Allstate 2008 Annual Report Download - page 182

Also included in our municipal bond holdings at December 31, 2008 are $949 million of municipal securities
which are not rated by third party credit rating agencies, but are rated by the NAIC and also internally rated by
us. These holdings mainly comprise the high yield portion of our overall municipal bond portfolio and provide the
opportunity to achieve incremental returns and enhanced diversification of our overall investments portfolio. Our
initial investment decisions and ongoing monitoring procedures for these securities are based on a thorough due
diligence process that includes, among other things, an assessment of the credit, structure, and liquidity risks of
the issue and issuer.
Corporate bonds totaled $27.63 billion at December 31, 2008. As of December 31, 2008, $13.01 billion, or
47.1% of the portfolio consisted of privately placed securities compared to $17.34 billion or 45.1% at December 31,
2007. Privately placed securities primarily consist of corporate issued senior debt securities that are in
unregistered form and are directly negotiated with the borrower. All privately placed corporate securities are rated
by the NAIC based on information provided to them and are also internally rated. Additionally, approximately
40.7% of the privately placed corporate securities in our portfolio are rated by an independent rating agency.
The following table summarizes the corporate fixed income portfolio by Moody’s equivalent rating as of
December 31, 2008.
Corporate-Public
($ in millions)
Non-hybrid Hybrid Total
Fair Unrealized Fair Unrealized Fair Unrealized
Rating(1) value gain/loss value gain/loss value gain/loss
Aaa $ 255 $ (30) $ — $ — $ 255 $ (30)
Aa 1,264 13 94 6 1,358 19
A 4,900 (159) 364 (186) 5,264 (345)
Baa 6,379 (671) 168 (167) 6,547 (838)
Ba or lower 1,178 (323) 16 (19) 1,194 (342)
Total $13,976 $(1,170) $642 $(366) $14,618 $(1,536)
Corporate-Private
($ in millions)
Non-hybrid Hybrid Total
Fair Unrealized Fair Unrealized Fair Unrealized
Rating(1) value gain/loss value gain/loss value gain/loss
Aaa $ 542 $ 26 $ — $ — $ 542 $ 26
Aa 1,118 (38) 74 (28) 1,192 (66)
A 3,296 (190) 577 (449) 3,873 (639)
Baa 6,274 (774) 87 (99) 6,361 (873)
Ba or lower 1,023 (305) 18 (20) 1,041 (325)
Total $12,253 $(1,281) $756 $(596) $13,009 $(1,877)
Total Corporate
($ in millions)
Non-hybrid Hybrid Total
Fair Unrealized Fair Unrealized Fair Unrealized
Rating(1) value gain/loss value gain/loss value gain/loss
Aaa $ 797 $ (4) $ — $ — $ 797 $ (4)
Aa 2,382 (25) 168 (22) 2,550 (47)
A 8,196 (349) 941 (635) 9,137 (984)
Baa 12,653 (1,445) 255 (266) 12,908 (1,711)
Ba or lower 2,201 (628) 34 (39) 2,235 (667)
Total $26,229 $(2,451) $1,398 $(962) $27,627 $(3,413)
(1) Moody’s equivalent rating will not necessarily tie to ratings distributions from the NAIC due to potential timing differences
between the various rating suppliers and the number of external rating agencies used in the determination.
The unrealized net capital loss of $3.41 billion at December 31, 2008 is driven primarily by significantly
widening credit spreads resulting from deteriorating macro economic conditions and continued credit market
deterioration. Credit spread widening particularly affected our non-hybrid Baa and lower rated corporate bond
holdings, contributing to approximately $2.07 billion of the unrealized net capital loss. The other significant driver
of unrealized net capital losses in our corporate bond portfolio is from hybrid securities, contributing $962 million
of the unrealized loss. While these securities are generally issued by highly rated financial institutions, they have
structural features which make them more sensitive to credit market deterioration. Specifically, features allowing
coupon deferral and the extension of call dates have severely impacted prices as the global financial system
undergoes significant stress.
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