Allstate 2012 Annual Report Download - page 136

The impacts of reinsurance on our reserve for claims and claims expense as of December 31 are summarized in the
following table, net of allowances we have established for uncollectible amounts.
($ in millions) Reserve for
property-liability
insurance claims Reinsurance
and claims expense recoverables, net
2011 2010 2011 2010
Industry pools and facilities $ 2,491 $ 1,990 $ 1,865 $ 1,419
Asbestos and environmental 1,832 1,903 591 628
Other including allowance for future
uncollectible reinsurance
recoverables 16,052 15,575 218 105
Total Property-Liability $ 20,375 $ 19,468 $ 2,674 $ 2,152
Reinsurance recoverables include an estimate of the amount of property-liability insurance claims and claims
expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported
unpaid losses. We calculate our ceded reinsurance estimate based on the terms of each applicable reinsurance
agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We also consider
other limitations and coverage exclusions under our reinsurance agreements. Accordingly, our estimate of reinsurance
recoverables is subject to similar risks and uncertainties as our estimate of reserve for property-liability claims and
claims expense. We believe the recoverables are appropriately established; however, as our underlying reserves
continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We regularly
evaluate the reinsurers and the respective amounts recoverable, and a provision for uncollectible reinsurance is recorded
if needed. The establishment of reinsurance recoverables and the related allowance for uncollectible reinsurance is also
an inherently uncertain process involving estimates. Changes in estimates could result in additional changes to the
Consolidated Statements of Operations.
The allowance for uncollectible reinsurance relates to Discontinued Lines and Coverages reinsurance recoverables
and was $103 million and $142 million as of December 31, 2011 and 2010, respectively. This amount represents 13.4%
and 17.6% of the related reinsurance recoverable balances as of December 31, 2011 and 2010, respectively. The
allowance is based upon our ongoing review of amounts outstanding, length of collection periods, changes in reinsurer
credit standing, and other relevant factors. In addition, in the ordinary course of business, we may become involved in
coverage disputes with certain of our reinsurers which may ultimately result in lawsuits and arbitrations brought by or
against such reinsurers to determine the parties’ rights and obligations under the various reinsurance agreements. We
employ dedicated specialists to manage reinsurance collections and disputes. We also consider recent developments in
commutation activity between reinsurers and cedants, and recent trends in arbitration and litigation outcomes in
disputes between cedants and reinsurers in seeking to maximize our reinsurance recoveries.
Adverse developments in the insurance industry have led to a decline in the financial strength of some of our
reinsurance carriers, causing amounts recoverable from them and future claims ceded to them to be considered a higher
risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry to be
concentrated among fewer companies. In addition, over the last several years the industry has increasingly segregated
asbestos, environmental, and other discontinued lines exposures into separate legal entities with dedicated capital.
Regulatory bodies in certain cases have supported these actions. We are unable to determine the impact, if any, that
these developments will have on the collectability of reinsurance recoverables in the future.
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