Allstate 2008 Annual Report Download - page 191

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
Cash flow CLO are structures where the underlying assets are primarily comprised of below investment grade
senior secured corporate loans. The collateral is actively managed by external managers that monitor the collateral
performance. The underlying investments are well diversified across industries and among issuers and there have
been no downgrades in the portfolio. Cash flow CLO issues differ by seniority. A transaction will typically issue
notes with various capital structure class (i.e. Aaa, Aa, A, etc.) as well as equity. The following table shows our
cash flow CLO portfolio at December 31, 2008 by vintage year, based upon our participation in the capital
structure.
($ in millions)
Vintage year
Capital structure Fair Amortized Unrealized
classification(1) 2008 2007 2006 2005 Pre-2005 value cost(2) gain/loss
Aaa $— $ — $ 58 $52 $144 $254 $ 350 $ (96)
Aa 2 39 48 7 10 106 296 (190)
A 1 22 24 16 34 97 454 (357)
Baa — — 5 8 25 38 78 (40)
Ba or below — 4 2 — — 6 13 (7)
Total $ 3 $65 $137 $83 $213 $501 $1,191 $(690)
(1) May not be consistent with current ratings due to downgrades.
(2) Amortized cost includes other-than-temporary impairment charges, as applicable.
Synthetic CDO primarily consist of a portfolio of corporate credit default swaps (‘‘CDS’’) which are
collateralized by Aaa rated LIBOR-based securities (i.e. ‘‘fully funded’’ synthetic CDO). Our synthetic CDO
collateral primarily is actively managed by an external manager monitoring the CDS selection and performance.
The following table shows our synthetic CDO at December 31, 2008 by vintage year, based upon our participation
in the capital structure.
($ in millions)
Vintage year
Capital structure Fair Amortized Unrealized
classification(1) 2007 2006 value cost(2) gain/loss
Aaa $25 $ — $25 $ 85 $ (60)
Aa 6 16 22 122 (100)
Total $31 $16 $47 $207 $(160)
(1) May not be consistent with current ratings due to downgrades.
(2) Amortized cost includes other-than-temporary impairment charges, as applicable.
Trust preferred CDO underlying assets are primarily comprised of portfolios of preferred securities issued by a
diversified portfolio of domestic banks and other financial institutions. The underlying collateral for our trust
preferred CDO portfolio is not actively managed and is diversified by issuer, predominately regional banks, with a
small percentage of insurance companies.
Market value CDO are structurally similar to cash flow CLO. The primary difference is that the market value
of the underlying assets is managed in order to enhance returns and the structure is governed by market value
based tests. The managers are also offered more flexibility to purchase other asset types including secured
leveraged loans, public and private high yield bonds, structured products, mezzanine investments, and equities.
Project finance CDO underlying assets are primarily below investment grade senior secured project finance
loans and energy finance investments.
CDO squared transactions are CDOs where the underlying assets are primarily other cash flow CLO tranches,
typically with an average rating of Baa.
Other asset-backed securities totaled $1.01 billion at December 31, 2008 and consist primarily of investments
secured by portfolios of credit card loans, auto loans, student loans and other consumer and corporate
obligations. As of December 31, 2008, the net unrealized losses on these securities were $232 million. Additionally,
24.3% of the other asset-backed securities that are rated Aaa, Aa, A and Baa were insured by five bond insurers.
During 2008, we sold $229 million of these securities recognizing a loss of $1 million. In addition, we acquired
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MD&A