Reinsurance

The effects of reinsurance on property-liability insurance premiums written and earned and life and annuity premiums and contract charges for the years ended December 31 are as follows:



($ in millions)	2016			2015			2014
Property-liability insurance premiums written
Direct	$	32,614		$	31,924		$	30,686
Assumed	47			39			48
Ceded	(1,061		)	(1,092		)	(1,120		)
Property-liability insurance premiums written, net of reinsurance	$	31,600		$	30,871		$	29,614
Property-liability insurance premiums earned
Direct	$	32,249		$	31,274		$	29,914
Assumed	45			41			45
Ceded	(987		)	(1,006		)	(1,030		)
Property-liability insurance premiums earned, net of reinsurance	$	31,307		$	30,309		$	28,929
Life and annuity premiums and contract charges
Direct	$	1,766		$	1,641		$	1,944
Assumed	818			849			629
Ceded	(309		)	(332		)	(416		)
Life and annuity premiums and contract charges, net of reinsurance	$	2,275		$	2,158		$	2,157

Property-Liability

The Company purchases reinsurance after evaluating the financial condition of the reinsurer, as well as the terms and price of coverage. Developments in the insurance and reinsurance industries have fostered a movement to segregate asbestos, environmental and other discontinued lines exposures into separate legal entities with dedicated capital. Regulatory bodies in certain cases have supported these actions. The Company is unable to determine the impact, if any, that these developments will have on the collectability of reinsurance recoverables in the future.

Property-Liability reinsurance recoverable

Total amounts recoverable from reinsurers as of December 31, 2016 and 2015 were $6.28 billion and $5.98 billion, respectively, including $93 million and $86 million, respectively, related to property-liability losses paid by the Company and billed to reinsurers, and $6.18 billion and $5.89 billion, respectively, estimated by the Company with respect to ceded unpaid losses (including IBNR), which are not billable until the losses are paid.

With the exception of the recoverable balances from the Michigan Catastrophic Claims Association (“MCCA”), Lloyd’s of London, New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”) and other industry pools and facilities, the largest reinsurance recoverable balance the Company had outstanding was $61 million and $62 million from Westport Insurance Corporation as of December 31, 2016 and 2015, respectively. No other amount due or estimated to be due from any single property-liability reinsurer was in excess of $35 million and $32 million as of December 31, 2016 and 2015, respectively.

The allowance for uncollectible reinsurance was $84 million and $80 million as of December 31, 2016 and 2015, respectively, and is primarily related to the Company’s Discontinued Lines and Coverages segment.

Industry pools and facilities

Reinsurance recoverable on paid and unpaid claims including IBNR as of December 31, 2016 and 2015 includes $4.95 billion and $4.66 billion, respectively, from the MCCA. The MCCA is a mandatory insurance coverage and reinsurance indemnification mechanism for personal injury protection losses that provides indemnification for losses over a retention level that increases every other MCCA fiscal year by the lesser of 6% or the increase in the Consumer Price Index. The retention level will be $555 thousand per claim for the fiscal two-years ending June 30, 2019 compared to $545 thousand per claim for the fiscal two-years ending June 30, 2017. The MCCA is obligated to fund the ultimate liability for member companies (companies actively writing motor vehicle coverage in Michigan and those with runoff policies) qualifying claims and claims expenses. The MCCA operates similar to a reinsurance program and is annually funded by participating member companies (companies actively writing motor vehicle coverage in Michigan) through a per vehicle annual assessment. The MCCA has been legally authorized to annually assess participating member companies pursuant to enabling legislation that describes both the annual determination and assessment. This assessment is recorded as a component of the premiums charged to the Company’s customers. These assessments paid to the MCCA provide funds for the indemnification for losses described above. The MCCA is required to assess an amount each year sufficient to cover members’ actuarially determined present value of expected payments on lifetime claims of all persons expected to be catastrophically injured in that year, its operating expenses, and adjustments for the amount of excesses or deficiencies in prior assessments. The MCCA prepares statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Michigan Department of Insurance and Financial Services (“MI DOI”). The MI DOI has granted the MCCA a statutory permitted practice that expires in 2019 to discount its liabilities for loss and loss adjustment expense. As of June 30, 2016, the date of its most recent annual financial report, the MCCA had cash and invested assets of $18.48 billion and an accumulated deficit of $1.74 billion. The permitted practice reduced the accumulated deficit by $42.27 billion.

Allstate sells and administers policies as a participant in the National Flood Insurance Program (“NFIP”). The amounts recoverable as of December 31, 2016 and 2015 were $77 million and $27 million, respectively. Ceded premiums earned include $274 million, $293 million and $312 million in 2016, 2015 and 2014, respectively. Ceded losses incurred include $537 million, $120 million and $38 million in 2016, 2015 and 2014, respectively. Under the arrangement, the Federal Government pays all covered claims and certain qualifying claim expenses.

The PLIGA, as the statutory administrator of the New Jersey Unsatisfied Claim and Judgment Fund (“UCJF”), provides compensation to qualified claimants for personal injury protection, bodily injury, or death caused by private passenger automobiles operated by uninsured or “hit and run” drivers. The UCJF also provides private passenger stranger pedestrian personal injury protection benefits when no other coverage is available. The fund provides reimbursement to insurers for the medical benefits portion of personal injury protection coverage paid in excess of $75,000 with no limits for policies issued or renewed prior to January 1, 1991 and in excess of $75,000 and capped at $250,000 for policies issued or renewed from January 1, 1991 to December 31, 2004. The amounts recoverable as of December 31, 2016 and 2015 were $506 million and $500 million, respectively.

Ceded premiums earned under the Florida Hurricane Catastrophe Fund (“FHCF”) agreement were $12 million, $13 million and $11 million in 2016, 2015 and 2014, respectively. There were no ceded losses incurred in 2016, 2015 or 2014. The Company has access to reimbursement provided by the FHCF for 90% of qualifying personal property losses that exceed its current retention of $58 million for the 2 largest hurricanes and $19 million for other hurricanes, up to a maximum total of $185 million effective from June 1, 2016 to May 31, 2017. There were no amounts recoverable from the FHCF as of December 31, 2016 or 2015.

Catastrophe reinsurance

The Company has the following catastrophe reinsurance agreements in effect as of December 31, 2016:


•	The majority of our program comprises multi-year contracts, primarily placed in the traditional reinsurance market, such that one third of the program is renewed every year. The duration of the contracts in the program vary from one to seven-year terms.


•	Coverage is generally purchased on a broad geographic, product line and multiple peril loss basis.


•	The Company purchases reinsurance from traditional reinsurance companies as well as the insurance linked securities market (i.e. “PCS Agreements”).


•	Florida property and New Jersey property and auto are each covered by separate agreements, as the risk of loss is different and our subsidiaries operating in these states are separately capitalized.

The Nationwide Per Occurrence Excess Catastrophe Reinsurance program (the “Nationwide program”) provides $4.55 billion of reinsurance coverage subject to a $500 million retention and is subject to the amount of reinsurance placed in each of its ten layers. The Nationwide program comprises four agreements: The Per Occurrence Excess Catastrophe Reinsurance agreement, the 2013-1 Property Claim Services (“PCS”) Excess Catastrophe Reinsurance agreement, the 2014-1 PCS Excess Catastrophe Reinsurance agreement, and the Gap Fill Layer Catastrophe Reinsurance agreement.

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The Per Occurrence Excess Catastrophe Reinsurance agreement, which is placed in the traditional reinsurance market, reinsures personal lines property and automobile excess catastrophe losses caused by multiple perils in every state, except Florida’s personal lines property excess catastrophe losses and both personal lines property and automobile excess catastrophe losses in New Jersey. The program comprises layers one through six and a portion of layer nine. Coverage for each of the first through fifth layers comprises three contracts, with each contract providing one-third of 95% of the total layer limit and expiring May 31, 2017, May 31, 2018 and May 31, 2019. The sixth layer is 95% placed and comprises one contract expiring May 31, 2022. The contracts for layers one through six provide $3.07 billion in per occurrence reinsurance limits subject to a $500 million retention.

Coverage for a portion of the ninth layer is provided by one contract expiring May 31, 2022, which provides 29% of $446 million or $131 million in limits in excess of $3.75 billion. Unlike the contracts expiring May 31, 2017 and May 31, 2018, the newly placed contracts expiring May 31, 2019 include coverage for automobile losses in Florida. The sixth layer and ninth layer contracts contain comparable contract terms and conditions as layers one through five. Unlike layer one through five contracts, the sixth and ninth layer contracts each contain an annual variable reset option which allows for the adjustment of each contract’s attachment and exhaustion levels within specified limits. The variable reset option requires a premium adjustment. The contracts for each of the first through fifth layers include one reinstatement of limits, per year, with premium required. The sixth and ninth layer contracts each contain one reinstatement of limits over their seven year term with premium required. Reinsurance premiums for all contracts are subject to redetermination for exposure changes on an annual basis.

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The 2013-1 PCS Excess Catastrophe Reinsurance agreement reinsures personal lines property and automobile excess catastrophe losses caused by hurricanes in 28 states and the District of Columbia, and earthquakes, including fires following earthquakes, in California, New York and Washington and comprises portions of layers eight and nine of the program. The agreement comprises two contracts that expire May 3, 2017: a Class B Excess Catastrophe Reinsurance contract which provides 44% of $338 million or $150 million in limits in excess of a $3.22 billion attachment point, and a Class A Excess Catastrophe Reinsurance contract which provides 45% of $447 million or $200 million in limits excess of a $3.75 billion attachment point. This agreement is placed with a Bermuda insurance company, Sanders Re Ltd. (“Sanders Re”), which obtained funding from the insurance linked securities (“ILS”) market to collateralize the agreement’s limit. Amounts payable under the agreement are based on insured industry losses as reported by PCS and further indexed by annual pay-out factors specific to personal lines property and automobile exposures in the agreement’s covered areas. Reinsurance recoveries under the 2013-1 PCS agreement are limited to our ultimate net loss from a PCS reported hurricane or earthquake event, in excess of each contract’s specific attachment point and subject to each contract’s limit. The contracts do not include a reinstatement of limits.

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The 2014-1 PCS Excess Catastrophe Reinsurance agreement reinsures personal lines property and automobile excess catastrophe losses caused by hurricanes in 29 states and the District of Columbia, and earthquakes, including fires following earthquakes, in California, New York and Washington and comprises portions of the eight, ninth and tenth layer of the program. The agreement comprises three contracts: a Class D Excess Catastrophe Reinsurance contract provides 51% of $603 million or $305 million in limits in excess of a $3.15 billion attachment point, a Class C Excess Catastrophe Reinsurance contract provides 26% of $447 million or $115 million in limits in excess of a $3.75 billion attachment point, and a Class B Excess Catastrophe Reinsurance contract provides 95% of $347 million or $330 million in limits excess of a $4.20 billion attachment point. This agreement is also placed with Sanders Re which obtained ILS market funding to collateralize the agreement’s limit and the provisions regarding amounts payable and reinsurance recoveries as described above for the 2013-1 PCS agreement. Each contract’s risk period begins on May 22, 2014, with two of the three contracts’ risk periods expiring on May 21, 2018 and one contract’s risk period expiring on May 21, 2019. The contracts comprising the agreement contain a variable reset option which the ceding entities may invoke for risk periods subsequent to the first risk period and which allows for the annual adjustment of each contract’s attachment and exhaustion levels within specified limits. The variable reset option requires a premium adjustment. The contracts do not include a reinstatement of limits.

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The Gap Fill contract reinsures personal lines property and automobile excess catastrophe losses caused by multiple perils in all states, except Florida’s personal lines property excess catastrophe losses and both personal lines property and automobile excess catastrophe losses in New Jersey. The contract expires May 31, 2017 and provides one annual limit of $175 million in excess of a $2.75 billion retention. Recoveries under the sixth and ninth layers of The Nationwide Per Occurrence Excess Catastrophe and the PCS Excess Catastrophe Reinsurance agreements, as described above, inure to the benefit of this contract. The contract is placed in the traditional reinsurance market and does not include a reinstatement of limits. Reinsurance premium is subject to redetermination for exposure changes.

The following programs are designed apart from the Nationwide program to address distinct exposures in certain states and markets. These programs are described below and are disregarded when determining coverage under the contracts included in the Nationwide program.

The Florida Excess Catastrophe Reinsurance agreement comprises five contracts, as described below, which reinsure Castle Key Insurance Company (“CKIC”) and Castle Key Indemnity Company’s (“CKI”, and together with CKIC, “Castle Key”) for personal lines property excess catastrophe losses in Florida. The agreement includes two contacts placed in the traditional market, CKIC’s and CKI’s reimbursement contracts with the Florida Hurricane Catastrophe Fund (“mandatory FHCF contracts”), and the Sanders Re 2014-2 Contract (“Sanders Re 2014-2 contact”) placed in the ILS markets.


•	The below FHCF contract reinsures personal lines property excess catastrophe losses caused by multiple perils in Florida. The contract provides limits of $40 million in excess of $20 million and is 100% placed. The first reinstatement of limits is prepaid and the second or final reinstatement requires additional premium. Reinsurance premium is subject to redetermination for exposure changes.

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The mandatory FHCF contracts reinsure qualifying personal lines property losses caused by storms the National Hurricane Center declares to be hurricanes. The contracts provide 90% of $191 million of limits in excess of a provisional retention with no reinstatement of limits. The limits and retentions of the mandatory FHCF contracts are calculated independently for CKIC and CKI and are subject to re-measurement based on June 30, 2016 exposure data. For each of the two largest hurricanes, the provisional retention is $60 million and retention equal to one third of that amount, or approximately $20 million, is applicable to all other hurricanes for the season beginning June 1, 2016. In addition, the FHCF’s retention is subject to adjustment upward or downward to an actual retention based on submitted exposures to the FHCF by all participants.

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The Excess contract reinsures personal lines property excess catastrophe losses caused by multiple perils in Florida. The contract provides limits of $254 million in excess of a $20 million retention. Recoveries from the Below FHCF contract and Mandatory FHCF contracts inure to the benefit of this contract, resulting in the Excess contract providing reinsurance for loss occurrences not subject to reimbursement under the FHCF contracts but reinsured under the multiple peril Excess contract. The contract does not include a reinstatement of limits. Reinsurance premium is subject to redetermination for exposure.

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The Sanders Re 2014-2 contract reinsures qualifying personal lines property losses caused by a named storm event, a severe thunderstorm event, or an earthquake event in Florida. The contract provides limits of $200 million in excess of $60 million and $425 million which is equivalent to the mandatory FHCF coverage as if 100% placed and reinsurance limits provided by the excess contract above the mandatory FHCF coverage, for the June 1, 2016 to May 31, 2017 risk period. These events are defined in the Sanders Re 2014-2 contract as events declared by various reporting agencies, including PCS. Should PCS cease to report on severe thunderstorms, then such event will be deemed a severe thunderstorm if Castle Key has assigned a catastrophe code to such severe thunderstorm. Sanders Re obtained funding from the ILS market to provide collateral equal to the contract’s limit. The contract does not include a reinstatement of limits.

Losses recoverable under the Company’s New Jersey, Pennsylvania, Kentucky and California reinsurance agreements, described below.

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The New Jersey Excess Catastrophe Reinsurance agreement comprises three contracts that reinsure personal lines property and automobile excess catastrophe losses in New Jersey caused by multiple perils. The contracts expire May 31, 2017, May 31, 2018 and May 31, 2019, and provide 31.67%, 31.66% and 31.67%, respectively, of $400 million of limits excess of a provisional $169 million retention, a $162 million retention, and a $150 million retention, respectively. Each contract includes one reinstatement of limits per contract year with premium due. The reinsurance premium and retention are subject to redetermination for exposure changes on an annual basis.

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The Pennsylvania Excess Catastrophe Reinsurance agreement comprises a three-year term contract that reinsures personal lines property excess catastrophe losses in Pennsylvania caused by multi-perils. The agreement expires May 31, 2018 and provides three limits of $100 million excess of a $100 million retention subject to two limits being available in any one contract year and is 95% placed. The reinsurance premium and retention are not subject to redetermination for exposure changes.

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The Kentucky Earthquake Excess Catastrophe Reinsurance agreement is a three-year contract that reinsures personal lines property excess catastrophe losses in Kentucky caused by earthquakes and fires following earthquakes. The contract expires May 31, 2017 and provides $25 million in excess of a $5 million retention with two limits being available in any one contract year and is 95% placed. The reinsurance premium and retention are not subject to redetermination for exposure changes.

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The E&S Earthquake agreement comprises one contract which reinsures personal lines property catastrophe losses in California caused by the peril of earthquake and insured by our excess and surplus lines insurer. The contract expires June 30, 2018. Unlike the contracts comprising the Nationwide Program, the E&S Earthquake agreement provides reinsurance on a 100% quota share basis with no retention. The agreement reinsures only shake damage resulting from the earthquake peril.

The Company ceded premiums earned of $381 million, $414 million and $437 million under catastrophe reinsurance agreements in 2016, 2015 and 2014, respectively.

Asbestos, environmental and other

Reinsurance recoverables include $174 million and $183 million from Lloyd’s of London as of December 31, 2016 and 2015, respectively. Lloyd’s of London, through the creation of Equitas Limited, implemented a restructuring to solidify its capital base and to segregate claims for years prior to 1993. In 2007, Berkshire Hathaway’s subsidiary, National Indemnity Company, assumed responsibility for the Equitas claim liabilities through a loss portfolio transfer reinsurance agreement and continues to runoff the Equitas claims.

Allstate Financial

The Company’s Allstate Financial segment reinsures certain of its risks to other insurers primarily under yearly renewable term, coinsurance, modified coinsurance and coinsurance with funds withheld agreements. These agreements result in a passing of the agreed-upon percentage of risk to the reinsurer in exchange for negotiated reinsurance premium payments. Modified coinsurance and coinsurance with funds withheld are similar to coinsurance, except that the cash and investments that support the liability for contract benefits are not transferred to the assuming company and settlements are made on a net basis between the companies.

For certain term life insurance policies issued prior to October 2009, Allstate Financial ceded up to 90% of the mortality risk depending on the year of policy issuance under coinsurance agreements to a pool of fourteen unaffiliated reinsurers. Effective October 2009, mortality risk on term business is ceded under yearly renewable term agreements under which Allstate Financial cedes mortality in excess of its retention, which is consistent with how Allstate Financial generally reinsures its permanent life insurance business. The following table summarizes those retention limits by period of policy issuance.



Period		Retention limits
April 2015 through current		Single life: $2 million per life Joint life: no longer offered
April 2011 through March 2015		Single life: $5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteria Joint life: $8 million per life, and $10 million for contracts that meet specific criteria
July 2007 through March 2011		$5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteria
September 1998 through June 2007		$2 million per life, in 2006 the limit was increased to $5 million for instances when specific criteria were met
August 1998 and prior		Up to $1 million per life

In addition, Allstate Financial has used reinsurance to effect the disposition of certain blocks of business. Allstate Financial had reinsurance recoverables of $1.41 billion and $1.44 billion as of December 31, 2016 and 2015, respectively, due from Prudential related to the disposal of substantially all of its variable annuity business that was effected through reinsurance agreements. In 2016, life and annuity premiums and contract charges of $78 million, contract benefits of $21 million, interest credited to contractholder funds of $20 million, and operating costs and expenses of $15 million were ceded to Prudential. In 2015, life and annuity premiums and contract charges of $94 million, contract benefits of $40 million, interest credited to contractholder funds of $21 million, and operating costs and expenses of $18 million were ceded to Prudential. In 2014, life and annuity premiums and contract charges of $109 million, contract benefits of $36 million, interest credited to contractholder funds of $21 million, and operating costs and expenses of $20 million were ceded to Prudential. In addition, as of December 31, 2016 and 2015, Allstate Financial had reinsurance recoverables of $144 million and $148 million, respectively, due from subsidiaries of Citigroup (Triton Insurance and American Health and Life Insurance) and Scottish Re (U.S.) Inc. in connection with the disposition of substantially all of the direct response distribution business in 2003.

Allstate Financial is the assuming reinsurer for LBL’s life insurance business sold through the Allstate agency channel and LBL’s payout annuity business in force prior to the sale of LBL on April 1, 2014. Under the terms of the reinsurance agreement, the Company is required to have a trust with assets greater than or equal to the statutory reserves ceded by LBL to the Company, measured on a monthly basis. As of December 31, 2016, the trust held $5.94 billion of investments, which are reported in the Consolidated Statement of Financial Position.

As of December 31, 2016, the gross life insurance in force was $442.36 billion of which $90.01 billion was ceded to the unaffiliated reinsurers.

Allstate Financial’s reinsurance recoverables on paid and unpaid benefits as of December 31 are summarized in the following table.



($ in millions)	2016		2015
Annuities	$	1,424	$	1,457
Life insurance	860		897
Other	184		185
Total Allstate Financial	$	2,468	$	2,539

As of both December 31, 2016 and 2015, approximately 92% of Allstate Financial’s reinsurance recoverables are due from companies rated A- or better by S&P.