SEC Filing | The Allstate Corporation

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-31248

ALLSTATE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

	Illinois	36-2554642
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

	3100 Sanders Road, Northbrook, Illinois	60062
	(Address of principal executive offices)	(Zip Code)

(847) 402-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer

Non-accelerated filer X (Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No X

As of May 4, 2012, the registrant had 23,800 common shares, $227 par value, outstanding, all of which are held by Allstate Insurance Company.

ALLSTATE LIFE INSURANCE COMPANY

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2012

PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three-Month Periods Ended March 31, 2012 and 2011 (unaudited)	1

	Condensed Consolidated Statements of Financial Position as of March 31, 2012 and December 31, 2011 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2012 and 2011 (unaudited)	3

	Notes to Condensed Consolidated Financial Statements (unaudited)	4

	Report of Independent Registered Public Accounting Firm	36

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Operations Highlights	37
	Operations	38
	Investments Highlights	43
	Investments	43
	Capital Resources and Liquidity	55

Item 4.	Controls and Procedures	58

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	59

Item 6.	Exhibits	59

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

($ in millions)		Three months ended March 31,
		2012			2011
		(unaudited)
					(As Adjusted See Note 1)
Revenues
Premiums	$	146		$	171
Contract charges		255			247
Net investment income		673			662
Realized capital gains and losses:
Total other-than-temporary impairment losses		(33	)		(82	)
Portion of loss recognized in other comprehensive income		(3	)		(7	)
Net other-than-temporary impairment losses recognized in earnings		(36	)		(89	)
Sales and other realized capital gains and losses		14			134
Total realized capital gains and losses		(22	)		45
		1,052			1,125

Costs and expenses
Contract benefits		364			382
Interest credited to contractholder funds		371			408
Amortization of deferred policy acquisition costs		81			103
Operating costs and expenses		112			95
Restructuring and related charges		--			(2	)
Interest expense		11			11
		939			997
Gain on disposition of operations		3			5

Income from operations before income tax expense		116			133

Income tax expense		33			42

Net income		83			91

Other comprehensive income, after-tax
Change in unrealized net capital gains and losses		228			106
Change in unrealized foreign currency translation adjustments		(1	)		--
Other comprehensive income, after-tax		227			106

Comprehensive income	$	310		$	197

See notes to condensed consolidated financial statements.

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ in millions, except par value data)		March 31, 2012			December 31, 2011
		(unaudited)
Assets					(As Adjusted See Note 1)
Investments
Fixed income securities, at fair value (amortized cost $43,134 and $43,481)	$	45,382		$	45,428
Mortgage loans		6,532			6,546
Equity securities, at fair value (cost $143 and $143)		190			179
Limited partnership interests		1,729			1,612
Short-term, at fair value (amortized cost $647 and $593)		647			593
Policy loans		832			833
Other		1,182			1,086
Total investments		56,494			56,277
Cash		180			310
Deferred policy acquisition costs		2,035			2,165
Reinsurance recoverables		4,359			4,457
Accrued investment income		530			520
Other assets		377			406
Separate Accounts		7,355			6,984
Total assets	$	71,330		$	71,119

Liabilities
Contractholder funds	$	40,936		$	41,669
Reserve for life-contingent contract benefits		13,547			13,666
Unearned premiums		22			23
Payable to affiliates, net		94			97
Other liabilities and accrued expenses		1,314			1,092
Deferred income taxes		989			821
Notes due to related parties		696			700
Separate Accounts		7,355			6,984
Total liabilities		64,953			65,052

Commitments and Contingent Liabilities (Note 8)

Shareholder’s Equity
Redeemable preferred stock - series A, $100 par value, 1,500,000 shares authorized, none issued		--			--
Redeemable preferred stock - series B, $100 par value, 1,500,000 shares authorized, none issued		--			--
Common stock, $227 par value, 23,800 shares authorized and outstanding		5			5
Additional capital paid-in		3,190			3,190
Retained income		2,143			2,060
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital losses on fixed income securities with OTTI		(54	)		(103	)
Other unrealized net capital gains and losses		1,531			1,380
Unrealized adjustment to DAC, DSI and insurance reserves		(436	)		(464	)
Total unrealized net capital gains and losses		1,041			813
Unrealized foreign currency translation adjustments		(2	)		(1	)
Total accumulated other comprehensive income		1,039			812
Total shareholder’s equity		6,377			6,067
Total liabilities and shareholder’s equity	$	71,330		$	71,119

See notes to condensed consolidated financial statements.

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)		Three months ended March 31,
		2012			2011
		(unaudited)
Cash flows from operating activities					(As Adjusted See Note 1)
Net income	$	83		$	91
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items		(4	)		(31	)
Realized capital gains and losses		22			(45	)
Gain on disposition of operations		(3	)		(5	)
Interest credited to contractholder funds		371			408
Changes in:
Policy benefits and other insurance reserves		(222	)		(133	)
Unearned premiums		(1	)		(2	)
Deferred policy acquisition costs		24			45
Reinsurance recoverables, net		20			(59	)
Income taxes		34			44
Other operating assets and liabilities		(48	)		(56	)
Net cash provided by operating activities		276			257

Cash flows from investing activities
Proceeds from sales
Fixed income securities		2,118			2,959
Equity securities		1			9
Limited partnership interests		34			39
Mortgage loans		6			26
Other investments		32			60
Investment collections
Fixed income securities		677			681
Mortgage loans		168			86
Other investments		22			55
Investment purchases
Fixed income securities		(2,418	)		(2,961	)
Equity securities		(1	)		(8	)
Limited partnership interests		(114	)		(115	)
Mortgage loans		(172	)		(26	)
Other investments		(28	)		(57	)
Change in short-term investments, net		122			577
Change in other investments, net		(7	)		(165	)
Net cash provided by investing activities		440			1,160

Cash flows from financing activities
Contractholder fund deposits		448			472
Contractholder fund withdrawals		(1,290	)		(1,869	)
Repayment of notes due to related parties		(4	)		--
Net cash used in financing activities		(846	)		(1,397	)
Net increase in cash		(130	)		20
Cash at beginning of period		310			118
Cash at end of period	$	180		$	138

See notes to condensed consolidated financial statements.

ALLSTATE LIFE INSURANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of Allstate Life Insurance Company (“ALIC”) and its wholly owned subsidiaries (collectively referred to as the “Company”). ALIC is wholly owned by Allstate Insurance Company (“AIC”), which is wholly owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”).

The condensed consolidated financial statements and notes as of March 31, 2012 and for the three-month periods ended March 31, 2012 and 2011 are unaudited. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals), which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

To conform to the current year presentation, certain amounts in the prior year condensed consolidated financial statements and notes have been reclassified.

Premiums and contract charges

The following table summarizes premiums and contract charges by product the three months ended March 31.

($ in millions)		2012		2011
Premiums
Traditional life insurance	$	109	$	104
Immediate annuities with life contingencies		12		43
Accident and health insurance		25		24
Total premiums		146		171

Contract charges
Interest-sensitive life insurance		249		238
Fixed annuities		6		9
Total contract charges		255		247
Total premiums and contract charges	$	401	$	418

Adopted accounting standards

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued guidance modifying the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal insurance contracts. The guidance specifies that the costs must be directly related to the successful acquisition of insurance contracts. The guidance also specifies that advertising costs should be included as deferred acquisition costs (“DAC”) only when the direct-response advertising accounting criteria are met. The Company adopted the new guidance on a retrospective basis as of January 1, 2012. The cumulative effect of the adoption to shareholder’s equity as of January 1, 2011 was a decrease of $313 million, net of taxes. The impacts of the retrospective adjustments on previously issued financial statements are summarized in the following table.

($ in millions)		Previously Reported		As Adjusted
Three months ended March 31, 2011
Amortization of DAC	$	124	$	103
Operating costs and expenses		77		95
Gain on disposition of operations		2		5
Income tax expense		40		42
Net income		87		91
As of December 31, 2011
DAC		2,588		2,165
Reserve for life-contingent contract benefits		13,709		13,666
Other liabilities and accrued expenses		1,043		1,092
Deferred income taxes		971		821
Retained income		2,377		2,060
Unrealized adjustment to DAC, DSI and insurance reserves		(502)		(464)

In future periods, operating costs and expenses will increase since a lower amount of acquisition costs will be capitalized, which will be partially offset by a decrease in amortization of DAC due to the retrospective reduction of the DAC balance. The effect of the adoption on net income and related per share amounts for interim periods after adoption is not determinable since calculations under the historic DAC accounting policy were not continued after adoption.

Criteria for Determining Effective Control for Repurchase Agreements

In April 2011, the FASB issued guidance modifying the assessment criteria of effective control for repurchase agreements. The new guidance removes the criteria requiring an entity to have the ability to repurchase or redeem financial assets on substantially the agreed terms and the collateral maintenance guidance related to that criteria. The guidance is to be applied prospectively to transactions or modifications of existing transactions that occur during reporting periods beginning on or after December 15, 2011. The adoption of this guidance as of January 1, 2012 had no impact on the Company’s results of operations or financial position.

Amendments to Fair Value Measurement and Disclosure Requirements

In May 2011, the FASB issued guidance that clarifies the application of existing fair value measurement and disclosure requirements and amends certain fair value measurement principles, requirements and disclosures. Changes were made to improve consistency in global application. The guidance is to be applied prospectively for reporting periods beginning after December 15, 2011. The adoption of this guidance as of January 1, 2012 had no impact on the Company’s results of operations or financial position.

Presentation of Comprehensive Income

In June and December 2011, the FASB issued guidance amending the presentation of comprehensive income and its components. Under the new guidance, a reporting entity has the option to present comprehensive income in a single continuous statement or in two separate but consecutive statements. The Company adopted the new guidance in the first quarter of 2012. The new guidance affects presentation only and therefore had no impact on the Company’s results of operations or financial position.

Pending accounting standard

Disclosures about Offsetting Assets and Liabilities for Financial Instruments and Derivative Instruments

In December 2011, the FASB issued guidance requiring expanded disclosures, including both gross and net information, for financial instruments and derivative instruments that are either offset in the reporting entity’s financial statements or those that are subject to an enforceable master netting arrangement or similar agreement. The guidance is effective for reporting periods beginning on or after January 1, 2013 and is to be applied retrospectively. The new guidance affects disclosures only and will have no impact on the Company’s results of operations or financial position.

2. Related Party Transactions

In the first quarter of 2012, Road Bay Investments, LLC (“RBI”), a consolidated subsidiary of ALIC, repaid $1 million and $3 million of principal on the 7.00% Note due 2017 and the 5.80% Note due 2018, respectively, to American Heritage Life Insurance Company (“AHL”), an unconsolidated affiliate of the Company.

3. Supplemental Cash Flow Information

Non-cash modifications of certain mortgage loans, fixed income securities, limited partnership interests and other investments, as well as mergers completed with equity securities, totaled $17 million and $49 million for the three months ended March 31, 2012 and 2011, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) derivatives are reported in other liabilities and accrued expenses or other investments. The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Net change in proceeds managed
Net change in short-term investments	$	(173)	$	(137)
Operating cash flow used	$	(173)	$	(137)

Net change in liabilities
Liabilities for collateral, beginning of year	$	(263)	$	(465)
Liabilities for collateral, end of period		(436)		(602)
Operating cash flow provided	$	173	$	137

4. Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
March 31, 2012
U.S. government and agencies	$	2,145	$	202	$	(3)	$	2,344
Municipal		4,315		471		(98)		4,688
Corporate		28,966		2,168		(213)		30,921
Foreign government		885		134		--		1,019
Residential mortgage-backed securities (“RMBS”)		2,605		84		(220)		2,469
Commercial mortgage-backed securities (“CMBS”)		1,773		60		(174)		1,659
Asset-backed securities (“ABS”)		2,430		67		(231)		2,266
Redeemable preferred stock		15		1		--		16
Total fixed income securities	$	43,134	$	3,187	$	(939)	$	45,382

December 31, 2011
U.S. government and agencies	$	2,502	$	241	$	--	$	2,743
Municipal		4,380		426		(114)		4,692
Corporate		28,496		2,234		(326)		30,404
Foreign government		927		142		(1)		1,068
RMBS		2,954		74		(314)		2,714
CMBS		1,862		45		(224)		1,683
ABS		2,345		44		(281)		2,108
Redeemable preferred stock		15		1		--		16
Total fixed income securities	$	43,481	$	3,207	$	(1,260)	$	45,428

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of March 31, 2012:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	2,107	$	2,143
Due after one year through five years		9,869		10,418
Due after five years through ten years		13,990		15,103
Due after ten years		12,133		12,983
		38,099		40,647
RMBS and ABS		5,035		4,735
Total	$	43,134	$	45,382

Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity. CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk.

Net investment income

Net investment income for the three months ended March 31 is as follows:

($ in millions)		2012		2011
Fixed income securities	$	521	$	591
Mortgage loans		85		88
Equity securities		1		1
Limited partnership interests (1)		67		5
Short-term investments		--		1
Other		27		3
Investment income, before expense		701		689
Investment expense		(28)		(27)
Net investment income	$	673	$	662

(1) Income from limited partnership interests accounted for under the equity method of accounting (“EMA”) is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Realized capital gains and losses

Realized capital gains and losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Fixed income securities	$	(50)	$	17
Mortgage loans		(1)		(2)
Equity securities		--		(2)
Limited partnership interests (1)		(1)		22
Derivatives		22		4
Other		8		6
Realized capital gains and losses	$	(22)	$	45

(1) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Realized capital gains and losses by transaction type for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Impairment write-downs	$	(20)	$	(47)
Change in intent write-downs		(16)		(42)
Net other-than-temporary impairment losses recognized in earnings		(36)		(89)
Sales		(9)		112
Valuation of derivative instruments		8		(2)
Settlements of derivative instruments		15		6
EMA limited partnership income		--		18
Realized capital gains and losses	$	(22)	$	45

Gross gains of $45 million and $126 million and gross losses of $66 million and $31 million were realized on sales of fixed income securities during the three months ended March 31, 2012 and 2011, respectively.

Other-than-temporary impairment losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2012						2011
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	--	$	--	$	--	$	(12)	$	(1)	$	(13)
Corporate		(13)		--		(13)		(4)		1		(3)
RMBS		(12)		(3)		(15)		(36)		(5)		(41)
CMBS		(6)		--		(6)		(16)		(4)		(20)
ABS		--		--		--		(6)		2		(4)
Total fixed income securities		(31)		(3)		(34)		(74)		(7)		(81)
Equity securities		--		--		--		(5)		--		(5)
Mortgage loans		(3)		--		(3)		(2)		--		(2)
Limited partnership interests		(1)		--		(1)		--		--		--
Other		2		--		2		(1)		--		(1)
Other-than-temporary impairment losses	$	(33)	$	(3)	$	(36)	$	(82)	$	(7)	$	(89)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amount excludes $133 million and $90 million as of March 31, 2012 and December 31, 2011, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		March 31, 2012		December 31, 2011
Municipal	$	(5)	$	(5)
Corporate		(6)		(6)
RMBS		(164)		(198)
CMBS		(20)		(19)
ABS		(21)		(21)
Total	$	(216)	$	(249)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:

($ in millions)		Three months ended March 31
		2012		2011
Beginning balance	$	(581)	$	(701)
Additional credit loss for securities previously other-than-temporarily impaired		(16)		(19)
Additional credit loss for securities not previously other-than-temporarily impaired		(2)		(19)
Reduction in credit loss for securities disposed or collected		104		132
Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell		--		13
Change in credit loss due to accretion of increase in cash flows		--		1
Ending balance	$	(495)	$	(593)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. 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, including past events, current conditions, and reasonable and supportable assumptions and forecasts, 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, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector 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 estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. 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.

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

($ in millions)		Fair		Gross unrealized			Unrealized net
March 31, 2012		value		Gains		Losses	gains (losses)
Fixed income securities	$	45,382	$	3,187	$	(939)	$	2,248
Equity securities		190		48		(1)		47
Short-term investments		647		--		--		--
Derivative instruments (1)		(16)		2		(18)		(16)
EMA limited partnerships (2)								1
Unrealized net capital gains and losses, pre-tax								2,280
Amounts recognized for:
Insurance reserves (3)								(443)
DAC and DSI (4)								(228)
Amounts recognized								(671)
Deferred income taxes								(568)
Unrealized net capital gains and losses, after-tax							$	1,041

(1) Included in the fair value of derivative instruments are $(10) million classified as assets and $6 million classified as liabilities.

(2) Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross gains and losses are not applicable.

(3) 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 current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) 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.

		Fair		Gross unrealized			Unrealized net
December 31, 2011		value		Gains		Losses	gains (losses)
Fixed income securities	$	45,428	$	3,207	$	(1,260)	$	1,947
Equity securities		179		38		(2)		36
Short-term investments		593		--		--		--
Derivative instruments (1)		(12)		3		(15)		(12)
EMA limited partnerships								1
Unrealized net capital gains and losses, pre-tax								1,972
Amounts recognized for:
Insurance reserves								(594)
DAC and DSI								(120)
Amounts recognized								(714)
Deferred income taxes								(445)
Unrealized net capital gains and losses, after-tax							$	813

(1) Included in the fair value of derivative instruments are $(5) million classified as assets and $7 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the three months ended March 31, 2012 is as follows:

($ in millions)
Fixed income securities	$	301
Equity securities		11
Derivative instruments		(4)
Total		308
Amounts recognized for:
Insurance reserves		151
DAC and DSI		(108)
Amounts recognized		43
Deferred income taxes		(123)
Increase in unrealized net capital gains and losses	$	228

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

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, the security’s decline in fair value is considered other than temporary and is 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 by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings. For equity securities managed by a third party, the Company has contractually retained its decision making authority as it pertains to selling equity securities that are in an unrealized loss position.

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 (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment 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 other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity 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 is other than temporary 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 length of time and extent to which the fair value has been less than amortized cost or cost.

The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months					12 months or more						Total
	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized
	of issues		value		losses	of issues		value		losses		losses
March 31, 2012
Fixed income securities
U.S. government and agencies	7	$	322	$	(3)	--	$	--	$	--	$	(3)
Municipal	10		64		(1)	91		621		(97)		(98)
Corporate	172		2,010		(59)	87		1,132		(154)		(213)
Foreign government	4		34		--	1		1		--		--
RMBS	132		40		(1)	139		722		(219)		(220)
CMBS	24		249		(27)	61		434		(147)		(174)
ABS	26		233		(10)	97		969		(221)		(231)
Redeemable preferred stock	1		--		--	--		--		--		--
Total fixed income securities	376		2,952		(101)	476		3,879		(838)		(939)
Equity securities	4		17		(1)	--		--		--		(1)
Total fixed income and equity securities	380	$	2,969	$	(102)	476	$	3,879	$	(838)	$	(940)

Investment grade fixed income securities	303	$	2,537	$	(73)	285	$	2,606	$	(420)	$	(493)
Below investment grade fixed income securities	73		415		(28)	191		1,273		(418)		(446)
Total fixed income securities	376	$	2,952	$	(101)	476	$	3,879	$	(838)	$	(939)

December 31, 2011
Fixed income securities
Municipal	8	$	67	$	(7)	97	$	624	$	(107)	$	(114)
Corporate	226		2,025		(72)	100		1,207		(254)		(326)
Foreign government	7		41		(1)	1		1		--		(1)
RMBS	140		152		(4)	161		809		(310)		(314)
CMBS	42		361		(47)	68		488		(177)		(224)
ABS	32		255		(13)	107		1,010		(268)		(281)
Redeemable preferred stock	1		--		--	--		--		--		--
Total fixed income securities	456		2,901		(144)	534		4,139		(1,116)		(1,260)
Equity securities	3		35		(2)	--		--		--		(2)
Total fixed income and equity securities	459	$	2,936	$	(146)	534	$	4,139	$	(1,116)	$	(1,262)

Investment grade fixed income securities	351	$	2,439	$	(111)	328	$	2,869	$	(626)	$	(737)
Below investment grade fixed income securities	105		462		(33)	206		1,270		(490)		(523)
Total fixed income securities	456	$	2,901	$	(144)	534	$	4,139	$	(1,116)	$	(1,260)

As of March 31, 2012, $355 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $355 million, $261 million are related to unrealized losses on investment grade fixed income securities. 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 Standard & Poor’s (“S&P”), Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase.

As of March 31, 2012, the remaining $585 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising $232 million of these unrealized losses were evaluated based on factors such as expected 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. Of the $585 million, $353 million are related to below investment grade fixed income securities. Of these amounts, $271 million of the below investment grade fixed income securities had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of March 31, 2012. Unrealized losses on below investment grade securities are principally related to RMBS, CMBS and ABS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations.

RMBS, CMBS and ABS 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, (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, and (iii) for RMBS and ABS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable. Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of March 31, 2012, 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. As of March 31, 2012, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of March 31, 2012 and December 31, 2011, the carrying value of equity method limited partnerships totaled $1.15 billion and $858 million, respectively. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The Company had no write-downs related to equity method limited partnerships for the three months ended March 31, 2012 and 2011.

As of March 31, 2012 and December 31, 2011, the carrying value for cost method limited partnerships was $580 million and $754 million, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital. Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds. The Company had $1 million of write-downs related to cost method limited partnerships for the three months ended March 31, 2012 and no write-downs for the three months ended March 31, 2011.

Mortgage loans

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Mortgage loan valuation allowances are charged off when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of March 31, 2012.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows 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.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution:

($ in millions)		March 31, 2012						December 31, 2011
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total
Below 1.0	$	289	$	--	$	289	$	345	$	--	$	345
1.0 - 1.25		1,493		--		1,493		1,488		--		1,488
1.26 - 1.50		1,557		19		1,576		1,475		19		1,494
Above 1.50		2,819		128		2,947		2,847		128		2,975
Total non-impaired mortgage loans	$	6,158	$	147	$	6,305	$	6,155	$	147	$	6,302

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances 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 circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans is as follows:

($ in millions)		March 31, 2012		December 31, 2011
Impaired mortgage loans with a valuation allowance	$	227	$	244
Impaired mortgage loans without a valuation allowance		--		--
Total impaired mortgage loans	$	227	$	244
Valuation allowance on impaired mortgage loans	$	60	$	63

The average balance of impaired loans was $236 million and $173 million for the three months ended March 31, 2012 and 2011, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the three months ended March 31 is as follows:

($ in millions)		2012		2011
Beginning balance	$	63	$	84
Net increase in valuation allowance		3		2
Charge offs		(6)		(13)
Ending balance	$	60	$	73

The carrying value of past due mortgage loans is as follows:

($ in millions)		March 31, 2012		December 31, 2011
Less than 90 days past due	$	--	$	--
90 days or greater past due		68		43
Total past due		68		43
Current loans		6,464		6,503
Total mortgage loans	$	6,532	$	6,546

5. Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Condensed

Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.

The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties or internally estimated, the Company’s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.

The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans and policy loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements. In addition, derivatives embedded in fixed income securities are not disclosed in the hierarchy as free-standing derivatives since they are presented with the host contracts in fixed income securities.

In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.

Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

Level 1 measurements

· Fixed income securities: Comprise U.S. Treasuries. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

· Equity securities: Comprise actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

· Short-term: Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

· Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

Level 2 measurements

· Fixed income securities:

U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

RMBS and ABS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

· Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.

· Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value.

· Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

OTC derivatives, including interest rate swaps, foreign currency swaps, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

Level 3 measurements

· Fixed income securities:

Municipal: ARS primarily backed by student loans that have become illiquid due to failures in the auction market are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including estimates of future coupon rates if auction failures continue, the anticipated date liquidity will return to the market and illiquidity premium. Also included are municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners (“NAIC”). The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Also included are equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, such as volatility. Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

· RMBS, CMBS and ABS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.

· Other investments: Certain OTC derivatives, such as interest rate caps and floors, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.

· Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.

Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell. Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are valued using net asset values.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2012:

($ in millions)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Counterparty and cash collateral netting		Balance as of March 31, 2012
Assets
Fixed income securities:
U.S. government and agencies	$	1,167	$	1,177	$	--			$	2,344
Municipal		--		4,301		387				4,688
Corporate		--		29,592		1,329				30,921
Foreign government		--		1,019		--				1,019
RMBS		--		2,469		--				2,469
CMBS		--		1,639		20				1,659
ABS		--		1,989		277				2,266
Redeemable preferred stock		--		15		1				16
Total fixed income securities		1,167		42,201		2,014				45,382
Equity securities		138		38		14				190
Short-term investments		53		594		--				647
Other investments:
Free-standing derivatives		--		362		2	$	(101)		263
Separate account assets		7,355		--		--				7,355
Other assets		--		--		1				1
Total recurring basis assets		8,713		43,195		2,031		(101)		53,838
Non-recurring basis (1)		--		--		10				10
Total assets at fair value	$	8,713	$	43,195	$	2,041	$	(101)	$	53,848
% of total assets at fair value		16.2 %		80.2 %		3.8 %		(0.2) %		100.0 %

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(730)			$	(730)
Other liabilities:
Free-standing derivatives		--		(151)		(72)	$	61		(162)
Total liabilities at fair value	$	--	$	(151)	$	(802)	$	61	$	(892)
% of total liabilities at fair value		-- %		16.9 %		89.9 %		(6.8) %		100.0 %

(1) Includes $7 million of mortgage loans and $3 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements as of March 31, 2012.

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
ARS backed by student loans	$	301	Discounted cash flow model	Anticipated date liquidity will return to the market	18 - 60 months	33 - 45 months

Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(591)	Stochastic cash flow model	Projected option cost	1.50 - 3.50 %	3.35 %

If the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of March 31, 2012, Level 3 fair value measurements include $1.57 billion of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in

the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2011:

($ in millions)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Counterparty and cash collateral netting		Balance as of December 31, 2011
Assets
Fixed income securities:
U.S. government and agencies	$	1,614	$	1,129	$	--			$	2,743
Municipal		--		4,305		387				4,692
Corporate		--		29,085		1,319				30,404
Foreign government		--		1,068		--				1,068
RMBS		--		2,667		47				2,714
CMBS		--		1,653		30				1,683
ABS		--		1,854		254				2,108
Redeemable preferred stock		--		15		1				16
Total fixed income securities		1,614		41,776		2,038				45,428
Equity securities		127		38		14				179
Short-term investments		46		547		--				593
Other investments:
Free-standing derivatives		--		268		1	$	(103)		166
Separate account assets		6,984		--		--				6,984
Other assets		--		--		1				1
Total recurring basis assets		8,771		42,629		2,054		(103)		53,351
Non-recurring basis (1)		--		--		24				24
Total assets at fair value	$	8,771	$	42,629	$	2,078	$	(103)	$	53,375
% of total assets at fair value		16.4 %		79.9 %		3.9 %		(0.2) %		100.0 %

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(723)			$	(723)
Other liabilities:
Free-standing derivatives		--		(96)		(89)	$	60		(125)
Total liabilities at fair value	$	--	$	(96)	$	(812)	$	60	$	(848)
% of total liabilities at fair value		-- %		11.3 %		95.8 %		(7.1) %		100.0 %

(1) Includes $19 million of mortgage loans and $5 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2012.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2011		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	387	$	--	$	--	$	--	$	--
Corporate		1,319		5		26		56		(10)
RMBS		47		--		--		--		(47)
CMBS		30		(1)		6		--		--
ABS		254		13		13		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,038		17		45		56		(57)
Equity securities		14		--		--		--		--
Other investments:
Free-standing derivatives, net		(88)		15		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,965	$	32	$	45	$	56	$	(57)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(723)	$	(25)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(723)	$	(25)	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of March 31, 2012
Assets
Fixed income securities:
Municipal	$	--	$	--	$	--	$	--	$	387
Corporate		19		(54)		--		(32)		1,329
RMBS		--		--		--		--		--
CMBS		--		--		--		(15)		20
ABS		--		--		--		(3)		277
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		19		(54)		--		(50)		2,014
Equity securities		--		--		--		--		14
Other investments:
Free-standing derivatives, net		3		--		--		--		(70)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	22	$	(54)	$	--	$	(50)	$	1,959

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(12)	$	30	$	(730)
Total recurring Level 3 liabilities	$	--	$	--	$	(12)	$	30	$	(730)

(1) The effect to net income totals $7 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $26 million in realized capital gains and losses, $6 million in net investment income, $(56) million in interest credited to contractholder funds and $31 million in contract benefits.

(2) Comprises $2 million of assets and $72 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2011.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2010		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	601	$	1	$	6	$	--	$	(1)
Corporate		1,760		11		10		93		(36)
RMBS		1,189		(38)		71		--		(3)
CMBS		844		(20)		113		55		--
ABS		1,974		43		14		--		(95)
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		6,369		(3)		214		148		(135)
Equity securities		29		(5)		--		--		(10)
Other investments:
Free-standing derivatives, net		(77)		9		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	6,322	$	1	$	214	$	148	$	(145)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(653)	$	8	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(653)	$	8	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of March 31, 2011
Assets
Fixed income securities:
Municipal	$	10	$	(73)	$	--	$	--	$	544
Corporate		35		(19)		--		(6)		1,848
RMBS		--		(184)		--		(51)		984
CMBS		--		(25)		--		(1)		966
ABS		25		(105)		--		(38)		1,818
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		70		(406)		--		(96)		6,161
Equity securities		--		--		--		--		14
Other investments:
Free-standing derivatives, net		10		--		--		(6)		(64)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	80	$	(406)	$	--	$	(102)	$	6,112

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(14)	$	29	$	(630)
Total recurring Level 3 liabilities	$	--	$	--	$	(14)	$	29	$	(630)

(1) The effect to net income totals $9 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(6) million in realized capital gains and losses, $7 million in net investment income, $(37) million in interest credited to contractholder funds and $45 million in contract benefits.

(2) Comprises $9 million of assets and $73 million of liabilities.

Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2012 or 2011.

During the three months ended March 31, 2011, certain CMBS and ABS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in the market activity for these assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation approach. Accordingly, for securities included within this group, there was no change in fair value in conjunction with the transfer resulting in a realized or unrealized gain or loss.

Transfers into Level 3 during the three months ended March 31, 2012 and 2011 included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs have not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers out of Level 3 during the three months ended March 31, 2012 and 2011 included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.

The following table provides the change in unrealized gains and losses included in net income during the three months ended March 31 for Level 3 assets and liabilities held as of March 31.

($ in millions)		2012		2011
Assets
Fixed income securities:
Corporate	$	3	$	9
RMBS		--		(24)
CMBS		(1)		(16)
ABS		13		1
Total fixed income securities		15		(30)
Equity securities		--		(5)
Other investments:
Free-standing derivatives, net		15		4
Total recurring Level 3 assets	$	30	$	(31)

Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(25)	$	8
Total recurring Level 3 liabilities	$	(25)	$	8

The amounts in the table above represent gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. These gains and losses total $5 million for the three months ended March 31, 2012 and are reported as follows: $24 million in realized capital gains and losses, $6 million in net investment income, $(56) million in interest credited to contractholder funds and $31 million in contract benefits. These gains and losses total $(23) million for the three months ended March 31, 2011 and are reported as follows: $(38) million in realized capital gains and losses, $7 million in net investment income, $(37) million in interest credited to contractholder funds and $45 million in contract benefits.

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets

($ in millions)		March 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	6,532	$	6,781	$	6,546	$	6,739
Cost method limited partnerships		580		704		754		882
Bank loans		292		289		299		290
Notes due from related party		275		275		275		235

The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell. Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as collateral. The fair value of cost method limited partnerships is determined using reported net asset values of the underlying funds. The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market conditions. The fair value of notes due from related party, which are reported in other investments, is based on discounted cash flow calculations using current interest rates for instruments with comparable terms. The fair value measurements for mortgage loans, cost method limited partnerships, bank loans and notes due from related party are categorized as Level 3.

Financial liabilities

($ in millions)		March 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	29,475	$	30,444	$	30,161	$	30,468
Notes due to related parties		696		696		700		659
Liability for collateral		436		436		263		263

The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk. Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk. Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk. The fair value measurements for contractholder funds on investment contracts are categorized as Level 3.

The fair value of notes due to related parties is based on discounted cash flow calculations using current interest rates for instruments with comparable terms and considers the Company’s own credit risk. The liability for collateral is valued at carrying value due to its short-term nature. The fair value measurements for liability for collateral are categorized as Level 2. The fair value measurements for notes due to related parties are categorized as Level 3.

6. Derivative Financial Instruments

The Company uses derivatives to manage 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, and for asset replication. The Company does not use derivatives for speculative purposes.

Asset-liability management is a risk management strategy that is principally employed to balance the respective interest-rate sensitivities of the Company’s assets and liabilities. Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, floors, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates. The Company uses financial futures and interest rate swaps to hedge anticipated asset purchases and liability issuances and futures and

options for hedging the equity exposure contained in equity indexed life and annuity product contracts that offer equity returns to contractholders. In addition, the Company uses interest rate swaps to hedge interest rate risk inherent in funding agreements. The Company uses foreign currency swaps primarily to reduce the foreign currency risk associated with issuing foreign currency denominated funding agreements and holding foreign currency denominated investments. Credit default swaps are typically used to mitigate the credit risk within the Company’s fixed income portfolio.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives and primarily investment grade host bonds to replicate securities that are either unavailable in the cash markets or more economical to acquire in synthetic form. The Company replicates fixed income securities using a combination of a credit default swap and one or more highly rated fixed income securities to synthetically replicate the economic characteristics of one or more cash market securities.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock.

When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges. The Company designates certain of its interest rate and foreign currency swap contracts and certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item. The Company designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income. Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income.

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 legally enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position. For certain exchange traded derivatives, the exchange requires margin deposits as well as daily cash settlements of margin accounts. As of March 31, 2012, the Company pledged $7 million of securities in the form of margin deposits.

For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness. For cash flow hedges, gains and losses are amortized from accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income. For embedded derivatives in fixed income securities, net income includes the change in fair value of the embedded derivative and accretion income related to the host instrument.

Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting. For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable. With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of March 31, 2012.

($ in millions, except number of contracts)	Asset derivatives
			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other investments	$	119	n/a	$	(6)	$	--	$	(6)
Foreign currency swap agreements	Other investments		85	n/a		(10)		--		(10)
Total			204	n/a		(16)		--		(16)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		6,973	n/a		109		128		(19)
Interest rate swaption agreements	Other investments		500	n/a		--		--		--
Interest rate cap and floor agreements	Other investments		539	n/a		(11)		1		(12)
Equity and index contracts
Options, futures and warrants (2)	Other investments		150	13,370		201		201		--
Options, futures and warrants	Other assets		n/a	462		--		--		--
Foreign currency contracts
Foreign currency swap agreements	Other investments		50	n/a		4		4		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		1		1		--
Equity-indexed call options	Fixed income securities		125	n/a		12		12		--
Credit default swaps	Fixed income securities		127	n/a		(60)		--		(60)
Credit default contracts
Credit default swaps – buying protection	Other investments		68	n/a		--		1		(1)
Credit default swaps – selling protection	Other investments		30	n/a		--		--		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Total			8,571	13,832		257		349		(92)

Total asset derivatives		$	8,775	13,832	$	241	$	349	$	(108)

(1) Volume for OTC 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)

(2) In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants. Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

	Liability derivatives
			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other liabilities & accrued expenses	$	28	n/a	$	(5)	$	--	$	(5)
Foreign currency swap agreements	Other liabilities & accrued expenses		66	n/a		(6)		2		(8)
Total			94	n/a		(11)		2		(13)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		1,085	n/a		22		23		(1)
Interest rate cap and floor agreements	Other liabilities & accrued expenses		890	n/a		(7)		--		(7)
Financial futures contracts and options	Other liabilities & accrued expenses		n/a	40		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		3	13,430		(99)		--		(99)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		939	n/a		(84)		--		(84)
Guaranteed withdrawal benefits	Contractholder funds		635	n/a		(46)		--		(46)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,832	n/a		(591)		--		(591)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(9)		--		(9)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		139	n/a		1		3		(2)
Credit default swaps – selling protection	Other liabilities & accrued expenses		260	n/a		(52)		1		(53)
Total			7,868	13,470		(865)		27		(892)

Total liability derivatives			7,962	13,470		(876)	$	29	$	(905)

Total derivatives		$	16,737	27,302	$	(635)

($ in millions, except number of contracts)	Asset derivatives
			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other investments	$	144	n/a	$	(8)	$	--	$	(8)
Foreign currency swap agreements	Other investments		127	n/a		(5)		3		(8)
Total			271	n/a		(13)		3		(16)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		8,028	n/a		122		137		(15)
Interest rate swaption agreements	Other investments		500	n/a		--		--		--
Interest rate cap and floor agreements	Other investments		1,591	n/a		(12)		--		(12)
Financial futures contracts and options	Other assets		n/a	40		--		--		--
Equity and index contracts
Options, futures and warrants (2)	Other investments		163	15,180		104		104		--
Options, futures and warrants	Other assets		n/a	1,011		--		--		--
Foreign currency contracts
Foreign currency swap agreements	Other investments		50	n/a		6		6		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		150	n/a		11		11		--
Credit default swaps	Fixed income securities		170	n/a		(113)		--		(113)
Credit default contracts
Credit default swaps – buying protection	Other investments		110	n/a		2		4		(2)
Credit default swaps – selling protection	Other investments		32	n/a		--		--		--
Other contracts
Other contracts	Other investments		5	n/a		--		--		--
Other contracts	Other assets		4	n/a		1		1		--
Total			10,808	16,231		121		263		(142)

Total asset derivatives		$	11,079	16,231	$	108	$	266	$	(158)

	Liability derivatives
			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Derivatives designated as accounting hedging instruments
Interest rate swap agreements	Other liabilities & accrued expenses	$	28	n/a	$	(5)	$	--	$	(5)
Foreign currency swap agreements	Other liabilities & accrued expenses		50	n/a		(7)		--		(7)
Total			78	n/a		(12)		--		(12)

Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		8		8		--
Interest rate cap and floor agreements	Other liabilities & accrued expenses		914	n/a		(9)		--		(9)
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		n/a	14,985		(49)		--		(49)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		917	n/a		(105)		--		(105)
Guaranteed withdrawal benefits	Contractholder funds		613	n/a		(57)		--		(57)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,996	n/a		(553)		--		(553)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(8)		--		(8)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		127	n/a		5		6		(1)
Credit default swaps – selling protection	Other liabilities & accrued expenses		270	n/a		(68)		1		(69)
Total			7,007	14,985		(836)		15		(851)

Total liability derivatives			7,085	14,985		(848)	$	15	$	(863)

Total derivatives		$	18,164	31,216	$	(740)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships for the three months ended March 31. Amortization of net losses from accumulated other comprehensive income related to cash flow hedges is expected to be less than $1 million during the next twelve months.

($ in millions) Effective portion		2012		2011
Loss recognized in OCI on derivatives during the period	$	(5)	$	(8)
Loss recognized in OCI on derivatives during the term of the hedging relationship		(16)		(26)
Gain reclassified from AOCI into income (net investment income)		--		1
Loss reclassified from AOCI into income (realized capital gains and losses)		(1)		--
Ineffective portion and amount excluded from effectiveness testing
Gain recognized in income on derivatives (realized capital gains and losses)		--		--

The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31.

($ in millions)		2012
		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	(1)
Subtotal		(1)		--		--		--		(1)

Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		(1)		--		--		(1)
Equity and index contracts		--		--		--		53		53
Embedded derivative financial instruments		--		15		31		(38)		8
Credit default contracts		--		9		--		--		9
Other contracts		--		--		--		2		2
Subtotal		--		23		31		17		71
Total	$	(1)	$	23	$	31	$	17	$	70

		2011
		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	1	$	(8)	$	--	$	(5)	$	(12)
Foreign currency and interest rate contracts		--		--		--		(32)		(32)
Subtotal		1		(8)		--		(37)		(44)

Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		2		--		--		2
Equity and index contracts		--		--		--		38		38
Embedded derivative financial instruments		--		(1)		45		(22)		22
Credit default contracts		--		11		--		--		11
Other contracts		--		--		--		2		2
Subtotal		--		12		45		18		75
Total	$	1	$	4	$	45	$	(19)	$	31

The following tables provide a summary of the changes in fair value of the Company’s fair value hedging relationships in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31.

($ in millions)		2012
		Gain (loss) on derivatives				Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Foreign currency & interest rate contracts		Contractholder funds		Investments
Net investment income	$	1	$	--	$	--	$	(1)
Total	$	1	$	--	$	--	$	(1)

		2011
		Gain (loss) on derivatives				Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Foreign currency & interest rate contracts		Contractholder funds		Investments
Interest credited to contractholder funds	$	(7)	$	(34)	$	41	$	--
Net investment income		21		--		--		(21)
Realized capital gains and losses		(8)		--		--		--
Total	$	6	$	(34)	$	41	$	(21)

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master netting agreements (“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. As of March 31, 2012, counterparties pledged $60 million in cash and securities to the Company, and the Company pledged $70 million in securities to counterparties which includes $27 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $43 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities. 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 master netting agreements.

The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.

($ in millions)	March 31, 2012							December 31, 2011

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	$	15	$	--	$	--	1	$	25	$	1	$	1
A+	3		2,852		19		1	3		2,936		24		4
A	2		2,917		16		1	2		3,913		14		--
A-	2		3,724		27		2	2		3,815		25		--
BBB+	1		5		40		40	2		57		41		41
Total	9	$	9,513	$	102	$	44	10	$	10,746	$	105	$	46

(1) Rating is the lower of S&P or Moody’s ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

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. In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.

Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements. Credit-risk-contingent termination events allow the counterparties to terminate the derivative on certain dates if ALIC’s or Allstate Life Insurance Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level or in the event ALIC or ALNY are no longer rated by both Moody’s and S&P. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative instruments if the Company defaults by pre-determined threshold amounts on certain debt instruments. Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event ALIC or ALNY are no longer rated by both Moody’s and S&P.

The following 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)		March 31, 2012		December 31, 2011
Gross liability fair value of contracts containing credit-risk-contingent features	$	86	$	133
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(59)		(60)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(27)		(72)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	--	$	1

Credit derivatives - selling protection

Free-standing credit default swaps (“CDS”) are utilized for selling credit protection against a specified credit event. A credit default swap 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.

The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of March 31, 2012:

($ in millions)		Notional amount
($ in millions)		AA		A		BBB		BB and lower		Total		Fair value
Single name
Investment grade corporate debt	$	30	$	50	$	10	$	10	$	100	$	--
Municipal		25		--		--		--		25		(4)
Subtotal		55		50		10		10		125		(4)
Baskets
Tranche
Investment grade corporate debt		--		--		--		65		65		(19)
First-to-default
Municipal		--		100		--		--		100		(29)
Subtotal		--		100		--		65		165		(48)
Total	$	55	$	150	$	10	$	75	$	290	$	(52)

The following table shows the CDS notional amounts by credit rating and fair value of protection sold as of December 31, 2011:

($ in millions)		Notional amount
($ in millions)		AA		A		BBB		BB and lower		Total		Fair value
Single name
Investment grade corporate debt	$	40	$	45	$	15	$	10	$	110	$	(1)
High yield debt		--		--		--		2		2		--
Municipal		25		--		--		--		25		(5)
Subtotal		65		45		15		12		137		(6)
Baskets
Tranche
Investment grade corporate debt		--		--		--		65		65		(29)
First-to-default
Municipal		--		100		--		--		100		(33)
Subtotal		--		100		--		65		165		(62)
Total	$	65	$	145	$	15	$	77	$	302	$	(68)

In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or a specific tranche of a basket, or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement. With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed. With a FTD basket or a tranche of a basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names. CDX index 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. If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement. In a physical settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset. When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement. When a credit event occurs in a tranche of a basket, there is no immediate impact to the Company until cumulative losses in the basket exceed the contractual subordination. To date, realized losses have not exceeded the subordination. For CDX index, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration. The maximum payout on a CDS is the contract notional amount. A physical settlement may afford the Company with recovery rights as the new owner of the asset.

The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level. The ratings of individual names for which protection has been sold are also monitored.

In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain embedded credit default swaps which sell protection on a basket of reference entities. The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps. The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.

7. Reinsurance

The effects of reinsurance on premiums and contract charges for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Direct	$	535	$	573
Assumed
Affiliate		28		28
Non-affiliate		5		5
Ceded--non-affiliate		(167)		(188)
Premiums and contract charges, net of reinsurance	$	401	$	418

The effects of reinsurance on contract benefits for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Direct	$	402	$	436
Assumed
Affiliate		18		20
Non-affiliate		5		4
Ceded--non-affiliate		(61)		(78)
Contract benefits, net of reinsurance	$	364	$	382

The effects of reinsurance on interest credited to contractholder funds for the three months ended March 31 are as follows:

($ in millions)		2012		2011
Direct	$	374	$	410
Assumed
Affiliate		2		3
Non-affiliate		2		3
Ceded--non-affiliate		(7)		(8)
Interest credited to contractholder funds, net of reinsurance	$	371	$	408

8. Guarantees and Contingent Liabilities

Guaranty funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. Amounts assessed to each company are typically related to its proportion of business written in each state. The Company’s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of insolvency and the amount of the loss is reasonably estimable. In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction. In certain states there must also be a final order of liquidation.

Executive Life Insurance Company of New York (“ELNY”) has been under the jurisdiction of the New York Liquidation Bureau (the “Bureau”) as part of a 1992 court-ordered rehabilitation plan. ELNY continues to fully pay annuity benefits when due. The Superintendent of Insurance of the State of New York in conjunction with the New York Attorney General filed a proposed formal plan of liquidation on September 1, 2011 and an order approving the plan, as amended, was entered on April 16, 2012. The order of the court is not final for 30 days, during which time those objecting to the plan may file a notice of appeal. The current publicly available estimated shortfall from the Bureau is $1.57 billion. New York law currently contains an aggregate limit on insurer assessments by the guaranty fund, the Life Insurance Corporation of New York, of $500 million, of which approximately $40 million has been used. The Company’s three-year average market share for New York as of December 31, 2010, based on assessable premiums, was approximately 1.8%.

As of March 31, 2012, the accrued liability for the Company’s estimated aggregate exposure is $10 million, net of state related taxes and federal income tax, which includes $16 million pre-tax for guaranty fund assessments and $3 million pre-tax for participation in an industry sponsored plan to supplement certain ELNY policyholders. The

ultimate cost will depend on the approved court ordered liquidation plan, the level of guaranty fund system participation and the realization of tax benefits. Under current law, the Company may be allowed to recoup a portion of the amount of any additional guaranty fund assessment in periods subsequent to the recognition of the assessment by offsetting future state related taxes.

Guarantees

The Company owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities. In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as measured by the amount of the aggregate initial investment, was $28 million as of March 31, 2012. The obligations associated with these fixed income securities expire at various dates on or before March 11, 2018.

Related to the disposal through reinsurance of substantially all of the Company’s variable annuity business to Prudential in 2006, the Company and the Corporation have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of the Company and liabilities specifically excluded from the transaction) that the Company has agreed to retain. In addition, the Company and the Corporation will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of the Company and its agents, including in connection with the Company’s provision of transition services. The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees. Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company.

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material as of March 31, 2012.

Regulation and Compliance

The Company is subject to changing social, economic and regulatory conditions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.

The Company is currently being examined by certain states for compliance with unclaimed property laws. It is possible that this examination may result in additional payments of abandoned funds to states and to changes in the Company’s practices and procedures for the identification of escheatable funds, which could impact benefit payments and reserves, among other consequences; however, it is not likely to have a material effect on the consolidated financial statements of the Company.

9. Other Comprehensive Income

The components of other comprehensive income on a pre-tax and after-tax basis for the three months ended March 31 are as follows:

($ in millions)		2012						2011
		Pre-tax		Tax		After- tax		Pre-tax		Tax		After- tax
Unrealized net holding gains arising during the period, net of related offsets	$	300	$	(105)	$	195	$	191	$	(66)	$	125
Less: reclassification adjustment of realized capital gains and losses		(51)		18		(33)		29		(10)		19
Unrealized net capital gains and losses		351		(123)		228		162		(56)		106
Unrealized foreign currency translation adjustments		(2)		1		(1)		--		--		--
Other comprehensive income	$	349	$	(122)		227	$	162	$	(56)		106
Net income						83						91
Comprehensive income					$	310					$	197

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Allstate Life Insurance Company

Northbrook, IL 60062

We have reviewed the accompanying condensed consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries (the “Company”), an affiliate of The Allstate Corporation, as of March 31, 2012, and the related condensed consolidated statements of operations and comprehensive income and cash flows for the three-month periods ended March 31, 2012 and 2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries as of December 31, 2011, and the related consolidated statements of operations and comprehensive income, shareholder’s equity, and cash flows for the year then ended prior to the retrospective adjustment for the Company’s adoption of a change in accounting for costs associated with acquiring or renewing insurance contracts (not presented herein); and in our report dated March 8, 2012, which report includes an explanatory paragraph relating to a change in the Company’s recognition and presentation for other-than-temporary impairments of debt securities in 2009, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2011 consolidated statement of financial position of the Company (not presented herein). In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated statement of financial position in deriving the accompanying retrospectively adjusted condensed consolidated statement of financial position as of December 31, 2011.

/s/ Deloitte & Touche LLP

Chicago, Illinois

May 4, 2012

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2012 AND 2011

OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of Allstate Life Insurance Company (referred to in this document as “we,” “our,” “us,” or the “Company”). It should be read in conjunction with the condensed consolidated financial statements and notes thereto found under Part I. Item 1. contained herein, and with the discussion, analysis, consolidated financial statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of the Allstate Life Insurance Company Annual Report on Form 10-K for 2011. We operate as a single segment entity based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.

OPERATIONS HIGHLIGHTS

·	Net income was $83 million in the first quarter of 2012 compared to $91 million in the first quarter of 2011.
·	Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled $383 million in the first quarter 2012, an increase of 4.6% from $366 million in the first quarter of 2011.
·	Investments totaled $56.49 billion as of March 31, 2012, reflecting an increase in carrying value of $217 million from $56.28 billion as of December 31, 2011. Net investment income increased to $673 million in the first quarter of 2012 from $662 million in the first quarter of 2011.
·	Net realized capital losses totaled $22 million in the first quarter of 2012 compared to net realized capital gains of $45 million in the first quarter of 2011.
·	Contractholder funds totaled $40.94 billion as of March 31, 2012, reflecting a decrease of $733 million from $41.67 billion as of December 31, 2011 and $4.21 billion from $45.15 billion as of March 31, 2011.
·	New deferred policy acquisition costs (“DAC”) accounting guidance was adopted on a retrospective basis as of January 1, 2012 (see Note 1 of the condensed consolidated financial statements). Accordingly, all prior period balances have been adjusted. The DAC and shareholder’s equity balances were reduced by $423 million and $279 million, respectively, when compared to the previously reported December 31, 2011 balances. Impacted income statement line items include amortization of DAC, operating costs and expenses, gain on disposition of operations, and income tax expense. Impacted balance sheet line items include DAC, reserve for life-contingent contract benefits, other liabilities and accrued expenses, deferred income taxes, retained income, and unrealized net capital gains and losses.

OPERATIONS

Summary analysis Summarized financial data is presented in the following table.

($ in millions)		Three months ended March 31,
		2012		2011
Revenues
Premiums	$	146	$	171
Contract charges		255		247
Net investment income		673		662
Realized capital gains and losses		(22)		45
Total revenues		1,052		1,125

Costs and expenses
Contract benefits		(364)		(382)
Interest credited to contractholder funds		(371)		(408)
Amortization of DAC		(81)		(103)
Operating costs and expenses		(112)		(95)
Restructuring and related charges		--		2
Interest expense		(11)		(11)
Total costs and expenses		(939)		(997)

Gain on disposition of operations		3		5
Income tax expense		(33)		(42)
Net income	$	83	$	91

Investments as of March 31	$	56,494	$	58,507

Net income was $83 million in the first quarter of 2012 compared to $91 million in the first quarter of 2011. The $8 million decrease was primarily due to net realized capital losses in the current year compared to net realized capital gains in the prior year and lower premiums, partially offset by decreased interest credited to contractholder funds and lower amortization of DAC.

Analysis of revenues Total revenues decreased 6.5% or $73 million in the first quarter of 2012 compared to the first quarter of 2011 primarily due to net realized capital losses in the current year compared to net realized capital gains in the prior year and lower premiums, partially offset by higher net investment income.

Premiums represent revenues generated from traditional life insurance, immediate annuities with life contingencies, and accident and health insurance products that have significant mortality or morbidity risk.

Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities. Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.

The following table summarizes premiums and contract charges by product.

($ in millions)		Three months ended March 31,
		2012		2011
Underwritten products
Traditional life insurance premiums	$	109	$	104
Accident and health insurance premiums		25		24
Interest-sensitive life insurance contract charges		249		238
Subtotal		383		366

Annuities
Immediate annuities with life contingencies premiums		12		43
Other fixed annuity contract charges		6		9
Subtotal		18		52

Premiums and contract charges (1)	$	401	$	418


(1)	Contract charges related to the cost of insurance totaled $168 million and $160 million for the first quarter of 2012 and 2011, respectively.

Total premiums and contract charges decreased 4.1% in the first quarter of 2012 compared to the first quarter of 2011 primarily due to lower sales of immediate annuities with life contingencies, partially offset by higher contract charges on interest-sensitive life insurance products primarily resulting from the aging of our policyholders and increased traditional life insurance premiums. Sales of immediate annuities with life contingencies fluctuate with changes in our pricing competitiveness relative to other insurers. Increased traditional life insurance premiums were due to lower reinsurance premiums ceded and higher sales through Allstate agencies, partially offset by lower renewal premiums.

Contractholder funds represent interest-bearing liabilities arising from the sale of individual and institutional products, such as interest-sensitive life insurance, fixed annuities and funding agreements. The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract maturities, benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. The following table shows the changes in contractholder funds.

($ in millions)			Three months ended March 31,
			2012		2011
Contractholder funds, beginning balance		$	41,669	$	46,458

Deposits
Fixed annuities			153		164
Interest-sensitive life insurance			308		308
Total deposits			461		472

Interest credited			372		400

Maturities, benefits, withdrawals and other adjustments
Maturities of and interest payments on institutional products			(1)		(487)
Benefits			(354)		(370)
Surrenders and partial withdrawals			(938)		(1,015)
Contract charges			(246)		(235)
Net transfers from separate accounts			2		3
Fair value hedge adjustments for institutional products			--		(34)
Other adjustments (1)			(29)		(44)
Total maturities, benefits, withdrawals and other adjustments			(1,566)		(2,182)
Contractholder funds, ending balance		$	40,936	$	45,148


(1)	The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Condensed Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Condensed Consolidated Statements of Operations and Comprehensive Income. As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line.

Contractholder funds decreased 1.8% and 2.8% in the first quarter of 2012 and 2011, respectively. Average contractholder funds decreased 9.8% in the first quarter of 2012 compared to the same period of 2011.

Contractholder deposits decreased 2.3% in the first quarter of 2012 compared to the same period of 2011 due to lower deposits on fixed annuities.

Maturities of and interest payments on institutional products decreased to $1 million in the first quarter of 2012 from $487 million in the first quarter of 2011, reflecting the continuing decline in these obligations.

Surrenders and partial withdrawals on deferred fixed annuities and interest-sensitive life insurance products decreased 7.6% to $938 million in the first quarter of 2012 from $1.02 billion in the same period of 2011. The annualized surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 10.8% in the first quarter of 2012 compared to 10.5% in the same period of 2011.

Analysis of costs and expenses Total costs and expenses decreased 5.8% or $58 million in the first quarter of 2012 compared to the same period of 2011 primarily due to lower interest credited to contractholder funds and amortization of DAC.

Contract benefits decreased 4.7% or $18 million in the first quarter of 2012 compared to the same period of 2011 primarily due to lower contract benefits on immediate annuities with life contingencies, reflecting the decrease in premiums on these products, partially offset by higher mortality experience on life insurance.

We analyze our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and contract benefits excluding the portion related to the implied interest on

immediate annuities with life contingencies (“benefit spread”). This implied interest totaled $134 million and $135 million in the first quarter of 2012 and 2011, respectively.

The benefit spread by product group is disclosed in the following table.

($ in millions)		Three months ended March 31,
		2012		2011
Life insurance	$	88	$	90
Accident and health insurance		8		6
Annuities		(12)		(12)
Total benefit spread	$	84	$	84

Benefit spread in the first quarter of 2012 was comparable with the first quarter of 2011 as higher mortality experience on life insurance was offset by higher cost of insurance contract charges on interest-sensitive life insurance.

Interest credited to contractholder funds decreased 9.1% or $37 million in the first quarter of 2012 compared to the same period of 2011 primarily due to lower average contractholder funds and lower interest crediting rates on deferred fixed annuities, immediate fixed annuities and interest-sensitive life insurance. Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged increased interest credited to contractholder funds by $10 million in the first quarter of 2012 compared to a $12 million decrease in the first quarter of 2011. Amortization of deferred sales inducement costs was $1 million in the first quarter of 2012 compared to $10 million in the same period of 2011.

In order to analyze the impact of net investment income and interest credited to contractholders on net income, we monitor the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of contract benefits on the Condensed Consolidated Statements of Operations and Comprehensive Income (“investment spread”).

The investment spread by product group is shown in the following table.

($ in millions)		Three months ended March 31,
		2012		2011
Annuities and institutional products	$	86	$	48
Life insurance		18		13
Accident and health insurance		3		2
Net investment income on investments supporting capital		61		56
Total investment spread	$	168	$	119

Investment spread increased 41.2% or $49 million in the first quarter of 2012 compared to the same period of 2011 due to income from limited partnerships, lower crediting rates and the termination of interest rate swaps in first quarter 2011, partially offset by an unfavorable change in the valuation of derivatives embedded in equity-indexed annuity contracts, lower yields on fixed income securities and the continued managed reduction in our spread based business in force.

To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities and capital, interest crediting rates and investment spreads for the three months ended March 31.

	Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads
	2012		2011		2012		2011		2012		2011
Interest-sensitive life insurance	5.4	%	5.4	%	4.1	%	4.2	%	1.3	%	1.2	%
Deferred fixed annuities and institutional products	4.5		4.5		3.2		3.3		1.3		1.2
Immediate fixed annuities with and without life contingencies	7.8		6.2		6.1		6.2		1.7		--
Investments supporting capital, traditional life and other products	4.1		3.8		n/a		n/a		n/a		n/a

The following table summarizes our product liabilities and indicates the account value of those contracts and policies in which an investment spread is generated.

($ in millions)		March 31,
		2012		2011
Immediate fixed annuities with life contingencies	$	8,838	$	8,749
Other life contingent contracts and other		4,709		4,065
Reserve for life-contingent contract benefits	$	13,547	$	12,814

Interest-sensitive life insurance	$	10,217	$	10,098
Deferred fixed annuities		24,467		28,558
Immediate fixed annuities without life contingencies		3,829		3,794
Institutional products		1,914		2,193
Market value adjustments related to fair value hedges and other		509		505
Contractholder funds	$	40,936	$	45,148

Amortization of DAC decreased 21.4% or $22 million in the first quarter of 2012 compared to the same period of 2011. The components of amortization of DAC are summarized in the following table.

($ in millions)		Three months ended March 31,
		2012		2011
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions	$	66	$	64
Amortization relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged		15		30
Amortization acceleration for changes in assumptions (“DAC unlocking”)		--		9
Total amortization of DAC	$	81	$	103


(1)	The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits.

The decrease of $22 million in the first quarter of 2012 compared to the same period of 2011 was primarily due to decreased amortization relating to realized capital gains and losses and the absence of DAC unlocking in the current year period. In 2012, we plan to complete our annual comprehensive DAC review in the third quarter.

Our annual 2011 comprehensive review of the profitability of our products to determine DAC balances for our interest-sensitive life, fixed annuities and other investment contracts which covers assumptions for investment returns, including capital gains and losses, interest crediting rates to policyholders, the effect of any hedges,

persistency, mortality and expenses in all product lines took place in first quarter 2011. The review resulted in an acceleration of DAC amortization (charge to income) of $9 million in the first quarter of 2011. Amortization acceleration of $15 million related to interest-sensitive life insurance and was primarily due to an increase in projected expenses. Amortization deceleration of $6 million related to equity-indexed annuities and was primarily due to an increase in projected investment margins.

Operating costs and expenses increased 17.9% or $17 million in the first quarter of 2012 compared to the same period of 2011. The following table summarizes operating costs and expenses.

($ in millions)		Three months ended March 31,
		2012		2011
Non-deferrable commissions	$	8	$	11
General and administrative expenses		94		73
Taxes and licenses		10		11
Total operating costs and expenses	$	112	$	95

Restructuring and related charges	$	--	$	(2)

Non-deferrable commissions decreased $3 million in the first quarter of 2012 compared to the same period of 2011 primarily due to lower sales commissions on immediate annuities and certain life insurance products. General and administrative expenses increased 28.8% or $21 million in the first quarter of 2012 compared to the same period of 2011 primarily due to higher employee and professional service costs, increased marketing costs and reduced insurance department assessments in the prior year period.

INVESTMENTS HIGHLIGHTS

·	Investments totaled $56.49 billion as of March 31, 2012, an increase of 0.4% from $56.28 billion as of December 31, 2011.
·	Unrealized net capital gains totaled $2.28 billion as of March 31, 2012, increasing from $1.97 billion as of December 31, 2011.
·	Net investment income was $673 million in the first quarter of 2012, an increase of 1.7% from $662 million in the first quarter of 2011.
·	Net realized capital losses were $22 million in the first quarter of 2012 compared to net realized capital gains of $45 million in the first quarter of 2011.

INVESTMENTS

The composition of the investment portfolio as of March 31, 2012 is presented in the table below.

($ in millions)		Investments	Percent to total
Fixed income securities (1)	$	45,382	80.3%
Mortgage loans		6,532	11.6
Equity securities (2)		190	0.3
Limited partnership interests (3)		1,729	3.1
Short-term (4)		647	1.1
Policy loans		832	1.5
Other		1,182	2.1
Total	$	56,494	100.0%


(1)	Fixed income securities are carried at fair value. Amortized cost basis for these securities was $43.13 billion.
(2)	Equity securities are carried at fair value. Cost basis for these securities was $143 million.
(3)	We have commitments to invest in additional limited partnership interests totaling $723 million.
(4)	Short-term investments are carried at fair value. Amortized cost basis for these investments was $647 million.

Total investments increased to $56.49 billion as of March 31, 2012, from $56.28 billion as of December 31, 2011, primarily due to higher valuations of fixed income securities, partially offset by net reductions in contractholder funds of $733 million. Valuations of fixed income securities are typically driven by a combination of

changes in relevant risk-free interest rates and credit spreads over the period. Risk-free interest rates are typically referenced as the yield on U.S. Treasury securities, whereas credit spread is the additional yield on fixed income securities above the risk-free rate that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. The increase in valuation of fixed income securities for the three months ended March 31, 2012 was due to tightening credit spreads, partially offset by increasing risk-free interest rates.

Fixed income securities by type are listed in the table below.

*($ in millions)*		Fair value as of March 31, 2012	Percent to total investments		Fair value as of December 31, 2011	Percent to total investments
*U.S. government and agencies*	$	2,344	4.2%	$	2,743	4.9%
*Municipal*		4,688	8.3		4,692	8.3
*Corporate*		30,921	54.7		30,404	54.0
*Foreign government*		1,019	1.8		1,068	1.9
*Residential mortgage-backed securities (“RMBS”)*		2,469	4.4		2,714	4.8
*Commercial mortgage-backed securities (“CMBS”)*		1,659	2.9		1,683	3.0
*Asset-backed securities (“ABS”)*		2,266	4.0		2,108	3.8
*Redeemable preferred stock*		16	--		16	--
*Total fixed income securities*	$	45,382	80.3%	$	45,428	80.7%

As of March 31, 2012, 92.0% of the fixed income securities portfolio was rated investment grade, which 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 Standard & Poor’s (“S&P”), Fitch, Dominion, or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. All of our fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners, and/or internally rated. Our initial investment decisions and ongoing monitoring procedures for fixed income securities are based on a thorough due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure, and liquidity risks of each issue.

The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of March 31, 2012.

($ in millions)		Aaa				Aa				A
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)

U.S. government and agencies	$	2,344	$	199	$	--	$	--	$	--	$	--

Municipal
Tax exempt		--		--		26		--		--		--
Taxable		203		23		2,644		316		1,074		102
Auction rate securities (“ARS”)		128		(12)		137		(20)		26		(4)

Corporate
Public		677		42		1,481		109		7,575		592
Privately placed		606		39		1,104		80		3,430		267

Foreign government		395		85		97		5		260		18

RMBS
U.S. government sponsored entities (“U.S. Agency”)		1,094		57		--		--		--		--
Prime residential mortgage-backed securities (“Prime”)		133		3		43		--		137		4
Alt-A residential mortgage-backed securities (“Alt-A”)		--		--		13		--		53		1
Subprime residential mortgage-backed securities (“Subprime”)		--		--		24		(4)		34		(8)

CMBS		831		42		184		5		187		(12)

ABS
Collateralized debt obligations (“CDO”)		140		(2)		666		(24)		317		(57)
Consumer and other asset-backed securities (“Consumer and other ABS”)		392		14		136		3		113		1

Redeemable preferred stock		--		--		1		--		--		--

Total fixed income securities	$	6,943	$	490	$	6,556	$	470	$	13,206	$	904

		Baa				Ba or lower				Total
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)

U.S. government and agencies	$	--	$	--	$	--	$	--	$	2,344	$	199

Municipal
Tax exempt		11		1		--		--		37		1
Taxable		345		(16)		84		(14)		4,350		411
ARS		--		--		10		(3)		301		(39)

Corporate
Public		8,177		546		1,309		35		19,219		1,324
Privately placed		5,627		248		935		(3)		11,702		631

Foreign government		267		26		--		--		1,019		134

RMBS
U.S. Agency		--		--		--		--		1,094		57
Prime		33		--		210		1		556		8
Alt-A		55		--		224		(34)		345		(33)
Subprime		31		(9)		385		(147)		474		(168)

CMBS		262		(50)		195		(99)		1,659		(114)

ABS
CDO		171		(46)		266		(52)		1,560		(181)
Consumer and other ABS		53		1		12		(2)		706		17

Redeemable preferred stock		15		1		--		--		16		1

Total fixed income securities	$	15,047	$	702	$	3,630	$	(318)	$	45,382	$	2,248

Municipal bonds, including tax exempt, taxable and ARS securities, totaled $4.69 billion as of March 31, 2012 with an unrealized net capital gain of $373 million. The municipal bond portfolio includes general obligations of state and local issuers, revenue bonds and pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest.

Corporate bonds, including publicly traded and privately placed, totaled $30.92 billion as of March 31, 2012 with an unrealized net capital gain of $1.96 billion. Privately placed securities primarily consist of corporate issued senior debt securities that are directly negotiated with the borrower or are in unregistered form.

RMBS, CMBS and ABS are structured securities that are primarily collateralized by residential and commercial real estate loans and other consumer or corporate borrowings. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating. For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages) or may contain features of both fixed and variable rate mortgages.

RMBS, including U.S. Agency, Prime, Alt-A and Subprime, totaled $2.47 billion, with 66.8% rated investment grade, as of March 31, 2012. The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to significant prepayment risk from the underlying residential mortgage loans. The credit risk associated with the U.S. Agency portfolio is mitigated because they were issued by or have underlying collateral guaranteed by U.S. government agencies. The unrealized net capital loss of $136 million as of March 31, 2012 was the result of wider credit spreads than at initial purchase on the non-U.S. Agency portion of our RMBS portfolio, largely due to higher risk premiums caused by macroeconomic conditions and credit market deterioration, including the impact of lower residential real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas. The following table shows our RMBS portfolio as of March 31, 2012 based upon vintage year of the issuance of the securities.

($ in millions)		U.S. Agency				Prime				Alt-A				Subprime				Total RMBS
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
2010	$	--	$	--	$	131	$	3	$	44	$	2	$	--	$	--	$	175	$	5
2009		155		6		35		--		7		--		--		--		197		6
2008		161		9		--		--		--		--		--		--		161		9
2007		49		3		97		6		21		(9)		154		(56)		321		(56)
2006		56		3		71		1		80		(10)		81		(21)		288		(27)
2005		199		9		78		(4)		83		(7)		129		(54)		489		(56)
Pre-2005		474		27		144		2		110		(9)		110		(37)		838		(17)
Total	$	1,094	$	57	$	556	$	8	$	345	$	(33)	$	474	$	(168)	$	2,469	$	(136)

Prime are collateralized by residential mortgage loans issued to prime borrowers. Alt-A includes securities collateralized by residential mortgage loans issued to borrowers who do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation, but have stronger credit profiles than subprime borrowers. Subprime includes securities collateralized by residential mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history. It also includes securities that are collateralized by certain second lien mortgages regardless of the borrower’s credit history. The Subprime portfolio consisted of $331 million and $143 million of first lien and second lien securities, respectively.

CMBS totaled $1.66 billion, with 88.2% rated investment grade, as of March 31, 2012. The CMBS portfolio is subject to credit risk, but unlike certain other structured securities, is generally not subject to prepayment risk due to protections within the underlying commercial mortgage loans. Of the CMBS investments, 96.7% are traditional conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and

geographical area. The remainder consists of non-traditional CMBS such as small balance transactions, large loan pools and single borrower transactions.

The following table shows our CMBS portfolio as of March 31, 2012 based upon vintage year of the underlying collateral.

($ in millions)		Fair value		Unrealized gain/(loss)
2007	$	281	$	(8)
2006		524		(91)
2005		242		(29)
Pre-2005		612		14
Total CMBS	$	1,659	$	(114)

The unrealized net capital loss of $114 million as of March 31, 2012 on our CMBS portfolio was the result of wider credit spreads than at initial purchase in our 2005-2007 vintage year CMBS. This is largely due to the macroeconomic conditions and credit market deterioration, including the impact of lower commercial real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas.

ABS, including CDO and Consumer and other ABS, totaled $2.27 billion, with 87.7% rated investment grade, as of March 31, 2012. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees and/or insurance. The unrealized net capital loss of $164 million as of March 31, 2012 on our ABS portfolio was the result of wider credit spreads than at initial purchase.

CDO totaled $1.56 billion, with 82.9% rated investment grade, as of March 31, 2012. CDO consist primarily of obligations collateralized by high yield and investment grade corporate credits including $1.26 billion of cash flow collateralized loan obligations (“CLO”) with unrealized losses of $80 million. Cash flow CLO are structures collateralized primarily by below investment grade senior secured corporate loans. The underlying collateral is actively managed by external managers that monitor the collateral’s performance and is well diversified across industries and among issuers. The remaining $296 million of securities consisted of synthetic CDO, trust preferred CDO, project finance CDO, market value CDO, collateralized bond obligations and other CLO with unrealized losses of $101 million.

Consumer and other ABS totaled $706 million, with 98.3% rated investment grade, as of March 31, 2012. Consumer and other ABS consists of $275 million of consumer auto and $431 million of other ABS with unrealized gains of $2 million and $15 million, respectively.

Mortgage loans Our mortgage loan portfolio totaled $6.53 billion as of March 31, 2012, compared to $6.55 billion as of December 31, 2011, and primarily comprises loans secured by first mortgages on developed commercial real estate. Key considerations used to manage our exposure include property type and geographic diversification.

For further detail on our mortgage loan portfolio, see Note 4 of the condensed consolidated financial statements.

Limited partnership interests consist of investments in private equity/debt funds, real estate funds, hedge funds and tax credit funds. The limited partnership interests portfolio is well diversified across a number of characteristics including fund managers, vintage years, strategies, geography (including international), and company/property types. The following table presents information about our limited partnership interests as of March 31, 2012.

($ in millions)		Private equity/debt funds		Real estate funds		Hedge funds		Tax credit funds		Total
Cost method of accounting (“Cost”)	$	445	$	135	$	--	$	--	$	580
Equity method of accounting (“EMA”)		641		201		--		307		1,149
Total	$	1,086	$	336	$	--	$	307	$	1,729

Number of managers		86		28		1		9
Number of individual funds		138		52		2		18
Largest exposure to single fund	$	41	$	21	$	--	$	29

The following table shows the results from our limited partnership interests by fund type and accounting classification for the three months ended March 31.

($ in millions)		2012								2011
		Cost		EMA (2)		Total income		Impairment write-downs (1)		Cost		EMA (2)		Total income		Impairment write-downs (1)
Private equity/debt funds	$	7	$	43	$	50	$	(1)	$	5	$	12	$	17	$	--
Real estate funds		--		19		19		--		--		6		6		--
Hedge funds		--		--		--		--		--		--		--		--
Tax credit funds		--		(2)		(2)		--		--		--		--		--
Total	$	7	$	60	$	67	$	(1)	$	5	$	18	$	23	$	--

(1) Impairment write-downs related to cost method limited partnerships were $1 million in the three months ended March 31, 2012. There were no impairment write-downs related to cost method limited partnerships in the three months ended March 31, 2011. There were no impairment write-downs related to EMA limited partnerships in the three months ended March 31, 2012 and 2011.

(2) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Limited partnership interests, excluding impairment write-downs, produced income of $67 million in the three months ended March 31, 2012 compared to $23 million in the three months ended March 31, 2011. Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements. The recognition of income on hedge funds is primarily on a one-month delay and the income recognition on private equity/debt funds, real estate funds and tax credit funds are generally on a three-month delay. Income on cost method limited partnerships is recognized only upon receipt of amounts distributed by the partnerships.

Unrealized net capital gains totaled $2.28 billion as of March 31, 2012 compared to $1.97 billion as of December 31, 2011. The increase from December 31, 2011 was due to tightening credit spreads, partially offset by increasing risk-free interest rates. The following table presents unrealized net capital gains and losses.

($ in millions)		March 31, 2012		December 31, 2011
U.S. government and agencies	$	199	$	241
Municipal		373		312
Corporate		1,955		1,908
Foreign government		134		141
RMBS		(136)		(240)
CMBS		(114)		(179)
ABS		(164)		(237)
Redeemable preferred stock		1		1
Fixed income securities (1)		2,248		1,947
Equity securities		47		36
EMA limited partnerships		1		1
Derivatives		(16)		(12)
Unrealized net capital gains and losses, pre-tax	$	2,280	$	1,972


(1) Unrealized net capital gains and losses for fixed income securities as of March 31, 2012 and December 31, 2011 comprise $(83) million and $(159) million, respectively, related to unrealized net capital losses on fixed income securities with other-than-temporary impairment and $2.33 billion and $2.11 billion, respectively, related to other unrealized net capital gains and losses.

The unrealized net capital gains for the fixed income portfolio totaled $2.25 billion and comprised $3.19 billion of gross unrealized gains and $939 million of gross unrealized losses as of March 31, 2012. This is compared to unrealized net capital gains for the fixed income portfolio totaling $1.95 billion, comprised of $3.21 billion of gross unrealized gains and $1.26 billion of gross unrealized losses as of December 31, 2011.

Gross unrealized gains and losses as of March 31, 2012 on fixed income securities by type and sector are provided in the table below.

($ in millions)											Amortized	Fair value
											cost as a	as a
		Par		Amortized		Gross unrealized				Fair	percent of	percent of
		value (1)		cost		Gains		Losses		value	par value (2)	par value (2)
Corporate:
Banking	$	2,221	$	2,217	$	80	$	(98)	$	2,199	99.8%	99.0%
Utilities		6,157		6,146		586		(31)		6,701	99.8	108.8
Financial services		2,011		2,021		129		(22)		2,128	100.5	105.8
Capital goods		3,378		3,393		290		(16)		3,667	100.4	108.6
Consumer goods (cyclical and non-cyclical)		5,513		5,575		386		(13)		5,948	101.1	107.9
Transportation		1,507		1,509		136		(11)		1,634	100.1	108.4
Basic industry		1,842		1,850		104		(8)		1,946	100.4	105.6
Communications		1,768		1,781		133		(4)		1,910	100.7	108.0
Energy		2,418		2,444		191		(3)		2,632	101.1	108.9
Technology		1,139		1,159		76		(1)		1,234	101.8	108.3
Other		968		871		57		(6)		922	90.0	95.2
Total corporate fixed income portfolio		28,922		28,966		2,168		(213)		30,921	100.2	106.9

U.S. government and agencies		2,522		2,145		202		(3)		2,344	85.1	92.9
Municipal		5,867		4,315		471		(98)		4,688	73.5	79.9
Foreign government		1,003		885		134		--		1,019	88.2	101.6
RMBS		2,957		2,605		84		(220)		2,469	88.1	83.5
CMBS		1,841		1,773		60		(174)		1,659	96.3	90.1
ABS		2,633		2,430		67		(231)		2,266	92.3	86.1
Redeemable preferred stock		14		15		1		--		16	107.1	114.3
Total fixed income securities	$	45,759	$	43,134	$	3,187	$	(939)	$	45,382	94.3	99.2

(1) Included in par value are zero-coupon securities that are generally purchased at a deep discount to the par value that is received at maturity. These primarily included corporate, U.S. government and agencies, municipal and foreign government zero-coupon securities with par value of $488 million, $948 million, $2.32 billion and $382 million, respectively.

(2) Excluding the impact of zero-coupon securities, the percentage of amortized cost to par value would be 100.5% for corporates, 102.3% for U.S. government and agencies, 99.1% for municipals and 102.3% for foreign governments. Similarly, excluding the impact of zero-coupon

securities, the percentage of fair value to par value would be 107.3% for corporates, 105.7% for U.S. government and agencies, 109.1% for municipals and 111.1% for foreign governments.

The banking, utilities and financial services sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of March 31, 2012. In general, credit spreads remain wider than at initial purchase for most of the securities with gross unrealized losses in these categories.

The unrealized net capital gain for the equity portfolio totaled $47 million and comprised $48 million of gross unrealized gains and $1 million of gross unrealized losses as of March 31, 2012. This is compared to an unrealized net capital gain for the equity portfolio totaling $36 million, comprised of $38 million of gross unrealized gains and $2 million of gross unrealized losses as of December 31, 2011.

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security that may be other-than-temporarily impaired. The process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated based on facts and circumstances for inclusion on our watch-list. All investments in an unrealized loss position as of March 31, 2012 were included in our portfolio monitoring process for determining whether declines in value were other than temporary.

The extent and duration of a decline in fair value for fixed income securities have become less indicative of actual credit deterioration with respect to an issue or issuer. While we continue to use declines in fair value and the length of time a security is in an unrealized loss position as indicators of potential credit deterioration, our determination of whether a security’s decline in fair value is other than temporary has placed greater emphasis on our analysis of the underlying credit and collateral and related estimates of future cash flows.

The following table summarizes the fair value and gross unrealized losses of fixed income securities by type and investment grade classification as of March 31, 2012.

($ in millions)		Investment grade				Below investment grade				Total
		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
U.S. government and agencies	$	322	$	(3)	$	--	$	--	$	322	$	(3)
Municipal		598		(81)		87		(17)		685		(98)
Corporate		2,537		(168)		605		(45)		3,142		(213)
Foreign government		35		--		--		--		35		--
RMBS		156		(24)		606		(196)		762		(220)
CMBS		501		(69)		182		(105)		683		(174)
ABS		994		(148)		208		(83)		1,202		(231)
Total	$	5,143	$	(493)	$	1,688	$	(446)	$	6,831	$	(939)

We have experienced declines in the fair values of fixed income securities primarily due to wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations, which show signs of stabilization or recovery in certain geographic areas but remain under stress in other geographic areas. Consistent with their ratings, our portfolio monitoring process indicates that investment grade securities have a low risk of default. Securities rated below investment grade, comprising securities with a rating of Ba, B and Caa or lower, have a higher risk of default. As of March 31, 2012, 34% of our below investment grade gross unrealized losses related to Subprime RMBS.

Fair values for our structured securities are obtained from third-party valuation service providers and are subject to review as disclosed in our Application of Critical Accounting Estimates. In accordance with accounting principles generally accepted in the United States of America (“GAAP”), when fair value is less than the amortized cost of a security and we have not made the decision to sell the security and it is not more likely than not we will be required to sell the security before recovery of its amortized cost basis, we evaluate if we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We calculate the estimated recovery value by discounting our best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compare this to the amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security, the credit loss component of the impairment is

recorded in earnings, with the remaining amount of the unrealized loss related to other factors (“non-credit-related”) recognized in other comprehensive income.

The non-credit-related unrealized losses for our structured securities, including our below investment grade Subprime, are heavily influenced by risk factors other than those related to our best estimate of future cash flows. The difference between these securities’ original or current effective rates and the yields implied by their fair value indicates that a higher risk premium is included in the valuation of these securities than existed at initial issue or purchase. This risk premium represents the return that a market participant requires as compensation to assume the risk associated with the uncertainties regarding the future performance of the underlying collateral. The risk premium is comprised of: default risk, which reflects the probability of default and the uncertainty related to collection of contractual principal and interest; liquidity risk, which reflects the risk associated with exiting the investment in an illiquid market, both in terms of timeliness and cost; and volatility risk, which reflects the potential valuation volatility during an investor’s holding period. Other factors reflected in the risk premium include the costs associated with underwriting, monitoring and holding these types of complex securities. Certain aspects of the default risk are included in the development of our best estimate of future cash flows, as appropriate. Other aspects of the risk premium are considered to be temporary in nature and are expected to reverse over the remaining lives of the securities as future cash flows are received.

Other-than-temporary impairment assessment for below investment grade Subprime RMBS

As of March 31, 2012, the fair value of our below investment grade Subprime securities with gross unrealized losses totaled $334 million, a decrease of 10.5% compared to $373 million as of December 31, 2011, primarily due to sales. As of March 31, 2012, gross unrealized losses for our below investment grade Subprime portfolio totaled $151 million, an improvement of 24.5% compared to $200 million as of December 31, 2011, due to sales, increased valuations, impairment write-downs and principal collections, partially offset by the downgrade of certain securities to below investment grade. For our below investment grade Subprime with gross unrealized gains totaling $4 million, we have recognized cumulative write-downs in earnings totaling $75 million as of March 31, 2012.

The credit loss evaluation for Subprime securities with gross unrealized losses is performed in two phases. The first phase estimates the future cash flows of the entire securitization trust from which our security was issued. A critical part of this estimate involves forecasting default rates and loss severities of the residential mortgage loans that collateralize the securitization trust. The factors that affect the default rates and loss severities include, but are not limited to, historical collateral performance, collateral type, transaction vintage year, geographic concentrations, borrower credit quality, origination practices of the transaction sponsor, and practices of the mortgage loan servicers. Current loan-to-value ratios of underlying collateral are not consistently available and accordingly they are not a primary factor in our impairment evaluation. While our projections are developed internally and customized to our specific holdings, they are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. The default rate and loss severity forecasts result in an estimate of trust-level projected additional collateral loss.

We then analyze the actual cumulative collateral losses incurred to date by the securitization trust, our projected additional collateral losses expected to be incurred and the position of the class of securities we own in the securitization trust relative to the trust’s other classes to determine whether any of the collateral losses will be applied to our class. If our class has remaining credit enhancement sufficient to withstand the projected additional collateral losses, no collateral losses will be realized by our class and we expect to collect all contractual principal and interest of the security we own. Remaining credit enhancement is 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 we own and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to our class, such as overcollateralization and excess spread.

For securities where there is insufficient remaining credit enhancement for the class of securities we own, a recovery value is calculated based on our best estimate of future cash flows specific to that security. This estimate is based on the contractual principal payments and current interest payments of the securities we own, adjusted for actual cumulative collateral losses incurred to date and the projected additional collateral losses expected to be incurred. This estimate also takes into consideration additional secondary sources of credit support, such as reliable bond insurance. For securities without secondary sources of credit support or for which the secondary sources do not fully offset the actual and projected additional collateral losses applied to them, a credit loss is recorded in earnings to the extent amortized cost exceeds recovery value.

75.5%, 21.5% and 3.0% of the fair value of our below investment grade Subprime securities with gross unrealized losses were issued with Aaa, Aa and A original ratings and capital structure classifications, respectively. As described previously, Subprime securities with higher original ratings typically have priority in receiving the principal repayments on the underlying collateral compared to those with lower original ratings. While the projected cash flow assumptions for our below investment grade Subprime securities with gross unrealized losses have deteriorated since the securities were originated, as reflected by their current credit ratings, these securities continue to retain the payment priority features that existed at the origination of the securitization trust.

The following tables show trust-level, class-level and security-specific detailed information for our below investment grade Subprime securities with gross unrealized losses that are not reliably insured, by credit rating.

($ in millions)	March 31, 2012
	With other-than-temporary impairments recorded in earnings							Without other-than-temporary impairments recorded in earnings
		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date (1)		15.8	%	16.0	%	16.0	%	3.6	%	7.1	%	8.8	%	6.6	%	n/a
Projected additional collateral losses to be incurred (2)		41.6	%	37.4	%	37.6	%	30.1	%	35.0	%	37.5	%	34.4	%	n/a
Class-level
Average remaining credit enhancement (3)		23.1	%	12.4	%	12.9	%	43.4	%	45.1	%	44.1	%	44.3	%	n/a
Security-specific
Number of positions		2		38		40		6		9		13		28		68
Par value	$	16	$	366	$	382	$	41	$	58	$	44	$	143	$	525
Amortized cost	$	11	$	232	$	243	$	41	$	58	$	44	$	143	$	386
Fair value	$	8	$	165	$	173	$	30	$	32	$	27	$	89	$	262
Gross unrealized losses
Total	$	(3)	$	(67)	$	(70)	$	(11)	$	(26)	$	(17)	$	(54)	$	(124)
Over 24 months (4)	$	(3)	$	(67)	$	(70)	$	(11)	$	(26)	$	(17)	$	(54)	$	(124)
Cumulative write-downs recognized	$	(5)	$	(125)	$	(130)	$	--	$	--	$	--	$	--	$	(130)
Principal payments received during the period															$	5

		December 31, 2011
		With other-than-temporary impairments recorded in earnings						Without other-than-temporary impairments recorded in earnings
		B		Caa or lower		Total		Ba		B		Caa or lower		Total		Total
Trust-level
Actual cumulative collateral losses incurred to date		16.3	%	17.4	%	17.4	%	3.3	%	7.4	%	11.0	%	7.5	%	n/a
Projected additional collateral losses to be incurred		39.9	%	40.7	%	40.7	%	30.1	%	33.8	%	39.2	%	34.7	%	n/a
Class-level
Average remaining credit enhancement		22.2	%	16.4	%	16.8	%	44.5	%	48.4	%	47.6	%	47.0	%	n/a
Security-specific
Number of positions		4		48		52		6		11		17		34		86
Par value	$	28	$	452	$	480	$	47	$	60	$	59	$	166	$	646
Amortized cost	$	21	$	285	$	306	$	47	$	60	$	59	$	166	$	472
Fair value	$	15	$	186	$	201	$	34	$	33	$	32	$	99	$	300
Gross unrealized losses
Total	$	(6)	$	(99)	$	(105)	$	(13)	$	(27)	$	(27)	$	(67)	$	(172)
Over 24 months (4)	$	(6)	$	(98)	$	(104)	$	(13)	$	(27)	$	(27)	$	(67)	$	(171)
Cumulative write-downs recognized	$	(7)	$	(162)	$	(169)	$	--	$	--	$	--	$	--	$	(169)
Principal payments received during the period															$	34

(1) Weighted average actual cumulative collateral losses incurred to date as of period end are based on the actual principal losses incurred as a percentage of the remaining principal amount of the loans in the trust. The weighting calculation is based on the par value of each security. Actual losses on the securities we hold are less than the losses on the underlying collateral as presented in this table. Actual cumulative realized principal losses on the below investment grade Subprime securities we own, as reported by the trust servicers, were $22 million as of March 31, 2012.

(2) Weighted average projected additional collateral losses to be incurred as of period end are based on our projections of future losses to be incurred by the trust, taking into consideration the actual cumulative collateral losses incurred to date, as a percentage of the remaining principal amount of the loans in the trust. Our projections are developed internally and customized to our specific holdings and are informed by and benchmarked against credit opinions obtained from third parties, such as industry analysts, nationally recognized credit rating agencies and an RMBS loss modeling advisory service. Projected additional collateral losses to be incurred are compared to average remaining credit

enhancement for each security. For securities where the projected additional collateral losses exceed remaining credit enhancement, a recovery value is calculated to determine whether impairment losses should be recorded in earnings. The weighting calculation is based on the par value of each security.

(3) Weighted average remaining credit enhancement as of period end is based on structural subordination and the expected impact of other structural features existing in the securitization trust beneficial to our class and reflects our projection of future principal losses that can occur as a percentage of the remaining principal amount of the loans in the trust before the class of the security we own will incur its first dollar of principal loss. The weighting calculation is based on the par value of each security.

(4) As of March 31, 2012, $42 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $45 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months. As of December 31, 2011, $68 million of unrealized losses on securities with other-than-temporary impairments recognized in earnings and $54 million of unrealized losses on securities without other-than-temporary impairments recognized in earnings have been greater than or equal to 20% of those securities’ amortized cost for a period of more than 24 consecutive months.

The above tables include information only about below investment grade Subprime securities with gross unrealized losses that are not reliably insured as of each period presented. As such, the par value and composition of securities included can vary significantly from period to period due to changes in variables such as credit ratings, principal payments, sales, purchases and realized principal losses.

As of March 31, 2012, our Subprime securities that are reliably insured include eight below investment grade Subprime securities with a total fair value of $72 million and aggregate gross unrealized losses of $27 million, all of which are rated B. These securities are insured by one bond insurer rated B that we estimate has sufficient claims paying capacity to service its obligations on these securities. The securitization trusts from which our securities were issued are currently receiving contractual payments from the bond insurer and considering the combination of expected future payments from the bond insurer and cash flows available from the underlying collateral, we expect the trust to have adequate cash flows to make all contractual payments due to the class of securities we own. As a result, our security-specific estimates of future cash flows indicate that these securities’ estimated recovery values equal or exceed their amortized cost. Accordingly, no other-than-temporary impairments have been recognized on these securities. As of December 31, 2011, our Subprime securities that are reliably insured included eight below investment grade Subprime securities with a total fair value of $73 million and aggregate gross unrealized losses of $28 million.

As of March 31, 2012, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and without other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 6.6%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 50.2% and a projected weighted average loss severity of 69.0%, which resulted in projected additional collateral losses of 34.4%. As the average remaining credit enhancement for these securities of 44.3% exceeds the projected additional collateral losses of 34.4%, these securities have not been impaired.

As of March 31, 2012, our below investment grade Subprime securities with gross unrealized losses that are not reliably insured and with other-than-temporary impairments recorded in earnings had incurred actual cumulative collateral losses of 16.0%. Our impairment evaluation forecasts more severe assumptions than the trusts are actually experiencing, including a projected weighted average underlying default rate of 51.7% and a projected weighted average loss severity of 74.5%, which resulted in projected additional collateral losses of 37.6%. As the average remaining credit enhancement for these securities of 12.9% is insufficient to withstand the projected additional collateral losses, we have recognized cumulative write-downs in earnings on the securities as reflected in the table above using our calculated recovery value at the time of impairment. The current average recovery value of these securities as a percentage of par was 65.8% and exceeded these securities’ current average amortized cost as a percentage of par of 63.7%, which demonstrates our conclusion that the nature of the remaining unrealized loss on these securities is temporary and will reverse over time. The comparison indicates that recovery value exceeds amortized cost based on a comprehensive evaluation of financial, economic and capital markets assumptions developed for this reporting period.

We believe the unrealized losses on our Subprime securities, including those over 24 months, result from the current risk premium on these securities, which should continue to reverse over the securities’ remaining lives. We expect to receive our estimated share of contractual principal and interest collections used to determine the securities’ recovery value. As of March 31, 2012, we do not have the intent to sell and it is not more likely than not we will be required to sell these securities before the recovery of their amortized cost basis. We believe that our valuation and impairment processes are comprehensive, employ the most current views about collateral and

securitization trust financial positions, and demonstrate our recorded impairments and that the remaining unrealized losses on these positions are temporary.

Net investment income The following table presents net investment income.

($ in millions)			Three months ended March 31,
			2012		2011
Fixed income securities		$	521	$	591
Mortgage loans			85		88
Equity securities			1		1
Limited partnership interests (1)			67		5
Short-term investments			--		1
Other			27		3
Investment income, before expense			701		689
Investment expense			(28)		(27)
Net investment income		$	673	$	662


(1)	Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Net investment income increased 1.7% or $11 million to $673 million in the first quarter of 2012 from $662 million in the same period of 2011 primarily due to income from limited partnerships and the termination of interest rate swaps in first quarter 2011, partially offset by lower yields on fixed income securities.

Realized capital gains and losses The following table presents the components of realized capital gains and losses and the related tax effect.

($ in millions)			Three months ended March 31,
			2012		2011
Impairment write-downs		$	(20)	$	(47)
Change in intent write-downs			(16)		(42)
Net other-than-temporary impairment losses recognized in earnings			(36)		(89)
Sales			(9)		112
Valuation of derivative instruments			8		(2)
Settlements of derivative instruments			15		6
EMA limited partnership income (1)			--		18
Realized capital gains and losses, pre-tax			(22)		45
Income tax benefit (expense)			7		(15)
Realized capital gains and losses, after-tax		$	(15)	$	30


(1)	Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.

Impairment write-downs are presented in the following table.

($ in millions)		Three months ended March 31,
		2012		2011
Fixed income securities	$	(18)	$	(39)
Mortgage loans		(3)		(2)
Equity securities		--		(5)
Limited partnership interests		(1)		--
Other investments		2		(1)
Impairment write-downs	$	(20)	$	(47)

Impairment write-downs for the three months ended March 31, 2012 were primarily driven by corporate fixed income securities impacted by issuer specific circumstances and RMBS, which experienced deterioration in

expected cash flows. Impairment write-downs on below investment grade RMBS and CMBS for the three months ended March 31, 2012 were $5 million and $4 million, respectively.

Change in intent write-downs were $16 million and $42 million in the three months ended March 31, 2012 and 2011, respectively, and all related to fixed income securities. The change in intent write-downs in the three months ended March 31, 2012 were primarily a result of ongoing comprehensive reviews of our portfolios resulting in write-downs of individually identified investments, primarily RMBS and municipal bonds.

Sales generated $9 million of net realized losses for the three months ended March 31, 2012 primarily due to sales of fixed income securities.

Valuation and settlements of derivative instruments net realized capital gains totaling $23 million for the three months ended March 31, 2012 included $8 million of gains on the valuation of derivative instruments and $15 million of gains on the settlement of derivative instruments. The net realized capital gains on derivative instruments for the three months ended March 31, 2012 primarily included gains on credit default swaps due to the tightening of credit spreads on the underlying credit names. As a component of our approach to managing interest rate risk, realized gains and losses on certain derivative instruments are most appropriately considered in conjunction with the unrealized gains and losses on the fixed income portfolio. This approach mitigates the impacts of general interest rate changes to our overall financial condition.

CAPITAL RESOURCES AND LIQUIDITY

Capital resources consist of shareholder’s equity and notes due to related parties, representing funds deployed or available to be deployed to support business operations. The following table summarizes our capital resources.

($ in millions)		March 31, 2012		December 31, 2011
Common stock, retained income and additional capital paid-in	$	5,338	$	5,255
Accumulated other comprehensive income		1,039		812
Total shareholder’s equity		6,377		6,067
Notes due to related parties		696		700
Total capital resources	$	7,073	$	6,767

Shareholder’s equity increased in the first quarter of 2012 due to increased unrealized net capital gains on investments and net income.

Financial ratings and strength Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the current level of operating leverage and Allstate Insurance Company’s (“AIC’s”) ratings. On January 26, 2012, A.M. Best affirmed our financial strength rating of A+ and the outlook for the rating was revised to stable from negative. In April 2012, S&P affirmed our financial strength rating of A+ and the outlook for the rating remained negative. There has been no change to our financial strength rating from Moody’s since December 31, 2011. In the future, if our financial position is less than rating agency expectations including those related to capitalization at the parent company, AIC or the Company, we could be exposed to a downgrade in our ratings of one notch or more which we do not view as being material to our business model or strategies.

The Company, AIC and The Allstate Corporation (the “Corporation”) are party to the Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) which allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes. The Liquidity Agreement does not establish a commitment to advance funds on the part of any party. The Company and AIC each serve as a lender and borrower and the Corporation serves only as a lender. The Company also has a capital support agreement with AIC. Under the capital support agreement, AIC is committed to provide capital to the Company to maintain an adequate capital level. The maximum amount of potential funding under each of these agreements is $1.00 billion.

In addition to the Liquidity Agreement, the Company also has an intercompany loan agreement with the Corporation. The amount of intercompany loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings.

Liquidity sources and uses We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions. Liquidity is managed at both the entity and enterprise level across the Company, and is assessed on both base and stressed level liquidity needs. We believe we have sufficient liquidity to meet these needs. Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility.

Allstate parent holding company capital capacity The Corporation has at the parent holding company level $2.65 billion of deployable invested assets as of March 31, 2012. These assets include investments that are generally saleable within one quarter totaling $2.30 billion. This provides funds for the parent company’s relatively low fixed charges and other corporate purposes.

The Company has access to additional borrowing to support liquidity through the Corporation as follows:

· A commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs. As of March 31, 2012, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion; however, the outstanding balance can fluctuate daily.

· A new primary credit facility is available for short-term liquidity requirements and backs the commercial paper facility. The $1.00 billion unsecured revolving credit facility has an initial term of five years expiring in April 2017. The facility is fully subscribed among 12 lenders with the largest commitment being $115 million. The Corporation has the option to extend the expiration by one year at the first and second anniversary of the facility, upon approval of existing or replacement lenders. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing. This facility has a financial covenant requiring that the Corporation not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio as defined in the prior credit facility as of March 31, 2012 was 20.3%. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of the Corporation’s senior unsecured, unguaranteed long-term debt. There were no short-term borrowings under the prior credit facility during the first three months of 2012. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility.

· A universal shelf registration statement was filed by the Corporation with the Securities and Exchange Commission on April 30, 2012. The Corporation can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 407 million shares of treasury stock as of March 31, 2012), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries. The specific terms of any securities the Corporation issues under this registration statement will be provided in the applicable prospectus supplements.

Liquidity exposure Contractholder funds as of March 31, 2012 were $40.94 billion. The following table summarizes contractholder funds by their contractual withdrawal provisions as of March 31, 2012.

($ in millions)				Percent to total
Not subject to discretionary withdrawal		$	6,072	14.8%
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (1)			15,470	37.8
Market value adjustments (2)			6,142	15.0
Subject to discretionary withdrawal without adjustments (3)			13,252	32.4
Total contractholder funds (4)		$	40,936	100.0%


(1)	Includes $8.42 billion of liabilities with a contractual surrender charge of less than 5% of the account balance.
(2)	$5.05 billion of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and subsequent interest rate guarantee periods (which are typically 5 or 6 years) during which there is no surrender charge or market value adjustment.
(3)	72% of these contracts have a minimum interest crediting rate guarantee of 3% or higher.
(4)	Includes $1.09 billion of contractholder funds on variable annuities reinsured to The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc., in 2006.

While we are able to quantify remaining scheduled maturities for our institutional products, anticipating retail product surrenders is less precise. Retail life and annuity products may be surrendered by customers for a variety of reasons. Reasons unique to individual customers include a current or unexpected need for cash or a change in life insurance coverage needs. Other key factors that may impact the likelihood of customer surrender include the level of the contract surrender charge, the length of time the contract has been in force, distribution channel, market interest rates, equity market conditions and potential tax implications. In addition, the propensity for retail life insurance policies to lapse is lower than it is for fixed annuities because of the need for the insured to be re-underwritten upon policy replacement. Surrenders and partial withdrawals for our retail annuities decreased 7.7% in the first three months of 2012 compared to 2011. The annualized surrender and partial withdrawal rate on deferred annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 10.8% and 10.5% for the first three months of 2012 and 2011, respectively. We strive to promptly pay customers who request cash surrenders; however, statutory regulations generally provide up to six months in most states to fulfill surrender requests.

Our institutional products are primarily funding agreements sold to unaffiliated trusts used to back medium-term notes. As of March 31, 2012, total institutional products outstanding were $1.88 billion, with scheduled maturities of $40 million in June of 2012 and $1.75 billion and $85 million in 2013 and 2016, respectively.

Our asset-liability management practices limit the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance, annuity and institutional product obligations.

Cash Flows As reflected in our Condensed Consolidated Statements of Cash Flows, higher cash provided by operating activities in the first three months of 2012 compared to the first three months of 2011 was primarily due to lower contract benefits paid, partially offset by lower premiums received.

Lower cash provided by investing activities in the first three months of 2012 compared to the first three months of 2011 was impacted by lower sales of fixed income securities.

Lower cash used in financing activities in the first three months of 2012 compared to the first three months of 2011 was primarily due to decreased maturities of institutional products and lower surrenders and partial withdrawals on fixed annuities.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. During the fiscal quarter ended March 31, 2012, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information required for Part II, Item 1 is incorporated by reference to the discussion under the heading “Regulation and Compliance” in Note 8 of the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Risk factors which could cause actual results to differ materially from those suggested by such forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the Securities and Exchange Commission, and those incorporated by reference in Part I, Item 1A of the Allstate Life Insurance Company Annual Report on Form 10-K for 2011.

Item 6. Exhibits

(a)	Exhibits

	An Exhibit Index has been filed as part of this report on page E-1.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Allstate Life Insurance Company
	(Registrant)





May 4, 2012
	By	/s/ Samuel H. Pilch
		Samuel H. Pilch
		(chief accounting officer and duly
		authorized officer of Registrant)

Exhibit No.		Description

10.1		Credit Agreement dated April 27, 2012, incorporated herein by reference to Exhibit 10.6 to The Allstate Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 (File Number 001-11840).

15		Acknowledgment of awareness from Deloitte & Touche LLP, dated May 4, 2012, concerning unaudited interim financial information.

31(i)		Rule 13a-14(a) Certification of Principal Executive Officer

31(i)		Rule 13a-14(a) Certification of Principal Financial Officer

32		Section 1350 Certifications

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

E-1

EXHIBIT 15

Allstate Life Insurance Company

3100 Sanders Road

Northbrook, IL 60062

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Allstate Life Insurance Company and subsidiaries for the three-month periods ended March 31, 2012 and 2011, as indicated in our report dated May 4, 2012; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, is incorporated by reference in the following Registration Statements:

Form S-3 Registration Statement Nos.	Form N-4 Registration Statement Nos.
333-150286	333-102934
333-150577	333-114560
333-150583	333-114561
333-177476	333-114562
333-177477	333-121687
333-177478	333-121691
333-177479	333-121692
333-177480	333-121693
333-177481	333-121695
333-177666	333-121697
333-177671
333-177672
333-177673
333-177675
333-178570

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

Chicago, Illinois

May 4, 2012

E-2

CERTIFICATIONS

EXHIBIT 31 (i)

I, Don Civgin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allstate Life Insurance Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 4, 2012

	/s/ Don Civgin
	Don Civgin
	President and Chief Executive Officer

E-3

CERTIFICATIONS

EXHIBIT 31 (i)

I, John C. Pintozzi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allstate Life Insurance Company;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 4, 2012

	/s/ John C. Pintozzi
	John C. Pintozzi
	Senior Vice President and Chief Financial Officer

E-4

EXHIBIT 32

SECTION 1350 CERTIFICATIONS

Each of the undersigned hereby certifies that to his knowledge the quarterly report on Form 10-Q for the fiscal period ended March 31, 2012 of Allstate Life Insurance Company filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and result of operations of Allstate Life Insurance Company.

May 4, 2012

	/s/ Don Civgin
	Don Civgin
	President and Chief Executive Officer




	/s/ John C. Pintozzi
	John C. Pintozzi
	Senior Vice President and Chief Financial Officer

E-5

Other-than-temporary impairment losses

Revenues

Costs and expenses

($ in millions)

U.S. government and agencies

Municipal

Corporate

Foreign government

Residential mortgage-backed securities (“RMBS”)

Commercial mortgage-backed securities (“CMBS”)

Asset-backed securities (“ABS”)

Redeemable preferred stock

Total fixed income securities

Net investment income

Realized capital gains and losses, after-tax