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)	2016		2015
Immediate fixed annuities:
Structured settlement annuities	$	6,681	$	6,673
Other immediate fixed annuities	1,941		2,041
Traditional life insurance	2,643		2,584
Accident and health insurance	873		844
Other	101		105
Total reserve for life-contingent contract benefits	$	12,239	$	12,247

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 2.9% 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 2.0% 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 is included in the reserve for life-contingent contract benefits with respect to this deficiency. The offset to this liability is recorded as a reduction of the unrealized net capital gains included in accumulated other comprehensive income. This liability was zero as of both December 31, 2016 and 2015.

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



($ in millions)	2016		2015
Interest-sensitive life insurance	$	8,062	$	7,975
Investment contracts:
Fixed annuities	11,933		12,974
Funding agreements backing medium-term notes	—		85
Other investment contracts	265		261
Total contractholder funds	$	20,260	$	21,295

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 13.3% 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 17.9% of fixed annuities are subject to market value adjustment for discretionary withdrawals
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 1.5% 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 as of December 31, 2015 included funding agreements held by a VIE, Allstate Life Global Funding, that issued medium-term notes. The VIE’s primary assets were funding agreements used exclusively to back medium-term note programs.

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



($ in millions)	2016			2015			2014
Balance, beginning of year	$	21,295		$	22,529		$	24,304
Classified as held for sale, beginning balance	—			—			10,945
Total, including those classified as held for sale	21,295			22,529			35,249
Deposits	1,164			1,203			1,333
Interest credited	722			760			919
Benefits	(966		)	(1,077		)	(1,197		)
Surrenders and partial withdrawals	(1,053		)	(1,278		)	(2,273		)
Maturities of and interest payments on institutional products	(86		)	(1		)	(2		)
Contract charges	(829		)	(818		)	(881		)
Net transfers from separate accounts	5			7			7
Other adjustments	8			(30		)	36
Sold in LBL disposition	—			—			(10,662		)
Balance, end of year	$	20,260		$	21,295		$	22,529

The Company offered various guarantees to variable annuity contractholders. In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential. 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.

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 $2.93 billion and $3.22 billion of equity, fixed income and balanced mutual funds and $364 million and $341 million of money market mutual funds as of December 31, 2016 and 2015, 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,
	2016		2015
In the event of death
Separate account value	$	3,298	$	3,560
Net amount at risk ⁽¹⁾	$	585	$	675
Average attained age of contractholders	70 years		69 years
At annuitization (includes income benefit guarantees)
Separate account value	$	915	$	967
Net amount at risk ⁽²⁾	$	265	$	281
Weighted average waiting period until annuitization options available	None		None
For cumulative periodic withdrawals
Separate account value	$	267	$	294
Net amount at risk ⁽³⁾	$	10	$	10
Accumulation at specified dates
Separate account value	$	310	$	371
Net amount at risk ⁽⁴⁾	$	26	$	31
Weighted average waiting period until guarantee date	3 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, 2015 ⁽¹⁾	$	223	$	68	$	75	$	366
Less reinsurance recoverables	106		64		52		222
Net balance as of December 31, 2015	117		4		23		144
Incurred guarantee benefits	26		—		11		37
Paid guarantee benefits	—		—		—		—
Net change	26		—		11		37
Net balance as of December 31, 2016	143		4		34		181
Plus reinsurance recoverables	101		40		43		184
Balance, December 31, 2016 ⁽²⁾	$	244	$	44	$	77	$	365

Balance, December 31, 2014 ⁽³⁾	$	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 ⁽¹⁾	$	223	$	68	$	75	$	366

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⁽¹⁾	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.


⁽²⁾	Included in the total liability balance as of December 31, 2016 are reserves for variable annuity death benefits of $100 million, variable annuity income benefits of $40 million, variable annuity accumulation benefits of $34 million, variable annuity withdrawal benefits of $9 million and other guarantees of $182 million.


⁽³⁾	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.