Allstate 2015 Annual Report Download - page 195

The Allstate Corporation 2015 Annual Report 189
2014, respectively. Depreciation expense on property and equipment was $255 million, $228 million and $208 million
in 2015, 2014 and 2013, respectively. The Company reviews its property and equipment for impairment at least annually
and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Income taxes
The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded
based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates.
The principal assets and liabilities giving rise to such differences are DAC, unearned premiums, unrealized capital gains
and losses and insurance reserves. A deferred tax asset valuation allowance is established when there is uncertainty that
such assets will be realized.
Reserves for property-liability insurance claims and claims expense and life-contingent contract benefits
The reserve for property-liability insurance claims and claims expense is the estimate of amounts necessary to settle
all reported and unreported claims for the ultimate cost of insured property-liability losses, based upon the facts of each
case and the Company’s experience with similar cases. Estimated amounts of salvage and subrogation are deducted from
the reserve for claims and claims expense. The establishment of appropriate reserves, including reserves for catastrophe
losses, is an inherently uncertain and complex process. Reserve estimates are regularly reviewed and updated, using the
most current information available. Any resulting reestimates are reflected in current results of operations.
The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance,
life-contingent immediate annuities and voluntary accident and health insurance products, is computed on the basis of
long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses.
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.
The assumptions are established at the time the policy is issued and are generally not changed during the life of the
policy. The Company periodically reviews the adequacy of reserves for these policies on an aggregate basis using actual
experience. If actual experience is significantly adverse compared to the original assumptions and a premium deficiency
is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and
the establishment of a premium deficiency reserve may be required. To the extent that unrealized gains on fixed income
securities would result in a premium deficiency if those gains were realized, the related increase in reserves for certain
immediate annuities with life contingencies is recorded net of tax as a reduction of unrealized net capital gains included
in accumulated other comprehensive income.
Contractholder funds
Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive
life insurance, fixed annuities and funding agreements. Contractholder funds primarily comprise cumulative deposits
received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals, maturities
and contract charges for mortality or administrative expenses. Contractholder funds also include reserves for secondary
guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on
reinsured variable annuity contracts.
Separate accounts
Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and
available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders’
claims to the related assets and are carried at an amount equal to the separate accounts assets. Investment income and
realized capital gains and losses of the separate accounts accrue directly to the contractholders and therefore are not
included in the Company’s Consolidated Statements of Operations. Deposits to and surrenders and withdrawals from
the separate accounts are reflected in separate accounts liabilities and are not included in consolidated cash flows.
Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance
contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment
objectives. Substantially all of the Company’s variable annuity business was reinsured beginning in 2006.