Item 1. Business
The Allstate Corporation was incorporated under the laws of the State of Delaware on November 5, 1992, to serve as the holding company for Allstate Insurance Company. Its business is conducted principally through Allstate Insurance Company, Allstate Life Insurance Company and other subsidiaries (collectively, including The Allstate Corporation, “Allstate”).
Allstate protects people from life’s uncertainties with a wide array of protection for autos, homes, electronic devices and identity theft. Allstate is primarily engaged in the property and casualty insurance business in the United States and Canada. Additionally, Allstate provides customers other protection solutions such as life, accident and health insurance and protection plans that cover electronic devices and personal identities.
The Allstate Corporation is one of the largest publicly held personal lines insurers in the United States. Allstate’s personal property-liability strategy is to increase market share by offering consumers a broad suite of personal lines solutions and a competitive value proposition across distribution channels. The Allstate brand is widely known through the “You’re In Good Hands With Allstate®” slogan. Allstate is the fourth largest personal property and casualty insurer in the United States on the basis of 2019 statutory direct premiums written according to A.M. Best.
Allstate also has strong market positions in other protection solutions. Allstate Benefits provides accident, health and life insurance through employers and is one of the top voluntary benefits carriers in the market based on a 2019 voluntary/worksite industry survey. Allstate Protection Plans provides protection plans on a wide variety of consumer goods such as cell phones, tablets, computers, furniture and appliances, and has a leading position in distribution through major retailers. Allstate Identity Protection, which provides identity protection, has a leading position in worksite distribution. In total, Allstate had 175.9 million policies in force (“PIF”) as of December 31, 2020.
In this Annual Report on Form 10-K, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not required to prepare financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We frequently use industry publications containing statutory financial information to assess our competitive position.
Subsequent event On January 26, 2021, Allstate announced an agreement to sell Allstate Life Insurance Company (“ALIC”) and certain affiliates for $2.8 billion to Antelope US Holdings Company, an affiliate of an investment fund associated with The Blackstone Group Inc. Allstate will retain ownership of Allstate Life Insurance Company of New York (“ALNY”) while pursuing alternatives to sell or otherwise transfer risk to a third party. ALIC and certain affiliates represent approximately 80% of Allstate Life and Allstate Annuity reserves for life-contingent contract benefits and contractholder funds as of December 31, 2020 and generated net income of approximately $290 million and $470 million in 2020 and 2019, respectively. A loss on disposition estimated at $3 billion, after-tax, will be recorded in the first quarter of 2021. The ultimate amount of the loss on sale will be impacted by purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreement, changes in statutory capital and surplus prior to the closing date and the closing date equity of ALIC determined under GAAP, excluding unrealized gains and losses. The transaction is expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
On January 4, 2021, Allstate completed the acquisition of National General Holdings Corp. (“National General”), expanding its independent agent channel business.
For additional information, see Part II, Item 8 - Note 3 of the consolidated financial statements of this report.
The Allstate Corporation 1
2020 Form 10-K Item 1. Business
Strategy, Transformative Growth, Our Shared Purpose and Segment Information
Our strategy has two components: increase personal property-liability market share (see Allstate Protection segment) and expand protection offerings by leveraging the Allstate brand, customer base and capabilities.
Transformative Growth is about creating a business model, capabilities and culture that continually transform to deliver market share. This is done by focusing on the customer by expanding access and improving value. The ultimate objective is to create continuous transformative growth in all businesses by delivering affordable, simple and connected protection solutions.
We are expanding protection businesses utilizing enterprise capabilities and resources such as distribution, analytics, claims, investment expertise, talent and capital. Using innovative growth platforms (such as telematics and identity protection) and broad distribution including: Allstate exclusive agents, independent agents, contact centers, online, retailers, workplace benefits brokers, auto dealers, original equipment manufacturers and telecom providers further enhance our customer value proposition.
Allstate has thrived for 89 years by adapting to better serve customers. Our two-part strategy builds on this success by leveraging the Allstate brand, people and technology to improve our long-term competitive position and accelerate growth.
(1)ALIC and certain affiliates to be divested and we will broaden non-proprietary product distribution to include life insurance.
2020 Form 10-K Item 1. Business
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Our Shared Purpose
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As the good hands...
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our values
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our operating standards
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our behaviors
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•We empower customers with protection to help them achieve their hopes and dreams.
•We provide affordable, simple and connected protection solutions.
•We create opportunity for our team, economic value for our shareholders and improve communities.
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•Integrity is non-negotiable.
•Inclusive Diversity & Equity values and leverages unique identities with equitable opportunity and rewards.
•Collective Success is achieved through empathy and prioritizing enterprise outcomes ahead of individuals.
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•Focus on Customers by anticipating and exceeding service expectations at low costs.
•Be the Best at protecting customers, developing talent and running our businesses.
•Be Bold with original ideas using speed and conviction to beat the competition.
•Earn Attractive Returns by providing customer value, proactively accepting risk and using analytics.
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•Collaborate early and often to develop and implement comprehensive solutions and share learnings.
•Challenge Ideas to leverage collective expertise, evaluate multiple alternatives and create the best path forward.
•Provide Clarity for expected outcomes, decision authority and accountability.
•Provide Feedback that is candid, actionable, independent of hierarchy and safe.
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Reportable segments
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Allstate Protection (1)
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Includes the Allstate and Encompass brands and Answer Financial. Offers private passenger auto, homeowners, other personal lines and commercial insurance through agents, contact centers and online. Esurance results were combined into the Allstate brand in the third quarter of 2020.
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Protection Services (previously Service Businesses)
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Includes Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside, Arity and Allstate Identity Protection, which offer a broad range of solutions and services that expand and enhance our customer value propositions.
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Allstate Life (2)
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Consists of traditional, interest-sensitive and variable life insurance products primarily through Allstate exclusive agents and exclusive financial specialists.
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Allstate Benefits
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Offers voluntary benefits products, including life, accident, critical illness, short-term disability and other health insurance products sold through independent agents, benefits brokers and Allstate exclusive agents.
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Allstate Annuities (2)
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Consists of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements) in run-off.
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Discontinued Lines and Coverages (1)
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Relates to property and casualty insurance policies written during the 1960's through the mid-1980's with exposure to asbestos, environmental and other claims in run-off.
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Corporate and Other
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Includes holding company activities and certain non-insurance operations.
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(1)Allstate Protection and Discontinued Lines and Coverages segments comprise Property-Liability.
(2)The pending sale of ALIC and certain affiliates represents approximately 90% of Allstate Life and 75% of Allstate Annuities reserves for life-contingent contract benefits and contractholder funds.
2020 Form 10-K Item 1. Business
Allstate Protection Segment
Our Allstate Protection segment accounted for 90.0% of Allstate’s 2020 consolidated insurance premiums and contract charges and 19.1% of Allstate’s December 31, 2020 PIF. Private passenger auto, homeowners, other personal lines and commercial insurance products offered through both exclusive and independent agents and directly through contact centers and online are included in this segment. Our strategy is to provide open access and choice of interaction, while offering affordable, simple and connected solutions to meet customers’ evolving needs and protect them from life’s uncertainties.
Strategy Allstate Protection segment is key to the strategy of increasing personal lines market share through Transformative Growth focusing on:
•Allstate brand growth, while making it easier to do business with us and reducing our cost structure
•Expanding Independent Agency channel business with the acquisition of National General in January 2021
We have three market-facing property-liability businesses, Allstate brand, Encompass brand and Answer Financial with products and services that cater to different customer preferences for advice and brand recognition. Starting in 2021, Allstate Independent Agency and Encompass organizations will be integrated into National General.
We serve our consumers using differentiated products, analytical expertise, telematics and an integrated digital enterprise that leverages data and technology to execute processes with a focus on greater effectiveness and efficiency.
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Transformative Growth
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Expanding Customer Access
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Expanding open access and customer choice of solutions under the Allstate brand across multiple channels, including Exclusive Agency and direct (online or call centers)
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Driving direct growth through improving online quote flow and enhancing call center practices
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Continuing to emphasize growth and customer service in existing Exclusive Agencies
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Stopped appointing new agents while building and scaling new agent models, such as the Allstate Sales Agent, to offer different access points to Allstate brand products at a lower distribution cost
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Lowering the Allstate brand distribution expense ratio
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Establishing a market leading position in the independent agency channel as a top five personal lines carrier with the National General acquisition, utilizing its broad range of products and strong technology platform
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Improving Customer Value
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Building affordable, simple and connected protection solutions
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Improving the competitive prices of products through efficiencies, automation, optimized vendor management, lower distribution costs, and retirement of legacy technologies
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Enhancing pricing sophistication to price products based on customer needs and risks and improving our purchase process with automated decision support
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Increasing engagement with the Allstate Mobile app and new business penetration of telematics products, including pay-per-mile insurance
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Leveraging our circle of protection to provide added protection solutions
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Item 1. Business 2020 Form 10-K
Additional Information and Strategy Updates
Commercial lines strategy We continue to focus on profitable expansion of our shared economy commercial lines business, which is primarily comprised of transportation network companies. Traditional small business commercial insurance is being enhanced through new product development using technology to improve customer experience and reduce costs while leveraging enterprise capabilities. Profit improvement actions continue for our traditional commercial lines insurance products, emphasizing pricing, claims, governance and operational improvements.
Independent agent strategy On January 4, 2021, we completed the acquisition of National General, significantly enhancing our strategic position in the independent agency channel. The transaction will increase our market share in personal property-liability by over one percentage point and enhance our independent agent-facing technology. It will significantly expand our distribution footprint, leading us to be a top five personal lines carrier in the independent agency distribution channel. Additional expansion opportunities through independent agents also exist in standard auto and homeowners insurance by leveraging Allstate’s capabilities.
National General provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed property, supplemental health and other niche insurance products. Auto insurance represents approximately 60% of premium with a significant presence in the non-standard auto market.
As part of the acquisition, Allstate Independent Agency and Encompass organizations will be integrated into National General by:
•Migrating Encompass policyholders and business operations to National General and sunset Encompass infrastructure
•Transitioning Allstate Independent Agent new business to National General as mid-market products roll out
Answer Financial strategy Answer Financial is an insurance agency that sells other insurance companies’ products directly to customers online. Our strategy as a technology-enabled insurance agency is to provide comparison shopping and related services for businesses, offering customers choice, convenience and ease of use.
Allstate Protection pricing and risk management strategies Our pricing and underwriting strategies and decisions are designed to generate sustainable profitable growth.
A proprietary database of underwriting and loss experience enables sophisticated pricing algorithms and methodologies to more accurately price risks while also seeking to attract and retain customers in multiple risk segments.
•For auto insurance, risk evaluation factors can include, but are not limited to: vehicle make, model and year; driver age and marital status; territory; years licensed; loss history; years insured with prior carrier; prior liability limits; prior lapse in coverage; and insurance scoring utilizing telematics data and other consumer information.
•For property insurance, risk evaluation factors can include, but are not limited to: the amount of insurance purchased; geographic location of the property; loss history; age, condition and construction characteristics of the property; and characteristics of the insured including insurance scoring utilizing other consumer information.
A combination of underwriting information, pricing and discounts are also used to achieve a more competitive position and growth. The pricing strategy involves local marketplace pricing and underwriting decisions based on risk evaluation factors to the extent permissible by applicable law and an evaluation of competitors.
Pricing of property products is intended to generate risk-adjusted returns that are acceptable over a long-term period. Rate increases are pursued to keep pace with loss trends, including losses from catastrophic events and those that are weather-related (such as wind, hail, lightning and freeze not meeting our criteria to be declared a catastrophe). We also take into consideration potential customer disruption, the impact on our ability to market our products, regulatory limitations, our competitive position and profitability.
In any reporting period, loss experience from catastrophic events and weather-related losses may contribute to negative or positive underwriting performance relative to the expectations incorporated into product pricing.
Property catastrophe exposure is managed with the goal of providing shareholders an acceptable return on the risks assumed in the property business. Catastrophe exposure management includes purchasing reinsurance to provide coverage for known exposure to hurricanes, earthquakes and fires following earthquakes, wildfires and other catastrophes. Our current catastrophe reinsurance program supports our risk tolerance framework that targets less than a 1% likelihood of annual aggregate catastrophe losses from hurricanes and earthquakes, excluding other catastrophe losses and, net of reinsurance, exceeding $2 billion.
The use of different assumptions and updates to industry models and to our risk transfer program could materially change the projected loss. Growth strategies include areas where we believe diversification can be enhanced and an appropriate return can be earned for the risk. As a result, our modeled exposure may increase, but in aggregate remain lower than $2 billion as noted above. In addition, we have exposure to other severe weather events and wildfires, which impact catastrophe losses.
The Allstate Corporation 5
2020 Form 10-K Item 1. Business
We are promoting measures to prevent and mitigate losses and make homes and communities more resilient, including enactment of stronger building codes and effective enforcement of those
codes, adoption of sensible land use policies, and development of effective and affordable methods of improving the resilience of existing structures.
Products and distribution
Allstate Protection differentiates itself by offering solutions to meet broad-based household protection needs and a comprehensive range of innovative product options and features across distribution channels that best suit each consumer segment.
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Products
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Insurance products (1)
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Auto
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Homeowners
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Specialty auto (motorcycle, trailer, motor home and off-road vehicle)
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Other personal lines (renters, condominium, landlord, boat, umbrella, manufactured home and stand-alone scheduled personal property)
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Commercial lines
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Answer Financial
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Comparison quotes and sales of non-proprietary auto, homeowners and other personal lines (condominium, renters, motorcycle, recreational vehicle and boat)
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(1)Insurance products are offered by the Allstate and Encompass brands.
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Distribution
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Allstate brand
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In the U.S., we offer products through 10,400 Allstate exclusive agents operating in 10,300 locations, supported by 23,900 licensed sales professionals, and 1,000 exclusive financial specialists. We also offer products through 5,200 independent agents, contact centers and online. In Canada, we offer Allstate brand products through 1,000 employee sales agents.
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Encompass brand
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Distributed through 3,100 independent agents.
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Answer Financial
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Comparison quotes and sales offered to customers online or through contact centers.
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Allstate exclusive agents also support the Protection Services, Allstate Life and Allstate Benefits segments through offering roadside assistance, consumer protection plans, identity protection, life insurance and voluntary benefits products. We expect to discontinue sales of proprietary life insurance products during the second quarter of 2021, and will expand the non-proprietary product suite to include a range of life insurance products offered by third-party providers.
Exclusive agent compensation structure The compensation structure for Allstate exclusive agents rewards them for delivering high value to customers and achieving certain business outcomes such as profitable growth and household penetration. Allstate exclusive agent remuneration comprises a base commission, variable compensation and a bonus.
•Agents receive a monthly base commission payment as a percentage of their total eligible written premium.
•Variable compensation rewards agents for acquiring new customers by exceeding a base production goal.
•Bonus compensation is based on a percentage of premiums and can be earned by agents who are meeting certain sales goals and selling additional policies to meet customer needs profitably.
Compensation for 2021 includes a shift in variable compensation toward new business, including homeowners, and eliminates variable compensation for renewing customers. We are aligning agent compensation to emphasize growth while simultaneously improving customer service consistency.
Agents have the ability to earn commissions and additional bonuses on non-proprietary products provided to customers when an Allstate product is not available through Ivantage, a leading provider of property and casualty brokerage services, and arrangements made with other companies, agencies, and brokers. As of December 31, 2020, Ivantage had $1.94 billion non-proprietary premiums under management, consisting of approximately $1.72 billion of personal insurance premiums primarily related to property business in hurricane exposed areas, and approximately $222 million of commercial insurance premiums.
Item 1. Business 2020 Form 10-K
Additionally, we offer a homeowners product through our excess and surplus lines carrier, North Light Specialty Insurance Company, in certain areas with higher risk of catastrophes or where customers do not meet the Allstate brand standard underwriting profile.
Allstate agents and exclusive financial specialists receive commissions for proprietary and non-proprietary life and retirement sales and are eligible for a quarterly bonus based on the volume of non-proprietary sales.
Allstate independent agent remuneration comprises a base commission and a bonus that can be earned by agents who achieve sales goals and a target loss ratio.
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Innovative product offerings and features
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Market-leading solutions
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Allstate brand
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Your Choice Auto®
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Qualified customers choose from a variety of options, such as Accident Forgiveness, Deductible Rewards®, Safe Driving Bonus® and New Car Replacement.
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Allstate House and Home®
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Featured options include Claim RateGuard®, Claim-Free Bonus, Deductible Rewards® and flexibility in options and coverages, including graduated roof coverage and pricing based on roof type and age for damage related to wind and hail events.
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Claim Satisfaction Guarantee®
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Promised return of premium to standard auto insurance customers dissatisfied with their claims experience.
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Bundling Benefits
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Auto customers with a qualifying property policy are provided an auto renewal guarantee and a deductible waiver (when the same event, with the same covered cause of loss, damages both auto and property). Offered in 47 states and District of Columbia (“D.C.”) as of December 31, 2020.
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New Car Replacement
Protection
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Replaces a qualifying customer’s vehicle (two model years old or less) involved in a total loss accident with a vehicle of the same or similar make and model. Offered in 50 states and D.C. as of December 31, 2020.
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Encompass brand
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EncompassOne® Policy
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Packaged insurance product with one premium, one bill, one policy deductible and one renewal date. Broad coverage options include customizable features such as enhanced accident forgiveness, new-car replacement coverage, walk-away home coverage option should the insured decide not to rebuild, flexible additional living expense coverage, water-sewer backup coverage options and roadside assistance. This product is offered in 36 states and the District of Columbia (“D.C.”) as of December 31, 2020.
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Surround Solutions by Encompass®
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Offers auto (6-months), homeowner and specialty lines products, pricing, services and support designed to provide flexibility and be customized based on consumer needs. Offered exclusively in four states for Encompass as of December 31, 2020.
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Telematics solutions
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Allstate brand
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Drivewise®
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Telematics-based program, available in 50 states and the District of Columbia as of December 31, 2020, that uses a mobile application or an in-car device to capture driving behaviors and encourage safe driving. It provides customers with information and tools, incentives and driving challenges. For example, in most states, Allstate Rewards® provides reward points for safe driving.
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Milewise®
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Usage-based insurance product, available in 17 states as of December 31, 2020, that gives customers flexibility to customize their insurance and pay based on the number of miles they drive.
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DriveSense®
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Telematics-based insurance program offered by Esurance, available in 37 states as of December 31, 2020, that primarily uses a mobile application to capture driving behaviors and reward customers for safe driving.
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Encompass brand
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Routely®
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Telematics application, available in 18 states as of December 31, 2020, used to capture driving behaviors and reward customer participation.
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Shared economy solutions
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Allstate brand
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Transportation Network Company Commercial Auto
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Commercial coverage of transportation networking company independent drivers during various phases of the ride sharing service.
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Allstate Ride for Hire®/ HostAdvantage®
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Supplemental personal insurance coverage for those using their vehicle to drive for a transportation network company or their house for peer-to-peer property sharing.
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The Allstate Corporation 7
2020 Form 10-K Item 1. Business
Competition
The personal lines insurance markets, including private passenger auto and homeowners insurance, are highly competitive. The following charts provide Allstate Protection’s combined market share compared to our principal U.S. competitors using statutory direct written premium for the year ended December 31, 2019, according to A.M. Best.
On January 4, 2021, we completed the acquisition of National General and we estimate that our market share in personal lines insurance will increase by 1.1%, totaling 10.0%, ranking Allstate as the second largest personal lines insurer in the United States, based on statutory direct written premium for the year ended December 31, 2019, according to A.M. Best.
Geographic markets
We primarily operate in the U.S (all 50 states and D.C.) and Canada. Our top geographic markets based on 2020 statutory direct premiums are reflected below. The geographic distribution does not include National General results.
Item 1. Business 2020 Form 10-K
Protection Services Segment
Our Protection Services segment accounted for 4.3% of Allstate’s 2020 consolidated total revenue and 77.5% of Allstate’s December 31, 2020 PIF. Protection Services includes AllstateSM Protection Plans, Allstate Dealer Services®, Allstate Roadside, Arity® and AllstateSM Identity Protection, which offer a broad range of products and services that expand and enhance customer value propositions.
Strategy - Protection Services are a key part of our strategy by expanding other protection businesses and increasing our total addressable market by delivering superior value propositions and building strategic platforms to connect and engage with customers and effectively address their changing needs and preferences.
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Allstate Protection Plans
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Expand distribution of consumer protection plan and technical support products through new and existing retail and mobile operator accounts while increasing profitability and returns.
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Allstate Dealer Services
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Expand distribution of Allstate branded finance and insurance products and services through auto dealerships.
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Allstate Roadside
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Modernize the roadside assistance business through technology and enhance capabilities to deliver a superior customer experience while improving efficiency and returns.
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Arity
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Leverage analytics and deep understanding of driver risk to create a strategic platform. The platform will be used by those industries affected most by the changing face of transportation, including insurance companies, shared mobility companies and the automotive ecosystem.
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Allstate Identity Protection
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Create a leading position in the identity protection market, offering full identity protection monitoring with proactive alerts, digital exposure reporting and identity theft reimbursement as well as expanding into other distribution channels.
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Products and distribution
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Products and services
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Allstate Protection Plans
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Provides consumer protection plans and related technical support for mobile phones, consumer electronics, furniture and appliances which provide customers protection from mechanical or electrical failure, and in certain cases, accidental damage from handling.
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Allstate Dealer Services
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Offers finance and insurance products, including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel protection, and paintless dent repair protection.
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Allstate Roadside
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Offers towing, jump-start, lockout, fuel delivery and tire change services to retail customers and customers of our wholesale partners.
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Arity
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Provides data and analytics solutions with the Arity platform using automotive telematics information. Customers receive value from our solutions either by using web-based software tools, white labeled mobile applications or through embedding our technology in their mobile applications.
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Allstate Identity Protection
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Provides identity protection services including monitoring, alerts, remediation and a proprietary indicator of identity health.
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Distribution channels
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Allstate Protection Plans
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Major retailers in the U.S. and mobile operators in Europe.
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Allstate Dealer Services
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Independent agents and brokers through auto dealerships in the U.S. in conjunction with the purchase of a new or used vehicle.
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Allstate Roadside
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Allstate exclusive agents, wholesale partners, affinity groups and a mobile application.
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Arity
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Sells directly to affiliate and non-affiliate customers and through strategic partners.
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Allstate Identity Protection
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Primarily through workplace benefit programs and direct to consumer using the mobile application and online.
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Geographic markets
Protection Services primarily operate in the U.S. and Canada, with Allstate Protection Plans also offering services in Europe and Japan.
Competition
We compete on a variety of factors, including product offerings, brand recognition, financial strength, price, distribution and the customer experience. The market for these services is highly fragmented and competitive.
The Allstate Corporation 9
2020 Form 10-K Item 1. Business
Allstate Benefits Segment
Strategy
Our Allstate Benefits segment accounted for 2.6% of Allstate’s 2020 consolidated total revenue and 2.2% of Allstate’s December 31, 2020 PIF. The Allstate Benefits segment provides consumers with financial protection against the risk of accidents, illness and mortality. We are among the industry leaders in the growing and highly competitive voluntary benefits market, offering a broad range of products through workplace enrollment. Our life insurance portfolio includes individual and group permanent life solutions. Target customers are middle market consumers with family and financial protection needs employed by small, medium and large sized firms. Allstate Benefits is well represented in all market segments and is a leader in the large and mega (over 10,000 employees) market segments.
Our products are offered through independent agents, benefits brokers and Allstate exclusive agents. Allstate Benefits is differentiated through its broad product portfolio, flexible enrollment solutions, strong national accounts team and well-recognized brand.
Our strategy for growth is to deliver substantially more value through innovative products and technology, tailored solutions and exceptional service through investments in future-state technologies and data and analytics capabilities.
Products and distribution
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Voluntary benefits products
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Life
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Hospital
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Accident
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Short-term disability
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Critical illness
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Other health
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Distribution channels
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4,160 workplace enrolling independent agents and benefits brokers.
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Allstate exclusive agents, focusing on small employers.
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On January 4, 2021, we completed the acquisition of National General. National General’s accident and health products include accident and non-major medical health insurance products and will be included in the Allstate Benefits segment. These products are offered direct to consumers through call centers and the internet, and through independent agents, general agencies, affinity relationships and the workplace.
Competition
We compete on a wide variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and customer service.
The market for voluntary benefits is growing as these products help employees fill the increasing gaps associated with continued medical cost inflation and the shifting of costs from employers to employees to cover co-pays and deductibles. Favorable industry and economic trends have increased competitive pressure and attracted new traditional and non-traditional entrants to the voluntary benefits market. Recent entrants, including large group medical, life and disability insurance carriers, are leveraging core benefit capabilities by bundling and discounting to capture voluntary market share.
Geographic markets
We primarily operate in the U.S. (all 50 states and D.C.) and Canada. The top geographic markets based on 2020 statutory direct premiums are reflected below.
Item 1. Business 2020 Form 10-K
Pending Sale of ALIC and Certain Affiliates
We announced the pending sale of ALIC and certain affiliates, which represents approximately 90% of Allstate Life and 75% of Allstate Annuities reserves for life-contingent contract benefits and contractholder funds. Allstate will retain ownership of ALNY while pursuing alternatives to sell or otherwise transfer risk to a third party. We expect to discontinue sales of proprietary life insurance products during the second quarter of 2021.
Allstate Life Segment
Strategy
Our Allstate Life segment accounted for 4.4% of Allstate’s 2020 consolidated total revenue and 1.1% of Allstate’s December 31, 2020 PIF.
Our strategy is to broaden Allstate’s customer relationships and value proposition. Target customers are middle market consumers with family and financial protection needs. Our business consists of traditional, interest-sensitive and variable life insurance sold through Allstate exclusive agents and exclusive financial specialists. Allstate exclusive agents and exclusive financial specialists also sell certain non-proprietary products offered by third-party providers, including mutual funds, fixed and variable annuities, disability insurance, and long-term care insurance to provide a broad suite of protection and retirement products. As of December 31, 2020, Allstate agencies had approximately $17.9 billion of non-proprietary mutual funds and fixed and variable annuity account balances under management. New and additional deposits into these non-proprietary products were $2.2 billion in 2020.
We will expand the non-proprietary product suite available for distribution to include a range of life insurance products offered by third-party providers.
Competition
We compete on a variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and customer service. The market for life insurance continues to be highly fragmented and competitive. As of December 31, 2019, there were approximately 335 groups of life insurance companies in the United States.
Geographic markets
We operate in the U.S. (all 50 states and D.C.). Our top geographic markets based on 2020 statutory direct premiums are reflected below.
Allstate Annuities Segment
Strategy
Our Allstate Annuities segment accounted for 2.3% of Allstate’s 2020 consolidated total revenue and 0.1% of Allstate’s December 31, 2020 PIF. The Allstate Annuities segment consists primarily of deferred fixed annuities and immediate fixed annuities (including standard and sub-standard structured settlements).
The segment is in run-off and is focused on increasing lifetime economic value. Both the deferred and immediate annuity businesses have been adversely impacted by the historically low interest rate environment. Our immediate annuity business has also been impacted by medical advancements that have resulted in annuitants living longer than anticipated when many of these contracts were originated.
Allstate Annuities focuses on the distinct risk and return profiles of the specific products when developing investment and liability management strategies. The level of legacy deferred annuities in force has been significantly reduced and the investment portfolio and crediting rates are proactively managed to improve profitability of the business while providing appropriate levels of liquidity.
The investment portfolio supporting our immediate annuities is managed to ensure the assets match the characteristics of the liabilities and provide the long-term returns needed to support this business. To better match the long-term nature of our immediate annuities, we use performance-based investments (primarily limited partnership investments) in which we have ownership interests and a greater proportion of return is derived from idiosyncratic asset or operating performance.
The Allstate Corporation 11
2020 Form 10-K Item 1. Business
Other Business Segments
Discontinued Lines and Coverages Segment
The Discontinued Lines and Coverages segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s.
Strategy Management of this segment has been assigned to a designated group of professionals with expertise in claims handling, policy coverage interpretation, exposure identification, litigation and reinsurance collection. As part of its responsibilities, this group pursues settlement agreements including policy buybacks on direct excess commercial business when appropriate to improve the certainty of the liabilities. At the end of 2020, 67.0% of the direct excess gross case reserves were attributable to settlement agreements. This group also manages other direct commercial and assumed reinsurance business in runoff and engages in reinsurance ceded and assumed commutations as required or when considered economically advantageous.
Changes in the reserves established for asbestos, environmental and other discontinued lines losses have occurred and may continue. Reserve changes can be caused by new information relating to new and additional claims, new exposures or the impact of resolving unsettled claims based on unanticipated events such as arbitrations, litigation, legislative, judicial or regulatory actions. Environmental losses may also increase as the result of additional funding for environmental site clean-up.
Challenges related to the concentration of insurance and reinsurance claims from companies who specialize in this business continue to be addressed.
Corporate and Other Segment
Our Corporate and Other segment is comprised of holding company activities and certain non-insurance operations, including expenses associated with strategic initiatives.
Item 1. Business 2020 Form 10-K
Regulation
Allstate is subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation vary by state but generally have their source in statutes that establish standards and requirements for conducting the business of insurance and that also delegate regulatory authority to a state agency. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency and statutory surplus sufficiency, reserve adequacy, insurance company licensing and examination, agent and adjuster licensing, agent and broker compensation, policy forms, rate setting, the nature and amount of investments, claims practices, participation in shared markets and guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices, privacy regulation and data security, corporate governance and risk management. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. For a discussion of statutory financial information, see Note 16 of the consolidated financial statements.
For a discussion of regulatory contingencies, see Note 14 of the consolidated financial statements. Notes 14 and 16 are incorporated in this Part I, Item 1 by reference.
As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted in 2010. Dodd-Frank created the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury (“Treasury”). The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system.
Additional regulations or new requirements may emerge from the activities of various regulatory entities, including the Federal Reserve Board, FIO, FSOC, the National Association of Insurance Commissioners (“NAIC”), and the International Association of Insurance Supervisors (“IAIS”), that are evaluating solvency and capital standards for insurance company groups. In addition, the NAIC has adopted amendments to its model holding company law that have been adopted by some jurisdictions. The outcome of these actions is uncertain; however, these actions may result in an increase in the level of capital and liquidity required by insurance holding companies.
We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Allstate. We are working for changes in the regulatory environment to make insurance more available and affordable for customers, encourage market innovation, improve driving safety, strengthen cybersecurity, promote better catastrophe preparedness and loss mitigation
and advocate for appropriate long-term capital standards to support optimal risk adjusted returns.
Limitations on Dividends by Insurance Subsidiaries. As a holding company with no significant business operations of its own, The Allstate Corporation relies on dividends from Allstate Insurance Company as one of the principal sources of cash to pay dividends and to meet its obligations, including the payment of principal and interest on debt or to fund non-insurance-related businesses. Allstate Insurance Company is regulated as an insurance company in Illinois, and its ability to pay dividends is restricted by Illinois law. The laws of the other jurisdictions that generally govern our other insurance subsidiaries contain similar limitations on the payment of dividends. However, such laws in some jurisdictions may be more restrictive.
For additional information regarding limitations, see Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.
In addition, the NAIC has formed a working group for the development of a group capital calculation covering all entities of the insurance company group for use in solvency monitoring activities. The calculation is intended to provide analytical information and we do not expect potential revisions to impact our current dividend plans, any increase in the amount of capital or reserves our insurance subsidiaries are required to hold could reduce the amount of future dividends such subsidiaries are able to distribute to the holding company. Any reduction in the RBC ratios of our insurance subsidiaries could also adversely affect their financial strength ratings as determined by statistical rating agencies.
Insurance Holding Company Regulation – Change of Control. The Allstate Corporation and Allstate Insurance Company are insurance holding companies subject to regulation in the jurisdictions in which their insurance subsidiaries, including the insurance subsidiaries of National General, do business. In the U.S., these subsidiaries are organized under the insurance codes of Alabama, California, Florida, Illinois, Indiana, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, South Carolina and Texas. Additionally, some of these subsidiaries are considered commercially domiciled in California and Florida.
Generally, the insurance codes in these states provide that the acquisition or change of “control” of a domestic or commercially domiciled insurer or of any person that controls such an insurer cannot be consummated without the prior approval of the relevant insurance regulator. In general, a presumption of “control” arises from the ownership, control, possession with the power to vote, or possession of proxies with respect to ten percent or more of the voting securities of an insurer or of a person who controls an insurer. In addition, certain state insurance laws require pre-acquisition notification to state
The Allstate Corporation 13
2020 Form 10-K Item 1. Business
agencies of a change in control with respect to a non-domestic insurance company licensed to do business in that state. While such pre-acquisition notification statutes do not authorize the state agency to disapprove the change of control, such statutes do authorize certain remedies, including the issuance of a cease-and-desist order with respect to the non-domestic insurer if certain conditions exist, such as undue market concentration.
Thus, any transaction involving the acquisition of ten percent or more of The Allstate Corporation’s common stock would generally require prior approval by the state insurance departments in Alabama (where the threshold is five percent or more of The Allstate Corporation’s common stock), California, Florida, Illinois, Indiana, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, South Carolina and Texas. Moreover, notification would be required in those other states that have adopted pre-acquisition notification provisions and where the insurance subsidiaries are admitted to transact business. Such approval requirements may deter, delay or prevent certain transactions affecting the ownership of The Allstate Corporation’s common stock.
Rate Regulation. Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority. In many cases, such rating plans, policy forms, or both must be approved prior to use.
The speed with which an insurer can change rates in response to competition or increasing costs depends on the state rating laws, which include the following categories:
•Prior approval — Regulators must approve a rate before the insurer may use it
•File-and-use — Insurers do not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used
•Use-and-file — Requires an insurer to file rates within a certain period of time after the insurer begins using them
•No approval — One state, with an immaterial amount of written premiums, does not impose a rate filing requirement
Under these rating laws, the regulator has the authority to disapprove a rate filing. The percentage of 2020 statutory direct written premiums based on state rating laws are reflected below.
An insurer’s ability to adjust its rates in response to competition or to changing costs is dependent on an insurer’s ability to demonstrate to the regulator that its rates or proposed rating plan meets the requirements of the rating laws. In those states that significantly restrict an insurer’s discretion in selecting the business that it wants to underwrite, an insurer can manage its risk of loss by charging a rate that reflects the cost and expense of providing the insurance. In those states that significantly restrict an insurer’s ability to charge a rate that reflects the cost and expense of providing the insurance, the insurer can manage its risk of loss by being more selective in the type of business it underwrites. When a state significantly restricts both underwriting and pricing, it becomes more difficult for an insurer to maintain its profitability.
From time to time, the personal lines insurance industry comes under pressure from state regulators, legislators, and special-interest groups to reduce, freeze, or set rates at levels that do not correspond with our analysis of underlying costs, catastrophe loss exposure, and expenses. We expect this kind of pressure to persist. Allstate and other insurers are using increasingly sophisticated pricing models and rating plans that are reviewed by regulators and special-interest groups. State regulators may interpret existing law or rely on future legislation or regulations to impose new restrictions that adversely affect profitability or growth. We cannot predict the impact on our business of possible future legislative and regulatory measures regarding insurance rates.
Involuntary Markets. As a condition of maintaining our licenses to write personal property and casualty insurance in various states, we are required to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations that provide various types of insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to our results of operations.
For a discussion of these items see Note 14 of the consolidated financial statements. Note 14 is incorporated in this Part I, Item 1 by reference.
Indemnification Programs. We are a participant in state-based industry pools, facilities or associations, mandating participation by insurers offering certain coverage in their state, including the Michigan Catastrophic Claims Association (“MCCA”), the New Jersey Property-Liability Insurance Guaranty Association, the North Carolina Reinsurance Facility and the Florida Hurricane Catastrophe Fund. We also participate in the Federal Government National Flood Insurance Program.
Recent regulatory changes have occurred related to the MCCA. At this time, we are unable to determine whether, or to what extent, these changes will have on our claims and claims expense reserves and corresponding MCCA indemnification recoverables.
•On August 6, 2020, member companies of the MCCA were notified of the ratification of
Item 1. Business 2020 Form 10-K
amendments to the MCCA’s Plan of Operation. The amendments were designed to align the Plan of Operation with Public Acts 21 and 22, which passed in 2019.
•On July 2, 2020, portions of Public Acts 21 and 22 went into effect. The changes under those laws include:
–Allowing insureds to choose levels of personal injury protection coverage, including the option to opt-out of personal injury protection coverage in certain circumstances.
–Implementing mandated rate reductions that correspond to the level of personal injury protection coverage chosen by insureds.
–Implementing or creating new processes for reviewing claims, assessing allowable expenses and setting limits on certain allowable expenses.
•On July 2, 2021, legislation passed in 2019 will become effective, setting fee schedules for personal injury protection claims. Such fee schedules will be set at 200% of Medicare rates in 2021, declining to 195% in 2022 and 190% in 2023, for any providers other than certain unique categories of providers and applying to treatment on existing and new claims.
•Other legislative proposals to change the MCCA operation in the future and to adjust Public Acts 21 and 22 are put forth periodically.
For a discussion of these items see Note 10 of the consolidated financial statements. Note 10 is incorporated in this Part I, Item 1 by reference.
Guaranty Funds. Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, in order to cover certain obligations of insolvent insurance companies. We do not anticipate any material adverse financial impact on Allstate from these assessments.
Investment Regulation. Our insurance subsidiaries are subject to state regulation that specifies the types of investments that can be made and concentration limits of invested assets. Failure to comply with these rules leads to the treatment of non-conforming investments as non-admitted assets for purposes of measuring statutory surplus. Further, in some instances, these rules require divestiture of non-conforming investments.
Exiting Geographic Markets; Canceling and Non-Renewing Policies. Most states regulate an insurer’s ability to exit a market. For example, states may limit, to varying degrees, an insurer’s ability to cancel and non-renew policies. Some states restrict or prohibit an insurer from withdrawing one or more types of insurance business from the state, except pursuant to a plan that is approved by the state insurance department. Regulations that limit cancellation and non-renewal and that subject withdrawal plans to prior approval requirements may restrict an insurer’s ability to exit unprofitable markets.
Variable Life Insurance and Registered Fixed Annuities. The sale and administration of variable life insurance and registered fixed annuities with market value adjustment features are subject to extensive regulatory oversight at the federal and state level, including regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”).
Broker-Dealers, Investment Advisors and Investment Companies. The Allstate entities that operate as broker-dealers, registered investment advisors, and investment companies are subject to regulation and supervision by the SEC, FINRA and/or, in some cases, state securities administrators. Certain state and federal regulators are considering or have implemented best interest or fiduciary standards. Such standards could impact products provided by Allstate agents and Allstate’s broker-dealers, their sales processes, sales volume, and producer compensation arrangements.
Dodd-Frank: Covered Agreement. The Secretary of the Treasury (operating through FIO) and the Office of the U.S. Trade Representative (“USTR”) are jointly authorized, pursuant to the Dodd-Frank, to negotiate Covered Agreements. A Covered Agreement is a bilateral or multilateral agreement that “relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under State insurance or reinsurance regulation.”
On September 22, 2017, the U.S. and European Union (“EU”) signed a Covered Agreement. In addition to signing the Covered Agreement, Treasury and the USTR jointly issued a policy statement clarifying how the U.S. views implementation of certain provisions of the Covered Agreement. The policy statement affirms the U.S. system of insurance regulation, including the role of state insurance regulators as the primary supervisors of the business of insurance and addresses several other key provisions of the Covered Agreement for which constituents sought clarity, including prospective application to reinsurance agreements and an affirmation that the Covered Agreement does not require development of a group capital standard or group capital requirement in the U.S.
The U.S. has five years from the date of signing to amend its credit for reinsurance laws and regulations to conform with the requirements of the Covered Agreement or face federal preemption determinations by the FIO. To address the requirements of the Covered Agreement, the NAIC has formally adopted revisions to its existing credit for reinsurance model law and model regulation to conform with the requirements of the Covered Agreement with the expectation that states will adopt and implement the modified model law and regulation by September 2022.
On December 19, 2018, the U.S. and the United Kingdom (“UK”) signed a separate Covered Agreement consistent with the U.S.-EU Covered Agreement to
The Allstate Corporation 15
2020 Form 10-K Item 1. Business
coordinate regulation of the insurance industry doing business in the U.S. and UK. Consistent with the U.S.-EU Covered Agreement (the “Agreement”) signed in 2017, Treasury and the USTR also issued a policy statement regarding implementation of the Agreement affirming the role that state insurance regulators play as the primary supervisors of the U.S. insurance industry.
Division Statute. On November 27, 2018, the Illinois General Assembly passed legislation authorizing a statute that makes available a process by which a domestic insurance company may divide into two or more domestic insurance companies. The statute, which became effective January 1, 2019, can be used to divide continuing blocks of insurance business from insurance business no longer marketed, or otherwise has been discontinued, into separate companies with separate capital. The statute can also be used for sale to a third party or to manage risks associated with indemnification programs. Before a plan of division can be effected it must be approved according to the organizational documents of the dividing insurer and submitted for approval by the Illinois Department of Insurance.
Privacy Regulation and Data Security. Federal law and the laws of many states require financial institutions to protect the security and confidentiality of consumer information and to notify consumers about their policies and practices relating to collection, use, and disclosure of consumer information and their policies relating to protecting the security and confidentiality of that information. Federal law and the laws of many states also regulate disclosures and disposal of consumer information. Congress, state legislatures, and regulatory authorities are expected to consider additional regulation relating to privacy and other aspects of consumer information.
For example, the California Consumer Privacy Act, which took effect in January 2020, adopted significant compliance requirements for businesses that collect personal information on California residents. In addition, the California Privacy Rights Act, which expands consumer privacy rights and establishes a new privacy regulatory agency, was passed in November 2020 and will become effective in January 2023. Further, the New York State Department of Financial Services cybersecurity regulation and the NAIC Insurance Data Security Model Law, which has been adopted in some form by several states, establish standards for data security and for the investigation of and notification to insurance commissioners of cybersecurity events. Additional states are also likely to adopt similarly themed cybersecurity requirements in the future. We cannot predict the impact on our business of possible future legislative measures regarding privacy or cybersecurity.
Asbestos. Congress has repeatedly considered legislation to address asbestos claims and litigation in the past. We cannot predict the impact on our business of possible future legislative measures regarding asbestos.
Environmental. Environmental pollution and clean-up of polluted waste sites is the subject of federal and state regulation. The Comprehensive Environmental Response Compensation and Liability Act of 1980 (the “Superfund”) and comparable state statutes (the “mini-Superfunds”) govern the clean-up and restoration of waste sites by Potentially Responsible Parties (“PRPs”). The Superfund and the mini-Superfunds (collectively, the “Environmental Clean-up Laws” or “ECLs”) establish a mechanism to assign liability to PRPs or to fund the clean-up of waste sites if PRPs fail to do so. The extent of liability to be allocated to a PRP depends on a variety of factors. The insurance industry is involved in extensive litigation regarding coverage issues arising out of the clean-up of waste sites by insured PRPs and the insured parties’ alleged liability to third parties responsible for the clean-up. The insurance industry, including Allstate, has disputed and is disputing many such claims. Key coverage issues include whether the Superfund response, investigation, and clean-up costs are considered damages under the policies; whether coverage has been triggered; whether any pollution exclusion applies; whether there has been proper notice of claims; whether administrative liability triggers the duty to defend; whether there is an appropriate allocation of liability among potentially responsible insurers; and whether the liability in question falls within the definition of an “occurrence.” Identical coverage issues exist for clean-up and waste sites not covered under the Superfund. To date, courts have been inconsistent in their rulings on these issues.
Allstate’s exposure to liability with regard to its insureds that have been, or may be, named as PRPs is uncertain. While comprehensive Superfund reform proposals have been introduced in Congress, only modest reform measures have been enacted. In May 2017, the Environmental Protection Agency created a Superfund Task Force that issued proposed reforms in a July 2018 report. These recommendations address expediting clean-up and remediation processes, reducing the financial burden of the clean-up process, encouraging private investment, promoting redevelopment and community revitalization, and building and strengthening partnerships. We cannot predict which, if any, of these reforms will be enacted.
Developments in the insurance and reinsurance industries have fostered a movement to segregate asbestos, environmental and other discontinued lines exposures into separate legal entities with dedicated capital. Regulatory bodies in certain cases have supported these actions. We are unable to determine the impact, if any, that these developments will have on the collectability of reinsurance recoverables in the future.
Item 1. Business 2020 Form 10-K
Human Capital
Allstate’s success is highly dependent on human capital. The wellbeing of our employees is a key priority, and Allstate strives to promote a dynamic and welcoming workplace that promotes inclusive diversity and equity, fosters collaboration and encourages employees to bring their best ideas to work every day. As of December 31, 2020, Allstate had approximately 41,860 full-time employees and 300 part-time employees.
Allstate’s human capital management focuses on the following priorities:
Inclusive Diversity and Equity (“IDE”) We strive for a workforce where the breadth of our diversity makes us a better company. IDE is one of Allstate’s core values and serves as a foundation of Our Shared Purpose.
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U.S. workforce diversity as of December 31, 2020
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Women
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55%
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Racially and ethnically diverse
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39%
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•We track our workforce composition data over time to determine if we are making appropriate progress in advancing gender and racial representation in our employee population and we disclose our progress. In our Sustainability Report, we provide, among other things, five years of workforce composition data that shows a breakdown of salaried, hourly and management employees by gender and race.
•As part of our commitment to fair and equitable compensation practices, we complete an annual pay equity analysis. Over the past two years, we engaged an external firm to provide a more detailed analysis to identify potential pay gaps across substantially similar employee groups as well as identify policies, practices or systematic issues that may contribute to pay gaps now or over time. The external analyses found that Allstate’s results compared well to benchmarks for companies of similar size and scope.
•Allstate’s Employee Resource Group (“ERG”) Program and the Enterprise Diversity Leadership Council (“EDLC”) help advance IDE.
–ERGs: We support and fund 11 ERGs. ERGs offer specific opportunities for employees to partner and collaborate with each other through professional development workshops, recruiting events, volunteer projects and mentoring. Officers from across the enterprise, leverage their time, networks and resources to support the ERGs and advance IDE at Allstate.
–EDLC: The EDLC is made up of senior leaders throughout the organization and focuses on driving targeted results for IDE by identifying and prioritizing action, taking accountability for achieving targeted results and ensuring
clarity and understanding of the business relevance of IDE. The EDLC provides updates to our chief executive officer.
•In 2020, employees completed 30,827 courses on IDE. The number of courses completed in June through December 2020 comprised more than double the total of IDE courses completed in all of 2019. Three new virtual, instructor-led sessions were launched in July 2020, in line with our focus on reflection, learning and action.
•Allstate continues to look for ways to build awareness and drive action. In response to the unprecedented events in 2020, we:
–Began observing Juneteenth as an annual company holiday
–Launched an Anti-Racism Resource Center for employees
–Expanded the “Inclusive Conversations” series to monthly, hosted, enterprise-level sessions to build off themes of racial inequity, allyship, privilege and other relevant topics
–Founding member of OneTen (with other leading CEOs and organizations), an organization committed to upskilling, hiring and promoting one million Black Americans over the next 10 years into family-sustaining jobs with opportunities for advancement
•An external comprehensive IDE assessment will be completed in 2021 and will include a full assessment of our programs, policies, processes, procedures, and practices to ensure that we are building, maintaining and supporting fully sustainable and equitable programs at Allstate.
Employee Wellbeing and Safety We take seriously our responsibility to care for employees’ well-being, devoting resources to employee health and safety.
•The Coronavirus made Allstate even more focused on employees’ health and safety.
–In just one week, we transitioned 95% of our workforce to working remotely.
–As part of the Good Office program, we shipped over 50,000 office items to our employees to help them work more productively at home.
–We established Coronavirus hotlines for employees and continued to pay employees who could not work remotely under shelter-in-place orders.
–During the fourth quarter of 2020, we announced the Holiday Support Program, which helped provide financial relief to approximately 5,000 employees experiencing financial hardships due to the Coronavirus.
–Enhanced safety guidelines, cleaning protocols and social distancing practices remain in place for in-office workers.
The Allstate Corporation 17
2020 Form 10-K Item 1. Business
•We conduct wellbeing assessments for employees to help determine which services, programming and benefits to offer the workforce. The assessment asks about physical, emotional, mental and financial wellbeing. Completing the assessment lowers the cost of benefits to employees.
•We offer resilience and stress management programs to improve employee wellbeing, including Energy for Life, a workshop on employee wellness to help employees articulate and pursue their individual purpose and embrace new challenges with ease. Over 39,000 employees have taken this wellness workshop since 2010.
•The ERGs provided multiple forums in 2020 to share wellness resources and support for their members.
•Wellbeing Champions promote Allstate’s health and wellness resources across the enterprise, including yoga and meditation classes and flu shots.
Talent Recruitment and Management We seek to provide employees with rewarding work, professional growth and educational opportunities.
•Our flexible work and equal opportunity policies support talent attraction and retention.
•Employees receive an annual performance review, with additional performance conversations taking place throughout the year. Allstate invests in training and re-skilling opportunities so employees can be successful throughout their careers. In 2020:
–Employees completed over 139,000 hours in formal learning opportunities.
–7,000 employees attended Allstate’s Global Learning Week, with over 2,000 development commitments made to grow one new skill by the end of the year.
–Over 1,000 employees attended Quarterly Skill Builders featuring external experts facilitating topics including data visualization, storytelling and talent development.
–702 employees participated in Allstate’s tuition reimbursement program, with $3.3 million paid in tuition reimbursement.
–42% of open positions were filled with internal applicants.
•The Power of Mentoring for Inclusive Diversity (“MInD”) program engaged 74 women and racially and ethnically diverse high potential managers, senior managers and directors who were nominated to receive sponsorship, job shadowing, and networking opportunities.
Organizational Culture At Allstate, we believe that when your passion fuels your purpose, you can achieve anything. We expect all employees to be leaders and dedicate extensive resources to developing leaders at all levels.
•Allstate defines culture as a self-sustaining system of shared values, priorities and principles that shape beliefs and drive behaviors and decision-making within an organization.
•In 2020, we updated Our Shared Purpose to reflect the evolution of our culture to drive our business strategy.
For additional information, please see the section titled “Spotlight on Human Capital Management” in our 2020 Proxy Statement.
In addition to the above discussion of our employees, please see information about Allstate agents under the caption “Allstate Protection Segment - Products and Distribution” in Part I, Item 1 of this report.
Item 1. Business 2020 Form 10-K
Website
Our website is allstate.com. The Allstate Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports that we file or furnish pursuant to Section 13(a) of the Securities Exchange Act of 1934 are available on the Investor Relations section of our website (www.allstateinvestors.com), free of charge, as soon as reasonably practicable after they are electronically filed or furnished to the SEC. In addition, our Corporate Governance Guidelines, our Global Code of Business Conduct, and the charters of our Audit Committee, Compensation and Succession Committee, Nominating, Governance and Social Responsibility Committee, Executive Committee and Risk and Return Committee are available on the Investor Relations section of our website and in print to any stockholder who requests copies by contacting Investor Relations, The Allstate Corporation, 2775 Sanders Road, Northbrook, Illinois 60062-6127, 1-847-402-2800. The information found on our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document filed with the SEC.
Other Information About Allstate
•Allstate’s seven reportable segments use shared services, including human resources, investment, finance, information technology and legal services, provided by Allstate Insurance Company and other affiliates.
•Although the insurance business generally is not seasonal, claims and claims expense for the Allstate Protection segment tend to be higher for periods of severe or inclement weather.
•“Allstate®” is a very well-recognized brand name in the United States. We use the “Allstate®, “Encompass®” and “Answer Financial®” brands extensively in our business. We also provide additional protection products and services through “AllstateSM Protection Plans”, “Allstate Dealer Services®”, “Allstate Roadside”, “Arity®”, “AllstateSM Identity Protection” and “Allstate Benefits®”. These brands, products and services are supported with the related service marks, logos, and slogans. Our rights in the United States to these names, service marks, logos and slogans continue as long as we continue to use them in commerce. Many service marks used by Allstate are the subject of renewable U.S. and/or foreign service mark registrations. We believe that these service marks are important to our business and we intend to maintain our rights to them.
The Allstate Corporation 19
2020 Form 10-K Item 1. Business
Information about our Executive Officers
The following table sets forth the names of our executive officers, their ages as of February 1, 2021, their positions, business experience, and the years of their first election as officers. “AIC” refers to Allstate Insurance Company. Each of the officers named below may be removed from office at any time, with or without cause, by the board of directors of the relevant company.
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Name
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Age
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Position with Allstate and Business Experience
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Year First
Elected
Officer
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Thomas J. Wilson
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63
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Chair of the Board (May 2008 to present), President (June 2005 to January 2015 and February 2018 to present), and Chief Executive Officer (January 2007 to present) of The Allstate Corporation and AIC.
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1995
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Carolyn D. Blair
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52
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Executive Vice President and Chief Human Resources Officer of AIC (October 2019 to present); President of Tartan Advisory Group, Inc. (November 2018 to October 2019); Executive Vice President, Chief Human Resources & Communications Officer of Sun Life Financial (April 2014 to June 2018).
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2019
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Elizabeth A. Brady
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56
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Executive Vice President, Chief Marketing, Customer and Communications Officer of AIC (January 2020 to present); Executive Vice President and Chief Marketing, Innovation and Corporate Relations Officer of AIC (August 2018 to January 2020); Senior Vice President, Global Brand Management of Kohler Co. (November 2013 to July 2018).
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2018
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Don Civgin
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59
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Vice Chair of The Allstate Corporation and AIC (March 2020 to present) and Chief Executive Officer, Protection Products and Services of AIC (January 2020 to present); President, Service Businesses of AIC (January 2018 to January 2020); President, Emerging Businesses of AIC (February 2015 to January 2018).
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2008
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John E. Dugenske
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54
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President, Investments and Financial Products of AIC (January 2020 to present); Executive Vice President and Chief Investment and Corporate Strategy Officer of AIC (January 2018 to January 2020); Executive Vice President and Chief Investment Officer of AIC (March 2017 to January 2018); Group Managing Director and Global Head of Fixed Income at UBS Global Asset Management (December 2008 to February 2017).
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2017
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Rhonda S. Ferguson
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51
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Executive Vice President, Chief Legal Officer, General Counsel, and Secretary of The Allstate Corporation and AIC (November 2020 to present); Executive Vice President and General Counsel of The Allstate Corporation and AIC (September 2020 to November 2020); Executive Vice President, Chief Legal Officer and Corporate Secretary of Union Pacific Railroad (December 2017 to September 2020); Executive Vice President and Chief Legal Officer of Union Pacific Railroad (July 2016 to December 2017); Vice President, Corporate Secretary and Chief Ethics Officer of FirstEnergy Corp. (April 2007 to June 2016).
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2020
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Suren Gupta
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59
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Executive Vice President, Chief Information Technology and Enterprise Services Officer of AIC (January 2020 to present); Executive Vice President, Enterprise Technology and Strategic Ventures of AIC (February 2015 to January 2020).
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2011
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Susan L. Lees
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63
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Executive Vice President, Chief Sustainability Officer of AIC (November 2020 to present); Executive Vice President, Chief Legal Officer and Secretary of The Allstate Corporation and AIC (September 2020 to November 2020); Executive Vice President, Chief Legal Officer, General Counsel, and Secretary of The Allstate Corporation and AIC (January 2020 to September 2020); Executive Vice President, General Counsel, and Secretary of The Allstate Corporation (May 2013 to January 2020) and of AIC (June 2013 to January 2020).
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2008
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Jesse E. Merten
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46
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President, Financial Products of AIC (May 2020 to present); Executive Vice President and Chief Risk Officer of AIC (December 2017 to May 2020); Treasurer of The Allstate Corporation (January 2015 to April 2019) and of AIC (February 2015 to May 2019).
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2012
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John C. Pintozzi
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55
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Senior Vice President, Controller and Chief Accounting Officer of The Allstate Corporation (August 2019 to present) and of AIC (September 2019 to present); Senior Vice President and Chief Financial Officer, Allstate Investments (May 2012 to August 2019)
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2005
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Mark Q. Prindiville
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Executive Vice President and Chief Risk Officer of AIC (May 2020 to present); Senior Vice President of AIC (September 2016 to May 2020); Vice President of AIC (March 2011 to September 2016).
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2016
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Mario Rizzo
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54
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Executive Vice President and Chief Financial Officer of The Allstate Corporation and AIC (January 2018 to present); Senior Vice President and Chief Financial Officer, Allstate Personal Lines of AIC (February 2015 to January 2018).
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2010
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Glenn T. Shapiro
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55
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President, Personal Property-Liability of AIC (January 2020 to present); President, Allstate Personal Lines of AIC (January 2018 to January 2020); Executive Vice President, Claims of AIC (April 2016 to January 2018); Executive Vice President and Chief Claims Officer of Liberty Mutual Commercial Insurance (May 2011 to March 2016).
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2016
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Item 1. Business 2020 Form 10-K
Forward-Looking Statements
This report contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements as a result of new information or future events or developments. In addition, forward-looking statements are subject to certain risks or uncertainties that could cause actual results to differ materially from those communicated in these forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part 1, “Item 1A. Risk Factors” and elsewhere in this report and those described from time to time in our other reports filed with the Securities and Exchange Commission.
The Allstate Corporation 21
2020 Form 10-K Part I - Item 1A. Risk Factors and Other Disclosures
Item 1A. Risk Factors
Summary Risks are categorized by (1) insurance and financial services, (2) business, strategy and operations and (3) macro, regulatory and risk environment. Many risks may affect more than one category and are included where the impact is most significant. If some of these risk factors occur, they may cause the emergence of or exacerbate the impact of other risk factors, which could materially increase the severity of the impact of these risks on our business, results of operations, financial condition or liquidity. The table below includes examples of risks from each category.
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Insurance and financial services
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Business, strategy and operations
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Macro, regulatory
and risk environment
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Risks that are unique to the insurance and financial services industries
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Risks that are unique to Allstate’s business and operating model
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Risks that impact most companies
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• Claim frequency and severity volatility
• Catastrophes and severe weather
• Loss cost estimates are complex and losses are unknown at the time policies are sold
• Investment results are subject to volatility and valuation judgments
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• Highly competitive industry, impacted by new and changing technologies
• Operating model effectiveness in light of changing customer preferences
• Ability to maintain catastrophe reinsurance programs and limits
• Fluctuations in financial strength and ratings
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• Adverse changes in economic and capital market conditions
• Large-scale pandemic events
• Cybersecurity controls and privacy
• Changing climate conditions
• Regulatory and political changes
• Loss of key business relationships
• Ability to attract, develop and retain talent
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Allstate manages these risks through an Enterprise Risk and Return Management framework on an integrated basis following our risk and return principles.
See Management’s Discussion and Analysis (“MD&A”), Enterprise Risk and Return Management for further details.
Consider these cautionary statements carefully together with other factors discussed elsewhere in this document, in filings with the Securities and Exchange Commission (“SEC”) or in materials incorporated therein by reference.
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Insurance and financial services
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Unexpected increases in the frequency or severity of property and casualty claims may adversely affect our results of operations and financial condition
A significant increase in claim frequency could adversely affect our results of operations and financial condition. Changes in mix of business, miles driven, weather, distracted driving or other factors can lead to changes in auto claim frequency. We may experience volatility in claim frequency, and short-term trends may not be predictive of future losses over the longer term.
Increases in claim severity can arise from numerous causes that are inherently difficult to predict. The following factors may impact claim severity for auto bodily injury, property damage and homeowners coverages:
•Bodily injury — inflation in medical costs, litigation trends and precedents and regulation
•Vehicle property damage — inflation in repair costs, including parts and labor rates, mix of total losses declared, costs associated with repairing sophisticated newer vehicles, model year and used-car values
•Homeowners — inflation in the construction industry, building materials and home furnishings, changes in the mix of loss type, and other economic and environmental factors, including
short-term supply imbalances for services and supplies in areas affected by catastrophes
Catastrophes and severe weather events may subject us to significant losses
Catastrophic events could adversely affect operating results and cause them to vary significantly from one period to the next. Also, our liquidity could be constrained by a catastrophe, or multiple catastrophes, which could result in extraordinary losses, sales of investments or a downgrade of our debt or financial strength ratings.
Catastrophic losses are caused by wind and hail, wildfires, tornadoes, hurricanes, tropical storms, earthquakes, volcanic eruptions, terrorism and industrial accidents and other such events.
Our personal property insurance business may incur catastrophe losses greater than:
•Those experienced in prior years
•The average expected level used in pricing
•Current reinsurance coverage limits
•Loss estimates from hurricane and earthquake models at various levels of probability
Property and casualty businesses are subject to claims arising from severe weather events such as winter storms, rain, hail and high winds. The incidence and severity of weather conditions resulting in claims are unpredictable.
The total number of policyholders affected by the event, the severity of the event and the coverage
Part I - Item 1A. Risk Factors and Other Disclosures 2020 Form 10-K
provided contribute to catastrophe and severe weather losses. Increases in the insured values of covered property, geographic concentration and the number of policyholders exposed to certain events could increase the severity of claims from catastrophic and severe weather events.
Limitations in analytical models used to assess and predict the exposure to catastrophe losses may adversely affect our results of operations and financial condition
We use internally developed and third-party vendor models along with our own historical data to assess exposure to catastrophe losses. The models assume various conditions and probability scenarios and may not accurately predict future losses or measure losses currently incurred.
Price competition and changes in underwriting standards in property and casualty businesses may adversely affect our results of operations and financial condition
The personal property-liability market is highly competitive with carriers competing through underwriting, advertising, price, customer service, innovation and distribution. Companies can alter underwriting standards, lower prices and increase advertising, which could result in lower growth or profitability for Allstate. A decline in the growth or profitability of the property and casualty businesses could have a material effect on our results of operations and financial condition.
Property and casualty actual claims costs may exceed current reserves established for claims due to changes in the inflationary, regulatory and litigation environment
•Estimating claim reserves is an inherently uncertain and complex process as losses are unknown at the time policies are sold. We continually refine our best estimates of losses after considering known facts and interpretations of the circumstances.
•Our reserving methodology may be impacted by the following:
•Models that rely on the assumption that past loss development patterns will persist into the future
•Internal factors including experience with similar cases, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix, contractual terms and changes in claim reporting and settlement practices
•External factors such as inflation, court decisions, changes in law or litigation imposing unintended coverage, regulatory requirements, changes in driving patterns and economic conditions
•The ultimate cost of losses may vary materially from recorded reserves and such variance may adversely affect our results of operations and financial condition as the reserves and amounts due from reinsurers are reestimated.
See MD&A, Application of Critical Accounting Estimates for further details.
Our investment portfolios are subject to market risk and declines in quality which may adversely affect or create volatility in our investment income and cause realized and unrealized losses
We continually evaluate investment management strategies since we are subject to risk of loss due to adverse changes in interest rates, credit spreads, equity prices, real estate values, currency exchange rates and liquidity. Adverse changes may occur due to changes in monetary and fiscal policy and the economic climate, liquidity of a market or market segment, investor return expectations or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness. Adverse changes in market conditions could cause the value of our investments to decrease significantly and impact our results of operations and financial condition.
Our investments are subject to risks associated with economic and capital market conditions and factors that may be unique to our portfolio, including:
•General weakening of the economy, which is typically reflected through higher credit spreads and lower equity and real estate valuations
•Declines in credit quality
•Declines in market interest rates, credit spreads or sustained low interest rates could lead to further declines in portfolio yields and investment income
•Increases in market interest rates, credit spreads or a decrease in liquidity could have an adverse effect on the value of our fixed income securities that form a substantial majority of our investment portfolios
•Weak performance of general and joint venture partners and underlying investments unrelated to general market or economic conditions could lead to declines in investment income and cause realized losses in our limited partnership interests
•Concentration in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type
The amount and timing of net investment income, capital contributions and distributions from our performance-based investments, which primarily include limited partnership interests, can fluctuate significantly due to the underlying investments’ performance or changes in market or economic conditions. Additionally, these investments are less liquid than similar, publicly-traded investments and a decline in market liquidity could impact our ability to sell them at their current carrying values.
Declining equity markets or increases in interest rates or credit spreads could cause the value of the investments in our pension plans to decrease. Declines in interest rates could cause the funding ratio to decline and the value of the obligations for our pension and postretirement plans to increase. These factors could decrease the funded status of our pension and postretirement plans, increasing the likelihood or magnitude of future benefit expense and contributions.
The Allstate Corporation 23