Allstate 2008 Annual Report Download - page 153

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
●We continue to be encouraged that the pace of industry asbestos claim activity has slowed, perhaps
reflecting various state legislative and judicial actions with respect to medical criteria and increased legal
scrutiny of the legitimacy of claims.
PROPERTY-LIABILITY INVESTMENT RESULTS
Net investment income decreased 15.1% in 2008 when compared to 2007, after increasing 6.4% in 2007
when compared to 2006. The 2008 decrease was due to decreased partnership income and lower average asset
balances reflecting dividends paid by Allstate Insurance Company (‘‘AIC’’) to its parent, The Allstate Corporation
(the ‘‘Corporation’’) and capital contributions to Allstate Life Insurance Company (‘‘ALIC’’) and reduced portfolio
yields. The 2007 increase was principally due to increased partnership income and increased portfolio yields.
Property-Liability net investment income in 2009 is anticipated to be lower than 2008 levels due to lower
average asset balances and reduced portfolio yields.
The following table presents the average pre-tax investment yields for the year ended December 31.
2008(1)(2) 2007(1)(2) 2006(1)(2)
Fixed income securities: tax-exempt 5.1% 5.1% 5.1%
Fixed income securities: tax-exempt equivalent 7.4 7.4 7.4
Fixed income securities: taxable 5.6 5.5 5.3
Equity securities 3.0 2.7 2.7
Mortgage loans 6.1 5.6 5.2
Limited partnership interests(3) 2.3 16.0 17.2
Total portfolio 4.8 5.4 5.2
(1) Pre-tax yield is calculated as investment income (including dividend income in the case of equity securities) divided by the average of
the investment balances at the beginning and end of period and interim quarters.
(2) Amortized cost basis is used to calculate the average investment balance for fixed income securities and mortgage loans. Cost is used
for equity securities. Cost or the equity method of accounting basis is used for limited partnership interests.
(3) Beginning in the fourth quarter of 2008, income from limited partnerships accounted for on the equity method of accounting (‘‘EMA LP’’)
is reported in realized capital gains and losses and is therefore excluded from the determination of pre-tax investment yields on limited
partnership interests. EMA LP income for periods prior to the fourth quarter of 2008 is reported in net investment income and included
in the determination of pre-tax investment yields on limited partnership interests.
Net realized capital gains and losses, after-tax were $(1.21) billion of net realized capital losses in 2008
compared to net realized capital gains of $915 million in 2007 and $227 million in 2006. The following table
presents the factors driving the net realized capital gains and losses results.
2008 2007 2006
($ in millions)
Sales(1) $ (635) $1,396 $ 483
Impairment write-downs(2) (638) (44) (26)
Change in intent write-downs(1)(3) (501) (54) (32)
Valuation of derivative instruments (296) (15) 43
EMA LP income(4) (77) — —
Settlements of derivative instruments 289 133 (120)
Realized capital gains and losses, pre-tax (1,858) 1,416 348
Income tax benefit (expense) 649 (501) (121)
Realized capital gains and losses, after-tax $(1,209) $ 915 $ 227
(1) To conform to the current period presentation, certain amounts in the prior periods have been reclassified.
(2) Impairment write-downs reflect issue specific other than temporary declines in fair value, including instances where we could not
reasonably assert that the recovery period would be temporary.
(3) Change in intent write-downs reflects instances where we cannot assert a positive intent to hold until recovery.
(4) Beginning in the fourth quarter of 2008, income from EMA LP is reported in realized capital gains and losses. EMA LP income for
periods prior to the fourth quarter of 2008 is reported in net investment income.
For a further discussion of net realized capital gains and losses, see the Investments section of the MD&A.
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MD&A