Allstate 2008 Annual Report Download - page 189

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
CRE CDO are structured securities secured primarily by CMBS and other commercial mortgage debt
obligations. These securities are generally less liquid and have a higher risk profile than other CMBS. The
following table shows our CRE CDO portfolio at December 31, 2008 by vintage year, based upon our participation
in the capital structure.
Vintage year Fair Amortized Unrealized($ in millions)
Capital structure classification(2) 2007 2006 2005 value cost(1) gain/loss
Aa $1 $14 $1 $16 $14 $2
A31488—
Baa 1 1 1 3 3 —
Total $5 $16 $6 $27 $25 $2
(1) Amortized cost includes other-than-temporary impairment charges, as applicable.
(2) May not be consistent with current ratings due to downgrades.
ABS totaled $3.86 billion, with 92.0% rated investment grade, at December 31, 2008. Credit risk is managed
by monitoring the performance of the collateral. In addition, many of the securities in the ABS portfolio are credit
enhanced with features such as over-collateralization, subordinated structures, reserve funds, guarantees and/or
insurance. A portion of the ABS portfolio is also subject to interest rate risk since ultimate realized yields are
affected by the rate of prepayment of the underlying assets.
ABS RMBS includes securities that are collateralized by mortgage loans issued to borrowers that cannot
qualify for Prime or Alt-A financing terms due in part to weak or limited credit history. It also includes securities
that are collateralized by certain second lien mortgages regardless of the borrower’s credit history. $1.66 billion or
80.2% of the ABS RMBS portfolio consisted of securities that were issued during 2005, 2006 and 2007. At
December 31, 2008, 41.0% of securities issued during 2005, 2006 and 2007 were rated Aaa, 20.1% rated Aa, 5.5%
rated A, 17.5% rated Baa and 15.9% rated Ba or lower.
The following table presents additional information about our ABS RMBS portfolio including a summary by
first and second lien collateral at December 31, 2008.
Fair % to Total
Value investments
($ in millions)
ABS RMBS
First lien:
Fixed rate(1) $ 594 0.6%
Variable rate(1) 1,085 1.1
Total first lien(2) 1,679 1.7
Second lien:
Insured 295 0.3
Other 93 0.1
Total second lien(3) 388 0.4
Total ABS RMBS $2,067 2.1%
(1) Fixed rate and variable rate refer to the primary interest rate characteristics of the underlying mortgages at the time of issuance.
(2) The credit ratings of the first lien ABS RMBS were 41.8% Aaa, 30.3% Aa, 10.0% A, 9.2% Baa and 8.7% Ba or lower at December 31,
2008.
(3) The credit ratings of the second lien ABS RMBS were 13.7% Aaa, 8.2% Aa, 1.8% A, 43.3% Baa and 33.0% Ba or lower at December 31,
2008.
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MD&A