Allstate (ALL)

Other operating costs and expenses increased $2 million in the first quarter of 2009 compared to the same period of 2008 due primarily to the absence in the current year period of a servicing fee paid by Prudential Financial Inc. for our servicing of variable annuity business that we reinsured to them during a transition period that ended in the second quarter of 2008, partially offset by lower spending on growth initiatives.

During the first quarter of 2009, restructuring and related charges of $18 million were recorded in connection with our previously announced plan to improve efficiency and narrow our focus of product offerings.  In accordance with this plan, among other actions, we continue to anticipate the reduction of approximately 1,000 workforce positions through a combination of attrition and position elimination in 2009 and 2010.  This reduction reflects approximately 30% of Allstate Financial’s work force at the time the plan was initiated.  As of April 30, 2009, 320 workforce positions have been involuntarily terminated pursuant to our restructuring plan.  These reductions in

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Non-deferrable acquisition costs decreased 7.1% or $3 million in the third quarter and decreased 7.3% or $9 million in the first nine months of 2008, compared to the same periods of 2007, primarily due to lower non-deferrable commissions.  Other operating costs and expenses increased 33.8% or $24 million in the third quarter and 38.4% or $73 million in the first nine months of 2008, compared to the same periods of 2007, due primarily to increased spending on consumer research, product development, marketing and technology related to the effort to reinvent protection and retirement for consumers.  In addition, the prior periods benefitted from a servicing fee paid by Prudential Financial Inc. (“Prudential”) for our servicing of the variable annuity business that we ceded to them during a transition period beginning in 2006.

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Non-deferrable acquisition costs decreased 7.1% or $3 million in the first quarter of 2008 compared to the same period of 2007 due to lower non-deferrable commissions.  Other operating costs and expenses increased 25.4% or $16 million in the first quarter of 2008 compared to the same period of 2007 due primarily to increased spending on consumer research, product development, marketing and technology costs.

The decline in total operating costs and expenses was due to the absence of expenses in the first quarter of 2007 related to the variable annuity business reinsured effective June 1, 2006.  Non-deferrable acquisition costs and other operating costs and expenses for the first quarter of 2006 included $10 million and $15 million, respectively, of expenses relating to the reinsured variable annuity business.

Restructuring and related charges for the first quarter of 2006 reflect costs relating to the Voluntary Termination Offer.

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Non-deferrable acquisition costs declined 17.7% in the first quarter of 2006 compared to the same period of 2005 due primarily to the transfer of the loan protection business to Allstate Protection. In addition, lower non-deferrable commissions were mostly offset by higher premium taxes. Non-deferrable acquisition costs related to the loan protection business amounted to $10 million in the first quarter of 2005. Other operating costs and expenses declined 38.9% in the first quarter of 2006 compared to 2005. The prior year period included the recognition of a $28 million increase in a liability for future benefits of a previously discontinued benefit plan and $5 million of expenses related to the loan protection business. Other operating costs and expenses for the first quarter of 2006 reflect lower employee and technology expenses due to continuing actions to simplify operations and reduce costs. Total operating costs and expenses are expected to decline in the future as a result of the anticipated disposition of substantially all of Allstate Financial’s variable annuity business.

Restructuring and related charges for the first quarter of 2006 reflect costs related to the VTO accepted primarily by employees located at Allstate’s headquarters (for more information on the VTO, see Note 6 to the Condensed Consolidated Financial Statements).

Net income was favorably impacted in the first quarter of 2005 by adjustments for prior years’ tax liabilities totaling $14 million, which were reflected as a component of income tax expense in the Condensed Consolidated Statements of Operations.

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Non-deferrable acquisition costs for the third quarter of 2005 increased 20.4% compared to the same period in the prior year as a result of higher premium taxes and non-deferrable commissions.  For the first nine months of 2005, non-deferrable acquisition costs declined 2.6% compared to the same period in the prior year primarily as a result of a $15 million charge related to loss experience on certain credit insurance policies that was recorded in the third quarter of 2004.   The decline in other operating costs and expenses in the third quarter of 2005 compared to the same period in the prior year was attributable to lower employee and technology expenses.  The increase in total operating costs and expenses for the nine-month period was primarily attributable to an increase in a liability for future benefits of a previously discontinued benefit plan.

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