Allstate (ALL)

Value on December 31, 2006 of a $100 initial investment made on:

*

Standard and Poor's discontinued the S&P Property/Casualty Index on January 1, 2002 and replaced it with the S&P 500 Property/Casualty Index. Data reflected in the above graphs reflects the performance of the current S&P 500 Property/Casualty Index members (ticker symbol S5PROP).

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        Our compensation philosophy is based on these central beliefs:

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Executive compensation should be aligned with stockholder value. Accordingly, a significant amount of executive compensation should be in the form of equity.



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The compensation of our executives should vary both with appreciation in the price of Allstate stock and with Allstate's performance in achieving strategic short and long-term business goals designed to drive stock price appreciation.



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Our compensation program should inspire our executives to strive for performance that is better than the industry average.



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A greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate's performance.



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We should provide competitive levels of compensation for competitive levels of performance and superior levels of compensation for superior levels of performance.

        Our executive compensation program has been designed around these beliefs and serves our goal of attracting, motivating, and retaining highly talented executives.

        As stated in its charter, one of the Compensation and Succession Committee's most important responsibilities is making recommendations to the Board regarding the chief executive officer's compensation. In making these recommendations, the Committee evaluates the CEO's performance based on Allstate's performance. It analyzes competitive compensation data provided by its executive compensation consultant and company performance data provided by senior management. It reviews the various elements of the CEO's compensation in the context of his total compensation package, including his salary, annual cash incentive award, long-term cash incentive awards, and equity incentive awards (including prior awards under equity compensation plans), and accrued pension benefits—as well as the value of his Allstate stock holdings. The Committee presents its recommendations to the Board in the context of total compensation. In this manner, the Committee fulfills its oversight responsibilities and provides meaningful recommendations to the Board for its consideration.

        The Compensation and Succession Committee has used Mercer Human Resource Consulting as its executive compensation consultant for several years and retained Mercer again in 2006. As part of the 2006 engagement, Mercer assisted the Committee in assessing the appropriateness of the list of peer insurance companies that the Committee uses to evaluate the competitiveness of Allstate's executive compensation program. In addition, Mercer provided an assessment that benchmarked Allstate's executive pay levels, practices, and overall program design as well as its financial performance against those companies. A senior Mercer representative met with the full Board and participated in portions of two Committee meetings in 2006. During those meetings, the Committee met with that representative in executive sessions without the chief executive officer and without members of management present other than our senior human resources officer. In the course of preparing for those meetings, the Mercer representative conferred with the Committee Chair and our senior human resources officer. With the Committee's concurrence, Mercer obtained from management Allstate data regarding compensation, benefits, and financial projections and other operational data that is not readily available from public sources. Management has retained Mercer to provide actuarial services for our pension plans, benefit consulting, and administrative services and has reviewed each of those engagements with the Committee.

        Our Compensation and Succession Committee reviews the design of our executive compensation program on an annual basis. As part of that review, the Committee benchmarks the following peer insurance companies for executive pay and performance comparisons:

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