Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2024


Note 5			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:

(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.

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:

(1)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.

(2)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 mortgage loans, bank loans, real estate and policy loans and are only included in the fair value hierarchy disclosure when the individual investment is reported at fair value.

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 inputs and valuation techniques for Level 2 and Level 3 assets and liabilities measured at fair value on a recurring basis

Level 2 measurements

•Fixed income securities:

U.S. government and agencies, municipal, corporate - public and 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.

Corporate - privately placed: Privately placed are 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.

Corporate - privately placed also includes redeemable preferred stock that are valued using quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

ABS: 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. Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable. Residential mortgage-backed securities, included in ABS, use prepayment speeds as a primary input for valuation.

•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.

•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.

Over-the-counter (“OTC”) derivatives, including interest rate swaps, foreign currency swaps, total return 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, implied volatilities, index price levels, currency rates, and 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

•Fixed income securities:

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 that are not market observable, 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 privately placed and ABS: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs for corporate fixed income securities 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.

•Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets that are not market observable.

•Short-term: For certain short-term investments, amortized cost is used as the best estimate of fair value.

•Other investments: 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 quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

•Other assets: Includes the contingent consideration provision in the sale agreement for Allstate Life Insurance Company (“ALIC”) which meets the definition of a derivative. This derivative is valued internally using a model that includes stochastically determined cash flows and inputs that include spot and forward interest rates, volatility, corporate credit spreads and a liquidity discount. This derivative is categorized as Level 3 due to the significance of non-market observable inputs.

Assets measured at fair value on a non-recurring basis

Comprise long-lived assets to be disposed of by sale, including real estate, that are written down to fair value less costs to sell and bank loans written down to fair value in connection with recognizing credit losses.

Investments excluded from the fair value hierarchy

Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, which usually takes place in years 4-9 of the typical contractual life of 10-12 years. As of March 31, 2024, the Company has commitments to invest $172 million in these limited partnership interests.


Assets and liabilities measured at fair value
	March 31, 2024
($ 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			Total
Assets
Fixed income securities:
U.S. government and agencies	$	10,016		$	14		$	—					$	10,030
Municipal	—			5,384			8						5,392
Corporate - public	—			23,847			23						23,870
Corporate - privately placed	—			8,345			54						8,399
Foreign government	—			1,240			—						1,240
ABS	—			1,788			58						1,846
Total fixed income securities	10,016			40,618			143						50,777
Equity securities (1)	1,607			218			408						2,233
Short-term investments	2,120			2,177			21						4,318
Other investments	—			5			2			$	(4)		3
Other assets	1			—			120						121
Total recurring basis assets	13,744			43,018			694			(4)			57,452
Non-recurring basis	—			—			—						—
Total assets at fair value	$	13,744		$	43,018		$	694		$	(4)		$	57,452
% of total assets at fair value	23.9		%	74.9		%	1.2		%	—		%	100.0		%

Investments reported at NAV													1,146
Total													$	58,598
Liabilities
Other liabilities	$	(2)		$	(4)		$	—		$	3		$	(3)
Total recurring basis liabilities	(2)			(4)			—			3			(3)

Total liabilities at fair value	$	(2)		$	(4)		$	—		$	3		$	(3)
% of total liabilities at fair value	66.7		%	133.3		%	—		%	(100.0)		%	100.0		%

(1)Excludes $150 million of preferred stock measured at cost.


Assets and liabilities measured at fair value
	December 31, 2023
($ 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			Total
Assets
Fixed income securities:
U.S. government and agencies	$	8,606		$	13		$	—					$	8,619
Municipal	—			5,995			11						6,006
Corporate - public	—			23,272			26						23,298
Corporate - privately placed	—			7,849			58						7,907
Foreign government	—			1,290			—						1,290
ABS	—			1,687			58						1,745
Total fixed income securities	8,606			40,106			153						48,865
Equity securities (1)	1,656			203			402						2,261
Short-term investments	1,676			3,467			1						5,144
Other investments	—			3			2			$	(2)		3
Other assets	3			—			118						121
Total recurring basis assets	11,941			43,779			676			(2)			56,394
Non-recurring basis	—			—			15						15
Total assets at fair value	$	11,941		$	43,779		$	691		$	(2)		$	56,409
% of total assets at fair value	21.2		%	77.6		%	1.2		%	—		%	100.0		%

Investments reported at NAV													1,165
Total													$	57,574
Liabilities
Other liabilities	$	(2)		$	(10)		$	—		$	8		$	(4)
Total recurring basis liabilities	(2)			(10)			—			8			(4)

Total liabilities at fair value	$	(2)		$	(10)		$	—		$	8		$	(4)
% of total liabilities at fair value	50.0		%	250.0		%	—		%	(200.0)		%	100.0		%

(1)Excludes $150 million of preferred stock measured at cost.

As of March 31, 2024 and December 31, 2023, Level 3 fair value measurements of fixed income securities total $143 million and $153 million, respectively, and include $23 million and $26 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and $8 million and $11 million, respectively, of municipal fixed income securities that are not rated by third-party credit rating agencies.

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.


Rollforward of Level 3 assets and liabilities held at fair value during the three month period ended March 31, 2024
	Balance as of December 31, 2023		Total gains (losses) included in:				Transfers																Balance as of March 31, 2024
($ in millions)			Net income		OCI		Into Level 3		Out of Level 3		Purchases			Sales			Issues			Settlements
Assets
Fixed income securities:
Municipal	$	11	$	—	$	—	$	—	$	—		$	—		$	(1)		$	—		$	(2)	$	8
Corporate - public	26		—		2		—		—			—			(5)			—			—		23
Corporate - privately placed	58		(4)		—		—		—			—			—			—			—		54
ABS	58		—		—		—		—			—			—			—			—		58
Total fixed income securities	153		(4)		2		—		—			—			(6)			—			(2)		143
Equity securities	402		9		—		—		—			—			(3)			—			—		408
Short-term investments	1		—		—		—		—			20			—			—			—		21
Other investments	2		—		—		—		—			—			—			—			—		2
Other assets	118		2		—		—		—			—			—			—			—		120
Total recurring Level 3 assets	$	676	$	7	$	2	$	—	$	—		$	20		$	(9)		$	—		$	(2)	$	694


Rollforward of Level 3 assets and liabilities held at fair value during the three month period ended March 31, 2023
	Balance as of December 31, 2022		Total gains (losses) included in:				Transfers												Balance as of March 31, 2023
($ in millions)			Net income		OCI		Into Level 3		Out of Level 3		Purchases		Sales		Issues		Settlements
Assets
Fixed income securities:
Municipal	$	21	$	—	$	—	$	—	$	—	$	—	$	(3)	$	—	$	(1)	$	17
Corporate - public	69		(1)		2		—		—		—		(41)		—		—		29
Corporate - privately placed	55		(4)		—		—		—		—		(2)		—		—		49
ABS	28		—		—		—		—		—		—		—		(1)		27
Total fixed income securities	173		(5)		2		—		—		—		(46)		—		(2)		122
Equity securities	333		—		—		—		—		42		(17)		—		—		358
Short-term investments	6		—		—		—		—		—		—		—		—		6
Other investments	3		(1)		—		—		—		—		—		—		—		2
Other assets	103		9		—		—		—		—		—		—		—		112

Total recurring Level 3 assets	$	618	$	3	$	2	$	—	$	—	$	42	$	(63)	$	—	$	(2)	$	600


Total Level 3 gains (losses) included in net income
	Three months ended March 31,
($ in millions)		2024		2023
Net investment income		$	—	$	(5)
Net gains (losses) on investments and derivatives (1)		5		(1)
Operating costs and expenses (1)		2		9

(1)Prior to the first quarter of 2024, level 3 gains (losses) included in operating costs and expenses were reported in this table within net gains (losses) on investments and derivatives. Historical results have been updated to conform with this presentation.

There were no transfers into or out of Level 3 during the three months ended March 31, 2024 and 2023.


Valuation changes included in net income and OCI for Level 3 assets and liabilities held as of March 31,
	Three months ended March 31,
($ in millions)		2024		2023
Assets
Fixed income securities:


Corporate - privately placed		$	(4)	$	(4)

Total fixed income securities		(4)		(4)
Equity securities		9		(1)

Other investments		—		(1)
Other assets		2		9


Total recurring Level 3 assets		$	7	$	3



Total included in net income		$	7	$	3

Components of net income
Net investment income		$	—	$	(5)
Net gains (losses) on investments and derivatives		5		(1)
Operating costs and expenses		2		9
Total included in net income		$	7	$	3

Assets

Corporate - public		2		1




Changes in unrealized net capital gains and losses reported in OCI		$	2	$	1


Financial instruments not carried at fair value
($ in millions)		March 31, 2024				December 31, 2023
Financial assets	Fair value level	Amortized cost, net		Fair value		Amortized cost, net		Fair value
Mortgage loans	Level 3	$	815	$	762	$	822	$	769
Bank loans	Level 3	164		177		224		238



Financial liabilities	Fair value level	Carrying value (1)		Fair value		Carrying value (1)		Fair value
Contractholder funds on investment contracts	Level 3	$	44	$	44	$	46	$	46
Debt	Level 2	7,938		7,590		7,942		7,655
Liability for collateral	Level 2	2,049		2,049		1,891		1,891

(1)Represents the amounts reported on the Condensed Consolidated Statements of Financial Position.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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