an unfavorable ruling against the insurance industry related to Florida PIP. Unfavorable results for commercial lines in 2018 were primarily due to non-catastrophe auto loss development being higher than anticipated in previous estimates.

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.



## 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 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.

<table><tr><td colspan="9">Discontinued Lines and Coverages reserve reestimates</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="3">2019</td><td colspan="3">2018</td><td colspan="2">2017</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>January 1 reserves</td><td>Reserve reestimate</td><td></td></tr><tr><td>Asbestos claims</td><td>$ 866</td><td>$ 28</td><td>$ 884</td><td>$ 44</td><td>$ 912</td><td>$ 61</td><td></td><td></td></tr><tr><td>Environmental claims</td><td>170</td><td>36</td><td>166</td><td>20</td><td>179</td><td>10</td><td></td><td></td></tr><tr><td>Other discontinued lines</td><td>355</td><td>41</td><td>357</td><td>23</td><td>354</td><td>25</td><td></td><td></td></tr><tr><td>Total</td><td>$ 1,391</td><td>$ 105</td><td>$ 1,407</td><td>$ 87</td><td>$ 1,445</td><td>$ 96</td><td></td><td></td></tr><tr><td>Underwriting loss</td><td></td><td>$ (108)</td><td></td><td>$ (90)</td><td></td><td>$ (99)</td><td></td><td></td></tr></table>

Reserve additions for asbestos in 2019 were primarily related to new reported information and settlement agreements, including bankruptcy proceedings. Reserve additions for asbestos in 2018 were primarily related to new reported information, changes in our projections of reported claims and settlement agreements, including bankruptcy proceedings.
Reserve additions for environmental in 2019 were primarily related to the reporting of additional clean-up sites. Reserve additions for environmental in 2018 were primarily related to expected greater loss activity for future claims.

<table><tr><td colspan="8">Reserves and claim activity before (Gross) and after (Net) the effects of reinsurance</td></tr><tr><td rowspan="2">(\( in millions, except ratios)</td><td colspan="2">2019</td><td colspan="2">2018</td><td colspan="2">2017</td><td></td></tr><tr><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td></td></tr><tr><td>Asbestos claims</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning reserves</td><td>$ 1,266</td><td>$ 866</td><td>$ 1,296</td><td>$ 884</td><td>$ 1,356</td><td>$ 912</td><td></td></tr><tr><td>Incurred claims and claims expense</td><td>39</td><td>28</td><td>89</td><td>44</td><td>79</td><td>61</td><td></td></tr><tr><td>Claims and claims expense paid</td><td>(133)</td><td>(84)</td><td>(119)</td><td>(62)</td><td>(139)</td><td>(89)</td><td></td></tr><tr><td>Ending reserves</td><td>$ 1,172</td><td>$ 810</td><td>$ 1,266</td><td>$ 866</td><td>$ 1,296</td><td>$ 884</td><td></td></tr><tr><td>Annual survival ratio</td><td>8.8</td><td>9.6</td><td>10.6</td><td>14.0</td><td>9.3</td><td>9.9</td><td></td></tr><tr><td>3-year survival ratio</td><td>9.0</td><td>10.3</td><td>9.1</td><td>9.7</td><td>9.2</td><td>8.9</td><td></td></tr><tr><td>Environmental claims</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning reserves</td><td>$ 209</td><td>$ 170</td><td>$ 199</td><td>$ 166</td><td>$ 219</td><td>$ 179</td><td></td></tr><tr><td>Incurred claims and claims expense</td><td>42</td><td>36</td><td>30</td><td>20</td><td>9</td><td>10</td><td></td></tr><tr><td>Claims and claims expense paid</td><td>(32)</td><td>(27)</td><td>(20)</td><td>(16)</td><td>(29)</td><td>(23)</td><td></td></tr><tr><td>Ending reserves</td><td>$ 219</td><td>$ 179</td><td>$ 209</td><td>$ 170</td><td>$ 199</td><td>$ 166</td><td></td></tr><tr><td>Annual survival ratio</td><td>6.8</td><td>6.6</td><td>10.5</td><td>10.6</td><td>6.9</td><td>7.2</td><td></td></tr><tr><td>3-year survival ratio</td><td>8.1</td><td>8.1</td><td>8.4</td><td>8.2</td><td>6.9</td><td>6.9</td><td></td></tr><tr><td>Combined environmental and asbestos claims</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual survival ratio</td><td>8.4</td><td>8.9</td><td>10.6</td><td>13.3</td><td>8.9</td><td>9.4</td><td></td></tr><tr><td>3-year survival ratio</td><td>8.8</td><td>9.9</td><td>9.0</td><td>9.5</td><td>8.8</td><td>8.5</td><td></td></tr><tr><td>Percentage of IBNR in ending reserves</td><td></td><td>48.8%</td><td></td><td>49.6%</td><td></td><td>52.7%</td><td></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 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. In 2019 and 2018, the asbestos and environmental net 3-year survival ratio increased due to lower claim payments associated with settlement agreements.



<table><tr><td colspan="11">Net asbestos reserves by type of exposure and total reserve additions</td></tr><tr><td rowspan="2">($ in millions)</td><td colspan="3">December 31, 2019</td><td colspan="3">December 31, 2018</td><td colspan="4">December 31, 2017</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></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></tr><tr><td>Primary</td><td>58</td><td>$ 12</td><td>1%</td><td>51</td><td>$ 12</td><td>1%</td><td>48</td><td>$ 10</td><td>1%</td><td></td></tr><tr><td>Excess</td><td>299</td><td>292</td><td>36</td><td>295</td><td>309</td><td>36</td><td>296</td><td>308</td><td>35</td><td></td></tr><tr><td>Total case reserves</td><td>357</td><td>304</td><td>37</td><td>346</td><td>321</td><td>37</td><td>344</td><td>318</td><td>36</td><td></td></tr><tr><td>Assumed reinsurance</td><td></td><td>127</td><td>16</td><td></td><td>138</td><td>16</td><td></td><td>117</td><td>13</td><td></td></tr><tr><td>IBNR</td><td></td><td>379</td><td>47</td><td></td><td>407</td><td>47</td><td></td><td>449</td><td>51</td><td></td></tr><tr><td>Total net reserves</td><td></td><td>$ 810</td><td>100%</td><td></td><td>$ 866</td><td>100%</td><td></td><td>$ 884</td><td>100%</td><td></td></tr><tr><td>Total reserve additions</td><td></td><td>$ 28</td><td></td><td></td><td>$ 44</td><td></td><td></td><td>$ 61</td><td></td><td></td></tr></table>

At December 31, 2019, there were 357 active policyholders with open asbestos claims.

• Active policyholders increased by 11 in 2019, including 16 policyholders reporting asbestos claims for the first time and the closing of all claims for 5 policyholders.

• Active policyholders increased by 2 in 2018, including 13 policyholders reporting asbestos claims for the first time and the closing of all claims for 11 policyholders.

IBNR net reserves decreased $28 million as of December 31, 2019 compared to December 31, 2018. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current policyholders and ceding companies.

<table><tr><td colspan="4">Claims counts for asbestos and environmental exposures</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>Number of claims</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Asbestos</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>6,440</td><td>6,659</td><td>6,883</td></tr><tr><td>New</td><td>332</td><td>427</td><td>406</td></tr><tr><td>Closed</td><td>(551)</td><td>(646)</td><td>(630)</td></tr><tr><td>Pending, end of year</td><td>6,221</td><td>6,440</td><td>6,659</td></tr><tr><td>Closed without payment</td><td>392</td><td>446</td><td>377</td></tr><tr><td>Environmental</td><td></td><td></td><td></td></tr><tr><td>Pending, beginning of year</td><td>3,229</td><td>3,351</td><td>3,399</td></tr><tr><td>New</td><td>273</td><td>335</td><td>375</td></tr><tr><td>Closed</td><td>(323)</td><td>(457)</td><td>(423)</td></tr><tr><td>Pending, end of year</td><td>3,179</td><td>3,229</td><td>3,351</td></tr><tr><td>Closed without payment</td><td>197</td><td>320</td><td>299</td></tr></table>

Reinsurance and indemnification programs 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 (“CKIC”) and Allstate New Jersey Insurance Company (“ANJ”). 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 have also purchased reinsurance to mitigate exposures in our long-tail liability lines, including environmental, asbestos and other discontinued lines as well as our commercial lines, including shared economy. We also participate in various indemnification mechanisms, including state-based industry pool or facility programs mandating participation by insurers offering certain coverage in their state and the federal government National Flood Insurance Program (“NFIP”). See Note 10 of the consolidated financial statements for additional details on these programs.



Reinsurance and indemnification recoverables, net of the allowance established for uncollectible amounts

<table><tr><td rowspan="2">($ in millions)</td><td rowspan="2">S&amp;P financial strength rating (1)</td><td colspan="2">Reinsurance or indemnification recoverable on paid and unpaid claims, net</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Indemnification programs</td><td></td><td></td><td></td></tr><tr><td>State-based industry pool or facility programs</td><td></td><td></td><td></td></tr><tr><td>MCCA (2)</td><td>N/A</td><td>$ 5,499</td><td>$ 5,400</td></tr><tr><td>New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”)</td><td>N/A</td><td>446</td><td>461</td></tr><tr><td>North Carolina Reinsurance Facility</td><td>N/A</td><td>78</td><td>86</td></tr><tr><td>Florida Hurricane Catastrophe Fund (“FHCF”)</td><td>N/A</td><td>52</td><td>104</td></tr><tr><td>Other</td><td></td><td>9</td><td>9</td></tr><tr><td>Federal Government - NFIP</td><td>N/A</td><td>25</td><td>31</td></tr><tr><td>Subtotal</td><td></td><td>6,109</td><td>6,091</td></tr><tr><td>Catastrophe reinsurance recoverables</td><td></td><td></td><td></td></tr><tr><td>Renaissance Reinsurance Limited</td><td>A+</td><td>27</td><td>65</td></tr><tr><td>Swiss Reinsurance America Corporation</td><td>AA-</td><td>15</td><td>39</td></tr><tr><td>Everest Reinsurance Company</td><td>A+</td><td>15</td><td>33</td></tr><tr><td>Other</td><td></td><td>179</td><td>416</td></tr><tr><td>Subtotal</td><td></td><td>236</td><td>553</td></tr><tr><td>Other reinsurance recoverables (3)</td><td></td><td></td><td></td></tr><tr><td>Lloyd’s of London (“Lloyd’s”) (4)</td><td>A+</td><td>158</td><td>165</td></tr><tr><td>Aleka Insurance Inc.</td><td>N/A</td><td>115</td><td>37</td></tr><tr><td>Westport Insurance Corporation</td><td>AA-</td><td>55</td><td>60</td></tr><tr><td>TIG Insurance Company</td><td>N/A</td><td>38</td><td>35</td></tr><tr><td>Other, including allowance for future uncollectible recoverables</td><td></td><td>293</td><td>307</td></tr><tr><td>Subtotal</td><td></td><td>659</td><td>604</td></tr><tr><td>Total Property-Liability</td><td></td><td>7,004</td><td>7,248</td></tr><tr><td>Service Businesses</td><td></td><td>20</td><td>18</td></tr><tr><td>Total</td><td></td><td>$ 7,024</td><td>$ 7,266</td></tr></table>

(1) N/A reflects no S&P Global Ratings (“S&P”) rating available.

(2) As of December 31, 2019 and 2018, MCCA includes $39 million and $30 million of reinsurance recoverable on paid claims, respectively, and $5.46 billion and $5.37 billion of reinsurance recoverable on unpaid claims, respectively.

(3) Other reinsurance recoverables primarily relate to asbestos, environmental and other liability exposures as well as commercial lines, including shared economy.

(4) As of December 31, 2019, case reserves for Lloyd’s were 68% of the reinsurance recoverable for unpaid claims.

Reinsurance and indemnification recoverables include an estimate of the amount of insurance claims and claims expense reserves that are ceded under the terms of the agreements, including incurred but not reported unpaid losses. We calculate our ceded reinsurance and indemnification estimates based on the terms of each applicable 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 agreements. Accordingly, our estimate of recoverables is subject to similar risks and uncertainties as our estimate of reserves 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 of our reinsurance recoverables, and a provision for uncollectible reinsurance recoverables 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.

Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation and the Company has not had any credit losses related to these programs and we do not anticipate losses in the foreseeable future. We also have not experienced credit losses on our catastrophe reinsurance programs, which include highly rated reinsurers.

The allowance for uncollectible reinsurance relates to other reinsurance programs primarily related to our Discontinued Lines and Coverages segment. This allowance was $60 million and $65 million as of December 31, 2019 and 2018, 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



## Claims and Claims Expenses Reserves

business, we may become involved in coverage disputes with certain of our reinsurers that 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 cedents, and recent trends in arbitration and litigation outcomes in disputes between cedents 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.

For further details related to our reinsurance and indemnification recoverables, see Note 10 of the consolidated financial statements.

<table><tr><td colspan="5">Effects of reinsurance ceded and indemnification programs on our premiums earned and claims and claims expense</td></tr><tr><td></td><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Allstate Protection - Premiums</td><td></td><td></td><td></td><td></td></tr><tr><td>Indemnification programs</td><td></td><td></td><td></td><td></td></tr><tr><td>State-based industry pool or facility programs</td><td></td><td></td><td></td><td></td></tr><tr><td>MCCA</td><td>$</td><td>89</td><td>$</td><td>77</td></tr><tr><td>PLIGA</td><td></td><td>8</td><td>9</td><td>9</td></tr><tr><td>FHCF</td><td></td><td>9</td><td>10</td><td>11</td></tr><tr><td>Other</td><td></td><td>85</td><td>90</td><td>108</td></tr><tr><td>Federal Government - NFIP</td><td></td><td>258</td><td>258</td><td>263</td></tr><tr><td>Catastrophe reinsurance</td><td></td><td>377</td><td>344</td><td>344</td></tr><tr><td>Other reinsurance programs</td><td></td><td>121</td><td>54</td><td>—</td></tr><tr><td>Total Allstate Protection</td><td></td><td>947</td><td>842</td><td>808</td></tr><tr><td>Discontinued Lines and Coverages</td><td></td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total Property-Liability</td><td></td><td>947</td><td>842</td><td>808</td></tr><tr><td>Service Businesses</td><td></td><td>175</td><td>174</td><td>163</td></tr><tr><td>Total effect on premiums earned</td><td>$</td><td>1,122</td><td>$</td><td>1,016</td></tr><tr><td>Allstate Protection - Claims</td><td></td><td></td><td></td><td></td></tr><tr><td>Indemnification programs</td><td></td><td></td><td></td><td></td></tr><tr><td>State-based industry pool or facility programs</td><td></td><td></td><td></td><td></td></tr><tr><td>MCCA</td><td>$</td><td>208</td><td>$</td><td>233</td></tr><tr><td>PLIGA</td><td></td><td>3</td><td>(6)</td><td>3</td></tr><tr><td>FHCF</td><td></td><td>31</td><td>148</td><td>19</td></tr><tr><td>Other</td><td></td><td>67</td><td>90</td><td>89</td></tr><tr><td>Federal Government - NFIP</td><td></td><td>150</td><td>118</td><td>1,116</td></tr><tr><td>Catastrophe reinsurance</td><td></td><td>(166) (1)</td><td>604</td><td>46</td></tr><tr><td>Other reinsurance programs</td><td></td><td>94</td><td>40</td><td>—</td></tr><tr><td>Total Allstate Protection</td><td></td><td>387</td><td>1,227</td><td>1,683</td></tr><tr><td>Discontinued Lines and Coverages</td><td></td><td>39</td><td>57</td><td>35</td></tr><tr><td>Total Property-Liability</td><td></td><td>426</td><td>1,284</td><td>1,718</td></tr><tr><td>Service Businesses</td><td></td><td>98</td><td>94</td><td>89</td></tr><tr><td>Total effect on claims and claims expense</td><td>$</td><td>524</td><td>$</td><td>1,378</td></tr></table>

 \( ^{(1)} \)  Decline reflects reestimates in claims and claims expense related to the 2018 Camp Fire.

In 2019 and 2018, ceded premiums earned increased primarily due to increased activity within our shared economy business and catastrophe reinsurance premium rates. In 2019, ceded claims and claims expenses decreased $854 million, primarily due to lower amounts related to the catastrophe reinsurance program, partially offset by increased activity with our shared economy business. In 2018, ceded claims and claims expenses decreased $429 million, primarily due to higher amounts related to NFIP in 2017.

Our claim reserve development experience is consistent with the MCCA’s overall experience with reported and pending claims increasing in recent years. The MCCA has reported severity increasing with nearly 55% of reimbursements for attendant and residential care services. The Governor of Michigan signed new legislation on May 30, 2019 to reform Michigan’s no-fault auto insurance system. For further discussion of these items, see Regulation, Indemnification Programs and Note 10 of the consolidated financial statements.



Michigan personal injury protection reserve and claim activity before and after the effects of MCCA recoverables
For the years ended December 31,

<table><tr><td rowspan="2">(\ in millions)</td><td colspan="2">2019</td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td><td>Gross</td><td>Net</td></tr><tr><td>Beginning reserves</td><td>$ 5,975</td><td>$ 605</td><td>$ 5,799</td><td>$ 565</td><td>$ 5,443</td><td>$ 522</td></tr><tr><td>Incurred claims and claims expense-current year</td><td>446</td><td>202</td><td>449</td><td>189</td><td>513</td><td>195</td></tr><tr><td>Incurred claims and claims expense-prior years</td><td>(16)</td><td>20</td><td>9</td><td>35</td><td>117</td><td>25</td></tr><tr><td>Claims and claims expense paid-current year (1)</td><td>(55)</td><td>(53)</td><td>(52)</td><td>(51)</td><td>(54)</td><td>(53)</td></tr><tr><td>Claims and claims expense paid-prior years (1)</td><td>(244)</td><td>(127)</td><td>(230)</td><td>(133)</td><td>(220)</td><td>(124)</td></tr><tr><td>Ending reserves (2)</td><td>$ 6,106</td><td>$ 647</td><td>$ 5,975</td><td>$ 605</td><td>$ 5,799</td><td>$ 565</td></tr></table>

(1) Paid claims and claims expenses reported in the table for the current and prior years, recovered from the MCCA totaled $119 million, $98 million and $97 million in 2019, 2018 and 2017, respectively.

(2) Gross reserves for the year ended December 31, 2019, comprise 85% case reserves and 15% IBNR. Gross reserves for the year ended December 31, 2018, comprise 88% case reserves and 12% IBNR. Gross reserves for the year ended December 31, 2017 comprise 87% case reserves and 13% IBNR. The MCCA does not require member companies to report ultimate case reserves.

Pending MCCA claims differ from most personal lines insurance pending claims as other personal lines policies have coverage limits and incurred claims settle in shorter periods. Claims are considered pending as long as payments are continuing pursuant to an outstanding MCCA claim, which can be for a claimant's lifetime. Many of these injuries are catastrophic in nature, resulting in serious permanent disabilities that require attendant and residential care for periods that may span decades. A significant portion of the ultimate incurred claim reserves and the recoverables can be attributed to a small number of catastrophic claims that occurred more than five years ago and continue to pay lifetime benefits.

Pending, new and closed claims for Michigan personal injury protection exposures

<table><tr><td rowspan="2">Number of claims (1)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Pending, beginning of year</td><td>4,812</td><td>4,983</td><td>5,388</td></tr><tr><td>New</td><td>7,807</td><td>7,858</td><td>8,494</td></tr><tr><td>Closed</td><td>(7,677)</td><td>(8,029)</td><td>(8,899)</td></tr><tr><td>Pending, end of year</td><td>4,942</td><td>4,812</td><td>4,983</td></tr></table>

(1) Total claims includes those covered and not covered by the MCCA indemnification.

As of December 31, 2019, approximately 1,600 of our pending claims have been reported to the MCCA, of which approximately 55% represents claims that occurred more than 5 years ago. There are 73 Allstate brand claims with reserves in excess of $15 million as of December 31, 2019, which comprise approximately 32% of the gross ending reserves in the table above. As a result, significant developments with a single claimant can result in volatility in prior year incurred claims.

Intercompany reinsurance We enter into certain intercompany insurance and reinsurance transactions 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 is designed to address our exposure to catastrophes nationwide, utilizing our risk management methodology. Our program is designed to provide reinsurance protection for catastrophes resulting from multiple perils including hurricanes, windstorms, hail, tornadoes, earthquakes, wildfires, and fires following earthquakes. 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, while providing protection to our customers.
We anticipate completing the placement of our 2020 nationwide catastrophe reinsurance program in the second quarter of 2020. We expect the program will be similar to our 2019 nationwide catastrophe reinsurance program but will evaluate opportunities to improve the economic terms and conditions. For further details of the existing 2019 program, see Note 10 of the consolidated financial statements.



## Allstate Life Segment

Allstate Life offers traditional, interest-sensitive and variable life insurance. In 2019, Allstate Life represented 4.4% of total revenue, 1.3% of total PIF and 7.5% of total adjusted net income. Our target customers are middle market consumers with family and financial protection needs. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="4">Summarized financial information</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Premiums and contract charges</td><td>$ 1,343</td><td>$ 1,315</td><td>$ 1,280</td></tr><tr><td>Other revenue</td><td>125</td><td>119</td><td>114</td></tr><tr><td>Net investment income</td><td>514</td><td>505</td><td>489</td></tr><tr><td>Realized capital gains and losses</td><td>1</td><td>(14)</td><td>5</td></tr><tr><td>Total revenues</td><td>1,983</td><td>1,925</td><td>1,888</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Contract benefits</td><td>(855)</td><td>(809)</td><td>(765)</td></tr><tr><td>Interest credited to contractholder funds</td><td>(299)</td><td>(285)</td><td>(282)</td></tr><tr><td>Amortization of DAC</td><td>(173)</td><td>(132)</td><td>(134)</td></tr><tr><td>Operating costs and expenses</td><td>(354)</td><td>(361)</td><td>(342)</td></tr><tr><td>Restructuring and related charges</td><td>(2)</td><td>(3)</td><td>(2)</td></tr><tr><td>Total costs and expenses</td><td>(1,683)</td><td>(1,590)</td><td>(1,525)</td></tr><tr><td>Income tax (expense) benefit</td><td>(53)</td><td>(75)</td><td>226</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 247</td><td>$ 260</td><td>$ 589</td></tr><tr><td>Adjusted net income</td><td>$ 261</td><td>$ 295</td><td>$ 259</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>—</td><td>(11)</td><td>2</td></tr><tr><td>Valuation changes on embedded derivatives not hedged, after-tax</td><td>(9)</td><td>—</td><td>—</td></tr><tr><td>DAC and DSI amortization related to realized capital gains and losses and valuation changes on embedded derivatives not hedged, after-tax</td><td>(5)</td><td>(8)</td><td>(10)</td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(16)</td><td>338</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 247</td><td>$ 260</td><td>$ 589</td></tr><tr><td>Reserve for life-contingent contract benefits as of December 31</td><td>$ 2,736</td><td>$ 2,677</td><td>$ 2,636</td></tr><tr><td>Contractholder funds as of December 31</td><td>$ 7,805</td><td>$ 7,656</td><td>$ 7,608</td></tr><tr><td>Policies in force as of December 31 by distribution channel (in thousands)</td><td></td><td></td><td></td></tr><tr><td>Allstate agencies</td><td>1,816</td><td>1,831</td><td>1,822</td></tr><tr><td>Closed channels</td><td>107</td><td>114</td><td>123</td></tr><tr><td>Total</td><td>1,923</td><td>1,945</td><td>1,945</td></tr></table>

Net income applicable to common shareholders decreased 5.0% or $13 million in 2019 compared to 2018. 2018 results include a tax expense of $16 million related to the Tax Legislation.

Adjusted net income decreased 11.5% or $34 million in 2019 compared to 2018, primarily due to higher amortization of DAC related to our annual review of assumptions and higher contract benefits, partially offset by higher premiums and net investment income, and lower operating costs and expenses.

Premiums and contract charges increased 2.1% or $28 million in 2019 compared to 2018, primarily due to growth in traditional life insurance. Approximately 85% of Allstate Life’s traditional life insurance premium relates to term life insurance products.

<table><tr><td colspan="4">Premiums and contract charges by product</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Traditional life insurance premiums</td><td>$ 630</td><td>$ 600</td><td>$ 568</td></tr><tr><td>Accident and health insurance premiums</td><td>2</td><td>2</td><td>2</td></tr><tr><td>Interest-sensitive life insurance contract charges  \( {}^{(1)} \)</td><td>711</td><td>713</td><td>710</td></tr><tr><td>Premiums and contract charges</td><td>$ 1,343</td><td>$ 1,315</td><td>$ 1,280</td></tr></table>

(1) Contract charges related to the cost of insurance totaled $499 million, $493 million and $487 million in 2019, 2018 and 2017, respectively.



Other revenue increased 5.0% or $6 million in 2019 compared to 2018, primarily due to higher gross dealer concessions earned on Allstate agencies' sales of non-proprietary fixed and variable annuities, and mutual funds.

Contract benefits increased 5.7% or $46 million in 2019 compared to 2018, primarily due to higher claim experience on interest-sensitive life insurance, partially offset by a favorable change associated with the annual review of assumptions.

Our annual review of assumptions in 2019 resulted in a $5 million decrease in reserves primarily for secondary guarantees on interest-sensitive life insurance due to utilizing more refined policy level information and assumptions. In 2018, the review resulted in a $1 million increase in reserves, primarily for secondary guarantees on interest-sensitive life insurance due to higher than anticipated policyholder persistency.
Benefit spread reflects our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and contract benefits (“benefit spread”). Benefit spread decreased 3.5% to $276 million in 2019 compared to $286 million in 2018, primarily due to higher claim experience on interest-sensitive life insurance, partially offset by growth in traditional life insurance premiums.

Interest credited to contractholder funds increased 4.9% or $14 million in 2019 compared to 2018. Valuation changes on derivatives embedded in equity-indexed universal life contracts that are not hedged increased interest credited to contractholder funds by $11 million in 2019 compared to zero in 2018.

Investment spread reflects the difference between net investment income and interest credited to contractholder funds (“investment spread”) and is used to analyze the impact of net investment income and interest credited to contractholder funds on net income.

<table><tr><td colspan="6">Investment spread</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Investment spread before valuation changes on embedded derivatives not hedged</td><td>$ 226</td><td>$ 220</td><td>$ 207</td><td></td></tr><tr><td>Valuation changes on derivatives embedded in equity-indexed universal life contracts that are not hedged</td><td>(11)</td><td>—</td><td>—</td><td></td></tr><tr><td>Total investment spread</td><td>$ 215</td><td>$ 220</td><td>$ 207</td><td></td></tr></table>

Investment spread before valuation changes on embedded derivatives not hedged increased 2.7% in 2019 compared to 2018, primarily due to higher net investment income, partially offset by higher credited interest.

Amortization of DAC increased 31.1% or $41 million in 2019 compared to 2018, primarily due to higher amortization acceleration for changes in assumptions, partially offset by lower gross profits on interest-sensitive life insurance.

<table><tr><td colspan="5">Components of amortization of DAC</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions</td><td>$ 109</td><td>$ 117</td><td>$ 134</td><td></td></tr><tr><td>Amortization relating to realized capital gains and losses \( ^{(1)} \)  and valuation changes on embedded derivatives that are not hedged</td><td>6</td><td>10</td><td>14</td><td></td></tr><tr><td>Amortization acceleration (deceleration) for changes in assumptions (“DAC unlocking”)</td><td>58</td><td>5</td><td>(14)</td><td></td></tr><tr><td>Total amortization of DAC</td><td>$ 173</td><td>$ 132</td><td>$ 134</td><td></td></tr></table>

(1) 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.

Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts covers assumptions for mortality, persistency, expenses, investment returns, including capital gains and losses, interest crediting rates to policyholders, and the effect of any hedges. An assessment is made of future projections to ensure the reported DAC balances reflect current expectations.

In 2019, the review resulted in an acceleration of DAC amortization (decrease to income) of $58 million. DAC amortization acceleration primarily related to the investment margin component of estimated gross profits and was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was due to decreased projected interest rates that result in lower projected policyholder account values which increases benefits on guaranteed products and more refined policy level information and assumptions.

In 2018, the review resulted in an acceleration of DAC amortization (decrease to income) of $5 million. DAC amortization acceleration primarily related to the investment margin component of estimated gross profits and was due to lower projected investment



## Allstate Life

returns. This was partially offset by DAC amortization deceleration (increase to income) for changes in the benefit margin due to a decrease in projected mortality.

<table><tr><td colspan="8">Changes in DAC</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="2">Traditional life and accident and health</td><td colspan="2">Interest-sensitive life insurance</td><td colspan="3">Total</td></tr><tr><td colspan="6">For the years ended December 31,</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 489</td><td>$ 465</td><td>$ 811</td><td>$ 687</td><td>$1,300</td><td>$1,152</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>63</td><td>65</td><td>60</td><td>65</td><td>123</td><td>130</td><td></td></tr><tr><td>Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions  \( {}^{(1)} \)</td><td>(44)</td><td>(41)</td><td>(65)</td><td>(76)</td><td>(109)</td><td>(117)</td><td></td></tr><tr><td>Amortization relating to realized capital gains and losses  \( {}^{(1)} \)  and valuation changes on embedded derivatives that are not hedged</td><td>—</td><td>—</td><td>(6)</td><td>(10)</td><td>(6)</td><td>(10)</td><td></td></tr><tr><td>Amortization (acceleration) deceleration for changes in assumptions (“DAC unlocking”)  \( {}^{(1)} \)</td><td>—</td><td>—</td><td>(58)</td><td>(5)</td><td>(58)</td><td>(5)</td><td></td></tr><tr><td>Effect of unrealized capital gains and losses  \( {}^{(2)} \)</td><td>—</td><td>—</td><td>(171)</td><td>150</td><td>(171)</td><td>150</td><td></td></tr><tr><td>Ending balance</td><td>$ 508</td><td>$ 489</td><td>$ 571</td><td>$ 811</td><td>$1,079</td><td>$1,300</td><td></td></tr></table>

(1) Included as a component of amortization of DAC on the Consolidated Statements of Operations.

(2) Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment 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.

Operating costs and expenses decreased 1.9% or $7 million in 2019 compared to 2018, primarily due to lower employee-related expenses, partially offset by higher commissions on non-proprietary product sales.

## Analysis of reserves and contractholder funds

<table><tr><td colspan="3">Reserve for life-contingent contract benefits</td></tr><tr><td></td><td colspan="2">For the years ended December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Traditional life insurance</td><td>$ 2,612</td><td>$ 2,539</td></tr><tr><td>Accident and health insurance</td><td>124</td><td>138</td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>$ 2,736</td><td>$ 2,677</td></tr></table>



Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.

<table><tr><td colspan="5">Change in contractholder funds</td></tr><tr><td>($ in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Contractholder funds, beginning balance</td><td>$     7,656</td><td>$     7,608</td><td>$     7,464</td><td></td></tr><tr><td>Deposits</td><td>949</td><td>965</td><td>973</td><td></td></tr><tr><td>Interest credited</td><td>298</td><td>284</td><td>282</td><td></td></tr><tr><td>Benefits, withdrawals and other adjustments</td><td></td><td></td><td></td><td></td></tr><tr><td>Benefits</td><td>(233)</td><td>(232)</td><td>(241)</td><td></td></tr><tr><td>Surrenders and partial withdrawals</td><td>(261)</td><td>(259)</td><td>(254)</td><td></td></tr><tr><td>Contract charges</td><td>(702)</td><td>(704)</td><td>(704)</td><td></td></tr><tr><td>Net transfers from separate accounts</td><td>10</td><td>6</td><td>4</td><td></td></tr><tr><td>Other adjustments (1)</td><td>88</td><td>(12)</td><td>84</td><td></td></tr><tr><td>Total benefits, withdrawals and other adjustments</td><td>(1,098)</td><td>(1,201)</td><td>(1,111)</td><td></td></tr><tr><td>Contractholder funds, ending balance</td><td>$     7,805</td><td>$     7,656</td><td>$     7,608</td><td></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 is reflected as a component of the other adjustments line.

Contractholder deposits decreased 1.7% in 2019 compared to 2018. The weighted average guaranteed crediting rate and weighted average current crediting rate for our interest-sensitive life insurance contracts, excluding variable life, are both 3.9% as of December 31, 2019.



## Allstate Life reinsurance ceded

In the normal course of business, we seek to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. In addition, we have used reinsurance to effect the disposition of certain blocks of business.
We retain primary liability as a direct insurer for all risks ceded to reinsurers. As of December 31, 2019, approximately 13% of our face amount of life insurance in force was reinsured.

<table><tr><td colspan="5">Reinsurance recoverables by reinsurer</td></tr><tr><td></td><td>S&amp;P financial strength rating (1)</td><td colspan="3">Reinsurance recoverable on paid and unpaid benefits</td></tr><tr><td>($ in millions)</td><td></td><td colspan="3">For the years ended December 31, 2019</td></tr><tr><td>RGA Reinsurance Company</td><td>AA-</td><td>197</td><td>210</td><td></td></tr><tr><td>Swiss Re Life and Health America, Inc.</td><td>AA-</td><td>155</td><td>156</td><td></td></tr><tr><td>Munich American Reassurance</td><td>AA-</td><td>80</td><td>87</td><td></td></tr><tr><td>Transamerica Life Group</td><td>AA-</td><td>75</td><td>76</td><td></td></tr><tr><td>Scottish Re (U.S.), Inc. (2)</td><td>N/A</td><td>70</td><td>66</td><td></td></tr><tr><td>John Hancock Life &amp; Health Insurance Company</td><td>AA-</td><td>50</td><td>53</td><td></td></tr><tr><td>Triton Insurance Company (3)</td><td>N/A</td><td>43</td><td>45</td><td></td></tr><tr><td>American Health &amp; Life Insurance Co. (3)</td><td>N/A</td><td>32</td><td>34</td><td></td></tr><tr><td>Lincoln National Life Insurance</td><td>AA-</td><td>27</td><td>25</td><td></td></tr><tr><td>Security Life of Denver</td><td>A+</td><td>23</td><td>24</td><td></td></tr><tr><td>SCOR Global Life</td><td>AA-</td><td>14</td><td>14</td><td></td></tr><tr><td>American United Life Insurance Company</td><td>AA-</td><td>11</td><td>13</td><td></td></tr><tr><td>Other (4)</td><td></td><td>17</td><td>20</td><td></td></tr><tr><td>Total</td><td></td><td>794</td><td>823</td><td></td></tr></table>

(1) N/A reflects no S&P rating available.

(2) In December 2018, the Delaware Insurance Commissioner placed Scottish Re (U.S.), Inc. under regulatory supervision and in March 2019, the reinsurer was placed in rehabilitation. We have been permitted to exercise certain setoff rights while the parties address any potential disputes. See Note 10 of the consolidated financial statements for further details.

(3) A.M. Best rating is B++.

(4) As of December 31, 2019 and 2018, the other category includes $12 million and $9 million, respectively, of recoverables due from reinsurers rated A- or better by S&P.

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, 2019, except for an allowance related to Scottish Re (U.S.), Inc. that was established in 2019.
We enter into certain intercompany reinsurance transactions for the Allstate Life 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.



# Allstate \( ^{®} \) 

## BENEFITS

Allstate Benefits offers voluntary benefits products, including life, accident, critical illness, short-term disability and other health products. In 2019, Allstate Benefits represented 2.8% of total revenue, 2.9% of total PIF and 3.3% of total adjusted net income. Our target customers are middle market consumers with family and financial protection needs. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="4">Summarized financial information</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Premiums and contract charges</td><td>$ 1,145</td><td>$ 1,135</td><td>$ 1,084</td></tr><tr><td>Net investment income</td><td>83</td><td>77</td><td>72</td></tr><tr><td>Realized capital gains and losses</td><td>12</td><td>(9)</td><td>1</td></tr><tr><td>Total revenues</td><td>1,240</td><td>1,203</td><td>1,157</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Contract benefits</td><td>(601)</td><td>(595)</td><td>(564)</td></tr><tr><td>Interest credited to contractholder funds</td><td>(34)</td><td>(35)</td><td>(35)</td></tr><tr><td>Amortization of DAC</td><td>(161)</td><td>(145)</td><td>(142)</td></tr><tr><td>Operating costs and expenses</td><td>(285)</td><td>(278)</td><td>(258)</td></tr><tr><td>Restructuring and related charges</td><td>—</td><td>—</td><td>(3)</td></tr><tr><td>Total costs and expenses</td><td>(1,081)</td><td>(1,053)</td><td>(1,002)</td></tr><tr><td>Income tax expense</td><td>(35)</td><td>(32)</td><td>(1)</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 124</td><td>$ 118</td><td>$ 154</td></tr><tr><td>Adjusted net income</td><td>$ 115</td><td>$ 124</td><td>$ 100</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>9</td><td>(7)</td><td>—</td></tr><tr><td>DAC and DSI amortization related to realized capital gains and losses, after-tax</td><td>—</td><td>1</td><td>—</td></tr><tr><td>Tax Legislation benefit</td><td>—</td><td>—</td><td>54</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 124</td><td>$ 118</td><td>$ 154</td></tr><tr><td>Benefit ratio (1)</td><td>52.5</td><td>52.4</td><td>52.0</td></tr><tr><td>Operating expense ratio (2)</td><td>24.9</td><td>24.5</td><td>23.8</td></tr><tr><td>Reserve for life-contingent contract benefits as of December 31</td><td>$ 1,034</td><td>$ 1,007</td><td>$ 979</td></tr><tr><td>Contractholder funds as of December 31</td><td>$ 915</td><td>$ 898</td><td>$ 890</td></tr><tr><td>Policies in force as of December 31 (in thousands)</td><td>4,183</td><td>4,208</td><td>4,033</td></tr></table>

(1) Benefit ratio is calculated as contract benefits divided by premiums and contract charges.

(2) Operating expense ratio is calculated as operating costs and expenses divided by premiums and contract charges.

Net income applicable to common shareholders increased 5.1% or $6 million in 2019 compared to 2018.

Adjusted net income decreased 7.3% or $9 million in 2019 compared to 2018, primarily due to higher DAC amortization related primarily to the non-renewal of a large underperforming account and increased operating costs and expenses, partially offset by higher premiums.
Premiums and contract charges increased 0.9% or $10 million in 2019 compared to 2018, primarily related to growth in hospital indemnity (included in other health), critical illness and life products.



<table><tr><td colspan="5">Premiums and contract charges by product</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Life</td><td>$ 157</td><td>$ 155</td><td>$ 155</td><td></td></tr><tr><td>Accident</td><td>298</td><td>297</td><td>280</td><td></td></tr><tr><td>Critical illness</td><td>479</td><td>476</td><td>468</td><td></td></tr><tr><td>Short-term disability</td><td>107</td><td>108</td><td>102</td><td></td></tr><tr><td>Other health</td><td>104</td><td>99</td><td>79</td><td></td></tr><tr><td>Premiums and contract charges</td><td>$ 1,145</td><td>$ 1,135</td><td>$ 1,084</td><td></td></tr></table>

New annualized premium sales (annualized premiums at initial customer enrollment) decreased 4.4% to $372 million in 2019 and decreased 12.4% to $389 million in 2018. The decrease in 2019 relates to increased competition and higher initial enrollments for certain accounts in the prior year.

Contract benefits increased 1.0% or $6 million in 2019 compared to 2018, primarily due to higher claim experience on critical illness and disability products, partially offset by favorable mortality experience on life products.

Benefit ratio increased to 52.5 in 2019 compared to 52.4 in 2018 due to higher claim experience on critical illness and disability products, partially offset by favorable mortality experience on life products and improved claims experience on other health products.

Amortization of DAC increased 11.0% or $16 million in 2019 compared to 2018, primarily due to DAC amortization related to the non-renewal of a large underperforming account and an unfavorable adjustment associated with our annual review of assumptions.

Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts resulted in an acceleration of DAC amortization (decrease to income) of $2 million in 2019 compared to a deceleration of DAC amortization (increase to income) of $4 million in 2018.

<table><tr><td colspan="4">Changes in DAC</td></tr><tr><td></td><td colspan="3">For the years ended</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 549</td><td>$ 542</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>142</td><td>150</td><td></td></tr><tr><td>Amortization of DAC before amortization relating to changes in assumptions  \( {}^{(1)} \)</td><td>(159)</td><td>(150)</td><td></td></tr><tr><td>Amortization relating to realized capital gains and losses  \( {}^{(1)} \)</td><td>—</td><td>1</td><td></td></tr><tr><td>Amortization deceleration (acceleration) for changes in assumptions (“DAC unlocking”)  \( {}^{(1)} \)</td><td>(2)</td><td>4</td><td></td></tr><tr><td>Effect of unrealized capital gains and losses  \( {}^{(2)} \)</td><td>(3)</td><td>2</td><td></td></tr><tr><td>Ending balance</td><td>$ 527</td><td>$ 549</td><td></td></tr></table>

 \( ^{(1)} \)  Included as a component of amortization of DAC on the Consolidated Statements of Operations.

 \( ^{(2)} \)  Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment 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.

<table><tr><td colspan="5">Operating costs and expenses</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Non-deferrable commissions</td><td>$ 104</td><td>$ 109</td><td>$ 98</td><td></td></tr><tr><td>General and administrative expenses</td><td>181</td><td>169</td><td>160</td><td></td></tr><tr><td>Total operating costs and expenses</td><td>$ 285</td><td>$ 278</td><td>$ 258</td><td></td></tr></table>

Operating costs and expenses increased 2.5% or $7 million in 2019 compared to 2018, primarily due to higher technology and employee-related costs.

Operating expense ratio increased to 24.9 in 2019 compared to 24.5 in 2018, primarily due to higher investment in technology.

Analysis of reserves

<table><tr><td colspan="4">Reserve for life-contingent contract benefits</td></tr><tr><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Traditional life insurance</td><td>$ 285</td><td>$ 269</td><td></td></tr><tr><td>Accident and health insurance</td><td>749</td><td>738</td><td></td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>$ 1,034</td><td>$ 1,007</td><td></td></tr></table>



## Allstate Benefits reinsurance ceded

The vast majority of reinsurance relates to the disposition of long-term care and other closed blocks of business several years ago. We retain primary liability as a direct insurer for all risks ceded to reinsurers.

<table><tr><td colspan="5">Reinsurance recoverables by reinsurer</td></tr><tr><td></td><td>S&amp;P financial strength rating</td><td colspan="3">Reinsurance recoverable on paid and unpaid benefits</td></tr><tr><td></td><td></td><td colspan="3">For the years ended December 31, 2019</td></tr><tr><td>($ in millions)</td><td></td><td>2019</td><td>2018</td><td></td></tr><tr><td>Mutual of Omaha Insurance</td><td>AA-</td><td>$ 64</td><td>$ 71</td><td></td></tr><tr><td>General Re Life Corporation</td><td>AA+</td><td>18</td><td>19</td><td></td></tr><tr><td>Other \( ^{(1)} \)</td><td></td><td>6</td><td>5</td><td></td></tr><tr><td>Total</td><td></td><td>$ 88</td><td>$ 95</td><td></td></tr></table>

(1) As of both December 31, 2019 and 2018, the other category includes $4 million of recoverables due from reinsurers rated A- or better by S&P.

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, 2019.
We enter into certain intercompany reinsurance transactions for the Allstate Benefits 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.



## Allstate Annuities Segment

Allstate Annuities consists primarily of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements). In 2019, Allstate Annuities represented 2.9% of total revenue, 0.1% of total PIF and 0.3% of total adjusted net income. We discontinued the sale of proprietary annuities over an eight-year period from 2006 to 2014, reflecting our expectations of declining returns. This segment is in run-off, and we manage it with a focus on increasing economic value through our investment strategy. For additional information on our strategy and outlook, see Business - Strategy and Segment Information.

<table><tr><td colspan="5">Summarized financial information</td></tr><tr><td>($ in millions)</td><td></td><td colspan="3">For the years ended December 31,</td></tr><tr><td></td><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Revenues</td><td></td><td></td><td></td><td></td></tr><tr><td>Contract charges</td><td></td><td>$ 13</td><td>$ 15</td><td>$ 14</td></tr><tr><td>Net investment income</td><td></td><td>917</td><td>1,096</td><td>1,305</td></tr><tr><td>Realized capital gains and losses</td><td></td><td>346</td><td>(166)</td><td>44</td></tr><tr><td>Total revenues</td><td></td><td>1,276</td><td>945</td><td>1,363</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td><td></td></tr><tr><td>Contract benefits</td><td></td><td>(583)</td><td>(569)</td><td>(594)</td></tr><tr><td>Interest credited to contractholder funds</td><td></td><td>(307)</td><td>(334)</td><td>(373)</td></tr><tr><td>Amortization of DAC</td><td></td><td>(7)</td><td>(7)</td><td>(7)</td></tr><tr><td>Operating costs and expenses</td><td></td><td>(29)</td><td>(31)</td><td>(34)</td></tr><tr><td>Restructuring and related charges</td><td></td><td>(1)</td><td>—</td><td>—</td></tr><tr><td>Total costs and expenses</td><td></td><td>(927)</td><td>(941)</td><td>(1,008)</td></tr><tr><td>Gain on disposition of operations</td><td></td><td>6</td><td>6</td><td>6</td></tr><tr><td>Income tax (expense) benefit</td><td></td><td>(73)</td><td>66</td><td>58</td></tr><tr><td>Net income applicable to common shareholders</td><td></td><td>$ 282</td><td>$ 76</td><td>$ 419</td></tr><tr><td>Adjusted net income</td><td></td><td>$ 10</td><td>$ 131</td><td>$ 205</td></tr><tr><td>Realized capital gains and losses, after-tax</td><td></td><td>274</td><td>(131)</td><td>28</td></tr><tr><td>Valuation changes on embedded derivatives not hedged, after-tax</td><td></td><td>(6)</td><td>3</td><td>—</td></tr><tr><td>Gain on disposition of operations, after-tax</td><td></td><td>4</td><td>4</td><td>4</td></tr><tr><td>Tax Legislation benefit</td><td></td><td>—</td><td>69</td><td>182</td></tr><tr><td>Net income applicable to common shareholders</td><td></td><td>$ 282</td><td>$ 76</td><td>$ 419</td></tr><tr><td>Reserve for life-contingent contract benefits as of December 31</td><td></td><td>$ 8,530</td><td>$ 8,524</td><td>$ 8,934</td></tr><tr><td>Contractholder funds as of December 31</td><td></td><td>$ 8,972</td><td>$ 9,817</td><td>$ 10,936</td></tr><tr><td>Policies in force as of December 31 (in thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Deferred annuities</td><td></td><td>114</td><td>127</td><td>142</td></tr><tr><td>Immediate annuities</td><td></td><td>78</td><td>84</td><td>89</td></tr><tr><td>Total</td><td></td><td>192</td><td>211</td><td>231</td></tr></table>

Net income applicable to common shareholders increased $206 million in 2019 compared to 2018. 2018 results include a tax benefit of $69 million related to the Tax Legislation.

Adjusted net income decreased $121 million in 2019 compared to 2018, primarily due to lower net investment income, partially offset by lower interest credited to contractholder funds.

Net investment income decreased 16.3% or $179 million in 2019 compared to 2018, primarily due to lower performance-based investment results, mainly from limited partnerships, and lower average investment balances. 2019 performance-based investment results included lower valuations in the fourth quarter, on two private equity investments totaling $37 million.
The investment portfolio supporting immediate annuities is managed to ensure the assets match the characteristics of the liabilities and provide the long-term returns needed to support this business. To better match the long-term nature of our immediate annuities, we use performance-based investments in which we have ownership interests, and a greater proportion of return is derived from idiosyncratic asset or operating performance. Performance-based income can vary significantly between periods and is influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales.



Net realized capital gains in 2019 primarily related to increased valuation of equity investments and gains on sales of fixed income securities. Net realized capital losses in 2018 primarily related to decreased valuation of equity investments and losses on sales of fixed income securities.

Contract benefits increased 2.5% or $14 million in 2019 compared to 2018, primarily due to worse immediate annuity mortality experience, partially offset by lower implied interest on immediate annuities with life contingencies.

Our annual review of assumptions in 2019 resulted in no adjustment to reserves for guaranteed benefits. In 2018, the review resulted in a $2 million increase in reserves primarily for guaranteed withdrawal benefits on equity-indexed annuities due to higher projected guaranteed benefits.

As of December 31, 2019 and 2018, our premium deficiency and profits followed by losses evaluations for our immediate annuities with life contingencies concluded that no adjustments were required to be recognized. For further detail on these evaluations, see Reserve for life-contingent contract benefits estimation in the Application of Critical Accounting Estimates section.
Benefit spread reflects our mortality results using the difference between contract charges earned and contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies. This implied interest totaled $479 million and $492 million in 2019 and 2018, respectively. Total benefit spread was $(95) million and $(68) million in 2019 and 2018, respectively.

Interest credited to contractholder funds decreased 8.1% or $27 million in 2019 compared to 2018, primarily due to lower average contractholder funds. Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged increased interest credited to contractholder funds by $8 million in 2019 compared to a decrease of $3 million in 2018.

Investment spread reflects 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 contract benefits and is used to analyze the impact of net investment income and interest credited to contractholders on net income.

<table><tr><td colspan="5">Investment spread</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Investment spread before valuation changes on embedded derivatives not hedged</td><td>$ 139</td><td>$ 267</td><td>$ 432</td><td></td></tr><tr><td>Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged</td><td>(8)</td><td>3</td><td>(1)</td><td></td></tr><tr><td>Total investment spread</td><td>$ 131</td><td>$ 270</td><td>$ 431</td><td></td></tr></table>

Investment spread before valuation changes on embedded derivatives not hedged decreased 47.9% or $128 million in 2019 compared to 2018, primarily due to lower investment income, mainly from limited partnership interests, partially offset by lower interest credited to contractholder funds.

To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities, interest crediting rates and investment spreads. Investment spreads may vary significantly between periods due to the variability in investment income, particularly for immediate fixed annuities where the investment portfolio includes performance-based investments.

<table><tr><td rowspan="2"></td><td colspan="4">Weighted average investment yield</td><td colspan="4">Weighted average interest crediting rate</td><td colspan="4">Weighted average investment spreads</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2.8%</td><td>1.6%</td><td>1.3%</td><td>1.4%</td></tr><tr><td>Deferred fixed annuities</td><td>4.3%</td><td>4.1%</td><td>4.2%</td><td>2.7%</td><td>2.8%</td><td>2.8%</td><td>1.6%</td><td>1.3%</td><td>1.4%</td><td></td><td></td><td></td></tr><tr><td>Immediate fixed annuities with and without life contingencies</td><td>5.0</td><td>6.4</td><td>8.0</td><td>5.9</td><td>6.0</td><td>6.0</td><td>(0.9)</td><td>0.4</td><td>2.0</td><td></td><td></td><td></td></tr></table>



The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates as of December 31, 2019 for certain fixed annuities where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities totaling $4.12 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 considered meaningful in this context.

<table><tr><td colspan="4">Weighted average guaranteed crediting rates and weighted average current crediting rates</td></tr><tr><td>($ in millions)</td><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>3.16%</td><td>3.17%</td><td>$ 4,220</td></tr><tr><td>Annuities with multi-year rate guarantees (1):</td><td></td><td></td><td></td></tr><tr><td>Resettable in next 12 months</td><td>1.73</td><td>2.89</td><td>116</td></tr><tr><td>Resettable after 12 months</td><td>2.22</td><td>2.63</td><td>518</td></tr></table>

(1) These contracts include interest rate guarantee periods, the majority of which are 5 years.

Operating costs and expenses decreased 6.5% or $2 million in 2019 compared to 2018, primarily due to lower technology and employee-related costs.

Analysis of reserves and contractholder funds

<table><tr><td colspan="4">Product liabilities</td></tr><tr><td></td><td colspan="2">For the years ended December 31, 2019</td><td>2018</td></tr><tr><td>($ in millions)</td><td></td><td></td><td></td></tr><tr><td>Immediate fixed annuities with life contingencies</td><td></td><td></td><td></td></tr><tr><td>Sub-standard structured settlements and group pension terminations (1)</td><td>$     5,085</td><td>$     4,990</td><td></td></tr><tr><td>Standard structured settlements and SPIA (2)</td><td></td><td>3,367</td><td>3,425</td></tr><tr><td>Other</td><td></td><td>78</td><td>109</td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>$     8,530</td><td>$     8,524</td><td></td></tr><tr><td></td><td></td><td></td><td></td></tr><tr><td>Deferred fixed annuities</td><td>$     6,499</td><td>$     7,156</td><td></td></tr><tr><td>Immediate fixed annuities without life contingencies</td><td></td><td>2,346</td><td>2,525</td></tr><tr><td>Other</td><td></td><td>127</td><td>136</td></tr><tr><td>Contractholder funds</td><td>$     8,972</td><td>$     9,817</td><td></td></tr></table>

(1) Comprises structured settlement annuities for annuitants with severe injuries or other health impairments which increased their expected mortality rate at the time the annuity was issued (“sub-standard structured settlements”) and group annuity contracts issued to sponsors of terminated pension plans.

(2) Comprises structured settlement annuities for annuitants with standard life expectancy (“standard structured settlements”) and single premium immediate annuities (“SPIA”) with life contingencies.



Contractholder funds represent interest-bearing liabilities arising from the sale of products such as fixed annuities. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.

<table><tr><td colspan="5">Changes in contractholder funds</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Contractholder funds, beginning balance</td><td>$     9,817</td><td>$     10,936</td><td>$     11,915</td><td></td></tr><tr><td>Deposits</td><td>16</td><td>15</td><td>28</td><td></td></tr><tr><td>Interest credited</td><td>304</td><td>331</td><td>370</td><td></td></tr><tr><td>Benefits, withdrawals and other adjustments</td><td></td><td></td><td></td><td></td></tr><tr><td>Benefits</td><td>(547)</td><td>(587)</td><td>(638)</td><td></td></tr><tr><td>Surrenders and partial withdrawals</td><td>(602)</td><td>(854)</td><td>(723)</td><td></td></tr><tr><td>Contract charges</td><td>(9)</td><td>(9)</td><td>(9)</td><td></td></tr><tr><td>Net transfers from separate accounts</td><td>—</td><td>—</td><td>1</td><td></td></tr><tr><td>Other adjustments (1)</td><td>(7)</td><td>(15)</td><td>(8)</td><td></td></tr><tr><td>Total benefits, withdrawals and other adjustments</td><td>(1,165)</td><td>(1,465)</td><td>(1,377)</td><td></td></tr><tr><td>Contractholder funds, ending balance</td><td>$     8,972</td><td>$     9,817</td><td>$     10,936</td><td></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 is reflected as a component of the other adjustments line.

Contractholder funds decreased 8.6% in 2019, primarily due to the continued runoff of our deferred fixed annuity business. We discontinued the sale of proprietary annuities but still accept additional deposits on existing contracts.

Surrenders and partial withdrawals decreased 29.5% or $252 million in 2019 compared to 2018. 2018 had elevated surrenders on fixed annuities resulting from an increased number of contracts reaching the 30-45 day period during which there is no surrender charge. The surrender and partial withdrawal rate on deferred fixed annuities, based on the beginning of year contractholder funds, was 9.2% in 2019 compared to 11.4% in 2018.

## Allstate Annuities reinsurance ceded

We ceded substantially all of the risk associated with our variable annuity business to Prudential Insurance Company of America (“Prudential”). Our reinsurance recoverables from Prudential totaled $1.29 billion and $1.36 billion as of December 31, 2019 and 2018, respectively. We also have reinsurance recoverables from other reinsurers of $17 million as of both December 31, 2019 and 2018.

We retain primary liability as a direct insurer for all risks ceded to reinsurers. 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, 2019.



## Investments

Overview and strategy The return on our investment portfolios is an important component of our ability to offer good value to customers, fund business improvements and create value for shareholders. Investment portfolios are held for Property-Liability, Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other operations. While taking into consideration the investment portfolio in aggregate, management of the underlying portfolios is significantly influenced by the nature of each respective business and its corresponding liability profile. For each business, we identify a strategic asset allocation which considers both the nature of the liabilities and the risk and return characteristics of the various asset classes in which we invest. This allocation is informed by our long-term and market expectations, as well as other considerations such as risk appetite, portfolio diversification, duration, desired liquidity and capital. Within appropriate ranges relative to strategic allocations, tactical allocations are made in consideration of prevailing and potential future market conditions. We manage risks that involve uncertainty related to interest rates, credit spreads, equity returns and currency exchange rates.

The Property-Liability portfolio emphasizes protection of principal and consistent income generation, within a total return framework. This approach has produced competitive returns over the long term and is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth. Products with lower liquidity needs, such as auto insurance and discontinued lines and coverages, and capital create capacity to invest in less liquid higher yielding fixed income securities, performance-based investments such as limited partnerships and equity securities. Products with higher liquidity needs, such as homeowners insurance, are invested primarily in high quality liquid fixed income securities.

The Service Businesses portfolio is focused on protection of principal and consistent income generation, within a total return framework. The portfolio is largely comprised of fixed income securities with a lesser allocation to equity securities and short-term investments.

The Allstate Life portfolio is comprised of assets chosen to generate returns to support corresponding liabilities within an asset-liability framework that targets an appropriate return on capital. This portfolio is well diversified and primarily consists of longer duration fixed income securities and commercial mortgage loans.

The Allstate Benefits portfolio is focused on protection of principal and consistent income generation while targeting an appropriate return on capital. The portfolio is largely comprised of fixed income securities and commercial mortgage loans with a small allocation to equity securities.
The Allstate Annuities portfolio is managed to ensure the assets match the characteristics of the liabilities. For longer-term immediate annuity liabilities, we invest primarily in performance-based investments such as limited partnerships and equity securities. For shorter-term annuity liabilities, we invest primarily in fixed income securities and commercial mortgage loans with maturity profiles aligned with liability cash flow requirements.

The Corporate and Other portfolio balances liquidity needs related to the corporate capital structure with the pursuit of returns.

Within each segment, we utilize two primary strategies to manage risks and returns and to position our portfolio to take advantage of market opportunities while attempting to mitigate adverse effects. As strategies and market conditions evolve, the asset allocation may change or assets may be moved between strategies.

Market-based strategy includes investments primarily in public fixed income and equity securities. It seeks to deliver predictable earnings aligned to business needs and take advantage of short-term opportunities primarily through public and private fixed income investments and public equity securities.

Performance-based strategy seeks to deliver attractive risk-adjusted returns and supplement market risk with idiosyncratic risk. Returns are impacted by a variety of factors including general macroeconomic and public market conditions as public benchmarks are often used in the valuation of underlying investments. Variability in earnings will also result from the performance of the underlying assets or business and the timing of sales of those investments. Earnings from the sales of investments may be recorded as net investment income or realized capital gains and losses. The portfolio, which primarily includes private equity and real estate with a majority being limited partnerships, is diversified across a number of characteristics, including managers or partners, vintage years, strategies, geographies (including international) and industry sectors or property types. These investments are generally illiquid in nature, often require specialized expertise, typically involve a third-party manager, and often enhance returns and income through transformation at the company or property level. A portion of these investments seek returns in markets or asset classes that are dislocated or special situations, primarily in private markets.

## Impact of Low Interest Rate Environment

In January 2020, the Federal Open Market Committee (“FOMC”) maintained the target range for federal funds rate at 1-1/2 percent to 1-3/4 percent and maintained their inflation target of 2 percent. The FOMC noted that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions and inflation returning to the target of 2 percent. The path of the federal funds rate will depend on economic



conditions and their impact on the economic outlook. Interest-bearing investments are comprised of fixed income securities, mortgage loans, short-term

investments and other investments, including bank and agent loans.

<table><tr><td colspan="5">Contractual maturities and yields of fixed income securities and mortgage loans for the next three years</td></tr><tr><td></td><td colspan="2">Fixed income securities</td><td colspan="2">Mortgage loans</td></tr><tr><td>($ in millions)</td><td>Carrying value</td><td>Investment yield</td><td>Carrying value</td><td>Investment yield</td></tr><tr><td>2020</td><td>$ 3,239</td><td>3.6%</td><td>$ 58</td><td>4.8%</td></tr><tr><td>2021</td><td>5,877</td><td>3.4</td><td>446</td><td>4.8</td></tr><tr><td>2022</td><td>6,107</td><td>3.3</td><td>460</td><td>4.3</td></tr></table>

Investing activity will continue to decrease our portfolio yield as long as market yields remain below the current portfolio yield. In the Allstate Annuities segment, the portfolio yield has been less impacted by reinvestment in the current low interest rate environment than other portfolios because much of the investment cash flows have been used to fund the managed reduction in spread-based liabilities. The decline in market-based portfolio yield and Allstate Annuities invested assets are expected to result in lower net investment income in future periods.

## Investments Outlook

We plan to focus on the following priorities:

• Enhance investment portfolio returns through use of a dynamic capital allocation framework and focus on tax efficiency.
• Leverage our broad capabilities to shift the portfolio mix to earn higher risk-adjusted returns on capital.

- Invest for the specific needs and characteristics of Allstate’s businesses, including its corresponding liability profile.

We continue to increase performance-based investments in our Property-Liability portfolio, consistent with our ongoing strategy to have a greater proportion of return derived from idiosyncratic asset or operating performance.

Invested assets and market-based income are expected to decline with reductions in contractholder funds and income related to performance-based investments will result in variability of earnings for the Allstate Annuities segment.

<table><tr><td colspan="9">Portfolio composition and strategy by reporting segment (1)</td></tr><tr><td>($ in millions)</td><td>Property-Liability</td><td>Service Businesses</td><td>Allstate Life</td><td>Allstate Benefits</td><td>Allstate Annuities</td><td>Corporate and Other</td><td>Total</td><td></td></tr><tr><td>Fixed income securities (2)</td><td>$ 33,299</td><td>$ 1,157</td><td>$ 8,061</td><td>$ 1,298</td><td>$ 13,984</td><td>$ 1,245</td><td>$ 59,044</td><td></td></tr><tr><td>Equity securities (3)</td><td>5,919</td><td>311</td><td>210</td><td>80</td><td>1,300</td><td>342</td><td>8,162</td><td></td></tr><tr><td>Mortgage loans</td><td>538</td><td>—</td><td>1,861</td><td>209</td><td>2,209</td><td>—</td><td>4,817</td><td></td></tr><tr><td>Limited partnership interests</td><td>4,846</td><td>—</td><td>—</td><td>—</td><td>3,232</td><td>—</td><td>8,078</td><td></td></tr><tr><td>Short-term investments (4)</td><td>2,186</td><td>76</td><td>396</td><td>44</td><td>815</td><td>739</td><td>4,256</td><td></td></tr><tr><td>Other</td><td>1,626</td><td>—</td><td>1,386</td><td>310</td><td>681</td><td>2</td><td>4,005</td><td></td></tr><tr><td>Total</td><td>$ 48,414</td><td>$ 1,544</td><td>$ 11,914</td><td>$ 1,941</td><td>$ 22,221</td><td>$ 2,328</td><td>$ 88,362</td><td></td></tr><tr><td>Percent to total</td><td>54.9%</td><td>1.7%</td><td>13.5%</td><td>2.2%</td><td>25.1%</td><td>2.6%</td><td>100.0%</td><td></td></tr><tr><td>Market-based</td><td>$ 43,256</td><td>$ 1,544</td><td>$ 11,914</td><td>$ 1,941</td><td>$ 18,672</td><td>$ 2,326</td><td>$ 79,653</td><td></td></tr><tr><td>Performance-based</td><td>5,158</td><td>—</td><td>—</td><td>—</td><td>3,549</td><td>2</td><td>8,709</td><td></td></tr><tr><td>Total</td><td>$ 48,414</td><td>$ 1,544</td><td>$ 11,914</td><td>$ 1,941</td><td>$ 22,221</td><td>$ 2,328</td><td>$ 88,362</td><td></td></tr></table>

(1) Balances reflect the elimination of related party investments between segments.

(2) Fixed income securities are carried at fair value. Amortized cost basis for these securities was $32.22 billion, $1.12 billion, $7.43 billion, $1.23 billion, $13.08 billion, $1.21 billion and $56.29 billion for Property-Liability, Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, Corporate and Other, and in Total, respectively.

(3) Equity securities are carried at fair value. The fair value of equity securities, held as of December 31, 2019, was $1.59 billion in excess of cost. These net gains were primarily concentrated in the consumer goods and technology sectors and in domestic equity index funds.

(4) Short-term investments are carried at fair value.

Investments totaled $88.36 billion as of December 31, 2019, increasing from $81.26 billion as of December 31, 2018, primarily due to higher fixed income and equity valuations, positive investment and operating cash flows and issuance of preferred stock and senior debt, partially offset by common share repurchases, dividends paid to shareholders, net reductions in contractholder funds and repayment of preferred stock and senior debt.

Beginning January 1, 2018, equity securities are reported at fair value with changes in fair value recognized in realized capital gains and losses. Limited partnerships previously reported using the cost method are reported at fair



value with changes in fair value recognized in net investment income. As a result, 2017 net investment income and net realized capital gains and losses are not comparable to other periods presented.

<table><tr><td colspan="5">Portfolio composition by investment strategy</td></tr><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Market-based</td><td colspan="3">As of December 31, 2019</td></tr><tr><td colspan="2">Performance-based</td><td>Total</td></tr><tr><td>Fixed income securities</td><td>$ 58,950</td><td>$ 94</td><td>$ 59,044</td><td></td></tr><tr><td>Equity securities</td><td>7,822</td><td>340</td><td>8,162</td><td></td></tr><tr><td>Mortgage loans</td><td>4,817</td><td>—</td><td>4,817</td><td></td></tr><tr><td>Limited partnership interests</td><td>906</td><td>7,172</td><td>8,078</td><td></td></tr><tr><td>Short-term investments</td><td>4,256</td><td>—</td><td>4,256</td><td></td></tr><tr><td>Other</td><td>2,902</td><td>1,103</td><td>4,005</td><td></td></tr><tr><td>Total</td><td>$ 79,653</td><td>$ 8,709</td><td>$ 88,362</td><td></td></tr><tr><td>Percent to total</td><td>90.1%</td><td>9.9%</td><td>100.0%</td><td></td></tr><tr><td>Unrealized net capital gains and losses</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>$ 2,751</td><td>$ —</td><td>$ 2,751</td><td></td></tr><tr><td>Limited partnership interests</td><td>—</td><td>(4)</td><td>(4)</td><td></td></tr><tr><td>Other</td><td>(3)</td><td>—</td><td>(3)</td><td></td></tr><tr><td>Total</td><td>$ 2,748</td><td>$ (4)</td><td>$ 2,744</td><td></td></tr></table>

During 2019, strategic actions focused on optimizing portfolio yield, return and risk in the low interest rate environment.

We continued to increase performance-based investments in the Property-Liability portfolio.

We increased the maturity profile of fixed income securities in our Property-Liability portfolio to a duration of 5.2 years, while maintaining duration at 5.9 years and 4.5 years for the Allstate Life and Allstate Annuities portfolios, respectively.
In the Allstate Annuities portfolio, invested assets and market-based income declined with reductions in contractholder funds. Performance-based investments and equity securities will continue to be allocated primarily to the longer-term immediate annuity liabilities to reduce the risk that investment returns are below levels required to meet their funding needs while shorter-term annuity liabilities will be invested in market-based investments.

<table><tr><td colspan="3">Fixed income securities by type</td></tr><tr><td></td><td colspan="2">Fair value as of December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td></tr><tr><td>U.S. government and agencies</td><td>$ 5,086</td><td>$ 5,517</td></tr><tr><td>Municipal</td><td>8,620</td><td>9,169</td></tr><tr><td>Corporate</td><td>43,078</td><td>40,158</td></tr><tr><td>Foreign government</td><td>979</td><td>747</td></tr><tr><td>Asset-backed securities (“ABS”)</td><td>862</td><td>1,045</td></tr><tr><td>Mortgage-backed securities (“MBS”)</td><td>419</td><td>534</td></tr><tr><td>Total fixed income securities</td><td>$ 59,044</td><td>$ 57,170</td></tr></table>

Fixed income securities are rated by third-party credit rating agencies and/or are internally rated. As of December 31, 2019, 87.9% 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, a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Credit ratings below these designations are considered lower credit quality or below investment grade, which includes high yield bonds. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Our initial investment decisions and ongoing monitoring procedures for fixed income 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.



<table><tr><td colspan="9">Fair value and unrealized net capital gains (losses) for fixed income securities by credit quality</td></tr><tr><td></td><td colspan="3">Investment grade</td><td colspan="3">As of December 31, 2019</td><td colspan="2">Total</td></tr><tr><td></td><td colspan="2">Fair value</td><td>Unrealized gain (loss)</td><td>Fair value</td><td>Unrealized gain (loss)</td><td>Fair value</td><td>Unrealised gain (loss)</td><td>Percent rated investment grade</td></tr><tr><td>($ in millions)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 5,086</td><td>$ 115</td><td>$ —</td><td>$ —</td><td>$ 5,086</td><td>$ 115</td><td>100.0%</td><td></td></tr><tr><td>Municipal</td><td>8,569</td><td>546</td><td>51</td><td>(6)</td><td>8,620</td><td>540</td><td>99.4</td><td></td></tr><tr><td>Corporate</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Public</td><td>27,777</td><td>1,356</td><td>3,103</td><td>122</td><td>30,880</td><td>1,478</td><td>90.0</td><td></td></tr><tr><td>Privately placed</td><td>8,581</td><td>391</td><td>3,617</td><td>119</td><td>12,198</td><td>510</td><td>70.3</td><td></td></tr><tr><td>Total Corporate</td><td>36,358</td><td>1,747</td><td>6,720</td><td>241</td><td>43,078</td><td>1,988</td><td>84.4</td><td></td></tr><tr><td>Foreign government</td><td>972</td><td>11</td><td>7</td><td>—</td><td>979</td><td>11</td><td>99.3</td><td></td></tr><tr><td>ABS</td><td>791</td><td>1</td><td>71</td><td>1</td><td>862</td><td>2</td><td>91.8</td><td></td></tr><tr><td>MBS</td><td>123</td><td>3</td><td>296</td><td>92</td><td>419</td><td>95</td><td>29.4</td><td></td></tr><tr><td>Total fixed income securities</td><td>$ 51,899</td><td>$ 2,423</td><td>$ 7,145</td><td>$ 328</td><td>$ 59,044</td><td>$ 2,751</td><td>87.9%</td><td></td></tr></table>

Municipal bonds, including tax exempt and taxable securities, include general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest).

Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers' credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor.

Corporate bonds include publicly traded and privately placed securities. Privately placed securities primarily consist of corporate issued senior debt securities that are directly negotiated with the borrower or are in unregistered form.

Our portfolio of privately placed securities is diversified by issuer, industry sector and country. The portfolio is made up of 478 issuers. Privately placed corporate obligations may 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 due diligence of the issuer, typically including 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.

Our corporate bonds portfolio includes $6.72 billion of below investment grade bonds, $3.62 billion of which are privately placed. These securities are diversified by issuer and industry sector. The below investment grade corporate bonds portfolio is made up of 289 issuers. We employ fundamental analyses of issuers and sectors along with macro and asset class views to identify investment opportunities. This results in a portfolio with broad exposure to the high yield market with an emphasis on idiosyncratic positions reflective of our views of market conditions and opportunities.

Foreign government securities include 83.8% of Canadian governmental and provincial securities (83.0% of which are held by our Canadian companies), 15.5% backed by the U.S. government and 0.7% that are highly diversified in other foreign governments.

ABS and MBS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans. 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



## Investments

embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral may contain fixed interest rates, variable interest rates (such as adjustable rate mortgages), or both fixed and variable rate features.

ABS includes collateralized debt obligations, consumer and other ABS. 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.

MBS includes residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). RMBS is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to prepayment risk from the underlying residential mortgage loans. RMBS consists of a U.S. Agency portfolio having collateral issued or guaranteed by U.S. government agencies and a non-agency portfolio consisting of securities collateralized by Prime, Alt-A and Subprime loans. CMBS investments are primarily traditional conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and geographical area.

Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Exchange traded and mutual funds that have fixed income securities as their underlying investments totaled $1.79 billion as of December 31, 2019, an increase of $1.39 billion compared to December 31, 2018.

Mortgage loans mainly comprise loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification. For further detail on our mortgage loan portfolio, see Note 5 of the consolidated financial statements.

Limited partnership interests include $6.13 billion of private equity funds interests, $1.04 billion of real estate funds interests and $906 million of other funds interests as of December 31, 2019. We have commitments to invest additional amounts in limited partnership interests totaling $2.84 billion as of December 31, 2019.

Short-term investments primarily comprise money market funds, commercial paper, U.S. Treasury bills and other short-term investments, including securities lending collateral of $1.81 billion.

Other investments primarily comprise $1.20 billion of bank loans, $1.01 billion of real estate, $894 million of policy loans, $666 million of agent loans (loans issued to exclusive Allstate agents) and $140 million of derivatives as of December 31, 2019. For further detail on our use of derivatives, see Note 7 of the consolidated financial statements.

<table><tr><td colspan="3">Unrealized net capital gains (losses)</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>U.S. government and agencies</td><td>$ 115</td><td>$ 131</td></tr><tr><td>Municipal</td><td>540</td><td>206</td></tr><tr><td>Corporate</td><td>1,988</td><td>(399)</td></tr><tr><td>Foreign government</td><td>11</td><td>8</td></tr><tr><td>ABS</td><td>2</td><td>(4)</td></tr><tr><td>MBS</td><td>95</td><td>94</td></tr><tr><td>Fixed income securities</td><td>2,751</td><td>36</td></tr><tr><td>Derivatives</td><td>(3)</td><td>(3)</td></tr><tr><td>Equity method of accounting (“EMA”) limited partnerships</td><td>(4)</td><td>—</td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td>$ 2,744</td><td>$ 33</td></tr></table>



## Fixed income portfolio monitoring is a

comprehensive process to identify and evaluate each 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 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 for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in our evaluation of other-than-temporary impairment for these fixed income securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer.

Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are:

1) 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) Specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity

3) Length of time and extent to which the fair value has been less than amortized cost or cost. All investments in an unrealized loss position as of December 31, 2019 were included in our portfolio monitoring process for determining whether declines in value were other than temporary.

Gross unrealized gains (losses) on fixed income securities

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Gross unrealized gains</td><td>$ 2,847</td><td>$ 993</td></tr><tr><td>Gross unrealized losses</td><td>(96)</td><td>(957)</td></tr><tr><td>Unrealized net capital gains and losses</td><td>$ 2,751</td><td>$ 36</td></tr></table>

Fixed income valuations increased primarily due to a decrease in risk-free interest rates and tighter credit spreads.

Gross unrealized gains (losses) on fixed income securities by type

<table><tr><td rowspan="3">(\( in millions)</td><td rowspan="3">Amortized cost</td><td colspan="4">As of December 31, 2019</td></tr><tr><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>Corporate</td><td>$ 41,090</td><td>$ 2,035</td><td>$ (47)</td><td>$ 43,078</td><td></td></tr><tr><td>U.S. government and agencies</td><td>4,971</td><td>141</td><td>(26)</td><td>5,086</td><td></td></tr><tr><td>Municipal</td><td>8,080</td><td>551</td><td>(11)</td><td>8,620</td><td></td></tr><tr><td>Foreign government</td><td>968</td><td>16</td><td>(5)</td><td>979</td><td></td></tr><tr><td>ABS</td><td>860</td><td>8</td><td>(6)</td><td>862</td><td></td></tr><tr><td>MBS</td><td>324</td><td>96</td><td>(1)</td><td>419</td><td></td></tr><tr><td>Total fixed income securities</td><td>$ 56,293</td><td>$ 2,847</td><td>$ (96)</td><td>$ 59,044</td><td></td></tr></table>

The consumer goods, utilities and capital goods sectors comprise 28%, 13% and 12%, respectively, of the carrying value of our corporate fixed income securities portfolio as of December 31, 2019. The banking, energy and utilities sectors comprise 30%, 30% and 13%, respectively, of the gross unrealized losses of our corporate fixed income securities portfolio as of December 31, 2019.

In general, the gross unrealized losses are related to an increase in market yields, which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. Similarly, gross unrealized gains reflect a decrease in market yields since the time of initial purchase.

As of December 31, 2019, we have not made the decision to sell and it is not more likely than not we will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.



<table><tr><td colspan="5">Net investment income</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Fixed income securities</td><td>$ 2,175</td><td>$ 2,077</td><td>$ 2,078</td><td></td></tr><tr><td>Equity securities</td><td>206</td><td>170</td><td>174</td><td></td></tr><tr><td>Mortgage loans</td><td>220</td><td>217</td><td>206</td><td></td></tr><tr><td>Limited partnership interests</td><td>471</td><td>705</td><td>889</td><td></td></tr><tr><td>Short-term investments</td><td>102</td><td>73</td><td>30</td><td></td></tr><tr><td>Other</td><td>262</td><td>272</td><td>236</td><td></td></tr><tr><td>Investment income, before expense</td><td>3,436</td><td>3,514</td><td>3,613</td><td></td></tr><tr><td>Investment expense (1) (2)</td><td>(277)</td><td>(274)</td><td>(212)</td><td></td></tr><tr><td>Net investment income</td><td>$ 3,159</td><td>$ 3,240</td><td>$ 3,401</td><td></td></tr><tr><td>Market-based</td><td>$ 2,893</td><td>$ 2,734</td><td>$ 2,661</td><td></td></tr><tr><td>Performance-based</td><td>543</td><td>780</td><td>952</td><td></td></tr><tr><td>Investment income, before expense</td><td>$ 3,436</td><td>$ 3,514</td><td>$ 3,613</td><td></td></tr></table>

(1) Investment expense includes $81 million, $71 million and $40 million of investee level expenses in 2019, 2018 and 2017, respectively, and has increased compared to prior year, primarily due to growth in real estate investments. Investee level expenses include depreciation and asset level operating expenses on directly held real estate and other consolidated investments.

(2) Investment expense includes $40 million, $28 million and $10 million related to the portion of reinvestment income on securities lending collateral paid to the counterparties in 2019, 2018 and 2017, respectively.

Net investment income decreased 2.5% or $81 million in 2019 compared to 2018, primarily due to lower performance-based results, primarily from limited partnerships, partially offset by higher market-based income.

<table><tr><td colspan="4">Performance-based investment income</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Limited partnerships</td><td></td><td></td><td></td></tr><tr><td>Private equity</td><td>$ 330</td><td>$ 582</td><td>$ 725</td></tr><tr><td>Real estate</td><td>138</td><td>123</td><td>164</td></tr><tr><td>Performance-based - limited partnerships</td><td>468</td><td>705</td><td>889</td></tr><tr><td>Non-limited partnerships</td><td></td><td></td><td></td></tr><tr><td>Private equity</td><td>9</td><td>9</td><td>19</td></tr><tr><td>Real estate</td><td>66</td><td>66</td><td>44</td></tr><tr><td>Performance-based - non-limited partnerships</td><td>75</td><td>75</td><td>63</td></tr><tr><td>Total</td><td></td><td></td><td></td></tr><tr><td>Private equity</td><td>339</td><td>591</td><td>744</td></tr><tr><td>Real estate</td><td>204</td><td>189</td><td>208</td></tr><tr><td>Total performance-based</td><td>$ 543</td><td>$ 780</td><td>$ 952</td></tr><tr><td>Investee level expenses (1)</td><td>$ (74)</td><td>$ (64)</td><td>$ (35)</td></tr></table>

(1) Investee level expenses include depreciation and asset level operating expenses reported in investment expense.

Performance-based investment income decreased 30.4% or $237 million in 2019 compared to 2018, primarily due to lower asset appreciation related to private equity investments and lower valuations in the fourth quarter, on two private equity investments totaling $74 million.
Performance-based investment results and income can vary significantly between periods and are influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales.



<table><tr><td colspan="5">Components of realized capital gains (losses) and the related tax effect</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the year December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Impairment write-downs:</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>$ (14)</td><td>$ (10)</td><td>$ (26)</td><td></td></tr><tr><td>Equity securities</td><td>—</td><td>—</td><td>(38)</td><td></td></tr><tr><td>Mortgage loans</td><td>—</td><td>—</td><td>(1)</td><td></td></tr><tr><td>Limited partnership interests</td><td>(6)</td><td>(3)</td><td>(32)</td><td></td></tr><tr><td>Other investments</td><td>(27)</td><td>(1)</td><td>(5)</td><td></td></tr><tr><td>Total impairment write-downs</td><td>(47)</td><td>(14)</td><td>(102)</td><td></td></tr><tr><td>Change in intent write-downs</td><td>—</td><td>—</td><td>(48)</td><td></td></tr><tr><td>Net OTTI losses recognized in earnings</td><td>(47)</td><td>(14)</td><td>(150)</td><td></td></tr><tr><td>Sales</td><td>575</td><td>(215)</td><td>641</td><td></td></tr><tr><td>Valuation of equity investments - appreciation (decline):</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>1,210</td><td>(594)</td><td>—</td><td></td></tr><tr><td>Limited partnerships (1)</td><td>162</td><td>(97)</td><td>—</td><td></td></tr><tr><td>Total valuation of equity investments</td><td>1,372</td><td>(691)</td><td>—</td><td></td></tr><tr><td>Valuation and settlements of derivative instruments</td><td>(15)</td><td>43</td><td>(46)</td><td></td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>1,885</td><td>(877)</td><td>445</td><td></td></tr><tr><td>Income tax (expense) benefit</td><td>(397)</td><td>189</td><td>(147)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>$ 1,488</td><td>$ (688)</td><td>$ 298</td><td></td></tr><tr><td>Market-based</td><td>$ 1,750</td><td>$ (946)</td><td>$ 486</td><td></td></tr><tr><td>Performance-based</td><td>135</td><td>69</td><td>(41)</td><td></td></tr><tr><td>Realized capital gains and losses, pre-tax</td><td>$ 1,885</td><td>$ (877)</td><td>$ 445</td><td></td></tr></table>

 \( ^{(1)} \)  Relates to limited partnerships where the underlying assets are predominantly public equity securities.

Realized capital gains in 2019 related primarily to increased valuation of equity investments and gains on sales of fixed income securities.

Impairment write-downs in 2019 and 2018 related to investment-specific circumstances.

Sales in 2019 related primarily to fixed income securities in connection with ongoing portfolio management, as well as gains from limited partnerships. Sales in 2018 related primarily to fixed income securities in connection with ongoing portfolio management.
Valuation and settlements of derivative instruments in 2019 primarily comprised losses on equity options and futures used for risk management, partially offset by gains on interest rate futures and total return swaps used for asset replication due to increases in equity indices. 2018 primarily comprised gains on foreign currency contracts due to the strengthening of the U.S. dollar and gains on equity options used for risk management due to a decrease in equity indices, partially offset by losses on total return swaps and equity options and futures used for asset replication due to decreases in equity indices.

<table><tr><td colspan="5">Realized capital gains (losses) for performance-based investments</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Impairment write-downs</td><td>$ (6)</td><td>$ (3)</td><td>$ (32)</td><td></td></tr><tr><td>Sales</td><td>103</td><td>7</td><td>15</td><td></td></tr><tr><td>Valuation of equity investments</td><td>31</td><td>36</td><td>—</td><td></td></tr><tr><td>Valuation and settlements of derivative instruments</td><td>7</td><td>29</td><td>(24)</td><td></td></tr><tr><td>Total performance-based</td><td>$ 135</td><td>$ 69</td><td>$ (41)</td><td></td></tr></table>

Realized capital gains for performance-based investments in 2019 primarily related to gains on sales of investments in directly held real estate, a gain on the sale of a limited partnership and increased valuation of equity investments. 2018 primarily related to increased valuation of equity investments and gains on valuation and settlements of derivative instruments.



## 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 fiscal policy, the economic climate, 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. We also have direct and indirect exposure to commodity price changes through our diversified investments in timber, agriculture, infrastructure and energy primarily held in limited partnership interests and consolidated subsidiaries.

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 type of investments purchased in the future

3) Using derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased

Overview In formulating and implementing guidelines for investing funds, we seek to earn attractive risk-adjusted returns that enhance our ability to offer competitive rates and prices to customers while contributing to stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are informed by the underlying risks and product profiles. 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 and which 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 the subsidiaries' boards of directors and legal entity investment committees. The Enterprise Risk and Return Council (“ERRC”) oversees the aggregate risk of Allstate and its subsidiaries. Working in conjunction with the board or the investment committee of each subsidiary, as applicable, the ERRc evaluates the risk tolerance of each subsidiary and determines the aggregate risk tolerance of the enterprise.

For life and annuity products, the asset-liability management (“ALM”) policies further define the overall framework for managing market and investment risks and are approved by the subsidiaries’ respective boards of directors. ALM focuses on strategies to enhance yields, mitigate market risks and optimize capital to improve profitability and returns while incorporating future expected cash requirements to repay liabilities. These ALM policies specify limits, ranges and/or targets for investments that best meet business objectives in light of the unique demands and characteristics of the product liabilities and are intended to result in a prudent, methodical and effective adjudication of market risk and return.

We use widely-accepted quantitative and qualitative approaches to measure, monitor and manage market risk. We evaluate our market risk exposure using multiple measures including but not limited to:

• Duration, a measure of the price sensitivity of assets and liabilities to changes in interest rates

• Value-at-risk, a statistical estimate of the probability that the change in fair value of a portfolio will exceed a certain amount over a given time horizon

• Scenario analysis, an estimate of the potential changes in the fair value of a portfolio that could occur under hypothetical market conditions defined by changes to multiple market risk factors: interest rates, credit spreads, equity prices or currency exchange rates

- Sensitivity analysis, an estimate of the potential changes in the fair value of a portfolio that could occur using hypothetical shocks to a market risk factor.

The selection of measures used in our sensitivity analysis should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.

In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of these measures. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. 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. Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments may differ between our products and therefore affect 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 characteristics of our interest-bearing assets and liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets and issue interest-sensitive liabilities. Changes in interest rates can have favorable and unfavorable effects on our results. For example, increases in rates can improve investment income, but decrease the fair value of our fixed income securities portfolio and increase policyholder surrenders requiring us to liquidate assets. Decreases in rates could increase the fair value of our fixed income securities portfolio while decreasing investment income due to reinvesting at lower market yields and accelerating pay-downs and prepayments of certain investments.

For our corporate debt, we monitor market interest rates and evaluate refinancing opportunities



as maturity dates approach. To mitigate this risk, we ladder the maturity dates of our debt. For our noncumulative perpetual preferred stock, we monitor market dividend rates and evaluate opportunities to redeem or refinance on or after specified dates. For further detail regarding our debt and our preferred stock, see Note 12 of the consolidated financial statements and the Capital Resources and Liquidity section of the MD&A.

We manage the interest rate risk in our assets relative to the interest rate risk in our liabilities and our assessment of overall economic and capital risk. One of the measures used to quantify this exposure is duration. The difference in the duration of our assets relative to our liabilities is our duration gap. 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, 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 callable municipal and corporate bonds, fixed rate single and flexible premium deferred annuities, mortgage-backed securities and municipal housing bonds. Additionally, the calculations include assumptions regarding the renewal of property and casualty products.

As of December 31, 2019, the difference between our asset and liability duration was a (1.48) gap compared to a (1.16) gap as of December 31, 2018. The calculation excludes traditional and interest-sensitive life insurance and accident and health insurance products that are not considered financial instruments. 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, while a positive duration gap indicates that the fair value of our assets is more sensitive to interest rate movements than the fair value of our liabilities. Due to the relatively short duration of our property and casualty liabilities, primarily related to auto and homeowners claims, the investments generally maintain a positive duration gap between assets and liabilities. In contrast, for our annuity products the duration gap may be positive or negative as the assets and liabilities vary based on the characteristics of the products in-force and investing activity. As of December 31, 2019, property and casualty products had a positive duration gap while annuity products had a negative duration gap.
To reduce the risk that investment returns are below levels required to meet the funding needs of certain liabilities, we are executing our performance-based strategy that supplements market risk with idiosyncratic risk. We are using these investments, in addition to public equity securities, to support a portion of our property and casualty products and long-term annuity liabilities. Shorter-term annuity liabilities will continue to be invested in market-based investments to generate cash flows that will fund future claims, benefits and expenses, and that will earn stable returns across a wide variety of interest rate and economic scenarios. Performance-based investments and public equity securities are generally not interest-bearing; accordingly, using them to support interest-bearing liabilities contributes toward a negative duration gap.

<table><tr><td colspan="4">Interest rate shock analysis  \( {}^{(1)} \)</td></tr><tr><td></td><td colspan="3">As of December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Increase in fair value of the assets net of liabilities  \( {}^{(2)} \)</td><td>$ 1,209</td><td>$ 889</td><td></td></tr></table>

(1) Represents an immediate, parallel increase of 100 basis points based on information and assumptions used in the duration calculations and market interest rates as of December 31, 2019.

(2) Estimate excludes traditional and interest-sensitive life insurance and accident and health insurance products that are not considered financial instruments. The assets supporting these products totaled $12.14 billion and $11.07 billion as of December 31, 2019 and 2018, respectively. Based on assumptions described above, these assets would decrease in value by $649 million as of December 31, 2019 compared to a decrease of $593 million as of December 31, 2018.

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 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”). Credit spread is the additional yield on fixed income securities and loans above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. The magnitude of the spread will depend on the likelihood that a particular issuer will default. 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, 2019, the spread duration was 4.60 compared to 4.28 as of December 31, 2018.

<table><tr><td colspan="3">Credit spread shock analysis (1)</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Decrease in net fair value of the assets (2)</td><td>$ 2,877</td><td>$ 2,493</td></tr></table>

(1) Represents an immediate, parallel increase of 100 basis points across all asset classes, industry sectors and credit ratings based on information and assumptions used in the spread duration calculations and market interest rates as of December 31, 2019.

(2) Reflects effects of tactical positions that include the use of credit default swaps to manage spread risk.

Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the markets.

Equity investments As of December 31, 2019, we held $7.28 billion in equity securities, excluding those with fixed income securities as their underlying investments, and limited partnership interests where the underlying assets are predominantly public equity securities, compared to $5.29 billion as of December 31, 2018. 80.4% of the common stocks and other investments with public equity risk supported property and casualty products as of December 31, 2019, compared to 73.2% as of December 31, 2018. As of December 31, 2019, these investments had an equity market portfolio beta of 1.02, compared to a beta of 1.00 as of December 31, 2018. Beta represents a widely used methodology to describe, quantitatively, an investment’s market risk characteristics relative to an index such as the Standard & Poor’s 500 Composite Price Index (“S&P 500”).

<table><tr><td colspan="3">Change in S&amp;P 500 by 10%</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Change in net fair value of equity investments</td><td>$ 742</td><td>$ 527</td></tr></table>

We periodically use put options to reduce equity price risk or call options to adjust our equity risk profile. Put options provide an offset to declines in equity market values below a targeted level, while call options provide participation in equity market appreciation above a targeted level. Options can expire, terminate early or the option can be exercised. If the equity index does not fall below the put's strike price or rise above the call's strike price, the maximum loss on purchased puts and calls is limited to the amount of the premium paid.

Limited partnership interests As of December 31, 2019, we held $7.17 billion in limited partnership interests excluding those limited partnership interests where the underlying assets are predominantly public equity securities compared to $6.86 billion as of December 31, 2018. 56.7% of the limited partnership interests supported property and casualty products as of December 31, 2019, compared to 53.9% as of December 31, 2018. These investments are primarily comprised of private equity and real estate funds. These investments are idiosyncratic in nature and a greater portion of the return is derived from asset operating performance. They are not actively traded, and valuation changes typically reflect the performance of the underlying asset.

<table><tr><td colspan="3">Change in private market valuations by 10%</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Change in net fair value of limited partnership interests</td><td>$ 717</td><td>$ 686</td></tr></table>

For limited partnership interests, quarterly changes in fair values may not be highly correlated to equity indices in the short-term and changes in value of these investments are generally recognized on a three-month delay due to the availability of the related investee financial statements. 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.

Separate Accounts As of December 31, 2019 and 2018, we had separate account assets related to variable annuity and variable life contracts with account values totaling $3.04 billion and $2.81 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, including reinsurance assumed, for 2019 and 2018 were $45 million and $44 million, respectively. Separate account liabilities related to variable life contracts were $85 million and $68 million as of December 31, 2019 and 2018, respectively.

Equity-indexed Life and Annuity Liabilities As of December 31, 2019 and 2018, we had $1.92 billion and $1.83 billion, respectively, in equity-indexed life and annuity liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. We hedge the majority of the risk associated with these liabilities using equity-indexed options and futures 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 common stocks, limited partnership interests, and our Canadian, Northern Ireland and Indian operations. We use foreign currency derivative contracts to partially offset this risk.

As of December 31, 2019, we had $2.80 billion in foreign currency denominated equity investments, including the impact of foreign currency derivative contracts, $1.08 billion net investment in our foreign subsidiaries, primarily related to our Canadian operations, and $113 million in unhedged non-U.S. dollar fixed income securities. These amounts were $2.10 billion, $860 million, and $96 million, respectively, as of December 31, 2018.

## Change in foreign currency exchange rates \( ^{(1)} \) 

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Decrease in value of foreign currency denominated instruments</td><td>$ 402</td><td>$ 306</td></tr></table>

(1) Represents a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed based on information and assumptions used, including the impact of foreign currency derivative contracts.

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.



## 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.

<table><tr><td colspan="5">Capital resources</td></tr><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">2019</td><td colspan="3">As of December 31,</td></tr><tr><td>2018</td><td>2017</td><td></td></tr><tr><td>Preferred stock, common stock, treasury stock, retained income and other shareholders’ equity items</td><td>$ 24,048</td><td>$ 21,194</td><td>$ 20,662</td><td></td></tr><tr><td>Accumulated other comprehensive (loss) income</td><td>1,950</td><td>118</td><td>1,889</td><td></td></tr><tr><td>Total shareholders’ equity</td><td>25,998</td><td>21,312</td><td>22,551</td><td></td></tr><tr><td>Debt</td><td>6,631</td><td>6,451</td><td>6,350</td><td></td></tr><tr><td>Total capital resources</td><td>$ 32,629</td><td>$ 27,763</td><td>$ 28,901</td><td></td></tr><tr><td>Ratio of debt to shareholders’ equity</td><td>25.5%</td><td>30.3%</td><td>28.2%</td><td></td></tr><tr><td>Ratio of debt to capital resources</td><td>20.3%</td><td>23.2%</td><td>22.0%</td><td></td></tr></table>

Shareholders’ equity increased in 2019, primarily due to net income, increased net unrealized capital gains on investments and issuance of preferred stock, partially offset by common share repurchases and dividends paid to shareholders. In 2019, we paid dividends of $653 million and $134 million related to our common and preferred shares, respectively. Shareholders’ equity decreased in 2018, primarily due to decreased net unrealized capital gains on investments, common share repurchases and dividends paid to shareholders, partially offset by net income and issuance of preferred stock.

Common share repurchases As of December 31, 2019, there was $259 million remaining on the $3.00 billion common share repurchase program. In January 2020, we completed the $3.00 billion share repurchase program that commenced in November 2018. On February 6, 2020, the Board authorized a new $3.00 billion common share repurchase program that is expected to be completed by the end of 2021.

In November 2019, we entered into an ASR agreement with Goldman Sachs & Co. LLC (“Goldman Sachs”) to purchase $500 million of our outstanding common stock. Under the ASR agreement, we paid $500 million upfront and initially acquired 4.0 million shares. The ASR agreement settled on January 8, 2020, and we repurchased a total of 4.6 million shares at an average price of $109.51.

During 2019, we repurchased 16.4 million common shares for $1.81 billion. The common share repurchases were completed through open market transactions and ASR agreements.

Since 1995, we have acquired 724 million shares of our common stock at a cost of $35.18 billion, primarily as part of various stock repurchase programs. We have reissued 144 million common shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total common shares outstanding has decreased by 580 million shares or 64.5%, primarily due to our repurchase programs.
Common shareholder dividends On January 2, 2019, April 1, 2019, July 1, 2019, and October 1, 2019, we paid common shareholder dividends of $0.46, $0.50, $0.50 and $0.50, respectively. On November 15, 2019, we declared a common shareholder dividend of $0.50, payable on January 2, 2020. On February 20, 2020, we declared a common shareholder dividend of $0.54, payable on April 1, 2020.

Issuance and redemption of preferred stock On August 8, 2019, we issued 46,000 shares of 5.100% Fixed Rate Noncumulative Perpetual Preferred Stock, Series H for gross proceeds of $1.15 billion.

On October 15, 2019, we redeemed all 5,400 shares of our Fixed Rate Noncumulative Perpetual Preferred Stock, Series D, all 29,900 shares of our Fixed Rate Noncumulative Perpetual Preferred Stock, Series E, and all 10,000 shares of our Fixed Rate Noncumulative Perpetual Preferred Stock, Series F and the corresponding depository shares for $1.13 billion.

On November 8, 2019, we issued 12,000 shares of 4.750% Fixed Rate Noncumulative Perpetual Preferred Stock, Series I for gross proceeds of $300 million.

On January 15, 2020, we redeemed all 11,500 shares of Fixed Rate Noncumulative Preferred Stock, Series A and the corresponding depositary shares for $288 million.

For additional details on these transactions, see Note 12 of the consolidated financial statements.

Issuance and repayment of debt On June 10, 2019, we issued $500 million of 3.850% Senior Notes due 2049. Interest on the Senior Notes is payable semi-annually in arrears on February 10 and August 10 of each year, beginning on February 10, 2020. The Senior Notes are redeemable at any time at the applicable redemption price prior to the maturity date. The proceeds of this issuance are used for general corporate purposes.

On May 16, 2019, we repaid $317 million of 7.450% Senior Notes, Series B, at maturity.



## Financial ratings and strength

<table><tr><td colspan="4">Senior long-term debt, commercial paper and insurance financial strength ratings</td></tr><tr><td></td><td colspan="3">As of December 31, 2019</td></tr><tr><td></td><td>Moody&#x27;s</td><td>S&amp;P Global Ratings</td><td>A.M. Best</td></tr><tr><td>The Allstate Corporation (debt)</td><td>A3</td><td>A-</td><td>a</td></tr><tr><td>The Allstate Corporation (short-term issuer)</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>A2</td><td>A+</td><td>A+</td></tr><tr><td>Allstate Assurance Company (insurance financial strength)</td><td>A2</td><td>N/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. The preferred stock and subordinated debentures are viewed as having a common equity component by certain rating agencies and are given equity credit up to a pre-determined limit in our capital structure as determined by their respective methodologies. These respective methodologies consider the existence of certain terms and features in the instruments such as the noncumulative dividend feature in the preferred stock.

In May 2019, A.M. Best affirmed The Allstate Corporation’s debt and short-term issuer ratings of a and AMB-1+, respectively, and the insurer financial strength ratings of A+ for Allstate Insurance Company (“AIC”), Allstate Life Insurance Company (“ALIC”), and Allstate Assurance Company (“AAC”). The outlook for the ratings is stable.

In July 2019, Moody’s affirmed The Allstate Corporation’s debt and short-term issuer ratings of A3 and P-2, respectively, and the insurance financial strength rating of Aa3 for AIC. Moody’s downgraded ALIC and AAC insurance financial strength ratings to A2 from A1 reflecting Moody’s shift to a more standard single rating level positive adjustment for subsidiary company ratings. The outlook for the ratings is stable.

In December 2019, S&P Global affirmed The Allstate Corporation’s debt and short-term issuer ratings of A- and A-2, respectively, and the insurance financial strength ratings of AA- for AIC and A+ for ALIC. The outlook for the ratings is stable.

We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty insurance 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. In May 2019, A.M. Best affirmed the A rating of ANJ, which writes auto and homeowners insurance, and the A+ rating of North Light, our excess and surplus lines carrier. The outlook for the ANJ rating and North Light rating is stable. ANJ also has a Financial Stability Rating \( ^{®} \)  of A \( ^{™} \)  from Demotech, which was affirmed in November 2019. In March 2019, A.M. Best upgraded the CKIC, which underwrites personal lines property insurance in Florida, rating to B+. CKIC also has a Financial Stability Rating of A \( ^{™} \)  from Demotech that was affirmed in November 2019. ANJ, North Light and CKIC do not have support agreements with AIC.

Allstate’s domestic property and casualty 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.

The property and casualty business is comprised of 29 insurance companies, each of which has individual company dividend limitations. As of December 31, 2019, total statutory surplus is $20.40 billion compared to $18.15 billion as of December 31, 2018. Property and casualty subsidiaries surplus was $16.19 billion as of December 31, 2019, compared to $14.33 billion as of December 31, 2018. Life insurance subsidiaries surplus was $4.21 billion as of December 31, 2019, compared to $3.82 billion as of December 31, 2018.

The National Association of Insurance Commissioners (“NAIC”) has developed financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined “usual ranges”. Additional regulatory scrutiny may occur if a company’s ratios fall outside the usual ranges for four or more of the ratios. Our domestic insurance companies have no significant departure from these ranges.



Liquidity sources and uses Our potential sources and uses of funds principally include the following activities below.

<table><tr><td colspan="7">Activities for potential sources of funds</td></tr><tr><td></td><td>Property-Liability</td><td>Service Businesses</td><td>Allstate Life</td><td>Allstate Benefits</td><td>Allstate Annuities</td><td>Corporate and Other</td></tr><tr><td>Receipt of insurance premiums</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td><td></td></tr><tr><td>Recurring service fees</td><td>✓</td><td>✓</td><td></td><td>✓</td><td></td><td></td></tr><tr><td>Contractholder fund deposits</td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Reinsurance and indemnification program recoveries</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Receipts of principal, interest and dividends on investments</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Sales of investments</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Funds from securities lending, commercial paper and line of credit agreements</td><td>✓</td><td></td><td>✓</td><td></td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Intercompany loans</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Capital contributions from parent</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Dividends or return of capital from subsidiaries</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Tax refunds/settlements</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Funds from periodic issuance of additional securities</td><td></td><td></td><td></td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Receipt of intercompany settlements related to employee benefit plans</td><td></td><td></td><td></td><td></td><td></td><td>✓</td><td></td></tr></table>

<table><tr><td colspan="7">Activities for potential uses of funds</td></tr><tr><td></td><td>Property-Liability</td><td>Service Businesses</td><td>Allstate Life</td><td>Allstate Benefits</td><td>Allstate Annuities</td><td>Corporate and Other</td></tr><tr><td>Payment of claims and related expenses</td><td>✓</td><td>✓</td><td></td><td></td><td></td><td></td></tr><tr><td>Payment of contract benefits, surrenders and withdrawals</td><td></td><td></td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Reinsurance cessions and indemnification program payments</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Operating costs and expenses</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Purchase of investments</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Repayment of securities lending, commercial paper and line of credit agreements</td><td>✓</td><td></td><td>✓</td><td></td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Payment or repayment of intercompany loans</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Capital contributions to subsidiaries</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Dividends or return of capital to shareholders/parent company</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Tax payments/settlements</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></td></tr><tr><td>Common share repurchases</td><td></td><td></td><td></td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Debt service expenses and repayment</td><td>✓</td><td></td><td></td><td></td><td></td><td>✓</td><td></td></tr><tr><td>Payments related to employee benefit plans</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td></tr><tr><td>Payments for acquisitions</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td>✓</td><td></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.

As of December 31, 2019, we held $12.79 billion of cash, U.S. government and agencies fixed income securities, and public equity securities (excluding non-redeemable preferred stocks and foreign equities) which, under normal market conditions, we would expect to be able to liquidate within one week. In addition, we regularly estimate how much of the total portfolio, which includes high quality corporate fixed income and municipal holdings, can be reasonably liquidated within one quarter. These estimates are subject to considerable uncertainty associated with evolving market conditions. As of December 31, 2019, cash and estimated liquidity available within one quarter, under normal market conditions and at current market prices, was $27.25 billion.

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 senior long-term debt ratings to non-investment grade



status, or a downgrade in AIC’s or ALIC’s financial strength ratings. 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 Allstate Corporation is party to an Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) with certain subsidiaries, which include, but are not limited to, ALIC and AIC. The Liquidity Agreement 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, certain other subsidiaries serve only as borrowers, 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 providing 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 securities lending to fund intercompany borrowings.

Parent company capital capacity At the parent holding company level, we have deployable assets totaling $2.30 billion as of December 31, 2019, comprising cash and investments that are generally saleable within one quarter. Deployable assets increased by the proceeds from the Preferred Stock, Series I issuance, which were subsequently used for the Series A redemption that occurred on January 15, 2020. The substantial earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation.

The payment of dividends by AIC to The Allstate Corporation is limited by Illinois insurance law to formula amounts based on statutory net income and statutory surplus, as well as the timing and amount of dividends paid in the preceding twelve months. Based on the greater of 2019 statutory net income or 10% of statutory surplus, the maximum amount of dividends that AIC will be able to pay, without prior Illinois Department of Insurance approval, at a given point in time in 2020 is estimated at $3.73 billion, less dividends paid during the preceding twelve months measured at that point in time. Notification and approval of intercompany lending activities are also required by the Illinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus.
These holding company assets and subsidiary dividends provide funds for the parent company’s fixed charges and other corporate purposes.

Intercompany dividends were paid in 2019, 2018 and 2017 between the following companies: AIC, Allstate Insurance Holdings, LLC (“AIH”), the Corporation, ALIC, American Heritage Life Insurance Company (“AHL”) and Allstate Financial Insurance Holdings Corporation (“AFIHC”).

Intercompany dividends

<table><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>AIC to AIH</td><td>$ 2,732</td><td>$ 2,874</td><td>$ 1,555</td></tr><tr><td>AIH to the Corporation</td><td>2,747</td><td>2,897</td><td>1,613</td></tr><tr><td>ALIC to AIC</td><td>75</td><td>250</td><td>600</td></tr><tr><td>AHL to AFIHC</td><td>80</td><td>55</td><td>70</td></tr><tr><td>AFIHC to the Corporation</td><td>50</td><td>—</td><td>—</td></tr></table>

Dividends may not be paid or declared on our common stock and shares of common stock may not be repurchased unless the full dividends for the latest completed dividend period on our preferred stock have been declared and paid or provided for.

We are prohibited from declaring or paying dividends on our Series G preferred stock if we fail to meet specified capital adequacy, net income or shareholders' equity levels, except out of the net proceeds of common stock issued during the 90 days prior to the date of declaration. As of December 31, 2019, we satisfied all of the tests with no current restrictions on the payment of preferred stock dividends. There were no capital contributions paid by the Corporation to AIC or capital contributions by AIC to ALIC in 2019, 2018 or 2017.

The terms of our outstanding subordinated debentures also prohibit us from declaring or paying any dividends or distributions on our common or preferred stock or redeeming, purchasing, acquiring, or making liquidation payments on our common stock or preferred stock if we have elected to defer interest payments on the subordinated debentures, subject to certain limited exceptions. In 2019, we did not defer interest payments on the subordinated debentures.

Additional resources to support liquidity are as follows:

- The Corporation has access to a commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs. As of December 31, 2019, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion.

- The Corporation, AIC and ALIC have access to a $1.00 billion unsecured revolving credit facility that is available for short-term liquidity requirements. The maturity date of this facility is April 2021. The facility is fully subscribed among 11 lenders with the largest commitment being $115 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



## Capital Resources and Liquidity

under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing. This facility has a financial covenant requiring that we not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio was 15.9% as of December 31, 2019. 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, unguaranteed long-term debt. There were no borrowings under the credit facility during 2019.
- The Corporation has access to a universal shelf registration statement with the Securities and Exchange Commission that expires in 2021. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 581 million shares of treasury stock as of December 31, 2019), 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 were $17.69 billion as of December 31, 2019.

<table><tr><td colspan="3">Contractholder funds by contractual withdrawal provisions</td></tr><tr><td>($ in millions)</td><td>December 31, 2019</td><td>Percent to total</td></tr><tr><td>Not subject to discretionary withdrawal</td><td>$ 2,718</td><td>15.4%</td></tr><tr><td>Subject to discretionary withdrawal with adjustments:</td><td></td><td></td></tr><tr><td>Specified surrender charges  \( {}^{(1)} \)</td><td>4,760</td><td>26.9</td></tr><tr><td>Market value adjustments  \( {}^{(2)} \)</td><td>808</td><td>4.6</td></tr><tr><td>Subject to discretionary withdrawal without adjustments  \( {}^{(3)} \)</td><td>9,406</td><td>53.1</td></tr><tr><td>Total contractholder funds  \( {}^{(4)} \)</td><td>$ 17,692</td><td>100.0%</td></tr></table>

(1) Includes $1.46 billion of liabilities with a contractual surrender charge of less than 5% of the account balance.

(2) $369 million of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and subsequent interest rate guarantee periods (which are typically 1, 5, 7 or 10 years) during which there is no surrender charge or market value adjustment. $168 million of these contracts have their 30-45 day window period in 2020.

(3) 89% of these contracts have a minimum interest crediting rate guarantee of 3% or higher.

(4) Includes $698 million of contractholder funds on variable annuities reinsured to The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc., in 2006.

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 underwritten upon policy replacement.
The surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 6.0% in 2019 and 7.2% in 2018. We strive 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 asset-liability management practices enable us to manage the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance and annuity product obligations.



Contractual obligations and commitments Our contractual obligations as of December 31, 2019, and the payments due by period are shown in the following table.

<table><tr><td colspan="7">Contractual obligations and payments due by period</td></tr><tr><td></td><td></td><td colspan="5">As of December 31, 2019</td></tr><tr><td>($ in millions)</td><td>Total</td><td>Less than 1 year</td><td>1 to 3 years</td><td>Over 3 years to 5 years</td><td>Over 5 years</td><td></td></tr><tr><td>Liabilities for collateral (1)</td><td>$ 1,829</td><td>$ 1,829</td><td>$ —</td><td>$ —</td><td>$ —</td><td></td></tr><tr><td>Contractholder funds (2)</td><td>35,751</td><td>2,058</td><td>3,903</td><td>3,561</td><td>26,229</td><td></td></tr><tr><td>Reserve for life-contingent contract benefits (2)</td><td>38,446</td><td>1,449</td><td>2,642</td><td>2,424</td><td>31,931</td><td></td></tr><tr><td>Long-term debt (3)</td><td>13,869</td><td>316</td><td>872</td><td>1,335</td><td>11,346</td><td></td></tr><tr><td>Operating leases (4)</td><td>644</td><td>133</td><td>223</td><td>151</td><td>137</td><td></td></tr><tr><td>Unconditional purchase obligations (4)</td><td>590</td><td>192</td><td>239</td><td>109</td><td>50</td><td></td></tr><tr><td>Defined benefit pension plans and other postretirement benefit plans (4)(5)</td><td>967</td><td>47</td><td>111</td><td>115</td><td>694</td><td></td></tr><tr><td>Reserve for property and casualty insurance claims and claims expense (6)</td><td>27,712</td><td>12,317</td><td>8,707</td><td>3,085</td><td>3,603</td><td></td></tr><tr><td>Other liabilities and accrued expenses (7)(8)</td><td>5,320</td><td>5,025</td><td>266</td><td>17</td><td>12</td><td></td></tr><tr><td>Net unrecognized tax benefits (9)</td><td>70</td><td>58</td><td>12</td><td>—</td><td>—</td><td></td></tr><tr><td>Total contractual cash obligations</td><td>$125,198</td><td>$ 23,424</td><td>$ 16,975</td><td>$ 10,797</td><td>$ 74,002</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 and fixed annuities, including immediate annuities without life contingencies. 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, involve payment obligations where the amount and timing of the payment are 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 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, 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. For immediate annuities with life contingencies, the amount of future payments is uncertain since payments will continue as long as the annuitant lives. 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 $17.69 billion for contractholder funds and $12.30 billion for reserve for life-contingent contract benefits as included in the Consolidated Statements of Financial Position as of December 31, 2019. 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. Future premium collections are not included in the amounts presented in the table above.

(3) Amount differs from the balance presented on the Consolidated Statements of Financial Position as of December 31, 2019, because the long-term debt amount above includes interest and excludes debt issuance costs.

(4) Our payment obligations relating to operating leases, unconditional purchase obligations and pension and other postretirement benefits (“OPEB”) contributions are managed within the structure of our intermediate to long-term liquidity management program.

(5) The pension plans’ obligations in the next 12 months represent our planned contributions to certain unfunded non-qualified plans where the benefit obligation exceeds the assets, 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 $534 million included in other liabilities and accrued expenses on the Consolidated Statements of Financial Position.

(6) Reserve for property and casualty 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 that are our best estimates.

(7) 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 may exceed the corresponding liability amount.



## Capital Resources and Liquidity

(8) Balance sheet liabilities not included in the table above include unearned and advance premiums of $16.13 billion and gross deferred tax liabilities of $2.35 billion. 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 $280 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.

(9) 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 a decrease of up to $58 million in unrecognized tax benefits may occur within the next twelve months due to IRS settlements. The resolution of this obligation may be for an amount different than what we have accrued.

## Contractual commitments and periods in which commitments expire

<table><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Total</td><td colspan="5">As of December 31, 2019</td></tr><tr><td>Less than 1 year</td><td>1 to 3 years</td><td>Over 3 years to 5 years</td><td>Over 5 years</td><td></td></tr><tr><td>Other commitments - conditional</td><td>$ 205</td><td>$ 91</td><td>$ 46</td><td>$ 8</td><td>$ 60</td><td></td></tr><tr><td>Other commitments - unconditional</td><td>2,889</td><td>284</td><td>250</td><td>385</td><td>1,970</td><td></td></tr><tr><td>Total commitments</td><td>$ 3,094</td><td>$ 375</td><td>$ 296</td><td>$ 393</td><td>$ 2,030</td><td></td></tr></table>

Contractual commitments represent investment commitments such as private placements, limited partnership interests and other loans. Limited partnership interests are typically funded over the commitment period which is shorter than the contractual expiration date of the partnership and as a result, the actual timing of the funding may vary.

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 been appropriately 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 7 of the consolidated financial statements.



## Enterprise Risk and Return Management

In addition to the normal risks of the business, Allstate is subject to significant risks as an insurer and a provider of other products and services. These risks are discussed in more detail in the Risk Factors section of this document. We regularly identify, measure, manage, monitor and report all significant risks. Major categories of enterprise risk are strategic, insurance, investment, financial, operational and culture.

Allstate manages these risks through an Enterprise Risk and Return Management (“ERRM”) framework that includes governance, processes, culture, and activities that are performed on an integrated, enterprise-wide basis, following our risk and return principles. Our legal and capital structures are designed to manage capital and solvency on a legal entity basis. Our risk-return principles define how we operate and guide risk and return decision making. These principles state that our priority is to maintain a strong foundation by protecting solvency, complying with laws and acting with integrity. Building upon this foundation, we strive to build strategic value and optimize risk and return.



Governance ERRM governance includes board oversight, an executive management committee, and enterprise and market-facing business chief risk officers.

- The Allstate Corporation Board of Directors (“Allstate Board”) has overall responsibility for oversight of Management’s design and implementation of ERRM.

- The Risk and Return Committee (“RRC”) of the Allstate Board oversees effectiveness of the ERRM program, governance structure and risk-related decision-making, while focusing on the Company’s overall risk profile.

- The Audit Committee oversees the effectiveness of internal controls over financial reporting, disclosure controls and procedures as well as management’s risk control framework and cybersecurity program.

- The ERRC, directs ERRM by establishing risk and return targets, determining economic capital levels and monitoring integrated strategies and actions from an enterprise risk and return perspective.
The ERRC consists of Allstate’s chief executive officer, vice chair, chief financial officer, chief risk officer and other senior leaders.

- Other key committees work with the ERRC to direct ERRM activities, including the Operating Committee, the Operational Risk Council, the Information Security Council, the Corporate Asset Liability Committee, liability governance committees, and investment committees.

Key risks are assessed and reported through comprehensive ERRM reports prepared for senior management and the RRC. The risk summary report communicates alignment of Allstate’s risk profile with risk and return principles while providing a perspective on risk position. Discussion promotes active engagement with management and the RRC. Internal controls over key risks are managed and reported to senior management and the Audit Committee of the Company through a semiannual risk control dashboard. Annually, we review risks related to the strategic plan, operating plan, and incentive compensation programs with the Allstate Board.



## Enterprise Risk and Return Management

Framework We apply these principles using an integrated ERRM framework that focuses on assessment, transparency and dialogue. Our framework provides a comprehensive view of risks and is used by senior management and business managers to drive risk-return based decisions. We continually validate and improve our ERRM practices by benchmarking and obtaining external perspectives.

Management and the ERRC rely on internal and external perspectives to determine an appropriate level of target economic capital. Internal perspectives include enterprise solvency and volatility assessments, stress scenarios, model assumptions, and management judgment. External considerations include NAIC risk-based capital as well as S&P's, Moody's, and A.M. Best's capital adequacy measurement. Our economic capital reflects management's view of the aggregate level of capital necessary to satisfy stakeholder interests, manage Allstate's risk profile and maintain financial strength. The impact of strategic initiatives on enterprise risk is evaluated through the economic capital framework.

The NAIC has adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA Model Act”), which has been enacted by our insurance subsidiaries’ domiciliary states. The ORSA Model Act requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed environments. Results of the assessment are filed annually.

Allstate’s risk appetite is measured through our economic capital framework. The enterprise risk appetite is cascaded into individual risk limits which set boundaries on the amount of risk we are willing to accept from one specific risk category before escalating for further management discussion and action. Risk limits are established based upon expected returns, volatility, potential tail losses, and impact on the enterprise portfolio. To effectively operate within risk limits and for risk-return optimization, business units establish risk limits and capital targets specific to their businesses. Allstate’s risk management strategies adapt to changes in business and market environments.

Process Our ERRM framework establishes a basis for transparency and dialogue across the enterprise and for continuous learning by embedding our risk and return management culture of identifying, assessing, managing, monitoring and reporting risks within the organization. Allstate designs business and enterprise strategies that seek to optimize risk-adjusted returns on capital. Risks are managed at both the legal entity and enterprise level.

A summary of our process to manage each of our major risk categories follows:

Strategic risk and return management addresses loss associated with inadequate or flawed business planning or strategy setting, including product mix, mergers or acquisitions and market positioning, and unexpected changes within the market or regulatory environment in which Allstate operates. This includes reputational risk, which is the potential for negative publicity regarding a company’s conduct or business practices to adversely impact its profitability, operations, consumer base, or require costly litigation and other defensive measures.

We manage strategic risk through the Allstate Board and senior management strategy reviews that include a risk and return assessment of our strategic plans and ongoing monitoring of our strategic actions, key assumptions and the external competitive environment. Using the ERRM framework, Allstate designs strategies that seek to optimize risk-adjusted returns on economic capital for risk types including interest rate risk, credit risk, equity investments, including those with idiosyncratic return potential, auto profitability, and growing property exposure.

Insurance risk and return management addresses fluctuations in the timing, frequency, and severity of benefits, expenses, and premiums relative to the return expectations inclusive of systemic risk, concentration of insurance exposures, policy terms, reinsurance coverage, and claims handling practices.

Insurance risk exposures include our operating results and financial condition, claims frequency and severity, catastrophes and severe weather, and mortality and morbidity risk.

Insurance risk exposures are measured and monitored with different approaches including:

- Stochastic methods: measures and monitors risks such as natural catastrophes and severe weather. We develop probabilistic estimates of risk based on our exposures, historical observed volatility and/or industry-recognized models in the case of catastrophe risk.

- Scenario analysis: measures and monitors risks and estimated losses due to extreme but plausible insurance-related events such as multiple hurricanes and/or wildfires. Scenarios evaluated include combined multiple event scenarios across risk categories and time periods, considering the effects of macroeconomic conditions.

Investment risk and return management addresses financial loss due to changes in the valuations of assets held in the Allstate investment portfolio, as well as liability valuation within the Life and Annuity business. Such losses may be caused by macro developments, such as changes to interest rates, credit spreads, and equity price levels, or could be specific to individual investments in the portfolio. These losses can encompass both daily market volatility and permanent impairments of capital due to credit defaults and equity write-downs.

Investment risk exposures include interest rate risk, credit spread risk, equity price risk and foreign currency exchange rate risk.

Investment risk exposures are measured and monitored in a number of ways including:

- Sensitivity analysis: measures the impact from a unit change in a market risk input.



- Stochastic and probabilistic estimation of potential losses: combines portfolio risk exposures with historical or recent market volatilities and correlations to assess the potential range of future investment results.

- Scenario analysis: measures material adverse outcomes such as shock scenarios applied to credit, public and private equity markets.

Some of the stress scenarios are a combination of multiple scenarios across risk categories and over multiple time periods, considering the effects of macroeconomic conditions.

Financial risk and return management addresses the risk of insufficient cash flows to meet corporate or policyholder needs, risk of inadequate aggregate capital or capital within any subsidiary, inability to access capital markets, credit risk that arises when an external party fails to meet a contractual obligation such as reinsurance for ceded claims, or risk associated with a business counterparty default.

We actively manage our capital and liquidity levels in light of changing market, economic, and business conditions. Our capital position, capital generation capacity, and targeted risk profile provide strategic and financial flexibility.

We generally assess solvency on a statutory accounting basis, but also consider holding company capital and liquidity needs. Current enterprise capital, which exceeds economic targeted levels, is based on a combination of statutory surplus and deployable assets at the parent holding company level.
Operational risk and return management addresses loss as a result of the failure of people, processes, systems or culture. Operational risk exposures include human capital, privacy, regulatory compliance, ethics, fraud, system availability, cybersecurity, data quality, disaster recovery and business continuity.

Operational risk is managed at the enterprise and market-facing business levels, through an integrated Operational Risk and Return Management (“ORRM”) program, with resources throughout the enterprise identifying, measuring, monitoring, managing, and reporting on operational risks at a detailed level.

From time to time, we engage independent advisors to assess and consult on operational risks. We also perform assessments of the quality of our operational risk program and identify opportunities to strengthen our internal controls.

NEW Culture risk and return management addresses the potential for loss of stakeholder value from a suboptimal work environment, missed opportunities, or ineffective risk management practices. Allstate defines organization culture as a self-sustaining system of shared values, principles and priorities that shape beliefs, drive behavior and influence decision-making within an organization.

Culture is managed based on a set of core cultural elements that have been established as a basis for assessment and measurement. Results of culture risk assessment are reported to the ERRC and RRC throughout the year.



## Application of Critical Accounting Estimates

The preparation of financial statements in conformity with 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, presented in the order they appear in the Consolidated Statements of Financial Position, include those used in determining:

• Fair value of financial assets

• Impairment of fixed income securities

• Deferred policy acquisition costs amortization

• Evaluation of goodwill for impairment

• Reserve for property and casualty insurance claims and claims expense estimation

• Reserve for life-contingent contract benefits estimation

NEW Pension and other postretirement plans net costs and assumptions

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 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 more detailed summary of our significant accounting policies, see the notes to the consolidated financial statements.

Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use 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 fixed income and other securities for which a fair value has been requested under the terms of our agreements. The inputs used by the valuation service providers include, but are not limited to, market prices 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. For certain equity securities, valuation service providers provide market quotations for completed transactions on the measurement date. 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 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 and free-standing derivatives, for which our valuation service providers or brokers do not provide fair value determinations, is developed using valuation methods and models widely accepted in the financial services industry. 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 or instruments, published credit spreads, and other applicable market data as well as instrument-specific characteristics that include, but are not limited to, coupon rates, expected cash flows, sector of the issuer, and call provisions. Because judgment is required in developing the fair values of these financial assets, they 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 most of our financial assets measured at fair value, all significant inputs are based on or corroborated by 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 or corroborated by 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.

We gain assurance that our financial assets are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, our processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. We perform procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, we may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers 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 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 model. As of December 31, 2019 and 2018, we did not adjust fair values provided by our valuation service providers or brokers or substitute them with an internal model for such securities.

Fixed income, equity securities and short-term investments by source of fair value determination

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">December 31, 2019</td></tr><tr><td>Fair value</td><td>Percent to total</td></tr><tr><td>Fair value based on internal sources</td><td>$ 2,611</td><td>3.7%</td></tr><tr><td>Fair value based on external sources (1)</td><td>68,851</td><td>96.3</td></tr><tr><td>Total</td><td>$ 71,462</td><td>100.0%</td></tr></table>

(1) Includes $373 million that are valued using broker quotes and $269 million that are valued using quoted prices or quoted net asset values from deal sponsors.

For additional detail on fair value measurements, see Note 6 of the consolidated financial statements.

Impairment of fixed income securities For fixed income securities classified as available-for-sale, the difference between fair value and amortized cost, net of certain other items and deferred income taxes (as disclosed in Note 5 of the consolidated financial statements), is reported as a component of AOCI 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 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, is 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 AOCI. 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.

Once assumptions and estimates are made, any number of changes in facts and circumstances could cause us to subsequently determine that a fixed income security is other-than-temporarily impaired, including: 1) general economic conditions that are worse than previously forecast 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 management's decision 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. 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 fixed income 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 and reserves for life-contingent contract benefits, would already be reflected as a component of AOCI in shareholders' equity.

The determination of the amount of other-than-temporary impairment is an inherently subjective process based on periodic evaluations 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 our 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 recognized and presented within the consolidated financial statements.

For additional detail on investment impairments, see Note 5 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 are related directly to the successful acquisition of new or renewal insurance policies and investment contracts are deferred and recorded as an asset on the Consolidated Statements of Financial Position.

DAC related to property and casualty contracts is amortized into income as premiums are earned, typically over periods of six or twelve months for personal lines policies or generally one to five years for protection plans and other contracts (primarily related to finance and insurance products).

DAC related to traditional life and voluntary accident and health 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 approximate 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 using actual experience and current assumptions. We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance products individually. In the event actual experience and current assumptions are 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 2019 and



2018, our reviews concluded that no premium deficiency adjustments were necessary. For additional detail on reserve adequacy, see the Reserve for life-contingent contract benefits estimation section.

DAC related to interest-sensitive life insurance 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. The rate of DAC amortization is reestimated and adjusted by a cumulative charge or credit to income 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 primarily consist 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 mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. 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. 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 the assumptions underlying the projections of EGP, including mortality, persistency, expenses, investment returns, comprising investment income and realized capital gains and losses, interest crediting rates and the effect of any hedges, using our experience and industry experience. 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 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.

Effect on DAC amortization of changes in assumptions relating to gross profit components

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td></td></tr><tr><td>Investment margin</td><td>$ 23</td><td>$ 10</td><td></td></tr><tr><td>Benefit margin</td><td>38</td><td>(11)</td><td></td></tr><tr><td>Expense margin</td><td>(1)</td><td>2</td><td></td></tr><tr><td>Net acceleration</td><td>$ 60</td><td>$ 1</td><td></td></tr></table>

In 2019, DAC amortization acceleration for changes in the investment margin component of EGP was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was due to decreased projected interest rates that result in lower projected policyholder account values which increases benefits on guaranteed products and more refined policy level information and assumptions.
In 2018, DAC amortization acceleration for changes in the investment margin component of EGP related to interest-sensitive life insurance and was due to lower projected investment returns. The deceleration related to benefit margin primarily related to interest-sensitive life insurance and was due to a decrease in projected mortality.



## Application of Critical Accounting Estimates and Other Disclosures

The following table displays the sensitivity of reasonably likely changes in assumptions included in the gross profit components of investment margin or

<table><tr><td>($ in millions)</td><td colspan="2">Increase/(reduction)</td></tr><tr><td>Increase in future investment margins of 25 basis points</td><td>$ 52</td><td></td></tr><tr><td>Decrease in future investment margins of 25 basis points</td><td>(57)</td><td></td></tr><tr><td>Decrease in future life mortality by 1%</td><td>$ 14</td><td></td></tr><tr><td>Increase in future life mortality by 1%</td><td>(14)</td><td></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 Life Segment section of the MD&A.

Evaluation of goodwill for impairment Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized. Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination. Our goodwill reporting units are equivalent to our reportable segments: Allstate Protection, Service Businesses, Allstate Life and Allstate Benefits to which goodwill has been assigned.

Upon acquisition, the purchase price of the acquired business is assumed to be its fair value. Subsequently, we estimate the fair value of our businesses in each goodwill reporting unit, utilizing a combination of widely accepted valuation techniques including a stock price and market capitalization analysis, discounted cash flow (“DCF”) calculations and an estimate of a business’s fair value using market to book multiples derived from peer company analysis. The stock price and market capitalization analysis takes into consideration the quoted market price of our outstanding common stock and includes a control premium, derived from relevant historical acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The DCF analysis utilizes long term assumptions for revenues, investment income, benefits, claims, other operating expenses and income taxes to produce projections of both income and cash flows available for dividends that are present valued using the weighted average cost of capital. Market to book multiples represent the mean market to book multiple for selected peer companies with operations similar to our goodwill reporting units to which the multiple is applied. The outputs from these methods are weighted based on the nature of the business and the relative amount of market observable assumptions supporting the estimates. The computed values are then weighted to reflect the fair value estimate based on the specific attributes of each goodwill reporting unit.

Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. Changes in market inputs or other events impacting the fair value of these businesses, including discount rates, operating results, investment returns, strategies and growth rate assumptions, among other factors, could result in goodwill impairments, resulting in a charge to income. Certain of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have substantial internally generated and unrecognized intangibles and fair values that significantly exceed their carrying values. Our Service Businesses goodwill reporting unit is more heavily comprised of newly acquired businesses and as a result does not have a significant excess of fair value over its carrying value attributable to internally generated unrecognized intangibles. Therefore, this reporting unit may be more susceptible to potential future goodwill impairment based on changes to growth or margin assumptions.

The most significant assumptions utilized in the determination of the estimated fair value of the Service Businesses reporting unit are the earnings growth rate and discount rate. The growth rate utilized in our fair value estimates is consistent with our plans to grow these businesses more rapidly over the near-term with more moderated growth rates in later years.

The discount rate, which is consistent with the weighted average cost of capital expected by a market participant, is based upon industry specific required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by changes in the risk-free rate, cost of debt, equity risk premium and entity specific risks.

Changes in our growth assumptions, including the risk of loss of key customers, or adverse changes in the discount rates could result in a decline in fair value and result in a goodwill impairment charge.

Reserve for property and casualty 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. Underwriting results are significantly influenced by estimates of property and casualty insurance claims and claims expense reserves. These reserves are an estimate of amounts necessary to settle all outstanding claims, including 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 personal 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 reserve estimates (reserve reestimates), which may be material, are determined by comparing updated estimates of ultimate losses to prior estimates, with the differences recorded as property and casualty 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.

See Discontinued and Lines and Coverages reserve estimates section for specific disclosures of industry and actuarial best practices for this segment.

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 multi-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 database 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. The development factor estimation methodology may require modification when data changes due to changing claim reporting practices, changing claim settlement patterns, external regulatory or financial influences, or contractual coverage changes. In these situations, actuarial estimation techniques are applied to appropriately modify the "chain ladder" assumptions. These actuarial techniques are necessary to analyze the effects of changing loss data to develop modified development factor selections. The actuarial estimation techniques include exclusion of unusual losses or aberrations and adjustment of historical data to present conditions. Actuarially modified patterns of development are calculated with the adjusted historical data. Actuarial judgment is then applied to make appropriate development factor assumptions needed to develop a best estimate of gross ultimate losses. These developments are discussed further in the Allstate brand loss ratio disclosures in the Allstate Protection Segment and the Claims and Claims Expense Reserves sections of the MD&A.

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 and periodically throughout the year 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. 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



## Application of Critical Accounting Estimates and Other Disclosures

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 restimated quarterly and periodically throughout the year, by combining historical results with current actual results to calculate new development factors. This process continuously 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 restimate and is recognized as an increase or decrease in claims and claims expense in the Consolidated Statements of Operations. Total net reserve restimates, after-tax, favorable impact on net income applicable to common shareholders were 2.2%, 10.0% and 9.5% in 2019, 2018 and 2017, respectively. The 3-year average of net reserve restimates as a percentage of total reserves was a favorable 2.1% for Allstate Protection, an unfavorable 6.9% for Discontinued Lines and Coverages and a favorable 1.1% for Service Businesses, each of these results being consistent within a reasonable actuarial tolerance for the respective businesses. A more detailed discussion of reserve restimates is presented in the Claims and Claims Expense Reserves section of the MD&A.

Net claims and claims expense reserves by segment and line of business

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">As of December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Allstate Protection</td><td></td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 14,728</td><td>$ 14,378</td><td>$ 14,051</td><td></td></tr><tr><td>Homeowners</td><td>2,138</td><td>2,157</td><td>2,205</td><td></td></tr><tr><td>Other lines</td><td>2,530</td><td>2,290</td><td>2,105</td><td></td></tr><tr><td>Total Allstate Protection</td><td>19,396</td><td>18,825</td><td>18,361</td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td></td><td></td><td></td><td></td></tr><tr><td>Asbestos</td><td>810</td><td>866</td><td>884</td><td></td></tr><tr><td>Environmental</td><td>179</td><td>170</td><td>166</td><td></td></tr><tr><td>Other discontinued lines</td><td>376</td><td>355</td><td>357</td><td></td></tr><tr><td>Total Discontinued Lines and Coverages</td><td>1,365</td><td>1,391</td><td>1,407</td><td></td></tr><tr><td>Total Service Businesses</td><td>39</td><td>52</td><td>86</td><td></td></tr><tr><td>Total net claims and claims expense reserves</td><td>$ 20,800</td><td>$ 20,268</td><td>$ 19,854</td><td></td></tr></table>

## Allstate Protection reserve estimate

Factors affecting reserve estimates Reserve estimates are developed based on the processes and historical development trends described above. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When we 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 reestimate 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 described above. 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 the processes described above and allocated to pending claims as a supplement to case reserves. Typically, the case, including statistical case, and supplemental development reserves comprise about 90% of total reserves.

Another major component of reserves is IBNR, which comprises about 10% of total reserves. IBNR can be a small percentage of reserves for relatively short-term claims, such as auto physical damage claims, or a large percentage of reserves for claims that have uncertain payout requirements over a long period of time, such as auto injury and MCCA claims. All major components of reserves are affected by changes in claim frequency as well as claim severity.

Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using processes described above. Changes in auto claim frequency may result from changes in mix of business, the rate of distracted driving, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy and the effectiveness and efficiency of our claim practices. 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 the auto maintenance, repair, parts and equipment price indices. 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, other economic and environmental factors and the effectiveness and efficiency of our claim practices. 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 catastrophe losses, requires regular reevaluation and refinement of estimates to determine our ultimate loss estimate.

At each reporting date, the highest degree of uncertainty in estimates for most of our losses from ongoing businesses arise 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 remaining at December 31 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 Catastrophe losses are an inherent risk of the property and casualty 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 a winter weather 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 and freezes, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.

The estimation of claims and claims expense reserves for catastrophe losses 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 above. However, depending on the nature of the catastrophe, 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. For example, to complete estimates for certain areas affected by catastrophes not yet inspected by our claims adjusting staff, or where we believed our historical loss development factors were not predictive, we rely on analysis of actual claim notices received compared to total PIF, as well as visual, governmental and third-party information, including aerial photos, using satellites, aircrafts and drones, 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 determines 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, 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 twelve 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 $800 million in net income applicable to common shareholders. A lower level of variability exists for auto injury losses, which comprise approximately 80% 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 personal lines losses, which comprise about 20% 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 Claims and Claims Expense Reserves section of the MD&A.

Reserves for Michigan and New Jersey unlimited personal injury protection Claims and claims expense reserves include reserves for Michigan mandatory unlimited personal injury protection coverage to insureds involved in qualifying motor vehicle accidents. The administration of this program is through the MCCA, a state-mandated, non-profit association of which all insurers actively writing automobile coverage in Michigan are members.

The process employed to estimate MCCA covered losses involves a number of activities including the comprehensive review and interpretation of MCCA actuarial reports, other MCCA members' reports and our personal injury protection loss trends which have increased in severity over time. A significant portion of incurred claim reserves can be attributed to a small number of catastrophic claims and thus a large portion of the recoverable is similarly concentrated. We conduct comprehensive claim file reviews to develop case reserve type estimates of specific claims, which inform our view of future claim development and longevity of claimants. Each year, we update the actuarial estimate of our ultimate reserves and recoverables. We report our paid and unpaid claims based on MCCA requirements. The MCCA develops its own reserving estimates based on its own reserve methodologies, which may not align with our estimations. The MCCA does not provide member companies with its estimate of a company's claim costs. We continue to update each comprehensive claim file case reserve estimate when there is a significant change in the status of the claimant, or once every three years if there have been no significant changes.

We provide similar personal injury protection coverage in New Jersey for auto policies issued or renewed in New Jersey prior to 1991 that is administered by PLIGA. We use similar actuarial estimating techniques as for the MCCA exposures to estimate loss reserves for unlimited personal injury protection coverage for policies covered by PLIGA. We continue to update our estimates for these claims as the status of claimant's changes. However, unlimited coverage was no longer offered after 1991; therefore, no new claimants are being added.

Reserve estimates are confidential and proprietary and by their nature are very complex to determine and subject to significant judgments. Reserve estimates do not represent an exact determination for each outstanding claim. Claims may be subject to litigation. As actual claims, paid losses and/or case reserve results emerge, our estimate of the ultimate cost to settle may be materially greater or less than previously estimated amounts.

For additional information related to indemnification recoverables, see Note 10 of the consolidated financial statements.

Adequacy of reserve estimates We believe our net claims and claims expense reserves are appropriately established based on available methodologies, facts, technology, laws and regulations. We calculate and record a single best reserve estimate, in conformance with generally accepted actuarial standards and practices, 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 Our exposure to asbestos, environmental and other discontinued lines claims arise 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 commercial 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. Asbestos claims relate primarily to bodily injuries asserted by claimants who were exposed to asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs. Other discontinued lines exposures primarily relate to general liability and product liability mass tort claims, such as those for medical devices and other products, workers' compensation claims and claims for various other coverage exposures other than asbestos and environmental.

In 1986, the general liability policy form used by us and others in the property and casualty 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 commercial 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 commercial 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 throughout the country.

How reserve estimates are established and updated We conduct an annual review in the third quarter to evaluate, establish and adjust as necessary, 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 are affected by 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.

## Reserves for other discontinued lines

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">As of December 31,</td></tr><tr><td>2019</td><td>2018</td><td></td></tr><tr><td>Other mass torts</td><td>$ 177</td><td>$ 148</td><td></td></tr><tr><td>Workers’ compensation</td><td>66</td><td>69</td><td></td></tr><tr><td>Commercial and other</td><td>133</td><td>138</td><td></td></tr><tr><td>Other discontinued lines</td><td>$ 376</td><td>$ 355</td><td></td></tr></table>

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 property and casualty 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
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, 2019 and 2018, IBNR was 49% and 50%, respectively, of combined net 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

Characteristics of other exposures Other mass torts includes direct excess commercial 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 commercial and reinsurance commercial insurance operations of various coverage exposures other than asbestos and environmental. Reserves are based on considerations similar to those described above, as they relate to the characteristics of specific individual coverage exposures.

<table><tr><td rowspan="2"></td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Other mass torts</td><td>$ 177</td><td>$ 148</td></tr><tr><td>Workers’ compensation</td><td>66</td><td>69</td></tr><tr><td>Commercial and other</td><td>133</td><td>138</td></tr><tr><td>Other discontinued lines</td><td>$ 376</td><td>$ 355</td></tr></table>

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 Claims and Claims Expense Reserves section of the MD&A.

Adequacy of reserve estimates Management believes its net loss reserves for asbestos, environmental 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 8 and 14 of the consolidated financial statements and the Claims and Claims Expense Reserves section of the MD&A.

Reserve for life-contingent contract benefits estimation Due to the long-term nature of traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance 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 effect on our operating results and financial condition.

We periodically review the adequacy of reserves and recoverability of DAC using actual experience and current assumptions. In the event actual experience and current assumptions are 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.

We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance individually. In 2019 and 2018, our reviews concluded that no premium deficiency adjustments were necessary. As of December 31, 2019, traditional life insurance and accident and health insurance both have a substantial sufficiency.

As of December 31, 2019, there is marginal sufficiency in the evaluation of immediate annuities with life contingencies which has been adversely impacted primarily by sub-standard structured settlement mortality expectations, where annuitants are living longer than originally anticipated, and the impact of interest rates, which are lower than originally anticipated and are expected to remain low for an extended period. The sufficiency represents approximately 3% of applicable reserves for Allstate Annuities as of December 31, 2019. Additional reserves may be required in future periods if mortality and interest rates continue to develop in a manner that results in a premium deficiency.

The following table displays the sensitivity of permanent changes in the future investment yield assumption included in the annuity premium deficiency evaluation to the sufficiency balance as of December 31, 2019.

<table><tr><td>($ in millions)</td><td>Increase/(reduction) in sufficiency</td><td>Change in sufficiency as a percentage of applicable reserves</td></tr><tr><td>Increase in future investment yields of 25 basis points</td><td>200</td><td>3%</td></tr><tr><td>Decrease in future investment yields of 25 basis points</td><td>(211)</td><td>(3)%</td></tr></table>



We also review these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years. In 2019 and 2018, our reviews concluded that there were no projected losses following projected profits in each long-term projection.

We will continue to monitor the experience of our traditional life insurance and immediate annuities. We periodically complete comprehensive mortality studies for our structured settlement annuities with life contingencies to determine whether annuitants are living for a longer period than originally estimated. We anticipate that investment and reinvestment yields, mortality, and policy terminations are the factors that would be most likely to require premium deficiency adjustments to reserves or related DAC. Mortality rates and investment and reinvestment yields are the factors that would be most likely to require a profits followed by losses liability accrual.

For further detail on the reserve for life-contingent contract benefits, see Note 9 of the consolidated financial statements.

Pension and other postretirement plans net costs and assumptions Our defined benefit pension plans cover most full-time employees, certain part-time employees and employee-agents. Benefits are based primarily on a cash balance formula; however, certain participants have a significant portion of their benefits attributable to a former final average pay formula. 88% of the projected benefit obligation (“PBO”) of our primary qualified employee plan is related to the former final average pay formula. See Note 17 of the consolidated financial statements for a discussion of these plans and their effect on the consolidated financial statements.

Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, health care cost trend rates, inflation, expected returns on plan assets, mortality and other factors. The assumptions utilized in recording the obligations under our pension plans represent our best estimates and we believe they are reasonable based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past trends.

Net costs for our defined benefit plans are recognized on the Consolidated Statements of Operations and consist of two elements: 1) costs comprised of service and interest costs, expected return of plan assets and amortization of prior service credit which are reported in property and casualty claims and claims expense, operating costs and expenses, net investment income and, if applicable, restructuring charges and 2) remeasurement gains and losses comprised of changes in actuarial assumptions and the difference between actual and expected returns on plan assets which are recognized immediately in earnings as part of pension and other postretirement remeasurement gains and losses.
We recognize expected returns on plan assets using an unadjusted fair value method. Our policy is to remeasure our pension and postretirement plans on a quarterly basis. We immediately recognize remeasurement of projected benefit obligation and plan assets in earnings as it provides greater transparency of our economic obligations in accounting results and better aligns the recognition of the effects of economic and interest rate changes on pension and other postretirement plan assets and liabilities in the year in which the gains and losses are incurred.

Differences in actual experience or changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses. The primary factors contributing to pension and postretirement remeasurement gains and losses are 1) changes in the discount rate used to value pension and postretirement obligations as of the measurement date, 2) differences between the expected and the actual return on plan assets, 3) changes in demographic assumptions, including mortality and participant experience.

Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to our reportable segments. The pension and other postretirement remeasurement gains and losses are reported in the Corporate and Other segment.

Impact of assumption changes to net cost for pension and other postretirement plans Due to changes in assumptions and the difference between actual and expected returns on plan assets as described below, we recognized pension and other postretirement remeasurement losses of $114 million in 2019 compared to $468 million in 2018.

The discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the assumed discount rate by utilizing the weighted average yield of a theoretical dedicated portfolio derived from non-callable bonds and bonds with a make-whole provision available in the Bloomberg 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. The weighted average discount rate used to measure the benefit obligation decreased to 3.31% in 2019 compared to 4.31% in 2018. Pension and other postretirement remeasurement losses due to declines in the weighted average discount rate were $633 million in 2019 compared to gains of $392 million in 2018.

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 immediately recognized through earnings upon remeasurement. Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. In 2019, the actual return on plan assets compared to our expected return was a gain of $832 million compared to a loss of $727 million in 2018. The improvement was primarily due to strong equity market performance and declines in interest rates which increased the fair value of our fixed income investments.

We complete periodic evaluations of demographic information and historical experience that affects our pension and other postretirement obligations to identify any required changes to long-term actuarial assumptions and methodologies. Demographic assumptions affect both our pension and postretirement plans and include elements such as retirement rates and participation rates in our postretirement programs, among other factors. These actuarial assumption updates affect our pension and other postretirement obligations and are incorporated into our best estimates of these assumptions. Actuarial assumption updates that affect our pension and other postretirement obligations resulted in remeasurement losses of $313 million in 2019 compared to losses of $133 million in 2018.

The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience. Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. An increase in the trend rate would increase our obligation and expense.

Sensitivity of assumption changes included in the calculation of net cost as of December 31, 2019

<table><tr><td>($ in millions)</td><td>Basis/percentage point change</td><td>Increase (decrease) to net cost</td></tr><tr><td>Pension plans discount rate</td><td>+100 basis points</td><td>$ (842)</td></tr><tr><td></td><td>-100 basis points</td><td>1,045</td></tr><tr><td>Expected long-term rate of return on assets</td><td>+100 basis points</td><td>(59)</td></tr><tr><td></td><td>-100 basis points</td><td>59</td></tr><tr><td>Postretirement plans assumed health care cost trend rate</td><td>+1%</td><td>27</td></tr><tr><td></td><td>-1%</td><td>(23)</td></tr></table>



## 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 14 of the consolidated financial statements.

## Pending Accounting Standards

There are several pending accounting standards that we have not implemented because 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="3">Years Ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Revenues</td><td></td><td></td><td></td></tr><tr><td>Property and casualty insurance premiums (net of reinsurance ceded and indemnification programs of $1,122, $1,016 and $971)</td><td>$ 36,076</td><td>$ 34,048</td><td>$ 32,300</td></tr><tr><td>Life premiums and contract charges (net of reinsurance ceded of $285, $290 and $303)</td><td>2,501</td><td>2,465</td><td>2,378</td></tr><tr><td>Other revenue</td><td>1,054</td><td>939</td><td>883</td></tr><tr><td>Net investment income</td><td>3,159</td><td>3,240</td><td>3,401</td></tr><tr><td>Realized capital gains and losses:</td><td></td><td></td><td></td></tr><tr><td>Total other-than-temporary impairment (“OTTI”) losses</td><td>(48)</td><td>(13)</td><td>(146)</td></tr><tr><td>OTTI losses reclassified to (from) other comprehensive income (“OCI”)</td><td>1</td><td>(1)</td><td>(4)</td></tr><tr><td>Net OTTI losses recognized in earnings</td><td>(47)</td><td>(14)</td><td>(150)</td></tr><tr><td>Sales and valuation changes on equity investments and derivatives</td><td>1,932</td><td>(863)</td><td>595</td></tr><tr><td>Total realized capital gains and losses</td><td>1,885</td><td>(877)</td><td>445</td></tr><tr><td>Total revenues</td><td>44,675</td><td>39,815</td><td>39,407</td></tr><tr><td>Costs and expenses</td><td></td><td></td><td></td></tr><tr><td>Property and casualty insurance claims and claims expense (net of reinsurance ceded and indemnification programs of $524, $1,378 and $1,807)</td><td>23,976</td><td>22,778</td><td>21,847</td></tr><tr><td>Life contract benefits (net of reinsurance ceded of $165, $240 and $179)</td><td>2,039</td><td>1,973</td><td>1,923</td></tr><tr><td>Interest credited to contractholder funds (net of reinsurance ceded of $20,$24 and $25)</td><td>640</td><td>654</td><td>690</td></tr><tr><td>Amortization of deferred policy acquisition costs</td><td>5,533</td><td>5,222</td><td>4,784</td></tr><tr><td>Operating costs and expenses</td><td>5,690</td><td>5,594</td><td>5,196</td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>114</td><td>468</td><td>(217)</td></tr><tr><td>Restructuring and related charges</td><td>41</td><td>67</td><td>96</td></tr><tr><td>Amortization of purchased intangibles</td><td>126</td><td>105</td><td>99</td></tr><tr><td>Impairment of goodwill and purchased intangibles</td><td>106</td><td>—</td><td>125</td></tr><tr><td>Interest expense</td><td>327</td><td>332</td><td>335</td></tr><tr><td>Total costs and expenses</td><td>38,592</td><td>37,193</td><td>34,878</td></tr><tr><td>Gain on disposition of operations</td><td>6</td><td>6</td><td>20</td></tr><tr><td>Income from operations before income tax expense</td><td>6,089</td><td>2,628</td><td>4,549</td></tr><tr><td>Income tax expense</td><td>1,242</td><td>468</td><td>995</td></tr><tr><td>Net income</td><td>4,847</td><td>2,160</td><td>3,554</td></tr><tr><td>Preferred stock dividends</td><td>169</td><td>148</td><td>116</td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,678</td><td>$ 2,012</td><td>$ 3,438</td></tr><tr><td>Earnings per common share:</td><td></td><td></td><td></td></tr><tr><td>Net income applicable to common shareholders per common share - Basic</td><td>$ 14.25</td><td>$ 5.78</td><td>$ 9.50</td></tr><tr><td>Weighted average common shares - Basic</td><td>328.2</td><td>347.8</td><td>362.0</td></tr><tr><td>Net income applicable to common shareholders per common share - Diluted</td><td>$ 14.03</td><td>$ 5.70</td><td>$ 9.35</td></tr><tr><td>Weighted average common shares - Diluted</td><td>333.5</td><td>353.2</td><td>367.8</td></tr></table>



## The Allstate Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Years Ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Net income</td><td>$ 4,847</td><td>$ 2,160</td><td>$ 3,554</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>1,889</td><td>(754)</td><td>319</td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(10)</td><td>(48)</td><td>45</td><td></td></tr><tr><td>Unamortized pension and other postretirement prior service credit</td><td>(47)</td><td>(59)</td><td>(52)</td><td></td></tr><tr><td>Other comprehensive income (loss), after-tax</td><td>1,832</td><td>(861)</td><td>312</td><td></td></tr><tr><td>Comprehensive income</td><td>$ 6,679</td><td>$ 1,299</td><td>$ 3,866</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>2019</td><td>2018</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 $56,293 and $57,134)</td><td>$ 59,044</td><td>$ 57,170</td></tr><tr><td>Equity securities, at fair value (cost $6,568 and $4,489)</td><td>8,162</td><td>5,036</td></tr><tr><td>Mortgage loans</td><td>4,817</td><td>4,670</td></tr><tr><td>Limited partnership interests</td><td>8,078</td><td>7,505</td></tr><tr><td>Short-term, at fair value (amortized cost $4,256 and $3,027)</td><td>4,256</td><td>3,027</td></tr><tr><td>Other</td><td>4,005</td><td>3,852</td></tr><tr><td>Total investments</td><td>88,362</td><td>81,260</td></tr><tr><td>Cash</td><td>338</td><td>499</td></tr><tr><td>Premium installment receivables, net</td><td>6,472</td><td>6,154</td></tr><tr><td>Deferred policy acquisition costs</td><td>4,699</td><td>4,784</td></tr><tr><td>Reinsurance and indemnification recoverables, net</td><td>9,211</td><td>9,565</td></tr><tr><td>Accrued investment income</td><td>600</td><td>600</td></tr><tr><td>Property and equipment, net</td><td>1,145</td><td>1,045</td></tr><tr><td>Goodwill</td><td>2,545</td><td>2,530</td></tr><tr><td>Other assets</td><td>3,534</td><td>3,007</td></tr><tr><td>Separate Accounts</td><td>3,044</td><td>2,805</td></tr><tr><td>Total assets</td><td>$ 119,950</td><td>$ 112,249</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Reserve for property and casualty insurance claims and claims expense</td><td>$ 27,712</td><td>$ 27,423</td></tr><tr><td>Reserve for life-contingent contract benefits</td><td>12,300</td><td>12,208</td></tr><tr><td>Contractholder funds</td><td>17,692</td><td>18,371</td></tr><tr><td>Unearned premiums</td><td>15,343</td><td>14,510</td></tr><tr><td>Claim payments outstanding</td><td>929</td><td>1,007</td></tr><tr><td>Deferred income taxes</td><td>1,154</td><td>425</td></tr><tr><td>Other liabilities and accrued expenses</td><td>9,147</td><td>7,737</td></tr><tr><td>Long-term debt</td><td>6,631</td><td>6,451</td></tr><tr><td>Separate Accounts</td><td>3,044</td><td>2,805</td></tr><tr><td>Total liabilities</td><td>93,952</td><td>90,937</td></tr><tr><td>Commitments and Contingent Liabilities (Note 7, 8 and 14)</td><td></td><td></td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td></tr><tr><td>Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 92.5 thousand and 79.8 thousand shares issued and outstanding, $2,313 and $1,995 aggregate liquidation preference</td><td>2,248</td><td>1,930</td></tr><tr><td>Common stock, $0.01 par value, 2.0 billion shares authorized and 900 million issued, 319 million and 332 million shares outstanding</td><td>9</td><td>9</td></tr><tr><td>Additional capital paid-in</td><td>3,463</td><td>3,310</td></tr><tr><td>Retained income</td><td>48,074</td><td>44,033</td></tr><tr><td>Deferred Employee Stock Ownership Plan (“ESOP”) expense</td><td>—</td><td>(3)</td></tr><tr><td>Treasury stock, at cost (581 million and 568 million shares)</td><td>(29,746)</td><td>(28,085)</td></tr><tr><td>Accumulated other comprehensive income:</td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses:</td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses on fixed income securities with OTTI</td><td>70</td><td>75</td></tr><tr><td>Other unrealized net capital gains and losses</td><td>2,094</td><td>(51)</td></tr><tr><td>Unrealized adjustment to DAC, DSI and insurance reserves</td><td>(277)</td><td>(26)</td></tr><tr><td>Total unrealized net capital gains and losses</td><td>1,887</td><td>(2)</td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(59)</td><td>(49)</td></tr><tr><td>Unamortized pension and other postretirement prior service credit</td><td>122</td><td>169</td></tr><tr><td>Total accumulated other comprehensive income (“AOCI”)</td><td>1,950</td><td>118</td></tr><tr><td>Total shareholders&#x27; equity</td><td>25,998</td><td>21,312</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$ 119,950</td><td>$ 112,249</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="3">Years Ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Preferred stock par value</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Preferred stock additional capital paid-in</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>1,930</td><td>1,746</td><td>1,746</td></tr><tr><td>Preferred stock issuance, net of issuance costs</td><td>1,414</td><td>557</td><td>—</td></tr><tr><td>Preferred stock redemption</td><td>(1,096)</td><td>(373)</td><td>—</td></tr><tr><td>Balance, end of year</td><td>2,248</td><td>1,930</td><td>1,746</td></tr><tr><td>Common stock par value</td><td>9</td><td>9</td><td>9</td></tr><tr><td>Common stock additional capital paid-in</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>3,310</td><td>3,313</td><td>3,303</td></tr><tr><td>Forward contract on accelerated share repurchase agreement</td><td>75</td><td>(105)</td><td>(45)</td></tr><tr><td>Equity incentive plans activity</td><td>78</td><td>102</td><td>55</td></tr><tr><td>Balance, end of year</td><td>3,463</td><td>3,310</td><td>3,313</td></tr><tr><td>Retained income</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>44,033</td><td>41,579</td><td>39,009</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>21</td><td>1,088</td><td>—</td></tr><tr><td>Net income</td><td>4,847</td><td>2,160</td><td>3,554</td></tr><tr><td>Dividends on common stock (declared per share of $2.00, $1.84 and $1.48)</td><td>(658)</td><td>(646)</td><td>(540)</td></tr><tr><td>Dividends on preferred stock</td><td>(169)</td><td>(148)</td><td>(116)</td></tr><tr><td>Reclassification of tax effects due to change in accounting principle</td><td>—</td><td>—</td><td>(328)</td></tr><tr><td>Balance, end of year</td><td>48,074</td><td>44,033</td><td>41,579</td></tr><tr><td>Deferred ESOP expense</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(3)</td><td>(3)</td><td>(6)</td></tr><tr><td>Payments</td><td>3</td><td>—</td><td>3</td></tr><tr><td>Balance, end of year</td><td>—</td><td>(3)</td><td>(3)</td></tr><tr><td>Treasury stock</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(28,085)</td><td>(25,982)</td><td>(24,741)</td></tr><tr><td>Shares acquired</td><td>(1,810)</td><td>(2,198)</td><td>(1,423)</td></tr><tr><td>Shares reissued under equity incentive plans, net</td><td>149</td><td>95</td><td>182</td></tr><tr><td>Balance, end of year</td><td>(29,746)</td><td>(28,085)</td><td>(25,982)</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>118</td><td>1,889</td><td>1,249</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>—</td><td>(910)</td><td>—</td></tr><tr><td>Change in unrealized net capital gains and losses</td><td>1,889</td><td>(754)</td><td>319</td></tr><tr><td>Change in unrealized foreign currency translation adjustments</td><td>(10)</td><td>(48)</td><td>45</td></tr><tr><td>Change in unamortized pension and other postretirement prior service credit</td><td>(47)</td><td>(59)</td><td>(52)</td></tr><tr><td>Reclassification of tax effects due to change in accounting principle</td><td>—</td><td>—</td><td>328</td></tr><tr><td>Balance, end of year</td><td>1,950</td><td>118</td><td>1,889</td></tr><tr><td>Total shareholders&#x27; equity</td><td>$ 25,998</td><td>$ 21,312</td><td>$ 22,551</td></tr></table>



## The Allstate Corporation and Subsidiaries
Consolidated Statements of Cash Flows

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">Years Ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</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</td><td>$ 4,847</td><td>$ 2,160</td><td>$ 3,554</td><td></td></tr><tr><td>Adjustments to reconcile net income 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>647</td><td>511</td><td>483</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>(1,885)</td><td>877</td><td>(445)</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>114</td><td>468</td><td>(217)</td><td></td></tr><tr><td>Gain on disposition of operations</td><td>(6)</td><td>(6)</td><td>(20)</td><td></td></tr><tr><td>Interest credited to contractholder funds</td><td>640</td><td>654</td><td>690</td><td></td></tr><tr><td>Impairment of goodwill and purchased intangibles</td><td>106</td><td>—</td><td>125</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>(508)</td><td>469</td><td>302</td><td></td></tr><tr><td>Unearned premiums</td><td>801</td><td>915</td><td>463</td><td></td></tr><tr><td>Deferred policy acquisition costs</td><td>(85)</td><td>(296)</td><td>(214)</td><td></td></tr><tr><td>Premium installment receivables, net</td><td>(299)</td><td>(396)</td><td>(131)</td><td></td></tr><tr><td>Reinsurance recoverables, net</td><td>320</td><td>(656)</td><td>(211)</td><td></td></tr><tr><td>Income taxes</td><td>487</td><td>(380)</td><td>(52)</td><td></td></tr><tr><td>Other operating assets and liabilities</td><td>(50)</td><td>855</td><td>(13)</td><td></td></tr><tr><td>Net cash provided by operating activities</td><td>5,129</td><td>5,175</td><td>4,314</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>29,849</td><td>33,183</td><td>25,341</td><td></td></tr><tr><td>Equity securities</td><td>5,277</td><td>6,859</td><td>6,504</td><td></td></tr><tr><td>Limited partnership interests</td><td>756</td><td>764</td><td>1,125</td><td></td></tr><tr><td>Other investments</td><td>303</td><td>533</td><td>274</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>2,570</td><td>3,466</td><td>4,194</td><td></td></tr><tr><td>Mortgage loans</td><td>695</td><td>529</td><td>600</td><td></td></tr><tr><td>Other investments</td><td>254</td><td>488</td><td>642</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>(31,317)</td><td>(36,960)</td><td>(31,145)</td><td></td></tr><tr><td>Equity securities</td><td>(7,176)</td><td>(5,936)</td><td>(6,585)</td><td></td></tr><tr><td>Limited partnership interests</td><td>(1,332)</td><td>(1,679)</td><td>(1,440)</td><td></td></tr><tr><td>Mortgage loans</td><td>(844)</td><td>(664)</td><td>(646)</td><td></td></tr><tr><td>Other investments</td><td>(666)</td><td>(864)</td><td>(999)</td><td></td></tr><tr><td>Change in short-term investments, net</td><td>(767)</td><td>(505)</td><td>2,610</td><td></td></tr><tr><td>Change in other investments, net</td><td>42</td><td>(98)</td><td>(30)</td><td></td></tr><tr><td>Purchases of property and equipment, net</td><td>(433)</td><td>(277)</td><td>(299)</td><td></td></tr><tr><td>Acquisition of operations</td><td>(18)</td><td>(558)</td><td>(1,356)</td><td></td></tr><tr><td>Net cash used in investing activities</td><td>(2,807)</td><td>(1,719)</td><td>(1,210)</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>491</td><td>498</td><td>—</td><td></td></tr><tr><td>Redemption and repayment of long-term debt</td><td>(317)</td><td>(400)</td><td>—</td><td></td></tr><tr><td>Proceeds from issuance of preferred stock</td><td>1,414</td><td>557</td><td>—</td><td></td></tr><tr><td>Redemption of preferred stock</td><td>(1,132)</td><td>(385)</td><td>—</td><td></td></tr><tr><td>Contractholder fund deposits</td><td>996</td><td>1,010</td><td>1,025</td><td></td></tr><tr><td>Contractholder fund withdrawals</td><td>(1,662)</td><td>(1,967)</td><td>(1,890)</td><td></td></tr><tr><td>Dividends paid on common stock</td><td>(653)</td><td>(614)</td><td>(525)</td><td></td></tr><tr><td>Dividends paid on preferred stock</td><td>(134)</td><td>(134)</td><td>(116)</td><td></td></tr><tr><td>Treasury stock purchases</td><td>(1,735)</td><td>(2,303)</td><td>(1,495)</td><td></td></tr><tr><td>Shares reissued under equity incentive plans, net</td><td>120</td><td>73</td><td>135</td><td></td></tr><tr><td>Other</td><td>129</td><td>91</td><td>(57)</td><td></td></tr><tr><td>Net cash used in financing activities</td><td>(2,483)</td><td>(3,574)</td><td>(2,923)</td><td></td></tr><tr><td>Net (decrease) increase in cash</td><td>(161)</td><td>(118)</td><td>181</td><td></td></tr><tr><td>Cash at beginning of year</td><td>499</td><td>617</td><td>436</td><td></td></tr><tr><td>Cash at end of year</td><td>$ 338</td><td>$ 499</td><td>$ 617</td><td></td></tr></table>



# Notes to Consolidated Financial Statements

## Note 1 General

## Basis of presentation

The accompanying consolidated financial statements include the accounts of The Allstate Corporation (the “Corporation”) and its wholly owned subsidiaries, primarily Allstate Insurance Company (“AIC”), a property and casualty insurance company with various property and casualty 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.

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.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) became effective, permanently reducing the U.S. corporate income tax rate from 35% to 21% beginning January 1, 2018. As a result, the corporate tax rate is not comparable between periods.

## Nature of operations

Allstate is engaged, principally in the United States, in the property and casualty insurance and life insurance businesses. Allstate is one of the country’s largest personal property and casualty insurers and is organized into seven reportable segments: Allstate Protection, Discontinued Lines and Coverages, Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other.

Allstate’s primary business is the sale of private passenger auto and homeowners insurance. The Company also offers several other personal property and casualty insurance products, select commercial property and casualty coverages, consumer product protection plans, device and mobile data collection services and analytic solutions using automotive telematics information, roadside assistance, finance and insurance products, life insurance, voluntary accident and health insurance and identity protection. Allstate primarily distributes its products through exclusive agencies, financial specialists, independent agencies and brokers, major retailers, contact centers and the internet.

## Risks and uncertainties

Allstate has exposure to catastrophic events, including wind and hail, wildfires, tornadoes, hurricanes, tropical storms, earthquakes, volcanic eruptions, terrorism and industrial accidents.

Catastrophes, an inherent risk of the property and casualty insurance business, 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 8). The nature and level of catastrophic loss experienced in any period cannot be predicted and could be material to results of operations and financial position.

The Company considers the following categories and locations to be the greatest areas of potential catastrophe losses:

• Wildfires — California, Colorado, Arizona and Texas

- Hurricanes — Major metropolitan centers in counties along the eastern and gulf coasts of the United States

• Wind/Hail, Rain and Tornado — Texas, Illinois, Colorado and Georgia

- Earthquakes and fires following earthquakes — Major metropolitan areas near fault lines in the states of California, Oregon, Washington, South Carolina, Missouri, Kentucky and Tennessee



## Investments

Fixed income securities include bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”). MBS includes residential and commercial mortgage-backed securities that were previously disclosed separately. 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 and related life and annuity deferred policy acquisition costs (“DAC”), deferred sales inducement costs (“DSI”) and reserves for life-contingent contract benefits, is reflected as a component of AOCI. Cash received from calls 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 and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Certain exchange traded and mutual funds have fixed income securities as their underlying investments. Equity securities are carried at fair value. Equity securities without readily determinable or estimable fair values are measured using the measurement alternative, which is cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Due to the adoption of a new accounting standard for the recognition and measurement of financial assets and financial liabilities, the periodic change in fair value of equity securities is recognized within realized capital gains and losses on the Consolidated Statements of Operations effective January 1, 2018. As a result, 2017 net investment income and net realized capital gains and losses are not comparable to other periods presented.

Mortgage loans are carried at unpaid 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.

Investments in limited partnership interests are primarily accounted for in accordance with the equity method of accounting (“EMA”) and include interests in private equity funds, real estate funds and other funds. Investments in limited partnership interests purchased prior to January 1, 2018, where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies, are accounted for at fair value primarily utilizing the net asset value (“NAV”) as a practical expedient to determine fair value.

Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. Other investments primarily consist of bank loans, policy loans, real estate, agent loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Agent loans are loans issued to exclusive Allstate agents and are carried at unpaid principal balances, net of valuation allowances. Derivatives are carried at fair value.

Investment income primarily consists of interest, dividends, income from limited partnership interests, rental income from real estate, 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 ABS and MBS is determined considering estimated pay-downs, including prepayments, 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 ABS and MBS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is recalculated on a prospective basis. 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, bank loans and agent 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 limited partnership interests carried at fair value is recognized based upon the changes in fair value of the investee's equity primarily determined using NAV. Income from EMA limited partnership interests is recognized based on the Company's share of the partnerships' earnings. Income from EMA limited partnership interests is generally recognized on a three month delay due to the availability of the related financial statements from investees.

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 and agent loans, valuation changes of equity investments, including equity securities and certain limited partnerships where the underlying assets are predominantly public equity securities, and periodic changes in fair value and settlements of certain derivatives, including hedge ineffectiveness. Realized capital gains and losses on investment sales are determined on a specific identification basis.

## Derivative and embedded derivative financial instruments

Derivative financial instruments include interest rate swaps, credit default swaps, futures (interest rate and equity), options (including swaptions), interest rate caps, warrants and rights, foreign currency swaps,



## Notes to Consolidated Financial Statements

foreign currency forwards, total return swaps and certain investment risk transfer reinsurance agreements. Derivatives required to be separated from the host instrument and accounted for as derivative financial instruments (“subject to bifurcation”) are embedded in equity-indexed life and annuity contracts and reinsured variable annuity contracts.

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 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 subject to 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.

Fair value hedges The change in fair value of hedging instruments used in fair value hedges of investment assets or a portion thereof is reported in net investment income, together with the change in 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 fair value of the hedged items. Accrued periodic settlements on swaps are reported together with the changes in fair value of the related 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 a designated hedged liability is adjusted for the change in 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 are reported in AOCI. Amounts are reclassified to net investment income, realized capital gains and losses or interest expense as the hedged or forecasted transaction affects income. Accrued periodic settlements on derivatives used in cash flow hedges are reported in net investment income. The amount reported in AOCI for a hedged transaction is the cumulative gain or loss on the derivative instrument from inception of the hedge less gains or losses previously reclassified from AOCI into income. If the Company expects at any time that the loss reported in AOCI 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 AOCI 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 previously recognized in income while the hedge was in place and used to adjust the amortized cost of hedged fixed income securities, carrying value of hedged mortgage loans or carrying value of a 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 that 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 AOCI to income as the hedged risk impacts income. If the derivative



instrument is not terminated when a cash flow hedge is no longer effective, 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 AOCI to realized capital gains and losses in the period that hedge accounting is no longer applied.

Non-hedge derivative financial instruments For derivatives for which hedge accounting is not applied, the income statement effects, including fair value gains and losses and accrued periodic settlements, are reported 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 can be 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 repossess the securities loaned on short notice.

## Recognition of premium revenues and contract charges, and related benefits and interest credited

Property and casualty insurance premiums include premiums from personal lines policies, protection plans, other contracts (primarily finance and insurance products) and roadside assistance.

Personal lines insurance premiums are deferred and earned on a pro-rata basis over the terms of the policies, typically periods of six or twelve months.

Revenues related to protection plans, other contracts (primarily finance and insurance products) and roadside assistance are deferred and earned over the term of the contract in a manner that recognizes revenue as obligations under the contracts are performed. Revenues from these products are classified as premiums as the products are backed by insurance. Protection plans and finance and insurance premiums are recognized using a cost-based incurrence method over the term of the contracts, which is generally over one to five years. Roadside assistance premiums are recognized evenly over the term of the contract as performance obligations are fulfilled.

The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums. As of December 31, 2019, unearned premiums were $12.57 billion and $2.76 billion for Allstate Protection and Service Businesses, respectively. 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 $90 million and $77 million as of December 31, 2019 and 2018, respectively.

Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Voluntary accident and health insurance products are expected to remain in force for an extended period and therefore are primarily classified as long-duration contracts. Premiums from these products are recognized as revenue when due from policyholders. Benefits are reflected in contract benefits and recognized over the life of the policy in relation to premiums.

Immediate annuities with life contingencies, including certain structured settlement annuities, provide benefits 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 are recognized in relation to premiums with the establishment of a reserve. The change in reserve over time is recorded in contract benefits and primarily relates to accumulation at the discount rate and annuitant mortality. Profits from these policies come primarily 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. 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



## Notes to Consolidated Financial Statements

contingencies, 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 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 life and annuities are generally based on a specified interest rate index or an equity index, such as the Standard & Poor's 500 Index ("S&P 500"). 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.

## Other revenue

Other revenue represents fees collected from policyholders relating to premium installment payments, commissions on sales of non-proprietary products, sales of identity protection services, fee-based services and other revenue transactions. Other revenue is recognized when performance obligations are fulfilled.

## Deferred policy acquisition and sales inducement costs

Costs that are related directly to the successful acquisition of new or renewal insurance policies and investment contracts are deferred and recorded as DAC. These costs are principally agency's and brokers' remuneration, premium taxes and certain underwriting expenses. DSI costs, which are deferred and recorded as other assets, relate to sales inducements offered on sales to new customers, principally on fixed 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. DSI is amortized into income using the same methodology and assumptions as DAC and is included in interest credited to contractholder funds. All other acquisition costs are expensed as incurred and included in operating costs and expenses.
For property and casualty insurance, DAC is amortized into income as premiums are earned, typically over periods of six or twelve months for personal lines policies or generally one to five years for protection plans and other contracts (primarily related to finance and insurance products), and is included in amortization of deferred policy acquisition costs. DAC associated with property and casualty insurance is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC.

For traditional life and voluntary accident and health 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. The Company periodically reviews the recoverability of DAC using actual experience and current assumptions. Prior to fourth quarter 2017, the Company evaluated traditional life insurance products and immediate annuities with life contingencies on an aggregate basis. In conjunction with the segment changes that occurred in the fourth quarter of 2017, traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance products are reviewed individually. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency.

For interest-sensitive life insurance, 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. The rate of DAC and DSI amortization is reestimated and adjusted by a cumulative charge or credit to income 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 primarily consist 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 mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. 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 and fixed annuity contracts using current assumptions. If a change in the amount of EGP is significant, it could result in the unamortized DAC or 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 AOCI. DAC, DSI and deferred income taxes determined on unrealized capital gains and losses and reported in AOCI 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 and casualty 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 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 and casualty 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 $39 million and $45 million as of December 31, 2019 and 2018, respectively. Amortization expense of the present value of future profits was $6 million, $2 million and $6 million in 2019, 2018 and 2017, respectively.

## Reinsurance and Indemnification

Reinsurance In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. The Company has also used reinsurance to effect the disposition of certain blocks of business. 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.

Indemnification The Company also participates in various indemnification mechanisms, including industry pools and facilities, which are backed by the financial resources of the property and casualty insurance company market participants. Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation.

The amounts reported as reinsurance and indemnification recoverables include amounts billed to reinsurers and indemnitors on losses paid as well as estimates of amounts expected to be recovered from reinsurers and indemnitors on insurance liabilities and contractholder funds that have not yet been paid. Reinsurance and indemnification recoverables on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying contracts. Insurance liabilities are reported gross of reinsurance and indemnification recoverables. Reinsurance and



## Notes to Consolidated Financial Statements

indemnification premiums are generally reflected in income in a manner consistent with the recognition of premiums on the associated contracts. For catastrophe coverage, the cost of reinsurance premiums is recognized ratably over the contract period to the extent coverage remains available.

Reinsurance and indemnification recoverables are recognized as an offset to gross reserves for property and casualty insurance claims and claims expense.

## Goodwill

Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized. The Company’s goodwill reporting units are equivalent to its reportable segments, Allstate Protection, Service Businesses, Allstate Life and Allstate Benefits to which goodwill has been assigned.

Goodwill by reporting unit

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Allstate Protection</td><td>$ 810</td><td>$ 810</td></tr><tr><td>Service Businesses</td><td>1,464</td><td>1,449</td></tr><tr><td>Allstate Life</td><td>175</td><td>175</td></tr><tr><td>Allstate Benefits</td><td>96</td><td>96</td></tr><tr><td>Total</td><td>$ 2,545</td><td>$ 2,530</td></tr></table>

Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination. Goodwill is not amortized but is tested for impairment at least annually. The Company performs its annual goodwill impairment testing during the fourth quarter of each year based upon data as of the close of the third quarter. Goodwill impairment is measured and recognized as the amount by which a reporting unit's carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill allocated to the reporting unit. The Company also reviews goodwill for impairment whenever events or changes in circumstances, such as deteriorating or adverse market conditions, indicate that it is more likely than not that the carrying amount of the reporting unit including goodwill may exceed the fair value of the reporting unit. The goodwill impairment analysis is performed at the reporting unit level.

In fourth quarter 2017, the Company adopted new reportable segments, which required the Company to evaluate goodwill, including the allocation of goodwill to any new reporting units on a relative fair value basis. The reallocation was computed using fair values for the goodwill reporting units determined using discounted cash flow (“DCF”) calculations and market to book multiples derived from a peer company analysis. In conjunction with the reallocation of goodwill, the Company recognized $125 million of goodwill impairment related to the goodwill allocated to the Allstate Annuities reporting unit reflecting a market-based valuation. As of December 31, 2019 and 2018, the fair value of the Company’s reporting units exceeded their carrying values.

## Intangible assets

Intangible assets (reported in other assets) consist of capitalized costs primarily related to acquired customer relationships, trade names and licenses, technology and other assets. The estimated useful lives of customer relationships, technology and other intangible assets are generally 10 years, 5 years and 7 years, respectively. Intangible assets are carried at cost less accumulated amortization. Amortization expense is calculated using an accelerated amortization method. Amortization expense on intangible assets was $126 million, $105 million and $99 million in 2019, 2018 and 2017, respectively.

Amortization expense of intangible assets for the next five years and thereafter

<table><tr><td colspan="3">(\( in millions)</td></tr><tr><td>2020</td><td>$</td><td>109</td></tr><tr><td>2021</td><td></td><td>91</td></tr><tr><td>2022</td><td></td><td>74</td></tr><tr><td>2023</td><td></td><td>60</td></tr><tr><td>2024</td><td></td><td>45</td></tr><tr><td>Thereafter</td><td></td><td>64</td></tr><tr><td>Total amortization</td><td>$</td><td>443</td></tr></table>

Accumulated amortization on intangible assets was $633 million and $572 million as of December 31, 2019 and 2018, respectively. Trade names and licenses are considered to have an indefinite useful life and are reviewed for impairment at least annually or more frequent if circumstances arise that indicate an impairment may have occurred. An impairment is recognized if the carrying amount of the asset exceeds its estimated fair value.

Intangible assets by type

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Customers relationships</td><td>$ 419</td><td>$ 530</td></tr><tr><td>Trade names and licenses</td><td>38</td><td>143</td></tr><tr><td>Technology and other</td><td>24</td><td>40</td></tr><tr><td>Total</td><td>$ 481</td><td>$ 713</td></tr></table>

During second quarter 2019, the Company made the decision to phase-out the use of the SquareTrade trade name in the United States and sell consumer protection plans under the Allstate Protection Plans name. The SquareTrade trade name will continue to be used outside of the United States. The change required an impairment evaluation of the indefinite-lived intangible asset recognized in the Service Businesses segment for SquareTrade’s trade name recorded when SquareTrade was acquired in 2017.

During fourth quarter 2019, the Company made the decision to integrate Assurance into the Allstate brand as part of the Transformative Growth Plan. This required an impairment evaluation of the indefinite-lived intangible asset recognized in the Allstate Protection segment for the Assurance trade name recorded when Assurance was acquired in 2011.



As a result of these actions, the Company recognized total impairment charges of $106 million pre-tax during 2019.

## 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. 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 $2.60 billion and $2.41 billion as of December 31, 2019 and 2018, respectively. Depreciation expense on property and equipment was $326 million, $299 million and $290 million in 2019, 2018 and 2017, 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

Income taxes are accounted for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are DAC, unearned premiums, investments (including unrealized capital gains and losses) and insurance reserves. A deferred tax asset valuation allowance is established when it is more likely than not such assets will not be realized. The Company recognizes interest expense related to income tax matters in income tax expense and penalties in other expense.

## Reserve for property and casualty insurance claims and claims expense

The reserve for property and casualty insurance claims and claims expense is the estimate of amounts necessary to settle all reported and unreported incurred claims for the ultimate cost of insured property and casualty 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 catastrophe losses, is an inherently uncertain and complex process. Reserve estimates are primarily derived using an actuarial 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 or report year to create an estimate of how losses are likely to develop over time. Development factors are calculated quarterly and periodically throughout the year for data elements such as claims reported and settled, paid losses, and paid losses combined with case reserves. The historical development patterns for these data elements are used as the assumptions to calculate reserve estimates, including the reserves for reported and unreported claims. Reserve estimates are regularly reviewed and updated, using the most current information available. Any resulting reestimates are reflected in current results of operations.

## Reserve for life-contingent contract benefits

The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses. 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. The assumptions are established at the time the policy is issued and are generally not changed during the life of the policy. The Company periodically reviews the adequacy of reserves using actual experience and current assumptions. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency. In 2019 and 2018, the Company's reviews concluded that no premium deficiency adjustments were necessary. Prior to fourth quarter 2017, the Company evaluated traditional life insurance products and immediate annuities with life contingencies on an aggregate basis. In conjunction with the Company's segment changes that occurred in the fourth quarter of 2017, traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance are reviewed individually. The Company also reviews these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years. If this circumstance exists, the Company will accrue a liability, during the period of profits, to offset the losses at such time as the future losses are expected to commence using a method updated prospectively over time. 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 AOCI.

## Contractholder funds

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Contractholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for



## Notes to Consolidated Financial Statements

mortality or administrative expenses. 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.

## Pension and other postretirement remeasurement gains and losses

Pension and other postretirement gains and losses represent the remeasurement of projected benefit obligation and plan assets, which are immediately recognized in earnings and are referred to as pension and other postretirement remeasurement gains and losses on the Consolidated Statements of Operations. The Company’s policy is to remeasure its pension and postretirement plans on a quarterly basis.

Differences between expected and actual returns and changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses.

The primary factors contributing to pension and postretirement remeasurement gains and losses are:

• Changes in the discount rate used to value pension and postretirement obligations as of the measurement date

• Differences between the expected and the actual return on plan assets

• Changes in demographic assumptions, including mortality and participant experience

Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to the Company’s reportable segments. The pension and other postretirement remeasurement gains and losses are reported in the Corporate and Other segment.

## 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 accounts 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.

## Legal contingencies

The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis. The Company establishes accruals for such matters at management’s best estimate when the Company assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company’s assessment of whether a loss is reasonably possible or probable is based on its assessment of the ultimate outcome of the matter following all appeals. The Company does not include potential recoveries in its estimates of reasonably possible or probable losses. Legal fees are expensed as incurred.

## Long-term debt

Long-term debt includes senior notes, senior debentures, subordinated debentures and junior subordinated debentures issued by the Corporation. Unamortized debt issuance costs are reported in long-term debt and are amortized over the expected period the debt will remain outstanding.

## Equity incentive plans

The Company has equity incentive plans under which the Company grants nonqualified stock options, restricted stock units and performance stock awards (“equity awards”) to certain employees and directors of the Company. The Company measures the fair value of equity awards at the award date and recognizes the expense over the shorter of the period in which the requisite service is rendered or retirement eligibility is attained. The expense for performance stock awards is adjusted each period to reflect the performance factor most likely to be achieved at the end of the performance period. The Company uses a binomial lattice model to determine the fair value of employee stock options.

## Leases

The Company has certain operating leases for office facilities, computer and office equipment, and vehicles. The Company’s leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the leases within 60 days.

The Company determines if an arrangement is a lease at inception. Leases with an initial term less than one year are not recorded on the balance sheet and the lease costs for these leases are recorded as an expense on a straight-line basis over the lease term. Operating leases with terms greater than one year result in a lease liability recorded in other liabilities with a corresponding right-of-use (“ROU”) asset recorded in other assets. As of December 31, 2019, the Company had $586 million in lease liabilities and $483 million in ROU assets.

Operating lease liabilities are recognized at the commencement date based on the present value of future minimum lease payments over the lease term. ROU assets are recognized based on the corresponding lease liabilities adjusted for qualifying initial direct costs, prepaid or accrued lease payments and unamortized lease incentives. As most of the Company’s leases do not disclose the implicit interest rate, the Company uses collateralized incremental borrowing rates based on information available at



lease commencement when determining the present value of future lease payments. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease. Lease terms may include options to extend or terminate the lease which are incorporated into the Company's measurements when it is reasonably certain that the Company will exercise the option.

Operating lease costs are recognized on a straight-line basis over the lease term and include interest expense on the lease liability and amortization of the ROU asset. Variable lease costs are expensed as incurred and include maintenance costs and real estate taxes. Lease costs are reported in operating costs and expenses and totaled $171 million, including $30 million of variable lease costs in 2019.

<table><tr><td colspan="2">Other information related to operating leases</td></tr><tr><td></td><td>As of December 31, 2019</td></tr><tr><td>Weighted average remaining lease term (years)</td><td>6</td></tr><tr><td>Weighted average discount rate</td><td>3.15%</td></tr></table>

<table><tr><td colspan="2">Maturity of lease liabilities</td></tr><tr><td>($ in millions)</td><td>Operating leases</td></tr><tr><td>2020</td><td>$ 133</td></tr><tr><td>2021</td><td>121</td></tr><tr><td>2022</td><td>102</td></tr><tr><td>2023</td><td>84</td></tr><tr><td>2024</td><td>67</td></tr><tr><td>Thereafter</td><td>137</td></tr><tr><td>Total lease payments</td><td>$ 644</td></tr><tr><td>Less: interest</td><td>(58)</td></tr><tr><td>Present value of lease liabilities</td><td>$ 586</td></tr></table>

## 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 Notes 7 and 14).

## Consolidation of variable interest entities (“VIEs”)

The Company consolidates VIEs when it is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE 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.

## 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 AOCI. Changes in unrealized foreign currency translation adjustments are included in OCI. Gains and losses from foreign currency transactions are reported in operating costs and expenses and have not been material.



## Earnings per common share

Basic earnings per common share is computed using the weighted average number of common shares outstanding, including vested unissued participating restricted stock units. Diluted earnings per common 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 and contingently issuable performance stock awards. The effect of dilutive potential common shares does not include options with an anti-dilutive effect on earnings per common 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.

<table><tr><td colspan="5">Computation of basic and diluted earnings per common share</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions, except per share data)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Numerator:</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 4,847</td><td>$ 2,160</td><td>$ 3,554</td><td></td></tr><tr><td>Less: Preferred stock dividends</td><td>169</td><td>148</td><td>116</td><td></td></tr><tr><td>Net income applicable to common shareholders (1)</td><td>$ 4,678</td><td>$ 2,012</td><td>$ 3,438</td><td></td></tr><tr><td>Denominator:</td><td></td><td></td><td></td><td></td></tr><tr><td>Weighted average common shares outstanding</td><td>328.2</td><td>347.8</td><td>362.0</td><td></td></tr><tr><td>Effect of dilutive potential common shares:</td><td></td><td></td><td></td><td></td></tr><tr><td>Stock options</td><td>3.2</td><td>3.6</td><td>4.3</td><td></td></tr><tr><td>Restricted stock units (non-participating) and performance stock awards</td><td>2.1</td><td>1.8</td><td>1.5</td><td></td></tr><tr><td>Weighted average common and dilutive potential common shares outstanding</td><td>333.5</td><td>353.2</td><td>367.8</td><td></td></tr><tr><td>Earnings per common share - Basic</td><td>$ 14.25</td><td>$ 5.78</td><td>$ 9.50</td><td></td></tr><tr><td>Earnings per common share - Diluted</td><td>$ 14.03</td><td>$ 5.70</td><td>$ 9.35</td><td></td></tr><tr><td>Anti-dilutive options excluded from diluted earnings per common share</td><td>3.7</td><td>2.0</td><td>1.5</td><td></td></tr></table>

## Adopted accounting standards

Accounting for Leases Effective January 1, 2019 the Company adopted new Financial Accounting Standards Board (“FASB”) guidance related to accounting for leases. Upon adoption of the guidance under the optional transition method that allows application of the transition provisions at the adoption date instead of the earliest period presented, the Company recorded a $585 million lease liability equal to the present value of lease payments and a $488 million ROU asset, which is the corresponding lease liability adjusted for qualifying accrued lease payments. The lease liability and ROU asset were reported as part of other liabilities and other assets on the Consolidated Statements of Financial Position. The impact of these changes at adoption had no impact on net income or shareholders’ equity. Prior periods were not restated under the new standard. The Company utilized the package of practical expedients permitted under the transition guidance which, among other things, did not require reassessment of existing contracts for the existence of a lease or reassessment of existing lease classifications.

Upon adoption, the new guidance required sellers in a sale-leaseback transaction to recognize the entire gain from the sale of an underlying asset at the time the sale is recognized rather than over the leaseback term. The carrying value of unrecognized gains on sale-leaseback transactions executed prior to January 1, 2019 was $21 million, after-tax, and was recorded as an increase to retained income at the date of adoption. Accounting for Hedging Activities Effective January 1, 2019 the Company adopted new FASB guidance intended to better align hedge accounting with an organization’s risk management activities. The new guidance expands hedge accounting to nonfinancial and financial risk components and revises the measurement methodologies. Separate presentation of hedge ineffectiveness is eliminated with the intention to provide greater transparency to the full impact of hedging by requiring presentation of the results of the hedged item and hedging instrument in a single financial statement line item. In addition, the amendments were designed to reduce complexity by simplifying hedge effectiveness testing. The adoption had no impact on the Company’s results of operations or financial position.

## Pending accounting standards

## Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance which revises the credit loss recognition criteria for certain financial assets measured at amortized cost, including reinsurance recoverables. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for a reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance that when deducted from the amortized cost basis of the related financial assets results in a net carrying value at the amount expected to be collected. The reporting



entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The guidance is effective for reporting periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income.

The Company’s implementation activities, which are being finalized, include review and validation of models, methodologies, data inputs and assumptions to be used to estimate expected credit losses. The implementation impacts relate primarily to the Company’s commercial mortgage loans, bank loans and reinsurance recoverables and are dependent on economic conditions and judgments at the date of adoption. Based on the economic conditions at the date of adoption and the balances at the reporting date, the Company estimates the application of the current expected credit loss requirements will result in total valuation allowances for credit losses of approximately $300 million, as of the date of adoption. After consideration of existing valuation allowances maintained prior to adoption of the new guidance, the Company expects to recognize a cumulative-effect decrease in retained income of approximately $100 million, after-tax, to adjust existing valuation allowances to the basis in the new requirements.

## Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued amendments to modify certain disclosure requirements for defined benefit plans. Disclosure additions relate to the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation during the reporting period. Disclosures to be removed include those that identify amounts that are expected to be reclassified out of AOCI and into the income statement in the coming year and the anticipated impact of a one-percentage point change in assumed health care cost trend rate on service and interest cost and on the accumulated benefit obligation. The amendments are effective for annual reporting periods beginning after December 15, 2020. The impacts of adoption are to the Company’s disclosures only.

## Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued guidance revising the accounting for certain long-duration insurance contracts. The new guidance introduces material changes to the measurement of the Company’s reserves for traditional life, life-contingent immediate annuities and certain voluntary accident and health insurance products.

Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy terminations, will be required to be reviewed and updated at least annually. The effect of updating measurement assumptions other than the discount rate are required to be measured on a retrospective basis and reported in net income. In addition, reserves under the new guidance are required to be discounted using an upper medium grade fixed income instrument yield required to be updated through OCI at each reporting date. Current GAAP requires reserves to utilize assumptions set at policy issuance unless updated current assumptions indicate that recorded reserves are deficient.

The new guidance also requires DAC and other capitalized balances currently amortized in proportion to premiums or gross profits to be amortized on a constant level basis over the expected term for all long-duration insurance contracts. DAC will not be subject to loss recognition testing but will be reduced when actual lapse experience exceeds expected experience. The new guidance will no longer require adjustments to DAC and deferred sales inducement costs (“DSI”) related to unrealized gains and losses on investment securities supporting the related business.

All market risk benefit product features will be measured at fair value with changes in fair value recorded in net income with the exception of changes in the fair value attributable to changes in the reporting entity’s own credit risk, which are required to be recognized in OCI. Substantially all of the Company’s market risk benefits are reinsured and therefore these impacts are not expected to be material to the Company.

The new guidance will be included in the comparable financial statements issued in reporting periods beginning after December 15, 2021, thereby requiring restatement of prior periods presented. Early adoption is permitted. The new guidance will be applied to affected contracts and DAC on the basis of existing carrying amounts at the earliest period presented or retrospectively using actual historical experience as of contract inception. The new guidance for market risk benefits is required to be adopted retrospectively.

The Company is evaluating the anticipated impacts of applying the new guidance to both retained income and AOCI. The requirements of the new guidance represent a material change from existing GAAP, however, the underlying economics of the business and related cash flows are unchanged. The Company is evaluating the specific impacts of adopting the new guidance and anticipates the financial statement impact of adopting the new guidance to be material, largely attributed to the impact of transitioning to a discount rate based on an upper-medium grade fixed income investment yield



## Notes to Consolidated Financial Statements

and updates to mortality assumptions. The Company expects the most significant impacts will occur in the run-off annuity segment. The revised accounting for DAC will be applied prospectively using the new model and any DAC effects existing in AOCI as a result of applying existing GAAP at the date of adoption will be reversed.

## Simplifications to the Accounting for Income Taxes

In December 2019, the FASB issued amendments to simplify the accounting for income taxes. The amendments eliminate certain exceptions in the existing guidance including those related to intraperiod tax allocation and deferred tax liability recognition when changes in control of equity method and foreign subsidiary investments occur. The amendments require recognition of the effect of an enacted change in tax laws or rates in the interim period that includes the enactment date, provide an option to not allocate taxes to a legal entity that is not subject to tax as well as other minor changes. The amendments are effective for interim and annual reporting periods beginning after December 15, 2020. The new guidance specifies which amendments should be applied prospectively, retrospective to all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained income as of the beginning of the year of adoption. The impact of adoption is not expected to be material to the Company’s results of operations or financial position.

## Change in accounting principle

The Company changed its accounting principle for recognizing actuarial gains and losses and expected return on plan assets for its pension and other postretirement plans to a more preferable policy under U.S. GAAP. Under the new principle, remeasurement of projected benefit obligation and plan assets are immediately recognized in earnings and are referred to as pension and other postretirement remeasurement gains and losses on the Consolidated Statements of Operations. Previously, actuarial gains and losses and differences between the expected and actual returns on plan assets were recognized as a component of AOCI, and were subject to amortization into earnings in future periods. This change has been applied on a retrospective basis. The Company’s policy is to remeasure its pension and postretirement plans on a quarterly basis.

The Company also changed its policy for recognizing expected returns on plan assets by eliminating the permitted accounting practice allowing the five-year smoothing of equity returns and moving to an unadjusted fair value method.

The Company believes that immediately recognizing remeasurement of projected benefit obligation and plan assets in earnings is preferable as it provides greater transparency of the Company’s economic obligations in accounting results and better aligns with fair value accounting principles by recognizing the effects of economic and interest rate changes on pension and other postretirement plan assets and liabilities in the year in which the gains and losses are incurred. These changes have been applied on a retrospective basis and as of January 1, 2017 resulted in a cumulative effect decrease to retained income of $1.58 billion, with a corresponding offset to AOCI and had no impact on total shareholders’ equity.

The impacts of the adjustments on the financial statements are summarized in the following tables.

<table><tr><td colspan="5">Consolidated Statements of Operations</td></tr><tr><td></td><td>Previous accounting principle</td><td>Impact of change (1)</td><td>As reported</td><td></td></tr><tr><td>($ in millions, except per share data)</td><td colspan="4">Year Ended December 31, 2019</td></tr><tr><td>Property and casualty insurance claims and claims expense</td><td>$ 24,074</td><td>$ (98)</td><td>$ 23,976</td><td></td></tr><tr><td>Operating costs and expenses</td><td>5,752</td><td>(62)</td><td>5,690</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>—</td><td>114</td><td>114</td><td></td></tr><tr><td>Restructuring and related charges</td><td>41</td><td>—</td><td>41</td><td></td></tr><tr><td>Total costs and expenses</td><td>38,638</td><td>(46)</td><td>38,592</td><td></td></tr><tr><td>Income from operations before income tax expense</td><td>6,043</td><td>46</td><td>6,089</td><td></td></tr><tr><td>Income tax expense</td><td>1,232</td><td>10</td><td>1,242</td><td></td></tr><tr><td>Net income</td><td>4,811</td><td>36</td><td>4,847</td><td></td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 4,642</td><td>$ 36</td><td>$ 4,678</td><td></td></tr><tr><td>Earnings per common share:</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income applicable to common shareholders per common share - Basic</td><td>$ 14.14</td><td>$ 0.11</td><td>$ 14.25</td><td></td></tr><tr><td>Net income applicable to common shareholders per common share - Diluted</td><td>$ 13.92</td><td>$ 0.11</td><td>$ 14.03</td><td></td></tr></table>

(1) The Company merged two of its pension plans, which had no impact on its financial statements as the Company remeasures pension plan assets and projected benefit obligations immediately in earnings on a quarterly basis. However, the plan merger increased the impact of change by $41 million for 2019, reflecting the shorter amortization period for losses deferred in AOCI from one of the merged plans that was required as part of the merger.



<table><tr><td colspan="5">Consolidated Statements of Operations</td></tr><tr><td></td><td>Previous accounting principle</td><td>Change in accounting principle</td><td>As adjusted</td><td></td></tr><tr><td></td><td colspan="4">Year Ended December 31, 2018</td></tr><tr><td>Property and casualty insurance claims and claims expense</td><td>$ 22,839</td><td>$ (61)</td><td>$ 22,778</td><td></td></tr><tr><td>Operating costs and expenses</td><td>5,869</td><td>(275)</td><td>5,594</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>—</td><td>468</td><td>468</td><td></td></tr><tr><td>Restructuring and related charges</td><td>83</td><td>(16)</td><td>67</td><td></td></tr><tr><td>Total costs and expenses</td><td>37,077</td><td>116</td><td>37,193</td><td></td></tr><tr><td>Income from operations before income tax expense</td><td>2,744</td><td>(116)</td><td>2,628</td><td></td></tr><tr><td>Income tax expense</td><td>492</td><td>(24)</td><td>468</td><td></td></tr><tr><td>Net income</td><td>2,252</td><td>(92)</td><td>2,160</td><td></td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 2,104</td><td>$ (92)</td><td>$ 2,012</td><td></td></tr></table>

<table><tr><td>Net income applicable to common shareholders per common share - Basic</td><td>$ 6.05</td><td>$ (0.27)</td><td>$ 5.78</td></tr></table>

<table><tr><td colspan="5">Year Ended December 31, 2017</td></tr><tr><td>Property and casualty insurance claims and claims expense</td><td>$ 21,929</td><td>$ (82)</td><td>$ 21,847</td><td></td></tr><tr><td>Operating costs and expenses</td><td>5,442</td><td>(246)</td><td>5,196</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses</td><td>—</td><td>(217)</td><td>(217)</td><td></td></tr><tr><td>Restructuring and related charges</td><td>109</td><td>(13)</td><td>96</td><td></td></tr><tr><td>Total costs and expenses</td><td>35,436</td><td>(558)</td><td>34,878</td><td></td></tr><tr><td>Income from operations before income tax expense</td><td>3,991</td><td>558</td><td>4,549</td><td></td></tr><tr><td>Income tax expense</td><td>802</td><td>193</td><td>995</td><td></td></tr><tr><td>Net income</td><td>3,189</td><td>365</td><td>3,554</td><td></td></tr><tr><td>Net income applicable to common shareholders</td><td>$ 3,073</td><td>$ 365</td><td>$ 3,438</td><td></td></tr><tr><td colspan="5">Earnings per common share:</td></tr><tr><td>Net income applicable to common shareholders per common share - Basic</td><td>$ 8.49</td><td>$ 1.01</td><td>$ 9.50</td><td></td></tr><tr><td>Net income applicable to common shareholders per common share - Diluted</td><td>$ 8.36</td><td>$ 0.99</td><td>$ 9.35</td><td></td></tr></table>



<table><tr><td colspan="5">Consolidated Statements of Comprehensive Income</td></tr><tr><td></td><td>Previous accounting principle</td><td>Impact of change</td><td>As reported</td><td></td></tr><tr><td>($ in millions)</td><td colspan="4">Year Ended December 31, 2019</td></tr><tr><td>Net income</td><td>$ 4,811</td><td>$ 36</td><td>$ 4,847</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>1,889</td><td>—</td><td>1,889</td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(4)</td><td>(6)</td><td>(10)</td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost \( ^{(1)} \)</td><td>141</td><td>(188)</td><td>(47)</td><td></td></tr><tr><td>Other comprehensive income, after-tax</td><td>2,026</td><td>(194)</td><td>1,832</td><td></td></tr><tr><td>Comprehensive income</td><td>6,837</td><td>(158)</td><td>6,679</td><td></td></tr></table>

<table><tr><td>Net income</td><td>$ 2,252</td><td>$ (92)</td><td>$ 2,160</td></tr><tr><td>Other comprehensive income (loss), after-tax</td><td></td><td></td><td></td></tr><tr><td>Changes in:</td><td></td><td></td><td></td></tr><tr><td>Unrealized net capital gains and losses</td><td>(754)</td><td>—</td><td>(754)</td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(55)</td><td>7</td><td>(48)</td></tr><tr><td>Unrecognized pension and other postretirement benefit cost \( ^{(1)} \)</td><td>(144)</td><td>85</td><td>(59)</td></tr><tr><td>Other comprehensive loss, after-tax</td><td>(953)</td><td>92</td><td>(861)</td></tr><tr><td>Comprehensive income</td><td>1,299</td><td>—</td><td>1,299</td></tr></table>

<table><tr><td colspan="5">Year Ended December 31, 2017</td></tr><tr><td>Net income</td><td>$ 3,189</td><td>$ 365</td><td>$ 3,554</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>319</td><td>—</td><td>319</td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>47</td><td>(2)</td><td>45</td><td></td></tr><tr><td>Unrecognized pension and other postretirement benefit cost \( ^{(1)} \)</td><td>307</td><td>(359)</td><td>(52)</td><td></td></tr><tr><td>Other comprehensive income, after-tax</td><td>673</td><td>(361)</td><td>312</td><td></td></tr><tr><td>Comprehensive income</td><td>3,862</td><td>4</td><td>3,866</td><td></td></tr></table>

 \( ^{(1)} \)  Financial statement line item has been updated to “Unamortized pension and other postretirement prior service credit”.

<table><tr><td colspan="4">Consolidated Statements of Financial Position</td></tr><tr><td></td><td>Previous accounting principle</td><td>Impact of change</td><td>As reported</td></tr><tr><td>($ in millions)</td><td colspan="3">December 31, 2019</td></tr><tr><td>Retained income</td><td>49,713</td><td>(1,639)</td><td>48,074</td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(68)</td><td>9</td><td>(59)</td></tr><tr><td>Unrecognized pension and other postretirement benefit cost \( ^{(1)} \)</td><td>(1,350)</td><td>1,472</td><td>122</td></tr><tr><td>Total AOCI</td><td>469</td><td>1,481</td><td>1,950</td></tr><tr><td>Total shareholders&#x27; equity</td><td>26,156</td><td>(158)</td><td>25,998</td></tr><tr><td></td><td colspan="3">December 31, 2018</td></tr><tr><td>Retained income</td><td>45,708</td><td>(1,675)</td><td>44,033</td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(64)</td><td>15</td><td>(49)</td></tr><tr><td>Unrecognized pension and other postretirement benefit cost \( ^{(1)} \)</td><td>(1,491)</td><td>1,660</td><td>169</td></tr><tr><td>Total AOCI</td><td>(1,557)</td><td>1,675</td><td>118</td></tr><tr><td>Total shareholders&#x27; equity</td><td>21,312</td><td>—</td><td>21,312</td></tr></table>

 \( ^{(1)} \)  Financial statement line item has been updated to “Unamortized pension and other postretirement prior service credit”.



<table><tr><td colspan="4">Consolidated Statements of Shareholders&#x27; Equity</td></tr><tr><td>($ in millions)</td><td>Previous accounting principle</td><td>Impact of change</td><td>As reported</td></tr><tr><td></td><td colspan="3">Year Ended December 31, 2019</td></tr><tr><td>Retained income</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>$     45,708</td><td>$    (1,675)</td><td>$     44,033</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>21</td><td>—</td><td>21</td></tr><tr><td>Net income</td><td>4,811</td><td>36</td><td>4,847</td></tr><tr><td>Dividends on common stock (declared per share of $2.00)</td><td>(658)</td><td>—</td><td>(658)</td></tr><tr><td>Dividends on preferred stock</td><td>(169)</td><td>—</td><td>(169)</td></tr><tr><td>Balance, end of year</td><td>49,713</td><td>(1,639)</td><td>48,074</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(1,557)</td><td>1,675</td><td>118</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Change in unrealized net capital gains and losses</td><td>1,889</td><td>—</td><td>1,889</td></tr><tr><td>Change in unrealized foreign currency translation adjustments</td><td>(4)</td><td>(6)</td><td>(10)</td></tr><tr><td>Change in unrecognized pension and other postretirement benefit cost (1)</td><td>141</td><td>(188)</td><td>(47)</td></tr><tr><td>Balance, end of year</td><td>$     469</td><td>$     1,481</td><td>$     1,950</td></tr><tr><td></td><td colspan="3">Year Ended December 31, 2018</td></tr><tr><td>Retained income</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>$     43,162</td><td>$    (1,583)</td><td>$     41,579</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>1,088</td><td>—</td><td>1,088</td></tr><tr><td>Net income</td><td>2,252</td><td>(92)</td><td>2,160</td></tr><tr><td>Dividends on common stock (declared per share of $1.84)</td><td>(646)</td><td>—</td><td>(646)</td></tr><tr><td>Dividends on preferred stock</td><td>(148)</td><td>—</td><td>(148)</td></tr><tr><td>Balance, end of year</td><td>45,708</td><td>(1,675)</td><td>44,033</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>306</td><td>1,583</td><td>1,889</td></tr><tr><td>Cumulative effect of change in accounting principle</td><td>(910)</td><td>—</td><td>(910)</td></tr><tr><td>Change in unrealized net capital gains and losses</td><td>(754)</td><td>—</td><td>(754)</td></tr><tr><td>Change in unrealized foreign currency translation adjustments</td><td>(55)</td><td>7</td><td>(48)</td></tr><tr><td>Change in unrecognized pension and other postretirement benefit cost (1)</td><td>(144)</td><td>85</td><td>(59)</td></tr><tr><td>Balance, end of year</td><td>(1,557)</td><td>1,675</td><td>118</td></tr><tr><td></td><td colspan="3">Year Ended December 31, 2017</td></tr><tr><td>Retained income</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>$     40,678</td><td>$    (1,669)</td><td>$     39,009</td></tr><tr><td>Net income</td><td>3,189</td><td>365</td><td>3,554</td></tr><tr><td>Dividends on common stock (declared per share of $1.48)</td><td>(540)</td><td>—</td><td>(540)</td></tr><tr><td>Dividends on preferred stock</td><td>(116)</td><td>—</td><td>(116)</td></tr><tr><td>Reclassification of tax effects due to change in accounting principle</td><td>(49)</td><td>(279)</td><td>(328)</td></tr><tr><td>Balance, end of year</td><td>43,162</td><td>(1,583)</td><td>41,579</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td></td><td></td><td></td></tr><tr><td>Balance, beginning of year</td><td>(416)</td><td>1,665</td><td>1,249</td></tr><tr><td>Change in unrealized net capital gains and losses</td><td>319</td><td>—</td><td>319</td></tr><tr><td>Change in unrealized foreign currency translation adjustments</td><td>47</td><td>(2)</td><td>45</td></tr><tr><td>Change in unrecognized pension and other postretirement benefit cost (1)</td><td>307</td><td>(359)</td><td>(52)</td></tr><tr><td>Reclassification of tax effects due to change in accounting principle</td><td>49</td><td>279</td><td>328</td></tr><tr><td>Balance, end of year</td><td>306</td><td>1,583</td><td>1,889</td></tr></table>

 \( ^{(1)} \)  Financial statement line item has been updated to “Change in unamortized pension and other postretirement prior service credit”.



<table><tr><td colspan="5">Consolidated Statements of Cash Flows</td></tr><tr><td></td><td>Previous accounting principle</td><td>Impact of change</td><td>As reported</td><td></td></tr><tr><td>($ in millions)</td><td colspan="4">Year Ended December 31, 2019</td></tr><tr><td>Cash flows from operating activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 4,811</td><td>$ 36</td><td>$ 4,847</td><td></td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Pension and other postretirement measurement gains and losses</td><td>—</td><td>114</td><td>114</td><td></td></tr><tr><td>Income taxes</td><td>477</td><td>10</td><td>487</td><td></td></tr><tr><td>Other operating assets and liabilities</td><td>110</td><td>(160)</td><td>(50)</td><td></td></tr><tr><td>Net cash provided by operating activities</td><td>$ 5,129</td><td>$ —</td><td>$ 5,129</td><td></td></tr></table>

<table><tr><td colspan="5">Year Ended December 31, 2018</td></tr><tr><td>Cash flows from operating activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 2,252</td><td>$ (92)</td><td>$ 2,160</td><td></td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Pension and other postretirement measurement gains and losses</td><td>—</td><td>468</td><td>468</td><td></td></tr><tr><td>Income taxes</td><td>(356)</td><td>(24)</td><td>(380)</td><td></td></tr><tr><td>Other operating assets and liabilities</td><td>1,207</td><td>(352)</td><td>855</td><td></td></tr><tr><td>Net cash provided by operating activities</td><td>$ 5,175</td><td>$ —</td><td>$ 5,175</td><td></td></tr></table>

<table><tr><td colspan="5">Year Ended December 31, 2017</td></tr><tr><td>Cash flows from operating activities</td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 3,189</td><td>$ 365</td><td>$ 3,554</td><td></td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Pension and other postretirement measurement gains and losses</td><td>—</td><td>(217)</td><td>(217)</td><td></td></tr><tr><td>Income taxes</td><td>(245)</td><td>193</td><td>(52)</td><td></td></tr><tr><td>Other operating assets and liabilities</td><td>328</td><td>(341)</td><td>(13)</td><td></td></tr><tr><td>Net cash provided by operating activities</td><td>$ 4,314</td><td>$ —</td><td>$ 4,314</td><td></td></tr></table>



## Note 3 Acquisitions

iCracked On February 12, 2019, the Company acquired iCracked Inc. (“iCracked”) which offers on-site, on-demand repair services for smartphones and tablets in North America, supporting Allstate Protection Plans’ (formerly known as SquareTrade) operations. In conjunction with the iCracked acquisition, the Company recorded goodwill of $17 million.

PlumChoice On November 30, 2018, the Company acquired PlumChoice, Inc. (“PlumChoice”) for $30 million in cash to provide technical support services to Allstate Protection Plans’ customers and small businesses. In conjunction with the PlumChoice acquisition, the Company recorded goodwill of $23 million.

## Note 4 Reportable Segments

The Company’s chief operating decision maker reviews financial performance and makes decisions about the allocation of resources for the seven reportable segments. These segments are described below and align with the Company’s key product and service offerings.

Allstate Protection principally offers private passenger auto and homeowners insurance in the United States and Canada, with earned premiums accounting for 78.0% of Allstate’s 2019 consolidated revenues. Allstate Protection primarily operates in the U.S. (all 50 states and the District of Columbia (“D.C.”)) and Canada. For 2019, the top U.S. geographic locations for premiums earned by the Allstate Protection segment were Texas, California, New York and Florida. No other jurisdiction accounted for more than 5% of premium earned for Allstate Protection. Revenues from external customers generated outside the United States were $1.37 billion, $1.20 billion and $1.13 billion in 2019, 2018 and 2017, respectively.

Discontinued Lines and Coverages includes property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s. Our exposure to asbestos, environmental and other discontinued lines claims arises principally from direct excess commercial insurance, assumed reinsurance coverage, direct primary commercial insurance and other businesses in run-off.

Service Businesses comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside Services, Arity and Allstate Identity Protection. Service Businesses offer consumer product protection plans, finance and insurance products (including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information and identity protection. The Service Businesses primarily operate in the U.S., with certain businesses offering services in Europe, Canada, and Puerto Rico. Revenues from
Allstate Identity Protection On October 5, 2018, the Company acquired InfoArmor, Inc. (“InfoArmor”), a leading provider of identity protection in the employee benefits market, for $525 million in cash. InfoArmor primarily offers identity protection to employees and their family members through voluntary benefit programs at over 1,400 firms, including more than 100 of the Fortune 500 companies. Starting in the third quarter of 2019, the Company is reporting InfoArmor using the name Allstate Identity Protection.

In connection with the acquisition, the Company recorded goodwill of $318 million and intangible assets of $257 million. The intangible assets include $225 million and $32 million related to the acquired customer relationships and technology, respectively.

external customers generated outside the United States relate to consumer product protection plans sold primarily in the European Union and were $95 million, $61 million and $35 million in 2019, 2018 and 2017, respectively.

Allstate Life offers traditional, interest-sensitive and variable life insurance products. Allstate Life primarily operates in the U.S. (all 50 states and D.C.). For 2019, the top geographic locations for statutory direct life insurance premiums were New York, California, Texas, Florida and Illinois. No other jurisdiction accounted for more than 5% of statutory direct life insurance premiums.

Allstate Benefits offers voluntary benefits products, including life, accident, critical illness, short-term disability and other health products. Allstate Benefits primarily operates in the U.S. (all 50 states and D.C.) and Canada. For 2019, the top geographic locations for statutory direct accident and health insurance premiums were Florida, Texas, North Carolina, New York and California. No other jurisdiction accounted for more than 5% of statutory direct accident and health insurance premiums. Revenues from external customers generated outside the United States relate to voluntary accident and health insurance sold in Canada and were not material.

Allstate Annuities consists primarily of deferred fixed annuities and immediate annuities (including standard and sub-standard structured settlements). This segment is in run-off.

Corporate and Other comprises holding company activities and certain non-insurance operations, including expenses associated with strategic initiatives.

Allstate Protection and Discontinued Lines and Coverages segments comprise Property-Liability. The Company does not allocate 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, Service Businesses, Allstate Life,



## Notes to Consolidated Financial Statements

Allstate Benefits, Allstate Annuities, and Corporate and Other levels for decision-making purposes.

The accounting policies of the reportable segments are the same as those described in Note 2. The effects of intersegment transactions are eliminated in the consolidated results. For segment results, services provided by Service Businesses to Allstate Protection are not eliminated as management considers those transactions in assessing the results of the respective segments.

## Measuring segment profit or loss

The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Discontinued Lines and Coverages segments and adjusted net income for the Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other segments. A reconciliation of these measures to net income applicable to common shareholders is provided below.

Underwriting income is calculated as premiums earned and other revenue, less claims and claims expenses (“losses”), amortization of DAC, operating costs and expenses, restructuring and related charges and amortization or impairment of purchased intangibles as determined using GAAP.
Adjusted net income is net income applicable to common shareholders, 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 adjusted net income

• Pension and other postretirement remeasurement gains and losses, after-tax

• Valuation changes on embedded derivatives not hedged, after-tax

• Amortization of DAC and DSI, to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives not hedged, after-tax

• Business combination expenses and the amortization or impairment of purchased intangibles, after-tax

• Gain (loss) on disposition of operations, after-tax

• 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



<table><tr><td colspan="4">Reportable segments revenue information</td></tr><tr><td rowspan="2">($ in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Property-Liability</td><td></td><td></td><td></td></tr><tr><td>Insurance premiums</td><td></td><td></td><td></td></tr><tr><td>Auto</td><td>$ 24,188</td><td>$ 22,970</td><td>$ 21,878</td></tr><tr><td>Homeowners</td><td>7,912</td><td>7,517</td><td>7,310</td></tr><tr><td>Other personal lines</td><td>1,861</td><td>1,808</td><td>1,750</td></tr><tr><td>Commercial lines</td><td>882</td><td>655</td><td>495</td></tr><tr><td>Allstate Protection</td><td>34,843</td><td>32,950</td><td>31,433</td></tr><tr><td>Discontinued Lines and Coverages</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total Property-Liability insurance premiums</td><td>34,843</td><td>32,950</td><td>31,433</td></tr><tr><td>Other revenue</td><td>741</td><td>738</td><td>703</td></tr><tr><td>Net investment income</td><td>1,533</td><td>1,464</td><td>1,478</td></tr><tr><td>Realized capital gains and losses</td><td>1,470</td><td>(639)</td><td>401</td></tr><tr><td>Total Property-Liability</td><td>38,587</td><td>34,513</td><td>34,015</td></tr><tr><td>Service Businesses</td><td></td><td></td><td></td></tr><tr><td>Consumer product protection plans</td><td>633</td><td>503</td><td>295</td></tr><tr><td>Roadside assistance</td><td>238</td><td>263</td><td>268</td></tr><tr><td>Finance and insurance products</td><td>362</td><td>332</td><td>304</td></tr><tr><td>Intersegment premiums and service fees (1)</td><td>154</td><td>122</td><td>110</td></tr><tr><td>Other revenue</td><td>188</td><td>82</td><td>66</td></tr><tr><td>Net investment income</td><td>42</td><td>27</td><td>16</td></tr><tr><td>Realized capital gains and losses</td><td>32</td><td>(11)</td><td>—</td></tr><tr><td>Total Service Businesses</td><td>1,649</td><td>1,318</td><td>1,059</td></tr><tr><td>Allstate Life</td><td></td><td></td><td></td></tr><tr><td>Traditional life insurance premiums</td><td>630</td><td>600</td><td>568</td></tr><tr><td>Accident and health insurance premiums</td><td>2</td><td>2</td><td>2</td></tr><tr><td>Interest-sensitive life insurance contract charges</td><td>711</td><td>713</td><td>710</td></tr><tr><td>Other revenue</td><td>125</td><td>119</td><td>114</td></tr><tr><td>Net investment income</td><td>514</td><td>505</td><td>489</td></tr><tr><td>Realized capital gains and losses</td><td>1</td><td>(14)</td><td>5</td></tr><tr><td>Total Allstate Life</td><td>1,983</td><td>1,925</td><td>1,888</td></tr><tr><td>Allstate Benefits</td><td></td><td></td><td></td></tr><tr><td>Traditional life insurance premiums</td><td>43</td><td>44</td><td>42</td></tr><tr><td>Accident and health insurance premiums</td><td>988</td><td>980</td><td>928</td></tr><tr><td>Interest-sensitive life insurance contract charges</td><td>114</td><td>111</td><td>114</td></tr><tr><td>Net investment income</td><td>83</td><td>77</td><td>72</td></tr><tr><td>Realized capital gains and losses</td><td>12</td><td>(9)</td><td>1</td></tr><tr><td>Total Allstate Benefits</td><td>1,240</td><td>1,203</td><td>1,157</td></tr><tr><td>Allstate Annuities</td><td></td><td></td><td></td></tr><tr><td>Fixed annuities contract charges</td><td>13</td><td>15</td><td>14</td></tr><tr><td>Net investment income</td><td>917</td><td>1,096</td><td>1,305</td></tr><tr><td>Realized capital gains and losses</td><td>346</td><td>(166)</td><td>44</td></tr><tr><td>Total Allstate Annuities</td><td>1,276</td><td>945</td><td>1,363</td></tr><tr><td>Corporate and Other</td><td></td><td></td><td></td></tr><tr><td>Net investment income</td><td>70</td><td>71</td><td>41</td></tr><tr><td>Realized capital gains and losses</td><td>24</td><td>(38)</td><td>(6)</td></tr><tr><td>Total Corporate and Other</td><td>94</td><td>33</td><td>35</td></tr><tr><td>Intersegment eliminations (1)</td><td>(154)</td><td>(122)</td><td>(110)</td></tr><tr><td>Consolidated revenues</td><td>$ 44,675</td><td>$ 39,815</td><td>$ 39,407</td></tr></table>

(1) Intersegment insurance premiums and service fees are primarily related to Arity and Allstate Roadside Services and are eliminated in the consolidated financial statements.



<table><tr><td colspan="5">Reportable segments financial performance</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Property-Liability</td><td></td><td></td><td></td><td></td></tr><tr><td>Allstate Protection</td><td>$ 2,912</td><td>$ 2,343</td><td>$ 2,304</td><td></td></tr><tr><td>Discontinued Lines and Coverages</td><td>(108)</td><td>(90)</td><td>(99)</td><td></td></tr><tr><td>Total underwriting income</td><td>2,804</td><td>2,253</td><td>2,205</td><td></td></tr><tr><td>Net investment income</td><td>1,533</td><td>1,464</td><td>1,478</td><td></td></tr><tr><td>Income tax expense on operations</td><td>(887)</td><td>(747)</td><td>(1,187)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>1,161</td><td>(500)</td><td>272</td><td></td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>—</td><td>—</td><td>9</td><td></td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(5)</td><td>36</td><td></td></tr><tr><td>Property-Liability net income applicable to common shareholders</td><td>4,611</td><td>2,465</td><td>2,813</td><td></td></tr><tr><td>Service Businesses</td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted net income (loss)</td><td>38</td><td>8</td><td>(54)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>25</td><td>(9)</td><td>—</td><td></td></tr><tr><td>Amortization of purchased intangibles, after-tax</td><td>(97)</td><td>(74)</td><td>(60)</td><td></td></tr><tr><td>Impairment of purchased intangibles, after-tax</td><td>(43)</td><td>—</td><td>—</td><td></td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(4)</td><td>137</td><td></td></tr><tr><td>Service Businesses net (loss) income applicable to common shareholders</td><td>(77)</td><td>(79)</td><td>23</td><td></td></tr><tr><td>Allstate Life</td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted net income</td><td>261</td><td>295</td><td>259</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>—</td><td>(11)</td><td>2</td><td></td></tr><tr><td>Valuation changes on embedded derivatives not hedged, after-tax</td><td>(9)</td><td>—</td><td>—</td><td></td></tr><tr><td>DAC and DSI amortization related to realized capital gains and losses and valuation changes on embedded derivatives not hedged, after-tax</td><td>(5)</td><td>(8)</td><td>(10)</td><td></td></tr><tr><td>Tax Legislation (expense) benefit</td><td>—</td><td>(16)</td><td>338</td><td></td></tr><tr><td>Allstate Life net income applicable to common shareholders</td><td>247</td><td>260</td><td>589</td><td></td></tr><tr><td>Allstate Benefits</td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted net income</td><td>115</td><td>124</td><td>100</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>9</td><td>(7)</td><td>—</td><td></td></tr><tr><td>DAC and DSI amortization related to realized capital gains and losses, after-tax</td><td>—</td><td>1</td><td>—</td><td></td></tr><tr><td>Tax Legislation benefit</td><td>—</td><td>—</td><td>54</td><td></td></tr><tr><td>Allstate Benefits net income applicable to common shareholders</td><td>124</td><td>118</td><td>154</td><td></td></tr><tr><td>Allstate Annuities</td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted net income</td><td>10</td><td>131</td><td>205</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>274</td><td>(131)</td><td>28</td><td></td></tr><tr><td>Valuation changes on embedded derivatives not hedged, after-tax</td><td>(6)</td><td>3</td><td>—</td><td></td></tr><tr><td>Gain on disposition of operations, after-tax</td><td>4</td><td>4</td><td>4</td><td></td></tr><tr><td>Tax Legislation benefit</td><td>—</td><td>69</td><td>182</td><td></td></tr><tr><td>Allstate Annuities net income applicable to common shareholders</td><td>282</td><td>76</td><td>419</td><td></td></tr><tr><td>Corporate and Other</td><td></td><td></td><td></td><td></td></tr><tr><td>Adjusted net loss</td><td>(438)</td><td>(406)</td><td>(320)</td><td></td></tr><tr><td>Realized capital gains and losses, after-tax</td><td>19</td><td>(30)</td><td>(4)</td><td></td></tr><tr><td>Pension and other postretirement remeasurement gains and losses, after-tax</td><td>(90)</td><td>(370)</td><td>141</td><td></td></tr><tr><td>Goodwill impairment</td><td>—</td><td>—</td><td>(125)</td><td></td></tr><tr><td>Business combination expenses, after-tax</td><td>—</td><td>(7)</td><td>(14)</td><td></td></tr><tr><td>Tax Legislation expense</td><td>—</td><td>(15)</td><td>(238)</td><td></td></tr><tr><td>Corporate and Other net loss applicable to common shareholders</td><td>(509)</td><td>(828)</td><td>(560)</td><td></td></tr><tr><td>Consolidated net income applicable to common shareholders</td><td>$ 4,678</td><td>$ 2,012</td><td>$ 3,438</td><td></td></tr></table>



<table><tr><td colspan="5">Additional significant financial performance data</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Amortization of DAC</td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 4,649</td><td>$ 4,475</td><td>$ 4,205</td><td></td></tr><tr><td>Service Businesses</td><td>543</td><td>463</td><td>296</td><td></td></tr><tr><td>Allstate Life</td><td>173</td><td>132</td><td>134</td><td></td></tr><tr><td>Allstate Benefits</td><td>161</td><td>145</td><td>142</td><td></td></tr><tr><td>Allstate Annuities</td><td>7</td><td>7</td><td>7</td><td></td></tr><tr><td>Consolidated</td><td>$ 5,533</td><td>$ 5,222</td><td>$ 4,784</td><td></td></tr><tr><td>Income tax expense (benefit)</td><td></td><td></td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 1,196</td><td>$ 613</td><td>$ 1,285</td><td></td></tr><tr><td>Service Businesses</td><td>(18)</td><td>(19)</td><td>(194)</td><td></td></tr><tr><td>Allstate Life</td><td>53</td><td>75</td><td>(226)</td><td></td></tr><tr><td>Allstate Benefits</td><td>35</td><td>32</td><td>1</td><td></td></tr><tr><td>Allstate Annuities</td><td>73</td><td>(66)</td><td>(58)</td><td></td></tr><tr><td>Corporate and Other</td><td>(97)</td><td>(167)</td><td>187</td><td></td></tr><tr><td>Consolidated</td><td>$ 1,242</td><td>$ 468</td><td>$ 995</td><td></td></tr></table>

Interest expense is primarily incurred in the Corporate and Other segment. Capital expenditures for long-lived assets are generally made in Property-Liability as the Company does not allocate assets to the Allstate Protection and Discontinued Lines and Coverages segments. A portion of these long-lived assets are used by entities included in the Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities and Corporate and Other segments and, accordingly, are charged to expenses in proportion to their use.

<table><tr><td colspan="3">Reportable segment total assets and investments  \( {}^{(1)} \)</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="2">As of December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 67,243</td><td>$ 61,947</td></tr><tr><td>Service Businesses</td><td>5,746</td><td>5,473</td></tr><tr><td>Allstate Life</td><td>14,771</td><td>13,613</td></tr><tr><td>Allstate Benefits</td><td>2,915</td><td>2,822</td></tr><tr><td>Allstate Annuities</td><td>26,914</td><td>26,798</td></tr><tr><td>Corporate and Other</td><td>2,361</td><td>1,596</td></tr><tr><td>Consolidated</td><td>$ 119,950</td><td>$ 112,249</td></tr><tr><td>Investments</td><td></td><td></td></tr><tr><td>Property-Liability</td><td>$ 48,414</td><td>$ 43,634</td></tr><tr><td>Service Businesses</td><td>1,544</td><td>1,203</td></tr><tr><td>Allstate Life</td><td>11,914</td><td>10,809</td></tr><tr><td>Allstate Benefits</td><td>1,941</td><td>1,809</td></tr><tr><td>Allstate Annuities</td><td>22,221</td><td>22,336</td></tr><tr><td>Corporate and Other</td><td>2,328</td><td>1,469</td></tr><tr><td>Consolidated</td><td>$ 88,362</td><td>$ 81,260</td></tr></table>

 \( ^{(1)} \)  The balances reflect the elimination of related party investments between segments.



## Note 5 Investments

<table><tr><td colspan="6">Amortized cost, gross unrealized gains (losses) and fair value for fixed income securities</td></tr><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>December 31, 2019</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 4,971</td><td>$ 141</td><td>$ (26)</td><td>$ 5,086</td><td></td></tr><tr><td>Municipal</td><td>8,080</td><td>551</td><td>(11)</td><td>8,620</td><td></td></tr><tr><td>Corporate</td><td>41,090</td><td>2,035</td><td>(47)</td><td>43,078</td><td></td></tr><tr><td>Foreign government</td><td>968</td><td>16</td><td>(5)</td><td>979</td><td></td></tr><tr><td>ABS</td><td>860</td><td>8</td><td>(6)</td><td>862</td><td></td></tr><tr><td>MBS</td><td>324</td><td>96</td><td>(1)</td><td>419</td><td></td></tr><tr><td>Total fixed income securities</td><td>$ 56,293</td><td>$ 2,847</td><td>$ (96)</td><td>$ 59,044</td><td></td></tr><tr><td>December 31, 2018</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. government and agencies</td><td>$ 5,386</td><td>$ 137</td><td>$ (6)</td><td>$ 5,517</td><td></td></tr><tr><td>Municipal</td><td>8,963</td><td>249</td><td>(43)</td><td>9,169</td><td></td></tr><tr><td>Corporate</td><td>40,557</td><td>491</td><td>(890)</td><td>40,158</td><td></td></tr><tr><td>Foreign government</td><td>739</td><td>13</td><td>(5)</td><td>747</td><td></td></tr><tr><td>ABS</td><td>1,049</td><td>6</td><td>(10)</td><td>1,045</td><td></td></tr><tr><td>MBS</td><td>440</td><td>97</td><td>(3)</td><td>534</td><td></td></tr><tr><td>Total fixed income securities</td><td>$ 57,134</td><td>$ 993</td><td>$ (957)</td><td>$ 57,170</td><td></td></tr></table>

<table><tr><td colspan="3">Scheduled maturities for fixed income securities</td></tr><tr><td></td><td colspan="2">As of December 31, 2019</td></tr><tr><td>(\( in millions)</td><td>Amortized cost</td><td>Fair value</td></tr><tr><td>Due in one year or less</td><td>$ 3,214</td><td>$ 3,239</td></tr><tr><td>Due after one year through five years</td><td>24,108</td><td>24,781</td></tr><tr><td>Due after five years through ten years</td><td>18,194</td><td>19,177</td></tr><tr><td>Due after ten years</td><td>9,593</td><td>10,566</td></tr><tr><td></td><td>55,109</td><td>57,763</td></tr><tr><td>ABS and MBS</td><td>1,184</td><td>1,281</td></tr><tr><td>Total</td><td>$ 56,293</td><td>$ 59,044</td></tr></table>

Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS and MBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

<table><tr><td colspan="4">Net investment income</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="3">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Fixed income securities</td><td>$ 2,175</td><td>$ 2,077</td><td>$ 2,078</td></tr><tr><td>Equity securities</td><td>206</td><td>170</td><td>174</td></tr><tr><td>Mortgage loans</td><td>220</td><td>217</td><td>206</td></tr><tr><td>Limited partnership interests</td><td>471</td><td>705</td><td>889</td></tr><tr><td>Short-term investments</td><td>102</td><td>73</td><td>30</td></tr><tr><td>Other</td><td>262</td><td>272</td><td>236</td></tr><tr><td>Investment income, before expense</td><td>3,436</td><td>3,514</td><td>3,613</td></tr><tr><td>Investment expense</td><td>(277)</td><td>(274)</td><td>(212)</td></tr><tr><td>Net investment income</td><td>$ 3,159</td><td>$ 3,240</td><td>$ 3,401</td></tr></table>



<table><tr><td colspan="5">Realized capital gains (losses) by asset type</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Fixed income securities</td><td>$ 461</td><td>$ (237)</td><td>$ 94</td><td></td></tr><tr><td>Equity securities</td><td>1,210</td><td>(594)</td><td>255</td><td></td></tr><tr><td>Mortgage loans</td><td>—</td><td>2</td><td>1</td><td></td></tr><tr><td>Limited partnership interests</td><td>200</td><td>(101)</td><td>132</td><td></td></tr><tr><td>Derivatives</td><td>(15)</td><td>46</td><td>(46)</td><td></td></tr><tr><td>Other</td><td>29</td><td>7</td><td>9</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>$ 1,885</td><td>$ (877)</td><td>$ 445</td><td></td></tr></table>

<table><tr><td colspan="5">Realized capital gains (losses) by transaction type</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Impairment write-downs</td><td>$ (47)</td><td>$ (14)</td><td>$ (102)</td><td></td></tr><tr><td>Change in intent write-downs</td><td>—</td><td>—</td><td>(48)</td><td></td></tr><tr><td>Net OTTI losses recognized in earnings</td><td>(47)</td><td>(14)</td><td>(150)</td><td></td></tr><tr><td>Sales</td><td>575</td><td>(215)</td><td>641</td><td></td></tr><tr><td>Valuation of equity investments  \( {}^{(1)} \)</td><td>1,372</td><td>(691)</td><td>—</td><td></td></tr><tr><td>Valuation and settlements of derivative instruments</td><td>(15)</td><td>43</td><td>(46)</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>$ 1,885</td><td>$ (877)</td><td>$ 445</td><td></td></tr></table>

 \( ^{(1)} \)  Includes valuation of equity securities and certain limited partnership interests where the underlying assets are predominantly public equity securities.

Sales of fixed income securities resulted in gross gains of $607 million, $120 million and $737 million and gross losses of $132 million, $347 million and $276 million during 2019, 2018 and 2017, respectively.

The following table presents the net pre-tax appreciation (decline) recognized in net income of equity securities and limited partnership interests carried at fair value that are still held as of December 31, 2019 and 2018, respectively.

<table><tr><td colspan="4">Net appreciation (decline) recognized in net income</td></tr><tr><td rowspan="2">(\( in millions)</td><td rowspan="2"></td><td colspan="2">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td></tr><tr><td>Equity securities</td><td></td><td>$ 1,073</td><td>$ (261)</td></tr><tr><td>Limited partnership interests carried at fair value</td><td></td><td>149</td><td>249</td></tr><tr><td>Total</td><td></td><td>$ 1,222</td><td>$ (12)</td></tr></table>

<table><tr><td rowspan="3">(\( in millions)</td><td colspan="12">For the years ended December 31,</td></tr><tr><td colspan="3">2019</td><td colspan="3">2018</td><td colspan="3">2017</td><td colspan="3">2017</td></tr><tr><td>Gross</td><td>Included in OCI</td><td>Net</td><td>Gross</td><td>Included in OCI</td><td>Net</td><td>Gross</td><td>Included</td><td>Included in OCI</td><td>Net</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><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ (2)</td><td>$ 2</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (1)</td><td>$ (3)</td><td>$ (3)</td><td>$ (4)</td><td></td><td></td></tr><tr><td>Corporate</td><td>(5)</td><td>(2)</td><td>(7)</td><td>(4)</td><td>2</td><td>(2)</td><td>(9)</td><td>3</td><td>(6)</td><td></td><td></td><td></td></tr><tr><td>ABS</td><td>(4)</td><td>—</td><td>(4)</td><td>(1)</td><td>(2)</td><td>(3)</td><td>(1)</td><td>(2)</td><td>(3)</td><td></td><td></td><td></td></tr><tr><td>MBS</td><td>(4)</td><td>1</td><td>(3)</td><td>(4)</td><td>(1)</td><td>(5)</td><td>(11)</td><td>(2)</td><td>(13)</td><td></td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>(15)</td><td>1</td><td>(14)</td><td>(9)</td><td>(1)</td><td>(10)</td><td>(22)</td><td>(4)</td><td>(26)</td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(86)</td><td>—</td><td>(86)</td><td></td><td></td><td></td></tr><tr><td>Mortgage loans</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>(1)</td><td>—</td><td>(1)</td><td></td><td></td><td></td></tr><tr><td>Limited partnership interests</td><td>(6)</td><td>—</td><td>(6)</td><td>(3)</td><td>—</td><td>(3)</td><td>(32)</td><td>—</td><td>(32)</td><td></td><td></td><td></td></tr><tr><td>Other</td><td>(27)</td><td>—</td><td>(27)</td><td>(1)</td><td>—</td><td>(1)</td><td>(5)</td><td>—</td><td>(5)</td><td></td><td></td><td></td></tr><tr><td>OTTI losses</td><td>$ (48)</td><td>$ 1</td><td>$ (47)</td><td>$ (13)</td><td>$ (1)</td><td>$ (14)</td><td>$ (146)</td><td>$ (4)</td><td>$ (150)</td><td></td><td></td><td></td></tr></table>



OTTI losses included in AOCI at the time of impairment for fixed income securities which were not included in earnings  \( {}^{(1)} \) 

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="3">As of December 31,</td></tr><tr><td>2019</td><td>2018</td><td></td></tr><tr><td>Municipal</td><td>$</td><td>(7)</td><td>(5)</td></tr><tr><td>Corporate</td><td></td><td>—</td><td>(2)</td></tr><tr><td>ABS</td><td></td><td>(10)</td><td>(10)</td></tr><tr><td>MBS</td><td></td><td>(56)</td><td>(69)</td></tr><tr><td>Total</td><td>$</td><td>(73)</td><td>(86)</td></tr></table>

 \( ^{(1)} \)  The amounts exclude $161 million and $180 million as of December 31, 2019 and 2018, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

<table><tr><td colspan="5">Rollforward of the cumulative credit losses recognized in earnings for fixed income securities held</td></tr><tr><td></td><td colspan="4">As of December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Beginning balance</td><td>$ (204)</td><td>$ (226)</td><td>$ (318)</td><td></td></tr><tr><td>Additional credit loss for securities previously other-than-temporarily impaired</td><td>(10)</td><td>(7)</td><td>(18)</td><td></td></tr><tr><td>Additional credit loss for securities not previously other-than-temporarily impaired</td><td>(4)</td><td>(3)</td><td>(8)</td><td></td></tr><tr><td>Reduction in credit loss for securities disposed or collected</td><td>32</td><td>30</td><td>116</td><td></td></tr><tr><td>Change in credit loss due to accretion of increase in cash flows</td><td>—</td><td>2</td><td>2</td><td></td></tr><tr><td>Ending balance</td><td>$ (186)</td><td>$ (204)</td><td>$ (226)</td><td></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 of underlying collateral, 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 OTTI 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 AOCI. 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.



<table><tr><td colspan="6">Unrealized net capital gains and losses included in AOCI</td></tr><tr><td>($ in millions)</td><td rowspan="2">Fair value</td><td colspan="2">Gross unrealized</td><td rowspan="2">Unrealized net gains (losses)</td><td></td></tr><tr><td>December 31, 2019</td><td>Gains</td><td>Losses</td><td></td></tr><tr><td>Fixed income securities</td><td>$ 59,044</td><td>$ 2,847</td><td>$ (96)</td><td>$ 2,751</td><td></td></tr><tr><td>Short-term investments</td><td>4,256</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Derivative instruments</td><td>—</td><td>—</td><td>(3)</td><td>(3)</td><td></td></tr><tr><td>EMA limited partnerships (1)</td><td></td><td></td><td></td><td>(4)</td><td></td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td></td><td></td><td></td><td>2,744</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 (2)</td><td></td><td></td><td></td><td></td><td>(126)</td></tr><tr><td>DAC and DSI (3)</td><td></td><td></td><td></td><td></td><td>(224)</td></tr><tr><td>Amounts recognized</td><td></td><td></td><td></td><td></td><td>(350)</td></tr><tr><td>Deferred income taxes</td><td></td><td></td><td></td><td></td><td>(507)</td></tr><tr><td>Unrealized net capital gains and losses, after-tax</td><td></td><td></td><td></td><td>$ 1,887</td><td></td></tr><tr><td>December 31, 2018</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities</td><td>$ 57,170</td><td>$ 993</td><td>$ (957)</td><td>$ 36</td><td></td></tr><tr><td>Short-term investments</td><td>3,027</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Derivative instruments</td><td>—</td><td>—</td><td>(3)</td><td>(3)</td><td></td></tr><tr><td>EMA limited partnerships</td><td></td><td></td><td></td><td>—</td><td></td></tr><tr><td>Unrealized net capital gains and losses, pre-tax</td><td></td><td></td><td></td><td>33</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>(33)</td><td></td></tr><tr><td>Amounts recognized</td><td></td><td></td><td></td><td>(33)</td><td></td></tr><tr><td>Deferred income taxes</td><td></td><td></td><td></td><td>(2)</td><td></td></tr><tr><td>Unrealized net capital gains and losses, after-tax</td><td></td><td></td><td></td><td>$ (2)</td><td></td></tr></table>

 \( ^{(1)} \)  Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ OCI. Fair value and gross unrealized gains and losses are not applicable.

 \( ^{(2)} \)  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 lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuities).

 \( ^{(3)} \)  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.

<table><tr><td colspan="5">Change in unrealized net capital gains (losses)</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Fixed income securities</td><td>$ 2,715</td><td>$ (1,431)</td><td>$ 204</td><td></td></tr><tr><td>Equity securities (1)</td><td>—</td><td>—</td><td>651</td><td></td></tr><tr><td>Derivative instruments</td><td>—</td><td>(2)</td><td>(3)</td><td></td></tr><tr><td>EMA limited partnerships</td><td>(4)</td><td>(1)</td><td>5</td><td></td></tr><tr><td>Total</td><td>2,711</td><td>(1,434)</td><td>857</td><td></td></tr><tr><td>Amounts recognized for:</td><td></td><td></td><td></td><td></td></tr><tr><td>Insurance reserves</td><td>(126)</td><td>315</td><td>(315)</td><td></td></tr><tr><td>DAC and DSI</td><td>(191)</td><td>163</td><td>(50)</td><td></td></tr><tr><td>Amounts recognized</td><td>(317)</td><td>478</td><td>(365)</td><td></td></tr><tr><td>Deferred income taxes</td><td>(505)</td><td>202</td><td>117</td><td></td></tr><tr><td>Increase (decrease) in unrealized net capital gains and losses, after-tax</td><td>$ 1,889</td><td>$ (754)</td><td>$ 609</td><td></td></tr></table>

 \( ^{(1)} \)  Upon adoption of the recognition and measurement accounting standard on January 1, 2018, $1.16 billion of pre-tax unrealized net capital gains for equity securities were reclassified from AOCI to retained income.

## Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income 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



## Notes to Consolidated Financial Statements

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 OCI.

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 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 OTTI using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of OTTI for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be 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.

Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position

<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">Less than 12 months</td><td colspan="3">12 months or more</td><td rowspan="2">Total unrealized losses</td></tr><tr><td>Number of issues</td><td>Fair value</td><td>Unrealized losses</td><td>Number of issues</td><td>Fair value</td><td>Unrealized losses</td></tr><tr><td>December 31, 2019</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></tr><tr><td>U.S. government and agencies</td><td>31</td><td>$ 1,713</td><td>$ (26)</td><td>10</td><td>$ 26</td><td>$ —</td><td>$ (26)</td></tr><tr><td>Municipal</td><td>307</td><td>576</td><td>(9)</td><td>1</td><td>14</td><td>(2)</td><td>(11)</td></tr><tr><td>Corporate</td><td>186</td><td>1,392</td><td>(20)</td><td>65</td><td>485</td><td>(27)</td><td>(47)</td></tr><tr><td>Foreign government</td><td>55</td><td>412</td><td>(4)</td><td>6</td><td>102</td><td>(1)</td><td>(5)</td></tr><tr><td>ABS</td><td>36</td><td>193</td><td>(2)</td><td>23</td><td>160</td><td>(4)</td><td>(6)</td></tr><tr><td>MBS</td><td>27</td><td>15</td><td>—</td><td>123</td><td>14</td><td>(1)</td><td>(1)</td></tr><tr><td>Total fixed income securities</td><td>642</td><td>$ 4,301</td><td>$ (61)</td><td>228</td><td>$ 801</td><td>$ (35)</td><td>$ (96)</td></tr><tr><td>Investment grade fixed income securities</td><td>581</td><td>$ 3,878</td><td>$ (41)</td><td>185</td><td>$ 594</td><td>$ (20)</td><td>$ (61)</td></tr><tr><td>Below investment grade fixed income securities</td><td>61</td><td>423</td><td>(20)</td><td>43</td><td>207</td><td>(15)</td><td>(35)</td></tr><tr><td>Total fixed income securities</td><td>642</td><td>$ 4,301</td><td>$ (61)</td><td>228</td><td>$ 801</td><td>$ (35)</td><td>$ (96)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>December 31, 2018</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></tr><tr><td>U.S. government and agencies</td><td>11</td><td>$ 55</td><td>$ —</td><td>38</td><td>$ 364</td><td>$ (6)</td><td>$ (6)</td></tr><tr><td>Municipal</td><td>943</td><td>1,633</td><td>(10)</td><td>1,147</td><td>1,554</td><td>(33)</td><td>(43)</td></tr><tr><td>Corporate</td><td>1,736</td><td>19,243</td><td>(543)</td><td>645</td><td>8,374</td><td>(347)</td><td>(890)</td></tr><tr><td>Foreign government</td><td>7</td><td>20</td><td>(1)</td><td>27</td><td>412</td><td>(4)</td><td>(5)</td></tr><tr><td>ABS</td><td>64</td><td>454</td><td>(5)</td><td>28</td><td>161</td><td>(5)</td><td>(10)</td></tr><tr><td>MBS</td><td>169</td><td>37</td><td>—</td><td>197</td><td>52</td><td>(3)</td><td>(3)</td></tr><tr><td>Total fixed income securities</td><td>2,930</td><td>$21,442</td><td>$ (559)</td><td>2,082</td><td>$10,917</td><td>$ (398)</td><td>$ (957)</td></tr><tr><td>Investment grade fixed income securities</td><td>2,348</td><td>$17,485</td><td>$ (331)</td><td>2,021</td><td>$10,626</td><td>$ (360)</td><td>$ (691)</td></tr><tr><td>Below investment grade fixed income securities</td><td>582</td><td>3,957</td><td>(228)</td><td>61</td><td>291</td><td>(38)</td><td>(266)</td></tr><tr><td>Total fixed income securities</td><td>2,930</td><td>$21,442</td><td>$ (559)</td><td>2,082</td><td>$10,917</td><td>$ (398)</td><td>$ (957)</td></tr></table>



<table><tr><td colspan="5">Gross unrealized losses by unrealized loss position and credit quality as of December 31, 2019</td></tr><tr><td>($ in millions)</td><td>Investment grade</td><td>Below investment grade</td><td>Total</td><td></td></tr><tr><td>Fixed income securities with unrealized loss position less than 20% of amortized cost (1) (2)</td><td>$</td><td>(48)</td><td>$</td><td>(75)</td></tr><tr><td>Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost (3) (4)</td><td></td><td>(13)</td><td></td><td>(21)</td></tr><tr><td>Total unrealized losses</td><td>$</td><td>(61)</td><td>$</td><td>(96)</td></tr></table>

(1) Below investment grade fixed income securities include $14 million that have been in an unrealized loss position for less than twelve months.

(2) Related to securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired.

(3) No below investment grade fixed income securities have been in an unrealized loss position for a period of twelve or more consecutive months.

(4) Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.

Investment grade 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 Global Ratings ("S&P"), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.

ABS and MBS 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, and (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. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.

As of December 31, 2019, 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.

## Limited partnerships

Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. As of December 31, 2019 and 2018, the carrying value of EMA limited partnerships totaled $6.26 billion and $5.73 billion, respectively, and limited partnerships carried at fair value totaled $1.81 billion and $1.78 billion, respectively. Principal factors influencing carrying value appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. For equity method limited partnerships, the Company recognizes an impairment loss 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. Changes in fair value limited partnerships are recorded through net investment income and therefore are not tested for impairment.

## Mortgage loans

The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation allowance, $4.82 billion and $4.67 billion as of December 31, 2019 and 2018, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.



<table><tr><td colspan="3">Principal geographic distribution of commercial real estate exceeding 5% of the mortgage loans portfolio</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>(% of mortgage loan portfolio carrying value)</td><td>2019</td><td>2018</td></tr><tr><td>Texas</td><td>16.9%</td><td>14.9%</td></tr><tr><td>California</td><td>15.1</td><td>16.4</td></tr><tr><td>Illinois</td><td>7.1</td><td>7.8</td></tr><tr><td>Florida</td><td>6.4</td><td>6.1</td></tr><tr><td>New Jersey</td><td>5.6</td><td>6.8</td></tr><tr><td>North Carolina</td><td>4.5</td><td>5.1</td></tr></table>

<table><tr><td colspan="3">Types of properties collateralizing the mortgage loan portfolio</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>(% of mortgage loan portfolio carrying value)</td><td>2019</td><td>2018</td></tr><tr><td>Apartment complex</td><td>36.8%</td><td>34.4%</td></tr><tr><td>Office buildings</td><td>22.6</td><td>24.5</td></tr><tr><td>Warehouse</td><td>16.8</td><td>15.8</td></tr><tr><td>Retail</td><td>13.4</td><td>14.4</td></tr><tr><td>Other</td><td>10.4</td><td>10.9</td></tr><tr><td>Total</td><td>100.0%</td><td>100.0%</td></tr></table>

<table><tr><td rowspan="2">($ in millions)</td><td colspan="3">As of December 31, 2019</td></tr><tr><td>Number of loans</td><td>Carrying value</td><td>Percent</td></tr><tr><td>2020</td><td>9</td><td>58</td><td>1.2%</td></tr><tr><td>2021</td><td>36</td><td>446</td><td>9.3</td></tr><tr><td>2022</td><td>28</td><td>460</td><td>9.5</td></tr><tr><td>2023</td><td>52</td><td>776</td><td>16.1</td></tr><tr><td>Thereafter</td><td>161</td><td>3,077</td><td>63.9</td></tr><tr><td>Total</td><td>286</td><td>4,817</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. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan's expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2019.

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.



<table><tr><td colspan="10">Carrying value of non-impaired mortgage loans summarized by debt service coverage ratio distribution</td></tr><tr><td rowspan="2" colspan="3">(\( in millions)</td><td colspan="7">As of December 31,</td></tr><tr><td colspan="3">2019</td><td colspan="4">2018</td></tr><tr><td colspan="3">Debt Service Coverage Ratio Distribution</td><td>Fixed rate mortgage loans</td><td>Variable rate mortgage loans</td><td>Total</td><td>Fixed rate mortgage loans</td><td>Variable rate mortgage loans</td><td>Total</td><td></td></tr><tr><td>Below 1.0</td><td></td><td>$ 13</td><td>$ 32</td><td>$ 45</td><td>$ 6</td><td>$ 31</td><td>$ 37</td><td></td><td></td></tr><tr><td>1.0 - 1.25</td><td></td><td>225</td><td>—</td><td>225</td><td>273</td><td>—</td><td>273</td><td></td><td></td></tr><tr><td>1.26 - 1.50</td><td></td><td>1,219</td><td>18</td><td>1,237</td><td>1,192</td><td>—</td><td>1,192</td><td></td><td></td></tr><tr><td>Above 1.50</td><td></td><td>3,264</td><td>38</td><td>3,302</td><td>3,063</td><td>101</td><td>3,164</td><td></td><td></td></tr><tr><td>Total non-impaired mortgage loans</td><td></td><td>$ 4,721</td><td>$ 88</td><td>$ 4,809</td><td>$ 4,534</td><td>$ 132</td><td>$ 4,666</td><td></td><td></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.

<table><tr><td colspan="3">Net carrying value of impaired mortgage loans</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Impaired mortgage loans with a valuation allowance</td><td>$ 8</td><td>$ 4</td></tr><tr><td>Impaired mortgage loans without a valuation allowance</td><td>—</td><td>—</td></tr><tr><td>Total impaired mortgage loans</td><td>$ 8</td><td>$ 4</td></tr><tr><td>Valuation allowance on impaired mortgage loans</td><td>$ 3</td><td>$ 3</td></tr></table>

The average balance of impaired loans was $5 million, $4 million and $7 million during 2019, 2018 and 2017, respectively.

<table><tr><td colspan="5">Rollforward of the valuation allowance on impaired mortgage loans</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>(\( in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Beginning balance</td><td>$ 3</td><td>$ 3</td><td>$ 3</td><td>$ 3</td></tr><tr><td>Net increase in valuation allowance</td><td>—</td><td>—</td><td>—</td><td>1</td></tr><tr><td>Charge offs</td><td>—</td><td>—</td><td>—</td><td>(1)</td></tr><tr><td>Ending balance</td><td>$ 3</td><td>$ 3</td><td>$ 3</td><td>$ 3</td></tr></table>

Payments on all mortgage loans were current as of December 31, 2019, 2018 and 2017.

## Municipal bonds

The Company maintains a diversified portfolio of municipal bonds, including tax exempt and taxable securities, which totaled $8.62 billion and $9.17 billion as of December 31, 2019 and 2018, respectively.
The municipal bond portfolio includes general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest).

<table><tr><td colspan="3">Principal geographic distribution of municipal bond issuers exceeding 5% of the portfolio</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>(% of municipal bond portfolio carrying value)</td><td>2019</td><td>2018</td></tr><tr><td>Texas</td><td>12.7%</td><td>12.3%</td></tr><tr><td>California</td><td>8.6</td><td>7.4</td></tr><tr><td>Colorado</td><td>5.8</td><td>4.0</td></tr><tr><td>Washington</td><td>5.5</td><td>6.2</td></tr><tr><td>New York</td><td>3.7</td><td>5.6</td></tr></table>

## Short-term investments

Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of December 31, 2019 and 2018, the fair value of short-term investments totaled $4.26 billion and $3.03 billion, respectively.

## Other investments

Other investments primarily consist of bank loans, real estate, policy loans, agent loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Agent



loans are loans issued to exclusive Allstate agents and are carried at unpaid principal balances, net of valuation allowances and unamortized deferred fees or costs. Derivatives are carried at fair value.

<table><tr><td colspan="3">Other investments by asset type</td></tr><tr><td>($ in millions)</td><td>December 31, 2019</td><td>December 31, 2018</td></tr><tr><td>Bank loans</td><td>$ 1,204</td><td>$ 1,350</td></tr><tr><td>Real estate</td><td>1,005</td><td>791</td></tr><tr><td>Policy loans</td><td>894</td><td>891</td></tr><tr><td>Agent loans</td><td>666</td><td>620</td></tr><tr><td>Derivatives and other</td><td>236</td><td>200</td></tr><tr><td>Total</td><td>$ 4,005</td><td>$ 3,852</td></tr></table>

## Concentration of credit risk

As of December 31, 2019, 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, other than the U.S. government and its agencies.

## Securities loaned

The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2019 and 2018, fixed income and equity securities with a carrying value of $1.74 billion and $1.40 billion, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $5 million, $4 million and $7 million in 2019, 2018 and 2017, respectively.

## Note 6 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

## Other investment information

Included in fixed income securities are below investment grade assets totaling $7.15 billion and $5.23 billion as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, fixed income securities and short-term investments with a carrying value of $147 million were on deposit with regulatory authorities as required by law.

As of December 31, 2019, the carrying value of fixed income securities and other investments that were non-income producing was $40 million.

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 is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the



valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stable security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy:

(1) Specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.

(2) 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.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, bank loans, agent 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 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 inputs and valuation techniques for Level 2 and Level 3 assets and liabilities measured at fair value on a recurring basis

Level 2 measurements

• Fixed income securities:

U.S. government and agencies, municipal, corporate - public and 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.

Corporate - privately placed: Privately placed are 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.

Corporate - privately placed also includes redeemable preferred stock that are valued using quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

ABS and MBS: 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. Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable. Residential MBS include prepayment speeds as a primary input for valuation.

• 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.

• 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.

Over-the-counter (“OTC”) derivatives, including interest rate swaps, foreign currency swaps, total



## Notes to Consolidated Financial Statements

return swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, implied volatilities, index price levels, currency rates, and 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: Comprise municipal bonds that are not rated by third-party credit rating agencies. 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. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows.

Corporate - public and privately placed, ABS and MBS: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs for corporate fixed income securities 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.

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

- Short-term: For certain short-term investments, amortized cost is used as the best estimate of fair value.
- Other investments: Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain 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.

## Investments excluded from the fair value hierarchy

Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, which usually takes place in years 4-9 of the typical contractual life of 10-12 years. As of December 31, 2019, the Company has commitments to invest $492 million in these limited partnership interests.



<table><tr><td colspan="7">Assets and liabilities measured at fair value</td></tr><tr><td></td><td colspan="6">As of December 31, 2019</td></tr><tr><td></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>Total</td><td></td></tr><tr><td>($ in millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</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></tr><tr><td>U.S. government and agencies</td><td>$ 4,689</td><td>$ 397</td><td>$ —</td><td></td><td>$ 5,086</td><td></td></tr><tr><td>Municipal</td><td>—</td><td>8,558</td><td>62</td><td></td><td>8,620</td><td></td></tr><tr><td>Corporate - public</td><td>—</td><td>30,819</td><td>61</td><td></td><td>30,880</td><td></td></tr><tr><td>Corporate - privately placed</td><td>—</td><td>12,084</td><td>114</td><td></td><td>12,198</td><td></td></tr><tr><td>Foreign government</td><td>—</td><td>979</td><td>—</td><td></td><td>979</td><td></td></tr><tr><td>ABS</td><td>—</td><td>797</td><td>65</td><td></td><td>862</td><td></td></tr><tr><td>MBS</td><td>—</td><td>379</td><td>40</td><td></td><td>419</td><td></td></tr><tr><td>Total fixed income securities</td><td>4,689</td><td>54,013</td><td>342</td><td></td><td>59,044</td><td></td></tr><tr><td>Equity securities</td><td>7,407</td><td>384</td><td>371</td><td></td><td>8,162</td><td></td></tr><tr><td>Short-term investments</td><td>1,940</td><td>2,291</td><td>25</td><td></td><td>4,256</td><td></td></tr><tr><td>Other investments: Free-standing derivatives</td><td>—</td><td>180</td><td>—</td><td>(40)</td><td>140</td><td></td></tr><tr><td>Separate account assets</td><td>3,044</td><td>—</td><td>—</td><td></td><td>3,044</td><td></td></tr><tr><td>Other assets</td><td>1</td><td>—</td><td>—</td><td></td><td>1</td><td></td></tr><tr><td>Total recurring basis assets</td><td>17,081</td><td>56,868</td><td>738</td><td>(40)</td><td>74,647</td><td></td></tr><tr><td>Total assets at fair value</td><td>$ 17,081</td><td>$ 56,868</td><td>$ 738</td><td>$ (40)</td><td>$ 74,647</td><td></td></tr><tr><td>% of total assets at fair value</td><td>22.9%</td><td>76.2%</td><td>1.0%</td><td>(0.1)%</td><td>100.0%</td><td></td></tr><tr><td>Investments reported at NAV</td><td></td><td></td><td></td><td></td><td>1,814</td><td></td></tr><tr><td>Total</td><td></td><td></td><td></td><td></td><td>$ 76,461</td><td></td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>$ —</td><td>$ —</td><td>$ (462)</td><td></td><td>$ (462)</td><td></td></tr><tr><td>Other liabilities: Free-standing derivatives</td><td>—</td><td>(84)</td><td>—</td><td>$ 12</td><td>(72)</td><td></td></tr><tr><td>Total recurring basis liabilities</td><td>$ —</td><td>$ (84)</td><td>$ (462)</td><td>$ 12</td><td>$ (534)</td><td></td></tr><tr><td>% of total liabilities at fair value</td><td>—%</td><td>15.7%</td><td>86.5%</td><td>(2.2)%</td><td>100.0%</td><td></td></tr></table>



<table><tr><td colspan="8">Assets and liabilities measured at fair value</td></tr><tr><td></td><td colspan="7">As of December 31, 2018</td></tr><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>Total</td><td></td><td></td></tr><tr><td>Assets</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></tr><tr><td>U.S. government and agencies</td><td>$ 5,085</td><td>$ 432</td><td>$ —</td><td></td><td>$ 5,517</td><td></td><td></td></tr><tr><td>Municipal</td><td>—</td><td>9,099</td><td>70</td><td></td><td>9,169</td><td></td><td></td></tr><tr><td>Corporate - public</td><td>—</td><td>29,200</td><td>70</td><td></td><td>29,270</td><td></td><td></td></tr><tr><td>Corporate - privately placed</td><td>—</td><td>10,798</td><td>90</td><td></td><td>10,888</td><td></td><td></td></tr><tr><td>Foreign government</td><td>—</td><td>747</td><td>—</td><td></td><td>747</td><td></td><td></td></tr><tr><td>ABS</td><td>—</td><td>976</td><td>69</td><td></td><td>1,045</td><td></td><td></td></tr><tr><td>MBS</td><td>—</td><td>508</td><td>26</td><td></td><td>534</td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>5,085</td><td>51,760</td><td>325</td><td></td><td>57,170</td><td></td><td></td></tr><tr><td>Equity securities</td><td>4,364</td><td>331</td><td>341</td><td></td><td>5,036</td><td></td><td></td></tr><tr><td>Short-term investments</td><td>1,338</td><td>1,659</td><td>30</td><td></td><td>3,027</td><td></td><td></td></tr><tr><td>Other investments: Free-standing derivatives</td><td>—</td><td>139</td><td>1</td><td>$ (23)</td><td>117</td><td></td><td></td></tr><tr><td>Separate account assets</td><td>2,805</td><td>—</td><td>—</td><td></td><td>2,805</td><td></td><td></td></tr><tr><td>Other assets</td><td>2</td><td>—</td><td>—</td><td></td><td>2</td><td></td><td></td></tr><tr><td>Total recurring basis assets</td><td>$ 13,594</td><td>$ 53,889</td><td>$ 697</td><td>$ (23)</td><td>$ 68,157</td><td></td><td></td></tr><tr><td>% of total assets at fair value</td><td>19.9%</td><td>79.1%</td><td>1.0%</td><td>— %</td><td>100.0%</td><td></td><td></td></tr><tr><td>Investments reported at NAV</td><td></td><td></td><td></td><td></td><td>1,779</td><td></td><td></td></tr><tr><td>Total</td><td></td><td></td><td></td><td></td><td>$ 69,936</td><td></td><td></td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>$ —</td><td>$ —</td><td>$ (224)</td><td></td><td>$ (224)</td><td></td><td></td></tr><tr><td>Other liabilities: Free-standing derivatives</td><td>(1)</td><td>(62)</td><td>—</td><td>$ 6</td><td>(57)</td><td></td><td></td></tr><tr><td>Total recurring basis liabilities</td><td>$ (1)</td><td>$ (62)</td><td>$ (224)</td><td>$ 6</td><td>$ (281)</td><td></td><td></td></tr><tr><td>% of total liabilities at fair value</td><td>0.3%</td><td>22.1%</td><td>79.7%</td><td>(2.1)%</td><td>100.0%</td><td></td><td></td></tr></table>

<table><tr><td colspan="7">Quantitative information about the significant unobservable inputs used in Level 3 fair value measurements</td></tr><tr><td>($ in millions)</td><td>Fair value</td><td>Valuation technique</td><td>Unobservable input</td><td>Range</td><td>Weighted average</td><td></td></tr><tr><td>December 31, 2019</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options</td><td>$ (430)</td><td>Stochastic cash flow model</td><td>Projected option cost</td><td>1.0 - 4.2%</td><td>2.67%</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>December 31, 2018</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options</td><td>$ (185)</td><td>Stochastic cash flow model</td><td>Projected option cost</td><td>1.0 - 2.2%</td><td>1.74%</td><td></td></tr></table>

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

As of December 31, 2019 and 2018, Level 3 fair value measurements of fixed income securities total $342 million and $325 million, respectively, and include $50 million and $105 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and $36 million and $44 million, respectively, of municipal fixed income securities that are not rated by third-party credit rating agencies. As the Company does not develop the Level 3 fair value unobservable inputs for these fixed income securities, they are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value, and an increase (decrease) in the credit rating of municipal bonds that are not rated by third-party credit rating agencies would result in a higher (lower) fair value.



Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2019

<table><tr><td>($ in millions)</td><td>Balance as of December 31, 2018</td><td colspan="3">Total gains (losses) included in:</td><td colspan="3">Transfers</td><td></td><td></td><td></td><td></td><td></td><td>Balance as of December 31, 2019</td></tr><tr><td>Assets</td><td></td><td>Net income</td><td>OCI</td><td>Into Level 3</td><td>Out of Level 3</td><td>Purchases</td><td>Sales</td><td>Issues</td><td>Settlements</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><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 70</td><td>$ 1</td><td>$ 4</td><td>$ —</td><td>$ (5)</td><td>$ —</td><td>$ (5)</td><td>$ —</td><td>$ (3)</td><td>$ 62</td><td></td><td></td><td></td></tr><tr><td>Corporate - public</td><td>70</td><td>—</td><td>3</td><td>30</td><td>(113)</td><td>86</td><td>(11)</td><td>—</td><td>(4)</td><td>61</td><td></td><td></td><td></td></tr><tr><td>Corporate - privately placed</td><td>90</td><td>(1)</td><td>2</td><td>43</td><td>(2)</td><td>4</td><td>(13)</td><td>—</td><td>(9)</td><td>114</td><td></td><td></td><td></td></tr><tr><td>ABS</td><td>69</td><td>1</td><td>(1)</td><td>76</td><td>(210)</td><td>159</td><td>(22)</td><td>—</td><td>(7)</td><td>65</td><td></td><td></td><td></td></tr><tr><td>MBS</td><td>26</td><td>—</td><td>(2)</td><td>9</td><td>—</td><td>9</td><td>—</td><td>—</td><td>(2)</td><td>40</td><td></td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>325</td><td>1</td><td>6</td><td>158</td><td>(330)</td><td>258</td><td>(51)</td><td>—</td><td>(25)</td><td>342</td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>341</td><td>30</td><td>—</td><td>—</td><td>—</td><td>82</td><td>(82)</td><td>—</td><td>—</td><td>371</td><td></td><td></td><td></td></tr><tr><td>Short-term investments</td><td>30</td><td>—</td><td>—</td><td>—</td><td>—</td><td>35</td><td>(40)</td><td>—</td><td>—</td><td>25</td><td></td><td></td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>1</td><td>(1)</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 recurring Level 3 assets</td><td>697</td><td>30</td><td>6</td><td>158</td><td>(330)</td><td>375</td><td>(173)</td><td>—</td><td>(25)</td><td>738</td><td></td><td></td><td></td></tr><tr><td>Liabilities</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><tr><td>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>(224)</td><td>(61)</td><td>—</td><td>(175)</td><td>—</td><td>—</td><td>—</td><td>(16)</td><td>14</td><td>(462)</td><td></td><td></td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>$ (224)</td><td>$ (61)</td><td>$ —</td><td>$ (175)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (16)</td><td>$ —</td><td>$ (462)</td><td></td><td></td><td></td></tr></table>

Total Level 3 gains (losses) included in net income for the year ended December 31, 2019

<table><tr><td>($ in millions)</td><td>Net investment income</td><td>Realized capital gains and losses</td><td>Life contract benefits</td><td>Interest credited to contractholder funds</td><td>Total</td></tr><tr><td>Components of net income</td><td>$ (2)</td><td>$ 32</td><td>$ 7</td><td>$ (68)</td><td>$ (31)</td></tr></table>

Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2018

<table><tr><td>($ in millions)</td><td>Balance as of December 31, 2017</td><td colspan="3">Total gains (losses) included in:</td><td colspan="3">Transfers</td><td></td><td></td><td></td><td></td><td>Balance as of December 31, 2018</td></tr><tr><td>Assets</td><td></td><td>Net income</td><td>OCI</td><td>Into Level 3</td><td>Out of Level 3</td><td>Purchases</td><td>Sales</td><td>Issues</td><td>Settlements</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><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 101</td><td>$ 1</td><td>$ (2)</td><td>$ —</td><td>$ (26)</td><td>$ 10</td><td>$ (8)</td><td>$ —</td><td>$ (6)</td><td>$ 70</td><td></td><td></td></tr><tr><td>Corporate - public</td><td>108</td><td>—</td><td>(3)</td><td>17</td><td>(21)</td><td>10</td><td>(38)</td><td>—</td><td>(3)</td><td>70</td><td></td><td></td></tr><tr><td>Corporate - privately placed</td><td>224</td><td>(1)</td><td>(3)</td><td>20</td><td>(119)</td><td>22</td><td>(5)</td><td>—</td><td>(48)</td><td>90</td><td></td><td></td></tr><tr><td>ABS</td><td>147</td><td>—</td><td>2</td><td>42</td><td>(159)</td><td>160</td><td>(97)</td><td>—</td><td>(26)</td><td>69</td><td></td><td></td></tr><tr><td>MBS</td><td>26</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1</td><td>—</td><td>—</td><td>(1)</td><td>26</td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>606</td><td>—</td><td>(6)</td><td>79</td><td>(325)</td><td>203</td><td>(148)</td><td>—</td><td>(64)</td><td>325</td><td></td><td></td></tr><tr><td>Equity securities</td><td>210</td><td>37</td><td>—</td><td>—</td><td>—</td><td>109</td><td>(15)</td><td>—</td><td>—</td><td>341</td><td></td><td></td></tr><tr><td>Short-term investments</td><td>20</td><td>—</td><td>—</td><td>—</td><td>—</td><td>55</td><td>(45)</td><td>—</td><td>—</td><td>30</td><td></td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>1</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>-</td><td>1</td><td></td><td></td></tr><tr><td>Total recurring Level 3 assets</td><td>$ 837</td><td>$ 37</td><td>$ (6)</td><td>$ 79</td><td>$ (325)</td><td>$ 367</td><td>$ (208)</td><td>$ —</td><td>$ (84)</td><td>$ 697</td><td></td><td></td></tr><tr><td>Liabilities</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>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>$ (286)</td><td>$ 58</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (2)</td><td>$ 6</td><td>$ (224)</td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>$ (286)</td><td>$ 58</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (2)</td><td>$ 6</td><td>$ (224)</td><td></td></tr></table>

Total Level 3 gains (losses) included in net income for the year ended December 31, 2018

<table><tr><td>($ in millions)</td><td>Net investment income</td><td>Realized capital gains and losses</td><td>Life contract benefits</td><td>Interest credited to contractholder funds</td><td>Total</td></tr><tr><td>Components of net income</td><td>$ —</td><td>$ 37</td><td>$ (5)</td><td>$ 63</td><td>$ 95</td></tr></table>



Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2017

<table><tr><td>($ in millions)</td><td>Balance as of December 31, 2016</td><td colspan="3">Total gains (losses) included in:</td><td colspan="3">Transfers</td><td rowspan="2">Purchases</td><td rowspan="2">Sales</td><td rowspan="2">Issues</td><td rowspan="2">Settlements</td><td rowspan="2">Balance as of December 31, 2017</td></tr><tr><td>Assets</td><td></td><td>Net income</td><td>OCI</td><td>Into Level 3</td><td>Out of Level 3</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><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 125</td><td>$ (1)</td><td>$ 7</td><td>$ —</td><td>$ (6)</td><td>$ 8</td><td>$ (29)</td><td>$ —</td><td>$ (3)</td><td>$ 101</td><td></td><td></td></tr><tr><td>Corporate - public</td><td>78</td><td>—</td><td>—</td><td>4</td><td>(30)</td><td>60</td><td>—</td><td>—</td><td>(4)</td><td>108</td><td></td><td></td></tr><tr><td>Corporate - privately placed</td><td>263</td><td>8</td><td>(2)</td><td>30</td><td>(49)</td><td>44</td><td>(30)</td><td>—</td><td>(40)</td><td>224</td><td></td><td></td></tr><tr><td>ABS</td><td>69</td><td>—</td><td>6</td><td>60</td><td>(280)</td><td>322</td><td>—</td><td>—</td><td>(30)</td><td>147</td><td></td><td></td></tr><tr><td>MBS</td><td>23</td><td>—</td><td>—</td><td>—</td><td>—</td><td>6</td><td>—</td><td>—</td><td>(3)</td><td>26</td><td></td><td></td></tr><tr><td>Total fixed income securities</td><td>558</td><td>7</td><td>11</td><td>94</td><td>(365)</td><td>440</td><td>(59)</td><td>—</td><td>(80)</td><td>606</td><td></td><td></td></tr><tr><td>Equity securities</td><td>163</td><td>13</td><td>4</td><td>—</td><td>(4)</td><td>48</td><td>(14)</td><td>—</td><td>—</td><td>210</td><td></td><td></td></tr><tr><td>Short-term investments</td><td>15</td><td>—</td><td>—</td><td>—</td><td>—</td><td>45</td><td>(40)</td><td>—</td><td>—</td><td>20</td><td></td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>(2)</td><td>3</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1</td><td></td><td></td></tr><tr><td>Other assets</td><td>1</td><td>(1)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1</td><td></td><td></td></tr><tr><td>Total recurring Level 3 assets</td><td>$ 735</td><td>$ 22</td><td>$ 15</td><td>$ 94</td><td>$ (369)</td><td>$ 533</td><td>$ (113)</td><td>$ —</td><td>$ (80)</td><td>$ 837</td><td></td><td></td></tr><tr><td>Liabilities</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>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>$ (290)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (2)</td><td>$ 6</td><td>$ (286)</td><td></td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>$ (290)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (2)</td><td>$ 6</td><td>$ (286)</td><td></td><td></td></tr></table>

Total Level 3 gains (losses) included in net income for the year ended December 31, 2017

<table><tr><td>($ in millions)</td><td>Net investment income</td><td>Realized capital gains and losses</td><td>Life contract benefits</td><td>Interest credited to contractholder funds</td><td>Total</td></tr><tr><td>Components of net income</td><td>$ 19</td><td>$ 4</td><td>$ 9</td><td>$ (10)</td><td>$ 22</td></tr></table>

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, including situations where a fair value quote is not provided by the Company's independent third-party valuation service provider resulting in the price becoming stale or replaced with a broker quote whose inputs have not been corroborated to be market observable. This situation will result in the transfer of a security 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 2019, 2018 or 2017.

Transfers into Level 3 during 2019, 2018 and 2017 included situations where a 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 where the inputs had not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers into Level 3 during 2019 also included derivatives embedded in equity-indexed universal life contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs.

Transfers out of Level 3 during 2019, 2018 and 2017 included situations where a broker quote was used in the prior period and a 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.



<table><tr><td colspan="5">Valuation changes included in net income for Level 3 assets and liabilities held as of</td></tr><tr><td>($ in millions)</td><td>2019</td><td colspan="2">December 31, 2018</td><td>2017</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Municipal</td><td>$ 1</td><td>$ —</td><td>$ (3)</td><td></td></tr><tr><td>Corporate</td><td>—</td><td>—</td><td>1</td><td></td></tr><tr><td>Total fixed income securities</td><td>1</td><td>—</td><td>(2)</td><td></td></tr><tr><td>Equity securities</td><td>6</td><td>36</td><td>13</td><td></td></tr><tr><td>Free-standing derivatives, net</td><td>(1)</td><td>—</td><td>—</td><td></td></tr><tr><td>Other assets</td><td>—</td><td>—</td><td>(1)</td><td></td></tr><tr><td>Total recurring Level 3 assets</td><td>$ 6</td><td>$ 36</td><td>$ 10</td><td></td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds: Derivatives embedded in life and annuity contracts</td><td>$ (61)</td><td>$ 58</td><td>$ —</td><td></td></tr><tr><td>Total recurring Level 3 liabilities</td><td>(61)</td><td>58</td><td>—</td><td></td></tr><tr><td>Total included in net income</td><td>$ (55)</td><td>$ 94</td><td>$ 10</td><td></td></tr><tr><td>Components of net income</td><td></td><td></td><td></td><td></td></tr><tr><td>Net investment income</td><td>$ (2)</td><td>$ —</td><td>$ 19</td><td></td></tr><tr><td>Realized capital gains and losses</td><td>8</td><td>36</td><td>(8)</td><td></td></tr><tr><td>Life contract benefits</td><td>7</td><td>(5)</td><td>9</td><td></td></tr><tr><td>Interest credited to contractholder funds</td><td>(68)</td><td>63</td><td>(10)</td><td></td></tr><tr><td>Total included in net income</td><td>$ (55)</td><td>$ 94</td><td>$ 10</td><td></td></tr></table>

<table><tr><td colspan="6">Carrying values and fair value estimates of financial instruments not carried at fair value</td></tr><tr><td rowspan="2">(\( in millions)</td><td rowspan="2">Fair value level</td><td colspan="2">December 31, 2019</td><td colspan="2">December 31, 2018</td></tr><tr><td>Carrying value</td><td>Fair value</td><td>Carrying value</td><td>Fair value</td></tr><tr><td>Financial assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Mortgage loans</td><td>Level 3</td><td>$ 4,817</td><td>$ 5,012</td><td>$ 4,670</td><td>$ 4,703</td></tr><tr><td>Bank loans</td><td>Level 3</td><td>1,204</td><td>1,185</td><td>1,350</td><td>1,298</td></tr><tr><td>Agent loans</td><td>Level 3</td><td>666</td><td>664</td><td>620</td><td>617</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Financial liabilities</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Contractholder funds on investment contracts</td><td>Level 3</td><td>8,438</td><td>9,158</td><td>9,250</td><td>9,665</td></tr><tr><td>Long-term debt</td><td>Level 2</td><td>6,631</td><td>7,738</td><td>6,451</td><td>6,708</td></tr><tr><td>Liability for collateral</td><td>Level 2</td><td>$ 1,829</td><td>$ 1,829</td><td>$ 1,458</td><td>$ 1,458</td></tr></table>

## Note 7 Derivative Financial Instruments and Off-balance Sheet Financial Instruments

The Company uses derivatives for risk reduction and to increase investment portfolio returns through asset replication. Risk reduction activity is focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives. The Company replicates fixed income securities using a combination of a credit default swap, index total return swap, or a foreign currency forward contract and one or more highly rated fixed income securities, primarily investment grade host bonds, to synthetically replicate the economic characteristics of one or more cash market securities. The Company replicates equity securities using futures, index total return swaps, and options to increase equity exposure.
Property-Liability may use interest rate swaps, swaptions, futures and options to manage the interest rate risks of existing investments. These instruments 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. Fixed income index total return swaps are used to offset valuation losses in the fixed income portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio. Equity index total return swaps, futures and options are used by Property-Liability to offset valuation losses in the equity portfolio during periods of declining equity market values. In addition, equity futures are used to hedge the market risk related to deferred compensation liability contracts. Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with



## Notes to Consolidated Financial Statements

holding foreign currency denominated investments and foreign operations.

Asset-liability management is a risk management practice that is principally employed by Allstate Life and Allstate Annuities 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, 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. Fixed income index total return swaps are used to offset valuation losses in the portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Allstate Life and Allstate Annuities fixed income portfolios. Futures and options are used for hedging the equity exposure contained in equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, the Company uses equity index total return swaps, options and futures to offset valuation losses in the equity portfolio during periods of declining equity market values. Foreign currency swaps and forwards are primarily used to reduce the foreign currency risk associated with holding foreign currency denominated investments.

The Company also 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 changes in fair value of embedded derivatives reported in net income. The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide returns linked to equity indices to contractholders.

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 Company designates 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. The fair value of the hedged liability is reported in contractholder funds in the Consolidated Statements of Financial Position. The impact from results of the fair value hedge is reported in interest credited to contractholder funds in the Consolidated Statements of Operations.

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 enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Consolidated Statements of Financial Position.

For those derivatives which qualify and have been designated as fair value accounting hedges, net income includes the changes in the fair value of both the derivative instrument and the hedged risk. For cash flow hedges, gains and losses are amortized from AOCI and are reported in net income in the same period the forecasted transactions being hedged impact net income.

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. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable. 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.

Fair value hedges The Company had one derivative designated as a fair value hedge as of December 31, 2019 and 2018.

Cash flow hedges The Company had no derivatives designated as a cash flow hedge as of December 31, 2019 and 2018.



Summary of the volume and fair value positions of derivative instruments as of December 31, 2018

<table><tr><td rowspan="2">($ in millions, except number of contracts)</td><td rowspan="2">Balance sheet location</td><td colspan="2">Volume</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>Asset derivatives</td><td></td><td></td><td></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></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate cap agreements</td><td>Other investments</td><td>$ 6</td><td>n/a</td><td>$ -</td><td>$ -</td><td>$ -</td></tr><tr><td>Futures</td><td>Other assets</td><td>-</td><td>1,330</td><td>1</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></tr><tr><td>Options</td><td>Other investments</td><td>-</td><td>11,131</td><td>115</td><td>115</td><td>-</td></tr><tr><td>Futures</td><td>Other assets</td><td>-</td><td>1,453</td><td>1</td><td>1</td><td>-</td></tr><tr><td>Total return index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total return swap agreements - fixed income</td><td>Other investments</td><td>7</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Total return swap agreements - equity index</td><td>Other investments</td><td>61</td><td>n/a</td><td>(2)</td><td>-</td><td>(2)</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 forwards</td><td>Other investments</td><td>258</td><td>n/a</td><td>10</td><td>11</td><td>(1)</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>136</td><td>n/a</td><td>(1)</td><td>2</td><td>(3)</td></tr><tr><td>Other contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other</td><td>Other assets</td><td>2</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Total asset derivatives</td><td></td><td>$ 470</td><td>13,914</td><td>$ 124</td><td>$ 130</td><td>$ (6)</td></tr><tr><td>Liability derivatives</td><td></td><td></td><td></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></tr><tr><td>Interest rate contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate cap agreements</td><td>Other liabilities &amp; accrued expenses</td><td>$ 31</td><td>n/a</td><td>$ 1</td><td>$ 1</td><td>$ -</td></tr><tr><td>Futures</td><td>Other liabilities &amp; accrued expenses</td><td>-</td><td>1,300</td><td>(1)</td><td>-</td><td>(1)</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 and futures</td><td>Other liabilities &amp; accrued expenses</td><td>-</td><td>10,956</td><td>(50)</td><td>-</td><td>(50)</td></tr><tr><td>Total return index contracts</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total return swap agreements - fixed income</td><td>Other liabilities &amp; accrued expenses</td><td>38</td><td>n/a</td><td>(1)</td><td>-</td><td>(1)</td></tr><tr><td>Total return swap agreements - equity index</td><td>Other liabilities &amp; accrued expenses</td><td>71</td><td>n/a</td><td>(4)</td><td>-</td><td>(4)</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 forwards</td><td>Other liabilities &amp; accrued expenses</td><td>341</td><td>n/a</td><td>10</td><td>11</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>Guaranteed accumulation benefits</td><td>Contrachtholder funds</td><td>169</td><td>n/a</td><td>(25)</td><td>-</td><td>(25)</td></tr><tr><td>Guaranteed withdrawal benefits</td><td>Contrachtholder funds</td><td>210</td><td>n/a</td><td>(14)</td><td>-</td><td>(14)</td></tr><tr><td>Equity-indexed and forward starting options in life and annuity product contracts</td><td>Contrachtholder funds</td><td>1,770</td><td>n/a</td><td>(185)</td><td>-</td><td>(185)</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>40</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Credit default swaps - selling protection</td><td>Other liabilities &amp; accrued expenses</td><td>5</td><td>n/a</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Total liability derivatives</td><td></td><td>2,675</td><td>12,256</td><td>(269)</td><td>$ 12</td><td>$ (281)</td></tr><tr><td>Total derivatives</td><td></td><td>$ 3,145</td><td>26,170</td><td>$ (145)</td><td></td><td></td></tr></table>



<table><tr><td colspan="9">Gross and net amounts for OTC derivatives (1)</td></tr><tr><td></td><td></td><td colspan="4">Offsets</td><td></td><td></td><td></td></tr><tr><td>($ in millions)</td><td>Gross amount</td><td>Counter-party netting</td><td>Cash collateral (received) pledged</td><td>Net amount on balance sheet</td><td>Securities collateral (received) pledged</td><td>Net amount</td><td></td><td></td></tr><tr><td>December 31, 2019</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Asset derivatives</td><td>$ 40</td><td>$ (39)</td><td>$ (1)</td><td>$ —</td><td>$ —</td><td>$ —</td><td></td><td></td></tr><tr><td>Liability derivatives</td><td>(16)</td><td>39</td><td>(27)</td><td>(4)</td><td>—</td><td>(4)</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>December 31, 2018</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Asset derivatives</td><td>$ 25</td><td>$ (18)</td><td>$ (5)</td><td>$ 2</td><td>$ —</td><td>$ 2</td><td></td><td></td></tr><tr><td>Liability derivatives</td><td>(12)</td><td>18</td><td>(12)</td><td>(6)</td><td>—</td><td>(6)</td><td></td><td></td></tr></table>

 \( ^{(1)} \)  All OTC derivatives are subject to enforceable master netting agreements.

<table><tr><td colspan="8">Gains (losses) from valuation and settlements reported on derivatives not designated as accounting hedges</td></tr><tr><td>($ in millions)</td><td></td><td>Realized capital gains (losses)</td><td>Life 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></tr><tr><td>2019</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>$ 51</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 51</td><td></td></tr><tr><td>Equity and index contracts</td><td>(116)</td><td>—</td><td></td><td>63</td><td>40</td><td>(13)</td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td>—</td><td>7</td><td></td><td>(70)</td><td>—</td><td>(63)</td><td></td></tr><tr><td>Foreign currency contracts</td><td>8</td><td>—</td><td></td><td>—</td><td>—</td><td>8</td><td></td></tr><tr><td>Credit default contracts</td><td>(8)</td><td>—</td><td></td><td>—</td><td>—</td><td>(8)</td><td></td></tr><tr><td>Total return swaps - fixed income</td><td>14</td><td>—</td><td></td><td>—</td><td>—</td><td>14</td><td></td></tr><tr><td>Total return swaps - equity index</td><td>36</td><td>—</td><td></td><td>—</td><td>—</td><td>36</td><td></td></tr><tr><td>Total</td><td>$ (15)</td><td>$ 7</td><td>$ (7)</td><td>$ 40</td><td>$ 25</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>2018</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>$ (2)</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ (2)</td><td></td></tr><tr><td>Equity and index contracts</td><td>21</td><td>—</td><td></td><td>(24)</td><td>(21)</td><td>(24)</td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td>—</td><td>(5)</td><td></td><td>67</td><td>—</td><td>62</td><td></td></tr><tr><td>Foreign currency contracts</td><td>29</td><td>—</td><td></td><td>—</td><td>(1)</td><td>28</td><td></td></tr><tr><td>Credit default contracts</td><td>2</td><td>—</td><td></td><td>—</td><td>—</td><td>2</td><td></td></tr><tr><td>Total return swaps - fixed income</td><td>(1)</td><td>—</td><td></td><td>—</td><td>—</td><td>(1)</td><td></td></tr><tr><td>Total return swaps - equity index</td><td>(6)</td><td>—</td><td></td><td>—</td><td>—</td><td>(6)</td><td></td></tr><tr><td>Total</td><td>$ 43</td><td>$ (5)</td><td>$ 43</td><td>$ (22)</td><td>$ 59</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>2017</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity and index contracts</td><td>$ (15)</td><td>$ —</td><td>$ 47</td><td>$ 28</td><td>$ 60</td><td></td><td></td></tr><tr><td>Embedded derivative financial instruments</td><td>—</td><td>9</td><td></td><td>(6)</td><td>—</td><td>3</td><td></td></tr><tr><td>Foreign currency contracts</td><td>(27)</td><td>—</td><td></td><td>—</td><td>6</td><td>(21)</td><td></td></tr><tr><td>Credit default contracts</td><td>(4)</td><td>—</td><td></td><td>—</td><td>—</td><td>(4)</td><td></td></tr><tr><td>Total</td><td>$ (46)</td><td>$ 9</td><td>$ 41</td><td>$ 34</td><td>$ 38</td><td></td><td></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 that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of December 31, 2019, counterparties pledged $31 million in collateral to the Company, and the Company pledged $3 million in cash and securities to counterparties which includes $3 million of collateral posted under MNAs for contracts containing credit-risk contingent provisions that are in a liability position.

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.

<table><tr><td colspan="11">OTC derivatives counterparty credit exposure by counterparty credit rating</td></tr><tr><td>($ in millions)</td><td colspan="4">2019</td><td colspan="6">2018</td></tr><tr><td>Rating (1)</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>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>A+</td><td>6</td><td>868</td><td>29</td><td>—</td><td>3</td><td>643</td><td>19</td><td>1</td><td></td><td></td></tr><tr><td>A</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2</td><td>121</td><td>1</td><td>—</td><td></td><td></td></tr><tr><td>Total</td><td>6</td><td>$ 868</td><td>$ 29</td><td>$ —</td><td>5</td><td>$ 764</td><td>$ 20</td><td>$ 1</td><td></td><td></td></tr></table>

(1) Allstate uses the lower of S&P's or Moody's long-term debt issuer ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts. As of December 31, 2019, the Company pledged $48 million in the form of margin deposits.

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 agreement or a specific trade on certain dates if AIC’s, AILC’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. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement 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 either Moody’s or 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>2019</td><td>2018</td></tr><tr><td>Gross liability fair value of contracts containing credit-risk-contingent features</td><td>$ 16</td><td>$ 11</td></tr><tr><td>Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs</td><td>(11)</td><td>(5)</td></tr><tr><td>Collateral posted under MNAs for contracts containing credit-risk-contingent features</td><td>(3)</td><td>(2)</td></tr><tr><td>Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently</td><td>$ 2</td><td>$ 4</td></tr></table>

## Off-balance sheet financial instruments

<table><tr><td colspan="3">Contractual amounts of off balance sheet financial instruments</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Commitments to invest in limited partnership interests</td><td>$ 2,837</td><td>$ 3,028</td></tr><tr><td>Private placement commitments</td><td>68</td><td>47</td></tr><tr><td>Other loan commitments</td><td>189</td><td>233</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 in limited partnership interests represent agreements to acquire new or additional participation in certain limited partnership



investments. The Company enters into these agreements in the normal course of business. Because the investments in limited partnerships are not actively traded, it is not practical to estimate the fair value of these commitments.

Private placement commitments represent commitments to purchase private placement debt and private equity securities at a future date. The Company enters into these agreements in the normal course of business. The fair value of the debt 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. Because the private equity securities are not actively traded, it is not practical to estimate fair value of the commitments.
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 have either fixed or varying expiration dates or other termination clauses. The fair value of these commitments is insignificant.

## Note 8 Reserve for Property and Casualty Insurance Claims and Claims Expense

The Company establishes reserves for claims and claims expense 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, Discontinued Lines and Coverages and reinsurance and indemnification recoverables, 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 and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined.

<table><tr><td colspan="4">Rollforward of reserve for property and casualty insurance claims and claims expense ($ in millions)</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Balance as of January 1</td><td>$ 27,423</td><td>$ 26,325</td><td>$ 25,250</td></tr><tr><td>Less recoverables  \( {}^{(1)} \)</td><td>(7,155)</td><td>(6,471)</td><td>(6,184)</td></tr><tr><td>Net balance as of January 1</td><td>20,268</td><td>19,854</td><td>19,066</td></tr><tr><td>SquareTrade acquisition as of January 3, 2017</td><td>—</td><td>—</td><td>17</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>24,106</td><td>23,033</td><td>22,350</td></tr><tr><td>Prior years</td><td>(130)</td><td>(255)</td><td>(503)</td></tr><tr><td>Total incurred</td><td>23,976</td><td>22,778</td><td>21,847</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>(15,160)</td><td>(14,877)</td><td>(14,112)</td></tr><tr><td>Prior years</td><td>(8,284)</td><td>(7,487)</td><td>(6,964)</td></tr><tr><td>Total paid</td><td>(23,444)</td><td>(22,364)</td><td>(21,076)</td></tr><tr><td>Net balance as of December 31</td><td>20,800</td><td>20,268</td><td>19,854</td></tr><tr><td>Plus recoverables</td><td>6,912</td><td>7,155</td><td>6,471</td></tr><tr><td>Balance as of December 31</td><td>$ 27,712</td><td>$ 27,423</td><td>$ 26,325</td></tr></table>

(1) Recoverables comprises reinsurance and indemnification recoverables. See Note 10 for further details.



Notes to Consolidated Financial Statements

<table><tr><td colspan="2">Reconciliation of total claims and claims expense incurred and paid by coverage</td><td colspan="2">December 31, 2019</td></tr><tr><td>($ in millions)</td><td></td><td>Incurred</td><td>Paid</td></tr><tr><td>Allstate Protection</td><td></td><td></td><td></td></tr><tr><td>Auto insurance - liability coverage</td><td>$</td><td>9,142</td><td>$ (8,419)</td></tr><tr><td>Auto insurance - physical damage coverage</td><td></td><td>5,576</td><td>(5,570)</td></tr><tr><td>Homeowners insurance</td><td></td><td>4,625</td><td>(4,616)</td></tr><tr><td>Total auto and homeowners insurance</td><td></td><td>19,343</td><td>(18,605)</td></tr><tr><td>Other personal lines</td><td></td><td>1,024</td><td>(1,059)</td></tr><tr><td>Commercial lines</td><td></td><td>648</td><td>(404)</td></tr><tr><td>Service Businesses</td><td></td><td>297</td><td>(311)</td></tr><tr><td>Discontinued Lines and Coverages</td><td></td><td>91</td><td>(121)</td></tr><tr><td>Unallocated loss adjustment expenses (“ULAE”)</td><td></td><td>2,687</td><td>(2,585)</td></tr><tr><td>Claims incurred and paid from before 2015</td><td></td><td>(97)</td><td>(444)</td></tr><tr><td>Other</td><td></td><td>(17)</td><td>85</td></tr><tr><td>Total</td><td></td><td>$ 23,976</td><td>$ (23,444)</td></tr></table>

Incurred claims and claims expense represents the sum of paid losses, claim adjustment expenses and reserve changes in the calendar year. This expense includes losses from catastrophes of $2.56 billion, $2.86 billion and $3.23 billion in 2019, 2018 and 2017, respectively, net of recoverables. Catastrophes are an inherent risk of the property and casualty 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.

<table><tr><td colspan="12">Prior year reserve reestimates included in claims and claims expense (1)</td></tr><tr><td rowspan="3">($ in millions)</td><td colspan="11">Twelve months ended December 31,</td></tr><tr><td colspan="5">Non-catastrophe losses</td><td colspan="5">Catastrophe losses</td><td>Total</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td></td><td></td><td></td></tr><tr><td>Auto (2)</td><td>$ (306)</td><td>$ (416)</td><td>$ (475)</td><td>$ (17)</td><td>$ (39)</td><td>$ (15)</td><td>$ (323)</td><td>$ (455)</td><td>$ (490)</td><td></td><td></td></tr><tr><td>Homeowners</td><td>(1)</td><td>(51)</td><td>(124)</td><td>66</td><td>65</td><td>(7)</td><td>65</td><td>14</td><td>(131)</td><td></td><td></td></tr><tr><td>Other personal lines</td><td>8</td><td>(6)</td><td>(2)</td><td>—</td><td>(1)</td><td>3</td><td>8</td><td>(7)</td><td>1</td><td></td><td></td></tr><tr><td>Commercial lines</td><td>18</td><td>108</td><td>18</td><td>(1)</td><td>—</td><td>1</td><td>17</td><td>108</td><td>19</td><td></td><td></td></tr><tr><td>Discontinued Lines and Coverages (3)</td><td>105</td><td>87</td><td>96</td><td>—</td><td>—</td><td>—</td><td>105</td><td>87</td><td>96</td><td></td><td></td></tr><tr><td>Service Businesses</td><td>(2)</td><td>(2)</td><td>2</td><td>—</td><td>—</td><td>—</td><td>(2)</td><td>(2)</td><td>2</td><td></td><td></td></tr><tr><td>Total prior year reserve reestimates</td><td>$ (178)</td><td>$ (280)</td><td>$ (485)</td><td>$ 48</td><td>$ 25</td><td>$ (18)</td><td>$ (130)</td><td>$ (255)</td><td>$ (503)</td><td></td><td></td></tr></table>

 \( ^{(1)} \)  Favorable reserve reestimates are shown in parentheses.

 \( ^{(2)} \)  Non-catastrophe results related to continued favorable personal lines auto injury coverage development.

 \( ^{(3)} \)  The Company’s 2019 annual reserve review, using established industry and actuarial best practices, resulted in unfavorable reestimates of $95 million.



The following presents information about incurred and paid claims development as of December 31, 2019, net of recoverables, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included in the net incurred claims amounts. See Note 2 for the accounting policy and methodology for determining reserves for claims and claims expense, including both reported and IBNR claims. The cumulative number of reported claims is identified by coverage and excludes reported claims for industry pools and facilities where information is not available. The information about incurred and paid claims development for the 2015 to 2019 years, and the average annual percentage payout of incurred claims by age as of December 31, 2019, is presented as required supplementary information.

## Auto insurance – liability coverage

<table><tr><td>($ in millions, except number of reported claims)</td><td colspan="9">Incurred claims and allocated claim adjustment expenses, net of recoverables</td></tr><tr><td></td><td colspan="4">For the years ended December 31, (unaudited)</td><td colspan="2">Prior year reserve reestimates</td><td colspan="3">IBNR reserves plus expected development on reported claims</td></tr><tr><td></td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td><td></td><td></td><td>As of December 31, 2019</td><td></td></tr><tr><td>Accident year</td><td>$ 8,763</td><td>$ 8,733</td><td>$ 8,677</td><td>$ 8,617</td><td>$ 8,578</td><td>$ (39)</td><td>$ 519</td><td>2,383,853</td><td></td></tr><tr><td>2016</td><td>—</td><td>9,030</td><td>8,833</td><td>8,732</td><td>8,683</td><td>(49)</td><td>988</td><td>2,399,890</td><td></td></tr><tr><td>2017</td><td>—</td><td>—</td><td>8,457</td><td>8,389</td><td>8,305</td><td>(84)</td><td>1,777</td><td>2,214,254</td><td></td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>8,727</td><td>8,708</td><td>(19)</td><td>3,093</td><td>2,169,753</td><td></td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>9,333</td><td></td><td>5,838</td><td>2,108,919</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td>Total</td><td>$ 43,607</td><td>$ (191)</td><td></td><td></td><td></td></tr><tr><td colspan="10">Reconciliation to total prior year reserve reestimates recognized by line</td></tr><tr><td colspan="5">Prior year reserve reestimates for pre-2015 accident years</td><td></td><td></td><td>(56)</td><td></td><td></td></tr><tr><td colspan="5">Prior year reserve reestimates for ULAE</td><td></td><td></td><td>14</td><td></td><td></td></tr><tr><td colspan="5">Other</td><td></td><td></td><td>(1)</td><td></td><td></td></tr><tr><td colspan="5">Total prior year reserve reestimates</td><td></td><td></td><td>(234)</td><td></td><td></td></tr></table>

Cumulative paid claims and allocated claims adjustment expenses, net of recoverables

<table><tr><td></td><td colspan="5">For the years ended December 31, (unaudited)</td></tr><tr><td></td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td></tr><tr><td>Accident year</td><td>$ 3,524</td><td>$ 5,837</td><td>$ 6,883</td><td>$ 7,565</td><td>$ 8,059</td></tr><tr><td>2015</td><td>—</td><td>3,485</td><td>5,768</td><td>6,849</td><td>7,695</td></tr><tr><td>2016</td><td>—</td><td>—</td><td>3,149</td><td>5,330</td><td>6,528</td></tr><tr><td>2017</td><td>—</td><td>—</td><td>—</td><td>3,229</td><td>5,615</td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,495</td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,495</td></tr></table>

<table><tr><td colspan="6">Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019</td></tr><tr><td></td><td>1 year</td><td>2 years</td><td>3 years</td><td>4 years</td><td>5 years</td></tr><tr><td>Auto insurance - liability coverage</td><td>40.0%</td><td>27.2%</td><td>12.9%</td><td>8.2%</td><td>4.9%</td></tr></table>



<table><tr><td>($ in millions, except number of reported claims)</td><td colspan="9">Incurred claims and allocated claim adjustment expenses, net of recoverables</td></tr><tr><td></td><td colspan="4">For the years ended December 31, (unaudited)</td><td colspan="2">Prior year reserve reestimates</td><td colspan="3">As of December 31, 2019</td></tr><tr><td>Accident year</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td><td></td><td></td><td></td><td></td></tr><tr><td>2015</td><td>$ 4,653</td><td>$ 4,681</td><td>$ 4,669</td><td>$ 4,660</td><td>$ 4,656</td><td>$ (4)</td><td>$ 2</td><td>4,390,288</td><td></td></tr><tr><td>2016</td><td>—</td><td>5,125</td><td>5,052</td><td>5,025</td><td>5,020</td><td>(5)</td><td>5</td><td>4,431,735</td><td></td></tr><tr><td>2017</td><td>—</td><td>—</td><td>5,119</td><td>5,037</td><td>5,025</td><td>(12)</td><td>(2)</td><td>4,236,640</td><td></td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>5,216</td><td>5,154</td><td>(62)</td><td>17</td><td>4,306,335</td><td></td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>5,659</td><td></td><td>244</td><td>4,312,306</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td>Total</td><td>$ 25,514</td><td>$ (83)</td><td></td><td></td><td></td></tr><tr><td colspan="10">Reconciliation to total prior year reserve reestimates recognized by line</td></tr><tr><td colspan="5">Prior year reserve reestimates for pre-2015 accident years</td><td colspan="5">(4)</td></tr><tr><td colspan="5">Prior year reserve reestimates for ULAE</td><td colspan="5">(2)</td></tr><tr><td colspan="5">Other</td><td colspan="5">—</td></tr><tr><td colspan="5">Total prior year reserve reestimates</td><td colspan="5">$ (89)</td></tr></table>

<table><tr><td colspan="7">Cumulative paid claims and allocated claims adjustment expenses, net of recoverables</td></tr><tr><td></td><td colspan="3">For the years ended December 31, (unaudited)</td><td colspan="3">(unaudited)</td></tr><tr><td>Accident year</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td><td></td></tr><tr><td>2015</td><td>$ 4,507</td><td>$ 4,672</td><td>$ 4,658</td><td>$ 4,655</td><td>$ 4,654</td><td></td></tr><tr><td>2016</td><td>—</td><td>4,887</td><td>5,031</td><td>5,019</td><td>5,016</td><td></td></tr><tr><td>2017</td><td>—</td><td>—</td><td>4,845</td><td>5,036</td><td>5,027</td><td></td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>4,968</td><td>5,137</td><td></td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>5,414</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td>Total</td><td>$ 25,248</td><td></td></tr><tr><td colspan="5">All outstanding liabilities before 2015, net of recoverables</td><td colspan="2">7</td></tr><tr><td colspan="5">Liabilities for claims and claim adjustment expenses, net of recoverables</td><td colspan="2">$ 273</td></tr></table>

<table><tr><td colspan="7">Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019</td></tr><tr><td></td><td>1 year</td><td>2 years</td><td>3 years</td><td>4 years</td><td>5 years</td><td></td></tr><tr><td>Auto insurance - physical damage coverage</td><td>97.0%</td><td>3.0%</td><td>(0.2)%</td><td>—%</td><td>—%</td><td></td></tr></table>



<table><tr><td>($ in millions, except number of reported claims)</td><td colspan="6">Incurred claims and allocated claim adjustment expenses, net of recoverables</td><td colspan="2">IBNR reserves plus expected development on reported claims</td><td>Cumulative number of reported claims</td></tr><tr><td></td><td colspan="6">For the years ended December 31, (unaudited)</td><td rowspan="2">Prior year reserve reestimates</td><td rowspan="2">As of December 31, 2019</td><td rowspan="2"></td></tr><tr><td>Accident year</td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td><td></td></tr><tr><td>2015</td><td>$ 3,558</td><td>$ 3,611</td><td>$ 3,553</td><td>$ 3,537</td><td>$ 3,520</td><td>$ (17)</td><td>$ 36</td><td>721,328</td></tr><tr><td>2016</td><td>—</td><td>3,959</td><td>3,993</td><td>3,955</td><td>3,951</td><td>(4)</td><td>77</td><td>813,728</td></tr><tr><td>2017</td><td>—</td><td>—</td><td>4,475</td><td>4,617</td><td>4,612</td><td>(5)</td><td>177</td><td>907,218</td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>4,747</td><td>4,851</td><td>104</td><td>340</td><td>807,012</td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>4,547</td><td></td><td>1,233</td><td>721,434</td></tr><tr><td></td><td></td><td></td><td></td><td>Total</td><td>$ 21,481</td><td>$ 78</td><td></td><td></td></tr><tr><td colspan="9">Reconciliation to total prior year reserve reestimates recognized by line</td></tr><tr><td colspan="9">Prior year reserve reestimates for pre-2015 accident years</td></tr><tr><td colspan="9">Prior year reserve reestimates for ULAE</td></tr><tr><td colspan="9">Other</td></tr><tr><td colspan="6">Total prior year reserve reestimates</td><td>$ 65</td><td></td><td></td></tr></table>

Cumulative paid claims and allocated claims adjustment expenses, net of recoverables

<table><tr><td></td><td colspan="6">For the years ended December 31, (unaudited)</td></tr><tr><td></td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>2019</td><td></td></tr><tr><td>2015</td><td>$ 2,586</td><td>$ 3,296</td><td>$ 3,399</td><td>$ 3,458</td><td>$ 3,484</td><td></td></tr><tr><td>2016</td><td>—</td><td>2,947</td><td>3,678</td><td>3,809</td><td>3,874</td><td></td></tr><tr><td>2017</td><td>—</td><td>—</td><td>3,227</td><td>4,246</td><td>4,435</td><td></td></tr><tr><td>2018</td><td>—</td><td>—</td><td>—</td><td>3,489</td><td>4,511</td><td></td></tr><tr><td>2019</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,314</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td>Total</td><td>$ 19,618</td><td></td></tr><tr><td colspan="6">All outstanding liabilities before 2015, net of recoverables</td><td>126</td></tr><tr><td colspan="6">Liabilities for claims and claim adjustment expenses, net of recoverables</td><td>$ 1,989</td></tr></table>

<table><tr><td colspan="6">Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019</td></tr><tr><td></td><td>1 year</td><td>2 years</td><td>3 years</td><td>4 years</td><td>5 years</td></tr><tr><td>Homeowners insurance</td><td>74.5%</td><td>18.9%</td><td>3.1%</td><td>1.4%</td><td>0.7%</td></tr></table>



Reconciliation of the net incurred and paid claims development tables above to the reserve for property and casualty insurance claims and claims expense

<table><tr><td>($ in millions)</td><td>As of December 31, 2019</td></tr><tr><td>Net outstanding liabilities</td><td></td></tr><tr><td>Allstate Protection</td><td></td></tr><tr><td>Auto insurance - liability coverage</td><td>$ 13,489</td></tr><tr><td>Auto insurance - physical damage coverage</td><td>273</td></tr><tr><td>Homeowners insurance</td><td>1,989</td></tr><tr><td>Other personal lines</td><td>1,326</td></tr><tr><td>Commercial lines</td><td>1,010</td></tr><tr><td>Service Businesses</td><td>36</td></tr><tr><td>Discontinued Lines and Coverages (1)</td><td>1,286</td></tr><tr><td>ULAE</td><td>1,391</td></tr><tr><td>Net reserve for property and casualty insurance claims and claims expense</td><td>20,800</td></tr><tr><td>Recoverables</td><td></td></tr><tr><td>Allstate Protection</td><td></td></tr><tr><td>Auto insurance - liability coverage</td><td>5,891</td></tr><tr><td>Auto insurance - physical damage coverage</td><td>3</td></tr><tr><td>Homeowners insurance</td><td>214</td></tr><tr><td>Other personal lines</td><td>160</td></tr><tr><td>Commercial lines</td><td>130</td></tr><tr><td>Service Businesses</td><td>13</td></tr><tr><td>Discontinued Lines and Coverages</td><td>452</td></tr><tr><td>ULAE</td><td>49</td></tr><tr><td>Total recoverables</td><td>6,912</td></tr><tr><td>Gross reserve for property and casualty insurance claims and claims expense</td><td>$ 27,712</td></tr></table>

(1) Discontinued Lines and Coverages includes business in run-off with most of the claims related to accident years more than 30 years ago. IBNR reserves represent $660 million of the total reserves as of December 31, 2019.

Management believes that the reserve for property and casualty insurance claims and claims expense, net of 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.
Allstate’s reserves for asbestos claims were $810 million and $866 million, net of reinsurance recoverables of $362 million and $400 million, as of December 31, 2019 and 2018, respectively. Reserves for environmental claims were $179 million and $170 million, net of reinsurance recoverables of $40 million and $39 million, as of December 31, 2019 and 2018, respectively. For further discussion of asbestos and environmental reserves, see Note 14.



## Note 9 Reserve for Life-Contingent Contract Benefits and Contractholder Funds

<table><tr><td colspan="4">Reserve for life-contingent contract benefits</td></tr><tr><td>($ in millions)</td><td></td><td>As of December 31, 2019</td><td>2018</td></tr><tr><td>Immediate fixed annuities:</td><td></td><td></td><td></td></tr><tr><td>Structured settlement annuities</td><td></td><td>$ 6,840</td><td>$ 6,701</td></tr><tr><td>Other immediate fixed annuities</td><td></td><td>1,612</td><td>1,714</td></tr><tr><td>Traditional life insurance</td><td></td><td>2,897</td><td>2,808</td></tr><tr><td>Accident and health insurance</td><td></td><td>873</td><td>876</td></tr><tr><td>Other</td><td></td><td>78</td><td>109</td></tr><tr><td>Total reserve for life-contingent contract benefits</td><td></td><td>$ 12,300</td><td>$ 12,208</td></tr></table>

<table><tr><td colspan="4">Key assumptions generally used in calculating the reserve for life-contingent contract benefits</td></tr><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 3.8% to 7.5%</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; Annuity 2000 mortality table; 1983 individual annuity mortality table with internal modifications</td><td>Interest rate assumptions range from 0.3% to 9.0%</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 2.5% to 11.3%</td><td>Net level premium reserve method using the Company&#x27;s withdrawal experience rates; includes reserves for unpaid claims</td></tr><tr><td>Accident and health insurance</td><td>Actual company experience plus loading</td><td>Interest rate assumptions range from 3.0% to 7.0%</td><td>Unearned premium; additional contract reserves for mortality risk and unpaid claims</td></tr><tr><td>Other: Variable annuity guaranteed minimum death benefits (1)</td><td>Annuity 2012 mortality table with internal modifications</td><td>Interest rate assumptions range from 2.0% to 5.8%</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”).

The Company records an adjustment to the reserve for life-contingent contract benefits that represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product investment portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. The offset to this liability is recorded as a reduction of the unrealized net capital gains included in AOCI. This liability was $126 million and zero as of December 31, 2019 and 2018, respectively.

<table><tr><td colspan="3">Contractholder funds</td></tr><tr><td>($ in millions)</td><td></td><td>As of December 31, 2019</td></tr><tr><td>Interest-sensitive life insurance</td><td></td><td>$ 8,384</td></tr><tr><td>Investment contracts:</td><td></td><td></td></tr><tr><td>Fixed annuities</td><td></td><td>8,845</td></tr><tr><td>Other investment contracts</td><td></td><td>463</td></tr><tr><td>Total contractholder funds</td><td></td><td>$ 17,692</td></tr></table>



Notes to Consolidated Financial Statements

<table><tr><td colspan="3">Key contract provisions of contractholder funds</td></tr><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 0.0% to 10.0% for equity-indexed life (whose returns are indexed to the S&amp;P 500) and 1.0% 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 0.5% to 7.5% for immediate annuities; (8.0)% to 10.0% for equity-indexed annuities (whose returns are indexed to the S&amp;P 500); and 0.1% to 6.0% for all other products</td><td>Either a declining or a level percentage charge generally over ten years or less. Additionally, approximately 12.0% of fixed annuities are subject to market value adjustment for discretionary withdrawals</td></tr><tr><td>Other investment contracts: Guaranteed minimum income, accumulation and withdrawal benefits on variable (1) and fixed annuities and secondary guarantees on interest-sensitive life insurance and fixed annuities</td><td>Interest rates used in establishing reserves range from 1.7% 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></table>

 \( ^{(1)} \)  In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.

<table><tr><td colspan="5">Contractholder funds activity</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$ 18,371</td><td>$ 19,434</td><td>$ 20,260</td><td></td></tr><tr><td>Deposits</td><td>1,091</td><td>1,109</td><td>1,130</td><td></td></tr><tr><td>Interest credited</td><td>636</td><td>650</td><td>687</td><td></td></tr><tr><td>Benefits</td><td>(791)</td><td>(844)</td><td>(901)</td><td></td></tr><tr><td>Surrenders and partial withdrawals</td><td>(884)</td><td>(1,135)</td><td>(999)</td><td></td></tr><tr><td>Contract charges</td><td>(825)</td><td>(824)</td><td>(826)</td><td></td></tr><tr><td>Net transfers from separate accounts</td><td>10</td><td>6</td><td>5</td><td></td></tr><tr><td>Other adjustments</td><td>84</td><td>(25)</td><td>78</td><td></td></tr><tr><td>Balance, end of year</td><td>$ 17,692</td><td>$ 18,371</td><td>$ 19,434</td><td></td></tr></table>

The Company offered various guarantees to variable annuity contractholders. In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential. 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. 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.
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 annuity contracts' separate accounts with guarantees included $2.68 billion and $2.47 billion of equity, fixed income and balanced mutual funds and $253 million and $245 million of money market mutual funds as of December 31, 2019 and 2018, 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">As of December 31,</td></tr><tr><td>2019</td><td>2018</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>$ 2,928</td><td>$ 2,711</td><td></td></tr><tr><td>Net amount at risk (1)</td><td>$ 373</td><td>$ 605</td><td></td></tr><tr><td>Average attained age of contractholders</td><td>71 years</td><td>71 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>$ 848</td><td>$ 778</td><td></td></tr><tr><td>Net amount at risk (2)</td><td>$ 173</td><td>$ 264</td><td></td></tr><tr><td>Weighted average waiting period until annuitization options available</td><td>None</td><td>None</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>$ 190</td><td>$ 190</td><td></td></tr><tr><td>Net amount at risk (3)</td><td>$ 13</td><td>$ 16</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>$ 123</td><td>$ 129</td><td></td></tr><tr><td>Net amount at risk (4)</td><td>$ 15</td><td>$ 26</td><td></td></tr><tr><td>Weighted average waiting period until guarantee date</td><td>4 years</td><td>4 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 excess guarantee benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract excess guarantee benefits divided by the present value of all expected contract charges. The establishment of reserves for these guarantees requires the projection of future fund values, mortality, persistency and customer benefit utilization rates. These assumptions are periodically reviewed and updated. For guarantees related to death benefits, benefits represent the projected excess guaranteed minimum death benefit payments. For guarantees related to income benefits, benefits represent the present value of the minimum guaranteed annuitization benefits in excess of the projected account balance at the time of annuitization.
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 the majority of withdrawal and accumulation benefits are considered to be derivative financial instruments; therefore, the liability for these benefits is established based on its fair value.



<table><tr><td colspan="6">Summary of liabilities for guarantees</td></tr><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><td></td></tr><tr><td>Balance, December 31, 2018 (1)</td><td>$ 308</td><td>$ 39</td><td>$ 97</td><td>$ 444</td><td></td></tr><tr><td>Less reinsurance recoverables</td><td>111</td><td>35</td><td>39</td><td>185</td><td></td></tr><tr><td>Net balance as of December 31, 2018</td><td>197</td><td>4</td><td>58</td><td>259</td><td></td></tr><tr><td>Incurred guarantee benefits</td><td>18</td><td>—</td><td>12</td><td>30</td><td></td></tr><tr><td>Paid guarantee benefits</td><td>(3)</td><td>—</td><td>—</td><td>(3)</td><td></td></tr><tr><td>Net change</td><td>15</td><td>—</td><td>12</td><td>27</td><td></td></tr><tr><td>Net balance as of December 31, 2019</td><td>212</td><td>4</td><td>70</td><td>286</td><td></td></tr><tr><td>Plus reinsurance recoverables</td><td>81</td><td>20</td><td>32</td><td>133</td><td></td></tr><tr><td>Balance, December 31, 2019 (2)</td><td>$ 293</td><td>$ 24</td><td>$ 102</td><td>$ 419</td><td></td></tr><tr><td>Balance, December 31, 2017 (3)</td><td>$ 262</td><td>$ 29</td><td>$ 79</td><td>$ 370</td><td></td></tr><tr><td>Less reinsurance recoverables</td><td>87</td><td>25</td><td>34</td><td>146</td><td></td></tr><tr><td>Net balance as of December 31, 2017</td><td>175</td><td>4</td><td>45</td><td>224</td><td></td></tr><tr><td>Incurred guarantee benefits</td><td>24</td><td>—</td><td>13</td><td>37</td><td></td></tr><tr><td>Paid guarantee benefits</td><td>(2)</td><td>—</td><td>—</td><td>(2)</td><td></td></tr><tr><td>Net change</td><td>22</td><td>—</td><td>13</td><td>35</td><td></td></tr><tr><td>Net balance as of December 31, 2018</td><td>197</td><td>4</td><td>58</td><td>259</td><td></td></tr><tr><td>Plus reinsurance recoverables</td><td>111</td><td>35</td><td>39</td><td>185</td><td></td></tr><tr><td>Balance, December 31, 2018 (1)</td><td>$ 308</td><td>$ 39</td><td>$ 97</td><td>$ 444</td><td></td></tr></table>

(1) Included in the total liability balance as of December 31, 2018 are reserves for variable annuity death benefits of $109 million, variable annuity income benefits of $36 million, variable annuity accumulation benefits of $25 million, variable annuity withdrawal benefits of $14 million and other guarantees of $260 million.

(2) Included in the total liability balance as of December 31, 2019 are reserves for variable annuity death benefits of $78 million, variable annuity income benefits of $21 million, variable annuity accumulation benefits of $18 million, variable annuity withdrawal benefits of $14 million and other guarantees of $288 million.

(3) Included in the total liability balance as of December 31, 2017 are reserves for variable annuity death benefits of $85 million, variable annuity income benefits of $26 million, variable annuity accumulation benefits of $22 million, variable annuity withdrawal benefits of $12 million and other guarantees of $225 million.



<table><tr><td colspan="5">Effects of reinsurance and indemnification on property and casualty premiums written and earned and life premiums and contract charges</td></tr><tr><td>($ in millions)</td><td>For the years ended December 31, 2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Property and casualty insurance premiums written</td><td></td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 37,976</td><td>$ 35,895</td><td>$ 33,685</td><td></td></tr><tr><td>Assumed</td><td>95</td><td>99</td><td>64</td><td></td></tr><tr><td>Ceded</td><td>(1,117)</td><td>(1,008)</td><td>(1,007)</td><td></td></tr><tr><td>Property and casualty insurance premiums written, net of recoverables</td><td>$ 36,954</td><td>$ 34,986</td><td>$ 32,742</td><td></td></tr><tr><td>Property and casualty insurance premiums earned</td><td></td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 37,104</td><td>$ 34,977</td><td>$ 33,221</td><td></td></tr><tr><td>Assumed</td><td>94</td><td>87</td><td>50</td><td></td></tr><tr><td>Ceded</td><td>(1,122)</td><td>(1,016)</td><td>(971)</td><td></td></tr><tr><td>Property and casualty insurance premiums earned, net of recoverables</td><td>$ 36,076</td><td>$ 34,048</td><td>$ 32,300</td><td></td></tr><tr><td>Life premiums and contract charges</td><td></td><td></td><td></td><td></td></tr><tr><td>Direct</td><td>$ 2,074</td><td>$ 2,001</td><td>$ 1,894</td><td></td></tr><tr><td>Assumed</td><td>712</td><td>754</td><td>787</td><td></td></tr><tr><td>Ceded</td><td>(285)</td><td>(290)</td><td>(303)</td><td></td></tr><tr><td>Life premiums and contract charges, net of recoverables</td><td>$ 2,501</td><td>$ 2,465</td><td>$ 2,378</td><td></td></tr></table>

## Property and casualty reinsurance and indemnification recoverables

Total amounts recoverable from reinsurers and indemnitors as of December 31, 2019 and 2018 were $7.02 billion and $7.27 billion, respectively, including $112 million and $111 million, respectively, related to property and casualty losses paid by the Company and billed to reinsurers and indemnitors, and $6.91 billion and $7.15 billion, respectively, estimated by the Company with respect to ceded or indemnifiable unpaid losses (including IBNR), which are not billable until the losses are paid. The allowance for uncollectible reinsurance was $60 million and $65 million as of December 31, 2019 and 2018, respectively, primarily related to reinsurance recoverables arising from the Discontinued Lines and Coverages segment. Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation.

Property and casualty programs are grouped by the following characteristics:

1. Indemnification programs - industry pools, facilities or associations that are governed by state insurance statutes or regulations or the federal government.

2. Catastrophe reinsurance programs - reinsurance protection for catastrophe exposure nationwide and by specific states, as applicable.

3. Other reinsurance programs - reinsurance protection for asbestos, environmental and other liability exposures as well as commercial lines, including shared economy.
Property and casualty reinsurance is in place for the Allstate Protection, Discontinued Lines and Coverages and Service Businesses segments. The Company purchases reinsurance after evaluating the financial condition of the reinsurer as well as the terms and price of coverage.

## Indemnification programs

The Company participates in state-based industry pools or facilities mandating participation by insurers offering certain coverage in their state, including the Michigan Catastrophic Claims Association (“MCCA”), the New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”), the North Carolina Reinsurance Facility (“NCRF”) and the Florida Hurricane Catastrophe Fund (“FHCF”). When the Company pays qualifying claims under the coverage indemnified by a state’s pool or facility, the Company is reimbursed for the qualifying claim losses or expenses. Each state pool or facility may assess participating companies to collect sufficient amounts to meet its total indemnification requirements. The enabling legislation for each state’s pool or facility compels the pool or facility only to indemnify participating companies for qualifying claim losses or expenses; the state pool or facility does not underwrite the coverage or take on the ultimate risk of the indemnified business. As a pass through, these pools or facilities manage the receipt of assessments paid by participating companies and payment of indemnified amounts for covered claims presented by participating companies. The Company has not had any credit losses related to these indemnification programs.

## State-based industry pools or facilities

Michigan Catastrophic Claims Association The MCCA is a statutory indemnification mechanism for member insurers’ qualifying personal injury protection



## Notes to Consolidated Financial Statements

claims paid for the unlimited lifetime medical benefits above the applicable retention level for qualifying injuries from automobile, motorcycle and commercial vehicle accidents. Indemnification recoverables on paid and unpaid claims, including IBNR, as of December 31, 2019 and 2018 include $5.50 billion and $5.40 billion, respectively, from the MCCA for its indemnification obligation.

The MCCA is funded by annually assessing participating member companies actively writing motor vehicle coverage in Michigan on a per vehicle basis that is currently $220 per vehicle insured. The MCCA’s calculation of the annual assessment is based upon the total of members’ actuarially determined present value of expected payments on lifetime claims by all persons expected to be catastrophically injured in that year and ultimately qualify for MCCA reimbursement, its operating expenses, and adjustments for the amount of excesses or deficiencies in prior assessments. The assessment is incurred by the Company as policies are written and recovered as a component of premiums from the Company’s customers.

The MCCA indemnifies qualifying claims of all current and former member companies (whether or not actively writing motor vehicle coverage in Michigan) for qualifying claims and claims expenses incurred while the member companies were actively writing the mandatory personal injury protection coverage in Michigan. Member companies actively writing automobile coverage in Michigan include the MCCA annual assessments in determining the level of premiums to charge insureds in the state.

As required for member companies by the MCCA, the Company reports covered paid and unpaid claims to the MCCA when estimates of loss for a reported claim are expected to exceed the retention level, the claims involve certain types of severe injuries, or there are litigation demands received suggesting the claim value exceeds certain thresholds. The retention level is adjusted upward every other MCCA fiscal year by the lesser of 6% or the increase in the Consumer Price Index. The retention level will be $580 thousand per claim for the fiscal two-years ending June 30, 2021 compared to $555 thousand per claim for the fiscal two-years ending June 30, 2019.

The MCCA is obligated to fund the ultimate liability of member companies’ qualifying claims and claim expenses. The MCCA does not underwrite the insurance coverage or hold any underwriting risk.

The MCCA indemnifies members as qualifying claims are paid and billed by members to the MCCA. Unlimited lifetime covered losses result in significant levels of ultimate incurred claim reserves being recorded by member companies along with offsetting indemnification recoverables. Disputes with claimants over coverage on certain reported claims can result in additional losses, which may be recoverable from the MCCA, excluding litigation expenses. There is currently no method by which insurers are able to obtain the benefit of managed care programs to reduce claims costs through the MCCA.
The MCCA annual assessments fund current operations and member company reimbursements. The MCCA prepares statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Michigan Department of Insurance and Financial Services (“MI DOI”). The MI DOI has granted the MCCA a statutory permitted practice that expires in June 30, 2022 to discount its liabilities for loss and loss adjustment expense. As of June 30, 2019, the date of its most recent annual financial report, the MCCA had cash and invested assets of $21.83 billion and an accumulated surplus of $1.28 billion. The permitted practice reduced the accumulated deficit by $39.64 billion.

New Jersey Property-Liability Insurance Guaranty Association PLIGA serves as the statutory administrator of the Unsatisfied Claim and Judgment Fund (“UCJF”), Workers’ Compensation Security Fund and the New Jersey Surplus Lines Insurance Guaranty Fund.

In addition to its insolvency protection responsibilities, PLIGA reimburses insurers for unlimited excess medical benefits (“EMBs”) paid in connection with personal injury protection claims in excess of $75,000 for policies issued or renewed prior to January 1, 1991, and limited EMB claims in excess of $75,000 and capped at $250,000 for policies issued or renewed on or after January 1, 1991, to December 31, 2003.

A significant portion of the incurred claim reserves and the recoverables can be attributed to a small number of catastrophic claims. Assessments paid to PLIGA for the EMB program totaled $8.1 million in 2019. The amounts of paid and unpaid recoverables as of December 31, 2019 and 2018 were $446 million and $461 million, respectively.

PLIGA annually assesses all admitted property and casualty insurers writing covered lines in New Jersey for PLIGA indemnification and expenses. PLIGA assessments may be recouped as a surcharge on premiums collected. PLIGA does not ultimately retain underwriting risk as it assesses member companies for their expected qualifying losses to provide funding for payment of its indemnification obligation to member companies for their actual losses. As a pass through, PLIGA facilitates these transactions of receipt of assessments paid by member companies and payment to member companies for covered claims presented by them for indemnification. As of December 31, 2018, the date of its most recent annual financial report, PLIGA had a fund balance of $250 million.

As statutory administrator of the UCJF, PLIGA provides compensation to qualified claimants for personal injury protection, bodily injury, or death caused by private passenger automobiles operated by uninsured or “hit and run” drivers. The UCJF also provides private passenger pedestrian personal injury protection benefits when no other coverage is available.

PLIGA annually collects a UCJF assessment from all admitted property and casualty insurers writing motor vehicle liability insurance in New Jersey for UCJF



indemnification and expenses. UCJF assessments can be expensed as losses recoverable in rates as appropriate. As of December 31, 2018, the date of its most recent annual financial report, the UCJF fund had a balance of $41 million.

North Carolina Reinsurance Facility The NCRF provides automobile liability insurance to drivers that insurers are not otherwise willing to insure. All insurers licensed to write automobile insurance in North Carolina are members of the NCRF. Premiums, losses and expenses are assigned to the NCRF. North Carolina law allows the NCRF to recoup operating losses for certain insureds through a surcharge to policyholders. As of September 30, 2019, the NCRF reported a deficit of $110 million in members' equity. The NCRF implemented a loss recoupment surcharge on all private passenger and commercial fleet policies effective October 1, 2019, through September 30, 2020. Member companies are assessed the recoupment surcharge. The loss recoupment surcharge will be adjusted on October 1, 2020 and discontinued once losses are recovered. The NCRF results are shared by the member companies in proportion to their respective North Carolina automobile liability writings. For the fiscal quarter ending September 30, 2019, net income was $105 million, including $1.10 billion of earned premiums, $271 million of certain private passenger auto risk recoupment and $137 million of member loss recoupments. As of December 31, 2019, the NCRF recoverables on paid claims is $9.4 million and recoverables on unpaid claims is $69.1 million. Paid recoverable balances, if covered, are typically settled within sixty days of monthly filing.

Florida Hurricane Catastrophe Fund Allstate subsidiaries Castle Key Insurance Company (“CKIC”) and Castle Key Indemnity Company (“CKI”, and together with CKIC, “Castle Key”) participate in the mandatory coverage provided by the FHCF and therefore have access to reimbursement for certain qualifying Florida hurricane losses from the FHCF. Castle Key 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 participating insurers 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 National Flood Insurance Program (“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 $2.00 billion in pre-event bonds in 2013 to build its capacity to reimburse member companies’ claims. The FHCF plans to fund these pre-event bonds through current FHCF cash flows. Pursuant to an Order issued by the Florida Office of Insurance Regulation (“FL OIR”), the emergency assessment is zero for all policies issued or renewed on or after January 1, 2015.
Annual premiums earned and paid under the FHCF agreement were $9 million, $10 million and $11 million in 2019, 2018 and 2017, respectively. Qualifying losses were $33 million, $143 million and $19 million in 2019, 2018 and 2017, respectively. The Company has access to reimbursement provided by the FHCF for 90% of qualifying personal property losses that exceed its current retention of $52 million for the two largest hurricanes and $17 million for other hurricanes, up to a maximum total of $145 million, effective from June 1, 2019 to May 31, 2020. The amounts recoverable from the FHCF totaled $52 million and $104 million as of December 31, 2019 and 2018, respectively.

Federal Government - National Flood Insurance Program NFIP is a program administered by the Federal Emergency Management Agency (“FEMA”) whereby the Company sells and services NFIP flood insurance policies as an agent of FEMA and receives fees for its services. The Company is fully indemnified for claims and claim expenses and does not retain any ultimate risk for the indemnified business. The federal government is obligated to pay all claims and certain allocated loss adjustment expenses in accordance with the arrangement.

Congressional authorization for the NFIP is periodically evaluated and may be subjected to freezes, including when the federal government experiences a shutdown. FEMA has a NFIP reinsurance program to manage the future exposure of the NFIP through the transfer of risk to private reinsurance companies and capital market investors. Congress is evaluating the funding of the program as well as considering reforms to the program that would be incorporated in legislation to reauthorize the NFIP.

The amounts recoverable as of December 31, 2019 and 2018 were $25 million and $31 million, respectively. Premiums earned under the NFIP include $258 million, $258 million and $263 million in 2019, 2018 and 2017, respectively. Qualifying losses incurred include $150 million, $118 million and $1.12 billion in 2019, 2018 and 2017, respectively.

## Catastrophe reinsurance

The Company’s reinsurance program is designed to provide reinsurance protection for catastrophes resulting from multiple perils including hurricanes, windstorms, hail, tornadoes, earthquakes, wildfires, and fires following earthquakes.

- The majority of the Company’s program comprises multi-year contracts, primarily placed in the traditional reinsurance market, such that generally one-third of the program is renewed every year.

- Coverage is generally purchased on a broad geographic, product line and multiple peril loss basis.

- The Company purchases reinsurance from traditional reinsurance companies as well as the insurance linked securities market.

- Florida property and New Jersey property and auto are each covered by separate agreements, as the risk of loss is different and the Company’s



## Notes to Consolidated Financial Statements

subsidiaries operating in these states are separately capitalized.

The Company has not experienced credit losses on its catastrophe reinsurance programs. The Company ceded premiums earned of $376 million, $343 million and $344 million under catastrophe reinsurance agreements in 2019, 2018 and 2017, respectively. The Company has the following catastrophe reinsurance agreements in effect as of December 31, 2019:

The Nationwide Excess Catastrophe Reinsurance Program (the “Nationwide Program”) provides $4.86 billion of reinsurance coverage subject to a $500 million retention and is subject to the amount of reinsurance placed in each of its nine layers.

Per Occurrence and Aggregate Excess Agreements, include occurrence coverage in contracts from both the traditional reinsurance and insurance linked securities (“ILS”) markets, while aggregate protection is included in two contracts supported by the ILS market. The agreements provide multi-line catastrophe coverage in every state except Florida, where coverage is only provided for personal lines automobile.

Layer 1 through Layer 5 - Per Occurrence Excess Agreement For the June 1, 2019 to May 31, 2020 term, coverage for each of layers one through five is placed in the traditional reinsurance market with each layer comprising three contracts. Each contract provides one-third of 95% of the total layer limit expiring May 31, 2020, May 31, 2021 and May 31, 2022, respectively. One-third of the limit provided by each of layers one through five includes coverage for New Jersey. Two-thirds of the limit provided by each of layers one through five also includes coverage for the Company’s commercial lines property and automobile catastrophe losses. The contracts for each of layers one through five include one reinstatement of limits per year, with premium required. Reinsurance premiums are subject to redetermination for exposure changes on an annual basis.

Layer 6 – Per Occurrence Excess Agreement The layer six contract placed in the traditional reinsurance market contains comparable contract terms and conditions as layers one through five, with New Jersey and commercial lines property and automobile catastrophe losses included in the definition of subject loss. The layer six contract provides a $324 million limit, is 95% placed, and expires May 31, 2022. This contract contains a variable reset option, which the ceding entities may elect to invoke at each anniversary and which allows for the annual adjustment of the attachment and exhaustion level within specified limits. The layer six contract contains one reinstatement of limits over its seven-year term with premium required. As of July 1, 2019, a reinstatement of limits has not been executed under this contract. Reinsurance premiums for this contract are subject to redetermination for exposure changes on an annual basis.

Layer 7 – Per Occurrence Excess and Aggregate Agreements The seventh layer consists of four contracts:
• Seven-Year Term

• 2019-1 Excess Catastrophe Reinsurance

• Wrap Fill Excess Catastrophe Reinsurance

• 2017-1 Excess Catastrophe Reinsurance

Seven-Year Term Contract, which is placed in the traditional reinsurance market contains comparable contract terms and conditions as layer six. The contract provides a $446 million limit and is 29.37% placed, and expires May 31, 2022. The contract contains a variable reset option which allows for the annual adjustment of the attachment and exhaustion level within specified limits. The variable reset option requires a premium adjustment. The contract contains one reinstatement of limits over its seven-year term with premium required. Reinsurance premiums for all contracts are subject to redetermination for exposure changes on an annual basis.

2019-1 Excess Catastrophe Reinsurance Contract reinsures personal lines property and automobile excess losses in 49 states and the District of Columbia, excluding Florida, caused by named storms, earthquakes and fire following earthquakes, severe weather, wildfires, and other naturally occurring or man-made events declared to be a catastrophe by the Company. This contract is placed with Sanders Re II Ltd. which obtained funding from the ILS market to collateralize the contract's limit. The contract reinsures business located in the covered territory and arising out of covered events. The contract's risk period began April 1, 2019 and terminates on March 31, 2023. The contract provides a $400 million limit and is 75% placed, during its four-year term which can be used on a per occurrence or an annual aggregate basis. For a qualifying loss occurrence, the contract provides 75% of $400 million in reinsurance limits in excess of a minimum $2.75 billion retention for the April 1, 2019 to March 31, 2020 period. The New Jersey Excess Catastrophe Agreement, layer six, the Seven-Year Term Contract for layer seven, and the 5% co-participation inure to the benefit of this contract for events that exceed the retention. As a result, while those layers are fully intact, the contract would begin to pay subject losses in excess of $3.07 billion.

The contract also provides an annual aggregate limit of 75% of $400 million in reinsurance limits between a $3.54 billion to $3.94 billion layer subject to an annual retention of $3.54 billion. For each annual period beginning April 1, the Company declared catastrophes occurring during such annual period can be aggregated to erode the aggregate retention and qualify for coverage under the aggregate limit. Reinsurance recoveries from and including layers one through seven of the Nationwide Program and the New Jersey Excess Catastrophe Agreement inure to the benefit of the annual aggregate layer.

Reinsurance recoveries collected under the per occurrence limit of this contract are not eligible for cession under the annual aggregate limit of this contract. Reinsurance recoveries for all loss occurrences and annual aggregate losses qualifying for coverage during the contract’s four-year risk period are limited to the Company’s ultimate net loss from



covered events and subject to the contract’s $400 million limit, 75% placed. The contract contains a variable reset option, which the ceding entities may invoke for risk periods subsequent to the first risk period and which allows for the annual adjustment of the contract’s attachment and exhaustion levels within specified limits.

Wrap Fill Excess Catastrophe Reinsurance Contract provides a $200 million limit in excess of a minimum $2.75 billion retention, is 100% placed in the traditional market, and expires March 31, 2020. This layer is structured to cover gaps around the traditional Seven-Year Term Contract and the Sanders Re II Ltd. 2019-1 contract. The contract provides additional gap coverage as the layer shifts down in attachment, subject to the $2.75 billion minimum retention level as lower layer limits are exhausted. A retention co-participation of 5% for a layer of $1.61 billion in excess of $2.75 billion is deemed in place and inures to the benefit of this contract. Recoveries from contracts in layers six and seven, with the exception of Sanders Re Ltd. 2017-1, inure to the benefit of this contract, as this multiple peril contract provides coverage for perils and subject business not reinsured in portions of layers seven. While those layers are fully intact, the contract would begin to pay subject losses in excess of $3.07 billion. This contract does not include a reinstatement of limits.

2017-1 Excess Catastrophe Reinsurance Contract reinsures personal lines property and automobile excess losses in 49 states and the District of Columbia, excluding the State of Florida, caused by named storms, earthquakes and fire following earthquakes, severe thunderstorms, winter storms, volcanic eruptions, and meteorite impacts. This contract is placed with Sanders Re Ltd., which obtained funding from the ILS market to collateralize the contract's limit. The contract reinsures actual losses to personal lines property business located in the covered territory and arising out of a covered event. Amounts payable for automobile losses are based on insured industry losses as reported by Property Claim Services ("PCS") and further adjusted to account for the Company's auto exposures in reinsured areas. Reinsurance recoveries under the contract are limited to the Company's ultimate net loss from a covered event subject to the contract's limit. The contract's risk period began March 31, 2017 and terminates on November 30, 2021. The contract provides a $375 million limit in excess of $2.75 billion retention. The New Jersey Excess Catastrophe Agreement, layer six, the Seven-Year Term Contract for layer seven, the Wrap Fill contract, and the 5% co-participation inure to the benefit of this contract for events that exceed the retention. As a result, while those layers are fully intact, the contract would begin to pay subject losses in excess of $3.69 billion.

The contract contains a variable reset option, which the ceding entities may invoke for risk periods subsequent to the first risk period and which allows for the annual adjustment of the contract’s attachment and exhaustion levels within specified limits. The variable reset option requires a premium adjustment. The contract does not include a reinstatement of limits.

To summarize the order of operations and inuring protection for the seventh layer for an occurrence loss, for losses below $3.40 billion, the portion of the seventh layer placed in the traditional market would not be enacted. Once the sixth layer is exhausted, the co-participation of 5% would apply and then the 2019-1 Excess Catastrophe Reinsurance contract and Wrap Fill contract, dependent on the subject business contributing to the per occurrence loss. For losses greater than the $3.40 billion retention, the portions of the seventh layer placed in the traditional market would apply first as they inure to the benefit of the portions of the seventh layer placed in the ILS market. This would be followed by the co-participation of 5%, the 2019-1 Excess Catastrophe Reinsurance Contract, the Wrap Fill, and the 2017-1 Excess Catastrophe Reinsurance Contract, dependent on the per occurrence loss.

Layer 8 – Per Occurrence Excess Agreement – Gap Fill Excess Catastrophe Reinsurance Contract provides a $219 million limit in excess of a $2.75 billion retention, is 100% placed in the traditional market, and expires May 31, 2020. The contract provides additional gap coverage as the layer shifts down to the $2.75 billion retention level as lower layers are exhausted. A retention co-participation of 5% for a layer of $1.61 billion in excess of $2.75 billion is deemed in place and inures to the benefit of this contract. Recoveries from contracts in layers six and seven inure to the benefit of this contract, as this multiple peril contract provides coverage for perils and subject business not reinsured in portions of layers seven. While all inuring contracts are fully in place, this contract would begin to cover an occurrence subject loss in excess of $4.13 billion. This contract does not include a reinstatement of limits.

Layer 9 – Per Occurrence and Aggregate Excess Agreement – 2018-1 Excess Catastrophe Reinsurance Contract reinsures personal lines property and automobile excess catastrophe losses in 49 states and the District of Columbia, excluding the State of Florida, caused by named storms, earthquakes and fire following earthquakes, severe weather, wildfires, and other naturally occurring or man-made events declared to be a catastrophe by the Company. This contract is placed with Sanders Re Ltd., which obtained funding from the ILS market to collateralize the contract's limit. The contract reinsures business located in the covered territory and arising out of a covered event. The contract's risk period began April 1, 2018 and terminates on March 31, 2022. The contract provides one limit of $500 million during its four-year term, which can be used on a per occurrence or aggregate basis. For each qualifying loss occurrence, the contract provides 100% of $500 million in reinsurance limits, between a $4.36 billion to $4.86 billion layer for the April 1, 2019 to March 31, 2020 period.

The contract also provides an aggregate limit of 100% of $500 million in reinsurance limits between a $3.94 billion to $4.44 billion. For each annual period beginning April 1, the Company declared catastrophes occurring during such annual period can be



## Notes to Consolidated Financial Statements

aggregated to erode the aggregate retention and qualify for coverage under the aggregate limit. Reinsurance recoveries from and including layers one through seven of the Nationwide Program and the New Jersey Excess Catastrophe Agreement inure to the benefit of the annual aggregate layer.

Reinsurance recoveries collected under the per occurrence limit of this contract are not eligible for cession under the aggregate limit of this contract. Reinsurance recoveries for all loss occurrences and aggregate losses qualifying for coverage during the contract's four-year risk period are limited to the Company's ultimate net loss from covered events and subject to the contract's $500 million limit. The contract does not include a reinstatement of limits.

Other catastrophe reinsurance programs – The following programs are designed separately from the Nationwide Program to address distinct exposures in certain states and markets.

The Company has a separate reinsurance program designed to cover personal lines property policies in Florida written through Castle Key, its separately capitalized wholly-owned subsidiaries.

Florida Excess Catastrophe Reinsurance Agreement comprises five contracts, as described below, which reinsures Castle Key for personal lines property excess catastrophe losses in Florida. For the June 1, 2019 to May 31, 2020 term, the agreement includes two contracts placed in the traditional market, Castle Key's reimbursement contracts with the Florida Hurricane Catastrophe Fund (“Mandatory FHCF contracts”), and the Sanders Re 2017-2 Contract (“Sanders Re 2017-2”) placed in the ILS markets.

Below FHCF Contract reinsures personal lines property excess catastrophe losses caused by multiple perils in Florida. The contract provides three separate limits of $34 million in excess of a $20 million retention, each occurrence, and is 100% placed. The contract includes two reinstatements of limits. The first reinstatement of limits is prepaid and the second or final reinstatement requires additional premium. Only the portion of the limit utilized to indemnify losses from an event mandatorily reinstates; the remaining reinstatement limit remains available and will be used as future events erode the per occurrence contract limit. Reinsurance premium is subject to redetermination for exposure changes.

Mandatory FHCF Contracts indemnify qualifying personal lines property losses caused by storms the National Hurricane Center declares to be hurricanes. The contracts provide $151 million of limits in excess of a $54 million provisional retention and are 90% placed (or $136 million in excess of a $54 million provisional retention), and also include reimbursement of up to 10% of eligible loss adjustment expenses, which is part of and not in addition to the reinsurance limit provided, with no reinstatement of limits. For each of the two largest hurricanes, the provisional retention is $54 million and a retention equal to one-third of that amount, or approximately $18 million, is applicable to all other hurricanes for the season beginning June 1, 2019. The limit and retention of the Mandatory FHCF Contracts are subject to remeasurement based on June 30, 2019 exposure data. In addition, the FHCF's retention is subject to adjustment upward or downward to an actual retention based on exposures submitted to the FHCF by all participants.

Excess contract reinsures personal lines property excess catastrophe losses caused by multiple perils in Florida. The contract is a two-year term contract effective June 1, 2018 to May 31, 2020 and provides $249 million of reinsurance limits each contract year. For the June 1, 2019 to May 31, 2020 term, the contract provides one limit of $249 million in excess of a $20 million retention and is 100% placed. Recoveries from the Below FHCF contract and Mandatory FHCF contracts inure to the benefit of this contract. The contract provides reinsurance limits above the Mandatory FHCF Contracts, for CKIC's and CKI's 10% co-participation in the Mandatory FHCF Contracts, and for loss occurrences not subject to reimbursement under the Mandatory FHCF Contracts which only reinsure losses arising out of hurricanes. The contract does not include a reinstatement of limits. Reinsurance premium is subject to redetermination for exposure changes.

Sanders Re 2017-2 is a three-year term contract with a risk period effective June 1, 2017 through May 31, 2020. It reinsures qualifying personal lines property losses caused by a named storm event, a severe thunderstorm event, an earthquake event, a wildfire event, a volcanic eruption event, or a meteorite impact event in Florida as events declared by various reporting agencies, including PCS and as defined in the contract. Should PCS cease to report on severe thunderstorms, then such event will be deemed a severe thunderstorm event if Castle Key has assigned a catastrophe code to such severe thunderstorm. Sanders Re obtained funding from the ILS market to provide collateral equal to the contract's limit.

The contract provides limits of $200 million in excess of a $20 million retention and in excess of “stated reinsurance” and is 100% placed. For the June 1, 2019 to May 31, 2020 risk period, stated reinsurance is defined to include the Below FHCF contract, the Mandatory FHCF contracts, which are deemed to exhaust due to loss occurrences subject to the non-FHCF contracts, and the Excess contract. Stated reinsurance is deemed to be provided on a multiple peril basis under the terms of the non-FHCF contracts and includes an erosion feature, which provides that upon the exhaustion of a portion of the stated reinsurance, coverage under the Sanders Re contract shall be concurrently placed above and contiguous to the unexhausted portion of the stated reinsurance, if any. The Sanders Re 2017-2 contract contains a variable reset option, which Castle Key may invoke for risk periods subsequent to the first risk period and which allows for the annual adjustment of the contract’s attachment and exhaustion levels. The variable reset option requires a premium adjustment. The contract does not contain a reinstatement of limits.



The Company’s New Jersey, Kentucky, Florida and Southeast States and California reinsurance agreements are described below.

New Jersey Excess Catastrophe Reinsurance Agreement comprises two existing contracts and a newly placed contract that reinsures personal lines property and automobile excess catastrophe losses in New Jersey caused by multiple perils. The placed contracts effective June 1, 2018 and June 1, 2019 include coverage for commercial lines property and automobile (physical damage only) catastrophe losses.

The contracts expire May 31, 2020, May 31, 2021 and May 31, 2022, and provide 31.67%, 31.67% and 31.66%, respectively, of $400 million of limits in excess of a $145 million retention, a $150 million retention, and a $150 million retention, respectively. Each contract includes one reinstatement of limits per contract year with premium due. The reinsurance premium and retention are subject to redetermination for exposure changes on an annual basis.

Kentucky Earthquake Excess Catastrophe Reinsurance Contract is a three-year contract that reinsures personal lines property losses in Kentucky caused by earthquakes and fire following earthquakes. The contract expires May 31, 2020 and provides three limits of $28 million in excess of a $2 million retention, with two limits available in any one contract year, and is 95% placed. The reinsurance premium and retention are not subject to redetermination for exposure changes.

Florida and Southeast Auto Aggregate Excess Catastrophe Contract is a one-year term contract effective June 1, 2019 to May 31, 2020. This contract provides a single reinsurance limit at 80% of $250 million, subject to a $250 million aggregate retention, for catastrophe losses to personal lines and commercial lines automobile business (physical damage only) arising out of multiple perils and provided such losses arise out of a company declared catastrophe and result in a qualifying loss in the State of Florida. For these qualifying catastrophe events, coverage is also provided for losses to personal lines and commercial lines automobile business (physical damage only) in Alabama, Georgia, Louisiana, Mississippi, North Carolina, and/or South Carolina. The contract does not include a reinstatement of limits.

Excess & Surplus (E&S) Earthquake Contract is a three-year contract that reinsures personal lines property catastrophe losses in California caused by the peril of earthquakes and is insured by the Company's excess and surplus lines insurer. The contract reinsures only shake damage resulting from the earthquake peril. The contract is effective July 1, 2018 and expires June 30, 2021, both days inclusive, and provides reinsurance on a 100% quota share basis with no retention. The contract allows for cession of policies providing earthquake coverage as long as the total amount of in-force building limits provided by those policies does not exceed $400 million. This $400 million cap limits the policies that are covered by the reinsurance contract and not the amount of loss eligible for cession, which includes losses to dwellings, other structures, personal property and additional living expenses on policies covered by this program. As of December 31, 2019, the $400 million cap which serves to limit cessions to the contract has not been exceeded.

## Other reinsurance programs

The Company’s other reinsurance programs relate to asbestos, environmental, and other liability exposures and commercial lines, including shared economy. These programs include reinsurance recoverables of $158 million and $165 million from Lloyd’s of London as of December 31, 2019 and 2018, respectively. Excluding Lloyd’s of London, the largest reinsurance recoverable balance the Company had outstanding was $115 million and $37 million from Aleka Insurance Inc. as of December 31, 2019 and 2018, respectively.

Lloyd’s of London, through the creation of Equitas Limited (“Equitas”), implemented a restructuring to solidify its capital base and to segregate claims for years prior to 1993. In 2007, Berkshire Hathaway’s subsidiary, National Indemnity Company, assumed responsibility for the Equitas’ claim liabilities through a loss portfolio transfer reinsurance agreement and continues to runoff the Equitas’ claims.

## Life and annuity reinsurance recoverables

The Company reinsures certain life insurance and annuity 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.

For certain term life insurance policies issued prior to October 2009, the Company 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 the Company cedes mortality in excess of its retention, which is consistent with how the Company generally reinsures its permanent life insurance business.



Notes to Consolidated Financial Statements

<table><tr><td colspan="2">Retention limits by period of policy issuance</td></tr><tr><td>Period</td><td>Retention limits</td></tr><tr><td>April 2015 through current</td><td>Single life: $2 million per lifeJoint life: no longer offered</td></tr><tr><td>April 2011 through March 2015</td><td>Single life: $5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteriaJoint life: $8 million per life, and $10 million for contracts that meet specific criteria</td></tr><tr><td>July 2007 through March 2011</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, the Company has used reinsurance to effect the disposition of certain blocks of business. The Company had reinsurance recoverables of $1.29 billion and $1.36 billion as of December 31, 2019 and

2018, respectively, due from Prudential related to the disposal of substantially all of its variable annuity business that was effected through reinsurance agreements.

<table><tr><td colspan="4">Amounts ceded to Prudential</td></tr><tr><td></td><td colspan="3">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Premiums and contract charges</td><td>$     65</td><td>$     72</td><td>$     76</td></tr><tr><td>Contract benefits</td><td>4</td><td>87</td><td>7</td></tr><tr><td>Interest credited to contractholder funds</td><td>19</td><td>20</td><td>20</td></tr><tr><td>Operating costs and expenses</td><td>12</td><td>14</td><td>15</td></tr></table>

As of December 31, 2019 and 2018, the Company had reinsurance recoverables of $112 million and $118 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, 2019, the Company had $70 million of reinsurance recoverables, net of an allowance for estimated uncollectible amounts, related to Scottish Re (U.S.), Inc. On December 14, 2018, the Delaware Insurance Commissioner placed Scottish Re (U.S.), Inc. under regulatory supervision. On March 6, 2019, the Chancery Court of the State of Delaware entered a Rehabilitation and Injunction Order (the "Rehabilitation Order") in response to a petition filed by the Insurance Commissioner (the "Petition"). Pursuant to the Petition, it is expected that Scottish Re (U.S.), Inc. will submit a Plan of Rehabilitation. The Company joined in a joint motion filed on behalf of several affected parties asking the court to allow a specified amount of offsetting claim payments and losses against premiums remitted to Scottish Re (U.S.), Inc. The Company also filed a separate motion related to the reimbursement of claim payments where Scottish Re (U.S.), Inc. is also acting as administrator. The Court has not yet ruled on either of these motions. In the interim, the Company and several other affected parties have been permitted to exercise certain setoff rights while the parties address any potential disputes. The Company continues to monitor Scottish Re (U.S.), Inc. for future developments and will reevaluate its allowance for uncollectible amounts as new information becomes available.

The Company is the assuming reinsurer for Lincoln Benefit Life Company’s (“LBL’s”) life insurance business sold through the Allstate agency channel and LBL’s payout annuity business in force prior to the sale of LBL on April 1, 2014. Under the terms of the reinsurance agreement, the Company is required to have a trust with assets greater than or equal to the statutory reserves ceded by LBL to the Company, measured on a monthly basis. As of December 31, 2019, the trust held $6.25 billion of investments, which are reported in the Consolidated Statement of Financial Position.

As of December 31, 2019, the gross life insurance in force was $449.20 billion of which $74.02 billion was ceded to the unaffiliated reinsurers.

<table><tr><td colspan="3">Reinsurance recoverables on paid and unpaid benefits</td></tr><tr><td></td><td colspan="2">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td></tr><tr><td>Annuities</td><td>$     1,305</td><td>$     1,381</td></tr><tr><td>Life insurance</td><td>749</td><td>776</td></tr><tr><td>Other</td><td>133</td><td>142</td></tr><tr><td>Total</td><td>$     2,187</td><td>$     2,299</td></tr></table>

As of both December 31, 2019 and 2018, approximately 93% of the reinsurance recoverables are due from companies rated A- or better by S&P.



## Note 11 Deferred Policy Acquisition and Sales Inducement Costs

<table><tr><td colspan="5">Deferred policy acquisition costs activity</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$     4,784</td><td>$     4,191</td><td>$     3,954</td><td></td></tr><tr><td>SquareTrade acquisition</td><td>—</td><td>—</td><td>66</td><td></td></tr><tr><td>Acquisition costs deferred</td><td>5,622</td><td>5,663</td><td>5,001</td><td></td></tr><tr><td>Amortization charged to income</td><td>(5,533)</td><td>(5,222)</td><td>(4,784)</td><td></td></tr><tr><td>Effect of unrealized gains and losses</td><td>(174)</td><td>152</td><td>(46)</td><td></td></tr><tr><td>Balance, end of year</td><td>$     4,699</td><td>$     4,784</td><td>$     4,191</td><td></td></tr></table>

<table><tr><td colspan="5">Deferred sales inducement costs activity  \( {}^{(1)} \)</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Balance, beginning of year</td><td>$     34</td><td>$     36</td><td>$     40</td><td></td></tr><tr><td>Amortization charged to income</td><td>(5)</td><td>(4)</td><td>(4)</td><td></td></tr><tr><td>Effect of unrealized gains and losses</td><td>(2)</td><td>2</td><td>—</td><td></td></tr><tr><td>Balance, end of year</td><td>$     27</td><td>$     34</td><td>$     36</td><td></td></tr></table>

(1) Deferred sales inducement costs primarily relate to fixed annuities and interest-sensitive life contracts and are recorded as part of other assets on the Consolidated Statements of Financial Position.



## Note 12 Capital Structure

<table><tr><td colspan="4">Total debt outstanding</td></tr><tr><td></td><td colspan="3">As of December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td></td></tr><tr><td>7.450% Senior Notes, due 2019 (1)</td><td>$ —</td><td>$ 317</td><td></td></tr><tr><td>Floating Rate Senior Notes, due 2021 (1)</td><td>250</td><td>250</td><td></td></tr><tr><td>Floating Rate Senior Notes, due 2023 (1)</td><td>250</td><td>250</td><td></td></tr><tr><td>3.150% Senior Notes, due 2023 (1)</td><td>500</td><td>500</td><td></td></tr><tr><td>Due after one year through five years</td><td>1,000</td><td>1,317</td><td></td></tr><tr><td>3.280% Senior Notes, due 2026 (1)</td><td>550</td><td>550</td><td></td></tr><tr><td>Due after five years through ten years</td><td>550</td><td>550</td><td></td></tr><tr><td>6.125% Senior Notes, due 2032 (1)</td><td>159</td><td>159</td><td></td></tr><tr><td>5.350% Senior Notes due 2033 (1)</td><td>323</td><td>323</td><td></td></tr><tr><td>5.550% Senior Notes due 2035 (1)</td><td>546</td><td>546</td><td></td></tr><tr><td>5.950% Senior Notes, due 2036 (1)</td><td>386</td><td>386</td><td></td></tr><tr><td>6.900% Senior Debentures, due 2038</td><td>165</td><td>165</td><td></td></tr><tr><td>5.200% Senior Notes, due 2042 (1)</td><td>62</td><td>62</td><td></td></tr><tr><td>4.500% Senior Notes, due 2043 (1)</td><td>500</td><td>500</td><td></td></tr><tr><td>4.200% Senior Notes, due 2046 (1)</td><td>700</td><td>700</td><td></td></tr><tr><td>3.850% Senior Notes, due 2049</td><td>500</td><td>—</td><td></td></tr><tr><td>5.100% Subordinated Debentures, due 2053</td><td>500</td><td>500</td><td></td></tr><tr><td>5.750% Subordinated Debentures, due 2053</td><td>800</td><td>800</td><td></td></tr><tr><td>6.500% Junior Subordinated Debentures, due 2067</td><td>500</td><td>500</td><td></td></tr><tr><td>Due after ten years</td><td>5,141</td><td>4,641</td><td></td></tr><tr><td>Long-term debt total principal</td><td>6,691</td><td>6,508</td><td></td></tr><tr><td>Debt issuance costs</td><td>(60)</td><td>(57)</td><td></td></tr><tr><td>Total long-term debt</td><td>6,631</td><td>6,451</td><td></td></tr><tr><td>Short-term debt (2)</td><td>—</td><td>—</td><td></td></tr><tr><td>Total debt</td><td>$ 6,631</td><td>$ 6,451</td><td></td></tr></table>

(1) Senior Notes, with the exception of Senior Floating Notes (as defined below), 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.

Debt maturities for each of the next five years and thereafter

<table><tr><td colspan="2">(\( in millions)</td></tr><tr><td>2020</td><td>$ —</td></tr><tr><td>2021</td><td>250</td></tr><tr><td>2022</td><td>—</td></tr><tr><td>2023</td><td>750</td></tr><tr><td>2024</td><td>—</td></tr><tr><td>Thereafter</td><td>5,691</td></tr><tr><td>Total long-term debt principal</td><td>$ 6,691</td></tr></table>

On May 16, 2019, the Company repaid $317 million of 7.450% Senior Notes, Series B, at maturity.

On June 10, 2019, the Company issued $500 million of 3.850% Senior Notes due 2049. Interest on the Senior Notes is payable semi-annually in arrears on February 10 and August 10 of each year, beginning on February 10, 2020. The Senior Notes are redeemable at any time at the applicable redemption price prior to the maturity date. The proceeds of this issuance are used for general corporate purposes.

The Subordinated Debentures may be redeemed (i) in whole at any time or in part from time to time on or after January 15, 2023 for the 5.100% Subordinated Debentures and August 15, 2023 for the 5.750% Subordinated Debentures at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption; provided that if the Subordinated Debentures are not redeemed in whole, at least $25 million aggregate principal amount must remain outstanding, or (ii) in whole, but not in part, prior to January 15, 2023 for the 5.100% Subordinated Debentures and August 15, 2023 for the 5.750% Subordinated Debentures, within 90 days after the occurrence of certain tax and rating agency events, at their principal amount or, if greater, a make-whole redemption price, plus accrued and unpaid interest to, but excluding, the date of redemption. The 5.750% Subordinated Debentures have this make-whole redemption price provision only when a reduction of equity credit assigned by a rating agency has occurred.



Interest on the 5.100% Subordinated Debentures is payable quarterly at the stated fixed annual rate to January 14, 2023, or any earlier redemption date, and then at an annual rate equal to the three-month LIBOR plus 3.165%. Interest on the 5.750% Subordinated Debentures is payable semi-annually at the stated fixed annual rate to August 14, 2023, or any earlier redemption date, and then quarterly at an annual rate equal to the three-month LIBOR plus 2.938%. The Company may elect to defer payment of interest on the Subordinated Debentures for one or more consecutive interest periods that do not exceed five years. During a deferral period, interest will continue to accrue on the Subordinated Debentures at the then-applicable rate and deferred interest will compound on each interest payment date. If all deferred interest on the Subordinated Debentures is paid, the Company can again defer interest payments.

As of December 31, 2019, the Company had outstanding $500 million of Series A 6.500% Fixed-to-Floating Rate Junior Subordinated Debentures (“Debentures”). The scheduled maturity date for the Debentures is May 15, 2057 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 at the 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 at the 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 then payable quarterly at an annual rate equal to the three-month LIBOR plus 2.120%. 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.

The continuation of LIBOR on the current basis is not guaranteed after 2021 and LIBOR may be discontinued or modified by 2021. The Subordinated Debentures allow for the use of an alternative benchmark if LIBOR is no longer available.

The terms of the Company’s outstanding subordinated debentures prohibit the Company from declaring or paying any dividends or distributions on common or preferred stock or redeeming, purchasing, acquiring, or making liquidation payments on common stock or preferred stock if the Company has elected to defer interest payments on the subordinated debentures, subject to certain limited exceptions.

In connection with the issuance of the Debentures, the Company entered into a replacement capital covenant (“RCC”). This covenant was not intended for the benefit of the holders of the Debentures and could not be enforced by them. Rather, it was for the benefit of holders of one or more other designated series of the Company’s indebtedness (“covered debt”), currently the 5.750% Subordinated Debentures due 2053. Pursuant to the RCC, the Company has agreed that it will not repay, redeem, or purchase the Debentures on or before May 15, 2067 (or such earlier date on which the RCC terminates by its terms) unless, subject to certain limitations, the Company has received net cash proceeds in specified amounts from the sale of common stock or certain other qualifying securities. The promises and covenants contained in the RCC will not apply if (i) S&P upgrades the Company’s issuer credit rating to A or above, (ii) the Company redeems the Debentures due to a tax event, (iii) after notice of redemption has been given by the Company and a market disruption event occurs preventing the Company from raising proceeds in accordance with the RCC, or (iv) the Company repurchases or redeems up to 10% of the outstanding principal of the Debentures in any one-year period, provided that no more than 25% will be so repurchased, redeemed or purchased in any ten-year period.

The RCC terminates in 2067. The RCC will terminate prior to its scheduled termination date if (i) the Debentures are no longer outstanding and the Company has fulfilled its obligations under the RCC or it is no longer applicable, (ii) the holders of a majority of the then-outstanding principal amount of the then-effective series of covered debt consent to agree to the termination of the RCC, (iii) the Company does not have any series of outstanding debt that is eligible to be treated as covered debt under the RCC, (iv) the Debentures are accelerated as a result of an event of default, (v) certain rating agency or change in control events occur, (vi) S&P, or any successor thereto, no longer assigns a solicited rating on senior debt issued or guaranteed by the Company, or (vii) the termination of the RCC would have no effect on the equity credit provided by S&P with respect to the Debentures. An event of default, as defined by the supplemental indenture, includes default in the payment of interest or principal and bankruptcy proceedings.

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. In April 2016, the Company extended the maturity date of the facility to April 2021. This facility contains an increase provision that would allow up to an additional $500 million of borrowing. This facility has a financial covenant requiring the Company not to exceed a 37.5% debt to capitalization 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, unguaranteed long-term debt. The total amount outstanding at any point in time under the combination of the commercial paper



## Notes to Consolidated Financial Statements

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, 2019 or 2018. The Company had no commercial paper outstanding as of December 31, 2019 or 2018.

The Company paid $312 million, $330 million and $332 million of interest on debt in 2019, 2018 and 2017, respectively.

The Company had $389 million and $260 million of investment-related debt that is reported in other liabilities and accrued expenses as of December 31, 2019 and 2018, respectively.

During 2018, the Company filed a universal shelf registration statement with the Securities and Exchange Commission (“SEC”) that expires in 2021. 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.

Common stock The Company had 900 million shares of issued common stock of which 319 million shares were outstanding and 581 million shares were held in treasury as of December 31, 2019. In 2019, the Company acquired 16 million shares at an average cost of $110.37 and reissued 3 million net shares under equity incentive plans.

Preferred stock All outstanding preferred stock represents noncumulative perpetual preferred stock with a $1.00 par value per share and a liquidation preference of $25,000 per share.

<table><tr><td colspan="12">Total preferred stock outstanding</td></tr><tr><td></td><td colspan="3">As of December 31,</td><td colspan="3">Aggregate liquidation preference ($ in millions)</td><td colspan="3">Dividend per depository share (1)</td><td colspan="3">Aggregate dividend payment ($ in millions)</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>Dividend rate</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Series A</td><td>11,500</td><td>11,500</td><td>$ 287.5</td><td>$ 287.5</td><td>5.625%</td><td>$ 1.41</td><td>$ 1.41</td><td>$ 1.41</td><td>$ 16</td><td>$ 16</td><td>$ 16</td><td></td></tr><tr><td>Series C</td><td>—</td><td>—</td><td>—</td><td>—</td><td>6.750%</td><td>—</td><td>1.69</td><td>1.69</td><td>—</td><td>26</td><td>(2)</td><td>26</td></tr><tr><td>Series D</td><td>—</td><td>5,400</td><td>—</td><td>135.0</td><td>6.625%</td><td>1.66</td><td>1.66</td><td>1.66</td><td>9</td><td>(2)</td><td>9</td><td>9</td></tr><tr><td>Series E</td><td>—</td><td>29,900</td><td>—</td><td>747.5</td><td>6.625%</td><td>1.66</td><td>1.66</td><td>1.66</td><td>49</td><td>(2)</td><td>49</td><td>49</td></tr><tr><td>Series F</td><td>—</td><td>10,000</td><td>—</td><td>250.0</td><td>6.250%</td><td>1.56</td><td>1.56</td><td>1.56</td><td>16</td><td>(2)</td><td>16</td><td>16</td></tr><tr><td>Series G</td><td>23,000</td><td>23,000</td><td>575.0</td><td>575.0</td><td>5.625%</td><td>1.41</td><td>1.41</td><td>—</td><td>32</td><td>18</td><td>—</td><td></td></tr><tr><td>Series H</td><td>46,000</td><td>—</td><td>1,150.0</td><td>—</td><td>5.100%</td><td>1.28</td><td>—</td><td>—</td><td>12</td><td>—</td><td>—</td><td></td></tr><tr><td>Series I</td><td>12,000</td><td>—</td><td>300.0</td><td>—</td><td>4.750%</td><td>1.19</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Total</td><td>92,500</td><td>79,800</td><td>$ 2,313</td><td>$ 1,995</td><td></td><td></td><td></td><td></td><td>$ 134</td><td>(2)</td><td>$ 134</td><td>(2)</td></tr></table>

(1) Each depositary share represents a 1/1,000 \( ^{th} \)  interest in a share of preferred stock.

(2) Excludes $37 million and $13 million in 2019 and 2018, respectively, related to original issuance costs in preferred stock dividends on the Consolidated Statements of Operations and Consolidated Statements of Shareholders' Equity as a result of the preferred stock redemptions.

On August 8, 2019, the Company issued 46,000 shares of 5.100% Fixed Rate Noncumulative Perpetual Preferred Stock, Series H, par value $1.00 per share and liquidation preference $25,000 per share, for gross proceeds of $1.15 billion.

On October 15, 2019, the Company redeemed all 5,400 shares of its Fixed Rate Noncumulative Perpetual Preferred Stock, Series D, par value $1.00 per share and liquidation preference $25,000 per share, all 29,900 shares of its Fixed Rate Noncumulative Perpetual Preferred Stock, Series E, par value $1.00 per share and liquidation preference $25,000 per share, all 10,000 shares of its Fixed Rate Noncumulative Perpetual Preferred Stock, Series F, par value $1.00 per share and liquidation preference $25,000 per share, and the corresponding depositary shares. The total redemption payment was $1.13 billion, using the proceeds from the issuance of the Fixed Rate Noncumulative Perpetual Preferred Stock, Series H. In 2019, the Company recognized $37 million of original issuance costs in preferred stock dividends on the Consolidated Statements of Operations and Consolidated Statements of Shareholders' Equity as a result of the preferred stock redemptions.
On November 8, 2019, the Company issued 12,000 shares of 4.750% Fixed Rate Noncumulative Perpetual Preferred Stock, Series I, par value $1.00 per share and liquidation preference $25,000 per share, for gross proceeds of $300 million.

Subsequent event On January 15, 2020, the Company redeemed all 11,500 shares of its Fixed Rate Noncumulative Preferred Stock, Series A, par value $1.00 per share and liquidation preference $25,000 per share and the corresponding depositary shares. The total redemption payment was $288 million, using the proceeds from the issuance of the Fixed Rate Noncumulative Perpetual Preferred Stock, Series I. In the first quarter of 2020, the Company will recognize $10 million of original issuance costs in preferred stock dividends on the Consolidated Statements of Operations and Consolidated Statements of Shareholders' Equity as a result of the preferred stock redemption.

The preferred stock ranks senior to the Company’s common stock with respect to the payment of dividends and liquidation rights. The Company will pay dividends on the preferred stock on a noncumulative



basis only when, as and if declared by the Company’s board of directors (or a duly authorized committee of the board) and to the extent that the Company has legally available funds to pay dividends. If dividends are declared on the preferred stock, they will be payable quarterly in arrears at an annual fixed rate. Dividends on the preferred stock are not cumulative. Accordingly, in the event dividends are not declared on the preferred stock for payment on any dividend payment date, then those dividends will cease to be payable. If the Company has not declared a dividend before the dividend payment date for any dividend period, the Company has no obligation to pay dividends for that dividend period, whether or not dividends are declared for any future dividend period. No dividends may be paid or declared on the Company’s common stock and no shares of the Company’s common stock may be repurchased unless the full dividends for the latest completed dividend period on the preferred stock have been declared and paid or provided for.

The Company is prohibited from declaring or paying dividends on its Series G preferred stock in excess of the amount of net proceeds from an issuance of common stock taking place within 90 days before a dividend declaration date if, on that dividend declaration date, either: (1) the risk-based capital ratios of the largest U.S. property-casualty insurance subsidiaries that collectively account for 80% or more of the net written premiums of U.S. property-casualty insurance business on a weighted average basis were less than 175% of their company action level risk-based capital as of the end of the most recent year; or (2) consolidated net income for the four-quarter period ending on the preliminary quarter end test date (the quarter that is two quarters prior to the most recently completed quarter) is zero or negative and consolidated shareholders' equity (excluding AOCI, and subject to certain other adjustments relating to changes in U.S. GAAP) as of each of the preliminary quarter test date and the most recently completed quarter has declined by 20% or more from its level as measured at the end of the benchmark quarter (the date that is ten quarters prior to the most recently completed quarter). If the Company fails to satisfy either of these tests on any dividend declaration date,

## Note 13 Company Restructuring

The Company undertakes various programs to reduce expenses. These programs generally involve a reduction in staffing levels, and in certain cases, office closures. Restructuring and related charges primarily include the following costs related to these programs:

• Employee - severance and relocation benefits

• Exit - contract termination penalties
the restrictions on dividends will continue until the Company is able again to satisfy the test on a dividend declaration date. In addition, in the case of a restriction arising under (2) above, the restrictions on dividends will continue until consolidated shareholders' equity (excluding AOCI, and subject to certain other adjustments relating to changes in U.S. GAAP) has increased, or has declined by less than 20%, in either case as compared to its level at the end of the benchmark quarter for each dividend payment date as to which dividend restrictions were imposed.

The preferred stock does not have voting rights except with respect to certain changes in the terms of the preferred stock, in the case of certain dividend nonpayments, certain other fundamental corporate events, mergers or consolidations and as otherwise provided by law. If and when dividends have not been declared and paid in full for at least six quarterly dividend periods or their equivalent (whether or not consecutive), the authorized number of directors then constituting our board of directors will be increased by two. The holders of the preferred stock, together with the holders of all other affected classes and series of voting parity stock, voting as a single class, will be entitled to elect the two additional members of the board of directors of the Company, subject to certain conditions. The board of directors shall at no time have more than two preferred stock directors.

The preferred stock is perpetual and has no maturity date. The preferred stock is redeemable at the Company’s option in whole or in part, on or after April 15, 2023 for Series G, October 15, 2024 for Series H and January 15, 2025 for Series I at a redemption price of $25,000 per share of preferred stock, plus declared and unpaid dividends. Prior to April 15, 2023 for Series G, October 15, 2024 for Series H and January 15, 2025 for Series I, the preferred stock is redeemable at the Company’s option, in whole but not in part, within 90 days of the occurrence of certain regulatory capital event at a redemption price equal to $25,000 or $25,500 per share or a certain rating agency event at a redemption price equal to $25,000 or $25,500 per share, plus declared and unpaid dividends for Series G and for Series H and I, respectively.

The expenses related to these activities are included in the Consolidated Statements of Operations as restructuring and related charges, and totaled $41 million, $67 million and $96 million in 2019, 2018 and 2017, respectively. Restructuring expenses in 2019 primarily related to realignment of certain employees to centralized talent centers as well as claims reorganization initiatives.



<table><tr><td colspan="5">Restructuring activity during the period</td></tr><tr><td rowspan="2">(\( in millions)</td><td colspan="2">Employee costs</td><td colspan="2">Exit costs</td></tr><tr><td>$</td><td>29</td><td>$</td><td>15</td></tr><tr><td>Restructuring liability as of December 31, 2018</td><td></td><td>43</td><td></td><td>7</td></tr><tr><td>Expense incurred</td><td></td><td>(9)</td><td></td><td>—</td></tr><tr><td>Adjustments to liability</td><td></td><td>(49)</td><td></td><td>(14)</td></tr><tr><td>Payments and non-cash pension settlements</td><td></td><td></td><td></td><td></td></tr><tr><td>Restructuring liability as of December 31, 2019</td><td></td><td>$</td><td>14</td><td>$</td></tr><tr><td></td><td></td><td></td><td></td><td>8</td></tr><tr><td></td><td></td><td></td><td></td><td>$</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr></table>

As of December 31, 2019, the cumulative amount incurred to date for active programs related to employee severance, relocation benefits and post-exit rent expenses totaled $112 million for employee costs and $12 million for exit costs.

## Note 14 Commitments, Guarantees and Contingent Liabilities

## 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.

The Company routinely reviews its exposure to assessments from these plans, facilities and government programs. 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.

Florida Citizens 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: 2% of the projected deficit or 2% of the aggregate statewide direct written premium for the prior calendar year. 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 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. Currently, the emergency assessment is zero for all policies issued or renewed on or after July 1, 2015.

Louisiana Citizens Louisiana Citizens Property Insurance Corporation (“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. If the plan year deficit exceeds the amount that can be recovered through Regular Assessments, LA Citizens may fund the remaining deficit by issuing revenue assessment bonds in the capital markets. LA Citizens then declares Emergency Assessments each year to provide debt service on the bonds until they are retired. Companies writing assessable lines must surcharge their policyholders Emergency Assessments in the percentage established annually by LA Citizens and must remit amounts collected to the bond trustee on a quarterly basis. Emergency assessments to pay off bonds issued in 2007 for the hurricanes of 2005 will continue until 2025.

Facilities such as FL Citizens and LA Citizens are generally designed so that the ultimate cost is borne by policyholders; however, the exposure to assessments from these facilities and the availability of recoupments or premium rate increases 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, 2019, the CEA’s capital balance was approximately $6.01 billion. Should losses arising from an earthquake cause a deficit in the CEA, an



additional $721 million would be obtained from the proceeds of revenue bonds the CEA may issue, an existing $8.26 billion reinsurance layer, $1.0 billion from policyholders surcharge, and finally, if needed, assessments on participating insurance companies. Participating insurers are required to pay an assessment, currently estimated not to exceed $1.66 billion, if 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 $17.65 billion as of October 31, 2019 and if an event were to result in claims greater than its capacity, affected policyholders may be paid a prorated portion of their covered losses, paid on an installment basis, or no payments may be made if the claim paying capacity of the CEA is insufficient.

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 December 31, 2018, the Company's market share was 9.8%. The Company does not expect its market share to materially change. At this level, the Company's maximum possible CEA assessment would be $162 million during 2020. These amounts are re-evaluated by the board of directors of the CEA on an annual basis. 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 as a member of the Texas Windstorm Insurance Association (“TWIA”), which provides wind and hail property coverage to coastal risks unable to procure coverage in the voluntary market. Wind and hail coverage is written on a TWIA-issued policy. TWIA follows a funding structure first utilizing currently available funds set aside from current and prior years. Under the current law, to the extent losses exceed premiums received from policyholders, TWIA utilizes a combination of reinsurance, TWIA issued securities, as well as member and policyholder assessments to fund loss payments.

During 2019, the TWIA Board announced assessments primarily related to Hurricane Harvey for which the Company’s share was $12 million. These costs were recorded in property and casualty insurance claims and claims expense as catastrophe losses on the Consolidated Statements of Operations. Any assessments from TWIA for a particular quarter or annual period may be material to the results of operations and cash flows, but not to the financial position of the Company.

Texas Fair Plan Association The Company participates as a member of the Texas Fair Plan Association (“FAIR Plan”), which provides residential property insurance to inland areas designated as underserved by the Commissioner of Insurance and the applicant(s) are unable to procure coverage in the voluntary market. The FAIR Plan issues insurance policies, like an insurance company, and it also functions as a pooling mechanism that allocates premiums, claims and expenses back to the insurance industry. As a result of the losses incurred related to Hurricane Harvey, in 2017 the FAIR Plan Board unanimously voted to approve its first ever member assessment of which the Company’s share was $8 million based on total direct premium written in Texas. Insurers are permitted to recover the assessment through either a premium surcharge applied to existing customers over a three-year period or increased rates, but the ability to fully recover the assessment may be impacted by market conditions or other factors.

North Carolina Joint Underwriters Association The North Carolina Joint Underwriters Association (“NCJUA”) was created to provide property insurance for properties (other than the state’s beach and coastal areas) that insurers are not otherwise willing to insure. All insurers licensed to write property insurance in North Carolina are members of the NCJUA. Premiums, losses and expenses of the NCJUA are shared by the member companies in proportion to their respective North Carolina property insurance writings. Member companies participate in plan deficits or surpluses based on their participation ratios, which are determined annually. The Company had a $5 million receivable from the NCJUA at December 31, 2019 representing our participation in the NCJUA’s deficit of $29 million for all open years.

North Carolina Insurance Underwriting Association The North Carolina Insurance Underwriting Association (“NCIUA”) provides windstorm and hail coverage as well as homeowners policies for properties located in the state’s beach and coastal areas that insurers are not otherwise willing to insure. All insurers licensed to write residential and commercial property insurance in North Carolina are members of the NCIUA. Members are assessed in proportion to their North Carolina residential and commercial property insurance writings, which is determined annually and varies by coverage, for plan deficits. As of December 31, 2019, the NCIUA had a surplus of $439 million. No member company is entitled to the distribution of any portion of the Association’s surplus. The Company does not recognize any interest related to this surplus. Legislation in 2009 capped insurers’ assessments for losses incurred in any calendar year at $1.00 billion. Subsequent to an industry assessment of $1.00 billion, if the plan continues to require funding, it may authorize insurers to assess a 10% catastrophe recovery charge on each property insurance policy statewide to be remitted to the plan.

Other programs The Company is also subject to assessments by the NCRF and the FHCF, which are described in Note 10.

## 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



## Notes to Consolidated Financial Statements

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. Since most states allow a credit against premium or other state related taxes for assessments, an asset is recorded based on paid and accrued assessments for the amount the Company expects to recover on the respective state's tax return and is realized over the period allowed by each state. As of December 31, 2019 and 2018, the liability balance included in other liabilities and accrued expenses was $13 million and $12 million, respectively. The related premium tax offsets included in other assets were $15 million and $16 million as of December 31, 2019 and 2018, respectively.

## 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.

Related to the sale of Lincoln Benefit Life Company on April 1, 2014, ALIC agreed to indemnify Resolution Life Holdings, Inc. in connection with certain representations, warranties and covenants of ALIC, and certain liabilities specifically excluded from the transaction, subject to specific contractual limitations regarding ALIC's maximum obligation. Management does not believe these indemnifications will have a material effect on results of operations, cash flows or financial position of the Company.

The aggregate liability balance related to all guarantees was not material as of December 31, 2019.

## Regulation and compliance

The Company is subject to extensive laws, regulations, administrative directives, and regulatory actions. 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, prescribe rules or guidelines on how affiliates compete in the marketplace, 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 agency and broker compensation, regulate the nature of and amount of investments, impose fines and penalties for unintended errors or mistakes, impose additional regulations regarding cybersecurity and privacy, and otherwise expand overall regulation of insurance products and the insurance industry. In addition, the Company is subject to laws and regulations administered and enforced by federal agencies, international agencies, and other organizations, including but not limited to the SEC, the Financial Industry Regulatory Authority, the U.S. Equal Employment Opportunity Commission, and the U.S. Department of Justice. 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

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.

Background 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; changes in assigned judges; differences or developments in applicable laws and judicial interpretations; judges reconsidering prior rulings; the length of time before many of these matters might be resolved by settlement, through litigation, or otherwise; adjustments with respect to anticipated trial schedules and other proceedings; developments in similar actions against other companies; 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 challenging legal environment faced by 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.

Accrual and disclosure policy The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for such matters at management's best estimate when the Company assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company does not establish accruals for such matters when the Company does not believe both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company's assessment of whether a loss is reasonably possible, or probable, is based on its assessment of the ultimate outcome of the matter following all appeals. The Company does not include potential recoveries in its estimates of reasonably possible or probable losses. Legal fees are expensed as incurred.

The Company continues to monitor its lawsuits, regulatory inquiries, and other legal proceedings for further developments that would make the loss contingency both probable and estimable, and accordingly accruable, or that could affect the amount of accruals that have been previously established. There may continue to be exposure to loss in excess of any amount accrued. Disclosure of the nature and amount of an accrual is made when there have been sufficient legal and factual developments such that the Company's ability to resolve the matter would not be impaired by the disclosure of the amount of accrual.

When the Company assesses it is reasonably possible or probable that a loss has been incurred, it discloses the matter. When it is possible to estimate the reasonably possible loss or range of loss above the amount accrued, if any, for the matters disclosed, that estimate is aggregated and disclosed. Disclosure is not required when an estimate of the reasonably possible loss or range of loss cannot be made.

For certain of the matters described below in the “Claims related proceedings” and “Other proceedings” subsections, the Company is able to estimate the reasonably possible loss or range of loss above the amount accrued, if any. In determining whether it is possible to estimate the reasonably possible loss or range of loss, the Company reviews and evaluates the disclosed matters, in conjunction with counsel, in light of potentially relevant factual and legal developments.

These developments may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, information obtained from other sources, experience from managing these and other matters, and other rulings by courts, arbitrators or others. When the Company possesses sufficient appropriate information to develop an estimate of the reasonably possible loss or range of loss above the amount accrued, if any, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible, but such an estimate is not possible. Disclosure of the estimate of the reasonably possible loss or range of loss above the amount accrued, if any, for any individual matter would only be considered when there have been sufficient legal and factual developments such that the Company’s ability to resolve the matter would not be impaired by the disclosure of the individual estimate.

The Company currently estimates that the aggregate range of reasonably possible loss in excess of the amount accrued, if any, for the disclosed matters where such an estimate is possible is zero to $75 million, pre-tax. This disclosure is not an indication of expected loss, if any. Under accounting guidance, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” This estimate is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimate will change from time to time, and actual results may vary significantly from the current estimate. The estimate does not include matters or losses for which an estimate is not possible. Therefore, this estimate represents an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum possible loss exposure. Information is provided below regarding the nature of all of the disclosed matters and, where specified, the amount, if any, of plaintiff claims associated with these loss contingencies.



## Notes to Consolidated Financial Statements

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 predicted and in the Company’s judgment, a loss, in excess of amounts accrued, if any, is not probable. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently accrued, 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 effect on the financial position of the Company.

Claims related proceedings The Company is managing various disputes in Florida that raise challenges to the Company’s practices, processes, and procedures relating to claims for personal injury protection benefits under Florida auto policies. Medical providers continue to pursue litigation under various theories that challenge the amounts that the Company pays under the personal injury protection benefits. There are pending putative class actions and litigation involving individual plaintiffs. The Company is vigorously asserting both procedural and substantive defenses to these lawsuits.

Other proceedings The stockholder derivative actions described below are disclosed pursuant to SEC disclosure requirements for these types of matters. The putative class action alleging violations of the federal securities laws is disclosed because it involves similar allegations to those made in the stockholder derivative actions.

Biefeldt / IBEW Consolidated Action. Two separately filed stockholder derivative actions have been consolidated into a single proceeding that is pending in the Circuit Court for Cook County, Illinois, Chancery Division. The original complaint in the first-filled of those actions, Biefeldt v. Wilson, et al., was filed on August 3, 2017, in that court by a plaintiff alleging that she is a stockholder of the Company. On June 29, 2018, the court granted defendants' motion to dismiss that complaint for failure to make a pre-suit demand on the Allstate Board before instituting the suit, but granted the plaintiff permission to file an amended complaint. The original complaint in IBEW Local No. 98 Pension Fund v. Wilson, et al., was filed on April 12, 2018, in the same court by another plaintiff alleging to be a stockholder of the Company. After the court issued its dismissal decision in the Biefeldt action, the plaintiffs agreed to consolidate the two actions and filed a consolidated amended complaint naming the Company's chairman, president and chief executive officer, its former president, and certain present or former members of the board of directors. In that complaint, the plaintiffs allege that the directors and officer defendants breached their fiduciary duties to the Company in connection with allegedly material misstatements or omissions concerning the Company's automobile insurance claim frequency statistics and the reasons for a claim frequency increase for Allstate brand auto insurance between October 2014 and August 3, 2015. The factual allegations are substantially similar to those at issue in In re The Allstate Corp. Securities Litigation. The plaintiffs further allege that a senior officer and several outside directors engaged in stock option exercises allegedly while in possession of material nonpublic information. The plaintiffs seek, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. Defendants moved to dismiss the consolidated complaint on September 24, 2018 for failure to make a demand on the Allstate Board. On May 14, 2019, the court granted the defendants' motion to dismiss the complaint, but allowed the plaintiffs to leave to file a second consolidated amended complaint by June 11, 2019. On June 3, 2019, the plaintiffs filed a motion to stay the action, or in the alternative defer the filing of the second consolidated amended complaint, to allow the plaintiffs to conduct an inspection of the Company's books and records. The parties reached a compromise by which the Company produced certain board materials and the deadline for the plaintiffs to file the second consolidated amended complaint was extended. On September 17, 2019, the plaintiffs filed a second consolidated amended complaint. Defendants moved to dismiss the complaint on November 1, 2019 for failure to make a demand on the Allstate Board.

In Sundquist v. Wilson, et al., another plaintiff alleging to be a stockholder of the Company filed a stockholder derivative complaint in the United States District Court for the Northern District of Illinois on May 21, 2018. The plaintiff seeks, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president, its former chief financial officer, who is now the Company’s vice chairman, and certain present or former members of the board of directors.

The complaint alleges breaches of fiduciary duty based on allegations similar to those asserted in In re The Allstate Corp. Securities Litigation as well as state law “misappropriation” claims based on stock option transactions by the Company’s chairman, president and chief executive officer, its former chief financial officer, who is now the Company’s vice chairman, and certain members of the board of directors. Defendants moved to dismiss and/or stay the complaint on August 7, 2018. On December 4, 2018, the court granted the defendants’ motion and stayed the case pending the resolution of the consolidated Biefeldt/IBEW matter.

Mims v. Wilson, et al., is an additional stockholder derivative action filed on February 12, 2020 in the United States District Court for the Northern District of Illinois. The plaintiff seeks, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president, its former chief financial officer, who is now the Company’s vice chairman, and certain present or former members of the board of directors. The complaint alleges breaches of fiduciary



duty and unjust enrichment based on allegations similar to those asserted in In re The Allstate Corp. Securities Litigation.

In re The Allstate Corp. Securities Litigation is a certified class action filed on November 11, 2016 in the United States District Court for the Northern District of Illinois against the Company and two of its officers asserting claims under the federal securities laws. Plaintiffs allege that they purchased Allstate common stock during the class period and suffered damages as the result of the conduct alleged. Plaintiffs seek an unspecified amount of damages, costs, attorney's fees, and other relief as the court deems appropriate. Plaintiffs allege that the Company and certain senior officers made allegedly material misstatements or omissions concerning claim frequency statistics and the reasons for a claim frequency increase for Allstate brand auto insurance between October 2014 and August 3, 2015.

Plaintiff’s further allege that a senior officer engaged in stock option exercises during that time allegedly while in possession of material nonpublic information about Allstate brand auto insurance claim frequency. The Company, its chairman, president and chief executive officer, and its former president are the named defendants. After the court denied their motion to dismiss on February 27, 2018, defendants answered the complaint, denying plaintiffs’ allegations that there was any misstatement or omission or other misconduct. On June 22, 2018, plaintiffs filed their motion for class certification, which was fully briefed as of January 11, 2019. On September 12, 2018, the court allowed the lead plaintiffs to amend their complaint to add the City of Providence Employee Retirement System as a proposed class representative.

The amended complaint was filed the same day. On March 26, 2019, the court granted plaintiffs' motion for class certification and certified a class consisting of all persons who purchased Allstate common stock between October 29, 2014 and August 3, 2015. On April 9, 2019, defendants filed with the Seventh Circuit Court of Appeals a petition for permission to appeal this ruling pursuant to Federal Rule of Civil Procedure 23 (f) and the Court of Appeals granted that petition on April 25, 2019. The appeal was fully briefed as of July 31, 2019, and the Seven Circuit Court of Appeals heard oral argument on September 18, 2019.

## Asbestos and environmental

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. Further, insurers and claims administrators acting on behalf of insurers are increasingly pursuing evolving and expanding theories of reinsurance coverage for asbestos and environmental losses. Adjudication of reinsurance coverage is predominantly decided in confidential arbitration proceedings which may have limited precedential or predictive value further complicating management’s ability to estimate probable loss for reinsured asbestos and environmental claims. 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.



## Note 15 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.

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws or rates are enacted.

Regulatory tax examinations The Internal Revenue Service (“IRS”) is currently examining the Company’s 2015 and 2016 federal income tax returns and is expected to complete its exam by mid-2020. The 2017 and 2018 audit cycle is expected to begin mid-2020. The 2013 and 2014 federal income tax return audit is complete through the exam phase and the Company has reached a tentative agreement on one outstanding issue, pending final review by the Joint Committee of Taxation expected in 2020. Any adjustments that may result from IRS examinations of the Company’s tax returns are not expected to have a material effect on the consolidated financial statements.

Unrecognized tax benefits The Company recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.

<table><tr><td colspan="5">Reconciliation of the change in the amount of unrecognized tax benefits</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>(\$ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Balance - beginning of year</td><td>$ 70</td><td>$ 55</td><td>$ 10</td><td></td></tr><tr><td>Increase for tax positions taken in a prior year</td><td>—</td><td>3</td><td>34</td><td></td></tr><tr><td>Increase for tax positions taken in the current year</td><td>—</td><td>12</td><td>11</td><td></td></tr><tr><td>Balance - end of year</td><td>$ 70</td><td>$ 70</td><td>$ 55</td><td></td></tr></table>

The Company believes it is reasonably possible that a decrease of up to $58 million in unrecognized tax benefits may occur within the next twelve months due to IRS settlements.

<table><tr><td colspan="3">Components of the deferred income tax assets and liabilities</td></tr><tr><td>($ in millions)</td><td>As of December 31, 2019</td><td>2018</td></tr><tr><td>Deferred tax assets</td><td></td><td></td></tr><tr><td>Unearned premium reserves</td><td>$ 642</td><td>$ 594</td></tr><tr><td>Pension</td><td>197</td><td>192</td></tr><tr><td>Accrued compensation</td><td>147</td><td>145</td></tr><tr><td>Discount on loss reserves</td><td>78</td><td>67</td></tr><tr><td>Other postretirement benefits</td><td>49</td><td>45</td></tr><tr><td>Net operating loss carryover</td><td>26</td><td>50</td></tr><tr><td>Other assets</td><td>54</td><td>57</td></tr><tr><td>Total deferred tax assets</td><td>1,193</td><td>1,150</td></tr><tr><td>Deferred tax liabilities</td><td></td><td></td></tr><tr><td>DAC</td><td>(847)</td><td>(854)</td></tr><tr><td>Unrealized net capital gains</td><td>(507)</td><td>(2)</td></tr><tr><td>Investments</td><td>(567)</td><td>(278)</td></tr><tr><td>Life and annuity reserves</td><td>(222)</td><td>(194)</td></tr><tr><td>Intangible assets</td><td>(98)</td><td>(145)</td></tr><tr><td>Other liabilities</td><td>(106)</td><td>(102)</td></tr><tr><td>Total deferred tax liabilities</td><td>(2,347)</td><td>(1,575)</td></tr><tr><td>Net deferred tax liability</td><td>$ (1,154)</td><td>$ (425)</td></tr></table>

Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized. As of December 31, 2019, the Company has U.S. federal and foreign net operating loss carryforwards of $93 million and $29 million, respectively.



The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period and made it indefinite for federal net operating losses generated in tax years after December 31, 2017. For such amounts generated prior to 2018, the 20-year carryforward period continues to apply.

<table><tr><td colspan="5">Components of the net operating loss carryforwards as of December 31, 2019</td></tr><tr><td></td><td colspan="2">20-Year Carryforward Expires in 2025-2037</td><td colspan="2">Indefinite Carryforward Period</td></tr><tr><td>($ in millions)</td><td>$</td><td>72</td><td>$</td><td>21</td></tr><tr><td>US Federal</td><td></td><td>—</td><td></td><td>29</td></tr><tr><td>Foreign</td><td></td><td></td><td></td><td></td></tr><tr><td>Total</td><td>$</td><td>72</td><td>$</td><td>50</td></tr></table>

<table><tr><td colspan="5">Components of income tax expense</td></tr><tr><td></td><td colspan="4">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td colspan="2">2019</td><td>2018</td><td>2017</td></tr><tr><td>Current</td><td>$</td><td>991</td><td>$</td><td>704</td></tr><tr><td>Deferred</td><td></td><td>251</td><td></td><td>(236)</td></tr><tr><td>Total income tax expense</td><td>$</td><td>1,242</td><td>$</td><td>468</td></tr></table>

The Company paid income taxes of $648 million, $731 million and $968 million in 2019, 2018 and 2017, respectively.

The Company had a current income tax payable of $124 million and a current tax receivable of $124 million as of December 31, 2019 and 2018, respectively.

<table><tr><td colspan="7">Reconciliation of the statutory federal income tax rate to the effective income tax rate</td></tr><tr><td></td><td colspan="6">For the years ended December 31,</td></tr><tr><td>($ in millions)</td><td colspan="2">2019</td><td colspan="2">2018</td><td colspan="2">2017</td></tr><tr><td>Income before income taxes</td><td>$</td><td>6,089</td><td>$</td><td>2,628</td><td>$</td><td>4,549</td></tr><tr><td>Statutory federal income tax rate on income from operations</td><td>1,279</td><td>21.0%</td><td>552</td><td>21.0%</td><td>1,592</td><td>35.0%</td></tr><tr><td>Tax credits</td><td>(33)</td><td>(0.5)</td><td>(34)</td><td>(1.3)</td><td>(59)</td><td>(1.3)</td></tr><tr><td>Share-based payments</td><td>(24)</td><td>(0.4)</td><td>(16)</td><td>(0.6)</td><td>(63)</td><td>(1.4)</td></tr><tr><td>Tax-exempt income</td><td>(27)</td><td>(0.4)</td><td>(24)</td><td>(0.9)</td><td>(32)</td><td>(0.7)</td></tr><tr><td>State income taxes</td><td>41</td><td>0.7</td><td>27</td><td>1.0</td><td>21</td><td>0.5</td></tr><tr><td>Tax Legislation benefit</td><td>—</td><td>—</td><td>(29)</td><td>(1.1)</td><td>(509)</td><td>(11.2)</td></tr><tr><td>Non-deductible goodwill impairment</td><td>—</td><td>—</td><td>—</td><td>—</td><td>44</td><td>1.0</td></tr><tr><td>Other</td><td>6</td><td>—</td><td>(8)</td><td>(0.3)</td><td>1</td><td>—</td></tr><tr><td>Effective income tax rate on income from operations</td><td>$</td><td>1,242</td><td>20.4%</td><td>$</td><td>468</td><td>17.8%</td></tr></table>



## Note 16 Statutory Financial Information and Dividend Limitations

Allstate’s domestic property and casualty 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 National Association of Insurance Commissioners (“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 (loss) and capital and surplus of Allstate's domestic insurance subsidiaries

<table><tr><td rowspan="2">(\$ in millions)</td><td colspan="3">Net income (loss)</td><td colspan="3">Capital and surplus</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</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 and casualty insurance</td><td>$ 3,989</td><td>$ 2,939</td><td>$ 3,050</td><td>$ 16,192</td><td>$ 14,328</td><td></td></tr><tr><td>Life insurance, annuities and voluntary accident and health insurance</td><td>422</td><td>465</td><td>327</td><td>4,208</td><td>3,819</td><td></td></tr><tr><td>Amount per statutory accounting practices</td><td>$ 4,411</td><td>$ 3,404</td><td>$ 3,377</td><td>$ 20,400</td><td>$ 18,147</td><td></td></tr></table>

## Dividend Limitations

There are no regulatory restrictions that limit the payment of dividends by the Corporation, except those generally applicable to corporations incorporated in Delaware. Dividends are payable only out of certain components of shareholders' equity as permitted by Delaware law. However, the ability of the Corporation to pay dividends is dependent on business conditions, income, cash requirements of the Company, receipt of dividends from AIC and other relevant factors.

The payment of shareholder dividends by AIC without the prior approval of the Illinois Department of Insurance (“IL DOI”) is limited 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 $2.73 billion in 2019. The maximum amount of dividends AIC will be able to pay without prior IL DOI approval at a given point in time during 2020 is $3.73 billion, less dividends paid during the preceding twelve months measured at that point in time. The payment of a dividend in excess of this amount requires 30 days advance written notice to the IL DOI. The dividend is deemed approved, unless the IL DOI disapproves it within the 30 day notice period. Additionally, any dividend must be paid out of unassigned surplus excluding unrealized appreciation from investments, which for AIC totaled $12.09 billion as of December 31, 2019, and cannot result in capital and surplus being less than the minimum amount required by law.

Under state insurance laws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write. Insurance companies are also subject to risk-based capital (“RBC”) requirements adopted by state insurance regulators. A company’s “authorized control level RBC” is calculated using various factors applied to certain financial balances and activity. Companies that do not maintain adjusted statutory capital and surplus at a level in excess of the company action level RBC, which is two times authorized control level RBC, are required to take specified actions. Company action level RBC is significantly in excess of the minimum capital requirements. Total adjusted statutory capital and surplus and authorized control level RBC of AIC were $19.57 billion and $3.04 billion, respectively, as of December 31, 2019. Most of the Corporation’s insurance subsidiaries are subsidiaries of and/or reinsure all of their business to AIC, including AIC. AIC’s subsidiaries are included as a component of AIC’s total statutory capital and surplus.

The amount of restricted net assets, as represented by the Corporation’s investment in its insurance subsidiaries, was $28.93 billion as of December 31, 2019.

## Intercompany transactions

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.



## Note 17 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, eligible annual compensation and, prior to January 1, 2014, either a cash balance or final average pay formula. A cash balance formula applies to all eligible employees hired after August 1, 2002. Eligible employees hired before August 1, 2002 chose between the cash balance formula and the final average pay formula. In July 2013, the Company amended its primary plans effective January 1, 2014 to introduce a new cash balance formula to replace the previous formulas (including the final average pay formula and the previous cash balance formula) under which eligible employees accrue benefits. The Company merged two of its qualified pension plans effective March 31, 2019.

The Company also provides a medical coverage subsidy for eligible employees hired before January 1, 2003, including their eligible dependents, when they retire and certain life insurance benefits for eligible retirees (“postretirement benefits”). In July 2013, the Company amended the plan to eliminate the life insurance benefits effective January 1, 2014 for current eligible employees and effective January 1, 2016 for eligible retirees who retired after 1989. The Company continues to pay life insurance premiums for certain retiree plaintiffs subject to a court order requiring it to do so until such time as their lawsuit seeking to keep their life insurance benefits intact is resolved. Qualified employees may become eligible for a medical subsidy if they retire in accordance with the terms of the applicable plans 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 future annual medical cost inflation after retirement. For Medicare-eligible retirees, the Company 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. Pension costs and other postretirement obligations 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 formulas and assumptions. 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 contributions at a level in accordance with regulations under the Internal Revenue Code (“IRC”) and generally accepted actuarial principles. The Company’s other postretirement benefit plans are not funded.



<table><tr><td colspan="6">Change in projected benefit obligation, plan assets and funded status</td></tr><tr><td></td><td colspan="5">As of December 31,</td></tr><tr><td></td><td colspan="2">Pension benefits</td><td colspan="3">Postretirement benefits</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Change in projected benefit obligation</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Benefit obligation, beginning of year</td><td>$ 6,224</td><td>$ 6,815</td><td>$ 375</td><td>$ 386</td><td></td></tr><tr><td>Service cost</td><td>117</td><td>110</td><td>8</td><td>7</td><td></td></tr><tr><td>Interest cost</td><td>240</td><td>255</td><td>14</td><td>15</td><td></td></tr><tr><td>Participant contributions</td><td>—</td><td>—</td><td>15</td><td>13</td><td></td></tr><tr><td>Actuarial losses (gains)</td><td>927</td><td>(255)</td><td>19</td><td>(4)</td><td></td></tr><tr><td>Benefits paid</td><td>(356)</td><td>(646)</td><td>(39)</td><td>(35)</td><td></td></tr><tr><td>Translation adjustment and other</td><td>(13)</td><td>(55)</td><td>5</td><td>(7)</td><td></td></tr><tr><td>Benefit obligation, end of year</td><td>$ 7,139</td><td>$ 6,224</td><td>$ 397</td><td>$ 375</td><td></td></tr><tr><td>Change in plan assets</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets, beginning of year</td><td>$ 5,299</td><td>$ 6,284</td><td></td><td></td><td></td></tr><tr><td>Actual return on plan assets</td><td>1,235</td><td>(300)</td><td></td><td></td><td></td></tr><tr><td>Employer contribution</td><td>27</td><td>16</td><td></td><td></td><td></td></tr><tr><td>Benefits paid</td><td>(356)</td><td>(646)</td><td></td><td></td><td></td></tr><tr><td>Translation adjustment and other</td><td>(13)</td><td>(55)</td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets, end of year</td><td>$ 6,192</td><td>$ 5,299</td><td></td><td></td><td></td></tr><tr><td>Funded status (1)</td><td>$ (947)</td><td>$ (925)</td><td>$ (397)</td><td>$ (375)</td><td></td></tr><tr><td>Amounts recognized in AOCI</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Unamortized pension and other postretirement prior service credit</td><td>$ (142)</td><td>$ (198)</td><td>$ (13)</td><td>$ (16)</td><td></td></tr></table>

 \( ^{(1)} \)  The funded status is recorded within other liabilities and accrued expenses on the Consolidated Statements of Financial Position.

<table><tr><td colspan="4">Changes in items not yet recognized as a component of net cost for pension and other postretirement plans</td></tr><tr><td>($ in millions)</td><td>Pension benefits</td><td>Postretirement benefits</td><td></td></tr><tr><td>Items not yet recognized as a component of net cost - December 31, 2018</td><td>$ (198)</td><td>$ (16)</td><td></td></tr><tr><td>Prior service credit amortized to net cost</td><td>56</td><td>3</td><td></td></tr><tr><td>Items not yet recognized as a component of net cost - December 31, 2019</td><td>$ (142)</td><td>$ (13)</td><td></td></tr></table>

The prior service credit is recognized as a component of net cost for pension and other postretirement plans amortized over the average remaining service period of active employees expected to receive benefits. The prior service credit that will be amortized to net cost for pension and postretirement plans in 2020 is estimated to be $56 million and $3 million, respectively.

The accumulated benefit obligation (“ABO”) for all defined benefit pension plans was $7.02 billion and $6.15 billion as of December 31, 2019 and 2018, 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 $6.73 billion, $6.62 billion and $5.79 billion, respectively, as of December 31, 2019 and $5.99 billion, $5.93 billion and $5.07 billion, respectively, as of December 31, 2018. Included in the accrued benefit cost of the pension benefits are certain unfunded non-qualified plans with accrued benefit costs of $137 million and $135 million for 2019 and 2018, respectively.



<table><tr><td colspan="11">Components of net cost (benefit) for pension and other postretirement plans</td></tr><tr><td rowspan="3">(\( in millions)</td><td colspan="10">For the years ended December 31,</td></tr><tr><td colspan="4">Pension benefits</td><td colspan="4">Postretirement benefits</td><td colspan="3">Total Pension and Postretirement Benefits</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td></td><td></td><td></td></tr><tr><td>Service cost</td><td>$ 117</td><td>$ 110</td><td>$ 111</td><td>$ 8</td><td>$ 7</td><td>$ 8</td><td>$ 125</td><td>$ 117</td><td>$ 119</td><td></td><td></td></tr><tr><td>Interest cost</td><td>240</td><td>255</td><td>254</td><td>14</td><td>15</td><td>15</td><td>254</td><td>270</td><td></td><td>269</td><td></td></tr><tr><td>Expected return on plan assets</td><td>(403)</td><td>(427)</td><td>(419)</td><td>—</td><td>—</td><td>—</td><td>(403)</td><td>(427)</td><td></td><td>(419)</td><td></td></tr><tr><td>Amortization of prior service credit</td><td>(56)</td><td>(56)</td><td>(56)</td><td>(3)</td><td>(21)</td><td>(25)</td><td>(59)</td><td>(77)</td><td></td><td>(81)</td><td></td></tr><tr><td>Costs and expenses</td><td>(102)</td><td>(118)</td><td>(110)</td><td>19</td><td>1</td><td>(2)</td><td>(83)</td><td>(117)</td><td></td><td>(112)</td><td></td></tr><tr><td>Remeasurement of projected benefit obligation</td><td>927</td><td>(255)</td><td>406</td><td>19</td><td>(4)</td><td>8</td><td>946</td><td>(259)</td><td></td><td>414</td><td></td></tr><tr><td>Remeasurement of plan assets</td><td>(832)</td><td>727</td><td>(631)</td><td>—</td><td>—</td><td>—</td><td>(832)</td><td>727</td><td></td><td>(631)</td><td></td></tr><tr><td>Remeasurement gains and losses</td><td>95</td><td>472</td><td>(225)</td><td>19</td><td>(4)</td><td>8</td><td>114</td><td>468</td><td></td><td>(217)</td><td></td></tr><tr><td>Total net (benefit) cost</td><td>(7)</td><td>(354)</td><td>(335)</td><td>(38)</td><td>(3)</td><td>(6)</td><td>(31)</td><td>(351)</td><td></td><td>(329)</td><td></td></tr></table>

The service cost component is the actuarial present value of the benefits attributed by the plans' benefit formula to services rendered by the employees during the period.

Interest cost is the increase in the PBO in the period due to the passage of time at the discount rate. Interest cost fluctuates as the discount rate changes and is also impacted by the related change in the size of the PBO.

The expected return on plan assets is determined as the product of the expected long-term rate of return on plan assets and the fair value of plan assets.

Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credit are reported in property and casualty insurance claims and claims expense, operating costs and expenses, net investment income and (if applicable) restructuring and related charges on the Consolidated Statements of Operations.

Remeasurement gains and losses relate to changes in discount rates, the differences between actual return on plan assets and the expected long-term rate of return on plan assets, and differences between actual plan experience and actuarial assumptions.

<table><tr><td colspan="7">Weighted average assumptions used to determine net pension cost and net postretirement benefit cost</td></tr><tr><td rowspan="3">(\( in millions)</td><td colspan="6">For the years ended December 31,</td></tr><tr><td colspan="3">Pension benefits</td><td colspan="3">Postretirement benefits</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Discount rate</td><td>3.70%</td><td>4.06%</td><td>3.96%</td><td>3.61%</td><td>3.95%</td><td>3.91%</td></tr><tr><td>Expected long-term rate of return on plan assets</td><td>7.34</td><td>7.33</td><td>7.32</td><td>n/a</td><td>n/a</td><td>n/a</td></tr></table>

<table><tr><td rowspan="3"></td><td colspan="4">For the years ended December 31,</td></tr><tr><td colspan="2">Pension benefits</td><td colspan="2">Postretirement benefits</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Discount rate</td><td>3.31%</td><td>4.31%</td><td>3.27%</td><td>4.22%</td></tr></table>

The weighted average health care cost trend rate used in measuring the accumulated postretirement benefit cost is 7.0% for 2020, gradually declining to 4.5% in 2035 and remaining at that level thereafter.

Pension plan assets 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 target asset allocation takes the plans’ funding status into consideration, among other factors, including anticipated demographic changes or liquidity requirements that may affect the funding status such as the potential impact of lump sum settlements as well as existing or expected market conditions. In general, the allocation has a lower overall investment risk when a plan is in a stronger funded status position since there is less economic incentive to take risk to increase the expected returns on the plan assets. 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



## Notes to Consolidated Financial Statements

investment policy. Pension plan assets are regularly monitored for compliance with these limits and other risk limits specified in the investment policies.

Weighted average target asset allocation and actual percentage of plan assets by asset category

<table><tr><td rowspan="2"></td><td colspan="3">As of December 31, 2019</td></tr><tr><td>Target asset allocation (1)</td><td colspan="2">Actual percentage of plan assets</td></tr><tr><td>Pension plan&#x27;s asset category</td><td>2019</td><td>2019</td><td>2018</td></tr><tr><td>Equity securities (2)</td><td>37 - 55%</td><td>50%</td><td>47%</td></tr><tr><td>Fixed income securities</td><td>37 - 48%</td><td>38</td><td>41</td></tr><tr><td>Limited partnership interests</td><td>1 - 15%</td><td>10</td><td>9</td></tr><tr><td>Short-term investments and other</td><td>—</td><td>2</td><td>3</td></tr><tr><td>Total without securities lending (3)</td><td></td><td>100%</td><td>100%</td></tr></table>

(1) The target asset allocation considers risk-based exposure while the actual percentage of plan assets utilizes a financial reporting view excluding exposure provided through derivatives.

(2) The actual percentage of plan assets for equity securities includes 1% of private equity investments in both 2019 and 2018 that are subject to the limited partnership interests target allocation and none and 4% of fixed income mutual funds in 2019 and 2018, respectively, that are subject to the fixed income securities target allocation.

(3) Securities lending collateral reinvestment of $258 million and $208 million is excluded from the table above in 2019 and 2018, respectively.

The target asset allocation for an asset category may be achieved either through direct investment holdings, through replication using derivative instruments (e.g., futures or swaps) or net of hedges using derivative instruments to reduce exposure to an asset category. The net notional amount of derivatives used for replication and non-hedging strategies is limited to 115% of total plan assets. Market performance of the different asset categories may, from time to time, cause deviation from the target asset allocation. The asset allocation mix is reviewed on a periodic basis and rebalanced to bring the allocation within the target ranges.

Outside the target asset allocation, the pension plans participate in a securities lending program to enhance returns. As of December 31, 2019, U.S. government fixed income securities and U.S. equity securities are lent out and cash collateral is invested in short-term investments.



Fair values of pension plan assets as of December 31, 2019

<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, 2019</td></tr><tr><td>Equity securities</td><td>$ 216</td><td>$ 45</td><td>$ —</td><td>$ 261</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>237</td><td>1,096</td><td>—</td><td>1,333</td></tr><tr><td>Corporate</td><td>—</td><td>1,060</td><td>—</td><td>1,060</td></tr><tr><td>Short-term investments</td><td>128</td><td>252</td><td>—</td><td>380</td></tr><tr><td>Free-standing derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>—</td><td>5</td><td>—</td><td>5</td></tr><tr><td>Liabilities</td><td>(2)</td><td>(17)</td><td>—</td><td>(19)</td></tr><tr><td>Total plan assets at fair value</td><td>$ 579</td><td>$ 2,441</td><td>$ —</td><td>3,020</td></tr><tr><td>% of total plan assets at fair value</td><td>19.2%</td><td>80.8%</td><td>—%</td><td>100.0%</td></tr><tr><td>Investments measured using the net asset value practical expedient</td><td></td><td></td><td></td><td>3,418</td></tr><tr><td>Securities lending obligation (1)</td><td></td><td></td><td></td><td>(272)</td></tr><tr><td>Derivatives counterparty and cash collateral netting</td><td></td><td></td><td></td><td>9</td></tr><tr><td>Other net plan assets (2)</td><td></td><td></td><td></td><td>17</td></tr><tr><td>Total reported plan assets</td><td></td><td></td><td></td><td>$ 6,192</td></tr></table>

 \( ^{(1)} \)  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.

 \( ^{(2)} \)  Other net plan assets represent cash and cash equivalents, interest and dividends receivable and net receivables related to settlements of investment transactions, such as purchases and sales.

Fair values of pension plan assets as of December 31, 2018

<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, 2018</td></tr><tr><td>Equity securities</td><td>$ 51</td><td>$ 265</td><td>$ —</td><td>$ 316</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>172</td><td>509</td><td>—</td><td>681</td></tr><tr><td>Corporate</td><td>—</td><td>1,479</td><td>5</td><td>1,484</td></tr><tr><td>Short-term investments</td><td>122</td><td>198</td><td>—</td><td>320</td></tr><tr><td>Free-standing derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>—</td><td>19</td><td>—</td><td>19</td></tr><tr><td>Liabilities</td><td>—</td><td>(11)</td><td>—</td><td>(11)</td></tr><tr><td>Total plan assets at fair value</td><td>$ 345</td><td>$ 2,459</td><td>$ 5</td><td>2,809</td></tr><tr><td>% of total plan assets at fair value</td><td>12.3%</td><td>87.5%</td><td>0.2%</td><td>100.0%</td></tr><tr><td>Investments measured using the net asset value practical expedient</td><td></td><td></td><td></td><td>2,687</td></tr><tr><td>Securities lending obligation</td><td></td><td></td><td></td><td>(222)</td></tr><tr><td>Derivatives counterparty and cash collateral netting</td><td></td><td></td><td></td><td>(6)</td></tr><tr><td>Other net plan assets</td><td></td><td></td><td></td><td>31</td></tr><tr><td>Total reported plan assets</td><td></td><td></td><td></td><td>$ 5,299</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 6.



Rollforward of Level 3 plan assets during December 31, 2019

<table><tr><td rowspan="2">($ in millions)</td><td colspan="6">Actual return on plan assets:</td><td rowspan="2">Net transfers in and/or (out) of Level 3</td><td rowspan="2">Balance as of December 31, 2019</td></tr><tr><td>Balance as of December 31, 2018</td><td>Relating to assets sold during the period</td><td>Relating to assets still held at the reporting date</td><td>Purchases, sales and settlements, net</td><td></td><td></td></tr><tr><td>Equity securities</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$</td><td>—</td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Corporate</td><td>5</td><td>—</td><td>—</td><td>—</td><td>(5)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total Level 3 plan assets</td><td>$ 5</td><td>$ —</td><td>$ —</td><td>$ —</td><td>(5)</td><td>$ —</td><td>$ —</td><td>$ —</td></tr></table>

Rollforward of Level 3 plan assets during December 31, 2018

<table><tr><td rowspan="2">($ in millions)</td><td colspan="6">Actual return on plan assets:</td><td rowspan="2">Net transfers in and/or (out) of Level 3</td><td rowspan="2">Balance as of December 31, 2018</td></tr><tr><td>Balance as of December 31, 2017</td><td>Relating to assets sold during the period</td><td>Relating to assets still held at the reporting date</td><td>Purchases, sales and settlements, net</td><td></td><td></td></tr><tr><td>Equity securities</td><td>$ 29</td><td>$ —</td><td>$ 3</td><td>$ —</td><td>$ —</td><td>(32)</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>Corporate</td><td>10</td><td>—</td><td>—</td><td>—</td><td>(5)</td><td>—</td><td>5</td><td></td></tr><tr><td>Total Level 3 plan assets</td><td>$ 39</td><td>$ —</td><td>$ 3</td><td>$ —</td><td>(5)</td><td>$ —</td><td>(32)</td><td>$ 5</td></tr></table>

Rollforward of Level 3 plan assets during December 31, 2017

<table><tr><td rowspan="2">($ in millions)</td><td colspan="6">Actual return on plan assets:</td><td rowspan="2">Net transfers in and/or (out) of Level 3</td><td rowspan="2">Balance as of December 31, 2017</td></tr><tr><td>Balance as of December 31, 2016</td><td>Relating to assets sold during the period</td><td>Relating to assets still held at the reporting date</td><td>Purchases, sales and settlements, net</td><td></td><td></td></tr><tr><td>Equity securities</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>29</td><td>$ —</td><td>$ 29</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>Corporate</td><td>10</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>10</td><td></td></tr><tr><td>Total Level 3 plan assets</td><td>$ 10</td><td>$ —</td><td>$ —</td><td>$ —</td><td>29</td><td>$ —</td><td>$ 39</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 investment 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 weighted average long-term rate of return on plan assets assumption of 7.34% used for 2019 and an estimate of 7.08% that will be used for 2020. As of the 2019 measurement date, the arithmetic average of the annual actual return on plan assets for the most recent 10 and 5 years was 10.0% and 9.6%, respectively.

Cash flows There was no required cash contribution necessary to satisfy the minimum funding requirement under the IRC for the tax qualified pension plan for the year ended December 31, 2019.

The Company currently plans to contribute $25 million to its unfunded non-qualified plans and zero and $4 million to its primary and other qualified funded pension plans, respectively, in 2020.

The Company contributed $24 million and $22 million to the postretirement benefit plans in 2019 and 2018, respectively. Contributions by participants were $15 million and $13 million in 2019 and 2018, respectively.



<table><tr><td colspan="4">Estimated future benefit payments expected to be paid in the next 10 years</td></tr><tr><td rowspan="2">($ in millions)</td><td colspan="3">As of December 31, 2019</td></tr><tr><td>Pension benefits</td><td>Postretirement benefits</td><td></td></tr><tr><td>2020</td><td>$     600</td><td>$     23</td><td></td></tr><tr><td>2021</td><td>629</td><td>24</td><td></td></tr><tr><td>2022</td><td>636</td><td>26</td><td></td></tr><tr><td>2023</td><td>634</td><td>27</td><td></td></tr><tr><td>2024</td><td>626</td><td>27</td><td></td></tr><tr><td>2025-2029</td><td>2,401</td><td>136</td><td></td></tr><tr><td>Total benefit payments</td><td>$     5,526</td><td>$     263</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, SquareTrade, InfoArmor and Assurance subsidiaries, 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. The Company is responsible for funding its anticipated contribution to the Allstate Plan, and has used the remaining ESOP shares to pre-fund a portion of the contribution. In connection with the Allstate Plan, the Company had a note from the ESOP. On

<table><tr><td colspan="5">ESOP benefit</td></tr><tr><td></td><td colspan="4">For the years December 31,</td></tr><tr><td>($ in millions)</td><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Interest expense recognized by ESOP</td><td>$      —</td><td>$      —</td><td>$      —</td><td></td></tr><tr><td>Less: dividends accrued on ESOP shares</td><td>(1)</td><td>(1)</td><td>(1)</td><td></td></tr><tr><td>Cost of shares allocated</td><td>3</td><td>—</td><td>3</td><td></td></tr><tr><td>Compensation expense</td><td>2</td><td>(1)</td><td>2</td><td></td></tr><tr><td>Reduction of defined contribution due to ESOP</td><td>43</td><td>1</td><td>38</td><td></td></tr><tr><td>ESOP benefit</td><td>$      (41)</td><td>$      (2)</td><td>$      (36)</td><td></td></tr></table>

The Company made $2 million, zero and $1 million in contributions to the ESOP in 2019, 2018 and 2017, respectively. As of December 31, 2019, there were 0.4 million, 39 million and zero of the remaining ESOP shares that have been committed to be released, allocated and unallocated, respectively.
Allstate’s Canadian, SquareTrade, Esurance and Answer Financial subsidiaries sponsor defined contribution plans for their eligible employees. Expense for these plans was $15 million, $15 million and $12 million in 2019, 2018 and 2017, respectively. Effective January 1, 2020, Answer Financial employees will be included in the Allstate Plan.



## Note 18 Equity Incentive Plans

The Company currently has equity incentive plans under which the Company grants nonqualified stock options, restricted stock units and performance stock awards to certain employees and directors of the Company. The total compensation expense related to equity awards was $105 million, $125 million and $106 million and the total income tax benefits were $17 million, $22 million and $22 million for 2019, 2018 and 2017, respectively. Total cash received from the exercise of options was $154 million, $92 million and $178 million for 2019, 2018 and 2017, respectively. Total tax benefit realized on options exercised and the release of stock restrictions was $43 million, $28 million and $96 million for 2019, 2018 and 2017, respectively.

The Company records compensation expense related to awards under these plans over the shorter of the period in which the requisite service is rendered or retirement eligibility is attained. Compensation expense for performance share awards is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period. As of December 31, 2019, total unrecognized compensation cost related to all nonvested awards was $79 million, of which $29 million related to nonqualified stock options which is expected to be recognized over the weighted average vesting period of 1.68 years, $21 million related to restricted stock units which is expected to be recognized over the weighted average vesting period of 1.69 years and $29 million related to performance stock awards which is expected to be recognized over the weighted average vesting period of 1.55 years.

Options are granted to employees with exercise prices equal to the closing share price of the Company’s common stock on the applicable grant date. Options granted to employees on or after February 18, 2014 vest ratably over a three-year period. Options granted prior to February 18, 2014 vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. Vesting is subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. Options may be exercised once vested and will expire no later than ten years after the date of grant.

Restricted stock units for directors vest immediately and convert into shares of stock on the earlier of the day of the third anniversary of the grant date or the date the director’s service terminates, unless a deferred period of restriction is elected. Restricted stock units granted to directors prior to June 1, 2016 convert upon leaving the board. Restricted stock units granted to employees on or after February 18, 2014 vest on the day prior to the third anniversary of the grant date. Restricted stock units granted to employees subsequently convert into shares of stock on the day of the respective anniversary of the grant date. Vesting is subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances.

Performance stock awards vest into shares of stock on the day prior to the third anniversary of the grant date. Vesting of the number of performance stock awards earned based on the attainment of performance goals for each of the performance periods is subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. Performance stock awards subsequently convert into shares of stock in full the day of the third anniversary of the grant date.

Since 2001, a total of 110.8 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, 2019, 24.0 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 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.

<table><tr><td colspan="4">Option grant assumptions</td></tr><tr><td></td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Weighted average expected term</td><td>5.8 years</td><td>5.7 years</td><td>6.1 years</td></tr><tr><td>Expected volatility</td><td>15.6 - 28.9%</td><td>15.6 - 30.7%</td><td>15.7 - 32.7%</td></tr><tr><td>Weighted average volatility</td><td>18.4%</td><td>19.8%</td><td>21.0%</td></tr><tr><td>Expected dividends</td><td>1.9 - 2.2%</td><td>1.5 - 2.2%</td><td>1.4 - 1.9%</td></tr><tr><td>Weighted average expected dividends</td><td>2.2%</td><td>2.0%</td><td>1.9%</td></tr><tr><td>Risk-free rate</td><td>1.3 - 2.7%</td><td>1.3 - 3.2%</td><td>0.5 - 2.5%</td></tr></table>



<table><tr><td colspan="6">Summary of option activity</td></tr><tr><td rowspan="2"></td><td colspan="4">For the year ended December 31, 2019</td><td rowspan="2">Weighted average remaining contractual term (years)</td></tr><tr><td>Number (in 000s)</td><td>Weighted average exercise price</td><td>Aggregate intrinsic value (in 000s)</td><td></td></tr><tr><td>Outstanding as of January 1, 2019</td><td>11,730</td><td>$ 65.82</td><td></td><td></td><td></td></tr><tr><td>Granted</td><td>2,802</td><td>92.66</td><td></td><td></td><td></td></tr><tr><td>Exercised</td><td>(2,622)</td><td>58.70</td><td></td><td></td><td></td></tr><tr><td>Forfeited</td><td>(235)</td><td>89.20</td><td></td><td></td><td></td></tr><tr><td>Expired</td><td>(4)</td><td>31.78</td><td></td><td></td><td></td></tr><tr><td>Outstanding as of December 31, 2019</td><td>11,671</td><td>73.40</td><td>$ 455,691</td><td>6.3</td><td></td></tr><tr><td>Outstanding, net of expected forfeitures</td><td>11,547</td><td>73.20</td><td>453,268</td><td>6.3</td><td></td></tr><tr><td>Outstanding, exercisable (“vested”)</td><td>6,744</td><td>60.81</td><td>348,285</td><td>4.8</td><td></td></tr></table>

The weighted average grant date fair value of options granted was $14.96, $17.03 and $14.60 during 2019, 2018 and 2017, respectively. The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $114 million, $72 million and $199 million during 2019, 2018 and 2017, respectively.

<table><tr><td colspan="3">Changes in restricted stock units</td></tr><tr><td></td><td colspan="2">For the year ended December 31, 2019</td></tr><tr><td></td><td>Number (in 000s)</td><td>Weighted average grant date fair value</td></tr><tr><td>Nonvested as of January 1, 2019</td><td>957</td><td>$ 74.58</td></tr><tr><td>Granted</td><td>271</td><td>92.97</td></tr><tr><td>Vested</td><td>(308)</td><td>62.89</td></tr><tr><td>Forfeited</td><td>(43)</td><td>84.75</td></tr><tr><td>Nonvested as of December 31, 2019</td><td>877</td><td>83.87</td></tr></table>

The fair value of 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 units granted was $92.97, $93.16 and $80.12 during 2019, 2018 and 2017, respectively. The total fair value of restricted stock units vested was $29 million, $47 million and $58 million during 2019, 2018 and 2017, respectively.

<table><tr><td colspan="3">Changes in performance stock awards</td></tr><tr><td></td><td colspan="2">For the year ended December 31, 2019</td></tr><tr><td></td><td>Number (in 000s)</td><td>Weighted average grant date fair value</td></tr><tr><td>Nonvested as of January 1, 2019</td><td>1,248</td><td>$ 77.35</td></tr><tr><td>Granted</td><td>415</td><td>92.49</td></tr><tr><td>Adjustment for performance achievement</td><td>267</td><td>62.32</td></tr><tr><td>Vested</td><td>(702)</td><td>62.32</td></tr><tr><td>Forfeited</td><td>(47)</td><td>87.83</td></tr><tr><td>Nonvested as of December 31, 2019</td><td>1,181</td><td>87.78</td></tr></table>

The change in performance stock awards comprises those initially granted in 2019 and the adjustment to previously granted performance stock awards for performance achievement. The fair value of performance stock awards 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 performance stock awards granted was $92.49, $92.88 and $78.47 during 2019, 2018 and 2017, respectively. The total fair value of performance stock awards vested was $65 million, $15 million and $17 million during 2019, 2018 and 2017, respectively.

The Company recognizes all tax effects related to share-based payments at settlement or expiration through the income statement.



## Note 19 Supplemental Cash Flow Information

Non-cash investing activities include $198 million, $94 million and $106 million related to mergers and exchanges completed with equity securities, fixed income securities and limited partnerships, and modifications of certain mortgage loans and other investments in 2019, 2018 and 2017, respectively.

Non-cash financing activities include $50 million, $32 million and $43 million related to the issuance of Allstate common shares for vested equity awards in 2019, 2018 and 2017, respectively. Non-cash financing activities also include $90 million related to debt acquired in conjunction with purchases of investments in 2017.

Cash flows used in operating activities in the Consolidated Statements of Cash Flows include cash paid for operating leases related to amounts included in the measurement of lease liabilities of $155 million for the twelve months ended December 31, 2019. Non-cash operating activities include $604 million related to ROU assets obtained in exchange for lease obligations, including $488 million related to the adoption of new guidance related to accounting for leases, for the twelve months ended December 31, 2019.

Liabilities for collateral received in conjunction with the Company’s securities lending program and OTC and cleared derivatives 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 as follows:

<table><tr><td rowspan="2">(\( in millions)</td><td colspan="4">For the years ended December 31,</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td></td></tr><tr><td>Net change in proceeds managed</td><td></td><td></td><td></td><td></td></tr><tr><td>Net change in fixed income securities</td><td>$     80</td><td>$     234</td><td>$     259</td><td></td></tr><tr><td>Net change in short-term investments</td><td>(451)</td><td>(568)</td><td>(255)</td><td></td></tr><tr><td>Operating cash flow (used) provided</td><td>(371)</td><td>(334)</td><td>4</td><td></td></tr><tr><td>Net change in cash</td><td>—</td><td>—</td><td>1</td><td></td></tr><tr><td>Net change in proceeds managed</td><td>$ (371)</td><td>$ (334)</td><td>$     5</td><td></td></tr><tr><td>Net change in liabilities</td><td></td><td></td><td></td><td></td></tr><tr><td>Liabilities for collateral, beginning of year</td><td>$ (1,458)</td><td>$ (1,124)</td><td>$ (1,129)</td><td></td></tr><tr><td>Liabilities for collateral, end of year</td><td>(1,829)</td><td>(1,458)</td><td>(1,124)</td><td></td></tr><tr><td>Operating cash flow provided (used)</td><td>$ 371</td><td>$ 334</td><td>$ (5)</td><td></td></tr></table>

## Note 20 Other Comprehensive Income

<table><tr><td colspan="12">Components of other comprehensive income (loss) on a pre-tax and after-tax basis</td></tr><tr><td rowspan="3">(\( in millions)</td><td colspan="4">2019</td><td colspan="4">2018</td><td colspan="3">2017</td></tr><tr><td rowspan="2">Pre-tax</td><td rowspan="2">Tax</td><td rowspan="2">After-tax</td><td rowspan="2">Pre-tax</td><td rowspan="2">Tax</td><td rowspace="2">After-tax</td><td rowspan="2">Pre-tax</td><td rowspan="3">Tax</td><td rowspan="3">After-tax</td><td rowspan="3">After-tax</td><td rowspan="3"></td></tr><tr></tr><tr><td>Unrealized net holding gains and losses arising during the period, net of related offsets</td><td>$ 2,807</td><td>$ (592)</td><td>$2,215</td><td>$ (1,142)</td><td>$ 241</td><td>$ (901)</td><td>$ 866</td><td>$ (304)</td><td>$ 562</td></tr><tr><td>Less: reclassification adjustment of realized capital gains and losses</td><td>413</td><td>(87)</td><td>326</td><td>(186)</td><td>39</td><td>(147)</td><td>374</td><td>(131)</td><td>243</td><td></td></tr><tr><td>Unrealized net capital gains and losses</td><td>2,394</td><td>(505)</td><td>1,889</td><td>(956)</td><td>202</td><td>(754)</td><td>492</td><td>(173)</td><td>319</td><td></td></tr><tr><td>Unrealized foreign currency translation adjustments</td><td>(13)</td><td>3</td><td>(10)</td><td>(61)</td><td>13</td><td>(48)</td><td>69</td><td>(24)</td><td>45</td><td></td></tr><tr><td>Unamortized pension and other postretirement prior service credit</td><td>(59)</td><td>12</td><td>(47)</td><td>(77)</td><td>18</td><td>(59)</td><td>(80)</td><td>28</td><td>(52)</td><td></td></tr><tr><td>Other comprehensive income (loss)</td><td>$ 2,322</td><td>$ (490)</td><td>$1,832</td><td>$ (1,094)</td><td>$ 233</td><td>$ (861)</td><td>$ 481</td><td>$ (169)</td><td>$ 312</td><td></td></tr></table>



## Note 21 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>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2020</td></tr><tr><td>Revenues</td><td>$ 10,990</td><td>$ 9,770</td><td>$ 11,144</td><td>$ 10,099</td><td>$ 11,069</td><td>$ 10,465</td><td>$ 11,472</td><td>$ 9,481</td></tr><tr><td>Net income (loss) applicable to common shareholders</td><td>1,261</td><td>977</td><td>821</td><td>678</td><td>889</td><td>942</td><td>1,707</td><td>(585)</td></tr><tr><td>Earnings per common share - Basic</td><td>3.79</td><td>2.76</td><td>2.47</td><td>1.94</td><td>2.71</td><td>2.72</td><td>5.32</td><td>(1.71)</td></tr><tr><td>Earnings per common share - Diluted</td><td>3.74</td><td>2.71</td><td>2.44</td><td>1.91</td><td>2.67</td><td>2.68</td><td>5.23</td><td>(1.71)</td></tr></table>

The Company changed its accounting principle for recognizing actuarial gains and losses and expected return on plan assets for its pension and other postretirement plans to a more preferable policy under U.S. GAAP. See Note 2 for discussion of the change in accounting principle and further information regarding the impact of the change on the consolidated financial statements.

<table><tr><td rowspan="2">Impact of change(\ 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>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td><td>2019</td><td>2020</td></tr><tr><td>Revenues</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$  \) —</td><td>$ —</td></tr><tr><td>Net income (loss) applicable to common shareholders</td><td>5</td><td>31</td><td>(69)</td><td>41</td><td>(140)</td><td>109</td><td>240</td><td>(273)</td></tr><tr><td>Earnings per common share - Basic</td><td>0.01</td><td>0.09</td><td>(0.21)</td><td>0.12</td><td>(0.43)</td><td>0.31</td><td>0.75</td><td>(0.80)</td></tr><tr><td>Earnings per common share - Diluted</td><td>0.02</td><td>0.08</td><td>(0.20)</td><td>0.11</td><td>(0.42)</td><td>0.31</td><td>0.73</td><td>(0.80)</td></tr></table>



## Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

The Allstate Corporation

Northbrook, Illinois 60062

## Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying Consolidated Statements of Financial Position of The Allstate Corporation and subsidiaries (the "Company") as of December 31, 2019 and 2018, 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, 2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

## Change in Accounting Principles

As discussed in Note 2 to the financial statements, the Company elected during 2019 to change its principles of accounting for recognizing pension and other postretirement benefit plan costs. The Company adopted this change on a retrospective basis. Also discussed in Note 2 to the financial statements, the Company changed its presentation and method of accounting for the recognition and measurement of financial assets and financial liabilities on January 1, 2018, due to the adoption of FASB Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10).

## Basis for Opinions

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. 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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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.



## Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Reserve for Property and Casualty Insurance Claims and Claims Expense - Refer to Notes 2 and 8 to the Financial Statements

## Critical Audit Matter Description

The Company establishes reserves for property and casualty insurance claims and claims expense on reported and unreported claims of insured losses. Using established industry and actuarial best practices as well as the Company's historical claims experience, the reserve for property and casualty insurance claims and claims expense is estimated based on (i) claims reported, (ii) claims incurred but not reported, and (iii) projections of claim payments to be made in the future.

Given the subjectivity of estimating claims incurred but not reported and projections of claim payments to be made in the future, particularly those with payout requirements over a longer period of time, the related audit effort in evaluating the reserve for property and casualty insurance claims and claims expense required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.

## How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the reserve for property and casualty insurance claims and claims expense included the following:

- We tested the effectiveness of controls related to the reserve for property and casualty insurance claims and claims expense, including those over the Company’s estimates and projections.

- We evaluated the methods and assumptions used by the Company to estimate the reserve for property and casualty insurance claims and claims expense by:

Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were complete and accurate.

Comparing the Company’s prior year assumptions of expected development and ultimate loss to actual losses incurred during the year to assess the reasonableness of those assumptions, including consideration of potential bias, in the determination of the reserve for property and casualty claims and claims expense.

With the assistance of our actuarial specialists, we developed independent estimates for the reserve for property and casualty insurance claims and claims expense, utilizing loss data and industry claim development factors, and compared our estimates to management’s estimates.



Premium Deficiency Reserve for Life-Contingent Immediate Annuities - Refer to Notes 2 and 9 to the Financial Statements.

## Critical Audit Matter Description

Due to the long-term nature of life-contingent immediate annuities, benefits are payable over many years. The Company establishes reserves 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 and mortality are used when establishing the reserve. These assumptions are established at the time the policy is issued and are generally not changed during the life of the policy. The Company periodically performs a gross premium valuation ("GPV") analysis to review the adequacy of reserves using actual experience and current assumptions. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized deferred acquisition costs ("DAC") balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency. As of December 31, 2019, the Company's GPV analysis indicated that reserves for these policies were sufficient and therefore, the Company has not established a premium deficiency reserve.

The Company also reviews these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years through a profits followed by losses (“PFBL”) analysis. If this circumstance exists, the Company will accrue a liability, during the period of profits, to offset the losses at such time as the future losses are expected to commence using a method updated prospectively over time. As of December 31, 2019, the Company’s PFBL analysis did not indicate periods of profits followed by periods of losses and therefore, the Company has not established a PFBL reserve.

Given the subjectivity involved in selecting the current assumptions for projected investment yields and mortality, and the sensitivity of the estimate to these assumptions, the related audit effort in evaluating the premium deficiency reserve and PFBL analysis for life-contingent immediate annuities required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.

## How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the premium deficiency reserve, including the GPV and PFBL analysis for life-contingent immediate annuities, included the following:

- We tested the effectiveness of controls over management’s premium deficiency reserve and GPV and PFBL analysis, including those over the Company’s selection of assumptions.

- With the assistance of our actuarial specialists, we evaluated the reasonableness of assumptions and their incorporation into the projection model used by the Company to perform its premium deficiency reserve analysis by:

Testing the underlying data that served as the basis for the assumptions setting and the underlying data used in the projection model to ensure the inputs were complete and accurate.

Comparing mortality assumptions selected to actual historical experience.

Comparing projected investment yields selected to historical portfolio returns, evaluating for consistency with current investment portfolio yields and the Company’s long-term reinvestment strategy, and comparing to independently obtained market data.

- With the assistance of our actuarial specialists, we independently calculated the gross premium valuation reserves from the Company’s projection model for a sample of contracts and compared our estimates to management’s estimates.

- With the assistance of our actuarial specialists, we evaluated the aggregate cash flows generated through the Company’s premium deficiency reserve testing for evidence of potential PFBL scenarios that would require the accrual of additional reserves to cover such future losses.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 21, 2020

We have served as the Company's auditor since 1992.






## Investor Information

## 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 participate in the annual meeting of The Allstate Corporation on Tuesday, May 19, 2020, at 11:00 a.m. The company will be hosting the meeting live via the Internet this year. To attend the meeting via the Internet please visit www.virtualshareholdermeeting.com/ALL2020.

Holders of common stock of record at the close of business on March 20, 2020 are entitled to vote during the meeting. A notice of meeting, proxy statement and proxy card and/or voting instructions were provided to shareholders with this annual report.

## Shareholder Services/Transfer Agent

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 EQ 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 MAIL:

EQ Shareowner Services
P.O. Box 64945
St. Paul, MN 55164-0945

## BY CERTIFIED/OVERNIGHT MAIL:

EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100

## ON THE INTERNET—

account information:
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
invel@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 email as follows. Please let us know if you are a shareholder.

## BY EMAIL:

directors@allstate.com

## BY MAIL:

The Allstate Corporation Nominating & Governance Committee c/o General Counsel 2775 Sanders Road, Suite F7 Northbrook, IL 60062-6127

## Code of Global Business Conduct

Allstate’s Global Code of Business Conduct is available on the Corporate Governance section of www.allstateinvestors.com.

## Corporate Responsibility

Information on Allstate’s social responsibility programs is available at allstatesustainability.com.

## 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, 2019, by contacting:

## Investor Relations

The Allstate Corporation
2775 Sanders Road, Suite F3SE
Northbrook, IL 60062-6127
(800) 416-8803
invel@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. As of January 31, 2020, there were 67,204 holders of record of The Allstate Corporation's common stock.

## 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.



## Allstate \( ^{®} \) 

The Allstate Corporation
Prosperity Report,
Notice of 2020 Annual Meeting,
Proxy Statement and
2019 Annual Report

The Allstate Corporation
2775 Sanders Road
Northbrook, IL 60062-6127