

Note 8	Reserve for Property and Casualty Insurance Claims and Claims Expense

The Company establishes reserves for claims and claims expense on reported and unreported claims of insured losses. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.

Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not reported (“IBNR”) losses, the establishment of appropriate reserves, including reserves for catastrophes and reserves and reinsurance recoverables for the Discontinued Lines and Coverages, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported in property and casualty insurance claims and claims expense in the Condensed Consolidated Statements of Operations in the period such changes are determined.

Management believes that the reserve for property and casualty insurance claims and claims expense, net of reinsurance recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Condensed Consolidated Statements of Financial Position based on available facts, technology, laws and regulations.

Allstate’s reserves for asbestos claims were $856 million and $884 million, net of reinsurance recoverables of $392 million and $412 million, as of June 30, 2018 and December 31, 2017, respectively. Reserves for environmental claims were $159 million and $166 million, net of reinsurance recoverables of $36 million and $33 million, as of June 30, 2018 and December 31, 2017, respectively.



Rollforward of the reserve for property and casualty insurance claims and claims expense
	Six months ended June 30,
($ in millions)	2018			2017
Balance as of January 1	$	26,325		$	25,250
Less reinsurance recoverables	(6,471		)	(6,184		)
Net balance as of January 1	19,854			19,066
SquareTrade acquisition as of January 3, 2017	—			17
Incurred claims and claims expense related to:
Current year	11,089			11,291
Prior years	(148		)	(186		)
Total incurred	10,941			11,105
Claims and claims expense paid related to:
Current year	(5,870		)	(6,060		)
Prior years	(4,809		)	(4,450		)
Total paid	(10,679		)	(10,510		)
Net balance as of June 30	20,116			19,678
Plus reinsurance recoverables	6,507			6,206
Balance as of June 30	$	26,623		$	25,884

Incurred claims and claims expense represents the sum of paid losses and reserve changes in the period. This expense includes losses from catastrophes of $1.27 billion and $1.75 billion in the six months ended June 30, 2018 and 2017, respectively, net of reinsurance and other recoveries. Catastrophes are an inherent risk of the property and casualty insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position. During the six months ended June 30, 2018, incurred claims and claims expense included $148 million of prior year reserve reestimates, increasing net income, including favorable prior year reserve reestimates excluding catastrophes of $192 million and $44 million of unfavorable prior year reserve reestimates related to catastrophes.

Favorable prior year reserve reestimates excluding catastrophes is comprised of net decreases in auto reserves of $225 million, due to continued favorable personal lines auto injury coverage development and better than anticipated salvage and subrogation recoveries, offset by net increases in all other reserves of $33 million, primarily related to commercial lines. Unfavorable catastrophe loss reestimates of $44 million, net of reinsurance and other recoveries, include $78 million of unfavorable reestimates related to homeowners, including $37 million for anticipated Texas Windstorm Insurance Association (“TWIA”) assessments related to Hurricane Harvey (see Note 12), and $34 million of favorable reestimates, primarily related to auto.