This excerpt taken from the ALL 8-K filed Nov 4, 2009.
Proactive Investment Strategies Improved Total Returns
Allstates investment portfolio continued to benefit from risk mitigation and return optimization strategies during the third quarter. The company maintained its credit exposure while credit spreads tightened, managed its exposure to interest rates, proactively reduced exposure to commercial real estate, and invested opportunistically.
The consolidated investment portfolio grew $4.2 billion to $100.6 billion at September 30, 2009 when compared to June 30, 2009. The unrealized net loss position improved by $4.8 billion compared to the prior quarter, reducing pre-tax unrealized net losses to $2.5 billion at September 30, 2009. Improved unrealized balances in all asset classes were the result of tightening credit spreads, declining interest rates and positive equity portfolio returns. The total unrealized net capital gain was $112 million at September 30, 2009, after adjusting for deferred policy acquisition costs and taxes.
Risk mitigation programs continued to be effective as macro hedges against interest rate and equity market risk performed as expected during the quarter. As interest rates declined and equity markets rose in the three months ended September 30, 2009, fixed income and equity valuations improved, but also resulted in realized losses on derivatives. The duration of the investment portfolio declined 8.3% to 3.8 years at September 30, 2009 when compared to year-end 2008, while increasing slightly during the third quarter.
Net investment income for the quarter was $1.1 billion, down $271 million from $1.4 billion in the third quarter of 2008, due to lower yields, actions to shorten duration and maintain additional liquidity in the portfolio, and reduced investment balances. During the quarter, Allstate deployed $4.6 billion of short-term investments and cash receipts into securities to generate income and capital appreciation.
Net realized capital losses for the quarter were $519 million, pre-tax. This reflected $381 million of impairment write-downs and $361 million of net losses from derivative instruments. Impairment write-downs were primarily related to investments with real estate exposure and hybrid securities issued by European financial institutions. Net gains of $201 million were realized on sales during the third quarter of 2009. Sales included proactive measures to reduce exposures to commercial real estate, certain municipal bond sectors, and below investment grade assets.