Allstate (ALL)

ENTERPRISE RISK AND RETURN MANAGEMENT

       Enterprise Risk and Return Management's ("ERRM") role is to ensure Allstate's continued financial health and success. ERRM is a disciplined, holistic, integrated and interactive approach to risk that:

•

Identifies potential risks and events that could significantly impact the company

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Provides a shared viewpoint and thorough understanding of risks and opportunities

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Creates value by understanding risk-return interrelationships and tradeoff opportunities

•

Increases transparency and provides greater assurance of achieving objectives

       At Allstate, we have ERRM programs, risk committees and control structures to manage our enterprise portfolio of risk and return. These programs include governance policies with established tolerances and risk limits, Board and senior management involvement, enterprise modeling, risk-return analytics and communication and reporting. Our perspective of risk, return and capital needs promotes capital and financial management.

       Allstate's senior management risk committee, the Enterprise Risk & Return Council, drives ERRM by establishing enterprise risk tolerance and risk-return requirements and directing integrated strategies and actions from a holistic

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enterprise perspective. Allstate's Board of Directors and Audit Committee provide ERRM oversight by reviewing enterprise principles, guidelines and limits for Allstate's significant risks and by monitoring strategies and actions management has taken to control these risks.

       Managers, risk professionals and chief risk officers in the various business units design and execute individual risk-return strategies that align with our overall enterprise standards. These include managing exposure to hurricanes and other severe weather events; managing impacts to invested assets and liabilities related to changes in risk-free interest rates, credit spreads, equity markets and defaults; optimizing liquidity levels in light of changing market, economic and business conditions; and implementing practices to effectively identify, monitor and control operational and strategic risks.

       Our comprehensive enterprise stochastic model captures the unique and specific nature and interaction of risks inherent in our various businesses and serves as the foundation of our economic capital framework. We determine an appropriate level of enterprise economic capital to hold considering a broad range of risk perspectives, including capital stress scenarios, risks of financial distress and insolvency, volatility, shareholder value, rating agency constraints and regulatory RBC requirements. Strategic allocation of economic capital to lines of business is based on contribution to enterprise risk, return and diversification benefit and is used for ongoing evaluation of business units and products.

       We were proactive in the face of the financial market and economic crisis by quickly reducing exposures in "at risk" asset classes, implementing risk mitigation and return optimization programs designed to protect our investment portfolio values and enhancing our liquidity position. We have adapted our ERRM processes over the past year to be more fluid and dynamic in a changing environment with enhanced scenario analysis, more frequent risk committee discussions, streamlined risk reporting and evolving strategies to target return opportunities as market conditions improve. For continuous ERRM validation and improvement, we benchmark and secure external perspectives on our processes.

ENTERPRISE RISK AND RETURN MANAGEMENT

        Allstate has established enterprise risk and return management ("ERRM") processes and infrastructure to effectively manage risk within our tolerances while optimizing risk adjusted returns. We have a senior management committee called the Enterprise Risk & Return Council ("ERRC") which is responsible for overseeing enterprise risks. Enterprise risk and return management is a disciplined, holistic, integrated and interactive approach to risk that is conducted under an overall framework which:

•

Increases transparency thereby providing additional insight when setting enterprise strategy



•

Identifies potential events that could have a significant impact on Allstate



•

Proactively manages risk and optimizes our overall profile consistent with Allstate's risk appetite



•

Provides greater assurance of achieving Allstate's objectives



•

Allows Allstate to pursue a return commensurate with the risks taken

        Allstate's Board of Directors and Audit Committee provide enterprise risk management oversight by reviewing enterprise principles, guidelines and limits for Allstate's significant risks and by monitoring major risk exposures, trends and actions management has taken to control these risks.

        Allstate's primary risk exposures result from the capital markets, followed by catastrophes and operational risk events. Allstate has been proactive in the face of financial market and economic turbulence by responding quickly to reduce exposures in "at risk" asset classes, implementing risk mitigation and return optimization programs designed to protect our investment portfolio values, and enhancing our liquidity position through a series of actions.

        Risk management is primarily executed within the business units where risk is undertaken. Our risk management programs include appropriate governance policies with established tolerances and risk limits, stochastic modeling software and analyses, risk identification, evaluation, prioritization, treatment and monitoring practices and effective communication and reporting. Chief Risk Officers and managers in the various business units are responsible for managing, measuring, evaluating, and reporting risks as appropriate in their respective areas within the risk appetite of the overall enterprise. This includes items such as monitoring appropriate tolerances and managing exposure to catastrophes; managing the impacts to invested assets and liabilities

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related to changes in risk free interest rates, credit spreads and equity markets through value at risk, duration and convexity metrics; managing liquidity levels in light of changing market, economic and business conditions; and evaluating risks related to credit exposures through credit value at risk measurements.

        As appropriate, consistent enterprise-wide measurement standards and limits are applied to key risks and are integrated into such processes as strategic and financial planning, capital management and enterprise risk reporting. Business unit measures and practices are aligned with overall enterprise standards.

        Economic Capital is the amount of capital required to provide a given level of safety to stakeholders over a specific time horizon, given a defined enterprise-wide tolerance for risk. Companies employ various methods and standards for determining economic capital. At Allstate, we utilize an internally developed enterprise stochastic model as significant input into our determination of an appropriate level of enterprise economic capital to hold, ensuring that we achieve regulatory RBC within the range that we target and appropriately consider rating agency perspectives. Our economic capital model accounts for the unique and specific nature and interaction of the risks inherent in our various businesses. Economic capital modeling capabilities enable us to more fully understand risk distributions and optimize risk/reward tradeoffs across the portfolio of businesses and various risks. These capabilities allow us to view risk and return decisions holistically which may provide opportunities for enhanced returns to shareholders at similar or lower levels of risk than might be achieved if modeling and analyses were only applied at the business unit and individual risk level. Areas we are pursuing that may provide such opportunities include risk mitigation and return optimization programs in our investment portfolio and more emphasis on total return economics and absolute returns in addition to traditional net credit spreads. We have also established an internal capital support agreement between certain legal entities to more fully capitalize on diversification benefits within the enterprise.

ENTERPRISE RISK AND RETURN MANAGEMENT

        Allstate has established enterprise risk and return management ("ERRM") processes and infrastructure to effectively manage risk within
our tolerances while optimizing risk adjusted returns. We have a senior management committee called the Enterprise Risk & Return Council ("ERRC") which is responsible for overseeing enterprise
risks. Enterprise risk and return management is a disciplined, holistic, integrated and interactive approach to risk that is conducted under an overall framework which:

•

Increases transparency thereby providing additional insight when setting enterprise strategy




•

Identifies potential events that could have a significant impact on Allstate




•

Proactively manages risk and optimizes our overall profile consistent with Allstate's risk appetite




•

Provides greater assurance of achieving Allstate's objectives




•

Allows Allstate to pursue a return commensurate with the risks taken

        Allstate's
Board of Directors and Audit Committee provide enterprise risk management oversight by reviewing enterprise principles, guidelines and limits for Allstate's significant risks
and by monitoring major risk exposures, trends and actions management has taken to control these risks.

        Allstate's
primary risk exposures result from the capital markets, followed by catastrophes and operational risk events. Allstate has been proactive in the face of financial market and
economic turbulence by responding quickly to reduce exposures in "at risk" asset classes, implementing risk mitigation and return optimization programs designed to protect our investment portfolio
values, and enhancing our liquidity position through a series of actions.

        Risk
management is primarily executed within the business units where risk is undertaken. Our risk management programs include appropriate governance policies with established tolerances
and risk limits, stochastic modeling software and analyses, risk identification, evaluation, prioritization, treatment and monitoring practices and effective communication and reporting. Chief Risk
Officers and managers in the various business units are responsible for managing, measuring, evaluating, and reporting risks as appropriate in their respective areas within the risk appetite of the
overall enterprise. This includes items such as monitoring appropriate tolerances and managing exposure to catastrophes; managing the impacts to invested assets and liabilities

137

related
to changes in risk free interest rates, credit spreads and equity markets through value at risk, duration and convexity metrics; managing liquidity levels in light of changing market, economic
and business conditions; and evaluating risks related to credit exposures through credit value at risk measurements.

        As
appropriate, consistent enterprise-wide measurement standards and limits are applied to key risks and are integrated into such processes as strategic and financial
planning, capital management and enterprise risk reporting. Business unit measures and practices are aligned with overall enterprise standards.

        Economic
Capital is the amount of capital required to provide a given level of safety to stakeholders over a specific time horizon, given a defined enterprise-wide tolerance
for risk. Companies employ various methods and standards for determining economic capital. At Allstate, we utilize an internally developed enterprise stochastic model as significant input into our
determination of an appropriate level of enterprise economic capital to hold, ensuring that we achieve regulatory RBC within the range that we target and appropriately consider rating agency
perspectives. Our economic capital model accounts for the unique and specific nature and interaction of the risks inherent in our various businesses. Economic capital modeling capabilities enable us
to more fully understand risk distributions and optimize risk/reward tradeoffs across the portfolio of businesses and various risks. These capabilities allow us to view risk and return decisions
holistically which may provide opportunities for enhanced returns to shareholders at similar or lower levels of risk than might be achieved if modeling and analyses were only applied at the business
unit and individual risk level. Areas we are pursuing that may provide such opportunities include risk mitigation and return optimization programs in our investment portfolio and more emphasis on
total return economics and absolute returns in addition to traditional net credit spreads. We have also established an internal capital support agreement between certain legal entities to more fully
capitalize on diversification benefits within the enterprise.