10-K 1 allcorp-12311610xk.htm 10-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                            to                           
Commission file number 1-11840
THE ALLSTATE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
36-3871531
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
2775 Sanders Road, Northbrook, Illinois    60062
(Address of principal executive offices)    (Zip Code)
Registrant’s telephone number, including area code: (847) 402-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange
Chicago Stock Exchange
5.10% Fixed-to-Floating Rate Subordinated Debentures due 2053
 
New York Stock Exchange
Depositary Shares each representing a 1/1,000th interest in a share of Fixed Rate Noncumulative Perpetual Preferred Stock, Series A
 
New York Stock Exchange
Depositary Shares each representing a 1/1,000th interest in a share of Fixed Rate Noncumulative Perpetual Preferred Stock, Series C
 
New York Stock Exchange
Depositary Shares each representing a 1/1,000th interest in a share of Fixed Rate Noncumulative Perpetual Preferred Stock, Series D
 
New York Stock Exchange
Depositary Shares each representing a 1/1,000th interest in a share of Fixed Rate Noncumulative Perpetual Preferred Stock, Series E
 
New York Stock Exchange
Depositary Shares each representing a 1/1,000th interest in a share of Fixed Rate Noncumulative Perpetual Preferred Stock, Series F
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes    X                                    No         
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes                                           No   X   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    X                                    No         
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes    X                                    No         
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.        X     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    X   
 
Accelerated filer          
Non-accelerated filer           (Do not check if a smaller reporting company)
 
Smaller reporting company          
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                                           No   X   
The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2016, was approximately $25.63 billion.
As of January 31, 2017, the registrant had 365,129,091 shares of common stock outstanding.
Documents Incorporated By Reference
Portions of the following documents are incorporated herein by reference as follows:
Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for its annual stockholders meeting to be held on May 25, 2017 (the “Proxy Statement”) to be filed not later than 120 days after the end of the fiscal year covered by this Form 10-K.



TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I
Item 1.  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 is primarily engaged in the property-liability insurance business and the life insurance, retirement and investment products business. It offers its products in the United States and Canada.
The Allstate Corporation is the largest publicly held personal lines insurer in the United States. Allstate’s strategy is to serve distinct customer segments with differentiated offerings. The Allstate brand is widely known through the “You’re In Good Hands With Allstate®” slogan. Allstate is the 2nd largest personal property and casualty insurer in the United States on the basis of 2015 statutory direct premiums written according to A.M. Best. In addition, according to A.M. Best, it is the nation’s 18th largest issuer of life insurance business on the basis of 2015 ordinary life insurance in force and 31st largest on the basis of 2015 statutory admitted assets.
Allstate has four business segments:
• Allstate Protection
 
• Discontinued Lines and Coverages
• Allstate Financial
 
• Corporate and Other
To achieve its goals in 2017, Allstate is focused on the following priorities:
better serve our customers;
achieve target economic returns on capital;
grow customer base;
proactively manage investments; and
build long-term growth platforms.
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 subject to the requirement 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.
ALLSTATE PROTECTION SEGMENT
Products and Distribution
Total Allstate Protection premiums written were $31.60 billion in 2016. Our Allstate Protection segment accounted for 93% of Allstate’s 2016 consolidated insurance premiums and contract charges. In this segment, we principally sell private passenger auto, homeowners, and other property-liability insurance products through agencies and directly through contact centers and the internet. These products are underwritten under the Allstate®, Esurance® and Encompass® brand names.
Our Unique Strategy                  Consumer Segments
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Allstate serves four different consumer segments with distinct interaction preferences (local advice and assistance versus self-directed) and brand preferences (brand-neutral versus brand-sensitive).
Allstate brand auto and homeowners insurance products are sold primarily through Allstate exclusive agencies and serve customers who prefer local personalized advice and service and are brand-sensitive. Allstate agencies also sell specialty auto products including motorcycle, trailer, motor home and off-road vehicle insurance policies; other personal lines products including renter, condominium, landlord, boat, umbrella and manufactured home insurance policies; commercial lines products for small business owners; roadside assistance products; and service contracts and other products sold in conjunction with auto lending and vehicle sales transactions. Allstate brand sales and service are supported through contact centers and the internet. In 2016, the Allstate brand represented 91% of the Allstate Protection segment’s written premium. In the U.S., we offer these Allstate brand products in approximately 10,200 locations through approximately 34,160 licensed producers including approximately 10,360 Allstate exclusive agencies and approximately 23,800 licensed sales professionals. We also offer these products through approximately 2,200 independent agencies that are primarily in rural areas in the U.S. In Canada, we offer Allstate brand products through approximately 870 employee producers working in five provinces across the country (Ontario, Quebec, Alberta, New Brunswick and Nova Scotia).
Esurance brand auto, homeowners, renter and motorcycle insurance products are sold to customers online, through contact centers or through select agents. Esurance serves self-directed, brand-sensitive customers. In 2016, the Esurance brand represented 5% of the Allstate Protection segment’s written premium.
Encompass brand auto, homeowners, umbrella and other insurance products, sold predominantly in the form of a single annual household (“package”) policy, are distributed through independent agencies that serve customers who prefer personal advice and assistance from an independent adviser and are brand neutral. In 2016, the Encompass brand represented 4% of the Allstate Protection segment’s written premium. Encompass brand products are distributed through approximately 2,400 independent agencies. Encompass is among the top 20 largest providers of personal property and casualty insurance products through independent agencies in the United States, based on statutory written premium information provided by A.M. Best for 2015.
Answer Financial, a personal lines insurance agency, serves self-directed, brand-neutral consumers who want a choice between insurance carriers. It offers comparison quotes for auto and homeowners insurance from approximately 25 insurance companies through its website and over the phone and receives commissions for this service. Answer Financial had $599 million of non-proprietary premiums written in 2016.
Through arrangements made with other companies, agencies, and brokers, the Allstate Protection segment may offer non-proprietary products to consumers when an Allstate product is not available. As of December 31, 2016, Allstate agencies had approximately $1.3 billion of non-proprietary personal insurance premiums under management, primarily related to property business in hurricane exposed areas, and approximately $200 million of non-proprietary commercial insurance premiums under management.
Competition
The markets for personal private passenger auto and homeowners insurance are highly competitive. The following charts provide the market shares of our principal competitors in the U.S. by direct written premium for the year ended December 31, 2015 according to A.M. Best.
Personal Lines Insurance
 
Private Passenger Auto Insurance
 
Homeowners Insurance
 
 
 
 
 
 
 
 
 
 
 
Insurer
 
Market Share
 
Insurer
 
Market Share
 
Insurer
 
Market Share
State Farm
 
18.6%
 
State Farm
 
18.3%
 
State Farm
 
19.1%
Allstate
 
9.6
 
GEICO
 
11.4
 
Allstate
 
8.5
GEICO
 
7.8
 
Allstate
 
10.1
 
Liberty Mutual
 
6.5
Progressive
 
6.3
 
Progressive
 
8.8
 
Farmers
 
5.7
Liberty Mutual
 
5.5
 
USAA
 
5.3
 
USAA
 
5.4
USAA
 
5.3
 
Farmers
 
5.0
 
Nationwide
 
4.0
Farmers
 
5.2
 
Liberty Mutual
 
5.0
 
Travelers
 
3.7
Nationwide
 
3.8
 
Nationwide
 
3.7
 
 
 
 
In the personal property and casualty insurance market, we compete principally using customer value propositions for each consumer segment. This includes different brands, the scope and type of distribution system, price and the breadth of product offerings, product features, customer service, claim handling, and use of technology. In addition, our proprietary database of underwriting and pricing experience enables Allstate to use sophisticated pricing algorithms to more accurately price risks while also seeking to attract and retain more customers. 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;

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prior liability limits; prior lapse in coverage; and insurance scoring utilizing certain credit report 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 certain credit report information.
Allstate differentiates itself from competitors by focusing on the needs of the entire household and offering a comprehensive range of innovative product options and features through distribution channels that best suit each market segment. Allstate’s Your Choice Auto® insurance allows qualified customers to choose from a variety of options, such as Accident Forgiveness, Deductible Rewards®, Safe Driving Bonus®, and New Car Replacement. We believe that Your Choice Auto insurance promotes increased growth and increased retention. We also offer a Claim Satisfaction GuaranteeSM feature that promises a return of premium to Allstate brand standard auto insurance customers dissatisfied with their claims experience. Allstate House and Home® insurance is our homeowners product that provides options of coverage for roof damage including graduated coverage and pricing based on roof type and age. Good Hands Rescue® is a service that provides pay on demand access to roadside services.
Our Allstate branded Drivewise® and our Esurance branded DriveSense® offerings are telematic-based insurance programs that use a mobile application or an in-car device to capture driving behaviors and reward customers for driving safely. The Drivewise mobile application also provides customers with information and tools to encourage safer driving and incentivize them through driving challenges. Drivewise offers Allstate Rewards®, a program that provides reward points for safe driving.
Our Allstate Milewise® and Esurance Pay Per Mile® usage-based insurance products give customers flexibility to customize their insurance and pay based on the number of miles they drive.
In 2016, we launched Arity, a non-insurance technology company that leverages software, data and analytics and our telematics-based insurance programs to help better manage risk. Allstate brand, Esurance and Answer Financial are currently using Arity’s software, data and analytics. Arity is planning to market its services to non-affiliates in 2017.
The Encompass® package policy offers broad coverage options specifically focused on customers who prefer an independent agency while simplifying the insurance experience by packaging a product into a single annual household policy with one premium, one bill, one policy deductible and one renewal date. Broad coverage options include features such as enhanced home replacement with a cash-out option should the insured decide not to rebuild, additional living expense coverage with no specific time or dollar limit, water-sewer back up coverage, an unlimited accident forgiveness feature and roadside assistance.
On November 28, 2016, we announced an agreement to acquire SquareTrade Holding Company, Inc. (“SquareTrade”), a consumer product protection plan provider that distributes through many of America’s major retailers. Known for its exceptional service, SquareTrade provides protection plans for consumer appliances and electronics, such as TVs, smartphones and computers. This will broaden Allstate’s product offerings to better meet consumers’ needs. The transaction closed on January 3, 2017.
Geographic Markets
The Company’s principal geographic markets for auto, homeowners, and other personal property and casualty products are in the United States. Through various subsidiaries, we are authorized to sell a variety of personal property and casualty insurance products in all 50 states, the District of Columbia and Puerto Rico. We also sell personal property and casualty insurance products in Canada.
The following table reflects, in percentages, the principal geographic distribution of premiums earned for the Allstate Protection segment for 2016, based on information contained in statements filed with state insurance departments. No other jurisdiction accounted for more than 5 percent of the premiums earned for the segment.
Texas
11.1
%
California
9.4

New York
8.9

Florida
7.2

Additional Information
Information regarding the last three years’ revenues and income from operations attributable to the Allstate Protection segment is contained in Note 19 of the consolidated financial statements. Note 19 also includes information regarding the last three years’ identifiable assets attributable to our property-liability operations, which includes our Allstate Protection and Discontinued Lines and Coverages segments. Note 19 is incorporated in this Part I, Item 1 by reference.
Information regarding the amount of premium earned for Allstate Protection segment products for the last three years is set forth in Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the table regarding premiums earned by brand. That table is incorporated in this Part I, Item 1 by reference.

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ALLSTATE FINANCIAL SEGMENT
Products and Distribution
Our Allstate Financial segment sells traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products. We previously offered and continue to have in force fixed annuities such as deferred and immediate annuities. We sell Allstate Financial products through Allstate exclusive agencies and approximately 1,000 exclusive financial specialists, and 6,000 workplace enrolling independent agents. The majority of life insurance business written involves exclusive financial specialists, including referrals from exclusive agencies and licensed sales professionals. The table below lists our current distribution channels with the associated products and target customers.
Distribution Channels
Proprietary Products
Target Customers
Allstate exclusive agencies and exclusive financial specialists
Term life insurance
Customers who prefer local personalized advice and service and are brand-sensitive
Whole life insurance
Interest-sensitive life insurance
Variable life insurance
Workplace enrolling independent agents

Allstate exclusive agencies and exclusive financial specialists
Workplace life and voluntary accident and health insurance:
Middle market consumers with family financial protection needs employed by small, medium, and large size firms
Interest-sensitive and term life insurance
Disability income insurance
Cancer, accident, critical illness and heart/stroke insurance
Hospital indemnity
Dental insurance
Allstate exclusive agencies and exclusive financial specialists also sell non-proprietary retirement and investment 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, 2016, Allstate agencies had approximately $14.1 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 $1.9 billion in 2016.
Competition
We compete on a wide variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and the level of customer service. The market for life insurance continues to be highly fragmented and competitive. As of December 31, 2015, there were approximately 380 groups of life insurance companies in the United States, most of which offered one or more similar products. According to A.M. Best, as of December 31, 2015, the Allstate Financial segment is the nation’s 18th largest issuer of life insurance and related business on the basis of 2015 ordinary life insurance in force and 31st largest on the basis of 2015 statutory admitted assets.
The market for voluntary benefits is growing as employers seek to shift benefit costs to employees. 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 and life insurance carriers, are leveraging core benefit capabilities by bundling and discounting to capture voluntary market share. Allstate will need to continue strengthening its value proposition and add new capabilities to maintain its strong leadership position in voluntary benefits.
Geographic Markets
We sell life insurance and voluntary accident and health insurance throughout the United States. Through subsidiaries, we are authorized to sell various types of these products in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam. We also sell voluntary accident and health insurance in Canada.
The following table reflects, in percentages, the principal geographic distribution of direct statutory premiums and annuity considerations for the Allstate Financial segment for 2016, based on information contained in statements filed with state insurance departments. Direct statutory premiums and annuity considerations exclude reinsurance assumed. No other jurisdiction accounted for more than 5 percent of the direct statutory premiums and annuity considerations.
New York
10.8
%
Texas
10.1

Florida
9.9

California
6.5


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Additional Information
Information regarding revenues and income from operations attributable to the Allstate Financial segment for the last three years is contained in Note 19 of the consolidated financial statements. Note 19 also includes information regarding identifiable assets attributable to the Allstate Financial segment for the last three years. Note 19 is incorporated in this Part I, Item 1 by reference.
Information regarding premiums and contract charges for Allstate Financial segment products for the last three years is set forth in Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the table that summarizes premiums and contract charges by product. That table is incorporated in this Part I, Item 1 by reference.
ALLSTATE AGENCIES
Allstate exclusive agencies offer products targeted to consumers that prefer local personalized advice and branded products from both the Allstate Protection and Allstate Financial segments. They offer Allstate brand auto and homeowners insurance policies; specialty auto products including motorcycle, trailer, motor home and off-road vehicle insurance policies; other personal lines products including renter, condominium, landlord, boat, umbrella and manufactured home insurance policies; commercial lines products for small business owners; and roadside assistance products. Allstate exclusive agencies and exclusive financial specialists offer various life insurance products, as well as voluntary accident and health insurance products. In addition, arrangements made with other companies, agencies, and brokers allow Allstate exclusive agencies the ability to make available non-proprietary products to consumers when an Allstate product is not available.
In the U.S., Allstate brand products are sold in approximately 10,200 locations through approximately 34,160 licensed producers including approximately 10,360 Allstate exclusive agencies employing approximately 23,800 licensed sales professionals, who are licensed to sell our products. We also offer these products through approximately 2,200 independent agencies in primarily rural areas in the U.S. All Allstate brand customers who purchase their policies directly through contact centers and the internet, currently less than 7% of new business, are provided an Allstate agency relationship at the time of purchase. In Canada, we offer Allstate brand products through approximately 870 producers working in five provinces across the country (Ontario, Quebec, Alberta, New Brunswick and Nova Scotia).
Trusted Advisor In 2016, we continued to focus on a multi-year effort to position exclusive agents, licensed sales professionals and exclusive financial specialists to serve customers as trusted advisors. Being a trusted advisor means that our agencies:
Have a local presence that instills confidence;
Know their customers and understand the unique needs of their households;
Help them assess the potential risks they face;
Provide local expertise and personalized guidance on how to protect what matters most to them by offering customized solutions; and
Support them when they have changes in their lives and during their times of need.
To ensure agencies have the resources, capacity, and support needed to serve customers at this level, we are deploying education and support focused on relationship initiation and insurance and retirement expertise and are continuing efforts to enhance agency capabilities with customer-centric technology while simplifying and automating service processes to enable agencies to focus more time in an advisory role.
Allstate exclusive agencies engage with exclusive financial specialists through a partnership agreement, which documents common business goals and commitments to deliver customer solutions for life and retirement products.  Exclusive agencies utilize an exclusive financial specialist for their expertise with advanced life and retirement cases and other financial needs of customers.  Successful partnerships will assist agencies with building stronger and deeper customer relationships and increased compensation.
We support our exclusive agencies in a variety of ways to facilitate customer service and Allstate’s overall growth strategy. For example, we offer assistance with marketing, sales, service and business processes and provide education and other resources to help them acquire more business and retain more customers. Our programs support exclusive agencies and help them grow by offering financing to acquire other agencies and awarding additional resources to better performing agencies. We support our relationship with Allstate exclusive agencies through several national and regional working groups:
The Agency Executive Council engages exclusive agencies on our customer service and growth strategies. Membership includes approximately 14 Allstate exclusive agency owners selected on the basis of performance, thought leadership and credibility among their peer group.

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The National Advisory Board brings together Allstate’s senior leadership and a cross section of Allstate exclusive agents and exclusive financial specialists from around the country to address national business issues and develop solutions.
Regional Advisory Boards support Allstate exclusive agency owner engagement within each of Allstate’s 15 regional offices in the U.S. and within Canada.
The compensation structure for Allstate exclusive agencies rewards agencies for delivering high value to our customers and achieving certain business outcomes such as product profitability, net growth and household penetration. Allstate exclusive agent remuneration comprises a base commission (Property-Liability and Allstate Financial products), variable compensation and a bonus. Variable compensation consists of three components: agency success factors (Allstate Financial insurance policies sold and licensed staff), which must be achieved in order to qualify for the second and third components, customer satisfaction and Allstate Financial insurance policies sold relative to the size of the agency. A bonus, based on a percentage of premiums can be earned by agents who achieve a targeted loss ratio and a defined amount of Allstate Financial sales. The bonus is earned by achieving a targeted percentage of multi-category households (customers with policies purchased through an Allstate agent in at least two of the following product categories: vehicle, personal property, or life and retirement) and increases in Allstate Protection (Allstate brand) and Allstate Financial policies in force. In addition, through arrangements made with other companies, agencies, and brokers, Allstate exclusive agencies have the ability to earn commissions on non-proprietary products provided to consumers when an Allstate product is not available.
We pursue opportunities for growing Allstate brand exclusive agency distribution based on market opportunities with a focus on penetrating under-served markets. Similar to prior years, Allstate will continue to offer newly appointed agents, new locations or newly purchased locations with a low premium base an opportunity to earn enhanced compensation.  The enhanced compensation program is designed to incent and reward agencies for investing their time, talent, and capital to generate premium growth trajectory sufficient to establish a sustainable business over a defined timeframe.  While the intent and reward will remain largely consistent, the program will be modified for agents who open an agency on or after April 1, 2017 to more efficiently incentivize agents to support trusted advisor principles, including an enhanced on-boarding process and contemporized standards for capital and licensed support staff.  Other elements of exclusive agency compensation and support include start-up agency bonuses, marketing support payments, technology and data allowances, regional promotions and recognition trips based on achievement. These compensation components combine to provide these locally owned small businesses opportunities and incentives to earn incremental working capital throughout the year to support the cash flow needed for sustainable investment in agency staff, marketing, and business development. Allstate exclusive financial specialists receive commissions for proprietary and non-proprietary sales and earn a bonus based on the volume of business produced in partnership with their Allstate exclusive agent.  In 2017, a new bonus was introduced for sales of Allstate Financial products along with adjustments to the Allstate Financial commission structure.
Allstate independent agent remuneration comprises a base commission (Property-Liability products) and a bonus which can be earned by agents who achieve a target loss ratio. The bonus, which is a percentage of premiums, is earned by achieving a targeted percentage of multi-category households (customers with Allstate policies in at least two of the following product categories: vehicle, personal property or life and retirement) and increased Allstate Protection (Allstate brand) net written premium above a minimum threshold. Other elements of independent agency compensation and support include marketing support payments, national and regional promotions and recognition trips based on achievement. There are no significant changes to the compensation framework planned for 2017.
Allstate employs field sales leaders who are responsible for recruiting and retaining Allstate agents and helping them grow their business and profitability. The field sales leaders’ compensation is aligned with agency success and includes a bonus based on the level of agent remuneration described above and agency geographic footprint.
OTHER BUSINESS SEGMENTS
Our Corporate and Other segment is comprised of holding company activities and certain non-insurance operations. Note 19 of the consolidated financial statements contains information regarding the revenues, income from operations, and identifiable assets attributable to our Corporate and Other segment over the last three years.
Our Discontinued Lines and Coverages segment includes results from property-liability insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. Our exposure to asbestos, environmental and other discontinued lines claims is presented in this segment. Note 19 of the consolidated financial statements contains information for the last three years regarding revenues, income from operations, and identifiable assets attributable to our property-liability operations, which includes both our Allstate Protection and our Discontinued Lines and Coverages segments. Note 19 is incorporated in this Part I, Item 1 by reference.

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REGULATION
Allstate is subject to extensive regulation, primarily at the state level. The method, extent, and substance of such regulation varies by state but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state agency. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency and statutory surplus sufficiency, reserve adequacy, insurance company licensing and examination, agent and adjuster licensing, policy forms, rate setting, the nature and amount of investments, claims practices, participation in shared markets and guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices, corporate governance and risk management. Some of these matters are discussed in more detail below. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. For a discussion of statutory financial information, see Note 16 of the consolidated financial statements. For a discussion of regulatory contingencies, see Note 14 of the consolidated financial statements. Notes 14 and 16 are incorporated in this Part I, Item 1 by reference.
As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted in 2010. Dodd-Frank created the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury (“Treasury”). The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system.
Additional regulations or new requirements may emerge from activities of various regulatory entities, including the Federal Reserve Board, FIO, FSOC, the National Association of Insurance Commissioners (“NAIC”), and the International Association of Insurance Supervisors (“IAIS”), that are evaluating solvency and capital standards for insurance company groups. In addition, the NAIC has adopted amendments to its model holding company law, which have been adopted by some jurisdictions. The outcome of these actions is uncertain; however, these actions may result in an increase in the level of capital and liquidity required by insurance holding companies. Additional discussion of Dodd-Frank appears later in this section.
We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Allstate. We are working for changes in the regulatory environment to make insurance more available and affordable for customers, encourage market innovation, improve driving safety, strengthen cybersecurity, and promote better catastrophe preparedness and loss mitigation.
Agent and Broker Compensation.    In recent years, several states considered new legislation or regulations regarding the compensation of agents and brokers by insurance companies. The proposals ranged in nature from new disclosure requirements to new duties on insurance agents and brokers in dealing with customers. New York requires the disclosure of certain information concerning agent and broker compensation.
Limitations on Dividends By Insurance Subsidiaries.    As a holding company with no significant business operations of its own, The Allstate Corporation relies on dividends from Allstate Insurance Company as one of the principal sources of cash to pay dividends and to meet its obligations, including the payment of principal and interest on debt or to fund non-insurance related businesses. Allstate Insurance Company is regulated as an insurance company in Illinois and its ability to pay dividends is restricted by Illinois law. For additional information regarding those restrictions, see Part II, Item 5 of this report. The laws of the other jurisdictions that generally govern our other insurance subsidiaries contain similar limitations on the payment of dividends and in some jurisdictions the laws may be more restrictive.
Insurance Holding Company Regulation – Change of Control.    The Allstate Corporation and Allstate Insurance Company are insurance holding companies subject to regulation in the jurisdictions in which their insurance subsidiaries do business. In the U.S., these subsidiaries are organized under the insurance codes of Florida, Illinois, Massachusetts, New York, Texas, and Wisconsin, and some of these subsidiaries are considered commercially domiciled in California and Florida. Generally, the insurance codes in these states provide that the acquisition or change of “control” of a domestic or commercially domiciled insurer or of any person that controls such an insurer cannot be consummated without the prior approval of the relevant insurance regulator. In general, a presumption of “control” arises from the ownership, control, possession with the power to vote, or possession of proxies with respect to, ten percent or more of the voting securities of an insurer or of a person that controls an insurer. In addition, certain state insurance laws require pre-acquisition notification to state agencies of a change in control with respect to a non-domestic insurance company licensed to do business in that state. While such pre-acquisition notification statutes do not authorize the state agency to disapprove the change of control, such statutes do authorize certain remedies, including the issuance of a cease and desist order with respect to the non-domestic insurer if certain conditions exist, such as undue market concentration. Thus, any transaction involving the acquisition of ten percent or more of The Allstate Corporation’s common stock would generally require prior approval by the state insurance departments in California, Florida, Illinois, Massachusetts, New York, Texas, and Wisconsin. Moreover, notification would be required in those other states that have adopted pre-acquisition notification provisions and where the insurance subsidiaries are admitted to transact business. Such approval requirements may deter, delay, or prevent certain transactions affecting the ownership of The Allstate Corporation’s common stock.

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Rate Regulation.    Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority. In many cases, such rating plans, policy forms, or both must be approved prior to use.
The speed with which an insurer can change rates in response to competition or in response to increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use, or (iii) use-and-file laws. In states having prior approval laws, the regulator must approve a rate before the insurer may use it. In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used. A use-and-file law requires an insurer to file rates within a certain period of time after the insurer begins using them. Eighteen states, including California and New York, have prior approval laws. Under all three types of rating laws, the regulator has the authority to disapprove a rate filing.
An insurer’s ability to adjust its rates in response to competition or to changing costs is dependent on an insurer’s ability to demonstrate to the regulator that its rates or proposed rating plan meets the requirements of the rating laws. In those states that significantly restrict an insurer’s discretion in selecting the business that it wants to underwrite, an insurer can manage its risk of loss by charging a rate that reflects the cost and expense of providing the insurance. In those states that significantly restrict an insurer’s ability to charge a rate that reflects the cost and expense of providing the insurance, the insurer can manage its risk of loss by being more selective in the type of business it underwrites. When a state significantly restricts both underwriting and pricing, it becomes more difficult for an insurer to maintain its profitability.
From time to time, the personal lines insurance industry comes under pressure from state regulators, legislators, and special interest groups to reduce, freeze, or set rates at levels that do not correspond with our analysis of underlying costs, catastrophe loss exposure, and expenses. We expect this kind of pressure to persist. Allstate and other insurers are using increasingly sophisticated pricing models and rating plans that are reviewed by regulators and special interest groups. State regulators may interpret existing law or rely on future legislation or regulations to impose new restrictions that adversely affect profitability or growth. We cannot predict the impact on our business of possible future legislative and regulatory measures regarding rating.
Involuntary Markets.    As a condition of maintaining our licenses to write personal property and casualty insurance in various states, we are required to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations that provide various types of insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to our results of operations.
Michigan Catastrophic Claims Association.    The Michigan Catastrophic Claims Association (“MCCA”) is a mandatory insurance coverage and reinsurance indemnification mechanism for personal injury protection losses that provides indemnification for losses over a retention level that increases every other MCCA fiscal year by the lesser of 6% or the increase in the Consumer Price Index. It operates similar to a reinsurance program and is funded by participating member companies (companies actively writing motor vehicle coverage in Michigan) through a per vehicle annual assessment that is currently $160 for automobiles. This assessment is incurred by the Company as policies are written and recovered as a component of premiums from our customers. The participating company retention level will be $555 thousand per claim for the fiscal two-years ending June 30, 2019 compared to $545 thousand per claim for the fiscal two-years ending June 30, 2017.
The MCCA provides unlimited lifetime medical benefits for qualifying injuries from automobile, motorcycle and commercial vehicle accidents. 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. As required for a member company (companies actively writing motor vehicle coverage in Michigan and those with runoff policies), we report covered paid and unpaid claims to the MCCA when estimates of loss for a reported claim are expected to exceed the retention level. The MCCA reimburses members as qualifying claims are paid and billed by members to the MCCA. Because of the nature of the coverage, losses (the most significant of which are for residential and attendant care) may be paid over the lifetime of a claimant, and accordingly, significant levels of ultimate incurred claim reserves are recorded by member companies as well as offsetting reinsurance recoverables. A significant portion of the ultimate incurred claim reserves and the recoverable can be attributed to a small number of catastrophic claims. Disputes for coverage on certain reported claims can result in additional losses, which may be recoverable from the MCCA, however, the litigation expenses are not reimbursable. The MCCA is not currently funded on an ultimate claims basis although it has an obligation to indemnify its members for their actuarially expected losses. Legislative proposals to change the MCCA operation in the future are put forth periodically, however, no changes have been enacted. We do not anticipate any material adverse financial impact from this association on Allstate.
New Jersey Property-Liability Insurance Guaranty Association.    The New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”) provides reimbursement to insurers for the medical benefits portion of personal injury protection coverage paid in excess of $75,000 with no limits for policies issued or renewed prior to January 1, 1991, and paid in excess of $75,000 and capped at $250,000 for policies issued or renewed from January 1, 1991 to December 31, 2004. As the statutory administrator of the New Jersey Unsatisfied Claim and Judgment Fund (“UCJF”), PLIGA also provides compensation to qualified claimants for

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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 stranger pedestrian personal injury protection benefits when no other coverage is available. A significant portion of the incurred claim reserves and the recoverable can be attributed to a small number of catastrophic claims. PLIGA annually assesses all admitted property and casualty insurers writing motor vehicle liability insurance in New Jersey for direct PLIGA expenses and UCJF reimbursements and expenses. No insurer may be assessed in any year an amount greater than 2% of that insurer’s net direct written premiums. It has been the practice of the New Jersey Department of Banking and Insurance to issue a recoupment order allowing insurance companies to recover the assessment from the Company’s customers over a reasonable period of time. As of December 31, 2015, PLIGA had a surplus of $279 million. We do not anticipate any material adverse financial impact from PLIGA or the UCJF on Allstate.
Guaranty Funds.    Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, in order to cover certain obligations of insolvent insurance companies. We do not anticipate any material adverse financial impact on Allstate from these assessments.
National Flood Insurance Program.    We voluntarily participate as a Write Your Own carrier in the National Flood Insurance Program (“NFIP”). The NFIP is administered and regulated by the Federal Emergency Management Agency (“FEMA”). We operate in a fiduciary capacity as a fiscal agent of the federal government in the issuing and administering of the Standard Flood Insurance Policy. This involves the collection of premiums belonging to the federal government, the adjustment of claims, and the paying of covered claims and certain allocated loss adjustment expenses entirely drawn from federal funds. We receive expense allowances from the NFIP for underwriting administration, claims management, commissions, and adjusting expenses. The federal government is obligated to pay all claims and certain allocated loss adjustment expenses in accordance with the arrangement. In 2015, FEMA intervened and took direct responsibility for settling claims in litigation related to named storm Sandy, which occurred in 2012. FEMA also implemented a review process for non-litigated claims and offered to review claims that had previously been closed. These claims have been paid by directly drawing on federal funds to settle litigation and to pay additional amounts on claims reviewed by FEMA and submitted for processing. Due to this review process, approximately 2,300 Allstate claims were re-opened by FEMA. As of December 31, 2016, Allstate had received 1,556 directives from FEMA regarding payments. It is not known if FEMA may take similar actions on other past or future flood related claims. Allstate has not had any involvement in determining the additional payment amounts or settling these claims. Allstate did not accept any additional loss adjustment fees for the additional payments directed by FEMA. FEMA’s actions may have created potential exposure that Allstate is confident it has sufficiently addressed for all Sandy claims. Congressional authorization for the NFIP expires September 30, 2017. Congress is considering reforms to the program that would be incorporated in legislation to reauthorize the NFIP.
Investment Regulation.    Our insurance subsidiaries are subject to regulations that require investment portfolio diversification and that limit the amount of investment in certain categories. Failure to comply with these rules leads to the treatment of non-conforming investments as non-admitted assets for purposes of measuring statutory surplus. Further, in some instances, these rules require divestiture of non-conforming investments.
Exiting Geographic Markets; Canceling and Non-Renewing Policies.    Most states regulate an insurer’s ability to exit a market. For example, states may limit, to varying degrees, an insurer’s ability to cancel and non-renew policies. Some states restrict or prohibit an insurer from withdrawing one or more types of insurance business from the state, except pursuant to a plan that is approved by the state insurance department. Regulations that limit cancellation and non-renewal and that subject withdrawal plans to prior approval requirements may restrict an insurer’s ability to exit unprofitable markets.
Variable Life Insurance and Registered Fixed Annuities.    The sale and administration of variable life insurance and registered fixed annuities with market value adjustment features are subject to extensive regulatory oversight at the federal and state level, including regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”).
Broker-Dealers, Investment Advisors, and Investment Companies.    The Allstate entities that operate as broker-dealers, registered investment advisors, and investment companies are subject to regulation and supervision by the SEC, FINRA and/or, in some cases, state securities administrators. In April 2016, the U.S. Department of Labor (“DOL”) issued a rule that expands the range of activities that would be considered to be “investment advice” and establishes a new framework for determining whether a person is a fiduciary when selling mutual funds, variable and indexed annuities, or variable life products in connection with an Individual Retirement Account (“IRA”) or employee benefit plan covered under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The rule, in its current form, would have an impact on the non-proprietary products provided by Allstate agencies and Allstate’s broker-dealer, Allstate Financial Services, LLC, their sales processes and volumes, and producer compensation arrangements. Allstate does not currently sell proprietary annuities or proprietary variable life products in connection with IRAs or employee benefit plans covered under ERISA. Allstate Benefits offers universal life products which, when sold in an employee welfare benefit plan, may be considered subject to the fiduciary rule as an insurance product with an “investment component.” Products that we previously offered and continue to have in force, such as indexed annuities, could also be impacted by the rule. These more onerous requirements may increase regulatory costs and litigation exposure. The financial impact to

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Allstate is expected to be immaterial. Compliance of certain components of the rule is required by April 10, 2017 and full compliance is required by January 1, 2018. On February 3, 2017, the President of the United States executed a memorandum directing the DOL to examine the fiduciary duty rule to determine whether it might adversely affect the ability of Americans to gain access to retirement information and financial advice. The outcome of the DOL’s examination of the rule is yet to be determined but could result in a delay in the compliance dates or changes to the rule’s requirements.
Dodd-Frank. The Secretary of the Treasury (operating through FIO) and the Office of the U.S. Trade Representative (“USTR”) are jointly authorized, pursuant to Dodd-Frank, to negotiate a Covered Agreement with one or more foreign governments, authorities, or regulatory entities. A Covered Agreement is a written bilateral or multilateral agreement that “relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under State insurance or reinsurance regulation.” A Covered Agreement becomes effective 90 days after the Secretary of the Treasury and USTR jointly submit a final agreement to the House Financial Services, House Ways and Means, Senate Banking, and Senate Finance committees. The House and Senate committees are not required to vote on the Covered Agreement for it to become effective. As provided in Dodd-Frank, a Covered Agreement cannot preempt (i.e., displace) state insurance measures that govern an insurer’s rates, premiums, underwriting or sales practices; any state insurance coverage requirements; the application of antitrust laws of any state to the business of insurance; or any state insurance measure governing insurer capital or solvency, except where a state insurance measure results in less favorable treatment of a non-U.S. insurer than a U.S. insurer.
In November 2015, pursuant to Dodd-Frank, Treasury and USTR notified Congress that they were formally initiating negotiations on a Covered Agreement with the European Union (“EU”) (the “Covered Agreement”) addressing: permanent equivalence treatment of the U.S. regulatory system by the EU; confidential sharing of information across jurisdictions; and uniform treatment of EU-based reinsurers operating in the U.S., including with respect to reinsurance collateral. On January 13, 2017, the Secretary of the Treasury and USTR jointly submitted a Covered Agreement consistent with their November 2015 notification to Congress. Once effective, the Covered Agreement is designed to secure equivalence treatment of the U.S. regulatory system by the EU, addresses the confidential sharing of information by regulators across jurisdictions, and eliminate reinsurance collateral requirements for EU-based foreign reinsurers in all States that meet certain conditions. In accordance with authorities provided in Dodd-Frank, the Covered Agreement may preempt (i.e., displace) state laws after 60 months from its effective date if then existing State insurance measures affected by the Covered Agreement result in less favorable treatment of an EU insurer or reinsurer subject to the Covered Agreement than a U.S. insurer domiciled, licensed, or otherwise admitted in a U.S. State.
Prior to the Secretary of the Treasury and the USTR submitting the Covered Agreement to Congress, the NAIC had amended its Credit for Reinsurance Model Law and Regulation in 2011 (“Revised Reinsurance Model Law”), and statutory enactments implementing the amendments have been passed in 35 states. The amendments establish a new category of “certified reinsurers,” allowing domestic insurers to receive statutory capital credit for reinsurance ceded to certified reinsurers absent the reinsurers fully collateralizing their assumed reinsurance obligations. Under the NAIC’s regulatory scheme preceding the Revised Reinsurance Model Law, which remains in effect in Illinois, domestic ceding companies are not allowed to take statutory capital credit for reserves ceded to unauthorized reinsurers unless the insurer withholds funds due to the reinsurer in an amount equal to the reserves, obtains a letter of credit on behalf of the unauthorized reinsurer equal to the amount of the reserves, or is the beneficiary of a credit for reinsurance trust with assets equal to the amount of the reserves.
The terms of the Covered Agreement provide states with 60 months from the effective date of the Covered Agreement to modify their state-based regulatory requirements to comply with the terms of the Covered Agreement. In accordance with the terms of the Covered Agreement, and consistent with the authorities set forth in Dodd-Frank, after 42 months from the effective date of the Covered Agreement, the U.S. is to begin a process of notifying states of potential preemption for any state insurance measure that is inconsistent with the terms of the Covered Agreement. After 60 months from the effective date of the Covered Agreement, the U.S. is to complete any preemption determinations with respect to any U.S. State insurance measures subject to evaluation.
On June 23, 2016, the U.K. held a referendum in which they voted to leave the EU. Following the vote, the U.K. is developing a formal plan for withdrawal under Article 50 of the Lisbon Treaty that is expected to commence as early as March of 2017. If the British Parliament authorizes the initiation of Brexit discussions in March 2017 pursuant to Article 50, withdrawal is expected to be completed during 2019. Article 50 provides only for the negotiation of a withdrawal arrangement but does not address future relationships between the U.K. and EU. Upon exiting the EU, the U.K. insurance market will no longer be in the scope of the Covered Agreement.
Federal Reserve Board. In June 2016, the Federal Reserve Board (“FRB”) issued an Advanced Notice of Proposed Rulemaking soliciting comments on two separate capital framework proposals developed for insurance groups designated as systemically important financial institutions (“SIFI”) and insurance companies that own insured depository institutions (“IDIs”). As of December 31, 2016, we are not designated as a SIFI and do not own an IDI. The proposals at a very high level describe how capital and financial risk could be measured. The capital proposal applicable to insurance IDIs uses a Building Block Approach (“BBA”).

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The BBA uses, as a starting point, available and required capital obtained from existing regulatory frameworks, such as the National Association of Insurance Commissioners Risk-Based Capital, developed from financial statements constructed using Statutory Accounting Principles (“SAP”) and applies a Basel-like approach to remaining assets not covered by a specific regulatory framework. The proposed capital framework applicable to SIFI’s would be a Consolidated Approach, which would rely on a new risk-based framework to be applied to consolidated U.S. GAAP based financial measures.
While the proposed application of the SIFI proposal is limited, the potential implication of its wider application could be significant. Most insurance groups, including those that currently prepare financial statements in accordance with U.S. GAAP, typically do not develop audited U.S. GAAP financial statements for all domestic and international insurance and non-insurance subsidiaries. The current Consolidated Approach proposal as communicated does not require insurance companies, subject to the framework, to prepare U.S. GAAP financial statements for their underlying subsidiaries. However, any change to the final rule, which requires application of risk-based capital requirements to audited U.S. GAAP financial statements at the subsidiary level would require the preparation of U.S. GAAP financial statements. This could create significant incremental costs to maintain audited financial statements and maintenance of regulatory capital computations for subsidiaries on both a U.S. GAAP and SAP basis. The FRB proposals remain in the development stage and their final form, content, and applicability of the framework(s) may be significantly different from the current proposals.
Privacy Regulation.    Federal law and the laws of many states require financial institutions to protect the security and confidentiality of customer information and to notify customers about their policies and practices relating to collection and disclosure of customer information and their policies relating to protecting the security and confidentiality of that information. Federal law and the laws of many states also regulate disclosures and disposal of customer information. Congress, state legislatures, and regulatory authorities are expected to consider additional regulation relating to privacy and other aspects of customer information.
Asbestos.    Congress has considered legislation to address asbestos claims and litigation in the past, and during the last Congress, the House of Representatives passed the Furthering Asbestos Claims Transparency Act. The Act is designed to enable asbestos trust funds to pay only those who are entitled by law to compensation from the funds. The Act failed to move in the Senate. The Act must now be re-introduced in the new Congress to be considered by either the House or Senate. We cannot predict the impact on our business of possible future legislative measures regarding asbestos.
Environmental.    Environmental pollution and clean-up of polluted waste sites is the subject of both federal and state regulation. The Comprehensive Environmental Response Compensation and Liability Act of 1980 (“Superfund”) and comparable state statutes (“mini-Superfund”) govern the clean-up and restoration of waste sites by Potentially Responsible Parties (“PRPs”). Superfund and the mini-Superfunds (Environmental Clean-up Laws or “ECLs”) establish a mechanism to assign liability to PRPs or to fund the clean-up of waste sites if PRPs fail to do so. The extent of liability to be allocated to a PRP is dependent on a variety of factors. By some estimates, there are thousands of potential waste sites subject to clean-up, but the exact number is unknown. The extent of clean-up necessary and the process of assigning liability remain in dispute. The insurance industry is involved in extensive litigation regarding coverage issues arising out of the clean-up of waste sites by insured PRPs and the insured parties’ alleged liability to third parties responsible for the clean-up. The insurance industry, including Allstate, has disputed and is disputing many such claims. Key coverage issues include whether Superfund response, investigation, and clean-up costs are considered damages under the policies; trigger of coverage; the applicability of several types of pollution exclusions; proper notice of claims; whether administrative liability triggers the duty to defend; appropriate allocation of liability among triggered insurers; and whether the liability in question falls within the definition of an “occurrence.” Identical coverage issues exist for clean-up and waste sites not covered under Superfund. To date, courts have been inconsistent in their rulings on these issues. Allstate’s exposure to liability with regard to its insureds that have been, or may be, named as PRPs is uncertain. While comprehensive Superfund reform proposals have been introduced in Congress, only modest reform measures have been enacted.
INTERNET WEBSITE
Our Internet website address is allstate.com. The Allstate Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports that we file or furnish pursuant to Section 13(a) of the Securities Exchange Act of 1934 are available on the Investor Relations section of our website (www.allstateinvestors.com), free of charge, as soon as reasonably practicable after they are electronically filed or furnished to the SEC. In addition, our corporate governance guidelines, our code of ethics, and the charters of our Audit Committee, Compensation and Succession Committee, Executive Committee, Nominating and Governance Committee, and Risk and Return Committee are available on the Investor Relations section of our website and in print to any stockholder who requests copies by contacting Investor Relations, The Allstate Corporation, 2775 Sanders Road, Northbrook, Illinois 60062-6127, 1-847-402-2800. The information found on our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document filed with the SEC.

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OTHER INFORMATION ABOUT ALLSTATE
As of December 31, 2016, Allstate had approximately 43,050 full-time employees and 450 part-time employees.
Allstate continues to explore and invest in innovative solutions for the consumer and to expand its use of global resources, including business process and information technology operations in India and Northern Ireland.
Information regarding revenues generated outside of the United States is incorporated in this Part I, Item 1 by reference to Note 19 of the consolidated financial statements.
Allstate’s four business segments use shared services, including human resources, investment, finance, information technology and legal services, provided by Allstate Insurance Company and other affiliates.
Although the insurance business generally is not seasonal, claims and claims expense for the Allstate Protection segment tend to be higher for periods of severe or inclement weather.
“Allstate” is a very well-recognized brand name in the United States. We use the names “Allstate,” “Esurance,” “Encompass” and “Answer Financial” extensively in our business, along with related service marks, logos, and slogans, such as “Good Hands®.” Our rights in the United States to these names, service marks, logos, and slogans continue so long as we continue to use them in commerce. Many service marks used by Allstate are the subject of renewable U.S. and/or foreign service mark registrations. We believe that these service marks are important to our business and we intend to maintain our rights to them.
Executive Officers of the Registrant
The following table sets forth the names of our executive officers, their ages as of February 1, 2017, their positions, and the years of their first election as officers. “AIC” refers to Allstate Insurance Company.
Name
 
Age
 
Position/Offices
 
Year First
Elected
Officer
Thomas J. Wilson
 
59
 
Chairman of the Board and Chief Executive Officer of The Allstate Corporation and of AIC.
 
1995
Don Civgin
 
55
 
President, Emerging Businesses of AIC.
 
2008
Mary Jane Fortin
 
52
 
President, Allstate Financial of AIC.
 
2015
Sanjay Gupta
 
48
 
Executive Vice President, Marketing, Innovation and Corporate Relations of AIC.
 
2012
Suren Gupta
 
55
 
Executive Vice President, Enterprise Technology and Strategic Ventures of AIC.
 
2011
Harriet K. Harty
 
50
 
Executive Vice President, Human Resources of AIC.
 
2012
Susan L. Lees
 
59
 
Executive Vice President, General Counsel, and Secretary of The Allstate Corporation and of AIC (Chief Legal Officer).
 
2008
Samuel H. Pilch
 
70
 
Senior Group Vice President and Controller of The Allstate Corporation and of AIC.
 
1996
Steven E. Shebik
 
60
 
Executive Vice President and Chief Financial Officer of The Allstate Corporation and of AIC.
 
1999
Matthew E. Winter
 
60
 
President of The Allstate Corporation and of AIC.
 
2009
Each of the officers named above may be removed from office at any time, with or without cause, by the board of directors of the relevant company.
Messrs. Wilson, Civgin, Suren Gupta, Pilch, Shebik and Winter, and Mses. Harty and Lees have held the listed positions for at least the last five years or have served Allstate in various executive or administrative capacities for at least five years.
Prior to joining Allstate in 2015, Ms. Fortin served as Chief Financial Officer of AIG’s Consumer Insurance business from 2012 to 2015 and President and CEO of American General Life Insurance Company from 2009 to 2012.
Prior to joining Allstate in 2012, Mr. Sanjay Gupta served as Chief Marketing Officer of Ally Financial from 2008 to 2012 and Senior Vice President of Global Consumer and Small Business Marketing at Bank of America from 2001 to 2008.
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. Forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results,

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litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements as a result of new information or future events or developments. In addition, forward-looking statements are subject to certain risks or uncertainties that could cause actual results to differ materially from those communicated in these forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part 1, “Item 1A. Risk Factors” and elsewhere in this report and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Item 1A.  Risk Factors
In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer, investor and a provider of other products and financial services. These risks include insurance, investment, financial, operational and strategic risks. These cautionary statements should be considered carefully together with other factors discussed elsewhere in this document, in our filings with the Securities and Exchange Commission (“SEC”) or in materials incorporated therein by reference.
Risks Relating to the Property-Liability business
As a property and casualty insurer, we may face significant losses from catastrophes and severe weather events
Because of the exposure of our property and casualty business to catastrophic events, Allstate Protection’s operating results and financial condition may vary significantly from one period to the next. Catastrophes can be caused by various natural and man-made events, including earthquakes, volcanic eruptions, wildfires, tornadoes, tsunamis, hurricanes, tropical storms, terrorism or industrial accidents. We may incur catastrophe losses in our auto and property business in excess of: (1) those experienced in prior years, (2) the average expected level used in pricing, (3) our current reinsurance coverage limits, or (4) loss estimates from external hurricane and earthquake models at various levels of probability. Despite our catastrophe management programs, we are exposed to catastrophes that could have a material effect on our operating results and financial condition. For example, our historical catastrophe experience includes losses relating to Hurricane Katrina in 2005 totaling $3.6 billion, the Northridge earthquake of 1994 totaling $2.1 billion and Hurricane Andrew in 1992 totaling $2.3 billion. We are also exposed to assessments from the California Earthquake Authority and various state-created insurance facilities, and to losses that could surpass the capitalization of these facilities. Although we have historically financed the settlement of catastrophes from operating cash flows, including very large catastrophes that had complicated issues resulting in settlement delays, our liquidity could be constrained by a catastrophe, or multiple catastrophes, which result in extraordinary losses or a downgrade of our debt or financial strength ratings.
In addition, we are subject to claims arising from weather events such as winter storms, rain, hail and high winds. The incidence and severity of weather conditions are largely unpredictable. There is generally an increase in the frequency and severity of auto and property claims when severe weather conditions occur.
The nature and level of catastrophes in any period cannot be predicted and could be material to our operating results and financial condition
Along with others in the insurance industry, Allstate Protection uses models developed by third party vendors as well as our own historic data in assessing our property insurance exposure to catastrophe losses. These models assume various conditions and probability scenarios. Such models do not necessarily accurately predict future losses or accurately measure losses currently incurred. Catastrophe models, which have been evolving since the early 1990s, use historical information and scientific research about hurricanes and earthquakes and also utilize detailed information about our in-force business. While we use this information in connection with our pricing and risk management activities, there are limitations with respect to its usefulness in predicting losses in any reporting period as actual catastrophic events vary considerably. Other limitations are evident in significant variations in estimates between models, material increases and decreases in results due to model changes and refinements of the underlying data elements and actual conditions that are not yet well understood or may not be properly incorporated into the models.
Our catastrophe management strategy may adversely affect premium growth
Due to Allstate Protection’s catastrophe risk management efforts, the size of our homeowners business has been negatively impacted in the past and may be negatively impacted if we take further actions. Homeowners premium growth rates and retention could be adversely impacted by adjustments to our business structure, size and underwriting practices in markets with significant severe weather and catastrophe risk exposure.
Unexpected increases in the frequency or severity of claims may adversely affect our operating results and financial condition
Unexpected changes in the frequency or severity of claims will affect the profitability of our Allstate Protection segment. Our Allstate Protection segment may experience volatility in claim frequency from time to time, and short-term trends may not continue over the longer term. Changes in auto claim frequency may result from changes in mix of business, miles driven or other

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macroeconomic factors. A significant increase in claim frequency could have an adverse effect on our operating results and financial condition.
Changes in bodily injury claim severity are impacted by inflation in medical costs, litigation trends and precedents, regulation and the overall safety of automobile travel. Changes in auto property damage claim severity are driven primarily by inflation in the cost to repair vehicles, including parts and labor rates, the mix of vehicles that are declared total losses, model year mix as well as used car values. Changes in homeowners claim severity are driven by inflation in the construction industry, building materials and home furnishings, changes in the mix of loss type, and by other economic and environmental factors, including short-term supply imbalances for services and supplies in areas affected by catastrophes. Increases in claim severity can arise from unexpected events that are inherently difficult to predict. Although we pursue various loss management initiatives in the Allstate Protection segment in order to mitigate future increases in claim severity, there can be no assurances that these initiatives will successfully identify or reduce the effect of future increases in claim severity.
A regulatory environment that requires rate increases to be approved and that can dictate underwriting practices and mandate participation in loss sharing arrangements may adversely affect our operating results and financial condition
From time to time, political events and positions affect the insurance market, including efforts to suppress rates to a level that may not allow us to reach targeted levels of profitability. For example, if Allstate Protection’s loss ratio compares favorably to that of the industry, state or provincial regulatory authorities may impose rate rollbacks, require us to pay premium refunds to policyholders, or challenge or delay our efforts to raise rates even if the property and casualty industry generally is not experiencing regulatory challenges to rate increases. Such challenges affect our ability to obtain approval for rate changes that may be required to achieve targeted levels of profitability and returns on equity. We are pursuing auto insurance rate increases in 2017. Our ability to purchase reinsurance required to reduce our catastrophe risk in designated areas may be dependent upon the ability to adjust rates for its cost. If we are unsuccessful, our operating results could be negatively impacted.    
In addition to regulating rates, certain states have enacted laws that require a property-liability insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities and joint underwriting associations or require the insurer to offer coverage to all consumers, often restricting an insurer’s ability to charge the price it might otherwise charge. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired rates, possibly leading to an unacceptable return on equity, or as the facilities recognize a financial deficit, they may in turn have the ability to assess participating insurers, adversely affecting our results of operations and financial condition. Laws and regulations of many states also limit an insurer’s ability to withdraw from one or more lines of insurance in the state, except pursuant to a plan that is approved by the state insurance department. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.
Impacts from the Covered Agreement may involve the introduction of new capital and solvency regulations and changes in state insurance laws that may adversely affect our operating results and financial condition
The Covered Agreement extends to capital and solvency matters and does not recognize the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (“RBC”) as equivalent to the European Union’s (“EU’s”) Solvency II capital and solvency framework. The solvency and capital requirements in the Covered Agreement are expressed in terms of group supervision, which is the basis of Solvency II, but not consistent with the NAIC RBC framework, which evaluates capital and solvency on a legal entity basis. While the NAIC is considering the potential future adoption of a group supervision based framework, there is no certainty that the effort will be successful or timely in meeting the requirements of the Covered Agreement when it becomes effective. In the absence of a group supervision based capital and solvency framework, U.S. insurers may become subject to a group supervision based capital and solvency framework developed by the Federal Reserve Board (“FRB”) or alternatively, the Solvency II framework, which the Covered Agreement implicitly deems equivalent to the FRB group capital proposal, which may adversely affect our measurement of regulatory capital adequacy.
Existing law in 15 states require some form of collateral to be posted for the benefit of the ceding insurer when an assuming reinsurer is not domiciled in the ceding company’s state of domicile. In the remaining states, laws governing reinsurance typically require an assuming reinsurer to post an amount of collateral, which may be zero, based on an independently determined financial strength rating and other factors including whether a particular reinsurer has achieved certified status. Through the authority provided by Dodd-Frank, a Covered Agreement may preempt state insurance laws if they are incompatible with the terms of a Covered Agreement. The Covered Agreement submitted to Congress provides states with 60 months to conform their laws with the terms of the Covered Agreement to avoid preemption. The Covered Agreement between the U.S. and EU could eliminate the requirement for all EU reinsurers that meet certain minimum requirements to post collateral. The scope of the Covered Agreement includes amended reinsurance agreements. Depending on the interpretation of amended, which could include administrative modifications, a release of existing collateral could occur that may adversely affect our operating results and financial condition if reinsurers fail to pay our reinsurance billings.

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Changes in the level of price competition and the use of underwriting standards in the property and casualty business may adversely affect our operating results and financial condition
The property and casualty market historically has been cyclical with periods characterized by relatively high levels of price competition, less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. A downturn in the profitability of the property and casualty business could have a material effect on our operating results and financial condition.
Additionally, we may change premium rates and underwriting standards in response to underwriting results. Premium rate increases and adopting tighter underwriting practices may result in a decline in new business and renewals and negatively impact our competitive position.
The potential benefits of our sophisticated risk segmentation process may not be fully realized
We believe that our sophisticated pricing and underwriting methods have allowed us to offer competitive pricing to attract and retain more customers while continuing to operate profitably. However, because many of our competitors seek to adopt underwriting criteria and sophisticated pricing models similar to those we use, our competitive advantage could decline or be lost. Further, the use of increasingly sophisticated pricing models is being reviewed by regulators and special interest groups. Competitive pressures could also force us to modify our sophisticated pricing models. Furthermore, we cannot be assured that these sophisticated pricing models will accurately reflect the level of losses that we will ultimately incur.
Actual claims incurred may exceed current reserves established for claims and may adversely affect our operating results and financial condition
Recorded claim reserves in the Property-Liability business are based on our best estimates of losses, both reported and incurred but not reported claims reserves (“IBNR”), after considering known facts and interpretations of circumstances and using models that rely on the assumption that past loss development patterns will persist into the future. Internal factors are considered including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix, contractual terms and changes in claim reporting and settlement practices. External factors are also considered, such as court decisions; changes in law; litigation imposing unintended coverage and benefits such as disallowing the use of benefit payment schedules, requiring coverage designed to cover losses that occur in a single policy period to losses that develop continuously over multiple policy periods or requiring the availability of multiple limits; regulatory requirements and economic conditions. Because reserves are estimates of the unpaid portion of losses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process that is continually refined to reflect current processes and practices. The ultimate cost of losses may vary materially from recorded reserves and such variance may adversely affect our operating results and financial condition as the reserves are reestimated.
Predicting claim costs relating to asbestos, environmental and other discontinued lines is inherently uncertain and may have a material effect on our operating results and financial condition
The process of estimating asbestos, environmental and other discontinued lines liabilities is complicated by complex legal issues concerning, among other things, the interpretation of various insurance policy provisions and whether losses are covered, or were ever intended to be covered, and whether losses could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Asbestos-related bankruptcies and other asbestos litigation are complex, lengthy proceedings that involve substantial uncertainty for insurers. Actuarial techniques and databases used in estimating asbestos, environmental and other discontinued lines net loss reserves may prove to be inadequate indicators of the extent of probable loss. Ultimate net losses from these discontinued lines could materially exceed established loss reserves and expected recoveries and have a material effect on our operating results and financial condition as the reserves are reestimated.
Risks Relating to the Allstate Financial Segment
Changes in underwriting and actual experience could materially affect profitability and financial condition
Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business. We establish target returns for each product based upon these factors and the average amount of capital that we must hold to support in-force contracts taking into account rating agencies and regulatory requirements. We monitor and manage our pricing and overall sales mix to achieve target new business returns on a portfolio basis, which could result in the discontinuation or de-emphasis of products and a decline in sales. Profitability from new business emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued.
Our profitability in this segment depends on the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the adequacy of investment spreads, the persistency of policies, the management of market and credit risks associated

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with investments, and the management of operating costs and expenses within anticipated pricing allowances. Legislation and regulation of the insurance marketplace and products could also affect our profitability and financial condition.
Changes in reserve estimates may adversely affect our operating results
The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, persistency and expenses. Mortality and morbidity may continue to improve in the future from current levels, due to medical advancements that have resulted in policyholders living longer than anticipated. We periodically review the adequacy of these reserves on an aggregate basis and if future experience differs significantly from assumptions, adjustments to reserves and amortization of deferred policy acquisition costs (“DAC”) may be required that could have a material effect on our operating results. We also review these policies on an aggregate basis for circumstances where projected profits would be recognized in early years followed by projected losses in later years. If this circumstance exists in the future, we will be required to accrue a liability, during the period of profits, to offset the losses at such time as the future losses are expected to commence.
Changes in market interest rates or performance-based investment returns may lead to a significant decrease in the profitability of spread-based products
Our ability to manage the in-force Allstate Financial spread-based products, such as fixed annuities, is dependent upon maintaining profitable spreads between investment returns and interest crediting rates. When market interest rates decrease or remain at relatively low levels, proceeds from investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Increases in market interest rates can have negative effects on Allstate Financial, for example by increasing the attractiveness of other investments to our customers, which can lead to increased surrenders at a time when the segment’s fixed income investment asset values are lower as a result of the increase in interest rates. This could lead to the sale of fixed income securities at a loss. In addition, changes in market interest rates impact the valuation of derivatives embedded in equity-indexed annuity contracts that are not hedged, which could lead to volatility in net income. Additionally, the amount of net investment income from our performance-based investments backing the immediate annuity liabilities can vary substantially from quarter to quarter. Significant volatility or market downturns could adversely impact net investment income, valuation and returns on these investments.
Changes in estimates of profitability on interest-sensitive life products may adversely affect our profitability and financial condition
DAC related to interest-sensitive life contracts is amortized in proportion to actual historical gross profits and estimated future gross profits (“EGP”) over the estimated lives of the contracts. The principal assumptions for determining the amount of EGP are 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. Updates to these assumptions (commonly referred to as “DAC unlocking”) could result in accelerated amortization of DAC and thereby adversely affect our profitability and financial condition. In addition, assumption changes impact the reserve for secondary guarantees on interest-sensitive life insurance and could also lead to volatility in net income.
Reducing our concentration in spread-based business and exiting certain distribution channels may adversely affect reported results
We have been reducing our concentration in spread-based business since 2008 and discontinued offering fixed annuities effective January 1, 2014. We also exited the independent master brokerage agencies and structured settlement annuity brokers distribution channels in 2013 and sold Lincoln Benefit Life Company (“LBL”) on April 1, 2014. The reduction in sales of these products has and will continue to reduce investment portfolio levels. It may also affect the settlement of contract benefits including forced sales of assets with unrealized capital losses, and affect goodwill impairment testing and insurance reserves deficiency testing.
Changes in tax laws may decrease sales and profitability of products and adversely affect our financial condition
Under current federal and state income tax law, certain products we provide, primarily life insurance, receive beneficial tax treatment. This favorable treatment may give certain of our products a competitive advantage over noninsurance products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the beneficial policyholder tax treatment currently applicable to life insurance. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products making them less competitive. Such proposals, if adopted, could have a material effect on our profitability and financial

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condition or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.
We may not be able to mitigate the capital impact associated with statutory reserving and capital requirements, potentially resulting in a need to increase prices, reduce sales of certain products, and/or accept a return on equity below original levels assumed in pricing
Regulatory capital and reserving requirements affect the amount of capital retained in Allstate Financial companies.  Changes to capital or reserving requirements or regulatory interpretations may result in additional capital held in Allstate Financial companies. To support statutory reserves for certain life insurance products, we currently utilize reinsurance and captive reserve financing solutions for financing a portion of our statutory reserve requirements deemed to be non-economic. Changes to capital or reserving requirements or an inability to continue existing financing as a result of market conditions or otherwise could require us to increase prices, reduce our sales of certain products, and/or accept a return on equity below original levels assumed in pricing.
A decline in Lincoln Benefit Life Company’s financial strength ratings may adversely affect our results of operations
We reinsure life insurance and payout annuity business from LBL. Premiums and contract charges assumed from LBL totaled $749 million in 2016. A decline in LBL’s financial strength ratings could lead to an increase in policy lapses. This could adversely affect our results of operations by decreasing future premiums.
Risks Relating to Investments
Our investment portfolios are subject to market risk and declines in credit quality which may adversely affect investment income and cause realized and unrealized losses
We continually reevaluate our investment management strategies since we are subject to the risk of loss due to adverse changes in interest rates, credit spreads, equity prices or currency exchange rates. Adverse changes in these rates, spreads and prices may occur due to changes in monetary policy and the economic climate, the liquidity of a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness. The performance and value of our investment portfolios are also subject to market risk related to investments in real estate, loans and securities collateralized by real estate. Some of our investment strategies target individual investments with unique risks that are less highly correlated with broad market risks. Although we expect these investments to increase total portfolio returns over time, their performance may vary from and under-perform relative to the market.
Our investment portfolios are subject to risks associated with potential declines in credit quality related to specific issuers or specific industries and a general weakening of the economy, which are typically reflected through credit 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. Credit spreads vary (i.e. increase or decrease) in response to the market’s perception of risk and liquidity in a specific issuer or specific sector and are influenced by the credit ratings, and the reliability of those ratings, published by external rating agencies. Although we have the ability to use derivative financial instruments to manage these risks, the effectiveness of such instruments varies with liquidity and other conditions that may impact derivative and bond markets. Adverse economic conditions or other factors could cause declines in the quality and valuation of our investment portfolio that would result in realized and unrealized losses. The concentration of our investment portfolios in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on our investment portfolios and consequently on our results of operations and financial condition.
A decline in market interest rates or credit spreads could have an adverse effect on investment income as we invest cash in new investments that may earn less than the portfolio’s average yield. In a low interest rate environment, borrowers may prepay or redeem securities more quickly than expected as they seek to refinance at lower rates. Sustained low interest rates could also lead to purchases of longer-term or riskier assets in order to obtain adequate investment yields, which could also result in a duration gap when compared to the duration of liabilities. Alternatively, longer-term assets may be sold and reinvested in shorter-term assets that may have lower yields in anticipation of rising interest rates. An increase in market interest rates or credit spreads could have an adverse effect on the value of our investment portfolio by decreasing the fair values of the fixed income securities that comprise a substantial majority of our investment portfolio. Declining equity markets and/or increases in interest rates or credit spreads could also cause the value of the investments in our pension plans to decrease. Declines in interest rates could cause the funding ratio to decline and the value of the obligations for our pension and postretirement plans to increase. These factors could decrease the funded status of our pension and postretirement plans, increasing the likelihood or magnitude of future benefit expense and contributions. This could also reduce the accumulated other comprehensive income component of shareholders’ equity.
The amount and timing of net investment income from our performance-based investments, which primarily includes limited partnership interests, can fluctuate significantly as a result of the performance of the underlying investments. Additionally, the timing of capital contributions and distributions depends on particular events, schedules for making distributions, and cash needs related to the investments. As a result, the amount of net investment income recognized and cash contributed to or received from

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these investments can vary substantially from quarter to quarter. Significant volatility or market downturns could adversely impact net investment income, valuation and returns on these investments.
The determination of the amount of realized capital losses recorded for impairments of our investments is subjective and could materially impact our operating results and financial condition
The determination of the amount of realized capital losses recorded for impairments vary by investment type and is based upon our ongoing evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in our results of operations. The assessment of whether other-than-temporary impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value. Our conclusions on such assessments are judgmental and include assumptions and projections of future cash flows and price recovery which may ultimately prove to be incorrect as assumptions, facts and circumstances change. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.
The determination of the fair value of our fixed income and equity securities is subjective and could materially impact our operating results and financial condition
In determining fair values, we principally use the market approach which utilizes market transaction data for the same or similar instruments. The degree of judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon the sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets’ fair values. The difference between amortized cost or cost and fair value, net of deferred income taxes and related life and annuity DAC, deferred sales inducement costs and reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income in shareholders’ equity. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly.
Risks Relating to the Insurance Industry
Our future growth and profitability are dependent in part on our ability to successfully operate in an insurance industry that is highly competitive
The insurance industry is highly competitive. Many of our primary insurance competitors have well-established national reputations and market similar products. In addition, the insurance industry consistently attracts well-capitalized new entrants to the market.
We have invested in growth strategies by utilizing unique customer value propositions for each of our brands, differentiated product offerings and distinctive advertising campaigns. If we are unsuccessful in generating new business and retaining a sufficient number of customers, our ability to increase premiums written could be impacted. In addition, if we experience unexpected increases in underlying costs (such as the frequency or severity of claims costs), it could result in decreases in profitability and lead to price increases which could negatively impact our competitive position leading to a decline in new and renewal business. Further, many of our competitors are also using data analytics to improve pricing accuracy, be more targeted in marketing, strengthen customer relationships and provide more customized services. If they are able to use data analytics more effectively than we are, it may give them a competitive advantage.
Because of the competitive nature of the insurance industry, there can be no assurance that we will continue to compete effectively with our industry rivals, including new entrants, or that competitive pressures will not have a material effect on our business, operating results or financial condition. This includes competition for producers such as exclusive and independent agents and their licensed sales professionals. In the event we are unable to attract and retain these producers, they are unable to attract and retain their licensed sales professionals, or they are unable to attract and retain customers for our products, growth and retention could be materially affected. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets. Additionally, many of our voluntary benefits employer contracts are renewed annually. There is a risk that employers may be able to obtain more favorable terms from competitors than they could by renewing coverage with us. These competitive pressures may adversely affect the persistency of these products, as well as our ability to sell our products in the future.
Our ability to successfully operate may also be impaired if we are not effective in developing the talent and skills of our human resources, attracting and assimilating new executive talent into our organization, retaining experienced and qualified employees, or deploying human resource talent consistently with our business goals.




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New or changing technologies could materially impact our operating results and financial condition
We are investing in telematics and broadening the value proposition for the connected consumer. If we are not effective in anticipating the impact on our business of changing technology, including automotive technology, our ability to successfully operate may be impaired. Also, telematics devices used have been identified as a potential means for an unauthorized person to connect with a vehicle’s computer system resulting in theft or damage, which could affect our ability to use these technologies successfully. Other potential technological changes, such as autonomous or partially autonomous vehicles or technologies that facilitate ride or home sharing, could disrupt the demand for our products from current customers, create coverage issues or impact the frequency or severity of losses, and we may not be able to respond effectively which could have a material effect on our operating results and financial condition.
Difficult conditions in the global economy and capital markets could adversely affect our business and operating results and these conditions may not improve in the near future
As with most businesses, we believe difficult conditions in the global economy and capital markets, such as relatively stagnant macroeconomic trends, including relatively high and sustained unemployment in certain regions and lower labor participation rates in other regions, reduced consumer spending, low economic growth, lower residential and commercial real estate prices, substantial increases in delinquencies on consumer debt, including defaults on home mortgages, the relatively low availability of credit and ineffective central bank monetary policies could have an adverse effect on our business and operating results.
Stressed conditions, volatility and disruptions in global capital markets, particular markets or financial asset classes could adversely affect our investment portfolio. Disruptions in one market or asset class can also spread to other markets or asset classes. Although the disruption in the global financial markets has moderated, the rate of recovery from the U.S. recession has been below historic averages, and the pace of recovery in many foreign markets is lagging that of the U.S. In addition, events in the U.S. or foreign markets, such as the United Kingdom’s June 2016 referendum in which they voted to leave the European Union, can impact the global economy and capital markets and the impact of such events is difficult to predict.
In the years since the financial crisis, the central banks of most developed countries have pursued fairly similar, and highly accommodative, monetary policies. As the U.S. Federal Reserve, through the Federal Open Market Committee, raises interest rates and as global monetary policies diverge, it may result in higher volatility and less certainty in capital markets.
General economic conditions could adversely affect us by impacting consumer behavior and pressuring investment results. Consumer behavior changes could include decreased demand for our products. For example, if consumers purchase fewer automobiles, sales of auto insurance may decline. Also, if consumers become more cost conscious, they may choose lower levels of auto and homeowners insurance. In addition, holders of interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Investment results could be adversely affected as deteriorating financial and business conditions affect the issuers of the securities in the investment portfolio.
Losses from legal and regulatory actions may be material to our operating results, cash flows and financial condition
We are involved in various legal actions, including class action litigation challenging a range of company practices and coverage provided by our insurance products, some of which involve claims for substantial or indeterminate amounts. We are also involved in various regulatory actions and inquiries, including market conduct exams by state insurance regulatory agencies. 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 our operating results or cash flows for a particular quarter or annual period and to our financial condition. The aggregate estimate of the range of reasonably possible loss in excess of the amount accrued, if any, disclosed in Note 14 of the consolidated financial statements is not an indication of expected loss, if any. Actual results may vary significantly from the current estimate.
We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs and limit our growth
As insurance companies, broker-dealers, investment advisers, investment companies and other types of companies, many of our subsidiaries are subject to extensive laws and regulations. These laws and regulations are complex and subject to change. Changes may sometimes lead to additional expenses, increased legal exposure, increased required reserves or capital, and additional limits on our ability to grow or to achieve targeted profitability. Moreover, laws and regulations are administered and enforced by a number of different governmental authorities, each of which exercises a degree of interpretive latitude, including state insurance regulators; state securities administrators; state attorneys general and federal agencies including the SEC, the Financial Industry Regulatory Authority, the U.S. Department of Justice and the National Labor Relations Board. Consequently, we are subject to the risk that compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management

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perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow or to improve the profitability of our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products, not holders of securities, which is generally the jurisdiction of the SEC, issued by The Allstate Corporation. In many respects, these laws and regulations may limit our ability to grow or to improve the profitability of our business.
Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business
The federal government has enacted comprehensive regulatory reforms for financial services entities. As part of a larger effort to strengthen the regulation of the financial services market, certain reforms are applicable to the insurance industry, including the Federal Insurance Office (“FIO”) established within the U.S. Department of the Treasury.
In recent years, the state insurance regulatory framework has come under public scrutiny, members of Congress have discussed proposals to provide for federal chartering of insurance companies, and the FIO and Financial Stability Oversight Council (“FSOC”) were established. In the future, if the FSOC were to determine that Allstate is a “systemically important” nonbank financial company, Allstate would be subject to regulation by the Federal Reserve Board. We can make no assurances regarding the potential impact of state or federal measures that may change the nature or scope of insurance and financial regulation.
In April 2016, the U.S. Department of Labor (“DOL”) issued a rule that expands the range of activities that would be considered to be “investment advice” and establishes a new framework for determining whether a person is a fiduciary when selling mutual funds, variable and indexed annuities, or variable life products in connection with an Individual Retirement Account (“IRA”) or employee benefit plan covered under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The rule, in its current form, would have an impact on the non-proprietary products provided by Allstate agencies and Allstate’s broker-dealer, Allstate Financial Services, LLC, their sales processes and volumes, and producer compensation arrangements. Allstate does not currently sell proprietary annuities or proprietary variable life products in connection with IRAs or employee benefit plans covered under ERISA. Allstate Benefits offers universal life products which, when sold in an employee welfare benefit plan, may be considered subject to the fiduciary rule as an insurance product with an “investment component.”  Products that we previously offered and continue to have in force, such as indexed annuities, could also be impacted by the rule. These more onerous requirements may increase regulatory costs and litigation exposure. Compliance of certain components of the rule is required by April 10, 2017 and full compliance is required by January 1, 2018. On February 3, 2017, the President of the United States executed a memorandum directing the DOL to examine the fiduciary duty rule to determine whether it might adversely affect the ability of Americans to gain access to retirement information and financial advice.  The outcome of the DOL’s examination of the rule is yet to be determined but could result in a delay in the compliance dates or changes to the rule’s requirements.
Such regulatory reforms, any additional legislative or regulatory requirements and any further stringent enforcement of existing regulations may make it more expensive for us to conduct our business, or may limit our ability to grow or to achieve profitability.
Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business
Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes nationwide. Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as is currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk in designated areas may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available in future years. If we were unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we would have to either accept an increase in our catastrophe exposure, reduce our insurance writings, or develop or seek other alternatives.
Reinsurance subjects us to risks of our reinsurers and may not be adequate to protect us against losses arising from ceded insurance, which could have a material effect on our operating results and financial condition
The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Additionally, reinsurance placed in the catastrophe bond market may not provide the same level of coverage as reinsurance placed in the traditional market and any disruption, volatility and uncertainty in the financial markets may decrease our ability to access such market on terms favorable to us or at all. Our inability to collect a material recovery from a reinsurer could have a material effect on our operating results and financial condition.

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Our participation in certain state industry pools and facilities subjects us to the risk that reimbursement for qualifying claims and claims expenses may not be received, which could have a material effect on our operating results and financial condition
We have exposure associated with the Michigan Catastrophic Claim Association (“MCCA”), a mandatory insurance coverage and a reimbursement indemnification mechanism for personal injury protection losses and certain qualifying allocated loss adjustment expenses that provides indemnification for losses over a retention level that increases every other MCCA fiscal year based on a formula, which is operating with a deficit, and the New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”) that provides reimbursement to insurers for certain qualifying medical benefits portion of personal injury protection coverage paid in excess of certain levels. Our ultimate reinsurance recoverable from the MCCA and PLIGA was $4.95 billion and $506 million, respectively, as of December 31, 2016.
The MCCA is funded by annually assessing participating member companies actively writing motor vehicle coverage in Michigan through a per vehicle annual assessment. The MCCA’s assessment of participating member companies is an amount each year sufficient to cover members’ actuarially determined present value of expected payments on lifetime claims of all persons expected to be catastrophically injured in that year, its operating expenses and adjustments for the amount of excesses or deficiencies in prior assessments. The MCCA reimburses all member companies for qualifying claims and claims expenses incurred in an accident while the member companies were actively writing the mandatory personal injury protection coverage including member companies that are no longer actively writing motor vehicle insurance in Michigan.
The MCCA’s annual assessments have been sufficient to fund current operations and member companies’ reimbursements but have not resulted in sufficient pre-funding of its ultimate obligation to reimburse all expected future billings from member companies for reimbursement of their ultimate qualifying claims. The MCCA does not employ any managed care, contractual service or care oversight programs that could improve care and reduce expenditures. 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.
The MCCA has a statutory accounting permitted practice that has been granted by the Michigan Department of Insurance to discount its liabilities for loss and loss adjustment expense. As of June 30, 2016, the date of the most recent statutory financial reports, the permitted practice reduced the MCCA’s accumulated deficit of $44.01 billion by $42.27 billion to $1.74 billion. Calculation of the pre-funding shortfall is dependent on actuarial estimates and investment funding decisions. As of December 31, 2015, our auto market share in Michigan was 9.0%.
Technological changes such as autonomous or partially autonomous vehicles or technologies that facilitate ride sharing could significantly impact the number of vehicles in use or the extent of customer needs for vehicle insurance. Although the timing and extent of the technology changes and their impact on the numbers of motor vehicle insurance policies and the extent of their coverage in Michigan are uncertain, these changes may result in a diminished number of vehicles to insure over which MCCA assessments can be recovered. If this occurs, we may not be able to recover all of the MCCA’s assessments through our insurance premiums collected from our insureds and, as a result, we may experience increased costs to operate our business. Moreover, the MCCA may not be able to sufficiently assess member companies annually to fund its obligation to reimburse its ultimate obligation to all member companies for qualifying claims and claims expenses. Our inability to recover MCCA annual assessments from insureds or obtain reimbursement for the payment of covered claims ultimately reimbursable by the MCCA could have a material effect on our operating results and financial condition.
A downgrade in our financial strength ratings may have an adverse effect on our competitive position, the marketability of our product offerings, our liquidity, access to and cost of borrowing, operating results and financial condition
Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. On an ongoing basis, rating agencies review our financial performance and condition and could downgrade or change the outlook on our ratings due to, for example, a change in the statutory capital of one of our insurance companies; a change in a rating agency’s determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived risk of our investment portfolio; a reduced confidence in management or our business strategy; as well as a number of other considerations that may or may not be under our control. The insurance financial strength ratings of Allstate Insurance Company and Allstate Life Insurance Company and The Allstate Corporation’s senior debt ratings from A.M. Best, S&P Global Ratings and Moody’s are subject to continuous review, and the retention of current ratings cannot be assured. A downgrade in any of these ratings could have a material effect on our sales, our competitiveness, the marketability of our product offerings, our liquidity, access to and cost of borrowing, operating results and financial condition.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms
In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. In such circumstances, our ability to obtain capital to fund operating expenses, financing costs, capital expenditures or

21


acquisitions may be limited, and the cost of any such capital may be significant. Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders’ perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient and in such case, we may not be able to successfully obtain additional financing on favorable terms.
The failure in cyber or other information security, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could result in a loss or disclosure of confidential information, damage to our reputation, additional costs and impairment of our ability to conduct business effectively
We depend heavily on computer systems and mathematical algorithms and data to perform necessary business functions. Despite our implementation of a variety of security measures, we are increasingly exposed to the risk that our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. We have experienced threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. Events such as these could jeopardize the confidential, proprietary and other information (including personal information of our customers, claimants or employees) processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. These risks may increase in the future as we continue to expand our internet and mobile strategies, develop additional remote connectivity solutions to serve our customers, and build and maintain an integrated digital enterprise.
We are continually enhancing our cyber and other information security in order to remain secure against emerging threats, together with increasing our ability to detect system compromise and recover should a cyber-attack or unauthorized access occur. Following an assessment of our cybersecurity program by an independent advisor engaged by our Audit Committee in 2016, we implemented a plan to address certain issues identified during the assessment. However, due to the increasing frequency and sophistication of such cyber-attacks and changes in technology, there can be no assurance that a cyber-attack will not take place with adverse consequences to our business, operating results and financial condition.
The occurrence of a disaster, such as a natural catastrophe, pandemic, industrial accident, blackout, terrorist attack, war, cyber-attack, computer virus, insider threat, unanticipated problems with our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.
Third parties to whom we outsource certain of our functions are also subject to the risks outlined above. We review and assess the cybersecurity controls of our third party providers, as appropriate, and make changes to our business processes to manage these risks. We also have business process and information technology operations in Canada, Northern Ireland and India and is subject to operating, regulatory and political risks in those countries. Any of these may result in our incurring substantial costs and other negative consequences, including a material adverse effect on our business, financial condition, results of operations and liquidity.
A large scale pandemic, the continued threat or occurrence of terrorism or military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, marketability of product offerings, liquidity and operating results
A large scale pandemic, the continued threat or occurrence of terrorism, within the U.S. and abroad, or military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from declines in the equity markets and from interest rate changes in the U.S., Europe and elsewhere, and result in loss of life, property damage, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets and reduced economic activity caused by a large scale pandemic or the continued threat of terrorism. Additionally, a large scale pandemic or terrorist act could have a material effect on the sales, profitability, competitiveness, marketability of product offerings, liquidity, and operating results.
Acquisitions of businesses may not produce anticipated benefits resulting in operating difficulties, unforeseen liabilities or asset impairments, which may adversely affect our operating results and financial condition
Our ability to achieve certain financial benefits we anticipate from the acquisition of SquareTrade Holding Company, Inc. or other businesses will depend in part upon our ability to successfully grow the businesses consistent with our anticipated acquisition economics. Our financial results could be adversely affected by unanticipated performance issues, unforeseen liabilities, transaction-related charges, diversion of management time and resources to acquisition integration challenges or growth strategies, loss of key employees, amortization of expenses related to intangibles, charges for impairment of long-term assets or goodwill

22


and indemnifications. In addition, acquired businesses may not perform as projected, cost savings anticipated from the acquisition may not materialize, and costs associated with the integration may be greater than anticipated and result in the company not achieving returns on its investment at the level projected at acquisition.
We may be required to recognize impairments in the value of our goodwill, which may adversely affect our operating results and financial condition
Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired. Goodwill is evaluated for impairment annually, or more frequently if conditions warrant, by comparing the carrying value (attributed equity) of a reporting unit to its estimated fair value. Market declines or other events impacting the fair value of a reporting unit could result in a goodwill impairment, resulting in a charge to income. Such a charge could have an adverse effect on our results of operations or financial condition.
Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our results of operations and financial condition
Our financial statements are subject to the application of generally accepted accounting principles, which are periodically revised, interpreted and/or expanded. Our life insurance business involves products that remain in force for extended time periods. Accordingly, we may be required to adopt new guidance or interpretations, including those that relate to products which remain in force for extended time periods and were designed and issued in contemplation of a different accounting framework, or new transactions impacted by modified guidance, which may have a material effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected. For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 2 of the consolidated financial statements.
Our policyholders and shareholders make decisions in part based on an evaluation of our reported financial condition and results of operations, and the stability and predictability of those conditions and results. Potential accounting changes that retroactively affect long-duration insurance contracts and require more market-based measurements may introduce substantial variability and may unfavorably impact our reported financial condition and results of operations as well as their stability and predictability. The potential impacts of a retroactive accounting change applied to long-duration insurance contracts could be pervasive and may unfavorably impact policyholder and shareholder assessments of our financial condition and results of operations.
The realization of deferred tax assets is subject to uncertainty
The realization of our deferred tax assets, net of valuation allowance, if any, is based on our assumption that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes. However, actual results may differ from our assumptions if adequate levels of taxable income are not attained.
The ability of our subsidiaries to pay dividends may affect our liquidity and ability to meet our obligations
The Allstate Corporation is a holding company with no significant operations. The principal assets are the stock of its subsidiaries and the holding company’s directly held short-term cash portfolio, and the liabilities include debt and pension and other postretirement benefit obligations related to Allstate Insurance Company employees. State insurance regulatory authorities limit the payment of dividends by insurance subsidiaries, as described in Note 16 of the consolidated financial statements. The limitations are based on statutory income and surplus. In addition, competitive pressures generally require the subsidiaries to maintain insurance financial strength ratings. These restrictions and other regulatory requirements affect the ability of the subsidiaries to make dividend payments. Limits on the ability of the subsidiaries to pay dividends could adversely affect holding company liquidity, including our ability to pay dividends to shareholders, service our debt, or complete share repurchase programs in the timeframe expected.
Management views enterprise economic capital as a combination of statutory surplus and invested assets at the parent holding company level. Deterioration in statutory surplus or earnings, from developments such as catastrophe losses, or changes in market conditions or interest rates, could adversely affect holding company liquidity by impacting the amount of dividends from our subsidiaries or the utilization of invested assets at the holding company to increase statutory surplus or for other corporate purposes.
Our ability to pay dividends or repurchase stock is subject to limitations under terms of certain of our securities
Subject to certain limited exceptions, during any dividend period while our preferred stock is outstanding, unless the full preferred stock dividends for the preceding dividend period have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside and any declared but unpaid preferred stock dividends for any prior period have been paid, we may not repurchase or pay dividends on common stock. If and when dividends on preferred stock have not been declared and paid in full for at least six quarterly dividend periods, the authorized number of directors then constituting the board of directors will be increased by two additional directors, to be elected by the holders of preferred stock together with the holders of all other affected classes and series of voting parity stock, voting as a single class, subject to certain conditions.

23


We are prohibited from declaring or paying dividends on preferred stock if we fail to meet specified capital adequacy, net income or shareholders’ equity levels. The prohibition is subject to an exception permitting us to declare dividends out of the net proceeds of common stock issued by us during the 90 days prior to the date of declaration even if we fail to meet such levels.
The terms of the 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.
Changing climate and weather conditions may adversely affect our financial condition, profitability or cash flows
Climate change, solar flares, eruption of volcanoes, El Niño, La Niña and other events to the extent any one of these produces changes in weather patterns, could affect the frequency or severity of weather events and wildfires and the demand, price and availability of homeowners insurance, the results for our Allstate Protection segment and the value of our investment portfolio.
Loss of key vendor relationships or failure of a vendor to protect our data, confidential and proprietary information, or personal information of our customers, claimants or employees could affect our operations
We rely on services and products provided by many vendors in the U.S. and abroad. These include, for example, vendors of computer hardware and software and vendors and/or outsourcing of services such as claim adjustment services, human resource benefits management services and investment management services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect our data, confidential and proprietary information, or personal information of our customers, claimants or employees, we may suffer operational impairments and financial losses.
We may be subject to the risks and costs associated with intellectual property infringement, misappropriation and third party claims
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect intellectual property rights, third parties may infringe or misappropriate intellectual property. We may have to litigate to enforce and protect intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and prove unsuccessful. An inability to protect intellectual property could have a material effect on our business.
We may be subject to claims by third parties for patent, trademark or copyright infringement or breach of usage rights. Any such claims and any resulting litigation could result in significant expense and liability. If third party providers or we are found to have infringed a third-party intellectual property right, either of us could be enjoined from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly work around. Any of these scenarios could have a material effect on our business and results of operations.
Item 1B.  Unresolved Staff Comments
None.
Item 2.  Properties
Our home office complex is owned and located in Northbrook, Illinois. As of December 31, 2016, the home office complex consists of several buildings totaling 1.9 million square feet of office space on a 186-acre site.
We also operate from approximately 1,240 administrative, data processing, claims handling and other support facilities in North America. In addition to our home office facilities, 1.3 million square feet are owned and 6.0 million square feet are leased. Outside North America, we lease three properties in Northern Ireland comprising 166,460 square feet. We also have two leased facilities in India for 232,200 square feet and one lease in London for 1,390 square feet. Generally, only major Allstate facilities are owned. In a majority of cases, new lease terms and renewals are for five years or less.
The locations out of which the Allstate exclusive agencies operate in the U.S. are normally leased by the agencies as lessees.
Item 3.  Legal Proceedings
Information required for Item 3 is incorporated by reference to the discussion under the heading “Regulation and Compliance” and under the heading “Legal and regulatory proceedings and inquiries” in Note 14 of the consolidated financial statements.
Item 4.  Mine Safety Disclosures
Not applicable.

24


Part II
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of January 31, 2017, there were 80,367 holders of record of The Allstate Corporation’s common stock. The principal market for the common stock is the New York Stock Exchange but it is also listed on the Chicago Stock Exchange. Set forth below are the high and low New York Stock Exchange Composite listing prices of, and cash dividends declared for, the common stock during 2016 and 2015.
 
High
 
Low
 
Close
 
Dividends
Declared
2016
 
 
 
 
 
 
 
First quarter
67.92
 
56.03
 
67.37
 
0.33
Second quarter
69.95
 
64.36
 
69.95
 
0.33
Third quarter
70.38
 
67.24
 
69.18
 
0.33
Fourth quarter
74.77
 
66.55
 
74.12
 
0.33
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
First quarter
72.87
 
68.38
 
71.17
 
0.30
Second quarter
72.51
 
64.62
 
64.87
 
0.30
Third quarter
69.48
 
54.12
 
58.24
 
0.30
Fourth quarter
64.69
 
56.97
 
62.09
 
0.30
The payment of dividends by Allstate Insurance Company (“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. In the twelve-month period ending December 31, 2016, AIC paid dividends of $1.90 billion. Based on the greater of 2016 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 2017 is $1.56 billion, less dividends paid during the preceding twelve months measured at that point in time. Notification and approval of intercompany lending activities is also required by the Illinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus.

25


Issuer Purchases of Equity Securities
Period
Total number of shares
(or units) purchased (1)
 
 
Average price
paid per share
(or unit)
 
 
Total number of shares (or units) purchased as part of publicly announced plans or programs (3)
 
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (4)
October 1, 2016 -
October 31, 2016
 
 
 
 
 
 
 
 
 
     Open Market Purchases
4,849

 
 
$
67.8480

 
 

 
 
November 1, 2016 -
November 30, 2016
 
 
 
 
 
 
 
 
 
Wells Fargo ASR (2)
568,688

 
 
68.0952

 
 
568,688

 
 
     Open Market Purchases
393,044

 
 
70.5701

 
 
392,400

 
 
December 1, 2016 -
December 31, 2016
 
 
 
 
 
 
 
 
 
     Open Market Purchases
2,725,178

 
 
73.0555

 
 
2,485,300

 
 
Total
3,691,759

 
 
$
72.0200

 
 
3,446,388

 
$691 million
______________________________
(1) 
In accordance with the terms of its equity compensation plans, Allstate acquired the following shares in connection with the vesting of restricted stock units and performance stock awards and the exercise of stock options held by employees and/or directors. The shares were acquired in satisfaction of withholding taxes due upon exercise or vesting and in payment of the exercise price of the options.
October: 4,849
November: 644
December: 19,173
(2) 
On September 23, 2016, Allstate entered into an accelerated share repurchase agreement (“ASR Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), to purchase $250 million of our outstanding shares of common stock, which settled on November 23, 2016. Under this ASR Agreement, we repurchased a total of 3.7 million shares at an average repurchase price of $68.0952.
(3) 
From time to time, repurchases under our programs are executed under the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934.
(4) 
On February 4, 2015, we announced the approval of a common share repurchase program for $3 billion, which was completed in April 2016. On May 4, 2016, we announced the approval of a new common share repurchase program for $1.5 billion, to be completed by November 2017.

26


Item 6.  Selected Financial Data
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
($ in millions, except per share data and ratios)
2016
 
2015
 
2014
 
2013
 
2012
Consolidated Operating Results
 
 
 
 
 
 
 
 
 
Insurance premiums and contract charges
$
33,582

 
$
32,467

 
$
31,086

 
$
29,970

 
$
28,978

Net investment income
3,042

 
3,156

 
3,459

 
3,943

 
4,010

Realized capital gains and losses
(90
)
 
30

 
694

 
594

 
327

Total revenues
36,534


35,653


35,239


34,507


33,315

Net income applicable to common shareholders
1,761

 
2,055

 
2,746

 
2,263

 
2,306

Net income applicable to common shareholders per common share:


 


 


 


 


Net income applicable to common shareholders per common share - Basic
4.72

 
5.12

 
6.37

 
4.87

 
4.71

Net income applicable to common shareholders per common share - Diluted
4.67

 
5.05

 
6.27

 
4.81

 
4.68

Cash dividends declared per common share
1.32

 
1.20

 
1.12

 
1.00

 
0.88

Consolidated Financial Position
 
 
 
 
 
 
 
 
 
Investments (1)
$
81,799

 
$
77,758

 
$
81,113

 
$
81,155

 
$
97,278

Total assets
108,610

 
104,656

 
108,479

 
123,460

 
126,893

Reserves for claims and claims expense, life-contingent contract benefits and contractholder funds (1)
57,749

 
57,411

 
57,832

 
58,547

 
75,502

Long-term debt
6,347

 
5,124

 
5,140

 
6,141

 
6,003

Shareholders’ equity
20,573

 
20,025

 
22,304

 
21,480

 
20,580

Shareholders’ equity per diluted common share
50.77

 
47.34

 
48.24

 
45.31

 
42.39

Property-Liability Operations
 
 
 
 
 
 
 
 
 
Premiums earned
$
31,307

 
$
30,309

 
$
28,929

 
$
27,618

 
$
26,737

Net investment income
1,266

 
1,237

 
1,301

 
1,375

 
1,326

Net income applicable to common shareholders
1,664

 
1,690

 
2,427

 
2,754

 
1,968

Operating ratios (2)
 
 
 
 
 
 
 
 
 
Claims and claims expense (“loss”) ratio
71.0

 
69.4

 
67.2

 
64.9

 
69.1

Expense ratio
25.1

 
25.5

 
26.7

 
27.1

 
26.4

Combined ratio
96.1

 
94.9

 
93.9

 
92.0

 
95.5

Allstate Financial Operations
 
 
 
 
 
 
 
 
 
Premiums and contract charges
$
2,275

 
$
2,158

 
$
2,157

 
$
2,352

 
$
2,241

Net investment income
1,734

 
1,884

 
2,131

 
2,538

 
2,647

Net income applicable to common shareholders
391

 
663

 
631

 
95

 
541

Investments
36,840

 
36,792

 
38,809

 
39,105

 
56,999

______________________________
(1) 
As of December 31, 2013, $11.98 billion of investments and $12.84 billion of reserves for life-contingent contract benefits and contractholder funds were classified as held for sale relating to the sale of Lincoln Benefit Life Company.
(2) 
We use operating ratios to measure the profitability of our Property-Liability results. We believe that they enhance an investor’s understanding of our profitability. They are calculated as follows: Claims and claims expense (“loss”) ratio is the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses. Expense ratio is the ratio of amortization of deferred policy acquisition costs, operating costs and expenses, and restructuring and related charges to premiums earned. Combined ratio is the ratio of claims and claims expense, amortization of deferred policy acquisition costs, operating costs and expenses, and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.

27


Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations


28


OVERVIEW
The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the 5-year summary of selected financial data, consolidated financial statements and related notes found under Part II. Item 6. and Item 8. contained herein. Further analysis of our insurance segments is provided in the Property-Liability Operations (which includes the Allstate Protection and the Discontinued Lines and Coverages segments) and in the Allstate Financial Segment sections of Management’s Discussion and Analysis (“MD&A”). The segments are consistent with the way in which we use financial information to evaluate business performance and to determine the allocation of resources. Resources are allocated by the chief operating decision maker and performance is assessed for Allstate Protection, Discontinued Lines and Coverages and Allstate Financial. Allstate Protection and Allstate Financial performance and resources are managed by committees of senior officers of the respective segments.
Allstate is focused on the following priorities in 2017:
better serve our customers;
achieve target economic returns on capital;
grow customer base;
proactively manage investments; and
build long-term growth platforms.
The most important factors we monitor to evaluate the financial condition and performance of our company include:
For Allstate Protection: premium, the number of 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.
For Allstate Financial: benefit and investment spread, asset-liability matching, amortization of deferred policy acquisition costs (“DAC”), expenses, operating income, net income, new business sales, invested assets, and premiums and contract charges.
For 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.
For financial condition: liquidity, parent holding company level of deployable assets, financial strength ratings, operating leverage, debt levels, book value per share, and return on equity.
Summary of Results:
Consolidated net income applicable to common shareholders was $1.76 billion in 2016 compared to $2.06 billion in 2015 and $2.75 billion in 2014. The decrease in 2016 compared to 2015 was primarily due to higher Property-Liability insurance claims and claims expense and catastrophe losses, net realized net capital losses in 2016 compared to net realized net capital gains in 2015 and lower net investment income, partially offset by higher Property-Liability insurance premiums. The decrease in 2015 compared to 2014 was primarily due to higher Property-Liability insurance claims and claims expense and lower realized net capital gains and net investment income, partially offset by higher Property-Liability insurance premiums and decreased catastrophe losses and operating costs and expenses. Net income applicable to common shareholders per diluted common share was $4.67, $5.05 and $6.27 in 2016, 2015 and 2014, respectively.
Allstate Protection had underwriting income of $1.32 billion in 2016 compared to $1.61 billion in 2015 and $1.89 billion in 2014. The decrease in 2016 compared to 2015 was primarily due to decreases in underwriting income in homeowners resulting from increased catastrophe losses and commercial lines, partially offset by increases in underwriting income in auto resulting from increased insurance premiums. The decrease in 2015 compared to 2014 was primarily due to decreases in underwriting income in auto and commercial lines, partially offset by increases in underwriting income in homeowners and other personal lines and lower catastrophe losses. For a discussion on the components of the increase (decrease) in underwriting income, see the Allstate Protection segment section of the MD&A. The Allstate Protection combined ratio was 95.8, 94.7 and 93.5 in 2016, 2015 and 2014, respectively. Underwriting income is defined in the Property-Liability Operations section of the MD&A.
Allstate Financial net income applicable to common shareholders was $391 million in 2016 compared to $663 million in 2015 and $631 million in 2014. The decrease in 2016 primarily relates to net realized capital losses in 2016 compared to net realized capital gains in 2015 and lower net investment income, partially offset by higher premiums and contract charges. The increase in 2015 primarily relates to higher net realized capital gains and lower loss on disposition related to the Lincoln Benefit Life Company (“LBL”) sale, partially offset by lower net investment income and the reduction in business due to the sale of LBL.

29


2016 HIGHLIGHTS
Consolidated net income applicable to common shareholders was $1.76 billion in 2016 compared to $2.06 billion in 2015. Net income applicable to common shareholders per diluted common share was $4.67 in 2016 compared to $5.05 in 2015.
Property-Liability net income applicable to common shareholders was $1.66 billion in 2016 compared to $1.69 billion in 2015.
The Property-Liability combined ratio was 96.1 in 2016 compared to 94.9 in 2015.
Allstate Financial net income applicable to common shareholders was $391 million in 2016 compared to $663 million in 2015.
Total revenues were $36.53 billion in 2016 compared to $35.65 billion in 2015.
Property-Liability premiums earned totaled $31.31 billion in 2016, an increase of 3.3% from $30.31 billion in 2015.
Investments totaled $81.80 billion as of December 31, 2016, increasing from $77.76 billion as of December 31, 2015. Net investment income was $3.04 billion in 2016, a decrease of 3.6% from $3.16 billion in 2015.
Net realized capital losses were $90 million in 2016 compared to net realized capital gains of $30 million in 2015.
Book value per diluted common share (ratio of common shareholders’ equity to total common shares outstanding and dilutive potential common shares outstanding) was $50.77 as of December 31, 2016, an increase of 7.2% from $47.34 as of December 31, 2015.
For the twelve months ended December 31, 2016, return on the average of beginning and ending period common shareholders’ equity of 9.5% decreased by 1.1 points from 10.6% for the twelve months ended December 31, 2015.
As of December 31, 2016, shareholders’ equity was $20.57 billion. This total included $2.43 billion in deployable assets at the parent holding company level comprising cash and investments that are generally saleable within one quarter.
CONSOLIDATED NET INCOME
($ in millions)
2016
 
2015
 
2014
Revenues
 
 
 
 
 
Property-liability insurance premiums
$
31,307

 
$
30,309

 
$
28,929

Life and annuity premiums and contract charges
2,275

 
2,158

 
2,157

Net investment income
3,042

 
3,156

 
3,459

Realized capital gains and losses:
 
 
 
 
 
Total other-than-temporary impairment (“OTTI”) losses
(313
)
 
(452
)
 
(242
)
OTTI losses reclassified to (from) other comprehensive income
10

 
36

 
(3
)
Net OTTI losses recognized in earnings
(303
)
 
(416
)
 
(245
)
Sales and other realized capital gains and losses
213

 
446

 
939

Total realized capital gains and losses
(90
)
 
30

 
694

Total revenues
36,534


35,653


35,239

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Property-liability insurance claims and claims expense
(22,221
)
 
(21,034
)
 
(19,428
)
Life and annuity contract benefits
(1,857
)
 
(1,803
)
 
(1,765
)
Interest credited to contractholder funds
(726
)
 
(761
)
 
(919
)
Amortization of deferred policy acquisition costs
(4,550
)
 
(4,364
)
 
(4,135
)
Operating costs and expenses
(4,106
)
 
(4,081
)
 
(4,341
)
Restructuring and related charges
(30
)
 
(39
)
 
(18
)
Loss on extinguishment of debt

 

 
(1
)
Interest expense
(295
)
 
(292
)
 
(322
)
Total costs and expenses
(33,785
)

(32,374
)

(30,929
)
 
 
 
 
 
 
Gain (loss) on disposition of operations
5

 
3

 
(74
)
Income tax expense
(877
)
 
(1,111
)
 
(1,386
)
Net income
1,877


2,171


2,850

 
 
 
 
 
 
Preferred stock dividends
(116
)
 
(116
)
 
(104
)
Net income applicable to common shareholders
$
1,761


$
2,055


$
2,746

 
 
 
 
 
 
Property-Liability
$
1,664

 
$
1,690

 
$
2,427

Allstate Financial
391

 
663

 
631

Corporate and Other
(294
)
 
(298
)
 
(312
)
Net income applicable to common shareholders
$
1,761


$
2,055


$
2,746


30


IMPACT OF LOW INTEREST RATE ENVIRONMENT
In December 2016, the Federal Open Market Committee (“FOMC”) tightened monetary policy by setting the new target range for the federal funds rate at 1/2 percent to 3/4 percent. The FOMC indicated that monetary policy remains accommodative after the increase, thereby supporting further strengthening in the labor market and a return to 2 percent inflation. The path of the federal funds rate increase will depend on economic conditions and their impact on the economic outlook. We anticipate that interest rates will continue to increase but remain below historic averages and that financial markets may continue to have periods of high volatility and less liquidity.
Deferred annuity contracts and interest-sensitive life insurance policies with fixed and guaranteed crediting rates, or floors that limit crediting rate reductions, are adversely impacted by a prolonged low interest rate environment since we may not be able to reduce crediting rates sufficiently to maintain investment spreads. Financial results of long duration products that do not have stated crediting rate guarantees but for which underlying assets may have to be reinvested at interest rates that are lower than portfolio rates, such as structured settlements and term life insurance, may also be adversely impacted. Our investment strategy for structured settlements includes increasing performance-based investments in which we have ownership interests and a greater proportion of return is derived from idiosyncratic asset or operating performance. We stopped selling new fixed annuity products January 1, 2014 and structured settlement annuities March 22, 2013.
The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates as of December 31, 2016 for certain fixed annuities and interest-sensitive life contracts where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities, and equity-indexed and variable life totaling $5.62 billion of contractholder funds, have been excluded from the analysis because management does not have the ability to change the crediting rate or the minimum crediting rate is not considered meaningful in this context.
($ in millions)
Weighted average guaranteed crediting rates
 
Weighted average current crediting rates
 
Contractholder
funds
Annuities with annual crediting rate resets
3.10
%
 
3.11
%
 
$
5,362

Annuities with multi-year rate guarantees (1):
 
 
 
 
 
Resettable in next 12 months
1.85

 
3.24

 
401

Resettable after 12 months
1.37

 
3.25

 
1,212

Interest-sensitive life insurance
3.99

 
4.05

 
7,668

______________________________
(1) 
These contracts include interest rate guarantee periods which are typically 5, 6 or 10 years.
Investing activity will continue to decrease our portfolio yield as long as market yields remain below the current portfolio yield. In the Allstate Financial segment, the portfolio yield has been less impacted by reinvestment in the current low interest rate environment than the Property-Liability segment because much of the investment cash flows have been used to fund the managed reduction in spread-based liabilities. The declines in both invested assets and portfolio yield are expected to result in lower net investment income in future periods.
As of December 31, 2016, Allstate Financial has fixed income securities that are not subject to prepayment with an amortized cost of $23.52 billion and $4.21 billion of commercial mortgage loans, of which approximately 5.9% and 7.0%, respectively, are expected to mature in 2017. Additionally, for asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) that have the potential for prepayment and are therefore not categorized by contractual maturity, we received periodic principal payments of $981 million in 2016. To the extent portfolio cash flows are reinvested into fixed income securities, the average pre-tax investment yield is expected to decline due to lower market yields. We shortened the maturity profile of the fixed income securities in Allstate Financial in 2015 to make the portfolio less sensitive to rising interest rates. Proceeds from the sale of longer duration fixed income securities were initially reinvested in shorter duration fixed income and public equity securities that lowered net investment income and portfolio yields. We expect to increase the portfolio allocation to performance-based investments over time, to better match the long-term nature of our immediate annuity liabilities and improve long-term economic results. We anticipate higher long-term returns on these investments. Since June 30, 2015, the carrying value of performance-based investments and market-based equity securities have increased by $1.37 billion to $4.36 billion.
As of December 31, 2016, Property-Liability has fixed income securities that are not subject to prepayment with an amortized cost of $29.02 billion, of which approximately 10.8% are expected to mature in 2017. Additionally, for ABS, RMBS and CMBS securities that have the potential for prepayment and are therefore not categorized by contractual maturity, we received periodic principal payments of $213 million in 2016. We have maintained a shorter maturity profile of the fixed income securities in Property-Liability so the portfolio is less sensitive to rising interest rates. This approach to reducing interest rate risk resulted in realized capital gains in 2013, but contributed to lower portfolio yields as sales proceeds were invested at lower market yields.

31


The portfolio yield will respond more quickly to changes in market interest rates as a result of its shorter maturity profile. The average pre-tax investment yield may decline to the extent reinvestment is at lower market yields.
In order to mitigate the unfavorable impact that the current and changing interest rate environment could have on investment results, we are:
Managing our exposure to interest rate risk by maintaining a shorter maturity profile in the Property-Liability and Allstate Financial portfolios which will also result in the yield responding more quickly to changes in market interest rates.
Shifting the portfolio mix over time to have less reliance on investments whose returns come primarily from interest payments to performance-based investments in which we have ownership interests and a greater proportion of return is derived from idiosyncratic asset or operating performance.
Seeking opportunities to increase portfolio yield by extending duration primarily in the Property-Liability portfolio as market interest rates increase.
Investing for the specific needs and characteristics of Allstate’s businesses.
We expect volatility in accumulated other comprehensive income resulting from changes in unrealized net capital gains and losses and unrecognized pension cost.
These topics are discussed in more detail in the respective sections of the MD&A.

32


PROPERTY-LIABILITY 2016 HIGHLIGHTS
Net income applicable to common shareholders was $1.66 billion in 2016 compared to $1.69 billion in 2015.
Premiums written totaled $31.60 billion in 2016, an increase of 2.4% from $30.87 billion in 2015.
Premiums earned totaled $31.31 billion in 2016, an increase of 3.3% from $30.31 billion in 2015.
The loss ratio was 71.0 in 2016 compared to 69.4 in 2015.
Catastrophe losses were $2.57 billion in 2016 compared to $1.72 billion in 2015. The effect of catastrophes on the combined ratio was 8.2 in 2016 compared to 5.7 in 2015.
Prior year reserve reestimates totaled $17 million favorable in 2016 compared to $81 million unfavorable in 2015.
Underwriting income was $1.21 billion in 2016 compared to $1.56 billion in 2015. Underwriting income is defined below.
Investments were $42.72 billion as of December 31, 2016, an increase of 11.0% from $38.48 billion as of December 31, 2015, including $1.25 billion in proceeds from the issuance of debt that were used to fund the acquisition of SquareTrade Holding Company, Inc. (“SquareTrade”) on January 3, 2017. Net investment income was $1.27 billion in 2016, an increase of 2.3% from $1.24 billion in 2015.
Net realized capital losses were $6 million in 2016 compared to $237 million in 2015.
PROPERTY-LIABILITY OPERATIONS
Overview Our Property-Liability operations consist of two reporting segments: Allstate Protection and Discontinued Lines and Coverages. Allstate Protection comprises three brands where we accept underwriting risk: Allstate®, Esurance® and Encompass®. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto and homeowners insurance, to individuals in the United States and Canada. Discontinued Lines and Coverages includes results from property-liability insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.
Underwriting income is calculated as premiums earned, less claims and claims expense (“losses”), amortization of DAC, operating costs and expenses and restructuring and related charges, as determined using 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 below.
The table below includes GAAP operating ratios we use to measure our profitability. We believe that they enhance an investor’s understanding of our profitability. They are calculated as follows:
Claims and claims expense (“loss”) ratio - the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.
Expense ratio - the ratio of amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned.
Combined ratio - the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.
We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between fiscal periods.
Effect of catastrophe losses on combined ratio - the percentage of catastrophe losses included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.
Effect of prior year reserve reestimates on combined ratio - the percentage of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.
Effect of amortization of purchased intangible assets on combined ratio - the percentage of amortization of purchased intangible assets to premiums earned.
Effect of restructuring and related charges on combined ratio - the percentage of restructuring and related charges to premiums earned.
Effect of Discontinued Lines and Coverages on combined ratio - the ratio of claims and claims expense 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.

33


Summarized financial data, a reconciliation of underwriting income to net income applicable to common shareholders, and GAAP operating ratios for our Property-Liability operations are presented in the following table.
($ in millions, except ratios)
2016
 
2015
 
2014
Premiums written
$
31,600

 
$
30,871

 
$
29,614

 
 
 
 
 
 
Revenues
 
 
 
 
 
Premiums earned
$
31,307

 
$
30,309

 
$
28,929

Net investment income
1,266

 
1,237

 
1,301

Realized capital gains and losses
(6
)
 
(237
)
 
549

Total revenues
32,567

 
31,309

 
30,779

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Claims and claims expense
(22,221
)
 
(21,034
)
 
(19,428
)
Amortization of DAC
(4,267
)
 
(4,102
)
 
(3,875
)
Operating costs and expenses
(3,580
)
 
(3,575
)
 
(3,838
)
Restructuring and related charges
(29
)
 
(39
)
 
(16
)
Total costs and expenses
(30,097
)
 
(28,750
)
 
(27,157
)
 
 
 
 
 
 
Gain on disposition of operations

 

 
16

Income tax expense
(806
)
 
(869
)
 
(1,211
)
Net income applicable to common shareholders
$
1,664


$
1,690


$
2,427

 
 
 
 
 
 
Underwriting income
$
1,210

 
$
1,559

 
$
1,772

Net investment income
1,266

 
1,237

 
1,301

Income tax expense on operations
(812
)
 
(952
)
 
(1,040
)
Realized capital gains and losses, after-tax

 
(154
)
 
357

Gain on disposition of operations, after-tax

 

 
37

Net income applicable to common shareholders
$
1,664


$
1,690


$
2,427

 
 
 
 
 
 
Catastrophe losses
$
2,572

 
$
1,719

 
$
1,993

 
 
 
 
 
 
GAAP operating ratios
 
 
 
 
 
Claims and claims expense ratio
71.0

 
69.4

 
67.2

Expense ratio
25.1

 
25.5

 
26.7

Combined ratio
96.1

 
94.9

 
93.9

Effect of catastrophe losses on combined ratio
8.2

 
5.7

 
6.9

Effect of prior year reserve reestimates on combined ratio
(0.1
)
 
0.3

 
(0.3
)
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio (1)

 

 
0.1

Effect of amortization of purchased intangible assets on combined ratio
0.1

 
0.2

 
0.2

Effect of restructuring and related charges on combined ratio
0.1

 
0.1

 
0.1

Effect of Discontinued Lines and Coverages on combined ratio
0.3

 
0.2

 
0.4

______________________________
(1) 
Prior year reserve reestimates included in catastrophe losses totaled $6 million unfavorable, $15 million favorable and $43 million unfavorable in 2016, 2015 and 2014, respectively.

34


ALLSTATE PROTECTION SEGMENT
Overview and strategy  The Allstate Protection segment primarily sells private passenger auto, homeowners, and other personal lines insurance products to individuals through agencies and directly through contact centers and the internet. Our strategy is to position our products and distribution systems to meet the changing needs of our customer in managing the risks they face. This includes customers who want local advice and assistance and those who are self-directed. In addition, there are customers who are brand-sensitive and those who are brand-neutral. Our strategy is to serve all four of these consumer segments with unique products and value propositions, while leveraging our claims, pricing and operational capabilities. When we do not offer a product our customers need, we may make available non-proprietary products that meet their needs.
Our products are marketed under the Allstate, Esurance and Encompass brand names. The Allstate brand serves customers who prefer local personalized advice and service and are brand-sensitive. The Esurance brand serves self-directed, brand-sensitive customers, while the Encompass brand serves customers who prefer personal advice and assistance from an independent adviser and are brand-neutral. For those customers who are self-directed and brand-neutral, Answer Financial, a personal lines insurance agency, offers a choice between insurance carriers and comparison quotes for auto and homeowners insurance from approximately 25 insurance companies through its website and over the phone. It receives commissions for this service. We utilize specific customer value propositions for each brand to improve our competitive position and performance. Over time, delivering on these customer value propositions may include investments in resources and require significant changes to our products, service, capabilities and processes.
Our pricing and underwriting strategies and decisions for all of our brands are primarily designed to achieve appropriate returns along with enhancing our competitive position. Our sophisticated pricing methodology allows us to attract and retain customers in multiple risk segments. A combination of underwriting information, pricing and discounts are also used to achieve a more competitive position. Our pricing strategy involves local marketplace pricing and underwriting decisions that are based on these risk evaluation factors and an evaluation of competitors to the extent permissible by applicable law.
Pricing of property products is typically intended to establish risk adjusted returns that we deem acceptable over a long-term period. Losses, including losses from catastrophic events and weather-related losses (such as wind, hail, lightning and freeze losses not meeting our criteria to be declared a catastrophe), are recognized on an occurrence basis within the policy period. Therefore, in any reporting period, loss experience from catastrophic events and weather-related losses may contribute to negative or positive underwriting performance relative to the expectations we incorporated into product pricing. We pursue rate increases where indicated, taking into consideration potential customer disruption, the impact on our ability to market our auto and homeowners lines, regulatory limitations, our competitive position and profitability, using a methodology that appropriately addresses the changing costs of losses from catastrophes such as severe weather and the net cost of reinsurance.
We continue to manage our property catastrophe exposure with the goal of providing shareholders an acceptable return on the risks assumed in our property business and to reduce the variability of our earnings. Our property business includes personal homeowners, commercial property and other property insurance lines. As of December 31, 2016, we have less than a 1% likelihood of exceeding average annual aggregate catastrophe losses by $2 billion, net of reinsurance, from hurricanes and earthquakes, based on modeled assumptions and applications currently available. The use of different assumptions and updates to industry models, and updates to our risk transfer program, could materially change the projected loss. Our growth strategies include areas previously restricted where we believe we can enhance diversification and earn an appropriate return for the risk and as a result our exposure may increase, but in aggregate remain lower than $2 billion as noted above. In addition, we have exposure to severe weather events which impact catastrophe losses.
Property catastrophe exposure management includes purchasing reinsurance to provide coverage for known exposure to hurricanes, earthquakes, wildfires, fires following earthquakes and other catastrophes. We are also working to promote 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.
Allstate Protection outlook
Allstate Protection will continue to focus on its strategy of offering differentiated products and services to our customers while maintaining pricing discipline.
We will continue to take actions to improve auto profitability by increasing prices, evaluating underwriting standards, managing expenses, and managing loss cost through focus on claims process excellence.
We will pursue growth in homeowners policies that do not significantly increase catastrophe exposure.
We expect that volatility in the level of catastrophes we experience will contribute to variation in our underwriting results; however, this volatility will be mitigated due to our catastrophe management actions, including the purchase of reinsurance.
We will continue the implementation of our trusted advisor strategy, enabling Allstate agencies to more fully deliver on the Allstate brand customer value proposition.

35


We will continue to modernize our operating model, including enhancing our digital capabilities, to efficiently deliver our customer value propositions.
We will invest in building long-term growth platforms.
Underwriting results are shown in the following table.
($ in millions)
2016
 
2015
 
2014
Premiums written
$
31,597

 
$
30,871

 
$
29,613

Premiums earned
$
31,307

 
$
30,309

 
$
28,928

Claims and claims expense
(22,116
)
 
(20,981
)
 
(19,315
)
Amortization of DAC
(4,267
)
 
(4,102
)
 
(3,875
)
Other costs and expenses
(3,578
)
 
(3,573
)
 
(3,835
)
Restructuring and related charges
(29
)
 
(39
)
 
(16
)
Underwriting income
$
1,317

 
$
1,614

 
$
1,887

Catastrophe losses
$
2,572

 
$
1,719

 
$
1,993

 
 
 
 
 
 
Underwriting income (loss) by line of business
 
 
 
 
 
Auto
$
172

 
$
23

 
$
604

Homeowners
1,075

 
1,431

 
1,097

Other personal lines
160

 
175

 
150

Commercial lines
(110
)
 
(40
)
 
9

Other business lines
27

 
33

 
40

Answer Financial
(7
)
 
(8
)
 
(13
)
Underwriting income
$
1,317

 
$
1,614

 
$
1,887

The following table summarizes the changes in underwriting results from the prior year by the components of the increase (decrease) in underwriting income (loss) by line of business. The 2016 column presents changes in 2016 compared to 2015. The 2015 column presents changes in 2015 compared to 2014.
($ in millions)
Auto
 
Homeowners
 
Other personal lines
 
Commercial lines
 
Allstate Protection (1)
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Underwriting income (loss) - prior year
$
23

 
$
604

 
$
1,431

 
$
1,097

 
$
175

 
$
150

 
$
(40
)
 
$
9

 
$
1,614

 
$
1,887

  Changes in underwriting income (loss)
    from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Premiums earned
854

 
1,066

 
121

 
232

 
8

 
30

 
(4
)
 
34

 
998

 
1,381

    Incurred claims and claims expense
          (“losses”):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Incurred losses, excluding catastrophe
          losses and reserve reestimates
(499
)
 
(1,491
)
 
14

 
(62
)
 
26

 
(42
)
 
(6
)
 
(65
)
 
(453
)
 
(1,658
)
       Catastrophe losses, excluding reserve
          reestimates
(321
)
 
80

 
(443
)
 
128

 
(58
)
 
2

 
(9
)
 
6

 
(832
)
 
216

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Non-catastrophes reserve reestimates
193

 
(265
)
 
13

 
(13
)
 
27

 
18

 
(60
)
 
(19
)
 
171

 
(282
)
       Catastrophes reserve reestimates
(8
)
 
(3
)
 
(13
)
 
66

 

 
(2
)
 

 
(3
)
 
(21
)
 
58

          Total reserve reestimates
185

 
(268
)
 

 
53

 
27

 
16

 
(60
)
 
(22
)
 
150

 
(224
)
             Losses subtotal - (loss) income
(635
)
 
(1,679
)
 
(429
)
 
119

 
(5
)
 
(24
)
 
(75
)
 
(81
)
 
(1,135
)
 
(1,666
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Expenses
(70
)
 
32

 
(48
)
 
(17
)
 
(18
)
 
19

 
9

 
(2
)
 
(160
)
 
12

Underwriting income (loss)
$
172

 
$
23

 
$
1,075

 
$
1,431

 
$
160

 
$
175

 
$
(110
)
 
$
(40
)
 
$
1,317

 
$
1,614

______________________________
(1) Includes other business lines underwriting income of $27 million and $33 million in 2016 and 2015, respectively, and Answer Financial underwriting loss of $7 million and $8 million in 2016 and 2015, respectively.
Underwriting income totaled $1.32 billion in 2016, an 18.4% decrease from $1.61 billion in 2015, primarily due to higher catastrophe losses and rising loss costs, partially offset by increased premiums earned. Underwriting income totaled $1.61 billion in 2015, a 14.5% decrease from $1.89 billion in 2014, primarily due to rising loss costs, partially offset by increased premiums earned.
Investment results are not included in the underwriting income analysis above. The Company does not allocate Property-Liability investment income, realized capital gains and losses, or assets to the Allstate Protection and Discontinued Lines and Coverages segments. Management reviews assets at the Property-Liability level for decision-making purposes. For a more detailed

36


discussion on investment results, see the Property-Liability Investment Results section of the MD&A and Note 19 of the consolidated financial statements. Additional analysis related to premiums written and the combined ratios, including loss and expense ratios are included below and in the brand sections.
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.
A reconciliation of premiums written to premiums earned is shown in the following table.
($ in millions)
2016
 
2015
 
2014
Premiums written
 
 
 
 
 
Allstate Protection
$
31,597

 
$
30,871

 
$
29,613

Discontinued Lines and Coverages (1)
3

 

 
1

Property-Liability premiums written
31,600


30,871


29,614

Increase in unearned premiums
(381
)
 
(549
)
 
(723
)
Other
88

 
(13
)
 
38

Property-Liability premiums earned
$
31,307


$
30,309


$
28,929

Premiums earned
 
 
 
 
 
Allstate Protection
$
31,307

 
$
30,309

 
$
28,928

Discontinued Lines and Coverages

 

 
1

Property-Liability
$
31,307

 
$
30,309

 
$
28,929

______________________________
(1) 
Primarily represents retrospective reinsurance premium recognized when billed.
Premiums written and earned by line of business are shown in the following table.
($ in millions)
2016
 
2015
 
2014
Premiums written
 
 
 
 
 
Auto
$
21,425

 
$
20,662

 
$
19,668

Homeowners
7,240

 
7,238

 
7,051

Other personal lines (1)
1,724

 
1,699

 
1,683

Subtotal – Personal lines
30,389

 
29,599

 
28,402

Commercial lines
499

 
516

 
494

Other business lines (2)
709

 
756

 
717

Total
$
31,597

 
$
30,871

 
$
29,613

Premiums earned
 
 
 
 
 
Auto
$
21,264

 
$
20,410

 
$
19,344

Homeowners
7,257

 
7,136

 
6,904

Other personal lines (1)
1,700

 
1,692

 
1,662

Subtotal – Personal lines
30,221

 
29,238

 
27,910

Commercial lines
506

 
510

 
476

Other business lines (2)
580

 
561

 
542

Total
$
31,307

 
$
30,309

 
$
28,928

______________________________
(1) 
Other personal lines include renter, condominium, landlord and other personal lines products.
(2) 
Other business lines primarily include Allstate Roadside Services and Allstate Dealer Services.
Auto premiums written totaled $21.43 billion in 2016, a 3.7% increase from $20.66 billion in 2015, following a 5.1% increase in 2015 from $19.67 billion in 2014.
Homeowners premiums written totaled $7.24 billion in 2016, which was comparable to 2015, following a 2.7% increase in 2015 from $7.05 billion in 2014. Excluding the cost of catastrophe reinsurance, which is recorded as a reduction to premiums, premiums written decreased 0.4% in 2016 compared to 2015. For a more detailed discussion on reinsurance, see the Property-Liability Claims and Claims Expense Reserves section of the MD&A and Note 10 of the consolidated financial statements.






37


The following table shows the unearned premium balance as of December 31 and the time frame in which we expect to recognize these premiums as earned.
($ in millions)
 
 
 
 
% earned after
 
2016
 
2015
 
Three months
 
Six months
 
Nine months
 
Twelve months
Allstate brand:
 
 
 
 
 
 
 
 
 
 
 
Auto
$
5,134

 
$
4,947

 
71.2
%
 
96.6
%
 
99.2
%
 
100.0
%
Homeowners
3,682

 
3,685

 
43.4
%
 
75.6
%
 
94.2
%
 
100.0
%
Other personal lines
868

 
837

 
43.3
%
 
75.3
%
 
94.1
%
 
100.0
%
Commercial lines
253

 
259

 
44.3
%
 
75.5
%
 
94.0
%
 
100.0
%
Other business lines
966

 
837

 
16.1
%
 
30.0
%
 
42.0
%
 
52.2
%
Total unearned premium
10,903

 
10,565

 
54.3
%
 
81.6
%
 
92.0
%
 
95.8
%
Esurance brand:
 
 
 
 
 
 
 
 
 
 
 
Auto
399

 
385

 
74.2
%
 
98.8
%
 
99.7
%
 
100.0
%
Homeowners
31

 
17

 
43.5
%
 
75.6
%
 
94.2
%
 
100.0
%
Other personal lines
2

 
2

 
43.3
%
 
75.3
%
 
94.1
%
 
100.0
%
Total Esurance brand
432

 
404

 
71.9
%
 
97.1
%
 
99.3
%
 
100.0
%