Allstate (ALL)

Capital Position Remains Strong

Allstate remains well capitalized.  At year-end 2008, we held $12.6 billion in capital. This total included $3.6 billion in deployable invested assets at the parent holding company level.  The substantial earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation.  In addition, we have access to $1.0 billion of funds from either commercial paper issuance or an unsecured revolving credit facility.  This provides ample capital for the parent company’s relatively low fixed charges, $1.2 billion in 2008, and $750 million of debt maturing in December 2009.

We assess the adequacy of capital with internal economic capital modeling, an enterprise risk and return management framework, regulatory requirements and rating agency considerations.  In the fourth quarter, the Corporation completed its previously approved capital contribution of $1.0 billion to Allstate Life Insurance Company (“ALIC”).  An additional $250 million remains under prior board of director approvals.  As ALIC’s December 31, 2008 statutory surplus exceeded management’s targeted amount, no additional contribution was needed.  Without prior regulatory approval, Allstate Insurance Company (“AIC”) has the capacity to pay dividends to the parent company currently estimated at $1.3 billion during 2009.

The recent turmoil in financial markets has caused many financial institutions to reflect significant unrealized loss positions on their balance sheets.  Allstate is no different, and during the fourth quarter, our pre-tax unrealized loss position grew from $4.1 billion to $8.8 billion, primarily due to significantly widening credit spreads in our fixed income securities.  We have the intent and ability to hold these securities to recovery.  Our ability to do so is substantially enhanced by our strong liquidity position, which cushions us from the need to liquidate securities with significant unrealized losses to meet cash obligations.  Furthermore, the high quality of underlying assets provides further protection against credit impairments.  During 2008, our fixed income securities portfolio provided approximately $8.6 billion in principal and interest cash flows, of which substantially all have been received in accordance with the contractual terms.

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