Allstate 2008 Annual Report Download - page 170

Surrenders and partial withdrawals decreased 9.5% to $5.31 billion in 2008 from $5.87 billion in 2007 due to
lower surrenders and partial withdrawals on market value adjusted annuities and traditional fixed annuities,
partially offset by higher surrenders and partial withdrawals on interest-sensitive life insurance products and, to a
lesser extent, increased withdrawals on Allstate Bank products. The surrender and partial withdrawal rate on
deferred fixed annuities, interest-sensitive life insurance products and Allstate Bank products, based on the
beginning of period contractholder funds, was 12.2% in 2008 compared to 13.3% in 2007.
Surrenders and partial withdrawals decreased 1.2% in 2007 compared to 2006. This decline was due to lower
surrenders and partial withdrawals on interest-sensitive life insurance policies and the classification of the net
change in variable annuity contractholder funds as ‘‘other adjustments’’ subsequent to the effective date of our
reinsurance agreements with Prudential. These declines were partially offset by an 11.2% increase in surrenders
and partial withdrawals on fixed annuities. The surrenders and partial withdrawals line in the table above, for 2006
includes $120 million related to the reinsured variable annuity business. The surrender and partial withdrawal rate
on deferred fixed annuities, interest-sensitive life insurance products and Allstate Bank products, based on the
beginning of period contractholder funds, was 13.3% in 2007 compared to 13.9% in 2006. The improvement in the
surrender and partial withdrawal rate in 2007 compared to 2006 was primarily due to a block of corporate owned
life insurance policies that terminated in 2006 due to the bankruptcy of the policyholder.
Net investment income decreased 11.3% in 2008 compared to 2007 and increased 3.0% in 2007 compared to
2006. The decline in 2008 was primarily due to lower investment yields on floating rate securities, increased
short-term investment balances reflecting liquidity management activities, lower average investment balances and
lower income from limited partnership interests. The increase in 2007 was primarily due to higher average
portfolio balances, increased portfolio yields and higher income from limited partnership interests.
Net realized capital gains and losses are reflected in the following table for the years ended December 31.
2008 2007 2006
($ in millions)
Sales(1) $ 178 $ 75 $(27)
Impairment write-downs(2) (1,256) (118) (21)
Change in intent write-downs(1)(3) (1,247) (93) (60)
Valuation of derivative instruments (985) (63) (17)
EMA LP income(4) (14) — —
Settlements of derivative instruments 197 6 48
Realized capital gains and losses, pre-tax (3,127) (193) (77)
Income tax benefit 1,093 68 27
Realized capital gains and losses, after-tax $(2,034) $(125) $(50)
(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 reflect 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 further discussion of realized capital gains and losses, see the Investments section of the MD&A.
Analysis of Costs and Expenses Total costs and expenses decreased 0.9% or $48 million in 2008
compared to 2007 due to lower interest credited to contractholder funds, partially offset by higher amortization of
DAC, contract benefits and operating costs and expenses. Total costs and expenses in 2007 were consistent with
2006 as increased interest credited to contractholder funds and life and annuity contract benefits were offset by
lower amortization of DAC, operating costs and expenses, and restructuring and related charges.
Life and annuity contract benefits increased 1.5% or $23 million in 2008 compared to 2007 due primarily to
higher contract benefits on life insurance products, partially offset by lower contract benefits on annuities. The
increase in contract benefits on life insurance products was primarily due to unfavorable mortality experience,
partially offset by the recognition in the prior year period of litigation related costs in the form of additional policy
benefits. The decline in contract benefits on annuities was due to the impact of lower sales of immediate
annuities with life contingencies, partially offset by unfavorable mortality experience.
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MD&A