




                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 1-11840

                            THE ALLSTATE CORPORATION
             (Exact name of registrant as specified in its charter)

           Delaware                               36-3871531
    (State of Incorporation)        (I.R.S. Employer Identification Number)

                  2775 Sanders Road, Northbrook, Illinois 60062
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:  (847) 402-5000

Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange
            Title of each class                      on which registered
            -------------------                      -------------------
Common Stock, par value $0.01                       New York Stock Exchange
per share (the "Common Stock")                      Chicago Stock Exchange

6.76% Exchangeable Notes                            New York Stock Exchange
Due April 15, 1998

7.95% Cumulative Quarterly                          New York Stock Exchange
Income Preferred Securities, Series A
(issued by a wholly-owned trust of the Registrant)

Securities registered pursuant to Section 12(g) of the Act:  None

<PAGE>



         On January 31, 1997,  Registrant had 440,934,165 shares of Common Stock
outstanding.  Of these,  371,691,259  shares,  having an aggregate  market value
(based  on the  closing  price of these  shares  as  reported  in a  summary  of
composite  transactions  in The Wall Street Journal for stocks listed on the New
York Stock Exchange on January 31, 1997) of approximately  $24.39 billion,  were
owned by  stockholders  other  than  directors  and  executive  officers  of the
Registrant,  The Savings and Profit  Sharing Fund of Allstate  Employees and any
person  believed by the Registrant to  beneficially  own five percent or more of
Registrant's outstanding common shares.

         Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities  Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days.

                                  Yes  X             No
                                      ---               ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the  best of  Registrant's  knowledge  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

                       Documents Incorporated By Reference

         Portions of the following  documents are  incorporated  by reference as
follows:

         Parts I and II of this  Form  10-K  incorporate  by  reference  certain
information  from the  Registrant's  1996 Annual Report to  Stockholders  ("1996
Annual Report").  Part III of this Form 10-K  incorporates by reference  certain
information  from the  Registrant's  Proxy  Statement for its Annual  Meeting of
Stockholders to be held on May 20, 1997 (the "1997 Proxy Statement").















                                        2

<PAGE>



                                     Part I

Item 1.   Business
------    --------

         The Allstate  Corporation  (the "Company") was  incorporated  under the
laws of the  State of  Delaware  on  November  5,  1992 to serve as the  holding
company for  Allstate  Insurance  Company  ("AIC").  The  Company's  business is
conducted  through  AIC and  AIC's  subsidiaries  (collectively,  including  the
Company, "Allstate").  Allstate is engaged, principally in the United States and
Canada,  in the  property-liability  insurance  and life  insurance  and annuity
businesses. Established in 1931 by Sears, Roebuck and Co. ("Sears"), Allstate is
the country's  second  largest  property-liability  insurer on the basis of 1995
statutory  premiums  written  and  is a  major  life  insurer.  Allstate's  life
insurance and annuity  operations are conducted  through Allstate Life Insurance
Company  ("ALIC"),  a wholly-owned  subsidiary of AIC, and through  various ALIC
subsidiaries (collectively, "Allstate Life").

         AIC's primary business is the sale of private passenger  automobile and
homeowners  insurance  through its personal  property and casualty  unit, and in
1995  it  maintained   estimated  national  market  shares  in  these  lines  of
approximately  12.2%  and  11.8%,  respectively.  In  order to focus on its core
strengths, during the second half of 1996 AIC sold (i) Northbrook Holdings, Inc.
and its  wholly-owned  subsidiaries  (collectively,  "Northbrook"),  which wrote
commercial insurance through independent agents, (ii) its U.S.-based reinsurance
operations  for  policies   written  after  1984,  and  (iii)  its  London-based
reinsurance    operations.    As   a   result   of   these   sales,   Allstate's
property-liability  operations  consist  of two  principal  areas  of  business:
personal  property and casualty  ("PP&C") and  discontinued  lines and coverages
("Discontinued Lines and Coverages"). PP&C, which has historically included only
the Company's personal property and casualty business,  now includes the ongoing
commercial  business  written through the Allstate agent  distribution  channel.
Discontinued  Lines and  Coverages  consists of  business  no longer  written by
Allstate,  including results from environmental,  asbestos, and mass tort losses
and other  commercial  business in run-off,  and the  historical  results of the
mortgage pool business and the  businesses  sold in 1996.  Allstate  markets its
products  through  a  variety  of  distribution  channels,  with the core of its
property-liability   distribution   system  being  a   broad-based   network  of
approximately   14,800  full-time   Allstate  employee  agents  (including  life
specialists) and non-employee exclusive agents in the United States and Canada.

         Allstate Life sells life insurance, annuity and group pension products.
Allstate Life distributes its products  through Allstate agents  (including life
specialists),  banks,  independent agents,  brokers, Dean Witter Reynolds,  Inc.
("Dean Witter") and direct response marketing.

         Information   regarding   revenues,   operating   profit  or  loss  and
identifiable assets attributable to each of the Company's  identifiable business
segments  is  contained  in  note  15 of the  Notes  to  Consolidated  Financial
Statements  at pages 86-88 of the 1996  Annual  Report,  incorporated  herein by
reference in response to Item 8 hereof.

                                        3

<PAGE>



RECENT DEVELOPMENTS

         On November 12, 1996,  the Company  announced an expansion of its stock
repurchase  program by an amount not to exceed  $750,000,000  through the end of
1997,  and  announced  that  its  subsidiary  trusts  intended  to  issue  up to
$750,000,000 of trust preferred securities.

         On November 25, 1996, Allstate Financing I, a wholly-owned trust of the
Company,  issued  $550,000,000 of 7.95%  Cumulative  Quarterly  Income Preferred
Securities,  Series A (the "QUIPS"). The QUIPS are guaranteed by the Company and
mature on  December  31,  2026,  subject to the  Company's  option to extend the
maturity to December  31,  2045.  Allstate  Financing I issued all of its common
securities  to the Company  for  $17,010,325  in cash.  On  November  27,  1996,
Allstate Financing II, a wholly-owned trust of the Company,  issued $200,000,000
of 7.83% Capital Securities (the "Capital  Securities").  The Capital Securities
are  guaranteed  by the  Company  and  mature on  December  31,  2045.  Allstate
Financing II issued all of its common  securities to the Company for  $6,186,000
in cash. The net proceeds of both  offerings  were loaned to the Company,  which
issued subordinated debentures to the trusts bearing interest rates and maturity
schedules  sufficient to enable the trusts to meet their payment  obligations to
the security  holders.  The Company plans to use the proceeds of both  offerings
for  general  corporate  purposes,  including  the  Company's  stock  repurchase
program.

         On  December  2, 1996,  the  California  Earthquake  Authority  ("CEA")
commenced  operations.  The CEA will issue insurance policies providing coverage
for  earthquake  damage  resulting  from the  movement  of the earth as existing
policies issued by  participating  insurers,  including  Allstate,  expire.  See
"California   Earthquakes"  in  the  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations at pages 37- 38 of the 1996 Annual
Report, incorporated herein by reference in response to Item 7 hereof.

RISK FACTORS AFFECTING ALLSTATE

         In addition  to the normal  risks of  business,  Allstate is subject to
significant  risk  factors,  including  those  applicable  to it as a  regulated
insurance  company,  such as: (i) the  inherent  uncertainty  in the  process of
establishing  property-liability  loss reserves,  particularly  reserves for the
cost of environmental, asbestos and mass tort claims, and the fact that ultimate
losses could  materially  exceed  established  loss reserves and have a material
adverse effect on results of operations and financial  condition;  (ii) the fact
that Allstate has experienced,  and can be expected in the future to experience,
catastrophe  losses which could have a material  adverse impact on its financial
condition,  results of operations and cash flow; (iii) the inherent  uncertainty
in the  process of  establishing  property-liability  loss  reserves  due to the
change in loss payment patterns caused by new claims settlement practices;  (iv)
the need for Allstate's  insurance company  subsidiaries to maintain appropriate
levels of statutory  capital and surplus,  particularly  in light of  continuing
scrutiny by rating organizations and state insurance regulatory authorities, and
to maintain acceptable financial strength or claims-paying  ability ratings; (v)
the  extensive   regulation  and  supervision  to  which  Allstate's   insurance
subsidiaries

                                        4

<PAGE>



are  subject,  various  regulatory  initiatives  that may affect  Allstate,  and
regulatory  and other  legal  actions  involving  Allstate;  (vi) the  Company's
primary  reliance,  as a holding  company,  on  dividends  from AIC to meet debt
payment  obligations,  and regulatory  restrictions on AIC's ability to pay such
dividends; (vii) the adverse impact which increases in interest rates could have
on the value of Allstate's  investment  portfolio and on the  attractiveness  of
certain Allstate Life products; (viii) the need to adjust the effective duration
of the assets and liabilities of Allstate Life's operations in order to meet the
anticipated cash flow requirements of its policyholder obligations; and (ix) the
uncertainty  involved in estimating  the  availability  of  reinsurance  and the
collectibility of reinsurance recoverables.

ALLSTATE STRATEGY

         Allstate's strategy is to focus on the profitable growth of its private
passenger  automobile and homeowners  insurance markets; to increase cross-sales
of its life  insurance and annuity  products to its  automobile  and  homeowners
customer base through its agency force and to expand through the addition of new
distribution  channels;  to manage  its  catastrophe  exposure;  and to  exploit
opportunities  in  the  international   markets  by  enhancing  the  operational
capabilities of its current  foreign  ventures and by commencing new ventures in
selected  foreign  markets.  This strategy is designed to capitalize on: (1) the
strength of the Allstate name, (2) Allstate's  network of full-time agents,  (3)
Allstate's auto insurance capabilities, and (4) additional distribution channels
available to Allstate.

         Allstate  continues  to pursue a strategy of growth in the  segments of
markets which  management  believes will be profitable  while limiting growth in
other markets. Allstate separates the voluntary personal auto insurance business
into two categories for underwriting  purposes according to insurance risks: the
standard  market and the  non-standard  market,  and has  determined  its growth
strategy  accordingly.  Allstate is also pursuing a segmented growth strategy to
market its standard auto and homeowners  insurance by geographic area.  Allstate
is attempting to grow its standard auto business more rapidly in areas where the
regulatory  climate is more  conducive to attractive  returns,  and to reduce or
limit its homeowners  exposure in areas where the risk of loss from catastrophes
is  unacceptable  in light of the returns  provided.  Allstate has developed its
segmented  growth strategy with the assistance of proprietary  databases,  which
consist of marketing and other  characteristics of various types of risks in the
standard automobile  insurance market and the homeowners  insurance market. As a
result,  Allstate has  identified  over 180 local markets in various  categories
ranging from markets in which it wishes to pursue aggressive growth for standard
auto and  homeowners  business  to  markets  in which it wishes  to  reduce  its
exposure.  Allstate's  process  of  designating  geographic  areas as growth and
limited  growth is dynamic  and may be  revised  as changes  occur in the legal,
regulatory and economic  environments in various areas, as catastrophe  exposure
is reduced  and as new  products  are  introduced.  Less than 6.0% of the United
States  population  reside in areas  designated  by Allstate  as limited  growth
markets for standard auto insurance,  and approximately  20.0% of the population
reside  in areas  designated  as  limited  or  reduced  markets  for  homeowners
insurance.


                                        5

<PAGE>



         The non-standard auto insurance market consists of insurance of persons
with no prior  driving  experience,  or with a prior  history  of  accidents  or
violations,  or owning high  performance  cars with high repair and  replacement
costs or having other special  needs.  Allstate has achieved the leading  market
share in this  market.  This has been a market in which  Allstate  has  competed
successfully by capitalizing on an established  distribution system,  technology
and claims capabilities and by tailoring pricing and products to reach a broader
market.  In May 1996 Allstate  announced that it had reached  agreement with All
Nation Insurance Co. to acquire the contracts of approximately 1,650 independent
agencies which sell non-standard auto insurance,  and in September 1996 Allstate
announced that it had assumed the independent  agent  non-standard auto business
operations of Colonial Insurance Company of California, which includes contracts
with approximately 3,200 independent  agencies.  This business has been assigned
to Allstate's Deerbrook Insurance Company ("Deerbrook") subsidiary, which offers
non-standard  automobile insurance through independent agents. Allstate plans to
continue to develop opportunities in this market.


         Allstate Life has been  successful in growing its business  through the
development of new products,  the  establishment of new marketing  arrangements,
and  through  the  expanded  marketing  use of  Allstate's  database of existing
property-liability  customers.  Allstate Life's  insurance and annuity  products
also  are  marketed  through  Allstate  agents  (including  life   specialists),
independent agents,  brokers,  Dean Witter, banks and direct response marketing.
Specialized  brokers  are  used  to  distribute  group  pension  and  structured
settlement products not offered by Allstate's agency force.

         Allstate's agency force of approximately  14,100 full-time agents is at
the  core of its  PP&C  distribution  system.  Allstate  also  uses  over  2,500
independent  agents to market insurance to individuals,  mostly in rural markets
not served by Allstate agents,  and over 5,500  independent  agents appointed by
Deerbrook to market non-standard auto business.  Allstate Life also has a direct
response  marketing program which  principally  targets customers of credit card
issuers who prefer to purchase, through the mail or telephone, selected products
not offered by Allstate's agency force.

         Allstate  made  substantial  efforts in 1996 in the  management  of its
capital resources through reduction of catastrophe risk exposure. During 1996 it
took steps to reduce its exposure to hurricane risk in Florida and to earthquake
risk in California  (See  "Catastrophe  Management,"  "Florida  Hurricanes"  and
"California Earthquakes" at pages 36-38 of the 1996 Annual Report,  incorporated
herein by  reference in response to Item 7 hereof).  Allstate  continues to seek
alternative   sources  for   catastrophe   reinsurance.   During  1996  Allstate
repositioned  its  investment  portfolio  in order to lower its risk  profile by
reducing the percentage of the portfolio in equity  investments  and by reducing
the duration of the fixed income portion of the portfolio. In addition, as noted
under "Recent Developments" above, Allstate has announced its intention to spend
up to $750,000,000 in repurchases of its common stock by December 31,1997.


                                        6

<PAGE>



         In November 1996, Allstate commenced the sale of private passenger auto
insurance in Germany  through  direct  marketing.  Allstate has also  identified
other  foreign  areas  as  attractive  markets  for  property-liability  or life
insurance, and plans to pursue international  opportunities as an avenue to grow
both its  revenues  and  profitability.  Allstate  believes  that it will take a
number of years before its new international strategies contribute significantly
to its financial results.

         Allstate may also pursue selective acquisitions, partnerships, business
expansions,  business start-ups, and divestitures, both in the United States and
internationally in the pursuit of its business strategy.


PROPERTY-LIABILITY INSURANCE

         Allstate's  property-liability  insurance business consists of PP&C and
Discontinued  Lines and Coverages.  PP&C,  which accounted for $18.0 billion (or
76%) of Allstate's 1996 statutory  written  premiums,  writes primarily  private
passenger  automobile  and  homeowners  insurance  policies  in 49  states,  the
District of  Columbia,  Puerto Rico and in Canada.  Operating  in  approximately
10,500  locations,  Allstate  agents  produce  more  than 95% of  PP&C's  annual
statutory  written premiums,  with the balance  generated by independent  agents
largely in locations not currently served by Allstate agents. Discontinued Lines
and  Coverages  consists of business no longer  written by  Allstate,  including
results from  environmental,  asbestos and mass tort losses and other commercial
insurance  business in run-off,  and the historical results of the mortgage pool
business and businesses sold in 1996.

         PERSONAL  PROPERTY  AND  CASUALTY  -  Principally  engaged  in  private
passenger automobile and homeowners insurance,  PP&C accounted for approximately
97%  of  Allstate's  total  property-liability  premiums,  as  determined  under
statutory  accounting  practices.  Allstate  was the  country's  second  largest
personal property and casualty insurer for both private passenger automobile and
homeowners   insurance  in  1995.  Although  private  passenger  automobile  and
homeowners insurance account for the majority of its business,  PP&C also writes
coverages  for  product  lines  such  as  motorcycles,   motor  homes,  renters,
condominium,  residential and landlord,  comprehensive personal liability, fire,
personal umbrella, recreational vehicle, mobile home, and boat owners. PP&C also
operates the Allstate  Motor Club, an  organization  whose purpose is to aid its
members with travel plans and emergency road service.

         The Company  separates the voluntary  personal auto insurance  business
into two basic  categories  according to insurance risk; the standard market and
the  non-standard  market.  The  standard  market  consists  of drivers  who are
perceived to have low to average risk of loss expectancy.  Allstate's  growth in
the standard  market was impacted by the Company's  segmented  growth  strategy.
Allstate plans to increase its agency force,  expand its advertising program and
offer new  pricing  structures  in an  attempt  to  increase  its  growth in the
standard automobile market in 1997.


                                        7

<PAGE>



         Allstate's  growth in the  non-standard  market continues to be strong,
having exceeded 27% year-to-year over the period January 1, 1994 to December 31,
1996.  Allstate  had a  countrywide  market  share of  approximately  15% of the
non-standard market in 1995.  Allstate's presence in this market, as well as the
standard market allows  Allstate agents to offer insurance  products to the vast
majority of drivers who apply for insurance. The non-standard market consists of
drivers who have higher-than-average risk profiles due to their driving records,
lack of prior  insurance or the types of cars they own. PP&C has a refined price
structure and policy  features which address the special needs of drivers in the
non-standard  market.  These policies are written at higher than standard rates.
Allstate  writes  policies  covering  these  risks  principally   through  AIC's
subsidiary,  Allstate  Indemnity  Company.  Deerbrook  also writes  non-standard
insurance through independent  agencies.  Allstate expects that while its growth
in the non-standard market will continue, its rate of growth in this market will
decline as the market matures.

         As a condition  of its license to do business in each state,  Allstate,
like all other  automobile  insurers,  is required to write or share the cost of
private  passenger  automobile  insurance for higher risk  individuals who would
otherwise be unable to obtain such insurance.  The "involuntary"  market, called
the "shared  market," is governed by the applicable laws and regulations of each
state, and policies written in this market are generally  written at higher than
standard rates.  Allstate has generally  experienced losses in its participation
in the shared market.

         PP&C, in addition to writing insurance for standard homes, also insures
high value homes and  non-standard  homes, such as those with increased exposure
given  their distance from fire  protection services,  and also insures risks in
the renters and condominium markets.  In an attempt to improve the profitability
of its homeowners and other  property  business,  in 1996  Allstate  reorganized
and refocused the  senior  management of its  property insurance  operation, has
acted to  reduce  its catastrophe  exposure  and  has  implemented  underwriting
standards, where permitted,  for  new  business.  These  underwriting  standards
include home inspections  and an  analysis  of  potential  insureds'  prior loss
history and financial stability.  Allstate has targeted the homeowners insurance
business as a market with substantial profitable growth opportunities for the
Company.

         Allstate,  like its major competitors,  does not rely on rating bureaus
in establishing prices for its personal property and casualty products.  Instead
Allstate uses its  proprietary  database,  which  contains many years of its own
extensive   underwriting  and  pricing  experience.   Accordingly,   subject  to
applicable state regulations, different prices are derived according to numerous
variables which apply to each specific risk,  including,  in the case of private
passenger automobile insurance,  factors relating to the automobile (such as its
age,  make and  model)  as well as  factors  relating  to the  insured  (such as
previous  driving  record).  In  management's  opinion,  the  extensive  use and
analysis of this database,  rather than rating  bureaus,  provides PP&C with the
basis for its market segmentation  strategy to price risks accordingly.  PP&C is
updating its  nationwide  profiles of the types of business it intends to pursue
and has

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standardized,   subject  to  applicable  state  regulations,   its  underwriting
guidelines for standard auto nationwide in order to assure consistent  treatment
of each type of customer profile.

         Allstate  has  attempted  to  reduce  its  PP&C  claims  costs  through
centralized claims  administration,  specialization  and additional  training of
claims personnel, and intensive and early investigation and attempted settlement
of claims.  The Company has focused on claims involving  alleged personal injury
in connection with collisions involving  relatively minor impact.  Commencing in
1996,  the Company  began the testing and training  phase of  redesigned  claims
settlement processes for automobile physical damage claims.

         As is true for the property-liability  industry in general,  because of
underwriting  and  policy  issuance  costs  and  commissions,  first-year  costs
attributable to PP&C's products are generally higher than for subsequent  years.
Accordingly,  customer  retention is an important factor in the profitability of
PP&C's  products,  since  policies  that remain in force  generally  become more
profitable  over  time.   Allstate   customer   retention  rates  in  1996  were
approximately the same as 1995.

         The personal lines private passenger auto and homeowners businesses are
highly competitive.  As of December 31, 1995 over 1,400 insurance companies were
in the market,  with five groups of companies  (State Farm,  Allstate,  Farmers,
Nationwide  and  USAA)  writing  approximately  46.7% of the  private  passenger
automobile  premiums written and approximately  47.6% of the homeowners premiums
written in the United  States.  State Farm  maintains  the leading  share in the
automobile and homeowners market and had  approximately  21.6% of the automobile
market  and 23.5% of the  homeowners  market in 1995.  Together,  State Farm and
Allstate had approximately one-third of each market in 1995.

         AIC competes principally on the basis of its name recognition, scope of
distribution system,  customer service, use of technology,  product features and
breadth  of product  offerings  and price.  Additionally,  extensive  use of its
database to develop proprietary information gives AIC the ability to segment its
market and appropriately price risks.

         Approximately  $41  billion of industry  personal  lines  premiums  are
generated by independent agencies, and the remaining $85 billion of premiums are
generated by insurers placing their products  directly with the consumer through
employee agents,  independent  contractor exclusive agents,  direct response and
mail  order.  Allstate  believes  its  full-time  agency  force  of  independent
contractor exclusive agents and employee agents provides it with an advantage in
distributing PP&C products.  However,  some  competitors,  operating with solely
exclusive agents who are independent  contractors or distributing through direct
response or mail order marketing,  or operating with  non-exclusive  independent
agents have also been able to operate effective distribution systems.

         The  great  majority  of  Allstate's   14,800  agents  (including  life
specialists)  are employee  agents.  In future years,  Allstate expects that the
percentage of its agents who are independent

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<PAGE>



contractor  exclusive  agents will  increase  substantially.  In 1990,  Allstate
instituted an exclusive  agent  contract under which persons are hired for an 18
month period  during which they are trained as agents.  Upon  completion  of the
period,  Allstate  offers  contracts  to  some  of  the  trainees  to  serve  as
independent contractors who are exclusive agents for Allstate. Each person hired
since 1990 for  eventual  consideration  as an Allstate  agent has been hired on
this basis. In addition,  employee agents who were hired prior to 1990 have been
permitted to convert to independent  contractor  exclusive agent status.  During
1996 Allstate  required the  conversion  of its  California  employee  agents to
independent  contractor exclusive agent status because of a California law which
might have  required  Allstate to increase  the  amounts of  reimbursements  for
California employee agent expenses to unacceptable levels. At December 31, 1996,
Exclusive  Agents,  including  agents in  training to become  Exclusive  Agents,
represented approximately 30% of Allstate agents.


CATASTROPHE EXPOSURE

         Catastrophes are an inherent risk of the  property-liability  insurance
business which have  contributed,  and will continue to contribute,  to material
year-to-year  fluctuations  in Allstate's  results of  operations  and financial
position.  The  level of  catastrophe  loss  experienced  in any year  cannot be
predicted and could be material to results of operations and financial position.
The  Company  has  experienced  two severe  catastrophes  in the last five years
resulting  in losses of $2.33  billion  relating  to  Hurricane  Andrew  (net of
reinsurance)  and $1.72 billion  relating to the  Northridge  earthquake.  While
management believes the Company's catastrophe management  strategies,  described
below, will greatly reduce the probability of severe losses from catastrophes in
the  future,  the  Company  continues  to  be  exposed  to  similar  or  greater
catastrophes (see "Risk Factors" and  "Forward-Looking  Statements" in this Form
10-K).

         A  "catastrophe"  is defined  by  Allstate  as an event  that  produces
pre-tax  losses before  reinsurance in excess of $1 million  involving  multiple
first party policyholders.  Catastrophes are caused by various events, including
hurricanes,  earthquakes,  tornadoes,  wind and hail storms, and fires. Although
catastrophes  can  cause  losses  in  a  variety  of  property-liability  lines,
homeowners   insurance   has  in  the  past   generated  the  vast  majority  of
catastrophe-related claims. For Allstate, major areas of potential losses due to
hurricanes include major  metropolitan  centers near the eastern and gulf coasts
of the United States. Allstate's major areas of exposure to potential losses due
to  earthquakes  include  population  centers in and around Los  Angeles and San
Francisco.  Other  areas in the United  States in which  Allstate  is exposed to
potential  losses from  earthquakes  include areas in the central  United States
affected by the New Madrid  fault  system in the midwest and areas in and around
Seattle, Washington.

         Although Allstate,  consistent with industry practice,  prices risks in
light of  anticipated  catastrophe  exposure,  the  incidence  and  severity  of
catastrophes is unpredictable.  Due to the current unavailability of reinsurance
at rates  acceptable to it, Allstate has limited amounts of reinsurance in place
to lower its exposure to losses from catastrophes affecting its property-

                                       10

<PAGE>



liability  business at this time,  other than the $400 million of reinsurance in
Florida described below. However, Allstate continues to evaluate the reinsurance
market for  appropriate  coverage at  acceptable  rates and  continues to pursue
other business strategies to lower its exposure to catastrophe losses.

         Allstate has initiated  strategies to limit, over time,  subject to the
requirements  of insurance  laws and  regulations  and as limited by competitive
considerations,  its insurance exposures in certain regions prone to catastrophe
occurrences.  These  strategies  include  limits  on  new  business  production,
limitations  on certain  policy  coverages,  increases  in  deductibles,  policy
brokering and  participation  in catastrophe  pools.  In addition,  Allstate has
requested and received rate increases in certain regions prone to  catastrophes.
While  management  believes  that its  initiatives  have  reduced or will reduce
Allstate's exposure to catastrophes in certain geographic regions over time, the
extent of such reduction is uncertain and is constrained by state insurance laws
and regulations.  For example,  some states, such as Florida and New York, limit
the  ability  of  insurers  to  non-renew  policies.  California  requires  that
earthquake coverage be offered upon policy renewal every second year. The states
in which Allstate faces its highest exposure -- California, Florida and New York
--  require  rates to be  approved  by the  regulator,  thereby  making  it more
difficult  to obtain  adequate  rates that  reflect  the  catastrophe  exposure.
Finally,  all states have shared  market  mechanisms  that provide  insurance to
persons who are unable to obtain it in the voluntary market.  Allstate's ability
to reduce its  exposure  to  catastrophes  may be offset by any  increase in the
exposure  through  such  shared  market  mechanisms.  See  "Regulation  - Shared
Markets" below.

         Allstate  has used  catastrophe  simulation  models  in  attempting  to
estimate  the  probability  and the  levels of  losses  which  may  result  from
catastrophes (Allstate also uses these models to assist its decisions concerning
pricing,  underwriting and reinsuring  risks in areas of catastrophe  exposure).
These models are subject to uncertainties due to continual updating and revision
to  reflect  the  most  currently  available   information  on  climatology  and
seismology,  building codes,  and policy  demographics.  Allstate  believes that
improvements  in the amount and types of  information  contained in these models
have improved its estimations of catastrophe  exposures,  as well as its ability
to estimate  losses in the earlier stages of  development.  However,  use of the
models has not enabled Allstate to predict the level of losses associated with a
specific  catastrophe in the past, and the predictive  value of such models with
regard to future catastrophes is subject to challenge. Nevertheless, the Company
believes that full implementation of the actions described below with respect to
Florida and California  will reduce by  April 30, 1998, the  probability of its
maximum loss from any single  hurricane in Florida or any single  earthquake  in
California  of  exceeding  $1  billion  to  1% or  less,  based  on  catastrophe
simulation models and data available to the Company.

         The series of actions taken in Florida include  increased  deductibles,
various  coverage  changes and a 24.9%  statewide  homeowners  policies  premium
increase  (accompanied  by a moratorium on further rate increases by the Company
until  January 1, 1999,  except  for  recoupment  of  residual  property  market
assessments), the sale of renewal rights for up to 137,000

                                       11

<PAGE>



homeowner  policies  to an  unrelated  insurance  company,  the  formation  of a
wholly-owned  subsidiary to hold,  sell and service the Company's  approximately
675,000  remaining  Florida  property  policies  as  such  policies  come up for
renewal,  and the  transfers,  commencing  April 16,  1997,  of the wind  damage
portion of  approximately  50,000 to 60,000  property  policies  to the  Florida
Windstorm  Underwriting  Association,  a state pooling  mechanism.  In addition,
Allstate  has  obtained  an excess  reinsurance  contract  with an  unaffiliated
reinsurer  providing up to $400 million of reinsurance per occurrence,  up to an
aggregate of $800 million,  on Florida property policies for catastrophe  losses
in excess of $1 billion.  The  reinsurance  protection  extends to December  31,
1999.  Effective  with  Florida  property  policies  up for renewal on and after
September 16, 1996, the Company  discontinued its hurricane exposure non-renewal
program.

         In December 1996 the CEA, a privately financed,  publicly-managed state
agency created to provide  coverage for earthquake  damage  resulting from earth
movements,  commenced  operations.  Companies  selling  homeowners  insurance in
California are required to offer earthquake insurance either directly or through
their  participation  in the CEA.  Allstate  chose to participate in the CEA and
recorded  $150 million for the initial  assessment  and related  expenses in the
third quarter of 1996. Allstate may be required to pay additional assessments to
the CEA  during  the first 12 years of the CEA's  operation,  contingent  on the
capital  level  and  aggregate  losses  recorded  by  the  CEA.  Under  the  CEA
legislation  currently  in  effect,  Allstate  believes  that  these  contingent
assessments  will not exceed $700  million,  based on its  current  share of the
California  homeowners  market.  Commencing  in  January  1997,  the  earthquake
coverage  provided  by Allstate  will be  transferred  to the CEA as  Allstate's
policies come up for renewal.


         Allstate  continues to support  passage of legislation in Congress such
as the Homeowner's  Insurance  Availability Act which could, if enacted,  lessen
the impact to Allstate of catastrophic  natural disasters such as hurricanes and
earthquakes.  Allstate is a founding  member of a newly-formed  coalition  whose
members include property insurers and insurance agents.  This group is promoting
a measure that would provide federal  reinsurance to state disaster  plans.  The
Company  is  unable  to  determine  whether,  or in  what  form,  such  proposed
legislation will be enacted or what the effect on the Company will be.

DISCONTINUED LINES AND COVERAGES

         Allstate  wrote excess and surplus  lines  coverages  from 1972 to 1985
through  its  subsidiary,   Northbrook  Excess  and  Surplus  Insurance  Company
("NESCO").   NESCO  wrote  professional   liability  coverages  for  architects,
engineers,  lawyers, and physicians,  principally on claims-made coverage forms.
It  also  wrote  substantial  umbrella  and  excess  liability  coverages  on an
occurrence basis, including medical and other products liability coverages,  for
major United States  corporations.  In 1985,  NESCO was merged into AIC with AIC
assuming all of the assets and  liabilities  of NESCO.  Since the early  1980's,
Allstate has experienced significant increases in losses for years prior to 1980
arising  out of  NESCO's  umbrella  and  excess  liability  coverage  for  large
corporations.  Since the late  1980's,  most of these  losses  have  related  to
environmental

                                       12

<PAGE>



damages or asbestos-related damages or mass-tort settlements.  AIC, as NESCO's
successor,  has been involved, and continues to be involved, in coverage
litigation with NESCO insureds.

         In addition to NESCO's  activities,  during the late 1960's and through
the  early  1980's  Allstate's   reinsurance  business  unit  wrote  treaty  and
facultative  reinsurance covering general liability primary policies,  including
policies for major producers of asbestos products. During approximately the same
period,  Allstate's  reinsurance  business  unit wrote  reinsurance  coverage on
liability policies with major United States  corporations that have since become
involved in  environmental  and asbestos damage claims.  Such companies may have
been  involved  with  hazardous  wastes  in  a  variety  of  ways  including  as
manufacturers,  haulers,  dump site owners,  or through a  combination  of these
activities. Allstate's reinsurance business unit has been involved and continues
to be involved in coverage  litigation and arbitration with ceding companies and
their  insureds  involving  liability  for  environmental  and asbestos  damages
claims.  In 1986,  Allstate ceased writing  business with ceding companies which
tended  to  insure  larger  corporations  with  potential  environmental  and/or
asbestos damage  exposures,  and its  underwriting  focus was redirected  toward
smaller, more regionalized insurers who focus on property and casualty coverages
and who have  underwriting  standards that are  considered  prudent by Allstate.
Also in 1986, the general  liability  policy form used by Allstate and others in
the property-liability  industry was amended to introduce an "absolute pollution
exclusion," which excluded coverage for environmental  damage claims, and to add
asbestos  exclusions.  Most  general  liability  policies  issued  prior to 1987
contain annual aggregate limits for products  liability  coverage,  and policies
issued  after  1986  also have an annual  aggregate  limit as to all  coverages.
Allstate's experience to date is that these policy form changes have effectively
limited its exposure to environmental and asbestos claim risks assumed,  as well
as primary commercial  coverages written,  for most policies written in 1986 and
all policies written after 1986.

         Allstate's  environmental and asbestos  exposures are primarily limited
to  policies  written in  periods  prior to 1986 with the  preponderance  of the
losses  emanating from policies  written in the 1970's.  New  environmental  and
asbestos  claims,  however,  continue to be reported.  Allstate has  established
substantial  reserves for the environmental  and asbestos damage claims,  and in
October 1996  announced  that it had  increased  such  reserves by $318 million,
including  $60 million for mass tort  exposures.  Mass tort  exposure  primarily
relate to products liability claims, such as those for medical devices and other
products,  and general  liabilities.  However,  there are  significant  inherent
uncertainties  in estimating  the ultimate cost of these claims,  as  discussed
below.  Further information regarding the  foregoing is contained in "Property-
Liability Claims and Claims Expense Reserves"  at pages 42-45 of the 1996 Annual
Report,  incorporated  herein by reference  in  response to  Item 7 hereof.  For
information regarding Superfund proposed legislation, see"Regulatory Initiatives
and Proposed  Legislation" below.

         On July 31, 1996 Allstate sold to St. Paul Fire & Marine Insurance 
Company the

                                       13

<PAGE>



commercial   lines  insurance   business  it  operated  through  its  Northbrook
subsidiaries,  retaining  certain  commercial  business  in  run-off.  Under the
agreement,  Allstate  could be required to pay to St. Paul 50% of any deficiency
in excess of $25  million  which  should  develop  in the  Northbrook  companies
closing  reserves by the fourth  anniversary of closing,  but not more than $100
million.  If an  excess  in  closing  reserves  should  develop  at such  fourth
anniversary,  Allstate would be entitled to receive 50% of such excess,  but not
more than $50 million.

         On September 16, 1996 Allstate sold its domestic reinsurance operations
to SCOR  U.S.  Corporation,  and on  November  15,  1996  sold its  wholly-owned
subsidiary Allstate  Reinsurance  Company,  Ltd. ("ARCO") a company with foreign
reinsurance  operations,  to QBE Insurance Group Limited ("QBE").  In connection
with the latter sale,  Allstate  agreed to reimburse  QBE for 80% of any adverse
development  in ARCO's  reserves  as of  December  31,  1995,  and QBE agreed to
reimburse Allstate for 70% of any favorable  development in such reserves,  such
reimbursements  to be settled  annually.  Also,  the  parties  are to review the
development of 1996 underwriting  results for contracts in place at November 15,
1996, and are to settle  annually to the extent that the combined ratio for such
contracts exceeds or is less than 110%.

         On October 8, 1996, the Company  announced that it had increased by $87
million the provision for future losses provided for the run-off of the mortgage
pool business,  which had been retained in 1995 when the Company sold 70% of The
PMI Group,  Inc. The increase in the provision was due primarily to revised loss
trend analysis  based on continued  weakness in economic  conditions,  including
real estate prices and  unemployment,  in Southern  California.  These and other
factors are  considered in the periodic  revaluation of the provision for future
losses in this business.

PROPERTY-LIABILITY INSURANCE CLAIMS AND CLAIMS EXPENSE RESERVES

         Allstate  establishes  property-liability  loss  reserves  to cover its
estimated  ultimate  liability  for losses  and loss  adjustment  expenses  with
respect to reported  claims and claims  incurred  but not yet reported as of the
end of each accounting period. In accordance with applicable  insurance laws and
regulations and generally accepted accounting  principles ("GAAP"),  no reserves
are  established  until a loss  occurs,  including  a loss  from a  catastrophe.
Underwriting  results of the  property-liability  operations  are  significantly
influenced by estimates of property-liability claims and claims expense reserves
(see note 6 of the Notes to Consolidated  Financial Statements at pages 74-77 of
the 1996 Annual Report,  incorporated  herein by reference in response to Item 8
hereof).  These reserves are an accumulation of the estimated  amounts necessary
to settle all outstanding  claims,  including  claims which are incurred but not
reported,  as of the reporting  date.  The reserve  estimates are based on known
facts and on interpretations of circumstances,  including Allstate's  experience
with similar cases and historical trends involving claim payment patterns,  loss
payments,  pending  levels of unpaid  claims and  product  mix, as well as other
factors including court decisions, economic conditions and public attitudes. The
effects of inflation are  implicitly  considered in the reserving  process.  The
establishment of reserves, including reserves for catastrophes, is an inherently
uncertain process and the ultimate cost may vary materially

                                       14

<PAGE>



from the recorded amounts.  Allstate  regularly updates its reserve estimates as
new facts become known and further  events occur which may impact the resolution
of  unsettled  claims.  Changes in prior year  reserve  estimates,  which may be
material,  are reflected in the results of operations in the period such changes
are determined to be needed.

         Establishing  net loss  reserves for  environmental,  asbestos and mass
tort claims is subject to uncertainties that are greater than those presented by
other types of claims. Among the complications are lack of historical data, long
reporting  delays,  uncertainty  as to the number and identity of insureds  with
potential   exposure,   unresolved   legal  issues  regarding  policy  coverage,
availability  of reinsurance  and the extent and timing of any such  contractual
liability.  The legal issues concerning the  interpretation of various insurance
policy provisions and whether environmental, asbestos, and mass tort losses are,
or were ever intended to be covered, are complex.  Courts have reached different
and  sometimes  inconsistent  conclusions  as to when  losses are deemed to have
occurred and which policies provide coverage;  what types of losses are covered;
whether  there is an  insured  obligation  to  defend;  how  policy  limits  are
determined;  how policy  exclusions  are  applied and  interpreted;  and whether
clean-up costs represent  insured  property  damage.  Management  believes these
issues are not likely to be resolved in the near future. See note 6 of the Notes
to Consolidated  Financial  Statements at pages 74-77 of the 1996 Annual Report,
incorporated herein by reference in response to Item 8 hereof.

         On October 8, 1996 Allstate  announced that it had strengthened its net
loss reserves for  Discontinued  Lines and Coverages by a total of $405 million,
based on the results of a study the Company had  conducted of its  environmental
liabilities as well as a comprehensive  internal  assessment of its asbestos and
other contractual liabilities related to other discontinued lines and coverages.
The  Company  increased  its  asbestos  net loss  reserves by $72  million,  its
environmental net loss reserves by $172 million,  its net loss reserves for mass
tort exposure and general liability by $60 million,  and its reserves for future
insolvencies of reinsurers by $14 million. The October 8, 1996 announcement also
reflected an increase of $87 million in  Allstate's  provision for future losses
for the run-off of the mortgage pool business.

         The following tables are summary  reconciliations  of the beginning and
ending property-liability insurance claims and claims expense reserve, displayed
individually for each of the last three years. The first table presents reserves
on a gross (before  reinsurance)  basis.  The end of year gross reserve balances
are reflected in the Consolidated Statements of Financial Position on page 58 of
the 1996 Annual Report,  incorporated  herein by reference in response to Item 8
hereof. The second table presents reserves on a net (after  reinsurance)  basis.
The total net property-liability insurance claims and claims expense amounts are
reflected in the  Consolidated  Statements  of Operations on page 57 of the 1996
Annual Report, incorporated herein by reference in response to Item 8 hereof.


                                       15

<PAGE>

<TABLE>
<CAPTION>
Gross
($ in millions)

<S>                                                                   <C>                <C>               <C>
                                                                                   Year Ended December 31,                 
                                                                       ------------------------------------------------
                                                                             1996                1995              1994
                                                                       --------------     ---------------   -----------

Gross reserve for property-liability claims and claims expense,
   beginning of year                                                  $    17,687        $     16,763      $      15,521

Incurred claims and claims expense
    Provision attributable to the current year                             15,186              14,530             15,455
    Decrease in provision attributable to prior years                        (338)               (235)              (634)
                                                                           -------             -------            ------- 
                           Total claims and claims expense                 14,848              14,295             14,821

Claim payments
    Claims and claims expense attributable to current year                  8,073               8,490              8,898
    Claims and claims expense attributable to prior years                   5,711               4,881              4,681
    Claims and claims expense attributable to disposition of operations     1,369                   -                  -
                                                                           ------              ------             -------
                           Total payments                                  15,153              13,371             13,579
                                                                           ------              ------             -------

Gross reserve for property-liability claims and claims expense,
    end of year                                                            17,382              17,687             16,763
Less: ARCO reserve balances not subject to development (1)                      -                 361                349
                                                                           ------              -------            -------
Gross reserve for property-liability claims and claims expense,
    end of year as shown on 10-K loss reserve development table       $    17,382        $     17,326      $      16,414
                                                                           ======              ======             =======


<FN>
(1)   ARCO was sold in 1996. In 1995 and 1994, loss development  information for
      ARCO (AIC's  indirectly  owned  British  reinsurance  subsidiary)  was not
      available on a comparable  basis. This information was not material ($97.7
      million in gross  claims and claims  expense in 1995 and $85.8  million in
      1995 gross payments) and was treated as attributable to current year.
</FN>
</TABLE>



                                       16

<PAGE>

<TABLE>
<CAPTION>
Net
($ in millions)

<S>                                                                   <C>                <C>               <C>          
                                                                                           Year Ended December 31,
                                                                       -------------------------------------------------
                                                                             1996                1995              1994
                                                                       --------------     ---------------   ------------

Net reserve for property-liability claims and claims expense,
   beginning of year                                                  $    16,156        $     15,406      $      14,119

Incurred claims and claims expense
    Provision attributable to the current year                             14,823              14,113             15,241
    Decrease in provision attributable to prior years                        (336)               (425)              (712)
                                                                           -------             -------            ------- 
                           Total claims and claims expense                 14,487              13,688             14,529

Claim payments
    Claims and claims expense attributable to current year                  7,522               8,190              8,770
    Claims and claims expense attributable to prior years                   5,787               4,748              4,472
    Claims and claims expense attributable to disposition of operations     1,736                   -                  -
                                                                           -------             -------            -------   
                           Total payments                                  15,045              12,938             13,242
                                                                           -------             -------            -------

Net reserve for property-liability claims and claims expense,
    end of year                                                            15,598              16,156             15,406
Less: ARCO reserve balances not subject to development (1)                      -                 320                290
                                                                           -------             -------            ------- 
Net reserve for property-liability claims and claims expense,
    end of year as shown on 10-K loss reserve development table (2)   $    15,598        $     15,836      $      15,116
                                                                           =======             ======             ======



<FN>
(1)   ARCO was sold in 1996. In 1995 and 1994, loss development  information for
      ARCO (AIC's  indirectly  owned  British  reinsurance  subsidiary)  was not
      available on a comparable  basis. This information was not material ($76.5
      million  in claims and  claims  expense in 1995 and $45.7  million in 1995
      payments) and was treated as attributable to current year.

(2)   Reserves for claims and claim expense are net of  reinsurance  of $1.78
      billion,  $1.49 billion and $1.30 billion, at December 31, 1996, 1995 and
      1994, respectively.
</FN>
</TABLE>



                                       17

<PAGE>




             The   year-end   1996  gross   reserves   of  $17.38   billion  for
property-liability  insurance  claims and claims  expense,  as determined  under
GAAP,  were  $1.96  billion  more than the  reserve  balance  of $15.42  billion
recorded on the basis of statutory  accounting practices for reports provided to
state  regulatory  authorities.  The  principal  difference  is the  reinsurance
recoverable  from third parties totaling $1.78 billion that reduces reserves for
statutory  reporting and is recorded as an asset for GAAP reporting.  Additional
differences are caused by the reserves of the Canadian  subsidiary  which is not
included in the combined United States statutory statement.

             The loss reserve  development  table below  illustrates  the change
over  time of the net  reserves  established  for  property-liability  insurance
claims  and  claims  expense at the end of  various  calendar  years.  The first
section shows the reserves as originally reported at the end of stated year. The
second section, reading down, shows the cumulative amounts paid as of the end of
successive years with respect to that reserve liability.
 The third section,  reading down, shows retroactive reestimates of the original
recorded  reserve as of the end of each  successive  year which is the result of
Allstate's expanded awareness of additional facts and circumstances that pertain
to the  unsettled  claims.  The last  section  compares  the latest  reestimated
reserve to the reserve originally established,  and indicates whether or not the
original  reserve was adequate or  inadequate  to cover the  estimated  costs of
unsettled claims. The table also presents the gross reestimated  liability as of
the end of the latest  reestimation  period,  with  separate  disclosure  of the
related reestimated reinsurance  recoverable.  This presentation appears for all
periods in which the income  recognition  provisions  of  Statement of Financial
Accounting Standards No. 113 have been applied.



                                       18

<PAGE>


The loss reserve development table is cumulative and, therefore, ending balances
should not be added since the amount at the end of each  calendar  year includes
activity for both the current and prior years.


                            Loss Reserve Development


<TABLE>
<CAPTION>
($ in millions)


                                                                          December 31, (1)
<S>                                <C>      <C>      <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>
                                    -----------------------------------------------------------------------------------------------
                                    1986     1987     1988      1989     1990     1991     1992     1993     1994     1995     1996
                                    ----     ----     ----      ----     ----     ----     ----     ----     ----     ----     ----

Gross Reserves for
   Property-liability

   Insurance Claims                $7,603   $8,793   $10,035   $10,962  $12,117  $13,136  $14,902  $15,209  $16,414  $17,326 $17,382
Deduct: Reinsurance
   Recoverables                     1,053    1,076     1,180     1,066    1,028    1,066    1,419    1,338    1,298    1,490   1,784
                                    -----    -----     -----     -----    -----    -----    -----    -----    -----    -----   -----
Net Reserve for
Property-liability Insurance
Claims and Claims Expense           6,550    7,717     8,855     9,896   11,089   12,070   13,483   13,871   15,116   15,836  15,598
----------------------------

Paid (cumulative) as of:
-----------------------

One year later                      2,658    3,074     3,516     4,295     4,558   4,550    4,955    4,472    4,748    5,787
Two years later                     3,990    4,586     5,279     6,338     6,723   6,688    7,068    6,519    7,749
Three years later                   4,833    5,564     6,433     7,584     8,010   7,935    8,283    8,273
Four years later                    5,397    6,242     7,161     8,338     8,778   8,694    9,430
Five years later                    5,802    6,694     7,611     8,824     9,279   9,508
Six years later                     6,096    6,975     7,927     9,180     9,883
Seven years later                   6,288    7,201     8,189     9,651
Eight years later                   6,469    7,407     8,560
Nine years later                    6,662    7,701
Ten years later                     6,908

Reserve Reestimated as of:
-------------------------

  
End of year                         6,550    7,717     8,855     9,896    11,089  12,070   13,483   13,871   15,116   15,836  15,598
One year later                      6,790    7,824     8,891    10,312    11,367  11,990   13,081   13,159   14,691   15,500
Two years later                     6,905    7,862     9,006    10,617    11,576  11,909   12,745   12,890   14,295
Three years later                   6,987    7,979     9,323    10,990    11,680  11,905   12,735   12,832
Four years later                    7,095    8,298     9,686    11,105    11,777  12,010   12,877
Five years later                    7,390    8,687     9,817    11,245    11,954  12,322
Six years later                     7,791    8,830     9,974    11,447    12,378
Seven years later                   7,948    9,002    10,212    11,962
Eight years later                   8,095    9,265    10,762
Nine years later                    8,402    9,826
Ten years later                     8,940

Initial net reserve in excess of 
(less than) reestimated reserve:
-------------------------------

Amount                            ($2,390) ($2,109)  ($1,907)  ($2,066)  ($1,289)  ($252)    $606    $1,039    $821     $336
Percent                             (36.5)  (27.3)    (21.5)    (20.9)    (11.6)    (2.1)     4.5       7.5     5.4      2.1

Gross Reestimated Liability-Latest                                                        $14,644   $14,456 $15,788  $16,988
Reestimated Recoverable-Latest                                                              1,767     1,624   1,493    1,488
                                                                                          -----------------------------------
Net Reestimated Liability-Latest                                                           12,877    12,832   14,295  15,500

Gross Cumulative Excess (Deficiency)                                                         $258      $753     $626    $338
                                                                                          ===================================


<FN>

(1)  For 1990 through 1995,  this loss reserve  development  table excludes ARCO
     claims  and  claims  expense,  due to the  unavailability  of loss  reserve
     development  information for these claims on a comparable  basis.  ARCO was
     sold in 1996.

</FN>
</TABLE>


                                       19

<PAGE>



          As  the  table   above   illustrates,   Allstate's   net  reserve  for
property-liability  insurance  claims  and  claims  expense  at the  end of 1995
developed favorably in 1996 by $336 million,  compared to favorable  development
of the gross reserves of $338 million.  Net reserve development in 1995 and 1994
was more favorable than favorable gross reserve development in these years. This
relationship  was due to the fact that Allstate's  principal  property-liability
lines,  such as private  passenger auto and  homeowners,  are not  significantly
affected by reinsurance,  whereas  Discontinued  Lines and Coverages,  involve a
higher level of ceded reinsurance protection.  The more favorable development in
the net  reserves  in 1995 and 1994 was due to  higher  anticipated  reinsurance
cessions on increased reserve  reestimates for Discontinued Lines and Coverages.
In 1996, following completion of a comprehensive review of available reinsurance
for  Discontinued  Lines and  Coverages,  the  Company  strengthened  ceded loss
reserves.  This strengthening  offset the favorable effect of higher reinsurance
cessions  related to increased  reestimates of gross  reserves for  Discontinued
Lines and Coverages. See "Property-Liability Claims and Claims Expense Reserves"
on pages 42-46 of the 1996 Annual  Report,  incorporated  herein by reference in
response to Item 7 hereof. For further  discussion of the Company's  reinsurance
programs, see "Property-Liability  Reinsurance Ceded" on pages 45-46 of the 1996
Annual Report, incorporated herein by reference in response to Item 7 hereof.

          The subsequent  reduction in the net reserves  established at December
31, 1995, 1994 and 1993 shown in the foregoing table reflects favorable severity
trends that the Company has  experienced,  as more fully  discussed  below.  The
principal cause for the initial reserves established at the end of 1991, and all
previous  years  reflected in the table,  needing to be increased  over the time
frame in the  above  table is the  cumulative  adverse  reserve  development  on
environmental  and asbestos  claims,  virtually all of which relates to 1984 and
prior years.  There are  significant  uncertainties  in estimating the amount of
Allstate's  environmental,  asbestos  damage  and mass  tort  claims.  Among the
complications are a lack of historical data, long reporting delays,  uncertainty
as to the number and identity of insureds with potential  exposure,  and complex
unresolved  legal issues  regarding policy coverage and the extent and timing of
any such  contractual  liability.  Courts have reached  different  and sometimes
inconsistent  conclusions as to when the loss occurred and what policies provide
coverage;  what claims are covered;  whether  there is an insured  obligation to
defend; how policy limits are determined;  how policy exclusions are applied and
interpreted; and whether clean-up costs represent insured property damage. These
issues are not likely to be  resolved in the near  future.  As a result of these
issues,  the  ultimate  cost of these  claims  may  generate  losses  that  vary
materially from the amount currently reserved.

          During  1996,  Allstate  conducted  a  comprehensive   reevalution  of
Discontinued  Lines and Coverages net loss reserves.  As the industry has gained
experience  evaluating   environmental   exposures  some  actuarial  firms  have
developed  meaningful   techniques  and  databases  to  estimate   environmental
liabilities.  Allstate gained access to complex  databases  developed by outside
experts to  estimate  the cost of  liabilities  for  environmental  claims.  The
databases  contained lists of known  potentially  responsible  parties  ("PRP"),
National Priority List ("NPL") sites, and the Environmental  Protection Agency's
estimate  of  clean-up  costs.  Allstate's  policy  files were  compared  to the
databases, and factors to estimate growth of NPL sites, state sites, third party
claims, natural resource damage,  probability of coverage, and PRP's being named
at future sites were applied to determine an estimate of the Company's potential
environmental  loss.  The Company  also refined its own  estimation  techniques,
which were tested and validated by outside actuaries,  to estimate environmental
and asbestos losses. Allstate used a combination of these resources,  along with
an  extensive  internal  review  of its  current  claim  exposures  to  estimate
environmental  and asbestos  reserves.  The Company  also  performed an in-depth
analysis of its reinsurance

                                       20

<PAGE>



recoverables  and refined its process for estimating and  identifying  available
reinsurance since some reinsurers have become insolvent or Allstate has commuted
their  agreements.  In addition to  environmental  and asbestos  exposures,  the
Discontinued  Lines and Coverages  loss reserve  re-evaluation  also included an
assessment of current claims for mass tort exposures which  primarily  relate to
products liability claims, such as those for medical devices and other products,
and general liabilities.  These studies and reevaluations resulted in Allstate's
actions to increase  reserves as  described  in  "Property-Liability  Claims and
Claims Expense Reserves" at pages 42-46 of the 1996 Annual Report,  incorporated
herein by reference in response to Item 7 hereof. While the Company believes the
improved actuarial techniques and databases described above have assisted in its
ability to estimate  environmental,  asbestos  and mass tort net loss  reserves,
these  refinements  may  prove to be  inadequate  indicators  of the  extent  of
probable loss. See note 6 of the Notes to the Consolidated  Financial Statements
on pages 74-77 of the 1996 Annual  Report,  incorporated  herein by reference in
response to Item 8 hereof.



                                       21

<PAGE>



   The following  table is derived from the Loss Reserve  Development  table and
summarizes the effect of reserve  reestimates,  net of reinsurance,  on calendar
year  operations for the same ten-year period ended December 31, 1996. The total
of each column details the amount of reserve  reestimates  made in the indicated
calendar  year  and  shows  the  accident  years to which  the  reestimates  are
applicable.  The  amounts  in the total  accident  year  column on the far right
represent the cumulative reserve reestimates for the indicated accident year(s).


                      Effect of Net Reserve Reestimates on
                            Calendar Year Operations

<TABLE>
<CAPTION>

($ IN MILLIONS)                  CALENDAR YEARS
                                 --------------



<S>                    <C>      <C>     <C>     <C>     <C>      <C>       <C>       <C>      <C>     <C>       <C>     
                       1987     1988    1989    1990    1991     1992      1993      1994     1995    1996      TOTAL
                       ----     ----    ----    ----    ----     ----      ----      ----     ----    ----      -----

BY ACCIDENT
----------
YEAR
----
1986 & PRIOR           $240     $115     $82    $108    $295     $401      $157      $147     $307    $538     $2,390
        1987                      (8)    (44)      9      24      (12)      (14)       25      (44)     23        (41)
        1988                              (2)     (2)     (2)     (26)      (12)      (15)     (25)    (11)       (95)
        1989                                     301     (12)      10       (16)      (17)     (36)    (35)       195
        1990                                             (27)    (164)      (11)      (43)     (25)    (91)      (361)
        1991                                                     (289)     (185)     (101)     (72)   (112)      (759)
        1992                                                               (321)     (332)    (115)   (170)      (938)
        1993                                                                         (376)    (259)   (200)      (835)
        1994                                                                                  (156)   (338)      (494)
        1995                                                                                            60         60

                        ---      ---     ---     ---     ---     ----      ----      ----     ----    ----       ----
TOTAL                  $240     $107     $36    $416    $278     $(80)    $(402)    $(712)   $(425)  $(336)     $(878)

</TABLE>



     Favorable calendar year reserve  development in 1996, 1995 and 1994 was the
result of favorable  severity trends in each of the three years, which more than
offset adverse  development in Discontinued Lines and Coverages and increases to
reserves  for claim  expense  which  occurred in 1996.  Adverse  development  of
accident  year 1995 in 1996 was also due to  previously  mentioned  increases to
reserves for claims expense.



          The favorable severity trend during this three-year period was largely
due to lower than  anticipated  medical cost  inflation for personal auto injury
claims  and  improvements  in the  Company's  claim  settlement  processes.  The
reduction in the anticipated  medical cost inflation trend has emerged over time
as actual claim  settlements  validated the effect of the steady  decline in the
rate of  inflation.  Although  improvements  in the Company's  claim  settlement
process has  contributed to favorable  severity  development of personal  injury
claims during the past three years, the new processes have caused an increase in
the number of claims  outstanding.  The Company  expects the rate of increase to
continue to decline in 1997, however the number of outstanding claims may not be
reduced to levels previously reported due to an increase in the time required to
complete  the new  claim  settlement  processes.  In  addition,  while the claim
settlement  process  changes  are  believed  to have  contributed  to  favorable
severity

                                       22

<PAGE>



trends on closed claims, these changes introduce a greater degree of variability
in reserve estimates for the remaining  outstanding claims at December 31, 1996.
Future  reserve  releases,  if  any,  will  depend  on the  continuation  of the
favorable loss trends. See "Risk Factors Affecting Allstate," above.

        LIFE AND ANNUITY

        Allstate Life markets a broad line of life insurance,  annuity and group
pension products countrywide,  and accounted for approximately 22% of Allstate's
1996 statutory premiums.  Life insurance includes  traditional  products such as
whole life and term life insurance, as well as universal life, variable life and
other   interest-sensitive  life  products.   Annuities  include  both  deferred
annuities,  such as variable  annuities and fixed rate single  premium  deferred
annuities,  and immediate  annuities  such as structured  settlement  annuities.
Allstate Life's group pension products include guaranteed  investment  contracts
and retirement annuities. In 1996, annuity premiums and deposits represented 57%
of Allstate Life's total statutory premiums and deposits.

        Allstate Life competes principally on the basis of its name recognition,
scope of its  distribution  systems,  customer  service  and  focus,  breadth of
product  offerings,  product  features,  its financial  strength,  claims-paying
ability  ratings,  and price,  and with  respect to  variable  life and  annuity
products,  management  and  investment  performance  of, and various  investment
choices in, its Separate Account portfolio of funds.

        Allstate  Life reaches a broad market of potential  insureds  throughout
the United States through a variety of distribution  channels including Allstate
agents,  some of whom specialize in life insurance and annuity products,  banks,
independent agents, brokers and direct response marketing. Allstate Life markets
individual  and group life  insurance,  annuity  and  pension  products  through
Allstate  agents,  banks,   independent  agents,  brokers  and  direct  response
marketing.  Products  bearing the  "Allstate  Life  Insurance  Company" name are
generally  sold by Allstate  agents,  specialized  brokers,  and through  direct
marketing techniques,  while other products,  many of which are of similar types
to those bearing the "Allstate  Life Insurance  Company"  name, are  distributed
through  independent  insurance  agents,  brokers  and  banks.  Allstate  Life's
products are written by various  ALIC  subsidiaries  and are sold under  various
names in addition to "Allstate Life Insurance Company," including "Allstate Life
Insurance Company of New York,"  "Northbrook Life Insurance  Company,""Glenbrook
Life and Annuity  Company,"  "Lincoln  Benefit  Life  Company"  and "Surety Life
Insurance  Company."  Life  insurance  in force was $186 billion at December 31,
1996 and $163 billion at December 31,  1995.  As of December 31, 1996,  Allstate
Life had $33.6  billion of  investments,  including  $5.6  billion  of  Separate
Account assets.

        Northbrook  Life  Insurance  Company has a strategic  alliance with Dean
Witter for the  marketing  and  distribution  of  Northbrook's  life and annuity
products  through Dean Witter's  broker sales force.  Glenbrook Life and Annuity
Company has also entered into marketing  arrangements with banks for the sale of
life and annuity products,  including an arrangement in 1995 with the AIM mutual
fund group under which AIM markets  Glenbrook Life and Annuity Company  variable
annuities.  Allstate  Life is  committed  to  broadening  its bank  distribution
outlets  in an effort to  increase  the sales of its  annuity  products,  and to
participate in the market for life insurance products sold through banks.



                                       23

<PAGE>



        Although  Allstate Life's  management  develops  overall  strategies and
utilizes  certain  services  shared  with  AIC  such  as  investment,   finance,
information  technology  and legal  services,  the  primary  management  of each
distribution channel is largely decentralized.  Accordingly,  management of each
distribution  channel is primarily  responsible  for determining its own product
mix and  designing  products  or  product  features  appropriate  for its target
market.  Allstate Life believes that its range of distribution channels promotes
flexibility,  extends market reach,  reduces  dependency on any one distribution
system, and allows Allstate Life to focus on distinct, generally non-overlapping
markets.  In 1996  Allstate Life  implemented a redesign of the processes  under
which the sale of life insurance is made through  Allstate's agency force, which
it believes has contributed,  and will continue to contribute,  to greater sales
of life insurance and annuities through this distribution channel. Sales of life
insurance and annuity  products  through the Allstate  agency force increased by
almost  16% in 1996,  following  a 14%  increase  in  sales  in  1995.  This was
attributed to Allstate  Life's ability to focus more of the agents' time on life
insurance through sales management's  commitment to life insurance and annuities
and through initial efforts in redesigning  the sales  processes.  Allstate Life
continues  to address  the sales  processes  to further  its goal of  additional
increases in sales.

        The  establishment  of reserve and  contractholder  fund  liabilities in
recognition  of Allstate's  future  benefit  obligations  under life and annuity
policies and other  Allstate  Life products are discussed in note 2 of the Notes
to the  Consolidated  Financial  Statements  on pages  62-65 of the 1996  Annual
Report, incorporated herein by reference in response to Item 8 hereof.

        The market for financial  services,  including the various types of life
insurance and annuities  sold by Allstate  Life,  is highly  competitive.  As of
December  31,  1996,  there  were  approximately  800  groups of life  insurance
companies in the United States, most of which offer one or more products similar
to those  offered  by  Allstate  Life and many of which  use  similar  marketing
techniques.  Based on information  contained in statements  filed with insurance
departments,  in  1995  approximately  50% of the  life  insurance  and  annuity
premiums and deposits were sold by 15 groups of companies.  Allstate Life ranked
19th based on life  insurance  and annuity  premiums  and  deposits and based on
statutory  admitted assets.  Banks and savings and loan  associations in certain
jurisdictions compete with Allstate Life in the sale of life insurance products.
In addition,  because  certain life  insurance  and annuity  products  include a
savings or investment  component,  competition  also comes from brokerage firms,
investment  advisors and mutual funds as well as from banks and other  financial
institutions.  Despite a large  number of  life company  acquisitions in  recent
years, the life insurance and annuity market continues to be  highly  fragmented
and competitive.

          CAPITAL REQUIREMENTS

          The capacity  for  Allstate's  growth in premiums,  like that of other
insurance companies, is in part a function of its operating leverage.  Operating
leverage for property-liability  insurance companies is measured by the ratio of
net  premiums  written  to  statutory  surplus.  Ratios  in excess of 3 to 1 are
considered outside the usual range by insurance  regulators and rating agencies.
AIC's  premium to surplus  ratio  declined to 1.6 to 1 at December 31, 1996 from
1.9 to 1 at December 31, 1995. The principal cause of the change was an increase
in statutory  surplus  (i.e.,  the excess of assets  permitted by Illinois to be
taken into account over all liabilities)  resulting from net income and gains on
securities, including investments in

                                       24

<PAGE>



affiliates  and  sales  of  businesses,   on  a  statutory  basis.   Maintaining
appropriate  levels of statutory  surplus is considered  important by Allstate's
management,  state insurance regulatory authorities,  and the agencies that rate
insurers'  claims-paying  abilities and financial strength.  In early 1996, A.M.
Best upgraded Allstate's claims-paying ability rating to A from A-.

        Failure to  maintain  certain  levels of  statutory  capital and surplus
could  result in  increased  scrutiny  or, in some cases,  action taken by state
regulatory  authorities and/or rating agencies.  Increased public and regulatory
concerns  regarding the  financial  stability of  participants  in the insurance
industry have resulted in greater  emphasis being placed by  policyholders  upon
insurance company ratings and have created, particularly with respect to certain
life insurance  products,  some measure of  competitive  advantage for insurance
carriers with higher ratings.  Failure to maintain  claims-paying  and financial
strength ratings could negatively affect the Company's competitiveness.

        The National Association of Insurance Commissioners ("NAIC") has adopted
a standard for assessing the solvency of insurance companies,  which is referred
to as risk-based  capital  ("RBC").  The  requirement  consists of a formula for
determining each insurer's RBC and a model law specifying  regulatory actions if
an  insurer's  RBC  falls  below  specified  levels.  The RBC  formula  for life
insurance companies establishes capital requirements relating to insurance risk,
business  risk,  asset  risk  and  interest  rate  risk.  The  RBC  formula  for
property-liability  companies  includes  asset and credit risk,  but places more
emphasis on  underwriting  factors for  reserving  and pricing.  At December 31,
1996, RBC  for  each  of  Allstate's  significant  property-liability  and  life
insurance  companies  exceeded  the  required  capital levels.  See  "Capital 
Resources" on  pages 50- 51 of the 1996  Annual Report,  incorporated  herein by
reference in response to Item 7 hereof.

        Allstate  enters into certain  intercompany  insurance  and  reinsurance
transactions  for  its  property-liability  and  life  and  annuity  operations.
Allstate  enters  into  these  transactions  in order to  maintain  underwriting
control  and  spread   insurance  risk  among  various  legal  entities.   These
reinsurance   agreements  have  been  approved  by  the  appropriate  regulatory
authorities.  All  material  intercompany  transactions  are  eliminated  in the
Company's consolidated financial statements.


        INVESTMENTS

        Allstate  follows a strategy  to manage  its  exposure  to market  risk.
Market  risk is the risk that the  Company  will  incur  losses  due to  adverse
changes in market rates and prices.  The Company's primary market risk exposures
are to changes  in  interest  rates and  equity  prices.  The  Company  does not
currently have material  exposures to either commodity price or foreign currency
exchange  risk.  However,  currency risk exposures may increase in the future as
the Company  expands its  international  operations  and  investments in foreign
stocks and bonds.  The Company seeks to earn returns that enhance its ability to
offer competitive rates and prices to customers while contributing to attractive
and stable  profits and long term capital  growth for the Company.  Accordingly,
the  Company's  investment  decisions  and  objectives  are a  function  of  the
underlying risks and product profiles of each primary  business  operation.  The
property-liability overall market risk management objective is to maximize total
after-tax return on capital while  considering the risks in the fixed income and
equity markets such as duration,  credit,  liquidity and tax risks.  In order to
support  competitive  credited  rates and earn  stable  profits,  Allstate  Life
adheres to a

                                       25

<PAGE>



basic  philosophy of matching assets with related  liabilities to limit interest
rate risk, while  maintaining  adequate  liquidity and a prudent and diversified
level of credit risk.

        During  the  second   quarter  of  1996,   Allstate   repositioned   its
property-liability  portfolio,  reducing the duration of its fixed income assets
by decreasing the proportion of tax-exempt  long-term  securities and increasing
its investment in  intermediate-term  taxable  securities.  Allstate also sold a
portion of its equity  portfolio  and  invested  the  proceeds  in fixed  income
securities.  The  sales  of  Allstate's  commercial  insurance  and  reinsurance
businesses in 1996 (see "Discontinued  Lines and Coverages," above) have reduced
the base of assets available for investment by Allstate by $1.6 billion.

        At December 31, 1996,  100% of Allstate's  fixed income  securities  and
equity  securities in its portfolio were  designated as "available for sale" and
carried in the Company's  financial  statements at fair value. While the Company
generally  holds its  fixed  income  securities  for the long  term,  management
classifies  these fixed income  securities as available for sale to maximize the
Company's flexibility in responding to changes in market conditions.  Changes in
the fair value of these  securities,  net of deferred  income taxes and deferred
acquisition  costs and benefit  reserve  adjustments  on certain life  insurance
products,  are reflected as a separate  component of shareholders'  equity.  For
discussion  of  the  composition  of the  Company's  investment  portfolio,  see
"Investments" on pages 52-56 of the 1996 Annual Report,  incorporated  herein by
reference  in  response  to  Item 7  hereof,  and  Note 4 of  the  Notes  to the
Consolidated  Financial  Statements  on pages 67-70 of the 1996  Annual  Report,
incorporated herein by reference in response to Item 8 hereof.

REGULATION

          Allstate is subject to extensive  regulation  and  supervision  in the
jurisdictions  in which it does  business.  This  regulation  has a  substantial
effect on the  business of  Allstate,  primarily on  Allstate's  personal  lines
property-liability  business.  This regulatory oversight includes,  for example,
matters  relating to licensing and examination,  rate setting,  trade practices,
policy  forms,  limitations  on the nature  and  amount of certain  investments,
claims practices,  mandated  participation in shared markets and guaranty funds,
reserve adequacy, insurer solvency,  transactions with affiliates, the amount of
dividends that may be paid, and  restrictions  on  underwriting  standards.  For
discussion  of  statutory  financial  information,  see note 12 of the  Notes to
Consolidated  Financial  Statements  on pages 82-83 of the 1996  Annual  Report,
incorporated  herein  by  reference  in  response  to  Item 8  hereof;  and  for
discussion of regulatory contingencies,  see note 9 of the Notes to Consolidated
Financial  Statements  on pages  79-80 of the 1996 Annual  Report,  incorporated
herein by reference in response to Item 8 hereof.

        LIMITATIONS  ON DIVIDENDS BY INSURANCE  SUBSIDIARIES  - The Company is a
legal entity separate and distinct from its  subsidiaries.  As a holding company
with no other  business  operations,  its  primary  sources  of cash to meet its
obligations,   including   principal  and  interest  payments  with  respect  to
indebtedness,  are dividends and other statutorily  permitted payments from AIC.
AIC, as a domiciliary of Illinois, is subject to the Illinois insurance laws and
regulations. In Illinois, a domestic stock insurer may, without prior regulatory
approval,  pay ordinary  dividends from  statutory  surplus which at the time of
declaration  is not less than the  minimum  required  for the kind of  insurance
business  that such  company  is  authorized  to  conduct.  Under  the  Illinois
Insurance  Code,  AIC's surplus  following any  transaction  with  affiliates or
dividends, including distributions to its shareholder or other security holders,
must be

                                       26

<PAGE>



reasonable in relation to AIC's outstanding  liabilities and must be adequate to
meet its financial  needs.  The Illinois  Insurance  Code allows  "extraordinary
dividends"  to be paid  after  thirty  days  notice  to the  Illinois  Insurance
Department, unless disapproved or sooner approved during such thirty day period.
"Extraordinary  dividends"  for these  purposes  are defined as any  dividend or
distribution  which together with any other dividend or distribution made within
the  preceding  12  months  exceeds  the  greater  of (i)  10% of the  insurance
company's  statutory  surplus  as of the  preceding  December  31,  or (ii)  its
statutory  net  income  for the year  ended on the  preceding  December  31. The
maximum amount of dividends  that AIC can  distribute  during 1997 without prior
approval of the Illinois  Department of Insurance is $2.2 billion.  If insurance
regulators  determine  that  payment of a dividend  or any other  payments to an
affiliate (such as payments under a tax sharing agreement, payments for employee
or other services, or payments pursuant to a surplus note) would, because of the
financial condition of the paying insurance company or otherwise be hazardous to
such insurance  company's  policyholders or creditors,  the regulators may block
such payments that would otherwise be permitted without prior approval.

        HOLDING COMPANY REGULATION - The Company and AIC are currently insurance
holding  companies  subject  to  regulation  throughout  jurisdictions  in which
Allstate's insurance subsidiaries do business. Certain of AIC's subsidiaries and
companies in which AIC holds a minority equity  interest are  property-liability
and life insurance companies  organized under the respective  insurance codes of
California, Florida, Illinois, Nebraska, New York, Texas and Utah. The insurance
codes in such states contain similar provisions  (subject to certain variations)
to the effect that the acquisition or change of "control" of a domestic  insurer
or of any person that controls a domestic insurer cannot be consummated  without
the  prior  approval  of  the  relevant  insurance  regulator.   In  general,  a
presumption of "control" arises from the ownership, control, possession with the
power to vote or possession of proxies with respect to 10% or more of the voting
securities  of a  domestic  insurer  or of a person  that  controls  a  domestic
insurer.  In  Florida,  regulatory  approval  must  be  obtained  prior  to  the
acquisition  of 5% or more of the voting  securities of a domestic stock insurer
or of a controlling  company. In addition,  certain state insurance laws contain
provisions  that require  pre-acquisition  notification  to state  agencies of a
change in control with respect to a non-domestic  insurance  company admitted in
that state. While such  pre-acquisition  notification  statutes do not authorize
the state agency to disapprove the change of control, such statutes do authorize
certain  remedies,  including  the  issuance  of a cease and  desist  order with
respect to the non-domestic  admitted insurer if certain  conditions exist, such
as undue market  concentration.  Thus, any transaction involving the acquisition
of 10% or more (5% in Florida) of the  Company's  common  stock would  generally
require  prior  approval  by the  state  insurance  departments  in  California,
Florida,  Illinois,  Nebraska,  New York,  Texas and Utah and would  require the
pre-acquisition  notification in those states which have adopted pre-acquisition
notification  provisions  and  wherein  Allstate's  insurance  subsidiaries  are
admitted to transact  business.  Such approval  requirements may deter, delay or
prevent  certain  transactions  affecting the ownership of the Company's  common
stock.

        RATE  REGULATION  - Most  states  have  insurance  laws  requiring  that
property-liability   rate  schedules,   policy  or  coverage  forms,  and  other
information be filed with the state's regulatory authority.  In many cases, such
rates and/or  policy forms must be approved  prior to use.  While they vary from
state to state, the objectives of the rating laws are generally the same: a rate
must be adequate, not excessive, and not unfairly discriminatory.



                                       27

<PAGE>



        Property-liability   insurers  are  generally   unable  to  effect  rate
increases with respect to a coverage  until sometime after the costs  associated
with such  coverage  have  increased.  The speed at which an insurer  can change
rates in response to the competition or to increasing costs depends, in part, on
whether  the  rating  laws  are   administered  as  (i)  prior  approval,   (ii)
file-and-use,  or (iii) use-and-file laws. In states having prior approval laws,
a rate must be approved by the  regulator  before it may be used by the insurer.
In states having  file-and-use  laws,  the insurer does not have to wait for the
regulator's  approval  to use a  rate,  but the  rate  must be  filed  with  the
regulatory authority prior to being used. A use-and-file law requires an insurer
to file rates within a certain period of time after the insurer begins using the
rates.  Approximately one half of the states, including California and New York,
have prior  approval  laws.  States such as Florida,  Illinois and Michigan have
both use-and-file and file-and-use laws or regulations,  depending upon the line
of coverage.  Under all three types of rating  systems,  the  regulator  has the
authority to disapprove the rate subsequent to its filing.

        State  regulators have broad  discretion in judging whether an insurer's
rate  or  proposed   rate  is   adequate,   not   excessive   and  not  unfairly
discriminatory.  An  insurer's  ability  to  adjust  its  rates in  response  to
competition or to increasing costs is often dependent on an insurer's ability to
demonstrate  to the  regulator  that  its  rates  or  proposed  rates  meet  the
objectives of the rate making laws. In those states that significantly  restrict
an insurer's  discretion in selecting  the business  that it wants to write,  an
insurer can manage its risk of loss by charging a price that matches the cost of
providing  the  insurance.  In  those  states  that  significantly  restrict  an
insurer's  ability  to charge a price that  matches  the cost of  providing  the
insurance,  the insurer can manage its risk of loss by being more  selective  in
the type of  business  it  writes.  When a state  significantly  restricts  both
underwriting and pricing, it becomes more difficult for an insurer to manage its
profitability.

        Changes  in  Allstate's   claim   settlement   process  which  may  have
contributed to favorable  severity  trends on closed  personal  injury claims in
1994,  1995 and 1996,  and to a slowing of loss  payments and an increase in the
number of outstanding  claims,  may require Allstate to actuarially  adjust loss
information used in its rate application process.

         From time to time, the private passenger  automobile insurance industry
has come under pressure from state regulators,  legislators and special interest
groups to  reduce,  freeze or set rates at  levels  that do not,  in  Allstate's
management's  view,  correspond with underlying costs. Some of this activity can
result  in  legislation   and/or   regulations   which   adversely   affect  the
profitability  of Allstate's  automobile  insurance  line of business in various
states.  Adverse  legislative and regulatory  activity  constraining  Allstate's
ability to adequately price insurance coverage may occur in the future.  Similar
pressures have been  experienced  regarding rates for homeowners  insurance,  as
regulators  in  catastrophe  prone  states  struggle to  identify an  acceptable
methodology  to price for  catastrophe  exposure.  The  impact of the  insurance
regulation  environment on Allstate's results of operations in the future is not
predictable.

        SHARED MARKETS - As a condition of its license to do business in various
states,  Allstate is required to  participate  in  mandatory  property-liability
shared  market  mechanisms  or  pooling  arrangements,   which  provide  various
insurance  coverages to  individuals or other entities that otherwise are unable
to purchase such coverage voluntarily provided by private insurers. In addition,
some states require automobile  insurers to participate in reinsurance pools for
claims that exceed a certain amount.  Currently,  there are no mandatory pooling
mechanisms  applicable to Allstate Life,  except for guaranty fund  assessments.
The

                                       28

<PAGE>



participation  by  Allstate  in such  shared  markets or pooling  mechanisms  is
generally in amounts related to the amount of Allstate's direct writings for the
type of coverage  written by the specific  pooling  mechanism in the  applicable
state.  Allstate  incurred  an  underwriting  loss  from  participation  in such
mechanisms,  mandatory pools and underwriting  associations of $68 million, $134
million and $109  million in 1996,  1995 and 1994,  respectively.  The amount of
future  losses or  assessments  from the  personal and  commercial  lines shared
market mechanisms and pooling  arrangements  described above cannot be predicted
with certainty.  Although it is possible that future losses or assessments  from
such mechanisms and pooling arrangements could have a material adverse effect on
results of operations,  the Company does not expect future losses or assessments
to have a  material  adverse  effect on its  financial  condition  or results of
operations.

        GUARANTY FUNDS - Failures of certain large insurers in recent years have
increased  solvency concerns of regulators.  Under state insurance guaranty fund
laws,  insurers  doing  business in a state can be  assessed,  up to  prescribed
limits,   for  certain   obligations   of  insolvent   insurance   companies  to
policyholders and claimants.  Allstate's  expenses with respect to such guaranty
funds for the years 1996,  1995 and 1994 were $35  million,  $26 million and $56
million, respectively.

        INVESTMENT   REGULATION   -  Allstate  is  subject  to  state  laws  and
regulations that require  diversification of its investment  portfolio and limit
the amount of investments in certain  investment  categories.  Failure to comply
with these laws and  regulations  would cause  non-conforming  investments to be
treated as non- admitted assets for purposes of measuring statutory surplus and,
in  some  instances,  would  require  divestiture.  As  of  December  31,  1996,
Allstate's  investment  portfolio complied with such laws and regulations in all
material respects.

        REGULATORY  INITIATIVES  AND PROPOSED  LEGISLATION - The state insurance
regulatory  framework  has during  recent  years come  under  increased  federal
scrutiny,  and certain state  legislatures  have considered or enacted laws that
alter and,  in many  cases,  increase  state  authority  to  regulate  insurance
companies and insurance  holding company  systems.  Further,  the NAIC and state
insurance   regulators   are   re-examining   existing  laws  and   regulations,
specifically  focusing on insurance company investments,  issues relating to the
solvency  of  insurance  companies,  interpretations  of  existing  laws and the
development of new laws. In addition, Congress and certain federal agencies have
investigated  the  condition of the  insurance  industry in the United States to
determine  whether  to  promulgate  federal  regulation.  Allstate  is unable to
predict whether any state or federal  legislation  will be enacted to change the
nature or scope of regulation of the insurance industry, or what effect any such
legislation would have on the Company.

        Environmental  pollution  clean-up  is the  subject of both  federal and
state  regulation.  By some  estimates,  there are thousands of potential  waste
sites  subject to  clean-up.  The  insurance  industry is involved in  extensive
litigation regarding coverage issues. The Comprehensive  Environmental  Response
Compensation  and  Liability  Act of 1980  ("Superfund")  and  comparable  state
statutes  ("mini-Superfund") govern the clean-up and restoration by "Potentially
Responsible Parties" ("PRP's"). Superfund and the mini-Superfunds (Environmental
Clean-up  Laws or "ECLs")  establish  a mechanism  to pay for  clean-up of waste
sites if PRP's fail to do so, and to assign  liability  to PRP's.  The extent of
liability  to be  allocated  to a PRP is  dependent  on a  variety  of  factors.
Further,  the number of waste sites  subject to  clean-up  is unknown.  Very few
sites have been  subject to clean-up to date.  The extent of clean-up  necessary
and  the  assignment  of  liability  has not  been  established.  The  insurance
industry, including Allstate, are disputing

                                       29

<PAGE>



many such claims.  Key coverage issues include whether Superfund  response costs
are considered damages under the policies, trigger of coverage, applicability of
pollution  exclusions,  the  potential  for  joint  and  several  liability  and
definition  of an  occurrence.  Similar  coverage  issues exist for clean-up and
waste sites not covered under Superfund.  To date, courts have been inconsistent
in their rulings on these issues.  Allstate's  exposure to liability with regard
to its  insureds  which have been,  or may be, named as PRPs is  uncertain.  See
"Discontinued Lines and Coverages",  above. Superfund reform proposals have been
introduced in Congress,  including a proposal introduced in the current session,
but  none  has  been  enacted at the date of this  publication. There can be no
assurance that any Superfund reform legislation will be enacted or that any such
legislation  will  provide  for a fair,  effective and cost-efficient system for
settlement of Superfund related claims.

        Proposed   federal   legislation   which  would  permit  banks   greater
participation  in the insurance business could, if enacted, present an increased
level of  competition  for the sale of insurance  products.  In addition, while
current federal income tax law permits the tax-deferred accumulation of earnings
on the premiums paid by an annuity owner and holders of certain savings-oriented
life insurance  products, no  assurance  can be given  that future  tax law will
continue to allow  such  tax  deferrals. If such  deferrals  were  not  allowed,
consumer  demand for the  affected products,  including  those  sold by Allstate
Life, would  be  substantially  reduced. In addition,  proposals  to  lower the 
federal income tax rates through a form of flat tax or otherwise could have, if
enacted, a negative impact on the demand for such products.


GEOGRAPHIC DISTRIBUTION OF INSURANCE

          Allstate,  through a  variety  of  companies,  is  authorized  to sell
property-liability  and  life  insurance  in  all 50  states,  the  District  of
Columbia,  Puerto Rico and  Canada.  To a limited  extent,  Allstate is engaged,
through affiliates, in the insurance business in Germany, Japan and the Republic
of Korea.  The following  tabulation  reflects,  in  percentages,  the principal
geographic  distribution of statutory premiums earned for the property-liability
insurance  business and statutory  premiums for the life insurance  business for
the year ended December 31, 1996:

<TABLE>
<S>               <C>      <C>      <C>     <C>     <C>     <C>     <C>    <C>      <C>     <C>     <C>     <C>          <C> 
                   NY       CA       FL      IL      PA      MI      NJ     MD       TX      GA      NC      OH           Total
                   --       --       --      --      --      --      --     --       --      --      --      --           -----
Property-
  Liability       12.7     10.6      9.7     5.2     5.1     4.6     4.3    3.6      3.1     3.0     2.7     2.6          67.2


                   CA       FL       NE      MA      TX      PA      IL     NJ       MI      NY      CO      OH           Total
                   --       --       --      --      --      --      --     --       --      --      --      --           -----

Life              13.9      8.7      6.4     5.5     5.4     5.3     5.1    3.8      3.7     2.9     2.6     2.6           65.9

</TABLE>

           No other  jurisdiction  accounted for more than 2.6% of the statutory
premiums for property-liability insurance or life insurance.


                                       30

<PAGE>



           In  1991,  Allstate  announced  its  decision  to  withdraw  from the
property-liability  market in New Jersey, but its application has been suspended
until December 31, 1997 by agreement  between  Allstate and New Jersey insurance
authorities.  In the meantime,  Allstate has continued to write insurance in New
Jersey.  Although  it is licensed to do so,  Allstate is not  currently  writing
private passenger automobile or homeowners insurance in Massachusetts.

SEASONALITY

           Although the insurance business generally is not seasonal, claims and
claims expense for the property-liability insurance operations tend to be higher
for periods of severe or inclement weather.

EMPLOYEES

           At December 31, 1996, Allstate employed approximately 48,200 people.

SERVICE MARKS

           The names  "Allstate"  and  "Allstate  Life," the slant "A"  Allstate
logo,  the slogan  "You're in Good Hands With  Allstate"  and the graphic  "Good
Hands"  design logo which  features  cupped hands  holding an  automobile  and a
house,  and the  "Northbrook"  logo design are used  extensively  in  Allstate's
businesses.  Allstate's  rights in the United States to the names "Allstate" and
"Allstate Life," the Allstate and Northbrook  logos, the "Good Hands" slogan and
the "Good Hands" symbol continue so long as Allstate continues to exercise those
rights.  These service marks are the subject of numerous renewable United States
and foreign service mark registrations.  The Company believes that these service
marks are material to the business of Allstate.


                                       31

<PAGE>



Executive Officers of the Registrant

           The  following  tabulation  sets  forth  the  names of the  executive
officers of the Company, their current ages, the positions with Allstate held by
them, and the dates of their first election as officers:

Executive Officers of the Registrant

           The  following  tabulation  sets  forth  the  names of the  executive
officers of the Company, their current ages, the positions with Allstate held by
them, and the dates of their first election as officers:

<TABLE>
<CAPTION>

                                                                                                        Date First
                                                                                                        Elected
Name                    Age                        Position and Offices Held                            Officer
----                    ---                        -------------------------                            -------
                                                                                                        
<S>                                                <C>                                                    <C>
Jerry D. Choate*........58                         Chairman and Chief Executive
                                                   Officer of the Company and AIC                         1983

Joan M. Crockett........46                         Senior Vice President
                                                   of AIC                                                 1994

Edward J. Dixon.........53                         Senior Vice President of AIC                           1988



Robert W. Gary..........58                         Senior Vice President of AIC                           1986

Steven L. Groot.........47                         Senior Vice President of AIC                           1988

Edward M. Liddy.........51                         President and Chief Operating
                                                   Officer of the Company and AIC                         1994

Louis G. Lower, II......51                         President of ALIC                                      1982

Michael J. McCabe.......51                         Senior Vice President of AIC                           1980

Ronald D. McNeil........44                         Senior Vice President of AIC                           1994

Robert W. Pike..........55                         Vice President, Secretary and
                                                   General Counsel of the Company;
                                                   Senior Vice President, Secretary
                                                   and General Counsel of AIC                             1978

Francis W. Pollard......54                         Senior Vice President and
                                                   Chief Information Officer
                                                   of AIC                                                 1984

Casey J. Sylla..........53                         Senior Vice President and                              1995
                                                   Chief Investment Officer of AIC

Rita P. Wilson..........50                         Senior Vice President of AIC                           1988

Thomas J. Wilson........39                         Vice President and Chief Financial
                                                   Officer of the Company;
                                                   Senior Vice President and
                                                   Chief Financial Officer
                                                   of AIC                                                 1995

Edward W. Young.........56                         Senior Vice President
                                                   of AIC                                                 1984

<FN>
----------------
* Also a director of the Company
</FN>
</TABLE>



                                       32

<PAGE>



          No family relationships exist among the above-named individuals.

          Each of the  officers  named  above was elected to serve in the office
indicated until the first meeting of the Board of Directors following the annual
meeting of  stockholders  in 1996 and until his or her  successor is elected and
qualified or until such officer resigns.

          With the exception of officers E. Liddy, R. Wilson, T. Wilson,  and C.
Sylla,  the  above  officers  have  held the  positions  set  forth in the above
tabulation  for at least the last five years or have served  Allstate in various
executive or  administrative  capacities for at least that length of time. Prior
to his election on August 10, 1994 to the position  indicated  above,  Mr. Liddy
served Sears in a financial  officer  capacity  since April 1988,  and was Sears
Senior Vice President and Chief Financial  Officer since February 1992. Prior to
his  election  on January 1, 1995 to the  position  indicated  above,  T. Wilson
served as Sears Vice  President,  Strategy and Analysis from 1993 until December
31, 1994,  and prior to that served as a managing  director for Dean Witter from
1986 to 1993.  Prior to his election on July 5, 1995 to the  position  indicated
above, Mr. Sylla served as a Senior Vice President for Northwestern  Mutual Life
Insurance  Company from 1992 to 1995,  and served as President of an  investment
management firm from 1989 to 1992. R Wilson was elected to her current  position
effective May 1, 1996.  Prior to that, and since November 1994 she had served as
Senior Vice President-Corporate  Communications, for Ameritech Corporation. From
September  1990 until  November  1994 R.  Wilson was Senior  Vice  President  of
Allstate Insurance Company.

Item 2.  Properties
------   ----------

            Allstate's  home office complex is located in Northbrook,  Illinois.
The complex consists of 10 buildings of  approximately  1.96 million square feet
of office space on a 204.39 acre site.
The Northbrook complex serves as the headquarters for PP&C and ALIC.

            Allstate's  field business  operations  are conducted  substantially
from 17 offices located  principally in metropolitan areas throughout the United
States and Canada.  Allstate also has  approximately  250 claim service offices,
sales  facilities at  approximately  10,500  locations,  and  approximately  650
automobile  damage  inspection  locations,  most of which are  located  at claim
service offices and sales facilities.

            Allstate's  home office  complex  and most major  offices are owned.
Other facilities are leased, in almost all cases for terms of not more than five
years.  The Company  believes its  properties  and  facilities  are adequate and
suited to Allstate's current operations.

Item 3.   Legal Proceedings
------    -----------------

            Various other legal and  regulatory  actions are  currently  pending
that involve  Allstate and specific  aspects of its conduct of business.  In the
opinion of management,  the ultimate liability,  if any, in one or more of these
actions,  in excess of amounts  currently  reserved  is not  expected  to have a
material effect on results of operations,  liquidity or capital  resources.  See
note 9 to the  Consolidated  Financial  Statements  on  pages  79-80 of the 1996
Annual Report, incorporated herein by reference in response to Item 8 hereof.

                                       33

<PAGE>



Item 4.   Submission of Matters to a Vote of Security Holders
------    ---------------------------------------------------


          None


                                     Part II


Item 5.   Market for Registrant's Common Equity and Related
------    -------------------------------------------------
           Stockholder Matters
           -------------------


          There were 218,987 record holders of the Company's  common stock as of
March 21, 1997.  Other  information  concerning  this Item 5 is  incorporated by
reference  to  "Shareholder  Information"  on the inside  back cover of the 1996
Annual Report.

Item 6.   Selected Financial Data
------    -----------------------

          Incorporated  by reference to "11-Year  Summary of Selected  Financial
Data" on pages 32-33 of the 1996 Annual Report.


Item 7.   Management's Discussion and Analysis of Financial
------    -------------------------------------------------
           Condition and Results of Operations
           ----------------------------------- 


          Incorporated by reference to the "Management's Discussion and Analysis
of Financial  Condition  and Results of  Operations"  on pages 34-56 of the 1996
Annual Report.

FORWARD-LOOKING STATEMENTS

          The statements contained in the "Management's  Discussion and Analysis
of Financial  Condition  and Results of  Operations"  portion of the 1996 Annual
Report,  which portion has been incorporated  herein by reference in response to
Item  7  hereof,  that  are  not  historical   information  are  forward-looking
statements   that  are  based  on   management's   estimates,   assumptions  and
projections.  The Private  Securities  Litigation  Reform Act of 1995 provides a
safe harbor under The Securities Act of 1933 and The Securities  Exchange Act of
1934 for  forward-looking  statements.  In order to comply with the terms of the
safe harbor,  the Company notes several  important  factors that could cause the
Company's  actual  results  and  experience  with  respect  to   forward-looking
statements  to  differ   materially  from  the  anticipated   results  or  other
expectations expressed in the Company's forward-looking statements:




                                       34

<PAGE>



1. Exposure to  Catastrophe  Losses - Management  believes  that the  strategies
   --------------------------------
implemented by the Company to manage its exposure to  catastrophes  will greatly
reduce the probability of severe losses in the future,  that the  implementation
of certain described actions taken in Florida will reduce the Company's exposure
to losses from  hurricanes  in that state,  and that the  Company's  exposure to
earthquake  losses  in  California  has been  significantly  reduced  due to the
introduction  of  the  mini-earthquake  policy  which  has  higher  deductibles,
eliminates  coverage  for most non-  dwelling  structures  and  limits  personal
contents  coverage,  and will be further  reduced as a result of the creation of
the  CEA  (see  "Catastrophe   Losses,"   "Catastrophe   Management,"   "Florida
Hurricanes"  and  "California  Earthquakes"  at pages  36-38 of the 1996  Annual
Report and "Catastrophe Exposure" in this Form 10-K). These beliefs are based in
part on the efficacy of the  techniques and the accuracy of the data used by the
Company to predict the probability of  catastrophes  and the extent of losses to
the Company  resulting from  catastrophes.  Catastrophes may occur in the future
which  indicate  that such  techniques do not  accurately  predict the Company's
losses from  catastrophes,  and the probability and extent of such losses to the
Company may differ  materially from that which would have been predicted by such
techniques and data.

          Management's   expectation   that  the  operations  of  the  CEA  will
significantly reduce Allstate's exposure to earthquake exposure in California in
the future depends in part on the CEA functioning as planned.  The Company could
be exposed to the threat or reality of additional  material  assessments  beyond
the $700 million  noted under  "California  Earthquakes"  at pages 37- 38 of the
1996  Annual  Report  and  "Catastrophe  Exposure"  in  this  Form  10-K  if the
California  legislature  should decide, in the future, to revise the formula and
impose such additional assessments.

          As noted  under  "Catastrophe  Management"  at pages 36-38 of the 1996
Annual Report and  "Catastrophe  Exposure" in this Form 10-K, there are areas of
the United  States,  other than  Florida  and  California,  in which the Company
remains  exposed  to  the   possibility  of  sustaining   material  losses  from
catastrophes due to hurricanes and  earthquakes.  These other areas of potential
losses due to hurricanes include major metropolitan centers near the eastern and
gulf  coasts of the United  States;  and other  areas in the United  States with
exposure to potential earthquake losses include areas surrounding the New Madrid
fault system in the Midwest and faults in and surrounding Seattle, Washington.

2. Personal Injury Severity Trends - The references to favorable personal injury
   -------------------------------
severity trends which management  believes may be due in part to the redesign of
the Company's bodily injury claim processes (see "PP&C Underwriting  Results" at
pages 39-40 of the 1996 Annual Report and  "Property-Liability  Insurance Claims
and Claims Expense Reserves" in this Form 10-K) reflect statistical data for the
periods  indicated.  As additional statistical data for these  periods  becomes 
available as  claims  are  settled, new  estimates of  average  personal injury
severities will be  developed  and may be  materially higher or lower  than  the
current estimates.  Moreover, the recent favorable trends may be reversed in the
future because of the increased costs of settlements  and  adverse  judgments in
cases which proceed to litigation. In the meantime, however, the current data of
reduced personal injury severities may influence state insurance regulators to 
deny Allstate rate increases  which could reduce the growth of the Company's 
revenues.


                                       35

<PAGE>



          Management  has  stated  (see  "Property-Liability  Claims  and Claims
Expense   Reserves,"   at   pages   42-46  of  the  1996   Annual   Report   and
"Property-Liability  Insurance Claims and Claims Expense  Reserves" in this Form
10-K) that  although the redesign of the claims  processes  for personal  injury
claims has resulted in an increased  number of claims  outstanding,  the rate of
increase in such  outstanding  claims has declined and the Company  believes the
rate of increase will continue to decline in 1997. This  supposition is based on
statistical  records of less than a  year's duration and  continuation of normal
frequency trends.  The statistics on outstanding  personal injury claims in 1997
could indicate an acceleration of the  rate of such  claims pending  which would
increase  the  uncertainty  associated  with  the  statistical  methods  used to
establish reserves.


3. Increase in  Property-Liability  Net Investment  Income - Management  expects
   -------------------------------------------------------
that net investment income from its property-liability  operations will increase
in 1997, but not at as high a rate as the 7.9% increase in pretax net investment
income  in 1996  over 1995 (see "Net  Investment  Income  and  Realized  Capital
Gains,"  at  pages  35-36 of the 1996  Annual  Report).  Any  increase  in  net 
investment  income  will be  highly  dependent on the  interest rate environment
that exists in 1997.

4. Liquidity of Allstate Life Portfolio - Management believes that the assets in
   ------------------------------------
the Allstate Life portfolio are sufficiently  liquid to meet future  obligations
to life insurance and annuity  policyholders  in various interest rate scenarios
(see  "Liquidity"  at pages  51-52  of the  1996  Annual  Report).  However,  an
unexpected  increase in surrenders and  withdrawals,  coupled with a significant
increase  in  interest  rates  could  make it  difficult  for  Allstate  Life to
liquidate a sufficient  portion of its  portfolio to meet such  obligations  and
also maintain its risk-based capital at acceptable levels.

5.  Contingent  Payment for Potential  Deficiency  in  Northbrook  Reserves - As
    -----------------------------------------------------------------------
stated in  "Discontinued  Lines and  Coverages  Underwriting  Summary," at pages
41-42 of the 1996 Annual  Report,  the agreement  under which  Allstate sold the
Northbrook  companies  to St.  Paul in 1996  contains a  provision  which  could
require Allstate to pay St. Paul up to $100 million should Northbrook's reserves
as of  July  31,  1996  be  determined,  as of  July  31,  2000,  to  have  been
understated.  Management  does not  expect  that it will be  required  to make a
payment to St. Paul based on current  trends,  conditions  and claim  settlement
processes.  The establishment of appropriate  reserves,  including  Northbrook's
reserves, is an inherently uncertain process.  Accordingly, the Company could be
required  to pay as much as $100  million  to St.  Paul  when the July 31,  2000
calculation is agreed to, if the reserves should develop unfavorably.

6.  Availability  of  Company's  Line of Credit - The Company  maintains a $1.50
    -------------------------------------------
billion,  five-year  revolving line of credit as a potential  source of funds to
meet  short-term  liquidity  requirements.  In  order to  borrow  on the line of
credit, AIC is required to maintain a specified  statutory surplus level and the
Allstate  debt to equity  ratio (as  defined in the credit  agreement)  must not
exceed a designated level. Under "Capital  Resources" on pages 50-51 of the 1996
Annual Report,  the Company's states that its management  expects to continue to
meet such borrowing  requirements in the future. The ability of AIC and Allstate
to meet these  requirements  is dependent  upon the economic  well-being of AIC.
Should  AIC sustain  significant losses from  catastrophes, its and  Allstate's
ability to continue to meet the credit agreement requirements would be lessened.
Consequently, Allstate's

                                       36

<PAGE>



right to draw upon the line of credit could be diminished or eliminated during a
period when it would be most in need of financial resources.

Item 8.   Financial Statements and Supplementary Data
------    -------------------------------------------

          The consolidated  financial  statements of the Company,  including the
notes to such  statements,  and  other  information  on pages  57-88 of the 1996
Annual Report are incorporated herein by reference.


Item 9.    Changes in and Disagreements with Accountants on
------     ------------------------------------------------
           Accounting and Financial Disclosure
           -----------------------------------

           None



                                    Part III



Item 10. Directors and Executive Officers of the Registrant
-------  --------------------------------------------------


           Certain   information   regarding   directors   of  the   Company  is
incorporated  herein  by  reference  to  the  descriptions  under  "Election  of
Directors" in the 1997 Proxy Statement.

           Information   regarding   executive   officers   of  the  Company  is
incorporated  herein by  reference  to Item 1 of this  Report  under the caption
"Executive Officers of the Registrant" in Part I hereof.

Item 11. Executive Compensation
-------  ----------------------


           Information  regarding  executive  compensation  is  incorporated  by
reference  to the  material  under the  captions  "Directors'  Compensation  and
Benefits,"  "Executive  Compensation,"  "Stock  Options,"  "Pension  Plans," and
"Employment   Contracts,   Termination  of  Employment   and   Change-in-Control
Arrangements" in the 1997 Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and
-------   ---------------------------------------------------
           Management
           ----------


            Information  regarding  security  ownership  of  certain  beneficial
owners and management is incorporated  herein by reference to the material under
the headings "Security

                                       37

<PAGE>



Ownership  of Directors  and  Executive  Officers"  and  "Security  Ownership of
Certain Beneficial Owners" in the 1997 Proxy Statement.


Item 13.  Certain Relationships and Related Transactions
-------   ----------------------------------------------


           Information  regarding certain relationships and related transactions
is incorporated  herein by reference to the material under the headings "Certain
Relationships and Related Transactions" in the 1997 Proxy Statement.

                                     Part IV



Item 14.  Exhibits, Financial Statement Schedules, and Reports on
-------   -------------------------------------------------------
           Form 8-K
           --------

(a)               1  and 2 An  "Index  to  Financial  Statements  and  Financial
                  Statement  Schedules"  has been filed as a part of this Report
                  beginning on page S-1 hereof.

(a) 3             Exhibits:

                  An  "Exhibit  Index" has been  filed as a part of this  Report
                  beginning  on page E-1  hereof and is  incorporated  herein by
                  reference.

(b)               Reports on Form 8-K:

                  Registrant filed a Current Report on Form 8-K dated October 8,
                  1996 (Items 5 and 7).

                  Registrant  filed a Current  Report on Form 8-K on December 6,
                  1996  (Item  7)  to  file  exhibits  in  connection  with  the
                  registration of Allstate Financing I.

                  Registrant  filed a Current  Report on Form 8-K on December 6,
                  1996  (Item  7)  to  file  exhibits  in  connection  with  the
                  registration of Allstate Financing II.



                                       38

<PAGE>



                                   SIGNATURES



            Pursuant  to  the  Requirements  of  Section  13 of  the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                     THE ALLSTATE CORPORATION
                                   (Registrant)




                                                     s/Samuel H. Pilch
                                                     -----------------
                                             By:     Samuel H. Pilch
                                                     Controller
                                                     (Principal Accounting 
                                                       Officer)


                                                     March 25, 1997


             Pursuant to the  requirements  of the  Securities  Exchange  Act of
1934,  this report has been signed below by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
Signature                                            Title                                    Date
---------                                            -----                                    ----



<S>                                                  <C>                                <C>   <C>
s/ Jerry D. Choate                                   Chairman and Chief                 )
------------------
Jerry D. Choate                                      Executive Officer                  )
                                                     and a Director                     )
                                                     (Principal Executive               )
                                                     Officer)                           )
                                                                                              March 25, 1997
s/ Thomas J. Wilson                                  Vice President and                 )
-------------------
Thomas J. Wilson                                     Chief Financial                    )
                                                     Officer                            )
                                                     (Principal Financial               )
                                                     Officer)                           )
</TABLE>




                                       39

<PAGE>



<TABLE>
<CAPTION>
Signature                                            Title                                    Date
---------                                            -----                                    ----


<S>                                                  <C>                                <C>   <C>

s/James G. Andress                                   Director                           )
------------------
James G. Andress

s/Warren L. Batts                                    Director                           )
-----------------
Warren L. Batts

                                                     Director                           )
-----------------
Edward A. Brennan

s/James M. Denny                                     Director                           )
----------------
James M. Denny

                                                     Director                           )
--------------------
Christopher F. Edley                                                                          March 25, 1997

s/Michael A. Miles                                   Director                           )
------------------
Michael A. Miles

s/Nancy C. Reynolds                                  Director                           )
-------------------
Nancy C. Reynolds

s/Joshua I. Smith  
-----------------                                    Director                           )
Joshua I. Smith

                                                     Director                           )
-----------------
Mary Alice Taylor

</TABLE>

                                       40


<PAGE>






                            THE ALLSTATE CORPORATION
         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
                          YEAR ENDED DECEMBER 31, 1996



<TABLE>
<CAPTION>
The  following  consolidated  financial  statements,  notes  thereto and related
information of The Allstate  Corporation are incorporated herein by reference to
the Company's 1996 Annual Report.

<S>                                                                                                           <C>

                                                                                                              Page*
                                                                                                              ----

Consolidated Statements of Operations**                                                                        57

Consolidated Statements of Financial Position**                                                                58

Consolidated Statements of Shareholders' Equity **                                                             59

Consolidated Statements of Cash Flows**                                                                        60

Notes to Consolidated Financial Statements**                                                                   61

Quarterly Results**                                                                                            88

Common Stock Market Information and Dividend Highlights***                                                     93

The following additional financial statement schedules and independent auditors'
report and consent are furnished  herewith  pursuant to the requirements of Form
10-K.

The Allstate Corporation                                                                                      Page
------------------------                                                                                      ----

Schedules required to be filed under the provisions of Regulation S-X Article 7:

Schedule I        Summary of Investments - Other than Investments in Related 
                  Parties                                                                                      S-2

Schedule II       Condensed Financial Information of The Allstate Corporation
                  (Registrant)                                                                                 S-3

Schedule III      Supplementary Insurance Information                                                          S-8

Schedule IV       Reinsurance                                                                                  S-9

Schedule V        Valuation and Qualifying Accounts                                                            S-10

Schedule VI       Supplemental Information Concerning Consolidated Property -                                  S-11
                   Casualty Insurance Operations

Independent Auditors' Report                                                                                   S-12

Independent Auditors' Consent                                                                                  S-13

All  other  schedules  are  omitted  because  they  are not  applicable,  or not
required,  or because the required  information is included in the  Consolidated
Financial Statements or in notes thereto.

<FN>
*   Refers to page number in Company's 1996 Annual Report.
**  Incorporated by reference in Item 8 herein.
*** Incorporated by reference in Item 5 herein.
</FN>
</TABLE>


                                       S-1

<PAGE>







                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                       SCHEDULE I - SUMMARY OF INVESTMENTS
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 1996


<TABLE>
<CAPTION>
($ in millions)
                                                                                                                      Statement of
                                                                                                                       Financial
                                                                                                         Fair           Position
Type of Investment                                                                      Cost             Value       Carrying Value
------------------                                                                      ----             -----       --------------
 
<S>                                                                                  <C>              <C>               <C>    
Fixed Income Securities, Available for Sale
   Bonds:
      United States Government and government agencies
        and authorities.........................................................     $  3,101         $  3,339          $  3,339
      States, municipalities and political subdivisions.........................       13,705           14,493            14,493
      Foreign governments.......................................................          325              337               337
      Public utilities..........................................................        2,733            2,935             2,935
      Convertibles and bonds with warrants attached.............................          448              482               482
      All other corporate bonds ................................................       16,225           16,832            16,832
   Mortgage-backed securities...................................................        8,434            8,592             8,592

   Redeemable preferred stocks..................................................           86               85                85
                                                                                       ------          -------            -------

      Total fixed income securities.............................................       45,057          $47,095             47,095
                                                                                       ------           ======             ------


Equity securities:
   Common stocks:
      Public utilities..........................................................          258          $   326               326
      Banks, trusts and insurance companies.....................................          249              433               433
      Industrial, miscellaneous and all other...................................        2,877            4,154             4,154
   Nonredeemable preferred stocks...............................................          614              648               648
                                                                                        ------           ------            ------

      Total equity securities...................................................        3,998          $ 5,561             5,561
                                                                                        ------           ======            ------

Mortgage loans on real estate...................................................        3,146                              3,146
Real estate(1)..................................................................          738                                738
Policy loans....................................................................          489                                489
Other long-term investments.....................................................           22                                 22
Short-term investments..........................................................        1,278                               1,278
                                                                                       --------                            ------


      Total investments.........................................................     $ 54,728                             $58,329
                                                                                       ======                              ======


<FN>
(1)  Includes real estate acquired in satisfaction of debt of $286 million.
</FN>
</TABLE>


                                       S-2


<PAGE>






                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
($ in millions)

                                                                                                      Year Ended
                                                                                                     December 31,
                                                                                     ---------------------------------------
                                                                                     1996               1995            1994
                                                                                     ----               ----            ----
<S>                                                                              <C>                 <C>            <C>     
REVENUES
    Investment income, less investment expense.........................          $     10            $     6        $      1

EXPENSES
   Interest expense....................................................                71                 65              59
   Other operating expenses............................................                 8                  8               3
                                                                                    -----              -----           -----
                                                                                       79                 73              62
                                                                                    -----              -----           -----
Loss from operations before income tax benefit and equity in net
   income of subsidiaries..............................................               (69)               (67)            (61)

Income tax benefit.....................................................               (31)               (26)            (22)
                                                                                     ----               -----          -----
Loss from operations before equity in net income of subsidiaries.......               (38)               (41)            (39)

Equity in net income of subsidiaries...................................             2,113              1,945             523
                                                                                    -----              -----           -----

   Net income..........................................................          $  2,075            $ 1,904        $    484
                                                                                    =====              =====           =====



See  accompanying  notes  to  condensed  financial   information  and  notes  to
Consolidated Financial Statements incorporated herein by reference.

</TABLE>



                                       S-3


<PAGE>





                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        STATEMENTS OF FINANCIAL POSITION



<TABLE>
<CAPTION>
($ in millions)                                                                        December 31,
                                                                                 ------------------------
                                                                                  1996              1995
                                                                                 ------            ------
<S>                                                                             <C>               <C>    
ASSETS
   Investment in subsidiaries..........................................         $14,777           $13,793
   Short-term investments..............................................             582                39
   Receivable from subsidiaries........................................             152                -
   Other assets........................................................              99                66
                                                                                 ------           -------
        TOTAL ASSETS...................................................         $15,610           $13,898
                                                                                 ======            ======

LIABILITIES
   Short-term debt.....................................................         $   152             $   -
   Long-term debt......................................................           1,207             1,207
   Payable to subsidiaries.............................................             773                 -
   Other liabilities...................................................              26                11
                                                                                 ------           -------
        TOTAL LIABILITIES..............................................           2,158             1,218
                                                                                 ------            ------

SHAREHOLDERS' EQUITY
   Preferred stock, $1 par value; 25 million shares
    authorized, none issued............................................               -                 -
  Common stock, $.01 par value; 1.0 billion shares authorized;
    450 million shares issued; 442 million and 448 million shares
     outstanding.......................................................               5                 5
   Additional capital paid-in..........................................           3,133             3,134
   Unrealized net capital gains........................................           2,003             2,636
   Unrealized foreign currency translation adjustments.................              21                20
   Retained income.....................................................           8,958             7,261
   Deferred ESOP expense ..............................................            (280)             (300)
   Treasury stock, at cost (8.5 million and 2.5 million shares)........            (388)              (76)
                                                                                 -------              ----
        TOTAL SHAREHOLDERS' EQUITY.....................................          13,452            12,680
                                                                                 ------            ------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.....................         $15,610           $13,898
                                                                                 ======            ======

</TABLE>


See  accompanying  notes  to  condensed  financial   information  and  notes  to
Consolidated Financial Statements incorporated herein by reference.


                                       S-4


<PAGE>




                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS





<TABLE>
<CAPTION>
($ in millions)
                                                                                                      Year Ended
                                                                                                     December 31,
                                                                                     ---------------------------------------
                                                                                     1996               1995            1994
                                                                                     ----               ----            ----
<S>                                                                                <C>                <C>            <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................            $2,075             $1,904         $   484
   Adjustments to reconcile net income to
      net cash provided by operating activities
         Equity in net income of subsidiaries..........................            (2,113)            (1,945)          ( 523)
         Dividends received from subsidiaries..........................               525                455             349
         Changes in other operating assets and liabilities............                ( 5)                11               6
                                                                                    -----              -----           -----
           Net cash provided by operating activities..................                482                425             316
                                                                                    -----              -----           -----

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital contribution to subsidiary..................................               (23)                 -               -
    Change in short-term investments, net..............................              (543)               (27)             24
                                                                                    ------             -----           -----
           Net cash (used in) provided by investing activities.........              (566)               (27)             24
                                                                                    ------             -----           -----

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of short-term debt, net......................               152                  -               -
   Transfers to subsidiaries through intercompany loan
      agreement, net...................................................              (152)                 -               -
   Proceeds from issuance of long-term debt............................                 -                357               -
   Proceeds from borrowings from subsidiaries..........................               773                  -               -
   Payment to Sears for transfer of ESOP...............................                 -               (327)              -
   Dividends paid......................................................              (378)              (350)           (324)
   Treasury stock purchases ...........................................              (336)               (60)            (16)
   Other...............................................................                25                (18)              -
                                                                                    -----              -----           -----
           Net cash used in financing activities.......................                84               (398)           (340)
                                                                                    -----              -----           -----

  Cash at end of year..................................................            $    -             $    -         $     -
                                                                                    =====              =====          ======


See  accompanying  notes  to  condensed  financial   information  and  notes  to
Consolidated Financial Statements incorporated herein by reference.

</TABLE>


                                       S-5



<PAGE>





                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION



1.  BASIS OF PRESENTATION

The financial  statements of the registrant  should be read in conjunction  with
the Consolidated Financial Statements and notes thereto included in The Allstate
Corporation 1996 Annual Report to Shareholders.

2.  DEBT

Long-term and short-term debt of the Registrant consists of the following:

<TABLE>
<CAPTION>
($ in millions)                                                                      At  December 31,
                                                                                     ---------------
                                                                                  1996              1995
                                                                                  ----              ----

<S>                                                                             <C>               <C>    
5.875% Notes, due 1998.................................................         $  300            $  300
6.75% Notes, due 2003..................................................            300               300
7.5% Debentures, due 2013..............................................            250               250
6.76% ACES, due 1998...................................................            357               357
                                                                                ------            ------
Total Long-term debt...................................................         $1,207            $1,207
Short-term debt........................................................            152                 -
                                                                                ------            ------
     Total debt........................................................         $1,359            $1,207
                                                                                 =====             =====

</TABLE>

Information regarding the ACES is incorporated by reference to footnote 8 "Debt"
on pages 78 and 79 of the 1996 Annual Report.

In early 1996, the Registrant  commenced a commercial paper program to cover its
short-term  cash needs. The majority of the  proceeds  from  the issuance of the
commercial paper have been loaned to a subsidiary  through an intercompany  loan
agreement and used for general corporate purposes.

The Registrant maintains a bank line credit of $1.5 billion which expires on
December  20,  2001.  The  bank  line  provides  for  loans at a  spread  above
prevailing  referenced  interest  rates.  The Registrant  pays commitment  fees 
in connection with the line of credit.  As of December 31, 1996, no amounts were
outstanding under the bank line of credit.

The Registrant paid $67 million, $61 million and $59 million of interest on debt
in 1996, 1995 and 1994, respectively.




                                       S-6




<PAGE>




                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                                   (CONTINUED)



3.  PAYABLE TO SUBSIDIARIES

In November  1996,  the  Registrant  borrowed  $750 million from its  subsidiary
trusts at a weighted-average interest rate of 7.92%. These borrowings consist of
$550  million  and $200  million of  debentures  which  mature in 2026 and 2045,
respectively, and are redeemable by the Registrant in whole or in part beginning
in 2001 and 2006,  respectively.  The maturity of the $550 million debenture may
be extended to 2045. The Registrant  recorded $6 million of interest  expense in
1996, related to these borrowings.

                                       S-7

<PAGE>






                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION

<TABLE>
<CAPTION>

                                                                AT DECEMBER 31,                                                  
                                                 -------------------------------------------
                                                                 RESERVES              
  ($ IN MILLIONS)                                               FOR CLAIMS,                            
                                                   DEFERRED        CLAIMS                               
                                                    POLICY        EXPENSE                              
                                                 ACQUISITION     AND POLICY      UNEARNED              
                SEGMENT                             COSTS         BENEFITS       PREMIUMS                
---------------------------------------------      ------        ----------      --------             
<S>                                                <C>            <C>            <C>                                   
1996

Property-liability operations
  PP&C...................................          $   777        $13,909        $ 6,070                       
  Discontinued lines and coverages.......                -          3,473              2                   
                                                      ----         ------          -----                      
    Total property-liability operations..              777         17,382          6,072                

Life operations..........................            1,837         26,407            102 
Corporate and other eliminations.........                -              -              -                                
                                                     -----         ------          -----

      Total..............................          $ 2,614        $43,789        $ 6,174                  
                                                     =====         ======          =====

</TABLE>
                     
<TABLE>
<CAPTION>

                                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------------------------------------
                                                               
  ($ IN MILLIONS)                                 PREMIUM                       CLAIMS,     AMORTIZATION
                                                  REVENUE                       CLAIMS           OF            OTHER       PREMIUMS
                                                   AND            NET          EXPENSE         POLICY        OPERATING      WRITTEN
                                                 CONTRACT      INVESTMENT     AND POLICY    ACQUISITION      COSTS AND    (EXCLUDING
                SEGMENT                           CHARGES       INCOME (1)     BENEFITS        COSTS         EXPENSES        LIFE)
---------------------------------------------    ---------     ------------   ----------      -------        ---------      ------
<S>                                                <C>            <C>            <C>           <C>            <C>           <C>
1996

Property-liability operations
  PP&C...................................          $17,708            n/a        $13,574       $ 1,947        $ 1,771       $17,978
  Discontinued lines and coverages.......              658            n/a            913           116            130           608
                                                    ------         ------         ------         -----         ------        ------
    Total property-liability operations..           18,366          1,758         14,487         2,063          1,901        18,586

Life operations..........................            1,336          2,045          2,312           203            308           173
Corporate and other eliminations.........                -             10              -             -             (2)            -
                                                    ------         ------         ------         -----          -----        ------

      Total..............................          $19,702        $ 3,813        $16,799       $ 2,266        $ 2,207       $18,759
                                                    ======          =====         ======         =====          =====        ======

<FN>
(1)  A single investment portfolio supports the Property-Liability segment. 
</FN>
</TABLE>


<TABLE>
<CAPTION>

                                                                AT DECEMBER 31,                                                  
                                                 ----------------------------------------
                                                                 RESERVES              
  ($ IN MILLIONS)                                               FOR CLAIMS,                            
                                                   DEFERRED        CLAIMS                               
                                                    POLICY        EXPENSE                              
                                                 ACQUISITION     AND POLICY      UNEARNED              
                SEGMENT                             COSTS         BENEFITS       PREMIUMS                
---------------------------------------------      ------        ----------      --------             
<S>                                                <C>            <C>            <C>      

1995

Property-liability operations
  PP&C...................................          $   532        $12,841        $ 5,661               
   Discontinued lines and coverages......               72          4,846            469                 
                                                     -----         ------         ------               
    Total property-liability operations..              604         17,687          6,130                

Life operations..........................            1,400         25,217             58                 
Corporate and other eliminations.........                -              -              -                     
                                                     -----         ------          -----            

      Total..............................          $ 2,004        $42,904        $ 6,188               
                                                     =====         ======          =====              


</TABLE>
                     
<TABLE>
<CAPTION>

                                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------------------------------------
                                                               
  ($ IN MILLIONS)                                 PREMIUM                       CLAIMS,     AMORTIZATION
                                                  REVENUE                       CLAIMS           OF            OTHER       PREMIUMS
                                                   AND            NET          EXPENSE         POLICY        OPERATING      WRITTEN
                                                 CONTRACT      INVESTMENT     AND POLICY    ACQUISITION      COSTS AND    (EXCLUDING
                SEGMENT                           CHARGES       INCOME (1)     BENEFITS        COSTS         EXPENSES        LIFE)
---------------------------------------------    ---------     ------------   ----------      -------        ---------      ------
<S>                                                <C>            <C>            <C>           <C>            <C>           <C>
1995
----

Property-liability operations
  PP&C...................................          $16,524            n/a        $12,648       $ 1,768        $ 1,808       $16,941
   Discontinued lines and coverages......            1,016            n/a          1,040           191            148         1,024
                                                    ------         ------         ------         -----          -----        ------
    Total property-liability operations..           17,540          1,630         13,688         1,959          1,956        17,965

Life operations..........................            1,368          1,992          2,381           184            290           180
Corporate and other eliminations.........                -              5              -             -              1             -
                                                    -------        ------         ------         -----         ------        ------

      Total..............................          $18,908        $ 3,627        $16,069       $ 2,143        $ 2,247       $18,145
                                                    ======          =====         ======         =====          =====        ======
<FN>
(1)  A single investment portfolio supports the Property-Liability segment.
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                                                AT DECEMBER 31,                                                  
                                                 ----------------------------------------
                                                                 RESERVES              
  ($ IN MILLIONS)                                               FOR CLAIMS,                            
                                                   DEFERRED        CLAIMS                               
                                                    POLICY        EXPENSE                              
                                                 ACQUISITION     AND POLICY      UNEARNED              
                SEGMENT                             COSTS         BENEFITS       PREMIUMS                
---------------------------------------------      ------        ----------      --------             
<S>                                                <C>            <C>            <C>      
1994
----

Property-liability operations
  PP&C...................................          $   447        $12,120        $5,223
   Discontinued lines and coverages......               76          4,643           484
                                                     -----         ------         -----
     Total property-liability operations.              523         16,763         5,707

Life operations..........................            1,525         23,198            45
Corporate and other eliminations ........                -              -             -
                                                     -----         ------         -----

      Total..............................           $2,048        $39,961        $5,752
                                                     =====         ======         =====

<FN>
(1)  A single investment portfolio supports the Property-liability segment.
</FN>
</TABLE>


<TABLE>
<CAPTION>

                                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------------------------------------
                                                               
  ($ IN MILLIONS)                                 PREMIUM                       CLAIMS,     AMORTIZATION
                                                  REVENUE                       CLAIMS           OF            OTHER       PREMIUMS
                                                   AND            NET          EXPENSE         POLICY        OPERATING      WRITTEN
                                                 CONTRACT      INVESTMENT     AND POLICY    ACQUISITION      COSTS AND    (EXCLUDING
                SEGMENT                           CHARGES       INCOME (1)     BENEFITS        COSTS         EXPENSES        LIFE)
---------------------------------------------    ---------     ------------   ----------      -------        ---------      ------
<S>                                                <C>            <C>            <C>           <C>            <C>           <C>
1994
----

Property-liability operations
  PP&C...................................          $15,452           n/a         $13,563       $ 1,661        $ 1,812       $15,635
   Discontinued lines and coverages......            1,061           n/a             966           175            205         1,104
                                                    ------         -----          ------         -----          -----        ------
     Total property-liability operations.           16,513         1,515          14,529         1,836          2,017        16,739

Life operations..........................            1,053         1,827           2,031           169            190           170
Corporate and other eliminations ........               -              1               -             -              3             -
                                                     -----         -----           -----         -----          -----        ------

      Total..............................          $17,566        $3,343         $16,560       $ 2,005        $ 2,210       $16,909
                                                     =====         =====           =====         =====          =====        ======

<FN>
(1)  A single investment portfolio supports the Property-liability segment.
</FN>
</TABLE>

                                                               S-8

<PAGE>




                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                            SCHEDULE IV - REINSURANCE




<TABLE>
<CAPTION>
($ IN MILLIONS)                                                                                                         PERCENT OF
                                                                      CEDED TO         ASSUMED                            AMOUNT
                                                      GROSS             OTHER        FROM OTHER            NET           ASSUMED
                                                      AMOUNT          COMPANIES       COMPANIES          AMOUNT           TO NET
                                                      ------          ---------      ----------          ------          --------
YEAR ENDED DECEMBER 31, 1996
----------------------------

<S>                                                   <C>             <C>            <C>                <C>                 <C> 
Life insurance in force........................       $219,453        $33,232        $  124             $186,345            0.1%
                                                       =======         ======         =====              =======

Premiums and contract charges

  Life insurance...............................       $  1,163        $    94        $     -            $  1,069             - %

  Accident-health insurance....................            252              2             17                 267            6.4%

  Property-liability insurance.................         18,487            479            358              18,366            1.9%
                                                        ------            ---            ---              ------

    Total premiums and contract charges........       $ 19,902        $   575        $   375            $ 19,702            1.9%
                                                        ======          =====          =====             =======
YEAR ENDED DECEMBER 31, 1995
----------------------------

Life insurance in force........................       $176,615        $14,057        $  140             $162,698            0.1%
                                                       =======         ======         =====              =======

Premiums and contract charges

  Life insurance...............................       $  1,164        $    43        $    -             $  1,121              -%

  Accident-health insurance....................            240              4            11                  247            4.5%

  Property-liability insurance.................         17,178            524           886               17,540            5.1%
                                                        ------           ----          ----               ------

    Total premiums and contract charges........       $ 18,582        $   571        $  897             $ 18,908            4.7%
                                                       =======         =======        ======             =======
YEAR ENDED DECEMBER 31, 1994
----------------------------

Life insurance in force........................       $153,905        $11,649        $  129             $142,385            0.1%
                                                       =======         ======         =====              =======

Premiums and contract charges

  Life insurance...............................       $    868        $    34        $    -             $    834              -%

  Accident-health insurance....................            224             14             9                  219            4.1%

  Property-liability insurance.................         16,177            549           885               16,513            5.4%
                                                        ------           ----          ----              -------

    Total premiums and contract charges........       $ 17,269        $   597        $  894            $  17,566            5.1%
                                                       =======         ======         =====             ========

</TABLE>

                                       S-9

<PAGE>




                    THE ALLSTATE CORPORATION AND SUBSIDIARIES
                 SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>

                                                                                                   ADDITIONS
                                                                                      ---------------------------------------
($ IN MILLIONS)
                                                                     BALANCE AT   CHARGED TO                               BALANCE
                                                                     BEGINNING    COSTS AND     OTHER                      AT END
               DESCRIPTION                                           OF PERIOD    EXPENSES    ADDITIONS   DEDUCTIONS(1)   OF PERIOD
--------------------------------------------                         ---------    --------    ---------   ----------      ---------

<S>                                                                    <C>           <C>                       <C>            <C>
Year Ended December 31, 1996
----------------------------

Allowance for estimated losses on mortgage loans and real estate       $100          $31                       $55            $76

Allowance for reinsurance recoverable                                   246           18                       101            163

Allowance for premium installment receivable                             30          111                        85             57

YEAR ENDED DECEMBER 31, 1995
----------------------------

Allowance for estimated losses on mortgage loans and real estate       $ 97          $53                       $50           $100

Allowance for reinsurance recoverable                                   126          133                        13            246

Allowance for premium installment receivables                             -           63                        33             30

YEAR ENDED DECEMBER 31, 1994
----------------------------
                                                                       
Allowance for estimated losses on mortgage loans                       $ 93          $65                       $61           $ 97
                                                                    
Allowance for reinsurance recoverable                                   110           26                        10            126

<FN>
  (1)  Deductions in allowance for estimated  losses on mortgage loans represent
       amounts   transferred  to  real  estate.   Deductions  in  allowance  for
       reinsurance  recoverable  represent  write-offs,  net of  recoveries,  of
       amounts determined to be uncollectible.
</FN>
</TABLE>


                                      S-10

<PAGE>



                     THE ALLSTATE CORPORATION AND SUBSIDIARY
                                   SCHEDULE VI
                SUPPLEMENTAL INFORMATION CONCERNING CONSOLIDATED
                     PROPERTY-CASUALTY INSURANCE OPERATIONS


<TABLE>
<CAPTION>

($ IN MILLIONS)                                                                                    DECEMBER 31,
                                                                                 -------------------------------------------------
                                                                                       1996            1995             1994
                                                                                      ------          ------           ------
<S>                                                                                  <C>             <C>              <C>   
Deferred policy acquisition costs.....................................               $   777         $   604          $   523
Reserves for unpaid claims and claim adjustments......................                17,382          17,687           16,763
Unearned premiums.....................................................                 6,072           6,130            5,707

($ IN MILLIONS)                                                                               YEAR ENDED DECEMBER 31,
                                                                                 -------------------------------------------------
                                                                                       1996            1995             1994
                                                                                      ------          ------           ------
Earned premiums.......................................................               $18,366         $17,540          $16,513
Net investment income.................................................                 1,758           1,630            1,515
Claims and claims adjustment expense incurred
  Current year........................................................                14,823          14,113           15,241
  Prior year..........................................................                  (336)           (425)            (712)
Amortization of deferred policy acquisition costs.....................                 2,063           1,959            1,836
Paid claims and claims adjustment expense.............................                15,045          12,938           13,242
Premiums written......................................................                18,586          17,965           16,739

</TABLE>

                                      S-11

<PAGE>





                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Stockholders of
The Allstate Corporation

We  have  audited  the  consolidated   financial   statements  of  The  Allstate
Corporation  and  subsidiaries as of December 31, 1996 and 1995, and for each of
the three  years in the period  ended  December  31,  1996,  and have issued our
report thereon dated February 21, 1997; such consolidated  financial  statements
and report are  included  in The  Allstate  Corporation  1996  Annual  Report to
Stockholders and are incorporated herein by reference.  Our audits also included
the financial statement schedules of The Allstate  Corporation and subsidiaries,
listed in the Index at Item 14 (a) 2. These  financial  statement  schedules are
the responsibility of the Company's management. Our responsibility is to express
an  opinion  based on our  audits.  In our  opinion,  such  financial  statement
schedules,  when  considered  in  relation to the basic  consolidated  financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information set forth therein.




Chicago, Illinois
February 21, 1997

                                      S-12

<PAGE>



                                                                  Exhibit 23




                          INDEPENDENT AUDITORS' CONSENT




We consent to the  incorporation  by reference in  Registration  Statement  Nos.
33-88540 and 333-10857 on Form S-3 and  Registration  Statement  Nos.  33-77928,
33-93758, 33-93760, 33-93762, 33-99132, 33-99136, 33-99138, 333-04919, 333-16129
and  333-23309  on Form S-8 of The  Allstate  Corporation  of our reports  dated
February 21,  1997,  appearing  in or  incorporated  by reference in this Annual
Report on Form 10-K of The Allstate  Corporation for the year ended December 31,
1996.





Chicago, Illinois
March 25, 1997

                                      S-13

<PAGE>




                                  EXHIBIT INDEX

                       The Allstate Corporation Form 10-K
                      For the Year Ended December 31, 1996

Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ----------
                                                      
3.(a)                      Restated Certificate of Incorporation
                           of The Allstate Corporation as amended
                           effective August 18, 1995.
                           Incorporated by reference to Exhibit 3
                           to the Company's Quarterly Report on
                           Form 10-Q for the quarter ended
                           September 30, 1995**


3.(b)                      By-Laws as amended effective June 29,
                           1995.  Incorporated by reference to
                           the Company's Quarterly Report on Form
                           10-Q for the quarter ended June 30, 1995.**


4.                         Registrant   hereby   agrees   to   furnish   to  the
                           Commission,   upon  request,   with  the  instruments
                           defining  the  rights  of  holders  of each  issue of
                           long-term debt of the Registrant and its consolidated
                           subsidiaries.

10.1                       Master Agreement for Systems
                           Operations Services, dated as
                           of November 30, 1992, between
                           Allstate Insurance Company and
                           Advantis, a New York general
                           partnership.  Incorporated by
                           reference to Exhibit 10.5 to
                           Registration Statement No. 33-59676.



                                       E-1

<PAGE>





Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ---------- 

10.2                       Human Resources Allocation Agreement,
                           dated as of May 27, 1993, among Sears,
                           Roebuck and Co., The Allstate Corporation
                           and Allstate Insurance Company.
                           Incorporated by reference to Exhibit
                           10.14 to Registration Statement
                           No. 33-59676.


10.3                       IPO Related Intercompany Agreement,
                           dated as of May 29, 1993, between The
                           Allstate Corporation and Sears, Roebuck
                           and Co.  Incorporated by reference to
                           Exhibit 10.15 to Registration Statement
                           No. 33-59676.


10.4                       Tax Sharing Agreement dated May 14, 1993
                           between Sears, Roebuck and Co. and its
                           subsidiaries. Incorporated by reference
                           to Exhibit 10.6 to Amendment No. 3 to
                           Registration Statement No. 33-59676.


10.5                       Separation Agreement dated February 20,
                           1995 between Sears, Roebuck and Co.
                           and the Company.  Incorporated by
                           reference to Exhibit 10(a) to the
                           Company's Current Report on Form 8-K
                           dated February 22, 1995.**


10.6                       Marketing File Separation Agreement
                           dated February 20, 1995 between Sears,
                           Roebuck and Co. and the Company.
                           Incorporated by reference to Exhibit
                           10(b) to the Company's Current Report
                           on Form 8-K dated February 22, 1995.**







                                       E-2

<PAGE>



Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ---------- 

10.7                       Research Services Agreement dated
                           February 20, 1995 between Sears,
                           Roebuck and Co. and the Company.
                           Incorporated by reference to Exhibit
                           10(c) to the Company's Current
                           Report on Form 8-K dated February 22,
                           1995.**

10.8                       Supplemental Tax Sharing Agreement
                           dated January 27, 1995 between Sears,
                           Roebuck and Co. and the Company.
                           Incorporated by reference to Exhibit
                           10(d) to the Company's Current Report
                           on Form 8-K dated February 22, 1995.**

10.9                       Supplemental Human Resources Allocation
                           Agreement dated January 27, 1995 between
                           Incorporated by reference to
                           Exhibit 10(e) to the Company's
                           Current Report on Form 8-K dated
                           February 22, 1995.**

10.10                      Profit Sharing and Employee Stock
                           Ownership Plan Allocation Agreement
                           dated January 27, 1995 between Sears,
                           Roebuck and Co. and the Company.
                           Incorporated by reference to Exhibit
                           10(f) to the Company's Current Report
                           on Form 8-K dated February 22, 1995.**

10.11*                     Allstate Insurance Company Supplemental
                           Retirement Income Plan, as amended and
                           restated effective January 1, 1996.
                           Incorporated by reference to Exhibit 10.11
                           to the Company's Annual Report on Form 10-K
                           for the fiscal year ended December 31, 1995.**

10.12*                     The Allstate Corporation Equity
                           Incentive Plan for Non-Employee
                           Directors, as amended and restated
                           on November 12, 1996.






                                       E-3

<PAGE>




Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ----------

10.13*                     The Allstate Corporation
                           Amended and Restated Deferred
                           Compensation Plan for Non-Employee
                           Directors. Incorporated by
                           reference to Exhibit 4 to
                           Registration Statement
                           No. 333-16129

10.14*                     The Allstate Corporation Annual
                           Executive Incentive Compensation
                           Plan.  Incorporated by reference
                           to Appendix  A to the Company's
                           Proxy Statement dated March 31,
                           1994.**

10.15*                     The Allstate Corporation Long-Term
                           Executive Incentive Compensation
                           Plan.  Incorporated by reference to
                           Appendix B to the Company's Proxy
                           Statement dated March 31, 1994.**

10.16*                     The Allstate Corporation Equity
                           Incentive Plan, as amended and restated
                           on November 12, 1996.

10.17*                     Form of stock option under the
                           Equity Incentive Compensation Plan.
                           Incorporated by reference to
                           Exhibit 10.18 to the Company's
                           Annual Report on Form 10-K for the
                           fiscal year ended December 31, 1995.**

10.18*                     Form of restricted stock grant under the Equity
                           Incentive Plan.

10.19*                     The Allstate Corporation Deferred
                           Compensation Plan as amended and
                           restated effective January 1, 1996.
                           Incorporated by reference to
                           Exhibit 4 to the Company's
                           Registration Statement No. 33-99136.

10.20*                     The Allstate Corporation Employees
                           Replacement Stock Plan, as amended
                           and restated on November 12, 1996.

                                       E-4

<PAGE>



Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ----------

10.21*                     Form of stock option under the
                           Replacement Stock Plan.
                           Incorporated by reference to
                           Exhibit 10.21 to the Company's
                           Annual Report on Form 10-K for
                           the fiscal year ended
                           December 31, 1995.**

10.22*                     Form of restricted stock grant under
                           the Replacement Stock Plan.
                           Incorporated by reference to
                           Exhibit 10.22 to the Company's
                           Annual Report on Form 10-K for
                           the fiscal year ended
                           December 31, 1995.**

10.23*                     Retirement agreement dated August 9,
                           1994 between Wayne E. Hedien and the
                           Company.  Incorporated by reference
                           to the Company's Annual Report on
                           Form 10-K for the fiscal year ended
                           December 31, 1994.**

11                         Computation of Earnings per
                           Common Share.

12                         Computation of Earnings to Fixed
                           Charges Ratio.

13                         Portions of The Allstate Corporation
                           1996 Annual Report incorporated by
                           reference into Part I or Part II of
                           the Registrant's Annual Report on
                           Form 10-K for the fiscal year ended
                           December 31, 1996.

21                         Subsidiaries of the Registrant.

23                         Independent Auditors' Consent.








                                       E-5

<PAGE>





Exhibit                                                             Sequential
No.                        Document Description                      Page No.
-------                    --------------------                     ----------

27                         Financial Data schedule, submitted
                           electronically to the Securities and
                           Exchange Commission for information
                           only and not filed.


































--------------------

* A management contract or compensatory plan or arrangement.
** SEC File No. 1-11840


                                       E-6

<PAGE>


                                                                Exhibit 11


                   The Allstate Corporation and Subsidiaries
                    Computation of Earnings Per Common Share

<TABLE>
<CAPTION>


(In millions, except for per share data)                                                 Twelve Months Ended December 31,
                                                                                 -------------------------------------------------

                                                                                       1996            1995            1994
                                                                                       ----            ----            ----

<S>                                                                                    <C>             <C>             <C> 
Net Income                                                                               $2,075          $1,904          $484
                                                                                       ========        ========        ======  

Primary earnings per common share computation:

        Weighted average number of common shares (1)                                        445.4           448.5         449.8
        Assumed exercise of dilutive stock options                                            2.8             1.0             -
                                                                                       ----------      ----------      --------  
           Adjusted weighted number of common shares outstanding                            448.2           449.5         449.8
                                                                                       ==========      ==========      ========

                Primary net income per share                                                 $4.63           $4.24         $1.08
                                                                                       ===========     ===========     =========

Fully diluted earnings per common share computation:

        Weighted average number of common shares (1)                                        445.4           448.5         449.8
        Assumed exercise of dilutive stock options                                            3.5             2.6             -
                                                                                       ----------      ----------      --------
           Adjusted weighted number of common shares outstanding                            448.9           451.1         449.8
                                                                                       ==========      ==========      ========

                Fully diluted net income per share                                           $4.62           $4.22         $1.08
                                                                                       ===========     ===========     =========



<FN>
        (1)  Common shares held as treasury shares were 8.5 million, 2.5 million
             and .6 million at December 31, 1996, 1995 and 1994, respectively.
</FN>
</TABLE>






                                      E-7

<PAGE>




                            THE ALLSTATE CORPORATION
                 COMPUTATION OF EARNINGS TO FIXED CHARGES RATIO
<TABLE>
<CAPTION>
                                                                                                                     Exhibit 12

                                                                       For the Year Ended December 31,
                                                           --------------------------------------------------------
  (In millions)                                            1996         1995         1994         1993         1992
                                                           ----         ----         ----         ----         ----


<S>                                                      <C>          <C>            <C>        <C>         <C>     
1.   Income (loss) from continuing operations
     before income taxes and cumulative
     effect of accounting changes, equity
     in net income of unconsolidated
     subsidiary, and dividends on preferred
     securities of subsidiary trust                      $2,669       $2,421         $120       $1,282      ($1,528)


2.   Equity in income of 100% owned subsidiary                -           49          107           94          103

3.   Dividends from less than 50% owned subsidiary            2            2            -            -            -
                                                         ------       ------         ----       ------        -----

4.   Income(loss) from continuing operations
     before income taxes and cumulative effect
     of accounting changes                               $2,671       $2,472         $227       $1,376      ($1,425)
                                                          -----        -----          ---        -----        -----

     Fixed Charges:

5.   Interest of indebtedness                            $   76        $  72        $  60        $  81       $    -

6.   Interest factor of annual rental expense                71           90           95           96           92
                                                           ----         ----         ----         ----         ----

7.   Total fixed charges (5+6)                           $  147         $162         $155         $177          $92
                                                           ----         ----         ----         ----          ---

8.   Dividends on redeemable preferred securities             6           -            -            -             -

9.   Total fixed charges and dividends on
     redeemable preferred securities                     $  153        $ 162        $ 155       $  177       $   92
                                                           ----         ----         ----        -----          ---

10.  Income (loss) from continuing operations
     before income taxes, cumulative effect of
     accounting changes and fixed charges (1+4)          $2,818       $2,634         $382       $1,553      ($1,333)
                                                          =====        =====          ===        =====        =====
11.  Ratio of earnings to fixed charges                    18.4X        16.3X         2.5X         8.8X        (B)
                                                           ====         ====          ===          ===

12.  Interest credited to contractholder funds           $1,196       $1,191       $1,079       $1,104       $1,164

13.  Total fixed charges including dividends on
     redeemable preferred securities and interest
     credited to contractholder funds (9+12)             $1,349       $1,353       $1,234       $1,281       $1,256
                                                         ------       ------       ------       ------        -----

14.  Income (loss) from continuing operations
     before income taxes, cumulative effect of
     accounting changes and fixed charges
     including interest credited to
     investment contracts (4+7+12)                       $4,014       $3,825       $1,461       $2,657        ($169)
                                                          =====        =====        =====        =====         ====

15.  Ratio of earnings to fixed charges, including
     interest credited to investment contracts              3.0X         2.8X         1.2X         2.1X         (C)
                                                            ===          ===          ===          ===

<FN>
(A)  The Company has  authority  to issue up to  25,000,000  shares of preferred
     sock,  par value $1.00 per share;  however,  there are  currently no shares
     outstanding  and the  Company  does not  have a  preferred  stock  dividend
     obligation. Therefore, the Ratio of Earnings to Fixed Charges and Preferred
     Stock  Dividends is equal to the Ratio of Earnings to Fixed  Charges and is
     not disclosed  separately.  Certain items have been reclassified to conform
     with the current presentation.
(B)  For purposes of this  computation,  earnings  consist of income(loss)  from
     continuing operations before income taxes plus fixed charges. Fixed charges
     consist of interest expense,  amortization of financing costs, that portion
     of  rental  expense  that is  representative  of the  interest  factor  and
     dividends on redeemable  preferred  securities.  Earnings of the year ended
     December  3, 1992 were not  sufficient  to cover  fixed  charges  by $1,425
     million. The loss from 1992 resulted primarily from the impact of Hurricane
     Andrew which caused pre-tax losses after reinsurance of $2.5 billion.
     excluding losses from Hurricane Andrew, the 1992 ratio was 12.7x.
(C)  For purposes of this  computation,  earnings  consist of income (loss) from
     continuing operations before income taxes plus fixed charges. Fixed charges
     consist of interest  expense  (including  interest  credited to  investment
     contracts), amortization of financing costs, that portion of rental expense
     that is  representative  of the interest factor and dividends on redeemable
     preferred  securities.  Earnings for the year ended  December 31, 1992 were
     not sufficient to cover fixed charges by $1,425  million.  The loss in 1992
     resulted primarily from the impact of Hurricane Andrew which caused pre-tax
     losses after  reinsurance of $2.5 billion.  Excluding losses from Hurricane
     Andrew, the 1992 ratio was 1.9x.
</FN>
</TABLE>

                                       E-8


