Catastrophe Management – An Evolving Strategy Personal Lines Perspective November 15, 2006 Rob Hair Senior State Manager, Allstate Insurance Company

Agenda Formulating a Strategy Catastrophe Management Tactics Public/Private Challenges Organizational Challenges

Potential Considerations for a Catastrophe Management Strategy Risk Tolerance Rating Agency Requirements Impairment/Solvency Return on Capital Efficiency & Stability of Strategy Volatility of Returns

Setting a Catastrophe Management Strategy Allstate’s catastrophe risk management strategy is intended to provide our shareholders an acceptable return on the risks assumed in our property business and to reduce variability of earnings, while providing protection to our customers. Source: 8/18/2006 Allstate 8-K

Executing a Catastrophe Management Strategy Underwriting Risk Transfer Legislative/Regulatory

Executing a Catastrophe Management Strategy Underwriting Appropriate Rate Level Rate Segmentation New Business Limitations Property Inspections (New and Renewal) Mitigation Device Requirements Residual Markets Expanded Markets Coverage Changes Non-Renewals

Executing a Catastrophe Management Strategy Risk Transfer Reinsurance and Capital Markets –Fills immediate need –Capacity and stability –Credit security –Ability to reflect cost in pricing

Allstate’s Reinsurance Strategy Has Evolved DE MA MD WA OR MT CO AZ NM WY ND SD OK KS NE TX AR LA MS AL GA FL SC NC IL MO IA WI MI IN OH KY VA PA NY ME RI NJ DC CA ID UT NV MN TN VT NH CT WV HI AK Separate contract not included in Annual Aggregate cover Annual Aggregate cover only Separate state contracts underlie Annual Aggregate cover DE MA MD WA OR MT CO AZ NM WY ND SD OK KS NE TX AR LA MS AL GA FL SC NC IL MO IA WI MI IN OH KY VA PA NY ME RI NJ DC CA ID UT NV MN TN VT NH CT WV HI AK No Reinsurance Separate state contracts 2005 Reinsurance Program 2006 Reinsurance Program South-East contract underlies Annual Aggregate cover

Exposure is increasing in risk prone areas Climatological influences - frequency and severity of storms Rating agency models Need for quick action Growing Reliance on Risk Transfer What Changed?

Rating Agencies A.M. Best 2005 introduced a new cat risk stress test 2006 toughened the stress test S&P Introduced a 1 in 250 annual aggregate PML in capital adequacy Model Moody’s Introduced a risk adjusted capital model Rating agencies have increased their capital requirements to maintain the same rating

- Finding Common Ground - Communication Challenges - Long term vs. short term results Executing a Catastrophe Management Strategy Legislative/Regulatory

Organizational Challenges –Alignment (cultural change) –Structure –Doing the Work