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Allstate Reports 2008 First Quarter Results

The Allstate Corporation (NYSE:ALL) today reported results for the first quarter of 2008:


                       Consolidated Highlights

                                      Three Months Ended March 31,
                                   -----------------------------------
                                                          Change
                                   -----------------------------------
(in millions, except per share       Est.
 amounts and ratios)                 2008     2007    $ Amt      %
-----------------------------------===================================
Consolidated revenues                $8,087   $9,331 $(1,244)   (13.3)
----------------------------------------------------------------------
Net income                              348    1,495  (1,147)   (76.7)
----------------------------------------------------------------------
Net income per diluted share           0.62     2.41   (1.79)   (74.3)
----------------------------------------------------------------------
Operating income(a)                     747    1,197    (450)   (37.6)
----------------------------------------------------------------------
Operating income per diluted
 share(a)                              1.33     1.93   (0.60)   (31.1)
----------------------------------------------------------------------
                                                                (7.3)
Return on equity                       16.3     23.6      --      pts.
----------------------------------------------------------------------
Operating income return on                                      (7.7)
 equity(a)                             16.6     24.3      --      pts.
----------------------------------------------------------------------
Book value per share                  36.45    36.54   (0.09)    (0.2)
----------------------------------------------------------------------
Book value per share, excluding the
 impact of unrealized net capital
 gains and losses on fixed income
 securities(a)                        37.37    34.93    2.44      7.0
----------------------------------------------------------------------
Catastrophe losses                      568      161     407       --
----------------------------------------------------------------------
Property-Liability combined ratio      94.0     84.6      --  9.4 pts.
----------------------------------------------------------------------
Property-Liability combined ratio
 excluding the effect of
 catastrophes and prior year
 reserve reestimates ("underlying
 combined ratio")(a)                   85.8     84.1      --  1.7 pts.
----------------------------------------------------------------------

(a) Measures used in this release that are not based on accounting principles generally accepted in the United States ("non-GAAP") are defined and reconciled to the most directly comparable GAAP measure and operating measures are defined in the "Definitions of Non-GAAP and Operating Measures" section of this document.

"Catastrophe losses offset the solid underlying performance of our insurance operations, where profitability exceeded the full year outlook we provided in January," said Thomas J. Wilson, president, chief executive officer and chairman-elect of The Allstate Corporation. "Continued strong operating results enabled us to deliver a 16.6% operating income return on shareholders' equity over the last 12 months."

High catastrophe losses fueled by an unusual number of tornados contributed to a decline in the Corporation's operating income to $747 million, down $450 million compared to the first quarter of 2007. Catastrophe losses for the quarter were $568 million, a $407 million increase over the first quarter of 2007. Operating income for the quarter also reflected a $107 million decline in favorable non-catastrophe reserve re-estimates to $16 million from $123 million in the same quarter of 2007. For the quarter, the Property-Liability underlying combined ratio, which excludes the effects of catastrophes and prior year reserve re-estimates, was 85.8. Allstate Financial experienced a $13 million decline in operating income compared to the same quarter prior year due to dividends paid last year, negative effects on investment spread by raising liquidity levels, and slightly unfavorable mortality levels.

Net income for the quarter was $348 million, down from $1.5 billion in the first quarter of 2007, reflecting lower operating income and realized capital losses stemming from the current condition of the global capital markets. "Our investment portfolio is diversified and high quality," Wilson said. "While we did write down the value of our fixed income securities by $347 million, the majority of those securities are performing in accordance with contractual or expected cash flows."

"Our cash flow and capital position remains strong and we continued our share repurchase program," Wilson said. Book value per share was $36.45, comparable to the first quarter of 2007. Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, was $37.37, an increase of 7.0% from the first quarter last year.

Consumer Focus

"Our unique mix of innovative products continues to differentiate us from the competition," Wilson said. In addition to Allstate(R) Your Choice Auto Insurance (YCA), the company's innovative auto insurance product, Allstate offers a number of consumer-focused products to attract new customers:

-- Allstate's product offering for higher risk drivers, Allstate Blue(SM), was introduced in Arizona in the quarter, bringing the total number of states in which the product is available to 13.

-- Encompass Edge(SM), a new product sold through independent agents, contributed to positive premium written growth in the brand's standard auto line. The product was introduced in four states in the quarter, bringing the total number of states in which Encompass Edge(SM) is available to 16.

-- Allstate(R) Your Choice Home, the Company's unique homeowners insurance product, is now available in 17 states.

-- Allstate Financial is preparing to launch a new line of target date mutual funds that will add to the number of consumer-friendly retirement products available through Allstate personal financial representatives. Approximately two-thirds of Allstate's agency force is licensed to sell mutual funds and variable annuities.

Operational Excellence

"Operating excellence is the key to our success and is one of our core capabilities. Our balanced strategy of target marketing to high lifetime value customers, broad suite of innovative products, disciplined pricing and customer service is working in very competitive markets," Wilson said.

The company completed the countrywide expansion of the Ballpark Estimating Tool during the quarter, enabling consumers to get on-line auto insurance premium estimates in 2-3 minutes. As part of an effort to integrate Allstate's distribution channels, every Allstate-provided agency website now links to the Ballpark Estimating Tool. The company continued investments in claims and distribution systems aimed at improving customer service and loyalty.

During the quarter, Allstate adjusted pricing where needed and appropriate for an average rate increase of 4.5% for standard auto and 10.9% for homeowners in the states where rates were approved.

Capital Management

"We remain focused on balancing three objectives: investing in the business to ensure future competitiveness, remaining financially strong for policyholders and returning capital to shareholders," Wilson said.

In February, Allstate announced a quarterly dividend of $0.41 per share, representing a 7.9% increase over the first quarter 2007 dividend. The announcement marked the 14th consecutive year that Allstate increased its dividend. In the first quarter, the Corporation repurchased 8.8 million shares for $424 million, completing its $4.0 billion share repurchase program and beginning a new $2.0 billion share repurchase program announced in February that is expected to be completed by March 31, 2009.

People

"People are the key to our success. It is the experience of our leadership team, the talent of our employees, and the dedication of our agency owners and their staff that will enable us to achieve our goal of reinventing protection and retirement for the consumer," Wilson said. Allstate added to its senior management team in March when James DeVries joined the company as senior vice president of human resources, replacing Joan Crockett who retired after 35 years of service.

Outlook

"Our unique innovative products, disciplined pricing, financial strength and experienced management team give us an edge over the competition," continued Wilson. "We believe this environment, while challenging, plays to Allstate's strengths."

Although auto frequency was lower in the first quarter, Allstate is leaving in place the expectation that its Property-Liability combined ratio, excluding the effect of catastrophes and prior year reserve re-estimates, will be within the range of 87.0 and 89.0 for the full year 2008. The company will continue to monitor results and, if appropriate, will revise its 2008 combined ratio outlook.

PERFORMANCE HIGHLIGHTS

Consolidated

-- Consolidated revenues were $8.1 billion in the quarter, a decline from $9.3 billion in the first quarter of 2007, reflecting net realized capital losses in the current year compared to net realized capital gains in the first quarter of 2007.

-- Operating income per diluted share was $1.33 in the quarter, a decline from $1.93 in the first quarter of 2007, reflecting higher catastrophe losses, representing $0.48 of the decline, and the effects of lower favorable prior year non-catastrophe reserve reestimates representing $0.11 of the decline.

-- Net income per diluted share was $0.62 in the quarter, a decline from $2.41 in the first quarter of 2007, reflecting after-tax net realized capital losses in the current year quarter compared to net realized capital gains in the first quarter of 2007, representing $1.25 of the decline, and lower operating income, representing $0.60 of the decline.

BUSINESS HIGHLIGHTS


                                               Three months ended
(in millions, except ratios)                        March 31,
                                           ---------------------------
                                             Est.                %
                                             2008      2007    Change
                                           --------- -------- --------
Property-Liability
Premiums written                             $6,514    $6,609    (1.4)
Underwriting income(a)                          408     1,046   (61.0)
Net income                                      503     1,349   (62.7)
Combined Ratio                                 94.0      84.6  9.4 pts

Allstate Financial
Premiums and deposits(a)                     $3,046    $2,628    15.9
Operating income                                143       156    (8.3)
Net (loss) income                              (111)      164  (167.7)

Investments
Net investment income                        $1,526    $1,571    (2.9)
Realized capital gains and losses              (655)      471      --

Property-Liability

-- Property-Liability premiums written declined 1.4% from the first quarter of 2007 reflecting a 0.6% increase in Allstate brand standard auto premiums written(a) offset by a decline in homeowners premiums written due to catastrophe management actions including the increased cost of the catastrophe reinsurance program. The cost of the catastrophe reinsurance program was $227 million in the first quarter of 2008 compared to $216 million in the first quarter of 2007. We estimate that the total annualized cost of all catastrophe reinsurance programs for the year beginning June 1, 2008 will be approximately $660 million compared to approximately $900 million per year for the year beginning June 1, 2007.

-- Allstate brand standard auto premiums written grew 0.6% in the first quarter of 2008 compared to the prior year quarter. Contributing to the overall change were the following:

       -- 0.1% decrease in policies in force ("PIF")
       -- 0.8 point decline in the six month renewal ratio to 88.9%
       -- 1.9% increase in six month average premium before
           reinsurance to $428
       -- 13.7% decrease in new issued applications

-- Allstate brand homeowners premiums written declined 2.3% in the first quarter of 2008, compared to the prior year quarter, primarily due to our catastrophe risk management actions. Contributing to the overall change were the following:

       --  3.9% decrease in PIF
       --  0.3 point increase in the twelve month renewal ratio to
            86.7%
       --  2.4% increase in twelve month average premium before
            reinsurance to $867
       --  28.2% decrease in new issued applications

-- Standard auto property damage frequencies decreased 2.4% and bodily injury frequencies decreased 6.5% compared to the first quarter of 2007. Auto property damage and bodily injury paid severities increased 4.1% and 8.6%, respectively. The Allstate brand standard auto loss ratio increased 1.9 points compared to the first quarter of 2007 to 65.5 in the first quarter of 2008, due to increased catastrophe losses and the absence of prior year reserve reestimates.

-- Homeowners gross claim frequency excluding catastrophes increased 1.5% compared to the first quarter of 2007. Homeowners paid severity excluding catastrophes increased 3.1% compared to the first quarter of 2007. The Allstate brand homeowners loss ratio increased 25.0 points compared to the first quarter of 2007 to 80.2 in the first quarter of 2008, largely attributable to higher catastrophes. The effect of catastrophe losses on the Allstate brand homeowners loss ratio totaled 29.7 in the first quarter of 2008 compared to 8.3 in the first quarter of 2007.

-- Property-Liability prior year reserve reestimates for the first quarter of 2008 were an unfavorable $101 million, compared to favorable prior year reserve reestimates of $129 million in the first quarter of 2007. The unfavorable prior year reserve reestimates for the quarter were primarily related to catastrophes totaling $117 million, as discussed below.

-- Catastrophe losses for the quarter totaled $568 million, compared to $161 million in the first quarter of 2007, impacting the combined ratio by 8.4 points in the quarter and 2.4 points in the first quarter of 2007. This increase was primarily related to severe winter weather experienced across the country, including tornado activity, resulting in 27 catastrophe events in the first quarter of 2008 compared to 18 in the first quarter of 2007. Catastrophe losses, excluding prior year reserve reestimates, were $451 million in the quarter compared to $167 million in the first quarter of 2007. Unfavorable reserve reestimates related to catastrophes from prior years totaled $117 million in the quarter, impacting the combined ratio by 1.7 points, primarily related to litigation in Louisiana for Hurricane Katrina, compared to favorable reserve reestimates related to catastrophes from prior years of $6 million in the first quarter of 2007.

-- Underwriting income was $408 million during the first quarter of 2008 compared to $1.0 billion in the same period of 2007. The decrease was primarily due to higher catastrophe losses and an unfavorable change in prior year reserve reestimates.

-- Allstate expects the Property-Liability underlying combined ratio will be within the range of 87.0 and 89.0 for the full year 2008. The calculation of the underlying combined ratio for the three months ended March 31 is shown in the table below.


                                                  Three months ended
                                                       March 31,
                                                  --------------------
                                                    Est.
                                                    2008       2007
                                                  ---------  ---------
Combined ratio excluding the effect of
 catastrophes and prior year reserve reestimates
 ("underlying combined ratio")                        85.8       84.1
Effect of catastrophe losses                           8.4        2.4
Effect of prior year non-catastrophe reserve
 reestimates                                          (0.2)      (1.9)
                                                  ---------  ---------
Combined ratio (GAAP)                                 94.0       84.6
                                                  =========  =========

Effect of prior year catastrophe reserve
 reestimates                                           1.7         --
                                                  =========  =========

Allstate Financial

-- Premiums and deposits in the first quarter of 2008 were $3.0 billion, an increase of 15.9% from the prior year quarter. This increase is primarily due to deposits on institutional products during the first quarter of 2008 and increased premiums on life products.

-- Operating income for the first quarter of 2008 was $143 million, $13 million lower than the prior year quarter. The decline was primarily due to lower investment spread, slightly unfavorable mortality levels and slightly increased operating expenses. Favorably impacting operating income was lower amortization of deferred acquisition costs ("DAC") and the absence of a prior year litigation settlement. The decline in investment spreads was driven by lower net investment income resulting from lower investment balances reflecting dividends paid by Allstate Life Insurance Company in 2007, increased short-term investment balances to offset reduced liquidity in some asset classes and lower investment yields.

-- Net loss for the first quarter of 2008 was $111 million compared to net income of $164 million in the prior year quarter. The decline was due to net realized capital losses, lower operating income and a loss on disposition of operations. Net realized capital losses were driven by $209 million in impairment write-downs, $202 million decline in the valuation of derivative instruments, which includes the change in fair value of embedded options (derivatives) in equity-linked notes and convertible bonds, and $66 million in dispositions. For further information on write-downs and the valuation of derivative instruments, see the Realized Capital Gains and Losses Analysis section.

Investments

-- Net realized capital losses were $655 million on a pre-tax basis for the quarter, due to $415 million of impairment write-downs and $300 million of net losses related to the settlement and valuation of derivative instruments, partly offset by net gains totaling $60 million on dispositions.

-- Impairment write-downs totaled $415 million, comprised $347 million on fixed income securities, primarily related to residential mortgages and other structured securities, $52 million on equity securities, $13 million on limited partnership interests and $3 million on other investments. Approximately 70% of the fixed income write-downs relate to impaired securities that are currently performing in line with anticipated or contractual cash flows, but which were written down primarily because of expected deterioration in the performance of the underlying collateral. The remaining 30% are primarily related to securities currently experiencing a significant departure from anticipated residual cash flows. For further information on the types of securities experiencing write-downs, see the Realized Capital Gains and Losses Analysis section.

-- Net realized capital losses on the valuation and settlement of derivative instruments totaled $300 million for the quarter, primarily comprised $162 million for the valuation of embedded equity options in fixed income securities and $105 million for the valuation of risk reduction programs. For further information on the impact from the valuation and settlement of derivatives, see the Realized Capital Gains and Losses Analysis section.

-- Allstate's investment portfolios totaled $115.5 billion as of March 31, 2008, a decline of $3.5 billion from the end of 2007, due to unrealized net capital losses and net realized capital losses.

-- Unrealized net capital losses totaled $570 million as of March 31, 2008, compared to unrealized net capital gains of $1.9 billion at December 31, 2007. The decline was primarily due to unrealized net capital losses on investment grade fixed income securities as the yields supporting fair values increased, resulting from widening credit spreads that more than offset the effects of declining risk free interest rates, and lower unrealized net capital gains on equity securities totaling $598 million. As of March 31, 2008, unrealized net capital losses in our asset-backed securities ("ABS") and commercial mortgage-backed securities ("CMBS") totaled $1.5 billion and $868 million, respectively, partly offset by unrealized net capital gains on U.S. government and agencies securities totaling $1.0 billion, municipal securities of $342 million and equity securities of $392 million. We continue to experience volatility in the balance of our unrealized net capital gains and losses as we did between the years 2004/2005 and 2006/2007. For further information on our sub-prime residential and commercial mortgage loan portfolio, see the Securities Experiencing Illiquid Markets section.

-- Net investment income decreased 2.9% to $1.5 billion compared to the prior year quarter. Property-Liability net investment income decreased 4.3% to $470 million, compared to the prior year quarter, due to decreased income on limited partnership interests, lower average asset balances and portfolio yields. Allstate Financial net investment income declined 3.3% to $1.0 billion, compared to the prior year quarter, due to lower portfolio yields and lower average asset balances, partly offset by increased income from limited partnership interests.

                       THE ALLSTATE CORPORATION
                 CONSOLIDATED AND SEGMENT HIGHLIGHTS


                               Three Months Ended
                                   March 31,
                               ------------------

($ in millions, except per
 share amounts,                  Est.                     Percent
return data and ratios)          2008      2007   Change  Change
                               --------  -------- ------- -------

Consolidated Highlights
Revenues                      $  8,087  $  9,331  (1,244)  (13.3)
Net income                         348     1,495  (1,147)  (76.7)
Operating income                   747     1,197    (450)  (37.6)
Income per diluted share
  Net                             0.62      2.41   (1.79)  (74.3)
  Operating                       1.33      1.93    (0.6)  (31.1)
Weighted average shares
 outstanding (diluted)           561.6     621.6   (60.0)   (9.7)
Net shares outstanding           554.1     610.9   (56.8)   (9.3)
Return on equity
  Net income                      16.3      23.6       -    (7.3) pts.
  Operating income                16.6      24.3       -    (7.7) pts.
Book value per diluted share     36.45     36.54    (0.1)   (0.2)
Book value per diluted share,
 excluding the
  impact of unrealized net
   capital gains and
  losses on fixed income
   securities                    37.37     34.93    2.44     7.0

Property-Liability Highlights
Property-Liability premiums
 written                      $  6,514  $  6,609     (95)   (1.4)
Property-Liability revenues      7,040     7,741    (701)   (9.1)
Net income                         503     1,349    (846)  (62.7)
Underwriting income                408     1,046    (638)  (61.0)
Net investment income              470       491     (21)   (4.3)
Operating income                   629     1,062    (433)  (40.8)
Catastrophe losses                 568       161     407       -
Ratios:
  Allstate Protection loss
   ratio                          69.1      61.1       -     8.0  pts.
  Allstate Protection expense
   ratio                          24.8      24.1       -     0.7  pts.
                               --------  --------
  Allstate Protection combined
   ratio                          93.9      85.2       -     8.7  pts.
  Effect of Discontinued Lines
   and Coverages on
   combined ratio                  0.1      (0.6)      -     0.7  pts.
                               --------  --------
  Property-Liability combined
   ratio                          94.0      84.6       -     9.4  pts.
  Effect of catastrophe losses
   on combined ratio               8.4       2.4       -     6.0  pts.
                               --------  --------
  Property-Liability combined
   ratio excluding
   effect of catastrophes         85.6      82.2       -     3.4  pts.
  Effect of prior year reserve
   reestimates on
   combined ratio                  1.5      (1.9)      -     3.4  pts.
  Effect of catastrophe losses
   included in prior
   year reserve reestimates on
    combined ratio                (1.7)        -       -    (1.7) pts.
                               --------  --------
  Property-Liability combined
   ratio excluding
   effect of catastrophes and
    prior year
   reserve reestimates            85.8      84.1       -     1.7  pts.
                               ========  ========

Allstate Financial Highlights
Premiums and deposits         $  3,046  $  2,628     418    15.9
Allstate Financial revenues      1,035     1,556    (521)  (33.5)
Realized Capital Gains and
 Losses (Pre-tax)                 (432)       23    (455)      -
Net (loss) income                 (111)      164    (275) (167.7)
Operating income                   143       156     (13)   (8.3)
Net Income Analysis
  Benefit spread                   111       110       1     0.9
  Investment spread                253       264     (11)   (4.2)

Investment Highlights
Net Investment Income         $  1,526  $  1,571     (45)   (2.9)
Realized Capital Gains and
 Losses (Pre-tax)                 (655)      471  (1,126)      -
Total Investments              115,470   122,382  (6,912)   (5.6)
                       THE ALLSTATE CORPORATION
                CONSOLIDATED STATEMENTS OF OPERATIONS


                                            Three Months Ended
                                                March 31,
                                            ------------------

                                              Est.             Percent
($ in millions, except per share data)        2008      2007   Change
                                            --------  -------- -------

Revenues
 Property-liability insurance premiums     $  6,764  $  6,806    (0.6)
 Life and annuity premiums
   and contract charges                         452       483    (6.4)
 Net investment income                        1,526     1,571    (2.9)
 Realized capital gains and losses             (655)      471       -
                                            --------  --------
   Total revenues                             8,087     9,331   (13.3)
                                            --------  --------

Costs and expenses
 Property-liability insurance
   claims and claims expense                  4,676     4,117    13.6
 Life and annuity contract benefits             397       428    (7.2)
 Interest credited to contractholder funds      624       649    (3.9)
 Amortization of deferred policy
   acquisition costs                          1,075     1,153    (6.8)
 Operating costs and expenses                   792       727     8.9
 Restructuring and related charges               (1)       (1)      -
 Interest expense                                88        72    22.2
                                            --------  --------
   Total costs and expenses                   7,651     7,145     7.1
                                            --------  --------

Loss on disposition of operations                (9)        -       -
                                            --------  --------

Income from operations before income
   tax expense                                  427     2,186   (80.5)

Income tax expense                               79       691   (88.6)
                                            --------  --------

Net income                                 $    348  $  1,495   (76.7)
                                            ========  ========


Net income per share - Basic               $   0.62  $   2.42
                                            ========  ========

Weighted average shares - Basic               558.9     616.8
                                            ========  ========

Net income per share - Diluted             $   0.62  $   2.41
                                            ========  ========

Weighted average shares - Diluted             561.6     621.6
                                            ========  ========

Cash dividends declared per share          $   0.41  $   0.38
                                            ========  ========
                       THE ALLSTATE CORPORATION
                        CONTRIBUTION TO INCOME


                                            Three Months Ended
                                                March 31,
                                            ------------------

                                              Est.             Percent
($ in millions, except per share data)        2008      2007   Change
                                            --------  -------- -------

Contribution to income

 Operating income before the impact of
  restructuring and related charges        $    746  $  1,196   (37.6)
 Restructuring and related charges,
  after-tax                                      (1)       (1)      -
                                            --------  --------

 Operating income                               747     1,197   (37.6)

 Realized capital gains and losses, after-
  tax                                          (425)      305       -
 DAC and DSI amortization relating to
  realized capital
  gains and losses, after-tax                    39         -       -
 Reclassification of periodic settlements
  and accruals on non-hedge derivative
  instruments, after-tax                         (7)       (8)   12.5
(Loss) gain on disposition of operations,
 after-tax                                       (6)        1       -
                                            --------  --------

 Net income                                $    348  $  1,495   (76.7)
                                            ========  ========


Income per share - Diluted

 Operating income before the impact of
  restructuring and related charges        $   1.33  $   1.93   (31.1)
 Restructuring and related charges,
  after-tax                                       -         -       -
                                            --------  --------

 Operating income                              1.33      1.93   (31.1)

 Realized capital gains and losses, after-
  tax                                         (0.76)     0.49       -
 DAC and DSI amortization relating to
  realized capital
  gains and losses, after-tax                  0.07         -       -
 Reclassification of periodic settlements
  and accruals on non-hedge derivative
  instruments, after-tax                      (0.01)    (0.01)      -
 Loss on disposition of operations, after-
  tax                                         (0.01)        -       -
                                            --------  --------

 Net income                                $   0.62  $   2.41   (74.3)
                                            ========  ========
                       THE ALLSTATE CORPORATION
                           SEGMENT RESULTS

                                                    Three Months Ended
                                                        March 31,
                                                    ------------------

 ($ in millions, except ratios)                       Est.
                                                      2008      2007
                                                    --------  --------

Property-Liability
  Premiums written                                 $  6,514  $  6,609
                                                    ========  ========

  Premiums earned                                  $  6,764  $  6,806
  Claims and claims expense                           4,676     4,117
  Amortization of deferred policy acquisition costs   1,011     1,024
  Operating costs and expenses (1)                      670       620
  Restructuring and related charges                      (1)       (1)
                                                    --------  --------
     Underwriting income                                408     1,046
                                                    --------  --------

  Net investment income                                 470       491
  Periodic settlements and accruals on non-hedge
   derivative instruments                                 1         -
  Income tax expense on operations                      250       475
                                                    --------  --------

     Operating income                                   629     1,062

  Realized capital gains and losses, after-tax         (125)      287
  Reclassification of periodic settlements and
   accruals on non-hedge
   derivative instruments, after-tax                     (1)        -
                                                    --------  --------

     Net income                                    $    503  $  1,349
                                                    ========  ========

  Catastrophe losses                               $    568  $    161
                                                    ========  ========

  Operating ratios:
     Claims and claims expense ratio                   69.1      60.5
     Expense ratio (1)                                 24.9      24.1
                                                    --------  --------
     Combined ratio                                    94.0      84.6
                                                    ========  ========

     Effect of catastrophe losses on combined ratio     8.4       2.4
                                                    ========  ========

     Effect of prior year reserve reestimates on
      combined ratio                                    1.5      (1.9)
                                                    ========  ========

     Effect of catastrophe losses included in prior
      year reserve reestimate on combined ratio         1.7         -
                                                    ========  ========

     Effect of Discontinued Lines and Coverages on
      combined ratio                                    0.1      (0.6)
                                                    ========  ========

Allstate Financial
  Premiums and deposits                            $  3,046  $  2,628
                                                    ========  ========
  Investments                                      $ 73,023  $ 77,727
                                                    ========  ========

  Premiums and contract charges                    $    452  $    483
  Net investment income                               1,015     1,050
  Periodic settlements and accruals on non-hedge
   derivative instruments                                 9        12
  Contract benefits                                     397       428
  Interest credited to contractholder funds             630       649
  Amortization of deferred policy acquisition costs     117       129
  Operating costs and expenses                          118       105
  Income tax expense on operations                       71        78
                                                    --------  --------

     Operating income                                   143       156

  Realized capital gains and losses, after-tax         (281)       15
  DAC and DSI amortization relating to realized
   capital gains and losses, after-tax                   39         -
  Reclassification of periodic settlements and
   accruals on non-hedge
   derivative instruments, after-tax                     (6)       (8)
  (Loss) gain on disposition of operations, after-
   tax                                                   (6)        1
                                                    --------  --------

     Net (loss) income                             $   (111) $    164
                                                    ========  ========

Corporate and Other
  Net investment income                            $     41  $     30
  Operating costs and expenses                           92        74
  Income tax benefit on operations                      (26)      (23)
                                                    --------  --------

     Operating loss                                     (25)      (21)

  Realized capital gains and losses, after-tax          (19)        3
                                                    --------  --------

     Net loss                                      $    (44) $    (18)
                                                    ========  ========

Consolidated net income                            $    348  $  1,495
                                                    ========  ========


(1) The increase was due to higher employee compensation, agent
 remuneration and the net cost of benefits.
                       THE ALLSTATE CORPORATION
               UNDERWRITING RESULTS BY AREA OF BUSINESS


                                           Three Months Ended
                                                March 31,
                                           -------------------

                                             Est.              Percent
($ in millions, except ratios)               2008       2007   Change
                                           ---------  -------- -------

Property-Liability Underwriting Summary
  Allstate Protection                     $     415  $  1,006   (58.7)
  Discontinued Lines and Coverages               (7)       40  (117.5)
                                           ---------  --------
    Underwriting income                   $     408  $  1,046   (61.0)
                                           =========  ========

Allstate Protection Underwriting Summary
  Premiums written                        $   6,514  $  6,609    (1.4)
                                           =========  ========
  Premiums earned                         $   6,764  $  6,806    (0.6)
  Claims and claims expense                   4,671     4,159    12.3
  Amortization of deferred policy
   acquisition costs                          1,011     1,024    (1.3)
  Operating costs and expenses                  668       618     8.1
  Restructuring and related charges              (1)       (1)      -
                                           ---------  --------
    Underwriting income                   $     415  $  1,006   (58.7)
                                           =========  ========

  Catastrophe losses                      $     568  $    161       -
                                           =========  ========

  Operating ratios:
    Claims and claims expense ratio            69.1      61.1
    Expense ratio                              24.8      24.1
                                           ---------  --------
    Combined ratio                             93.9      85.2
                                           =========  ========

  Effect of catastrophe losses
   on combined ratio                            8.4       2.4
                                           =========  ========

Discontinued Lines and Coverages
  Underwriting Summary
  Premiums written                        $       -  $      -       -
                                           =========  ========
  Premiums earned                         $       -  $      -       -
  Claims and claims expense                       5       (42)  111.9
  Operating costs and expenses                    2         2       -
                                           ---------  --------
    Underwriting (loss) income            $      (7) $     40  (117.5)
                                           =========  ========

  Effect of Discontinued Lines and
   Coverages
   on the Property-Liability combined
    ratio                                       0.1      (0.6)
                                           =========  ========
                       THE ALLSTATE CORPORATION
        PROPERTY-LIABILITY PREMIUMS WRITTEN BY MARKET SEGMENT


                                            Three Months Ended
                                                March 31,
                                            ------------------

                                              Est.             Percent
 ($ in millions)                              2008      2007   Change
                                            --------  -------- -------

 Allstate brand
  Standard auto                            $   4,077 $   4,051    0.6
  Non-standard auto                              274       321  (14.6)
  Involuntary auto                                16        22  (27.3)
  Commercial lines                               167       194  (13.9)
  Homeowners                                   1,185     1,213   (2.3)
  Other personal lines                           371       365    1.6
                                            --------  --------

                                               6,090     6,166   (1.2)
 Encompass brand
  Standard auto (1)                              270       266    1.5
  Non-standard auto                               12        21  (42.9)
  Involuntary auto                                 3         6  (50.0)
  Homeowners                                     113       123   (8.1)
  Other personal lines                            26        27   (3.7)
                                            --------  --------

                                                 424       443   (4.3)
                                            --------  --------

 Allstate Protection                           6,514     6,609   (1.4)

 Discontinued Lines and Coverages                  -         -      -
                                            --------  --------

 Property-Liability                        $   6,514 $   6,609   (1.4)
                                            ========  ========



 Allstate Protection
  Standard auto                            $   4,347 $   4,317    0.7
  Non-standard auto                              286       342  (16.4)
  Involuntary auto                                19        28  (32.1)
  Commercial lines                               167       194  (13.9)
  Homeowners                                   1,298     1,336   (2.8)
  Other personal lines                           397       392    1.3
                                            --------  --------

                                           $   6,514 $   6,609   (1.4)
                                            ========  ========

(1) Encompass Edge, a new independent agency product, contributed to
 growth. It is now available in 16 states.
                       THE ALLSTATE CORPORATION
                          PROPERTY-LIABILITY
  ANNUAL IMPACT OF NET RATE CHANGES APPROVED ON PREMIUMS WRITTEN (1)

                                           Three Months Ended
                                         March 31, 2008 (Est.)
                                  ------------------------------------


                                  Number of Countrywide State Specific
                                   States     (%) (2)       (%) (3)
                                  --------- ----------- --------------
Allstate brand
  Standard auto                          12         0.8            4.5
  Non-standard auto                       2         0.2            3.0
  Homeowners                              9         1.3           10.9

Encompass brand
  Standard auto                          17         0.3            1.4
  Non-standard auto                       -           -              -
  Homeowners                              9         0.6            7.5

(1) Rate increases that are indicated based on a loss trend analysis
 to achieve a targeted return will continue to be pursued in all
 locations and for all products. Rate changes include changes approved
 based on our net cost of reinsurance. These rate changes do not
 reflect initial rates filed for insurance subsidiaries initially
 writing new business. Rate changes approved are estimated to total
 $217 million in premiums written.

(2) Represents the impact in the states where rate changes were
 approved during 2008 as a percentage of total countrywide prior year-
 end premiums written.

(3) Represents the impact in the states where rate changes were
 approved during 2008 as a percentage of total prior year-end premiums
 written in those states.
                       THE ALLSTATE CORPORATION
             ALLSTATE PROTECTION MARKET SEGMENT ANALYSIS


                                Three Months Ended March 31,
                       -----------------------------------------------

($ in millions, except Est.          Est.       Est.        Est.
 ratios)                2008   2007   2008 2007  2008  2007  2008 2007
                       ------ ------ ----- ---- ------ ---- ----- ----

                                                 Effect of
                                                Catastrophe
                                                   Losses
                         Premiums    Loss Ratio on the Loss  Expense
                           Earned        (2)       Ratio       Ratio
                       ------------- ---------- ----------- ----------

 Allstate brand
  Standard auto        $4,011 $3,951  65.5 63.6    1.4  0.3  24.1 23.4
  Non-standard auto       278    322  65.1 60.3    0.7    -  23.7 21.7
  Homeowners            1,426  1,438  80.2 55.2   29.7  8.3  24.6 24.8
  Other (1)               592    611  69.6 60.1   10.0  3.6  28.0 26.0
                       ------ ------

    Total Allstate
     brand              6,307  6,322  69.2 61.2    8.6  2.4  24.6 23.9

 Encompass brand
  Standard auto (3)       280    284  51.1 64.8    0.4  0.4  26.4 26.4
  Non-standard auto        14     22  71.4 77.3      -    -  35.7 22.7
  Homeowners              133    142  65.4 49.3   18.8  4.9  30.8 28.9
  Other (1) (3)            30     36 220.0 52.8    6.7  2.8  30.0 25.0
                       ------ ------

    Total Encompass
     brand                457    484  67.0 59.9    6.1  1.9  28.2 26.9
                       ------ ------


Allstate Protection    $6,764 $6,806  69.1 61.1    8.4  2.4  24.8 24.1
                       ====== ======


(1) Other includes commercial lines, condominium, renters, involuntary
 auto and other personal lines.

(2) Loss Ratio comparisons are impacted by the relative level of prior
 year reserve reestimates. Please refer to the "Effect of Pre-tax
 Prior Year Reserve Reestimates on the Combined Ratio" table for
 detailed reserve reestimate information.

(3) During the first quarter of 2008, $45 million of incurred losses
 related to IBNR were reclassified from the standard auto line to the
 other line to be consistent with the recording of excess policies
 premiums and losses.
                       THE ALLSTATE CORPORATION
                          PROPERTY-LIABILITY
EFFECT OF PRE-TAX PRIOR YEAR RESERVE REESTIMATES ON THE COMBINED RATIO


                                  Three Months Ended March 31,
                           -------------------------------------------

                                                   Effect of Pre-tax
                                                         Reserve
                                   Pre-tax         Reestimates on the
                           Reserve Reestimates (1)   Combined Ratio
                           ----------------------- -------------------

($ in millions, except        Est.                   Est.
 ratios)                      2008        2007       2008      2007
                           ----------- ----------- --------- ---------


Auto (3)                         $(54)       $(66)     (0.8)     (1.0)
Homeowners                         78          (3)      1.1         -
Other (3)                          72         (18)      1.1      (0.3)
                           ----------- ----------- --------- ---------

   Allstate Protection (2)         96         (87)      1.4      (1.3)

   Discontinued Lines and
    Coverages                       5         (42)      0.1      (0.6)
                           ----------- ----------- --------- ---------

      Property-Liability         $101       $(129)      1.5      (1.9)
                           =========== =========== ========= =========



Allstate brand                    $96        $(79)      1.4      (1.2)
Encompass brand                     -          (8)        -      (0.1)
                           ----------- ----------- --------- ---------

Allstate Protection (2)           $96        $(87)      1.4      (1.3)
                           =========== =========== ========= =========


(1) Favorable reserve reestimates are shown in parentheses.

(2) Unfavorable reserve reestimates included in catastrophe losses
 totaled $117 million in the three months ended March 31, 2008 and
 favorable reserve reestimates included in catastrophe losses totaled
 $6 million in the three months ended March 31, 2007.

(3) During the first quarter of 2008, $45 million of incurred losses
 related to IBNR were reclassified from the Encompass standard auto
 line to the Encompass other line to be consistent with the recording
 of excess policies premiums and losses.
                       THE ALLSTATE CORPORATION
               ALLSTATE FINANCIAL PREMIUMS AND DEPOSITS



                                            Three Months Ended
                                                March 31,
                                            ------------------

                                              Est.             Percent
 ($ in millions)                              2008      2007   Change
                                            --------  -------- -------


 Life Products
   Interest-sensitive life                 $     364 $     362    0.6
   Traditional                                    89        92   (3.3)
   Other                                         101        89   13.5
                                            --------  --------
                                                 554       543    2.0

 Annuities
   Indexed annuities                             133       141   (5.7)
   Fixed deferred annuities                      516       480    7.5
                                            --------  --------
        Sub-total                                649       621    4.5
   Fixed immediate annuities                      67       152  (55.9)
                                            --------  --------
                                                 716       773   (7.4)

 Institutional Products
   Funding agreements backing
     medium-term notes (1)                     1,660     1,200   38.3

 Bank Deposits                                   116       112    3.6
                                            --------  --------


 Total                                     $   3,046 $   2,628   15.9
                                            ========  ========



(1) Funding agreements backing medium term notes include an issuance
 during the first quarter of 2008 totaling $1.36 billion of extendible
 securities with an initial maturity of March 20, 2009 and a final
 maturity of March 20, 2013. Quarterly, beginning on June 20, 2008,
 investors have the right to extend the maturity date of all or a
 portion of these notes by three additional months, up to, and in no
 event later than, the final maturity date. Additionally, during the
 first quarter of 2008, Allstate Financial acquired and retired $1.25
 billion of its outstanding extendible securities, which had elected
 to non-extend, in the secondary market.
                       THE ALLSTATE CORPORATION
              ALLSTATE FINANCIAL ANALYSIS OF NET INCOME



                                            Three Months Ended
                                                March 31,
                                            ------------------

                                              Est.             Percent
 ($ in millions)                              2008      2007   Change
                                            --------  -------- -------


Benefit spread
  Premiums                                 $    198  $    242   (18.2)
  Cost of insurance contract charges (1)        172       159     8.2
  Contract benefits excluding the implied
   interest
   on immediate annuities with life
    contingencies (2)                          (259)     (291)   11.0
                                            --------  --------
   Benefit spread                               111       110     0.9
                                            --------  --------

Investment spread
  Net investment income                       1,015     1,050    (3.3)
  Implied interest on immediate annuities
   with life contingencies (2)                 (138)     (137)   (0.7)
  Interest credited to contractholder
   funds                                       (624)     (649)    3.9
                                            --------  --------
  Investment spread                             253       264    (4.2)
                                            --------  --------

Surrender charges and contract maintenance
 expense fees (1)                                82        82       -
Realized capital gains and losses              (432)       23       -
Amortization of deferred policy
 acquisition costs                              (64)     (129)   50.4
Operating costs and expenses                   (118)     (105)  (12.4)
Loss on disposition of operations                (9)        -       -
Income tax benefit (expense) on operations       66       (81)  181.5
                                            --------  --------

Net (loss) income                          $   (111) $    164  (167.7)
                                            ========  ========

Benefit spread by product group
  Life insurance                           $    129  $    118     9.3
  Annuities                                     (18)       (8) (125.0)
                                            --------  --------
     Benefit spread                        $    111  $    110     0.9
                                            ========  ========

Investment spread by product group
  Annuities                                $    115  $    129   (10.9)
  Life insurance                                 19        19       -
  Institutional products                         27        25     8.0
  Bank                                            5         4    25.0
  Net investment income on investments
   supporting capital                            87        87       -
                                            --------  --------
    Investment spread                      $    253  $    264    (4.2)
                                            ========  ========

(1) Reconciliation of contract charges
  Cost of insurance contract charges       $    172  $    159     8.2
  Surrender charges and contract
   maintenance expense fees                      82        82       -
                                            --------  --------
     Total contract charges                $    254  $    241     5.4
                                            ========  ========

(2) Reconciliation of contract benefits
  Contract benefits excluding the implied
   interest
     on immediate annuities with life
      contingencies                        $   (259) $   (291)   11.0
  Implied interest on immediate annuities
   with life contingencies                     (138)     (137)   (0.7)
                                            --------  --------
     Total contract benefits               $   (397) $   (428)    7.2
                                            ========  ========
                       THE ALLSTATE CORPORATION
                          INVESTMENT RESULTS

                                                  Three Months Ended
                                                       March 31,
                                                 ---------------------

                                                    Est.
($ in millions)                                     2008        2007
                                                 -----------  --------

NET INVESTMENT INCOME
Fixed income securities:
     Tax exempt                                 $       240  $    244
     Taxable                                          1,039     1,102
Equity
 securities                                              32        27
Mortgage loans                                          160       143
Limited partnership interests                            60        70
Short-term                                               40        49
Other                                                    26        45
                                                 -----------  --------
     Investment income                                1,597     1,680
Less: Investment expense                                 71       109
                                                 -----------  --------
     Net investment income                      $     1,526  $  1,571
                                                 ===========  ========

REALIZED CAPITAL GAINS AND LOSSES (PRE-TAX)
Investment write-downs                          $      (415) $     (5)
Dispositions                                             60       450
Valuation of derivative instruments                    (325)      (12)
Settlements of derivative instruments                    25        38
                                                 -----------  --------
     Realized capital gains and losses (pre-
      tax)                                      $      (655) $    471
                                                 ===========  ========


                                                  March 31,   Dec. 31,
INVESTMENTS                                      2008 (Est.)    2007
                                                 -----------  --------
Fixed income securities
  Available for sale, at fair value
     Tax exempt                                 $    19,149  $ 19,038
     Taxable                                         68,935    75,413
                                                 -----------  --------
     Total fixed income securities                   88,084    94,451
Equity securities, at fair value                      4,379     5,257
Mortgage loans                                       11,107    10,830
Limited partnership interests (1)                     2,706     2,501
Short-term                                            6,572     3,058
Other                                                 2,622     2,883
                                                 -----------  --------
     Total Investments                          $   115,470  $118,980
                                                 ===========  ========

FIXED INCOME SECURITIES BY TYPE
U.S. government and agencies                    $     4,304  $  4,421
Municipal                                            25,041    25,307
Corporate                                            35,862    38,467
Asset-backed securities                               7,297     8,679
Commercial mortgage-backed securities                 6,195     7,617
Mortgage-backed securities                            6,500     6,959
Foreign government                                    2,842     2,936
Redeemable preferred stock                               43        65
                                                 -----------  --------
     Total fixed income securities              $    88,084  $ 94,451
                                                 ===========  ========

FIXED INCOME SECURITIES BY CREDIT QUALITY
 NAIC Rating    Moody's Equivalent

  1            Aaa/Aa/A                         $    65,932  $ 71,458
  2            Baa                                   18,095    18,361
  3            Ba                                     2,599     2,904
  4            B                                      1,045     1,296
  5            Caa or lower                             362       378
  6            In or near default                        51        54
                                                 -----------  --------
 Total                                          $    88,084  $ 94,451
                                                 ===========  ========

AMORTIZED COST
Fixed income securities
  Available for sale, at amortized cost
     Tax exempt                                 $    18,865  $ 18,393
     Taxable                                         70,142    75,102
                                                 -----------  --------
     Total fixed income securities                   89,007    93,495
Equity securities, at cost                      $     3,987  $  4,267

(1) We have commitments to invest in additional limited partnerships
 totaling $1.8 billion at March 31, 2008.
                       THE ALLSTATE CORPORATION
      COMPONENTS OF REALIZED CAPITAL GAINS AND LOSSES (PRE-TAX)


                              Three Months Ended March 31, 2008 (Est.)
                              ----------------------------------------

($ in millions)               Property-  Allstate  Corporate
                              Liability  Financial and Other   Total
                              ---------- --------- --------- ---------

Investment write-downs            $(175)    $(209)     $(31)    $(415)
Dispositions (1)                    124       (66)        2        60
Valuation of derivative
 instruments                       (123)     (202)        -      (325)
Settlements of derivative
 instruments                        (20)       45         -        25
                              ---------- --------- --------- ---------

   Total                          $(194)    $(432)     $(29)    $(655)
                              ========== ========= ========= =========


                                 Three Months Ended March 31, 2007
                              ----------------------------------------

($ in millions)               Property-  Allstate  Corporate
                              Liability  Financial and Other   Total
                              ---------- --------- --------- ---------

Investment write-downs              $(4)      $(1)       $-       $(5)
Dispositions                        411        35         4       450
Valuation of derivative
 instruments                          8       (20)        -       (12)
Settlements of derivative
 instruments                         29         9         -        38
                              ---------- --------- --------- ---------

   Total                           $444       $23        $4      $471
                              ========== ========= ========= =========



(1) In the first quarter of 2008, the Company recognized $75 million
 of losses related to a change in our intent to hold certain
 securities with unrealized losses until they recover in value. The
 change in our intent was due to strategic asset allocation strategies
 and ongoing comprehensive reviews of the Property-Liability and
 Allstate Financial portfolios as well as a liquidity strategy in
 Allstate Financial. The Company identified $1.69 billion of
 securities, which we did not have the intent to hold until recovery
 to achieve these objectives.
                       THE ALLSTATE CORPORATION
            CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                                              March 31,   December 31,
($ in millions, except par value data)       2008 (Est.)      2007
                                             -----------  ------------

Assets
Investments
  Fixed income securities, at fair value
    (amortized cost $89,007 and $93,495)    $    88,084  $     94,451
  Equity securities, at fair value (cost
   $3,987 and $4,267)                             4,379         5,257
  Mortgage loans                                 11,107        10,830
  Limited partnership interests                   2,706         2,501
  Short-term                                      6,572         3,058
  Other                                           2,622         2,883
                                             -----------  ------------
     Total investments (1) (2)                  115,470       118,980

Cash                                                370           422
Premium installment receivables, net              4,851         4,879
Deferred policy acquisition costs                 6,275         5,768
Reinsurance recoverables, net                     5,828         5,817
Accrued investment income                         1,067         1,050
Deferred income taxes                             1,307           467
Property and equipment, net                       1,025         1,062
Goodwill                                            825           825
Other assets                                      2,103         2,209
Separate Accounts                                13,132        14,929
                                             -----------  ------------
      Total assets                          $   152,253  $    156,408
                                             ===========  ============

Liabilities
Reserve for property-liability insurance
  claims and claims expense                 $    18,848  $     18,865
Reserve for life-contingent contract
 benefits                                        13,214        13,212
Contractholder funds                             61,727        61,975
Unearned premiums                                10,112        10,409
Claim payments outstanding                          761           748
Other liabilities and accrued expenses            8,514         8,779
Short-term debt                                       2             -
Long-term debt                                    5,640         5,640
Separate Accounts                                13,132        14,929
                                             -----------  ------------
      Total liabilities                         131,950       134,557
                                             -----------  ------------

Shareholders' equity
Preferred stock, $1 par value, 25 million
  shares authorized, none issued                      -             -
Common stock, $.01 par value, 2.0 billion
 shares
 authorized and 900 million issued, 554
  million
  and 563 million shares outstanding                  9             9
Additional capital paid-in                        3,075         3,052
Retained income (4)                              32,902        32,796
Deferred ESOP expense                               (49)          (55)
Treasury stock, at cost (346 million and 337
 million shares)                                (14,997)      (14,574)
Accumulated other comprehensive income:
   Unrealized net capital gains and losses
    (3)                                            (280)          888
   Unrealized foreign currency translation
    adjustments                                      63            79
   Net funded status of pension and other
    postretirement benefit obligation (4)          (420)         (344)
                                             -----------  ------------
      Total accumulated other comprehensive
       (loss) income                               (637)          623
                                             -----------  ------------
      Total shareholders' equity                 20,303        21,851
                                             -----------  ------------
      Total liabilities and shareholders'
       equity                               $   152,253  $    156,408
                                             ===========  ============


(1) Total investments include $38,469 for Property-Liability, $73,023
 for Allstate Financial and $3,978 for Corporate and Other investments
 at March 31, 2008. Total investments include $40,905 for Property-
 Liability, $74,256 for Allstate Financial and $3,819 for Corporate
 and Other investments at December 31, 2007.

(2) Pre-tax unrealized net capital gains and losses at March 31, 2008
 and December 31, 2007 include net gains and losses on fixed income
 securities and derivative instruments of $(962) million and $923
 million, respectively, and net gains and losses on equity securities
 of $392 million and $990 million, respectively.

(3) After-tax unrealized net capital gains and losses at March 31,
 2008 and December 31, 2007 include net gains and losses on fixed
 income securities and derivative instruments of $(539) million and
 $244 million, respectively, and net gains and losses on equity
 securities of $259 million and $644 million, respectively.

(4) As a result of the adoption of SFAS No. 158, the Company recorded
 a decrease of $13 million, after-tax, to beginning retained income
 representing the net periodic benefit cost for the period between
 October 31, 2007 and December 31, 2007, and a decrease of $80
 million, after-tax, to beginning net funded status of pension and
 other postretirement benefit obligations to reflect changes in the
 fair value of plan assets and the benefit obligations between October
 31, 2007 and January 1, 2008 and for amortization of actuarial gains
 and losses and prior service cost between October 31, 2007 and
 December 31, 2007.

Investments

Securities Experiencing Illiquid Markets

During the first quarter of 2008, certain financial markets continued to experience decreased liquidity. We experienced this illiquidity particularly in our asset-backed residential mortgage-backed securities ("ABS RMBS"), asset-backed collateralized debt obligations ("ABS CDO"), Alt-A residential mortgage-backed securities ("Alt-A") and commercial real estate collateralized debt obligations ("CRE CDO") portfolios. These portfolios totaled $4.8 billion, or less than 5% of our total investments at March 31, 2008. Certain other asset-backed and real estate-backed securities markets experienced illiquidity, but to a lesser degree.

We determine the fair values of securities comprising the illiquid portfolios by obtaining information from an independent third-party valuation service provider and brokers. We confirmed the reasonableness of the fair value of these portfolios as of March 31, 2008 by analyzing available market information including, but not limited to, collateral quality, anticipated cash flows, credit enhancements, default rates, loss severities, the securities' relative position within their respective capital structures, and credit ratings from statistical rating agencies.

Impairment write-downs for the first quarter of 2008 included write-downs on our Alt-A totaling $89 million, ABS RMBS totaling $35 million and ABS CDO totaling $60 million.

Unrealized net capital losses as of March 31, 2008 included $870 million on the ABS RMBS, $223 million on the Alt-A and $274 million on the CRE CDO. We continue to believe that the unrealized losses on these securities are not necessarily predictive of the ultimate performance of the underlying collateral. In the absence of further deterioration in the collateral relative to our positions in the securities' respective capital structures, which could be other-than-temporary, the unrealized losses should reverse over the remaining lives of the securities.

Information about certain of our collateralized securities and their financial ratings is presented in the table below.


                   Est.
                Fair value
                    at
                March 31,  % to Total                            Ba or
(in millions)      2008    Investments  Aaa     Aa     A    Baa  lower
                ---------- ----------- ------ ------ ----- ----- -----
Mortgage-backed
 securities
U.S. Agency         $4,253        3.7% 100.0%    --    --    --    --
Prime                1,186        1.0   99.4    0.6%   --    --    --
Alt-A                1,056        0.9   95.1    4.1   0.8%   --    --
Other                    5         --     --  100.0    --    --    --
                ---------- -----------
    Total
     Mortgage-
     backed
     securities     $6,500        5.6%
                ========== ===========

Commercial
 mortgage-backed
 securities         $5,757        5.0%  80.6   12.8   5.2   1.4%   --
CRE CDO                438        0.4   35.0   30.1  24.4  10.5    --
                ---------- -----------
    Total
     Commercial
     mortgage-
     backed
     securities     $6,195        5.4%
                ========== ===========

Asset-backed
 securities
 ABS RMBS           $3,335        2.9%  64.7   20.4   6.7   5.9   2.3%
 ABS CDO                17         --     --     --    --  35.3  64.7
                ---------- -----------
 Total asset-
  backed
  securities
  collateralized
  by sub- prime
  residential
  mortgage loans     3,352        2.9

Other
 collateralized
 debt
 obligations         1,740        1.5   36.5   25.9  26.1   8.2   3.3
Other asset-
 backed
 securities          2,205        1.9   69.1    4.7  14.0  10.3   1.9
                ---------- -----------
    Total Asset-
     backed
     securities     $7,297        6.3%
                ========== ===========

Alt-A mortgage-backed securities are at fixed or variable rates and include certain securities that are collateralized by residential mortgage loans issued to borrowers with stronger credit profiles than sub-prime borrowers, but who do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation. Changes during the first quarter of 2008 in our Alt-A holdings and characteristics of the portfolio:

-- $801 million or 75.9% of the Alt-A holdings were issued during 2005, 2006 and 2007.

-- We collected $41 million of principal repayments consistent with the expected cash flows.

-- $89 million of impairment write-downs were recorded due to expected deterioration in the performance of the underlying collateral.

-- As of March 31, 2008, unrealized losses on Alt-A mortgage-backed securities totaled $223 million.

-- Fair value represents 82.6% of the amortized cost of these securities.

CRE CDO are investments secured primarily by commercial mortgage-backed securities and other commercial mortgage debt obligations. These securities are generally less liquid and have a higher risk profile than other commercial mortgage-backed securities. Changes during the first quarter of 2008 in our CRE CDO holdings and characteristics of the portfolio:

-- We collected $1 million of principal repayments consistent with the expected cash flows.

-- We sold $9 million recognizing a loss of $2 million.

-- There were no impairment write-downs during the first quarter of 2008.

-- As of March 31, 2008, unrealized losses on CRE CDO totaled $274 million.

-- Fair value represents 61.5% of the amortized cost of these securities.

ABS RMBS includes securities that are collateralized by mortgage loans issued to borrowers that cannot qualify for prime or Alt-A financing terms due in part to an impaired or limited credit history. Changes during the first quarter of 2008 in our ABS RMBS holdings and characteristics of the portfolio:

-- $2.8 billion or 82.8% were issued during 2005, 2006 and 2007, with 73.2% of these securities rated Aaa, 14.4% rated Aa, 3.1% rated A and 9.3% rated Baa or lower.

-- We collected $150 million of principal repayments consistent with the expected cash flows.

-- We sold $19 million upon which we recognized a loss of $17 million.

-- $35 million of impairment write-downs were recorded due to expected deterioration in the performance of the underlying collateral.

-- As of March 31, 2008, net unrealized losses on sub-prime RMBS totaled $870 million.

-- Fair value represents 79.3% of the amortized cost of these securities.

ABS CDO are securities collateralized by a variety of residential mortgage-backed securities and other securities, which may include sub-prime RMBS. Changes during the first quarter of 2008 in our ABS CDO holdings and characteristics of this portfolio:

-- $60 million of impairment write-downs were recorded due to expected deterioration in the performance of the underlying collateral.

-- As of March 31, 2008, unrealized gains on ABS CDO totaled $1 million.

-- Fair value represents 106.3% of the amortized cost of these securities.

Bond Insurers

Approximately $12.9 billion or 51.6% of our municipal bond portfolio is insured by bond insurers. Our practices for acquiring and monitoring municipal bonds primarily are based on the quality of the underlying security. As of March 31, 2008, we believe that the current valuations already reflect a decline in the value of the insurance, and further such declines if any, are not expected to be material. While the valuation of these holdings may be temporarily impacted by negative and rapidly changing market developments, we continue to have the intent and ability to hold the bonds and expect to receive all of the contractual cash flows. As of March 31, 2008, 33.1% of our insured municipal bond portfolio was insured by MBIA, 25.1% by AMBAC, 18.8% by FSA and 18.1% by FGIC. In addition, we hold securities totaling $21 million that were directly issued by these bond insurers.

Auction Rate Securities

Included in our municipal bond portfolio at March 31, 2008 are $2.2 billion of auction rate securities ("ARS") that have long-term stated maturities, with the interest rate reset based on auctions every 7, 28 or 35 days depending on the specific security. This is compared to a balance of ARS at December 31, 2007 of $2.6 billion, with the decline representing sales and redemptions during the first quarter of 2008. Our holdings primarily have a Moody's equivalent rating of Aaa and fair value is estimated at the corresponding par value based on market observable inputs. During the first quarter of 2008, all of our ARS holdings experienced failed auctions and we are currently receiving the maximum interest rate. We anticipate that failed auctions may persist and most of our holdings will continue to reset at the maximum rate. Auctions continue to be conducted as scheduled for each of the securities.

Realized Capital Gains and Losses Analysis

The net realized capital losses in the quarter were the result of $415 million in impairment writedowns and $300 million related to the settlement and valuation of derivatives, partly offset by $60 million in net realized capital gains from dispositions, including sales related to a reallocation of our mid and small-cap equity portfolio.

Net realized capital losses from impairment writedowns comprised $347 million from fixed income securities, $52 million from equity securities, $13 million from limited partnership interests and $3 million from other investments. The fixed income securities writedowns were related to residential mortgages and other structured securities. $246 million of the fixed income writedowns relate to impaired securities that are currently performing in line with anticipated or contractual cash flows, but which were written down primarily because of expected deterioration in the performance of the underlying collateral. For these securities, there have been no defaults or defaults have occurred lower in the capital structure. $101 million of the fixed income writedowns are primarily related to securities currently experiencing a significant departure from anticipated residual cash flows. While $83 million of these fixed income securities writedowns were valued at a significant discount to cost, we believe these securities retain economic value.

Notwithstanding our intent and ability to hold such securities indefinitely, we concluded that we could not reasonably assert that the recovery period would be temporary.

Impairment writedowns for the three months ended March 31, 2008 were as follows:


($ in millions)                                                Est.
                                                               2008
                                                            ----------
Performing in accordance with anticipated or contractual
 cash flows
      Prime                                                $       (9)
      Alt-A
           No defaults in underlying collateral                   (77)
           Defaults lower in capital structure                    (12)
                                                            ----------
                Subtotal                                          (89)
      ABS RMBS                                                    (35)
      ABS CDO                                                     (60)
      Corporate
            Mortgage lender                                       (20)
            Bond insurer                                          (10)
            Bond reinsurer - convertible to perpetual
             security                                             (20)
      Other                                                        (3)
                                                            ----------
                Subtotal                                         (246)

Departure from anticipated or contractual cash flows
      Future cash flows expected -
         Residual interest trust security(1)                      (82)
         Other                                                     (1)
                                                            ----------
                Subtotal                                          (83)
      Future cash flows very uncertain -
         Other CDO                                                (18)
                                                            ----------
                Subtotal                                         (101)
                                                            ----------
Total fixed income securities                              $     (347)
                                                            ==========
Total equity securities                                    $      (52)
                                                            ==========
Total limited partnership interests                        $      (13)
                                                            ==========
Total other investments                                    $       (3)
                                                            ==========

(1) Anticipated cash flow on unwind of trust is extended and contingent on recovery to par of the underlying perpetual preferred.

Net realized capital losses on the valuation and settlement of derivative instruments totaled $300 million for the quarter, primarily comprised $162 million for the valuation of embedded equity options (derivatives) in fixed income securities and $105 million for the valuation of risk reduction programs.

-- At March 31, 2008, our securities with embedded options totaled $2.1 billion and decreased in fair value from December 31, 2007 by $132 million primarily comprising a realized capital loss related to the valuation of embedded options of $162 million and an unrealized net capital gain reported in other comprehensive income ("OCI") of $28 million for the host security. The change in the fair value of embedded options is bifurcated from the host securities, separately valued and reported in realized capital gains and losses, while the change in value of the host securities is reported in OCI. Total fair value exceeded total amortized cost by $52 million at March 31, 2008. Valuation gains and losses are converted into cash for securities with embedded options upon our election to sell these securities. In the event the economic value of the options is not realized, we will recover the par value if held to maturity. Total fair value exceeded par value by $84 million at March 31, 2008.

-- Losses from the risk reduction programs, primarily in our duration management programs, were related to changing interest rates and credit spreads as rates declined during the period.

Realized capital gains and losses from derivatives for the three months ended March 31, 2008 and 2007 were as follows:


($ in
 millions)
-------------
                      2008           2007       2008 Explanations
             ----------------------- ----- ---------------------------
               Val-   Settle-
              uation   ments  Total  Total
             ------- -------- ------ -----
Risk
 reduction
-------------
 Property-
  Liability
  Portfolio                                Net short interest rate
   duration                                 derivatives are used to
   management     $-    $(55)  $(55)    $2  offset the effects of
                                            changing interest rates on
                                            a portion of Property-
                                            Liability fixed income
                                            portfolio which are
                                            reported in unrealized net
                                            capital gains in OCI. The
                                            2008 loss resulted from
                                            declining interest rates.
                                            Unrealized gains on the
                                            fixed income portfolio did
                                            not offset these amounts
                                            due to widening credit
                                            spreads. The contracts are
                                            daily cash settled and can
                                            be exited any time for
                                            minimal additional cost.

  Interest                                 Interest rate swaptions
   rate spike                               contracts acquired in the
   exposure     (16)        -   (16)     -  second half of 2007 with
                                            approximately one-year
                                            terms that provide an
                                            offset to declining fixed
                                            income market values
                                            resulting from potential
                                            rising interest rates. The
                                            contracts protect $21.5
                                            billion of notional
                                            principal by limiting the
                                            decline in value to $1.5
                                            billion for an increase in
                                            risk-free rates greater
                                            than approximately 150
                                            basis points above those
                                            in effect at inception of
                                            the contracts. The
                                            contracts have declined in
                                            value due to the decrease
                                            in interest rates. If
                                            interest rates do not
                                            increase above the strike
                                            rate, the maximum
                                            remaining potential loss
                                            in 2008 is limited to the
                                            unrecognized cost of $7
                                            million at March 31, 2008.

  Hedging                                  Short S&P futures were
   unrealized                               primarily used to protect
   gains on                                 unrealized gains on our
   equity                                   equity securities
   securities      -       33     33   (1)  portfolio reported in
                                            unrealized net capital
                                            gains in accumulated OCI.
                                            The results offset the
                                            decline in our unrealized
                                            gains on equity securities
                                            as equity markets declined
                                            in the first quarter.

  Foreign
   currency
   contracts    (13)      (3)   (16)     -

 Allstate
  Financial
  Duration                                 Interest rate caps, floors
   gap                                      and swaps are used by
   management   (46)        8   (38)     1  Allstate Financial to
                                            align interest-rate
                                            sensitivities of its
                                            assets and liabilities.
                                            The 2008 loss resulted
                                            from declining interest
                                            rates. The contracts
                                            settle based on
                                            differences between
                                            current market rates and a
                                            contractually specified
                                            fixed rate through
                                            expiration. The change in
                                            valuation reflects the
                                            changing value of expected
                                            future settlements, which
                                            may vary over the period
                                            of the contracts. The loss
                                            should be offset in
                                            unrealized gain in OCI to
                                            the extent it relates to
                                            changes in risk-free
                                            rates, however any offset
                                            was reduced by widening
                                            credit spreads.

  Antici-                                  Futures used to protect
  patory                                    investment spread from
   hedging         -       37     37   (4)  interest rate changes
                                            during mismatches in the
                                            timing of cash flows
                                            between product sales and
                                            the related investment
                                            activity. 2008 amounts
                                            reflect decreases in risk-
                                            free interest rates on a
                                            net long position as
                                            liability issuances
                                            exceeded asset
                                            acquisitions. The
                                            contracts are cash settled
                                            daily and can be exited at
                                            any time for a minimal
                                            additional cost. If the
                                            cash flow mismatches are
                                            such that a positive net
                                            investment position is
                                            being hedged, there is an
                                            offset for the related
                                            investments unrealized
                                            gain or loss in OCI.

  Hedging of                               Interest rate caps used to
   interest                                 hedge the effect of
   rate                                     changing crediting rates
   exposure                                 that are indexed to
   in annuity                               changes in treasury rates
   contracts    (13)        3   (10)   (5)  on certain annuity
                                            contracts. The change in
                                            valuation reflects the
                                            changing value of expected
                                            future settlements
                                            including the underlying
                                            cost to hedge the
                                            treasury-rate index
                                            feature. The offset to the
                                            product hedging cost is
                                            reflected in the base
                                            crediting rates on the
                                            underlying annuity
                                            policies, which is
                                            reported in credited
                                            interest. The value of
                                            expected future
                                            settlements and the
                                            associated value of future
                                            credited interest, which
                                            is reportable in future
                                            periods when incurred,
                                            decreased due to the
                                            decline in interest rates.

  Hedge
   ineffec-
   tiveness     (14)      (2)   (16)   (1)


  Foreign
   currency
   contracts       -      (3)    (3)     -

  Other         (24)        3   (21)     4
             ------- -------- ------ -----
   Total Risk
    reduction $(126)      $21 $(105)  $(4)

Income
 generation
-------------
 Asset                                     Credit default swaps are
  replication                               used to replicate fixed
  - credit                                  income securities and to
  exposure                                  complement the cash market
                                            when credit exposure to
  Property-                                 certain issuers is not
   Liability   $(20)       $2  $(18)    $1  available or when the
  Allstate                                  derivative alternative is
   Financial    (17)        2   (15)     -  less expensive than the
             ------- -------- ------ -----  cash market alternative.
    Total       (37)        4   (33)     1  The credit default swaps
                                            typically have five-year
                                            terms for which we receive
                                            periodic premiums through
                                            expiration. The changes in
                                            valuation are due to the
                                            widening credit spreads,
                                            and would only be
                                            converted to cash upon
                                            disposition or a default
                                            on an underlying credit
                                            obligation. Valuation
                                            gains and losses will
                                            reverse if allowed to
                                            expire.
 Asset
  replication
  -equity
  exposure
  Property-
   Liability       -        -      -     4

 Commodity
  derivatives
  -
   Property-
    Liability      -        -      -    19
             ------- -------- ------ -----
  Total
   Income
   generation  $(37)       $4  $(33)   $24
             ------- -------- ------ -----

Accounting
-------------
 Equity
  indexed
  notes -
  Allstate                                 Equity-indexed notes are
   Financial   $(86)       $-  $(86)  $(4)  fixed income securities
                                            that contain embedded
                                            options. The changes in
                                            valuation of the embedded
                                            equity indexed call
                                            options are reported in
                                            realized capital gains and
                                            losses. The results
                                            generally track the
                                            performance of underlying
                                            equity indices. Valuation
                                            gains and losses are
                                            converted into cash upon
                                            sale. In the event the
                                            economic value of the
                                            options is not realized,
                                            we will recover the par
                                            value if held to maturity.
                                            Fair value exceeded par
                                            value by $65 million at
                                            March 31, 2008. The
                                            following table compares
                                            the March 31, 2008
                                            holdings to this December
                                            31, 2007 values.
                                           ($ in millions)
                                                          March
                                                           31,
                                                           2008
                                                          hold-
                                                          ings @
                                                    March Dec.
                                                     31,   31,
                                                     2008  2007 Change
                                                    ------------------
                                           Par value  $800  $800    $-
                                                    ==================
                                           Amortized
                                            cost of
                                            host
                                            contract  $500  $497    $3
                                           Fair
                                            value of
                                            equity-
                                            indexed
                                            call
                                            option     336   422  (86)
                                                    ------------------
                                            Total
                                             amor-
                                             tized
                                              cost    $836  $919 $(83)
                                                    ==================
                                           Total
                                            Fair
                                            value     $865  $924 $(59)
                                                    ==================
                                           Un-
                                           realized
                                            gain/
                                            loss       $29    $5   $24
Conversion
 options in
 fixed income
 securities
 Property-
  Liability     (51)        -   (51)     8
  Allstate                                 Convertible bonds are fixed
   Financial    (25)        -   (25)     2  income securities that
                                            contain embedded options.
                                            Changes in valuation of
                                            the embedded option are
                                            reported in realized
                                            capital gains and losses.
                                            The results generally
                                            track the performance of
                                            underlying equity indices.
                                            Valuation gains and losses
                                            are converted into cash
                                            upon our election to sell
                                            these securities. In the
                                            event the economic value
                                            of the options is not
                                            realized, we will recover
                                            the par value if held to
                                            maturity. Fair value
                                            exceeded par value by $19
                                            million at March 31, 2008.
                                            The following table
                                            compares the March 31,
                                            2008 holdings to their
                                            December 31, 2007 values.
             ------- -------- ------ -----
                                           ($ in millions)
   Total        (76)        -   (76)    10                March
                                                           31,
                                                           2008
                                                          hold-
                                                          ings @
                                                    March Dec.
                                                     31,   31,
                                                     2008  2007 Change
                                                    ------------------
                                           Par value$1,231$1,231    $-
                                                    ==================
                                           Amortized
                                            cost of
                                            host
                                            contract  $856  $857  $(1)
                                           Fair
                                            value of
                                            con-
                                            version
                                             option    371   447  (76)
                                                    ------------------
                                            Total
                                             amor-
                                             tized
                                              cost  $1,227$1,304 $(77)
                                                    ==================
                                           Total
                                            Fair
                                            value   $1,250$1,323 $(73)
                                                    ==================
                                           Un-
                                           realized
                                            gain/
                                            loss       $23   $19    $4
             ------- -------- ------ -----
Total
 Accounting   $(162)       $- $(162)    $6

             ------- -------- ------ -----
   Total      $(325)      $25 $(300)   $26
             ======= ======== ====== =====

The breakout by operating segment for realized capital gains and losses from derivatives for the three months ended March 31, 2008 and 2007, respectively, were as follows:


                                              Est.
($ in millions)                               2008           2007
                                          ------------   -------------
Allstate Financial                       $       (157)  $         (11)
Property-Liability                               (143)             37
Corporate and Other                                 -               -
                                          ------------   -------------
         Total                           $       (300)  $          26
                                          ============   =============

Adoption of SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157")

We adopted the provisions of SFAS No. 157 as of January 1, 2008 for our financial assets and liabilities that are measured at fair value.

SFAS No. 157:

-- Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value;

-- Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation as of the measurement date;

-- Expands disclosures about financial instruments measured at fair value.

We are responsible for determining the value of the financial assets and liabilities carried at fair value and the supporting assumptions and methodologies. In certain situations, we employ independent third-party valuation service providers to gather, analyze, and provide market information and derive fair values based upon relevant assumptions and methodologies for individual instruments. In situations where our valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a quote, or internally determined by employing valuation models that are widely accepted in the financial services industry. We determine if the fair value estimates provided are appropriate based upon our own independent assessment of their values. Changing market conditions in the first quarter of 2008 were incorporated into valuation assumptions and reflected in the fair values which were validated by calibration and other analytical techniques to available market observable data.

We categorize our financial assets and liabilities measured at fair value based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as required by SFAS No. 157. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities which we can access (Level 1); the second highest priority for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets, or valuation models whose inputs are observable (Level 2); and the lowest priority to unobservable inputs (Level 3). If inputs used to measure financial instruments fall within different levels of the fair value hierarchy, the categorization is based on the lowest level input significant to the fair value measurement of the entire instrument.


(in millions)                                      Est.        % to
                                              March 31, 2008   Total
                                              -------------- ---------
Financial Assets
Level 1: Includes actively traded exchange            $5,236      4.5%
          listed equity securities in the U.S.
          and internationally, U.S. Treasury
          securities, money market funds,
          certain exchange listed actively
          traded derivatives.

Level 2: Includes fixed income securities:            70,764      61.3
          corporate, including certain
          privately placed, municipal, foreign
          government, U.S. government and
          agencies, certain mortgage-backed
          securities ("MBS") excluding Alt-A,
          certain CMBS, and certain ABS with
          underlying collateral such as credit
          card and auto loans; commercial
          paper; certain derivatives that are
          exchange traded and traded over-the-
          counter ("OTC"); and preferred
          stock.

Level 3: Includes privately fixed income              22,679      19.6
          securities valued by internal models
          in non-binding broker quotes, ABS
          RMBS and Alt-A securities valued by
          third part valuation service
          providers and certain other
          securities whose principal valuation
          input is a non-binding broker quote,
          including ABS such as collateralized
          loan obligations ("CLO"), ABS CDO,
          synthetic collateralized debt
          obligations, and certain CMBS.

         Includes mortgage loans and other                         0.3
          investments with impairment
          writedowns and change in intent
          dispositions that are held at fair
          value on a non-recurring basis.                258
                                              -------------- ---------

Investments valued at cost, amortized cost and                    14.3
 using the equity method                              16,533
                                              -------------- ---------
Total Investments                                   $115,470    100.0%
                                              ============== =========

Level 1: Separate account assets                     $13,132
                                              ==============

Financial Liabilities
Level 1:                                                  $0
Level 2: Includes derivatives embedded in               $490
          equity index annuity contracts sold
          through the Allstate Financial
          segment and certain derivatives that
          are exchange traded and traded OTC.

Level 3: Includes derivatives associated with            $30
          contractholder liabilities in the
          Allstate Financial segment, such as
          guaranteed minimum accumulation
          benefits and guaranteed minimum
          withdrawal benefits related to
          variable annuity contracts that are
          reinsured through an unrelated third
          party. This also includes certain
          derivatives traded OTC.

         Includes certain reserves related to            $87
          a closed block of policies expected
          to be transferred through a future
          reinsurance agreement to an
          unrelated third party that are held
          at fair value on a non-recurring
          basis.

Privately Placed Fixed Income Securities

Privately placed fixed income securities totaling $16.8 billion are reported in Level 2 and 3 at March 31, 2008. On $4.7 billion of the portfolio, we received indicative values from our valuation service provider, and they are reported in Level 2 primarily due to the existence of market observable inputs in the form of external ratings from independent third party rating agencies. The $12.1 billion of privately placed fixed income securities included in Level 3 primarily comprise $10.4 billion valued using an internal model and $1.4 billion valued using non-binding valuation broker quotes. The internally modeled securities are valued based on internal ratings, which are not observable in the market.

Non-Binding Broker Quotes

Where our valuation service providers cannot provide fair value determinations, we obtain non-binding valuation quotes from brokers familiar with the security who may consider transactions or activity in similar securities, as applicable, among other information. The brokers providing valuation quotes are generally from the brokerage divisions of leading financial institutions with market making, underwriting and distribution expertise.

Definitions of GAAP Operating Ratios and Impacts of Specific Items on the GAAP Operating Ratios

Claims and claims expense ("loss") ratio is the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses.

Expense ratio is the ratio of amortization of DAC, operating costs and expenses and restructuring and related charges to premiums earned.

Combined ratio is the ratio of claims and claims expense, amortization of DAC, operating costs and expenses and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income (loss) as a percentage of premiums earned.

Effect of Discontinued Lines and Coverages on combined ratio is the ratio of claims and claims expense and other costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio.

Effect of catastrophe losses on combined ratio is the percentage of catastrophe losses included in claims and claims expenses to premiums earned. This ratio includes prior year reserve reestimates.

Effect of prior year reserve reestimates on combined ratio is the percentage of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses.

Effect of restructuring and related charges on combined ratio is the percentage of restructuring and related charges to premiums earned.

Definitions of Non-GAAP and Operating Measures

We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following non-GAAP financial measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Operating income is net income, excluding:

-- realized capital gains and losses, after-tax, except for periodic settlements and accruals on non-hedge derivative instruments, which are reported with realized capital gains and losses but included in operating income,

-- amortization of DAC and DSI, to the extent they resulted from the recognition of certain realized capital gains and losses,

-- gain (loss) on disposition of operations, after-tax, and

-- 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.

Net income is the GAAP measure that is most directly comparable to operating income.

We use operating income as an important measure to evaluate our results of operations. We believe that the measure provides investors with a valuable measure of the Company's ongoing performance because it reveals trends in our insurance and financial services business that may be obscured by the net effect of realized capital gains and losses, gain (loss) on disposition of operations and adjustments for other significant non-recurring, infrequent or unusual items. Realized capital gains and losses and gain (loss) on disposition of operations may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions, the timing of which is unrelated to the insurance underwriting process. Consistent with our intent to protect results or earn additional income, operating income includes periodic settlements and accruals on certain derivative instruments that are reported in realized capital gains and losses because they do not qualify for hedge accounting or are not designated as hedges for accounting purposes. These instruments are used for economic hedges and to replicate fixed income securities, and by including them in operating income, we are appropriately reflecting their trends in our performance and in a manner consistent with the economically hedged investments, product attributes (e.g. net investment income and interest credited to contractholder funds) or replicated investments. Non-recurring items are excluded because, by their nature, they are not indicative of our business or economic trends. Accordingly, operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of our business. A byproduct of excluding these items to determine operating income is the transparency and understanding of their significance to net income variability and profitability while recognizing these or similar items may recur in subsequent periods. Operating income is used by management along with the other components of net income to assess our performance. We use adjusted measures of operating income and operating income per diluted share in incentive compensation. Therefore, we believe it is useful for investors to evaluate net income, operating income and their components separately and in the aggregate when reviewing and evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the Company and management's performance. We note that the price to earnings multiple commonly used by insurance investors as a forward-looking valuation technique uses operating income as the denominator. Operating income should not be considered as a substitute for net income and does not reflect the overall profitability of our business.

The following table reconciles operating income and net income (loss) for the three months ended March 31, 2008 and 2007.


                   Property-    Allstate                 Per diluted
                    Liability    Financial  Consolidated     share
                  ------------ ------------ ------------ -------------
($ in millions,
 except per share Est.          Est.        Est.          Est.
 data)            2008   2007   2008  2007  2008   2007   2008   2007
                  ----- ------ ------ ----- ----- ------ ------ ------
Operating income   $629 $1,062   $143  $156  $747 $1,197  $1.33  $1.93
Realized capital
 gains and losses (194)    444  (432)    23 (655)    471
Income tax
 benefit
 (expense)           69  (157)    151   (8)   230  (166)
                  ----- ------ ------ ----- ----- ------
Realized capital
 gains and
 losses, after-
 tax              (125)    287  (281)    15 (425)    305 (0.76)   0.49
DAC and DSI
 amortization
 relating to
 realized capital
 gains and
 losses, after-
 tax                 --     --     39    --    39     --   0.07     --
Reclassification
 of periodic
 settlements and
 accruals on non-
 hedge derivative
 instruments,
 after-tax          (1)     --    (6)   (8)   (7)    (8) (0.01) (0.01)
 (Loss) gain on
  disposition of
  operations,
  after-tax          --     --    (6)     1   (6)      1 (0.01)     --
                  ----- ------ ------ ----- ----- ------ ------ ------
Net income (loss)  $503 $1,349 $(111)  $164  $348 $1,495  $0.62  $2.41
                  ===== ====== ====== ===== ===== ====== ====== ======

Underwriting income (loss) is calculated as premiums earned, less claims and claims expense ("losses"), amortization of DAC, operating costs and expenses and restructuring and related charges as determined using GAAP. Management uses this measure in its evaluation of the results of operations to analyze the profitability of our Property-Liability insurance operations separately from investment results. It is also an integral component of incentive compensation. It is useful for investors to evaluate the components of income separately and in the aggregate when reviewing performance. Net income is the most directly comparable GAAP measure. Underwriting income (loss) should not be considered as a substitute for net income and does not reflect the overall profitability of our business. A reconciliation of Property-Liability underwriting income (loss) to net income is provided in the Segment Results table.

Combined ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between two GAAP operating ratios: the combined ratio and the effect of catastrophes on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses. These catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the combined ratio. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The combined ratio excluding the effect of catastrophes should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. A reconciliation of combined ratio excluding the effect of catastrophes to combined ratio is provided in the Property-Liability Highlights section of the Consolidated and Segments Highlights table.

Combined ratio excluding the effect of catastrophes and prior year reserve reestimates ("underlying combined ratio") is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio and the effect of prior year reserve reestimates on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses and prior year reserve reestimates. These catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the combined ratio. Prior year reserve reestimates are caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide it to facilitate a comparison to our outlook on the 2008 combined ratio excluding the effect of catastrophe losses and prior year reserve reestimates. The combined ratio excluding the effect of catastrophes and prior year reserve reestimates should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business. A reconciliation of combined ratio excluding the effect of catastrophes and prior year reserve reestimates to combined ratio is provided in the Property-Liability Highlights section of the Consolidated and Segments Highlights table.

In this press release, we provide our outlook on the 2008 combined ratio excluding the effect of catastrophe losses and prior year reserve reestimates. A reconciliation of this measure to the combined ratio is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of catastrophes. Future prior year reserve reestimates are expected to be zero because reserves are determined based on our best estimate of ultimate loss reserves as of the reporting date.

Operating income return on equity is a ratio that uses a non-GAAP measure. It is calculated by dividing the rolling 12-month operating income by the average of shareholders' equity at the beginning and at the end of the 12-months, after excluding the effect of unrealized net capital gains and losses. Return on equity is the most directly comparable GAAP measure. We use operating income as the numerator for the same reasons we use operating income, as discussed above. We use average shareholders' equity excluding the effect of unrealized net capital gains and losses for the denominator as a representation of shareholder's equity primarily attributable to the Company's earned and realized business operations because it eliminates the effect of items that are unrealized and vary significantly between periods due to external economic developments such as capital market conditions like changes in equity prices and interest rates, the amount and timing of which are unrelated to the insurance underwriting process. We use it to supplement our evaluation of net income and return on equity because it excludes the effect of items that tend to be highly variable from period to period. We believe that this measure is useful to investors and that it provides a valuable tool for investors when considered along with net income return on equity because it eliminates the effect of items that can fluctuate significantly from period to period and that are driven by economic developments, the magnitude and timing of which are generally not influenced by management: the after-tax effects of realized and unrealized net capital gains and losses, and the cumulative effect of change in accounting principle. In addition, it eliminates non-recurring items that are not indicative of our ongoing business or economic trends. A byproduct of excluding the items noted above to determine operating income return on equity from return on equity is the transparency and understanding of their significance to return on equity variability and profitability while recognizing these or similar items may recur in subsequent periods. Therefore, we believe it is useful for investors to have operating income return on equity and return on equity when evaluating our performance. We note that investors, financial analysts, financial and business media organizations and rating agencies utilize operating income return on equity results in their evaluation of our and our industry's financial performance and in their investment decisions, recommendations and communications as it represents a reliable, representative and consistent measurement of the industry and the Company and management's utilization of capital. Operating income return on equity should not be considered as a substitute for return on equity and does not reflect the overall profitability of our business.

The following table shows the reconciliation.


($ in millions)                            For the twelve months ended
                                                    March 31,
                                           ---------------------------
                                            Est. 2008         2007
                                           ------------   ------------
Return on equity
Numerator:
   Net income                             $      3,489   $      5,073
                                           ============   ============
Denominator:
   Beginning shareholders' equity               22,491         20,545
   Ending shareholders' equity                  20,303         22,491
   Average shareholders' equity           $     21,397   $     21,518
                                           ============   ============
Return on equity                                  16.3%          23.6%
                                           ============   ============



                                           For the twelve months ended
                                                    March 31,
                                           ---------------------------
                                            Est. 2008         2007
                                           ------------   ------------
Operating income return on equity
Numerator:
   Operating income                       $      3,413   $      4,781
                                           ============   ============

Denominator:
   Beginning shareholders' equity               22,491         20,545
   Unrealized net capital gains and losses       2,058          1,634
                                           ------------   ------------
   Adjusted beginning shareholders' equity      20,433         18,911
   Ending shareholders' equity                  20,303         22,491
   Unrealized net capital gains and losses        (280)         2,058
                                           ------------   ------------
   Adjusted ending shareholders' equity         20,583         20,433
   Average adjusted shareholders' equity  $     20,508   $     19,672
                                           ============   ============
Operating income return on equity                 16.6%          24.3%
                                           ============   ============

Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities, is a ratio that uses a non-GAAP measure. It is calculated by dividing shareholders' equity after excluding the impact of unrealized net capital gains and losses on fixed income securities and related DAC and life insurance reserves by total shares outstanding plus dilutive potential shares outstanding. Book value per share is the most directly comparable GAAP measure.

We use the trend in book value per share, excluding unrealized net capital gains and losses on fixed income securities, in conjunction with book value per share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per share, excluding unrealized net capital gains and losses on fixed income securities, is a measure commonly used by insurance investors as a valuation technique. Book value per share, excluding unrealized net capital gains and losses on fixed income securities, should not be considered as a substitute for book value per share, and does not reflect the recorded net worth of our business. The following table shows the reconciliation.


                                                       As of
                                                      March 31,
                                               -----------------------
                                                  Est.
                                                  2008         2007
                                               ----------   ----------
 ($ in millions, except per share data)

Book value per share
Numerator:
  Shareholders' equity                        $    20,303  $    22,491
                                               ==========   ==========
Denominator:
  Shares outstanding and dilutive potential
   shares outstanding                               557.0        615.5
                                               ==========   ==========
Book value per share                          $     36.45  $     36.54
                                               ==========   ==========

Book value per share, excluding the impact of
 unrealized net capital gains and losses
 on fixed income securities
Numerator:
  Shareholders' equity                        $    20,303  $    22,491
  Unrealized net capital gains and losses on
   fixed income securities                          (514)          991
                                               ----------   ----------
Adjusted shareholders' equity                 $    20,817  $    21,500
                                               ==========   ==========
Denominator:
  Shares outstanding and dilutive potential
   shares outstanding                               557.0        615.5
                                               ==========   ==========
Book value per share, excluding the impact of
 unrealized net capital gains and losses
 on fixed income securities                   $     37.37  $     34.93
                                               ==========   ==========

Operating Measures

We believe that investors' understanding of Allstate's performance is enhanced by our disclosure of the following operating financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums earned is a GAAP measure. Premiums are considered earned and are included in financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position. A reconciliation of premiums written to premiums earned is presented in the following table.


                                                  Three Months Ended
                                                       March 31,
                                                 ---------------------
                                                   Est.
($ in millions)                                    2008        2007
                                                 ---------   ---------
Premiums written                                $   6,514   $   6,609
Decrease in Property-Liability unearned premiums      294         203
Other                                                 (44)         (6)
                                                 ---------   ---------
Premiums earned                                 $   6,764   $   6,806
                                                 =========   =========

Premiums and deposits is an operating measure that we use to analyze production trends for Allstate Financial sales. It includes premiums on insurance policies and annuities and all deposits and other funds received from customers on deposit-type products including the net new deposits of Allstate Bank, which we account for under GAAP as increases to liabilities rather than as revenue.

The following table illustrates where premiums and deposits are reflected in the consolidated financial statements.


                                                   Three Months Ended
                                                        March 31,
                                                   -------------------
($ in millions)                                      Est.
                                                     2008       2007
                                                   --------   --------
Total premiums and deposits                       $  3,046   $  2,628
Deposits to contractholder funds                    (2,824)    (2,363)
Deposits to separate accounts                          (33)       (33)
Change in unearned premiums and other adjustments        9         10
                                                   --------   --------
Life and annuity premiums (1)                     $    198   $    242
                                                   ========   ========

(1) Life and annuity contract charges in the amount of est. $254 million and $241 million for the three months ended March 31, 2008 and 2007, respectively, which are also revenues recognized for GAAP, have been excluded from the table above, but are a component of the Consolidated Statements of Operations line item life and annuity premiums and contract charges.

New sales of financial products by Allstate exclusive agencies is an operating measure that we use to quantify the current year sales of financial products by the Allstate Agency proprietary distribution channel. New sales of financial products by Allstate exclusive agencies includes sales of Allstate Financial products such as annual premiums on new life insurance policies, annual premiums on Allstate Workplace Division products, premiums and deposits on fixed annuities, net new deposits in the Allstate Bank, sales of Allstate Financial-issued variable annuities, and sales of products by non-affiliated issuers such as mutual funds and Prudential-issued variable annuities. New sales of financial products by Allstate exclusive agencies exclude renewal premiums on life insurance policies. New sales of financial products by Allstate exclusive agencies for the three months ended March 31, 2008 and 2007 are presented in the following table.


                                                    Three Months Ended
                                                        March 31,
                                                    ------------------
($ in millions)                                       Est.
                                                      2008      2007
                                                    --------  --------
Allstate Financial products (excluding variable
 annuities)                                        $     224 $     205
Allstate Financial variable annuities                      5        11
Non-affiliated products                                  364       379
                                                    --------  --------
Total                                              $     593 $     595
                                                    ========  ========

Forward-Looking Statements and Risk Factors

This press release contains forward-looking statements about our outlook for the combined ratio excluding the effect of catastrophes and prior year reserve reestimates for 2008, expectation for write-downs in our ABS RMBS, ABS CDO, Alt-A and CRE CDO securities portfolios, impact on the value of our portfolios of a rating downgrade by a bond insurer and expectation for anticipated or contractual cash flows in our prime, Alt-A, ABS RMBS, ABS CDO and corporate securities portfolios. These statements are subject to the Private Securities Litigation Reform Act of 1995 and are based on management's estimates, assumptions and projections. Actual results may differ materially from those projected based on the risk factors described below.

-- Premiums earned, the denominator of the combined ratio excluding the effect of catastrophes and prior year reserve reestimates for 2008, may be materially less than projected. Adjustments to our business structure, size and underwriting practices in markets with significant catastrophe risk exposure may impact homeowners premium growth rates and retention more adversely than we expect. In addition, due to the diminished potential for cross-selling opportunities, new business growth in our auto lines could be lower than expected. Our ability to capture the costs of our catastrophe reinsurance program through rate increases may not be entirely successful due to regulatory restrictions or policyholder attrition resulting in a lower amount of insurance in force.

-- Auto and homeowners frequencies or severities may be higher than anticipated levels due to unexpected trends or events such as severe weather.

-- The cost of the catastrophe reinsurance that we intend to purchase for Florida for the 2008 hurricane season may be more than we have estimated.

-- Changes in mortgage delinquency or recovery rates, agency ratings, bond insurer strength or rating, the quality of service provided by service providers and the anticipated or contractual cash flows on securities in our prime, ABS RMBS, ABS CDO, Alt-A, CRE CDO corporate securities portfolios, as well as the effects of bond insurer strength on the value of our municipal bond portfolio, could lead us to reconsider our payment outlook and determine that write-downs are appropriate in the future.

We undertake no obligation to publicly correct or update any forward-looking statements. This press release contains unaudited financial information.

The Allstate Corporation (NYSE:ALL) is the nation's largest publicly held personal lines insurer. Widely known through the "You're In Good Hands With Allstate(R)" slogan, Allstate helps individuals in approximately 17 million households protect what they have today and better prepare for tomorrow through approximately 14,900 exclusive agencies and financial representatives in the U.S. and Canada. Customers can access Allstate products and services such as auto insurance and homeowners insurance through Allstate agencies, or in select states at allstate.com and 1-800 Allstate(R). Encompass(R) and Deerbrook(R) Insurance brand property and casualty products are sold exclusively through independent agents. The Allstate Financial Group provides life insurance, supplemental accident and health insurance, annuity, banking and retirement products designed for individual, institutional and worksite customers that are distributed through Allstate agencies, independent agencies, financial institutions and broker-dealers.

Contacts:

The Allstate Corporation
Rich Halberg
Media Relations
(847) 402-5600
or
Robert Block, Larry Moews
Investor Relations
(847) 402-2800

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