Allstate 2011 Annual Report Download - page 106

Further discussion of reserve estimates For further discussion of these estimates and quantification of the impact
of reserve estimates, reserve reestimates and assumptions, see Notes 7 and 13 to the consolidated financial statements
and the Property-Liability Claims and Claims Expense Reserves section of this document.
Reserve for life-contingent contract benefits estimation Due to the long term nature of traditional life
insurance, life-contingent immediate annuities and voluntary health products, benefits are payable over many years;
accordingly, the reserves are calculated as the present value of future expected benefits to be paid, reduced by the
present value of future expected net premiums. Long-term actuarial assumptions of future investment yields, mortality,
morbidity, policy terminations and expenses are used when establishing the reserve for life-contingent contract
benefits payable under these insurance policies. These assumptions, which for traditional life insurance are applied
using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such
as type of coverage, year of issue and policy duration. Future investment yield assumptions are determined based upon
prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination
assumptions are based on our experience and industry experience. Expense assumptions include the estimated effects
of inflation and expenses to be incurred beyond the premium-paying period. These assumptions are established at the
time the policy is issued, are consistent with assumptions for determining DAC amortization for these policies, and are
generally not changed during the policy coverage period. However, if actual experience emerges in a manner that is
significantly adverse relative to the original assumptions, adjustments to DAC or reserves may be required resulting in a
charge to earnings which could have a material adverse effect on our operating results and financial condition. We
periodically review the adequacy of reserves and recoverability of DAC for these policies on an aggregate basis using
actual experience. In the event actual experience is significantly adverse compared to the original assumptions and a
premium deficiency is determined to exist, any remaining unamortized DAC balance must be expensed to the extent not
recoverable and the establishment of a premium deficiency reserve may be required. In 2010 and 2009, our reviews
concluded that no premium deficiency adjustments were necessary, primarily due to profit from traditional life
insurance more than offsetting the projected losses in immediate annuities with life contingencies. In 2008, for
traditional life insurance and immediate annuities with life contingencies, an aggregate premium deficiency of
$336 million pre-tax ($219 million after-tax) resulted primarily from a study indicating that the annuitants on certain
life-contingent contracts are projected to live longer than we anticipated when the contracts were issued and, to a
lesser degree, a reduction in the related investment portfolio yield. The deficiency was recorded through a reduction in
DAC. We will continue to monitor the experience of our traditional life insurance and immediate annuities. We anticipate
that mortality, investment and reinvestment yields, and policy terminations are the factors that would be most likely to
require premium deficiency adjustments to these reserves or related DAC.
For further detail on the reserve for life-contingent contract benefits, see Note 8 of the consolidated financial
statements.
PROPERTY-LIABILITY 2010 HIGHLIGHTS
• Premiums written, an operating measure that is defined and reconciled to premiums earned in the Property-Liability
Operations section of the MD&A, decreased 0.2% to $25.91 billion in 2010 from $25.97 billion in 2009.
– Allstate brand standard auto premiums written increased 0.5% to $15.84 billion in 2010 from $15.76 billion in
2009.
– Allstate brand homeowners premiums written increased 2.1% to $5.75 billion in 2010 from $5.64 billion in 2009.
– Encompass brand premiums written decreased 17.5% to $1.10 billion in 2010 from $1.33 billion in 2009.
• Premium operating measures and statistics contributing to overall Allstate brand standard auto premiums written
increase were the following:
– 1.5% decrease in PIF as of December 31, 2010 compared to December 31, 2009
– 2.1% increase in the six month policy term average gross premium before reinsurance to $443 in 2010 from
$434 in 2009
– 0.2 point decrease in the six month renewal ratio to 88.7% in 2010 compared to 88.9% in 2009
– 0.2% decrease in new issued applications in 2010 compared to 2009
• Premium operating measures and statistics contributing to overall Allstate brand homeowners premiums written
increase were the following:
– 4.1% decrease in PIF as of December 31, 2010 compared to December 31, 2009
– 6.8% increase in the twelve month policy term average gross premium before reinsurance to $943 in 2010 from
$883 in 2009
– 0.3 point increase in the twelve month renewal ratio to 88.4% in 2010 compared to 88.1% in 2009
– 3.6% decrease in new issued applications in 2010 compared to 2009
– $27 million decrease in catastrophe reinsurance costs to $534 million in 2010 from $561 million in 2009
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MD&A