Risk Management

Allstate manages its key risks, including catastrophe and investment risks with sophisticated economic modeling and the informed judgment of a seasoned team of experts. We model property and casualty and financial services businesses, as well as macro economic environment and financial markets, on an integrated basis-looking at our entire portfolio of products and the associated risks to determine what investments should be made with the premiums.

Many scientists warn that the United States can expect more frequent and more powerful hurricanes in the coming years. To ensure that the company will continue to be in a strong position for its 17 million customer households across the country, Allstate has taken a number of steps to prudently manage catastrophe risk.

We have been reducing our catastrophe exposure for over a decade, but significantly increased our efforts beginning in 2004 and 2005 when it became clearer that the United States is in a period of substantially greater hurricane risk due to warmer oceans. We have dramatically reduced our risk of catastrophe loss through the use of a broad array of operational strategies and risk transfer practices, including increased deductibles, market share reductions in high risk coastal regions and a comprehensive reinsurance program.

We have been proactive in the face of unprecedented market turmoil in 2008 by implementing investment risk mitigation and return optimization programs designed to protect our investment portfolio from significant market dislocations and maximize portfolio returns. These programs include macro hedges to protect against extreme negative movements in interest rates and equity valuations and disposition of securities to reduce our exposure in certain asset classes.

Our capital and liquidity positions have remained strong throughout the financial market