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Investments
 6 Months Ended
Jun. 30, 2020
Investments [Abstract]  
Investments
Note 5
Investments
Portfolio composition
 
 
 
($ in millions)
 
June 30, 2020
 
December 31, 2019
Fixed income securities, at fair value
 
$
64,448

 
$
59,044

Equity securities, at fair value
 
4,212

 
8,162

Mortgage loans, net
 
4,774

 
4,817

Limited partnership interests
 
6,941

 
8,078

Short-term investments, at fair value
 
5,344

 
4,256

Other, net
 
3,918

 
4,005

Total
 
$
89,637

 
$
88,362


Amortized cost, gross unrealized gains (losses) and fair value for fixed income securities
($ in millions)
 
Amortized cost, net
 
Gross unrealized
 
Fair
value
 
 
Gains
 
Losses
 
June 30, 2020
 
 

 
 

 
 

 
 

U.S. government and agencies
 
$
3,312

 
$
208

 
$
(1
)
 
$
3,519

Municipal
 
8,579

 
712

 
(6
)
 
9,285

Corporate
 
46,797

 
3,227

 
(284
)
 
49,740

Foreign government
 
915

 
46

 
—

 
961

ABS
 
779

 
4

 
(24
)
 
759

MBS
 
152

 
32

 
—

 
184

Total fixed income securities
 
$
60,534

 
$
4,229

 
$
(315
)
 
$
64,448

 
 
 
 
 
 
 
 
 
December 31, 2019
 
 

 
 

 
 

 
 

U.S. government and agencies
 
$
4,971

 
$
141

 
$
(26
)
 
$
5,086

Municipal
 
8,080

 
551

 
(11
)
 
8,620

Corporate
 
41,090

 
2,035

 
(47
)
 
43,078

Foreign government
 
968

 
16

 
(5
)
 
979

ABS
 
860

 
8

 
(6
)
 
862

MBS
 
324

 
96

 
(1
)
 
419

Total fixed income securities
 
$
56,293

 
$
2,847

 
$
(96
)
 
$
59,044


Scheduled maturities for fixed income securities
($ in millions)
 
June 30, 2020
 
Amortized cost, net
 
Fair value
Due in one year or less
 
$
3,300

 
$
3,343

Due after one year through five years
 
24,971

 
26,036

Due after five years through ten years
 
21,627

 
23,204

Due after ten years
 
9,705

 
10,922

 
 
59,603

 
63,505

ABS and MBS
 
931

 
943

Total
 
$
60,534

 
$
64,448


Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. ABS and MBS are shown separately because of potential prepayment of principal prior to contractual maturity dates.
Net investment income
($ in millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Fixed income securities
 
$
531

 
$
543

 
$
1,056

 
$
1,081

Equity securities
 
31

 
68

 
37

 
98

Mortgage loans
 
51

 
54

 
111

 
107

Limited partnership interests
 
(220
)
 
254

 
(412
)
 
263

Short-term investments
 
2

 
26

 
19

 
52

Other
 
62

 
67

 
125

 
130

Investment income, before expense
 
457

 
1,012

 
936

 
1,731

Investment expense
 
(48
)
 
(70
)
 
(106
)
 
(141
)
Net investment income 
 
$
409

 
$
942

 
$
830

 
$
1,590

Realized capital gains (losses) by asset type
($ in millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Fixed income securities
 
$
187

 
$
79

 
$
562

 
$
143

Equity securities
 
480

 
178

 
(270
)
 
731

Mortgage loans
 
—

 
—

 
(41
)
 
—

Limited partnership interests
 
33

 
21

 
(83
)
 
93

Derivatives
 
18

 
22

 
106

 
(24
)
Other
 
(14
)
 
24

 
(32
)
 
43

Realized capital gains (losses)
 
$
704

 
$
324

 
$
242

 
$
986


Realized capital gains (losses) by transaction type
($ in millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Sales
 
$
179

 
$
117

 
$
567

 
$
212

Credit losses (1)
 
(10
)
 
(15
)
 
(89
)
 
(29
)
Valuation of equity investments (2)
 
517

 
200

 
(342
)
 
827

Valuation and settlements of derivative instruments
 
18

 
22

 
106

 
(24
)
Realized capital gains (losses)
 
$
704

 
$
324

 
$
242

 
$
986


(1) 
Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior period other-than-temporary impairment write-downs are now presented as credit losses.
(2) 
Includes valuation of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.
Sales of fixed income securities resulted in gross gains of $304 million and $115 million and gross losses of $113 million and $27 million during the three months ended June 30, 2020 and 2019, respectively.
Sales of fixed income securities resulted in gross gains of $760 million and $241 million and gross losses of $190 million and $87 million during the six months ended June 30, 2020 and 2019, respectively.
The following table presents the net pre-tax appreciation (decline) recognized in net income of equity securities and limited partnership interests carried at fair value that are still held as of June 30, 2020 and 2019, respectively.
Net appreciation (decline) recognized in net income
($ in millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Equity securities
 
$
390

 
$
207

 
$
(45
)
 
$
688

Limited partnership interests carried at fair value 
 
(54
)
 
95

 
(109
)
 
59

Total
 
$
336

 
$
302

 
$
(154
)
 
$
747


Credit losses recognized in net income (1)
($ in millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Assets
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

Municipal
 
$
(3
)
 
$
—

 
$
(3
)
 
$
—

Corporate
 
—

 
(7
)
 
(1
)
 
(7
)
ABS
 
(2
)
 
(2
)
 
(2
)
 
(3
)
MBS
 
1

 
—

 
(2
)
 
(1
)
Total fixed income securities
 
(4
)
 
(9
)
 
(8
)
 
(11
)
Mortgage loans
 
(1
)
 
—

 
(41
)
 
—

Limited partnership interests
 
(3
)
 
(2
)
 
(10
)
 
(3
)
Other investments
 
 
 
 
 
 
 
 
Bank loans
 
(3
)
 
(4
)
 
(30
)
 
(15
)
Total credit losses by asset type
 
$
(11
)
 
$
(15
)
 
$
(89
)
 
$
(29
)
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Commitments to fund commercial mortgage loans, bank loans and agent loans
 
1

 
—

 
—

 
—

Total
 
$
(10
)
 
$
(15
)
 
$
(89
)
 
$
(29
)

(1) 
Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as other-than-temporary impairment write-downs are now presented as credit losses.
Unrealized net capital gains and losses included in AOCI
($ in millions)
 
Fair
value
 
Gross unrealized
 
Unrealized net
gains (losses)
June 30, 2020
 
 
Gains
 
Losses
 
Fixed income securities
 
$
64,448

 
$
4,229

 
$
(315
)
 
$
3,914

Short-term investments
 
5,344

 
1

 
—

 
1

Derivative instruments
 
—

 
—

 
(3
)
 
(3
)
Equity method of accounting (“EMA”) limited partnerships (1)
 
 

 
 

 
 

 
(8
)
Unrealized net capital gains and losses, pre-tax
 
 

 
 

 
 

 
3,904

Amounts recognized for:
 
 

 
 

 
 

 
 

Insurance reserves (2)
 
 

 
 

 
 

 
(319
)
DAC and DSI (3)
 
 

 
 

 
 

 
(284
)
Amounts recognized
 
 

 
 

 
 

 
(603
)
Deferred income taxes
 
 

 
 

 
 

 
(699
)
Unrealized net capital gains and losses, after-tax
 
 

 
 

 
 

 
$
2,602

 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
Fixed income securities
 
$
59,044

 
$
2,847

 
$
(96
)
 
$
2,751

Short-term investments
 
4,256

 
—

 
—

 
—

Derivative instruments
 
—

 
—

 
(3
)
 
(3
)
EMA limited partnerships
 
 

 
 

 
 

 
(4
)
Unrealized net capital gains and losses, pre-tax
 
 

 
 

 
 

 
2,744

Amounts recognized for:
 
 

 
 

 
 

 
 

Insurance reserves
 
 

 
 

 
 

 
(126
)
DAC and DSI
 
 

 
 

 
 

 
(224
)
Amounts recognized
 
 

 
 

 
 

 
(350
)
Deferred income taxes
 
 

 
 

 
 

 
(507
)
Unrealized net capital gains and losses, after-tax
 
 

 
 

 
 

 
$
1,887


(1) 
Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ OCI. Fair value and gross unrealized gains and losses are not applicable.
(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 annuity).
(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.
Change in unrealized net capital gains (losses)
($ in millions)
 
Six months ended June 30, 2020
Fixed income securities
 
$
1,163

Short-term investments
 
1

Derivative instruments
 
—

EMA limited partnerships
 
(4
)
Total
 
1,160

Amounts recognized for:
 
 

Insurance reserves
 
(193
)
DAC and DSI
 
(60
)
Amounts recognized
 
(253
)
Deferred income taxes
 
(192
)
Increase in unrealized net capital gains and losses, after-tax
 
$
715


Carrying value for limited partnership interests
($ in millions)
 
June 30, 2020
 
December 31, 2019
 
EMA
 
Fair Value
 
Total
 
EMA
 
Fair Value
 
Total
Private equity
 
$
4,043

 
$
1,532

 
$
5,575

 
$
4,463

 
$
1,668

 
$
6,131

Real estate
 
982

 
130

 
1,112

 
899

 
142

 
1,041

Other (1)
 
251

 
3

 
254

 
902

 
4

 
906

Total
 
$
5,276

 
$
1,665

 
$
6,941

 
$
6,264

 
$
1,814

 
$
8,078

(1) 
Other consists of certain limited partnership interests where the underlying assets are predominately public equity securities.
Short-term investments Short-term investments, including money market funds, commercial paper, U.S. Treasury bills and other short-term investments, are carried at fair value. As of June 30, 2020 and December 31, 2019, the fair value of short-term investments totaled $5.34 billion and $4.26 billion, respectively.
Other investments Other investments primarily consist of bank loans, real estate, policy loans, agent loans and derivatives. Bank loans are primarily senior secured corporate loans and are carried at amortized cost, net. Policy loans are carried at unpaid principal balances. Real estate is carried at cost less accumulated depreciation. Agent loans are loans issued to exclusive Allstate agents and are carried at amortized cost, net. Derivatives are carried at fair value.
Other investments by asset type
($ in millions)
 
June 30, 2020
 
December 31, 2019
Bank loans, net
 
$
1,118

 
$
1,204

Real estate
 
986

 
1,005

Policy loans
 
878

 
894

Agent loans, net
 
649

 
666

Derivatives and other
 
287

 
236

Total
 
$
3,918

 
$
4,005


Portfolio monitoring and credit losses
Fixed income securities The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.
For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with incremental losses recorded in earnings.
If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate and is compared to the amortized cost of the security.
The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant
to the collectability of the security are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.
If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
When a security is sold or otherwise disposed or when the security is deemed uncollectible and written
off, the Company removes amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received. Accrued interest excluded from the amortized cost of fixed income securities totaled $538 million as of June 30, 2020 and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position. The Company monitors accrued interest and writes off amounts when they are not expected to be received.
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. The process also includes the monitoring of other credit loss indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential credit losses using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of credit losses for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value requires a credit loss allowance are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the extent to which the fair value has been less than amortized cost.
Rollforward of credit loss allowance for fixed income securities
 
 
 
 
($ in millions)
 
Three months ended
June 30, 2020
 
Six months ended June 30, 2020
Beginning balance
 
$
(4
)
 
$
—

Credit losses on securities for which credit losses not previously reported
 
(5
)
 
(8
)
Net decreases related to credit losses previously reported
 
1

 
—

Reduction of allowance related to sales
 
1

 
1

Ending balance (1)
 
$
(7
)
 
$
(7
)
(1) 
Allowance for fixed income securities as of June 30, 2020 comprised $3 million, $1 million, $2 million and $1 million of municipal bonds, corporate bonds, ABS and MBS, respectively.
Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
($ 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
 
June 30, 2020
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed income securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and agencies
 
3

 
$
20

 
$
(1
)
 
—

 
$
—

 
$
—

 
$
(1
)
Municipal
 
171

 
343

 
(6
)
 
—

 
—

 
—

 
(6
)
Corporate
 
527

 
4,326

 
(232
)
 
36

 
213

 
(52
)
 
(284
)
Foreign government
 
1

 
1

 
—

 
—

 
—

 
—

 
—

ABS
 
53

 
479

 
(15
)
 
16

 
64

 
(9
)
 
(24
)
MBS
 
28

 
16

 
—

 
85

 
3

 
—

 
—

Total fixed income securities
 
783

 
$
5,185

 
$
(254
)
 
137

 
$
280

 
$
(61
)
 
$
(315
)
Investment grade fixed income securities
 
402

 
$
2,253

 
$
(86
)
 
102

 
$
114

 
$
(25
)
 
$
(111
)
Below investment grade fixed income securities
 
381

 
2,932

 
(168
)
 
35

 
166

 
(36
)
 
(204
)
Total fixed income securities
 
783

 
$
5,185

 
$
(254
)
 
137

 
$
280

 
$
(61
)
 
$
(315
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed income securities
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government and agencies
 
31

 
$
1,713

 
$
(26
)
 
10

 
$
26

 
$
—

 
$
(26
)
Municipal
 
307

 
576

 
(9
)
 
1

 
14

 
(2
)
 
(11
)
Corporate
 
186

 
1,392

 
(20
)
 
65

 
485

 
(27
)
 
(47
)
Foreign government
 
55

 
412

 
(4
)
 
6

 
102

 
(1
)
 
(5
)
ABS
 
36

 
193

 
(2
)
 
23

 
160

 
(4
)
 
(6
)
MBS
 
27

 
15

 
—

 
123

 
14

 
(1
)
 
(1
)
Total fixed income securities
 
642

 
$
4,301

 
$
(61
)
 
228

 
$
801

 
$
(35
)
 
$
(96
)
Investment grade fixed income securities
 
581

 
$
3,878

 
$
(41
)
 
185

 
$
594

 
$
(20
)
 
$
(61
)
Below investment grade fixed income securities
 
61

 
423

 
(20
)
 
43

 
207

 
(15
)
 
(35
)
Total fixed income securities
 
642

 
$
4,301

 
$
(61
)
 
228

 
$
801

 
$
(35
)
 
$
(96
)

Gross unrealized losses by unrealized loss position and credit quality as of June 30, 2020
($ in millions)
 
Investment
grade
 
Below investment grade
 
Total
Fixed income securities with unrealized loss position less than 20% of amortized cost, net (1) (2)
 
$
(82
)
 
$
(124
)
 
$
(206
)
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost, net (3) (4)
 
(29
)
 
(80
)
 
(109
)
Total unrealized losses
 
$
(111
)
 
$
(204
)
 
$
(315
)
(1) 
Below investment grade fixed income securities include $109 million that have been in an unrealized loss position for less than twelve months.
(2) 
Related to securities with an unrealized loss position less than 20% of amortized cost, net, the degree of which suggests that these securities do not pose a high risk of having credit losses.
(3) 
No below investment grade fixed income securities have been in an unrealized loss position for a period of twelve or more consecutive months.
(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.
Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include
increased risk-free interest rates and/or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.
ABS and MBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination
from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.
As of June 30, 2020, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.
Loans The Company establishes a credit loss allowance for mortgage loans, bank loans and agent loans when they are originated or purchased, and for unfunded commitments unless they are unconditionally cancellable by the Company. The Company uses a probability of default and loss given default model for mortgage loans and bank loans to estimate current expected credit losses that considers all relevant information available including past events, current conditions, and reasonable and supportable forecasts over the life of an asset. The Company also considers such factors as historical losses, expected prepayments and various economic factors. For mortgage loans the Company considers origination vintage year and property level information such as debt service coverage, property type, property location and collateral value. For bank loans the Company considers the credit rating of the borrower, credit spreads and type of loan. After the reasonable and supportable forecast period, the Company’s model reverts to historical loss trends. Given the less complex and homogenous nature of agent loans, the Company estimates current expected credit losses using historical loss experience over the estimated life of the loans, adjusted for current conditions, reasonable and supportable forecasts and expected prepayments.
Loans are evaluated on a pooled basis when they share similar risk characteristics. The Company monitors loans through a quarterly credit monitoring process to determine when they no longer share similar risk characteristics and are to be evaluated individually when estimating credit losses.
Loans are written off against their corresponding allowances when there is no reasonable expectation of recovery. If a loan recovers after a write-off, the estimate of expected credit losses includes the expected recovery.
Accrual of income is suspended for loans that are in default or when full and timely collection of principal and interest payments is not probable. Accrued income receivable is monitored for recoverability and when not expected to be collected is written off through net investment income. Cash receipts on loans on non-accrual status are generally recorded as a reduction of amortized cost-basis of the loan.
Accrued interest is excluded from the amortized cost of loans and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position. As of June 30, 2020, accrued interest totaled $17 million, $5 million and $2 million for mortgage loans, bank loans and agent loans, respectively.
Mortgage loans When it is determined a mortgage loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as using collateral value less estimated costs to sell where applicable, including when foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. When collateral value is used, the mortgage loans may not have a credit loss allowance when the fair value of the collateral exceeds the loan’s amortized cost. An alternative approach may be utilized to estimate credit losses using the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate.
Individual loan credit loss allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell, when applicable, or present value of the loan’s expected future repayment cash flows.
Debt service coverage ratio is considered a key credit quality indicator when mortgage loan credit loss allowances are estimated. Debt service coverage ratio represents the amount of estimated cash flow from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
Mortgage loans amortized cost by debt service coverage ratio distribution and year of origination
($ in millions)
 
June 30, 2020
 
December 31, 2019
 
 
2015 and prior
 
2016
 
2017
 
2018
 
2019
 
Current
 
Total
 
Total
Below 1.0
 
$
38

 
$
—

 
$
33

 
$
—

 
$
—

 
$
—

 
$
71

 
$
56

1.0 - 1.25
 
170

 
27

 
36

 
87

 
15

 
30

 
365

 
225

1.26 - 1.50
 
494

 
27

 
123

 
231

 
369

 
16

 
1,260

 
1,237

Above 1.50
 
1,299

 
493

 
361

 
369

 
499

 
143

 
3,164

 
3,302

Amortized cost before allowance
 
$
2,001


$
547


$
553


$
687


$
883


$
189


$
4,860


$
4,820

Allowance (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
(86
)
 
(3
)
Amortized cost, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
4,774

 
$
4,817

(1) 
Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior valuation allowance is now presented as an allowance for expected credit losses.
Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to situations where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating factors such as additional collateral, escrow balances or borrower guarantees. Payments on all mortgage loans were current as of December 31, 2019 and June 30, 2020, which included short-term loan modifications executed in the second quarter of 2020 that granted temporary partial deferral of payments on $274 million of commercial mortgage loans related to impacts from the Coronavirus. Payments are expected to be recovered over a period of three to twelve months.
Rollforward of credit loss allowance for mortgage loans
 
 
 
 
($ in millions)
 
Three months ended June 30, 2020
 
Six months ended June 30, 2020
Beginning balance
 
$
(85
)
 
$
(3
)
Cumulative effect of change in accounting principle
 
—

 
(42
)
Net increases related to credit losses
 
(1
)
 
(41
)
Ending balance
 
$
(86
)
 
$
(86
)

Bank loans When it is determined a bank loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate.
Credit ratings of the borrower are considered a key credit quality indicator when bank loan credit loss allowances are estimated. The ratings are updated quarterly and are either received from a nationally recognized rating agency or a comparable internal rating is derived if an externally provided rating is not available. The year of origination is determined to be the year in which the asset is acquired.
Bank loans amortized cost by credit rating and year of origination
 
 
($ in millions)
 
June 30, 2020
 
 
 
 
2015 and prior
 
2016
 
2017
 
2018
 
2019
 
Current
 
Total
BBB
 
$
—

 
$
—

 
$
9

 
$
13

 
$
9

 
$
12

 
$
43

BB
 
31

 
2

 
36

 
72

 
64

 
36

 
241

B
 
12

 
34

 
142

 
219

 
173

 
104

 
684

CCC and below
 
8

 
32

 
46

 
55

 
59

 
26

 
226

Amortized cost before allowance
 
51

 
68

 
233

 
359

 
305

 
178

 
1,194

Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
(76
)
Amortized cost, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,118


Rollforward of credit loss allowance for bank loans
 
 
 
 
($ in millions)
 
Three months ended June 30, 2020
 
Six months ended June 30, 2020
Beginning balance
 
$
(79
)
 
$
—

Cumulative effect of change in accounting principle
 
—

 
(53
)
Net increases related to credit losses
 
(3
)
 
(30
)
Reduction of allowance related to sales
 
1

 
2

Write-offs
 
5

 
5

Ending balance
 
$
(76
)
 
$
(76
)

Agent loans The Company also monitors agent loans to determine when they should be removed from the pool and assessed for credit losses individually by using internal credit risk grades that classify the loans into risk categories. The categorization is based on relevant information about the ability of borrowers to service their debt, such as historical payment experience, current business trends, cash flow coverage and collateral quality. Internal credit risk grades are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
As of June 30, 2020, 86% of agent loans balance represents the top three highest credit quality categories. The allowance for agent loans totaled $5 million as of June 30, 2020 and did not change from January 1, 2020.