Allstate 2008 Annual Report Download - page 172

To further analyze investment spreads, the following table summarizes the weighted average investment yield
on assets supporting product liabilities and capital, interest crediting rates and investment spreads for 2008, 2007
and 2006.
Weighted average Weighted average Weighted average
investment yield interest crediting rate investment spreads
2008 2007 2006 2008 2007 2006 2008 2007 2006
Interest-sensitive life insurance 6.0% 6.2% 6.2% 4.6% 4.6% 4.7% 1.4% 1.6% 1.5%
Deferred fixed annuities 5.5 5.8 5.7 3.7 3.7 3.7 1.8 2.1 2.0
Immediate fixed annuities with and without
life contingencies 6.8 7.1 7.2 6.5 6.5 6.6 0.3 0.6 0.6
Institutional products 4.2 6.1 6.0 3.5 5.2 5.0 0.7 0.9 1.0
Investments supporting capital, traditional
life and other products 5.3 6.1 5.7 N/A N/A N/A N/A N/A N/A
The following table summarizes our product liabilities as of December 31 and indicates the account value of
those contracts and policies in which an investment spread is generated.
2008 2007 2006
($ in millions)
Immediate fixed annuities with life contingencies $ 8,355 $ 8,294 $ 8,144
Other life contingent contracts and other 4,526 4,918 4,642
Reserve for life-contingent contract benefits $12,881 $13,212 $12,786
Interest-sensitive life insurance $ 9,957 $ 9,539 $ 9,050
Deferred fixed annuities 33,766 34,214 35,533
Immediate fixed annuities without life contingencies 3,894 3,921 3,783
Institutional products 8,974 12,983 12,467
Allstate Bank 949 832 773
Market value adjustments related to fair value hedges and other 873 486 425
Contractholder funds $58,413 $61,975 $62,031
Amortization of DAC increased 20.8% in 2008 compared to 2007 and decreased 6.9% in 2007 compared to
2006. The components of amortization of DAC are summarized in the following table.
2008 2007 2006
($ in millions)
Amortization of DAC before amortization relating to realized capital gains and losses,
changes in assumptions and premium deficiency(1) $(556) $(614) $(674)
Accretion relating to realized capital gains and losses(2) 515 17 50
Amortization (acceleration) deceleration for changes in assumptions (‘‘DAC unlocking’’) (327) 14 (2)
Amortization charge relating to premium deficiency (336) — —
Total amortization of DAC(3) $(704) $(583) $(626)
(1) Amortization of DAC before accretion relating to realized capital gains and losses and changes in assumptions for 2006 includes $(72)
million relating to the reinsured variable annuity business.
(2) Amortization relating to realized capital gains and losses for 2006 includes $28 million relating to the reinsured variable annuity business.
(3) Total amortization of DAC for 2006 includes $44 million relating to the reinsured variable annuity business.
The increase of $121 million in 2008 was due primarily to amortization acceleration relating to changes in
assumptions and additional amortization recorded in connection with a premium deficiency assessment for
traditional life insurance and immediate annuities with life contingencies, partially offset by higher accretion of
DAC relating to net realized capital losses. The impact of realized capital gains and losses on amortization of DAC
is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability
supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on
actual and expected gross profits.
In 2008, DAC amortization acceleration for changes in assumptions, recorded in connection with
comprehensive reviews of the DAC balances and assumptions for interest-sensitive life insurance, annuities and
other investment contracts, resulted in an increase to amortization of DAC of $327 million. The evaluations
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MD&A