ALLSTATE CORP (ALL) FY 2021 MD&A

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

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2021 Form 10-K

2021 Highlights

Overview

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The Allstate Corporation (referred to in this document as “we,” “our,” “us,” the “Company” or “Allstate”). It should be read in conjunction with the consolidated financial statements and related notes found under Item 8. contained herein.

A discussion of strategy, including updates to the multi-year Transformative Growth initiative, can be found in Part 1, Item 1. Business.

This section of this Form 10-K generally discusses 2021 and 2020 results and year-to-year comparisons between 2021 and 2020. Discussions of 2019 results and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis (“MD&A”) in Part II, Item 7 of our annual report on Form 10-K for 2020, filed February 19, 2021.

The most important factors we monitor to evaluate the financial condition and performance for our reportable segments and the Company include:

•Allstate Protection: premium, policies in force (“PIF”), new business sales, policy retention, price changes, claim frequency and severity, catastrophes, loss ratio, expenses, underwriting results, and relative competitive position.

•Protection Services: revenues, premium written, PIF and adjusted net income.

•Allstate Health and Benefits: premiums, new business sales, PIF, benefit ratio, expenses and adjusted net income.

•Investments: exposure to market risk, asset allocation, credit quality/experience, total return, net investment income, cash flows, net gains and losses on investments and derivative instruments, unrealized capital gains and losses, long-term returns, and asset and liability duration.

•Financial condition: liquidity, parent holding company deployable assets, financial strength ratings, operating leverage, debt levels, book value per share and return on equity.

Measuring segment profit or loss

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

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

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

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2021 Form 10-K

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.

On June 1, 2021, we announced an agreement to acquire Safe Auto Insurance Group, Inc. (“SafeAuto”), a non-standard auto insurance carrier. On October 1, 2021, we completed the acquisition for $262 million in cash.

Discontinued operations and held for sale During the first quarter of 2021, we announced the pending sales of Allstate Life Insurance Company (“ALIC”), Allstate Life Insurance Company of New York (“ALNY”) and certain affiliates. On October 1, 2021, we closed the sale of ALNY to Wilton Reassurance Company for $400 million. On November 1, 2021, we closed the sale of 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, the loss on disposition was $4.09 billion, after-tax, and reflects purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreements, changes in statutory capital and surplus prior to the closing dates and the closing date equity of the sold entities determined under GAAP, excluding accumulated other comprehensive income (“AOCI”) derecognized related to the dispositions.

Beginning in the first quarter of 2021, the assets and liabilities of the business were reclassified as held for sale and results are presented as discontinued operations. This change was applied on a retrospective basis.

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

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 moderated in 2021 as vaccines have become more widely available in the United States and Canada. 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 2020, we experienced lower accident claim frequency and different claim patterns than historically experienced. Claim frequency increased in 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 year to the prior year, including:

•Sales of new and retention of existing policies

•Premium for transportation network products

•Driving behavior and auto accident frequency

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

•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

A pandemic such as the Coronavirus and its impacts are disclosed in Part 1 “Item 1A. Risk Factors’’, including the risk factors titled “A large-scale pandemic, the occurrence of terrorism, military actions, social unrest or other actions may have an adverse effect on our business” and “Conditions in the global economy and capital markets could adversely affect our business and results of operations”.

This 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 2021 results.

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2021 Form 10-K

(1)2022 operating priorities will remain consistent with the 2021 priorities.

Consolidated net income applicable to common shareholders decreased 72.8% or $3.98 billion to $1.49 billion in 2021 compared to 2020, primarily due to a loss from discontinued operations and higher non-catastrophe losses. Partially offsetting were higher property and casualty insurance premiums, net investment income, and pension and other postretirement gains.For the twelve months ended December 31, 2021, return on common shareholders’ equity was 5.8% compared to 21.0% for the twelve months ended December 31, 2020.

Total revenue increased 20.7% to $50.59 billion in 2021 compared to 2020, driven by a 13.9% increase in property and casualty insurance premiums earned and higher net investment income.Insurance premiums increased in both Property-Liability, primarily due to the acquisition of National General, and Protection Services (Allstate Protection Plans, Allstate Dealer Services and Allstate Roadside).

Net investment income increased 107.1% to $3.29 billion in 2021 compared to 2020, primarily due to increases in performance-based income results, mainly from limited partnerships.

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2021 Form 10-K

Summarized financial results

Segment Highlights

Allstate Protection underwriting income totaled $1.79 billion in 2021, a 60.9% decrease from $4.57 billion in 2020, primarily due to higher auto and homeowners non-catastrophe and catastrophe losses and increased underwriting expenses, partially offset by increased premiums earned in Allstate brand and lower Shelter-in-Place Payback expense.

Catastrophe losses were $3.34 billion in 2021 compared $2.81 billion in 2020.

Premiums written increased 15.6% to $41.36 billion in 2021 compared to 2020, reflecting the acquisition of National General and higher Allstate brand homeowners premiums.

Protection Services adjusted net income was $179 million in 2021 compared to $153 million in 2020. The improvement in 2021 was primarily due to growth of Allstate Protection Plans, lower claims costs at Allstate Dealer Services, growth and lower levels of investment at both Arity and Allstate Identity Protection, partially offset by higher severity and rescue volumes in Allstate Roadside.

Premiums and other revenues increased 24.5% or $417 million to $2.12 billion in 2021 from $1.70 billion in 2020 primarily due to Allstate Protection Plan’s growth through its U.S. retail and international channels and the addition of LeadCloud and Transparent.ly, which were acquired as part of the National General acquisition.

Allstate Health and Benefits adjusted net income was $208 million in 2021 compared to $96 million in 2020. The increase was primarily due to the acquisition of National General’s group health and individual health business, which resulted in higher premiums and contract charges, partially offset by higher policy benefits and operating costs and expenses.

Premiums and contract charges totaled $1.82 billion in 2021, an increase of 66.5% from $1.09 billion in 2020.

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2021 Form 10-K

Financial Highlights

Investments totaled $64.70 billion as of December 31, 2021, increasing from $59.54 billion as of December 31, 2020.

Shareholders’ equity As of December 31, 2021, shareholders’ equity was $25.18 billion.

Book value per diluted common share (ratio of common shareholders’ equity to total common shares outstanding and dilutive potential common shares outstanding) was $81.52 as of December 31, 2021, a decrease of 10.9% from $91.50 as of December 31, 2020.

Return on average common shareholders’ equity For the twelve months ended December 31, 2021, return on common shareholders’ equity was 5.8%, a decrease of 15.2 points from 21.0% for the twelve months ended December 31, 2020, primarily due to lower net income applicable to common shareholders.

Pension and other postretirement remeasurement gains and losses We recorded pension and other postretirement remeasurement gains of $644 million in 2021, primarily related to favorable asset performance compared to the expected return on plan assets and an increase in the liability discount rate. See Note 18 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information.

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2021 Form 10-K Property-Liability

Property-Liability Operations

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

We do not allocate Property-Liability investment income, net gains and losses on investments and derivatives, or assets to the Allstate Protection and Run-off Property-Liability segments. Management reviews assets at the Property-Liability level for decision-making purposes.

GAAP operating ratios are used to measure our profitability to enhance an investor’s understanding of our financial results and are calculated as follows:

•Loss ratio: the ratio of claims and claims expense (loss adjustment expenses), to premiums earned. Loss ratios include the impact of catastrophe losses and prior year reserve reestimates.

•Expense ratio: the ratio of amortization of DAC, operating costs and expenses, amortization or impairment of purchased intangibles, restructuring and related charges and Shelter-in-Place Payback expense, less other revenue to premiums earned.

•Combined ratio: the sum of the loss ratio and the expense ratio.

We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between periods. The impacts are calculated by taking the specific items noted below divided by Property-Liability premiums earned:

•Effect of catastrophe losses on combined ratio: includes catastrophe losses and prior year reserve reestimates of catastrophe losses included in claims and claims expense

•Effect of prior year reserve reestimates on combined ratio

•Effect of amortization of purchased intangibles on combined ratio

•Effect of impairment of purchased intangibles on combined ratio

•Effect of restructuring and related charges on combined ratio

•Effect of Shelter-in-Place Payback expense on combined and expense ratios

•Effect of Run-off Property-Liability business on combined ratio: includes claims and claims expense, restructuring and related charges and operating costs and expenses in the Run-off Property-Liability segment

Premium measures and statistics are used to analyze our premium trends and are calculated as follows:

•PIF: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy. Commercial lines PIF counts for shared economy agreements typically reflect contracts that cover multiple rather than individual drivers.

•New issued applications: Item counts of automobile or homeowner insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate brand.

•Average premium-gross written (“average premium”): Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line.

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

Frequency and severity statistics, which are influenced by driving patterns, inflation and other factors, are provided to describe the trends in loss costs. Our reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine our best estimate of recorded reserves. We use the following statistics to evaluate losses:

•Gross claim frequency is calculated as annualized notice counts, excluding counts associated with catastrophe events, received in the period divided by the average of PIF with the applicable coverage during the period. Gross claim frequency includes all actual notice counts, regardless of their current status (open or closed) or their ultimate disposition (closed with a payment or closed without payment).

•Paid claim severity is calculated by dividing the sum of paid losses and loss expenses by claims closed with a payment during the period.

•Percent change in frequency or severity statistics is calculated as the amount of increase or decrease in gross claim frequency or paid claim severity in the current period compared to the same period in the prior year divided by the prior year gross claim frequency or paid claim severity.

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Property-Liability 2021 Form 10-K

(1)Restructuring and related charges in 2021 primarily related to reductions in real estate. See Note 14 of the consolidated financial statements for additional details.

(2)Favorable reserve reestimates are shown in parentheses.

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

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2021 Form 10-K Allstate Protection

Allstate Protection Segment

Private passenger auto, homeowners, and other personal lines insurance products are offered to consumers through both exclusive and independent agents and directly through contact centers and online. The Encompass brand was combined into National General beginning in the first quarter of 2021, and results prior to 2021 reflect Encompass brand results only. Our strategy is to offer products in an open access, digital first model that allows customers to interact with us when, where and how they want with affordable, simple and connected protection products. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.

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Allstate Protection 2021 Form 10-K

(1)2021 results include National General commercial lines insurance products.

(2)2021 results include National General packaged policies, which include auto and other personal lines insurance products.

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

(4)Other business lines primarily represents revenue and direct operating expenses of Ivantage and distribution of non-proprietary life and annuity products. Ivantage, a general agency for Allstate exclusive agents, provides agents a solution for their customers when coverage through Allstate brand underwritten products is not available.

Underwriting income decreased 60.9% or $2.78 billion in 2021 compared to 2020, primarily due to higher auto and homeowners non-catastrophe and catastrophe losses and increased underwriting expenses, partially offset by increased premiums earned in Allstate brand and lower Shelter-in-Place Payback expense.

Premium measures and statistics include PIF, new issued applications, average premiums and renewal ratio to analyze our premium trends. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums are considered earned and are included in the financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired term of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position.

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2021 Form 10-K Allstate Protection

Auto insurance premiums written increased 13.2% or $3.25 billion in 2021 compared to 2020, primarily due to the following factors:

•Acquisition of National General

•Increased new issued applications in the Allstate brand driven by increased advertising and higher close rates

•Decreased Allstate brand average premium driven by rate decreases taken late in 2020 and the first half of 2021 partially offset by rate increases in the second half of 2021

•Rate increases are being implemented broadly to improve underwriting results given the higher inflationary trends adversely impacting loss costs; new rates become effective at the beginning of the

next policy term and are earned over the coverage period

•PIF increased 16.4% or 3,656 thousand to 25,916 thousand as of December 31, 2021 compared to December 31, 2020 due to increases in Allstate brand and the acquisition of National General

–PIF increased by 262 thousand as of December 31, 2021 compared to September 30, 2021, with increases in both National General and Allstate brand

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Allstate Protection 2021 Form 10-K

Homeowners insurance premiums written increased 24.9% or $2.09 billion in 2021 compared to 2020, primarily due to the following factors:

•Acquisition of National General

•Higher Allstate brand average premiums from approved rate increases and inflation adjustments to premium due to higher insured home valuations

•Increased new issued applications in the Allstate brand driven by higher quote volumes and improved close rates

Other personal lines premiums written increased 9.7% or $191 million in 2021 compared to 2020, primarily due to the acquisition of National General and increases in condominiums and personal umbrella premiums for Allstate brand.

Commercial lines premiums written increased 7.1% or $56 million in 2021 compared to 2020, primarily due to the addition of a large transportation network

company, higher miles driven in our shared economy business as the impacts of the Coronavirus decrease and an increase in average premiums.

GAAP operating ratios include loss ratio, expense ratio and combined ratio to analyze our profitability trends. Frequency and severity statistics are used to describe the trends in loss costs.

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

(2)Restructuring and related charges in 2021 primarily related to reductions in real estate.

(1)2020 includes approximately $495 million of favorable reserve reestimates related to the PG&E Corporation and Southern California Edison subrogation settlements.

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2021 Form 10-K Allstate Protection

Auto loss ratio increased 13.0 points in 2021 compared to 2020, primarily due to:

•Higher gross claim frequency in all coverages, as miles driven continue to rebound toward pre-pandemic levels

•While frequency increased relative to the prior year, it remains below pre-pandemic levels

•Increased severity for all coverages, driven by inflationary pressures and increased attorney representation and medical service utilization for bodily injury claims

•Adverse prior year reserve reestimates

The impacts of the Coronavirus affect frequency and severity statistics including:

•Shelter-in-place and travel restrictions, which have moderated in 2021 as vaccines have become more widely available in the US and Canada

•Unemployment levels

•Changes in commuting activity

•Supply chain disruptions and labor shortages

•Shifts in the frequency environment may impact the speed claims are settled

•Driving behavior (e.g., speed, time of day) impacting mix of claim types

•Value of total losses due to higher used car prices

•Labor and part cost increases

Property damage gross claim frequency increased in 2021 compared to 2020 due to factors including:

•Increases in miles driven compared to 2020 which was impacted by shelter-in-place restrictions due to the Coronavirus

•Gross claim frequency decreased 19.8% in 2021 when compared to pre-pandemic levels of 2019 as auto miles driven, particularly during peak commuting hours, remains lower than pre-pandemic levels

Property damage paid claim severity increased in 2021 compared to 2020.

•When compared to pre-pandemic levels of 2019, property damage paid claim severity increased 19.6% in 2021

•The increases are due to rising inflationary factors impacting both repairable vehicles and total losses, including higher used car values, replacement part costs and labor rates, and higher costs to repair more sophisticated newer model vehicles

Collision severity increased in 2021 compared to 2020 due to inflationary pressures from higher used car values that increased total losses and also increased parts and labor costs associated with repairs.

Bodily injury severity increased in 2021 compared to 2020 due to higher consumption of medical treatment, increased percentage of claimants represented by attorneys and higher medical care inflation.

Homeowners loss ratio increased 4.9 points in 2021 compared to 2020, primarily due to increased non-catastrophe claim frequency and severity and lower favorable catastrophe reserve reestimates driven by subrogation settlements in 2020, partially offset by increased premiums earned.

Gross claim frequency increased in 2021 compared to 2020 primarily due to increases in wind/hail, water and fire perils. Paid claim severity increased in 2021 compared to 2020 due to inflationary loss cost pressure driven by increases in labor and materials costs. Homeowner paid claim severity can be impacted by both the mix of perils and the magnitude of specific losses paid during the quarter.

Other personal lines loss ratio increased 4.2 points in 2021 compared to 2020, primarily due to higher non-catastrophe losses, partially offset by increased premiums earned.

Commercial lines loss ratio increased 15.1 points in 2021 compared to 2020 due to higher auto frequency and severity and higher unfavorable non-catastrophe prior year reserves reestimates, partially offset by increased premiums earned.

Catastrophe losses increased 18.8% or $528 million in 2021 compared to 2020. Catastrophe losses in 2021 included gross losses of $2.4 billion and net losses of $1.3 billion related to Hurricane Ida and Winter Storm Uri. Net losses include reinsurance recoveries of $1.3 billion and reinstatement premiums of $208 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 a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, wildfires or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.

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Allstate Protection 2021 Form 10-K

(1)Includes approximately $250 million of reinstatement premiums for the year ended December 31, 2021, related to the Nationwide Catastrophe Reinsurance Program, primarily due to Hurricane Ida.

Catastrophe management

Historical catastrophe experience  For the last ten years, the average annual impact of catastrophes on our loss ratio was 7.7 points, but it has varied from 4.5 points to 10.3 points. The average annual impact of catastrophes on the homeowners loss ratio for the last ten years was 24.6 points. Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes by our participation in various state facilities. For further discussion of these facilities, see Note 15 of the consolidated financial statements. However, the impact of these actions may be diminished by the growth in insured values, and the effect of state insurance laws and regulations. In addition, in various states we are required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation in these and other state facilities such as wind pools, we may be exposed to losses that surpass the capitalization of these facilities and to assessments from these facilities.

We have continued to take actions to maintain an appropriate level of exposure to catastrophic events while continuing to meet the needs of our customers, including the following:

•Continuing to limit or not offer new homeowners, manufactured home and landlord package policy business in certain coastal geographies.

•Increased capacity in our brokerage platform for customers not offered an Allstate policy.

•We began to write a limited number of homeowners policies in select areas of California in 2016, additionally we:

–Continue to renew current policyholders and allow replacement policies for existing customers who buy a new home or change their residence to rental property

–Have decreased our overall homeowner exposures in California by more than 50% since 2007

–Write homeowners coverage through our excess and surplus lines carrier, North Light Specialty Insurance Company (“North Light”), which includes earthquake coverage (other than fire following earthquakes) that is currently ceded via quota share reinsurance.

•In certain states, we have been ceding wind exposure related to insured property located in wind pool eligible areas.

•Starting in the second quarter of 2017, we began writing a limited number of homeowners policies in select areas of Florida and continue to support existing customers who replace their currently-insured home with an acceptable property. Encompass withdrew from property lines in Florida in 2009.

•Tropical cyclone deductibles are generally higher than all peril deductibles and are in place for a large portion of coastal insured properties.

•Auto comprehensive damage coverage generally includes coverage for flood-related loss. We have additional catastrophe exposure, beyond the property lines, for auto customers who have purchased comprehensive damage coverage.

•We offer a homeowners policy available in 43 states, Allstate House and Home®, that provides options of coverage for roof damage, including graduated coverage and pricing based on roof type and age. In 2021, premiums written totaled $4.56 billion or 46.0% of homeowners premiums written compared to $3.92 billion or 46.7% in 2020.

Hurricanes  We consider the greatest areas of potential catastrophe losses due to hurricanes generally to be major metropolitan centers in counties along the eastern and gulf coasts of the United States. The average premium on a property policy near these coasts is generally greater than in other areas. However, average premiums are often not considered commensurate with the inherent risk of loss. In addition, as explained in Note 15 of the consolidated financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting

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2021 Form 10-K Allstate Protection

associations providing insurance for wind related property losses.

We have addressed our risk of hurricane loss by, among other actions, purchasing reinsurance for specific states and on a countrywide basis for our personal lines property insurance in areas most exposed to hurricanes, limiting personal homeowners, landlord package policy and manufactured home new business writings in coastal areas in southern and eastern states, implementing tropical cyclone deductibles where appropriate, and not offering continuing coverage on certain policies in coastal counties in certain states. We continue to seek appropriate returns for the risks we write. This may require further actions, similar to those already taken, in geographies where we are not getting appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved.

Earthquakes  We do not offer earthquake coverage in most states. We retain approximately 40,000 PIF with earthquake coverage, with the largest number of policies located in Kentucky, due to regulatory and other reasons. We purchase reinsurance in Kentucky and enter into arrangements in many states to make earthquake coverage available through our brokerage platform.

We continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses, including our auto policies, and to fires following earthquakes. Allstate homeowner policyholders in California are offered coverage for damage caused by an earthquake through the California Earthquake Authority (“CEA”), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain circumstances as explained in Note 15 of the consolidated financial statements. While North Light writes property policies in California, which can include earthquake coverage, this coverage is 100% ceded via quota share reinsurance.

Fires following earthquakes  Under a standard homeowners policy we cover fire losses, including those caused by an earthquake. Actions taken related to our risk of loss from fires following earthquakes include restrictive underwriting guidelines in California for new business writings, purchasing reinsurance for Kentucky personal lines property risks, and purchasing nationwide occurrence reinsurance, excluding Florida.

Wildfires  Actions taken related to managing our risk of loss from wildfires include purchasing nationwide occurrence reinsurance, new and renewal inspection programs to identify and remediate wildfire risk as well as leveraging contemporary underwriting tools in select areas. While these programs are designed to mitigate risk, the exposure to wildfires still exists. We continue to manage our exposure and seek appropriate returns for the risks we write.

To manage the exposure, we may implement further actions, similar to those already taken, in geographies where we are not achieving appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved.

Reinsurance  The total cost of our property catastrophe reinsurance programs, excluding reinstatement premiums, during 2021 was $556 million compared to $425 million during 2020. Catastrophe placement premiums are a reduction of premium with approximately 74% related to homeowners. The increases were driven by higher Nationwide and Florida program costs due to program expansion for growth in policies, including National General exposures. In the third quarter of 2021, our catastrophe reinsurance program risk tolerance framework that targets less than a 1% likelihood of annual aggregate catastrophe losses from hurricanes, earthquakes and wildfires, excluding other catastrophe losses, net of reinsurance, increased from $2 billion to $2.5 billion, reflecting the addition of wildfires to the target. A description of our current catastrophe reinsurance program appears in Note 11 of the consolidated financial statements.

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Allstate Protection 2021 Form 10-K

Expense ratio decreased 2.3 points in 2021 compared to 2020, primarily related to lower Shelter-in-Place Payback expense, operating costs and expenses, restructuring and related charges, partially offset by increased advertising and amortization of purchased intangibles and DAC related to the acquisition of National General.

Deferred acquisition costs  We establish a DAC asset for costs that are related directly to the acquisition of new or renewal insurance policies, principally agent remuneration and premium taxes. DAC is amortized to income over the period in which premiums are earned.

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2021 Form 10-K Run-off Property-Liability

Run-off Property-Liability Segment

The Run-off Property-Liability segment includes results from property and casualty insurance coverage that primarily relates to policies written during the 1960s through the mid-1980s. Our exposure to asbestos, environmental and other run-off lines claims arises principally from direct excess commercial insurance, assumed reinsurance coverage, direct primary commercial insurance and other businesses in run-off. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.

Underwriting losses in 2021 and 2020 primarily related to our annual reserve review using established industry and actuarial best practices. The annual review resulted in unfavorable reserve reestimates totaling $111 million and $132 million in 2021 and 2020, respectively. The reserve reestimates are included as part of claims and claims expense.

Reserve reestimates in 2021 primarily related to new reported information for asbestos and environmental and higher than expected reported losses for environmental and other run-off exposures. Reserve reestimates in 2020 primarily related to new reported information, court decisions and policy buyback settlements for asbestos exposures and higher than expected reported losses for environmental and other run-off exposures.

We believe that our reserves are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (e.g., claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. However, as we progress with the resolution of disputed claims in the courts and arbitrations and with negotiations and settlements, our reported losses may be more variable.

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Run-off Property-Liability 2021 Form 10-K

(1)Approximately 70% of gross case reserves as of December 31, 2021 are subject to settlement agreements.

(2)Approximately 77% of ceded case reserves as of December 31, 2021 are subject to settlement agreements.

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2021 Form 10-K Run-off Property-Liability

(1) In 2021 70% of payments related to settlement agreements.

(2) In 2021 72% of payments related to settlement agreements.

Total net reserves as of December 31, 2021, included $733 million or 52% of estimated IBNR reserves compared to $695 million or 49% of estimated IBNR reserves as of December 31, 2020.

Total gross payments were $142 million and $137 million for 2021 and 2020, respectively, primarily related to settlement agreements reached with several insureds on large claims, mainly asbestos, where the scope of coverages has been agreed upon. The claims associated with these settlement agreements are expected to be substantially paid out

over the next several years as qualified claims are submitted by these insureds.

Reinsurance collections were $39 million and $53 million for 2021 and 2020, respectively. The allowance for uncollectible reinsurance recoverables was $66 million and $59 million as of December 31, 2021 and 2020, respectively. The allowance represents 11.0% and 10.5% of the related reinsurance recoverable balances as of December 31, 2021 and 2020, respectively.

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Protection Services 2021 Form 10-K

Protection Services Segment

Protection Services comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside, Arity and Allstate Identity Protection. Protection Services include National General’s LeadCloud and Transparent.ly’s results within Arity starting in the first quarter of 2021. These businesses provide marketing and integration platforms connecting data buyers and sellers. Results prior to 2021 reflect historical Arity results only.

In 2021, Protection Services represented 77.7% of total PIF, 6.0% of premiums written and 4.4% of total adjusted net income. We offer consumer product protection plans, finance and insurance products (including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information and identity protection. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.

(1)Primarily related to Arity and Allstate Roadside and are eliminated in our consolidated financial statements.

Adjusted net income increased 17.0% or $26 million in 2021 compared to 2020, primarily due to growth of Allstate Protection Plans, lower claims costs at Allstate Dealer Services, growth and lower levels of investment at both Arity and Allstate Identity Protection, partially offset by higher severity and rescue volumes in Allstate Roadside.

Premiums written increased 39.8% or $752 million in 2021 compared to 2020, primarily due to growth at

Allstate Protection Plans and increased sales at Allstate Dealer Services.

PIF increased 8.9% or 12 million in 2021 compared to 2020 due to continued growth at Allstate Protection Plans and Allstate Identity Protection.

Other revenue increased 70.2% or $146 million in 2021 compared to 2020, reflecting the addition of LeadCloud and Transparent.ly, which were acquired as part of the National General acquisition.

The Allstate Corporation 51

2021 Form 10-K Protection Services

Intersegment premiums and service fees increased 19.0% to $175 million in 2021 compared to 2020, primarily related to increased device sales through Arity driven by growth in the Allstate brand Milewise® product and growth in automotive rescue services provided by Allstate Roadside for Allstate brand auto customers.

Claims and claims expense increased 18.7% or $72 million in 2021 compared to 2020, primarily due to higher levels of claims at Allstate Protection Plans driven by growth of the business and increased claims costs at Allstate Roadside due to higher severity and rescue volumes.

Amortization of DAC increased 20.8% or $137 million in 2021 compared to 2020, primarily due to the growth experienced at Allstate Protection Plans and Allstate Dealer Services.

Operating costs and expenses increased 28.6% or $186 million in 2021 compared to 2020, primarily due to higher operating costs at Arity driven by the addition of LeadCloud and Transparent.ly and growth experienced at Allstate Protection Plans.

Restructuring and related charges increased $11 million in 2021 compared to 2020, primarily due to a facility closure at Allstate Identity Protection in the first quarter of 2021 and accelerated lease costs at Allstate Protection Plans.

52 www.allstate.com

Claims and Claims Expense Reserves 2021 Form 10-K

Claims and Claims Expense Reserves

Underwriting results are significantly influenced by estimates of claims and claims expense reserves. For a description of our reserve process, see Note 9 of the consolidated financial statements. Further, for a description of our reserving policies and the potential variability in our reserve estimates, see the Application of Critical Accounting Estimates section of the MD&A. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR claims, as of the reporting date.

The facts and circumstances leading to reestimates of reserves relate to changes in claim activity and revisions to the development factors used to predict how losses are likely to develop from the end of a reporting period until all claims have been paid. Reestimates occur when actual losses differ from those predicted by the estimated development factors used in prior reserve estimates.

We believe the net loss reserves exposures are appropriately established based on available facts, technology, laws and regulations.

The year-end 2021 gross reserves of $33.06 billion for insurance claims and claims expense were $11.15 billion more than the net reserve balance of $21.91 billion recorded on the basis of statutory accounting practices for reports provided to state regulatory authorities. The principal differences are recoverables from third parties totaling $9.48 billion, including $6.64 billion of indemnification recoverables related to the Michigan Catastrophic Claims Association (“MCCA”), that reduce reserves for statutory reporting, but are recorded as assets for GAAP reporting, and a liability for the reserves of the Canadian subsidiaries for $1.55 billion that are a component of our consolidated reserves, but not included in our U.S. statutory reserves.

(1)Favorable reserve reestimates are shown in parentheses.

(2)Ratios are calculated using property and casualty premiums earned.

The Allstate Corporation 53

2021 Form 10-K Claims and Claims Expense Reserves

The following tables reflect the accident years to which the reestimates shown above are applicable. Favorable reserve reestimates are shown in parentheses.

Allstate Protection

The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2021, 2020, and 2019, and the effect of reestimates in each year.

Favorable results for homeowners lines in 2021 were primarily due to catastrophe reserve reestimates driven by estimated recoveries related to our aggregate reinsurance coverage and wildfire subrogation settlements. Unfavorable reserve reestimates for auto and commercial lines in 2021 primarily related to auto liability coverages.

Favorable results for homeowners lines in 2020 were primarily due to catastrophe reserve reestimates

driven by wildfire subrogation settlements. Favorable reserve reestimates for auto in 2020 primarily related to favorable non-catastrophe reserve reestimates in personal lines auto, partially offset by strengthening in commercial lines auto reserves.

Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables.

54 www.allstate.com

Claims and Claims Expense Reserves 2021 Form 10-K

Run-off Property-Liability

We conduct an annual review in the third quarter of each year to evaluate and establish asbestos, environmental and other run-off reserves. Reserves are recorded in the reporting period in which they are determined. Using established industry and actuarial best practices and assuming no change in the regulatory or economic environment, this detailed and comprehensive methodology determines reserves based on assessments of the characteristics of exposure (e.g. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by policyholders.

Reserve reestimates in 2021 primarily related to new reported information for asbestos and environmental and higher than expected reported losses for environmental and other run-off exposures.

Reserve reestimates in 2020 primarily related to new reported information, court decisions and policy buyback settlements for asbestos exposures and higher than expected reported losses for environmental and other run-off exposures.