Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of volume and fair value positions of derivative instruments and reporting location in the Condensed Consolidated Statement of Financial Position

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of June 30, 2019.



($ in millions, except number of contracts)		Volume⁽¹⁾
	Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability
Asset derivatives
Derivatives designated as fair value accounting hedging instruments
Other	Other assets	$	2	n/a	$	—		$	—	$	—
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Futures	Other assets	—		260	—			—		—
Equity and index contracts
Options	Other investments	—		3,153	84			84		—
Futures	Other assets	—		107	—			—		—
Total return index contracts
Total return swap agreements - fixed income	Other investments	3		n/a	—			—		—
Total return swap agreements - equity index	Other investments	12		n/a	1			1		—
Credit default contracts
Credit default swaps – buying protection	Other investments	1		n/a	—			—		—
Total asset derivatives		$	18	3,520	$	85		$	85	$	—

Liability derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other liabilities & accrued expenses	$	35	n/a	$	—		$	—	$	—
Equity and index contracts
Options	Other liabilities & accrued expenses	—		3,009	(28		)	—		(28		)
Futures	Other liabilities & accrued expenses	—		1	—			—		—
Total return index contracts
Total return swap agreements - fixed income	Other liabilities & accrued expenses	13		n/a	1			1		—
Foreign currency contracts
Foreign currency forwards	Other liabilities & accrued expenses	194		n/a	8			8		—
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	172		n/a	(22		)	—		(22		)
Guaranteed withdrawal benefits	Contractholder funds	209		n/a	(14		)	—		(14		)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds	1,690		n/a	(375		)	—		(375		)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses	32		n/a	(2		)	—		(2		)
Credit default swaps – selling protection	Other liabilities & accrued expenses	5		n/a	—			—		—
Total liability derivatives		2,350		3,010	(432		)	$	9	$	(441	)
Total derivatives		$	2,368	6,530	$	(347	)

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⁽¹⁾	Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statement of Financial Position as of December 31, 2018.



($ in millions, except number of contracts)		Volume ⁽¹⁾
	Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability
Asset derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments	$	6	n/a	$	—		$	—	$	—
Futures	Other assets	—		330	—			—		—
Equity and index contracts
Options	Other investments	—		3,440	21			21		—
Futures	Other assets	—		26	—			—		—
Total return index contracts
Total return swap agreements - fixed income	Other investments	7		n/a	—			—		—
Total return swap agreements - equity index	Other investments	10		n/a	(1		)	—		(1		)
Foreign currency contracts
Foreign currency forwards	Other investments	240		n/a	8			8		—
Credit default contracts
Credit default swaps – buying protection	Other investments	27		n/a	—			1		(1		)
Other contracts
Other	Other assets	2		n/a	—			—		—
Total asset derivatives		$	292	3,796	$	28		$	30	$	(2	)

Liability derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other liabilities & accrued expenses	$	31	n/a	$	1		$	1	$	—
Equity and index contracts
Options	Other liabilities & accrued expenses	—		3,266	(5		)	—		(5		)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	169		n/a	(25		)	—		(25		)
Guaranteed withdrawal benefits	Contractholder funds	210		n/a	(14		)	—		(14		)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds	1,696		n/a	(184		)	—		(184		)
Credit default contracts
Credit default swaps – selling protection	Other liabilities & accrued expenses	1		n/a	—			—		—
Total liability derivatives		2,107		3,266	(227		)	$	1	$	(228	)
Total derivatives		$	2,399	7,062	$	(199	)

____________

⁽¹⁾

Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)

Schedule of gross and net amounts about the Company's OTC derivatives subject to enforceable master netting arrangements, assets

The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.



($ in millions)				Offsets
	Gross amount			Counter- party netting			Cash collateral (received) pledged			Net amount on balance sheet			Securities collateral (received) pledged		Net amount
June 30, 2019
Asset derivatives	$	10		$	(9	)	$	—		$	1		$	—	$	1
Liability derivatives	(2		)	9			(8		)	(1		)	—		(1		)

December 31, 2018
Asset derivatives	$	10		$	(3	)	$	(5	)	$	2		$	—	$	2
Liability derivatives	(2		)	3			(1		)	—			—		—

Schedule of gross and net amounts about the Company's OTC derivatives subject to enforceable master netting arrangements, liabilities

The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.



($ in millions)				Offsets
	Gross amount			Counter- party netting			Cash collateral (received) pledged			Net amount on balance sheet			Securities collateral (received) pledged		Net amount
June 30, 2019
Asset derivatives	$	10		$	(9	)	$	—		$	1		$	—	$	1
Liability derivatives	(2		)	9			(8		)	(1		)	—		(1		)

December 31, 2018
Asset derivatives	$	10		$	(3	)	$	(5	)	$	2		$	—	$	2
Liability derivatives	(2		)	3			(1		)	—			—		—

Summary of impacts on operations and AOCI from foreign currency contracts, cash flow hedges

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships. There was no hedge ineffectiveness reported in realized gains and losses for the three months and six months ended June 30, 2019 and 2018. As of June 30, 2019, the Company had no derivatives used in cash flow hedging relationships.



($ in millions)	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Gain (loss) recognized in OCI on derivatives during the period	$	—	$	1	$	—	$	1
Gain reclassified from AOCI into income (realized capital gains and losses)	—		3		—		3

Schedule of gains and losses from valuation, settlements, and hedge ineffectiveness, fair value hedges and derivatives not designated as hedges

The following tables present gains and losses from valuation and settlements reported on derivatives not designated as accounting hedging instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income.



($ in millions)	Realized capital gains and losses		Contract benefits			Interest credited to contractholder funds			Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2019
Equity and index contracts	$	—	$	—		$	11		$	11
Embedded derivative financial instruments	—		(5		)	(5		)	(10		)
Foreign currency contracts	2		—			—			2
Total return swaps - fixed income	1		—			—			1
Total return swaps - equity index	1		—			—			1
Total	$	4	$	(5	)	$	6		$	5

Six months ended June 30, 2019
Equity and index contracts	$	2	$	—		$	40		$	42
Embedded derivative financial instruments	—		3			(37		)	(34		)
Foreign currency contracts	3		—			—			3
Total return swaps - fixed income	1		—			—			1
Total return swaps - equity index	2		—			—			2
Total	$	8	$	3		$	3		$	14

Three months ended June 30, 2018
Equity and index contracts	$	—	$	—		$	10		$	10
Embedded derivative financial instruments	—		1			2			3
Foreign currency contracts	7		—			—			7
Total	$	7	$	1		$	12		$	20

Six months ended June 30, 2018
Equity and index contracts	$	—	$	—		$	6		$	6
Embedded derivative financial instruments	—		5			22			27
Foreign currency contracts	4		—			—			4
Total	$	4	$	5		$	28		$	37

Summary of counterparty credit exposure by counterparty credit rating

The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.



($ in millions)	June 30, 2019							December 31, 2018
Rating⁽¹⁾	Number of counter-parties	Notional amount ⁽²⁾		Credit exposure ⁽²⁾		Exposure, net of collateral⁽²⁾		Number of counter- parties	Notional amount ⁽²⁾		Credit exposure ⁽²⁾		Exposure, net of collateral⁽²⁾
A+	5	$	262	$	7	$	—	3	$	283	$	9	$	1
A	1	28		1		—		1	23		—		—
Total	6	$	290	$	8	$	—	4	$	306	$	9	$	1

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⁽¹⁾	Allstate uses the lower of S&P’s or Moody’s long-term debt issuer ratings.

⁽²⁾

Only OTC derivatives with a net positive fair value are included for each counterparty.

Summary of derivative instruments with credit features in a liability position, including fair value of assets and collateral netted against the liability

The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.



($ in millions)	As of June 30, 2019			As of December 31, 2018
Gross liability fair value of contracts containing credit-risk-contingent features	$	2		$	2
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs	(2		)	(2		)
Collateral posted under MNAs for contracts containing credit-risk-contingent features	—			—
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	—		$	—

Schedule of CDS notional amounts by credit rating and fair value of protection sold

The following table shows the CDS notional amounts by credit rating and fair value of protection sold.



($ in millions)	Notional amount
	AA		A		BBB		BB and lower		Total		Fair value
June 30, 2019
Single name
Corporate debt	$	—	$	—	$	—	$	5	$	5	$	—
Total	$	—	$	—	$	—	$	5	$	5	$	—

December 31, 2018
Single name
Corporate debt	$	—	$	—	$	—	$	1	$	1	$	—
Total	$	—	$	—	$	—	$	1	$	1	$	—