# ALLSTATE CORP (ALL) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from ALLSTATE CORP's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/899051/000089905124000013/all-20231231.htm Accession: 0000899051-24-000013 Filing date: 2024-02-21 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ALL/ All MD&A years: /company/ALL/mda/ Previous year: /company/ALL/mda/fy2022/ (FY 2022) Next year: /company/ALL/mda/fy2024/ (FY 2024) Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations [[GREPCENT_TABLE]] [["","","Page"],["2023 Highlights","","36"],["Property-Liability Operations","","41"],["Allstate Protection","","43"],["Run-off Property-Liability","","51"],["Protection Services","","54"],["Property and Casualty Insurance Claims and Claims Expense Reserves","","56"],["Allstate Health and Benefits","","63"],["Investments","","65"],["Market Risk","","74"],["Capital Resources and Liquidity","","77"],["Enterprise Risk and Return Management","","82"],["Application of Critical Accounting Estimates","","85"],["Regulation and Legal Proceedings","","96"],["Pending Accounting Standards","","96"]] [[/GREPCENT_TABLE]] The Allstate Corporation 35 2023 Form 10-K 2023 Highlights Overview The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the consolidated financial statements and related notes found under Item 8. contained herein. A discussion of strategy, including updates to the multi-year Transformative Growth initiative, can be found in Part 1, Item 1. Business. This section of this Form 10-K generally discusses 2023 and 2022 results and year-to-year comparisons between 2023 and 2022. Discussions of 2021 results and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis (“MD&A”) in Part II, Item 7 of our annual report on Form 10-K for 2022, filed February 16, 2023. Certain amounts have been reclassified or recast to reflect the application of the new guidance to all in-scope long-duration insurance contracts and to conform to current year presentation. The most important factors we monitor to evaluate the financial condition and performance for our reportable segments and the Company include: •Allstate Protection: premium, policies in force (“PIF”), new business sales, policy retention, price changes, claim frequency and severity, catastrophes, loss ratio, expenses, underwriting results and combined ratio •Protection Services: revenues, premium written, PIF and adjusted net income •Allstate Health and Benefits: premiums, other revenue, new business sales, PIF, benefit ratio, expenses and adjusted net income •Investments: exposure to market risk, asset allocation, credit quality, total return, net investment income, cash flows, net gains and losses on investments and derivatives, unrealized capital gains and losses, long-term returns and asset duration •Financial condition: liquidity, parent holding company deployable assets, financial strength ratings, operating leverage, debt levels, book value per share and return on equity Measuring segment profit or loss The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Run-off Property-Liability segments and adjusted net income for the Protection Services, Allstate Health and Benefits, and Corporate and Other segments. Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense (“losses”), Shelter-in-Place Payback expense, amortization of deferred policy acquisition costs (“DAC”), operating costs and expenses, amortization or impairment of purchased intangibles, and restructuring and related charges, as determined using accounting principles generally accepted in the United States of America (“GAAP”). We use this measure in our evaluation of results of operations to analyze profitability. Adjusted net income is net income (loss) applicable to common shareholders, excluding: [[GREPCENT_TABLE]] [["\u2022","Net gains and losses on investments and derivatives"],["\u2022","Pension and other postretirement remeasurement gains and losses"],["\u2022","Business combination expenses and the amortization or impairment of purchased intangibles"],["\u2022","Income or loss from discontinued operations"],["\u2022","Gain or loss on disposition"],["\u2022","Adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years"],["\u2022","Income tax expense or benefit on reconciling items"]] [[/GREPCENT_TABLE]] 36 www.allstate.com 2023 Form 10-K Macroeconomic Impacts Macroeconomic factors have and may continue to impact the results of our operations, financial condition and liquidity, such as U.S. government fiscal and monetary policies, banking system instability, the Russia/Ukraine and Israel/Hamas conflicts and the remaining impacts of the Novel Coronavirus Pandemic or COVID-19 (“Coronavirus”), such as supply chain disruptions, labor shortages and other macroeconomic factors that have increased inflation. Inflation continues to remain elevated, which led to increases in interest rates by the Federal Reserve and many foreign governmental authorities and central banks. These actions could create significant economic uncertainty. Market volatility resulting from these factors and from disruptions in the banking industry have and may continue to impact our investment valuations and returns. These factors have affected our operations and may continue to significantly affect our results of operations, financial condition and liquidity and should be considered when comparing the current period to prior periods. Macroeconomic impacts are disclosed in Part 1 “Item 1A. Risk Factors’’, including the risk factors titled “A large-scale pandemic, the occurrence of terrorism, military actions, social unrest or other actions may have an adverse effect on our business” and “Conditions in the global economy and capital markets could adversely affect our business and results of operations”. This is not inclusive of all potential impacts and should not be treated as such. Within the MD&A, we have included further disclosures related to macroeconomic impacts on our 2023 results. Israel/Hamas Conflict As of December 31, 2023, we have approximately $47 million investment exposure in the Middle East, of which approximately $43 million is held in Israel, which is primarily indirect exposure through funds managed by external asset managers. Russia/Ukraine Conflict The Russia-Ukraine war and related sanctions imposed as a result of this conflict have increased global economic and political uncertainty, including inflationary pressures and an increased risk of cybersecurity incidents. Allstate does not have operations or direct investments in Russia, Belarus or Ukraine, but we could experience significant indirect impacts on the investment portfolio, financial position, or results of operations. 2023 Operating Priorities and Results Allstate continued to focus on its operating priorities while executing a comprehensive plan to improve auto insurance profitability. The table below summarizes the results of our 2023 Operating Priorities. [[GREPCENT_TABLE]] [["2023 Operating Priorities (1)"],["Improve Customer Value","","Enterprise Net Promoter Score, which measures how likely customers are to recommend Allstate, finished below the prior year, reflecting the impact of substantial price increases necessary to offset higher loss costs."],["Grow Customer Base","","Consolidated policies in force reached 194 million, a 2.8% increase from prior year. Property-Liability policies in force decreased by 2.0% compared to the prior year, as continued growth at National General was more than offset by the Allstate brand and renewals declined in the auto insurance business."],["","Protection Services policies in force increased 4.3%, primarily due to growth at Allstate Protection Plans."],["Achieve Target Economic Returns on Capital","","Return on average Allstate common shareholders\u2019 equity was (2.0)% in 2023."],["","The Property-Liability combined ratio of 104.5 for the full year decreased compared to the prior year primarily reflecting increased premiums earned, partially offsetting continued high loss costs. A comprehensive profitability plan is being executed."],["Proactively Manage Investments","","Net investment income of $2.48 billion in 2023 was $75 million higher than prior year as higher market-based investment income was partially offset by lower performance-based results."],["","Total return on the $66.68 billion investment portfolio was 6.7% in 2023. Proactive portfolio management repositioned the fixed income portfolio into longer duration and higher-yielding assets that sustainably increase income."],["Execute Transformative Growth","","Allstate made substantial progress in advancing Transformative Growth in 2023, including continued cost reductions, deploying a new property-liability technology platform and a new Affordable, Simple and Connected auto insurance offering in seven states."],["","National General is building a strong competitive position in independent agent distribution."],["","Build a digital enterprise by expanding utilization of machine-based learning and artificial intelligence."]] [[/GREPCENT_TABLE]] (1)2024 operating priorities will remain mostly consistent with the 2023 priorities. The Allstate Corporation 37 2023 Form 10-K [[GREPCENT_TABLE]] [["Consolidated net income (loss) applicable to common shareholders"],["($ in millions)"]] [[/GREPCENT_TABLE]] Consolidated net loss applicable to common shareholders was $316 million in 2023 compared to net loss of $1.39 billion in 2022, primarily due to improved underwriting results and net gains on equity valuations compared to losses in 2022.For the twelve months ended December 31, 2023, return on Allstate common shareholders’ equity was (2.0)% compared to (7.2)% for the twelve months ended December 31, 2022. [[GREPCENT_TABLE]] [["Total revenue"],["($ in millions)"]] [[/GREPCENT_TABLE]] Total revenue increased 11.1% to $57.09 billion in 2023 compared to 2022, primarily due to a 10.4% increase in property and casualty insurance premiums earned and net gains on equity valuations in 2023 compared to losses in 2022. [[GREPCENT_TABLE]] [["Net investment income"],["($ in millions)"]] [[/GREPCENT_TABLE]] Net investment income increased $75 million to $2.48 billion in 2023 compared to 2022, primarily due to higher market-based income reflecting increased fixed income portfolio yields and investment balances, partially offset by lower performance-based investment results. 38 www.allstate.com 2023 Form 10-K Summarized financial results [[GREPCENT_TABLE]] [["","","Years Ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Revenues"],["Property and casualty insurance premiums","","$","50,670","","","$","45,904","","","$","42,218"],["Accident and health insurance premiums and contract charges","","1,846","","","1,832","","","1,834"],["Other revenue","","2,400","","","2,344","","","2,172"],["Net investment income","","2,478","","","2,403","","","3,293"],["Net gains (losses) on investments and derivatives","","(300)","","","(1,072)","","","1,084"],["Total revenues","","57,094","","","51,411","","","50,601"],["Costs and expenses"],["Property and casualty insurance claims and claims expense","","(41,070)","","","(37,264)","","","(29,318)"],["Shelter-in-Place Payback expense","","\u2014","","","\u2014","","","(29)"],["Accident, health and other policy benefits","","(1,071)","","","(1,042)","","","(1,060)"],["Amortization of deferred policy acquisition costs","","(7,278)","","","(6,634)","","","(6,236)"],["Operating, restructuring and interest expenses","","(7,685)","","","(7,832)","","","(7,760)"],["Pension and other postretirement remeasurement gains (losses)","","(9)","","","(116)","","","644"],["Amortization of purchased intangibles","","(329)","","","(353)","","","(376)"],["Total costs and expenses","","(57,442)","","","(53,241)","","","(44,135)"],["(Loss) income from operations before income tax expense","","(348)","","","(1,830)","","","6,466"],["Income tax benefit (expense)","","135","","","488","","","(1,292)"],["Net (loss) income from continuing operations","","(213)","","","(1,342)","","","5,174"],["Loss from discontinued operations, net of tax","","\u2014","","","\u2014","","","(3,593)"],["Net (loss) income","","(213)","","","(1,342)","","","1,581"],["Less: Net loss attributable to noncontrolling interest","","(25)","","","(53)","","","(33)"],["Net (loss) income attributable to Allstate","","(188)","","","(1,289)","","","1,614"],["Preferred stock dividends","","(128)","","","(105)","","","(114)"],["Net (loss) income applicable to common shareholders","","$","(316)","","","$","(1,394)","","","$","1,500"]] [[/GREPCENT_TABLE]] Segment Highlights Allstate Protection underwriting loss was $2.09 billion in 2023 compared to underwriting loss of $2.78 billion in 2022, due to increased premiums earned and lower unfavorable non-catastrophe reserve reestimates, partially offset by higher incurred losses and higher catastrophe losses of $5.64 billion in 2023 compared to $3.11 billion in 2022. Premiums written increased 10.0% to $50.35 billion in 2023 compared to $45.79 billion in 2022, reflecting higher premiums in both Allstate and National General brands. Protection Services adjusted net income was $106 million in 2023 compared to $169 million in 2022. The decrease in 2023 was due to higher appliance and furniture claim severity at Allstate Protection Plans and lower third-party lead sales at Arity, partially offset by improved margins at Allstate Roadside and lower expenses at Allstate Identity Protection. Adjusted net income was also impacted by an increase in state income taxes and deferred tax liabilities for Allstate Dealer Services. Premiums and other revenues increased 9.4% or $220 million to $2.56 billion in 2023 from $2.34 billion in 2022 primarily due to Allstate Protection Plans. Allstate Health and Benefits adjusted net income was $242 million in 2023 compared to $245 million in 2022. The decrease was primarily due to a decline in employer voluntary benefits, partially offset by increases in individual and group health. Premiums and contract charges totaled $1.85 billion in 2023, an increase of 0.8% from $1.83 billion in 2022 primarily due to growth in group health, partially offset by a decline in employer voluntary benefits and individual health. Income Taxes The effective tax rate is the ratio of income tax (benefit) expense divided by (loss) income from operations before income tax expense. The effective tax rate for 2023 was 38.8% compared to 26.7% in 2022 due to the total income tax benefit measured against a lower loss from operations before income tax expense of $348 million in 2023 compared to a loss of $1.83 billion in 2022. In both years, the effective tax rate was higher than the 21% federal statutory income tax rate, primarily due to tax credits, tax-exempt interest income and excess tax benefits on shared-based payments, offset by a change in valuation allowance and uncertain tax positions. In addition, in 2023, the Company recorded an additional tax benefit arising from the liquidation of a foreign subsidiary and the remeasurement of state deferred income taxes. The The Allstate Corporation 39 2023 Form 10-K impact of the state deferred income taxes was not material to the consolidated results of operations but resulted in a tax expense to Protection Services and a tax benefit to Allstate Protection. For additional information, see Note 16 of the consolidated financial statements. Financial Highlights Investments totaled $66.68 billion as of December 31, 2023, increasing from $61.83 billion as of December 31, 2022. Allstate shareholders’ equity was $17.77 billion as of December 31, 2023 and $17.49 billion as of December 31, 2022. The increase is primarily due to lower unrealized net capital losses on investments, partially offset by dividends paid to shareholders, common share repurchases and a net loss. Book value per diluted common share (ratio of Allstate common shareholders’ equity to total common shares outstanding and dilutive potential common shares outstanding) was $59.39 as of December 31, 2023, an increase of 2.2% from $58.12 as of December 31, 2022. Return on average common Allstate shareholders’ equity For the twelve months ended December 31, 2023, return on Allstate common shareholders’ equity was (2.0)%, an increase of 5.2 points from (7.2)% for the twelve months ended December 31, 2022, primarily due to lower net loss applicable to common shareholders. Pension and other postretirement remeasurement gains and losses We recorded pension and other postretirement remeasurement losses of $9 million in 2023, primarily related to losses on the remeasurement of the projected benefit obligation driven by a decrease in the liability discount rate, partially offset by gains due to favorable asset performance compared to expected return on plan assets. See Note 18 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information. Adopted accounting standard Accounting for Long-Duration Insurance Contracts Effective January 1, 2023, the Company adopted the Financial Accounting Standards Board (”FASB”) guidance revising the accounting for certain long-duration insurance contracts using the modified retrospective approach to the transition date of January 1, 2021. Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy lapses, are required to be reviewed at least annually, and updated as appropriate. In addition, reserves under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield that is updated through other comprehensive income (“OCI”) at each reporting date. Additionally, deferred policy acquisition costs (“DAC”) for all long-duration products are amortized on a simplified basis. Also, the Company’s reserve for future policy benefits and DAC are subject to new disclosure guidance. In addition, the Company met the conditions included in Accounting Standards Update No. 2022-05, Transition for Sold Contracts, and elected to not apply the new guidance for contracts that were part of the 2021 sales of Allstate Life Insurance Company (“ALIC”) and Allstate Life Insurance Company of New York (“ALNY”). [[GREPCENT_TABLE]] [["After-tax cumulative effect of change in accounting principle on transition date"],["($ in millions)","","","","","","January 1, 2021"],["Decrease in retained income","","","","","","$","21"],["Decrease in accumulated other comprehensive income (\u201cAOCI\u201d)","","","","","","277"],["Total decrease in equity","","","","","","$","298"]] [[/GREPCENT_TABLE]] The decrease in AOCI was primarily attributable to a change in the discount rate used in measuring the reserve for future policy benefits for traditional life contracts and other long-term products with guaranteed terms from a portfolio-based rate at contract issuance to an upper-medium grade fixed income-based rate at the transition date. The decrease in retained income primarily related to certain cohorts of long-term contracts whose expected net premiums exceeded expected gross premiums which resulted in an increase in reserves and a decrease in retained income equal to the present value of expected future benefits less the present value of expected future premiums at the transition date. 40 www.allstate.com 2023 Form 10-K Property-Liability Property-Liability Operations Overview Property-Liability operations consist of two reportable segments: Allstate Protection and Run-off Property-Liability. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources. We do not allocate Property-Liability investment income, net gains and losses on investments and derivatives, or assets to the Allstate Protection and Run-off Property-Liability segments. Management reviews assets at the Property-Liability level for decision-making purposes. GAAP operating ratios are used to measure our profitability to enhance an investor’s understanding of our financial results and are calculated as follows: •Loss ratio: the ratio of claims and claims expense (loss adjustment expenses), to premiums earned. Loss ratios include the impact of catastrophe losses and prior year reserve reestimates. •Expense ratio: the ratio of amortization of DAC, operating costs and expenses, amortization or impairment of purchased intangibles, restructuring and related charges and Shelter-in-Place Payback expense, less other revenue to premiums earned. •Combined ratio: the sum of the loss ratio and the expense ratio. We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between periods. The impacts are calculated by taking the specific items noted below divided by Property-Liability premiums earned: •Effect of catastrophe losses on combined ratio: includes catastrophe losses and prior year reserve reestimates of catastrophe losses included in claims and claims expense •Effect of prior year reserve reestimates on combined ratio •Effect of amortization of purchased intangibles on combined ratio •Effect of restructuring and related charges on combined ratio •Effect of Shelter-in-Place Payback expense on combined and expense ratios •Effect of Run-off Property-Liability business on combined ratio: includes claims and claims expense, restructuring and related charges and operating costs and expenses in the Run-off Property-Liability segment Premium measures and statistics are used to analyze our premium trends and are calculated as follows: •PIF: policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy. Commercial lines PIF counts for shared economy agreements typically reflect contracts that cover multiple rather than individual drivers. Lender-placed policies are excluded from policy counts because relationships are with the lenders. •New issued applications: item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate brand. •Average premium-gross written (“average premium”): gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. •Renewal ratio: renewal policy item counts issued during the period, based on contract effective dates, divided by the total policy item counts issued generally 6 months prior for auto or 12 months prior for homeowners. •Implemented rate changes: represents the impact in the locations (U.S. states, the District of Columbia or Canadian provinces) where rate changes were implemented during the period as a percentage of total brand prior year-end premiums written. Frequency and severity statistics, which are influenced by driving patterns, inflation and other factors, are provided to describe the trends in loss costs. Our reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine our best estimate of recorded reserves. We use the following statistics to evaluate losses: •Gross claim frequency is calculated as annualized notice counts, excluding counts associated with catastrophe events, received in the period divided by the average of PIF with the applicable coverage during the period. Gross claim frequency includes all actual notice counts, regardless of their current status (open or closed) or their ultimate disposition (closed with a payment or closed without payment). •Report year incurred claim severity is calculated by dividing the sum of recorded estimated incurred losses and allocated loss adjustment expenses, excluding catastrophes, by the reported notice counts during that report year. Report year incurred claim severity does not include incurred The Allstate Corporation 41 2023 Form 10-K Property-Liability but not reported (“IBNR”) losses or benefits from subrogation and salvage. •Paid claim severity is calculated by dividing the sum of paid losses and loss expenses by claims closed with a payment during the period. •Percent change in frequency or paid claim severity statistics are calculated as the amount of increase or decrease in gross claim frequency or paid claim severity in the current period compared to the same period in the prior year divided by the prior year gross claim frequency or paid claim severity. •Percent change in report year incurred claim severity statistic is calculated as the amount of increase or decrease in report year incurred claim severity recorded in the current year divided by the current estimate of the prior report year incurred claim severity. [[GREPCENT_TABLE]] [["Underwriting results"],["($ in millions, except ratios)","","2023","","2022","","2021"],["Premiums written","","$","50,347","","","$","45,787","","","$","41,358"],["Premiums earned","","$","48,427","","","$","43,909","","","$","40,454"],["Other revenue","","1,545","","","1,416","","","1,437"],["Claims and claims expense","","(40,453)","","","(36,732)","","","(28,876)"],["Shelter-in-Place Payback expense","","\u2014","","","\u2014","","","(29)"],["Amortization of DAC","","(6,070)","","","(5,570)","","","(5,313)"],["Other costs and expenses","","(5,255)","","","(5,650)","","","(5,622)"],["Restructuring and related charges (1)","","(143)","","","(44)","","","(145)"],["Amortization of purchased intangibles","","(235)","","","(240)","","","(241)"],["Underwriting (loss) income","","$","(2,184)","","","$","(2,911)","","","$","1,665"],["Catastrophe losses"],["Catastrophe losses, excluding reserve reestimates","","$","5,660","","","$","3,094","","","$","3,541"],["Catastrophe reserve reestimates (2)","","(24)","","","18","","","(202)"],["Total catastrophe losses","","$","5,636","","","$","3,112","","","$","3,339"],["Non-catastrophe reserve reestimates (2)","","$","574","","","$","1,726","","","$","326"],["Prior year reserve reestimates (2)","","550","","","1,744","","","124"],["GAAP operating ratios"],["Loss ratio","","83.5","","","83.6","","","71.4"],["Expense ratio (3)","","21.0","","","23.0","","","24.5"],["Combined ratio","","104.5","","","106.6","","","95.9"],["Effect of catastrophe losses on combined ratio","","11.6","","","7.1","","","8.3"],["Effect of prior year reserve reestimates on combined ratio","","1.2","","","3.9","","","0.3"],["Effect of catastrophe losses included in prior year reserve reestimates on combined ratio","","\u2014","","","\u2014","","","(0.5)"],["Effect of restructuring and related charges on combined ratio (1)","","0.3","","","0.1","","","0.4"],["Effect of amortization of purchased intangibles on combined ratio","","0.5","","","0.5","","","0.6"],["Effect of Shelter-in-Place Payback expense on combined and expense ratios","","\u2014","","","\u2014","","","0.1"],["Effect of Run-off Property-Liability business on combined ratio","","0.2","","","0.3","","","0.3"]] [[/GREPCENT_TABLE]] (1)Restructuring and related charges in 2023 primarily relate to implementing actions to streamline the organization and outsource operations, and real estate costs related to facilities being vacated. See Note 14 of the consolidated financial statements for additional details. (2)Favorable reserve reestimates are shown in parentheses. (3)Other revenue is deducted from operating costs and expenses in the expense ratio calculation. 42 www.allstate.com 2023 Form 10-K Allstate Protection Allstate Protection Segment Private passenger auto, homeowners, and other personal lines insurance products are offered to consumers through agents, directly through contact centers and online. Our strategy is to offer products that allow customers to interact with us when, where and how they want with affordable, simple and connected protection products. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information. [[GREPCENT_TABLE]] [["Underwriting results"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Premiums written","","$","50,347","","","$","45,787","","","$","41,358"],["Premiums earned","","$","48,427","","","$","43,909","","","$","40,454"],["Other revenue","","1,545","","","1,416","","","1,437"],["Claims and claims expense","","(40,364)","","","(36,607)","","","(28,760)"],["Shelter-in-Place Payback expense","","\u2014","","","\u2014","","","(29)"],["Amortization of DAC","","(6,070)","","","(5,570)","","","(5,313)"],["Other costs and expenses","","(5,251)","","","(5,646)","","","(5,618)"],["Restructuring and related charges","","(142)","","","(44)","","","(145)"],["Amortization of purchased intangibles","","(235)","","","(240)","","","(241)"],["Underwriting (loss) income","","$","(2,090)","","","$","(2,782)","","","$","1,785"],["Catastrophe losses","","$","5,636","","","$","3,112","","","$","3,339"]] [[/GREPCENT_TABLE]] Underwriting loss improved to $2.09 billion in 2023 compared to $2.78 billion in 2022, primarily due to increased premiums earned and lower unfavorable non-catastrophe reserve reestimates, partially offset by higher losses. We are executing a comprehensive plan to improve auto insurance profitability, by raising rates, reducing operating expenses and advertising, implementing underwriting restrictions in underperforming states and enhancing claims processes to manage loss costs. [[GREPCENT_TABLE]] [["Change in underwriting results from 2022 to 2023"],["($ in millions)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in underwriting results from 2021 to 2022"],["($ in millions)"]] [[/GREPCENT_TABLE]] The Allstate Corporation 43 2023 Form 10-K Allstate Protection [[GREPCENT_TABLE]] [["Underwriting income (loss) by brand and by line of business"],["","","For the years ended December 31,"],["","","Allstate Brand","","National General","","Allstate Protection"],["($ in millions)","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto (1)","","$","(829)","","","$","(2,846)","","","$","1,208","","","$","(280)","","","$","(168)","","","$","54","","","$","(1,109)","","","$","(3,014)","","","$","1,262"],["Homeowners (2)","","(624)","","","701","","","411","","","(179)","","","(30)","","","(98)","","","(803)","","","671","","","313"],["Other personal lines (3)","","(37)","","","(85)","","","216","","","(2)","","","(3)","","","17","","","(39)","","","(88)","","","233"],["Commercial lines","","(277)","","","(478)","","","(158)","","","12","","","14","","","\u2014","","","(265)","","","(464)","","","(158)"],["Other business lines (4)","","106","","","95","","","115","","","9","","","10","","","6","","","115","","","105","","","121"],["Answer Financial","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","11","","","8","","","14"],["Total","","$","(1,661)","","","$","(2,613)","","","$","1,792","","","$","(440)","","","$","(177)","","","$","(21)","","","$","(2,090)","","","$","(2,782)","","","$","1,785"]] [[/GREPCENT_TABLE]] (1)2021 results include certain National General commercial lines insurance products. (2)2021 results include National General packaged policies, which include auto, and commercial lines insurance products. (3)Include renters, condominium, landlord and other personal lines products. (4)Primarily represents revenue and direct operating expenses of Ivantage, distribution of non-proprietary life and annuity products and lender-placed products. Ivantage, a general agency for Allstate exclusive agents, provides agents a solution for their customers when coverage through Allstate brand underwritten products is not available. In the first quarter of 2023, National General lender-placed products results were reclassified to other business lines. Historical results have been updated to conform with this presentation. Premium measures and statistics include PIF, new issued applications, average premiums and renewal ratio to analyze our premium trends. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums are considered earned and are included in the financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired term of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position. [[GREPCENT_TABLE]] [["Premiums written by brand and line of business"],["","","For the years ended December 31,"],["","","Allstate Brand","","National General","","Allstate Protection"],["($ in millions)","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto","","$","27,894","","","$","25,946","","","$","24,102","","","$","6,064","","","$","4,720","","","$","3,763","","","$","33,958","","","$","30,666","","","$","27,865"],["Homeowners","","11,018","","","9,936","","","8,717","","","1,566","","","1,273","","","1,365","","","12,584","","","11,209","","","10,082"],["Other personal lines","","2,290","","","2,096","","","2,001","","","229","","","153","","","155","","","2,519","","","2,249","","","2,156"],["Commercial lines","","473","","","917","","","848","","","247","","","207","","","\u2014","","","720","","","1,124","","","848"],["Other business lines","","\u2014","","","\u2014","","","\u2014","","","566","","","539","","","407","","","566","","","539","","","407"],["Total premiums written","","$","41,675","","","$","38,895","","","$","35,668","","","$","8,672","","","$","6,892","","","$","5,690","","","$","50,347","","","$","45,787","","","$","41,358"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Premiums earned by brand and line of business"],["","","For the years ended December 31,"],["","","Allstate Brand","","National General","","Allstate Protection"],["($ in millions)","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto","","$","27,384","","","$","25,286","","","$","24,088","","","$","5,556","","","$","4,429","","","$","3,535","","","$","32,940","","","$","29,715","","","$","27,623"],["Homeowners","","10,333","","","9,249","","","8,272","","","1,406","","","1,169","","","1,280","","","11,739","","","10,418","","","9,552"],["Other personal lines","","2,179","","","2,016","","","1,925","","","208","","","143","","","152","","","2,387","","","2,159","","","2,077"],["Commercial lines","","593","","","919","","","827","","","218","","","204","","","\u2014","","","811","","","1,123","","","827"],["Other business lines","","\u2014","","","\u2014","","","\u2014","","","550","","","494","","","375","","","550","","","494","","","375"],["Total premiums earned","","$","40,489","","","$","37,470","","","$","35,112","","","$","7,938","","","$","6,439","","","$","5,342","","","$","48,427","","","$","43,909","","","$","40,454"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Reconciliation of premiums written to premiums earned"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Total premiums written","","$","50,347","","","$","45,787","","","$","41,358"],["Increase in unearned premiums","","(2,004)","","","(1,776)","","","(1,143)"],["Other","","84","","","(102)","","","239"],["Total premiums earned","","$","48,427","","","$","43,909","","","$","40,454"]] [[/GREPCENT_TABLE]] 44 www.allstate.com 2023 Form 10-K Allstate Protection [[GREPCENT_TABLE]] [["Unearned premium balance by line of business"],["($ in millions)","","As of December 31,"],["","2023","","2022"],["Allstate brand:"],["Auto","","$","7,569","","","$","7,039"],["Homeowners","","6,187","","","5,495"],["Other personal lines","","1,264","","","1,151"],["Commercial lines","","194","","","314"],["Total Allstate brand","","15,214","","","13,999"],["National General:"],["Auto","","2,547","","","2,017"],["Homeowners","","799","","","651"],["Other personal lines","","69","","","62"],["Commercial lines","","155","","","129"],["Other business lines","","317","","","294"],["Total National General","","3,887","","","3,153"],["Allstate Protection unearned premiums","","$","19,101","","","$","17,152"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Policies in force by brand and by line of business"],["","","Allstate brand","","National General","","Allstate Protection"],["PIF (thousands)","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto","","20,326","","","21,658","","","21,972","","","4,957","","","4,376","","","3,944","","","25,283","","","26,034","","","25,916"],["Homeowners","","6,652","","","6,622","","","6,525","","","686","","","638","","","634","","","7,338","","","7,260","","","7,159"],["Other personal lines","","4,522","","","4,636","","","4,578","","","341","","","300","","","288","","","4,863","","","4,936","","","4,866"],["Commercial lines","","152","","","204","","","210","","","132","","","107","","","105","","","284","","","311","","","315"],["Total","","31,652","","","33,120","","","33,285","","","6,116","","","5,421","","","4,971","","","37,768","","","38,541","","","38,256"]] [[/GREPCENT_TABLE]] Auto insurance premiums written increased 10.7% or $3.29 billion in 2023 compared to 2022, primarily due to the following factors: •Increased average premiums driven by 2022 and 2023 rate increases. In the year ended December 31, 2023: –Rate increases of 17.9% were taken for Allstate brand in 55 locations, resulting in total Allstate brand insurance premium impact of 16.4% –Rate increases of 18.8% were taken for National General brand in 48 locations, resulting in total National General brand insurance premium impact of 12.8% •We expect to continue to pursue rate increases for both Allstate and National General brands into 2024 to improve auto insurance profitability •PIF decreased 2.9% or 751 thousand to 25,283 thousand as of December 31, 2023 compared to December 31, 2022 •Renewal ratio decreased 1.6 points as of December 31, 2023 compared to December 31, 2022 •Decreased new issued applications driven by the direct and exclusive agency channels, partially offset by growth in the independent agency channel •The impact of the ongoing rate increases, underwriting restrictions in markets with returns below target levels and temporary reductions in advertising have and may continue to have an adverse effect on the renewal ratio, premiums and future PIF growth [[GREPCENT_TABLE]] [["Auto premium measures and statistics"],["","","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["New issued applications (thousands)"],["Allstate Protection by brand"],["Allstate brand","","2,915","","","3,644","","","3,616","","","(20.0)","%","","0.8","%"],["National General","","3,000","","","2,677","","","2,057","","","12.1","%","","30.1","%"],["Total new issued applications","","5,915","","","6,321","","","5,673","","","(6.4)","%","","11.4","%"],["Allstate Protection by channel"],["Exclusive agency channel","","2,294","","","2,401","","","2,387","","","(4.5)","%","","0.6","%"],["Direct channel","","1,632","","","2,202","","","1,773","","","(25.9)","%","","24.2","%"],["Independent agency channel","","1,989","","","1,718","","","1,513","","","15.8","%","","13.5","%"],["Total new issued applications","","5,915","","","6,321","","","5,673","","","(6.4)","%","","11.4","%"],["Allstate brand average premium","","$","757","","","$","659","","","$","605","","","14.9","%","","8.9","%"],["Allstate brand renewal ratio (%)","","85.4","","","87.0","","","87.0","","","(1.6)","","","\u2014"]] [[/GREPCENT_TABLE]] The Allstate Corporation 45 2023 Form 10-K Allstate Protection Homeowners insurance premiums written increased 12.3% or $1.38 billion in 2023 compared to 2022, primarily due to the following factors: •Higher Allstate brand average premiums from implemented rate increases taken in 2022 and 2023 and inflation in insured home replacement costs, combined with policies in force growth •In 2023 rate increases of 15.0% were taken for Allstate brand in 49 locations, resulting in total Allstate brand insurance premium impact of 11.3% •National General policy growth may be negatively impacted in future quarters as we improve underwriting margins to targeted levels in the current books of business through underwriting and rate actions. In 2023 rate increases of 23.4% were taken for National General brand in 32 locations, resulting in total National General brand insurance premium impact of 11.0% •Decreased new issued applications in the direct and exclusive agency channels, partially offset by growth in the independent agency channel •Policy growth is being reduced in states and lines of business that are underperforming. We are no longer writing new homeowners business in California and Florida, and we are non-renewing certain policies in Florida to reduce our exposure, which have and will continue to negatively impact premiums •The impact of the ongoing rate increases, underwriting restrictions in markets with returns below target levels and temporary reductions in advertising have and may continue to have an adverse effect on the renewal ratio, premiums and future PIF growth [[GREPCENT_TABLE]] [["Homeowners premium measures and statistics"],["","","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["New issued applications (thousands)"],["Allstate Protection by brand"],["Allstate brand","","934","","","986","","","962","","","(5.3)","%","","2.5","%"],["National General","","177","","","136","","","102","","","30.1","%","","33.3","%"],["Total new issued applications","","1,111","","","1,122","","","1,064","","","(1.0)","%","","5.5","%"],["Allstate Protection by channel"],["Exclusive agency channel","","800","","","826","","","840","","","(3.1)","%","","(1.7)","%"],["Direct channel","","79","","","94","","","84","","","(16.0)","%","","11.9","%"],["Independent agency channel","","232","","","202","","","140","","","14.9","%","","44.3","%"],["Total new issued applications","","1,111","","","1,122","","","1,064","","","(1.0)","%","","5.5","%"],["Allstate brand average premium","","$","1,812","","","$","1,614","","","$","1,426","","","12.3","%","","13.2","%"],["Allstate brand renewal ratio (%)","","86.7","","","86.8","","","87.1","","","(0.1)","","","(0.3)"]] [[/GREPCENT_TABLE]] Other personal lines premiums written increased 12.0% or $270 million in 2023 compared to 2022, primarily due to increases in landlords, condominiums and personal umbrella for Allstate brand. We are no longer writing condominium new business in California and Florida and we are non-renewing certain policies in Florida, which will continue to negatively impact premiums. Commercial lines premiums written decreased 35.9% or $404 million in 2023 compared to 2022, due to profitability actions taken to no longer offer coverage to transportation network companies unless the contracts utilize telematics-based pricing and the Allstate brand exiting traditional commercial insurance in five states, which will continue to negatively impact premiums. The Allstate brand commercial insurance strategy is being advanced through an equity investment and commercial partnership with NEXT Insurance, a high-growth, digital platform for small business insurance which will expand the availability of our commercial lines offerings via NEXT product portfolio. Other business lines premiums written increased 5.0% or $27 million in 2023 compared to 2022. GAAP operating ratios include loss ratio, expense ratio and combined ratio to analyze our profitability trends. Frequency and severity statistics are used to describe the trends in loss costs. 46 www.allstate.com 2023 Form 10-K Allstate Protection [[GREPCENT_TABLE]] [["Combined ratios by line of business"],["","","For the years ended December 31,"],["","","Loss ratio","","Expense ratio (1)","","Combined ratio"],["","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto","","82.8","","","87.2","","","70.5","","","20.6","","","22.9","","","24.9","","","103.4","","","110.1","","","95.4"],["Impact of Shelter-in-Place Payback expense","","","","","","","","\u2014","","","\u2014","","","0.1","","","\u2014","","","\u2014","","","0.1"],["Homeowners","","85.4","","","71.1","","","73.5","","","21.4","","","22.5","","","23.2","","","106.8","","","93.6","","","96.7"],["Other personal lines","","82.0","","","79.7","","","62.9","","","19.6","","","24.4","","","25.9","","","101.6","","","104.1","","","88.8"],["Commercial lines","","105.8","","","120.7","","","97.5","","","26.9","","","20.6","","","21.6","","","132.7","","","141.3","","","119.1"],["Other business lines","","48.4","","","39.5","","","38.4","","","30.7","","","39.2","","","29.3","","","79.1","","","78.7","","","67.7"],["Total","","83.3","","","83.3","","","71.1","","","21.0","","","23.0","","","24.5","","","104.3","","","106.3","","","95.6"],["Impact of amortization of purchased intangibles","","","","","","","","0.5","","","0.5","","","0.6","","","0.5","","","0.5","","","0.6"],["Impact of Shelter-in-Place Payback expense","","","","","","","","\u2014","","","\u2014","","","0.1","","","\u2014","","","\u2014","","","0.1"],["Impact of restructuring and related charges","","","","","","","","0.3","","","0.1","","","0.4","","","0.3","","","0.1","","","0.4"]] [[/GREPCENT_TABLE]] (1)Other revenue is deducted from operating costs and expenses in the expense ratio calculation. [[GREPCENT_TABLE]] [["Loss ratios by line of business"],["","","For the years ended December 31,"],["","","Loss ratio","","Effect of catastrophe losses","","Effect of prior year reserve reestimates","","Effect of catastrophe losses included in prior year reserve reestimates"],["","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021","","2023","","2022","","2021"],["Auto","","82.8","","","87.2","","","70.5","","","2.1","","","1.7","","","1.7","","","0.7","","","4.0","","","0.5","","","(0.2)","","","(0.2)","","","(0.1)"],["Homeowners","","85.4","","","71.1","","","73.5","","","38.6","","","21.6","","","27.2","","","0.8","","","1.9","","","(1.4)","","","0.3","","","0.7","","","(1.7)"],["Other personal lines","","82.0","","","79.7","","","62.9","","","14.6","","","12.3","","","11.0","","","0.8","","","(1.5)","","","(5.1)","","","(0.8)","","","0.1","","","(0.5)"],["Commercial lines","","105.8","","","120.7","","","97.5","","","3.7","","","2.5","","","2.9","","","10.4","","","24.2","","","14.4","","","1.0","","","(0.1)","","","0.4"],["Other business lines","","48.4","","","39.5","","","38.4","","","7.5","","","9.1","","","5.3","","","2.2","","","(1.2)","","","(4.8)","","","\u2014","","","0.8","","","0.3"],["Total","","83.3","","","83.3","","","71.1","","","11.6","","","7.1","","","8.3","","","1.0","","","3.6","","","\u2014","","","\u2014","","","\u2014","","","(0.5)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Auto underwriting results"],["","","For the periods ended"],["","","2023","","2022","","2021"],["($ in millions, except ratios)","","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1","","Q4","","Q3","","Q2","","Q1"],["Underwriting income (loss)","","$","93","","","$","(178)","","","$","(678)","","","$","(346)","","","$","(974)","","","$","(1,315)","","","$","(578)","","","$","(147)","","","$","(300)","","","$","(159)","","","$","394","","","$","1,327"],["Loss ratio","","78.5","","","81.4","","","87.9","","","83.4","","","90.6","","","95.3","","","84.9","","","77.6","","","78.9","","","76.9","","","68.7","","","57.2"],["Effect of prior year non-catastrophe reserve reestimates","","1.7","","","0.3","","","1.4","","","(0.1)","","","2.3","","","8.5","","","3.8","","","2.1","","","2.1","","","1.1","","","(0.4)","","","(0.2)"]] [[/GREPCENT_TABLE]] Frequency and severity are influenced by: •Supply chain disruptions and labor shortages •Mix of repairable losses and total losses •Value of total losses due to changes in used car prices •Changes in medical inflation and consumption •Number of claims with attorney representation •Labor and part costs •Changes in commuting activity •Driving behavior (e.g., speed, time of day) impacting severity and mix of claim types •Organizational and process changes impacting claim opening and closing practices and shifts in timing, if any, can impact comparisons to prior periods The quarterly auto loss ratio has been more variable due to these and additional factors discussed below. Auto loss ratio decreased 4.4 points in 2023 compared to 2022 driven by increased earned premium compared to the prior year. Estimated report year 2023 incurred claim severity for Allstate brand, excluding Esurance and Canada, had a weighted average increase of between 8% to 9% compared to report year 2022 for major coverages due to higher part costs and labor rates for repairable vehicles, a higher mix of total losses, higher costs for claims with attorney representation, higher medical consumption and inflation. Gross claim frequency increased relative to the prior year. We are enhancing our claims practices to manage loss costs by increasing resources and expanding re-inspections, accelerating resolution of bodily injury claims, and negotiating improved vendor services and parts agreements. The Allstate Corporation 47 2023 Form 10-K Allstate Protection Homeowners loss ratio increased 14.3 points in 2023 compared to 2022, primarily due to higher catastrophe losses and severity, partially offset by increased premiums earned. [[GREPCENT_TABLE]] [["Allstate brand homeowners frequency and severity statistics (excluding catastrophe losses)"],["(% change year-over-year)"],["For the year ended December 31, 2023"],["Gross claim frequency","","(4.2)","%"],["Paid claim severity","","11.8"]] [[/GREPCENT_TABLE]] Gross claim frequency decreased in 2023 compared to 2022 primarily due to fire and water perils. Paid claim severity increased in 2023 compared to 2022 due to inflationary loss cost pressure driven by increases in labor and materials costs. Homeowner paid claim severity can be impacted by both the mix of perils and the magnitude of specific losses paid during the period. Other personal lines loss ratio increased 2.3 points in 2023 compared to 2022, primarily due to higher catastrophe losses and increased severity, partially offset by increased premiums earned. Commercial lines loss ratio decreased 14.9 points in 2023 compared to 2022 primarily due to the result of profitability actions taken and lower unfavorable reserve reestimates, partially offset by continued elevated frequency and severity. Other business lines loss ratio increased 8.9 points in 2023 compared to 2022 primarily due to higher non-catastrophe losses and unfavorable prior year reserve reestimates. Catastrophe losses increased 81.1% or $2.52 billion in 2023 compared to 2022 primarily related to an increased number of wind/hail events and larger losses per event. Reinsurance recoveries in 2021 related to the Nationwide Aggregate Reinsurance Program for aggregate catastrophe losses occurring between April 1, 2020 and December 31, 2020, which primarily impacted homeowners prior year reserve reestimates. We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, civil unrest, wildfires or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted. [[GREPCENT_TABLE]] [["Catastrophe losses by the type of event"],["","","For the years ended December 31,"],["($ in millions)","","Number of events","","2023","","Number of events","","2022","","Number of events","","2021"],["Hurricanes/tropical storms","","3","","","$","66","","","2","","","$","399","","","6","","","$","742"],["Tornadoes","","4","","","189","","","4","","","192","","","3","","","107"],["Wind/hail","","136","","","5,065","","","106","","","1,936","","","85","","","1,878"],["Wildfires","","4","","","335","","","9","","","52","","","5","","","269"],["Freeze/other events","","2","","","5","","","3","","","515","","","2","","","611"],["Prior year reserve reestimates","","","","(24)","","","","","28","","","","","35"],["Prior year aggregate reinsurance recoveries","","","","\u2014","","","","","(10)","","","","","(237)"],["Current year aggregate reinsurance recoveries","","","","\u2014","","","","","\u2014","","","","","(66)"],["Total catastrophe losses (1)","","149","","","$","5,636","","","124","","","$","3,112","","","101","","","$","3,339"]] [[/GREPCENT_TABLE]] (1)2021 includes approximately $250 million of reinstatement premiums for the year ended December 31, 2021, related to the Nationwide Catastrophe Reinsurance Program, primarily due to Hurricane Ida. Catastrophe management Historical catastrophe experience  For the last ten years, the average annual impact of catastrophes on our loss ratio was 8.3 points, but it has varied from 5.7 points to 11.6 points. The average annual impact of catastrophes on the homeowners loss ratio for the last ten years was 27.1 points. Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes by our participation in various state facilities. For further discussion of these facilities, see Note 15 of the consolidated financial statements. However, the impact of these actions may be diminished by the growth in insured values, the effect of state insurance laws and regulations and we may not be able to maintain our current level of reinsurance or purchase new reinsurance protection in amounts we consider sufficient at acceptable prices. In addition, in various states we are required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation in these and other state facilities such as wind pools, we may be exposed to losses that surpass the capitalization of these facilities and to assessments from these facilities. 48 www.allstate.com 2023 Form 10-K Allstate Protection We have continued to take actions to maintain an appropriate level of exposure to catastrophic events while continuing to meet the needs of our customers, including the following: •Continuing to limit or not offer new homeowners, manufactured home and landlord package policy business in certain coastal geographies. Additionally, we: –Wrote a limited number of homeowners policies in select areas of California from 2016 to 2022, but are no longer writing new homeowners and condominium business in the state of California. We may take further action to reduce our exposure. –Reduced our exposure to high risk areas, including California and Florida. Since December 31, 2022, PIF has declined by an average of approximately 7% in those two states. –Write homeowners coverage, excluding in Florida, through our excess and surplus lines carrier, North Light Specialty Insurance Company (“North Light”), which includes earthquake coverage (other than fire following earthquakes) that is currently ceded via quota share reinsurance. •Increased capacity in our brokerage platform for customers not offered an Allstate policy. As of December 31, 2023, Ivantage had $2.19 billion non-proprietary premiums under management. •Ceded wind exposure related to insured property located in wind pool eligible areas in certain states. •Generally require higher deductibles for tropical cyclone than all peril deductibles and are in place for a large portion of coastal insured properties. •Include coverage for flood-related losses for auto comprehensive damage coverage since we have additional catastrophe exposure, beyond the property lines, for auto customers who have purchased comprehensive damage coverage. •Offer a homeowners policy in 43 states. Allstate House and Home® provides options of coverage for roof damage, including graduated coverage and pricing based on roof type and age. In 2023, premiums written totaled $6.84 billion or 54.3% of homeowners premiums written compared to $5.60 billion or 49.9% in 2022. Hurricanes  We consider the greatest areas of potential catastrophe losses due to hurricanes to be major metropolitan centers in counties along the eastern and gulf coasts of the United States. The average premium on a property policy near these coasts is generally greater than in other areas. However, average premiums are often not considered commensurate with the inherent risk of loss. In addition, as explained in Note 15 of the consolidated financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting associations providing insurance for wind related property losses. We have addressed our risk of hurricane loss by, among other actions, purchasing reinsurance for specific states and on a countrywide basis for our personal lines property insurance in areas most exposed to hurricanes, limiting personal homeowners, landlord package policy and manufactured home new business writings in coastal areas in southern and eastern states, implementing tropical cyclone deductibles where appropriate, and not offering continuing coverage on certain policies in coastal counties in certain states. We continue to seek appropriate returns for the risks we write. This may require further actions, similar to those already taken, in geographies where we are not getting appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved. Earthquakes  We do not offer earthquake coverage in most states. We retain approximately 25,000 PIF with earthquake coverage, with the largest number of policies located in Kentucky, due to regulatory and other reasons. We purchase reinsurance in Kentucky and enter into arrangements in many states to make earthquake coverage available through our brokerage platform. We continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses, including our auto policies, and to fires following earthquakes. Allstate homeowner policyholders in California are offered coverage for damage caused by an earthquake through the California Earthquake Authority (“CEA”), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain circumstances as explained in Note 15 of the consolidated financial statements. While North Light writes property policies in California, which can include earthquake coverage, this coverage is 100% ceded via quota share reinsurance. Fires following earthquakes  Under a standard homeowners policy we cover fire losses, including those caused by an earthquake. Actions taken related to our risk of loss from fires following earthquakes include restrictive underwriting guidelines in California for new business writings, purchasing reinsurance for Kentucky personal lines property risks, and purchasing nationwide occurrence reinsurance, excluding Florida. Wildfires  Actions taken related to managing our risk of loss from wildfires include purchasing nationwide occurrence reinsurance, new and renewal inspection programs to identify and remediate wildfire risk as well as leveraging contemporary underwriting tools in select areas. While these programs are designed to mitigate risk, the exposure to wildfires still exists. We continue to manage our exposure and seek appropriate returns for the risks we write. To manage the exposure, we may implement further actions, similar to those already taken, in geographies where we are not achieving appropriate returns. However, we may maintain or opportunistically The Allstate Corporation 49 2023 Form 10-K Allstate Protection increase our presence in areas where adequate risk adjusted returns can be achieved. Catastrophe reinsurance  The total cost of our property catastrophe reinsurance programs, excluding reinstatement premiums, during 2023 was $1.02 billion compared to $788 million during 2022. Catastrophe placement premiums are a reduction of premium with approximately 74% related to homeowners. The increases were driven by higher Nationwide program costs. A description of our current catastrophe reinsurance program appears in Note 11 of the consolidated financial statements. Expense ratio decreased 2.0 points in 2023 compared to 2022, primarily due to higher earned premium growth relative to fixed costs and lower advertising costs, partially offset by higher restructuring costs. [[GREPCENT_TABLE]] [["Impact of specific costs and expenses on the expense ratio"],["","","For the years ended December 31,"],["($ in millions, except ratios)","","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Amortization of DAC","","$","6,070","","","$","5,570","","","$","5,313","","","$","500","","","$","257"],["Advertising expense","","638","","","934","","","1,249","","","(296)","","","(315)"],["Amortization of purchased intangibles","","235","","","240","","","241","","","(5)","","","(1)"],["Other costs and expenses, net of other revenue","","3,068","","","3,296","","","2,952","","","(228)","","","344"],["Restructuring and related charges","","142","","","44","","","145","","","98","","","(101)"],["Shelter-in-Place Payback expense","","\u2014","","","\u2014","","","29","","","\u2014","","","(29)"],["Allstate Special Payment plan bad debt expense","","\u2014","","","\u2014","","","(20)","","","\u2014","","","20"],["Total underwriting expenses","","$","10,153","","","$","10,084","","","$","9,909","","","$","69","","","$","175"],["Premiums earned","","$","48,427","","","$","43,909","","","$","40,454","","","$","4,518","","","$","3,455"],["Expense ratio"],["Amortization of DAC","","12.5","","","12.7","","","13.1","","","(0.2)","","","(0.4)"],["Advertising expense","","1.3","","","2.2","","","3.1","","","(0.9)","","","(0.9)"],["Other costs and expenses","","6.4","","","7.5","","","7.2","","","(1.1)","","","0.3"],["Subtotal","","20.2","","","22.4","","","23.4","","","(2.2)","","","(1.0)"],["Amortization of purchased intangibles","","0.5","","","0.5","","","0.6","","","\u2014","","","(0.1)"],["Restructuring and related charges","","0.3","","","0.1","","","0.4","","","0.2","","","(0.3)"],["Shelter-in-Place Payback expense","","\u2014","","","\u2014","","","0.1","","","\u2014","","","(0.1)"],["Allstate Special Payment plan bad debt expense","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total expense ratio","","21.0","","","23.0","","","24.5","","","(2.0)","","","(1.5)"]] [[/GREPCENT_TABLE]] Deferred acquisition costs  We establish a DAC asset for costs that are related directly to the acquisition of new or renewal insurance policies, principally agent remuneration and premium taxes. DAC is amortized to income over the period in which premiums are earned. [[GREPCENT_TABLE]] [["DAC balance as of December 31 by product type"],["($ in millions)","","2023","","2022"],["Auto","","$","1,207","","","$","1,089"],["Homeowners","","890","","","788"],["Other personal lines","","177","","","164"],["Commercial lines","","42","","","54"],["Other business lines","","63","","","51"],["Total DAC","","$","2,379","","","$","2,146"]] [[/GREPCENT_TABLE]] 50 www.allstate.com 2023 Form 10-K Run-off Property-Liability Run-off Property-Liability Segment The Run-off Property-Liability segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s. Our exposure to asbestos, environmental and other run-off lines claims arises principally from direct excess commercial insurance, assumed reinsurance coverage, direct primary commercial insurance and other businesses in run-off. We may pursue settlement agreements including policy buybacks on direct excess commercial business when appropriate to improve the certainty of the liabilities. Settlement agreements are negotiated contracts between Allstate and third parties that generally set forth the rights and obligations of the parties, including terms of payment for claims. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information. [[GREPCENT_TABLE]] [["Underwriting results"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Claims and claims expense"],["Asbestos claims","","$","(44)","","","$","(34)","","","$","(63)"],["Environmental claims","","(18)","","","(56)","","","(40)"],["Other run-off lines","","(27)","","","(35)","","","(13)"],["Total claims and claims expense","","(89)","","","(125)","","","(116)"],["Operating costs and expenses","","(5)","","","(4)","","","(4)"],["Underwriting loss","","$","(94)","","","$","(129)","","","$","(120)"]] [[/GREPCENT_TABLE]] Underwriting losses in 2023 and 2022 primarily related to our annual reserve review using established industry and actuarial best practices. The annual review resulted in unfavorable reserve reestimates totaling $80 million and $118 million in 2023 and 2022, respectively. The reserve reestimates are included as part of claims and claims expense. The reserve reestimates in 2023 primarily related to new reported information and defense costs for asbestos and other run-off exposures and higher than expected environmental reported losses. The reserve reestimates in 2022 primarily related to new reported information and defense costs for asbestos and higher than expected reported losses for environmental and other run-off exposures. We believe that our reserves are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (e.g., claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. However, as we progress with the resolution of disputed claims in the courts and arbitrations and with negotiations and settlements, our reported losses may be more variable. [[GREPCENT_TABLE]] [["Reserves for asbestos, environmental and other run-off claims before and after the effects of reinsurance"],["($ in millions)","","December 31, 2023","","December 31, 2022"],["Asbestos claims"],["Gross reserves","","$","1,166","","","$","1,190"],["Reinsurance","","(362)","","","(379)"],["Net reserves","","804","","","811"],["Environmental claims"],["Gross reserves","","331","","","328"],["Reinsurance","","(64)","","","(61)"],["Net reserves","","267","","","267"],["Other run-off claims"],["Gross reserves","","445","","","437"],["Reinsurance","","(72)","","","(64)"],["Net reserves","","373","","","373"],["Total"],["Gross reserves","","1,942","","","1,955"],["Reinsurance","","(498)","","","(504)"],["Net reserves","","$","1,444","","","$","1,451"]] [[/GREPCENT_TABLE]] The Allstate Corporation 51 2023 Form 10-K Run-off Property-Liability [[GREPCENT_TABLE]] [["Reserves by type of exposure before and after the effects of reinsurance"],["($ in millions)","","December 31, 2023","","December 31, 2022"],["Direct excess commercial insurance"],["Gross reserves","","$","1,114","","","$","1,106"],["Reinsurance","","(382)","","","(385)"],["Net reserves","","732","","","721"],["Assumed reinsurance coverage"],["Gross reserves","","603","","","618"],["Reinsurance","","(54)","","","(56)"],["Net reserves","","549","","","562"],["Direct primary commercial insurance"],["Gross reserves","","140","","","148"],["Reinsurance","","(61)","","","(62)"],["Net reserves","","79","","","86"],["Other run-off business"],["Gross reserves","","1","","","1"],["Reinsurance","","\u2014","","","\u2014"],["Net reserves","","1","","","1"],["Unallocated loss adjustment expenses"],["Gross reserves","","84","","","82"],["Reinsurance","","(1)","","","(1)"],["Net reserves","","83","","","81"],["Total"],["Gross reserves","","1,942","","","1,955"],["Reinsurance","","(498)","","","(504)"],["Net reserves","","$","1,444","","","$","1,451"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Percentage of gross and ceded reserves by case and IBNR"],["","","December 31, 2023","","December 31, 2022"],["","","Case","","IBNR","","Case","","IBNR"],["Direct excess commercial insurance"],["Gross reserves (1)","","57","%","","43","%","","58","%","","42","%"],["Ceded (2)","","63","","","37","","","63","","","37"],["Assumed reinsurance coverage"],["Gross reserves","","32","","","68","","","31","","","69"],["Ceded","","43","","","57","","","33","","","67"],["Direct primary commercial insurance"],["Gross reserves","","59","","","41","","","57","","","43"],["Ceded","","83","","","17","","","81","","","19"]] [[/GREPCENT_TABLE]] (1)Approximately 68% and 64% of gross case reserves as of December 31, 2023 and December 31, 2022, respectively, are subject to settlement agreements. (2)Approximately 72% and 70% of ceded case reserves as of December 31, 2023 and December 31, 2022, respectively, are subject to settlement agreements. 52 www.allstate.com 2023 Form 10-K Run-off Property-Liability [[GREPCENT_TABLE]] [["Gross payments from case reserves by type of exposure"],["($ in millions)","","For the years ended December 31,"],["","2023","","2022"],["Direct excess commercial insurance"],["Gross (1)","","$","72","","","$","82"],["Ceded (2)","","(27)","","","(35)"],["Assumed reinsurance coverage"],["Gross","","45","","","35"],["Ceded","","(8)","","","(3)"],["Direct primary commercial insurance"],["Gross","","7","","","7"],["Ceded","","\u2014","","","(1)"]] [[/GREPCENT_TABLE]] (1) In 2023 and 2022, 85% and 88% of payments related to settlement agreements, respectively. (2) In 2023 and 2022, 83% and 94% of payments related to settlement agreements, respectively. Total net reserves as of December 31, 2023, included $762 million or 53% of estimated IBNR reserves compared to $765 million or 53% of estimated IBNR reserves as of December 31, 2022. Total gross payments were $124 million and $125 million for 2023 and 2022, respectively. Payments primarily related to settlement agreements reached with several insureds on large claims, mainly asbestos related losses, where the scope of coverages has been agreed upon. The claims associated with these settlement agreements are expected to be substantially paid out over the next several years as qualified claims are submitted by these insureds. Reinsurance collections were $35 million and $37 million for 2023 and 2022, respectively. The allowance for uncollectible reinsurance recoverables was $59 million and $58 million as of December 31, 2023 and 2022, respectively. The allowance represents 10.3% and 10.0% of the related reinsurance recoverable balances as of December 31, 2023 and 2022, respectively. The Allstate Corporation 53 2023 Form 10-K Protection Services Protection Services Segment     Protection Services comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside, Arity and Allstate Identity Protection. In 2023, Protection Services represented 78.5% of total PIF and 5.0% of premiums written. We offer consumer product protection plans, protection and insurance products (including vehicle service contracts, guaranteed asset protection, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information, identity theft protection and remediation services. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information. [[GREPCENT_TABLE]] [["Summarized financial information"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Premiums written","","$","2,663","","","$","2,699","","","$","2,642"],["Revenues"],["Premiums","","$","2,243","","","$","1,995","","","$","1,764"],["Other revenue","","319","","","347","","","354"],["Intersegment insurance premiums and service fees (1)","","138","","","149","","","175"],["Net investment income","","73","","","48","","","43"],["Costs and expenses"],["Claims and claims expense","","(632)","","","(532)","","","(458)"],["Amortization of DAC","","(1,058)","","","(928)","","","(795)"],["Operating costs and expenses","","(889)","","","(874)","","","(837)"],["Restructuring and related charges","","(6)","","","(2)","","","(14)"],["Income tax expense on operations","","(83)","","","(35)","","","(52)"],["Less: noncontrolling interest","","(1)","","","(1)","","","1"],["Adjusted net income","","$","106","","","$","169","","","$","179"],["Allstate Protection Plans","","$","117","","","$","150","","","$","142"],["Allstate Dealer Services","","(15)","","","35","","","34"],["Allstate Roadside","","24","","","7","","","7"],["Arity","","(18)","","","(11)","","","3"],["Allstate Identity Protection","","(2)","","","(12)","","","(7)"],["Adjusted net income","","$","106","","","$","169","","","$","179"],["Allstate Protection Plans","","145,292","","","138,726","","","141,073"],["Allstate Dealer Services","","3,776","","","3,865","","","3,956"],["Allstate Roadside","","553","","","531","","","525"],["Allstate Identity Protection","","2,884","","","3,112","","","2,802"],["Policies in force as of December 31 (in thousands)","","152,505","","","146,234","","","148,356"]] [[/GREPCENT_TABLE]] (1)Primarily related to Arity and Allstate Roadside and are eliminated in our consolidated financial statements. Adjusted net income decreased 37.3% or $63 million in 2023 compared to 2022, due to an increase in state income taxes and deferred tax liabilities for Allstate Dealer Services, higher appliance and furniture claim severity at Allstate Protection Plans and lower third-party lead sales at Arity, partially offset by improved margins at Allstate Roadside and lower expenses at Allstate Identity Protection. Premiums written decreased 1.3% or $36 million in 2023 compared to 2022, primarily due to a decrease at Allstate Dealer Services and lower rescue volumes at Allstate Roadside, partially offset by international growth at Allstate Protection Plans. PIF increased 4.3% or 6 million in 2023 compared to 2022 due to an increase at Allstate Protection Plans. Other revenue decreased 8.1% or $28 million in 2023 compared to 2022, primarily due to reductions in third-party lead sales at Arity. Intersegment premiums and service fees decreased 7.4% to $138 million in 2023 compared to 2022, driven by decreased device sales for the 54 www.allstate.com 2023 Form 10-K Protection Services Drivewise® offering at Arity due to a shift from devices to a lower cost mobile phone program. Claims and claims expense increased 18.8% or $100 million in 2023 compared to 2022, primarily driven by higher levels of claims at Allstate Protection Plans driven by growth in the business and higher severity at both Allstate Protection Plans and Allstate Dealer Services, partially offset by lower frequency at Allstate Roadside. Amortization of DAC increased 14.0% or $130 million in 2023 compared to 2022, driven by revenue growth at both Allstate Protection Plans and Allstate Dealer Services. Operating costs and expenses increased 1.7% or $15 million in 2023 compared to 2022, primarily due to growth at Allstate Protection Plans, partially offset by lower expenses at Arity. Restructuring and related charges increased $4 million in 2023 compared to 2022, primarily due to restructuring charges at Allstate Roadside. The Allstate Corporation 55 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves Property and Casualty Insurance Claims and Claims Expense Reserves Underwriting results are significantly influenced by estimates of claims and claims expense reserves. For a description of our reserve process, see Note 9 of the consolidated financial statements. Further, for a description of our reserving policies and the potential variability in our reserve estimates, see the Application of Critical Accounting Estimates section of the MD&A. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR claims, as of the reporting date. The facts and circumstances leading to reestimates of reserves relate to changes in claim activity and revisions to the development factors used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Reestimates occur when actual losses differ from those predicted by the estimated development factors used in prior reserve estimates. We believe the net loss reserves exposures are appropriately established based on available facts, laws and regulations. [[GREPCENT_TABLE]] [["Total reserves, net of recoverables (\u201cnet reserves\u201d), as of December 31"],["($ in millions)","","2023","","2022","","2021"],["Allstate Protection","","$","29,969","","","$","26,876","","","$","22,124"],["Run-off Property-Liability","","1,444","","","1,451","","","1,421"],["Total Property-Liability","","31,413","","","28,327","","","23,545"],["Protection Services","","49","","","38","","","36"],["Total net reserves","","$","31,462","","","$","28,365","","","$","23,581"],["Reserve for property and casualty insurance claims and claims expense","","$","39,858","","","$","37,541","","","$","33,060"],["Less: reinsurance and indemnification recoverables (1)","","8,396","","","9,176","","","9,479"],["Total net reserves","","$","31,462","","","$","28,365","","","$","23,581"]] [[/GREPCENT_TABLE]] (1)Includes $6.36 billion, $6.66 billion and $6.64 billion of unpaid indemnification recoverables related to the Michigan Catastrophic Claims Association (“MCCA”) as of December 31, 2023, 2022 and 2021, respectively. [[GREPCENT_TABLE]] [["Impact of reserve reestimates by brand on combined ratio and net income applicable to common shareholders(1) (2)"],["","","2023","","2022","","2021"],["($ in millions, except ratios)","","Reserve reestimates","","Effect on combined ratio","","Reserve reestimates","","Effect on combined ratio","","Reserve reestimates","","Effect on combined ratio"],["Allstate Protection","","$","461","","","0.9","","","$","1,619","","","3.6","","","$","8","","","\u2014"],["Run-off Property-Liability","","89","","","0.2","","","125","","","0.3","","","116","","","0.3"],["Total Property-Liability","","550","","","1.1","","","1,744","","","3.9","","","124","","","0.3"],["Protection Services","","(1)","","","\u2014","","","(3)","","","\u2014","","","(2)","","","\u2014"],["Total","","$","549","","","","","$","1,741","","","","","$","122"],["Reserve reestimates, after-tax","","$","434","","","","","$","1,375","","","","","$","96"],["Consolidated net (loss) income applicable to common shareholders","","$","(316)","","","","","$","(1,394)","","","","","$","1,500"],["Reserve reestimates as a % impact on consolidated net (loss) income applicable to common shareholders","","NM","","","","(98.6)","%","","","","(6.4)","%"],["Property-Liability prior year reserve reestimates included in catastrophe losses","","$","(24)","","","","","$","18","","","","","$","(202)"]] [[/GREPCENT_TABLE]] (1)Favorable reserve reestimates are shown in parentheses. (2)Ratios are calculated using property and casualty premiums earned. NM = not meaningful 56 www.allstate.com 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves The following tables reflect the accident years to which the reestimates shown above are applicable. Favorable reserve reestimates are shown in parentheses. [[GREPCENT_TABLE]] [["Prior year reserve reestimates"],["($ in millions)"],["2023","","2018 & prior","","2019","","2020","","2021","","2022","","Total"],["Allstate Protection","","$","230","","","$","130","","","$","84","","","$","401","","","$","(384)","","","$","461"],["Run-off Property-Liability","","89","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","89"],["Total Property-Liability","","319","","","130","","","84","","","401","","","(384)","","","550"],["Protection Services","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(1)","","","(1)"],["Total","","$","319","","","$","130","","","$","84","","","$","401","","","$","(385)","","","$","549"],["2022","","2017 & prior","","2018","","2019","","2020","","2021","","Total"],["Allstate Protection","","$","27","","","$","161","","","$","294","","","$","345","","","$","792","","","$","1,619"],["Run-off Property-Liability","","125","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","125"],["Total Property-Liability","","152","","","161","","","294","","","345","","","792","","","1,744"],["Protection Services","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(3)","","","(3)"],["Total","","$","152","","","$","161","","","$","294","","","$","345","","","$","789","","","$","1,741"],["2021","","2016 & prior","","2017","","2018","","2019","","2020","","Total"],["Allstate Protection","","$","(130)","","","$","100","","","$","(67)","","","$","231","","","$","(126)","","","$","8"],["Run-off Property-Liability","","116","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","116"],["Total Property-Liability","","(14)","","","100","","","(67)","","","231","","","(126)","","","124"],["Protection Services","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(2)","","","(2)"],["Total","","$","(14)","","","$","100","","","$","(67)","","","$","231","","","$","(128)","","","$","122"]] [[/GREPCENT_TABLE]] Allstate Protection The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2023, 2022, and 2021, and the effect of reestimates in each year. [[GREPCENT_TABLE]] [["Net reserves by line"],["","","January 1 reserves"],["($ in millions)","","2023","","2022","","2021"],["Auto (1)","","$","19,365","","","$","16,078","","","$","14,164"],["Homeowners (1)","","3,520","","","2,731","","","2,315"],["Other personal lines","","1,653","","","1,844","","","1,463"],["Commercial lines and other (2)","","2,338","","","1,471","","","1,194"],["Total Allstate Protection","","$","26,876","","","$","22,124","","","$","19,136"]] [[/GREPCENT_TABLE]] (1)2022 includes a $944 million reclassification of reserves from homeowners to auto. (2)2023 and 2022 include the unamortized fair value adjustment related to the acquisition of National General. [[GREPCENT_TABLE]] [["Impact of reserve reestimates by line on combined ratio and underwriting income"],["","","2023","","2022","","2021"],["($ in millions, except ratios)","","Reserve reestimates","","Effect on combined ratio","","Reserve reestimates","","Effect on combined ratio","","Reserve reestimates","","Effect on combined ratio"],["Auto","","$","244","","","0.5","","","$","1,185","","","2.7","","","$","149","","","0.4"],["Homeowners","","102","","","0.2","","","200","","","0.4","","","(135)","","","(0.3)"],["Other personal lines","","19","","","0.1","","","(32)","","","(0.1)","","","(107)","","","(0.3)"],["Commercial lines","","84","","","0.2","","","272","","","0.6","","","119","","","0.3"],["Other business lines","","12","","","\u2014","","","(6)","","","\u2014","","","(18)","","","(0.1)"],["Total Allstate Protection","","$","461","","","1.0","","","$","1,619","","","3.6","","","$","8","","","\u2014"],["Underwriting (loss) income","","$","(2,090)","","","","","$","(2,782)","","","","","$","1,785"],["Reserve reestimates as a % impact on underwriting (loss) income - favorable (unfavorable)","","(22.1)","%","","","","(58.2)","%","","","","(0.4)","%"]] [[/GREPCENT_TABLE]] Unfavorable reserve reestimates in 2023 were primarily due to National General personal auto lines, homeowners and commercial lines. Unfavorable reserve reestimates for personal auto in 2022 were primarily from bodily injury and physical damage coverages. Increases in injury coverages reflected recent data and updated assumptions related to severity of third-party bodily injury claims, The Allstate Corporation 57 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves increased claims with attorney representation, litigation costs, increased medical treatment utilization and higher medical inflation. Increases in physical damage reflected the ongoing inflationary factors and supply chain shortages impacting used vehicle and parts prices, labor rates and length of claim resolution. Delays in the receipt of claims, including third-party carrier claims also contributed to the adverse development of claims reported in prior years. Unfavorable reserve reestimates for commercial were primarily from auto injury coverages for both shared economy and traditional segments with a large portion of the traditional segment increase related to states where the Company will no longer be selling new business. Run-off Property-Liability  We conduct an annual review in the third quarter of each year to evaluate and establish asbestos, environmental and other run-off reserves. Reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines reserves based on assessments of the characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by policyholders. [[GREPCENT_TABLE]] [["Run-off Property-Liability net reserve reestimates"],["","","2023","","2022","","2021"],["($ in millions)","","January 1 reserves","","Reserve reestimates","","January 1 reserves","","Reserve reestimates","","January 1 reserves","","Reserve reestimates"],["Asbestos claims","","$","811","","","$","44","","","$","828","","","$","34","","","$","827","","","$","63"],["Environmental claims","","267","","","18","","","226","","","56","","","206","","","40"],["Other run-off lines","","373","","","27","","","367","","","35","","","375","","","13"],["Total","","$","1,451","","","$","89","","","$","1,421","","","$","125","","","$","1,408","","","$","116"],["Underwriting loss","","","","$","(94)","","","","","$","(129)","","","","","$","(120)"]] [[/GREPCENT_TABLE]] Reserve reestimates in 2023 primarily related to new reported information and defense costs for asbestos and other run-off exposures and higher than expected environmental reported losses. Reserve reestimates in 2022 primarily related to new reported information and defense costs for asbestos and higher than expected reported losses for environmental and other run-off exposures. [[GREPCENT_TABLE]] [["Reserves and claim activity before (Gross) and after (Net) the effects of reinsurance"],["","","2023","","2022","","2021"],["($ in millions, except ratios)","","Gross","","Net","","Gross","","Net","","Gross","","Net"],["Asbestos claims"],["Beginning reserves","","$","1,190","","","$","811","","","$","1,210","","","$","828","","","$","1,204","","","$","827"],["Incurred claims and claims expense","","56","","","44","","","59","","","34","","","100","","","63"],["Claims and claims expense paid","","(80)","","","(51)","","","(79)","","","(51)","","","(94)","","","(62)"],["Ending reserves","","$","1,166","","","$","804","","","$","1,190","","","$","811","","","$","1,210","","","$","828"],["Annual survival ratio","","14.6","","","15.8","","","15.1","","","15.9","","","12.9","","","13.4"],["3-year survival ratio","","13.8","","","14.8","","","13.1","","","14.0","","","11.1","","","12.0"],["Environmental claims"],["Beginning reserves","","$","328","","","$","267","","","$","273","","","$","226","","","$","249","","","$","206"],["Incurred claims and claims expense","","23","","","18","","","79","","","56","","","50","","","40"],["Claims and claims expense paid","","(20)","","","(18)","","","(24)","","","(15)","","","(26)","","","(20)"],["Ending reserves","","$","331","","","$","267","","","$","328","","","$","267","","","$","273","","","$","226"],["Annual survival ratio","","16.6","","","14.8","","","13.7","","","17.8","","","10.5","","","11.3"],["3-year survival ratio","","14.4","","","15.1","","","14.5","","","15.4","","","10.6","","","10.6"],["Combined environmental and asbestos claims"],["Annual survival ratio","","15.0","","","15.5","","","14.7","","","16.3","","","12.4","","","12.9"],["3-year survival ratio","","13.9","","","14.8","","","13.3","","","14.3","","","11.0","","","11.7"],["Percentage of IBNR in ending reserves","","","","55.7","%","","0","","55.9","%","","0","","54.8","%"]] [[/GREPCENT_TABLE]] 58 www.allstate.com 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves The survival ratio is calculated by taking our ending reserves divided by payments made during the year. This is a commonly used but simplistic and imprecise approach to measuring the adequacy of asbestos and environmental reserve levels. Many factors, such as mix of business, level of coverage provided and settlement procedures have significant impacts on the amount of environmental and asbestos claims and claims expense reserves, claim payments and the resultant ratio. As payments result in corresponding reserve reductions, survival ratios can be expected to vary over time. The asbestos and environmental net 3-year survival ratio in 2023 increased from 2022 due to lower average payments. [[GREPCENT_TABLE]] [["Net asbestos reserves by type of exposure and total reserve additions"],["","","December 31, 2023","","December 31, 2022","","December 31, 2021"],["($ in millions)","","Net reserves","","% of reserves","","Net reserves","","% of reserves","","Net reserves","","% of reserves"],["Direct:"],["Primary","","$","9","","","1","%","","$","9","","","1","%","","$","8","","","1","%"],["Excess","","263","","","33","","","257","","","32","","","275","","","33"],["Total direct","","272","","","34","","","266","","","33","","","283","","","34"],["Assumed reinsurance","","91","","","11","","","97","","","12","","","104","","","13"],["IBNR","","441","","","55","","","448","","","55","","","441","","","53"],["Total net reserves","","$","804","","","100","%","","$","811","","","100","%","","$","828","","","100","%"],["Total reserve additions","","$","44","","","","","$","34","","","","","$","63"]] [[/GREPCENT_TABLE]] IBNR net reserves decreased $7 million as of December 31, 2023 compared to December 31, 2022. IBNR provides for reserve development of known claims and future reporting of additional unknown claims from current policyholders and ceding companies. Reinsurance and indemnification programs  We utilize reinsurance to reduce exposure to catastrophe risk and manage capital, and to support the required statutory surplus and the insurance financial strength ratings of certain subsidiaries such as Castle Key Insurance Company (“CKIC”) and Allstate New Jersey Insurance Company (“ANJ”). We purchase significant reinsurance to manage our aggregate countrywide exposure to an acceptable level. The price and terms of reinsurance and the credit quality of the reinsurer are considered in the purchase process. We have also purchased reinsurance to mitigate exposures in our long-tail liability lines, including environmental, asbestos and other run-off lines as well as our commercial lines, including shared economy. We also participate in various indemnification mechanisms, including state-based industry pool or facility programs mandating participation by insurers offering certain coverage in their state and the federal government National Flood Insurance Program (“NFIP”). See Note 11 of the consolidated financial statements for additional details on these programs. Intercompany reinsurance We enter into certain intercompany insurance and reinsurance transactions in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation. Catastrophe reinsurance We anticipate completing the placement of our 2024 nationwide catastrophe reinsurance program in the first half of 2024. For further details of the existing 2023 program, see Note 11 of the consolidated financial statements. The Allstate Corporation 59 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves [[GREPCENT_TABLE]] [["Reinsurance and indemnification recoverables, net of the allowance established for uncollectible amounts"],["","","S&P financial strength rating (1)","","A.M. Best financial strength rating (1)","","Reinsurance or indemnification recoverables on paid and unpaid claims, net"],["($ in millions)","","","","2023","","2022"],["Indemnification programs"],["State-based industry pool or facility programs"],["MCCA (2)","","N/A","","N/A","","$","6,424","","","$","6,722"],["New Jersey Property-Liability Insurance Guaranty Association (\u201cPLIGA\u201d)","","N/A","","N/A","","326","","","330"],["North Carolina Reinsurance Facility (\u201cNCRF\u201d)","","N/A","","N/A","","382","","","292"],["Florida Hurricane Catastrophe Fund (\u201cFHCF\u201d)","","N/A","","N/A","","82","","","96"],["Other","","","","","","32","","","7"],["Federal Government - NFIP","","N/A","","N/A","","76","","","145"],["Subtotal","","","","","","7,322","","","7,592"],["Catastrophe reinsurance recoverables"],["Swiss Reinsurance America Corporation","","AA-","","A+","","37","","","64"],["Sanders RE II LTD.","","N/A","","N/A","","36","","","85"],["Renaissance Reinsurance Limited","","A+","","A+","","31","","","56"],["Other","","","","","","246","","","558"],["Subtotal","","","","","","350","","","763"],["Other reinsurance recoverables, net (3)"],["Lloyd\u2019s of London (\u201cLloyd\u2019s\u201d)","","AA-","","A","","180","","","180"],["Aleka Insurance Inc.","","N/A","","N/A","","113","","","183"],["Pacific Valley Insurance Company, Inc.","","N/A","","N/A","","67","","","88"],["Swiss Reinsurance America Corporation","","AA-","","A+","","47","","","67"],["Other, including allowance for credit losses","","","","","","545","","","575"],["Subtotal","","","","","","952","","","1,093"],["Total Property-Liability","","","","","","8,624","","","9,448"],["Protection Services","","","","","","26","","","19"],["Total","","","","","","$","8,650","","","$","9,467"]] [[/GREPCENT_TABLE]] (1)N/A reflects no S&P Global Ratings (“S&P”) or A.M. Best ratings available. (2)As of December 31, 2023 and 2022, MCCA includes $62 million of reinsurance recoverable on paid claims and $6.36 billion and $6.66 billion of reinsurance recoverable on unpaid claims, respectively. (3)Other reinsurance recoverables primarily relate to commercial lines, including shared economy, as well as asbestos, environmental and other liability exposures. Reinsurance and indemnification recoverables include an estimate of the amount of insurance claims and claims expense reserves that are ceded under the terms of the agreements, including IBNR unpaid losses. We calculate our ceded reinsurance and indemnification estimates based on the terms of each applicable agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We also consider other limitations and coverage exclusions under our agreements. Accordingly, our estimate of recoverables is subject to similar risks and uncertainties as our estimate of reserves for claims and claims expense. We believe the recoverables are appropriately established; however, as our underlying reserves continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We regularly evaluate the reinsurers and the respective amounts of our reinsurance recoverables, and a provision for uncollectible reinsurance recoverables is recorded, if needed. The establishment of reinsurance recoverables and the related allowance for uncollectible reinsurance is also an inherently uncertain process involving estimates. Changes in estimates could result in additional changes to the Consolidated Statements of Operations. Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation and the Company has not had any credit losses related to these programs and we do not anticipate losses in the foreseeable future. We also have not experienced credit losses on our catastrophe reinsurance programs, which include highly rated reinsurers. The allowance for uncollectible reinsurance relates to other reinsurance programs primarily related to our Run-off Property-Liability segment. The allowance was $62 million as of December 31, 2023 and 2022. The allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, and other relevant factors. In addition, in the ordinary course of 60 www.allstate.com 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves business, we may become involved in coverage disputes with certain of our reinsurers that may ultimately result in lawsuits and arbitrations brought by or against such reinsurers to determine the parties’ rights and obligations under the various reinsurance agreements. We employ dedicated specialists to manage reinsurance collections and disputes. We also consider recent developments in commutation activity between reinsurers and cedents, and recent trends in arbitration and litigation outcomes in disputes between cedents and reinsurers in seeking to maximize our reinsurance recoveries. Adverse developments in the insurance industry have led to a decline in the financial strength of some of our reinsurance carriers, causing amounts recoverable from them and future claims ceded to them to be considered a higher risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry to be concentrated among fewer companies. See Note 2 of the consolidated financial statements for a description of the methodology utilized to calculate the allowance for reinsurance recoverables. For further details related to our reinsurance and indemnification recoverables, see the Regulation section in Part I and Note 11 of the consolidated financial statements. [[GREPCENT_TABLE]] [["Effects of reinsurance ceded and indemnification programs on our premiums earned and claims and claims expense"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Allstate Protection - Premiums"],["Indemnification programs"],["State-based industry pool or facility programs"],["NCRF","","$","323","","","$","300","","","$","310"],["MCCA","","29","","","18","","","20"],["PLIGA","","7","","","7","","","7"],["FHCF","","28","","","24","","","15"],["Other","","1","","","\u2014","","","420"],["Federal Government - NFIP","","327","","","319","","","350"],["Catastrophe reinsurance","","995","","","764","","","541"],["Other reinsurance programs","","110","","","261","","","60"],["Total Allstate Protection","","1,820","","","1,693","","","1,723"],["Run-off Property-Liability","","\u2014","","","\u2014","","","\u2014"],["Total Property-Liability","","1,820","","","1,693","","","1,723"],["Protection Services","","169","","","176","","","181"],["Total effect on premiums earned","","$","1,989","","","$","1,869","","","$","1,904"],["Allstate Protection - Claims"],["Indemnification programs"],["State-based industry pool or facility programs"],["MCCA","","$","(185)","","","$","116","","","$","611"],["NCRF","","379","","","294","","","279"],["PLIGA","","14","","","(24)","","","\u2014"],["FHCF","","(6)","","","74","","","13"],["Other","","1","","","\u2014","","","359"],["Federal Government - NFIP","","102","","","435","","","267"],["Catastrophe reinsurance","","32","","","298","","","1,719"],["Other reinsurance programs","","151","","","261","","","85"],["Total Allstate Protection","","488","","","1,454","","","3,333"],["Run-off Property-Liability","","29","","","50","","","60"],["Total Property-Liability","","517","","","1,504","","","3,393"],["Protection Services","","116","","","96","","","91"],["Total effect on claims and claims expense","","$","633","","","$","1,600","","","$","3,484"]] [[/GREPCENT_TABLE]] In 2023, ceded premiums earned increased primarily due to catastrophe reinsurance. In 2022, ceded premiums earned decreased primarily due to the expiration of legacy National General reinsurance programs. In 2023, ceded claims and claims expenses decreased $967 million primarily due to lower amounts related to NFIP, and a reduction in gross reserves for Michigan personal injury protection coverage. In 2022, ceded claims and claims expenses decreased $1.88 billion primarily due to higher gross catastrophe losses in 2021 that resulted in reinsurance activity. For further discussion of these items, see Regulation, Indemnification Programs and Note 11 of the consolidated financial statements. The Allstate Corporation 61 2023 Form 10-K Property and Casualty Insurance Claims and Claims Expense Reserves [[GREPCENT_TABLE]] [["Michigan personal injury protection reserve and claim activity before and after the effects of MCCA recoverables"],["","","For the years ended December 31,"],["","","2023","","2022","","2021"],["($ in millions)","","Gross","","Net","","Gross","","Net","","Gross","","Net"],["Beginning reserves","","$","7,393","","","$","735","","","$","7,387","","","$","747","","","$","6,282","","","$","670"],["National General acquisition as of January 4, 2021","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","566","","","31"],["Incurred claims and claims expense - current year","","307","","","102","","","451","","","175","","","398","","","132"],["Incurred claims and claims expense - prior years","","(455)","","","(60)","","","(159)","","","(15)","","","403","","","59"],["Claims and claims expense paid - current year (1)","","(21)","","","(20)","","","(26)","","","(26)","","","(35)","","","(35)"],["Claims and claims expense paid - prior years (1)","","(221)","","","(116)","","","(260)","","","(146)","","","(227)","","","(110)"],["Ending reserves (2)","","$","7,003","","","$","641","","","$","7,393","","","$","735","","","$","7,387","","","$","747"]] [[/GREPCENT_TABLE]] (1)Paid claims and claims expenses reported in the table for the current and prior years, recovered from the MCCA totaled $106 million, $114 million and $117 million in 2023, 2022 and 2021, respectively. (2)Gross reserves for the year ended December 31, 2023, comprise 77% case reserves and 23% IBNR. Gross reserves for the year ended December 31, 2022, comprise 76% case reserves and 24% IBNR. Gross reserves for the year ended December 31, 2021, comprise 74% case reserves and 26% IBNR. The MCCA does not require member companies to report ultimate case reserves. Pending MCCA claims differ from most personal lines insurance pending claims as other personal lines policies incurred claims settle in shorter periods due to having a coverage limit. MCCA claims can be outstanding for a claimant’s lifetime, as there is no contractual limitation. Many of these injuries are catastrophic in nature, resulting in serious permanent disabilities that require attendant and residential care for periods that may span decades. A significant portion of the ultimate incurred claim reserves and the recoverables can be attributed to a small number of catastrophic claims that occurred more than five years ago and continue to pay lifetime benefits. As of December 31, 2023, approximately 1,350 of our catastrophic claims that are eligible for reimbursement are pending with the MCCA, of which approximately 80% represents claims that occurred more than 5 years ago. There are 74 claims with reserves in excess of $15 million as of December 31, 2023, which comprise approximately 30% of the gross ending reserves in the table above. As a result, significant developments with a single claimant can result in volatility in prior year incurred claims. [[GREPCENT_TABLE]] [["Pending, new and closed claims for Michigan personal injury protection exposure"],["","","For the years ended December 31,"],["Number of claims (1)","","2023","","2022","","2021"],["Pending, beginning of year","","5,568","","","5,421","","","4,857"],["National General acquisition as of January 4, 2021","","\u2014","","","\u2014","","","525"],["New","","6,496","","","8,059","","","8,616"],["Closed","","(7,338)","","","(7,912)","","","(8,577)"],["Pending, end of year","","4,726","","","5,568","","","5,421"]] [[/GREPCENT_TABLE]] (1)Total claims includes those covered and not covered by the MCCA indemnification. 62 www.allstate.com 2023 Form 10-K Allstate Health and Benefits Allstate Health and Benefits Segment Allstate Health and Benefits offers employer voluntary benefits, group health and individual health products, including life, accident, critical illness, hospital indemnity, short-term disability and other health products. In 2023, Allstate Health and Benefits represented 2.1% of total PIF. Our target customers are consumers with family and financial protection needs. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information. Effective January 1, 2023, we adopted the FASB guidance revising the accounting for certain long-duration insurance contracts in the Allstate Health and Benefits segment using the modified retrospective approach at the transition date of January 1, 2021. See Note 2 of the consolidated financial statements for further information regarding the impact of the adopted accounting standard on our consolidated financial statements. [[GREPCENT_TABLE]] [["Summarized financial information"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Revenues"],["Accident and health insurance premiums and contract charges","","$","1,846","","","$","1,832","","","$","1,834"],["Other revenue","","447","","","402","","","359"],["Net investment income","","82","","","69","","","74"],["Costs and expenses"],["Accident, health and other policy benefits","","(1,071)","","","(1,042)","","","(1,060)"],["Amortization of DAC","","(150)","","","(136)","","","(128)"],["Operating costs and expenses","","(842)","","","(814)","","","(787)"],["Restructuring and related charges","","(7)","","","(2)","","","(9)"],["Income tax expense on operations","","(63)","","","(64)","","","(60)"],["Adjusted net income","","$","242","","","$","245","","","$","223"],["Benefit ratio (1)","","56.2","","","55.1","","","55.9"],["Employer voluntary benefits (2)","","3,590","","","3,783","","","3,804"],["Group health (3)","","136","","","119","","","122"],["Individual health (4)","","417","","","394","","","407"],["Policies in force as of December 31 (in thousands)","","4,143","","","4,296","","","4,333"]] [[/GREPCENT_TABLE]] (1)Benefit ratio is calculated as accident, health and other policy benefits less interest credited to contractholder funds of $33 million, $33 million, and $34 million for the years ended December 31, 2023, 2022, and 2021, respectively, divided by premiums and contract charges. (2)Employer voluntary benefits include supplemental life and health products offered through workplace enrollment. (3)Group health includes health products and administrative services sold to employers. (4)Individual health includes short-term medical and other health products sold directly to individuals. Adjusted net income decreased $3 million in 2023 compared to 2022, primarily due to a decline in employer voluntary benefits, partially offset by increases in individual and group health. Premiums and contract charges increased 0.8% or $14 million in 2023 compared to 2022, primarily due to growth in group health, partially offset by a decline in employer voluntary benefits and individual health. [[GREPCENT_TABLE]] [["Premiums and contract charges by line of business"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Employer voluntary benefits","","$","1,001","","","$","1,033","","","$","1,040"],["Group health","","440","","","385","","","350"],["Individual health","","405","","","414","","","444"],["Premiums and contract charges","","$","1,846","","","$","1,832","","","$","1,834"]] [[/GREPCENT_TABLE]] The Allstate Corporation 63 2023 Form 10-K Allstate Health and Benefits New annualized premium sales (annualized premiums at initial employer voluntary benefits customer enrollment or health policy sale) decreased by $2 million to $732 million in 2023. The decrease in 2023 primarily relates to a decline in employer voluntary benefits, partially offset by growth in group health and individual health businesses. Other revenue increased $45 million in 2023 compared to 2022, primarily due to an increase in group health administrative fees. Accident, health and other policy benefits increased 2.8% or $29 million in 2023 compared to 2022, primarily due to growth in group health, partially offset by lower benefit utilization in individual health. Accident, health and other policy benefits include changes in the reserve for future policy benefits, expected development on reported claims, and reserves for incurred but not reported claims as shown in Note 10 of the consolidated financial statements. Benefit ratio increased 1.1 points to 56.2 in 2023 compared to 55.1 in 2022, primarily due to higher benefit utilization in employer voluntary benefits and group health, partially offset by lower benefit utilization in individual health. Amortization of DAC increased 10.3% or $14 million in 2023 compared to 2022, primarily due to higher amortization related to growth in individual health. For information on changes in DAC, see Note 12 of the consolidated financial statements. [[GREPCENT_TABLE]] [["Operating costs and expenses"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Non-deferrable commissions","","$","319","","","$","321","","","$","316"],["General and administrative expenses","","523","","","493","","","471"],["Total operating costs and expenses","","$","842","","","$","814","","","$","787"]] [[/GREPCENT_TABLE]] Operating costs and expenses increased $28 million in 2023 compared to 2022, primarily due to growth in group health and investments in the employer voluntary benefits business. Allstate Health and Benefits reinsurance ceded The vast majority of reinsurance relates to the disposition of long-term care and other closed blocks of business. We retain primary liability as a direct insurer for all risks ceded to reinsurers. [[GREPCENT_TABLE]] [["Reinsurance recoverables by reinsurer, net"],["","","S&P financial strength rating","","A.M. Best financial strength rating","","Reinsurance recoverable on paid and unpaid benefits"],["","","","","","","As of December 31,"],["($ in millions)","","","","","","2023","","2022"],["Mutual of Omaha Insurance","","A+","","A+","","$","70","","","$","65"],["Everlake Life Insurance Company","","NR","","A+","","33","","","35"],["Argo Capital Group Ltd.","","NR","","NR","","24","","","20"],["General Re Life Corporation","","AA+","","A++","","15","","","13"],["Midlands Casualty Insurance Company","","NR","","NR","","15","","","16"],["Other (1)","","","","","","5","","","6"],["Credit loss allowance","","","","","","(3)","","","(3)"],["Total","","","","","","$","159","","","$","152"]] [[/GREPCENT_TABLE]] (1)As of December 31, 2023, the other category includes $4 million and $5 million of recoverables due from reinsurers rated A- or better by S&P and A.M. Best, respectively. As of December 31, 2022, the other category includes $3 million and $4 million of recoverables due from reinsurers rated A- or better by S&P and A.M. Best, respectively. We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis. No reinsurance recoverables have been written off in the three-years ended December 31, 2023. 64 www.allstate.com 2023 Form 10-K Investments Investments Overview and strategy The return on our investment portfolios is an important component of our ability to offer good value to customers, fund business improvements and create value for shareholders. Investment portfolios are held for Property-Liability, Protection Services, Allstate Health and Benefits and Corporate and Other operations. While taking into consideration the investment portfolio in aggregate, management of the underlying portfolios is significantly influenced by the nature of each respective business and its corresponding liability profile. For each business, we identify a strategic asset allocation which considers both the nature of the liabilities and the risk and return characteristics of the various asset classes in which we invest. This allocation is informed by our long-term business and market expectations, as well as other considerations such as risk appetite, portfolio diversification, duration, desired liquidity and capital. Within appropriate ranges relative to strategic allocations, tactical allocations are made in consideration of prevailing and potential future market conditions. We manage risks that involve uncertainty related to interest rates, inflation, credit spreads, equity returns and currency exchange rates. The Property-Liability portfolio emphasizes protection of principal and consistent income generation, within a total return framework. This approach has produced competitive returns over the long term and is designed to ensure financial strength and stability for paying claims, while maximizing economic value and surplus growth. Products with lower liquidity needs, such as auto insurance and run-off lines, and capital create capacity to invest in less liquid higher yielding fixed income securities, performance-based investments such as limited partnerships and equity securities. Products with higher liquidity needs, such as homeowners insurance, are invested primarily in high quality liquid fixed income securities. The Protection Services portfolio is focused on protection of principal and consistent income generation, within a total return framework. The portfolio is largely comprised of fixed income securities with a lesser allocation to equity securities and short-term investments. The Allstate Health and Benefits portfolio is focused on protection of principal and consistent income generation while targeting an appropriate return on capital. The portfolio is largely comprised of fixed income securities with a small allocation to commercial mortgage loans and equity securities. The Corporate and Other portfolio is focused on liquidity needs and capital preservation within a total return framework. The portfolio is largely comprised of high-quality liquid fixed income securities and short-term investments. We utilize two primary strategies to manage risks and returns and to position our portfolio to take advantage of market opportunities while attempting to mitigate adverse effects. As strategies and market conditions evolve, the asset allocation may change. Market-based strategy seeks to deliver predictable earnings aligned to business needs and provide flexibility to adjust investment risk profile based on enterprise objectives and market opportunities primarily through public and private fixed income investments and public equity securities. Performance-based strategy seeks to deliver attractive risk-adjusted returns and supplement market risk with idiosyncratic risk. Returns are impacted by a variety of factors including general macroeconomic and public market conditions as public benchmarks are often used in the valuation of underlying investments. Variability in earnings will also result from the performance of the underlying assets or business and the timing of sales of those investments. Earnings from the sales of investments may be recorded as net investment income or net gains and losses on investments and derivatives. The portfolio, which primarily includes private equity (including infrastructure investments) and real estate with a majority being limited partnerships, is diversified across a number of characteristics, including managers or partners, vintage years, investment strategies, geographies (including international) and industry sectors or property types. These investments are generally illiquid in nature, often require specialized expertise, typically involve a third-party manager, and enhance returns and income through transformation at the company or property level. A portion of these investments seek returns in markets or asset classes that are dislocated or special situations, primarily in private markets. Investments in the Middle East As of December 31, 2023, we have approximately $47 million investment exposure in the Middle East, of which approximately $43 million is held in Israel, which is primarily indirect exposure through funds managed by external asset managers. Investments in Russia and Ukraine As of December 31, 2023, we do not have any direct or indirect investments in Russia, Belarus or Ukraine. The Allstate Corporation 65 2023 Form 10-K Investments Investments Outlook We plan to focus on the following priorities: •Enhance investment portfolio returns through use of a dynamic capital allocation framework and focus on tax efficiency. •Leverage our broad capabilities to manage the portfolio to earn higher risk-adjusted returns on capital. •Invest for the specific needs and characteristics of Allstate’s businesses, including its corresponding liability profile. We utilize our integrated enterprise risk and return management framework to determine the amount of investment risk we are willing to accept. After reducing interest rate risk by shortening the portfolio duration beginning in late 2021, during 2023 we extended the fixed income portfolio duration as the sustained higher market yields provide an opportunity to increase risk-adjusted returns. As recession risks remain elevated, we also retained defensive positioning to equity risk and credit risk in the portfolio through a reduced allocation to public equity, high yield bonds and bank loans. We expect to maintain performance-based investments in our portfolio, consistent with our strategy to have a greater proportion of return derived from idiosyncratic assets or operating performance. [[GREPCENT_TABLE]] [["Contractual maturities and yields of fixed income securities for the next three years"],["","","Fixed income securities"],["($ in millions)","","Carrying value","","Investment yield"],["2024","","$","3,374","","","3.0","%"],["2025","","6,288","","","3.5"],["2026","","5,565","","","3.5"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Portfolio composition and strategy by reporting segment (1)"],["","","As of December 31, 2023"],["($ in millions)","","Property-Liability","","Protection Services","","Allstate Health and Benefits","","Corporate and Other","","Total"],["Fixed income securities (2)","","$","43,466","","","$","1,796","","","$","1,806","","","$","1,797","","","$","48,865"],["Equity securities (3)","","1,516","","","254","","","44","","","597","","","2,411"],["Mortgage loans, net","","701","","","\u2014","","","121","","","\u2014","","","822"],["Limited partnership interests","","8,366","","","\u2014","","","\u2014","","","14","","","8,380"],["Short-term investments (4)","","4,555","","","130","","","92","","","367","","","5,144"],["Other investments, net","","936","","","\u2014","","","119","","","\u2014","","","1,055"],["Total","","$","59,540","","","$","2,180","","","$","2,182","","","$","2,775","","","$","66,677"],["Percentage to total","","89.3","%","","3.3","%","","3.3","%","","4.1","%","","100.0","%"],["Market-based","","$","50,019","","","$","2,180","","","$","2,182","","","$","2,553","","","$","56,934"],["Performance-based","","9,521","","","\u2014","","","\u2014","","","222","","","9,743"],["Total","","$","59,540","","","$","2,180","","","$","2,182","","","$","2,775","","","$","66,677"]] [[/GREPCENT_TABLE]] (1)Balances reflect the elimination of related party investments between segments. (2)Fixed income securities are carried at fair value. Amortized cost, net for these securities was $44.06 billion, $1.85 billion, $1.91 billion, $1.83 billion and $49.65 billion for Property-Liability, Protection Services, Allstate Health and Benefits, Corporate and Other, and in total, respectively. (3)Equity securities are carried at fair value. The fair value of equity securities held as of December 31, 2023 was $167 million in excess of cost. These net gains were primarily concentrated in the technology and banking sectors. Equity securities include $1.02 billion of funds with underlying investments in fixed income securities as of December 31, 2023. (4)Short-term investments are carried at fair value. Investments totaled $66.68 billion as of December 31, 2023, increasing from $61.83 billion as of December 31, 2022, primarily due to positive operating cash flows, higher fixed income valuations and to support higher reserves, partially offset by dividends paid to shareholders and common share repurchases. 66 www.allstate.com 2023 Form 10-K Investments [[GREPCENT_TABLE]] [["Portfolio composition by investment strategy"],["","","As of December 31, 2023"],["($ in millions)","","Market- based","","Performance-based","","Total"],["Fixed income securities","","$","48,749","","","$","116","","","$","48,865"],["Equity securities","","1,768","","","643","","","2,411"],["Mortgage loans, net","","822","","","\u2014","","","822"],["Limited partnership interests","","141","","","8,239","","","8,380"],["Short-term investments","","5,144","","","\u2014","","","5,144"],["Other investments, net","","310","","","745","","","1,055"],["Total","","$","56,934","","","$","9,743","","","$","66,677"],["Percent to total","","85.4","%","","14.6","%","","100.0","%"],["Unrealized net capital gains and losses"],["Fixed income securities","","$","(784)","","","$","\u2014","","","$","(784)"],["Limited partnership interests","","\u2014","","","(4)","","","(4)"],["Short-term investments","","(1)","","","\u2014","","","(1)"],["Other investments","","(2)","","","\u2014","","","(2)"],["Total","","$","(787)","","","$","(4)","","","$","(791)"]] [[/GREPCENT_TABLE]] During 2023, strategic actions focused on optimizing portfolio yield, return and risk in the more volatile and rising interest rate environment. The sustained higher market yields provide an opportunity to increase risk-adjusted returns, so we extended the fixed income portfolio duration to 4.8 years (including the effect of interest rate derivatives and any call features associated with the securities) during 2023 from 3.4 years as of December 31, 2022. Considering the ongoing risk of recession, we retained a lower allocation to high-yield bonds, bank loans and public equity relative to year-end 2022. We maintained performance-based investments in the Property-Liability portfolio. Fixed income securities [[GREPCENT_TABLE]] [["Fixed income securities by type"],["","","Fair value as of December 31,"],["($ in millions)","","2023","","","","2022"],["U.S. government and agencies","","$","8,619","","","","","$","7,898"],["Municipal","","6,006","","","","","6,210"],["Corporate","","31,205","","","","","26,263"],["Foreign government","","1,290","","","","","957"],["Asset-backed securities (\u201cABS\u201d)","","1,745","","","","","1,157"],["Total fixed income securities","","$","48,865","","","","","$","42,485"]] [[/GREPCENT_TABLE]] Fixed income securities are rated by third-party credit rating agencies or are internally rated. The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”) evaluates the fixed income securities of insurers for regulatory reporting and capital assessment purposes. The NAIC assigns securities to one of six credit quality categories defined as “NAIC designations”. In general, securities with NAIC designations of 1 and 2 are considered investment grade and securities with NAIC designations of 3 through 6 are considered below investment grade. The rating is either received from the SVO based on availability of applicable ratings from rating agencies on the NAIC Nationally Recognized Statistical Rating Organizations provider list, including Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”), Fitch Ratings (“Fitch”), or a comparable internal rating. As a result of time lags between the funding of investments, the finalization of legal documents, and the completion of the SVO filing process, the portfolio includes certain securities that have not yet been designated by the SVO as of each balance sheet date and the categorization of these securities is based on the expected ratings indicated by internal analysis. As of December 31, 2023, 91.5% of the consolidated fixed income securities portfolio was rated investment grade. Credit ratings below these designations are considered lower credit quality or below investment grade, which includes high yield bonds. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Our initial investment decisions and ongoing monitoring procedures for fixed income securities are based on a due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure and liquidity risks of each issuer. Fixed income portfolio monitoring is a comprehensive process to identify and evaluate each fixed income security that may require a credit loss allowance. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. For further detail on The Allstate Corporation 67 2023 Form 10-K Investments our fixed income portfolio monitoring process, see Note 5 of the consolidated financial statements. The following table presents total fixed income securities by the applicable NAIC designation and comparable S&P rating. [[GREPCENT_TABLE]] [["Fair value and unrealized net capital gains (losses) for fixed income securities by credit rating"],["","","December 31, 2023"],["","","NAIC 1","","NAIC 2","","NAIC 3"],["","","A and above","","BBB","","BB"],["($ in millions)","","Fairvalue","","Unrealized gain (loss)","","Fairvalue","","Unrealized gain (loss)","","Fairvalue","","Unrealized gain (loss)"],["U.S. government and agencies","","$","8,619","","","$","(5)","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Municipal","","5,963","","","(43)","","","34","","","(1)","","","7","","","\u2014"],["Corporate"],["Public","","7,019","","","(55)","","","15,560","","","(392)","","","611","","","(28)"],["Privately placed","","1,651","","","(54)","","","2,867","","","(92)","","","1,890","","","(45)"],["Total corporate","","8,670","","","(109)","","","18,427","","","(484)","","","2,501","","","(73)"],["Foreign government","","1,289","","","4","","","1","","","\u2014","","","\u2014","","","\u2014"],["ABS","","1,669","","","(1)","","","16","","","\u2014","","","10","","","\u2014"],["Total fixed income securities","","$","26,210","","","$","(154)","","","$","18,478","","","$","(485)","","","$","2,518","","","$","(73)"],["","","NAIC 4","","NAIC 5-6","","Total"],["","","B","","CCC and lower"],["","","Fairvalue","","Unrealized gain (loss)","","Fairvalue","","Unrealized gain (loss)","","Fairvalue","","Unrealized gain (loss)"],["U.S. government and agencies","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","8,619","","","$","(5)"],["Municipal","","\u2014","","","\u2014","","","2","","","1","","","6,006","","","(43)"],["Corporate"],["Public","","108","","","(3)","","","\u2014","","","\u2014","","","23,298","","","(478)"],["Privately placed","","1,358","","","(59)","","","141","","","(18)","","","7,907","","","(268)"],["Total corporate","","1,466","","","(62)","","","141","","","(18)","","","31,205","","","(746)"],["Foreign government","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,290","","","4"],["ABS","","\u2014","","","\u2014","","","50","","","7","","","1,745","","","6"],["Total fixed income securities","","$","1,466","","","$","(62)","","","$","193","","","$","(10)","","","$","48,865","","","$","(784)"]] [[/GREPCENT_TABLE]] Municipal bonds, including tax exempt and taxable securities, include general obligations of state and local issuers and revenue bonds. Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers’ credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor. Corporate bonds include publicly traded and privately placed securities. Privately placed securities primarily consist of corporate issued senior debt securities that are negotiated with the borrower or are issued by entities in unregistered form under SEC Rule 144A which allows purchasers to more easily resell these securities under certain conditions. Our $7.91 billion portfolio of privately placed securities, primarily 144A bonds, is diversified by issuer, industry sector and country. The portfolio is made up of 455 issuers. Privately placed corporate obligations may contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered debt securities. Additionally, investments in these securities are made after fundamental analysis of issuers and sectors along with macro and asset class views. Ongoing monitoring includes continuous assessment of operating performance and financial position. Every issue not rated by an independent rating agency is internally rated with a formal rating affirmation at least once a year. Liquidity of securities issued by public entities in unregistered form is similar to public debt markets. Our corporate bond portfolio includes $4.11 billion of below investment grade bonds, $3.39 billion of which are privately placed, primarily 144A bonds. These securities are diversified by issuer and industry sector. The below investment grade corporate bonds portfolio is made up of 317 issuers. We employ fundamental analyses of issuers and sectors along with macro and asset class views to identify investment opportunities. This results in a portfolio with broad exposure to the high yield market with an emphasis on idiosyncratic positions reflective of our views of market conditions and opportunities. Foreign government securities consist of Canadian governmental and provincial securities (all of which are held by our Canadian companies). 68 www.allstate.com 2023 Form 10-K Investments ABS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating. ABS includes collateralized debt obligations, consumer and other ABS. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees or insurance. ABS also includes residential mortgage-backed securities and commercial mortgage-backed securities. For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral may contain fixed interest rates, variable interest rates (such as adjustable rate mortgages), or both fixed and variable rate features. Equity securities of $2.41 billion primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust (“REIT”) equity investments. Certain exchange traded and mutual funds have fixed income securities as their underlying investments. Mortgage loans of $822 million mainly comprise loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification. For further detail on our mortgage loan portfolio, see Note 5 of the consolidated financial statements. Limited partnership interests include $7.15 billion of interests in private equity funds, $1.09 billion of interests in real estate funds and $141 million of interests in other funds as of December 31, 2023. We have commitments to invest additional amounts in limited partnership interests totaling $2.94 billion as of December 31, 2023. [[GREPCENT_TABLE]] [["Private equity limited partnerships by sector"],["(% of carrying value)","","December 31, 2023"],["Industrial","","20.8","%"],["Healthcare","","12.5"],["Information technology","","11.3"],["Consumer discretionary","","10.9"],["Consumer staples","","8.8"],["Other","","35.7"],["Total","","100.0","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Real estate limited partnerships by sector"],["(% of carrying value)","","December 31, 2023"],["Industrial","","28.8","%"],["Residential","","19.1"],["Data centers","","19.0"],["Healthcare","","11.4"],["Consumer staples","","5.1"],["Other","","16.6"],["Total","","100.0","%"]] [[/GREPCENT_TABLE]] Short-term investments of $5.14 billion primarily comprise money market funds, commercial paper, U.S. Treasury bills and other short-term investments, including securities lending collateral of $1.59 billion. Other investments primarily comprise $224 million of bank loans, $709 million of real estate, $119 million of policy loans and $1 million of derivatives as of December 31, 2023. For further detail on our use of derivatives, see Note 7 of the consolidated financial statements. [[GREPCENT_TABLE]] [["Direct real estate investments by sector"],["(% of carrying value)","","December 31, 2023"],["Agriculture","","28.6","%"],["Industrial","","23.7"],["Residential","","20.6"],["Retail","","18.5"],["Other","","8.6"],["Total","","100.0","%"]] [[/GREPCENT_TABLE]] The Allstate Corporation 69 2023 Form 10-K Investments [[GREPCENT_TABLE]] [["Unrealized net capital gains (losses)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["U.S. government and agencies","","$","(5)","","","$","(225)"],["Municipal","","(43)","","","(290)"],["Corporate","","(746)","","","(2,299)"],["Foreign government","","4","","","(40)"],["ABS","","6","","","(31)"],["Fixed income securities","","(784)","","","(2,885)"],["Short-term investments","","(1)","","","(1)"],["Derivatives","","(2)","","","(3)"],["Equity method of accounting (\u201cEMA\u201d) limited partnerships","","(4)","","","2"],["Unrealized net capital gains and losses, pre-tax","","$","(791)","","","$","(2,887)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Gross unrealized gains (losses) on fixed income securities by type and sector"],["","","As of December 31, 2023"],["","","Amortized cost, net","","Gross unrealized","","Fair value"],["($ in millions)","","","Gains","","Losses"],["Corporate"],["Banking (1)","","$","4,189","","","$","31","","","$","(135)","","","$","4,085"],["Basic industry","","1,007","","","7","","","(42)","","","972"],["Capital goods","","2,800","","","33","","","(97)","","","2,736"],["Communications","","2,767","","","33","","","(115)","","","2,685"],["Consumer goods (cyclical and non-cyclical)","","6,813","","","93","","","(251)","","","6,655"],["Financial services","","2,111","","","17","","","(88)","","","2,040"],["Energy","","2,645","","","35","","","(63)","","","2,617"],["Technology","","2,800","","","21","","","(153)","","","2,668"],["Transportation","","1,104","","","13","","","(45)","","","1,072"],["Utilities","","5,330","","","109","","","(123)","","","5,316"],["Other","","385","","","5","","","(31)","","","359"],["Total corporate fixed income portfolio","","31,951","","","397","","","(1,143)","","","31,205"],["U.S. government and agencies","","8,624","","","114","","","(119)","","","8,619"],["Municipal","","6,049","","","109","","","(152)","","","6,006"],["Foreign government","","1,286","","","17","","","(13)","","","1,290"],["ABS","","1,739","","","13","","","(7)","","","1,745"],["Total fixed income securities","","$","49,649","","","$","650","","","$","(1,434)","","","$","48,865"]] [[/GREPCENT_TABLE]] (1) As of December 31, 2023, we have exposure of approximately $90 million to regional banks primarily through investment grade corporate bonds. 70 www.allstate.com 2023 Form 10-K Investments [[GREPCENT_TABLE]] [["Gross unrealized gains (losses) on fixed income securities by type and sector"],["","","As of December 31, 2022"],["","","Amortized cost, net","","Gross unrealized","","Fair value"],["($ in millions)","","","Gains","","Losses"],["Corporate"],["Banking","","$","5,153","","","$","16","","","$","(314)","","","$","4,855"],["Basic industry","","1,019","","","2","","","(75)","","","946"],["Capital goods","","2,288","","","3","","","(197)","","","2,094"],["Communications","","2,422","","","1","","","(261)","","","2,162"],["Consumer goods (cyclical and non-cyclical)","","5,984","","","6","","","(531)","","","5,459"],["Financial services","","2,243","","","4","","","(176)","","","2,071"],["Energy","","2,364","","","2","","","(156)","","","2,210"],["Technology","","3,137","","","4","","","(298)","","","2,843"],["Transportation","","959","","","1","","","(73)","","","887"],["Utilities","","2,633","","","7","","","(203)","","","2,437"],["Other","","360","","","\u2014","","","(61)","","","299"],["Total corporate fixed income portfolio","","28,562","","","46","","","(2,345)","","","26,263"],["U.S. government and agencies","","8,123","","","6","","","(231)","","","7,898"],["Municipal","","6,500","","","36","","","(326)","","","6,210"],["Foreign government","","997","","","\u2014","","","(40)","","","957"],["ABS","","1,188","","","4","","","(35)","","","1,157"],["Total fixed income securities","","$","45,370","","","$","92","","","$","(2,977)","","","$","42,485"]] [[/GREPCENT_TABLE]] In general, the gross unrealized losses are related to an increase in market yields, which may include increased risk-free interest rates and wider credit spreads since the time of initial purchase. Similarly, gross unrealized gains reflect a decrease in market yields since the time of initial purchase. [[GREPCENT_TABLE]] [["Equity securities by sector"],["($ in millions)","","December 31, 2023","","December 31, 2022"],["","Cost","","Over (under) cost","","Fair value","","Cost","","Over (under) cost","","Fair value"],["Banking","","$","30","","","$","38","","","$","68","","","$","135","","","$","56","","","$","191"],["Basic Industry","","9","","","2","","","11","","","57","","","16","","","73"],["Capital Goods","","77","","","(27)","","","50","","","196","","","3","","","199"],["Energy","","32","","","3","","","35","","","110","","","44","","","154"],["Funds"],["Equities","","258","","","12","","","270","","","904","","","(19)","","","885"],["Fixed income","","1,038","","","(15)","","","1,023","","","1,067","","","(84)","","","983"],["Other","","58","","","5","","","63","","","3","","","\u2014","","","3"],["Total funds","","1,354","","","2","","","1,356","","","1,974","","","(103)","","","1,871"],["Transportation","","16","","","$","23","","","39","","","48","","","19","","","67"],["Utilities","","59","","","1","","","60","","","67","","","12","","","79"],["Other (1)","","667","","","125","","","792","","","1,666","","","267","","","1,933"],["Total equity securities","","$","2,244","","","$","167","","","$","2,411","","","$","4,253","","","$","314","","","$","4,567"]] [[/GREPCENT_TABLE]] (1) Other is comprised of consumer goods, technology, REITs, financial services and communications sectors. The Allstate Corporation 71 2023 Form 10-K Investments [[GREPCENT_TABLE]] [["Net investment income"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Fixed income securities","","$","1,761","","","$","1,255","","","$","1,148"],["Equity securities","","75","","","132","","","100"],["Mortgage loans","","35","","","33","","","43"],["Limited partnership interests","","499","","","985","","","1,973"],["Short-term investments","","253","","","82","","","5"],["Other investments","","169","","","162","","","195"],["Investment income, before expense","","2,792","","","2,649","","","3,464"],["Investment expense"],["Investee level expenses","","(79)","","","(68)","","","(60)"],["Securities lending expense","","(93)","","","(30)","","","\u2014"],["Operating costs and expenses","","(142)","","","(148)","","","(111)"],["Total investment expense","","(314)","","","(246)","","","(171)"],["Net investment income","","$","2,478","","","$","2,403","","","$","3,293"],["Property-Liability","","$","2,218","","","$","2,190","","","$","3,118"],["Protection Services","","73","","","48","","","43"],["Allstate Health and Benefits","","82","","","69","","","74"],["Corporate and Other","","105","","","96","","","58"],["Net investment income","","$","2,478","","","$","2,403","","","$","3,293"],["Market-based","","$","2,219","","","$","1,566","","","$","1,429"],["Performance-based","","573","","","1,083","","","2,035"],["Investment income, before expense","","$","2,792","","","$","2,649","","","$","3,464"]] [[/GREPCENT_TABLE]] Net investment income increased 3.1% or $75 million in 2023 compared to 2022, primarily due to higher market-based results driven by reinvesting into fixed income securities with higher yields and to a lesser extent, the reinvestment of proceeds from sales of equity securities into fixed income securities, partially offset by lower performance-based results, mainly from limited partnerships. [[GREPCENT_TABLE]] [["Performance-based investment income"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Private equity","","$","414","","","$","798","","","$","1,660"],["Real estate","","159","","","285","","","375"],["Total performance-based income before investee level expenses","","$","573","","","$","1,083","","","$","2,035"],["Investee level expenses (1)","","(74)","","","(59)","","","(55)"],["Total performance-based income","","$","499","","","$","1,024","","","$","1,980"]] [[/GREPCENT_TABLE]] (1)Investee level expenses include asset level operating expenses on directly held real estate and other consolidated investments reported in investment expense. Performance-based investment income decreased 51.3% or $525 million in 2023 compared to 2022, primarily due to lower valuation increases compared to the prior year and lower income from the sales of underlying investments. Performance-based investment results and income can vary significantly between periods and are influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales. The company typically employs a lag in recording and recognizing changes in valuations of limited partnership interests due to the availability of investee financial statements. 72 www.allstate.com 2023 Form 10-K Investments [[GREPCENT_TABLE]] [["Components of net gains (losses) on investments and derivatives and the related tax effect"],["","","For the year December 31,"],["($ in millions)","","2023","","2022","","2021"],["Sales","","$","(433)","","","$","(832)","","","$","578"],["Credit losses","","(99)","","","(54)","","","(42)"],["Valuation change of equity investments - appreciation (decline):"],["Equity securities","","239","","","(772)","","","544"],["Equity fund investments in fixed income securities","","43","","","(128)","","","(24)"],["Limited partnerships (1)","","34","","","(160)","","","(21)"],["Total valuation of equity investments","","316","","","(1,060)","","","499"],["Valuation change and settlements of derivatives","","(84)","","","874","","","49"],["Net gains (losses) on investments and derivatives, pre-tax","","(300)","","","(1,072)","","","1,084"],["Income tax benefit (expense)","","63","","","230","","","(237)"],["Net gains (losses) on investments and derivatives, after-tax","","$","(237)","","","$","(842)","","","$","847"],["Property-Liability","","$","(230)","","","$","(688)","","","$","798"],["Protection Services","","\u2014","","","(40)","","","19"],["Allstate Health and Benefits","","2","","","(35)","","","5"],["Corporate and Other","","(9)","","","(79)","","","25"],["Net gains (losses) on investments and derivatives, after-tax","","$","(237)","","","$","(842)","","","$","847"],["Market-based","","$","(352)","","","$","(1,083)","","","$","917"],["Performance-based","","52","","","11","","","167"],["Net gains (losses) on investments and derivatives, pre-tax","","$","(300)","","","$","(1,072)","","","$","1,084"]] [[/GREPCENT_TABLE]] (1)Relates to limited partnerships where the underlying assets are predominately public equity securities. Net losses on investments and derivatives in 2023 related primarily to losses on sales, partially offset by higher valuation on equity investments. Net losses on investments and derivatives in 2022 related primarily to decreased valuation on equity investments and losses on sales of fixed income securities, partially offset by increased valuation change and settlements of derivatives. Net losses on sales in 2023 and 2022 related primarily to sales of fixed income securities in connection with ongoing portfolio management. Net losses on valuation change and settlements of derivatives of $84 million in 2023 primarily related to net losses on equity futures used to manage equity exposure, losses on credit default swaps used to reduce credit risk and losses on foreign currency contracts used to manage foreign currency risk. Net gains in 2022 primarily comprised of gains on interest rate futures used to mitigate the impact of increases in interest rates, gains on foreign currency contracts due to the strengthening of the U.S. dollar and gains on equity futures used to manage exposure to equity markets. [[GREPCENT_TABLE]] [["Net gains (losses) on performance-based investments and derivatives"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Sales","","$","76","","","$","29","","","$","111"],["Credit losses","","(68)","","","(30)","","","(43)"],["Valuation change of equity investments","","58","","","(35)","","","71"],["Valuation change and settlements of derivatives","","(14)","","","47","","","28"],["Total performance-based","","$","52","","","$","11","","","$","167"]] [[/GREPCENT_TABLE]] Net gains on performance-based investments and derivatives in 2023 primarily related to gains on sales and increased valuation of equity investments, partially offset by increased credit losses. 2022 primarily related to increased valuation change and settlements of derivatives and gains on sales, partially offset by decreased valuation of equity investments. The Allstate Corporation 73 2023 Form 10-K Market Risk Market Risk Market risk is the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices or foreign currency exchange rates. Adverse changes to these rates and prices may occur due to changes in fiscal policy, inflation, the economic climate, the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants or changes in market perceptions of credit worthiness or risk tolerance. Our primary market risk exposures are to changes in interest rates, credit spreads and equity prices, and to a lesser extent, foreign currency exchange rates. We also have direct and indirect exposure to commodity price changes through our diversified investments in agriculture, infrastructure and energy primarily held in limited partnership interests and consolidated subsidiaries. The active management of market risk is integral to our results of operations. We may use the following approaches to manage exposure to market risk within defined tolerance ranges: 1)Rebalance existing asset or liability portfolios 2)Change the type of investments purchased in the future 3)Use derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased Overview  In formulating and implementing guidelines for investing funds, we seek to earn attractive risk-adjusted returns that enhance our ability to offer competitive prices to customers while contributing to stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are informed by underlying risks. Investment policies define the overall framework for managing market and other investment risks, including accountability and controls over risk management activities. Subsidiaries that conduct investment activities follow policies that have been approved by their respective boards of directors and which specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile and regulatory requirements of the subsidiary. Executive oversight of investment activities is conducted primarily through the subsidiaries’ boards of directors and legal entity investment committees. The Enterprise Risk and Return Council (“ERRC”) oversees the aggregate risk of Allstate and its subsidiaries. Working in conjunction with the board or the investment committee of each subsidiary, as applicable, the ERRC evaluates the risk tolerance of each subsidiary and determines the aggregate risk tolerance of the enterprise. We use widely-accepted quantitative and qualitative approaches to measure, monitor and manage market risk. We evaluate our market risk exposure using multiple measures including but not limited to: [[GREPCENT_TABLE]] [["\u2022 Duration, a measure of the price sensitivity of assets and liabilities to changes in interest rates"],["\u2022 Value-at-risk, a statistical estimate that the change in fair value of a portfolio will exceed a certain amount over a given time horizon, at a specified probability"],["\u2022 Scenario analysis, an estimate of the potential changes in the fair value of a portfolio that could occur under hypothetical market conditions defined by changes to multiple market risk factors: interest rates, credit spreads, equity prices or currency exchange rates"],["\u2022 Sensitivity analysis, an estimate of the potential changes in the fair value of a portfolio that could occur using hypothetical shocks to a market risk factor The selection of measures used in our sensitivity analysis should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event"]] [[/GREPCENT_TABLE]] In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of these measures. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments may differ between our products and therefore affect investment decisions and risk parameters. Our actual experience may differ from the results of the sensitivity measurements provided below. Interest rate risk is the risk that we will incur a loss due to adverse changes in risk-free interest rates. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets. Changes in interest rates can have favorable and unfavorable effects on our results. For example, increases in rates can improve investment income, but decrease the fair value of our fixed income securities portfolio which may result in sales of assets at losses. Decreases in rates could increase the fair value of our fixed income securities portfolio while decreasing future investment income due to reinvestment at lower market yields and accelerated pay-downs and prepayments of certain investments. 74 www.allstate.com 2023 Form 10-K Market Risk For our issued debt, we monitor market interest rates and evaluate refinancing opportunities as maturity dates approach. To mitigate this risk, we ladder the maturity dates of our debt. For our issued noncumulative perpetual preferred stock, we monitor market dividend rates and evaluate opportunities to redeem or refinance on or after specified dates. For further detail regarding our debt and our preferred stock, see Note 13 of the consolidated financial statements and the Capital Resources and Liquidity section of this Item. Our assessment of interest rate risk reflects the effect of changing risk-free interest rates on interest-sensitive assets, including investments with callable or prepayable features. As of December 31, 2023, the fixed income portfolio duration(1) was 4.8 compared to 3.4 as of December 31, 2022. [[GREPCENT_TABLE]] [["Change in fair value of interest-sensitive assets (1) (2)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["-100 bps change","","$","2,530","","","$","1,549"],["+100 bps change","","(2,314)","","","(1,471)"],["+200 bps change","","(4,410)","","","(2,864)"]] [[/GREPCENT_TABLE]] (1)Includes the effects of interest rate derivatives and any call features associated with the securities. (2)Represents an immediate, parallel increase or decrease based on information and assumptions used in the duration calculations. To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. These calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates or large changes in interest rates. Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads (“spreads”). A credit spread is the additional yield on fixed income securities and loans above the risk-free rate that market participants require to compensate them for assuming credit, liquidity or prepayment risks. This risk arises from many of our primary activities, as we invest substantial funds in spread-sensitive fixed income assets. We assess credit spread risk by evaluating spread duration which measures the price sensitivity of the assets to changes in spreads. As of December 31, 2023, the spread duration(1) was 4.7 compared to 4.0 as of December 31, 2022. [[GREPCENT_TABLE]] [["Change in fair value of spread-sensitive assets (1) (2)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["+100 bps change","","$","(1,898)","","","$","(1,462)"]] [[/GREPCENT_TABLE]] (1)Includes the effects of credit derivatives and any call features associated with the securities. (2)Represents an immediate, parallel increase based on information and assumptions used in the spread duration calculations. Equity price risk is the risk that we will incur losses due to adverse changes in the levels of equity indices, the value of individual stocks, or private market valuations related to our limited partnership interests. Equity investments(1) As of December 31, 2023, we held $1.52 billion in equity investments that comprise equity securities, excluding those with fixed income securities as their underlying investments, and including limited partnership interests where the underlying assets are predominately public equity securities, compared to $4.06 billion as of December 31, 2022. [[GREPCENT_TABLE]] [["Change in fair value of equity investments (1) (2)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["-10% change in equity valuations","","$","(127)","","","$","(402)"]] [[/GREPCENT_TABLE]] (1)Includes the effects of equity derivatives. (2)Represents an immediate change in equity valuations for investments. We periodically use derivatives to reduce equity price risk or to adjust our equity risk profile. Derivatives provide an offset to changes in equity market values. Limited partnership interests As of December 31, 2023, we held $8.24 billion in limited partnership interests excluding those limited partnership interests where the underlying assets are predominately public equity securities compared to $7.64 billion as of December 31, 2022. These illiquid investments are primarily comprised of private equity and real estate funds, with valuation changes typically reflecting the idiosyncratic performance of the underlying asset. [[GREPCENT_TABLE]] [["Change in fair value of limited partnership interests (1)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["-10% change in private market valuations","","$","(824)","","","$","(764)"]] [[/GREPCENT_TABLE]] (1)Represents an immediate change in the value of limited partnership interests. For limited partnership interests, quarterly changes in fair values may not be highly correlated to equity indices in the short term and changes in value of these investments are generally recognized on a three-month delay due to the availability of the related investee financial statements. The Allstate Corporation 75 2023 Form 10-K Market Risk Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including common stocks, limited partnership interests, and our Canada, Northern Ireland, Europe and India operations. We use foreign currency derivative contracts to partially offset this risk. As of December 31, 2023, we had $3.56 billion in foreign currency denominated investments, including the effects of foreign currency derivative contracts, and $1.25 billion net investment in our foreign subsidiaries, primarily related to our Canada operations. These amounts were $3.10 billion and $1.14 billion, respectively, as of December 31, 2022. [[GREPCENT_TABLE]] [["Change in fair value of foreign currency denominated investments (1)"],["","","As of December 31,"],["($ in millions)","","2023","","2022"],["-10% change in foreign currency exchange rates","","$","(356)","","","$","(310)"],["-10% change in net investments in foreign subsidiaries","","(125)","","","(114)"]] [[/GREPCENT_TABLE]] (1)Represents an immediate, simultaneous depreciation in each of the foreign currency exchange rates to which we are exposed compared to the U.S. dollar, including the effects of foreign currency derivative contracts and excludes the offset from liabilities in foreign currencies. 76 www.allstate.com 2023 Form 10-K Capital Resources and Liquidity Capital Resources and Liquidity Capital resources consist of shareholders’ equity and debt, representing funds deployed or available to be deployed to support business operations or for general corporate purposes. [[GREPCENT_TABLE]] [["Capital resources"],["","","As of December 31,"],["($ in millions)","","2023","","2022","","2021"],["Preferred stock, common stock, treasury stock, retained income and other shareholders\u2019 equity items","","$","18,470","","","$","19,880","","","$","24,518"],["Accumulated other comprehensive income (loss)","","(700)","","","(2,392)","","","426"],["Total Allstate shareholders\u2019 equity","","17,770","","","17,488","","","24,944"],["Debt","","7,942","","","7,964","","","7,976"],["Total capital resources","","$","25,712","","","$","25,452","","","$","32,920"],["Ratio of debt to Allstate shareholders\u2019 equity","","44.7","%","","45.5","%","","32.0","%"],["Ratio of debt to capital resources","","30.9","%","","31.3","%","","24.2","%"]] [[/GREPCENT_TABLE]] Allstate shareholders’ equity increased in 2023, primarily due to lower unrealized net capital losses on investments, partially offset by dividends paid to shareholders, common share repurchases and a net loss. In 2023, we paid dividends of $925 million and $107 million related to our common and preferred shares, respectively. Allstate shareholders’ equity decreased in 2022, primarily due to net unrealized capital losses on investments in 2022 compared to gains in 2021, common share repurchases, a net loss and dividends paid to shareholders. In 2022, we paid dividends of $926 million and $105 million related to our common and preferred shares, respectively. Repayment of debt On March 29, 2023, the Company repaid, at maturity, $250 million of Floating Rate Senior Notes that bear interest at a floating rate equal to three-month London Interbank Offered Rate (“LIBOR”) plus 0.63% per year. On June 15, 2023, the Company repaid, at maturity, $500 million of 3.15% Senior Notes. Issuance of debt On March 31, 2023, the Company issued $750 million of 5.25% Senior Notes due 2033. Interest on the Senior Notes is payable semi-annually in arrears on March 30 and September 30 of each year, beginning on September 30, 2023. The Senior Notes are redeemable at any time at the applicable redemption price prior to the maturity date. The net proceeds of this issuance were used to repay the $500 million senior debt maturity and for general corporate purposes. Redemption of preferred stock On April 17, 2023, the Company redeemed all 23,000 shares of Fixed Rate Noncumulative Preferred Stock, Series G, par value $1.00 per share and liquidation preference $25,000 per share, and the corresponding depositary shares for a total redemption payment of $575 million. The Company recognized $18 million of original issuance costs in preferred stock dividends on the Consolidated Statements of Operations and Consolidated Statements of Shareholders’ Equity. Issuance of preferred stock On May 18, 2023, the Company issued 24,000 shares of Fixed Rate Noncumulative Preferred Stock, Series J, par value $1.00 per share and liquidation preference amount of $25,000 per share, and the corresponding depositary shares for gross proceeds of $600 million. The preferred stock is perpetual and has no maturity date. The preferred stock is redeemable at the Company’s option in whole or in part, on or after July 15, 2028 at a redemption price of $25,000 per share, plus declared and unpaid dividends. Prior to July 15, 2028, the preferred stock is redeemable at the Company’s option, in whole but not in part, within 90 days of the occurrence of certain rating agency events at a redemption price equal to $25,500 per share, plus declared and unpaid dividends, or in whole but not in part, within 90 days after the occurrence of a regulatory capital event, at a redemption price equal to $25,000 per share, plus declared and unpaid dividends. Common share repurchases In July 2023, we suspended repurchasing shares under the current authorization. As of December 31, 2023, there was $472 million remaining of the $5.00 billion program. The authorization for the share repurchase program expires on March 31, 2024. During 2023, we repurchased 2.8 million common shares, or 1.1% of total common shares outstanding as of December 31, 2022, for $330 million. Since 1995, we have acquired 792 million shares of our common stock at a cost of $43.18 billion, primarily as part of various stock repurchase programs. We have reissued 156 million common shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition of American Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total common shares outstanding has decreased by 636 million shares or 70.8%, primarily due to our repurchase programs. Common shareholder dividends On January 3, 2023, April 3, 2023, July 3, 2023 and October 2, 2023, we paid a common shareholder dividend of $0.85, $0.89, $0.89 and $0.89, respectively. On November 15, 2023, we declared a common shareholder dividend of $0.89 payable on January 2, 2024. The Allstate Corporation 77 2023 Form 10-K Capital Resources and Liquidity Financial ratings and strength [[GREPCENT_TABLE]] [["Senior long-term debt, commercial paper and insurance financial strength ratings"],["","","As of December 31, 2023"],["","","Moody\u2019s","","S&P Global Ratings","","A.M. Best"],["The Allstate Corporation (debt)","","A3","","BBB+","","a-"],["The Allstate Corporation (short-term issuer)","","P-2","","A-2","","AMB-1"],["Allstate Insurance Company (insurance financial strength)","","Aa3","","A+","","A+"]] [[/GREPCENT_TABLE]] Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage. The preferred stock and subordinated debentures are viewed as having a common equity component by certain rating agencies and are given equity credit up to a pre-determined limit in our capital structure as determined by their respective methodologies. These respective methodologies consider the existence of certain terms and features in the instruments such as the noncumulative dividend feature in the preferred stock. The Allstate Corporation (the “Corporation”) and Allstate Insurance Company (“AIC”) In March 2023, Moody’s affirmed The Allstate Corporation’s (the “Corporation”) senior debt and short-term issuer ratings of A3 and P-2, respectively, and AIC’s insurance financial strength rating of Aa3. The outlook for the ratings was changed from stable to negative. In August 2023, A.M. Best downgraded the Corporation’s senior debt and short-term issuer ratings to a- and AMB-1, respectively, and affirmed AIC’s insurance financial strength rating of A+. The outlook for the ratings is stable. In August 2023, S&P downgraded the Corporation’s senior debt rating to BBB+ and affirmed the short-term issuer rating of A-2, and downgraded AIC’s insurance financial strength rating to A+. The outlook for the ratings changed from negative to stable. American Heritage Life (“AHL”) In August 2023, A.M. Best affirmed the insurance financial strength rating of A+ for AHL. The outlook for the rating is stable. Other property and casualty companies We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty insurance that maintain separate group ratings. The ratings of these groups are influenced by the risks that relate specifically to each group. Many mortgage companies require property owners to have insurance from an insurance carrier with a secure financial strength rating from an accredited rating agency. In August 2023, A.M. Best affirmed the insurance financial strength rating of A of the members of Allstate New Jersey Group (Allstate New Jersey Insurance Company, Allstate New Jersey Property and Casualty Insurance Company, Encompass Insurance Company of New Jersey, Encompass Property and Casualty Insurance Company of New Jersey, Esurance Insurance Company of New Jersey). The outlook for the rating changed from stable to negative. ANJ writes auto and homeowners insurance in New Jersey. Allstate New Jersey Insurance Company also has a financial strength rating of A” from Demotech, which was affirmed in December 2023. In August 2023, A.M. Best affirmed the insurance financial strength rating of A+ for North Light, our excess and surplus lines carrier. The outlook for the North Light rating is stable. In August 2023, A.M. Best downgraded the insurance financial strength ratings of the members of Castle Key Group (Castle Key Insurance Company, Castle Key Indemnity Company, Encompass Floridian Insurance Company, Encompass Floridian Indemnity Company) to B. The outlook for the ratings changed from negative to stable. CKIC also has a financial strength rating of A’ from Demotech that was affirmed in December 2023. ANJ and North Light do not have support agreements with AIC. Allstate’s domestic property and casualty and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Statutory surplus is a measure that is often used as a basis for determining dividend paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in determining their ratings. The property and casualty business is comprised of 59 insurance companies as of December 31, 2023, each of which has individual company dividend limitations. As of December 31, 2023, total statutory surplus is $14.56 billion compared to $15.28 billion as of December 31, 2022. Property and casualty subsidiaries surplus was $14.25 billion as of December 31, 2023, compared to $15.00 billion as of December 31, 2022. Life, accident and health insurance subsidiaries surplus was $310 million as of December 31, 2023, compared to $279 million as of December 31, 2022. The NAIC has developed financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each 78 www.allstate.com 2023 Form 10-K Capital Resources and Liquidity with defined “usual ranges”. Additional regulatory scrutiny may occur if a company’s ratios fall outside the usual ranges for four or more of the ratios. Nine of our domestic insurance companies have four or more ratios outside the usual ranges due to higher written premiums and net losses in 2023. Liquidity sources and uses Our potential sources and uses of funds principally include the following activities below. [[GREPCENT_TABLE]] [["Activities for potential sources of funds"],["","","Property-Liability","","Protection Services","","Allstate Health and Benefits","","Corporateand Other"],["Receipt of insurance premiums","","\u00fc","","\u00fc","","\u00fc"],["Recurring service fees","","\u00fc","","\u00fc","","\u00fc"],["Contractholder fund deposits","","","","","","\u00fc"],["Reinsurance and indemnification program recoveries","","\u00fc","","\u00fc","","\u00fc"],["Receipts of principal, interest and dividends on investments","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Sales of investments","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Funds from securities lending, commercial paper and line of credit agreements","","\u00fc","","","","","","\u00fc"],["Intercompany loans","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Capital contributions from parent (1)","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Dividends or return of capital from subsidiaries","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Tax refunds/settlements","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Funds from periodic issuance of additional securities","","","","","","","","\u00fc"],["Receipt of intercompany settlements related to employee benefit plans","","","","","","","","\u00fc"]] [[/GREPCENT_TABLE]] (1)Capital support is generally at management’s discretion unless contractual commitments are in place. [[GREPCENT_TABLE]] [["Activities for potential uses of funds"],["","","Property-Liability","","Protection Services","","Allstate Health and Benefits","","Corporateand Other"],["Payment of claims and related expenses","","\u00fc","","\u00fc"],["Payment of contract benefits, surrenders and withdrawals","","","","","","\u00fc"],["Reinsurance cessions and indemnification program payments","","\u00fc","","\u00fc","","\u00fc"],["Operating costs and expenses","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Purchase of investments","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Repayment of securities lending, commercial paper and line of credit agreements","","\u00fc","","","","","","\u00fc"],["Payment or repayment of intercompany loans","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Capital contributions to subsidiaries","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Dividends or return of capital to shareholders/parent company","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Tax payments/settlements","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Common share repurchases","","","","","","","","\u00fc"],["Debt service expenses and repayment","","\u00fc","","","","","","\u00fc"],["Payments related to employee benefit plans","","\u00fc","","\u00fc","","\u00fc","","\u00fc"],["Payments for acquisitions","","\u00fc","","\u00fc","","\u00fc","","\u00fc"]] [[/GREPCENT_TABLE]] Contractual obligations and commitments We have short-term and long-term contractual obligations and commitments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity. Long-term obligations include known contractual commitments that require cash needs beyond 12 months. Short-term contractual obligations are typically settled with cash or short-term investments and operating cash flows. Most of these obligations are paid within one year. These include unconditional purchase obligations, other liabilities and accrued expenses, including liabilities for collateral and operating leases, and net unrecognized tax benefits. The Allstate Corporation 79 2023 Form 10-K Capital Resources and Liquidity We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility. As of December 31, 2023, we held $16.20 billion of cash, U.S. government and agencies fixed income securities, public equity securities and short-term investments, which we would expect to be able to liquidate within one week. In addition, we regularly estimate how much of the total portfolio, which includes high quality corporate fixed income and municipal holdings, can be reasonably liquidated within one quarter. These estimates are subject to considerable uncertainty associated with evolving market conditions. As of December 31, 2023, cash and estimated liquidity available within one quarter, under normal market conditions and at current market prices, was $23.52 billion. Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a decrease in market liquidity, dramatic changes in security pricing, a cybersecurity breach, a downgrade in our senior long-term debt ratings to non-investment grade status, or a downgrade in AIC’s financial strength ratings. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities. The Corporation is party to an Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) with certain subsidiaries, which includes, but is not limited to AIC. The Liquidity Agreement allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. AIC serves as a lender and borrower, certain other subsidiaries serve only as borrowers, and the Corporation serves only as a lender. The maximum amount of potential funding under each of these agreements is $1.00 billion. In addition to the Liquidity Agreement, the Corporation also has an intercompany loan agreement with certain of its subsidiaries, which includes, but is not limited to, AIC. The amount of intercompany loans available to the Corporation’s subsidiaries is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. Parent company capital capacity  At the parent holding company level, we have deployable assets totaling $3.41 billion as of December 31, 2023, primarily comprised of cash and short-term, fixed income and equity securities that are generally saleable within one quarter. The earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation. The payment of dividends by AIC to The Allstate Corporation is limited by Illinois insurance law to formula amounts based on statutory net income and statutory surplus, as well as the timing and amount of dividends paid in the preceding twelve months. The maximum amount of dividends that AIC will be able to pay, without prior Illinois Department of Insurance approval, at a given point in time in 2024, based on 10% of actual 2023 statutory surplus, is estimated at $1.20 billion, less dividends paid during the preceding twelve months measured at that point in time. For the year ended December 31, 2023, the maximum amount of dividends allowed to be paid by AIC was $1.22 billion. No dividends were paid in 2023. Notification and approval of intercompany lending activities are also required by the Illinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus. These holding company assets and subsidiary dividends provide funds for the parent company’s fixed charges and other corporate purposes. Intercompany dividends were paid in 2023, 2022 and 2021 between the following companies: AIC, Allstate Insurance Holdings, LLC (“AIH”), the Corporation, ALIC, American Heritage Life Insurance Company (“AHL”) and Allstate Financial Insurance Holdings Corporation (“AFIHC”). [[GREPCENT_TABLE]] [["Intercompany dividends"],["($ in millions)","","2023","","2022","","2021"],["AIC to AIH","","$","\u2014","","","$","4,203","","","$","5,946"],["AIH to the Corporation","","\u2014","","","4,205","","","5,586"],["ALIC to AIC","","\u2014","","","\u2014","","","1,642"],["AHL to AFIHC","","40","","","110","","","90"],["AFIHC to the Corporation","","50","","","112","","","128"]] [[/GREPCENT_TABLE]] There were no capital contributions paid by the Corporation to AIC in 2023, 2022 or 2021. Dividends may not be paid or declared on our common stock and shares of common stock may not be repurchased unless the full dividends for the latest completed dividend period on our preferred stock have been declared and paid or provided for. The terms of our outstanding subordinated debentures also prohibit us from declaring or paying any dividends or distributions on our common or preferred stock or redeeming, purchasing, acquiring, or making liquidation payments on our common stock or preferred stock if we have elected to defer interest payments on the subordinated debentures, subject to certain limited exceptions. In 2023, we did not defer interest payments on the subordinated debentures. 80 www.allstate.com 2023 Form 10-K Capital Resources and Liquidity Additional resources to support liquidity are as follows: •The Corporation and AIC have access to a $750 million unsecured revolving credit facility that is available for short-term liquidity requirements. In November 2022, the maturity date of this facility was extended to November 2027 and the U.S. dollar benchmark rate was amended from London Interbank Offered Rate to Secured Overnight Financing Rate. The facility is fully subscribed among 11 lenders with the largest commitment being $95 million. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing, subject to the lenders’ commitment. This facility has a financial covenant requiring that we not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio was 23.4% as of December 31, 2023. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of our senior unsecured, unguaranteed long-term debt. There were no borrowings under the credit facility during 2023. •To cover short-term cash needs, the Corporation has access to a commercial paper facility with a borrowing capacity limited to any undrawn credit facility balance up to $750 million. •As of December 31, 2023, there were no balances outstanding for the credit facility or the commercial paper facility and therefore the remaining borrowing capacity was $750 million under each facility. •The Corporation has access to a universal shelf registration statement with the Securities and Exchange Commission that expires in 2024. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 638 million shares of treasury stock as of December 31, 2023), preferred stock, depository shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements. Long-term contractual obligations Defined benefit pension plans and other postretirement benefit plans (“OPEB”) Pension plan obligations within the next 12 months represent our planned contributions to certain unfunded non-qualified plans where the benefit obligation exceeds the assets. Obligations beyond 12 months are projected based on the average remaining service period using the current underfunded status of the plans. The OPEB plans’ obligations are estimated based on the expected benefits to be paid. See Note 18 of the consolidated financial statements for further information. Reserves for property and casualty insurance claims and claims expense represent estimated amounts necessary to settle all outstanding claims, including claims that have been IBNR as of the balance sheet date. Estimated timing of payments for reserves is based on our historical experience and our expectation of future payment patterns. The ultimate cost of losses may vary materially from recorded amounts that are our best estimates. See Note 9 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information. Reserve for future policy benefits and contractholder funds We estimate the present value of cash payments to be made to contractholders and policyholders. We are currently making payments for contracts where the timing of a portion or all of the payments has been determined by the contract. Contracts such as voluntary accident and health insurance, interest-sensitive life and traditional life insurance involve payment obligations where a portion or all of the amount and timing of future payments is uncertain. We have estimated the timing of payments related to these contracts based on historical experience and our expectation of future payment patterns. Uncertainties relating to these liabilities include mortality, morbidity, customer lapse and withdrawal activity, estimated additional deposits for interest-sensitive life contracts, and renewal premium for life policies, which may significantly impact both the timing and amount of future payments. See Note 10 of the consolidated financial statements for further information. Contractual commitments represent investment commitments such as private placements, limited partnership interests and other loans. Limited partnership interests are typically funded over the commitment period which is shorter than the contractual expiration date of the partnership and as a result, the actual timing of the funding may vary. We have agreements in place for services we conduct, generally at cost, between subsidiaries relating to insurance, reinsurance, loans and capitalization. All material intercompany transactions have been appropriately eliminated in consolidation. Intercompany transactions among insurance subsidiaries and affiliates have been approved by the appropriate departments of insurance as required. For a more detailed discussion of our off-balance sheet arrangements, see Note 7 of the consolidated financial statements. The Allstate Corporation 81 2023 Form 10-K Enterprise Risk and Return Management Enterprise Risk and Return Management Allstate is subject to significant risks as an insurer and a provider of protection products and services. These risks are discussed in more detail in the Risk Factors section of this document. We regularly identify, measure, manage, monitor and report all significant risks. Major categories of enterprise risk are strategic, insurance, investment, financial, operational and culture. Allstate manages these risks through an Enterprise Risk and Return Management (“ERRM”) framework that includes governance, processes, culture, and activities that are performed on an integrated, enterprise-wide basis, following our risk and return principles. Our legal and capital structures are designed to manage capital and solvency on a legal entity basis. Our risk-return principles define how we operate and guide risk and return decision making. These principles state that our priority is to maintain a strong foundation by protecting solvency, complying with laws and acting with integrity. We strive to build strategic value and optimize risk and return. Governance ERRM governance includes board oversight, an executive management committee, and enterprise and market-facing business chief risk officers. •The Allstate Corporation Board of Directors (“Allstate Board”) has overall responsibility for oversight of management’s design and implementation of ERRM. •The Risk and Return Committee (“RRC”) of the Allstate Board oversees effectiveness of the ERRM program, governance structure and risk-related decision-making, while focusing on the Company’s overall risk profile. •The Audit Committee oversees the effectiveness of internal controls over financial reporting, disclosure controls and procedures as well as management’s risk control framework and cybersecurity program. •The ERRC directs ERRM activities by establishing risk and return targets, determining economic capital levels and monitoring integrated strategies and actions from an enterprise risk and return perspective. The ERRC consists of Allstate’s chief executive officer, chief financial officer, chief risk officer, chief legal officer and other senior leaders. •Other key committees work with the ERRC to direct ERRM activities, including the Operating Committee, the Operational Risk and Return Council, the Information Security Council, the Internal Compliance and Control Committee, the Environmental, Social, and Governance (“ESG”) 82 www.allstate.com 2023 Form 10-K Enterprise Risk and Return Management Steering Committee, liability governance committees, and investment committees. Key risks are assessed and reported through comprehensive ERRM reports prepared for senior management and the RRC. The risk summary report communicates the alignment of Allstate’s risk profile with risk and return principles, while providing a perspective on risk positioning. Discussion promotes active engagement with management and the RRC. Internal controls over key risks are managed and reported to senior management and the Audit Committee of the Company through a semi-annual risk control dashboard. Annually, we review risks related to the strategic plan, operating plan and incentive compensation programs with the Allstate Board. Framework We apply risk and return principles using an integrated ERRM framework that focuses on assessment, transparency and dialogue. Our framework provides a comprehensive view of risks and is used by senior management and business managers to drive risk-return based decisions. We continually validate and improve our ERRM practices by benchmarking and obtaining external perspectives. Management and the ERRC rely on internal and external perspectives to determine an appropriate level of target economic capital. Internal perspectives include enterprise solvency and volatility assessments, review of key operating and model assumptions, and management judgment. Sensitivity testing and scenario analysis are used to gauge the robustness of Allstate’s risk, capital and liquidity positions. Analysis of extremely low frequency scenarios is used to assess the sufficiency of capital and contingency options under worst-case outcomes, including unlikely but impactful single events, as well as sequences of multiple tail events. External considerations include NAIC risk-based capital as well as S&P’s, Moody’s, and A.M. Best’s capital adequacy measurement. Our economic capital reflects management’s view of the aggregate level of capital necessary to satisfy stakeholder interests, manage Allstate’s risk profile and maintain financial strength. The impact of strategic initiatives on enterprise risk is evaluated through the economic capital framework. The NAIC has adopted the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA Model Act”), which has been enacted by our insurance subsidiaries’ domiciliary states. The ORSA Model Act requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed environments. Results of the assessment are filed annually. Allstate’s risk appetite is measured through our economic capital framework. The enterprise risk appetite is cascaded into individual risk limits which set boundaries on the amount of risk we are willing to accept from one specific risk category before escalating for further management discussion and action. Risk limits are established based upon expected returns, volatility, potential tail losses and impact on the enterprise portfolio. To effectively operate within risk limits and for risk-return optimization, Allstate establishes risk limits and capital targets specific to each business unit. Allstate’s risk management strategies adapt to changes in business and market environments. Process Our ERRM framework establishes a basis for transparency and dialogue across the enterprise and for continuous learning by embedding our risk and return management culture of identifying, assessing, managing, monitoring and reporting risks within the organization. Allstate designs business and enterprise strategies that seek to optimize risk-adjusted returns on capital. Risks are managed at both the legal entity and enterprise level. A summary of our process to manage each of our major risk categories follows: Strategic risk and return management addresses loss associated with inadequate or flawed business planning or strategy setting, including product mix, mergers or acquisitions and market positioning, and unexpected changes within the market or regulatory environment in which Allstate operates. This includes reputational risk, which is the potential for negative publicity regarding a company’s conduct or business practices to adversely impact its profitability, operations, or consumer base, or to require costly litigation and other defensive measures. We manage strategic risk in part through Allstate Board and senior management strategy reviews that include risk and return assessment of our strategic plans and ongoing monitoring of strategic actions, key assumptions and the external competitive environment. Using the ERRM framework, Allstate designs strategies that seek to optimize risk-adjusted returns associated with taking insurance, investment, and other business risks. Insurance risk and return management addresses fluctuations in the timing, frequency and severity of benefits, expenses, and premiums relative to the return expectations inclusive of systemic risk, concentration of insurance exposures, policy terms, reinsurance coverage, and claims handling practices. Insurance risk is the potential for loss due to adverse changes in actual or anticipated insurance claims experience (including claims adjustment expenses), net of reinsurance, and lost future profits. Insurance risk exposures include our operating results and financial condition, claims frequency and severity, and catastrophe and severe weather. Insurance risk exposures are measured and monitored with different approaches including: •Stochastic methods: measure and monitor risks such as natural catastrophes and severe weather. We develop probabilistic estimates of risk based on our exposures, historical observed volatility or industry-recognized models in the case of catastrophe risk. •Scenario analysis: measures and monitors risks and estimated losses due to extreme low frequency events that include combined multiple The Allstate Corporation 83 2023 Form 10-K Enterprise Risk and Return Management event scenarios across risk categories and time periods. Investment risk and return management addresses financial loss due to changes in the valuations of assets held in the Allstate investment portfolio. Such losses may be caused by macro developments, such as changes to interest rates, credit spreads and equity price levels, or could be specific to individual investments in the portfolio. These losses can encompass both daily market volatility and permanent impairments of capital due to credit defaults and equity write-downs. Investment risk exposures include interest rate risk, credit spread risk, equity price risk and foreign currency exchange rate risk. Investment risk exposures are measured, monitored and limited in a number of ways including: •Sensitivity analysis: measures the impact from a unit change in a market risk input. •Stochastic and probabilistic estimation of potential losses: combines portfolio risk exposures with historical or recent market volatilities and correlations to assess the potential range of future investment results. •Contributions to economic capital: measure the percentage allocations of investment risk and risk types within enterprise economic capital. •Scenario analysis: measures material adverse outcomes such as shock scenarios applied to credit, public and private equity markets. Some of the stress scenarios are a combination of multiple scenarios across risk categories and over multiple time periods, considering the effects of macroeconomic conditions. Financial risk and return management addresses the risk of insufficient cash flows to meet corporate or policyholder needs, risk of inadequate aggregate capital or capital within any subsidiary, inability to access capital markets, credit risk that arises when an external party fails to meet a contractual obligation such as reinsurance for ceded claims, or risk associated with a business counterparty default. We actively manage our capital and liquidity levels in light of changing market, economic and business conditions. Our capital position, capital generation capacity, and targeted risk profile provide strategic and financial flexibility. We generally assess solvency on a statutory accounting basis, but also consider holding company capital and liquidity needs. Capital at the insurance companies significantly exceeds regulatory risk-based capital requirements and capital levels at the parent holding company provide liquidity and financial flexibility to meet enterprise capital and liquidity requirements. Operational risk and return management addresses loss as a result of the failure of people, processes, or systems. Operational risk exposures include human capital, privacy, regulatory compliance, ethics, fraud, system availability, cybersecurity, data quality, disaster recovery and business continuity. Operational risk is managed at the enterprise and market-facing business levels, through an integrated Operational Risk and Return Management (“ORRM”) framework that is anchored to the ERRM Learning Loop, which depicts the five components of effective risk management. The Learning Loop is a continual process which includes risk identification, measurement, management, monitoring, and reporting of risk. From time to time, we engage independent advisers to assess and consult on operational risks. We also perform internal risk reviews of the quality of our operational risk program and identify opportunities to strengthen our internal controls. Culture risk and return management addresses the potential for loss of stakeholder value from a suboptimal work environment, missed opportunities, or ineffective risk management practices. Allstate defines organization culture as a self-sustaining system of shared values, principles and priorities that shape beliefs, drive behavior and influence decision-making within an organization. Allstate’s approach is grounded in its Risk and Return Principles and organized by Our Shared Purpose. Culture is managed using a set of cultural risk categories established as a basis for assessment and measurement, and the Learning Loop is applied to ensure continuous improvement. Culture risk assessments, informed by both quantitative metrics and qualitative judgment, are shared and discussed with the ERRC, RRC and Compensation and Human Capital Committee throughout the year. To strengthen oversight, the Culture Risk and Return Management (“CRRM”) team partners with Human Resources and the broader organization to enhance the sophistication of the CRRM framework, including the following key components: •Key risk categories, defining the most important areas of culture to track and enhance. •Key risk indicators, reflecting the health of the system, providing early warnings, and helping Allstate prioritize risk and return activities. •Governance, ensuring timely discussion, escalation, and prioritization of issues, as well as identification of opportunities. Many risk drivers impact more than one of these key risk categories. Examples include risks related to inflation and ESG factors. Such risks are managed within processes listed above, but overall strategy is coordinated at the enterprise level, and holistic governance is provided by cross-functional committees such as the ERRC. 84 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates Application of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates, presented in the order they appear in the Consolidated Statements of Financial Position, include those used in determining: •Fair value of financial assets •Impairment of fixed income securities with credit losses •Evaluation of goodwill •Reserve for property and casualty insurance claims and claims expense estimation •Pension and other postretirement plans net costs and assumptions In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our businesses and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our consolidated financial statements. A summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our consolidated financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a more detailed summary of our significant accounting policies, see the notes to the consolidated financial statements. Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We utilize only one single quote or price to value each financial instrument in our financial statements. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested under the terms of our agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information (as described above) as of the measurement date, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. For certain equity securities, valuation service providers provide market quotations for completed transactions on the measurement date. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information. For certain of our financial assets measured at fair value, where our valuation service providers cannot provide fair value determinations, we obtain a single non-binding price quote from a broker familiar with the security who, similar to our valuation service providers, may consider transactions or activity in similar securities among other information. The brokers providing price quotes are generally from the brokerage divisions of financial institutions with market making, underwriting and distribution expertise regarding the security subject to valuation. The fair value of certain financial assets, including privately placed corporate fixed income securities and free-standing derivatives, for which our valuation service providers or brokers do not provide fair value determinations, is developed using valuation methods and models widely accepted in the financial services industry. Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities or instruments, published credit spreads, and other applicable market data as well as instrument-specific characteristics that include, but are not limited to, coupon rates, expected cash flows, sector of the issuer, and call provisions. Because judgment is required in developing the fair values of these financial assets, they may differ from the amount actually received to sell an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the financial assets’ fair values. For most of our financial assets measured at fair value, all significant inputs are based on or corroborated by market observable data, and The Allstate Corporation 85 2023 Form 10-K Application of Critical Accounting Estimates significant management judgment does not affect the periodic determination of fair value. The determination of fair value using discounted cash flow models involves management judgment when significant model inputs are not based on or corroborated by market observable data. However, where market observable data is available, it takes precedence, and as a result, no range of reasonably likely inputs exists from which the basis of a sensitivity analysis could be constructed. We gain assurance that our financial assets are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, our processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. We perform procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, we may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. During periods of high volatility or market disruption, we may perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal model. As of December 31, 2023 and 2022, we did not adjust fair values provided by our valuation service providers or brokers or substitute them with an internal model for such securities. [[GREPCENT_TABLE]] [["Fixed income, equity securities and short-term investments by source of fair value determination"],["","","December 31, 2023"],["($ in millions)","","Fair value","","Percent to total"],["Fair value based on internal sources","","$","424","","","0.8","%"],["Fair value based on external sources (1)","","55,996","","","99.2"],["Total","","$","56,420","","","100.0","%"]] [[/GREPCENT_TABLE]] (1)Includes $21 million that are valued using broker quotes and $354 million that are valued using quoted prices or quoted net asset values from deal sponsors. For additional detail on fair value measurements, see Note 6 of the consolidated financial statements. Impairment of fixed income securities with credit losses For fixed income securities classified as available-for-sale, the difference between amortized cost, net of credit loss allowance (“amortized cost, net”) and fair value, net of certain other items and deferred income taxes (as disclosed in Note 5 of the consolidated financial statements), is reported as a component of AOCI on the Consolidated Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a credit loss allowance is recorded. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance. For each fixed income security in an unrealized loss position, we assess whether management with the appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with the incremental losses recorded in earnings. If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate, and are compared to the amortized cost of the 86 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates security. The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, as applicable, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings. When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, we remove amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received. For additional detail on investment impairments, see Note 5 of the consolidated financial statements. Evaluation of goodwill Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized. Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination. Our goodwill reporting units are equivalent to our reportable segments to which goodwill has been assigned: Allstate Protection, Protection Services, and Allstate Health and Benefits. The goodwill balance was $3.50 billion at both December 31, 2023 and 2022. Upon acquisition, the purchase price of the acquired business is assumed to be its fair value. Subsequently, we estimate the fair value of our businesses in each goodwill reporting unit, utilizing a combination of widely accepted valuation techniques including a stock price and market capitalization analysis, discounted cash flow (“DCF”) calculations and an estimate of a business’s fair value using market to book multiples derived from peer company analysis. The stock price and market capitalization analysis takes into consideration the quoted market price of our outstanding common stock and includes a control premium, derived from relevant historical acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The DCF analysis utilizes long term assumptions for revenues, investment income, benefits, claims, other operating expenses and income taxes to produce projections of both income and cash flows available for dividends that are present valued using the weighted average cost of capital. Market to book multiples represent the mean market to book multiple for selected peer companies with operations similar to each goodwill reporting unit to which the multiple is applied. The outputs from these methods are weighted based on the nature of the business and the relative amount of market observable assumptions supporting the estimates. The computed values are then weighted to reflect the fair value estimate based on the specific attributes of each goodwill reporting unit. Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. Changes in market inputs or other events impacting the fair value of these businesses, including discount rates, operating results, investment returns, strategies and growth rate assumptions, among other factors, could result in goodwill impairments, resulting in a charge to income. Certain of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have substantial internally generated and unrecognized intangibles and fair values that significantly exceed their carrying values. The most significant assumptions utilized in the determination of the estimated fair value of the Protection Services reporting unit are the earnings growth rate and discount rate. The earnings growth rate in the DCF projection period is based on the business strategy for the reporting unit. The discount rate, which is consistent with the weighted average cost of capital expected by a market participant, is based upon industry specific required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by changes in the risk-free rate, cost of debt, equity risk premium and entity specific risks. Changes in our growth assumptions, including the risk of loss of key customers, or adverse changes in the discount rates could result in a decline in fair value and result in a goodwill impairment charge. The Allstate Corporation 87 2023 Form 10-K Application of Critical Accounting Estimates Reserve for property and casualty insurance claims and claims expense estimation Reserves are established to provide for the estimated costs of paying claims and claims expenses under insurance policies we have issued. These reserves are an estimate of amounts necessary to settle all outstanding claims, including estimates of all expenses associated with processing and settling incurred claims and IBNR, less the amount of paid losses, as of the financial statement date. Total reserves comprise three major components: case (established by claim adjusters), supplemental, and IBNR. Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables. Underwriting results are significantly influenced by estimates of property and casualty insurance claims and claims expense reserves. Reserves are established for each business segment and line of business, independently of business segment management. The significant lines of business are auto, homeowners, and other personal lines for Allstate Protection, and asbestos, environmental, and other run-off lines for Run-off Property-Liability. Allstate Protection’s current period claims are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss is reported. Auto and homeowners liability losses generally take an average of about two years to settle, while auto physical damage, homeowners property and other personal lines generally have an average settlement time of less than one year. Liability losses, especially those involving litigation, can take several years to resolve. Run-off Property-Liability involves long-tail losses, such as those related to asbestos and environmental claims, which often involve substantial reporting lags and extended times to settle. We update most of our reserve estimates quarterly and as new data and information become available or as events emerge that may affect the resolution of unsettled claims. Changes in prior reserve estimates (reserve reestimates), which may be material, are determined by comparing updated estimates of ultimate losses to prior estimates, with the differences recorded as property and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined. The actuarial methods used to develop reserve estimates Reserve estimates are derived by using several different actuarial estimation methods that are variations on one primary actuarial technique. The actuarial technique is known as a “chain ladder” estimation process in which historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves established by claim adjusters) for an accident year or a report year to create an estimate of how losses are likely to develop over time. An accident year refers to classifying claims based on the year in which the claims occurred. A report year refers to classifying claims based on the year in which the claims are reported. Both classifications are used to prepare estimates of required reserves for payments to be made in the future. The key assumptions affecting our reserve estimates comprise data elements including claim counts, paid losses, case reserves, and development factors calculated with this data. In the chain ladder estimation technique, a ratio (development factor) is calculated which compares current period results to results in the prior period for each accident year. The effects of inflation are implicitly considered in the reserving process, as development factors use historic data that incorporates inflation from recent prior periods in estimating future loss costs. The development factor estimation methodology may require modification when data changes due to changing claim reporting practices, changing claim settlement patterns, external regulatory or financial influences, or contractual coverage changes. Changes in such items and inflation can result in increased variability in loss costs and reserve estimates. Actuarial judgment is then applied to develop a best estimate of gross ultimate losses. These developments are discussed further in the loss ratio disclosures within the Allstate Protection Segment and the Property and Casualty Insurance Claims and Claims Expense Reserves sections of the MD&A. See the Run-off Property-Liability reserve estimates section for specific disclosures of industry and actuarial best practices for this segment. How reserve estimates are established and updated Reserve estimates are developed at a detailed level, and the results are aggregated to form a consolidated reserve estimate. The detailed estimates include each line of insurance, major components of losses (such as coverages and perils), major states or groups of states and for reported losses and IBNR. Development factors are calculated for data elements such as claim counts reported and settled, paid losses, and paid losses combined with case reserves. The historical development patterns for these data elements are used to calculate reserve estimates. Based on this review, our best estimate of required reserves is recorded. Reserves are reestimated quarterly and periodically throughout the year, by combining historical results with current actual results to calculate new development factors. This process continuously incorporates the historic and latest actual trends, and other underlying changes in the data elements used to calculate reserve estimates. New development factors are likely to differ from previous development factors used in prior reserve estimates because actual results occur differently than the assumptions contained in the previous development factor calculations. When actual development of these data elements is different than the historical development pattern used in a prior period reserve estimate, a new reserve is determined. The difference between indicated reserves based on new reserve estimates and recorded reserves (the previous estimate) is the amount of reserve reestimate. This amount, which could be material and vary significantly from period to period is recognized as an increase or decrease in Property and casualty 88 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates insurance claims and claims expense in the Consolidated Statements of Operations. A more detailed discussion of reserve reestimates is presented in the Property and Casualty Insurance Claims and Claims Expense Reserves section of the MD&A. [[GREPCENT_TABLE]] [["Net claims and claims expense reserves by segment and line of business"],["","","As of December 31,"],["($ in millions)","","2023","","2022","","2021"],["Allstate Protection"],["Auto","","$","21,286","","","$","19,365","","","$","16,078"],["Homeowners","","4,754","","","3,520","","","2,731"],["Other lines (1)","","3,929","","","3,991","","","3,315"],["Total Allstate Protection","","29,969","","","26,876","","","22,124"],["Run-off Property-Liability"],["Asbestos","","804","","","811","","","828"],["Environmental","","267","","","267","","","226"],["Other run-off lines","","373","","","373","","","367"],["Total Run-off Property-Liability","","1,444","","","1,451","","","1,421"],["Total Protection Services","","49","","","38","","","36"],["Total net claims and claims expense reserves","","$","31,462","","","$","28,365","","","$","23,581"]] [[/GREPCENT_TABLE]] (1)Includes the unamortized fair value adjustment related to the acquisition of National General. [[GREPCENT_TABLE]] [["Reserve reestimates"],["($ in millions)","","2023","","2022","","2021"],["Reserve reestimates, after-tax (1)","","$","434","","","$","1,375","","","$","96"],["Percentage impact on net income (loss) applicable to common shareholders - favorable (unfavorable)","","NM","","(98.6)","%","","(6.4)","%"]] [[/GREPCENT_TABLE]] (1)Favorable reserve reestimates are shown in parentheses. [[GREPCENT_TABLE]] [["3-year average of net reserve reestimates as a percentage of total reserves for each segment (1) (2)"],["","","2023"],["Allstate Protection","","2.6","%"],["Run-off Property-Liability","","7.6"],["Protection Services","","(4.9)"]] [[/GREPCENT_TABLE]] (1)Favorable reserve reestimates are shown in parentheses. (2)Each of these results is consistent within a reasonable actuarial tolerance for the respective businesses. Allstate Protection reserve estimate Factors affecting reserve estimates Reserve estimates are developed based on the processes and historical development trends described above. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in laws and regulations, judicial decisions, and economic conditions. When we experience changes of the type previously mentioned, we apply actuarial judgment in the determination and selection of development factors considered more reflective of the new trends, such as combining shorter or longer periods of historical results with current actual results to produce development factors used to reestimate our reserves. For example: •Supply chain disruptions and labor shortages, higher used car prices, labor and part cost increases, unemployment levels, changes in commuting activity and driving behavior have and may continue to lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability. •If a legal change is expected to have a significant impact on the development of claim severity for a coverage which is part of a particular line of insurance in a specific state, judgment is applied to determine appropriate development factors that will most accurately reflect the expected impact on that specific estimate. •A change in economic conditions is expected to affect the cost of repairs to damaged autos or property for a particular line, coverage, or state, actuarial judgment is applied to determine appropriate development factors to use in the reserve estimate that will most accurately reflect the expected impacts on severity development. Case and supplemental reserves •As claims are reported, for certain liability claims of sufficient size and complexity, the field adjusting staff establishes case reserve estimates of ultimate cost, based on their assessment of facts and circumstances related to each individual claim. •For other claims which occur in large volumes and settle in a relatively short time frame, it is not practical or efficient to set case reserves for each claim, and a statistical case reserve is set for these claims based on estimation techniques described above. •In the normal course of business, we may also supplement our claims processes by utilizing third-party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The Allstate Corporation 89 2023 Form 10-K Application of Critical Accounting Estimates •Historically, the case reserves set by the field adjusting staff have not proven to be an entirely accurate estimate of the ultimate cost of claims. To provide for this, a development reserve is estimated using the processes described above and allocated to pending claims as a supplement to case reserves. •Typically, the case, including statistical case, and supplemental development reserves comprise about 90% of total reserves. Incurred but not reported (“IBNR”) •IBNR can be a small percentage of reserves for relatively short-term claims, such as auto physical damage claims, or a large percentage of reserves for claims that have uncertain payout requirements over a long period of time, such as auto injury and MCCA claims. •Comprises about 10% of total reserves. Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using processes described above. Changes in auto claim frequency may result from changes in mix of business, driving behaviors, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy, the effectiveness and efficiency of our claim settlements and changes in mix of claim type. Injury claims are affected largely by medical inflation, treatment trends, attorney representation and litigation costs while physical damage claims are affected largely by auto repair cost inflation, used car prices, length of claim resolution and the timing of receipt of third-party carrier claims. We mitigate these effects through various loss management programs. For auto physical damage coverages, we monitor our rate of increase in average cost per claim against the auto maintenance, repair, parts and equipment price indices. We believe our claim settlement initiatives, such as improvements to the claim review and settlement process, the use of special investigative units to detect fraud and handle suspect claims, litigation management and defense strategies, as well as various other loss management initiatives underway, contribute to the mitigation of injury and physical damage severity trends. Changes in homeowners current year claim severity are generally influenced by inflation in the cost of building materials, the cost of construction and property repair services, the cost of replacing home furnishings and other contents, the types of claims that qualify for coverage, deductibles, other economic and environmental factors and the effectiveness of our claim practices. As loss experience for the current year develops for each type of loss, it is monitored relative to initial assumptions until it is judged to have sufficient statistical credibility. From that point in time forward, reserves are reestimated using statistical actuarial processes to reflect the impact actual loss trends have on development factors incorporated into the actuarial estimation processes. Causes of reserve estimate uncertainty Since reserves are estimates of unpaid portions of claims and claims expenses for claims that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophe losses, requires regular reevaluation and refinement of estimates to determine our ultimate loss estimate. At each reporting date, the highest degree of uncertainty in estimates for most of our losses from ongoing businesses arise from claims remaining to be settled for the current accident year and the most recent preceding accident year. The greatest degree of uncertainty exists in the current accident year because the current accident year contains the greatest proportion of losses that have not been reported or settled as well as heightened uncertainty for claims that involve litigation or take longer to settle during periods of rapidly increasing loss costs, but must be estimated as of the current reporting date. Most of these losses relate to damaged property such as automobiles and homes, and medical care for injuries from accidents. During the first year after the end of an accident year, a large portion of the total losses for that accident year are settled. When accident year losses paid through the end of the first year following the initial accident year are incorporated into updated actuarial estimates, the trends inherent in the settlement of claims emerge more clearly. After the second year, the losses that we pay for an accident year typically relate to claims that are more difficult to settle, such as those involving serious injuries or litigation. Private passenger auto insurance provides a good illustration of the uncertainty of future loss estimates: our typical annual percentage payout of reserves remaining at December 31 for an accident year is approximately 50% in the first year after the end of the accident year, 20% in the second year, 10% in the third year, 10% in the fourth year, and the remaining 10% thereafter. Reserves for catastrophe losses Catastrophe losses are an inherent risk of the property and casualty insurance industry that have contributed, and will continue to contribute, to potentially material year-to-year fluctuations in our results of operations and financial position. We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, civil unrest, wildfires or industrial accidents. The nature and level of 90 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates catastrophes in any period cannot be reliably predicted. The estimation of claims and claims expense reserves for catastrophe losses also comprises estimates of losses from reported claims and IBNR, primarily for damage to property. In general, our estimates for catastrophe reserves are based on claim adjuster inspections and the application of historical loss development factors as described above. However, depending on the nature of the catastrophe, the estimation process can be further complicated. For example, for hurricanes, complications could include the inability of insureds to promptly report losses, limitations placed on claims adjusting staff affecting their ability to inspect losses, determining whether losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or specifically excluded coverage caused by flood, exposure to mold damage, and the effects of numerous other considerations, including the timing of a catastrophe in relation to other events, such as at or near the end of a financial reporting period, which can affect the availability of information needed to estimate reserves for that reporting period. In these situations, we may need to adapt our practices to accommodate these circumstances in order to determine a best estimate of our losses from a catastrophe. For example, to complete estimates for certain areas affected by catastrophes not yet inspected by our claims adjusting staff, or where we believed our historical loss development factors were not predictive, we rely on analysis of actual claim notices received compared to total PIF, as well as visual, governmental and third-party information, including aerial photos, using satellites, aircrafts and drones, area observations, and data on wind speed and flood depth to the extent available. Potential variability in reserve estimates Reserve estimates, by their nature, are very complex to determine, subject to significant judgment, and represent approximations rather than an exact determination for each outstanding claim, including claims incurred but not reported. Accordingly, as actual claims, paid losses, and case reserve results emerge, our estimate of the ultimate cost to settle will differ from previous estimates. The reserve liability recorded in the Consolidated Statements of Financial Position represents the aggregation of numerous analyses by each business segment, line of insurance, major types of losses (such as coverages and perils), and individual states or groups of states for reported losses and IBNR. Because of this detailed approach to our reserve analysis, there is not a single set of assumptions that determines our reserve estimates at the consolidated level or that management believes can produce a statistically credible or reliable actuarial reserve range that would be meaningful. To develop a statistical indication of potential reserve variability within reasonably likely possible outcomes, an actuarial technique (stochastic modeling) is applied to the countrywide consolidated data elements for paid losses and paid losses combined with case reserves separately for injury losses, auto physical damage losses, and homeowners insurance losses excluding catastrophe losses. Based on the combined historical variability of the development factors calculated for these data elements, an estimate of the standard error or standard deviation around these reserve estimates is calculated within each accident year for the last twelve years for each type of loss. The variability of these reserve estimates within one standard deviation of the mean (a measure of frequency of dispersion often viewed to be an acceptable level of accuracy) is believed by management to represent a reasonable and statistically probable measure of potential variability. Based on our products and coverages, historical experience, the statistical credibility of our extensive data and stochastic modeling of actuarial chain ladder methodologies used to develop reserve estimates, we have derived the potential standard deviation and impact to net income to our Allstate Protection reserves, excluding catastrophe losses, as shown below. Catastrophe losses are also an inherent risk of the property and casualty insurance industry that have contributed, and will continue to contribute, to potentially material year-to-year fluctuations in our results of operations and financial position. [[GREPCENT_TABLE]] [["Reserve estimate variability"],["","","December 31, 2023"],["($ in millions)","","Carried reserves (1)","","Standard deviation","","Net income effect, pre-tax"],["Auto insurance - liability coverage","","$","27,730","","","7.0","%","","$","1,941"],["Auto insurance - physical damage coverage","","846","","","14.0","","","118"],["Homeowners insurance","","3,342","","","8.5","","","284"]] [[/GREPCENT_TABLE]] (1) Excludes reserves related to catastrophes. Although this evaluation reflects most reasonably likely outcomes, it is possible the final outcome may fall below or above these amounts. Historical variability of reserve estimates is reported in the Property and Casualty Insurance Claims and Claims Expense Reserves section of the MD&A. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in reserve estimates, which may be material, are reported in property and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined. Management believes that the reserve for property and casualty insurance claims and claims expense, net of recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Consolidated Statements of Financial Position based on available facts, laws and regulations. The Allstate Corporation 91 2023 Form 10-K Application of Critical Accounting Estimates Reserves for Michigan and New Jersey unlimited personal injury protection Claims and claims expense reserves include reserves for Michigan mandatory unlimited personal injury protection coverage to insureds involved in qualifying motor vehicle accidents. The administration of this program is through the MCCA, a state-mandated, non-profit association of which all insurers actively writing automobile coverage in Michigan are members. The process employed to estimate MCCA covered losses involves a number of activities including the comprehensive review and interpretation of MCCA actuarial reports, other MCCA members’ reports and our personal injury protection loss trends which have increased in severity over time. A significant portion of incurred claim reserves can be attributed to a small number of catastrophic claims and thus a large portion of the recoverable is similarly concentrated. We conduct comprehensive claim file reviews to develop case reserve type estimates of specific claims, which inform our view of future claim development and longevity of claimants. Each year, we update the actuarial estimate of our ultimate reserves and recoverables. We report our paid and unpaid claims based on MCCA requirements. The MCCA develops its own reserving estimates based on its own reserve methodologies, which may not align with our estimations. The MCCA does not provide member companies with its estimate of a company’s claim costs. We provide similar personal injury protection coverage in New Jersey for auto policies issued or renewed in New Jersey prior to 1991 that is administered by PLIGA. We use similar actuarial estimating techniques as for the MCCA exposures to estimate loss reserves for unlimited personal injury protection coverage for policies covered by PLIGA. Unlimited coverage was not offered after 1991; therefore, no new claimants are being added. Reserve estimates are confidential and proprietary and by their nature are very complex to determine and subject to significant judgments. Reserve estimates do not represent an exact determination for each outstanding claim. Claims may be subject to litigation. As actual claims, paid losses and case reserve results emerge, our estimate of the ultimate cost to settle may be materially greater or less than previously estimated amounts. For additional information related to indemnification recoverables, see Item 1 - Regulation, Indemnification Programs and Note 11 of the consolidated financial statements. Adequacy of reserve estimates We believe our net claims and claims expense reserves are appropriately established based on available methodologies, facts, laws and regulations. Additionally, we rely on historical claims experience to inform the level of the recorded reserve. We calculate and record a single best reserve estimate, in conformance with generally accepted actuarial standards and practices, for each line of insurance, its components (coverages and perils) and state, for reported losses and for IBNR losses, and as a result we believe that no other estimate is better than our recorded amount. Due to the uncertainties involved, the ultimate cost of losses may vary materially from recorded amounts, which are based on our best estimates. Run-off Property-Liability reserve estimates Characteristics of Run-off exposure Our exposure to asbestos, environmental and other run-off claims arise principally from assumed reinsurance coverage written during the 1960s through the mid-1980s, including reinsurance on primary insurance written on large U.S. companies, and from direct excess commercial insurance written from 1972 through 1985, including substantial excess general liability coverages on large U.S. companies. Additional exposure stems from direct primary commercial insurance written during the 1960s through the mid-1980s. Asbestos claims relate primarily to bodily injuries asserted by claimants who were exposed to asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs. Other run-off claims exposures primarily relate to general liability and product liability mass tort claims, such as those for medical devices and other products, workers’ compensation claims and claims for various other coverage exposures other than asbestos and environmental. In 1986, the general liability policy form used by us and others in the property and casualty industry was amended to introduce an “absolute pollution exclusion,” which excluded coverage for environmental damage claims, and to add an asbestos exclusion. Most general liability policies issued prior to 1987 contain annual aggregate limits for product liability coverage. General liability policies issued in 1987 and thereafter contain annual aggregate limits for product liability coverage and annual aggregate limits for all coverages. Our experience to date is that these policy form changes have limited the extent of our exposure to environmental and asbestos claim risks. Our exposure to liability for asbestos, environmental and other run-off claims losses manifests differently depending on whether it arises from assumed reinsurance coverage, direct excess commercial insurance or direct primary commercial insurance. Direct excess commercial insurance and reinsurance involve coverage written by us for specific layers of protection above retentions and other insurance plans and largely has resulted in asbestos, environmental and mass tort claims. The nature of excess coverage and reinsurance provided to other insurers limits our exposure to loss to specific layers of protection in excess of policyholder retention on their primary insurance plans. Our exposure is further limited by the significant reinsurance that we had purchased on our direct excess business. Our assumed reinsurance business involved writing generally small participations in other insurers’ reinsurance programs. The reinsured losses in which we participate may be a proportion of all eligible losses or eligible losses in excess of defined retentions. Of the 92 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates majority of our assumed reinsurance exposure, approximately 85%, is for excess of loss coverage, while the remaining 15% is for pro-rata coverage. Our direct primary commercial insurance business comprises a cross section of policyholders engaged in many diverse business sectors throughout the country and did not include coverage to large asbestos manufacturers. How reserve estimates are established and updated We conduct an annual review in the third quarter to evaluate, establish and adjust as necessary, asbestos, environmental and other run-off claims reserves. Changes to reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines asbestos reserves based on assessments of the characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, and determines environmental reserves based on assessments of the characteristics of exposure (i.e. environmental damages, respective shares of liability of potentially responsible parties, appropriateness and cost of remediation) to pollution and related clean-up costs. The number and cost of these claims are affected by advertising by trial lawyers seeking asbestos plaintiffs, and entities with asbestos exposure seeking bankruptcy protection as a result of asbestos liabilities, initially causing a delay in the reporting of claims, often followed by an acceleration and an increase in claims and claims expenses as settlements occur. After evaluating our insureds’ probable liabilities for asbestos, environmental and other run-off claims, we evaluate our insureds’ coverage programs for such claims. We consider our insureds’ total available insurance coverage, including the coverage we issued. We also consider relevant judicial interpretations of policy language and applicable coverage defenses or determinations, if any. Evaluation of both the insureds’ estimated liabilities and our exposure to the insureds depends heavily on an analysis of the relevant legal issues and litigation environment. This analysis is conducted by our specialized claims adjusting staff and legal counsel. Based on these evaluations, case reserves are established by claims adjusting staff and actuarial analysis is employed to develop an IBNR reserve, which includes estimated potential reserve development and claims that have occurred but have not been reported. As of December 31, 2023 and 2022, IBNR was 55.7% and 55.9%, respectively, of combined net asbestos and environmental reserves. For both asbestos and environmental reserves, we also evaluate our historical direct net loss and expense paid and incurred experience to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and incurred activity. Other run-off claims reserves are based on considerations similar to those described above, as they relate to the characteristics of specific individual coverage exposures. Potential reserve estimate variability Establishing net loss reserves for asbestos, environmental and other run-off claims is subject to uncertainties that are much greater than those presented by other types of property and casualty claims. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs’ evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Our reserves for asbestos, environmental and other run-off exposures could be affected by tort reform, class action litigation, and other potential legislation and judicial decisions. Environmental exposures could also be affected by a change in the existing federal Superfund law and similar state statutes. There can be no assurance that any reform legislation will be enacted or that any such legislation will provide for a fair, effective and cost-efficient system for settlement of asbestos or environmental claims. We believe these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. Historical variability of reserve estimates is demonstrated in the Property and Casualty Insurance Claims and Claims Expense Reserves section of the MD&A. Adequacy of reserve estimates Management believes its net loss reserves for asbestos, environmental and other run-off claims exposures are appropriately established based on available facts, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. Due to the uncertainties and factors described above, management believes it is not practicable to develop a The Allstate Corporation 93 2023 Form 10-K Application of Critical Accounting Estimates meaningful range for any such additional net loss reserves that may be required. For further discussion of these estimates and quantification of the impact of reserve estimates, reserve reestimates and assumptions, see Note 9 and Note 15 of the consolidated financial statements and the Property and Casualty Insurance Claims and Claims Expense Reserves section of the MD&A. Pension and other postretirement plans net costs and assumptions Our defined benefit pension plans cover most U.S. employees. Benefits are provided to plan participants based on a cash balance formula. Certain participants also have a significant portion of their benefits attributable to a former final average pay formula. 79% of the projected benefit obligation (“PBO”) of our primary qualified employee plan is related to the former final average pay formula. See Note 18 of the consolidated financial statements for a discussion of these plans and their effect on the consolidated financial statements. Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, health care cost trend rates, inflation, expected returns on plan assets, mortality and other factors. The assumptions utilized in recording the obligations under our pension plans represent our best estimates and we believe they are reasonable based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past trends. Net costs for our defined benefit plans are recognized on the Consolidated Statements of Operations and consist of two elements: 1) costs comprised of service and interest costs, expected return of plan assets, amortization of prior service credit and curtailment gains and losses which are reported in property and casualty claims and claims expense, operating costs and expenses, net investment income and, if applicable, restructuring and related charges and 2) remeasurement gains and losses comprised of changes in actuarial assumptions and the difference between actual and expected returns on plan assets which are recognized immediately in earnings as part of pension and other postretirement remeasurement gains and losses. We recognize expected returns on plan assets using an unadjusted fair value method. Our policy is to remeasure our pension and postretirement plans on a quarterly basis. We immediately recognize the remeasurement of the projected benefit obligation and plan assets in earnings as it provides greater transparency of our economic obligations in accounting results and better aligns the recognition of the effects of economic and interest rate changes on pension and other postretirement plan assets and liabilities in the year in which the gains and losses are incurred. Differences in actual experience and changes in other assumptions affect our pension and other postretirement obligations and expenses. Differences between expected and actual returns on plan assets affect remeasurement gains and losses. The primary factors contributing to pension and postretirement remeasurement gains and losses are: 1) changes in the discount rate used to value pension and postretirement obligations as of the measurement date; 2) differences between the expected and the actual return on plan assets; 3) changes in demographic assumptions, including mortality and participant experience; and 4) changes in lump sum interest rates used to value pension obligations as of the measurement date. Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to our reportable segments. The pension and other postretirement remeasurement gains and losses are reported in the Corporate and Other segment. [[GREPCENT_TABLE]] [["Pension and postretirement benefits remeasurement gains and losses"],["","","For the years ended December 31,"],["($ in millions)","","2023","","2022","","2021"],["Remeasurement of projected benefit obligation (gains) losses:"],["Discount rate","","$","104","","","$","(1,268)","","","$","(285)"],["Other assumptions","","17","","","(176)","","","(40)"],["Remeasurement of plan assets (gains) losses","","(112)","","","1,560","","","(319)"],["Remeasurement (gains) losses","","$","9","","","$","116","","","$","(644)"]] [[/GREPCENT_TABLE]] Impact of assumption changes to net cost for pension and other postretirement plans Remeasurement losses in 2023 primarily related to losses on the remeasurement of the projected benefit obligation driven by a decrease in the liability discount rate, partially offset by gains due to favorable asset performance compared to expected return on plan assets. Remeasurement losses in 2022 primarily related to unfavorable asset performance compared to the expected return on plan assets, partially offset by a reduction in the projected benefit obligation due to an increase in the liability discount rate and changes in other assumptions, primarily related to an increase in the long-term lump sum interest rate. The discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the assumed discount rate by utilizing the weighted average yield of a theoretical dedicated portfolio derived from non-callable bonds and callable bonds with a make-whole provision available in the Bloomberg corporate bond universe having ratings of at least “AA” by S&P or at least “Aa” by Moody’s on the 94 www.allstate.com 2023 Form 10-K Application of Critical Accounting Estimates measurement date with cash flows that match expected plan benefit requirements. Significant changes in discount rates, such as those caused by changes in the credit spreads, yield curve, the mix of bonds available in the market, the duration of selected bonds and expected benefit payments, may result in volatility in pension cost. The weighted average discount rate used to measure the benefit obligation decreased to 5.35% at December 31, 2023 compared to 5.64% at December 31, 2022, resulting in remeasurement losses for 2023. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. While this rate reflects long-term assumptions and is consistent with long-term historical returns, sustained changes in the market or changes in the mix of plan assets may lead to revisions in the assumed long-term rate of return on plan assets that may result in variability of pension cost. Differences between the actual return on plan assets and the expected long-term rate of return on plan assets are immediately recognized through earnings upon remeasurement. Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. In 2023, the actual return on plan assets was higher than the expected return primarily due to positive equity returns and higher fixed income valuations from lower interest rates and tighter credit spreads. In 2022, the actual return on plan assets was lower than the expected return primarily due to higher interest rates, widening credit spreads and weak equity market performance. We complete periodic evaluations of demographic information and historical experience that affects our pension and other postretirement obligations to identify any required changes to long-term actuarial assumptions and methodologies. Demographic assumptions affect both our pension and postretirement plans and include elements such as retirement rates and participation rates in our postretirement programs, among other factors. These actuarial assumption updates affect our pension and other postretirement obligations and are incorporated into our best estimates of these assumptions. Remeasurement losses for other assumptions in 2023 primarily related to a decrease in the long-term lump sum interest rate, partially offset by gains from mortality updates. Remeasurement gains for other assumptions in 2022 primarily related to an increase in the long-term lump sum interest rate. [[GREPCENT_TABLE]] [["Impact of assumption changes to net periodic pension cost as of December 31, 2023"],["($ in millions)","","Basis/percentage point change","","Increase (decrease) to net cost, pre-tax"],["Pension plans discount rate","","+100 basis points","","$","(398)"],["","-100 basis points","","476"],["Expected long-term rate of return on assets","","+100 basis points","","(42)"],["","-100 basis points","","42"]] [[/GREPCENT_TABLE]] The Allstate Corporation 95 2023 Form 10-K Regulation and Legal Proceedings We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 15 of the consolidated financial statements. Pending Accounting Standards There are pending accounting standards that we have not implemented because the implementation dates have not yet occurred. For a discussion of these pending standards, see Note 2 of the consolidated financial statements. The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.