2016 Online Annual Report

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Dear Fellow Shareholders

Allstate exists to create more prosperity for customers, shareholders, employees, agency owners and communities. We do this by protecting people from life’s uncertainties and preparing them for the future with a talented team of over 79,000 Allstaters making a difference in the world.

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Thomas J. Wilson

Chairman and Chief Executive Officer

Allstate’s consumer-focused strategy is working to create a more sustainable business despite dramatic changes in the external environment. The rapid response initiated in 2015 to increased costs associated with auto accidents successfully improved auto profitability in 2016 but did have a negative impact on the number of cars that we insure under the Allstate, Esurance and Encompass brands. Homeowners insurance had good returns despite a significant increase in catastrophes from the prior year. Investment returns on our nearly $82 billion portfolio were good at 4.4% and the portfolio is positioned for economic growth. Net Income and Operating Income* declined from the prior year to $1.8 billion ($4.67 per share) and $1.8 billion ($4.87 per share), respectively, as pretax catastrophe losses increased by $853 million from 2015. Operating Income Return on Equity* was 10.4% in 2016.

* For definition of this term, please see the definitions of Non-GAAP measures on page 89 of our Annual Report.
Encompass logo Encompass products are sold through independent agencies that serve brand-neutral customers who prefer personal service and support from an independent agent. Answer logo Answer Financial, an independent personal lines insurance agency, serves self-directed, brand-neutral consumers who want a choice between insurance carriers.
Allstate logo Allstate brand products are sold primarily through Allstate exclusive agencies and serve brand-sensitive customers who prefer local personal advice and service. Esurance logo Esurance brand products are sold directly to self-directed, brand-sensitive consumers online and through call centers.





“Allstate’s consumer-focused strategy is working to create a more sustainable business despite dramatic changes in the external environment.”

Shareholders received $486 million of dividends ($1.32 per share) and $1.3 billion of shares were repurchased, which represents 5.3% of the outstanding shares on January 1. The result of this financial performance is a total shareholder return of 21.5% in 2016, which continued our long-term record of outperforming peers and the S&P 500 index. The board also built on an exceptionally strong governance record by formalizing and expanding lead director responsibilities as described in the Report from Independent Directors in the Proxy Statement.

We also made progress on 2016's five Operating Priorities.


Operationally, the challenge this year was to balance our first three Operating Priorities: Better Serve Our Customers, Achieve Target Economic Returns on Capital and Grow Policies in Force.  All of these are important to long-term value creation but in 2016 we had to make trade-offs among them due to the rapid deterioration in auto insurance profitability beginning in 2015. We were able to raise Allstate Brand auto insurance prices an average of 7.2% in 2016 but this had a negative impact on customer satisfaction, and the number of auto insurance policies declined by 2.9%. We made progress in better serving customers across a broad set of activities from policy service to claims but we experienced a decline in our Net Promoter Score — the ratio of customers who would recommend us to others—largely reflecting auto premium increases. Allstate Benefits continued to have excellent growth with policies in force increasing by 13.4%; they exceeded 3.7 million at the end of the year.

The fourth Operating Priority was to Proactively Manage Investments and we achieved a 4.4% total return on the portfolio despite uneven results throughout the year and implementation of several initiatives to optimize risk and return. The portfolio remains 71% fixed income with 85% of that rated investment grade. The portfolio is positioned for continued economic growth in the U.S. by being overweighted to corporate bonds but defensively positioned for rising interest rates. A shorter-term bond portfolio is a good risk-and-return trade-off even though it results in lower current income. We also made progress increasing performance-based investments, which include private equity and real estate, and increasing the level of equity investments backing long-term immediate annuity liabilities.


The fifth Operating Priority—Build and Acquire Long-term Growth Platforms—is focused on improving our existing businesses and expanding into new areas.

The role of business in society is changing and Allstate is adapting and building a 22nd Century Corporation that:

The 10,360 Allstate exclusive agencies, which are in virtually every community in America, are a platform that is continually being strengthened. Our Trusted Advisor initiatives to utilize technology to personalize interactions, initiate relationships and reduce the “human modem” aspect of service has yielded tangible results: Over 2 million new personalized insurance proposals were delivered in 2016.

We are building a strategic platform in the connected car space by leveraging our customer relationships, analytical expertise and market presence. Improving the personal transportation system represents one of the biggest economic opportunities in America today. A 25% improvement in efficiency is achievable with current technologies and could increase household income by as much as 5% or $3,000 per household per year. Allstate is actively working to capture these benefits for customers. We also need to expand our customer relationships because ultimately there may be fewer car accidents and reduced demand for auto insurance. Arity, a newly formed connected car entity, provides expertise and services to our insurance entities to support the 1 million-plus Drivewise and DriveSense customers. 

These telematics products provide insurance customers an accurate price and enhance their driving experience. Arity’s plan is to also provide connected car services to third-parties, creating additional revenue for Allstate.

Strategic Platforms

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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

The Integrated Digital Enterprise strategy utilizes data, algorithms, advanced technology and process redesign to improve effectiveness and efficiency. Our initial focus is on claim settlements for property damage.

The acquisition of SquareTrade for $1.4 billion closed January 3, 2017, and expands the ways we protect customers by providing product protection plans sold through major retailers. These plans cover a wide range of consumer goods including personal computers, cell phones, televisions and household appliances. Achieving an acceptable return for shareholders on the capital deployed in the acquisition will require continued expansion of this innovative business model.


Building on Our Legacy

  • Customer segmentation strategy utilizing three brands: Allstate, Esurance and Encompass
  • Continually Connected Car Experience: Drivewise®, DriveSense™
  • Your Choice Auto® that provides declining deductibles, accident forgiveness and safe driving bonuses
  • Claim Satisfaction Guarantee®
  • Digital Connections: Fast Mobile e-PaymentSM, Quick Card Pay and QuickFoto Claim®
For more on Allstate's story, visit https://ourstory.allstate.com/allstate/historyandlegacy/

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Integrated relationships with customers improve growth and returns and create a more sustainable business model. Trusted advice from Allstate agency personnel reduces the probability that customers will switch insurance for a small price difference. Incorporating connected car services into insurance offerings integrates us into customers’ daily driving experience. The acquisition of SquareTrade increases our policies in force to over 68 million and provides consumers broad protection options.

A sustainable business also needs integrated relationships with the people who make it a success. We assume employees are “customers” to whom we “sell” an opportunity to make a difference in people's lives, be rewarded financially and grow professionally. This gives us a competitive advantage in attracting, retaining and motivating people who are the key to our success. The Employee Value Proposition includes competitive compensation, open talent-management practices, inclusive diversity as a core company value, employee resource groups that bring together those with like-minded interests and the opportunity to build a plan to achieve their personal purpose. All in, it is about creating dignity through work. Our 2016 annual employee survey showed employee satisfaction exceeded the industry on 28 of 29 measures.

Similarly, our goal is to make owning an Allstate agency one of the most rewarding small business opportunities in America. The Agency Value Proposition includes great branding and advertising, a broad range of products and services, training and support, advanced technology and loans to agency owners to support their business’ growth. Agency satisfaction did decline slightly in 2016 as a result of the challenges associated with increasing auto insurance premiums.


Being a great company goes beyond making a profit — it means making a difference in the world. I am particularly proud that the company was honored for a third consecutive year as one of the world’s most ethical corporations. Allstate also is making that difference by supporting youth empowerment, survivors of domestic violence and over 4,800 nonprofit organizations throughout the country. Thousands of Allstate agency owners and employees committed 230,000 hours of volunteer time last year, improving their communities and reinforcing respect for Allstate’s brand.

I am privileged and proud to lead Allstate because it is a purpose-driven organization with talented team members who are shaping a better future. In the process, we also are building a more valuable company for you.

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Chairman and Chief Executive Officer
April 12, 2017