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Acquisitions and Dispositions | 9 Months Ended
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Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Dispositions |
Note 3 | Acquisitions and Dispositions
Acquisitions SafeAuto On June 1, 2021, the Company announced an agreement to acquire Safe Auto Insurance Group, Inc. (“SafeAuto”), a non-standard auto insurance carrier focused on providing state-minimum private-passenger auto insurance with coverage options in 28 states. Subsequent event On October 1, 2021, the Company completed the acquisition of SafeAuto for $262 million in cash. National General On January 4, 2021, the Company completed the acquisition of National General Holdings Corp. (“National General”), an insurance holding company serving customers predominantly through independent agents for property and casualty and accident and health products. National General provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, health and other niche insurance products. This acquisition will increase the Company’s market share in personal property-liability and enhance its independent agent distribution platform.
Assets and liabilities recognized in the National General acquisition (1) |  |
($ in millions) |  |  |  | January 4, 2021 |  |
Assets |  |  |  |  |  |
Investments |  |  |  | $ | 4,957 |  |  |
Cash |  |  |  | 400 |  |  |
Premiums and other receivables, net |  |  |  | 1,539 |  |  |
Deferred acquisition costs (value of business acquired) |  |  |  | 317 |  |  |
Reinsurance recoverables, net |  |  |  | 1,212 |  |  |
Intangible assets |  |  |  | 1,199 |  |  |
Other assets |  |  |  | 736 |  |  |
Goodwill (2) |  |  |  | 1,010 |  |  |
Total assets |  |  |  | 11,370 |  |  |
Liabilities |  |  |  |  |  |
Reserve for property and casualty insurance claims and claims expense |  |  |  | 2,765 |  |  |
Reserve for future policy benefits |  |  |  | 186 |  |  |
Unearned premiums |  |  |  | 2,245 |  |  |
Reinsurance payable |  |  |  | 363 |  |  |
Debt (3) |  |  |  | 593 |  |  |
Deferred tax liabilities |  |  |  | 145 |  |  |
Other liabilities |  |  |  | 763 |  |  |
Total liabilities |  |  |  | $ | 7,060 |  |  |
(1)The amounts reflect preliminary allocation of assets acquired and liabilities assumed. The acquisition date fair values of assets and liabilities, including insurance reserves and intangible assets, as well as the related estimated useful lives of intangibles, are preliminary estimates and are subject to revisions within one year of acquisition date. (2)$637 million, $22 million and $351 million of goodwill were allocated to the Allstate Protection, Protection Services and Allstate Health and Benefits segments, respectively, and is non-deductible for income tax purposes. Goodwill is primarily attributable to expected synergies and future growth opportunities. (3)Subsequent to the acquisition, the Company repaid $100 million of 7.625% Subordinated Notes and $72 million of Subordinated Debentures on February 3, 2021 and March 15, 2021, respectively. As of September 30, 2021, the Company had principal balance remaining of $350 million 6.750% Senior Notes due 2024, with a fair value adjustment of $50 million.
Intangible assets by type
($ in millions) |  | January 4, 2021
Distribution and customer relationships |  | $ | 795 |
Trade names |  | 102 |
Licenses |  | 97 |
Technology |  | 205 |
Total |  | $ | 1,199 |
Intangible assets (reported in other assets in the Condensed Consolidated Statements of Financial Position) consist of capitalized costs, primarily of the estimated fair value of distribution and customer relationships, trade names, licenses and technology assets. The estimated useful lives of these assets generally range from 3 to 10 years. The estimated fair value of distribution and customer relationship intangible assets was determined using an income approach that considered cash flows and profits expected to be generated by the acquired relationships, a weighted-average cost of capital discount rate reflecting the relative risk of achieving the anticipated cash flows, profits, the time value of money, and other relevant inputs. Technology and trade names were valued using estimated useful lives and market licensing rates discounted at a weighted-average cost of capital. Licenses are primarily insurance licenses which were valued using the median value of market transactions executed over an extended observation period. Licenses are considered to have an indefinite useful life and are reviewed for impairment at least annually or more frequently if circumstances arise that indicate an impairment may have occurred. An impairment is recognized if the carrying amount of the asset exceeds its estimated fair value. Intangible assets are carried at cost less accumulated amortization. Amortization expense is primarily calculated using accelerated amortization methods. Amortization expense on intangible assets was $76 million and $175 million for the three and nine months ended September 30, 2021, respectively, and the Company expects to recognize $76 million of amortization expense for the remainder of 2021.
Estimated amortization expense of National General intangible assets for the next five years and thereafter
($ in millions) |  |  |  |
2022 |  |  |  | $ | 218 |
2023 |  |  |  | 185 |
2024 |  |  |  | 135 |
2025 |  |  |  | 103 |
2026 |  |  |  | 70 |
Thereafter |  |  |  | 140 |
Total amortization |  |  |  | $ | 851 |
Value of business acquired (reported in DAC in the Condensed Consolidated Statements of Financial Position) recognized in connection with the acquisition of National General represents the value of future profits expected to be earned over the lives of the contracts acquired determined using a weighted-average cost of capital discount and other relevant assumptions. These costs are amortized over the policy term of the contracts in force at the acquisition date, generally over six or twelve months. The value of business acquired asset recognized in connection with the National General acquisition totaled $317 million; the most significant portion relates to insurance contracts in the Allstate Protection segment. Amortization expense of the value of business acquired was $61 million and $293 million for the three and nine months ended September 30, 2021, respectively, and the Company expects to record an additional $24 million in 2021. Other fair value adjustments included an increase in reserves of $62 million, a $13 million reduction to investments that were not held at fair value, and a net increase in current and deferred tax liabilities of $128 million. Preferred stock Subsequent to the acquisition, the Company redeemed all outstanding shares of 7.50% Non-Cumulative Preferred Stock, Series A, par value $0.01 per share, all outstanding Depositary shares, representing 1/40th of a Share of 7.50% Non-Cumulative Preferred Stock, Series B, and the underlying shares of 7.50% Non-Cumulative Preferred Stock, Series B, par value $0.01 per share, and all outstanding shares of Fixed/Floating Rate Non-Cumulative Convertible Preferred Stock, Series D, par value $0.01 per share for a total redemption payment of $250 million. On July 15, 2021, the Company redeemed all outstanding Depositary shares, representing 1/40th of a share of National General’s 7.50% Noncumulative Preferred Stock, Series C, and the underlying shares of 7.50% Noncumulative Preferred Stock, Series C, par value $0.01 per share for a total redemption payment of $200 million. Transactions costs (reported in operating costs and expenses in the Condensed Consolidated Statements of Operations) of $22 million related to the acquisition were expensed as incurred in the Corporate and Other segment. Dispositions On January 26, 2021, the Company entered into a Stock Purchase Agreement with Everlake US Holdings Company (formerly Antelope US Holdings Company), an affiliate of an investment fund associated with The Blackstone Group Inc. to sell Allstate Life Insurance Company and certain affiliates. On March 29, 2021, the Company entered into a Stock Purchase Agreement with Wilton Reassurance Company to sell Allstate Life Insurance Company of New York. Subsequent event On October 1, 2021, the Company closed the sale of Allstate Life Insurance Company of New York to Wilton Reassurance Company for $400 million. On November 1, 2021, the Company closed the sale of Allstate Life Insurance Company and certain affiliates to entities managed by Blackstone for total proceeds of $4 billion, including $2.8 billion purchase price, as well as increases in statutory surplus. A loss on disposition of $4 billion, after-tax, was recorded in the first quarter of 2021 related to these transactions. For the nine months ended September 30, 2021, the loss on disposition was $3.8 billion, after-tax, and reflects purchase price adjustments associated with certain pre-close transactions specified in the stock purchase agreements, changes in statutory capital and surplus prior to the closing dates and the closing date equity of the sold entities determined under GAAP, excluding unrealized gains and losses on fixed income securities. Beginning in the first quarter of 2021, the assets and liabilities of the business were reclassified as held for sale and results are presented as discontinued operations. This change was applied on a retrospective basis.
Financial results from discontinued operations |  |  |  |  |  |
|  | Three months ended September 30, |  | Nine months ended September 30,
($ in millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Revenues |  |  |  |  |  |  |  |
Life premiums and contract charges |  | $ | 331 |  |  | $ | 333 |  |  | $ | 1,007 |  |  | $ | 1,009 |
Net investment income |  | 427 |  |  | 368 |  |  | 1,251 |  |  | 732 |
Realized capital gains (losses) |  | 4 |  |  | 121 |  |  | 193 |  |  | 85 |
Total revenues |  | 762 |  |  | 822 |  |  | 2,451 |  |  | 1,826 |
Costs and expenses |  |  |  |  |  |  |  |
Life contract benefits |  | 411 |  |  | 599 |  |  | 1,207 |  |  | 1,333 |
Interest credited to contractholder funds |  | 127 |  |  | 142 |  |  | 371 |  |  | 456 |
Amortization of DAC |  | 27 |  |  | 106 |  |  | 84 |  |  | 147 |
Operating costs and expenses |  | 45 |  |  | 58 |  |  | 151 |  |  | 176 |
Restructuring and related charges |  | 7 |  |  | 4 |  |  | 30 |  |  | 6 |
Total costs and expenses |  | 617 |  |  | 909 |  |  | 1,843 |  |  | 2,118 |
Amortization of deferred gain on reinsurance |  | 1 |  |  | 1 |  |  | 5 |  |  | 3 |
Income (loss) from discontinued operations before income tax expense |  | 146 |  |  | (86) |  |  | 613 |  |  | (289) |
Income tax expense (benefit) |  | 38 |  |  | (23) |  |  | 131 |  |  | (82) |
Income (loss) from discontinued operations, net of tax |  | 108 |  |  | (63) |  |  | 482 |  |  | (207) |
Loss on disposition of operations |  | 89 |  |  | — |  |  | (4,048) |  |  | — |
Income tax benefit |  | (128) |  |  | — |  |  | (294) |  |  | — |
Loss on disposition of operations, net of tax |  | 217 |  |  | — |  |  | (3,754) |  |  | — |
Income (loss) from discontinued operations, net of tax |  | $ | 325 |  |  | $ | (63) |  |  | $ | (3,272) |  |  | $ | (207) |
Major classes of assets and liabilities to be transferred in transactions |  |  |  |  |  |
($ in millions) |  | September 30, 2021 |  |  |  | December 31, 2020 |  |
Assets |  |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |  |
Fixed income securities, at fair value (amortized cost, net $25,673 and $21,417) |  | $ | 27,469 |  |  |  |  | $ | 23,789 |  |  |
Equity securities, at fair value (cost $23 and $1,113) |  | 16 |  |  |  |  | 1,542 |  |  |
Mortgage loans, net |  | 2,719 |  |  |  |  | 3,329 |  |  |
Limited partnership interests |  | 1,633 |  |  |  |  | 3,046 |  |  |
Short-term, at fair value (amortized cost $1,155 and $993) |  | 1,155 |  |  |  |  | 993 |  |  |
Other, net |  | 827 |  |  |  |  | 1,998 |  |  |
Total investments |  | 33,819 |  |  |  |  | 34,697 |  |  |
Cash |  | 156 |  |  |  |  | 66 |  |  |
Deferred policy acquisitions costs |  | 992 |  |  |  |  | 925 |  |  |
Reinsurance recoverables, net |  | 1,930 |  |  |  |  | 2,005 |  |  |
Accrued investment income |  | 242 |  |  |  |  | 229 |  |  |
Other assets |  | 359 |  |  |  |  | 865 |  |  |
Separate accounts |  | 3,335 |  |  |  |  | 3,344 |  |  |
Assets held for sale |  | 40,833 |  |  |  |  | 42,131 |  |  |
Less: loss accrual |  | 4,030 |  |  |  |  | — |  |  |
Total assets held for sale |  | $ | 36,803 |  |  |  |  | $ | 42,131 |  |  |
Liabilities |  |  |  |  |  |  |  |
Reserve for future policy benefits |  | $ | 11,579 |  |  |  |  | $ | 11,740 |  |  |
Contractholder funds |  | 15,897 |  |  |  |  | 16,356 |  |  |
Deferred income taxes |  | 945 |  |  |  |  | 973 |  |  |
Other liabilities and accrued expenses |  | 665 |  |  |  |  | 912 |  |  |
Separate accounts |  | 3,335 |  |  |  |  | 3,344 |  |  |
Total liabilities held for sale |  | $ | 32,421 |  |  |  |  | $ | 33,325 |  |  |
Cash flows from discontinued operations |  |  |  |  |  |
|  | Nine months ended September 30, |  |  |  |
($ in millions) |  | 2021 |  | 2020 |  |  |  |
Net cash provided by operating activities from discontinued operations |  | $ | 888 |  |  | $ | 104 |  |  |  |  |
Net cash (used in) provided by investing activities from discontinued operations |  | (405) |  |  | 264 |  |  |  |  |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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