Allstate 2008 Annual Report Download - page 178

fixed income portfolio in the amount of $18.50 billion of notional principal protection was in place at
December 31, 2008. Of this total, $14.50 billion was executed in early 2008 and $4.00 billion executed in December
2008. The $14.50 billion of protection was initially struck at 150 basis points out of the money, but, due to
declining interest rates, at December 31, 2008 is struck over 300 basis points out of the money. The $4.00 billion
of protection executed in December was initially struck at approximately 100 basis points out of the money. Other
aspects of the hedging program have been designed to mitigate municipal bond interest rate risk and credit
spread risk. The effectiveness of these hedges may be reduced due to the basis risk associated with these
strategies.
We continue to monitor the progress of these actions as market and economic conditions develop and will
adapt our strategies as appropriate. Our continuing focus is to manage our risks and to position our portfolio to
take advantage of market opportunities while attempting to mitigate further adverse effects.
Investments outlook
●Continuing risk mitigation efforts will focus on shortening duration of the fixed income portfolio, reducing
exposures to real estate and certain other market sectors, and managing excess market volatility through
our macro hedging programs.
●Net investment income will decline due to lower asset balances and yields, and the costs of maintaining
high liquidity and the risk mitigation programs.
●Our portfolio continues to generate significant cash flow from maturities, principal and interest receipts
which will be available to manage liabilities and take advantage of market opportunities.
Portfolio Composition The composition of the investment portfolios at December 31, 2008 is presented in
the table below. Also see Notes 2 and 5 of the consolidated financial statements for investment accounting
policies and additional information.
Corporate
Property-Liability Allstate Financial(5) and Other(5) Total
Percent Percent Percent Percent
to total to total to total to total
($ in millions)
Fixed income securities(1) $24,094 78.1% $43,725 71.1% $ 789 21.6% $68,608 71.5%
Equity securities(2) 2,723 8.8 82 0.1 — — 2,805 2.9
Mortgage loans 104 0.4 10,125 16.5 — — 10,229 10.7
Limited partnership interests(3) 1,552 5.0 1,191 1.9 48 1.3 2,791 2.9
Short-term(4) 2,152 7.0 3,930 6.4 2,824 77.1 8,906 9.3
Other 212 0.7 2,446 4.0 1 — 2,659 2.7
Total $30,837 100.0% $61,499 100.0% $3,662 100.0% $95,998 100.0%
(1) Fixed income securities are carried at fair value. Amortized cost basis for these securities was $25.83 billion, $50.52 billion and
$751 million for Property-Liability, Allstate Financial and Corporate and Other, respectively.
(2) Equity securities are carried at fair value. Cost basis for these securities was $3.03 billion and $107 million for Property-Liability and
Allstate Financial, respectively.
(3) We have commitments to invest in additional limited partnership interests totaling $805 million, $1.08 billion and $8 million for Property-
Liability, Allstate Financial and Corporate and Other, respectively, at December 31, 2008.
(4) Short-term investments are carried at fair value. Amortized cost basis for these investments was $2.15 billion, $3.93 billion and
$2.82 billion for Property-Liability, Allstate Financial and Corporate and Other, respectively, at December 31, 2008.
(5) Balances reflect the elimination of related party investments between Property-Liability and Allstate Financial and Allstate Financial and
Corporate and Other.
Total investments decreased to $96.00 billion at December 31, 2008, from $118.98 billion at December 31,
2007, due primarily to a $10.73 billion increase in unrealized net capital losses and net reductions in both
contractholder obligations of $5.50 billion and securities lending balances of $2.98 billion.
The Property-Liability investment portfolio decreased to $30.84 billion at December 31, 2008, from
$40.91 billion at December 31, 2007, due to unrealized net capital losses, dividends paid by AIC to the Corporation
and capital contributions from AIC to ALIC, lower funds associated with collateral received in conjunction with
securities lending and net realized capital losses.
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MD&A