Allstate (ALL)

Allstate Financial Outlook

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We will continue to focus on improving returns and reducing our concentration in spread based products, primarily fixed annuities and institutional markets products, resulting in lower premiums and deposits and reductions in net contractholder obligations.



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We plan to improve efficiency and narrow the focus of product offerings to better serve the needs of everyday Americans. We are targeting savings at 20% of certain operating expenses, excluding acquisition costs, and expect to yield estimated annual savings of $90 million beginning in 2011. We anticipate a reduction of approximately 1,000 workforce positions, through a combination of attrition and position elimination over the next two years.



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Maintaining high liquidity in our investment portfolio will result in lower net investment income but will ensure our ability to meet contractholder obligations. We will target sales of our spread based products at levels that allow us to avoid sales of investments with significant unrealized losses into distressed or illiquid markets.



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We expect continued investment spread compression due to credit losses, reduced contractholder funds and maintenance of liquidity.

Allstate Financial Outlook

•

We will continue to focus on improving returns and reducing our concentration in spread based products, primarily fixed
annuities and institutional markets products, resulting in lower premiums and deposits and reductions in net contractholder obligations.




•

We plan to improve efficiency and narrow the focus of product offerings to better serve the needs of everyday Americans.
We are targeting savings at 20% of certain operating expenses, excluding acquisition costs, and expect to yield estimated annual savings of $90 million beginning in 2011. We anticipate a
reduction of approximately 1,000 workforce positions, through a combination of attrition and position elimination over the next two years.




•

Maintaining high liquidity in our investment portfolio will result in lower net investment income but will ensure our
ability to meet contractholder obligations. We will target sales of our spread based products at levels that allow us to avoid sales of investments with significant unrealized losses into distressed
or illiquid markets.




•

We expect continued investment spread compression due to credit losses, reduced contractholder funds and maintenance of
liquidity.

Allstate Financial Outlook

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We plan to increase sales of our financial products by Allstate exclusive agencies by developing and bringing to market new innovative, consumer-driven financial products and features targeted to middle market customers.



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We plan to grow sales of our Workplace Division products and increase focus on larger employers.



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Sales of our institutional products will be impacted by management's assessment of market liquidity, credit spreads and other market conditions. Market conditions may also influence whether maturing contracts are replaced with new issuances.



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We expect operating costs and expenses to increase over the prior year as a result of increased spending for the development of innovative products, additional marketing and growth of our Allstate exclusive agency and Workplace Division distribution channels as well as a reduction in the variable annuity servicing fee from Prudential. We expect that these expense increases will be partially mitigated by our continuing focus on operating efficiency.



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We plan to balance targeted new business return improvement with investments in growth initiatives and sales. Initially, investments in growth are expected to slow the improvement of returns and may reduce the price competitiveness of certain products, such as our fixed annuities, and slow or reduce the growth in sales and net income.



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The transition of our investment objective from primarily income generation to increased focus on increasing total returns may result in increased volatility in net investment income and realized capital gains and losses from period to period. Increased allocations to alternative investment classes, such as limited partnership interests and other equity-based assets, may also contribute to this volatility.



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Increased levels of dividends paid by Allstate Financial in 2007, combined with the anticipated dividends in 2008, may lead to a decline in invested assets and investment income.

Allstate Financial Outlook

•

We
plan to increase sales of our financial products by Allstate exclusive agencies by developing and bringing to market new innovative, consumer-driven financial products
and features targeted to middle market customers.




•

We
plan to grow sales of our Workplace Division products and increase focus on larger employers.




•

Sales
of our institutional products will be impacted by management's assessment of market liquidity, credit spreads and other market conditions. Market conditions may also
influence whether maturing contracts are replaced with new issuances.




•

We
expect operating costs and expenses to increase over the prior year as a result of increased spending for the development of innovative products, additional marketing and
growth of our Allstate exclusive agency and Workplace Division distribution channels as well as a reduction in the variable annuity servicing fee from Prudential. We expect that these expense
increases will be partially mitigated by our continuing focus on operating efficiency.




•

We
plan to balance targeted new business return improvement with investments in growth initiatives and sales. Initially, investments in growth are expected to slow the
improvement of returns and may reduce the price competitiveness of certain products, such as our fixed annuities, and slow or reduce the growth in sales and net income.




•

The
transition of our investment objective from primarily income generation to increased focus on increasing total returns may result in increased volatility in net
investment income and realized capital gains and losses from period to period. Increased allocations to alternative investment classes, such as limited partnership interests and other equity-based
assets, may also contribute to this volatility.




•

Increased
levels of dividends paid by Allstate Financial in 2007, combined with the anticipated dividends in 2008, may lead to a decline in invested assets and investment
income.

Allstate Financial Outlook

•

We plan to continue to balance targeted improvements in return on equity with growth in sales and profitability. Initially, our actions to improve returns may reduce the price competitiveness of certain products, such as our fixed annuities, and slow or reduce the growth in sales and income.



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We expect that the near-term improvements in our returns will be generated mostly by improved capital efficiency and will later be accompanied by improved profitability.



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We plan to continue to maintain discipline over expenses and improve our operating efficiency.



•

We plan to increase sales of our financial products by Allstate exclusive agencies by further tailoring products for our customers and making it easier for our agents to distribute Allstate Financial products.



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We expect to continue to prioritize the allocation of fixed income investments to support sales of products with the best sustainable growth and margins and to maintain a market presence for fixed annuity and life products in our retail distribution channels. Sales of our institutional products may vary as a result.



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We plan to develop and bring to market new innovative life insurance products or features designed to increase sales of this product line.

Allstate Financial Outlook

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Allstate Financial is pursuing strategies intended to improve its return on equity. These strategies include continuing to proactively manage capital and focus our product portfolio on products where we can secure market leadership and achieve acceptable returns.



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We will continue to manage our expenses and improve our operating efficiency.



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We plan to reinvigorate sales through the Allstate exclusive agencies by further tailoring products for our customers and making it easier for our agents to distribute Allstate Financial products.



•

We prioritize the allocation of fixed income investments to support sales of products with the best sustainable growth and margins and to maintain a market presence for fixed annuity and life products in our retail distribution channels. Our institutional products remain opportunistic.

Allstate Financial Outlook

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Our ability to grow our investment margin depends upon maintaining sufficient spreads between investment yields and interest crediting rates, and growing the amount of business in force. As interest rates rise, we expect a gradual increase in investment yields. The amount by which these higher yields will increase our investment margin depends upon the amount and pace at which we reset interest-crediting rates, which could be influenced by market conditions and the actions of our policyholders. A significant and sudden increase in interest rates could cause policyholders to exercise surrender provisions in their policies that might cause investment margins to decline. As a result, growth in our investment margin from net new business activity could be partially offset by compression in our in-force investment margins.



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If equity markets perform at historical norms, we expect to see positive growth in our variable annuity gross margins from increased revenue. However, improvements or deteriorations in our variable annuity gross margins from changes in equity market performance or policyholder retention creates a proportional increase or decrease in amortization of variable annuity DAC, which will offset a significant portion of the changes in gross margins.



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Market conditions beyond our control determine the availability and cost of the reinsurance we purchase. To eliminate some of these market concerns, we are expecting to retain more of our term life insurance mortality risk in 2005. This change will not have a discernable effect on our net income in the short-term, but will provide the foundation to drive increased long-term growth in our life insurance business. Our mortality margins will also be more volatile in the future as we retain and manage more of our mortality risk, which will require increased statutory capital.