Allstate 2008 Annual Report Download - page 246

Securities loaned and security repurchase and resale
The Company’s business activities include securities lending transactions, securities sold under agreements to
repurchase (‘‘repurchase agreements’’), and securities purchased under agreements to resell (‘‘resale
agreements’’), which are used primarily to generate net investment income. The proceeds received from
repurchase agreements also provide a source of liquidity. For repurchase agreements and securities lending
transactions used to generate net investment income, the proceeds received are reinvested in short-term
investments or fixed income securities. These transactions are short-term in nature, usually 30 days or less.
The Company receives cash collateral for securities loaned in an amount generally equal to 102% and 105%
of the fair value of domestic and foreign securities, respectively, and records the related obligations to return the
collateral in other liabilities and accrued expenses or other investments. The carrying value of these obligations
approximates fair value because of their relatively short-term nature. The Company monitors the market value of
securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the
agreements to mitigate counterparty credit risk. The Company maintains the right and ability to redeem the
securities loaned on short notice. Substantially all of the Company’s securities loaned are placed with large banks.
The Company’s policy is to take possession or control of securities under resale agreements. Securities to be
repurchased under repurchase agreements are the same, or substantially the same, as the securities transferred.
The Company’s obligations to return the funds received under repurchase agreements are carried at the amount
at which the securities will subsequently be reacquired, including accrued interest, as specified in the respective
agreements and are classified as other liabilities and accrued expenses or other investments. The carrying value
of these obligations approximates fair value because of their relatively short-term nature.
Recognition of premium revenues and contract charges, and related benefits and interest credited
Property-liability premiums are deferred and earned on a pro-rata basis over the terms of the policies. The
portion of premiums written applicable to the unexpired terms of the policies is recorded as unearned premiums.
Premium installment receivables, net, represent premiums written and not yet collected, net of an allowance for
uncollectible premiums. The Company regularly evaluates premium installment receivables and adjusts its
valuation allowance as appropriate. The valuation allowance for uncollectible premium installment receivables was
$70 million and $68 million at December 31, 2008 and 2007, respectively.
Traditional life insurance products consist principally of products with fixed and guaranteed premiums and
benefits, primarily term and whole life insurance products. Premiums from these products are recognized as
revenue when due from policyholders. Benefits are reflected in life and annuity contract benefits and recognized
in relation to premiums, so that profits are recognized over the life of the policy.
Immediate annuities with life contingencies, including certain structured settlement annuities, provide
insurance protection over a period that extends beyond the period during which premiums are collected.
Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits
and expenses are recognized in relation to premiums. Profits from these policies come from investment income,
which is recognized over the life of the contract.
Interest-sensitive life contracts, such as universal life and single premium life are insurance contracts whose
terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder,
interest credited to the contractholder account balance and contract charges assessed against the contractholder
account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges
consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk),
contract administration and early surrender. These contract charges are recognized as revenue when assessed
against the contractholder account balance. Life and annuity contract benefits include life-contingent benefit
payments in excess of the contractholder account balance.
Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred
to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities
and immediate annuities without life contingencies, and funding agreements (primarily backing medium-term
notes) are considered investment contracts. Consideration received for such contracts is reported as
contractholder fund deposits. Contract charges for investment contracts consist of fees assessed against the
contractholder account balance for maintenance, administration and surrender of the contract prior to
contractually specified dates, and are recognized when assessed against the contractholder account balance.
Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life
contracts and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts
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Notes