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

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


		Page

2020 Highlights		34

Property-Liability Operations		40

Allstate Protection		43
	– Allstate brand	51

	– Encompass brand	56
Discontinued Lines and Coverages		59

Protection Services (previously Service Businesses)		62
Claims and Claims Expense Reserves		64
Allstate Life		71
Allstate Benefits		76
Allstate Annuities		79

Investments		83

Market Risk		94


Capital Resources and Liquidity		98
Enterprise Risk and Return Management		104
Application of Critical Accounting Estimates		107
Regulation and Legal Proceedings		121
Pending Accounting Standards		121

The Allstate Corporation 33

2020 Form 10-K

2020 Highlights

Overview

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the consolidated financial statements and related notes found under Item 8. contained herein.

A discussion of strategy, including updates to the multi-year Transformative Growth initiative, can be found in Part 1, Item 1. Business.

This section of this Form 10-K generally discusses 2020 and 2019 results and year-to-year comparisons between 2020 and 2019. Discussions of 2018 results and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis (“MD&A”) in Part II, Item 7 of our annual report on Form 10-K for 2019, filed February 21, 2020.

The most important factors we monitor to evaluate the financial condition and performance for our reportable segments and the Company include:

*•*Allstate Protection: premium, policies in force (“PIF”), new business sales, policy retention, price changes, claim frequency and severity, catastrophes, loss ratio, expenses, underwriting results, and relative competitive position.

*•*Protection Services: revenues, premium written, PIF, adjusted net income and net income.

*•*Allstate Life: premiums and contract charges, new business sales, PIF, benefit spread, investment spread, expenses, adjusted net income and net income.

*•*Allstate Benefits: premiums, new business sales, PIF, benefit ratio, expenses, adjusted net income and net income.

*•*Allstate Annuities: investment spread, asset-liability matching, contract benefits, expenses, adjusted net income, net income and invested assets.

*•*Investments: exposure to market risk, asset allocation, credit quality/experience, total return, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, long-term returns, and asset and liability duration.

*•*Financial condition: liquidity, parent holding company deployable assets, financial strength ratings, operating leverage, debt levels, book value per share and return on equity.

Measuring segment profit or loss

The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Discontinued Lines and Coverages segments and adjusted net income for the Protection Services, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other segments.

Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense (“losses”), Shelter-in-Place Payback expense, amortization of deferred policy acquisition costs (“DAC”), operating costs and expenses, restructuring and related charges and amortization or impairment of purchased intangibles, as determined using accounting principles generally accepted in the United States of America (“GAAP”). We use this measure in our evaluation of results of operations to analyze the profitability of the Property-Liability insurance operations separately from investment results. Underwriting income is reconciled to net income applicable to common shareholders in the Property-Liability Operations section of MD&A.

Adjusted net income is net income applicable to common shareholders, excluding:


• Realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in adjusted net income
• Pension and other postretirement remeasurement gains and losses, after-tax
• Valuation changes on embedded derivatives that are not hedged, after-tax
• Amortization of DAC and deferred sales inducement costs (“DSI”), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives that are not hedged, after-tax
• Business combination expenses and the amortization or impairment of purchased intangible assets, after-tax
• Gain (loss) on disposition of operations, after-tax
• Adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years

Adjusted net income is reconciled to net income applicable to common shareholders in the Protection Services, Allstate Life, Allstate Benefits and Allstate Annuities Segment sections of MD&A.

34 www.allstate.com

2020 Form 10-K

Subsequent event

On January 26, 2021, Allstate announced an agreement to sell Allstate Life Insurance Company (“ALIC”) and certain affiliates for $2.8 billion to Antelope US Holdings Company, an affiliate of an investment fund associated with The Blackstone Group Inc. Allstate will retain ownership of Allstate Life Insurance Company of New York (“ALNY”) while pursuing alternatives to sell or otherwise transfer risk to a third party. ALIC and certain affiliates represent approximately 80% of Allstate Life and Allstate Annuity reserves for life-contingent contract benefits and contractholder funds as of December 31, 2020 and generated net income of approximately $290 million and $470 million in 2020 and 2019, respectively. A loss on disposition estimated at $3 billion, after-tax, will be recorded in the first quarter of 2021. The ultimate amount of the loss on sale will be impacted by purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreement, changes in statutory capital and surplus prior to the closing date and the closing date equity of ALIC determined under GAAP, excluding unrealized gains and losses. The transaction is expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions. Additional information about this transaction can be found in Allstate Life and Allstate Annuities sections of Part 1, Item 1. Business, MD&A and Note 3 of the consolidated financial statements of this report.

The Novel Coronavirus Pandemic or COVID-19 (“Coronavirus”)

The Coronavirus resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which have included the implementation of travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings, have caused material disruption to businesses globally, resulting in increased unemployment, a recession and increased economic uncertainty. Additionally, there is no way of predicting with certainty how long the pandemic might last, including the potential for restrictions being restored or new restrictions being implemented that could result in further economic volatility.

We have been proactive in protecting the health and safety of our employees and agents, while delivering on our commitment to protect our customers. We executed business continuity plans, maximized work from home, including the use of virtual tools to allow for safe claims handling, provided financial relief to employees experiencing financial hardship, developed exposure escalation protocols and a return to office framework.

A pandemic such as the Coronavirus and its impacts are disclosed in Part 1 “Item 1A. Risk Factors’’, including the risk factors titled “A large-scale pandemic, the occurrence of terrorism, military actions, social unrest or other actions may have an adverse effect on our business” and “Conditions in the global economy and capital markets could adversely affect our business and results of operations”.

The magnitude and duration of the global pandemic and the impact of actions taken by governmental authorities, businesses and consumers, including timing of vaccine distribution, to mitigate health risks create significant uncertainty. We will continue to closely monitor and proactively adapt to developments and changing conditions. Currently, it is not possible to reliably estimate the length and severity of the pandemic or its impact to our operations, but the effects could be material.

We have continued to support our customers during the Coronavirus pandemic as we:

Provided our Shelter-in-Place Payback of over $948 million to customers in 2020, as the significant decline in the number of auto accidents contributed favorably to our underwriting results
Offered the Allstate Special Payment plan to provide more flexible payment options, including the option to delay payments
Extended auto insurance coverage to customers using their personal vehicles to deliver food, medicine and other goods for commercial purposes; coverage for these activities is typically excluded
Continued to provide prompt payments for life insurance and health claims related to Coronavirus
Offered free Allstate Identity Protection to U.S. residents through December 31, 2020, regardless of whether they were already Allstate customers
Increased the utilization of virtual tools such as QuickFoto Claim® and Virtual Assist® to allow for a simple, fast and safe claims handling process for customers and our employees

The following sections summarize the potential impacts of the Coronavirus on our operations, each of our segments and investments that may continue, emerge, evolve or accelerate in 2021. This list is not inclusive of all potential impacts and should not be treated as such. Within the MD&A we have included further disclosures related to the impacts of the Coronavirus on our 2020 results.

The Allstate Corporation 35

2020 Form 10-K

Allstate’s operations

Employee availability and productivity
Increased regulatory restrictions on profitability, rate actions or claim practices, potentially outside the scope of current policies
Availability and performance of third party vendors, including technology development, car or home repair and marketing programs
Cybersecurity risks related to remote workforce

Allstate Protection

Slower written premiums growth and declines in auto new issued applications due to lower car sales
Impact to future rate filings and pricing
Lower auto accident frequency from reduced miles driven, including usage in shared economy products
Expanding the availability of our pay-per-mile insurance product, Milewise®
Increased auto claim severity due to more severe accidents or replacement parts cost variability
Increased exposure to allowances for uncollectible receivables
Validity of statistical models given changes in underlying statistics such as auto frequency or investment projections
Agent availability and productivity

Protection Services

Increased consumer spending and retail sales in Allstate Protection Plans resulting from shelter-in-place orders
Reduced demand for Allstate Dealer Services products due to lower new and used car sales
Decline in claims in Allstate Dealer Services and Allstate Roadside due to lower miles driven
Decreased sales of Allstate Identity Protection products due to higher unemployment
Increased costs from Allstate Identity Protection providing free identity protection to consumers through the end of 2020

Allstate Life

Higher death benefit costs
Decline in sales due to temporary underwriting restrictions placed on new business; agents are able to offer coverage to customers outside the new guidelines through non-proprietary carriers
Statutory reserving requirements could be increased due to low interest rates, which could affect the amount of capital required to be maintained by our insurance companies

Allstate Benefits

Decreased accident injury claims and deferral of non-essential medical procedures, reducing accident, hospital and critical illness product exposure, partially offset by increased claim cost exposure for our life products
Decreased sales and increased policy lapses due to higher employee turnover, business closures and employee layoffs and furloughs

Allstate Annuities

Lower performance-based investment income
Higher reserves released on death of the insured for life-contingent immediate annuities, which lowers contract benefits
Statutory reserving requirements could be increased due to low interest rates, which could affect the amount of capital required to be maintained by our insurance companies

Investments

Impact on the market values, liquidity and valuations of fixed income securities, equity securities and performance-based investments as well as changes in the expected pace of funding performance-based and loan commitments
Negative impact on fixed income securities in certain sectors such as energy, automotive, retail, travel, lodging and airlines
State and local government budgets may be strained by the costs of responding to the Coronavirus and reduced tax revenues from lower economic activity which may have an adverse impact on valuations and returns of our municipal bond portfolio
Volatility in future investment results due to capital market conditions, including the pace of economic recovery, effectiveness of the fiscal and monetary policy responses and uncertainty resulting from the ongoing pandemic
Volatility in expected credit losses

36 www.allstate.com

2020 Form 10-K


Allstate Delivered on 2020 Operating Priorities (1)

Better Serve Customers		Allstate acted quickly and led the industry in taking care of customers during the pandemic by providing two Shelter-In-Place Paybacks, financial flexibility through Special Payment Plans and offering free identity protection in 2020
	Enterprise Net Promoter Score, which measures how likely customers are to recommend us, increased to 59.0 in 2020 compared to 58.6 in 2019
Grow Customer Base		Consolidated policies in force reached 175.9 million, a 20.5% increase from prior year
	Property-Liability policies in force were down slightly compared to the prior year as Allstate brand growth was more than offset by a decline in the Encompass brand. Protection Services policies in force grew to 136.3 million, a 28.6% increase to the prior year, driven by continued rapid expansion in Allstate Protection Plans
Achieve Target Returns on Capital		Strong results in Property-Liability insurance with a combined ratio of 87.6
	21.0% return on average common shareholders’ equity in 2020
Proactively Manage Investments		Total return on the $94.24 billion investment portfolio was 7.1% in 2020
	Net investment income of $2.85 billion in 2020 was 9.7% below prior year reflecting lower reinvestment rates and reduced performance-based income

Build Long-Term Growth Platforms		Allstate made substantial progress in building higher growth business models to increase personal property-liability market share under the Allstate brand


	Allstate Protection Plans expanded its total addressable market through new accounts addressing furniture, appliances and international markets

(1)2021 operating priorities will remain consistent with the 2020 priorities.


Consolidated Net Income
($ in millions)


Consolidated net income applicable to common shareholders increased 16.7% or $783 million to $5.46 billion in 2020 compared to 2019, primarily due to higher Allstate Protection underwriting income and higher Protection Services adjusted net income, partially offset by Shelter-in-Place Payback expense, lower net realized capital gains and lower net investment income. For the twelve months ended December 31, 2020, return on common shareholders’ equity was 21.0% compared to 21.7% for the twelve months ended December 31, 2019.


Total Revenue
($ in millions)


Total revenue increased 0.3% to $44.79 billion in 2020 compared to 2019, driven by a 2.8% increase in property and casualty insurance premiums earned, partially offset by lower realized capital gains and lower net investment income. Insurance premiums increased in Allstate brand and Protection Services (Allstate Protection Plans and Allstate Dealer Services).


Net Investment Income
($ in millions)


Net investment income decreased 9.7% to $2.85 billion in 2020 compared to 2019, primarily due to a decline in market-based income driven by lower interest-bearing portfolio yields and lower performance-based results, primarily from limited partnerships.

The Allstate Corporation 37

2020 Form 10-K

Summarized financial results


	Years Ended December 31,
($ in millions)	2020		2019		2018
Revenues
Property and casualty insurance premiums	$	37,073	$	36,076	$	34,048
Life premiums and contract charges	2,444		2,501		2,465
Other revenue	1,065		1,054		939
Net investment income	2,853		3,159		3,240
Realized capital gains (losses)	1,356		1,885		(877)
Total revenues	44,791		44,675		39,815

Costs and expenses
Property and casualty insurance claims and claims expense	(22,001)		(23,976)		(22,778)
Shelter-in-Place Payback expense	(948)		—		—
Life contract benefits and interest credited to contractholder funds	(2,881)		(2,679)		(2,627)
Amortization of deferred policy acquisition costs	(5,630)		(5,533)		(5,222)
Operating, restructuring and interest expenses	(6,309)		(6,058)		(5,993)
Pension and other postretirement remeasurement gains (losses)	51		(114)		(468)
Amortization of purchased intangibles	(118)		(126)		(105)
Impairment of purchased intangibles	—		(106)		—
Total costs and expenses	(37,836)		(38,592)		(37,193)

Gain on disposition of operations	4		6		6
Income tax expense	(1,383)		(1,242)		(468)
Net income	5,576		4,847		2,160

Preferred stock dividends	(115)		(169)		(148)
Net income applicable to common shareholders	$	5,461	$	4,678	$	2,012

Segment Highlights

Allstate Protection underwriting income totaled $4.57 billion in 2020, a 56.8% increase from $2.91 billion in 2019, primarily due to lower auto non-catastrophe losses, increased premiums earned and favorable catastrophe reserve reestimates in personal lines homeowners driven by subrogation settlements, partially offset by Shelter-in-Place Payback expense and higher catastrophe losses.

Catastrophe losses were $2.81 billion in 2020 compared $2.56 billion in 2019.

Subrogation settlements Allstate recognized favorable prior year catastrophe reserve reestimates of approximately $450 million and $45 million, pre-tax, net of expenses and adjustments to reinsurance, in the third quarter of 2020 related to PG&E Corporation and Southern California Edison (together “subrogation settlements”), respectively. See Note 8 of the consolidated financial statements for additional details.

Premiums written increased 1.0% to $35.77 billion in 2020 compared to 2019.

Protection Services adjusted net income was $153 million in 2020 compared to $38 million in 2019. The improvement in 2020 was primarily due to growth of Allstate Protection Plans and improved profitability at Allstate Roadside, partially offset by investments at Allstate Identity Protection.

Total revenues increased 16.6% or $273 million to $1.92 billion in 2020 from $1.65 billion in 2019 due to Allstate Protection Plan’s growth through its U.S. retail and international channels, partially offset by declines in revenue at Allstate Roadside.

Allstate Life adjusted net income was $194 million in 2020 compared to $261 million in 2019. The decrease was primarily due to higher contract benefits due to mortality associated with the Coronavirus, partially offset by lower operating costs and expenses.

Premiums and contract charges totaled $1.34 billion in both 2020 and 2019.

Allstate Benefits adjusted net income was $96 million in 2020 compared to $115 million in 2019. The decrease was primarily due to lower premiums and higher operating costs and expenses driven by a $41 million, pre-tax, write-off of capitalized software costs associated with a billing system in the second quarter of 2020, partially offset by lower contract benefits.

Premiums and contract charges totaled $1.09 billion in 2020, a decrease of 4.5% from $1.15 billion in 2019.

Allstate Annuities adjusted net loss was $53 million in 2020 compared to adjusted net income of $10 million in 2019, primarily due to lower net investment income, partially offset by lower contract benefits.

Net investment income decreased 17.0% to $761 million in 2020 from $917 million in 2019. The decrease was primarily due to a decline in market-based income driven by lower interest-bearing portfolio yields as well as lower performance-based investment results and lower average investment balances.

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2020 Form 10-K

Financial Highlights

Investments totaled $94.24 billion as of December 31, 2020, increasing from $88.36 billion as of December 31, 2019.

Shareholders’ equity As of December 31, 2020, shareholders’ equity was $30.22 billion. This total included $5.52 billion in deployable assets at the parent holding company level and approximately $4 billion were used to fund the purchase of National General, which closed on January 4, 2021. Deployable assets include $1.2 billion of proceeds from a debt issuance in November 2020 and comprise cash and investments that are generally saleable within one quarter.

Book value per diluted common share (ratio of common shareholders’ equity to total common shares outstanding and dilutive potential common shares outstanding) was $91.50 as of December 31, 2020, an increase of 25.1% from $73.12 as of December 31, 2019.

Return on average common shareholders’ equity For the twelve months ended December 31, 2020, return on common shareholders’ equity was 21.0%, a decrease of 0.7 points from 21.7% for the twelve months ended December 31, 2019, primarily due to an increase in average common shareholders’ equity, partially offset by higher net income applicable to common shareholders.

Pension and other postretirement remeasurement gains and losses We recorded pension and other postretirement remeasurement gains of $51 million in 2020, primarily related to favorable asset performance compared to the expected return on plan assets, partially offset by a decrease in the discount rate and changes in actuarial assumptions. See Note 17 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information.

Adopted accounting standard

Effective January 1, 2020, we adopted the measurement of credit losses on financial instruments accounting standard that primarily affected mortgage loans, bank loans and reinsurance recoverables. Subsequent to the adoption, we measure credit losses on financial instruments, including losses related to mortgage loans, bank loans and reinsurance recoverables, using the expected credit loss model. This model requires us to recognize an estimate of expected credit losses for affected financial assets in a valuation allowance that when deducted from the amortized cost basis of the related financial assets results in a net carrying value at the amount expected to be collected.

See Note 2 of the consolidated financial statements for additional details on the adopted accounting standard.

The Allstate Corporation 39

2020 Form 10-K Property-Liability

Property-Liability Operations

Overview Property-Liability operations consist of two reportable segments: Allstate Protection and Discontinued Lines and Coverages. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.

We do not allocate Property-Liability investment income, realized capital gains and losses, or assets to the Allstate Protection and Discontinued Lines and Coverages segments. Management reviews assets at the Property-Liability level for decision-making purposes.

The table below includes GAAP operating ratios we use to measure our profitability. We believe that they enhance an investor’s understanding of our profitability. They are calculated as follows:

Loss ratio: the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.
Expense ratio: the ratio of amortization of DAC, operating costs and expenses, amortization or impairment of purchased intangibles, restructuring and related charges and Shelter-in-Place Payback expense, less other revenue to premiums earned.
Combined ratio: the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.

We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between fiscal periods.

Effect of catastrophe losses on combined ratio: the ratio of catastrophe losses included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.
Effect of prior year reserve reestimates on combined ratio: the ratio of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.

*•*Effect of amortization of purchased intangibles on combined ratio: the ratio of amortization of purchased intangibles to premiums earned.

*•*Effect of impairment of purchased intangibles on combined ratio: the ratio of impairment of purchased intangibles to premiums earned.

Effect of restructuring and related charges on combined ratio: the ratio of restructuring and related charges to premiums earned.
Effect of Shelter-in-Place Payback expense on combined and expense ratios: the ratio of Shelter-in-Place Payback expense 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.

40 www.allstate.com

Property-Liability 2020 Form 10-K


Summarized financial data
($ in millions, except ratios)	2020		2019		2018
Premiums written	$	35,768	$	35,419	$	33,555

Revenues
Premiums earned	$	35,580	$	34,843	$	32,950
Other revenue	736		741		738
Net investment income	1,421		1,533		1,464
Realized capital gains (losses)	990		1,470		(639)
Total revenues	38,727		38,587		34,513

Costs and expenses
Claims and claims expense	(21,626)		(23,622)		(22,435)
Shelter-in-Place Payback expense (1)	(948)		—		—
Amortization of DAC	(4,642)		(4,649)		(4,475)
Operating costs and expenses (2)	(4,443)		(4,420)		(4,465)
Restructuring and related charges (3)	(235)		(38)		(60)
Impairment of purchased intangibles	—		(51)		—
Total costs and expenses	(31,894)		(32,780)		(31,435)


Income tax expense	(1,382)		(1,196)		(613)
Net income applicable to common shareholders	$	5,451	$	4,611	$	2,465

Underwriting income	$	4,422	$	2,804	$	2,253
Net investment income	1,421		1,533		1,464
Income tax expense on operations	(1,166)		(887)		(747)
Realized capital gains (losses), after-tax	774		1,161		(500)

Tax Legislation expense	—		—		(5)
Net income applicable to common shareholders	$	5,451	$	4,611	$	2,465

Catastrophe losses
Catastrophe losses, excluding reserve reestimates	$	3,314	$	2,509	$	2,830
Catastrophe reserve reestimates (4) (5)	(503)		48		25
Total catastrophe losses	$	2,811	$	2,557	$	2,855

Non-catastrophe reserve reestimates (4)	68		(176)		(278)
Prior year reserve reestimates (4) (5)	(435)		(128)		(253)

GAAP operating ratios
Loss ratio	60.8		67.8		68.1
Expense ratio (6)	26.8		24.2		25.1
Combined ratio	87.6		92.0		93.2
Effect of catastrophe losses on combined ratio	7.9		7.3		8.7
Effect of prior year reserve reestimates on combined ratio	(1.2)		(0.3)		(0.7)
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio	(1.4)		0.1		0.1
Effect of restructuring and related charges on combined ratio (3)	0.7		0.1		0.2
Effect of amortization of purchased intangibles on combined ratio	0.1		—		—
Effect of impairment of purchased intangibles	—		0.1		—
Effect of Shelter-in-Place Payback expense on combined and expense ratios	2.7		—		—
Effect of Discontinued Lines and Coverages on combined ratio	0.4		0.4		0.3

(1)Auto and commercial lines customers received a Shelter-in-Place Payback due to the significant declines in the number of auto accidents caused by mandated stay-at-home orders, other pandemic containment actions and reduced economic activity.

(2)As a result of the Coronavirus, we offered customers the Allstate Special Payment plan to provide more flexible payment options, including the option to delay payments, resulting in increased bad debt expense of $60 million in 2020. This increase added 0.2 points to the expense ratio in 2020.

(3)Restructuring and related charges in 2020 primarily related to Transformative Growth. See Note 13 of the consolidated financial statements for additional details.

(4)Favorable reserve reestimates are shown in parentheses.

(5)2020 includes approximately $495 million of favorable reserve reestimates related to the PG&E Corporation and Southern California Edison (together “subrogation settlements”), which primarily impacted homeowners. See Note 8 of the consolidated financial statements for additional details.

(6)Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

The Allstate Corporation 41

2020 Form 10-K Property-Liability

Net investment income decreased 7.3% or $112 million in 2020 compared to 2019, due to a decline in market-based income driven by lower interest-bearing portfolio yields as well as lower performance-based investment results, mainly from limited partnerships. The maturity profile of fixed income securities in our Property-Liability portfolio was a duration of 5.0 years as of December 31, 2020 compared to 5.2 years as of December 31, 2019.


Net investment income
	For the years ended December 31,
($ in millions)	2020		2019		2018
Fixed income securities	$	1,110	$	1,066	$	943
Equity securities	60		155		121
Mortgage loans	24		17		17
Limited partnership interests	238		296		378
Short-term investments	12		56		40
Other	101		107		123
Investment income, before expense	1,545		1,697		1,622
Investment expense
Investee level expenses (1)	(36)		(51)		(45)
Securities lending expenses	(4)		(27)		(18)
Operating costs and expenses	(84)		(86)		(95)
Total investment expense	(124)		(164)		(158)
Net investment income	$	1,421	$	1,533	$	1,464

(1) Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

Realized capital gains and losses Net realized capital gains in 2020 primarily related to gains on sales of fixed income securities. Net realized capital gains in 2019 primarily related to increased valuation of equity investments and gains on sales of fixed income securities.


Realized capital gains (losses)
	For the years ended December 31,
($ in millions)	2020		2019		2018
Sales (1)	$	890	$	498	$	(148)
Credit losses (2)	(31)		(26)		(5)
Valuation of equity investments - appreciation (decline):
Equity securities	123		840		(434)
Equity fund investments in fixed income securities	(20)		43		(13)
Limited partnerships (3)	(21)		141		(75)
Total valuation of equity investments	82		1,024		(522)
Valuation and settlements of derivative instruments	49		(26)		36
Realized capital gains (losses), pre-tax	990		1,470		(639)
Income tax (expense) benefit	(216)		(309)		139
Realized capital gains (losses), after-tax	$	774	$	1,161	$	(500)

(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

(2)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as other-than-temporary impairment write-downs are now presented as credit losses.

(3)Relates to limited partnerships where the underlying assets are predominately public equity securities.

42 www.allstate.com

Allstate Protection 2020 Form 10-K

Allstate Protection Segment

Private passenger auto, homeowners, and other personal lines insurance products are offered to consumers through both exclusive and independent agents and directly through contact centers and online. Our strategy is to provide open access and choice of interaction, while offering affordable, simple and connected solutions to meet customers’ evolving needs and protect them from life’s uncertainties. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.

As part of Transformative Growth, Esurance results were combined into the Allstate brand in the third quarter of 2020. Historical results have been updated to conform with this presentation.


Underwriting results
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written	$	35,768	$	35,419	$	33,555
Premiums earned	$	35,580	$	34,843	$	32,950
Other revenue	736		741		738
Claims and claims expense	(21,485)		(23,517)		(22,348)
Shelter-in-Place Payback expense	(948)		—		—
Amortization of DAC	(4,642)		(4,649)		(4,475)
Other costs and expenses	(4,440)		(4,417)		(4,462)
Restructuring and related charges	(235)		(38)		(60)
Impairment of purchased intangibles	—		(51)		—
Underwriting income	$	4,566	$	2,912	$	2,343
Catastrophe losses	$	2,811	$	2,557	$	2,855

Underwriting income (loss) by line of business
Auto	$	3,444	$	1,688	$	1,791
Homeowners	824		914		483
Other personal lines (1)	264		224		110
Commercial lines	(36)		14		(83)
Other business lines (2)	67		75		49
Answer Financial	3		(3)		(7)
Underwriting income	$	4,566	$	2,912	$	2,343

(1)Other personal lines include renters, condominium, landlord and other personal lines products.

(2)Other business lines primarily represent Ivantage, a general agency for Allstate exclusive agents and reflects revenue and direct operating expenses of the business. Ivantage provides agents a solution for their customers when coverage through Allstate brand underwritten products is not available.

The Allstate Corporation 43

2020 Form 10-K Allstate Protection


Changes in underwriting results from prior year by component and by line of business (1)
	For the year ended December 31,
	Auto				Homeowners				Other personal lines				Commercial lines				Allstate Protection (2)
($ in millions)	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Underwriting income (loss) - prior year	$	1,688	$	1,791	$	914	$	483	$	224	$	110	$	14	$	(83)	$	2,912	$	2,343
Changes in underwriting income (loss) from:
Increase (decrease) premiums earned	452		1,218		342		395		58		53		(115)		227		737		1,893
Increase (decrease) other revenue	(11)		1		(2)		—		5		(1)		(1)		—		(5)		3
(Increase) decrease incurred claims and claims expense (“losses”):
Incurred losses, excluding catastrophe losses and reserve reestimates	2,450		(1,002)		(78)		(183)		6		21		116		(219)		2,494		(1,383)
Catastrophe losses, excluding reserve reestimates	100		(33)		(823)		294		(70)		51		(12)		9		(805)		321
Catastrophe reserve reestimates	27		(22)		488		(1)		39		(1)		(3)		1		551		(23)
Non-catastrophe reserve reestimates	(243)		(110)		16		(50)		35		(14)		(16)		90		(208)		(84)

Losses subtotal	2,334		(1,167)		(397)		60		10		57		85		(119)		2,032		(1,169)
Shelter-in-Place Payback expense	(944)		—		—		—		—		—		(4)		—		(948)		—
(Increase) decrease expenses	(75)		(155)		(33)		(24)		(33)		5		(15)		(11)		(162)		(158)
Underwriting income (loss)	$	3,444	$	1,688	$	824	$	914	$	264	$	224	$	(36)	$	14	$	4,566	$	2,912

(1)The 2020 column presents changes relative to 2019. The 2019 column presents changes relative to 2018.

(2)Includes other business lines and Answer Financial.

Underwriting income increased 56.8% or $1.65 billion in 2020 compared to 2019, primarily due to lower auto non-catastrophe losses, increased premiums earned and favorable catastrophe reserve reestimates in personal lines homeowners driven by subrogation settlements, partially offset by Shelter-in-Place Payback expense and higher catastrophe losses.

44 www.allstate.com

Allstate Protection 2020 Form 10-K

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.


Premiums written and earned by line of business
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written
Auto	$	24,611	$	24,462	$	23,367
Homeowners	8,400		8,165		7,698
Other personal lines	1,965		1,890		1,831
Subtotal – Personal lines	34,976		34,517		32,896
Commercial lines	792		902		659


Total premiums written	$	35,768	$	35,419	$	33,555
Reconciliation of premiums written to premiums earned:
Increase in unearned premiums	(205)		(614)		(544)
Other	17		38		(61)
Total premiums earned	$	35,580	$	34,843	$	32,950

Auto	$	24,640	$	24,188	$	22,970
Homeowners	8,254		7,912		7,517
Other personal lines	1,919		1,861		1,808
Subtotal – Personal lines	34,813		33,961		32,295
Commercial lines	767		882		655


Total premiums earned	$	35,580	$	34,843	$	32,950

Auto insurance premiums written increased 0.6% or $149 million in 2020 compared to 2019.

Homeowners insurance premiums written increased 2.9% or $235 million in 2020 compared to 2019.


Unearned premium balance and the time frame in which we expect to recognize these premiums as earned
($ in millions)		As of December 31,						% earned after
	2020			2019			Three months			Six months			Nine months			Twelve months
Allstate brand:
Auto		$	6,409		$	6,405		70.7	%		96.3	%		99.1	%		100.0	%
Homeowners		4,379			4,220			43.2	%		75.4	%		94.1	%		100.0	%
Other personal lines		1,001			952			43.3	%		75.3	%		94.1	%		100.0	%
Commercial lines		295			270			43.3	%		74.6	%		93.7	%		100.0	%

Total Allstate brand		12,084			11,847			58.0	%		86.6	%		96.8	%		100.0	%
Encompass brand:
Auto		258			276			44.1	%		75.8	%		94.2	%		100.0	%
Homeowners		207			214			43.9	%		75.8	%		94.3	%		100.0	%
Other personal lines		39			41			44.2	%		76.1	%		94.3	%		100.0	%
Total Encompass brand		504			531			44.0	%		75.8	%		94.2	%		100.0	%
Allstate Protection unearned premiums		$	12,588		$	12,378

The Allstate Corporation 45

2020 Form 10-K Allstate Protection


Combined ratios by line of business
	For the years ended December 31,
	Loss ratio			Expense ratio (1)			Combined ratio
	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	57.5	68.2	66.8	28.5	24.8	25.4	86.0	93.0	92.2
Impact of Shelter-in-Place Payback expense	—	—	—	3.8	—	—	3.8	—	—
Homeowners	67.3	65.1	69.4	22.7	23.3	24.2	90.0	88.4	93.6
Other personal lines	58.7	61.1	66.0	27.5	26.9	27.9	86.2	88.0	93.9
Commercial lines	82.4	81.3	91.3	22.3	17.1	21.4	104.7	98.4	112.7
Impact of Shelter-in-Place Payback expense	—	—	—	0.5	—		0.5	—	—

Total	60.4	67.5	67.8	26.8	24.1	25.1	87.2	91.6	92.9
Impact of restructuring and related charges (2)	—	—	—	0.7	0.1	0.2	0.7	0.1	0.2
Impact of Shelter-in-Place Payback expense	—	—	—	2.7	—	—	2.7	—	—
Impact of Allstate Special Payment plan bad debt expense (3)	—	—	—	0.2	—	—	0.2	—	—

(1)Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

(2)Restructuring and related charges in 2020 primarily related to Transformative Growth.

(3)Relates to the Allstate Special Payment plan offered to customers as a result of the Coronavirus to provide more flexible payment options, including the option to delay payments. Approximately 70% of the higher bad debt expense was attributed to auto.


Loss ratios by line of business
	For the years ended December 31,
	Loss ratio			Effect of catastrophe losses on combined ratio			Effect of prior year reserve reestimates on combined ratio			Effect of catastrophe losses included in prior year reserve reestimates on combined ratio
	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	57.5	68.2	66.8	1.2	1.7	1.6	(0.4)	(1.4)	(2.0)	(0.1)	(0.1)	(0.2)
Homeowners	67.3	65.1	69.4	27.9	24.8	30.0	(5.3)	0.8	0.2	(5.1)	0.8	0.8
Other personal lines	58.7	61.1	66.0	10.4	9.0	12.1	(3.5)	0.5	(0.4)	(2.0)	—	—
Commercial lines	82.4	81.3	91.3	3.5	1.4	3.4	4.7	1.9	16.5	0.2	(0.1)	—

Total	60.4	67.5	67.8	7.9	7.3	8.7	(1.6)	(0.7)	(1.0)	(1.4)	0.1	0.1

46 www.allstate.com

Allstate Protection 2020 Form 10-K

Catastrophe losses increased 9.9% or $254 million in 2020 compared to 2019. Catastrophe losses include approximately $495 million favorable subrogation settlements, which decreased the loss ratio by 1.4 points in 2020 compared to the same period of 2019. Excluding subrogation settlements, catastrophe losses increased approximately 30% or $750 million compared to 2019.

We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, wildfires or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.


Catastrophe losses in 2020 by the size of event
($ in millions)	Number of events			Claims and claims expense				Combined ratio impact	Average catastrophe loss per event
Size of catastrophe loss
Greater than $250 million	1	0.9	%	$	518	18.4	%	1.4	$	518
$101 million to $250 million	6	5.7		953		33.9		2.7	159
$50 million to $100 million	11	10.5		740		26.3		2.1	67
Less than $50 million	87	82.9		1,103		39.3		3.1	13
Total	105	100.0	%	3,314		117.9		9.3	32
Prior year reserve reestimates				(503)		(17.9)		(1.4)
Total catastrophe losses				$	2,811	100.0	%	7.9


Catastrophe losses by the type of event
	For the years ended December 31,
($ in millions)	Number of events	2020		Number of events	2019		Number of events	2018
Hurricanes/Tropical storms	9	$	1,001	3	$	86	3	$	200
Tornadoes	3	43		6	551		3	17
Wind/Hail	73	1,940		91	1,721		99	1,752
Wildfires	17	300		4	28		10	745
Other events	3	30		6	123		2	116
Prior year reserve reestimates		(503)			48			25
Total catastrophe losses	105	$	2,811	110	$	2,557	117	$	2,855

Catastrophe management

Historical catastrophe experience For the last ten years, the average annual impact of catastrophes on our loss ratio was 8.2 points, but it has varied from 4.5 points to 14.7 points. The average annual impact of catastrophes on the homeowners loss ratio for the last ten years was 26.6 points. Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes by our participation in various state facilities. For further discussion of these facilities, see Note 14 of the consolidated financial statements. However, the impact of these actions may be diminished by the growth in insured values, and the effect of state insurance laws and regulations. In addition, in various states we are required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation in these and other state facilities such as wind pools, we may be exposed to losses that surpass the capitalization of these facilities and to assessments from these facilities.

We have continued to take actions to maintain an appropriate level of exposure to catastrophic events while continuing to meet the needs of our customers, including the following:

Continuing to limit or not offer new homeowners, manufactured home and landlord package policy business in certain coastal geographies.
Increased capacity in our brokerage platform for customers not offered an Allstate policy.
We began to write a limited number of homeowners policies in select areas of California in 2016, additionally we:

–Continue to renew current policyholders and allow replacement policies for existing customers who buy a new home or change their residence to rental property

–Have decreased our overall homeowner exposures in California by more than 50% since 2007

–Write homeowners coverage through our excess and surplus lines carrier, North Light Specialty Insurance Company (“North Light”), which includes earthquake coverage (other

The Allstate Corporation 47

2020 Form 10-K Allstate Protection

than fire following earthquakes) that is currently ceded via quota share reinsurance.

In certain states, we have been ceding wind exposure related to insured property located in wind pool eligible areas.
Starting in the second quarter of 2017, we began writing a limited number of homeowners policies in select areas of Florida and continue to support existing customers who replace their currently-insured home with an acceptable property. Encompass withdrew from property lines in Florida in 2009.
Tropical cyclone deductibles are generally higher than all peril deductibles and are in place for a large portion of coastal insured properties.
Auto comprehensive damage coverage generally includes coverage for flood-related loss. We have additional catastrophe exposure, beyond the property lines, for auto customers who have purchased comprehensive damage coverage.
We offer a homeowners policy available in 43 states, Allstate House and Home®, that provides options of coverage for roof damage, including graduated coverage and pricing based on roof type and age. In 2020, premiums written totaled $3.92 billion or 46.7% of homeowners premiums written compared to $3.44 billion or 42.1% in 2019.

Hurricanes We consider the greatest areas of potential catastrophe losses due to hurricanes generally to be major metropolitan centers in counties along the eastern and gulf coasts of the United States. The average premium on a property policy near these coasts is generally greater than in other areas. However, average premiums are often not considered commensurate with the inherent risk of loss. In addition, as explained in Note 14 of the consolidated financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting associations providing insurance for wind related property losses.

We have addressed our risk of hurricane loss by, among other actions, purchasing reinsurance for specific states and on a countrywide basis for our personal lines property insurance in areas most exposed to hurricanes, limiting personal homeowners, landlord package policy and manufactured home new business writings in coastal areas in southern and eastern states, implementing tropical cyclone deductibles where appropriate, and not offering continuing coverage on certain policies in coastal counties in certain states. We continue to seek appropriate returns for the risks we write. This may require further actions, similar to those already taken, in geographies where we are not getting appropriate

returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved.

Earthquakes We do not offer earthquake coverage in most states. We retain approximately 20,000 PIF with earthquake coverage, primarily in Kentucky, due to regulatory and other reasons. We purchase reinsurance in Kentucky and enter into arrangements in many states to make earthquake coverage available through our brokerage platform.

We continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses, including our auto policies, and to fires following earthquakes. Allstate homeowner policyholders in California are offered coverage for damage caused by an earthquake through the California Earthquake Authority (“CEA”), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain circumstances as explained in Note 14 of the consolidated financial statements. While North Light writes property policies in California, which can include earthquake coverage, this coverage is 100% ceded via quota share reinsurance.

Fires following earthquakes Under a standard homeowners policy we cover fire losses, including those caused by an earthquake. Actions taken related to our risk of loss from fires following earthquakes include restrictive underwriting guidelines in California for new business writings, purchasing reinsurance for Kentucky personal lines property risks, and purchasing nationwide occurrence reinsurance, excluding Florida.

Wildfires Actions taken related to managing our risk of loss from wildfires include purchasing nationwide occurrence reinsurance, new and renewal inspection programs to identify and remediate wildfire risk as well as leveraging contemporary underwriting tools in select areas. While these programs are designed to mitigate risk, the exposure to wildfires still exists. We continue to manage our exposure and seek appropriate returns for the risks we write.

To manage the exposure, we may implement further actions, similar to those already taken, in geographies where we are not achieving appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved.

Reinsurance A description of our current catastrophe reinsurance program appears in Note 10 of the consolidated financial statements.

48 www.allstate.com

Allstate Protection 2020 Form 10-K

Expense ratio increased 2.7 points in 2020 compared to 2019, reflecting Shelter-in-Place Payback expense, higher restructuring charges related to Transformative Growth and bad debt expense. Excluding Shelter-in-Place Payback expense, higher restructuring charges related to Transformative Growth, bad debt expense and impairment of purchased intangibles in 2019, the expense ratio decreased 0.8 points in 2020 compared to 2019, primarily due to lower operating expenses and agent compensation, partially offset by an increase in advertising costs.


Impact of specific costs and expenses on the expense ratio
	For the years ended December 31,
	2020	2019	2018
Amortization of DAC	13.0	13.4	13.6
Advertising expense	2.6	2.4	2.5
Amortization of purchased intangibles	0.1	—	—
Other costs and expenses	7.5	8.1	8.8
Subtotal	23.2	23.9	24.9
Restructuring and related charges (1)	0.7	0.1	0.2
Shelter-in-Place Payback expense	2.7	—	—
Allstate Special Payment plan bad debt expense	0.2	—	—
Impairment of purchased intangibles	—	0.1	—
Total expense ratio	26.8	24.1	25.1

(1)Restructuring and related charges in 2020 primarily related to Transformative Growth.

Deferred acquisition costs We establish a DAC asset for costs that are related directly to the successful acquisition of new or renewal insurance policies, principally agent remuneration and premium taxes. DAC is amortized to income over the period in which premiums are earned.


DAC balance as of December 31 by product type
($ in millions)	2020		2019
Auto	$	826	$	849
Homeowners	602		600
Other personal lines	144		141
Commercial lines	36		34

Total DAC	$	1,608	$	1,624

The Allstate Corporation 49

2020 Form 10-K Allstate Protection

The following table presents premiums written, PIF and underwriting income (loss) by line of business for Allstate brand, Encompass brand and Allstate Protection as of or for the year ended December 31, 2020. Detailed analysis of underwriting results, premiums written and earned, and the combined ratios, including loss and expense ratios, are discussed in the brand sections.


Premiums written, policies in force and underwriting income (loss)
($ in millions)	Allstate brand				Encompass brand				Allstate Protection
Premiums written	Amount		Percent to total brand		Amount		Percent to total brand		Amount		Percent to total
Auto	$	24,103	69.3	%	$	508	52.3	%	$	24,611	68.8	%
Homeowners	8,012		23.0		388		39.9		8,400		23.5
Other personal lines	1,889		5.4		76		7.8		1,965		5.5
Commercial lines	792		2.3		—		—		792		2.2
Total	$	34,796	100.0	%	$	972	100.0	%	$	35,768	100.0	%

Percent to total Allstate Protection			97.3	%			2.7	%			100.0	%

PIF (thousands)
Auto	21,809		66.3	%	451		61.1	%	22,260		66.2	%
Homeowners	6,427		19.5		216		29.3		6,643		19.7
Other personal lines	4,459		13.5		71		9.6		4,530		13.5
Commercial lines	216		0.7		—		—		216		0.6
Total	32,911		100.0	%	738		100.0	%	33,649		100.0	%

Percent to total Allstate Protection			97.8	%			2.2	%			100.0	%

Underwriting income (loss)
Auto	$	3,404	75.8	%	$	40	53.3	%	$	3,444	75.4	%
Homeowners	798		17.8		26		34.7		824		18.0
Other personal lines	255		5.7		9		12.0		264		5.8
Commercial lines	(36)		(0.8)		—		—		(36)		(0.8)
Other business lines	67		1.5		—		—		67		1.5
Answer Financial	—		—		—		—		3		0.1
Total	$	4,488	100.0	%	$	75	100.0	%	$	4,566	100.0	%

When analyzing premium measures and statistics for our brands the following calculations are used as described below.

PIF: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy while Commercial lines PIF counts for shared economy agreements typically reflect contracts that cover multiple rather than individual drivers.
New issued applications: Item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate Protection brand. Allstate brand includes automobiles added by existing customers when they exceed the number allowed (currently 10) on a policy.

•**Average premium-gross written (“average premium”): Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate brand policy terms are 6 months for auto and 12 months for homeowners. Encompass brand

policy terms are generally 12 months for auto and homeowners.

Renewal ratio: Renewal policy item counts issued during the period, based on contract effective dates, divided by the total policy item counts issued 6 months prior for auto (generally 12 months prior for Encompass brand) or 12 months prior for homeowners.

*•*Total brand rate changes: Based on historical premiums written, not including rate plan enhancements (such as the introduction of discounts and surcharges that result in no change in the overall rate level) and initial rates filed for insurance subsidiaries initially writing business in a location. Includes rate changes approved based on our net cost of reinsurance. The rate change percentages are calculated using approved rate changes during the period as a percentage of total brand premiums written.

50 www.allstate.com

Allstate Protection: Allstate brand 2020 Form 10-K

Allstate brand products are sold across multiple channels, including Allstate exclusive agents and direct (online or call centers). In 2020, the Allstate brand represented 97.3% of the Allstate Protection segment’s written premium. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Underwriting results
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written	$	34,796	$	34,399	$	32,539
Premiums earned	$	34,581	$	33,825	$	31,927
Other revenue	663		666		662
Claims and claims expense	(20,897)		(22,828)		(21,680)
Shelter-in-Place Payback expense	(927)		—		—
Amortization of DAC	(4,451)		(4,457)		(4,285)
Other costs and expenses	(4,253)		(4,213)		(4,239)
Restructuring and related charges	(228)		(34)		(53)
Impairment of purchased intangibles	—		(51)		—
Underwriting income	$	4,488	$	2,908	$	2,332
Catastrophe losses	$	2,716	$	2,442	$	2,753

Underwriting income (loss) by line of business
Auto	$	3,404	$	1,680	$	1,777
Homeowners	798		912		481
Other personal lines (1)	255		227		108
Commercial lines	(36)		14		(83)
Other business lines (2)	67		75		49
Underwriting income	$	4,488	$	2,908	$	2,332

(1)Other personal lines include renters, condominium, landlord and other personal lines products.

(2)Other business lines primarily represent Ivantage.

Underwriting income increased 54.3% or $1.58 billion in 2020 compared to 2019, primarily due to lower auto non-catastrophe losses, increased premiums earned and favorable catastrophe reserve reestimates in homeowners driven by subrogation settlements, partially offset by Shelter-in-Place Payback expense and higher catastrophe losses.

The Allstate Corporation 51

2020 Form 10-K Allstate Protection: Allstate brand


Premiums written and earned by line of business
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written
Auto	$	24,103	$	23,922	$	22,830
Homeowners (1)	8,012		7,764		7,300
Other personal lines	1,889		1,811		1,750
Subtotal – Personal lines	34,004		33,497		31,880
Commercial lines	792		902		659

Total	$	34,796	$	34,399	$	32,539
Premiums earned
Auto	$	24,115	$	23,649	$	22,434
Homeowners	7,858		7,513		7,114
Other personal lines	1,841		1,781		1,724
Subtotal – Personal lines	33,814		32,943		31,272
Commercial lines	767		882		655

Total	$	34,581	$	33,825	$	31,927

(1)The cost of our catastrophe reinsurance program increased $35 million to $321 million in 2020 from $286 million in 2019. Catastrophe placement premiums are recorded primarily in the Allstate brand and are a reduction of premium. For a more detailed discussion on reinsurance, see the Claims and Claims Expense Reserves section of the MD&A and Note 10 of the consolidated financial statements.


Auto premium measures and statistics
	2020		2019		2018		2020 vs. 2019		2019 vs. 2018
PIF (thousands)	21,809		21,913		21,592		(0.5)	%	1.5	%
New issued applications (thousands)	3,467		3,535		3,566		(1.9)	%	(0.9)	%
Average premium	$	617	$	603	$	586	2.3	%	2.9	%
Renewal ratio (%)	87.5		88.0		88.0		(0.5)		—


Total brand rate changes (%)	(0.2)		3.0		1.2		(3.2)		1.8

Auto insurance premiums written increased 0.8% or $181 million in 2020 compared to 2019, primarily due to an increase in average premium. During the second quarter through year-end 2020, growth in premiums written slowed significantly due to lower increases in average premium from fewer approved rate changes related to the Coronavirus.

New issued applications decreased 1.9% compared to 2019 due to impacts from the Coronavirus in the first half of 2020 and fewer new exclusive agent appointments, partially offset by an increase in direct and independent agent business.

Rate changes are maintained on a state by state basis. Auto average premium may decline in 2021 compared to 2020 as some rate changes will reflect the decline in auto miles driven and lower expenses.

PIF decreased 0.5% or 104 thousand policies as of December 31, 2020 compared to December 31, 2019 as higher PIF in Allstate brand, with increases in 20 states, including 3 of our largest 10 states, was offset by lower PIF in Esurance brand as advertising resources are redirected to Allstate brand.


Homeowners premium measures and statistics
	2020		2019		2018		2020 vs. 2019		2019 vs. 2018
PIF (thousands)	6,427		6,359		6,281		1.1	%	1.2	%
New issued applications (thousands)	899		877		858		2.5	%	2.2	%
Average premium	$	1,328	$	1,291	$	1,226	2.9	%	5.3	%
Renewal ratio (%)	87.5		88.2		88.0		(0.7)		0.2



Total brand rate changes (%)	2.7		3.3		2.7		(0.6)		0.6

Homeowners insurance premiums written increased 3.2% or $248 million in 2020 compared to 2019, primarily due to higher average premiums, including rate changes and inflation in insured home valuations, and policy growth. Homeowners PIF increased 68 thousand policies with increases in 27 states, including 5 of our largest 10 states, as of December 31, 2020 compared to December 31, 2019.

Other personal lines premiums written increased 4.3% or $78 million in 2020 compared to 2019. The

increase in 2020 was primarily due to increases in condominium, personal umbrella and boat insurance premiums.

Commercial lines premiums written decreased 12.2%or $110 million in 2020 compared to 2019, primarily due to lower miles driven and utilization in our shared economy business related to the impacts of the Coronavirus. PIF for the shared economy agreements typically reflect contracts that cover multiple insureds as opposed to individual insureds.

52 www.allstate.com

Allstate Protection: Allstate brand 2020 Form 10-K


Combined ratios by line of business
	For the years ended December 31,
	Loss ratio			Expense ratio (1)			Combined ratio
	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	57.5	68.3	66.8	28.4	24.6	25.3	85.9	92.9	92.1
Impact of Shelter-in-Place Payback expense	—	—	—	3.8	—	—	3.8	—	—
Homeowners	67.5	65.0	69.5	22.3	22.9	23.7	89.8	87.9	93.2
Other personal lines	58.8	60.7	66.3	27.3	26.6	27.4	86.1	87.3	93.7
Commercial lines	82.4	81.3	91.3	22.3	17.1	21.4	104.7	98.4	112.7
Impact of Shelter-in-Place Payback expense	—	—	—	0.5	—	—	0.5	—	—

Total	60.4	67.5	67.9	26.6	23.9	24.8	87.0	91.4	92.7
Impact of restructuring and related charges (2)	—	—	—	0.7	0.1	0.2	0.7	0.1	0.2
Impact of Shelter-in-Place Payback expense	—	—	—	2.7	—	—	2.7	—	—
Impact of Allstate Special Payment plan bad debt expense (3)	—	—	—	0.2	—	—	0.2	—	—

(1) Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

(2)Restructuring and related charges in 2020 primarily related to Transformative Growth.


Loss ratios by line of business
	For the years ended December 31,
	Loss ratio			Effect of catastrophe losses			Effect of prior year reserve reestimates			Effect of catastrophe losses included in prior year reserve reestimates (1)
	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	57.5	68.3	66.8	1.2	1.7	1.6	(0.5)	(1.3)	(2.0)	(0.2)	(0.1)	(0.2)
Homeowners	67.5	65.0	69.5	28.2	24.8	30.5	(5.1)	0.7	—	(4.9)	0.7	0.8
Other personal lines	58.8	60.7	66.3	10.5	9.2	12.2	(3.1)	0.6	0.4	(2.0)	0.1	(0.2)
Commercial lines	82.4	81.3	91.3	3.5	1.4	3.4	4.7	1.9	16.5	0.2	(0.1)	—

Total	60.4	67.5	67.9	7.9	7.2	8.6	(1.5)	(0.7)	(1.0)	(1.3)	0.1	—

(1) 2020 includes approximately $450 million of favorable reserve reestimates related to subrogation settlements, which primarily impacted homeowners. See Note 8 of the consolidated financial statements for additional details.

The Allstate Corporation 53

2020 Form 10-K Allstate Protection: Allstate brand

Frequency and severity statistics, which are influenced by driving patterns, inflation and other factors, are provided to describe the trends in loss costs. Our reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine our best estimate of recorded reserves. We use the following statistics to evaluate losses:


• Gross claim frequency (1) is calculated as annualized notice counts received in the period divided by the average of PIF with the applicable coverage during the period. Gross claim frequency includes all actual notice counts, regardless of their current status (open or closed) or their ultimate disposition (closed with a payment or closed without payment).
• Paid claim severity is calculated by dividing the sum of paid losses and loss expenses by claims closed with a payment during the period.
• Percent change in frequency or severity statistics is calculated as the amount of increase or decrease in the paid or gross claim frequency or severity in the current period compared to the same period in the prior year divided by the prior year paid or gross claim frequency or severity.

(1)Excludes counts associated with catastrophe events.

We have expanded our utilization of virtual claims processes in response to the Coronavirus. We are continuing to implement new technology and process improvements that provide continued loss cost accuracy, efficient processing and enhanced customer experiences that are simple, fast and produce high degrees of satisfaction.

Digital Operating Centers handle auto physical damage claims countrywide utilizing our virtual estimation capabilities, which includes estimating damage with photos and video through the use of QuickFoto Claim® and Virtual Assist®.
Virtual Assist and aerial imagery using satellites, airplanes and drones handle property claims by estimating damage through video.

These organizational and process changes impact frequency and severity statistics as changes in claim opening and closing practices and shifts in timing, if any, can impact comparisons to prior periods.

Auto loss ratio decreased 10.8 points in 2020 compared to 2019, primarily due to decline in non-catastrophe losses driven by favorable frequency, higher premiums earned and lower catastrophe losses, partially offset by increased severity and less favorable non-catastrophe prior year reserve reestimates compared to prior year.


Auto property damage frequency and severity statistics
(% change year-over-year)	For the year ended December 31, 2020
Gross claim frequency	(29.1)	%
Paid claim severity	10.0

The impacts of the Coronavirus affect frequency and severity statistics including:

Shelter-in-place restrictions, social distancing requirements, limits on large gatherings and events, and restrictions on non-essential businesses as these become more or less strict
Unemployment levels
Reduced commuting activity
Paid claims settlement rates as the low frequency environment creates capacity to settle claims faster
Driving behavior (e.g., speed, time of day) impacting mix of claim types
Labor and part cost variability
Changes in limits purchased
Court system variability in both timing and magnitude of claim settlement

Property damage gross claim frequency decreased in 2020 compared to 2019 due to factors including:

Declines in auto miles driven.
Declines in gross claim frequency compared to the prior year moderated in the second half of 2020 from earlier in the year, reflecting an increase in miles driven compared to April and May 2020 as shelter-in-place restrictions were lifted in many states.

Property damage paid claim severity increased in 2020 compared to 2019 due to factors including:

Claims settled within days or weeks of the loss tend to be less complex and have lower severity, while higher severity property damage claims generally take longer to resolve.
The reduction in new claims due to lower frequency, as described above, led to an increase in the proportion of more complex, higher severity paid claims to total paid claims.
Higher costs to repair more sophisticated newer model vehicles, higher third-party subrogation demands and increased costs associated with total losses.

Bodily injury gross claim frequency was consistent with trends noted in property damage. Bodily injury severity trends increased at a rate above medical care inflation indices in 2020.

54 www.allstate.com

Allstate Protection: Allstate brand 2020 Form 10-K

Homeowners loss ratio increased 2.5 points in 2020 compared to 2019, primarily due to higher catastrophe losses and increased claim severity, partially offset by favorable catastrophe reserve reestimates driven by subrogation settlements, increased premiums earned and improved claim frequency.


Homeowners frequency and severity statistics (excluding catastrophe losses)
(% change year-over-year)	For the year ended December 31, 2020
Gross claim frequency	(4.0)	%
Paid claim severity	7.1

Gross claim frequency excluding catastrophe losses decreased in 2020 compared to 2019 due to decreases in water and theft claims, partially offset by increases in fire and wind/hail. Paid claim severity excluding catastrophe losses increased in 2020 compared to 2019 as we experienced increased claim

severity in wind/hail and fire perils. Homeowner paid claim severity can be impacted by both the mix of perils and the magnitude of specific losses paid during the year.

Other personal lines loss ratio decreased 1.9 points in 2020 compared to 2019, primarily due to increased premiums earned, favorable catastrophe reserve reestimates driven by the subrogation settlements and favorable non-catastrophe reserve reestimates, partially offset by higher catastrophe losses.

Commercial lines loss ratio increased 1.1 points in 2020 compared to 2019, primarily due to decreased premiums earned, higher claim severity and higher losses related to an underperforming account that was not renewed, partially offset by a decline in non-catastrophe losses driven by favorable auto frequency related to the Coronavirus.


Impact of specific costs and expenses on the expense ratio
	For the years ended December 31,
	2020	2019	2018
Amortization of DAC (1)	12.9	13.2	13.4
Advertising expense	2.7	2.5	2.5

Other costs and expenses	7.4	7.9	8.7
Subtotal	23.0	23.6	24.6
Restructuring and related charges (2)	0.7	0.1	0.2
Impairment of purchased intangibles	—	0.2	—
Shelter-in-Place Payback expense	2.7	—	—
Allstate Special Payment plan bad debt expense	0.2	—	—
Total expense ratio	26.6	23.9	24.8

(1) Primarily includes agent compensation and premium taxes.

(2)Restructuring and related charges in 2020 primarily related to Transformative Growth.

Expense ratio increased 2.7 points in 2020 compared to 2019, reflecting Shelter-in-Place Payback expense, higher restructuring charges related to Transformative Growth and bad debt expense. Excluding Shelter-in-Place Payback expense, higher restructuring charges related to Transformative Growth, bad debt expense and impairment of purchased intangibles in 2019, the expense ratio decreased 0.7 points in 2020 compared to 2019, primarily due to lower operating expenses and agent compensation, partially offset by an increase in advertising costs.

The Allstate Corporation 55

2020 Form 10-K Allstate Protection: Encompass brand

Encompass products are sold through independent agents that serve brand-neutral customers who prefer personal service and support from an independent agent. In 2020, the Encompass brand represented 2.7% of the Allstate Protection segment’s written premium. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Underwriting results
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written	$	972	$	1,020	$	1,016
Premiums earned	$	999	$	1,018	$	1,023
Other revenue	5		5		5
Claims and claims expense	(588)		(689)		(668)
Shelter-in-Place Payback expense	(21)		—		—
Amortization of DAC	(191)		(192)		(190)
Other costs and expenses	(123)		(131)		(145)
Restructuring and related charges	(6)		(4)		(7)
Underwriting income	$	75	$	7	$	18
Catastrophe losses	$	95	$	115	$	102

Underwriting income (loss) by line of business
Auto	$	40	$	8	$	14
Homeowners	26		2		1
Other personal lines	9		(3)		3
Underwriting income	$	75	$	7	$	18

Underwriting income increased $68 million in 2020 compared to 2019, primarily due to lower auto and homeowners non-catastrophe losses and favorable catastrophe reserve reestimates in personal lines homeowners driven by subrogation settlements, partially offset by higher catastrophe losses and Shelter-in-Place Payback expense.

56 www.allstate.com

Allstate Protection: Encompass brand 2020 Form 10-K


Premiums written and earned by line of business
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written
Auto	$	508	$	540	$	537
Homeowners	388		401		398
Other personal lines	76		79		81
Total	$	972	$	1,020	$	1,016
Premiums earned
Auto	$	525	$	539	$	537
Homeowners	396		399		402
Other personal lines	78		80		84
Total	$	999	$	1,018	$	1,023


Auto premium measures and statistics
	2020		2019		2018		2020 vs. 2019		2019 vs. 2018
PIF (thousands)	451		493		502		(8.5)	%	(1.8)	%
New issued applications (thousands)	60		82		76		(26.8)	%	7.9	%
Average premium	$	1,156	$	1,134	$	1,118	1.9	%	1.4	%
Renewal ratio (%)	76.8		78.1		74.9		(1.3)		3.2
Total brand rate changes (%)	(0.4)		1.5		2.4		(1.9)		(0.9)

Auto insurance premiums written decreased 5.9% or $32 million in 2020 compared to 2019, primarily due to decreased new issued applications and lower retention, partially offset by higher average premiums, with the top 10 states representing approximately 70% of premiums written.


Homeowners premium measure and statistics
	2020		2019		2018		2020 vs. 2019		2019 vs. 2018
PIF (thousands)	216		234		239		(7.7)	%	(2.1)	%
New issued applications (thousands)	34		42		37		(19.0)	%	13.5	%
Average premium	$	1,892	$	1,795	$	1,724	5.4	%	4.1	%
Renewal ratio (%)	81.0		82.5		80.0		(1.5)		2.5
Total brand rate changes (%)	4.8		9.2		4.7		(4.4)		4.5

Homeowners insurance premiums written decreased 3.2% or $13 million in 2020 compared to 2019, primarily due to decreased new issued applications and lower retention, partially offset by higher average premiums due to rate changes over the past 12 months, with the top 10 states representing approximately 70% of premiums written.


Combined ratios by line of business
	For the years ended December 31,
	Loss ratio			Expense ratio (1)			Combined ratio
	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	56.8	66.8	65.0	35.6	31.7	32.4	92.4	98.5	97.4
Impact of Shelter-in-Place Payback expense	—	—	—	4.0	—	—	4.0	—	—
Homeowners	62.1	68.2	66.7	31.3	31.3	33.1	93.4	99.5	99.8
Other personal lines	56.4	71.3	60.7	32.1	32.5	35.7	88.5	103.8	96.4
Total	58.9	67.7	65.3	33.6	31.6	32.9	92.5	99.3	98.2
Impact of restructuring and related charges (2)	—	—	—	0.6	0.4	0.7	0.6	0.4	0.7
Impact of Shelter-in-Place Payback expense	—	—	—	2.1	—	—	2.1	—	—

(1)Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

(2)Restructuring and related charges in 2020 primarily related to Transformative Growth.

The Allstate Corporation 57

2020 Form 10-K Allstate Protection: Encompass brand


Loss ratios by line of business
	For the years ended December 31,
	Loss ratio			Effect of catastrophe losses			Effect of prior year reserve reestimates			Effect of catastrophe losses included in prior year reserve reestimates (1)
	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Auto	56.8	66.8	65.0	1.3	1.9	1.1	1.0	(1.9)	(1.9)	(0.4)	—	(0.2)
Homeowners	62.1	68.2	66.7	20.7	25.1	22.1	(9.3)	3.7	3.3	(9.8)	2.5	3.0
Other personal lines	56.4	71.3	60.7	7.7	6.3	8.3	(12.8)	(2.5)	(16.7)	(2.6)	(1.2)	1.2
Total	58.9	67.7	65.3	9.5	11.3	10.0	(4.2)	0.3	(1.1)	(4.3)	0.9	1.2

(1)2020 includes approximately $45 million of favorable reserve reestimates related to subrogation settlements, which primarily impacted homeowners. See Note 8 of the consolidated financial statements for additional details.

Auto loss ratio decreased 10.0 points in 2020 compared to 2019, primarily due to lower claim frequency, partially offset by increased claim severity and unfavorable non-catastrophe reserves reestimates compared to favorable non-catastrophe reserve reestimates in the prior year.

Homeowners loss ratio decreased 6.1 points in 2020 compared to 2019, primarily due to favorable catastrophe reserve reestimates driven by subrogation settlements and lower non-catastrophe claim frequency, partially offset by higher catastrophe losses.


Impact of specific costs and expenses on the expense ratio
	For the years ended December 31,
	2020	2019	2018
Amortization of DAC	19.1	18.8	18.5
Advertising expense	0.1	0.2	0.2

Other costs and expenses	11.7	12.2	13.5
Subtotal	30.9	31.2	32.2
Restructuring and related charges (1)	0.6	0.4	0.7
Shelter-in-Place Payback expense	2.1	—	—
Total expense ratio	33.6	31.6	32.9

(1)Restructuring and related charges in 2020 primarily related to the Transformative Growth.

Expense ratio increased 2.0 points in 2020 compared to 2019, primarily due to Shelter-in-Place Payback expense and higher restructuring charges related to Transformative Growth, partially offset by lower operating costs.

58 www.allstate.com

Discontinued Lines and Coverages 2020 Form 10-K

Discontinued Lines and Coverages Segment

The Discontinued Lines and Coverages segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s. Our exposure to asbestos, environmental and other discontinued lines claims arises principally from direct excess commercial insurance, assumed reinsurance coverage, direct primary commercial insurance and other businesses in run-off. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Underwriting results
	For the years ended December 31,
($ in millions)	2020		2019		2018
Claims and claims expense
Asbestos claims	$	(78)	$	(28)	$	(44)
Environmental claims	(44)		(36)		(20)
Other discontinued lines	(19)		(41)		(23)
Total claims and claims expense	(141)		(105)		(87)
Operating costs and expenses	(3)		(3)		(3)
Underwriting loss	$	(144)	$	(108)	$	(90)

Underwriting losses in 2020 and 2019 primarily related to our annual reserve review using established industry and actuarial best practices. The annual review resulted in unfavorable reserve reestimates totaling $132 million and $95 million, in 2020 and 2019, net of $1 million and $6 million reduction in the allowance for future uncollectible reinsurance, respectively. The reserve reestimates are included as part of claims and claims expense.

Reserve reestimates in 2020 primarily related to new reported information, court decisions and policy buyback settlements for asbestos exposures and higher than expected reported losses for environmental and other discontinued lines exposures. Reserve reestimates in 2019 primarily related to new reported information and settlement agreements, including bankruptcy proceedings, impacting asbestos and other discontinued lines and additional environmental clean-up sites.

We believe that our reserves are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (e.g., claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. However, as we progress with the resolution of disputed claims in the courts and arbitrations and with negotiations and settlements, our reported losses may be more variable.


Reserves for asbestos, environmental and other discontinued lines claims before and after the effects of reinsurance
($ in millions)	December 31, 2020		December 31, 2019
Asbestos claims
Gross reserves	$	1,204	$	1,172
Reinsurance	(377)		(362)
Net reserves	827		810
Environmental claims
Gross reserves	249		219
Reinsurance	(43)		(40)
Net reserves	206		179
Other discontinued lines
Gross reserves	435		427
Reinsurance	(60)		(51)
Net reserves	375		376
Total
Gross reserves	1,888		1,818
Reinsurance	(480)		(453)
Net reserves	$	1,408	$	1,365

The Allstate Corporation 59

2020 Form 10-K Discontinued Lines and Coverages


Reserves by type of exposure before and after the effects of reinsurance
($ in millions)	December 31, 2020		December 31, 2019
Direct excess commercial insurance
Gross reserves	$	1,011	$	948
Reinsurance	(358)		(332)
Net reserves	653		616
Assumed reinsurance coverage
Gross reserves	636		606
Reinsurance	(58)		(53)
Net reserves	578		553
Direct primary commercial insurance
Gross reserves	160		169
Reinsurance	(63)		(54)
Net reserves	97		115
Other run-off business
Gross reserves	2		15
Reinsurance	—		(13)
Net reserves	2		2
Unallocated loss adjustment expenses
Gross reserves	79		80
Reinsurance	(1)		(1)
Net reserves	78		79
Total
Gross reserves	1,888		1,818
Reinsurance	(480)		(453)
Net reserves	$	1,408	$	1,365


Percentage of gross and ceded reserves by case and incurred but not reported (“IBNR”)
	December 31, 2020				December 31, 2019
	Case		IBNR		Case		IBNR
Direct excess commercial insurance
Gross reserves (1)	65	%	35	%	68	%	32	%
Ceded (2)	71		29		78		22
Assumed reinsurance coverage
Gross reserves	34		66		34		66
Ceded	35		65		35		65
Direct primary commercial insurance
Gross reserves	55		45		56		44
Ceded	79		21		78		22

(1)Approximately 67% of gross case reserves as of December 31, 2020 are subject to settlement agreements.

(2)Approximately 75% of ceded case reserves as of December 31, 2020 are subject to settlement agreements.


Gross payments from case reserves by type of exposure
($ in millions)		For the years ended December 31,
	2020			2019
Direct excess commercial insurance
Gross (1)		$	88		$	122
Ceded (2)		(37)			(53)
Assumed reinsurance coverage
Gross		40			43
Ceded		(7)			(3)
Direct primary commercial insurance
Gross		8			15
Ceded		(5)			(2)

(1) In 2020 77% of payments related to settlement agreements.

(2) In 2020 75% of payments related to settlement agreements.

60 www.allstate.com

Discontinued Lines and Coverages 2020 Form 10-K

Total net reserves as of December 31, 2020, included $695 million or 49% of estimated IBNR reserves compared to $660 million or 48% of estimated IBNR reserves as of December 31, 2019.

Total gross payments were $137 million and $183 million for 2020 and 2019, respectively, primarily related to settlement agreements reached with several insureds on large claims, mainly asbestos related losses, where the scope of coverages has been agreed upon. The claims associated with these settlement agreements are expected to be substantially paid out

over the next several years as qualified claims are submitted by these insureds.

Reinsurance collections were $53 million and $49 million for 2020 and 2019, respectively. The allowance for uncollectible reinsurance recoverables was $59 million and $60 million as of December 31, 2020 and December 31, 2019, respectively. The allowance represents 10.5% and 11.1% of the related reinsurance recoverable balances as of December 31, 2020 and December 31, 2019, respectively.

The Allstate Corporation 61

2020 Form 10-K Protection Services

Protection Services Segment

Protection Services comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside, Arity and Allstate Identity Protection. In 2020, Protection Services represented 4.3% of total revenue, 77.5% of total PIF and 3.3% of total adjusted net income. We offer consumer product protection plans, finance and insurance products (including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information and identity protection. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Summarized financial information
	For the years ended December 31,
($ in millions)	2020		2019		2018
Premiums written	$	1,890	$	1,535	$	1,431

Revenues
Premiums	$	1,493	$	1,233	$	1,098
Other revenue	208		188		82
Intersegment insurance premiums and service fees (1)	147		154		122
Net investment income	44		42		27
Realized capital gains (losses)	30		32		(11)
Total revenues	1,922		1,649		1,318

Costs and expenses
Claims and claims expense	(386)		(363)		(350)
Amortization of DAC	(658)		(543)		(463)
Operating costs and expenses	(651)		(661)		(505)
Restructuring and related charges	(3)		—		(4)
Amortization of purchased intangibles	(106)		(122)		(94)
Impairment of purchased intangibles	—		(55)		—
Total costs and expenses	(1,804)		(1,744)		(1,416)


Income tax (expense) benefit	(26)		18		19
Net income (loss) applicable to common shareholders	$	92	$	(77)	$	(79)

Adjusted net income	$	153	$	38	$	8
Realized capital gains (losses), after-tax	23		25		(9)
Amortization of purchased intangibles, after-tax	(84)		(97)		(74)
Impairment of purchased intangibles, after-tax	—		(43)		—
Tax Legislation (expense) benefit	—		—		(4)
Net income (loss) applicable to common shareholders	$	92	$	(77)	$	(79)

Allstate Protection Plans	$	137	$	60	$	23
Allstate Dealer Services	29		26		15
Allstate Roadside	12		(15)		(20)
Arity	(11)		(7)		(11)
Allstate Identity Protection	(14)		(26)		1
Adjusted net income	$	153	$	38	$	8

Allstate Protection Plans	128,982		99,632		68,588
Allstate Dealer Services	4,042		4,205		4,338
Allstate Roadside	548		599		663
Allstate Identity Protection	2,700		1,511		1,040
Policies in force as of December 31 (in thousands)	136,272		105,947		74,629

(1)Primarily related to Arity and Allstate Roadside and are eliminated in our consolidated financial statements.

62 www.allstate.com

Protection Services 2020 Form 10-K

Net income applicable to common shareholders was $92 million in 2020 compared to net loss of $77 million in 2019. 2019 results included a $55 million intangible asset impairment related to the SquareTrade trade name that occurred in the second quarter of 2019.

Adjusted net income increased $115 million in 2020 compared to 2019. The increase in 2020 was primarily due to growth of Allstate Protection Plans and improved profitability at Allstate Roadside, partially offset by investments at Allstate Identity Protection.

Total revenues increased 16.6% or $273 million in 2020 compared to 2019, primarily due to Allstate Protection Plan’s growth through its U.S. retail and international channels, partially offset by declines in revenue at Allstate Roadside.

Premiums written increased 23.1% or $355 million in 2020 compared to 2019, primarily due to growth at Allstate Protection Plans benefiting from higher consumer purchases. In late 2020, Allstate Protection Plans launched several new U.S. retailers and was awarded new business for launch in early 2021, which will result in additional premiums written in 2021.

PIF increased 28.6% or 30 million in 2020 compared to 2019 due to continued growth at Allstate Protection Plans.

Intersegment premiums and service fees decreased 4.5% or $7 million in 2020 compared to 2019, primarily related to decreased device sales through Arity’s device and mobile data collection services and analytic solutions.

Other revenue increased 10.6% or $20 million in 2020 compared to 2019, primarily due to increased sales at Allstate Identity Protection.

Claims and claims expense increased 6.3% or $23 million in 2020 compared to 2019, primarily due to higher levels of claims at Allstate Protection Plans driven by growth of the business, partially offset by lower losses at Allstate Roadside and Allstate Dealer Services due to declines in auto miles driven related to the Coronavirus.

Amortization of DAC increased 21.2% or $115 million in 2020 compared to 2019. The increase is driven by growth at Allstate Protection Plans.

Operating costs and expenses decreased 1.5% or $10 million in 2020 compared to 2019, primarily due to lower operating costs at Allstate Roadside, partially offset by expenses associated with continued growth at Allstate Protection Plans.

Amortization of purchased intangibles relates to the acquisitions of Allstate Protection Plans and Allstate Identity Protection. We recorded amortization expense of $106 million in 2020 compared to $122 million in 2019.

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2020 Form 10-K Claims and Claims Expense Reserves

Claims and Claims Expense Reserves

Underwriting results are significantly influenced by estimates of claims and claims expense reserves. For a description of our reserve process, see Note 8 of the consolidated financial statements. Further, for a description of our reserving policies and the potential variability in our reserve estimates, see the Application of Critical Accounting Estimates section of the MD&A. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR claims, as of the reporting date.

The facts and circumstances leading to reestimates of reserves relate to changes in claim activity and revisions to the development factors used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Reestimates occur when actual losses differ from those predicted by the estimated development factors used in prior reserve estimates.

We believe the net loss reserves exposures are appropriately established based on available facts, technology, laws and regulations.


Total reserves, net of recoverables (“net reserves”), as of December 31, by line of business
($ in millions)	2020		2019		2018
Allstate brand	$	18,523	$	18,750	$	18,134
Encompass brand	613		646		691
Total Allstate Protection	19,136		19,396		18,825
Discontinued Lines and Coverages	1,408		1,365		1,391
Total Property-Liability	20,544		20,761		20,216
Protection Services	33		39		52
Total net reserves	$	20,577	$	20,800	$	20,268

The year-end 2020 gross reserves of $27.61 billion for insurance claims and claims expense were $8.48 billion more than the net reserve balance of $19.13 billion recorded on the basis of statutory accounting practices for reports provided to state regulatory authorities. The principal differences are recoverables from third parties totaling $7.03 billion, including $5.61 billion of indemnification recoverables related to the Michigan Catastrophic Claims Association (“MCCA”), that reduce reserves for statutory reporting, but are recorded as assets for GAAP reporting, and a liability for the reserves of the Canadian subsidiaries for $1.35 billion that are a component of our consolidated reserves, but not included in our U.S. statutory reserves.


Impact of reserve reestimates by brand on combined ratio and net income applicable to common shareholders(1) (2)
	2020				2019				2018
($ in millions, except ratios)	Reserve reestimate			Effect on combined ratio	Reserve reestimate			Effect on combined ratio	Reserve reestimate			Effect on combined ratio
Allstate brand	$	(534)		(1.5)	$	(236)		(0.7)	$	(329)		(1.0)
Encompass brand	(42)			(0.1)	3			—	(11)			—
Total Allstate Protection	(576)			(1.6)	(233)			(0.7)	(340)			(1.0)
Discontinued Lines and Coverages	141			0.4	105			0.4	87			0.3
Total Property-Liability	(435)			(1.2)	(128)			(0.3)	(253)			(0.7)
Protection Services	(1)			—	(2)			—	(2)			—
Total	$	(436)			$	(130)			$	(255)
Reserve reestimates, after-tax	$	(344)			$	(103)			$	(201)
Consolidated net income applicable to common shareholders	$	5,461			$	4,678			$	2,012
Reserve reestimates as a % impact on consolidated net income applicable to common shareholders	6.3		%		2.2		%		10.0		%
Property-Liability prior year reserve reestimates included in catastrophe losses	$	(503)			$	48			$	25

(1)Favorable reserve reestimates are shown in parentheses.

(2)Ratios are calculated using property and casualty premiums earned.

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Claims and Claims Expense Reserves 2020 Form 10-K

The following tables reflect the accident years to which the reestimates shown above are applicable. Favorable reserve reestimates are shown in parentheses.


2020 prior year reserve reestimates
($ in millions)	2015 & prior		2016		2017		2018		2019		Total
Allstate brand	$	(58)	$	46	$	(162)	$	(348)	$	(12)	$	(534)
Encompass brand	2		(4)		(37)		(5)		2		(42)
Total Allstate Protection	(56)		42		(199)		(353)		(10)		(576)
Discontinued Lines and Coverages	141		—		—		—		—		141
Total Property-Liability	85		42		(199)		(353)		(10)		(435)
Protection Services	—		—		—		—		(1)		(1)
Total	$	85	$	42	$	(199)	$	(353)	$	(11)	$	(436)


2019 prior year reserve reestimates
($ in millions)	2014 & prior		2015		2016		2017		2018		Total
Allstate brand	$	(138)	$	(46)	$	(26)	$	(99)	$	73	$	(236)
Encompass brand	(2)		2		(2)		4		1		3
Total Allstate Protection	(140)		(44)		(28)		(95)		74		(233)
Discontinued Lines and Coverages	105		—		—		—		—		105
Total Property-Liability	(35)		(44)		(28)		(95)		74		(128)
Protection Services	—		—		—		—		(2)		(2)
Total	$	(35)	$	(44)	$	(28)	$	(95)	$	72	$	(130)


2018 prior year reserve reestimates
($ in millions)	2013 & prior		2014		2015		2016		2017		Total
Allstate brand	$	(66)	$	(56)	$	(16)	$	(133)	$	(58)	$	(329)
Encompass brand	(12)		(11)		(15)		1		26		(11)
Total Allstate Protection	(78)		(67)		(31)		(132)		(32)		(340)
Discontinued Lines and Coverages	87		—		—		—		—		87
Total Property-Liability	9		(67)		(31)		(132)		(32)		(253)
Protection Services	—		—		—		—		(2)		(2)
Total	$	9	$	(67)	$	(31)	$	(132)	$	(34)	$	(255)

Allstate Protection

The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2020, 2019, and 2018, and the effect of reestimates in each year.


Net reserves by line
	January 1 reserves
($ in millions)	2020		2019		2018
Auto	$	14,728	$	14,378	$	14,051
Homeowners	2,138		2,157		2,205
Other personal lines	1,459		1,489		1,489
Commercial lines	1,071		801		616
Total Allstate Protection	$	19,396	$	18,825	$	18,361


Impact of reserve reestimates by line on combined ratio and underwriting income
	2020				2019				2018
($ in millions, except ratios)	Reserve reestimate			Effect on combined ratio	Reserve reestimate			Effect on combined ratio	Reserve reestimate			Effect on combined ratio
Auto	$	(107)		(0.3)	$	(323)		(0.9)	$	(455)		(1.3)
Homeowners	(439)			(1.2)	65			0.2	14			—
Other personal lines	(66)			(0.2)	8			—	(7)			—
Commercial lines	36			0.1	17			—	108			0.3

Total Allstate Protection	$	(576)		(1.6)	$	(233)		(0.7)	$	(340)		(1.0)
Underwriting income	$	4,566			$	2,912			$	2,343
Reserve reestimates as a % impact on underwriting income	12.6		%		8.0		%		14.5		%

The Allstate Corporation 65

2020 Form 10-K Claims and Claims Expense Reserves

Favorable results for homeowners lines in 2020 were primarily due to catastrophe reserve reestimates driven by the subrogation settlements. Favorable reserve reestimates for auto in 2020 primarily related to favorable non-catastrophe reserve reestimates in personal lines auto, partially offset by strengthening in commercial lines auto reserves.

Favorable reserve reestimates for auto in 2019 primarily related to continued favorable personal lines auto injury coverage development, offset by strengthening in our homeowners lines. Auto liability claims process changes implemented in prior years, including a program requiring enhanced documentation of injuries and related medical treatments, resulted in favorable severity trends compared to those originally estimated as we developed greater experience in settling claims under these programs. Unfavorable results for homeowners lines in 2019 were primarily due to catastrophe development being higher than anticipated in previous estimates.

Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables.

Discontinued Lines and Coverages

We conduct an annual review in the third quarter of each year to evaluate and establish asbestos, environmental and other discontinued lines reserves. Reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines reserves based on assessments of the characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by policyholders.


Discontinued Lines and Coverages reserve reestimates
	2020				2019				2018
($ in millions)	January 1 reserves		Reserve reestimate		January 1 reserves		Reserve reestimate		January 1 reserves		Reserve reestimate
Asbestos claims	$	810	$	78	$	866	$	28	$	884	$	44
Environmental claims	179		44		170		36		166		20
Other discontinued lines	376		19		355		41		357		23
Total	$	1,365	$	141	$	1,391	$	105	$	1,407	$	87
Underwriting loss			$	(144)			$	(108)			$	(90)

Reserve reestimates in 2019 primarily related to new reported information and settlement agreements, including bankruptcy proceedings, impacting asbestos and other discontinued lines and additional environmental clean-up sites.

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Claims and Claims Expense Reserves 2020 Form 10-K


Reserves and claim activity before (Gross) and after (Net) the effects of reinsurance
	2020					2019					2018
($ in millions, except ratios)	Gross		Net			Gross		Net			Gross		Net
Asbestos claims
Beginning reserves	$	1,172	$	810		$	1,266	$	866		$	1,296	$	884
Incurred claims and claims expense	132		78			39		28			89		44
Claims and claims expense paid	(100)		(61)			(133)		(84)			(119)		(62)
Ending reserves	$	1,204	$	827		$	1,172	$	810		$	1,266	$	866

Annual survival ratio	12.0		13.6			8.8		9.6			10.6		14.0
3-year survival ratio	10.3		12.0			9.0		10.3			9.1		9.7

Environmental claims
Beginning reserves	$	219	$	179		$	209	$	170		$	199	$	166
Incurred claims and claims expense	49		44			42		36			30		20
Claims and claims expense paid	(19)		(17)			(32)		(27)			(20)		(16)
Ending reserves	$	249	$	206		$	219	$	179		$	209	$	170

Annual survival ratio	13.1		12.1			6.8		6.6			10.5		10.6
3-year survival ratio	10.5		10.3			8.1		8.1			8.4		8.2

Combined environmental and asbestos claims
Annual survival ratio	12.2		13.2			8.4		8.9			10.6		13.3
3-year survival ratio	10.3		11.6			8.8		9.9			9.0		9.5
Percentage of IBNR in ending reserves			50.3		%			48.8		%			49.6		%

The survival ratio is calculated by taking our ending reserves divided by payments made during the year. This is a commonly used but simplistic and imprecise approach to measuring the adequacy of asbestos and environmental reserve levels. Many factors, such as mix of business, level of coverage provided and settlement procedures have significant impacts on the amount of environmental and asbestos claims and claims expense reserves, claim payments and the resultant ratio. As payments result in corresponding reserve reductions, survival ratios can be expected to vary over time. In 2020 and 2019, the asbestos and environmental net 3-year survival ratio increased due to lower claim payments associated with settlement agreements.


Net asbestos reserves by type of exposure and total reserve additions
	December 31, 2020					December 31, 2019					December 31, 2018
($ in millions)	Active policy-holders	Net reserves		% of reserves		Active policy-holders	Net reserves		% of reserves		Active policy-holders	Net reserves		% of reserves
Direct policyholders:
Primary	59	$	10	1	%	58	$	12	1	%	51	$	12	1	%
Excess	303	291		35		299	292		36		295	309		36
Total	362	301		36		357	304		37		346	321		37
Assumed reinsurance		122		15			127		16			138		16
IBNR		404		49			379		47			407		47
Total net reserves		$	827	100	%		$	810	100	%		$	866	100	%
Total reserve additions		$	78				$	28				$	44

At December 31, 2020, there were 362 active policyholders with open asbestos claims.

Active policyholders increased by 5 in 2020, including 8 policyholders reporting asbestos claims for the first time and the closing of all claims for 3 policyholders.
Active policyholders increased by 11 in 2019, including 16 policyholders reporting asbestos claims for the first time and the closing of all claims for 5 policyholders.

IBNR net reserves increased $25 million as of December 31, 2020 compared to December 31, 2019. IBNR provides for reserve development of known claims and future reporting of additional unknown

claims from current policyholders and ceding companies.

Reinsurance and indemnification programs We utilize reinsurance to reduce exposure to catastrophe risk and manage capital, and to support the required statutory surplus and the insurance financial strength ratings of certain subsidiaries such as Castle Key Insurance Company (“CKIC”) and Allstate New Jersey Insurance Company (“ANJ”). We purchase significant reinsurance to manage our aggregate countrywide exposure to an acceptable level. The price and terms of reinsurance and the credit quality of the reinsurer are considered in the purchase process, along with whether the price can be appropriately reflected in the costs that are considered in setting future rates

The Allstate Corporation 67

2020 Form 10-K Claims and Claims Expense Reserves

charged to policyholders. We have also purchased reinsurance to mitigate exposures in our long-tail liability lines, including environmental, asbestos and other discontinued lines as well as our commercial lines, including shared economy. We also participate in various indemnification mechanisms, including state-based industry pool or facility programs mandating

participation by insurers offering certain coverage in their state and the federal government National Flood Insurance Program (“NFIP”). See Note 10 of the consolidated financial statements for additional details on these programs.


Reinsurance and indemnification recoverables, net of the allowance established for uncollectible amounts
	S&P financial strength rating (1)		Reinsurance or indemnification recoverable on paid and unpaid claims, net
($ in millions)		2020			2019
Indemnification programs
State-based industry pool or facility programs
MCCA (2)	N/A		$	5,646		$	5,499
New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”)	N/A		389			446
North Carolina Reinsurance Facility	N/A		67			78
Florida Hurricane Catastrophe Fund (“FHCF”)	N/A		32			52
Other			8			9
Federal Government - NFIP	N/A		30			25

Subtotal			6,172			6,109

Catastrophe reinsurance recoverables
Renaissance Reinsurance Limited	A+		17			27
Swiss Reinsurance America Corporation	AA-		12			15
Everest Reinsurance Company	A+		12			15
Other			156			179
Subtotal			197			236

Other reinsurance recoverables, net (3)
Lloyd’s of London (“Lloyd’s”) (4)	A+		166			158
Aleka Insurance Inc.	N/A		165			115
Westport Insurance Corporation	AA-		59			55
TIG Insurance Company	N/A		40			38


Other, including allowance for credit losses			317			293
Subtotal			747			659
Total Property-Liability			7,116			7,004
Protection Services			18			20
Total			$	7,134		$	7,024

(1)N/A reflects no S&P Global Ratings (“S&P”) rating available.

(2)As of December 31, 2020 and 2019, MCCA includes $34 million and $39 million of reinsurance recoverable on paid claims, respectively, and $5.61 billion and $5.46 billion of reinsurance recoverable on unpaid claims, respectively.

(3)Other reinsurance recoverables primarily relate to asbestos, environmental and other liability exposures as well as commercial lines, including shared economy.

(4)As of December 31, 2020, case reserves for Lloyd’s were 64% of the reinsurance recoverable for unpaid claims.

Reinsurance and indemnification recoverables include an estimate of the amount of insurance claims and claims expense reserves that are ceded under the terms of the agreements, including IBNR unpaid losses. We calculate our ceded reinsurance and indemnification estimates based on the terms of each applicable agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We also consider other limitations and coverage exclusions under our agreements. Accordingly, our estimate of recoverables is subject to similar risks and uncertainties as our estimate of reserves claims and claims expense. We believe the recoverables are appropriately established; however,

as our underlying reserves continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We regularly evaluate the reinsurers and the respective amounts of our reinsurance recoverables, and a provision for uncollectible reinsurance recoverables is recorded, if needed. The establishment of reinsurance recoverables and the related allowance for uncollectible reinsurance is also an inherently uncertain process involving estimates. Changes in estimates could result in additional changes to the Consolidated Statements of Operations.

Indemnification recoverables are considered collectible based on the industry pool and facility

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Claims and Claims Expense Reserves 2020 Form 10-K

enabling legislation and the Company has not had any credit losses related to these programs and we do not anticipate losses in the foreseeable future. We also have not experienced credit losses on our catastrophe reinsurance programs, which include highly rated reinsurers.

The allowance for uncollectible reinsurance relates to other reinsurance programs primarily related to our Discontinued Lines and Coverages segment. This allowance was $59 million and $60 million as of December 31, 2020 and 2019, respectively.

The allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, and other relevant factors. In addition, in the ordinary course of business, we may become involved in coverage disputes with certain of our reinsurers that may ultimately result in lawsuits and arbitrations brought by or against such reinsurers to determine the parties’ rights and obligations under the various reinsurance agreements. We employ dedicated specialists to manage reinsurance collections and disputes. We also consider recent developments in commutation activity

between reinsurers and cedents, and recent trends in arbitration and litigation outcomes in disputes between cedents and reinsurers in seeking to maximize our reinsurance recoveries.

Adverse developments in the insurance industry have led to a decline in the financial strength of some of our reinsurance carriers, causing amounts recoverable from them and future claims ceded to them to be considered a higher risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry to be concentrated among fewer companies.

See Note 2 of the consolidated financial statements for a description of the methodology utilized to calculate the allowance for reinsurance recoverables.

For further details related to our reinsurance and indemnification recoverables, see the Regulation section in Part I and Note 10 of the consolidated financial statements.


Effects of reinsurance ceded and indemnification programs on our premiums earned and claims and claims expense
	For the years ended December 31,
($ in millions)	2020			2019			2018
Allstate Protection - Premiums
Indemnification programs
State-based industry pool or facility programs
MCCA	$	61		$	89		$	77
PLIGA	7			8			9
FHCF	9			9			10
Other	97			85			90
Federal Government - NFIP	261			258			258
Catastrophe reinsurance	416			377			344
Other reinsurance programs	110			121			54
Total Allstate Protection	961			947			842
Discontinued Lines and Coverages	—			—			—
Total Property-Liability	961			947			842
Protection Services	180			175			174
Total effect on premiums earned	$	1,141		$	1,122		$	1,016

Allstate Protection - Claims
Indemnification programs
State-based industry pool or facility programs
MCCA	$	256		$	208		$	233
PLIGA	(40)			3			(6)
FHCF	15			31			148
Other	63			67			90
Federal Government - NFIP	87			150			118
Catastrophe reinsurance	(105)		(1)	(166)		(2)	604
Other reinsurance programs	88			94			40
Total Allstate Protection	364			387			1,227
Discontinued Lines and Coverages	75			39			57
Total Property-Liability	439			426			1,284
Protection Services	91			98			94
Total effect on claims and claims expense	$	530		$	524		$	1,378

(1)Decline reflects reestimates in claims and claims expense related subrogation settlements.

(2)Decline reflects reestimates in claims and claims expense related to the 2018 Camp Fire.

The Allstate Corporation 69

2020 Form 10-K Claims and Claims Expense Reserves

In 2020 and 2019, ceded premiums earned increased primarily due to increased catastrophe reinsurance premium rates. In 2020, ceded claims and claims expenses increased $6 million. In 2019, ceded claims and claims expenses decreased $854 million, primarily due to lower amounts related to the catastrophe reinsurance program, partially offset by increased activity with our shared economy business.

Our claim reserve development experience in 2020 is consistent with the prior two years as gross reserves have increased between 2-3% each year. The Governor of Michigan signed new legislation on May 30, 2019 to reform Michigan’s no-fault auto insurance system. For further discussion of these items, see Regulation, Indemnification Programs and Note 10 of the consolidated financial statements.


Michigan personal injury protection reserve and claim activity before and after the effects of MCCA recoverables
	For the years ended December 31,
	2020				2019				2018
($ in millions)	Gross		Net		Gross		Net		Gross		Net
Beginning reserves	$	6,106	$	647	$	5,975	$	605	$	5,799	$	565
Incurred claims and claims expense-current year	312		98		446		202		449		189
Incurred claims and claims expense-prior years	107		65		(16)		20		9		35
Claims and claims expense paid-current year (1)	(47)		(42)		(55)		(53)		(52)		(51)
Claims and claims expense paid-prior years (1)	(196)		(98)		(244)		(127)		(230)		(133)
Ending reserves (2)	$	6,282	$	670	$	6,106	$	647	$	5,975	$	605

(1)Paid claims and claims expenses reported in the table for the current and prior years, recovered from the MCCA totaled $103 million, $119 million and $98 million in 2020, 2019 and 2018, respectively.

(2)Gross reserves for the year ended December 31, 2020, comprise 82% case reserves and 18% IBNR. Gross reserves for the year ended December 31, 2019, comprise 85% case reserves and 15% IBNR. Gross reserves for the year ended December 31, 2018 comprise 88% case reserves and 12% IBNR. The MCCA does not require member companies to report ultimate case reserves.

Pending MCCA claims differ from most personal lines insurance pending claims as other personal lines policies have coverage limits and incurred claims settle in shorter periods. Claims are considered pending as long as payments are continuing pursuant to an outstanding MCCA claim, which can be for a claimant’s lifetime. Many of these injuries are catastrophic in nature, resulting in serious permanent disabilities that

require attendant and residential care for periods that may span decades. A significant portion of the ultimate incurred claim reserves and the recoverables can be attributed to a small number of catastrophic claims that occurred more than five years ago and continue to pay lifetime benefits.


Pending, new and closed claims for Michigan personal injury protection exposure
	For the years ended December 31,
Number of claims (1)	2020	2019	2018
Pending, beginning of year	4,942	4,812	4,983
New	5,896	7,807	7,858
Closed	(5,981)	(7,677)	(8,029)
Pending, end of year	4,857	4,942	4,812

(1)Total claims includes those covered and not covered by the MCCA indemnification.

As of December 31, 2020, approximately 1,500 of our pending claims have been reported to the MCCA, of which approximately 60% represents claims that occurred more than 5 years ago. There are 68 Allstate brand claims with reserves in excess of $15 million as of December 31, 2020, which comprise approximately 29% of the gross ending reserves in the table above. As a result, significant developments with a single claimant can result in volatility in prior year incurred claims.

Intercompany reinsurance We enter into certain intercompany insurance and reinsurance transactions in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation.

Catastrophe reinsurance Our catastrophe reinsurance program is designed to address our exposure to catastrophes nationwide, utilizing our risk management methodology. Our program is designed

to provide reinsurance protection for catastrophes resulting from multiple perils including hurricanes, windstorms, hail, tornadoes, earthquakes, wildfires, and fires following earthquakes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our shareholders an acceptable return on the risks assumed in our property business, while providing protection to our customers.

We anticipate completing the placement of our 2021 nationwide catastrophe reinsurance program in the second quarter of 2021. We expect the program will be similar to our 2020 nationwide catastrophe reinsurance program, but will evaluate opportunities to improve the economic terms and conditions. We are also evaluating opportunities to include National General, which was acquired on January 4, 2021, into the program. For further details of the existing 2020 program, see Note 10 of the consolidated financial statements.

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Allstate Life 2020 Form 10-K

Allstate Life Segment

Allstate Life consists of traditional, interest-sensitive and variable life insurance. In 2020, Allstate Life represented 4.4% of total revenue, 1.1% of total PIF and 4.2% of total adjusted net income. Our target customers are middle market consumers with family and financial protection needs.

On January 26, 2021, we announced an agreement to sell ALIC and certain affiliates, which represent approximately 90% of Allstate Life reserves for life-contingent contract benefits and contractholder funds. Allstate will retain ownership of ALNY unless an agreement can be reached with a third party to assume some or all of ALNY’s liabilities. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Summarized financial information
	For the years ended December 31,
($ in millions)	2020		2019		2018
Revenues
Premiums and contract charges	$	1,340	$	1,343	$	1,315
Other revenue	121		125		119
Net investment income	502		514		505
Realized capital gains (losses)	(10)		1		(14)
Total revenues	1,953		1,983		1,925

Costs and expenses
Contract benefits	(964)		(855)		(809)
Interest credited to contractholder funds	(329)		(299)		(285)
Amortization of DAC	(149)		(173)		(132)
Operating costs and expenses	(329)		(354)		(361)
Restructuring and related charges	(6)		(2)		(3)
Total costs and expenses	(1,777)		(1,683)		(1,590)


Income tax expense	(17)		(53)		(75)
Net income applicable to common shareholders	$	159	$	247	$	260

Adjusted net income	$	194	$	261	$	295
Realized capital gains (losses), after-tax	(9)		—		(11)
Valuation changes on embedded derivatives that are not hedged, after-tax	(34)		(9)		—
DAC and DSI amortization related to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged, after-tax	8		(5)		(8)

Tax Legislation (expense) benefit	—		—		(16)
Net income applicable to common shareholders	$	159	$	247	$	260

Reserve for life-contingent contract benefits as of December 31	$	2,755	$	2,736	$	2,677

Contractholder funds as of December 31	$	8,013	$	7,805	$	7,656

Policies in force as of December 31 by distribution channel (in thousands)
Allstate agencies	1,765		1,816		1,831
Closed channels	98		107		114
Total	1,863		1,923		1,945

Net income applicable to common shareholders decreased 35.6% or $88 million in 2020 compared to 2019.

Adjusted net income decreased 25.7% or $67 million in 2020 compared to 2019, primarily due to higher contract benefits due to mortality associated with the Coronavirus, partially offset by lower operating costs and expenses.

Premiums and contract charges decreased 0.2% or $3 million in 2020 compared to 2019, primarily due to lower contract charges on interest-sensitive life insurance from a decline in business in force, partially offset by higher premiums from traditional life insurance. Approximately 85% of Allstate Life’s traditional life insurance premium relates to term life insurance products.

The Allstate Corporation 71

2020 Form 10-K Allstate Life

Effective March 31, 2020, in light of uncertainty around the impacts of the Coronavirus, we implemented temporary underwriting restrictions on new life insurance applications. We are approving standard and preferred rate classes only, with a maximum issue age of 69, and suspended sales of our simplified issue term life product that does not require

underwriting. While these restrictions are in place, we expect sales to slow. Allstate agents and exclusive financial specialists are able to offer coverage to customers outside these guidelines through nonproprietary carriers.


Premiums and contract charges by product
	For the years ended December 31,
($ in millions)	2020		2019		2018
Traditional life insurance premiums	$	633	$	630	$	600
Accident and health insurance premiums	2		2		2
Interest-sensitive life insurance contract charges (1)	705		711		713
Premiums and contract charges	$	1,340	$	1,343	$	1,315

(1)Contract charges related to the cost of insurance totaled $506 million, $499 million and $493 million in 2020, 2019 and 2018, respectively.

Other revenue decreased 3.2% or $4 million in 2020 compared to 2019, primarily due to lower gross dealer concessions earned on Allstate agents’ or exclusive financial specialists’ sales of non-proprietary products.

Contract benefits increased 12.7% or $109 million in 2020 compared to 2019, primarily due to higher claim experience related to Coronavirus on both interest-sensitive and traditional life insurance. Estimated Coronavirus claims, net of reinsurance and reserve releases, totaled $78 million in 2020.

Our annual review of assumptions in 2020 resulted in a $24 million increase in reserves primarily for secondary guarantees on interest-sensitive life insurance due to decreased projected interest rates that result in lower projected policyholder account values which increases guaranteed benefits. In 2019, the review resulted in a $5 million decrease in reserves primarily for secondary guarantees on interest-sensitive life insurance due to utilizing more refined policy level information and assumptions.

Benefit spread reflects our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and contract benefits (“benefit spread”). Benefit spread decreased 35.9% to $177 million in 2020 compared to $276 million in 2019, primarily due to higher claim experience on interest-sensitive life insurance and an increase in reserves for secondary guarantees on interest-sensitive life insurance.

Interest credited to contractholder funds increased 10.0% or $30 million in 2020 compared to 2019. Valuation changes on derivatives embedded in equity-indexed universal life contracts that are not hedged increased interest credited to contractholder funds by $43 million in 2020 compared to $11 million in 2019. These valuation changes are primarily driven by changes in interest rates.

Investment spread reflects the difference between net investment income and interest credited to contractholder funds (“investment spread”) and is used to analyze the impact of net investment income and interest credited to contractholder funds on net income.


Investment spread
	For the years ended December 31,
($ in millions)	2020		2019		2018
Investment spread before valuation changes on embedded derivatives that are not hedged	$	216	$	226	$	220
Valuation changes on derivatives embedded in equity-indexed universal life contracts that are not hedged	(43)		(11)		—
Total investment spread	$	173	$	215	$	220

Investment spread before valuation changes on embedded derivatives that are not hedged decreased 4.4% in 2020 compared to 2019, primarily due to lower net investment income.

Amortization of DAC decreased 13.9% or $24 million in 2020 compared to 2019, primarily due to lower amortization from lower gross profits on interest-sensitive life insurance, partially offset by higher amortization acceleration for changes in assumptions.

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Allstate Life 2020 Form 10-K


Components of amortization of DAC
	For the years ended December 31,
($ in millions)	2020		2019		2018
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions	$	78	$	109	$	117
Amortization relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged	(10)		6		10
Amortization acceleration for changes in assumptions (‘‘DAC unlocking’’)	81		58		5
Total amortization of DAC	$	149	$	173	$	132

(1)The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits.

Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts covers assumptions for mortality, persistency, expenses, investment returns, including capital gains and losses, interest crediting rates to policyholders, and the effect of any hedges. An assessment is made of future projections to ensure the reported DAC balances reflect current expectations.

In 2020, the review resulted in an acceleration of DAC amortization (decrease to income) of $81 million. DAC amortization acceleration primarily related to the investment margin component of estimated gross profits and was due to lower projected future interest rates and investment returns compared to our previous expectations. This was partially offset by DAC

amortization deceleration (increase to income) for changes in the expense margin due to a decrease in projected expenses.

In 2019, the review resulted in an acceleration of DAC amortization of $58 million. DAC amortization acceleration primarily related to the investment margin component of estimated gross profits and was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was due to decreased projected interest rates that result in lower projected policyholder account values which increases benefits on guaranteed products and more refined policy level information and assumptions.


Changes in DAC
($ in millions)	Traditional life and accident and health				Interest-sensitive life insurance				Total
	For the years ended December 31,
	2020		2019		2020		2019		2020		2019
Balance, beginning of year	$	508	$	489	$	571	$	811	$	1,079	$	1,300
Acquisition costs deferred	50		63		56		60		106		123
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions (1)	(44)		(44)		(34)		(65)		(78)		(109)
Amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged (1)	—		—		10		(6)		10		(6)
Amortization acceleration for DAC unlocking (1)	—		—		(81)		(58)		(81)		(58)
Effect of unrealized capital gains and losses (2)	—		—		(127)		(171)		(127)		(171)
Ending balance	$	514	$	508	$	395	$	571	$	909	$	1,079

(1)Included as a component of amortization of DAC on the Consolidated Statements of Operations.

(2)Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized.

Operating costs and expenses decreased 7.1% or $25 million in 2020 compared to 2019, primarily due to lower employee-related, marketing and technology costs.

Analysis of reserves and contractholder funds


Reserve for life-contingent contract benefits
	As of December 31,
($ in millions)	2020		2019
Traditional life insurance	$	2,643	$	2,612
Accident and health insurance	112		124
Reserve for life-contingent contract benefits	$	2,755	$	2,736

The Allstate Corporation 73

2020 Form 10-K Allstate Life

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.


Change in contractholder funds
	For the years ended December 31,
($ in millions)	2020		2019		2018
Contractholder funds, beginning balance	$	7,805	$	7,656	$	7,608



Deposits	921		949		965

Interest credited	327		298		284

Benefits, withdrawals and other adjustments
Benefits	(230)		(233)		(232)
Surrenders and partial withdrawals	(225)		(261)		(259)
Contract charges	(704)		(702)		(704)
Net transfers from separate accounts	5		10		6
Other adjustments (1)	114		88		(12)
Total benefits, withdrawals and other adjustments	(1,040)		(1,098)		(1,201)
Contractholder funds, ending balance	$	8,013	$	7,805	$	7,656

(1)The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Consolidated Statements of Operations. As a result, the net change in contractholder funds associated with products reinsured is reflected as a component of the other adjustments line.

Contractholder deposits decreased 3.0% in 2020 compared to 2019. The weighted average guaranteed crediting rate and weighted average current crediting rate for our interest-sensitive life insurance contracts, excluding variable life, are both 3.8% as of December 31, 2020.

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Allstate Life 2020 Form 10-K

Allstate Life reinsurance ceded

In the normal course of business, we seek to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. In addition, we have used reinsurance to effect the disposition of certain blocks of business.

We retain primary liability as a direct insurer for all risks ceded to reinsurers. As of December 31, 2020, approximately 12% of our face amount of life insurance in force was reinsured.


Reinsurance recoverables by reinsurer, net
	S&P financial strength rating (1)	Reinsurance recoverable on paid and unpaid benefits

		As of December 31,
($ in millions)		2020		2019
RGA Reinsurance Company	AA-	$	167	$	197
Swiss Re Life and Health America, Inc.	AA-	147		155
Transamerica Life Group	A+	75		75
Munich American Reassurance	AA-	70		80
Scottish Re (U.S.), Inc. (2)	N/A	66		73
John Hancock Life & Health Insurance Company	AA-	45		50
Triton Insurance Company (3)	N/A	40		43
American Health & Life Insurance Co. (3)	N/A	29		32
Security Life of Denver	A+	22		23
Lincoln National Life Insurance	AA-	21		27
SCOR Global Life	AA-	12		14
American United Life Insurance Company	AA-	9		11
Other (4)		18		17
Credit loss allowance (5)		(9)		(3)
Total		$	712	$	794

(1)N/A reflects no S&P rating available.

(2)In December 2018, the Delaware Insurance Commissioner placed Scottish Re (U.S.), Inc. under regulatory supervision and in March 2019, the reinsurer was placed in rehabilitation. We have been permitted to exercise certain setoff rights while the parties address any potential disputes. See Note 10 of the consolidated financial statements for further details.

(3)A.M. Best rating is B++.

(4)As of December 31, 2020 and 2019, the other category includes $11 million and $12 million, respectively, of recoverables due from reinsurers rated A- or better by S&P.

(5)Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior valuation allowance is now presented as an allowance for expected credit losses.

We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis. In connection with the adoption of the measurement of credit losses on financial instruments accounting standard in 2020, the method of calculating the allowance for reinsurance recoverables changed. See Note 2 of the consolidated financial statements for additional details. No reinsurance recoverables have been written off in the three-years ended December 31, 2020.

We enter into certain intercompany reinsurance transactions for the Allstate Life operations in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation.

The Allstate Corporation 75

2020 Form 10-K Allstate Benefits

Allstate Benefits Segment

Allstate Benefits offers voluntary benefits products, including life, accident, critical illness, hospital, short-term disability and other health products. In 2020, Allstate Benefits represented 2.6% of total revenue, 2.2% of total PIF and 2.1% of total adjusted net income. Our target customers are middle market consumers with family and financial protection needs. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Summarized financial information
	For the years ended December 31,
($ in millions)	2020		2019		2018
Revenues
Premiums and contract charges	$	1,094	$	1,145	$	1,135

Net investment income	78		83		77
Realized capital gains (losses)	8		12		(9)
Total revenues	1,180		1,240		1,203

Costs and expenses
Contract benefits	(516)		(601)		(595)
Interest credited to contractholder funds	(33)		(34)		(35)
Amortization of DAC	(177)		(161)		(145)
Operating costs and expenses	(322)		(285)		(278)

Restructuring and related charges	(1)		—		—
Total costs and expenses	(1,049)		(1,081)		(1,053)


Income tax expense	(28)		(35)		(32)
Net income applicable to common shareholders	$	103	$	124	$	118

Adjusted net income	$	96	$	115	$	124
Realized capital gains (losses), after-tax	7		9		(7)
DAC and DSI amortization related to realized capital gains and losses, after-tax	—		—		1




Net income applicable to common shareholders	$	103	$	124	$	118

Benefit ratio (1)	47.2		52.5		52.4

Operating expense ratio (2)	29.4		24.9		24.5

Reserve for life-contingent contract benefits as of December 31	$	1,028	$	1,034	$	1,007

Contractholder funds as of December 31	$	857	$	915	$	898

Policies in force as of December 31 (in thousands)	3,950		4,183		4,208

(1)Benefit ratio is calculated as contract benefits divided by premiums and contract charges.

(2)Operating expense ratio is calculated as operating costs and expenses divided by premiums and contract charges.

Net income applicable to common shareholders decreased 16.9% or $21 million in 2020 compared to 2019.

Adjusted net income decreased 16.5% or $19 million in 2020 compared to 2019, primarily due to lower premiums and higher operating costs and expenses driven by a $41 million, pre-tax, write-off of capitalized software costs associated with a billing system in the second quarter of 2020, partially offset by lower contract benefits.

Premiums and contract charges decreased 4.5% or $51 million in 2020 compared to 2019, primarily due to decreases in disability products from the non-renewal of a large underperforming account in the fourth quarter of 2019, and decreased premium collections due to Coronavirus-related layoffs and furloughs, partially offset by an increase in contract charges associated with the annual review of assumptions.

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Allstate Benefits 2020 Form 10-K


Premiums and contract charges by product
	For the years ended December 31,
($ in millions)	2020		2019		2018
Life	$	168	$	157	$	155
Accident	281		298		297
Critical illness	465		479		476
Hospital	102		99		93
Short-term disability	74		107		108
Other health	4		5		6
Premiums and contract charges	$	1,094	$	1,145	$	1,135

New annualized premium sales (annualized premiums at initial customer enrollment) decreased 24.5% to $281 million in 2020. The decrease in 2020 relates to the impact of the Coronavirus and increased competition.

Contract benefits decreased 14.1% or $85 million in 2020 compared to 2019, primarily due to lower reported claim experience on critical illness, disability and accident products, driven by limited activities and deferral of non-essential medical procedures from the Coronavirus and the non-renewal of a large underperforming account in the fourth quarter of 2019.

Benefit ratio decreased to 47.2 in 2020 compared to 52.5 in 2019 primarily due to lower contract benefits for critical illness and accident products and an increase in contract charges associated with the annual review of assumptions.

Amortization of DAC increased 9.9% or $16 million in 2020 compared to 2019, primarily due to an unfavorable adjustment associated with our annual review of assumptions.

Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts resulted in an acceleration of DAC amortization (decrease to income) of $28 million or 5.8% of the unamortized DAC asset balance in 2020 compared to $2 million in 2019. In both 2020 and 2019, DAC amortization acceleration primarily related to lower projected investment returns, partially offset by favorable projected mortality.


Changes in DAC
	For the years ended
($ in millions)	2020		2019
Balance, beginning of year	$	527	$	549
Acquisition costs deferred	120		142
Amortization of DAC before amortization relating to changes in assumptions (1)	(148)		(159)
Amortization relating to realized capital gains and losses (1)	(1)		—
Amortization acceleration for DAC unlocking (1)	(28)		(2)
Effect of unrealized capital gains and losses (2)	—		(3)
Ending balance	$	470	$	527

(1)Included as a component of amortization of DAC on the Consolidated Statements of Operations.


Operating costs and expenses
	For the years ended December 31,
($ in millions)	2020		2019		2018
Non-deferrable commissions	$	99	$	104	$	109
General and administrative expenses	223		181		169
Total operating costs and expenses	$	322	$	285	$	278

Operating costs and expenses increased 13.0% or $37 million in 2020 compared to 2019, primarily due to a $41 million, pre-tax, write-off of capitalized software costs associated with a billing system in the second quarter of 2020 and higher technology costs.

Operating expense ratio increased to 29.4 in 2020 compared to 24.9 in 2019, primarily due to a $41 million, pre-tax, software write-off.

The Allstate Corporation 77

2020 Form 10-K Allstate Benefits

Analysis of reserves


Reserve for life-contingent contract benefits
	As of December 31,
($ in millions)	2020		2019
Traditional life insurance	$	299	$	285
Accident and health insurance	729		749
Reserve for life-contingent contract benefits	$	1,028	$	1,034

Allstate Benefits reinsurance ceded

The vast majority of reinsurance relates to the disposition of long-term care and other closed blocks of business several years ago. We retain primary liability as a direct insurer for all risks ceded to reinsurers.


Reinsurance recoverables by reinsurer, net
	S&P financial strength rating	Reinsurance recoverable on paid and unpaid benefits

		As of December 31,
($ in millions)		2020		2019
Mutual of Omaha Insurance	A+	$	60	$	64
General Re Life Corporation	AA+	17		18
Other (1)		5		6
Credit loss allowance		(1)		—
Total		$	81	$	88

(1)As of both December 31, 2020 and 2019, the other category includes $4 million of recoverables due from reinsurers rated A- or better by S&P.

We enter into certain intercompany reinsurance transactions for the Allstate Benefits operations in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation.

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Allstate Annuities 2020 Form 10-K

Allstate Annuities Segment

Allstate Annuities consists primarily of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements). In 2020, Allstate Annuities represented 2.3% of total revenue and 0.1% of total PIF. We discontinued the sale of proprietary annuities over an eight-year period from 2006 to 2014, reflecting our expectations of declining returns. This segment is in run-off, and we manage it with a focus on increasing economic value through our investment strategy.

On January 26, 2021, we announced an agreement to sell ALIC and certain affiliates, which represent approximately 75% of Allstate Annuities reserves for life-contingent contract benefits and contractholder funds. Allstate will retain ownership of ALNY unless an agreement can be reached with a third party to assume some or all of ALNY’s liabilities. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.


Summarized financial information
	For the years ended December 31,
($ in millions)	2020		2019		2018
Revenues
Contract charges	$	10	$	13	$	15
Net investment income	761		917		1,096
Realized capital gains (losses)	279		346		(166)
Total revenues	1,050		1,276		945

Costs and expenses
Contract benefits	(763)		(583)		(569)
Interest credited to contractholder funds	(276)		(307)		(334)
Amortization of DAC	(4)		(7)		(7)
Operating costs and expenses	(25)		(29)		(31)
Restructuring and related charges	(2)		(1)		—
Total costs and expenses	(1,070)		(927)		(941)

Gain on disposition of operations	4		6		6
Income tax benefit (expense)	7		(73)		66
Net (loss) income applicable to common shareholders	$	(9)	$	282	$	76

Adjusted net (loss) income	$	(53)	$	10	$	131
Realized capital gains (losses), after-tax	221		274		(131)
Valuation changes on embedded derivatives that are not hedged, after-tax	(2)		(6)		3
Premium deficiency for immediate annuities, after-tax	(178)		—		—

Gain on disposition of operations, after-tax	3		4		4
Tax Legislation benefit	—		—		69
Net (loss) income applicable to common shareholders	$	(9)	$	282	$	76

Reserve for life-contingent contract benefits as of December 31	$	8,985	$	8,530	$	8,524

Contractholder funds as of December 31	$	8,343	$	8,972	$	9,817

Policies in force as of December 31 (in thousands)
Deferred annuities	104		114		127
Immediate annuities	73		78		84
Total	177		192		211

Net loss applicable to common shareholders was $9 million in 2020 compared to net income of $282 million in 2019. Net loss in 2020 includes a $178 million, after-tax, ($225 million, pre-tax) premium deficiency for immediate annuities with life contingencies recognized in the third quarter.

We periodically review the adequacy of reserves for immediate annuities with life contingencies using actual experience and current assumptions. In the event actual experience and current assumptions are adverse compared to the original assumptions and a

premium deficiency is determined to exist, the establishment of a premium deficiency reserve (“PDR”) is required.

In third quarter 2020, our long-term investment yield assumption was lowered, which resulted in the prior sufficiency changing to a deficiency. The deficiency was recognized as an increase in the reserve for life-contingent contract benefits. The original assumptions used to establish reserves were updated to reflect current assumptions, and the primary changes included mortality expectations, where

The Allstate Corporation 79

2020 Form 10-K Allstate Annuities

annuitants are living longer than originally anticipated, and long-term investment yields.

Our annual review of assumptions in 2020 also resulted in a $5 million increase in reserves primarily for guaranteed withdrawal benefits on equity-indexed annuities due to higher projected guaranteed benefits. In 2019, the review resulted in no adjustment to reserves for guaranteed benefits.

Adjusted net loss was $53 million in 2020 compared to adjusted net income of $10 million in 2019, primarily due to lower net investment income, partially offset by lower contract benefits.

Net investment income decreased 17.0% or $156 million in 2020 compared to 2019, primarily due to a decline in market-based income driven by lower interest-bearing portfolio yields as well as lower performance-based investment results and lower average investment balances.

The investment portfolio supporting immediate annuities is managed to ensure the assets match the characteristics of the liabilities and provide the long-term returns needed to support this business. To better match the long-term nature of our immediate annuities, we use performance-based investments in which we have ownership interests, and a greater proportion of return is derived from idiosyncratic asset or operating performance. Performance-based income can vary significantly between periods and is influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales.

Net realized capital gains in 2020 primarily related to increased valuation of equity investments. Net

realized capital gains in 2019 primarily related to increased valuation of equity investments and gains on sales of fixed income securities.

Contract benefits increased 30.9% or $180 million in 2020 compared to 2019, primarily due to the premium deficiency for immediate annuities, partially offset by immediate annuity mortality experience that was favorable in comparison to the prior year.

Benefit spread reflects our mortality results using the difference between contract charges earned and contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies. This implied interest totaled $494 million and $479 million in 2020 and 2019, respectively. Total benefit spread was $(260) million and $(95) million in 2020 and 2019, respectively.

Interest credited to contractholder funds decreased 10.1% or $31 million in 2020 compared to 2019, primarily due to lower average contractholder funds.

Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged increased interest credited to contractholder funds by $3 million in 2020 compared to an increase of $8 million in 2019. These valuation changes are primarily driven by changes in interest rates.

Investment spread reflects the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of contract benefits and is used to analyze the impact of net investment income and interest credited to contractholders on net income.


Investment spread
	For the years ended December 31,
($ in millions)	2020		2019		2018
Investment spread before valuation changes on embedded derivatives that are not hedged	$	(6)	$	139	$	267
Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged	(3)		(8)		3
Total investment spread	$	(9)	$	131	$	270

Investment spread before valuation changes on embedded derivatives that are not hedged decreased $145 million in 2020 compared to 2019, primarily due to lower investment income, partially offset by lower interest credited to contractholder funds.

To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities, interest crediting rates and investment spreads. Investment spreads may vary significantly between periods due to the variability in investment income, particularly for immediate fixed annuities where the investment portfolio includes performance-based investments.


Analysis of investment spread
	Weighted average investment yield						Weighted average interest crediting rate						Weighted average investment spreads
	2020		2019		2018		2020		2019		2018		2020		2019		2018
Deferred fixed annuities	4.0	%	4.3	%	4.1	%	2.7	%	2.7	%	2.8	%	1.3	%	1.6	%	1.3	%
Immediate fixed annuities with and without life contingencies	4.2		5.0		6.4		6.1		5.9		6.0		(1.9)		(0.9)		0.4

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Allstate Annuities 2020 Form 10-K

The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates as of December 31, 2020 for certain fixed annuities where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities totaling $3.87 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.


Weighted average guaranteed crediting rates and weighted average current crediting rates
($ in millions)	Weighted average guaranteed crediting rates		Weighted average current crediting rates		Contractholder funds
Annuities with annual crediting rate resets	3.17	%	3.17	%	$	3,950
Annuities with multi-year rate guarantees (1):
Resettable in next 12 months	2.18		2.67		103
Resettable after 12 months	2.29		2.63		425

(1)These contracts include interest rate guarantee periods, the majority of which are 5 years.

Operating costs and expenses decreased 13.8% or $4 million in 2020 compared to 2019, primarily due to lower technology and employee-related costs. In July 2020, we entered into an agreement to transition the servicing of annuities to a third-party administrator. The migration is expected to be completed by the end of 2022. Restructuring charges were recorded in the third quarter of 2020 related to employee severance costs in connection with the migration.

Analysis of reserves and contractholder funds


Product liabilities
	As of December 31,
($ in millions)	2020		2019
Immediate fixed annuities with life contingencies
Sub-standard structured settlements and group pension terminations (1)	$	5,780	$	5,085
Standard structured settlements and SPIA (2)	3,138		3,367
Other	67		78
Reserve for life-contingent contract benefits	$	8,985	$	8,530


Deferred fixed annuities	$	6,033	$	6,499
Immediate fixed annuities without life contingencies	2,163		2,346
Other	147		127
Contractholder funds	$	8,343	$	8,972

(1)Comprises structured settlement annuities for annuitants with severe injuries or other health impairments which increased their expected mortality rate at the time the annuity was issued (“sub-standard structured settlements”) and group annuity contracts issued to sponsors of terminated pension plans.

(2)Comprises structured settlement annuities for annuitants with standard life expectancy (“standard structured settlements”) and single premium immediate annuities (“SPIA”) with life contingencies.

The Allstate Corporation 81

2020 Form 10-K Allstate Annuities

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as fixed annuities. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.


Changes in contractholder funds
	For the years ended December 31,
($ in millions)	2020		2019		2018
Contractholder funds, beginning balance	$	8,972	$	9,817	$	10,936



Deposits	20		16		15

Interest credited	273		304		331

Benefits, withdrawals and other adjustments
Benefits	(511)		(547)		(587)
Surrenders and partial withdrawals	(442)		(602)		(854)

Contract charges	(9)		(9)		(9)

Other adjustments (1)	40		(7)		(15)
Total benefits, withdrawals and other adjustments	(922)		(1,165)		(1,465)
Contractholder funds, ending balance	$	8,343	$	8,972	$	9,817

Contractholder funds decreased 7.0% in 2020, primarily due to the continued runoff of our deferred fixed annuity business. We discontinued the sale of annuities but still accept additional deposits on existing contracts.

Surrenders and partial withdrawals decreased 26.6% or $160 million in 2020 compared to 2019. 2018 had elevated surrenders on fixed annuities resulting from an increased number of contracts reaching the 30-45 day period during which there is no surrender charge. The surrender and partial withdrawal rate on deferred fixed annuities, based on the beginning of year contractholder funds, was 7.5% in 2020 compared to 9.2% in 2019.

Allstate Annuities reinsurance ceded

We ceded substantially all of the risk associated with our variable annuity business to Prudential Insurance Company of America (“Prudential”). Our reinsurance recoverables from Prudential totaled $1.28 billion and $1.29 billion as of December 31, 2020 and 2019, respectively. We also have reinsurance recoverables from other reinsurers of $14 million and $17 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, the allowance for expected credit losses was $5 million. There was no valuation allowance as of December 31, 2019.

We retain primary liability as a direct insurer for all risks ceded to reinsurers. We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis. In connection with the adoption of the measurement of credit losses on financial instruments accounting standard in 2020, the method of calculating the allowance for reinsurance recoverables changed. See Note 2 of the consolidated financial statements for additional details. No reinsurance recoverables have been written off in the three-years ended December 31, 2020.

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Investments 2020 Form 10-K

Investments

Overview and strategy The return on our investment portfolios is an important component of our ability to offer good value to customers, fund business improvements and create value for shareholders. Investment portfolios are held for Property-Liability, Protection Services, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other operations. While taking into consideration the investment portfolio in aggregate, management of the underlying portfolios is significantly influenced by the nature of each respective business and its corresponding liability profile. For each business, we identify a strategic asset allocation which considers both the nature of the liabilities and the risk and return characteristics of the various asset classes in which we invest. This allocation is informed by our long-term business and market expectations, as well as other considerations such as risk appetite, portfolio diversification, duration, desired liquidity and capital. Within appropriate ranges relative to strategic allocations, tactical allocations are made in consideration of prevailing and potential future market conditions. We manage risks that involve uncertainty related to interest rates, credit spreads, equity returns and currency exchange rates.

The Property-Liability portfolio emphasizes protection of principal and consistent income generation, within a total return framework. This approach has produced competitive returns over the long term and is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth. Products with lower liquidity needs, such as auto insurance and discontinued lines and coverages, and capital create capacity to invest in less liquid higher yielding fixed income securities, performance-based investments such as limited partnerships and equity securities. Products with higher liquidity needs, such as homeowners insurance, are invested primarily in high quality liquid fixed income securities.

The Protection Services portfolio is focused on protection of principal and consistent income generation, within a total return framework. The portfolio is largely comprised of fixed income securities with a lesser allocation to equity securities and short-term investments.

The Allstate Life portfolio is comprised of assets chosen to generate returns to support corresponding liabilities within an asset-liability framework that targets an appropriate return on capital. This portfolio is well diversified and primarily consists of longer duration fixed income securities and commercial mortgage loans.

The Allstate Benefits portfolio is focused on protection of principal and consistent income generation while targeting an appropriate return on capital. The portfolio is largely comprised of fixed income securities and commercial mortgage loans with a small allocation to equity securities.

The Allstate Annuities portfolio is managed to ensure the assets match the characteristics of the liabilities. For longer-term immediate annuity liabilities,

we invest primarily in performance-based investments such as limited partnerships and equity securities. For shorter-term annuity liabilities, we invest primarily in fixed income securities and commercial mortgage loans with maturity profiles aligned with liability cash flow requirements.

The pending sale of ALIC and certain affiliates is expected to decrease Allstate Life, Allstate Annuities and total consolidated portfolios by approximately 85%, 80% and 30%, respectively.

The Corporate and Other portfolio balances liquidity needs related to the corporate capital structure with the pursuit of returns.

Within each segment, we utilize two primary strategies to manage risks and returns and to position our portfolio to take advantage of market opportunities while attempting to mitigate adverse effects. As strategies and market conditions evolve, the asset allocation may change or assets may be moved between strategies.

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

Performance-based strategy seeks to deliver attractive risk-adjusted returns and supplement market risk with idiosyncratic risk. Returns are impacted by a variety of factors including general macroeconomic and public market conditions as public benchmarks are often used in the valuation of underlying investments. Variability in earnings will also result from the performance of the underlying assets or business and the timing of sales of those investments. Earnings from the sales of investments may be recorded as net investment income or realized capital gains and losses. The portfolio, which primarily includes private equity and real estate with a majority being limited partnerships, is diversified across a number of characteristics, including managers or partners, vintage years, strategies, geographies (including international) and industry sectors or property types. These investments are generally illiquid in nature, often require specialized expertise, typically involve a third-party manager, and often enhance returns and income through transformation at the company or property level. A portion of these investments seek returns in markets or asset classes that are dislocated or special situations, primarily in private markets.

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2020 Form 10-K Investments

Coronavirus impacts

Ongoing uncertainty related to the future path of the pandemic has and may continue to create market volatility that has impacted the valuations, liquidity, prospects and risks of fixed income securities, equity securities and performance-based investments, primarily limited partnership interests, during 2020. Fixed income securities in certain sectors such as energy, automotive, retail, travel, lodging and airlines were negatively impacted. Although fixed income and equity security values generally increased since the first quarter, future investment results will depend on developments, including the duration and spread of the outbreak, preventive measures to combat the spread of the virus, and capital market conditions, including the pace of economic recovery and effectiveness of the fiscal and monetary policy responses. During the second quarter of 2020, short-term loan modifications were executed to grant temporary partial deferral of payments on $274 million of commercial mortgage loans with $2 million of modified payments outstanding as of December 31, 2020.

The ongoing impact of the Coronavirus on financial markets and the overall economy remain uncertain.

Some of the restrictions implemented to contain the pandemic have been relaxed, but reduced economic activity, limits on large gatherings and events and higher unemployment continue. Additionally, there is no way of predicting with certainty how long the pandemic might last, including the potential for restrictions being restored or new restrictions being implemented that could result in further economic volatility.

Impact of Low Interest Rate Environment

In January 2021, the Federal Open Market Committee (“FOMC”) maintained the target range for federal funds rate at 0 percent to 1/4 percent. The FOMC noted that the ongoing public health crisis will continue to weigh on economic activity, employment and inflation and poses considerable risks to the economic outlook. The FOMC expects to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.


Contractual maturities and yields of fixed income securities and mortgage loans for the next three years
	Fixed income securities				Mortgage loans
($ in millions)	Carrying value		Investment yield		Carrying value		Investment yield
2021	$	3,136	3.8	%	$	277	4.5	%
2022	5,317		2.9		388		4.3
2023	6,373		2.9		556		4.4

Investing activity will continue to decrease our portfolio yield as long as market yields remain below the current portfolio yield. Any decline in market-based portfolio yield is expected to result in lower net investment income in future periods. Interest-bearing investments are comprised of fixed income securities, mortgage loans, short-term investments and other investments, including bank and agent loans.

In the Allstate Annuities segment, the decline in the portfolio yield has been partially mitigated because a portion of the investment cash flows have been used to fund the managed reduction in spread-based liabilities. The decline in market-based portfolio yield and Allstate Annuities invested assets are expected to result in lower net investment income in future periods.

Investments Outlook

We plan to focus on the following priorities:

Enhance investment portfolio returns through use of a dynamic capital allocation framework and focus on tax efficiency.
Leverage our broad capabilities to shift the portfolio mix to earn higher risk-adjusted returns on capital.
Invest for the specific needs and characteristics of Allstate’s businesses, including its corresponding liability profile.

We continue to increase performance-based investments in our Property-Liability portfolio, consistent with our ongoing strategy to have a greater proportion of return derived from idiosyncratic asset or operating performance.

Invested assets and market-based income are expected to decline with reductions in contractholder funds for the Allstate Annuities segment.

Income related to performance-based investments will result in variability of earnings for the Property-Liability and Allstate Annuities portfolios.

84 www.allstate.com

Investments 2020 Form 10-K


Portfolio composition and strategy by reporting segment (1)
	As of December 31, 2020
($ in millions)	Property-Liability			Protection Services			Allstate Life			Allstate Benefits			Allstate Annuities			Corporate and Other			Total
Fixed income securities (2)	$	38,793		$	1,604		$	9,076		$	1,485		$	14,713		$	683		$	66,354
Equity securities (3)	2,598			97			133			132			1,409			341			4,710
Mortgage loans, net	568			—			1,476			178			1,853			—			4,075
Limited partnership interests	4,563			—			—			—			3,046			—			7,609
Short-term investments (4)	2,104			121			367			36			626			4,546			7,800
Other, net	1,508			—			1,354			181			644			2			3,689
Total	$	50,134		$	1,822		$	12,406		$	2,012		$	22,291		$	5,572		$	94,237

Percent to total	53.2		%	1.9		%	13.2		%	2.1		%	23.7		%	5.9		%	100.0		%



Market-based	$	44,712		$	1,822		$	12,406		$	2,012		$	18,963		$	5,570		$	85,485
Performance-based	5,422			—			—			—			3,328			2			8,752
Total	$	50,134		$	1,822		$	12,406		$	2,012		$	22,291		$	5,572		$	94,237

(1)Balances reflect the elimination of related party investments between segments.

(2)Fixed income securities are carried at fair value. Amortized cost, net for these securities was $36.52 billion, $1.51 billion, $8.05 billion, $1.36 billion, $13.37 billion, $642 million and $61.45 billion for Property-Liability, Protection Services, Allstate Life, Allstate Benefits, Allstate Annuities, Corporate and Other, and in total, respectively.

(3)Equity securities are carried at fair value. The fair value of equity securities, held as of December 31, 2020, was $857 million in excess of cost. These net gains were primarily concentrated in the technology and consumer goods sectors and in equity index funds. Equity securities include $1.29 billion of funds with underlying investments in fixed income securities as of December 31, 2020.

(4)Short-term investments are carried at fair value.

Investments totaled $94.24 billion as of December 31, 2020, increasing from $88.36 billion as of December 31, 2019, primarily due to higher fixed income valuations, positive operating cash flows and issuance of senior

debt, partially offset by common share repurchases, dividends paid to shareholders, net reductions in contractholder funds and repayment of preferred stock.


Portfolio composition by investment strategy
	As of December 31, 2020
($ in millions)	Market- based			Performance-based			Total
Fixed income securities	$	66,242		$	112		$	66,354
Equity securities	4,342			368			4,710
Mortgage loans, net	4,075			—			4,075
Limited partnership interests	410			7,199			7,609
Short-term investments	7,800			—			7,800
Other, net	2,616			1,073			3,689
Total	$	85,485		$	8,752		$	94,237

Percent to total	90.7		%	9.3		%	100.0		%

Unrealized net capital gains and losses
Fixed income securities	$	4,901		$	2		$	4,903


Limited partnership interests	—			(4)			(4)

Other	(3)			—			(3)
Total	$	4,898		$	(2)		$	4,896

During 2020, strategic actions focused on optimizing portfolio yield, return and risk in the low interest rate environment.

We continued to increase performance-based investments in the Property-Liability portfolio.

We increased the maturity profile of fixed income securities in our Allstate Life and Allstate Annuities portfolios to a duration of 6.4 years and 5.3 years, respectively, while maintaining duration at 5.0 years in our Property-Liability portfolio.

In the Allstate Annuities portfolio, invested assets and market-based income declined with reductions in contractholder funds. Performance-based investments and equity securities will continue to be allocated primarily to the longer-term immediate annuity liabilities to reduce the risk that investment returns are below levels required to meet their funding needs while shorter-term annuity liabilities will be invested in market-based investments.

The Allstate Corporation 85

2020 Form 10-K Investments

Fixed income securities


Fixed income securities by type
	Fair value as of December 31,
($ in millions)	2020		2019
U.S. government and agencies	$	3,222	$	5,086
Municipal	9,587		8,620
Corporate	51,142		43,078
Foreign government	1,055		979
Asset-backed securities (“ABS”)	1,270		862
Mortgage-backed securities (“MBS”)	78		419
Total fixed income securities	$	66,354	$	59,044

Fixed income securities are rated by third-party credit rating agencies or are internally rated. As of December 31, 2020, 86.4% of the consolidated fixed income securities portfolio was rated investment grade, which is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P, a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Credit ratings below these designations are considered lower credit quality or below investment grade, which includes high yield bonds. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Our initial investment decisions and ongoing

monitoring procedures for fixed income securities are based on a due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure and liquidity risks of each issue.

Fixed income portfolio monitoring is a comprehensive process to identify and evaluate each fixed income security that may require a credit loss allowance. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. For further detail on our fixed income portfolio monitoring process, see Note 5 of the consolidated financial statements.


Fair value and unrealized net capital gains (losses) for fixed income securities by credit rating
	December 31, 2020
	A and above				BBB				BB
($ in millions)	Fair value		Unrealized gain (loss)		Fair value		Unrealized gain (loss)		Fair value		Unrealized gain (loss)
U.S. government and agencies	$	3,222	$	93	$	—	$	—	$	—	$	—
Municipal	9,246		794		294		35		5		1
Corporate
Public	13,902		1,233		19,071		1,604		2,894		219
Privately placed	4,121		316		5,194		343		2,763		115
Total corporate	18,023		1,549		24,265		1,947		5,657		334
Foreign government	1,039		41		11		1		5		—
ABS	1,165		8		18		(2)		17		—
MBS	44		3		25		—		2		—
Total fixed income securities	$	32,739	$	2,488	$	24,613	$	1,981	$	5,686	$	335

	B				CCC and lower				Total
	Fair value		Unrealized gain (loss)		Fair value		Unrealized gain (loss)		Fair value		Unrealized gain (loss)
U.S. government and agencies	$	—	$	—	$	—	$	—	$	3,222	$	93
Municipal	11		1		31		4		9,587		835
Corporate
Public	531		7		46		(1)		36,444		3,062
Privately placed	2,348		66		272		14		14,698		854
Total corporate	2,879		73		318		13		51,142		3,916
Foreign government	—		—		—		—		1,055		42
ABS	13		(1)		57		5		1,270		10
MBS	—		—		7		4		78		7
Total fixed income securities	$	2,903	$	73	$	413	$	26	$	66,354	$	4,903

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Investments 2020 Form 10-K

Municipal bonds, including tax exempt and taxable securities, include general obligations of state and local issuers and revenue bonds.

Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers’ credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor.

Corporate bonds include publicly traded and privately placed securities. Privately placed securities primarily consist of corporate issued senior debt securities that are negotiated with the borrower or are issued by public entities in unregistered form.

Our portfolio of privately placed securities is diversified by issuer, industry sector and country. The portfolio is made up of 561 issuers. Privately placed corporate obligations may contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered debt securities. Additionally, investments in these securities are made after due diligence of the issuer, typically including discussions with senior management and on-site visits to company facilities. Ongoing monitoring includes direct periodic dialogue with senior management of the issuer and continuous monitoring of operating performance and financial position. Every issue not rated by an independent rating agency is internally rated with a formal rating affirmation at least once a year. Liquidity of securities issued by public entities in unregistered form is similar to public debt markets.

Our corporate bonds portfolio includes $8.85 billion of below investment grade bonds, $5.38 billion of which are privately placed. These securities are diversified by issuer and industry sector. The below investment grade corporate bonds portfolio is made up of 378 issuers. We employ fundamental analyses of issuers and sectors along with macro and asset class views to identify investment opportunities. This results in a portfolio with broad exposure to the high yield market with an emphasis on idiosyncratic positions reflective of our views of market conditions and opportunities.

Foreign government securities include 90.8% of Canadian governmental and provincial securities (all of which are held by our Canadian companies), 8.6% backed by the U.S. government and 0.6% that are highly diversified in other foreign governments.

ABS and MBS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating.

For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings.

The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral may contain fixed interest rates, variable interest rates (such as adjustable rate mortgages), or both fixed and variable rate features.

ABS includes collateralized debt obligations, consumer and other ABS. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees or insurance.

MBS includes residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). RMBS is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to prepayment risk from the underlying residential mortgage loans. RMBS consists of a U.S. agency portfolio having collateral issued or guaranteed by U.S. government agencies and a non-agency portfolio consisting of securities collateralized by Prime, Alt-A and Subprime loans. CMBS investments are primarily traditional conduit transactions collateralized by commercial mortgage loans and typically are diversified across property types and geographical area.

Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust (“REIT”) equity investments. Certain exchange traded and mutual funds have fixed income securities as their underlying investments.

Mortgage loans mainly comprise loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification. For further detail on our mortgage loan portfolio, see Note 5 of the consolidated financial statements.

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2020 Form 10-K Investments

Limited partnership interests include $6.13 billion of interests in private equity funds, $1.07 billion of interests in real estate funds and $410 million of interests in other funds as of December 31, 2020. We have commitments to invest additional amounts in limited partnership interests totaling $2.93 billion as of December 31, 2020.


Private equity limited partnerships by sector
(% of carrying value)	December 31, 2020
Industrial	18.5	%
Consumer staples	11.8
Consumer discretionary	10.8
Information technology	10.2
Utilities	10.1
Healthcare	9.6
Other	29.0
Total	100.0	%


Real estate limited partnerships by sector
(% of carrying value)	December 31, 2020
Industrial	31.3	%
Residential	23.9
Office	13.2
Other	31.6
Total	100.0	%

Short-term investments primarily comprise money market funds, commercial paper, U.S. Treasury bills and other short-term investments, including securities lending collateral of $1.24 billion.

Other investments primarily comprise $1.02 billion of bank loans, $974 million of real estate, $754 million of policy loans, $631 million of agent loans (loans issued to exclusive Allstate agents) and $204 million of derivatives as of December 31, 2020. For further detail on our use of derivatives, see Note 7 of the consolidated financial statements.


Direct real estate investments by sector
(% of carrying value)	December 31, 2020
Residential	43.9	%
Retail	14.2
Agriculture	12.6
Industrial	12.1
Timber	10.6
Other	6.6
Total	100.0	%


Unrealized net capital gains (losses)
	As of December 31,
($ in millions)	2020		2019
U.S. government and agencies	$	93	$	115
Municipal	835		540
Corporate	3,916		1,988
Foreign government	42		11
ABS	10		2
MBS	7		95



Fixed income securities	4,903		2,751
Derivatives	(3)		(3)
Equity method of accounting (“EMA”) limited partnerships	(4)		(4)
Unrealized net capital gains and losses, pre-tax	$	4,896	$	2,744

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Investments 2020 Form 10-K


Gross unrealized gains (losses) on fixed income securities by type and sector
	As of December 31, 2020
	Amortized cost, net			Gross unrealized					Fair value
($ in millions)			Gains			Losses
Corporate
Transportation
Airlines	$	341		$	12		$	(9)	$	344
Railroad and other	1,588			198			(9)		1,777
Total transportation	1,929			210			(18)		2,121
Banking	5,352			322			(14)		5,660
Energy
Midstream	1,662			128			(1)		1,789
Integrated	517			59			—		576
Independent/upstream	312			36			(2)		346
Other	240			16			(4)		252
Total energy	2,731			239			(7)		2,963
Financial services
Finance companies	494			31			(4)		521
Life insurance	903			64			(1)		966
Other	1,436			111			(1)		1,546
Total financial services	2,833			206			(6)		3,033
Utilities	5,948			622			(6)		6,564
Communications	3,691			328			(6)		4,013
Consumer goods
Cyclical
Automotive	1,706			109			—		1,815
Gaming, lodging, and leisure	711			44			—		755
Retailers	1,185			122			—		1,307
Restaurants	472			39			—		511
Other	1,078			84			(1)		1,161
Total cyclical	5,152			398			(1)		5,549
Non-cyclical	7,991			639			(2)		8,628
Total consumer goods	13,143			1,037			(3)		14,177
Capital goods	5,259			449			(2)		5,706
Technology	3,662			313			(2)		3,973
Basic industry	2,378			240			(1)		2,617
Other	300			15			—		315
Total corporate fixed income portfolio	47,226			3,981			(65)		51,142
U.S. government and agencies	3,129			94			(1)		3,222
Municipal	8,752			837			(2)		9,587
Foreign government	1,013			42			—		1,055
ABS	1,260			15			(5)		1,270
MBS	71			7			—		78
Total fixed income securities	$	61,451		$	4,976		$	(73)	$	66,354

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2020 Form 10-K Investments


Gross unrealized gains (losses) on fixed income securities by type and sector
	December 31, 2019
	Amortized cost			Gross unrealized					Fair value
($ in millions)			Gains			Losses
Corporate
Transportation
Airlines	$	418		$	12		$	—	$	430
Railroad and other	1,613			120			—		1,733
Total transportation	2,031			132			—		2,163
Banking	4,610			143			(14)		4,739
Energy
Midstream	1,570			77			(4)		1,643
Independent/upstream	422			19			(10)		431
Integrated	406			32			—		438
Other	237			11			—		248
Total energy	2,635			139			(14)		2,760
Financial services
Finance companies	582			24			—		606
Life insurance	725			30			—		755
Other	1,169			53			(2)		1,220
Total financial services	2,476			107			(2)		2,581
Utilities	5,197			385			(6)		5,576
Communications	2,721			158			(2)		2,877
Consumer goods
Cyclical
Gaming, lodging and leisure	596			28			—		624
Automotive	1,463			42			(1)		1,504
Retailers	920			52			—		972
Restaurants	390			19			—		409
Other	1,056			49			(3)		1,102
Total cyclical	4,425			190			(4)		4,611
Non-cyclical	7,112			316			(1)		7,427
Total consumer goods	11,537			506			(5)		12,038
Capital goods	4,945			229			(1)		5,173
Technology	2,765			112			(1)		2,876
Basic industry	1,897			114			(2)		2,009
Other	276			10			—		286
Total corporate fixed income portfolio	41,090			2,035			(47)		43,078
U.S. government and agencies	4,971			141			(26)		5,086
Municipal	8,080			551			(11)		8,620
Foreign government	968			16			(5)		979
ABS	860			8			(6)		862
MBS	324			96			(1)		419
Total fixed income securities	$	56,293		$	2,847		$	(96)	$	59,044

In general, the gross unrealized losses are related to an increase in market yields, which may include increased risk-free interest rates and wider credit spreads since the time of initial purchase.

Similarly, gross unrealized gains reflect a decrease in market yields since the time of initial purchase.

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Equity securities by sector
($ in millions)		December 31, 2020									December 31, 2019
	Cost			Over (under) cost			Fair value			Cost			Over (under) cost			Fair value
Energy		$	112		$	6		$	118		$	275		$	15		$	290
Utilities		53			13			66			116			38			154
Transportation		37			13			50			81			32			113
Capital goods		157			16			173			331			91			422
Basic industry		47			26			73			135			40			175
Other (1)		1,260			549			1,809			2,526			1,062			3,588
Funds
Fixed income		1,228			65			1,293			1,727			62			1,789
Equities		959			169			1,128			1,377			254			1,631
Total funds		2,187			234			2,421			3,104			316			3,420
Total equity securities		$	3,853		$	857		$	4,710		$	6,568		$	1,594		$	8,162

(1)Other is comprised of REITs, communications, financial services, banking, consumer goods and technology sectors.


Net investment income
	For the years ended December 31,
($ in millions)	2020		2019		2018
Fixed income securities	$	2,136	$	2,175	$	2,077
Equity securities	98		206		170
Mortgage loans	220		220		217
Limited partnership interests	338		471		705
Short-term investments	23		102		73
Other	251		262		272
Investment income, before expense	3,066		3,436		3,514
Investment expense
Investee level expenses (1)	(59)		(81)		(71)
Securities lending expense	(6)		(40)		(28)
Operating costs and expenses	(148)		(156)		(175)
Total investment expense	(213)		(277)		(274)
Net investment income	$	2,853	$	3,159	$	3,240

Market-based	$	2,663	$	2,893	$	2,734
Performance-based	403		543		780
Investment income, before expense	$	3,066	$	3,436	$	3,514

(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

Net investment income decreased 9.7% or $306 million in 2020 compared to 2019, primarily due to a decline in market-based income driven by lower interest-bearing portfolio yields and lower performance-based results, primarily from limited partnerships.

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2020 Form 10-K Investments


Performance-based investment income
	For the years ended December 31,
($ in millions)	2020		2019		2018
Limited partnerships
Private equity	$	297	$	330	$	582
Real estate	38		138		123
Performance-based - limited partnerships	335		468		705

Non-limited partnerships
Private equity	(12)		9		9
Real estate	80		66		66
Performance-based - non-limited partnerships	68		75		75

Total
Private equity	285		339		591
Real estate	118		204		189
Total performance-based	$	403	$	543	$	780

Investee level expenses (1)	$	(55)	$	(74)	$	(64)

(1)Investee level expenses include depreciation and asset level operating expenses reported in investment expense. Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

Performance-based investment income decreased 25.8% or $140 million in 2020 compared to 2019, due to lower valuations of real estate and private equity investments, partially offset by net gains on sales of underlying investments.

Performance-based investment results and income can vary significantly between periods and are influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales.


Components of realized capital gains (losses) and the related tax effect
	For the year December 31,
($ in millions)	2020		2019		2018
Sales (1)	$	1,017	575		$	(215)
Credit losses (2)
Fixed income securities	(5)		(14)		(10)

Mortgage loans	(38)		—		—
Limited partnership interests	(10)		(6)		(3)
Other investments	(27)		(27)		(1)
Total credit losses	(80)		(47)		(14)
Valuation of equity investments - appreciation (decline):
Equity securities	321		1,117		(567)
Equity fund investments in fixed income securities	25		93		(27)
Limited partnerships (3)	20		162		(97)
Total valuation of equity investments	366		1,372		(691)
Valuation and settlements of derivative instruments	53		(15)		43
Realized capital gains and losses, pre-tax	1,356		1,885		(877)
Income tax (expense) benefit	(293)		(397)		189
Realized capital gains and losses, after-tax	$	1,063	$	1,488	$	(688)








Market-based	$	1,288	$	1,750	$	(946)
Performance-based	68		135		69
Realized capital gains and losses, pre-tax	$	1,356	$	1,885	$	(877)

(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

(3)Relates to limited partnerships where the underlying assets are predominately public equity securities.

Sales in 2020 related primarily to fixed income securities in connection with ongoing portfolio management. Sales in 2019 related primarily to fixed income securities in connection with ongoing portfolio management, as well as gains from limited partnerships.

Valuation and settlements of derivative instruments in 2020 primarily comprised gains on interest rate futures used for asset replication and equity futures used for risk management due to a decrease in indices in first quarter 2020,

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partially offset by losses on interest rate futures used for risk management and foreign currency contracts due to weakening of the U.S. dollar in the second half of 2020. 2019 primarily comprised losses on equity options and futures used for risk management, partially offset by gains on interest rate futures and total return swaps used for asset replication due to increases in equity indices.


Realized capital gains (losses) for performance-based investments
	For the years ended December 31,
($ in millions)	2020		2019		2018
Sales (1)	$	39	$	103	$	7
Credit losses (2)	(10)		(6)		(3)
Valuation of equity investments	60		31		36
Valuation and settlements of derivative instruments	(21)		7		29
Total performance-based	$	68	$	135	$	69

(1)Beginning January 1, 2020, depreciation previously included in investee level expenses is reported as realized capital gains or losses.

Realized capital gains for performance-based investments in 2020 primarily related to increased valuation of equity investments and gains on sales of real estate investments, partially offset by losses on valuation and settlement of derivative instruments. 2019 primarily related to gains on sales of investments in directly held real estate, a gain on the sale of a limited partnership and increased valuation of equity investments.

The Allstate Corporation 93

2020 Form 10-K Market Risk

Market Risk

Market risk is the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices or currency exchange rates. Adverse changes to these rates and prices may occur due to changes in fiscal policy, the economic climate, the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants or changes in market perceptions of credit worthiness or risk tolerance. Our primary market risk exposures are to changes in interest rates, credit spreads and equity prices. We also have direct and indirect exposure to commodity price changes through our diversified investments in timber, agriculture, infrastructure and energy primarily held in limited partnership interests and consolidated subsidiaries.

The active management of market risk is integral to our results of operations. We may use the following approaches to manage exposure to market risk within defined tolerance ranges:

1)Rebalancing existing asset or liability portfolios

2)Changing the type of investments purchased in the future

3)Using derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased

Overview In formulating and implementing guidelines for investing funds, we seek to earn attractive risk-adjusted returns that enhance our ability to offer competitive rates and prices to customers while contributing to stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are informed by the underlying risks and product profiles. Investment policies define the overall framework for managing market and other investment risks, including accountability and controls over risk management activities. Subsidiaries that conduct investment activities follow policies that have been approved by their respective boards of directors and which specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile and regulatory requirements of the subsidiary. Executive oversight of investment activities is conducted primarily through the subsidiaries’ boards of directors and legal entity investment committees. The Enterprise Risk and Return Council (“ERRC”) oversees the aggregate risk of Allstate and its subsidiaries. Working in conjunction with the board or the investment committee of each subsidiary, as applicable, the ERRC evaluates the risk tolerance of each subsidiary and determines the aggregate risk tolerance of the enterprise.

For life and annuity products, the asset-liability management (“ALM”) policies further define the overall framework for managing market and investment risks and are approved by the subsidiaries’ respective boards of directors. ALM focuses on strategies to enhance yields, mitigate market risks and optimize capital to improve profitability and returns while incorporating future expected cash requirements to repay liabilities. These ALM policies specify limits,

ranges or targets for investments that best meet business objectives in light of the unique demands and characteristics of the product liabilities and are intended to result in a prudent, methodical and effective adjudication of market risk and return. The pending sale of ALIC and certain affiliates is expected to decrease Allstate Life, Allstate Annuities and total consolidated portfolios by approximately 85%, 80% and 30%, respectively.

We use widely-accepted quantitative and qualitative approaches to measure, monitor and manage market risk. We evaluate our market risk exposure using multiple measures including but not limited to:


• Duration, a measure of the price sensitivity of assets and liabilities to changes in interest rates
• Value-at-risk, a statistical estimate of the probability that the change in fair value of a portfolio will exceed a certain amount over a given time horizon
• Scenario analysis, an estimate of the potential changes in the fair value of a portfolio that could occur under hypothetical market conditions defined by changes to multiple market risk factors: interest rates, credit spreads, equity prices or currency exchange rates
• Sensitivity analysis, an estimate of the potential changes in the fair value of a portfolio that could occur using hypothetical shocks to a market risk factor. The selection of measures used in our sensitivity analysis should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.

In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of these measures. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments may differ between our products and therefore affect investment decisions and risk parameters.

Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest-bearing assets and liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets and issue interest-sensitive liabilities. Changes in interest rates can have favorable and unfavorable effects on our results. For example, increases in rates can improve investment income, but decrease the fair value of our fixed income securities portfolio and increase policyholder surrenders requiring us to liquidate assets. Decreases in rates could increase the fair value of our fixed income securities portfolio while decreasing investment

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income due to reinvesting at lower market yields and accelerating pay-downs and prepayments of certain investments.

For our corporate debt, we monitor market interest rates and evaluate refinancing opportunities as maturity dates approach. To mitigate this risk, we ladder the maturity dates of our debt. For our noncumulative perpetual preferred stock, we monitor market dividend rates and evaluate opportunities to redeem or refinance on or after specified dates. For further detail regarding our debt and our preferred stock, see Note 12 of the consolidated financial statements and the Capital Resources and Liquidity section of this Item.

We manage the interest rate risk in our assets relative to the interest rate risk in our liabilities and our assessment of overall economic and capital risk. One of the measures used to quantify this exposure is duration. The difference in the duration of our assets relative to our liabilities is our duration gap. To calculate the duration gap between assets and liabilities, we project asset and liability cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate fair value. The cash flows used in this calculation include the expected maturity and repricing characteristics of our derivative financial instruments, all other financial instruments, and certain other items including unearned premiums, claims and claims expense reserves, annuity liabilities and other interest-sensitive liabilities.

The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, leverage or option features of instruments, where applicable. The preceding assumptions relate primarily to callable municipal and corporate bonds, fixed rate single and flexible premium deferred annuities, mortgage-backed securities and municipal housing bonds. Additionally, the calculations include assumptions regarding the renewal of property and casualty products.

As of December 31, 2020, the difference between our asset and liability duration was a (2.11) gap compared to a (1.48) gap as of December 31, 2019. The calculation excludes traditional and interest-sensitive life insurance and accident and health insurance products that are not considered financial instruments. A negative duration gap indicates that the fair value of our liabilities is more sensitive to interest rate movements than the fair value of our assets, while a positive duration gap indicates that the fair value of our assets is more sensitive to interest rate movements than the fair value of our liabilities. Due to the relatively short duration of our property and casualty liabilities, primarily related to auto and homeowners claims, the investments generally maintain a positive duration gap between assets and liabilities. In contrast, for our annuity products the

duration gap may be positive or negative as the assets and liabilities vary based on the characteristics of the products in-force and investing activity. As of December 31, 2020, property and casualty products had a positive duration gap while annuity products had a negative duration gap.

To reduce the risk that investment returns are below levels required to meet the funding needs of certain liabilities, we are executing our performance-based strategy that supplements market risk with idiosyncratic risk. We are using these investments, in addition to public equity securities, to support a portion of our property and casualty products and long-term annuity liabilities. Shorter-term annuity liabilities will continue to be invested in market-based investments to generate cash flows that will fund future claims, benefits and expenses, and that will earn stable returns across a wide variety of interest rate and economic scenarios. Performance-based investments and public equity securities are generally not interest-bearing; accordingly, using them to support interest-bearing liabilities contributes toward a negative duration gap.


Interest rate shock analysis (1)
	As of December 31,
($ in millions)	2020		2019
Increase in fair value of the assets net of liabilities (2)	$	1,981	$	1,209

(1)Represents an immediate, parallel increase of 100 basis points based on information and assumptions used in the duration calculations and market interest rates as of December 31, 2020.

(2)Estimate excludes traditional and interest-sensitive life insurance and accident and health insurance products that are not considered financial instruments. The assets supporting these products totaled $12.58 billion and $12.14 billion as of December 31, 2020 and 2019, respectively. Based on assumptions described above, these assets would decrease in value by $673 million as of December 31, 2020 compared to a decrease of $649 million as of December 31, 2019.

To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. Additionally, our calculations assume the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates or large changes in interest rates.

Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads (“spreads”). Credit spread is the additional yield on fixed income securities and loans above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity or prepayment risks. The magnitude of the spread will depend on the likelihood that a particular issuer will default. This risk arises from many of our primary activities, as we invest substantial funds in spread-sensitive fixed income assets. We manage the spread

The Allstate Corporation 95

2020 Form 10-K Market Risk

risk in our assets. One of the measures used to quantify this exposure is spread duration. Spread duration measures the price sensitivity of the assets to changes in spreads. For example, if spreads increase 100 basis points, the fair value of an asset exhibiting a spread duration of 5 is expected to decrease in value by 5%.

Spread duration is calculated similarly to interest rate duration. As of December 31, 2020, the spread duration was 4.95 compared to 4.60 as of December 31, 2019.


Credit spread shock analysis (1)
	As of December 31,
($ in millions)	2020		2019
Decrease in net fair value of the assets (2)	$	3,489	$	2,877

(1)Represents an immediate, parallel increase of 100 basis points across all asset classes, industry sectors and credit ratings based on information and assumptions used in the spread duration calculations and market interest rates as of December 31, 2020.

(2)Reflects effects of tactical positions that include the use of credit default swaps to manage spread risk.

Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the markets.

Equity investments As of December 31, 2020, we held $3.76 billion in equity securities, excluding those with fixed income securities as their underlying investments, and limited partnership interests where the underlying assets are predominately public equity securities, compared to $7.28 billion as of December 31, 2019. 62.6% of the common stocks and other investments with public equity risk supported property and casualty products as of December 31, 2020, compared to 80.4% as of December 31, 2019. As of December 31, 2020, these investments had an equity market portfolio beta of 1.07, compared to a beta of 1.02 as of December 31, 2019. Beta represents a widely used methodology to describe, quantitatively, an investment’s market risk characteristics relative to an index such as the Standard & Poor’s 500 Composite Price Index (“S&P 500”).


Change in S&P 500 by 10%
	As of December 31,
($ in millions)	2020		2019
Change in net fair value of equity investments	$	401	$	742

We periodically use put options to reduce equity price risk or call options to adjust our equity risk profile. Put options provide an offset to declines in equity market values below a targeted level, while call options provide participation in equity market appreciation above a targeted level. Options can expire, terminate early or the option can be exercised. If the equity index does not fall below the put’s strike price or rise above the call’s strike price, the maximum loss on purchased puts and calls is limited to the amount of the premium paid.

Limited partnership interests As of December 31, 2020, we held $7.20 billion in limited partnership interests excluding those limited partnership interests where the underlying assets are predominately public equity securities compared to $7.17 billion as of December 31, 2019. 60.5% of the limited partnership interests supported property and casualty products as of December 31, 2020, compared to 56.7% as of December 31, 2019. These investments are primarily comprised of private equity and real estate funds. These investments are idiosyncratic in nature and a greater portion of the return is derived from asset operating performance. They are not actively traded, and valuation changes typically reflect the performance of the underlying asset.


Change in private market valuations by 10%
	As of December 31,
($ in millions)	2020		2019
Change in net fair value of limited partnership interests	$	720	$	717

For limited partnership interests, quarterly changes in fair values may not be highly correlated to equity indices in the short term and changes in value of these investments are generally recognized on a three-month delay due to the availability of the related investee financial statements. The illustrations noted above may not reflect our actual experience if the future composition of the portfolio (hence its beta) and correlation relationships differ from the historical relationships.

Separate Accounts As of December 31, 2020 and 2019, we had separate account assets related to variable annuity and variable life contracts with account values totaling $3.34 billion and $3.04 billion, respectively. Equity risk exists for contract charges based on separate account balances and guarantees for death or income benefits provided by our variable products.

In 2006, we disposed of substantially all of the variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc. and therefore mitigated this aspect of our risk. Equity risk for our variable life business relates to contract charges and policyholder benefits. Total variable life contract charges, including reinsurance assumed, for 2020 and 2019 were $46 million and $45 million, respectively. Separate account liabilities related to variable life contracts were $109 million and $85 million as of December 31, 2020 and 2019, respectively.

Equity-indexed Life and Annuity Liabilities As of December 31, 2020 and 2019, we had $1.98 billion and $1.92 billion, respectively, in equity-indexed life and annuity liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. We hedge the majority of the risk associated with these liabilities using equity-indexed options and futures and eurodollar futures, maintaining risk within specified value-at-risk limits.

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Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including common stocks, limited partnership interests, and our Canada, Northern Ireland and India operations. We use foreign currency derivative contracts to partially offset this risk.

As of December 31, 2020, we had $1.27 billion in foreign currency denominated equity investments, including the impact of foreign currency derivative contracts, $1.30 billion net investment in our foreign subsidiaries, primarily related to our Canada operations, and $77 million in unhedged non-U.S. dollar fixed income securities. These amounts were $2.80 billion, $1.08 billion, and $113 million, respectively, as of December 31, 2019.


Change in foreign currency exchange rates (1)
	As of December 31,
($ in millions)	2020		2019
Decrease in value of foreign currency denominated instruments	$	329	$	402

(1)Represents a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed based on information and assumptions used, including the impact of foreign currency derivative contracts.

The modeling technique we use to report our currency exposure does not take into account correlation among foreign currency exchange rates. Even though we believe it is very unlikely that all of the foreign currency exchange rates that we are exposed to would simultaneously decrease by 10%, we nonetheless stress test our portfolio under this and other hypothetical extreme adverse market scenarios. Our actual experience may differ from these results because of assumptions we have used or because significant liquidity and market events could occur that we did not foresee.

The Allstate Corporation 97

2020 Form 10-K Capital Resources and Liquidity

Capital Resources and Liquidity

Capital resources consist of shareholders’ equity and debt, representing funds deployed or available to be deployed to support business operations or for general corporate purposes.


Capital resources
	As of December 31,
($ in millions)	2020			2019			2018
Preferred stock, common stock, treasury stock, retained income and other shareholders’ equity items	$	26,913		$	24,048		$	21,194
Accumulated other comprehensive (loss) income	3,304			1,950			118
Total shareholders’ equity	30,217			25,998			21,312
Debt	7,825			6,631			6,451
Total capital resources	$	38,042		$	32,629		$	27,763
Ratio of debt to shareholders’ equity	25.9		%	25.5		%	30.3		%
Ratio of debt to capital resources	20.6		%	20.3		%	23.2		%

Shareholders’ equity increased in 2020, primarily due to net income and increased net unrealized capital gains on investments, partially offset by common share repurchases, dividends paid to shareholders and redemption of preferred stock. In 2020, we paid dividends of $668 million and $108 million related to our common and preferred shares, respectively. Shareholders’ equity increased in 2019, primarily due to net income, increased net unrealized capital gains on investments and issuance of preferred stock, partially offset by common share repurchases and dividends paid to shareholders. In 2019, we paid dividends of $653 million and $134 million related to our common and preferred shares, respectively.

Common share repurchases As of December 31, 2020, there was $1.56 billion remaining on the $3.00 billion common share repurchase program that is expected to be completed by the end of 2021.

In September 2020, we entered into an accelerated share repurchase agreement (“ASR agreement”) with Goldman Sachs & Co. LLC (“Goldman Sachs”) to purchase $750 million of our outstanding common stock. Under the ASR agreement, we paid $750 million upfront and initially acquired 7.0 million shares. The ASR agreement settled on January 12, 2021, and we repurchased a total of 7.8 million shares at an average price of $96.21. After the completion of the ASR, there was $1.45 billion remaining on the $3.00 billion common share repurchase program.

During 2020, we repurchased 17.4 million common shares, or 5.5% of total common shares outstanding as of December 31, 2019, for $1.70 billion. The common share repurchases were completed through open market transactions and ASR agreements.

Since 1995, we have acquired 742 million shares of our common stock at a cost of $36.93 billion, primarily as part of various stock repurchase programs. We have reissued 148 million common shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total common shares outstanding has decreased by 594 million shares or 66.2%, primarily due to our repurchase programs.

Common shareholder dividends On January 2, 2020, April 1, 2020, July 1, 2020, and October 1, 2020, we paid common shareholder dividends of $0.50, $0.54, $0.54 and $0.54, respectively. On November 18, 2020, we declared a common shareholder dividend of $0.54, payable on January 4, 2021.

Redemption of preferred stock and issuance of debt On January 15, 2020, we redeemed all 11,500 shares of Fixed Rate Noncumulative Preferred Stock, Series A and the corresponding depositary shares for $288 million.

On November 19, 2020, we issued $600 million of 0.750% Senior Notes due 2025 and $600 million of 1.450% Senior Notes due 2030. Interest on the Senior Notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. The Senior Notes are redeemable at any time at the applicable redemption price prior to the maturity date. The net proceeds of this issuance were used to partially fund the acquisition of National General.

For additional details on these transactions, see Note 12 of the consolidated financial statements.

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Capital Resources and Liquidity 2020 Form 10-K

Financial ratings and strength


Senior long-term debt, commercial paper and insurance financial strength ratings
	As of December 31, 2020
	Moody’s	S&P Global Ratings	A.M. Best
The Allstate Corporation (debt)	A3	A-	a
The Allstate Corporation (short-term issuer)	P-2	A-2	AMB-1+
Allstate Insurance Company (insurance financial strength)	Aa3	AA-	A+
Allstate Life Insurance Company (insurance financial strength)	A2	N/A	A+
Allstate Assurance Company (insurance financial strength)	A2	N/A	A+

Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage. The preferred stock and subordinated debentures are viewed as having a common equity component by certain rating agencies and are given equity credit up to a pre-determined limit in our capital structure as determined by their respective methodologies. These respective methodologies consider the existence of certain terms and features in the instruments such as the noncumulative dividend feature in the preferred stock.

The Allstate Corporation (the “Corporation”) and Allstate Insurance Company (“AIC”) In June 2020, A.M. Best affirmed the Corporation’s debt and short-term issuer ratings of a and AMB-1+, respectively, and the insurance financial strength rating of A+ for AIC. The outlook for the ratings is stable.

In July 2020, S&P affirmed the Corporation’s debt and short-term issuer ratings of A- and A-2, respectively, and the insurance financial strength rating of AA- for AIC. The outlook for the ratings is stable.

In January 2021, Moody’s affirmed the Corporation’s debt and short-term issuer ratings of A3 and P-2, respectively, and the insurance financial strength rating of Aa3 for AIC. The outlook for the ratings is stable.

ALIC and Allstate Assurance Company (“AAC”) In June 2020, A.M. Best affirmed the insurance financial strength ratings of A+ for ALIC and AAC. Subsequent to the announcement of the pending sale of ALIC and certain affiliates, A.M. Best affirmed the insurance financial strength rating of A+ for ALIC and AAC and placed these under review with negative implications.

Effective June 25, 2020, we are no longer requesting a rating from S&P for ALIC, which was rated A+ with a stable outlook at the time of the withdrawal.

Subsequent to the announcement of the pending sale of ALIC and certain affiliates, Moody’s downgraded the insurance financial strength rating for ALIC and AAC to A3 from A2 and placed these under review for potential further downgrade.

Other property and casualty companies We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty insurance that maintain separate group ratings. The ratings of these groups are influenced by the risks that relate specifically to each group. Many mortgage companies require property owners to have insurance from an insurance carrier with a secure financial strength rating from an accredited rating agency. In June 2020, A.M. Best affirmed the A rating of ANJ, which writes auto and homeowners insurance in New Jersey, and the A+ rating of North Light, our excess and surplus lines carrier. The outlook for the ANJ rating and North Light rating is stable. ANJ also has a Financial Stability Rating® of A" from Demotech, which was affirmed in December 2020. In April 2020, A.M. Best affirmed the B+ rating of CKIC, which underwrites personal lines property insurance in Florida. CKIC also has a Financial Stability Rating of A’ from Demotech that was affirmed in November 2020. ANJ, North Light and CKIC do not have support agreements with AIC.

Allstate’s domestic property and casualty and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Statutory surplus is a measure that is often used as a basis for determining dividend paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in determining their ratings.

The property and casualty business is comprised of 29 insurance companies as of December 31, 2020, each of which has individual company dividend limitations. As of December 31, 2020, total statutory surplus is $21.38 billion compared to $20.40 billion as of December 31, 2019. Property and casualty subsidiaries surplus was $17.13 billion as of December 31, 2020, compared to $16.19 billion as of December 31, 2019. Life insurance subsidiaries surplus was $4.26 billion as of December 31, 2020, compared to $4.21 billion as of December 31, 2019.

The Allstate Corporation 99

2020 Form 10-K Capital Resources and Liquidity

The National Association of Insurance Commissioners (“NAIC”) has developed financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined “usual ranges”. Additional regulatory scrutiny may occur if a company’s ratios fall outside the usual ranges for four or more of the ratios. Two of our domestic life insurance companies have four ratios outside the usual ranges.

Liquidity sources and uses Our potential sources and uses of funds principally include the following activities below.


Activities for potential sources of funds
	Property- Liability	Protection Services	Allstate Life	Allstate Benefits	Allstate Annuities	Corporate and Other
Receipt of insurance premiums	ü	ü	ü	ü
Recurring service fees	ü	ü		ü
Contractholder fund deposits			ü	ü	ü
Reinsurance and indemnification program recoveries	ü	ü	ü	ü	ü
Receipts of principal, interest and dividends on investments	ü	ü	ü	ü	ü	ü
Sales of investments	ü	ü	ü	ü	ü	ü
Funds from securities lending, commercial paper and line of credit agreements	ü		ü		ü	ü
Intercompany loans	ü	ü	ü	ü	ü	ü
Capital contributions from parent	ü	ü	ü	ü	ü	ü
Dividends or return of capital from subsidiaries	ü	ü	ü	ü	ü	ü
Tax refunds/settlements	ü	ü	ü	ü	ü	ü
Funds from periodic issuance of additional securities						ü
Receipt of intercompany settlements related to employee benefit plans						ü


Activities for potential uses of funds
	Property- Liability	Protection Services	Allstate Life	Allstate Benefits	Allstate Annuities	Corporate and Other
Payment of claims and related expenses	ü	ü
Payment of contract benefits, surrenders and withdrawals			ü	ü	ü
Reinsurance cessions and indemnification program payments	ü	ü	ü	ü	ü
Operating costs and expenses	ü	ü	ü	ü	ü	ü
Purchase of investments	ü	ü	ü	ü	ü	ü
Repayment of securities lending, commercial paper and line of credit agreements	ü		ü		ü	ü
Payment or repayment of intercompany loans	ü	ü	ü	ü	ü	ü
Capital contributions to subsidiaries	ü	ü	ü	ü	ü	ü
Dividends or return of capital to shareholders/parent company	ü	ü	ü	ü	ü	ü
Tax payments/settlements	ü	ü	ü	ü	ü	ü
Common share repurchases						ü
Debt service expenses and repayment	ü					ü
Payments related to employee benefit plans	ü	ü	ü	ü	ü	ü
Payments for acquisitions	ü	ü	ü	ü	ü	ü

Contractual obligations and commitments We have short-term and long-term contractual obligations and commitments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity. Long-term obligations include known contractual commitments that require cash needs beyond 12 months.

Short-term contractual obligations are typically settled with cash or short-term investments and operating cash flows. Most of these obligations are paid within one year. These include unconditional purchase obligations, other liabilities and accrued expenses, including liabilities for collateral and operating leases, and net unrecognized tax benefits.

100 www.allstate.com

Capital Resources and Liquidity 2020 Form 10-K

We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility.

As of December 31, 2020, we held $7.44 billion of cash, U.S. government and agencies fixed income securities, and public equity securities which we would expect to be able to liquidate within one week. In addition, we regularly estimate how much of the total portfolio, which includes high quality corporate fixed income and municipal holdings, can be reasonably liquidated within one quarter. These estimates are subject to considerable uncertainty associated with evolving market conditions. As of December 31, 2020, cash and estimated liquidity available within one quarter, under normal market conditions and at current market prices, was $26.77 billion.

Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade in our senior long-term debt ratings to non-investment grade status, or a downgrade in AIC’s or ALIC’s financial strength ratings. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.

The Allstate Corporation is party to an Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) with certain subsidiaries, which include, but are not limited to, ALIC and AIC. The Liquidity Agreement allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. ALIC and AIC each serve as a lender and borrower, certain other subsidiaries serve only as borrowers, and the Corporation serves only as a lender. AIC also has a capital support agreement with ALIC. Under the capital support agreement, AIC is committed to providing capital to ALIC to maintain an adequate capital level. The maximum amount of potential funding under each of these agreements is $1.00 billion.

In addition to the Liquidity Agreement, the Corporation also has an intercompany loan agreement with certain of its subsidiaries, which include, but are not limited to, AIC and ALIC. The amount of intercompany loans available to the Corporation’s subsidiaries is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of

credit and securities lending to fund intercompany borrowings.

Parent company capital capacity At the parent holding company level, we have deployable assets totaling $5.52 billion as of December 31, 2020 and approximately $4 billion were used to fund the purchase of National General, which closed on January 4, 2021. Deployable assets include $1.2 billion of proceeds from a debt issuance in November 2020 and comprise cash and investments that are generally saleable within one quarter. The substantial earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation.

The payment of dividends by AIC to The Allstate Corporation is limited by Illinois insurance law to formula amounts based on statutory net income and statutory surplus, as well as the timing and amount of dividends paid in the preceding twelve months. Based on the greater of 2020 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 2021 is estimated at $5.95 billion, less dividends paid during the preceding twelve months measured at that point in time. Notification and approval of intercompany lending activities are also required by the Illinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus.

These holding company assets and subsidiary dividends provide funds for the parent company’s fixed charges and other corporate purposes.

Intercompany dividends were paid in 2020, 2019 and 2018 between the following companies: AIC, Allstate Insurance Holdings, LLC (“AIH”), the Corporation, ALIC, American Heritage Life Insurance Company (“AHL”) and Allstate Financial Insurance Holdings Corporation (“AFIHC”).


Intercompany dividends
($ in millions)	2020		2019		2018
AIC to AIH	$	4,435	$	2,732	$	2,874
AIH to the Corporation	4,443		2,747		2,897
ALIC to AIC	—		75		250
AHL to AFIHC	80		80		55
AFIHC to the Corporation	115		50		—

Dividends may not be paid or declared on our common stock and shares of common stock may not be repurchased unless the full dividends for the latest completed dividend period on our preferred stock have been declared and paid or provided for.

We are prohibited from declaring or paying dividends on our Series G preferred stock if we fail to meet specified capital adequacy, net income or shareholders’ equity levels, except out of the net proceeds of common stock issued during the 90 days prior to the date of declaration. As of December 31, 2020, we satisfied all the requirements with no current restrictions on the payment of preferred stock dividends. There were no capital contributions paid by

The Allstate Corporation 101

2020 Form 10-K Capital Resources and Liquidity

the Corporation to AIC or capital contributions by AIC to ALIC in 2020, 2019 or 2018.

The terms of our outstanding subordinated debentures also prohibit us from declaring or paying any dividends or distributions on our common or preferred stock or redeeming, purchasing, acquiring, or making liquidation payments on our common stock or preferred stock if we have elected to defer interest payments on the subordinated debentures, subject to certain limited exceptions. In 2020, we did not defer interest payments on the subordinated debentures.

Additional resources to support liquidity are as follows:

The Corporation, AIC and ALIC have access to an unsecured revolving credit facility that is available for short-term liquidity requirements. In November 2020, we entered into a new agreement for a $750 million unsecured revolving credit facility with a maturity date of November 2025. The facility is fully subscribed among 11 lenders with the largest commitment being $95 million. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing, subject to the lenders’ commitment. This facility has a financial covenant requiring that we not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio was 17.5% as of December 31, 2020. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of our senior unsecured, unguaranteed long-term debt. There were no borrowings under the credit facility during 2020.
The Corporation has access to a commercial paper facility with a borrowing limit equal to our undrawn credit facility balance of $750 million to cover short-term cash needs.
As of December 31, 2020, there were no balances outstanding for the credit facility or the commercial paper facility and therefore the remaining borrowing capacity was $750 million.
The Corporation has access to a universal shelf registration statement with the Securities and Exchange Commission that expires in 2021. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 596 million shares of treasury stock as of December 31, 2020), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.

Long-term contractual obligations

Defined benefit pension plans and other postretirement benefit plans (“OPEB”) Pension plan obligations within the next 12 months represent our planned contributions to certain unfunded non-qualified plans where the benefit obligation exceeds the assets. Obligations beyond 12 months are projected based on the average remaining service period using the current underfunded status of the plans. The OPEB plans’ obligations are estimated based on the expected benefits to be paid. See Note 17 of the consolidated financial statements for further information.

Reserves for property and casualty insurance claims and claims expense represent estimated amounts necessary to settle all outstanding claims, including claims that have been IBNR as of the balance sheet date. Estimated timing of payments for reserves is based on our historical experience and our expectation of future payment patterns. The ultimate cost of losses may vary materially from recorded amounts that are our best estimates. See Note 8 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information.

Reserve for life-contingent contract benefits and contractholder funds We estimate the present value of cash payments to be made to contractholders and policyholders. We are currently making payments for contracts where the timing of a portion or all of the payments has been determined by the contract. Certain of these contracts, such as immediate annuities without life contingencies, involve payment obligations where the amount and timing of the payment are essentially fixed and determinable. Other contracts, such as interest-sensitive life, fixed deferred annuities, traditional life insurance and voluntary accident and health insurance, involve payment obligations where a portion or all of the amount and timing of future payments is uncertain. For immediate annuities with life contingencies, the amount of future payments is uncertain since payments will continue as long as the annuitant lives. We have estimated the timing of payments related to these contracts based on historical experience and our expectation of future payment patterns. Uncertainties relating to these liabilities include mortality, morbidity, expenses, customer lapse and withdrawal activity, estimated additional deposits for interest-sensitive life contracts, and renewal premium for life policies, which may significantly impact both the timing and amount of future payments. See Note 9 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information. The pending sale of ALIC and certain affiliates represents approximately 90% of Allstate Life and 75% of Allstate Annuities reserves for life-contingent contract benefits and contractholder funds.

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Capital Resources and Liquidity 2020 Form 10-K

Liquidity exposure Contractholder funds were $17.21 billion as of December 31, 2020.


Contractholder funds by contractual withdrawal provisions
($ in millions)	December 31, 2020		Percent to total
Not subject to discretionary withdrawal	$	2,652	15.4	%
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (1)	4,858		28.2
Market value adjustments (2)	697		4.1
Subject to discretionary withdrawal without adjustments (3)	9,006		52.3
Total contractholder funds	$	17,213	100.0	%

(1)Includes $1.62 billion of liabilities with a contractual surrender charge of less than 5% of the account balance.

(2)$294 million of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and subsequent interest rate guarantee periods (which are typically 1, 5, 7 or 10 years) during which there is no surrender charge or market value adjustment.

(3)90% of these contracts have a minimum interest crediting rate guarantee of 3% or higher.

Retail life and annuity products may be surrendered by customers for a variety of reasons. Reasons unique to individual customers include a current or unexpected need for cash or a change in life insurance coverage needs. Other key factors that may impact the likelihood of customer surrender include the level of the contract surrender charge, the length of time the contract has been in force, distribution channel, market interest rates, equity market conditions and potential tax implications.

In addition, the propensity for retail life insurance policies to lapse is lower than it is for fixed annuities because of the need for the insured to be re-underwritten upon policy replacement.

The surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 5.1% in 2020 and 6.0% in 2019. We strive to promptly pay customers who request cash surrenders; however, statutory regulations generally provide up to six months in most states to fulfill surrender requests.

Our asset-liability management practices enable us to manage the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance and annuity product obligations.

Contractual commitments represent investment commitments such as private placements, limited partnership interests and other loans. Limited partnership interests are typically funded over the commitment period which is shorter than the contractual expiration date of the partnership and as a result, the actual timing of the funding may vary.

We have agreements in place for services we conduct, generally at cost, between subsidiaries relating to insurance, reinsurance, loans and capitalization. All material intercompany transactions have been appropriately eliminated in consolidation. Intercompany transactions among insurance subsidiaries and affiliates have been approved by the appropriate departments of insurance as required.

For a more detailed discussion of our off-balance sheet arrangements, see Note 7 of the consolidated financial statements.

The Allstate Corporation 103

2020 Form 10-K Enterprise Risk and Return Management

Enterprise Risk and Return Management

In addition to the normal risks of the business, Allstate is subject to significant risks as an insurer and a provider of other products and services. These risks are discussed in more detail in the Risk Factors section of this document.

We regularly identify, measure, manage, monitor and report all significant risks. Major categories of enterprise risk are strategic, insurance, investment, financial, operational and culture.

Allstate manages these risks through an Enterprise Risk and Return Management (“ERRM”) framework that includes governance, processes, culture, and activities that are performed on an integrated, enterprise-wide basis, following our risk and return principles. Our legal and capital structures are designed to manage capital and solvency on a legal entity basis. Our risk-return principles define how we operate and guide risk and return decision making. These principles state that our priority is to maintain a strong foundation by protecting solvency, complying with laws and acting with integrity. Building upon this foundation, we strive to build strategic value and optimize risk and return.

Governance ERRM governance includes board oversight, an executive management committee, and enterprise and market-facing business chief risk officers.

The Allstate Corporation Board of Directors (“Allstate Board”) has overall responsibility for oversight of Management’s design and implementation of ERRM.
The Risk and Return Committee (“RRC”) of the Allstate Board oversees effectiveness of the ERRM program, governance structure and risk-related decision-making, while focusing on the Company’s overall risk profile.
The Audit Committee oversees the effectiveness of internal controls over financial reporting, disclosure controls and procedures as well as

management’s risk control framework and cybersecurity program.

The Enterprise Risk and Return Council (“ERRC”), directs ERRM by establishing risk and return targets, determining economic capital levels and monitoring integrated strategies and actions from an enterprise risk and return perspective. The ERRC consists of Allstate’s chief executive officer, vice chair, chief financial officer, chief risk officer and other senior leaders.
Other key committees work with the ERRC to direct ERRM activities, including the Operating Committee, the Operational Risk Council, the Information Security Council, the Corporate Asset Liability Committee, liability governance committees, and investment committees.

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Enterprise Risk and Return Management 2020 Form 10-K

Key risks are assessed and reported through comprehensive ERRM reports prepared for senior management and the RRC. The risk summary report communicates alignment of Allstate’s risk profile with risk and return principles while providing a perspective on risk position. Discussion promotes active engagement with management and the RRC. Internal controls over key risks are managed and reported to senior management and the Audit Committee of the Company through a semiannual risk control dashboard. Annually, we review risks related to the strategic plan, operating plan and incentive compensation programs with the Allstate Board.

Framework We apply these principles using an integrated ERRM framework that focuses on assessment, transparency and dialogue. Our framework provides a comprehensive view of risks and is used by senior management and business managers to drive risk-return based decisions. We continually validate and improve our ERRM practices by benchmarking and obtaining external perspectives.

Management and the ERRC rely on internal and external perspectives to determine an appropriate level of target economic capital. Internal perspectives include enterprise solvency and volatility assessments, stress scenarios, model assumptions and management judgment. External considerations include NAIC risk-based capital as well as S&P’s, Moody’s, and A.M. Best’s capital adequacy measurement. Our economic capital reflects management’s view of the aggregate level of capital necessary to satisfy stakeholder interests, manage Allstate’s risk profile and maintain financial strength. The impact of strategic initiatives on enterprise risk is evaluated through the economic capital framework.

The NAIC has adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA Model Act”), which has been enacted by our insurance subsidiaries’ domiciliary states. The ORSA Model Act requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed environments. Results of the assessment are filed annually.

Allstate’s risk appetite is measured through our economic capital framework. The enterprise risk appetite is cascaded into individual risk limits which set boundaries on the amount of risk we are willing to accept from one specific risk category before escalating for further management discussion and action. Risk limits are established based upon expected returns, volatility, potential tail losses and impact on the enterprise portfolio. To effectively operate within risk limits and for risk-return optimization, business units establish risk limits and capital targets specific to their businesses. Allstate’s risk management strategies adapt to changes in business and market environments.

Process Our ERRM framework establishes a basis for transparency and dialogue across the enterprise and for continuous learning by embedding our risk and return management culture of identifying, assessing,

managing, monitoring and reporting risks within the organization. Allstate designs business and enterprise strategies that seek to optimize risk-adjusted returns on capital. Risks are managed at both the legal entity and enterprise level.

A summary of our process to manage each of our major risk categories follows:

Strategic risk and return management addresses loss associated with inadequate or flawed business planning or strategy setting, including product mix, mergers or acquisitions and market positioning, and unexpected changes within the market or regulatory environment in which Allstate operates. This includes reputational risk, which is the potential for negative publicity regarding a company’s conduct or business practices to adversely impact its profitability, operations, consumer base or require costly litigation and other defensive measures.

We manage strategic risk through the Allstate Board and senior management strategy reviews that include a risk and return assessment of our strategic plans and ongoing monitoring of our strategic actions, key assumptions and the external competitive environment. Using the ERRM framework, Allstate designs strategies that seek to optimize risk-adjusted returns on economic capital for risk types including interest rate risk, credit risk, equity investments, including those with idiosyncratic return potential, auto profitability and growing property exposure.

Insurance risk and return management addresses fluctuations in the timing, frequency and severity of benefits, expenses, and premiums relative to the return expectations inclusive of systemic risk, concentration of insurance exposures, policy terms, reinsurance coverage, and claims handling practices.

Insurance risk exposures include our operating results and financial condition, claims frequency and severity, catastrophes and severe weather, and mortality and morbidity risk.

Insurance risk exposures are measured and monitored with different approaches including:

Stochastic methods: measures and monitors risks such as natural catastrophes and severe weather. We develop probabilistic estimates of risk based on our exposures, historical observed volatility or industry-recognized models in the case of catastrophe risk.
Scenario analysis: measures and monitors risks and estimated losses due to extreme low frequency events that include combined multiple event scenarios across risk categories and time periods.

Investment risk and return management addresses financial loss due to changes in the valuations of assets held in the Allstate investment portfolio, as well as liability valuation within the Life and Annuity business. Such losses may be caused by macro developments, such as changes to interest rates, credit spreads and equity price levels, or could be specific to individual investments in the portfolio.

The Allstate Corporation 105

2020 Form 10-K Enterprise Risk and Return Management

These losses can encompass both daily market volatility and permanent impairments of capital due to credit defaults and equity write-downs.

Investment risk exposures include interest rate risk, credit spread risk, equity price risk and foreign currency exchange rate risk.

Investment risk exposures are measured and monitored in a number of ways including:

Sensitivity analysis: measures the impact from a unit change in a market risk input.
Stochastic and probabilistic estimation of potential losses: combines portfolio risk exposures with historical or recent market volatilities and correlations to assess the potential range of future investment results.
Scenario analysis: measures material adverse outcomes such as shock scenarios applied to credit, public and private equity markets.

Some of the stress scenarios are a combination of multiple scenarios across risk categories and over multiple time periods, considering the effects of macroeconomic conditions.

Financial risk and return management addresses the risk of insufficient cash flows to meet corporate or policyholder needs, risk of inadequate aggregate capital or capital within any subsidiary, inability to access capital markets, credit risk that arises when an external party fails to meet a contractual obligation such as reinsurance for ceded claims, or risk associated with a business counterparty default.

We actively manage our capital and liquidity levels in light of changing market, economic and business conditions. Our capital position, capital generation capacity, and targeted risk profile provide strategic and financial flexibility.

We generally assess solvency on a statutory accounting basis, but also consider holding company capital and liquidity needs. Current enterprise capital, which exceeds economic targeted levels, is based on a combination of statutory surplus and deployable assets at the parent holding company level.

Operational risk and return management addresses loss as a result of the failure of people, processes, systems or culture. Operational risk exposures include human capital, privacy, regulatory compliance, ethics, fraud, system availability, cybersecurity, data quality, disaster recovery and business continuity.

Operational risk is managed at the enterprise and market-facing business levels, through an integrated Operational Risk and Return Management (“ORRM”) program, with resources throughout the enterprise identifying, measuring, monitoring, managing, and reporting on operational risks at a detailed level.

From time to time, we engage independent advisors to assess and consult on operational risks. We also perform assessments of the quality of our operational risk program and identify opportunities to strengthen our internal controls.

Culture risk and return management addresses the potential for loss of stakeholder value from a suboptimal work environment, missed opportunities, or ineffective risk management practices. Allstate defines organization culture as a self-sustaining system of shared values, principles and priorities that shape beliefs, drive behavior and influence decision-making within an organization.

Culture is managed based on a set of core cultural elements that have been established as a basis for assessment and measurement. Results of culture risk assessment are reported to the ERRC and RRC throughout the year.

106 www.allstate.com

Application of Critical Accounting Estimates 2020 Form 10-K

Applica****tion of Critical Accounting Est****imates

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates, presented in the order they appear in the Consolidated Statements of Financial Position, include those used in determining:

Fair value of financial assets
Impairment of fixed income securities
Deferred policy acquisition costs amortization
Evaluation of goodwill for impairment
Reserve for property and casualty insurance claims and claims expense estimation
Reserve for life-contingent contract benefits estimation
Pension and other postretirement plans net costs and assumptions

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

A summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our consolidated financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a more detailed summary of our significant accounting policies, see the notes to the consolidated financial statements.

Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We obtain or calculate only one single quote or price for each financial instrument.

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested under the terms of our agreements. The inputs used by the valuation service providers include, but are not limited to, market prices

from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. For certain equity securities, valuation service providers provide market quotations for completed transactions on the measurement date. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information.

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

The fair value of certain financial assets, including privately placed corporate fixed income securities and free-standing derivatives, for which our valuation service providers or brokers do not provide fair value determinations, is developed using valuation methods and models widely accepted in the financial services industry. Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities or instruments, published credit spreads, and other applicable market data as well as instrument-specific characteristics that include, but are not limited to, coupon rates, expected cash flows, sector of the issuer, and call provisions. Because judgment is required in developing the fair values of these financial assets, they may differ from the amount actually received to sell an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the financial assets’ fair values.

The Allstate Corporation 107

2020 Form 10-K Application of Critical Accounting Estimates

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

We gain assurance that our financial assets are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, our processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. We perform procedures to understand and assess the methodologies,

processes and controls of valuation service providers. In addition, we may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

We also perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal model. As of December 31, 2020 and 2019, we did not adjust fair values provided by our valuation service providers or brokers or substitute them with an internal model for such securities.


Fixed income, equity securities and short-term investments by source of fair value determination
	December 31, 2020
($ in millions)	Fair value		Percent to total
Fair value based on internal sources	$	2,225	2.8	%
Fair value based on external sources (1)	76,639		97.2
Total	$	78,864	100.0	%

(1)Includes $1.27 billion that are valued using broker quotes and $375 million that are valued using quoted prices or quoted net asset values from deal sponsors.

For additional detail on fair value measurements, see Note 6 of the consolidated financial statements.

Impairment of fixed income securities For fixed income securities classified as available-for-sale, the difference between amortized cost, net of credit loss allowance (“amortized cost, net”) and fair value, net of certain other items and deferred income taxes (as disclosed in Note 5 of the consolidated financial statements), is reported as a component of accumulated other comprehensive income (“AOCI”) on the Consolidated Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.

For each fixed income security in an unrealized loss position, we assess whether management with the

appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with the incremental losses recorded in earnings.

If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate, and are compared to the amortized cost of the

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Application of Critical Accounting Estimates 2020 Form 10-K

security. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement.

If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, we remove amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received.

For additional detail on investment impairments, see Note 5 of the consolidated financial statements.

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

DAC related to property and casualty contracts is amortized into income as premiums are earned, typically over periods of six or twelve months for personal lines policies or generally one to five years for protection plans and other contracts (primarily related to finance and insurance products).

DAC related to traditional life and voluntary accident and health insurance is amortized over the premium paying period of the related policies in

proportion to the estimated revenues on such business. Significant assumptions relating to estimated premiums, investment returns, as well as mortality, persistency and expenses to administer the business are established at the time the policy is issued and are generally not revised during the life of the policy. The assumptions for determining the timing and amount of DAC amortization are consistent with the assumptions used to calculate the reserve for life-contingent contract benefits. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximate the estimated lives of the policies. The recovery of DAC is dependent upon the future profitability of the business.

We periodically review the adequacy of reserves and recoverability of DAC using actual experience and current assumptions. We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance products individually. In the event actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not recoverable and a premium deficiency reserve may be required if the remaining DAC balance is insufficient to absorb the deficiency. In 2020 and 2019, our DAC recoverability evaluation concluded that all recorded DAC balances were recoverable. For additional detail on reserve adequacy, see the Reserve for life-contingent contract benefits estimation section.

DAC related to interest-sensitive life insurance is amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits (“AGP”) and estimated future gross profits (“EGP”) expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life. The rate of DAC amortization is reestimated and adjusted by a cumulative charge or credit to income when there is a difference between the incidence of actual versus expected gross profits in a reporting period or when there is a change in total EGP.

AGP and EGP primarily consist of the following components: contract charges for the cost of insurance less mortality costs and other benefits (benefit margin); investment income and realized capital gains and losses less interest credited (investment margin); and surrender and other contract charges less maintenance expenses (expense margin). The principal assumptions for determining the amount of EGP are mortality, persistency, expenses,

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investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. These assumptions are reasonably likely to have the greatest impact on the amount of DAC amortization. Changes in these assumptions can be offsetting and we are unable to reasonably predict their future movements or offsetting impacts over time.

Each reporting period, DAC amortization is recognized in proportion to AGP for that period adjusted for interest on the prior period DAC balance. This amortization process includes an assessment of AGP compared to EGP, the actual amount of business remaining in force and realized capital gains and losses on investments supporting the product liability. The impact of realized capital gains and losses on amortization of DAC depends upon which product liability is supported by the assets that give rise to the gain or loss. If the AGP is greater than EGP in the period, but the total EGP is unchanged, the amount of DAC amortization will generally increase, resulting in a current period decrease to earnings. The opposite result generally occurs when the AGP is less than the EGP in the period, but the total EGP is unchanged. However, when DAC amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC balance) as a result of negative AGP, the specific facts

and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the consolidated financial statements. Negative amortization is only recorded when the increased DAC balance is determined to be recoverable based on facts and circumstances. For products whose supporting investments are exposed to capital losses in excess of our expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC amortization may be modified to exclude the excess capital losses.

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


Effect on DAC amortization of changes in assumptions relating to gross profit components
	For the years ended December 31,
($ in millions)	2020		2019

Investment margin	$	157	$	23
Benefit margin	(7)		38
Expense margin	(41)		(1)
Net acceleration	$	109	$	60

In 2020, DAC amortization acceleration for changes in the investment margin component of EGP related to interest-sensitive life insurance and was due to lower projected future interest rates and investment returns compared to our previous expectations. The deceleration related to benefit margin was due to decreased projected mortality. The expense margin deceleration was due to a decrease in projected expenses.

In 2019, DAC amortization acceleration for changes in the investment margin component of EGP was due to lower projected future interest rates and investment returns compared to our previous expectations. The acceleration related to benefit margin was due to decreased projected interest rates that result in lower projected policyholder account values which increases benefits on guaranteed products and more refined policy level information and assumptions.

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The following table displays the sensitivity of reasonably likely changes in assumptions included in the gross profit components of investment margin or

benefit margin to amortization of the DAC balance as of December 31, 2020.




($ in millions)	Increase/(reduction)

Increase in future investment margins of 25 basis points	$	54
Decrease in future investment margins of 25 basis points		(60)


Decrease in future life mortality by 1%	$	15
Increase in future life mortality by 1%		(16)

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

For additional detail related to DAC, see the Allstate Life Segment section of the MD&A.

Evaluation of goodwill for impairment Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized. Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination. Our goodwill reporting units are equivalent to our reportable segments: Allstate Protection, Protection Services, Allstate Life and Allstate Benefits to which goodwill has been assigned.

Upon acquisition, the purchase price of the acquired business is assumed to be its fair value. Subsequently, we estimate the fair value of our businesses in each goodwill reporting unit, utilizing a combination of widely accepted valuation techniques including a stock price and market capitalization analysis, discounted cash flow (“DCF”) calculations and an estimate of a business’s fair value using market to book multiples derived from peer company analysis. The stock price and market capitalization analysis takes into consideration the quoted market price of our outstanding common stock and includes a control premium, derived from relevant historical acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The DCF analysis utilizes long term assumptions for revenues, investment income, benefits, claims, other operating expenses and income taxes to produce projections of both income and cash flows available for dividends that are present valued using the weighted average cost of capital. Market to book multiples represent the mean market to book multiple for selected peer companies with operations similar to our goodwill reporting units to which the multiple is applied. The outputs from these methods are weighted based on the nature of the business and the relative amount of market observable assumptions supporting the estimates. The computed values are then weighted to reflect the fair value estimate based on the specific attributes of each goodwill reporting unit.

Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. Changes in market inputs

or other events impacting the fair value of these businesses, including discount rates, operating results, investment returns, strategies and growth rate assumptions, among other factors, could result in goodwill impairments, resulting in a charge to income. Certain of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have substantial internally generated and unrecognized intangibles and fair values that significantly exceed their carrying values. Our Protection Services goodwill reporting unit is more heavily comprised of newly acquired businesses and as a result does not have a significant excess of fair value over its carrying value attributable to internally generated unrecognized intangibles. Therefore, this reporting unit may be more susceptible to potential future goodwill impairment based on changes to growth or margin assumptions.

The most significant assumptions utilized in the determination of the estimated fair value of the Protection Services reporting unit are the earnings growth rate and discount rate. The growth rate utilized in our fair value estimates is consistent with our plans to grow these businesses more rapidly over the near-term with more moderated growth rates in later years.

The discount rate, which is consistent with the weighted average cost of capital expected by a market participant, is based upon industry specific required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by changes in the risk-free rate, cost of debt, equity risk premium and entity specific risks.

Changes in our growth assumptions, including the risk of loss of key customers, or adverse changes in the discount rates could result in a decline in fair value and result in a goodwill impairment charge.

Reserve for property and casualty insurance claims and claims expense estimation Reserves are established to provide for the estimated costs of paying claims and claims expenses under insurance policies we have issued. Underwriting results are significantly influenced by estimates of property and casualty insurance claims and claims expense reserves. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR, as of the financial statement date.

Characteristics of reserves Reserves are established independently of business segment management for each business segment and line of business based on estimates of the ultimate cost to

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settle claims, less losses that have been paid. The significant lines of business are auto, homeowners, and other personal lines for Allstate Protection, and asbestos, environmental, and other discontinued lines for Discontinued Lines and Coverages. Allstate Protection’s claims are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss is reported. Auto and homeowners liability losses generally take an average of about two years to settle, while auto physical damage, homeowners property and other personal lines have an average settlement time of less than one year. Discontinued Lines and Coverages involve long-tail losses, such as those related to asbestos and environmental claims, which often involve substantial reporting lags and extended times to settle.

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

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

See Discontinued and Lines and Coverages reserve estimates section for specific disclosures of industry and actuarial best practices for this segment.

In the chain ladder estimation technique, a ratio (development factor) is calculated which compares current period results to results in the prior period for

each accident year. A multi-year average development factor, based on historical results, is usually multiplied by the current period experience to estimate the development of losses of each accident year into the next time period. The development factors for the future time periods for each accident year are compounded over the remaining future periods to calculate an estimate of ultimate losses for each accident year. The implicit assumption of this technique is that an average of historical development factors is predictive of future loss development, as the significant size of our experience database achieves a high degree of statistical credibility in actuarial projections of this type. The effects of inflation are implicitly considered in the reserving process, the implicit assumption being that a multi-year average development factor includes an adequate provision. The development factor estimation methodology may require modification when data changes due to changing claim reporting practices, changing claim settlement patterns, external regulatory or financial influences, or contractual coverage changes. In these situations, actuarial estimation techniques are applied to appropriately modify the “chain ladder” assumptions. These actuarial techniques are necessary to analyze the effects of changing loss data to develop modified development factor selections. The actuarial estimation techniques include exclusion of unusual losses or aberrations and adjustment of historical data to present conditions. Actuarially modified patterns of development are calculated with the adjusted historical data. Actuarial judgment is then applied to make appropriate development factor assumptions needed to develop a best estimate of gross ultimate losses. These developments are discussed further in the Allstate brand loss ratio disclosures in the Allstate Protection Segment and the Claims and Claims Expense Reserves sections of the MD&A.

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

Often, several different estimates are prepared for each detailed component, incorporating alternative

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analyses of changing claim settlement patterns and other influences on losses, from which we select our best estimate for each component, occasionally incorporating additional analyses and actuarial judgment, as described above. These micro-level estimates are not based on a single set of assumptions. Actuarial judgments that may be applied to these components of certain micro-level estimates generally do not have a material impact on the consolidated level of reserves. Moreover, this detailed micro-level process does not permit or result in a compilation of a company-wide roll up to generate a range of needed loss reserves that would be meaningful. Based on our review of these estimates, our best estimate of required reserves for each state/line/coverage component is recorded for each accident year, and the required reserves for each component are summed to create the reserve balance carried on our Consolidated Statements of Financial Position.

Reserves are reestimated quarterly and periodically throughout the year, by combining historical results with current actual results to calculate new development factors. This process continuously incorporates the historic and latest actual trends, and other underlying changes in the data elements used to calculate reserve estimates. New development factors are likely to differ from previous development factors used in prior reserve estimates because actual results

(claims reported or settled, losses paid, or changes to case reserves) occur differently than the implied assumptions contained in the previous development factor calculations. If claims reported, paid losses, or case reserve changes are greater or less than the levels estimated by previous development factors, reserve reestimates increase or decrease. When actual development of these data elements is different than the historical development pattern used in a prior period reserve estimate, a new reserve is determined. The difference between indicated reserves based on new reserve estimates and recorded reserves (the previous estimate) is the amount of reserve reestimate and is recognized as an increase or decrease in claims and claims expense in the Consolidated Statements of Operations. Total net reserve reestimates, after-tax, favorable impact on net income applicable to common shareholders were 6.3%, 2.2% and 10.0% in 2020, 2019 and 2018, respectively. The 3-year average of net reserve reestimates as a percentage of total reserves was a favorable 2.0% for Allstate Protection, an unfavorable 8.0% for Discontinued Lines and Coverages and a favorable 4.1% for Protection Services, each of these results being consistent within a reasonable actuarial tolerance for the respective businesses. A more detailed discussion of reserve reestimates is presented in the Claims and Claims Expense Reserves section of the MD&A.


Net claims and claims expense reserves by segment and line of business
	As of December 31,
($ in millions)	2020		2019		2018
Allstate Protection
Auto	$	14,164	$	14,728	$	14,378
Homeowners	2,315		2,138		2,157
Other lines	2,657		2,530		2,290
Total Allstate Protection	19,136		19,396		18,825
Discontinued Lines and Coverages
Asbestos	827		810		866
Environmental	206		179		170
Other discontinued lines	375		376		355
Total Discontinued Lines and Coverages	1,408		1,365		1,391
Total Protection Services	33		39		52
Total net claims and claims expense reserves	$	20,577	$	20,800	$	20,268

Allstate Protection reserve estimate

Factors affecting reserve estimates Reserve estimates are developed based on the processes and historical development trends described above. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When we experience changes of the type previously mentioned, we may need to apply actuarial judgment in the determination and selection of development factors considered more reflective of the new trends, such as combining shorter or longer periods of historical results with current actual results to produce development factors based

on two-year, three-year, or longer development periods to reestimate our reserves. For example:

The Coronavirus has had a significant impact on driving patterns and auto frequency that may lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability.
If a legal change is expected to have a significant impact on the development of claim severity for a coverage which is part of a particular line of insurance in a specific state, actuarial judgment is applied to determine appropriate development factors that will most accurately reflect the expected impact on that specific estimate.
A change in economic conditions is expected to affect the cost of repairs to damaged autos or

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property for a particular line, coverage, or state, actuarial judgment is applied to determine appropriate development factors to use in the reserve estimate that will most accurately reflect the expected impacts on severity development.

As claims are reported, for certain liability claims of sufficient size and complexity, the field adjusting staff establishes case reserve estimates of ultimate cost, based on their assessment of facts and circumstances related to each individual claim. For other claims which occur in large volumes and settle in a relatively short time frame, it is not practical or efficient to set case reserves for each claim, and a statistical case reserve is set for these claims based on estimation techniques described above. In the normal course of business, we may also supplement our claims processes by utilizing third-party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims.

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

Another major component of reserves is IBNR, which comprises about 10% of total reserves. IBNR can be a small percentage of reserves for relatively short-term claims, such as auto physical damage claims, or a large percentage of reserves for claims that have uncertain payout requirements over a long period of time, such as auto injury and MCCA claims. All major components of reserves are affected by changes in claim frequency as well as claim severity.

Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using processes described above. Changes in auto claim frequency may result from changes in mix of business, the rate of distracted driving, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy and the effectiveness and efficiency of our claim practices. We mitigate these effects through various loss management programs. Injury claims are affected largely by medical cost inflation while physical damage claims are affected largely by auto repair cost inflation and used car prices. For auto physical damage coverages, we monitor our rate of increase in average cost per claim against the auto maintenance, repair, parts and equipment price indices. We believe our claim settlement initiatives, such as improvements to the claim review and settlement process, the use of special investigative units to detect fraud and handle suspect claims, litigation management and defense

strategies, as well as various other loss management initiatives underway, contribute to the mitigation of injury and physical damage severity trends.

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

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

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

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

At each reporting date, the highest degree of uncertainty in estimates for most of our losses from ongoing businesses arise from claims remaining to be settled for the current accident year and the most recent preceding accident year. The greatest degree of uncertainty exists in the current accident year because the current accident year contains the greatest proportion of losses that have not been reported or settled but must be estimated as of the current reporting date. Most of these losses relate to damaged property such as automobiles and homes, and medical care for injuries from accidents. During the first year after the end of an accident year, a large portion of the total losses for that accident year are settled. When accident year losses paid through the end of the first year following the initial accident year

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are incorporated into updated actuarial estimates, the trends inherent in the settlement of claims emerge more clearly. Consequently, this is the point in time at which we tend to make our largest reestimates of losses for an accident year. After the second year, the losses that we pay for an accident year typically relate to claims that are more difficult to settle, such as those involving serious injuries or litigation. Private passenger auto insurance provides a good illustration of the uncertainty of future loss estimates: our typical annual percentage payout of reserves remaining at December 31 for an accident year is approximately 45% in the first year after the end of the accident year, 20% in the second year, 15% in the third year, 10% in the fourth year, and the remaining 10% thereafter.

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

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

staff, or where we believed our historical loss development factors were not predictive, we rely on analysis of actual claim notices received compared to total PIF, as well as visual, governmental and third-party information, including aerial photos, using satellites, aircrafts and drones, area observations, and data on wind speed and flood depth to the extent available.

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

To develop a statistical indication of potential reserve variability within reasonably likely possible outcomes, an actuarial technique (stochastic modeling) is applied to the countrywide consolidated data elements for paid losses and paid losses combined with case reserves separately for injury losses, auto physical damage losses, and homeowners losses excluding catastrophe losses. Based on the combined historical variability of the development factors calculated for these data elements, an estimate of the standard error or standard deviation around these reserve estimates is calculated within each accident year for the last twelve years for each type of loss. The variability of these reserve estimates within one standard deviation of the mean (a measure of frequency of dispersion often viewed to be an acceptable level of accuracy) is believed by management to represent a reasonable and statistically probable measure of potential variability. Based on our products and coverages, historical experience, the statistical credibility of our extensive data and stochastic modeling of actuarial chain ladder methodologies used to develop reserve estimates, we estimate that the potential variability of our Allstate Protection reserves, excluding reserves for catastrophe losses, within a reasonable probability of other possible outcomes, may be approximately plus or minus 4%, or plus or minus $800 million in net income applicable to common shareholders. A lower level of variability exists for auto injury losses, which comprise approximately 80% of reserves, due to their relatively stable development patterns over a longer duration of time required to settle claims. Other types of losses, such as auto physical damage, homeowners losses and

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other personal lines losses, which comprise about 20% of reserves, tend to have greater variability but are settled in a much shorter period of time. Although this evaluation reflects most reasonably likely outcomes, it is possible the final outcome may fall below or above these amounts. Historical variability of reserve estimates is reported in the Claims and Claims Expense Reserves section of the MD&A.

Reserves for Michigan and New Jersey unlimited personal injury protection Claims and claims expense reserves include reserves for Michigan mandatory unlimited personal injury protection coverage to insureds involved in qualifying motor vehicle accidents. The administration of this program is through the MCCA, a state-mandated, non-profit association of which all insurers actively writing automobile coverage in Michigan are members.

The process employed to estimate MCCA covered losses involves a number of activities including the comprehensive review and interpretation of MCCA actuarial reports, other MCCA members’ reports and our personal injury protection loss trends which have increased in severity over time. A significant portion of incurred claim reserves can be attributed to a small number of catastrophic claims and thus a large portion of the recoverable is similarly concentrated. We conduct comprehensive claim file reviews to develop case reserve type estimates of specific claims, which inform our view of future claim development and longevity of claimants. Each year, we update the actuarial estimate of our ultimate reserves and recoverables. We report our paid and unpaid claims based on MCCA requirements. The MCCA develops its own reserving estimates based on its own reserve methodologies, which may not align with our estimations. The MCCA does not provide member companies with its estimate of a company’s claim costs. We continue to update each comprehensive claim file case reserve estimate when there is a significant change in the status of the claimant, or once every three years if there have been no significant changes.

We provide similar personal injury protection coverage in New Jersey for auto policies issued or renewed in New Jersey prior to 1991 that is administered by PLIGA. We use similar actuarial estimating techniques as for the MCCA exposures to estimate loss reserves for unlimited personal injury protection coverage for policies covered by PLIGA. We continue to update our estimates for these claims as the status of claimant’s changes. However, unlimited coverage was no longer offered after 1991; therefore, no new claimants are being added.

Reserve estimates are confidential and proprietary and by their nature are very complex to determine and subject to significant judgments. Reserve estimates do not represent an exact determination for each outstanding claim. Claims may be subject to litigation. As actual claims, paid losses and case reserve results emerge, our estimate of the ultimate cost to settle may be materially greater or less than previously estimated amounts.

For additional information related to indemnification recoverables, see Item 1 - Regulation, Indemnification Programs and Note 10 of the consolidated financial statements.

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

Discontinued Lines and Coverages reserve estimates

Characteristics of Discontinued Lines exposure Our exposure to asbestos, environmental and other discontinued lines claims arise principally from assumed reinsurance coverage written during the 1960s through the mid-1980s, including reinsurance on primary insurance written on large U.S. companies, and from direct excess commercial insurance written from 1972 through 1985, including substantial excess general liability coverages on large U.S. companies. Additional exposure stems from direct primary commercial insurance written during the 1960s through the mid-1980s. Asbestos claims relate primarily to bodily injuries asserted by claimants who were exposed to asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs. Other discontinued lines exposures primarily relate to general liability and product liability mass tort claims, such as those for medical devices and other products, workers’ compensation claims and claims for various other coverage exposures other than asbestos and environmental.

In 1986, the general liability policy form used by us and others in the property and casualty industry was amended to introduce an “absolute pollution exclusion,” which excluded coverage for environmental damage claims, and to add an asbestos exclusion. Most general liability policies issued prior to 1987 contain annual aggregate limits for product liability coverage. General liability policies issued in 1987 and thereafter contain annual aggregate limits for product liability coverage and annual aggregate limits for all coverages. Our experience to date is that these policy form changes have limited the extent of our exposure to environmental and asbestos claim risks.

Our exposure to liability for asbestos, environmental and other discontinued lines losses manifests differently depending on whether it arises from assumed reinsurance coverage, direct excess commercial insurance or direct primary commercial insurance. The direct insurance coverage we provided that covered asbestos, environmental and other discontinued lines was substantially “excess” in nature.

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Direct excess commercial insurance and reinsurance involve coverage written by us for specific layers of protection above retentions and other insurance plans. The nature of excess coverage and reinsurance provided to other insurers limits our exposure to loss to specific layers of protection in excess of policyholder retention on primary insurance plans. Our exposure is further limited by the significant reinsurance that we had purchased on our direct excess business.

Our assumed reinsurance business involved writing generally small participations in other insurers’ reinsurance programs. The reinsured losses in which we participate may be a proportion of all eligible losses or eligible losses in excess of defined retentions. The majority of our assumed reinsurance exposure, approximately 85%, is for excess of loss coverage, while the remaining 15% is for pro-rata coverage.

Our direct primary commercial insurance business did not include coverage to large asbestos manufacturers. This business comprises a cross section of policyholders engaged in many diverse business sectors throughout the country.

How reserve estimates are established and updated We conduct an annual review in the third quarter to evaluate, establish and adjust as necessary, asbestos, environmental and other discontinued lines reserves. Changes to reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines asbestos reserves based on assessments of the characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, and determines environmental reserves based on assessments of the characteristics of exposure (i.e. environmental damages, respective shares of liability of potentially responsible parties, appropriateness and cost of remediation) to pollution and related clean-up costs. The number and cost of these claims are affected by advertising by trial lawyers seeking asbestos plaintiffs, and entities with asbestos exposure seeking bankruptcy protection as a result of asbestos liabilities, initially causing a delay in the reporting of claims, often followed by an acceleration and an increase in claims and claims expenses as settlements occur.

After evaluating our insureds’ probable liabilities for asbestos and environmental claims, we evaluate our insureds’ coverage programs for such claims. We consider our insureds’ total available insurance coverage, including the coverage we issued. We also consider relevant judicial interpretations of policy language and applicable coverage defenses or determinations, if any.

Evaluation of both the insureds’ estimated liabilities and our exposure to the insureds depends heavily on an analysis of the relevant legal issues and litigation environment. This analysis is conducted by our specialized claims adjusting staff and legal counsel.

Based on these evaluations, case reserves are established by claims adjusting staff and actuarial analysis is employed to develop an IBNR reserve, which includes estimated potential reserve development and claims that have occurred but have not been reported. As of December 31, 2020 and 2019, IBNR was 50% and 49%, respectively, of combined net asbestos and environmental reserves.

For both asbestos and environmental reserves, we also evaluate our historical direct net loss and expense paid and incurred experience to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and incurred activity. Other discontinued lines reserves are based on considerations similar to those described above, as they relate to the characteristics of specific individual coverage exposures.

Potential reserve estimate variability Establishing Discontinued Lines and Coverages net loss reserves for asbestos, environmental and other discontinued lines claims is subject to uncertainties that are much greater than those presented by other types of property and casualty claims. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs’ evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Our reserves for asbestos and environmental exposures could be affected by tort reform, class action litigation, and other potential legislation and judicial decisions. Environmental exposures could also be affected by a change in the existing federal Superfund law and similar state statutes. There can be no assurance that any reform legislation will be enacted or that any such legislation will provide for a fair, effective and cost-efficient system for settlement of asbestos or environmental claims. We believe these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. Historical variability of

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reserve estimates is demonstrated in the Claims and Claims Expense Reserves section of the MD&A.

Adequacy of reserve estimates Management believes its net loss reserves for asbestos, environmental and other discontinued lines exposures are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. Due to the uncertainties and factors described above, management believes it is not practicable to develop a meaningful range for any such additional net loss reserves that may be required.

Further discussion of reserve estimates For further discussion of these estimates and quantification of the impact of reserve estimates, reserve reestimates and assumptions, see Notes 8 and 14 of the consolidated financial statements and the Claims and Claims Expense Reserves section of the MD&A.

Reserve for life-contingent contract benefits estimation Due to the long-term nature of traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, benefits are payable over many years; accordingly, the reserves are calculated as the present value of future expected benefits to be paid, reduced by the present value of future expected net premiums. Long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses are used when establishing the reserve for life-contingent contract benefits payable under these insurance policies. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. Future investment yield assumptions are determined based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination assumptions are based on our experience and industry experience. Expense assumptions include the estimated effects of inflation and expenses to be incurred beyond the premium-paying period. These assumptions are established at the time the policy is issued, are consistent with assumptions for determining DAC amortization for these policies, and are generally not changed during the policy coverage period. However, if actual experience emerges in a manner that is significantly adverse relative to the original assumptions, adjustments to DAC or reserves may be required resulting in a charge to earnings which could have a material effect on our operating results and financial condition.

We periodically review the adequacy of reserves and recoverability of DAC using actual experience and current assumptions. In the event actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC

balance must be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required.

We evaluate our traditional life insurance products, immediate annuities with life contingencies, and voluntary accident and health insurance individually.

In the third quarter of 2020, the premium deficiency evaluation of our immediate annuities with life contingencies resulted in a premium deficiency reserve (“PDR”) of $225 million, pre-tax. Our long-term investment yield assumption was lowered, which resulted in the prior sufficiency changing to a deficiency. The deficiency was recognized as an increase in the reserve for life contingent contract benefits. The original assumptions used to establish reserves were updated to reflect current assumptions, and the primary changes included mortality expectations, where annuitants are living longer than originally anticipated, and long-term investment yields. As of December 31, 2020, our reviews concluded that no additional premium deficiency adjustments were necessary for our immediate annuities with life contingencies.

As of December 31, 2020, traditional life insurance and accident and health insurance both have a substantial sufficiency. In 2019, our reviews concluded that no premium deficiency adjustments were necessary.

We also review these policies for circumstances where projected profits would be recognized in early years followed by projected losses in later years. In 2020 and 2019, our reviews concluded that there were no projected losses following projected profits in each long-term projection.

We will continue to monitor the experience of our traditional life insurance and immediate annuities. We periodically complete comprehensive mortality studies for our structured settlement annuities with life contingencies to determine whether annuitants are living for a longer period than originally estimated. We anticipate that investment and reinvestment yields, mortality, and policy terminations are the factors that would be most likely to require premium deficiency adjustments to reserves or related DAC. Mortality rates and investment and reinvestment yields are the factors that would be most likely to require a profits followed by losses liability accrual.

For further detail on the reserve for life-contingent contract benefits, see Note 9 of the consolidated financial statements.

The pending sale of ALIC and certain affiliates represents approximately 90% of Allstate Life and 75% of Allstate Annuities reserves for life-contingent contract benefits and contractholder funds. For further detail on this transaction, see Note 3 of the consolidated financial statements.

Pension and other postretirement plans net costs and assumptions Our defined benefit pension plans cover most full-time employees, certain part-time employees and employee-agents. Benefits are based primarily on a cash balance formula; however,

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certain participants have a significant portion of their benefits attributable to a former final average pay formula. 87% of the projected benefit obligation (“PBO”) of our primary qualified employee plan is related to the former final average pay formula. See Note 17 of the consolidated financial statements for a discussion of these plans and their effect on the consolidated financial statements.

Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, health care cost trend rates, inflation, expected returns on plan assets, mortality and other factors. The assumptions utilized in recording the obligations under our pension plans represent our best estimates and we believe they are reasonable based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past trends.

Net costs for our defined benefit plans are recognized on the Consolidated Statements of Operations and consist of two elements: 1) costs comprised of service and interest costs, expected return of plan assets, amortization of prior service credit and curtailment gains and losses which are reported in property and casualty claims and claims expense, operating costs and expenses, net investment income and, if applicable, restructuring and related charges and 2) remeasurement gains and losses comprised of changes in actuarial assumptions and the difference between actual and expected returns on plan assets which are recognized

immediately in earnings as part of pension and other postretirement remeasurement gains and losses.

We recognize expected returns on plan assets using an unadjusted fair value method. Our policy is to remeasure our pension and postretirement plans on a quarterly basis. We immediately recognize remeasurement of projected benefit obligation and plan assets in earnings as it provides greater transparency of our economic obligations in accounting results and better aligns the recognition of the effects of economic and interest rate changes on pension and other postretirement plan assets and liabilities in the year in which the gains and losses are incurred.

Differences in actual experience or changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses. The primary factors contributing to pension and postretirement remeasurement gains and losses are 1) changes in the discount rate used to value pension and postretirement obligations as of the measurement date, 2) differences between the expected and the actual return on plan assets, 3) changes in demographic assumptions, including mortality and participant experience.

Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to our reportable segments. The pension and other postretirement remeasurement gains and losses are reported in the Corporate and Other segment.


Pension and postretirement benefits remeasurement gains and losses
	For the years ended December 31,
($ in millions)	2020		2019
Remeasurement of projected benefit obligation (gains) losses:
Discount rate	$	553	$	633
Other assumptions	282		313
Remeasurement of plan assets (gains) losses	(886)		(832)
Remeasurement (gains) losses	$	(51)	$	114

Impact of assumption changes to net cost for pension and other postretirement plans Remeasurement gains in 2020 primarily related to favorable asset performance compared to the expected return on plan assets, partially offset by a decrease in the discount rate and changes in actuarial assumptions. Remeasurement losses in 2019 primarily related to a decrease in discount rate and changes in actuarial assumptions, partially offset by favorable asset performance compared to the expected return on plan assets.

The discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the assumed discount rate by utilizing the weighted average yield of a theoretical dedicated portfolio derived from non-callable bonds and callable bonds with a make-whole provision available in the Bloomberg corporate bond universe having ratings of at least “AA” by S&P or at least “Aa” by Moody’s on the

measurement date with cash flows that match expected plan benefit requirements. Significant changes in discount rates, such as those caused by changes in the credit spreads, yield curve, the mix of bonds available in the market, the duration of selected bonds and expected benefit payments, may result in volatility in pension cost. The weighted average discount rate used to measure the benefit obligation decreased to 2.51% in 2020 compared to 3.31% in 2019, resulting in losses for 2020.

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. While this rate reflects long-term assumptions and is consistent with long-term historical returns, sustained changes in the market or changes in the mix of plan assets may lead to revisions in the assumed long-term rate of return on plan assets that may result in variability of pension cost. Differences between the actual return on plan assets and the expected long-term rate of return on plan assets are immediately recognized through earnings upon

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remeasurement. Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. In 2020, the actual return on plan assets was higher than the expected return primarily due to a decline in interest rates which increased the fair value of our fixed income investments and strong equity market performance. In 2019, the actual return on plan assets was higher than the expected return due to strong equity market performance and declines in interest rates which increased the fair value of our fixed income investments.

We complete periodic evaluations of demographic information and historical experience that affects our pension and other postretirement obligations to identify any required changes to long-term actuarial assumptions and methodologies. Demographic assumptions affect both our pension and postretirement plans and include elements such as retirement rates and participation rates in our postretirement programs, among other factors.

These actuarial assumption updates affect our pension and other postretirement obligations and are incorporated into our best estimates of these assumptions. Remeasurement losses for other assumptions in 2020 primarily related to a decrease in lump sum interest rates and changes in the estimated percentage of employees taking lump sum distributions. Remeasurement losses for other assumptions in 2019 primarily related to a decrease in lump sum interest rates, recognizing participant experience different from demographic assumptions for mortality, terminations, and retirements and the percentage of employees taking lump sum distributions.

The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience. Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. An increase in the trend rate would increase our obligation and expense.


Sensitivity of assumption changes included in the calculation of net cost as of December 31, 2020
($ in millions)		Basis/percentage point change		Increase (decrease) to net cost
Pension plans discount rate		+100 basis points		$	(873)
	-100 basis points		1,092
Expected long-term rate of return on assets		+100 basis points		(66)
	-100 basis points		66
Postretirement plans assumed health care cost trend rate		+1%		13
	-1%		(11)

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Regulation and Legal Proceedings

We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 14 of the consolidated financial statements.

Pending Accounting Standards

There are several pending accounting standards that we have not implemented because the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 of the consolidated financial statements.

The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.

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