Reserve for Life-Contingent Contract Benefits and Contractholder Funds

As of December 31, the reserve for life-contingent contract benefits consists of the following:



($ in millions)	2015		2014
Immediate fixed annuities:
Structured settlement annuities	$	6,673	$	6,682
Other immediate fixed annuities	2,041		2,250
Traditional life insurance	2,584		2,521
Accident and health insurance	844		830
Other	105		97
Total reserve for life-contingent contract benefits	$	12,247	$	12,380

The following table highlights the key assumptions generally used in calculating the reserve for life-contingent contract benefits:



Product	Mortality	Interest rate	Estimation method
Structured settlement annuities	U.S. population with projected calendar year improvements; mortality rates adjusted for each impaired life based on reduction in life expectancy	Interest rate assumptions range from 2.7% to 9.0%	Present value of contractually specified future benefits
Other immediate fixed annuities	1983 group annuity mortality table with internal modifications; 1983 individual annuity mortality table; Annuity 2000 mortality table with internal modifications; Annuity 2000 mortality table; 1983 individual annuity mortality table with internal modifications	Interest rate assumptions range from 0% to 11.5%	Present value of expected future benefits based on historical experience
Traditional life insurance	Actual company experience plus loading	Interest rate assumptions range from 2.5% to 11.3%	Net level premium reserve method using the Company’s withdrawal experience rates; includes reserves for unpaid claims
Accident and health insurance	Actual company experience plus loading	Interest rate assumptions range from 3.0% to 7.0%	Unearned premium; additional contract reserves for mortality risk and unpaid claims
Other: Variable annuity guaranteed minimum death benefits⁽¹⁾	Annuity 2012 mortality table with internal modifications	Interest rate assumptions range from 2.1% to 5.8%	Projected benefit ratio applied to cumulative assessments

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⁽¹⁾	In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”).

To the extent that unrealized gains on fixed income securities would result in a premium deficiency had those gains actually been realized, a premium deficiency reserve is recorded for certain immediate annuities with life contingencies. A liability of $28 million is included in the reserve for life-contingent contract benefits with respect to this deficiency as of December 31, 2014. The offset to this liability is recorded as a reduction of the unrealized net capital gains included in accumulated other comprehensive income. The liability is zero as of December 31, 2015.

As of December 31, contractholder funds consist of the following:



($ in millions)	2015		2014
Interest-sensitive life insurance	$	7,975	$	7,880
Investment contracts:
Fixed annuities	12,974		14,310
Funding agreements backing medium-term notes	85		85
Other investment contracts	261		254
Total contractholder funds	$	21,295	$	22,529

The following table highlights the key contract provisions relating to contractholder funds:



Product	Interest rate	Withdrawal/surrender charges
Interest-sensitive life insurance	Interest rates credited range from 0% to 10.5% for equity-indexed life (whose returns are indexed to the S&P 500) and 1.0% to 6.0% for all other products	Either a percentage of account balance or dollar amount grading off generally over 20 years
Fixed annuities	Interest rates credited range from 0% to 9.8% for immediate annuities; (8.0)% to 13.5% for equity-indexed annuities (whose returns are indexed to the S&P 500); and 0.1% to 6.0% for all other products	Either a declining or a level percentage charge generally over ten years or less. Additionally, approximately 19.2% of fixed annuities are subject to market value adjustment for discretionary withdrawals
Funding agreements backing medium-term notes	Interest rate credited is a floating rate, currently 0%	Not applicable
Other investment contracts: Guaranteed minimum income, accumulation and withdrawal benefits on variable ⁽¹⁾ and fixed annuities and secondary guarantees on interest-sensitive life insurance and fixed annuities	Interest rates used in establishing reserves range from 1.7% to 10.3%	Withdrawal and surrender charges are based on the terms of the related interest-sensitive life insurance or fixed annuity contract

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⁽¹⁾	In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.

Contractholder funds include funding agreements held by a VIE, Allstate Life Global Funding, that issued medium-term notes. The VIE’s primary assets are funding agreements used exclusively to back medium-term note programs.

Contractholder funds activity for the years ended December 31 is as follows:



($ in millions)	2015			2014			2013
Balance, beginning of year	$	22,529		$	24,304		$	39,319
Classified as held for sale, beginning balance	—			10,945			—
Total, including those classified as held for sale	22,529			35,249			39,319
Deposits	1,203			1,333			2,440
Interest credited	760			919			1,295
Benefits	(1,077		)	(1,197		)	(1,535		)
Surrenders and partial withdrawals	(1,278		)	(2,273		)	(3,299		)
Maturities of and interest payments on institutional products	(1		)	(2		)	(1,799		)
Contract charges	(818		)	(881		)	(1,112		)
Net transfers from separate accounts	7			7			12
Other adjustments	(30		)	36			(72		)
Sold in LBL disposition	—			(10,662		)	—
Classified as held for sale, ending balance	—			—			(10,945		)
Balance, end of year	$	21,295		$	22,529		$	24,304

The Company offered various guarantees to variable annuity contractholders. Liabilities for variable contract guarantees related to death benefits are included in the reserve for life-contingent contract benefits and the liabilities related to the income, withdrawal and accumulation benefits are included in contractholder funds. All liabilities for variable contract guarantees are reported on a gross basis on the balance sheet with a corresponding reinsurance recoverable asset for those contracts subject to reinsurance. In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.

Absent any contract provision wherein the Company guarantees either a minimum return or account value upon death, a specified contract anniversary date, partial withdrawal or annuitization, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives. The account balances of variable annuities contracts’ separate accounts with guarantees included $3.22 billion and $3.82 billion of equity, fixed income and balanced mutual funds and $341 million and $467 million of money market mutual funds as of December 31, 2015 and 2014, respectively.

The table below presents information regarding the Company’s variable annuity contracts with guarantees. The Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts’ separate accounts with guarantees.



($ in millions)	December 31,
	2015		2014
In the event of death
Separate account value	$	3,560	$	4,288
Net amount at risk ⁽¹⁾	$	675	$	581
Average attained age of contractholders	69 years		69 years
At annuitization (includes income benefit guarantees)
Separate account value	$	967	$	1,142
Net amount at risk ⁽²⁾	$	281	$	238
Weighted average waiting period until annuitization options available	None		None
For cumulative periodic withdrawals
Separate account value	$	294	$	382
Net amount at risk ⁽³⁾	$	10	$	8
Accumulation at specified dates
Separate account value	$	371	$	480
Net amount at risk ⁽⁴⁾	$	31	$	24
Weighted average waiting period until guarantee date	4 years		4 years

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⁽¹⁾	Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date.


⁽²⁾	Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance.


⁽³⁾	Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date.


⁽⁴⁾	Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance.

The liability for death and income benefit guarantees is equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract excess guarantee benefit payments. The benefit ratio is calculated as the estimated present value of all expected contract excess guarantee benefits divided by the present value of all expected contract charges. The establishment of reserves for these guarantees requires the projection of future fund values, mortality, persistency and customer benefit utilization rates. These assumptions are periodically reviewed and updated. For guarantees related to death benefits, benefits represent the projected excess guaranteed minimum death benefit payments. For guarantees related to income benefits, benefits represent the present value of the minimum guaranteed annuitization benefits in excess of the projected account balance at the time of annuitization.

Projected benefits and contract charges used in determining the liability for certain guarantees are developed using models and stochastic scenarios that are also used in the development of estimated expected gross profits. Underlying assumptions for the liability related to income benefits include assumed future annuitization elections based on factors such as the extent of benefit to the potential annuitant, eligibility conditions and the annuitant’s attained age. The liability for guarantees is re-evaluated periodically, and adjustments are made to the liability balance through a charge or credit to life and annuity contract benefits.

Guarantees related to the majority of withdrawal and accumulation benefits are considered to be derivative financial instruments; therefore, the liability for these benefits is established based on its fair value.

The following table summarizes the liabilities for guarantees.



($ in millions)	Liability for guarantees related to death benefits and interest-sensitive life products			Liability for guarantees related to income benefits			Liability for guarantees related to accumulation and withdrawal benefits			Total
Balance, December 31, 2014 ⁽¹⁾	$	195		$	95		$	60		$	350
Less reinsurance recoverables	98			91			45			234
Net balance as of December 31, 2014	97			4			15			116
Incurred guarantee benefits	20			—			8			28
Paid guarantee benefits	—			—			—			—
Net change	20			—			8			28
Net balance as of December 31, 2015	117			4			23			144
Plus reinsurance recoverables	106			64			52			222
Balance, December 31, 2015 ⁽²⁾	$	223		$	68		$	75		$	366

Balance, December 31, 2013 ⁽³⁾	$	377		$	113		$	65		$	555
Less reinsurance recoverables	100			99			56			255
Net balance as of December 31, 2013	277			14			9			300
Incurred guarantee benefits	34			—			9			43
Paid guarantee benefits	—			—			—			—
Sold in LBL disposition	(214		)	(10		)	(3		)	(227		)
Net change	(180		)	(10		)	6			(184		)
Net balance as of December 31, 2014	97			4			15			116
Plus reinsurance recoverables	98			91			45			234
Balance, December 31, 2014 ⁽¹⁾	$	195		$	95		$	60		$	350

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⁽¹⁾	Included in the total liability balance as of December 31, 2014 are reserves for variable annuity death benefits of $96 million, variable annuity income benefits of $92 million, variable annuity accumulation benefits of $32 million, variable annuity withdrawal benefits of $13 million and other guarantees of $117 million.


⁽²⁾	Included in the total liability balance as of December 31, 2015 are reserves for variable annuity death benefits of $105 million, variable annuity income benefits of $65 million, variable annuity accumulation benefits of $38 million, variable annuity withdrawal benefits of $14 million and other guarantees of $144 million.


⁽³⁾	Included in the total liability balance as of December 31, 2013 are reserves for variable annuity death benefits of $98 million, variable annuity income benefits of $99 million, variable annuity accumulation benefits of $43 million, variable annuity withdrawal benefits of $13 million and other guarantees of $302 million.