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1、UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For t
2、he transition period from _ to _Commission file number 1-11840THE ALLSTATE CORPORATION(Exact name of registrant as specified in its charter)Delaware36-3871531(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)3100 Sanders Road,Northbrook,Illinois60062(Ad
3、dress of principal executive offices)(Zip Code)Registrants telephone number,including area code:(847)402-5000Securities registered pursuant to Section 12(b)of the Act:Title of each classTradingSymbolsName of each exchangeon which registeredCommon Stock,par value$.01 per shareALLNew York Stock Exchan
4、geChicago Stock Exchange5.100%Fixed-to-Floating Rate Subordinated Debentures due 2053ALL.PR.BNew York Stock ExchangeDepositary Shares represent 1/1,000thof a share of 5.100%Noncumulative Preferred Stock,SeriesHALL PR HNew York Stock ExchangeDepositary Shares represent 1/1,000thof a share of 4.750%No
5、ncumulative Preferred Stock,SeriesIALL PR INew York Stock ExchangeDepositary Shares represent 1/1,000th of a share of 7.375%Noncumulative Preferred Stock,Series JALL PR JNew York Stock ExchangeIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or
6、 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted elec
7、tronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a la
8、rge accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated f
9、ilerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant
10、 to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of July17,2023,the registrant had 261,573,754 common shares,$.01 par value,outstanding.The Allstate CorporationIndex to Quarterly Report on Fo
11、rm 10-QJune30,2023Part I Financial InformationPageItem 1.Financial Statements(unaudited)as of June 30,2023 and December 31,2022 and for the Three Month and Six Month Periods Ended June30,2023 and 2022Condensed Consolidated Statements of Operations1Condensed Consolidated Statements of Comprehensive I
12、ncome(Loss)2Condensed Consolidated Statements of Financial Position3Condensed Consolidated Statements of Shareholders Equity4Condensed Consolidated Statements of Cash Flows5Notes to Condensed Consolidated Financial Statements(unaudited)6Report of Independent Registered Public Accounting Firm49Item 2
13、.Managements Discussion and Analysis of Financial Condition and Results of OperationsHighlights50Property-Liability Operations54Segment resultsAllstate Protection56Run-off Property-Liability65Protection Services67Allstate Health and Benefits69Investments71Capital Resources and Liquidity78Forward-Loo
14、king Statements81Item 4.Controls and Procedures81Part II Other InformationItem 1.Legal Proceedings82Item 1A.Risk Factors82Item 2.Unregistered Sales of Equity Securities and Use of Proceeds82Item 5.Other Information82Item 6.Exhibits83Condensed Consolidated Financial StatementsPart I.Financial Informa
15、tionItem 1.Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Operations(unaudited)(Inmillions,exceptpersharedata)Three months endedJune 30,Six months ended June 30,2023202220232022RevenuesProperty and casualty insurance premiums$12,470$11,362$24,643$22
16、,343Accident and health insurance premiums and contract charges453465916933Other revenue5975631,1581,123Net investment income6105621,1851,156Net gains(losses)on investments and derivatives(151)(733)(137)(1,000)Total revenues13,97912,21927,76524,555Costs and expensesProperty and casualty insurance cl
17、aims and claims expense11,7279,36722,05317,189Accident,health and other policy benefits258265523533Amortization of deferred policy acquisition costs1,7891,6183,5333,226Operating costs and expenses1,7861,8503,5023,752Pension and other postretirement remeasurement(gains)losses(40)259(93)12Restructurin
18、g and related charges2715413Amortization of purchased intangibles8287163174Interest expense9883184166Total costs and expenses15,72713,53029,91925,065Loss from operations before income tax expense(1,748)(1,311)(2,154)(510)Income tax benefit(373)(289)(458)(138)Net loss(1,375)(1,022)(1,696)(372)Less:Ne
19、t loss attributable to noncontrolling interest(23)(9)(24)(19)Net loss attributable to Allstate(1,352)(1,013)(1,672)(353)Less:Preferred stock dividends37276353Net loss applicable to common shareholders$(1,389)$(1,040)$(1,735)$(406)Earnings per common share:Net loss applicable to common shareholders p
20、er common share-Basic$(5.29)$(3.80)$(6.59)$(1.47)Weighted average common shares-Basic262.6273.8263.1275.9Net loss applicable to common shareholders per common share-Diluted$(5.29)$(3.80)$(6.59)$(1.47)Weighted average common shares-Diluted262.6273.8263.1275.9See notes to condensed consolidated financ
21、ial statements.Second Quarter 2023 Form 10-Q 1Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Comprehensive Income(Loss)(unaudited)($in millions)Three months ended June 30,Six months ended June 30,2023202220232022Net loss$(1,37
22、5)$(1,022)$(1,696)$(372)Other comprehensive(loss)income,after-taxChanges in:Unrealized net capital gains and losses(272)(1,144)410(2,738)Unrealized foreign currency translation adjustments28(47)78(47)Unamortized pension and other postretirement prior service credit(5)(15)(9)(30)Discount rate for res
23、erve for future policy benefits885(1)180Other comprehensive(loss)income,after-tax(241)(1,121)478(2,635)Comprehensive loss(1,616)(2,143)(1,218)(3,007)Less:Comprehensive loss attributable to noncontrolling interest(24)(17)(20)(39)Comprehensive loss attributable to Allstate$(1,592)$(2,126)$(1,198)$(2,9
24、68)See notes to condensed consolidated financial statements.2 Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Financial Position(unaudited)($in millions,except par value data)June 30,2023December 31,2022AssetsInvestmentsFixed i
25、ncome securities,at fair value(amortized cost,net$47,904 and$45,370)$45,550$42,485Equity securities,at fair value(cost$2,231 and$4,253)2,2904,567Mortgage loans,net823762Limited partnership interests8,1508,114Short-term,at fair value(amortized cost$5,138 and$4,174)5,1374,173Other investments,net1,718
26、1,728Total investments63,66861,829Cash699736Premium installment receivables,net9,7139,165Deferred policy acquisition costs5,6075,442Reinsurance and indemnification recoverables,net9,1519,619Accrued investment income471423Deferred income taxes480382Property and equipment,net945987Goodwill3,5023,502Ot
27、her assets,net6,2785,904Total assets100,51497,989LiabilitiesReserve for property and casualty insurance claims and claims expense40,53137,541Reserve for future policy benefits1,3391,322Contractholder funds881879Unearned premiums23,35522,299Claim payments outstanding1,3871,268Other liabilities and ac
28、crued expenses9,7009,353Debt7,9497,964Total liabilities85,14280,626Commitments and Contingent Liabilities(Note14)EquityPreferred stock and additional capital paid-in,$1 par value,25 million shares authorized,82.0thousand and81.0thousand shares issued and outstanding,$2,050 and$2,025 aggregate liquid
29、ation preference2,0011,970Common stock,$.01 par value,2.0 billion shares authorized and 900million issued,262million and 263millionshares outstanding99Additional capital paid-in3,7863,788Retained income48,76650,970Treasury stock,at cost(638million and 637million shares)(37,131)(36,857)Accumulated ot
30、her comprehensive income(loss):Unrealized net capital gains and losses(1,845)(2,255)Unrealized foreign currency translation adjustments(87)(165)Unamortized pension and other postretirement prior service credit2029Discount rate for reserve for future policy benefits(2)(1)Total accumulated other compr
31、ehensive income(1,914)(2,392)Total Allstate shareholders equity15,51717,488Noncontrolling interest(145)(125)Total equity15,37217,363Total liabilities and equity$100,514$97,989See notes to condensed consolidated financial statements.Second Quarter 2023 Form 10-Q 3Condensed Consolidated Financial Stat
32、ementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Shareholders Equity(unaudited)($in millions,except per share data)Three months ended June 30,Six months ended June 30,2023202220232022Preferred stock par value$Preferred stock additional capital paid-inBalance,beginn
33、ing of period1,9701,9701,9701,970Preferred stock issuance,net of issuance costs587587Preferred stock redemption(556)(556)Balance,end of period2,0011,9702,0011,970Common stock par value9999Common stock additional capital paid-inBalance,beginning of period3,7803,7063,7883,722Equity incentive plans act
34、ivity634(2)18Balance,end of period3,7863,7403,7863,740Retained incomeBalance,beginning of period50,38853,68650,97053,288Net loss(1,352)(1,013)(1,672)(353)Dividends on common stock(declared per share of$0.89,$0.85,$1.78 and$1.70)(233)(234)(469)(470)Dividends on preferred stock(37)(27)(63)(53)Balance,
35、end of period48,76652,41248,76652,412Treasury stockBalance,beginning of period(36,980)(35,208)(36,857)(34,471)Shares acquired(154)(683)(307)(1,477)Shares reissued under equity incentive plans,net3333390Balance,end of period(37,131)(35,858)(37,131)(35,858)Accumulated other comprehensive income(loss)B
36、alance,beginning of period(1,673)(1,088)(2,392)426Change in unrealized net capital gains and losses(272)(1,144)410(2,738)Change in unrealized foreign currency translation adjustments28(47)78(47)Change in unamortized pension and other postretirement prior service credit(5)(15)(9)(30)Change in discoun
37、t rate for reserve for future policy benefits885(1)180Balance,end of period(1,914)(2,209)(1,914)(2,209)Total Allstate shareholders equity15,51720,06415,51720,064Noncontrolling interestBalance,beginning of period(121)(74)(125)(52)Change in unrealized net capital gains and losses(1)(8)4(20)Noncontroll
38、ing loss(23)(9)(24)(19)Balance,end of period(145)(91)(145)(91)Total equity$15,372$19,973$15,372$19,973See notes to condensed consolidated financial statements.4 Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Cash Flows(unaudit
39、ed)($in millions)Six months ended June 30,20232022Cash flows from operating activitiesNet loss$(1,696)$(372)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation,amortization and other non-cash items363452Net(gains)losses on investments and derivatives1371,000Pe
40、nsion and other postretirement remeasurement(gains)losses(93)12Changes in:Policy benefits and other insurance reserves2,9171,222Unearned premiums1,0321,201Deferred policy acquisition costs(162)(315)Premium installment receivables,net(532)(664)Reinsurance recoverables,net468645Income taxes(538)(288)O
41、ther operating assets and liabilities(126)(788)Net cash provided by operating activities1,7702,105Cash flows from investing activitiesProceeds from salesFixed income securities12,45419,928Equity securities4,1837,622Limited partnership interests516633Other investments81926Investment collectionsFixed
42、income securities992259Mortgage loans3660Other investments53110Investment purchasesFixed income securities(15,875)(22,907)Equity securities(1,717)(6,028)Limited partnership interests(424)(590)Mortgage loans(100)(89)Other investments(140)(232)Change in short-term and other investments,net(986)398Purc
43、hases of property and equipment,net(141)(228)Proceeds from sale of property and equipment19Net cash used in investing activities(1,049)(138)Cash flows from financing activitiesProceeds from issuance of debt743Repayment of debt(750)Proceeds from issuance of preferred stock587Redemption of preferred s
44、tock(575)Contractholder fund deposits6669Contractholder fund withdrawals(16)(21)Dividends paid on common stock(459)(466)Dividends paid on preferred stock(53)(53)Treasury stock purchases(307)(1,485)Shares reissued under equity incentive plans,net1055Other(4)(63)Net cash used in financing activities(7
45、58)(1,964)Net(decrease)increase in cash(37)3Cash at beginning of period736763Cash at end of period$699$766See notes to condensed consolidated financial statements.Second Quarter 2023 Form 10-Q 5Notes to Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesNotes to Cond
46、ensed Consolidated Financial Statements(Unaudited)Note1GeneralBasis of presentationThe accompanying condensed consolidated financial statementsinclude the accounts of The Allstate Corporation(the“Corporation”)andits wholly owned subsidiaries,primarily Allstate Insurance Company(“AIC”),a property and
47、 casualty insurance company(collectively referredto as the“Company”or“Allstate”)and variable interest entities(“VIEs”)inwhich the Company is considered a primary beneficiary.Thesecondensed consolidated financial statements have been prepared inconformity with accounting principles generally accepted
48、 in the UnitedStates of America(“GAAP”).The condensed consolidated financial statements and notes as ofJune30,2023 and for the three and six month periods ended June30,2023 and 2022 are unaudited.The condensed consolidated financialstatements reflect all adjustments(consisting only of normal recurri
49、ngaccruals)which are,in the opinion of management,necessary for the fairpresentation of the financial position,results of operations and cash flowsfor the interim periods.These condensed consolidated financial statements and notes shouldbe read in conjunction with the consolidated financial statemen
50、ts andnotes thereto included in the Companys annual report on Form 10-K forthe year ended December 31,2022.The results of operations for theinterim periods should not be considered indicative of results to beexpected for the full year.All significant intercompany accounts andtransactions have been e
51、liminated.To reflect the application of the new guidance to all in-scope long-duration insurance contracts,certain amounts in the condensedconsolidated financial statements and notes for 2022 have been recast.Adopted accounting standardAccounting for Long-Duration Insurance Contracts Effective Janua
52、ry1,2023,the Company adopted the Financial Accounting Standards Board(”FASB”)guidance revising the accounting for certain long-durationinsurance contracts using the modified retrospective approach to thetransition date of January 1,2021.Under the new guidance,measurement assumptions,including thosef
53、or mortality,morbidity and policy lapses,are required to be reviewed atleast annually,and updated as appropriate.In addition,reserves underthe new guidance are required to be discounted using an upper-mediumgrade fixed income instrument yield that is updated through othercomprehensive income(“OCI”)a
54、t each reporting date.Additionally,deferred policy acquisition costs(“DAC”)for all long-duration products areamortized on a simplified basis.Also,the Companys reserve for futurepolicy benefits and DAC are subject to new disclosure guidance.In addition,the Company met the conditions included in Accou
55、ntingStandards Update No.2022-05,Transition for Sold Contracts,and electedto not apply the new guidance for contracts that were part of the 2021sales of Allstate Life Insurance Company(“ALIC”)and Allstate LifeInsurance Company of New York(“ALNY”).After-tax cumulative effect of change in accounting p
56、rinciple ontransition date($in millions)January 1,2021Decrease in retained income$21Decrease in accumulated othercomprehensive income(“AOCI”)277Total decrease in equity$298The decrease in AOCI was primarily attributable to a change in thediscount rate used in measuring the reserve for future policy
57、benefits fortraditional life contracts and other long-term products with guaranteedterms from a portfolio-based rate at contract issuance to an upper-medium grade fixed income-based rate at the transition date.Thedecrease in retained income primarily related to certain cohorts of long-term contracts
58、 whose expected net premiums exceeded expected grosspremiums which resulted in an increase in reserves and a decrease inretained income equal to the present value of expected future benefitsless the present value of expected future premiums at the transition date.6 Notes to Condensed Consolidated Fi
59、nancial StatementsTransition disclosures The following tables summarize the balance of and changes in the reserve for future policy benefits and DAC on January 1,2021upon the adoption of the guidance.Impact of adoption for reserve for future policy benefits($in millions)Accident andhealthTraditional
60、 lifeTotalPre-adoption 12/31/2020 balance$728$311$1,039Adjustments:Effect of the remeasurement of the reserve at upper-medium grade fixed income-based rate 232153385Adjustments for contracts with net premiums in excess of gross premiums 7777Total adjustments309153462Post-adoption 1/1/2021 balance1,0
61、374641,501Less:reinsurance recoverables 1593162Post-adoption 1/1/2021 balance,after reinsurance recoverables$878$461$1,339Traditional life includes$11million in reserves related to riders of traditional life insurance products reclassified from contractholder funds.Adjustment reflected with a corres
62、ponding decrease to AOCI.Adjustment reflected with a corresponding decrease to retained income.Represents post-adoption January 1,2021 balance of reinsurance recoverables.Adjustments to reinsurance recoverables for accident and health products increased January1,2021 AOCI by$33million due to the rem
63、easurement of the reserve at upper-medium grade fixed income based rate and increased January 1,2021 retained income by$51million due to adjustments for contracts with net premiums in excess of gross premiums.Impact of adoption for DAC($in millions)Accident andhealthTraditional lifeInterest-sensitiv
64、e lifeTotalPre-adoption 12/31/2020 balance$343$32$95$470Adjustment for removal of impact of unrealized gains or losses 22Post-adoption 1/1/2021 balance$343$32$97$472Adjustment reflected with a corresponding increase to AOCI.(1)(2)(3)(4)(1)(2)(3)(4)(1)(1)Second Quarter 2023 Form 10-Q 7Notes to Conden
65、sed Consolidated Financial StatementsImpacts of the adoption on the financial statementsCondensed Consolidated Statements of OperationsAsreportedImpact ofchangeAsadjusted($in millions,except per share data)Three months ended June 30,2022RevenuesAccident and health insurance premiums and contract cha
66、rges$466$(1)$465Total revenues12,220(1)12,219Costs and expensesAccident,health and other policy benefits269(4)265Amortization of deferred policy acquisition costs1,619(1)1,618Total costs and expenses13,535(5)13,530Loss from operations before income tax expense(1,315)4(1,311)Income tax benefit(291)2(
67、289)Net loss(1,024)2(1,022)Net loss attributable to Allstate(1,015)2(1,013)Net loss applicable to common shareholders$(1,042)$2$(1,040)Earnings per common share:Net loss applicable to common shareholders per common share-Basic$(3.81)$0.01$(3.80)Net loss applicable to common shareholders per common s
68、hare-Diluted$(3.81)$0.01$(3.80)Six months ended June 30,2022RevenuesAccident and health insurance premiums and contract charges$935$(2)$933Total revenues24,557(2)24,555Costs and expensesAccident,health and other policy benefits538(5)533Amortization of deferred policy acquisition costs3,231(5)3,226To
69、tal costs and expenses25,075(10)25,065Loss from operations before income tax expense(518)8(510)Income tax benefit(140)2(138)Net loss(378)6(372)Net loss attributable to Allstate(359)6(353)Net loss applicable to common shareholders$(412)$6$(406)Earnings per common share:Net loss applicable to common s
70、hareholders per common share-Basic$(1.49)$0.02$(1.47)Net loss applicable to common shareholders per common share-Diluted$(1.49)$0.02$(1.47)8 Notes to Condensed Consolidated Financial StatementsCondensed Consolidated Statements of Comprehensive Income(unaudited)As reportedImpact ofchangeAs adjusted($
71、in millions)Three months ended June 30,2022Net loss$(1,024)$2$(1,022)Other comprehensive income(loss),after-taxChanges in:Unrealized net capital gains and losses(1,143)(1)(1,144)Discount rate for reserve for future policy benefits8585Other comprehensive income(loss),after-tax(1,205)84(1,121)Comprehe
72、nsive loss(2,229)86(2,143)Comprehensive loss attributable to Allstate$(2,212)$86$(2,126)Six months ended June 30,2022Net loss$(378)$6$(372)Other comprehensive income(loss),after-taxChanges in:Unrealized net capital gains and losses(2,736)(2)(2,738)Discount rate for reserve for future policy benefits
73、180180Other comprehensive income(loss),after-tax(2,813)178(2,635)Comprehensive loss(3,191)184(3,007)Comprehensive loss attributable to Allstate$(3,152)$184$(2,968)Condensed Consolidated Statements of Financial Position(unaudited)AsreportedImpact ofchangeAsadjusted($in millions)December 31,2022Assets
74、Deferred policy acquisition costs$5,418$24$5,442Reinsurance and indemnification recoverables,net9,606139,619Deferred income taxes386(4)382Other assets,net5,905(1)5,904Total assets97,9573297,989LiabilitiesReserve for future policy benefits1,273491,322Contractholder funds897(18)879Unearned premiums22,
75、311(12)22,299Total liabilities80,6071980,626EquityRetained income50,9541650,970Accumulated other comprehensive income(loss):Unrealized net capital gains and losses(2,253)(2)(2,255)Discount rate for reserve for future policy benefits(1)(1)Total AOCI(2,389)(3)(2,392)Total Allstate shareholders equity1
76、7,4751317,488Total equity17,3501317,363Total liabilities and equity$97,957$32$97,989Second Quarter 2023 Form 10-Q 9Notes to Condensed Consolidated Financial StatementsCondensed Consolidated Statements of Shareholders Equity(unaudited)AsreportedImpact ofchangeAsadjusted($in millions)Three months ende
77、d June 30,2022Retained incomeBalance,beginning of period$53,688$(2)$53,686Net loss(1,015)2(1,013)Balance,end of period52,41252,412Accumulated other comprehensive income(loss)Balance,beginning of period(953)(135)(1,088)Change in unrealized net capital gains and losses(1,143)(1)(1,144)Change in discou
78、nt rate for reserve for future policy benefits8585Balance,end of period(2,158)(51)(2,209)Total Allstate shareholders equity20,115(51)20,064Total equity$20,024$(51)$19,973Six months ended June 30,2022Retained incomeBalance,beginning of period$53,294$(6)$53,288Net loss(359)6(353)Balance,end of period5
79、2,41252,412Accumulated other comprehensive income(loss)Balance,beginning of period655(229)426Change in unrealized net capital gains and losses(2,736)(2)(2,738)Change in discount rate for reserve for future policy benefits180180Balance,end of period(2,158)(51)(2,209)Total Allstate shareholders equity
80、20,115(51)20,064Total equity$20,024$(51)$19,973Condensed Consolidated Statements of Cash Flows(unaudited)AsreportedImpact ofchangeAsadjusted($in millions)Six months ended June 30,2022Cash flows from operating activitiesNet loss$(378)$6$(372)Adjustments to reconcile net income(loss)to net cash provid
81、ed by operating activities:Changes in:Policy benefits and other insurance reserves1,223(1)1,222Unearned premiums1,202(1)1,201Deferred policy acquisition costs(310)(5)(315)Reinsurance recoverables,net645645Income taxes(290)2(288)Other operating assets and liabilities(787)(1)(788)Net cash provided by
82、operating activities$2,105$2,105Changes to significant accounting policiesReserve for future policy benefitsLong-duration voluntary accident and health insurance and traditionallife insurance contracts The reserve for future policy benefits(“RFPB”)iscalculated using the net premium reserving model,w
83、hich uses the presentvalue of insurance contract benefits less the present value of netpremiums.Under the net premium reserving model,the Companycomputes a net premium ratio which is the present value of insurancecontract benefits divided by the present value of gross premiums.Thepresent value of co
84、ntract benefits andgross premiums are determined using the discount rate at contractinception.The net premium ratio is applied to premiums due on a periodicbasis to compute the RFPB.The net premium ratio is recomputed at leastannually using both actual historical cash flows and future cash flowsanti
85、cipated over the life of cohort of contracts subject to measurement.Assumptions including mortality,morbidity,and lapses affect the timingand amount of estimated cash flows used to calculate the RFPB.The Company has grouped contracts into cohorts based on producttype and issue year.Examples of insur
86、ance product types include wholelife,term life,10 Notes to Condensed Consolidated Financial Statementscritical illness and disability.Issue year is based on the issuance date ofthe contract to the policyholder,except in the case of contracts acquired ina business combination,where the issue date is
87、based on the acquisitiondate of the business combination.The RFPB is calculated for contracts inforce at the end of each period,which results in the Company recognizingthe effects of actual experience in the period it occurs.Annually,in the third quarter,the Company obtains historicalpremiums and be
88、nefits information and evaluates future cash flowassumptions that include mortality,morbidity,and terminations,andupdates cash flow assumptions as necessary.The Company has electedto not update the expense assumption when annually reviewing andupdating future cash flow assumptions.Actual premiums an
89、d benefits andany updates to future cash flow assumptions are incorporated into thecalculation of an updated net premium ratio.Updates for actual premiumsand benefits and changes to future cash flow assumptions will result in aliability remeasurement gain or loss that is recognized in net income.The
90、first step to determining the liability remeasurement gain or loss is tocalculate the RFPB using revised net premiums discounted at the locked-in discount rate set at contract issuance.The result of the first step is thencompared to the carrying amount of the RFPB before the updates foractual experi
91、ence and changes to future cash flow assumptions.Thedecrease(gain)or increase(loss)in the RFPB is reported as liabilityremeasurement gain or loss in net income and presented parentheticallyas part of Accident,health and other policy benefits on the CondensedConsolidated Statements of Operations.The
92、updated net premium ratio isused in future quarters to measure the RFPB until the next annual updateor an earlier date if the Company determines it is necessary to revisefuture cash flow assumptions based on available evidence,includingactual experience.The discount rate assumption is determined usi
93、ng a yield curveapproach.The yield curve consists of U.S.dollar-denominated seniorunsecured fixed-income securities issued by U.S.companies that have anA credit rating based on the ratings provided by nationally recognizedrating agencies that include Moodys,Standard&Poors,and Fitch.Forpoints on the
94、yield curve that do not have observable yields,the Companyuses linear interpolation which calculates the unobservable yield basedon the two nearest observable yields,except for any points beyond thelast observable yield at 30 years,where interest rates are held constantwith the last observable point
95、 on the yield curve.The Company updatesthe current discount rate quarterly and the change in the RFPB resultingfrom the updated current discount rate is recognized in OCI.Deferred policy acquisition costsDeferred policy acquisition costs are related directly to the successfulacquisition of new or re
96、newal insurance contracts and are deferred andrecognized as an expense over the life of the related contracts.Thesecosts are principally agent and broker remuneration,premium taxes andcertain underwriting expenses.All other acquisition costs are expensed asincurred and included in operating costs an
97、d expenses.Long-duration voluntary accident and health insurance,traditional lifeinsurance contracts,and interest-sensitive life insurance contractsVoluntary accident and health insurance and traditional life insurancecontracts are grouped by product and issue year into cohorts consistentwith the co
98、horts used to calculate the RFPB.Interest-sensitive lifeinsurance contracts are grouped into cohorts by issue year,and the issueyear is determined based on contract issue date.DAC is amortized on aconstant level basis over the expected contract term and is included inAmortization of deferred policy
99、acquisition costs on the CondensedConsolidated Statements of Operations.The constant level basis used forall cohorts is based on policies-in-force.The expected contract term andmortality,morbidity,and termination assumptions are used to calculateboth DAC amortization and the RFPB.If actual contract
100、terminations aregreater than expected terminations for any cohort,each affected cohortsDAC balance will be reduced in the current period based on the differencebetween the actual and expected terminations.No adjustments to DACamortization are recorded if actual contract terminations are less thanexp
101、ected terminations for any cohort.If the Company makes an update toany of its mortality,morbidity,or termination assumptions,the Companywill use the assumptions prospectively to amortize any cohorts remainingDAC over the remaining expected contract term.The costs assigned to the right to receive fut
102、ure cash flows fromcertain business purchased from other insurers are also classified as DACin the Condensed Consolidated Statements of Financial Position.Thecosts capitalized represent the present value of future profits expected tobe earned over the lives of the contracts acquired.The Companyamort
103、izes the present value of future profits using the same methodologyand assumptions as the amortization of DAC.The present value of futureprofits is subject to premium deficiency testing.Second Quarter 2023 Form 10-Q 11Notes to Condensed Consolidated Financial StatementsNote2Earnings per Common Share
104、Basic earnings per common share is computed using the weightedaverage number of common shares outstanding,including vestedunissued participating restricted stock units.Diluted earnings per commonshare is computed using the weighted average number of common anddilutive potential common shares outstan
105、ding.For the Company,dilutive potential common shares consist ofoutstanding stock options,unvestednon-participating restricted stock units and contingently issuableperformance stock awards.The effect of dilutive potential common sharesdoes not include the effect of options with an anti-dilutive effe
106、ct onearnings per common share because their exercise prices exceed theaverage market price of Allstate common shares during the period or forwhich the unrecognized compensation cost would have an anti-dilutiveeffect.Computation of basic and diluted earnings per common share(Inmillions,exceptpershar
107、edata)Three months ended June30,Six months ended June 30,2023202220232022Numerator:Net loss$(1,375)$(1,022)$(1,696)$(372)Less:Net loss attributable to noncontrolling interest(23)(9)(24)(19)Net loss attributable to Allstate(1,352)(1,013)(1,672)(353)Less:Preferred stock dividends37276353Net loss appli
108、cable to common shareholders$(1,389)$(1,040)$(1,735)$(406)Denominator:Weighted average common shares outstanding262.6273.8263.1275.9Effect of dilutive potential common shares:Stock optionsRestricted stock units(non-participating)and performance stock awardsWeighted average common and dilutive potent
109、ial common shares outstanding262.6273.8263.1275.9Earnings per common share-Basic$(5.29)$(3.80)$(6.59)$(1.47)Earnings per common share-Diluted$(5.29)$(3.80)$(6.59)$(1.47)Anti-dilutive options excluded from diluted earnings per common share3.21.32.91.5Weighted average dilutive potential common shares
110、excluded due to net loss applicableto common shareholders 1.73.22.13.5As a result of the net loss reported for the three and six month periods ended June30,2023 and 2022,weighted average shares for basic earnings per share is also used forcalculating diluted earnings per share because all dilutive p
111、otential common shares are anti-dilutive and are therefore excluded from the calculation.Note3Reportable SegmentsMeasuring segment profit or lossThe measure of segment profit or loss used in evaluatingperformance is underwriting income for the Allstate Protection and Run-offProperty-Liability segmen
112、ts and adjusted net income for the ProtectionServices,Allstate Health and Benefits and Corporate and Othersegments.Allstate Protection and Run-off Property Liability segments compriseProperty-Liability.The Company does not allocate investment income,netgains and losses on investments and derivatives
113、,or assets to the AllstateProtection and Run-off Property Liability segments.Management reviewsassets at the Property-Liability,Protection Services,Allstate Health andBenefits,and Corporate and Other levels for decision-making purposes.Underwriting income is calculated as premiums earned and otherre
114、venue,less claims and claims expenses(“losses”),amortization ofDAC,operatingcosts and expenses,amortization or impairment of purchased intangiblesand restructuring and related charges as determined using GAAP.Adjusted net income is net income(loss)applicable to commonshareholders,excluding:Net gains
115、 and losses on investments and derivativesPension and other postretirement remeasurement gains and lossesAmortization or impairment of purchased intangiblesGain or loss on dispositionAdjustments for other significant non-recurring,infrequent or unusualitems,when(a)the nature of the charge or gain is
116、 such that it isreasonably unlikely to recur within two years,or(b)there has been nosimilar charge or gain within the prior two yearsIncome tax expense or benefit on reconciling itemsA reconciliation of these measures to net income(loss)applicable tocommon shareholders is provided below.(1)(1)(1)(1)
117、12 Notes to Condensed Consolidated Financial StatementsReportable segments financial performanceThree months ended June 30,Six months ended June 30,($in millions)2023202220232022Underwriting income(loss)by segmentAllstate Protection$(2,092)$(861)$(3,090)$(579)Run-off Property-Liability(2)(3)(5)(5)To
118、tal Property-Liability(2,094)(864)(3,095)(584)Adjusted net income(loss)by segment,after-taxProtection Services41437596Allstate Health and Benefits5767113124Corporate and Other(111)(107)(200)(218)Reconciling itemsProperty-Liability net investment income5445061,0531,064Net gains(losses)on investments
119、and derivatives(151)(733)(137)(1,000)Pension and other postretirement remeasurement gains(losses)40(259)93(12)Amortization of purchased intangibles(24)(28)(48)(57)Gain(loss)on disposition(8)27111Non-recurring costs(90)(90)Income tax benefit on reconciling items384298476150Total reconciling items695(
120、189)1,348156Less:Net loss attributable to noncontrolling interest(23)(10)(24)(20)Net loss applicable to common shareholders$(1,389)$(1,040)$(1,735)$(406)Excludes amortization of purchased intangibles in Property-Liability,which is included above in underwriting income.Relates to settlement costs for
121、 non-recurring litigation that is outside of the ordinary course of business.See Note14 for additional details.Reflects net loss attributable to noncontrolling interest in Property-Liability.(1)(2)(3)(1)(2)(3)Second Quarter 2023 Form 10-Q 13Notes to Condensed Consolidated Financial StatementsReporta
122、ble segments revenue information($in millions)Three months ended June 30,Six months ended June 30,2023202220232022Property-LiabilityInsurance premiumsAuto$8,121$7,348$16,029$14,429Homeowners2,8832,5665,6935,056Other personal lines5875451,1491,076Commercial lines202295434578Other business lines128120
123、251233Allstate Protection11,92110,87423,55621,372Run-off Property-LiabilityTotal Property-Liability insurance premiums11,92110,87423,55621,372Other revenue389355742702Net investment income5445061,0531,064Net gains(losses)on investments and derivatives(135)(662)(123)(865)Total Property-Liability12,71
124、911,07325,22822,273Protection ServicesProtection plans373318734631Roadside assistance484997102Finance and insurance products8Intersegment premiums and service fees 35386879Other revenue8491168185Net investment income18123421Net gains(losses)on investments and derivatives(4)(30)(5)(43)Tota
125、l Protection Services6825991,3521,213Allstate Health and BenefitsEmployer voluntary benefits245257500520Group healthIndividual health98113199224Other revenueNet investment income21164033Net gains(losses)on investments and derivatives1(12)3(19)Total Allstate Health and Benefits5
126、765611,1611,134Corporate and OtherOther revenue23254649Net investment income27285838Net gains(losses)on investments and derivatives(13)(29)(12)(73)Total Corporate and Other37249214Intersegment eliminations(35)(38)(68)(79)Consolidated revenues$13,979$12,219$27,765$24,555Intersegment insurance premium
127、s and service fees are primarily related to Arity and Allstate Roadside and are eliminated in the condensed consolidated financial statements.(1)(1)(1)14 Notes to Condensed Consolidated Financial StatementsNote4InvestmentsPortfolio composition($inmillions)June 30,2023December 31,2022Fixed income sec
128、urities,at fair value$45,550$42,485Equity securities,at fair value2,2904,567Mortgage loans,net823762Limited partnership interests8,1508,114Short-term investments,at fair value5,1374,173Other investments,net1,7181,728Total$63,668$61,829Amortized cost,gross unrealized gains(losses)and fair value for f
129、ixed income securities($in millions)Amortized cost,netGross unrealizedFairvalueGainsLossesJune 30,2023U.S.government and agencies$7,957$3$(231)$7,729Municipal7,06934(263)6,840Corporate30,80163(1,910)28,954Foreign government1,075(31)1,044ABS1,0023(22)983Total fixed income securities$47,904$103$(2,457
130、)$45,550December 31,2022U.S.government and agencies$8,123$6$(231)$7,898Municipal6,50036(326)6,210Corporate28,56246(2,345)26,263Foreign government997(40)957ABS1,1884(35)1,157Total fixed income securities$45,370$92$(2,977)$42,485Scheduled maturities for fixed income securities($in millions)June 30,202
131、3December 31,2022Amortized cost,netFair valueAmortized cost,netFair valueDue in one year or less$3,694$3,626$2,870$2,836Due after one year through five years24,42823,23526,54625,217Due after five years through ten years12,23111,40111,0359,870Due after ten years6,5496,3053,7313,40546,90244,56744,1824
132、1,328ABS1,0029831,1881,157Total$47,904$45,550$45,370$42,485Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers.ABS is shown separately because ofpotential prepayment of principal prior to contractual maturity dates.Net investment income($inmi
133、llions)Three months ended June 30,Six months ended June 30,2023202220232022Fixed income securities$422$299$812$566Equity securities21343270Mortgage loans891617Limited partnership interests6Short-term investments691013512Other investments39428082Investment income,before expense6816181,3311
134、,263Investment expense(71)(56)(146)(107)Net investment income$610$562$1,185$1,156Second Quarter 2023 Form 10-Q 15Notes to Condensed Consolidated Financial StatementsNet gains(losses)on investments and derivatives by asset type($inmillions)Three months ended June 30,Six months ended June 30,202320222
135、0232022Fixed income securities$(132)$(326)$(268)$(478)Equity securities21(636)188(983)Mortgage loans(3)(3)(1)Limited partnership interests(15)(74)7(175)Derivatives(7)272(59)590Other investments(15)31(2)47Net gains(losses)on investments and derivatives$(151)$(733)$(137)$(1,000)Net gains(losses)on inv
136、estments and derivatives by transaction type($inmillions)Three months ended June 30,Six months ended June 30,2023202220232022Sales$(130)$(303)$(250)$(430)Credit losses(37)(13)(49)(24)Valuation change of equity investments 23(689)221(1,136)Valuation change and settlements of derivatives(7)272(59)590N
137、et gains(losses)on investments and derivatives$(151)$(733)$(137)$(1,000)Includes valuation change of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.Gross realized gains(losses)on sales of fixed income securities($inm
138、illions)Three months ended June 30,Six months ended June 30,2023202220232022Gross realized gains$28$27$74$93Gross realized losses(153)(349)(326)(567)Net appreciation(decline)recognized in net income for assets that are still held($inmillions)Three months ended June 30,Six months ended June 30,202320
139、2220232022Equity securities$19$(511)$66$(600)Limited partnership interests carried at fair value3264844Total$51$(505)$114$(556)Credit losses recognized in net income($inmillions)Three months ended June 30,Six months ended June 30,2023202220232022AssetsFixed income securities:Corporate$(7)$(4)$(16)$(
140、4)Total fixed income securities(7)(4)(16)(4)Mortgage loans(3)(3)(1)Limited partnership interests(16)(3)(16)(3)Other investmentsBank loans(11)(6)(14)(16)Total credit losses by asset type$(37)$(13)$(49)$(24)LiabilitiesCommitments to fund commercial mortgage loans and bank loansTotal$(37)$(13)$(49)$(24
141、)(1)(1)16 Notes to Condensed Consolidated Financial StatementsUnrealized net capital gains and losses included in AOCI($inmillions)FairvalueGrossunrealizedUnrealizednetgains(losses)June 30,2023GainsLossesFixed income securities$45,550$103$(2,457)$(2,354)Short-term investments5,137(1)(1)Derivative in
142、struments(2)(2)Limited partnership interests Unrealized net capital gains and losses,pre-tax(2,357)Reclassification of noncontrolling interest19Deferred income taxes493Unrealized net capital gains and losses,after-tax$(1,845)December 31,2022Fixed income securities$42,485$92$(2,977)$(2,885)Short-term
143、 investments4,173(1)(1)Derivative instruments(3)(3)Limited partnership interests 2Unrealized net capital gains and losses,pre-tax(2,887)Reclassification of noncontrolling interest23Deferred income taxes609Unrealized net capital gains and losses,after-tax$(2,255)Unrealized net capital gains and losse
144、s for limited partnership interests represent the Companys share of the equity method of accounting(“EMA”)limited partnerships OCI.Fair value and gross unrealized gains and losses are not applicable.Change in unrealized net capital gains(losses)($inmillions)Six months ended June 30,2023Fixed income
145、securities$531Short-term investmentsDerivative instruments1Limited partnership interests(2)Total530Reclassification of noncontrolling interest(4)Deferred income taxes(116)Increase in unrealized net capital gains and losses,after-tax$410Carrying value for limited partnership interests($in millions)Ju
146、ne 30,2023December 31,2022EMAFair ValueTotalEMAFair ValueTotalPrivate equity$5,722$1,200$6,922$5,372$1,217$6,589Real estate1,036281,0641,013291,042Other 3Total$6,922$1,228$8,150$6,868$1,246$8,114Other consists of certain limited partnership interests where the underlying assets are predom
147、inately public equity and debt securities.Short-term investments Short-term investments,including money market funds,commercial paper,U.S.Treasury bills and other short-term investments,arecarried at fair value.As of June30,2023 and December31,2022,the fair value of short-term investments totaled$5.
148、14 billion and$4.17 billion,respectively.(1)(1)(1)(1)(1)Second Quarter 2023 Form 10-Q 17Notes to Condensed Consolidated Financial StatementsOther investments Other investments primarily consist of bank loans,real estate,policy loans and derivatives.Bank loans are primarily senior securedcorporate lo
149、ans and are carried at amortized cost,net.Policy loans are carried at unpaid principal balances.Real estate is carried at cost less accumulateddepreciation.Derivatives are carried at fair value.Other investments by asset type($inmillions)June 30,2023December 31,2022Bank loans,net$667$686Real estate8
150、25813Policy loans121120Derivatives1Other105108Total$1,718$1,728Portfolio monitoring and credit lossesFixed income securities The Company has a comprehensiveportfolio monitoring process to identify and evaluate each fixed incomesecurity that may require a credit loss allowance.For each fixed income s
151、ecurity in an unrealized loss position,theCompany assesses whether management with the appropriate authorityhas made the decision to sell or whether it is more likely than not theCompany will be required to sell the security before recovery of theamortized cost basis for reasons such as liquidity,co
152、ntractual orregulatory purposes.If a security meets either of these criteria,anyexisting credit loss allowance would be written-off against the amortizedcost basis of the asset along with any remaining unrealized losses,withincremental losses recorded in earnings.If the Company has not made the deci
153、sion to sell the fixed incomesecurity and it is not more likely than not the Company will be required tosell the fixed income security before recovery of its amortized cost basis,the Company evaluates whether it expects to receive cash flows sufficientto recover the entire amortized cost basis of th
154、e security.The Companycalculates the estimated recovery value based on the best estimate offuture cash flows considering past events,current conditions andreasonable and supportable forecasts.The estimated future cash flowsare discounted at the securitys current effective rate and is compared tothe
155、amortized cost of the security.The determination of cash flow estimates is inherently subjective,andmethodologies may vary depending on facts and circumstances specificto the security.All reasonably available information relevant to thecollectability of the security is considered when developing the
156、 estimate ofcash 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 potentialof the issue or issuer,expected defaults,expected recoveries,the value ofunderl
157、ying collateral,origination vintage year,geographic concentration ofunderlying collateral,available reserves or escrows,current subordinationlevels,third-party guarantees and other credit enhancements.Otherinformation,such as industry analyst reports and forecasts,credit ratings,financial condition
158、of the bond insurer for insured fixed incomesecurities,and other market data relevant to the realizability of contractualcash flows,may also be considered.The estimated fair value of collateralwill be used to estimate recovery value if the Company determines thatthe security is dependent on the liqu
159、idation of collateral for ultimatesettlement.If the Company does not expect to receive cash flows sufficient torecover the entire amortized cost basis of the fixed income security,acredit loss allowance is recorded in earnings for the shortfall in expectedcash flows;however,the amortized cost,net of
160、 the credit loss allowance,may not be lower than the fair value of the security.The portion of theunrealized loss related to factors other than credit remains classified inAOCI.If the Company determines that the fixed income security does nothave sufficient cash flow or other information to estimate
161、 a recovery valuefor the security,the Company may conclude that the entire decline in fairvalue 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 isdeemed uncollectible and written off,the Company removes amountspre
162、viously recognized in the credit loss allowance.Recoveries after write-offs are recognized when received.Accrued interest excluded from theamortized cost of fixed income securities totaled$435 million and$389million as of June30,2023 and December31,2022,respectively,and isreported within the accrued
163、 investment income line of the CondensedConsolidated Statements of Financial Position.The Company monitorsaccrued interest and writes off amounts when they are not expected to bereceived.The Companys portfolio monitoring process includes a quarterlyreview of all securities to identify instances wher
164、e the fair value of asecurity compared to its amortized cost is below internally establishedthresholds.The process also includes the monitoring of other credit lossindicators such as ratings,ratings downgrades and payment defaults.Thesecurities identified,in addition to other securities for which th
165、e Companymay have a concern,are evaluated for potential credit losses using allreasonably available information relevant to the collectability or recoveryof the security.Inherent in the Companys evaluation of credit losses forthese securities are assumptions and estimates about the financialconditio
166、n and future earnings potential of the issue or issuer.Some of thefactors that may be considered in evaluating whether a18 Notes to Condensed Consolidated Financial Statementsdecline in fair value requires a credit loss allowance are:1)the financialcondition,near-term and long-term prospects of the
167、issue or issuer,including relevant industry specific market conditions and trends,geographic location and implications of rating agency actions and offeringprices;2)the specific reasons thata security is in an unrealized loss position,including overall marketconditions which could affect liquidity;a
168、nd 3)the extent to which the fairvalue has been less than amortized cost.Rollforward of credit loss allowance for fixed income securitiesThree months ended June30,Six months ended June 30,($inmillions)2023202220232022Beginning balance$(22)$(6)$(13)$(6)Credit losses on securities for which credit los
169、ses not previously reported(4)(4)Net increases related to credit losses previously reported(3)(4)(12)(4)Reduction of allowance related to salesWrite-offsEnding balance$(29)$(10)$(29)$(10)Components of credit loss allowance as of June 30Corporate bonds$(27)$(10)ABS(2)Total$(29)$(10)Gross unrealized l
170、osses and fair value by type and length of time held in a continuous unrealized loss position($inmillions)Lessthan12months12monthsormoreTotalunrealizedlossesNumberofissuesFairvalueUnrealizedlossesNumberofissuesFairvalueUnrealizedlossesJune 30,2023Fixed income securitiesU.S.government and agencies111
171、$4,297$(99)107$2,971$(132)$(231)Municipal1,4322,543(35)1,8572,391(228)(263)Corporate9269,291(261)2,02816,295(1,649)(1,910)Foreign government41671(10)87333(21)(31)ABS9482(3)173747(19)(22)Total fixed income securities2,604$16,884$(408)4,252$22,737$(2,049)$(2,457)Investment grade fixed income securitie
172、s2,486$16,370$(388)3,827$19,841$(1,678)$(2,066)Below investment grade fixed income securities118514(20)4252,896(371)(391)Total fixed income securities2,604$16,884$(408)4,252$22,737$(2,049)$(2,457)December 31,2022Fixed income securitiesU.S.government and agencies112$4,900$(138)75$2,393$(93)$(231)Muni
173、cipal3,0153,944(215)507740(111)(326)Corporate2,08518,072(1,389)8456,105(956)(2,345)Foreign government74739(22)42200(18)(40)ABS194874(27)83109(8)(35)Total fixed income securities5,480$28,529$(1,791)1,552$9,547$(1,186)$(2,977)Investment grade fixed income securities4,959$25,487$(1,409)1,437$8,791$(1,0
174、09)$(2,418)Below investment grade fixed income securities5213,042(382)115756(177)(559)Total fixed income securities5,480$28,529$(1,791)1,552$9,547$(1,186)$(2,977)Second Quarter 2023 Form 10-Q 19Notes to Condensed Consolidated Financial StatementsGross unrealized losses by unrealized loss position an
175、d credit quality as of June 30,2023($inmillions)InvestmentgradeBelow investmentgradeTotalFixed income securities with unrealized loss position less than 20%of amortizedcost,net$(1,884)$(300)$(2,184)Fixed income securities with unrealized loss position greater than or equal to 20%of amortized cost,ne
176、t(182)(91)(273)Total unrealized losses$(2,066)$(391)$(2,457)Below investment grade fixed income securities include$19 million that have been in an unrealized loss position for less than twelve months.Related to securities with an unrealized loss position less than 20%of amortized cost,net,the degree
177、 of which suggests that these securities do not pose a high risk of havingcredit losses.Below investment grade fixed income securities include$90 million that have been in an unrealized loss position for a period of twelve or more consecutive months.Evaluated based on factors such as discounted cash
178、 flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined tohave adequate resources to fulfill contractual obligations.Investment grade is defined as a security having a NationalAssociation of Insurance Commissioners(“NAIC”)designation of 1 o
179、r 2,which is comparable to a rating of Aaa,Aa,A or Baa from Moodys orAAA,AA,A or BBB from S&P Global Ratings(“S&P”),or a comparableinternal rating if an externally provided rating is not available.Marketprices for certain securities may have credit spreads which imply higher orlower credit quality t
180、han the current third-party rating.Unrealized losseson investment grade securities are principally related to an increase inmarket yields which may include increased risk-free interest rates or widercredit spreads since the time of initial purchase.The unrealized losses areexpected to reverse as the
181、 securities approach maturity.ABS in an unrealized loss position were evaluated based on actualand projected collateral losses relative to the securities positions in therespective securitization trusts,security specific expectations of cashflows,and credit ratings.This evaluation also takes into co
182、nsiderationcredit enhancement,measured in terms of(i)subordination from otherclasses of securities in the trust that are contractually obligated to absorblosses before the class of security the Company owns,and(ii)theexpected impact of other structural features embedded in thesecuritization trust be
183、neficial to the class of securities the Company owns,such as overcollateralization and excess spread.Municipal bonds in anunrealized loss position were evaluated based on the underlying creditquality of the primary obligor,obligation type and quality of the underlyingassets.As of June30,2023,the Com
184、pany has not made the decision to selland it is not more likely than not the Company will be required to sell fixedincome securities with unrealized losses before recovery of the amortizedcost basis.Loans The Company establishes a credit loss allowance formortgage loans and bank loans when they are
185、originated or purchased,and for unfunded commitments unless they are unconditionallycancellable by the Company.The Company uses a probability of defaultand loss given default model for mortgage loans and bank loans toestimate current expected credit losses that considers all relevantinformation avai
186、lable including past events,current conditions,andreasonable and supportable forecasts over the life of an asset.TheCompany also considers such factors as historical losses,expectedprepayments and various economic factors.For mortgage loans theCompany considers origination vintage year and property
187、levelinformation such as debt service coverage,property type,propertylocation and collateral value.For bank loans,the Company considers thecredit rating of the borrower,credit spreads and type of loan.After thereasonable and supportable forecast period,the Companys model revertsto historical loss tr
188、ends.Loans are evaluated on a pooled basis when they share similar riskcharacteristics.The Company monitors loans through a quarterly creditmonitoring process to determine when they no longer share similar riskcharacteristics and are to be evaluated individually when estimating creditlosses.Loans ar
189、e written off against their corresponding allowances whenthere is no reasonable expectation of recovery.If a loan recovers after awrite-off,the estimate of expected credit losses includes the expectedrecovery.Accrual of income is suspended for loans that are in default or whenfull and timely collect
190、ion of principal and interest payments is notprobable.Accrued income receivable is monitored for recoverability andwhen not expected to be collected is written off through net investmentincome.Cash receipts on loans on non-accrual status are generallyrecorded as a reduction of amortized cost.Accrued
191、 interest is excluded from the amortized cost of loans and isreported within the accrued investment income line of the CondensedConsolidated Statements of Financial Position.Accrued interest($in millions)June 30,December 31,20232022Mortgage loans$3$3Bank Loans43(1)(2)(3)(4)(1)(2)(3)(4)20 Notes to Co
192、ndensed Consolidated Financial StatementsMortgage loans When it is determined a mortgage loan shall beevaluated individually,the Company uses various methods to estimatecredit losses on individual loans such as using collateral value lessestimated costs to sell where applicable,including when forecl
193、osure isprobable or when repayment is expected to be provided substantiallythrough the operation or sale of the collateral and the borrower isexperiencing financial difficulty.When collateral value is used,themortgage loans may not have a credit loss allowance when the fair valueof the collateral ex
194、ceeds the loans amortized cost.An alternativeapproach may be utilized to estimate credit losses using the present valueof the loans expected future repayment cash flows discounted at theloans current effective interest rate.Individual loan credit loss allowancesare adjustedfor subsequent changes in
195、the fair value of the collateral less costs to sell,when applicable,or present value of the loans expected future repaymentcash flows.Debt service coverage ratio is considered a key credit qualityindicator when mortgage loan credit loss allowances are estimated.Debtservice coverage ratio represents
196、the amount of estimated cash flow fromthe property available to the borrower to meet principal and interestpayment obligations.Debt service coverage ratio estimates are updatedannually or more frequently if conditions are warranted based on theCompanys credit monitoring process.Mortgage loans amorti
197、zed cost by debt service coverage ratio distribution and year of originationJune 30,2023December 31,2022($inmillions)2018 andprior20022CurrentTotalTotalBelow 1.0$18$18$181.0-1.2523101245421.26-1.50451Above 1.50821596558Amortized cost before allowance$146$237$52$197$1
198、02$99$833$769Allowance(10)(7)Amortized cost,net$823$762Mortgage loans with a debt service coverage ratio below 1.0 that arenot considered impaired primarily relate to situations where the borrowerhas the financial capacity to fund the revenue shortfalls from theproperties for the foreseeable term,th
199、e decrease in cash flows from theproperties is consideredtemporary,or there are other risk mitigating factors such as additionalcollateral,escrow balances or borrower guarantees.Payments on allmortgage loans were current as of June30,2023 and December31,2022.Rollforward of credit loss allowance for
200、mortgage loansThree months ended June 30,Six months ended June 30,($inmillions)2023202220232022Beginning balance$(7)$(7)$(7)$(6)Net increases related to credit losses(3)(3)(1)Write-offsEnding balance$(10)$(7)$(10)$(7)Bank loans When it is determined a bank loan shall be evaluatedindividually,the Com
201、pany uses various methods to estimate credit losseson individual loans such as the present value of the loans expected futurerepayment cash flows discounted at the loans current effective interestrate.Credit ratings of the borrower are considered a key credit qualityindicator when bank loan credit l
202、oss allowances are estimated.Theratings are either received from the Securities Valuation Office of theNAIC based on availability of applicable ratings from rating agencies onthe NAIC credit rating provider list or a comparable internal rating.Theyear of origination is determined to be the year in w
203、hich the asset isacquired.Second Quarter 2023 Form 10-Q 21Notes to Condensed Consolidated Financial StatementsBank loans amortized cost by credit rating and year of originationJune 30,2023December 31,2022($inmillions)2018 andprior20022CurrentTotalTotalNAIC 2/BBB$4$6$4$42$5$2$63$54NAIC 3/B
204、B4266NAIC 4/B60346329NAIC 5-6/CCC and below38302227210194Amortized cost before allowance$57$57$22$416$64$113$729$743Allowance(62)(57)Amortized cost,net$667$686Rollforward of credit loss allowance for bank loans($in millions)Three months ended June 30,Six months ended June 30,20
205、23202220232022Beginning balance$(52)$(68)$(57)$(61)Net increases related to credit losses(11)(6)(14)(16)Reduction of allowance related to sales118621Write-offs3Ending balance$(62)$(56)$(62)$(56)Note5Fair Value of Assets and LiabilitiesFair value is defined as the price that would be received to sell
206、 anasset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date.The hierarchy for inputsused in determining fair value maximizes the use of observable inputs andminimizes the use of unobservable inputs by requiring that observableinputs be used w
207、hen available.Assets and liabilities recorded on theCondensed Consolidated Statements of Financial Position at fair valueare categorized in the fair value hierarchy based on the observability ofinputs to the valuation techniques as follows:Level 1:Assets and liabilities whose values are based on una
208、djustedquoted prices for identical assets or liabilities in an active market that theCompany 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 liab
209、ilities in marketsthat 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 orvaluation techniques that require inputs that are both unobservab
210、le andsignificant to the overall fair value measurement.Unobservable inputsreflect the Companys estimates of the assumptions that marketparticipants would use in valuing the assets and liabilities.The availability of observable inputs varies by instrument.Insituations where fair value is based on in
211、ternally developed pricing modelsor inputs that are unobservable in the market,the determination of fairvalue requires more judgment.The degree of judgment exercised by theCompany in determining fair value is typically greatest for instrumentscategorized in Level3.In many instances,valuation inputs
212、used tomeasure fair value fall into different levels of the fair value hierarchy.Thecategory level in the fair value hierarchy is determined based on thelowest level input that is significant to the fair value measurement in itsentirety.The Company uses prices and inputs that are current as of theme
213、asurement date,including during periods of market disruption.Inperiods of market disruption,the ability to observe prices and inputs maybe reduced for many instruments.The Company is responsible for the determination of fair value andthe supporting assumptions and methodologies.The Company gainsassu
214、rance that assets and liabilities are appropriately valued through theexecution of various processes and controls designed to ensure theoverall reasonableness and consistent application of valuationmethodologies,including inputs and assumptions,and compliance withaccounting standards.For fair values
215、 received from third parties orinternally estimated,the Companys processes and controls are designedto ensure that the valuation methodologies are appropriate andconsistently applied,the inputs and assumptions are reasonable andconsistent with the objective of determining fair value,and the fair val
216、uesare accurately recorded.For example,on a continuing basis,theCompany assesses the reasonableness of individual fair values that havestale security prices or that exceed certain thresholds as compared to22 Notes to Condensed Consolidated Financial Statementsprevious fair values received from valua
217、tion service providers or brokersor derived from internal models.The Company performs procedures tounderstand and assess the methodologies,processes and controls ofvaluation service providers.In addition,the Company may validate the reasonableness of fairvalues by comparing information obtained from
218、 valuation serviceproviders or brokers to other third-party valuation sources for selectedsecurities.The Company performs ongoing price validation proceduressuch as back-testing of actual sales,which corroborate the various inputsused in internal models to market observable data.When fair valuedeter
219、minations are expected to be more variable,the Company validatesthem through reviews by members of management who have relevantexpertise and who are independent of those charged with executinginvestment transactions.The Company has two types of situations where investments areclassified as Level3 in
220、 the fair value hierarchy:(1)Specific inputs significant to the fair value estimation models are notmarket observable.This primarily occurs in the Companys use ofbroker quotes to value certain securities where the inputs have notbeen corroborated to be market observable,and the use of valuationmodel
221、s that use significant non-market observable inputs.(2)Quotes continue to be received from independent third-partyvaluation service providers and all significant inputs are marketobservable;however,there has been a significant decrease in thevolume and level of activity for the asset when compared t
222、o normalmarket activity such that the degree of market observability hasdeclined to a point where categorization as a Level3 measurement isconsidered appropriate.The indicators considered in determiningwhether a significant decrease in the volume and level of activity for aspecific asset has occurre
223、d include the level of new issuances in theprimary market,trading volume in the secondary market,the level ofcredit spreads over historical levels,applicable bid-ask spreads,andprice consensus among market participants and other pricingsources.Certain assets are not carried at fair value on a recurr
224、ing basis,including mortgage loans,bank loans and policy loans and are onlyincluded in the fair value hierarchy disclosure when the individualinvestment is reported at fair value.In determining fair value,the Company principally uses the marketapproach which generally utilizes market transaction dat
225、a for the same orsimilar instruments.To a lesser extent,the Company uses the incomeapproach which involves determining fair values from discounted cashflow methodologies.For the majority of Level2 and Level3 valuations,acombination of the market and income approaches is used.Summary of significant i
226、nputs and valuation techniques for Level 2and Level 3 assets and liabilities measured at fair value on arecurring basisLevel 2 measurementsFixed income securities:U.S.government and agencies,municipal,corporate-public andforeign government:The primary inputs to the valuation includequoted prices for
227、 identical or similar assets in markets that are notactive,contractual cash flows,benchmark yields and credit spreads.Corporate-privately placed:Privately placed are valued using adiscounted cash flow model that is widely accepted in the financialservices industry and uses market observable inputs a
228、nd inputsderived principally from,or corroborated by,observable market data.The primary inputs to the discounted cash flow model include aninterest rate yield curve,as well as published credit spreads forsimilar assets in markets that are not active that incorporate the creditquality and industry se
229、ctor of the issuer.Corporate-privately placed also includes redeemable preferred stockthat are valued using quoted prices for identical or similar assets inmarkets that are not active,contractual cash flows,benchmark yields,underlying stock prices and credit spreads.ABS:The primary inputs to the val
230、uation include quoted prices foridentical or similar assets in markets that are not active,contractualcash flows,benchmark yields,collateral performance and creditspreads.Certain ABS are valued based on non-binding broker quoteswhose inputs have been corroborated to be market observable.Residential
231、mortgage-backed securities(“MBS”),included in ABS,use prepayment speeds as a primary input for valuation.Equity securities:The primary inputs to the valuation include quotedprices or quoted net asset values for identical or similar assets inmarkets that are not active.Short-term:The primary inputs t
232、o the valuation include quoted pricesfor 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 arenot actively traded are valued based on quoted prices for identicalinstru
233、ments in markets that are not active.Over-the-counter(“OTC”)derivatives,including interest rate swaps,foreign currency swaps,total return swaps,foreign exchange forwardcontracts,certain options and certain credit default swaps,are valuedusing models that rely on inputs such as interest rate yield cu
234、rves,implied volatilities,index price levels,currency rates,and creditspreads that are observable for substantially the full term of thecontract.The valuation techniques underlying the models are widelyaccepted in the financialSecond Quarter 2023 Form 10-Q 23Notes to Condensed Consolidated Financial
235、 Statementsservices industry and do not involve significant judgment.Level 3 measurementsFixed income securities:Municipal:Comprise municipal bonds that are not rated by third-partycredit rating agencies.The primary inputs to the valuation of thesemunicipal bonds include quoted prices for identical
236、or similar assetsthat are not market observable,contractual cash flows,benchmarkyields and credit spreads.Also included are municipal bonds valuedbased on non-binding broker quotes where the inputs have not beencorroborated to be market observable and municipal bonds in defaultvalued based on the pr
237、esent value of expected cash flows.Corporate-public and privately placed and ABS:Primarily valuedbased on non-binding broker quotes where the inputs have not beencorroborated to be market observable.Other inputs for corporatefixed income securities include an interest rate yield curve,as well aspubl
238、ished credit spreads for similar assets that incorporate the creditquality and industry sector of the issuer.Equity securities:The primary inputs to the valuation include quotedprices or quoted net asset values for identical or similar assets thatare not market observable.Short-term:For certain shor
239、t-term investments,amortized cost isused as the best estimate of fair value.Other investments:Certain OTC derivatives,such as interest ratecaps,certain credit default swaps and certain options(includingswaptions),are valued using models that are widely accepted in thefinancial services industry.Thes
240、e are categorized as Level 3 as aresult of the significance of non-market observable inputs such asvolatility.Other primary inputs include interest rate yield curves andcredit spreads,and quoted prices for identical or similar assets inmarkets that exhibit less liquidity relative to those markets su
241、pportingLevel 2 fair value measurements.Other assets:Includes the contingent consideration provision in thesale agreement for ALIC which meets the definition of a derivative.This derivative is valued internally using a model that includesstochastically determined cash flows and inputs that include s
242、pot andforward interest rates,volatility,corporate credit spreads and aliquidity discount.This derivative is categorized as Level 3 due to thesignificance of non-market observable inputs.Assets measured at fair value on a non-recurring basisComprise long-lived assets to be disposed of by sale,includ
243、ing realestate,that are written down to fair value less costs to sell and bank loanswritten down to fair value in connection with recognizing other-than-temporary impairments.Investments excluded from the fair value hierarchyLimited partnerships carried at fair value,which do not have readilydetermi
244、nable fair values,use NAV provided by the investees and areexcluded from the fair value hierarchy.These investments are generallynot redeemable by the investees and generally cannot be sold withoutapproval of the general partner.The Company receives distributions ofincome and proceeds from the liqui
245、dation of the underlying assets of theinvestees,which usually takes place in years 4-9 of the typical contractuallife of 10-12 years.As of June30,2023,the Company has commitmentsto invest$197 million in these limited partnership interests.24 Notes to Condensed Consolidated Financial StatementsAssets
246、 and liabilities measured at fair valueJune 30,2023($inmillions)Quotedpricesinactive marketsforidenticalassets(Level1)Significant otherobservable inputs(Level2)Significantunobservableinputs(Level3)Counterpartyandcash collateralnettingTotalAssetsFixed income securities:U.S.government and agencies$7,7
247、16$13$7,729Municipal6,828126,840Corporate-public21,2132621,239Corporate-privately placed7,655607,715Foreign government1,0441,044ABS94934983Total fixed income securities7,71637,70213245,550Equity securities1,7771323812,290Short-term investments1,1553,97665,137Other investments102$(10)2Other assets210
248、4106Total recurring basis assets10,65041,820625(10)53,085Non-recurring basis22Total assets at fair value$10,650$41,820$627$(10)$53,087%of total assets at fair value20.0%78.8%1.2%100.0%Investments reported at NAV1,228Total$54,315LiabilitiesOther liabilities$(6)$(21)$18$(9)Total recurring basis liabil
249、ities(6)(21)18(9)Total liabilities at fair value$(6)$(21)$18$(9)%of total liabilities at fair value66.7%233.3%(200.0)%100.0%Second Quarter 2023 Form 10-Q 25Notes to Condensed Consolidated Financial StatementsAssets and liabilities measured at fair valueDecember 31,2022($in millions)Quotedpricesinact
250、ive marketsforidenticalassets(Level1)Significant otherobservable inputs(Level2)Significantunobservableinputs(Level3)Counterpartyandcash collateralnettingTotalAssetsFixed income securities:U.S.government and agencies$7,878$20$7,898Municipal6,189216,210Corporate-public18,5476918,616Corporate-privately
251、 placed7,592557,647Foreign government957957ABS1,129281,157Total fixed income securities7,87834,43417342,485Equity securities3,9362983334,567Short-term investments5083,65964,173Other investments233$(22)4Other assets3103106Total recurring basis assets12,32538,414618(22)51,335Non-recurring basis2323Tot
252、al assets at fair value$12,325$38,414$641$(22)$51,358%of total assets at fair value24.0%74.8%1.2%100.0%Investments reported at NAV1,246Total$52,604LiabilitiesOther liabilities$(1)$(25)$21$(5)Total recurring basis liabilities(1)(25)21(5)Total liabilities at fair value$(1)$(25)$21$(5)%of total liabili
253、ties at fair value20.0%500.0%(420.0)%100.0%As of June30,2023 and December31,2022,Level 3 fair valuemeasurements of fixed income securities total$132 million and$173million,respectively,and include$27 million and$70 million,respectively,of securities valued based on non-binding broker quotes where th
254、e inputshave not been corroborated to be market observable and$11 million and$21 million,respectively,of municipal fixed income securities that are notrated by third-party credit rating agencies.As the Company does notdevelop the Level 3 fair valueunobservable inputs for these fixed income securitie
255、s,they are notincluded in the table above.However,an increase(decrease)in creditspreads for fixed income securities valued based on non-binding brokerquotes would result in a lower(higher)fair value,and an increase(decrease)in the credit rating of municipal bonds that are not rated bythird-party cre
256、dit rating agencies would result in a higher(lower)fair value.26 Notes to Condensed Consolidated Financial StatementsRollforward of Level 3 assets and liabilities held at fair value during the three month period ended June 30,2023Balance as ofMarch 31,2023Total gains(losses)included in:TransfersBala
257、nce as ofJune 30,2023($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Municipal$17$3$(1)$(6)$(1)$12Corporate-public29(3)26Corporate-privately placed49(7)116160ABS27734Total fixed income securities122(4)168(9)(1)132Equity securities358728(
258、12)381Short-term investments66Other investments22Other assets112(8)104Total recurring Level 3 assets$600$(5)$16$36$(21)$(1)$625Rollforward of Level 3 assets and liabilities held at fair value during the six month period ended June 30,2023Balance as ofDecember 31,2022Total gains(losses)included in:Tr
259、ansfersBalance as ofJune 30,2023($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Municipal$21$3$(1)$(9)$(2)$12Corporate-public69(1)2(44)26Corporate-privately placed55(11)1161(2)60ABS287(1)34Total fixed income securities173(9)2168(55)(3)13
260、2Equity securities333770(29)381Short-term investments66Other investments3(1)2Other assets1031104Total recurring Level 3 assets$618$(2)$2$16$78$(84)$(3)$625Second Quarter 2023 Form 10-Q 27Notes to Condensed Consolidated Financial StatementsRollforward of Level 3 assets and liabilities held at fair va
261、lue during the three month period ended June 30,2022Balance as ofMarch 31,2022Total gains(losses)included in:TransfersBalance as ofJune 30,2022($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Municipal$17$1$1$(1)$18Corporate-public49(1)(3
262、5)71(5)(2)77Corporate-privately placed13019(3)(51)2(24)73ABS19(1)18Total fixed income securities21519(3)(86)74(29)(4)186Equity securities3734(5)372Short-term investments1117(20)8Other investments22Other assets7731108Total recurring Level 3 assets$678$54$(3)$(86)$91$(34)$(24)$676Rollforward of Level
263、3 assets and liabilities held at fair value during the six month period ended June 30,2022Balance as ofDecember 31,2021Total gains(losses)included in:TransfersBalance as ofJune 30,2022($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Munic
264、ipal$18$1$1$(2)$18Corporate-public20(3)71(9)(2)77Corporate-privately placed6619(2)14(24)73ABS401(28)7(2)18Total fixed income securities14420(4)(28)93(33)(6)186Equity securities349292(8)372Short-term investments523(20)8Other investments22Other assets6543108Total recurring Level 3 assets$565$92$(4)$(2
265、8)$118$(41)$(26)$676Total Level 3 gains(losses)included in net incomeThree months ended June 30,Six months ended June 30,($in millions)2023202220232022Net investment income$3$4$(2)$13Net gains(losses)on investments and derivatives(8)5079Transfers into Level 3 during the three and six months endedJun
266、e30,2023 included situations where securities were written downutilizing an internal price where the inputs have not been corroborated tobe market observable resulting in the securities being classified as Level3.There were no transfers into Level 3 during the three and six monthsended June30,2022.T
267、here were no transfers out of Level 3 during the three and sixmonths ended June30,2023.Transfers out of Level 3 during the threeand six months ended June30,2022 included situations where a brokerquote was used in the prior period and a quote became available from theCompanys independent third-party
268、valuation service provider in thecurrent period.A quote utilizing the new pricing source was not availableas of the prior period,and any gains or losses related to the change invaluation source for individual securities were not significant.28 Notes to Condensed Consolidated Financial StatementsValu
269、ation changes included in net income and OCI for Level 3 assets and liabilities held as of June 30,Three months ended June 30,Six months ended June 30,($in millions)2023202220232022AssetsFixed income securities:Corporate-privately placed$(7)$(11)$Total fixed income securities(7)(11)Equity securities
270、74629Other investments(1)Other assets(8)31144Total recurring Level 3 assets$(8)$35$(5)$73Total included in net income$(8)$35$(5)$73Components of net incomeNet investment income$3$4$(2)$13Net gains(losses)on investments and derivatives(11)31(3)60Total included in net income$(8)$35$(5)$73AssetsMunicip
271、al$1$1Corporate-public(1)1(3)Corporate-privately placed1(3)1(2)Changes in unrealized net capital gains and losses reported in OCI$1$(3)$2$(4)Financial instruments not carried at fair value($inmillions)June 30,2023December 31,2022Financial assetsFair value levelAmortized cost,netFairvalueAmortized co
272、st,netFairvalueMortgage loansLevel 3$823$750$762$700Bank loansLevel 3667686686686Financial liabilitiesFair value levelCarrying valueFairvalueCarrying valueFairvalueContractholder funds on investment contractsLevel 3$47$47$50$50DebtLevel 27,9497,4657,9647,449Liability for collateralLevel 21,7911,7912
273、,0112,011Represents the amounts reported on the Condensed Consolidated Statements of Financial Position.Note6Derivative Financial InstrumentsThe Company uses derivatives for risk reduction and to increaseinvestment portfolio returns through asset replication.Risk reductionactivity is focused on mana
274、ging the risks with certain assets and liabilitiesarising from the potential adverse impacts from changes in risk-freeinterest rates,changes in equity market valuations,increases in creditspreads and foreign currency fluctuations.Asset replication refers to the“synthetic”creation of assets throughth
275、e use of derivatives.The Company replicates fixed income securitiesusing a combination of a credit default swap,index total return swap,options,futures,or a foreign currency forward contract and one or morehighly rated fixed income securities,primarily investment grade hostbonds,to synthetically rep
276、licate the economic characteristics of one ormore cash market securities.The Company replicates equity securitiesusing futures,index total return swaps,and options to increase equityexposure.Property-Liability may use interest rate swaps,swaptions,futures andoptions to manage the interest rate risks
277、 of existing investments.Theseinstruments are utilized to change the duration of the portfolio in order tooffset the economic effect that interest rates would otherwise have on thefair value of its fixed income securities.Fixed income index total returnswaps are used to offset valuation losses in th
278、e fixed income portfolioduring periods of declining market values.Credit default swaps aretypically used to mitigate the credit risk within the Property-Liability fixedincome portfolio.Equity index total return swaps,futures and options areused by Property-Liability to offset valuation losses in the
279、 equity portfolioduring periods of declining equity market values.In addition,equity futuresare used to hedge the market risk related to deferred compensationliability contracts.Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with(1)(1)(1)Second Q
280、uarter 2023 Form 10-Q 29Notes to Condensed Consolidated Financial Statementsholding foreign currency denominated investments and foreign operations.In 2022,the Company also had derivatives embedded in non-derivative host contracts that were required to be separated from the hostcontracts and account
281、ed for at fair value with changes in fair value ofembedded derivatives reported in net income.When derivatives meet specific criteria,they may be designated asaccounting hedges and accounted for as fair value,cash flow,foreigncurrency fair value or foreign currency cash flow hedges.The notional amou
282、nts specified in the contracts are used to calculatethe exchange of contractual payments under the agreements and aregenerally not representative of the potential for gain or loss on theseagreements.However,the notional amounts specified in credit defaultswaps where the Company has sold credit prote
283、ction represent themaximum amount of potential loss,assuming no recoveries.Fair value,which is equal to the carrying value,is the estimatedamount that the Company would receive or pay to terminate the derivativecontracts at the reporting date.The carrying value amounts for OTCderivatives are further
284、 adjusted for the effects,if any,of enforceablemaster netting agreements and are presented on a net basis,bycounterparty agreement,in the Condensed Consolidated Statements ofFinancial Position.For those derivatives which qualify and have been designated as fairvalue accounting hedges,net income incl
285、udes the changes in the fairvalue of both the derivative instrument and the hedged risk.For cash flowhedges,gains and losses are amortized from AOCI and are reported innet income in the same period the forecasted transactions being hedgedimpact net income.Non-hedge accounting is generally used for“p
286、ortfolio”level hedgingstrategies where the terms of the individual hedged items do not meet thestrict homogeneity requirements to permit the application of hedgeaccounting.For non-hedge derivatives,net income includes changes infair value and accrued periodic settlements,when applicable.With theexce
287、ption of non-hedge derivatives used for asset replication and non-hedge embedded derivatives,all of the Companys derivatives areevaluated for their ongoing effectiveness as either accounting hedge ornon-hedge derivative financial instruments on at least a quarterly basis.In connection with the sale
288、of ALIC and certain affiliates in 2021,thesale agreement included a provision related to contingent considerationthat may be earned over a ten-year period with the first potential paymentdate commencing on January 1,2026 and a final potential payment dateof January 1,2035.The contingent consideratio
289、n is determined annuallybased on the average 10-year Treasury rate over the preceding 3-yearperiod compared to a designated rate.The contingent considerationmeets the definition of a derivative and is accounted for on a fair valuebasis with periodic changes in fair value reflected in earnings.There
290、areno collateral requirements related to the contingent consideration.30 Notes to Condensed Consolidated Financial StatementsSummary of the volume and fair value positions of derivative instruments as of June 30,2023($inmillions,exceptnumberofcontracts)VolumeBalancesheetlocationNotionalamountNumber
291、ofcontractsFairvalue,netGrossassetGrossliabilityAsset derivativesDerivatives not designated as accounting hedging instrumentsInterest rate contractsFuturesOther assetsn/a6,642$Equity and index contractsFuturesOther assetsn/a1,95622Contingent considerationOther assets$250n/a104104Total asset derivati
292、ves$2508,598$106$106$Liability derivativesDerivatives not designated as accounting hedging instrumentsInterest rate contractsFuturesOther liabilities&accrued expensesn/a13,862$(2)$(2)Equity and index contractsFuturesOther liabilities&accrued expensesn/a1,476(4)(4)Foreign currency contractsForeign cu
293、rrency forwardsOther liabilities&accrued expenses$669n/a(9)9(18)Credit default contractsCredit default swaps buying protectionOther liabilities&accrued expenses104n/a(2)1(3)Total liability derivatives77315,338(17)$10$(27)Total derivatives$1,02323,936$89Volume for OTC and cleared derivative contracts
294、 is represented by their notional amounts.Volume for exchange traded derivatives is represented by the number of contracts,which is the basis on which they are traded.(n/a=not applicable)Summary of the volume and fair value positions of derivative instruments as of December 31,2022($inmillions,excep
295、tnumberofcontracts)VolumeBalancesheetlocationNotionalamountNumber ofcontractsFairvalue,netGrossassetGrossliabilityAsset derivativesDerivatives not designated as accounting hedging instrumentsInterest rate contractsFuturesOther assetsn/a24,380$3$3$Equity and index contractsFuturesOther assetsn/a343Fo
296、reign currency contractsForeign currency forwardsOther investments$354n/a114(13)Contingent considerationOther assets250n/a103103 Credit default contractsCredit default swaps buying protectionOther investments24n/a1(1)Total asset derivatives$62824,723$107$121$(14)Liability derivativesDerivatives not
297、designated as accounting hedging instrumentsInterest rate contractsFuturesOther liabilities&accrued expensesn/a1,624$Equity and index contractsFuturesOther liabilities&accrued expensesn/a1,229(1)(1)Foreign currency contractsForeign currency forwardsOther liabilities&accrued expenses$283n/a7(7)Credit
298、 default contractsCredit default swaps buying protectionOther liabilities&accrued expenses525n/a(3)1(4)Total liability derivatives8082,853(4)$8$(12)Total derivatives$1,43627,576$103Volume for OTC and cleared derivative contracts is represented by their notional amounts.Volume for exchange traded der
299、ivatives is represented by the number of contracts,which is the basis on which they are traded.(n/a=not applicable)(1)(1)(1)(1)Second Quarter 2023 Form 10-Q 31Notes to Condensed Consolidated Financial StatementsGross and net amounts for OTC derivatives($inmillions)OffsetsGross amountCounter-partynet
300、tingCash collateral(received)pledgedNet amount onbalance sheetSecuritiescollateral(received)pledgedNet amountJune 30,2023Asset derivatives$10$(10)$Liability derivatives(20)108(2)(2)December 31,2022Asset derivatives$23$(22)$1$1Liability derivatives(22)22(1)(1)(1)All OTC derivatives are subject to enf
301、orceable master netting agreements.Gains(losses)from valuation and settlements reported on derivatives not designated as accounting hedges($in millions)Net gains(losses)oninvestments and derivativesOperating costs andexpensesTotal gain(loss)recognized innet income on derivativesThree months ended Ju
302、ne 30,2023Interest rate contracts$18$18Equity and index contracts(20)10(10)Contingent consideration(8)(8)Foreign currency contracts(4)(4)Credit default contracts(1)(1)Total$(7)$2$(5)Six months ended June 30,2023Interest rate contracts$(17)$(17)Equity and index contracts(16)182Contingent consideratio
303、n11Foreign currency contracts(11)(11)Credit default contracts(15)(15)Total$(59)$19$(40)Three months ended June 30,2022Interest rate contracts$158$158Equity and index contracts53(34)19Contingent consideration3131Foreign currency contracts37(2)35Credit default contracts2424Total$272$(5)$267Six months
304、ended June 30,2022Interest rate contracts$474$474Equity and index contracts56(47)9Contingent consideration4343Foreign currency contracts44(2)42Credit default contracts1616Total$590$(6)$584The Company manages its exposure to credit risk by utilizing highlyrated counterparties,establishing risk contro
305、l limits,executing legallyenforceable master netting agreements(“MNAs”)and obtaining collateralwhere appropriate.The Company uses MNAs for OTC derivativetransactions that permit either party to net payments due for transactionsand collateral is either pledged or obtained when certain predeterminedex
306、posure limits are exceeded.OTC cash and securities collateral pledged($in millions)June 30,2023Pledged by the Company$11Pledged to the Company 3$11 million of collateral was posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability provision.(1)(1)(1)(1)32
307、Notes to Condensed Consolidated Financial StatementsThe Company has not incurred any losses on derivative financialinstruments due to counterparty nonperformance.Other derivatives,including futures and certain option contracts,are traded on organizedexchanges which require margin deposits and guaran
308、tee the execution oftrades,thereby mitigating any potential credit risk.Counterparty credit exposure represents the Companys potentialloss if all of the counterparties concurrently fail to perform under thecontractual terms of the contracts and all collateral,if any,becomesworthless.This exposure is
309、 measured by the fair value of OTC derivativecontracts with a positive fair value at the reporting date reduced by theeffect,if any,of legally enforceable master netting agreements.OTC derivatives counterparty credit exposure by counterparty credit rating($in millions)June 30,2023December 31,2022Rat
310、ing Number ofcounter-partiesNotionalamountCreditexposureExposure,netof collateralNumber ofcounter-partiesNotionalamountCreditexposureExposure,netof collateralA+1$199$2$1$128$5$A11927Total1$199$2$2$320$12$Allstate uses the lower of S&Ps or Moodys long-term debt issuer ratings.Only OTC derivatives wit
311、h a net positive fair value are included for each counterparty.For certain exchange traded and cleared derivatives,margin depositsare required as well as daily cash settlements of margin accounts.Exchange traded and cleared margin deposits($in millions)June 30,2023Pledged by the Company$146Received
312、by the CompanyMarket risk is the risk that the Company will incur losses due toadverse changes in market rates and prices.Market risk exists for all ofthe derivative financial instruments the Company currently holds,as theseinstruments may become less valuable due to adverse changes in marketconditi
313、ons.To limit this risk,the Companys senior management hasestablished risk control limits.In addition,changes in fair value of thederivative financial instruments that the Company uses for riskmanagement purposes are generally offset by the change in the fair valueor cash flows of the hedged risk com
314、ponent of the related assets,liabilities or forecasted transactions.Certain of the Companys derivative transactions contain credit-risk-contingent termination events and cross-default provisions.Credit-risk-contingent termination events allow the counterparties to terminate thederivative agreement o
315、r a specific trade on certain dates if AICs financialstrength credit ratings by Moodys or S&P fall below a certain level.Credit-risk-contingent cross-default provisions allow the counterparties toterminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certai
316、n debt instruments.The following table summarizes the fair value of derivativeinstruments with termination,cross-default or collateral credit-risk-contingent features that are in a liability position,as well as the fair valueof assets and collateral that are netted against the liability in accordanc
317、ewith provisions within legally enforceable MNAs.($in millions)June 30,2023December 31,2022Gross liability fair value of contracts containing credit-risk-contingent features$20$21Gross asset fair value of contracts containing credit-risk-contingent features and subject toMNAs(8)(11)Collateral posted
318、 under MNAs for contracts containing credit-risk-contingent features(11)(10)Maximum amount of additional exposure for contracts with credit-risk-contingentfeatures if all features were triggered concurrently$1$Note7Variable Interest EntitiesConsolidated VIEs,of which the Company is the primary benef
319、iciary,primarily include Adirondack Insurance Exchange,a New York reciprocalinsurer,and New Jersey Skylands Insurance Association,a New Jerseyreciprocal insurer(together“Reciprocal Exchanges”).The ReciprocalExchanges are insurance carriers organized as unincorporatedassociations.The Company does not
320、 own the equity of the ReciprocalExchanges,which is owned by their respective policyholders.The Company manages the business operations of the ReciprocalExchanges and has the power to direct their activities that mostsignificantly impact their economic performance.The Company receives amanagement fe
321、e for the services provided to the Reciprocal Exchanges.In addition,as of June30,2023 and December31,2022,the Companyholds interests of$123million in the form of surplus notes included inother liabilities and expenses on the Statement of Assets and Liabilities ofthe Reciprocal Exchanges that(1)(2)(2
322、)(2)(2)(2)(2)(1)(2)Second Quarter 2023 Form 10-Q 33Notes to Condensed Consolidated Financial Statementsprovide capital to the Reciprocal Exchanges and would absorb anyexpected losses.The Company is therefore the primary beneficiary.Inaddition,the Company provides quota share reinsurance on the prope
323、rtybusiness of the Reciprocal Exchanges.In the event of dissolution,policyholders would share any residualunassigned surplus but are not subject to assessment for any deficit inunassigned surplus of the Reciprocal Exchanges.The assets of theReciprocal Exchanges can be used only to settle the obligat
324、ions of theReciprocal Exchanges and general creditors have no recourse to theCompany.The results of operations of the Reciprocal Exchanges are included inthe Companys Allstate Protection segment and generated$57 million and$114 million of earned premiums for the three and six months endedJune30,2023
325、,respectively,compared to$41million and$83 million forthe three and six months ended June30,2022,respectively.Total costs and expenses were$85 million and$144 million for thethree and six months ended June30,2023,respectively,compared to$55million and$113 million for the three and six months ended J
326、une30,2022,respectively.Assets and liabilities of Reciprocal Exchanges($in millions)June 30,2023December 31,2022AssetsFixed income securities$269$302Short-term investments1813Deferred policy acquisition costs1715Premium installment and other receivables,net4243Reinsurance recoverables,net8397Other a
327、ssets2790Total assets456560LiabilitiesReserve for property and casualty insurance claims and claims expense194209Unearned premiums132171Other liabilities and expenses280311Total liabilities$606$691Note8Reserve for Property and Casualty Insurance Claims and Claims ExpenseThe Company establishes reser
328、ves for claims and claims expense onreported and unreported claims of insured losses.The Companysreserving process takes into account known facts and interpretations ofcircumstances and factors including the Companys experience withsimilar cases,actual claims paid,historical trends involving claim p
329、aymentpatterns and pending levels of unpaid claims,loss managementprograms,product mix and contractual terms,changes in law andregulation,judicial decisions,and economic conditions.When the Company experiences changes in the mix or type of claimsor changing claim settlement patterns or data,it appli
330、es actuarialjudgment in the determination and selection of development factors todevelop reserve liabilities.Supply chain disruptions and inflation haveresulted in higher part costs,used car values and longer time to claimresolution,which have combined with labor shortages to increase physicaldamage
331、 loss costs.Medical inflation,treatment trends,attorneyrepresentation,litigation costs and more severe accidents havecontributed to higher third-party bodily injury loss costs.The Company hasalso digitized and modified claim processes to increase effectiveness andefficiency.These factors may lead to
332、 historical development trends beingless predictive of future loss development,potentially creating additionalreserve variability.Generally,the initial reserves for a new accident year are establishedbased on claim frequency and severity assumptions for different businesssegments,lines and coverages
333、 based on historical relationships to relevant inflationindicators.Reserves for prior accident years are statistically determinedusing different actuarial estimation methods.Changes in auto claimfrequency may result from changes in mix of business,driving behaviors,miles driven or other factors.Changes in auto current year claim severityare generally influenced by inflation in the medical and auto