Letter to Shareholders

Fellow shareholders,

Allstate is one of the great “main street” financial institutions in the United States, serving 16 million households. We have maintained this position for more than 80 years by proactively addressing and driving change. In 2011, we continued this legacy by acquiring the capabilities to further execute our strategy while delivering strong underlying financial performance in the face of another year of unprecedented catastrophe losses.

Strategic Expansion

Allstate’s strategy is to provide differentiated products to distinct customer segments. Allstate Agencies provide excellent service and a broad array of products to customers who want local advice and differentiated products. The acquisition of Esurance and Answer Financial in 2011 further expanded our capabilities to meet the needs of customers who prefer to handle their own insurance needs. The acquisition makes Allstate the only personal lines company that has unique offerings for all customer segments.

We also continued to reinvent protection and retirement for the consumer with innovative products. We launched Drive Wise® which is a telematics offering that gives customers discounts based on their actual driving behaviors. Good HandsSM Roadside, the first pay-as-you-use roadside service, captured 400,000 members. The four-state test of the new Claim Satisfaction GuaranteeSM for auto insurance was successful and led to a national launch early in 2012. We also made progress broadening our relationships with customers by increasing life insurance policies sold through Allstate Agencies in 2011 by 33 percent from the prior year.

Solid Financial Results

Allstate achieved solid financial results in a year when the insurance industry faced continued high costs from extreme weather. While income was down from 2010 we still managed to increase book value per share by 4.5 percent and return nearly $1.4 billion to shareholders.

  • Net income was $788 million, a 15 percent decline from the prior year reflecting a 73 percent increase in catastrophe losses to $3.8 billion.
  • The underlying combined ratio* was 89.3, which excludes catastrophe losses and reserve charges, an excellent result.
  • Strong returns were achieved in auto insurance which had a combined ratio of 96.1.
  • Homeowners insurance operated at an underwriting loss as catastrophe losses utilized approximately 50 percent of premiums reflecting high catastrophe losses in the second and third quarters of the year. Proactive efforts to generate an acceptable return on capital from this business include raising prices, increasing the use of third-party products and introducing the new Allstate House and HomeSM product.
  • Allstate Financial made progress in its strategy of focusing on underwritten products sold through Allstate Agencies and the workplace. Operating income* improved by 11 percent to $529 million for the year.
  • Investment results were also very strong in 2011. Investment yields were maintained from the prior year despite continued low interest rates as a result of tactical moves in the fixed income portfolio early in the year. The consolidated investment portfolio declined by $4.9 billion to $95.6 billion primarily reflecting the reduction in Allstate Financial’s portfolio as it shifts away from spread-based products.
  • Shareholders received dividends of $435 million ($0.83 per share) and $946 million of common stock was repurchased (6 percent of outstanding shares at the beginning of the year). Book value increased to almost $37 per share.

Bright Future

Few companies match our rich history, iconic brand and deep commitment to customers, employees, Agency Owners and shareholders. The Allstate team of insurance professionals is a tremendous asset, and we are poised to capitalize on our shared vision of helping people realize their hopes and dreams. Our clear strategic direction and operational excellence will ensure we build on our successful legacy and remain a main street fixture for the next 80 years.

Signature of Thomas J. Wilson, Chairman, President and Chief Executive Officer Thomas J. Wilson Chairman, President and Chief Executive Officer April 11, 2012