Allstate 2008 Annual Report Download - page 282

Absent any contract provision wherein the Company guarantees either a minimum return or account value
upon death, a specified contract anniversary date, partial withdrawal or annuitization, variable annuity and variable
life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their
stated investment objectives. The account balances of variable annuities contracts’ separate accounts with
guarantees included $7.07 billion and $13.32 billion of equity, fixed income and balanced mutual funds and
$730 million and $661 million of money market mutual funds at December 31, 2008 and 2007, respectively.
The table below presents information regarding the Company’s variable annuity contracts with guarantees.
The Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore,
the sum of amounts listed exceeds the total account balances of variable annuity contracts’ separate accounts
with guarantees.
December 31,
2008 2007
($ in millions)
In the event of death
Separate account value $ 7,802 $ 13,939
Net amount at risk(1) $ 3,971 $ 956
Average attained age of contractholders 64 years 66 years
At annuitization (includes income benefit guarantees)
Separate account value $ 1,846 $ 3,394
Net amount at risk(2) $ 1,459 $ 144
Weighted average waiting period until annuitization options available 4 years 3 years
For cumulative periodic withdrawals
Separate account value $ 718 $ 1,218
Net amount at risk(3) $ 159 $ 4
Accumulation at specified dates
Separate account value $ 984 $ 1,587
Net amount risk(4) $ 223 $ —
Weighted average waiting period until guarantee date 9 years 10 years
(1) Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date.
(2) Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance.
(3) Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance at
the balance sheet date.
(4) Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance.
The liability for death and income benefit guarantees is equal to a benefit ratio multiplied by the cumulative
contract charges earned, plus accrued interest less contract benefit payments. The benefit ratio is calculated as
the estimated present value of all expected contract benefits divided by the present value of all expected contract
charges. The establishment of reserves for these guarantees requires the projection of future separate account
fund performance, mortality, persistency and customer benefit utilization rates. These assumptions are periodically
reviewed and updated. For guarantees related to death benefits, benefits represent the current guaranteed
minimum death benefit payments in excess of the current account balance. For guarantees related to income
benefits, benefits represent the present value of the minimum guaranteed annuitization benefits in excess of the
current account balance.
Projected benefits and contract charges used in determining the liability for certain guarantees are developed
using models and stochastic scenarios that are also used in the development of estimated expected gross profits.
Underlying assumptions for the liability related to income benefits include assumed future annuitization elections
based on factors such as the extent of benefit to the potential annuitant, eligibility conditions and the annuitant’s
attained age. The liability for guarantees is re-evaluated periodically, and adjustments are made to the liability
balance through a charge or credit to life and annuity contract benefits.
Guarantees related to withdrawal and accumulation benefits are considered to be derivative financial
instruments; therefore, the liability for these benefits is established based on its fair value.
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Notes