Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 16 Income Taxes

The Company and its eligible domestic subsidiaries file a U.S. consolidated federal income tax return. The Company also files tax returns in various states and foreign jurisdictions. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws or rates are enacted.

Inflation Reduction Act of 2022 The Inflation Reduction Act of 2022 (“Act”), which contains several tax-related provisions, was signed into law on August 16, 2022. The Act created a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and an excise tax of 1% on stock repurchases by publicly traded U.S. corporations, both effective after December 31, 2022. The excise tax on common stock repurchases is classified as an additional cost of the stock acquired included in treasury stock in shareholders' equity.

In addition, under the CAMT rules, the Company has determined that it is considered an “Applicable Corporation” which requires computation of federal income tax liability under two tax systems, the U.S. regular corporate tax and the CAMT. Although the CAMT may apply in any given year where the CAMT liability exceeds the regular tax liability, the CAMT would generate a non-expiring tax credit carryforward which would be accounted for as a deferred tax asset. The CAMT credit can be used to reduce regular tax in future years when the regular tax liability is greater than the CAMT liability.

The impact of a change in tax law is required to be recognized in the period of enactment. As such in assessing the realizability of our deferred tax assets, including determination of valuation allowance, the Company has made an accounting policy election to evaluate the realizability of deferred tax assets excluding the impact of the CAMT.

15% Global Minimum Tax The Organization for Economic Cooperation and Development (“OECD”) secured agreement from nearly 140 countries to address how corporate profits are taxed for multinational enterprises (“MNEs”). OECD has released Pillar Two Model Rules, a 15% minimum effective tax rate (also known as the Global Anti-Base Erosion “GloBE” Rules), designed to ensure that large MNEs pay a minimum level of tax on the income arising in each jurisdiction where they operate and mandates sharing of certain company information with taxing authorities on a local and global basis.

Certain jurisdictions have enacted, and others have proposed, legislation to implement certain provisions of Pillar Two for fiscal years beginning on or after December 31, 2023. The Company is continuing to monitor the implications resulting from the potential enactment of Pillar Two rules in the jurisdictions where it operates.

Regulatory tax examinations On January 4, 2021 and October 1, 2021, the Company acquired National General and SafeAuto, respectively. For tax years prior to the acquisition, National General is under a separate audit by the Internal Revenue Service (“IRS”). The IRS has completed its exam of Allstate’s tax years prior to 2017 and National General tax years prior to 2015. Currently, the Company is under exam for the 2017 and 2018 tax years and National General is under exam for the 2015 through 2019 tax years. The Company believes that adequate provision has been made in the consolidated financial statements for any potential adjustments that may result from IRS examinations or any other tax authorities related to all open tax years.

Unrecognized tax benefits The Company recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.

Reconciliation of the change in the amount of unrecognized tax benefits
	For the years ended December 31,
($ in millions)	2023		2022		2021
Balance – beginning of year	$	17	$	17	$	12
Acquisitions	—		—		5
Increase for tax positions taken in a prior year	23		—		—
Increase for tax positions taken in the current year	5		—		—
Balance – end of year	$	45	$	17	$	17

The Company believes that it is reasonably possible that a portion of the unrecognized tax benefits could decrease within the next twelve months as a result of the lapse of the applicable statute of limitations, which is not expected to be material to the financial statements.

The Company recognizes interest expense related to uncertain tax benefits in income tax (benefit)

expense and penalties in operating costs and expenses. For the years ended December 31, 2023, 2022, and 2021, interest expense related to unrecognized tax benefits of $7 million, $3 million, and zero was recorded, respectively. The total accrued interest expense and penalties as of December 31, 2023 and 2022 were $24 million and $17 million, respectively.

Components of the deferred income tax assets and liabilities
	As of December 31,
($ in millions)	2023		2022
Deferred tax assets
Unearned premium reserves	$	897	$	815
Discount on loss reserves	269		228
Net operating loss carryover	258		97
Research & development capitalization	228		219
Unrealized net capital losses	174		609
Accrued compensation	121		128
General business credits carryover	110		—
Pension	26		10
Other postretirement benefits	13		15
Other	110		95
Total deferred tax assets before valuation allowance	2,206		2,216
Valuation allowance	(69)		(34)
Total deferred tax assets after valuation allowance	2,137		2,182
Deferred tax liabilities
DAC	(1,075)		(1,018)
Investments	(455)		(431)
Intangible assets	(99)		(147)
Other	(289)		(204)
Total deferred tax liabilities	(1,918)		(1,800)
Net deferred tax assets	$	219	$	382

As of December 31, 2023, the Company has U.S. federal, state and foreign net operating loss (“NOL”) and general business credit carryforwards. In assessing the realizability of gross deferred tax assets, management considers whether it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in

making this assessment, as well as limitations on use in future periods. Accordingly, management believes that it is more likely than not that the benefit from certain NOL carryforwards will not be fully realized. The Company has a valuation allowance of $69 million on the deferred tax assets related to these NOL carryforwards.

The following table sets forth the amounts and expiration dates of federal, foreign, state net operating loss carryforwards and tax credit carryforwards.

Components of the net operating loss carryforwards as of December 31, 2023
($ in millions)	20-Year Carryforward Expires in 2025-2043		Indefinite		20-Year Carryforward Expires in 2043		Various
U.S. Federal NOL	$	255	$	12	$	—	$	—
Foreign NOL	—		398		—		—
State NOL (1)	—		—		—		134
U.S. Federal general business credits	—		—		110		—

(1)Multiple state net operating loss carryforwards expiring in various periods, beginning in 2029.

Components of income tax expense
	For the years ended December 31,
($ in millions)	2023		2022		2021
Current	$	114	$	(35)	$	841
Deferred	(249)		(453)		451
Total income tax (benefit) expense	$	(135)	$	(488)	$	1,292

The Company received an income tax refund of $45 million in 2023, and paid income taxes of $95 million and $1.05 billion in 2022 and 2021, respectively.

The Company had current income tax receivable of $663 million and $677 million as of December 31, 2023 and 2022, respectively.

Reconciliation of the statutory federal income tax rate to the effective income tax rate
	For the years ended December 31,
($ in millions)	2023				2022				2021
(Loss) income before income taxes	$	(348)			$	(1,830)			$	6,466
Statutory federal income tax rate on income from operations	(73)		21.0	%	(384)		21.0	%	1,357		21.0	%
Tax credits	(47)		13.5		(55)		3.0		(42)		(0.6)
Tax-exempt income	(23)		6.6		(17)		0.9		(18)		(0.3)
U.S. shareholder’s tax (benefit) expense	(17)		4.9		13		(0.7)		4		0.1
Share-based payments	(14)		4.0		(22)		1.2		(18)		(0.3)
State income taxes	(7)		2.0		—		—		13		0.2
Dividend received deduction	(4)		1.1		(7)		0.4		(5)		(0.1)
Uncertain tax positions	33		(9.5)		2		(0.1)		—		—
Change in valuation allowance	6		(1.7)		10		(0.6)		(3)		(0.1)
Other	11		(3.1)		(28)		1.6		4		0.1
Effective income tax rate on income from operations	$	(135)	38.8	%	$	(488)	26.7	%	$	1,292	20.0	%