     As filed with the Securities and Exchange Commission on April 1, 2015
                                                              FILE NO. 333-

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                               -----------------

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

                               -----------------

                  ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                          (Exact Name of Registrant)

                               -----------------

                      NEW YORK                    36-2608394
           (State or Other Jurisdiction of     (I.R.S Employer
           Incorporation or Organization)   Identification Number)

                                      6300
            (Primary Standard Industrial Classification Code Number)

                        878 VETERAN'S MEMORIAL HIGHWAY
                                   SUITE 400
                           HAUPPAUGE, NEW YORK 11788
                                (631) 357-8920
           (Address and Phone Number of Principal Executive Office)

                               -----------------

                             CT CORPORATION SYSTEM
                               111 EIGHTH AVENUE
                                  13TH FLOOR
                              NEW YORK, NY 10011
                                (212) 894-8800
      (Name, Complete Address and Telephone Number of Agent for Service)

                               -----------------

                                  COPIES TO:

                            ALLEN R. REED, ESQUIRE
                  ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
                          2775 SANDERS ROAD SUITE A2E
                             NORTHBROOK, IL 60062

                               -----------------

Approximate date of commencement of proposed sale to the Public: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
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  [_]

                               -----------------

Table of Contents

                        CALCULATION OF REGISTRATION FEE

-------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
                                                                       Proposed        Proposed
                                                          Amount        maximum         maximum
              Title of securities being                    to be     offering price    aggregate        Amount of
                      registered                        registered   per unit/(1)/   offering price  registration fee
----------------------------------------------------------------------------------------------------------------------
Deferred annuity interests and participating interests
  therein.............................................. $15,000,000      $1.00        $15,000,000          $0
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
(1)The Contract does not provide for a predetermined amount or number of units.

                               -----------------

This filing is being made under the Securities Act of 1933 to register
$15,000,000 of deferred annuity interests and participating interests therein.
The interests being registered herein are being carried over, as unsold
securities, from an existing Form S-1 registration statement of the same issuer
(#333-180370) filed on March 27, 2012. Because a filing fee of $1,719
previously was paid with respect to those securities, there is no filing fee
under this registration statement. In accordance with Rule 415(a)(6), the
offering of securities on the earlier registration statement will be deemed
terminated as of the effective date of this registration statement.

Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.

Neither the Securities and Exchange Commission nor any State securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.

Allstate Distributors, L.L.C. ("ADLLC") serves as distributor of the securities
registered herein. The securities offered herein are sold on a continuous
basis, and there is no specific end date for the offering. ADLLC, an affiliate
of Allstate Life Insurance Company of New York, is a wholly owned subsidiary of
Allstate Life Insurance Company. ADLLC is a registered broker dealer under the
Securities and Exchange Act of 1934, as amended, and is a member of the
Financial Industry Regulatory Authority. ADLLC is not required to sell any
specific number or dollar amount of securities, but will use its best efforts
to sell the securities offered. Commissions earned by ADLLC are described in
the notes to the insurer financial statements, under the heading "Broker-Dealer
Agreements." The prospectuses, dated as of the date indicated therein, by which
the securities registered in this Form S-1 are described, are included in this
registration statement.

================================================================================

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

Supplement Dated May 1, 2015

To the following Prospectuses, as supplemented

ALLSTATE PROVIDER PROSPECTUS DATED MAY 1, 2002

SELECTDIRECTIONS PROSPECTUS DATED APRIL 30, 2005

AIM LIFETIME PLUS PROSPECTUS DATED APRIL 30, 2005

AIM LIFETIME PLUS II PROSPECTUS DATED APRIL 30, 2005

CUSTOM PORTFOLIO PROSPECTUS DATED APRIL 30, 2005

The following information supplements the prospectus for your variable annuity contract issued by Allstate Life Insurance Company of New York.

INDEX


Item 3(c)	Risk Factors	1
Item 11(a)	Description of Business	10
Item 11(b)	Description of Property	12
Item 11(c)	Legal Proceedings	12
Item 11(e)	Financial Statements and Notes to Financial Statements	13
Item 11(f)	Selected Financial Data	64
Item 11(h)	Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
Item 11(i)	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
Item 11(j)	Quantitative and Qualitative Disclosures About Market Risk	93
Item 11(k)	Directors, Executive Officers, Promoters and Control Persons	93
Item 11(l)	Executive Compensation	95
Item 11(m)	Security Ownership of Certain Beneficial Owners and Management	124
Item 11(n)	Transactions with Related Persons, Promoters and Certain Control Persons	125
Other Information		127

Item 3(c).

Risk Factors

Forward-Looking Statements

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. 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. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements as a result of new information or future events or developments. In addition, forward-looking statements are subject to certain risks or uncertainties that could cause actual results to differ materially from those communicated in these forward-looking statements. These risks and uncertainties include, but are not limited to, those described in the Risk Factors below and elsewhere in this document and those described from time to time in our other documents filed with the Securities and Exchange Commission (“SEC”).

In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer and a provider of other products and financial services. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the SEC or in materials incorporated therein by reference.

Changes in underwriting and actual experience could materially affect profitability and financial condition

Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business. We establish target returns for each product based upon these factors and the average amount of capital that we must hold to support in-force contracts taking into account rating agencies and regulatory requirements. We monitor and manage our pricing and overall sales mix to achieve target new business returns on a portfolio basis, which could result in the discontinuation or de-emphasis of products and a decline in sales. Profitability from new business emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued.

Our profitability depends on the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the persistency of policies to ensure recovery of acquisition expenses, the adequacy of investment spreads, the management of market and credit risks associated with investments, and the management of operating costs and expenses within anticipated pricing allowances. Legislation and regulation of the insurance marketplace and products could also affect our profitability and financial condition.

Changes in reserve estimates may adversely affect our operating results

Changes in market interest rates may lead to a significant decrease in the profitability of spread-based products

Our ability to manage our in-force spread-based products, such as fixed annuities, is dependent upon maintaining profitable spreads between investment yields and interest crediting rates. When market interest rates decrease or remain at relatively low levels, proceeds from investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Increases in market interest rates can have negative effects, for example by increasing the attractiveness of other investments to our customers, which can lead to increased surrenders at a time when our fixed income investment asset values are lower as a result of the increase in interest rates. This could lead to the sale of fixed income securities at a loss.

Changes in estimates of profitability on interest-sensitive life products may adversely affect our profitability and financial condition through the amortization of DAC

DAC related to interest-sensitive life contracts is amortized in proportion to actual historical gross profits and estimated future gross profits (“EGP”) over the estimated lives of the contracts. The principal assumptions

for determining the amount of EGP are mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. Updates to these assumptions (commonly referred to as “DAC unlocking”) could result in accelerated amortization of DAC and thereby adversely affect our profitability and financial condition.

Reducing our concentration in spread-based business and exiting certain distribution channels may adversely affect reported results

We have been reducing our concentration in spread-based business and discontinued offering fixed annuities effective January 1, 2014. We also exited the structured settlement annuity brokers distribution channel in 2013. The reduction in sales of these products has and may continue to reduce investment portfolio levels. It may also complicate settlement of contract benefits including forced sales of assets with unrealized capital losses, and affect insurance reserves deficiency testing. We plan to outsource the administration of our annuity business to a third party administration company in 2015. If our efforts are unsuccessful, our cost structure may be less competitive.

Changes in tax laws may decrease sales and profitability of products and adversely affect our financial condition

Under current federal and state income tax law, certain products we offer, primarily life insurance, receive favorable tax treatment. This favorable treatment may give certain of our products a competitive advantage over noninsurance products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products making them less competitive. Such proposals, if adopted, could have a material effect on our profitability and financial condition or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.

We may not be able to mitigate the capital impact associated with statutory reserving requirements, potentially resulting in a need to increase prices, reduce sales of term life products, and/or a return on equity below original levels assumed in pricing

To support statutory reserves for certain term life insurance products, we currently utilize reinsurance for mitigating a portion of our statutory reserve requirements. As we continue to underwrite term life business, we may have additional reinsurance or financing needs to mitigate the impact of these reserve requirements. If we do not obtain additional reinsurance or financing as a result of market conditions or otherwise, this could require us to increase prices, reduce our sales of term life products, and/or result in a return on equity below original levels assumed in pricing.

Risks Relating to Investments

We are subject to market risk and declines in credit quality which may adversely affect investment income and cause realized and unrealized losses

Although we continually reevaluate our investment management strategies, we remain subject to the risk that we will incur losses due to adverse changes in interest rates, credit spreads, equity prices or currency exchange rates. Adverse changes in these rates, spreads and prices may occur due to changes in monetary policy and the economic climate, the liquidity of a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions

of credit worthiness. We are also subject to market risk related to investments in loans and securities collateralized by real estate. Some of our investment strategies target individual investments with unique risks that are not highly correlated with broad market risks. Although we expect these investments to increase total portfolio returns over time, their performance may vary from and under-perform relative to the market in some periods.

We are subject to risks associated with potential declines in credit quality related to specific issuers or specific industries and a general weakening in the economy, which are typically reflected through credit spreads. Credit spread is the additional yield on fixed income securities and loans above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. Credit spreads vary (i.e. increase or decrease) in response to the market’s perception of risk and liquidity in a specific issuer or specific sector and are influenced by the credit ratings, and the reliability of those ratings, published by external rating agencies. Although we have the ability to use derivative financial instruments to manage these risks, the effectiveness of such instruments varies with liquidity and other conditions that may impact derivative and bond markets. Adverse economic conditions or other factors could cause declines in the quality and valuation of our investment portfolio that could result in realized and unrealized losses. The concentration of our investment portfolio in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on our investment portfolio and consequently on our results of operations and financial condition.

A decline in market interest rates or credit spreads could have an adverse effect on our investment income as we invest cash in new investments that may earn less than the portfolio’s average yield. In a declining interest rate environment, borrowers may prepay or redeem securities more quickly than expected as they seek to refinance at lower rates. A decline could also lead us to purchase longer-term or riskier assets in order to obtain adequate investment yields resulting in a duration gap when compared to the duration of liabilities. Alternatively, longer-term assets may be sold and reinvested in shorter-term assets in anticipation of rising interest rates. An increase in market interest rates or credit spreads could have an adverse effect on the value of our investment portfolio by decreasing the fair values of the fixed income securities that comprise a substantial majority of our investment portfolio.

The determination of the amount of realized capital losses recorded for impairments of our investments is subjective and could materially impact our operating results and financial condition

The determination of the amount of realized capital losses recorded for impairments vary by investment type and is based upon our ongoing evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in our results of operations. The assessment of whether other-than-temporary impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value. Our conclusions on such assessments are judgmental and include assumptions and projections of future cash flows and price recovery which may ultimately prove to be incorrect as assumptions, facts and circumstances change. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.

The determination of the fair value of our fixed income and equity securities is subjective and could materially impact our operating results and financial condition

In determining fair values we principally use the market approach which utilizes market transaction data for the same or similar instruments. The degree of judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets’ fair values. The

difference between amortized cost or cost and fair value, net of deferred income taxes, certain DAC, certain deferred sales inducement costs, and certain reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income in shareholder’s equity. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly.

Risks Relating to the Insurance Industry

Our future growth and profitability are dependent in part on our ability to successfully operate in an insurance industry that is highly competitive

The insurance industry is highly competitive. Many of our primary insurance competitors have well-established national reputations and market similar products.

Because of the competitive nature of the insurance industry, there can be no assurance that we will continue to effectively compete with our industry rivals, or that competitive pressures will not have a material effect on our business, operating results or financial condition. This includes competition for producers such as exclusive agents and their licensed sales professionals. In the event we are unable to attract and retain these producers or they are unable to attract customers for our products, growth could be materially affected. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets.

Our ability to successfully operate may also be impaired if we are not effective in developing the talent and skills of our human resources, attracting and assimilating new executive talent into our organization, or deploying human resource talent consistently with our business goals.

Difficult conditions in the global economy and capital markets generally could adversely affect our business and operating results and these conditions may not improve in the near future

As with most businesses, we believe difficult conditions in the global economy and capital markets, such as significant negative macroeconomic trends, including relatively high and sustained unemployment, reduced consumer spending, lower residential and commercial real estate prices, substantial increases in delinquencies on consumer debt, including defaults on home mortgages, and the relatively low availability of credit could have an adverse effect on our business and operating results.

Stressed conditions, volatility and disruptions in global capital markets, particular markets or financial asset classes could adversely affect our investment portfolio. Disruptions in one market or asset class can also spread to other markets or asset classes. Although the disruption in the global financial markets has moderated, not all global financial markets are functioning normally, and the rate of recovery from the U.S. recession has been below historic averages. Several governments around the world have announced austerity actions to address their budget deficits that may lead to a decline in economic activity.

In the years since the financial crisis, the central banks of most developed countries have pursued fairly similar, and highly accommodative, monetary policies. While European policy makers have developed mechanisms to address funding concerns, risks to the European economy and financial markets remain. Additionally, monetary policies among major central banks have begun to diverge. The United States Federal Reserve and the Bank of England continue to evaluate the timing and pace of normalizing their respective policies. In contrast, the European Central Bank has recently launched a quantitative easing program and several central banks have lowered their benchmark interest rates to stimulate economic activity. The diverging policies are likely to result in higher volatility and less certainty in capital markets.

General economic conditions could adversely affect us in the form of consumer behavior and pressure investment results. Consumer behavior changes could include decreased demand for our products. In addition, holders of some of our interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Our investment results could be adversely affected as deteriorating financial and business conditions affect the issuers of the securities in our investment portfolio.

Losses from legal and regulatory actions may be material to our operating results, cash flows and financial condition

As is typical for a large company, from time to time we are involved in various legal actions, some of which involve claims for substantial or indeterminate amounts. We are also involved in various regulatory actions and inquiries, including market conduct exams by state insurance regulatory agencies. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently accrued and may be material to our operating results or cash flows for a particular annual period and to our financial condition.

We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs and limit our growth

As an insurance company, we are subject to extensive laws and regulations. These laws and regulations are complex and subject to change. Changes may sometimes lead to additional expenses, increased legal exposure, and additional limits on our ability to grow or to achieve targeted profitability. Moreover, laws and regulations are administered and enforced by a number of different governmental authorities, each of which exercises a degree of interpretive latitude, including state insurance regulators; state securities administrators; state attorneys general and federal agencies including the SEC, the Financial Industry Regulatory Authority and the U.S. Department of Justice. Consequently, we are subject to the risk that compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow or to improve the profitability of our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products. In many respects, these laws and regulations limit our ability to grow or to improve the profitability of our business.

Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business

The federal government has enacted comprehensive regulatory reforms for financial services entities. As part of a larger effort to strengthen the regulation of the financial services market, certain reforms are applicable to the insurance industry, including the Federal Insurance Office (“FIO”) established within the Treasury Department.

In recent years, the state insurance regulatory framework has come under public scrutiny, members of Congress have discussed proposals to provide for federal chartering of insurance companies, and the FIO and Financial Stability Oversight Council were established. We can make no assurances regarding the potential impact of state or federal measures that may change the nature or scope of insurance and financial regulation.

These regulatory reforms and any additional legislative change or regulatory requirements imposed upon us in connection with the federal government’s regulatory reform of the financial services industry, and any more stringent enforcement of existing regulations by federal authorities, may make it more expensive for us to conduct our business, or limit our ability to grow or to achieve profitability.

Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business

Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as is currently available. If we were unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we would have to either accept an increase in our risk exposure, reduce our insurance writings, or develop or seek other alternatives.

Reinsurance subjects us to the credit risk of our reinsurers and may not be adequate to protect us against losses arising from ceded insurance, which could have a material effect on our operating results and financial condition

The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Our inability to collect a material recovery from a reinsurer could have a material effect on our operating results and financial condition.

A downgrade in our financial strength ratings may have an adverse effect on our competitive position, the marketability of our product offerings, our liquidity, operating results and financial condition

Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. On an ongoing basis, rating agencies review our financial performance and condition and could downgrade or change the outlook on our ratings due to, for example, a change in our statutory capital; a change in a rating agency’s determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived risk of our investment portfolio; a reduced confidence in management or our business strategy; as well as a number of other considerations that may or may not be under our control. Our insurance financial strength ratings from A.M. Best, Standard & Poor’s and Moody’s are subject to continuous review, and the retention of current ratings cannot be assured. A downgrade in any of these ratings could have a material effect on our sales, our competitiveness, the marketability of our product offerings, our liquidity, operating results and financial condition.

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms

In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. In such circumstances, our ability to obtain capital to fund operating expenses may be limited, and the cost of any such capital may be significant. Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders’ perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient and in such case, we may not be able to successfully obtain additional financing on favorable terms.

The failure in cyber or other information security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could result in a loss or disclosure of confidential information, damage to our reputation, additional costs and impairment of our ability to conduct business effectively

We depend heavily upon computer systems and mathematical algorithms and data to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other global companies, we have experienced threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. Events such as these could jeopardize the confidential, proprietary and other information (including personal information of our customers or employees) processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. These risks may increase in the future as we continue to expand our internet and mobile strategies and develop additional remote connectivity solutions to serve our customers.

The occurrence of a disaster, such as a natural catastrophe, pandemic, industrial accident, blackout, terrorist attack, war, cyber-attack, computer virus, insider threat, unanticipated problems with our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

Third parties to whom we outsource certain of our functions are also subject to the risks outlined above. Any of these may result in our incurring substantial costs and other negative consequences, including a material adverse effect on our business, financial condition, results of operations and liquidity.

A large scale pandemic, the continued threat of terrorism or military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, marketability of product offerings, liquidity and operating results

A large scale pandemic, the continued threat of terrorism, within the United States and abroad, or military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from declines in the equity markets and from interest rate changes in the United States, Europe and elsewhere, and result in loss of life, property damage, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets and reduced economic activity caused by a large scale pandemic or the continued threat of terrorism. Additionally, a large scale pandemic or terrorist act could have a material effect on the sales, profitability, competitiveness, marketability of product offerings, liquidity, and operating results.

Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our results of operations and financial condition

Our financial statements are subject to the application of generally accepted accounting principles, which are periodically revised, interpreted and/or expanded. Accordingly, we are required to adopt new guidance or interpretations, or could be subject to existing guidance as we enter into new transactions, which may have a material effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected. For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 2 of the financial statements.

The realization of deferred tax assets is subject to uncertainty

The realization of our deferred tax assets, net of valuation allowance, if any, is based on our assumption that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes. However, actual results may differ from our assumptions if adequate levels of taxable income are not attained.

Loss of key vendor relationships or failure of a vendor to protect our data or personal information of our customers or employees could affect our operations

We rely on services and products provided by many vendors in the United States and abroad. These include, for example, vendors of computer hardware and software and vendors of investment management services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect our data or personal information of our customers or employees, we may suffer operational impairments and financial losses.

We may not be able to protect our intellectual property and may be subject to infringement claims

We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and prove unsuccessful. An inability to protect our intellectual property could have a material effect on our business.

We may be subject to claims by third parties for patent, trademark or copyright infringement or breach of usage rights. Any such claims and any resulting litigation could result in significant expense and liability. If our third party providers or we are found to have infringed a third-party intellectual property right, either of us could be enjoined from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly work around. Any of these scenarios could have a material effect on our business and results of operations.

Item 11(a).

Description of Business

Allstate Life Insurance Company of New York (“Allstate Life of New York” or “ALNY”) was incorporated in 1967 as a stock life insurance company under the laws of the State of New York. In 1984, Allstate Life of New York was purchased by Allstate Life Insurance Company (“ALIC”). Allstate Life of New York is a wholly owned subsidiary of ALIC, a stock life insurance company incorporated under the laws of the State of Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance Company (“AIC”), a stock property-liability insurance company organized under the laws of the State of Illinois. All of the outstanding stock of AIC is owned by Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the “Corporation”), a publicly owned holding company incorporated under the laws of the State of Delaware. The Allstate Corporation is the largest publicly held personal lines insurer in the United States. Widely known through the “You’re In Good Hands With Allstate^®” slogan, Allstate’s strategy is to reinvent protection and retirement to help consumers protect what they have today and better prepare for tomorrow. Allstate is the 2^nd largest personal property and casualty insurer in the United States on the basis of 2013 statutory direct premiums earned according to A.M. Best. In addition, according to A.M. Best, it is the nation’s 16^th largest issuer of life insurance business on the basis of 2013 ordinary life insurance in force and 29^th largest on the basis of 2013 statutory admitted assets.

In our reports, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not subject to the requirement to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. We frequently use industry publications containing statutory financial information to assess our competitive position.

We sell traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products to customers in the state of New York. We sell products through Allstate exclusive agencies and exclusive financial specialists, and workplace enrolling independent agents. We previously offered and continue to have in force fixed annuities such as deferred and immediate annuities.

We compete on a wide variety of factors, including product offerings, brand recognition, financial strength and ratings, price, distribution and the level of customer service. The market for life insurance continues to be highly fragmented and competitive. As of December 31, 2013, there were approximately 400 groups of life insurance companies in the United States, most of which offered one or more similar products.

Allstate Life of New York is subject to extensive regulation, primarily, but not exclusively, from the New York Department of Financial Services. The method, extent, and substance of such regulation generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to the New York Department of Financial Services. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency, reserve adequacy, insurance company licensing and examination, agent licensing, policy forms, rate setting, the nature and amount of investments, claims practices, participation in guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices, and corporate governance. For a discussion of statutory financial information, see Note 13 of the financial statements. For a discussion of regulatory contingencies, see Note 11 of the financial statements. Notes 11 and 13 are incorporated in this, Item 11(a) by reference.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny. As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted in 2010. Some regulations required pursuant to this law must still be finalized, and we cannot predict what the final regulations will require but do not expect a material impact on Allstate Life of New York’s operations. Dodd-Frank also created the Federal Insurance Office (“FIO”) within the Treasury Department. The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system. FIO submitted reports to Congress in 2013 and 2014 addressing how to improve and modernize the system of insurance regulation. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Allstate Life of New York.

Additional regulations or new requirements may emerge from activities of various regulatory entities, including the Federal Reserve Board, FIO, FSOC, the National Association of Insurance Commissioners (“NAIC”), and the International Association of Insurance Supervisors, that are evaluating solvency and capital standards for insurance company groups. In addition, the NAIC has proposed amendments to their model holding company law, which has not yet been adopted by any jurisdiction. The outcome of these actions is uncertain; however, these actions may result in an increase in the level of capital and liquidity required by insurance holding companies.

Item 11(b).

Description of Property

Allstate Life of New York occupies office space in Hauppauge, New York and Northbrook, Illinois that is owned or leased by Allstate Insurance Company. Expenses associated with these facilities are allocated to us on both a direct and an indirect basis, depending on the nature and use. We believe that these facilities are suitable and adequate for our current operations.

Item 11(c).

Legal Proceedings

Information required for Item 11(c) is incorporated by reference to the discussion under the heading “Regulation and Compliance” in Note 11 of the financial statements.

Item 11(e).

Financial Statements and Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Allstate Life Insurance Company of New York

Hauppauge, New York

We have audited the accompanying Statements of Financial Position of Allstate Life Insurance Company of New York (the “Company”), an affiliate of The Allstate Corporation, as of December 31, 2014 and 2013, and the related Statements of Operations and Comprehensive Income, Shareholder’s Equity, and Cash Flows for each of the three years in the period ended December 31, 2014. Our audits also included Schedule I-Summary of Investments Other Than Investments in Related Parties, Schedule IV-Reinsurance, and Schedule V-Valuation Allowances and Qualifying Accounts. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Allstate Life Insurance Company of New York as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule I-Summary of Investments Other Than Investments in Related Parties, Schedule IV-Reinsurance, and Schedule V-Valuation Allowances and Qualifying Accounts, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Chicago, Illinois

March 6, 2015

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


($ in thousands)	Year Ended December 31,
	2014			2013			2012
Revenues
Premiums (net of reinsurance ceded of $12,782, $15,510 and $32,920)	$	59,070		$	55,789		$	38,037
Contract charges (net of reinsurance ceded of $10,971, $11,591 and $26,401)		73,446			73,138			55,688
Net investment income		322,825			325,117			346,195
Realized capital gains and losses:
Total other-than-temporary impairment (“OTTI”) losses		654			(12,410	)		(2,195	)
OTTI losses reclassified to (from) other comprehensive income		—			3,464			(3,259	)

Net OTTI losses recognized in earnings		654			(8,946	)		(5,454	)
Sales and other realized capital gains and losses		117,640			23,857			23,197

Total realized capital gains and losses		118,294			14,911			17,743

		573,635			468,955			457,663

Costs and expenses
Contract benefits (net of reinsurance ceded of $14,898, $10,728 and $16,258)		213,279			203,717			180,914
Interest credited to contractholder funds (net of reinsurance ceded of $5,158, $5,468 and $6,032)		118,604			129,911			144,340
Amortization of deferred policy acquisition costs		13,213			29,783			13,145
Operating costs and expenses		33,588			42,788			41,564

		378,684			406,199			379,963

Income from operations before income tax expense		194,951			62,756			77,700
Income tax expense		68,989			22,461			27,546

Net income		125,962			40,295			50,154

Other comprehensive income (loss), after-tax
Change in unrealized net capital gains and losses		18,293			(91,316	)		48,626
Change in unrealized foreign currency translation adjustments		(934	)		853			(417	)

Other comprehensive income (loss), after-tax		17,359			(90,463	)		48,209

Comprehensive income (loss)	$	143,321		$	(50,168	)	$	98,363

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF FINANCIAL POSITION


($ in thousands, except par value data)	December 31,
	2014			2013
Assets
Investments
Fixed income securities, at fair value (amortized cost $4,959,541 and $5,225,701)	$	5,491,047		$	5,602,738
Mortgage loans		493,792			514,489
Equity securities, at fair value (cost $205,549 and $163,649)		206,122			202,622
Limited partnership interests		212,947			116,480
Short-term, at fair value (amortized cost $138,371 and $98,553)		138,372			98,553
Policy loans		39,993			40,511
Other		600			1,076

Total investments		6,582,873			6,576,469

Cash		30,004			2,270
Deferred policy acquisition costs		135,282			129,836
Reinsurance recoverable		254,264			259,733
Accrued investment income		56,120			60,515
Receivable from affiliates, net		1,986			—
Reinsurance receivable from parent		—			285
Other assets		107,393			54,523
Separate Accounts		383,263			435,446

Total assets	$	7,551,185		$	7,519,077

Liabilities
Contractholder funds	$	3,402,594		$	3,670,557
Reserve for life-contingent contract benefits		2,280,356			2,151,316
Current income taxes payable		17,976			390
Deferred income taxes		212,949			173,341
Other liabilities and accrued expenses		127,663			99,234
Payable to affiliates, net		—			6,013
Reinsurance payable to parent		283			—
Separate Accounts		383,263			435,446

Total liabilities		6,425,084			6,536,297

Commitments and Contingent Liabilities (Note 11)
Shareholder’s equity
Common stock, $25 par value, 100 thousand shares authorized, issued and outstanding		2,500			2,500
Additional capital paid-in		140,529			140,529
Retained income		813,456			687,494
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI		386			168
Other unrealized net capital gains and losses		345,466			270,238
Unrealized adjustment to DAC, DSI and insurance reserves		(175,568	)		(118,415	)

Total unrealized net capital gains and losses		170,284			151,991
Unrealized foreign currency translation adjustments		(668	)		266

Total accumulated other comprehensive income		169,616			152,257

Total shareholder’s equity		1,126,101			982,780

Total liabilities and shareholder’s equity	$	7,551,185		$	7,519,077

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF SHAREHOLDER’S EQUITY


($ in thousands)	Year Ended December 31,
	2014			2013			2012
Common stock	$	2,500		$	2,500		$	2,500

Additional capital paid-in		140,529			140,529			140,529

Retained income
Balance, beginning of year		687,494			647,199			597,045
Net income		125,962			40,295			50,154

Balance, end of year		813,456			687,494			647,199

Accumulated other comprehensive income
Balance, beginning of year		152,257			242,720			194,511
Change in unrealized net capital gains and losses		18,293			(91,316	)		48,626
Change in unrealized foreign currency translation adjustments		(934	)		853			(417	)

Balance, end of year		169,616			152,257			242,720

Total shareholder’s equity	$	1,126,101		$	982,780		$	1,032,948

See notes to financial statements.

ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK

STATEMENTS OF CASH FLOWS


($ in thousands)	Year Ended December 31,
	2014			2013			2012
Cash flows from operating activities
Net income	$	125,962		$	40,295		$	50,154
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items		(47,044	)		(42,741	)		(38,127	)
Realized capital gains and losses		(118,294	)		(14,911	)		(17,743	)
Interest credited to contractholder funds		118,604			129,911			144,340
Changes in:
Policy benefits and other insurance reserves		(4,383	)		(26,252	)		(29,081	)
Deferred policy acquisition costs		(4,028	)		10,230			(6,278	)
Income taxes		47,846			10,673			33,391
Other operating assets and liabilities		(28,380	)		(16,790	)		(2,664	)

Net cash provided by operating activities		90,283			90,415			133,992

Cash flows from investing activities
Proceeds from sales
Fixed income securities		204,412			279,029			641,599
Equity securities		233,363			86,400			—
Limited partnership interests		24,574			23,009			6,131
Investment collections
Fixed income securities		346,951			374,968			451,878
Mortgage loans		78,480			90,226			83,394
Investment purchases
Fixed income securities		(237,781	)		(427,674	)		(775,407	)
Equity securities		(212,508	)		(88,307	)		(49,931	)
Limited partnership interests		(106,731	)		(38,794	)		(33,970	)
Mortgage loans		(64,754	)		(35,475	)		(87,011	)
Change in short-term investments, net		(961	)		(33,563	)		85,850
Change in policy loans and other investments, net		413			3,133			342

Net cash provided by investing activities		265,458			232,952			322,875

Cash flows from financing activities
Contractholder fund deposits		96,851			98,601			115,184
Contractholder fund withdrawals		(424,858	)		(436,580	)		(558,751	)

Net cash used in financing activities		(328,007	)		(337,979	)		(443,567	)

Net increase (decrease) in cash		27,734			(14,612	)		13,300
Cash at beginning of year		2,270			16,882			3,582

Cash at end of year	$	30,004		$	2,270		$	16,882

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

1.	General

Basis of presentation

The accompanying financial statements include the accounts of Allstate Life Insurance Company of New York (the “Company”), a wholly owned subsidiary of Allstate Life Insurance Company (“ALIC”), which is wholly owned by Allstate Insurance Company (“AIC”). All of the outstanding stock of AIC is owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”). These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Nature of operations

The Company sells traditional, interest-sensitive and variable life insurance and voluntary accident and health insurance products to customers in the State of New York. The Company distributes its products through Allstate exclusive agencies and exclusive financial specialists, and workplace enrolling independent agents. The Company previously offered and continues to have in force fixed annuities such as deferred and immediate annuities.

The following table summarizes premiums and contract charges by product.


($ in thousands)	2014		2013		2012
Premiums
Traditional life insurance	$	44,222	$	38,618	$	19,828
Immediate annuities with life contingencies		240		4,349		6,653
Accident and health insurance		14,608		12,822		11,556

Total premiums		59,070		55,789		38,037

Contract charges
Interest-sensitive life insurance		73,151		72,740		54,357
Fixed annuities		295		398		1,331

Total contract charges		73,446		73,138		55,688

Total premiums and contract charges	$	132,516	$	128,927	$	93,725

The Company has exposure to market risk as a result of its investment portfolio. Market risk is the risk that the Company will incur realized and unrealized net capital losses due to adverse changes in interest rates, credit spreads, equity prices or currency exchange rates. The Company’s primary market risk exposures are to changes in interest rates, credit spreads and equity prices. Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of its interest bearing assets and liabilities. This risk arises from many of the Company’s primary activities, as it invests substantial funds in interest-sensitive assets and issues interest-sensitive liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. Credit spread risk is the risk that the Company will incur a loss due to adverse changes in credit spreads. This risk arises from many of the Company’s primary

activities, as the Company invests substantial funds in spread-sensitive fixed income assets. Equity price risk is the risk that the Company will incur losses due to adverse changes in the general levels of the equity markets.

The Company monitors economic and regulatory developments that have the potential to impact its business. Federal and state laws and regulations affect the taxation of insurance companies and life insurance products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company’s products making them less competitive. Such proposals, if adopted, could have an adverse effect on the Company’s financial position or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.

2.	Summary of Significant Accounting Policies

Investments

Fixed income securities include bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), asset-backed securities (“ABS”) and redeemable preferred stocks. Fixed income securities, which may be sold prior to their contractual maturity, are designated as available for sale and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes and related deferred policy acquisition costs (“DAC”), deferred sales inducement costs (“DSI”) and reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income. Cash received from calls and make-whole payments is reflected as a component of proceeds from sales and cash received from maturities and pay-downs is reflected as a component of investment collections within the Statements of Cash Flows.

Mortgage loans are carried at unpaid principal balances, net of unamortized premium or discount and valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected.

Equity securities primarily include common stocks, exchange traded funds, non-redeemable preferred stocks and real estate investment trust equity investments. Equity securities are designated as available for sale and are carried at fair value. The difference between cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income.

Investments in limited partnership interests, including interests in private equity/debt funds, real estate funds and other funds, where the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies are accounted for in accordance with the cost method of accounting; all other investments in limited partnership interests are accounted for in accordance with the equity method of accounting (“EMA”).

Short-term investments, including money market funds, commercial paper and other short-term investments, are carried at fair value. Policy loans are carried at unpaid principal balances. Other investments consist of derivatives. Derivatives are carried at fair value.

Investment income primarily consists of interest, dividends, income from certain derivative transactions and income from limited partnership interests. Interest is recognized on an accrual basis using the effective yield method and dividends are recorded at the ex-dividend date. Interest income for RMBS, CMBS and ABS is determined considering estimated pay-downs, including prepayments, obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated

when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For RMBS, CMBS and ABS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is recalculated on a prospective basis. Accrual of income is suspended for other-than-temporarily impaired fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable. 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 investments on nonaccrual status are generally recorded as a reduction of carrying value. Income from cost method limited partnership interests is recognized upon receipt of amounts distributed by the partnerships. Income from EMA limited partnership interests is recognized based on the Company’s share of the partnerships’ net income, including unrealized gains and losses, and is recognized on a delay due to the availability of the related financial statements. Income recognition on private equity/debt funds and real estate funds is generally on a three month delay and income recognition on other funds is generally on a one month delay.

Realized capital gains and losses include gains and losses on investment sales, write-downs in value due to other-than-temporary declines in fair value, adjustments to valuation allowances on mortgage loans, periodic changes in fair value and settlements of certain derivatives including hedge ineffectiveness. Realized capital gains and losses on investment sales are determined on a specific identification basis.

Derivative and embedded derivative financial instruments

Derivative financial instruments include interest rate caps, foreign currency forwards and a reinvestment related risk transfer reinsurance agreement with ALIC that meets the accounting definition of a derivative (see Note 4). Derivatives required to be separated from the host instrument and accounted for as derivative financial instruments (“subject to bifurcation”) are embedded in certain fixed income securities, equity-indexed life contracts and reinsured variable annuity contracts.

All derivatives are accounted for on a fair value basis and reported as other investments, other assets or contractholder funds. The income statement effects of derivatives, including fair value gains and losses and accrued periodic settlements, are reported in realized capital gains and losses. Embedded derivative instruments subject to bifurcation are also accounted for on a fair value basis and are reported together with the host contract. The change in fair value of derivatives embedded in certain fixed income securities and subject to bifurcation is reported in realized capital gains and losses. The change in fair value of derivatives embedded in life and annuity product contracts and subject to bifurcation is reported in contract benefits or interest credited to contractholder funds. Cash flows from embedded derivatives subject to bifurcation are reported consistently with the host contracts within the Statements of Cash Flows. Cash flows from other derivatives are reported in cash flows from investing activities within the Statements of Cash Flows.

Securities loaned

The Company’s business activities include securities lending transactions, which are used primarily to generate net investment income. The proceeds received in conjunction with securities lending transactions are reinvested in short-term investments. These transactions are short-term in nature, usually 30 days or less.

The Company receives cash collateral for securities loaned in an amount generally equal to 102% of the fair value of securities and records the related obligations to return the collateral in other liabilities and accrued expenses. The carrying value of these obligations approximates fair value because of their relatively short-term nature. The Company monitors the market value of securities loaned on a daily basis and obtains additional collateral as necessary under the terms of the agreements to mitigate counterparty credit risk. The Company maintains the right and ability to repossess the securities loaned on short notice.

Recognition of premium revenues and contract charges, and related benefits and interest credited

Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Voluntary accident and health insurance products are expected to remain in force for an extended period. Premiums from these products are recognized as revenue when due from policyholders. Benefits are reflected in contract benefits and recognized in relation to premiums, so that profits are recognized over the life of the policy.

Immediate annuities with life contingencies, including certain structured settlement annuities, provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. Profits from these policies come from investment income, which is recognized over the life of the contract.

Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder, interest credited to the contractholder account balance and contract charges assessed against the contractholder account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the contract prior to contractually specified dates. These contract charges are recognized as revenue when assessed against the contractholder account balance. Contract benefits include life-contingent benefit payments in excess of the contractholder account balance.

Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as contractholder fund deposits. Contract charges for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the contractholder account balance.

Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed life contracts are generally based on an equity index, such as the Standard & Poor’s (“S&P”) 500 Index. Interest credited also includes amortization of DSI expenses. DSI is amortized into interest credited using the same method used to amortize DAC.

Contract charges for variable life and variable annuity products consist of fees assessed against the contractholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Contract benefits incurred for variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. All of the Company’s variable annuity business is ceded through reinsurance agreements and the contract charges and contract benefits related thereto are reported net of reinsurance ceded.

Deferred policy acquisition and sales inducement costs

Costs that are related directly to the successful acquisition of new or renewal life insurance and investment contracts are deferred and recorded as DAC. These costs are principally agents’ and brokers’ remuneration and certain underwriting expenses. DSI costs, which are deferred and recorded as other assets, relate to sales inducements offered on sales to new customers, principally on fixed annuity and interest-sensitive life contracts. These sales inducements are primarily in the form of additional credits to the customer’s account balance or

enhancements to interest credited for a specified period which are in excess of the rates currently being credited to similar contracts without sales inducements. All other acquisition costs are expensed as incurred and included in operating costs and expenses. Amortization of DAC is included in amortization of deferred policy acquisition costs and is described in more detail below. DSI is amortized into income using the same methodology and assumptions as DAC and is included in interest credited to contractholder funds.

For traditional life insurance, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued and are generally not revised during the life of the policy. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies. The Company periodically reviews the recoverability of DAC for these policies on an aggregate basis using actual experience. The Company aggregates all traditional life insurance products and immediate annuities with life contingencies in the analysis. If actual experience is significantly adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required.

For interest-sensitive life, fixed annuities and other investment contracts, DAC and DSI are amortized in proportion to the incidence of the total present value of gross profits, which includes both actual historical gross profits (“AGP”) and estimated future gross profits (“EGP”) expected to be earned over the estimated lives of the contracts. The amortization is net of interest on the prior period DAC balance using rates established at the inception of the contracts. Actual amortization periods generally range from 15-30 years; however, incorporating estimates of the rate of customer surrenders, partial withdrawals and deaths generally results in the majority of the DAC being amortized during the surrender charge period, which is typically 10-20 years for interest-sensitive life and 5-10 years for fixed annuities. The cumulative DAC and DSI amortization is reestimated and adjusted by a cumulative charge or credit to income when there is a difference between the incidence of actual versus expected gross profits in a reporting period or when there is a change in total EGP. When DAC or DSI amortization or a component of gross profits for a quarterly period is potentially negative (which would result in an increase of the DAC or DSI balance) as a result of negative AGP, the specific facts and circumstances surrounding the potential negative amortization are considered to determine whether it is appropriate for recognition in the financial statements. Negative amortization is only recorded when the increased DAC or DSI balance is determined to be recoverable based on facts and circumstances. Recapitalization of DAC and DSI is limited to the originally deferred costs plus interest.

AGP and EGP primarily consist of the following components: contract charges for the cost of insurance less mortality costs and other benefits; investment income and realized capital gains and losses less interest credited; and surrender and other contract charges less maintenance expenses. The principal assumptions for determining the amount of EGP are persistency, mortality, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. For products whose supporting investments are exposed to capital losses in excess of the Company’s expectations which may cause periodic AGP to become temporarily negative, EGP and AGP utilized in DAC and DSI amortization may be modified to exclude the excess capital losses.

The Company performs quarterly reviews of DAC and DSI recoverability for interest-sensitive life, fixed annuities and other investment contracts in the aggregate using current assumptions. If a change in the amount of EGP is significant, it could result in the unamortized DAC or DSI not being recoverable, resulting in a charge which is included as a component of amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.

The DAC and DSI balances presented include adjustments to reflect the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized capital gains or losses in the respective product investment portfolios were actually realized. The adjustments are recorded net of tax in accumulated other comprehensive income. DAC, DSI and deferred income taxes determined on unrealized capital gains and losses and reported in accumulated other comprehensive income recognize the impact on shareholder’s equity consistently with the amounts that would be recognized in the income statement on realized capital gains and losses.

Customers of the Company may exchange one insurance policy or investment contract for another offered by the Company, or make modifications to an existing investment or life contract issued by the Company. These transactions are identified as internal replacements for accounting purposes. Internal replacement transactions determined to result in replacement contracts that are substantially unchanged from the replaced contracts are accounted for as continuations of the replaced contracts. Unamortized DAC and DSI related to the replaced contracts continue to be deferred and amortized in connection with the replacement contracts. For interest-sensitive life and investment contracts, the EGP of the replacement contracts are treated as a revision to the EGP of the replaced contracts in the determination of amortization of DAC and DSI. For traditional life insurance policies, any changes to unamortized DAC that result from replacement contracts are treated as prospective revisions. Any costs associated with the issuance of replacement contracts are characterized as maintenance costs and expensed as incurred. Internal replacement transactions determined to result in a substantial change to the replaced contracts are accounted for as an extinguishment of the replaced contracts, and any unamortized DAC and DSI related to the replaced contracts are eliminated with a corresponding charge to amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.

Reinsurance

In the normal course of business, the Company seeks to limit aggregate and single exposure to losses on large risks by purchasing reinsurance. The Company has also used reinsurance to effect the disposition of certain blocks of business. The amounts reported as reinsurance recoverables include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities and contractholder funds that have not yet been paid. Reinsurance recoverables on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverables. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers and establishes allowances for uncollectible reinsurance as appropriate.

The Company has a reinsurance treaty with ALIC through which it primarily cedes reinvestment related risk on its structured settlement annuities. The terms of the treaty meet the accounting definition of a derivative. Accordingly, the treaty is recorded in the Statement of Financial Position at fair value. Changes in the fair value of the treaty and premiums paid to ALIC are recognized in realized capital gains and losses.

Income taxes

The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses, differences in tax bases of invested assets, DAC and insurance reserves. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized.

Reserve for life-contingent contract benefits

The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance, life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. The assumptions are established at the time the policy is issued and are generally not changed during the life of the policy. The Company periodically reviews the adequacy of reserves for these policies on an aggregate basis using actual experience. If actual experience is significantly adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required. To the extent that unrealized gains on fixed income securities would result in a premium deficiency if those gains were realized, the related increase in reserves for certain immediate annuities with life contingencies is recorded net of tax as a reduction of unrealized net capital gains included in accumulated other comprehensive income.

Contractholder funds

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Contractholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on reinsured variable annuity contracts.

Separate accounts

Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders’ claims to the related assets and are carried at an amount equal to the separate accounts assets. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and therefore are not included in the Company’s Statements of Operations and Comprehensive Income. Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows.

Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives. All of the Company’s variable annuity business was reinsured beginning in 2006.

Off-balance sheet financial instruments

Commitments to invest, commitments to extend mortgage loans and financial guarantees have off-balance sheet risk because their contractual amounts are not recorded in the Company’s Statements of Financial Position (see Note 7 and Note 11).

3.	Supplemental Cash Flow Information

Non-cash modifications of certain mortgage loans and fixed income securities totaled $22 thousand, $5.0 million and $12.0 million in 2014, 2013 and 2012, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program were $101.1 million, $62.6 million and $59.8 million as of December 31, 2014, 2013, and 2012, respectively, and are reported in other liabilities and accrued expenses. The accompanying cash flows are included in cash flows from operating activities in the Statements of Cash Flows along with the activities resulting from management of the proceeds, which for the years ended December 31 are as follows:


($ in thousands)	2014			2013			2012
Net change in proceeds managed
Net change in short-term investments	$	(38,485	)	$	(2,838	)	$	1,325

Operating cash flow (used) provided	$	(38,485	)	$	(2,838	)	$	1,325

Net change in liabilities
Liabilities for collateral, beginning of year	$	(62,610	)	$	(59,772	)	$	(61,097	)
Liabilities for collateral, end of year		(101,095	)		(62,610	)		(59,772	)

Operating cash flow provided (used)	$	38,485		$	2,838		$	(1,325	)

4.	Related Party Transactions

Business operations

The Company uses services performed by its affiliates, AIC, ALIC and Allstate Investments LLC, and business facilities owned or leased and operated by AIC in conducting its business activities. In addition, the Company shares the services of employees with AIC. The Company reimburses its affiliates for the operating expenses incurred on behalf of the Company. The Company is charged for the cost of these operating expenses based on the level of services provided. Operating expenses, including compensation, retirement and other benefit programs (see Note 14), allocated to the Company were $44.1 million, $54.2 million and $51.4 million in 2014, 2013 and 2012, respectively. A portion of these expenses relate to the acquisition of business, which are deferred and amortized into income as described in Note 2.

Structured settlement annuities

The Company issued $0.9 million and $5.9 million of structured settlement annuities, a type of immediate annuity, in 2013 and 2012, respectively, at prices determined using interest rates in effect at the time of purchase, to fund structured settlements in matters involving AIC. Of these amounts, $89 thousand related to structured settlement annuities with life contingencies and are included in premium revenue for 2012. The Company had no amounts related to structured settlement annuities with life contingencies that were included in premium revenue for 2013. Effective March 22, 2013, the Company no longer offers structured settlement annuities.

In most cases, these annuities were issued under a “qualified assignment” whereby Allstate Assignment Corporation (“AAC”) and prior to July 1, 2001 Allstate Settlement Corporation (“ASC”), both wholly owned subsidiaries of ALIC, purchased annuities from the Company and assumed AIC’s obligation to make future payments.

AIC issued surety bonds to guarantee the payment of structured settlement benefits assumed by ASC (from both AIC and non-related parties) and funded by certain annuity contracts issued by the Company through June 30, 2001. ASC entered into a General Indemnity Agreement pursuant to which it indemnified AIC for any liabilities associated with the surety bonds and gave AIC certain collateral security rights with respect to the annuities and certain other rights in the event of any defaults covered by the surety bonds. ALIC guaranteed the payment of structured settlement benefits on all contracts issued on or after July 1, 2001. Reserves recorded by the Company for annuities that are guaranteed by ALIC or the surety bonds of AIC were $2.06 billion and $2.08 billion as of December 31, 2014 and 2013, respectively.

Broker-Dealer agreements

The Company receives distribution services from Allstate Financial Services, LLC, an affiliated broker-dealer company, for certain annuity and variable life insurance contracts sold by Allstate exclusive agencies. For these services, the Company incurred commission and other distribution expenses of $166 thousand, $246 thousand and $316 thousand in 2014, 2013 and 2012, respectively.

The Company has a service agreement with Allstate Distributors, LLC (“ADLLC”), a broker-dealer company owned by ALIC, whereby ADLLC promotes and markets products sold by the Company. In return for these services, the Company recorded expense of $7 thousand, $14 thousand and $27 thousand in 2014, 2013 and 2012, respectively.

Reinsurance

The Company has reinsurance agreements with ALIC whereby a portion of the Company’s premiums and policy benefits are ceded to ALIC (see Note 9).

The Company has a reinsurance treaty through which it primarily cedes reinvestment related risk on its structured settlement annuities to ALIC. Under the terms of the treaty, the Company pays a premium to ALIC that varies with the aggregate structured settlement annuity statutory reserve balance. In return, ALIC guarantees that the yield on the portion of the Company’s investment portfolio that supports structured settlement annuity liabilities will not fall below contractually determined rates. The Company ceded premium related to structured settlement annuities to ALIC of $3.4 million in 2014 and $3.5 million in each of 2013 and 2012. As of December 31, 2014 and 2013, the carrying value of the structured settlement reinsurance treaty was $84.6 million and $27.8 million, respectively, which is recorded in other assets. The premiums ceded and changes in the fair value of the reinsurance treaty are reflected as a component of realized capital gains and losses as the treaty is recorded as a derivative instrument.

Income taxes

The Company is a party to a federal income tax allocation agreement with the Corporation (see Note 12).

Intercompany loan agreement

The Company 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 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. The Company had no amounts outstanding under the intercompany loan agreement as of December 31, 2014 or 2013.

Notes receivable-investment sales

In 2009, the Company entered into an asset purchase agreement with Road Bay Investments, LLC (“RBI”), a subsidiary of ALIC, which allows RBI to purchase from the Company mortgage loans or participations in mortgage loans with an aggregate fair value of up to $50 million. As consideration for the purchase of the assets, RBI issues notes to the Company. As security for the performance of RBI’s obligations under the agreement and notes, RBI granted a pledge of and security interest in RBI’s right, title and interest in the mortgage loans and their proceeds. The Company had no balance due on notes from RBI as of December 31, 2014 or 2013.

In March 2011, the Company sold to RBI mortgage loans with a fair value of $2.8 million on the date of sale and RBI issued the Company a 5.80% note due March 9, 2018 for the same amount. In May 2013, RBI

repaid the entire principal of this note. In March 2010, the Company sold to RBI mortgage loans with a fair value of $13.7 million on the date of sale and RBI issued the Company a 7.00% note due March 26, 2017 for the same amount. In 2012, 2011 and 2010, RBI repaid $2.8 million and $1.1 million and $9.8 million, respectively, of this note. In 2013 and 2012, the Company recorded net investment income on the notes due from RBI of $65 thousand and $220 thousand, respectively.

5.	Investments

Fair values

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


($ in thousands)	Amortized cost		Gross unrealized					Fair value
($ in thousands)	Amortized cost		Gains		Losses			Fair value

December 31, 2014
U.S. government and agencies	$	229,639	$	50,328	$	—		$	279,967
Municipal		661,021		122,046		(110	)		782,957
Corporate		3,424,181		307,887		(19,074	)		3,712,994
Foreign government		338,199		58,652		(175	)		396,676
RMBS		94,130		4,217		(22	)		98,325
CMBS		129,490		5,402		—			134,892
ABS		73,922		1,153		(475	)		74,600
Redeemable preferred stock		8,959		1,677		—			10,636

Total fixed income securities	$	4,959,541	$	551,362	$	(19,856	)	$	5,491,047

December 31, 2013
U.S. government and agencies	$	237,510	$	57,321	$	—		$	294,831
Municipal		677,780		58,068		(9,864	)		725,984
Corporate		3,572,713		236,627		(43,751	)		3,765,589
Foreign government		320,327		62,266		(977	)		381,616
RMBS		154,242		5,817		(140	)		159,919
CMBS		166,927		9,091		(38	)		175,980
ABS		87,176		2,260		(929	)		88,507
Redeemable preferred stock		9,026		1,286		—			10,312

Total fixed income securities	$	5,225,701	$	432,736	$	(55,699	)	$	5,602,738

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of December 31, 2014:


($ in thousands)	Amortized cost		Fair value
Due in one year or less	$	267,448	$	270,688
Due after one year through five years		1,319,253		1,458,028
Due after five years through ten years		1,743,228		1,849,584
Due after ten years		1,332,070		1,604,930

		4,661,999		5,183,230
RMBS, CMBS and ABS		297,542		307,817

Total	$	4,959,541	$	5,491,047

Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. RMBS, CMBS and ABS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income

Net investment income for the years ended December 31 is as follows:


($ in thousands)	2014			2013			2012
Fixed income securities	$	276,035		$	289,571		$	305,849
Mortgage loans		26,994			31,375			32,882
Equity securities		3,975			4,870			3,589
Limited partnership interests		22,824			8,862			13,316
Short-term investments		250			210			355
Policy loans		2,516			2,543			2,600
Other		—			65			220

Investment income, before expense		332,594			337,496			358,811
Investment expense		(9,769	)		(12,379	)		(12,616	)

Net investment income	$	322,825		$	325,117		$	346,195

Realized capital gains and losses

Realized capital gains and losses by asset type for the years ended December 31 are as follows:


($ in thousands)	2014			2013			2012
Fixed income securities	$	1,759		$	(1,537	)	$	2,545
Mortgage loans		1,110			(1,507	)		1,452
Equity securities		62,821			27,944			—
Limited partnership interests		(239	)		(40	)		(221	)
Derivatives		52,724			(9,949	)		13,967
Short-term investments		119			—			—

Realized capital gains and losses	$	118,294		$	14,911		$	17,743

Realized capital gains and losses by transaction type for the years ended December 31 are as follows:


($ in thousands)	2014			2013			2012
Impairment write-downs	$	1,153		$	(3,431	)	$	(5,144	)
Change in intent write-downs		(499	)		(5,515	)		(310	)

Net other-than-temporary impairment losses recognized in earnings		654			(8,946	)		(5,454	)
Sales		64,916			33,806			9,230
Valuation and settlements of derivative instruments		52,724			(9,949	)		13,967

Realized capital gains and losses	$	118,294		$	14,911		$	17,743

Gross gains of $65.7 million, $36.0 million and $24.8 million and gross losses of $636 thousand, $2.5 million and $16.1 million were realized on sales of fixed income and equity securities during 2014, 2013 and 2012, respectively.

Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:


	2014								2013								2012
($ in thousands)	Gross			Included in OCI		Net			Gross			Included in OCI		Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	(499	)	$	—	$	(499	)	$	(1,727	)	$	—	$	(1,727	)	$	—		$	—		$	—
Corporate		—			—		—			—			—		—			(2,301	)		(476	)		(2,777	)
RMBS		43			—		43			28			—		28			(531	)		(360	)		(891	)
CMBS		—			—		—			(8,392	)		3,464		(4,928	)		—			(2,423	)		(2,423	)

Total fixed income securities		(456	)		—		(456	)		(10,091	)		3,464		(6,627	)		(2,832	)		(3,259	)		(6,091	)
Mortgage loans		1,110			—		1,110			(1,832	)		—		(1,832	)		637			—			637
Equity securities		—			—		—			(487	)		—		(487	)		—			—			—

Other-than-temporary impairment losses	$	654		$	—	$	654		$	(12,410	)	$	3,464	$	(8,946	)	$	(2,195	)	$	(3,259	)	$	(5,454	)

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, were $40 thousand and $41 thousand as of December 31, 2014 and 2013, respectively, and all related to RMBS. The amount excludes $633 thousand and $299 thousand as of December 31, 2014 and 2013, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:


($ in thousands)	2014			2013			2012
Beginning balance	$	(696	)	$	(1,685	)	$	(11,503	)
Additional credit loss for securities previously other-than-temporarily impaired		(71	)		29			(4,796	)
Additional credit loss for securities not previously other-than-temporarily impaired		—			(1,628	)		(985	)
Reduction in credit loss for securities disposed or collected		181			960			15,599
Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell		—			1,628			—
Change in credit loss due to accretion of increase in cash flows		18			—			—

Ending balance	$	(568	)	$	(696	)	$	(1,685	)

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:


	Fair value		Gross unrealized					Unrealized net gains (losses)
($ in thousands)	Fair value		Gains		Losses			Unrealized net gains (losses)
December 31, 2014
Fixed income securities	$	5,491,047	$	551,362	$	(19,856	)	$	531,506
Equity securities		206,122		2,047		(1,474	)		573
Short-term investments		138,372		2		(1	)		1
EMA limited partnerships⁽¹⁾									—

Unrealized net capital gains and losses, pre-tax									532,080
Amounts recognized for:
Insurance reserves⁽²⁾									(257,252	)
DAC and DSI⁽³⁾									(12,853	)

Amounts recognized									(270,105	)
Deferred income taxes									(91,691	)

Unrealized net capital gains and losses, after-tax								$	170,284

⁽¹⁾	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 unrealized gains and losses are not applicable.

⁽²⁾

The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at 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 certain payout annuities with life contingencies.

⁽³⁾	The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.


	Fair value		Gross unrealized					Unrealized net gains (losses)
	Fair value		Gains		Losses			Unrealized net gains (losses)
December 31, 2013
Fixed income securities	$	5,602,738	$	432,736	$	(55,699	)	$	377,037
Equity securities		202,622		38,978		(5	)		38,973
Short-term investments		98,553		1		(1	)		—
EMA limited partnerships									—

Unrealized net capital gains and losses, pre-tax									416,010
Amounts recognized for:
Insurance reserves									(168,267	)
DAC and DSI									(13,911	)

Amounts recognized									(182,178	)
Deferred income taxes									(81,841	)

Unrealized net capital gains and losses, after-tax								$	151,991

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the years ended December 31 is as follows:


($ in thousands)	2014			2013			2012
Fixed income securities	$	154,469		$	(351,008	)	$	163,066
Equity securities		(38,400	)		7,735			10,861
Short-term investments		1			(1	)		4
EMA limited partnerships		—			(127	)		97

Total		116,070			(343,401	)		174,028
Amounts recognized for:
Insurance reserves		(88,985	)		192,620			(90,058	)
DAC and DSI		1,058			10,295			(9,162	)

Amounts recognized		(87,927	)		202,915			(99,220	)
Deferred income taxes		(9,850	)		49,170			(26,182	)

Increase (decrease) in unrealized net capital gains and losses, after-tax	$	18,293		$	(91,316	)	$	48,626

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 fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.

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.


	Less than 12 months							12 months or more							Total unrealized losses
($ in thousands)	Number of issues		Fair value		Unrealized losses			Number of issues		Fair value		Unrealized losses			Total unrealized losses
December 31, 2014
Fixed income securities
Municipal		—	$	—	$	—			2	$	6,293	$	(110	)	$	(110	)
Corporate		126		318,039		(9,488	)		45		181,573		(9,586	)		(19,074	)
Foreign government		—		—		—			1		9,782		(175	)		(175	)
RMBS		5		358		—			2		2,804		(22	)		(22	)
CMBS		1		113		—			—		—		—			—
ABS		—		—		—			1		9,525		(475	)		(475	)

Total fixed income securities		132		318,510		(9,488	)		51		209,977		(10,368	)		(19,856	)
Equity securities		278		83,548		(1,474	)		—		—		—			(1,474	)

Total fixed income and equity securities		410	$	402,058	$	(10,962	)		51	$	209,977	$	(10,368	)	$	(21,330	)

Investment grade fixed income securities		50	$	215,548	$	(4,173	)		32	$	167,719	$	(5,222	)	$	(9,395	)
Below investment grade fixed income securities		82		102,962		(5,315	)		19		42,258		(5,146	)		(10,461	)

Total fixed income securities		132	$	318,510	$	(9,488	)		51	$	209,977	$	(10,368	)	$	(19,856	)


	Less than 12 months							12 months or more							Total unrealized losses
($ in thousands)	Number of issues		Fair value		Unrealized losses			Number of issues		Fair value		Unrealized losses			Total unrealized losses
December 31, 2013
Fixed income securities
Municipal		15	$	74,713	$	(5,180	)		1	$	14,663	$	(4,684	)	$	(9,864	)
Corporate		209		805,236		(35,258	)		16		72,904		(8,493	)		(43,751	)
Foreign government		—		—		—			1		8,976		(977	)		(977	)
RMBS		—		—		—			5		15,742		(140	)		(140	)
CMBS		3		5,533		(38	)		—		—		—			(38	)
ABS		1		5,076		(4	)		1		9,075		(925	)		(929	)

Total fixed income securities		228		890,558		(40,480	)		24		121,360		(15,219	)		(55,699	)
Equity securities		5		637		(5	)		—		—		—			(5	)

Total fixed income and equity securities		233	$	891,195	$	(40,485	)		24	$	121,360	$	(15,219	)	$	(55,704	)

Investment grade fixed income securities		175	$	851,728	$	(37,398	)		10	$	66,380	$	(9,785	)	$	(47,183	)
Below investment grade fixed income securities		53		38,830		(3,082	)		14		54,980		(5,434	)		(8,516	)

Total fixed income securities		228	$	890,558	$	(40,480	)		24	$	121,360	$	(15,219	)	$	(55,699	)

As of December 31, 2014, $19.7 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 $19.7 million, $9.4 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 S&P, Fitch, Dominion, Kroll 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 increasing risk-free interest rates or widening credit spreads since the time of initial purchase. As of December 31, 2014, the remaining $1.7 million of unrealized losses are related to below investment grade fixed income securities in unrealized loss positions greater than or equal to 20% of amortized cost.

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 underlying credit quality of the primary obligor, obligation type and quality of the underlying assets. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of December 31, 2014, 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 December 31, 2014, 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 December 31, 2014 and 2013, the carrying value of equity method limited partnerships totaled $160.4 million and $75.1 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.

As of December 31, 2014 and 2013, the carrying value for cost method limited partnerships was $52.5 million and $41.4 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.

Mortgage loans

The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located across the United States and totaled, net of valuation allowance, $493.8 million and $514.5 million as of December 31, 2014 and 2013, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower. The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.


(% of mortgage loan portfolio carrying value)	2014			2013
California		24.6	%		25.6	%
Illinois		11.2			13.0
New Jersey		10.2			8.8
Arizona		5.5			5.3
Florida		5.2			4.5
Texas		4.7			5.5

The types of properties collateralizing the mortgage loans as of December 31 are as follows:


(% of mortgage loan portfolio carrying value)	2014			2013
Warehouse		24.7	%		26.6	%
Retail		24.0			23.3
Office buildings		21.2			20.2
Apartment complex		19.6			20.1
Other		10.5			9.8

Total		100.0	%		100.0	%

The contractual maturities of the mortgage loan portfolio as of December 31, 2014 are as follows:


($ in thousands)	Number of loans		Carrying value		Percent
2015		10	$	44,270		9.0	%
2016		9		40,044		8.1
2017		8		42,092		8.5
2018		9		46,237		9.4
Thereafter		57		321,149		65.0

Total		93	$	493,792		100.0	%

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. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell. Mortgage loans are charged off against their corresponding valuation allowances 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 December 31, 2014.

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 mortgage loans summarized by debt service coverage ratio distribution as of December 31. There were no variable rate mortgage loans as of December 31, 2014 or 2013.


($ in thousands)	2014		2013
Debt service coverage ratio distribution
Below 1.0	$	17,081	$	25,086
1.0 - 1.25		71,801		68,687
1.26 - 1.50		125,877		155,452
Above 1.50		279,033		253,039

Total non-impaired mortgage loans	$	493,792	$	502,264

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.

There were no impaired mortgage loans as of December 31, 2014. There were $12.2 million of impaired mortgage loans with a valuation allowance of $1.8 million as of December 31, 2013. The average balance of impaired loans was $2.4 million, $7.6 million and $1.2 million during 2014, 2013 and 2012, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:


($ in thousands)	2014			2013		2012
Beginning balance	$	1,832		$	—	$	637
Net (decrease) increase in valuation allowance		(1,110	)		1,832		(637	)
Charge offs		(722	)		—		—

Ending balance	$	—		$	1,832	$	—

Payments on all mortgage loans were current as of December 31, 2014 and 2013.

Municipal bonds

The Company maintains a diversified portfolio of municipal bonds. The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31. No other state represents more than 5% of the portfolio.


(% of municipal bond portfolio carrying value)	2014			2013
California		24.2	%		22.9	%
Texas		11.4			11.1
Illinois		6.2			5.9
Oregon		5.5			5.2

Concentration of credit risk

As of December 31, 2014, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholder’s equity.

Securities loaned

The Company’s business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2014 and 2013, fixed income securities with a carrying value of $98.0 million and $60.7 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was zero in 2014, 2013 and 2012.

Other investment information

Included in fixed income securities are below investment grade assets totaling $300.3 million and $285.7 million as of December 31, 2014 and 2013, respectively.

As of December 31, 2014, fixed income securities and short-term investments with a carrying value of $2.6 million were on deposit with regulatory authorities as required by law.

As of December 31, 2014, there were no fixed income securities that were non-income producing.

6.	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 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 that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and 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 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.

The second situation where the Company classifies securities in Level 3 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.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests 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 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 certain U.S. Treasury fixed income securities. 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 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 foreign exchange forward contracts, are valued using models that rely on inputs such as currency rates 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: Comprise 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. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Also includes auction rate securities (“ARS”) primarily backed by student loans that have become illiquid due to failures in the auction market and 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 the anticipated date liquidity will return to the market.

Corporate, including privately placed: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.

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.

•

Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

•

Other investments: Certain over-the-counter (“OTC”) derivatives, such as interest rate caps, 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.

•

Other assets: Includes a structured settlement annuity reinsurance agreement accounted for as a derivative instrument that is valued internally. The model primarily uses stochastically determined cash flows, ultimate reinvestment spreads and applicable market data, such as interest rate and volatility assumptions. This item is categorized as Level 3 as a result of the significance of non-market observable inputs.

•

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 basis as of December 31, 2014. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2014.


($ in thousands)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Balance as of December 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	3,642		$	276,325		$	—		$	279,967
Municipal		—			740,535			42,422			782,957
Corporate		—			3,460,429			252,565			3,712,994
Foreign government		—			396,676			—			396,676
RMBS		—			98,325			—			98,325
CMBS		—			134,892			—			134,892
ABS		—			49,255			25,345			74,600
Redeemable preferred stock		—			10,636			—			10,636

Total fixed income securities		3,642			5,167,073			320,332			5,491,047
Equity securities		200,575			547			5,000			206,122
Short-term investments		2,003			136,369			—			138,372
Other investments: Free-standing derivatives		—			46			554			600
Separate account assets		383,263			—			—			383,263
Other assets		—			—			84,561			84,561

Total assets at fair value	$	589,483		$	5,304,035		$	410,447		$	6,303,965

% of total assets at fair value		9.4	%		84.1	%		6.5	%		100.0	%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(7,391	)	$	(7,391	)

Total liabilities at fair value	$	—		$	—		$	(7,391	)	$	(7,391	)

% of total liabilities at fair value		—	%		—	%		100.0	%		100.0	%

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2013.


($ in thousands)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Balance as of December 31, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	3,678		$	291,153		$	—		$	294,831
Municipal		—			674,669			51,315			725,984
Corporate		—			3,506,161			259,428			3,765,589
Foreign government		—			381,616			—			381,616
RMBS		—			159,919			—			159,919
CMBS		—			175,980			—			175,980
ABS		—			63,708			24,799			88,507
Redeemable preferred stock		—			10,312			—			10,312

Total fixed income securities		3,678			5,263,518			335,542			5,602,738
Equity securities		202,622			—			—			202,622
Short-term investments		3,157			95,396			—			98,553
Other investments: Free-standing derivatives		—			—			1,076			1,076
Separate account assets		435,446			—			—			435,446
Other assets		—			—			27,826			27,826

Total assets at fair value	$	644,903		$	5,358,914		$	364,444		$	6,368,261

% of total assets at fair value		10.1	%		84.2	%		5.7	%		100.0	%
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(9,197	)	$	(9,197	)

Total liabilities at fair value	$	—		$	—		$	(9,197	)	$	(9,197	)

% of total liabilities at fair value		—	%		—	%		100.0	%		100.0	%

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.

($ in thousands)

Fair
value

Valuation
technique

Unobservable
input

Range

Weighted
average

December 31, 2014

Other assets – Structured settlement annuity reinsurance agreement

84,561

Stochastic cash
flow model

Ultimate
reinvestment
spreads

130.9 - 198.4
basis points

155.6 basis
points

December 31, 2013

ARS backed by student loans

19,149

Discounted cash
flow model

Anticipated date
liquidity will
return to the
market

36 - 54 months

39 - 51 months

Other assets – Structured settlement annuity reinsurance agreement

27,826

Stochastic cash
flow model

Ultimate
reinvestment
spreads

133.9 - 198.4
basis points

157.5 basis
points

If the ultimate reinvestment spreads increased (decreased), it would result in a lower (higher) fair value. If the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value.

As of December 31, 2014 and 2013, Level 3 fair value measurements include $290.9 million and $308.9 million 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 presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2014.


($ in thousands)	Balance as of December 31, 2013			Total gains (losses) included in:						Transfers into Level 3			Transfers out of Level 3
($ in thousands)	Balance as of December 31, 2013			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	51,315		$	(360	)	$	2,874		$	—		$	(4,940	)
Corporate		259,428			7,257			(741	)		40,734			(34,409	)
ABS		24,799			—			546			—			—

Total fixed income securities		335,542			6,897			2,679			40,734			(39,349	)
Equity securities		—			—			—			—			—
Free-standing derivatives, net		1,076			(533	)		—			—			—
Other assets		27,826			56,735			—			—			—

Total recurring Level 3 assets	$	364,444		$	63,099		$	2,679		$	40,734		$	(39,349	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(9,197	)	$	1,806		$	—		$	—		$	—

Total recurring Level 3 liabilities	$	(9,197	)	$	1,806		$	—		$	—		$	—


	Purchases			Sales			Issues			Settlements			Balance as of December 31, 2014
Assets
Fixed income securities:
Municipal	$	—		$	(4,559	)	$	—		$	(1,908	)	$	42,422
Corporate		1,500			(7,396	)		—			(13,808	)		252,565
ABS		—			—			—			—			25,345

Total fixed income securities		1,500			(11,955	)		—			(15,716	)		320,332
Equity securities		5,000			—			—			—			5,000
Free-standing derivatives, net		73			—			—			(62	)		554
Other assets		—			—			—			—			84,561

Total recurring Level 3 assets	$	6,573		$	(11,955	)	$	—		$	(15,778	)	$	410,447

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	—		$	(7,391	)

Total recurring Level 3 liabilities	$	—		$	—		$	—		$	—		$	(7,391	)

⁽¹⁾

The effect to net income totals $64.9 million and is reported in the Statements of Operations and Comprehensive Income as follows: $55.9 million in realized capital gains and losses, $7.2 million in net investment income, $(151) thousand in interest credited to contractholder funds and $2.0 million in contract benefits.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2013.


				Total gains (losses) included in:
($ in thousands)	Balance as of December 31, 2012			Net income⁽¹⁾			OCI			Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	67,672		$	(1,960	)	$	2,614		$	—	$	—
Corporate		260,351			8,509			(8,214	)		9,663		(4,160	)
ABS		26,970			—			(951	)		—		—

Total fixed income securities		354,993			6,549			(6,551	)		9,663		(4,160	)
Free-standing derivatives, net		306			431			—			—		—
Other assets		34,655			(6,829	)		—			—		—

Total recurring Level 3 assets	$	389,954		$	151		$	(6,551	)	$	9,663	$	(4,160	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(17,877	)	$	8,680		$	—		$	—	$	—

Total recurring Level 3 liabilities	$	(17,877	)	$	8,680		$	—		$	—	$	—


	Purchases		Sales			Issues		Settlements			Balance as of December 31, 2013
Assets
Fixed income securities:
Municipal	$	—	$	(15,067	)	$	—	$	(1,944	)	$	51,315
Corporate		6,910		(10,615	)		—		(3,016	)		259,428
ABS		—		—			—		(1,220	)		24,799

Total fixed income securities		6,910		(25,682	)		—		(6,180	)		335,542
Free-standing derivatives, net		339		—			—		—			1,076
Other assets		—		—			—		—			27,826

Total recurring Level 3 assets	$	7,249	$	(25,682	)	$	—	$	(6,180	)	$	364,444

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—	$	—		$	—	$	—		$	(9,197	)

Total recurring Level 3 liabilities	$	—	$	—		$	—	$	—		$	(9,197	)

⁽¹⁾

The effect to net income totals $8.8 million and is reported in the Statements of Operations and Comprehensive Income as follows: $(6.6) million in realized capital gains and losses, $6.7 million in net investment income, $(297) thousand in interest credited to contractholder funds and $9.0 million in contract benefits.

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


				Total gains (losses) included in:
($ in thousands)	Balance as of December 31, 2011			Net income⁽¹⁾			OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	50,422		$	50		$	3,082	$	18,576	$	—
Corporate		223,643			3,854			11,224		52,629		—
RMBS		2,730			—			—		—		(2,730	)
ABS		26,425			—			3,668		—		—

Total fixed income securities		303,220			3,904			17,974		71,205		(2,730	)
Free-standing derivatives, net		(2,867	)		(296	)		—		—		—
Other assets		16,869			17,786			—		—		—

Total recurring Level 3 assets	$	317,222		$	21,394		$	17,974	$	71,205	$	(2,730	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(21,854	)	$	3,977		$	—	$	—	$	—

Total recurring Level 3 liabilities	$	(21,854	)	$	3,977		$	—	$	—	$	—


	Purchases		Sales			Issues		Settlements			Balance as of December 31, 2012
Assets
Fixed income securities:
Municipal	$	—	$	(2,251	)	$	—	$	(2,207	)	$	67,672
Corporate		18,029		(18,812	)		—		(30,216	)		260,351
RMBS		—		—			—		—			—
ABS		—		(1,866	)		—		(1,257	)		26,970

Total fixed income securities		18,029		(22,929	)		—		(33,680	)		354,993
Free-standing derivatives, net		3,471		—			—		(2	)		306
Other assets		—		—			—		—			34,655

Total recurring Level 3 assets	$	21,500	$	(22,929	)	$	—	$	(33,682	)	$	389,954

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—	$	—		$	—	$	—		$	(17,877	)

Total recurring Level 3 liabilities	$	—	$	—		$	—	$	—		$	(17,877	)

⁽¹⁾

The effect to net income totals $25.4 million and is reported in the Statements of Operations and Comprehensive Income as follows: $14.3 million in realized capital gains and losses, $7.1 million in net investment income, $(142) thousand in interest credited to contractholder funds and $4.1 million in contract benefits.

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 2014, 2013 or 2012.

Transfers into Level 3 during 2014, 2013 and 2012 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 had not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers out of Level 3 during 2014, 2013 and 2012 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 for Level 3 assets and liabilities held as of December 31.


($ in thousands)	2014			2013			2012
Assets
Fixed income securities:
Municipal	$	(395	)	$	(1,458	)	$	54
Corporate		7,099			6,633			4,912

Total fixed income securities		6,704			5,175			4,966
Free-standing derivatives, net		(533	)		431			(279	)
Other assets		56,735			(6,829	)		17,786

Total recurring Level 3 assets	$	62,906		$	(1,223	)	$	22,473

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	1,806		$	8,680		$	3,977

Total recurring Level 3 liabilities	$	1,806		$	8,680		$	3,977

The amounts in the table above represent the change in unrealized 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 $64.7 million in 2014 and are reported as follows: $55.7 million in realized capital gains and losses, $7.2 million in net investment income, $(151) thousand in interest credited to contractholder funds and $2.0 million in contract benefits. These gains and losses total $7.5 million in 2013 and are reported as follows: $(7.9) million in realized capital gains and losses, $6.7 million in net investment income, $(297) thousand in interest credited to contractholder funds and $9.0 million in contract benefits. These gains and losses total $26.5 million in 2012 and are reported as follows: $16.3 million in realized capital gains and losses, $6.2 million in net investment income, $(142) thousand in interest credited to contractholder funds and $4.1 million in contract benefits.

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

Financial assets


	December 31, 2014				December 31, 2013
($ in thousands)	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	493,792	$	526,433	$	514,489	$	534,241
Cost method limited partnerships		52,543		59,330		41,419		44,401

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 measurements for mortgage loans and cost method limited partnerships are categorized as Level 3.

Financial liabilities


	December 31, 2014				December 31, 2013
($ in thousands)	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	2,491,461	$	2,615,231	$	2,771,149	$	2,912,758
Liability for collateral		101,095		101,095		62,610		62,610

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 are valued at the present value of future benefits using market implied interest rates which include 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 contractholder funds on investment contracts are categorized as Level 3. The fair value measurements for liability for collateral are categorized as Level 2.

7.	Derivative Financial Instruments and Off-balance sheet 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 and foreign currency fluctuations.

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 caps 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 foreign currency forwards primarily to reduce the foreign currency risk associated with holding foreign currency denominated investments. The Company also has a reinsurance treaty that is recorded as a derivative instrument, under which it primarily cedes reinvestment related risk on its structured settlement annuities to ALIC.

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 with changes in fair value of embedded derivatives reported in net income. The Company’s primary embedded derivatives are guaranteed minimum accumulation and withdrawal benefits in reinsured variable annuity contracts; equity options in life product contracts, which provide equity returns to contractholders; 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.

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. Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Statements of Financial Position. The Company’s interest rate cap agreements and foreign currency forwards are subject to enforceable master netting agreements; however, no offset amounts were required to net the carrying values as of December 31, 2014 or 2013.

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 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 Statement of Financial Position as of December 31, 2014. None of these derivatives are designated as accounting hedging instruments.


($ in thousands)	Balance sheet location	Volume- notional amount		Fair value, net			Gross asset		Gross liability
Asset derivatives
Interest rate contracts
Interest rate cap agreements	Other investments	$	28,600	$	554		$	554	$	—
Foreign currency contracts
Foreign currency forwards	Other investments		7,001		46			46		—
Embedded derivative financial instruments
Conversion options	Fixed income securities		42		—			—		—
Other contracts
Structured settlement annuity reinsurance agreement	Other assets		—		84,561			84,561		—

Total asset derivatives		$	35,643	$	85,161		$	85,161	$	—

Liability derivatives
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	$	115,611	$	(5,966	)	$	—	$	(5,966	)
Guaranteed withdrawal benefits	Contractholder funds		25,955		(679	)		—		(679	)
Equity-indexed options in life product contracts	Contractholder funds		13,325		(746	)		—		(746	)

Total liability derivatives			154,891		(7,391	)	$	—	$	(7,391	)

Total derivatives		$	190,534	$	77,770

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Statement of Financial Position as of December 31, 2013. None of these derivatives are designated as accounting hedging instruments.


($ in thousands)	Balance sheet location	Volume- notional amount		Fair value, net			Gross asset		Gross liability
Asset derivatives
Interest rate contracts
Interest rate cap agreements	Other investments	$	40,100	$	1,076		$	1,076	$	—
Embedded derivative financial instruments
Conversion options	Fixed income securities		42		—			—		—
Other contracts
Structured settlement annuity reinsurance agreement	Other assets		—		27,826			27,826		—

Total asset derivatives		$	40,142	$	28,902		$	28,902	$	—

Liability derivatives
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds	$	136,770	$	(7,925	)	$	—	$	(7,925	)
Guaranteed withdrawal benefits	Contractholder funds		28,924		(677	)		—		(677	)
Equity-indexed options in life product contracts	Contractholder funds		9,581		(595	)		—		(595	)

Total liability derivatives			175,275		(9,197	)	$	—	$	(9,197	)

Total derivatives		$	215,417	$	19,705

The following tables present gains and losses from valuation and settlements reported on derivatives not designated as accounting hedging instruments in the Statements of Operations and Comprehensive Income for the years ended December 31.


($ in thousands)	Realized capital gains and losses			Contract benefits		Interest credited to contractholder funds			Total gain (loss) recognized in net income on derivatives
2014
Interest rate contracts	$	(533	)	$	—	$	—		$	(533	)
Foreign currency contracts		(48	)		—		—			(48	)
Embedded derivative financial instruments		—			1,957		(151	)		1,806
Other contracts-structured settlement annuity reinsurance agreement		53,305			—		—			53,305

Total	$	52,724		$	1,957	$	(151	)	$	54,530

2013
Interest rate contracts	$	431		$	—	$	—		$	431
Embedded derivative financial instruments		(83	)		8,977		(297	)		8,597
Other contracts-structured settlement annuity reinsurance agreement		(10,297	)		—		—			(10,297	)

Total	$	(9,949	)	$	8,977	$	(297	)	$	(1,269	)

2012
Interest rate contracts	$	(296	)	$	—	$	—		$	(296	)
Embedded derivative financial instruments		(13	)		4,119		(142	)		3,964
Other contracts-structured settlement annuity reinsurance agreement		14,276			—		—			14,276

Total	$	13,967		$	4,119	$	(142	)	$	17,944

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 December 31, 2014, the Company did not have any collateral pledged to or from counterparties. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance.

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 as of December 31 by counterparty credit rating as it relates to the Company’s OTC derivatives.


($ in thousands)	2014								2013
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⁾
A+		1	$	15,200	$	310	$	310		1	$	21,700	$	624	$	624
A		2		4,500		110		110		2		10,700		227		227
BBB+		1		10,901		158		158		1		2,700		156		156
BBB		1		5,000		22		22		1		5,000		69		69

Total		5	$	35,601	$	600	$	600		5	$	40,100	$	1,076	$	1,076

⁽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. T

ALLSTATE LIFE INSURANCE CO OF NEW YORK S-1