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 related 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 2021, filed February 18, 2022.

Further analysis of our insurance segments is provided in the Property-Liability Operations and Segment Results sections, including Allstate Protection and Run-off Property-Liability, Protection Services and Allstate Health and Benefits, of Management's Discussion and Analysis ("MD&A"). The segments are consistent with the way in which the chief operating decision maker reviews financial performance and makes decisions about the allocation of resources.

The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus")

The Coronavirus resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings. These measures have moderated, but there is no way of predicting with certainty how long the pandemic might last. We continue to closely monitor and proactively adapt to developments and changing conditions. Currently, it is not possible to reliably estimate the impact to our operations, but the effects have been and could be material.

Certain growth and profitability comparisons to the prior year were impacted, in part, by the effects the Coronavirus had on our prior year results. Beginning in March 2020, when shelter-in-place orders and other restrictions were initiated, and throughout 2021, we experienced lower auto accident claim frequency and different claim patterns than historically experienced. Total auto claim frequency has increased through the first six months of 2022 and during 2021, but remains below pre-pandemic levels.

The Coronavirus has affected our operations and may continue to significantly affect our results of operations, financial condition and liquidity. The impact from the pandemic should be considered when comparing the current period to the prior period, including:

•Sales of new and retention of existing policies

•Rate increases and average gross premiums

•Supply chain disruptions and labor shortages increasing the cost of settling claims

•Premium for transportation network products

•Driving behavior and auto accident frequency

•Hospital and outpatient claim costs

•Investment valuations and returns

•Bad debt and credit allowance exposure

•Consumer utilization of Milewise®, our pay-per-mile insurance product

•Retail sales in Allstate Protection Plans

This list is not inclusive of all potential impacts and should not be treated as such. Within the MD&A we have included further disclosures related to the impacts of the Coronavirus on our 2022 results.

Russia/Ukraine Conflict

The Russia-Ukraine war and related sanctions imposed as a result of this conflict have increased global economic and political uncertainty, including inflationary pressures and an increased risk of cybersecurity incidents. Allstate does not have operations or direct investments in Russia, Belarus or Ukraine. The conflict is evolving, but we have not experienced significant impacts to date on our investment portfolio, financial position, or results of operations.

Corporate Strategy

Our strategy has two components: increase personal property-liability market share and expand protection offerings by leveraging the Allstate brand, customer base and other core capabilities.

Transformative Growth is about creating a business model, capabilities and culture that continually transform to better serve customers. This is done by providing affordable, simple and connected protection through multiple distribution partners. The ultimate objective is to create continuous transformative growth in all businesses.

In the personal property-liability businesses this has five key components:

•Expanding customer access

•Improving customer value

•Increasing customer acquisition sophistication

•Modernizing the technology ecosystem

•Enhancing organizational capabilities

The protection businesses are being expanded by leveraging enterprise capabilities and resources such as distribution, brand, analytics, claims, investment expertise, talent and capital.

Acquisitions and Dispositions

Acquisitions On January 4, 2021, we completed the acquisition of National General Holdings Corp. ("National General"), significantly enhancing our strategic position in the independent agency channel. The transaction increased our market share in personal property-liability by over one percentage point and enhanced our independent agent-facing technology.




                                                Second Quarter 2022 Form 10-Q 45

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Discontinued operations and held for sale On October 1, 2021, we closed the sale of Allstate Life Insurance Company of New York ("ALNY") to Wilton Reassurance Company for $400 million. On November 1, 2021, we closed the sale of Allstate Life Insurance Company ("ALIC") and certain affiliates to entities managed by Blackstone for total proceeds of $4 billion, including a pre-close dividend of $1.25 billion paid by ALIC.

In 2021 and prior periods, the assets and liabilities of the businesses were reclassified as held for sale and results were presented as discontinued operations.

See Note 3 of the condensed consolidated financial statements for further information on acquisitions and dispositions.

Measuring segment profit or loss

The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Run-off Property-Liability segments and adjusted net income for the Protection Services, Allstate Health and Benefits and Corporate and Other segments.

Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense ("losses"), amortization of deferred policy acquisition costs ("DAC"), operating costs and expenses, amortization or impairment of purchased intangibles and restructuring and related charges, as determined using accounting principles generally accepted in the United States of America ("GAAP"). We use this measure in our evaluation of results of operations to analyze profitability.

Adjusted net income is net income (loss) applicable to common shareholders, excluding:



  •   Net gains and losses on investments and derivatives
  •   Pension and other postretirement remeasurement gains and losses
  •   Business combination expenses and the amortization or impairment of purchased
      intangibles
  •   Income or loss from discontinued operations
  •   Gain or loss on disposition of operations
  •   Adjustments for other significant non-recurring, infrequent or unusual items, when (a)
      the nature of the charge or gain is such that it is reasonably unlikely to recur
      within two years, or (b) there has been no similar charge or gain within the prior two
      years
  •   Income tax expense or benefit on reconciling items

46 www.allstate.com

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Highlights



            Consolidated net income
($ in millions)


    Q1      Q2

[[Image Removed: all-20220630_g2.jpg]] Consolidated net loss applicable to common shareholders was $1.04 billion and $412 million in the second quarter and first six months of 2022, respectively, compared to income of $1.60 billion and $187 million in the second quarter and first six months of 2021 primarily due to higher non-catastrophe losses and equity valuation decreases, partially offset by increased Property-Liability premiums earned and the loss from discontinued operations in the first six months of 2021.

For the twelve months ended June 30, 2022, return on Allstate common shareholders' equity was 4.0%, a decrease of 11.3 points from 15.3% for the twelve months ended June 30, 2021.




        Total revenue
($ in millions)

[[Image Removed: all-20220630_g3.jpg]]

Total revenue decreased 3.4% to $12.22 billion and decreased 2.2% to $24.56 billion in the second quarter and first six months of 2022, respectively, compared to the same periods of 2021, driven by net losses on investments and derivatives in 2022 compared to net gains in 2021 and decreases in net investment income, partially offset by 8.8% and 7.7% increases in property and casualty insurance premiums earned in the second quarter and first six months of 2022, respectively. Insurance premiums earned increased for Property-Liability and Protection Services.




       Net investment income
($ in millions)

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Net investment income decreased $412 million to $562 million in the second quarter of 2022 and decreased $526 million to $1.16 billion in the first six months of 2022 compared to the same periods of 2021. The decrease in both periods was primarily due to lower performance-based investment results, mainly from limited partnerships. The decrease in the second quarter was slightly offset by higher market-based fixed income portfolio yields.









                                                Second Quarter 2022 Form 10-Q 47

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Financial highlights

Investments totaled $61.06 billion as of June 30, 2022, decreasing from $64.70 billion as of December 31, 2021.

Allstate shareholders' equity As of June 30, 2022, Allstate shareholders' equity was $20.12 billion.

Book value per common share (ratio of Allstate common shareholders' equity to total common shares outstanding and dilutive potential common shares outstanding) was $66.15, a decrease of 23.4% from $86.33 as of June 30, 2021, and a decrease of 18.9% from $81.52 as of December 31, 2021.

Return on average Allstate common shareholders' equity For the twelve months ended June 30, 2022, return on Allstate common shareholders' equity was 4.0%, a decrease of 11.3 points from 15.3% for the twelve months ended June 30, 2021. The decrease was primarily due to lower net income applicable to common shareholders for the trailing twelve-month period ending June 30, 2022.

Pension and other postretirement remeasurement gains and losses We recorded pension and other postretirement remeasurement losses of $259 million and $12 million in the second quarter and first six months of 2022, respectively, primarily related to unfavorable asset performance compared to expected return on plan assets, partially offset by a reduction in the projected benefit obligation due to an increase in the liability discount rate and changes in other assumptions.

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