Allstate 2008 Annual Report Download - page 258

each indemnify Prudential for certain post-closing liabilities that may arise from the acts of ALIC, ALNY and their
agents, including in connection with ALIC’s and ALNY’s provision of transition services. The Reinsurance
Agreements contain no limits or indemnifications with regard to insurance risk transfer, and transferred all of the
future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential,
including those related to benefit guarantees, in accordance with the provisions of SFAS No. 113 ‘‘Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts’’.
The terms of the Agreement give Prudential the right to be the exclusive provider of its variable annuity
products through the Allstate proprietary agency force for three years and a non-exclusive preferred provider for
the following two years. During a transition period which ended May 2008, ALIC and ALNY continued to issue
new variable annuity contracts, accept additional deposits on existing business from existing contractholders on
behalf of Prudential and service the reinsured business while Prudential prepared for the migration of the
business onto its servicing platform.
Pursuant to the Agreement, the final market-adjusted consideration was $628 million. The disposal resulted in
a gain of $79 million pre-tax for ALIC, which was deferred as a result of the disposition being executed through
reinsurance. The deferred gain is included as a component of other liabilities and accrued expenses on the
Consolidated Statements of Financial Position, and is amortized to gain (loss) on disposition of operations on the
Consolidated Statements of Operations over the life of the reinsured business which is estimated to be
approximately 18 years. For ALNY, the transaction resulted in a loss of $9 million pre-tax. ALNY’s reinsurance loss
and other amounts related to the disposal of the business, including the initial costs and final market value
settlements of the derivatives acquired by ALIC to economically hedge substantially all of the exposure related to
market adjustments between the effective date of the Agreement and the closing of the transaction, transactional
expenses incurred and amortization of ALIC’s deferred reinsurance gain, were included as a component of gain
(loss) on disposition of operations on the Consolidated Statements of Operations and amounted to $5 million,
$6 million and $(61) million, after-tax during 2008, 2007 and 2006, respectively. Gain (loss) on disposition of
operations on the Consolidated Statements of Operations included amortization of ALIC’s deferred gain, after-tax,
of $5 million, $5 million and $1 million for the years ended December 31, 2008, 2007 and 2006, respectively. DAC
and DSI were reduced by $726 million and $70 million, respectively, as of the effective date of the transaction for
balances related to the variable annuity business subject to the Reinsurance Agreements.
The separate account balances related to the modified coinsurance reinsurance were $7.53 billion and
$13.76 billion as of December 31, 2008 and 2007, respectively. Separate account balances totaling approximately
$711 million and $1.17 billion at December 31, 2008 and 2007, respectively, related primarily to the variable life
business that is being retained by ALIC and ALNY, and the variable annuity business in three affiliated companies
that were not included in the Agreement. In the five-months of 2006, prior to this disposition, ALIC’s and ALNY’s
variable annuity business generated approximately $127 million in contract charges.
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Notes