UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2011~~March 31, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~______~~ to ~~______~~

Commission file number 1-11840

THE ALLSTATE CORPORATION

(Exact name of registrant as specified in its charter)

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~~

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

(847) 402-5000

(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.

Yes X No

~~No ___~~

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes X No

~~No ___~~

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

Large accelerated filer X	X	Accelerated filer	~~____~~

Non-accelerated filer	~~(Do~~ (Do not check if a smaller reporting company)		Smaller reporting company	~~____~~

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

~~Yes~~

Yes No X

As of ~~October~~April 18, ~~2011,~~2012, the registrant had ~~505,352,126~~491,360,562 common shares, $.01 par value, outstanding.

THE ALLSTATE CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

~~September 30, 2011~~March 31, 2012

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, 2012 and 2011 ~~and 2010~~ (unaudited)		1

		Condensed Consolidated Statements of ~~Financial Position as of September 30,~~Comprehensive Income for the Three-Month Periods Ended March 31, 2012 and 2011 (unaudited) ~~and December 31, 2010~~		2

		Condensed Consolidated Statements of ~~Cash Flows for the Nine-Month Periods Ended September 30,~~Financial Position as of March 31, 2012 (unaudited) and December 31, 2011 ~~and 2010 (unaudited)~~		3

		Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2012 and 2011 (unaudited)		4

		Notes to Condensed Consolidated Financial Statements (unaudited)	4	5

		Report of Independent Registered Public Accounting Firm	49	46

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

		Highlights	50	47
		Consolidated Net Income	51	48
		Property-Liability Highlights		48
		Allstate Protection Segment		52
	~~Allstate Protection Segment~~	56
	Discontinued Lines and Coverages Segment	65	59
		Property-Liability Investment Results	66	60
		Allstate Financial Highlights	66	61
		Allstate Financial Segment		61
		Investments Highlights		67
	~~Investments Highlights~~	74Investments		67
	~~Investments~~	75
	~~Goodwill~~	93
	Capital Resources and Liquidity Highlights	95	80
		Capital Resources and Liquidity	95	81

Item 4.		Controls and Procedures	99	85

PART II		OTHER INFORMATION

Item 1.		Legal Proceedings	~~100~~	86

Item 1A.		Risk Factors	~~100~~	86

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	~~100~~	86

Item 5.		Other Information		87

Item 6.		Exhibits	~~101~~	87

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2011

2010

2011

2010

(unaudited)

(unaudited)
Revenues

Property-liability insurance premiums

$
6,432

$
6,499

$
19,337

$
19,515
Life and annuity premiums and contract charges

552

548

1,668

1,637
Net investment income

994

1,005

2,996

3,104
Realized capital gains and losses:

Total other-than-temporary impairment losses

(197)

(99)

(435)

(637)
Portion of loss recognized in other comprehensive income

(6)

(68)

(37)

(91)
Net other-than-temporary impairment losses recognized in earnings

(203)

(167)

(472)

(728)
Sales and other realized capital gains and losses

467

23

889

(215)
Total realized capital gains and losses

264

(144)

417

(943)

8,242

7,908

24,418

23,313

Costs and expenses

Property-liability insurance claims and claims expense

5,132

4,603

15,963

14,109
Life and annuity contract benefits

455

445

1,331

1,372
Interest credited to contractholder funds

405

445

1,240

1,358
Amortization of deferred policy acquisition costs

1,122

1,006

3,191

2,969
Operating costs and expenses

825

828

2,465

2,446
Restructuring and related charges

8

9

28

33
Interest expense

92

91

275

275

8,039

7,427

24,493

22,562
Gain (loss) on disposition of operations

--

9

(17)

12

Income (loss) from operations before income tax expense (benefit)

203

490

(92)

763

Income tax expense (benefit)

38

123

(156)

131

Net income

$
165

$
367

$
64

$
632

Earnings per share:

Net income per share - Basic

$
0.32

$
0.68

$
0.12

$
1.17

Weighted average shares - Basic

512.0

540.9

520.4

540.6

Net income per share - Diluted

$
0.32

$
0.68

$
0.12

$
1.16

Weighted average shares - Diluted

514.2

543.0

522.9

542.7

Cash dividends declared per share

$
0.21

$
0.20

$
0.63

$
0.60

($ in millions, except per share data)		Three months ended March 31,
		2012		2011
		(unaudited)
				(As Adjusted See Note 1)
Revenues
Property-liability insurance premiums	$	6,630	$	6,448
Life and annuity premiums and contract charges		553		569
Net investment income		1,011		982
Realized capital gains and losses:
Total other-than-temporary impairment losses		(87)		(156	)
Portion of loss recognized in other comprehensive income		4		(27	)
Net other-than-temporary impairment losses recognized in earnings		(83)		(183	)
Sales and other realized capital gains and losses		251		279
Total realized capital gains and losses		168		96
		8,362		8,095

Costs and expenses
Property-liability insurance claims and claims expense		4,339		4,476
Life and annuity contract benefits		439		454
Interest credited to contractholder funds		378		418
Amortization of deferred policy acquisition costs		979		984
Operating costs and expenses		1,017		900
Restructuring and related charges		6		9
Interest expense		95		92
		7,253		7,333

Gain (loss) on disposition of operations		3		(20	)

Income from operations before income tax expense		1,112		742

Income tax expense		346		218

Net income	$	766	$	524


Earnings per share:
Net income per share - Basic	$	1.54	$	0.99
Weighted average shares - Basic		498.7		531.0
Net income per share - Diluted	$	1.53	$	0.98
Weighted average shares - Diluted		501.5		533.6
Cash dividends declared per share	$	0.22	$	0.21

See notes to condensed consolidated financial statements.

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)		Three Months Ended March 31,
		2012		2011
		(unaudited)
				(As Adjusted See Note 1)
Net income	$	766	$	524


Other comprehensive income, after-tax

Changes in:

Unrealized net capital gains and losses		474		124

Unrealized foreign currency translation adjustments		9		10

Unrecognized pension and other postretirement benefit cost		20		15

Other comprehensive income, after-tax		503		149

Comprehensive income	$	1,269	$	673

See notes to condensed consolidated financial statements.

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ in millions, except par value data)		September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
						(unaudited)
Assets		(unaudited)						(As Adjusted
Investments								See Note 1)
Fixed income securities, at fair value (amortized cost $73,935 and $78,786)	$	76,394	$	79,612
Equity securities, at fair value (cost $4,252 and $4,228)		4,157		4,811
Fixed income securities, at fair value (amortized cost $74,060 and $73,379)					$	77,223	$	76,113
Equity securities, at fair value (cost $3,430 and $4,203)						3,847		4,363
Mortgage loans		6,956		6,679		7,167		7,139
Limited partnership interests		4,407		3,816		4,637		4,697
Short-term, at fair value (amortized cost $3,517 and $3,279)		3,517		3,279
Short-term, at fair value (amortized cost $1,886 and $1,291)						1,886		1,291
Other		2,094		2,286		2,249		2,015
Total investments		97,525		100,483		97,009		95,618
Cash		1,026		562		577		776
Premium installment receivables, net		4,988		4,839		4,908		4,920
Deferred policy acquisition costs		4,444		4,769		3,716		3,871
Reinsurance recoverables, net		6,720		6,552		7,118		7,251
Accrued investment income		854		809		846		826
Deferred income taxes		792		784		201		722
Property and equipment, net		908		921		912		914
Goodwill		874		874		1,242		1,242
Other assets		2,037		1,605		2,049		2,069
Separate Accounts		6,791		8,676		7,355		6,984
Total assets	$	126,959	$	130,874	$	125,933	$	125,193
Liabilities
Reserve for property-liability insurance claims and claims expense	$	20,395	$	19,468	$	20,283	$	20,375
Reserve for life-contingent contract benefits		14,308		13,482		14,296		14,406
Contractholder funds		43,776		48,195		41,603		42,332
Unearned premiums		10,002		9,800		9,888		10,057
Claim payments outstanding		960		737		750		827
Other liabilities and accrued expenses		6,691		5,564		6,490		5,978
Long-term debt		5,907		5,908		6,058		5,908
Separate Accounts		6,791		8,676		7,355		6,984
Total liabilities		108,830		111,830		106,723		106,867

Commitments and Contingent Liabilities (Note 10)
Equity
Preferred stock, $1 par value, 25 million shares authorized, none issued		--		--		--		--
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 505 million and 533 million shares outstanding		9		9
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 493 million and 501 million shares outstanding						9		9
Additional capital paid-in		3,177		3,176		3,151		3,189
Retained income		31,704		31,969		32,565		31,909
Deferred ESOP expense		(43)		(44)		(41)		(43	)
Treasury stock, at cost (395 million and 367 million shares)		(16,693)		(15,910)
Treasury stock, at cost (407 million and 399 million shares)						(17,034)		(16,795	)
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital losses on fixed income securities with OTTI		(155)		(190)		(100)		(174	)
Other unrealized net capital gains and losses		1,683		1,089		2,412		2,041
Unrealized adjustment to DAC, DSI and insurance reserves		(496)		36		(438)		(467	)
Total unrealized net capital gains and losses		1,032		935		1,874		1,400
Unrealized foreign currency translation adjustments		49		69		65		56
Unrecognized pension and other postretirement benefit cost		(1,135)		(1,188)		(1,407)		(1,427	)
Total accumulated other comprehensive loss		(54)		(184)
Total accumulated other comprehensive income						532		29
Total shareholders’ equity		18,100		19,016		19,182		18,298
Noncontrolling interest		29		28		28		28
Total equity		18,129		19,044		19,210		18,326
Total liabilities and equity	$	126,959	$	130,874	$	125,933	$	125,193

See notes to condensed consolidated financial statements.

THE ALLSTATE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

Nine Months Ended

September 30,

2011

2010

Cash flows from operating activities

(unaudited)

Net income
$
64
$
632

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and other non-cash items

149

55

Realized capital gains and losses

(417)

943

Loss (gain) on disposition of operations

17

(12)

Interest credited to contractholder funds

1,240

1,358

Changes in:

Policy benefits and other insurance reserves

546

143

Unearned premiums

220

172

Deferred policy acquisition costs

138

(138)

Premium installment receivables, net

(158)

(137)

Reinsurance recoverables, net

(275)

(229)

Income taxes

(188)

178

Other operating assets and liabilities

335

58

Net cash provided by operating activities

1,671

3,023

Cash flows from investing activities

Proceeds from sales

Fixed income securities

23,916

17,345

Equity securities

1,116

4,262

Limited partnership interests

762

387

Mortgage loans

74

121

Other investments

149

98

Investment collections

Fixed income securities

3,864

3,672

Mortgage loans

491

784

Other investments

105

96

Investment purchases

Fixed income securities

(21,900)

(20,712)

Equity securities

(1,066)

(2,721)

Limited partnership interests

(1,159)

(1,040)

Mortgage loans

(896)

(55)

Other investments

(199)

(99)

Change in short-term investments, net

64

104

Change in other investments, net

(357)

(464)

Purchases of property and equipment, net

(160)

(114)

Disposition of operations

1

7

Net cash provided by investing activities

4,805

1,671

Cash flows from financing activities

Repayment of long-term debt

(1)

(1)

Contractholder fund deposits

1,606

2,297

Contractholder fund withdrawals

(6,439)

(6,779)

Dividends paid

(327)

(322)

Treasury stock purchases

(858)

(5)

Shares reissued under equity incentive plans, net

18

26

Excess tax benefits on share-based payment arrangements

(4)

(7)

Other

(7)

(15)

Net cash used in financing activities

(6,012)

(4,806)

Net increase (decrease) in cash

464

(112)

Cash at beginning of period

562

612

Cash at end of period
$
1,026
$
500

($ in millions)		Three months ended March 31,
		2012		2011
		(unaudited)
Cash flows from operating activities				(As Adjusted See Note 1)
Net income	$	766	$	524
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash items		96		31
Realized capital gains and losses		(168)		(96)
(Gain) loss on disposition of operations		(3)		20
Interest credited to contractholder funds		378		418
Changes in:
Policy benefits and other insurance reserves		(346)		(58)
Unearned premiums		(180)		(248)
Deferred policy acquisition costs		52		67
Premium installment receivables, net		19		3
Reinsurance recoverables, net		57		(117)
Income taxes		333		203
Other operating assets and liabilities		(197)		(21)
Net cash provided by operating activities		807		726
Cash flows from investing activities
Proceeds from sales
Fixed income securities		5,689		8,363
Equity securities		1,059		642
Limited partnership interests		403		113
Mortgage loans		6		26
Other investments		36		63
Investment collections
Fixed income securities		966		1,201
Mortgage loans		170		88
Other investments		23		77
Investment purchases
Fixed income securities		(7,008)		(10,207)
Equity securities		(128)		(144)
Limited partnership interests		(318)		(334)
Mortgage loans		(216)		(26)
Other investments		(163)		(58)
Change in short-term investments, net		(379)		1,649
Change in other investments, net		(9)		(119)
Purchases of property and equipment, net		(51)		(48)
Disposition of operations		(1)		(1)
Net cash provided by investing activities		79		1,285
Cash flows from financing activities
Proceeds from issuance of long-term debt		493		--
Repayment of long-term debt		(350)		--
Contractholder fund deposits		485		596
Contractholder fund withdrawals		(1,299)		(2,122)
Dividends paid		(106)		(107)
Treasury stock purchases		(309)		(305)
Shares reissued under equity incentive plans, net		15		9
Excess tax benefits on share-based payment arrangements		(1)		(3)
Other		(13)		--
Net cash used in financing activities		(1,085)		(1,932)
Net (decrease) increase in cash		(199)		79
Cash at beginning of period		776		562
Cash at end of period	$	577	$	641

See notes to ~~condensed~~ consolidated financial statements.

THE ALLSTATE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of The Allstate Corporation and its wholly owned subsidiaries, primarily Allstate Insurance Company (“AIC”), a property-liability insurance company with various property-liability and life and investment subsidiaries, including Allstate Life Insurance Company (“ALIC”) (collectively referred to as the “Company” or “Allstate”).

The condensed consolidated financial statements and notes as of ~~September 30, 2011~~March 31, 2012 and for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ 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, ~~2010.~~2011. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

~~Adopted accounting standards~~

~~Consolidation Analysis Considering Investments Held through Separate Accounts~~

~~In April 2010, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying that an insurer is not required~~To conform to combine interests in investments held in a qualifying separate account with its interests in the same investments held in the general account when performing a consolidation evaluation. The adoption of this guidance as of January 1, 2011 had no impact on the Company’s results of operations or financial position.

~~Disclosure of Supplementary Pro Forma Information for Business Combinations~~

In December 2010, the FASB issued disclosure guidance for entities that enter into business combinations that are material. The guidance specifies that if an entity presents comparative financial statements, the entity should disclose pro forma revenue and earnings of the combined entity as though the business combination that occurred during the current year ~~had occurred as of~~presentation, certain amounts in the ~~beginning of the comparable~~ prior ~~annual reporting period only. The guidance expands the supplemental pro forma disclosures to include a description of the nature~~year condensed consolidated financial statements and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination. The Company will apply the guidance to any business combinations entered into on or after January 1, 2011.

~~Criteria for Classification as a Troubled Debt Restructuring (“TDR”)~~

In April 2011, the FASB issued clarifying guidance related to determining whether a loan modification or restructuring should be classified as a TDR. The additional guidance provided pertains to the two criteria used to determine whether a TDR exists, specifically whether the creditor has granted a concession and whether the debtor is experiencing financial difficulties. The guidance related to the identification of a TDR is to be applied retrospectively to the beginning of the annual period of adoption. The measurement of impairment on a TDR identified under this guidance is effective prospectively. Disclosures about the credit quality of financing receivables and the allowance for credit losses previously deferred for TDRs, is also effective for reporting periods beginning on or after June 15, 2011. The adoption of this guidance as of July 1, 2011 did notnotes have ~~a material effect on the Company’s results of operations or financial position.~~been reclassified.

~~Pending~~Adopted accounting standards

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued guidance modifying the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal insurance contracts. The guidance specifies that the costs must be ~~based on~~directly related to the successful ~~efforts.~~acquisition of insurance contracts. The guidance also specifies that advertising costs should be included as deferred acquisition costs (“DAC”) only when the direct-response advertising accounting criteria are met. If application of the guidance would result in the capitalization of acquisition costs that had not been capitalized prior to adoption, the entity may elect not to capitalize those additional costs. The new guidance is effective for reporting periods beginning after December 15, 2011 and should be applied prospectively, with retrospective application permitted. The Company ~~plans to adopt~~adopted the new guidance ~~retrospectively. Upon adoption~~ on a retrospective basis as of January 1, ~~2012,~~2012. The cumulative effect of the ~~deferred policy acquisition costs (“DAC”) balance will be reduced with~~adoption to shareholders’ equity as of January 1, 2011 was a ~~corresponding~~ decrease ~~to retained income,~~of $399 million, net of taxes. The impacts of the retrospective adjustments on previously issued financial statements are summarized in the following table.

($ in millions, except per share data)		Previously Reported		As Adjusted
Three months ended March 31, 2011
Amortization of DAC	$	1,051	$	984
Operating costs and expenses		838		900
Loss on disposition of operations		(23)		(20)
Income tax expense		215		218
Net income		519		524
Net income per share - Basic		0.98		0.99
Net income per share - Diluted		0.97		0.98
As of December 31, 2011
DAC		4,443		3,871
Deferred income taxes		520		722
Reserve for life-contingent contract benefits		14,449		14,406
Other liabilities and accrued expenses		5,929		5,978
Retained income		32,321		31,909
Unrealized adjustment to DAC, DSI and insurance reserves		(504)		(467)
Unrealized foreign currency translation adjustments		57		56

In future periods, ~~subsequent to January 1, 2012,~~operating costs and expenses will increase since a lower amount of acquisition costs will be capitalized, which will be partially offset by a decrease in amortization of DAC due to the retrospective reduction of the DAC balance. The effect of the adoption on net income and related per share amounts for interim periods after

~~increase operating costs and expenses and~~adoption is not determinable since calculations under the ~~smaller~~historic DAC balance will result in decreased amortization of DAC. The Company is in the process of completing the retrospective adoption calculations and measuring the impact of adoption on the Company’s results of operations and financial position.accounting policy were not continued after adoption.

Criteria for Determining Effective Control for Repurchase Agreements

In April 2011, the FASB issued guidance modifying the assessment criteria of effective control for repurchase agreements. The new guidance removes the ~~criterion~~criteria requiring an entity to have the ability to repurchase or redeem financial assets on substantially the agreed terms and the collateral maintenance ~~implementation~~ guidance related to that ~~criterion.~~criteria. The guidance is to be applied prospectively to transactions or modifications of existing transactions that occur during reporting periods beginning on or after December 15, 2011. ~~Early~~The adoption ~~is not permitted. The~~of this guidance as of January 1, 2012 had no impact ~~of adoption is not expected to be material to~~on the Company’s results of operations ~~and~~or financial position.

Amendments to Fair Value Measurement and Disclosure Requirements

In May 2011, the FASB issued guidance that clarifies the application of existing fair value measurement and disclosure requirements and amends certain fair value measurement principles, requirements and disclosures. ToChanges were made to improve consistency in global ~~application, changes in wording were made.~~application. The guidance is to be applied prospectively for reporting periods beginning after December 15, 2011. ~~Early~~The adoption ~~is not permitted. The~~of this guidance as of January 1, 2012 had no impact ~~of adoption is not expected to be material to~~on the Company’s results of operations ~~and~~or financial position.

Presentation of Comprehensive Income

In June and December 2011, the FASB issued guidance amending the presentation of comprehensive income and its components. Under the new guidance, ana reporting entity has the option to present comprehensive income in a single continuous statement or in two separate but consecutive statements. ~~Both options require an entity to present reclassification adjustments for items reclassified from other comprehensive income to net income~~The Company adopted the new guidance in the ~~statement(s) where the components~~first quarter of ~~net income and the components of comprehensive income are presented.~~2012. The new guidance ~~is effective for reporting periods beginning after December 15, 2011 and is to be applied retrospectively. Early adoption is permitted. The impact of adoption is related to~~affects presentation only and ~~will have~~therefore had no impact on the Company’s results of operations ~~and~~or financial position. In October 2011, the FASB announced that they will discuss at a future meeting whether to delay the effective date of certain provisions in the new guidance related to the presentation of reclassification adjustments.

Intangibles – Goodwill and Other

In September 2011, the FASB issued guidance providing the option to first assess qualitative factors, such as macroeconomic conditions and industry and market considerations, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If impairment is indicated by the qualitative assessment, then it is necessary to perform the two-step goodwill impairment test. If the option is not elected, the guidance requiring the two-step goodwill impairment test is unchanged. The ~~new~~adoption of this guidance ~~is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The~~as of January 1, 2012 had no impact ~~of adoption is not expected to be material to~~on the Company’s results of operations or financial position.

Pending accounting standard

Disclosures about Offsetting Assets and Liabilities for Financial Instruments and Derivative Instruments

In December 2011, the FASB issued guidance requiring expanded disclosures, including both gross and net information, for financial instruments and derivative instruments that are either offset in the reporting entity’s financial statements or those that are subject to an enforceable master netting arrangement or similar agreement. The guidance is effective for reporting periods beginning on or after January 1, 2013 and is to be applied retrospectively. The new guidance affects disclosures only and will have no impact on the Company’s results of operations or financial position.

2. Earnings per share

Basic earnings per share is computed using the weighted average number of common shares outstanding, including unvested participating restricted stock units. Diluted earnings per 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.~~units and performance stock awards.

The computation of basic and diluted earnings per share for the three months ended March 31 is presented in the following table.

($ in millions, except per share data)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Numerator:
Net income	$	165	$	367	$	64	$	632	$	766	$	524

Denominator:
Weighted average common shares outstanding		512.0		540.9		520.4		540.6		498.7		531.0
Effect of dilutive potential common shares:
Stock options		1.6		1.9		2.0		2.0		2.0		2.2
Restricted stock units (non-participating)		0.6		0.2		0.5		0.1
Restricted stock units and performance stock awards (non-participating)										0.8		0.4
Weighted average common and dilutive potential common shares outstanding		514.2		543.0		522.9		542.7		501.5		533.6

Earnings per share - Basic	$	0.32	$	0.68	$	0.12	$	1.17	$	1.54	$	0.99
Earnings per share - Diluted	$	0.32	$	0.68	$	0.12	$	1.16	$	1.53	$	0.98

The effect of dilutive potential common shares does not include the effect of options with an anti-dilutive effect on earnings per 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 ~~27.6~~28.5 million and 27.6 million Allstate common shares, with exercise prices ranging from $24.70 to $62.84 and $27.36 to $62.84, were outstanding for the three-month periods ended September 30, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share in those periods. Options to purchase 27.6 million and 26.630.4 million Allstate common shares, with exercise prices ranging from $25.91 to $62.84 and $27.36 to ~~$64.53,~~$62.84, were outstanding for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ respectively, but were not included in the computation of diluted earnings per share in those periods.

3. Supplemental Cash Flow Information

Non-cash ~~investment exchanges, including~~ modifications of certain mortgage loans, ~~(primarily refinances at maturity with no concessions granted to the borrower),~~ fixed income securities, limited ~~partnerships~~partnership interests and other investments, as well as mergers completed with equity securities, totaled ~~$564~~$22 million and ~~$544~~$53 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ respectively. Non-cash financing activities include $39 million related to the issuance of Allstate shares for vested restricted stock units for the three months ended March 31, 2012.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) 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 for the three months ended March 31 are as follows:

($ in millions)		Nine months ended September 30,				2012			2011
		2011		2010
Net change in proceeds managed
Net change in short-term investments	$	(301)	$	187	$	(210	)	$	(351	)
Operating cash flow (used) provided		(301)		187
Operating cash flow used						(210	)		(351	)
Net change in cash		1		2		(2	)		(3	)
Net change in proceeds managed	$	(300)	$	189	$	(212	)	$	(354	)

Net change in liabilities
Liabilities for collateral, beginning of year	$	(484)	$	(658)	$	(462	)	$	(484	)
Liabilities for collateral, end of period		(784)		(469)		(674	)		(838	)
Operating cash flow provided (used)	$	300	$	(189)
Operating cash flow provided					$	212		$	354

4. Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)		Amortized		Gross unrealized				Fair		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value		cost		Gains		Losses		value
September 30, 2011
March 31, 2012
U.S. government and agencies	$	4,009	$	337	$	--	$	4,346	$	5,259	$	287	$	(5)	$	5,541
Municipal		14,445		816		(262)		14,999		12,970		864		(220)		13,614
Corporate		42,335		2,644		(450)		44,529		43,819		2,760		(248)		46,331
Foreign government		1,941		197		(5)		2,133		1,794		196		(1)		1,989
Residential mortgage-backed securities (“RMBS”)		5,027		146		(541)		4,632		3,959		126		(357)		3,728
Commercial mortgage-backed securities (“CMBS”)		2,045		37		(258)		1,824		1,864		63		(174)		1,753
Asset-backed securities (“ABS”)		4,110		87		(291)		3,906		4,372		108		(238)		4,242
Redeemable preferred stock		23		2		--		25		23		2		--		25
Total fixed income securities	$	73,935	$	4,266	$	(1,807)	$	76,394	$	74,060	$	4,406	$	(1,243)	$	77,223

December 31, 2010
December 31, 2011
U.S. government and agencies	$	8,320	$	327	$	(51)	$	8,596	$	5,966	$	349	$	--	$	6,315
Municipal		16,201		379		(646)		15,934		13,634		863		(256)		14,241
Corporate		36,260		1,816		(421)		37,655		41,217		2,743		(379)		43,581
Foreign government		2,821		347		(10)		3,158		1,866		216		(1)		2,081
RMBS		8,509		216		(732)		7,993		4,532		110		(521)		4,121
CMBS		2,213		58		(277)		1,994		1,962		48		(226)		1,784
ABS		4,425		113		(294)		4,244		4,180		73		(287)		3,966
Redeemable preferred stock		37		1		--		38		22		2		--		24
Total fixed income securities	$	78,786	$	3,257	$	(2,431)	$	79,612	$	73,379	$	4,404	$	(1,670)	$	76,113

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of ~~September 30, 2011:~~March 31, 2012:

($ in millions)		Amortized		Fair		Amortized		Fair
		cost		value		cost		value
Due in one year or less	$	3,441	$	3,507	$	4,031	$	4,081
Due after one year through five years		20,985		21,764		20,971		21,893
Due after five years through ten years		20,860		22,097		23,172		24,703
Due after ten years		19,512		20,488		17,555		18,576
		64,798		67,856		65,729		69,253
RMBS and ABS		9,137		8,538		8,331		7,970
Total	$	73,935	$	76,394	$	74,060	$	77,223

Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity. CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk.

Net investment income

Net investment income for the three months ended March 31 is as follows:

($ in millions)		Three months ended September 30,				Nine months ended September 30,					2012		2011
		2011		2010		2011		2010
Fixed income securities	$	862	$	926	$	2,661	$	2,840		$	806	$	900
Equity securities		23		17		76		63			21		19
Mortgage loans		91		92		267		295			93		89
Limited partnership interests		33		6		61		19
Limited partnership interests (1)											109		10
Short-term investments		2		2		5		6			1		2
Other		27		5		64		12			30		11
Investment income, before expense		1,038		1,048		3,134		3,235			1,060		1,031
Investment expense		(44)		(43)		(138)		(131	)		(49)		(49)
Net investment income	$	994	$	1,005	$	2,996	$	3,104		$	1,011	$	982


(1) Income from limited partnership interests accounted for under the equity method of accounting (“EMA”) is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Realized capital gains and losses

Realized capital gains and losses by asset type for the three months ended March 31 are as follows:

($ in millions)		Three months ended September 30,				Nine months ended September 30,						2012		2011
		2011		2010		2011			2010
Fixed income securities	$	603	$	84	$	615		$	(240	)	$	(29)	$	(27)
Equity securities		(77)		83		60			142			159		122
Mortgage loans		(28)		(1)		(37	)		(54	)		(1)		(6)
Limited partnership interests		8		(20)		129			(15	)
Limited partnership interests (1)												10		68
Derivatives		(234)		(286)		(354	)		(779	)		21		(67)
Other		(8)		(4)		4			3			8		6
Realized capital gains and losses	$	264	$	(144)	$	417		$	(943	)	$	168	$	96


(1) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Realized capital gains and losses by transaction type for the three months ended March 31 are as follows:

($ in millions)		Three months ended September 30,				Nine months ended September 30,						2012		2011
		2011		2010		2011			2010
Impairment write-downs	$	(190)	$	(137)	$	(374	)	$	(599	)	$	(39)	$	(114)
Change in intent write-downs		(13)		(30)		(98	)		(129	)		(44)		(69)
Net other-than-temporary impairment losses recognized in earnings		(203)		(167)		(472	)		(728	)		(83)		(183)
Sales		692		319		1,116			552			229		283
Valuation of derivative instruments		(254)		(133)		(282	)		(571	)		11		22
Settlements of derivative instruments		20		(152)		(72	)		(209	)		11		(89)
Equity method of accounting (“EMA”) limited partnership income		9		(11)		127			13
EMA limited partnership income												--		63
Realized capital gains and losses	$	264	$	(144)	$	417		$	(943	)	$	168	$	96

Gross gains of ~~$709~~$115 million and ~~$387~~$211 million and gross losses of ~~$32~~$90 million and ~~$173~~$88 million were realized on sales of fixed income securities during the three months ended ~~September 30,~~March 31, 2012 and 2011, and 2010, respectively. Gross gains of $1.10 billion and $673 million and gross losses of $218 million and $360 million were realized on sales of fixed income securities during the nine months ended September 30, 2011 and 2010, respectively.

Other-than-temporary impairment losses by asset type for the three months ended March 31 are as follows:

($ in millions)

Three months ended
September 30, 2011

Nine months ended
September 30, 2011

Gross

Included
in OCI

Net

Gross

Included
in OCI

Net

Fixed income securities:

Municipal
$
(8
)
$
--

$
(8
)
$
(50
)
$
(3
)
$
(53
)

Corporate

(14
)

--

(14
)

(19
)

1

(18
)

Foreign government

--

--

--

(1
)

--

(1
)

RMBS

(57
)

(3
)

(60
)

(164
)

(28
)

(192
)

CMBS

(1
)

(3
)

(4
)

(27
)

(10
)

(37
)

ABS

--

--

--

(7
)

3

(4
)

Total fixed income securities

(80
)

(6
)

(86
)

(268
)

(37
)

(305
)

Equity securities

(81
)

--

(81
)

(114
)

--

(114
)

Mortgage loans

(29
)

--

(29
)

(42
)

--

(42
)

Limited partnership interests

(2
)

--

(2
)

(4
)

--

(4
)

Other

(5
)

--

(5
)

(7
)

--

(7
)

Other-than-temporary impairment losses
$
(197
)
$
(6
)
$
(203
)
$
(435
)
$
(37
)
$
(472
)

		Three months ended September 30, 2010									Nine months ended September 30, 2010
($ in millions)																				2012						2011
		Gross			Included in OCI			Net			Gross			Included in OCI			Net			Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1	)	$	--		$	(1	)	$	(106	)	$	4		$	(102	)	$	(1)	$	--	$	(1)	$	(27)	$	(2)	$	(29)
Corporate		(14	)		(1	)		(15	)		(67	)		1			(66	)		(18)		--		(18)		(5)		1		(4)
Foreign government																				--		--		--		(1)		--		(1)
RMBS		(56	)		(41	)		(97	)		(268	)		(43	)		(311	)		(43)		4		(39)		(72)		(25)		(97)
CMBS		(1	)		(26	)		(27	)		(44	)		(37	)		(81	)		(6)		--		(6)		(16)		(4)		(20)
ABS		--			--			--			(9	)		(16	)		(25	)		--		--		--		(7)		3		(4)
Total fixed income securities		(72	)		(68	)		(140	)		(494	)		(91	)		(585	)		(68)		4		(64)		(128)		(27)		(155)
Equity securities		(14	)		--			(14	)		(51	)		--			(51	)		(16)		--		(16)		(20)		--		(20)
Mortgage loans		(3	)		--			(3	)		(50	)		--			(50	)		(3)		--		(3)		(6)		--		(6)
Limited partnership interests		(10	)		--			(10	)		(42	)		--			(42	)		(2)		--		(2)		(1)		--		(1)
Other																				2		--		2		(1)		--		(1)
Other-than-temporary impairment losses	$	(99	)	$	(68	)	$	(167	)	$	(637	)	$	(91	)	$	(728	)	$	(87)	$	4	$	(83)	$	(156)	$	(27)	$	(183)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amount excludes ~~$211~~$225 million and ~~$322~~$172 million as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)

September 30,
2011

December 31,
2010

Municipal
$
(12
)
$
(27
)

Corporate

(36
)

(31
)

RMBS

(372
)

(467
)

CMBS

(8
)

(49
)

ABS

(22
)

(41
)

Total
$
(450
)
$
(615
)

($ in millions)		March 31, 2012		December 31, 2011
Municipal	$	(11)	$	(11)
Corporate		(35)		(35)
RMBS		(292)		(353)
CMBS		(20)		(19)
ABS		(21)		(21)
Total	$	(379)	$	(439)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:

($ in millions)		Three months ended September 30,						Nine months ended September 30,						Three months ended March 31
		2011			2010			2011			2010			2012		2011
Beginning balance	$	(912	)	$	(1,309	)	$	(1,046	)	$	(1,187	)	$	(944)	$	(1,046)
Cumulative effect of change in accounting principle		--			81			--			81
Additional credit loss for securities previously other-than-temporarily impaired		(56	)		(101	)		(133	)		(265	)		(20)		(59)
Additional credit loss for securities not previously other-than-temporarily impaired		(25	)		(9	)		(82	)		(197	)		(9)		(27)
Reduction in credit loss for securities disposed or collected		66			104			313			330			146		153
Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell		--			42			15			43			7		15
Change in credit loss due to accretion of increase in cash flows		4			1			10			4			--		1
Ending balance	$	(923	)	$	(1,191	)	$	(923	)	$	(1,191	)	$	(820)	$	(963)

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, 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 other-than-temporary impairment 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 accumulated other comprehensive income. 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.

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

($ in millions)	($ in millions)		Fair		Gross unrealized			Unrealized net					Fair		Gross unrealized			Unrealized net
September 30, 2011			value		Gains		Losses	gains (losses)
March 31, 2012													value		Gains		Losses	gains (losses)
Fixed income securities	Fixed income securities	$	76,394	$	4,266	$	(1,807)	$		2,459		$	77,223	$	4,406	$	(1,243)	$	3,163
Equity securities	Equity securities		4,157		250		(345)			(95	)		3,847		464		(47)		417
Short-term investments	Short-term investments		3,517		--		--			--			1,886		--		--		--
Derivative instruments (1)	Derivative instruments (1)		(10)		2		(17)			(15	)		(16)		2		(23)		(21)
EMA limited partnership interests (2)										7
EMA limited partnerships (2)																			1
Unrealized net capital gains and losses, pre-tax	Unrealized net capital gains and losses, pre-tax									2,356									3,560
Amounts recognized for:	Amounts recognized for:
Insurance reserves (3)	Insurance reserves (3)									(641	)								(443)
DAC and DSI (4)	DAC and DSI (4)									(122	)								(230)
Amounts recognized	Amounts recognized									(763	)								(673)
Deferred income taxes	Deferred income taxes									(561	)								(1,013)
Unrealized net capital gains and losses, after-tax	Unrealized net capital gains and losses, after-tax							$		1,032								$	1,874
_________________
(1)	Included in the fair value of derivative instruments are $(6) million classified as assets and $4 million classified as liabilities.
(2)	Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross gains and losses are not applicable.
(3)	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 current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.
(4)	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.

			Fair		Gross unrealized			Unrealized net
December 31, 2010			value		Gains		Losses	gains (losses)
Fixed income securities		$	79,612	$	3,257	$	(2,431)	$	826
Equity securities			4,811		646		(63)	583
Short-term investments			3,279		--		--	--
Derivative instruments (1)			(17)		2		(24)	(22)
Unrealized net capital gains and losses, pre-tax									1,387
Amounts recognized for:
Insurance reserves								(41)
DAC and DSI									97
Amounts recognized								56
Deferred income taxes									(508)
Unrealized net capital gains and losses, after-tax								$	935
_________________

(1)	Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

(1) Included in the fair value of derivative instruments are $(10) million classified as assets and $6 million classified as liabilities.

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

(3) 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 current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) 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.

		Fair		Gross unrealized			Unrealized net
December 31, 2011		value		Gains		Losses	gains (losses)
Fixed income securities	$	76,113	$	4,404	$	(1,670)	$	2,734
Equity securities		4,363		369		(209)		160
Short-term investments		1,291		--		--		--
Derivative instruments (1)		(12)		3		(20)		(17)
EMA limited partnerships								2
Unrealized net capital gains and losses, pre-tax								2,879
Amounts recognized for:
Insurance reserves								(594)
DAC and DSI								(124)
Amounts recognized								(718)
Deferred income taxes								(761)
Unrealized net capital gains and losses, after-tax							$	1,400


(1) Included in the fair value of derivative instruments are $(5) million classified as assets and $7 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 is as follows:

($ in millions)
Fixed income securities	$	~~1,633~~429
Equity securities		~~(678)~~257
Derivative instruments		7(4)
EMA limited ~~partnership interests~~partnerships		7(1)
Total		~~969~~681
Amounts recognized for:
Insurance reserves		~~(600)~~151
DAC and DSI		~~(219)~~(106)
Amounts recognized		~~(819)~~45
Deferred income taxes		~~(53)~~(252)
Increase in unrealized net capital gains and losses	$	97474

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity 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 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 other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings. For equity securities managed by a third party, the Company has contractually retained its decision making authority as it pertains to selling equity securities that are in an unrealized loss position.

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 (for fixed income securities) or cost (for equity securities) 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 other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity 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 or cost.

The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months					12 months or more						Total	Less than 12 months					12 months or more						Total
	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized
	of issues		value		losses	of issues		value		losses		losses	of issues		value		losses	of issues		value		losses		losses
September 30, 2011
March 31, 2012
Fixed income securities
U.S. government and agencies	6	$	151	$	--	--	$	--	$	--	$	--	16	$	996	$	(5)	--	$	--	$	--	$	(5)
Municipal	173		1,243		(26)	303		1,958		(236)		(262)	92		589		(11)	193		1,448		(209)		(220)
Corporate	509		6,073		(219)	104		1,327		(231)		(450)	263		3,521		(82)	95		1,208		(166)		(248)
Foreign government	18		346		(5)	--		--		--		(5)	23		78		(1)	1		1		--		(1)
RMBS	110		284		(13)	289		1,193		(528)		(541)	337		146		(3)	267		1,089		(354)		(357)
CMBS	69		566		(58)	74		530		(200)		(258)	28		255		(27)	61		434		(147)		(174)
ABS	49		683		(8)	114		1,062		(283)		(291)	58		751		(14)	97		975		(224)		(238)
Redeemable preferred stock													1		--		--	--		--		--		--
Total fixed income securities	934		9,346		(329)	884		6,070		(1,478)		(1,807)	818		6,336		(143)	714		5,155		(1,100)		(1,243)
Equity securities	2,453		2,067		(339)	49		20		(6)		(345)	852		362		(42)	62		33		(5)		(47)
Total fixed income and equity securities	3,387	$	11,413	$	(668)	933	$	6,090	$	(1,484)	$	(2,152)	1,670	$	6,698	$	(185)	776	$	5,188	$	(1,105)	$	(1,290)

Investment grade fixed income securities	633	$	6,733	$	(182)	567	$	4,147	$	(728)	$	(910)	679	$	5,144	$	(94)	429	$	3,190	$	(472)	$	(566)
Below investment grade fixed income securities	301		2,613		(147)	317		1,923		(750)		(897)	139		1,192		(49)	285		1,965		(628)		(677)
Total fixed income securities	934	$	9,346	$	(329)	884	$	6,070	$	(1,478)	$	(1,807)	818	$	6,336	$	(143)	714	$	5,155	$	(1,100)	$	(1,243)

December 31, 2010
December 31, 2011
Fixed income securities
U.S. government and agencies	32	$	2,081	$	(51)	--	$	--	$	--	$	(51)	4	$	61	$	--	--	$	--	$	--	$	--
Municipal	847		4,130		(175)	411		2,715		(471)		(646)	29		135		(11)	303		1,886		(245)		(256)
Corporate	438		5,994		(186)	150		1,992		(235)		(421)	307		3,439		(113)	105		1,273		(266)		(379)
Foreign government	33		277		(9)	1		10		(1)		(10)	11		85		(1)	1		1		--		(1)
RMBS	280		583		(12)	422		1,939		(720)		(732)	321		373		(11)	294		1,182		(510)		(521)
CMBS	14		158		(3)	114		835		(274)		(277)	47		378		(49)	68		489		(177)		(226)
ABS	68		762		(8)	133		1,313		(286)		(294)	89		960		(17)	108		1,020		(270)		(287)
Redeemable preferred stock													1		--		--	--		--		--		--
Total fixed income securities	1,712		13,985		(444)	1,231		8,804		(1,987)		(2,431)	809		5,431		(202)	879		5,851		(1,468)		(1,670)
Equity securities	773		610		(48)	44		91		(15)		(63)	1,397		2,120		(203)	32		30		(6)		(209)
Total fixed income and equity securities	2,485	$	14,595	$	(492)	1,275	$	8,895	$	(2,002)	$	(2,494)	2,206	$	7,551	$	(405)	911	$	5,881	$	(1,474)	$	(1,879)

Investment grade fixed income securities	1,607	$	13,280	$	(408)	857	$	6,217	$	(943)	$	(1,351)	665	$	4,480	$	(145)	555	$	3,773	$	(700)	$	(845)
Below investment grade fixed income securities	105		705		(36)	374		2,587		(1,044)		(1,080)	144		951		(57)	324		2,078		(768)		(825)
Total fixed income securities	1,712	$	13,985	$	(444)	1,231	$	8,804	$	(1,987)	$	(2,431)	809	$	5,431	$	(202)	879	$	5,851	$	(1,468)	$	(1,670)

As of ~~September 30, 2011, $837~~March 31, 2012, $505 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the ~~$837~~$505 million, ~~$422~~$325 million are related to unrealized losses on investment grade fixed income securities. 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 Standard & Poor’s (“S&P”), Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase.

As of ~~September 30, 2011,~~March 31, 2012, the remaining ~~$1.31 billion~~$785 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising ~~$488~~$241 million of these unrealized losses were evaluated based on factors such as expected 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 ~~$1.31 billion, $668~~$785 million, $528 million are related to below investment grade fixed income securities and ~~$159~~$16 million are related to equity securities. Of these amounts, ~~$512~~$409 million of the below investment grade fixed income securities 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, 2011.~~March 31, 2012. Unrealized losses on below investment grade securities are principally related to RMBS, CMBS and ABS and were

the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations.

RMBS, CMBS and ABS 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, (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, and (iii) for RMBS and ABS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable. Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying ~~securities, taking into consideration credit enhancements from reliable bond insurers, where applicable.~~securities. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of ~~September 30, 2011,~~March 31, 2012, 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. As of ~~September 30, 2011,~~March 31, 2012, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the carrying value of equity method limited ~~partnership interests~~partnerships totaled ~~$2.96~~$3.36 billion and ~~$2.47~~$3.13 billion, respectively. The Company recognizes an impairment loss for equity method ~~investments~~limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The Company had no write-downs related to equity method limited ~~partnership interests~~partnerships for the three months ended March 31, 2012 and ~~nine months ended September 30, 2011 and the three months ended September 30, 2010, and write-downs of $1 million for the nine months ended September 30, 2010.~~2011.

As of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the carrying value for cost method limited ~~partnership interests~~partnerships was ~~$1.45~~$1.28 billion and ~~$1.35~~$1.57 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital. Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds. The Company had write-downs related to cost method ~~investments of $2 million and $10 million~~limited partnerships for the three months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010, respectively, and $4~~of $2 million and ~~$41~~$1 million, ~~for the nine months ended September 30, 2011 and 2010,~~ 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. Mortgage loan valuation allowances are charged off 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, 2011.~~March 31, 2012.

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 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.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution:

($ in millions)		September 30, 2011						December 31, 2010						March 31, 2012						December 31, 2011
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total
Below 1.0	$	277	$	--	$	277	$	280	$	--	$	280	$	289	$	--	$	289	$	345	$	--	$	345
1.0 - 1.25		1,699		--		1,699		1,583		16		1,599		1,536		44		1,580		1,527		44		1,571
1.26 - 1.50		1,584		69		1,653		1,520		5		1,525		1,660		23		1,683		1,573		24		1,597
Above 1.50		2,888		168		3,056		2,540		546		3,086		3,220		168		3,388		3,214		168		3,382
Total non-impaired mortgage loans	$	6,448	$	237	$	6,685	$	5,923	$	567	$	6,490	$	6,705	$	235	$	6,940	$	6,659	$	236	$	6,895

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.

The net carrying value of impaired mortgage loans is as follows:

($ in millions)		September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
Impaired mortgage loans with a valuation allowance	$	257	$	168	$	227	$	244
Impaired mortgage loans without a valuation allowance		14		21		--		--
Total impaired mortgage loans	$	271	$	189	$	227	$	244
Valuation allowance on impaired mortgage loans	$	70	$	84	$	60	$	63

The average balance of impaired loans was ~~$201~~$236 million ~~during~~and $180 million for the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012 and 2011, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the three months ended March 31 is as follows:

($ in millions)		Three months ended September 30, 2011		Nine months ended September 30, 2011		2012		2011
Beginning balance	$	68	$	84	$	63	$	84
Net increase in valuation allowance		29		42		3		6
Charge offs		(27)		(56)		(6)		(13)
Ending balance	$	70	$	70	$	60	$	77

The carrying value of past due mortgage loans is as follows:

($ in millions)		September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
Less than 90 days past due	$	--	$	12	$	--	$	--
90 days or greater past due		64		78		68		43
Total past due		64		90		68		43
Current loans		6,892		6,589		7,099		7,096
Total mortgage loans	$	6,956	$	6,679	$	7,167	$	7,139

5. 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)~~	(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 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 methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties or internally estimated, the Company’s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the 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 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.

The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable. This primarilyoccurs in ~~two primary~~ ~~instances. The first relates to~~ the Company’s use of broker ~~quotes. The second relates~~quotes to ~~auction rate~~value certain securities ~~(“ARS”) backed by student loans for which a key input,~~where the ~~anticipated date liquidity will return~~inputs have not been corroborated to ~~this~~be market ~~is not market observable.~~observable, and the use of valuation models that use significant non-market observable inputs.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank 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 addition, derivatives embedded in fixed income securities are not disclosed in the hierarchy as free-standing derivatives since they are presented with the host contracts in fixed income securities.

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 U.S. Treasuries. 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 U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

· Short-term: Comprise 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 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, including privately placed: 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. Also included are privately placed securities 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.

RMBS and ABS: 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 are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

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:~~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.

OTC derivatives, including interest rate swaps, foreign currency 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, currency rates, and counterparty 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: ARS primarily backed by student loans that have become illiquid due to failures in the auction market are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including estimates of future coupon rates if auction failures continue, the anticipated date liquidity will return to the market and illiquidity premium. Also included are municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners (“NAIC”)~~, and other high-yield municipal bonds.~~. 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.

Corporate, including privately placed: Primarily valued based on non-binding broker ~~quotes.~~quotes where the inputs have not been corroborated to be market observable. Also included are equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, such as volatility. 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.

RMBS, CMBS and ABS: Valued based on non-binding broker quotes received from brokers who are familiar with the ~~investments.~~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.

· Other investments: Certain OTC derivatives, such as interest rate caps and floors, 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.

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. Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are valued using net asset values.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of ~~September 30, 2011:~~March 31, 2012:

($ in millions)		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs			Counterparty and cash collateral		Balance as of September 30,		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Counterparty and cash collateral		Balance as of March 31,
		(Level 1)		(Level 2)		(Level 3)			netting		2011		(Level 1)		(Level 2)		(Level 3)		netting		2012
Assets
Fixed income securities:
U.S. government and agencies	$	2,934	$	1,412	$	--				$	4,346	$	3,764	$	1,777	$	--			$	5,541
Municipal		--		13,546		1,453					14,999		--		12,347		1,267				13,614
Corporate		--		42,799		1,730					44,529		--		44,870		1,461				46,331
Foreign government		--		2,133		--					2,133		--		1,989		--				1,989
RMBS		--		4,540		92					4,632		--		3,724		4				3,728
CMBS		--		1,748		76					1,824		--		1,703		50				1,753
ABS		--		2,105		1,801					3,906		--		3,943		299				4,242
Redeemable preferred stock		--		24		1					25		--		24		1				25
Total fixed income securities		2,934		68,307		5,153					76,394		3,764		70,377		3,082				77,223
Equity securities		3,488		627		42					4,157		2,984		750		113				3,847
Short-term investments		200		3,317		--					3,517		150		1,736		--				1,886
Other investments:
Free-standing derivatives		--		383		1		$	(140)		244		--		374		2	$	(103)		273
Separate account assets		6,791		--		--					6,791		7,355		--		--				7,355
Other assets		3		--		1					4		1		--		1				2
Total recurring basis assets		13,416		72,634		5,197			(140)		91,107		14,254		73,237		3,198		(103)		90,586
Non-recurring basis (1)		--		--		158					158		--		--		11				11
Total assets at fair value	$	13,416	$	72,634	$	5,355		$	(140)	$	91,265	$	14,254	$	73,237	$	3,209	$	(103)	$	90,597
% of total assets at fair value		14.7 %		79.6 %		5.9 %			(0.2) %		100.0 %		15.7 %		80.8 %		3.6 %		(0.1) %		100.0 %

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(597	)			$	(597)	$	--	$	--	$	(730)			$	(730)
Other liabilities:
Free-standing derivatives		(3)		(225)		(111	)	$	138		(201)		--		(160)		(72)	$	65		(167)
Total liabilities at fair value	$	(3)	$	(225)	$	(708	)	$	138	$	(798)	$	--	$	(160)	$	(802)	$	65	$	(897)
% of total liabilities at fair value		0.4 %		28.2 %		88.7 %			(17.3) %		100.0 %		-- %		17.8 %		89.4 %		(7.2) %		100.0 %

_______________

~~____________~~

~~(1)~~ ~~Includes $141~~

(1) Includes $8 million of mortgage loans and $3 million of limited partnership interests ~~and $14 million of other investments~~ written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements as of March 31, 2012.

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
ARS backed by student loans	$	685	Discounted cash flow model	Anticipated date liquidity will return to the market	18 - 60 months	30 - 42 months
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(591)	Stochastic cash flow model	Projected option cost	1.50 - 3.50%	3.35%

If the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of March 31, 2012, Level 3 fair value measurements include $1.73 billion of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and $461 million 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.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, ~~2010:~~2011:

($ in millions)		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Counterparty and cash collateral		Balance as of December 31,		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Counterparty and cash collateral		Balance as of December 31,
		(Level 1)		(Level 2)		(Level 3)		netting		2010		(Level 1)		(Level 2)		(Level 3)		netting		2011
Assets
Fixed income securities:
U.S. government and agencies	$	4,976	$	3,620	$	--			$	8,596	$	4,707	$	1,608	$	--			$	6,315
Municipal		--		13,918		2,016				15,934		--		12,909		1,332				14,241
Corporate		--		35,747		1,908				37,655		--		42,176		1,405				43,581
Foreign government		--		3,158		--				3,158		--		2,081		--				2,081
RMBS		--		6,199		1,794				7,993		--		4,070		51				4,121
CMBS		--		1,071		923				1,994		--		1,724		60				1,784
ABS		--		1,827		2,417				4,244		--		3,669		297				3,966
Redeemable preferred stock		--		37		1				38		--		23		1				24
Total fixed income securities		4,976		65,577		9,059				79,612		4,707		68,260		3,146				76,113
Equity securities		4,316		432		63				4,811		3,433		887		43				4,363
Short-term investments		174		3,105		--				3,279		188		1,103		--				1,291
Other investments:
Free-standing derivatives		--		651		74	$	(286)		439		--		281		1	$	(114)		168
Separate account assets		8,676		--		--				8,676		6,984		--		--				6,984
Other assets		--		--		1				1		1		--		1				2
Total recurring basis assets		18,142		69,765		9,197		(286)		96,818		15,313		70,531		3,191		(114)		88,921
Non-recurring basis (1)		--		--		120				120		--		--		35				35
Total assets at fair value	$	18,142	$	69,765	$	9,317	$	(286)	$	96,938	$	15,313	$	70,531	$	3,226	$	(114)	$	88,956
% of total assets at fair value		18.7 %		72.0 %		9.6 %		(0.3) %		100.0 %		17.2 %		79.3 %		3.6 %		(0.1) %		100.0 %

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(653)			$	(653)	$	--	$	--	$	(723)			$	(723)
Other liabilities:
Free-standing derivatives		(2)		(529)		(95)	$	263		(363)		(1)		(112)		(96)	$	77		(132)
Total liabilities at fair value	$	(2)	$	(529)	$	(748)	$	263	$	(1,016)	$	(1)	$	(112)	$	(819)	$	77	$	(855)
% of total liabilities at fair value		0.2 %		52.1 %		73.6 %		(25.9) %		100.0 %		0.1 %		13.1 %		95.8 %		(9.0) %		100.0 %
___________ (1) Includes $111 million of mortgage loans and $9 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

_______________

20(1)

~~The following table presents the rollforward~~ Includes $19 million of ~~Level 3 assets~~mortgage loans and ~~liabilities held at~~$16 million of other investments written-down to fair value ~~on a recurring basis during the three months ended September 30, 2011.~~

($ in millions)

Total realized and
unrealized gains (losses)
included in:

Balance as of
June 30, 2011

Net
income (1)

OCI on
Statement
of Financial
Position

Transfers
into
Level 3

Transfers
out of
Level 3
Assets

Fixed income securities:

Municipal

$
1,554

$
(10
)

$
1

$
--

$
(22)

Corporate

1,720

(4
)

(23
)

3

(107)

RMBS

1,194

--

2

--

(1,100)

CMBS

938

(1
)

(5
)

20

(877)

ABS

2,167

(36
)

(75
)

--

(329)

Redeemable preferred stock

1

--

--

--

--

Total fixed income securities

7,574

(51
)

(100
)

23

(2,435)

Equity securities

42

--

--

--

--

Other investments:

Free-standing derivatives, net

(56
)

(57
)

--

--

--

Other assets

1

--

--

--

--

Total recurring Level 3 assets

$
7,561

$
(108
)

$
(100
)

$
23

$
(2,435)

Liabilities

Contractholder funds:

Derivatives embedded in life and annuity contracts

$
(629
)

$
2

$
--

$
--

$
--

Total recurring Level 3 liabilities

$
(629
)

$
2

$
--

$
--

$
--

Purchases

Sales

Issuances

Settlements

Balance as of
September 30,
2011
Assets

Fixed income securities:

Municipal

$
--

$
(70
)

$
--

$
--

$
1,453

Corporate

245

(59
)

--

(45
)

1,730

RMBS

--

--

--

(4
)

92

CMBS

2

--

--

(1
)

76

ABS

165

(1
)

--

(90
)

1,801

Redeemable preferred stock

--

--

--

--

1

Total fixed income securities

412

(130
)

--

(140
)

5,153

Equity securities

--

--

--

--

42

Other investments:

Free-standing derivatives, net

5

--

--

(2
)

(110)
(2)
Other assets

--

--

--

--

1

Total recurring Level 3 assets

$
417

$
(130
)

$
--

$
(142
)

$
5,086

Liabilities

Contractholder funds:

Derivatives embedded in life and annuity contracts

$
--

$
--

$
(15
)

$
45

$
(597)

Total recurring Level 3 liabilities

$
--

$
--

$
(15
)

$
45

$
(597)

~~_______________~~

~~(1)~~ ~~The effect to net income totals $(106) million and is reported~~ in the Condensed Consolidated Statements of Operations as follows: $(119) million in realized capital gains and losses, $14 million in net investment income, $54 million in interest credited to contractholder funds and $(55) million in life and annuity contract benefits.

~~(2)~~ ~~Comprises $1 million of assets and $111 million of liabilities.~~connection with recognizing other-than-temporary impairments.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012.

($ in millions)					Total realized and unrealized gains (losses) included in:														Total gains (losses) included in:
		Balance as of December 31, 2010			Net income (1)			OCI on Statement of Financial Position			Transfers into Level 3			Transfers out of Level 3			Balance as of December 31, 2011		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	2,016		$	(34	)	$	67		$	--		$	(81)		$	1,332	$	(2)	$	7	$	--	$	(6)
Corporate		1,908			31			(5	)		185			(271)			1,405		5		28		56		(18)
RMBS		1,794			(87	)		108			--			(1,213)			51		--		--		--		(47)
CMBS		923			(43	)		113			86			(946)			60		(1)		6		--		--
ABS		2,417			19			(47	)		--			(642)			297		13		13		--		(35)
Redeemable preferred stock		1			--			--			--			--			1		--		--		--		--
Total fixed income securities		9,059			(114	)		236			271			(3,153)			3,146		15		54		56		(106)
Equity securities		63			(10	)		--			--			(10)			43		--		--		--		--
Other investments:
Free-standing derivatives, net		(21	)		(91	)		--			--			--			(95)		17		--		--		--
Other assets		1			--			--			--			--			1		--		--		--		--
Total recurring Level 3 assets	$	9,102		$	(215	)	$	236		$	271		$	(3,163)		$	3,095	$	32	$	54	$	56	$	(106)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(653	)	$	(24	)	$	--		$	--		$	--		$	(723)	$	(25)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(653	)	$	(24	)	$	--		$	--		$	--		$	(723)	$	(25)	$	--	$	--	$	--

		Purchases			Sales			Issuances			Settlements			Balance as of September 30, 2011			Purchases		Sales		Issues		Settlements		Balance as of March 31, 2012
Assets
Fixed income securities:
Municipal	$	13		$	(525	)	$	--		$	(3	)	$	1,453		$	42	$	(105)	$	--	$	(1)	$	1,267
Corporate		376			(437	)		--			(57	)		1,730			76		(58)		--		(33)		1,461
RMBS		--			(378	)		--			(132	)		92			--		--		--		--		4
CMBS		12			(66	)		--			(3	)		76			--		--		--		(15)		50
ABS		468			(164	)		--			(250	)		1,801			16		--		--		(5)		299
Redeemable preferred stock		--			--			--			--			1			--		--		--		--		1
Total fixed income securities		869			(1,570	)		--			(445	)		5,153			134		(163)		--		(54)		3,082
Equity securities		--			(1	)		--			--			42			70		--		--		--		113
Other investments:
Free-standing derivatives, net		72			--			--			(70	)		(110)	(2)		3		--		--		5		(70)	(2)
Other assets		--			--			--			--			1			--		--		--		--		1
Total recurring Level 3 assets	$	941		$	(1,571	)	$	--		$	(515	)	$	5,086		$	207	$	(163)	$	--	$	(49)	$	3,126

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--		$	--		$	(42	)	$	122		$	(597)		$	--	$	--	$	(12)	$	30	$	(730)
Total recurring Level 3 liabilities	$	--		$	--		$	(42	)	$	122		$	(597)		$	--	$	--	$	(12)	$	30	$	(730)

_______________

(1) The effect to net income totals ~~$(239)~~$7 million and is reported in the Condensed Consolidated Statements of Operations as follows: ~~$(242)~~$26 million in realized capital gains and losses, ~~$30~~$6 million in net investment income, ~~$(9)~~$(56) million in interest credited to contractholder funds and ~~$(18)~~$31 million in life and annuity contract benefits.

(2) Comprises $1$2 million of assets and ~~111~~$72 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended ~~September 30, 2010.~~March 31, 2011.

($ in millions)				Total realized and unrealized gains (losses) included in:															Total gains (losses) included in:
		Balance as of June 30, 2010		Net income (1)		OCI on Statement of Financial Position		Purchases, sales, issuances and settlements, net		Transfers into Level 3		Transfers out of Level 3		Balance as of September 30, 2010			Balance as of December 31, 2010		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	2,197	$	13	$	18	$	(87)	$	5	$	(2)	$	2,144		$	2,016	$	(11)	$	21	$	--	$	(37)
Corporate		2,225		8		77		(96)		192		(229)		2,177			1,908		12		10		95		(47)
RMBS		2,010		(102)		206		(230)		--		--		1,884			1,794		(61)		105		--		(45)
CMBS		880		(66)		134		(120)		38		--		866			923		(21)		114		56		(59)
ABS		2,430		18		73		64		--		(233)		2,352			2,417		44		16		--		(304)
Redeemable preferred stock		1		--		--		--		--		--		1			1		--		--		--		--
Total fixed income securities		9,743		(129)		508		(469)		235		(464)		9,424			9,059		(37)		266		151		(492)
Equity securities		66		14		--		(15)		--		--		65			63		(10)		--		--		(10)
Other investments:
Free-standing derivatives, net		(99)		(10)		--		14		--		--		(95)	(2)		(21)		(31)		--		--		--
Other assets		2		--		--		--		--		--		2			1		--		--		--		--
Total recurring Level 3 assets	$	9,712	$	(125)	$	508	$	(470)	$	235	$	(464)	$	9,396		$	9,102	$	(78)	$	266	$	151	$	(502)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(119)	$	(23)	$	--	$	--	$	--	$	--	$	(142)		$	(653)	$	8	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(119)	$	(23)	$	--	$	--	$	--	$	--	$	(142)		$	(653)	$	8	$	--	$	--	$	--

																	Purchases		Sales		Issues		Settlements		Balance as of March 31, 2011
Assets
Fixed income securities:
Municipal																$	10	$	(134)	$	--	$	(1)	$	1,864
Corporate																	96		(31)		--		(8)		2,035
RMBS																	--		(318)		--		(77)		1,398
CMBS																	8		(25)		--		(1)		995
ABS																	90		(114)		--		(58)		2,091
Redeemable preferred stock																	--		--		--		--		1
Total fixed income securities																	204		(622)		--		(145)		8,384
Equity securities																	--		--		--		--		43
Other investments:
Free-standing derivatives, net																	48		--		--		(67)		(71)	(2)
Other assets																	--		--		--		--		1
Total recurring Level 3 assets																$	252	$	(622)	$	--	$	(212)	$	8,357

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts																$	--	$	--	$	(14)	$	29	$	(630)
Total recurring Level 3 liabilities																$	--	$	--	$	(14)	$	29	$	(630)

_______________

(1) The effect to net income totals ~~$(148)~~$(70) million and is reported in the Condensed Consolidated Statements of Operations as follows: ~~$(136)~~$(85) million in realized capital gains and losses, ~~$11~~$7 million in net investment income, $(37) million in interest credited to contractholder funds and ~~$(23)~~$45 million in life and annuity contract benefits.

(2) Comprises ~~$11~~$9 million of assets and ~~$106 million of liabilities.~~

~~The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the nine months ended September 30, 2010.~~

($ in millions)

Total realized and
unrealized gains (losses)
included in:

Balance as of
December 31,
2009

Net
income (1)

OCI on
Statement of
Financial
Position

Purchases, sales,
issuances and
settlements, net

Transfers
into
Level 3

Transfers
out of
Level 3

Balance as of
September 30,
2010

Assets

Fixed income securities:

Municipal
$
2,706
$
(34)
$
76
$
(539)
$
21
$
(86)
$
2,144

Corporate

2,241

(29)

178

(62)

355

(506)

2,177

Foreign government

20

--

--

(20)

--

--

--

RMBS

1,671

(271)

549

(51)

--

(14)

1,884

CMBS

1,404

(173)

434

(448)

62

(413)

866

ABS

2,001

36

172

536

--

(393)

2,352

Redeemable preferred stock

2

--

--

(1)

--

--

1

Total fixed income securities

10,045

(471)

1,409

(585)

438

(1,412)

9,424

Equity securities

69

8

4

(12)

--

(4)

65

Other investments:

Free-standing derivatives, net

55

(242)

--

92

--

--

(95)
(2)
Other assets

2

--

--

--

--

--

2

Total recurring Level 3 assets
$
10,171
$
(705)
$
1,413
$
(505)
$
438
$
(1,416)
$
9,396

Liabilities

Contractholder funds:

Derivatives embedded in life and annuity contracts
$
(110)
$
(35)
$
--
$
3
$
--
$
--
$
(142)

Total recurring Level 3 liabilities
$
(110)
$
(35)
$
--
$
3
$
--
$
--
$
(142)

~~_______________~~

~~(1)~~ The effect to net income totals $(740) million and is reported in the Condensed Consolidated Statements of Operations as follows: $(767) million in realized capital gains and losses, $65 million in net investment income, $(3) million in interest credited to contractholder funds and $(35) million in life and annuity contract benefits.

~~(2)~~ ~~Comprises $11 million of assets and $106~~$80 million of liabilities.

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. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred 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 ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 or ~~2010.~~2011.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011, certain ~~RMBS,~~ CMBS and ABS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in ~~market activity for these assets. During~~ the ~~three and nine months ended September 30, 2010, certain CMBS and ABS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in~~ market activity for these assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation approach. Accordingly, for securities included within this group, there was no change in fair value in conjunction with the transfer resulting in a realized or unrealized gain or loss.

Transfers into Level 3 during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ 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 have not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers out of Level 3 during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ 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 following table provides the ~~total~~change in unrealized gains and ~~(losses)~~losses included in net income during the three months ended March 31 for Level 3 assets and liabilities ~~still~~ held as of ~~September 30.~~March 31.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Assets
Fixed income securities:
Municipal	$	(7)	$	1	$	(17)	$	(24)	$	(1)	$	(11)
Corporate		(12)		(1)		3		(42)		3		9
RMBS		--		(83)		--		(214)		--		(40)
CMBS		(1)		(22)		(10)		(42)		(1)		(16)
ABS		(38)		28		(26)		53		13		2
Total fixed income securities		(58)		(77)		(50)		(269)		14		(56)
Equity securities		--		(1)		--		(8)		--		(10)
Other investments:
Free-standing derivatives, net		(57)		28		(54)		(113)		15		3
Total recurring Level 3 assets	$	(115)	$	(50)	$	(104)	$	(390)	$	29	$	(63)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	2	$	(23)	$	(24)	$	(35)	$	(25)	$	8
Total recurring Level 3 liabilities	$	2	$	(23)	$	(24)	$	(35)	$	(25)	$	8

The amounts in the table above represent gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total ~~$(113)~~$4 million for the three months ended ~~September 30, 2011~~March 31, 2012 and are reported as follows: ~~$(128)~~$24 million in realized capital gains and losses, ~~$13~~$5 million in net investment income, ~~$57~~$(56) million in interest credited to contractholder funds and ~~$(55)~~$31 million in life and annuity contract benefits. These gains and losses total ~~$(73)~~$(55) million for the three months ended ~~September 30, 2010~~March 31, 2011 and are reported as follows: ~~$(57)~~$(69) million in realized capital gains and losses, $6 million in net investment income, $1$(37) million in interest credited to contractholder funds and ~~$(23)~~$45 million in life and annuity contract benefits. These gains and losses total $(128) million for the nine months ended September 30, 2011 and are reported as follows: $(145) million in realized capital gains and losses, $41 million in net investment income, $(6) million in interest credited to contractholder funds and $(18) million in life and annuity contract benefits. These gains and losses total $(425) million for the nine months ended September 30, 2010 and are reported as follows: $(426) million in realized capital gains and losses, $41 million in net investment income, $(5) million in interest credited to contractholder funds and $(35) million in life and annuity contract benefits.

2524

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets

($ in millions)		September 30, 2011				December 31, 2010				March 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	6,956	$	6,989	$	6,679	$	6,439	$	7,167	$	7,439	$	7,139	$	7,350
Limited partnership interests - cost basis		1,445		1,768		1,348		1,481
Cost method limited partnerships										1,278		1,534		1,569		1,838
Bank loans		362		345		363		355		399		395		339		328

The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell. Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as collateral. The fair value of cost method limited ~~partnership interests accounted for on the cost basis~~partnerships is determined using reported net asset values of the underlying funds. The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market conditions. The fair value measurements for mortgage loans, cost method limited partnerships and bank loans are categorized as Level 3.

Financial liabilities

($ in millions)		September 30, 2011				December 31, 2010				March 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	31,737	$	31,999	$	36,163	$	35,194	$	29,505	$	30,475	$	30,192	$	30,499
Long-term debt		5,907		6,284		5,908		6,325		6,058		6,688		5,908		6,312
Liability for collateral		784		784		484		484		674		674		462		462

The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk. Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk. Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk. The fair value measurements for contractholder funds on investment contracts are categorized as Level 3.

The fair value of long-term debt is based on market observable data (such as the fair value of the debt when traded as an asset) or, in certain cases, is determined using discounted cash flow calculations based on current interest rates for instruments with comparable terms and considers the Company’s own credit risk. The liability for collateral is valued at carrying value due to its short-term nature. The fair value measurements for long-term debt and liability for collateral are categorized as Level 2.

6. Derivative Financial Instruments

The Company ~~primarily~~ uses derivatives ~~for risk management,~~ to ~~partially mitigate~~manage risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, negative equity market valuations, ~~and~~ increases in credit spreads and ~~asset replication. In addition, the Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts~~foreign currency fluctuations, and ~~accounted for at fair value. 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 accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.replication. The Company does not use derivatives for ~~trading~~speculative purposes. 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.

~~Property-liability~~Property-Liability uses interest rate swaps, swaptions, futures and ~~futures~~options to ~~maintain~~manage the interest rate ~~characteristics~~risks of existing investments ~~within specified ranges~~ and to reduce exposure to rising or falling interest rates. Portfolio duration management is a risk management strategy that is principally employed by Property-Liability wherein financial futures and interest rate swaps 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. Prior to March 31, 2011, Property-Liability used interest rate swaption contracts and exchange traded options on interest rate futures to offset potential declining fixed income market values resulting from significant increases in interest rates. Prior to March 31, 2011, exchange traded equity put options were utilized by Property-Liability for overall equity portfolio protection from significant declines in equity market values below a targeted level.

~~Property-Liability uses interest rate swaps to mitigate municipal bond interest rate risk within the municipal bond portfolio.~~ Equity index futures and options are used by Property-Liability to offset valuation losses in the equity portfolio during periods of declining equity market values. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio. Property-Liability uses futures to hedge the market risk related to deferred compensation liability contracts and forward contracts 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 Financial 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, floors, 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. Allstate Financial uses financial futures and interest rate swaps to hedge anticipated asset purchases and liability issuances and futures and options for hedging the equity exposure contained in its equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, Allstate Financial uses interest rate swaps to hedge interest rate risk inherent in funding agreements.

Allstate Financial uses foreign currency swaps primarily to reduce the foreign currency risk associated with issuing foreign currency denominated funding agreements and holding foreign currency denominated investments. Credit default swaps are also typically used to mitigate the credit risk within the Allstate Financial fixed income portfolio.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives and primarily investment grade host bonds to replicate securities that are either unavailable in the cash markets or more economical to acquire in synthetic form. The Company replicates fixed income securities using a combination of a credit default swap and one or more highly rated fixed income securities to synthetically replicate the economic characteristics of one or more cash market securities.

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. The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock.

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. Allstate Financial designates certain of its interest rate and foreign currency swap contracts and 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. Allstate Financial designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure 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.

The Company’s primary embedded derivatives are equity options in Allstate Financial life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock. Substantially all of the fixed income securities with conversion options were sold in March 2011.

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 legally enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position. For certain exchange traded derivatives, the exchange requires margin deposits as well as daily cash settlements of margin accounts. As of ~~September 30, 2011,~~March 31, 2012, the Company pledged ~~$22~~$15 million of ~~cash and~~ securities in the form of margin deposits.

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 accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income. For embedded derivatives in fixed income securities, net income includes the change in fair value of the embedded derivative and accretion income related to the host instrument.

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

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of ~~September 30, 2011.~~March 31, 2012.

($ in millions, except number of contracts)	Asset derivatives										Asset derivatives
			Volume (1)										Volume (1)
	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
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other investments	$	101	n/a	$	(6)	$	--	$	(6)	Other investments	$	119	n/a	$	(6)	$	--	$	(6)
Foreign currency swap agreements	Other investments		152	n/a		(7)		3		(10)	Other investments		85	n/a		(10)		--		(10)
Total		$	253	n/a	$	(13)	$	3	$	(16)			204	n/a		(16)		--		(16)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments	$	4,404	n/a	$	114	$	114	$	--	Other investments		6,973	n/a		109		128		(19)
Interest rate swaption agreements	Other investments		3,000	n/a		1		1		--	Other investments		500	n/a		--		--		--
Interest rate cap and floor agreements	Other investments		1,726	n/a		(16)		--		(16)	Other investments		539	n/a		(11)		1		(12)
Equity and index contracts
Options, futures and warrants (2)	Other investments		170	20,166		127		129		(2)	Other investments		150	13,370		201		201		--
Options, futures and warrants	Other assets		n/a	1,014		3		3		--	Other assets		n/a	898		1		1		--
Foreign currency contracts
Foreign currency swap agreements	Other investments		50	n/a		4		4		--	Other investments		50	n/a		4		4		--
Foreign currency forwards and options	Other investments		136	n/a		2		2		--	Other investments		294	n/a		5		6		(1)
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--	Fixed income securities		5	n/a		1		1		--
Equity-indexed call options	Fixed income securities		150	n/a		7		7		--	Fixed income securities		125	n/a		12		12		--
Credit default swaps	Fixed income securities		172	n/a		(119)		--		(119)	Fixed income securities		129	n/a		(61)		--		(61)
Other embedded derivative financial instruments	Other investments		1,000	n/a		--		--		--	Other investments		1,000	n/a		--		--		--
Credit default contracts
Credit default swaps - buying protection	Other investments		1,312	n/a		43		47		(4)	Other investments		174	n/a		--		2		(2)
Credit default swaps - selling protection	Other investments		255	n/a		(12)		--		(12)	Other investments		175	n/a		3		3		--
Other contracts
Other contracts	Other investments		5	n/a		--		--		--	Other assets		4	n/a		1		1		--
Other contracts	Other assets		4	n/a		1		1		--
Total		$	12,389	21,180	$	155	$	308	$	(153)			10,118	14,268		265		360		(95)

Total asset derivatives		$	12,642	21,180	$	142	$	311	$	(169)		$	10,322	14,268	$	249	$	360	$	(111)

~~_______________~~__________________

(1) Volume for OTC 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)

(2) In addition to the number of contracts presented in the table, the Company held 2,860 stock rights and ~~4,389,707~~3,931,753 stock warrants. Stock rights and warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

2827

	Liability derivatives										Liability derivatives
			Volume (1)										Volume (1)
	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
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other liabilities & accrued expenses	$	84	n/a	$	(9)	$	--	$	(9)	Other liabilities & accrued expenses	$	28	n/a	$	(5)	$	--	$	(5)
Foreign currency swap agreements	Other liabilities & accrued expenses		50	n/a		(4)		--		(4)	Other liabilities & accrued expenses		66	n/a		(6)		2		(8)
Total		$	134	n/a	$	(13)	$	--	$	(13)			94	n/a		(11)		2		(13)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses	$	4,922	n/a	$	(21)	$	71	$	(92)	Other liabilities & accrued expenses		1,085	n/a		22		23		(1)
Interest rate cap and floor agreements	Other liabilities & accrued expenses		1,117	n/a		(18)		--		(18)	Other liabilities & accrued expenses		890	n/a		(7)		--		(7)
Financial futures contracts and options	Other liabilities & accrued expenses		n/a	346		--		--		--	Other liabilities & accrued expenses		n/a	40		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		n/a	21,989		(69)		--		(69)	Other liabilities & accrued expenses		3	13,875		(99)		--		(99)
Foreign currency contracts
Foreign currency forwards and options	Other liabilities & accrued expenses		270	n/a		(13)		2		(15)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		956	n/a		(97)		--		(97)	Contractholder funds		939	n/a		(84)		--		(84)
Guaranteed withdrawal benefits	Contractholder funds		647	n/a		(51)		--		(51)	Contractholder funds		635	n/a		(46)		--		(46)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		4,211	n/a		(441)		--		(441)	Contractholder funds		3,832	n/a		(591)		--		(591)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(8)		--		(8)	Contractholder funds		85	n/a		(9)		--		(9)
Credit default contracts								--
Credit default swaps – buying protection	Other liabilities & accrued expenses		311	n/a		7		10		(3)	Other liabilities & accrued expenses		452	n/a		(2)		4		(6)
Credit default swaps – selling protection	Other liabilities & accrued expenses		390	n/a		(78)		1		(79)	Other liabilities & accrued expenses		398	n/a		(54)		2		(56)
Total		$	12,909	22,335	$	(789)	$	84	$	(873)			8,319	13,915		(870)		29		(899)

Total liability derivatives		$	13,043	22,335	$	(802)	$	84	$	(886)			8,413	13,915		(881)	$	31	$	(912)

Total derivatives		$	25,685	43,515	$	(660)						$	18,735	28,183	$	(632)

~~_______________~~__________________

2928

($ in millions, except number of contracts)	Asset derivatives										Asset derivatives
			Volume (1)										Volume (1)
	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
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other investments	$	156	n/a	$	(18)	$	--	$	(18)	Other investments	$	144	n/a	$	(8)	$	--	$	(8)
Foreign currency swap agreements	Other investments		64	n/a		2		3		(1)	Other investments		127	n/a		(5)		3		(8)
Total		$	220	n/a	$	(16)	$	3	$	(19)			271	n/a		(13)		3		(16)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments	$	1,469	n/a	$	65	$	81	$	(16)	Other investments		8,028	n/a		122		137		(15)
Interest rate swaption agreements	Other investments		4,161	n/a		50		50		--	Other investments		1,750	n/a		--		--		--
Interest rate cap and floor agreements	Other investments		226	n/a		(2)		1		(3)	Other investments		1,591	n/a		(12)		--		(12)
Financial futures contracts and options	Other investments		n/a	8,000		3		3		--	Other assets		n/a	40		--		--		--
Financial futures contracts and options	Other assets		n/a	1,420		--		--		--
Equity and index contracts
Options, futures and warrants ~~(2)~~	Other investments		64	38,451		359		359		--	Other investments		163	15,180		104		104		--
Options, futures and warrants	Other assets		n/a	292		--		--		--
Options, futures and warrants ~~(2)~~											Other assets		n/a	2,132		1		1		--
Foreign currency contracts
Foreign currency swap agreements	Other investments		90	n/a		6		6		--	Other investments		50	n/a		6		6		--
Foreign currency forwards and options	Other investments		257	n/a		6		7		(1)	Other investments		190	n/a		1		3		(2)
Embedded derivative financial instruments
Conversion options	Fixed income securities		820	n/a		236		238		(2)	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		300	n/a		47		47		--	Fixed income securities		150	n/a		11		11		--
Credit default swaps	Fixed income securities		181	n/a		(88)		--		(88)	Fixed income securities		172	n/a		(115)		--		(115)
Other embedded derivative financial instruments	Other investments		1,000	n/a		--		--		--	Other investments		1,000	n/a		--		--		--
Credit default contracts
Credit default swaps - buying protection	Other investments		299	n/a		(5)		2		(7)	Other investments		265	n/a		3		6		(3)
Credit default swaps - selling protection	Other investments		150	n/a		(8)		2		(10)	Other investments		167	n/a		(4)		1		(5)
Other contracts
Other contracts	Other investments		13	n/a		--		--		--	Other investments		5	n/a		--		--		--
Other contracts	Other assets		5	n/a		1		1		--	Other assets		4	n/a		1		1		--
Total		$	9,035	48,163	$	670	$	797	$	(127)			13,540	17,352		118		270		(152)

Total asset derivatives		$	9,255	48,163	$	654	$	800	$	(146)		$	13,811	17,352	$	105	$	273	$	(168)

~~_______________~~__________________

(2) In addition to the number of contracts presented in the table, the Company held ~~2,768~~10,798 stock rights and ~~1,379,932~~4,392,937 stock warrants. Stock rights and warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

3029

	Liability derivatives										Liability derivatives
			Volume (1)										Volume (1)
	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
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other liabilities & accrued expenses	$	3,345	n/a	$	(181)	$	20	$	(201)	Other liabilities & accrued expenses	$	28	n/a	$	(5)	$	--	$	(5)
Interest rate swap agreements	Contractholder funds		--	n/a		2		2		--
Foreign currency swap agreements	Other liabilities & accrued expenses		138	n/a		(20)		--		(20)	Other liabilities & accrued expenses		50	n/a		(7)		--		(7)
Foreign currency and interest rate swap agreements	Other liabilities & accrued expenses		435	n/a		34		34		--
Foreign currency and interest rate swap agreements	Contractholder funds		--	n/a		28		28		--
Total		$	3,918	n/a	$	(137)	$	84	$	(221)			78	n/a		(12)		--		(12)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses	$	4,543	n/a	$	29	$	97	$	(68)	Other liabilities & accrued expenses		85	n/a		8		8		--
Interest rate swaption agreements	Other liabilities & accrued expenses		4,400	n/a		18		18		--	Other liabilities & accrued expenses		1,250	n/a		--		--		--
Interest rate cap and floor agreements	Other liabilities & accrued expenses		3,216	n/a		(22)		1		(23)	Other liabilities & accrued expenses		914	n/a		(9)		--		(9)
Financial futures contracts and options	Other liabilities & accrued expenses		n/a	15,150		(1)		--		(1)
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		64	21,585		(168)		2		(170)	Other liabilities & accrued expenses		n/a	15,677		(50)		--		(50)
Foreign currency contracts
Foreign currency forwards and options	Other liabilities & accrued expenses		316	n/a		1		2		(1)	Other liabilities & accrued expenses		96	n/a		(1)		--		(1)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		1,067	n/a		(88)		--		(88)	Contractholder funds		917	n/a		(105)		--		(105)
Guaranteed withdrawal benefits	Contractholder funds		739	n/a		(47)		--		(47)	Contractholder funds		613	n/a		(57)		--		(57)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		4,694	n/a		(515)		--		(515)	Contractholder funds		3,996	n/a		(553)		--		(553)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(3)		--		(3)	Contractholder funds		85	n/a		(8)		--		(8)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		1,127	n/a		(13)		6		(19)	Other liabilities & accrued expenses		509	n/a		7		12		(5)
Credit default swaps – selling protection	Other liabilities & accrued expenses		482	n/a		(66)		1		(67)	Other liabilities & accrued expenses		503	n/a		(77)		2		(79)
Total		$	20,733	36,735	$	(875)	$	127	$	(1,002)			8,968	15,677		(845)		22		(867)

Total liability derivatives		$	24,651	36,735	$	(1,012)	$	211	$	(1,223)			9,046	15,677		(857)	$	22	$	(879)

Total derivatives		$	33,906	84,898	$	(358)						$	22,857	33,029	$	(752)

__________________

~~(1)~~

Volume for OTC 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)

31(1)Volume for OTC 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)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships infor the ~~Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Financial Position.~~three months ended March 31. Amortization of net losses from accumulated other comprehensive income related to cash flow hedges is expected to be $2less than $1 million during the next twelve months.

($ in millions)

Three months ended
September 30,

Nine months ended
September 30,

Effective portion

2011

2010

2011

2010

Gain (loss) recognized in OCI on derivatives during the period
$
20
$
(19)
$
7
$
9

Loss recognized in OCI on derivatives during the term of the hedging relationship

(15)

(17)

(15)

(17)

(Loss) gain reclassified from AOCI into income (net investment

(1)

--

--

1

Gain reclassified from AOCI into income (realized capital gains and losses)

--

--

--

2

Ineffective portion and amount excluded from effectiveness testing

Gain recognized in income on derivatives (realized capital gains and losses)

--

--

--

--

($ in millions) Effective portion		2012		2011
Loss recognized in OCI on derivatives during the period	$	(5)	$	(8)
Loss recognized in OCI on derivatives during the term of the hedging relationship		(21)		(30)
Gain reclassified from AOCI into income (net investment income)		--		--
Loss reclassified from AOCI into income (realized capital gains and losses)		(1)		--
Ineffective portion and amount excluded from effectiveness testing

Gain recognized in income on derivatives (realized capital gains and losses)		--		--

The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Condensed Consolidated Statements of ~~Operations.~~Operations for the three months ended March 31.

($ in millions)		Three months ended September 30, 2011												2012
		Net investment income		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives		Net investment income		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	--	$	(1)	$	(1)	$	--	$	--	$	--	$	--	$	(1)
Subtotal		(1)		--		--		--		--		(1)		(1)		--		--		--		--		(1)

Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		(202)		--		--		--		(202)		--		(1)		--		--		--		(1)
Equity and index contracts		--		1		--		(71)		(22)		(92)		--		(3)		--		53		13		63
Embedded derivative financial instruments		--		(50)		(55)		87		--		(18)		--		15		31		(38)		--		8
Foreign currency contracts		--		(9)		--		--		(1)		(10)		--		3		--		--		3		6
Credit default contracts		--		26		--		--		--		26		--		8		--		--		--		8
Other contracts		--		--		--		1		--		1		--		--		--		2		--		2
Subtotal		--		(234)		(55)		17		(23)		(295)		--		22		31		17		16		86
Total	$	(1)	$	(234)	$	(55)	$	17	$	(23)	$	(296)	$	(1)	$	22	$	31	$	17	$	16	$	85

3231

Nine months ended September 30, 2011

Net
investment
income

Realized
capital
gains and
losses

Life and
annuity
contract
benefits

Interest
credited to
contractholder
funds

Operating
costs and
expenses

Total gain
(loss)
recognized
in net
income on
derivatives

Derivatives in fair value accounting hedging relationships

Interest rate contracts
$
(2)
$
(8)
$
--
$
(5)
$
--
$
(15)

Foreign currency and interest rate contracts

--

--

--

(32)

--

(32)

Subtotal

(2)

(8)

--

(37)

--

(47)

Derivatives not designated as accounting hedging instruments

Interest rate contracts

--

(306)

--

--

--

(306)

Equity and index contracts

--

(18)

--

(25)

(15)

(58)

Embedded derivative financial instruments

--

(45)

(18)

74

--

11

Foreign currency contracts

--

(14)

--

--

1

(13)

Credit default contracts

--

37

--

--

--

37

Other contracts

--

--

--

6

--

6

Subtotal

--

(346)

(18)

55

(14)

(323)

Total
$
(2)
$
(354)
$
(18)
$
18
$
(14)
$
(370)

Three months ended September 30, 2010

Net
investment
income

Realized
capital
gains and
losses

Life and
annuity
contract
benefits

Interest
credited to
contractholder
funds

Operating
costs and
expenses

Total gain
(loss)
recognized
in net
income on
derivatives

Derivatives in fair value accounting hedging relationships

Interest rate contracts
$
(57)
$
2
$
--
$
9
$
--
$
(46)

Foreign currency and interest rate contracts

--

--

--

25

--

25

Subtotal

(57)

2

--

34

--

(21)

Derivatives not designated as accounting hedging instruments

Interest rate contracts

--

(183)

--

--

--

(183)

Equity and index contracts

--

(115)

--

70

13

(32)

Embedded derivative financial instruments

--

48

(22)

(39)

--

(13)

Foreign currency contracts

--

(41)

--

--

4

(37)

Credit default contracts

--

5

--

--

--

5

Other contracts

--

(1)

--

1

--

--

Subtotal

--

(287)

(22)

32

17

(260)

Total
$
(57)
$
(285)
$
(22)
$
66
$
17
$
(281)

		Nine months ended September 30, 2010												2011
		Net investment income		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives		Net investment income		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(170)	$	4	$	--	$	21	$	--	$	(145)	$	1	$	(8)	$	--	$	(5)	$	--	$	(12)
Foreign currency and interest rate contracts		--		(1)		--		(15)		--		(16)		--		--		--		(32)		--		(32)
Subtotal		(170)		3		--		6		--		(161)		1		(8)		--		(37)		--		(44)

Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		(621)		--		--		--		(621)		--		(51)		--		--		--		(51)
Equity and index contracts		--		(72)		--		34		5		(33)		--		(19)		--		38		7		26
Embedded derivative financial instruments		--		(71)		(30)		71		--		(30)		--		8		45		(22)		--		31
Foreign currency contracts		--		(21)		--		--		(2)		(23)		--		(5)		--		--		2		(3)
Credit default contracts		--		2		--		--		--		2		--		8		--		--		--		8
Other contracts		--		--		--		3		--		3		--		--		--		2		--		2
Subtotal		--		(783)		(30)		108		3		(702)		--		(59)		45		18		9		13
Total	$	(170)	$	(780)	$	(30)	$	114	$	3	$	(863)	$	1	$	(67)	$	45	$	(19)	$	9	$	(31)

The following tables provide a summary of the changes in fair value of the Company’s fair value hedging relationships in the Condensed Consolidated Statements of ~~Operations.~~Operations for the three months ended March 31.

  ($ in millions)

Three months ended September 30, 2011

Gain (loss) on derivatives

Gain (loss) on hedged risk

  Location of gain or (loss) recognized
in net income on derivatives

Interest
rate
contracts

Foreign
currency &
interest rate
contracts

Contractholder
funds

Investments

  Net investment income
$
1
$
--
$
--
$
(1)

    Total
$
1
$
--
$
--
$
(1)

		Nine months ended September 30, 2011
($ in millions)									($ in millions)		2012
		Gain (loss) on derivatives				Gain (loss) on hedged risk					Gain (loss) on derivatives				Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Foreign currency & interest rate contracts		Contractholder funds		Investments			Interest rate contracts		Foreign currency & interest rate contracts		Contractholder funds		Investments
Interest credited to contractholder funds	$	(7)	$	(34)	$	41	$	--
Net investment income		24		--		--		(24)	Net investment income	$	1	$	--	$	--	$	(1)
Realized capital gains and losses		(8)		--		--		--
Total	$	9	$	(34)	$	41	$	(24)	Total	$	1	$	--	$	--	$	(1)

		2011
		Gain (loss) on derivatives				Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Foreign currency & interest rate contracts		Contractholder funds		Investments
Interest credited to contractholder funds	$	(7)	$	(34)	$	41	$	--
Net investment income		21		--		--		(21)
Realized capital gains and losses		(8)		--		--		--
Total	$	6	$	(34)	$	41	$	(21)

Three months ended September 30, 2010

Gain (loss) on derivatives

Gain (loss) on hedged risk

Location of gain or (loss) recognized
in net income on derivatives

Interest
rate
contracts

Foreign
currency &
interest rate
contracts

Contractholder
funds

Investments

Interest credited to contractholder funds
$
6
$
18
$
(24)
$
--

Net investment income

(32)

--

--

32

Realized capital gains and losses

2

--

--

--

Total
$
(24)
$
18
$
(24)
$
32

Nine months ended September 30, 2010

Gain (loss) on derivatives

Gain (loss) on hedged risk

Location of gain or (loss) recognized
in net income on derivatives

Interest
rate
contracts

Foreign
currency &
interest rate
contracts

Contractholder
funds

Investments

Interest credited to contractholder funds
$
14
$
(39)
$
25
$
--

Net investment income

(88)

--

--

88

Realized capital gains and losses

4

(1)

--

--

Total
$
(70)
$
(40)
$
25
$
88

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 ~~including interest rate swap, foreign currency swap, interest rate cap, interest rate floor, credit default swap, forward and certain option agreements (including swaptions). These agreements~~that permit either party to net payments due for transactions ~~covered by the agreements. Under the provisions of the agreements,~~and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of ~~September 30, 2011,~~March 31, 2012, counterparties pledged ~~$67~~$61 million in cash and securities to the Company, and the Company pledged ~~$125~~$77 million in cash and securities to counterparties which includes ~~$110~~$27 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and ~~$15~~$50 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities. 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 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.

The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.

($ in millions)	September 30, 2011							December 31, 2010							March 31, 2012							December 31, 2011
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	$	25	$	1	$	1	--	$	--	$	--	$	--
AA-	3		4,030		38		6	2		2,322		43		16	2	$	50	$	1	$	--	1	$	25	$	1	$	1
A+	4		5,056		18		6	5		3,189		16		10	4		2,952		21		2	4		3,026		26		5
A	3		2,022		28		5	3		3,479		17		17	3		3,141		19		3	3		5,307		15		1
A-	--		--		--		--	1		89		31		31	2		3,910		29		5	2		3,815		25		--
BBB+	2		57		40		40	--		--		--		--	1		5		40		40	2		57		41		41
Total	13	$	11,190	$	125	$	58	11	$	9,079	$	107	$	74	12	$	10,058	$	110	$	50	12	$	12,230	$	108	$	48

~~___________________~~

__________________

(1)Rating is the lower of S&P or Moody’s ratings.

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

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 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 or in the event AIC, ALIC or ALNY are no longer rated by both Moody’s and S&P. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative instruments 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 both Moody’s and 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)		September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
Gross liability fair value of contracts containing credit-risk-contingent features	$	248	$	448	$	92	$	153
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(131)		(255)		(61)		(69)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(110)		(171)		(27)		(76)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	7	$	22	$	4	$	8

Credit derivatives - selling protection

Free-standing credit default swaps (“CDS”) are utilized for selling credit protection against a specified credit event. A credit default swap 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.

~~The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of September 30, 2011:~~

($ in millions)

Notional amount

AA

A

BBB

BB and
lower

Total

Fair
value

Single name

Investment grade corporate debt
$
50
$
93
$
160
$
40
$
343
$
(13)

High yield debt

--

--

--

2

2

--

Municipal

135

--

--

--

135

(12)

Subtotal

185

93

160

42

480

(25)

Baskets

Tranche

Investment grade corporate debt

--

--

--

65

65

(32)

First-to-default

Municipal

--

100

--

--

100

(33)

Subtotal

--

100

--

65

165

(65)

Total
$
185
$
193
$
160
$
107
$
645
$
(90)

3633

The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of March 31, 2012:

($ in millions)		Notional amount
		AAA		AA		A		BBB		BB and lower		Total		Fair value
Single name
Investment grade corporate debt	$	5	$	90	$	108	$	155	$	25	$	383	$	1
Municipal		--		25		--		--		--		25		(4)
Subtotal		5		115		108		155		25		408		(3)
Baskets
Tranche
Investment grade corporate debt		--		--		--		--		65		65		(19)
First-to-default
Municipal		--		--		100		--		--		100		(29)
Subtotal		--		--		100		--		65		165		(48)
Total	$	5	$	115	$	208	$	155	$	90	$	573	$	(51)

The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of December 31, ~~2010:~~2011:

($ in millions)		Notional amount												Notional amount
		AA		A		BBB		BB and lower		Total		Fair value		AA		A		BBB		BB and lower		Total		Fair value
Single name
Investment grade corporate debt	$	50	$	148	$	103	$	25	$	326	$	(4)	$	90	$	88	$	160	$	30	$	368	$	(7)
High yield debt		--		--		--		6		6		--		--		--		--		2		2		--
Municipal		135		--		--		--		135		(14)		135		--		--		--		135		(12)
Subtotal		185		148		103		31		467		(18)		225		88		160		32		505		(19)
Baskets
Tranche
Investment grade corporate debt		--		--		--		65		65		(19)		--		--		--		65		65		(29)
First-to-default
Municipal		--		100		--		--		100		(37)		--		100		--		--		100		(33)
Subtotal		--		100		--		65		165		(56)		--		100		--		65		165		(62)
Total	$	185	$	248	$	103	$	96	$	632	$	(74)	$	225	$	188	$	160	$	97	$	670	$	(81)

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 a specific tranche of a basket, 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 or a tranche of a 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 index 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. When a credit event occurs in a tranche of a basket, there is no immediate impact to the Company until cumulative losses in the basket exceed the contractual subordination. To date, realized losses have not exceeded the subordination. For CDX index, 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.

In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain embedded credit default swaps which sell protection on a basket of reference entities. The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps. The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.

7. Reserve for Property-Liability Insurance Claims and Claims Expense

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 losses, the establishment of appropriate reserves, including reserves for catastrophes, 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 estimates, which may be material, are reported in property-liability 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-liability 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 occurred by the date of the Condensed Consolidated Statements of Financial Position based on available facts, technology, laws and regulations.

8. Reinsurance

Property-liability insurance premiums earned and life and annuity premiums and contract charges for the three months ended March 31 have been reduced by the reinsurance ceded amounts shown in the following table:

($ in millions)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Property-liability insurance premiums earned	$	277	$	270	$	821	$	811	$	271	$	270
Life and annuity premiums and contract charges		180		192		558		585		172		193

Property-liability insurance claims and claims expense, life and annuity contract benefits and interest credited to contractholder funds for the three months ended March 31 have been reduced by the reinsurance ceded amounts shown in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Property-liability insurance claims and claims expense	$	287	$	11	$	485	$	202	$	68	$	137
Life and annuity contract benefits		207		267		343		616		66		84
Interest credited to contractholder funds		7		8		21		24		7		8

9. Company Restructuring

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 include employee termination and relocation benefits, and post-exit rent expenses in connection with these programs, and non-cash

charges resulting from pension benefit payments made to agents in connection with the 1999 reorganization of Allstate’s multiple agency programs to a single exclusive agency program. ~~In the nine months ended September 30, 2011, restructuring programs primarily relate to Allstate Protection’s field claim office consolidations and reorganization of technology shared services.~~ The expenses related to these activities are included in the Condensed Consolidated Statements of Operations as restructuring and related charges, and totaled $8$6 million and $9 million during the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and $28 million and $33 million for the nine months ended September 30, 2011 and 2010,~~ respectively.

The following table presents changes in the restructuring liability during the ~~nine~~three months ended ~~September 30, 2011.~~March 31, 2012.

($ in millions)		Employee costs			Exit costs			Total liability			Employee costs		Exit costs		Total liability
Balance as of December 31, 2010	$	13		$	3		$	16
Balance as of December 31, 2011										$	5	$	5	$	10
Expense incurred		16			5			21			1		--		1
Adjustments to liability		(9	)		--			(9	)
Payments applied against liability		(15	)		(3	)		(18	)		(5)		(2)		(7)
Balance as of September 30, 2011	$	5		$	5		$	10
Balance as of March 31, 2012										$	1	$	3	$	4

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, 2011,~~March 31, 2012, the cumulative amount incurred to date for active programs totaled ~~$106~~$75 million for employee costs and ~~$45~~$46 million for exit costs.

10.Guarantees and Contingent Liabilities

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. 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.

Shared markets

As a condition of maintaining its licenses to write personal property and casualty insurance in various states, the Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide various types of insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to the Company’s results of operations.

Guarantees

The Company owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities. In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as measured by the amount of the aggregate initial investment, was ~~$57~~$28 million as of ~~September 30, 2011.~~March 31, 2012. The obligations associated with these fixed income securities expire at various dates on or before March 11, 2018.

Related to the disposal through reinsurance of substantially all of Allstate Financial’s 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 in connection with 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 those related to benefit guarantees. Management does not believe this agreement will have a material ~~adverse~~ effect on results of operations, cash flows or financial position of the Company.

The Company provides residual value guarantees on Company leased automobiles. If all outstanding leases were terminated effective ~~September 30, 2011,~~March 31, 2012, the Company’s maximum obligation pursuant to these guarantees, assuming the automobiles have no residual value, would be $7$9 million as of ~~September 30, 2011.~~March 31, 2012. The remaining term of

each residual value guarantee is equal to the term of the underlying lease that ranges from less than one year to three years. Historically, the Company has not made any material payments pursuant to these guarantees.

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, 2011.~~March 31, 2012.

Regulation and Compliance

The Company is subject to changing social, economic and regulatory conditions. 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, 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 and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry. 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.

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; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation, or otherwise; 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 current challenging legal environment faced by large 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.

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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 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.

As of ~~September 30, 2011,~~March 31, 2012, the Company estimates that the aggregate range of reasonably possible loss in excess of the amount accrued, if any, for the disclosed matters where such an estimate is possible is zero to $855 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. 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~~Allstate is vigorously defending a ~~number of matters in various stages of development~~lawsuit filed in the aftermath of Hurricane ~~Katrina. The~~Katrina and currently pending in the United States District Court for the Eastern District of Louisiana (“District Court”). This matter was filed by the Louisiana Attorney General ~~filed a putative class action lawsuit in state court~~ against Allstate and every other homeowner insurer doing business in the State of Louisiana, on behalf of the State of Louisiana, as assignee, and on behalf of ~~a class of~~certain Road Home fund ~~recipients (the “Road Home Class Action”) alleging~~recipients. Although this lawsuit was originally filed as a class action, the Louisiana Attorney General moved to dismiss the class in 2011 and the motion was granted. In this matter the State alleged that the insurers ~~have~~ failed to pay all damages owed under their policies. The ~~insurers removed the~~claims currently pending in this matter to federal court. The district court denied plaintiffs’ motion to remand the matter to state court and the U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) affirmed that ruling. The defendants filed a motion to dismiss and the plaintiffs filed a motion to remand the claims involving a Road Home subrogation agreement. In March 2009, the district court denied the State’s request that its claims be remanded to state court. As for the defendant insurers’ motion, the judge granted it in part and denied it in part. Dismissal of all of the extra-contractual claims, including the bad faith and breach of fiduciary duty claims, was granted. Dismissal also was granted of all claims based on the Valued Policy Law and all flood loss claims based on the levee breaches finding that the insurers flood exclusions precluded coverage. The remaining claims are for breach of contract and for declaratory relief on the alleged underpayment of claims by the insurers. All other claims, including extra-contractual claims, have been dismissed. The ~~judge did not dismiss the class action allegations. The defendants also~~Company had moved to dismiss the complaint on the grounds that the State had no standing to bring the lawsuit as an assignee of insureds because of anti-assignment language in the ~~insurers’~~underlying insurance policies. The judge denied the defendants’ motion for reconsideration on the assignment issue but found the matter was ripe for consideration by the federal appellate court. The defendants filed a petition for permissionNow, however, due to appeal to the Fifth Circuit. The Fifth Circuit accepted review. After the Fifth Circuit accepted review, plaintiffs filed a motion to remand the case to state court, asserting that the class claims on which federal jurisdiction was premised have now effectively been dismissed as a result of a ruling in a related case. The Fifth Circuit denied the motion for remand, without prejudice to plaintiffs’ right to refile the motion for remand after the Fifth Circuit disposes of the pending appeal. On July 28, 2010, the Fifth Circuit issued an order stating that since there is no controlling Louisiana Supreme Court precedent on the issue of whether an insurance policy’s anti-assignment clause prohibits post-loss assignments, the Fifth Circuit is certifying that issue to the Louisiana Supreme Court. On May 10, 2011,by the Louisiana Supreme Court, ~~issued its ruling, holding that~~ the ~~contractual prohibition on post-loss assignments does~~Company will not ~~violate public policy, and that parties can contract~~pursue a motion to ~~prohibit post-loss assignments. However,~~dismiss, but will preserve the Court went on to hold that the contract language must clearly and unambiguously express that the non-assignment clause applies to post-loss assignments. The Supreme Court refused to evaluate the language of the various policies before it. Rather, the Court stated that it is necessary for the federal court to evaluate the relevant anti-assignment ~~clauses on~~issue in a policy-by-policy basis to determine whether the language is sufficient to prohibit post-loss assignment. The case will now be sent back to the United States District Court for the Eastern District of Louisiana (“District Court”) for a determination of whether each carrier’s anti-assignment clause is sufficient to prohibit post-loss assignment.defense.

The State has not yet ~~to identify~~identified the specific ~~claims that it contends are at issue in the Road Home Class Action,~~details by property supporting its allegations of breach of contract or the alleged deficiencies in adjusting those claims. There are many potential individual claims at issue in this ~~litigation,~~matter, each of which will require individual analysis and a number of which may be subject to individual defenses, including release, accord and satisfaction, prescription, waiver, and estoppel. There has been no ~~factual development or~~ discovery in connection with this matter. The Company has now filed a motion seeking to force the ~~Road Home Class Action. The motions~~State to dismiss have been pending since the inception of the case. The case remains stayed until the current appeal is concluded. The United States District Court for the Eastern District of Louisiana denied the State’s motionprovide more specificity as to ~~remand during oral argument held on October 19, 2011. The remaining~~its claims ~~continue to be for breach of contract and for declaratory relief on the alleged underpayment of claims by the insurers. In the Company’s judgment a loss is not probable.~~

in this matter. The Company believes that its adjusting practices ~~and processes~~ in connection with Katrina homeowners claims were sound and in accordance with industry standards and state law. ~~Each of the claims involved is fact-specific and requires independent analysis.~~ There remain significant questions of Louisiana law that have yet to be ~~decided, including~~decided. In the ~~enforceability~~Company’s judgment, given the issues discussed above, a loss is not probable.

Allstate is vigorously defending a class action lawsuit in Montana state court challenging aspects of its claim handling practices in Montana. The plaintiff alleges that the Company adjusts claims made by individuals who do not have attorneys in a manner that unfairly resulted in lower payments compared to claimants who were represented by attorneys. In January 2012, the court certified a class of Montana claimants who were not represented by attorneys with respect to the resolution of auto accident claims. The court certified the class to cover an indefinite period that commences in the mid-1990’s. The certified claims include claims for declaratory judgment, injunctive relief and punitive damages in an unspecified amount. Injunctive relief may include a claim process by which unrepresented claimants could request that their claims be readjusted. No compensatory damages are sought on behalf of the ~~Company’s anti-assignment clause and certain statute~~class. To date no discovery has occurred related to the potential value of ~~limitation (prescription) issues. Based on recent rulings by~~ the ~~Louisiana Supreme Court,~~class members’ claims. The Company has asserted various defenses with respect to the plaintiff’s claims which have not been ~~construed~~finally resolved. The proposed injunctive relief claim process would be subject to ~~extend~~defenses and offsets ordinarily associated with the ~~time period within which Katrina actions can~~adjustment of claims. Any differences in amounts paid to class members compared to what class members might be ~~filed, new~~paid under a different process would be speculative and subject to individual ~~cases continue to be filed.~~variation and determination dependent upon the individual circumstances presented by each class claimant. In the Company’s judgment a loss is not probable.

Allstate has been vigorously defending a lawsuit in regards to certain claims employees involving worker classification issues. This lawsuit is a certified class action challenging a state wage and hour law. In this case, plaintiffs sought actual damages in an amount to be proven at trial, liquidated damages in an amount equal to an unspecified percentage of the aggregate underpayment of wages to be proven at trial, as well as attorneys’ fees and costs. Plaintiffs have not made a settlement demand nor have they alleged the amount of damages with any specificity. The case was bifurcated between liability and damages and is currently focused only on liability issues. No discovery has taken place regarding plaintiffs’ alleged damages. In December 2009, the liability phase of the case was tried, and, on July 6, 2010, the court issued its decision finding in favor of Allstate on all claims. The plaintiffs have appealed the decision in favor of Allstate to the first level appellate court. Oral argument on the appeal is scheduled to be heard by that court on May 2, 2012. After concluding the current appeal, the parties may seek a subsequent appeal to the Illinois Supreme Court. Only liability issues are being addressed on appeal and no damages may be awarded at this stage of the proceedings. In the event the trial court’s order were to be overturned, however, the parties would need to conduct damages discovery, and a trial on damages would have to take place, before any damages could be awarded. In the Company’s judgment a loss is not probable.

Other proceedings

The Company is defending certain matters relating to the Company’s agency program reorganization announced in 1999. Although these cases have been pending for many years, they currently are in the early stages of litigation because of appellate court proceedings and threshold procedural issues.

· These matters include a lawsuit filed in 2001 by the U.S. Equal Employment Opportunity Commission (“EEOC”) alleging retaliation under federal civil rights laws (“EEOC I”) and a class action filed in 2001 by former employee agents alleging retaliation and age discrimination under the Age Discrimination in Employment Act (“ADEA”), breach of contract and ERISA violations (“Romero I”). In 2004, in the consolidated EEOC I and Romero I litigation, the trial court issued a memorandum and order that, among other things, certified classes of agents, including a mandatory class of agents who had signed a release, for purposes of effecting the court’s declaratory judgment that the release was voidable at the option of the release signer. The court also ordered that an agent who voided the release must return to Allstate “any and all benefits received by the [agent] in exchange for signing the release.” The court also stated that, “on the undisputed facts of record, there is no basis for claims of age discrimination.” The EEOC and plaintiffs asked the court to clarify and/or reconsider its memorandum and order and in January 2007, the judge denied their request. In June 2007, the court reversed its prior ruling that the release was voidable and granted the Company’s motions for summary judgment, ruling that the asserted claims were barred by the release signed by most plaintiffs. Plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit (“Third Circuit”). In July 2009, the Third Circuit vacated the trial court’s entry of summary judgment in the Company’s favor and remanded the cases to the trial court for additional discovery, including additional discovery related to the validity of the release and waiver. In its opinion, the Third Circuit held that if the release and waiver is held to be valid, then all of the claims in Romero I and EEOC I are barred. Thus, if the waiver and release is upheld, then only the claims in Romero I asserted by the small group of employee agents who did not sign the release and waiver would remain for adjudication. In January 2010, following the remand, the cases were assigned to a new judge for further proceedings in the trial court. Plaintiffs filed their Second Amended Complaint on July 28, 2010. Plaintiffs seek broad but unspecified “make whole relief,” including back pay, compensatory and punitive damages, liquidated damages, lost investment capital, attorneys’ fees and costs, and equitable relief, including reinstatement to employee agent status with all attendant benefits for up to approximately 6,500 former employee agents. Despite the length of time that these matters have been pending, to date only limited discovery has occurred related to the damages claimed by individual plaintiffs, and no damages discovery has occurred related to the claims of the putative class. Nor have plaintiffs provided any calculations of the putative class’s alleged back pay or the alleged liquidated, compensatory or punitive damages, instead asserting that such calculations will be provided at a later stage during expert discovery. Damage claims are subject to reduction by amounts and benefits received by plaintiffs and putative class members subsequent to their employment termination. Little to no discovery has occurred with respect to amounts earned or received by plaintiffs and putative class members in mitigation of their alleged losses. Alleged damage amounts and lost benefits of the approximately 6,500 putative class members also are subject to individual variation and determination dependent upon retirement dates, participation in employee benefit programs, and years of service. Discovery limited to the validity of the waiver and release is in process. At present, no class is certified. Summary judgment proceedings on the validity of the waiver and release are expected to occur in ~~early~~the second half of 2012.

· A putative nationwide class action has also been filed by former employee agents alleging various violations of ERISA, including a worker classification issue (“Romero II”). These plaintiffs are challenging certain amendments to the Agents Pension Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit purposes. Romero II was dismissed with prejudice by the trial court, was the subject of further proceedings on appeal, and was reversed and remanded to the trial court in 2005. In June 2007, the court granted the Company’s motion to dismiss the case. Plaintiffs filed a notice of appeal with the Third Circuit. In July 2009, the Third Circuit vacated the district court’s dismissal of the case and remanded the case to the trial court for additional discovery, and directed that the case be reassigned to another trial court judge. In its opinion, the Third Circuit held that if the release and waiver is held to be valid, then one of plaintiffs’ three claims asserted in Romero II is barred. The Third Circuit directed the district court to consider on remand whether the other two claims asserted in Romero II are barred by the release and waiver. In January 2010, following the remand, the case was assigned to a new judge (the same judge for the Romero I and EEOC I cases) for further

proceedings in the trial court. On April 23, 2010, plaintiffs filed their First Amended Complaint. Plaintiffs seek broad but unspecified “make whole” or other equitable relief, including losses of income and benefits as a result of their decision to retire from the Company between November 1, 1999 and December 31, 2000. They also seek repeal of the challenged amendments to the Agents Pension Plan with all attendant benefits revised and recalculated for thousands of former employee agents, and attorney’s fees and costs. Despite the length of time that this matter has been pending, to date only limited discovery has occurred related to the damages claimed by individual plaintiffs, and no damages discovery has occurred related to the claims of the putative class. Nor have plaintiffs provided any calculations of the putative class’s alleged losses, instead asserting that such calculations will be provided at a later stage during expert discovery. Damage claims are subject to reduction by amounts and benefits received by plaintiffs and putative class members subsequent to their employment termination. Little to no discovery has occurred with respect to amounts earned or received by plaintiffs and putative class members in mitigation of their alleged losses. Alleged damage amounts and lost benefits of the ~~approximately 6,500~~ putative class members also are subject to individual variation and determination dependent upon retirement dates, participation in employee benefit programs, and years of service. As in Romero I and EEOC I, discovery at this time is limited to issues relating to the validity of the waiver and release. Class certification has not been decided. Summary judgment proceedings on the validity of the waiver and release are expected to occur in ~~early~~the second half of 2012.

In these agency program reorganization matters, the threshold issue of the validity and scope of the waiver and release is yet to be decided and, if decided in favor of the Company, would preclude any damages being awarded in Romero I and EEOC I and may also preclude damages from being awarded in Romero II. In the Company’s judgment a loss is not probable. Allstate has been vigorously defending these lawsuits and other matters related to its agency program reorganization.

~~Other Matters~~

Various other legal, governmental, and regulatory actions, including state market conduct exams, and other governmental and regulatory inquiries are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of a number of class action lawsuits and other types of proceedings, some of which involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and target a range of the Company’s practices. The outcome of these disputes is currently unpredictable; however it is not likely, they will have a material effect on the consolidated financial statements of the Company.

Asbestos and environmental

Allstate’s reserves for asbestos claims were ~~$1.09~~$1.05 billion and ~~$1.10~~$1.08 billion, net of reinsurance recoverables of ~~$536~~$519 million and ~~$555~~$529 million, as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. Reserves for environmental claims were ~~$187~~$183 million and ~~$201~~$185 million, net of reinsurance recoverables of $40 million and ~~$47~~$40 million, as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. Approximately ~~60%~~58% and 59% of the total net asbestos and environmental reserves as of ~~both September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively, were for incurred but not reported estimated losses.

Management believes its net loss reserves for asbestos, environmental and other discontinued lines exposures are appropriately established based on available facts, technology, laws and regulations. However, establishing net

loss reserves for asbestos, environmental and other discontinued lines claims is subject to uncertainties that are much greater than those presented by other types of claims. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimate. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs’ evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Management believes these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. In addition, while the Company believes that improved actuarial techniques and databases have assisted in its ability to estimate asbestos, environmental, and other discontinued lines net loss reserves, these refinements may subsequently prove to be inadequate indicators of the extent of probable losses. Due to the uncertainties and factors described above, management believes it is not practicable to develop a meaningful range for any such additional net loss reserves that may be required.

11. Components of Net Periodic Pension and Postretirement Benefit Costs

The components of net periodic cost for the Company’s pension and postretirement benefit plans for the three months ended March 31 are as follows:

($ in millions)		Three months ended September 30,						Nine months ended September 30,						2012		2011
		2011			2010			2011			2010

Pension benefits
Service cost	$	37		$	38		$	113		$	113		$	38	$	38
Interest cost		81			80			242			240			74		81
Expected return on plan assets		(92	)		(83	)		(276	)		(248	)		(98)		(92)
Amortization of:
Prior service credit		--			(1	)		(1	)		(2	)
Net actuarial loss		39			40			116			119			44		38
Settlement loss		9			13			26			39			10		9
Net periodic pension cost	$	74		$	87		$	220		$	261		$	68	$	74

Postretirement benefits
Service cost	$	2		$	3		$	8		$	9		$	3	$	3
Interest cost		9			10			27			30			9		9
Amortization of:
Prior service credit		(6	)		(6	)		(17	)		(17	)		(6)		(6)
Net actuarial gain		(7	)		(5	)		(22	)		(16	)		(5)		(7)
Settlement loss		1			--			1			--
Net periodic postretirement benefit cost	$	(1	)	$	2		$	(3	)	$	6
Net periodic postretirement cost (credit)													$	1	$	(1)

4542

12. Business Segments

Summarized revenue data for each of the Company’s ~~business~~reportable segments for the three months ended March 31 are as follows:

($ in millions)		Three months ended September 30,						Nine months ended September 30,						2012		2011
		2011			2010			2011			2010
Revenues
Property-Liability
Property-liability insurance premiums
Standard auto	$	4,070		$	4,134		$	12,251		$	12,425		$	4,269	$	4,088
Non-standard auto		196			224			613			688			183		211
Total auto		4,266			4,358			12,864			13,113			4,452		4,299
Homeowners		1,553			1,526			4,640			4,554			1,572		1,539
Other personal lines		613			614			1,834			1,847			606		611
Allstate Protection		6,432			6,498			19,338			19,514			6,630		6,449
Discontinued Lines and Coverages		--			1			(1	)		1			--		(1)
Total property-liability insurance premiums		6,432			6,499			19,337			19,515			6,630		6,448
Net investment income		298			284			892			898			313		284
Realized capital gains and losses		24			(107	)		73			(403	)		189		57
Total Property-Liability		6,754			6,676			20,302			20,010			7,132		6,789

Allstate Financial
Life and annuity premiums and contract charges
Traditional life insurance		111			107			328			317			113		108
Immediate annuities with life contingencies		16			26			74			84			12		43
Accident and health insurance		160			157			483			464			162		161
Total life and annuity premiums		287			290			885			865			287		312
Interest-sensitive life insurance		258			249			759			740			260		248
Fixed annuities		7			9			24			32			6		9
Total contract charges		265			258			783			772			266		257
Total life and annuity premiums and contract charges		552			548			1,668			1,637			553		569
Net investment income		682			707			2,060			2,161			687		684
Realized capital gains and losses		219			(38	)		320			(553	)		(21)		39
Total Allstate Financial		1,453			1,217			4,048			3,245			1,219		1,292

Corporate and Other
Service fees		1			2			5			8			1		2
Net investment income		14			14			44			45			11		14
Realized capital gains and losses		21			1			24			13			--		--
Total Corporate and Other before reclassification of service fees		36			17			73			66			12		16
Reclassification of service fees (1)		(1	)		(2	)		(5	)		(8	)		(1)		(2)
Total Corporate and Other		35			15			68			58			11		14
Consolidated revenues	$	8,242		$	7,908		$	24,418		$	23,313		$	8,362	$	8,095

~~________________~~

(1)For presentation in the Condensed Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses.

4643

Summarized financial performance data for each of the Company’s reportable segments for the three months ended March 31 are as follows:

($ in millions)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Net income
Property-Liability
Underwriting (loss) income
Underwriting income (loss)
Allstate Protection	$	(299)	$	287	$	(1,464)	$	571	$	526	$	334
Discontinued Lines and Coverages		(12)		(21)		(22)		(27)		(3)		(6)
Total underwriting (loss) income		(311)		266		(1,486)		544
Total underwriting income										523		328
Net investment income		298		284		892		898		313		284
Income tax benefit (expense) on operations		38		(154)		317		(391)
Income tax expense on operations										(265)		(182)
Realized capital gains and losses, after-tax		15		(69)		47		(261)		124		38
Gain on disposition of operations, after-tax		--		4		--		4
Property-Liability net income (loss)		40		331		(230)		794
Property-Liability net income										695		468

Allstate Financial
Life and annuity premiums and contract charges		552		548		1,668		1,637		553		569
Net investment income		682		707		2,060		2,161		687		684
Periodic settlements and accruals on non-hedge derivative financial instruments		18		10		54		38
Periodic settlements and accruals on non-hedge derivative instruments										15		17
Contract benefits and interest credited to contractholder funds		(850)		(891)		(2,563)		(2,731)		(807)		(879)
Operating costs and expenses and amortization of deferred policy acquisition costs		(206)		(219)		(641)		(554)		(228)		(227)
Restructuring and related charges		--		--		2		1		--		2
Income tax expense on operations		(62)		(47)		(189)		(180)		(70)		(53)
Operating income		134		108		391		372		150		113
Realized capital gains and losses, after-tax		142		(25)		207		(360)		(14)		25
Valuation changes on embedded derivatives that are not hedged, after-tax		(4)		--		1		--		(6)		8
DAC and DSI (amortization) accretion related to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged, after-tax		(78)		7		(109)		9
DAC and DSI unlocking related to realized capital gains and losses, after-tax		--		--		1		(18)
Reclassification of periodic settlements and accruals on non-hedge financial instruments, after-tax		(12)		(7)		(35)		(25)
DAC and DSI amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged, after-tax										(10)		(22)
DAC and DSI unlocking relating to realized capital gains and losses, after-tax										--		3
Reclassification of periodic settlements and accruals on non-hedge derivative instruments, after-tax										(10)		(12)
Gain (loss) on disposition of operations, after-tax		1		2		(10)		4		2		(13)
Allstate Financial net income (loss)		183		85		446		(18)
Allstate Financial net income										112		102

Corporate and Other
Service fees (1)		1		2		5		8		1		2
Net investment income		14		14		44		45		11		14
Operating costs and expenses (1)		(117)		(97)		(310)		(301)		(87)		(93)
Income tax benefit on operations		31		31		94		96		34		31
Operating loss		(71)		(50)		(167)		(152)		(41)		(46)
Realized capital gains and losses, after-tax		13		1		15		8		--		--
Corporate and Other net loss		(58)		(49)		(152)		(144)		(41)		(46)
Consolidated net income	$	165	$	367	$	64	$	632	$	766	$	524

~~_____________~~

(1)For presentation in the Condensed Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses.

4744

13. Other Comprehensive Income

The components of other comprehensive ~~(loss)~~ income on a pre-~~tax~~-tax and after-tax basis for the three months ended March 31 are as follows:

($ in millions)

Three months ended September 30,

2011

2010

Pre-tax

Tax

After-
tax

Pre-tax

Tax

After-
tax

Unrealized net holding gains and losses arising during the period, net of related offsets
$
(110)
$
39
$
(71)
$
1,593
$
(557)
$
1,036

Less: reclassification adjustment of realized capital gains and losses

527

(184)

343

140

(49)

91

Unrealized net capital gains and losses

(637)

223

(414)

1,453

(508)

945

Unrealized foreign currency translation adjustments

(53)

19

(34)

17

(6)

11

Unrecognized pension and other postretirement benefit cost

32

(11)

21

26

(9)

17

Other comprehensive (loss) income
$
(658)
$
231

(427)
$
1,496
$
(523)

973

Net income

165

367

Comprehensive (loss) income

$
(262)

$
1,340

Nine months ended September 30,

2011

2010

Pre-tax

Tax

After-
tax

Pre-tax

Tax

After-
tax

Unrealized net holding gains and losses arising during the period, net of related offsets
$
838
$
(294)
$
544
$
3,134
$
(1,096)
$
2,038

Less: reclassification adjustment of realized capital gains and losses

688

(241)

447

(161)

56

(105)

Unrealized net capital gains and losses

150

(53)

97

3,295

(1,152)

2,143

Unrealized foreign currency translation adjustments

(31)

11

(20)

12

(4)

8

Unrecognized pension and other postretirement benefit cost

79

(26)

53

83

(28)

55

Other comprehensive income
$
198
$
(68)

130
$
3,390
$
(1,184)

2,206

Net income

64

632

Comprehensive income

$
194

$
2,838

~~14. Subsequent Event~~

On October 7, 2011, The Allstate Corporation acquired all of the shares of White Mountains, Inc. and Answer Financial Inc. (“Answer Financial”) from White Mountains Holdings (Luxembourg) S.à r.l. for $1.01 billion in cash. White Mountains, Inc. primarily comprises the Esurance insurance business (“Esurance”). Esurance sells private passenger auto insurance direct to consumers online and through select agents, including Answer Financial. Answer Financial is an independent personal lines insurance agency that offers comparison quotes for auto and homeowners insurance from more than a dozen insurance companies through its website and over the phone. Esurance expands the Company’s ability to serve the self-directed, brand-sensitive market segment. Answer Financial strengthens the Company’s offering to self-directed consumers who want a choice between insurance carriers.

Due to the limited time since the closing date, the initial accounting for the acquisition is incomplete. As a result, the Company is unable to provide amounts recognized as of the closing date for the major classes of assets acquired and liabilities assumed. The Company will include this information in its Annual Report on Form 10-K for the year ended December 31, 2011.

($ in millions)		2012						2011
		Pre-tax		Tax		After- tax		Pre-tax		Tax		After- tax

Unrealized net holding gains arising during the period, net of related offsets	$	866	$	(301)	$	565	$	344	$	(121)	$	223
Less: reclassification adjustment of realized capital gains and losses		140		(49)		91		153		(54)		99

Unrealized net capital gains and losses		726		(252)		474		191		(67)		124
Unrealized foreign currency translation adjustments		14		(5)		9		15		(5)		10
Unrecognized pension and other postretirement benefit cost		31		(11)		20		23		(8)		15

Other comprehensive income	$	771	$	(268)		503	$	229	$	(80)		149

Net income						766						524

Comprehensive income					$	1,269					$	673

4845

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

The Allstate Corporation

Northbrook, IL 60062

We have reviewed the accompanying condensed consolidated statement of financial position of The Allstate Corporation and subsidiaries (the “Company”) as of ~~September 30, 2011,~~March 31, 2012, and the related condensed consolidated statements of operations, ~~for the three-month~~comprehensive income and ~~nine-month periods ended September 30, 2011 and 2010, and the condensed consolidated statements of~~ cash flows for the ~~nine-month~~three-month periods ended ~~September 30, 2011~~March 31, 2012 and ~~2010.~~2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information 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 Public Company Accounting Oversight Board (United States), 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.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim 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), the consolidated statement of financial position of The Allstate Corporation and subsidiaries as of December 31, ~~2010,~~2011, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended prior to the retrospective adjustment for the Company’s adoption of a change in accounting for costs associated with acquiring or renewing insurance contracts (not presented herein); and in our report dated February ~~24, 2011,~~22, 2012, which report includes an explanatory paragraph relating to a change in the Company’s recognition and presentation for other-than-temporary impairments of debt securities in 2009, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2011 consolidated statement of financial position of the Company (not presented herein). 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, ~~2010 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.~~2011.

/s/ Deloitte & Touche LLP

Chicago, Illinois

~~October 31, 2011~~May 2, 2012

4946

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS FOR THE THREE-MONTH ~~AND NINE-MONTH~~ PERIODS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2012 AND 2011 ~~AND 2010~~

OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the 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 ~~2010.~~2011. Further analysis of our insurance segments is provided in the Property-Liability Operations (which includes the Allstate Protection and the Discontinued Lines and Coverages segments) and in the Allstate Financial Segment sections of Management’s Discussion and Analysis (“MD&A”). The segments are consistent with the way in which we use financial information to evaluate business performance and to determine the allocation of resources.

Allstate is focused on ~~three~~the following priorities:

· ~~improve our operating results;~~maintain auto profitability;

·raise returns in homeowners and annuity businesses;

· grow ~~our businesses profitably;~~insurance premiums; and

· ~~differentiate ourselves from the competition by reinventing our business.~~proactively manage investments and capital.

HIGHLIGHTS

· Consolidated net income was ~~$165 million in the third quarter of 2011 compared to net income of $367 million in the third quarter of 2010, and net income was $64~~$766 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~net income of $632~~$524 million in the first ~~nine months~~quarter of ~~2010.~~2011. Net income per diluted share was ~~$0.32 in the third quarter of 2011 compared to net income per diluted share of $0.68 in the third quarter of 2010, and net income per diluted share was $0.12~~$1.53 in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~net income per diluted share of $1.16~~$0.98 in the first ~~nine months~~quarter of ~~2010.~~2011.

· Property-Liability net income was ~~$40 million in the third quarter of 2011 compared to net income of $331 million in the third quarter of 2010, and net loss was $230~~$695 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~net income of $794~~$468 million in the first ~~nine months~~quarter of ~~2010.~~2011.

· The Property-Liability combined ratio was ~~104.8 in the third quarter of 2011 compared to 95.9 in the third quarter of 2010, and 107.7~~92.1 in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~97.2~~94.9 in the first ~~nine months~~quarter of ~~2010.~~2011.

· Allstate Financial ~~had~~ net income ~~of $183 million in the third quarter of 2011 compared to net income of $85 million in the third quarter of 2010, and net income of $446~~was $112 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~a net loss of $18~~$102 million in the first ~~nine months~~quarter of ~~2010.~~2011.

· Total revenues were ~~$8.24 billion in the third quarter of 2011 compared to $7.91 billion in the third quarter of 2010, and $24.42~~$8.36 billion in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~$23.31~~$8.10 billion in the first ~~nine months~~quarter of ~~2010.~~2011.

· Property-Liability premiums earned ~~in the third quarter of 2011~~ totaled ~~$6.43 billion, a decrease of 1.0% from $6.50 billion in the third quarter of 2010, and $19.34~~$6.63 billion in the first ~~nine months~~quarter of ~~2011, a decrease~~2012, an increase of ~~0.9%~~2.8% from ~~$19.52~~$6.45 billion in the first ~~nine months~~quarter of ~~2010.~~2011.

· Net realized capital gains were ~~$264 million in the third quarter of 2011 compared to net realized capital losses of $144 million in the third quarter of 2010, and net realized capital gains were $417~~$168 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~net realized capital losses of $943~~$96 million in the first ~~nine months~~quarter of ~~2010.~~2011.

· Investments totaled $97.01 billion as of ~~September 30, 2011 totaled $97.53 billion, a decrease~~March 31, 2012, an increase of ~~2.9%~~1.5% from ~~$100.48~~$95.62 billion as of December 31, ~~2010.~~2011. Net investment income in the ~~third~~first quarter of ~~2011~~2012 was ~~$994 million, a decrease of 1.1% from~~ $1.01 billion, ~~in the third quarter~~an increase of ~~2010, and $3.00 billion~~3.0% from $982 million in the first ~~nine months~~quarter of ~~2011, a decrease of 3.5% from $3.10 billion in the first nine months of 2010.~~2011.

· Book value per diluted share (ratio of shareholders’ equity to total shares outstanding and dilutive potential shares outstanding) was ~~$35.56~~$38.57 as of ~~September 30, 2011,~~March 31, 2012, an increase of ~~0.2%~~8.0% from ~~$35.48~~$35.72 as of ~~September 30, 2010~~March 31, 2011 and an increase of ~~0.7%~~6.6% from ~~$35.32~~$36.18 as of December 31, ~~2010.~~2011.

· For the twelve months ended ~~September 30, 2011,~~March 31, 2012, return on the average of beginning and ending period shareholders’ equity was ~~1.9%~~5.4%, a decrease of ~~4.4~~1.9 points from ~~6.3%~~7.3% for the twelve months ended ~~September 30, 2010.~~March 31, 2011.

· As of ~~September 30, 2011, we had $18.10 billion in~~March 31, 2012, shareholders’ ~~equity.~~equity was $19.18 billion. This total included ~~$3.43~~$2.65 billion in deployable invested assets at the parent holding company level.

·New deferred policy acquisition costs (“DAC”) accounting guidance was adopted on a retrospective basis as of January 1, 2012 (see Note 1 of the condensed consolidated financial statements). Accordingly, all prior period balances have been adjusted. The DAC and shareholders’ equity balances were reduced by $572 million and $376 million, respectively, when compared to the previously reported December 31, 2011 balances. Impacted income statement line items include amortization of DAC, operating costs and expenses, gain/loss on disposition of operations, and income tax expense. Impacted balance sheet line items include DAC, deferred income taxes, reserve for life-contingent contract benefits, other liabilities and accrued expenses, retained income, unrealized net capital gains and losses, and unrealized foreign currency translation adjustments.

5047

·On October 7, 2011, we obtained all required regulatory approvals and closed our acquisition of certain entities making up the Esurance and Answer Financial groups of companies from White Mountains Holdings for a total price of $1.01 billion.

CONSOLIDATED NET INCOME

($ in millions)

Three months ended
September 30,

Nine months ended
September 30,

2011

2010

2011

2010
Revenues

Property-liability insurance premiums
$
6,432
$
6,499
$
19,337
$
19,515
Life and annuity premiums and contract charges

552

548

1,668

1,637
Net investment income

994

1,005

2,996

3,104
Realized capital gains and losses:

   Total other-than-temporary impairment losses

(197)

(99)

(435)

(637)
   Portion of loss recognized in other comprehensive income

(6)

(68)

(37)

(91)
      Net other-than-temporary impairment losses recognized in earnings

(203)

(167)

(472)

(728)
   Sales and other realized capital gains and losses

467

23

889

(215)
            Total realized capital gains and losses

264

(144)

417

(943)
Total revenues

8,242

7,908

24,418

23,313

Costs and expenses

Property-liability insurance claims and claims expense

(5,132)

(4,603)

(15,963)

(14,109)
Life and annuity contract benefits

(455)

(445)

(1,331)

(1,372)
Interest credited to contractholder funds

(405)

(445)

(1,240)

(1,358)
Amortization of deferred policy acquisition costs

(1,122)

(1,006)

(3,191)

(2,969)
Operating costs and expenses

(825)

(828)

(2,465)

(2,446)
Restructuring and related charges

(8)

(9)

(28)

(33)
Interest expense

(92)

(91)

(275)

(275)
Total costs and expenses

(8,039)

(7,427)

(24,493)

(22,562)

Gain (loss) on disposition of operations

--

9

(17)

12
Income tax (expense) benefit

(38)

(123)

156

(131)
Net income
$
165
$
367
$
64
$
632

Property-Liability
$
40
$
331
$
(230)
$
794
Allstate Financial

183

85

446

(18)
Corporate and Other

(58)

(49)

(152)

(144)
Net income
$
165
$
367
$
64
$
632

($ in millions)		Three months ended March 31,
		2012		2011
Revenues
Property-liability insurance premiums	$	6,630	$	6,448
Life and annuity premiums and contract charges		553		569
Net investment income		1,011		982
Realized capital gains and losses:
Total other-than-temporary impairment losses		(87)		(156)
Portion of loss recognized in other comprehensive income		4		(27)
Net other-than-temporary impairment losses recognized in earnings		(83)		(183)
Sales and other realized capital gains and losses		251		279
Total realized capital gains and losses		168		96
Total revenues		8,362		8,095

Costs and expenses
Property-liability insurance claims and claims expense		(4,339)		(4,476)
Life and annuity contract benefits		(439)		(454)
Interest credited to contractholder funds		(378)		(418)
Amortization of deferred policy acquisition costs		(979)		(984)
Operating costs and expenses		(1,017)		(900)
Restructuring and related charges		(6)		(9)
Interest expense		(95)		(92)
Total costs and expenses		(7,253)		(7,333)

Gain (loss) on disposition of operations		3		(20)
Income tax expense		(346)		(218)
Net income	$	766	$	524

Property-Liability	$	695	$	468
Allstate Financial		112		102
Corporate and Other		(41)		(46)
Net income	$	766	$	524

PROPERTY-LIABILITY HIGHLIGHTS

· Premiums written, an operating measure that is defined and reconciled to premiums earned in the Property-Liability Operations section of the MD&A, ~~decreased 0.6%~~increased 4.0% to ~~$6.73 billion in the third quarter of 2011 from $6.77 billion in the third quarter of 2010, and decreased 0.6% to $19.55~~$6.46 billion in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$19.67~~$6.22 billion in the first ~~nine months~~quarter of ~~2010.~~2011 and increased 0.6% from $6.43 billion in the fourth quarter of 2011.

– Allstate brand standard auto premiums written decreased ~~0.8%~~1.2% to ~~$4.00 billion in the third quarter of 2011 from $4.03 billion in the third quarter of 2010, and 0.9% to $11.89~~$3.94 billion in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$12.00~~$3.98 billion in the first ~~nine months~~quarter of ~~2010.~~2011.

– Allstate brand homeowners premiums written increased ~~1.5%~~2.7% to ~~$1.63 billion in the third quarter of 2011 from $1.61 billion in the third quarter of 2010, and increased 2.3% to $4.47~~$1.26 billion in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$4.36~~$1.23 billion in the first ~~nine months~~quarter of ~~2010.~~2011.

– Encompass brand premiums written ~~decreased 2.8%~~increased 1.6% to ~~$282 million in the third quarter of 2011 from $290 million in the third quarter of 2010, and 4.9% to $800~~$249 million in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$841~~$245 million in the first ~~nine months~~quarter of ~~2010.~~2011.

–Esurance brand premiums written were $262 million in the first quarter of 2012.

· Premium operating measures and statistics contributing to overall Allstate brand standard auto premiums written decrease were the following:

– ~~1.1%~~2.2% decrease in policies in force (“PIF”) as of ~~September 30, 2011~~March 31, 2012 compared to ~~September 30, 2010~~March 31, 2011

– ~~1.1%~~1.8% increase in the six month policy term average gross premium before reinsurance to ~~$446 in the third quarter of 2011 from $441 in the third quarter of 2010, and 0.2% decrease in the six month policy term average gross premium before reinsurance to $442~~$447 in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$443~~$439 in the first ~~nine months~~quarter of ~~2010~~2011

– ~~0.4~~0.2 point ~~increase~~decrease in the six month renewal ratio to ~~89.1% in the third quarter of 2011 compared to~~ 88.7% in the ~~third~~first quarter of ~~2010, and a 0.3 point increase in the six month renewal ratio~~2012 compared to ~~89.1%~~88.9% in the first ~~nine months~~quarter of 2011 ~~compared to 88.8% in the first nine months of 2010~~

– ~~13.2% and 2.8%~~10.8% decrease in new issued applications in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

· Premium operating measures and statistics contributing to overall Allstate brand homeowners premiums written increase were the following:

– ~~4.2%~~5.6% decrease in PIF as of ~~September 30, 2011~~March 31, 2012 compared to ~~September 30, 2010~~March 31, 2011

– ~~5.0%~~9.2% increase in the twelve month policy term average gross premium before reinsurance to ~~$1,001 in the third quarter of 2011 from $953 in the third quarter of 2010, and 5.5% increase in the twelve month policy term average gross premium before reinsurance to $989~~$1,065 in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$937~~$975 in the first ~~nine months~~quarter of ~~2010~~2011

– ~~0.2~~0.9 point decrease in the twelve month renewal ratio to ~~88.4% in the third quarter of 2011 compared to 88.6% in the third quarter of 2010, and 0.1 point increase in the twelve month renewal ratio to 88.4%~~87.4% in the first ~~nine months~~quarter of ~~2011~~2012 compared to 88.3% in the first ~~nine months~~quarter of ~~2010~~2011

– ~~17.1% and 13.9%~~11.4% decrease in new issued applications in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– $3 million decrease in catastrophe reinsurance costs to $121 million in the first quarter of 2012 from $124 million in the ~~third~~first quarter of 2011 from $127 million in the third quarter of 2010, and $23 million decrease in catastrophe reinsurance costs to $375 million in the first nine months of 2011 from $398 million in the first nine months of 2010

· Factors comprising the Allstate brand standard auto loss ratio ~~increase~~decrease of ~~0.6~~0.7 points to ~~69.3~~69.6 in the ~~third~~first quarter of 2011 from ~~68.7 in the third quarter of 2010, and an increase of 1.4 points to 70.9~~70.3 in the first ~~nine months~~quarter of 2011 ~~from 69.5 in the first nine months of 2010~~ were the following:

– ~~2.5 point and 2.3 point increase in the effect of catastrophe losses in the third quarter and first nine months of 2011, respectively, compared to the same periods of 2010~~

–~~2.6% and 1.8%~~4.1% decrease in standard auto claim frequency (rate of claim occurrence per policy in force) for property damage in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– ~~3.3% and 0.9%~~2.1% decrease in standard auto claim frequency for bodily injury in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– ~~1.0%~~4.6% increase in auto paid claim severities (average cost per claim) for property damage in ~~both~~ the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– ~~0.2% and 1.4%~~1.2% increase in auto paid claim severities for bodily injury in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

· Factors comprising the Allstate brand homeowners loss ratio, which includes catastrophes, ~~increase~~decrease of ~~28.1~~11.4 points to ~~108.6 in the third quarter of 2011 from 80.5 in the third quarter of 2010, and a increase of 32.4 points to 115.9~~56.5 in the first ~~nine months~~quarter of ~~2011~~2012 from ~~83.5~~67.9 in the first ~~nine months~~quarter of ~~2010~~2011 were the following:

– ~~32.7~~5.1 point ~~increase~~decrease in the effect of catastrophe losses to ~~55.8 points in the third quarter of 2011 compared to 23.1 points in the third quarter of 2010, and 34.1 point increase in the effect of catastrophe losses to 65.7~~12.6 points in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~31.6~~17.7 points in the first ~~nine months~~quarter of ~~2010~~2011

– ~~6.0% and 2.4% increase~~4.8% decrease in homeowner claim frequency, excluding catastrophes, in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– ~~3.3% and 3.4% increase~~0.4% decrease in paid claim severity, excluding catastrophes, in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

· Factors comprising the ~~$691~~$74 million ~~increase~~decrease in catastrophe losses to ~~$1.08 billion in the third quarter of 2011 compared to $386~~$259 million in the ~~third~~first quarter of ~~2010, and $2.08 billion increase~~2012 compared to ~~$3.75 billion~~$333 million in the first ~~nine months~~quarter of 2011 ~~compared to $1.67 billion in the first nine months of 2010~~ were the following:

– 2315 events with losses of ~~$1.10 billion~~$420 million in the ~~third~~first quarter of ~~2011~~2012 compared to 2916 events with losses of ~~$371~~$367 million in the ~~third~~first quarter of ~~2010, and 72 events with losses of $3.85 billion in the first nine months of~~ 2011 ~~compared to 70 events with losses of $1.81 billion in the first nine months of 2010~~

– $~~29 million of unfavorable prior quarter reserve reestimates in the third quarter of 2011 compared to $57 million of unfavorable prior quarter reserve reestimates in the third quarter of 2010~~

–~~$47~~161 million favorable prior year reserve reestimates in the ~~third~~first quarter of ~~2011~~2012 compared to ~~$42 million favorable reserve reestimates in the third quarter of 2010, and $98~~$34 million favorable reserve reestimates in the first ~~nine months~~quarter of 2011 ~~compared to $140 million favorable reserve reestimates in the first nine months of 2010~~

· Factors comprising the $204 million of favorable prior year reserve reestimates ~~of $117 million favorable~~ in the ~~third~~first quarter of ~~2011~~2012 compared to ~~$11 million unfavorable in the third quarter of 2010, and prior year reserve reestimates of $205~~$41 million favorable in the first ~~nine months~~quarter of 2011 ~~compared to $162 million favorable in the first nine months of 2010~~ included:

– prior year reserve reestimates related to auto, homeowners and other personal lines in the ~~third~~first quarter of ~~2011~~2012 contributed ~~$136~~$48 million favorable, $4$119 million favorable and ~~$12 million unfavorable, respectively, compared to prior year reserve reestimates in the third quarter of 2010 of~~ $40 million favorable, $67 million unfavorable and $38 million favorable, respectively, and prior year reserve reestimates related to auto, homeowners and other personal lines in the first nine months of 2011 contributed $245 million favorable, $39 million favorable and $61 million unfavorable, respectively, compared to prior year reserve reestimates in the first ~~nine months~~quarter of ~~2010~~2011 of ~~$120~~$19 million favorable, $2$38 million favorable and ~~$65~~$13 million ~~favorable,~~unfavorable, respectively

– prior year reestimates in the ~~third~~first quarter of 2012 and ~~first nine months of~~ 2011 ~~and 2010~~ are largely attributable to ~~severity development that was better than expected and catastrophes. Prior~~prior year ~~reserve reestimates in the third quarter and first nine months of 2010 also included a litigation settlement.~~

·Our 2011 annual review resulted in asbestos reserve reestimates of $26 million unfavorable in the third quarter of 2011 compared to $5 million unfavorable in the third quarter of 2010. There was essentially no change in environmental reserve reestimates in the third quarter of 2011 compared to $18 million unfavorable in the third quarter of 2010.catastrophes

· Property-Liability underwriting ~~loss~~income was $311 million in the third quarter of 2011 compared to underwriting income of $266 million in the third quarter of 2010, and Property-Liability underwriting loss was $1.49 billion in the first nine months of 2011 compared to underwriting income of $544$523 million in the first ~~nine months~~quarter of ~~2010.~~2012 compared to $328 million in the first quarter of 2011. Underwriting income (loss), a measure not based on accounting principles generally accepted in the United States of America (“GAAP”), is defined below.

· Property-Liability investments as of March 31, 2012 were $36.73 billion, an increase of 2.0% from $36.00 billion as of December 31, 2011. Net investment income was $313 million in the first quarter of 2012, an increase of 10.2% from $284 million in the first quarter of 2011.

·Net realized capital gains were ~~$24 million in the third quarter of 2011 compared to net realized capital losses of $107 million in the third quarter of 2010, and net realized capital gains were $73~~$189 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~net realized capital losses of $403~~$57 million in the first ~~nine months of 2010.~~

·~~Property-Liability investments as of September 30, 2011 were $35.01 billion, a decrease of 0.1% from $35.05 billion as of December 31, 2010. Net investment income was $298 million in the third~~ quarter of ~~2011, an increase of 4.9% from $284 million in the third quarter of 2010, and $892 million in the first nine months of 2011, a decrease of 0.7% from $898 million in the first nine months of 2010.~~2011.

5349

PROPERTY-LIABILITY OPERATIONS

Overview Our Property-Liability operations consist of two ~~business~~reporting segments: Allstate Protection and Discontinued Lines and Coverages. Allstate Protection comprises ~~two brands, the~~three brands: Allstate, ~~brand~~Encompass and ~~Encompass~~® ~~brand.~~Esurance. Allstate Protection is principally engaged in the sale of personal property and casualty insurance, primarily private passenger auto and homeowners insurance, to individuals in the United States and Canada. Discontinued Lines and Coverages includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.

Underwriting income (loss), a measure that is not based on GAAP and is reconciled to net income (loss) below, is calculated as premiums earned, less claims and claims expense (“losses”), amortization of ~~deferred policy acquisition costs (“DAC”),~~DAC, operating costs and expenses and restructuring and related charges, as determined using 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. It is also an integral component of incentive compensation. It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance. Net income (loss) is the GAAP measure most directly comparable to underwriting income (loss). Underwriting income (loss) should not be considered as a substitute for net income and does not reflect the overall profitability of the business.

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:

·~~Claims and claims expense (“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 to premiums earned.~~

·Combined ratio - the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges 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 (loss) as a percentage of premiums earned, or underwriting margin.

Claims and claims expense (“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 to premiums earned.

Combined ratio - the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges 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 (loss) 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 percentage 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 percentage 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 restructuring and related charges on combined ratio - the percentage 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 other 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.	Effect of catastrophe losses on combined ratio - the percentage 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 percentage 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 business combination expenses and the amortization of purchased intangible assets on combined and expense ratio - the percentage of business combination expenses and the amortization of purchased intangible assets to premiums earned.
·	Effect of restructuring and related charges on combined ratio - the percentage 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.

5450

Summarized financial data, a reconciliation of underwriting ~~(loss)~~ income to net income, ~~(loss),~~ and GAAP operating ratios for our Property-Liability operations are presented in the following table.

($ in millions, except ratios)

Three months ended
September 30,

Nine months ended
September 30,

2011

2010

2011

2010
Premiums written
$
6,728
$
6,767
$
19,554
$
19,665

Revenues

Premiums earned
$
6,432
$
6,499
$
19,337
$
19,515
Net investment income

298

284

892

898
Realized capital gains and losses

24

(107)

73

(403)
Total revenues

6,754

6,676

20,302

20,010

Costs and expenses

Claims and claims expense

(5,132)

(4,603)

(15,963)

(14,109)
Amortization of DAC

(907)

(915)

(2,719)

(2,754)
Operating costs and expenses

(696)

(706)

(2,111)

(2,074)
Restructuring and related charges

(8)

(9)

(30)

(34)
Total costs and expenses

(6,743)

(6,233)

(20,823)

(18,971)

(Loss) gain on disposition of operations

(1)

5

(1)

5
Income tax benefit (expense)

30

(117)

292

(250)
Net income (loss)
$
40
$
331
$
(230)
$
794

Underwriting (loss) income
$
(311)
$
266
$
(1,486)
$
544
Net investment income

298

284

892

898
Income tax benefit (expense) on operations

38

(154)

317

(391)
Realized capital gains and losses, after-tax

15

(69)

47

(261)
Gain on disposition of operations, after-tax

--

4

--

4
Net income (loss)
$
40
$
331
$
(230)
$
794

Catastrophe losses (1)
$
1,077
$
386
$
3,749
$
1,670

GAAP operating ratios

Claims and claims expense ratio

79.8

70.8

82.6

72.3
Expense ratio

25.0

25.1

25.1

24.9
Combined ratio

104.8

95.9

107.7

97.2
Effect of catastrophe losses on combined ratio (1)

16.7

5.9

19.4

8.6
Effect of prior year reserve reestimates on combined ratio (1)

(1.8)

0.2

(1.1)

(0.9)
Effect of restructuring and related charges on combined ratio

0.1

0.1

0.2

0.2
Effect of Discontinued Lines and Coverages on combined ratio

0.2

0.3

0.1

0.1

($ in millions, except ratios)		Three months ended March 31,
		2012		2011
Premiums written	$	6,463	$	6,215

Revenues
Premiums earned	$	6,630	$	6,448
Net investment income		313		284
Realized capital gains and losses		189		57
Total revenues		7,132		6,789

Costs and expenses
Claims and claims expense		(4,339)		(4,476)
Amortization of DAC		(878)		(864)
Operating costs and expenses		(884)		(769)
Restructuring and related charges		(6)		(11)
Total costs and expenses		(6,107)		(6,120)

Income tax expense		(330)		(201)
Net income	$	695	$	468

Underwriting income	$	523	$	328
Net investment income		313		284
Income tax expense on operations		(265)		(182)
Realized capital gains and losses, after-tax		124		38
Net income	$	695	$	468

Catastrophe losses (1)	$	259	$	333

GAAP operating ratios
Claims and claims expense ratio		65.4		69.4
Expense ratio		26.7		25.5
Combined ratio		92.1		94.9
Effect of catastrophe losses on combined ratio (1)		3.9		5.2
Effect of prior year reserve reestimates on combined ratio (1)		(3.1)		(0.7)
Effect of business combination expenses and the amortization of purchased intangible assets on combined ratio		0.7		--
Effect of restructuring and related charges on combined ratio		0.1		0.2
Effect of Discontinued Lines and Coverages on combined ratio		--		0.1

_______________


(1)	Prior year reserve reestimates included in catastrophe losses totaled ~~$47 million and $98~~$161 million favorable in the three months ~~and nine months~~ ended ~~September 30, 2011, respectively,~~March 31, 2012 compared to ~~$42 million and $140~~$34 million favorable in the three months ~~and nine months~~ ended ~~September 30, 2010, respectively.~~March 31, 2011.

Premiums written, an operating measure, is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in the financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Condensed Consolidated Statements of Financial Position.

5551

A reconciliation of premiums written to premiums earned is shown in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Premiums written:
Allstate Protection	$	6,728	$	6,767	$	19,555	$	19,665	$	6,462	$	6,216
Discontinued Lines and Coverages		--		--		(1)		--		1		(1)
Property-Liability premiums written		6,728		6,767		19,554		19,665		6,463		6,215
Increase in unearned premiums		(276)		(319)		(207)		(184)
Decrease in unearned premiums										167		234
Other		(20)		51		(10)		34		--		(1)
Property-Liability premiums earned	$	6,432	$	6,499	$	19,337	$	19,515	$	6,630	$	6,448

Premiums earned:
Allstate Protection	$	6,432	$	6,498	$	19,338	$	19,514	$	6,630	$	6,449
Discontinued Lines and Coverages		--		1		(1)		1		--		(1)
Property-Liability	$	6,432	$	6,499	$	19,337	$	19,515	$	6,630	$	6,448

ALLSTATE PROTECTION SEGMENT

Premiums written by brand are shown in the following table.

($ in millions)

Three months ended September 30,

Allstate brand

Encompass brand

Allstate Protection

2011

2010

2011

2010

2011

2010
Standard auto
$
3,996
$
4,028
$
159
$
166
$
4,155
$
4,194
Non-standard auto

194

223

--

1

194

224
Homeowners

1,634

1,610

100

98

1,734

1,708
Other personal lines (1)

622

616

23

25

645

641
Total
$
6,446
$
6,477
$
282
$
290
$
6,728
$
6,767

Nine months ended September 30,

Allstate brand

Encompass brand

Allstate Protection

2011

2010

2011

2010

2011

2010
Standard auto
$
11,891
$
11,999
$
457
$
495
$
12,348
$
12,494
Non-standard auto

601

680

1

5

602

685
Homeowners

4,465

4,364

273

272

4,738

4,636
Other personal lines (1)

1,798

1,781

69

69

1,867

1,850
Total
$
18,755
$
18,824
$
800
$
841
$
19,555
$
19,665

($ in millions)		Three months ended March 31,
		Allstate brand				Encompass brand				Esurance brand (2)		Allstate Protection
		2012		2011		2012		2011		2012		2012		2011
Standard auto	$	3,937	$	3,984	$	142	$	144	$	262	$	4,341	$	4,128
Non-standard auto		189		210		--		1		--		189		211
Homeowners		1,258		1,225		85		79		--		1,343		1,304
Other personal lines (1)		567		552		22		21		--		589		573
Total	$	5,951	$	5,971	$	249	$	245	$	262	$	6,462	$	6,216

__________________

(1)Other personal lines include commercial, condominium, renters, involuntary auto and other personal lines.

~~Allstate~~(2) Esurance brand premiums written by the direct channel, excluding Allstate Canada, increased 9.7% to $214 million in the third quarter of 2011 from $195 million in the third quarter of 2010, and 10.5% to $620 million in the first nine months of 2011 from $561 million in the first nine months of 2010, reflecting an impact by profitability management actions taken in New York and Florida. The direct channel includes call centers and the internet.

56business was acquired on October 7, 2011.

Premiums earned by brand are shown in the following table.

		Nine months ended September 30,
($ in millions)														Three months ended March 31,
		Allstate brand				Encompass brand				Allstate Protection				Allstate brand				Encompass brand				Esurance brand		Allstate Protection
		2011		2010		2011		2010		2011		2010		2012		2011		2012		2011		2012		2012		2011
Standard auto	$	11,782	$	11,873	$	469	$	552	$	12,251	$	12,425	$	3,897	$	3,928	$	151	$	160	$	221	$	4,269	$	4,088
Non-standard auto		611		680		2		8		613		688		183		210		--		1		--		183		211
Homeowners		4,367		4,262		273		292		4,640		4,554		1,480		1,448		92		91		--		1,572		1,539
Other personal lines		1,765		1,775		69		72		1,834		1,847		583		588		23		23		--		606		611
Total	$	18,525	$	18,590	$	813	$	924	$	19,338	$	19,514	$	6,143	$	6,174	$	266	$	275	$	221	$	6,630	$	6,449

Premium operating measures and statistics that are used to analyze the business are calculated and described below. Measures and statistics presented ~~for Allstate brand~~ exclude Allstate Canada ~~loan protection~~ and specialty auto.

· 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.

· Average premium-gross written: Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts and surcharges, and exclude the impacts from mid-term premium adjustments, ceded reinsurance premiums, and premium refund accruals. Allstate brand average gross premiums represent the appropriate policy term for each line, which is 6 months for standard and non-standard auto and 12 months for homeowners. Encompass brand average gross premiums represent the appropriate policy term for each line, which is 12 months for standard auto and homeowners and 6 months for non-standard

auto. Esurance brand average gross premiums represent the appropriate policy term, which is 6 months for standard auto.

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

· New issued applications: Item counts of automobiles or homeowners insurance applications for insurance policies that were issued during the period. Does not include automobiles that are added by existing customers.

Standard auto premiums written totaled ~~$4.16 billion in the third quarter of 2011, a decrease of 0.9% from $4.19 billion in the third quarter of 2010, and $12.35~~$4.34 billion in the first ~~nine months~~quarter of ~~2011, a decrease~~2012, an increase of ~~1.2%~~5.2% from ~~$12.49~~$4.13 billion in the first ~~nine months~~quarter of ~~2010.~~2011.

		Allstate brand				Encompass brand				Allstate brand				Encompass brand				Esurance brand
Standard Auto		2011		2010		2011		2010		2012		2011		2012		2011		2012
Three months ended September 30,
Three months ended March 31,
PIF (thousands)		17,286		17,479		671		710		17,080		17,456		676		676		849
Average premium-gross written (1)	$	446	$	441	$	929	$	974	$	447	$	439	$	923	$	953	$	508
Renewal ratio (%) (1)		89.1		88.7		69.8		67.4		88.7		88.9		71.8		71.2		78.5
Approved rate changes (2):
# of states		10	(7)	21		8		12		10		13		2		3		6
Countrywide (%) (3)		0.9		0.5		0.7		(0.1)		0.5		1.1		0.1		0.6		1.3
State specific (%) (4) (5)		7.3		2.8		3.9		(1.3)		5.8		4.1 (6)		3.2		5.0		4.8

Nine months ended September 30,
PIF (thousands)		17,286		17,479		671		710
Average premium-gross written (1)	$	442	$	443	$	940	$	986
Renewal ratio (%) (1)		89.1		88.8		70.4		67.7
Approved rate changes (2):
# of states		25	(7)	43	(6)	14		22
Countrywide (%) (3)		3.9		1.0		1.6		1.2
State specific (%) (4) (5)		7.2		2.0		4.3		2.6

_______________


(1)	Policy term is six months for Allstate ~~brand~~and Esurance brands and twelve months for Encompass brand.

(2)	Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. Rate changes do not include rating plan enhancements, including the introduction of discounts and surcharges, that result in no change in the overall rate level in the state. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a state.
	Rate changes exclude Allstate Canada and specialty auto.
(3)	Represents the impact in the states where rate changes were approved during the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011, ~~and 2010,~~ respectively, as a percentage of total countrywide prior year-end premiums written.

(4)	Represents the impact in the states where rate changes were approved during the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011, ~~and 2010,~~ respectively, as a percentage of its respective total prior year-end premiums written in those states.

(5)	Based on historical premiums written in those states, rate changes approved for standard auto totaled ~~$134~~$89 million and ~~$608~~$176 million in the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011, ~~respectively, compared to $80 million and $163 million in the three months and nine months ended September 30, 2010,~~ respectively.

(6)	~~Includes Washington D.C.~~

~~(7)~~	~~Three months ended September 30, 2011 includes the impact of a New York rate increase averaging 9.9%. Nine months ended September 30,~~First quarter 2011 includes the impact of Florida rate increases averaging ~~16.1%,~~10.9% and New York rate increases averaging ~~10.4%taken across multiple companies.~~12.0%.

Allstate brand standard auto premiums written totaled ~~$4.00 billion in the third quarter of 2011, a decrease of 0.8% from $4.03 billion in the third quarter of 2010, and $11.89~~$3.94 billion in the first ~~nine months~~quarter of ~~2011,~~2012, a decrease of ~~0.9%~~1.2% from ~~$12.00~~$3.98 billion in the first ~~nine months~~quarter of ~~2010.~~2011 and an increase of 3.3% from $3.81 billion in the fourth quarter of 2011. Contributing to the Allstate brand standard auto premiums written decrease in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 were the following:

– decrease in PIF of ~~1.1%~~2.2% as of ~~September 30, 2011~~March 31, 2012 compared to ~~September 30, 2010,~~March 31, 2011 due to fewer new issued applications and fewer policies available to renew. Excluding Florida and New York, PIF ~~increased 0.1%~~decreased 0.5% as of ~~September 30, 2011~~March 31, 2012 compared to ~~September 30, 2010.~~March 31, 2011.

– ~~13.2%~~10.8% decrease in new issued applications on a countrywide basis to ~~466 thousand in the third quarter of 2011 from 537 thousand in the third quarter of 2010, and 2.8% decrease to 1,457~~463 thousand in the first ~~nine months~~quarter of ~~2011~~2012 from ~~1,499~~519 thousand in the first ~~nine months~~quarter of ~~2010.~~2011. Excluding Florida and New York (impacted by actions to improve profitability), new issued applications on a countrywide basis decreased ~~7.3%~~8.2% to ~~418 thousand in the third quarter of 2011 from 451 thousand in the third quarter of 2010, and increased 3.3% to 1,289~~412 thousand in the first ~~nine months~~quarter of ~~2011~~2012 from ~~1,248~~449 thousand in the first ~~nine months~~quarter of ~~2010.~~2011. New issued applications increased in 2210 states in the first ~~nine months~~quarter of ~~2011~~2012 compared to the ~~same period~~first quarter of ~~2010, while in the first six months of 2011 34 states reflected new issued applications increases. The decline in the~~2011.

~~number of states with increases in new issued applications was due to lower quote levels and close rates (percentage of quotes written as applications).~~

– increase in average gross premium in the ~~third~~first quarter of ~~2011~~2012 compared to the ~~same period~~first quarter of ~~2010.~~2011.

– ~~0.4~~0.2 point ~~and 0.3 point increase~~decrease in the renewal ratio in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010. 38~~2011. In the first quarter of 2012, 34 states are showing favorable comparisons to ~~same period of~~ prior year.

Non-standard auto premiums written totaled ~~$194 million in the third quarter of 2011, a decrease of 13.4% from $224 million in the third quarter of 2010, and $602~~$189 million in the first ~~nine months~~quarter of ~~2011,~~2012, a decrease of ~~12.1%~~10.4% from ~~$685~~$211 million in the first ~~nine months~~quarter of ~~2010.~~2011.

		Allstate brand					Allstate brand
Non-Standard Auto		2011		2010			2012		2011
Three months ended September 30,
Three months ended March 31,
PIF (thousands)		599		671			570		627
Average premium-gross written (6 months)	$	586	$	630		$	598	$	621
Renewal ratio (%) (6 months)		70.6		70.8			69.1		70.4
Approved rate changes:
# of states		3		4			4		3
Countrywide (%)		0.9		0.7			0.2		3.6
State specific (%) (1)		11.5		5.8			1.4		18.4

Nine months ended September 30,
PIF (thousands)		599		671
Average premium-gross written (6 months)	$	609	$	623
Renewal ratio (%) (6 months)		70.6		71.7
Approved rate changes:
# of states		9		10	(2)
Countrywide (%)		4.9		4.2
State specific (%) (1)		14.4		10.5

_______________


(1)	Based on historical premiums written in those states, rate changes approved for non-standard auto totaled $8$1 million and ~~$41~~$30 million in the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011, ~~respectively, compared to $6 million and $38 million in the three months and nine months ended September 30, 2010,~~ respectively.
~~(2)~~	~~Includes Washington D.C.~~

Allstate brand non-standard auto premiums written totaled ~~$194 million in the third quarter of 2011, a decrease of 13.0% from $223 million in the third quarter of 2010, and $601~~$189 million in the first ~~nine months~~quarter of ~~2011,~~2012, a decrease of ~~11.6%~~10.0% from ~~$680~~$210 million in the first ~~nine months~~quarter of ~~2010.~~2011. Contributing to the Allstate brand non-standard auto premiums written decrease in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 were the following:

–	~~decrease in PIF as of September 30, 2011 compared to September 30, 2010, due to a decline in the number of policies available to renew, a lower retention rate and fewer new issued applications~~
–	12.9% decrease in new issued applications to 61 thousand in the third quarter of 2011 from 70 thousand in the third quarter of 2010, and 19.5% decrease to 198 thousand in the first nine months of 2011 from 246 thousand in the first nine months of 2010
–	~~decrease in average gross premium in the third quarter and first nine months of 2011 compared to the same periods of 2010~~
–	~~0.2 point and 1.1 point decrease in the renewal ratio in the third quarter and first nine months of 2011, respectively, compared to the same periods of 2010~~

–decrease in PIF as of March 31, 2012 compared to March 31, 2011 due to a decline in the number of policies available to renew and a lower retention rate

59–1.3% increase in new issued applications to 79 thousand in the first quarter of 2012 from 78 thousand in the first quarter of 2011

–decrease in average gross premium in the first quarter of 2012 compared to the first quarter of 2011

–1.3 point decrease in the renewal ratio in the first quarter of 2012 compared to the first quarter of 2011

Homeowners premiums written totaled ~~$1.73 billion in the third quarter of 2011, an increase of 1.5% from $1.71 billion in the third quarter of 2010, and $4.74~~$1.34 billion in the first ~~nine months~~quarter of ~~2011,~~2012, an increase of ~~2.2%~~3.0% from ~~$4.64~~$1.30 billion in the first ~~nine months~~quarter of ~~2010.~~2011. Excluding the cost of catastrophe reinsurance, premiums written increased ~~1.3% and 1.6%~~2.5% in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010.~~2011.

Allstate brand

Encompass brand

Homeowners

2011

2010

2011

2010

Three months ended September 30,

PIF (thousands)

6,459

6,740

306

322

Average premium-gross written (12 months)
$
1,001
$
953
$
1,306
$
1,311

Renewal ratio (%) (12 months)

88.4

88.6

79.6

76.5

Approved rate changes (1):

   # of states

15

15

7

8
(3)
   Countrywide (%)

2.3

1.0

0.7

--

   State specific (%) (2)

13.9

4.2

3.0

   (0.1)

Nine months ended September 30,

PIF (thousands)

6,459

6,740

306

322

Average premium-gross written (12 months)
$
989
$
937
$
1,300
$
1,304

Renewal ratio (%) (12 months)

88.4

88.3

80.9

76.7

Approved rate changes (1):

   # of states (3)

37

26

22

18

   Countrywide (%)

5.6

3.8

2.3

0.6

   State specific (%) (2)

10.5

9.4

3.5

1.8

		Allstate brand				Encompass brand
Homeowners		2012		2011		2012		2011
Three months ended March 31,
PIF (thousands) (1)		6,259		6,631		309		310
Average premium-gross written (12 months)	$	1,065	$	975	$	1,299	$	1,296
Renewal ratio (%) (12 months)		87.4		88.3		79.6		82.3
Approved rate changes (2):
# of states		13		12(3)		5		5
Countrywide (%)		2.0		1.8		0.9		1.2
State specific (%) (4)		7.9		9.9		5.3		4.9

~~(1)~~_______________


(1)	Beginning in first quarter of 2012, excess and surplus lines PIF are not included in the homeowners PIF totals. Previously, these policy counts were included in the homeowners totals. Excess and surplus lines represent policies written by North Light Specialty Insurance Company. All other total homeowners measures and statistics include excess and surplus lines.
(2)	Includes rate changes approved based on our net cost of reinsurance.Rate changes exclude excess and surplus lines.
(3)	Includes Washington D.C.
(4)	Based on historical premiums written in those states, rate changes approved for homeowners totaled $128 million and $116 million in the three months ended March 31, 2012 and 2011, respectively.

~~(2)~~Based on historical premiums written in those states, rate changes approved for homeowners totaled $140 million and $350 million in the three months and nine months ended September 30, 2011, respectively, compared to $59 million and $233 million in the three months and nine months ended September 30, 2010, respectively.54

~~(3)Includes Washington D.C.~~

Allstate brand homeowners premiums written totaled ~~$1.63 billion in the third quarter of 2011, an increase of 1.5% from $1.61 billion in the third quarter of 2010, and $4.47~~$1.26 billion in the first ~~nine months~~quarter of ~~2011,~~2012, an increase of ~~2.3%~~2.7% from ~~$4.36~~$1.23 billion in the first ~~nine months~~quarter of ~~2010.~~2011. Contributing to the Allstate brand homeowners premiums written increase in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 were the following:

– 5.6% decrease in PIF ~~of 4.2%~~ as of ~~September 30, 2011~~March 31, 2012 compared to ~~September 30, 2010,~~March 31, 2011 due to fewer policies available to renew and fewer new issued applications

– ~~17.1%~~11.4% decrease in new issued applications to ~~116 thousand in the third quarter of 2011 from 140 thousand in the third quarter of 2010, and 13.9% decrease to 353~~101 thousand in the first ~~nine months~~quarter of ~~2011~~2012 from ~~410~~114 thousand in the first ~~nine months of 2010. During the second~~ quarter of ~~2011, our Castle Key Indemnity Company subsidiary completed a 2008 regulatory consent decree to sell 50,000 new homeowners policies in Florida by November~~ 2011.

– increase in average gross premium in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010,~~2011 primarily due to rate changes

– ~~0.2~~0.9 point decrease ~~and 0.1 point increase~~ in the renewal ratio in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

– decrease in the cost of our catastrophe reinsurance program in the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011

Underwriting results are shown in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012			2011
Premiums written	$	6,728	$	6,767	$	19,555	$	19,665	$	6,462		$	6,216
Premiums earned	$	6,432	$	6,498	$	19,338	$	19,514	$	6,630		$	6,449
Claims and claims expense		(5,121)		(4,582)		(15,945)		(14,085)	(4,336		)	(4,472		)
Amortization of DAC		(907)		(915)		(2,719)		(2,754)	(878		)	(864		)
Other costs and expenses		(695)		(705)		(2,108)		(2,070)	(884		)	(768		)
Restructuring and related charges		(8)		(9)		(30)		(34)		(6	)		(11	)
Underwriting (loss) income	$	(299)	$	287	$	(1,464)	$	571
Underwriting income									$	526		$	334
Catastrophe losses	$	1,077	$	386	$	3,749	$	1,670	$	259		$	333

Underwriting (loss) income by line of business
Underwriting income (loss) by line of business
Standard auto	$	204	$	258	$	451	$	688	$	115		$	189
Non-standard auto		34		23		74		48	16			25
Homeowners		(511)		(63)		(1,781)		(312)	306			128
Other personal lines		(26)		69		(208)		147		89			(8	)
Underwriting (loss) income	$	(299)	$	287	$	(1,464)	$	571
Underwriting income									$	526		$	334

Underwriting (loss) income by brand
Underwriting income (loss) by brand
Allstate brand	$	(228)	$	292	$	(1,338)	$	611	$	586		$	335
Encompass brand		(71)		(5)		(126)		(40)	1			(1		)
Underwriting (loss) income	$	(299)	$	287	$	(1,464)	$	571
Esurance brand										(61	)		--
Underwriting income									$	526		$	334

Allstate Protection experienced underwriting income of $526 million in the first quarter of 2012 compared to $334 million in the first quarter of 2011, primarily due to an increase in homeowners underwriting income and underwriting income for other personal lines compared to an underwriting loss ~~of $299 million~~ in the third quarter of 2011 compared to underwriting income of $287 million in the same period of 2010, and an underwriting loss of $1.46 billion in the first nine months of 2011 compared to underwriting income of $571 million in the same period of 2010. Theprior year, partially offset by a decrease in ~~both periods was primarily due to decreases in homeowners, other personal lines and~~ standard auto underwriting income. Homeowners underwriting income ~~decreased $448~~increased $178 million to $306 million in the first quarter of 2012 from $128 million in the first quarter of 2011 primarily due to decreases in catastrophe losses and average earned premiums increasing faster than loss costs, partially offset by higher expenses. Other personal lines underwriting income was $89 million in the first quarter of 2012 compared to an underwriting loss of $511 million in the third quarter of 2011 from an underwriting loss of $63 million in the third quarter of 2010, and decreased $1.47 billion to an underwriting loss of $1.78 billion in the first nine months of 2011 from an underwriting loss of $312$8 million in the first ~~nine months~~quarter of ~~2010. The decrease in both periods was~~2011 primarily due to ~~increases~~favorable reserve reestimates and decreases in catastrophe losses, including prior year reestimates for catastrophes. Other personal lines underwriting income decreased $95 million to an underwriting loss of $26 million in the third quarter of 2011 from an underwriting income of $69 million in the third quarter of 2010, and decreased $355 million to an underwriting loss of $208 million in the first nine months of 2011 from an underwriting income of $147 million in the first nine months of 2010. The decrease in both periods was primarily due to increases in catastrophe losses and unfavorable reserve reestimates.losses. Standard auto underwriting income decreased ~~$54~~$74 million to an underwriting income of $204 million in the third quarter of 2011 from an underwriting income of $258 million in the third quarter of 2010, and decreased $237 million to an underwriting income of $451$115 million in the first ~~nine months~~quarter of ~~2011~~2012 from ~~an underwriting income of $688~~$189 million in the first ~~nine months~~quarter of ~~2010. The decrease in both periods was~~2011 primarily due to the inclusion of Esurance brand’s underwriting loss of $61 million in the first quarter of 2012, higher expenses, and increases in catastrophe losses, partially offset by favorable reserve reestimates.

Catastrophe lossesin the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 were ~~$1.08 billion and $3.75 billion, respectively,~~$259 million as detailed in the table below. This compares to catastrophe losses in the ~~third~~first quarter ~~and first nine months~~ of ~~2010~~2011 of ~~$386 million and $1.67 billion, respectively.~~$333 million.

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 an 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, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as

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

Catastrophe losses related to events that occurred by the size of the event are shown in the following table.

($ in millions)

Three months ended
September 30, 2011

Number
of events

Claims
and
claims
expense

Combined
ratio
impact

Average
catastrophe
loss per event
Size of catastrophe

Greater than $250 million

1

4.3%
$
522

48.5%

8.1
$
522
$101 million to $250 million

1

4.3

110

10.2

1.7

110
$50 million to $100 million

4

17.4

227

21.1

3.5

57
Less than $50 million

17

74.0

236

21.9

3.7

14
     Total

23

100.0%

1,095

101.7

17.0

48
Prior year reserve reestimates

(47)

(4.4)

(0.7)

Prior quarter reserve reestimates

29

2.7

0.4

     Total catastrophe losses

$
1,077

100.0%

16.7

	Nine months ended September 30, 2011
($ in millions)									Three months ended March 31, 2012
	Number of events			Claims and claims expense		Combined ratio impact		Average catastrophe loss per event	Number of events				Claims and claims expense				Combined ratio impact			Average catastrophe loss per event
Size of catastrophe
Greater than $250 million	4	5.6%	$	1,643	43.8%	8.5	$	411
$101 million to $250 million	6	8.3		822	21.9	4.2		137	1	6.7	%	$	161		62.2	%	2.5		$	161
$50 million to $100 million	10	13.9		670	17.9	3.5		67	1	6.7		94			36.3		1.4		94
Less than $50 million	52	72.2		712	19.0	3.7		14	13	86.6			165		63.7		2.5		13
Total	72	100.0%		3,847	102.6	19.9		53	15	100.0	%	420			162.2		6.4		28
Prior year reserve reestimates				(98)	(2.6)	(0.5)							(161	)	(62.2	)	(2.5	)
Total catastrophe losses			$	3,749	100.0%	19.4						$	259		100.0	%	3.9

Catastrophe losses incurred by the type of event are shown in the following table.

($ in millions)		Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
		2011	Number of events		2010	Number of events		2011	Number of events		2010	Number of events		2012				2011
Hurricanes/Tropical storms	$	632	2	$	18	1	$	632	2	$	18	1
																Number of events				Number of events
Tornadoes		--	--		5	1		1,280	6		138	6	$	207		3	$	19		1
Wind/Hail		413	17		327	25		1,689	52		1,384	55	202			10	176			10
Wildfires		50	3		16	1		65	8		16	1	3			1	5			2
Other events		--	1		5	1		181	4		254	7	8			1	167			3
Prior year reserve reestimates		(47)			(42)			(98)			(140)			(161	)			(34	)
Prior quarter reserve reestimates		29			57			--			--
Total catastrophe losses	$	1,077	23	$	386	29	$	3,749	72	$	1,670	70	$	259		15	$	333		16

Catastrophe losses, including prior year reserve reestimates, excluding hurricanes named or numbered by the National Weather Service, fires following earthquakes and earthquakes totaled $284 million in the first quarter of 2012 and is the result of severe weather experienced.

6256

Combined ratio Loss ratios are a measure of profitability. Loss ratios by product, and expense and combined ratios by brand, are shown in the following table. These ratios are defined in the Property-Liability Operations section of the MD&A.

	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	Loss ratio (1)		Effect of catastrophe losses on the loss ratio		Effect of pre-tax reserve reestimates on the combined ratio				Loss ratio (1)		Effect of catastrophe losses on the loss ratio		Effect of pre-tax reserve reestimates on the combined ratio				Ratio (1)		Effect of catastrophe losses on combined ratio		Effect of prior year reserve reestimates on combined ratio				Effect of business combination expenses and the amortization of purchased intangible assets on combined ratio
	2011	2010	2011	2010	2011		2010		2011	2010	2011	2010	2011		2010		2012	2011	2012	2011	2012		2011		2012
Allstate brand loss ratio:
Standard auto	69.3	68.7	2.9	0.4	(3.3	)	(0.6	)	70.9	69.5	3.3	1.0	(2.0	)	(0.9	)	69.6	70.3	1.2	0.5	(1.2	)	(0.4	)
Non-standard auto	57.1	61.7	0.5	--	(8.7	)	(6.8	)	63.8	66.5	1.5	0.3	(4.3	)	(4.3	)	67.2	64.8	--	--	--		(3.3	)
Homeowners	108.6	80.5	55.8	23.1	--		5.2		115.9	83.5	65.7	31.6	(0.8	)	0.2		56.5	67.9	12.6	17.7	(7.9	)	(2.7	)
Other personal lines	76.3	61.4	13.1	4.4	2.4		(6.3	)	81.4	63.5	18.4	6.6	3.7		(3.6	)	53.9	67.3	2.9	7.0	(6.7	)	2.6

Total Allstate brand loss ratio	78.9	70.5	16.3	6.0	(2.1	)	--		82.3	72.0	19.4	8.5	(1.2	)	(1.0	)	64.9	69.2	4.1	5.1	(3.3	)	(0.8	)
Allstate brand expense ratio	24.8	24.8							24.9	24.7							25.6	25.4	--	--	--		--		0.1
Allstate brand combined ratio	103.7	95.3							107.2	96.7							90.5	94.6	4.1	5.1	(3.3	)	(0.8	)	0.1

Encompass brand loss ratio:
Standard auto	87.6	75.7	3.2	0.6	6.5		(1.7	)	80.6	75.2	2.1	0.7	3.2		1.8		78.1	75.7	0.7	--	0.7		3.1
Non-standard auto	--	100.0	--	--	--		--		150.0	100.0	--	--	(50.0	)	--		--	100.0	--	--	--		--
Homeowners	119.8	63.5	70.3	13.5	(4.4	)	(7.3	)	97.8	77.4	49.5	25.3	(1.5	)	(3.4	)	55.4	65.9	6.5	16.5	(2.2	)	1.1
Other personal lines	65.2	60.9	8.7	--	(8.7	)	(4.3	)	78.2	72.2	11.6	4.2	(5.8	)	(1.4	)	87.0	65.2	--	8.7	(4.3	)	(8.7	)

Total Encompass brand loss ratio	97.0	70.7	26.5	4.8	1.5		(3.7	)	86.3	75.9	18.8	8.8	0.7		(0.1	)	71.0	71.7	2.6	6.2	(0.8	)	1.5
Encompass brand expense ratio	29.5	31.0							29.2	28.4							28.6	28.7	--	--	--		--		--
Encompass brand combined ratio	126.5	101.7							115.5	104.3							99.6	100.4	2.6	6.2	(0.8	)	1.5		--

Esurance brand loss ratio:
Standard auto																	72.8	--	0.4	--	--		--

Total Esurance brand loss ratio																	72.8	--	0.4	--	--		--
Esurance brand expense ratio																	54.8	--	--	--	--		--		18.1
Esurance brand combined ratio																	127.6	--	0.4	--	--		--		18.1

Allstate Protection loss ratio	79.6	70.5	16.7	5.9	(2.0	)	(0.2	)	82.5	72.2	19.4	8.6	(1.2	)	(1.0	)	65.4	69.3	3.9	5.2	(3.1	)	(0.7	)
Allstate Protection expense ratio	25.0	25.1							25.1	24.9							26.7	25.5	--	--	--		--		0.7
Allstate Protection combined ratio	104.6	95.6							107.6	97.1							92.1	94.8	3.9	5.2	(3.1	)	(0.7	)	0.7

(1)Ratios are calculated using the premiums earned for the respective line of business.

Standard auto loss ratio for the Allstate brand ~~increased 0.6 points and 1.4~~decreased 0.7 points in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 primarily due to ~~higher catastrophe losses,~~favorable reserve reestimates, partially offset by ~~favorable reserve reestimates.~~higher catastrophe losses. Excluding the impact of catastrophe losses, the Allstate brand standard auto loss ratio improved ~~1.9 points and 0.9~~1.4 points in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010.~~2011. Florida and New York ~~continue to~~results have shown improvement with loss ratios, ~~higher than the countrywide average~~including prior year reserve reestimates, of 71.3 and 65.2, respectively, in the first ~~nine months~~quarter of ~~2011 though results~~2012 compared to 77.3 and 80.1, respectively, in

the first quarter of 2011. Although the combined impact of these two ~~key~~ states ~~have improved relative to the first nine months of 2010, reducing the pressure~~ on countrywide ~~results. We~~results has declined, we continue to pursue profitability management actions, ~~in Florida and New York,~~ including rate increases, underwriting restrictions, increased claims staffing and review, and continued advocacy for legislative reform. In the ~~third~~first quarter ~~and first nine months~~ of ~~2011,~~2012, claim frequencies in the bodily injury and physical damage coverages have decreased compared to the ~~same period~~first quarter of ~~2010.~~2011. Bodily injury and physical damage coverages severity results in the first quarter of 2012 increased in line with historical Consumer Price Index ~~(“CPI”)~~ trends.

Homeowners loss ratio for the Allstate brand ~~increased 28.1~~decreased 11.4 points to ~~108.6~~56.5 in the ~~third~~first quarter of 2012 from 67.9 in the first quarter of 2011 ~~from 80.5 in the third quarter of 2010, and 32.4 points to 115.9 in the first nine months of 2011 from 83.5 in the first nine months of 2010~~ due to ~~higher~~lower catastrophe losses ~~including prior year reserve reestimates for catastrophes. Excluding the impact of catastrophe losses, the Allstate brand homeowners~~and average earned premiums increasing faster than loss ~~ratio improved 4.6 points and 1.7 points in the third quarter and first nine months of 2011, respectively, compared to the same periods of 2010.~~costs.

Expense ratio for Allstate Protection ~~decreased 0.1 points and~~ increased ~~0.2~~1.2 points in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010. The increase~~2011 primarily due to additional marketing costs and the amortization of purchased intangible assets related to Esurance in the current year period, partially offset by a non-recurring litigation accrual recorded in the prior year period. Other costs and expenses include Esurance advertising expense in the first nine months of 2011 compared to the same period of 2010 was driven by marketing costs, partially offset by improved operational efficiencies. We have implemented a series of growth initiatives such as sales campaigns, agent incentives, referrals and additional marketing that are expected to increase expenses in the fourth quarter of ~~2011 compared to~~2012 which had a 20.4 point impact on the ~~fourth quarter of 2010.~~Esurance brand expense ratio and a 0.7 point impact on the Allstate Protection expense ratio.

The impact of specific costs and expenses on the expense ratio are included in the following table.

	Three months ended September 30,						Three months ended March 31,
	Allstate brand		Encompass brand		Allstate Protection		Allstate brand		Encompass brand			Esurance brand	Allstate Protection
	2011	2010	2011	2010	2011	2010	2012	2011	2012	2011		2012	2012	2011
Amortization of DAC	13.9	13.9	18.0	18.1	14.1	14.1	13.1	13.2	17.3	17.5		2.3	12.9	13.4
Other costs and expenses	10.8	10.8	11.4	11.6	10.8	10.9	12.3	12.0	11.3	11.4		34.4	13.0	11.9
Business combination expenses and amortization of purchased intangible assets							0.1	--	--	--		18.1	0.7	--
Restructuring and related charges	0.1	0.1	0.1	1.3	0.1	0.1	0.1	0.2	--	(0.2	)	--	0.1	0.2
Total expense ratio	24.8	24.8	29.5	31.0	25.0	25.1	25.6	25.4	28.6	28.7		54.8	26.7	25.5

Nine months ended September 30,

Allstate brand

Encompass brand

Allstate Protection

2011

2010

2011

2010

2011

2010
Amortization of DAC
13.9

13.9

18.0

18.2

14.1

14.1
Other costs and expenses
10.9

10.7

11.2

9.4

10.9

10.6
Restructuring and related charges
0.1

0.1

--

0.8

0.1

0.2
Total expense ratio
24.9

24.7

29.2

28.4

25.1

24.9

Reserve reestimates The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years ~~2011~~2012 and ~~2010,~~2011, and the effect of reestimates in each year.

($ in millions)		January 1 reserves				January 1 reserves
		2011		2010		2012		2011
Auto	$	11,034	$	10,606	$	11,404	$	11,034
Homeowners		2,442		2,399		2,439		2,442
Other personal lines		2,141		2,145		2,237		2,141
Total Allstate Protection	$	15,617	$	15,150	$	16,080	$	15,617

($ in millions, except ratios)		Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
		Reserve reestimates (1) (2)			Effect on combined ratio (2)			Reserve reestimates (1) (2)			Effect on combined ratio (2)			2012			2011
		2011		2010	2011	2010		2011		2010	2011	2010		Reserve reestimate (1) (2)	Effect on combined ratio (2)		Reserve reestimate (1) (2)	Effect on combined ratio (2)
Auto	$	(136)	$	(40)	(2.1)	(0.6)	$	(245)	$	(120)	(1.3)	(0.6)	$	(48)	(0.7)	$	(19)	(0.3)
Homeowners		(4)		67	(0.1)	1.0		(39)		(2)	(0.2)	--		(119)	(1.8)		(38)	(0.6)
Other personal lines		12		(38)	0.2	(0.6)		61		(65)	0.3	(0.4)		(40)	(0.6)		13	0.2
Total Allstate Protection (3)	$	(128)	$	(11)	(2.0)	(0.2)	$	(223)	$	(187)	(1.2)	(1.0)	$	(207)	(3.1)	$	(44)	(0.7)

Allstate brand	$	(132)	$	--	(2.1)	--	$	(229)	$	(186)	(1.2)	(1.0)	$	(205)	(3.1)	$	(48)	(0.8)
Encompass brand		4		(11)	0.1	(0.2)		6		(1)	--	--		(2)	--		4	0.1
Esurance brand														--	--		--	--
Total Allstate Protection (3)	$	(128)	$	(11)	(2.0)	(0.2)	$	(223)	$	(187)	(1.2)	(1.0)	$	(207)	(3.1)	$	(44)	(0.7)

(1)Favorable reserve reestimates are shown in parentheses.

(2) Discontinued Lines and Coverages segment reserve reestimates in the three months ended March 31, 2012 and 2011 totaled $3 million unfavorable. There was no effect on the combined ratio in the three months ended March 31, 2012 and 2011.

(3) Reserve reestimates included in catastrophe losses totaled $161 million favorable in the three months ended March 31, 2012 compared to $34 million favorable in the three months ended March 31, 2011.

~~(2)~~Discontinued Lines and Coverages segment reserve reestimates in the three months and nine months ended September 30, 2011 totaled $11 million and $18 million unfavorable compared to $22 million and $25 million unfavorable in the three months and nine months ended September 30, 2010. The effect on the combined ratio totaled 0.2 and 0.1 in the three months and nine months ended September 30, 2011, respectively, compared to 0.4 and 0.1 in the three months and nine months ended September 30, 2010, respectively.

~~(3)~~Reserve reestimates included in catastrophe losses totaled $47 million and $98 million favorable in the three months and nine months ended September 30, 2011, respectively, compared to $42 million and $140 million favorable in the three months and nine months ended September 30, 2010, respectively.

DISCONTINUED LINES AND COVERAGES SEGMENT

Overview The Discontinued Lines and Coverages segment includes results from insurance coverage that we no longer write and results for certain commercial and other businesses in run-off. Our exposure to asbestos, environmental and other discontinued lines claims is reported in this segment. We have assigned management of this segment to a designated group of professionals with expertise in claims handling, policy coverage interpretation, exposure identification and reinsurance collection. As part of its responsibilities, this group is also regularly engaged in policy buybacks, settlements and reinsurance assumed and ceded commutations.

Summarized underwriting results are presented in the following table.

($ in millions)

Three months ended
September 30,

Nine months ended
September 30,

2011

2010

2011

2010
Premiums written
$
--
$
--
$
(1)
$
--

Premiums earned
$
--
$
1
$
(1)
$
1
Claims and claims expense

(11)

(21)

(18)

(24)
Operating costs and expenses

(1)

(1)

(3)

(4)
Underwriting loss
$
(12)
$
(21)
$
(22)
$
(27)

Underwriting losses of $12 million and $22 million in the third quarter and first nine months of 2011, respectively, were primarily related to our annual review using established industry and actuarial best practices resulting in a $26 million unfavorable reestimate of asbestos reserves and a $5 million unfavorable reestimate of other reserves, partially offset by a $26 million decrease of our allowance for future uncollectible reinsurance and environmental reserves essentially unchanged. Underwriting losses of $21 million and $27 million in the third quarter and first nine months of 2010, respectively, were primarily related to an $18 million unfavorable reestimate of environmental reserves and a $5 million unfavorable reestimate of asbestos reserves, partially offset by a $4 million favorable reestimate of other reserves.

For asbestos exposures, our 2011 annual review resulted in an increase in estimated reserves of $26 million for products related coverage due to increases for the assumed reinsurance portion of discontinued lines where we are reliant on our ceding companies to report claims. Reserves for asbestos claims were $1.09 billion and $1.10 billion, net of reinsurance recoverables of $536 million and $555 million, as of September 30, 2011 and December 31, 2010, respectively. We continue to be encouraged that the pace of industry claim activity has slowed, reflecting various state legislative actions and increased legal scrutiny of the legitimacy of claims. Incurred but not reported (“IBNR”) represents 59% of total net asbestos reserves, 1 point lower than at December 31, 2010. IBNR provides for estimated probable future unfavorable reserve development of known claims and future reporting of additional unknown claims from current and new policyholders and ceding companies. In the third quarter of 2010, our review resulted in an increase in estimated reserves of $5 million.

Normal environmental claim activity resulted in essentially no change in estimated reserves for 2011. Reserves for environmental claims were $187 million and $201 million, net of reinsurance recoverables of $40 million and $47 million, as of September 30, 2011 and December 31, 2010, respectively. IBNR represents 66% of total net environmental reserves, 4 points higher than at December 31, 2010. In the third quarter of 2010, reserve additions for environmental claims totaling $18 million were primarily related to site-specific remediations where the clean-up cost estimates and responsibility for the clean-up were more fully determined.

As of September 30, 2011, the allowance for uncollectible reinsurance was $103 million, or approximately 13.0% of total recoverables from reinsurers in the Discontinued Lines and Coverages segment, compared to $142 million or 17.6% of total recoverables as of December 31, 2010. The allowance for future uncollectible reinsurance decreased primarily as our view of how long reinsurers in runoff will remain viable has increased due to the general slow down during the past few years in the pace of industry claim activity.

		Three months ended March 31,
($ in millions)		2012		2011
Premiums written	$	1	$	(1)

Premiums earned	$	--	$	(1)
Claims and claims expense		(3)		(4)
Operating costs and expenses		--		(1)
Underwriting loss	$	(3)	$	(6)

~~We believe that our reserves are appropriately established based on available facts, technology, laws, regulations, and~~assessments of other pertinent factors and characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment.

6559

PROPERTY-LIABILITY INVESTMENT RESULTS

Net investment income increased ~~4.9%~~10.2% or ~~$14~~$29 million to ~~$298~~$313 million in the ~~third~~first quarter of ~~2011~~2012 from $284 million in the ~~third~~first quarter of ~~2010 as~~2011. The increase resulted from income from limited partnerships and higher ~~yields were~~average investment balances, partially offset by lower ~~average investment balances. The higher yields are primarily attributable to portfolio repositioning and higher distributions on limited partnerships. Net investment~~fixed income decreased 0.7% or $6 million to $892 million in the first nine months of 2011 from $898 million in the first nine months of 2010 primarily due to lower average investment balances. Net investment income was $284 million and $310 million in the first quarter and second quarter of 2011, respectively.yields.

Net realized capital gains and losses are presented in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Impairment write-downs	$	(105)	$	(57)	$	(196)	$	(232)	$	(19)	$	(64)
Change in intent write-downs		(10)		(10)		(48)		(29)		(28)		(27)
Net other-than-temporary impairment losses recognized in earnings		(115)		(67)		(244)		(261)		(47)		(91)
Sales		186		228		387		390		237		172
Valuation of derivative instruments		(56)		(143)		(42)		(378)		3		26
Settlements of derivative instruments		11		(118)		(91)		(164)		(4)		(95)
EMA limited partnership income(1)		(2)		(7)		63		10		--		45
Realized capital gains and losses, pre-tax		24		(107)		73		(403)		189		57
Income tax (expense) benefit		(9)		38		(26)		142
Income tax expense										(65)		(19)
Realized capital gains and losses, after-tax	$	15	$	(69)	$	47	$	(261)	$	124	$	38

(1) Income from limited partnerships accounted for under the equity method of accounting (“EMA”) is reported in net investment income in 2012 and realized capital gains and losses in 2011.

For a further discussion of net realized capital gains and losses, see the Investments section of the MD&A.

ALLSTATE FINANCIAL HIGHLIGHTS

· Net income was ~~$183 million and $446~~$112 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to ~~net income of $85 million and a net loss of $18~~$102 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2010, respectively.~~2011.

· Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled ~~$529~~$535 million in ~~third~~the first quarter ~~2011,~~of 2012, an increase of ~~3.1%~~3.5% from ~~the prior year period, and $1.57 billion~~$517 million in the first ~~nine months~~quarter of ~~2011,~~2011.

·Investments totaled $57.62 billion as of March 31, 2012, reflecting an increase in carrying value of ~~3.2%~~$247 million from $57.37 billion as of December 31, 2011. Net investment income increased to $687 million in the ~~prior year period.~~first quarter of 2012 from $684 million in the first quarter of 2011.

· Net realized capital ~~gains~~losses totaled ~~$219 million and $320~~$21 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to net realized capital ~~losses~~gains of ~~$38 million and $553~~$39 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2010, respectively.~~

·Investments as of September 30, 2011 totaled $59.07 billion, reflecting a decrease in carrying value of $2.51 billion from $61.58 billion as of December 31, 2010. Net investment income decreased 3.5% to $682 million in third quarter 2011 and 4.7% to $2.06 billion in the first nine months of 2011 from $707 million and $2.16 billion in the third quarter and first nine months of 2010, respectively.2011.

· Contractholder funds totaled $41.60 billion as of ~~September 30, 2011 totaled $43.78 billion,~~March 31, 2012, reflecting ~~decreases~~a decrease of ~~$4.41 billion~~$729 million from ~~$48.19~~$42.33 billion as of December 31, ~~2010~~2011 and ~~$5.16~~$5.23 billion from ~~$48.94~~$46.83 billion as of ~~September 30, 2010.~~March 31, 2011.

ALLSTATE FINANCIAL SEGMENT

Summary analysis Summarized financial data is presented in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Revenues
Life and annuity premiums and contract charges	$	552	$	548	$	1,668	$	1,637	$	553	$	569
Net investment income		682		707		2,060		2,161		687		684
Realized capital gains and losses		219		(38)		320		(553)		(21)		39
Total revenues		1,453		1,217		4,048		3,245		1,219		1,292

Costs and expenses
Life and annuity contract benefits		(455)		(445)		(1,331)		(1,372)		(439)		(454)
Interest credited to contractholder funds		(405)		(445)		(1,240)		(1,358)		(378)		(418)
Amortization of DAC		(215)		(91)		(472)		(215)		(101)		(120)
Operating costs and expenses		(105)		(118)		(324)		(354)		(142)		(132)
Restructuring and related charges		--		--		2		1		--		2
Total costs and expenses		(1,180)		(1,099)		(3,365	)	(3,298)		(1,060)		(1,122)

Gain (loss) on disposition of operations		1		4		(16)		7		3		(20)
Income tax (expense) benefit		(91)		(37)		(221)		28
Net income (loss)	$	183	$	85	$	446	$	(18)
Income tax expense										(50)		(48)
Net income									$	112	$	102

Investments as of September 30					$	59,068	$	62,915
Investments as of March 31									$	57,620	$	60,484

Net income
Life insurance									$	57
Accident and health insurance										17
Annuities and institutional products										38
Net income									$	112

Net income ~~in the third quarter of 2011~~ was ~~$183 million compared to $85~~$112 million in the ~~same period~~first quarter of ~~2010.~~2012 compared to $102 million in the first quarter of 2011. The ~~$98~~$10 million increase was primarily due to decreased interest credited to contractholder funds, gain on disposition in the current year compared to a loss in the prior year related to the Allstate Bank dissolution, and lower amortization of DAC, partially offset by net realized capital ~~gains~~losses in the current year compared to net realized capital ~~losses~~gains in the prior ~~year and decreased interest credited to contractholder funds, partially offset by higher amortization of DAC and lower net investment income.~~year.

Net income in the first nine months of 2011 was $446 million compared to a net loss of $18 million in the first nine months of 2010. The $464 million improvement was primarily due to net realized capital gains in the current year compared to net realized capital losses in the prior year, decreased interest credited to contractholder funds and lower life and annuity contract benefits, partially offset by higher amortization of DAC and lower net investment income.

Analysis of revenues Total revenues ~~increased 19.4%~~decreased 5.7% or ~~$236 million in the third quarter of 2011 and 24.7% or $803~~$73 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 due to net realized capital ~~gains~~losses in the current year compared to net realized capital ~~losses~~gains in the prior year and ~~higher~~lower premiums and contract ~~charges, partially offset by lower net investment income.~~charges.

Life and annuity premiums and contract charges Premiums represent revenues generated from traditional life insurance, immediate annuities with life contingencies, and accident and health insurance products that have significant mortality or morbidity risk. Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.

The following table summarizes life and annuity premiums and contract charges by product.

*($ in millions)*		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
*Underwritten products*
Traditional life insurance premiums	$	111	$	107	$	328	$	317	$	113	$	108
Accident and health insurance premiums		160		157		483		464		162		161
Interest-sensitive life insurance contract charges		258		249		759		740		260		248
Subtotal		529		513		1,570		1,521		535		517

*Annuities*
Immediate annuities with life contingencies premiums		16		26		74		84		12		43
Other fixed annuity contract charges		7		9		24		32		6		9
Subtotal		23		35		98		116		18		52

Life and annuity premiums and contract charges (1)	$	552	$	548	$	1,668	$	1,637	$	553	$	569

(1)	Contract charges related to the cost of insurance totaled ~~$167~~$170 million and ~~$161~~$162 million infor the ~~third~~first quarter of 2012 and 2011, ~~and 2010, respectively, and $491 million and $476 million in the first nine months of 2011 and 2010,~~ respectively.

Total premiums and contract charges ~~increased 0.7% and 1.9%~~decreased 2.8% in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the ~~same periods~~first quarter of ~~2010~~2011 primarily due to lower sales of immediate annuities with life contingencies, partially offset by higher contract charges on interest-sensitive life insurance products primarily resulting from the aging of our policyholders and ~~growth in Allstate Benefits’s accident and health~~increased traditional life insurance ~~business in force, partially offset by lower sales of immediate annuities with life contingencies.~~premiums. Sales of immediate annuities with life contingencies fluctuate with changes in our pricing competitiveness relative to other insurers. Increased traditional life insurance premiums were due to lower reinsurance premiums ceded and higher sales through Allstate agencies, partially offset by lower renewal premiums.

6862

Contractholder funds represent interest-bearing liabilities arising from the sale of individual and institutional products, such as interest-sensitive life insurance, fixed annuities, funding agreements and bank deposits. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract maturities, benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. The following table shows the changes in contractholder funds.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Contractholder funds, beginning balance	$	45,078	$	49,443	$	48,195	$	52,582	$	42,332	$	48,195

Deposits
Fixed annuities		133		224		439		752		153		164
Interest-sensitive life insurance		319		363		964		1,149		332		330
Bank and other deposits		34		262		344		748
Bank deposits										--		212
Total deposits		486		849		1,747		2,649		485		706

Interest credited		400		445		1,223		1,355		379		410

Maturities, benefits, withdrawals and other adjustments
Maturities and retirements of institutional products		(26)		(3)		(819)		(1,784)
Maturities of and interest payments on institutional products										(1)		(487)
Benefits		(396)		(397)		(1,135)		(1,187)		(357)		(372)
Surrenders and partial withdrawals		(1,513)		(1,295)		(4,529)		(3,898)		(943)		(1,019)
Bank withdrawals										--		(274)
*Contract charges*		(257)		(247)		(763)		(731)		(264)		(251)
*Net transfers from separate accounts*		3		3		9		8		2		3
*Fair value hedge adjustments for institutional products*		--		24		(34)		(173)		--		(34)
*Other adjustments* (1)		1		114		(118)		115		(30)		(43)
*Total maturities, benefits, withdrawals and other adjustments*		(2,188)		(1,801)		(7,389)		(7,650)		(1,593)		(2,477)
Contractholder funds, ending balance	$	43,776	$	48,936	$	43,776	$	48,936	$	41,603	$	46,834

(1)The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Condensed Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Condensed Consolidated Statements of Operations. As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line.

The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Condensed Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Condensed Consolidated Statements of Operations. As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line.

Contractholder funds decreased ~~2.9%~~1.7% and ~~9.2%~~2.8% in the ~~third~~first quarter of 2012 and ~~first nine months of~~ 2011, respectively, compared to decreases of 1.0% and 6.9% in the third quarter and first nine months of 2010, respectively, reflecting our continuing strategy to reduce our concentration in spread-based products.respectively. Average contractholder funds decreased ~~9.7% and 9.4%~~11.7% in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the same ~~periods~~period of ~~2010.~~2011.

Contractholder deposits decreased ~~42.8% and 34.1%~~31.3% in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the same ~~periods~~period of ~~2010~~2011 primarily due to ~~lower deposits on~~the absence of Allstate Bank ~~products and fixed annuities.~~deposits in the current year period. In September 2011, Allstate Bank stopped opening new customer ~~accounts.~~accounts and all funds were returned to Allstate Bank account holders prior to December 31, 2011.

Maturities of and ~~retirements of~~interest payments on institutional products decreased ~~$965 million~~ to ~~$819~~$1 million in the first ~~nine months~~quarter of ~~2011~~2012 from ~~$1.78 billion~~$487 million in the ~~same period~~first quarter of ~~2010,~~2011, reflecting the continuing decline in these ~~obligations over the past three years.~~obligations.

Surrenders and partial withdrawals on deferred fixed annuities and interest-sensitive life insurance products ~~and Allstate Bank products (including maturities~~decreased 7.5% to $943 million in the first quarter of ~~certificates of deposit) increased 16.8% to $1.51~~2012 from $1.02 billion in the ~~third quarter~~same period of 2011 and 16.2% to $4.53 billion in the first nine months of 2011 from $1.30 billion and $3.90 billion in the third quarter and first nine months of 2010, respectively, primarily due to higher surrenders and partial withdrawals on fixed annuities, partially offset by lower surrenders and partial withdrawals on Allstate Bank products and interest-sensitive life insurance products. The increase for fixed annuities resulted from an increased number of contracts reaching the 30-45 day period (typically at their 5 or 6 year anniversary) during which there is no surrender charge as well as crediting rate actions taken by management.2011. The annualized surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, ~~and Allstate Bank products,~~

based on the beginning of year contractholder funds, was ~~15.0%~~10.7% in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~12.2%~~10.4% in the ~~first nine months~~same period of ~~2010.~~2011.

Net investment income ~~decreased 3.5%~~increased 0.4% or ~~$25~~$3 million to ~~$682~~$687 million in the ~~third~~first quarter of ~~2011 and 4.7% or $101~~2012 from $684 million ~~to $2.06 billion~~ in the ~~first nine months~~same period of 2011 ~~from $707 million and $2.16 billion in the third quarter and first nine months of 2010, respectively,~~ primarily due to ~~reduced average investment balances which were partially offset by higher yields. The higher yields are primarily attributable to yield optimization actions including~~income from limited partnerships and the termination of interest rate swaps ~~during~~in the first quarter of ~~2011. Net investment~~2011, partially offset by lower yields on fixed income ~~was $684 million and $694 million in the first quarter and second quarter of 2011, respectively.~~securities.

Net realized capital gains and losses are presented in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011

*Impairment write-downs*	$	(85)	$	(80)	$	(178)	$	(367)	$	(20)	$	(50)
*Change in intent write-downs*		(3)		(20)		(50)		(100)		(16)		(42)
*Net other-than-temporary impairment losses recognized in earnings*		(88)		(100)		(228)		(467)		(36)		(92)
*Sales*		485		89		708		151		(8)		111
*Valuation of derivative instruments*		(198)		10		(240)		(193)		8		(4)
*Settlements of derivative instruments*		9		(34)		19		(45)		15		6
*EMA limited partnership income(1)*		11		(3)		61		1		--		18
*Realized capital gains and losses, pre-tax*		219		(38)		320		(553)		(21)		39
*Income tax (expense) benefit*		(77)		13		(113)		193
Income tax benefit (expense)										7		(14)
*Realized capital gains and losses, after-tax*	$	142	$	(25)	$	207	$	(360)	$	(14)	$	25

(1) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

For further discussion of realized capital gains and losses, see the Investments section of the MD&A.

Analysis of costs and expenses Total costs and expenses ~~increased 7.4%~~decreased 5.5% or ~~$81 million in the third quarter of 2011 and 2.0% or $67~~$62 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the same ~~periods~~period of ~~2010~~2011 primarily due to ~~higher amortization of DAC, partially offset by~~ lower interest credited to contractholder ~~funds.~~funds and amortization of DAC.

Life and annuity contract benefits ~~increased 2.2%~~decreased 3.3% or $10 million in the third quarter of 2011 compared to the third quarter of 2010 primarily due to unfavorable mortality in interest-sensitive life insurance products. Life and annuity contract benefits decreased 3.0% or $41$15 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the same period of ~~2010~~2011 primarily due to ~~reserve reestimations recorded in second quarter 2010 that did not recur in 2011.~~

The reserve reestimations in the second quarter of 2010 utilized more refined policy level information and assumptions. The increase in reserves for certain secondary guarantees on universal life insurance policies resulted in a charge tolower contract benefits ~~of $68 million and a related reduction in amortization of DAC of $50 million. The~~on immediate annuities with life contingencies, reflecting the decrease in ~~reserves for immediate annuities resulted in a credit to contract benefits of $26 million. The net impact was an increase to income of $8 million, pre-tax.~~premiums on these products, partially offset by higher mortality experience on life insurance.

We analyze our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and life and annuity contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies (“benefit spread”). This implied interest totaled ~~$135~~$134 million and ~~$405~~$135 million in the ~~third~~first quarter of 2012 and ~~first nine months of~~ 2011, ~~respectively, compared to $135 million and $413 million in the third quarter and first nine months of 2010,~~ respectively.

The benefit spread by product group is disclosed in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Life insurance	$	90	$	93	$	281	$	204	$	91	$	93
Accident and health insurance		70		65		215		189		73		74
Annuities		(26)		(17)		(46)		(11)		(12)		(12)
Total benefit spread	$	134	$	141	$	450	$	382	$	152	$	155

Benefit spread decreased ~~5.0%~~1.9% or $7 million in the third quarter of 2011 compared to the third quarter of 2010 primarily due to unfavorable mortality experience on annuities and interest-sensitive life insurance. Benefit spread increased 17.8% or $68$3 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the same period of ~~2010~~2011 primarily due to ~~reestimations~~higher mortality experience on life insurance, partially offset by higher cost of ~~reserves that increased~~insurance contract ~~benefits for~~charges on interest-sensitive life insurance and decreased contract benefits for immediate annuities with life contingencies in 2010, and favorable morbidity experience on certain accident and health products and growth at Allstate Benefits.insurance.

Interest credited to contractholder funds decreased ~~9.0%~~9.6% or $40 million in the ~~third~~first quarter of ~~2011 and 8.7% or $118 million in the first nine months of 2011~~2012 compared to the same ~~periods~~period of ~~2010~~2011 primarily due to lower average contractholder funds and lower interest crediting rates on deferred fixed annuities, immediate fixed annuities and interest-sensitive life ~~insurance and immediate fixed annuities. Additionally, valuation~~insurance. Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged increased interest credited to contractholder funds by $6$10 million in the ~~third~~first quarter of ~~2011 and decreased interest credited~~2012 compared to ~~contractholder funds by $2~~a $12 million decrease in the first ~~nine months~~quarter of 2011.

Amortization of deferred sales inducement costs ~~in the third quarter and first nine months of 2011~~ was ~~$8 million and $23 million, respectively, compared to $3 million and $14~~$1 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2010, respectively.~~2012 compared to $10 million in the same period of 2011.

In order to analyze the impact of net investment income and interest credited to contractholders on net income, we monitor the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of life and annuity contract benefits on the Condensed Consolidated Statements of Operations (“investment spread”).

The investment spread by product group is shown in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Annuities and institutional products	$	48	$	44	$	147	$	148	$	87	$	48
Life insurance		17		11		42		24		18		11
Accident and health insurance										6		5
Allstate Bank products		6		8		20		24		--		8
Accident and health insurance		4		5		14		13
Net investment income on investments supporting capital		67		59		192		181		64		59
Total investment spread	$	142	$	127	$	415	$	390	$	175	$	131

Investment spread increased ~~11.8%~~33.6% or ~~$15 million in the third quarter of 2011 and 6.4% or $25~~$44 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the same ~~periods~~period of ~~2010 as actions~~2011 due to ~~improve investment portfolio yields and~~income from limited partnerships, lower crediting rates ~~more than~~and the termination of interest rate swaps in first quarter 2011, partially offset by an unfavorable change in the ~~effect~~valuation of derivatives embedded in equity-indexed annuity contracts, lower yields on fixed income securities and the ~~continuing decline~~continued managed reduction in our ~~spread-based~~spread based business in force.

To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities and capital, interest crediting rates and investment ~~spreads.~~spreads for the three months ended March 31.

Three months ended September 30,

Weighted average
investment yield

Weighted average
interest crediting rate

Weighted average
investment spreads

2011

2010

2011

2010

2011

2010

Interest-sensitive life insurance
5.4
%
5.5
%
4.1
%
4.4
%
1.3
%
1.1
%
Deferred fixed annuities and institutional products
4.7

4.4

3.3

3.3

1.4

1.1

Immediate fixed annuities with and without life contingencies
6.4

6.3

6.2

6.3

0.2

--

Investments supporting capital, traditional life and other products
3.8

3.7

n/a

n/a

n/a

n/a

	Nine months ended September 30,
	Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads				Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads
	2011		2010		2011		2010		2011		2010		2012		2011		2012		2011		2012		2011
Interest-sensitive life insurance	5.5	%	5.5	%	4.2	%	4.4	%	1.3	%	1.1	%	5.4	%	5.4	%	4.1	%	4.2	%	1.3	%	1.2	%
Deferred fixed annuities and institutional products	4.6		4.4		3.3		3.2		1.3		1.2		4.5		4.5		3.2		3.3		1.3		1.2
Immediate fixed annuities with and without life contingencies	6.3		6.4		6.2		6.4		0.1		--		7.8		6.2		6.1		6.2		1.7		--
Investments supporting capital, traditional life and other products	3.7		3.7		n/a		n/a		n/a		n/a		3.9		3.7		n/a		n/a		n/a		n/a

The following table summarizes our product liabilities and indicates the account value of those contracts and policies in which an investment spread is generated.

($ in millions)		September 30,				March 31,
		2011		2010		2012		2011
Immediate fixed annuities with life contingencies	$	8,800	$	8,651	$	8,843	$	8,753
Other life contingent contracts and other		5,508		5,304		5,453		4,798
Reserve for life-contingent contract benefits	$	14,308	$	13,955	$	14,296	$	13,551

Interest-sensitive life insurance	$	10,758	$	10,578	$	10,853	$	10,720
Deferred fixed annuities		26,044		30,071		24,495		28,586
Immediate fixed annuities without life contingencies		3,737		3,809		3,832		3,797
Institutional products		1,914		2,678		1,914		2,193
Allstate Bank products		797		1,103		--		1,033
Market value adjustments related to fair value hedges and other		526		697		509		505
Contractholder funds	$	43,776	$	48,936	$	41,603	$	46,834

7265

Amortization of DAC ~~increased $124 million in the third quarter of 2011 and $257~~decreased 15.8% or $19 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the same ~~periods~~period of ~~2010.~~2011. The components of amortization of DAC are summarized in the following table.

($ in millions)

Three months ended
September 30,

Nine months ended
September 30,

2011

2010

2011

2010
Amortization of DAC before amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged and changes in assumptions
$
(101)
$
(101)
$
(304)
$
(240)
(Amortization) accretion relating to realized capital gains and losses(1) and valuation changes on embedded derivatives that are not hedged

(114)

10

(156)

13
Amortization (acceleration) deceleration for changes in assumptions (“DAC unlocking”)

--

--

(12)

12
Total amortization of DAC
$
(215)
$
(91)
$
(472)
$
(215)

		Three months ended March 31,
($ in millions)		2012		2011
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions	$	86	$	83
Amortization relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged		15		30
Amortization acceleration for changes in assumptions (“DAC unlocking”)		--		7
Total amortization of DAC	$	101	$	120

(1)The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits.

The ~~increase~~decrease of ~~$124~~$19 million in the ~~third~~first quarter of 2012 compared to the same period of 2011 was primarily due to higher amortization relating to realized capital gains and losses. The increase of $257 million in the first nine months of 2011 was primarily due to increased amortization relating to realized capital gains, lower amortization in the second quarter of 2010 resulting from decreased ~~benefit spread on interest-sensitive life insurance due to the reestimation of reserves, and an unfavorable change in amortization acceleration/deceleration for changes in assumptions. DAC~~ amortization relating to realized capital gains and losses ~~primarily resulted from realized capital gains on sales~~and the absence of ~~fixed income securities~~DAC unlocking in ~~2011.~~the current year period. In 2012, we plan to complete our annual comprehensive DAC review in the third quarter.

~~During the first quarter of~~Our annual 2011 ~~we completed our annual~~ comprehensive review of the profitability of our products to determine DAC balances for our interest-sensitive life, fixed annuities and other investment contracts which covers assumptions for investment returns, including capital gains and losses, interest crediting rates to policyholders, the effect of any hedges, persistency, mortality and expenses in all product ~~lines.~~lines took place in first quarter 2011. The review resulted in an acceleration of DAC amortization (charge to income) of ~~$12~~$7 million in the first quarter of 2011. Amortization acceleration of ~~$17~~$12 million related to interest-sensitive life insurance and was primarily due to an increase in projected expenses. Amortization deceleration of $5 million related to equity-indexed annuities and was primarily due to an increase in projected investment margins.

In the first quarter of 2010, the review resulted in a deceleration of DAC amortization (credit to income) of $12 million. Amortization deceleration of $45 million related to variable life insurance and was primarily due to appreciation in the underlying separate account valuations. Amortization acceleration of $32 million related to interest-sensitive life insurance and was primarily due to an increase in projected realized capital losses and lower projected renewal premium (which is also expected to reduce persistency), partially offset by lower expenses.

Operating costs and expenses ~~decreased 11.0% and 8.5%~~increased 7.6% or $10 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the same ~~periods~~period of ~~2010.~~2011. The following table summarizes operating costs and expenses.

										Three months ended March 31,
($ in millions)		Three months ended September 30,				Nine months ended September 30,				2012		2011
		2011		2010		2011		2010
Non-deferrable acquisition costs	$	41	$	43	$	123	$	128
Other operating costs and expenses		64		75		201		226
Non-deferrable commissions									$	25	$	28
General and administrative expenses										102		89
Taxes and licenses										15		15
Total operating costs and expenses	$	105	$	118	$	324	$	354	$	142	$	132

Restructuring and related charges	$	--	$	--	$	(2)	$	(1)	$	--	$	(2)

Non-deferrable ~~acquisition costs~~commissions decreased ~~4.7% or $2 million and 3.9% or $5~~$3 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the same ~~periods~~period of ~~2010~~2011 primarily due to lower ~~premium tax~~

sales commissions on immediate annuities and certain life insurance products. General and administrative expenses ~~and lower non-deferrable commissions. Other operating costs and expenses decreased 14.7%~~increased 14.6% or ~~$11 million and 11.1% or $25~~$13 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2011, respectively,~~2012 compared to the same ~~periods~~period of ~~2010. The declines were~~2011 primarily due to ~~lower employee~~increased marketing costs and ~~professional service costs,~~ reduced insurance department ~~expense~~ assessments ~~and lower net Allstate agencies distribution channel expenses reflecting increased fees from sales of third party financial products.~~in the prior year period.

~~Loss~~Gain on disposition of ~~$16~~$3 million in the first ~~nine months~~quarter of 2012 relates to the amortization of the deferred gain from the Prudential reinsurance agreement. Loss on dispositionof $20 million in the first quarter of 2011 ~~includes $22~~included $25 million related to the ~~planned~~ dissolution of Allstate Bank. In ~~third quarter~~ 2011, ~~we received~~after receiving regulatory approval to ~~voluntarily~~ dissolve, Allstate ~~Bank.~~Bank ceased operations. In the first quarter of 2012, the bank received the order that it had requested from the Federal Deposit Insurance Company terminating its deposit insurance effective June 30, 2012. We expect to ~~return all funds to customers, cease Allstate Bank operations,~~ cancel the bank’s charter ~~of the bank,~~ and deregister The Allstate Corporation as a savings and loan holding company by ~~the first half of 2012.~~June

~~Income tax expense~~66 of $91 million and $221 million was recognized for the third quarter and first nine months of 2011, respectively, compared to income tax expense of $37 million and an income tax benefit of $28 million in the same periods of 2010, respectively. This change was due to the proportionate change in the income on which the income tax expense was determined.

30, 2012.

INVESTMENTS HIGHLIGHTS

·	~~Investments as of September 30, 2011 totaled $97.53 billion, a decrease of 2.9% from $100.48 billion as of December 31, 2010.~~
·	~~Unrealized net capital gains totaled $2.36 billion as of September 30, 2011, improving from $1.39 billion as of December 31, 2010.~~
·	As of September 30, 2011, 50% of our below investment grade gross unrealized losses were concentrated in residential mortgage-backed securities, specifically Alt-A residential mortgage-backed securities and Subprime residential mortgage-backed securities. The fair value of these securities totaled $928 million, a decrease of 14.4%, compared to $1.08 billion as of December 31, 2010. Gross unrealized losses on these securities totaled $445 million as of September 30, 2011, an improvement of 19.7%, compared to $554 million as of December 31, 2010.
·	Net investment income was $994 million in the third quarter of 2011, a decrease of 1.1% from $1.01 billion in the third quarter of 2010, and $3.00 billion in the first nine months of 2011, a decrease of 3.5% from $3.10 billion in the first nine months of 2010.
·	Net realized capital gains were $264 million in the third quarter of 2011 compared to net realized capital losses of $144 million in the third quarter of 2010. Net realized capital gains were $417 million in the first nine months of 2011 compared to net realized capital losses of $943 million in the first nine months of 2010.
·	Total derivative net realized capital losses were $234 million in the third quarter of 2011 compared to net realized capital losses of $285 million in the third quarter of 2010, and net realized capital losses of $354 million in the first nine months of 2011 compared to net realized capital losses of $780 million in the first nine months of 2010.

·Investments totaled $97.01 billion as of March 31, 2012, an increase of 1.5% from $95.62 billion as of December 31, 2011.

74·Unrealized net capital gains totaled $3.56 billion as of March 31, 2012, increasing from $2.88 billion as of December 31, 2011.

·Net investment income was $1.01 billion in the first quarter of 2012, an increase of 3.0% from $982 million in the first quarter of 2011.

·Net realized capital gains were $168 million in the first quarter of 2012 compared to $96 million in the first quarter of 2011.

INVESTMENTS

~~Early in 2011, we~~executed yield and return enhancement strategies to optimize the maturity profile of our fixed income portfolio. We shifted out of longer term fixed rate and shorter term lower yielding securities into intermediate-term maturity securities. Additionally, we increased our exposure to high yield corporate bonds through a higher targeted allocation and reinvestment of proceeds from the sale of lower rated structured securities. During the third quarter of 2011 we capitalized on valuation gains on foreign government, U.S. Treasury and other fixed income securities that resulted from historically low interest rates through sales which generated $630 million of realized capital gains. Proceeds were primarily invested in intermediate-term corporate bonds at current market rates.

The composition of the investment portfolios as of ~~September 30, 2011~~March 31, 2012 is presented in the table below.

($ in millions)		Property-Liability (5)			Allstate Financial (5)			Corporate and Other (5)			Total			Property-Liability (5)			Allstate Financial (5)			Corporate and Other (5)			Total
			Percent to total			Percent to total			Percent to total			Percent to total			Percent to total			Percent to total			Percent to total			Percent to total
Fixed income securities (1)	$	27,002	77.1%	$	46,867	79.4%	$	2,525	73.2%	$	76,394	78.3%	$	28,906	78.7%	$	46,269	80.3%	$	2,048	76.9%	$	77,223	79.6%
Equity securities (2)		3,977	11.4		180	0.3		--	--		4,157	4.3		3,636	9.9		211	0.4		--	--		3,847	4.0
Mortgage loans		377	1.1		6,579	11.1		--	--		6,956	7.1		494	1.3		6,673	11.6		--	--		7,167	7.4
Limited partnership interests (3)		2,863	8.2		1,508	2.6		36	1.0		4,407	4.5		2,889	7.9		1,729	3.0		19	0.7		4,637	4.8
Short-term (4)		719	2.0		1,908	3.2		890	25.8		3,517	3.6		608	1.7		681	1.2		597	22.4		1,886	1.9
Other		68	0.2		2,026	3.4		--	--		2,094	2.2		192	0.5		2,057	3.5		--	--		2,249	2.3
Total	$	35,006	100.0%	$	59,068	100.0%	$	3,451	100.0%	$	97,525	100.0%	$	36,725	100.0%	$	57,620	100.0%	$	2,664	100.0%	$	97,009	100.0%

(1)Fixed income securities are carried at fair value. Amortized cost basis for these securities was ~~$26.51~~$28.09 billion, ~~$44.97~~$43.97 billion and ~~$2.46~~$2.00 billion for Property-Liability, Allstate Financial and Corporate and Other, respectively.

(2)Equity securities are carried at fair value. Cost basis for these securities was ~~$4.09~~$3.27 billion and ~~$158~~$160 million for Property-Liability and Allstate Financial, respectively.

(3)We have commitments to invest in additional limited partnership interests totaling ~~$1.22~~$1.20 billion and ~~$780~~$723 million for Property-Liability and Allstate Financial, respectively.

(4)Short-term investments are carried at fair value. Amortized cost basis for these investments was ~~$719~~$608 million, ~~$1.91 billion~~$681 million and ~~$890~~$597 million for Property-Liability, Allstate Financial and Corporate and Other, respectively.

(5)Balances reflect the elimination of related party investments between segments.

Total investments ~~decreased~~increased to ~~$97.53~~$97.01 billion as of ~~September 30, 2011,~~March 31, 2012, from ~~$100.48~~$95.62 billion as of December 31, ~~2010,~~2011, primarily due to ~~net reductions in contractholder obligations, partially offset by~~ higher valuations of fixed income and equity securities and an increase of ~~$321~~$213 million in collateral from securities lending ~~activities.~~activities, partially offset by net reductions in contractholder funds. Valuations of fixed income securities are typically driven by a combination of changes in relevant risk-free interest rates and credit spreads over the period. Risk-free interest rates are typically referenced as the yield on U.S. Treasury securities, whereas credit spread is the additional yield on fixed income securities above the risk-free rate that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. ~~U.S. Treasury securities continue to trade in active markets, and the yield curve on U.S. Treasury securities remains an appropriate basis for determining risk-free rates.~~ The increase in valuation of fixed income securities for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 was due to ~~declining risk-free interest rates,~~tightening credit spreads, partially offset by ~~widening credit spreads.~~increasing risk-free interest rates.

The Property-Liability investment portfolio ~~decreased~~increased to ~~$35.01~~$36.73 billion as of ~~September 30, 2011,~~March 31, 2012, from ~~$35.05~~$36.00 billion as of December 31, ~~2010,~~2011, primarily due to ~~lower~~the higher valuations of equity and fixed income securities, positive operating cash flows and increased collateral from securities lending activities, partially offset by dividends paid by Allstate Insurance Company (“AIC”) to its parent, The Allstate Corporation (the “Corporation”)~~, partially offset by positive operating cash flows and increased collateral from securities lending activities.~~.

The Allstate Financial investment portfolio ~~decreased~~increased to ~~$59.07~~$57.62 billion as of ~~September 30, 2011,~~March 31, 2012, from ~~$61.58~~$57.37 billion as of December 31, ~~2010,~~2011, primarily due to ~~net reductions in contractholder obligations of $4.41 billion, partially offset by~~ higher valuations of fixed income ~~securities.~~securities, partially offset by net reductions in contractholder funds of $729 million.

The Corporate and Other investment portfolio ~~decreased~~increased to ~~$3.45~~$2.66 billion as of ~~September 30, 2011,~~March 31, 2012, from ~~$3.85~~$2.25 billion as of December 31, ~~2010,~~2011, primarily due to dividends of $450 million paid by AIC to the Corporation and the

proceeds of $500 million of senior notes issued in January 2012, partially offset by repayment of $350 million of debt, share repurchases, dividends paid to shareholders and interest paid on ~~debt, partially offset by dividends of $638 million paid by AIC to the Corporation.~~debt.

Fixed income securities by type are listed in the table below.

($ in millions)		Fair value as of September 30, 2011	Percent to total investments		Fair value as of December 31, 2010	Percent to total investments		Fair value as of March 31, 2012	Percent to total investments		Fair value as of December 31, 2011	Percent to total investments
U.S. government and agencies	$	4,346	4.4%	$	8,596	8.6%	$	5,541	5.7%	$	6,315	6.6%
Municipal		14,999	15.4		15,934	15.9		13,614	14.0		14,241	14.9
Corporate		44,529	45.7		37,655	37.5		46,331	47.8		43,581	45.6
Foreign government		2,133	2.2		3,158	3.1		1,989	2.1		2,081	2.2
Residential mortgage-backed securities (“RMBS”)		4,632	4.7		7,993	7.9		3,728	3.8		4,121	4.3
Commercial mortgage-backed securities (“CMBS”)		1,824	1.9		1,994	2.0		1,753	1.8		1,784	1.9
Asset-backed securities (“ABS”)		3,906	4.0		4,244	4.2		4,242	4.4		3,966	4.1
Redeemable preferred stock		25	--		38	--		25	--		24	--
Total fixed income securities	$	76,394	78.3%	$	79,612	79.2%	$	77,223	79.6%	$	76,113	79.6%

As of ~~September 30, 2011, 91.6%~~March 31, 2012, 90.6% of the consolidated fixed income securities portfolio was rated investment grade, which 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 Standard & Poor’s (“S&P”), Fitch, Dominion, or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. All of our fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners, ~~(“NAIC”),~~ and/or internally rated. Our initial investment decisions and ongoing monitoring procedures for fixed income securities are based on a thorough due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure, and liquidity risks of each issue.

7668

The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of ~~September 30, 2011.~~March 31, 2012.

($ in millions)		Aaa				Aa				A				Aaa				Aa				A
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
U.S. government and agencies	$	4,346	$	337	$	--	$	--	$	--	$	--	$	5,541	$	282	$	--	$	--	$	--	$	--

Municipal
Tax exempt		958		62		4,755		186		2,274		84		1,035		50		4,103		195		2,046		108
Taxable		206		23		2,706		288		1,121		86		209		24		2,676		320		1,105		102
Auction rate securities (“ARS”)		668		(43)		58		(7)		79		(14)		384		(27)		208		(30)		64		(10)

Corporate
Public		1,079		57		3,223		176		11,643		724		959		55		2,610		156		11,920		802
Privately placed		1,078		52		1,654		101		4,374		283		1,271		52		1,501		93		4,204		290

Foreign government		778		117		458		30		534		25		767		106		457		29		432		30

RMBS
U.S. government sponsored entities (“U.S. Agency”)		2,250		108		--		--		--		--		1,624		79		--		--		--		--
Prime residential mortgage-backed securities (“Prime”)		244		4		30		(1)		188		3		162		3		51		1		156		4
Alt-A residential mortgage-backed securities (“Alt-A”)		--		--		41		(1)		71		1		--		--		19		--		54		1
Subprime residential mortgage-backed securities (“Subprime”)		--		--		52		(20)		43		(9)		--		--		28		(5)		38		(8)

CMBS		989		24		206		(13)		178		(41)		899		46		184		5		187		(13)

ABS
Collateralized debt obligations (“CDO”)		84		(2)		784		(36)		354		(77)		152		(3)		752		(24)		320		(56)
Consumer and other asset-backed securities (“Consumer and other ABS”)		1,321		40		311		4		359		5		1,375		41		426		4		471		5

Redeemable preferred stock		--		--		1		--		--		--		--		--		1		--		--		--

Total fixed income securities	$	14,001	$	779	$	14,279	$	707	$	21,218	$	1,070	$	14,378	$	708	$	13,016	$	744	$	20,997	$	1,255

		Baa				Ba or lower				Total				Baa				Ba or lower				Total
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
U.S. government and agencies	$	--	$	--	$	--	$	--	$	4,346	$	337	$	--	$	--	$	--	$	--	$	5,541	$	282

Municipal
Tax exempt		1,117		(11)		465		(55)		9,569		266		844		18		391		(52)		8,419		319
Taxable		425		(17)		99		(18)		4,557		362		375		(17)		113		(21)		4,478		408
ARS		68		(10)		--		--		873		(74)		--		--		61		(16)		717		(83)

Corporate
Public		11,052		671		2,471		(78)		29,468		1,550		12,448		729		3,098		69		31,035		1,811
Privately placed		6,617		212		1,338		(4)		15,061		644		6,701		276		1,619		(10)		15,296		701

Foreign government		363		20		--		--		2,133		192		333		30		--		--		1,989		195

RMBS
U.S. Agency		--		--		--		--		2,250		108		--		--		--		--		1,624		79
Prime		36		1		512		(20)		1,010		(13)		35		--		484		(3)		888		5
Alt-A		33		--		386		(75)		531		(75)		56		--		387		(57)		516		(56)
Subprime		62		(30)		684		(356)		841		(415)		38		(12)		596		(234)		700		(259)

CMBS		282		(94)		169		(97)		1,824		(221)		284		(50)		199		(99)		1,753		(111)

ABS
CDO		193		(72)		243		(67)		1,658		(254)		171		(46)		273		(52)		1,668		(181)
Consumer and other ABS		229		3		28		(2)		2,248		50		286		4		16		(3)		2,574		51

Redeemable preferred stock		24		2		--		--		25		2		24		2		--		--		25		2

Total fixed income securities	$	20,501	$	675	$	6,395	$	(772)	$	76,394	$	2,459	$	21,595	$	934	$	7,237	$	(478)	$	77,223	$	3,163

7769

Municipal bonds, including tax exempt, taxable and ARS securities, totaled ~~$15.00~~$13.61 billion as of ~~September 30, 2011~~March 31, 2012 with an unrealized net capital gain of ~~$554~~$644 million. The municipal bond portfolio includes general obligations of state and local issuers, revenue bonds and pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest.

~~The following table summarizes by state the fair value, amortized cost and credit rating of our municipal bonds, excluding $1.44 billion of pre-refunded bonds, as of September 30, 2011.~~

($ in millions)

State

State
general
obligation

Local general
obligation

Revenue (1)

Fair value

Amortized
cost

Average
credit
rating (2)
California
$
77
$
688
$
693
$
1,458
$
1,438

A
Texas

24

442

619

1,085

1,028

Aa
Florida

46

185

582

813

782

A
New York

33

107

537

677

642

Aa
Ohio

103

210

290

603

595

A
Illinois

--

168

362

530

494

A
Missouri

31

128

289

448

434

A
Michigan

43

144

240

427

412

Aa
Delaware

--

--

411

411

435

Aa
Pennsylvania

93

93

215

401

394

Aa
All others

1,103

1,546

4,055

6,704

6,463

A
Total
$
1,553
$
3,711
$
8,293
$
13,557
$
13,117

A

~~(1)~~The nature of the activities supporting revenue bonds is highly diversified and includes transportation, health care, industrial development, housing, higher education, utilities, recreation/convention centers and other activities.

~~(2)The municipal bonds are rated by third party credit rating agencies, the NAIC and/or internally rated.~~

Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers’ credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor. As of September 30, 2011, 99.4% of our insured municipal bond portfolio is rated investment grade. Given the effects of the economic crisis on bond insurers, the value inherent in the insurance has declined. Further, we believe the fair value of our insured municipal bond portfolio substantially reflects the decline in the value of the insurance. We believe that the loss of the benefit of insurance would not result in a material adverse impact on our results of operations, financial position or liquidity.

Included in our municipal bond holdings as of September 30, 2011 are $783 million of municipal securities which are not rated by third party credit rating agencies, but are rated by the NAIC and are also internally rated. These holdings include $369 million of below investment grade municipal bonds, most of which were purchased to provide the opportunity to achieve incremental returns.

Corporate bonds, including publicly traded and privately placed, totaled ~~$44.53~~$46.33 billion as of ~~September 30, 2011~~March 31, 2012 with an unrealized net capital gain of ~~$2.19~~$2.51 billion. Privately placed securities primarily consist of corporate issued senior debt securities that are directly negotiated with the borrower or are in unregistered form.

RMBS, CMBS and ABS are structured securities that are primarily collateralized by residential and commercial real estate loans and other consumer or corporate borrowings. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating. For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded

in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate ~~mortgages (“ARM”))~~mortgages) or may contain features of both fixed and variable rate mortgages.

RMBS, including U.S. Agency, Prime, Alt-A and Subprime, totaled ~~$4.63~~$3.73 billion, with ~~65.8%~~60.6% rated investment grade, as of ~~September 30, 2011.~~March 31, 2012. The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to significant prepayment risk from the underlying residential mortgage loans. The credit risk associated with the U.S. Agency portfolio is mitigated because they were issued by or have underlying collateral guaranteed by U.S. government agencies. The unrealized net capital loss of ~~$395~~$231 million as of ~~September 30, 2011~~March 31, 2012 was the result of wider credit spreads than at initial purchase on the non-U.S. Agency portion of our RMBS portfolio, largely due to higher risk premiums caused by macroeconomic conditions and credit market deterioration, including the impact of lower residential real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas. The following table shows our RMBS portfolio as of ~~September 30, 2011~~March 31, 2012 based upon vintage year of the issuance of the securities.

($ in millions)	($ in millions)	U.S. Agency				Prime				Alt-A				Subprime				Total RMBS				U.S. Agency				Prime				Alt-A				Subprime				Total RMBS
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
2011																					$	21	$	--	$	--	$	--	$	--	$	--	$	--	$	--	$	21	$	--
2010	$	58	$	2	$	180	$	4	$	54	$	2	$	--	$	--	$	292	$	8		35		--		160		3		49		2		--		--		244		5
2009		317		11		62		1		7		--		--		--		386		12		235		8		53		1		7		--		--		--		295		9
2008		472		19		--		--		--		--		--		--		472		19		332		15		--		--		--		--		--		--		332		15
2007		169		6		223		--		64		(27)		204		(114)		660		(135)		97		4		197		7		64		(17)		199		(74)		557		(80)
2006		142		6		180		--		152		(19)		209		(113)		683		(126)		83		5		164		4		140		(20)		152		(46)		539		(57)
2005		303		16		160		(15)		112		(17)		229		(113)		804		(129)		254		12		145		(9)		121		(13)		186		(76)		706		(86)
Pre-2005		789		48		205		(3)		142		(14)		199		(75)		1,335		(44)		567		35		169		(1)		135		(8)		163		(63)		1,034		(37)
Total	$	2,250	$	108	$	1,010	$	(13)	$	531	$	(75)	$	841	$	(415)	$	4,632	$	(395)	$	1,624	$	79	$	888	$	5	$	516	$	(56)	$	700	$	(259)	$	3,728	$	(231)

Prime are collateralized by residential mortgage loans issued to prime borrowers. ~~As of September 30, 2011, $763 million of the Prime had fixed rate underlying collateral and $247 million had variable rate underlying collateral.~~

Alt-A includes securities collateralized by residential mortgage loans issued to borrowers who do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation, but have stronger credit profiles than subprime borrowers. ~~As of September 30, 2011, $406 million of the Alt-A had fixed rate underlying collateral and $125 million had variable rate underlying collateral.~~

Subprime includes securities collateralized by residential mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history. It also includes securities that are collateralized by certain second lien mortgages regardless of the borrower’s credit history. The Subprime portfolio consisted of ~~$623~~$528 million and ~~$218~~$172 million of first lien and second lien securities, respectively. ~~As of September 30, 2011, $463 million of the Subprime had fixed rate underlying collateral and $378 million had variable rate underlying collateral.~~

CMBS totaled ~~$1.82~~$1.75 billion, with ~~90.7%~~88.6% rated investment grade, as of ~~September 30, 2011.~~March 31, 2012. The CMBS portfolio is subject to credit risk, but unlike certain other structured securities, is generally not subject to prepayment risk due to protections within the underlying commercial mortgage loans. Of the CMBS investments, ~~93.6%~~93.0% are traditional

conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and geographical area. The remainder consists of non-traditional CMBS such as small balance transactions, large loan pools and single borrower transactions.

The following table shows our CMBS portfolio as of ~~September 30, 2011~~March 31, 2012 based upon vintage year of the underlying collateral.

($ in millions)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
2011	$	1	$	--	$	5	$	--
2010		24		1		25		2
2007		263		(30)		282		(8)
2006		527		(146)		544		(90)
2005		288		(49)		248		(29)
Pre-2005		721		3		649		14
Total CMBS	$	1,824	$	(221)	$	1,753	$	(111)

The unrealized net capital loss of ~~$221~~$111 million as of ~~September 30, 2011~~March 31, 2012 on our CMBS portfolio was the result of wider credit spreads than at initial purchase in our 2005-2007 vintage year CMBS. This is largely due to the macroeconomic conditions and credit market deterioration, including the impact of lower commercial real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas. ~~CMBS credit spreads in most rating classes remain wider than at initial purchase, which is particularly evident in our 2005-2007 vintage year CMBS.~~

ABS, including CDO and Consumer and other ABS, totaled ~~$3.91~~$4.24 billion, with ~~93.1%~~93.2% rated investment grade, as of ~~September 30, 2011.~~March 31, 2012. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees and/or insurance. The unrealized net capital loss of ~~$204~~$130 million as of ~~September 30, 2011~~March 31, 2012 on our ABS portfolio was the result of wider credit spreads than at initial purchase.

CDO totaled ~~$1.66~~$1.67 billion, with ~~85.3%~~83.6% rated investment grade, as of ~~September 30, 2011.~~March 31, 2012. CDO consist primarily of obligations collateralized by high yield and investment grade corporate credits including ~~$1.35~~$1.37 billion of cash flow collateralized loan obligations (“CLO”) with unrealized losses of ~~$154~~$78 million. Cash flow CLO are structures collateralized primarily by below investment grade senior secured corporate loans. The underlying collateral is actively managed by external managers that monitor the collateral’s performance and is well diversified across industries and among issuers. The remaining ~~$308~~$303 million of securities consisted of synthetic CDO, trust preferred CDO, project finance CDO, market value CDO, collateralized bond obligations and other CLO with unrealized losses of ~~$100~~$103 million.

Consumer and other ABS totaled ~~$2.25~~$2.57 billion, with ~~98.8%~~99.4% rated investment grade, as of ~~September 30, 2011.~~March 31, 2012. Consumer and other ABS consists of ~~$773~~$680 million of consumer auto and ~~$1.48~~$1.89 billion of other ABS with unrealized gains of $5 million and ~~$45~~$46 million, respectively.

Mortgage loans Our mortgage loan portfolio, which is primarily held in the Allstate Financial portfolio, totaled ~~$6.96~~$7.17 billion as of ~~September 30, 2011,~~March 31, 2012, compared to ~~$6.68~~$7.14 billion as of December 31, ~~2010,~~2011, and primarily comprises loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification.

We recognized $29 million and $42 million of realized capital losses related to net increases in the valuation allowance on impaired mortgage loans for the three months and nine months ended September 30, 2011, respectively, primarily due to the risk associated with refinancing near-term maturities, and decreases in occupancy which resulted in deteriorating debt service coverage and declines in property valuations. While property valuations show signs of stabilization or recovery in many larger, primary markets, valuations in many smaller cities remain under stress.

For further detail on our mortgage loan portfolio, see Note 4 of the condensed consolidated financial statements.

8071

Limited partnership interests consist of investments in private equity/debt funds, real estate funds, hedge funds and tax credit funds. The limited partnership interests portfolio is well diversified across a number of characteristics including fund ~~sponsors,~~managers, vintage years, strategies, geography (including international), and company/property types. The following table presents information about our limited partnership interests as of ~~September 30, 2011.~~March 31, 2012.

($ in millions)

Private
equity/debt
funds

Real estate
funds

Hedge
funds

Tax
credit
funds

Total
Cost method of accounting (“Cost”)
$
995
$
357
$
86
$
7
$
1,445
Equity method of accounting (“EMA”)

719

626

1,166

451

2,962
Total
$
1,714
$
983
$
1,252
$
458
$
4,407

Number of sponsors

94

44

12

8

Number of individual funds

154

90

82

14

Largest exposure to single fund
$
38
$
135
$
80
$
59

~~Our aggregate limited partnership exposure represented 4.5% and 3.8% of total invested assets as of September 30, 2011 and December 31, 2010, respectively.~~

($ in millions)		Private equity/debt funds		Real estate funds		Hedge funds		Tax credit funds		Total
Cost method of accounting (“Cost”)	$	862	$	385	$	24	$	7	$	1,278
Equity method of accounting (“EMA”)		1,133		845		767		614		3,359
Total	$	1,995	$	1,230	$	791	$	621	$	4,637

Number of managers		93		45		13		10
Number of individual funds		154		92		63		19
Largest exposure to single fund	$	49	$	184	$	80	$	58

The following table shows the results from our limited partnership interests by fund type and accounting ~~classification.~~classification for the three months ended March 31.

($ in millions)		Three months ended September 30,																2012								2011
		2011								2010
		Cost		EMA		Total income		Impairment write-downs (1)		Cost		EMA		Total income		Impairment write-downs (1)		Cost		EMA (2)		Total income		Impairment write-downs (1)		Cost		EMA (2)		Total income		Impairment write-downs (1)
Private equity/debt funds	$	25	$	14	$	39	$	--	$	6	$	(2)	$	4	$	(3)	$	12	$	60	$	72	$	(1)	$	9	$	19	$	28	$	(1)
Real estate funds		9		18		27		(2)		--		(6)		(6)		(6)		1		30		31		(1)		1		8		9		--
Hedge funds		--		(17)		(17)		--		--		(3)		(3)		(1)		--		10		10		--		--		36		36		--
Tax credit funds		(1)		(6)		(7)		--		--		--		--		--		--		(4)		(4)		--		--		--		--		--
Total	$	33	$	9	$	42	$	(2)	$	6	$	(11)	$	(5)	$	(10)	$	13	$	96	$	109	$	(2)	$	10	$	63	$	73	$	(1)

Nine months ended
September 30,

2011

2010

Cost

EMA

Total
income

Impairment
write-downs (1)

Cost

EMA

Total
income

Impairment
write-downs (1)
Private equity/debt funds
$
52
$
66
$
118

$

(2)
$
20
$
33
$
53

$

(5)
Real estate funds

10

45

55

(2)

1

(42)

(41)

(35)
Hedge funds

--

24

24

--

--

22

22

(2)
Tax credit funds

(1)

(8)

(9)

--

(2)

--

(2)

--
   Total
$
61
$
127
$
188
$
(4)
$
19
$
13
$
32
$
(42)

(1)Impairment write-downs related to ~~Cost~~cost method limited partnerships were $2 million and $4$1 million in the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011, ~~respectively, compared to $10 million and $41 million in the three months and nine months ended September 30, 2010,~~ respectively. There were no impairment write-downs related to EMA limited partnerships in the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010 and nine months ended September 30,~~ 2011. ~~Impairment write-downs related to~~

(2) Income from EMA limited partnerships ~~were $1 million~~is reported in ~~the nine months ended September 30, 2010.~~net investment income in 2012 and realized capital gains and losses in 2011.

Limited partnership interests, excluding impairment write-downs, produced income of ~~$42 million and $188~~$109 million in the three months ~~and nine months~~ ended ~~September 30, 2011, respectively,~~March 31, 2012 compared to ~~losses of $5 million and income of $32~~$73 million in the three months ~~and nine months~~ ended ~~September 30, 2010, respectively.~~March 31, 2011. Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements. The recognition of income on hedge funds is primarily on a one-month delay and the income recognition on private equity/debt funds, real estate funds and tax credit funds are generally on a three-month delay. Income on ~~Cost~~cost method limited partnerships is recognized only upon receipt of amounts distributed by the partnerships.

8172

Unrealized net capital gains totaled ~~$2.36~~$3.56 billion as of ~~September 30, 2011~~March 31, 2012 compared to ~~unrealized net capital gains of $1.39~~$2.88 billion as of December 31, ~~2010.~~2011. The ~~improvement since~~increase from December 31, ~~2010~~2011 for fixed income securities was due to ~~declining risk-free interest rates,~~tightening credit spreads, partially offset by ~~widening credit spreads.~~increasing risk-free interest rates. The ~~decline~~improvement since December 31, ~~2010~~2011 for equity securities was primarily due to ~~lower~~higher equity valuations. The following table presents unrealized net capital gains and ~~losses, pre-tax.~~losses.

($ in millions)		September 30, 2011		June 30, 2011		March 31, 2011		December 31, 2010		March 31, 2012		December 31, 2011
U.S. government and agencies	$	337	$	315	$	257	$	276	$	282	$	349
Municipal		554		116		(254)		(267)		644		607
Corporate		2,194		1,759		1,300		1,395		2,512		2,364
Foreign government		192		323		295		337		195		215
RMBS		(395)		(366)		(377)		(516)		(231)		(411)
CMBS		(221)		(97)		(103)		(219)		(111)		(178)
ABS		(204)		(139)		(169)		(181)		(130)		(214)
Redeemable preferred stock		2		1		1		1		2		2
Fixed income securities (1)		2,459		1,912		950		826		3,163		2,734
Equity securities		(95)		625		645		583		417		160
EMA limited partnership interests		7		7		7		--
EMA limited partnerships										1		2
Derivatives		(15)		(36)		(30)		(22)		(21)		(17)
Unrealized net capital gains and losses, pre-tax	$	2,356	$	2,508	$	1,572	$	1,387	$	3,560	$	2,879

~~(1)~~Unrealized net capital gains and losses for fixed income securities as of September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010 comprise $(239) million, $(240) million, $(257) million and $(293) million, respectively, related to unrealized net capital losses on fixed income securities with other-than-temporary impairment and $2.70 billion, $2.15 billion, $1.21 billion and $1.12
(1) Unrealized net capital gains and losses for fixed income securities as of March 31, 2012 and December 31, 2011 comprise $(154) million and $(267) million, respectively, related to unrealized net capital losses on fixed income securities with other-than-temporary impairment and $3.32 billion and $3.00 billion, respectively, related to other unrealized net capital gains and losses.

The unrealized net capital gains for the fixed income portfolio totaled ~~$2.46~~$3.16 billion and comprised ~~$4.27~~$4.40 billion of gross unrealized gains and ~~$1.81~~$1.24 billion of gross unrealized losses as of ~~September 30, 2011.~~March 31, 2012. This is compared to unrealized net capital gains for the fixed income portfolio totaling ~~$826 million,~~$2.73 billion, comprised ~~of $3.26~~$4.40 billion of gross unrealized gains and ~~$2.43~~$1.67 billion of gross unrealized losses as of December 31, ~~2010.~~2011.

8273

Gross unrealized gains and losses as of ~~September 30, 2011~~March 31, 2012 on fixed income securities by type and sector are provided in the table below.

($ in millions)						Gross unrealized					Amortized cost as a		Fair value as a							Gross unrealized					Amortized cost as a		Fair value as a
		Par value (1)		Amortized cost		Gains		Losses		Fair value	percent of par value (2)		percent of par value (2)			Par value (1)		Amortized cost		Gains		Losses		Fair value	percent of par value (2)		percent of par value (2)
Corporate:
Banking	$	3,829	$	3,760	$	111	$	(171)	$	3,700	98.2	%	96.6	%	$	4,134	$	4,114	$	133	$	(104)	$	4,143	99.5	%	100.2	%
Consumer goods (cyclical and non-cyclical)		8,182		8,305		485		(54)		8,736	101.5		106.8
Utilities																7,588		7,589		650		(36)		8,203	100.0		108.1
Financial services		3,743		3,689		161		(49)		3,801	98.6		101.5			3,589		3,538		188		(24)		3,702	98.6		103.1
Capital goods		5,170		5,199		392		(40)		5,551	100.6		107.4			4,964		5,004		370		(20)		5,354	100.8		107.9
Consumer goods (cyclical and non-cyclical)																8,720		8,844		529		(16)		9,357	101.4		107.3
Basic industry																2,890		2,912		140		(15)		3,037	100.8		105.1
Transportation																1,857		1,863		155		(11)		2,007	100.3		108.1
Energy																3,820		3,871		244		(7)		4,108	101.3		107.5
Communications		2,868		2,883		127		(30)		2,980	100.5		103.9			2,865		2,872		175		(6)		3,041	100.2		106.1
Utilities		7,277		7,277		699		(29)		7,947	100.0		109.2
Transportation		1,966		1,967		173		(19)		2,121	100.1		107.9
Basic industry		2,080		2,099		112		(17)		2,194	100.9		105.5
Energy		3,253		3,304		205		(14)		3,495	101.6		107.4
Technology		2,007		2,043		93		(12)		2,124	101.8		105.8			1,930		1,966		110		(3)		2,073	101.9		107.4
FDIC guaranteed		157		157		2		--		159	100.0		101.3
Other		1,746		1,652		84		(15)		1,721	94.6		98.6			1,354		1,246		66		(6)		1,306	92.0		96.5
Total corporate fixed income portfolio		42,278		42,335		2,644		(450)		44,529	100.1		105.3			43,711		43,819		2,760		(248)		46,331	100.2		106.0

U.S. government and agencies		4,351		4,009		337		--		4,346	92.1		99.9			5,612		5,259		287		(5)		5,541	93.7		98.7
Municipal		16,417		14,445		816		(262)		14,999	88.0		91.4			14,665		12,970		864		(220)		13,614	88.4		92.8
Foreign government		2,030		1,941		197		(5)		2,133	95.6		105.1			1,869		1,794		196		(1)		1,989	96.0		106.4
RMBS		5,760		5,027		146		(541)		4,632	87.3		80.4			4,647		3,959		126		(357)		3,728	85.2		80.2
CMBS		2,071		2,045		37		(258)		1,824	98.7		88.1			1,932		1,864		63		(174)		1,753	96.5		90.7
ABS		4,437		4,110		87		(291)		3,906	92.6		88.0			4,593		4,372		108		(238)		4,242	95.2		92.4
Redeemable preferred stock		22		23		2		--		25	104.5		113.6			21		23		2		--		25	109.5		119.0
Total fixed income securities	$	77,366	$	73,935	$	4,266	$	(1,807)	$	76,394	95.6		98.7		$	77,050	$	74,060	$	4,406	$	(1,243)	$	77,223	96.1		100.2

_______________

(1) Included in par value are zero-coupon securities that are generally purchased at a deep discount to the par value that is received at maturity. These primarily included corporate, U.S. government and agencies, municipal and foreign government zero-coupon securities with par value of ~~$474~~$488 million, $948 million, ~~$3.52~~$3.13 billion and $382 million, respectively.

(2) Excluding the impact of zero-coupon securities, the percentage of amortized cost to par value would be ~~100.4%~~100.5% for corporates, ~~102.5%~~101.3% for U.S. government and agencies, ~~101.0%~~101.5% for municipals and ~~103.1%~~103.8% for foreign governments. Similarly, excluding the impact of zero-coupon securities, the percentage of fair value to par value would be ~~105.6%~~106.2% for corporates, ~~107.3%~~104.2% for U.S. government and agencies, ~~105.1%~~106.7% for municipals and ~~109.5%~~111.6% for foreign governments.

The banking, ~~consumer goods,~~utilities, financial services and capital goods ~~and communications~~ sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of ~~September 30, 2011.~~March 31, 2012. In general, credit spreads remain wider than at initial purchase for most of the securities with gross unrealized losses in these categories.

The unrealized net capital ~~loss~~gain for the equity portfolio totaled ~~$95~~$417 million and comprised ~~$250~~$464 million of gross unrealized gains and ~~$345~~$47 million of gross unrealized losses as of ~~September 30, 2011.~~March 31, 2012. This is compared to an unrealized net capital gain for the equity portfolio totaling ~~$583~~$160 million, comprised of ~~$646~~$369 million of gross unrealized gains and ~~$63~~$209 million of gross unrealized losses as of December 31, ~~2010.~~2011.

We continue to monitor our fixed income and equity securities in the European Union (“EU”). As of September 30, 2011, the total fair value of these investments in the EU is $4.52 billion, with net unrealized capital gains of $81 million, comprised of $242 million of gross unrealized gains and $161 million of gross unrealized losses. The following table summarizes our total exposure related to Greece, Ireland, Italy, Portgual and Spain (collectively “GIIPS”) and the EU.

($ in millions)

Banking

Sovereign

Other corporate

Total

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses
GIIPS

   Fixed income securities
$
25
$
(9)
$
3
$
--
$
581
$
(31)
$
609
$
(40)
   Equity securities

--

--

--

--

5

--

5

--
      Total

25

(9)

3

--

586

(31)

614

(40)

EU non-GIIPS

   Fixed income securities

416

(49)

113

--

2,991

(30)

3,520

(79)
   Equity securities

33

(8)

--

--

354

(34)

387

(42)
      Total

449

(57)

113

--

3,345

(64)

3,907

(121)
Total EU
$
474
$
(66)
$
116
$
--
$
3,931
$
(95)
$
4,521
$
(161)

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security that may be other-than-temporarily impaired. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) 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 we may have a concern, are evaluated based on facts and circumstances for inclusion on our watch-list. All investments in an unrealized loss position as of ~~September 30, 2011~~March 31, 2012 were included in our portfolio monitoring process for determining whether declines in value were other than temporary.

The extent and duration of a decline in fair value for fixed income securities have become less indicative of actual credit deterioration with respect to an issue or issuer. While we continue to use declines in fair value and the

length of time a security is in an unrealized loss position as indicators of potential credit deterioration, our determination of whether a security’s decline in fair value is other than temporary has placed greater emphasis on our analysis of the underlying credit and collateral and related estimates of future cash flows.

The following table summarizes the fair value and gross unrealized losses of fixed income securities by type and investment grade classification as of ~~September 30, 2011.~~March 31, 2012.

($ in millions)		Investment grade				Below investment grade				Total				Investment grade				Below investment grade				Total
		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
U.S. government and agencies	$	151	$	--	$	--	$	--	$	151	$	--	$	996	$	(5)	$	--	$	--	$	996	$	(5)
Municipal		2,783		(181)		418		(81)		3,201		(262)		1,595		(128)		442		(92)		2,037		(220)
Corporate		4,781		(296)		2,619		(154)		7,400		(450)		3,407		(182)		1,322		(66)		4,729		(248)
Foreign government		346		(5)		--		--		346		(5)		79		(1)		--		--		79		(1)
RMBS		333		(65)		1,144		(476)		1,477		(541)		238		(28)		997		(329)		1,235		(357)
CMBS		935		(160)		161		(98)		1,096		(258)		507		(69)		182		(105)		689		(174)
ABS		1,551		(203)		194		(88)		1,745		(291)		1,512		(153)		214		(85)		1,726		(238)
Total	$	10,880	$	(910)	$	4,536	$	(897)	$	15,416	$	(1,807)	$	8,334	$	(566)	$	3,157	$	(677)	$	11,491	$	(1,243)

We have experienced declines in the fair values of fixed income securities primarily due to wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas. Consistent with their ratings, our portfolio monitoring process indicates that investment grade securities have a low risk of default. Securities rated below investment grade, comprising securities with a rating of Ba, B and Caa or lower, have a higher risk of default.

As of ~~September 30, 2011, 50%~~March 31, 2012, 35% of our below investment grade gross unrealized losses ~~were concentrated in RMBS, specifically Alt-A and Subprime. The fair value of these securities totaled $928 million, a decrease of 14.4%, compared~~related to ~~$1.08 billion as of December 31, 2010, primarily due to sales. Gross unrealized losses on these~~

securities totaled $445 million as of September 30, 2011, an improvement of 19.7%, compared to $554 million as of December 31, 2010, due to impairment write-downs, principal collections and sales, partially offset by the downgrade of certain securities to below investment grade and lower valuations. In addition, as of September 30, 2011, the fair value of our below investment grade CMBS with gross unrealized losses totaled $161 million compared to $135 million as of December 31, 2010. As of September 30, 2011, gross unrealized losses for our below investment grade CMBS portfolio totaled $98 million, an improvement of 26.9% from $134 million as of December 31, 2010, due to sales, impairment write-downs and improved valuations, partially offset by the downgrade of certain securities to below investment grade.Subprime RMBS.

Fair values for our structured securities are obtained from third-party valuation service providers and are subject to review as disclosed in our Application of Critical Accounting Estimates. In accordance with GAAP, when fair value is less than the amortized cost of a security and we have not made the decision to sell the security and it is not more likely than not we will be required to sell the security before recovery of its amortized cost basis, we evaluate if we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value by discounting our best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compare this to the amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors (“non-credit-related”) recognized in other comprehensive income.

The non-credit-related unrealized losses for our structured securities, including our below investment grade ~~Alt-A and~~ Subprime, are heavily influenced by risk factors other than those related to our best estimate of future cash flows. The difference between these securities’ original or current effective rates and the yields implied by their fair value indicates that a higher risk premium is included in the valuation of these securities than existed at initial issue or purchase. This risk premium represents the return that a market participant requires as compensation to assume the risk associated with the uncertainties regarding the future performance of the underlying collateral. The risk premium is comprised of: default risk, which reflects the probability of default and the uncertainty related to collection of contractual principal and interest; liquidity risk, which reflects the risk associated with exiting the investment in an illiquid market, both in terms of timeliness and cost; and volatility risk, which reflects the potential valuation volatility during an investor’s holding period. Other factors reflected in the risk premium include the costs associated with underwriting, monitoring and holding these types of complex securities. Certain aspects of the default risk are included in the development of our best estimate of future cash flows, as appropriate. Other aspects of the risk premium are considered to be temporary in nature and are expected to reverse over the remaining lives of the securities as future cash flows are received.

Other-than-temporary impairment assessment for below investment grade ~~Alt-A and~~ Subprime RMBS

As of ~~September 30, 2011, the fair value of our below investment grade Alt-A securities with gross unrealized losses totaled $302 million, an increase of 4.9% compared to $288 million as of December~~March 31, 2010. As of September 30, 2011, gross unrealized losses for our below investment grade Alt-A portfolio totaled $85 million, an improvement of 26.7% compared to $116 million as of December 31, 2010, due to impairment write-downs, principal collections and sales, partially offset by lower valuations and the downgrade of certain securities to below investment grade. For our below investment grade Alt-A securities with gross unrealized gains of $9 million, we have recognized cumulative write-downs in earnings totaling $35 million as of September 30, 2011.

~~As of September 30, 2011,~~2012, the fair value of our below investment grade Subprime securities with gross unrealized losses totaled ~~$626~~$512 million, a decrease of ~~21.4%~~12.6% compared to ~~$796~~$586 million as of December 31, ~~2010,~~2011, primarily due to sales. As of ~~September 30, 2011,~~March 31, 2012, gross unrealized losses for our below investment grade Subprime portfolio totaled ~~$360~~$240 million, an improvement of ~~17.8%~~28.1% compared to ~~$438~~$334 million as of December 31, ~~2010,~~2011, due to sales, impairment write-downs,

increased valuations and principal collections, ~~and sales,~~ partially offset by the downgrade of certain securities to below investment ~~grade and lower valuations.~~grade. For our below investment grade Subprime with gross unrealized gains totaling $4$6 million, we have recognized cumulative write-downs in earnings totaling ~~$100~~$84 million as of ~~September 30, 2011.~~March 31, 2012.

The credit loss evaluation for ~~Alt-A and~~ Subprime securities with gross unrealized losses is performed in two phases. The first phase estimates the future cash flows of the entire securitization trust from which our security was issued. A critical part of this estimate involves forecasting default rates and loss severities of the residential mortgage loans that collateralize the securitization trust. The factors that affect the default rates and loss severities include, but are not limited to, historical collateral performance, collateral type, transaction vintage year, geographic concentrations, borrower credit quality, origination practices of the transaction sponsor, and practices of the

mortgage loan servicers. Current loan-to-value ratios of underlying collateral are not consistently available and accordingly they are not a primary factor in our impairment evaluation. While our projections are developed internally and customized to our specific holdings, they are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. The default rate and loss severity forecasts result in an estimate of trust-level projected additional collateral loss.

We then analyze the actual cumulative collateral losses incurred to date by the securitization trust, our projected additional collateral losses expected to be incurred and the position of the class of securities we own in the securitization trust relative to the trust’s other classes to determine whether any of the collateral losses will be applied to our class. If our class has remaining credit enhancement sufficient to withstand the projected additional collateral losses, no collateral losses will be realized by our class and we expect to collect all contractual principal and interest of the security we own. Remaining credit enhancement is 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 we own and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to our class, such as overcollateralization and excess spread.

For securities where there is insufficient remaining credit enhancement for the class of securities we own, a recovery value is calculated based on our best estimate of future cash flows specific to that security. This estimate is based on the contractual principal payments and current interest payments of the securities we own, adjusted for actual cumulative collateral losses incurred to date and the projected additional collateral losses expected to be incurred. This estimate also takes into consideration additional secondary sources of credit support, such as reliable bond insurance. For securities without secondary sources of credit support or for which the secondary sources do not fully offset the actual and projected additional collateral losses applied to them, a credit loss is recorded in earnings to the extent amortized cost exceeds recovery value.

~~96.6%~~72.8%, 23.1% and 3.4% of the fair value of our below investment grade Alt-A securities with gross unrealized losses were issued with Aaa and Aa original ratings and capital structure classifications, respectively. 75.6%, 20.8% and 3.6%4.1% of the fair value of our below investment grade Subprime securities with gross unrealized losses were issued with Aaa, Aa and A original ratings and capital structure classifications, respectively. As described previously, ~~Alt-A and~~ Subprime securities with higher original ratings typically have priority in receiving the principal repayments on the underlying collateral compared to those with lower original ratings. While the projected cash flow assumptions for our below investment grade ~~Alt-A and~~ Subprime securities with gross unrealized losses have deteriorated since the securities were originated, as reflected by their current credit ratings, these securities continue to retain the payment priority features that existed at the origination of the securitization trust.

8676

The following tables show trust-level, class-level and security-specific detailed information for our below investment grade ~~Alt-A~~Subprime securities with gross unrealized losses that are not reliably insured, by credit rating.

($ in millions)		September 30, 2011																March 31, 2012
		With other-than-temporary impairments recorded in earnings						Without other-than-temporary impairments recorded in earnings										With other-than-temporary impairments recorded in earnings						Without other-than-temporary impairments recorded in earnings
		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date (1)		1.4	%	10.1	%	9.9	%	2.0	%	0.8	%	5.0	%	2.7	%	n/a		13.1	%	17.3	%	17.1	%	4.0	%	6.4	%	8.6	%	6.4	%	n/a
Projected additional collateral losses to be incurred (2)		11.6	%	24.0	%	23.7	%	9.8	%	7.2	%	18.8	%	12.2	%	n/a		38.5	%	40.0	%	39.9	%	33.4	%	32.6	%	35.5	%	33.9	%	n/a
Class-level
Average remaining credit enhancement (3)		12.1	%	4.8	%	4.9	%	15.9	%	11.2	%	25.4	%	18.0	%	n/a		29.6	%	17.4	%	18.0	%	47.6	%	42.0	%	43.3	%	44.3	%	n/a
Security-specific
Number of positions		1		34		35		5		5		4		14		49		3		53		56		8		12		19		39		95
Par value	$	9	$	449	$	458	$	43	$	25	$	35	$	103	$	561	$	28	$	579	$	607	$	77	$	73	$	81	$	231	$	838
Amortized cost	$	9	$	281	$	290	$	43	$	25	$	29	$	97	$	387	$	23	$	378	$	401	$	77	$	73	$	81	$	231	$	632
Fair value	$	9	$	212	$	221	$	41	$	19	$	21	$	81	$	302	$	18	$	263	$	281	$	55	$	41	$	49	$	145	$	426
Gross unrealized losses
Total	$	--	$	(69)	$	(69)	$	(2)	$	(6)	$	(8)	$	(16)	$	(85)	$	(5)	$	(115)	$	(120)	$	(22)	$	(32)	$	(32)	$	(86)	$	(206)
12-24 months (4)	$	--	$	(1)	$	(1)	$	--	$	--	$	--	$	--	$	(1)
Over 24 months (5)	$	--	$	(64)	$	(64)	$	(2)	$	(5)	$	(5)	$	(12)	$	(76)
Cumulative write-downs recognized (6)	$	--	$	(129)	$	(129)	$	--	$	--	$	--	$	--	$	(129)
Principal payments received during the period (7)															$	37
Over 24 months (4)																	$	(5)	$	(115)	$	(120)	$	(22)	$	(32)	$	(32)	$	(86)	$	(206)
Cumulative write-downs recognized																	$	(5)	$	(186)	$	(191)	$	--	$	--	$	--	$	--	$	(191)
Principal payments received during the period																															$	10

December 31, 2010

With other-than-temporary
impairments recorded in earnings

Without other-than-temporary
impairments recorded in earnings

Ba

B

Caa or lower

Total

Ba

B

Caa or lower

Total

Total

Trust-level

   Actual cumulative collateral losses incurred to date (1)

         0.5
%
       0.7
%
        8.1
%
      8.0
%
        0.1
%
        3.1
%
       3.7
%
         3.0
%
      n/a

   Projected additional collateral losses to be incurred (2)

         9.9
%
     22.5
%
     24.6
%
    24.5
%
       4.8
%
      16.6
%
     17.8
%
      15.4
%
      n/a

Class-level

   Average remaining credit enhancement (3)

         9.9
%
     19.0
%
       6.8
%
6.9
%
       5.3
%
     27.1
%
      23.9
%
      20.7
%
     n/a

Security-specific

   Number of positions

            1

         1

        27

       29

          2

          2

          8

         12

        41

   Par value
$
           4
$
         3
$
      439
$
     446
$
        16
$
          4
$
        68
$
         88
$
     534

   Amortized cost
$
           4
$
         2
$
      316
$
     322
$
        16
$
          4
$
        62
$
         82
$
     404

   Fair value
$
            1
$
         1
$
      220
$
     222
$
        13
$
          2
$
        51
$
         66
$
     288

   Gross unrealized losses

           Total
$
(3)
$
(1)
$
(96)
$
(100)
$
(3)
$
(2)
$
(11)
$
(16)
$
(116)

           12-24 months (4)
$
           --
$
         --
$
         --
$
         --
$
         --
$
         --
$
        --
$
         --
$
        --

           Over 24 months (5)
$
(3)
$
(1)
$
(90)
$
(94)
$
(3)
$
(2)
$
(10)
$
(15)
$
(109)

   Cumulative write-downs recognized (6)
$
           --
$
(1)
$
(92)
$
(93)
$
         --
$
         --
$
         --
$
         --
$
(93)

   Principal payments received during the
period (7)

$
        67

		December 31, 2011
		With other-than-temporary impairments recorded in earnings						Without other-than-temporary impairments recorded in earnings
		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date		14.6	%	19.1	%	18.8	%	3.8	%	6.6	%	13.2	%	8.8	%	n/a
Projected additional collateral losses to be incurred		40.0	%	42.9	%	42.8	%	32.6	%	31.6	%	40.2	%	35.7	%	n/a
Class-level
Average remaining credit enhancement		28.7	%	19.7	%	20.2	%	46.8	%	43.9	%	46.9	%	46.0	%	n/a
Security-specific
Number of positions		5		66		71		9		15		24		48		119
Par value	$	41	$	728	$	769	$	84	$	78	$	132	$	294	$	1,063
Amortized cost	$	34	$	469	$	503	$	84	$	78	$	132	$	294	$	797
Fair value	$	26	$	301	$	327	$	60	$	45	$	67	$	172	$	499
Gross unrealized losses
Total	$	(8)	$	(168)	$	(176)	$	(24)	$	(33)	$	(65)	$	(122)	$	(298)
Over 24 months (4)	$	(8)	$	(167)	$	(175)	$	(24)	$	(33)	$	(65)	$	(122)	$	(297)
Cumulative write-downs recognized	$	(7)	$	(249)	$	(256)	$	--	$	--	$	--	$	--	$	(256)
Principal payments received during the period															$	67

_______________

(1)Weighted average actual cumulative collateral losses incurred to date as of period end are based on the actual principal losses incurred as a percentage of the remaining principal amount of the loans in the trust. The weighting calculation is based on the par value of each security. Actual losses on the securities we hold are less than the losses on the underlying collateral as presented in this table. Actual cumulative realized principal losses on the below investment grade ~~Alt-A~~Subprime securities we own, as reported by the trust servicers, were $5$22 million as of ~~September 30, 2011.~~March 31, 2012.

(2)Weighted average projected additional collateral losses to be incurred as of period end are based on our projections of future losses to be incurred by the trust, taking into consideration the actual cumulative collateral losses incurred to date, as a percentage of the remaining principal amount of the loans in the trust. Our projections are developed internally and customized to our specific holdings and are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. Projected additional collateral losses to be incurred are compared to average remaining credit enhancement for each security. For securities where the projected additional collateral losses exceed remaining credit enhancement, a recovery value is calculated to determine whether impairment losses should be recorded in earnings. The weighting calculation is based on the par value of each security.

(3)Weighted average remaining credit enhancement as of period end is based on structural subordination and the expected impact of other structural features existing in the securitization trust beneficial to our class and reflects our projection of future principal losses that can occur

as a percentage of the remaining principal amount of the loans in the trust before the class of the security we own will incur its first dollar of principal loss. The weighting calculation is based on the par value of each security.

(4)~~Includes total gross unrealized losses on securities in an unrealized loss position for a period of 12 to 24 consecutive months.~~

~~(5)Includes total gross unrealized losses on securities in an unrealized loss position for a period more than 24 consecutive months.~~ As of ~~September 30, 2011, $40~~March 31, 2012, $80 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and ~~$10~~$73 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months. As of December 31, ~~2010, $70~~2011, $122 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $11 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months.

~~(6)Includes cumulative write-downs recorded in accordance with GAAP.~~

~~(7)Reflects principal payments for the nine months ended September 30, 2011 or the year ended December 31, 2010, respectively.~~

The above tables include information about our below investment grade Alt-A securities with gross unrealized losses as of each period presented. The par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales, purchases and realized principal losses.

As of September 30, 2011, our below investment grade Alt-A securities with gross unrealized losses and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 2.7%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 28.9% and a projected weighted average loss severity of 41.4%, which resulted in projected additional collateral losses of 12.2%. As the average remaining credit enhancement for these securities of 18.0% exceeds the projected additional collateral losses of 12.2%, these securities have not been impaired.

As of September 30, 2011, our below investment grade Alt-A securities with gross unrealized losses and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 9.9%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 43.6% and a projected weighted average loss severity of 53.7%, which resulted in projected additional collateral losses of 23.7%. As the average remaining credit enhancement for these securities of 4.9% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on these securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was 64.4% and exceeded these securities’ current average amortized cost as a percentage of par of 63.2%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.

We believe the unrealized losses on our Alt-A securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities’ remaining lives, as demonstrated by improved valuations since 2009, primarily in 2010. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities’ recovery value. As of September 30, 2011, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

The following tables show trust-level, class-level and security-specific detailed information for our below investment grade Subprime securities with gross unrealized losses that are not reliably insured, by credit rating.

($ in millions)
September 30, 2011

With other-than-temporary
impairments recorded in earnings

Without other-than-temporary
impairments recorded in earnings

B

Caa or
lower

Total

Ba

B

Caa or
lower

Total

Total

Trust-level

   Actual cumulative collateral losses incurred to date (1)

14.0
%
17.8
%
17.6
%
3.7
%
6.3
%
13.1
%
8.7
%
n/a

   Projected additional collateral losses to be incurred

39.4
%
42.5
%
42.3
%
32.7
%
31.6
%
40.2
%
35.8
%
n/a

Class-level

   Average remaining credit enhancement

28.5
%
19.4
%
19.9
%
46.8
%
44.3
%
46.8
%
46.1
%
n/a

Security-specific

   Number of positions

5

67

72

9

15

26

50

122

   Par value
$
42
$
782
$
824
$
86
$
80
$
139
$
305
$
1,129

   Amortized cost
$
35
$
519
$
554
$
86��
$
80
$
139
$
305
$
859

   Fair value
$
26
$
331
$
357
$
61
$
47
$
72
$
180
$
537

   Gross unrealized losses

           Total
$
(9)
$
(188)
$
(197)
$
(25)
$
(33)
$
(67)
$
(125)
$
(322)

           12-24 months
$
--
$
--
$
--
$
--
$
--
$
--
$
--
$
--

           Over 24 months (2)
$
(9)
$
(187)
$
(196)
$
(25)
$
(33)
$
(67)
$
(125)
$
(321)

   Cumulative write-downs recognized
$
(6)
$
(253)
$
(259)
$
--
$
--
$
--
$
--
$
(259)

   Principal payments received during the period

$
53

December 31, 2010

With other-than-temporary impairments recorded in earnings

Without other-than-temporary
impairments recorded in earnings

B

Caa or
lower

Total

Ba

B

Caa or
lower

Total

Total

Trust-level

   Actual cumulative collateral losses incurred to date

     12.0
%
      16.1
%
     16.0
%
     13.2
%
     12.5
%
     12.6
%
    12.7
%
     n/a

   Projected additional collateral losses to be incurred

     38.2
%
     43.2
%
     43.0
%
     46.5
%
     42.7
%
     40.8
%
     42.1
%
     n/a

Class-level

   Average remaining credit enhancement

     26.0
%
     22.6
%
    22.8
%
     72.7
%
    63.6
%
     50.5
%
    56.7
%
     n/a

Security-specific

   Number of positions

          5

        81

       86

       11

        10

       35

       56

     142

   Par value
$
        42
$
      952
$
     994
$
       73
$
        69
$
     265
$
      407
$
   1,401

   Amortized cost
$
        33
$
      650
$
      683
$
       73
$
        69
$
     265
$
      407
$
1,090

   Fair value
$
        21
$
      425
$
     446
$
       62
$
        54
$
     158
$
     274
$
     720

   Gross unrealized losses

           Total
$
(12)
$
(225)
$
(237)
$
(11)
$
(15)
$
(107)
$
(133)
$
(370)

           12-24 months
$
         --
$
(9)
$
(9)
$
        --
$
         --
$
        --
$
        --
$
(9)

           Over 24 months (2)
$
(12)
$
(216)
$
(228)
$
(11)
$
(15)
$
(107)
$
(133)
$
(361)

   Cumulative write-downs recognized
$
(9)
$
(293)
$
(302)
$
        --
$
         --
$
       --
$
        --
$
(302)

   Principal payments received during the period

$
       99

~~(1)Actual cumulative realized principal losses on the below investment grade Subprime securities we own, as reported by the trust servicers, were $17 million as of September 30, 2011.~~

~~(2)~~As of September 30, 2011, $145 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $107 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months. As of December 31, 2010, $188 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $108$104 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months.

The above tables include information only about below investment grade Subprime securities with gross unrealized losses that are not reliably insured as of each period presented. As such, the par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales, purchases and realized principal losses.

As of ~~September 30, 2011,~~March 31, 2012, our Subprime securities that are reliably insured include nine below investment grade Subprime securities with a total fair value of ~~$89~~$86 million and aggregate gross unrealized losses of ~~$38~~$34 million, all of which are rated B. These securities are insured by one bond insurer rated B that we estimate has sufficient claims paying capacity to service its obligations on these securities. The securitization trusts from which our securities were issued are currently receiving contractual payments from the bond insurer and considering the combination of expected future payments from the bond insurer and cash flows available from the underlying collateral, we expect the trust to have adequate cash flows to make all contractual payments due to the class of securities we own. As a result, our security-specific estimates of future cash flows indicate that these securities’ estimated recovery values equal or exceed their amortized cost. Accordingly, no other-than-temporary impairments have been recognized on these securities. As of December 31, ~~2010,~~2011, our Subprime securities that are reliably insured included ~~ten~~nine below investment grade Subprime securities with a total fair value of ~~$76~~$87 million and aggregate gross unrealized losses of ~~$68~~$36 million.

As of ~~September 30, 2011,~~March 31, 2012, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of ~~8.7%~~6.4%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of ~~52.1%~~49.7% and a projected weighted average loss severity of ~~69.5%~~68.6%, which resulted in projected additional collateral losses of ~~35.8%~~33.9%. As the average remaining credit enhancement for these securities of ~~46.1%~~44.3% exceeds the projected additional collateral losses of ~~35.8%~~33.9%, these securities have not been impaired.

As of ~~September 30, 2011,~~March 31, 2012, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of ~~17.6%~~17.1%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of ~~56.3%~~55.5% and a projected weighted average loss severity of ~~76.0%~~73.2%, which resulted in projected additional collateral losses of ~~42.3%~~39.9%. As the average remaining credit enhancement for these securities of ~~19.9%~~18.0% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on the securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was ~~68.9%~~68.6% and exceeded these securities’ current average amortized cost as a percentage of par of ~~67.2%~~66.1%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.

We believe the unrealized losses on our Subprime securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities’ remaining ~~lives, as demonstrated by improved valuations since 2009, primarily in 2010.~~lives. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities’ recovery value. As of ~~September 30, 2011,~~March 31, 2012, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

~~Problem, restructured, or potential problem securities~~

We also monitor the quality of our fixed income and bank loan portfolios by categorizing certain investments as “problem,” “restructured” or “potential problem.” Problem fixed income securities and bank loans are in default with respect to principal or interest and/or are investments issued by companies that have gone into bankruptcy subsequent to our acquisition or loan. Fixed income and bank loan investments are categorized as restructured when the debtor is experiencing financial difficulty and we grant a concession. Potential problem fixed income or bank loan investments are current with respect to contractual principal and/or interest, but because of other facts and circumstances, we have concerns regarding the borrower’s ability to pay future principal and interest according to the original terms, which causes us to believe these investments may be classified as problem or restructured in the future.

9078

~~The following table summarizes problem, restructured and potential problem fixed income securities and bank loans, which are reported in other investments.~~

($ in millions)

September 30, 2011

Par
value (1)

Amortized
cost (1)

Amortized
cost as a
percent of
par value

Fair
value (2)

Fair value as a
percent of
par value

Percent of
total fixed
income and
bank loan
portfolios

Restructured
$
99

$
83

83.8
%

$
89

89.9
%

0.1
%

Problem

607

220

36.2

191

31.5

0.2

Potential problem

2,483

1,191

48.0

973

39.2

1.3

Total
$
3,189

$
1,494

46.8

$
1,253

39.3

1.6
%

Cumulative write-downs recognized (3)

$
904

December 31, 2010

Par
value (1)

Amortized
cost (1)

Amortized
cost as a
percent of
par value

Fair
value (2)

Fair value as a
percent of
par value

Percent of
total fixed
income and
bank loan
portfolios

Restructured
$
99

$
83

83.8
%

$
79

79.8
%

0.1
%

Problem

665

214

32.2

188

28.3

0.2

Potential problem

3,441

1,485

43.2

1,171

34.0

1.5

Total
$
4,205

$
1,782

42.4

$
1,438

34.2

1.8
%

Cumulative write-downs recognized (3)

$
1,005

~~(1)~~	The difference between par value and amortized cost of $1.70 billion and $2.42 billion as of September 30, 2011 and December 31, 2010, respectively, is primarily attributable to write-downs and a zero-coupon security.
~~(2)~~	~~Bank loans are reflected at amortized cost.~~
~~(3)~~	~~Cumulative write-downs recognized only reflect impairment write-downs related to investments within the problem, potential problem and restructured categories.~~

As of September 30, 2011, amortized cost for the problem category was $220 million and comprised $87 million of Alt-A, $72 million of Subprime, $45 million of municipal bonds, $5 million of corporates (primarily privately placed), $5 million of CDO, $3 million of Consumer and other ABS, $2 million of Prime and $1 million of bank loans.

As of September 30, 2011, amortized cost for the potential problem category was $1.19 billion and comprised $513 million of Subprime, $248 million of Prime, $234 million of Alt-A, $104 million of municipal bonds, $43 million of corporates (primarily privately placed), $27 million of CDO, $13 million of CMBS, $6 million of bank loans and $3 million of Consumer and other ABS.

Net investment income The following table presents net investment income.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Fixed income securities	$	862	$	926	$	2,661	$	2,840	$	806	$	900
Equity securities		23		17		76		63		21		19
Mortgage loans		91		92		267		295		93		89
Limited partnership interests(1)		33		6		61		19		109		10
Short-term investments		2		2		5		6		1		2
Other		27		5		64		12		30		11
Investment income, before expense		1,038		1,048		3,134		3,235		1,060		1,031
Investment expense		(44)		(43)		(138)		(131)		(49)		(49)
Net investment income	$	994	$	1,005	$	2,996	$	3,104	$	1,011	$	982

__________________

(1)Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and
losses in 2011.

Net investment income ~~decreased 1.1%~~increased 3.0% or ~~$11 million in the third quarter of 2011 and 3.5% or $108~~$29 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to the ~~same periods~~first quarter of ~~2010. These declines were~~2011 primarily due to ~~lower average investment balances due to decreased Allstate Financial contractholder funds, partially offset by higher yields. The higher yields are primarily attributable to~~income from limited partnerships and the termination of interest rate swaps ~~during~~in the first quarter of 2011, partially offset by lower average investment balances and ~~higher distributions from limited partnerships. Net investment~~lower fixed income ~~was $982 million and $1.02 billion in the first quarter and second quarter of 2011, respectively.~~yields.

Realized capital gains and losses The following table presents the components of realized capital gains and losses and the related tax effect.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Impairment write-downs	$	(190)	$	(137)	$	(374)	$	(599)	$	(39)	$	(114)
Change in intent write-downs		(13)		(30)		(98)		(129)		(44)		(69)
Net other-than-temporary impairment losses recognized in earnings		(203)		(167)		(472)		(728)		(83)		(183)
Sales		692		319		1,116		552		229		283
Valuation of derivative instruments		(254)		(133)		(282)		(571)		11		22
Settlements of derivative instruments		20		(152)		(72)		(209)		11		(89)
EMA limited partnership income(1)		9		(11)		127		13		--		63
Realized capital gains and losses, pre-tax		264		(144)		417		(943)		168		96
Income tax (expense) benefit		(94)		51		(148)		330
Income tax expense										(58)		(33)
Realized capital gains and losses, after-tax	$	170	$	(93)	$	269	$	(613)	$	110	$	63

__________________

(1) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains
and losses in 2011.

Impairment write-downs are presented in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Fixed income securities	$	(81)	$	(110)	$	(215)	$	(462)	$	(29)	$	(86)
Equity securities		(73)		(14)		(106)		(51)		(7)		(20)
Mortgage loans		(29)		(3)		(42)		(44)		(3)		(6)
Limited partnership interests		(2)		(10)		(4)		(42)		(2)		(1)
Other investments		(5)		--		(7)		--		2		(1)
Impairment write-downs	$	(190)	$	(137)	$	(374)	$	(599)	$	(39)	$	(114)

Impairment write-downs for the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 were primarily driven by RMBS, which experienced deterioration in expected cash flows; investments with commercial real estate exposure, including mortgage loans, CMBS and certain real estate related municipal bonds, which were impacted by lower real estate valuations or experienced deterioration in expected cash flows; and privately placed corporate fixed income securities impacted by issuer specific ~~circumstances.~~circumstances and RMBS, which experienced deterioration in expected cash flows. Impairment write-downs on below investment grade RMBS and CMBS for the three months ended March 31, 2012 were $10 million and $3 million, respectively. Equity securities were ~~also~~ written down primarily

due to the length of time and extent to which fair value was below cost, considering our ~~assessment~~assesment of the financial condition

and near-term and long-term prospects of the issuer, including relevant industry conditions and trends. Impairment write-downs on below investment grade RMBS and CMBS were $53 million and $4 million for the three months ended September 30, 2011, respectively, and $129 million and $37 million for the nine months ended September 30, 2011, respectively.trends.

Change in intent write-downs are presented in the following table.

($ in millions)		Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2011		2010		2011		2010		2012		2011
Fixed income securities	$	(5)	$	(30)	$	(90)	$	(123)	$	(35)	$	(69)
Equity securities		(8)		--		(8)		--		(9)		--
Mortgage loans		--		--		--		(6)
Change in intent write-downs	$	(13)	$	(30)	$	(98)	$	(129)	$	(44)	$	(69)

The change in intent write-downs in the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 were primarily a result of ongoing comprehensive reviews of our portfolios resulting in write-downs of individually identified investments, primarily ~~lower yielding, floating rate~~ RMBS, equity securities and ~~municipal bonds, and equity~~corporate fixed income securities.

Sales generated ~~$692~~$229 million ~~and $1.12 billion~~ of net realized gains for the three months ~~and nine months~~ ended ~~September 30, 2011, respectively. Net realized gains for the three months ended September 30, 2011~~March 31, 2012 primarily ~~related~~due to ~~$689~~$175 million of net gains on sales of ~~foreign government, U.S. government, corporate, U.S Agency, municipal~~equity securities and ABS fixed income securities. During the third quarter of 2011, interest rates were at historical lows and we capitalized on valuation gains on fixed income securities through $6.50 billion in sales generating $630 million of realized capital gains. Net realized gains for the nine months ended September 30, 2011 primarily related to $923$35 million of net gains on sales of ~~corporate, foreign government, U.S. government, ABS, U.S. Agency and municipal~~ fixed income ~~securities and $174 million of net gains on sales of equity~~ securities.

Valuation and settlements of derivative instruments net realized capital ~~losses~~gains totaling ~~$234~~$22 million for the three months ended ~~September 30, 2011~~March 31, 2012 included ~~$254~~$11 million of ~~losses~~gains on the valuation of derivative instruments and ~~$20~~$11 million of gains on the settlement of derivative instruments. Valuation and settlements of derivative instruments net realized capital losses totaling $354 million for the nine months ended September 30, 2011 included $282 million of losses on the valuation of derivative instruments and $72 million of losses on the settlement of derivative instruments. The net realized capital ~~losses~~gains on derivative instruments for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 primarily included ~~losses~~gains on ~~interest rate risk management~~credit default swaps due to ~~decreases in interest rates.~~the tightening of credit spreads on the underlying credit names. As a component of our approach to managing interest rate risk, realized gains and losses on certain derivative instruments are most appropriately considered in conjunction with the unrealized gains and losses on the fixed income portfolio. This approach mitigates the impacts of general interest rate changes to our overall financial condition.

~~GOODWILL~~

Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired. The goodwill balances were $456 million and $418 million as of September 30, 2011 for the Allstate Protection segment and the Allstate Financial segment, respectively. Our reporting units are equivalent to our reporting segments, Allstate Protection and Allstate Financial. Goodwill is allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination.

Goodwill is not amortized but is tested for impairment at least annually. We perform our annual goodwill impairment testing during the fourth quarter of each year based upon data as of the close of the third quarter. We also review goodwill for impairment whenever events or changes in circumstances, such as deteriorating or adverse market conditions, indicate that it is more likely than not that the carrying amount of goodwill may exceed its implied fair value.

Impairment testing requires the use of estimates and judgments. For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, the second step of the goodwill test is required. In such instances, the implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business acquisition. The excess of the carrying value of goodwill over the implied fair value of goodwill would be recognized as an impairment and recorded as a charge against net income.

To estimate the fair value of our reporting units as of September 30, 2011, we utilized a combination of widely accepted valuation techniques including a stock price and market capitalization analysis, discounted cash flow calculations and peer company price to earnings multiples analysis. The analyses were weighted based on management’s judgment of their relevance given current facts and circumstances.

The stock price and market capitalization analysis takes into consideration the quoted market price of our outstanding common stock and includes a control premium, derived from historical insurance industry acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The discounted cash flow analysis utilizes long term assumptions for revenue growth, capital growth, earnings projections including those used in our strategic plan, and an appropriate discount rate. The peer company price to earnings multiples analysis takes into consideration the price earnings multiples of peer companies for each reporting unit and estimated income from our strategic plan. We apply significant judgment when determining the fair value of our reporting units and when assessing the relationship of market capitalization to the estimated fair value of our reporting units. The valuation analyses described above are subject to critical judgments and assumptions and may be potentially sensitive to variability. Estimates of fair value are inherently uncertain and represent management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions utilized may differ from future actual results. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which may be material to our results of operations but not our financial position.

~~Goodwill impairment evaluations indicated no impairment as of September 30, 2011 and no reporting unit was at risk of having its carrying value including goodwill exceed its fair value.~~

CAPITAL RESOURCES AND LIQUIDITY HIGHLIGHTS

· Shareholders’ equity as of ~~September 30, 2011~~March 31, 2012 was ~~$18.10~~$19.18 billion, ~~a decrease~~an increase of 4.8% from ~~$19.02~~$18.30 billion as of December 31, ~~2010.~~2011.

· On January 3, ~~2011,~~2012 and April ~~1, 2011, July 1, 2011 and October 3, 2011,~~2, 2012, we paid a quarterly shareholder dividend of ~~$0.20, $0.21,~~ $0.21 and ~~$0.21,~~$0.22, respectively.

· During the first ~~nine months~~quarter of ~~2011,~~2012, we repurchased ~~29.0~~9.8 million common shares for ~~$840~~$300 million. ~~In September 2011, we completed~~As of March 31, 2012, our current $1.00 billion share repurchase program had $594 million remaining and is expected to be completed by March 31, 2013.

·On January 11, 2012, we issued $500 million of 5.20% Senior Notes due 2042.

·On April 27, 2012, we entered into a new $1 billion, 5-year primary credit facility replacing the $1 billion facility expiring on May 8, 2012.

·On April 30, 2012, we filed a universal shelf registration statement with the Securities and Exchange Commission that ~~commenced in November 2010.~~can be utilized to issue an unspecified amount of various types of securities.

CAPITAL RESOURCES AND LIQUIDITY

Capital resources consist of shareholders’ equity and debt, representing funds deployed or available to be deployed to support business operations or for general corporate purposes. The following table summarizes our capital resources.

($ in millions)		September 30, 2011			December 31, 2010			March 31, 2012		December 31, 2011
Common stock, retained income and other shareholders’ equity items	$	18,154		$	19,200		$	18,650	$	18,269
Accumulated other comprehensive loss		(54	)		(184	)
Accumulated other comprehensive income								532		29
Total shareholders’ equity		18,100			19,016			19,182		18,298
Debt		5,907			5,908			6,058		5,908
Total capital resources	$	24,007		$	24,924		$	25,240	$	24,206

Ratio of debt to shareholders’ equity		32.6%			31.1%			31.6%		32.3%
Ratio of debt to capital resources		24.6%			23.7%			24.0%		24.4%

Shareholders’ equity ~~decreased~~increased in the first ~~nine months~~quarter of ~~2011,~~2012, primarily due to ~~share repurchases~~net income and ~~dividends paid to shareholders, partially offset by~~ increased unrealized net capital gains on investments, partially offset by share repurchases and ~~net income.~~dividends paid to shareholders.

Debt ~~Except~~On January 11, 2012, we issued $500 million of 5.20% Senior Notes due 2042, utilizing the registration statement filed with the Securities and Exchange Commission on May 8, 2009. The proceeds of this issuance were used for ~~$42 million in long-term debt related to~~general corporate purposes, including the ~~synthetic leases scheduled to mature in December 2011, we do not have any required principal payments until February 2012 when~~repayment of $350 million of 6.125% Senior Notes on February 15, 2012. The next debt maturity is on June 15, 2013 when $250 million of 7.50% Debentures are due. ~~These Senior Notes are expected to be refinanced or repaid from available capital.~~

Share repurchases During the first ~~nine months~~quarter of ~~2011,~~2012, we repurchased ~~29.0~~9.8 million common shares for ~~$840~~$300 million. ~~In September 2011, we completed~~As of March 31, 2012, $594 million remained on our $1.00 billion share repurchase program that we commenced in November ~~2010.~~2011, and is expected to be completed by March 31, 2013.

Financial ratings and strength Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage. On January 26, 2012, A.M. Best affirmed The Allstate Corporation’s debt and commercial paper ratings of a- and AMB-1, respectively, and our insurance entities financial strength ratings of A+ for AIC and Allstate Life Insurance Company (“ALIC”). The outlook for AIC is stable and ALIC was revised to stable from negative. In April 2012, S&P affirmed The Allstate Corporation’s debt and commercial paper ratings of A- and A-2, respectively, AIC’s financial strength ratings of AA- and ALIC’s financial strength rating of A+. The outlook for all S&P ratings remained negative. There have been no changes to our debt, commercial paper and insurance financial strength ratings from Moody’s ~~S&P and A.M. Best~~ since December 31, ~~2010.~~2011. In the future, if our financial position is less than rating agency expectations including those related to capitalization at the parent company, AIC or ALIC, we could be exposed to a downgrade in our ratings of one notch or more which we do not view as being material to our business model or strategies.

~~Allstate Life Insurance Company (“ALIC”),~~ALIC, AIC and The Allstate Corporation are party to the Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) which allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. ALIC and AIC each serve as a lender and borrower and the Corporation serves only as a lender. AIC also has a capital support agreement with ALIC. Under the capital support agreement, AIC is committed to provide capital to ALIC to maintain an adequate capital level. The maximum amount of potential funding under each of these agreements is $1.00 billion.

In addition to the Liquidity Agreement, the Corporation also has an intercompany loan agreement with certain of its subsidiaries, which include, but are not limited to, AIC and ALIC. The amount of intercompany loans available to the Corporation’s subsidiaries is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and ~~repurchase agreements~~securities lending to fund intercompany borrowings.

9581

Liquidity sources and uses We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company, and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility.

Parent company capital capacity At the parent holding company level, we have deployable invested assets totaling ~~$3.43~~$2.65 billion as of ~~September 30, 2011.~~March 31, 2012. These assets include investments that are generally saleable within one quarter totaling ~~$2.91~~$2.30 billion. This provides funds for the parent company’s relatively low fixed charges and other corporate ~~purposes, including the acquisition of Esurance and Answer Financial groups of companies from White Mountains Holdings.~~purposes.

In the first ~~nine months~~quarter of ~~2011,~~2012, dividends totaling ~~$638~~$900 million were paid by ~~AIC~~AIC. These dividends comprised $450 million in cash paid to its ultimate parent, the ~~Corporation.~~Corporation, and the transfer of ownership (valued at $450 million) to Allstate Insurance Holdings, LLC of three insurance companies that were formerly subsidiaries of AIC (Allstate Indemnity Company, Allstate Fire and Casualty Insurance Company and Allstate Property and Casualty Insurance Company).

The Corporation has access to additional borrowing to support liquidity as follows:

· A commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs. As of ~~September 30, 2011,~~March 31, 2012, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion; however, the outstanding balance can fluctuate daily.

· Our new primary credit facility is available for short-term liquidity requirements and backs our commercial paper facility. Our $1.00 billion unsecured revolving credit facility has an initial term of five years expiring in ~~2012~~April 2017. The facility is fully subscribed among 12 lenders with ~~two optional one-year extensions that can be exercised~~the largest commitment being $115 million. We have the option to extend the expiration by one year at the ~~end of any of the remaining~~first and second anniversary ~~years~~ of the facility, upon approval of existing or replacement ~~lenders providing more than two-thirds of the commitments to lend. The program is fully subscribed among 11 lenders with the largest commitment being $185 million.~~lenders. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of ~~borrowing provided the increased portion could be fully syndicated at a later date among existing or new lenders.~~borrowing. This facility has a financial covenant requiring that we not exceed a 37.5% debt to ~~capital resources~~capitalization ratio as defined in the agreement. This ratio as defined in the prior credit facility as of ~~September 30, 2011~~March 31, 2012 was ~~20.5%~~20.3%. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of our senior unsecured, ~~nonguaranteed~~unguaranteed long-term debt. There were no short-term borrowings under ~~the~~our prior credit facility during the ~~third quarter and~~ first ~~nine~~three months of ~~2011.~~2012. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility.

· A universal shelf registration statement was filed with the Securities and Exchange Commission on ~~May 8, 2009.~~April 30, 2012. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including ~~395~~407 million shares of treasury stock as of ~~September 30, 2011)~~March 31, 2012), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.

9682

Liquidity exposure Contractholder funds as of ~~September 30, 2011~~March 31, 2012 were ~~$43.78~~$41.60 billion. The following table summarizes contractholder funds by their contractual withdrawal provisions as of ~~September 30, 2011.~~March 31, 2012.

($ in millions)

Percent
to total

Not subject to discretionary withdrawal
$
6,133

14.0
%

Subject to discretionary withdrawal with adjustments:

Specified surrender charges (1)

16,828

38.4

Market value adjustments (2)

6,674

15.3

Subject to discretionary withdrawal without adjustments (3)

14,141

32.3

Total contractholder funds (4)
$
43,776

100.0
%

($ in millions)			Percent to total
Not subject to discretionary withdrawal	$	6,122	14.7%
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (1)		15,613	37.5
Market value adjustments (2)		6,142	14.8
Subject to discretionary withdrawal without adjustments (3)		13,726	33.0
Total contractholder funds (4)	$	41,603	100.0%

_______________

(1) Includes ~~$8.96~~$8.48 billion of liabilities with a contractual surrender charge of less than 5% of the account balance.

(2) $~~5.50~~5.05 billion of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and
subsequent interest rate guarantee periods (which are typically 5 or 6 years) during which there is no surrender charge or
market value adjustment.

(3) ~~69%~~72% of these contracts have a minimum interest crediting rate guarantee of 3% or higher.

(4) Includes ~~$1.14~~$1.09 billion of contractholder funds on variable annuities reinsured to The Prudential Insurance Company of
America, a subsidiary of Prudential Financial Inc., in 2006.

While we are able to quantify remaining scheduled maturities for our institutional products, anticipating retail product surrenders is less precise. Retail life and annuity products may be surrendered by customers for a variety of reasons. Reasons unique to individual customers include a current or unexpected need for cash or a change in life insurance coverage needs. Other key factors that may impact the likelihood of customer surrender include the level of the contract surrender charge, the length of time the contract has been in force, distribution channel, market interest rates, equity market conditions and potential tax implications. In addition, the propensity for retail life insurance policies to lapse is lower than it is for fixed annuities because of the need for the insured to be re-underwritten upon policy replacement. Surrenders and partial withdrawals for our retail annuities ~~increased 38.1% and 28.3%~~decreased 7.6% in the ~~third quarter and~~ first ~~nine~~three months of ~~2011, respectively,~~2012 compared to ~~the same periods of 2010.~~2011. The annualized surrender and partial withdrawal rate on deferred annuities and interest-sensitive life insurance ~~products and Allstate Bank~~ products, based on the beginning of year contractholder funds, was ~~15.0%~~10.7% and ~~12.2%~~10.4% for the first ~~nine~~three months of ~~2011~~2012 and ~~2010,~~2011, respectively. Allstate Financial strives to promptly pay customers who request cash surrenders; however, statutory regulations generally provide up to six months in most states to fulfill surrender requests.

Our institutional products are primarily funding agreements sold to unaffiliated trusts used to back medium-term notes. As of ~~September 30, 2011,~~March 31, 2012, total institutional products outstanding were $1.88 ~~billion. The following table presents the remaining~~billion, with scheduled maturities ~~for our institutional products outstanding as~~ of ~~September 30, 2011.~~$40 million in June of 2012 and $1.75 billion and $85 million in 2013 and 2016, respectively.

($ in millions)

2012
$
40

2013

1,750

2016

85

$
1,875

Our asset-liability management practices limit the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance, annuity and institutional product obligations.

9783

The following table summarizes consolidated cash flow activities by ~~business~~ segment for the ~~nine~~first three months ended ~~September 30.~~March 31.

($ in millions)		Property-Liability (1)						Allstate Financial (1)						Corporate and Other (1)						Consolidated						Property-Liability (1)				Allstate Financial (1)				Corporate and Other (1)				Consolidated
		2011			2010			2011			2010			2011			2010			2011			2010			2012		2011		2012		2011		2012		2011		2012		2011
Net cash provided by (used in):
Operating activities	$	535		$	1,009		$	1,106		$	1,935		$	30		$	79		$	1,671		$	3,023		$	386	$	315	$	287	$	385	$	134	$	26	$	807	$	726
Investing activities		434			(443	)		3,904			2,527			467			(413	)		4,805			1,671			75		(211)		413		1,318		(409)		178		79		1,285
Financing activities		(4	)		(8	)		(4,842	)		(4,498	)		(1,166	)		(300	)		(6,012	)		(4,806	)		(1)		(3)		(827)		(1,526)		(257)		(403)		(1,085)		(1,932)
Net increase (decrease) in consolidated cash																			$	464		$	(112	)
Net (decrease) increase in consolidated cash																																					$	(199)	$	79

(1)Business unit cash flows reflect the elimination of intersegment dividends, contributions and borrowings.

Property-Liability ~~Lower~~Higher cash provided by operating activities in the first ~~nine~~three months of ~~2011~~2012 compared to the first ~~nine~~three months of 2011 ~~2010~~ was primarily due to ~~higher~~lower claim ~~payments, partially offset by lower income tax~~ payments.

Cash provided by investing activities in the first ~~nine~~three months of ~~2011~~2012 compared to cash used in investing activities in the first ~~nine~~three months of ~~2010~~2011 was primarily due to ~~higher net~~decreased purchases of fixed income securities, partially offset by decreased sales of fixed income ~~and equity securities, partially offset by higher net purchases of fixed income and equity~~ securities.

Allstate Financial Lower cash provided by operating cash flows in the first ~~nine~~three months of ~~2011~~2012 compared to the first ~~nine~~three months of ~~2010~~2011 was primarily due to ~~lower income tax refunds.~~higher contract benefits paid.

~~Higher~~Lower cash provided by investing activities in the first ~~nine~~three months of ~~2011~~2012 compared to the first ~~nine~~three months of ~~2010 were~~2011 was impacted by ~~higher net~~lower sales of fixed income ~~securities used to fund reductions in contractholder fund liabilities.~~securities.

~~Higher~~Lower cash used in financing activities in the first ~~nine~~three months of ~~2011~~2012 compared to the first ~~nine~~three months of ~~2010~~2011 was primarily due to ~~higher~~decreased maturities of institutional products, the absence of Allstate Bank activity in the current year and lower surrenders and partial withdrawals on fixed ~~annuities and lower deposits on Allstate Bank products and fixed annuities, partially offset by decreased maturities and retirements of institutional products.~~annuities.

Corporate and Other Fluctuations in the Corporate and Other operating cash flows were primarily due to the timing of intercompany settlements. Investing activities primarily relate to investments in the parent company portfolio. Financing cash flows of the Corporate and Other segment reflect actions such as fluctuations in short-term debt, repayment of debt, proceeds from the issuance of debt, dividends to shareholders of The Allstate Corporation and share repurchases; therefore, financing cash flows are affected when we increase or decrease the level of these activities.

9884

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. During the fiscal quarter ended ~~September 30, 2011,~~March 31, 2012, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

9985

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Information required for Part II, Item 1 is incorporated by reference to the discussion under the heading “Regulation and Compliance” and under the heading “Legal and regulatory proceedings and inquiries” in Note 10 of the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Risk factors which could cause actual results to differ materially from those suggested by such forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the Securities and Exchange Commission, and those incorporated by reference in Part I, Item 1A of The Allstate Corporation Annual Report on Form 10-K for ~~2010.~~2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period

Total number of
shares
(or units)
purchased (1)

Average price
paid per share
(or unit)

Total number
of shares
(or units) purchased as
part of publicly
announced plans or
programs (2)

Maximum number
(or approximate dollar
value) of shares
(or units) that may yet
be purchased under the
plans or programs (3)

July 1, 2011 - July 31, 2011

1,264,989

$
29.1922

1,264,825

$
271 million

August 1, 2011 - August 31, 2011

5,482,923

$
25.0656

5,482,923

$
134 million

September 1, 2011 - September 30, 2011

5,354,456

$
24.9967

5,354,417

--

Total

12,102,368

$
25.4664

12,102,165

Period	Total number of shares (or units) purchased (1)		Average price paid per share (or unit)	Total number of shares (or units) purchased as part of publicly announced plans or programs (2)	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (3)
January 1, 2012 - January 31, 2012	2,967,700	$	28.8557	2,967,700		$	808 million
February 1, 2012 - February 29, 2012	3,549,073	$	31.0632	3,241,100		$	708 million
March 1, 2012 - March 31, 2012	3,551,575	$	32.0869	3,546,932		$	594 million
Total	10,068,348	$	30.7737	9,755,732

~~_______________~~

(1) In accordance with the terms of its equity compensation plans, Allstate acquired the following shares in connection with stock option exercises by employees and/or directors. The stock was received in payment of the exercise price of the options and in satisfaction of withholding taxes due upon exercise or vesting.

~~July: 164~~

~~August: none~~

~~September: 39~~
January:
none

February:
307,973
March:
4,643

(2)Repurchases under our programs are, from time to time, executed under the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934.

(3)On November ~~9, 2010,~~8, 2011, we announced the approval of a new share repurchase program for $1.00 billion. This program ~~was~~is expected to be completed ~~as of September 30, 2011.~~by March 31, 2013.

~~100~~86

Item 5. Other Information

On April 27, 2012, the Registrant, Allstate Insurance Company, and Allstate Life Insurance Company (the “Borrowers”) entered into a credit agreement with the lenders party thereto; Wells Fargo Bank, National Association, as Syndication Agent; Citibank, N.A. and Bank of America, N.A., as Documentation Agents; and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Credit Agreement”). The Credit Agreement is a new $1.00 billion unsecured revolving credit facility with an initial term of five years expiring in April 2017 with two one year extensions that can be exercised in the first and second year of the facility upon approval of existing or replacement lenders. The term extensions only bind the lenders who vote to approve the extensions, but the Borrowers have the option to add additional lenders if the facility is not fully subscribed for the additional terms. The Credit Agreement also contains an increase provision that would make up to an additional $500 million available for borrowing. The facility is fully subscribed among 12 lenders with the largest commitment being $115 million. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. The Credit Agreement includes a financial covenant requiring that the Registrant’s debt to capitalization ratio as defined in the Credit Agreement not to exceed 37.5%. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of the Registrant’s senior unsecured, unguaranteed long-term debt. The Credit Agreement has been filed herewith as Exhibit 10.6, and the description set forth above is qualified in its entirety by the full terms and conditions of the Credit Agreement.

The Credit Agreement replaced a $1.00 billion unsecured five-year revolving credit facility dated May 8, 2007 among the Borrowers; the agents and lenders party thereto; and JPMorgan Chase Bank, N.A., as Administrative Agent (the “2007 Credit Agreement”). The 2007 Credit Agreement was terminated on April 27, 2012. The Registrant had the option to terminate the 2007 Credit Agreement early, and no material termination penalties were incurred.

Allstate Insurance Company is a wholly owned subsidiary of the Registrant, and Allstate Life Insurance Company is a wholly owned subsidiary of Allstate Insurance Company.

This information would otherwise have been reported during the second fiscal quarter of 2012 on a current report on Form 8-K under the headings “Item 1.01 Entry into a Material Definitive Agreement” and “Item 1.02 Termination of a Material Definitive Agreement.”

Item 6. Exhibits

(a)Exhibits

An Exhibit Index has been filed as part of this report on page E-1.

~~101~~87

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Allstate Corporation
	(Registrant)


~~October 31, 2011~~

May 2, 2012	By	~~/s/~~/s/ Samuel H. Pilch
		Samuel H. Pilch
		(chief accounting officer and duly
		authorized officer of Registrant)

~~102~~88

Exhibit No.		Description

4		Registrant hereby agrees to furnish the Commission, upon request, with the instruments defining the rights of holders of each issue of long-term debt of the Registrant and its consolidated subsidiaries.

1010.1		~~Voluntary Separation Agreement~~The Allstate Corporation 2009 Equity Incentive Plan, as amended and ~~Release between Joseph P. Lacher, Jr. and Allstate Insurance Company entered into on September 2, 2011,~~restated effective February 21, 2012, incorporated herein by reference to Exhibit 1010.1 to The Allstate Corporation current report on Form ~~8-K~~8-K/A filed on ~~September 2, 2011.~~March 7 , 2012.

10.2		Form of Restricted Stock Unit Award Agreements for awards granted on or after February 21, 2012 under The Allstate Corporation 2009 Equity Incentive Plan.

10.3		Form of Option Award Agreement for awards granted on or after February 21, 2012 under The Allstate Corporation 2009 Equity Incentive Plan.

10.4		Form of Performance Stock Award Agreement for awards granted on or after March 6, 2012 under The Allstate Corporation 2009 Equity Incentive Plan.

10.5		Offer letter dated March 4, 2011 to Suren Gupta.

10.6		Credit Agreement dated as of April 27, 2012.

15		Acknowledgment of awareness from Deloitte & Touche LLP, dated ~~October 31, 2011,~~May 2, 2012, concerning unaudited interim financial information.

31 (i)		Rule 13a-14(a) Certification of Principal Executive Officer

31 (i)		Rule 13a-14(a) Certification of Principal Financial Officer

32		Section 1350 Certifications

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

E-1

($ in millions)		Nine Months Ended
		September 30,
		2011		2010
Cash flows from operating activities		(unaudited)
Net income	$	64	$	632
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash items		149		55
Realized capital gains and losses		(417)		943
Loss (gain) on disposition of operations		17		(12)
Interest credited to contractholder funds		1,240		1,358
Changes in:
Policy benefits and other insurance reserves		546		143
Unearned premiums		220		172
Deferred policy acquisition costs		138		(138)
Premium installment receivables, net		(158)		(137)
Reinsurance recoverables, net		(275)		(229)
Income taxes		(188)		178
Other operating assets and liabilities		335		58
Net cash provided by operating activities		1,671		3,023
Cash flows from investing activities
Proceeds from sales
Fixed income securities		23,916		17,345
Equity securities		1,116		4,262
Limited partnership interests		762		387
Mortgage loans		74		121
Other investments		149		98
Investment collections
Fixed income securities		3,864		3,672
Mortgage loans		491		784
Other investments		105		96
Investment purchases
Fixed income securities		(21,900)		(20,712)
Equity securities		(1,066)		(2,721)
Limited partnership interests		(1,159)		(1,040)
Mortgage loans		(896)		(55)
Other investments		(199)		(99)
Change in short-term investments, net		64		104
Change in other investments, net		(357)		(464)
Purchases of property and equipment, net		(160)		(114)
Disposition of operations		1		7
Net cash provided by investing activities		4,805		1,671
Cash flows from financing activities
Repayment of long-term debt		(1)		(1)
Contractholder fund deposits		1,606		2,297
Contractholder fund withdrawals		(6,439)		(6,779)
Dividends paid		(327)		(322)
Treasury stock purchases		(858)		(5)
Shares reissued under equity incentive plans, net		18		26
Excess tax benefits on share-based payment arrangements		(4)		(7)
Other		(7)		(15)
Net cash used in financing activities		(6,012)		(4,806)
Net increase (decrease) in cash		464		(112)
Cash at beginning of period		562		612
Cash at end of period	$	1,026	$	500

($ in millions)					Total realized and unrealized gains (losses) included in:
		Balance as of June 30, 2011			Net income (1)			OCI on Statement of Financial Position			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	1,554		$	(10	)	$	1		$	--		$	(22)
Corporate		1,720			(4	)		(23	)		3			(107)
RMBS		1,194			--			2			--			(1,100)
CMBS		938			(1	)		(5	)		20			(877)
ABS		2,167			(36	)		(75	)		--			(329)
Redeemable preferred stock		1			--			--			--			--
Total fixed income securities		7,574			(51	)		(100	)		23			(2,435)
Equity securities		42			--			--			--			--
Other investments:
Free-standing derivatives, net		(56	)		(57	)		--			--			--
Other assets		1			--			--			--			--
Total recurring Level 3 assets	$	7,561		$	(108	)	$	(100	)	$	23		$	(2,435)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(629	)	$	2		$	--		$	--		$	--
Total recurring Level 3 liabilities	$	(629	)	$	2		$	--		$	--		$	--

		Purchases			Sales			Issuances			Settlements			Balance as of September 30, 2011
Assets
Fixed income securities:
Municipal	$	--		$	(70	)	$	--		$	--		$	1,453
Corporate		245			(59	)		--			(45	)		1,730
RMBS		--			--			--			(4	)		92
CMBS		2			--			--			(1	)		76
ABS		165			(1	)		--			(90	)		1,801
Redeemable preferred stock		--			--			--			--			1
Total fixed income securities		412			(130	)		--			(140	)		5,153
Equity securities		--			--			--			--			42
Other investments:
Free-standing derivatives, net		5			--			--			(2	)		(110)	(2)
Other assets		--			--			--			--			1
Total recurring Level 3 assets	$	417		$	(130	)	$	--		$	(142	)	$	5,086

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--		$	--		$	(15	)	$	45		$	(597)
Total recurring Level 3 liabilities	$	--		$	--		$	(15	)	$	45		$	(597)

($ in millions)				Total realized and unrealized gains (losses) included in:
		Balance as of December 31, 2009		Net income (1)		OCI on Statement of Financial Position		Purchases, sales, issuances and settlements, net		Transfers into Level 3		Transfers out of Level 3		Balance as of September 30, 2010
Assets
Fixed income securities:
Municipal	$	2,706	$	(34)	$	76	$	(539)	$	21	$	(86)	$	2,144
Corporate		2,241		(29)		178		(62)		355		(506)		2,177
Foreign government		20		--		--		(20)		--		--		--
RMBS		1,671		(271)		549		(51)		--		(14)		1,884
CMBS		1,404		(173)		434		(448)		62		(413)		866
ABS		2,001		36		172		536		--		(393)		2,352
Redeemable preferred stock		2		--		--		(1)		--		--		1
Total fixed income securities		10,045		(471)		1,409		(585)		438		(1,412)		9,424
Equity securities		69		8		4		(12)		--		(4)		65
Other investments:
Free-standing derivatives, net		55		(242)		--		92		--		--		(95)	(2)
Other assets		2		--		--		--		--		--		2
Total recurring Level 3 assets	$	10,171	$	(705)	$	1,413	$	(505)	$	438	$	(1,416)	$	9,396

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(110)	$	(35)	$	--	$	3	$	--	$	--	$	(142)
Total recurring Level 3 liabilities	$	(110)	$	(35)	$	--	$	3	$	--	$	--	$	(142)

($ in millions) State		State general obligation		Local general obligation		Revenue (1)		Fair value		Amortized cost	Average credit rating (2)
California	$	77	$	688	$	693	$	1,458	$	1,438	A
Texas		24		442		619		1,085		1,028	Aa
Florida		46		185		582		813		782	A
New York		33		107		537		677		642	Aa
Ohio		103		210		290		603		595	A
Illinois		--		168		362		530		494	A
Missouri		31		128		289		448		434	A
Michigan		43		144		240		427		412	Aa
Delaware		--		--		411		411		435	Aa
Pennsylvania		93		93		215		401		394	Aa
All others		1,103		1,546		4,055		6,704		6,463	A
Total	$	1,553	$	3,711	$	8,293	$	13,557	$	13,117	A

($ in millions)		Private equity/debt funds		Real estate funds		Hedge funds		Tax credit funds		Total
Cost method of accounting (“Cost”)	$	995	$	357	$	86	$	7	$	1,445
Equity method of accounting (“EMA”)		719		626		1,166		451		2,962
Total	$	1,714	$	983	$	1,252	$	458	$	4,407

Number of sponsors		94		44		12		8
Number of individual funds		154		90		82		14
Largest exposure to single fund	$	38	$	135	$	80	$	59


(1) Unrealized net capital gains and losses for fixed income securities as of March 31, 2012 and December 31, 2011 comprise $(154) million and $(267) million, respectively, related to unrealized net capital losses on fixed income securities with other-than-temporary impairment and $3.32 billion and $3.00 billion, respectively, related to other unrealized net capital gains and losses.

($ in millions)		Banking				Sovereign				Other corporate				Total
		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
GIIPS
Fixed income securities	$	25	$	(9)	$	3	$	--	$	581	$	(31)	$	609	$	(40)
Equity securities		--		--		--		--		5		--		5		--
Total		25		(9)		3		--		586		(31)		614		(40)

EU non-GIIPS
Fixed income securities		416		(49)		113		--		2,991		(30)		3,520		(79)
Equity securities		33		(8)		--		--		354		(34)		387		(42)
Total		449		(57)		113		--		3,345		(64)		3,907		(121)
Total EU	$	474	$	(66)	$	116	$	--	$	3,931	$	(95)	$	4,521	$	(161)

		December 31, 2010
		With other-than-temporary impairments recorded in earnings								Without other-than-temporary impairments recorded in earnings
		Ba		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date (1)		0.5	%	0.7	%	8.1	%	8.0	%	0.1	%	3.1	%	3.7	%	3.0	%	n/a
Projected additional collateral losses to be incurred (2)		9.9	%	22.5	%	24.6	%	24.5	%	4.8	%	16.6	%	17.8	%	15.4	%	n/a
Class-level
Average remaining credit enhancement (3)		9.9	%	19.0	%	6.8	%	6.9	%	5.3	%	27.1	%	23.9	%	20.7	%	n/a
Security-specific
Number of positions		1		1		27		29		2		2		8		12		41
Par value	$	4	$	3	$	439	$	446	$	16	$	4	$	68	$	88	$	534
Amortized cost	$	4	$	2	$	316	$	322	$	16	$	4	$	62	$	82	$	404
Fair value	$	1	$	1	$	220	$	222	$	13	$	2	$	51	$	66	$	288
Gross unrealized losses
Total	$	(3)	$	(1)	$	(96)	$	(100)	$	(3)	$	(2)	$	(11)	$	(16)	$	(116)
12-24 months (4)	$	--	$	--	$	--	$	--	$	--	$	--	$	--	$	--	$	--
Over 24 months (5)	$	(3)	$	(1)	$	(90)	$	(94)	$	(3)	$	(2)	$	(10)	$	(15)	$	(109)
Cumulative write-downs recognized (6)	$	--	$	(1)	$	(92)	$	(93)	$	--	$	--	$	--	$	--	$	(93)
Principal payments received during the period (7)																	$	67

	December 31, 2010
	With other-than-temporary impairments recorded in earnings							Without other-than-temporary impairments recorded in earnings
		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date		12.0	%	16.1	%	16.0	%	13.2	%	12.5	%	12.6	%	12.7	%	n/a
Projected additional collateral losses to be incurred		38.2	%	43.2	%	43.0	%	46.5	%	42.7	%	40.8	%	42.1	%	n/a
Class-level
Average remaining credit enhancement		26.0	%	22.6	%	22.8	%	72.7	%	63.6	%	50.5	%	56.7	%	n/a
Security-specific
Number of positions		5		81		86		11		10		35		56		142
Par value	$	42	$	952	$	994	$	73	$	69	$	265	$	407	$	1,401
Amortized cost	$	33	$	650	$	683	$	73	$	69	$	265	$	407	$	1,090
Fair value	$	21	$	425	$	446	$	62	$	54	$	158	$	274	$	720
Gross unrealized losses
Total	$	(12)	$	(225)	$	(237)	$	(11)	$	(15)	$	(107)	$	(133)	$	(370)
12-24 months	$	--	$	(9)	$	(9)	$	--	$	--	$	--	$	--	$	(9)
Over 24 months (2)	$	(12)	$	(216)	$	(228)	$	(11)	$	(15)	$	(107)	$	(133)	$	(361)
Cumulative write-downs recognized	$	(9)	$	(293)	$	(302)	$	--	$	--	$	--	$	--	$	(302)
Principal payments received during the period															$	99

Contract charges

Net transfers from separate accounts

Fair value hedge adjustments for institutional products

Other adjustments (1)

Total maturities, benefits, withdrawals and other adjustments

Impairment write-downs

Change in intent write-downs

Net other-than-temporary impairment losses recognized in earnings

Sales

Valuation of derivative instruments

Settlements of derivative instruments

EMA limited partnership income(1)

Realized capital gains and losses, pre-tax

Income tax (expense) benefit

Realized capital gains and losses, after-tax