The following Summary Compensation Table sets forth information on compensation earned in 1996, 1997 and 1998 by Mr. Choate (Allstate's chief executive officer throughout 1996, 1997 and 1998) and by each of Allstate's four most highly compensated executive officers (with Mr. Choate, the "named executives").

      The following table is a summary of all Allstate stock options granted to the named executives during 1998. Individual grants are listed separately for each named executive. In addition, this table shows the potential gain that could be realized if the fair market value of Allstate's common shares were not to appreciate, or were to appreciate at either a five or ten percent annual rate over the period of the option term:

      The following table shows Allstate stock options that were exercised during 1998 and the number of shares and the value of grants outstanding as of December 31, 1998 for each named executive:

      Allstate made no awards in 1998 under its Long-Term Executive Incentive Compensation Plan. Payments for the 1997-1999 cycle of the Long-Term Executive Incentive Compensation Plan will be reported in Allstate's proxy statement for its annual meeting in 2000.

      The following table indicates the estimated total annual benefits payable to the named executives upon retirement under the specified compensation and years of service classifications, pursuant to the combined current benefit formulas of the Allstate Retirement Plan and the unfunded Supplemental Retirement Income Plan. The Supplemental Retirement Income Plan will pay the portion of the benefits shown below which exceeds Internal Revenue Code limits or is based on compensation in excess of Internal Revenue Code limits. Benefits are computed on the basis of a participant's years of credited service (generally limited to 28) and average annual compensation over the participant's highest five successive calendar years of earnings out of the ten years immediately preceding retirement. Only annual salary and annual bonus amounts as reflected in the Summary Compensation Table are considered annual compensation in determining retirement benefits.

      Annual retirement benefits are generally payable monthly and benefits accrued from January 1, 1978 through December 31, 1988 are reduced by a portion of a participant's estimated social security benefits. Effective January 1, 1989 the retirement benefit calculation was integrated with the employees' social security wage base. Benefits shown below are based on retirement at age 65 and selection of a straight life annuity.

      As of December 31, 1998, Messrs. Choate, Gary and Lower had 37, 37 and 22 full years of service, respectively, with Allstate and Messrs. Liddy and Wilson had 11 and 6 full years, respectively, of combined Allstate/Sears service. As a result of their prior Sears service, a portion of Mr. Liddy's and Mr. Wilson's retirement benefits will be paid from the Sears Plan. Allstate has agreed to provide Mr. Liddy with enhanced pension benefits when he reaches 60. The enhanced benefit will be calculated based on the existing pension formula assuming an additional five years of age and five years of service. This enhancement will be phased out at a rate of 20% a year. Mr. Liddy's current annual salary is $890,000. The amount of his annual bonus and other annual compensation for 1999 is not yet determinable.

      In September 1998, the Board reluctantly acquiesced in Mr. Choate's retirement and accepted his resignation as Chairman and Chief Executive Officer effective January 1, 1999. The Board continues to hold Mr. Choate's knowledge of the insurance industry in very high regard and wants to ensure that Allstate can continue to look to him for advice. Accordingly, the Board has asked him to serve as a consultant to Allstate. To compensate him for his services as a consultant in 1999 and 2000, the Board agreed to pay Mr. Choate a total of $3,458,000, an amount equal to the sum of (a) two times Mr. Choate's annual base salary at the date of his retirement, plus (b) his assumed award at target under the Annual Executive Incentive Compensation Plan for 1999 and 2000. In addition, Allstate will pay the reasonable expenses of maintaining an office for Mr. Choate until his 70th birthday (September 16, 2008) for the purpose of providing consulting services to Allstate.

      In addition, in recognition of his many years of service to Allstate, the Board agreed as follows:

      The Board has approved agreements with Messrs. Gary, Liddy, Lower and Wilson that provide for severance and other benefits in the event of the termination of their employment in certain circumstances during the three-year period after a change in control of Allstate or a "merger of equals" involving Allstate. Severance benefits would be payable only if an executive's employment is terminated by Allstate without "cause" or by the executive for "good reason". For this purpose, good reason includes certain material adverse changes in the executive's position, except that Allstate can make certain changes to the position of any executive (other than Mr. Liddy) after a merger of equals. Good reason also includes a termination of employment by an executive for any reason during the 13th month after a change of control (but not after a merger of equals).

      The principal benefits that would be provided under the agreements include:

      In addition, at the time of a change of control, all unvested stock options would become exercisable and all unvested restricted stock and non-qualified deferred compensation account balances would become fully-vested and payable. However, in the event of a merger of equals, such accelerated exercisability and vesting will not occur unless the executive's employment is terminated by Allstate without cause or by the executive for good reason. Allstate's benefit and compensation plans will be reviewed and modified as necessary and appropriate consistent with the agreements.

      In general, a "change in control" is one or more of the following events:

      In general, a "merger of equals" is a merger in which all of the following occur:

      If the conditions for a merger of equals cease to be satisfied, the merger would then qualify as a change of control.

      In general, Allstate may terminate options granted under Allstate's Employees Replacement Stock Plan in the event of an "extraordinary corporate transaction" (a merger, consolidation, reorganization, sale or exchange of substantially all assets, or dissolution of Allstate). In the case of certain options affected by an extraordinary corporate transaction, the Board may provide adjustments to the optionee and, in the case of certain other options which have been outstanding for at least six months, Allstate is required to make adjustments by one of the following means: (a) acceleration of all outstanding rights prior to the extraordinary corporate transaction, (b) appropriate and equitable provision for the continuation and adjustment of all outstanding rights, or (c) payment in cash of the value of all outstanding rights.

      In the event of a "change in control" of Allstate, all rights under certain options under the Employees Replacement Stock Plan which have been outstanding for at least six months will immediately become exercisable. A change in control under this plan means, in general, any acquisition of 20% or more of Allstate's outstanding common shares, a change in the majority of the directors of Allstate which is not approved by a majority of the incumbent directors, or approval by the stockholders of an extraordinary corporate transaction. In addition, some options granted under Allstate's Employees Replacement Stock Plan include limited stock appreciation rights exercisable during the period of sixty days following a change in control of Allstate (but not less than six months after the date of grant).

      Allstate's Compensation and Nominating Committee, which is composed entirely of independent, non-employee directors, administers Allstate's executive compensation program. The purposes of the program are to:

      In 1996 the Committee created stock ownership goals for executives at the vice president level and above. The goals are for these executives to own, within five years, common stock worth a multiple of base salary, ranging from one times salary to up to three times salary for the Chairman, President and Chief Executive Officer. In 1997 the Committee weighted the compensation opportunities for executive officers, including each of the named executives, more heavily towards compensation payable upon the attainment of specified performance objectives and compensation in the form of Allstate common stock.

      Allstate executives can receive three types of compensation, each of which is described in more detail below:

      Annual cash compensation includes base salary and annual incentive awards.

      Base salaries of Allstate executives are set by the Committee at a level designed to be competitive in the U.S. insurance industry. At least annually, the Committee reviews a report based on data prepared by independent compensation consultants comparing Allstate's base salary levels for its executives with base salaries paid to executives in comparable positions at other companies in the peer group of large U.S. public insurance companies. The Committee attempts to set Allstate base salaries at the median level of the peer group.

      Annual incentive awards are designed to provide certain employees, including each of the named executives, with a cash award based on the achievement of annual performance objectives. These objectives are approved by the Committee prior to the end of the first quarter of the relevant year. Threshold, target and maximum benchmarks are set for each objective. Each participant's award opportunity is based on that individual's potential contribution to the achievement of a particular objective and is stated as a specified percentage of base salary for the year. No award is payable with respect to an objective if the threshold level of performance is not attained. No award is payable to any participant if Allstate sustains a net loss for the year. Awards for all participants are reduced by 50% if Allstate's return on average equity for the year is less than the rate of return on ten-year U.S. Treasury notes.

      Annual incentive awards are paid in March of the year following the year of performance, after the Committee has certified attainment of the objectives. The Committee has the authority to adjust the amount of awards but, with respect to the chief executive officer and the other named executives, has no authority to increase any award above the amount specified for the level of performance achieved with respect to the relevant objective.

      Mr. Choate's and Mr. Liddy's 1998 annual incentive cash awards were based on Allstate's achievement of a 1998 operating earnings per share goal. The 1998 annual incentive cash awards for the other named executives were based 50% on Allstate's achievement of the 1998 operating earnings per share goal and 50% on one or more performance objectives related to their particular business units. For 1998, Allstate achieved the maximum operating earnings per share goal and, on average, the business units achieved the target level of performance.

      Long-term incentive cash awards are designed to provide certain employees, including each of the named executives, with a cash award based on the achievement of a performance objective over a three-year period. The objective is established by the Committee at the beginning of the three-year cycle. Threshold, target and maximum levels of performance are established on which individual award opportunities are based, stated as a specified percentage of aggregate base salary over the period. A new cycle commences every two years. In years in which performance cycles overlap, 50% of participants' salaries are applied to each cycle. The awards will be increased or decreased by up to 50%, depending on Allstate's performance with respect to the objective as compared to the performance of a group of peer companies over the same period. The Committee must certify in writing the attainment of the objective before awards may be paid. Awards are payable in March of the year following the end of the cycle.

      The current cycle for long-term incentive cash awards covers the years 1997–1999. In this cycle the objective for all participants, including the named executives, is the achievement of a specified return on average equity.

      The Equity Incentive Plan provides for the grant of stock options and restricted or unrestricted common stock of Allstate to plan participants.

      In August 1998 the Committee granted stock options to a number of key Allstate employees, including each of the named executives. The size of each named executive's grant was based on a specified percentage of his base salary and the Committee's assessment of his performance. All stock option grants under this plan have been made in the form of nonqualified stock options at exercise prices equal to 100% of the fair market value of Allstate's common stock on the date of grant. Options which have been granted are not fully-exercisable until four years or, in some cases, three years after the date of grant and expire in ten years. The vested portions of options may be transferred to immediate family members, to trusts for the benefit of the executive or family members or to a family limited partnership.

      Mr. Choate retired as Allstate's Chairman and Chief Executive Officer and Mr. Liddy was elected as Allstate's Chairman, President and Chief Executive Officer effective January 1, 1999.

      In 1998, approximately 24% of both Mr. Choate's and Mr. Liddy's total compensation opportunity was base salary. The rest was variable compensation that was at risk and tied to Allstate's business results.

      On the Committee's recommendation, the Board increased Mr. Choate's base salary by 7.1% from $850,000 to $910,000 in July 1998. In making the recommendation, the Committee reviewed the levels of base salaries paid in 1997 to chief executives of similarly-sized insurance companies and considered Mr. Choate's individual performance and Allstate's financial performance in 1997. The Committee did not assign any particular weight to any of these factors.

      On the Committee's recommendation, the Board increased Mr. Liddy's base salary by 6.9% from $720,000 to $770,000 in July 1998 and by 15.6% from $770,000 to $890,000 in November 1998 when it was announced that he would assume the role of Chairman, President and Chief Executive Officer.

      The 1998 annual cash incentive awards for both men were based on Allstate's achievement of the maximum earnings per share goal.

      In August 1998, the Committee awarded Mr. Choate and Mr. Liddy Allstate stock options for 160,000 shares and 125,000 shares, respectively. The Committee used the Black-Sholes valuation formula to determine the amount of these awards, which are based upon a specified percentage of the executives' 1998 base salaries. In addition, in November 1998 in recognition of his upcoming assumption of the role of Chairman, President and Chief Executive Officer, the Committee awarded Mr. Liddy stock options for 100,000 shares. Details of these grants and the grants made to the other named executives in 1998 are disclosed in the "Option/SAR Grants in 1998" table.

      Mr. Choate's and Mr. Liddy's 1998 base salary, annual incentive cash award and August stock option grants follow the policies and plan provisions described in this report. Amounts paid and granted under these policies and plans are disclosed in the Summary Compensation Table.

      Under Section 162(m) of the Internal Revenue Code, Allstate cannot deduct compensation paid in any year to certain executives in excess of $1,000,000, unless it is performance-based. The Committee continues to emphasize performance-based compensation for executives and this is expected to minimize the effect of Section 162(m). However, the Committee believes that its primary responsibility is to provide a compensation program that attracts, retains and rewards the executive talent that is necessary to Allstate's success. Consequently, in any year the Committee may authorize compensation in excess of $1,000,000 that is not performance-based. The Committee recognizes that the loss of a tax deduction may be unavoidable in these circumstances.

Warren L. Batts (Chairman)

Edward A. Brennan

James G. Andress

H. John Riley, Jr.

      The following performance graph compares the performance of Allstate's common stock during the five-year period from December 31, 1993 through December 31, 1998 with the performance of the S&P 500 index and the S&P Property-Casualty Insurance Index. The graph plots the changes in value of an initial $100 investment over the indicated time periods, assuming all dividends are reinvested quarterly.