THE ALLSTATE CORPORATION
Page
2021 Highlights 33
Property-Liability Operations 38
Allstate Protection 40
Run-off Property-Liability 48
Protection Services 51
Claims and Claims Expense Reserves 53
Allstate Health and Benefits 60
Investments 63
Market Risk 72
Capital Resources and Liquidity 75
Enterprise Risk and Return Management 80
Application of Critical Accounting Estimates 83
Regulation and Legal Proceedings 94
Pending Accounting Standards 94
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2021 Form 10-K
2021 Highlights
Overview
The following discussion highlights significant factors influencing the
consolidated financial position and results of operations of The Allstate
Corporation (referred to in this document as "we," "our," "us," the "Company" or
"Allstate"). It should be read in conjunction with the consolidated financial
statements and related notes found under Item 8. contained herein.
A discussion of strategy, including updates to the multi-year Transformative Growth initiative, can be found in Part 1, Item 1. Business.
This section of this Form 10-K generally discusses 2021 and 2020 results and
year-to-year comparisons between 2021 and 2020. Discussions of 2019 results and
year-to-year comparisons between 2020 and 2019 that are not included in this
Form 10-K can be found in Management's Discussion and Analysis ("MD&A") in Part
II, Item 7 of our annual report on Form 10-K for 2020, filed February 19, 2021 .
The most important factors we monitor to evaluate the financial condition and performance for our reportable segments and the Company include:
•Allstate Protection: premium, policies in force ("PIF"), new business sales,
policy retention, price changes, claim frequency and severity, catastrophes,
loss ratio, expenses, underwriting results, and relative competitive position.
•Protection Services: revenues, premium written, PIF and adjusted net income.
•Allstate Health and Benefits: premiums, new business sales, PIF, benefit ratio, expenses and adjusted net income.
•Investments: exposure to market risk, asset allocation, credit quality/experience, total return, net investment income, cash flows, net gains and losses on investments and derivative instruments, unrealized capital gains and losses, long-term returns, and asset and liability duration.
•Financial condition: liquidity, parent holding company deployable assets, financial strength ratings, operating leverage, debt levels, book value per share and return on equity.
Measuring segment profit or loss
The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Run-off Property-Liability segments and adjusted net income for the Protection Services,Allstate Health and Benefits, and Corporate and Other segments. Underwriting income is calculated as premiums earned and other revenue, less claims and claims expense ("losses"), Shelter-in-Place Payback expense, amortization of deferred policy acquisition costs ("DAC"), operating costs and expenses, amortization or impairment of purchased intangibles, and restructuring and related charges, as determined using accounting principles generally accepted inthe United States of America ("GAAP"). We use this measure in our evaluation of results of operations to analyze profitability.
Adjusted net income is net income (loss) applicable to common shareholders, excluding:
• Net gains and losses on investments and derivatives except for periodic settlements
and accruals on non-hedge derivative instruments, which are reported with net gains
and losses on investments and derivatives but included in adjusted net income • Pension and other postretirement remeasurement gains and losses • Business combination expenses and the amortization or impairment of purchased
intangibles
• Income or loss from discontinued operations • Adjustments for other significant non-recurring, infrequent or unusual items, when
(a) the nature of the charge or gain is such that it is reasonably unlikely to recur
within two years, or (b) there has been no similar charge or gain within the prior
two years
• Income tax expense or benefit on reconciling items
The Allstate Corporation 33
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2021 Form 10-K
Acquisitions and Dispositions
Acquisitions OnJanuary 4, 2021 , we completed the acquisition ofNational General Holdings Corp. ("National General"), significantly enhancing our strategic position in the independent agency channel. The transaction increased our market share in personal property-liability by over one percentage point and enhanced our independent agent-facing technology. OnJune 1, 2021 , we announced an agreement to acquireSafe Auto Insurance Group, Inc. ("SafeAuto"), a non-standard auto insurance carrier. OnOctober 1, 2021 , we completed the acquisition for$262 million in cash. Discontinued operations and held for sale During the first quarter of 2021, we announced the pending sales ofAllstate Life Insurance Company ("ALIC"),Allstate Life Insurance Company of New York ("ALNY") and certain affiliates. OnOctober 1, 2021 , we closed the sale of ALNY toWilton Reassurance Company for$400 million . OnNovember 1, 2021 , we closed the sale of ALIC and certain affiliates to entities managed byBlackstone for total proceeds of$4 billion , including a pre-close dividend of$1.25 billion paid by ALIC. In 2021, the loss on disposition was$4.09 billion , after-tax, and reflects purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreements, changes in statutory capital and surplus prior to the closing dates and the closing date equity of the sold entities determined under GAAP, excluding accumulated other comprehensive income ("AOCI") derecognized related to the dispositions.
Beginning in the first quarter of 2021, the assets and liabilities of the business were reclassified as held for sale and results are presented as discontinued operations. This change was applied on a retrospective basis.
See Note 3 of the consolidated financial statements for further information on acquisitions and dispositions.
The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus")
The Coronavirus resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings. These measures moderated in 2021 as vaccines have become more widely available inthe United States andCanada . There is no way of predicting with certainty how long the pandemic might last. We continue to closely monitor and proactively adapt to developments and changing conditions. Currently, it is not possible to reliably estimate the impact to our operations, but the effects have been and could be material. Certain growth and profitability comparisons to the prior year were impacted, in part, by the effects the Coronavirus had on our prior year results. Beginning inMarch 2020 , when shelter-in-place orders and other restrictions were initiated, and throughout 2020, we experienced lower accident claim frequency and different claim patterns than historically experienced. Claim frequency increased in 2021, but remains below pre-pandemic levels. The Coronavirus has affected our operations and may continue to significantly affect our results of operations, financial condition and liquidity. The impact from the pandemic should be considered when comparing the current year to the prior year, including:
•Sales of new and retention of existing policies
•Premium for transportation network products
•Driving behavior and auto accident frequency
•Supply chain disruptions and labor shortages impacts on the cost of settling claims
•Hospital and outpatient claim costs
•Investment valuations and returns
•Bad debt and credit allowance exposure
•Consumer utilization of Milewise®, our pay-per-mile insurance product
•Retail sales in Allstate Protection Plans
A pandemic such as the Coronavirus and its impacts are disclosed in Part 1 "Item 1A. Risk Factors'', including the risk factors titled "A large-scale pandemic, the occurrence of terrorism, military actions, social unrest or other actions may have an adverse effect on our business" and "Conditions in the global economy and capital markets could adversely affect our business and results of operations".
This list is not inclusive of all potential impacts and should not be treated as such. Within the MD&A we have included further disclosures related to the impacts of the Coronavirus on our 2021 results.
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2021 Form 10-K
Allstate Delivered on 2021 Operating Priorities (1)
Allstate made substantial progress inadvancing Transformative Growth initiatives in
Better Serve 2021, which includes improving the competitive price position in auto insurance
Customers through continued cost reductions.
Enterprise Net Promoter Score, which measures how likely customers are to recommend
us, finished slightly below the prior year.
Consolidated policies in force reached 190.9 million, a 9.8% increase from prior
year. Property-Liability policies in force increased by 13.7% compared to the prior
Grow Customer Base year driven by expanded customer access
from the acquisition of National General and
Allstate brand growth.
Protection Services policies in force grew to 148.4 million, an 8.9% increase to the
prior year, driven by continued expansion in Allstate Protection Plans.
Return on average common shareholders' equity was 5.8% in 2021, primarily driven by
the loss on the dispositions of ALIC, ALNY and certain affiliates, partially offset
Achieve Target by increased net investment income from
strong performance-based results.
Returns on Capital The Property-Liability combined ratio of
95.9 for the full year increased compared to
the prior year primarily driven by higher auto losses. Allstate responded quickly to
address the impact of higher severity through rate increases, continued commitment to
cost reductions and claims loss cost management.
Net investment income of $3.3 billion in
2021 exceeded prior year by
Proactively Manage to strong performance-based results.
Investments Total return on the $64.7 billion investment portfolio was 4.4% in 2021 reflecting
higher performance-based income and equity returns, partially offset by fixed income
valuation declines.
Allstate's personal property-liability market share increased by approximately one
percentage point primarily through the acquisition of National General, which,
Build Long-Term consistent with our Transformative Growth
objectives, expanded customer access and
Growth Platforms our strategic positioning in the
independent agent channel.
Allstate closed on the sale of lower growth and return life and annuity businesses.
Protection Services increased its customer base and total addressable market through
an expanded network of products and partners.
(1)2022 operating priorities will remain consistent with the 2021 priorities.
Consolidated Net Income
($ in millions)
[[Image Removed: all-20211231_g22.jpg]]
Consolidated net income applicable to common shareholders decreased 72.8% or $3.98 billion
to $1.49 billion in 2021 compared to 2020, primarily due to a loss from discontinued
operations and higher non-catastrophe losses. Partially offsetting were higher property
and casualty insurance premiums, net investment income, and pension and other
postretirement gains.
For the twelve months ended December 31, 2021 , return on common shareholders' equity was
5.8% compared to 21.0% for the twelve months ended December 31, 2020 .
Total Revenue
($ in millions)
[[Image Removed: all-20211231_g23.jpg]]
Total revenue increased 20.7% to $50.59 billion in 2021 compared to 2020, driven by a 13.9%
increase in property and casualty insurance premiums earned and higher net investment income.
Insurance premiums increased in both Property-Liability, primarily due to the acquisition of
National General, and Protection Services (Allstate Protection Plans, Allstate Dealer Services
and Allstate Roadside).
Net Investment Income
($ in millions)
[[Image Removed: all-20211231_g24.jpg]]
Net investment income increased 107.1% to
The Allstate Corporation 35
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2021 Form 10-K
Summarized financial results
Years Ended December 31,
($ in millions) 2021 2020 2019
Revenues
Property and casualty insurance premiums$ 42,218 $ 37,073 $ 36,076 Accident and health insurance premiums and contract charges 1,821 1,094 1,145 Other revenue 2,172 1,065 1,054 Net investment income 3,293 1,590 1,728 Net gains (losses) on investments and derivatives 1,084 1,087 1,538 Total revenues 50,588 41,909 41,541 Costs and expenses Property and casualty insurance claims and claims expense (29,318) (22,001) (23,976) Shelter-in-Place Payback expense (29) (948) - Accident and health insurance policy benefits (1,015) (516) (601) Interest credited to contractholder funds (34) (33) (34) Amortization of deferred policy acquisition costs (6,252) (5,477) (5,353) Operating, restructuring and interest expenses (7,760) (6,065) (5,788)
Pension and other postretirement remeasurement gains (losses)
644 51 (114)
Amortization of purchased intangibles (376) (118) (126)
Impairment of purchased intangibles - - (106)
Total costs and expenses (44,140) (35,107) (36,098)
Income from operations before income tax expense 6,448 6,802 5,443 Income tax expense (1,289) (1,373) (1,116) Net income from continuing operations 5,159 5,429 4,327 (Loss) income from discontinued operations, net of tax (3,593) 147 520 Net income 1,566 5,576 4,847 Less: Net loss attributable to noncontrolling interest (33) - - Net income attributable to Allstate 1,599 5,576 4,847 Preferred stock dividends (114) (115) (169) Net income applicable to common shareholders$ 1,485 $ 5,461 $ 4,678 Segment Highlights Allstate Protection underwriting income totaled$1.79 billion in 2021, a 60.9% decrease from$4.57 billion in 2020, primarily due to higher auto and homeowners non-catastrophe and catastrophe losses and increased underwriting expenses, partially offset by increased premiums earned in Allstate brand and lower Shelter-in-Place Payback expense.
Catastrophe losses were
Premiums written increased 15.6% to
Protection Services adjusted net income was$179 million in 2021 compared to$153 million in 2020. The improvement in 2021 was primarily due to growth of Allstate Protection Plans, lower claims costs at Allstate Dealer Services, growth and lower levels of investment at both Arity and Allstate Identity Protection, partially offset by higher severity and rescue volumes in Allstate Roadside. Premiums and other revenues increased 24.5% or$417 million to$2.12 billion in 2021 from$1.70 billion in 2020 primarily due to Allstate Protection Plan's growth through itsU.S. retail and international channels and the addition of LeadCloud and Transparent.ly, which were acquired as part of the National General acquisition.
Premiums and contract charges totaled
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2021 Form 10-K
Financial Highlights
Investments totaled
Shareholders' equity As of
Book value per diluted common share (ratio of common shareholders' equity to total common shares outstanding and dilutive potential common shares outstanding) was$81.52 as ofDecember 31, 2021 , a decrease of 10.9% from$91.50 as ofDecember 31, 2020 . Return on average common shareholders' equity For the twelve months endedDecember 31, 2021 , return on common shareholders' equity was 5.8%, a decrease of 15.2 points from 21.0% for the twelve months endedDecember 31, 2020 , primarily due to lower net income applicable to common shareholders. Pension and other postretirement remeasurement gains and losses We recorded pension and other postretirement remeasurement gains of$644 million in 2021, primarily related to favorable asset performance compared to the expected return on plan assets and an increase in the liability discount rate. See Note 18 of the consolidated financial statements and Application of Critical Accounting Estimates section of the MD&A for further information. The Allstate
Corporation 37
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2021 Form 10-K Property-Liability
Property-Liability Operations
Overview Property-Liability operations consist of two reportable segments: Allstate Protection and Run-off Property-Liability. These segments are consistent with the groupings of financial information that management uses to evaluate performance and to determine the allocation of resources.
We do not allocate Property-Liability investment income, net gains and losses on investments and derivatives, or assets to the Allstate Protection and Run-off Property-Liability segments. Management reviews assets at the Property-Liability level for decision-making purposes.
GAAP operating ratios are used to measure our profitability to enhance an investor's understanding of our financial results and are calculated as follows:
•Loss ratio: the ratio of claims and claims expense (loss adjustment expenses), to premiums earned. Loss ratios include the impact of catastrophe losses and prior year reserve reestimates. •Expense ratio: the ratio of amortization of DAC, operating costs and expenses, amortization or impairment of purchased intangibles, restructuring and related charges and Shelter-in-Place Payback expense, less other revenue to premiums earned.
•Combined ratio: the sum of the loss ratio and the expense ratio.
We have also calculated the following impacts of specific items on the GAAP operating ratios because of the volatility of these items between periods. The impacts are calculated by taking the specific items noted below divided by Property-Liability premiums earned:
•Effect of catastrophe losses on combined ratio: includes catastrophe losses and prior year reserve reestimates of catastrophe losses included in claims and claims expense
•Effect of prior year reserve reestimates on combined ratio
•Effect of amortization of purchased intangibles on combined ratio
•Effect of impairment of purchased intangibles on combined ratio
•Effect of restructuring and related charges on combined ratio
•Effect of Shelter-in-Place Payback expense on combined and expense ratios
•Effect of Run-off Property-Liability business on combined ratio: includes claims and claims expense, restructuring and related charges and operating costs and expenses in the Run-off Property-Liability segment
Premium measures and statistics are used to analyze our premium trends and are calculated as follows:
•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. Commercial lines PIF counts for shared economy agreements typically reflect contracts that cover multiple rather than individual drivers.
•New issued applications: Item counts of automobile or homeowner insurance
applications for insurance policies that were issued during the period,
regardless of whether the customer was previously insured by another Allstate
brand.
•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.
•Renewal ratio: Renewal policy item counts issued during the period, based on contract effective dates, divided by the total policy item counts issued generally 6 months prior for auto or 12 months prior for homeowners.
Frequency and severity statistics, which are influenced by driving patterns, inflation and other factors, are provided to describe the trends in loss costs. Our reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine our best estimate of recorded reserves. We use the following statistics to evaluate losses: •Gross claim frequency is calculated as annualized notice counts, excluding counts associated with catastrophe events, received in the period divided by the average of PIF with the applicable coverage during the period. Gross claim frequency includes all actual notice counts, regardless of their current status (open or closed) or their ultimate disposition (closed with a payment or closed without payment).
•Paid claim severity is calculated by dividing the sum of paid losses and loss expenses by claims closed with a payment during the period.
•Percent change in frequency or severity statistics is calculated as the amount of increase or decrease in gross claim frequency or paid claim severity in the current period compared to the same period in the prior year divided by the prior year gross claim frequency or paid claim severity.
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Property-Liability 2021 Form 10-K
Underwriting results
($ in millions, except ratios) 2021 2020 2019
Premiums written $ 41,358 $ 35,768 $ 35,419
Premiums earned $ 40,454 $ 35,580 $ 34,843
Other revenue 1,437 857 866
Claims and claims expense (28,876) (21,626) (23,622)
Shelter-in-Place Payback expense (29) (948) -
Amortization of DAC (5,313) (4,642) (4,649)
Other costs and expenses (5,622) (4,549) (4,532)
Restructuring and related charges (1) (145) (235) (38)
Amortization of purchased intangibles (241) (12) (4)
Impairment of purchased intangibles - - (51)
Underwriting income $ 1,665 $ 4,425 $ 2,813
Catastrophe losses
Catastrophe losses, excluding reserve reestimates $ 3,541 $ 3,314 $ 2,509
Catastrophe reserve reestimates (2) (202) (503) 48
Total catastrophe losses $ 3,339 Non-catastrophe reserve reestimates (2) 326 68 (176) Prior year reserve reestimates (2) 124 (435) (128) GAAP operating ratios Loss ratio 71.4 60.8 67.8 Expense ratio (3) 24.5 26.8 24.1 Combined ratio 95.9 87.6 91.9 Effect of catastrophe losses on combined ratio 8.3 7.9 7.3 Effect of prior year reserve reestimates on combined ratio 0.3 (1.2) (0.4)
Effect of catastrophe losses included in prior year reserve reestimates on combined ratio
(0.5) (1.4) 0.1
Effect of restructuring and related charges on combined ratio (1)
0.4 0.7 0.1
Effect of amortization of purchased intangibles on combined ratio
0.6 0.1 -
Effect of impairment of purchased intangibles on combined ratio
- - 0.2
Effect of Shelter-in-Place Payback expense on combined and expense ratios
0.1 2.7 -
Effect of Run-off Property-Liability business on combined ratio
0.3 0.4 0.3
(1)Restructuring and related charges in 2021 primarily related to reductions in
real estate. See Note 14 of the consolidated financial statements for additional
details.
(2)Favorable reserve reestimates are shown in parentheses.
(3)Other revenue is deducted from operating costs and expenses in the expense
ratio calculation.
The Allstate Corporation 39
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2021 Form 10-K Allstate Protection
Allstate Protection Segment
[[Image Removed: all-20211231_g25.jpg]]
Private passenger auto, homeowners, and other personal lines insurance products
are offered to consumers through both exclusive and independent agents and
directly through contact centers and online. The Encompass brand was combined
into National General beginning in the first quarter of 2021, and results prior
to 2021 reflect Encompass brand results only. Our strategy is to offer products
in an open access, digital first model that allows customers to interact with us
when, where and how they want with affordable, simple and connected protection
products. For additional information on our strategy and outlook, see Part I,
Item 1. Business - Strategy and Segment Information.
Underwriting results
For the years ended December 31,
($ in millions) 2021 2020 2019
Premiums written $ 41,358 $ 35,768 $ 35,419
Premiums earned $ 40,454 $ 35,580 $ 34,843
Other revenue 1,437 857 866
Claims and claims expense (28,760) (21,485) (23,517)
Shelter-in-Place Payback expense (29) (948) -
Amortization of DAC (5,313) (4,642) (4,649)
Other costs and expenses (5,618) (4,546) (4,529)
Restructuring and related charges (145) (235) (38)
Amortization of purchased intangibles (241) (12) (4)
Impairment of purchased intangibles - - (51)
Underwriting income $ 1,785 $ 4,569 $ 2,921
Catastrophe losses $ 3,339 $ 2,811 $ 2,557 Change in underwriting results from 2020 to 2021 ($ in millions)
[[Image Removed: all-20211231_g26.jpg]]
Change in underwriting results from 2019 to 2020 ($ in millions)
[[Image Removed: all-20211231_g27.jpg]]
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Allstate Protection 2021 Form 10-K
Underwriting income (loss) by brand and by line of business
For the years ended
Allstate Brand National General Allstate Protection
($ in millions) 2021 2020 2019 2021 2020 2019 2021 2020 2019 Auto (1)$ 1,208 $ 3,404 $ 1,680 $ 54 $ 40 $ 8 $ 1,262 $ 3,444 $ 1,688 Homeowners (2) 411 798 912 (92) 26 2 319 824 914 Other personal lines (3) 216 255 227 17 9 (3) 233 264 224 Commercial lines (158) (36) 14 - - - (158) (36) 14 Other business lines (4) 115 70 84 - - - 115 70 84 Answer Financial - - - - - - 14 3 (3) Total$ 1,792 $ 4,491 $ 2,917 $ (21) $ 75 $ 7 $ 1,785 $ 4,569 $ 2,921
(1)2021 results include National General commercial lines insurance products.
(2)2021 results include National General packaged policies, which include auto and other personal lines insurance products.
(3)Other personal lines include renters, condominium, landlord and other personal lines products.
(4)Other business lines primarily represents revenue and direct operating expenses of Ivantage and distribution of non-proprietary life and annuity products. Ivantage, a general agency for Allstate exclusive agents, provides agents a solution for their customers when coverage through Allstate brand underwritten products is not available.
Underwriting income decreased 60.9% or
Premium measures and statistics include PIF, new issued applications, average premiums and renewal ratio to analyze our premium trends. Premiums written is the amount of premiums charged for policies issued during a fiscal period. Premiums are considered earned and are included in the financial results on a pro-rata basis over the policy period. The portion of premiums written applicable to the unexpired term of the policies is recorded as unearned premiums on our Consolidated Statements of Financial Position.
Premiums written by brand and line of business
For the years ended December 31,
Allstate Brand National General Allstate Protection
($ in millions) 2021 2020 2019 2021 2020 2019 2021 2020 2019
Auto $ 24,102 $ 24,103 $
23,922
$ 24,611 $ 24,462 Homeowners 8,717 8,012 7,764 1,772 388 401 10,489 8,400 8,165 Other personal lines 2,001 1,889 1,811 155 76 79 2,156 1,965 1,890 Commercial lines 848 792 902 - - - 848 792 902 Total premiums written$ 35,668 $ 34,796 $
34,399
Premiums earned by brand and line of business
For the years ended December 31,
Allstate Brand National General Allstate Protection
($ in millions) 2021 2020 2019 2021 2020 2019 2021 2020 2019
Auto $ 24,088 $ 24,115 $ 23,649 $ 3,535 $ 525 $ 539 $ 27,623 $ 24,640 $ 24,188
Homeowners 8,272 7,858 7,513 1,655 396 399 9,927 8,254 7,912
Other personal lines 1,925 1,841 1,781 152 78 80 2,077 1,919 1,861
Commercial lines 827 767 882 - - - 827 767 882
Total premiums earned $ 35,112 $ 34,581 $ 33,825 $ 5,342 $ 999 $ 1,018 $ 40,454 $ 35,580 $ 34,843 Reconciliation of premiums written to premiums earned
For the years ended December 31,
($ in millions) 2021 2020 2019
Total premiums written $ 41,358 $ 35,768 $ 35,419
Increase in unearned premiums (1,143) (205) (614)
Other 239 17 38
Total premiums earned $ 40,454 $ 35,580 $ 34,843
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2021 Form 10-K Allstate Protection
Unearned premium balance by line of business
As of December 31,
($ in millions) 2021 2020
Allstate brand:
Auto $ 6,426 $ 6,409
Homeowners 4,825 4,379
Other personal lines 1,078 1,001
Commercial lines 315 295
Total Allstate brand 12,644 12,084
National General:
Auto 1,764 258
Homeowners 451 207
Other personal lines 306 39
Commercial lines 177 -
Total National General 2,698 504
Allstate Protection unearned premiums 15,342 12,588
Policies in force by brand and by line of business
Allstate brand National General Allstate Protection
PIF (thousands) 2021 2020 2019 2021 2020 2019 2021 2020 2019
Auto 21,972 21,809 21,913 3,944 451 493 25,916 22,260 22,406
Homeowners 6,525 6,427 6,359 634 216 234 7,159 6,643 6,593
Other personal lines 4,578 4,459 4,390 288 71 76 4,866 4,530 4,466
Commercial lines 210 216 227 105 - - 315 216 227
Total 33,285 32,911 32,889 4,971 738 803 38,256 33,649 33,692
Auto insurance premiums written increased 13.2% or
•Acquisition of National General
•Increased new issued applications in the Allstate brand driven by increased advertising and higher close rates
•Decreased Allstate brand average premium driven by rate decreases taken late in 2020 and the first half of 2021 partially offset by rate increases in the second half of 2021 •Rate increases are being implemented broadly to improve underwriting results given the higher inflationary trends adversely impacting loss costs; new rates become effective at the beginning of the
next policy term and are earned over the coverage period
•PIF increased 16.4% or 3,656 thousand to 25,916 thousand as ofDecember 31, 2021 compared toDecember 31, 2020 due to increases in Allstate brand and the acquisition of National General
-PIF increased by 262 thousand as of
Auto premium measures and statistics
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
New issued applications (thousands)
Agency channel 2,531 2,621 2,697 (3.4) % (2.8) %
Direct channel 1,085 846 838 28.3 % 1.0 %
Allstate brand 3,616 3,467 3,535 4.3 % (1.9) %
National General 2,057 60 82 NM (26.8) %
Total new issued applications 5,673 3,527 3,617 60.8 % (2.5) %
Allstate brand average premium $ 605 $ 617 $ 603 (1.9) % 2.3 %
Allstate brand renewal ratio (%) 87.0 87.5 88.0 (0.5) (0.5)
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Allstate Protection 2021 Form 10-K
Homeowners insurance premiums written increased 24.9% or
•Acquisition of National General
•Higher Allstate brand average premiums from approved rate increases and inflation adjustments to premium due to higher insured home valuations
•Increased new issued applications in the Allstate brand driven by higher quote volumes and improved close rates
Homeowners premium measures and statistics
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
New issued applications (thousands)
Agency channel 879 837 821 5.0 % 1.9 %
Direct channel 83 62 56 33.9 % 10.7 %
Allstate brand 962 899 877 7.0 % 2.5 %
National General 102 34 42 NM (19.0) %
Total new issued applications 1,064 933 919 14.0 % 1.5 %
Allstate brand average premium $ 1,426 $ 1,328 $ 1,291 7.4 % 2.9 %
Allstate brand renewal ratio (%) 87.1 87.5 88.2 (0.4) (0.7)
Other personal lines premiums written increased 9.7% or
Commercial lines premiums written increased 7.1% or
company, higher miles driven in our shared economy business as the impacts of the Coronavirus decrease and an increase in average premiums.
GAAP operating ratios include loss ratio, expense ratio and combined ratio to analyze our profitability trends. Frequency and severity statistics are used to describe the trends in loss costs.
Combined ratios by line of business
For the years ended December 31,
Loss ratio Expense ratio (1) Combined ratio
2021 2020 2019 2021 2020 2019 2021 2020 2019
Auto 70.5 57.5 68.2 24.9 28.5 24.8 95.4 86.0 93.0
Impact of Shelter-in-Place Payback
expense - - - 0.1 3.8 - 0.1 3.8 -
Homeowners 72.2 67.3 65.1 24.6 22.7 23.3 96.8 90.0 88.4
Other personal lines 62.9 58.7 61.1 25.9 27.5 26.9 88.8 86.2 88.0
Commercial lines 97.5 82.4 81.3 21.6 22.3 17.1 119.1 104.7 98.4
Impact of Shelter-in-Place Payback
expense - - - - 0.5 - - 0.5 -
Total 71.1 60.4 67.5 24.5 26.8 24.1 95.6 87.2 91.6
Impact of restructuring and related
charges (2) - - - 0.4 0.7 0.1 0.4 0.7 0.1
Impact of Shelter-in-Place Payback
expense - - - 0.1 2.7 - 0.1 2.7 -
Impact of Allstate Special Payment
plan bad debt expense - - - - 0.2 - - 0.2 -
(1)Other revenue is deducted from operating costs and expenses in the expense ratio calculation.
(2)Restructuring and related charges in 2021 primarily related to reductions in real estate.
Loss ratios by line of business
For the years ended
Effect of catastrophe losses on Effect of catastrophe losses included in
Loss ratio combined ratio Effect of prior year reserve reestimates prior year reserve reestimates (1)
2021 2020 2019 2021 2020 2019 2021 2020 2019 2021 2020 2019
Auto 70.5 57.5 68.2 1.7 1.2 1.7 0.5 (0.4) (1.4) (0.1) (0.1) (0.1)
Homeowners 72.2 67.3 65.1 26.3 27.9 24.8 (1.5) (5.3) 0.8 (1.7) (5.1) 0.8
Other personal lines 62.9 58.7 61.1 11.0 10.4 9.0 (5.1) (3.5) 0.5 (0.5) (2.0) -
Commercial lines 97.5 82.4 81.3 2.9 3.5 1.4 14.4 4.7 1.9 0.4 0.2 (0.1)
Total 71.1 60.4 67.5 8.3 7.9 7.3 - (1.6) (0.7) (0.5) (1.4) 0.1
(1)2020 includes approximately
The Allstate Corporation 43
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2021 Form 10-K Allstate Protection
Auto loss ratio increased 13.0 points in 2021 compared to 2020, primarily due to:
•Higher gross claim frequency in all coverages, as miles driven continue to rebound toward pre-pandemic levels
•While frequency increased relative to the prior year, it remains below pre-pandemic levels
•Increased severity for all coverages, driven by inflationary pressures and increased attorney representation and medical service utilization for bodily injury claims
•Adverse prior year reserve reestimates
The impacts of the Coronavirus affect frequency and severity statistics including:
•Shelter-in-place and travel restrictions, which have moderated in 2021 as
vaccines have become more widely available in the US and
•Unemployment levels
•Changes in commuting activity
•Supply chain disruptions and labor shortages
•Shifts in the frequency environment may impact the speed claims are settled
•Driving behavior (e.g., speed, time of day) impacting mix of claim types
•Value of total losses due to higher used car prices
•Labor and part cost increases
Allstate brand frequency and paid claim severity statistics (excluding catastrophe losses) (% change year-over-year) For the year endedDecember 31, 2021 Property damage gross claim frequency 13.0 % Property damage paid claim severity 8.8
Property damage gross claim frequency increased in 2021 compared to 2020 due to factors including:
•Increases in miles driven compared to 2020 which was impacted by shelter-in-place restrictions due to the Coronavirus
•Gross claim frequency decreased 19.8% in 2021 when compared to pre-pandemic levels of 2019 as auto miles driven, particularly during peak commuting hours, remains lower than pre-pandemic levels
Property damage paid claim severity increased in 2021 compared to 2020.
•When compared to pre-pandemic levels of 2019, property damage paid claim severity increased 19.6% in 2021
•The increases are due to rising inflationary factors impacting both repairable vehicles and total losses, including higher used car values, replacement part costs and labor rates, and higher costs to repair more sophisticated newer model vehicles
Collision severity increased in 2021 compared to 2020 due to inflationary pressures from higher used car values that increased total losses and also increased parts and labor costs associated with repairs.
Bodily injury severity increased in 2021 compared to 2020 due to higher consumption of medical treatment, increased percentage of claimants represented by attorneys and higher medical care inflation.
Homeowners loss ratio increased 4.9 points in 2021 compared to 2020, primarily due to increased non-catastrophe claim frequency and severity and lower favorable catastrophe reserve reestimates driven by subrogation settlements in 2020, partially offset by increased premiums earned. Allstate brand homeowners frequency and severity statistics (excluding catastrophe losses) (% change year-over-year) For the year endedDecember 31, 2021 Gross claim frequency 8.3 % Paid claim severity 10.0 Gross claim frequency increased in 2021 compared to 2020 primarily due to increases in wind/hail, water and fire perils. Paid claim severity increased in 2021 compared to 2020 due to inflationary loss cost pressure driven by increases in labor and materials costs. Homeowner paid claim severity can be impacted by both the mix of perils and the magnitude of specific losses paid during the quarter. Other personal lines loss ratio increased 4.2 points in 2021 compared to 2020, primarily due to higher non-catastrophe losses, partially offset by increased premiums earned. Commercial lines loss ratio increased 15.1 points in 2021 compared to 2020 due to higher auto frequency and severity and higher unfavorable non-catastrophe prior year reserves reestimates, partially offset by increased premiums earned. Catastrophe losses increased 18.8% or$528 million in 2021 compared to 2020. Catastrophe losses in 2021 included gross losses of$2.4 billion and net losses of$1.3 billion related to Hurricane Ida and Winter Storm Uri. Net losses include reinsurance recoveries of$1.3 billion and reinstatement premiums of$208 million . We define a "catastrophe" as an event that produces pre-tax losses before reinsurance in excess of$1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, tsunamis, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as certain types of terrorism, wildfires or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted. 44 www.allstate.com
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Allstate Protection 2021 Form 10-K
Catastrophe losses by the type of event
For the years ended December 31,
Number of
($ in millions) events 2021 Number of events 2020 Number of events 2019
Hurricanes/Tropical storms 6 $ 742 9 $ 1,001 3 $ 86
Tornadoes 3 107 3 43 6 551
Wind/Hail 85 1,878 73 1,940 91 1,721
Wildfires 5 269 17 300 4 28
Other events 2 611 3 30 6 123
Prior year reserve reestimates 35 (503) 48
Prior year aggregate reinsurance cover (237) -
-
Current year aggregate reinsurance cover (66) - - Total catastrophe losses (1) 101$ 3,339 105$ 2,811 110$ 2,557
(1)Includes approximately
Catastrophe management
Historical catastrophe experience For the last ten years, the average annual impact of catastrophes on our loss ratio was 7.7 points, but it has varied from 4.5 points to 10.3 points. The average annual impact of catastrophes on the homeowners loss ratio for the last ten years was 24.6 points. Over time, we have limited our aggregate insurance exposure to catastrophe losses in certain regions of the country that are subject to high levels of natural catastrophes by our participation in various state facilities. For further discussion of these facilities, see Note 15 of the consolidated financial statements. However, the impact of these actions may be diminished by the growth in insured values, and the effect of state insurance laws and regulations. In addition, in various states we are required to participate in assigned risk plans, reinsurance facilities and joint underwriting associations that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of our participation in these and other state facilities such as wind pools, we may be exposed to losses that surpass the capitalization of these facilities and to assessments from these facilities.
We have continued to take actions to maintain an appropriate level of exposure to catastrophic events while continuing to meet the needs of our customers, including the following:
•Continuing to limit or not offer new homeowners, manufactured home and landlord package policy business in certain coastal geographies.
•Increased capacity in our brokerage platform for customers not offered an Allstate policy.
•We began to write a limited number of homeowners policies in select areas of
-Continue to renew current policyholders and allow replacement policies for existing customers who buy a new home or change their residence to rental property
-Have decreased our overall homeowner exposures in
-Write homeowners coverage through our excess and surplus lines carrier,North Light Specialty Insurance Company ("North Light"), which includes earthquake coverage (other than fire following earthquakes) that is currently ceded via quota share reinsurance.
•In certain states, we have been ceding wind exposure related to insured property located in wind pool eligible areas.
•Starting in the second quarter of 2017, we began writing a limited number of homeowners policies in select areas ofFlorida and continue to support existing customers who replace their currently-insured home with an acceptable property. Encompass withdrew from property lines inFlorida in 2009.
•Tropical cyclone deductibles are generally higher than all peril deductibles and are in place for a large portion of coastal insured properties.
•Auto comprehensive damage coverage generally includes coverage for flood-related loss. We have additional catastrophe exposure, beyond the property lines, for auto customers who have purchased comprehensive damage coverage.
•We offer a homeowners policy available in 43 states, Allstate House and Home®, that provides options of coverage for roof damage, including graduated coverage and pricing based on roof type and age. In 2021, premiums written totaled$4.56 billion or 46.0% of homeowners premiums written compared to$3.92 billion or 46.7% in 2020. Hurricanes We consider the greatest areas of potential catastrophe losses due to hurricanes generally to be major metropolitan centers in counties along the eastern and gulf coasts ofthe United States . The average premium on a property policy near these coasts is generally greater than in other areas. However, average premiums are often not considered commensurate with the inherent risk of loss. In addition, as explained in Note 15 of the consolidated financial statements, in various states Allstate is subject to assessments from assigned risk plans, reinsurance facilities and joint underwriting The Allstate
Corporation 45
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2021 Form 10-K Allstate Protection
associations providing insurance for wind related property losses.
We have addressed our risk of hurricane loss by, among other actions, purchasing reinsurance for specific states and on a countrywide basis for our personal lines property insurance in areas most exposed to hurricanes, limiting personal homeowners, landlord package policy and manufactured home new business writings in coastal areas in southern and eastern states, implementing tropical cyclone deductibles where appropriate, and not offering continuing coverage on certain policies in coastal counties in certain states. We continue to seek appropriate returns for the risks we write. This may require further actions, similar to those already taken, in geographies where we are not getting appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved. Earthquakes We do not offer earthquake coverage in most states. We retain approximately 40,000 PIF with earthquake coverage, with the largest number of policies located inKentucky , due to regulatory and other reasons. We purchase reinsurance inKentucky and enter into arrangements in many states to make earthquake coverage available through our brokerage platform. We continue to have exposure to earthquake risk on certain policies that do not specifically exclude coverage for earthquake losses, including our auto policies, and to fires following earthquakes. Allstate homeowner policyholders inCalifornia are offered coverage for damage caused by an earthquake through theCalifornia Earthquake Authority ("CEA"), a privately-financed, publicly-managed state agency created to provide insurance coverage for earthquake damage. Allstate is subject to assessments from the CEA under certain circumstances as explained in Note 15 of the consolidated financial statements. While North Light writes property policies inCalifornia , which can include earthquake coverage, this coverage is 100% ceded via quota share reinsurance. Fires following earthquakes Under a standard homeowners policy we cover fire losses, including those caused by an earthquake. Actions taken related to our risk of loss from fires following earthquakes include restrictive underwriting guidelines inCalifornia for new business writings, purchasing reinsurance forKentucky personal lines property risks, and purchasing nationwide occurrence reinsurance, excludingFlorida . Wildfires Actions taken related to managing our risk of loss from wildfires include purchasing nationwide occurrence reinsurance, new and renewal inspection programs to identify and remediate wildfire risk as well as leveraging contemporary underwriting tools in select areas. While these programs are designed to mitigate risk, the exposure to wildfires still exists. We continue to manage our exposure and seek appropriate returns for the risks we write. To manage the exposure, we may implement further actions, similar to those already taken, in geographies where we are not achieving appropriate returns. However, we may maintain or opportunistically increase our presence in areas where adequate risk adjusted returns can be achieved. Reinsurance The total cost of our property catastrophe reinsurance programs, excluding reinstatement premiums, during 2021 was$556 million compared to$425 million during 2020. Catastrophe placement premiums are a reduction of premium with approximately 74% related to homeowners. The increases were driven by higher Nationwide andFlorida program costs due to program expansion for growth in policies, including National General exposures. In the third quarter of 2021, our catastrophe reinsurance program risk tolerance framework that targets less than a 1% likelihood of annual aggregate catastrophe losses from hurricanes, earthquakes and wildfires, excluding other catastrophe losses, net of reinsurance, increased from$2 billion to$2.5 billion , reflecting the addition of wildfires to the target. A description of our current catastrophe reinsurance program appears in Note 11 of the consolidated financial statements.
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Allstate Protection 2021 Form 10-K
Expense ratio decreased 2.3 points in 2021 compared to 2020, primarily related to lower Shelter-in-Place Payback expense, operating costs and expenses, restructuring and related charges, partially offset by increased advertising and amortization of purchased intangibles and DAC related to the acquisition of National General.
Impact of specific costs and expenses on the expense ratio
For the years ended December 31,
($ in millions, except ratios) 2021 2020 2019 2021 vs 2020 2020 vs 2019
Amortization of DAC $ 5,313 $ 4,642 $ 4,649 $ 671 $ (7)
Advertising expense 1,249 941 851 308 90
Amortization of purchased intangibles 241 12 4 229 8
Other costs and expenses, net of other revenue 2,952 2,688 2,812 264 (124)
Restructuring and related charges 145 235 38 (90) 197
Shelter-in-Place Payback expense 29 948 - (919) 948
Allstate Special Payment plan bad debt expense (20) 60 - (80) 60
Impairment of purchased intangibles - - 51 - (51)
Total underwriting expenses $ 9,909 $ 9,526 $ 8,405 $ 383 $ 1,121
Premiums earned $ 40,454 $ 35,580 $ 34,843 $ 4,874 $ 737
Expense ratio
Amortization of DAC 13.1 13.0 13.4 0.1 (0.4)
Advertising expense 3.1 2.6 2.4 0.5 0.2
Other costs and expenses 7.2 7.5 8.0 (0.3) (0.5)
Subtotal 23.4 23.1 23.8 0.3 (0.7)
Amortization of purchased intangibles 0.6 0.1 - 0.5 0.1
Restructuring and related charges 0.4 0.7 0.1 (0.3) 0.6
Shelter-in-Place Payback expense 0.1 2.7 - (2.6) 2.7
Allstate Special Payment plan bad debt expense - 0.2 - (0.2) 0.2
Impairment of purchased intangibles - - 0.2 - (0.2)
Total expense ratio 24.5 26.8 24.1 (2.3) 2.7
Deferred acquisition costs We establish a DAC asset for costs that are related
directly to the acquisition of new or renewal insurance policies, principally
agent remuneration and premium taxes. DAC is amortized to income over the period
in which premiums are earned.
DAC balance as of December 31 by product type
($ in millions) 2021 2020
Auto $ 1,023 $ 826
Homeowners 700 602
Other personal lines 169 144
Commercial lines 59 36
Total DAC $ 1,951 $ 1,608
The Allstate Corporation 47
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2021 Form 10-K Run-off Property-Liability
Run-off Property-Liability Segment
The Run-off Property-Liability segment includes results from property and
casualty insurance coverage that primarily relates to policies written during
the 1960s through the mid-1980s. Our exposure to asbestos, environmental and
other run-off lines claims arises principally from direct excess commercial
insurance, assumed reinsurance coverage, direct primary commercial insurance and
other businesses in run-off. For additional information on our strategy and
outlook, see Part I, Item 1. Business - Strategy and Segment Information.
Underwriting results
For the years ended December 31,
($ in millions) 2021 2020 2019
Claims and claims expense
Asbestos claims $ (63) $ (78) $ (28)
Environmental claims (40) (44) (36)
Other run-off lines (13) (19) (41)
Total claims and claims expense (116) (141) (105)
Operating costs and expenses (4) (3) (3)
Underwriting loss $ (120) $ (144) $ (108)
Underwriting losses in 2021 and 2020 primarily related to our annual reserve
review using established industry and actuarial best practices. The annual
review resulted in unfavorable reserve reestimates totaling $111 million and
$132 million in 2021 and 2020, respectively. The reserve reestimates are
included as part of claims and claims expense.
Reserve reestimates in 2021 primarily related to new reported information for
asbestos and environmental and higher than expected reported losses for
environmental and other run-off exposures. Reserve reestimates in 2020 primarily
related to new reported information, court decisions and policy buyback
settlements for asbestos exposures and higher than expected reported losses for
environmental and other run-off exposures.
We believe that our reserves are appropriately established based on available
facts, technology, laws, regulations, and assessments of other pertinent factors
and characteristics of exposure (e.g., claim activity, potential liability,
jurisdiction, products versus non-products exposure) presented by individual
policyholders, assuming no change in the legal, legislative or economic
environment. However, as we progress with the resolution of disputed claims in
the courts and arbitrations and with negotiations and settlements, our reported
losses may be more variable.
Reserves for asbestos, environmental and other run-off claims before and after the effects of reinsurance
($ in millions) December 31, 2021 December 31, 2020
Asbestos claims
Gross reserves $ 1,210 $ 1,204
Reinsurance (382) (377)
Net reserves 828 827
Environmental claims
Gross reserves 273 249
Reinsurance (47) (43)
Net reserves 226 206
Other run-off claims
Gross reserves 433 435
Reinsurance (66) (60)
Net reserves 367 375
Total
Gross reserves 1,916 1,888
Reinsurance (495) (480)
Net reserves $ 1,421 $ 1,408
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Run-off Property-Liability 2021 Form 10-K
Reserves by type of exposure before and after the effects of reinsurance ($ in millions)
December 31, 2021 December 31, 2020
Direct excess commercial insurance
Gross reserves $ 1,050 $ 1,011 Reinsurance (363) (358) Net reserves 687 653
Assumed reinsurance coverage
Gross reserves 617 636 Reinsurance (56) (58) Net reserves 561 578
Direct primary commercial insurance
Gross reserves 168 160 Reinsurance (75) (63) Net reserves 93 97 Other run-off business Gross reserves 1 2 Reinsurance - - Net reserves 1 2
Unallocated loss adjustment expenses
Gross reserves 80 79
Reinsurance (1) (1)
Net reserves 79 78
Total
Gross reserves 1,916 1,888
Reinsurance (495) (480)
Net reserves $ 1,421 $ 1,408
Percentage of gross and ceded reserves by case and incurred but not reported ("IBNR")
December 31, 2021 December 31, 2020
Case IBNR Case IBNR
Direct excess commercial insurance
Gross reserves (1) 61 % 39 % 65 % 35 %
Ceded (2) 67 33 71 29
Assumed reinsurance coverage
Gross reserves 33 67 34 66
Ceded 38 62 35 65
Direct primary commercial insurance
Gross reserves 53 47 55 45
Ceded 71 29 79 21
(1)Approximately 70% of gross case reserves as of
(2)Approximately 77% of ceded case reserves as ofDecember 31, 2021 are subject to settlement agreements.The Allstate Corporation 49
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2021 Form 10-K Run-off Property-Liability
Gross payments from case reserves by type of exposure
For the years ended December 31,
($ in millions) 2021 2020
Direct excess commercial insurance
Gross (1) $ 91 $ 88
Ceded (2) (39) (37)
Assumed reinsurance coverage
Gross 43 40
Ceded (4) (7)
Direct primary commercial insurance
Gross 7 8
Ceded (2) (5)
Other run-off business
Gross 1 -
Ceded - -
(1) In 2021 70% of payments related to settlement agreements.
(2) In 2021 72% of payments related to settlement agreements.
Total net reserves as of
Total gross payments were$142 million and$137 million for 2021 and 2020, respectively, primarily related to settlement agreements reached with several insureds on large claims, mainly asbestos, where the scope of coverages has been agreed upon. The claims associated with these settlement agreements are expected to be substantially paid out
over the next several years as qualified claims are submitted by these insureds.
Reinsurance collections were
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Protection Services 2021 Form 10-K
Protection Services Segment
[[Image Removed: all-20211231_g28.jpg]]
Protection Services comprise Allstate Protection Plans, Allstate Dealer Services, Allstate Roadside, Arity and Allstate Identity Protection. Protection Services include National General's LeadCloud and Transparent.ly's results within Arity starting in the first quarter of 2021. These businesses provide marketing and integration platforms connecting data buyers and sellers. Results prior to 2021 reflect historical Arity results only. In 2021, Protection Services represented 77.7% of total PIF, 6.0% of premiums written and 4.4% of total adjusted net income. We offer consumer product protection plans, finance and insurance products (including vehicle service contracts, guaranteed asset protection waivers, road hazard tire and wheel and paintless dent repair protection), roadside assistance, device and mobile data collection services and analytic solutions using automotive telematics information and identity protection. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.
Summarized financial information
For the years ended December 31,
($ in millions) 2021 2020 2019
Premiums written $ 2,642 $ 1,890 $ 1,535
Revenues
Premiums $ 1,764 $ 1,493 $ 1,233
Other revenue 354 208 188
Intersegment insurance premiums and service fees (1) 175 147 154
Net investment income 43 44 42
Costs and expenses
Claims and claims expense (458) (386) (363)
Amortization of DAC (795) (658) (543)
Operating costs and expenses (837) (651) (661)
Restructuring and related charges (14) (3) -
Income tax expense on operations (52) (41) (12)
Less: noncontrolling interest 1 - -
Adjusted net income $ 179 $ 153 $ 38
Allstate Protection Plans $ 142 $ 137 $ 60
Allstate Dealer Services 34 29 26
Allstate Roadside 7 12 (15)
Arity 3 (11) (7)
Allstate Identity Protection (7) (14) (26)
Adjusted net income $ 179 $ 153 $ 38
Allstate Protection Plans 141,073 128,982 99,632
Allstate Dealer Services 3,956 4,042 4,205
Allstate Roadside 525 548 599
Allstate Identity Protection 2,802 2,700 1,511
Policies in force as of December 31 (in thousands) 148,356 136,272 105,947
(1)Primarily related to Arity and Allstate Roadside and are eliminated in our consolidated financial statements.
Adjusted net income increased 17.0% or$26 million in 2021 compared to 2020, primarily due to growth of Allstate Protection Plans, lower claims costs at Allstate Dealer Services, growth and lower levels of investment at both Arity and Allstate Identity Protection, partially offset by higher severity and rescue volumes in Allstate Roadside.
Premiums written increased 39.8% or
Allstate Protection Plans and increased sales at Allstate Dealer Services.
PIF increased 8.9% or 12 million in 2021 compared to 2020 due to continued growth at Allstate Protection Plans and Allstate Identity Protection.
Other revenue increased 70.2% or
The Allstate Corporation 51
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2021 Form 10-K Protection Services
Intersegment premiums and service fees increased 19.0% to$175 million in 2021 compared to 2020, primarily related to increased device sales through Arity driven by growth in the Allstate brand Milewise® product and growth in automotive rescue services provided by Allstate Roadside for Allstate brand auto customers. Claims and claims expense increased 18.7% or$72 million in 2021 compared to 2020, primarily due to higher levels of claims at Allstate Protection Plans driven by growth of the business and increased claims costs at Allstate Roadside due to higher severity and rescue volumes.
Amortization of DAC increased 20.8% or
Operating costs and expenses increased 28.6% or$186 million in 2021 compared to 2020, primarily due to higher operating costs at Arity driven by the addition of LeadCloud and Transparent.ly and growth experienced at Allstate Protection Plans.
Restructuring and related charges increased
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Claims and Claims Expense Reserves 2021 Form 10-K
Claims and Claims Expense Reserves
Underwriting results are significantly influenced by estimates of claims and
claims expense reserves. For a description of our reserve process, see Note 9 of
the consolidated financial statements. Further, for a description of our
reserving policies and the potential variability in our reserve estimates, see
the Application of Critical Accounting Estimates section of the MD&A. These
reserves are an estimate of amounts necessary to settle all outstanding claims,
including IBNR claims, as of the reporting date.
The facts and circumstances leading to reestimates of reserves relate to changes
in claim activity and revisions to the development factors used to predict how
losses are likely to develop from the end of a reporting period until all claims
have been paid. Reestimates occur when actual losses differ from those predicted
by the estimated development factors used in prior reserve estimates.
We believe the net loss reserves exposures are appropriately established based
on available facts, technology, laws and regulations.
Total reserves, net of recoverables ("net reserves"), as of December 31 , by line of business
($ in millions) 2021 2020 2019
Allstate Protection $ 22,124 $ 19,136 $ 19,396
Run-off Property-Liability 1,421 1,408 1,365
Total Property-Liability 23,545 20,544 20,761
Protection Services 36 33 39
Total net reserves $ 23,581 $ 20,577 $ 20,800
The year-end 2021 gross reserves of $33.06 billion for insurance claims and
claims expense were $11.15 billion more than the net reserve balance of $21.91
billion recorded on the basis of statutory accounting practices for reports
provided to state regulatory authorities. The principal differences are
recoverables from third parties totaling $9.48 billion , including $6.64 billion
of indemnification recoverables related to the Michigan Catastrophic Claims
Association ("MCCA"), that reduce reserves for statutory reporting, but are
recorded as assets for GAAP reporting, and a liability for the reserves of the
Canadian subsidiaries for $1.55 billion that are a component of our consolidated
reserves, but not included in our U.S. statutory reserves.
Impact of reserve reestimates by brand on combined ratio and net income applicable to common shareholders(1) (2)
2021 2020 2019
Reserve Reserve Reserve
($ in millions, except ratios) reestimate Effect on combined ratio reestimate Effect on combined ratio reestimate Effect on combined ratio
Allstate Protection $ 8 - $ (576) (1.6) $ (233) (0.7)
Run-off Property-Liability 116 0.3 141 0.4 105 0.3
Total Property-Liability 124 0.3 (435) (1.2) (128) (0.4)
Protection Services (2) - (1) - (2) -
Total $ 122 $ (436) $ (130)
Reserve reestimates, after-tax $ 96 $ (344) $ (103)
Consolidated net income applicable
to common shareholders $ 1,485 $ 5,461 $ 4,678
Reserve reestimates as a % impact on
consolidated net income applicable
to common shareholders (6.5) % 6.3 % 2.2 %
Property-Liability prior year
reserve reestimates included in
catastrophe losses $ (202) $ (503) $ 48 (1)Favorable reserve reestimates are shown in parentheses.
(2)Ratios are calculated using property and casualty premiums earned.
The Allstate Corporation 53
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2021 Form 10-K Claims and Claims Expense Reserves
The following tables reflect the accident years to which the reestimates shown above are applicable. Favorable reserve reestimates are shown in parentheses.
Prior year reserve reestimates ($ in millions) 2021 2016 & prior 2017 2018 2019 2020 Total Allstate Protection$ (130)
116 - - - - 116
Total Property-Liability (14) 100 (67) 231 (126) 124
Protection Services - - - - (2) (2)
Total $ (14) $ 100 $ (67) $ 231 $ (128) $ 122
2020 2015 & prior 2016 2017 2018 2019 Total
Allstate Protection $ (56)
141 - - - - 141
Total Property-Liability 85 42 (199) (353) (10) (435)
Protection Services - - - - (1) (1)
Total $ 85 $ 42 $ (199) $ (353) $ (11) $ (436)
2019 2014 &prior 2015 2016 2017 2018 Total Allstate Protection
$ (140)
105 - - - - 105
Total Property-Liability (35) (44) (28) (95) 74 (128)
Protection Services - - - - (2) (2)
Total $ (35) $ (44) $ (28) $ (95) $ 72 $ (130)
Allstate Protection
The tables below show Allstate Protection net reserves representing the estimated cost of outstanding claims as they were recorded at the beginning of years 2021, 2020, and 2019, and the effect of reestimates in each year.
Net reserves by line
January 1 reserves
($ in millions) 2021 2020 2019
Auto $ 14,164 $ 14,728 $ 14,378
Homeowners 2,315 2,138 2,157
Other personal lines 1,463 1,459 1,489
Commercial lines 1,194 1,071 801
Total Allstate Protection $ 19,136 $ 19,396 $ 18,825
Impact of reserve reestimates by line on combined ratio and underwriting income
2021 2020 2019
($ in millions, except Reserve Reserve Reserve
ratios) reestimates Effect on combined ratio reestimates Effect on combined ratio reestimates Effect on combined ratio
Auto $ 149 0.4 $ (107) (0.3) $ (323) (0.9)
Homeowners (153) (0.4) (439) (1.2) 65 0.2
Other personal lines (107) (0.3) (66) (0.2) 8 -
Commercial lines 119 0.3 36 0.1 17 -
Total Allstate Protection $ 8 - $ (576) (1.6) $ (233) (0.7)
Underwriting income $ 1,785 $ 4,569 $ 2,921
Reserve reestimates as a %
impact on underwriting income (0.4) % 12.6 % 8.0 %
Favorable results for homeowners lines in 2021 were primarily due to catastrophe reserve reestimates driven by estimated recoveries related to our aggregate reinsurance coverage and wildfire subrogation settlements. Unfavorable reserve reestimates for auto and commercial lines in 2021 primarily related to auto liability coverages.
Favorable results for homeowners lines in 2020 were primarily due to catastrophe reserve reestimates
driven by wildfire subrogation settlements. Favorable reserve reestimates for auto in 2020 primarily related to favorable non-catastrophe reserve reestimates in personal lines auto, partially offset by strengthening in commercial lines auto reserves.
Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables.
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Claims and Claims Expense Reserves 2021 Form 10-K
Run-off Property-Liability
We conduct an annual review in the third quarter of each year to evaluate and
establish asbestos, environmental and other run-off reserves. Reserves are
recorded in the reporting period in which they are determined. Using established
industry and actuarial best practices and assuming no change in the regulatory
or economic environment, this detailed and comprehensive methodology determines
reserves based on assessments of the characteristics of exposure (e.g. claim
activity, potential liability, jurisdiction, products versus non-products
exposure) presented by policyholders.
Run-off Property-Liability reserve reestimates
2021 2020 2019
January 1 Reserve January 1 Reserve January 1 Reserve
($ in millions) reserves reestimates reserves reestimates reserves reestimates
Asbestos claims $ 827 $ 63 $ 810 $ 78 $ 866 $ 28
Environmental claims 206 40 179 44 170 36
Other run-off lines 375 13 376 19 355 41
Total $ 1,408 $ 116 $ 1,365 $ 141 $ 1,391 $ 105
Underwriting loss $ (120) $ (144) $ (108)
Reserve reestimates in 2021 primarily related to new reported information for asbestos and environmental and higher than expected reported losses for environmental and other run-off exposures.
Reserve reestimates in 2020 primarily related to new reported information, court decisions and policy buyback settlements for asbestos exposures and higher than expected reported losses for environmental and other run-off exposures.
Reserves and claim activity before (Gross) and after (Net) the effects of reinsurance
2021 2020 2019
($ in millions, except ratios) Gross Net Gross Net Gross Net
Asbestos claims
Beginning reserves $ 1,204 $ 827
100 63 132 78 39 28
Claims and claims expense paid (94) (62) (100) (61) (133) (84)
Ending reserves $ 1,210 $ 828 $ 1,204 $ 827 $ 1,172 $ 810
Annual survival ratio 12.9 13.4 12.0 13.6 8.8 9.6
3-year survival ratio 11.1 12.0 10.3 12.0 9.0 10.3
Environmental claims
Beginning reserves $ 249 $ 206
50 40 49 44 42 36
Claims and claims expense paid (26) (20) (19) (17) (32) (27)
Ending reserves $ 273 $ 226 $ 249 $ 206 $ 219 $ 179
Annual survival ratio 10.5 11.3 13.1 12.1 6.8 6.6
3-year survival ratio 10.6 10.6 10.5 10.3 8.1 8.1
Combined environmental and asbestos
claims
Annual survival ratio 12.4 12.9 12.2 13.2 8.4 8.9
3-year survival ratio 11.0 11.7 10.3 11.6 8.8 9.9
Percentage of IBNR in ending
reserves 54.8 % 0 50.3 % 0 48.8 %
The survival ratio is calculated by taking our ending reserves divided by
payments made during the year. This is a commonly used but simplistic and
imprecise approach to measuring the adequacy of asbestos and environmental
reserve levels. Many factors, such as mix of business, level of coverage
provided and settlement procedures have significant impacts on the amount of
environmental and asbestos claims and claims expense reserves, claim payments
and the resultant ratio. As payments result in corresponding reserve reductions,
survival ratios can be expected to vary over time. The asbestos and
environmental net 3-year survival ratio in 2021 was comparable to 2020.
The Allstate Corporation 55
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2021 Form 10-K Claims and Claims Expense Reserves
Net asbestos reserves by type of exposure and total reserve additions
December 31, 2021 December 31, 2020 December 31, 2019
($ in millions) Net reserves % of reserves Net reserves % of reserves Net reserves % of reserves
Direct:
Primary $ 8 1 % $ 10 1 % $ 12 1 %
Excess 275 33 291 35 292 36
Total direct 283 34 301 36 304 37
Assumed reinsurance 104 13 122 15 127 16
IBNR 441 53 404 49 379 47
Total net reserves $ 828 100 % $ 827 100 % $ 810 100 %
Total reserve additions $ 63 $ 78 $ 28
IBNR net reserves increased $37 million as of December 31, 2021 compared to
December 31, 2020 . IBNR provides for reserve development of known claims and
future reporting of additional unknown claims from current policyholders and
ceding companies.
Reinsurance and indemnification programs We utilize reinsurance to reduce
exposure to catastrophe risk and manage capital, and to support the required
statutory surplus and the insurance financial strength ratings of certain
subsidiaries such as Castle Key Insurance Company ("CKIC") and Allstate New
Jersey Insurance Company ("ANJ"). We purchase significant reinsurance to manage
our aggregate countrywide exposure to an acceptable level. The price and terms
of reinsurance and the credit quality of the reinsurer are considered in the
purchase process. We have also purchased reinsurance to mitigate exposures in
our long-tail liability lines, including environmental, asbestos and other
run-off lines as well as our commercial lines, including shared economy. We also
participate in various indemnification mechanisms, including state-based
industry pool or facility programs mandating participation by insurers offering
certain coverage in their state and the federal government National Flood
Insurance Program ("NFIP"). See Note 11 of the consolidated financial statements
for additional details on these programs.
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Claims and Claims Expense Reserves 2021 Form 10-K
Reinsurance and indemnification recoverables, net of the allowance established for uncollectible amounts
Reinsurance or indemnification
recoverable on paid and unpaid
S&P financial claims, net
($ in millions) strength rating (1) 2021 2020
Indemnification programs
State-based industry pool or facility programs
MCCA (2) N/A $ 6,695 $ 5,646
N/A 371 389
North Carolina Reinsurance Facility ("NCRF") N/A 279 67
Florida Hurricane Catastrophe Fund ("FHCF") N/A 25 32
Other 7 8
Federal Government - NFIP N/A 34 30
Subtotal 7,411 6,172
Catastrophe reinsurance recoverables
Sanders RE II LTD. N/A 303 -
Renaissance Reinsurance Limited A+ 106 17
Swiss Reinsurance America Corporation AA- 88 12
Other 873 168
Subtotal 1,370 197
Other reinsurance recoverables, net (3)
Aleka Insurance Inc. N/A 187 165
Lloyd's of London ("Lloyd's") (4) N/A 165 166
Swiss Reinsurance America Corporation AA- 75 20
Westport Insurance Corporation (4) N/A 70 59
Other, including allowance for credit losses 576 337
Subtotal 1,073 747
Total Property-Liability 9,854 7,116
Protection Services 16 18
Total $ 9,870 $ 7,134 (1)N/A reflects no
(2)As ofDecember 31, 2021 and 2020, MCCA includes$51 million and$34 million of reinsurance recoverable on paid claims, respectively, and$6.64 billion and$5.61 billion of reinsurance recoverable on unpaid claims, respectively.
(3)Other reinsurance recoverables primarily relate to commercial lines, including shared economy, as well as asbestos, environmental and other liability exposures.
(4)
Reinsurance and indemnification recoverables include an estimate of the amount of insurance claims and claims expense reserves that are ceded under the terms of the agreements, including IBNR unpaid losses. We calculate our ceded reinsurance and indemnification estimates based on the terms of each applicable agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We also consider other limitations and coverage exclusions under our agreements. Accordingly, our estimate of recoverables is subject to similar risks and uncertainties as our estimate of reserves claims and claims expense. We believe the recoverables are appropriately established; however, as our underlying reserves continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We regularly evaluate the reinsurers and the respective amounts of our reinsurance recoverables, and a provision for uncollectible reinsurance recoverables is recorded, if needed. The establishment of reinsurance recoverables and the related allowance for
uncollectible reinsurance is also an inherently uncertain process involving estimates. Changes in estimates could result in additional changes to the Consolidated Statements of Operations.
Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation and the Company has not had any credit losses related to these programs and we do not anticipate losses in the foreseeable future. We also have not experienced credit losses on our catastrophe reinsurance programs, which include highly rated reinsurers.
The allowance for uncollectible reinsurance relates to other reinsurance
programs primarily related to our Run-off Property-Liability segment. This
allowance was
The allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, and other
The Allstate Corporation 57
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2021 Form 10-K Claims and Claims Expense Reserves
relevant factors. In addition, in the ordinary course of business, we may become involved in coverage disputes with certain of our reinsurers that may ultimately result in lawsuits and arbitrations brought by or against such reinsurers to determine the parties' rights and obligations under the various reinsurance agreements. We employ dedicated specialists to manage reinsurance collections and disputes. We also consider recent developments in commutation activity between reinsurers and cedents, and recent trends in arbitration and litigation outcomes in disputes between cedents and reinsurers in seeking to maximize our reinsurance recoveries.
Adverse developments in the insurance industry have led to a decline in the financial strength of some of our reinsurance carriers, causing amounts
recoverable from them and future claims ceded to them to be considered a higher risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry to be concentrated among fewer companies.
See Note 2 of the consolidated financial statements for a description of the methodology utilized to calculate the allowance for reinsurance recoverables.
For further details related to our reinsurance and indemnification recoverables, see the Regulation section in Part I and Note 11 of the consolidated financial statements.
Effects of reinsurance ceded and indemnification programs on our premiums earned and claims and claims expense
For the years ended December 31,
($ in millions) 2021 2020 2019
Allstate Protection - Premiums
Indemnification programs
State-based industry pool or facility programs
NCRF $ 310 $ 63 $ 67
MCCA 20 61 89
PLIGA 7 7 8
FHCF 15 9 9
Other 420 34 18
Federal Government - NFIP 350 261 258
Catastrophe reinsurance 541 416 377
Other reinsurance programs 60 110 121
Total Allstate Protection 1,723 961 947
Run-off Property-Liability - - -
Total Property-Liability 1,723 961 947
Protection Services 181 180 175
Total effect on premiums earned $ 1,904 Allstate Protection - Claims Indemnification programs State-based industry pool or facility programs MCCA$ 611 $ 256 $ 208 NCRF 279 47 55 PLIGA - (40) 3 FHCF 13 15 31 Other 359 16 12 Federal Government - NFIP 267 87 150 Catastrophe reinsurance 1,719 (105) (1) (166) (2) Other reinsurance programs 85 88 94 Total Allstate Protection 3,333 364 387 Run-off Property-Liability 60 75 39 Total Property-Liability 3,393 439 426 Protection Services 91 91 98 Total effect on claims and claims expense$ 3,484
(1)Decline reflects reestimates in claims and claims expense related subrogation settlements.
(2)Decline reflects reestimates in claims and claims expense related to the 2018
In 2021, ceded premiums earned increased primarily due to the addition of National General into our program and increased catastrophe reinsurance premium rates. In 2020, ceded premiums earned increased primarily due to increased catastrophe reinsurance premium rates. In 2021, ceded claims and
claims expenses increased
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Claims and Claims Expense Reserves 2021 Form 10-K
For the years ended
2021 2020 2019
($ in millions) Gross Net Gross Net Gross Net
Beginning reserves $ 6,282 $ 670 $ 6,106 $ 647 $ 5,975 $ 605
National General acquisition as of
January 4, 2021 566 31 - - - -
Incurred claims and claims
expense-current year 398 132 312 98 446 202
Incurred claims and claims expense-prior
years 403 59 107 65 (16) 20
Claims and claims expense paid-current
year (1) (35) (35) (47) (42) (55) (53)
Claims and claims expense paid-prior
years (1) (227) (110) (196) (98) (244) (127)
Ending reserves (2) $ 7,387 $ 747 $ 6,282 $ 670 $ 6,106 $ 647
(1)Paid claims and claims expenses reported in the table for the current and
prior years, recovered from the MCCA totaled $117 million , $103 million and $119
million in 2021, 2020 and 2019, respectively.
(2)Gross reserves for the year ended
Pending MCCA claims differ from most personal lines insurance pending claims as other personal lines policies have coverage limits and incurred claims settle in shorter periods. Claims are considered pending as long as payments are continuing pursuant to an outstanding MCCA claim, which can be for a claimant's lifetime. Many of these injuries are catastrophic in nature, resulting in serious permanent disabilities that require attendant and residential care for periods that may span decades. A significant portion of the ultimate incurred claim reserves and the recoverables can be attributed to a small number of catastrophic claims that occurred more than five years ago and continue to pay lifetime benefits.
Pending, new and closed claims for
For the years ended December 31,
Number of claims (1) 2021 2020 2019
Pending, beginning of year 4,857 4,942 4,812
National General acquisition as of January 4, 2021 525 - -
New 8,616 5,896 7,807
Closed (8,577) (5,981) (7,677)
Pending, end of year 5,421 4,857 4,942
(1)Total claims includes those covered and not covered by the MCCA indemnification.
As ofDecember 31, 2021 , approximately 1,570 of our pending claims have been reported to the MCCA, of which approximately 70% represents claims that occurred more than 5 years ago. There are 59 Allstate brand claims with reserves in excess of$15 million as ofDecember 31, 2021 , which comprise approximately 21% of the gross ending reserves in the table above. As a result, significant developments with a single claimant can result in volatility in prior year incurred claims. Intercompany reinsurance We enter into certain intercompany insurance and reinsurance transactions in order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions have been eliminated in consolidation. Catastrophe reinsurance Our catastrophe reinsurance program is designed to address our exposure to catastrophes nationwide, utilizing our risk management methodology. Our program is designed to provide reinsurance protection for catastrophes resulting from multiple perils including hurricanes, windstorms, hail, tornadoes, earthquakes, wildfires, and fires following earthquakes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our shareholders an acceptable return on the risks assumed in our property business, while providing protection to our customers.
We anticipate completing the placement of our 2022 nationwide catastrophe reinsurance program in the second quarter of 2022. For further details of the existing 2021 program, see Note 11 of the consolidated financial statements.
The Allstate Corporation 59
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2021 Form 10-
Allstate Health and Benefits offers employer voluntary benefits, group health and individual health products, including life, accident, critical illness, hospital, short-term disability and other health products.Allstate Health and Benefits results include National General's accident and health business, starting in the first quarter of 2021. Results prior to 2021 reflect historical Allstate Benefits results only. In 2021,Allstate Health and Benefits represented 2.3% of total PIF and 5.2% of total adjusted net income. Our target customers are middle market consumers with family and financial protection needs. For additional information on our strategy and outlook, see Part I, Item 1. Business - Strategy and Segment Information.
Summarized financial information
For the years ended December 31,
($ in millions) 2021 2020 2019
Revenues
Accident and health insurance premiums and contract charges$ 1,821 $ 1,094 $ 1,145 Other revenue 359 - - Net investment income 74 78 83 Costs and expenses Accident and health insurance policy benefits (1,015) (516) (601) Interest credited to contractholder funds (34) (33) (34) Amortization of DAC (144) (177) (161) Operating costs and expenses (787) (322) (285) Restructuring and related charges (9) (1) - Income tax expense on operations (57) (27) (32) Adjusted net income$ 208 $ 96 $ 115 Benefit ratio (1) 55.7 47.2 52.5 Employer voluntary benefits (2) 3,804 3,950 4,183 Group health (3) 122 - - Individual health (4) 407 - - Policies in force as of December 31 (in thousands) 4,333 3,950 4,183
(1)Benefit ratio is calculated as accident and health insurance policy benefits divided by premiums and contract charges.
(2)Employer voluntary benefits include supplemental life and health products offered through workplace enrollment.
(3)Group health includes health products and administrative services sold to employers.
(4)Individual health includes short-term medical and other health products sold directly to individuals.
Adjusted net income increased$112 million in 2021 compared to 2020, primarily due to the acquisition of National General's group health and individual health business, which resulted in higher premiums and contract charges, partially offset by higher policy benefits and operating costs and expenses. Results for 2020 included an after-tax charge of$32 million related to the write-off of previously capitalized software. Premiums and contract charges increased 66.5% or$727 million in 2021 compared to 2020, primarily due to the addition of group health and individual health business.
Premiums and contract charges by line of business
For the years ended
($ in millions) 2021 2020 2019
Employer voluntary benefits $ 1,031 $ 1,094 $ 1,145
Group health 350 - -
Individual health 440 - -
Premiums and contract charges $ 1,821 $ 1,094 $ 1,145
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Allstate Health and Benefits 2021 Form
10-K
New annualized premium sales (annualized premiums at initial customer
enrollment) increased to
Other revenue of
Accident and health insurance policy benefits increased 96.7% or$499 million in 2021 compared to 2020, primarily due to the addition of the group health and individual health products and increased benefit utilization compared to the prior year.
Benefit ratio increased to 55.7 in 2021 compared to 47.2 in 2020 primarily due to a higher benefit ratio associated with group and individual health products
added in 2021 and a higher benefit ratio for employer voluntary benefit products due to higher life mortality and lower accident and health claim experience in the prior year. Amortization of DAC decreased 18.6% or$33 million in 2021 compared to 2020, primarily due to unfavorable adjustments associated with our annual review of assumptions in 2020 compared to favorable adjustments in 2021, and lower policy and certificate lapses for employer voluntary benefits. Our annual comprehensive review of assumptions underlying estimated future gross profits for our interest-sensitive life contracts resulted in a deceleration of DAC amortization (increase to income) of$2 million of the unamortized DAC asset balance in 2021 compared to$28 million acceleration of DAC amortization (decrease to income) in 2020. Changes in DAC For the years ended ($ in millions) 2021 2020 Balance, beginning of year$ 470 $ 527 National General acquisition 3 - Acquisition costs deferred 146 120
Amortization of DAC before amortization relating to changes in assumptions (1)
(146) (148)
Amortization relating to net gains and losses on investments and derivatives (1)
- (1)
Amortization acceleration for DAC unlocking (1) 2 (28)
Effect of unrealized capital gains and losses (2) 2 -
Ending balance $
477
(1)Included as a component of amortization of DAC on the Consolidated Statements of Operations.
(2)Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized.
Operating costs and expenses
For the years ended December 31,
($ in millions) 2021 2020 2019
Non-deferrable commissions $ 316 $ 99 $ 104
General and administrative expenses 471 223 181
Total operating costs and expenses $ 787 Operating costs and expenses increased$465 million in 2021 compared to 2020, primarily due to the addition of the group health and individual health business in 2021. Results for 2020 included a write-off of capitalized software costs associated with a billing system.
Analysis of reserves
Reserve for future policy benefits
As of December 31,
($ in millions) 2021 2020
Traditional life insurance and other $ 313 $ 299
Accident and health insurance 960 729
Reserve for future policy benefits $ 1,273 $ 1,028
The Allstate Corporation 61
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2021 Form 10-
The vast majority of reinsurance relates to the disposition of long-term care and other closed blocks of business. We retain primary liability as a direct insurer for all risks ceded to reinsurers.
Reinsurance recoverables by reinsurer, net
S&P financial Reinsurance recoverable on paid and unpaid
strength rating benefits
As of December 31,
($ in millions) 2021 2020
Mutual of Omaha Insurance A+ $ 55 $ 60
Everlake Life Insurance Company (1) NR 39 -
Argo Capital Group Ltd. NR 19 -
General Re Life Corporation AA+ 16 17
Midlands Casualty Insurance Company NR 16 -
Other (2) 17 5
Credit loss allowance (8) (1)
Total $ 154 $ 81
(1)A.M. Best rating is A+.
(2)As of
We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis. No reinsurance recoverables have been written off in the three-years endedDecember 31, 2021 . 62 www.allstate.com
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Investments 2021 Form 10-K
Investments
Overview and strategy
The return on our investment portfolios is an important component of our ability
to offer good value to customers, fund business improvements and create value
for shareholders. Investment portfolios are held for Property-Liability,
Protection Services, Allstate Health and Benefits and Corporate and Other
operations. While taking into consideration the investment portfolio in
aggregate, management of the underlying portfolios is significantly influenced
by the nature of each respective business and its corresponding liability
profile. For each business, we identify a strategic asset allocation which
considers both the nature of the liabilities and the risk and return
characteristics of the various asset classes in which we invest. This allocation
is informed by our long-term business and market expectations, as well as other
considerations such as risk appetite, portfolio diversification, duration,
desired liquidity and capital. Within appropriate ranges relative to strategic
allocations, tactical allocations are made in consideration of prevailing and
potential future market conditions. We manage risks that involve uncertainty
related to interest rates, credit spreads, equity returns and currency exchange
rates.
The Property-Liability portfolio emphasizes protection of principal and
consistent income generation, within a total return framework. This approach has
produced competitive returns over the long term and is designed to ensure
financial strength and stability for paying claims, while maximizing economic
value and surplus growth. Products with lower liquidity needs, such as auto
insurance and run-off lines, and capital create capacity to invest in less
liquid higher yielding fixed income securities, performance-based investments
such as limited partnerships and equity securities. Products with higher
liquidity needs, such as homeowners insurance, are invested primarily in high
quality liquid fixed income securities.
The Protection Services portfolio is focused on protection of principal and
consistent income generation, within a total return framework. The portfolio is
largely comprised of fixed income securities with a lesser allocation to equity
securities and short-term investments.
The Corporate and Other portfolio balances liquidity needs related to the corporate capital structure with the pursuit of returns.
We utilize two primary strategies to manage risks and returns and to position
our portfolio to take advantage of market opportunities while attempting to
mitigate adverse effects. As strategies and market conditions evolve, the asset
allocation may change.
Market-based strategy seeks to deliver predictable earnings aligned to business
needs and take advantage of short-term opportunities primarily through public
and private fixed income investments and public equity securities.
Performance-based strategy seeks to deliver attractive risk-adjusted returns and
supplement market risk with idiosyncratic risk. Returns are impacted by a
variety of factors including general macroeconomic and public market conditions
as public benchmarks are often used in the valuation of underlying investments.
Variability in earnings will also result from the performance of the underlying
assets or business and the timing of sales of those investments. Earnings from
the sales of investments may be recorded as net investment income or net gains
and losses on investments and derivatives. The portfolio, which primarily
includes private equity and real estate with a majority being limited
partnerships, is diversified across a number of characteristics, including
managers or partners, vintage years, strategies, geographies (including
international) and industry sectors or property types. These investments are
generally illiquid in nature, often require specialized expertise, typically
involve a third-party manager, and often enhance returns and income through
transformation at the company or property level. A portion of these investments
seek returns in markets or asset classes that are dislocated or special
situations, primarily in private markets.
The Allstate Corporation 63
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2021 Form 10-K Investments
Coronavirus impacts
Future investment results will be influenced by the magnitude and duration of the global pandemic and the impact of actions taken by governmental authorities, businesses and consumers, including the availability, utilization rate and effectiveness of vaccines, to mitigate health risks, which creates significant uncertainty. Supply chain disruptions and labor shortages have increased inflation, which may have an adverse impact on investment valuations and returns.
Investments Outlook
We plan to focus on the following priorities:
•Enhance investment portfolio returns through use of a dynamic capital allocation framework and focus on tax efficiency.
•Leverage our broad capabilities to manage the portfolio to earn higher risk-adjusted returns on capital.
•Invest for the specific needs and characteristics of Allstate's businesses, including its corresponding liability profile.
We expect to maintain performance-based investments in our Property-Liability
portfolio, consistent with our strategy to have a greater proportion of return
derived from idiosyncratic asset or operating performance. Income related to
performance-based investments will result in variability of earnings for the
Property-Liability portfolio.
To reduce exposure to an increasing interest rate environment, we shortened the
duration of the Property-Liability fixed income portfolio by selling longer
duration corporate and municipal bonds and reinvesting in shorter duration fixed
income and public equity securities, as well as through the use of derivatives.
These actions to shorten duration, coupled with continued reinvestment at market
yields below the current market-based portfolio yield, will result in lower net
investment income in future periods, but will reduce the adverse portfolio
valuation impact of rising interest rates.
Contractual maturities and yields of fixed income securities for the next three years
Fixed income securities
($ in millions) Carrying value Investment yield
2022 $ 1,111 2.1 %
2023 6,114 1.3
2024 4,702 2.1
Portfolio composition and strategy by reporting segment (1)
As of
Protection
Property-Liability Services and Benefits and Other Total
Fixed income securities (2) $ 36,397 $ 1,559 $ 1,825 $ 2,355 $ 42,136
Equity securities (3) 6,185 180 74 622 7,061
Mortgage loans, net 728 - 93 - 821
Limited partnership interests 8,018 - - - 8,018
Short-term investments (4) 3,424 151 51 383 4,009
Other investments, net 2,506 - 148 2 2,656
Total $ 57,258 $ 1,890 $ 2,191 $ 3,362 $ 64,701
Percent to total 88.5 % 2.9 % 3.4 % 5.2 % 100.0 %
Market-based $ 48,642 $ 1,890 $ 2,191 $ 3,360 $ 56,083
Performance-based 8,616 - - 2 8,618
Total $ 57,258 $ 1,890 $ 2,191 $ 3,362 $ 64,701 (1)Balances reflect the elimination of related party investments between segments.
(2)Fixed income securities are carried at fair value. Amortized cost, net for these securities was$35.74 billion ,$1.54 billion ,$1.76 billion ,$2.34 billion and$41.38 billion for Property-Liability, Protection Services,Allstate Health and Benefits, Corporate and Other, and in total, respectively. (3)Equity securities are carried at fair value. The fair value of equity securities, held as ofDecember 31, 2021 , was$1.05 billion in excess of cost. These net gains were primarily concentrated in the technology, consumer goods, and banking sectors. Equity securities include$1.13 billion of funds with underlying investments in fixed income securities as ofDecember 31, 2021 .
(4)Short-term investments are carried at fair value.
Investments totaled$64.70 billion as ofDecember 31, 2021 , increasing from$59.54 billion as ofDecember 31, 2020 , primarily due to positive operating cash flows, proceeds from the sales of ALIC, ALNY and certain affiliates and National General acquisition, partially
offset by lower fixed income valuations, common share repurchases and dividends paid to shareholders.
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Investments 2021 Form 10-K
Portfolio composition by investment strategy
As of December 31, 2021
Market-
($ in millions) based Performance-based TotalFixed income securities$ 42,049 $ 87$ 42,136 Equity securities 6,689 372 7,061 Mortgage loans, net 821 - 821 Limited partnership interests 759 7,259 8,018 Short-term investments 4,009 - 4,009 Other investments, net 1,756 900 2,656 Total$ 56,083 $ 8,618$ 64,701 Percent to total 86.7 % 13.3 % 100.0 % Unrealized net capital gains and losses Fixed income securities$ 759 $ 1$ 760 Limited partnership interests - (1) (1) Other investments (3) - (3) Total$ 756 $ -$ 756 During 2021, strategic actions focused on optimizing portfolio yield, return and risk in the more volatile and rising interest rate environment. We continued to increase performance-based investments in the Property-Liability portfolio including the addition of retained private equity and real estate investments from the sale of ALIC, ALNY and certain affiliates. We shortened the maturity profile of fixed income securities in our Property-Liability portfolio to 4.3 years to reduce exposure to an increasing interest rate environment.
Fixed income securities
Fixed income securities by type
Fair value as of December 31,
($ in millions) 2021 2020
U.S. government and agencies $ 6,273 $ 2,107
Municipal 6,393 7,578
Corporate 27,330 31,017
Foreign government 985 958
Asset-backed securities ("ABS") 1,155 905
Total fixed income securities $ 42,136 $ 42,565
Fixed income securities are rated by third-party credit rating agencies or are
internally rated. As of December 31, 2021 , 82.2% of the consolidated fixed
income securities portfolio was rated investment grade, which 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, a comparable rating from another nationally recognized rating
agency, or a comparable internal rating if an externally provided rating is not
available. Credit ratings below these designations are considered lower credit
quality or below investment grade, which includes high yield bonds. Market
prices for certain securities may have credit spreads which imply higher or
lower credit quality than the current third-party rating. Our initial investment
decisions and ongoing
monitoring procedures for fixed income securities are based on a due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure and liquidity risks of each issuer.
Fixed income portfolio monitoring is a comprehensive process to identify and
evaluate each fixed income security that may require a credit loss allowance.
The process includes a quarterly review of all securities to identify instances
where the fair value of a security compared to its amortized cost is below
internally established thresholds. For further detail on our fixed income
portfolio monitoring process, see Note 5 of the consolidated financial
statements.
The Allstate Corporation 65
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2021 Form 10-K Investments
Fair value and unrealized net capital gains (losses) for fixed income securities by credit rating
December 31, 2021
A and above BBB BB
Fair Unrealized gain Fair Unrealized gain Fair Unrealized gain
($ in millions) value (loss) value (loss) value (loss)
U.S. government and
agencies $ 6,273 $ (14) $ - $ - $ - $ -
Municipal 6,124 257 254 5 - -
Corporate
Public 4,179 63 10,477 258 1,649 72
Privately placed 1,624 10 3,631 42 2,777 42
Total corporate 5,803 73 14,108 300 4,426 114
Foreign government 984 3 1 - - -
ABS 1,088 3 11 - 9 -
Total fixed income
securities $ 20,272 $ 322 $ 14,374 $ 305 $ 4,435 $ 114
B CCC and lower Total
Fair Unrealized gain Fair Unrealized gain Fair Unrealized gain
value (loss) value (loss) value (loss)
U.S. government and
agencies $ - $ - $ - $ - $ 6,273 $ (14)
Municipal 10 - 5 1 6,393 263
Corporate
Public 273 3 11 (6) 16,589 390
Privately placed 2,394 17 315 (5) 10,741 106
Total corporate 2,667 20 326 (11) 27,330 496
Foreign government - - - - 985 3
ABS 1 - 46 9 1,155 12
Total fixed income
securities $ 2,678 $ 20 $ 377 $ (1) $ 42,136 $ 760
Municipal bonds, including tax exempt and taxable securities, include general obligations of state and local issuers and revenue bonds.
Our practice for acquiring and monitoring municipal bonds is predominantly based on the underlying credit quality of the primary obligor. We currently rely on the primary obligor to pay all contractual cash flows and are not relying on bond insurers for payments. As a result of downgrades in the insurers' credit ratings, the ratings of the insured municipal bonds generally reflect the underlying ratings of the primary obligor.
Corporate bonds include publicly traded and privately placed securities. Privately placed securities primarily consist of corporate issued senior debt securities that are negotiated with the borrower or are issued by public entities in unregistered form.
Our$10.7 billion portfolio of privately placed securities is diversified by issuer, industry sector and country. The portfolio is made up of 553 issuers. Privately placed corporate obligations may contain structural security features such as financial covenants and call protections that provide investors greater protection against credit deterioration, reinvestment risk or fluctuations in interest rates than those typically found in publicly registered debt securities. Additionally, investments in these securities are made after fundamental analysis of issuers and sectors along with macro and asset class views. Ongoing monitoring includes continuous assessment of operating performance and financial position. Every issue not rated by an independent rating agency is internally rated with a formal rating affirmation at least once a
year. Liquidity of securities issued by public entities in unregistered form is similar to public debt markets.
Our corporate bonds portfolio includes$7.42 billion of below investment grade bonds,$5.49 billion of which are privately placed. These securities are diversified by issuer and industry sector. The below investment grade corporate bonds portfolio is made up of 416 issuers. We employ fundamental analyses of issuers and sectors along with macro and asset class views to identify investment opportunities. This results in a portfolio with broad exposure to the high yield market with an emphasis on idiosyncratic positions reflective of our views of market conditions and opportunities.
Foreign government securities consist of Canadian governmental and provincial securities (all of which are held by our Canadian companies).
ABS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a "class", qualifies for a specific original rating. ABS includes collateralized debt obligations, consumer and other ABS. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees or insurance. ABS also includes
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Investments 2021 Form 10-K
residential mortgage-backed securities and commercial mortgage-backed securities.
For example, the "senior" portion or "top" of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral may contain fixed interest rates, variable interest rates (such as adjustable rate mortgages), or both fixed and variable rate features. Equity securities of$7.06 billion primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust ("REIT") equity investments. Certain exchange traded and mutual funds have fixed income securities as their underlying investments. Mortgage loans of$821 million mainly comprise loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification. For further detail on our mortgage loan portfolio, see Note 5 of the consolidated financial statements.
Limited partnership interests include
have commitments to invest additional amounts in limited partnership interests
totaling
Private equity limited partnerships by sector (% of carrying value)December 31, 2021 Industrial 19.4 % Healthcare 12.2 Information Technology 11.9 Consumer staples 10.5 Consumer discretionary 9.6 Utilities 8.8 Other 27.6 Total 100.0 % Real estate limited partnerships by sector (% of carrying value)December 31, 2021 Residential 25.5 % Industrial 23.6 Office 14.5 Other 36.4 Total 100.0 %
Short-term investments of
Other investments primarily comprise$1.57 billion of bank loans,$809 million of real estate,$148 million of policy loans and$12 million of derivatives as ofDecember 31, 2021 . For further detail on our use of derivatives, see Note 7 of the consolidated financial statements. Direct real estate investments by sector (% of carrying value)December 31, 2021 Residential 29.9 % Agriculture 17.7 Retail 16.7 Industrial 15.2 Timber 12.6 Other 7.9 Total 100.0 %
Unrealized net capital gains (losses)
As of December 31,
($ in millions) 2021 2020
U.S. government and agencies $ (14) $ 49
Municipal 263 478
Corporate 496 1,960
Foreign government 3 37
ABS 12 7
Fixed income securities 760 2,531
Derivatives (3) (3)
Equity method of accounting ("EMA") limited partnerships (1) (1)
Unrealized net capital gains and losses, pre-tax $ 756 $ 2,527
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2021 Form 10-K Investments
Gross unrealized gains (losses) on fixed income securities by type and sector
As of December 31, 2021
Amortized Gross unrealized
($ in millions) cost, net Gains Losses Fair value
Corporate
Consumer goods (cyclical and non-cyclical)
176 $ (42) $ 6,951
Banking 3,975 54 (31) 3,998
Utilities 2,009 43 (28) 2,024
Technology 2,947 80 (23) 3,004
Communications 2,077 58 (21) 2,114
Financial services 1,936 41 (14) 1,963
Capital goods 2,615 75 (12) 2,678
Basic industry 1,249 56 (6) 1,299
Energy
Midstream 1,132 37 (4) 1,165
Integrated 119 6 - 125
Independent/upstream 312 18 (1) 329
Other 224 6 (1) 229
Total energy 1,787 67 (6) 1,848
Transportation 976 35 (5) 1,006
Other 446 3 (4) 445
Total corporate fixed income portfolio 26,834 688 (192) 27,330
U.S. government and agencies 6,287 12 (26) 6,273
Municipal 6,130 279 (16) 6,393
Foreign government 982 9 (6) 985
ABS 1,143 14 (2) 1,155
Total fixed income securities $ 41,376 $ 1,002 $ (242) $ 42,136
Gross unrealized gains (losses) on fixed income securities by type and sector
As of December 31, 2020
Gross unrealized
($ in millions) Amortized cost Gains Losses Fair value
Corporate
Consumer goods (cyclical and non-cyclical) $ 7,820
$ 516 $ (2) $ 8,334 Banking 4,353 244 - 4,597 Utilities 2,749 156 (2) 2,903 Technology 2,443 191 (1) 2,633 Communications 2,529 201 (4) 2,726 Financial services 1,785 116 (2) 1,899 Capital goods 2,906 205 - 3,111 Basic industry 1,512 136 - 1,648 Energy Midstream 1,095 72 (1) 1,166 Integrated 270 27 - 297 Independent/upstream 186 21 (1) 206 Other 139 9 (2) 146 Total energy 1,690 129 (4) 1,815 Transportation 1,055 84 (11) 1,128 Other 215 8 - 223 Total corporate fixed income portfolio 29,057 1,986 (26) 31,017 U.S. government and agencies 2,058 50 (1) 2,107 Municipal 7,100 480 (2) 7,578 Foreign government 921 37 - 958 ABS 898 10 (3) 905 Total fixed income securities$ 40,034 $ 2,563 $ (32) $ 42,565 In general, the gross unrealized losses are related to an increase in market yields, which may include increased risk-free interest rates and wider credit spreads since the time of initial purchase. Similarly, gross unrealized gains reflect a decrease in market yields since the time of initial purchase.
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Investments 2021 Form 10-K
Equity securities by sector
December 31, 2021 December 31, 2020
Over (under) Over (under)
($ in millions) Cost cost Fair value Cost cost Fair value
Transportation 74 22 96 24 7 31
Energy
Midstream 39 7 46 65 (2) 63
Integrated 62 8 70 10 - 10
Independent/upstream 44 5 49 7 - 7
Other 14 3 17 2 1 3
Total energy 159 23 182 84 (1) 83
Utilities 122 23 145 37 3 40
Basic Industry 119 30 149 29 10 39
Capital Goods $ 376 $ 37 $ 413 $ 92 $ (4) $ 88
Other (1) 3,413 811 4,224 823 211 1,034
Funds
Fixed income 1,108 24 1,132 804 55 859
Equities 645 75 720 847 147 994
Total funds 1,753 99 1,852 1,651 202 1,853
Total equity securities $ 6,016 $ 1,045 $ 7,061 $ 2,740 $ 428 $ 3,168 (1) Other is comprised of communications, financial services, REITs, banking, consumer goods and technology sectors.
Net investment income
For the years ended December 31,
($ in millions) 2021 2020 2019
Fixed income securities $ 1,148 $ 1,232 $ 1,201
Equity securities 100 78 175
Mortgage loans 43 34 27
Limited partnership interests 1,973 238 296
Short-term investments 5 17 70
Other investments 195 124 131
Investment income, before expense 3,464 1,723 1,900
Investment expense
Investee level expenses (60) (36) (51)
Securities lending expense - (4) (27)
Operating costs and expenses (111) (93) (94)
Total investment expense (171) (133) (172)
Net investment income $ 3,293 $ 1,590 $ 1,728
Property-Liability $ 3,118 $ 1,421 $ 1,533
Protection Services 43 44 42
Allstate Health and Benefits 74 78 83
Corporate and Other 58 47 70
Net investment income $ 3,293 $ 1,590 $ 1,728
Market-based $ 1,429 $ 1,444 $ 1,557
Performance-based 2,035 279 343
Investment income, before expense $ 3,464 $ 1,723
Net investment income increased 107.1% or
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2021 Form 10-K Investments
Performance-based investment income
For the years ended December 31,
($ in millions) 2021 2020 2019
Private equity $ 1,660 $ 206 $ 212
Real estate 375 73 131
Total performance-based income before investee level
expenses $ 2,035 $ 279 $ 343
Investee level expenses (1) (55) (32) (44)
Total performance-based income $
1,980
(1)Investee level expenses include asset level operating expenses reported in investment expense. In 2019, investee level expenses also included depreciation.
Performance-based investment income increased 701.6% or$1,733 million in 2021 compared to 2020, primarily due to increased valuations and net gains on sales of underlying investments. Performance-based investment income in 2021 includes income generated by certain investments which were classified as assets held for sale in 2020. Performance-based investment results and income can vary significantly between periods and are influenced by economic conditions, equity market performance, comparable public company earnings multiples, capitalization rates, operating performance of the underlying investments and the timing of asset sales. Components of net gains (losses) on investments and derivatives and the related tax effect For the year December 31, ($ in millions) 2021 2020 2019 Sales$ 578 974$ 519 Credit losses (42) (32) (26)
Valuation change of equity investments - appreciation (decline): Equity securities
544 139 858
Equity fund investments in fixed income securities (24) (22) 72
Limited partnerships (1) (21) (21) 141
Total valuation of equity investments 499 96 1,071
Valuation change and settlements of derivatives 49 49 (26)
Net gains (losses) on investments and derivatives, pre-tax
1,084 1,087 1,538
Income tax expense (237) (236) (324)
Net gains (losses) on investments and derivatives,
after-tax $ 847 $ 851 $ 1,214
Property-Liability $ 798 $ 774 $ 1,161
Protection Services 19 23 25
Allstate Health and Benefits 5 7 9
Corporate and Other 25 47 19
Net gains (losses) on investments and derivatives,
after-tax $ 847 $ 851 $ 1,214
Market-based $ 917 $ 1,033 $ 1,444
Performance-based 167 54 94Net gains (losses) on investments and derivatives, pre-tax
$ 1,084
(1)Relates to limited partnerships where the underlying assets are predominately public equity securities.
Sales in 2021 related primarily to sales of fixed income securities in connection with ongoing portfolio management and sales of real estate investments. Sales in 2020 related primarily to fixed income securities in connection with ongoing portfolio management.
Valuation change and settlements of derivatives in 2021 primarily comprised gains on foreign currency contracts due to the strengthening of theU.S. dollar and gains on interest rate futures used to manage asset duration and reduce exposure to increases in interest rates. 2020 primarily comprised gains on interest rate futures used for asset replication and equity futures used for risk management due to a decrease in indices, partially offset by losses on interest rate futures used for risk management and foreign currency contracts due to weakening of theU.S. dollar.
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Investments 2021 Form 10-K
Net gains (losses) on performance-based investments and derivatives
For the years ended December 31,
($ in millions) 2021 2020 2019
Sales $ 111 $ 49 $ 79
Credit losses (43) (6) (4)
Valuation change of equity investments 71 24 15
Valuation change and settlements of derivatives 28 (13) 4
Total performance-based $ 167 $ 54 $ 94
Net gains on performance-based investments and derivatives in 2021 primarily
related to gains on sales of real estate investments, increased valuation of
equity investments, and gains on valuation and settlement of derivatives. 2020
primarily related to increased valuation of equity investments and gains on
sales of real estate investments, partially offset by losses on valuation and
settlement of derivatives.
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2021 Form 10-K Market Risk
Market Risk
Market risk is the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices, commodity prices or currency exchange rates. Adverse changes to these rates and prices may occur due to changes in fiscal policy, the economic climate, the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants or changes in market perceptions of credit worthiness or risk tolerance. Our primary market risk exposures are to changes in interest rates, credit spreads and equity prices. We also have direct and indirect exposure to commodity price changes through our diversified investments in timber, agriculture, infrastructure and energy primarily held in limited partnership interests and consolidated subsidiaries. The active management of market risk is integral to our results of operations. We may use the following approaches to manage exposure to market risk within defined tolerance ranges:
1)Rebalance existing asset or liability portfolios
2)Change the type of investments purchased in the future
3)Use derivative instruments to modify the market risk characteristics of existing assets and liabilities or assets expected to be purchased
Overview In formulating and implementing guidelines for investing funds, we seek to earn attractive risk-adjusted returns that enhance our ability to offer competitive prices to customers while contributing to stable profits and long-term capital growth. Accordingly, our investment decisions and objectives are informed by underlying risks. Investment policies define the overall framework for managing market and other investment risks, including accountability and controls over risk management activities. Subsidiaries that conduct investment activities follow policies that have been approved by their respective boards of directors and which specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile and regulatory requirements of the subsidiary. Executive oversight of investment activities is conducted primarily through the subsidiaries' boards of directors and legal entity investment committees.The Enterprise Risk and Return Council ("ERRC") oversees the aggregate risk of Allstate and its subsidiaries. Working in conjunction with the board or the investment committee of each subsidiary, as applicable, the ERRC evaluates the risk tolerance of each subsidiary and determines the aggregate risk tolerance of the enterprise.
We use widely-accepted quantitative and qualitative approaches to measure, monitor and manage market risk. We evaluate our market risk exposure using multiple measures including but not limited to:
• Duration, a measure of the price sensitivity of assets and liabilities to changes in interest rates • Value-at-risk, a statistical estimate of the probability that the change in fair value of a portfolio will exceed a certain amount over a given time horizon • Scenario analysis, an estimate of the potential changes in the fair value of a portfolio that could occur under hypothetical market conditions defined by changes to multiple market risk factors: interest rates, credit spreads, equity prices or currency exchange rates • Sensitivity analysis, an estimate of the potential changes in the fair value of a portfolio that could occur using hypothetical shocks to a market risk factor. The selection of measures used in our sensitivity analysis should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of these measures. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. Although we apply a similar overall philosophy to market risk, the underlying business frameworks and the accounting and regulatory environments may differ between our products and therefore affect investment decisions and risk parameters. Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates. Interest rate risk includes risks related to changes inU.S. Treasury yields and other key risk-free reference yields. This risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets. Changes in interest rates can have favorable and unfavorable effects on our results. For example, increases in rates can improve investment income, but decrease the fair value of our fixed income securities portfolio which may require us to liquidate assets at losses. Decreases in rates could increase the fair value of our fixed income securities portfolio while decreasing investment income due to reinvesting at lower market yields and accelerating pay-downs and prepayments of certain investments. For our corporate debt, we monitor market interest rates and evaluate refinancing opportunities as maturity dates approach. To mitigate this risk, we ladder the maturity dates of our debt. For our noncumulative perpetual preferred stock, we monitor market dividend rates and evaluate opportunities to redeem or refinance on or after specified dates. For further detail regarding our debt and our preferred stock, see Note 13 of the consolidated financial
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Market Risk 2021 Form 10-K
statements and the Capital Resources and Liquidity section of this Item.
Our assessment of interest rate risk includes assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, leverage or option features of instruments, where applicable. The preceding assumptions relate primarily to callable municipal and corporate bonds, mortgage-backed securities and municipal housing bonds. Additionally, the calculations include assumptions regarding the renewal of property and casualty products. As ofDecember 31, 2021 , the fixed income portfolio duration was 4.20 compared to 5.02 as ofDecember 31, 2020 .
Interest rate shock analysis (1)
As of December 31, 2021
($ in millions) Fair Value of invested assets
-100 bps change $ 1,625
+100 bps change (1,638)
+200 bps change (3,215)
(1)Represents an immediate, parallel increase or decrease based on information
and assumptions used in the duration calculations and market interest rates as
of December 31, 2021 .
To the extent that conditions differ from the assumptions we used in these
calculations, duration and rate shock measures could be significantly impacted.
Additionally, our calculations assume the current relationship between
short-term and long-term interest rates (the term structure of interest rates)
will remain constant over time. As a result, these calculations may not fully
capture the effect of non-parallel changes in the term structure of interest
rates or large changes in interest rates.
Credit spread risk is the risk that we will incur a loss due to adverse changes
in credit spreads ("spreads"). Credit spread is the additional yield on fixed
income securities and loans above the risk-free rate (typically referenced as
the yield on U.S. Treasury securities) that market participants require to
compensate them for assuming credit, liquidity or prepayment risks. The
magnitude of the spread will depend on the likelihood that a particular issuer
will default. This risk arises from many of our primary activities, as we invest
substantial funds in spread-sensitive fixed income assets. We manage the spread
risk in our assets. One of the measures used to quantify this exposure is spread
duration. Spread duration measures the price sensitivity of the assets to
changes in spreads. For example, if spreads increase 100 basis points, the fair
value of an asset exhibiting a spread duration of 5 is expected to decrease in
value by 5%.
Spread duration is calculated similarly to interest rate duration. As of
Credit spread shock analysis (1)
As of December 31 ,
($ in millions) 2021 2020
Decrease in net fair value of the assets (2)
(1)Represents an immediate, parallel increase of 100 basis points across all asset classes, industry sectors and credit ratings based on information and assumptions used in the spread duration calculations and market interest rates as ofDecember 31, 2021 .
(2)Reflects effects of tactical positions that include the use of credit default swaps to manage spread risk.
Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the markets.
Equity investments As ofDecember 31, 2021 , we held$6.69 billion in equity securities, excluding those with fixed income securities as their underlying investments, and limited partnership interests where the underlying assets are predominately public equity securities, compared to$2.52 billion as ofDecember 31, 2020 . 97.7% of the common stocks and other investments with public equity risk supported property and casualty products as ofDecember 31, 2021 , compared to 95.5% as ofDecember 31, 2020 . As ofDecember 31, 2021 , these investments had an equity market portfolio beta of 1.06, compared to a beta of 1.07 as ofDecember 31, 2020 . Beta represents a widely used methodology to describe, quantitatively, an investment's market risk characteristics relative to an index such as theStandard & Poor's 500 Composite Price Index ("S&P 500"). Change in S&P 500 by 10% As of December 31, ($ in millions) 2021 2020 Change in net fair value of equity investments$ 708
We periodically use put options to reduce equity price risk or call options to adjust our equity risk profile. Put options provide an offset to declines in equity market values below a targeted level, while call options provide participation in equity market appreciation above a targeted level. Options can expire, terminate early or the option can be exercised. If the equity index does not fall below the put's strike price or rise above the call's strike price, the maximum loss on purchased puts and calls is limited to the amount of the premium paid. Limited partnership interests As ofDecember 31, 2021 , we held$7.26 billion in limited partnership interests excluding those limited partnership interests where the underlying assets are predominately public equity securities compared to$4.35 billion as ofDecember 31, 2020 . All of our limited partnership interests supported property and casualty products as ofDecember 31, 2021 and 2020. These investments are primarily comprised of private equity and real estate funds. These investments are idiosyncratic in nature and a greater portion of the return is derived from asset operating performance. They are not activelyThe Allstate Corporation 73
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2021 Form 10-K Market Risk
traded, and valuation changes typically reflect the performance of the underlying asset.
Change in private market valuations by 10%
As of December 31,
($ in millions) 2021 2020
Change in net fair value of limited partnership
interests $ 726 $ 435
For limited partnership interests, quarterly changes in fair values may not be highly correlated to equity indices in the short term and changes in value of these investments are generally recognized on a three-month delay due to the availability of the related investee financial statements. The illustrations noted above may not reflect our actual experience if the future composition of the portfolio (hence its beta) and correlation relationships differ from the historical relationships. Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. This risk primarily arises from our foreign equity investments, including common stocks, limited partnership interests, and ourCanada ,Northern Ireland andIndia operations. We use foreign currency derivative contracts to partially offset this risk. As ofDecember 31, 2021 , we had$2.04 billion in foreign currency denominated equity investments, including the impact of foreign currency derivative contracts,$1.30 billion net investment in our foreign subsidiaries, primarily related to ourCanada operations, and$27 million in unhedged non-U.S. dollar fixed income securities. These amounts were$671 million ,$1.30 billion , and$28 million , respectively, as ofDecember 31, 2020 .
Change in foreign currency exchange rates (1)
As of December 31,
($ in millions) 2021 2020
Decrease in value of foreign currency denominated
instruments $ 396 $ 246
(1)Represents a 10% immediate unfavorable change in each of the foreign currency exchange rates to which we are exposed based on information and assumptions used, including the impact of foreign currency derivative contracts.
The modeling technique we use to report our currency exposure does not take into account correlation among foreign currency exchange rates. Even though we believe it is very unlikely that all of the foreign currency exchange rates that we are exposed to would simultaneously decrease by 10%, we nonetheless stress test our portfolio under this and other hypothetical extreme adverse market scenarios. Our actual experience may differ from these results because of assumptions we have used or because significant liquidity and market events could occur that we did not foresee.
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Capital Resources and Liquidity 2021 Form 10-K
Capital Resources and Liquidity
Capital resources consist of shareholders' equity and debt, representing funds
deployed or available to be deployed to support business operations or for
general corporate purposes.
Capital resources
As of December 31,
($ in millions) 2021 2020 2019
Preferred stock, common stock, treasury stock,
retained income and other shareholders' equity
items $ 24,524 $ 26,913 $ 24,048
Accumulated other comprehensive (loss) income 655 3,304 1,950
Total Allstate shareholders' equity 25,179 30,217 25,998
Debt 7,976 7,825 6,631
Total capital resources $ 33,155 $ 38,042 $ 32,629
Ratio of debt to Allstate shareholders' equity 31.7 % 25.9 % 25.5 %
Ratio of debt to capital resources 24.1 % 20.6 % 20.3 %
Shareholders' equity decreased in 2021, primarily due to loss on disposition
from the sales of ALIC, ALNY and certain affiliates, common share repurchases,
decreased net unrealized capital gains on investments and dividends paid to
shareholders, partially offset by net income. In 2021, we paid dividends of $885
million and $114 million related to our common and preferred shares,
respectively. Shareholders' equity increased in 2020, primarily due to net
income and increased net unrealized capital gains on investments, partially
offset by common share repurchases, dividends paid to shareholders and
redemption of preferred stock. In 2020, we paid dividends of $668 million and
$108 million related to our common and preferred shares, respectively.
Common share repurchases In
InAugust 2021 , we entered into an accelerated share repurchase agreement ("ASR agreement") withJP Morgan Chase Bank , to purchase$750 million of our outstanding common stock. Under the ASR agreement, we paid$750 million upfront and initially acquired 4.7 million shares. The ASR agreement concluded onSeptember 17, 2021 , and we repurchased a total of 5.6 million shares at an average price of$133.39 .
As of
During 2021, we repurchased 26.3 million common shares, or 8.7% of total common shares outstanding as ofDecember 31, 2020 , for$3.26 billion . The common share repurchases were completed through open market transactions and ASR agreements. Since 1995, we have acquired 769 million shares of our common stock at a cost of$40.24 billion , primarily as part of various stock repurchase programs. We have reissued 151 million common shares since 1995, primarily associated with our equity incentive plans, the 1999 acquisition ofAmerican Heritage Life Investment Corporation and the 2001 redemption of certain mandatorily redeemable preferred securities. Since 1995, total common shares outstanding has decreased by 618 million shares or 68.8%, primarily due to our repurchase programs. Common shareholder dividends OnJanuary 4, 2021 ,April 1, 2021 ,July 1, 2021 , andOctober 1, 2021 , we paid common shareholder dividends of$0.54 ,$0.81 ,$0.81 and$0.81 , respectively. OnNovember 19, 2021 , we declared a common shareholder dividend of$0.81 , payable onJanuary 3, 2022 . Redemption of preferred stock OnJuly 15, 2021 , we redeemed all outstanding Depositary shares, representing 1/40th of a share of National General's 7.50% Noncumulative Preferred Stock, Series C and the underlying shares of 7.50% Noncumulative Preferred Stock, Series C, par value$0.01 per share for a total redemption of$200 million .The Allstate Corporation 75
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2021 Form 10-K Capital Resources and Liquidity
Financial ratings and strength
Senior long-term debt, commercial paper and insurance financial strength ratings
As of December 31, 2021
Moody's S&P Global Ratings A.M. Best
The Allstate Corporation (debt) A3 A- a
The Allstate Corporation (short-term issuer) P-2 A-2 AMB-1+
Allstate Insurance Company (insurance financial strength) Aa3 AA- A+ Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, overall portfolio mix, financial leverage (i.e., debt), exposure to risks such as catastrophes and the current level of operating leverage. The preferred stock and subordinated debentures are viewed as having a common equity component by certain rating agencies and are given equity credit up to a pre-determined limit in our capital structure as determined by their respective methodologies. These respective methodologies consider the existence of certain terms and features in the instruments such as the noncumulative dividend feature in the preferred stock. TheAllstate Corporation (the "Corporation") andAllstate Insurance Company ("AIC") InJanuary 2021 , Moody's affirmedThe Allstate Corporation's debt and short-term issuer ratings of A3 and P-2, respectively, and the insurance financial strength rating of Aa3 forAllstate Insurance Company ("AIC"). The outlook for the ratings is stable. InJune 2021 , S&P affirmed the Corporation's debt and short-term issuer ratings of A- and A-2, respectively, and the insurance financial strength rating of AA- for AIC. The outlook for the ratings is stable.
In
American Heritage Life ("AHL") In
Other property and casualty companies We have distinct and separately capitalized groups of subsidiaries licensed to sell property and casualty insurance that maintain separate group ratings. The
ratings of these groups are influenced by the risks that relate specifically to each group. Many mortgage companies require property owners to have insurance from an insurance carrier with a secure financial strength rating from an accredited rating agency. InJuly 2021 ,A.M. Best affirmed the A rating of ANJ, which writes auto and homeowners insurance inNew Jersey , and the A+ rating of North Light, our excess and surplus lines carrier. The outlook for the ANJ rating and North Light rating is stable. ANJ also has a Financial Stability Rating® of A" from Demotech, which was affirmed inSeptember 2021 . InJuly 2021 ,A.M. Best affirmed the B+ rating of CKIC, which underwrites personal lines property insurance inFlorida . CKIC also has a Financial Stability Rating of A' from Demotech that was affirmed inAugust 2021 . ANJ, North Light and CKIC do not have support agreements with AIC. Allstate's domestic property and casualty and life insurance subsidiaries prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance department of the applicable state of domicile. Statutory surplus is a measure that is often used as a basis for determining dividend paying capacity, operating leverage and premium growth capacity, and it is also reviewed by rating agencies in determining their ratings. The property and casualty business is comprised of 57 insurance companies as ofDecember 31, 2021 , each of which has individual company dividend limitations. As ofDecember 31, 2021 , total statutory surplus is$21.51 billion compared to$21.38 billion as ofDecember 31, 2020 . Property and casualty subsidiaries surplus was$21.19 billion as ofDecember 31, 2021 , compared to$17.13 billion as ofDecember 31, 2020 . Life insurance subsidiaries surplus was$322 million as ofDecember 31, 2021 , compared to$4.26 billion as ofDecember 31, 2020 .
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Capital Resources and Liquidity 2021 Form 10-K
TheNational Association of Insurance Commissioners ("NAIC") has developed financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined "usual ranges". Additional regulatory scrutiny may occur if a company's ratios fall outside the usual ranges for four or more of the ratios. Two of our domestic insurance companies have more than four ratios outside the usual ranges.
Liquidity sources and uses Our potential sources and uses of funds principally include the following activities below.
Activities for potential sources of funds
Property- Allstate Health Corporate
Liability Protection Services and Benefits and Other
Receipt of insurance premiums ü ü ü
Recurring service fees ü ü ü
Contractholder fund deposits ü
Reinsurance and indemnification program ü ü ü
recoveries
Receipts of principal, interest and ü ü ü ü dividends on investments Sales of investments ü ü ü ü Funds from securities lending, commercial paper and line of credit ü ü
agreements
Intercompany loans ü ü ü ü Capital contributions from parent ü ü ü ü Dividends or return of capital from ü ü ü ü
subsidiaries
Tax refunds/settlements ü ü ü ü Funds from periodic issuance of ü additional securities Receipt of intercompany settlements ü
related to employee benefit plans
Activities for potential uses of funds
Property- Allstate Health Corporate
Liability Protection Services and Benefits and Other
Payment of claims and related expenses ü ü
Payment of contract benefits, surrenders ü and withdrawals Reinsurance cessions and indemnification ü ü ü program payments Operating costs and expenses ü ü ü ü Purchase of investments ü ü ü ü Repayment of securities lending, commercial paper and line of credit ü ü
agreements
Payment or repayment of intercompany loans ü ü ü ü Capital contributions to subsidiaries ü ü ü ü Dividends or return of capital to ü ü ü ü shareholders/parent company Tax payments/settlements ü ü ü ü Common share repurchases ü Debt service expenses and repayment ü ü Payments related to employee benefit plans ü ü ü ü Payments for acquisitions ü ü ü ü
Contractual obligations and commitments We have short-term and long-term contractual obligations and commitments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity. Long-term obligations include known
contractual commitments that require cash needs beyond 12 months.
Short-term contractual obligations are typically settled with cash or short-term
investments and operating cash flows. Most of these obligations are paid within
one year. These include unconditional purchase obligations, other liabilities
and accrued
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2021 Form 10-K Capital Resources and Liquidity
expenses, including liabilities for collateral and operating leases, and net unrecognized tax benefits.
We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility. As ofDecember 31, 2021 , we held$13.27 billion of cash,U.S. government and agencies fixed income securities, and public equity securities which we would expect to be able to liquidate within one week. In addition, we regularly estimate how much of the total portfolio, which includes high quality corporate fixed income and municipal holdings, can be reasonably liquidated within one quarter. These estimates are subject to considerable uncertainty associated with evolving market conditions. As ofDecember 31, 2021 , cash and estimated liquidity available within one quarter, under normal market conditions and at current market prices, was$25.4 billion . Certain remote events and circumstances could constrain our liquidity. Those events and circumstances include, for example, a catastrophe resulting in extraordinary losses, a downgrade in our senior long-term debt ratings to non-investment grade status, or a downgrade in AIC's financial strength ratings. The rating agencies also consider the interdependence of our individually rated entities; therefore, a rating change in one entity could potentially affect the ratings of other related entities.The Allstate Corporation is party to an Amended and Restated Intercompany Liquidity Agreement ("Liquidity Agreement") with certain subsidiaries, which includes, but is not limited to AIC. The Liquidity Agreement allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. AIC serves as a lender and borrower, certain other subsidiaries serve only as borrowers, and the Corporation serves only as a lender. The maximum amount of potential funding under each of these agreements is$1.00 billion . In addition to the Liquidity Agreement, the Corporation also has an intercompany loan agreement with certain of its subsidiaries, which includes, but is not limited to, AIC. The amount of intercompany loans available to the Corporation's subsidiaries is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to$1.00 billion . The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings.
Parent company capital capacity At the parent holding company level, we have deployable assets
totaling$3.31 billion as ofDecember 31, 2021 , primarily comprised of cash and investments that are generally saleable within one quarter. The substantial earnings capacity of the operating subsidiaries is the primary source of capital generation for the Corporation. The payment of dividends by AIC toThe Allstate Corporation is limited byIllinois insurance law to formula amounts based on statutory net income and statutory surplus, as well as the timing and amount of dividends paid in the preceding twelve months. Based on the greater of 2021 statutory net income or 10% of statutory surplus, the maximum amount of dividends that AIC will be able to pay, without priorIllinois Department of Insurance approval, at a given point in time in 2022 is estimated at$5.51 billion , less dividends paid during the preceding twelve months measured at that point in time. Notification and approval of intercompany lending activities are also required by theIllinois Department of Insurance for those transactions that exceed formula amounts based on statutory admitted assets and statutory surplus.
These holding company assets and subsidiary dividends provide funds for the parent company's fixed charges and other corporate purposes.
Intercompany dividends were paid in 2021, 2020 and 2019 between the following companies: AIC,Allstate Insurance Holdings, LLC ("AIH"), the Corporation, ALIC,American Heritage Life Insurance Company ("AHL") andAllstate Financial Insurance Holdings Corporation ("AFIHC"). Intercompany dividends ($ in millions) 2021 2020 2019 AIC to AIH$ 5,946 $ 4,435 $ 2,732 AIH to the Corporation 5,586 4,443 2,747 ALIC to AIC 1,642 - 75 AHL to AFIHC 90 80 80 AFIHC to the Corporation 128 115 50 Dividends may not be paid or declared on our common stock and shares of common stock may not be repurchased unless the full dividends for the latest completed dividend period on our preferred stock have been declared and paid or provided for. We are prohibited from declaring or paying dividends on our Series G preferred stock if we fail to meet specified capital adequacy, net income or shareholders' equity levels, except out of the net proceeds of common stock issued during the 90 days prior to the date of declaration. As ofDecember 31, 2021 , we satisfied all the requirements with no current restrictions on the payment of preferred stock dividends. There were no capital contributions paid by the Corporation to AIC in 2021, 2020 or 2019. The terms of our outstanding subordinated debentures also prohibit us from declaring or paying any dividends or distributions on our common or preferred stock or redeeming, purchasing, acquiring, or making liquidation payments on our common stock or preferred stock if we have elected to defer interest payments on the subordinated debentures, subject to
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Capital Resources and Liquidity 2021 Form 10-K
certain limited exceptions. In 2021, we did not defer interest payments on the subordinated debentures.
Additional resources to support liquidity are as follows:
•The Corporation and AIC have access to a$750 million unsecured revolving credit facility that is available for short-term liquidity requirements. InNovember 2021 , the maturity date of this facility was extended toNovember 2026 . The facility is fully subscribed among 11 lenders with the largest commitment being$95 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, subject to the lenders' commitment. 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 19.0% as ofDecember 31, 2021 . 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 2021. •To cover short-term cash needs, the Corporation has access to a commercial paper facility with a borrowing capacity limited to any undrawn credit facility balance up to$750 million . •As ofDecember 31, 2021 , there were no balances outstanding for the credit facility or the commercial paper facility and therefore the remaining borrowing capacity was$750 million . •The Corporation has access to a universal shelf registration statement with theSecurities and Exchange Commission that expires in 2024. We can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 619 million shares of treasury stock as ofDecember 31, 2021 ), 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.
Long-term contractual obligations
Defined benefit pension plans and other postretirement benefit plans ("OPEB")
Pension plan obligations within the next 12 months represent our planned
contributions to certain unfunded non-qualified plans where the benefit
obligation exceeds the assets. Obligations beyond 12 months are projected based
on the average remaining service period using the current underfunded status of
the plans. The OPEB plans' obligations are estimated based on the expected
benefits to be paid. See Note 18 of the consolidated financial statements for
further information.
Reserves for property and casualty insurance claims and claims expense represent
estimated amounts necessary to settle all outstanding claims, including claims
that have been IBNR as of the balance sheet date. Estimated timing of payments
for reserves is based on our historical experience and our expectation of future
payment patterns. The ultimate cost of losses may vary materially from recorded
amounts that are our best estimates. See Note 9 of the consolidated financial
statements and Application of Critical Accounting Estimates section of the MD&A
for further information.
Reserve for future policy benefits and contractholder funds We estimate the
present value of cash payments to be made to contractholders and policyholders.
We are currently making payments for contracts where the timing of a portion or
all of the payments has been determined by the contract. Contracts such as
voluntary accident and health insurance, interest-sensitive life and traditional
life insurance involve payment obligations where a portion or all of the amount
and timing of future payments is uncertain. We have estimated the timing of
payments related to these contracts based on historical experience and our
expectation of future payment patterns. Uncertainties relating to these
liabilities include mortality, morbidity, expenses, customer lapse and
withdrawal activity, estimated additional deposits for interest-sensitive life
contracts, and renewal premium for life policies, which may significantly impact
both the timing and amount of future payments. See Note 10 of the consolidated
financial statements for further information.
Contractual commitments represent investment commitments such as private
placements, limited partnership interests and other loans. Limited partnership
interests are typically funded over the commitment period which is shorter than
the contractual expiration date of the partnership and as a result, the actual
timing of the funding may vary.
We have agreements in place for services we conduct, generally at cost, between
subsidiaries relating to insurance, reinsurance, loans and capitalization. All
material intercompany transactions have been appropriately eliminated in
consolidation. Intercompany transactions among insurance subsidiaries and
affiliates have been approved by the appropriate departments of insurance as
required.
For a more detailed discussion of our off-balance sheet arrangements, see Note 7 of the consolidated financial statements.
The Allstate Corporation 79
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2021 Form 10-K Enterprise Risk and Return Management
Enterprise Risk and Return Management
Allstate is subject to significant risks as an insurer and a provider of other products and services. These risks are discussed in more detail in the Risk Factors section of this document.
We regularly identify, measure, manage, monitor and report all significant risks. Major categories of enterprise risk are strategic, insurance, investment, financial, operational and culture.
Allstate manages these risks through an Enterprise Risk and Return Management
("ERRM") framework that includes governance, processes, culture, and activities
that are performed on an integrated, enterprise-wide basis, following our risk
and return principles. Our legal and capital structures are designed to manage
capital and solvency on a legal entity basis. Our risk-return principles define
how we operate and guide risk and return decision making. These principles state
that our priority is to maintain a strong foundation by protecting solvency,
complying with laws and acting with integrity. We strive to build strategic
value and optimize risk and return.
[[Image Removed: all-20211231_g29.jpg]]
Governance ERRM governance includes board oversight, an executive management committee, and enterprise and market-facing business chief risk officers.
•The Allstate Corporation Board of Directors ("Allstate Board") has overall responsibility for oversight of Management's design and implementation of ERRM.
•The Risk and Return Committee ("RRC") of the Allstate Board oversees effectiveness of the ERRM program, governance structure and risk-related decision-making, while focusing on the Company's overall risk profile.
•The Audit Committee oversees the effectiveness of internal controls over financial reporting, disclosure controls and procedures as well as
management's risk control framework and cybersecurity program.
•The Enterprise Risk and Return Council ("ERRC"), directs ERRM activities by
establishing risk and return targets, determining economic capital levels and
monitoring integrated strategies and actions from an enterprise risk and return
perspective. The ERRC consists of Allstate's chief executive officer, vice
chair, chief financial officer, chief risk officer and other senior leaders.
•Other key committees work with the ERRC to direct ERRM activities, including
the Operating Committee, the Operational Risk and Return Council , the
Information Security Council , the ESG (Environmental, Social, and Governance)
Steering
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Enterprise Risk and Return Management 2021 Form 10-K
Committee, liability governance committees, and investment committees.
Key risks are assessed and reported through comprehensive ERRM reports prepared for senior management and the RRC. The risk summary report communicates alignment of Allstate's risk profile with risk and return principles while providing a perspective on risk positioning. Discussion promotes active engagement with management and the RRC. Internal controls over key risks are managed and reported to senior management and theAudit Committee of the Company through a semi-annual risk control dashboard. Annually, we review risks related to the strategic plan, operating plan and incentive compensation programs with the Allstate Board.
Framework We apply these principles using an integrated ERRM framework that focuses on assessment, transparency and dialogue. Our framework provides a comprehensive view of risks and is used by senior management and business managers to drive risk-return based decisions. We continually validate and improve our ERRM practices by benchmarking and obtaining external perspectives.
Management and the ERRC rely on internal and external perspectives to determine an appropriate level of target economic capital. Internal perspectives include enterprise solvency and volatility assessments, stress scenarios, model assumptions and management judgment. External considerations include NAIC risk-based capital as well as S&P's, Moody's, andA.M. Best's capital adequacy measurement. Our economic capital reflects management's view of the aggregate level of capital necessary to satisfy stakeholder interests, manage Allstate's risk profile and maintain financial strength. The impact of strategic initiatives on enterprise risk is evaluated through the economic capital framework.
The NAIC has adopted the Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA Model Act"), which has been enacted by our insurance subsidiaries' domiciliary states. The ORSA Model Act requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer's material risks in normal and stressed environments. Results of the assessment are filed annually.
Allstate's risk appetite is measured through our economic capital framework. The enterprise risk appetite is cascaded into individual risk limits which set boundaries on the amount of risk we are willing to accept from one specific risk category before escalating for further management discussion and action. Risk limits are established based upon expected returns, volatility, potential tail losses and impact on the enterprise portfolio. To effectively operate within risk limits and for risk-return optimization, business units establish risk limits and capital targets specific to their businesses. Allstate's risk management strategies adapt to changes in business and market environments. Process Our ERRM framework establishes a basis for transparency and dialogue across the enterprise and for continuous learning by embedding our risk and return management culture of identifying, assessing, managing, monitoring and reporting risks within the organization. Allstate designs business and enterprise strategies that seek to optimize risk-adjusted returns on capital. Risks are managed at both the legal entity and enterprise level.
A summary of our process to manage each of our major risk categories follows:
Strategic risk and return management addresses loss associated with inadequate or flawed business planning or strategy setting, including product mix, mergers or acquisitions and market positioning, and unexpected changes within the market or regulatory environment in which Allstate operates. This includes reputational risk, which is the potential for negative publicity regarding a company's conduct or business practices to adversely impact its profitability, operations, or consumer base, or to require costly litigation and other defensive measures. We manage strategic risk in part through Allstate Board and senior management strategy reviews that include risk and return assessment of our strategic plans and ongoing monitoring of strategic actions, key assumptions and the external competitive environment. Using the ERRM framework, Allstate designs strategies that seek to optimize risk-adjusted returns on economic capital for risk types including interest rate risk, credit risk, equity investments, including those with idiosyncratic return potential, auto profitability and property risk exposure.
Insurance risk and return management addresses fluctuations in the timing, frequency and severity of benefits, expenses, and premiums relative to the return expectations inclusive of systemic risk, concentration of insurance exposures, policy terms, reinsurance coverage, and claims handling practices.
Insurance risk is the potential for loss due to adverse changes in actual or anticipated insurance claims experience (including claims adjustment expenses), net of reinsurance, and lost future profits. Insurance risk exposures include our operating results and financial condition, claims frequency and severity, and catastrophe and severe weather.
Insurance risk exposures are measured and monitored with different approaches including:
•Stochastic methods: measure and monitor risks such as natural catastrophes and severe weather. We develop probabilistic estimates of risk based on our exposures, historical observed volatility or industry-recognized models in the case of catastrophe risk.
•Scenario analysis: measures and monitors risks and estimated losses due to extreme low frequency events that include combined multiple event scenarios across risk categories and time periods.
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2021 Form 10-K Enterprise Risk and Return Management
Investment risk and return management addresses financial loss due to changes in the valuations of assets held in the Allstate investment portfolio. Such losses may be caused by macro developments, such as changes to interest rates, credit spreads and equity price levels, or could be specific to individual investments in the portfolio. These losses can encompass both daily market volatility and permanent impairments of capital due to credit defaults and equity write-downs.
Investment risk exposures include interest rate risk, credit spread risk, equity price risk and foreign currency exchange rate risk.
Investment risk exposures are measured and monitored in a number of ways including:
•Sensitivity analysis: measures the impact from a unit change in a market risk input.
•Stochastic and probabilistic estimation of potential losses: combines portfolio risk exposures with historical or recent market volatilities and correlations to assess the potential range of future investment results.
•Scenario analysis: measures material adverse outcomes such as shock scenarios applied to credit, public and private equity markets.
Some of the stress scenarios are a combination of multiple scenarios across risk categories and over multiple time periods, considering the effects of macroeconomic conditions.
Financial risk and return management addresses the risk of insufficient cash flows to meet corporate or policyholder needs, risk of inadequate aggregate capital or capital within any subsidiary, inability to access capital markets, credit risk that arises when an external party fails to meet a contractual obligation such as reinsurance for ceded claims, or risk associated with a business counterparty default.
We actively manage our capital and liquidity levels in light of changing market, economic and business conditions. Our capital position, capital generation capacity, and targeted risk profile provide strategic and financial flexibility.
We generally assess solvency on a statutory accounting basis, but also consider
holding company capital and liquidity needs. Current enterprise capital, which
exceeds economic targeted levels, is based on a combination of statutory surplus
and deployable assets at the parent holding company level.
Operational risk and return management addresses loss as a result of the failure
of people, processes, or systems. Operational risk exposures include human
capital, privacy, regulatory compliance, ethics, fraud, system availability,
cybersecurity, data quality, disaster recovery and business continuity.
Operational risk is managed at the enterprise and market-facing business levels,
through an integrated Operational Risk and Return Management ("ORRM") program,
with resources throughout the enterprise identifying, measuring, monitoring,
managing, and reporting on operational risks at a detailed level.
From time to time, we engage independent advisers to assess and consult on operational risks. We also perform assessments of the quality of our operational risk program and identify opportunities to strengthen our internal controls.
Culture risk and return management addresses the potential for loss of
stakeholder value from a suboptimal work environment, missed opportunities, or
ineffective risk management practices. Allstate defines organization culture as
a self-sustaining system of shared values, principles and priorities that shape
beliefs, drive behavior and influence decision-making within an organization.
Allstate's approach is grounded in its Risk and Return Principles and organized
by Our Shared Purpose.
Culture is managed using a set of cultural risk categories established as a
basis for assessment and measurement, and the learning loop is applied to ensure
continuous improvement. Results of culture risk assessments are reported to the
ERRC and RRC throughout the year. To strengthen oversight, the Culture Risk and
Return Management ("CRRM") team partners with Human Resources and the broader
organization to enhance the sophistication of the CRRM framework, including the
following key components:
•Key risk categories, defining the most important areas of culture to track and enhance.
•Key risk indicators, reflecting the health of the system, providing early warnings, and helping Allstate prioritize risk and return activities.
•Governance, ensuring timely discussion, escalation, and prioritization of issues, as well as identification of opportunities.
Many risk drivers impact more than one of these key risk categories. Examples include risks related to the Coronavirus, inflation, and ESG factors. Such risks are managed within processes listed above, but overall strategy is coordinated at the enterprise level, and holistic governance is provided by cross-functional committees such as theEnterprise Risk and Return Council andESG Steering Committee .
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Application of Critical Accounting Estimates 2021 Form 10-K
Application of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates, presented in the order they appear in the Consolidated Statements of Financial Position, include those used in determining:
•Fair value of financial assets
•Impairment of fixed income securities with credit losses
•Business combinations and purchase price allocations
•Evaluation of goodwill
•Reserve for property and casualty insurance claims and claims expense estimation
•Pension and other postretirement plans net costs and assumptions
In making these determinations, management makes subjective and complex
judgments that frequently require estimates about matters that are inherently
uncertain. Many of these policies, estimates and related judgments are common in
the insurance and financial services industries; others are specific to our
businesses and operations. It is reasonably likely that changes in these
estimates could occur from period to period and result in a material impact on
our consolidated financial statements.
A summary of each of these critical accounting estimates follows. For a more
detailed discussion of the effect of these estimates on our consolidated
financial statements, and the judgments and assumptions related to these
estimates, see the referenced sections of this document. For a more detailed
summary of our significant accounting policies, see the notes to the
consolidated financial statements.
Fair value of financial assets 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. We are
responsible for the determination of fair value of financial assets and the
supporting assumptions and methodologies. We use independent third-party
valuation service providers, broker quotes and internal pricing methods to
determine fair values. We obtain or calculate only one single quote or price for
each financial instrument.
Valuation service providers typically obtain data about market transactions and
other key valuation model inputs from multiple sources and, through the use of
proprietary models, produce valuation information in the form of a single fair
value for individual fixed income and other securities for which a fair value
has been requested under the terms of our agreements. The inputs used by the
valuation service providers include, but are not limited to, market prices from
recently completed transactions and transactions
of comparable securities, interest rate yield curves, credit spreads, liquidity
spreads, currency rates, and other information, as applicable. Credit and
liquidity spreads are typically implied from completed transactions and
transactions of comparable securities. Valuation service providers also use
proprietary discounted cash flow models that are widely accepted in the
financial services industry and similar to those used by other market
participants to value the same financial instruments. The valuation models take
into account, among other things, market observable information as of the
measurement date, as described above, as well as the specific attributes of the
security being valued including its term, interest rate, credit rating, industry
sector, and where applicable, collateral quality and other issue or issuer
specific information. Executing valuation models effectively requires seasoned
professional judgment and experience. For certain equity securities, valuation
service providers provide market quotations for completed transactions on the
measurement date. In cases where market transactions or other market observable
data is limited, the extent to which judgment is applied varies inversely with
the availability of market observable information.
For certain of our financial assets measured at fair value, where our valuation
service providers cannot provide fair value determinations, we obtain a single
non-binding price quote from a broker familiar with the security who, similar to
our valuation service providers, may consider transactions or activity in
similar securities among other information. The brokers providing price quotes
are generally from the brokerage divisions of financial institutions with market
making, underwriting and distribution expertise regarding the security subject
to valuation.
The fair value of certain financial assets, including privately placed corporate
fixed income securities and free-standing derivatives, for which our valuation
service providers or brokers do not provide fair value determinations, is
developed using valuation methods and models widely accepted in the financial
services industry. Our internal pricing methods are primarily based on models
using discounted cash flow methodologies that develop a single best estimate of
fair value. Our models generally incorporate inputs that we believe are
representative of inputs other market participants would use to determine fair
value of the same instruments, including yield curves, quoted market prices of
comparable securities or instruments, published credit spreads, and other
applicable market data as well as instrument-specific characteristics that
include, but are not limited to, coupon rates, expected cash flows, sector of
the issuer, and call provisions. Because judgment is required in developing the
fair values of these financial assets, they may differ from the amount actually
received to sell an asset in an orderly transaction between market participants
at the measurement date. Moreover, the use of different valuation assumptions
may have a material effect on the financial assets' fair values.
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2021 Form 10-K Application of Critical Accounting Estimates
For most of our financial assets measured at fair value, all significant inputs
are based on or corroborated by market observable data, and significant
management judgment does not affect the periodic determination of fair value.
The determination of fair value using discounted cash flow models involves
management judgment when significant model inputs are not based on or
corroborated by market observable data. However, where market observable data is
available, it takes precedence, and as a result, no range of reasonably likely
inputs exists from which the basis of a sensitivity analysis could be
constructed.
We gain assurance that our financial assets 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, our 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, we assess 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. We
perform procedures to understand and assess the methodologies, processes and
controls of valuation service providers.
In addition, we 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. We perform 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, we validate them through
reviews by members of management who have relevant expertise and who are
independent of those charged with executing investment transactions.
During periods of high volatility or market disruption, we may perform an
analysis to determine whether there has been a significant decrease in the
volume and level of activity for the asset when compared to normal market
activity, and if so, whether transactions may not be orderly. Among the
indicators we consider in determining whether a significant decrease in the
volume and level of market activity for a specific asset has occurred include
the level of new issuances in the primary market, trading volume in the
secondary market, level of credit spreads over historical levels, bid-ask
spread, and price consensuses among market participants and sources. If evidence
indicates that prices are based on transactions that are not orderly, we place
little, if any, weight on the transaction price and will estimate fair value
using an internal model. As of December 31, 2021 and 2020, we did not adjust
fair values provided by our valuation service providers or brokers or substitute
them with an internal model for such securities.
Fixed income, equity securities and short-term investments by source of fair value determination
December 31, 2021
Percent
($ in millions) Fair value to total
Fair value based on internal sources $ 275 0.5 %
Fair value based on external sources (1) 52,931 99.5
Total $ 53,206 100.0 %
(1)Includes $94 million that are valued using broker quotes and $290 million that are valued using quoted prices or quoted net asset values from deal sponsors.
For additional detail on fair value measurements, see Note 6 of the consolidated financial statements.
Impairment of fixed income securities with credit losses For fixed income
securities classified as available-for-sale, the difference between amortized
cost, net of credit loss allowance ("amortized cost, net") and fair value, net
of certain other items and deferred income taxes (as disclosed in Note 5 of the
consolidated financial statements), is reported as a component of AOCI on the
Consolidated Statements of Financial Position and is not reflected in the
operating results of any period until reclassified to net income upon the
consummation of a transaction with an unrelated third party or when a credit
loss allowance is recorded. We have a comprehensive portfolio monitoring process
to identify and evaluate each fixed income security that may require a credit
loss allowance.
For each fixed income security in an unrealized loss position, we assess whether
management with the appropriate authority has made the decision to sell or
whether it is more likely than not we 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, any existing credit loss allowance would be written-off against the
amortized cost basis of the asset along with any remaining unrealized losses,
with the incremental losses recorded in earnings.
If we have not made the decision to sell the fixed income security and it is not
more likely than not we will be required to sell the fixed income security
before recovery of its amortized cost basis, we evaluate whether we expect to
receive cash flows sufficient to recover the entire amortized cost basis of the
security. We calculate the estimated recovery value based on the best estimate
of future cash flows considering past events, current conditions and reasonable
and
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Application of Critical Accounting Estimates 2021 Form 10-K
supportable forecasts. The estimated future cash flows are discounted at the security's current effective rate, and are compared to the amortized cost of the security. 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 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, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, 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 we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
When a security is sold or otherwise disposed or the security is deemed uncollectible and written off, we remove amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received.
For additional detail on investment impairments, see Note 5 of the consolidated financial statements.
Business combinations and purchase price allocations We have acquired significant intangible assets through acquisitions of businesses. Intangible assets (reported in other assets in the Consolidated Statements of Financial Position) consist of capitalized costs, primarily of the estimated fair value of distribution and customer relationships, trade names, licenses and technology assets. The estimated useful lives of these assets generally range from 3 to 10 years.
On January 4, 2021, the Company completed the acquisition of
accident and health products. The estimated fair value of distribution and customer relationship intangible assets was determined using an income approach that considered cash flows and profits expected to be generated by the acquired relationships, a weighted-average cost of capital discount rate reflecting the relative risk of achieving the anticipated cash flows, profits, the time value of money, and other relevant inputs. Technology and trade names were valued using estimated useful lives and market licensing rates discounted at a weighted-average cost of capital. Licenses are primarily insurance licenses which were valued using the median value of market transactions executed over an extended observation period. Value of business acquired (reported in DAC in the Consolidated Statements of Financial Position) recognized in connection with the acquisition of National General represents the value of future profits expected to be earned over the lives of the contracts acquired determined using a weighted-average cost of capital discount and other relevant assumptions. These costs are amortized over the policy term of the contracts in force at the acquisition date, generally over six or twelve months. Evaluation of goodwillGoodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized.Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination. Our goodwill reporting units are equivalent to our reportable segments: Allstate Protection, Protection Services, and Allstate Health and Benefits to which goodwill has been assigned. The goodwill balance was $3.50 billion and $2.37 billion at December 31, 2021 and 2020, respectively. During 2021, our goodwill increased primarily reflecting the acquisition of National General and SafeAuto. Upon acquisition, the purchase price of the acquired business is assumed to be its fair value. Subsequently, we estimate the fair value of our businesses in each goodwill reporting unit, utilizing a combination of widely accepted valuation techniques including a stock price and market capitalization analysis, discounted cash flow ("DCF") calculations and an estimate of a business's fair value using market to book multiples derived from peer company analysis. The stock price and market capitalization analysis takes into consideration the quoted market price of our outstanding common stock and includes a control premium, derived from relevant historical acquisition activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual reporting units. The DCF analysis utilizes long term assumptions for revenues, investment income, benefits, claims, other operating expenses and income taxes to produce projections of both income and cash flows available for dividends that are present valued using the weighted average cost of capital. Market to book multiples represent the mean market to book multiple for selected peer companies with operations similar to our goodwill reporting units toThe Allstate Corporation 85
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2021 Form 10-K Application of Critical Accounting Estimates
which the multiple is applied. The outputs from these methods are weighted based on the nature of the business and the relative amount of market observable assumptions supporting the estimates. The computed values are then weighted to reflect the fair value estimate based on the specific attributes of each goodwill reporting unit. Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. Changes in market inputs or other events impacting the fair value of these businesses, including discount rates, operating results, investment returns, strategies and growth rate assumptions, among other factors, could result in goodwill impairments, resulting in a charge to income. Certain of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have substantial internally generated and unrecognized intangibles and fair values that significantly exceed their carrying values. Our Protection Services goodwill reporting unit is more heavily comprised of newly acquired businesses and as a result does not have a significant excess of fair value over its carrying value attributable to internally generated unrecognized intangibles. Therefore, this reporting unit may be more susceptible to potential future goodwill impairment based on changes to growth or margin assumptions. The most significant assumptions utilized in the determination of the estimated fair value of the Protection Services reporting unit are the earnings growth rate and discount rate. The growth rate utilized in our fair value estimates is consistent with our plans to grow these businesses more rapidly over the near-term with more moderated growth rates in later years. The discount rate, which is consistent with the weighted average cost of capital expected by a market participant, is based upon industry specific required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by changes in the risk-free rate, cost of debt, equity risk premium and entity specific risks. Changes in our growth assumptions, including the risk of loss of key customers, or adverse changes in the discount rates could result in a decline in fair value and result in a goodwill impairment charge. Reserve for property and casualty insurance claims and claims expense estimation Reserves are established to provide for the estimated costs of paying claims and claims expenses under insurance policies we have issued. Underwriting results are significantly influenced by estimates of property and casualty insurance claims and claims expense reserves. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR, as of the financial statement date.
Characteristics of reserves Reserves are established independently of business segment management for each business segment and line of business based on estimates of the ultimate cost to
settle claims, less losses that have been paid. The significant lines of business are auto, homeowners, and other personal lines for Allstate Protection, and asbestos, environmental, and other run-off lines for Run-off Property-Liability. Allstate Protection's claims are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss is reported. Auto and homeowners liability losses generally take an average of about two years to settle, while auto physical damage, homeowners property and other personal lines have an average settlement time of less than one year. Run-off Property-Liability involves long-tail losses, such as those related to asbestos and environmental claims, which often involve substantial reporting lags and extended times to settle. Reserves are the difference between the estimated ultimate cost of losses incurred and the amount of paid losses as of the reporting date. Reserves are estimated for both reported and unreported claims, and include estimates of all expenses associated with processing and settling all incurred claims. We update most of our reserve estimates quarterly and as new information becomes available or as events emerge that may affect the resolution of unsettled claims. Changes in prior reserve estimates (reserve reestimates), which may be material, are determined by comparing updated estimates of ultimate losses to prior estimates, with the differences recorded as property and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined. Estimating the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables. The actuarial methods used to develop reserve estimates Reserve estimates are derived by using several different actuarial estimation methods that are variations on one primary actuarial technique. The actuarial technique is known as a "chain ladder" estimation process in which historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves established by claim adjusters) for an accident year or a report year to create an estimate of how losses are likely to develop over time. An accident year refers to classifying claims based on the year in which the claims occurred. A report year refers to classifying claims based on the year in which the claims are reported. Both classifications are used to prepare estimates of required reserves for payments to be made in the future. The key assumptions affecting our reserve estimates comprise data elements including claim counts, paid losses, case reserves, and development factors calculated with this data.
See Run-off Property-Liability reserve estimates section for specific disclosures of industry and actuarial best practices for this segment.
In the chain ladder estimation technique, a ratio (development factor) is calculated which compares current period results to results in the prior period for
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each accident year. Typically, a multi-year average development factor, based on historical results, is used to estimate the development of losses of each accident year into the next time period. The effects of inflation are implicitly considered in the reserving process, the implicit assumption being that a development factor includes an adequate provision. The development factor estimation methodology may require modification when data changes due to changing claim reporting practices, changing claim settlement patterns, external regulatory or financial influences, or contractual coverage changes. The modifications include exclusion of unusual losses or aberrations and adjustment of historical data to present conditions. Actuarial judgment is then applied to develop a best estimate of gross ultimate losses. These developments are discussed further in the loss ratio disclosures within the Allstate Protection Segment and the Claims and Claims Expense Reserves sections of the MD&A. How reserve estimates are established and updated Reserve estimates are developed at a very detailed level, and the results are aggregated to form a consolidated reserve estimate. The detailed estimates include each line of insurance, major components of losses (such as coverages and perils), major states or groups of states and for reported losses and IBNR. The actuarial methods described above are used to analyze the settlement patterns of claims used in the reserve estimation process. Development factors are calculated for data elements such as claim counts reported and settled, paid losses, and paid losses combined with case reserves. The calculation of development factors from changes in these data elements also impacts claim severity trends. The historical development patterns for these data elements are used to calculate reserve estimates. Estimates are prepared for each detailed component, incorporating alternative analyses of changing claim settlement patterns and other influences on losses, from which we select our best estimate. Actuarial judgments that may be applied to these components generally do not have a material impact on the consolidated level of reserves. Based on this review our best estimate of required reserves is recorded. Reserves are reestimated quarterly and periodically throughout the year, by combining historical results with current actual results to calculate new development factors. This process continuously incorporates the historic and latest actual trends, and other underlying changes in the data elements used to calculate reserve estimates. New development factors are likely to differ from previous development factors used in prior reserve estimates because actual results (claims reported or settled, losses paid, or changes to case reserves) occur differently than the assumptions contained in the previous development factor calculations. When actual development of these data elements is different than the historical development pattern used in a prior period reserve estimate, a new reserve is determined. The difference between indicated reserves based on new reserve estimates and recorded reserves (the previous estimate) is the amount of reserve reestimate and is recognized as an increase or decrease in claims and claims expense in the Consolidated Statements of Operations. A more detailed discussion of reserve reestimates is presented in the Claims and Claims Expense Reserves section of the MD&A.
Favorable (unfavorable) impact of reserve reestimates on net income applicable to common shareholders (1)
2021 2020 2019
Net reserve reestimates, after-tax (6.5) % 6.3 % 2.2 %
(1)2020 includes approximately $495 million of favorable reserve reestimates related to the PG&E Corporation and Southern California Edison subrogation settlements.
3-year average of net reserve reestimates as a percentage of total reserves for each segment (1) (2)
2021
Allstate Protection (1.3) %
Run-off Property-Liability 8.7 %
Protection Services (4.7) %
(1)Favorable reserve reestimates are shown in parentheses.
(2)Each of these results is consistent within a reasonable actuarial tolerance
for the respective businesses.
Net claims and claims expense reserves by segment and line of business
As of December 31,
($ in millions) 2021 2020 2019
Allstate Protection
Auto $ 15,134 $ 14,164 $ 14,728
Homeowners 3,741 2,315 2,138
Other lines (1) 3,249 2,657 2,530
Total Allstate Protection 22,124 19,136 19,396
Run-off Property-Liability
Asbestos 828 827 810
Environmental 226 206 179
Other run-off lines 367 375 376
Total Run-off Property-Liability 1,421 1,408 1,365
Total Protection Services 36 33 39
Total net claims and claims expense reserves $ 23,581 $ 20,577 $ 20,800
(1)2021 includes the unamortized fair value adjustment related to the acquisition of National General.
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Allstate Protection reserve estimate
Factors affecting reserve estimates Reserve estimates are developed based on the processes and historical development trends described above. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our 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. When we experience changes of the type previously mentioned, we may need to apply actuarial judgment in the determination and selection of development factors considered more reflective of the new trends, such as combining shorter or longer periods of historical results with current actual results to produce development factors based on two-year, three-year, or longer development periods to reestimate our reserves. For example: •The Coronavirus has had a significant impact on driving patterns and auto frequency that may lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability. •If a legal change is expected to have a significant impact on the development of claim severity for a coverage which is part of a particular line of insurance in a specific state, actuarial judgment is applied to determine appropriate development factors that will most accurately reflect the expected impact on that specific estimate. •A change in economic conditions is expected to affect the cost of repairs to damaged autos or property for a particular line, coverage, or state, actuarial judgment is applied to determine appropriate development factors to use in the reserve estimate that will most accurately reflect the expected impacts on severity development. As claims are reported, for certain liability claims of sufficient size and complexity, the field adjusting staff establishes case reserve estimates of ultimate cost, based on their assessment of facts and circumstances related to each individual claim. For other claims which occur in large volumes and settle in a relatively short time frame, it is not practical or efficient to set case reserves for each claim, and a statistical case reserve is set for these claims based on estimation techniques described above. In the normal course of business, we may also supplement our 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. Historically, the case reserves set by the field adjusting staff have not proven to be an entirely accurate estimate of the ultimate cost of claims. To provide for this, a development reserve is estimated using the processes described above and allocated to pending claims as a supplement to case reserves. Typically, the case, including statistical case, and
supplemental development reserves comprise about 90% of total reserves.
Another major component of reserves is IBNR, which comprises about 10% of total reserves. IBNR can be a small percentage of reserves for relatively short-term claims, such as auto physical damage claims, or a large percentage of reserves for claims that have uncertain payout requirements over a long period of time, such as auto injury and MCCA claims. All major components of reserves are affected by changes in claim frequency as well as claim severity. Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using processes described above. Changes in auto claim frequency may result from changes in mix of business, the rate of distracted driving, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy, the effectiveness and efficiency of our claim practices and changes in mix of claim type. We mitigate these effects through various loss management programs. Injury claims are affected largely by medical cost inflation while physical damage claims are affected largely by auto repair cost inflation and used car prices. For auto physical damage coverages, we monitor our rate of increase in average cost per claim against the auto maintenance, repair, parts and equipment price indices. We believe our claim settlement initiatives, such as improvements to the claim review and settlement process, the use of special investigative units to detect fraud and handle suspect claims, litigation management and defense strategies, as well as various other loss management initiatives underway, contribute to the mitigation of injury and physical damage severity trends. Changes in homeowners current year claim severity are generally influenced by inflation in the cost of building materials, the cost of construction and property repair services, the cost of replacing home furnishings and other contents, the types of claims that qualify for coverage, deductibles, other economic and environmental factors and the effectiveness and efficiency of our claim practices. As loss experience for the current year develops for each type of loss, it is monitored relative to initial assumptions until it is judged to have sufficient statistical credibility. From that point in time and forward, reserves are reestimated using statistical actuarial processes to reflect the impact actual loss trends have on development factors incorporated into the actuarial estimation processes. The very detailed processes for developing reserve estimates, and the lack of a need and existence of a common set of assumptions or development factors, limits aggregate reserve level testing for variability of data elements. However, by applying standard 88 www.allstate.com
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actuarial methods to consolidated historic accident year loss data for major loss types, comprising auto injury losses, auto physical damage losses and homeowner losses, we develop variability analyses consistent with the way we develop reserves by measuring the potential variability of development factors, as described in the section titled "Potential Reserve Estimate Variability" below. Causes of reserve estimate uncertainty Since reserves are estimates of unpaid portions of claims and claims expenses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophe losses, requires regular reevaluation and refinement of estimates to determine our ultimate loss estimate. At each reporting date, the highest degree of uncertainty in estimates for most of our losses from ongoing businesses arise from claims remaining to be settled for the current accident year and the most recent preceding accident year. The greatest degree of uncertainty exists in the current accident year because the current accident year contains the greatest proportion of losses that have not been reported or settled but must be estimated as of the current reporting date. Most of these losses relate to damaged property such as automobiles and homes, and medical care for injuries from accidents. During the first year after the end of an accident year, a large portion of the total losses for that accident year are settled. When accident year losses paid through the end of the first year following the initial accident year are incorporated into updated actuarial estimates, the trends inherent in the settlement of claims emerge more clearly. Consequently, this is the point in time at which we tend to make our largest reestimates of losses for an accident year. After the second year, the losses that we pay for an accident year typically relate to claims that are more difficult to settle, such as those involving serious injuries or litigation. Private passenger auto insurance provides a good illustration of the uncertainty of future loss estimates: our typical annual percentage payout of reserves remaining at December 31 for an accident year is approximately 45% in the first year after the end of the accident year, 20% in the second year, 15% in the third year, 10% in the fourth year, and the remaining 10% thereafter. Reserves for catastrophe losses Catastrophe losses are an inherent risk of the property and casualty insurance industry that have contributed, and will continue to contribute, to potentially material year-to-year fluctuations in our results of operations and financial position. We define a "catastrophe" as an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, or a winter weather event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are caused by various natural events including high winds, winter storms and freezes, tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes and volcanoes. We are also exposed to man-made catastrophic events, such as
certain types of terrorism or industrial accidents. The nature and level of catastrophes in any period cannot be reliably predicted.
The estimation of claims and claims expense reserves for catastrophe losses also comprises estimates of losses from reported claims and IBNR, primarily for damage to property. In general, our estimates for catastrophe reserves are based on claim adjuster inspections and the application of historical loss development factors as described above. However, depending on the nature of the catastrophe, the estimation process can be further complicated. For example, for hurricanes, complications could include the inability of insureds to promptly report losses, limitations placed on claims adjusting staff affecting their ability to inspect losses, determining whether losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or specifically excluded coverage caused by flood, estimating additional living expenses, and assessing the impact of demand surge, exposure to mold damage, and the effects of numerous other considerations, including the timing of a catastrophe in relation to other events, such as at or near the end of a financial reporting period, which can affect the availability of information needed to estimate reserves for that reporting period. In these situations, we may need to adapt our practices to accommodate these circumstances in order to determine a best estimate of our losses from a catastrophe. For example, to complete estimates for certain areas affected by catastrophes not yet inspected by our claims adjusting staff, or where we believed our historical loss development factors were not predictive, we rely on analysis of actual claim notices received compared to total PIF, as well as visual, governmental and third-party information, including aerial photos, using satellites, aircrafts and drones, area observations, and data on wind speed and flood depth to the extent available. Potential reserve estimate variability The aggregation of numerous micro-level estimates for each business segment, line of insurance, major components of losses (such as coverages and perils), and major states or groups of states for reported losses and IBNR forms the reserve liability recorded in the Consolidated Statements of Financial Position. Because of this detailed approach to developing our reserve estimates, there is not a single set of assumptions that determines our reserve estimates at the consolidated level. Given the numerous micro-level estimates for reported losses and IBNR, management does not believe the processes that we follow will produce a statistically credible or reliable actuarial reserve range that would be meaningful. Reserve estimates, by their very nature, are very complex to determine and subject to significant judgment, and do not represent an exact determination for each outstanding claim. Accordingly, as actual claims, paid losses, and case reserve results emerge, our estimate of the ultimate cost to settle will be different than previously estimated.
To develop a statistical indication of potential
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reserve variability within reasonably likely possible outcomes, an actuarial technique (stochastic modeling) is applied to the countrywide consolidated data elements for paid losses and paid losses combined with case reserves separately for injury losses, auto physical damage losses, and homeowners losses excluding catastrophe losses. Based on the combined historical variability of the development factors calculated for these data elements, an estimate of the standard error or standard deviation around these reserve estimates is calculated within each accident year for the last twelve years for each type of loss. The variability of these reserve estimates within one standard deviation of the mean (a measure of frequency of dispersion often viewed to be an acceptable level of accuracy) is believed by management to represent a reasonable and statistically probable measure of potential variability. Based on our products and coverages, historical experience, the statistical credibility of our extensive data and stochastic modeling of actuarial chain ladder methodologies used to develop reserve estimates, we estimate that the potential variability of our Allstate Protection reserves, excluding reserves for catastrophe losses, within a reasonable probability of other possible outcomes, may be approximately plus or minus 4%, or plus or minus $900 million in net income applicable to common shareholders. A lower level of variability exists for auto injury losses, which comprise approximately 80% of reserves, due to their relatively stable development patterns over a longer duration of time required to settle claims. Other types of losses, such as auto physical damage, homeowners losses and other personal lines losses, which comprise about 20% of reserves, tend to have greater variability but are settled in a much shorter period of time. Although this evaluation reflects most reasonably likely outcomes, it is possible the final outcome may fall below or above these amounts. Historical variability of reserve estimates is reported in the Claims and Claims Expense Reserves section of the MD&A. Reserves forMichigan andNew Jersey unlimited personal injury protection Claims and claims expense reserves include reserves forMichigan mandatory unlimited personal injury protection coverage to insureds involved in qualifying motor vehicle accidents. The administration of this program is through the MCCA, a state-mandated, non-profit association of which all insurers actively writing automobile coverage inMichigan are members. The process employed to estimate MCCA covered losses involves a number of activities including the comprehensive review and interpretation of MCCA actuarial reports, other MCCA members' reports and our personal injury protection loss trends which have increased in severity over time. A significant portion of incurred claim reserves can be attributed to a small number of catastrophic claims and thus a large portion of the recoverable is similarly concentrated. We conduct comprehensive claim file reviews to develop case reserve type estimates of specific claims, which inform our view of future claim development and longevity of claimants. Each year, we update the actuarial estimate of our ultimate reserves and recoverables. We report our paid and unpaid claims based on MCCA requirements. The MCCA develops its own reserving estimates based on its own reserve methodologies, which may not align with our estimations. The MCCA does not provide member companies with its estimate of a company's claim costs. We continue to update each comprehensive claim file case reserve estimate when there is a significant change in the status of the claimant, or once every three years if there have been no significant changes. We provide similar personal injury protection coverage inNew Jersey for auto policies issued or renewed inNew Jersey prior to 1991 that is administered by PLIGA. We use similar actuarial estimating techniques as for the MCCA exposures to estimate loss reserves for unlimited personal injury protection coverage for policies covered by PLIGA. We continue to update our estimates for these claims as the status of claimant's changes. However, unlimited coverage was no longer offered after 1991; therefore, no new claimants are being added. Reserve estimates are confidential and proprietary and by their nature are very complex to determine and subject to significant judgments. Reserve estimates do not represent an exact determination for each outstanding claim. Claims may be subject to litigation. As actual claims, paid losses and case reserve results emerge, our estimate of the ultimate cost to settle may be materially greater or less than previously estimated amounts. For additional information related to indemnification recoverables, see Item 1 - Regulation, Indemnification Programs and Note 11 of the consolidated financial statements. Adequacy of reserve estimates We believe our net claims and claims expense reserves are appropriately established based on available methodologies, facts, technology, laws and regulations. We calculate and record a single best reserve estimate, in conformance with generally accepted actuarial standards and practices, for each line of insurance, its components (coverages and perils) and state, for reported losses and for IBNR losses, and as a result we believe that no other estimate is better than our recorded amount. Due to the uncertainties involved, the ultimate cost of losses may vary materially from recorded amounts, which are based on our best estimates.
Run-off Property-Liability reserve estimates
Characteristics of Run-off exposure Our exposure to asbestos, environmental and other run-off claims arise principally from assumed reinsurance coverage written during the 1960s through the mid-1980s, including reinsurance on primary insurance written on largeU.S. companies, and from direct excess commercial insurance written from 1972 through 1985, including substantial excess general liability coverages on largeU.S. companies. Additional exposure stems from direct primary commercial insurance written during the 1960s through the mid-1980s. Asbestos claims relate primarily to bodily injuries asserted by claimants who were exposed to asbestos or products
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containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs. Other run-off claims exposures primarily relate to general liability and product liability mass tort claims, such as those for medical devices and other products, workers' compensation claims and claims for various other coverage exposures other than asbestos and environmental.
In 1986, the general liability policy form used by us and others in the property and casualty industry was amended to introduce an "absolute pollution exclusion," which excluded coverage for environmental damage claims, and to add an asbestos exclusion. Most general liability policies issued prior to 1987 contain annual aggregate limits for product liability coverage. General liability policies issued in 1987 and thereafter contain annual aggregate limits for product liability coverage and annual aggregate limits for all coverages. Our experience to date is that these policy form changes have limited the extent of our exposure to environmental and asbestos claim risks. Our exposure to liability for asbestos, environmental and other run-off claims losses manifests differently depending on whether it arises from assumed reinsurance coverage, direct excess commercial insurance or direct primary commercial insurance. The direct insurance coverage we provided that covered asbestos, environmental and other run-off claims was substantially "excess" in nature. Direct excess commercial insurance and reinsurance involve coverage written by us for specific layers of protection above retentions and other insurance plans. The nature of excess coverage and reinsurance provided to other insurers limits our exposure to loss to specific layers of protection in excess of policyholder retention on primary insurance plans. Our exposure is further limited by the significant reinsurance that we had purchased on our direct excess business. Our assumed reinsurance business involved writing generally small participations in other insurers' reinsurance programs. The reinsured losses in which we participate may be a proportion of all eligible losses or eligible losses in excess of defined retentions. Of the majority of our assumed reinsurance exposure, approximately 85%, is for excess of loss coverage, while the remaining 15% is for pro-rata coverage.
Our direct primary commercial insurance business did not include coverage to large asbestos manufacturers. This business comprises a cross section of policyholders engaged in many diverse business sectors throughout the country.
How reserve estimates are established and updated We conduct an annual review in
the third quarter to evaluate, establish and adjust as necessary, asbestos,
environmental and other run-off claims reserves. Changes to reserves are
recorded in the reporting period in which they are determined. Using established
industry and actuarial best practices and assuming no change in the regulatory
or economic environment, this detailed and comprehensive methodology determines
asbestos reserves based on
assessments of the characteristics of exposure (i.e. claim activity, potential
liability, jurisdiction, products versus non-products exposure) presented by
individual policyholders, and determines environmental reserves based on
assessments of the characteristics of exposure (i.e. environmental damages,
respective shares of liability of potentially responsible parties,
appropriateness and cost of remediation) to pollution and related clean-up
costs. The number and cost of these claims are affected by advertising by trial
lawyers seeking asbestos plaintiffs, and entities with asbestos exposure seeking
bankruptcy protection as a result of asbestos liabilities, initially causing a
delay in the reporting of claims, often followed by an acceleration and an
increase in claims and claims expenses as settlements occur.
After evaluating our insureds' probable liabilities for asbestos and
environmental claims, we evaluate our insureds' coverage programs for such
claims. We consider our insureds' total available insurance coverage, including
the coverage we issued. We also consider relevant judicial interpretations of
policy language and applicable coverage defenses or determinations, if any.
Evaluation of both the insureds' estimated liabilities and our exposure to the
insureds depends heavily on an analysis of the relevant legal issues and
litigation environment. This analysis is conducted by our specialized claims
adjusting staff and legal counsel. Based on these evaluations, case reserves are
established by claims adjusting staff and actuarial analysis is employed to
develop an IBNR reserve, which includes estimated potential reserve development
and claims that have occurred but have not been reported. As of December 31,
2021 and 2020, IBNR was 54.8% and 50.3%, respectively, of combined net asbestos
and environmental reserves.
For both asbestos and environmental reserves, we also evaluate our historical
direct net loss and expense paid and incurred experience to assess any emerging
trends, fluctuations or characteristics suggested by the aggregate paid and
incurred activity. Other run-off claims reserves are based on considerations
similar to those described above, as they relate to the characteristics of
specific individual coverage exposures.
Potential reserve estimate variability Establishing Run-off Property-Liability
net loss reserves for asbestos, environmental and other run-off claims is
subject to uncertainties that are much greater than those presented by other
types of property and casualty claims. 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
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2021 Form 10-K Application of Critical Accounting Estimates
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. Our reserves for asbestos and environmental exposures could be affected by tort reform, class action litigation, and other potential legislation and judicial decisions. Environmental exposures could also be affected by a change in the existing federal Superfund law and similar state statutes. There can be no assurance that any reform legislation will be enacted or that any such legislation will provide for a fair, effective and cost-efficient system for settlement of asbestos or environmental claims. We believe 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. Historical variability of reserve estimates is demonstrated in the Claims and Claims Expense Reserves section of the MD&A. Adequacy of reserve estimates Management believes its net loss reserves for asbestos, environmental and other run-off claims exposures are appropriately established based on available facts, technology, laws, regulations, and assessments of other pertinent factors and characteristics of exposure (i.e. claim activity, potential liability, jurisdiction, products versus non-products exposure) presented by individual policyholders, assuming no change in the legal, legislative or economic environment. 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.
Further discussion of reserve estimates For further discussion of these estimates and quantification of the impact of reserve estimates, reserve reestimates and assumptions, see Note 9 and Note 15 of the consolidated financial statements and the Claims and Claims Expense Reserves section of the MD&A.
Pension and other postretirement plans net costs and assumptions Our defined
benefit pension plans cover most full-time employees, certain part-time
employees and employee-agents. Benefits are provided to plan participants based
on a cash balance formula. Certain participants have a significant portion of
their benefits attributable to a former final average pay formula. 84% of the
projected benefit obligation ("PBO") of our primary qualified employee plan is
related to the former final average pay formula. See
Note 18 of the consolidated financial statements for a discussion of these plans and their effect on the consolidated financial statements.
Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, health care cost trend rates, inflation, expected returns on plan assets, mortality and other factors. The assumptions utilized in recording the obligations under our pension plans represent our best estimates and we believe they are reasonable based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past trends. Net costs for our defined benefit plans are recognized on the Consolidated Statements of Operations and consist of two elements: 1) costs comprised of service and interest costs, expected return of plan assets, amortization of prior service credit and curtailment gains and losses which are reported in property and casualty claims and claims expense, operating costs and expenses, net investment income and, if applicable, restructuring and related charges and 2) remeasurement gains and losses comprised of changes in actuarial assumptions and the difference between actual and expected returns on plan assets which are recognized immediately in earnings as part of pension and other postretirement remeasurement gains and losses. We recognize expected returns on plan assets using an unadjusted fair value method. Our policy is to remeasure our pension and postretirement plans on a quarterly basis. We immediately recognize remeasurement of projected benefit obligation and plan assets in earnings as it provides greater transparency of our economic obligations in accounting results and better aligns the recognition of the effects of economic and interest rate changes on pension and other postretirement plan assets and liabilities in the year in which the gains and losses are incurred. Differences in actual experience or changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses. The primary factors contributing to pension and postretirement remeasurement gains and losses are 1) changes in the discount rate used to value pension and postretirement obligations as of the measurement date, 2) differences between the expected and the actual return on plan assets and 3) changes in demographic assumptions, including mortality and participant experience. Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to our reportable segments. The pension and other postretirement remeasurement gains and losses are reported in the Corporate and Other segment.
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Application of Critical Accounting Estimates 2021 Form 10-K
Pension and postretirement benefits remeasurement gains and losses
For the years ended December 31,
($ in millions) 2021 2020 2019
Remeasurement of projected benefit obligation
(gains) losses:
Discount rate $ (285) $ 553 $ 633
Other assumptions (40) 282 313
Remeasurement of plan assets (gains) losses (319) (886) (832)
Remeasurement (gains) losses $ (644) $ (51) $ 114
Impact of assumption changes to net cost for pension and other postretirement plans Remeasurement gains in 2021 primarily related to favorable asset performance compared to the expected return on plan assets and an increase in the liability discount rate. Remeasurement gains in 2020 primarily related to favorable asset performance compared to the expected return on plan assets, partially offset by a decrease in the discount rate and changes in actuarial assumptions. The discount rate is based on rates at which expected pension benefits attributable to past employee service could effectively be settled on a present value basis at the measurement date. We develop the assumed discount rate by utilizing the weighted average yield of a theoretical dedicated portfolio derived from non-callable bonds and callable bonds with a make-whole provision available in the Bloomberg corporate bond universe having ratings of at least "AA" by S&P or at least "Aa" by Moody's on the measurement date with cash flows that match expected plan benefit requirements. Significant changes in discount rates, such as those caused by changes in the credit spreads, yield curve, the mix of bonds available in the market, the duration of selected bonds and expected benefit payments, may result in volatility in pension cost. The weighted average discount rate used to measure the benefit obligation increased to 2.93% in 2021 compared to 2.51% in 2020, resulting in gains for 2021.
The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. While this rate reflects long-term assumptions and is consistent with long-term historical returns, sustained changes in the market or changes in
the mix of plan assets may lead to revisions in the assumed long-term rate of return on plan assets that may result in variability of pension cost. Differences between the actual return on plan assets and the expected long-term rate of return on plan assets are immediately recognized through earnings upon remeasurement. Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. In 2021, the actual return on plan assets was higher than the expected return primarily due to strong equity market performance. In 2020, the actual return on plan assets was higher than the expected return primarily due to a decline in interest rates which increased the fair value of our fixed income investments and strong equity market performance.
We complete periodic evaluations of demographic information and historical experience that affects our pension and other postretirement obligations to identify any required changes to long-term actuarial assumptions and methodologies. Demographic assumptions affect both our pension and postretirement plans and include elements such as retirement rates and participation rates in our postretirement programs, among other factors.
These actuarial assumption updates affect our pension and other postretirement obligations and are incorporated into our best estimates of these assumptions. Remeasurement losses for other assumptions in 2020 primarily related to a decrease in lump sum interest rates and changes in the estimated percentage of employees taking lump sum distributions.
Sensitivity of assumption changes included in the calculation of net cost as of December 31, 2021
Increase (decrease) to
($ in millions) Basis/percentage point change net cost
Pension plans discount rate +100 basis points $ (755)
-100 basis points 928
Expected long-term rate of return on assets +100 basis points (62)
-100 basis points 62
The Allstate Corporation 93
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2021 Form 10-K
Regulation and Legal Proceedings
We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 15 of the consolidated financial statements.
Pending Accounting Standard
There is a pending accounting standard that we have not implemented because the implementation date has not yet occurred. For a discussion of this pending standard, see Note 2 of the consolidated financial statements.
The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required for Item 7A is incorporated by reference to the material under the caption "Market Risk" in Part II, Item 7 of this report.
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2021 Form 10-K
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements Page Consolidated Statements of Operations 96 Consolidated Statements of Comprehensive Income 97 Consolidated Statements of Financial Position 98 Consolidated Statements of Shareholders' Equity 99 Consolidated Statements of Cash Flows 100 Notes to Consolidated Financial Statements
Note 1 General 101
Note 2 Summary of Significant Accounting Policies 102
Note 3 Acquisitions and Dispositions 113
Note 4 Reportable Segments 116
Note 5 Investments 119
Note 6 Fair Value of Assets and Liabilities 129
Note 7 Derivative Financial Instruments and Off-balance Sheet Financial 137
Instruments
Note 8 Variable Interest Entities 143
Note 9 Reserve for Property and Casualty Insurance Claims and Claims Expense 143
Note 10 Reserve for Future Policy Benefits and Contractholder Funds 149
Note 11 Reinsurance and Indemnification 152
Note 12 Deferred Policy Acquisition Costs 157
Note 13 Capital Structure 157
Note 14 Company Restructuring 160
Note 15 Commitments, Guarantees and Contingent Liabilities 161
Note 16 Income Taxes 168
Note 17 Statutory Financial Information and Dividend Limitations 170
Note 18 Benefit Plans 171
Note 19 Equity Incentive Plans 178
Note 20 Supplemental Cash Flow Information 180
Note 21 Other Comprehensive Income 181
Note 22 Quarterly Results (unaudited) 181
Report of Independent Registered Public Accounting Firm 182
The Allstate Corporation 95
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2021 Form 10-K Financial Statements
The Allstate Corporation and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31,
($ in millions, except per share data) 2021 2020 2019
Revenues
Property and casualty insurance premiums (net of reinsurance ceded and indemnification programs of $1,904, $1,141 and $1,122) $ 42,218
$ 37,073 $ 36,076 Accident and health insurance premiums and contract charges (net of reinsurance ceded of $78, $13 and $14)
1,821 1,094 1,145
Other revenue 2,172 1,065 1,054
Net investment income 3,293 1,590 1,728
Net gains (losses) on investments and derivatives 1,084 1,087 1,538
Total revenues 50,588 41,909 41,541
Costs and expenses
Property and casualty insurance claims and claims
expense
(net of reinsurance ceded and indemnification programs
of $3,484, $530 and $524) 29,318 22,001 23,976
Shelter-in-Place Payback expense 29 948 -
Accident and health insurance policy benefits (net of reinsurance ceded of $85, $15 and $12)
1,015 516 601
Interest credited to contractholder funds (net of
reinsurance ceded of $1, zero and zero) 34 33 34
Amortization of deferred policy acquisition costs 6,252 5,477 5,353
Operating costs and expenses 7,260 5,494 5,422
Pension and other postretirement remeasurement (gains) losses
(644) (51) 114
Restructuring and related charges 170 253 39
Amortization of purchased intangibles 376 118 126
Impairment of purchased intangibles - - 106
Interest expense 330 318 327
Total costs and expenses 44,140 35,107 36,098
Income from operations before income tax expense 6,448 6,802 5,443
Income tax expense 1,289 1,373 1,116
Net income from continuing operations 5,159 5,429 4,327
(Loss) income from discontinued operations, net of tax (3,593) 147 520
Net income 1,566 5,576 4,847
Less: Net loss attributable to noncontrolling interest (33) - -
Net income attributable to Allstate 1,599 5,576 4,847
Less: Preferred stock dividends 114 115 169
Net income applicable to common shareholders $ 1,485 $ 5,461 $ 4,678
Earnings per common share applicable to common shareholders Basic Continuing operations $ 17.23 $ 17.06 $ 12.67 Discontinued operations (12.19) 0.47 1.58 Total $ 5.04 $ 17.53 $ 14.25 Diluted Continuing operations $ 16.98 $ 16.84 $ 12.47 Discontinued operations (12.02) 0.47 1.56 Total $ 4.96
$ 17.31 $ 14.03
Weighted average common shares - Basic 294.8 311.6 328.2
Weighted average common shares - Diluted 299.1 315.5 333.5
See notes to consolidated financial statements.96 www.allstate.com
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Financial Statements 2021 Form 10-K
The Allstate Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31,
($ in millions) 2021 2020 2019
Net income $ 1,566 $ 5,576 $ 4,847
Other comprehensive (loss) income, after-tax
Changes in:
Unrealized net capital gains and losses (2,582) 1,293 1,889
Unrealized foreign currency translation adjustments (8) 52 (10)
Unamortized pension and other postretirement prior service credit
(59) 9 (47)
Other comprehensive (loss) income, after-tax (2,649) 1,354 1,832
Comprehensive (loss) income (1,083) 6,930 6,679
Less: Comprehensive loss attributable to
noncontrolling interest (36) - -
Comprehensive (loss) income attributable to Allstate $ (1,047)
$ 6,930 $ 6,679
See notes to consolidated financial statements.
The Allstate Corporation 97
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2021 Form 10-K Financial Statements
The Allstate Corporation and Subsidiaries
Consolidated Statements of Financial Position
December 31,
($ in millions, except par value data) 2021 2020
Assets
Investments
Fixed income securities, at fair value (amortized cost, net $41,376 and $40,034)
$ 42,136 $ 42,565
Equity securities, at fair value (cost $6,016 and $2,740) 7,061 3,168
Mortgage loans, net 821 746
Limited partnership interests 8,018 4,563
Short-term, at fair value (amortized cost $4,009 and $6,807) 4,009 6,807
Other investments, net 2,656 1,691
Total investments 64,701 59,540
Cash 763 311
Premium installment receivables, net 8,364 6,463
Deferred policy acquisition costs 4,722 3,774
Reinsurance and indemnification recoverables, net 10,024 7,215
Accrued investment income 339 371
Property and equipment, net 939 1,057
Goodwill 3,502 2,369
Other assets, net 6,086 2,756
Assets held for sale - 42,131
Total assets 99,440 125,987
LiabilitiesReserve for property and casualty insurance claims and claims expense
33,060 27,610
Reserve for future policy benefits 1,273 1,028
Contractholder funds 908 857
Unearned premiums 19,844 15,946
Claim payments outstanding 1,123 957
Deferred income taxes 833 382
Other liabilities and accrued expenses 9,296 7,840
Long-term debt 7,976 7,825
Liabilities held for sale - 33,325
Total liabilities 74,313 95,770
Commitments and Contingent Liabilities (Note 7, 9 and 15) Shareholders' equity Preferred stock and additional capital paid-in, $1 par value, 25 million shares authorized, 81.0 thousand shares issued and outstanding, $2,025 aggregate liquidation preference
1,970 1,970
Common stock, $.01 par value, 2.0 billion shares authorized and 900 million issued, 281 million and 304 million shares outstanding
9 9
Additional capital paid-in 3,722 3,498
Retained income 53,294 52,767
Treasury stock, at cost (619 million and 596 million shares) (34,471) (31,331)
Accumulated other comprehensive income:
Unrealized net capital gains and losses 598 3,180 Unrealized foreign currency translation adjustments (15) (7)
Unamortized pension and other postretirement prior service credit
72 131
Total accumulated other comprehensive income ("AOCI") 655 3,304
Total Allstate shareholders' equity 25,179 30,217
Noncontrolling interest (52) -
Total equity 25,127 30,217
Total liabilities and equity $ 99,440 $ 125,987
See notes to consolidated financial statements.
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Financial Statements 2021 Form 10-K
The Allstate Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31,
($ in millions, except per share data) 2021 2020 2019
Preferred stock par value $ - $ - $ -
Preferred stock additional capital paid-in
Balance, beginning of year 1,970 2,248 1,930
Acquisition 450 - -
Preferred stock issuance, net of issuance costs - - 1,414
Preferred stock redemption (450) (278) (1,096)
Balance, end of year 1,970 1,970 2,248
Common stock par value 9 9 9
Common stock additional capital paid-in
Balance, beginning of year 3,498 3,463 3,310
Forward contract on accelerated share repurchase
agreement 113 (38) 75
Equity incentive plans activity 111 73 78
Balance, end of year 3,722 3,498 3,463
Retained income
Balance, beginning of year 52,767 48,074 44,033
Cumulative effect of change in accounting principle - (88) 21
Net income 1,599 5,576 4,847
Dividends on common stock (declared per share of $3.24, $2.16 and $2.00)
(958) (680) (658)
Dividends on preferred stock (114) (115) (169)
Balance, end of year 53,294 52,767 48,074
Deferred employee stock ownership plan ("ESOP") expense
Balance, beginning of year - - (3)
Payments - - 3
Balance, end of year - - -
Treasury stock
Balance, beginning of year (31,331) (29,746) (28,085)
Shares acquired (3,262) (1,700) (1,810)
Shares reissued under equity incentive plans, net 122 115 149
Balance, end of year (34,471) (31,331) (29,746)
Accumulated other comprehensive income (loss) Balance, beginning of year 3,304 1,950 118 Change in unrealized net capital gains and losses (2,582) 1,293 1,889 Change in unrealized foreign currency translation adjustments (8) 52 (10) Change in unamortized pension and other postretirement prior service credit (59) 9 (47) Balance, end of year 655 3,304 1,950 Total Allstate shareholders' equity 25,179 30,217 25,998 Noncontrolling interest Balance, beginning of period - - - Acquisition (16) - - Change in unrealized net capital gains and losses (3) - - Noncontrolling loss (33) - - Balance, end of period (52) - - Total equity $ 25,127
$ 30,217 $ 25,998
See notes to consolidated financial statements.
The AllstateCorporation 99
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2021 Form 10-K Financial Statements
The Allstate Corporation and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, ($ in millions) 2021 2020 2019 Cash flows from operating activities Net income $ 1,566 $ 5,576 $ 4,847
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash items
1,086 686 647
Net (gains) losses on investments and derivatives (1,279) (1,356) (1,885)
Pension and other postretirement remeasurement (gains) losses
(644) (51) 114
Amortization of deferred gain on reinsurance (4) (4) (6)
Interest credited to contractholder funds 448 638 640
Impairment of purchased intangibles - - 106
Loss on disposition of operations, net of tax 4,031 - -
Changes in:
Policy benefits and other insurance reserves 1,984 (682) (508)
Unearned premiums 1,618 598 801
Deferred policy acquisition costs (608) (125) (85)
Premium installment receivables, net (498) (3) (299)
Reinsurance recoverables, net (1,565) (11) 320
Income taxes 349 (232) 487
Other operating assets and liabilities (1,368) 457 (50)
Net cash provided by operating activities 5,116 5,491 5,129
Cash flows from investing activities
Proceeds from sales
Fixed income securities 31,774 31,950 29,849
Equity securities 4,513 8,405 5,277
Limited partnership interests 886 1,350 756
Mortgage loans - 230 -
Other investments 1,406 340 303
Investment collections
Fixed income securities 2,284 2,235 2,570
Mortgage loans 860 626 695
Other investments 550 209 254
Investment purchases
Fixed income securities (33,857) (38,121) (31,317)
Equity securities (6,409) (4,648) (7,176)
Limited partnership interests (1,766) (1,265) (1,332)
Mortgage loans (221) (203) (844)
Other investments (1,647) (371) (666)
Change in short-term and other investments, net 4,017 (3,871) (725)
Purchases of property and equipment, net (345) (308) (433)
Acquisition of operations, net of cash acquired (3,593) 1 (18)
Proceeds from disposition of operations, net of cash transferred
2,058 - -
Net cash provided by (used in) investing activities 510 (3,441) (2,807)
Cash flows from financing activities
Proceeds from issuance of long-term debt - 1,189 491
Redemption and repayment of long-term debt (436) - (317)
Proceeds from issuance of preferred stock - - (1,132)
Redemption of preferred stock (450) (288) 1,414
Contractholder fund deposits 826 991 996
Contractholder fund withdrawals (1,140) (1,494) (1,662)
Dividends paid on common stock (885) (668) (653)
Dividends paid on preferred stock (114) (108) (134)
Treasury stock purchases (3,120) (1,737) (1,735)
Shares reissued under equity incentive plans, net 114 63 120
Other (35) 41 129
Net cash used in financing activities (5,240) (2,011) (2,483)
Net increase (decrease) in cash, including cash classified as assets held for sale
386 39 (161)
Cash from continuing operations at beginning of period 311 273 425
Cash classified as assets held for sale at beginning of period
66 65 74
Less: Cash classified as assets held for sale at end of period
- 66 65
Cash from continuing operations at end of period $ 763 $ 311 $ 273
See notes to consolidated financial statements.
The AllstateCorporation 100
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Notes to Consolidated Financial Statements 2021 Form 10-K
Notes to Consolidated Financial Statements
Note 1 General
Basis of presentation
The accompanying consolidated financial statements include the accounts of The
Allstate Corporation (the "Corporation") and its wholly owned subsidiaries,
primarily Allstate Insurance Company ("AIC"), a property and casualty insurance
company with various property and casualty and life and investment subsidiaries
(collectively referred to as the "Company" or "Allstate") and variable interest
entities in which the Company is considered primary beneficiary. These
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
("GAAP"). All significant intercompany accounts and transactions have been
eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Nature of operations
Allstate is engaged, principally inthe United States , in the property and casualty insurance business. Allstate is one of the country's largest personal property and casualty insurers and is organized into five reportable segments: Allstate Protection, Run-off Property Liability (previously Discontinued Lines and Coverages), Protection Services, Allstate Health and Benefits (previously Allstate Benefits), and Corporate and Other. Allstate's primary business is the sale of private passenger auto and homeowners insurance. The Company also offers several other personal property and casualty insurance products, select commercial property and casualty coverages, consumer product protection plans, device and mobile data collection services and analytic solutions using automotive telematics information, roadside assistance, finance and insurance products, employer voluntary benefits and group accident and health insurance and identity protection. Allstate primarily distributes its products through exclusive agents, financial specialists, independent agents and brokers, major retailers, contact centers and the internet.
Risks and uncertainties
Allstate has exposure to catastrophic events, including wind and hail, wildfires, tornadoes, hurricanes, tropical storms, earthquakes, severe freeze events, volcanic eruptions, terrorism and industrial accidents.
Catastrophes, an inherent risk of the property and casualty insurance business, have contributed, and will continue to contribute, to material year-to-year fluctuations in the Company's results of operations and financial position (see Note 9). The nature and level of catastrophic loss experienced in any period cannot be predicted and could be material to results of operations and financial position.
The Company considers the following categories and locations to be the greatest areas of potential catastrophe losses:
•Wildfires -
•Hurricanes - Major metropolitan centers in counties along the eastern and gulf
coasts of
•Wind/Hail, Rain and Tornado -
•Earthquakes and fires following earthquakes -Major metropolitan areas near fault lines in the states ofCalifornia ,Oregon ,Washington ,South Carolina andKentucky
The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus")
The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus") resulted in
governments worldwide enacting emergency measures to combat the spread of the
virus, including travel restrictions, government-imposed shelter-in-place
orders, quarantine periods, social distancing, and restrictions on large
gatherings. These measures moderated in 2021 as vaccines have become more widely
available in the United States and Canada . There is no way of predicting with
certainty how long the pandemic might last. We continue to closely monitor and
proactively adapt to developments and changing conditions. Currently, it is not
possible to reliably estimate the impact to our operations, but the effects have
been and could be material.
The Allstate Corporation 101
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2021 Form 10-K Notes to Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and asset-backed securities ("ABS"). ABS
includes mortgage-backed securities ("MBS") that were previously disclosed
separately. Fixed income securities, which may be sold prior to their
contractual maturity, are designated as available-for-sale ("AFS") and are
carried at fair value. The difference between amortized cost, net of credit loss
allowances ("amortized cost, net") and fair value, net of deferred income taxes
and related life deferred policy acquisition costs ("DAC"), is reflected as a
component of AOCI. The Company excludes accrued interest receivable from the
amortized cost basis of its AFS fixed income securities. Cash received from
calls and make-whole payments is reflected as a component of proceeds from sales
and cash received from maturities and pay-downs is reflected as a component of
investment collections within the Consolidated Statements of Cash Flows.
Equity securities primarily include common stocks, exchange traded and mutual
funds, non-redeemable preferred stocks and real estate investment trust equity
investments. Certain exchange traded and mutual funds have fixed income
securities as their underlying investments. Equity securities are carried at
fair value. Equity securities without readily determinable or estimable fair
values are measured using the measurement alternative, which is cost less
impairment, if any, and adjustments resulting from observable price changes in
orderly transactions for the identical or similar investment of the same issuer.
Mortgage loans and bank loans are carried at amortized cost, net, which
represent the amount expected to be collected. The Company excludes accrued
interest receivable from the amortized cost basis of its mortgage and bank
loans. Credit loss allowances are estimates of expected credit losses,
established for loans upon origination or purchase, and are established
considering all relevant information available, including past events, current
conditions, and reasonable and supportable forecasts over the life of the loans.
Loans are evaluated on a pooled basis when they share similar risk
characteristics; otherwise, they are evaluated individually.
Investments in limited partnership interests are primarily accounted for in
accordance with the equity method of accounting ("EMA") and include interests in
private equity funds, real estate funds and other funds. Investments in limited
partnership interests purchased prior to January 1, 2018, where the Company's
interest is so minor that it exercises virtually no influence over operating and
financial policies, are accounted for at fair value primarily utilizing the net
asset value ("NAV") as a practical expedient to determine fair value.
Short-term investments, including money market funds, commercial paper, U.S.
Treasury bills and other short-term investments, are carried at fair value.
Other investments primarily consist of bank loans, policy loans, real estate and
derivatives. Bank loans are primarily senior secured corporate loans. Policy
loans
are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Derivatives are carried at fair value.
Investment income primarily consists of interest, dividends, income from limited partnership interests, rental income from real estate, and income from certain derivative transactions. Interest is recognized on an accrual basis using the effective yield method and dividends are recorded at the ex-dividend date. Interest income for ABS is determined considering estimated pay-downs, including prepayments, obtained from third-party data sources and internal estimates. Actual prepayment experience is periodically reviewed, and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For ABS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is generally recalculated on a prospective basis. Net investment income for AFS fixed income securities includes the impact of accreting the credit loss allowance for the time value of money. Accrual of income is suspended for fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable. Accrual of income is suspended for mortgage loans and bank loans that are in default or when full and timely collection of principal and interest payments is not probable. Accrued income receivable is monitored for recoverability and when not expected to be collected is written off through net investment income. Cash receipts on investments on nonaccrual status are generally recorded as a reduction of amortized cost. Income from limited partnership interests carried at fair value is recognized based upon the changes in fair value of the investee's equity primarily determined using NAV. Income from EMA limited partnership interests is recognized based on the Company's share of the partnerships' earnings. Income from EMA limited partnership interests is generally recognized on a three month delay due to the availability of the related financial statements from investees. Net gains and losses on investments and derivatives include gains and losses on investment sales, changes in the credit loss allowances related to fixed income securities, mortgage loans and bank loans, impairments, valuation changes of equity investments, including equity securities and certain limited partnerships where the underlying assets are predominately public equity securities, and periodic changes in fair value and settlements of certain derivatives, including hedge ineffectiveness. Net gains and losses on sales of investments and derivatives are determined on a specific identification basis and are net of credit losses already recognized through an allowance.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Derivative and embedded derivative financial instruments
Derivative financial instruments include interest rate swaps, credit default swaps, futures (interest rate and equity), options (including swaptions), warrants and rights, foreign currency forwards and total return swaps.
All derivatives are accounted for on a fair value basis and reported as other investments, other assets, other liabilities and accrued expenses. Embedded derivative instruments subject to bifurcation are also accounted for on a fair value basis and are reported together with the host contract. Cash flows from other derivatives are reported in cash flows from investing activities within the Consolidated Statements of Cash Flows. For derivatives for which hedge accounting is not applied, the income statement effects, including fair value gains and losses and accrued periodic settlements, are reported either in net gains and losses on investments and derivatives or in a single line item together with the results of the associated asset or liability for which risks are being managed.
Securities loaned
The Company's business activities include securities lending transactions, which are used primarily to generate net investment income. The proceeds received in conjunction with securities lending transactions can be reinvested in short-term investments or fixed income securities. These transactions are short-term in nature, usually 30 days or less. The Company receives cash collateral for securities loaned in an amount generally equal to 102% and 105% of the fair value of domestic and foreign securities, respectively, and records the related obligations to return the collateral in other liabilities and accrued expenses. The carrying value of these obligations approximates fair value because of their relatively short-term nature. The Company monitors the market value of securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to repossess the securities loaned on short notice.
Recognition of premium revenues and contract charges, and related benefits and interest credited
Property and casualty insurance premiums include premiums from personal lines policies, protection plans, other contracts (primarily finance and insurance products) and roadside assistance.
Personal lines insurance premiums are deferred and earned on a pro-rata basis over the terms of the policies, typically periods of six or twelve months.
Revenues related to protection plans, other contracts (primarily finance and insurance products) and roadside assistance are deferred and earned over the term of the contract in a manner that recognizes revenue as obligations under the contracts are performed. Revenues from these products are classified as premiums as the products are backed by insurance. Protection plans and finance and insurance premiums are recognized using a cost-based incurrence method over the term of the contracts, which is generally one to five years. Roadside assistance premiums are recognized evenly over the term of the contract as performance obligations are fulfilled.
The portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums.
Unearned premiums
December 31,
($ in millions) 2021 2020
Allstate Protection $ 15,762 $ 12,772
Protection Services 4,054 3,167
Total $ 19,816 $ 15,939
Protection Services For the year ended December 31, 2021, the Company recognized
$1.28 billion of property and casualty insurance premiums for Protection
Services that were included in the unearned premium balance as of December 31,
2020.
For the year ended December 31, 2020, the Company recognized $1.11 billion of property and casualty insurance premiums for Protection Services that were included in the unearned premium balance as of December 31, 2019.
The Company expects to recognize approximately $1.48 billion, $1.07 billion and $1.50 billion of the December 31, 2021 unearned premium balance in 2022, 2023 and thereafter, respectively. Premium installment receivables represent premiums written and not yet collected, net of the credit loss allowance for uncollectible premiums. These receivables are primarily outstanding for one year or less. The Company utilizes historical internal data including aging analyses to estimate allowances under current conditions and for the forecast period. The Company regularly evaluates and updates the data and adjusts its allowance as appropriate.
The increase in the provision for credit losses primarily related to the acquisition of National General.
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2021 Form 10-K Notes to Consolidated Financial Statements
Rollforward of credit loss allowance for premium installment receivables
For the years ended December 31,
($ in millions) 2021 2020
Beginning balance $ (153) $ (91)
Increase in the provision for credit losses (293) (223)
Write-off of uncollectible premium installment receivable
amounts 339 161
Ending balance $ (107) $ (153)
Voluntary accident and health insurance products are expected to remain in force
for an extended period and therefore are primarily classified as long-duration
contracts. Traditional life insurance products consist principally of products
with fixed and guaranteed premiums and benefits, primarily term and whole life
insurance products. Premiums from these products are recognized as revenue when
due from policyholders, net of any credit loss allowance for uncollectible
premiums. Benefits are reflected in accident and health insurance policy
benefits and recognized over the life of the policy in relation to premiums.
Interest-sensitive life contracts, such as universal life, are insurance
contracts whose terms are not fixed and guaranteed. The terms that may be
changed include premiums paid by the contractholder, interest credited to the
contractholder account balance and contract charges assessed against the
contractholder account balance. Premiums from these contracts are reported as
contractholder fund deposits. Contract charges consist of fees assessed against
the contractholder account balance for the cost of insurance (mortality risk),
contract administration and surrender of the contract prior to contractually
specified dates. These contract charges are recognized as revenue when assessed
against the contractholder account balance. Benefit payments in excess of the
contractholder account balance are reflected in accident and health insurance
policy benefits.
Interest credited to contractholder funds represents interest accrued or paid on
interest-sensitive life contracts. Crediting rates for interest-sensitive life
contracts are adjusted periodically by the Company to reflect current market
conditions subject to contractually guaranteed minimum rates.
Other revenue
Other revenue represents fees collected from policyholders relating to premium installment payments, commissions on sales of non-proprietary products, sales of identity protection services, fee-based services and other revenue transactions. Other revenue is recognized when performance obligations are fulfilled.
Deferred policy acquisition costs
Costs that are related directly to the successful acquisition of new or renewal policies or contracts are deferred and recorded as DAC. These costs are principally agent and broker remuneration, premium taxes and certain underwriting expenses. All other acquisition costs are expensed as incurred and included in operating costs and expenses. For property and casualty insurance, DAC is amortized into income as premiums are earned, typically over periods of six or twelve months for personal lines policies or generally one to five years for protection plans and other contracts (primarily related to finance and insurance products), and is included in amortization of deferred policy acquisition costs. DAC associated with property and casualty insurance is periodically reviewed for recoverability and adjusted if necessary. Future investment income is considered in determining the recoverability of DAC.
For voluntary accident and health insurance and traditional life, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business.
Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued and are generally not revised during the life of the policy. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies. The Company periodically reviews the recoverability of DAC using actual experience and current assumptions. Voluntary accident and health insurance products and traditional life insurance products are reviewed individually. If actual experience and current assumptions are adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required for any remaining deficiency. For interest-sensitive life insurance, DAC is amortized in proportion to the incidence of the total present value of gross profits expected to be earned over the estimated lives of the contracts. Gross profits primarily consist of the following components: contract charges for the cost of insurance less mortality costs and other benefits; investment income and net gains and losses on investments less interest credited; and surrender and other contract charges less maintenance expenses. The principal assumptions for determining the amount of gross profits are mortality, persistency, expenses, investment returns and interest crediting rates to contractholders.
The Company performs quarterly reviews of DAC recoverability for interest-sensitive life using actual experience and current assumptions.
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Notes to Consolidated Financial Statements 2021 Form 10-K
The DAC balance presented includes adjustments to reflect the amount by which the amortization of DAC would increase or decrease if the unrealized capital gains or losses in the respective product investment portfolios were actually realized. The adjustments are recorded net of tax in AOCI. DAC and deferred income taxes determined on unrealized capital gains and losses and reported in AOCI recognize the impact on shareholders' equity consistently with the amounts that would be recognized in the income statement on net gains and losses on investments and derivatives. Customers of the Company may exchange one insurance policy for another offered by the Company, or make modifications to an existing life, accident and health or property and casualty contract issued by the Company. These transactions are identified as internal replacements for accounting purposes. Internal replacement transactions determined to result in replacement contracts that are substantially unchanged from the replaced contracts are accounted for as continuations of the replaced contracts. Unamortized DAC related to the replaced contracts continue to be deferred and amortized in connection with the replacement contracts. For traditional life, accident and health and property and casualty insurance policies, any changes to unamortized DAC that result from replacement contracts are treated as prospective revisions and any costs associated with the issuance of replacement contracts are characterized as maintenance costs and expensed as incurred. The costs assigned to the right to receive future cash flows from certain business purchased from other insurers are also classified as DAC in the Consolidated Statements of Financial Position. The costs capitalized represent the present value of future profits expected to be earned over the lives of the contracts acquired. These costs are amortized as profits emerge over the lives of the acquired business and are periodically evaluated for recoverability. The present value of future profits was $24 million and $23 million as of December 31, 2021 and 2020, respectively. Amortization expense of the present value of future profits was $323 million, $14 million and $6 million in 2021, 2020 and 2019, respectively.
Reinsurance and Indemnification
Reinsurance In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. The Company has also used reinsurance to affect the disposition of certain blocks of business. Reinsurance does not extinguish the Company's primary liability under the policies written. Therefore, in addition to establishing allowances as appropriate after evaluating reinsurers' activities related to claims settlement practices and commutations, the Company evaluates reinsurer counterparty credit risk and records reinsurance recoverables net of credit loss allowances. The Company assesses counterparty credit risk for individual reinsurers separately when more relevant or on a pooled basis when shared risk characteristics exist. The evaluation considers the credit quality of the reinsurer and the period over which the recoverable balances are expected to be collected. The Company considers factors including past events, current conditions and reasonable and supportable forecasts in the development of the estimate of credit loss allowances.
Allowances for property and casualty and accident and health reinsurance recoverables are established primarily through risk-based evaluations.
The property and casualty recoverable evaluation considers the credit rating of the reinsurer, the period over which the reinsurance recoverable balances are expected to be recovered and other relevant factors including historical experience of reinsurer failures. Reinsurers in liquidation or in default status are evaluated individually using the Company's historical liquidation recovery assumptions and any other relevant information available including the most recent public information related to the financial condition or liquidation status of the reinsurer. For accident and health reinsurance recoverables, the Company uses a probability of default and loss given default model developed independently of the Company to estimate current expected credit losses. The accident and health reinsurance recoverable evaluation utilizes factors including historical industry factors based on the probability of liquidation, and incorporates current loss given default factors reflective of the industry. The Company monitors the credit ratings of reinsurer counterparties and evaluates the circumstances surrounding credit rating changes as inputs into its credit loss assessments. Uncollectible reinsurance recoverable balances are written off against the allowances when there is no reasonable expectation of recovery.
The changes in the allowances are reported in property and casualty insurance claims and claims expense and accident and health insurance policy benefits.
Indemnification The Company also participates in various indemnification mechanisms, including industry pools and facilities, which are reimbursement mechanisms that assess participating insurers for expected insured claims, reimburse participating insurers for qualifying paid claims and permit participating insurers to recoup amounts assessed directly from insureds. Indemnification recoverables are backed by the financial resources of the property and casualty insurance company market participants.
The amounts reported as indemnification recoverables include amounts paid and
due from indemnitors as well as estimates of amounts expected to be recovered
from indemnitors on insurance liabilities that have been incurred but not yet
paid. The design and function of these indemnification programs does not result
in the retention of insurance or reinsurance risk by the indemnitor. Based on
the Company's evaluation of these programs on an individual basis, the
establishment of credit loss allowances is not warranted at this time. The
Company has not experienced any historical credit losses related to its
indemnification programs. The Company
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2021 Form 10-K Notes to Consolidated Financial Statements
continues to monitor these programs to determine whether any changes from historical experience have emerged or are expected to emerge or whether there have been any changes in the design or administration of the programs that would require establishment of credit loss allowances.
Goodwill by reporting unit December 31, ($ in millions) 2021 2020 Allstate Protection $ 1,563 $ 810 Protection Services 1,494 1,463 Allstate Health and Benefits 445 96 Total $ 3,502 $ 2,369Goodwill is recognized when acquired and allocated to reporting units based on which unit is expected to benefit from the synergies of the business combination.Goodwill is not amortized but is tested for impairment at least annually. The Company performs its annual goodwill impairment testing during the fourth quarter of each year based upon data as of the close of the third quarter.Goodwill impairment is measured and recognized as the amount by which a reporting unit's carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill allocated to the reporting unit. The Company also reviews goodwill for impairment whenever events or changes in circumstances, such as deteriorating or adverse market conditions, indicate that it is more likely than not that the carrying amount of the reporting unit including goodwill may exceed the fair value of the reporting unit. The goodwill impairment analysis is performed at the reporting unit level.
As of December 31, 2021 and 2020, the fair value of the Company's goodwill reporting units exceeded their carrying values.
As disclosed in Note 3, the Company completed the sales ofAllstate Life Insurance Company ("ALIC") and certain affiliates andAllstate Life Insurance Company of New York ("ALNY") involving business in both the Allstate Life and Allstate Annuities segments. As a result of these transactions, the Company's goodwill was reduced by $175 million in 2021.
Intangible assets
Intangible assets (reported in other assets) consist of capitalized costs
primarily related to acquired customer relationships, trade names and licenses,
technology and other assets. The estimated useful lives of customer
relationships, technology and other intangible assets are generally 10 years, 5
years and 7 years, respectively. Intangible assets are carried at cost less
accumulated amortization. Amortization expense is calculated using an
accelerated amortization method. Amortization expense on intangible assets was
$376 million, $118 million and $126 million in 2021, 2020 and 2019,
respectively.
Amortization expense of intangible assets for the next five years and
thereafter
($ in millions)
2022 $ 342
2023 291
2024 226
2025 179
2026 92
Thereafter 151
Total amortization $ 1,281
Accumulated amortization of intangible assets was $1.13 billion and $751 million
as of December 31, 2021 and 2020, respectively. Trade names and licenses are
considered to have an indefinite useful life and are reviewed for impairment at
least annually or more frequent if circumstances arise that indicate an
impairment may have occurred. An impairment is recognized if the carrying amount
of the asset exceeds its estimated fair value.
Intangible assets by type
December 31,
($ in millions) 2021 2020
Customers relationships $ 909 $ 322
Trade names and licenses 206 37
Technology and other 305 94
Total $ 1,420 $ 453
During second quarter 2019, the Company made the decision to phase-out the use
of the SquareTrade trade name in the United States and sell consumer protection
plans under the Allstate Protection Plans name. The SquareTrade trade name will
continue to be used outside of the United States . The change required an
impairment evaluation of the indefinite-lived intangible asset recognized in the
Protection Services segment for SquareTrade's trade name recorded when
SquareTrade was acquired in 2017.
During fourth quarter 2019, the Company made the decision to integrate Esurance
into the Allstate brand as part of Transformative Growth. This required an
impairment evaluation of the indefinite-lived intangible asset recognized in the
Allstate Protection segment for the Esurance trade name recorded when Esurance
was acquired in 2011.
As a result of these actions, the Company recognized total impairment charges of $106 million pre-tax during 2019.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Property and equipment
Property and equipment is carried at cost less accumulated depreciation.
Included in property and equipment are capitalized costs related to computer
software licenses and software developed for internal use. These costs generally
consist of certain external payroll and payroll related costs. Property and
equipment depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, generally 3 to 10 years for equipment and
40 years for real property. Depreciation expense is reported in operating costs
and expenses. Accumulated depreciation on property and equipment was $2.44
billion and $2.81 billion as of December 31, 2021 and 2020, respectively.
Depreciation expense on property and equipment was $411 million, $353 million
and $326 million in 2021, 2020 and 2019, respectively. The Company reviews its
property and equipment for impairment at least annually and whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
Income taxes
Income taxes are accounted for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are DAC, unearned premiums, investments (including unrealized capital gains and losses), intangible assets and insurance reserves. A deferred tax asset valuation allowance is established when it is more likely than not such assets will not be realized. The Company recognizes interest expense related to income tax matters in income tax expense and penalties in other expense.
Reserve for property and casualty insurance claims and claims expense
The reserve for property and casualty insurance claims and claims expense is the estimate of amounts necessary to settle all reported and unreported incurred claims for the ultimate cost of insured property and casualty losses, based upon the facts of each case and the Company's experience with similar cases. Estimated amounts of salvage and subrogation are deducted from the reserve for claims and claims expense. The establishment of appropriate reserves, including reserves for catastrophe losses, is an inherently uncertain and complex process. Reserve estimates are primarily derived using an actuarial estimation process in which historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves established by claim adjusters) for an accident or report year to create an estimate of how losses are likely to develop over time. Development factors are calculated quarterly and periodically throughout the year for data elements such as claims reported and settled, paid losses, and paid losses combined with case reserves. The historical development patterns for these data elements are used as the assumptions to calculate reserve estimates, including the reserves for reported and unreported claims. Reserve estimates are regularly reviewed and updated, using the most current information available. Any resulting reestimates are reflected in current results of operations.
Reserve for future policy benefits
The reserve for future policy benefits payable under insurance policies,
including voluntary accident and health insurance and traditional life insurance
products, is computed on the basis of long-term actuarial assumptions of future
investment yields, mortality, morbidity, policy terminations and expenses. These
assumptions include provisions for adverse deviation and generally vary by
characteristics such as type of coverage, year of issue and policy duration. The
assumptions are established at the time the policy is issued and are generally
not changed during the life of the policy. The Company periodically reviews the
adequacy of reserves using actual experience and current assumptions. If actual
experience and current assumptions are adverse compared to the original
assumptions and a premium deficiency is determined to exist, any remaining
unamortized DAC balance would be expensed to the extent not recoverable and the
establishment of a premium deficiency reserve may be required for any remaining
deficiency. Voluntary accident and health insurance and traditional life
insurance products are reviewed individually. The Company also reviews these
policies for circumstances where projected profits would be recognized in early
years followed by projected losses in later years. If this circumstance exists,
the Company will accrue a liability, during the period of profits, to offset the
losses at such time as the future losses are expected to commence using a method
updated prospectively over time.
Accident and health short duration contracts The reserve for future policy
benefits includes unpaid losses and loss adjustment expense ("LAE") reserves for
individual and certain voluntary accident and health short-duration contracts
and is an estimate of the Company's liability from incurred claims at the end of
the reporting period. The unpaid losses and LAE reserves are the result of an
ongoing analysis of recent loss development trends and emerging historical
experience. Original estimates are increased or decreased as additional
information becomes known regarding individual claims. In setting its reserves,
the Company reviews its loss data to estimate expected loss development.
Management believes that its use of standard actuarial methodology applied to
its analyses of its historical experience provides a reasonable estimate of
future losses. However, actual future losses may differ from the Company's
estimate, and may be affected by future events beyond the control of management,
including inflation, which may favorably or unfavorably impact the ultimate
settlement of the Company's losses and LAE, as well as changes in the law and
judicial interpretations.
The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. In addition to inflation, the average severity
of claims is affected by a number of factors that may vary by types and features
of policies written. Future average severities are projected from historical
trends,
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2021 Form 10-K Notes to Consolidated Financial Statements
adjusted for implemented changes in underwriting standards and policy provisions, as well as general economic trends. These estimated trends are monitored and revised as necessary based on actual development.
Unpaid losses include a provision for incurred-but-not-reported ("IBNR") reserve
estimates representing claims that have occurred but have not yet been reported,
some of which are not yet known to the insured, as well as a provision for
future development on reported claims. IBNR reserves are generally calculated by
first projecting the ultimate cost of all claims that have occurred and then
subtracting reported losses and loss expenses. Reported losses include
cumulative paid losses and loss expenses plus case reserves.
The Company's accident and health claims are counted by claim number assigned to
each claimant per illness, injury or death, regardless of number of services
rendered for each incident. Claims closed without payment are not included in
the cumulative number of reported accident and health claims.
Contractholder funds
Contractholder funds represent interest-bearing liabilities arising from the sale of interest-sensitive life insurance contracts. Contractholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance.
Pension and other postretirement remeasurement gains and losses
Pension and other postretirement gains and losses represent the remeasurement of projected benefit obligation and plan assets, which are immediately recognized in earnings and are referred to as pension and other postretirement remeasurement gains and losses on the Consolidated Statements of Operations. The Company's policy is to remeasure its pension and postretirement plans on a quarterly basis.
Differences between expected and actual returns and changes in assumptions affect our pension and other postretirement obligations, plan assets and expenses.
The primary factors contributing to pension and postretirement remeasurement gains and losses are:
• Changes in the discount rate used to value pension and postretirement obligations as of the measurement date • Differences between the expected and the actual return on plan assets • Changes in demographic assumptions, including mortality and participant experience
Pension and other postretirement service cost, interest cost, expected return on plan assets and amortization of prior service credits are allocated to the Company's reportable segments. The pension and
other postretirement remeasurement gains and losses are reported in the Corporate and Other segment.
Legal contingencies
The Company reviews its lawsuits, regulatory inquiries, and other legal proceedings on an ongoing basis. 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'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.
Long-term debt
Long-term debt includes senior notes, senior debentures, subordinated debentures and junior subordinated debentures issued by the Corporation. Unamortized debt issuance costs and fair value adjustments are reported in long-term debt and are amortized over the expected period the debt will remain outstanding.
Equity incentive plans
The Company has equity incentive plans under which it grants nonqualified stock
options, restricted stock units and performance stock awards ("equity awards")
to certain employees and directors of the Company. The Company measures the fair
value of equity awards at the grant date and recognizes the expense over the
shorter of the period in which the requisite service is rendered or retirement
eligibility is attained. The expense for performance stock awards with no market
condition is adjusted each period to reflect the performance factor most likely
to be achieved at the end of the performance period. The expense for performance
stock awards with a market condition is based on the fair value of the awards at
the grant date which incorporates the probability of achieving the market
condition. In the event the market condition is not met, any previously
recognized expense is not reversed. The Company uses a binomial lattice model to
determine the fair value of employee stock options. The Company uses a Monte
Carlo simulation model to determine the fair value of performance stock awards
with market condition.
Measurement of credit losses
The Company carries an allowance for expected credit losses for all financial
assets measured at amortized cost on the Consolidated Statements of Financial
Position. The Company considers past events, current conditions, and reasonable
and supportable forecasts in estimating an allowance for credit losses. The
Company also carries a credit loss allowance for fixed income securities where
applicable and, when amortized cost is reported, it is net of credit loss
allowances. For additional information, refer to the Investments, Reinsurance,
Indemnification or Recognition of premium revenues and contract charges, topics
of this section.
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Notes to Consolidated Financial Statements 2021 Form 10-K
The Company also estimates a credit loss allowance for commitments to fund mortgage loans and bank loans unless they are unconditionally
cancellable by the Company. The related allowance is reported in other liabilities and accrued expenses.
Allowance for credit losses
As of December 31,
($ in millions) 2021 2020
Fixed income securities $ 6 $ 2
Mortgage loans (1) 6 67
Bank loans (1) 61 67
Investments 73 136
Premium installment receivables 107 153
Reinsurance recoverables 74 60
Other assets 26 17
Assets 280 366
Commitments to fund mortgage loans and bank loans - 1
Liabilities - 1
Total $ 280 $ 367
(1)Includes credit loss allowance for investments that are classified as held for sale as of December 31, 2020.
Leases
The Company has certain operating leases for office facilities, computer and
office equipment, and vehicles. The Company's leases have remaining lease terms
of generally 1 year to 9 years, some of which include options to extend the
leases for up to 20 years, and some of which include options to terminate the
leases within 32 days.
The Company determines if an arrangement is a lease at inception. Leases with an
initial term less than one year are not recorded on the balance sheet and the
lease costs for these leases are recorded as an expense on a straight-line basis
over the lease term. Operating leases with terms greater than one year result in
a lease liability recorded in other liabilities with a corresponding
right-of-use ("ROU") asset recorded in other assets. As of December 31, 2021 and
2020, the Company had $465 million and $511 million in lease liabilities and
$314 million and $393 million in ROU assets, respectively.
Operating lease liabilities are recognized at the commencement date based on the
present value of future minimum lease payments over the lease term. ROU assets
are recognized based on the corresponding lease liabilities adjusted for
qualifying initial direct costs, prepaid or accrued lease payments and
unamortized lease incentives. As most of the Company's leases do not disclose
the implicit interest rate, the Company uses collateralized incremental
borrowing rates based on information available at lease commencement when
determining the present value of future lease payments. The Company has lease
agreements with lease and non-lease components, which are accounted for as a
single lease. Lease terms may include options to extend or terminate the lease
which are incorporated into the Company's measurements when it is reasonably
certain that the Company will exercise the option.
Operating lease costs are recognized on a straight-line basis over the lease term and include interest expense on the lease liability and amortization
of the ROU asset. Variable lease costs are expensed as incurred and include maintenance costs and real estate taxes. Lease costs are reported in operating costs and expenses and totaled $162 million and $166 million, including $30 million and $30 million of variable lease costs in 2021 and 2020, respectively.
Other information related to operating leases
December 31,
2021 2020
Weighted average remaining lease term (years) 5 5
Weighted average discount rate 3.09 % 3.10 %
Maturity of lease liabilities
($ in millions) Operating leases
2022 $ 95
2023 125
2024 101
2025 79
2026 48
Thereafter 56
Total lease payments $ 504
Less: interest (39)
Present value of lease liabilities $ 465
Consolidation of variable interest entities ("VIEs")
A VIE is a legal entity that does not have sufficient equity at risk to finance
its activities without additional financial support or is structured such that
equity investors lack the ability to make significant decisions relating to the
entity's operations through voting rights or do not participate in the gains and
losses of the entity. The Company consolidates VIEs in which the Company is
deemed the primary beneficiary. The primary beneficiary is the entity that has
both (1) the obligation to absorb losses or the right to receive benefits that
could potentially be significant to the VIE and (2) the power to direct the
activities of the VIE that most significantly affect that entity's economic
performance.
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2021 Form 10-K Notes to Consolidated Financial Statements
Discontinued Operations and Held for Sale
A business is classified as held for sale when management having the authority to approve the action commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value and certain other criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. When the carrying amount of the business exceeds its estimated fair value less cost to sell, a loss is recognized and updated each reporting period as appropriate. The results of operations of business classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity's operations and financial results. The disposal of a reportable segment generally qualifies for discontinued operations presentation.
When a business is identified for discontinued operations reporting:
•Results for prior periods are retrospectively reclassified as discontinued operations
•Results of operations are reported in a single line, net of tax, in the Consolidated Statements of Operations
•Assets and liabilities are reported as held for sale in the Consolidated Statements of Financial Position in the period in which the business is classified as held for sale
Additional details by major classification of operating results and financial position are included in Note 3.
Foreign currency translation
The local currency of the Company's foreign subsidiaries is deemed to be the functional currency of the country in which these subsidiaries operate. The financial statements of the Company's foreign subsidiaries are translated intoU.S. dollars at the exchange rate in effect at the end of a reporting period for assets and liabilities and at average exchange rates during the period for results of operations.
The unrealized gains and losses from the translation of the net assets are recorded as unrealized foreign currency translation adjustments and included in AOCI. Changes in unrealized foreign currency translation adjustments are included in OCI. Gains and losses from foreign currency transactions are reported in operating costs and expenses and have not been material.
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 effect of dilutive potential common shares does not include 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.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Computation of basic and diluted earnings per common share
For the years ended December 31,
($ in millions, except per share data) 2021 2020 2019
Numerator:
Net income from continuing operations $ 5,159 $ 5,429 $ 4,327 Less: Net loss attributable to noncontrolling interest (33) - -
Net income from continuing operations attributable to Allstate
5,192 5,429 4,327
Less: Preferred stock dividends 114 115 169
Net income from continuing operations applicable to common shareholders
5,078 5,314 4,158
(Loss) income from discontinued operations, net of tax (3,593) 147 520
Net income applicable to common shareholders $ 1,485 $ 5,461 $ 4,678
Denominator:
Weighted average common shares outstanding 294.8 311.6 328.2 Effect of dilutive potential common shares: Stock options 2.7 2.2 3.2
Restricted stock units (non-participating) and performance stock awards
1.6 1.7 2.1
Weighted average common and dilutive potential common shares outstanding
299.1 315.5 333.5
Earnings per share applicable to common shareholders
Basic
Continuing operations $ 17.23 $ 17.06 $ 12.67
Discontinued operations (12.19) 0.47 1.58
Total $ 5.04 $ 17.53 $ 14.25
Diluted
Continuing operations $ 16.98 $ 16.84 $ 12.47
Discontinued operations (12.02) 0.47 1.56
Total $ 4.96 $ 17.31 $ 14.03
Anti-dilutive options excluded from diluted earnings per
common share 1.3 2.9 3.7
Adopted accounting standards
Simplifications to the Accounting for Income Taxes Effective January 1, 2021,
the Company adopted new Financial Accounting Standards Board ("FASB") guidance
which simplified the accounting for income taxes by eliminating certain
exceptions and clarifying certain guidance. The adoption had an immaterial
impact on the Company's results of operations and financial position.
Changes to the Disclosure Requirements for Defined Benefit Plans Effective
January 1, 2021, the Company adopted new FASB guidance to modify certain annual
disclosure requirements for defined benefit plans. New disclosures include
explanations for significant gains and losses related to changes in the benefit
obligation during the reporting period, as well as the weighted-average interest
crediting rate assumptions used to determine the benefit obligation and net
benefit cost for cash balance plans and other plans with interest crediting
rates. Disclosures to be eliminated include amounts expected to be reclassified
out of AOCI and into the income statement in the coming year and the anticipated
impact of a one-percentage point change in the assumed health care cost trend
rate on service and interest cost and on the accumulated benefit obligation. The
impacts of adoption are to the Company's annual disclosures only.
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2021 Form 10-K Notes to Consolidated Financial Statements
Pending accounting standard
Accounting for Long-Duration Insurance Contracts In August 2018, the FASB issued guidance revising the accounting for certain long-duration insurance contracts. As disclosed in Note 3, the Company sold substantially all of its life and annuity business in scope of the new standard. The Company's reserves and deferred policy acquisition costs for certain voluntary and individual life and accident and health insurance products are subject to the new guidance. Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy terminations, will be required to be reviewed at least annually, and updated as appropriate. The effect of updating assumptions other than the discount rate are required to be measured on a retrospective basis and reported in net income. In addition, reserves under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield that is updated through OCI at each reporting date. Current GAAP requires the measurement of reserves to utilize assumptions set at policy issuance unless updated current assumptions indicate that recorded reserves are deficient.
The new guidance also requires DAC and other capitalized balances currently amortized in proportion to premiums or gross profits to be amortized on a constant level basis over the expected term for all long-duration insurance contracts. DAC will not be subject to loss recognition testing but will be reduced when actual lapse experience exceeds expected experience.
The new guidance is effective for financial statements issued for reporting periods beginning after December 15, 2022 and restatement of prior periods presented is required. The new guidance will be applied to affected contracts and DAC on the basis of existing carrying amounts at the earliest period presented.
The Company is evaluating the anticipated impacts of applying the new guidance to both retained income and AOCI and does not anticipate the financial statement impact of adopting the new guidance to be material to the Company's results of operations or financial position due to the dispositions of ALIC, ALNY and certain affiliates. 112 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Note 3 Acquisitions and Dispositions
Acquisitions
National General On January 4, 2021, the Company completed the acquisition ofNational General Holdings Corp. ("National General"), an insurance holding company serving customers predominantly through independent agents for property and casualty and accident and health products. National General provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, health and other niche insurance products. This acquisition increased the Company's market share in personal property-liability and enhance its independent agent distribution platform. Assets and liabilities recognized in the National General acquisition (1) ($ in millions) January 4, 2021 Assets Investments $ 4,962 Cash 400 Premiums and other receivables, net 1,539 Deferred acquisition costs (value of business acquired) 317 Reinsurance recoverables, net 1,212 Intangible assets 1,199 Other assets 734 Goodwill (2) 1,038 Total assets 11,401 Liabilities
Reserve for property and casualty insurance claims and claims expense
2,765
Reserve for future policy benefits 186
Unearned premiums 2,245
Reinsurance payable 363
Debt (3) 593
Deferred tax liabilities 162
Other liabilities 776
Total liabilities $ 7,090
(1)The amounts reflect allocation of assets acquired and liabilities assumed.
(2)$675 million, $20 million and $343 million of goodwill were allocated to the Allstate Protection, Protection Services and Allstate Health and Benefits segments, respectively, and is non-deductible for income tax purposes.Goodwill is primarily attributable to expected synergies and future growth opportunities. (3)Subsequent to the acquisition, the Company repaid $100 million of 7.625% Subordinated Notes and $72 million of Subordinated Debentures on February 3, 2021 and March 15, 2021, respectively. As of December 31, 2021, the Company had principal balance remaining of $350 million 6.750% Senior Notes due 2024, with a fair value adjustment of $45 million. Intangible assets by type ($ in millions) January 4, 2021 Distribution and customer relationships $ 795 Trade names 102 Licenses 97 Technology 205 Total $ 1,199 Intangible assets (reported in other assets in the Consolidated Statements of Financial Position) consist of capitalized costs, primarily of the estimated fair value of distribution and customer relationships, trade names, licenses and technology assets. The estimated useful lives of these assets generally range from 3 to 10 years. The estimated fair value of distribution and customer relationship intangible assets was determined using an income approach that considered cash flows and profits expected to be generated by the acquired relationships, a weighted-average cost of capital discount rate reflecting the relative risk of achieving the anticipated cash flows, profits, the time value of money, and other relevant inputs. Technology and trade names were valued using estimated useful lives and market licensing rates discounted at a weighted-average cost of capital. Licenses are primarily insurance licenses which were valued using the median value of market transactions executed over an extended observation period. Licenses are considered to have an indefinite useful life and are reviewed for impairment at least annually or more frequently if circumstances arise that indicate an impairment may have occurred. An impairment is recognized if the carrying amount of the asset exceeds its estimated fair value. The Allstate
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2021 Form 10-K Notes to Consolidated Financial Statements
Intangible assets are carried at cost less accumulated amortization. Amortization expense is primarily calculated using accelerated amortization methods. Amortization expense on intangible assets was $251 million in 2021.
Estimated amortization expense of National General intangible assets for the next five years and thereafter ($ in millions) 2022 $ 218 2023 185 2024 135 2025 103 2026 70 Thereafter 140 Total amortization $ 851 Value of business acquired (reported in DAC in the Consolidated Statements of Financial Position) recognized in connection with the acquisition of National General represents the value of future profits expected to be earned over the lives of the contracts acquired determined using a weighted-average cost of capital discount and other relevant assumptions. These costs are amortized over the policy term of the contracts in force at the acquisition date, generally over six or twelve months. The value of business acquired asset recognized in connection with the National General acquisition totaled $317 million, all of which was expensed in 2021. The most significant portion relates to insurance contracts in the Allstate Protection segment. Other fair value adjustments included an increase in reserves of $62 million, a $9 million reduction to investments that were not held at fair value, and a net increase in current and deferred tax liabilities of $153 million. Preferred stock On February 2, 2021, subsequent to the acquisition, the Company redeemed all outstanding shares of 7.50% Non-Cumulative Preferred Stock, Series A, par value $0.01 per share, all outstanding Depositary shares, representing 1/40th of a Share of 7.50% Non-Cumulative Preferred Stock, Series B, and the underlying shares of 7.50% Non-Cumulative Preferred Stock, Series B, par value $0.01 per share, and all outstanding shares of Fixed/Floating Rate Non-Cumulative Convertible Preferred Stock, Series D, par value $0.01 per share for a total redemption payment of $250 million.
On July 15, 2021, the Company redeemed all outstanding Depositary shares, representing 1/40th of a share of National General's 7.50% Noncumulative Preferred Stock, Series C, and the underlying shares of 7.50% Noncumulative Preferred Stock, Series C, par value $0.01 per share for a total redemption payment of $200 million.
Transactions costs (reported in operating costs and expenses in the Consolidated Statements of Operations) of $22 million related to the acquisition were expensed as incurred in the Corporate and Other segment.
SafeAuto On June 1, 2021, the Company announced an agreement to acquireSafe Auto Insurance Group, Inc. ("SafeAuto"), a non-standard auto insurance carrier focused on providing state-minimum private-passenger auto insurance with coverage options in 28 states. On October 1, 2021, the Company completed the acquisition of SafeAuto for $262 million in cash. Starting in the fourth quarter of 2021, the Allstate Protection segment includes SafeAuto. In connection with the acquisition, the Company recorded goodwill of $79 million, intangible assets of $30 million and value of business acquired of $7 million. The intangible assets include $24 million and $6 million related to acquired customer relationships and licenses, respectively.
On December 17, 2021, subsequent to the acquisition, the Company redeemed the outstanding principal of SafeAuto's trust preferred securities for $13 million.
Dispositions
Life and annuity business On January 26, 2021, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Everlake US Holdings Company (formerly Antelope US Holdings Company), an affiliate of an investment fund associated with The Blackstone Group Inc. to sell ALIC and certain affiliates.
On March 29, 2021, the Company entered into a Stock Purchase Agreement with
On October 1, 2021, the Company closed the sale of ALNY toWilton Reassurance Company for $400 million. On November 1, 2021, the Company closed the sale of ALIC and certain affiliates to entities managed byBlackstone for total proceeds of $4 billion, including a pre-close dividend of $1.25 billion paid by ALIC.
In 2021, the loss on disposition was $4.09 billion, after-tax, and reflects purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreements, changes in statutory capital and surplus prior to the closing date and the closing date equity of the sold entities determined under GAAP, excluding AOCI derecognized related to the dispositions.
Beginning in the first quarter of 2021, the assets and liabilities of the business were reclassified as held for sale and results are presented as discontinued operations. This change was applied on a retrospective basis.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Financial results from discontinued operations
For the years ended December 31,
($ in millions) 2021 2020 2019
Revenues
Life premiums and contract charges $ 1,109 $ 1,350 $ 1,356
Net investment income 1,336 1,262 1,431
Net gains (losses) on investments and derivatives 195 269 347
Total revenues 2,640 2,881 3,134
Costs and expenses
Life contract benefits 1,315 1,726 1,438
Interest credited to contractholder funds 414 605 606
Amortization of DAC 87 153 180
Operating costs and expenses 163 238 268
Restructuring and related charges 31 7 2
Total costs and expenses 2,010 2,729 2,494
Amortization of deferred gain on reinsurance 4 4 6
Income (loss) from discontinued operations before
income tax expense 634 156 646
Income tax expense 136 9 126
Income from discontinued operations, net of tax 498 147 520
Loss on disposition of operations (4,315) - -
Income tax benefit (224) - -
Loss on disposition of operations, net of tax (4,091) - -
(Loss) income from discontinued operations, net of tax
$ (3,593) $ 147 $ 520
Major classes of assets and liabilities disposed in transactions ($ in millions)
Closing (1) December 31, 2020
Assets
Investments
Fixed income securities, at fair value $ 26,425 $ 23,789 Equity securities, at fair value 11 1,542 Mortgage loans, net 2,662 3,329 Limited partnership interests 1,624 3,046 Short-term, at fair value 643 993 Other investments, net 690 1,998 Total investments $ 32,055 $ 34,697 Cash 1,081 66 Deferred policy acquisitions costs 996 925 Reinsurance recoverables, net 1,979 2,005 Accrued investment income 240 229 Other assets 536 865 Separate accounts 3,465 3,344 Total assets $ 40,352 $ 42,131 Liabilities Reserve for future policy benefits $ 11,573 $ 11,740 Contractholder funds 15,880 16,356 Deferred income taxes 834 973 Other liabilities and accrued expenses 452 912 Separate accounts 3,465 3,344 Total liabilities $ 32,204 $ 33,325 (1)The Company closed the sales ofAllstate Life Insurance Company of New York andAllstate Life Insurance Company and certain affiliates on October 1, 2021 and November 1, 2021, respectively. The Allstate
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2021 Form 10-K Notes to Consolidated Financial Statements
Cash flows from discontinued operations
For the years ended December 31,
($ in millions) 2021 2020 2019
Net cash provided by operating activities from
discontinued operations $ 634 $ 311 $ 346
Net cash provided by investing activities from
discontinued operations 984 330 448
Note 4 Reportable Segments
The Company's chief operating decision maker reviews financial performance and
makes decisions about the allocation of resources for the five reportable
segments. These segments are described below and align with the Company's key
product and service offerings.
Allstate Protection principally offers private passenger auto and homeowners
insurance in the United States and Canada , with earned premiums accounting for
80.0% of Allstate's 2021 consolidated revenues. Allstate Protection primarily
operates in the U.S. (all 50 states and the District of Columbia ("D.C.")) and
Canada . For 2021, the top U.S. geographic locations for premiums earned by the
Allstate Protection segment were Texas , California , New York and Florida . No
other jurisdiction accounted for more than 5% of premium earned for Allstate
Protection. Revenues from external customers generated outside the United States
were $1.86 billion, $1.57 billion and $1.37 billion in 2021, 2020 and 2019,
respectively.
Run-off Property-Liability includes property and casualty insurance coverage
that primarily relates to policies written during the 1960s through the
mid-1980s. Our exposure to asbestos, environmental and other run-off lines
claims arises principally from direct excess commercial insurance, assumed
reinsurance coverage, direct primary commercial insurance and other businesses
in run-off.
Protection Services comprise Allstate Protection Plans, Allstate Dealer
Services, Allstate Roadside, Arity and Allstate Identity Protection. Protection
Services offer consumer product protection plans, finance and insurance products
(including vehicle service contracts, guaranteed asset protection waivers, road
hazard tire and wheel and paintless dent repair protection), roadside
assistance, device and mobile data collection services and analytic solutions
using automotive telematics information and identity protection. Protection
Services primarily operate in the U.S. and Canada , with Allstate Protection
Plans also offering services in Europe , Australia and Asia . Revenues from
external customers generated outside the United States relate to consumer
product protection plans sold primarily in the European Union and were $232
million, $188 million and $95 million in 2021, 2020 and 2019, respectively.
Allstate Health and Benefits offers employer voluntary benefits, group health
and individual health products, including life, accident, critical illness,
hospital, short-term disability and other health products. Allstate Health and
Benefits primarily operates in the U.S. (all 50 states and D.C.) and Canada . For
2021, the top geographic locations for statutory direct accident and health
insurance premiums were Florida , Texas , Georgia , Ohio and North Carolina . No
other jurisdiction accounted for more than 5% of statutory direct accident and
health insurance premiums. Revenues from external customers generated outside
the United States relate to voluntary accident and health insurance sold in
Canada and were not material.
Corporate and Other comprises holding company activities and certain non-insurance operations, including expenses associated with strategic initiatives.
National General results are included in the following segments:
•Property and casualty - Allstate Protection
•Accident and health - Allstate Health and Benefits
•Technology solutions - Protection Services
Allstate Protection and Run-off Property Liability segments comprise Property-Liability. The Company does not allocate investment income, net gains and losses on investments and derivatives, or assets to the Allstate Protection and Run-off Property Liability segments. Management reviews assets at the Property-Liability, Protection Services, Allstate Health and Benefits, and Corporate and Other levels for decision-making purposes. The accounting policies of the reportable segments are the same as those described in Note 2. The effects of intersegment transactions are eliminated in the consolidated results. For segment results, services provided by Protection Services to Allstate Protection are not eliminated as management considers those transactions in assessing the results of the respective segments.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Measuring segment profit or loss
The measure of segment profit or loss used in evaluating performance is underwriting income for the Allstate Protection and Run-off Property-Liability and adjusted net income for the Protection Services, Allstate Health and Benefits and Corporate and Other segments.
Underwriting income is calculated as premiums earned and other revenue, less
claims and claims expenses ("losses"), Shelter-in-Place Payback expense,
amortization of DAC, operating costs and expenses, amortization or impairment of
purchased intangibles and restructuring and related charges as determined using
GAAP.
Adjusted net income is net income (loss) applicable to common shareholders, excluding:
• Net gains and losses on investments and derivatives except for periodic settlements
and accruals on non-hedge derivative instruments, which are reported with net gains
and losses on investments and derivatives but included in adjusted net income
• Pension and other postretirement remeasurement gains and losses
• Business combination expenses and the amortization or impairment of purchased
intangibles
• Income or loss from discontinued operations
• Adjustments for other significant non-recurring, infrequent or unusual items, when (a)
the nature of the charge or gain is such that it is reasonably unlikely to recur
within two years, or (b) there has been no similar charge or gain within the prior two
years
• Income tax expense or benefit on reconciling items
A reconciliation of these measures to net income (loss) applicable to common shareholders is provided below.
Reportable segments financial performance
For the years ended December 31,
($ in millions) 2021 2020 2019
Underwriting income (loss) by segment
Allstate Protection $ 1,785 $ 4,569 $ 2,921
Run-off Property-Liability (120) (144) (108)
Total Property-Liability 1,665 4,425 2,813
Adjusted net income (loss) by segment, after-tax
Protection Services 179 153 38
Allstate Health and Benefits 208 96 115
Corporate and Other (433) (428) (438)
Reconciling items
Property-Liability net investment income 3,118 1,421 1,533
Net gains (losses) on investments and derivatives 1,084 1,087 1,538
Pension and other postretirement remeasurement gains (losses)
644 51 (114)
Curtailment gains (losses) - 8 -
Business combination expenses and amortization of
purchased intangibles (1) (157) (106) (122)
Business combination fair value adjustment 6 - -
Impairment of purchased intangibles (1) - - (55)
Income tax (expense) benefit on reconciling items (1,270) (1,393) (1,150)
Total reconciling items 3,425 1,068 1,630
(Loss) income from discontinued operations (3,612) 157 646
Income tax benefit (expense) from discontinued operations 19 (10) (126)
Total from discontinued operations $ (3,593) $ 147 $ 520
Less: Net loss attributable to noncontrolling interest (2)
(34) - -
Net income applicable to common shareholders $ 1,485 $ 5,461 $ 4,678
(1)Excludes amortization or impairment of purchased intangibles in Property-Liability, which is included above in underwriting income.
(2)Reflects net loss attributable to noncontrolling interest in
Property-Liability.
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2021 Form 10-K Notes to Consolidated Financial Statements
Reportable segments revenue information
For the years ended December 31,
($ in millions) 2021 2020 2019
Property-Liability
Insurance premiums
Auto $ 27,623 $ 24,640 $ 24,188
Homeowners 9,927 8,254 7,912
Other personal lines 2,077 1,919 1,861
Commercial lines 827 767 882
Allstate Protection 40,454 35,580 34,843
Run-off Property-Liability - - -
Total Property-Liability insurance premiums 40,454 35,580 34,843
Other revenue 1,437 857 866
Net investment income 3,118 1,421 1,533
Net gains (losses) on investments and derivatives 1,021 990 1,470
Total Property-Liability 46,030 38,848 38,712
Protection Services
Protection Plans 1,132 909 633
Roadside assistance 192 188 238
Finance and insurance products 440 396 362
Intersegment premiums and service fees (1) 175 147 154
Other revenue 354 208 188
Net investment income 43 44 42
Net gains (losses) on investments and derivatives 25 30 32
Total Protection Services 2,361 1,922 1,649
Allstate Health and Benefits
Employer voluntary benefits 1,031 1,094 1,145
Group health 350 - -
Individual health 440 - -
Other revenue 359 - -
Net investment income 74 78 83
Net gains (losses) on investments and derivatives 7 8 12
Total Allstate Health and Benefits 2,261 1,180 1,240
Corporate and Other
Other revenue 22 - -
Net investment income 58 47 70
Net gains (losses) on investments and derivatives 31 59 24
Total Corporate and Other 111 106 94
Intersegment eliminations (1) (175) (147) (154)
Consolidated revenues $ 50,588 $ 41,909 $ 41,541
(1)Intersegment insurance premiums and service fees are primarily related to
Arity and Allstate Roadside and are eliminated in the consolidated financial
statements.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Additional significant financial performance data
For the years ended December 31,
($ in millions) 2021 2020 2019
Amortization of DAC
Property-Liability $ 5,313 $ 4,642 $ 4,649
Protection Services 795 658 543
Allstate Health and Benefits 144 177 161
Consolidated $ 6,252 $ 5,477 $ 5,353
Income tax expense (benefit) Property-Liability $ 1,151 $ 1,382 $ 1,196 Protection Services 39 26 (18) Allstate Health and Benefits 50 28 35 Corporate and Other 49 (63) (97) Consolidated $ 1,289 $ 1,373 $ 1,116
Interest expense is primarily incurred in the Corporate and Other segment. Capital expenditures for long-lived assets are generally made in Property-Liability as the Company does not allocate assets to the Allstate Protection and Run-off Property-Liability segments. A portion of these long-lived assets are used by entities included in the Protection Services, Allstate Health and Benefits and Corporate and Other segments and, accordingly, are charged to expenses in proportion to their use.
Reportable segment total assets, investments and deferred policy acquisition costs
As of December 31,
($ in millions) 2021 2020
Assets
Property-Liability $ 84,846 $ 69,171
Protection Services 6,909 6,177
Allstate Health and Benefits 4,015 2,905
Corporate and Other 3,670 5,603
Assets held for sale - 42,131
Consolidated $ 99,440 $ 125,987
Investments (1)
Property-Liability $ 57,258 $ 50,134
Protection Services 1,890 1,822
Allstate Health and Benefits 2,191 2,012
Corporate and Other 3,362 5,572
Consolidated $ 64,701 $ 59,540
Deferred policy acquisition costs
Property-Liability $ 1,951 $ 1,608
Protection Services 2,294 1,696
Allstate Health and Benefits 477 470
Consolidated $ 4,722 $ 3,774
(1)The balances reflect the elimination of related party investments between
segments.
Note 5 Investments
Portfolio composition
As of December 31,
($ in millions) 2021 2020Fixed income securities, at fair value $ 42,136 $ 42,565 Equity securities, at fair value
7,061 3,168
Mortgage loans, net 821 746
Limited partnership interests 8,018 4,563
Short-term investments, at fair value 4,009 6,807
Other investments, net 2,656 1,691
Total $ 64,701 $ 59,540
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2021 Form 10-K Notes to Consolidated Financial Statements
Amortized cost, gross unrealized gains (losses) and fair value for fixed income securities
Amortized Gross unrealized Fair
($ in millions) cost, net Gains Losses value
December 31, 2021
U.S. government and agencies $ 6,287 $ 12 $ (26) $ 6,273
Municipal 6,130 279 (16) 6,393
Corporate 26,834 688 (192) 27,330
Foreign government 982 9 (6) 985
ABS 1,143 14 (2) 1,155
Total fixed income securities $ 41,376 $ 1,002 $ (242) $ 42,136
December 31, 2020 U.S. government and agencies $ 2,058 $ 50 $ (1) $ 2,107 Municipal 7,100 480 (2) 7,578 Corporate 29,057 1,986 (26) 31,017 Foreign government 921 37 - 958 ABS 898 10 (3) 905 Total fixed income securities $ 40,034 $
2,563 $ (32) $ 42,565
Scheduled maturities for fixed income securities
As of December 31, 2021
Amortized Fair
($ in millions) cost, net value
Due in one year or less $ 1,105 $ 1,111
Due after one year through five years 21,039 21,291
Due after five years through ten years 13,808 14,079
Due after ten years 4,281 4,500
40,233 40,981
ABS 1,143 1,155
Total $ 41,376 $ 42,136
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS is shown separately because of potential prepayment of principal prior to contractual maturity dates.
Net investment income
For the years ended December 31,
($ in millions) 2021 2020 2019
Fixed income securities $ 1,148 $ 1,232 $ 1,201
Equity securities 100 78 175
Mortgage loans 43 34 27
Limited partnership interests 1,973 238 296
Short-term investments 5 17 70
Other investments 195 124 131
Investment income, before expense 3,464 1,723 1,900
Investment expense (171) (133) (172)
Net investment income $ 3,293 $ 1,590 $ 1,728
Net gains (losses) on investments and derivatives by asset type
For the years ended December 31,
($ in millions) 2021 2020 2019
Fixed income securities $ 425 $ 925 $ 433
Equity securities 520 117 930
Mortgage loans 20 (1) -
Limited partnership interests (52) (14) 157
Derivatives 49 49 (26)
Other investments 122 11 44Net gains (losses) on investments and derivatives $ 1,084
$ 1,087 $ 1,538
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Notes to Consolidated Financial Statements 2021 Form 10-K
Net gains (losses) on investments and derivatives by transaction type
For the years ended December 31,
($ in millions) 2021 2020 2019
Sales $ 578 $ 974 $ 519
Credit losses (42) (32) (26)
Valuation change of equity investments (1) 499 96 1,071
Valuation change and settlements of derivatives 49 49 (26)
Net gains (losses) on investments and derivatives $ 1,084
$ 1,087 $ 1,538
(1)Includes valuation change of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.
Gross realized gains (losses) on sales of fixed income securities
For the years ended December 31,
($ in millions) 2021 2020 2019
Gross realized gains $ 587 $ 1,105 $ 541
Gross realized losses (158) (177) (99)
The following table presents the net pre-tax appreciation (decline) recognized
in net income of equity securities and limited partnership interests carried at
fair value that are still held as of December 31, 2021 and 2020, respectively.
Net appreciation (decline) recognized in net income
For the years ended December 31,
($ in millions) 2021 2020
Equity securities $ 377 $ 247
Limited partnership interests carried at fair value 435 150
Total $ 812 $ 397
Credit losses recognized in net income
For the years ended December 31,
($ in millions) 2021 2020 2019
Assets
Fixed income securities:
Corporate $ (5) $ (1) $ (6)
ABS 1 (2) (3)
Total fixed income securities (4) (3) (9)
Mortgage loans 18 (1) -
Limited partnership interests (34) (6) (4)
Other investments
Bank loans (22) (23) (13)
Total credit losses by asset type $ (42) $ (33) $ (26)
Liabilities
Commitments to fund commercial mortgage loans and
bank loans - 1 -
Total $ (42) $ (32) $ (26)
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2021 Form 10-K Notes to Consolidated Financial Statements
Unrealized net capital gains and losses included in AOCI ($ in millions) Fair Gross unrealized Unrealized net December 31, 2021 value Gains Losses gains (losses) Fixed income securities $ 42,136 $ 1,002 $ (242) $ 760 Short-term investments 4,009 - - - Derivative instruments - - (3) (3) EMA limited partnerships (1) (1) Investments classified as held for sale - Unrealized net capital gains and losses, pre-tax 756 Amounts recognized for: Insurance reserves (2) - DAC and DSI (3) 1 Reclassification of noncontrolling interest 4 Amounts recognized 5 Deferred income taxes (163) Unrealized net capital gains and losses, after-tax $ 598 December 31, 2020 Fixed income securities $ 42,565 $ 2,563 $ (32) $ 2,531 Short-term investments 6,807 - - - Derivative instruments - - (3) (3) EMA limited partnerships (1) Investments classified as held for sale 2,369 Unrealized net capital gains and losses, pre-tax 4,896 Amounts recognized for: Insurance reserves (2) (496) DAC and DSI (3) (364) Amounts recognized (860) Deferred income taxes (856) Unrealized net capital gains and losses, after-tax $ 3,180 (1)Unrealized net capital gains and losses for limited partnership interests represent the Company's share of EMA limited partnerships' OCI. Fair value and gross unrealized gains and losses are not applicable. (2)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 lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuity), classified as held for sale as of December 31, 2020. (3)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. This adjustment relates primarily to life insurance products, which are classified as held for sale as of December 31, 2020.
Change in unrealized net capital gains (losses)
For the years ended December 31,
($ in millions) 2021 2020 2019
Fixed income securities $ (1,771) $ 2,152 $ 2,715
EMA limited partnerships - - (4)
Investments classified as held for sale (2,369) - -
Total (4,140) 2,152 2,711
Amounts recognized for:
Insurance reserves 496 (370) (126)
DAC and DSI 365 (140) (191)
Reclassification of noncontrolling interest 4 - -
Amounts recognized 865 (510) (317)
Deferred income taxes 693 (349) (505)
(Decrease) increase in unrealized net capital gains and
losses, after-tax $ (2,582) $ 1,293 $ 1,889
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Notes to Consolidated Financial Statements 2021 Form 10-K
Mortgage loans The Company's mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled $821 million and $746 million, net of credit loss allowance, as of December 31, 2021 and 2020, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower.
Principal geographic distribution of commercial real estate exceeding 5% of the mortgage loans portfolio
As of December 31,
(% of mortgage loan portfolio carrying value) 2021 2020
Texas 20.4 % 22.0 %
California 19.6 15.6
Illinois 6.7 2.4
Florida 6.0 8.6
Massachusetts 5.7 3.6
Tennessee 5.7 4.7
Ohio 5.3 7.2
Missouri 4.4 5.7
Types of properties collateralizing the mortgage loan portfolio
As of December 31,
(% of mortgage loan portfolio carrying value) 2021 2020
Apartment complex 35.3 % 53.2 %
Retail 23.8 7.9
Office 18.5 21.8
Warehouse 11.0 14.2
Other 11.4 2.9
Total 100.0 % 100.0 %
Contractual maturities of the mortgage loan portfolio
As of December 31, 2021
Amortized cost,
($ in millions) Number of loans net Percent
2022 5 $ 98 11.9 %
2023 6 44 5.4
2024 5 89 10.8
2025 7 115 14.0
Thereafter 30 475 57.9
Total 53 $ 821 100.0 %
Limited partnerships Investments in limited partnership interests include
interests in private equity funds, real estate funds and other funds. Principal
factors influencing carrying value appreciation or decline include operating
performance, comparable public company earnings multiples, capitalization rates
and the economic environment. For equity method limited partnerships, the
Company recognizes an impairment loss 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. Changes in
fair value limited partnerships are recorded through net investment income and
therefore are not tested for impairment.
Carrying value for limited partnership interests
As of December 31, 2021 As of December 31, 2020
($ in millions) EMA Fair Value Total EMA Fair Value Total
Private equity $ 4,905 $ 1,434 $ 6,339 $ 2,667 $ 988 $ 3,655
Real estate 823 97 920 623 74 697
Other (1) 759 - 759 211 - 211
Total (2) $ 6,487 $ 1,531 $ 8,018 $ 3,501 $ 1,062 $ 4,563
(1)Other consists of certain limited partnership interests where the underlying assets are predominately public equity and debt securities.
(2)Carrying value for limited partnership interests as of December 31, 2021,
includes certain investments classified as assets held for sale as of December
31, 2020 and March 31, 2021, and transferred to continuing operations in the
first and second quarter of 2021, respectively.
The Allstate Corporation 123
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2021 Form 10-K Notes to Consolidated Financial Statements
Municipal bonds The Company maintains a diversified portfolio of municipal bonds, including tax exempt and taxable securities, which totaled $6.39 billion and $7.58 billion as of December 31, 2021 and 2020, respectively.
The municipal bond portfolio includes general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest).
Principal geographic distribution of municipal bond issuers exceeding 5% of the portfolio
As of December 31,
(% of municipal bond portfolio carrying value) 2021 2020
California 11.8 % 11.8 %
Texas 8.7 9.5
Pennsylvania 5.4 5.8
New York 5.1 5.2
Colorado 4.4 5.5
Florida 4.2 5.5
Short-term investments Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of December 31, 2021 and 2020, the fair value of short-term investments totaled $4.01 billion and $6.81 billion, respectively.
Other investments Other investments primarily consist of bank loans, real estate, policy loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost, net. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Derivatives are carried at fair value.
Other investments by asset type
As of December 31,
($ in millions) 2021 2020
Bank loans, net $ 1,574 $ 772
Real estate 809 659
Policy loans 148 181
Derivatives 12 20
Other 113 59
Total (1) $ 2,656 $ 1,691
(1)Other investments as of December 31, 2021 include certain real estate and other investments classified as held for sale as of December 31, 2020 and transferred to continuing operations in the first quarter of 2021.
Agent loans were loans issued to exclusive Allstate agents and were carried at amortized cost, net. On November 15, 2021, the Company sold its portfolio of agent loans which were previously reported in other investments. Agent loans were assets of the Allstate Life segment and classified as assets held for sale as of December 31, 2020. Concentration of credit risk As of December 31, 2021, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company's shareholders' equity, other than the U.S. government and its agencies. Securities loaned The Company's business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2021 and 2020, fixed income and equity securities with a carrying value of $1.38 billion and $872 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $1 million, $2 million and $3 million in 2021, 2020 and 2019, respectively.
Other investment information Included in fixed income securities are below investment grade assets totaling $7.50 billion and $6.06 billion as of December 31, 2021 and 2020, respectively.
As of December 31, 2021, fixed income securities and short-term investments with a carrying value of $211 million were on deposit with regulatory authorities as required by law.
As of December 31, 2021, the carrying value of fixed income securities and other investments that were non-income producing was $57 million.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Portfolio monitoring and credit losses
Fixed income securities The Company has a comprehensive portfolio monitoring
process to identify and evaluate each fixed income security that may require a
credit loss allowance.
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, any existing credit loss allowance would be written-off against
the amortized cost basis of the asset along with any remaining unrealized
losses, with incremental losses 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 based on the best estimate of future cash flows
considering past events, current conditions and reasonable and supportable
forecasts. The estimated future cash flows are discounted at the security's
current effective rate and is compared to the amortized cost of the security.
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 is 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, the financial
condition and future earnings potential of the issue or issuer, expected
defaults, expected recoveries, the value of underlying collateral, origination
vintage year, 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, 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 Company does not expect to receive cash flows sufficient to recover the
entire amortized cost basis of the fixed income security, a credit loss
allowance is recorded in earnings for the shortfall in expected cash flows;
however, the amortized cost, net of the credit loss allowance, may not be lower
than the fair value of the security. The portion of the unrealized loss related
to factors other than credit remains classified in AOCI. 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.
When a security is sold or otherwise disposed or when the security is deemed
uncollectible and written off, the Company removes amounts previously recognized
in the credit loss allowance. Recoveries after write-offs are recognized when
received. Accrued interest excluded from the amortized cost of fixed income
securities totaled $311 million and $351 million as of December 31, 2021, and
2020, respectively, and is reported within the accrued investment income line of
the Consolidated Statements of Financial Position. The Company monitors accrued
interest and writes off amounts when they are not expected to be received.
The Company's portfolio monitoring process includes a quarterly review of all
securities to identify instances where the fair value of a security compared to
its amortized cost is below internally established thresholds. The process also
includes the monitoring of other credit loss indicators such as ratings, ratings
downgrades and payment defaults. The securities identified, in addition to other
securities for which the Company may have a concern, are evaluated for potential
credit losses using all reasonably available information relevant to the
collectability or recovery of the security. Inherent in the Company's evaluation
of credit losses for these securities are assumptions and estimates about the
financial condition and future earnings potential of the issue or issuer. Some
of the factors that may be considered in evaluating whether a decline in fair
value requires a credit loss allowance are: 1) the financial condition,
near-term and long-term prospects of the issue or issuer, including relevant
industry specific market conditions and trends, geographic location and
implications of rating agency actions and offering prices; 2) the specific
reasons that a security is in an unrealized loss position, including overall
market conditions which could affect liquidity; and 3) the extent to which the
fair value has been less than amortized cost.
The Allstate Corporation 125
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2021 Form 10-K Notes to Consolidated Financial Statements
Rollforward of credit loss allowance for fixed income securities
For the years ended December 31,
($ in millions) 2021 2020
Beginning balance $ (2) $ -Credit losses on securities for which credit losses not previously reported
(5) (2)
Net decreases related to credit losses previously
reported 1 -
Reduction of allowance related to sales - -
Write-offs - -
Ending balance (1) $ (6) $ (2)
(1)Allowance for fixed income securities as of December 31, 2021 comprised $6
million of corporate bonds. Allowance for fixed income securities as of December
31, 2020 comprised $1 million and $1 million of corporate bonds and ABS,
respectively.
Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
Less than 12 months 12 months or more
Number of Unrealized Number of Unrealized Total unrealized
($ in millions) issues Fair value losses issues Fair value losses losses
December 31, 2021 Fixed income securities U.S. government and agencies 112 $ 5,451 $ (24) 4 $ 72 $ (2) $ (26) Municipal 767 1,213 (15) 2 14 (1) (16) Corporate 1,197 9,725 (176) 22 130 (16) (192) Foreign government 51 415 (6) 4 3 - (6) ABS 80 500 (2) 53 8 - (2) Total fixed income securities 2,207 $ 17,304 $ (223) 85 $ 227 $ (19) $ (242) Investment grade fixed income securities 1,993 $ 15,391 $ (188) 71 $ 183 $ (8) $ (196) Below investment grade fixed income securities 214 1,913 (35) 14 44 (11) (46) Total fixed income securities 2,207 $ 17,304 $ (223) 85 $ 227 $ (19) $ (242) December 31, 2020 Fixed income securities U.S. government and agencies 26 $ 215 $ (1) - $ - $ - $ (1) Municipal 43 116 (2) - - - (2) Corporate 107 730 (21) 14 46 (5) (26) Foreign government 7 7 - - - - - ABS 32 157 (2) 69 43 (1) (3) Total fixed income securities 215 $ 1,225 $ (26) 83 $ 89 $ (6) $ (32) Investment grade fixed income securities 146 $ 855 $ (8) 66 $ 45 $ - $ (8) Below investment grade fixed income securities 69 370 (18) 17 44 (6) (24) Total fixed income securities 215 $ 1,225 $ (26) 83 $ 89 $ (6)
$ (32)
Gross unrealized losses by unrealized loss position and credit quality as of December 31, 2021
Investment Below investment
($ in millions) grade grade Total
Fixed income securities with unrealized loss
position less than 20% of amortized cost, net (1)
(2) $ (196) $ (35) $ (231)
Fixed income securities with unrealized loss
position greater than or equal to 20% of
amortized cost, net (3) (4) - (11) (11)
Total unrealized losses $ (196) $ (46) $ (242)
(1)Below investment grade fixed income securities include $33 million that have been in an unrealized loss position for less than twelve months.
(2)Related to securities with an unrealized loss position less than 20% of amortized cost, net, the degree of which suggests that these securities do not pose a high risk of having credit losses.
(3)No below investment grade fixed income securities have been in an unrealized loss position for a period of twelve or more consecutive months.
(4)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.
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Notes to Consolidated Financial Statements 2021 Form 10-K
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 or wider credit
spreads since the time of initial purchase. The unrealized losses are expected
to reverse as the securities approach maturity.
ABS 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.
As of December 31, 2021, 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.
Loans The Company establishes a credit loss allowance for mortgage loans and bank loans when they are originated or purchased, and for unfunded commitments unless they are unconditionally cancellable by the Company. The Company uses a probability of default and loss given default model for mortgage loans and bank loans to estimate current expected credit losses that considers all relevant information available including past events, current conditions, and reasonable and supportable forecasts over the life of an asset. The Company also considers such factors as historical losses, expected prepayments and various economic factors. For mortgage loans the Company considers origination vintage year and property level information such as debt service coverage, property type, property location and collateral value. For bank loans the Company considers the credit rating of the borrower, credit spreads and type of loan. After the reasonable and supportable forecast period, the Company's model reverts to historical loss trends.
Loans are evaluated on a pooled basis when they share similar risk characteristics. The Company
monitors loans through a quarterly credit monitoring process to determine when they no longer share similar risk characteristics and are to be evaluated individually when estimating credit losses.
Loans are written off against their corresponding allowances when there is no
reasonable expectation of recovery. If a loan recovers after a write-off, the
estimate of expected credit losses includes the expected recovery.
Accrual of income is suspended for loans that are in default or when full and
timely collection of principal and interest payments is not probable. Accrued
income receivable is monitored for recoverability and when not expected to be
collected is written off through net investment income. Cash receipts on loans
on non-accrual status are generally recorded as a reduction of amortized cost.
Accrued interest is excluded from the amortized cost of loans and is reported
within the accrued investment income line of the Consolidated Statements of
Financial Position.
Accrued interest
As of December 31,
($ in millions) 2021 2020
Mortgage loans $ 2 $ 2
Bank Loans 4 3
Mortgage loans When it is determined a mortgage loan shall be evaluated
individually, the Company uses various methods to estimate credit losses on
individual loans such as using collateral value less estimated costs to sell
where applicable, including when foreclosure is probable or when repayment is
expected to be provided substantially through the operation or sale of the
collateral and the borrower is experiencing financial difficulty. When
collateral value is used, the mortgage loans may not have a credit loss
allowance when the fair value of the collateral exceeds the loan's amortized
cost. An alternative approach may be utilized to estimate credit losses using
the present value of the loan's expected future repayment cash flows discounted
at the loan's current effective interest rate.
Individual loan credit loss allowances are adjusted for subsequent changes in
the fair value of the collateral less costs to sell, when applicable, or present
value of the loan's expected future repayment cash flows.
Debt service coverage ratio is considered a key credit quality indicator when
mortgage loan credit loss allowances are estimated. Debt service coverage ratio
represents the amount of estimated cash flow 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 Allstate Corporation 127
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2021 Form 10-K Notes to Consolidated Financial Statements
Mortgage loans amortized cost by debt service coverage ratio distribution and year of origination
December 31, 2021 December 31, 2020
2016 and
($ in millions) prior 2017 2018 2019 2020 Current Total Total
Below 1.0 $ - $ - $ - $ - $ - $ - $ - $ -
1.0 - 1.25 11 - - 25 10 - 46 46
1.26 - 1.50 39 5 - 104 - 12 160 201
Above 1.50 65 39 106 141 67 203 621 507
Amortized cost before
allowance $ 115 $ 44 $ 106 $ 270 $ 77 $ 215 $ 827 $ 754
Allowance (6) (8)
Amortized cost, net $ 821 $ 746
Mortgage loans with a debt service coverage ratio below 1.0 that are not
considered impaired primarily relate to situations 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 factors such as additional collateral, escrow balances or borrower guarantees. Payments on all mortgage loans were current as of December 31, 2021, 2020 and 2019.
Rollforward of credit loss allowance for mortgage loans
For the years ended December 31,
($ in millions) 2021 2020
Beginning balance $ (67) $ (3)
Cumulative effect of change in accounting principle - (42)
Net decreases related to credit losses 40 (39)
Reduction of allowance related to sales 21 17
Write-offs - -
Ending balance (1) $ (6) $ (67)
(1)Includes $59 million of credit loss allowance for mortgage loans that are classified as held for sale as of December 31, 2020.
Bank loans When it is determined a bank loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as the present value of the loan's expected future repayment cash flows discounted at the loan's current effective interest rate. Credit ratings of the borrower are considered a key credit quality indicator when bank loan credit loss allowances are estimated. The ratings are updated quarterly and are either received from a nationally recognized rating agency or a comparable internal rating is derived if an externally provided rating is not available. The year of origination is determined to be the year in which the asset is acquired. 128 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Bank loans amortized cost by credit rating and year of origination
($ in millions) December 31, 2021 December 31, 2020
2016 and
prior 2017 2018 2019 2020 Current Total Total
BBB $ - $ - $ 5 $ 14 $ 7 $ 60 $ 86 $ 38
BB 9 16 15 24 31 561 656 168
B - 18 47 34 63 606 768 456
CCC and below 3 21 18 40 9 34 125 161
Amortized cost before
allowance $ 12 $ 55 $ 85 $ 112 $ 110 $ 1,261 $ 1,635 $ 823
Allowance (61) (51)
Amortized cost, net $ 1,574 $ 772
Rollforward of credit loss allowance for bank loans
For the years ended December 31,
($ in millions) 2021 2020
Beginning balance $ (67) $ -
Cumulative effect of change in accounting principle - (53)
Net increases related to credit losses (15) (28)
Reduction of allowance related to sales 21 9
Write-offs - 5
Ending balance (1) $ (61) $ (67)
(1)Includes $16 million of credit loss allowance for bank loans that are classified as held for sale as of December 31, 2020.
Note 6 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 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
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2021 Form 10-K Notes to Consolidated Financial Statements
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 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 MBS, included in ABS, uses 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
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Notes to Consolidated Financial Statements 2021 Form 10-K
models are widely accepted in the financial services industry and do not involve significant judgment.
•Assets held for sale: Comprise U.S. government and agencies, municipal, corporate, foreign government and ABS fixed income securities, equity securities, short-term investments and other investments. The valuation is based on the respective asset type as described above.
•Liabilities held for sale: Comprise other liabilities, mainly free-standing exchange listed derivatives, that are not actively traded and are valued based on quoted prices for identical instruments in markets that are not active.
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 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 privately placed, 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 in markets that are less active relative to those markets supporting Level 2 fair value measurements.
•Short-term: For certain short-term investments, amortized cost is used as the best estimate of fair value.
•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 and quoted prices for identical or similar assets in the 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 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 held for sale: Comprise municipal, corporate and ABS fixed income securities and equity securities. The valuation is based on the respective asset type as described above.
•Liabilities held for sale: Comprise derivatives embedded in certain life and annuity contracts which 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.
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 with individual credit loss allowance where amortized cost, net is equal to fair value based on broker quotes.
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 December 31,
2021, the Company has commitments to invest $236 million in these limited
partnership interests.
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2021 Form 10-K Notes to Consolidated Financial Statements
Assets and liabilities measured at fair value
As of December 31, 2021
Quoted prices in
active markets for Significant other Significant
identical assets observable inputs unobservable inputs Counterparty and cash
($ in millions) (Level 1) (Level 2) (Level 3) collateral netting Total
Assets
Fixed income securities:
U.S. government and agencies $ 6,247 $ 26 $ - $ 6,273
Municipal - 6,375 18 6,393
Corporate - public - 16,569 20 16,589
Corporate - privately placed - 10,675 66 10,741
Foreign government - 985 - 985
ABS - 1,115 40 1,155
Total fixed income securities 6,247 35,745 144 42,136
Equity securities 6,312 400 349 7,061
Short-term investments 1,140 2,864 5 4,009
Other investments - 34 2 $ (22) 14
Other assets 1 - 65 66
Total recurring basis assets 13,700 39,043 565 (22) 53,286
Non-recurring basis - - 32 32
Total assets at fair value $ 13,700 $ 39,043 $ 597 $ (22) $ 53,318
% of total assets at fair value 25.7 % 73.2 % 1.1 % - % 100.0 %
Investments reported at NAV 1,531
Total $ 54,849
Liabilities
Other liabilities $ (3) $ (12) $ - $ 7 $ (8)
Total recurring basis liabilities (3) (12) - 7 (8)
Total liabilities at fair value $ (3) $ (12) $ - $ 7 $ (8) % of total liabilities at fair value 37.5 % 150.0 % - % (87.5) % 100.0 % 132 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Assets and liabilities measured at fair value
As of December 31, 2020
Quoted prices in
active markets for Significant other Significant
identical assets observable inputs unobservable inputs Counterparty and cash
($ in millions) (Level 1) (Level 2) (Level 3) collateral netting Total
Assets
Fixed income securities:
U.S. government and agencies $ 2,061 $ 45 $ - $ 2,106
Municipal - 7,562 17 7,579
Corporate - public - 21,885 67 21,952
Corporate - privately placed - 9,002 63 9,065
Foreign government - 958 - 958
ABS - 826 79 905
Total fixed income securities 2,061 40,278 226 42,565
Equity securities 2,468 396 304 3,168
Short-term investments 6,549 223 35 6,807
Other investments - 29 - $ (9) 20
Other assets 1 - - 1
Assets held for sale 6,488 23,103 267 (6) 29,852
Total recurring basis assets 17,567 64,029 832 (15) 82,413
Total assets at fair value $ 17,567 $ 64,029 $ 832 $ (15) $ 82,413
% of total assets at fair value 21.3 % 77.7 % 1.0 % - % 100.0 %
Investments reported at NAV 1,062
Assets held for sale at NAV 762
Total $ 84,237
Liabilities
Other liabilities $ - $ (34) $ - $ 18 $ (16)
Liabilities held for sale - (119) (516) 9 (626)
Total recurring basis liabilities - (153) (516) 27
(642)
Total liabilities at fair value $ - $ (153) $ (516) $ 27 $ (642)
% of total liabilities at fair
value - % 23.8 % 80.4 % (4.2) % 100.0 %
As of December 31, 2021 and 2020, Level 3 fair value measurements of fixed
income securities total $144 million and $226 million, respectively, and include
$41 million and $69 million, respectively, of securities valued based on
non-binding broker quotes where the inputs have not been corroborated to be
market observable and $16 million and $18 million, respectively, of municipal
fixed income securities that are not rated by third-party credit rating
agencies. As the Company does not develop the Level 3 fair value
unobservable inputs for these fixed income securities, they are not included in
the table above. However, an increase (decrease) in credit spreads for fixed
income securities valued based on non-binding broker quotes would result in a
lower (higher) fair value, and an increase (decrease) in the credit rating of
municipal bonds that are not rated by third-party credit rating agencies would
result in a higher (lower) fair value.
The Allstate Corporation 133
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2021 Form 10-K Notes to Consolidated Financial Statements
Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2021
Total gains (losses)
included in: Transfers Transfers to
Balance as of Out of Level (from) held Balance as of
($ in millions) December 31, 2020 Net income OCI Into Level 3 3 for sale Purchases Sales Issues Settlements December 31, 2021
Assets
Fixed income
securities:
Municipal $ 17 $ - $ - $ 1 $ - $ - $ 3 $ - $ - $ (3) $ 18
Corporate - public 67 1 (1) - - (7) 13 (53) - - 20
Corporate - privately
placed 63 (2) 3 10 - 14 6 (23) - (5) 66
ABS 79 - 1 4 (32) - 47 (5) - (54) 40
Total fixed income
securities 226 (1) 3 15 (32) 7 69 (81) - (62) 144
Equity securities 304 61 - - - 101 43 (160) - - 349
Short-term investments 35 - - - - - 5 - - (35) 5
Other investments - - - - - - 3 (1) - - 2
Other assets - 65 - - - - - - - - 65
Assets held for sale 267 3 (1) 17 (13) (108) 4 (163) - (6) -
Total recurring Level
3 assets 832 128 2 32 (45) - 124 (405) - (103) 565
Liabilities
Liabilities held for
sale (516) 35 - - - - - 492 (28) 17 -
Total recurring
Level 3 liabilities $ (516) $ 35 $ - $ - $ - $ - $ - $ 492 $ (28) $ 17 $ -
Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2020
Total gains (losses)
included in: Transfers
Balance as of Into Out of Level Balance as of
($ in millions) December 31, 2019 Net income OCI Level 3 3 Purchases Sales Issues Settlements December 31, 2020
Assets
Fixed income securities:
Municipal $ 22 $ - $ - $ - $ - $ - $ (3) $ - $ (2) $ 17
Corporate - public 36 - 1 1 - 48 (19) - - 67
Corporate - privately
placed 32 - (5) 21 - 17 (2) - - 63
ABS 84 (1) - 54 (49) 59 (26) - (42) 79
Total fixed income
securities 174 (1) (4) 76 (49) 124 (50) - (44) 226
Equity securities 255 - - - - 57 (8) - - 304
Short-term investments 25 - - - (25) 35 - - - 35
Assets held for sale 284 1 (8) 52 (42) 24 (37) - (7) 267
Total recurring Level 3
assets 738 - (12) 128 (116) 240 (95) - (51) 832
Liabilities
Liabilities held for
sale (462) (43) - - - - - (34) 23 (516)
Total recurring Level 3
liabilities $ (462) $ (43) $ - $ - $ - $ - $ - $ (34) $ 23 $ (516)
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Notes to Consolidated Financial Statements 2021 Form 10-K
Rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2019
Total gains (losses)
included in: Transfers
Balance as of Into Out of Balance as of
($ in millions) December 31, 2018 Net income OCI Level 3 Level 3 Purchases Sales Issues Settlements December 31, 2019
Assets
Fixed income
securities:
Municipal $ 31 $ - $ 1 $ - $ (6) $ - $ (3) $ - $ (1) $ 22
Corporate - public 38 - 2 - - - (4) - - $ 36
Corporate - privately
placed 32 - - 2 - 1 (2) - (1) $ 32
ABS 73 - - 2 (21) 33 - - (3) $ 84
Total fixed income
securities 174 - 3 4 (27) 34 (9) - (5) 174
Equity securities 212 16 - - (1) 73 (44) - (1) 255
Short-term investments 30 - - - - 35 (40) - - 25
Other investments - - - - - - - - - -
Assets held for sale 281 15 4 57 (4) 14 (53) - (30) 284
Total recurring Level 3
assets 697 31 7 61 (32) 156 (146) - (36) 738
Liabilities
Liabilities held for
sale (224) (61) - (175) - - - (16) 14 (462)
Total recurring Level 3
liabilities $ (224) $ (61) $ - $ (175) $ - $ - $ - $ (16) $ 14 $ (462)
Total Level 3 gains (losses) included in net income
For the years ended December 31,
($ in millions) 2021 2020 2019
Net investment income $ 1 $ (16) $ -
Net gains (losses) on investments and derivatives 124 15 16
Transfers into Level 3 during 2021, 2020 and 2019 included situations where a
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 into Level 3
during 2019 also included derivatives embedded in equity-indexed universal life
contracts due to refinements in the valuation modeling resulting in an increase
in significance of non-market observable inputs.
Transfers out of Level 3 during 2021, 2020 and 2019 included situations where a
broker quote was used in the prior period and a 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 Allstate Corporation 135
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2021 Form 10-K Notes to Consolidated Financial Statements
Valuation changes included in net income and OCI for Level 3 assets and liabilities held as of December 31, ($ in millions)
2021 2020 2019
Assets
Fixed income securities:
Corporate - public $ - $ (1) $ -
Corporate - privately placed (2) - -
ABS - - (1)
Total fixed income securities (2) (1) (1)
Equity securities 28 (1) 5
Other assets 65 - -
Assets held for sale - - 2
Total recurring Level 3 assets $ 91 $ (2) $ 6
Liabilities
Liabilities held for sale $ - $ (43) $ (61)
Total recurring Level 3 liabilities - (43) (61)
Total included in net income $ 91 $ (45) $ (55)
Components of net income
Net investment income $ 1 $ (16) $ -
Net gains (losses) on investments and derivatives 90 14 4
Total included in net income $ 91 $ (2) $ 4
Assets
Corporate - public $ - $ 1
Corporate - privately placed 3 (5)
Assets held for sale - (5)Changes in unrealized net capital gains and losses reported in OCI (1)
$ 3 $ (9)
(1)Effective January 1, 2020, the Company adopted the fair value accounting standard that prospectively requires the disclosure of valuation changes reported in OCI.
Financial instruments not carried at fair value
($ in millions) December 31, 2021 December 31, 2020
Amortized cost, Fair Amortized cost, Fair
Financial assets Fair value level net value net value
Mortgage loans Level 3 $ 821 $ 853 $ 746 $ 792
Bank loans Level 3 1,574 1,634 772 803
Assets held for sale Level 3 - - 4,206 4,440
Carrying Fair Carrying Fair
Financial liabilities Fair value level value (1) value value (1) value
Contractholder funds on investment
contracts Level 3 $ 55 $ 55 $ - $ -
Long-term debt Level 2 7,976 9,150 7,825 9,489
Liability for collateral Level 2 1,444 1,444 914 914
Liabilities held for sale (2) Level 3 - - 8,130 9,424
(1)Represents the amounts reported on the Consolidated Statements of Financial Position.
(2)Includes certain liabilities for collateral measured at Level 2 fair value as of December 31, 2020.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Note 7 Derivative Financial Instruments and Off-balance Sheet 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. 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, index total return swap, options, 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, index total return swaps, and options to increase equity exposure. 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. Fixed income index total return swaps are used to offset valuation losses in the fixed income portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Property-Liability fixed income portfolio. Equity index total return swaps, 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. 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. 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. 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 Consolidated Statements of Financial Position. For those derivatives which qualify and have been designated as fair value accounting hedges, net income includes the changes in the fair value of both the derivative instrument and the hedged risk. For cash flow hedges, gains and losses are amortized from AOCI 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. Assets and liabilities held for sale Asset-liability management is a risk management practice that balances the cash flows and risk and return characteristics of 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 were 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. Futures and options were used for hedging the equity exposure contained in equity indexed life and annuity product contracts that offer equity returns to contractholders.
The Company's primary embedded derivatives were equity options in life and annuity product contracts, which provided returns linked to equity indices to contractholders.
In connection with the sale of ALIC and certain affiliates, the sale agreement
includes a provision related to contingent consideration that may be earned over
a ten-year period commencing on January 1, 2026 and ending January 1, 2035. The
contingent consideration is determined annually based on the average 10-year
Treasury rate over the preceding 3-year period compared to a designated rate.
The contingent consideration meets the definition of a derivative and is
accounted for on a fair value basis with periodic changes in fair value
reflected in earnings. As of December 31, 2021, the Company recorded $65 million
in other assets related to this derivative.
The Allstate Corporation 137
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2021 Form 10-K Notes to Consolidated Financial Statements
Summary of the volume and fair value positions of derivative instruments as of December 31, 2021
Volume (1)
($ in millions, except number of Notional Fair value, Gross
contracts) Balance sheet location amount Number of contracts net asset Gross liability
Asset derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Futures Other assets n/a 1,181 $ 1 $ 1 $ -
Equity and index contracts
Options Other investments n/a 61 5 5 -
Futures Other assets n/a 113 - - -
Foreign currency contracts
Foreign currency forwards Other investments $ 2 n/a - - -
Embedded derivative financial
instruments Other investments 750 n/a - - -
Contingent consideration Other assets 250 n/a 65 65 -
Credit default contracts
Credit default swaps - buying
protection Other investments 33 n/a (1) - (1)
Credit default swaps - selling
protection Other investments 250 n/a 6 6 -
Total asset derivatives $
1,285 1,355 $ 76 $ 77 $ (1)
Liability derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Other liabilities &
Futures accrued expenses n/a 36,668 $ (2) $ - $ (2)
Equity and index contracts
Other liabilities &
Futures accrued expenses - 1,260 (1) - (1)
Foreign currency contracts
Other liabilities &
Foreign currency forwards accrued expenses 715 n/a 16 23 (7)
Credit default contracts Credit default swaps - buying Other liabilities & protection
accrued expenses 70 n/a (4) - (4)
Credit default swaps - selling Other liabilities &
protection accrued expenses 5 n/a - - -
Total liability derivatives 790 37,928 9 $ 23 $ (14)
Total derivatives $ 2,075 39,283 $ 85
(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)
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Notes to Consolidated Financial Statements 2021 Form 10-K
Summary of the volume and fair value positions of derivative instruments as of December 31, 2020
Volume
($ in millions, except number of Notional Fair value,
contracts) Balance sheet location amount Number of contracts net Gross asset Gross liability
Asset derivatives
Derivatives not designated as accounting hedging
instruments
Interest rate contracts
Futures Other assets n/a 290 $ - $ - $ -
Equity and index contracts
Options Other investments n/a 56 6 6 -
Futures Other assets n/a 905 1 1 -
Foreign currency contracts
Foreign currency forwards Other investments $ 291 n/a 4 9 (5)
Embedded derivative financial
instruments Other investments 750 n/a - - -
Credit default contracts
Credit default swaps - buying
protection Other investments 60 n/a (3) - (3)
Credit default swaps - selling
protection Other investments 750 n/a 13 13 -
Assets held for sale 158 3,189 185 189 (4)
Total asset derivatives $ 2,009 4,440 $ 206 $ 218 $ (12)
Liability derivatives
Derivatives not designated as accounting hedging
instruments
Interest rate contracts
Other liabilities &
Futures accrued expenses n/a 705 $ - $ - $ -Equity and index contracts
Other liabilities &
Futures accrued expenses n/a 666 - - -
Total return index contracts
Total return swap agreements - Other liabilities &
fixed income accrued expenses 50 n/a - - -
Foreign currency contracts
Other liabilities &
Foreign currency forwards accrued expenses 250 n/a (9) 1 (10)
Credit default contracts
Credit default swaps - buying Other liabilities &
protection accrued expenses 638 n/a (16) - (16)
Credit default swaps - selling Other liabilities &
protection accrued expenses 4 n/a - - -
Liabilities held for sale 2,240 2,737 (630) 1 (631)
Total liability derivatives 3,182 4,108 (655) $ 2 $ (657)
Total derivatives $ 5,191 8,548 $ (449)
Gross and net amounts for OTC derivatives (1)
Offsets
Cash Securities
Counter- collateral Net collateral
Gross party (received) amount on (received) Net
($ in millions) amount netting pledged balance sheet pledged amount
December 31, 2021
Asset derivatives $ 23 $ (24) $ 2 $ 1 $ - $ 1
Liability derivatives (10) 24 (17) (3) - (3)
December 31, 2020
Asset derivatives $ 10 $ (9) $ - $ 1 $ - $ 1
Liability derivatives (19) 9 9 (1) - (1)
(1)All OTC derivatives are subject to enforceable master netting agreements.
The Allstate Corporation 139
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2021 Form 10-K Notes to Consolidated Financial Statements
Gains (losses) from valuation and settlements reported on derivatives not designated as accounting hedges
Accident and
health insurance
policy benefits Total gain
Net gains and interest (Loss) income (loss)
(losses) on credited to from recognized in
investments and contractholder Operating costs discontinued net income on
($ in millions) derivatives funds and expenses operations derivatives
2021
Interest rate contracts $ 22 - $ - - $ 22
Equity and index contracts (7) 27 45 - 65 Contingent consideration - - - 65 65 Foreign currency contracts 32 - - - 32 Credit default contracts 7 - - - 7 Total return swaps - fixed income 4 - - - 4 Total $ 58 $ 27 $ 45 $ 65 $ 195 2020 Interest rate contracts $ 36 $ - $ - $ - $ 36 Equity and index contracts 15 - 29 -
44
Foreign currency contracts (13) - - - (13) Credit default contracts 6 - - - 6 Total return swaps - fixed income 1 - - -
1
Total return swaps - equity index 4 - - - 4 Total $ 49 $ - $ 29 $ - $ 78 2019 Interest rate contracts $ 51 $ - $ - $ - $ 51 Equity and index contracts (121) - 40 -
(81)
Foreign currency contracts 5 - - - 5 Credit default contracts (7) - - - (7) Total return swaps - fixed income 13 - - -
13
Total return swaps - equity 33 - - - 33
Total $ (26) $ - $ 40 $ - $ 14
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.
OTC cash and securities collateral pledged
($ in millions) December 31, 2021
Pledged by the Company $ 2
Pledged to the Company (1) 17
(1)Includes no collateral posted under MNA's for contracts containing credit-risk-contingent provisions that are in a liability provision.
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.
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Notes to Consolidated Financial Statements 2021 Form 10-K
OTC derivatives counterparty credit exposure by counterparty credit rating
($ in millions) 2021 2020
Exposure, net Exposure, net
Notional Credit of collateral Notional Credit exposure of collateral
Rating (1) Number of counter-parties amount (2) exposure (2) (2) Number of counter-parties amount (2) (2) (2)
A+ 1 $ 199 $ 7 $ - 1 $ 186 $ 4 $ -
A 1 367 9 - - - - -
Total 2 $ 566 $ 16 $ - 1 $ 186 $ 4 $ -
(1)Allstate uses the lower of S&P's or Moody's long-term debt issuer ratings.
(2)Only OTC derivatives with a net positive fair value are included for each counterparty.
For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts.
Exchange traded and cleared margin deposits ($ in millions) December 31, 2021 Pledged by the Company $ 73 Received by the Company 3 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 transactions contain credit-risk-contingent termination events and cross-default provisions. Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC's 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. The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs. ($ in millions) 2021 2020
Gross liability fair value of contracts containing credit-risk-contingent features
$ 8 $ 19
Gross asset fair value of contracts containing
credit-risk-contingent features and subject to MNAs (7) (6)
Collateral posted under MNAs for contracts containing credit-risk-contingent features
- (13)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently
$ 1 $ -
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 Allstate Corporation 141
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2021 Form 10-K Notes to Consolidated Financial Statements
CDS notional amounts by credit rating and fair value of protection sold
Notional amount
($ in millions) AAA AA A BBB BB and lower Total Fair value
December 31, 2021
Single name
Corporate debt $ - $ - $ - $ - $ 5 $ 5 $ -
Index
Corporate debt 2 4 46 190 8 250 6
Total $ 2 $ 4 $ 46 $ 190 $ 13 $ 255 $ 6
December 31, 2020
Single name
Corporate debt $ - $ - $ - $ - $ 4 $ 4 $ -
Index
Corporate debt 6 12 156 492 84 750 13
Total $ 6 $ 12 $ 156 $ 492 $ 88 $ 754 $ 13
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.
Off-balance sheet financial instruments
Commitments to invest, commitments to purchase private placement securities, commitments to fund loans, financial guarantees and credit guarantees have off-balance sheet risk because their contractual amounts are not recorded in the Company's Consolidated Statements of Financial Position.
Contractual amounts of off-balance sheet financial instruments
As of December 31,
($ in millions) 2021 2020
Commitments to invest in limited partnership interests $ 2,720 $ 2,015
Private placement commitments 104 36
Other loan commitments 16 17
In the preceding table, the contractual amounts represent the amount at risk if
the contract is fully drawn upon, the counterparty defaults and the value of any
underlying security becomes worthless. Unless noted otherwise, the Company does
not require collateral or other security to support off-balance sheet financial
instruments with credit risk.
Commitments to invest in limited partnership interests represent agreements to
acquire new or additional participation in certain limited partnership
investments. The Company enters into these agreements in the normal course of
business. Because the investments in limited partnerships are not actively
traded, it is not practical to estimate the fair value of these commitments.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Private placement commitments represent commitments to purchase private placement debt and private equity securities at a future date. The Company enters into these agreements in the normal course of business. The fair value of the debt commitments generally cannot be estimated on the date the commitment is made as the terms and conditions of the underlying private placement securities are not yet final. Because the private equity securities are not actively traded, it is not practical to estimate fair value of the commitments. Other loan commitments are agreements to lend to a borrower provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at predetermined interest rates. Unless unconditionally cancellable, the Company recognizes a credit loss allowance on such commitments. Commitments have either fixed or varying expiration dates or other termination clauses. The fair value of these commitments is insignificant.
Note 8 Variable Interest Entities
Consolidated VIEs, of which the Company is the primary beneficiary, primarily include Adirondack Insurance Exchange, a New York reciprocal insurer, and New Jersey Skylands Insurance Association, a New Jersey reciprocal insurer (together "Reciprocal Exchanges"). The Reciprocal Exchanges are insurance carriers organized as unincorporated associations. The Company does not own the equity of the Reciprocal Exchanges, which is owned by their respective policyholders. The Company manages the business operations of the Reciprocal Exchanges and has the power to direct their activities that most significantly impact their economic performance. The Company receives a management fee for the services provided to the Reciprocal Exchanges. In addition, the Company holds interests that provide capital to the Reciprocal Exchanges and would absorb any expected losses. The Company is therefore the primary beneficiary. In the event of dissolution, policyholders would share any residual unassigned surplus but are not subject to assessment for any deficit in unassigned surplus of the Reciprocal Exchanges. The assets of the Reciprocal Exchanges can be used only to settle the obligations of the Reciprocal Exchanges and general creditors have no recourse to the Company. The results of operations of the Reciprocal Exchanges are included in the Company's Allstate Protection segment and generated $181 million of earned premiums and $135 million in claims and claims expenses in 2021. Assets and liabilities of Reciprocal Exchanges ($ in millions) December 31, 2021 Assets Fixed income securities $ 324 Short-term investments 30 Deferred policy acquisition costs 15 Premium installment and other receivables, net 42 Reinsurance recoverables, net 114 Other assets 82 Total assets 607 Liabilities
Reserve for property and casualty insurance claims and claims expense
226
Unearned premiums 175
Other liabilities and expenses 265
Total liabilities $ 666
Note 9 Reserve for Property and Casualty 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.
When the Company experiences changes in the mix or type of claims or changing
claim settlement patterns, it may need to apply actuarial judgment in the
determination and selection of development factors to be more reflective of the
new trends. For example, the Coronavirus has had a significant impact on driving
patterns and auto frequency. Supply chain
The Allstate Corporation 143
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2021 Form 10-K Financial Statements
disruptions have resulted in higher parts costs and used car values which have combined with labor shortages to increase physical damage loss costs while medical inflation, treatment trends and higher levels of attorney representation have increased liability losses. These factors may lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability. Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using several different actuarial estimation methods. Changes in auto claim frequency may result from changes in mix of business, the rate of distracted driving, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors, the effectiveness and efficiency of claim practices and changes in mix of claim types. The Company mitigates these effects through various loss management programs. When such changes in claim data occur, actuarial judgment is used to determine appropriate development factors to establish reserves. As part of the reserving process, 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 IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, Run-off Property-Liability and reinsurance and indemnification recoverables, 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 initial reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company also has uncertainty in the Run-off Property-Liability reserves that are based on events long since passed and are complicated by lack of historical data, legal interpretations, unresolved legal issues and legislative intent based on establishment of facts. 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 reserve estimates, which may be material, are reported in property and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined.
Rollforward of reserve for property and casualty insurance claims and claims expense ($ in millions)
2021 2020 2019
Balance as of January 1 $ 27,610 $ 27,712 $ 27,423
Less recoverables (1) (7,033) (6,912) (7,155)
Net balance as of January 1 20,577 20,800 20,268
National General acquisition as of January 4, 2021 1,797 - -
SafeAuto acquisition as of October 1, 2021 134 - -
Incurred claims and claims expense related to:
Current year 29,196 22,437 24,106
Prior years 122 (436) (130)
Total incurred 29,318 22,001 23,976
Claims and claims expense paid related to:
Current year (18,438) (14,245) (15,160)
Prior years (9,807) (7,979) (8,284)
Total paid (28,245) (22,224) (23,444)
Net balance as of December 31 23,581 20,577 20,800
Plus recoverables 9,479 7,033 6,912
Balance as of December 31 $ 33,060 $ 27,610 $ 27,712
(1) Recoverables comprises reinsurance and indemnification recoverables. See Note 11 for further details.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Reconciliation of total claims and claims expense incurred and paid by coverage
December 31, 2021
($ in millions) Incurred Paid
Allstate Protection
Auto insurance - liability coverage $ 10,830 $ (9,420)
Auto insurance - physical damage coverage 7,170 (7,150)
Homeowners insurance 6,371 (6,045)
Total auto and homeowners insurance 24,371 (22,615)
Other personal lines 1,144 (1,163)
Commercial lines 767 (581)
Protection Services 376 (373)
Run-off Property-Liability 109 (97)
Unallocated loss adjustment expenses ("ULAE") 2,569 (2,726)
Claims incurred and paid from before 2017 (69) (622)
Other (1) 51 (68)
Total $ 29,318 $ (28,245)
(1)Paid and incurred includes amounts primarily related to the acquisition of
SafeAuto. Additionally, incurred includes the amortization of the fair value
adjustment related to the acquisition of National General.
Incurred claims and claims expense represents the sum of paid losses, claim
adjustment expenses and reserve changes in the calendar year. This expense
includes losses from catastrophes of $3.34 billion, $2.81 billion and $2.56
billion in 2021, 2020 and 2019, respectively, net of recoverables. Catastrophes
are an inherent risk of the property and casualty insurance business that have
contributed to, and will continue to contribute to, material year-to-year
fluctuations in the Company's results of operations and financial position.
The Company calculates and records a single best reserve estimate for losses
from catastrophes, in conformance with generally accepted actuarial standards.
As a result, management believes that no other estimate is better than the
recorded amount. Due to the uncertainties involved, including the factors
described above, the ultimate cost of losses may vary materially from recorded
amounts, which are based on management's best estimates. Accordingly, management
believes that it is not practical to develop a meaningful range for any such
changes in losses incurred.
Prior year reserve reestimates included in claims and claims expense (1)
Twelve months ended December 31,
Non-catastrophe losses Catastrophe losses Total
($ in millions) 2021 2020 2019 2021(2)(3) 2020 (4) 2019 2021 2020 2019
Auto $ 178 $ (63) $ (306) $ (29) $ (44) $ (17) $ 149 $ (107) $ (323)
Homeowners 12 (17) (1) (165) (422) 66 (153) (439) 65
Other personal lines (96) (27) 8 (11) (39) - (107) (66) 8
Commercial lines 116 34 18 3 2 (1) 119 36 17
Run-off Property-Liability (5) 116 141 105 - - - 116 141 105
Protection Services (2) (1) (2) - - - (2) (1) (2)
Total prior year reserve
reestimates $ 324 $ 67 $ (178) $ (202) $ (503) $ 48 $ 122 $ (436) $ (130)
(1)Favorable reserve reestimates are shown in parentheses.
(2)Includes approximately $240 million of estimated recoveries related to Nationwide Aggregate Reinsurance Program cover for aggregate catastrophe losses occurring between April 1, 2020 and December 31, 2020, which primarily impacted homeowners reestimates.
(3)Includes approximately $110 million favorable subrogation settlements arising from the Woolsey wildfire, which primarily impacted homeowners reestimates.
(4)2020 includes approximately $495 million of favorable reserve reestimates related to the PG&E Corporation and Southern California Edison subrogation settlements, which primarily impacted homeowners.
(5)The Company's 2021 annual reserve review, using established industry and actuarial best practices, resulted in unfavorable reestimates of $111 million.
The Allstate Corporation 145
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2021 Form 10-K Financial Statements
The following presents information about incurred and paid claims development as of December 31, 2021, net of recoverables, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included in the net incurred claims amounts. See Note 2 for the accounting policy and methodology for determining reserves for claims and claims expense, including both reported and IBNR claims. The cumulative number of reported claims is identified by coverage and excludes reported claims for industry pools and facilities where information is not available. The information about incurred and paid claims development for the 2017 to 2021 years, and the average annual percentage payout of incurred claims by age as of December 31, 2021, is presented as required supplementary information.
Auto insurance - liability coverage
($ in millions, IBNR reserves
except number of plus expected Cumulative number of
reported claims) development on reported claims
Incurred claims and allocated claim adjustment expenses, net of recoverables reported claims
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited) Prior year reserve
Accident year 2017 2018 2019 2020 2021 reestimates As of December 31, 2021
2017 $ 9,424 $ 9,341 $ 9,286 $ 9,332 $ 9,392 $ 60 $ 581 2,519,909
2018 - 9,817 9,786 9,825 9,862 37 1,140 2,499,583
2019 - - 10,557 10,503 10,750 247 2,080 2,632,610
2020 - - - 8,773 8,770 (3) 2,901 1,891,726
2021 - - - - 10,489 6,860 2,150,167
Total $ 49,263 $ 341Reconciliation to total prior year reserve reestimates recognized by line Prior year reserve reestimates for pre-2017 accident years
(51)
Prior year reserve reestimates for ULAE 29
Other (18)
Total prior year reserve reestimates $ 301
Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited)
Accident year 2017 2018 2019 2020 2021
2017 $ 3,554 $ 6,058 $ 7,386 $ 8,241 $ 8,811
2018 - 3,672 6,417 7,801 8,722
2019 - - 3,985 7,096 8,670
2020 - - - 3,143 5,869
2021 - - - - 3,629
Total $ 35,701
All outstanding liabilities before 2017, net of recoverables 1,393
Liabilities for claims and claim adjustment expenses, net of recoverables
$ 14,955
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2021
1 year 2 years 3 years 4 years 5 years
Auto insurance - liability coverage 38.8 % 28.1 % 13.2 % 8.4 % 5.1 %
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Notes to Consolidated Financial Statements 2021 Form 10-K
Auto insurance - physical damage coverage
IBNR reserves
($ in millions, plus expected
except number of development on Cumulative number of
reported claims) Incurred claims and allocated claim adjustment expenses, net of recoverables reported claims reported claims
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited) Prior year reserve
Accident year 2017 2018 2019 2020 2021 reestimates As of December 31, 2021
2017 $ 5,738 $ 5,627 $ 5,612 $ 5,610 $ 5,613 $ 3 $ 4 4,634,171
2018 - 5,788 5,704 5,659 5,652 (7) 5 4,686,395
2019 - - 6,269 6,188 6,150 (38) (2) 4,860,355
2020 - - - 5,508 5,419 (89) (8) 4,008,243
2021 - - - - 7,301 429 4,407,369
Total $ 30,135 $ (131)Reconciliation to total prior year reserve reestimates recognized by line Prior year reserve reestimates for pre-2017 accident years
(5)
Prior year reserve reestimates for ULAE (14)
Other (2)
Total prior year reserve reestimates $ (152)
Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited)
Accident year 2017 2018 2019 2020 2021
2017 $ 5,398 $ 5,625 $ 5,614 $ 5,609 $ 5,609
2018 - 5,475 5,693 5,650 5,647
2019 - - 5,959 6,158 6,152
2020 - - - 5,140 5,427
2021 - - - - 6,872
Total $ 29,707
All outstanding liabilities before 2017, net of recoverables 7
Liabilities for claims and claim adjustment expenses, net of recoverables
$ 435
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2021
1 year 2 years 3 years 4 years 5 years
Auto insurance - physical damage
coverage 96.2 % 3.9 % (0.3) % (0.1) % - %
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2021 Form 10-K Financial Statements
Homeowners insurance
IBNR reserves
($ in millions, plus expected
except number of development on Cumulative number of
reported claims) Incurred claims and allocated claim adjustment expenses, net of recoverables reported claims reported claims
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited) Prior year reserve
Accident year 2017 2018 2019 2020 2021 reestimates As of December 31, 2021
2017 $ 4,929 $ 5,036 $ 5,037 $ 4,805 $ 4,816 $ 11 $ 60 977,319
2018 - 5,155 5,262 4,958 4,829 (129) 82 898,425
2019 - - 4,864 4,924 4,931 7 153 868,577
2020 - - - 5,792 5,839 47 280 982,690
2021 - - - - 6,435 1,884 908,890
Total $ 26,850 $ (64)Reconciliation to total prior year reserve reestimates recognized by line Prior year reserve reestimates for pre-2017 accident years
(13)
Prior year reserve reestimates for ULAE (70)
Other (6)
Total prior year reserve reestimates $ (153)
Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited)
Accident year 2017 2018 2019 2020 2021
2017 $ 3,521 $ 4,634 $ 4,835 $ 4,734 $ 4,756
2018 - 3,775 4,883 4,759 4,747
2019 - - 3,535 4,587 4,778
2020 - - - 4,266 5,559
2021 - - - - 4,551
Total $ 24,391
All outstanding liabilities before 2017, net of recoverables 115
Liabilities for claims and claim adjustment expenses, net of recoverables
$ 2,574
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2021
1 year 2 years 3 years 4 years 5 years
Homeowners insurance 73.7 % 20.7 % 2.8 % 0.8 % 0.7 %
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Notes to Consolidated Financial Statements 2021 Form 10-K
Reconciliation of the net incurred and paid claims development tables above to the reserve for property and casualty insurance claims and claims expense ($ in millions) As of December 31, 2021 Net outstanding liabilities Allstate Protection Auto insurance - liability coverage $ 14,955 Auto insurance - physical damage coverage 435 Homeowners insurance 2,574 Other personal lines 1,316 Commercial lines 1,316 Protection Services 33 Run-off Property-Liability (1) 1,342 ULAE 1,430 Other (2) 180
Net reserve for property and casualty insurance claims and claims expense
23,581
Recoverables
Allstate Protection Auto insurance - liability coverage 7,247 Auto insurance - physical damage coverage 81 Homeowners insurance 1,023 Other personal lines 173 Commercial lines 256 Protection Services 9 Run-off Property-Liability 494 ULAE 196 Total recoverables 9,479
Gross reserve for property and casualty insurance claims and claims expense
$ 33,060
(1)Run-off Property-Liability includes business in run-off with most of the claims related to accident years more than 30 years ago. IBNR reserves represent $733 million of the total reserves as of December 31, 2021.
(2)Includes amounts primarily related to the acquisition of SafeAuto and the unamortized fair value adjustment related to the acquisition of National General.
Management believes that the reserve for property and casualty insurance claims and claims expense, net of recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Consolidated Statements of Financial Position based on available facts, technology, laws and regulations.
Note 10 Reserve for Future Policy Benefits and Contractholder Funds
Reserve for future policy benefits
As of December 31,
($ in millions) 2021 2020
Traditional life insurance and other $ 313 $ 299 Accident and health insurance
960 729
Reserve for future policy benefits $ 1,273 $ 1,028
Key assumptions generally used in calculating the reserve for future policy benefits
Product Mortality Interest rate Estimation method
Traditional life insurance Actual company experience Interest rate assumptions Net level premium reserve
plus loading range from 1.8% to 7.0% method using the
Company's withdrawal
experience rates;
includes reserves for
unpaid claims
Accident and health Actual company experience Interest rate assumptions Unearned premium;
insurance plus loading range from 2.8% to 7.0% additional contract
reserves for mortality
risk and unpaid claims
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2021 Form 10-K Notes to Consolidated Financial Statements
Accident and health short-duration contracts
The following presents information about incurred and paid claims development as of December 31, 2021, net of recoverables, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included in the net incurred claims amounts. See Note 2 for the accounting policy and methodology for determining reserves for future policy benefits, including both reported and IBNR claims. The information about incurred and paid claims development for the 2017 to 2021 years, as of December 31, 2021, is presented as required supplementary information.
Group and individual accident and health
($ in millions, except IBNR reserves number of reported plus
expected Cumulative number of
claims) development on reported claims
Incurred claims and allocated claim adjustment expenses, net of recoverables reported claims
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited)
Accident year 2017 2018 2019 2020 2021 As of December 31, 2021
2017 $ 211 $ 186 $ 183 $ 183 $ 183 $ - 302,100
2018 - 235 205 203 203 - 269,095
2019 - - 257 239 242 - 306,998
2020 - - - 297 293 9 410,031
2021 - - - - 424 152 465,525
Total $ 1,345
Cumulative paid claims andallocated claims adjustment expenses, net of recoverables
For the years ended December 31,
(unaudited) (unaudited) (unaudited) (unaudited)
Accident year 2017 2018 2019 2020 2021
2017 $ 105 $ 178 $ 182 $ 183 $ 183
2018 - 126 201 203 203
2019 - - 158 234 242
2020 - - - 184 284
2021 - - - - 272
Total $ 1,184
All outstanding liabilities before 2017, net of recoverables -
Liabilities for claims and claim adjustment expenses, net of recoverables
$ 161
Reconciliation of the net incurred and paid claims development tables above to the reserve for future policy
benefits
($ in millions) As of December 31, 2021
Net outstanding liabilities
Group and individual accident and health short-duration contracts
$ 161
Other accident and health short-duration contracts 28
Long duration accident and health insurance 617
Long duration traditional life insurance and other 313
Net reserve for future policy benefits 1,119
Recoverables
Group and individual accident and health short-duration contracts
38
Other accident and health short-duration contracts -
Insurance lines other than short-duration 116
Gross reserve for future policy benefits $ 1,273
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2021
1 year 2 years 3 years 4 years 5 years
Group and individual accident and health 62.6 % 35.1 % 1.9 % 0.4 % - %
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Notes to Consolidated Financial Statements 2021 Form 10-K
Contractholder funds for interest-sensitive life insurance were $853 million and $857 million as of December 31, 2021 and 2020, respectively.
Contractholder funds activity
For the years ended December 31,
($ in millions) 2021 2020 2019
Balance, beginning of year $ 857 $ 915 $ 898
Deposits 118 121 126
Interest credited 34 33 34
Benefits (41) (34) (11)
Surrenders and partial withdrawals (23) (61) (21)
Contract charges (107) (123) (114)
Other adjustments 70 6 3
Balance, end of year $ 908 $ 857 $ 915
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2021 Form 10-K Notes to Consolidated Financial Statements
Note 11 Reinsurance and IndemnificationEffects of reinsurance and indemnification on property and casualty premiums written and earned and accident and health insurance premiums and contract charges
For the years ended December 31,
($ in millions) 2021 2020 2019
Property and casualty insurance premiums written
Direct $ 45,523 $ 38,695 $ 37,976
Assumed 213 105 95
Ceded (1,736) (1,142) (1,117)Property and casualty insurance premiums written, net of recoverables
$ 44,000 $ 37,658 $ 36,954
Property and casualty insurance premiums earned Direct $ 43,944 $ 38,115 $ 37,104 Assumed 178 99 94 Ceded (1,904) (1,141) (1,122)
Property and casualty insurance premiums earned, net of recoverables
$ 42,218 $ 37,073 $ 36,076
Accident and health insurance premiums and contract charges Direct $ 1,878 $ 1,093 $ 1,145 Assumed 21 14 14 Ceded (78) (13) (14)
Accident and health insurance premiums and contract charges, net of recoverables
$ 1,821 $ 1,094 $ 1,145
Reinsurance and indemnification recoverables
Reinsurance and indemnification recoverables, net
As of December 31,
($ in millions) 2021 2020
Property and casualty Paid and due from reinsurers and indemnitors $ 391 $ 101 Unpaid losses estimated (including IBNR)
9,479 7,033
Total property and casualty $ 9,870 $ 7,134
Accident and health insurance 154 81
Total $ 10,024 $ 7,215
Rollforward of credit loss allowance for reinsurance recoverables
For the years ended December 31,
($ in millions) 2021 2020
Property and casualty (1) (2)
Beginning balance $ (59) $ (60)
(Increase)/Decrease in the provision for credit losses (8) 1
Write-offs 1 -
Ending balance $ (66) $ (59)
Accident and health insurance
Beginning balance $ (1) $ (1)
Increase in the provision for credit losses (7) -
Write-offs - -
Ending Balance $ (8) $ (1)
(1)Primarily related to run-off lines reinsurance ceded.
(2)Indemnification recoverables are considered collectible based on the industry pool and facility enabling legislation.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Property and casualty
Property and casualty programs are grouped by the following characteristics:
1.Indemnification programs - industry pools, facilities or associations that are governed by state insurance statutes or regulations or the federal government.
2.Catastrophe reinsurance programs - reinsurance protection for catastrophe exposure nationwide and by specific states, as applicable.
3.Other reinsurance programs - reinsurance protection for asbestos, environmental and other liability exposures as well as commercial lines, including shared economy.
Property and casualty reinsurance is in place for the Allstate Protection, Run-off lines and Protection Services segments. The Company purchases reinsurance after evaluating the financial condition of the reinsurer as well as the terms and price of coverage.
Indemnification programs
The Company participates in state-based industry pools or facilities mandating
participation by insurers offering certain coverage in their state, including
the Michigan Catastrophic Claims Association ("MCCA"), the New Jersey
Property-Liability Insurance Guaranty Association ("PLIGA"), the North Carolina
Reinsurance Facility ("NCRF") and the Florida Hurricane Catastrophe Fund
("FHCF"). When the Company pays qualifying claims under the coverage indemnified
by a state's pool or facility, the Company is reimbursed for the qualifying
claim losses or expenses. Each state pool or facility may assess participating
companies to collect sufficient amounts to meet its total indemnification
requirements. The enabling legislation for each state's pool or facility compels
the pool or facility only to indemnify participating companies for qualifying
claim losses or expenses; the state pool or facility does not underwrite the
coverage or take on the ultimate risk of the indemnified business. As a pass
through, these pools or facilities manage the receipt of assessments paid by
participating companies and payment of indemnified amounts for covered claims
presented by participating companies. The Company has not had any credit losses
related to these indemnification programs.
State-based industry pools or facilities
Michigan Catastrophic Claims Association The MCCA is a statutory indemnification mechanism for member insurers' qualifying personal injury protection claims paid for the unlimited lifetime medical benefits above the applicable retention level for qualifying injuries from automobile, motorcycle and commercial vehicle accidents. Indemnification recoverables on paid and unpaid claims, including IBNR, as of December 31, 2021 and 2020 include $6.70 billion and $5.65 billion, respectively, from the MCCA for its indemnification obligation. The MCCA is funded by annually assessing participating member companies actively writing motor vehicle coverage in Michigan on a per vehicle basis that is currently $86 per vehicle insured. The MCCA's calculation of the annual assessment is based upon the total of members' actuarially determined present value of expected payments on lifetime claims by all persons expected to be catastrophically injured in that year and ultimately qualify for MCCA reimbursement, its operating expenses, and adjustments for the amount of excesses or deficiencies in prior assessments. The MCCA has also included its calculation of the impacts of the auto insurance reforms which have begun to phase in since their passage in June 2019, including the personal injury protection medical fee schedule that became effective July 2, 2021. The assessment is incurred by the Company as policies are written and recovered as a component of premiums from the Company's customers. The MCCA indemnifies qualifying claims of all current and former member companies (whether or not actively writing motor vehicle coverage in Michigan) for qualifying claims and claims expenses incurred while the member companies were actively writing the mandatory personal injury protection coverage in Michigan. Member companies actively writing automobile coverage in Michigan include the MCCA annual assessments in determining the level of premiums to charge insureds in the state. As required for member companies by the MCCA, the Company reports covered paid and unpaid claims to the MCCA when estimates of loss for a reported claim are expected to exceed the retention level, the claims involve certain types of severe injuries, or there are litigation demands received suggesting the claim value exceeds certain thresholds. The retention level is adjusted upward every other MCCA fiscal year by the lesser of 6% or the increase in the Consumer Price Index. The retention level will be $600 thousand per claim for the fiscal two-years ending June 30, 2023 compared to $580 thousand per claim for the fiscal two-years ending June 30, 2021.
The MCCA is obligated to fund the ultimate liability of member companies' qualifying claims and claim expenses. The MCCA does not underwrite the insurance coverage or hold any underwriting risk.
The MCCA indemnifies members as qualifying claims are paid and billed by members
to the MCCA. Unlimited lifetime covered losses result in significant levels of
ultimate incurred claim reserves being recorded by member companies along with
offsetting indemnification recoverables. Disputes with claimants over coverage
on certain reported claims can result in additional losses, which may be
recoverable from the MCCA, excluding litigation expenses. There is currently no
method by which insurers are able to obtain the benefit of managed care programs
to reduce claims costs through the MCCA.
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2021 Form 10-K Notes to Consolidated Financial Statements
The MCCA annual assessments fund current operations and member company
reimbursements. The MCCA prepares statutory-basis financial statements in
conformity with accounting practices prescribed or permitted by the State of
Michigan Department of Insurance and Financial Services ("MI DOI"). The MI DOI
has granted the MCCA a statutory permitted practice that expires in June 30,
2022 to discount its liabilities for loss and loss adjustment expense. As of
June 30, 2021, the date of its most recent annual financial report, the MCCA had
cash and invested assets of $27.26 billion and an accumulated surplus of $5.04
billion. The permitted practice reduced the accumulated deficit by $31.28
billion. As a result of the auto insurance reforms passed in June 2019, the MCCA
announced on November 3, 2021 that the surplus had increased beyond a level
necessary to safely cover its expected losses and expenses and will return a
portion of its surplus to its member insurance companies as a pass-through to
issue a refund of $400 per vehicle and $80 per historical vehicle to the
policyholders. At the time the returned surplus is received a liability will be
recorded until the refunds are disbursed to the policyholders.
New Jersey Property-Liability Insurance Guaranty Association PLIGA serves as the
statutory administrator of the Unsatisfied Claim and Judgment Fund ("UCJF"),
Workers' Compensation Security Fund and the New Jersey Surplus Lines Insurance
Guaranty Fund.
In addition to its insolvency protection responsibilities, PLIGA reimburses
insurers for unlimited excess medical benefits ("EMBs") paid in connection with
personal injury protection claims in excess of $75,000 for policies issued or
renewed prior to January 1, 1991, and limited EMB claims in excess of $75,000
and capped at $250,000 for policies issued or renewed on or after January 1,
1991, to December 31, 2003.
A significant portion of the incurred claim reserves and the recoverables can be
attributed to a small number of catastrophic claims. Assessments paid to PLIGA
for the EMB program totaled $7 million in 2021. The amounts of paid and unpaid
recoverables as of December 31, 2021 and 2020 were $371 million and $389
million, respectively.
PLIGA annually assesses all admitted property and casualty insurers writing
covered lines in New Jersey for PLIGA indemnification and expenses. PLIGA
assessments may be recouped as a surcharge on premiums collected. PLIGA does not
ultimately retain underwriting risk as it assesses member companies for their
expected qualifying losses to provide funding for payment of its indemnification
obligation to member companies for their actual losses. As a pass through, PLIGA
facilitates these transactions of receipt of assessments paid by member
companies and payment to member companies for covered claims presented by them
for indemnification. As of December 31, 2020, the date of its most recent annual
financial report, PLIGA had a fund balance of $254 million.
As statutory administrator of the UCJF, PLIGA provides compensation to qualified
claimants for personal injury protection, bodily injury, or death caused by
private passenger automobiles operated by uninsured or "hit and run" drivers.
The UCJF also provides private passenger pedestrian personal injury protection
benefits when no other coverage is available.
PLIGA annually collects a UCJF assessment from all admitted property and
casualty insurers writing motor vehicle liability insurance in New Jersey for
UCJF indemnification and expenses. UCJF assessments can be expensed as losses
recoverable in rates as appropriate. As of December 31, 2020, the date of its
most recent annual financial report, the UCJF fund had a balance of $57 million.
North Carolina Reinsurance Facility The NCRF provides automobile liability
insurance to drivers that insurers are not otherwise willing to insure. All
insurers licensed to write automobile insurance in North Carolina are members of
the NCRF. Premiums, losses and expenses are assigned to the NCRF. North Carolina
law allows the NCRF to recoup operating losses for certain insureds through a
surcharge to policyholders. As of September 30, 2021, the NCRF reported a
deficit of $67 million in members' equity. The NCRF implemented a loss
recoupment surcharge on all private passenger and commercial fleet policies
effective October 1, 2021, through September 30, 2022. Member companies are
assessed the recoupment surcharge. The loss recoupment surcharge will be
adjusted on October 1, 2022 and discontinued once losses are recovered. The NCRF
results are shared by the member companies in proportion to their respective
North Carolina automobile liability writings. For the fiscal year ending
September 30, 2021, net gain was $58 million, including $1.11 billion of earned
premiums, $244 million of certain private passenger auto risk recoupment and
$127 million of member loss recoupments. As of December 31, 2021, the NCRF
recoverables on paid claims is $51 million and recoverables on unpaid claims is
$228 million. Paid recoverable balances, if covered, are typically settled
within sixty days of monthly filing.
Florida Hurricane Catastrophe Fund Allstate subsidiaries Castle Key Insurance
Company ("CKIC") and Castle Key Indemnity Company ("CKI", and together with
CKIC, "Castle Key") participate in the mandatory coverage provided by the FHCF
and therefore have access to reimbursement for certain qualifying Florida
hurricane losses from the FHCF. Castle Key has exposure to assessments and pays
annual premiums to the FHCF for this reimbursement protection. The FHCF has the
authority to issue bonds to pay its obligations to participating insurers in
excess of its capital balances. Payment of these bonds is funded by emergency
assessments on all property and casualty premiums in the state, except workers'
compensation, medical malpractice, accident and health insurance and policies
written under the National Flood Insurance Program ("NFIP"). The FHCF emergency
assessments are limited to 6% of premiums per year beginning the first year in
which
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Notes to Consolidated Financial Statements 2021 Form 10-K
reimbursements require bonding, and up to a total of 10% of premiums per year
for assessments in the second and subsequent years, if required to fund
additional bonding. The FHCF issued $2.00 billion in pre-event bonds in 2013 to
build its capacity to reimburse member companies' claims. The FHCF plans to fund
these pre-event bonds through current FHCF cash flows. Pursuant to an Order
issued by the Florida Office of Insurance Regulation, the emergency assessment
is zero for all policies issued or renewed on or after January 1, 2015.
Annual premiums earned and paid under the FHCF agreement were $15 million, $9
million and $9 million in 2021, 2020 and 2019, respectively. Qualifying losses
were $13 million, $15 million and $33 million in 2021, 2020 and 2019,
respectively. The Company has access to reimbursement provided by the FHCF for
90% of qualifying personal property losses that exceed its current retention of
$104 million for the two largest hurricanes and $35 million for other
hurricanes, up to a maximum total of $251 million, effective from June 1, 2021
to May 31, 2022. The amounts recoverable from the FHCF totaled $25 million and
$32 million as of December 31, 2021 and 2020, respectively.
Federal Government - National Flood Insurance Program NFIP is a program
administered by the Federal Emergency Management Agency ("FEMA") whereby the
Company sells and services NFIP flood insurance policies as an agent of FEMA and
receives fees for its services. The Company is fully indemnified for claims and
claim expenses and does not retain any ultimate risk for the indemnified
business. The federal government is obligated to pay all claims and certain
allocated loss adjustment expenses in accordance with the arrangement.
Congressional authorization for the NFIP is periodically evaluated and may be
subjected to freezes, including when the federal government experiences a
shutdown. FEMA has a NFIP reinsurance program to manage the future exposure of
the NFIP through the transfer of risk to private reinsurance companies and
capital market investors. Congress is evaluating the funding of the program as
well as considering reforms to the program that would be incorporated in
legislation to reauthorize the NFIP.
The amounts recoverable as of December 31, 2021 and 2020 were $34 million and
$30 million, respectively. Premiums earned under the NFIP include $350 million,
$261 million and $258 million in 2021, 2020 and 2019, respectively. Qualifying
losses incurred include $267 million, $87 million and $150 million in 2021, 2020
and 2019, respectively.
Catastrophe reinsurance
The Company's reinsurance program is designed to provide reinsurance protection
for catastrophes resulting from multiple perils including hurricanes,
windstorms, hail, tornadoes, winter storms, wildfires, earthquakes and fires
following earthquakes.
•The Company purchases reinsurance from traditional reinsurance companies as well as the insurance linked securities market.
•The majority of the Company's program comprises multi-year contracts, primarily placed in the traditional reinsurance market, such that generally one-third of the program is renewed every year.
•Coverage is generally purchased on a broad geographic, product line and multiple peril loss basis.
•Florida personal lines property is covered by a separate agreement, as the risk of loss is different and the Company's subsidiaries operating in this state are separately capitalized.
•A portion of New Jersey personal lines property and automobile remains covered by a separate standalone agreement.
•When applicable, reinsurance reinstatement premiums are recognized in the same
period as the loss event that gave rise to the reinstatement premium and are
recorded in claims and claims expense in the consolidated statements of
operations.
The Company's current catastrophe reinsurance program supports the Company's
risk tolerance framework that targets less than a 1% likelihood of annual
aggregate catastrophe losses from hurricanes, earthquakes and wildfires, net of
reinsurance, exceeding $2.5 billion.
The program includes coverage for losses to personal lines property, personal
lines automobile, commercial lines property or commercial lines automobile
arising out of multiple perils, in addition to hurricanes and earthquakes. These
reinsurance agreements are part of the catastrophe management strategy, which is
intended to provide shareholders an acceptable return on the risks assumed in
the property business, and to reduce variability of earnings, while providing
protection to customers. The Company has the following catastrophe reinsurance
agreements in effect as of December 31, 2021.
The June 1, 2021 Nationwide Excess Catastrophe Reinsurance Program (the
"Nationwide Program") provides coverage up to $5.76 billion of loss less a
$500 million retention, and is subject to the percentage of reinsurance placed
in each of its agreements. Property business in the state of Florida is excluded
from this program. Separate reinsurance agreements address the distinct needs of
separately capitalized legal entities. The Nationwide Program includes
reinsurance agreements with both the traditional and insurance linked securities
("ILS") markets as described below:
•The traditional market placement provides limits totaling $3.73 billion for
losses arising out of multiple perils and is comprised of four contracts
providing coverage of $3.25 billion with one annual reinstatement of limits, two
contracts combining $348 million of limits with one reinstatement of limits over
two eight-year terms, and one single-year term contract providing $132 million
of coverage, subject to a $3.75 billion retention, with no reinstatement of
limits. In addition to Allstate
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2021 Form 10-K Notes to Consolidated Financial Statements
and its affiliated companies covered under the 2020-2021 program, coverage also includes the National General Companies.
•ILS placements provide $1.70 billion of limits, with remaining available limit of $1.40 billion, with no reinstatement of limits, and are comprised of the following:
-$500 million, $400 million, 75% placed, $400 million, 62.5% placed, $250 million, $225 million, 67% placed, $150 million and $100 million placements reinsuring losses in all states except Florida caused by named storms, earthquakes and fire following earthquakes, severe weather, wildfires, and other naturally occurring or man-made events determined to be a catastrophe by the Company. -The $500 million, $400 million, 75% placed, and $100 million placements also provide that for each annual period beginning April 1, Allstate declared catastrophes to personal lines property and automobile business can be aggregated to erode the aggregate retention and qualify for coverage under the aggregate limit. Recoveries are limited to our ultimate net loss from the reinsured event.
-At the annual reset of the Sanders Re Catastrophe Bonds, National General was added as ceding companies.
The New Jersey agreement consists of one contract that reinsures personal lines property and automobile catastrophe losses caused by multiple perils in New Jersey and provides 32% of $400 million of limits in excess of provisional retentions of $150 million. The contract includes one annual reinstatement of limits. The New Jersey contract inures to portions of the Nationwide Program.
The Kentucky earthquake agreement comprises a three-year term contract that reinsures personal lines property losses caused by earthquakes and fire following earthquakes in Kentucky and provides $28 million of limits, 95% placed, in excess of a $2 million retention.
The 2021 Florida program includes reinsurance agreements placed with the traditional market, the Florida Hurricane Catastrophe Fund ("FHCF"), and the ILS market as follows:
•The Florida program provides limit up to $1.53 billion of a single event loss, less a $40 million retention.
• The traditional market placement comprises $999 million of reinsurance limits for losses to personal lines property in Florida arising out of multiple perils. The Excess contracts, which form a part of the traditional market placement, with $939 million of limits, subject to a $100 million retention and the Below FHCF contract with $60 million of limits subject to $40 million retention, provide coverage for perils not covered by the FHCF contracts, which only cover hurricanes.
• Two FHCF contracts provide $253 million of limits for qualifying losses to personal lines property in Florida caused by storms the National Hurricane Center declares to be hurricanes. Both contracts are 90% placed.
• The ILS placement provides $275 million of reinsurance limits, 73% placed, for qualifying losses to personal lines property in Florida caused by a named storm event, a severe weather event, an earthquake event, a fire event, a volcanic eruption event, or a meteorite impact event.
National General Lender Services Standalone Program is placed in the traditional market and provides $190 million of coverage, subject to a $50 million retention, with one reinstatement of limits.
National General Florida Hurricane Catastrophe Program provides $37 million of limit and is 90% placed.
National General Reciprocal Excess Catastrophe Reinsurance Contract is placed in the traditional market and provides $545 million of coverage, subject to a $20 million retention, with one reinstatement of limits.
The Company has not experienced credit losses on its catastrophe reinsurance programs. The total cost of the property catastrophe reinsurance program was $556 million, $425 million and $386 million in 2021, 2020 and 2019, respectively.
Other reinsurance programs
The Company's other reinsurance programs relate to commercial lines, including shared economy, and asbestos, environmental, and other liability exposures. The largest reinsurance recoverable balance the Company had outstanding was $187 million and $165 million from Aleka Insurance Inc. as of December 31, 2021 and 2020, respectively. These programs also include reinsurance recoverables of $165 million and $166 million from Lloyd's of London as of December 31, 2021 and 2020, respectively.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Note 12 Deferred Policy Acquisition Costs
Deferred policy acquisition costs activity
For the years ended December 31,
($ in millions) 2021 2020 2019
Balance, beginning of year $ 3,774 $ 3,600 $ 3,457
National General acquisition 317 - -
SafeAuto acquisition 7 - -
Acquisition costs deferred 6,874 5,651 5,499
Amortization charged to income (6,252) (5,477) (5,353)
Effect of unrealized gains and losses 2 - (3)
Balance, end of year $ 4,722 $ 3,774 $ 3,600
Note 13 Capital Structure
Total debt outstanding
As of December 31,
($ in millions) 2021 2020
Floating Rate Senior Notes, due 2021 $ - $ 250
Floating Rate Senior Notes, due 2023 (1) 250 250
3.150% Senior Notes, due 2023 (2) 500
500
6.750% Senior Notes due 2024 (2) (3) 350
-
0.750% Senior Notes, due 2025 (2) 600
600
3.280% Senior Notes, due 2026 (2) 550
550
Due after one year through five years 2,250
2,150
1.450% Senior Notes, due 2030 (2) 600
600
Due after five years through ten years 600
600
6.125% Senior Notes, due 2032 (2) 159
159
5.350% Senior Notes due 2033 (2) 323
323
5.550% Senior Notes due 2035 (2) 546
546
5.950% Senior Notes, due 2036 (2) 386
386
6.900% Senior Debentures, due 2038 165
165
5.200% Senior Notes, due 2042 (2) 62
62
4.500% Senior Notes, due 2043 (2) 500
500
4.200% Senior Notes, due 2046 (2) 700
700
3.850% Senior Notes, due 2049 (2) 500
500
5.100% Subordinated Debentures, due 2053 500
500
5.750% Subordinated Debentures, due 2053 800
800
6.500% Junior Subordinated Debentures, due 2067 500
500
Due after ten years 5,141
5,141
Long-term debt total principal 7,991 7,891 Fair value adjustments (3) 45 - Debt issuance costs (60) (66) Total long-term debt 7,976 7,825 Short-term debt (4) - - Total debt $ 7,976 $ 7,825 (1)2023 Floating Rate Senior Notes are not redeemable prior to the applicable maturity dates and bear interest at a floating rate equal to three-month LIBOR, reset quarterly on each interest reset date, plus 0.63% per year. (2)Senior Notes are subject to redemption at the Company's option in whole or in part at any time at the greater of either 100% of the principal amount plus accrued and unpaid interest to the redemption date or the discounted sum of the present values of the remaining scheduled payments of principal and interest and accrued and unpaid interest to the redemption date.
(3)Debt acquired as part of the National General acquisition completed on January 4, 2021.
(4)The Company classifies any borrowings which have a maturity of twelve months or less at inception as short-term debt.
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2021 Form 10-K Notes to Consolidated Financial Statements
Repayment of debt On March 29, 2021, the Company repaid, at maturity, $250 million of Floating Rate Senior Notes that bear interest at a floating rate equal to three-month LIBOR plus 0.43% per year.
Debt maturities for each of the next five years
and thereafter
($ in millions)
2022 $ -
2023 750
2024 350
2025 600
2026 550
Thereafter 5,741
Total long-term debt principal $ 7,991
The Subordinated Debentures may be redeemed (i) in whole at any time or in part
from time to time on or after January 15, 2023 for the 5.100% Subordinated
Debentures and August 15, 2023 for the 5.750% Subordinated Debentures at their
principal amount plus accrued and unpaid interest to, but excluding, the date of
redemption; provided that if the Subordinated Debentures are not redeemed in
whole, at least $25 million aggregate principal amount must remain outstanding,
or (ii) in whole, but not in part, prior to January 15, 2023 for the 5.100%
Subordinated Debentures and August 15, 2023 for the 5.750% Subordinated
Debentures, within 90 days after the occurrence of certain tax and rating agency
events, at their principal amount or, if greater, a make-whole redemption price,
plus accrued and unpaid interest to, but excluding, the date of redemption. The
5.750% Subordinated Debentures have this make-whole redemption price provision
only when a reduction of equity credit assigned by a rating agency has occurred.
Interest on the 5.100% Subordinated Debentures is payable quarterly at the
stated fixed annual rate to January 14, 2023, or any earlier redemption date,
and then at an annual rate equal to the three-month LIBOR plus 3.165%. Interest
on the 5.750% Subordinated Debentures is payable semi-annually at the stated
fixed annual rate to August 14, 2023, or any earlier redemption date, and then
quarterly at an annual rate equal to the three-month LIBOR plus 2.938%. The
Company may elect to defer payment of interest on the Subordinated Debentures
for one or more consecutive interest periods that do not exceed five years.
During a deferral period, interest will continue to accrue on the Subordinated
Debentures at the then-applicable rate and deferred interest will compound on
each interest payment date. If all deferred interest on the Subordinated
Debentures is paid, the Company can again defer interest payments.
As of December 31, 2021, the Company had outstanding $500 million of Series A
6.500% Fixed-to-Floating Rate Junior Subordinated Debentures ("Debentures"). The
scheduled maturity date for the Debentures is May 15, 2057 with a final maturity
date of May 15, 2067. The Debentures may be redeemed (i) in whole or in part, at
any time on or after May 15, 2037 at the principal amount plus accrued and
unpaid interest to the date of redemption, or (ii) in certain circumstances, in
whole or in part, prior to May 15, 2037
at the principal amount plus accrued and unpaid interest to the date of redemption or, if greater, a make-whole price.
Interest on the Debentures is payable semi-annually at the stated fixed annual
rate to May 15, 2037, and then payable quarterly at an annual rate equal to the
three-month LIBOR plus 2.120%. The Company may elect at one or more times to
defer payment of interest on the Debentures for one or more consecutive interest
periods that do not exceed 10 years. Interest compounds during such deferral
periods at the rate in effect for each period. The interest deferral feature
obligates the Company in certain circumstances to issue common stock or certain
other types of securities if it cannot otherwise raise sufficient funds to make
the required interest payments. The Company has reserved 75 million shares of
its authorized and unissued common stock to satisfy this obligation.
The terms of the Company's outstanding subordinated debentures prohibit the
Company from declaring or paying any dividends or distributions on common or
preferred stock or redeeming, purchasing, acquiring, or making liquidation
payments on common stock or preferred stock if the Company has elected to defer
interest payments on the subordinated debentures, subject to certain limited
exceptions.
In connection with the issuance of the Debentures, the Company entered into a
replacement capital covenant ("RCC"). This covenant was not intended for the
benefit of the holders of the Debentures and could not be enforced by them.
Rather, it was for the benefit of holders of one or more other designated series
of the Company's indebtedness ("covered debt"), currently the 5.750%
Subordinated Debentures due 2053. Pursuant to the RCC, the Company has agreed
that it will not repay, redeem, or purchase the Debentures on or before May 15,
2067 (or such earlier date on which the RCC terminates by its terms) unless,
subject to certain limitations, the Company has received net cash proceeds in
specified amounts from the sale of common stock or certain other qualifying
securities. The promises and covenants contained in the RCC will not apply if
(i) S&P upgrades the Company's issuer credit rating to A or above, (ii) the
Company redeems the Debentures due to a tax event, (iii) after notice of
redemption has been given by the Company and a market disruption event occurs
preventing the Company from raising proceeds in accordance with the RCC, or
(iv) the Company repurchases or redeems up to 10% of the outstanding principal
of the Debentures in any one-year period, provided that no more than 25% will be
so repurchased, redeemed or purchased in any ten-year period.
The RCC terminates in 2067. The RCC will terminate prior to its scheduled
termination date if (i) the Debentures are no longer outstanding and the Company
has fulfilled its obligations under the RCC or it is no longer applicable,
(ii) the holders of a majority of the then-outstanding principal amount of the
then-effective series of covered debt consent to agree to
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Notes to Consolidated Financial Statements 2021 Form 10-K
the termination of the RCC, (iii) the Company does not have any series of
outstanding debt that is eligible to be treated as covered debt under the RCC,
(iv) the Debentures are accelerated as a result of an event of default,
(v) certain rating agency or change in control events occur, (vi) S&P, or any
successor thereto, no longer assigns a solicited rating on senior debt issued or
guaranteed by the Company, or (vii) the termination of the RCC would have no
effect on the equity credit provided by S&P with respect to the Debentures. An
event of default, as defined by the supplemental indenture, includes default in
the payment of interest or principal and bankruptcy proceedings.
The administrator of LIBOR has announced it will cease the publication of the
one week and two month U.S. dollar ("USD") LIBOR settings immediately after
December 31, 2021, and the remaining USD LIBOR settings immediately following
the LIBOR publication on June 30, 2023. The Subordinated Debentures and the 2023
Floating Rate Senior Notes allow for the use of an alternative methodology to
determine the interest rate if LIBOR is no longer available.
To manage short-term liquidity, the Company maintains a commercial paper program
and a credit facility as a potential source of funds. The commercial paper
program has a borrowing limit of $750 million. In November 2020, the Company
entered into a new agreement for a $750 million unsecured revolving credit
facility with a maturity date of November 2025. In November 2021, the maturity
date was extended to November 2026. This facility contains an increase provision
that would allow up to an additional $500 million of borrowing. This facility
has a financial covenant requiring the Company not to exceed a 37.5% debt to
capitalization ratio as defined in the agreement. 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 the Company's senior unsecured,
unguaranteed long-term debt. The total amount outstanding at any point in time
under the combination of the commercial paper program and the credit facility
cannot exceed the amount that can be borrowed under the credit facility. No
amounts were outstanding under the credit facility as of December 31, 2021 or
2020. The Company had no commercial paper outstanding as of December 31, 2021 or
2020.
The Company paid $321 million, $311 million and $312 million of interest on debt in 2021, 2020 and 2019, respectively.
The Company had $401 million and $306 million of investment-related debt that is
reported in other liabilities and accrued expenses as of December 31, 2021 and
2020, respectively.
During 2021, the Company filed a universal shelf registration statement with the
Securities and Exchange Commission ("SEC") that expires in 2024. The
registration statement covers an unspecified amount of securities and can be
used to issue debt securities, common stock, preferred stock, depositary shares,
warrants, stock purchase contracts, stock purchase units and securities of trust
subsidiaries.
Common stock The Company had 900 million shares of issued common stock of which
281 million shares were outstanding and 619 million shares were held in treasury
as of December 31, 2021. In 2021, the Company acquired 26 million shares at an
average cost of $123.87 and reissued 3 million net shares under equity incentive
plans.
Preferred stock All outstanding preferred stock represents noncumulative perpetual preferred stock with a $1.00 par value per share and a liquidation preference of $25,000 per share.
Total preferred stock outstanding
Aggregate liquidation
preference Aggregate dividend payment ($ in
As of December 31, ($ in millions) Dividend per depository share (1) millions)
2021 2020 2021 2020 Dividend rate 2021 2020 2019 2021 2020 2019
Series A - - $ - $ - 5.625 % $ - $ - $ 1.41 $ - $ 4 (2) $ 16
Series D - - - - 6.625 % - - 1.66 - - 9 (2)
Series E - - - - 6.625 % - - 1.66 - - 49 (2)
Series F - - - - 6.250 % - - 1.56 - - 16 (2)
Series G 23,000 23,000 575.0 575.0 5.625 % 1.41 1.41 1.41 32 32 32
Series H 46,000 46,000 1,150.0 1,150.0 5.100 % 1.28 1.28 1.28 59 59 12
Series I 12,000 12,000 300.0 300.0 4.750 % 1.19 1.19 1.19 14 13 -
National General
Series (3) 9 - -
Total 81,000 81,000 $ 2,025 $ 2,025 $ 114 $ 108 $ 134 (2)
(1)Each depositary share represents a 1/1,000th interest in a share of preferred stock.
(2)Excludes $10 million and $37 million in 2020 and 2019, respectively, related to original issuance costs in preferred stock dividends on the Consolidated Statements of Operations and Consolidated Statements of Shareholders' Equity as a result of the preferred stock redemptions.
(3)On February 2, 2021 and July 15, 2021, the Company redeemed all outstanding shares of National General Preferred Stock Series A, B and D, and National General Preferred Stock Series C, respectively.
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2021 Form 10-K Notes to Consolidated Financial Statements
The preferred stock ranks senior to the Company's common stock with respect to
the payment of dividends and liquidation rights. The Company will pay dividends
on the preferred stock on a noncumulative basis only when, as and if declared by
the Company's board of directors (or a duly authorized committee of the board)
and to the extent that the Company has legally available funds to pay dividends.
If dividends are declared on the preferred stock, they will be payable quarterly
in arrears at an annual fixed rate. Dividends on the preferred stock are not
cumulative. Accordingly, in the event dividends are not declared on the
preferred stock for payment on any dividend payment date, then those dividends
will cease to be payable. If the Company has not declared a dividend before the
dividend payment date for any dividend period, the Company has no obligation to
pay dividends for that dividend period, whether or not dividends are declared
for any future dividend period. No dividends may be paid or declared on the
Company's common stock and no shares of the Company's common stock may be
repurchased unless the full dividends for the latest completed dividend period
on the preferred stock have been declared and paid or provided for.
The Company is prohibited from declaring or paying dividends on its Series G
preferred stock in excess of the amount of net proceeds from an issuance of
common stock taking place within 90 days before a dividend declaration date if,
on that dividend declaration date, either: (1) the risk-based capital ratios of
the largest U.S. property-casualty insurance subsidiaries that collectively
account for 80% or more of the net written premiums of U.S. property-casualty
insurance business on a weighted average basis were less than 175% of their
company action level risk-based capital as of the end of the most recent year;
or (2) consolidated net income for the four-quarter period ending on the
preliminary quarter end test date (the quarter that is two quarters prior to the
most recently completed quarter) is zero or negative and consolidated
shareholders' equity (excluding AOCI, and subject to certain other adjustments
relating to changes in U.S. GAAP) as of each of the preliminary quarter test
date and the most recently completed quarter has declined by 20% or more from
its level as measured at the end of the benchmark quarter (the date that is ten
quarters prior to the most recently
completed quarter). If the Company fails to satisfy either of these tests on any
dividend declaration date, the restrictions on dividends will continue until the
Company is able again to satisfy the test on a dividend declaration date. In
addition, in the case of a restriction arising under (2) above, the restrictions
on dividends will continue until consolidated shareholders' equity (excluding
AOCI, and subject to certain other adjustments relating to changes in U.S. GAAP)
has increased, or has declined by less than 20%, in either case as compared to
its level at the end of the benchmark quarter for each dividend payment date as
to which dividend restrictions were imposed.
The preferred stock does not have voting rights except with respect to certain
changes in the terms of the preferred stock, in the case of certain dividend
nonpayments, certain other fundamental corporate events, mergers or
consolidations and as otherwise provided by law. If and when dividends have not
been declared and paid in full for at least six quarterly dividend periods or
their equivalent (whether or not consecutive), the authorized number of
directors then constituting our board of directors will be increased by two. The
holders of the preferred stock, together with the holders of all other affected
classes and series of voting parity stock, voting as a single class, will be
entitled to elect the two additional members of the board of directors of the
Company, subject to certain conditions. The board of directors shall at no time
have more than two preferred stock directors.
The preferred stock is perpetual and has no maturity date. The preferred stock
is redeemable at the Company's option in whole or in part, on or after April 15,
2023 for Series G, October 15, 2024 for Series H and January 15, 2025 for Series
I at a redemption price of $25,000 per share of preferred stock, plus declared
and unpaid dividends. Prior to April 15, 2023 for Series G, October 15, 2024 for
Series H and January 15, 2025 for Series I, the preferred stock is redeemable at
the Company's option, in whole but not in part, within 90 days of the occurrence
of certain regulatory capital event at a redemption price equal to $25,000 or
$25,500 per share or a certain rating agency event at a redemption price equal
to $25,000 or $25,500 per share, plus declared and unpaid dividends for Series G
and for Series H and I, respectively.
Note 14 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 the following costs related to these programs:
•Employee - severance and relocation benefits
•Exit - contract termination penalties
The expenses related to these activities are included in the Consolidated Statements of Operations as restructuring and related charges and totaled $170 million, $253 million and $39 million in 2021, 2020 and 2019, respectively.
Restructuring expenses in 2021 are primarily due to the future of work environment as we reevaluate our facilities footprint. The Company continues to identify ways to improve operating efficiency and reduce cost which may result in additional restructuring charges in the future.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Restructuring programs
($ in millions) Future work environment Transformative Growth
Expected program charges $ 110 $ 290
2020 expenses - (238)
2021 expenses (131) 6
Change in estimated program costs in
2021 37 (52)
Remaining program charges $ 16 $ 6
These charges are primarily in the Allstate Protection segment. The actions
related to the Transformative Growth program are substantially complete as of
December 31, 2021. The future work environment program will be substantially
complete in the first half of 2022 based on decisions made through December 31,
2021.
Employee costs include severance and employee benefits primarily impacting claims, sales, service and support functions. Exit costs, primarily related to future work environment, reflect real estate costs primarily related to accelerated amortization of right of use assets and related leasehold improvements at facilities to be vacated.
Restructuring activity during the period ($ in millions) Employee costs Exit costs Total liability Restructuring liability as of December 31, 2020 $ 72 $ - $ 72 Expense incurred 51 144 195 Adjustments to liability (25) - (25) Payments and non-cash charges (84) (137) (221) Restructuring liability as of December 31, 2021 $ 14 $ 7 $ 21
As of December 31, 2021, the cumulative amount incurred to date for active programs related to employee severance, relocation benefits and exit expenses totaled $247 million for employee costs and $157 million for exit costs.
Note 15 Commitments, 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.
The Company routinely reviews its exposure to assessments from these plans,
facilities and government programs. Underwriting results related to these
arrangements, which tend to be adverse, have been immaterial to the Company's
results of operations in the last three years. Because of the Company's
participation, it may be exposed to losses that surpass the capitalization of
these facilities or assessments from these facilities.
Florida Citizens Castle Key is subject to assessments from Citizens Property
Insurance Corporation in the state of Florida ("FL Citizens"), which was
initially created by the state of Florida to provide insurance to property
owners unable to obtain coverage in the private insurance market. FL Citizens,
at the discretion and direction of its Board of Governors, can levy a regular
assessment on assessable insurers and assessable insureds for a deficit in any
calendar year up to a maximum of the greater of: 2% of the projected deficit or
2% of the aggregate statewide direct written premium for the prior calendar
year. The base of assessable insurers includes all property and casualty
premiums in the state, except workers' compensation, medical malpractice,
accident and health insurance and policies written under the NFIP. An insurer
may recoup a
regular assessment through a surcharge to policyholders. In order to recoup this
assessment, an insurer must file for a policy surcharge with the Florida Office
of Insurance Regulation at least fifteen days prior to imposing the surcharge on
policies. If a deficit remains after the regular assessment, FL Citizens can
also levy emergency assessments in the current and subsequent years. Companies
are required to collect the emergency assessments directly from residential
property policyholders and remit to FL Citizens as collected. Currently, the
emergency assessment is zero for all policies issued or renewed on or after July
1, 2015.
Louisiana Citizens Louisiana Citizens Property Insurance Corporation
("LA Citizens") can levy a regular assessment on participating companies for a
deficit in any calendar year up to a maximum of the greater of 10% of the
calendar year deficit or 10% of Louisiana direct property premiums industry-wide
for the prior calendar year. If the plan year deficit exceeds the amount that
can be recovered through regular assessments, LA Citizens may fund the remaining
deficit by issuing revenue assessment bonds in the capital markets. LA Citizens
then declares emergency assessments each year to provide debt service on the
bonds until they are retired. Companies writing assessable lines must surcharge
their policyholders emergency assessments in the percentage established annually
by LA Citizens and must remit amounts collected to the bond trustee on a
quarterly basis. Emergency assessments to pay off bonds issued in 2007 for the
hurricanes of 2005 will continue until 2025.
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2021 Form 10-K Notes to Consolidated Financial Statements
Facilities such as FL Citizens and LA Citizens are generally designed so that
the ultimate cost is borne by policyholders; however, the exposure to
assessments from these facilities and the availability of recoupments or premium
rate increases may not offset each other in the Company's financial statements.
Moreover, even if they do offset each other, they may not offset each other in
financial statements for the same fiscal period due to the ultimate timing of
the assessments and recoupments or premium rate increases, as well as the
possibility of policies not being renewed in subsequent years.
California Earthquake Authority Exposure to certain potential losses from
earthquakes in California is limited by the Company's participation in the
California Earthquake Authority ("CEA"), which provides insurance for California
earthquake losses. The CEA is a privately-financed, publicly-managed state
agency created to provide insurance coverage for earthquake damage. Insurers
selling homeowners insurance in California are required to offer earthquake
insurance to their customers either through their company or by participation in
the CEA. The Company's homeowners policies continue to include coverages for
losses caused by explosions, theft, glass breakage and fires following an
earthquake, which are not underwritten by the CEA.
As of October 31, 2021, the CEA's capital balance was approximately $5.70
billion. Should losses arising from an earthquake cause a deficit in the CEA, an
additional $1.70 billion would be obtained from the proceeds of revenue bonds
the CEA may issue, an existing $9.50 billion reinsurance layer, $1.00 billion
from policy surcharge, and finally, if needed, assessments on participating
insurance companies. Participating insurers are required to pay an assessment,
currently estimated not to exceed $1.70 billion, if the capital of the CEA falls
below $350 million. Within the limits previously described, the assessment could
be intended to restore the CEA's capital to a level of $350 million. There is no
provision that allows insurers to recover assessments through a premium
surcharge or other mechanism. The CEA's projected aggregate claim paying
capacity is $19.60 billion as of October 31, 2021 and if an event were to result
in claims greater than its capacity, affected policyholders may be paid a
prorated portion of their covered losses, paid on an installment basis, or no
payments may be made if the claim paying capacity of the CEA is insufficient.
All future assessments on participating CEA insurers are based on their CEA
insurance market share as of December 31 of the preceding year. As of
December 31, 2020, the Company's market share was 8.7%. The Company does not
expect its market share to materially change. At this level, the Company's
maximum possible CEA assessment was $144 million during 2021. These amounts are
re-evaluated by the board of directors of the CEA on an annual basis.
Accordingly, assessments from the CEA for a particular quarter or annual period
may be material to the results of operations and cash flows, but not the
financial position of the Company. Management believes the
Company's exposure to earthquake losses in California has been significantly reduced as a result of its participation in the CEA.
Texas Windstorm Insurance Association The Company participates as a member of
the Texas Windstorm Insurance Association ("TWIA"), which provides wind and hail
property coverage to coastal risks unable to procure coverage in the voluntary
market. Wind and hail coverage is written on a TWIA-issued policy. TWIA follows
a funding structure first utilizing currently available funds set aside from
current and prior years. Under the current law, to the extent losses exceed
premiums received from policyholders, TWIA utilizes a combination of
reinsurance, TWIA issued securities, as well as member and policyholder
assessments to fund loss payments.
Any assessments from TWIA for a particular quarter or annual period may be material to the results of operations and cash flows, but not to the financial position of the Company.
Texas Fair Plan Association The Company participates as a member of the Texas
Fair Plan Association ("FAIR Plan"), which provides residential property
insurance to inland areas designated as underserved by the Commissioner of
Insurance and the applicant(s) are unable to procure coverage in the voluntary
market. The FAIR Plan issues insurance policies, like an insurance company, and
it also functions as a pooling mechanism that allocates premiums, claims and
expenses back to the insurance industry. As a result of the losses incurred
related to Hurricane Harvey, in 2017 the FAIR Plan Board unanimously voted to
approve its first ever member assessment of which the Company's share was $8
million based on total direct premium written in Texas. Insurers are permitted
to recover the assessment through either a premium surcharge applied to existing
customers over a three-year period or increased rates, but the ability to fully
recover the assessment may be impacted by market conditions or other factors.
North Carolina Joint Underwriters Association The North Carolina Joint
Underwriters Association ("NCJUA") was created to provide property insurance for
properties (other than the state's beach and coastal areas) that insurers are
not otherwise willing to insure. All insurers licensed to write property
insurance in North Carolina are members of the NCJUA. Premiums, losses and
expenses of the NCJUA are shared by the member companies in proportion to their
respective North Carolina property insurance writings. Member companies
participate in plan deficits or surpluses based on their participation ratios,
which are determined annually. The Company had a $5 million receivable from the
NCJUA at December 31, 2021 representing our participation in the NCJUA's surplus
of $16 million for all open years.
North Carolina Insurance Underwriting Association The North Carolina Insurance
Underwriting Association ("NCIUA") provides windstorm and hail coverage as well
as homeowners policies for properties located in the state's beach and coastal
areas that insurers are not otherwise willing to insure. All insurers licensed
to write
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Notes to Consolidated Financial Statements 2021 Form 10-K
residential and commercial property insurance in North Carolina are members of the NCIUA. Members are assessed in proportion to their North Carolina residential and commercial property insurance writings, which is determined annually and varies by coverage, for plan deficits. As of December 31, 2021, the NCIUA had a surplus of $664 million. No member company is entitled to the distribution of any portion of the Association's surplus. The Company does not recognize any interest related to this surplus. Legislation in 2009 capped insurers' assessments for losses incurred in any calendar year at $1.00 billion. Subsequent to an industry assessment of $1.00 billion, if the plan continues to require funding, it may authorize insurers to assess a 10% catastrophe recovery charge on each property insurance policy statewide to be remitted to the plan.
Other programs The Company is also subject to assessments by the NCRF and the FHCF, which are described in Note 11.
Guaranty funds
Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. Amounts assessed to each company are typically related to its proportion of business written in each state. The Company's policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile's statutory definition of insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written. In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction. In certain states there must also be a final order of liquidation. Since most states allow a credit against premium or other state related taxes for assessments, an asset is recorded based on paid and accrued assessments for the amount the Company expects to recover on the respective state's tax return and is realized over the period allowed by each state. As of December 31, 2021 and 2020, the liability balance included in other liabilities and accrued expenses was $17 million and $9 million, respectively. The related premium tax offsets included in other assets were $7 million and $8 million as of December 31, 2021 and 2020, respectively.
Guarantees
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. Related to the sale of ALNY on October 1, 2021, AIC agreed to indemnify Wilton Reassurance Company in connection with certain representations, warranties and covenants of AIC, and certain liabilities specifically excluded from the transaction, subject to specific contractual limitations regarding AIC'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 sale of ALIC and Allstate Assurance Company on November 1, 2021, AIC and Allstate Financial Insurance Holdings Corporation (collectively, the "Sellers") agreed to indemnify Everlake US Holdings Company in connection with certain representations, warranties and covenants of the Sellers, and certain liabilities specifically excluded from the transaction, subject to specific contractual limitations regarding the Sellers' 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.
The aggregate liability balance related to all guarantees was not material as of December 31, 2021.
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 agency and
broker compensation, regulate the nature of and amount of investments, impose
fines and penalties for unintended errors or mistakes, impose additional
regulations regarding cybersecurity and privacy, 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, international agencies, and other organizations, including but not
limited to the Securities and Exchange Commission ("SEC"), the Financial
Industry Regulatory Authority, 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
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2021 Form 10-K Notes to Consolidated Financial Statements
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 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 164 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
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 $135 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 and in the Company's judgment, a loss, in excess of amounts accrued,
if any, is not probable. 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 managing various disputes in Florida
that raise challenges to the Company's practices, processes, and procedures
relating to claims for personal injury protection benefits under Florida auto
policies. Medical providers continue to pursue litigation under various theories
that challenge the amounts that the Company pays under the personal injury
protection coverage,
seeking additional benefit payments, as well as applicable interest, penalties
and fees. There is a pending class action, Revival Chiropractic v. Allstate
Insurance Company, et al. (M.D. Fla., filed January 2019; appeal pending, 11th
Circuit Court of Appeals), where the court denied class certification and
plaintiff's request to file a renewed motion for class certification. The
Company is also defending litigation involving individual plaintiffs.
The Company is defending putative class actions in various courts that raise
challenges to the Company's depreciation practices in homeowner property claims.
In these lawsuits, plaintiffs generally allege that, when calculating actual
cash value, the costs of "non-materials" such as labor, general contractor's
overhead and profit, and sales tax should not be subject to depreciation. The
Company is currently defending the following lawsuits on this issue: Perry v.
Allstate Indemnity Company, et al. (N.D. Ohio, filed May 2016); Lado v. Allstate
Vehicle and Property Insurance Company (S.D. Ohio, filed March 2020); Maniaci v.
Allstate Insurance Company (N.D. Ohio, filed March 2020); Ferguson-Luke, et al.
v. Allstate Property and Casualty Insurance Company (N.D. Ohio, filed April
2020); Clark v. Allstate Vehicle and Property Insurance Company (Circuit Court
of Independence Co., Ark., filed February 2016); and Mitchell, et al. v.
Allstate Vehicle and Property Insurance Company, et al. (S.D. Ala., filed August
2021). No classes have been certified in these matters. A settlement has been
reached in Huey v. Allstate Vehicle and Property Insurance Company (N.D. Miss.,
filed October 2019), and a settlement-in-principle has been reached in Thaxton
v. Allstate Indemnity Company (Madison Co., Ill., filed July 2020); and Hester
v. Allstate Vehicle and Property Insurance Company (St. Clair Co., Ill., filed
2020).
The Company is defending putative class actions pending in multiple states
alleging that the Company underpays total loss vehicle physical damage claims on
auto policies. The allegedly systematic underpayments result from one or more of
the following theories: (a) the third party valuation tool used by the Company
as part of a comprehensive adjustment process is allegedly flawed, biased, or
contrary to applicable law; (b) the Company allegedly does not pay sales tax,
title fees, registration fees, and/or other specified fees that are allegedly
mandatory under policy language or state legal authority; or (c) after paying
for the value of the loss vehicle, then the Company allegedly is not entitled to
retain the residual salvage value, and the Company allegedly must pay salvage
value to the owner (or if the loss vehicle is retained by the owner, then the
Company allegedly may not apply any offset for the salvage value).
The following cases are currently pending against the Company: Olberg v.
Allstate Insurance Company, Allstate Fire and Casualty Insurance Company, and
CCC Information Services, Inc. (W.D. Wash., filed April 2018); Bloomgarden v.
Allstate Fire and Casualty Insurance Company (S.D. Fla., filed July 2018,
dismissed August 2019, refiled on September 2019, remanded to 17th Judicial
Circuit, Broward Co. October 2020); Erby v. Allstate Fire and Casualty Insurance
Company (E.D. Pa.,
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2021 Form 10-K Notes to Consolidated Financial Statements
filed October 2018); Kronenberg v. Allstate Insurance Company and Allstate Fire and Casualty Insurance Company (E.D.N.Y., filed December 2018); Durgin v. Allstate Property and Casualty Insurance Company (W.D. La., filed June 7, 2019); Saad v. National General Insurance Company (Superior Ct., Los Angeles Co., Cal., filed May 2020); Williams v. Esurance Property and Casualty Insurance Company (C.D. Cal., filed September 2020); Cotton v. Allstate Fire and Casualty Insurance Company (Cir. Ct. of Cook Co. Ill., Chancery Div., filed October 2020); Romaniak v. Esurance Property and Casualty Insurance Company (N.D. Ohio, filed December 2020); Rawlins v. Esurance Property and Casualty Insurance Company (E.D. Mo., filed February 2021).
None of the courts in any of the pending matters has ruled on class certification.
Other proceedings The Company is defending against an investigatory hearing before the California Insurance Commissioner concerning the private passenger automobile insurance rating practices of Allstate Insurance Company and Allstate Indemnity Company in California. The investigatory hearing is captioned: In the Matter of the Rating Practices of Allstate Insurance Company and Allstate Indemnity Company. Pursuant to the Notice of Hearing issued by the California Insurance Commissioner, the California Insurance Commissioner is investigating: (1) whether Allstate has potentially violated California insurance law by using illegal price optimization; (2) how Allstate implemented any such potentially illegal price optimization in its private passenger auto insurance rates and/or class plans; and (3) how such potentially illegal price optimization impacted Allstate's private passenger auto insurance policyholders. Fact discovery has been completed in the investigatory hearing and an administrative hearing is scheduled to begin on May 10, 2022. The stockholder derivative actions described below are disclosed pursuant to SEC disclosure requirements for these types of matters. The putative class action alleging violations of the federal securities laws is disclosed because it involves similar allegations to those made in the stockholder derivative actions. Biefeldt / IBEW Consolidated Action. Two separately filed stockholder derivative actions have been consolidated into a single proceeding that is pending in the Circuit Court for Cook County, Illinois, Chancery Division. The original complaint in the first-filed of those actions, Biefeldt v. Wilson, et al., was filed on August 3, 2017, in that court by a plaintiff alleging that she is a stockholder of the Company. On June 29, 2018, the court granted defendants' motion to dismiss that complaint for failure to make a pre-suit demand on the Allstate Board but granted plaintiff permission to file an amended complaint. The original complaint in IBEW Local No. 98 Pension Fund v. Wilson, et al., was filed on April 12, 2018, in the same court by another plaintiff alleging to be a stockholder of the Company. After the court issued its dismissal decision in the Biefeldt action, plaintiffs agreed to consolidate the two actions and filed a consolidated amended complaint naming as defendants the Company's chairman, president and chief executive officer, its former president, and certain present or former members of the Allstate Board. In that complaint, plaintiffs allege that the directors and officer defendants breached their fiduciary duties to the Company in connection with allegedly material misstatements or omissions concerning the Company's automobile insurance claim frequency statistics and the reasons for a claim frequency increase for Allstate brand auto insurance between October 2014 and August 3, 2015. The factual allegations are substantially similar to those at issue in In re The Allstate Corp. Securities Litigation. Plaintiffs further allege that a senior officer and several outside directors engaged in stock option exercises allegedly while in possession of material nonpublic information. Plaintiffs seek, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. Defendants moved to dismiss the consolidated complaint on September 24, 2018 for failure to make a demand on the Allstate Board. On May 14, 2019, the court granted defendants' motion to dismiss the complaint, but allowed plaintiffs leave to file a second consolidated amended complaint which they filed on September 17, 2019. Defendants moved to dismiss the complaint on November 1, 2019 for failure to make a demand on the Allstate Board. The court subsequently requested supplemental briefing on the motion which concluded on February 1, 2021. On February 24, 2021, the court dismissed the second amended consolidated complaint with prejudice. Plaintiffs appealed and the court held a hearing on February 8, 2022. The Company awaits the court's decision. In Sundquist v. Wilson, et al., another plaintiff alleging to be a stockholder of the Company filed a stockholder derivative complaint in the United States District Court for the Northern District of Illinois on May 21, 2018. Plaintiff seeks, on behalf of the Company, an unspecified amount of damages and various forms of equitable relief. The complaint names as defendants the Company's chairman, president and chief executive officer, its former president, its former vice chairman, and certain present or former members of the board of directors. The complaint alleges breaches of fiduciary duty based on allegations similar to those asserted in In re The Allstate Corp. Securities Litigation as well as state law "misappropriation" claims based on stock option transactions by the Company's chairman, president and chief executive officer, its former vice chairman, and certain members of the board of directors. Defendants moved to dismiss and/or stay the complaint on August 7, 2018. On December 4, 2018, the court granted defendants' motion and stayed the case pending the final resolution of the consolidated Biefeldt/IBEW matter. Mims v. Wilson, et al., is an additional stockholder derivative action filed on February 12, 2020 in the United States District Court for the Northern District of Illinois. Plaintiff alleges that she previously made a demand on the Allstate Board and seeks, on behalf of the Company, an unspecified amount of damages and
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Notes to Consolidated Financial Statements 2021 Form 10-K
various forms of equitable relief. The complaint names as defendants the
Company's chairman, president and chief executive officer, its former president,
its former vice chairman, and certain present or former members of the Allstate
Board. The complaint alleges breaches of fiduciary duty and unjust enrichment
based on allegations similar to those asserted in In re The Allstate Corp.
Securities Litigation. On February 20, 2020, the Allstate Board appointed a
special committee to investigate the allegations in plaintiff's demand. The
Company moved to dismiss the complaint on August 24, 2020 and on December 8,
2020, the court granted defendants' motion, and dismissed the complaint with
prejudice. On January 5, 2021, plaintiff filed a motion to alter the judgment
and requested leave to file an amended complaint and defendants opposed the
motion. On February 10, 2021, the court denied plaintiff's motion to alter the
judgment. No appeal was filed.
In re The Allstate Corp. Securities Litigation is a certified class action filed
on November 11, 2016 in the United States District Court for the Northern
District of Illinois against the Company and two of its officers asserting
claims under the federal securities laws. Plaintiffs allege that they purchased
Allstate common stock during the class period and suffered damages as the result
of the conduct alleged. Plaintiffs seek an unspecified amount of damages, costs,
attorney's fees, and other relief as the court deems appropriate. Plaintiffs
allege that the Company and certain senior officers made allegedly material
misstatements or omissions concerning claim frequency statistics and the reasons
for a claim frequency increase for Allstate brand auto insurance between October
2014 and August 3, 2015.
Plaintiffs further allege that a senior officer engaged in stock option
exercises during that time allegedly while in possession of material nonpublic
information about Allstate brand auto insurance claim frequency. The Company,
its chairman, president and chief executive officer, and its former president
are the named defendants. After the court denied their motion to dismiss on
February 27, 2018, defendants answered the complaint, denying plaintiffs'
allegations that there was any misstatement or omission or other misconduct. On
June 22, 2018, plaintiffs filed their motion for class certification. The court
allowed the lead plaintiffs to amend their complaint to add the City of
Providence Employee Retirement System as a proposed class representative and on
September 12, 2018, the amended complaint was filed. On March 26, 2019, the
court granted plaintiffs' motion for class certification and certified a class
consisting of all persons who purchased Allstate common stock between October
29, 2014 and August 3, 2015. On April 9, 2019, defendants filed with the U.S.
Court of Appeals for the Seventh Circuit a petition for permission to appeal
this ruling and the Seventh Circuit granted that petition on April 25, 2019. On
July 16, 2020, the Seventh Circuit vacated the class certification order and
remanded the matter for further consideration by the district court. Discovery
in this matter concluded on October 5, 2020. On December 21, 2020, the district
court again granted plaintiffs' motion for class
certification and certified a class consisting of all persons who purchased
Allstate common stock between October 29, 2014 and August 3, 2015. On January 4,
2021, defendants filed with the Seventh Circuit a petition for permission to
appeal this ruling. The petition was denied on January 28, 2021. On January 10,
2022, the magistrate judge denied the parties' Daubert challenges in all
material aspects. The court held a status conference on February 1, 2022 and set
a schedule for summary judgment briefing to commence on March 23, 2022.
The Company is continuing to defend two putative class actions in California
federal court, Holland Hewitt v. Allstate Life Insurance Company (E.D. Cal.,
filed May 2020) and Farley v. Lincoln Benefit Life Company (E.D. Cal., filed
Dec. 2020), following the sale of ALIC. No classes have been certified in these
matters. The Company is also defending an individual action in California state
court, Gilmore v. Lincoln Benefit Life Company (San Diego Co., Cal., filed
October 29, 2021). In these cases, plaintiffs generally allege that the
defendants failed to comply with certain California statutes which address
contractual grace periods and lapse notice requirements for certain life
insurance policies. Plaintiffs claim that these statutes apply to life insurance
policies that existed before the statutes' effective date. The plaintiffs seek
damages and injunctive relief. Similar litigation is pending against other
insurance carriers. In August 2021, the California Supreme Court in McHugh v.
Protective Life, a matter involving another insurer, determined that the
statutory notice requirements apply to life insurance policies issued before the
statutes' effective date. The Company asserts various defenses to plaintiffs'
claims and to class certification.
The Allstate Corporation 167
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2021 Form 10-K Notes to Consolidated Financial Statements
Note 16 Income Taxes
The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets and liabilities are adjusted through
income tax expense as changes in tax laws or rates are enacted.
The Company qualified and claimed certain employer payroll tax credits that are
allowed under the Coronavirus Aid, Relief and Economic Security Act. For the
year ended December 31, 2021, the Company recorded $21 million of refundable
employee retention tax credit reported in property and casualty claims and
claims expense in the Consolidated Statements of Operations.
Regulatory tax examinations On January 4, 2021 and October 1, 2021, the Company
acquired National General and SafeAuto, respectively. For tax years prior to the
acquisition, National General and SafeAuto are subject to separate Internal
Revenue Service ("IRS") audits. The IRS has completed its exam of Allstate's tax
years prior to 2017, National General tax years prior to 2016, and SafeAuto's
tax years prior to 2018. Currently, the Company is under exam for the 2017 and
2018 tax years and National General is under exam for the 2016, 2017, and 2018
tax years. Any adjustments that may result from IRS examinations of the
Company's tax returns are not expected to have a material effect on the
consolidated financial statements.
Unrecognized tax benefits The Company recognizes tax positions in the
consolidated financial statements only when it is more likely than not that the
position will be sustained on examination by the relevant taxing authority based
on the technical merits of the position. A position that meets this standard is
measured at the largest amount of benefit that will more likely than not be
realized on settlement. A liability is established for differences between
positions taken in a tax return and amounts recognized in the consolidated
financial statements.
Reconciliation of the change in the amount of unrecognized tax benefits
For the years ended December 31,
($ in millions) 2021 2020 2019
Balance - beginning of year $ 12 $ 70 $ 70
Acquisitions 5 - -
Decrease for settlements - (58) -
Balance - end of year $ 17 $ 12 $ 70
The Company believes that the unrecognized tax benefits balance will not materially change within the next twelve months. Components of the deferred income tax assets and liabilities
As of December 31,
($ in millions) 2021 2020
Deferred tax assets
Unearned premium reserves $ 742 $ 659
Discount on loss reserves 169 79
Accrued compensation 151 146
Net operating loss carryover 88 23
Other postretirement benefits 31 34
Pension - 187
Other assets 90 91
Total deferred tax assets before valuation allowance 1,271 1,219
Valuation allowance (24) -
Total deferred tax assets after valuation allowance 1,247 1,219
Deferred tax liabilities
DAC (924) (683)
Investments (666) (216)
Intangible assets (219) (86)
Unrealized net capital gains (163) (539)
Pension (9) -
Other liabilities (99) (77)
Total deferred tax liabilities (2,080) (1,601)
Net deferred tax liabilities $ (833) $ (382)
168 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
As of December 31, 2021, the Company has U.S. federal and foreign net operating
loss ("NOL") carryforwards, some of which will expire on various dates from 2024
through 2037 as indicated in the table below. In assessing the realizability of
gross deferred tax assets, management considers whether it is more likely than
not that some portion or all of the gross deferred tax assets will not be
realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment, as well as limitations on use in future periods.
Accordingly, management believes that it is more likely than not that the
benefit from certain NOL carryforwards from recent acquisitions will not be
realized. The Company had a valuation allowance of $24 million on the deferred
tax assets related to these NOL carryforwards.
The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period and made it indefinite for federal net operating losses generated in tax years after December 31, 2017. For such amounts generated prior to 2018, the 20-year carryforward period continues to apply.
Components of the net operating loss carryforwards as of December 31, 2021
20-Year
Carryforward
Expires in Indefinite
($ in millions) 2024-2037 Carryforward Period Total
US Federal $ 195 $ 9 $ 204
Foreign - 218 218
Total $ 195 $ 227 $ 422
Components of income tax expense
For the years ended December 31,
($ in millions) 2021 2020 2019
Current $ 841 $ 1,480 $ 919
Deferred 448 (107) 197
Total income tax expense $ 1,289 $ 1,373 $ 1,116
The Company paid income taxes of $1.05 billion, $1.48 billion and $648 million in 2021, 2020 and 2019, respectively.
The Company had current income tax receivable of $370 million and payable of $55 million as of December 31, 2021 and 2020, respectively.
Reconciliation of the statutory federal income tax rate to the effective income tax rate
For the years ended December 31,
($ in millions) 2021 2020 2019
Income before income taxes $ 6,448 $ 6,802 $ 5,443
Statutory federal income tax rate on
income from operations 1,354 21.0 % 1,428 21.0 % 1,141 21.0 %
State income taxes 13 0.2 31 0.4 39 0.7
Tax credits (42) (0.6) (24) (0.4) (19) (0.3)
Tax-exempt income (18) (0.3) (23) (0.3) (27) (0.5)
Share-based payments (18) (0.3) (30) (0.4) (24) (0.4)
Other - - (9) (0.1) 6 -
Effective income tax rate on income
from operations $ 1,289 20.0 % $ 1,373 20.2 % $ 1,116 20.5 %
The Allstate Corporation 169
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2021 Form 10-K Notes to Consolidated Financial Statements
Note 17 Statutory Financial Information and Dividend Limitations
Allstate's domestic property and casualty and life insurance subsidiaries
prepare their statutory-basis financial statements in conformity with accounting
practices prescribed or permitted by the insurance department of the applicable
state of domicile. Prescribed statutory accounting practices include a variety
of publications of the National Association of Insurance Commissioners ("NAIC"),
as well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed.
All states require domiciled insurance companies to prepare statutory-basis
financial statements in conformity with the NAIC Accounting Practices and
Procedures Manual, subject to any deviations prescribed or permitted by the
applicable insurance commissioner or director. Statutory accounting practices
differ from GAAP primarily since they require charging policy acquisition costs
to expense as incurred, establishing life insurance reserves based on different
actuarial assumptions, and valuing certain investments and establishing deferred
taxes on a different basis.
Statutory net income (loss) and capital and surplus of Allstate's domestic insurance subsidiaries
Net income (loss) Capital and surplus
($ in millions) 2021 2020 2019 2021 2020
Amounts by major business type:
Property and casualty insurance $ 5,975 $ 6,232 $ 3,989 $ 21,186 $ 17,128 Accident and health insurance
96 95 92 322 231
Life and annuity business sold 1,642 (81) 330 - 4,024
Amount per statutory accounting practices $ 7,713 $ 6,246
$ 4,411 $ 21,508 $ 21,383
Dividend Limitations
There are no regulatory restrictions that limit the payment of dividends by the
Corporation, except those generally applicable to corporations incorporated in
Delaware. Dividends are payable only out of certain components of shareholders'
equity as permitted by Delaware law. However, the ability of the Corporation to
pay dividends is dependent on business conditions, income, cash requirements of
the Company, receipt of dividends from AIC and other relevant factors.
The payment of shareholder dividends by AIC without the prior approval of the
Illinois Department of Insurance ("IL DOI") is limited to formula amounts based
on net income and capital and surplus, determined in conformity with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. AIC paid dividends of $5.95 billion in 2021. The
maximum amount of dividends AIC will be able to pay without prior IL DOI
approval at a given point in time during 2022 is $5.51 billion, less dividends
paid during the preceding twelve months measured at that point in time. The
payment of a dividend in excess of this amount requires 30 days advance written
notice to the IL DOI. The dividend is deemed approved, unless the IL DOI
disapproves it within the 30-day notice period. Additionally, any dividend must
be paid out of unassigned surplus excluding unrealized appreciation from
investments, which for AIC totaled $12.72 billion as of December 31, 2021, and
cannot result in capital and surplus being less than the minimum amount required
by law.
Under state insurance laws, insurance companies are required to maintain paid up
capital of not less than the minimum capital requirement applicable to the types
of insurance they are authorized to write. Insurance companies are also subject
to risk-based capital ("RBC") requirements adopted by state
insurance regulators. A company's "authorized control level RBC" is calculated
using various factors applied to certain financial balances and activity.
Companies that do not maintain adjusted statutory capital and surplus at a level
in excess of the company action level RBC, which is two times authorized control
level RBC, are required to take specified actions. Company action level RBC is
significantly in excess of the minimum capital requirements. Total adjusted
statutory capital and surplus and authorized control level RBC of AIC were
$18.43 billion and $2.90 billion, respectively, as of December 31, 2021. Most of
the Corporation's insurance subsidiaries are subsidiaries of or reinsure all of
their business to AIC. AIC's subsidiaries are included as a component of AIC's
total statutory capital and surplus.
The amount of restricted net assets, as represented by the Corporation's investment in its insurance subsidiaries, was $27.72 billion as of December 31, 2021.
Intercompany transactions Notification and approval of intercompany lending activities is also required by the IL DOI for transactions that exceed a level that is based on a formula using statutory admitted assets and statutory surplus.
170 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Note 18 Benefit Plans
Pension and other postretirement plans
Defined benefit pension plans cover most full-time employees, certain part-time
employees and employee-agents. Benefits under the pension plans are based upon
the employee's length of service, eligible annual compensation and, prior to
January 1, 2014, either a cash balance or final average pay formula. A cash
balance formula applies to all eligible employees hired after August 1, 2002.
Eligible employees hired before August 1, 2002 chose between the cash balance
formula and the final average pay formula. In July 2013, the Company amended its
primary plans effective January 1, 2014 to introduce a new cash balance formula
to replace the previous formulas (including the final average pay formula and
the previous cash balance formula) under which eligible employees accrue
benefits. The Company merged two of its qualified pension plans effective March
31, 2019.
The Company also provides a medical coverage subsidy for eligible employees
hired before January 1, 2003, including their eligible dependents, when they
retire and certain life insurance benefits for eligible retirees
("postretirement benefits"). Effective January 1, 2021, the Company eliminated
the medical coverage subsidy for employees who were not eligible to retire as of
December 31, 2020.
Qualified employees may become eligible for a medical subsidy if they retire in
accordance with the terms of the applicable plans and are insured under the
Company's group plans or other approved plans in accordance with the plan's
participation requirements. The Company shares the cost of retiree medical
benefits with non Medicare-eligible retirees based on years of service, with the
Company's share being subject to a 5% limit on future annual medical cost
inflation after retirement. For Medicare-eligible retirees, the Company provides
a fixed Company contribution based on years of service and other factors, which
is not subject to adjustments for inflation.
In July 2013, the Company amended the plan to eliminate the life insurance
benefits effective January 1, 2014 for current eligible employees and effective
January 1, 2016 for eligible retirees who retired after 1989. Subject to a court
order, the Company paid life insurance premiums for certain retiree plaintiffs
until their lawsuit seeking to keep their life insurance benefits intact was
resolved. In September 2020, the court entered summary judgment in favor of the
Company and dismissed the action, releasing the Company from the order requiring
the continued payment of premiums for certain retirees. In December 2021, the
Court of Appeals affirmed summary judgment in favor of the Company. In January
2022, the remaining plaintiffs signaled they will appeal to U.S. Supreme Court.
The Company has reserved the right to modify or terminate its benefit plans at any time and for any reason.
Obligations and funded status
The Company calculates benefit obligations based upon generally accepted
actuarial methodologies using the projected benefit obligation ("PBO") for
pension plans and the accumulated postretirement benefit obligation ("APBO") for
other postretirement plans. Pension costs and other postretirement obligations
are determined using a December 31 measurement date. The benefit obligations
represent the actuarial present value of all benefits attributed to employee
service rendered as of the measurement date. The PBO is measured using the
pension benefit formulas and assumptions. A plan's funded status is calculated
as the difference between the benefit obligation and the fair value of plan
assets. The Company's funding policy for the pension plans is to make
contributions at a level in accordance with regulations under the Internal
Revenue Code ("IRC") and generally accepted actuarial principles. The Company's
other postretirement benefit plans are not funded.
The Allstate Corporation 171
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2021 Form 10-K Notes to Consolidated Financial Statements
Change in projected benefit obligation, plan assets and funded status
As of December 31,
Pension Postretirement
benefits benefits
($ in millions) 2021 2020 2021 2020
Change in projected benefit obligation
Benefit obligation, beginning of year $ 7,763 $ 7,139 $ 318 $ 397
Service cost 103 104 1 4
Interest cost 191 210 8 11
Participant contributions - - 16 14
Remeasurement of projected benefit obligation
(gains) losses (309) 813 (16) 22
Benefits paid (1,242) (522) (43) (37)
Plan amendments - - - (102)
Translation adjustment and other (6) (1) - (1)
Curtailment losses (gains) - 20 - 10
Benefit obligation, end of year $ 6,500 $ 7,763 $ 284 $ 318
Change in plan assets Fair value of plan assets, beginning of year $ 6,987 $ 6,192 Actual return on plan assets 764 1,300 Employer contribution 22 18 Benefits paid (1,242) (522) Translation adjustment and other (6)
(1)
Fair value of plan assets, end of year $ 6,525 $ 6,987 Funded status (1) $ 25 $ (776) $ (284) $ (318) Amounts recognized in AOCI Unamortized pension and other postretirement prior service credit $ (28) $
(78) $ (65) $ (89)
(1)The funded status is recorded within other assets or other liabilities and accrued expenses on the Consolidated Statements of Financial Position.
Changes in items not yet recognized as a component of net cost for pension and other postretirement plans
Postretirement
($ in millions) Pension benefits benefits
Items not yet recognized as a component of net cost - December 31, 2020
$ (78) $ (89)
Prior service credit amortized to net cost 50 25
Translation adjustment and other - (1)
Items not yet recognized as a component of net cost - December 31, 2021
$ (28) $ (65)
The prior service credit is recognized as a component of net cost for pension and other postretirement plans amortized over the average remaining service period of active employees expected to receive benefits.
The accumulated benefit obligation ("ABO") for all defined benefit pension plans
was $6.36 billion and $7.55 billion as of December 31, 2021 and 2020,
respectively. The ABO is the actuarial present value of all benefits attributed
by the pension benefit formula
to employee service rendered at the measurement date. However, it differs from
the PBO due to the
exclusion of an assumption as to future compensation levels.
The PBO, ABO and fair value of plan assets for the Company's pension plans with an ABO in excess of plan assets were $123 million, $121 million and zero, respectively, as of December 31, 2021 and $7.33 billion, $7.13 billion and $6.56 billion, respectively, as of December 31, 2020. Included in the accrued benefit cost of the pension benefits are certain unfunded non-qualified plans with accrued benefit costs of $123 million and $139 million for 2021 and 2020, respectively.
172 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Components of net cost (benefit) for pension and other postretirement plans
For the years ended December 31,
Pension benefits Postretirement benefits Total pension and postretirement benefits
($ in millions) 2021 2020 2019 2021 2020 2019 2021 2020 2019
Service cost $ 103 $ 104 $ 117 $ 1 $ 4 $ 8 $ 104 $ 108 $ 125
Interest cost 191 210 240 8 11 14 199 221 254
Expected return on plan
assets (445) (414) (403) - - - (445) (414) (403)
Amortization of prior
service credit (50) (54) (56) (25) (10) (3) (75) (64) (59)
Curtailment losses (gains) - 10 - - (8) - - 2 -
Costs and expenses (201) (144) (102) (16) (3) 19 (217) (147) (83)
Remeasurement of projected
benefit obligation (309) 813 927 (16) 22 19 (325) 835 946
Remeasurement of plan assets (319) (886) (832) - - - (319) (886) (832)
Remeasurement (gains) losses (628) (73) 95 (16) 22 19 (644) (51) 114
Total net (benefit) cost $ (829) $ (217) $ (7) $ (32) $ 19 $ 38 $ (861) $ (198) $ 31
The service cost component is the actuarial present value of the benefits attributed by the plans' benefit formula to services rendered by the employees during the period.
Interest cost is the increase in the PBO in the period due to the passage of time at the discount rate.
Interest cost fluctuates as the discount rate changes and is also impacted by the related change in the size of the PBO.
The expected return on plan assets is determined as the product of the expected long-term rate of return on plan assets and the fair value of plan assets.
Pension and other postretirement service cost, interest cost, expected return on plan assets, amortization of prior service credit and curtailment gains and losses are reported in property and casualty insurance claims and claims expense, operating costs and expenses, net investment income and (if applicable) restructuring and related charges on the Consolidated Statements of Operations. Remeasurement gains and losses relate to changes in discount rates, the differences between actual return on plan assets and the expected long-term rate of return on plan assets, and differences between actual plan experience and actuarial assumptions.
Weighted average assumptions used to determine net pension cost and net postretirement benefit cost
For the years ended December 31,
Pension benefits Postretirement benefits
2021 2020 2019 2021 2020 2019
Discount rate 2.84 % 3.00 % 3.70 % 2.75 % 2.99 % 3.61 %
Expected long-term rate of return on
plan assets 7.06 7.08 7.34 n/a n/a n/a
Cash balance interest credit rate 2.04 1.65 2.59 n/a n/a
n/a
Weighted average assumptions used to determine benefit obligations
For the years ended December 31,
Pension benefits Postretirement benefits
2021 2020 2021 2020
Discount rate 2.93 % 2.51 % 2.86 % 2.39 %
Cash balance interest credit rate 1.90 1.65 n/a n/a
The weighted average health care cost trend rate used in measuring the accumulated postretirement benefit cost is 6.6% for 2022, gradually declining to 4.5% in 2035 and remaining at that level thereafter.
Pension plan assets In general, the Company's pension plan assets are managed in
accordance with investment policies approved by pension investment committees.
The purpose of the policies is to ensure the plans' long-term ability to meet
benefit obligations by prudently investing plan assets and Company
contributions, while taking into consideration regulatory and legal requirements
and current market conditions. The investment policies are reviewed periodically
and specify target plan asset allocation by
asset category. In addition, the policies specify various asset allocation and
other risk limits. The target asset allocation takes the plans' funding status
into consideration, among other factors, including anticipated demographic
changes or liquidity requirements that may affect the funding status such as the
potential impact of lump sum settlements as well as existing or expected market
conditions. In general, the allocation has a lower overall investment risk when
a plan is in a stronger funded status position since there is less economic
incentive to take risk to increase the expected returns on the plan assets. The
pension plans' asset exposure within each asset category is tracked against
widely accepted
The Allstate Corporation 173
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2021 Form 10-K Notes to Consolidated Financial Statements
established benchmarks for each asset class with limits on variation from the benchmark established in the investment policy. Pension plan assets are regularly
monitored for compliance with these limits and other risk limits specified in the investment policies.
Weighted average target asset allocation and actual percentage of plan assets by asset category
As of December 31, 2021
Target asset allocation
(1) Actual percentage of plan assets
Pension plan's asset category 2021 2021 2020
Equity securities (2) 42 - 56% 55 % 50 %
Fixed income securities 26 - 45 30 38
Limited partnership interests 1 - 18 14 10
Short-term investments and other - 1 2
Total without securities lending (3) 100 % 100 %
(1)The target asset allocation considers risk-based exposure while the actual
percentage of plan assets utilizes a financial reporting view excluding exposure
provided through derivatives.
(2)The actual percentage of plan assets for equity securities includes 3% and 1%
of fixed income mutual funds in 2021 and 2020, respectively, that are subject to
the fixed income securities target allocation.
(3)Securities lending collateral reinvestment of $121 million and $101 million is excluded from the table above in 2021 and 2020, respectively.
The target asset allocation for an asset category may be achieved either through direct investment holdings, through replication using derivative instruments (e.g., futures or swaps) or net of hedges using derivative instruments to reduce exposure to an asset category. The net notional amount of derivatives used for replication and non-hedging strategies is limited to 115% of total plan assets. Market performance of the different asset categories may, from time to time, cause deviation from the target
asset allocation. The asset allocation mix is reviewed on a periodic basis and rebalanced to bring the allocation within the target ranges.
Outside the target asset allocation, the pension plans participate in a securities lending program to enhance returns. As of December 31, 2021, fixed income securities are lent out and cash collateral is invested in short-term investments. 174 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Fair values of pension plan assets as of December 31, 2021
Quoted prices
in active
markets for
identical Significant other Significant unobservable
assets (Level observable inputs inputs Balance as of
($ in millions) 1) (Level 2) (Level 3) December 31, 2021
Equity securities $ 311 $ 44 $ 2 $ 357
Fixed income securities:
Government bonds (1) 58 1,206 - 1,264
Corporate bonds - 696 - 696
Short-term investments 135 65 - 200
Free-standing derivatives:
Assets - 4 - 4
Liabilities - (3) - (3)
Other assets 2 - - 2Total plan assets at fair value $ 506 $ 2,012
$ 2 2,520
% of total plan assets at fair
value 20.1 % 79.8 % 0.1 % 100.0 %
Investments measured using the
net asset value practical
expedient 4,109
Securities lending obligation
(2) (121)
Derivatives counterparty and
cash collateral netting (3)
Other net plan assets (3) 20
Total reported plan assets $ 6,525
(1)Includes U.S. government and agencies and foreign government bonds.
(2)The securities lending obligation represents the plan's obligation to return securities lending collateral received under a securities lending program. The terms of the program allow both the plan and the counterparty the right and ability to redeem/return the securities loaned on short notice. Due to its relatively short-term nature, the outstanding balance of the obligation approximates fair value.
(3)Other net plan assets represent cash and cash equivalents, interest and dividends receivable and net receivables related to settlements of investment transactions, such as purchases and sales.
Fair values of pension plan assets as of December 31, 2020
Quoted prices
in active
markets for
identical Significant other Significant unobservable
assets (Level observable inputs inputs Balance as of
($ in millions) 1) (Level 2) (Level 3) December 31, 2020
Equity securities $ 227 $ 42 $ - $ 269
Fixed income securities:
Government bonds 32 865 - 897
Corporate bonds - 1,709 2 1,711
Short-term investments 210 35 - 245
Free-standing derivatives:
Assets - 21 - 21
Liabilities (2) (21) - (23)
Other assets 2 - - 2Total plan assets at fair value $ 469 $ 2,651
$ 2 3,122
% of total plan assets at fair
value 15.0 % 84.9 % 0.1 % 100.0 %
Investments measured using the
net asset value practical
expedient 3,908
Securities lending obligation (101)
Derivatives counterparty and
cash collateral netting (19)
Other net plan assets 77
Total reported plan assets $ 6,987
The fair values of pension plan assets are estimated using the same methodologies and inputs as those used to determine the fair values for the respective asset category of the Company. These methodologies and inputs are disclosed in Note 6.
The Allstate Corporation 175
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2021 Form 10-K Notes to Consolidated Financial Statements
Rollforward of Level 3 plan assets during December 31, 2021
Actual return on plan assets:
Relating to
assets still Purchases,
Balance as of Relating to assets held at the sales and Net transfers Balance as of
December 31, sold during the reporting settlements, in (out) of December 31,
($ in millions) 2020 period date net Level 3 2021
Equity securities $ - $ - $ - $ 2 $ - $ 2
Fixed income securities:
Corporate 2 - - (2) - -
Total Level 3 plan
assets $ 2 $ - $ - $ - $ - $ 2
Rollforward of Level 3 plan assets during December 31, 2020
Actual return on plan assets:
Relating to
assets still Purchases,
Balance as of Relating to assets held at the sales and Net transfers Balance as of
December 31, sold during the reporting settlements, in (out) of December 31,
($ in millions) 2019 period date net Level 3 2020
Fixed income
securities:
Corporate $ - $ - $ - $ 2 $ - $ 2
Total Level 3 plan
assets $ - $ - $ - $ 2 $ - $ 2
Rollforward of Level 3 plan assets during December 31, 2019
Actual return on plan assets:
Relating to
assets still Purchases,
Balance as of Relating to assets held at the sales and Net transfers Balance as of
December 31, sold during the reporting settlements, in (out) of December 31,
($ in millions) 2018 period date net Level 3 2019
Fixed income
securities:
Corporate $ 5 $ - $ - $ (5) $ - $ -
Total Level 3 plan
assets $ 5 $ - $ - $ (5) $ - $ -
The expected long-term rate of return on plan assets reflects the average rate
of earnings expected on plan assets. The Company's assumption for the expected
long-term rate of return on plan assets is evaluated annually giving
consideration to appropriate data including, but not limited to, the plan asset
allocation, forward-looking expected returns for the period over which benefits
will be paid, historical returns on plan assets and other relevant market data.
Given the long-term forward-looking nature of this assumption, the actual
returns in any one year do not immediately result in a change to the expected
long-term rate of return on plan assets. In consideration of the targeted plan
asset allocation, the Company evaluated expected returns using sources including
historical average asset class returns from independent nationally recognized
providers of this type of data blended together using the asset allocation
policy weights for the Company's pension plans; asset class return forecasts
developed by employees with relevant expertise in such forecasts and who are
independent from those charged with managing the pension plan assets; and
expected portfolio returns from a proprietary simulation methodology of a widely
recognized external
investment consulting firm that performs asset allocation and actuarial services
for corporate pension plan sponsors. The above sources support the Company's
weighted average long-term rate of return on plan assets assumption of 7.06%
used for 2021 and an estimate of 7.06% that will be used for 2022. As of the
2021 measurement date, the arithmetic average of the annual actual return on
plan assets for the most recent 10 and 5 years was 11.7% and 15.0%,
respectively.
Cash flows There was no required cash contribution necessary to satisfy the minimum funding requirement under the IRC for the tax qualified pension plan for the year ended December 31, 2021.
The Company currently plans to contribute $24 million to its unfunded non-qualified plans and zero to both its primary and other qualified funded pension plans in 2022.
The Company contributed $27 million and $23 million to the postretirement benefit plans in 2021 and 2020, respectively. Contributions by participants were $16 million and $14 million in 2021 and 2020, respectively.
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Notes to Consolidated Financial Statements 2021 Form 10-K
Estimated future benefit payments expected to be paid in the next 10 years
As of December 31, 2021
Postretirement
($ in millions) Pension benefits benefits
2022 $ 602 $ 25
2023 586 25
2024 566 25
2025 533 25
2026 517 24
2027-2031 2,180 85
Total benefit payments $ 4,984 $ 209
Allstate 401(k) Savings Plan
Employees of the Company, with the exception of those employed by the Company's
international, SquareTrade and InfoArmor subsidiaries, are eligible to become
members of the Allstate 401(k) Savings Plan ("Allstate Plan"). The Company's
contributions are based on the Company's matching obligation. The Company is
responsible for funding its contribution to the Allstate Plan.
The Company's contribution to the Allstate Plan was $110 million, $103 million
and $93 million in 2021, 2020 and 2019, respectively. In 2019, the amount was
reduced by $41 million of ESOP benefit. Prior to 2020, the Allstate Plan had a
leveraged ESOP to fund a portion of the contribution. The ESOP note matured on
December 31, 2019.
Allstate's Canadian, SquareTrade and InfoArmor subsidiaries sponsor defined contribution plans for their eligible employees. Expense for subsidiary sponsored defined contribution plans was $9 million, $13 million and $15 million in 2021, 2020 and 2019, respectively.
The Allstate Corporation 177
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2021 Form 10-K Notes to Consolidated Financial Statements
Note 19 Equity Incentive Plans
The Company currently has equity incentive plans under which it grants nonqualified stock options, restricted stock units and performance stock awards to certain employees and directors of the Company.
Equity awards ($ in millions) 2021 2020 2019 Compensation expense $ 120 $ 124 $ 105 Income tax benefits 18 18 17 Cash received from exercise of options 151 111 154 Tax benefit realized on options exercised and release of stock restrictions 37 53 43 The Company records compensation expense related to awards under these plans over the shorter of the period in which the requisite service is rendered or retirement eligibility is attained. Compensation expense for performance stock awards with no market condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period. Compensation expense for performance stock awards with a market condition is based on the number of awards expected to vest as estimated at the grant date and does not change if the market condition is not met.
Nonvested awards as of December 31, 2021
Weighted average vesting
($ in millions) Unrecognized compensation period
Nonqualified stock options $ 16 1.61
Restricted stock units 44 1.87
Performance stock awards 30 1.65
Total $ 90
Options are granted to employees with exercise prices equal to the closing share
price of the Company's common stock on the applicable grant date. Options
granted to employees vest ratably over a three-year period. Vesting is subject
to continued service, except for employees who are retirement eligible and in
certain other limited circumstances. Options may be exercised once vested and
will expire no later than ten years after the date of grant.
Restricted stock units for directors vest immediately and convert into shares of
stock on the earlier of the day of the third anniversary of the grant date or
the date the director's service terminates, unless a deferred period of
restriction is elected.
Restricted stock units granted to directors prior to June 1, 2016 convert upon
leaving the board. Restricted stock units granted to employees prior to
February 19, 2020 vest on the day prior to the third anniversary of the grant
date. Restricted stock units granted to employees on or after February 19, 2020
vest ratably over a three-year period. Restricted stock units granted to
employees subsequently convert into shares of stock on the day of the respective
anniversary of the grant date. Vesting is subject to continued service, except
for employees who are retirement eligible and in certain other limited
circumstances.
Performance stock awards vest into shares of stock based on achieving
established company-specific performance goals. Performance stock awards granted
prior to February 19, 2020 vest into shares of stock on the day prior to the
third anniversary of the grant date. Performance stock awards granted on or
after February 19, 2020 vest into shares of stock on the third anniversary of
the grant date.
The numbers of shares earned upon vesting of the performance stock awards is
based on the attainment of performance goals for each of the performance
periods, subject to continued service, except for employees who are retirement
eligible and in certain other limited circumstances.
Since 2001, a total of 110.8 million shares of common stock were authorized to
be used for awards under the plans, subject to adjustment in accordance with the
plans' terms. As of December 31, 2021, 17.0 million shares were reserved and
remained available for future issuance under these plans. The Company uses its
treasury shares for these issuances.
The fair value of each option grant is estimated on the date of grant using a
binomial lattice model. The Company uses historical data to estimate option
exercise and employee termination within the valuation model. In addition,
separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected term of options
granted is derived from the output of the binomial lattice model and represents
the period of time that options granted are expected to be outstanding. The
expected volatility of the price of the underlying shares is implied based on
traded options and historical volatility of the Company's common stock. The
expected dividends were based on the current dividend yield of the Company's
stock as of the date of the grant. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
178 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
Option grant assumptions
2021 2020 2019
Weighted average expected term 7.5 years 6.1 years 5.8 years
Expected volatility 16.5% - 28.8% 16.3% - 37.1% 15.6% - 28.9%
Weighted average volatility 23.0 % 17.6 % 18.4 %
Expected dividends 2.0% - 3.0% 1.6% - 2.4% 1.9% - 2.2%
Weighted average expected dividends 3.1 % 1.8 % 2.2 %
Risk-free rate -% - 1.7% 0.1% - 1.8% 1.3% - 2.7%
Summary of option activity
For the year ended December 31, 2021
Weighted average
Aggregate remaining
Number Weighted average intrinsic value contractual term
(in 000s) exercise price (in 000s) (years)
Outstanding as of January 1, 2021 10,617 $ 83.65
Granted 1,738 105.45
Exercised (2,167) 74.05
Forfeited (319) 106.33
Expired (15) 104.22
Outstanding as of December 31,
2021 9,854 88.84 $ 292,514 5.8
Outstanding, net of expected
forfeitures 9,791 88.71 291,849 5.8
Outstanding, exercisable
("vested") 6,654 79.96 253,563 4.6
The weighted average grant date fair value of options granted was $15.61, $18.17
and $14.96 during 2021, 2020 and 2019, respectively. The intrinsic value, which
is the difference between the fair value and the exercise price, of options
exercised was $112 million, $119 million and $114 million during 2021, 2020 and
2019, respectively.
Changes in restricted stock units
For the year ended December 31, 2021
Weighted average
Number grant date fair
(in 000s) value
Nonvested as of January 1, 2021 948 $ 98.61
Granted 552 108.99
Vested (322) 102.45
Forfeited (140) 105.68
Nonvested as of December 31, 2021 1,038 101.98
The fair value of restricted stock units is based on the market value of the
Company's stock as of the date of the grant. The market value in part reflects
the payment of future dividends expected. The weighted average grant date fair
value of restricted stock units granted was $108.99, $118.61 and $92.97 during
2021, 2020 and 2019, respectively. The total fair value of restricted stock
units vested was $35 million, $32 million and $29 million during 2021, 2020 and
2019, respectively.
The Allstate Corporation 179
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2021 Form 10-K Notes to Consolidated Financial Statements
Changes in performance stock awards
For the year ended December 31, 2021
Weighted average
Number grant date fair
(in 000s) value
Nonvested as of January 1, 2021 951 $ 100.89
Granted 442 107.14
Adjustment for performance achievement 338 92.88
Vested (676) 92.88
Forfeited (81) 107.91
Nonvested as of December 31, 2021 974 105.92
The change in performance stock awards comprises those initially granted in 2021 and the adjustment to previously granted performance stock awards for performance achievement.
The fair value of performance stock awards that do not include a market condition is based on the market value of the Company's stock as of the date of the grant.
Starting with the February 2020 award, the fair value of performance stock
awards includes a component with market-based condition measured on the grant
date using a Monte Carlo simulation model. Market-based condition measures the
Company's total shareholder return ("TSR") relative to the TSR of peer
companies, expressed in terms of the Company's TSR percentile rank among the
peer companies, over a three-calendar-year performance period. The Monte Carlo
simulation model uses a risk-neutral framework to model future stock price
movements based upon the risk-free rate of return at the time of grant,
volatilities of the Company and the peer companies, and expected term assumed to
be equal to the remaining measurement period. The market value in part reflects
the payment of future dividends expected.
For the year ended December 31, 2021, the 2021 performance stock awards with
market-based condition assumes a risk-free rate of 0.2%, volatility of 29.9%,
average peer volatility of 37.4% and an expected term of 2.9 years.
The weighted average grant date fair value of performance stock awards granted
was $107.14, $123.48 and $92.49 during 2021, 2020 and 2019, respectively. The
total fair value of performance stock awards vested was $70 million, $101
million and $65 million during 2021, 2020 and 2019, respectively.
The Company recognizes all tax effects related to share-based payments at settlement or expiration through the income statement.
Note 20 Supplemental Cash Flow Information
Non-cash investing activities include $51 million, $55 million and $131 million related to mergers and exchanges completed with equity securities, fixed income securities and limited partnerships, and modifications of certain mortgage loans and other investments in 2021, 2020 and 2019, respectively. Non-cash financing activities include $53 million, $56 million and $50 million related to the issuance of Allstate common shares for vested equity awards in 2021, 2020 and 2019, respectively. Cash flows used in operating activities in the Consolidated Statements of Cash Flows include cash paid for operating leases related to amounts included in the measurement of lease liabilities of $181 million, $156 million and $155 million for the twelve months ended December 31, 2021, 2020 and 2019, respectively. Non-cash operating activities include $98 million, $51 million and $604 million related to right-of-use assets obtained in exchange for lease obligations for the twelve months ended December 31, 2021, 2020 and 2019, respectively. Non-cash operating activities related to right-of-use assets obtained in exchange for lease obligations for twelve months ended December 31, 2019 include the impact of $488 million related to the adoption of the accounting for leases standard. Liabilities for collateral received in conjunction with the Company's securities lending program and OTC and cleared derivatives are reported in other liabilities and accrued expenses or other investments. The accompanying cash flows are included in cash flows from operating activities in the Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds as follows: 180 www.allstate.com
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Notes to Consolidated Financial Statements 2021 Form 10-K
For the years ended December 31,
($ in millions) 2021 2020 2019
Net change in proceeds managed
Net change in fixed income securities $ - $ - $ 52
Net change in short-term investments (539) 396 (417)
Operating cash flow (used) provided (539) 396 (365)
Net change in cash 9 (12) -
Net change in proceeds managed $ (530) $ 384 $ (365)
Net change in liabilities Liabilities for collateral, beginning of year $ (914) $ (1,298) $ (933) Liabilities for collateral, end of year (1,444) (914) (1,298) Operating cash flow provided (used) $ 530
$ (384) $ 365
Note 21 Other Comprehensive Income
Components of other comprehensive income (loss) on a pre-tax and after-tax basis
For the years ended December 31,
2021 2020 2019
($ in millions) Pre-tax Tax After-tax Pre-tax Tax After-tax Pre-tax Tax After-tax
Unrealized net holding gains and
losses arising during the period,
net of related offsets (1) $ (2,839) $ 601 $ (2,238) $ 2,512 $ (532) $ 1,980 $ 2,807 $ (592) $ 2,215
Less: reclassification adjustment
of net gains and losses on
investments and derivatives 436 (92) 344 870 (183) 687 413 (87) 326
Unrealized net capital gains and
losses (3,275) 693 (2,582) 1,642 (349) 1,293 2,394 (505) 1,889
Unrealized foreign currency
translation adjustments (10) 2 (8) 66 (14) 52 (13) 3 (10)
Unamortized pension and other
postretirement prior service
credit (2) (75) 16 (59) 12 (3) 9 (59) 12 (47)Other comprehensive (loss) income $ (3,360) $ 711 $ (2,649) $ 1,720 $ (366) $ 1,354 $ 2,322 $ (490) $ 1,832
(1)Includes $2.4 billion of losses related to held for sale investments in connection with 2021 sale of life and annuity business.
(2)Represents prior service credits reclassified out of other comprehensive income and amortized into operating costs and expenses.
Note 22 Quarterly Results (unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter
($ in millions, except per
share data) 2021 2020 2021 2020 2021 2020 2021 2020
Revenues $ 12,451 $ 9,866 $ 12,646 $ 10,403 $ 12,480 $ 10,678 $ 13,011 $ 10,962
Net income from continuing
operations applicable to
common shareholders 2,385 801 1,399 1,080 183 1,189 1,111 2,244
Income (loss) from
discontinued operations, net
of tax (3,793) (288) 196 144 325 (63) (321) 354
Net income (loss) applicable
to common shareholders $ (1,408) $ 513 $ 1,595 $ 1,224 $ 508 $ 1,126 $ 790 $ 2,598
Earnings per common share
applicable to common
shareholders
Basic
Continuing operations $ 7.88 $ 2.52 $ 4.68 $ 3.44 $ 0.62 $ 3.82 $ 3.90 $ 7.38
Discontinued operations (12.53) (0.90) 0.66 0.46 1.11 (0.20) (1.13) 1.16
Total $ (4.65) $ 1.62 $ 5.34 $ 3.90 $ 1.73 $ 3.62 $ 2.77 $ 8.54
Diluted
Continuing operations $ 7.78 $ 2.48 $ 4.61 $ 3.41 $ 0.62 $ 3.78 $ 3.84 $ 7.30
Discontinued operations (12.38) (0.89) 0.65 0.45 1.09 (0.20) (1.11) 1.15
Total $ (4.60) $ 1.59 $ 5.26 $ 3.86 $ 1.71 $ 3.58 $ 2.73 $ 8.45
The Allstate Corporation 181
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2021 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of The Allstate Corporation Northbrook, Illinois 60062
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying Consolidated Statements of Financial Position
of The Allstate Corporation and subsidiaries (the "Company") as of December 31,
2021 and 2020, the related Consolidated Statements of Operations, Comprehensive
Income, Shareholders' Equity, and Cash Flows for each of the three years in the
period ended December 31, 2021, and the related notes and the schedules listed
in the Index at Item 15 (collectively referred to as the "financial
statements"). We also have audited the Company's internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO").
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2021 and 2020, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2021, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated Framework (2013) issued by
the COSO.
Basis for Opinions
The Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Item 9A. Controls and Procedures. Our
responsibility is to express an opinion on these financial statements and an
opinion on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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2021 Form 10-K Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Reserve for Property and Casualty Insurance Claims and Claims Expense - Refer to Notes 2 and 9 to the Financial Statements
Critical Audit Matter Description
As of December 31, 2021, the reserve for property and casualty insurance claims and claims expense was $33.06 billion. The Company establishes reserves for property and casualty insurance claims and claims expense on reported and unreported claims of insured losses. Using established industry and actuarial best practices as well as the Company's historical claims experience, the reserve for property and casualty insurance claims and claims expense is estimated based on (i) claims reported, (ii) claims incurred but not reported, and (iii) projections of claim payments to be made in the future. Given the subjectivity of estimating claims incurred but not reported and projections of claim payments to be made in the future, particularly those with payout requirements over a longer period of time, the related audit effort in evaluating the reserve for property and casualty insurance claims and claims expense required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the reserve for property and casualty insurance claims and claims expense included the following:
•We tested the effectiveness of controls related to the reserve for property and casualty insurance claims and claims expense, including those over the Company's estimates and projections.
•We evaluated the methods and assumptions used by the Company to estimate the reserve for property and casualty insurance claims and claims expense by:
-Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were complete and accurate.
-Comparing the Company's prior year assumptions of expected development and ultimate loss to actual losses incurred during the year to assess the reasonableness of those assumptions, including consideration of potential bias, in the determination of the reserve for property and casualty claims and claims expense. -With the assistance of our actuarial specialists, we developed independent estimates for the reserve for property and casualty insurance claims and claims expense, particularly related to those with payout requirements over a longer period of time, utilizing loss data and industry claim development factors, and compared our estimates to management's estimates.
National General Acquisition - Refer to Notes 2 and 3 to the Financial Statements
Critical Audit Matter Description
The Company completed the acquisition of National General Holdings Corp.
("National General") on January 4, 2021 for approximately $4 billion in cash.
The Company accounted for the acquisition of National General under the
acquisition method of accounting for business combinations. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their respective fair values, including distribution and customer
relationship intangible assets of $795 million. Management estimated the fair
value of such intangible assets using an income approach that considered cash
flows expected to be generated by the acquired relationships, a weighted-average
cost of capital discount rate reflecting the relative risk of achieving the
anticipated cash flows, profits, the time value of money and other relevant
inputs, which required management to make significant estimates and assumptions.
Changes in the assumptions could impact the amount allocated to acquired
intangible assets and ultimately the amount recorded as goodwill.
Given the fair value determination of distribution and customer relationship
intangible assets requires management to make significant estimates and
assumptions regarding projected cash flows and discount rates, performing audit
procedures to evaluate the reasonableness of those estimates and assumptions
required a high degree of auditor judgment, and an increased extent of effort,
including involving fair value specialists.
The Allstate Corporation 183
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2021 Form 10-K
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of distribution and customer relationship intangible assets acquired from National General included the following, among others:
•We tested the effectiveness of controls over the valuation methodology used for these acquired intangible assets, including management's controls over assumptions used in developing estimated future cash flows, and discount rates used to present value cash flows.
•We assessed the knowledge, skill, ability and objectivity of management's valuation specialist and evaluated the work performed.
•We assessed the reasonableness of management's forecasts by comparing the projection to historical cash flow results of National General, as well as to certain peer companies of National General. We also performed sensitivity analyses to evaluate the impact of changes in assumptions to the valuation of the customer relationship intangible assets.
•With the assistance of fair value specialists, we evaluated:
?The reasonableness of the valuation methodology, and
?The reasonableness of the discount rate used to present value the expected cash flows by:
-Testing the source information underlying the determination of the discount rate and testing mathematical accuracy of the calculation.
-Developing a range of independent estimates and comparing those to the discount rate selected by management to evaluate the inputs used in the calculation.
•We evaluated whether the estimated cash flows were consistent with evidence obtained in other areas of the audit.
•We tested the accuracy and evaluated the relevance of the data used by management on the date of the acquisition.
/s/ Deloitte & Touche LLP Chicago, Illinois February 18, 2022
We have served as the Company's auditor since 1992.
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2021 Form 10-K
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