Delaware | 36-3871531 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2775 Sanders Road, Northbrook, Illinois | 60062 | ||
(Address of principal executive offices) | (Zip Code) |
Yes X | No ___ |
Yes X | No ___ |
Large accelerated filer | X | Accelerated filer | ____ |
Non-accelerated filer | (Do not check if a smaller reporting company) | Smaller reporting company | ____ |
Emerging growth company | ____ |
Yes | No X |
PART I | FINANCIAL INFORMATION | PAGE |
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited) | ||
Condensed Consolidated Statements of Comprehensive Income for the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited) | ||
Condensed Consolidated Statements of Financial Position as of March 31, 2017 (unaudited) and December 31, 2016 | ||
Condensed Consolidated Statements of Shareholders’ Equity for the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited) | ||
Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited) | ||
Consolidated Investment Highlights | ||
($ in millions, except per share data) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
(unaudited) | |||||||
Revenues | |||||||
Property-liability insurance premiums | $ | 7,959 | $ | 7,723 | |||
Life and annuity premiums and contract charges | 593 | 566 | |||||
Net investment income | 748 | 731 | |||||
Realized capital gains and losses: | |||||||
Total other-than-temporary impairment (“OTTI”) losses | (62 | ) | (91 | ) | |||
OTTI losses reclassified to (from) other comprehensive income | 3 | 10 | |||||
Net OTTI losses recognized in earnings | (59 | ) | (81 | ) | |||
Sales and other realized capital gains and losses | 193 | (68 | ) | ||||
Total realized capital gains and losses | 134 | (149 | ) | ||||
9,434 | 8,871 | ||||||
Costs and expenses | |||||||
Property-liability insurance claims and claims expense | 5,416 | 5,684 | |||||
Life and annuity contract benefits | 474 | 455 | |||||
Interest credited to contractholder funds | 173 | 190 | |||||
Amortization of deferred policy acquisition costs | 1,169 | 1,129 | |||||
Operating costs and expenses | 1,097 | 982 | |||||
Restructuring and related charges | 10 | 5 | |||||
Interest expense | 85 | 73 | |||||
8,424 | 8,518 | ||||||
Gain on disposition of operations | 2 | 2 | |||||
Income from operations before income tax expense | 1,012 | 355 | |||||
Income tax expense | 317 | 109 | |||||
Net income | 695 | 246 | |||||
Preferred stock dividends | 29 | 29 | |||||
Net income applicable to common shareholders | $ | 666 | $ | 217 | |||
Earnings per common share: | |||||||
Net income applicable to common shareholders per common share - Basic | $ | 1.82 | $ | 0.57 | |||
Weighted average common shares - Basic | 365.7 | 378.1 | |||||
Net income applicable to common shareholders per common share - Diluted | $ | 1.79 | $ | 0.57 | |||
Weighted average common shares - Diluted | 371.3 | 382.9 | |||||
Cash dividends declared per common share | $ | 0.37 | $ | 0.33 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
(unaudited) | |||||||
Net income | $ | 695 | $ | 246 | |||
Other comprehensive income, after-tax | |||||||
Changes in: | |||||||
Unrealized net capital gains and losses | 203 | 580 | |||||
Unrealized foreign currency translation adjustments | (3 | ) | 14 | ||||
Unrecognized pension and other postretirement benefit cost | 19 | 11 | |||||
Other comprehensive income, after-tax | 219 | 605 | |||||
Comprehensive income | $ | 914 | $ | 851 |
($ in millions, except par value data) | March 31, 2017 | December 31, 2016 | |||||
Assets | (unaudited) | ||||||
Investments | |||||||
Fixed income securities, at fair value (amortized cost $57,194 and $56,576) | $ | 58,636 | $ | 57,839 | |||
Equity securities, at fair value (cost $5,026 and $5,157) | 5,685 | 5,666 | |||||
Mortgage loans | 4,349 | 4,486 | |||||
Limited partnership interests | 5,982 | 5,814 | |||||
Short-term, at fair value (amortized cost $2,753 and $4,288) | 2,753 | 4,288 | |||||
Other | 3,738 | 3,706 | |||||
Total investments | 81,143 | 81,799 | |||||
Cash | 442 | 436 | |||||
Premium installment receivables, net | 5,649 | 5,597 | |||||
Deferred policy acquisition costs | 3,988 | 3,954 | |||||
Reinsurance recoverables, net | 8,723 | 8,745 | |||||
Accrued investment income | 577 | 567 | |||||
Property and equipment, net | 1,067 | 1,065 | |||||
Goodwill | 2,295 | 1,219 | |||||
Other assets | 2,923 | 1,835 | |||||
Separate Accounts | 3,436 | 3,393 | |||||
Total assets | $ | 110,243 | $ | 108,610 | |||
Liabilities | |||||||
Reserve for property-liability insurance claims and claims expense | $ | 25,628 | $ | 25,250 | |||
Reserve for life-contingent contract benefits | 12,223 | 12,239 | |||||
Contractholder funds | 20,051 | 20,260 | |||||
Unearned premiums | 12,705 | 12,583 | |||||
Claim payments outstanding | 845 | 879 | |||||
Deferred income taxes | 833 | 487 | |||||
Other liabilities and accrued expenses | 7,018 | 6,599 | |||||
Long-term debt | 6,346 | 6,347 | |||||
Separate Accounts | 3,436 | 3,393 | |||||
Total liabilities | 89,085 | 88,037 | |||||
Commitments and Contingent Liabilities (Note 11) | |||||||
Shareholders’ equity | |||||||
Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 72.2 thousand shares issued and outstanding, and $1,805 aggregate liquidation preference | 1,746 | 1,746 | |||||
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 365 million and 366 million shares outstanding | 9 | 9 | |||||
Additional capital paid-in | 3,285 | 3,303 | |||||
Retained income | 41,208 | 40,678 | |||||
Deferred ESOP expense | (6 | ) | (6 | ) | |||
Treasury stock, at cost (535 million and 534 million shares) | (24,887 | ) | (24,741 | ) | |||
Accumulated other comprehensive income: | |||||||
Unrealized net capital gains and losses: | |||||||
Unrealized net capital gains and losses on fixed income securities with OTTI | 59 | 57 | |||||
Other unrealized net capital gains and losses | 1,304 | 1,091 | |||||
Unrealized adjustment to DAC, DSI and insurance reserves | (107 | ) | (95 | ) | |||
Total unrealized net capital gains and losses | 1,256 | 1,053 | |||||
Unrealized foreign currency translation adjustments | (53 | ) | (50 | ) | |||
Unrecognized pension and other postretirement benefit cost | (1,400 | ) | (1,419 | ) | |||
Total accumulated other comprehensive loss | (197 | ) | (416 | ) | |||
Total shareholders’ equity | 21,158 | 20,573 | |||||
Total liabilities and shareholders’ equity | $ | 110,243 | $ | 108,610 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
(unaudited) | |||||||
Preferred stock par value | $ | — | $ | — | |||
Preferred stock additional capital paid-in | 1,746 | 1,746 | |||||
Common stock | 9 | 9 | |||||
Additional capital paid-in | |||||||
Balance, beginning of period | 3,303 | 3,245 | |||||
Equity incentive plans activity | (18 | ) | (8 | ) | |||
Balance, end of period | 3,285 | 3,237 | |||||
Retained income | |||||||
Balance, beginning of period | 40,678 | 39,413 | |||||
Net income | 695 | 246 | |||||
Dividends on common stock | (136 | ) | (125 | ) | |||
Dividends on preferred stock | (29 | ) | (29 | ) | |||
Balance, end of period | 41,208 | 39,505 | |||||
Deferred ESOP expense | (6 | ) | (13 | ) | |||
Treasury stock | |||||||
Balance, beginning of period | (24,741 | ) | (23,620 | ) | |||
Shares acquired | (249 | ) | (450 | ) | |||
Shares reissued under equity incentive plans, net | 103 | 76 | |||||
Balance, end of period | (24,887 | ) | (23,994 | ) | |||
Accumulated other comprehensive income | |||||||
Balance, beginning of period | (416 | ) | (755 | ) | |||
Change in unrealized net capital gains and losses | 203 | 580 | |||||
Change in unrealized foreign currency translation adjustments | (3 | ) | 14 | ||||
Change in unrecognized pension and other postretirement benefit cost | 19 | 11 | |||||
Balance, end of period | (197 | ) | (150 | ) | |||
Total shareholders’ equity | $ | 21,158 | $ | 20,340 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Cash flows from operating activities | (unaudited) | ||||||
Net income | $ | 695 | $ | 246 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization and other non-cash items | 119 | 91 | |||||
Realized capital gains and losses | (134 | ) | 149 | ||||
Gain on disposition of operations | (2 | ) | (2 | ) | |||
Interest credited to contractholder funds | 173 | 190 | |||||
Changes in: | |||||||
Policy benefits and other insurance reserves | 183 | 459 | |||||
Unearned premiums | (248 | ) | (205 | ) | |||
Deferred policy acquisition costs | 14 | (7 | ) | ||||
Premium installment receivables, net | (19 | ) | 11 | ||||
Reinsurance recoverables, net | 11 | (40 | ) | ||||
Income taxes | 284 | (26 | ) | ||||
Other operating assets and liabilities | (219 | ) | (152 | ) | |||
Net cash provided by operating activities | 857 | 714 | |||||
Cash flows from investing activities | |||||||
Proceeds from sales | |||||||
Fixed income securities | 7,083 | 6,216 | |||||
Equity securities | 2,601 | 1,664 | |||||
Limited partnership interests | 210 | 180 | |||||
Other investments | 24 | 94 | |||||
Investment collections | |||||||
Fixed income securities | 1,029 | 949 | |||||
Mortgage loans | 223 | 79 | |||||
Other investments | 174 | 43 | |||||
Investment purchases | |||||||
Fixed income securities | (8,800 | ) | (5,401 | ) | |||
Equity securities | (2,383 | ) | (1,733 | ) | |||
Limited partnership interests | (268 | ) | (270 | ) | |||
Mortgage loans | (86 | ) | (44 | ) | |||
Other investments | (219 | ) | (253 | ) | |||
Change in short-term investments, net | 1,572 | (1,357 | ) | ||||
Change in other investments, net | (10 | ) | (19 | ) | |||
Purchases of property and equipment, net | (74 | ) | (52 | ) | |||
Acquisition of operations | (1,356 | ) | — | ||||
Net cash (used in) provided by investing activities | (280 | ) | 96 | ||||
Cash flows from financing activities | |||||||
Repayments of long-term debt | — | (16 | ) | ||||
Contractholder fund deposits | 257 | 261 | |||||
Contractholder fund withdrawals | (483 | ) | (492 | ) | |||
Dividends paid on common stock | (122 | ) | (115 | ) | |||
Dividends paid on preferred stock | (29 | ) | (29 | ) | |||
Treasury stock purchases | (264 | ) | (456 | ) | |||
Shares reissued under equity incentive plans, net | 67 | 30 | |||||
Excess tax benefits on share-based payment arrangements | — | 12 | |||||
Other | 3 | 31 | |||||
Net cash used in financing activities | (571 | ) | (774 | ) | |||
Net increase in cash | 6 | 36 | |||||
Cash at beginning of period | 436 | 495 | |||||
Cash at end of period | $ | 442 | $ | 531 |
($ in millions, except per share data) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Numerator: | |||||||
Net income | $ | 695 | $ | 246 | |||
Less: Preferred stock dividends | 29 | 29 | |||||
Net income applicable to common shareholders (1) | $ | 666 | $ | 217 | |||
Denominator: | |||||||
Weighted average common shares outstanding | 365.7 | 378.1 | |||||
Effect of dilutive potential common shares: | |||||||
Stock options | 4.2 | 3.4 | |||||
Restricted stock units (non-participating) and performance stock awards | 1.4 | 1.4 | |||||
Weighted average common and dilutive potential common shares outstanding | 371.3 | 382.9 | |||||
Earnings per common share - Basic | $ | 1.82 | $ | 0.57 | |||
Earnings per common share - Diluted | $ | 1.79 | $ | 0.57 |
(1) | Net income applicable to common shareholders is net income less preferred stock dividends. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Net change in proceeds managed | |||||||
Net change in fixed income securities | $ | (17 | ) | $ | — | ||
Net change in short-term investments | (26 | ) | (34 | ) | |||
Operating cash flow used | $ | (43 | ) | $ | (34 | ) | |
Net change in liabilities | |||||||
Liabilities for collateral, beginning of period | $ | (1,129 | ) | $ | (840 | ) | |
Liabilities for collateral, end of period | (1,172 | ) | (874 | ) | |||
Operating cash flow provided | $ | 43 | $ | 34 |
($ in millions) | Amortized cost | Gross unrealized | Fair value | ||||||||||||
Gains | Losses | ||||||||||||||
March 31, 2017 | |||||||||||||||
U.S. government and agencies | $ | 4,329 | $ | 70 | $ | (4 | ) | $ | 4,395 | ||||||
Municipal | 7,249 | 315 | (57 | ) | 7,507 | ||||||||||
Corporate | 42,543 | 1,234 | (242 | ) | 43,535 | ||||||||||
Foreign government | 995 | 34 | (2 | ) | 1,027 | ||||||||||
Asset-backed securities (“ABS”) | 1,262 | 15 | (12 | ) | 1,265 | ||||||||||
Residential mortgage-backed securities (“RMBS”) | 589 | 89 | (6 | ) | 672 | ||||||||||
Commercial mortgage-backed securities (“CMBS”) | 206 | 14 | (9 | ) | 211 | ||||||||||
Redeemable preferred stock | 21 | 3 | — | 24 | |||||||||||
Total fixed income securities | $ | 57,194 | $ | 1,774 | $ | (332 | ) | $ | 58,636 | ||||||
December 31, 2016 | |||||||||||||||
U.S. government and agencies | $ | 3,572 | $ | 74 | $ | (9 | ) | $ | 3,637 | ||||||
Municipal | 7,116 | 304 | (87 | ) | 7,333 | ||||||||||
Corporate | 42,742 | 1,178 | (319 | ) | 43,601 | ||||||||||
Foreign government | 1,043 | 36 | (4 | ) | 1,075 | ||||||||||
ABS | 1,169 | 13 | (11 | ) | 1,171 | ||||||||||
RMBS | 651 | 85 | (8 | ) | 728 | ||||||||||
CMBS | 262 | 17 | (9 | ) | 270 | ||||||||||
Redeemable preferred stock | 21 | 3 | — | 24 | |||||||||||
Total fixed income securities | $ | 56,576 | $ | 1,710 | $ | (447 | ) | $ | 57,839 |
($ in millions) | Amortized cost | Fair value | |||||
Due in one year or less | $ | 4,193 | $ | 4,225 | |||
Due after one year through five years | 29,206 | 29,746 | |||||
Due after five years through ten years | 16,306 | 16,549 | |||||
Due after ten years | 5,432 | 5,968 | |||||
55,137 | 56,488 | ||||||
ABS, RMBS and CMBS | 2,057 | 2,148 | |||||
Total | $ | 57,194 | $ | 58,636 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | 518 | $ | 518 | |||
Equity securities | 44 | 28 | |||||
Mortgage loans | 55 | 53 | |||||
Limited partnership interests | 120 | 121 | |||||
Short-term investments | 6 | 4 | |||||
Other | 56 | 51 | |||||
Investment income, before expense | 799 | 775 | |||||
Investment expense | (51 | ) | (44 | ) | |||
Net investment income | $ | 748 | $ | 731 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | 5 | $ | (71 | ) | ||
Equity securities | 106 | (90 | ) | ||||
Limited partnership interests | 40 | 26 | |||||
Derivatives | (15 | ) | (9 | ) | |||
Other | (2 | ) | (5 | ) | |||
Realized capital gains and losses | $ | 134 | $ | (149 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Impairment write-downs | $ | (43 | ) | $ | (59 | ) | |
Change in intent write-downs | (16 | ) | (22 | ) | |||
Net other-than-temporary impairment losses recognized in earnings | (59 | ) | (81 | ) | |||
Sales and other | 208 | (59 | ) | ||||
Valuation and settlements of derivative instruments | (15 | ) | (9 | ) | |||
Realized capital gains and losses | $ | 134 | $ | (149 | ) |
($ in millions) | Three months ended March 31, 2017 | Three months ended March 31, 2016 | |||||||||||||||||||||
Gross | Included in OCI | Net | Gross | Included in OCI | Net | ||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||
Corporate | $ | (9 | ) | $ | 3 | $ | (6 | ) | $ | (16 | ) | $ | 7 | $ | (9 | ) | |||||||
ABS | — | — | — | (6 | ) | 1 | (5 | ) | |||||||||||||||
RMBS | (1 | ) | (3 | ) | (4 | ) | — | — | — | ||||||||||||||
CMBS | (6 | ) | 3 | (3 | ) | (4 | ) | 2 | (2 | ) | |||||||||||||
Total fixed income securities | (16 | ) | 3 | (13 | ) | (26 | ) | 10 | (16 | ) | |||||||||||||
Equity securities | (36 | ) | — | (36 | ) | (77 | ) | — | (77 | ) | |||||||||||||
Limited partnership interests | (7 | ) | — | (7 | ) | 13 | — | 13 | |||||||||||||||
Other | (3 | ) | — | (3 | ) | (1 | ) | — | (1 | ) | |||||||||||||
Other-than-temporary impairment losses | $ | (62 | ) | $ | 3 | $ | (59 | ) | $ | (91 | ) | $ | 10 | $ | (81 | ) |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||
Municipal | $ | (8 | ) | $ | (8 | ) | |
Corporate | (8 | ) | (7 | ) | |||
ABS | (22 | ) | (21 | ) | |||
RMBS | (102 | ) | (90 | ) | |||
CMBS | (8 | ) | (7 | ) | |||
Total | $ | (148 | ) | $ | (133 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Beginning balance | $ | (318 | ) | $ | (392 | ) | |
Additional credit loss for securities previously other-than-temporarily impaired | (8 | ) | (8 | ) | |||
Additional credit loss for securities not previously other-than-temporarily impaired | (5 | ) | (8 | ) | |||
Reduction in credit loss for securities disposed or collected | 37 | 58 | |||||
Ending balance | $ | (294 | ) | $ | (350 | ) |
($ in millions) | Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||
March 31, 2017 | Gains | Losses | |||||||||||||
Fixed income securities | $ | 58,636 | $ | 1,774 | $ | (332 | ) | $ | 1,442 | ||||||
Equity securities | 5,685 | 714 | (55 | ) | 659 | ||||||||||
Short-term investments | 2,753 | — | — | — | |||||||||||
Derivative instruments (1) | 3 | 3 | (3 | ) | — | ||||||||||
Equity method (“EMA”) limited partnerships (2) | — | ||||||||||||||
Unrealized net capital gains and losses, pre-tax | 2,101 | ||||||||||||||
Amounts recognized for: | |||||||||||||||
Insurance reserves (3) | — | ||||||||||||||
DAC and DSI (4) | (165 | ) | |||||||||||||
Amounts recognized | (165 | ) | |||||||||||||
Deferred income taxes | (680 | ) | |||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 1,256 |
(1) | Included in the fair value of derivative instruments is $(3) million classified as liabilities. |
(2) | Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross unrealized gains and losses are not applicable. |
(3) | The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment, if any, primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies. |
(4) | The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized. |
($ in millions) | Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||
December 31, 2016 | Gains | Losses | |||||||||||||
Fixed income securities | $ | 57,839 | $ | 1,710 | $ | (447 | ) | $ | 1,263 | ||||||
Equity securities | 5,666 | 594 | (85 | ) | 509 | ||||||||||
Short-term investments | 4,288 | — | — | — | |||||||||||
Derivative instruments (1) | 5 | 5 | (3 | ) | 2 | ||||||||||
EMA limited partnerships | (4 | ) | |||||||||||||
Unrealized net capital gains and losses, pre-tax | 1,770 | ||||||||||||||
Amounts recognized for: | |||||||||||||||
Insurance reserves | — | ||||||||||||||
DAC and DSI | (146 | ) | |||||||||||||
Amounts recognized | (146 | ) | |||||||||||||
Deferred income taxes | (571 | ) | |||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 1,053 |
(1) | Included in the fair value of derivative instruments is $5 million classified as assets. |
($ in millions) | |||
Fixed income securities | $ | 179 | |
Equity securities | 150 | ||
Derivative instruments | (2 | ) | |
EMA limited partnerships | 4 | ||
Total | 331 | ||
Amounts recognized for: | |||
Insurance reserves | — | ||
DAC and DSI | (19 | ) | |
Amounts recognized | (19 | ) | |
Deferred income taxes | (109 | ) | |
Increase in unrealized net capital gains and losses, after-tax | $ | 203 |
($ in millions) | Less than 12 months | 12 months or more | Total unrealized losses | ||||||||||||||||||||||
Number of issues | Fair value | Unrealized losses | Number of issues | Fair value | Unrealized losses | ||||||||||||||||||||
March 31, 2017 | |||||||||||||||||||||||||
Fixed income securities | |||||||||||||||||||||||||
U.S. government and agencies | 45 | $ | 1,411 | $ | (4 | ) | — | $ | — | $ | — | $ | (4 | ) | |||||||||||
Municipal | 963 | 2,000 | (47 | ) | 8 | 30 | (10 | ) | (57 | ) | |||||||||||||||
Corporate | 714 | 10,634 | (186 | ) | 51 | 462 | (56 | ) | (242 | ) | |||||||||||||||
Foreign government | 33 | 166 | (2 | ) | — | — | — | (2 | ) | ||||||||||||||||
ABS | 30 | 219 | (1 | ) | 13 | 61 | (11 | ) | (12 | ) | |||||||||||||||
RMBS | 63 | 44 | (1 | ) | 187 | 77 | (5 | ) | (6 | ) | |||||||||||||||
CMBS | 8 | 21 | (2 | ) | 7 | 19 | (7 | ) | (9 | ) | |||||||||||||||
Total fixed income securities | 1,856 | 14,495 | (243 | ) | 266 | 649 | (89 | ) | (332 | ) | |||||||||||||||
Equity securities | 133 | 476 | (41 | ) | 21 | 98 | (14 | ) | (55 | ) | |||||||||||||||
Total fixed income and equity securities | 1,989 | $ | 14,971 | $ | (284 | ) | 287 | $ | 747 | $ | (103 | ) | $ | (387 | ) | ||||||||||
Investment grade fixed income securities | 1,697 | $ | 12,905 | $ | (211 | ) | 194 | $ | 340 | $ | (47 | ) | $ | (258 | ) | ||||||||||
Below investment grade fixed income securities | 159 | 1,590 | (32 | ) | 72 | 309 | (42 | ) | (74 | ) | |||||||||||||||
Total fixed income securities | 1,856 | $ | 14,495 | $ | (243 | ) | 266 | $ | 649 | $ | (89 | ) | $ | (332 | ) | ||||||||||
December 31, 2016 | |||||||||||||||||||||||||
Fixed income securities | |||||||||||||||||||||||||
U.S. government and agencies | 46 | $ | 943 | $ | (9 | ) | — | $ | — | $ | — | $ | (9 | ) | |||||||||||
Municipal | 1,310 | 3,073 | (76 | ) | 8 | 29 | (11 | ) | (87 | ) | |||||||||||||||
Corporate | 862 | 13,343 | (256 | ) | 83 | 678 | (63 | ) | (319 | ) | |||||||||||||||
Foreign government | 41 | 225 | (4 | ) | — | — | — | (4 | ) | ||||||||||||||||
ABS | 31 | 222 | (1 | ) | 14 | 109 | (10 | ) | (11 | ) | |||||||||||||||
RMBS | 89 | 53 | (1 | ) | 179 | 91 | (7 | ) | (8 | ) | |||||||||||||||
CMBS | 15 | 59 | (4 | ) | 4 | 15 | (5 | ) | (9 | ) | |||||||||||||||
Redeemable preferred stock | 1 | — | — | — | — | — | — | ||||||||||||||||||
Total fixed income securities | 2,395 | 17,918 | (351 | ) | 288 | 922 | (96 | ) | (447 | ) | |||||||||||||||
Equity securities | 195 | 654 | (56 | ) | 46 | 165 | (29 | ) | (85 | ) | |||||||||||||||
Total fixed income and equity securities | 2,590 | $ | 18,572 | $ | (407 | ) | 334 | $ | 1,087 | $ | (125 | ) | $ | (532 | ) | ||||||||||
Investment grade fixed income securities | 2,202 | $ | 15,678 | $ | (293 | ) | 201 | $ | 493 | $ | (51 | ) | $ | (344 | ) | ||||||||||
Below investment grade fixed income securities | 193 | 2,240 | (58 | ) | 87 | 429 | (45 | ) | (103 | ) | |||||||||||||||
Total fixed income securities | 2,395 | $ | 17,918 | $ | (351 | ) | 288 | $ | 922 | $ | (96 | ) | $ | (447 | ) |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||||||||||||||||||
Debt service coverage ratio distribution | Fixed rate mortgage loans | Variable rate mortgage loans | Total | Fixed rate mortgage loans | Variable rate mortgage loans | Total | |||||||||||||||||
Below 1.0 | $ | 27 | $ | — | $ | 27 | $ | 60 | $ | — | $ | 60 | |||||||||||
1.0 - 1.25 | 334 | — | 334 | 324 | — | 324 | |||||||||||||||||
1.26 - 1.50 | 1,316 | — | 1,316 | 1,293 | — | 1,293 | |||||||||||||||||
Above 1.50 | 2,628 | 39 | 2,667 | 2,765 | 39 | 2,804 | |||||||||||||||||
Total non-impaired mortgage loans | $ | 4,305 | $ | 39 | $ | 4,344 | $ | 4,442 | $ | 39 | $ | 4,481 |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||
Impaired mortgage loans with a valuation allowance | $ | 5 | $ | 5 | |||
Impaired mortgage loans without a valuation allowance | — | — | |||||
Total impaired mortgage loans | $ | 5 | $ | 5 | |||
Valuation allowance on impaired mortgage loans | $ | 3 | $ | 3 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Beginning balance | $ | 3 | $ | 3 | |||
Charge offs | — | — | |||||
Ending balance | $ | 3 | $ | 3 |
(a) | Quoted prices for similar assets or liabilities in active markets; |
(b) | Quoted prices for identical or similar assets or liabilities in markets that are not active; or |
(c) | Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. |
• | Fixed income securities: Comprise certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. |
• | Equity securities: Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. |
• | Short-term: Comprise U.S. Treasury bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access. |
• | Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers. |
• | Fixed income securities: |
• | Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active. |
• | Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value. |
• | Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active. |
• | Fixed income securities: |
• | Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements. |
• | Other investments: Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads. |
• | Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs. |
($ in millions) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Counterparty and cash collateral netting | Balance as of March 31, 2017 | ||||||||||||||
Assets | |||||||||||||||||||
Fixed income securities: | |||||||||||||||||||
U.S. government and agencies | $ | 3,710 | $ | 685 | $ | — | $ | 4,395 | |||||||||||
Municipal | — | 7,383 | 124 | 7,507 | |||||||||||||||
Corporate - public | — | 31,262 | 60 | 31,322 | |||||||||||||||
Corporate - privately placed | — | 11,950 | 263 | 12,213 | |||||||||||||||
Foreign government | — | 1,027 | — | 1,027 | |||||||||||||||
ABS - CDO | — | 533 | 147 | 680 | |||||||||||||||
ABS - consumer and other | — | 505 | 80 | 585 | |||||||||||||||
RMBS | — | 672 | — | 672 | |||||||||||||||
CMBS | — | 186 | 25 | 211 | |||||||||||||||
Redeemable preferred stock | — | 24 | — | 24 | |||||||||||||||
Total fixed income securities | 3,710 | 54,227 | 699 | 58,636 | |||||||||||||||
Equity securities | 5,240 | 275 | 170 | 5,685 | |||||||||||||||
Short-term investments | 449 | 2,269 | 35 | 2,753 | |||||||||||||||
Other investments: Free-standing derivatives | — | 120 | 1 | $ | (13 | ) | 108 | ||||||||||||
Separate account assets | 3,436 | — | — | 3,436 | |||||||||||||||
Total recurring basis assets | 12,835 | 56,891 | 905 | (13 | ) | 70,618 | |||||||||||||
Non-recurring basis (1) | — | — | 18 | 18 | |||||||||||||||
Total assets at fair value | $ | 12,835 | $ | 56,891 | $ | 923 | $ | (13 | ) | $ | 70,636 | ||||||||
% of total assets at fair value | 18.2 | % | 80.5 | % | 1.3 | % | — | % | 100 | % | |||||||||
Liabilities | |||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (286 | ) | $ | (286 | ) | |||||||||
Other liabilities: Free-standing derivatives | — | (71 | ) | (2 | ) | $ | 23 | (50 | ) | ||||||||||
Total liabilities at fair value | $ | — | $ | (71 | ) | $ | (288 | ) | $ | 23 | $ | (336 | ) | ||||||
% of total liabilities at fair value | — | % | 21.1 | % | 85.7 | % | (6.8 | )% | 100 | % |
(1) | Includes $16 million of limited partnership interests and $2 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments. |
($ in millions) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Counterparty and cash collateral netting | Balance as of December 31, 2016 | ||||||||||||||
Assets | |||||||||||||||||||
Fixed income securities: | |||||||||||||||||||
U.S. government and agencies | $ | 2,918 | $ | 719 | $ | — | $ | 3,637 | |||||||||||
Municipal | — | 7,208 | 125 | 7,333 | |||||||||||||||
Corporate - public | — | 31,414 | 78 | 31,492 | |||||||||||||||
Corporate - privately placed | — | 11,846 | 263 | 12,109 | |||||||||||||||
Foreign government | — | 1,075 | — | 1,075 | |||||||||||||||
ABS - CDO | — | 650 | 27 | 677 | |||||||||||||||
ABS - consumer and other | — | 452 | 42 | 494 | |||||||||||||||
RMBS | — | 727 | 1 | 728 | |||||||||||||||
CMBS | — | 248 | 22 | 270 | |||||||||||||||
Redeemable preferred stock | — | 24 | — | 24 | |||||||||||||||
Total fixed income securities | 2,918 | 54,363 | 558 | 57,839 | |||||||||||||||
Equity securities | 5,247 | 256 | 163 | 5,666 | |||||||||||||||
Short-term investments | 850 | 3,423 | 15 | 4,288 | |||||||||||||||
Other investments: Free-standing derivatives | — | 119 | 1 | $ | (9 | ) | 111 | ||||||||||||
Separate account assets | 3,393 | — | — | 3,393 | |||||||||||||||
Other assets | — | — | 1 | 1 | |||||||||||||||
Total recurring basis assets | 12,408 | 58,161 | 738 | (9 | ) | 71,298 | |||||||||||||
Non-recurring basis (1) | — | — | 24 | 24 | |||||||||||||||
Total assets at fair value | $ | 12,408 | $ | 58,161 | $ | 762 | $ | (9 | ) | $ | 71,322 | ||||||||
% of total assets at fair value | 17.4 | % | 81.5 | % | 1.1 | % | — | % | 100 | % | |||||||||
Liabilities | |||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (290 | ) | $ | (290 | ) | |||||||||
Other liabilities: Free-standing derivatives | (1 | ) | (68 | ) | (3 | ) | $ | 28 | (44 | ) | |||||||||
Total liabilities at fair value | $ | (1 | ) | $ | (68 | ) | $ | (293 | ) | $ | 28 | $ | (334 | ) | |||||
% of total liabilities at fair value | 0.3 | % | 20.4 | % | 87.7 | % | (8.4 | )% | 100 | % |
(1) | Includes $24 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments. |
($ in millions) | Fair value | Valuation technique | Unobservable input | Range | Weighted average | ||||||
March 31, 2017 | |||||||||||
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options | $ | (250 | ) | Stochastic cash flow model | Projected option cost | 1.0 - 2.2% | 1.74% | ||||
December 31, 2016 | |||||||||||
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options | $ | (247 | ) | Stochastic cash flow model | Projected option cost | 1.0 - 2.2% | 1.75% |
($ in millions) | Total gains (losses) included in: | |||||||||||||||||||
Balance as of December 31, 2016 | Net income (1) | OCI | Transfers into Level 3 | Transfers out of Level 3 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
Municipal | $ | 125 | $ | 1 | $ | 1 | $ | — | $ | (1 | ) | |||||||||
Corporate - public | 78 | — | — | — | (16 | ) | ||||||||||||||
Corporate - privately placed | 263 | — | 5 | — | — | |||||||||||||||
ABS - CDO | 27 | — | 2 | 27 | — | |||||||||||||||
ABS - consumer and other | 42 | — | — | — | (2 | ) | ||||||||||||||
RMBS | 1 | — | — | — | — | |||||||||||||||
CMBS | 22 | — | — | — | — | |||||||||||||||
Total fixed income securities | 558 | 1 | 8 | 27 | (19 | ) | ||||||||||||||
Equity securities | 163 | 10 | — | — | (3 | ) | ||||||||||||||
Short-term investments | 15 | — | — | — | — | |||||||||||||||
Free-standing derivatives, net | (2 | ) | 1 | — | — | — | ||||||||||||||
Other assets | 1 | (1 | ) | — | — | — | ||||||||||||||
Total recurring Level 3 assets | $ | 735 | $ | 11 | $ | 8 | $ | 27 | $ | (22 | ) | |||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (290 | ) | $ | 3 | $ | — | $ | — | $ | — | |||||||||
Total recurring Level 3 liabilities | $ | (290 | ) | $ | 3 | $ | — | $ | — | $ | — | |||||||||
Purchases | Sales | Issues | Settlements | Balance as of March 31, 2017 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
Municipal | $ | — | $ | (2 | ) | $ | — | $ | — | $ | 124 | |||||||||
Corporate - public | — | — | — | (2 | ) | 60 | ||||||||||||||
Corporate - privately placed | — | — | — | (5 | ) | 263 | ||||||||||||||
ABS - CDO | 95 | — | — | (4 | ) | 147 | ||||||||||||||
ABS - consumer and other | 41 | — | — | (1 | ) | 80 | ||||||||||||||
RMBS | — | — | — | (1 | ) | — | ||||||||||||||
CMBS | 3 | — | — | — | 25 | |||||||||||||||
Total fixed income securities | 139 | (2 | ) | — | (13 | ) | 699 | |||||||||||||
Equity securities | 1 | (1 | ) | — | — | 170 | ||||||||||||||
Short-term investments | 20 | — | — | — | 35 | |||||||||||||||
Free-standing derivatives, net | — | — | — | — | (1 | ) | (2) | |||||||||||||
Other assets | — | — | — | — | — | |||||||||||||||
Total recurring Level 3 assets | $ | 160 | $ | (3 | ) | $ | — | $ | (13 | ) | $ | 903 | ||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (1 | ) | $ | 2 | $ | (286 | ) | ||||||||
Total recurring Level 3 liabilities | $ | — | $ | — | $ | (1 | ) | $ | 2 | $ | (286 | ) |
(1) | The effect to net income totals $14 million and is reported in the Condensed Consolidated Statements of Operations as follows: $2 million in realized capital gains and losses, $10 million in net investment income, $(5) million in interest credited to contractholder funds and $7 million in life and annuity contract benefits. |
(2) | Comprises $1 million of assets and $2 million of liabilities. |
($ in millions) | Total gains (losses) included in: | |||||||||||||||||||
Balance as of December 31, 2015 | Net income (1) | OCI | Transfers into Level 3 | Transfers out of Level 3 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
U.S. government and agencies | $ | 5 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Municipal | 161 | 10 | (8 | ) | — | — | ||||||||||||||
Corporate - public | 46 | — | 1 | 25 | (7 | ) | ||||||||||||||
Corporate - privately placed | 502 | 1 | 5 | — | (14 | ) | ||||||||||||||
ABS - CDO | 61 | — | (1 | ) | 4 | — | ||||||||||||||
ABS - consumer and other | 50 | — | (1 | ) | — | — | ||||||||||||||
RMBS | 1 | — | — | — | — | |||||||||||||||
CMBS | 20 | — | — | — | — | |||||||||||||||
Total fixed income securities | 846 | 11 | (4 | ) | 29 | (21 | ) | |||||||||||||
Equity securities | 133 | (24 | ) | 7 | — | — | ||||||||||||||
Free-standing derivatives, net | (7 | ) | (1 | ) | — | — | — | |||||||||||||
Other assets | 1 | — | — | — | — | |||||||||||||||
Total recurring Level 3 assets | $ | 973 | $ | (14 | ) | $ | 3 | $ | 29 | $ | (21 | ) | ||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (299 | ) | $ | (15 | ) | $ | — | $ | — | $ | — | ||||||||
Total recurring Level 3 liabilities | $ | (299 | ) | $ | (15 | ) | $ | — | $ | — | $ | — | ||||||||
Purchases | Sales | Issues | Settlements | Balance as of March 31, 2016 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
U.S. government and agencies | $ | — | $ | — | $ | — | $ | (1 | ) | $ | 4 | |||||||||
Municipal | — | (16 | ) | — | (1 | ) | 146 | |||||||||||||
Corporate - public | — | — | — | (2 | ) | 63 | ||||||||||||||
Corporate - privately placed | 63 | — | — | (8 | ) | 549 | ||||||||||||||
ABS - CDO | — | (2 | ) | — | (4 | ) | 58 | |||||||||||||
ABS - consumer and other | — | (5 | ) | — | — | 44 | ||||||||||||||
RMBS | — | — | — | — | 1 | |||||||||||||||
CMBS | 2 | — | — | (2 | ) | 20 | ||||||||||||||
Total fixed income securities | 65 | (23 | ) | — | (18 | ) | 885 | |||||||||||||
Equity securities | 9 | — | — | — | 125 | |||||||||||||||
Free-standing derivatives, net | — | — | — | — | (8 | ) | (2) | |||||||||||||
Other assets | — | — | — | — | 1 | |||||||||||||||
Total recurring Level 3 assets | $ | 74 | $ | (23 | ) | $ | — | $ | (18 | ) | $ | 1,003 | ||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (1 | ) | $ | 2 | $ | (313 | ) | ||||||||
Total recurring Level 3 liabilities | $ | — | $ | — | $ | (1 | ) | $ | 2 | $ | (313 | ) |
(1) | The effect to net income totals $(29) million and is reported in the Condensed Consolidated Statements of Operations as follows: $(16) million in realized capital gains and losses, $2 million in net investment income, $1 million in interest credited to contractholder funds and $(16) million in life and annuity contract benefits. |
(2) | Comprises $1 million of assets and $9 million of liabilities. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Assets | |||||||
Fixed income securities: | |||||||
Corporate | $ | — | $ | (2 | ) | ||
Equity securities | 10 | (24 | ) | ||||
Free-standing derivatives, net | 1 | (1 | ) | ||||
Other assets | (1 | ) | — | ||||
Total recurring Level 3 assets | $ | 10 | $ | (27 | ) | ||
Liabilities | |||||||
Contractholder funds: Derivatives embedded in life and annuity contracts | $ | 3 | $ | (15 | ) | ||
Total recurring Level 3 liabilities | $ | 3 | $ | (15 | ) |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||||||||||
Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
Mortgage loans | $ | 4,349 | $ | 4,445 | $ | 4,486 | $ | 4,514 | |||||||
Cost method limited partnerships | 1,293 | 1,525 | 1,282 | 1,493 | |||||||||||
Bank loans | 1,673 | 1,677 | 1,669 | 1,677 | |||||||||||
Agent loans | 489 | 488 | 467 | 467 |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||||||||||
Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
Contractholder funds on investment contracts | $ | 11,082 | $ | 11,635 | $ | 11,313 | $ | 12,009 | |||||||
Long-term debt | 6,346 | 6,991 | 6,347 | 6,920 | |||||||||||
Liability for collateral | 1,172 | 1,172 | 1,129 | 1,129 |
($ 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 accounting hedging instruments | ||||||||||||||||||||
Foreign currency swap agreements | Other investments | $ | 30 | n/a | $ | 1 | $ | 1 | $ | — | ||||||||||
Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||
Interest rate cap agreements | Other investments | 33 | n/a | — | — | — | ||||||||||||||
Equity and index contracts | ||||||||||||||||||||
Options | Other investments | — | 4,115 | 102 | 102 | — | ||||||||||||||
Financial futures contracts | Other assets | — | 720 | — | — | — | ||||||||||||||
Foreign currency contracts | ||||||||||||||||||||
Foreign currency forwards | Other investments | 540 | n/a | (9 | ) | 9 | (18 | ) | ||||||||||||
Credit default contracts | ||||||||||||||||||||
Credit default swaps – buying protection | Other investments | 117 | n/a | (2 | ) | 1 | (3 | ) | ||||||||||||
Credit default swaps – selling protection | Other investments | 90 | n/a | 1 | 1 | — | ||||||||||||||
Other contracts | ||||||||||||||||||||
Other contracts | Other assets | 3 | n/a | — | — | — | ||||||||||||||
Subtotal | 783 | 4,835 | 92 | 113 | (21 | ) | ||||||||||||||
Total asset derivatives | $ | 813 | 4,835 | $ | 93 | $ | 114 | $ | (21 | ) | ||||||||||
Liability derivatives | ||||||||||||||||||||
Derivatives designated as accounting hedging instruments | ||||||||||||||||||||
Foreign currency swap agreements | Other liabilities & accrued expenses | $ | 19 | n/a | $ | 3 | $ | 3 | $ | — | ||||||||||
Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||
Interest rate cap agreements | Other liabilities & accrued expenses | 29 | n/a | 1 | 1 | — | ||||||||||||||
Equity and index contracts | ||||||||||||||||||||
Options and futures | Other liabilities & accrued expenses | — | 4,558 | (44 | ) | — | (44 | ) | ||||||||||||
Foreign currency contracts | ||||||||||||||||||||
Foreign currency forwards | Other liabilities & accrued expenses | 224 | n/a | — | 3 | (3 | ) | |||||||||||||
Embedded derivative financial instruments | ||||||||||||||||||||
Guaranteed accumulation benefits | Contractholder funds | 350 | n/a | (29 | ) | — | (29 | ) | ||||||||||||
Guaranteed withdrawal benefits | Contractholder funds | 291 | n/a | (7 | ) | — | (7 | ) | ||||||||||||
Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | 1,750 | n/a | (250 | ) | — | (250 | ) | ||||||||||||
Credit default contracts | ||||||||||||||||||||
Credit default swaps – buying protection | Other liabilities & accrued expenses | 131 | n/a | (4 | ) | — | (4 | ) | ||||||||||||
Credit default swaps – selling protection | Other liabilities & accrued expenses | 115 | n/a | (1 | ) | — | (1 | ) | ||||||||||||
Subtotal | 2,890 | 4,558 | (334 | ) | 4 | (338 | ) | |||||||||||||
Total liability derivatives | 2,909 | 4,558 | (331 | ) | $ | 7 | $ | (338 | ) | |||||||||||
Total derivatives | $ | 3,722 | 9,393 | $ | (238 | ) |
(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) |
($ 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 accounting hedging instruments | ||||||||||||||||||||
Foreign currency swap agreements | Other investments | $ | 49 | n/a | $ | 5 | $ | 5 | $ | — | ||||||||||
Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
Interest rate contracts | ||||||||||||||||||||
Interest rate cap agreements | Other investments | 65 | n/a | 1 | 1 | — | ||||||||||||||
Equity and index contracts | ||||||||||||||||||||
Options | Other investments | — | 3,972 | 88 | 88 | — | ||||||||||||||
Financial futures contracts | Other assets | — | 261 | — | — | — | ||||||||||||||
Foreign currency contracts | ||||||||||||||||||||
Foreign currency forwards | Other investments | 759 | n/a | — | 24 | (24 | ) | |||||||||||||
Credit default contracts | ||||||||||||||||||||
Credit default swaps – buying protection | Other investments | 87 | n/a | (4 | ) | — | (4 | ) | ||||||||||||
Credit default swaps – selling protection | Other investments | 140 | n/a | 2 | 2 | — | ||||||||||||||
Other contracts | ||||||||||||||||||||
Other contracts | Other assets | 3 | n/a | 1 | 1 | — | ||||||||||||||
Subtotal | 1,054 | 4,233 | 88 | 116 | (28 | ) | ||||||||||||||
Total asset derivatives | $ | 1,103 | 4,233 | $ | 93 | $ | 121 | $ | (28 | ) | ||||||||||
Liability derivatives | ||||||||||||||||||||
Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
Equity and index contracts | ||||||||||||||||||||
Options and futures | Other liabilities & accrued expenses | $ | — | 4,848 | $ | (39 | ) | $ | — | $ | (39 | ) | ||||||||
Embedded derivative financial instruments | ||||||||||||||||||||
Guaranteed accumulation benefits | Contractholder funds | 391 | n/a | (34 | ) | — | (34 | ) | ||||||||||||
Guaranteed withdrawal benefits | Contractholder funds | 290 | n/a | (9 | ) | — | (9 | ) | ||||||||||||
Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | 1,751 | n/a | (247 | ) | — | (247 | ) | ||||||||||||
Credit default contracts | ||||||||||||||||||||
Credit default swaps – buying protection | Other liabilities & accrued expenses | 136 | n/a | (2 | ) | — | (2 | ) | ||||||||||||
Credit default swaps – selling protection | Other liabilities & accrued expenses | 105 | n/a | (3 | ) | — | (3 | ) | ||||||||||||
Subtotal | 2,673 | 4,848 | (334 | ) | — | (334 | ) | |||||||||||||
Total liability derivatives | 2,673 | 4,848 | (334 | ) | $ | — | $ | (334 | ) | |||||||||||
Total derivatives | $ | 3,776 | 9,081 | $ | (241 | ) |
(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) |
($ in millions) | Offsets | ||||||||||||||||||||||
Gross amount | Counter-party netting | Cash collateral (received) pledged | Net amount on balance sheet | Securities collateral (received) pledged | Net amount | ||||||||||||||||||
March 31, 2017 | |||||||||||||||||||||||
Asset derivatives | $ | 18 | $ | (28 | ) | $ | 15 | $ | 5 | $ | (2 | ) | $ | 3 | |||||||||
Liability derivatives | (29 | ) | 28 | (5 | ) | (6 | ) | 3 | (3 | ) | |||||||||||||
December 31, 2016 | |||||||||||||||||||||||
Asset derivatives | $ | 31 | $ | (28 | ) | $ | 19 | $ | 22 | $ | (9 | ) | $ | 13 | |||||||||
Liability derivatives | (33 | ) | 28 | — | (5 | ) | 4 | (1 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Loss recognized in OCI on derivatives during the period | $ | (2 | ) | $ | (2 | ) | |
Gain recognized in OCI on derivatives during the term of the hedging relationship | — | 4 |
($ in millions) | Realized capital gains and losses | Life and annuity contract benefits | Interest credited to contractholder funds | Operating costs and expenses | Total gain (loss) recognized in net income on derivatives | ||||||||||||||
Three months ended March 31, 2017 | |||||||||||||||||||
Equity and index contracts | $ | (7 | ) | $ | — | $ | 13 | $ | 7 | $ | 13 | ||||||||
Embedded derivative financial instruments | — | 7 | (4 | ) | — | 3 | |||||||||||||
Foreign currency contracts | (7 | ) | — | — | 1 | (6 | ) | ||||||||||||
Credit default contracts | (1 | ) | — | — | — | (1 | ) | ||||||||||||
Total | $ | (15 | ) | $ | 7 | $ | 9 | $ | 8 | $ | 9 | ||||||||
Three months ended March 31, 2016 | |||||||||||||||||||
Equity and index contracts | $ | — | $ | — | $ | (7 | ) | $ | — | $ | (7 | ) | |||||||
Embedded derivative financial instruments | — | (16 | ) | 2 | — | (14 | ) | ||||||||||||
Foreign currency contracts | (5 | ) | — | — | (5 | ) | (10 | ) | |||||||||||
Credit default contracts | (4 | ) | — | — | — | (4 | ) | ||||||||||||
Total | $ | (9 | ) | $ | (16 | ) | $ | (5 | ) | $ | (5 | ) | $ | (35 | ) |
($ in millions) | March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||
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) | ||||||||||||||||||||||
AA- | 1 | $ | 6 | $ | — | $ | — | 2 | $ | 80 | $ | 2 | $ | 2 | ||||||||||||||||
A+ | 5 | 707 | 8 | 1 | 5 | 698 | 20 | 9 | ||||||||||||||||||||||
A | 1 | 30 | 1 | 1 | — | — | — | — | ||||||||||||||||||||||
A- | — | — | — | — | 1 | 110 | 1 | 1 | ||||||||||||||||||||||
Total | 7 | $ | 743 | $ | 9 | $ | 2 | 8 | $ | 888 | $ | 23 | $ | 12 |
(1) | Rating is the lower of S&P or Moody’s ratings. |
(2) | Only OTC derivatives with a net positive fair value are included for each counterparty. |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||
Gross liability fair value of contracts containing credit-risk-contingent features | $ | 11 | $ | 9 | |||
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs | (9 | ) | (7 | ) | |||
Collateral posted under MNAs for contracts containing credit-risk-contingent features | (1 | ) | — | ||||
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently | $ | 1 | $ | 2 |
($ in millions) | Notional amount | ||||||||||||||||||||||
AA | A | BBB | BB and lower | Total | Fair value | ||||||||||||||||||
March 31, 2017 | |||||||||||||||||||||||
Single name | |||||||||||||||||||||||
Corporate debt | $ | — | $ | — | $ | 25 | $ | — | $ | 25 | $ | 1 | |||||||||||
First-to-default Basket | |||||||||||||||||||||||
Municipal | — | — | 100 | — | 100 | (2 | ) | ||||||||||||||||
Index | |||||||||||||||||||||||
Corporate debt | — | 19 | 48 | 13 | 80 | 1 | |||||||||||||||||
Total | $ | — | $ | 19 | $ | 173 | $ | 13 | $ | 205 | $ | — | |||||||||||
December 31, 2016 | |||||||||||||||||||||||
Single name | |||||||||||||||||||||||
Corporate debt | $ | 20 | $ | 10 | $ | 35 | $ | — | $ | 65 | $ | 1 | |||||||||||
First-to-default Basket | |||||||||||||||||||||||
Municipal | — | — | 100 | — | 100 | (3 | ) | ||||||||||||||||
Index | |||||||||||||||||||||||
Corporate debt | 1 | 19 | 50 | 10 | 80 | 1 | |||||||||||||||||
Total | $ | 21 | $ | 29 | $ | 185 | $ | 10 | $ | 245 | $ | (1 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Balance as of January 1 | $ | 25,250 | $ | 23,869 | |||
Less reinsurance recoverables | 6,184 | 5,892 | |||||
Net balance as of January 1 | 19,066 | 17,977 | |||||
SquareTrade acquisition as of January 3, 2017 | 17 | — | |||||
Incurred claims and claims expense related to: | |||||||
Current year | 5,513 | 5,660 | |||||
Prior years | (97 | ) | 24 | ||||
Total incurred | 5,416 | 5,684 | |||||
Claims and claims expense paid related to: | |||||||
Current year | 2,239 | 2,148 | |||||
Prior years | 2,815 | 2,867 | |||||
Total paid | 5,054 | 5,015 | |||||
Net balance as of March 31 | 19,445 | 18,646 | |||||
Plus reinsurance recoverables | 6,183 | 5,959 | |||||
Balance as of March 31 | $ | 25,628 | $ | 24,605 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Property-liability insurance premiums earned | $ | 246 | $ | 249 | |||
Life and annuity premiums and contract charges | 75 | 74 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Property-liability insurance claims and claims expense | $ | 131 | $ | 161 | |||
Life and annuity contract benefits | 47 | 67 | |||||
Interest credited to contractholder funds | 5 | 5 |
($ in millions) | Employee costs | Exit costs | Total liability | ||||||||
Balance as of December 31, 2016 | $ | — | $ | 2 | $ | 2 | |||||
Expense incurred | 3 | 2 | 5 | ||||||||
Payments applied against liability | — | (3 | ) | (3 | ) | ||||||
Balance as of March 31, 2017 | $ | 3 | $ | 1 | $ | 4 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Pension benefits | |||||||
Service cost | $ | 29 | $ | 28 | |||
Interest cost | 66 | 71 | |||||
Expected return on plan assets | (102 | ) | (99 | ) | |||
Amortization of: | |||||||
Prior service credit | (14 | ) | (14 | ) | |||
Net actuarial loss | 47 | 43 | |||||
Settlement loss | 8 | 8 | |||||
Net periodic pension cost | $ | 34 | $ | 37 | |||
Postretirement benefits | |||||||
Service cost | $ | 2 | $ | 2 | |||
Interest cost | 4 | 4 | |||||
Amortization of: | |||||||
Prior service credit | (6 | ) | (5 | ) | |||
Net actuarial gain | (6 | ) | (8 | ) | |||
Net periodic postretirement credit | $ | (6 | ) | $ | (7 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Property-Liability | |||||||
Property-liability insurance premiums | |||||||
Auto | $ | 5,388 | $ | 5,220 | |||
Homeowners | 1,815 | 1,810 | |||||
Other personal lines | 431 | 421 | |||||
Commercial lines | 125 | 129 | |||||
Other business lines | 141 | 143 | |||||
SquareTrade | 59 | — | |||||
Allstate Protection | 7,959 | 7,723 | |||||
Discontinued Lines and Coverages | — | — | |||||
Total property-liability insurance premiums | 7,959 | 7,723 | |||||
Net investment income | 311 | 302 | |||||
Realized capital gains and losses | 135 | (99 | ) | ||||
Total Property-Liability | 8,405 | 7,926 | |||||
Allstate Financial | |||||||
Life and annuity premiums and contract charges | |||||||
Premiums | |||||||
Traditional life insurance | 149 | 138 | |||||
Accident and health insurance | 232 | 216 | |||||
Total premiums | 381 | 354 | |||||
Contract charges | |||||||
Interest-sensitive life insurance | 209 | 209 | |||||
Fixed annuities | 3 | 3 | |||||
Total contract charges | 212 | 212 | |||||
Total life and annuity premiums and contract charges | 593 | 566 | |||||
Net investment income | 426 | 419 | |||||
Realized capital gains and losses | (1 | ) | (49 | ) | |||
Total Allstate Financial | 1,018 | 936 | |||||
Corporate and Other | |||||||
Service fees | 1 | 1 | |||||
Net investment income | 11 | 10 | |||||
Realized capital gains and losses | — | (1 | ) | ||||
Total Corporate and Other before reclassification of service fees | 12 | 10 | |||||
Reclassification of service fees (1) | (1 | ) | (1 | ) | |||
Total Corporate and Other | 11 | 9 | |||||
Consolidated revenues | $ | 9,434 | $ | 8,871 |
(1) | For presentation in the Condensed Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Property-Liability | |||||||
Underwriting income | |||||||
Allstate Protection | $ | 509 | $ | 127 | |||
Discontinued Lines and Coverages | (2 | ) | (2 | ) | |||
Total underwriting income | 507 | 125 | |||||
Net investment income | 311 | 302 | |||||
Income tax expense on operations | (255 | ) | (141 | ) | |||
Realized capital gains and losses, after-tax | 89 | (64 | ) | ||||
Property-Liability net income applicable to common shareholders | 652 | 222 | |||||
Allstate Financial | |||||||
Life and annuity premiums and contract charges | 593 | 566 | |||||
Net investment income | 426 | 419 | |||||
Contract benefits and interest credited to contractholder funds | (647 | ) | (639 | ) | |||
Operating costs and expenses and amortization of deferred policy acquisition costs | (210 | ) | (194 | ) | |||
Income tax expense on operations | (52 | ) | (48 | ) | |||
Operating income | 110 | 104 | |||||
Realized capital gains and losses, after-tax | (1 | ) | (32 | ) | |||
Valuation changes on embedded derivatives that are not hedged, after-tax | — | (4 | ) | ||||
DAC and DSI amortization related to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged, after-tax | (3 | ) | (1 | ) | |||
Gain on disposition of operations, after-tax | 2 | 1 | |||||
Allstate Financial net income applicable to common shareholders | 108 | 68 | |||||
Corporate and Other | |||||||
Service fees (1) | 1 | 1 | |||||
Net investment income | 11 | 10 | |||||
Operating costs and expenses (1) | (94 | ) | (80 | ) | |||
Income tax benefit on operations | 30 | 25 | |||||
Preferred stock dividends | (29 | ) | (29 | ) | |||
Operating loss | (81 | ) | (73 | ) | |||
Realized capital gains and losses, after-tax | — | — | |||||
Business combination expenses, after-tax | (13 | ) | — | ||||
Corporate and Other net loss applicable to common shareholders | (94 | ) | (73 | ) | |||
Consolidated net income applicable to common shareholders | $ | 666 | $ | 217 |
(1) | For presentation in the Condensed Consolidated Statements of Operations, service fees of the Corporate and Other segment are reclassified to operating costs and expenses. |
($ in millions) | Three months ended March 31, | ||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Unrealized net holding gains and losses arising during the period, net of related offsets | $ | 444 | $ | (155 | ) | $ | 289 | $ | 753 | $ | (263 | ) | $ | 490 | |||||||||
Less: reclassification adjustment of realized capital gains and losses | 132 | (46 | ) | 86 | (139 | ) | 49 | (90 | ) | ||||||||||||||
Unrealized net capital gains and losses | 312 | (109 | ) | 203 | 892 | (312 | ) | 580 | |||||||||||||||
Unrealized foreign currency translation adjustments | (5 | ) | 2 | (3 | ) | 22 | (8 | ) | 14 | ||||||||||||||
Unrecognized pension and other postretirement benefit cost arising during the period | — | — | — | (8 | ) | 3 | (5 | ) | |||||||||||||||
Less: reclassification adjustment of net periodic cost recognized in operating costs and expenses | (29 | ) | 10 | (19 | ) | (24 | ) | 8 | (16 | ) | |||||||||||||
Unrecognized pension and other postretirement benefit cost | 29 | (10 | ) | 19 | 16 | (5 | ) | 11 | |||||||||||||||
Other comprehensive income | $ | 336 | $ | (117 | ) | $ | 219 | $ | 930 | $ | (325 | ) | $ | 605 |
• | better serve our customers; |
• | achieve target economic returns on capital; |
• | grow customer base; |
• | proactively manage investments; and |
• | build long-term growth platforms. |
• | Consolidated net income applicable to common shareholders was $666 million in the first quarter of 2017 compared to $217 million in the first quarter of 2016. Net income applicable to common shareholders per diluted common share was $1.79 in the first quarter of 2017 compared to $0.57 in the first quarter of 2016. |
• | Property-Liability net income applicable to common shareholders was $652 million in the first quarter of 2017 compared to $222 million in the first quarter of 2016. |
• | The Property-Liability combined ratio was 93.6 in the first quarter of 2017 compared to 98.4 in the first quarter of 2016. |
• | Allstate Financial net income applicable to common shareholders was $108 million in the first quarter of 2017 compared to $68 million in the first quarter of 2016. |
• | Total revenues were $9.43 billion in the first quarter of 2017 compared to $8.87 billion in the first quarter of 2016. |
• | Property-Liability premiums earned totaled $7.96 billion in the first quarter of 2017, an increase of 3.1% from $7.72 billion in the first quarter of 2016. |
• | Investments totaled $81.14 billion as of March 31, 2017, decreasing from $81.80 billion as of December 31, 2016. Net investment income was $748 million in the first quarter of 2017, an increase of 2.3% from $731 million in the first quarter of 2016. |
• | Net realized capital gains were $134 million in the first quarter of 2017 compared to net realized capital losses of $149 million in the first quarter of 2016. |
• | Book value per diluted common share (ratio of common shareholders’ equity to total common shares outstanding and dilutive potential common shares outstanding) was $52.41 as of March 31, 2017, an increase of 7.2% from $48.89 as of March 31, 2016, and an increase of 3.2% from $50.77 as of December 31, 2016. |
• | For the twelve months ended March 31, 2017, return on the average of beginning and ending period common shareholders’ equity of 11.6% increased by 3.3 points from 8.3% for the twelve months ended March 31, 2016. |
• | As of March 31, 2017, shareholders’ equity was $21.16 billion. This total included $2.74 billion in deployable assets at the parent holding company level comprising cash and investments that are generally saleable within one quarter. |
• | On January 3, 2017, we acquired SquareTrade Holding Company, Inc. (“SquareTrade”), a consumer product protection plan provider that distributes through many of America’s major retailers and Europe’s mobile operators, for $1.4 billion in cash. SquareTrade provides protection plans primarily covering consumer appliances and electronics, such as TVs, smartphones and computers. This acquisition broadens Allstate’s unique product offerings to better meet consumers’ needs. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Revenues | |||||||
Property-liability insurance premiums | $ | 7,959 | $ | 7,723 | |||
Life and annuity premiums and contract charges | 593 | 566 | |||||
Net investment income | 748 | 731 | |||||
Realized capital gains and losses: | |||||||
Total other-than-temporary impairment (“OTTI”) losses | (62 | ) | (91 | ) | |||
OTTI losses reclassified to (from) other comprehensive income | 3 | 10 | |||||
Net OTTI losses recognized in earnings | (59 | ) | (81 | ) | |||
Sales and other realized capital gains and losses | 193 | (68 | ) | ||||
Total realized capital gains and losses | 134 | (149 | ) | ||||
Total revenues | 9,434 | 8,871 | |||||
Costs and expenses | |||||||
Property-liability insurance claims and claims expense | (5,416 | ) | (5,684 | ) | |||
Life and annuity contract benefits | (474 | ) | (455 | ) | |||
Interest credited to contractholder funds | (173 | ) | (190 | ) | |||
Amortization of deferred policy acquisition costs | (1,169 | ) | (1,129 | ) | |||
Operating costs and expenses | (1,097 | ) | (982 | ) | |||
Restructuring and related charges | (10 | ) | (5 | ) | |||
Interest expense | (85 | ) | (73 | ) | |||
Total costs and expenses | (8,424 | ) | (8,518 | ) | |||
Gain on disposition of operations | 2 | 2 | |||||
Income tax expense (1) | (317 | ) | (109 | ) | |||
Net income | 695 | 246 | |||||
Preferred stock dividends | (29 | ) | (29 | ) | |||
Net income applicable to common shareholders | $ | 666 | $ | 217 | |||
Property-Liability (1) | $ | 652 | $ | 222 | |||
Allstate Financial | 108 | 68 | |||||
Corporate and Other | (94 | ) | (73 | ) | |||
Net income applicable to common shareholders | $ | 666 | $ | 217 |
(1) | Income tax expense includes a tax benefit of $23 million related to the adoption of the new accounting standard for share-based payments in the first quarter 2017. The tax benefit was recorded in Property-Liability. |
• | Net income applicable to common shareholders was $652 million in the first quarter of 2017 compared to $222 million in the first quarter of 2016. |
• | Premiums written totaled $7.72 billion in the first quarter of 2017, an increase of 2.8% from $7.52 billion in the first quarter of 2016. The first quarter of 2017 included $81 million of premiums written related to SquareTrade. Excluding SquareTrade, premiums written totaled $7.64 billion. |
• | Premiums earned totaled $7.96 billion in the first quarter of 2017, an increase of 3.1% from $7.72 billion in the first quarter of 2016. The first quarter of 2017 included $59 million of premiums earned related to SquareTrade. Excluding SquareTrade, premiums earned totaled $7.90 billion in the first quarter of 2017. |
• | The loss ratio was 68.0 in the first quarter of 2017 compared to 73.6 in the first quarter of 2016. |
• | Catastrophe losses were $781 million in the first quarter of 2017 compared to $827 million in the first quarter of 2016. The effect of catastrophes on the combined ratio was 9.8 in the first quarter of 2017 compared to 10.7 in the first quarter of 2016. |
• | Prior year reserve reestimates totaled $97 million favorable in the first quarter of 2017 compared to $24 million unfavorable in the first quarter of 2016. |
• | Underwriting income was $507 million in the first quarter of 2017 compared to $125 million in the first quarter of 2016. |
• | Investments were $42.00 billion as of March 31, 2017, a decrease of 1.7% from $42.72 billion as of December 31, 2016. Net investment income was $311 million in the first quarter of 2017, an increase of 3.0% from $302 million in the first quarter of 2016. |
• | Net realized capital gains were $135 million in the first quarter of 2017 compared to net realized capital losses of $99 million in the first quarter of 2016. |
• | On January 3, 2017, we acquired SquareTrade, a consumer product protection plan provider that distributes through many of America’s major retailers and Europe’s mobile operators, for $1.4 billion in cash. SquareTrade provides protection plans primarily covering consumer appliances and electronics, such as TVs, smartphones and computers. This acquisition broadens Allstate’s unique product offerings to better meet consumers’ needs. |
• | Claims and claims expense (“loss”) ratio - the ratio of claims and claims expense to premiums earned. Loss ratios include the impact of catastrophe losses. |
• | Expense ratio - the ratio of amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned. |
• | Combined ratio - the ratio of claims and claims expense, amortization of DAC, operating costs and expenses, and restructuring and related charges to premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. The difference between 100% and the combined ratio represents underwriting income as a percentage of premiums earned, or underwriting margin. |
• | Effect of catastrophe losses on combined ratio - the percentage of catastrophe losses included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses. |
• | Effect of prior year reserve reestimates on combined ratio - the percentage of prior year reserve reestimates included in claims and claims expense to premiums earned. This ratio includes prior year reserve reestimates of catastrophe losses. |
• | Effect of amortization of purchased intangible assets on combined ratio - the percentage of amortization of purchased intangible assets to premiums earned. Amortization of purchased intangible assets is reported in operating costs and expenses on the Condensed Consolidated Statements of Operations. |
• | Effect of restructuring and related charges on combined ratio - the percentage of restructuring and related charges to premiums earned. |
• | Effect of Discontinued Lines and Coverages on combined ratio - the ratio of claims and claims expense and operating costs and expenses in the Discontinued Lines and Coverages segment to Property-Liability premiums earned. The sum of the effect of Discontinued Lines and Coverages on the combined ratio and the Allstate Protection combined ratio is equal to the Property-Liability combined ratio. |
($ in millions, except ratios) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | 7,723 | $ | 7,515 | |||
Revenues | |||||||
Premiums earned | $ | 7,959 | $ | 7,723 | |||
Net investment income | 311 | 302 | |||||
Realized capital gains and losses | 135 | (99 | ) | ||||
Total revenues | 8,405 | 7,926 | |||||
Costs and expenses | |||||||
Claims and claims expense | (5,416 | ) | (5,684 | ) | |||
Amortization of DAC | (1,090 | ) | (1,056 | ) | |||
Operating costs and expenses | (936 | ) | (853 | ) | |||
Restructuring and related charges | (10 | ) | (5 | ) | |||
Total costs and expenses | (7,452 | ) | (7,598 | ) | |||
Income tax expense (1) | (301 | ) | (106 | ) | |||
Net income applicable to common shareholders | $ | 652 | $ | 222 | |||
Underwriting income | $ | 507 | $ | 125 | |||
Net investment income | 311 | 302 | |||||
Income tax expense on operations | (255 | ) | (141 | ) | |||
Realized capital gains and losses, after-tax | 89 | (64 | ) | ||||
Net income applicable to common shareholders | $ | 652 | $ | 222 | |||
Catastrophe losses | $ | 781 | $ | 827 | |||
GAAP operating ratios | |||||||
Claims and claims expense ratio | 68.0 | 73.6 | |||||
Expense ratio | 25.6 | 24.8 | |||||
Combined ratio | 93.6 | 98.4 | |||||
Effect of catastrophe losses on combined ratio | 9.8 | 10.7 | |||||
Effect of prior year reserve reestimates on combined ratio | (1.2 | ) | 0.3 | ||||
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio (2) | 0.1 | (0.1 | ) | ||||
Effect of amortization of purchased intangible assets on combined ratio (3) | 0.3 | 0.1 | |||||
Effect of restructuring and related charges on combined ratio | 0.1 | 0.1 | |||||
Effect of Discontinued Lines and Coverages on combined ratio | — | — |
(1) | Income tax expense includes a tax benefit of $23 million related to the adoption of the new accounting standard for share-based payments in the first quarter 2017. |
(2) | Prior year reserve reestimates included in catastrophe losses totaled $4 million unfavorable and $3 million favorable in the three months ended March 31, 2017 and 2016, respectively. |
(3) | Includes $23 million of amortization of purchased intangible assets related to the acquisition of SquareTrade that was completed on January 3, 2017. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written: | |||||||
Allstate Protection | $ | 7,723 | $ | 7,515 | |||
Discontinued Lines and Coverages | — | — | |||||
Property-Liability premiums written | 7,723 | 7,515 | |||||
Decrease in unearned premiums | 234 | 166 | |||||
Other | 2 | 42 | |||||
Property-Liability premiums earned | $ | 7,959 | $ | 7,723 | |||
Premiums earned: | |||||||
Allstate Protection | $ | 7,959 | $ | 7,723 | |||
Discontinued Lines and Coverages | — | — | |||||
Property-Liability | $ | 7,959 | $ | 7,723 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | 7,723 | $ | 7,515 | |||
Premiums earned | $ | 7,959 | $ | 7,723 | |||
Claims and claims expense | (5,414 | ) | (5,683 | ) | |||
Amortization of DAC | (1,090 | ) | (1,056 | ) | |||
Other costs and expenses | (936 | ) | (852 | ) | |||
Restructuring and related charges | (10 | ) | (5 | ) | |||
Underwriting income | $ | 509 | $ | 127 | |||
Catastrophe losses | $ | 781 | $ | 827 | |||
Underwriting income (loss) by line of business | |||||||
Auto | $ | 449 | $ | 18 | |||
Homeowners | 72 | 107 | |||||
Other personal lines (1) | 25 | 17 | |||||
Commercial lines | (4 | ) | (28 | ) | |||
Other business lines (2) | 3 | 14 | |||||
SquareTrade | (35 | ) | — | ||||
Answer Financial | (1 | ) | (1 | ) | |||
Underwriting income | $ | 509 | $ | 127 |
($ in millions) | Three months ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
Auto | Homeowners | Other personal lines | Commercial lines | SquareTrade | Allstate Protection (1)(2) | ||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||
Underwriting income (loss) - prior period | $ | 18 | $ | 76 | $ | 107 | $ | 366 | $ | 17 | $ | 37 | $ | (28 | ) | $ | (11 | ) | $ | — | $ | — | $ | 127 | $ | 469 | |||||||||||||||||||||
Changes in underwriting income (loss) from: | |||||||||||||||||||||||||||||||||||||||||||||||
Premiums earned | 168 | 241 | 5 | 49 | 10 | 1 | (4 | ) | 4 | 59 | — | 236 | 297 | ||||||||||||||||||||||||||||||||||
Incurred claims and claims expense (“losses”): | |||||||||||||||||||||||||||||||||||||||||||||||
Incurred losses, excluding catastrophe losses and reserve reestimates | 149 | (234 | ) | (32 | ) | 50 | (1 | ) | 12 | 5 | (9 | ) | (36 | ) | — | 94 | (173 | ) | |||||||||||||||||||||||||||||
Catastrophe losses, excluding reserve reestimates | 63 | (128 | ) | (21 | ) | (368 | ) | 11 | (33 | ) | — | (2 | ) | — | — | 53 | (531 | ) | |||||||||||||||||||||||||||||
Non-catastrophe reserve reestimates | 86 | 19 | 23 | 8 | 4 | (4 | ) | 16 | (8 | ) | — | — | 129 | 15 | |||||||||||||||||||||||||||||||||
Catastrophe reserve reestimates | 5 | — | (6 | ) | — | (8 | ) | — | 2 | (2 | ) | — | — | (7 | ) | (2 | ) | ||||||||||||||||||||||||||||||
Losses subtotal | 303 | (343 | ) | (36 | ) | (310 | ) | 6 | (25 | ) | 23 | (21 | ) | (36 | ) | — | 269 | (691 | ) | ||||||||||||||||||||||||||||
Expenses | (40 | ) | 44 | (4 | ) | 2 | (8 | ) | 4 | 5 | — | (58 | ) | — | (123 | ) | 52 | ||||||||||||||||||||||||||||||
Underwriting income (loss) - current period | $ | 449 | $ | 18 | $ | 72 | $ | 107 | $ | 25 | $ | 17 | $ | (4 | ) | $ | (28 | ) | $ | (35 | ) | $ | — | $ | 509 | $ | 127 |
(1) | Includes other business lines underwriting income of $3 million and $14 million in the first quarter of 2017 and 2016, respectively, and Answer Financial underwriting loss of $1 million in both the first quarter of 2017 and 2016. |
(2) | Arity had affiliate revenues and expenses of $20 million and $19 million, respectively, in the first quarter of 2017, which has been eliminated in consolidation. |
($ in millions) | Three months ended March 31, | ||||||
Premiums written | 2017 | 2016 | |||||
Auto | $ | 5,446 | $ | 5,323 | |||
Homeowners | 1,510 | 1,507 | |||||
Other personal lines | 390 | 376 | |||||
Subtotal – Personal lines | 7,346 | 7,206 | |||||
Commercial lines | 123 | 126 | |||||
Other business lines | 173 | 183 | |||||
SquareTrade | 81 | — | |||||
Total | $ | 7,723 | $ | 7,515 | |||
Premiums earned | |||||||
Auto | $ | 5,388 | $ | 5,220 | |||
Homeowners | 1,815 | 1,810 | |||||
Other personal lines | 431 | 421 | |||||
Subtotal – Personal lines | 7,634 | 7,451 | |||||
Commercial lines | 125 | 129 | |||||
Other business lines | 141 | 143 | |||||
SquareTrade | 59 | — | |||||
Total | $ | 7,959 | $ | 7,723 |
Loss ratio (1) | Expense ratio (1) | Combined ratio (1) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Three months ended March 31, | |||||||||||||||||
Auto | 67.4 | 75.3 | 24.3 | 24.4 | 91.7 | 99.7 | |||||||||||
Homeowners | 72.4 | 70.7 | 23.6 | 23.4 | 96.0 | 94.1 | |||||||||||
Other Personal lines | 66.6 | 69.6 | 27.6 | 26.4 | 94.2 | 96.0 | |||||||||||
Commercial lines | 76.8 | 92.2 | 26.4 | 29.5 | 103.2 | 121.7 | |||||||||||
Other business lines | 36.9 | 42.7 | 61.0 | 47.5 | 97.9 | 90.2 | |||||||||||
SquareTrade | 61.0 | — | 98.3 | — | 159.3 | — | |||||||||||
Total | 68.0 | 73.6 | 25.6 | 24.8 | 93.6 | 98.4 |
(1) | Ratios are calculated using the premiums earned for the respective line of business. |
Loss ratio | Effect of catastrophe losses | Effect of prior year reserve reestimates | Effect of catastrophe losses included in prior year reserve reestimates | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Three months ended March 31, | |||||||||||||||||||||||
Auto | 67.4 | 75.3 | 1.4 | 2.7 | (1.6 | ) | 0.1 | (0.1 | ) | (0.1 | ) | ||||||||||||
Homeowners | 72.4 | 70.7 | 35.2 | 33.9 | (1.3 | ) | (0.4 | ) | 0.2 | (0.2 | ) | ||||||||||||
Other Personal lines | 66.6 | 69.6 | 14.1 | 15.2 | 2.1 | 1.2 | 1.6 | (0.3 | ) | ||||||||||||||
Commercial lines | 76.8 | 92.2 | 5.6 | 7.0 | 1.6 | 15.5 | 0.8 | 2.4 | |||||||||||||||
Other business lines | 36.9 | 42.7 | — | — | — | — | — | — | |||||||||||||||
SquareTrade | 61.0 | — | — | — | — | — | — | — | |||||||||||||||
Total | 68.0 | 73.6 | 9.8 | 10.7 | (1.2 | ) | 0.3 | 0.1 | (0.1 | ) |
($ in millions) | Three months ended March 31, 2017 | ||||||||||||||||||
Number of events | Claims and claims expense | Combined ratio impact | Average catastrophe loss per event | ||||||||||||||||
Size of catastrophe loss | |||||||||||||||||||
Greater than $250 million | 1 | 3.6 | % | $ | 267 | 34.2 | % | 3.4 | $ | 267 | |||||||||
$101 million to $250 million | — | — | — | — | — | — | |||||||||||||
$50 million to $100 million | 3 | 10.7 | 230 | 29.4 | 2.9 | 77 | |||||||||||||
Less than $50 million | 24 | 85.7 | 280 | 35.9 | 3.5 | 12 | |||||||||||||
Total | 28 | 100.0 | % | 777 | 99.5 | 9.8 | 28 | ||||||||||||
Prior year reserve reestimates | 4 | 0.5 | — | ||||||||||||||||
Total catastrophe losses | $ | 781 | 100.0 | % | 9.8 |
($ in millions) | Three months ended March 31, | ||||||||||||
Number of events | 2017 | Number of events | 2016 | ||||||||||
Hurricanes/Tropical storms | — | $ | — | — | $ | — | |||||||
Tornadoes | 2 | 53 | — | — | |||||||||
Wind/Hail | 23 | 703 | 15 | 783 | |||||||||
Wildfires | 1 | 1 | — | — | |||||||||
Other events | 2 | 20 | 2 | 47 | |||||||||
Prior year reserve reestimates | 4 | (3 | ) | ||||||||||
Total catastrophe losses | 28 | $ | 781 | 17 | $ | 827 |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Auto | 24.3 | 24.4 | |||
Homeowners | 23.6 | 23.4 | |||
Other personal lines | 27.6 | 26.4 | |||
Commercial lines | 26.4 | 29.5 | |||
Other business lines | 61.0 | 47.5 | |||
SquareTrade (1) | 98.3 | — | |||
Total expense ratio | 25.6 | 24.8 |
(1) | Includes $23 million of amortization of purchased intangible assets related to the acquisition that was completed on January 3, 2017, an impact of 39.0 points to the expense ratio. |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Amortization of DAC | 13.7 | 13.7 | |||
Advertising expense | 2.3 | 2.0 | |||
Amortization of purchased intangible assets | 0.3 | 0.1 | |||
Other costs and expenses | 9.2 | 8.9 | |||
Restructuring and related charges | 0.1 | 0.1 | |||
Total expense ratio | 25.6 | 24.8 |
• | The traditional market placement provides limits totaling $2.5 billion, comprised of $2.1 billion of limits for losses arising out of multiple perils with one annual reinstatement of limits and $439 million of limits for losses arising out of multiple perils with one reinstatement of limits over a seven year term. |
• | The ILS placements provide $1.1 billion of limits, with no reinstatement of the limits, and are comprised of a $750 million placement reinsuring losses in certain states caused by hurricanes, earthquakes and fire following earthquakes with amounts payable based on insured industry losses and further adjusted to account for our exposures in reinsured areas, and a $375 million placement reinsuring losses in all states except Florida and New Jersey caused by named storms, earthquakes and fire following earthquakes, severe thunderstorms, winter storms, volcanic eruptions, and meteorite impacts. Recoveries are limited to our ultimate net loss from the reinsured event and are subject to the placed limits. |
($ in millions) | January 1 reserves | ||||||
2017 | 2016 | ||||||
Auto | $ | 13,530 | $ | 12,459 | |||
Homeowners | 1,990 | 1,937 | |||||
Other personal lines | 1,456 | 1,490 | |||||
Commercial lines | 621 | 554 | |||||
Other business lines | 24 | 21 | |||||
Total Allstate Protection | $ | 17,621 | $ | 16,461 |
($ in millions, except ratios) | Three months ended March 31, | ||||||||||||
Reserve reestimate (1) | Effect on combined ratio (2) | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Auto | $ | (86 | ) | $ | 5 | (1.0 | ) | 0.1 | |||||
Homeowners | (24 | ) | (7 | ) | (0.3 | ) | (0.1 | ) | |||||
Other personal lines | 9 | 5 | 0.1 | 0.1 | |||||||||
Commercial lines | 2 | 20 | — | 0.2 | |||||||||
Other business lines | — | — | — | — | |||||||||
Total Allstate Protection (3) | $ | (99 | ) | $ | 23 | (1.2 | ) | 0.3 | |||||
Allstate brand | $ | (105 | ) | $ | 13 | (1.3 | ) | 0.2 | |||||
Esurance brand | — | (4 | ) | — | (0.1 | ) | |||||||
Encompass brand | 6 | 14 | 0.1 | 0.2 | |||||||||
Total Allstate Protection | $ | (99 | ) | $ | 23 | (1.2 | ) | 0.3 |
(1) | Favorable reserve reestimates are shown in parentheses. |
(2) | Ratios are calculated using Property-Liability premiums earned. |
(3) | Prior year reserve reestimates included in catastrophe losses totaled $4 million unfavorable in the three months ended March 31, 2017 compared to $3 million favorable in the three months ended March 31, 2016. |
($ in millions) | Allstate brand | Esurance brand | Encompass brand | Allstate Protection | |||||||||||||||||||||||
Premiums written | Percent to total | Percent to total | Percent to total | Percent to total | |||||||||||||||||||||||
Auto | $ | 4,882 | 70.2 | % | $ | 439 | 96.1 | % | $ | 125 | 53.0 | % | $ | 5,446 | 70.5 | % | |||||||||||
Homeowners | 1,403 | 20.2 | 16 | 3.5 | 91 | 38.5 | 1,510 | 19.6 | |||||||||||||||||||
Other personal lines | 368 | 5.3 | 2 | 0.4 | 20 | 8.5 | 390 | 5.1 | |||||||||||||||||||
Commercial lines | 123 | 1.8 | — | — | — | — | 123 | 1.6 | |||||||||||||||||||
Other business lines | 173 | 2.5 | — | — | — | — | 173 | 2.2 | |||||||||||||||||||
SquareTrade | — | — | — | — | — | — | 81 | 1.0 | |||||||||||||||||||
Total | $ | 6,949 | 100.0 | % | $ | 457 | 100.0 | % | $ | 236 | 100.0 | % | $ | 7,723 | 100.0 | % | |||||||||||
Percent to total Allstate Protection | 90.0 | % | 5.9 | % | 3.1 | % | |||||||||||||||||||||
PIF (thousands) | |||||||||||||||||||||||||||
Auto | 19,565 | 55.9 | % | 1,400 | 92.6 | % | 595 | 61.2 | % | 21,560 | 32.0 | % | |||||||||||||||
Homeowners | 6,090 | 17.3 | 63 | 4.2 | 284 | 29.1 | 6,437 | 9.6 | |||||||||||||||||||
Other personal lines | 4,200 | 12.0 | 48 | 3.2 | 94 | 9.7 | 4,342 | 6.4 | |||||||||||||||||||
Commercial lines | 272 | 0.8 | — | — | — | — | 272 | 0.4 | |||||||||||||||||||
Other business lines | 4,893 | 14.0 | — | — | — | — | 4,893 | 7.2 | |||||||||||||||||||
SquareTrade | — | — | — | — | — | — | 29,907 | 44.4 | |||||||||||||||||||
Total | 35,020 | 100.0 | % | 1,511 | 100.0 | % | 973 | 100.0 | % | 67,411 | 100.0 | % | |||||||||||||||
Percent to total Allstate Protection | 51.9 | % | 2.2 | % | 1.4 | % | |||||||||||||||||||||
Underwriting income (loss) | |||||||||||||||||||||||||||
Auto | $ | 454 | 77.2 | % | $ | (4 | ) | 40.0 | % | $ | (1 | ) | 3.0 | % | $ | 449 | 88.2 | % | |||||||||
Homeowners | 107 | 18.2 | (7 | ) | 70.0 | (28 | ) | 84.9 | 72 | 14.2 | |||||||||||||||||
Other personal lines | 28 | 4.8 | 1 | (10.0 | ) | (4 | ) | 12.1 | 25 | 4.9 | |||||||||||||||||
Commercial lines | (4 | ) | (0.7 | ) | — | — | — | — | (4 | ) | (0.8 | ) | |||||||||||||||
Other business lines | 3 | 0.5 | — | — | — | — | 3 | 0.6 | |||||||||||||||||||
SquareTrade | — | — | — | — | — | — | (35 | ) | (6.9 | ) | |||||||||||||||||
Answer Financial | — | — | — | — | — | — | (1 | ) | (0.2 | ) | |||||||||||||||||
Total | $ | 588 | 100.0 | % | $ | (10 | ) | 100.0 | % | $ | (33 | ) | 100 | % | $ | 509 | 100.0 | % |
• | PIF: Policy counts are based on items rather than customers. A multi-car customer would generate multiple item (policy) counts, even if all cars were insured under one policy. |
• | New issued applications: Item counts of automobiles or homeowners insurance applications for insurance policies that were issued during the period, regardless of whether the customer was previously insured by another Allstate Protection brand. Allstate brand includes automobiles added by existing customers when they exceed the number allowed (currently 10) on a policy. |
• | Average premium-gross written (“average premium”): Gross premiums written divided by issued item count. Gross premiums written include the impacts from discounts, surcharges and ceded reinsurance premiums and exclude the impacts from mid-term premium adjustments and premium refund accruals. Average premiums represent the appropriate policy term for each line. Allstate and Esurance brands policy terms are 6 months for auto and 12 months for homeowners. Encompass brand policy terms are 12 months for auto and homeowners. |
• | Renewal ratio: Renewal policies issued during the period, based on contract effective dates, divided by the total policies issued 6 months prior for auto (12 months prior for Encompass brand) or 12 months prior for homeowners. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | 6,949 | $ | 6,800 | |||
Premiums earned | $ | 7,198 | $ | 7,010 | |||
Claims and claims expense | (4,831 | ) | (5,150 | ) | |||
Amortization of DAC | (1,020 | ) | (988 | ) | |||
Other costs and expenses | (751 | ) | (696 | ) | |||
Restructuring and related charges | (8 | ) | (5 | ) | |||
Underwriting income | $ | 588 | $ | 171 | |||
Catastrophe losses | $ | 706 | $ | 783 | |||
Underwriting income (loss) by line of business | |||||||
Auto | $ | 454 | $ | 45 | |||
Homeowners | 107 | 111 | |||||
Other personal lines (1) | 28 | 29 | |||||
Commercial lines | (4 | ) | (28 | ) | |||
Other business lines (2) | 3 | 14 | |||||
Underwriting income | $ | 588 | $ | 171 |
(1) | Other personal lines include renter, condominium, landlord and other personal lines products. |
(2) | Other business lines primarily include Allstate Roadside Services, Allstate Dealer Services, Arity and Ivantage |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Underwriting income - prior period | $ | 171 | $ | 526 | |||
Changes in underwriting income from: | |||||||
Premiums earned | 188 | 290 | |||||
Incurred claims and claims expense (“losses”): | |||||||
Incurred losses, excluding catastrophe losses and reserve reestimates | 118 | (193 | ) | ||||
Catastrophe losses, excluding reserve reestimates | 83 | (511 | ) | ||||
Non-catastrophe reserve reestimates | 124 | 32 | |||||
Catastrophe reserve reestimates | (6 | ) | 2 | ||||
Losses subtotal | 319 | (670 | ) | ||||
Expenses | (90 | ) | 25 | ||||
Underwriting income | $ | 588 | $ | 171 |
($ in millions) | Three months ended March 31, | ||||||
Premiums written | 2017 | 2016 | |||||
Auto | $ | 4,882 | $ | 4,746 | |||
Homeowners | 1,403 | 1,392 | |||||
Other personal lines | 368 | 353 | |||||
Subtotal – Personal lines | 6,653 | 6,491 | |||||
Commercial lines | 123 | 126 | |||||
Other business lines | 173 | 183 | |||||
Total | $ | 6,949 | $ | 6,800 | |||
Premiums earned | |||||||
Auto | $ | 4,839 | $ | 4,667 | |||
Homeowners | 1,688 | 1,678 | |||||
Other personal lines | 405 | 393 | |||||
Subtotal – Personal lines | 6,932 | 6,738 | |||||
Commercial lines | 125 | 129 | |||||
Other business lines | 141 | 143 | |||||
Total | $ | 7,198 | $ | 7,010 |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
PIF (thousands) | 19,565 | 20,145 | |||||
New issued applications (thousands) | 610 | 584 | |||||
Average premium | $ | 538 | $ | 507 | |||
Renewal ratio (%) | 87.4 | 88.0 | |||||
Approved rate changes (1): | |||||||
# of locations (2) | 18 | 25 | |||||
Total brand (%) (3) | 1.7 | (6) | 1.7 | ||||
Location specific (%) (4) (5) | 5.3 | (6) | 7.3 |
(1) | Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. Rate changes do not include rating plan enhancements, including the introduction of discounts and surcharges that result in no change in the overall rate level in a location. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a location. |
(2) | Allstate brand operates in 50 states, the District of Columbia, and 5 Canadian provinces. |
(3) | Represents the impact in the states, the District of Columbia and Canadian provinces where rate changes were approved during the period as a percentage of total brand prior year-end premiums written. |
(4) | Represents the impact in the states, the District of Columbia and Canadian provinces where rate changes were approved during the period as a percentage of its respective total prior year-end premiums written in those same locations. |
(5) | Based on historical premiums written in the locations noted above, the annual impact of rate changes approved for auto totaled $338 million and $320 million in the three months ended March 31, 2017 and 2016, respectively. Approximately 47% of the Allstate brand rate increases approved in the first quarter of 2017 are expected to be earned in 2017, with the remainder expected to be earned in 2018. |
• | 2.9% or 580 thousand decrease in PIF as of March 31, 2017 compared to March 31, 2016. Allstate brand auto PIF increased in 9 states, including 1 of our largest 10 states, as of March 31, 2017 compared to March 31, 2016. |
• | 4.5% increase in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. Approximately 60% of states, including 4 of our 10 largest states, experienced increases in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. Quote volume increased in the first quarter of 2017 compared to the first quarter of 2016, with approximately 70% of our states increasing, including 7 of our largest 10, above prior year. |
• | 6.1% increase in average premium in the first quarter of 2017 compared to the first quarter of 2016, primarily due to rate increases. Rate changes approved for auto do not assume customer choices such as non-renewal or changes in policy terms which might reduce future premiums. Approximately 65% of the change in rates approved for auto in the first quarter of 2017 are driven by the increases approved in 4 of our 10 largest states. |
• | 0.6 point decrease in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. 1 of our largest 10 states experienced increases in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. |
Three months ended March 31, | ||||||||
2017 | 2016 | |||||||
PIF (thousands) | 6,090 | 6,176 | ||||||
New issued applications (thousands) | 163 | 164 | ||||||
Average premium | $ | 1,187 | $ | 1,174 | ||||
Renewal ratio (%) | 87.1 | 88.1 | ||||||
Approved rate changes (1): | ||||||||
# of locations (2) | 14 | 15 | ||||||
Total brand (%) | 1.0 | (0.4 | ) | (4) | ||||
Location specific (%) (3) | 4.2 | (2.3 | ) | (4) |
(1) | Includes rate changes approved based on our net cost of reinsurance. |
(2) | Allstate brand operates in 50 states, the District of Columbia, and 5 Canadian provinces. In April 2017, we plan to start writing a limited number of homeowners policies in select areas of Florida. |
(3) | Based on historical premiums written in the locations noted above, the annual impact of rate changes approved for homeowners totaled an increase of $70 million and a decrease of $28 million in the three months ended March 31, 2017 and 2016, respectively. |
(4) | Includes the impact of a rate decrease in California in first quarter 2016. Excluding California, Allstate brand homeowners total brand and location specific rate changes were 0.6% and 3.7% for the three months ended March 31, 2016, respectively. |
• | 1.4% or 86 thousand decrease in PIF as of March 31, 2017 compared to March 31, 2016. Allstate brand homeowners PIF increased in 15 states, including 2 of our largest 10 states, as of March 31, 2017 compared to March 31, 2016. |
• | 0.6% decrease in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. Of our largest 10 states, 4 experienced increases in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. Although in total quote volume decreased slightly in the first quarter of 2017 compared to the first quarter of 2016, over half of our states, including 4 of our largest 10, experienced increases in quote volume in the first quarter of 2017 compared to the first quarter of 2016. |
• | 1.1% increase in average premium in the first quarter of 2017 compared to the first quarter of 2016, primarily due to rate changes and increasing insured home valuations due to inflationary costs. |
• | 1.0 point decrease in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. Of our largest 10 states, 1 experienced an increase in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. |
• | $10 million decrease in the cost of our catastrophe reinsurance program to $79 million in the first quarter of 2017 from $89 million in the first quarter of 2016. Catastrophe reinsurance premiums are a reduction of premium. |
Loss ratio (1) | Expense ratio (1) | Combined ratio (1) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Three months ended March 31, | |||||||||||||||||
Auto | 66.6 | 75.4 | 24.0 | 23.6 | 90.6 | 99.0 | |||||||||||
Homeowners | 70.8 | 70.9 | 22.9 | 22.5 | 93.7 | 93.4 | |||||||||||
Other personal lines | 65.4 | 66.4 | 27.7 | 26.2 | 93.1 | 92.6 | |||||||||||
Commercial lines | 76.8 | 92.2 | 26.4 | 29.5 | 103.2 | 121.7 | |||||||||||
Other business lines | 36.9 | 42.7 | 61.0 | 47.5 | 97.9 | 90.2 | |||||||||||
Total | 67.1 | 73.5 | 24.7 | 24.1 | 91.8 | 97.6 |
(1) | Ratios are calculated using the premiums earned for the respective line of business. |
Loss ratio | Effect of catastrophe losses | Effect of prior year reserve reestimates | Effect of catastrophe losses included in prior year reserve reestimates | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Three months ended March 31, | |||||||||||||||||||||||
Auto | 66.6 | 75.4 | 1.3 | 2.9 | (1.8 | ) | 0.1 | (0.2 | ) | (0.1 | ) | ||||||||||||
Homeowners | 70.8 | 70.9 | 34.1 | 34.2 | (1.6 | ) | (0.5 | ) | 0.1 | (0.3 | ) | ||||||||||||
Other personal lines | 65.4 | 66.4 | 14.6 | 16.0 | 1.5 | (1.5 | ) | 1.8 | — | ||||||||||||||
Commercial lines | 76.8 | 92.2 | 5.6 | 7.0 | 1.6 | 15.5 | 0.8 | 2.4 | |||||||||||||||
Other business lines | 36.9 | 42.7 | — | — | — | — | — | — | |||||||||||||||
Total | 67.1 | 73.5 | 9.8 | 11.2 | (1.5 | ) | 0.2 | — | (0.1 | ) |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Auto | 24.0 | 23.6 | |||
Homeowners | 22.9 | 22.5 | |||
Other personal lines | 27.7 | 26.2 | |||
Commercial lines | 26.4 | 29.5 | |||
Other business lines (1) | 61.0 | 47.5 | |||
Total expense ratio | 24.7 | 24.1 |
(1) | Increase is primarily due to Allstate Roadside Services increase in strategic investments in the Good Hands Rescue Network and an increase in employee-related and technology costs at Allstate Dealer Services. |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Amortization of DAC | 14.2 | 14.1 | |||
Advertising expense | 2.0 | 1.5 | |||
Other costs and expenses | 8.4 | 8.4 | |||
Restructuring and related charges | 0.1 | 0.1 | |||
Total expense ratio | 24.7 | 24.1 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | 457 | $ | 452 | |||
Premiums earned | $ | 419 | $ | 404 | |||
Claims and claims expense | (314 | ) | (294 | ) | |||
Amortization of DAC | (10 | ) | (11 | ) | |||
Other costs and expenses | (103 | ) | (124 | ) | |||
Restructuring and related charges | (2 | ) | — | ||||
Underwriting loss | $ | (10 | ) | $ | (25 | ) | |
Catastrophe losses | $ | 8 | $ | 3 | |||
Underwriting income (loss) by line of business | |||||||
Auto | $ | (4 | ) | $ | (18 | ) | |
Homeowners | (7 | ) | (7 | ) | |||
Other personal lines | 1 | — | |||||
Underwriting loss | $ | (10 | ) | $ | (25 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Underwriting loss - prior period | $ | (25 | ) | $ | (69 | ) | |
Changes in underwriting loss from: | |||||||
Premiums earned | 15 | 17 | |||||
Incurred claims and claims expense (“losses”): | |||||||
Incurred losses, excluding catastrophe losses and reserve reestimates | (11 | ) | 8 | ||||
Catastrophe losses, excluding reserve reestimates | (5 | ) | (3 | ) | |||
Non-catastrophe reserve reestimates | (4 | ) | — | ||||
Catastrophe reserve reestimates | — | — | |||||
Losses subtotal | (20 | ) | 5 | ||||
Expenses | 20 | 22 | |||||
Underwriting loss | $ | (10 | ) | $ | (25 | ) |
($ in millions) | Three months ended March 31, | ||||||
Premiums written | 2017 | 2016 | |||||
Auto | $ | 439 | $ | 439 | |||
Homeowners | 16 | 11 | |||||
Other personal lines | 2 | 2 | |||||
Total | $ | 457 | $ | 452 | |||
Premiums earned | |||||||
Auto | $ | 403 | $ | 394 | |||
Homeowners | 14 | 8 | |||||
Other personal lines | 2 | 2 | |||||
Total | $ | 419 | $ | 404 |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
PIF (thousands) | 1,400 | 1,428 | |||||
New issued applications (thousands) | 143 | 168 | |||||
Average premium | $ | 571 | $ | 547 | |||
Renewal ratio (%) | 80.4 | 79.6 | |||||
Approved rate changes (1): | |||||||
# of locations (2) | 7 | 6 | |||||
Total brand (%) (3) | 0.7 | 0.3 | |||||
Location specific (%) (4) (5) | 5.3 | 2.7 |
(1) | Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. Rate changes do not include rating plan enhancements, including the introduction of discounts and surcharges that result in no change in the overall rate level in a location. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a location. |
(2) | Esurance brand operates in 43 states and 1 Canadian province. |
(3) | Represents the impact in the states and Canadian province where rate changes were approved during the period as a percentage of total brand prior year-end premiums written. |
(4) | Represents the impact in the states and Canadian province where rate changes were approved during the period as a percentage of its respective total prior year-end premiums written in those same locations. |
(5) | Based on historical premiums written in the locations noted above, the annual impact of rate changes approved for auto totaled $11 million and $4 million in the three months ended March 31, 2017 and 2016, respectively. |
• | 14.9% decrease in new issued applications and a decrease in quote volume in the first quarter of 2017 compared to the first quarter of 2016 due to marketing spending reductions and the impact of rate increases. The conversion rate (the percentage of actual issued policies to completed quotes) decreased 0.8 points in the first quarter of 2017 compared to the first quarter of 2016. |
• | 4.4% increase in average premium in the first quarter of 2017 compared to the first quarter of 2016. |
• | 0.8 point increase in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
PIF (thousands) | 63 | 37 | |||||
New issued applications (thousands) | 8 | 7 | |||||
Average premium | $ | 919 | $ | 891 | |||
Renewal ratio (%) (1) | 83.5 | 81.6 | |||||
Approved rate changes: | |||||||
# of locations | — | N/A | |||||
Total brand (%) | — | N/A | |||||
Location specific (%) | — | N/A |
(1) | Esurance’s renewal ratios exclude the impact of risk related cancellations. Customers can enter into a policy without a physical inspection. During the underwriting review period, a number of policies may be canceled if upon inspection the condition is unsatisfactory, causing the renewal ratio to appear lower. |
• | 26 thousand increase in PIF as of March 31, 2017 compared to March 31, 2016. |
• | 14.3% increase in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. |
• | As of March 31, 2017, Esurance is writing homeowners insurance in 31 states with lower hurricane risk that have lower average premium. |
Loss ratio (1) | Expense ratio (1) | Combined ratio (1) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Three months ended March 31, | |||||||||||||||||
Auto | 74.4 | 73.4 | 26.6 | 31.2 | 101.0 | 104.6 | |||||||||||
Homeowners | 92.9 | 50.0 | 57.1 | 137.5 | 150.0 | 187.5 | |||||||||||
Other personal lines | 50.0 | 50.0 | — | 50.0 | 50.0 | 100.0 | |||||||||||
Total | 74.9 | 72.8 | 27.5 | 33.4 | 102.4 | 106.2 |
(1) | Ratios are calculated using the premiums earned for the respective line of business. |
Loss ratio | Effect of catastrophe losses | Effect of prior year reserve reestimates | Effect of catastrophe losses included in prior year reserve reestimates | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Three months ended March 31, | |||||||||||||||||||||||
Auto | 74.4 | 73.4 | 1.0 | 0.5 | — | (1.0 | ) | — | — | ||||||||||||||
Homeowners | 92.9 | 50.0 | 28.6 | 12.5 | — | — | — | — | |||||||||||||||
Other personal lines | 50.0 | 50.0 | — | — | — | — | — | — | |||||||||||||||
Total | 74.9 | 72.8 | 1.9 | 0.7 | — | (1.0 | ) | — | — |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Auto | 26.6 | 31.2 | |||
Homeowners | 57.1 | 137.5 | |||
Other personal lines | — | 50.0 | |||
Total expense ratio | 27.5 | 33.4 |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Amortization of DAC | 2.4 | 2.7 | |||
Advertising expense | 8.6 | 11.6 | |||
Amortization of purchased intangible assets | 0.3 | 1.5 | |||
Restructuring and related charges | 0.5 | — | |||
Other costs and expenses | 15.7 | 17.6 | |||
Total expense ratio | 27.5 | 33.4 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | 236 | $ | 263 | |||
Premiums earned | $ | 283 | $ | 309 | |||
Claims and claims expense | (233 | ) | (239 | ) | |||
Amortization of DAC | (52 | ) | (57 | ) | |||
Other costs and expenses | (31 | ) | (31 | ) | |||
Underwriting loss | $ | (33 | ) | $ | (18 | ) | |
Catastrophe losses | $ | 67 | $ | 41 | |||
Underwriting income (loss) by line of business | |||||||
Auto | $ | (1 | ) | $ | (9 | ) | |
Homeowners | (28 | ) | 3 | ||||
Other personal lines | (4 | ) | (12 | ) | |||
Underwriting loss | $ | (33 | ) | $ | (18 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Underwriting (loss) income - prior period | $ | (18 | ) | $ | 14 | ||
Changes in underwriting loss from: | |||||||
Premiums earned | (26 | ) | (10 | ) | |||
Incurred claims and claims expense (“losses”): | |||||||
Incurred losses, excluding catastrophe losses and reserve reestimates | 23 | 12 | |||||
Catastrophe losses, excluding reserve reestimates | (25 | ) | (17 | ) | |||
Non-catastrophe reserve reestimates | 9 | (17 | ) | ||||
Catastrophe reserve reestimates | (1 | ) | (4 | ) | |||
Losses subtotal | 6 | (26 | ) | ||||
Expenses | 5 | 4 | |||||
Underwriting loss | $ | (33 | ) | $ | (18 | ) |
($ in millions) | Three months ended March 31, | ||||||
Premiums written | 2017 | 2016 | |||||
Auto | $ | 125 | $ | 138 | |||
Homeowners | 91 | 104 | |||||
Other personal lines | 20 | 21 | |||||
Total | $ | 236 | $ | 263 | |||
Premiums earned | |||||||
Auto | $ | 146 | $ | 159 | |||
Homeowners | 113 | 124 | |||||
Other personal lines | 24 | 26 | |||||
Total | $ | 283 | $ | 309 |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
PIF (thousands) | 595 | 701 | |||||
New issued applications (thousands) | 12 | 15 | |||||
Average premium | $ | 1,057 | $ | 981 | |||
Renewal ratio (%) | 73.1 | 76.1 | |||||
Approved rate changes (1): | |||||||
# of locations (2) | 5 | 4 | |||||
Total brand (%) (3) | 1.5 | 1.6 | |||||
Location specific (%) (4) (5) | 7.2 | 14.3 |
(1) | Rate changes that are indicated based on loss trend analysis to achieve a targeted return will continue to be pursued. Rate changes do not include rating plan enhancements, including the introduction of discounts and surcharges that result in no change in the overall rate level in a location. These rate changes do not reflect initial rates filed for insurance subsidiaries initially writing business in a location. |
(2) | Encompass brand operates in 40 states and the District of Columbia. |
(3) | Represents the impact in the states and the District of Columbia where rate changes were approved during the period as a percentage of total brand prior year-end premiums written. |
(4) | Represents the impact in the states and the District of Columbia where rate changes were approved during the period as a percentage of its respective total prior year-end premiums written in those same locations. |
(5) | Based on historical premiums written in the locations noted above, the annual impact of rate changes approved for auto totaled $8 million and $11 million in the three months ended March 31, 2017 and 2016, respectively. Approximately 35% of the Encompass brand rate increases approved in the first quarter of 2017 are expected to be earned in 2017, with the remainder expected to be earned in 2018 and 2019. |
• | 15.1% or 106 thousand decrease in PIF as of March 31, 2017 compared to March 31, 2016. |
• | 20.0% decrease in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. |
• | 7.7% increase in average premium in the first quarter of 2017 compared to the first quarter of 2016. |
• | 3.0 point decrease in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. Encompass sells a high percentage of package policies that include both auto and homeowners; therefore, declines in one product can contribute to declines in the other. |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
PIF (thousands) | 284 | 329 | |||||
New issued applications (thousands) | 7 | 9 | |||||
Average premium | $ | 1,659 | $ | 1,618 | |||
Renewal ratio (%) | 78.2 | 81.5 | |||||
Approved rate changes (1): | |||||||
# of locations (2) | 3 | 5 | |||||
Total brand (%) | 0.2 | 1.4 | |||||
Location specific (%) (3) | 3.4 | 11.6 |
(1) | Includes rate changes approved based on our net cost of reinsurance. |
(2) | Encompass brand operates in 40 states and the District of Columbia. |
(3) | Based on historical premiums written in the locations noted above, the annual impact of rate changes approved for homeowners totaled $1 million and $7 million in the three months ended March 31, 2017 and 2016, respectively. |
• | 13.7% or 45 thousand decrease in PIF as of March 31, 2017 compared to March 31, 2016. |
• | 22.2% decrease in new issued applications in the first quarter of 2017 compared to the first quarter of 2016. |
• | 2.5% increase in average premium in the first quarter of 2017 compared to the first quarter of 2016, primarily due to rate changes. |
• | 3.3 point decrease in the renewal ratio in the first quarter of 2017 compared to the first quarter of 2016. Encompass sells a high percentage of package policies that include both auto and homeowners; therefore, declines in one product can contribute to declines in the other. |
Loss ratio (1) | Expense ratio (1) | Combined ratio (1) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Three months ended March 31, | |||||||||||||||||
Auto | 71.2 | 77.4 | 29.5 | 28.3 | 100.7 | 105.7 | |||||||||||
Homeowners | 95.6 | 68.6 | 29.2 | 29.0 | 124.8 | 97.6 | |||||||||||
Other personal lines | 87.5 | 119.3 | 29.2 | 26.9 | 116.7 | 146.2 | |||||||||||
Total | 82.4 | 77.3 | 29.3 | 28.5 | 111.7 | 105.8 |
(1) | Ratios are calculated using the premiums earned for the respective line of business. |
Loss ratio | Effect of catastrophe losses | Effect of prior year reserve reestimates | Effect of catastrophe losses included in prior year reserve reestimates | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Three months ended March 31, | |||||||||||||||||||||||
Auto | 71.2 | 77.4 | 2.8 | 1.3 | — | 1.3 | — | — | |||||||||||||||
Homeowners | 95.6 | 68.6 | 54.0 | 30.7 | 2.7 | 0.8 | 1.8 | 1.6 | |||||||||||||||
Other personal lines | 87.5 | 119.3 | 8.3 | 3.8 | 12.6 | 42.3 | — | (3.9 | ) | ||||||||||||||
Total | 82.4 | 77.3 | 23.7 | 13.3 | 2.1 | 4.5 | 0.7 | 0.3 |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Auto | 29.5 | 28.3 | |||
Homeowners | 29.2 | 29.0 | |||
Other personal lines | 29.2 | 26.9 | |||
Total expense ratio | 29.3 | 28.5 |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Amortization of DAC | 18.4 | 18.5 | |||
Advertising expense | — | — | |||
Other costs and expenses | 10.9 | 10.0 | |||
Restructuring and related charges | — | — | |||
Total expense ratio | 29.3 | 28.5 |
($ in millions) | |||
Three months ended March 31, 2017 | |||
Premiums written | $ | 81 | |
Premiums earned | $ | 59 | |
Claims and claims expense | (36 | ) | |
Amortization of DAC | (8 | ) | |
Advertising expense | (5 | ) | |
Other costs and expenses | (22 | ) | |
Amortization of purchased intangible assets | (23 | ) | |
Underwriting loss | $ | (35 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Premiums written | $ | — | $ | — | |||
Premiums earned | $ | — | $ | — | |||
Claims and claims expense | (2 | ) | (1 | ) | |||
Operating costs and expenses | — | (1 | ) | ||||
Underwriting loss | $ | (2 | ) | $ | (2 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | 226 | $ | 223 | |||
Equity securities | 29 | 20 | |||||
Mortgage loans | 3 | 3 | |||||
Limited partnership interests | 55 | 58 | |||||
Short-term investments | 4 | 2 | |||||
Other | 22 | 20 | |||||
Investment income, before expense | 339 | 326 | |||||
Investment expense | (28 | ) | (24 | ) | |||
Net investment income | $ | 311 | $ | 302 |
Three months ended March 31, | |||||
2017 | 2016 | ||||
Fixed income securities: tax-exempt | 1.9 | % | 2.1 | % | |
Fixed income securities: tax-exempt equivalent | 2.8 | 3.1 | |||
Fixed income securities: taxable | 3.1 | 3.2 | |||
Equity securities | 3.3 | 2.4 | |||
Mortgage loans | 3.8 | 4.0 | |||
Limited partnership interests | 7.1 | 8.9 | |||
Total portfolio | 3.2 | 3.3 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Impairment write-downs | $ | (22 | ) | $ | (35 | ) | |
Change in intent write-downs | (13 | ) | (19 | ) | |||
Net other-than-temporary impairment losses recognized in earnings | (35 | ) | (54 | ) | |||
Sales and other | 180 | (41 | ) | ||||
Valuation and settlements of derivative instruments | (10 | ) | (4 | ) | |||
Realized capital gains and losses, pre-tax | 135 | (99 | ) | ||||
Income tax (expense) benefit | (46 | ) | 35 | ||||
Realized capital gains and losses, after-tax | $ | 89 | $ | (64 | ) |
• | Net income applicable to common shareholders was $108 million in the first quarter of 2017 compared to $68 million in the first quarter of 2016. |
• | Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled $590 million in the first quarter of 2017, an increase of 4.8% from $563 million in the first quarter of 2016. |
• | Investments totaled $36.61 billion as of March 31, 2017, reflecting a decrease of $230 million from $36.84 billion as of December 31, 2016. Net investment income increased 1.7% to $426 million in the first quarter of 2017 from $419 million in the first quarter of 2016. |
• | Net realized capital losses totaled $1 million in the first quarter of 2017 compared to $49 million in the first quarter of 2016. |
• | Contractholder funds totaled $20.05 billion as of March 31, 2017, reflecting a decrease of $209 million from $20.26 billion as of December 31, 2016. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Revenues | |||||||
Life and annuity premiums and contract charges | $ | 593 | $ | 566 | |||
Net investment income | 426 | 419 | |||||
Realized capital gains and losses | (1 | ) | (49 | ) | |||
Total revenues | 1,018 | 936 | |||||
Costs and expenses | |||||||
Life and annuity contract benefits | (474 | ) | (455 | ) | |||
Interest credited to contractholder funds | (173 | ) | (190 | ) | |||
Amortization of DAC | (79 | ) | (73 | ) | |||
Operating costs and expenses | (135 | ) | (123 | ) | |||
Total costs and expenses | (861 | ) | (841 | ) | |||
Gain on disposition of operations | 2 | 2 | |||||
Income tax expense | (51 | ) | (29 | ) | |||
Net income applicable to common shareholders | $ | 108 | $ | 68 | |||
Life insurance | $ | 60 | $ | 59 | |||
Accident and health insurance | 19 | 18 | |||||
Annuities and institutional products | 29 | (9 | ) | ||||
Net income applicable to common shareholders | $ | 108 | $ | 68 | |||
Allstate Life | $ | 57 | $ | 57 | |||
Allstate Benefits | 22 | 20 | |||||
Allstate Annuities | 29 | (9 | ) | ||||
Net income applicable to common shareholders | $ | 108 | $ | 68 | |||
Investments as of March 31 | $ | 36,610 | $ | 37,336 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Underwritten products | |||||||
Traditional life insurance premiums | $ | 140 | $ | 130 | |||
Interest-sensitive life insurance contract charges | 181 | 182 | |||||
Subtotal – Allstate Life | 321 | 312 | |||||
Traditional life insurance premiums | 9 | 8 | |||||
Accident and health insurance premiums | 232 | 216 | |||||
Interest-sensitive life insurance contract charges | 28 | 27 | |||||
Subtotal – Allstate Benefits | 269 | 251 | |||||
Total underwritten products | 590 | 563 | |||||
Annuities | |||||||
Fixed annuity contract charges | 3 | 3 | |||||
Life and annuity premiums and contract charges (1) | $ | 593 | $ | 566 |
(1) | Contract charges related to the cost of insurance totaled $141 million for both the first quarter of 2017 and 2016. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Contractholder funds, beginning balance | $ | 20,260 | $ | 21,295 | |||
Deposits | |||||||
Interest-sensitive life insurance | 249 | 252 | |||||
Fixed annuities | 45 | 44 | |||||
Total deposits | 294 | 296 | |||||
Interest credited | 173 | 189 | |||||
Benefits, withdrawals, maturities and other adjustments | |||||||
Benefits | (233 | ) | (252 | ) | |||
Surrenders and partial withdrawals | (253 | ) | (245 | ) | |||
Contract charges | (206 | ) | (206 | ) | |||
Net transfers from separate accounts | 2 | 1 | |||||
Other adjustments (1) | 14 | 14 | |||||
Total benefits, withdrawals, maturities and other adjustments | (676 | ) | (688 | ) | |||
Contractholder funds, ending balance | $ | 20,051 | $ | 21,092 |
(1) | The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Condensed Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Condensed Consolidated Statements of Operations. As a result, the net change in contractholder funds associated with products reinsured is reflected as a component of the other adjustments line. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | 281 | $ | 284 | |||
Equity securities | 15 | 8 | |||||
Mortgage loans | 52 | 50 | |||||
Limited partnership interests | 65 | 63 | |||||
Short-term investments | 1 | 2 | |||||
Other | 33 | 30 | |||||
Investment income, before expense | 447 | 437 | |||||
Investment expense | (21 | ) | (18 | ) | |||
Net investment income | $ | 426 | $ | 419 | |||
Allstate Life | $ | 120 | $ | 120 | |||
Allstate Benefits | 17 | 18 | |||||
Allstate Annuities | 289 | 281 | |||||
Net investment income | $ | 426 | $ | 419 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Impairment write-downs | $ | (21 | ) | $ | (24 | ) | |
Change in intent write-downs | (3 | ) | (3 | ) | |||
Net other-than-temporary impairment losses recognized in earnings | (24 | ) | (27 | ) | |||
Sales and other | 28 | (17 | ) | ||||
Valuation and settlements of derivative instruments | (5 | ) | (5 | ) | |||
Realized capital gains and losses, pre-tax | (1 | ) | (49 | ) | |||
Income tax benefit | — | 17 | |||||
Realized capital gains and losses, after-tax | $ | (1 | ) | $ | (32 | ) | |
Allstate Life | $ | 1 | $ | (8 | ) | ||
Allstate Benefits | — | (3 | ) | ||||
Allstate Annuities | (2 | ) | (21 | ) | |||
Realized capital gains and losses, after-tax | $ | (1 | ) | $ | (32 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Life insurance | $ | 71 | $ | 75 | |||
Accident and health insurance | (2 | ) | — | ||||
Subtotal – Allstate Life | 69 | 75 | |||||
Life insurance | 5 | 5 | |||||
Accident and health insurance | 115 | 105 | |||||
Subtotal – Allstate Benefits | 120 | 110 | |||||
Allstate Annuities | (15 | ) | (17 | ) | |||
Total benefit spread | $ | 174 | $ | 168 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Life insurance | $ | 29 | $ | 32 | |||
Accident and health insurance | 2 | 1 | |||||
Net investment income on investments supporting capital | 20 | 17 | |||||
Subtotal – Allstate Life | 51 | 50 | |||||
Life insurance | 3 | 2 | |||||
Accident and health insurance | 2 | 3 | |||||
Net investment income on investments supporting capital | 3 | 4 | |||||
Subtotal – Allstate Benefits | 8 | 9 | |||||
Annuities and institutional products | 28 | 17 | |||||
Net investment income on investments supporting capital | 40 | 31 | |||||
Subtotal – Allstate Annuities | 68 | 48 | |||||
Investment spread before valuation changes on embedded derivatives that are not hedged | 127 | 107 | |||||
Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged | — | (6 | ) | ||||
Total investment spread | $ | 127 | $ | 101 |
Three months ended March 31, | |||||||||||||||||
Weighted average investment yield | Weighted average interest crediting rate | Weighted average investment spreads | |||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest-sensitive life insurance | 5.0 | % | 5.0 | % | 3.8 | % | 3.9 | % | 1.2 | % | 1.1 | % | |||||
Deferred fixed annuities and institutional products | 4.4 | 4.0 | 2.8 | 2.8 | 1.6 | 1.2 | |||||||||||
Immediate fixed annuities with and without life contingencies | 6.3 | 6.0 | 5.9 | 5.9 | 0.4 | 0.1 | |||||||||||
Investments supporting capital, traditional life and other products | 3.9 | 3.8 | n/a | n/a | n/a | n/a |
($ in millions) | March 31, | ||||||
2017 | 2016 | ||||||
Immediate fixed annuities with life contingencies | $ | 8,594 | $ | 8,688 | |||
Other life contingent contracts and other | 3,629 | 3,536 | |||||
Reserve for life-contingent contract benefits | $ | 12,223 | $ | 12,224 | |||
Interest-sensitive life insurance | $ | 8,091 | $ | 7,992 | |||
Deferred fixed annuities | 8,722 | 9,555 | |||||
Immediate fixed annuities without life contingencies | 2,973 | 3,182 | |||||
Institutional products | — | 85 | |||||
Other | 265 | 278 | |||||
Contractholder funds | $ | 20,051 | $ | 21,092 |
($ in millions) | March 31, | ||||||
2017 | 2016 | ||||||
Allstate Life | $ | 2,582 | $ | 2,534 | |||
Allstate Benefits | 950 | 908 | |||||
Allstate Annuities | 8,691 | 8,782 | |||||
Reserve for life-contingent contract benefits | $ | 12,223 | $ | 12,224 | |||
Allstate Life | $ | 7,353 | $ | 7,241 | |||
Allstate Benefits | 956 | 946 | |||||
Allstate Annuities | 11,742 | 12,905 | |||||
Contractholder funds | $ | 20,051 | $ | 21,092 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions | $ | 75 | $ | 71 | |||
Amortization relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged | 4 | 2 | |||||
Amortization acceleration for changes in assumptions (“DAC unlocking”) | — | — | |||||
Total amortization of DAC | $ | 79 | $ | 73 | |||
Allstate Life | $ | 36 | $ | 33 | |||
Allstate Benefits | 41 | 38 | |||||
Allstate Annuities | 2 | 2 | |||||
Total amortization of DAC | $ | 79 | $ | 73 |
(1) | The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Non-deferrable commissions | $ | 29 | $ | 28 | |||
General and administrative expenses | 92 | 81 | |||||
Taxes and licenses | 14 | 14 | |||||
Total operating costs and expenses | $ | 135 | $ | 123 | |||
Allstate Life | $ | 59 | $ | 56 | |||
Allstate Benefits | 67 | 59 | |||||
Allstate Annuities | 9 | 8 | |||||
Total operating costs and expenses | $ | 135 | $ | 123 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Revenues | |||||||
Life and annuity premiums and contract charges | $ | 321 | $ | 312 | |||
Net investment income | 120 | 120 | |||||
Realized capital gains and losses | 1 | (12 | ) | ||||
Total revenues | 442 | 420 | |||||
Costs and expenses | |||||||
Life and annuity contract benefits | (195 | ) | (180 | ) | |||
Interest credited to contractholder funds | (69 | ) | (70 | ) | |||
Amortization of DAC | (36 | ) | (33 | ) | |||
Operating costs and expenses | (59 | ) | (56 | ) | |||
Total costs and expenses | (359 | ) | (339 | ) | |||
Income tax expense | (26 | ) | (24 | ) | |||
Net income applicable to common shareholders | $ | 57 | $ | 57 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Revenues | |||||||
Life and annuity premiums and contract charges | $ | 269 | $ | 251 | |||
Net investment income | 17 | 18 | |||||
Realized capital gains and losses | — | (5 | ) | ||||
Total revenues | 286 | 264 | |||||
Costs and expenses | |||||||
Life and annuity contract benefits | (136 | ) | (128 | ) | |||
Interest credited to contractholder funds | (9 | ) | (9 | ) | |||
Amortization of DAC | (41 | ) | (38 | ) | |||
Operating costs and expenses | (67 | ) | (59 | ) | |||
Total costs and expenses | (253 | ) | (234 | ) | |||
Income tax expense | (11 | ) | (10 | ) | |||
Net income applicable to common shareholders | $ | 22 | $ | 20 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Revenues | |||||||
Life and annuity premiums and contract charges | $ | 3 | $ | 3 | |||
Net investment income | 289 | 281 | |||||
Realized capital gains and losses | (2 | ) | (32 | ) | |||
Total revenues | 290 | 252 | |||||
Costs and expenses | |||||||
Life and annuity contract benefits | (143 | ) | (147 | ) | |||
Interest credited to contractholder funds | (95 | ) | (111 | ) | |||
Amortization of DAC | (2 | ) | (2 | ) | |||
Operating costs and expenses | (9 | ) | (8 | ) | |||
Total costs and expenses | (249 | ) | (268 | ) | |||
Gain on disposition of operations | 2 | 2 | |||||
Income tax (expense) benefit | (14 | ) | 5 | ||||
Net income (loss) applicable to common shareholders | $ | 29 | $ | (9 | ) |
• | Investments totaled $81.14 billion as of March 31, 2017, decreasing from $81.80 billion as of December 31, 2016. |
• | Unrealized net capital gains totaled $2.10 billion as of March 31, 2017, increasing from $1.77 billion as of December 31, 2016. |
• | Net investment income was $748 million in the first quarter of 2017, an increase of 2.3% from $731 million in the first quarter of 2016. |
• | Net realized capital gains were $134 million in the first quarter of 2017 compared to net realized capital losses of $149 million in the first quarter of 2016. |
($ in millions) | Property-Liability (5) | Allstate Financial (5) | Corporate and Other (5) | Total | |||||||||||||||||||||||
Percent to total | Percent to total | Percent to total | Percent to total | ||||||||||||||||||||||||
Fixed income securities (1) | $ | 31,377 | 74.7 | % | $ | 25,072 | 68.5 | % | $ | 2,187 | 86.3 | % | $ | 58,636 | 72.3 | % | |||||||||||
Equity securities (2) | 4,012 | 9.6 | 1,670 | 4.6 | 3 | 0.1 | 5,685 | 7.0 | |||||||||||||||||||
Mortgage loans | 279 | 0.7 | 4,070 | 11.1 | — | — | 4,349 | 5.3 | |||||||||||||||||||
Limited partnership interests (3) | 3,122 | 7.4 | 2,860 | 7.8 | — | — | 5,982 | 7.4 | |||||||||||||||||||
Short-term investments (4) | 1,592 | 3.8 | 818 | 2.2 | 343 | 13.6 | 2,753 | 3.4 | |||||||||||||||||||
Other | 1,618 | 3.8 | 2,120 | 5.8 | — | — | 3,738 | 4.6 | |||||||||||||||||||
Total | $ | 42,000 | 100.0 | % | $ | 36,610 | 100.0 | % | $ | 2,533 | 100.0 | % | $ | 81,143 | 100.0 | % |
(1) | Fixed income securities are carried at fair value. Amortized cost basis for these securities was $31.16 billion, $23.86 billion, $2.17 billion and $57.19 billion for Property-Liability, Allstate Financial, Corporate and Other, and in Total, respectively. |
(2) | Equity securities are carried at fair value. Cost basis for these securities was $3.53 billion, $1.50 billion, $3 million and $5.03 billion for Property-Liability, Allstate Financial, Corporate and Other, and in Total, respectively. |
(3) | We have commitments to invest in additional limited partnership interests totaling $1.54 billion, $1.43 billion and $2.97 billion for Property-Liability, Allstate Financial, and in Total, respectively. |
(4) | Short-term investments are carried at fair value. Amortized cost basis for these investments was $1.59 billion, $818 million, $343 million and $2.75 billion for Property-Liability, Allstate Financial, Corporate and Other, and in Total, respectively. |
(5) | Balances reflect the elimination of related party investments between segments. |
($ in millions) | Total | Market-Based Core | Market-Based Active | Performance-Based | |||||||||||
Fixed income securities | $ | 58,636 | $ | 51,332 | $ | 7,236 | $ | 68 | |||||||
Equity securities | 5,685 | 4,411 | 1,167 | 107 | |||||||||||
Mortgage loans | 4,349 | 4,349 | — | — | |||||||||||
Limited partnership interests | 5,982 | 518 | — | 5,464 | |||||||||||
Short-term investments | 2,753 | 2,112 | 641 | — | |||||||||||
Other | 3,738 | 3,035 | 168 | 535 | |||||||||||
Total | $ | 81,143 | $ | 65,757 | $ | 9,212 | $ | 6,174 | |||||||
% of total | 81 | % | 11 | % | 8 | % | |||||||||
Property-Liability | $ | 42,000 | $ | 30,703 | $ | 8,018 | $ | 3,279 | |||||||
% of Property-Liability | 73 | % | 19 | % | 8 | % | |||||||||
Allstate Financial | $ | 36,610 | $ | 32,521 | $ | 1,194 | $ | 2,895 | |||||||
% of Allstate Financial | 89 | % | 3 | % | 8 | % | |||||||||
Corporate & Other | $ | 2,533 | $ | 2,533 | $ | — | $ | — | |||||||
% of Corporate & Other | 100 | % | — | % | — | % | |||||||||
Unrealized net capital gains and losses | |||||||||||||||
Fixed income securities | $ | 1,442 | $ | 1,388 | $ | 54 | $ | — | |||||||
Equity securities | 659 | 615 | 35 | 9 | |||||||||||
Total | $ | 2,101 | $ | 2,003 | $ | 89 | $ | 9 |
($ in millions) | Fair value as of March 31, 2017 | Percent to total investments | Fair value as of December 31, 2016 | Percent to total investments | |||||||||
U.S. government and agencies | $ | 4,395 | 5.4 | % | $ | 3,637 | 4.5 | % | |||||
Municipal | 7,507 | 9.2 | 7,333 | 9.0 | |||||||||
Corporate | 43,535 | 53.7 | 43,601 | 53.3 | |||||||||
Foreign government | 1,027 | 1.3 | 1,075 | 1.3 | |||||||||
Asset-backed securities (“ABS”) | 1,265 | 1.6 | 1,171 | 1.4 | |||||||||
Residential mortgage-backed securities (“RMBS”) | 672 | 0.8 | 728 | 0.9 | |||||||||
Commercial mortgage-backed securities (“CMBS”) | 211 | 0.3 | 270 | 0.3 | |||||||||
Redeemable preferred stock | 24 | — | 24 | — | |||||||||
Total fixed income securities | $ | 58,636 | 72.3 | % | $ | 57,839 | 70.7 | % |
($ in millions) | Investment grade | Below investment grade | Total | ||||||||||||||||||||
Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | ||||||||||||||||||
U.S. government and agencies | $ | 4,395 | $ | 66 | $ | — | $ | — | $ | 4,395 | $ | 66 | |||||||||||
Municipal | |||||||||||||||||||||||
Tax exempt | 5,126 | 3 | 38 | (4 | ) | 5,164 | (1 | ) | |||||||||||||||
Taxable | 2,290 | 261 | 53 | (2 | ) | 2,343 | 259 | ||||||||||||||||
Corporate | |||||||||||||||||||||||
Public | 26,667 | 581 | 4,655 | 88 | 31,322 | 669 | |||||||||||||||||
Privately placed | 8,953 | 257 | 3,260 | 66 | 12,213 | 323 | |||||||||||||||||
Foreign government | 1,026 | 32 | 1 | — | 1,027 | 32 | |||||||||||||||||
ABS | |||||||||||||||||||||||
Collateralized debt obligations (“CDO”) | 628 | (3 | ) | 52 | 3 | 680 | — | ||||||||||||||||
Consumer and other asset-backed securities (“Consumer and other ABS”) | 584 | 2 | 1 | 1 | 585 | 3 | |||||||||||||||||
RMBS | |||||||||||||||||||||||
U.S. government sponsored entities (“U.S. Agency”) | 132 | 4 | — | — | 132 | 4 | |||||||||||||||||
Non-agency | 25 | — | 515 | 79 | 540 | 79 | |||||||||||||||||
CMBS | 56 | 1 | 155 | 4 | 211 | 5 | |||||||||||||||||
Redeemable preferred stock | 24 | 3 | — | — | 24 | 3 | |||||||||||||||||
Total fixed income securities | $ | 49,906 | $ | 1,207 | $ | 8,730 | $ | 235 | $ | 58,636 | $ | 1,442 | |||||||||||
Property-Liability | $ | 25,962 | $ | 87 | $ | 5,415 | $ | 126 | $ | 31,377 | $ | 213 | |||||||||||
Allstate Financial | 21,847 | 1,104 | 3,225 | 107 | 25,072 | 1,211 | |||||||||||||||||
Corporate & Other | 2,097 | 16 | 90 | 2 | 2,187 | 18 | |||||||||||||||||
Total fixed income securities | $ | 49,906 | $ | 1,207 | $ | 8,730 | $ | 235 | $ | 58,636 | $ | 1,442 |
($ in millions) | Private equity | Real estate | Other | Total | |||||||||||
Cost method of accounting (“Cost”) | $ | 1,126 | $ | 122 | $ | 45 | $ | 1,293 | |||||||
Equity method of accounting (“EMA”) | 3,198 | 1,018 | 473 | 4,689 | |||||||||||
Total | $ | 4,324 | $ | 1,140 | $ | 518 | $ | 5,982 | |||||||
Number of managers | 124 | 39 | 14 | 177 | |||||||||||
Number of individual investments | 231 | 82 | 19 | 332 | |||||||||||
Largest exposure to single investment | $ | 179 | $ | 72 | $ | 204 | $ | 204 |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||
U.S. government and agencies | $ | 66 | $ | 65 | |||
Municipal | 258 | 217 | |||||
Corporate | 992 | 859 | |||||
Foreign government | 32 | 32 | |||||
ABS | 3 | 2 | |||||
RMBS | 83 | 77 | |||||
CMBS | 5 | 8 | |||||
Redeemable preferred stock | 3 | 3 | |||||
Fixed income securities | 1,442 | 1,263 | |||||
Equity securities | 659 | 509 | |||||
Derivatives | — | 2 | |||||
EMA limited partnerships | — | (4 | ) | ||||
Unrealized net capital gains and losses, pre-tax | $ | 2,101 | $ | 1,770 | |||
Property-Liability | $ | 700 | $ | 500 | |||
Allstate Financial | 1,387 | 1,263 | |||||
Corporate & Other | 14 | 7 | |||||
Unrealized net capital gains and losses, pre-tax | $ | 2,101 | $ | 1,770 |
($ in millions) | Amortized cost | Gross unrealized | Fair value | ||||||||||||
Gains | Losses | ||||||||||||||
Corporate: | |||||||||||||||
Consumer goods (cyclical and non-cyclical) | $ | 13,320 | $ | 276 | $ | (71 | ) | $ | 13,525 | ||||||
Utilities | 5,180 | 329 | (40 | ) | 5,469 | ||||||||||
Capital goods | 4,565 | 116 | (24 | ) | 4,657 | ||||||||||
Banking | 3,257 | 40 | (23 | ) | 3,274 | ||||||||||
Transportation | 1,697 | 78 | (21 | ) | 1,754 | ||||||||||
Communications | 3,641 | 84 | (19 | ) | 3,706 | ||||||||||
Energy | 2,186 | 91 | (14 | ) | 2,263 | ||||||||||
Technology | 3,599 | 55 | (13 | ) | 3,641 | ||||||||||
Financial services | 2,771 | 79 | (10 | ) | 2,840 | ||||||||||
Basic industry | 2,021 | 76 | (7 | ) | 2,090 | ||||||||||
Other | 306 | 10 | — | 316 | |||||||||||
Total corporate fixed income portfolio | 42,543 | 1,234 | (242 | ) | 43,535 | ||||||||||
U.S. government and agencies | 4,329 | 70 | (4 | ) | 4,395 | ||||||||||
Municipal | 7,249 | 315 | (57 | ) | 7,507 | ||||||||||
Foreign government | 995 | 34 | (2 | ) | 1,027 | ||||||||||
ABS | 1,262 | 15 | (12 | ) | 1,265 | ||||||||||
RMBS | 589 | 89 | (6 | ) | 672 | ||||||||||
CMBS | 206 | 14 | (9 | ) | 211 | ||||||||||
Redeemable preferred stock | 21 | 3 | — | 24 | |||||||||||
Total fixed income securities | $ | 57,194 | $ | 1,774 | $ | (332 | ) | $ | 58,636 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | 518 | $ | 518 | |||
Equity securities | 44 | 28 | |||||
Mortgage loans | 55 | 53 | |||||
Limited partnership interests | 120 | 121 | |||||
Short-term investments | 6 | 4 | |||||
Other | 56 | 51 | |||||
Investment income, before expense | 799 | 775 | |||||
Investment expense | (51 | ) | (44 | ) | |||
Net investment income | $ | 748 | $ | 731 | |||
Property-Liability | $ | 311 | $ | 302 | |||
Allstate Financial | 426 | 419 | |||||
Corporate & Other | 11 | 10 | |||||
Net investment income | $ | 748 | $ | 731 | |||
Market-Based Core | $ | 585 | $ | 581 | |||
Market-Based Active | 74 | 61 | |||||
Performance-Based | 140 | 133 | |||||
Investment income, before expense | $ | 799 | $ | 775 |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Impairment write-downs | $ | (43 | ) | $ | (59 | ) | |
Change in intent write-downs | (16 | ) | (22 | ) | |||
Net other-than-temporary impairment losses recognized in earnings | (59 | ) | (81 | ) | |||
Sales and other | 208 | (59 | ) | ||||
Valuation and settlements of derivative instruments | (15 | ) | (9 | ) | |||
Realized capital gains and losses, pre-tax | 134 | (149 | ) | ||||
Income tax (expense) benefit | (46 | ) | 53 | ||||
Realized capital gains and losses, after-tax | $ | 88 | $ | (96 | ) | ||
Property-Liability | $ | 89 | $ | (64 | ) | ||
Allstate Financial | (1 | ) | (32 | ) | |||
Realized capital gains and losses, after-tax | $ | 88 | $ | (96 | ) | ||
Market-Based Core | $ | 87 | $ | (91 | ) | ||
Market-Based Active | 59 | (47 | ) | ||||
Performance-Based | (12 | ) | (11 | ) | |||
Realized capital gains and losses, pre-tax | $ | 134 | $ | (149 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Fixed income securities | $ | (13 | ) | $ | (16 | ) | |
Equity securities | (20 | ) | (55 | ) | |||
Limited partnership interests | (7 | ) | 13 | ||||
Other investments | (3 | ) | (1 | ) | |||
Impairment write-downs | $ | (43 | ) | $ | (59 | ) |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Limited partnerships | |||||||
Private equity (1) | $ | 114 | $ | 85 | |||
Real estate | 4 | 33 | |||||
Timber and agriculture-related | 2 | 3 | |||||
Performance-based - limited partnerships (2) | 120 | 121 | |||||
Non-limited partnerships | |||||||
Private equity | 9 | 2 | |||||
Real estate | 10 | 8 | |||||
Timber and agriculture-related | 1 | 2 | |||||
Performance-based - non-limited partnerships | 20 | 12 | |||||
Total | |||||||
Private equity | 123 | 87 | |||||
Real estate | 14 | 41 | |||||
Timber and agriculture-related | 3 | 5 | |||||
Total performance-based | $ | 140 | $ | 133 | |||
Investee level expenses (3) | $ | (9 | ) | $ | (8 | ) | |
Property-Liability | $ | 67 | $ | 66 | |||
Allstate Financial | 73 | 67 | |||||
Total performance-based | $ | 140 | $ | 133 |
(1) | Includes infrastructure. |
(2) | Other limited partnership interests are located in market-based core and are not included in the table above. Investment income was zero in both the first quarter of 2017 and 2016, respectively, for these limited partnership interests. |
(3) | Investee level expenses include depreciation and asset level operating expenses reported in investment expense. When calculating the pre-tax yields, investee level expenses are netted against income for directly held real estate, timber and other consolidated investments. |
($ in millions) | Three months ended March 31, | ||||||
2017 | 2016 | ||||||
Limited partnerships | |||||||
Private equity | $ | (10 | ) | $ | 12 | ||
Real estate | 1 | 1 | |||||
Timber and agriculture-related | — | — | |||||
Performance-based - limited partnerships (1) | (9 | ) | 13 | ||||
Non-limited partnerships | |||||||
Private equity | (4 | ) | (25 | ) | |||
Real estate | — | 1 | |||||
Timber and agriculture-related | 1 | — | |||||
Performance-based - non-limited partnerships | (3 | ) | (24 | ) | |||
Total | |||||||
Private equity | (14 | ) | (13 | ) | |||
Real estate | 1 | 2 | |||||
Timber and agriculture-related | 1 | — | |||||
Total performance-based | $ | (12 | ) | $ | (11 | ) | |
Property-Liability | $ | (6 | ) | $ | (8 | ) | |
Allstate Financial | (6 | ) | (3 | ) | |||
Total performance-based | $ | (12 | ) | $ | (11 | ) |
(1) | Other limited partnership interests are located in market-based core and are not included in the table above. Realized capital gains and losses were $49 million and $13 million in the first quarter of 2017 and 2016, respectively, for these limited partnership interests. |
• | Shareholders’ equity as of March 31, 2017 was $21.16 billion, an increase of 2.8% from $20.57 billion as of December 31, 2016. |
• | On January 3, 2017, we paid common shareholder dividends of $0.33. On February 10, 2017, we declared a common shareholder dividend of $0.37 payable on April 3, 2017. |
• | As of March 31, 2017, there was $442 million remaining on the $1.5 billion common share repurchase program. |
($ in millions) | March 31, 2017 | December 31, 2016 | |||||
Preferred stock, common stock, treasury stock, retained income and other shareholders’ equity items | $ | 21,355 | $ | 20,989 | |||
Accumulated other comprehensive loss | (197 | ) | (416 | ) | |||
Total shareholders’ equity | 21,158 | 20,573 | |||||
Debt | 6,346 | 6,347 | |||||
Total capital resources | $ | 27,504 | $ | 26,920 | |||
Ratio of debt to shareholders’ equity | 30.0 | % | 30.9 | % | |||
Ratio of debt to capital resources | 23.1 | % | 23.6 | % |
• | The Corporation has access to a commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs. As of March 31, 2017, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion; however, the outstanding balance can fluctuate daily. |
• | The Corporation, AIC and ALIC have access to a $1.00 billion unsecured revolving credit facility that is available for short-term liquidity requirements. The maturity date of this facility is April 2021. The facility is fully subscribed among 11 lenders with the largest commitment being $115 million. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing. This facility has a financial covenant requiring that we not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio was 15.6% as of March 31, 2017. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of our senior unsecured, unguaranteed long-term debt. There were no borrowings under the credit facility during the first quarter of 2017. |
• | The Corporation has access to a universal shelf registration statement that was filed with the Securities and Exchange Commission on April 30, 2015. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 535 million shares of treasury stock as of March 31, 2017), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements. |
($ in millions) | Percent to total | |||||
Not subject to discretionary withdrawal | $ | 3,090 | 15.4 | % | ||
Subject to discretionary withdrawal with adjustments: | ||||||
Specified surrender charges (1) | 5,052 | 25.2 | ||||
Market value adjustments (2) | 1,576 | 7.9 | ||||
Subject to discretionary withdrawal without adjustments (3) | 10,333 | 51.5 | ||||
Total contractholder funds (4) | $ | 20,051 | 100.0 | % |
(1) | Includes $1.22 billion of liabilities with a contractual surrender charge of less than 5% of the account balance. |
(2) | $1.00 billion of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and subsequent interest rate guarantee periods (which are typically 1, 5, 7 or 10 years) during which there is no surrender charge or market value adjustment. |
(3) | 89% of these contracts have a minimum interest crediting rate guarantee of 3% or higher. |
(4) | Includes $764 million of contractholder funds on variable annuities reinsured to The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc., in 2006. |
($ in millions) | Property-Liability (1) | Allstate Financial (1) | Corporate and Other (1) | Consolidated | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Net cash provided by (used in): | |||||||||||||||||||||||||||||||
Operating activities | $ | 806 | $ | 547 | $ | 114 | $ | 196 | $ | (63 | ) | $ | (29 | ) | $ | 857 | $ | 714 | |||||||||||||
Investing activities | (391 | ) | 76 | 401 | 66 | (290 | ) | (46 | ) | (280 | ) | 96 | |||||||||||||||||||
Financing activities | — | 30 | (222 | ) | (218 | ) | (349 | ) | (586 | ) | (571 | ) | (774 | ) | |||||||||||||||||
Net increase in consolidated cash | $ | 6 | $ | 36 |
Period | Total number of shares (or units) purchased (1) | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (2) | |||||
January 1, 2017 - January 31, 2017 | |||||||||
Open Market Purchases | 1,140,727 | $74.4309 | 1,140,600 | ||||||
February 1, 2017 - February 28, 2017 | |||||||||
Open Market Purchases | 1,149,411 | $79.5116 | 847,900 | ||||||
March 1, 2017 - March 31, 2017 | |||||||||
Open Market Purchases | 1,187,137 | $81.8482 | 1,187,100 | ||||||
Total | 3,477,275 | $78.6426 | 3,175,600 | $442 million |
(1) | In accordance with the terms of its equity compensation plans, Allstate acquired the following shares in connection with the vesting of restricted stock units and performance stock awards and the exercise of stock options held by employees and/or directors. The shares were acquired in satisfaction of withholding taxes due upon exercise or vesting and in payment of the exercise price of the options. |
(2) | On May 4, 2016, we announced the approval of a new common share repurchase program for $1.5 billion, to be completed by November 2017. |
(a) | Exhibits |
Incorporated by Reference | ||||||
Exhibit Number | Exhibit Description | Form | File Number | Exhibit | Filing Date | Filed or Furnished Herewith |
4 | The Allstate Corporation hereby agrees to furnish to the Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of it and its consolidated subsidiaries | |||||
15 | Acknowledgment of awareness from Deloitte & Touche LLP, dated May 2, 2017, concerning unaudited interim financial information | X | ||||
31(i) | Rule 13a-14(a) Certification of Principal Executive Officer | X | ||||
31(i) | Rule 13a-14(a) Certification of Principal Financial Officer | X | ||||
32 | Section 1350 Certifications | X | ||||
101.INS | XBRL Instance Document | X | ||||
101.SCH | XBRL Taxonomy Extension Schema | X | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X |
The Allstate Corporation | ||
(Registrant) | ||
May 2, 2017 | By | /s/ Samuel H. Pilch |
Samuel H. Pilch | ||
(chief accounting officer and duly | ||
authorized officer of Registrant) |
Form S-3 Registration Statement Nos. | Form S-8 Registration Statement Nos. |
333-34583 | 333-04919 |
333-203757 | 333-16129 |
333-40283 | |
333-134242 | |
333-134243 | |
333-144691 | |
333-159343 | |
333-175526 | |
333-175528 | |
333-188821 | |
333-200390 |
CERTIFICATIONS | EXHIBIT 31 (i) |
/s/ Thomas J. Wilson |
Thomas J. Wilson |
Chairman of the Board and Chief Executive Officer |
CERTIFICATIONS | EXHIBIT 31 (i) |
/s/ Steven E. Shebik |
Steven E. Shebik |
Executive Vice President and Chief Financial Officer |
/s/ Thomas J. Wilson |
Thomas J. Wilson |
Chairman of the Board and Chief Executive Officer |
/s/ Steven E. Shebik |
Steven E. Shebik |
Executive Vice President and Chief Financial Officer |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Apr. 18, 2017 |
|
Document and Entity Information | ||
Entity Registrant Name | ALLSTATE CORP | |
Entity Central Index Key | 0000899051 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 364,518,067 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 695 | $ 246 |
Changes in: | ||
Unrealized net capital gains and losses | 203 | 580 |
Unrealized foreign currency translation adjustments | (3) | 14 |
Unrecognized pension and other postretirement benefit cost | 19 | 11 |
Other comprehensive income, after-tax | 219 | 605 |
Comprehensive income | $ 914 | $ 851 |
General |
3 Months Ended |
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Mar. 31, 2017 | |
General [Abstract] | |
General | General Basis of presentation The accompanying condensed consolidated financial statements include the accounts of The Allstate Corporation (the “Corporation”) and its wholly owned subsidiaries, primarily Allstate Insurance Company (“AIC”), a property-liability insurance company with various property-liability and life and investment subsidiaries, including Allstate Life Insurance Company (“ALIC”) (collectively referred to as the “Company” or “Allstate”). These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements and notes as of March 31, 2017 and for the three-month periods ended March 31, 2017 and 2016 are unaudited. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated. Adopted accounting standards Employee Share-Based Payment Accounting Effective January 1, 2017, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance that amends the accounting for share-based payments on a prospective basis. Under the new guidance, reporting entities are required to recognize all tax effects related to share-based payments at settlement or expiration through the income statement and the requirement to delay recognition of certain tax benefits until they reduce current taxes payable is eliminated. The new guidance also permits employers to withhold shares issued in connection with an employee’s exercise of options or the settlement of stock awards, up to the employee’s maximum individual statutory tax rate, to meet tax withholding requirements without causing liability classification of the award. In addition, all tax-related cash flows resulting from share-based payments are reported as operating activities on the statement of cash flows whereas cash payments made to taxing authorities on an employee’s behalf for withheld shares are presented as financing activities. The adoption of this guidance had no impact on the Company’s results of operations or financial position on the date of adoption. Transition to Equity Method Accounting Effective January 1, 2017, the Company adopted new FASB guidance amending the accounting requirements for transitioning to the equity method of accounting (“EMA”), including a transition from the cost method. The guidance requires the cost of acquiring an additional interest in an investee to be added to the existing carrying value to establish the initial basis of the EMA investment. Under the new guidance, no retroactive adjustment is required when an investment initially qualifies for EMA treatment. The guidance is applied prospectively to investments that qualify for EMA after application of the cost method of accounting. Accordingly, the adoption of this guidance had no impact on the Company’s results of operations or financial position. Pending accounting standards Revenue from Contracts with Customers In May 2014, the FASB issued guidance which revises the criteria for revenue recognition. Insurance contracts are excluded from the scope of the new guidance. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized to the extent the entity expects to recover those costs. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations or financial position. Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued guidance requiring equity investments, including equity securities and limited partnership interests, that are not accounted for under the equity method of accounting or result in consolidation to be measured at fair value with changes in fair value recognized in net income. Equity investments without readily determinable fair values may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. When a qualitative assessment of equity investments without readily determinable fair values indicates that impairment exists, the carrying value is required to be adjusted to fair value, if lower. The guidance clarifies that an entity should evaluate the realizability of a deferred tax asset related to available-for-sale fixed income securities in combination with the entity’s other deferred tax assets. The guidance also changes certain disclosure requirements. The guidance is effective for interim and annual periods beginning after December 15, 2017, and is to be applied through a cumulative-effect adjustment to beginning retained income as of the date of adoption. The new guidance related to equity investments without readily determinable fair values is applied prospectively as of the date of adoption. The most significant anticipated impacts, using values as of March 31, 2017, relate to the change in accounting for equity securities, where $659 million of pre-tax unrealized net capital gains would be reclassified from accumulated other comprehensive income to retained income, and cost method limited partnership interests (excluding limited partnership interests accounted for on a cost recovery basis), where the carrying value would increase by approximately $194 million, pre-tax, with the adjustment recognized in retained income. Accounting for Leases In February 2016, the FASB issued guidance that revises the accounting for leases. Under the new guidance, lessees will be required to recognize a right-of-use asset and lease liability for all leases other than those that meet the definition of a short-term lease. The lease liability will be equal to the present value of lease payments. A right-of-use asset will be based on the lease liability adjusted for qualifying initial direct costs. The expense of operating leases under the new guidance will be recognized in the income statement on a straight-line basis after combining the lease expense components (interest expense on the lease liability and amortization of the right-of-use asset) over the term of the lease. For finance leases, the expense components are computed separately and produce greater up-front expense compared to operating leases as interest expense on the lease liability is higher in early years and the right-of-use asset is amortized on a straight-line basis consistent with operating leases. Lease classification will be based on criteria similar to those currently applied. The accounting model for lessors will be similar to the current model with modifications to reflect definition changes for components such as initial direct costs. Lessors will continue to classify leases as operating, direct financing, or sales-type. The guidance is effective for reporting periods beginning after December 15, 2018 using a modified retrospective approach applied at the beginning of the earliest period presented. The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations or financial position. Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued guidance which revises the credit loss recognition criteria for certain financial assets measured at amortized cost. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for the reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. The reporting entity must consider all available relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance and not as a direct write-down. The guidance is effective for interim and annual periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. The Company is in the process of evaluating the impact of adoption. Goodwill Impairment In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. Under the new guidance, goodwill impairment will be measured and recognized as the amount by which a reporting unit’s carrying value, which includes goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill allocated to the reporting unit. The revised guidance does not affect a reporting entity’s ability to first assess qualitative factors by reporting unit to determine whether to perform the quantitative goodwill impairment test. The guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The guidance is to be applied on a prospective basis, with the effects, if any, recognized in net income in the period of adoption. The impact to the Company upon adoption is dependent upon the excess, if any, of carrying value of the Company’s reporting units, which include goodwill, over their respective fair values, a measure that is not currently determinable. Presentation of Net Periodic Pension and Postretirement Benefits Costs In March 2017, the FASB issued guidance to improve the presentation of net periodic pension and postretirement benefits costs that requires the service cost component to be reported in operating expenses together with other employee compensation costs and all other components of net periodic pension and postretirement benefits costs reported in non-operating expenses. If the reporting entity does not separately report operating and non-operating expenses on the statement of operations it is required to identify, on the statement of operations or in disclosures, the line items in which the components of net periodic pension and postretirement benefits costs are presented. The new guidance permits only the service cost component to be eligible for capitalization where applicable. The guidance is effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods. The guidance is to be applied on a prospective basis for capitalization of service costs where applicable and on a retrospective basis for the presentation of the service cost and other components of net periodic pension benefit costs in the statements of operations or in disclosures. The impact of adoption is not expected to be material to the Company’s results of operations or financial position. |
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Earnings per Common Share | Earnings per Common Share Basic earnings per common share is computed using the weighted average number of common shares outstanding, including vested unissued participating restricted stock units. Diluted earnings per common share is computed using the weighted average number of common and dilutive potential common shares outstanding. For the Company, dilutive potential common shares consist of outstanding stock options and unvested non-participating restricted stock units and contingently issuable performance stock awards. The computation of basic and diluted earnings per common share is presented in the following table.
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The effect of dilutive potential common shares does not include the effect of options with an anti-dilutive effect on earnings per common share because their exercise prices exceed the average market price of Allstate common shares during the period or for which the unrecognized compensation cost would have an anti-dilutive effect. Options to purchase 2.8 million and 5.0 million Allstate common shares, with exercise prices ranging from $67.81 to $81.86 and $52.18 to $71.29, were outstanding for the three-month periods ended March 31, 2017 and 2016, respectively, but were not included in the computation of diluted earnings per common share in those periods. |
Acquisition |
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Mar. 31, 2017 | |
Business Combinations [Abstract] | |
Acquisition | Acquisition On January 3, 2017, the Company acquired SquareTrade Holding Company, Inc. (“SquareTrade”), a consumer product protection plan provider that distributes through many of America’s major retailers and Europe’s mobile operators, for $1.4 billion in cash. SquareTrade provides protection plans primarily covering consumer appliances and electronics, such as TVs, smartphones and computers. This acquisition broadens Allstate’s unique product offerings to better meet consumers’ needs. In connection with the acquisition, the Company recorded goodwill of $1.08 billion, commissions paid to retailers (reported in deferred policy acquisition costs) of $70 million, other intangible assets (reported in other assets) of $555 million, contractual liability insurance policy premium expenses (reported in other assets) of $201 million, unearned premiums of $373 million and net deferred income tax liability of $140 million. As of March 31, 2017, the Company has $30 million of restricted cash related to an escrow account in connection with the acquisition that is recorded in other assets. |
Supplemental Cash Flow Information |
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Supplemental Cash Flow Information | Supplemental Cash Flow Information Non-cash investing activities include $5 million and $7 million related to mergers and exchanges completed with equity securities for the three months ended March 31, 2017 and 2016, respectively. Non-cash financing activities include $40 million and $37 million related to the issuance of Allstate common shares for vested equity awards for the three months ended March 31, 2017 and 2016, respectively. Non-cash financing activities also included $34 million related to debt acquired in conjunction with the purchase of an investment for the three months ended March 31, 2016. Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) and cleared derivatives are reported in other liabilities and accrued expenses or other investments. The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which are as follows:
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Investments |
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Investments | Investments Fair values The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
Scheduled maturities The scheduled maturities for fixed income securities are as follows as of March 31, 2017:
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates. Net investment income Net investment income is as follows:
Realized capital gains and losses Realized capital gains and losses by asset type are as follows:
Realized capital gains and losses by transaction type are as follows:
Gross gains of $235 million and $143 million and gross losses of $75 million and $211 million were realized on sales of fixed income and equity securities during the three months ended March 31, 2017 and 2016, respectively. Other-than-temporary impairment losses by asset type are as follows:
The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amounts exclude $239 million and $221 million as of March 31, 2017 and December 31, 2016, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:
The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings. Unrealized net capital gains and losses Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:
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Change in unrealized net capital gains and losses The change in unrealized net capital gains and losses for the three months ended March 31, 2017 is as follows:
Portfolio monitoring The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired. For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings. If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income. For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings. For fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings. The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost. The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.
As of March 31, 2017, $314 million of the $387 million unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $314 million, $232 million are related to unrealized losses on investment grade fixed income securities and $34 million are related to equity securities. Of the remaining $48 million, $28 million have been in an unrealized loss position for less than 12 months. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. As of March 31, 2017, the remaining $73 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising $26 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $73 million, $26 million are related to below investment grade fixed income securities and $21 million are related to equity securities. Of these amounts, $17 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of March 31, 2017. ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover. As of March 31, 2017, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. As of March 31, 2017, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover. Limited partnerships As of March 31, 2017 and December 31, 2016, the carrying value of equity method limited partnerships totaled $4.69 billion and $4.53 billion, respectively. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. As of March 31, 2017 and December 31, 2016, the carrying value for cost method limited partnerships was $1.29 billion and $1.28 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital. Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value. Mortgage loans Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or present value of the loan’s expected future repayment cash flows. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of March 31, 2017. Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value. Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process. The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution.
Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees. The net carrying value of impaired mortgage loans is as follows:
The average balance of impaired loans was $5 million and $6 million for the three months ended March 31, 2017 and 2016, respectively. The rollforward of the valuation allowance on impaired mortgage loans is as follows:
Payments on all mortgage loans were current as of March 31, 2017 and December 31, 2016. |
Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. Level 2: Assets and liabilities whose values are based on the following:
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities. The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs. The second situation where the Company classifies securities in Level 3 is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources. Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans, agent loans and policy loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements. In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used. Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis Level 1 measurements
Level 2 measurements
U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate - public: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate - privately placed: Valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. ABS - collateralized debt obligations (“CDO”) and ABS - consumer and other: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Certain ABS - CDO and ABS - consumer and other are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable. RMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads. Redeemable preferred stock: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.
OTC derivatives, including interest rate swaps, foreign currency swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment. Level 3 measurements
Municipal: Comprise municipal bonds that are not rated by third party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows. Corporate - public and Corporate - privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer. ABS - CDO, ABS - consumer and other, RMBS and CMBS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.
Assets and liabilities measured at fair value on a non-recurring basis Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are generally valued using net asset values. The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2017.
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The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2016.
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The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.
The embedded derivatives are equity-indexed and forward starting options in certain life and annuity products that provide customers with interest crediting rates based on the performance of the S&P 500. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value. As of March 31, 2017 and December 31, 2016, Level 3 fair value measurements of fixed income securities total $699 million and $558 million, respectively, and include $328 million and $307 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and $79 million and $80 million, respectively, of municipal fixed income securities that are not rated by third party credit rating agencies. The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value, and an increase (decrease) in the credit rating of municipal bonds that are not rated by third party credit rating agencies would result in a higher (lower) fair value. The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2017.
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The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2016.
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Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table. There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2017 or 2016. Transfers into Level 3 during the three months ended March 31, 2017 and 2016 included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs had not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers out of Level 3 during the three months ended March 31, 2017 and 2016 included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant. The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of March 31.
The amounts in the table above represent the change in unrealized gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total $13 million for the three months ended March 31, 2017 and are reported as follows: $1 million in realized capital gains and losses, $10 million in net investment income, $(5) million in interest credited to contractholder funds and $7 million in life and annuity contract benefits. These gains and losses total $(42) million for the three months ended March 31, 2016 and are reported as follows: $(29) million in realized capital gains and losses, $2 million in net investment income, $1 million in interest credited to contractholder funds and $(16) million in life and annuity contract benefits. Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value. Financial assets
The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell. Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as collateral. The fair value of cost method limited partnerships is determined using reported net asset values. The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market conditions. The fair value of agent loans, which are reported in other investments, is based on discounted cash flow calculations. Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics. The fair value measurements for mortgage loans, cost method limited partnerships, bank loans and agent loans are categorized as Level 3. Financial liabilities
The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts incorporating current market-based crediting rates for similar contracts that reflect the Company’s own credit risk. Deferred annuities classified in contractholder funds are valued based on discounted cash flow models that incorporate current market based margins and reflect the Company’s own credit risk. Immediate annuities without life contingencies are valued based on discounted cash flow models that incorporate current market-based implied interest rates and reflect the Company’s own credit risk. The fair value measurement for contractholder funds on investment contracts is categorized as Level 3. The fair value of long-term debt is based on market observable data (such as the fair value of the debt when traded as an asset) or is determined using discounted cash flow calculations based on current interest rates for instruments with comparable terms and considers the Company’s own credit risk. The liability for collateral is valued at carrying value due to its short-term nature. The fair value measurements for long-term debt and liability for collateral are categorized as Level 2. |
Derivative Financial Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments The Company uses derivatives for risk reduction and to increase investment portfolio returns through asset replication. Risk reduction activity is focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations. Property-Liability may use interest rate swaps, swaptions, futures and options to manage the interest rate risks of existing investments. These instruments are utilized to change the duration of the portfolio in order to offset the economic effect that interest rates would otherwise have on the fair value of its fixed income securities. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio. Equity index futures and options are used by Property-Liability to offset valuation losses in the equity portfolio during periods of declining equity market values. In addition, equity futures are used to hedge the market risk related to deferred compensation liability contracts. Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations. Allstate Financial utilizes several derivative strategies to manage risk. Asset-liability management is a risk management strategy that is principally employed by Allstate Financial to balance the respective interest-rate sensitivities of its assets and liabilities. Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates. Credit default swaps are typically used to mitigate the credit risk within the Allstate Financial fixed income portfolio. Futures and options are used for hedging the equity exposure contained in Allstate Financial’s equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, Allstate Financial uses equity index futures to offset valuation losses in the equity portfolio during periods of declining equity market values. Foreign currency swaps and forwards are primarily used by Allstate Financial to reduce the foreign currency risk associated with holding foreign currency denominated investments. Asset replication refers to the “synthetic” creation of assets through the use of derivatives. The Company replicates fixed income securities using a combination of a credit default swap or a foreign currency forward contract and one or more highly rated fixed income securities, primarily investment grade host bonds, to synthetically replicate the economic characteristics of one or more cash market securities. The Company replicates equity securities using futures to increase equity exposure. The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income. The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders. When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. Allstate Financial designates certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item. Allstate Financial designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income. Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income. The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements. However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries. Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position. For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts. As of March 31, 2017, the Company pledged $13 million of cash in the form of margin deposits. For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness. For cash flow hedges, gains and losses are amortized from accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income. Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable. With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis. 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 March 31, 2017.
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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, 2016.
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The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.
The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships. Amortization of net gains from accumulated other comprehensive income related to cash flow hedges is expected to be a gain of $2 million during the next twelve months. There was no hedge ineffectiveness reported in realized gains and losses for the three months ended March 31, 2017 or 2016.
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. For the three months ended March 31, 2017 and 2016, the Company had no derivatives used in fair value hedging relationships.
The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate. The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded. As of March 31, 2017, counterparties pledged $9 million in cash and securities to the Company, and the Company pledged $20 million in cash and securities to counterparties which includes $1 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $19 million of collateral posted under MNAs for contracts without credit-risk-contingent features. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk. Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of legally enforceable master netting agreements. The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.
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Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions. Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements. Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC’s, ALIC’s or Allstate Life Insurance Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certain debt instruments. Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on AIC’s, ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event AIC, ALIC or ALNY are no longer rated by either Moody’s or S&P. 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.
Credit derivatives - selling protection A credit default swap (“CDS”) is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium. In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative. CDS typically have a five-year term. The following table shows the CDS notional amounts by credit rating and fair value of protection sold.
In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement. With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed. With a FTD basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names. CDX is utilized to take a position on multiple (generally 125) reference entities. Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities. If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement. In a physical settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset. When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement. For CDX, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration. The maximum payout on a CDS is the contract notional amount. A physical settlement may afford the Company with recovery rights as the new owner of the asset. The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level. The ratings of individual names for which protection has been sold are also monitored. |
Reserve for Property-Liability Insurance Claims and Claims Expense |
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Reserve for Property-Liability Insurance Claims and Claims Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserve for Property-Liability Insurance Claims and Claims Expense | Reserve for Property-Liability Insurance Claims and Claims Expense The Company establishes reserves for claims and claims expense on reported and unreported claims of insured losses. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process. Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not reported (“IBNR”) losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported in property-liability insurance claims and claims expense in the Condensed Consolidated Statements of Operations in the period such changes are determined. Management believes that the reserve for property-liability insurance claims and claims expense, net of reinsurance recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Condensed Consolidated Statements of Financial Position based on available facts, technology, laws and regulations. Activity in the reserve for property-liability insurance claims and claims expense is summarized as follows:
Incurred claims and claims expense represents the sum of paid losses and reserve changes in the period. This expense includes losses from catastrophes of $781 million and $827 million in the three months ended March 31, 2017 and 2016, respectively, net of reinsurance and other recoveries. Catastrophes are an inherent risk of the property-liability insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position. During the three months ended March 31, 2017, incurred claims and claims expense related to prior years was primarily composed of net decreases in auto reserves of $86 million primarily due to claim severity development for bodily injury coverage that was better than expected, net decreases in homeowners reserves of $24 million due to favorable non-catastrophe reserve reestimates, net increases in other reserves of $11 million primarily due to unfavorable catastrophe loss reestimates, and net increases in Discontinued Lines and Coverages of $2 million. Incurred claims and claims expense includes unfavorable catastrophe loss reestimates of $4 million, net of reinsurance and other recoveries. |
Reinsurance |
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Reinsurance Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance | Reinsurance Property-liability insurance premiums earned and life and annuity premiums and contract charges have been reduced by reinsurance ceded amounts shown in the following table.
Property-liability insurance claims and claims expense, life and annuity contract benefits and interest credited to contractholder funds have been reduced by the reinsurance ceded amounts shown in the following table.
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Company Restructuring |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company Restructuring | Company Restructuring The Company undertakes various programs to reduce expenses. These programs generally involve a reduction in staffing levels, and in certain cases, office closures. Restructuring and related charges primarily include employee termination and relocation benefits, and post-exit rent expenses in connection with these programs, and non-cash charges resulting from pension benefit payments made to agents and certain legal expenses incurred in connection with the 1999 reorganization of Allstate’s multiple agency programs to a single exclusive agency program. The expenses related to these activities are included in the Condensed Consolidated Statements of Operations as restructuring and related charges, and totaled $10 million and $5 million during the three months ended March 31, 2017 and 2016, respectively. The following table presents changes in the restructuring liability during the three months ended March 31, 2017.
The payments applied against the liability for employee costs primarily reflect severance costs, and the payments for exit costs generally consist of post-exit rent expenses and contract termination penalties. As of March 31, 2017, the cumulative amount incurred to date for active programs totaled $62 million for employee costs and $63 million for exit costs. |
Guarantees and Contingent Liabilities |
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Guarantees and Contingent Liabilities | |
Guarantees and Contingent Liabilities | Guarantees and Contingent Liabilities Shared markets and state facility assessments The Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations in various states that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend to be adverse, have been immaterial to the Company’s results of operations. Because of the Company’s participation, it may be exposed to losses that surpass the capitalization of these facilities and/or assessments from these facilities. Guarantees The Company provides residual value guarantees on Company leased automobiles. If all outstanding leases were terminated effective March 31, 2017, the Company’s maximum obligation pursuant to these guarantees, assuming the automobiles have no residual value, would be $43 million as of March 31, 2017. The remaining term of each residual value guarantee is equal to the term of the underlying lease that ranges from less than one year to four years. Historically, the Company has not made any material payments pursuant to these guarantees. Related to the sale of LBL on April 1, 2014, ALIC agreed to indemnify Resolution Life Holdings, Inc. in connection with certain representations, warranties and covenants of ALIC, and certain liabilities specifically excluded from the transaction, subject to specific contractual limitations regarding ALIC’s maximum obligation. Management does not believe these indemnifications will have a material effect on results of operations, cash flows or financial position of the Company. Related to the disposal through reinsurance of substantially all of Allstate Financial’s variable annuity business to Prudential in 2006, the Company and its consolidated subsidiaries, ALIC and ALNY, have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of ALIC and ALNY and liabilities specifically excluded from the transaction) that ALIC and ALNY have agreed to retain. In addition, the Company, ALIC and ALNY will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of ALIC, ALNY and their agents, including certain liabilities arising from ALIC’s and ALNY’s provision of transition services. The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees. Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company. In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations. The aggregate liability balance related to all guarantees was not material as of March 31, 2017. Regulation and Compliance The Company is subject to extensive laws, regulations, administrative directives, and regulatory actions. From time to time, regulatory authorities or legislative bodies seek to influence and restrict premium rates, require premium refunds to policyholders, require reinstatement of terminated policies, prescribe rules or guidelines on how affiliates compete in the marketplace, restrict the ability of insurers to cancel or non-renew policies, require insurers to continue to write new policies or limit their ability to write new policies, limit insurers’ ability to change coverage terms or to impose underwriting standards, impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, impose fines and penalties for unintended errors or mistakes, and otherwise expand overall regulation of insurance products and the insurance industry. In addition, the Company is subject to laws and regulations administered and enforced by federal agencies and other organizations, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the U.S. Equal Employment Opportunity Commission, and the U.S. Department of Justice. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain. Legal and regulatory proceedings and inquiries The Company and certain subsidiaries are involved in a number of lawsuits, regulatory inquiries, and other legal proceedings arising out of various aspects of its business. Background These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard, or investigated; changes in assigned judges; differences or developments in applicable laws and judicial interpretations; judges reconsidering prior rulings; the length of time before many of these matters might be resolved by settlement, through litigation, or otherwise; adjustments with respect to anticipated trial schedules and other proceedings; developments in similar actions against other companies; the fact that some of the lawsuits are putative class actions in which a class has not been certified and in which the purported class may not be clearly defined; the fact that some of the lawsuits involve multi-state class actions in which the applicable law(s) for the claims at issue is in dispute and therefore unclear; and the current challenging legal environment faced by corporations and insurance companies. The outcome of these matters may be affected by decisions, verdicts, and settlements, and the timing of such decisions, verdicts, and settlements, in other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state or federal legislation, the timing or substance of which cannot be predicted. In the lawsuits, plaintiffs seek a variety of remedies which may include equitable relief in the form of injunctive and other remedies and monetary relief in the form of contractual and extra-contractual damages. In some cases, the monetary damages sought may include punitive or treble damages. Often specific information about the relief sought, such as the amount of damages, is not available because plaintiffs have not requested specific relief in their pleadings. When specific monetary demands are made, they are often set just below a state court jurisdictional limit in order to seek the maximum amount available in state court, regardless of the specifics of the case, while still avoiding the risk of removal to federal court. In Allstate’s experience, monetary demands in pleadings bear little relation to the ultimate loss, if any, to the Company. In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution, and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. Accrual and disclosure policy The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for such matters at management’s best estimate when the Company assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company does not establish accruals for such matters when the Company does not believe both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company’s assessment of whether a loss is reasonably possible or probable is based on its assessment of the ultimate outcome of the matter following all appeals. The Company does not include potential recoveries in its estimates of reasonably possible or probable losses. Legal fees are expensed as incurred. The Company continues to monitor its lawsuits, regulatory inquiries, and other legal proceedings for further developments that would make the loss contingency both probable and estimable, and accordingly accruable, or that could affect the amount of accruals that have been previously established. There may continue to be exposure to loss in excess of any amount accrued. Disclosure of the nature and amount of an accrual is made when there have been sufficient legal and factual developments such that the Company’s ability to resolve the matter would not be impaired by the disclosure of the amount of accrual. When the Company assesses it is reasonably possible or probable that a loss has been incurred, it discloses the matter. When it is possible to estimate the reasonably possible loss or range of loss above the amount accrued, if any, for the matters disclosed, that estimate is aggregated and disclosed. Disclosure is not required when an estimate of the reasonably possible loss or range of loss cannot be made. For certain of the matters described below in the “Claims related proceedings” and “Other proceedings” subsections, the Company is able to estimate the reasonably possible loss or range of loss above the amount accrued, if any. In determining whether it is possible to estimate the reasonably possible loss or range of loss, the Company reviews and evaluates the disclosed matters, in conjunction with counsel, in light of potentially relevant factual and legal developments. These developments may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, information obtained from other sources, experience from managing these and other matters, and other rulings by courts, arbitrators or others. When the Company possesses sufficient appropriate information to develop an estimate of the reasonably possible loss or range of loss above the amount accrued, if any, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate is not possible. Disclosure of the estimate of the reasonably possible loss or range of loss above the amount accrued, if any, for any individual matter would only be considered when there have been sufficient legal and factual developments such that the Company’s ability to resolve the matter would not be impaired by the disclosure of the individual estimate. The Company currently estimates that the aggregate range of reasonably possible loss in excess of the amount accrued, if any, for the disclosed matters where such an estimate is possible is zero to $725 million, pre-tax. This disclosure is not an indication of expected loss, if any. Under accounting guidance, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” This estimate is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimate will change from time to time, and actual results may vary significantly from the current estimate. The estimate does not include matters or losses for which an estimate is not possible. Therefore, this estimate represents an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum possible loss exposure. Information is provided below regarding the nature of all of the disclosed matters and, where specified, the amount, if any, of plaintiff claims associated with these loss contingencies. Due to the complexity and scope of the matters disclosed in the “Claims related proceedings” and “Other proceedings” subsections below and the many uncertainties that exist, the ultimate outcome of these matters cannot be predicted. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently accrued, if any, and may be material to the Company’s operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described below, as they are resolved over time, is not likely to have a material effect on the financial position of the Company. Claims related proceedings The Company is litigating two class action cases in California in which the plaintiffs allege off-the-clock wage and hour claims. Plaintiffs in both cases seek recovery of unpaid compensation, liquidated damages, penalties, and attorneys’ fees and costs. The first case is Christopher Williams, et al. v. Allstate Insurance Company. The Williams case is pending in Los Angeles Superior Court and was filed in December 2007. The case involves two classes. The first class includes auto field physical damage adjusters employed in the state of California from January 1, 2005 to the date of final judgment, to the extent the Company failed to pay for off-the-clock work to those adjusters who performed certain duties prior to their first assignments. The other class includes all non-exempt employees in California from December 19, 2006 until June 2011 who received pay statements from Allstate which allegedly did not comply with California law. On April 13, 2016, the court granted the Company’s motion to decertify both classes; both classes are thus dissolved unless and until the appellate court orders the classes recertified. On May 17, 2016, plaintiffs filed their notice of appeal. Plaintiff’s opening brief was filed on November 22, 2016. Allstate’s response is due May 9, 2017. The second case is Jack Jimenez, et al. v. Allstate Insurance Company. Jimenez was filed in the U.S. District Court for the Central District of California in September 2010. The plaintiffs allege that they worked off-the-clock; they also allege other California Labor Code violations resulting from purported unpaid overtime. In April 2012, the court certified a class that includes all adjusters in the state of California, except auto field adjusters, from September 29, 2006 to final judgment. Allstate appealed the court’s decision to certify the class, first to the Ninth Circuit Court of Appeals and then to the U.S. Supreme Court. On June 15, 2015, the U.S. Supreme Court denied Allstate’s petition for a writ of certiorari. The case was scheduled for trial on September 27, 2016. On May 4, 2016, the court vacated that trial date in part because the court had not approved a trial plan. No trial date has been scheduled because the parties continue to wait for the court’s approval of a trial plan. In addition to the California class actions, the case of Maria Victoria Perez and Kaela Brown, et al. v. Allstate Insurance Company was filed in the U.S. District Court for the Eastern District of New York. Plaintiffs allege that no-fault claim adjusters have been improperly classified as exempt employees under New York Labor Law and the Fair Labor Standards Act. The case was filed in April 2011, and the plaintiffs are seeking unpaid wages, liquidated damages, injunctive relief, compensatory and punitive damages, and attorneys’ fees. On September 16, 2014, the court certified a class of no-fault adjusters under New York Labor Law and refused to decertify a Fair Labor Standards Act class of no-fault adjusters. There are 105 members of the Fair Labor Standards Act class and 137 members of the New York Labor Law class. The parties are currently engaged in discovery. In the Company’s judgment, a loss is not probable in these three cases. The Florida personal injury protection statute permits insurers to pay personal injury protection benefits for reasonable medical expenses based on certain benefit reimbursement limitations which are authorized by the personal injury protection statute (generally referred to as “fee schedules”) resulting from automobile accidents. The Company has been involved in litigation challenging whether the Company’s personal injury protection policies include sufficient language providing notice of the Company’s election to apply the fee schedules. On January 26, 2017, the Florida Supreme Court issued its decision in Allstate Insurance Company v. Orthopedic Specialists, et al., holding that Allstate’s language was clear and unambiguous and provided adequate notice of its intent to use the fee schedules. On February 7, 2017, Orthopedic Specialists filed a motion for rehearing, which the Florida Supreme Court denied on March 27, 2017. Thus, the Florida Supreme Court’s decision is final. In light of this ruling, the fee schedule issue will be resolved favorably to Allstate in other pending cases. There are three cases with petitions for leave to appeal to the Florida Supreme Court pending. In those cases, three District Courts of Appeal had previously ruled in favor of Allstate. The Florida Supreme Court has issued “show cause” orders in each of those appeals directing the providers to file a response explaining why the Orthopedic Specialists decision is not controlling and why the Florida Supreme Court should not decline to exercise jurisdiction. In one appeal, the provider has acknowledged that Orthopedic Specialists governs. In the other two appeals, the providers assert that their petitions to appeal should be granted because Orthopedic Specialists was wrongly decided, repeating the arguments previously asserted. Allstate’s responses are due May 8, 2017. We expect the Florida Supreme Court to decline exercising jurisdiction. The Company was also litigating one class action on this issue, Randy Rosenberg, et al. v. Allstate Fire & Casualty Insurance Company, Allstate Insurance Company, and Allstate Property & Casualty Insurance Company, in the U.S. District Court for the Northern District of Illinois. This case had been stayed by the Illinois federal court pending a decision on this issue by the Florida Supreme Court. On March 31, 2017, the court entered an order pursuant to the parties’ joint stipulation, dismissing this case with prejudice. This fee schedule issue has also been the subject of thousands of individual lawsuits filed against Allstate in Florida. The decision by the Florida Supreme Court has established Florida law on the sufficiency of Allstate’s fee schedule policy language that is binding on all Florida courts. This will allow Allstate to seek final resolution in its favor of all fee schedule claims currently in litigation as well as those not in litigation. Allstate also may be able to seek restitution from some plaintiffs for attorneys’ fees and costs. Due to the Florida Supreme Court’s decision in the Orthopedic Specialists case, a loss is not probable. Other proceedings The Company is defending certain matters in the U.S. District Court for the Eastern District of Pennsylvania relating to the Company’s agency program reorganization announced in 1999. The principal focus in these matters has related to a release of claims signed by the vast majority of the former agents whose employment contracts were terminated in the reorganization program. The court recently entered a schedule for determining the merits of certain claims asserted in the matters described below, with the release issue to be addressed in unspecified future proceedings. Romero I: In 2001, approximately 32 former employee agents, on behalf of a putative class of approximately 6,300 former employee agents, filed a putative class action alleging claims for age discrimination under the Age Discrimination in Employment Act (“ADEA”), interference with benefits under ERISA, breach of contract, and breach of fiduciary duty. Plaintiffs also assert a claim for a declaratory judgment that the release of claims constitutes unlawful retaliation and should be set aside. Plaintiffs seek broad but unspecified “make whole relief,” including back pay, compensatory and punitive damages, liquidated damages, lost investment capital, attorneys’ fees and costs, and equitable relief, including reinstatement to employee agent status with all attendant benefits. Romero II: A putative nationwide class action was also filed in 2001 by former employee agents alleging various violations of ERISA (“Romero II”). This action has been consolidated with Romero I. The Romero II plaintiffs, most of whom are also plaintiffs in Romero I, are challenging certain amendments to the Agents Pension Plan and seek to have service as exclusive agent independent contractors count toward eligibility for benefits under the Agents Pension Plan. Plaintiffs seek broad but unspecified “make whole” or other equitable relief, including loss of benefits as a result of their conversion to exclusive agent independent contractor status or retirement from the Company between November 1, 1999 and December 31, 2000. They also seek repeal of the challenged amendments to the Agents Pension Plan with all attendant benefits revised and recalculated for thousands of former employee agents, and attorneys’ fees and costs. The court granted the Company’s initial motion to dismiss the complaint. The Third Circuit Court of Appeals reversed that dismissal and remanded for further proceedings. Romero I and II consolidated proceedings: In 2004, the court ruled that the release was voidable and certified classes of agents, including a mandatory class of agents who had signed the release, for purposes of effectuating the court’s declaratory judgment that the release was voidable. In 2007, the court vacated its ruling and granted the Company’s motion for summary judgment on all claims. Plaintiffs appealed and in July 2009, the U.S. Court of Appeals for the Third Circuit vacated the trial court’s entry of summary judgment in the Company’s favor, remanded the case to the trial court for additional discovery, and instructed the trial court to address the validity of the release after additional discovery. Following the completion of discovery limited to the validity of the release, the parties filed cross motions for summary judgment with respect to the validity of the release. On February 28, 2014, the trial court denied plaintiffs’ and the Company’s motions for summary judgment, concluding that the question of whether the releases were knowingly and voluntarily signed under a totality of circumstances test raised disputed issues of fact to be resolved at trial. Among other things, the court also held that the release, if valid, would bar all claims in Romero I and II. On May 23, 2014, plaintiffs moved to certify a class as to certain issues relating to the validity of the release. The court denied plaintiffs’ class certification motion on October 6, 2014, stating, among other things, that individual factors and circumstances must be considered to determine whether each release signer entered into the release knowingly and voluntarily. The court entered an order on December 11, 2014, (a) stating that the court’s October 6, 2014 denial of class certification as to release-related issues did not resolve whether issues relating to the merits of plaintiffs’ claims may be subject to class certification at a later time, and (b) holding that the court’s October 6, 2014 order restarted the running of the statute of limitation for any former employee agent who wished to challenge the validity of the release. In an order entered January 7, 2015, the court denied reconsideration of its December 11, 2014 order and clarified that all statutes of limitations to challenge the release would resume running on March 2, 2015. Since the court’s January 7, 2015 order, a total of 459 additional individual plaintiffs have filed separate lawsuits similar to Romero I or sought to intervene in the Romero I action. Trial proceedings commenced to determine the question of whether the releases of the original named plaintiffs in Romero I and II were knowingly and voluntarily signed. Additionally, plaintiffs asserted two equitable defenses to the release which were to be determined by the court and not the jury. As to the first trial proceeding involving ten plaintiffs, the jury reached verdicts on June 17, 2015 finding that two plaintiffs signed their releases knowingly and voluntarily and eight plaintiffs did not sign their releases knowingly and voluntarily. On January 28, 2016, the court entered its opinion and judgment finding in Allstate’s favor as to all ten plaintiffs on the two equitable defenses to the release. The trial result is not yet final and may be subject to further proceedings. The remaining two trials for the original Romero I and II plaintiffs were scheduled to commence in the fourth quarter of 2015; however, the order setting these trials was subsequently vacated. On February 1, 2016, these cases were reassigned to a new judge who initially entered orders addressing pending motions for reconsideration of the dismissal of plaintiffs’ state law claims, but then vacated those orders. On April 12, 2016, these cases were again reassigned to a new judge. On May 2, 2016, the new judge entered an order vacating the setting of additional release trials, consolidating all of the original and intervening plaintiffs’ claims, and granting leave to file a Consolidated Amended Complaint by May 20, 2016. The court entered a second order on May 2, 2016, scheduling deadlines for completion of discovery and filing of summary judgment motions on the merits of plaintiffs’ ERISA and ADEA claims, and setting a non-jury ERISA trial to occur in December 2016. The court’s order also set deadlines for completion of discovery and summary judgment motions with regard to the remaining claims and defenses by the first quarter of 2017, with a jury trial on those claims and defenses to occur in May 2017. The court subsequently clarified the scope of the scheduled trials, ruling that (a) the December 2016 non-jury trial shall only resolve liability on plaintiffs’ claims challenging certain plan amendments under ERISA (“Phase I”); (b) the second trial was scheduled for May 2017 to resolve alleged interference with employee benefits under ERISA and disparate impact under the ADEA, with the court deciding the ERISA claim (“Phase II”); and (c) plaintiffs’ ADEA disparate treatment claims will not be resolved in the second trial but will be resolved in a manner to be determined at a later date. On May 4, 2016, the court entered an order denying Allstate’s post-trial motion for judgment as a matter of law with respect to the jury’s June 17, 2015 verdicts in favor of eight plaintiffs on the issue whether they knowingly and voluntarily signed their releases. On May 20, 2016, a Consolidated Amended Complaint was filed on behalf of 499 plaintiffs, most of whom had previously filed separate lawsuits or intervened in Romero I. Allstate filed a partial motion to dismiss the Consolidated Amended Complaint, which the court granted in part and denied in part on July 6, 2016. Among other things, the court denied without prejudice Allstate’s motion to dismiss the state law claims, granted dismissal of plaintiffs’ retaliation claims under the ADEA and ERISA. Phase I discovery closed and the Company filed a motion for summary judgment as to all Phase I claims. Plaintiffs did not move for summary judgment. On November 22, 2016, the court granted in part, and denied in part, Allstate’s Phase I summary judgment motion. The court determined that there were material issues of disputed fact requiring a trial on plaintiffs’ claim challenging certain Plan amendments. The court granted the motion with respect to one plaintiff whose claim the court determined was barred by the statute of limitations. Further, the court granted the motion with respect to two other claims: 1) a claim that a 1993 Plan amendment resulted in an unlawful cutback of benefits; and 2) a claim for breach of fiduciary duty. The parties thereafter proceeded to a bench trial on December 5-6, 2016. On April 27, 2017, the court issued its Phase I findings and opinion and ruled that (a) the Company’s 1991 amendments to the Plan did not violate ERISA by improperly cutting back on plaintiffs’ benefits, and (b) the Company’s interpretation of the Plan’s definition of “retire” violated ERISA’s anti-cutback rule. The court’s order requires the parties to provide further information to determine whether any plaintiffs suffered a loss based on any such cutback. Discovery in Phase II closed, and the Company filed motions for summary judgment on plaintiffs’ ADEA claims and ERISA interference with employee benefits claim. Plaintiffs filed a cross-motion for summary judgment on the ERISA claim. On April 21, 2017, the court entered an order granting Allstate’s motion for summary judgment on plaintiffs’ disparate impact claim under the ADEA. The court reserved resolution of plaintiffs’ disparate treatment claim under the ADEA for later individual proceedings. The court also entered an order granting Allstate’s motion for summary judgment, and denying plaintiffs’ motion for summary judgment, on the ERISA claim. The Phase II trial which had been scheduled to commence on May 8, 2017, was canceled. With respect to the claims not included in Phase I or II, the Company filed a motion requesting that the court sever the claims of all individual plaintiffs who reside outside the Eastern District of Pennsylvania and then transfer those claims to each respective plaintiff’s home jurisdiction. The court has not yet ruled on that motion. On April 27, 2017, the court issued an order allowing the parties to file supplemental memoranda addressing their positions on severance and case management in light of the Phase I and II rulings. Briefing on this issue is scheduled to be completed by May 30, 2017. On September 2, 2016, in two cases asserting similar claims to those asserted in Romero I that had been filed on May 15, 2015, the U.S. District Court for the Southern District of Texas entered judgment in Allstate’s favor on statute of limitations and other grounds. Plaintiffs did not appeal the judgments. Based on the trial court’s February 28, 2014 order in Romero I and II, if the validity of the release is decided in favor of the Company for any plaintiff, that would preclude any damages or other relief being awarded to that plaintiff. The final resolution of these matters is subject to various uncertainties and complexities including how trials, post trial motions, possible appeals with respect to the validity of the release, and any rulings on the merits will be resolved. In the Company’s judgment, a loss is not probable. Asbestos and environmental Allstate’s reserves for asbestos claims were $891 million and $912 million, net of reinsurance recoverables of $428 million and $444 million, as of March 31, 2017 and December 31, 2016, respectively. Reserves for environmental claims were $178 million and $179 million, net of reinsurance recoverables of $39 million and $40 million, as of March 31, 2017 and December 31, 2016, respectively. Approximately 57% of the total net asbestos and environmental reserves as of both March 31, 2017 and December 31, 2016, were for incurred but not reported estimated losses. Management believes its net loss reserves for asbestos, environmental and other discontinued lines exposures are appropriately established based on available facts, technology, laws and regulations. However, establishing net loss reserves for asbestos, environmental and other discontinued lines claims is subject to uncertainties that are much greater than those presented by other types of claims. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimate. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the determination, availability and timing of exhaustion of policy limits; plaintiffs’ evolving and expanding theories of liability; availability and collectability of recoveries from reinsurance; retrospectively determined premiums and other contractual agreements; estimates of the extent and timing of any contractual liability; the impact of bankruptcy protection sought by various asbestos producers and other asbestos defendants; and other uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable through retrospectively determined premium, reinsurance or other contractual agreements. 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 insurer obligation to defend; how policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether clean-up costs represent insured property damage. Further, insurers and claims administrators acting on behalf of insurers are increasingly pursuing evolving and expanding theories of reinsurance coverage for asbestos and environmental losses. Adjudication of reinsurance coverage is predominately decided in confidential arbitration proceedings which may have limited precedential or predictive value further complicating management’s ability to estimate probable loss for reinsured asbestos and environmental claims. Management believes these issues are not likely to be resolved in the near future, and the ultimate costs may vary materially from the amounts currently recorded resulting in material changes in loss reserves. In addition, while the Company believes that improved actuarial techniques and databases have assisted in its ability to estimate asbestos, environmental, and other discontinued lines net loss reserves, these refinements may subsequently prove to be inadequate indicators of the extent of probable losses. Due to the uncertainties and factors described above, management believes it is not practicable to develop a meaningful range for any such additional net loss reserves that may be required. |
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Benefit Plans | Benefit Plans The components of net periodic cost for the Company’s pension and postretirement benefit plans are as follows:
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Reporting Segments | Reporting Segments Summarized revenue data for each of the Company’s reportable segments are as follows:
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Summarized financial performance data for each of the Company’s reportable segments are as follows:
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Other Comprehensive Income |
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Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income | Other Comprehensive Income The components of other comprehensive income on a pre-tax and after-tax basis are as follows:
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General (Policies) |
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New Accounting Pronouncements | Adopted accounting standards Employee Share-Based Payment Accounting Effective January 1, 2017, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance that amends the accounting for share-based payments on a prospective basis. Under the new guidance, reporting entities are required to recognize all tax effects related to share-based payments at settlement or expiration through the income statement and the requirement to delay recognition of certain tax benefits until they reduce current taxes payable is eliminated. The new guidance also permits employers to withhold shares issued in connection with an employee’s exercise of options or the settlement of stock awards, up to the employee’s maximum individual statutory tax rate, to meet tax withholding requirements without causing liability classification of the award. In addition, all tax-related cash flows resulting from share-based payments are reported as operating activities on the statement of cash flows whereas cash payments made to taxing authorities on an employee’s behalf for withheld shares are presented as financing activities. The adoption of this guidance had no impact on the Company’s results of operations or financial position on the date of adoption. Transition to Equity Method Accounting Effective January 1, 2017, the Company adopted new FASB guidance amending the accounting requirements for transitioning to the equity method of accounting (“EMA”), including a transition from the cost method. The guidance requires the cost of acquiring an additional interest in an investee to be added to the existing carrying value to establish the initial basis of the EMA investment. Under the new guidance, no retroactive adjustment is required when an investment initially qualifies for EMA treatment. The guidance is applied prospectively to investments that qualify for EMA after application of the cost method of accounting. Accordingly, the adoption of this guidance had no impact on the Company’s results of operations or financial position. Pending accounting standards Revenue from Contracts with Customers In May 2014, the FASB issued guidance which revises the criteria for revenue recognition. Insurance contracts are excluded from the scope of the new guidance. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized to the extent the entity expects to recover those costs. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations or financial position. Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued guidance requiring equity investments, including equity securities and limited partnership interests, that are not accounted for under the equity method of accounting or result in consolidation to be measured at fair value with changes in fair value recognized in net income. Equity investments without readily determinable fair values may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. When a qualitative assessment of equity investments without readily determinable fair values indicates that impairment exists, the carrying value is required to be adjusted to fair value, if lower. The guidance clarifies that an entity should evaluate the realizability of a deferred tax asset related to available-for-sale fixed income securities in combination with the entity’s other deferred tax assets. The guidance also changes certain disclosure requirements. The guidance is effective for interim and annual periods beginning after December 15, 2017, and is to be applied through a cumulative-effect adjustment to beginning retained income as of the date of adoption. The new guidance related to equity investments without readily determinable fair values is applied prospectively as of the date of adoption. The most significant anticipated impacts, using values as of March 31, 2017, relate to the change in accounting for equity securities, where $659 million of pre-tax unrealized net capital gains would be reclassified from accumulated other comprehensive income to retained income, and cost method limited partnership interests (excluding limited partnership interests accounted for on a cost recovery basis), where the carrying value would increase by approximately $194 million, pre-tax, with the adjustment recognized in retained income. Accounting for Leases In February 2016, the FASB issued guidance that revises the accounting for leases. Under the new guidance, lessees will be required to recognize a right-of-use asset and lease liability for all leases other than those that meet the definition of a short-term lease. The lease liability will be equal to the present value of lease payments. A right-of-use asset will be based on the lease liability adjusted for qualifying initial direct costs. The expense of operating leases under the new guidance will be recognized in the income statement on a straight-line basis after combining the lease expense components (interest expense on the lease liability and amortization of the right-of-use asset) over the term of the lease. For finance leases, the expense components are computed separately and produce greater up-front expense compared to operating leases as interest expense on the lease liability is higher in early years and the right-of-use asset is amortized on a straight-line basis consistent with operating leases. Lease classification will be based on criteria similar to those currently applied. The accounting model for lessors will be similar to the current model with modifications to reflect definition changes for components such as initial direct costs. Lessors will continue to classify leases as operating, direct financing, or sales-type. The guidance is effective for reporting periods beginning after December 15, 2018 using a modified retrospective approach applied at the beginning of the earliest period presented. The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations or financial position. |
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Fair Value Measurement | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. Level 2: Assets and liabilities whose values are based on the following:
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities. The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs. The second situation where the Company classifies securities in Level 3 is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources. Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans, agent loans and policy loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements. In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used. Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis Level 1 measurements
Level 2 measurements
U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate - public: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate - privately placed: Valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. ABS - collateralized debt obligations (“CDO”) and ABS - consumer and other: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Certain ABS - CDO and ABS - consumer and other are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable. RMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads. Redeemable preferred stock: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.
OTC derivatives, including interest rate swaps, foreign currency swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment. Level 3 measurements
Municipal: Comprise municipal bonds that are not rated by third party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows. Corporate - public and Corporate - privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer. ABS - CDO, ABS - consumer and other, RMBS and CMBS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.
Assets and liabilities measured at fair value on a non-recurring basis Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are generally valued using net asset values. |
Earnings per Common Share (Tables) |
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Computation of basic and diluted earnings per common share | The computation of basic and diluted earnings per common share is presented in the following table.
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Supplemental Cash Flow Information (Tables) |
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Schedule of supplemental cash flow information from collateralized securities received | The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which are as follows:
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Investments (Tables) |
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule for fixed income securities at amortized cost, gross unrealized gains and losses and fair value | The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
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Schedule for fixed income securities based on contractual maturities | The scheduled maturities for fixed income securities are as follows as of March 31, 2017:
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Schedule of net investment income | Net investment income is as follows:
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Schedule of realized capital gains and losses by asset type | Realized capital gains and losses by asset type are as follows:
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Schedule of realized capital gains and losses by transaction type | Realized capital gains and losses by transaction type are as follows:
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Schedule of other-than-temporary impairment losses by asset type | Other-than-temporary impairment losses by asset type are as follows:
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Schedule of other-than-temporary impairment losses on fixed income securities included in Accumulated Other Comprehensive Income | The amounts exclude $239 million and $221 million as of March 31, 2017 and December 31, 2016, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.
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Schedule of credit losses on fixed income securities recognized in earnings | Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:
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Schedule of unrealized net capital gains and losses | Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:
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Schedule of change in unrealized net capital gains and losses | The change in unrealized net capital gains and losses for the three months ended March 31, 2017 is as follows:
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Schedule of gross unrealized losses and fair value of available for sale securities by length of time | The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.
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Carrying value of non-impaired fixed and variable rate mortgage loans by debt service coverage ratio distribution | The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution.
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Net carrying value of impaired mortgage loans | The net carrying value of impaired mortgage loans is as follows:
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Valuation allowance on impaired mortgage loans | The rollforward of the valuation allowance on impaired mortgage loans is as follows:
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Fair Value of Assets and Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets and liabilities that are measured at fair value on a recurring and non-recurring basis | The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2017.
_______________
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2016.
_______________
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Summary of quantitative information about the significant unobservable inputs | The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.
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Schedule of the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis | The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2017.
_____________
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2016.
_____________________
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Schedule of gains and losses included in net income for Level 3 assets and liabilities still held at the balance sheet date | The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of March 31.
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Schedule of carrying values and fair value estimates of financial instruments not carried at fair value | Financial liabilities
Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value. Financial assets
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Derivative Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Volume and fair value positions of derivative instruments and location in the 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 March 31, 2017.
__________________
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, 2016.
__________________
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Schedule of gross and net amount for the Company's OTC derivatives subject to enforceable master netting arrangements | The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.
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Impacts on operations and AOCI from foreign currency contracts, cash flow hedges | There was no hedge ineffectiveness reported in realized gains and losses for the three months ended March 31, 2017 or 2016.
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Gains and losses from valuation, settlements, and hedge ineffectiveness, fair value hedges and derivatives not designated as hedges | For the three months ended March 31, 2017 and 2016, the Company had no derivatives used in fair value hedging relationships.
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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.
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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.
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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.
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Reserve for Property-Liability Insurance Claims and Claims Expense (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserve for Property-Liability Insurance Claims and Claims Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of liability for unpaid claims and claims adjustment expense | Activity in the reserve for property-liability insurance claims and claims expense is summarized as follows:
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Reinsurance (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reductions to premiums and contract charges due to reinsurance premium ceded amounts | Property-liability insurance premiums earned and life and annuity premiums and contract charges have been reduced by reinsurance ceded amounts shown in the following table.
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Schedule of reductions to costs and expenses due to reinsurance ceded amounts | Property-liability insurance claims and claims expense, life and annuity contract benefits and interest credited to contractholder funds have been reduced by the reinsurance ceded amounts shown in the following table.
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Company Restructuring (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in the restructuring liability | The following table presents changes in the restructuring liability during the three months ended March 31, 2017.
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Benefit Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's pension and postretirement benefit plans | The components of net periodic cost for the Company’s pension and postretirement benefit plans are as follows:
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Reporting Segments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of business segments revenue disclosures | Summarized revenue data for each of the Company’s reportable segments are as follows:
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Schedule of business segments net income disclosures | Summarized financial performance data for each of the Company’s reportable segments are as follows:
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Other Comprehensive Income (Tables) |
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Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) on a pre-tax and after-tax basis | The components of other comprehensive income on a pre-tax and after-tax basis are as follows:
|
Acquisition (Details) - USD ($) $ in Millions |
Jan. 03, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 2,295 | $ 1,219 | |
SquareTrade | |||
Business Acquisition [Line Items] | |||
Consideration transferred | $ 1,400 | ||
Goodwill | 1,080 | ||
Commissions paid to retailers | 70 | ||
Intangible assets | 555 | ||
Prepaid contractual liability insurance policy premium expenses | 201 | ||
Unearned premiums | 373 | ||
Net deferred income tax liability | $ 140 | ||
Restricted cash | $ 30 |
Supplemental Cash Flow Information (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Supplemental Cash Flow Information [Abstract] | ||
Non-cash modifications of certain mortgage loans, fixed income securities, limited partnership interests and other investments, as well as mergers completed with equity securities | $ 5 | $ 7 |
Non-cash financing activities related to the issuance of shares for vested restricted stock units | 40 | 37 |
Debt acquired | 34 | |
Net change in proceeds managed | ||
Net change in fixed income securities | (17) | 0 |
Net change in short-term investments | (26) | (34) |
Operating cash flow used | (43) | (34) |
Change in Liabilities for Collateral [Roll Forward] | ||
Liabilities for collateral, beginning of period | (1,129) | (840) |
Liabilities for collateral, end of period | (1,172) | (874) |
Operating cash flow provided | $ 43 | $ 34 |
Investments (Details 2) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Amortized cost | ||
Due in one year or less | $ 4,193 | |
Due after one year through five years | 29,206 | |
Due after five years through ten years | 16,306 | |
Due after ten years | 5,432 | |
Subtotal | 55,137 | |
ABS, RMBS and CMBS | 2,057 | |
Amortized cost | 57,194 | $ 56,576 |
Fair value | ||
Due in one year or less | 4,225 | |
Due after one year through five years | 29,746 | |
Due after five years through ten years | 16,549 | |
Due after ten years | 5,968 | |
Subtotal | 56,488 | |
ABS, RMBS and CMBS | 2,148 | |
Total fixed income securities | $ 58,636 | $ 57,839 |
Investments (Details 3) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Net Investment Income: | ||
Investment income, before expense | $ 799 | $ 775 |
Investment expense | (51) | (44) |
Net investment income | 748 | 731 |
Fixed income securities | ||
Net Investment Income: | ||
Investment income, before expense | 518 | 518 |
Equity securities | ||
Net Investment Income: | ||
Investment income, before expense | 44 | 28 |
Mortgage loans | ||
Net Investment Income: | ||
Investment income, before expense | 55 | 53 |
Limited partnership interests | ||
Net Investment Income: | ||
Investment income, before expense | 120 | 121 |
Short-term investments | ||
Net Investment Income: | ||
Investment income, before expense | 6 | 4 |
Other | ||
Net Investment Income: | ||
Investment income, before expense | $ 56 | $ 51 |
Investments (Details 4) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | $ 134 | $ (149) |
Fixed income securities | ||
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | 5 | (71) |
Equity securities | ||
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | 106 | (90) |
Limited partnership interests | ||
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | 40 | 26 |
Derivatives | ||
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | (15) | (9) |
Other | ||
Realized capital gains and losses by asset type | ||
Realized capital gains and losses | $ (2) | $ (5) |
Investments (Details 5) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Investments [Abstract] | ||
Impairment write-downs | $ (43) | $ (59) |
Change in intent write-downs | (16) | (22) |
Net OTTI losses recognized in earnings | (59) | (81) |
Sales and other | 208 | (59) |
Valuation and settlements of derivative instruments | (15) | (9) |
Total realized capital gains and losses | 134 | (149) |
Fixed income and equity securities | ||
Schedule of Available for Sale Securities | ||
Gross gains on sales of fixed income securities | 235 | 143 |
Gross loss on sales of fixed income securities | $ 75 | $ 211 |
Investments (Details 8) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Credit Losses on Fixed Income Securities | ||
Beginning balance | $ (318) | $ (392) |
Additional credit loss for securities previously other-than-temporarily impaired | (8) | (8) |
Additional credit loss for securities not previously other-than-temporarily impaired | (5) | (8) |
Reduction in credit loss for securities disposed or collected | 37 | 58 |
Ending balance | $ (294) | $ (350) |
Investments (Details 14) - Mortgage loans, non-impaired - USD ($) $ in Millions |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Net carrying value of impaired mortgage loans | ||||
Impaired mortgage loans with a valuation allowance | $ 5 | $ 5 | ||
Impaired mortgage loans without a valuation allowance | 0 | 0 | ||
Total impaired mortgage loans | 5 | 5 | ||
Valuation allowance on impaired mortgage loans | $ 3 | $ 3 | $ 3 | $ 3 |
Average carrying value and interest income recognized on impaired mortgage loans | ||||
Average impaired mortgage loans | 5 | 6 | ||
Rollforward of the valuation allowance on impaired mortgage loans | ||||
Beginning balance | 3 | 3 | ||
Charge offs | 0 | 0 | ||
Ending balance | $ 3 | $ 3 |
Fair Value of Assets and Liabilities (Details 2) - Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options - Stochastic cash flow model - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Quantitative information about the significant unobservable inputs | ||
Liabilities, Fair Value Disclosure, Recurring | $ (250) | $ (247) |
Weighted average projected option cost (as a percent) | 1.74% | 1.75% |
Minimum | ||
Quantitative information about the significant unobservable inputs | ||
Projected option cost (as a percent) | 1.00% | 1.00% |
Maximum | ||
Quantitative information about the significant unobservable inputs | ||
Projected option cost (as a percent) | 2.20% | 2.20% |
Fair Value of Assets and Liabilities (Details 5) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|---|
Financial assets | ||||
Mortgage loans | $ 4,349 | $ 4,486 | ||
Financial liabilities | ||||
Long-term debt | 6,346 | 6,347 | ||
Liability for collateral | 1,172 | 1,129 | $ 874 | $ 840 |
Carrying value | ||||
Financial assets | ||||
Mortgage loans | 4,349 | 4,486 | ||
Cost method limited partnerships | 1,293 | 1,282 | ||
Bank loans | 1,673 | 1,669 | ||
Agent loans | 489 | 467 | ||
Financial liabilities | ||||
Contractholder funds on investment contracts | 11,082 | 11,313 | ||
Long-term debt | 6,346 | 6,347 | ||
Liability for collateral | 1,172 | 1,129 | ||
Fair value | ||||
Financial assets | ||||
Mortgage loans | 4,445 | 4,514 | ||
Cost method limited partnerships | 1,525 | 1,493 | ||
Bank loans | 1,677 | 1,677 | ||
Agent loans | 488 | 467 | ||
Financial liabilities | ||||
Contractholder funds on investment contracts | 11,635 | 12,009 | ||
Long-term debt | 6,991 | 6,920 | ||
Liability for collateral | $ 1,172 | $ 1,129 |
Reserve for Property-Liability Insurance Claims and Claims Expense (Details) - Property-Liability - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Activity in the reserve for property-liability insurance claims and claims expense: | ||
Balance as of January 1 | $ 25,250 | $ 23,869 |
Less reinsurance recoverables | 6,184 | 5,892 |
Net balance as of January 1 | 19,066 | 17,977 |
Incurred claims and claims expense related to: | ||
Current year | 5,513 | 5,660 |
Prior years | (97) | 24 |
Total incurred | 5,416 | 5,684 |
Claims and claims expense paid related to: | ||
Current year | 2,239 | 2,148 |
Prior years | 2,815 | 2,867 |
Total paid | 5,054 | 5,015 |
Net balance as of March 31 | 19,445 | 18,646 |
Plus reinsurance recoverables | 6,183 | 5,959 |
Balance as of March 31 | 25,628 | 24,605 |
SquareTrade | ||
Activity in the reserve for property-liability insurance claims and claims expense: | ||
Net balance as of January 1 | $ 17 | $ 0 |
Reserve for Property-Liability Insurance Claims and Claims Expense (Details 2) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Auto | ||
Increase (decrease) in claims and claims expense | ||
Prior years | $ (86) | |
Catastrophe | ||
Increase (decrease) in claims and claims expense | ||
Total incurred | 781 | $ 827 |
Non Catastrophe Reestimates | Homeowners | ||
Increase (decrease) in claims and claims expense | ||
Prior years | (24) | |
Reserve Adjustments | Other personal lines | ||
Increase (decrease) in claims and claims expense | ||
Prior years | 11 | |
Reserve Adjustments | Discontinued Lines and Coverages Product Line | ||
Increase (decrease) in claims and claims expense | ||
Prior years | 2 | |
Catastrophe Loss Re-estimates | ||
Increase (decrease) in claims and claims expense | ||
Prior years | $ 4 |
Company Restructuring (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Restructuring and Related Activities [Abstract] | ||
Restructuring and related charges | $ 10 | $ 5 |
Company Restructuring (Details 2) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2017
USD ($)
| |
Restructuring Reserve | |
Balance as of December 31, 2016 | $ 2 |
Expense incurred | 5 |
Payments applied against liability | (3) |
Balance as of March 31, 2017 | 4 |
Employee costs | |
Restructuring Reserve | |
Balance as of December 31, 2016 | 0 |
Expense incurred | 3 |
Payments applied against liability | 0 |
Balance as of March 31, 2017 | 3 |
Cumulative amount incurred to date for active programs | 62 |
Exit costs | |
Restructuring Reserve | |
Balance as of December 31, 2016 | 2 |
Expense incurred | 2 |
Payments applied against liability | (3) |
Balance as of March 31, 2017 | 1 |
Cumulative amount incurred to date for active programs | $ 63 |
Benefit Plans (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Pension benefits | ||
Components of net periodic cost | ||
Service cost | $ 29 | $ 28 |
Interest cost | 66 | 71 |
Expected return on plan assets | (102) | (99) |
Amortization of prior service credit | (14) | (14) |
Amortization of net actuarial loss (gain) | 47 | 43 |
Settlement loss | 8 | 8 |
Net periodic postretirement credit | 34 | 37 |
Postretirement benefits | ||
Components of net periodic cost | ||
Service cost | 2 | 2 |
Interest cost | 4 | 4 |
Amortization of prior service credit | (6) | (5) |
Amortization of net actuarial loss (gain) | (6) | (8) |
Net periodic postretirement credit | $ (6) | $ (7) |
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