SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of ~~October~~April 15, ~~2018,~~2019, the registrant had ~~344,442,270~~333,106,827 common shares, $.01 par value, outstanding.

The Allstate Corporation

Index to Quarterly Report on Form 10-Q

~~September 30, 2018~~March 31, 2019

Condensed Consolidated Financial Statements

Part I. Financial Information

The Allstate Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 1

Condensed Consolidated Financial Statements

The Allstate Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)


($ in millions)	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
	2018			2017		2018			2017		2019			2018
	(unaudited)					(unaudited)
Net income	$	870		$	666	$	2,521		$	1,940	$	1,292		$	1,006

Other comprehensive (loss) income, after-tax
Other comprehensive income (loss), after-tax
Changes in:
Unrealized net capital gains and losses	(70		)	125		(768		)	598		974			(565		)
Unrealized foreign currency translation adjustments	(14		)	28		(25		)	36		5			(2		)
Unrecognized pension and other postretirement benefit cost	68			73		113			110
Other comprehensive (loss) income, after-tax	(16		)	226		(680		)	744
Unamortized pension and other postretirement prior service credit											(12		)	(14		)
Other comprehensive income (loss), after-tax											967			(581		)

Comprehensive income	$	854		$	892	$	1,841		$	2,684	$	2,259		$	425

Condensed Consolidated Financial Statements

The Allstate Corporation and Subsidiaries

Condensed Consolidated Statements of Financial Position (unaudited)

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 3

Condensed Consolidated Financial Statements

The Allstate Corporate and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (unaudited)

See notes to condensed consolidated financial statements.

Condensed Consolidated Financial Statements

The Allstate Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 5

Notes to Condensed Consolidated Financial Statements

The Allstate Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of The Allstate Corporation (the “Corporation”) and its wholly owned subsidiaries, primarily Allstate Insurance Company (“AIC”), a property and casualty insurance company with various property and casualty and life and investment subsidiaries, including Allstate Life Insurance Company (“ALIC”) (collectively referred to as the “Company” or “Allstate”). These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated financial statements and notes as of ~~September 30, 2018~~March 31, 2019 and for the three month ~~and nine month~~ periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ are unaudited. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2017.~~2018. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated.

To conform to the current year presentation, certain amounts in the prior year condensed consolidated financial statements and notes have been reclassified.

Adopted accounting standards

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Accounting for Leases

Effective January 1, ~~2018,~~2019 the Company adopted new Financial Accounting Standards Board ~~(“FASB”~~("FASB") guidance requiring equity investments, including equity securities and limited partnership interests not accounted for under the equity method of accounting or that do not result in consolidation to be measured at fair value with changes in fair value recognized in net income. The guidance clarifies that an entity should evaluate the realizability of deferred tax assets related to available-for-sale fixed income securities in combination with the entity’s other deferred tax assets. The Company’s adoption of the new FASB guidance included adoption of the relevant elements of Technical Corrections and Improvements to Financial Instruments, issued in February 2018.

accounting for leases. Upon adoption of the ~~new~~ guidance on January 1, 2018, $1.16 billion of pre-tax unrealized net capital gains for equity securities were reclassified from AOCI to retained income. The after-tax change in accounting for equity securities did not affectunder the ~~Company’s total shareholders’ equity and the unrealized net capital~~

~~gains of $910 million, reclassified to retained income will never be recognized in net income.~~

~~Upon adoption~~optional transition method that allows application of the ~~new guidance on January 1, 2018,~~transition provisions at the carrying value of cost method limited partnership interests increased $224 million, pre-tax, to fair value. The after-tax cumulative-effect increase in retained income of $177 million increased the Company’s shareholders’ equity but will never be recognized in net income thereby negatively impacting calculations of returns on equity.

~~Revenue from Contracts with Customers~~

~~Effective January 1, 2018, the Company adopted new FASB guidance which revises the criteria for revenue recognition. Insurance contracts are excluded from the scope~~adoption date instead of the new guidance. The Company’s principal activities impacted by the new guidance are those related to the issuance of protection plans for consumer products and automobiles and service contracts that provide roadside assistance. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized and amortized to the extent the entity expects to recover those costs.

Adoption of the guidance on January 1, 2018 under the modified retrospective approach resulted in the recognition of an immaterial after-tax net cumulative effect increase to the beginning balance of retained income. In addition to the net cumulative effect, the Company also recorded in the statement of financial position an increase of approximately $160 million pre-tax in unearned premiums with a corresponding $160 million pre-tax increase in deferred policy acquisition costs (“DAC”) for protection plans sold directly to retailers for which SquareTrade Holding Company, Inc. (“SquareTrade”) is deemed to be the principal in the transaction. This impact offsets fully and did not impact retained income at the date of adoption.

~~Presentation of Net Periodic Pension and Postretirement Benefits Costs~~

Effective January 1, 2018, the Company adopted new FASB guidance requiring identification, on the statement of operations or in disclosures, the line items in which the components of net periodic pension and postretirement benefits costs are presented. The new guidance permits only the service cost component to be eligible for capitalization where applicable. The adoption had no impact on the Company’s results of operations or financial position.

~~Goodwill Impairment~~

~~In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment which~~

6 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. Under the new guidance, goodwill impairment will be measured and recognized as the amount by which a reporting unit’s carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill allocated to the reporting unit. The revised guidance does not affect a reporting entity’s ability to first assess qualitative factors by reporting unit to determine whether to perform the quantitative goodwill impairment test. The guidance is to be applied on a prospective basis, with the effects, if any, recognized in net income in theearliest period ~~of adoption. The Company elected to early adopt the new guidance as of January 1, 2018. The adoption had no impact on the Company’s results of operations or financial position.~~

~~Changes to significant accounting policies~~

~~Investments~~

Changes were made to the Company’s Significant Accounting Policies upon adoption of new FASB guidance related to the recognition and measurement of financial assets. Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Equity securities are carried at fair value. Equity securities without readily determinable or estimable fair values are measured using the measurement alternative of cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The periodic change in fair value of equity securities is recognized within realized capital gains and losses on the Condensed Consolidated Statements of Operations effective January 1, 2018.

Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. Where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies, investments in limited partnership interests purchased prior to January 1, 2018 are accounted for at fair value primarily utilizing the net asset value (“NAV”) as a practical expedient to determine fair value. All other investments in limited partnership interests, including those purchased subsequent to January 1, 2018, are accounted for in accordance with the equity method of accounting (“EMA”).

Investment income from limited partnership interests carried at fair value is recognized based upon the changes in fair value of the investee’s equity primarily determined using NAV. Income from EMA limited partnership interests is recognized based on the Company’s share of the partnerships’ earnings. Income from EMA limited partnership interests is generally recognized on a three month delay due to the availability of the related financial statements from investees.

~~Recognition of Revenue~~

Revenues related to protection plans, other contracts (primarily finance and insurance products) and roadside assistance are deferred and earned over the term of the contract in a manner that recognizes revenue as obligations under the contracts are performed. Revenues from these products are classified as premiums as the products are backed by insurance. Protection plans and finance and insurance premiums are recognized using a cost-based incurrence method. Roadside assistance premiums are recognized evenly over the term of the contract as performance obligations are fulfilled.

~~Tax Reform~~

On December 22, 2017, Public Law 115-97, known as the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) became effective, permanently reducing the U.S. corporate income tax rate from 35% to 21% beginning January 1, 2018. As a result, the corporate tax rate is not comparable between periods. During 2017, the Company revalued its deferred tax assets and liabilities and recorded liabilities related to the transition to the modified territorial system for international taxation. The impact of the Tax Legislation was adjusted from the Company’s preliminary estimate due to, among other things, changes in interpretations and assumptions the Company previously made, guidance that was issued and actions the Company took as a result of the Tax Legislation. During the third quarter of 2018,presented, the Company recorded a ~~reduction of $31~~$585 million to income tax expense related to these provisional amounts. The Company may make adjustments to these provisional amounts as additional information becomes available and future guidance is issued by the Internal Revenue Service.

~~Pending accounting standards~~

~~Accounting for Leases~~

~~In February 2016, the FASB issued guidance revising the accounting for leases. Under the new guidance, lessees will be required to recognize a right-of-use (“ROU”) asset and~~ lease liability ~~for all leases other than those with a term less than one year. The lease liability will be~~ equal to the present value of lease ~~payments. A ROU~~payments and a $488 million right-of-use (“ROU”) asset, ~~will be based on~~which is the corresponding lease liability adjusted for qualifying ~~initial direct costs.~~accrued lease payments. The ~~Company currently estimates that the recognition of the~~lease liability and ROU asset were reported as part of other liabilities and ~~lease liability will result in an increase in both total~~other assets ~~and liabilities in~~on the Condensed Consolidated ~~Statement~~Statements of Financial ~~Position~~Position. The impact of ~~approximately $525 million.~~these changes at adoption had no impact on net income or shareholders’ equity. Prior periods were not restated under the new standard. The Company utilized practical expedients which do not require reassessment of existing contracts for the existence of

a lease or reassessment of existing lease classifications.

Upon adoption, the new guidance ~~requires~~required sellers in a sale-leaseback transaction to recognize the entire gain from the sale of an underlying asset at the time the sale is recognized rather than over the leaseback term. The carrying value of unrecognized gains on sale-leaseback transactions executed prior to January 1, 2019 ~~are approximately $20~~was $21 million, after-tax, and ~~will be~~was recorded as an increase to retained ~~income.~~income at the date of adoption.

Accounting for Hedging Activities

Effective January 1, 2019 the Company adopted new FASB guidance intended to better align hedge accounting with an organization’s risk management activities. The new guidance expands hedge accounting to nonfinancial and financial risk components and revises the measurement methodologies to better align with an organization’s risk management activities. Separate presentation of hedge ineffectiveness is eliminated with the intention to provide greater transparency to the full impact of hedging by requiring presentation of the results of the hedged item and hedging instrument in a single financial statement line item. In addition, the amendments were designed to reduce complexity by simplifying hedge effectiveness testing. The adoption had no impact on the Company’s results of operations or financial position.

Changes to significant accounting policies for leases

The ~~expense of~~Company has certain operating leases ~~under~~for office facilities, computer and office equipment, and transportation vehicles. The Company’s leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the ~~new guidance will be recognized in~~leases for up to 14 years, and some of which include options to terminate the ~~income statement~~leases within 60 days.

The Company determines if an arrangement is a lease at inception. Leases with an initial term less than one year are not recorded on the balance sheet and the lease costs for these leases are recorded on a straight-line basis ~~by adjusting~~over the ~~amortization~~lease term. Operating leases with terms greater than one year, result in a lease liability recorded in other liabilities with a corresponding ROU asset recorded in other assets. As of March 31, 2019, the Company had $572 million in lease liabilities and $474 million in ROU assets.

Operating lease liabilities are recognized at the commencement date based on the present value of future minimum lease payments over the lease term. ROU assets are recognized based on the corresponding lease liabilities adjusted for qualifying initial direct costs, prepaid or accrued lease payments and unamortized lease incentives. As most of the

~~Third Quarter 2018 Form 10-Q~~ 76

www.allstate.com

Notes to Condensed Consolidated Financial Statements

Company’s leases do not disclose the ~~ROU asset~~implicit interest rate, the Company uses collateralized incremental borrowing rates based on information available at lease commencement when determining the present value of future lease payments. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease. Lease terms may include options to ~~produce~~extend or terminate the lease which are incorporated into the Company’s measurements when it is reasonably certain that the Company will exercise the option.

Operating lease costs are recognized on a straight-line ~~expense when combined with the interest expense on~~basis over the lease ~~liability. For finance leases, the expense components are computed separately~~term and ~~produce greater up-front expense compared to operating leases as~~include interest expense on the lease liability ~~is higher in early years~~ and amortization of the ROU ~~asset is amortized on a straight-line basis.~~asset. Variable lease costs are expensed as incurred and include maintenance costs and real estate taxes. Lease ~~classification will be based on criteria similar to those currently applied. The~~costs are reported in operating costs and expenses and totaled$41 million, including $7 million of variable lease costs in first quarter 2019.



Other information related to operating leases
	As of March 31, 2019
Weighted average remaining lease term (years)	6
Weighted average discount rate	3.27	%



Maturity of lease liabilities
($ in millions)	Operating leases
2019 ⁽¹⁾	$	85
2020	135
2021	104
2022	86
2023	71
2024	55
Thereafter	104
Total lease payments ⁽²⁾	$	640
Less: interest	(68		)
Present value of lease liabilities	$	572


⁽¹⁾	Excludes maturity of lease liabilities for the three months ended March 31, 2019.


⁽²⁾	Excludes operating leases that have not yet commenced of $11 million as of March 31, 2019.

Pending accounting model for lessors will be similar to the current model with modifications to reflect definition changes for components such as initial direct costs. Lessors will continue to classify leases as operating, direct financing, or sales-type. The guidance is effective for reporting periods beginning after December 15, 2018, and will be implemented using the optional transition method that allows application of the transition provisions at the adoption date instead of the earliest date presented.standards

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance which revises the credit loss recognition criteria for certain financial assets measured at amortized cost, including reinsurance recoverables. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for ~~the~~a reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance that when deducted from the amortized cost basis of the related financial assets ~~that~~ results in ~~presenting the~~a net carrying value of ~~the~~affected financial assets at the amount expected to be

collected. The reporting entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance ~~and not as a direct write-down.~~which may change over time but once recorded cannot subsequently be reduced to an amount below zero. The guidance is effective for reporting periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. The ~~Company is in the process of evaluating the impact of adoption.~~

~~Accounting for Hedging Activities~~

In August 2017, the FASB issued amendments intended to better align hedge accounting with an organization’s risk management activities. The amendments expand hedge accounting for nonfinancial and financial risk components and revise the measurement methodologies to better align with an organization’s risk management activities. Separate presentation of hedge ineffectiveness is eliminated to provide greater transparency of the full impact of

hedging by requiring presentation of the results of the hedged item and hedging instrument in a single financial statement line item. In addition, the amendments are designed to reduce complexity by simplifying the manner in which assessments of hedge effectiveness may be performed. The guidance is effective for reporting periods beginning after December 15, 2018. The presentation and disclosure guidance is effective on a prospective basis. The impact of adoption is not expected to be material to the Company’s results of operations or financial position.

Changes to the Disclosure Requirements for ~~Deferred~~Defined Benefit Plans

In August 2018, the FASB issued amendments to modify certain disclosure requirements for defined benefit plans. Disclosure additions relate to the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation for the period. Disclosures to be removed include those that identify amounts that are expected to be reclassified out of AOCI and into the income statement in the coming year and the anticipated impact of a one-percentage point change in assumed health care cost trend rate on service and interest cost and on the accumulated benefit obligation. The amendments are effective for annual reporting periods beginning after December 15, 2020. The impacts of adoption are to the Company’s disclosures only.

Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued guidance revising the accounting for certain long-duration insurance contracts. The new guidance changes the measurement of the Company’s reserves for traditional life, life-contingent immediate annuities and certain voluntary accident and health insurance products.

Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy terminations, will be required to be reviewed and updated at least annually. The effect of updating measurement assumptions other than the discount rate are required to be ~~determined~~measured on a retrospective basis and reported in net income. In addition, cash flows under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield ~~that is~~required to be updated through OCI at each reporting date. These changes will replace current GAAP, which utilizes assumptions set at policy issuance until such time as the

First Quarter 2019 Form 10-Q 7

Notes to Condensed Consolidated Financial Statements

assumptions result in reserves that are deficient when compared to reserves computed using current assumptions. ~~When this occurs under~~Under current GAAP, premium deficiency reserves are recognized ~~by unlocking reserve assumptions to eliminate~~when a reserve ~~deficiency.~~deficiency is computed using current assumptions.

The new guidance requires ~~DAC~~deferred policy acquisition costs (“DAC”) and other capitalized balances currently amortized in proportion to premiums or gross profits to be amortized on a constant level basis over the expected term for all long-duration insurance contracts. DAC will not be subject to loss recognition testing but ~~rather~~ will be

8 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

reduced when actual experience exceeds expected ~~experience (i.e. as a result of unexpected contract terminations).~~experience. The new guidance will no longer require adjustments to DAC and deferred sales inducement costs (“DSI”) related to unrealized gains and ~~losses.~~losses on investment securities supporting the related business.

Market risk benefit product features are required to be measured at fair value with changes in fair value recorded in net income with the exception of changes in the fair value attributable to ~~a change~~changes in the ~~instrument’s~~reporting entity’s own credit risk, which are required to be recognized in OCI. Substantially all of the Company’s market risk benefits are reinsured and therefore these impacts are not expected to be material to the Company.

The new guidance is to be included in the comparable financial statements issued in reporting periods beginning after December 15, 2020, thereby requiring restatement of prior periods presented. Early adoption is permitted. The new guidance will be applied to affected contracts and DAC on the basis of existing carrying amounts at the earliest period presented or ~~the new guidance may be applied~~ retrospectively using actual historical experience as of contract inception. The new guidance for market risk benefits is required to be adopted retrospectively.

The Company is evaluating the anticipated impacts of applying the new guidance to both retained income and AOCI. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows are unchanged. The Company has

not completed anits evaluation of the specific impacts of adopting the new guidance, but anticipates the financial statement impact of migrating from existing GAAP to that required by the new guidance to be material, largely attributed to the impact of transitioning from an original investment-based discount rate to one based on an upper-medium grade fixed income investment yield and updates to mortality assumptions ~~that had~~ previously ~~been~~ locked in at ~~issuance.~~issuance and subject to premium deficiency testing. The Company expects the most significant impacts will occur in the run-off annuity segment. The revised accounting for DAC will be applied prospectively using the new model and any DAC effects existing in AOCI as a result of applying existing GAAP at the date of adoption will be reversed.

~~Other revenue presentation~~

~~Concurrent with~~

Codification Improvements related to Credit Losses, Derivatives and Hedging, and Financial Instruments

In April 2019, the FASB issued Codification Improvements related to Credit Losses, Derivatives and Hedging, and Financial Instruments. The guidance for Credit Losses and Financial Instruments is effective for reporting periods beginning after December 15, 2019. The guidance for Derivatives and Hedging is effective January 1, 2020. The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations or financial position.

Change in accounting principle

The Company changed its accounting principle for recognizing actuarial gains and losses and expected return on plan assets for its pension and other postretirement plans to a more preferable policy under U.S. GAAP. Under the new ~~FASB guidance~~principle, remeasurement of projected benefit obligation and plan assets are immediately recognized in earnings and are referred to as pension and other postretirement remeasurement gains and losses on ~~revenue from contracts with customers~~the Condensed Consolidated Statements of Operations. Previously, actuarial gains and losses and differences between the expected and actual returns on plan assets were recognized as a component of AOCI, and were subject to amortization into earnings in future periods. This change has been applied on a retrospective basis. The Company’s policy is to remeasure its pension and postretirement plans on a quarterly basis.

Differences between expected and actual returns and changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses. The primary factors contributing to pension and other postretirement remeasurement gains and losses are 1) changes in the discount rate used to value pension and postretirement obligations as of the measurement date, 2) differences between the expected and the actual return on plan assets, 3) changes in demographic assumptions, including mortality, and 4) participant experience different from demographic assumptions.

The Company also changed its policy for recognizing expected returns on plan assets by eliminating the permitted accounting practice allowing the five-year smoothing of equity returns and moving to an unadjusted fair value method.

The Company believes that immediately recognizing remeasurement of projected benefit obligation and plan assets in earnings is preferable as it provides greater transparency of the Company’s ~~objective~~economic obligations in accounting results and better aligns with fair value accounting principles by recognizing the effects of providing more information related to revenues for our Service Businesses, the Company revised the presentation of total revenue to include other revenue. Previously, components of other revenue were presented within operating costseconomic and ~~expenses and primarily represent fees collected from policyholders relating to premium installment payments, commissions~~interest rate changes on ~~sales of non-proprietary products, fee-based services~~pension and other ~~revenue transactions. Other revenue is recognized when performance obligations~~postretirement plan assets and liabilities in the year in which the gains and losses are ~~fulfilled. Prior periods~~incurred. These changes have been ~~reclassified~~applied on a retrospective basis and as of January 1, 2018 resulted in a cumulative effect decrease to ~~conform~~retained income of $1.58 billion, with a corresponding offset to ~~current separate presentation of other revenue.~~ AOCI and had no impact on total shareholders’ equity.

www.allstate.com

Notes to Condensed Consolidated Financial Statements

Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to the Company’s reportable segments. The pension and other postretirement remeasurement gains and losses are now reported in the Corporate and Other segment.

The impacts of the adjustments on the financial statements are summarized in the following tables.



Condensed Consolidated Statements of Operations (unaudited)
	Previous accounting principle		Impact of change			As reported
($ in millions, except per share data)	Three months ended March 31, 2019
Property and casualty insurance claims and claims expense	$	5,829	$	(9	)	$	5,820
Operating costs and expenses	1,388		(8		)	1,380
Pension and other postretirement remeasurement gains and losses	—		15			15
Restructuring and related charges	22		(4		)	18
Total costs and expenses	9,377		(6		)	9,371
Income from operations before income tax expense	1,614		6			1,620
Income tax expense	327		1			328
Net income	1,287		5			1,292
Net income applicable to common shareholders	$	1,256	$	5		$	1,261

Earnings per common share:
Net income applicable to common shareholders per common share - Basic	$	3.78	$	0.01		$	3.79
Net income applicable to common shareholders per common share - Diluted	$	3.72	$	0.02		$	3.74



Condensed Consolidated Statements of Operations (unaudited)
	Previously reported		Impact of change			As adjusted
($ in millions, except per share data)	Three months ended March 31, 2018
Property and casualty insurance claims and claims expense	$	5,149	$	(20	)	$	5,129
Operating costs and expenses	1,333		(30		)	1,303
Pension and other postretirement remeasurement gains and losses	—		14			14
Restructuring and related charges	22		(3		)	19
Total costs and expenses	8,547		(39		)	8,508
Income from operations before income tax expense	1,224		39			1,263
Income tax expense	249		8			257
Net income	975		31			1,006
Net income applicable to common shareholders	$	946	$	31		$	977

Earnings per common share:
Net income applicable to common shareholders per common share - Basic	$	2.67	$	0.09		$	2.76
Net income applicable to common shareholders per common share - Diluted	$	2.63	$	0.08		$	2.71



Condensed Consolidated Statements of Comprehensive Income (unaudited)
	Previous accounting principle		Impact of change			As reported
($ in millions)	Three months ended March 31, 2019
Net income	$	1,287	$	5		$	1,292
Other comprehensive income (loss), after-tax
Changes in:
Unrealized net capital gains and losses	974		—			974
Unrealized foreign currency translation adjustments	7		(2		)	5
Unrecognized pension and other postretirement benefit cost⁽¹⁾	10		(22		)	(12		)
Other comprehensive income (loss), after-tax	991		(24		)	967
Comprehensive income	$	2,278	$	(19	)	$	2,259

⁽¹⁾Financial statement line item has been updated to “Unamortized pension and other postretirement prior service credit”.

First Quarter 2019 Form 10-Q 9

Notes to Condensed Consolidated Financial Statements



Condensed Consolidated Statements of Comprehensive Income (unaudited)
	Previously reported			Impact of change			As adjusted
($ in millions)	Three months ended March 31, 2018
Net income	$	975		$	31		$	1,006
Other comprehensive loss, after-tax
Changes in:
Unrealized net capital gains and losses	(565		)	—			(565		)
Unrealized foreign currency translation adjustments	(4		)	2			(2		)
Unrecognized pension and other postretirement benefit cost	23			(37		)	(14		)
Other comprehensive loss, after-tax	(546		)	(35		)	(581		)
Comprehensive income	$	429		$	(4	)	$	425



Condensed Consolidated Statements of Financial Position (unaudited)
	Previous accounting principle			Impact of change			As reported
($ in millions)	March 31, 2019
Deferred income taxes	$	822		$	(5	)	$	817
Other liabilities and accrued expenses	8,953			24			8,977
Total liabilities	92,397			19			92,416
Retained income	46,818			(1,670		)	45,148
Unrealized foreign currency translation adjustments	(57		)	13			(44		)
Unrecognized pension and other postretirement benefit cost⁽¹⁾	(1,481		)	1,638			157
Total AOCI	(566		)	1,651			1,085
Total shareholders’ equity	$	23,437		$	(19	)	$	23,418

Condensed Consolidated Statements of Financial Position (unaudited)
	Previously reported			Impact of change			As adjusted
($ in millions)	December 31, 2018
Retained income	$	45,708		$	(1,675	)	$	44,033
Unrealized foreign currency translation adjustments	(64		)	15			(49		)
Unrecognized pension and other postretirement benefit cost	(1,491		)	1,660			169
Total AOCI	$	(1,557	)	$	1,675		$	118



Condensed Consolidated Statements of Shareholders’ Equity (unaudited)
	Previous accounting principle			Impact of change			As reported
($ in millions)	Three months ended March 31, 2019
Retained income
Balance, beginning of period	$	45,708		$	(1,675	)	$	44,033
Cumulative effect of change in accounting principle	21			—			21
Net income	1,287			5			1,292
Dividends on common stock	(167		)	—			(167		)
Dividends on preferred stock	(31		)	—			(31		)
Balance, end of period	46,818			(1,670		)	45,148

Accumulated other comprehensive income (loss)
Balance, beginning of period	(1,557		)	1,675			118
Cumulative effect of change in accounting principle	—			—			—
Change in unrealized net capital gains and losses	974			—			974
Change in unrealized foreign currency translation adjustments	7			(2		)	5
Change in unrecognized pension and other postretirement benefit cost ⁽¹⁾	10			(22		)	(12		)
Balance, end of period	(566		)	1,651			1,085
Total shareholders’ equity	$	23,437		$	(19	)	$	23,418

⁽¹⁾Financial statement line item has been updated to “Change in unamortized pension and other postretirement prior service credit”.

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Condensed Consolidated Statements of Shareholders’ Equity (unaudited)
	Previously reported			Impact of change			As adjusted
($ in millions)	Three months ended March 31, 2018
Retained income
Balance, beginning of period	$	43,162		$	(1,583	)	$	41,579
Cumulative effect of change in accounting principle	1,088			—			1,088
Net income	975			31			1,006
Dividends on common stock	(165		)	—			(165		)
Dividends on preferred stock	(29		)	—			(29		)
Balance, end of period	45,031			(1,552		)	43,479

Accumulated other comprehensive income (loss)
Balance, beginning of period	306			1,583			1,889
Cumulative effect of change in accounting principle	(910		)	—			(910		)
Change in unrealized net capital gains and losses	(565		)	—			(565		)
Change in unrealized foreign currency translation adjustments	(4		)	2			(2		)
Change in unrecognized pension and other postretirement benefit cost	23			(37		)	(14		)
Balance, end of period	(1,150		)	1,548			398
Total shareholders’ equity	$	23,277		$	(4	)	$	23,273



Condensed Consolidated Statements of Cash Flows (unaudited)
	Previous accounting principle			Impact of change			As reported
($ in millions)	Three months ended March 31, 2019
Cash flows from operating activities
Net income	$	1,287		$	5		$	1,292
Adjustments to reconcile net income to net cash provided by operating activities:
Pension and other postretirement remeasurement gains and losses	—			15			15
Income taxes	302			1			303
Other operating assets and liabilities	(389		)	(21		)	(410		)
Net cash provided by operating activities	$	714		$	—		$	714

Condensed Consolidated Statements of Cash Flows (unaudited)
	Previously reported			Impact of change			As adjusted
($ in millions)	Three months ended March 31, 2018
Cash flows from operating activities
Net income	$	975		$	31		$	1,006
Adjustments to reconcile net income to net cash provided by operating activities:
Pension and other postretirement remeasurement gains and losses	—			14			14
Income taxes	181			8			189
Other operating assets and liabilities	(318		)	(53		)	(371		)
Net cash provided by operating activities	$	626		$	—		$	626

First Quarter 2019 Form 10-Q 11

Notes to Condensed Consolidated Financial Statements



Note 2	Earnings per Common Share

Basic earnings per common share is computed using the weighted average number of common shares outstanding, including vested unissued participating restricted stock units. Diluted earnings per common share is computed using the weighted average number

of common and dilutive potential common shares outstanding. For the Company, dilutive potential common shares consist of outstanding stock options and unvested non-participating restricted stock units and contingently issuable performance stock awards.



Computation of basic and diluted earnings per common share
($ in millions, except per share data)	Three months ended March 31,
($ in millions, except per share data)	2019		2018
Numerator:
Net income	$	1,292	$	1,006
Less: Preferred stock dividends	31		29
Net income applicable to common shareholders	$	1,261	$	977

Denominator:
Weighted average common shares outstanding	332.6		354.1
Effect of dilutive potential common shares:
Stock options	3.1		4.1
Restricted stock units (non-participating) and performance stock awards	1.8		1.7
Weighted average common and dilutive potential common shares outstanding	337.5		359.9

Earnings per common share - Basic	$	3.79	$	2.76
Earnings per common share - Diluted	$	3.74	$	2.71

Computation of basic and diluted earnings per common share
($ in millions, except per share data) Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Numerator:
Net income $ 870
$ 666
$ 2,521
$ 1,940
Less: Preferred stock dividends 37
29
105
87
Net income applicable to common shareholders⁽¹⁾
$ 833
$ 637
$ 2,416
$ 1,853

Denominator:
Weighted average common shares outstanding 346.0
361.3
349.7
363.5
Effect of dilutive potential common shares:
Stock options 3.8
4.4
3.8
4.3
Restricted stock units (non-participating) and performance stock awards 1.9
1.4
1.9
1.3
Weighted average common and dilutive potential common shares outstanding 351.7
367.1
355.4
369.1

Earnings per common share - Basic $ 2.41
$ 1.76
$ 6.91
$ 5.10
Earnings per common share - Diluted $ 2.37
$ 1.74
$ 6.80
$ 5.02


⁽¹⁾	~~Net income applicable to common shareholders is net income less preferred stock dividends.~~

~~Third Quarter 2018 Form 10-Q~~ 9

~~Notes to Condensed Consolidated Financial Statements~~

The effect of dilutive potential common shares does not include the effect of options with an anti-dilutive effect on earnings per common share because their exercise prices exceed the average market price of Allstate common shares during the period or for which the unrecognized compensation cost would have an anti-dilutive effect.

Options to purchase ~~2.3~~4.0 million and ~~0.2~~1.0 million Allstate common shares ~~with exercise prices ranging from $84.93 to $102.84 and $78.35 to $93.93,~~ were outstanding for the three month periods ended

~~September 30,~~ March 31, 2019 and 2018, ~~and 2017,~~ respectively, but were not included in the computation of diluted earnings per common share ~~in those periods. Options to purchase 1.9 million and 2.5 million Allstate common shares, with exercise prices ranging from $84.93 to $102.84 and $74.03 to $93.93, were outstanding for~~under the ~~nine month periods ended September 30, 2018 and 2017, respectively, but were not included in the computation of diluted earnings per common share in those periods.~~treasury stock method.



Note 3	Acquisitions

iCrackedOn ~~January 3, 2017,~~February 12, 2019, the Company acquired ~~SquareTrade, a consumer product protection plan provider that distributes through many of America’s major retailers~~iCracked Inc. (“iCracked”) which offers on-site, on-demand repair services for smartphones and ~~Europe’s mobile operators, for $1.4 billion~~tablets in cash. SquareTrade provides protection plans covering a variety of consumer electronics and appliances. This acquisition broadened Allstate’s unique product offerings to better meet consumers’ needs.

North America, supporting SquareTrade’s operations. In ~~connection~~conjunction with the ~~SquareTrade~~iCracked acquisition, the Company recorded goodwill of ~~$1.10 billion, commissions paid~~$17 million.

PlumChoice On November 30, 2018, the Company acquired PlumChoice, Inc. (“PlumChoice”) for $30 million in cash to ~~retailers (reported in deferred policy~~provide technical support services to SquareTrade’s customers and small businesses. In conjunction with the PlumChoice acquisition, ~~costs)~~the Company recorded goodwill of $66 million, other intangible assets (reported in other assets) of $555 million, contractual liability insurance policy premium expenses (reported in other assets) of $205 million, unearned premiums of $389 million and net deferred income tax liability of $138$23 million. ~~These amounts reflect re-measurement adjustments to the fair value of the opening balance sheet assets and liabilities.~~

~~Of the $555 million assigned to other intangible assets, $465 million was attributable to acquired customer relationships and $69 million was assigned to~~

the SquareTrade trade name which is considered to have an indefinite useful life. The amortization expense of intangible assets was $20 million and $23 million for the three months ended September 30, 2018 and 2017, respectively, and was $61 million and $69 million for the nine months ended September 30, 2018 and 2017, respectively.

~~Subsequent event~~ InfoArmor On October 5, 2018, the Company acquired InfoArmor, Inc. (“InfoArmor”), a leading provider of identity protection in the employee benefits market, for $525 million in cash. InfoArmor primarily offers identity protection to employees and their family members through voluntary benefit programs at over 1,400 firms, including more than 100 of the Fortune 500 companies. ~~Due to~~Starting in the ~~limited time since~~fourth quarter of 2018, the ~~closing date,~~Service Businesses segment includes the results of InfoArmor.

In connection with the InfoArmor acquisition, the Company ~~is currently evaluating the allocation~~recorded goodwill of ~~the purchase price~~$318 million and ~~is unable~~intangible assets of $257 million. The intangible assets include $225 million and $32 million related to ~~provide amounts recognized as of the closing date for the major classes of assets~~ acquired customer relationships and ~~liabilities assumed. The Company will include this information in its annual report on Form 10-K for the year ended December 31, 2018.~~technology, respectively.

10 12

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Note 4	Reportable Segments

Change in accounting principle

As discussed in Note 1, the Company changed its accounting principle for recognizing actuarial gains and losses and expected return on plan assets for its pension and other postretirement plans to a more preferable policy under U.S. GAAP. Under the new principle, remeasurement of projected benefit obligation and plan assets are immediately recognized through earnings and are referred to as pension and other postretirement remeasurement gains and losses on the Condensed Consolidated Statements of Operations. This change has been applied on a retrospective basis. See Note 1 for further information regarding the impact of the change in accounting principle on the consolidated financial statements.

Measuring segment profit or loss

The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Discontinued Lines and Coverages segments and adjusted net income for the Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, and Corporate and Other segments. A reconciliation of these measures to net income applicable to common shareholders is provided below.

Underwriting income is calculated as premiums earned and other revenue, less claims and claims

Reportable segments revenue information
($ in millions) Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Property-Liability

Insurance premiums

Auto $ 5,798
$ 5,501
$ 17,094
$ 16,327
Homeowners 1,891
1,832
5,603
5,462
Other personal lines 455
439
1,354
1,306
Commercial lines 176
124
477
367
Allstate Protection 8,320
7,896
24,528
23,462
Discontinued Lines and Coverages —
—
—
—
Total property-liability insurance premiums 8,320
7,896
24,528
23,462
Other revenue 192
185
550
533
Net investment income 410
368
1,100
1,063
Realized capital gains and losses 126
82
16
302
Total Property-Liability 9,048
8,531
26,194
25,360

Service Businesses

Consumer product protection plans 125
78
369
207
Roadside assistance 66
69
198
204
Finance and insurance products 84
78
246
225
Intersegment premiums and service fees ⁽¹⁾
31
26
89
82
Other revenue 16
17
48
50
Net investment income 7
4
18
11
Realized capital gains and losses —
—
(6 ) —
Total Service Businesses 329
272
962
779

Allstate Life
Traditional life insurance premiums 149
141
443
420
Accident and health insurance premiums —
—
1
1
Interest-sensitive life insurance contract charges 173
175
531
535
Other revenue 30
26
84
81
Net investment income 128
119
380
362
Realized capital gains and losses (3 ) 2
(9 ) 4
Total Allstate Life 477
463
1,430
1,403

Allstate Benefits
Traditional life insurance premiums 13
12
32
30
Accident and health insurance premiums 246
232
739
696
Interest-sensitive life insurance contract charges 26
29
83
85
Net investment income 19
18
57
54
Realized capital gains and losses 2
1
—
1
Total Allstate Benefits 306
292
911
866

Allstate Annuities
Fixed annuities contract charges 5
4
11
10
Net investment income 260
324
843
967
Realized capital gains and losses 51
18
28
11
Total Allstate Annuities 316
346
882
988

Corporate and Other

Net investment income 20
10
56
31
Realized capital gains and losses —
—
(12 ) —

Total Corporate and Other 20
10
44
31
Intersegment eliminations ⁽¹⁾
(31 ) (26 ) (89 ) (82 )
Consolidated revenues $ 10,465
$ 9,888
$ 30,334
$ 29,345

expenses (“losses”), amortization of DAC, operating costs and expenses, amortization of purchased intangible assets and restructuring and related charges as determined using GAAP.

Adjusted net income is net income applicable to common shareholders, excluding:

• Realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in adjusted net income

• Pension and other postretirement remeasurement gains and losses, after-tax

• Valuation changes on embedded derivatives not hedged, after-tax

• Amortization of DAC and DSI, to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives not hedged, after-tax

• Business combination expenses and the amortization of purchased intangible assets, after-tax

• Gain (loss) on disposition of operations, after-tax

• Adjustments for other significant non-recurring, infrequent or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, or (b) there has been no similar charge or gain within the prior two years

First Quarter 2019 Form 10-Q 13

Notes to Condensed Consolidated Financial Statements



Reportable segments revenue information
($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Property-Liability
Insurance premiums
Auto	$	5,930		$	5,591
Homeowners	1,935			1,848
Other personal lines	459			444
Commercial lines	183			136
Allstate Protection	8,507			8,019
Discontinued Lines and Coverages	—			—
Total property-liability insurance premiums	8,507			8,019
Other revenue	176			174
Net investment income	291			337
Realized capital gains and losses	497			(95		)
Total Property-Liability	9,471			8,435

Service Businesses
Consumer product protection plans	145			123
Roadside assistance	63			64
Finance and insurance products	87			80
Intersegment premiums and service fees ⁽¹⁾	33			29
Other revenue	47			16
Net investment income	9			5
Realized capital gains and losses	8			(4		)
Total Service Businesses	392			313

Allstate Life
Traditional life insurance premiums	154			146
Interest-sensitive life insurance contract charges	183			181
Other revenue	27			26
Net investment income	127			122
Realized capital gains and losses	(5		)	(3		)
Total Allstate Life	486			472

Allstate Benefits
Traditional life insurance premiums	9			9
Accident and health insurance premiums	250			248
Interest-sensitive life insurance contract charges	29			29
Net investment income	19			19
Realized capital gains and losses	4			(2		)
Total Allstate Benefits	311			303

Allstate Annuities
Fixed annuities contract charges	3			3
Net investment income	190			290
Realized capital gains and losses	156			(29		)
Total Allstate Annuities	349			264

Corporate and Other
Net investment income	12			13
Realized capital gains and losses	2			(1		)
Total Corporate and Other	14			12

Intersegment eliminations ⁽¹⁾	(33		)	(29		)
Consolidated revenues	$	10,990		$	9,770

⁽¹⁾Intersegment insurance premiums and service fees are primarily related to Arity and Allstate Roadside Services and are eliminated in the condensed consolidated financial statements.

~~Third Quarter 2018 Form 10-Q~~ 1114

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Reportable segments financial performance
	Three months ended March 31,
($ in millions)	2019			2018
Property-Liability
Allstate Protection	$	703		$	1,008
Discontinued Lines and Coverages	(3		)	(3		)
Total underwriting income	700			1,005
Net investment income	291			337
Income tax expense on operations	(202		)	(277		)
Realized capital gains and losses, after-tax	393			(75		)
Property-Liability net income applicable to common shareholders	1,182			990

Service Businesses
Adjusted net income (loss)	11			(3		)
Realized capital gains and losses, after-tax	7			(3		)
Amortization of purchased intangible assets, after-tax	(24		)	(16		)
Service Businesses net loss applicable to common shareholders	(6		)	(22		)

Allstate Life
Adjusted net income	73			71
Realized capital gains and losses, after-tax	(4		)	(2		)
DAC and DSI amortization related to realized capital gains and losses, after-tax	(2		)	(2		)
Allstate Life net income applicable to common shareholders	67			67

Allstate Benefits
Adjusted net income	31			29
Realized capital gains and losses, after-tax	3			(2		)
Allstate Benefits net income applicable to common shareholders	34			27

Allstate Annuities
Adjusted net (loss) income	(25		)	35
Realized capital gains and losses, after-tax	124			(23		)
Valuation changes on embedded derivatives not hedged, after-tax	(3		)	4
Gain on disposition of operations, after-tax	1			1
Allstate Annuities net income applicable to common shareholders	97			17

Corporate and Other
Adjusted net loss	(103		)	(90		)
Realized capital gains and losses, after-tax	1			(1		)
Pension and other postretirement remeasurement gains and losses, after-tax	(11		)	(11		)
Corporate and Other net loss applicable to common shareholders	(113		)	(102		)

Consolidated net income applicable to common shareholders	$	1,261		$	977

Reportable segments financial performance
Three months ended September 30, Nine months ended September 30,
($ in millions) 2018 2017 2018 2017
Property-Liability
Allstate Protection $ 553
$ 572
$ 1,934
$ 1,392
Discontinued Lines and Coverages (80 ) (88 ) (86 ) (95 )
Total underwriting income 473
484
1,848
1,297
Net investment income 410
368
1,100
1,063
Income tax expense on operations (178 ) (271 ) (603 ) (746 )
Realized capital gains and losses, after-tax 103
54
16
199
Gain on disposition of operations, after-tax —
1
—
7
Tax Legislation expense (3 ) —
(3 ) —
Property-Liability net income applicable to common shareholders 805
636
2,358
1,820

Service Businesses
Adjusted net income (loss) —
(17 ) (4 ) (35 )
Realized capital gains and losses, after-tax (1 ) —
(5 ) —
Amortization of purchased intangible assets, after-tax (16 ) (15 ) (48 ) (45 )
Tax Legislation expense (4 ) —
(4 ) —
Service Businesses net loss applicable to common shareholders (21 ) (32 ) (61 ) (80 )

Allstate Life
Adjusted net income 74
74
221
196
Realized capital gains and losses, after-tax (3 ) 1
(7 ) 2
DAC and DSI amortization related to realized capital gains and losses, after-tax (1 ) (2 ) (6 ) (8 )
Tax Legislation expense (16 ) —
(16 ) —
Allstate Life net income applicable to common shareholders 54
73
192
190

Allstate Benefits
Adjusted net income 32
28
94
75
Realized capital gains and losses, after-tax 2
1
—
1
Allstate Benefits net income applicable to common shareholders 34
29
94
76

Allstate Annuities
Adjusted net income 20
55
99
149
Realized capital gains and losses, after-tax 40
11
22
6
Valuation changes on embedded derivatives not hedged, after-tax 1
(1 ) 5
(2 )
Gain on disposition of operations, after-tax 1
1
3
3
Tax Legislation benefit 69
—
69
—
Allstate Annuities net income applicable to common shareholders 131
66
198
156

Corporate and Other
Adjusted net loss (155 ) (134 ) (340 ) (295 )
Realized capital gains and losses, after-tax —
—
(10 ) —
Business combination expenses, after-tax —
(1 ) —
(14 )
Tax Legislation expense (15 ) —
(15 ) —
Corporate and Other net loss applicable to common shareholders (170 ) (135 ) (365 ) (309 )

Consolidated net income applicable to common shareholders $ 833
$ 637
$ 2,416
$ 1,853

12 ~~www.allstate.com~~First Quarter 2019 Form 10-Q 15

Notes to Condensed Consolidated Financial Statements



Note 5	Investments



Amortized cost, gross unrealized gains (losses) and fair value for fixed income securities
($ in millions)	Amortized cost		Gross unrealized					Fair value
($ in millions)	Amortized cost		Gains		Losses			Fair value
March 31, 2019
U.S. government and agencies	$	3,775	$	119	$	(2	)	$	3,892
Municipal	8,879		393		(8		)	9,264
Corporate	41,943		998		(242		)	42,699
Foreign government	732		21		(1		)	752
Asset-backed securities (“ABS”)	1,060		7		(9		)	1,058
Residential mortgage-backed securities (“RMBS”)	354		89		(1		)	442
Commercial mortgage-backed securities (“CMBS”)	67		7		(1		)	73
Redeemable preferred stock	21		1		—			22
Total fixed income securities	$	56,831	$	1,635	$	(264	)	$	58,202

December 31, 2018
U.S. government and agencies	$	5,386	$	137	$	(6	)	$	5,517
Municipal	8,963		249		(43		)	9,169
Corporate	40,536		490		(890		)	40,136
Foreign government	739		13		(5		)	747
ABS	1,049		6		(10		)	1,045
RMBS	377		89		(2		)	464
CMBS	63		8		(1		)	70
Redeemable preferred stock	21		1		—			22
Total fixed income securities	$	57,134	$	993	$	(957	)	$	57,170

Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
($ in millions) Amortized cost Gross unrealized
Fair
value
Gains Losses
September 30, 2018

U.S. government and agencies $ 3,142
$ 36
$ (27 ) $ 3,151
Municipal 9,316
204
(105 ) 9,415
Corporate 42,828
557
(723 ) 42,662
Foreign government 854
12
(12 ) 854
Asset-backed securities (“ABS”) 979
8
(8 ) 979
Residential mortgage-backed securities (“RMBS”) 404
98
(2 ) 500
Commercial mortgage-backed securities (“CMBS”) 74
7
(1 ) 80
Redeemable preferred stock 21
1
—
22
Total fixed income securities $ 57,618
$ 923
$ (878 ) $ 57,663

December 31, 2017

U.S. government and agencies $ 3,580
$ 56
$ (20 ) $ 3,616
Municipal 8,053
311
(36 ) 8,328
Corporate 42,996
1,234
(204 ) 44,026
Foreign government 1,005
27
(11 ) 1,021
ABS 1,266
13
(7 ) 1,272
RMBS 480
101
(3 ) 578
CMBS 124
6
(2 ) 128
Redeemable preferred stock 21
2
—
23
Total fixed income securities $ 57,525
$ 1,750
$ (283 ) $ 58,992



Scheduled maturities for fixed income securities
($ in millions)	As of March 31, 2019
($ in millions)	Amortized cost		Fair value
Due in one year or less	$	3,309	$	3,324
Due after one year through five years	26,701		26,996
Due after five years through ten years	16,622		16,946
Due after ten years	8,718		9,363
	55,350		56,629
ABS, RMBS and CMBS	1,481		1,573
Total	$	56,831	$	58,202

Scheduled maturities for fixed income securities
($ in millions) As of September 30, 2018
Amortized cost Fair value
Due in one year or less $ 4,038
$ 4,042
Due after one year through five years 28,963
28,812
Due after five years through ten years 16,216
15,987
Due after ten years 6,944
7,263
56,161
56,104
ABS, RMBS and CMBS 1,457
1,559
Total $ 57,618
$ 57,663

Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income
($ in millions) Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Fixed income securities $ 527
$ 519
$ 1,544
$ 1,564
Equity securities 35
37
130
130
Mortgage loans 52
52
163
157
Limited partnership interests ⁽¹⁾⁽²⁾
210
223
563
596
Short-term investments 19
9
50
21
Other 71
58
205
174
Investment income, before expense 914
898
2,655
2,642
Investment expense (70 ) (55 ) (201 ) (154 )
Net investment income
$ 844
$ 843
$ 2,454
$ 2,488


⁽¹⁾	~~Due to the adoption of the recognition and measurement accounting standard, limited partnerships previously reported using the cost method are now reported at fair valuewith changes in fair value recognized in net investment income~~.


⁽²⁾	~~Includes net investment income of~~ ~~$135 million~~ ~~and~~ ~~$381 million~~ ~~for EMA limited partnership interests and~~ ~~$75 million~~ ~~and~~ ~~$182 million~~ ~~for limited partnership interests carried at fair value for the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2018, respectively.~~

~~Third Quarter 2018 Form 10-Q~~ 1316

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Net investment income
($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Fixed income securities	$	538		$	508
Equity securities	30			34
Mortgage loans	53			51
Limited partnership interests	9			180
Short-term investments	26			12
Other	63			66
Investment income, before expense	719			851
Investment expense	(71		)	(65		)
Net investment income	$	648		$	786

Realized capital gains and losses by asset type
($ in millions) Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Fixed income securities $ (30 ) $ 41
$ (153 ) $ 78
Equity securities 223
57
204
182
Mortgage loans —
1
2
1
Limited partnership interests (23 ) 21
(56 ) 92
Derivatives 5
(17 ) 20
(40 )
Other 1
—
—
5
Realized capital gains and losses $ 176
$ 103
$ 17
$ 318



Realized capital gains (losses) by asset type
($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Fixed income securities	$	64		$	(43	)
Equity securities	553			(93		)
Limited partnership interests	72			10
Derivatives	(46		)	(8		)
Other	19			—
Realized capital gains and losses	$	662		$	(134	)


Realized capital gains and losses by transaction type
Realized capital gains (losses) by transaction type
($ in millions)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
($ in millions)	2018			2017			2018			2017			2019			2018
Impairment write-downs ⁽¹⁾	$	(5	)	$	(23	)	$	(10	)	$	(94	)	$	(14	)	$	(1	)
Change in intent write-downs ⁽¹⁾	—			(5		)	—			(43		)	—			—
Net OTTI losses recognized in earnings	(5		)	(28		)	(10		)	(137		)	(14		)	(1		)
Sales ⁽¹⁾	(22		)	148			(139		)	495			95			(42		)
Valuation of equity investments ⁽¹⁾	198			—			149			—			627			(83		)
Valuation and settlements of derivative instruments	5			(17		)	17			(40		)	(46		)	(8		)
Realized capital gains and losses	$	176		$	103		$	17		$	318		$	662		$	(134	)

⁽¹⁾

~~Due to the adoption of the recognition and measurement accounting standard, equity securities are reported at fair value with changes in fair value recognized in~~Includes valuation of equity ~~investments~~securities and certain limited partnership interests where the underlying assets are ~~no longer included in impairment write-downs, change in intent write-downs and sales.~~predominately public equity securities.

~~Gross~~Sales of fixed income securities resulted in gross gains of ~~$21~~$126 million and $45 million and gross losses of ~~$48~~$60 million ~~were realized on sales of fixed income securities~~and $87 million during the three months ended ~~September 30, 2018. Gross gains~~March 31, 2019 and March 31, 2018, respectively.

The following table presents the net pre-tax appreciation (decline) during 2019 and 2018 of ~~$145 million and gross losses of $36 million were realized on sales of fixed income and~~ equity securities ~~during the three months ended September 30, 2017.~~

and limited partnership interests carried at fair value still held as of March 31, 2019 and March 31, 2018 recognized in net income.

Gross gains of $95 million and gross losses of $242 million were realized on sales of fixed income securities during the nine months ended September 30, 2018. Gross gains of $521 million and gross losses of $161 million were realized on sales of fixed income and equity securities during the nine months ended September 30, 2017.



Net appreciation (decline) recognized in net income
($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Equity securities	$	496		$	(49	)
Limited partnership interests carried at fair value	(33		)	78
Total	$	463		$	29

Valuation changes included in net income for investments still held as of September 30, 2018
($ in millions) Three months ended
September 30, 2018 Nine months ended
September 30, 2018
Equity securities ⁽¹⁾
$ 234
$ 321
Limited partnership interests carried at fair value⁽¹⁾
75
181
Total valuation changes $ 309
$ 502


⁽¹⁾	Investments held at the end of a prior quarter that were sold in the current quarter are not included in the year-to-date amounts shown in the table above; therefore, the sum of the quarterly amounts may not equal the year-to-date amount.

14 ~~www.allstate.com~~First Quarter 2019 Form 10-Q 17

Notes to Condensed Consolidated Financial Statements



OTTI losses by asset type
($ in millions)	Three months ended									Three months ended
	March 31, 2019									March 31, 2018
	Gross			Included in OCI			Net			Gross		Included in OCI			Net
Fixed income securities:
Corporate	(2		)	2			—			—		—			—
ABS	(2		)	1			(1		)	—		—			—
RMBS	—			(1		)	(1		)	—		—			—
CMBS	—			—			—			—		(1		)	(1		)
Total fixed income securities	(4		)	2			(2		)	—		(1		)	(1		)
Limited partnership interests	(1		)	—			(1		)	—		—			—
Other	(11		)	—			(11		)	—		—			—
OTTI losses	$	(16	)	$	2		$	(14	)	$	—	$	(1	)	$	(1	)

OTTI losses by asset type
($ in millions) Three months ended September 30, 2018 Three months ended September 30, 2017
Gross
Included
in OCI
Net Gross
Included
in OCI
Net
Fixed income securities:

Municipal $ —
$ —
$ —
$ —
$ —
$ —
ABS —
(1 ) (1 ) —
(1 ) (1 )
RMBS —
—
—
—
—
—
CMBS (2 ) —
(2 ) (1 ) (1 ) (2 )
Total fixed income securities (2 ) (1 ) (3 ) (1 ) (2 ) (3 )
Equity securities ⁽¹⁾
—
—
—
(8 ) —
(8 )
Mortgage loans —
—
—
(1 ) —
(1 )
Limited partnership interests ⁽¹⁾
(2 ) —
(2 ) (16 ) —
(16 )
Other —
—
—
—
—
—
OTTI losses $ (4 ) $ (1 ) $ (5 ) $ (26 ) $ (2 ) $ (28 )

Nine months ended September 30, 2018 Nine months ended September 30, 2017
Gross
Included
in OCI
Net Gross
Included
in OCI
Net
Fixed income securities:

Municipal $ —
$ —
$ —
$ (1 ) $ (2 ) $ (3 )
Corporate —
—
—
(9 ) 3
(6 )
ABS (1 ) (1 ) (2 ) (1 ) (1 ) (2 )
RMBS (1 ) —
(1 ) (1 ) (3 ) (4 )
CMBS (2 ) (1 ) (3 ) (9 ) 1
(8 )
Total fixed income securities (4 ) (2 ) (6 ) (21 ) (2 ) (23 )
Equity securities ⁽¹⁾
—
—
—
(77 ) —
(77 )
Mortgage loans —
—
—
(1 ) —
(1 )
Limited partnership interests ⁽¹⁾
(3 ) —
(3 ) (32 ) —
(32 )
Other (1 ) —
(1 ) (4 ) —
(4 )
OTTI losses $ (8 ) $ (2 ) $ (10 ) $ (135 ) $ (2 ) $ (137 )



OTTI losses included in AOCI at the time of impairment for fixed income securities which were not included in earnings
($ in millions)	March 31, 2019			December 31, 2018
Municipal	$	(5	)	$	(5	)
Corporate	(3		)	(2		)
ABS	(11		)	(10		)
RMBS	(64		)	(67		)
CMBS	(2		)	(2		)
Total	$	(85	)	$	(86	)


⁽¹⁾	Due to the adoption of the recognition and measurement accounting standard, equity securities and limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net income and are no longer included in the table above.

~~The total amount of OTTI losses included in AOCI at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table.~~ The amounts exclude ~~$195~~$178 million and ~~$208~~$180 million as of ~~September 30, 2018~~March 31, 2019 and

December 31, ~~2017,~~2018, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.



Rollforward of the cumulative credit losses recognized in earnings for fixed income securities held as of March 31,
($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Beginning balance	$	(204	)	$	(226	)
Additional credit loss for securities previously other-than-temporarily impaired	(2		)	(1		)
Reduction in credit loss for securities disposed or collected	4			15
Ending balance	$	(202	)	$	(212	)

OTTI losses included in AOCI at the time of impairment for fixed income securities
($ in millions) September 30, 2018 December 31, 2017
Municipal $ (5 ) $ (5 )
ABS (11 ) (15 )
RMBS (68 ) (77 )
CMBS (3 ) (4 )
Total $ (87 ) $ (101 )

~~Third Quarter 2018 Form 10-Q~~ 15

~~Notes to Condensed Consolidated Financial Statements~~

Rollforward of the cumulative credit losses recognized in earnings for fixed income securities held as of September 30,
($ in millions) Three months ended Nine months ended September 30,
2018 2017 2018 2017
Beginning balance $ (206 ) $ (281 ) $ (226 ) $ (318 )
Additional credit loss for securities previously other-than-temporarily impaired (3 ) (3 ) (5 ) (15 )
Additional credit loss for securities not previously other-than-temporarily impaired —
—
(1 ) (8 )
Reduction in credit loss for securities disposed or collected 4
20
26
76
Change in credit loss due to accretion of increase in cash flows —
—
1
1
Ending balance $ (205 ) $ (264 ) $ (205 ) $ (264 )

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third party guarantees and other credit

enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an OTTI for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

www.allstate.com

Notes to Condensed Consolidated Financial Statements

Unrealized net capital gains and losses included in AOCI
($ in millions)
Fair
value
Gross unrealized
Unrealized net
gains (losses)
September 30, 2018 Gains Losses
Fixed income securities $ 57,663
$ 923
$ (878 ) $ 45
Short-term investments 3,071
—
—
—
Derivative instruments —
—
(3 ) (3 )
EMA limited partnerships ⁽¹⁾

2
Unrealized net capital gains and losses, pre-tax

44
Amounts recognized for:

Insurance reserves ⁽²⁾

—
DAC and DSI ⁽³⁾

(62 )
Amounts recognized

(62 )
Deferred income taxes

2
Unrealized net capital gains and losses, after-tax

$ (16 )



Unrealized net capital gains and losses included in AOCI
($ in millions)	Fair value		Gross unrealized					Unrealized net gains (losses)
March 31, 2019	Fair value		Gains		Losses			Unrealized net gains (losses)
Fixed income securities	$	58,202	$	1,635	$	(264	)	$	1,371
Short-term investments	4,157		—		—			—
Derivative instruments	—		—		(3		)	(3		)
Unrealized net capital gains and losses, pre-tax								1,368
Amounts recognized for:
Insurance reserves ⁽¹⁾								(8		)
DAC and DSI ⁽²⁾								(124		)
Amounts recognized								(132		)
Deferred income taxes								(264		)
Unrealized net capital gains and losses, after-tax								$	972


⁽¹⁾	Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ OCI. Fair value and gross unrealized gains and losses are not applicable.


⁽²⁾	The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuities).


⁽³⁾⁽²⁾	The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.



Unrealized net capital gains and losses included in AOCI
($ in millions)	Fair value		Gross unrealized					Unrealized net gains (losses)
December 31, 2018	Fair value		Gains		Losses			Unrealized net gains (losses)
Fixed income securities	$	57,170	$	993	$	(957	)	$	36
Short-term investments	3,027		—		—			—
Derivative instruments	—		—		(3		)	(3		)
Unrealized net capital gains and losses, pre-tax								33
Amounts recognized for:
Insurance reserves								—
DAC and DSI								(33		)
Amounts recognized								(33		)
Deferred income taxes								(2		)
Unrealized net capital gains and losses, after-tax								$	(2	)

16 ~~www.allstate.com~~



Change in unrealized net capital gains (losses)
($ in millions)	Three months ended March 31, 2019
Fixed income securities	$	1,335
Derivative instruments	—
Total	1,335
Amounts recognized for:
Insurance reserves	(8		)
DAC and DSI	(91		)
Amounts recognized	(99		)
Deferred income taxes	(262		)
Increase in unrealized net capital gains and losses, after-tax	$	974

~~Notes to Condensed Consolidated Financial Statements~~

Unrealized net capital gains and losses included in AOCI
($ in millions)
Fair
value
Gross unrealized
Unrealized net
gains (losses)
December 31, 2017 Gains Losses
Fixed income securities $ 58,992
$ 1,750
$ (283 ) $ 1,467
Equity securities 6,621
1,172
(12 ) 1,160
Short-term investments 1,944
—
—
—
Derivative instruments ⁽¹⁾
2
2
(3 ) (1 )
EMA limited partnerships

1
Unrealized net capital gains and losses, pre-tax

2,627
Amounts recognized for:

Insurance reserves

(315 )
DAC and DSI

(196 )
Amounts recognized

(511 )
Deferred income taxes

(454 )
Unrealized net capital gains and losses, after-tax

$ 1,662

⁽¹⁾~~Included in the fair value of derivative instruments is $2 millionclassified as liabilities.~~

Change in unrealized net capital gains and losses
($ in millions) Nine months ended September 30, 2018
Fixed income securities $ (1,422 )
Equity securities ⁽¹⁾
—
Derivative instruments (2 )
EMA limited partnerships 1
Total (1,423 )
Amounts recognized for:
Insurance reserves 315
DAC and DSI 134
Amounts recognized 449
Deferred income taxes 206
Decrease in unrealized net capital gains and losses, after-tax $ (768 )

⁽¹⁾Upon adoption of the recognition and measurement accounting standard on January 1, 2018, $1.16 billion of pre-tax unrealized net capital gains for equity securities were reclassified from AOCI to retained income. See Note 1 of the condensed consolidated financial statements.

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s

decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and

compares this to the amortized cost of the security. If the Company does not expect to receive cash flows

First Quarter 2019 Form 10-Q 19

Notes to Condensed Consolidated Financial Statements

sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in OCI.

For fixed income securities managed by third parties, either the Company has contractually retained its decision-making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential OTTI using all reasonably available information relevant to the collectability or recovery of

the security. Inherent in the Company’s evaluation of

~~Third Quarter 2018 Form 10-Q~~ 17

~~Notes to Condensed Consolidated Financial Statements~~

OTTI for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic

location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost.



Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
($ in millions)	Less than 12 months						12 months or more						Total unrealized losses
($ in millions)	Number of issues	Fair value		Unrealized losses			Number of issues	Fair value		Unrealized losses			Total unrealized losses
March 31, 2019
Fixed income securities
U.S. government and agencies	9	$	112	$	—		39	$	259	$	(2	)	$	(2	)
Municipal	102	208		—			600	742		(8		)	(8		)
Corporate	304	3,249		(42		)	807	10,382		(200		)	(242		)
Foreign government	—	—		—			11	218		(1		)	(1		)
ABS	36	283		(4		)	34	146		(5		)	(9		)
RMBS	81	12		—			194	49		(1		)	(1		)
CMBS	4	11		(1		)	1	—		—			(1		)
Total fixed income securities	536	$	3,875	$	(47	)	1,686	$	11,796	$	(217	)	$	(264	)
Investment grade fixed income securities	404	$	3,077	$	(22	)	1,550	$	10,853	$	(170	)	$	(192	)
Below investment grade fixed income securities	132	798		(25		)	136	943		(47		)	(72		)
Total fixed income securities	536	$	3,875	$	(47	)	1,686	$	11,796	$	(217	)	$	(264	)

December 31, 2018
Fixed income securities
U.S. government and agencies	11	$	55	$	—		38	$	364	$	(6	)	$	(6	)
Municipal	943	1,633		(10		)	1,147	1,554		(33		)	(43		)
Corporate	1,735	19,243		(543		)	645	8,374		(347		)	(890		)
Foreign government	7	20		(1		)	27	412		(4		)	(5		)
ABS	64	454		(5		)	28	161		(5		)	(10		)
RMBS	166	30		—			195	52		(2		)	(2		)
CMBS	3	7		—			2	—		(1		)	(1		)
Redeemable preferred stock	1	—		—			—	—		—			—
Total fixed income securities	2,930	$	21,442	$	(559	)	2,082	$	10,917	$	(398	)	$	(957	)
Investment grade fixed income securities	2,348	$	17,485	$	(331	)	2,021	$	10,626	$	(360	)	$	(691	)
Below investment grade fixed income securities	582	3,957		(228		)	61	291		(38		)	(266		)
Total fixed income securities	2,930	$	21,442	$	(559	)	2,082	$	10,917	$	(398	)	$	(957	)

Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position

($ in millions) Less than 12 months 12 months or more
Total
unrealized
losses

Number
of issues

Fair
value

Unrealized
losses

Number
of issues

Fair
value

Unrealized
losses

September 30, 2018

Fixed income securities

U.S. government and agencies 65
$ 2,517
$ (23 ) 26
$ 175
$ (4 ) $ (27 )
Municipal 3,192
5,600
(75 ) 480
667
(30 ) (105 )
Corporate 1,823
24,061
(500 ) 329
4,274
(223 ) (723 )
Foreign government 26
166
(2 ) 25
432
(10 ) (12 )
ABS 68
442
(3 ) 19
107
(5 ) (8 )
RMBS 97
21
—
182
53
(2 ) (2 )
CMBS 5
18
—
3
1
(1 ) (1 )
Total fixed income securities 5,276
$ 32,825
$ (603 ) 1,064
$ 5,709
$ (275 ) $ (878 )
Investment grade fixed income securities 4,939
$ 30,338
$ (529 ) 1,015
$ 5,461
$ (253 ) $ (782 )
Below investment grade fixed income securities 337
2,487
(74 ) 49
248
(22 ) (96 )
Total fixed income securities 5,276
$ 32,825
$ (603 ) 1,064
$ 5,709
$ (275 ) $ (878 )

December 31, 2017

Fixed income securities

U.S. government and agencies 66
$ 2,829
$ (18 ) 18
$ 182
$ (2 ) $ (20 )
Municipal 1,756
3,143
(24 ) 165
349
(12 ) (36 )
Corporate 781
11,616
(102 ) 208
3,289
(102 ) (204 )
Foreign government 45
580
(10 ) 5
44
(1 ) (11 )
ABS 57
476
(3 ) 9
34
(4 ) (7 )
RMBS 118
35
(1 ) 181
50
(2 ) (3 )
CMBS 2
1
—
6
23
(2 ) (2 )
Redeemable preferred stock 1
—
—
—
—
—
—
Total fixed income securities 2,826
18,680
(158 ) 592
3,971
(125 ) (283 )
Equity securities 127
369
(12 ) 2
—
—
(12 )
Total fixed income and equity securities 2,953
$ 19,049
$ (170 ) 594
$ 3,971
$ (125 ) $ (295 )
Investment grade fixed income securities 2,706
$ 17,668
$ (134 ) 535
$ 3,751
$ (98 ) $ (232 )
Below investment grade fixed income securities 120
1,012
(24 ) 57
220
(27 ) (51 )
Total fixed income securities 2,826
$ 18,680
$ (158 ) 592
$ 3,971
$ (125 ) $ (283 )

As of ~~September 30, 2018, $862~~March 31, 2019, $231 million of the ~~$878~~$264 million unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the ~~$862~~$231 million, ~~$770~~$179 million are related to unrealized losses on investment grade fixed income securities. Of the remaining ~~$92~~$52 million, ~~$58~~$21 million have been in an unrealized loss position for

less than 12 months. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third party rating. Unrealized

www.allstate.com

Notes to Condensed Consolidated Financial Statements

losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.

As of ~~September 30, 2018,~~March 31, 2019, the remaining ~~$16~~$33 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost. Investment grade fixed income securities comprising ~~$12~~$13 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the ~~$16~~$33 million, $4$20 million are related to below investment

18 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

grade fixed income securities. Of these amounts, $1$2 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of ~~September 30, 2018.~~March 31, 2019.

ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.

As of ~~September 30, 2018,~~March 31, 2019, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.

Limited partnerships

Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the carrying value of ~~EMA~~equity method of accounting limited partnerships totaled ~~$5.89~~$5.76 billion and ~~$5.41~~$5.73 billion, respectively, and limited partnerships carried at fair value ~~as of September 30, 2018, while at cost method as of December 31, 2017,~~ totaled ~~$1.71~~$1.74 billion and ~~$1.33~~$1.78 billion, respectively.

Mortgage loans

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan’s expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of ~~September 30, 2018.~~March 31, 2019.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on ~~nonaccrual~~non-accrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.



Carrying value of non-impaired mortgage loans summarized by debt service coverage ratio distribution
($ in millions)	March 31, 2019						December 31, 2018
Debt service coverage ratio distribution	Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total
Below 1.0	$	22	$	31	$	53	$	6	$	31	$	37
1.0 - 1.25	256		—		256		273		—		273
1.26 - 1.50	1,157		—		1,157		1,192		—		1,192
Above 1.50	3,110		101		3,211		3,063		101		3,164
Total non-impaired mortgage loans	$	4,545	$	132	$	4,677	$	4,534	$	132	$	4,666

First Quarter 2019 Form 10-Q 21

Notes to Condensed Consolidated Financial Statements

Carrying value of non-impaired mortgage loans summarized by debt service coverage ratio distribution
($ in millions) September 30, 2018 December 31, 2017
Debt service coverage ratio distribution
Fixed rate
mortgage
loans

Variable rate
mortgage
loans
Total
Fixed rate
mortgage
loans

Variable rate
mortgage
loans
Total
Below 1.0 $ 2
$ 30
$ 32
$ 3
$ —
$ 3
1.0 - 1.25 218
—
218
345
—
345
1.26 - 1.50 1,216
—
1,216
1,141
30
1,171
Above 1.50 3,021
101
3,122
2,949
62
3,011
Total non-impaired mortgage loans $ 4,457
$ 131
$ 4,588
$ 4,438
$ 92
$ 4,530

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease

in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.



Net carrying value of impaired mortgage loans
($ in millions)	March 31, 2019		December 31, 2018
Impaired mortgage loans with a valuation allowance	$	4	$	4
Impaired mortgage loans without a valuation allowance	—		—
Total impaired mortgage loans	$	4	$	4
Valuation allowance on impaired mortgage loans	$	3	$	3

~~Third Quarter 2018 Form 10-Q~~ 19

~~Notes to Condensed Consolidated Financial Statements~~

Net carrying value of impaired mortgage loans
($ in millions) September 30, 2018 December 31, 2017
Impaired mortgage loans with a valuation allowance $ 4
$ 4
Impaired mortgage loans without a valuation allowance —
—
Total impaired mortgage loans $ 4
$ 4
Valuation allowance on impaired mortgage loans $ 3
$ 3

The valuation allowance on impaired loans had no activity for the three months ended March 31, 2019 and ~~nine months ended September 30, 2018 and 2017.~~2018. The average balance of impaired loans was $4 million ~~and $8 million~~ for both the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017, respectively.~~2018.

Payments on all mortgage loans were current as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Short-term investments

Short-term investments, including commercial paper, money market funds, U.S. Treasury bills ~~money market funds~~ and other short-term investments, are carried at fair value.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the fair value of short-term investments totaled ~~$3.07~~$4.16 billion and ~~$1.94~~$3.03 billion, respectively.

Other investments

Other investments primarily consist of bank loans, policy loans, real estate, agent loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Agent loans are loans issued to exclusive Allstate agents and are carried at unpaid principal balances, net of valuation allowances and unamortized deferred fees or costs. Derivatives are carried at fair value.



Other investments by asset type
($ in millions)	March 31, 2019		December 31, 2018
Bank loans	$	1,300	$	1,350
Policy loans	885		891
Real estate	776		791
Agent loans	639		620
Derivatives and other	186		200
Total	$	3,786	$	3,852

Other investments by asset type
($ in millions) September 30, 2018 December 31, 2017
Bank loans $ 1,608
$ 1,702
Policy loans 900
905
Real estate 776
632
Agent loans 597
538
Other 194
195
Total $ 4,075
$ 3,972



Note 6	Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2: Assets and liabilities whose values are based on the following:


(a)	Quoted prices for similar assets or liabilities in active markets;


(b)	Quoted prices for identical or similar assets or liabilities in markets that are not active; or


(c)	Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair

www.allstate.com

Notes to Condensed Consolidated Financial Statements

value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.

The Company is responsible for the determination of fair value and the supporting assumptions and

20 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs. The second situation where the Company classifies securities in Level 3 is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable;

however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, bank loans, agent loans and policy

loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements.

In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.

Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

Level 1 measurements


•	Fixed income securities: Comprise certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.


•	Equity securities: Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.


•	Short-term: Comprise U.S. Treasury bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.


•	Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values that are readily determinable for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

~~Fixed income securities:~~ ~~Comprise certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.~~

~~Equity securities:~~ ~~Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.~~

First Quarter 2019 Form 10-Q 23

Notes to Condensed Consolidated Financial Statements

~~Short-term:~~ Comprise U.S. Treasury bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

~~Separate account assets:~~ Comprise actively traded mutual funds that have daily quoted net asset values that are readily determinable for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

Level 2 measurements

Fixed income securities:

U.S. government and agencies:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate - public:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

~~Third Quarter 2018 Form 10-Q~~ 21

~~Notes to Condensed Consolidated Financial Statements~~

Corporate - privately placed:Valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

ABS - collateralized debt obligations (“CDO”) and ABS - consumer and other:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Certain ABS - CDO and ABS - consumer and other are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

RMBS:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.

CMBS:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock:The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.


•	Equity securities: The primary inputs to the valuation include quoted prices or quoted net

~~Equity securities:~~ ~~The primary inputs to the valuation include quoted prices or quoted net~~ asset values for identical or similar assets in markets that are not active.

~~Short-term:~~ The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value.

~~Other investments:~~ ~~Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.~~


•	Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.


•	Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

Over-the-counter (“OTC”) derivatives, including interest rate swaps, foreign currency swaps, total return swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such

as interest rate yield curves, implied volatilities, index price levels, currency rates, and credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

Level 3 measurements

Fixed income securities:

Municipal:Comprise municipal bonds that are not rated by third party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows.

Corporate - public and Corporate - privately placed:Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

ABS - CDO, ABS - consumer and other, and CMBS:Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.


•	Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.


•	Short-term:For certain short-term investments, amortized cost is used as the best estimate of fair value.

~~Equity securities:~~ The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

~~Other investments:~~ Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

~~Contractholder funds:~~ Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility

22 24

www.allstate.com

Notes to Condensed Consolidated Financial Statements

•

Other investments: Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

•

Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.

~~assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.~~

Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. ~~EMA limited partnership interests~~Bank loans written-down to fair value ~~in connection~~are valued based on broker quotes from brokers familiar with ~~recognizing OTTI losses are generally valued using net asset values.~~the loans and current market conditions or based on internal valuation models.

Investments excluded from the fair value hierarchy

Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. ~~We receive~~The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, ~~over~~which usually takes place in years 4-9 of the typical contractual life of ~~these investments, typically~~ 10-12 years. As of ~~September 30, 2018,~~March 31, 2019, the Company has commitments to invest ~~$775~~$635 million in these limited partnership interests.

Assets and liabilities measured at fair value
As of September 30, 2018
($ in millions) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Counterparty and cash collateral netting Total
Assets

Fixed income securities:

U.S. government and agencies $ 2,693
$ 458
$ —

$ 3,151
Municipal —
9,326
89

9,415
Corporate - public —
30,758
92

30,850
Corporate - privately placed —
11,645
167
11,812
Foreign government —
854
—

854
ABS - CDO —
310
29

339
ABS - consumer and other —
588
52
640
RMBS —
500
—

500
CMBS —
54
26

80
Redeemable preferred stock —
22
—

22
Total fixed income securities 2,693
54,515
455

57,663
Equity securities 6,286
359
320

6,965
Short-term investments 1,228
1,823
20

3,071
Other investments: Free-standing derivatives —
120
1
$ (13 ) 108
Separate account assets 3,307
—
—

3,307
Total recurring assets at fair value $ 13,514
$ 56,817
$ 796
$ (13 ) $ 71,114
% of total assets at fair value 19.0 % 79.9 % 1.1 % — % 100 %

Investments reported at NAV 1,709
Total $ 72,823

Liabilities

Contractholder funds: Derivatives embedded in life and annuity contracts $ —
$ —
$ (266 )
$ (266 )
Other liabilities: Free-standing derivatives —
(47 ) —
$ 6
(41 )
Total recurring liabilities at fair value $ —
$ (47 ) $ (266 ) $ 6
$ (307 )
% of total liabilities at fair value — % 15.3 % 86.7 % (2.0 )% 100 %

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 2325

Notes to Condensed Consolidated Financial Statements



Assets and liabilities measured at fair value
	As of March 31, 2019
($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Total
Assets
Fixed income securities:
U.S. government and agencies	$	3,498		$	394		$	—					$	3,892
Municipal	—			9,196			68						9,264
Corporate - public	—			30,982			90						31,072
Corporate - privately placed	—			11,537			90						11,627
Foreign government	—			752			—						752
ABS - CDO	—			250			6						256
ABS - consumer and other	—			721			81						802
RMBS	—			442			—						442
CMBS	—			38			35						73
Redeemable preferred stock	—			22			—						22
Total fixed income securities	3,498			54,334			370						58,202
Equity securities	5,149			350			303						5,802
Short-term investments	1,981			2,136			40						4,157
Other investments: Free-standing derivatives	—			124			1			$	(27	)	98
Separate account assets	3,050			—			—						3,050
Other assets	1			—			—						1
Total recurring basis assets	13,679			56,944			714			(27		)	71,310
Non-recurring basis⁽¹⁾	—			—			39						39
Total assets at fair value	$	13,679		$	56,944		$	753		$	(27	)	$	71,349
% of total assets at fair value	19.2		%	79.8		%	1.0		%	—		%	100.0		%

Investments reported at NAV													1,738
Total													$	73,087

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(251	)				$	(251	)
Other liabilities: Free-standing derivatives	(2		)	(51		)	—			$	7		(46		)
Total recurring basis liabilities	$	(2	)	$	(51	)	$	(251	)	$	7		$	(297	)
% of total liabilities at fair value	0.7		%	17.2		%	84.5		%	(2.4		)%	100.0		%

⁽¹⁾Includes $3 millionof limited partnerships and $36 million of bank loans written-down to fair value in connection with recognizing OTTI impairments.

www.allstate.com

Notes to Condensed Consolidated Financial Statements

Assets and liabilities measured at fair value
As of December 31, 2017
($ in millions) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Counterparty and cash collateral netting Total
Assets

Fixed income securities:

U.S. government and agencies $ 3,079
$ 537
$ —

$ 3,616
Municipal —
8,227
101

8,328
Corporate - public —
31,963
108

32,071
Corporate - privately placed —
11,731
224
11,955
Foreign government —
1,021
—

1,021
ABS - CDO —
480
99

579
ABS - consumer and other —
645
48
693
RMBS —
578
—

578
CMBS —
102
26

128
Redeemable preferred stock —
23
—

23
Total fixed income securities 3,079
55,307
606

58,992
Equity securities 6,032
379
210

6,621
Short-term investments 264
1,660
20

1,944
Other investments: Free-standing derivatives —
132
1
$ (6 ) 127
Separate account assets 3,444
—
—

3,444
Total recurring basis assets 12,819
57,478
837
(6 ) 71,128
Non-recurring basis ⁽¹⁾
—
—
3

3
Total assets at fair value $ 12,819
$ 57,478
$ 840
$ (6 ) $ 71,131
% of total assets at fair value 18.0 % 80.8 % 1.2 % — % 100 %

Liabilities

Contractholder funds: Derivatives embedded in life and annuity contracts $ —
$ —
$ (286 )
$ (286 )
Other liabilities: Free-standing derivatives (1 ) (83 ) —
$ 14
(70 )
Total liabilities at fair value $ (1 ) $ (83 ) $ (286 ) $ 14
$ (356 )
% of total liabilities at fair value 0.3 % 23.3 % 80.3 % (3.9 )% 100 %


⁽¹⁾	~~Includes $3 millionof limited partnership interests written-down to fair value in connection with recognizing OTTI losses.~~



Assets and liabilities measured at fair value
	As of December 31, 2018
($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Total
Assets
Fixed income securities:
U.S. government and agencies	$	5,085		$	432		$	—					$	5,517
Municipal	—			9,099			70						9,169
Corporate - public	—			29,200			70						29,270
Corporate - privately placed	—			10,776			90						10,866
Foreign government	—			747			—						747
ABS - CDO	—			263			6						269
ABS - consumer and other	—			713			63						776
RMBS	—			464			—						464
CMBS	—			44			26						70
Redeemable preferred stock	—			22			—						22
Total fixed income securities	5,085			51,760			325						57,170
Equity securities	4,364			331			341						5,036
Short-term investments	1,338			1,659			30						3,027
Other investments: Free-standing derivatives	—			139			1			$	(23	)	117
Separate account assets	2,805			—			—						2,805
Other assets	2			—			—						2
Total recurring basis assets	$	13,594		$	53,889		$	697		$	(23	)	$	68,157
% of total assets at fair value	19.9		%	79.1		%	1.0		%	—		%	100.0		%

Investments reported at NAV													1,779
Total													$	69,936
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(224	)				$	(224	)
Other liabilities: Free-standing derivatives	(1		)	(62		)	—			$	6		(57		)
Total recurring basis liabilities	$	(1	)	$	(62	)	$	(224	)	$	6		$	(281	)
% of total liabilities at fair value	0.3		%	22.1		%	79.7		%	(2.1		)%	100.0		%

															Quantitative information about the significant unobservable inputs used in Level 3 fair value measurements
($ in millions)	Fair value			Valuation technique	Unobservable input	Range	Weighted average	Fair value			Valuation technique	Unobservable input	Range	Weighted average
September 30, 2018
March 31, 2019
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(239	)	Stochastic cash flow model	Projected option cost	1.0%-2.2%	1.74%	$	(220	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74%
December 31, 2017

December 31, 2018
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(252	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74%	$	(185	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74%

The embedded derivatives are equity-indexed and forward starting options in certain life and annuity products that provide customers with interest crediting rates based on the performance of the S&P 500. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Level 3 fair value measurements of fixed income securities total ~~$455~~$370 million and ~~$606~~$325 million, respectively, and include ~~$199~~$127 million and ~~$271~~$105 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be

~~corroborated to be~~ market observable and ~~$48~~$41 million and ~~$58~~$44 million, respectively, of municipal fixed income securities that are not rated by third party credit rating agencies. The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value, and an increase (decrease) in the credit rating of municipal bonds that are not rated by third party credit rating agencies would result in a higher (lower) fair value.

24 ~~www.allstate.com~~First Quarter 2019 Form 10-Q 27

Notes to Condensed Consolidated Financial Statements

~~Third Quarter 2018 Form 10-Q~~ 2528

www.allstate.com

Notes to Condensed Consolidated Financial Statements

26 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

~~Third Quarter 2018 Form 10-Q~~ 27

~~Notes to Condensed Consolidated Financial Statements~~

Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation ~~source.~~source, including situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider resulting in the price becoming stale or replaced with a broker quote whose inputs have not been corroborated to be market observable. This situation will result in the transfer of a security into Level 3. Transfers in and out

of level categorizations are reported as having occurred at the

beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.

There were no transfers between Level 1 and Level 2 during the three months ~~and nine months~~ ended ~~September 30, 2018~~March 31, 2019 or ~~2017.~~2018.

28 ~~www.allstate.com~~First Quarter 2019 Form 10-Q 29

Notes to Condensed Consolidated Financial Statements

Transfers into Level 3 during the three months ended March 31, 2019 and ~~nine months ended September 30,~~ 2018 ~~and 2017~~ included situations where a ~~fair value~~ quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs had not been corroborated to be market observable resulting in the security being classified as Level 3.

Transfers out of Level 3 during the three

~~months and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ included situations where a broker quote was used in the prior period and a ~~fair value~~ quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.

The amounts in the table above represent the change in unrealized gains and losses ~~related to valuation changes~~ included in net income for the period of time that the asset or liability was held and determined to be in Level 3. These gains and losses result in $1$(24) million of net income for the three months ended ~~September 30, 2018~~March 31, 2019 and are reported as follows: $8$4 million in realized capital gains and losses, $2$8 million in life contract benefits and ~~$(9)~~

$(36) million in interest credited to contractholder funds. These gains and losses result in ~~$(9)~~$25 million of net income for the three months ended ~~September 30, 2017~~March 31, 2018 and are reported as follows: ~~$(3)~~$2 million in realized capital gains and losses, ~~$3 million in net investment~~

income, $(5) million in interest credited to contractholder funds and $(4) million in life contract benefits. These gains and losses result in $40 million of net income for the nine months ended September 30, 2018 and are reported as follows: $23 million in realized capital gains and losses, $10 million in interest credited to contractholder funds and $7 million in life contract benefits. These gains and losses result in $7 million of net income for the nine months ended September 30, 2017 and are reported as follows: $(3) million in realized capital gains and losses, $17 million in net investment income, $(11)$19 million in interest credited to contractholder funds and $4 million in life contract benefits.

~~The fair value measurements for mortgage loans, bank loans and agent loans are categorized as Level 3.~~

Financial liabilities

Carrying values and fair value estimates of financial instruments not carried at fair value as of
($ in millions) September 30, 2018 December 31, 2017

Carrying
value

Fair
value

Carrying
value

Fair
value
Contractholder funds on investment contracts $ 9,546
$ 9,951
$ 10,367
$ 11,071
Long-term debt 6,450
6,833
6,350
7,199
Liability for collateral 1,403
1,403
1,124
1,124

~~The fair value measurement is Level 3 for contractholder funds on investment contracts and Level 2 for long-term debt and liability for collateral.~~

~~Third Quarter 2018 Form 10-Q~~ 2930

www.allstate.com

Notes to Condensed Consolidated Financial Statements

The Company uses derivatives for risk reduction and to increase investment portfolio returns through asset replication. Risk reduction activity is focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives. The Company replicates fixed income securities using a combination of a credit default swap, index total return swap, or a foreign currency forward contract and one or more highly rated fixed income securities, primarily investment grade host bonds, to synthetically replicate the economic characteristics of one or more cash market securities. The Company replicates equity securities using futures, index total return swaps, and options to increase equity exposure.

Property-Liability may use interest rate swaps, swaptions, futures and options to manage the interest rate risks of existing investments. These instruments are utilized to change the duration of the portfolio in order to offset the economic effect that interest rates would otherwise have on the fair value of its fixed income securities. Fixed income index total return swaps are used to offset valuation losses in the fixed income portfolio during periods of declining ~~fixed income~~ market values. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio. Equity index total return swaps, futures and options are used by Property-Liability to offset valuation losses in the equity portfolio during periods of declining equity market values. In addition, equity futures are used to hedge the market risk related to deferred compensation liability contracts. Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations.

Asset-liability management is a risk management strategy that is principally employed by Allstate Life and Allstate Annuities to balance the respective interest-rate sensitivities of its assets and liabilities. Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates. Fixed income index total return swaps are used to offset valuation losses in the portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Allstate Life and Allstate Annuities fixed income portfolios. Futures and options are used for hedging the equity exposure contained in equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, the Company uses

equity index total return swaps, options and futures to

offset valuation losses in the equity portfolio during periods of declining equity market values. Foreign currency swaps and forwards are primarily used to reduce the foreign currency risk associated with holding foreign currency denominated investments.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income. The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide returns linked to equity indices to contractholders.

When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. The Company designates certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item. The ~~Company designates certain~~fair value of ~~its foreign currency swap contracts as cash flow hedges when~~hedged liability is reported in contractholder funds in the ~~hedging instrument~~Condensed Consolidated Statements of Financial Position. The impact from results of the fair value hedge is ~~highly effective~~reported in ~~offsetting~~interest credited to contractholder funds in the ~~exposure~~Condensed Consolidated Statements of ~~variations in cash flows for the hedged risk that could affect net income. Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income.~~Operations.

The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements. However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries.

Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position.

For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness. ~~For cash flow hedges, gains and losses are amortized from AOCI and are reported in net income in the same period the forecasted transactions being hedged impact net income.~~

Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting. For non-hedge derivatives, net income includes changes in fair value and accrued

30 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

periodic settlements, when applicable. With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their

ongoing effectiveness as either

First Quarter 2019 Form 10-Q 31

Notes to Condensed Consolidated Financial Statements

accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.

The Company had one derivative used in fair value hedging relationships for the three months ended March 31, 2019 and 2018. The Company had no derivatives used in cash flow hedging relationships for the three months ended March 31, 2019 and had one foreign currency contract designated as a cash flow

hedge during the three months ended March 31, 2018. Losses deferred in AOCI on foreign currency derivatives during the term of the cash flow hedge were $3 million and $1 million as of March 31, 2019 and 2018, respectively. Amortization of net losses from AOCI is expected to be less than $1 million during the next twelve months.

~~Third Quarter 2018 Form 10-Q~~ 3132

www.allstate.com

Notes to Condensed Consolidated Financial Statements

First Quarter 2019 Form 10-Q 33

Notes to Condensed Consolidated Financial Statements

Gross and net amounts for OTC derivatives ⁽¹⁾
($ in millions) Offsets
Gross amount Counter-party netting Cash collateral (received) pledged Net amount on balance sheet Securities collateral (received) pledged Net amount
September 30, 2018

Asset derivatives $ 16
$ (6 ) $ (7 ) $ 3
$ —
$ 3
Liability derivatives (8 ) 6
—
(2 ) —
(2 )

December 31, 2017

Asset derivatives $ 8
$ (7 ) $ 1
$ 2
$ —
$ 2
Liability derivatives (26 ) 7
7
(12 ) 3
(9 )

Gross and net amounts for OTC derivatives ⁽¹⁾



Gains (losses) from valuation and settlements reported on derivatives not designated as accounting hedges
($ in millions)	Realized capital gains (losses)			Life contract benefits		Interest credited to contractholder funds			Operating costs and expenses			Total gain (loss) recognized in net income on derivatives
Three months ended March 31, 2019
Interest rate contracts	$	7		$	—	$	—		$	—		$	7
Equity and index contracts	(71		)	—		31			21			(19		)
Embedded derivative financial instruments	—			8		(35		)	—			(27		)
Foreign currency contracts	5			—		—			—			5
Credit default contracts	(4		)	—		—			—			(4		)
Total return swaps - fixed income	2			—		—			—			2
Total return swaps - equity	15			—		—			—			15
Total	$	(46	)	$	8	$	(4	)	$	21		$	(21	)

Three months ended March 31, 2018
Equity and index contracts	$	(2	)	$	—	$	(4	)	$	(3	)	$	(9	)
Embedded derivative financial instruments	—			4		20			—			24
Foreign currency contracts	(7		)	—		—			1			(6		)
Credit default contracts	1			—		—			—			1
Total	$	(8	)	$	4	$	16		$	(2	)	$	10

32 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

~~For the three months and nine months ended September 30, 2018 and 2017, the Company had no derivatives used in fair value hedging relationships.~~

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate. The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of ~~September 30,~~

~~2018,~~March 31, 2019, counterparties pledged $9$21 million in collateral to the Company, and the Company pledged $2$1 million in collateral to counterparties ~~which includes $1 million of collateral posted~~ under MNAs for contracts containing credit-risk-contingent provisions that are in a liability ~~position and $1 million of collateral posted under MNAs for contracts without credit-risk-contingent features.~~position. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin

deposits and

~~Third Quarter 2018 Form 10-Q~~ 33

~~Notes to Condensed Consolidated Financial Statements~~

guarantee the execution of trades, thereby mitigating any potential credit risk.

Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive

fair value at the reporting date reduced by the effect, if any, of legally enforceable master netting agreements.

For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts. As of ~~September 30, 2018,~~March 31, 2019, the Company pledged ~~$32~~$136 million in the form of margin deposits.

Notes to Condensed Consolidated Financial Statements

Exposure, net of collateral⁽²⁾

Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.

Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements. Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC’s, ALIC’s or Allstate Life Insurance

Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certain debt instruments. Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on AIC’s, ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event AIC, ALIC or ALNY are no longer rated by either Moody’s or S&P.

The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.



($ in millions)	As of March 31, 2019			As of December 31, 2018
Gross liability fair value of contracts containing credit-risk-contingent features	$	8		$	11
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs	(7		)	(5		)
Collateral posted under MNAs for contracts containing credit-risk-contingent features	(1		)	(2		)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	—		$	4

A credit default swap (“CDS”) is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium. In selling

protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative. CDS typically have a five-year term.

34 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement. With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed. With a FTD basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names. CDX is utilized to take a position on multiple (generally 125) reference entities. Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities. If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement. In a physical

settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset. When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement. For CDX, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration. The maximum payout on a CDS is the contract notional amount. A physical settlement may afford the Company with recovery rights as the new owner of the asset.

The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level. The ratings of individual names for which protection has been sold are also monitored.

The Company establishes reserves for claims and claims expense on reported and unreported claims of insured losses. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.

Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not reported (“IBNR”) losses, the establishment of appropriate reserves, including reserves for catastrophes, ~~and reserves and reinsurance~~

~~recoverables for the~~ Discontinued Lines and Coverages and reinsurance and indemnification recoverables, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve

First Quarter 2019 Form 10-Q 35

Notes to Condensed Consolidated Financial Statements

estimates, which may be material, are reported in property and casualty insurance claims and claims expense in the Condensed Consolidated Statements of Operations in the period such changes are determined.

Management believes that the reserve for property and casualty insurance claims and claims expense, net of ~~reinsurance~~ recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had

~~Third Quarter 2018 Form 10-Q~~ 35

~~Notes to Condensed Consolidated Financial Statements~~

occurred by the date of the Condensed Consolidated Statements of

Financial Position based on available facts, technology, laws and regulations.

Allstate’s reserves for asbestos claims were ~~$882~~$847 million and ~~$884~~$866 million, net of ~~reinsurance~~ recoverables of ~~$423~~$389 million and ~~$412~~$400 million, as of

~~September 30, 2018~~ March 31, 2019 and December 31, ~~2017,~~2018, respectively. Reserves for environmental claims were ~~$174~~$167 million and ~~$166~~$170 million, net of ~~reinsurance~~ recoverables of ~~$40~~$39 million and ~~$33~~$39 million, as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.



Rollforward of the reserve for property and casualty insurance claims and claims expense
	Three months ended March 31,
($ in millions)	2019			2018
Balance as of January 1	$	27,423		$	26,325
Less recoverables ⁽¹⁾	(7,155		)	(6,471		)
Net balance as of January 1	20,268			19,854
Incurred claims and claims expense related to:
Current year	5,808			5,180
Prior years	12			(51		)
Total incurred	5,820			5,129
Claims and claims expense paid related to:
Current year	(2,270		)	(2,240		)
Prior years	(3,294		)	(3,115		)
Total paid	(5,564		)	(5,355		)
Net balance as of March 31	20,524			19,628
Plus recoverables	7,020			6,487
Balance as of March 31	$	27,544		$	26,115

Incurred claims and claims expense represents the sum of paid losses and reserve changes in the period. This expense includes losses from catastrophes of ~~$1.89 billion~~$680 million and ~~$2.64 billion~~$361 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, net of ~~reinsurance and other recoveries.~~recoverables. Catastrophes are an inherent risk of the property and casualty insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, incurred claims and claims expense included $~~135~~12 million of unfavorable prior year reserve reestimates, ~~increasing~~decreasing net ~~income, including~~income. This $12 million unfavorable prior year reserve reestimates included $53 million of unfavorable prior year reserve reestimates related to catastrophes, partially offset by favorable prior year reserve reestimates excluding catastrophes of $~~180~~41 million ~~and~~ ~~$45 million~~ ~~of unfavorable prior year reserve reestimates related to catastrophes.~~.

Favorable prior year reserve reestimates excluding catastrophes is comprised of net decreases in reserves of ~~$372~~$55 million, primarily due to continued favorable personal lines auto injury coverage development, offset by net increases of ~~$192~~$14 million, related to homeowner, commercial lines and discontinued lines and coverages of $7 million, $~~107~~5 million and $852 million, respectively. Unfavorable catastrophe loss reestimates of ~~$45~~$53 million, net of ~~reinsurance and other recoveries, include $84~~recoverables, included $46 million of unfavorable reestimates related to homeowners ~~including $37 million for Texas Windstorm Insurance Association (“TWIA”) assessments related to Hurricane Harvey (see Note 12), offset by $39~~and $7 million of ~~favorable~~unfavorable reestimates, primarily related to ~~auto.~~other personal lines. The unfavorable catastrophe reestimates included $15 million of reinstatement reinsurance premiums incurred during the period related to the 2018 Camp Fire, which primarily impacted homeowners reestimates.

Notes to Condensed Consolidated Financial Statements

Reinsurance Recoverables As of March 31, 2019, the Company had $9.37 billion of reinsurance and indemnification recoverables, including $796 million of reinsurance recoverables for its life insurance business. Of the $796 million, the Company had $63 million of reinsurance recoverables, net of an allowance for estimated uncollectible amounts, related to a third party reinsurer Scottish Re (U.S.), Inc. On December 14, 2018, the Delaware Insurance Commissioner placed Scottish Re (U.S.), Inc. under regulatory supervision. On March 6, 2019, the Chancery Court of the State of Delaware entered a Rehabilitation and Injunction Order

Effects of reinsurance ceded on property and casualty premiums earned and life premiums and contract charges

($ in millions) Three months ended September 30, Nine months ended September 30,
2018 2017 2018
2017
Property and casualty insurance premiums earned $ (260 ) $ (245 ) $ (756 ) $ (745 )
Life premiums and contract charges (76 ) (75 ) (221 ) (225 )

(the “Rehabilitation Order”) in response to a petition filed by the Insurance Commissioner (the “Petition”). Pursuant to the Petition, it is expected that Scottish Re (U.S.), Inc. will submit a Plan of Rehabilitation within a 120-day period from the date of the Rehabilitation Order and will not make payments relating to the claims or losses of ceding insurers during this period. The Company continues to monitor Scottish Re (U.S.), Inc. for future developments and will reevaluate its allowance for uncollectible amounts as new information becomes available.

Effects of reinsurance ceded on property and casualty insurance claims and claims expense, life contract benefits and interest credited to contractholder funds
($ in millions) Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Property and casualty insurance claims and claims expense ⁽¹⁾
$ (247 ) $ (1,268 ) $ (572 ) $ (1,523 )
Life contract benefits (35 ) (47 ) (150 ) (164 )
Interest credited to contractholder funds (5 ) (6 ) (16 ) (17 )

First Quarter 2019 Form 10-Q 37

Notes to Condensed Consolidated Financial Statements

~~Debt~~ On March 29, 2018, the Company issued $250 million of Floating Rate Senior Notes due 2021 (“2021 Senior Notes”) and $250 million of Floating Rate Senior Notes due 2023 (“2023 Senior Notes” and, together with the 2021 Senior Notes, the “Senior Notes”). The 2021 Senior Notes bear interest at a floating rate equal to three month LIBOR, reset quarterly on each interest reset date, plus 0.43% per year and the 2023 Senior Notes bear interest at a floating rate equal to three month LIBOR, reset quarterly on each interest reset date, plus 0.63% per year. The Company will pay interest on the Senior Notes quarterly in arrears on March 29, June 29, September 29 and December 29 of each year, beginning on June 29, 2018. The 2021 Senior Notes will mature on March 29, 2021, and the 2023 Senior Notes will mature on March 29, 2023. The Senior Notes will not be redeemable prior to the applicable maturity dates.

~~Preferred stock~~ On March 29, 2018, the Company issued 23,000 shares of 5.625% Fixed Rate Noncumulative Perpetual Preferred Stock, Series G, par value $1.00 per share and liquidation preference $25,000 per share, for gross proceeds of $575 million. The preferred stock is perpetual and has no maturity date. The preferred stock is redeemable at the Company’s option in whole or in part, on or after April 15, 2023 at a redemption price of $25,000 per share, plus declared and unpaid dividends. Prior to April 15, 2023, the preferred stock is redeemable at the Company’s option, in whole but not in part, within 90 days of the occurrence of certain rating agency events at a redemption price equal to $25,000 per share, plus declared and unpaid dividends.

~~The proceeds of Senior Notes and Preferred Stock issuances will be used for general corporate purposes, including the redemption, repayment or repurchase of certain preferred stock or debt.~~

On April 30, 2018, the Company filed a universal shelf registration statement with the Securities and Exchange Commission (“SEC”) that expires in 2021. The registration statement covers an unspecified amount of securities and can be used to issue debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries.

~~Redemption and repayment of preferred stock and debentures~~ ~~On May 13, 2018, the Company redeemed its $224 million Series B 6.125% Fixed-to-Floating Rate Junior Subordinated Debentures at a redemption price equal to 100% of the outstanding principal.~~

~~On May 15, 2018, the Company repaid $176 million of 6.75% Senior Debentures at maturity. The repayment was equal to 100% of the outstanding principal.~~

~~Subsequent event~~On October 15, 2018, the Company redeemed all 15,400 shares of its Fixed Rate Noncumulative Perpetual Preferred Stock, Series C, par value $1.00 per share and liquidation preference $25,000 per share and the corresponding depositary shares for a total redemption payment of $385 million.

~~Third Quarter 2018 Form 10-Q~~ 37

~~Notes to Condensed Consolidated Financial Statements~~

The Company undertakes various programs to reduce expenses. These programs generally involve a reduction in staffing levels, and in certain cases, office closures. Restructuring and related charges primarily include ~~employee severance and relocation benefits, and post-exit rent expenses in connection with~~the following costs related to these programs, and non-cash charges resulting from pension benefit payments made to agents and certain legal expenses and settlements incurred in connection with the 1999 reorganization of Allstate’s multiple agency programs to a single exclusive agencyprograms:


•	Employee - severance and relocation benefits


•	Exit - contract termination penalties

~~program.~~ The expenses related to these activities are included in the Condensed Consolidated Statements of Operations as restructuring and related charges, and totaled ~~$16~~$18 million and ~~$14~~$19 million during the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $65 million and $77 million during the nine months ended September 30, 2018 and 2017,~~ respectively. Restructuring expenses in ~~2018~~2019 primarily related to realignment of certain employees to centralized talent ~~centers as well as legal settlements and expenses.~~centers.



Restructuring activity during the period
($ in millions)	Employee costs			Exit costs			Total liability
Restructuring liability as of December 31, 2018	$	29		$	15		$	44
Expense incurred	16			—			16
Adjustments to liability	2			—			2
Payments	(11		)	(4		)	(15		)
Restructuring liability as of March 31, 2019	$	36		$	11		$	47

The payments applied against the liability for employee costs primarily reflect severance costs and the payments for exit costs generally consist of post-exit rent expenses and contract termination penalties.

As of ~~September 30, 2018,~~March 31, 2019, the cumulative amount incurred to date for active programs related to employee severance, relocation benefits and post-exit rent expenses totaled ~~$130~~$96 million for employee costs and ~~$110~~$8 million for exit costs.

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Note 1211	Guarantees and Contingent Liabilities

Shared markets and state facility assessments

The Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations in various states that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers.

The Company routinely reviews its exposure to assessments from these plans, facilities and government programs. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to the Company’s results of operations. Because of the Company’s participation, it may be exposed to losses that surpass the capitalization of these facilities and/or assessments from these facilities.

~~Texas Windstorm Insurance Association~~ The Company participates as a member of TWIA, which provides wind and hail property coverage to coastal risks unable to procure coverage in the voluntary market. Wind and hail coverage is written on a TWIA-issued policy. TWIA follows a funding structure first utilizing currently available funds set aside from current and prior years. Under the current law, to the extent losses exceed premiums received from policyholders, TWIA utilizes a combination of reinsurance, TWIA issued securities, as well as member and policyholder assessments to fund loss payments.

During 2018, the TWIA Board announced assessments related to Hurricane Harvey for which the Company’s share was $37 million. These costs were recorded in property and casualty insurance claims and claims expense as catastrophe losses on the Condensed Consolidated Statements of Operations. Any assessments from TWIA for a particular quarter or annual period may be material to the results of

~~operations and cash flows, but not the financial position of the Company.~~

Guarantees

Related to the sale of Lincoln Benefit Life Company on April 1, 2014, ALIC agreed to indemnify Resolution Life Holdings, Inc. in connection with certain representations, warranties and covenants of ALIC, and certain liabilities specifically excluded from the transaction, subject to specific contractual limitations regarding ALIC’s maximum obligation. Management does not believe these indemnifications will have a material effect on results of operations, cash flows or financial position of the Company.

Related to the disposal through reinsurance of substantially all of its variable annuity business to Prudential in 2006, the Company and its consolidated subsidiaries, ALIC and ALNY, have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of ALIC and ALNY and liabilities specifically excluded from the transaction) that ALIC and ALNY have agreed to retain. In addition, the Company, ALIC and ALNY will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of ALIC, ALNY and their agents, including certain liabilities arising from ALIC’s and ALNY’s provision of transition services. The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including

38 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

those related to benefit guarantees. Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company.

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss

would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material as of ~~September 30, 2018.~~March 31, 2019.

Regulation and compliance

The Company is subject to extensive laws, regulations, administrative directives, and regulatory actions. From time to time, regulatory authorities or legislative bodies seek to influence and restrict premium rates, require premium refunds to policyholders, require reinstatement of terminated policies, prescribe rules or guidelines on how affiliates compete in the marketplace, restrict the ability of insurers to cancel or non-renew policies, require insurers to continue to write new policies or limit their ability to write new policies, limit insurers’ ability to change coverage terms or to impose underwriting standards, impose additional regulations regarding ~~agent~~agency and broker compensation, regulate the nature of and amount of investments, impose fines and penalties for unintended errors or mistakes, impose additional regulations regarding cybersecurity and privacy, and otherwise expand overall regulation of insurance products and the insurance industry. In addition, the Company is subject to laws and regulations administered and enforced by federal agencies, international agencies, and other organizations, including but not limited to the ~~SEC,~~Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority, the U.S. Equal Employment Opportunity Commission, and the U.S. Department of Justice. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs

being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.

Legal and regulatory proceedings and inquiries

The Company and certain subsidiaries are involved in a number of lawsuits, regulatory inquiries, and other legal proceedings arising out of various aspects of its business.

First Quarter 2019 Form 10-Q 39

Notes to Condensed Consolidated Financial Statements

Background These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard, or investigated; changes in assigned judges; differences or developments in applicable laws and judicial interpretations; judges reconsidering prior rulings; the length of time before many of these matters might be resolved by settlement, through litigation, or otherwise; adjustments with respect to anticipated trial schedules and other proceedings; developments in similar actions against other companies; the fact that some of the lawsuits are putative class actions in which a class has not been certified and in which the purported class may not be clearly defined; the fact that some of the lawsuits involve multi-state class actions in which the applicable law(s) for the claims at issue is in dispute and therefore unclear; and the challenging legal environment faced by corporations and insurance companies.

The outcome of these matters may be affected by decisions, verdicts, and settlements, and the timing of such decisions, verdicts, and settlements, in other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state or federal legislation, the timing or substance of which cannot be predicted.

In the lawsuits, plaintiffs seek a variety of remedies which may include equitable relief in the form of injunctive and other remedies and monetary relief in the form of contractual and extra-contractual damages. In some cases, the monetary damages sought may include punitive or treble damages. Often specific information about the relief sought, such as the amount of damages, is not available because plaintiffs have not requested specific relief in their pleadings. When specific monetary demands are made, they are often set just below a state court jurisdictional limit in order to seek the maximum amount available in state court, regardless of the specifics of the case, while still avoiding the risk of removal to federal court. In Allstate’s experience, monetary demands in pleadings bear little relation to the ultimate loss, if any, to the Company.

In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution, and changes in business practices. The Company may not

~~Third Quarter 2018 Form 10-Q~~ 39

~~Notes to Condensed Consolidated Financial Statements~~

be advised of the nature and extent of relief sought until the final stages of the examination or proceeding.

Accrual and disclosure policy The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for such matters at management’s best estimate when the Company assesses that it is probable that a loss has been incurred and the amount

of the loss can be reasonably estimated. The Company does not establish accruals for such matters when the Company does not believe both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company’s assessment of whether a loss is reasonably possible or probable is based on its assessment of the ultimate outcome of the matter following all appeals. The Company does not include potential recoveries in its estimates of reasonably possible or probable losses. Legal fees are expensed as incurred.

The Company continues to monitor its lawsuits, regulatory inquiries, and other legal proceedings for further developments that would make the loss contingency both probable and estimable, and accordingly accruable, or that could affect the amount of accruals that have been previously established. There may continue to be exposure to loss in excess of any amount accrued. Disclosure of the nature and amount of an accrual is made when there have been sufficient legal and factual developments such that the Company’s ability to resolve the matter would not be impaired by the disclosure of the amount of accrual.

When the Company assesses it is reasonably possible or probable that a loss has been incurred, it discloses the matter. When it is possible to estimate the reasonably possible loss or range of loss above the amount accrued, if any, for the matters disclosed, that estimate is aggregated and disclosed. Disclosure is not required when an estimate of the reasonably possible loss or range of loss cannot be made.

For certain of the matters described below in the “Claims related proceedings” and “Other proceedings” subsections, the Company is able to estimate the reasonably possible loss or range of loss above the amount accrued, if any. In determining whether it is possible to estimate the reasonably possible loss or range of loss, the Company reviews and evaluates the disclosed matters, in conjunction with counsel, in light of potentially relevant factual and legal developments.

These developments may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, information obtained from other sources, experience from managing these and other matters, and other rulings by courts, arbitrators or others. When the Company possesses sufficient appropriate information to develop an estimate of the reasonably possible loss or range of loss above the amount accrued, if any, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible, but such an estimate

is not possible. Disclosure of the estimate of the reasonably possible loss or range of loss above the amount accrued, if any, for any individual matter would only be considered when there have been sufficient legal and factual developments such that the Company’s ability to resolve the matter would not be impaired by the disclosure of the individual estimate.

The Company currently estimates that the aggregate range of reasonably possible loss in excess of the amount accrued, if any, for the disclosed matters

www.allstate.com

Notes to Condensed Consolidated Financial Statements

where such an estimate is possible is zero to ~~$115~~$100 million, pre-tax. This disclosure is not an indication of expected loss, if any. Under accounting guidance, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” This estimate is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimate will change from time to time, and actual results may vary significantly from the current estimate. The estimate does not include matters or losses for which an estimate is not possible. Therefore, this estimate represents an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum possible loss exposure. Information is provided below regarding the nature of all of the disclosed matters and, where specified, the amount, if any, of plaintiff claims associated with these loss contingencies.

Due to the complexity and scope of the matters disclosed in the “Claims related proceedings” and “Other proceedings” subsections below and the many uncertainties that exist, the ultimate outcome of these matters cannot be predicted and in the Company’s judgment, a loss, in excess of amounts accrued, if any, is not probable. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently accrued, if any, and may be material to the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described below, as they are resolved over time, is not likely to have a material effect on the financial position of the Company.

Claims related proceedings The Company is managing various disputes in Florida that raise challenges to the Company’s practices, processes, and procedures relating to claims for personal injury protection benefits under Florida auto policies. Medical providers continue to pursue litigation under various theories that challenge the amounts that the Company pays under the personal injury protection benefits. There are pending putative class actions and litigation involving individual plaintiffs. The Company is vigorously asserting both procedural and substantive defenses to these lawsuits.

Other proceedings The case of Jack Jimenez, et al. v. Allstate Insurance Company was filed in the ~~U.S.~~United States District Court for the Central District of California inon September 30, 2010. Plaintiffs allege off-the-clock wage and hour claims and other California Labor Code violations resulting from purported unpaid overtime. Plaintiffs seek recovery of unpaid compensation, liquidated damages, penalties, and attorneys’ fees and costs. The court certified a class that includes all adjusters in the state of California, except auto field adjusters, from September 29, 2006 to final judgment. Allstate’s appeals to the Ninth Circuit Court of Appeals and then to the U.S. Supreme

Court did not result in decertification. No trial date is calendared.

40 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~

The Company is managing various disputes challenging the method in which it has applied deductibles relating to claims for personal injury protection benefits under Florida auto policies. These disputes include a putative class action and litigation involving individual plaintiffs.

~~Gail Pierce, et al. v. Allstate Insurance Company~~ is a putative class action filed in August 2013 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. It is brought on behalf of all insureds and their health care provider assignees who submitted claims for personal injury protection under auto policies in effect from March 2008. In the policies at issue, the Company applied the personal injury protection deductible to health care provider charges after the Company reduced those charges for reasonableness. In ~~Pierce~~ and the individual matters, plaintiffs seek determinations that the Company must apply the personal injury protection deductible to the full amount charged by the providers. In addition to the difference in policy benefits that may result from applying the deductible to the full amount charged, plaintiffs also seek recovery of attorneys’ fees and costs pursuant to Florida statutes.

~~The question concerning how the personal injury protection deductible is to be applied under Florida law is currently pending before the Florida Supreme Court in a matter involving another insurer,~~ ~~Progressive v. Florida Hospital~~. Progressive appealed from a Fifth District Court of Appeals decision in favor of the health providers. Another appellate district subsequently ruled in favor of insurers in three separate appeals. The Florida Supreme Court indicated that it will decide the issues in ~~Progressive~~ ~~without oral argument.~~

~~Other proceedings~~ ~~The three shareholder~~stockholder derivative actions described below are disclosed pursuant to SEC disclosure requirements for these types of ~~matters, and the~~matters. The putative class action ~~has been~~alleging violations of the federal securities laws is disclosed because ~~these matters involve~~it involves similar ~~allegations.~~

In ~~Biefeldt v. Wilson, et al., a plaintiff alleging~~allegations to ~~be a stockholder~~those made in the ~~Company~~stockholder derivative actions.

Biefeldt / IBEW Consolidated Action. Two separately filed stockholder derivative actions have been consolidated into a ~~shareholder derivative complaint~~single proceeding that is pending in the Circuit Court for Cook County, Illinois, Chancery ~~Division~~Division. The original complaint in the first-filed of those actions, Biefeldt v. Wilson, et al., was filed on August 3, ~~2017.~~2017, in that court by a plaintiff alleging that she is a stockholder of the Company. On June 29, 2018, the court granted defendants’ motion to dismiss that complaint for failure to make a pre-suit demand on the Allstate board before instituting the suit, but granted the plaintiff permission to file an amended complaint. The original complaint in IBEW Local No. 98 Pension Fund v. Wilson, et al., was filed on April 12, 2018, in the same court by another plaintiff ~~seeks,~~alleging to be a stockholder of the Company. After the court issued its dismissal decision in the Biefeldt action, the plaintiffs agreed to consolidate the two actions and filed a consolidated amended complaint naming the Company’s chairman, president and chief executive officer, its former president, and certain present or former members of the board of directors. In that complaint, the plaintiffs allege that the directors and officer defendants breached their fiduciary duties to the Company in connection with allegedly material misstatements or omissions concerning the Company’s automobile insurance claim frequency statistics and the reasons for a claim frequency increase for Allstate brand auto insurance between October 2014 and August 3, 2015. The factual allegations are substantially similar to those at issue in In re The Allstate Corp. Securities Litigation. The plaintiffs further allege that a senior officer and several outside directors engaged in stock option exercises allegedly while in possession of material nonpublic information. The plaintiffs seek, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. ~~The complaint alleges breaches of fiduciary duty based on allegations similar~~Defendants moved to ~~those asserted in~~ In~~re The Allstate Corp. Securities Litigation~~. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president, its former chief financial officer, who is now the Company’s vice chairman, and the members of the board of directors during the relevant period. The defendants’ motion to dismiss ~~the complaint was heard on May 8, 2018. On June 29, 2018, the court granted the motion to dismiss. On July 26, 2018, the court consolidated this matter with the~~ ~~IBEW Local No. 98 Pension Fund~~ ~~matter described below. The court granted the consolidated plaintiffs leave to file a consolidated complaint by August 10, 2018. Defendants answered~~ the consolidated complaint on September 24, ~~2018. Plaintiff’s opposition brief is due~~

2018 for failure to make a demand on ~~November 8, 2018, and defendants’ reply is due on~~the Allstate board. The motion to dismiss was fully briefed as of December ~~7, 2018.~~

In ~~IBEW Local No. 98 Pension Fund v. Wilson, et al., another plaintiff alleging to be a stockholder in the Company filed a shareholder derivative complaint in the Circuit Court for Cook County, Illinois, Chancery Division on April 12,~~10, 2018. The ~~plaintiff seeks,~~court heard argument on ~~behalf of~~ the ~~Company, an unspecified amount of damages~~motion on March 7, 2019 and ~~various forms of equitable relief. The complaint alleges breaches of fiduciary duty based on allegations similar~~continued the argument hearing to ~~those asserted in~~ In~~re The Allstate Corp. Securities Litigation~~. The complaint also includes allegations concerning the exercise of stock options by the Company’s chairman, president and chief executive officer and several other members of our board of directors during the relevant period. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president and the members of the board of directors during the relevant period. On May ~~17, 2018, the court transferred this case to the same judge handling the~~ ~~Biefeldt v. Wilson, et al.~~ ~~lawsuit. On July 26, 2018, the court consolidated this matter with the~~ ~~Biefeldt~~ matter described above. The court granted the consolidated plaintiffs leave to file a consolidated complaint by August 10, 2018. Defendants answered the consolidated complaint on September 24, 2018. Plaintiff’s opposition brief is due on November 8, 2018, and defendants’ reply is due on December 7, 2018.14, 2019.

In Sundquist v. Wilson, et al., another plaintiff alleging to be a stockholder inof the Company filed a ~~shareholder~~stockholder derivative complaint in ~~federal court in~~the United States District Court for the Northern District of Illinois on May 21, 2018. The plaintiff seeks, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president, its former chief financial officer, who is now the Company’s vice chairman, and certain present or former members of

First Quarter 2019 Form 10-Q 41

Notes to Condensed Consolidated Financial Statements

the board of directors. The complaint alleges breaches of fiduciary duty based on allegations similar to those asserted in In re TheAllstate Corp. Securities Litigation~~. The complaint also asserts~~as well as state law “misappropriation” claims based on stock option transactions by the Company’s chairman, president and chief executive officer, its former chief financial officer, who is now the Company’s vice chairman, and certain members of the board of directors. The complaint names as defendants the Company’s chairman, president and chief executive officer, its former president, its former chief financial officer, who is now the Company’s vice chairman, and the members of the board of directors during the relevant period. Defendants ~~answered~~moved to dismiss and/or stay the complaint on August 7, 2018. ~~Plaintiff filed her opposition to~~On December 4, 2018, the court granted the defendants’ motion ~~to dismiss on September 7, 2018. Defendants filed their reply to plaintiff’s opposition on September 28, 2018.~~and stayed the case pending the resolution of the consolidated Biefeldt/IBEW matter.

Inre The Allstate Corp. Securities Litigation is a putative class action filed inon November 11, 2016 in the United States District Court for the Northern District of Illinois against the Company and ~~several~~two of its officers asserting claims under the federal securities laws. Plaintiffs allege that they purchased Allstate common stock during the putative class period and suffered damages as the result of the conduct alleged. Plaintiffs seek an unspecified amount of damages, costs, attorney’s fees, and ~~such~~ other relief as the court deems appropriate. Plaintiffs allege that the Company and certain senior officers made allegedly material misstatements or omissions concerning claim

~~Third Quarter 2018 Form 10-Q~~ 41

~~Notes to Condensed Consolidated Financial Statements~~

frequency statistics and the reasons for a claim frequency increase for Allstate brand auto ~~insurance.~~ insurance between October 2014 and August 3, 2015.

Plaintiffs’ further allege that a senior officer engaged in stock option exercises ~~and sales~~ during that time allegedly while in possession of material nonpublic information about Allstate brand auto insurance claim frequency. The Company, its chairman, president and chief executive officer, and its former president are the named defendants. ~~Defendants~~After the court denied their motion to dismiss on February 27, 2018, defendants answered the complaint, ~~disputing~~denying plaintiffs’ allegations that there was any misstatement or omission or other ~~misconduct, after the court denied~~

~~their motion to dismiss on February 27, 2018.~~misconduct. On June 22, 2018, plaintiffs filed their motion for class ~~certification. Defendants’ response to plaintiffs’ motion~~certification, which was ~~filed on October 5, 2018. Plaintiffs’ reply is due on November 19, 2018.~~fully briefed as of January 11, 2019. On September 12, 2018, the court allowed the lead plaintiffs to amend their complaint to add the City of Providence Employee Retirement System as a proposed class representative. The amended complaint was filed the same day. On March 26, 2019, the court granted plaintiffs’ motion for class certification and certified a class consisting of all persons who purchased Allstate common stock between October 29, 2014 and August 3, 2015. On April 9, 2019, defendants filed with the 7th Circuit Court of Appeals a petition for permission to appeal this ruling pursuant to Federal Rule of Civil Procedure 23 (f).

www.allstate.com

Notes to Condensed Consolidated Financial Statements



Note 12	Benefit Plans

Change in accounting principle

other postretirement remeasurement gains and losses on the Condensed Consolidated Statements of Operations. This change has been applied on a retrospective basis. See Note 1 for further information regarding the impact of the change in accounting principle on the condensed consolidated financial statements.



Components of net cost (benefit) for pension and other postretirement plans
	Three months ended March 31,
($ in millions)	2019			2018
Pension benefits
Service cost	$	28		$	28
Interest cost	65			61
Expected return on plan assets	(93		)	(113		)
Amortization of prior service credit	(14		)	(14		)
Costs and expenses	(14		)	(38		)
Remeasurement of projected benefit obligation	387			(190		)
Remeasurement of plan assets	(391		)	212
Remeasurement gains and losses	(4		)	22
Total net benefit	$	(18	)	$	(16	)

Postretirement benefits
Service cost	$	2		$	2
Interest cost	4			4
Amortization of prior service credit	(1		)	(5		)
Costs and expenses	5			1
Remeasurement of projected benefit obligation	19			(8		)
Remeasurement of plan assets	—			—
Remeasurement gains and losses	19			(8		)
Total net cost (benefit)	$	24		$	(7	)

First Quarter 2019 Form 10-Q 43

Notes to Condensed Consolidated Financial Statements



Note 13	~~Benefit Plans~~

Components of net periodic cost included in operating costs and expenses
Three months ended September 30, Nine months ended September 30,
($ in millions)

2018 2017 2018 2017
Pension benefits
Service cost $ 29
$ 28
$ 85
$ 85
Interest cost 60
66
181
198
Expected return on plan assets (105 ) (102 ) (316 ) (306 )
Amortization of:

Prior service credit (14 ) (14 ) (42 ) (42 )
Net actuarial loss 43
48
132
142
Settlement loss 68
94
82
110
Net periodic pension cost $ 81
$ 120
$ 122
$ 187

Postretirement benefits
Service cost $ 2
$ 2
$ 6
$ 6
Interest cost 3
4
10
11
Amortization of:
Prior service credit (5 ) (6 ) (16 ) (18 )
Net actuarial gain (6 ) (6 ) (17 ) (18 )
Net periodic postretirement credit $ (6 ) $ (6 ) $ (17 ) $ (19 )

During the third quarter of 2018, the Company concluded that its qualified employee pension plan 2018 lump sum payments are expected to exceed a threshold of service and interest cost due to higher-than-expected retirement levels and rising interest rates that reduce benefit lump sum payments in the future.

~~As a result, a pension settlement loss of $61 million, pre-tax, was recorded as part of operating costs and expenses in the Corporate and Other segment.~~

~~The Company will continue to monitor lump sum payments through the end of the year and will recognize an additional settlement loss based on lump sum payments made during the fourth quarter of 2018.~~

During the third quarter of 2017, the Company also recorded a pension settlement loss in the amount of $86 million, pre-tax, related to higher levels of lump sum payments in the qualified employee pension plan.

42 ~~www.allstate.com~~

~~Notes to Condensed Consolidated Financial Statements~~



~~Note 14~~	Supplemental Cash Flow Information

Non-cash investing activities include ~~$78~~$128 million and ~~$31~~$18 million related to mergers and exchanges completed with equity securities, fixed income securities and limited partnerships, and modifications of certain mortgage loans and other investments for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Non-cash financing activities include ~~$30~~$46 million and ~~$42~~$27 million related to the issuance of Allstate common shares for vested equity awards for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Cash flows used in operating activities in the Condensed Consolidated Statements of Cash Flows include cash paid for operating leases related to amounts included in the measurement of lease liabilities of $37 million for the three months ended

March 31, 2019. Non-cash operating activities include $502 million related to ROU assets obtained in exchange for lease obligations, including $488 million related to the adoption of new guidance related to accounting for leases, for the three months ended March 31, 2019.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter and cleared derivatives are reported in other liabilities and accrued expenses or other investments.

The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, ~~which are~~ as follows:



($ in millions)	Three months ended March 31,
($ in millions)	2019			2018
Net change in proceeds managed
Net change in fixed income securities	$	60		$	32
Net change in short-term investments	(575		)	55
Operating cash flow (used) provided	$	(515	)	$	87

Net change in liabilities
Liabilities for collateral, beginning of period	$	(1,458	)	$	(1,124	)
Liabilities for collateral, end of period	(1,973		)	(1,037		)
Operating cash flow provided (used)	$	515		$	(87	)

($ in millions) Nine months ended September 30,
2018 2017
Net change in proceeds managed

Net change in fixed income securities $ 175
$ 129
Net change in short-term investments (454 ) (157 )
Operating cash flow (used) provided $ (279 ) $ (28 )
Net change in cash —
1
Net change in proceeds managed $ (279 ) $ (27 )

Net change in liabilities

Liabilities for collateral, beginning of period $ (1,124 ) $ (1,129 )
Liabilities for collateral, end of period (1,403 ) (1,156 )
Operating cash flow provided (used) $ 279
$ 27

~~Third Quarter 2018 Form 10-Q~~ 43

~~Notes to Condensed Consolidated Financial Statements~~



Note 1514	Other Comprehensive Income

Components of other comprehensive income (loss) on a pre-tax and after-tax basis
($ in millions) Three months ended September 30,
2018 2017
Pre-tax Tax After-tax Pre-tax Tax After-tax
Unrealized net holding gains and losses arising during the period, net of related offsets $ (116 ) $ 25
$ (91 ) $ 300
$ (105 ) $ 195
Less: reclassification adjustment of realized capital gains and losses (26 ) 5
(21 ) 107
(37 ) 70
Unrealized net capital gains and losses (90 ) 20
(70 ) 193
(68 ) 125
Unrealized foreign currency translation adjustments (18 ) 4
(14 ) 43
(15 ) 28
Unrecognized pension and other postretirement benefit cost arising during the period —
—
—
(5 ) 3
(2 )
Less: reclassification adjustment of net periodic cost recognized in operating costs and expenses (86 ) 18
(68 ) (116 ) 41
(75 )
Unrecognized pension and other postretirement benefit cost 86
(18 ) 68
111
(38 ) 73
Other comprehensive (loss) income $ (22 ) $ 6
$ (16 ) $ 347
$ (121 ) $ 226

Nine months ended September 30,
2018 2017
Pre-tax Tax After-tax Pre-tax Tax After-tax
Unrealized net holding gains and losses arising during the period, net of related offsets $ (1,103 ) $ 233
$ (870 ) $ 1,165
$ (408 ) $ 757
Less: reclassification adjustment of realized capital gains and losses (129 ) 27
(102 ) 245
(86 ) 159
Unrealized net capital gains and losses (974 ) 206
(768 ) 920
(322 ) 598
Unrealized foreign currency translation adjustments (32 ) 7
(25 ) 55
(19 ) 36
Unrecognized pension and other postretirement benefit cost arising during the period 4
(1 ) 3
(8 ) 5
(3 )
Less: reclassification adjustment of net periodic cost recognized in operating costs and expenses (139 ) 29
(110 ) (174 ) 61
(113 )
Unrecognized pension and other postretirement benefit cost 143
(30 ) 113
166
(56 ) 110
Other comprehensive (loss) income $ (863 ) $ 183
$ (680 ) $ 1,141
$ (397 ) $ 744



Components of other comprehensive income (loss) on a pre-tax and after-tax basis
($ in millions)	Three months ended March 31,
	2019									2018
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	1,287		$	(273	)	$	1,014		$	(740	)	$	155		$	(585	)
Less: reclassification adjustment of realized capital gains and losses	51			(11		)	40			(25		)	5			(20		)
Unrealized net capital gains and losses	1,236			(262		)	974			(715		)	150			(565		)
Unrealized foreign currency translation adjustments	6			(1		)	5			(3		)	1			(2		)
Unamortized pension and other postretirement prior service credit arising during the period	—			—			—			—			—			—
Less: reclassification adjustment of prior service credit amortized into operating costs and expenses	15			(3		)	12			19			(5		)	14
Unamortized pension and other postretirement prior service credit	(15		)	3			(12		)	(19		)	5			(14		)
Other comprehensive income (loss)	$	1,227		$	(260	)	$	967		$	(737	)	$	156		$	(581	)

www.allstate.com

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

The Allstate Corporation

Northbrook, Illinois 60062

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated statement of financial position of The Allstate Corporation and subsidiaries (the “Company”) as of ~~September 30, 2018,~~March 31, 2019, the related condensed consolidated statements of operations, ~~and~~ comprehensive income, ~~for the three month and nine month periods ended September 30, 2018 and 2017,~~ shareholders’ equity and cash flows for the ~~nine~~three month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017~~ and the related notes (collectively referred to as the “condensed consolidated financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statement of financial position of The Allstate Corporation and subsidiaries as of December 31, ~~2017,~~2018, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended prior to retrospective adjustment for a change in the Company’s principles of accounting for recognizing pension and other postretirement benefit plan costs (not presented herein); and in our report dated February ~~26, 2018,~~15, 2019, we expressed an unqualified opinion on those consolidated financial ~~statements.~~statements (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to a change in accounting principle for the recognition and measurement of financial assets and financial liabilities). We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2018 consolidated statement of financial position. In our opinion, such adjustments are appropriate and have been properly applied to the ~~information set forth~~previously issued consolidated statement of financial position in deriving the accompanying retrospectively adjusted condensed consolidated statement of financial position as of December 31, ~~2017 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.~~2018.

Basis for Review Results

These condensed consolidated financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of the condensed consolidated financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Emphasis of a Matter

As discussed in Note 1 to the condensed consolidated financial statements, the Company ~~changed~~elected to change its ~~presentation and method~~principles of accounting for ~~the recognition~~recognizing pension and ~~measurement of financial assets and financial liabilities due to an adopted accounting standard.~~other postretirement benefit plan costs.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

~~October 31, 2018~~May 1, 2019

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 45

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three ~~and Nine~~ Month Periods Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

Overview

To achieve its goals in ~~2018,~~2019, Allstate is focused on the following priorities:

• Better serve customers

• Achieve target economic returns on capital

• Grow customer base

• Proactively manage investments

• Build long-term growth platforms

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the condensed consolidated financial statements and notes thereto found under Part I. Item 1. contained herein, and with the discussion, analysis, consolidated financial statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of The Allstate Corporation annual report on Form 10-K for ~~2017.~~2018. Further analysis of our insurance segments is provided in the Property-Liability Operations and Segment Results sections, including Allstate Protection, Discontinued Lines and Coverages, Service Businesses, Allstate Life, Allstate Benefits, and Allstate Annuities, of Management’s Discussion and Analysis (“MD&A”). The segments are consistent with the way in which the chief operating decision maker reviews financial performance and makes decisions about the allocation of resources.

Measuring segment profit or loss

Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense (“losses”), amortization of deferred policy acquisition costs (“DAC”), operating costs and expenses, amortization of purchased intangible assets and restructuring and related charges, as determined using accounting principles generally accepted in the United States of America (“GAAP”). We use this measure in our evaluation of results of operations to analyze the profitability of the Property-Liability insurance operations separately from investment results. Underwriting income is reconciled to net income applicable to common shareholders in the Property-Liability Operations section of Management’s Discussion and Analysis.

Adjusted net income is net income applicable to common shareholders, excluding:

• Pension and other postretirement remeasurement gains and losses, after-tax

• Valuation changes on embedded derivatives not hedged, after-tax

• Amortization of DAC and deferred sales inducement costs (“DSI”), to the extent they resulted from the recognition of certain realized capital gains and losses or valuation changes on embedded derivatives not hedged, after-tax

• Business combination expenses and the amortization of purchased intangible assets, after-tax

• Gain (loss) on disposition of operations, after-tax

Adjusted net income is reconciled to net income applicable to common shareholders in the Service Businesses, Allstate Life, Allstate Benefits and Allstate Annuities Segment sections of MD&A.

www.allstate.com

Highlights



Consolidated Net Income
($ in millions)

Consolidated net income applicable to common shareholders increased ~~30.8% and 30.4%~~29.1% in the ~~third~~first quarter ~~and first nine months~~ of ~~2018, respectively,~~2019 compared to the ~~prior periods. The increase in both periods was~~first quarter of 2018, primarily driven by ~~a 5.8%~~net realized capital gains in 2019 compared to net realized capital losses in 2018 and ~~3.4% increase in total revenue (see table below), lower catastrophe losses and a lower effective tax rate from the Tax Cuts and Jobs Act of 2017,~~higher premiums earned, partially offset by higher ~~property~~losses, lower net investment income and ~~casualty insurance non-catastrophe claims losses,~~ higher ~~amortization of DAC for property and casualty businesses and Allstate Life, and lower realized capital gains in the first nine months of 2018 compared to the same period of 2017.~~

distribution expenses from growth. The Property-Liability combined ratio ~~increased from 93.9~~was 91.8 in ~~the third~~first quarter ~~of 2017~~2019 compared to ~~94.3~~87.5 in ~~the third~~first quarter ~~of 2018 and improved from 94.5 in the first nine months of 2017 to 92.5 in the first nine months of~~ 2018.



Total Revenue
($ in millions)

Total revenue increased ~~5.8% and 3.4%~~12.5% in the ~~third~~first quarter ~~and first nine months~~ of ~~2018, respectively,~~2019 compared to the ~~prior periods,~~first quarter of 2018, driven by net realized capital gains in 2019 compared to net realized capital losses in 2018 and a ~~5.7% and 5.0%~~5.9% increase in insurance premiums ~~in the third quarter~~ and ~~first nine months of 2018, respectively.~~contract charges, partially offset by decreased net investment income. Insurance premiums increased in the following segments: Allstate Protection (Allstate ~~brand~~ and ~~Esurance)~~Esurance brands), Service Businesses ~~Allstate Benefits~~(SquareTrade and Allstate ~~Life. The increase in revenue in the first nine months of 2018 is partially offset by lower net realized capital gains~~Dealer Services), Allstate Life and ~~net investment income.~~Allstate Benefits.



Net Investment Income
($ in millions)

Net investment income ~~was flat in the third quarter of 2018, compared to the third quarter of 2017. Net investment income~~ decreased ~~1.4%~~ in the first ~~nine months~~quarter of ~~2018,~~2019 compared to the first ~~nine months~~quarter of ~~2017, primarily~~2018, due to lower performance-based investment results, mainly from limited ~~partnerships.~~partnerships, partially offset by higher market-based portfolio income.

~~Legend~~

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 47

Segment Highlights

Allstate Protection underwriting income totaled ~~$553~~$703 million in the ~~third~~first quarter of ~~2018,~~2019, a ~~3.3%~~30.3% decrease from ~~$572 million~~$1.01 billion in the ~~third~~first quarter of ~~2017,~~2018, primarily due to higher catastrophe losses, claim severity ~~higher~~and operating costs and expenses, ~~and lower favorable non-catastrophe prior year reserve reestimates,~~ partially offset by increased premiums earned ~~lower catastrophe losses~~ and improved auto claim frequency.

~~Underwriting income totaled $1.93~~Premiums written increased 6.2% to $8.33 billion in the first nine months of 2018, a 38.9% increase from $1.39 billion in the first nine months of 2017, primarily due to increased premiums earned, lower catastrophe losses and improved auto claim frequency, partially offset by higher claim severity and operating costs and expenses.

~~Premiums written increased 5.9% to $8.80 billion in the third~~ quarter of ~~2018 and 5.8% to $25.19 billion in the first nine months of 2018,~~2019, compared to the same ~~periods~~period of ~~2017.~~2018.

Service Businessesadjusted net income was ~~zero~~$11 million in the ~~third~~first quarter of ~~2018~~2019 compared to an adjusted net loss of ~~$17 million in the third quarter of 2017. Adjusted net loss improved to $4~~$3 million in the first ~~nine months~~quarter of ~~2018 compared to $35 million in the first nine months of 2017.~~2018. The ~~improvements in both periods were~~improvement was primarily due to higher premiums and improved loss experience at SquareTrade and Allstate Dealer Services, partially offset by higher ~~loss~~rescue costs ~~and investments in the provider network and technology~~ at Allstate Roadside ~~Services and investments in business expansion at Arity.~~Services.

Total revenues increased ~~21.0%~~25.2% to ~~$329 million in the third quarter of 2018 and 23.5% to $962~~$392 million in the first ~~nine months~~quarter of ~~2018,~~2019, compared to the ~~same periods of 2017. These amounts include $24 million and $80 million related to SquareTrade in the third~~first quarter ~~and first nine months~~ of 2018, ~~respectively, recorded for protection plans sold directly to retailers prior to January 1, 2018 for which SquareTrade is deemed to be the principal. These amounts are~~primarily due to SquareTrade’s growth through its U.S. retail and international distribution partners and the ~~adoption~~acquisitions of ~~the revenue from contracts with customers accounting standard~~InfoArmor, PlumChoice and ~~are offset by corresponding increases in amortization of DAC, resulting in no impact to adjusted net income.~~iCracked.

Net investment income increased ~~$3 million in the third quarter of 2018 and $7~~$4 million in the first ~~nine months~~quarter of ~~2018,~~2019, compared to the ~~same periods~~first quarter of ~~2017.~~2018.

Allstate Life adjusted net income was ~~$74 million in both the third quarter of 2018 and 2017. Adjusted net income was $221~~$73 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to ~~$196~~$71 million in the first ~~nine months of 2017, primarily due to a lower effective tax rate from the Tax Legislation, increased premiums and higher net investment income, partially offset by higher contract benefits.~~

~~Premiums and contract charges increased 1.9% to $322 million in the third~~ quarter of 2018, ~~and 2.0% to $975 million in the first nine months of 2018, compared to the same periods of 2017.~~

~~Allstate Benefits~~ adjusted net income was $32 million in the third quarter of 2018 compared to $28 million in the third quarter of 2017 and $94 million in the first nine months of 2018 compared to $75 million in the first nine months of 2017, primarily due to higher premiums and ~~a lower effective tax rate from the Tax Legislation,~~contract charges and net investment income, partially offset by higher contract benefits and operating costs and expenses.

Premiums and contract charges increased ~~4.4%~~3.1% to ~~$285 million in the third quarter of 2018 and 5.3% to $854~~$337 million in the first ~~nine months~~quarter of 2019, compared to the first quarter of 2018.

Allstate Benefits adjusted net income was $31 million in the first quarter of 2019 compared to $29 million in the first quarter of 2018, primarily due to lower contract benefits, partially offset by higher amortization of DAC.

Premiums and contract charges increased 0.7% to $288 million in the first quarter of 2019, compared to the same ~~periods~~period of ~~2017.~~2018.

Allstate Annuities adjusted net ~~income~~loss was ~~$20 million in the third quarter of 2018 compared to $55 million in the third quarter of 2017 and $99~~$25 million in the first ~~nine months~~quarter of ~~2018~~2019 compared to ~~$149~~adjusted net income of $35 million in the first ~~nine months~~quarter of ~~2017,~~2018, primarily due to decreased net investment income, ~~driven by lower performance-based investment results and average investment balances,~~ partially offset by a lower ~~effective tax rate from the Tax Legislation and decreased interest credited to contractholder funds.~~contract benefits.

Net investment income decreased ~~19.8%~~34.5% to ~~$260 million in the third quarter of 2018 and 12.8% to $843~~$190 million in the first ~~nine months~~quarter of ~~2018,~~2019, compared to the ~~same periods~~first quarter of ~~2017.~~2018, due to lower performance-based investment results.

www.allstate.com

Financial Highlights

~~Tax reform~~iCracked On December 22, 2017, Public Law 115-97, known as the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) became effective, permanently reducing the U.S. corporate income tax rate from 35% to 21% beginning January 1, 2018. As a result, the corporate tax rate is not comparable between periods. During 2017, we revalued deferred tax assets and liabilities and recorded liabilities related to the transition to the modified territorial system for international taxation. During the third quarter of 2018, the impact of the Tax Legislation was adjusted from our preliminary estimate due to, among other things, changes in interpretations and assumptions we previously made, guidance that was issued and actions we took as a result of the Tax Legislation. During the third quarter of 2018, we recorded a reduction of $31 million to income tax expense related to these provisional amounts. We may make adjustments to these provisional amounts as additional information becomes available and future guidance is issued by the Internal Revenue Service.

~~We are utilizing a portion of the benefits from the Tax Legislation for the following initiatives:~~

~~Accelerating growth initiatives~~

~~Enhancing our employee value proposition~~

~~Improving local communities~~

~~Increasing cash returns to shareholders through the increase of our quarterly dividend per common share in the first quarter of 2018~~

In the first quarter of 2018, employees received either $1,000 or $2,000 of Choice Dollars (“Choice Dollars”) following a reduction in the federal tax rate, which could be taken as a cash bonus or contributed to a 401(k) or health savings account. $43 million was recorded as an expense with $21 million recorded in claims and claim expense and $22 million recorded in other costs and expenses.

~~The expenses associated with these initiatives will occur throughout 2018 and will reoccur in future periods.~~

~~InfoArmor~~ ~~On October 5, 2018,~~February 12, 2019, we acquired ~~InfoArmor,~~iCracked Inc. (“~~InfoArmor”~~iCracked”), ~~a leading provider of identity protection~~which offers on-site, on-demand repair services for smartphones and tablets in the employee benefits market, for $525 million in cash. InfoArmor primarily offers identity protection to employees and their family members through voluntary benefit programs at over 1,400 firms, including more than 100 of the Fortune 500 companies.North America, supporting SquareTrade’s operations.

Investments totaled ~~$83.97~~$84.12 billion as of ~~September 30, 2018,~~March 31, 2019, increasing from ~~$82.80~~$81.26 billion as of December 31, ~~2017.~~2018.

Shareholders’ equity As of ~~September 30, 2018,~~March 31, 2019, shareholders’ equity was ~~$23.63 billion, including $3.38~~$23.42 billion. This total included $2.34 billion in deployable assets at the parent holding company level comprising cash and investments that are generally saleable within one quarter.

Book value per diluted common share (ratio of common shareholders’ equity to total common shares

outstanding and dilutive potential common shares outstanding) was ~~$60.79 as of September 30, 2018,~~$63.59, an increase of ~~9.2%~~8.5% from ~~$55.69~~$58.62 as of ~~September 30, 2017,~~March 31, 2018, and an increase of ~~5.6%~~10.5% from ~~$57.58~~$57.56 as of December 31, ~~2017.~~2018.

Return on average common shareholders’ equity For the twelve months ended ~~September 30, 2018,~~March 31, 2019, net income applicable to common shareholders’ return on the average of beginning and ending period common shareholders’ equity of ~~17.4% increased~~10.8% decreased by ~~3.9~~7.1 points from ~~13.5%~~17.9% for the twelve months ended ~~September 30, 2017.~~March 31, 2018, primarily due to lower net income applicable to common shareholders for the trailing twelve-month period ended March 31, 2019 and an increase in average common shareholders’ equity.

~~Pension settlement loss~~ ~~During~~Change in accounting principle

We changed our accounting principle for recognizing actuarial gains and losses and expected return on plan assets for our pension and other postretirement plans to a more preferable policy under U.S. GAAP. Under the ~~third quarter~~new principle, remeasurement of ~~2018, we concluded that our qualified employee~~projected benefit obligation and plan assets are immediately recognized through earnings and are referred to as pension ~~plan 2018 lump sum payments are expected to exceed~~and other postretirement remeasurement gains and losses on the Condensed Consolidated Statements of Operations. This change has been applied on a ~~threshold of service and interest cost, which resulted in~~retrospective basis. The following table provides a pension settlement loss of $61 million, pre-tax, and was recorded as part of operating costs and expenses in the Corporate and Other segment. We will continue to monitor lump sum payments through the endsummary of the year and we expect to recognize an additional settlement loss based on lump sum payments made during the fourth quarter of 2018. During third quarter 2017, we also recorded a pension settlement loss in the amount of $86 million, pre-tax, related to higher levels of lump sum payments in the qualified employee pension plan.

~~Common share repurchases~~ ~~On October 31, 2018, the Board authorized a new $3.00 billion common share repurchase program that is expected to be completed by April 2020.~~

~~Adopted Accounting Standards~~

~~Recognition and Measurement of Financial Assets and Financial Liabilities (“recognition and measurement accounting standard”)~~ Beginning January 1, 2018, equity securities are reported at fair value with changes in fair value recognized in realized capital gains and losses. Limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net investment income. See the Investments sectionimpacts of this ~~Item for further details.~~

~~Revenue from Contracts with Customers~~ Beginning January 1, 2018, we adopted the revenue from contracts with customers accounting standard, which revises the criteria for revenue recognition and impacted the Service Businesses segment by increasing deferred revenue by approximately $160 million with a corresponding increase in DAC for protection plans that are sold directly to retailers. The anticipated impact of these adjustments offset and do not impact net income, but impact premium and DAC comparability trends as they are recognized over the life of the policy.

change. See Note 1 of the condensed consolidated financial statements for ~~additional details~~further information regarding the impact of the change in accounting principle on ~~the adopted accounting standards.~~our condensed consolidated financial statements.



Impact of pension and postretirement accounting change on selected financial data
($ in millions, except per share data and ratios)	Three months ended March 31, 2018
	As adjusted			Previously reported
Net income	$	1,006		$	975
Net income applicable to common shareholders	977			946
Net income applicable to common shareholders per common share - Basic	2.76			2.67
Net income applicable to common shareholders per common share - Diluted	2.71			2.63
Return on common shareholders’ equity	17.9		%	16.6		%
Property-Liability combined ratio	87.5			88.0

~~Third~~

First Quarter ~~2018~~2019 Form 10-Q 49


Consolidated net income	Consolidated net income
		Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
($ in millions)		2018			2017			2018			2017			2019			2018
Revenues
Property-liability insurance premiums		$	8,595		$	8,121		$	25,341		$	24,098
Life and annuity premiums and contract charges		612			593			1,840			1,777
Property and casualty insurance premiums														$	8,802		$	8,286
Life premiums and contract charges														628			616
Other revenue		238			228			682			664			250			216
Net investment income ⁽¹⁾		844			843			2,454			2,488			648			786
Realized capital gains and losses:
Total other-than-temporary impairment (“OTTI”) losses		(4		)	(26		)	(8		)	(135		)	(16		)	—
OTTI losses reclassified (from) to other comprehensive income		(1		)	(2		)	(2		)	(2		)
OTTI losses reclassified to (from) other comprehensive income														2			(1		)
Net OTTI losses recognized in earnings		(5		)	(28		)	(10		)	(137		)	(14		)	(1		)
Sales and valuation changes on equity investments and derivatives		181			131			27			455			676			(133		)
Total realized capital gains and losses ⁽¹⁾		176			103			17			318			662			(134		)
Total revenues		10,465			9,888			30,334			29,345			10,990			9,770

Costs and expenses
Property and casualty insurance claims and claims expense		(5,817		)	(5,545		)	(16,758		)	(16,650		)	(5,820		)	(5,129		)
Life contract benefits		(498		)	(456		)	(1,485		)	(1,416		)	(497		)	(504		)
Interest credited to contractholder funds		(163		)	(174		)	(489		)	(522		)	(162		)	(161		)
Amortization of deferred policy acquisition costs		(1,317		)	(1,200		)	(3,886		)	(3,545		)	(1,364		)	(1,273		)
Operating costs and expenses		(1,534		)	(1,446		)	(4,296		)	(4,065		)	(1,380		)	(1,303		)
Pension and other postretirement remeasurement gains and losses														(15		)	(14		)
Amortization of purchased intangible assets														(32		)	(22		)
Restructuring and related charges		(16		)	(14		)	(65		)	(77		)	(18		)	(19		)
Interest expense		(82		)	(83		)	(251		)	(251		)	(83		)	(83		)
Total costs and expenses		(9,427		)	(8,918		)	(27,230		)	(26,526		)	(9,371		)	(8,508		)

Gain on disposition of operations		1			1			4			15			1			1
Income tax expense⁽²⁾		(169		)	(305		)	(587		)	(894		)
Income tax expense														(328		)	(257		)
Net income		870			666			2,521			1,940			1,292			1,006

Preferred stock dividends		(37		)	(29		)	(105		)	(87		)	(31		)	(29		)
Net income applicable to common shareholders		$	833		$	637		$	2,416		$	1,853		$	1,261		$	977

⁽¹⁾

Due to the adoption of the recognition and measurement accounting standard, limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net investment income and equity securities are reported at fair value with changes in fair value recognized in valuation changes on equity investments in realized capital gains and losses. See the Investments section of this Item and Note 1 of the condensed consolidated financial statements for further details related to the adoption.


⁽²⁾	~~Beginning January 1, 2018, Tax Legislation reduced the U.S. corporate income tax rate from 35% to 21%.~~

www.allstate.com

Property-Liability Operations

Overview Our Property-Liability operations consist of two reportable segments: Allstate Protection and Discontinued Lines and Coverages. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.

We do not allocate Property-Liability investment income, realized capital gains and losses, or assets to the Allstate Protection and Discontinued Lines and Coverages segments. Management reviews assets at the Property-Liability level for decision-making purposes.

The table below includes GAAP operating ratios we use to measure our profitability. We believe that they enhance an investor’s understanding of our profitability. They are calculated as follows:

~~Loss ratio: the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.~~

~~Expense ratio: the ratio of amortization of DAC, operating costs and expenses and restructuring and related charges, less other revenue to premiums earned.~~

~~Combined ratio~~: the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges, less other revenue to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.


•	Loss ratio: the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.


•	Expense ratio: the ratio of amortization of DAC, operating costs and expenses, amortization of purchased intangible assets and restructuring and related charges, less other revenue to premiums earned.

•

Combined ratio: the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, amortization of purchased intangible assets and restructuring and related charges, less other revenue to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin.

We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between fiscal periods.

~~Effect of catastrophe losses on combined ratio: the ratio of catastrophe losses included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.~~

~~Effect of prior year reserve reestimates on combined ratio: the ratio of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.~~

~~Effect of amortization of purchased intangible assets on combined ratio~~: the ratio of amortization of purchased intangible assets to premiums earned. Amortization of purchased intangible assets is reported in operating costs and expenses on the Condensed Consolidated Statements of Operations.

~~Effect of restructuring and related charges on combined ratio: the ratio of restructuring and related charges to premiums earned.~~

~~Effect of Discontinued Lines and Coverages on combined ratio~~: the ratio of claims and claims expense and operating costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio.

~~Third Quarter 2018 Form 10-Q~~ 51

~~Property-Liability Operations~~

Summarized financial data
Three months ended September 30, Nine months ended September 30,
($ in millions, except ratios) 2018 2017 2018 2017
Premiums written $ 8,800
$ 8,311
$ 25,185
$ 23,810

Revenues

Premiums earned $ 8,320
$ 7,896
$ 24,528
$ 23,462
Other revenue 192
185
550
533
Net investment income 410
368
1,100
1,063
Realized capital gains and losses 126
82
16
302
Total revenues 9,048
8,531
26,194
25,360

Costs and expenses

Claims and claims expense (5,729 ) (5,441 ) (16,491 ) (16,376 )
Amortization of DAC (1,133 ) (1,060 ) (3,331 ) (3,114 )
Operating costs and expenses (1,162 ) (1,084 ) (3,347 ) (3,135 )
Restructuring and related charges (15 ) (12 ) (61 ) (73 )
Total costs and expenses (8,039 ) (7,597 ) (23,230 ) (22,698 )

Gain on disposition of operations ⁽¹⁾
—
—
—
10
Income tax expense (204 ) (298 ) (606 ) (852 )
Net income applicable to common shareholders $ 805
$ 636
$ 2,358
$ 1,820

Underwriting income $ 473
$ 484
$ 1,848
$ 1,297
Net investment income 410
368
1,100
1,063
Income tax expense on operations (178 ) (271 ) (603 ) (746 )
Realized capital gains and losses, after-tax 103
54
16
199
Gain on disposition of operations, after-tax —
1
—
7
Tax Legislation expense (3 ) —
(3 ) —
Net income applicable to common shareholders $ 805
$ 636
$ 2,358
$ 1,820

Catastrophe losses ⁽²⁾
$ 625
$ 856
$ 1,892
$ 2,630

GAAP operating ratios

Claims and claims expense ratio 68.8
68.9
67.3
69.8
Expense ratio 25.5
25.0
25.2
24.7
Combined ratio 94.3
93.9
92.5
94.5
Effect of catastrophe losses on combined ratio 7.5
10.9
7.7
11.2
Effect of prior year reserve reestimates on combined ratio 0.1
(1.7 ) (0.5 ) (1.4 )
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio
—
(0.1 ) 0.2
(0.1 )
Effect of amortization of purchased intangible assets on combined ratio 0.1
—
0.1
—
Effect of restructuring and related charges on combined ratio 0.2
0.2
0.2
0.3
Effect of Discontinued Lines and Coverages on combined ratio 0.9
1.1
0.4
0.4


⁽¹⁾ •	~~2017 results represented~~ Effect of catastrophe losses on combined ratio: the ~~conclusion~~ratio of ~~a contractual arrangement related~~catastrophe losses included in claims and claims expense to ~~the sale~~premiums earned. This ratio includes prior year reserve reestimates of ~~Sterling Collision Centers, Inc. in 2014.~~catastrophe losses.


•	Effect of prior year reserve reestimates on combined ratio: the ratio of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.


•	Effect of amortization of purchased intangible assets on combined ratio: the ratio of amortization of purchased intangible assets to premiums earned.


•	Effect of restructuring and related charges on combined ratio: the ratio of restructuring and related charges to premiums earned.


•	Effect of Discontinued Lines and Coverages on combined ratio: the ratio of claims and claims expense and operating costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio.

First Quarter 2019 Form 10-Q 51

Property-Liability Operations

Catastrophe losses ⁽¹⁾

Expense ratio ⁽²⁾

Effect of prior year reserve reestimates on combined ratio ⁽³⁾

Effect of catastrophe losses included in prior year reserve reestimates on combined ratio

Prior year reserve reestimates included in catastrophe losses totaled $153 million ~~and $45 million~~ unfavorable in the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019, ~~respectively,~~ including ~~$37~~$15 million ~~for Texas Windstorm Insurance Association (“TWIA”) assessments~~of reinstatement reinsurance premiums incurred during the period related to ~~Hurricane Harvey recorded~~the 2018 Camp Fire. Prior year reserve reestimates included in ~~second quarter~~catastrophe losses totaled $4 million unfavorable in the three months ended March 31, 2018 ~~(see Note~~ .

Prior year reserve reestimates totaled $12 ~~of the condensed consolidated financial statements), compared to~~ $7 million unfavorable and $1051 million favorable in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and 2018, respectively.

Property-Liability Operations

Limited partnership interests ⁽¹⁾

Investment expense ^{(2) (3)}

Investment expense ^{(1) (2)}

~~Due to the adoption of the recognition and measurement accounting standard, limited partnerships previously reported using the cost method are now reported at fair valuewith changes in fair value recognized in net investment income~~.

Investment expense includes ~~$10 million and $5~~$13 million of investee level expenses in both the ~~third~~first quarter of ~~2018~~2019 and ~~2017, respectively, and $34 million and $16 million in the first~~ ~~nine~~ ~~months of~~ 2018 ~~and~~ ~~2017, respectively.~~. Investee level expenses include depreciation and asset level operating expenses on directly held real estate and other consolidated investments.

Investment expense includes $6$7 million and $1$2 million related to the portion of reinvestment income on securities lending collateral paid to the counterparties in the ~~third~~first quarter of ~~2018~~2019 and ~~2017, respectively, and $12 million and $3 million in the first~~ ~~nine~~ ~~months of~~ 2018 ~~and~~ ~~2017~~, respectively.

Realized capital gains and losses Net realized capital gains in the ~~third~~first quarter ~~and first nine months~~ of ~~2018,~~2019 related primarily ~~related~~ to ~~increases in the~~increased valuation of equity investments ~~partially offset by losses~~and gains on sales of fixed income ~~securities.~~securities and investments in real estate.

Impairment write-downs ⁽¹⁾

Change in intent write-downs ⁽¹⁾

Valuation of equity investments ⁽¹⁾

2019 results include $390 million of ~~the recognition and measurement accounting standard,~~appreciation of equity securities ~~are reported at fair value with changes in fair value recognized in valuation~~and $63 million of ~~equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales.~~

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 53

Segment Results Allstate Protection

Allstate Protection Segment

Other personal lines ⁽¹⁾

Other business lines ⁽²⁾

54 ~~www.allstate.com~~

~~Allstate ProtectionSegment Results~~

Changes in underwriting results from prior year by component and by line of business⁽¹⁾

Allstate Protection ⁽²⁾

The ~~2018~~2019 column presents changes in ~~2018~~2019 compared to ~~2017~~2018. The ~~2017~~2018 column presents changes in ~~2017~~2018 compared to ~~2016~~2017.

Includes other business lines underwriting income of $1511 million and $8 million in ~~both~~ the ~~third~~first quarter of ~~2018~~2019 and ~~2017~~ ~~and~~ ~~$39 million~~ ~~and~~ ~~$37 million~~ ~~in the first~~ ~~nine~~ ~~months of~~ 2018 ~~and~~ ~~2017~~, respectively. Includes Answer Financial underwriting loss of $1zero and $2 million ~~and zero~~ in the ~~third~~first quarter of ~~2018~~2019 and ~~2017, respectively, and~~ ~~$4 million~~ ~~and~~ ~~$1 million~~ ~~in the first~~ ~~nine~~ ~~months of~~ 2018 ~~and~~ ~~2017~~, respectively.

Underwriting income decreased to ~~$553~~$703 million in the ~~third~~first quarter of ~~2018~~2019 from ~~$572 million~~$1.01 billion in the ~~third~~first quarter of ~~2017,~~2018, primarily due to higher catastrophe losses, claim severity ~~higher~~and operating costs and expenses, ~~and lower favorable non-catastrophe prior year reserve reestimates,~~ partially offset by increased premiums earned ~~lower catastrophe losses~~ and improved auto claim frequency. Underwriting income increased to $1.93 billion in the first nine months of 2018 from $1.39 billion in the first nine months of 2017, primarily due to increased premiums earned, lower catastrophe losses and improved auto claim frequency, partially offset by higher claim severity and operating costs and expenses.

~~Third Quarter 2018 Form 10-Q~~ 5554

www.allstate.com

Allstate ProtectionSegment Results ~~Allstate Protection~~

Expense ratio⁽¹⁾

Other revenue is deducted from operating costs and expenses in the expense ratio calculation.

56 ~~www.allstate.com~~First Quarter 2019 Form 10-Q 55

Segment ResultsAllstate Protection~~Segment Results~~

~~Third Quarter 2018 Form 10-Q~~ 57

~~Segment Results~~ ~~Allstate Protection~~

Catastrophe losseswere ~~$625~~$680 million ~~and $1.89 billion~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2018, respectively, including $37 million for TWIA assessments related to Hurricane Harvey recorded in second quarter 2018 (see Note 12 of the condensed consolidated financial statements),~~2019 compared to ~~$856~~$361 million ~~and $2.63 billion~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2017, respectively.~~2018.

We define a “catastrophe” as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events,

such as certain types of terrorism or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.

Loss estimates are generally based on claim adjuster inspections and the application of historical loss development factors. Our loss estimates are calculated in accordance with the coverage provided by our policies. Auto policyholders generally have coverage for physical damage due to flood if they have purchased optional auto comprehensive coverage. Our homeowners policies specifically exclude coverage for losses caused by flood.

Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes, ~~through reinsurance and changes in underwriting guidelines,~~ limited by our participation in various state facilities.

58 ~~www.allstate.com~~

~~Allstate ProtectionSegment Results~~



Catastrophe losses by the size of event
	Three months ended March 31, 2019
($ in millions)	Number of events			Claims and claims expense				Combined ratio impact	Average catastrophe loss per event
Size of catastrophe loss
Greater than $250 million	—	—	%	$	—	—	%	—	$	—
$101 million to $250 million	1	4.6		225		33.1		2.7	225
$50 million to $100 million	3	13.6		225		33.1		2.7	75
Less than $50 million	18	81.8		177		26.0		2.0	10
Total	22	100.0	%	627		92.2		7.4	29
Prior year reserve reestimates				53		7.8		0.6
Total catastrophe losses				$	680	100.0	%	8.0

Catastrophe reinsuranceOur 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, net of reinsurance, exceeding $2 billion. We have substantially completed the placement of our 2019 catastrophe reinsurance program, except for the Florida property component of the program and the Florida and Southeast Auto Aggregate Excess Catastrophe Reinsurance Contract, both of which are expected to be placed in the second quarter of 2019.

Similar to our 2018 program, our 2019 program includes coverage for losses to personal lines property, personal lines automobile, commercial lines property or commercial lines automobile arising out of multiple

perils, in addition to hurricanes and earthquakes. We have three agreements placed in the insurance linked securities (“ILS”) market, forming part of our nationwide reinsurance program that do not cover commercial lines property and commercial lines automobile. We also have a separate agreement covering personal lines property policies issued in Kentucky.

The June 1, 2019 nationwide reinsurance program, provides $4.9 billion of reinsurance limits, less a $500 million retention, subject to the percentage of reinsurance placed in each of its nine layers. Property business in the state of Florida and the two existing New Jersey contracts are excluded from this program. Separate reinsurance agreements address the distinct needs of our separately capitalized legal entity. The nationwide reinsurance program includes reinsurance

Allstate ProtectionSegment Results

agreements with both the traditional and ILS markets as described below:

The traditional market placement provides limits totaling $3.0 billion for losses arising out of multiple perils and is comprised of $2.1 billion of limits with one annual reinstatement of limits; $439 million of limits with one reinstatement of limits over a seven year term; and $419 million of limits not subject to reinstatement.

ILS placements provide $1.2 billion of limits, with no reinstatement of the limits, and are comprised of a $375 million placement reinsuring losses in all states except Florida caused by named storms, earthquakes and fire following earthquakes, severe thunderstorms, winter storms, volcanic eruptions, and meteorite impacts and $500 million and $300 million placements reinsuring losses in all states except Florida property caused by named storms, earthquakes and fire following earthquakes, severe weather, wildfires, and other naturally occurring or man-made events determined to be a catastrophe by the Company. The $500 million and $300 million placements also provide that for each annual period beginning April 1, Allstate declared catastrophes to personal lines property and automobile business can be aggregated to erode the aggregate retention and qualify for coverage under the aggregate limit. Recoveries are limited to our ultimate net loss from the reinsured event.

The New Jersey agreement comprises three contracts that reinsure personal lines property and automobile catastrophe losses caused by multiple perils in New Jersey and provides 95% of $400 million of limits in excess of provisional retentions of approximately $150 million. Each contract includes one annual reinstatement of limits. The New Jersey contracts will begin inuring to portions of the Nationwide Program with the contracts effective June 1, 2019.

The Kentucky earthquake agreement comprises a three-year term contract that reinsures personal lines property losses caused by earthquakes and fire following earthquakes in Kentucky and provides $28 million of limits, 95% placed, in excess of a $2 million retention.

The total cost of our property catastrophe reinsurance programs during the first quarter of 2019 and 2018 were $88 million and $85 million, respectively. The total cost of our catastrophe reinsurance programs during 2018 was $354 million or an average quarterly cost of $89 million.

Total expense ratio ⁽¹⁾

Other revenue is deducted from other costs and expenses in the expense ratio calculation.

Other costs and expenses ⁽¹⁾

Impact of specific costs and expenses on the expense ratio
Three months ended September 30, Nine months ended September 30,
2018
2017 2018 2017
Amortization of DAC 13.6
13.4
13.6
13.3
Advertising expense 2.9
2.4
2.3
2.3
Amortization of purchased intangible assets 0.1
—
0.1
—
Other costs and expenses ⁽¹⁾
8.7
9.0
9.0
8.8
Restructuring and related charges 0.2
0.2
0.2
0.3
Total expense ratio 25.5
25.0
25.2
24.7

⁽¹⁾Other revenue is deducted from other costs and expenses ~~in the expense ratio calculation.~~

~~Reserve reestimateswere favorable~~ in the ~~third~~expense ratio calculation.

First Quarter 2019 Form 10-Q 57

Segment Results Allstate Protection

Reserve reestimateswere unfavorable in the first quarter ~~and first nine months~~ of ~~2018~~2019 and primarily related to strengthening in our homeowners, other personal lines and commercial lines, partially offset by continued favorable personal lines auto injury coverage ~~development, partially offset by strengthening in our commercial lines.~~development.

Total reserves, net of reinsurance (estimated cost of outstanding claims) as of January 1, by line of business

~~Third Quarter 2018 Form 10-Q~~ 59

~~Segment Results~~ ~~Allstate Protection~~



Total reserves, net of reinsurance (estimated cost of outstanding claims) as of January 1, by line of business
($ in millions)	2019		2018
Auto	$	14,378	$	14,051
Homeowners	2,157		2,205
Other personal lines	1,489		1,489
Commercial lines	801		616
Total Allstate Protection	$	18,825	$	18,361

combined ratio⁽²⁾

combined ratio ⁽²⁾

combined ratio⁽²⁾

Total Allstate Protection ⁽³⁾

60 58

www.allstate.com

Allstate ProtectionSegment Results

The following table presents premiums written, policies in force (“PIF”) and underwriting income (loss) by line of business for Allstate brand, Esurance brand, Encompass brand and Allstate Protection as of or for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Detailed analysis of underwriting results, premiums written and earned, and the combined ratios, including loss and expense ratios, are discussed in the brand sections below.

When analyzing premium measures and statistics for all three brands the following calculations are used as described below.

~~PIF~~: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy. Commercial lines PIF for the agreement with a transportation network company reflects corporate contracts as opposed to individual driver counts.

~~New issued applications~~: Item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate Protection brand. Allstate brand includes automobiles added by existing customers when they exceed the number allowed (currently 10) on a policy.


•	PIF: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy. Commercial lines PIF for the agreement with a transportation network company reflects corporate contracts as opposed to individual driver counts.


•	New issued applications: Item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate Protection brand. Allstate brand includes automobiles added by existing customers when they exceed the number allowed (currently 10) on a policy.

~~Average premium-gross written (“average premium”)~~: Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate and Esurance brand policy terms are 6 months for auto and 12 months for homeowners. Encompass brand policy terms are 12 months for auto and homeowners.

•

Average premium-gross written (“average premium”): Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate and Esurance brand policy terms are 6 months for auto and 12 months for homeowners. Encompass brand policy terms are generally 12 months for auto and homeowners.


•	Renewal ratio: Renewal policy item counts issued during the period, based on contract effective dates, divided by the total policy item counts issued 6 months prior for auto (generally 12 months prior for Encompass brand) or 12 months prior for homeowners.

~~Renewal ratio~~: Renewal policies issued during the period, based on contract effective dates, divided by the total policies issued 6 months prior for auto (generally 12 months prior for Encompass brand) or 12 months prior for homeowners.

~~Third~~First Quarter ~~2018~~2019 Form 10-Q 6159

Segment Results Allstate Protection: Allstate brand


Underwriting results	Underwriting results
($ in millions)		Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
($ in millions)		2018			2017			2018			2017			2019			2018
Premiums written		$	8,010		$	7,587		$	22,945		$	21,700		$	7,544		$	7,128
Premiums earned		$	7,587		$	7,195		$	22,386		$	21,356		$	7,752		$	7,329
Other revenue		152			149			431			425			135			136
Claims and claims expense		(5,121		)	(4,858		)	(14,861		)	(14,696		)	(5,170		)	(4,548		)
Amortization of DAC		(1,076		)	(1,000		)	(3,157		)	(2,931		)	(1,105		)	(1,029		)
Other costs and expenses		(974		)	(912		)	(2,810		)	(2,625		)	(894		)	(872		)
Restructuring and related charges		(14		)	(12		)	(53		)	(65		)	(16		)	(15		)
Underwriting income		$	554		$	562		$	1,936		$	1,464		$	702		$	1,001
Catastrophe losses		$	588		$	827		$	1,754		$	2,450		$	644		$	329

Underwriting income (loss) by line of business
Auto		$	368		$	261		$	1,305		$	927		$	512		$	611
Homeowners		213			319			574			473			142			337
Other personal lines ⁽¹⁾		1			(18		)	105			48			30			51
Commercial lines		(43		)	(15		)	(87		)	(21		)	7			(6		)
Other business lines ⁽²⁾		15			15			39			37			11			8
Underwriting income		$	554		$	562		$	1,936		$	1,464		$	702		$	1,001

The ~~2018~~2019 column presents changes in ~~2018~~2019 compared to ~~2017~~2018. The ~~2017~~2018 column presents changes in ~~2017~~2018 compared to ~~2016~~2017.

Underwriting income totaled ~~$554~~$702 million in the ~~third~~first quarter of ~~2018~~2019 decreasing ~~marginally~~ from ~~$562 million~~$1.00 billion in the ~~third~~first quarter of ~~2017,~~2018, primarily due to higher catastrophe losses, claim severity ~~lower favorable non-catastrophe prior year reserve reestimates~~ and ~~higher~~ agent compensation and ~~employee-related compensation~~advertising costs, partially offset by increased premiums earned ~~lower catastrophe losses~~ and improved auto claim frequency. Underwriting income increased to $1.94 billion in the first nine months of 2018 from $1.46 billion in the first nine months of 2017, primarily due to increased premiums earned, lower catastrophe losses and improved auto claim frequency, partially offset by higher claim severity and agent and employee-related compensation costs.

62 60

www.allstate.com

Allstate Protection: Allstate brand Segment Results

Approved rate changes ⁽¹⁾:

# of locations⁽²⁾

Number of locations⁽²⁾

Total brand (%) ⁽³⁾



	Delaware		36-3871531
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



	2775 Sanders Road, Northbrook, Illinois	60062
	(Address of principal executive offices)	(Zip Code)



Large accelerated filer	X	Accelerated filer	____

Non-accelerated filer		Smaller reporting company	____

		Emerging growth company	____



Part I Financial Information		Page

Item 1.Financial Statements

	Condensed Consolidated Statements of Operations for the Three Month ~~and Nine Month~~ Periods Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	1
	Condensed Consolidated Statements of Comprehensive Income for the Three Month ~~and Nine Month~~ Periods Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	2
	Condensed Consolidated Statements of Financial Position as of ~~September 30, 2018 (unaudited)~~March 31, 2019 and December 31, ~~2017~~2018 (unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity for the ~~Nine~~Three Month Periods Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Month Periods Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
	Report of Independent Registered Public Accounting Firm	45

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Highlights	46
	Consolidated Net Income	50
	Property-Liability Operations	51
	Allstate Protection	54
	– Allstate brand	6260
	– Esurance brand	6865
	– Encompass brand	7268
	Discontinued Lines and Coverages	7672
	Service Businesses	7874
	Allstate Life	8076
	Allstate Benefits	8378
	Allstate Annuities	8580
	Investments	8883
	Capital Resources and Liquidity	9590
	Forward-Looking Statements	9893

Item 4.Controls and Procedures		9893

Part II Other Information
Item 1.Legal Proceedings		9994
Item 1A. Risk Factors		9994
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds		9994
Item 6.Exhibits		~~100~~95


($ in millions, except par value data)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Assets	(unaudited)
Investments
Fixed income securities, at fair value (amortized cost $57,618 and $57,525)	$	57,663		$	58,992
Equity securities, at fair value (cost $5,741 and $5,461)	6,965			6,621
Fixed income securities, at fair value (amortized cost $56,831 and $57,134)							$	58,202		$	57,170
Equity securities, at fair value (cost $4,767 and $4,489)							5,802			5,036
Mortgage loans	4,592			4,534			4,681			4,670
Limited partnership interests	7,602			6,740			7,493			7,505
Short-term, at fair value (amortized cost $3,071 and $1,944)	3,071			1,944
Short-term, at fair value (amortized cost $4,157 and $3,027)							4,157			3,027
Other	4,075			3,972			3,786			3,852
Total investments	83,968			82,803			84,121			81,260
Cash	460			617			551			499
Premium installment receivables, net	6,196			5,786			6,201			6,154
Deferred policy acquisition costs	4,667			4,191			4,670			4,784
Reinsurance recoverables, net	8,994			8,921
Reinsurance and indemnification recoverables, net							9,374			9,565
Accrued investment income	616			569			614			600
Property and equipment, net	1,032			1,072			1,047			1,045
Goodwill	2,189			2,181			2,547			2,530
Other assets	3,061			2,838			3,659			3,007
Separate Accounts	3,307			3,444			3,050			2,805
Total assets	$	114,490		$	112,422		$	115,834		$	112,249
Liabilities
Reserve for property and casualty insurance claims and claims expense	$	26,939		$	26,325		$	27,544		$	27,423
Reserve for life-contingent contract benefits	12,214			12,549			12,200			12,208
Contractholder funds	18,650			19,434			18,161			18,371
Unearned premiums	14,408			13,473			14,323			14,510
Claim payments outstanding	904			875			891			1,007
Deferred income taxes	660			782			817			425
Other liabilities and accrued expenses	7,325			6,639			8,977			7,737
Long-term debt	6,450			6,350			6,453			6,451
Separate Accounts	3,307			3,444			3,050			2,805
Total liabilities	90,857			89,871			92,416			90,937
Commitments and Contingent Liabilities (Note 12)
Commitments and Contingent Liabilities (Note 11)
Shareholders’ equity
Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 95.2 thousand and 72.2 thousand shares issued and outstanding, $2,380 and $1,805 aggregate liquidation preference	2,303			1,746
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 345 million and 355 million shares outstanding	9			9
Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 79.8 thousand issued and outstanding, $1,995 aggregate liquidation preference							1,930			1,930
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 333 million and 332 million shares outstanding							9			9
Additional capital paid-in	3,441			3,313			3,291			3,310
Retained income	46,178			43,162			45,148			44,033
Deferred Employee Stock Ownership Plan (“ESOP”) expense	(3		)	(3		)	(3		)	(3		)
Treasury stock, at cost (555 million and 545 million shares)	(27,011		)	(25,982		)
Treasury stock, at cost (567 million and 568 million shares)							(28,042		)	(28,085		)
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI	86			85			73			75
Other unrealized net capital gains and losses	(53		)	1,981			1,003			(51		)
Unrealized adjustment to DAC, DSI and insurance reserves	(49		)	(404		)	(104		)	(26		)
Total unrealized net capital gains and losses	(16		)	1,662			972			(2		)
Unrealized foreign currency translation adjustments	(34		)	(9		)	(44		)	(49		)
Unrecognized pension and other postretirement benefit cost	(1,234		)	(1,347		)
Unamortized pension and other postretirement prior service credit							157			169
Total accumulated other comprehensive income (“AOCI”)	(1,284		)	306			1,085			118
Total shareholders’ equity	23,633			22,551			23,418			21,312
Total liabilities and shareholders’ equity	$	114,490		$	112,422		$	115,834		$	112,249



Scheduled maturities for fixed income securities
($ in millions)	As of September 30, 2018
($ in millions)	Amortized cost		Fair value
Due in one year or less	$	4,038	$	4,042
Due after one year through five years	28,963		28,812
Due after five years through ten years	16,216		15,987
Due after ten years	6,944		7,263
	56,161		56,104
ABS, RMBS and CMBS	1,457		1,559
Total	$	57,618	$	57,663



Valuation changes included in net income for investments still held as of September 30, 2018
($ in millions)	Three months ended September 30, 2018		Nine months ended September 30, 2018
Equity securities ⁽¹⁾	$	234	$	321
Limited partnership interests carried at fair value⁽¹⁾	75		181
Total valuation changes	$	309	$	502



OTTI losses by asset type
($ in millions)	Three months ended September 30, 2018									Three months ended September 30, 2017
($ in millions)	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	—		$	—
ABS	—			(1		)	(1		)	—			(1		)	(1		)
RMBS	—			—			—			—			—			—
CMBS	(2		)	—			(2		)	(1		)	(1		)	(2		)
Total fixed income securities	(2		)	(1		)	(3		)	(1		)	(2		)	(3		)
Equity securities ⁽¹⁾	—			—			—			(8		)	—			(8		)
Mortgage loans	—			—			—			(1		)	—			(1		)
Limited partnership interests ⁽¹⁾	(2		)	—			(2		)	(16		)	—			(16		)
Other	—			—			—			—			—			—
OTTI losses	$	(4	)	$	(1	)	$	(5	)	$	(26	)	$	(2	)	$	(28	)

	Nine months ended September 30, 2018									Nine months ended September 30, 2017
	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	—		$	—		$	—		$	(1	)	$	(2	)	$	(3	)
Corporate	—			—			—			(9		)	3			(6		)
ABS	(1		)	(1		)	(2		)	(1		)	(1		)	(2		)
RMBS	(1		)	—			(1		)	(1		)	(3		)	(4		)
CMBS	(2		)	(1		)	(3		)	(9		)	1			(8		)
Total fixed income securities	(4		)	(2		)	(6		)	(21		)	(2		)	(23		)
Equity securities ⁽¹⁾	—			—			—			(77		)	—			(77		)
Mortgage loans	—			—			—			(1		)	—			(1		)
Limited partnership interests ⁽¹⁾	(3		)	—			(3		)	(32		)	—			(32		)
Other	(1		)	—			(1		)	(4		)	—			(4		)
OTTI losses	$	(8	)	$	(2	)	$	(10	)	$	(135	)	$	(2	)	$	(137	)



Assets and liabilities measured at fair value
	As of December 31, 2017
($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Total
Assets
Fixed income securities:
U.S. government and agencies	$	3,079		$	537		$	—					$	3,616
Municipal	—			8,227			101						8,328
Corporate - public	—			31,963			108						32,071
Corporate - privately placed	—			11,731			224						11,955
Foreign government	—			1,021			—						1,021
ABS - CDO	—			480			99						579
ABS - consumer and other	—			645			48						693
RMBS	—			578			—						578
CMBS	—			102			26						128
Redeemable preferred stock	—			23			—						23
Total fixed income securities	3,079			55,307			606						58,992
Equity securities	6,032			379			210						6,621
Short-term investments	264			1,660			20						1,944
Other investments: Free-standing derivatives	—			132			1			$	(6	)	127
Separate account assets	3,444			—			—						3,444
Total recurring basis assets	12,819			57,478			837			(6		)	71,128
Non-recurring basis ⁽¹⁾	—			—			3						3
Total assets at fair value	$	12,819		$	57,478		$	840		$	(6	)	$	71,131
% of total assets at fair value	18.0		%	80.8		%	1.2		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(286	)				$	(286	)
Other liabilities: Free-standing derivatives	(1		)	(83		)	—			$	14		(70		)
Total liabilities at fair value	$	(1	)	$	(83	)	$	(286	)	$	14		$	(356	)
% of total liabilities at fair value	0.3		%	23.3		%	80.3		%	(3.9		)%	100		%


Rollforward of Level 3 assets and liabilities held at fair value during the three months period ended September 30, 2018
Rollforward of Level 3 assets and liabilities at fair value during the three month period ended March 31, 2019																			Rollforward of Level 3 assets and liabilities at fair value during the three month period ended March 31, 2019
	Balance as of June 30, 2018				Total gains (losses) included in:							Transfers into Level 3			Transfers out of Level 3					Balance as of December 31, 2018				Total gains (losses) included in:						Transfers into Level 3			Transfers out of Level 3
($ in millions)				Net income ⁽¹⁾				OCI				Transfers into Level 3			Transfers out of Level 3					Balance as of December 31, 2018			Net income ⁽¹⁾				OCI			Transfers into Level 3			Transfers out of Level 3
Assets	Balance as of June 30, 2018
Fixed income securities:
Municipal	$	106			$	—			$	(1	)	$	—		$	(9	)			$	70			$	—			$	1	$	—		$	—
Corporate - public	76				—				(1		)	12			(4		)			70				—				1		—			—
Corporate - privately placed	195				1				(1		)	—			(20		)			90				(2		)		2		15			—
ABS - CDO	9				—				1			20			—					6				—				—		—			—
ABS - consumer and other	73				—				—			12			(29		)			63				—				—		—			(47		)
CMBS	26				—				—			—			—					26				—				—		3			—
Total fixed income securities	485				1				(2		)	44			(62		)			325				(2		)		4		18			(47		)
Equity securities	291				8				—			—			—					341				28				—		—			—
Short-term investments	—				—				—			—			—					30				—				—		—			—
Free-standing derivatives, net	1				—				—			—			—					1				—				—		—			—
Total recurring Level 3 assets	$	777			$	9			$	(2	)	$	44		$	(62	)			$	697			$	26			$	4	$	18		$	(47	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(260	)		$	(7	)		$	—		$	—		$	—				$	(224	)		$	(28	)		$	—	$	—		$	—
Total recurring Level 3 liabilities	$	(260	)		$	(7	)		$	—		$	—		$	—				$	(224	)		$	(28	)		$	—	$	—		$	—

	Purchases				Sales				Issues			Settlements			Balance as of September 30, 2018					Purchases				Sales				Issues		Settlements			Balance as of March 31, 2019
Assets
Fixed income securities:
Municipal	$	—			$	(6	)		$	—		$	(1	)	$	89				$	—			$	(2	)		$	—	$	(1	)	$	68
Corporate - public	10				(1		)		—			—			92					20				—				—		(1		)	90
Corporate - privately placed	6				(2		)		—			(12		)	167					—				(13		)		—		(2		)	90
ABS - CDO	—				—				—			(1		)	29					—				—				—		—			6
ABS - consumer and other	33				(20		)		—			(17		)	52					78				(10		)		—		(3		)	81
CMBS	—				—				—			—			26					6				—				—		—			35
Total fixed income securities	49				(29		)		—			(31		)	455					104				(25		)		—		(7		)	370
Equity securities	21				—				—			—			320					2				(68		)		—		—			303
Short-term investments	20				—				—			—			20					10				—				—		—			40
Free-standing derivatives, net	—				—				—			—			1			⁽²⁾		—				—				—		—			1			⁽²⁾
Total recurring Level 3 assets	$	90			$	(29	)		$	—		$	(31	)	$	796				$	116			$	(93	)		$	—	$	(7	)	$	714
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—			$	—			$	—		$	1		$	(266	)			$	—			$	—			$	—	$	1		$	(251	)
Total recurring Level 3 liabilities	$	—			$	—			$	—		$	1		$	(266	)			$	—			$	—			$	—	$	1		$	(251	)


⁽¹⁾	The effect to net income totals $2$(2) million and is reported in the Condensed Consolidated Statements of Operations as follows: $9$26 million in realized capital gains and losses, ~~$(9)~~$(36) million in interest credited to contractholder funds and $2$8 million in life contract benefits.



Rollforward of Level 3 assets and liabilities at fair value during the three month period ended March 31, 2018
	Balance as of December 31, 2017			Total gains (losses) included in:						Transfers into Level 3			Transfers out of Level 3
($ in millions)	Balance as of December 31, 2017			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	101		$	1		$	(1	)	$	—		$	(2	)
Corporate - public	108			—			(1		)	4			(5		)
Corporate - privately placed	224			—			(1		)	—			(19		)
ABS - CDO	99			—			—			—			(89		)
ABS - consumer and other	48			—			1			5			—
CMBS	26			—			—			—			—
Total fixed income securities	606			1			(2		)	9			(115		)
Equity securities	210			3			—			—			—
Short-term investments	20			—			—			—			—
Free-standing derivatives, net	1			—			—			—			—
Total recurring Level 3 assets	$	837		$	4		$	(2	)	$	9		$	(115	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(286	)	$	23		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(286	)	$	23		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2018
Assets
Fixed income securities:
Municipal	$	—		$	(2	)	$	—		$	(1	)	$	96
Corporate - public	—			(26		)	—			(3		)	77
Corporate - privately placed	13			—			—			(2		)	215
ABS - CDO	—			—			—			—			10
ABS - consumer and other	45			(35		)	—			(2		)	62
CMBS	1			—			—			—			27
Total fixed income securities	59			(63		)	—			(8		)	487
Equity securities	30			(1		)	—			—			242
Short-term investments	25			(45		)	—			—			—
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	114		$	(109	)	$	—		$	(8	)	$	730
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(262	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(262	)


⁽¹⁾	The effect to net income totals ~~$41~~$27 million and is reported in the Condensed Consolidated Statements of Operations as follows: ~~$24~~$4 million in realized capital gains and losses, ~~$10 million in interest credited to contractholder funds and $7 million in life contract benefits.~~



Rollforward of Level 3 assets and liabilities held at fair value during the three months period ended September 30, 2017
	Balance as of June 30, 2017			Total gains (losses) included in:					Transfers into Level 3			Transfers out of Level 3
($ in millions)	Balance as of June 30, 2017			Net income ⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	114		$	—		$	—	$	—		$	(4	)
Corporate - public	60			—			—		—			(4		)
Corporate - privately placed	266			1			2		—			(34		)
ABS - CDO	91			—			1		—			(68		)
ABS - consumer and other	120			—			—		—			(62		)
CMBS	24			—			—		—			—
Total fixed income securities	675			1			3		—			(172		)
Equity securities	166			2			1		—			(1		)
Free-standing derivatives, net	1			—			—		—			—
Total recurring Level 3 assets	$	842		$	3		$	4	$	—		$	(173	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(285	)	$	(9	)	$	—	$	—		$	—
Total recurring Level 3 liabilities	$	(285	)	$	(9	)	$	—	$	—		$	—

	Purchases			Sales			Issues		Settlements			Balance as of September 30, 2017
Assets
Fixed income securities:
Municipal	$	1		$	(3	)	$	—	$	(1	)	$	107
Corporate - public	51			(1		)	—		(2		)	104
Corporate - privately placed	18			(1		)	—		(2		)	250
ABS - CDO	—			—			—		(5		)	19
ABS - consumer and other	10			—			—		(2		)	66
CMBS	3			—			—		(1		)	26
Total fixed income securities	83			(5		)	—		(13		)	572
Equity securities	—			—			—		—			168
Free-standing derivatives, net	—			—			—		—			1			⁽²⁾
Total recurring Level 3 assets	$	83		$	(5	)	$	—	$	(13	)	$	741
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	2		$	(292	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	2		$	(292	)


⁽¹⁾	The effect to net income totals $(6) million and is reported in the Condensed Consolidated Statements of Operations as follows: $3 million in net investment income, $(5) million in interest credited to contractholder funds and $(4) million in life contract benefits.



	Yes X	No ___



	Yes X	No ___



	Yes	No X



Note 1	General



Rollforward of Level 3 assets and liabilities held at fair value during the nine months period ended September 30, 2017
	Balance as of December 31, 2016			Total gains (losses) included in:						Transfers into Level 3			Transfers out of Level 3
($ in millions)	Balance as of December 31, 2016			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	125		$	(1	)	$	6		$	—		$	(5	)
Corporate - public	78			—			—			—			(20		)
Corporate - privately placed	263			7			—			30			(34		)
ABS - CDO	27			—			3			30			(190		)
ABS - consumer and other	42			—			—			—			(69		)
RMBS	1			—			—			—			—
CMBS	22			—			—			—			—
Total fixed income securities	558			6			9			60			(318		)
Equity securities	163			15			4			—			(4		)
Short-term investments	15			—			—			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	735		$	23		$	13		$	60		$	(322	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(290	)	$	(6	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(290	)	$	(6	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2017
Assets
Fixed income securities:
Municipal	$	6		$	(23	)	$	—		$	(1	)	$	107
Corporate - public	50			—			—			(4		)	104
Corporate - privately placed	22			(30		)	—			(8		)	250
ABS - CDO	160			—			—			(11		)	19
ABS - consumer and other	99			—			—			(6		)	66
RMBS	—			—			—			(1		)	—
CMBS	6			—			—			(2		)	26
Total fixed income securities	343			(53		)	—			(33		)	572
Equity securities	3			(13		)	—			—			168
Short-term investments	25			(40		)	—			—			—
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	371		$	(106	)	$	—		$	(33	)	$	741
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	5		$	(292	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	5		$	(292	)


⁽¹⁾	The effect to net income totals $17 million and is reported in the Condensed Consolidated Statements of Operations as follows: $7 million in realized capital gains and losses, $17 million in net investment income, $(11)$19 million in interest credited to contractholder funds and $4 million in life contract benefits.


Summary of the volume and fair value positions of derivative instruments as of September 30, 2018
Summary of the volume and fair value positions of derivative instruments as of March 31, 2019													Summary of the volume and fair value positions of derivative instruments as of March 31, 2019
($ in millions, except number of contracts)		Volume ⁽¹⁾												Volume ⁽¹⁾
($ in millions, except number of contracts)	Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability			Balance sheet location	Notional amount		Number of contracts	Fair value, net				Gross asset		Gross liability
Asset derivatives
Derivatives designated as fair value accounting hedging instruments													Derivatives designated as fair value accounting hedging instruments
Other													Other assets	$	3	n/a	$	—			$	—	$	—
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments	$	20	n/a	$	—		$	—	$	—		Other investments	4		n/a	—				—		—
Options	Other investments	—		6,813	—			—		—
Futures													Other assets	—		1,025	—				—		—
Equity and index contracts
Options	Other investments	—		3,842	106			106		—			Other investments	—		7,040	95				95		—
Futures	Other assets	—		1,217	—			—		—			Other assets	—		1,615	1				1		—
Total return index contracts
Total return swap agreements – fixed income	Other investments	60		n/a	2			2		—			Other investments	3		n/a	—				—		—
Total return swap agreements – equity index	Other investments	23		n/a	—			—		—			Other investments	93		n/a	1				1		—
Foreign currency contracts
Foreign currency forwards	Other investments	527		n/a	10			12		(2		)	Other investments	229		n/a	9				10		(1		)
Credit default contracts
Credit default swaps – buying protection	Other investments	222		n/a	(3		)	—		(3		)	Other investments	112		n/a	(2		)		2		(4		)
Credit default swaps – selling protection	Other investments	4		n/a	—			—		—			Other investments	8		n/a	—				—		—
Other contracts
Other	Other assets	3		n/a	—			—		—
Total asset derivatives		$	859	11,872	$	115		$	120	$	(5	)		$	452	9,680	$	104			$	109	$	(5	)

Liability derivatives
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swaption agreements													Other liabilities & accrued expenses	$	10	n/a	$	—			$	—	$	—
Interest rate cap agreements	Other liabilities & accrued expenses	$	18	n/a	$	1		$	1	$	—		Other liabilities & accrued expenses	32		n/a	1				1		—
Futures													Other liabilities & accrued expenses	—		2,510	(1		)		—		(1		)
Equity and index contracts
Options	Other liabilities & accrued expenses	—		1,062	—			—		—			Other liabilities & accrued expenses	—		5,090	(33		)		—		(33		)
Equity and index contracts
Options and futures	Other liabilities & accrued expenses	—		5,059	(40		)	—		(40		)
Futures													Other liabilities & accrued expenses	—		869	(1		)		—		(1		)
Total return index contracts
Total return swap agreements – fixed income	Other liabilities & accrued expenses	—		n/a	—			—		—			Other liabilities & accrued expenses	17		n/a	1				1		—
Total return swap agreements – equity index	Other liabilities & accrued expenses	210		n/a	(1		)	—		(1		)
Foreign currency contracts
Foreign currency forwards	Other liabilities & accrued expenses	—		n/a	—			—		—			Other liabilities & accrued expenses	334		n/a	12				14		(2		)
Embedded derivative financial instruments	Embedded derivative financial instruments												Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	200		n/a	(17		)	—		(17		)	Contractholder funds	179		n/a	(19		)		—		(19		)
Guaranteed withdrawal benefits	Contractholder funds	248		n/a	(10		)	—		(10		)	Contractholder funds	221		n/a	(12		)		—		(12		)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds	1,783		n/a	(239		)	—		(239		)	Contractholder funds	1,778		n/a	(220		)		—		(220		)
Credit default contracts																				��
Credit default swaps – buying protection	Other liabilities & accrued expenses	21		n/a	(1		)	—		(1		)	Other liabilities & accrued expenses	623		n/a	(10		)		1		(11		)
Credit default swaps – selling protection	Other liabilities & accrued expenses	1		n/a	—			—		—			Other liabilities & accrued expenses	1		n/a	—				—		—
Total liability derivatives		2,481		6,121	(307		)	$	1	$	(308	)		3,195		8,469	(282		)		$	17	$	(299	)
Total derivatives		$	3,340	17,993	$	(192	)							$	3,647	18,149	$	(178	)


⁽¹⁾	Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)



Gross and net amounts for OTC derivatives ⁽¹⁾
($ in millions)				Offsets
($ in millions)	Gross amount			Counter-party netting			Cash collateral (received) pledged			Net amount on balance sheet			Securities collateral (received) pledged		Net amount
September 30, 2018
Asset derivatives	$	16		$	(6	)	$	(7	)	$	3		$	—	$	3
Liability derivatives	(8		)	6			—			(2		)	—		(2		)

December 31, 2017
Asset derivatives	$	8		$	(7	)	$	1		$	2		$	—	$	2
Liability derivatives	(26		)	7			7			(12		)	3		(9		)


⁽¹⁾	All OTC derivatives are subject to enforceable master netting agreements.



Summary of the impacts of the foreign currency contracts in cash flow hedging relationships
($ in millions)	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2018			2017			2018			2017
(Loss) gain recognized in OCI on derivatives during the period	$	—		$	(3	)	$	1		$	(5	)
Loss recognized in OCI on derivatives during the term of the hedging relationship	(3		)	(2		)	(3		)	(2		)
Loss reclassified from AOCI into income (net investment income)	—			(2		)	—			(1		)
Gain reclassified from AOCI into income (realized capital gains and losses)	—			—			3			—



Gains and losses from valuation and settlements reported on derivatives not designated as accounting hedges
($ in millions)	Realized capital gains and losses			Life contract benefits			Interest credited to contractholder funds			Operating costs and expenses			Total gain (loss) recognized in net income on derivatives
Three months ended September 30, 2018
Interest rate contracts	$	(1	)	$	—		$	—		$	—		$	(1	)
Equity and index contracts	(12		)	—			19			9			16
Embedded derivative financial instruments	—			2			(8		)	—			(6		)
Foreign currency contracts	7			—			—			—			7
Total return swaps	11			—			—			—			11
Total	$	5		$	2		$	11		$	9		$	27

Nine months ended September 30, 2018
Equity and index contracts	$	(15	)	$	—		$	25		$	12		$	22
Embedded derivative financial instruments	—			7			13			—			20
Foreign currency contracts	19			—			—			(1		)	18
Total return swaps	12			—			—			—			12
Credit default contracts	1			—			—			—			1
Total	$	17		$	7		$	38		$	11		$	73

Three months ended September 30, 2017
Equity and index contracts	$	(10	)	$	—		$	11		$	8		$	9
Embedded derivative financial instruments	—			(4		)	(3		)	—			(7		)
Foreign currency contracts	(5		)	—			—			1			(4		)
Credit default contracts	(2		)	—			—			—			(2		)
Total	$	(17	)	$	(4	)	$	8		$	9		$	(4	)

Nine months ended September 30, 2017
Equity and index contracts	$	(17	)	$	—		$	33		$	20		$	36
Embedded derivative financial instruments	—			4			(7		)	—			(3		)
Foreign currency contracts	(20		)	—			—			6			(14		)
Credit default contracts	(3		)	—			—			—			(3		)
Total	$	(40	)	$	4		$	26		$	26		$	16

																													OTC derivatives counterparty credit exposure by counterparty credit rating
($ in millions)	September 30, 2018							December 31, 2017							March 31, 2019							December 31, 2018
Rating ⁽¹⁾	Number of counter- parties	Notional amount⁽²⁾		Credit exposure⁽²⁾		Exposure, net of collateral⁽²⁾		Number of counter- parties	Notional amount⁽²⁾		Credit exposure⁽²⁾		Exposure, net of collateral⁽²⁾		Number of counter- parties	Notional amount⁽²⁾		Credit exposure⁽²⁾		Exposure, net of collateral⁽²⁾		Number of counter- parties	Notional amount⁽²⁾		Credit exposure⁽²⁾		Exposure, net of collateral⁽²⁾
AA-	—	$	—	$	—	$	—	1	$	18	$	1	$	—
A+	4	659		11		3		3	90		3		1		4	$	748	$	21	$	1	3	$	643	$	19	$	1
A	1	10		—		—		—	—		—		—		1	116		1		1		2	121		1		—
Total	5	$	669	$	11	$	3	4	$	108	$	4	$	1	5	$	864	$	22	$	2	5	$	764	$	20	$	1


⁽¹⁾	~~Rating is~~Allstate uses the lower of S&P&P’s or Moody’s long term debt issuer ratings.


⁽²⁾	Only OTC derivatives with a net positive fair value are included for each counterparty.



CDS notional amounts by credit rating and fair value of protection sold
($ in millions)	Notional amount
($ in millions)	AA		A		BBB		BB and lower		Total		Fair value
September 30, 2018
Single name
Corporate debt	$	—	$	—	$	—	$	5	$	5	$	—
Total	$	—	$	—	$	—	$	5	$	5	$	—

December 31, 2017
Single name
Corporate debt	$	—	$	10	$	10	$	5	$	25	$	—
Index
Corporate debt	1		19		45		15		80		1
Total	$	1	$	29	$	55	$	20	$	105	$	1



Note 8	Reserve for Property and Casualty Insurance Claims and Claims Expense


⁽¹⁾	~~Includes expected reinsurance recoveries on catastrophe losses related to homeowners flood claims covered by the National Flood Insurance Program.~~



Summarized financial data
	Three months ended September 30,						Nine months ended September 30,
($ in millions, except ratios)	2018			2017			2018			2017
Premiums written	$	8,800		$	8,311		$	25,185		$	23,810

Revenues
Premiums earned	$	8,320		$	7,896		$	24,528		$	23,462
Other revenue	192			185			550			533
Net investment income	410			368			1,100			1,063
Realized capital gains and losses	126			82			16			302
Total revenues	9,048			8,531			26,194			25,360

Costs and expenses
Claims and claims expense	(5,729		)	(5,441		)	(16,491		)	(16,376		)
Amortization of DAC	(1,133		)	(1,060		)	(3,331		)	(3,114		)
Operating costs and expenses	(1,162		)	(1,084		)	(3,347		)	(3,135		)
Restructuring and related charges	(15		)	(12		)	(61		)	(73		)
Total costs and expenses	(8,039		)	(7,597		)	(23,230		)	(22,698		)

Gain on disposition of operations ⁽¹⁾	—			—			—			10
Income tax expense	(204		)	(298		)	(606		)	(852		)
Net income applicable to common shareholders	$	805		$	636		$	2,358		$	1,820

Underwriting income	$	473		$	484		$	1,848		$	1,297
Net investment income	410			368			1,100			1,063
Income tax expense on operations	(178		)	(271		)	(603		)	(746		)
Realized capital gains and losses, after-tax	103			54			16			199
Gain on disposition of operations, after-tax	—			1			—			7
Tax Legislation expense	(3		)	—			(3		)	—
Net income applicable to common shareholders	$	805		$	636		$	2,358		$	1,820

Catastrophe losses ⁽²⁾	$	625		$	856		$	1,892		$	2,630

GAAP operating ratios
Claims and claims expense ratio	68.8			68.9			67.3			69.8
Expense ratio	25.5			25.0			25.2			24.7
Combined ratio	94.3			93.9			92.5			94.5
Effect of catastrophe losses on combined ratio	7.5			10.9			7.7			11.2
Effect of prior year reserve reestimates on combined ratio	0.1			(1.7		)	(0.5		)	(1.4		)
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio	—			(0.1		)	0.2			(0.1		)
Effect of amortization of purchased intangible assets on combined ratio	0.1			—			0.1			—
Effect of restructuring and related charges on combined ratio	0.2			0.2			0.2			0.3
Effect of Discontinued Lines and Coverages on combined ratio	0.9			1.1			0.4			0.4


⁽³⁾	Prior year reserve reestimates totaled $12 ~~of the condensed consolidated financial statements), compared to~~ $7 million unfavorable and $1051 million favorable in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and 2018, respectively.


⁽¹⁾	~~Due to the adoption~~ 2019 results include $390 million of ~~the recognition and measurement accounting standard,~~appreciation of equity securities ~~are reported at fair value with changes in fair value recognized in valuation~~and $63 million of ~~equity investments and are no longer included in impairment write-downs, change in intent write-downs and sales.~~


⁽²⁾	~~Includes $161 million of~~ appreciation ~~of equity investments and $19 million of declines in value~~ primarily related to certain limited partnerships where the underlying assets are predominately public equity securities.


⁽³⁾	Includes $156 million of appreciation of equity investments and $42 million of declines in value primarily related to certain limited partnerships where the underlying assets are predominately public equity securities.


⁽¹⁾	Other personal lines include renters, condominium, landlord and other personal lines products.