2015 Online Annual Report

Building the 22nd Century Corporation

Dear Fellow Shareholders

Allstate exists to protect people from life’s uncertainties both today and far into the future. We have the capabilities, business model, people and financial resources to deal with the surprises that affect our customers and shareholders.

Thomas J. Wilson

Chairman and Chief Executive Officer

Last year had its share of surprises, including an economic slowdown in China, the decision by major central banks to use negative interest rates and a stock market that declined despite lower unemployment. We also saw an increase in the number of miles driven in the United States, caused by higher employment and lower gas prices, which led to more auto accidents and required us to raise auto insurance prices.

Raising auto insurance prices, however, requires approval from state insurance departments and, as a result, the additional revenue lags cost increases. This caused underwriting income* for auto insurance to decline last year by $581 million. Despite this, the strength of the homeowners insurance business and rapid execution of an auto insurance profit improvement plan resulted in an underlying combined ratio* within the range established as a target at the beginning of the year. Overall, Allstate had net income of $2.1 billion in 2015. Operating income*, which excludes capital gains and losses, was also $2.1 billion or $5.19 per diluted share in comparison to $5.40 per diluted share in 2014.

Encompass products are sold through independent agencies that serve brand-neutral customers who prefer personal service and support from an independent agent. Answer Financial, an independent personal lines insurance agency, serves self-directed, brand-neutral consumers who want a choice between insurance carriers.
Allstate brand products are sold primarily through Allstate exclusive agencies and serve brand-sensitive customers who prefer local personal advice and service. Esurance brand products are sold directly to self-directed, brand-sensitive consumers online and through call centers.






While building the future, we must continue to provide excellent products and services to customers and generate an appropriate return on capital for shareholders every year.


Grow insurance policies in force

The strategy to deliver unique value propositions to the four segments of the personal lines market through Allstate, Esurance, Encompass and Answer Financial, as shown above, is working. ­Property-­liability policies in force grew by 1.3% in 2015 and net written premiums were 4.2% higher than 2014, led by increases in Allstate brand auto insurance. Allstate Benefits, our workplace distribution business, had exceptional growth of 11.1% or 332,000 policies.

Maintain the underlying combined ratio*

In the first half of 2015, we designed and implemented a comprehensive auto insurance profit improvement plan which included higher pricing, tighter underwriting standards and expense reductions. When combined with the strength of the homeowners insurance business, this resulted in an underlying combined ratio* of 88.7, which was within the target range of 87 to 89 established at the beginning of the year.

Proactively manage investments

Achieving attractive risk-­adjusted returns on our $78 billion portfolio is critical to delivering value to customers and shareholders. Net investment income was $3.2 billion for the year. The total return on the portfolio was 1.0% in 2015, which is below the long-term target and reflects low interest rates, an increase in credit spreads on the fixed income portfolio and lackluster equity markets.

Modernize the operating model

The expansion of continuous improvement programs has improved effectiveness, lowered costs and enabled employees to fully leverage their skills and capabilities. Allstate agencies are leveraging technology and building stronger relationships with 16 million households by becoming trusted advisors.

Build long-term growth platforms

The Allstate Drivewise® and Esurance DriveSense® programs had more than 1 million active users at year-end 2015.


Dividends of $483 million were paid on common stock representing an average yield of 1.8%. In addition, 10.2% of the common shares outstanding at the beginning of the year were repurchased at a cost of $2.8 billion.

Total shareholder return for the year was a disappointing negative 9.9% for 2015. In part, this reflects lower auto insurance underwriting income and a lackluster equity market as the S&P 500 return for the year was 1.4%. Over the last five years, total shareholder return has been a strong 116.3%, exceeding the S&P 500 Index return of 79.8% and the S&P Property & Casualty Index return of 108.6%.


We also continue to build for the future and are pursuing the goal of creating a 22nd Century Corporation. Today, corporations have attributes necessary to serve their societal function, such as industrializing the global economy and competing for capital. The 22nd Century Corporation will:

Be defined more by its strategic platforms than its product market share.

Have broader and more meaningful relationships with customers, employees and business partners.

Be a force for positive change in society.


A strategic platform is a system of proprietary and third-party …

  • Capabilities
  • Assets
  • Information
  • Shared intelligence

This system is integrated through technology interfaces and rules for utilizing the platform. Companies such as eBay, Apple, Google and Amazon leverage strategic platforms.

  • Platforms are broad and flexible, and create multiple uses for a range of cases by customers and partners.
  • They are flexible and adaptable.
  • Platforms integrate third parties into a company’s business model.
  • Platforms support a wide range of customer relationships and interactions.
  • They are scalable and additional growth generates high incremental margins.
  • Platforms become more valuable over time, as the information and intelligence that is part of them grow and create new learnings.
  • Companies that control strategic platforms have higher inherent valuations than ­product-based businesses.

Strategic Platforms

Allstate Businesses
Existing Extensions
Enhancing Allstate's Businesses Leveraging Platform
Information from Users and External Sources
Shared Intelligence Among Users and Allstate
Platform Interfaces
Rules in Utilizing Platform

At Allstate, we have several highly valuable ­product-­focused businesses, most notably our personal lines insurance business. A ­product-­focused approach serves us well today but will not enable us to fully capture the opportunities in the years ahead, so we are building a set of Allstate platforms.

Our strategy in the connected car space is an example of improving current operations and potentially building a valuable strategic platform. Today, technologically sophisticated cars utilize computers, sensors and connectivity to assist drivers in reducing the number and severity of auto accidents. Supporting these changes is consistent with protecting our customers from life’s uncertainties, but it puts downward pressure on auto insurance pricing. It also puts upward pressure on pricing, since repairing these vehicles is more expensive. This technology also creates an opportunity to provide customers with pricing based on actual driving experience, particularly if we can create a strategic platform.

The Drivewise and DriveSense products are incorporated into today’s Allstate and Esurance business models, respectively, by connecting Allstate and our customers through wireless devices. Today, we have over 1 million customers who benefit from this technology. We also provide rewards for safe driving, such as discounts with local retailers. In 2016, we will make available Allstate’s Good Hands RescueSM technology, which enables customers to track a tow truck’s arrival on the phone. Our next step will be to enhance customers’ driving experiences by allowing third parties to provide services to Allstate customers through our technologies. As we do this, we expect the number of customers to grow and the frequency of their interactions through Allstate’s platform to increase. This will enable us to create more value for them, and ultimately shareholders.

Revenues ($ billions)











Operating income* per diluted common share ($)











Return on Equity (%)












The 22nd Century Corporation will redefine its relationships with customers, employees and business partners. People will do business with companies because of “who they are” not just “what they sell.”

In 2016, we are raising the minimum starting compensation for U.S. corporate employees to the equivalent of $15 per hour. This is good business, not politics. It’s about attracting and retaining the best people. At the same time, we have restructured U.S. employee pension and medical benefit costs to spread these benefits more evenly across employees. This keeps the overall cost structure competitive while ensuring we have the best team.


The third element of a 22nd Century Corporation is to create positive societal change. Corporations have the capabilities, society has the need and it is good business.

Allstate is a proactive corporate citizen in virtually every community in America. Here are just a few examples of the good we do.

Empowering youth.
We participate in WE Schools/WE Day to support, empower and recognize youth for volunteering and helping others. We are working to support expansion of these programs across the United States, and the number of participants increased from 400,000 to 883,000 students in 2015.

Helping domestic violence victims.
Money is a weapon of choice used by most perpetrators of domestic violence. In partnership with the National Network to End Domestic Violence, we have provided financial literacy and asset-­building programs to nearly 800,000 survivors to empower them to start independent lives over the last 10 years.

Teen safe driving.
Car accidents are the number one killer of teens in America. In 2005, The Allstate Foundation set a goal of helping reduce teen traffic fatalities by 50% by 2015. Data showed a reduction of 50.5% by year-end 2014! It’s time to set new goals as we continue to help save kids’ lives.

Bringing out the good.
Allstaters are fully committed to being a force for good. More than 35% of the company’s officers are in leadership positions with nonprofits. In 2015, employees and agency owners spent 230,000 hours supporting locally based organizations. Allstate agencies utilized more than 3,100 Agency Hands in the Community grants to financially support nonprofits all across the country.

Shaping the future
Our push to create a 22nd Century Corporation is exciting and rewarding. Employees and agency owners are proud and passionate about this direction. The 22nd Century is still decades away, but by beginning now we will continue to lead in both the insurance industry and the broader economy. Allstate will continue to thrive and lead — ​today, tomorrow and into the 22nd Century.


Chairman and Chief Executive Officer
April 11, 2016

Fellow Shareholders Building Strategic Platforms