Reserve for Property and Liability Insurance Claims and Claims Expense

6 Months Ended

Jun. 30, 2019

Reserve for Property-Liability Insurance Claims and Claims Expense [Abstract]

Reserve for Property and Liability Insurance Claims and Claims Expense

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, Discontinued Lines and Coverages and reinsurance and indemnification recoverables, 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 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 $826 million and $866 million, net of recoverables of $381 million and $400 million, as of June 30, 2019 and December 31, 2018, respectively. Reserves for environmental claims were $155 million and $170 million, net of recoverables of $36 million and $39 million, as of June 30, 2019 and December 31, 2018, respectively.

Rollforward of the reserve for property and casualty insurance claims and claims expense
	Six months ended June 30,
($ in millions)	2019			2018
Balance as of January 1	$	27,423		$	26,325
Less recoverables (1)	(7,155		)	(6,471		)
Net balance as of January 1	20,268			19,854
Incurred claims and claims expense related to:
Current year	12,250			11,054
Prior years	(74		)	(148		)
Total incurred	12,176			10,906
Claims and claims expense paid related to:
Current year	(6,125		)	(5,835		)
Prior years	(5,237		)	(4,809		)
Total paid	(11,362		)	(10,644		)
Net balance as of June 30	21,082			20,116
Plus recoverables	7,023			6,507
Balance as of June 30	$	28,105		$	26,623

⁽¹⁾ Recoverables comprises reinsurance and indemnification recoverables.

Incurred claims and claims expense represents the sum of paid losses and reserve changes in the period. This expense included losses from catastrophes of $1.75 billion and $1.27 billion in the six months ended June 30, 2019 and 2018, respectively, net of recoverables. 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, 2019, incurred claims and claims expense included $74 million of favorable prior year reserve reestimates, increasing net income. This $74 million favorable prior year reserve reestimates included favorable prior year reserve reestimates excluding catastrophes of $130 million, partially offset by $56 million of unfavorable prior year reserve reestimates related to catastrophes.

Favorable prior year reserve reestimates excluding catastrophes is comprised of net decreases in reserves of $154 million, primarily due to continued favorable personal lines auto injury coverage development, offset by net increases of $24 million, related to commercial lines, Discontinued Lines and Coverages and other personal lines of $17 million, $5 million and $2 million, respectively. Unfavorable catastrophe loss reestimates of $56 million, net of recoverables, included $57 million of unfavorable reestimates related

to homeowners and $6 million of unfavorable reestimates related to other personal lines, partially offset by $7 million of favorable reestimates, primarily related to auto. The unfavorable catastrophe reestimates included $20 million of reinstatement reinsurance premiums incurred during the period related to the 2018 Camp Fire, which primarily impacted homeowners reestimates.