Allstate 2013 Annual Report Download - page 265

assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of
insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based
is written. In most states, the definition is met with a declaration of financial insolvency by a court of competent
jurisdiction. In certain states there must also be a final order of liquidation. As of December 31, 2012 and 2011, the
liability balance included in other liabilities and accrued expenses was $49 million and $53 million, respectively. The
related premium tax offsets included in other assets were $32 million and $35 million as of December 31, 2012 and 2011,
respectively.
PMI runoff support agreement
The Company has certain limited rights and obligations under a capital support agreement (‘‘Runoff Support
Agreement’’) with PMI Mortgage Insurance Company (‘‘PMI’’), the primary operating subsidiary of PMI Group, related
to the Company’s disposition of PMI in prior years. Under the Runoff Support Agreement, the Company would be
required to pay claims on PMI policies written prior to October 28, 1994 if PMI fails certain financial covenants and fails
to pay such claims. The agreement only covers these policies and not any policies issued on or after that date. In the
event any amounts are so paid, the Company would receive a commensurate amount of preferred stock or subordinated
debt of PMI Group or PMI. The Runoff Support Agreement also restricts PMI’s ability to write new business and pay
dividends under certain circumstances. On October 20, 2011, the Director of the Arizona Department of Insurance took
control of the PMI insurance companies; effective October 24, 2011, the Director instituted a partial claim payment plan:
claim payments will be made at 50%, with the remaining amount deferred as a policyholder claim. The effect of these
developments to the Company is uncertain. The Company has not received any notices or requests for payments under
this agreement. Management does not believe these developments will have a material effect on results of operations,
cash flows or financial position of the Company.
Guarantees
The Company provides residual value guarantees on Company leased automobiles. If all outstanding leases were
terminated effective December 31, 2012, the Company’s maximum obligation pursuant to these guarantees, assuming
the automobiles have no residual value, would be $46 million as of December 31, 2012. The remaining term of each
residual value guarantee is equal to the term of the underlying lease that ranges from less than one year to three years.
Historically, the Company has not made any material payments pursuant to these guarantees.
The Company owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit
principal due, depending on the nature or occurrence of specified credit events for the reference entities. In the event all
such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as
measured by the amount of the aggregate initial investment, was $5 million as of December 31, 2012. The obligations
associated with these fixed income securities expire at various dates on or before March 11, 2018.
Related to the disposal through reinsurance of substantially all of Allstate Financial’s variable annuity business to
Prudential in 2006, the Company and its consolidated subsidiaries, ALIC and ALNY, have agreed to indemnify
Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of ALIC and ALNY and
liabilities specifically excluded from the transaction) that ALIC and ALNY have agreed to retain. In addition, the
Company, ALIC and ALNY will each indemnify Prudential for certain post-closing liabilities that may arise from the acts
of ALIC, ALNY and their agents, including in connection with ALIC’s and ALNY’s provision of transition services. The
reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred
all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential,
including those related to benefit guarantees. Management does not believe this agreement will have a material effect
on results of operations, cash flows or financial position of the Company.
In the normal course of business, the Company provides standard indemnifications to contractual counterparties in
connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically
provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities,
such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in
the normal course of business based on an assessment that the risk of loss would be remote. The terms of the
indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the
contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the
maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not
made any material payments pursuant to these obligations.
The aggregate liability balance related to all guarantees was not material as of December 31, 2012.
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