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									Catastrophe Management – An Evolving Strategy
          Personal Lines Perspective

                     November 15, 2006
                          Rob Hair
       Senior State Manager, Allstate Insurance Company

•   Formulating a Strategy
•   Catastrophe Management Tactics
•   Public/Private Challenges
•   Organizational Challenges
    Potential Considerations for a Catastrophe
               Management Strategy

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

Allstate’s catastrophe risk management strategy is intended to
   provide our shareholders an acceptable return on the risks
   assumed in our property business and to reduce variability of
   earnings, while providing protection to our customers.

Source: 8/18/2006 Allstate 8-K
 Executing a Catastrophe Management Strategy

• Underwriting

• Risk Transfer

• Legislative/Regulatory
    Executing a Catastrophe Management Strategy

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

Reinsurance and Capital Markets
   – Fills immediate need
   – Capacity and stability
   – Credit security
   – Ability to reflect cost in pricing
Allstate’s Reinsurance Strategy Has Evolved

               2005 Reinsurance Program                                                                             2006 Reinsurance Program

AK                                                                                                   AK
                                                                                   NH                                                                                                  NH
                WA                                                                      ME                          WA                                                                      ME
                                          ND                                 VT                                                               ND                                 VT
                                MT                                                                                                  MT
           OR                                   MN WI                             NY     MA     RI              OR                                  MN WI                             NY     MA     RI
                      ID                                                                                                  ID
                                          SD                     MI                       CT                                                  SD                     MI                       CT
                                WY                  IA                       PA        NJ                                           WY                  IA                       PA        NJ
                                                                      OH                       DE                                                                         OH                       DE
          CA                               NE                                                                  CA                              NE
                 NV                                           IL IN        WV VA
                                                                                                                     NV                                           IL IN        WV VA
                           UT        CO                                                        MD                              UT        CO                                                        MD
                                           KS       MO                KY                                                                       KS       MO                KY
                                                                                        DC                                                                                                  DC
                                                                              NC                                                                                                  NC
                       AZ                      OK               TN                                                         AZ                      OK               TN
     HI                          NM                  AR                     SC                            HI                         NM                  AR                     SC
                                                              MS AL GA                                                                                            MS AL GA

                                          TX             LA                                                                                    TX            LA
                                                                             FL                                                                                                  FL

               No Reinsurance                                                                              Annual Aggregate cover only
               Separate state contracts                                                                    Separate state contracts underlie Annual Aggregate cover
                                                                                                           South-East contract underlies Annual Aggregate cover
                                                                                                           Separate contract not included in Annual Aggregate cover
Growing Reliance on Risk Transfer
What Changed?

•   Exposure is increasing in risk prone areas
•   Climatological influences - frequency and severity of storms
•   Rating agency models
•   Need for quick action
 Rating Agencies
Rating agencies have increased their capital requirements to maintain the
same rating

A.M. Best
2005 introduced a new cat risk stress test
2006 toughened the stress test

Introduced a 1 in 250 annual aggregate PML in capital adequacy Model

Introduced a risk adjusted capital model
Executing a Catastrophe Management Strategy

- Finding Common Ground
- Communication Challenges
- Long term vs. short term results
             Organizational Challenges

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

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