ALLSTATE LIFE INSURANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of Allstate Life Insurance Company (“ALIC”) and its wholly owned subsidiaries (collectively referred to as the “Company”). ALIC is wholly owned by Allstate Insurance Company (“AIC”), which is wholly owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”). These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated financial statements and notes as of June 30, ~~2018~~2019 and for the three ~~month~~ and six month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 are unaudited. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2017.~~2018. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated.

~~Reinsurance transaction~~

Effective January 1, 2017, ALIC entered into a coinsurance reinsurance agreement with Allstate Assurance Company to assume certain term life insurance policies. The agreement covered policies issued from January 1, 2015 through December 31, 2017. In connection with the agreement, the Company recorded cash of $20 million, deferred policy acquisition costs (“DAC”) of $45 million, other assets of $11 million, reserve for life-contingent contract benefits of $24 million and deferred tax liabilities of $18 million. The $34 million gain on the transaction was recorded as an increase to additional capital paid-in since the transaction was between entities under common control.

Premiums and contract charges

The following table summarizes premiums and contract charges by product.



($ in millions)	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Premiums
Traditional life insurance	$	140	$	145	$	281	$	292
Accident and health insurance	30		30		60		60
Total premiums	170		175		341		352

Contract charges
Interest-sensitive life insurance	167		170		340		343
Fixed annuities	3		3		6		6
Total contract charges	170		173		346		349
Total premiums and contract charges	$	340	$	348	$	687	$	701

($ in millions) Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Premiums

Traditional life insurance $ 145
$ 143
$ 292
$ 286
Accident and health insurance 30
27
60
53
Total premiums 175
170
352
339

Contract charges

Interest-sensitive life insurance 170
174
343
350
Fixed annuities 3
3
6
6
Total contract charges 173
177
349
356
Total premiums and contract charges $ 348
$ 347
$ 701
$ 695

Adopted accounting standard

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Accounting for Hedging Activities

Effective January 1, ~~2018,~~2019, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance ~~requiring equity investments, including equity securities~~intended to better align hedge accounting with an organization’s risk management activities. The new guidance expands hedge accounting to nonfinancial and ~~limited partnership interests not accounted for under~~financial risk components and revises the ~~equity method~~measurement methodologies to better align with an organization’s risk management activities. Separate presentation of accounting or that do not result in consolidation to be measured at fair value with changes in fair value recognized in net income. The guidance clarifies that an entity should evaluate the realizability of deferred tax assets related to available-for-sale fixed income securities in combinationhedge ineffectiveness is eliminated with the ~~entity’s other deferred tax assets. The Company’s adoption~~intention to provide greater transparency to the full impact of hedging by requiring presentation of the ~~new FASB guidance included adoption~~results of the ~~relevant elements of Technical Corrections~~hedged item and ~~Improvements~~hedging instrument in a single financial statement line item. In addition, the amendments were designed to ~~Financial Instruments, issued in February 2018.~~

~~Upon~~reduce complexity by simplifying hedge effectiveness testing. The adoption of the new guidance on January 1, 2018, $308 million of pre-tax unrealized net capital gains for equity securities were reclassified from AOCI to retained income. The after-tax change in accounting for equity securities did not affect the Company’s total shareholder’s equity and the unrealized net capital gains of $238 million reclassified to retained income will never be recognized in net income.

Upon adoption of the new guidance on January 1, 2018, the carrying value of cost method limited partnership interests increased $95 million, pre-tax, to fair value. The after-tax cumulative-effect increase in retained income of $76 million increased the Company’s shareholder’s equity but will never be recognized in net income.

~~Changes to significant accounting policies~~

~~Investments~~

Changes were made to the Company’s Significant Accounting Policies upon adoption of new FASB guidance related to the recognition and measurement of financial assets. Equity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. Equity securities are carried at fair value. The periodic change in fair value of equity securities is recognized within realized capital gains and losses on the Condensed Consolidated Statements of Operations and Comprehensive Income.

~~Investments in limited partnership interests include interests in private equity funds, real estate funds and other funds. Where the Company’s interest is so minor that it exercises virtually~~had no influence over operating and financial policies, investments in limited partnership interests purchased prior to January 1, 2018 are accounted for at fair value primarily utilizing the net asset value as a practical expedient (“NAV”) to determine fair value. All other investments in limited partnership interests, including those purchased subsequent to January 1, 2018, are accounted for in accordance with the equity method of accounting (“EMA”).

Investment income from limited partnership interests carried at fair value is recognized based upon the changes in fair value of the investee’s equity primarily determined using NAV. Income from EMA limited partnership interests is recognized basedimpact on the Company’s ~~share~~results of ~~the partnerships’ earnings. Income for EMA limited partnership interests is generally recognized on a three month delay due to the availability of the related~~operations or financial ~~statements.~~

~~Tax Reform~~

During 2017, the Company revalued deferred tax assets and liabilities and recorded liabilities related to the transition to the modified territorial system for international taxation. The impact of the Tax Legislation may differ from the Company’s preliminary estimates due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Legislation. During the period ended June 30, 2018, the Company has not recorded any material adjustments to these provisional amounts. The Company continues to refine the analysis and calculations, which could impact the provisional estimates previously recorded. Accordingly, as of June 30, 2018, the Company has not fully completed the accounting for the Tax Legislation.position.

Pending accounting standards

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance which revises the credit loss recognition criteria for certain financial assets measured at amortized cost ~~including~~and includes reinsurance recoverables. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for ~~the~~a reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance that when deducted from the amortized cost basis of the related financial assets ~~that~~ results in ~~presenting the~~a net carrying value ~~of the financial assets~~ at the amount expected to be collected. The reporting entity must consider all relevant information available when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts over the life of an asset. Financial assets may be evaluated individually or on a pooled basis when they share similar risk characteristics. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which fair value is below amortized cost and the carrying value adjustment is recognized through a valuation allowance ~~and not as a direct write-down.~~which may change over time but

once recorded cannot subsequently be reduced to an amount below zero. The guidance is effective for reporting periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. The ~~Company is~~Company’s implementation activities, which remain in process, include review and validation of models, methodologies, data inputs and assumptions to be used to estimate expected credit losses. The implementation impacts relate primarily to the ~~process~~Company’s mortgage loans, bank loans and reinsurance recoverables and will depend on economic conditions and judgments at the date of ~~evaluating~~adoption as well as the ~~impact of adoption.~~

~~Accounting for Hedging Activities~~

~~In August 2017, the FASB issued amendments intended to better align hedge accounting with an organization’s risk management activities. The amendments expand hedge accounting for nonfinancial~~size and financial risk components and revise the measurement methodologies to better align with an organization’s risk management activities. Separate presentation of hedge ineffectiveness is eliminated to provide greater transparencycomposition of the ~~full impact of hedging by requiring presentation of the results of the hedged item~~loan portfolios and hedging instrument in a single financial statement line item. In addition, the amendments reduce complexity by simplifying the manner in which assessments of hedge effectiveness may be performed. The guidance is effective for reporting

~~periods beginning after December 15, 2018. The presentation and disclosure guidance is effective on a prospective basis.~~reinsurance balances. The impact of adoption is not expected to be material to the Company’s results of operations or financial position.

~~Other revenue presentation~~Accounting for Long-Duration Insurance Contracts

In August 2018, the FASB issued guidance revising the accounting for certain long-duration insurance contracts. The new guidance introduces material changes to the measurement of the Company’s reserves for traditional life, life-contingent immediate annuities and certain voluntary accident and health insurance products. Under the new guidance, measurement assumptions, including those for mortality, morbidity and policy terminations, will be required to be reviewed and updated at least annually. The effect of updating measurement assumptions other than the discount rate are required to be measured on a retrospective basis and reported in net income. In addition, cash flows under the new guidance are required to be discounted using an upper-medium grade fixed income instrument yield required to be updated through OCI at each reporting date. Current GAAP requires reserves to utilize assumptions set at policy issuance unless updated current assumptions would result in reserves that are deficient compared to the reserves recorded.

The new guidance requires deferred policy acquisition costs (“DAC”) and other capitalized balances currently amortized in proportion to premiums or gross profits to be amortized on a constant level basis over the expected term for all long-duration insurance contracts. DAC will not be subject to loss recognition testing but will be reduced when actual experience exceeds expected experience. The new guidance will no longer require adjustments to DAC and deferred sales inducement costs (“DSI”) related to unrealized gains and losses on investment securities supporting the related business.

Market risk benefit product features are required to be measured at fair value with changes in fair value recorded in net income with the exception of changes in the fair value attributable to changes in the reporting entity’s own credit risk, which are required to be recognized in OCI. Substantially all of the Company’s market risk benefits are reinsured and therefore these impacts are not expected to be material to the Company.

The new guidance is to be included in the comparable financial statements issued in reporting periods beginning after December 15, 2020, thereby requiring restatement of prior periods presented. Early adoption is permitted. The new guidance will be applied to affected contracts and DAC on the basis of existing carrying amounts at the earliest period presented or retrospectively using actual historical experience as of contract inception. The new guidance for market risk benefits is required to be adopted retrospectively. In July 2019, the FASB voted to expose a proposal for a thirty-day comment period to delay the effective date of the new guidance for public business entities that are SEC filers to reporting periods beginning after December 15, 2021. If adopted, the proposal would extend the effective date of the new guidance for public business entities that are SEC filers by one year.

The Company is evaluating the anticipated impacts of applying the new guidance to both retained income and AOCI. The requirements of the new guidance represent a material change from existing GAAP, however, the underlying economics of the business and related cash flows are unchanged. The Company is evaluating the specific impacts of adopting the new guidance and anticipates the financial statement impact of adopting the new guidance to be material, largely attributed to the impact of transitioning to a discount rate based on an upper-medium grade fixed income investment yield and updates to mortality assumptions. The Company expects the most significant impacts will occur in the run-off annuity business. The revised accounting for DAC will be applied prospectively using the ~~presentation~~new model and any DAC effects existing in AOCI as a result of ~~total revenue~~applying existing GAAP at the date of adoption will be reversed.

Dividends

The Company paid cash dividends of $75 million to ~~include other revenue. Previously, components~~AIC in the second quarter of other revenue were presented within operating costs and expenses and primarily represent gross dealer concessions received in connection with Allstate exclusive agencies and exclusive financial specialists sales of non-proprietary products. Other revenue is recognized when performance obligations are fulfilled. Prior periods have been reclassified to conform to current separate presentation of other revenue.2019.

2. Supplemental Cash Flow Information

Non-cash investing activities include ~~$13~~$62 million and $4$13 million related to mergers and exchanges completed with equity securities, fixed income securities and limited partnerships, and modifications of certain mortgage loans and other investments for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) and cleared derivatives are reported in other liabilities and accrued expenses or other investments. The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which are as follows:



($ in millions)	Six months ended June 30,
	2019			2018
Net change in proceeds managed
Net change in fixed income securities	$	28		$	68
Net change in short-term investments	(142		)	(37		)
Operating cash flow (used) provided	$	(114	)	$	31

Net change in liabilities
Liabilities for collateral, beginning of period	$	(524	)	$	(542	)
Liabilities for collateral, end of period	(638		)	(511		)
Operating cash flow provided (used)	$	114		$	(31	)

($ in millions) Six months ended June 30,
2018 2017
Net change in proceeds managed

Net change in fixed income securities $ 68
$ 9
Net change in short-term investments (37 ) 12
Operating cash flow provided $ 31
$ 21
Net change in liabilities

Liabilities for collateral, beginning of period $ (542 ) $ (550 )
Liabilities for collateral, end of period (511 ) (529 )
Operating cash flow used $ (31 ) $ (21 )

3. Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:



($ in millions)	Amortized		Gross unrealized					Fair
	cost		Gains		Losses			value
June 30, 2019
U.S. government and agencies	$	558	$	39	$	—		$	597
Municipal	1,757		275		(3		)	2,029
Corporate	17,520		1,001		(46		)	18,475
Foreign government	155		9		—			164
Asset-backed securities (“ABS”)	347		7		(3		)	351
Residential mortgage-backed securities (“RMBS”)	133		47		—			180
Commercial mortgage-backed securities (“CMBS”)	29		7		(3		)	33
Redeemable preferred stock	13		1		—			14
Total fixed income securities	$	20,512	$	1,386	$	(55	)	$	21,843

December 31, 2018
U.S. government and agencies	$	740	$	33	$	—		$	773
Municipal	1,997		202		(4		)	2,195
Corporate	17,521		433		(381		)	17,573
Foreign government	170		9		—			179
ABS	429		3		(3		)	429
RMBS	154		44		(1		)	197
CMBS	33		7		—			40
Redeemable preferred stock	13		1		—			14
Total fixed income securities	$	21,057	$	732	$	(389	)	$	21,400

($ in millions) Amortized Gross unrealized Fair
cost Gains Losses value
June 30, 2018

U.S. government and agencies $ 376
$ 27
$ —
$ 403
Municipal 2,036
218
(4 ) 2,250
Corporate 17,731
527
(306 ) 17,952
Foreign government 271
12
—
283
Asset-backed securities (“ABS”) 382
4
(4 ) 382
Residential mortgage-backed securities (“RMBS”) 178
48
(1 ) 225
Commercial mortgage-backed securities (“CMBS”) 53
6
(2 ) 57
Redeemable preferred stock 14
1
—
15
Total fixed income securities $ 21,041
$ 843
$ (317 ) $ 21,567

December 31, 2017

U.S. government and agencies $ 768
$ 38
$ (2 ) $ 804
Municipal 2,001
275
(3 ) 2,273
Corporate 18,262
960
(86 ) 19,136
Foreign government 279
20
—
299
ABS 383
6
(4 ) 385
RMBS 205
49
(1 ) 253
CMBS 93
6
(2 ) 97
Redeemable preferred stock 13
1
—
14
Total fixed income securities $ 22,004
$ 1,355
$ (98 ) $ 23,261

Scheduled maturities

The scheduled maturities for fixed income securities are as ~~follows as of June 30, 2018:~~follows:



($ in millions)	As of June 30, 2019
($ in millions)	Amortized cost		Fair value
Due in one year or less	$	1,251	$	1,267
Due after one year through five years	7,969		8,265
Due after five years through ten years	7,113		7,499
Due after ten years	3,670		4,248
	20,003		21,279
ABS, RMBS and CMBS	509		564
Total	$	20,512	$	21,843

($ in millions) Amortized cost Fair value
Due in one year or less $ 1,170
$ 1,177
Due after one year through five years 8,135
8,264
Due after five years through ten years 7,149
7,092
Due after ten years 3,974
4,370
20,428
20,903
ABS, RMBS and CMBS 613
664
Total $ 21,041
$ 21,567

Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income

Net investment income is as follows:


($ in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Fixed income securities	$	247		$	269		$	498		$	537		$	241		$	247		$	486		$	498
Mortgage loans	53			45			97			94			46			53			92			97
Equity securities	16			14			23			29			14			16			20			23
Limited partnership interests ^{(1) (2)}	92			135			188			200
Limited partnership interests													102			92			105			188
Short-term investments	5			2			9			3			8			5			16			9
Policy loans	8			7			15			15			8			8			16			15
Other	23			21			45			40			24			23			46			45
Investment income, before expense	444			493			875			918			443			444			781			875
Investment expense	(25		)	(20		)	(49		)	(41		)	(26		)	(25		)	(53		)	(49		)
Net investment income	$	419		$	473		$	826		$	877		$	417		$	419		$	728		$	826

~~Fixed income securities:~~ ~~Comprise certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.~~

~~Equity securities:~~ ~~Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.~~

~~Short-term:~~ Comprise U.S. Treasury bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

~~Separate account assets:~~ Comprise actively traded mutual funds that have daily quoted net asset values that are readily determinable for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.


•	Fixed income securities: Comprise certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.


•	Equity securities: Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.


•	Short-term: Comprise U.S. Treasury bills valued based on unadjusted quoted prices for identical assets in active markets that the Company can access and actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.


•	Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values that are readily determinable for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

Level 2 measurements

Fixed income securities:

U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate - public: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate - privately placed: Valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

ABS - collateralized debt obligations (“CDO”) and ABS - consumer and other: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Certain ABS - CDO and ABS - consumer and other are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

RMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.

CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

~~Equity securities:~~ ~~The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.~~

~~Short-term:~~ The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value.

~~Other investments:~~ ~~Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.~~


•	Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.


•	Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.


•	Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

OTC derivatives, including interest rate swaps, foreign currency swaps, total return swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves,

implied volatilities, index price levels, currency rates, and credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

Level 3 measurements

Fixed income securities:

Municipal: Comprise municipal bonds that are not rated by ~~third party~~third-party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows.

Corporate - public and Corporate - privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

ABS - CDO, ABS - consumer and ~~other:~~ other, and CMBS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.

~~Equity securities:~~ The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

~~Other investments:~~ Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

~~Contractholder funds:~~ Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the

contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.


•	Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

•

Other investments: Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

•

Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.

Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. ~~EMA limited partnership interests~~Bank loans written-down to fair value ~~in connection~~are valued based on broker quotes from brokers familiar with ~~recognizing OTTI losses are generally valued using net asset values.~~the loans and current market conditions or based on internal valuation models.

Investments excluded from the fair value hierarchy

Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. ~~We receive~~The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, ~~over~~which usually takes place in years 4-9 of the typical contractual life of ~~these investments, typically~~ 10-12 years. As of June 30, ~~2018,~~2019, the Company has commitments to invest ~~$352~~$241 million in these limited partnership interests.

The following table summarizes the Company’s assets and liabilities measured at fair value as of June 30, ~~2018.~~2019.


($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of June 30, 2018			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of June 30, 2019
Assets
Fixed income securities:
U.S. government and agencies	$	126		$	277		$	—					$	403		$	307		$	290		$	—					$	597
Municipal	—			2,192			58						2,250			—			1,989			40						2,029
Corporate - public	—			12,381			47						12,428			—			12,603			32						12,635
Corporate - privately placed	—			5,337			187						5,524			—			5,744			96						5,840
Foreign government	—			283			—						283			—			164			—						164
ABS - CDO	—			29			9						38			—			21			6						27
ABS - consumer and other	—			297			47						344			—			296			28						324
RMBS	—			225			—						225			—			180			—						180
CMBS	—			57			—						57			—			31			2						33
Redeemable preferred stock	—			15			—						15			—			14			—						14
Total fixed income securities	126			21,093			348						21,567			307			21,332			204						21,843
Equity securities	1,577			15			113						1,705			1,261			13			119						1,393
Short-term investments	395			671			—						1,066			758			459			—						1,217
Other investments: Free-standing derivatives	—			88			1			$	(3	)	86			—			94			—			$	(9	)	85
Separate account assets	3,247			—			—						3,247			3,029			—			—						3,029
Total recurring assets at fair value	$	5,345		$	21,867		$	462		$	(3	)	$	27,671
Total recurring basis assets																5,355			21,898			323			(9		)	27,567
Non-recurring basis ⁽¹⁾																—			—			5						5
Total assets at fair value																$	5,355		$	21,898		$	328		$	(9	)	$	27,572
% of total assets at fair value	19.3		%	79.0		%	1.7		%	—		%	100		%	19.4		%	79.4		%	1.2		%	—		%	100.0		%

Investments reported at NAV													740															773
Total													$	28,411														$	28,345

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(257	)				$	(257	)	$	—		$	—		$	(411	)				$	(411	)
Other liabilities: Free-standing derivatives	—			(30		)	—			$	(3	)	(33		)	—			(30		)	—			$	1		(29		)
Total liabilities at fair value	$	—		$	(30	)	$	(257	)	$	(3	)	$	(290	)
Total recurring basis liabilities at fair value																$	—		$	(30	)	$	(411	)	$	1		$	(440	)
% of total liabilities at fair value	—		%	10.4		%	88.6		%	1.0		%	100		%	—		%	6.8		%	93.4		%	(0.2		)%	100.0		%

__________


⁽¹⁾	Includes $5 million of bank loans written-down to fair value in connection with recognizing OTTI impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value as of December 31, ~~2017.~~2018.


($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of December 31, 2017			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of December 31, 2018
Assets
Fixed income securities:
U.S. government and agencies	$	488		$	316		$	—					$	804		$	493		$	280		$	—					$	773
Municipal	—			2,216			57						2,273			—			2,156			39						2,195
Corporate - public	—			13,168			49						13,217			—			11,891			33						11,924
Corporate - privately placed	—			5,699			220						5,919			—			5,552			97						5,649
Foreign government	—			299			—						299			—			179			—						179
ABS - CDO	—			38			10						48			—			26			6						32
ABS - consumer and other	—			297			40						337			—			381			16						397
RMBS	—			253			—						253			—			197			—						197
CMBS	—			97			—						97			—			40			—						40
Redeemable preferred stock	—			14			—						14			—			14			—						14
Total fixed income securities	488			22,397			376						23,261			493			20,716			191						21,400
Equity securities	1,508			16			90						1,614			1,182			14			129						1,325
Short-term investments	110			615			—						725			443			367			—						810
Other investments: Free-standing derivatives	—			117			1			$	(3	)	115			—			30			1			$	(8	)	23
Separate account assets	3,422			—			—						3,422			2,783			—			—						2,783
Total recurring assets at fair value	$	5,528		$	23,145		$	467		$	(3	)	$	29,137
Total recurring basis assets at fair value																$	4,901		$	21,127		$	321		$	(8	)	$	26,341
% of total assets at fair value	19.0		%	79.4		%	1.6		%	—		%	100		%	18.6		%	80.2		%	1.2		%	—		%	100.0		%

Investments reported at NAV																												787
Total																												$	27,128

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(284	)				$	(284	)	$	—		$	—		$	(223	)				$	(223	)
Other liabilities: Free-standing derivatives	—			(62		)	—			$	1		(61		)	—			(7		)	—			$	2		(5		)
Total liabilities at fair value	$	—		$	(62	)	$	(284	)	$	1		$	(345	)
Total recurring basis liabilities at fair value																$	—		$	(7	)	$	(223	)	$	2		$	(228	)
% of total liabilities at fair value	—		%	18.0		%	82.3		%	(0.3		)%	100		%	—		%	3.1		%	97.8		%	(0.9		)%	100.0		%

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.



($ in millions)	Fair value			Valuation technique	Unobservable input	Range	Weighted average
June 30, 2019
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(375	)	Stochastic cash flow model	Projected option cost	1.0 - 4.2%	2.53	%
December 31, 2018
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(184	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74	%

($ in millions) Fair value
Valuation
technique

Unobservable
input
Range
Weighted
average
June 30, 2018

Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options $ (228 ) Stochastic cash flow model Projected option cost 1.0 - 2.2% 1.74 %
December 31, 2017

Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options $ (250 ) Stochastic cash flow model Projected option cost 1.0 - 2.2% 1.74 %

The embedded derivatives are equity-indexed and forward starting options in certain life and annuity products that provide customers with interest crediting rates based on the performance of the S&P 500. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Level 3 fair value measurements of fixed income securities total ~~$348~~$204 million and ~~$376~~$191 million, respectively, and include ~~$204~~$54 million and ~~$237~~$80 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2019			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	40		$	—		$	1	$	—		$	—
Corporate - public	35			—			—		—			(2		)
Corporate - privately placed	97			—			—		—			(1		)
ABS - CDO	6			—			—		—			—
ABS - consumer and other	25			—			—		—			(12		)
CMBS	2			—			—		—			—
Total fixed income securities	205			—			1		—			(15		)
Equity securities	106			5			—		—			—
Free-standing derivatives, net	1			(1		)	—		—			—
Total recurring Level 3 assets	$	312		$	4		$	1	$	—		$	(15	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(247	)	$	(11	)	$	—	$	(154	)	$	—
Total recurring Level 3 liabilities	$	(247	)	$	(11	)	$	—	$	(154	)	$	—

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—	$	—		$	40
Corporate - public	—			(1		)	—		—			32
Corporate - privately placed	1			—			—		(1		)	96
ABS - CDO	—			—			—		—			6
ABS - consumer and other	22			(6		)	—		(1		)	28
CMBS	—			—			—		—			2
Total fixed income securities	23			(8		)	—		(2		)	204
Equity securities	8			—			—		—			119
Free-standing derivatives, net	—			—			—		—			—
Total recurring Level 3 assets	$	31		$	(8	)	$	—	$	(2	)	$	323

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	1		$	(411	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	1		$	(411	)

____________


⁽¹⁾	The effect to net income totals $(7) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in realized capital gains and losses, $2 million in net investment income, $(6) million in interest credited to contractholder funds and $(5) million in contract benefits.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the six months ended June 30, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2018			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	39		$	—		$	2	$	—		$	—
Corporate - public	33			—			—		—			(2		)
Corporate - privately placed	97			(2		)	2		15			(1		)
ABS - CDO	6			—			—		—			—
ABS - consumer and other	16			—			—		—			(12		)
CMBS	—			—			—		2			—
Total fixed income securities	191			(2		)	4		17			(15		)
Equity securities	129			20			—		—			—
Free-standing derivatives, net	1			(1		)	—		—			—
Total recurring Level 3 assets	$	321		$	17		$	4	$	17		$	(15	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(223	)	$	(36	)	$	—	$	(154	)	$	—
Total recurring Level 3 liabilities	$	(223	)	$	(36	)	$	—	$	(154	)	$	—

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—	$	—		$	40
Corporate - public	3			(1		)	—		(1		)	32
Corporate - privately placed	1			(13		)	—		(3		)	96
ABS - CDO	—			—			—		—			6
ABS - consumer and other	34			(6		)	—		(4		)	28
CMBS	—			—			—		—			2
Total fixed income securities	38			(21		)	—		(8		)	204
Equity securities	8			(38		)	—		—			119
Free-standing derivatives, net	—			—			—		—			—
Total recurring Level 3 assets	$	46		$	(59	)	$	—	$	(8	)	$	323

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	2		$	(411	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	2		$	(411	)

____________


⁽¹⁾	The effect to net income totals $(19) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $15 million in realized capital gains and losses, $2 million in net investment income, $(39) million in interest credited to contractholder funds and $3 million in contract benefits.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2018.


($ in millions)				Total gains (losses) included in:															Total gains (losses) included in:
	Balance as of March 31, 2018			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3				Balance as of March 31, 2018			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	56		$	—		$	—	$	—		$	—			$	56		$	—		$	—	$	—		$	—
Corporate - public	47			—			—		—			—				47			—			—		—			—
Corporate - privately placed	215			(2		)	1		10			(10		)		215			(2		)	1		10			(10		)
ABS - CDO	10			—			—		—			—				10			—			—		—			—
ABS - consumer and other	41			—			—		3			(2		)		41			—			—		3			(2		)
Total fixed income securities	369			(2		)	1		13			(12		)		369			(2		)	1		13			(12		)
Equity securities	99			6			—		—			—				99			6			—		—			—
Free-standing derivatives, net	1			—			—		—			—				1			—			—		—			—
Total recurring Level 3 assets	$	469		$	4		$	1	$	13		$	(12	)		$	469		$	4		$	1	$	13		$	(12	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(260	)	$	2		$	—	$	—		$	—			$	(260	)	$	2		$	—	$	—		$	—
Total recurring Level 3 liabilities	$	(260	)	$	2		$	—	$	—		$	—			$	(260	)	$	2		$	—	$	—		$	—

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2018				Purchases			Sales			Issues		Settlements			Balance as of June 30, 2018
Assets
Fixed income securities:
Municipal	$	2		$	—		$	—	$	—		$	58			$	2		$	—		$	—	$	—		$	58
Corporate - public	—			—			—		—			47				—			—			—		—			47
Corporate - privately placed	—			—			—		(27		)	187				—			—			—		(27		)	187
ABS - CDO	—			—			—		(1		)	9				—			—			—		(1		)	9
ABS - consumer and other	10			(4		)	—		(1		)	47				10			(4		)	—		(1		)	47
Total fixed income securities	12			(4		)	—		(29		)	348				12			(4		)	—		(29		)	348
Equity securities	15			(7		)	—		—			113				15			(7		)	—		—			113
Free-standing derivatives, net	—			—			—		—			1			⁽²⁾	—			—			—		—			1			⁽²⁾
Total recurring Level 3 assets	$	27		$	(11	)	$	—	$	(29	)	$	462			$	27		$	(11	)	$	—	$	(29	)	$	462

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	1		$	(257	)		$	—		$	—		$	—	$	1		$	(257	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	1		$	(257	)		$	—		$	—		$	—	$	1		$	(257	)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS FOR THE THREE ~~MONTH~~ AND SIX MONTH PERIODS ENDED JUNE 30, ~~2018~~2019 AND ~~2017~~2018

OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of Allstate Life Insurance Company (referred to in this document as “we,” “our,” “us,” the “Company” or “ALIC”). It should be read in conjunction with the condensed consolidated financial statements and notes thereto found under Part I. Item 1. contained herein, and with the discussion, analysis, consolidated financial statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of the Allstate Life Insurance Company annual report on Form 10-K for ~~2017.~~2018. We operate as a single segment entity based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.

HIGHLIGHTS

Net income was $157 million and $321 million in the second quarter and first six months of 2019, respectively, compared to $134 million and $224 million in the second quarter and first six months of 2018, ~~respectively, compared~~respectively.

Premiums and contract charges totaled $340 million in the second quarter of 2019, a decrease of 2.3% from $348 million in the second quarter of 2018, and $687 million in the first six months of 2019, a decrease of 2.0% from $701 million in the first six months of 2018.

Investments totaled $33.67 billion as of June 30, 2019, an increase of $988 million from $32.68 billion as of December 31, 2018. Net investment income decreased 0.5% to ~~$120~~$417 million in the second quarter of 2019 and decreased 11.9% to $728 million in the first six months of 2019 from $419 million and ~~$206~~$826 million in the second quarter and first six months of ~~2017,~~2018, respectively.

~~Premiums and contract charges~~Net realized capital gains totaled $348 million in the second quarter of 2018, an increase of 0.3% from $347 million in the second quarter of 2017, and $701 million in the first six months of 2018, an increase of 0.9% from $695 million in the first six months of 2017.

Investments totaled $33.51 billion as of June 30, 2018, a decrease of $930 million from $34.44 billion as of December 31, 2017. Net investment income decreased 11.4% to $419 million in the second quarter of 2018 and 5.8% to $826 million in the first six months of 2018 from $473$46 million and ~~$877~~$194 million in the second quarter and first six months of ~~2017, respectively.~~

~~Net~~2019 compared to net realized capital gains of $8 million and net realized capital losses of $24 million in the second quarter and first six months of 2018, respectively.

Contractholder funds totaled $8$17.02 billion as of June 30, 2019, a decrease of $446 million from $17.47 billion as of December 31, 2018.

OPERATIONS

Summary analysis Summarized financial data is presented in the following table.



($ in millions)	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Revenues
Premiums	$	170		$	175		$	341		$	352
Contract charges	170			173			346			349
Other revenue	11			8			21			16
Net investment income	417			419			728			826
Realized capital gains and losses	46			8			194			(24		)
Total revenues	814			783			1,630			1,519

Costs and expenses
Contract benefits	(375		)	(357		)	(738		)	(727		)
Interest credited to contractholder funds	(143		)	(152		)	(291		)	(300		)
Amortization of DAC	(33		)	(39		)	(65		)	(78		)
Operating costs and expenses	(66		)	(68		)	(135		)	(136		)
Restructuring and related charges	—			(2		)	—			(2		)
Interest expense	(1		)	(1		)	(2		)	(2		)
Total costs and expenses	(618		)	(619		)	(1,231		)	(1,245		)

Gain on disposition of operations	2			2			3			3
Income tax expense	(41		)	(32		)	(81		)	(53		)
Net income	$	157		$	134		$	321		$	224

Net income was $157 million in the second quarter of ~~2018,~~2019 compared to ~~net realized capital losses of $4~~$134 million in the second quarter of ~~2017. Net~~2018. The increase was primarily due to higher net realized capital ~~losses totaled $24~~gains, partially offset by higher contract benefits. Net income was $321 million in the first six months of 2019 compared to $224 million in the first six months of 2018, ~~compared to $5 million in the first six months of 2017.~~

~~Contractholder funds totaled $18.02 billion as of June 30, 2018, reflecting a decrease of $576 million from $18.59 billion as of December 31, 2017.~~

On December 22, 2017, Public Law 115-97, known as the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) became effective, permanently reducing the U.S. corporate income tax rate from 35% to 21% beginning January 1, 2018. As a result, the corporate tax rate is not comparable between periods. During 2017, we revalued deferred tax assets and liabilities and recorded liabilities related to the transition to the modified territorial system for international taxation. The impact of the Tax Legislation may differ from our preliminary estimates due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Tax Legislation. During the period ended June 30, 2018, we have not recorded any material adjustments to these provisional amounts. We continue to refine our analysis and calculations, which could impact the provisional estimates previously recorded. Accordingly, as of June 30, 2018, we have not fully completed our accounting for the Tax Legislation.

Concurrent with the adoption of the Financial Accounting Standards Board’s standard on revenue from contracts with customers and our objective of providing more information, we revised the presentation of total revenue to include other revenue. Previously, components of other revenue were presented within operating costs and expenses and primarily represent gross dealer concessions received in connection with Allstate exclusive agencies and exclusive financial specialists sales of non-proprietary products, including fixed annuities, disability insurance and long-term care insurance. Other revenue is recognized when performance obligations are fulfilled. Prior periods have been reclassified to conform to current separate presentation of other revenue.

~~OPERATIONS~~

~~Summary analysis~~ ~~Summarized financial data is presented in the following table.~~

($ in millions) Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Revenues

Premiums $ 175
$ 170
$ 352
$ 339
Contract charges 173
177
349
356
Other revenue 8
10
16
21
Net investment income 419
473
826
877
Realized capital gains and losses 8
(4 ) (24 ) (5 )
Total revenues 783
826
1,519
1,588

Costs and expenses

Contract benefits (357 ) (364 ) (727 ) (718 )
Interest credited to contractholder funds (152 ) (161 ) (300 ) (322 )
Amortization of deferred policy acquisition costs (“DAC”) (39 ) (43 ) (78 ) (84 )
Operating costs and expenses (68 ) (78 ) (136 ) (158 )
Restructuring and related charges (2 ) —
(2 ) —
Interest expense (1 ) (2 ) (2 ) (3 )
Total costs and expenses (619 ) (648 ) (1,245 ) (1,285 )

Gain on disposition of operations 2
2
3
4
Income tax expense (32 ) (60 ) (53 ) (101 )
Net income $ 134
$ 120
$ 224
$ 206

~~Net income~~ ~~was $134 million in the second quarter of 2018 compared to $120 million in the second quarter of 2017. The increase was~~ primarily due to ~~a lower effective tax rate from the Tax Legislation,~~net realized capital gains in the current year period compared to net realized capital losses in the prior year ~~and lower operating costs and expenses,~~period, partially offset by lower net investment income. ~~Net income was $224~~

Analysis of revenues Total revenues increased 4.0% or $31 million in the second quarter of 2019 compared to the second quarter of 2018, primarily due to higher net realized capital gains, partially offset by lower premiums and contract charges. Total revenues increased 7.3% or $111 million in the first six months of ~~2018~~2019 compared to ~~$206 million in~~ the first six months of ~~2017. The increase was~~2018, primarily due to ~~a lower effective tax rate from the Tax Legislation, and lower interest credited to contractholder funds and operating costs and expenses, partially offset by lower~~ net ~~investment income and higher net realized capital losses.~~

~~Analysis of revenues~~ ~~Total revenues decreased 5.2% or $43 million in the second quarter of 2018 compared to the second quarter of 2017, primarily due to lower net investment income, partially offset by~~ realized capital gains in the current year period compared to net realized capital losses in the prior ~~year. Total revenues decreased 4.3% or $69 million in the first six months of 2018 compared to the first six months of 2017, primarily due to~~year period, partially offset by lower net investment income and ~~higher net realized capital losses, partially offset by higher~~ premiums.

Premiums represent revenues generated from traditional life insurance, accident and health insurance products, and immediate annuities with life contingencies that have significant mortality or morbidity risk.

Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.

The following table summarizes premiums and contract charges by product.


($ in millions)	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Underwritten products
Traditional life insurance premiums	$	145	$	143	$	292	$	286	$	140	$	145	$	281	$	292
Accident and health insurance premiums	30		27		60		53		30		30		60		60
Interest-sensitive life insurance contract charges	170		174		343		350		167		170		340		343
Subtotal	345		344		695		689		337		345		681		695

Annuities
Fixed annuity contract charges	3		3		6		6		3		3		6		6
Premiums and contract charges⁽¹⁾	$	348	$	347	$	701	$	695	$	340	$	348	$	687	$	701



	Illinois		36-2554642
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)



Yes	☒	No	☐



Yes	☒	No	☐



Large accelerated filer ~~____~~	☐	Accelerated filer	☐

Non-accelerated filer X ~~(Do not check if a smaller reporting company)~~	☒	Smaller reporting company	☐

		Emerging growth company ~~_____~~	☐



Yes	☐	No	☒



PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Month and Six Month Periods Ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	1

	Condensed Consolidated Statements of Financial Position as of June 30, ~~2018 (unaudited)~~2019 and December 31, ~~2017~~2018 (unaudited)	2

	Condensed Consolidated Statements of Shareholder’s Equity for the Three Month and Six Month Periods Ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

	Report of Independent Registered Public Accounting Firm	3334

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Highlights	34
	~~Operations~~	35
	~~Investments~~Operations	3936
	~~Capital Resources and Liquidity~~Investments	4641
	~~Forward Looking~~Capital Resources and Liquidity	47
	Forward-Looking Statements	48

Item 4.	Controls and Procedures	49

~~PART II~~	~~OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	50

~~Item 1A.~~PART II	~~Risk Factors~~OTHER INFORMATION

Item 1.	50Legal Proceedings	51

Item 6.1A.	~~Exhibits~~Risk Factors	5051

Item 6.	Exhibits	51


($ in millions, except par value data)	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Assets	(unaudited)
Investments
Fixed income securities, at fair value (amortized cost $21,041 and $22,004)	$	21,567		$	23,261
Fixed income securities, at fair value (amortized cost $20,512 and $21,057)							$	21,843		$	21,400
Mortgage loans	3,839			3,876			4,043			3,995
Equity securities, at fair value (cost $1,439 and $1,306)	1,705			1,614
Equity securities, at fair value (cost $1,091 and $1,197)							1,393			1,325
Limited partnership interests	3,452			3,147			3,275			3,292
Short-term, at fair value (amortized cost $1,066 and $725)	1,066			725
Short-term, at fair value (amortized cost $1,217 and $810)							1,217			810
Policy loans	557			561			548			561
Other	1,322			1,254			1,352			1,300
Total investments	33,508			34,438			33,671			32,683
Cash	61			145			80			52
Deferred policy acquisition costs	1,231			1,156			1,054			1,232
Reinsurance recoverables from non-affiliates	2,202			2,243			2,070			2,185
Reinsurance recoverables from affiliates	428			437			413			420
Accrued investment income	265			263			261			253
Other assets	516			501			566			534
Separate Accounts	3,247			3,422			3,029			2,783
Total assets	$	41,458		$	42,605		$	41,144		$	40,142
Liabilities
Contractholder funds	$	18,016		$	18,592		$	17,024		$	17,470
Reserve for life-contingent contract benefits	11,267			11,625			11,351			11,239
Unearned premiums	4			4			4			4
Payable to affiliates, net	41			55			36			50
Other liabilities and accrued expenses	1,003			1,076			1,288			1,101
Deferred income taxes	812			836			823			663
Notes due to related parties	140			140			140			140
Separate Accounts	3,247			3,422			3,029			2,783
Total liabilities	34,530			35,750			33,695			33,450
Commitments and Contingent Liabilities (Note 7)
Shareholder’s equity
Redeemable preferred stock - series A, $100 par value, 1,500,000 shares authorized, none issued	—			—			—			—
Redeemable preferred stock - series B, $100 par value, 1,500,000 shares authorized, none issued	—			—			—			—
Common stock, $227 par value, 23,800 shares authorized and outstanding	5			5			5			5
Additional capital paid-in	2,024			2,024			2,024			2,024
Retained income	4,519			3,981			4,656			4,410
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI	48			47			49			45
Other unrealized net capital gains and losses	368			1,186			1,002			225
Unrealized adjustment to DAC, DSI and insurance reserves	(55		)	(398		)	(292		)	(27		)
Total unrealized net capital gains and losses	361			835			759			243
Unrealized foreign currency translation adjustments	19			10			5			10
Total accumulated other comprehensive income (“AOCI”)	380			845			764			253
Total shareholder’s equity	6,928			6,855			7,449			6,692
Total liabilities and shareholder’s equity	$	41,458		$	42,605		$	41,144		$	40,142


⁽¹⁾	~~Due to the adoption of the recognition and measurement accounting standard, limited partnerships previously reported using the cost method are now reported at fair valuewith changes in fair value recognized in net investment income~~.


⁽²⁾	Includes net investment income of $82 million and $140 million for EMA limited partnership interests and $10 million and $48 million for limited partnership interests carried at fair value for the three months and six months ended June 30, 2018, respectively.


⁽¹⁾	Investments held at the end of a prior quarter that were sold in the current quarter are not included in the year-to-date amounts shown in the table above; therefore, the sum of the quarterly amounts may not equal the year-to-date amount.



($ in millions)	Three months ended June 30, 2018									Three months ended June 30, 2017
	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	—		$	—		$	—		$	(1	)	$	—		$	(1	)
RMBS	(1		)	—			(1		)	—			—			—
CMBS	—			—			—			(3		)	—			(3		)
Total fixed income securities	(1		)	—			(1		)	(4		)	—			(4		)
Equity securities ⁽¹⁾	—			—			—			(5		)	—			(5		)
Limited partnership interests ⁽¹⁾	—			—			—			(4		)	—			(4		)
Other	(1		)	—			(1		)	—			—			—
OTTI losses	$	(2	)	$	—		$	(2	)	$	(13	)	$	—		$	(13	)

	Six months ended June 30, 2018									Six months ended June 30, 2017
	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	—		$	—		$	—		$	(1	)	$	—		$	(1	)
Corporate	—			—			—			(7		)	3			(4		)
RMBS	(1		)	—			(1		)	—			(2		)	(2		)
CMBS	—			(1		)	(1		)	(9		)	3			(6		)
Total fixed income securities	(1		)	(1		)	(2		)	(17		)	4			(13		)
Equity securities ⁽¹⁾	—			—			—			(15		)	—			(15		)
Limited partnership interests ⁽¹⁾	—			—			—			(7		)	—			(7		)
Other	(1		)	—			(1		)	(2		)	—			(2		)
Other-than-temporary impairment losses	$	(2	)	$	(1	)	$	(3	)	$	(41	)	$	4		$	(37	)



	Three months ended									Three months ended
($ in millions)	June 30, 2019									June 30, 2018
	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Corporate	$	(1	)	$	(1	)	$	(2	)	$	—		$	—		$	—
ABS	(1		)	—			(1		)	—			—			—
RMBS	—			—			—			(1		)	—			(1		)
CMBS	(2		)	2			—			—			—			—
Total fixed income securities	(4		)	1			(3		)	(1		)	—			(1		)
Limited partnership interests	(1		)	—			(1		)	—			—			—
Other	(1		)	—			(1		)	(1		)	—			(1		)
OTTI losses	$	(6	)	$	1		$	(5	)	$	(2	)	$	—		$	(2	)

	Six months ended									Six months ended
	June 30, 2019									June 30, 2018
	Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Corporate	$	(1	)	$	(1	)	$	(2	)	$	—		$	—		$	—
ABS	(1		)	—			(1		)	—			—			—
RMBS	—			—			—			(1		)	—			(1		)
CMBS	(2		)	2			—			—			(1		)	(1		)
Total fixed income securities	(4		)	1			(3		)	(1		)	(1		)	(2		)
Limited partnership interests	(2		)	—			(2		)	—			—			—
Other	(7		)	—			(7		)	(1		)	—			(1		)
OTTI losses	$	(13	)	$	1		$	(12	)	$	(2	)	$	(1	)	$	(3	)


⁽¹⁾	Due to the adoption of the recognition and measurement accounting standard, equity securities and limited partnerships previously reported using the cost method are now reported at fair value with changes in fair value recognized in net income and are no longer included in the table above.


⁽²⁾	The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at lower interest rates, resulting in a premium deficiency. This adjustment primarily relates to structured settlement annuities with life contingencies (a type of immediate fixed annuities).


⁽³⁾	The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.


⁽¹⁾	~~Included in the fair value of derivative instruments is $2 million classified as liabilities.~~



($ in millions)
Fixed income securities	$	988
EMA limited partnerships	(1		)
Total	987
Amounts recognized for:
Insurance reserves	(178		)
DAC and DSI	(156		)
Amounts recognized	(334		)
Deferred income taxes	(137		)
Increase in unrealized net capital gains and losses, after-tax	$	516



($ in millions)
Fixed income securities	$	(731	)
Equity securities⁽¹⁾	—
Derivative instruments	(2		)
Total	(733		)
Amounts recognized for:
Insurance reserves	315
DAC and DSI	119
Amounts recognized	434
Deferred income taxes	63
Decrease in unrealized net capital gains and losses, after-tax	$	(236	)



($ in millions)	Less than 12 months						12 months or more						Total unrealized losses
	Number of issues	Fair value		Unrealized losses			Number of issues	Fair value		Unrealized losses
	Number of issues	Fair value		Unrealized losses			Number of issues	Fair value		Unrealized losses
June 30, 2019
Fixed income securities
U.S. government and agencies	—	$	—	$	—		—	$	—	$	—		$	—
Municipal	—	—		—			1	13		(3		)	(3		)
Corporate	101	329		(7		)	175	1,278		(39		)	(46		)
ABS	7	28		(1		)	4	8		(2		)	(3		)
RMBS	31	5		—			31	4		—			—
CMBS	2	8		(3		)	1	—		—			(3		)
Redeemable preferred stock	1	—		—			—	—		—			—
Total fixed income securities	142	$	370	$	(11	)	212	$	1,303	$	(44	)	$	(55	)
Investment grade fixed income securities	63	$	133	$	(1	)	162	$	1,108	$	(31	)	$	(32	)
Below investment grade fixed income securities	79	237		(10		)	50	195		(13		)	(23		)
Total fixed income securities	142	$	370	$	(11	)	212	$	1,303	$	(44	)	$	(55	)

December 31, 2018
Fixed income securities
U.S. government and agencies	2	$	6	$	—		1	$	1	$	—		$	—
Municipal	38	98		(1		)	5	26		(3		)	(4		)
Corporate	1,260	6,799		(218		)	370	2,633		(163		)	(381		)
ABS	30	167		(1		)	11	31		(2		)	(3		)
RMBS	124	11		—			47	10		(1		)	(1		)
CMBS	3	7		—			2	—		—			—
Redeemable preferred stock	1	—		—			—	—		—			—
Total fixed income securities	1,458	$	7,088	$	(220	)	436	$	2,701	$	(169	)	$	(389	)
Investment grade fixed income securities	948	$	5,255	$	(121	)	388	$	2,551	$	(147	)	$	(268	)
Below investment grade fixed income securities	510	1,833		(99		)	48	150		(22		)	(121		)
Total fixed income securities	1,458	$	7,088	$	(220	)	436	$	2,701	$	(169	)	$	(389	)



($ in millions)	Investment grade			Below investment grade			Total
Fixed income securities with unrealized loss position less than 20% of amortized cost^{(1) (2)}	$	(20	)	$	(19	)	$	(39	)
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost^{(3) (4)}	(12		)	(4		)	(16		)
Total unrealized losses	$	(32	)	$	(23	)	$	(55	)


⁽²⁾	Related to securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired.


⁽⁴⁾	Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.


(a)	Quoted prices for similar assets or liabilities in active markets;


(b)	Quoted prices for identical or similar assets or liabilities in markets that are not active; or


(c)	Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.


⁽¹⁾	The effect to net income totals $6 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $4 million in realized capital gains and losses, $1 million in interest credited to contractholder funds and $1 million in contract benefits.


⁽¹⁾	The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $5 million in realized capital gains and losses, $20 million in interest credited to contractholder funds and $5 million in contract benefits.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2017			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	60		$	—		$	—		$	—		$	—
Corporate - public	36			—			—			—			—
Corporate - privately placed	268			5			(7		)	11			—
ABS - CDO	32			1			—			1			(9		)
ABS - consumer and other	47			—			—			—			(3		)
Total fixed income securities	443			6			(7		)	12			(12		)
Equity securities	80			1			2			—			—
Free-standing derivatives, net	(1		)	2			—			—			—
Total recurring Level 3 assets	$	522		$	9		$	(5	)	$	12		$	(12	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(285	)	$	—		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(285	)	$	—		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	—			—			—			—			36
Corporate - privately placed	3			(29		)	—			(1		)	250
ABS - CDO	—			—			—			(1		)	24
ABS - consumer and other	21			—			—			(2		)	63
Total fixed income securities	24			(29		)	—			(4		)	433
Equity securities	—			(8		)	—			—			75
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	24		$	(37	)	$	—		$	(4	)	$	509

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(284	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(284	)


⁽¹⁾	The effect to net income totals $9 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $7 million in realized capital gains and losses, $2 million in net investment income, $(1) million in interest credited to contractholder funds and $1 million in contract benefits.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2016			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	59		$	—		$	1		$	—		$	—
Corporate - public	47			1			—			—			(10		)
Corporate - privately placed	264			5			(2		)	11			—
ABS - CDO	27			—			2			4			(9		)
ABS - consumer and other	42			—			—			—			(5		)
Total fixed income securities	439			6			1			15			(24		)
Equity securities	76			6			2			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	514		$	14		$	3		$	15		$	(24	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(289	)	$	3		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(289	)	$	3		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	—			—			—			(2		)	36
Corporate - privately placed	3			(29		)	—			(2		)	250
ABS - CDO	5			—			—			(5		)	24
ABS - consumer and other	29			—			—			(3		)	63
Total fixed income securities	37			(29		)	—			(12		)	433
Equity securities	—			(9		)	—			—			75
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	37		$	(38	)	$	—		$	(12	)	$	509

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	3		$	(284	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	3		$	(284	)


⁽¹⁾	The effect to net income totals $17 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $8 million in realized capital gains and losses, $7 million in net investment income, $(6) million in interest credited to contractholder funds and $8 million in contract benefits.


($ in millions, except number of contracts)		Volume⁽¹⁾												Volume⁽¹⁾
	Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability			Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability
Asset derivatives
Derivatives designated as fair value accounting hedging instruments													Derivatives designated as fair value accounting hedging instruments
Other													Other assets	$	2	n/a	$	—		$	—	$	—
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments	$	13	n/a	$	—		$	—	$	—
Financial options	Other investments	—		18	—			—		—
Futures													Other assets	—		260	—			—		—
Equity and index contracts
Options	Other investments	—		32,622	85			85		—			Other investments	—		3,153	84			84		—
Financial futures	Other assets	—		51	—			—		—
Futures													Other assets	—		107	—			—		—
Total return index contracts
Total return swap agreements - fixed income	Other assets	19		n/a	—			—		—			Other investments	3		n/a	—			—		—
Foreign currency contracts
Foreign currency forwards	Other investments	9		n/a	—			—		—
Total return swap agreements - equity index													Other investments	12		n/a	1			1		—
Credit default contracts
Credit default swaps – buying protection	Other investments	15		n/a	(1		)	—		(1		)	Other investments	1		n/a	—			—		—
Credit default swaps – selling protection	Other investments	30		n/a	1			1		—
Other contracts
Other	Other assets	3		n/a	—			—		—
Total asset derivatives		$	89	32,691	$	85		$	86	$	(1	)		$	18	3,520	$	85		$	85	$	—

Liability derivatives
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other liabilities & accrued expenses	$	28	n/a	$	1		$	1	$	—		Other liabilities & accrued expenses	$	35	n/a	$	—		$	—	$	—
Financial options	Other liabilities & accrued expenses	—		574	—			—		—
Equity and index contracts
Options	Other liabilities & accrued expenses	—		32,524	(28		)	—		(28		)	Other liabilities & accrued expenses	—		3,009	(28		)	—		(28		)
Futures													Other liabilities & accrued expenses	—		1	—			—		—
Total return index contracts
Total return swap agreements - fixed income	Other liabilities & accrued expenses	3		n/a	—			—		—			Other liabilities & accrued expenses	13		n/a	1			1		—
Total return swap agreements - equity	Other liabilities & accrued expenses	21		n/a	—			—		—
Foreign currency contracts
Foreign currency forwards	Other liabilities & accrued expenses	186		n/a	1			2		(1		)	Other liabilities & accrued expenses	194		n/a	8			8		—
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	205		n/a	(19		)	—		(19		)	Contractholder funds	172		n/a	(22		)	—		(22		)
Guaranteed withdrawal benefits	Contractholder funds	252		n/a	(10		)	—		(10		)	Contractholder funds	209		n/a	(14		)	—		(14		)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds	1,718		n/a	(228		)	—		(228		)	Contractholder funds	1,690		n/a	(375		)	—		(375		)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses	12		n/a	—			—		—			Other liabilities & accrued expenses	32		n/a	(2		)	—		(2		)
Credit default swaps – selling protection	Other liabilities & accrued expenses	1		n/a	—			—		—			Other liabilities & accrued expenses	5		n/a	—			—		—
Total liability derivatives		2,426		33,098	(283		)	$	3	$	(286	)		2,350		3,010	(432		)	$	9	$	(441	)
Total derivatives		$	2,515	65,789	$	(198	)							$	2,368	6,530	$	(347	)


⁽¹⁾	Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)


($ in millions, except number of contracts)		Volume ⁽¹⁾												Volume ⁽¹⁾
	Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability			Balance sheet location	Notional amount		Number of contracts	Fair value, net			Gross asset		Gross liability
Asset derivatives
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments	$	15	n/a	$	—		$	—	$	—		Other investments	$	6	n/a	$	—		$	—	$	—
Futures													Other assets	—		330	—			—		—
Equity and index contracts
Options	Other investments	—		4,485	114			114		—			Other investments	—		3,440	21			21		—
Futures													Other assets	—		26	—			—		—
Total return index contracts
Total return swap agreements - fixed income													Other investments	7		n/a	—			—		—
Total return swap agreements - equity index													Other investments	10		n/a	(1		)	—		(1		)
Foreign currency contracts
Foreign currency forwards													Other investments	240		n/a	8			8		—
Credit default contracts
Credit default swaps – buying protection	Other investments	3		n/a	—			—		—			Other investments	27		n/a	—			1		(1		)
Credit default swaps – selling protection	Other investments	80		n/a	1			1		—
Other contracts
Other	Other assets	3		n/a	—			—		—			Other assets	2		n/a	—			—		—
Total asset derivatives		$	101	4,485	$	115		$	115	$	—			$	292	3,796	$	28		$	30	$	(2	)

Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	19	n/a	$	2		$	2	$	—
Derivatives not designated as accounting hedging instruments	Derivatives not designated as accounting hedging instruments												Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other liabilities & accrued expenses	30		n/a	1			1		—			Other liabilities & accrued expenses	$	31	n/a	$	1		$	1	$	—
Equity and index contracts
Options and futures	Other liabilities & accrued expenses	—		4,464	(53		)	—		(53		)
Foreign currency contracts
Foreign currency forwards	Other liabilities & accrued expenses	207		n/a	(8		)	—		(8		)
Options													Other liabilities & accrued expenses	—		3,266	(5		)	—		(5		)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	225		n/a	(22		)	—		(22		)	Contractholder funds	169		n/a	(25		)	—		(25		)
Guaranteed withdrawal benefits	Contractholder funds	274		n/a	(12		)	—		(12		)	Contractholder funds	210		n/a	(14		)	—		(14		)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds	1,735		n/a	(250		)	—		(250		)	Contractholder funds	1,696		n/a	(184		)	—		(184		)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses	34		n/a	(1		)	—		(1		)
Credit default swaps – selling protection	Other liabilities & accrued expenses	1		n/a	—			—		—			Other liabilities & accrued expenses	1		n/a	—			—		—
Subtotal		2,506		4,464	(345		)	1		(346		)
Total liability derivatives		2,525		4,464	(343		)	$	3	$	(346	)		2,107		3,266	(227		)	$	1	$	(228	)
Total derivatives		$	2,626	8,949	$	(228	)							$	2,399	7,062	$	(199	)



($ in millions)				Offsets
	Gross amount			Counter- party netting			Cash collateral (received) pledged			Net amount on balance sheet			Securities collateral (received) pledged		Net amount
June 30, 2019
Asset derivatives	$	10		$	(9	)	$	—		$	1		$	—	$	1
Liability derivatives	(2		)	9			(8		)	(1		)	—		(1		)

December 31, 2018
Asset derivatives	$	10		$	(3	)	$	(5	)	$	2		$	—	$	2
Liability derivatives	(2		)	3			(1		)	—			—		—