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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Note 6Derivative Financial Instruments
The Company uses derivatives for risk reduction and to increase investment portfolio returns through asset replication. Risk reduction activity is focused on managing the risks with certain assets and liabilities arising from the potential adverse impacts from
changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations.
Asset replication refers to the “synthetic” creation of assets through the use of derivatives. The Company replicates fixed income securities using a combination of a credit default swap, index total return swap, options, futures, or a foreign currency forward contract and one or more highly rated fixed income securities, primarily investment grade host bonds, to synthetically replicate the economic characteristics of one or more cash market securities. The Company replicates equity securities using futures, index total return swaps, and options to increase equity exposure.
Allstate Protection and Run-off Property-Liability segments may use interest rate swaps, swaptions, futures and options to manage the interest rate risks of existing investments. These instruments are utilized to change the duration of the portfolio in order to offset the economic effect that interest rates would otherwise have on the fair value of its fixed income securities. Fixed income index total return swaps are used to offset valuation losses in the fixed income portfolio during periods of declining market values. Credit default swaps are typically used to mitigate the credit risk within the Allstate Protection and Run-off Property-Liability fixed income portfolio. Equity index total return swaps, futures and options are used to offset valuation losses in the equity portfolio. In addition, equity futures are used to hedge the market risk related to deferred compensation liability contracts. Equity derivatives may also be utilized to replicate cash market positions to increase equity exposure. Forward contracts are primarily used to hedge foreign currency risk associated with holding foreign currency denominated investments and foreign operations.
As of June 30, 2026 and December 31, 2025, the Company has not designated any fair value, cash flow or net investment hedge accounting relationships.
Non-hedge accounting is generally used for “portfolio” level hedging strategies 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.
The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements. However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries.
Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date. The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements (“MNAs”) and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position.
In connection with the sale of ALIC and certain affiliates in 2021, the sale agreement included a provision related to contingent consideration that is earned over a ten-year period commencing January 1, 2026. The contingent consideration is determined annually based on the average ten-year U.S. Treasury rate over the preceding three-year period compared to a designated rate. The contingent consideration meets the definition of a derivative and is accounted for on a fair value basis with periodic changes in fair value reflected in earnings. There are no collateral requirements related to the contingent consideration.
Summary of the volume and fair value positions of derivative instruments as of June 30, 2026
($ in millions, except number of contracts)
Volume (1)
Balance sheet locationNotional amountNumber of contractsFair value, netGross assetGross liability
Asset derivatives
Derivatives not designated as accounting hedging instruments
 
Interest rate contracts
 
Interest rate cap agreementsOther investments$37 n/a$— $— $— 
FuturesOther assetsn/a5,743 3 3 — 
Equity and index contracts
 
FuturesOther assetsn/a1,018 2 2 — 
Foreign currency contracts
 
Foreign currency forwardsOther investments225 n/a3 5 (2)
Contingent considerationOther assets225 n/a130 130 — 
Credit default contracts
 
Credit default swaps - selling protectionOther investments347 n/a10 10 — 
Total asset derivatives$834 6,761 $148 $150 $(2)
Liability derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreementsOther liabilities and accrued expenses$37 n/a$— $— $— 
FuturesOther liabilities and accrued expensesn/a12,764 (5)— (5)
Equity and index contracts
FuturesOther liabilities and accrued expensesn/a5 — — — 
Foreign currency contracts
Foreign currency forwardsOther liabilities and accrued expenses345 n/a(1)4 (5)
Total liability derivatives382 12,769 (6)$4 $(10)
Total derivatives$1,216 19,530 $142 
(1)    Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)
Summary of the volume and fair value positions of derivative instruments as of December 31, 2025
($ in millions, except number of contracts)
Volume (1)
Balance sheet locationNotional amountNumber of contractsFair value, netGross assetGross liability
Asset derivatives
Derivatives not designated as accounting hedging instruments
 
Interest rate contracts
 
Interest rate cap agreementsOther investments$37 n/a$— $— $— 
FuturesOther assetsn/a3,386 — — — 
Equity and index contracts
 
OptionsOther investmentsn/a12 — — — 
FuturesOther assetsn/a32 — — — 
Foreign currency contracts
 
Foreign currency forwardsOther investments$503 n/a(14)2 (16)
Contingent considerationOther assets250 n/a147 147 — 
Credit default contracts
 
Credit default swaps - selling protectionOther investments550 n/a9 9 — 
Total asset derivatives$1,340 3,430 $142 $158 $(16)
Liability derivatives
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreementsOther liabilities and accrued expenses$37 n/a$(1)$— $(1)
FuturesOther liabilities and accrued expensesn/a1,323 — — — 
Equity and index contracts
OptionsOther liabilities and accrued expensesn/a12 — — — 
FuturesOther liabilities and accrued expensesn/a1,063 (2)— (2)
Foreign currency contracts
Foreign currency forwardsOther liabilities and accrued expenses$45 n/a(3)— (3)
Total liability derivatives82 2,398 (6)$— $(6)
Total derivatives$1,422 5,828 $136 
(1)    Volume for OTC and cleared derivative contracts is represented by their notional amounts. Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded. (n/a = not applicable)
Gross and net amounts for OTC derivatives (1)
($ in millions)Offsets
Gross amountCounter-party nettingCash collateral (received) pledgedNet amount on balance sheetSecurities collateral (received) pledgedNet amount
June 30, 2026
Asset derivatives$9 $(6)$— $3 $(3)$— 
Liability derivatives(7)6 — (1)— (1)
December 31, 2025
Asset derivatives$2 $(16)$15 $1 $— $1 
Liability derivatives(20)16 3 (1)— (1)
(1)All OTC derivatives are subject to enforceable MNAs.
Gains (losses) from valuation and settlements reported on derivatives
($ in millions)Net gains (losses) on investments and derivativesOperating costs and expensesTotal gain (loss) recognized in net income on derivatives
Three months ended June 30, 2026
Interest rate contracts$(33)$— $(33)
Equity and index contracts1 31 32 
Contingent consideration— 2 2 
Foreign currency contracts1 — 1 
Credit default contracts5 — 5 
Total$(26)$33 $7 
Six months ended June 30, 2026
Interest rate contracts$(46)$— $(46)
Equity and index contracts1 23 24 
Contingent consideration— 8 8 
Foreign currency contracts11 — 11 
Credit default contracts2 — 2 
Total$(32)$31 $(1)
Three months ended June 30, 2025
Interest rate contracts$(9)$— $(9)
Equity and index contracts(8)17 9 
Contingent consideration— 3 3 
Foreign currency contracts(38)— (38)
Credit default contracts(10)— (10)
Total$(65)$20 $(45)
Six months ended June 30, 2025
Interest rate contracts$(10)$— $(10)
Equity and index contracts(8)6 (2)
Contingent consideration— 3 3 
Foreign currency contracts(56)— (56)
Credit default contracts(10)— (10)
Total$(84)$9 $(75)
The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable MNAs and obtaining collateral where appropriate. The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded.
OTC cash and securities collateral pledged
($ in millions)June 30, 2026
Pledged by the Company$1 
Pledged to the Company (1)
4 
(1) $1 million of collateral was posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability provision.
The Company has not incurred any losses on derivative financial instruments due to counterparty
nonperformance. Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk.
Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless. This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of legally enforceable MNAs.
OTC derivatives counterparty credit exposure by counterparty credit rating
($ in millions)June 30, 2026December 31, 2025
Rating (1)
Number of counter-parties
Notional amount (2)
Credit exposure (2)
Exposure, net of collateral (2)
Number of counter-parties
Notional amount (2)
Credit exposure (2)
Exposure, net of collateral (2)
AA-
1 $262 $3 $— 1 $37 $— $— 
A+1 24 — — — — — — 
Total2 $286 $3 $— 1 $37 $— $— 
(1)Allstate uses the lower of S&P’s or Moody’s long-term debt issuer ratings.
(2)Only OTC derivatives with a net positive fair value are included for each counterparty.
For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts.
Exchange traded and cleared margin deposits
($ in millions)June 30, 2026
Pledged by the Company$88 
Received by the Company
1 
Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions. To limit this risk, the Company’s senior management has established risk control limits.
Certain of the Company’s derivative transactions contain credit-risk-contingent termination events and
cross-default provisions. Credit-risk-contingent termination events allow the counterparties to terminate the derivative agreement or a specific trade on certain dates if AIC’s financial strength credit ratings by Moody’s or S&P fall below a certain level. Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative agreement if the Company defaults by pre-determined threshold amounts on certain debt instruments.
The following table summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within legally enforceable MNAs.
($ in millions)June 30, 2026December 31, 2025
Gross liability fair value of contracts containing credit-risk-contingent features$7 $16 
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs(6)(2)
Collateral posted under MNAs for contracts containing credit-risk-contingent features(1)(14)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently$— $— 
Credit derivatives - selling protection
A credit default swap (“CDS”) is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium. In selling
protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative. CDS typically have a five-year term.
CDS notional amounts by credit rating and fair value of protection sold
($ in millions)Notional amount
AAAAAABBB
BB and
lower
Total
Fair
value
June 30, 2026
Index
Corporate debt$— $— $— $300 $47 $347 $10 
Total$— $— $— $300 $47 $347 $10 
December 31, 2025
Index
Corporate debt$— $— $— $550 $— $550 $9 
Total$— $— $— $550 $— $550 $9 
The Company sells credit protection through contracts on standardized credit indices (“CDX”), generally investment grade, which are centrally cleared through a registered Derivatives Clearing Organization, and in return receives periodic premiums through the expiration or termination of the contract. A CDX is utilized to take a position on multiple (generally 125) reference entities. Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities.
When a credit event occurs for a reference entity within the index, the affected name is removed from the index, and the contract continues until expiration. Settlement is conducted through an auction process, whereby the Company pays the difference between the contract’s notional amount and the final recovery value of the reference obligation as determined by the auction. The maximum payout on a CDX is the contract notional amount.