Allstate 2008 Annual Report Download - page 194

10% of the portfolio. The average debt service coverage ratio represents the amount of cash flows available by the
borrower to meet its principal and interest payment obligations. The average debt service coverage ratio of the
portfolio as of December 31, 2008 was approximately 2.0, and only approximately 3.1% of the mortgage loan
portfolio had a debt service coverage ratio under 1.0.
We closely monitor our commercial mortgage loan portfolio on a loan-by-loan basis. Loans with an estimated
collateral value less than the loan balance, as well as loans with other characteristics indicative of higher than
normal credit risks, are reviewed at least quarterly for purposes of establishing valuation allowances and placing
loans on non-accrual status as necessary. The underlying collateral values are based upon either discounted
property cash flow projections or a commonly used valuation method that utilizes a one-year projection of
expected annual income divided by a market based expected rate of return. We had $4 million of realized capital
losses related to valuation allowances on mortgage loans for the year ended December 31, 2008 and had no
realized capital losses related to valuation allowances on mortgage loans for the year ended December 31, 2007.
Additionally, realized capital losses due to changes in intent to hold mortgage loans to maturity totaled $74 million
and $30 million for the years ended December 31, 2008 and 2007, respectively. For further detail, see Note 5 to
the consolidated financial statements.
Limited partnership interests consist of investments in private equity/debt funds, real estate funds and
hedge funds. The overall limited partnership interests portfolio is well diversified across a number of metrics
including fund sponsors, vintage years, strategies, geography (including international), and company/property
types.
The following table presents information about our limited partnership interests as of December 31, 2008.
Private Real
equity/debt estate Hedge
funds funds funds Total
($ in millions)
Cost method of accounting (‘‘Cost’’) $ 733 $398 $ 97 $1,228
Equity method of accounting 654 431 478 1,563
Total $1,387 $829 $575 $2,791
Number of sponsors 86 39 13
Number of individual funds 138 76 80
Largest exposure to single fund $ 43 $ 48 $ 43
Our aggregate limited partnership exposure represented 2.9% and 2.1% of total invested assets as of
December 31, 2008 and December 31, 2007, respectively.
The following table shows the income from our limited partnership interests by fund type and accounting
classification for the years ended December 31.
2008 2007
Equity method Equity method
Cost of accounting(1) Total Cost of accounting Total
($ in millions)
Private equity/debt funds $28 $ 87 $ 115 $58 $ 55 $113
Real estate funds 8 (35) (27) 36 79 115
Hedge funds 1 (124) (123) 1 64 65
Total $37 $ (72) $ (35) $95 $198 $293
(1) Beginning in the fourth quarter of 2008, income from EMA LP is reported in realized capital gains and losses. EMA LP income for
periods prior to the fourth quarter of 2008 is reported in net investment income.
Loss from limited partnership interests was $35 million for 2008 versus income of $293 million for 2007. The
loss from limited partnership interests in 2008 compared to income in 2007 is primarily related to losses from
partnerships accounted for under equity method of accounting resulting from reduced valuations on the net asset
value of the partnerships. Further, income on EMA LP is recognized on a delay due to the availability of the
related financial statements. The recognition of income on hedge funds is primarily on a one-month delay and the
income recognition on private equity/debt funds and real estate funds are generally on a three-month delay as of
December 31, 2008. As such, the income recognized through December 31, 2008 for EMA LP may not include the
full impact for calendar year investment market changes as they will ultimately impact the valuation of the
underlying assets or liabilities within the partnerships. Limited partnership interests accounted for under the cost
method of accounting recognize income only upon cash distributions by the partnership.
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