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Derivative Financial Instruments and Off-balance Sheet Financial Instruments | 12 Months Ended
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Dec. 31, 2025
Derivative Financial Instruments and Off-balance sheet Financial Instruments |
Derivative Financial Instruments and Off-balance Sheet Financial Instruments |
Note 8 | Derivative Financial Instruments and Off-balance Sheet Financial Instruments
The Company uses derivatives for risk reduction and to increase investment portfolio returns through asset replication. Risk reduction activity is focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations. Asset replication refers to the “synthetic” creation of assets through the use of derivatives. The Company replicates fixed income securities using a combination of a credit default swap, index total return swap, options, futures, or a foreign currency forward contract and one or more highly rated fixed income securities, primarily investment grade host bonds, to synthetically replicate the economic characteristics of one or more cash market securities. The Company replicates equity securities using futures, index total return swaps, and options to increase equity exposure. Allstate Protection and Run-off Property-Liability segments may use interest rate swaps, swaptions, futures and options to manage the interest rate risks of existing investments. These instruments are utilized to change the duration of the portfolio in order to offset the economic effect that interest rates would otherwise have on the fair value of its fixed income securities. Fixed income index total return swaps are used to offset valuation losses in the fixed income portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Allstate Protection and Run-off Property-Liability fixed income portfolio. Equity index total return swaps, futures and options are used to offset valuation losses in the equity portfolio. In addition, equity futures are used to hedge the market risk related to deferred compensation liability contracts. Equity derivatives may also be utilized to replicate cash market positions to increase equity exposure. Forward contracts are primarily used to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations. As of December 31, 2025 and 2024, the Company has not designated any fair value, cash flow or net investment hedge accounting relationships. Non-hedge accounting is generally used for “portfolio” level hedging strategies. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable. The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements. However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries. Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements (“MNAs”) and are presented on a net basis, by counterparty agreement, in the Consolidated Statements of Financial Position. In connection with the sale of ALIC and certain affiliates in 2021, the sale agreement included a provision related to contingent consideration that may be earned over a ten-year period with the first potential payment date commencing on January 1, 2026 and a final potential payment date of January 1, 2035. The contingent consideration is determined annually based on the average ten-year U.S. Treasury rate over the preceding three-year period compared to a designated rate. The contingent consideration meets the definition of a derivative and is accounted for on a fair value basis with periodic changes in fair value reflected in earnings. There are no collateral requirements related to the contingent consideration.
Summary of the volume and fair value positions of derivative instruments as of December 31, 2025
|  |  | Volume (1) |  |  |  |  |  |
($ in millions, except number of contracts) | Balance sheet location |  | Notional amount |  | Number of contracts |  | Fair value, net |  | Gross asset |  | Gross liability
Asset derivatives |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as accounting hedging instruments |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |
Interest rate cap agreements | Other investments |  | $ | 37 |  |  | n/a |  | $ | — |  |  | $ | — |  |  | $ | — |
Futures | Other assets |  | n/a |  | 3,386 |  |  | — |  |  | — |  |  | — |
Equity and index contracts |  |  |  |  |  |  |  |  |  |  |
Options | Other investments |  | n/a |  | 12 |  |  | — |  |  | — |  |  | — |
Futures | Other assets |  | n/a |  | 32 |  |  | — |  |  | — |  |  | — |
Foreign currency contracts |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards | Other investments |  | $ | 503 |  |  | n/a |  | (14) |  |  | 2 |  |  | (16) |
Contingent consideration | Other assets |  | 250 |  |  | n/a |  | 147 |  |  | 147 |  |  | — |
Credit default contracts |  |  |  |  |  |  |  |  |  |  |
Credit default swaps – selling protection | Other investments |  | 550 |  |  | n/a |  | 9 |  |  | 9 |  |  | — |
Total asset derivatives |  |  | $ | 1,340 |  |  | 3,430 |  |  | $ | 142 |  |  | $ | 158 |  |  | $ | (16) |
Liability derivatives |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as accounting hedging instruments |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements | Other liabilities & accrued expenses |  | $ | 37 |  |  | n/a |  | $ | (1) |  |  | $ | — |  |  | $ | (1) |
Futures | Other liabilities & accrued expenses |  | n/a |  | 1,323 |  |  | — |  |  | — |  |  | — |
Equity and index contracts |  |  |  |  |  |  |  |  |  |  |
Options | Other liabilities & accrued expenses |  | n/a |  | 12 |  |  | — |  |  | — |  |  | — |
Futures | Other liabilities & accrued expenses |  | n/a |  | 1,063 |  |  | (2) |  |  | — |  |  | (2) |
Foreign currency contracts |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards | Other liabilities & accrued expenses |  | $ | 45 |  |  | n/a |  | (3) |  |  | — |  |  | (3) |
Total liability derivatives |  |  | 82 |  |  | 2,398 |  |  | (6) |  |  | $ | — |  |  | $ | (6) |
Total derivatives |  |  | $ | 1,422 |  |  | 5,828 |  |  | $ | 136 |  |  |  |  |
(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)
Summary of the volume and fair value positions of derivative instruments as of December 31, 2024
|  |  | Volume (1) |  |  |  |  |  |
($ in millions, except number of contracts) | Balance sheet location |  | Notional amount |  | Number of contracts |  | Fair value, net |  | Gross asset |  | Gross liability
Asset derivatives |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as accounting hedging instruments |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |
Futures | Other assets |  | n/a |  | 4,596 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Equity and index contracts |  |  |  |  |  |  |  |  |  |  |
Futures | Other assets |  | n/a |  | 437 |  |  | — |  |  | — |  |  | — |
Foreign currency contracts |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards | Other investments |  | $ | 602 |  |  | n/a |  | 20 |  |  | 21 |  |  | (1) |
Contingent consideration | Other assets |  | 250 |  |  | n/a |  | 134 |  |  | 134 |  |  | — |
Total asset derivatives |  |  | $ | 852 |  |  | 5,033 |  |  | $ | 154 |  |  | $ | 155 |  |  | $ | (1) |
Liability derivatives |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as accounting hedging instruments |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |
Futures | Other liabilities & accrued expenses |  | n/a |  | 12,112 |  |  | $ | (1) |  |  | $ | — |  |  | $ | (1) |
Equity and index contracts |  |  |  |  |  |  |  |  |  |  |
Futures | Other liabilities & accrued expenses |  | n/a |  | 662 |  |  | — |  |  | — |  |  | — |
Total liability derivatives |  |  | $ | — |  |  | 12,774 |  |  | $ | (1) |  |  | $ | — |  |  | $ | (1) |
Total derivatives |  |  | $ | 852 |  |  | 17,807 |  |  | $ | 153 |  |  |  |  |
(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)
Gross and net amounts for OTC derivatives (1)
($ in millions) |  |  |  | Offsets |  |  |  |  |  |
| Gross amount |  | Counter- party netting |  | Cash collateral (received) pledged |  | Net amount on balance sheet |  | Securities collateral (received) pledged |  | Net amount
December 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives |  | $ | 2 |  |  | $ | (16) |  |  | $ | 15 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
Liability derivatives |  | (20) |  |  | 16 |  |  | 3 |  |  | (1) |  |  | — |  |  | (1) |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives |  | $ | 21 |  |  | $ | (1) |  |  | $ | (18) |  |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |
Liability derivatives |  | (1) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |
(1)All OTC derivatives are subject to enforceable MNAs.
Gains (losses) from valuation and settlements reported on derivatives
($ in millions) |  | Net gains (losses) on investments and derivatives |  | Operating costs and expenses |  | Total gain (loss) recognized in net income on derivatives
2025 |  |  |  |  |  |
Interest rate contracts |  | $ | (10) |  |  | $ | — |  |  | $ | (10) |
Equity and index contracts |  | (10) |  |  | 25 |  |  | 15 |
Contingent consideration |  | — |  |  | 13 |  |  | 13 |
Foreign currency contracts |  | (48) |  |  | — |  |  | (48) |
Credit default contracts |  | (8) |  |  | — |  |  | (8) |
Total |  | $ | (76) |  |  | $ | 38 |  |  | $ | (38) |
2024 |  |  |  |  |  |
Interest rate contracts |  | $ | (32) |  |  | $ | — |  |  | $ | (32) |
Equity and index contracts |  | (17) |  |  | 22 |  |  | 5 |
Contingent consideration |  | — |  |  | 16 |  |  | 16 |
Foreign currency contracts |  | 32 |  |  | — |  |  | 32 |
Credit default contracts |  | 3 |  |  | — |  |  | 3 |
Total |  | $ | (14) |  |  | $ | 38 |  |  | $ | 24 |
2023 |  |  |  |  |  |
Interest rate contracts |  | $ | (8) |  |  | $ | — |  |  | $ | (8) |
Equity and index contracts |  | (32) |  |  | 28 |  |  | (4) |
Contingent consideration |  | — |  |  | 15 |  |  | 15 |
Foreign currency contracts |  | (14) |  |  | — |  |  | (14) |
Credit default contracts |  | (30) |  |  | — |  |  | (30) |
Other contracts |  | — |  |  | (1) |  |  | (1) |
Total |  | $ | (84) |  |  | $ | 42 |  |  | $ | (42) |
The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable MNAs and obtaining collateral where appropriate. The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded.
OTC cash and securities collateral pledged
($ in millions) |  | December 31, 2025
Pledged by the Company |  | $ | 18 |
Pledged to the Company (1) |  | — |
(1)$14 million of collateral was posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability provision. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk. Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of legally enforceable MNAs.
OTC derivatives counterparty credit exposure by counterparty credit rating
($ in millions) |  | December 31, 2025 |  | December 31, 2024
Rating (1) |  | Number of counter-parties |  | Notional amount (2) |  | Credit exposure (2) |  | Exposure, net of collateral (2) |  | Number of counter-parties |  | Notional amount (2) |  | Credit exposure (2) |  | Exposure, net of collateral (2)
AA- |  | 1 |  |  | $ | 37 |  |  | $ | — |  |  | $ | — |  |  | 1 |  |  | $ | 213 |  |  | $ | 10 |  |  | $ | 1 |
A+ |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 389 |  |  | 10 |  |  | 1 |
Total |  | 1 |  |  | $ | 37 |  |  | $ | — |  |  | $ | — |  |  | 4 |  |  | $ | 602 |  |  | $ | 20 |  |  | $ | 2 |
(1)Allstate uses the lower of S&P’s or Moody’s long-term debt issuer ratings. (2)Only OTC derivatives with a net positive fair value are included for each counterparty. For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts.
Exchange traded and cleared margin deposits
($ in millions) |  | December 31, 2025
Pledged by the Company |  | $ | 95 |
Received by the Company |  | — |
Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits. Certain of the Company’s derivative transactions contain credit-risk-contingent termination events and cross-default provisions. Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC’s financial strength credit ratings by Moody’s or S&P fall below a certain level. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certain debt instruments. The following table summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.
($ in millions) |  | December 31, 2025 |  | December 31, 2024
Gross liability fair value of contracts containing credit-risk-contingent features |  | $ | 16 |  |  | $ | 1 |
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs |  | (2) |  |  | (1) |
Collateral posted under MNAs for contracts containing credit-risk-contingent features |  | (14) |  |  | — |
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently |  | $ | — |  |  | $ | — |
Credit derivatives - selling protection A credit default swap (“CDS”) is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium. In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative. CDS typically have a five-year term.
CDS notional amounts by credit rating and fair value of protection sold
($ in millions) |  | Notional amount |  |
| AAA |  | AA |  | A |  | BBB |  | BB and lower |  | Total |  | Fair value
December 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Index |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate debt |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 550 |  |  | $ | — |  |  | $ | 550 |  |  | $ | 9 |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 550 |  |  | $ | — |  |  | $ | 550 |  |  | $ | 9 |
As of December 31, 2024, there were no open CDS positions. The Company sells credit protection through contracts on standardized credit indices (“CDX”), generally investment grade, which are centrally cleared through a registered Derivatives Clearing Organization, and in return receives periodic premiums through the expiration or termination of the contract. A CDX is utilized to take a position on multiple (generally 125) reference entities. Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities. When a credit event occurs for a reference entity within the index, the affected name is removed from the index, and the contract continues until expiration. Settlement is conducted through an auction process, whereby the Company pays the difference between the contract’s notional amount and the final recovery value of the reference obligation as determined by the auction. The maximum payout on a CDX is the contract notional amount. Off-balance sheet financial instruments Commitments to invest, commitments to purchase private placement securities, commitments to fund loans, financial guarantees and credit guarantees have off-balance sheet risk because their contractual amounts are not recorded in the Company’s Consolidated Statements of Financial Position.
Contractual amounts of off-balance sheet financial instruments
|  | As of December 31,
($ in millions) |  | 2025 |  | 2024
Commitments to invest in limited partnership interests |  | $ | 3,244 |  |  | $ | 3,345 |
Private placement commitments |  | 74 |  |  | 29 |
Other loan commitments |  | 14 |  |  | 16 |
In the preceding table, the contractual amounts represent the amount at risk if the contract is fully drawn upon, the counterparty defaults and the value of any underlying security becomes worthless. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. Commitments to invest in limited partnership interests represent agreements to acquire new or additional participation in certain limited partnership investments. The Company enters into these agreements in the normal course of business. Because the investments in limited partnerships are not actively traded, it is not practical to estimate the fair value of these commitments. Private placement commitments represent commitments to purchase private placement debt and private equity securities at a future date. The Company enters into these agreements in the normal course of business. The fair value of the debt commitments generally cannot be estimated on the date the commitment is made as the terms and conditions of the underlying private placement securities are not yet final. Because the private equity securities are not actively traded, it is not practical to estimate fair value of the commitments. Other loan commitments are agreements to lend to a borrower provided there is no violation of any condition established in the contract. The Company enters into these agreements to commit to future loan fundings at predetermined interest rates. Unless unconditionally cancellable, the Company recognizes a credit loss allowance on such commitments. Commitments have either fixed or varying expiration dates or other termination clauses. The fair value of these commitments is insignificant.

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- Definition The entire disclosure of the entity's derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising there from, and the amounts of and methodologies and assumptions used in determining the amounts of such items. Also includes disclosures of off-balance-sheet financial instruments. + References No definition available. + Details
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