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Investments | 3 Months Ended
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Mar. 31, 2020
Investments [Abstract] |
Investments |
Note 5 | Investments
Portfolio composition |  |
($ in millions) |  | March 31, 2020 |  | December 31, 2019
Fixed income securities, at fair value |  | $ | 59,857 |  |  | $ | 59,044 |
Equity securities, at fair value |  | 3,701 |  |  | 8,162 |
Mortgage loans, net |  | 4,759 |  |  | 4,817 |
Limited partnership interests |  | 7,087 |  |  | 8,078 |
Short-term investments, at fair value |  | 5,671 |  |  | 4,256 |
Other, net |  | 3,767 |  |  | 4,005 |
Total |  | $ | 84,842 |  |  | $ | 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 |
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and agencies |  | $ | 5,104 |  |  | $ | 295 |  |  | $ | — |  |  | $ | 5,399 |
Municipal |  | 8,182 |  |  | 555 |  |  | (28 | ) |  | 8,709 |
Corporate |  | 43,624 |  |  | 1,242 |  |  | (1,231 | ) |  | 43,635 |
Foreign government |  | 884 |  |  | 30 |  |  | (3 | ) |  | 911 |
ABS |  | 852 |  |  | 3 |  |  | (19 | ) |  | 836 |
MBS |  | 299 |  |  | 71 |  |  | (3 | ) |  | 367 |
Total fixed income securities |  | $ | 58,945 |  |  | $ | 2,196 |  |  | $ | (1,284 | ) |  | $ | 59,857 |
|  | Amortized cost |  | Gross unrealized |  | Fair value
|  |  | Gains |  | Losses |
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) |  | March 31, 2020
| Amortized cost, net |  | Fair value
Due in one year or less |  | $ | 2,920 |  |  | $ | 2,927 |
Due after one year through five years |  | 24,825 |  |  | 24,849 |
Due after five years through ten years |  | 20,360 |  |  | 20,451 |
Due after ten years |  | 9,689 |  |  | 10,427 |
|  | 57,794 |  |  | 58,654 |
ABS and MBS |  | 1,151 |  |  | 1,203 |
Total |  | $ | 58,945 |  |  | $ | 59,857 |
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 March 31,
| 2020 |  | 2019
Fixed income securities |  | $ | 525 |  |  | $ | 538 |
Equity securities |  | 6 |  |  | 30 |
Mortgage loans |  | 60 |  |  | 53 |
Limited partnership interests (1) |  | (192 | ) |  | 9 |
Short-term investments |  | 17 |  |  | 26 |
Other |  | 63 |  |  | 63 |
Investment income, before expense |  | 479 |  |  | 719 |
Investment expense |  | (58 | ) |  | (71 | )
Net investment income |  | $ | 421 |  |  | $ | 648 |
(1) | The Company typically employs a lag in recording and recognizing changes in valuations of limited partnership interests due to the availability of financial statements. In consideration of intervening events during the three months ended March 31, 2020, where information was available to enable updated estimates, the Company recognized current period declines in the value of limited partnership interests. This included updating publicly traded investments held within limited partnerships to their March 31, 2020 values, which reduced income by $52 million. Additionally, $195 million of valuation increases reported in the fourth quarter 2019 partnership financial statements were excluded from income considering the equity market decline in March 2020.
Realized capital gains (losses) by asset type |  |  |  |
($ in millions) |  | Three months ended March 31,
| 2020 |  | 2019
Fixed income securities |  | $ | 375 |  |  | $ | 64 |
Equity securities |  | (750 | ) |  | 553 |
Mortgage loans |  | (41 | ) |  | — |
Limited partnership interests |  | (116 | ) |  | 72 |
Derivatives |  | 88 |  |  | (46 | )
Other |  | (18 | ) |  | 19 |
Realized capital gains (losses) |  | $ | (462 | ) |  | $ | 662 |
Realized capital gains (losses) by transaction type |  |  |  |
($ in millions) |  | Three months ended March 31,
| 2020 |  | 2019
Sales |  | $ | 388 |  |  | $ | 95 |
Credit losses (1) |  | (79 | ) |  | (14 | )
Valuation of equity investments (2) |  | (859 | ) |  | 627 |
Valuation and settlements of derivative instruments |  | 88 |  |  | (46 | )
Realized capital gains (losses) |  | $ | (462 | ) |  | $ | 662 |
(1) | Due to the adoption of the measurement of credit losses on financial instruments accounting standard, prior period OTTI 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 $456 million and $126 million and gross losses of $77 million and $60 million during the three months ended March 31, 2020 and 2019, respectively. The following table presents the net pre-tax appreciation (decline) recognized in net income of equity securities and limited partnership interests carried at fair value that are still held as of March 31, 2020 and 2019, respectively.
Net appreciation (decline) recognized in net income |  |
($ in millions) |  | Three months ended March 31,
| 2020 |  | 2019
Equity securities |  | $ | (560 | ) |  | $ | 496 |
Limited partnership interests carried at fair value |  | (55 | ) |  | (33 | )
Total |  | $ | (615 | ) |  | $ | 463 |
Credit losses recognized in net income (1) |  |  |  |
($ in millions) |  | Three months ended March 31,
| 2020 |  | 2019
Assets |  |  |  |
Fixed income securities: |  |  |  |  |  |
Corporate |  | $ | (1 | ) |  | $ | — |
ABS |  | — |  |  | (1 | )
MBS |  | (3 | ) |  | (1 | )
Total fixed income securities |  | (4 | ) |  | (2 | )
Mortgage loans |  | (40 | ) |  | — |
Limited partnership interests |  | (7 | ) |  | (1 | )
Other investments |  |  |  |
Bank loans |  | (27 | ) |  | (11 | )
Total credit losses by asset type |  | $ | (78 | ) |  | $ | (14 | )
Liabilities |  |  |  |
Commitments to fund commercial mortgage loans, bank loans and agent loans |  | (1 | ) |  | — |
Total |  | $ | (79 | ) |  | $ | (14 | )
(1) | Due to the adoption of the measurement of credit losses on financial instruments accounting standard, realized capital losses previously reported as OTTI 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)
March 31, 2020 |  |  | Gains |  | Losses |
Fixed income securities |  | $ | 59,857 |  |  | $ | 2,196 |  |  | $ | (1,284 | ) |  | $ | 912 |
Short-term investments |  | 5,671 |  |  | — |  |  | — |  |  | — |
Derivative instruments |  | — |  |  | — |  |  | (3 | ) |  | (3 | )
Equity method of accounting (“EMA”) limited partnerships (1) |  |  |  |  |  |  |  |  |  |  | (2 | )
Unrealized net capital gains and losses, pre-tax |  |  |  |  |  |  |  |  |  |  | 907 |
Amounts recognized for: |  |  |  |  |  |  |  |  |  |  |  |
Insurance reserves (2) |  |  |  |  |  |  |  |  |  |  | (105 | )
DAC and DSI (3) |  |  |  |  |  |  |  |  |  |  | (128 | )
Amounts recognized |  |  |  |  |  |  |  |  |  |  | (233 | )
Deferred income taxes |  |  |  |  |  |  |  |  |  |  | (144 | )
Unrealized net capital gains and losses, after-tax |  |  |  |  |  |  |  |  |  |  | $ | 530 |
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 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.
Change in unrealized net capital gains (losses)
($ in millions) |  | Three months ended March 31, 2020
Fixed income securities |  | $ | (1,839 | )
Short-term investments |  | — |
Derivative instruments |  | — |
EMA limited partnerships |  | 2 |
Total |  | (1,837 | )
Amounts recognized for: |  |  |
Insurance reserves |  | 21 |
DAC and DSI |  | 96 |
Amounts recognized |  | 117 |
Deferred income taxes |  | 363 |
Decrease in unrealized net capital gains and losses, after-tax |  | $ | (1,357 | )
Carrying value for limited partnership interests
($ in millions) |  | March 31, 2020 |  | December 31, 2019
| EMA |  | Fair Value |  | Total |  | EMA |  | Fair Value |  | Total
Private equity |  | $ | 4,204 |  |  | $ | 1,577 |  |  | $ | 5,781 |  |  | $ | 4,463 |  |  | $ | 1,668 |  |  | $ | 6,131 |
Real estate |  | 954 |  |  | 136 |  |  | 1,090 |  |  | 899 |  |  | 142 |  |  | 1,041 |
Other (1) |  | 212 |  |  | 4 |  |  | 216 |  |  | 902 |  |  | 4 |  |  | 906 |
Total |  | $ | 5,370 |  |  | $ | 1,717 |  |  | $ | 7,087 |  |  | $ | 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 March 31, 2020 and December 31, 2019, the fair value of short-term investments totaled $5.67 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) |  | March 31, 2020 |  | December 31, 2019
Bank loans, net |  | $ | 1,117 |  |  | $ | 1,204 |
Real estate |  | 970 |  |  | 1,005 |
Policy loans |  | 882 |  |  | 894 |
Agent loans, net |  | 671 |  |  | 666 |
Derivatives and other |  | 127 |  |  | 236 |
Total |  | $ | 3,767 |  |  | $ | 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. W hen 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 $530 million as of March 31, 2020 and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position. The Company monitors accrued interest and writes off amounts when they are not expected to be received. The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. The process also includes the monitoring of other credit loss indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential credit losses using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of credit losses for these securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value requires a credit loss allowance are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the extent to which the fair value has been less than amortized cost.
Rollforward of credit loss allowance for fixed income securities
($ in millions) |  | Three months ended March 31, 2020
Beginning balance |  | $ | — |
Credit losses on securities for which credit losses not previously reported |  | (4 | )
Ending balance (1) |  | $ | (4 | )
(1) | Allowance for fixed income securities as of March 31, 2020 comprised $1 million and $3 million of corporate bonds and MBS, respectively.
Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
($ 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 |
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | 470 |  |  | $ | 1,029 |  |  | $ | (28 | ) |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | (28 | )
Corporate |  | 1,838 |  |  | 18,525 |  |  | (1,161 | ) |  | 31 |  |  | 187 |  |  | (70 | ) |  | (1,231 | )
Foreign government |  | 25 |  |  | 85 |  |  | (3 | ) |  | 1 |  |  | 6 |  |  | — |  |  | (3 | )
ABS |  | 63 |  |  | 383 |  |  | (13 | ) |  | 13 |  |  | 61 |  |  | (6 | ) |  | (19 | )
MBS |  | 35 |  |  | 33 |  |  | (3 | ) |  | 101 |  |  | 7 |  |  | — |  |  | (3 | )
Total fixed income securities |  | 2,431 |  |  | $ | 20,055 |  |  | $ | (1,208 | ) |  | 146 |  |  | $ | 261 |  |  | $ | (76 | ) |  | $ | (1,284 | )
Investment grade fixed income securities |  | 1,816 |  |  | $ | 15,130 |  |  | $ | (689 | ) |  | 116 |  |  | $ | 130 |  |  | $ | (27 | ) |  | $ | (716 | )
Below investment grade fixed income securities |  | 615 |  |  | 4,925 |  |  | (519 | ) |  | 30 |  |  | 131 |  |  | (49 | ) |  | (568 | )
Total fixed income securities |  | 2,431 |  |  | $ | 20,055 |  |  | $ | (1,208 | ) |  | 146 |  |  | $ | 261 |  |  | $ | (76 | ) |  | $ | (1,284 | )
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 March 31, 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) |  | $ | (579 | ) |  | $ | (311 | ) |  | $ | (890 | )
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost, net (3) (4) |  | (137 | ) |  | (257 | ) |  | (394 | )
Total unrealized losses |  | $ | (716 | ) |  | $ | (568 | ) |  | $ | (1,284 | )
(1) | Below investment grade fixed income securities include $304 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. T he 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 March 31, 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 over the life of the loan. 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. 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 March 31, 2020, accrued interest totaled $15 million, $6 million and $2 million for mortgage loans, bank loans and agent loans, respectively. Mortgage loans When it is determined a mortgage loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as using collateral value less estimated costs to sell when applicable, including when foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. When collateral value is used, the mortgage loans may not have a credit loss allowance when the fair value of the collateral exceeds the loan’s amortized cost. An alternative approach may be utilized to estimate credit losses using the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate. Individual loan credit loss allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell, when applicable, or present value of the loan’s expected future repayment cash flows. Debt service coverage ratio is considered a key credit quality indicator when mortgage loan credit loss allowances are estimated. Debt service coverage ratio represents the amount of estimated cash flow from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.
Mortgage loans amortized cost by debt service coverage ratio distribution and year of origination
($ in millions) |  | March 31, 2020 |  | December 31, 2019
|  | 2015 and prior |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | Current |  | Total |  | Total
Below 1.0 |  | $ | 15 |  |  | $ | — |  |  | $ | 32 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 47 |  |  | $ | 56 |
1.0 - 1.25 |  | 66 |  |  | 14 |  |  | 32 |  |  | — |  |  | 91 |  |  | 30 |  |  | 233 |  |  | 225 |
1.26 - 1.50 |  | 535 |  |  | 14 |  |  | 97 |  |  | 318 |  |  | 238 |  |  | — |  |  | 1,202 |  |  | 1,237 |
Above 1.50 |  | 1,416 |  |  | 522 |  |  | 393 |  |  | 369 |  |  | 555 |  |  | 107 |  |  | 3,362 |  |  | 3,302 |
Amortized cost before allowance |  | $ | 2,032 |  |  | $ | 550 |  |  | $ | 554 |  |  | $ | 687 |  |  | $ | 884 |  |  | $ | 137 |  |  | $ | 4,844 |  |  | $ | 4,820 |
Allowance (1) |  |  |  |  |  |  |  |  |  |  |  |  |  | (85 | ) |  | (3 | )
Amortized cost, net |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 4,759 |  |  | $ | 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 March 31, 2020 and December 31, 2019.
Rollforward of credit loss allowance for mortgage loans |  |
($ in millions) |  | Three months ended March 31, 2020
Beginning balance |  | $ | (3 | )
Cumulative effect of change in accounting principle |  | (42 | )
Net (increases) decreases related to credit losses |  | (40 | )
Ending balance |  | $ | (85 | )
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) |  | March 31, 2020 |  |
|  | 2015 and prior |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | Current |  | Total
BBB |  | $ | — |  |  | $ | — |  |  | $ | 10 |  |  | $ | 18 |  |  | $ | 9 |  |  | $ | 4 |  |  | $ | 41 |
BB |  | 31 |  |  | 4 |  |  | 43 |  |  | 70 |  |  | 67 |  |  | 21 |  |  | 236 |
B |  | 12 |  |  | 38 |  |  | 155 |  |  | 237 |  |  | 185 |  |  | 84 |  |  | 711 |
CCC and below |  | 9 |  |  | 40 |  |  | 40 |  |  | 53 |  |  | 59 |  |  | 7 |  |  | 208 |
Amortized cost before allowance |  | 52 |  |  | 82 |  |  | 248 |  |  | 378 |  |  | 320 |  |  | 116 |  |  | 1,196 |
Allowance |  |  |  |  |  |  |  |  |  |  |  |  |  | (79 | )
Amortized cost, net |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,117 |
Rollforward of credit loss allowance for bank loans |  |
($ in millions) |  | Three months ended March 31, 2020
Beginning balance |  | $ | — |
Cumulative effect of change in accounting principle |  | (53 | )
Net (increases) decreases related to credit losses |  | (27 | )
Reduction of allowance related to sales |  | 1 |
Ending balance |  | $ | (79 | )
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 March 31, 2020, 87% of agent loans balance represents the top three highest credit quality categories. The allowance for agent loans totaled $5 million as of March 31, 2020 and did not change from January 1, 2020.

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