The Allstate Corp. reported that it expects to report a fourth-quarter 2013 settlement charge of $100 to $125 million, after-tax, related to the annual measurement of its pension obligations as of Dec. 31, 2013.
Settlement charges are non-cash charges that accelerate the recognition of unrecognized pension benefit cost that would have been incurred in subsequent periods when plan payments, primarily lump sums from qualified pension plans, exceed a threshold of service and interest cost for the period.
The value of lump sums paid to employees electing retirement in 2013 is elevated due to historically low interest rates, Allstate said in a statement, noting that voluntary retirement activity during the fourth quarter was almost five times the typical level.
In conjunction with announced changes to employee pension benefit plans, the company’s third quarter reports included a settlement charge of $49 million, after-tax, and indicated that the fourth quarter might include an additional settlement charge of a comparable or greater amount.
Allstate said the settlement charge will be reported in the “corporate and other” segment and impacts operating income, but does not affect underwriting income or combined ratios.
Beginning in 2014, all Allstate employees will earn future pension benefits under a new cash balance formula rather than the current formulas. These changes better align with market practices and provide future pension benefits more equitably to Allstate employees, Allstate said, adding that the changes added $599 million of book value in the third quarter of 2013 and will reduce future expenses.
In the same media statement, Allstate reported on catastrophe losses, noting that the carrier’s November cat loss total did not exceed a $150 million reporting threshold.
Source: The Allstate Corp.
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