Allstate 2008 Annual Report Download - page 147

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
Allstate Protection generated underwriting income of $2.84 billion during 2007 compared to $4.64 billion in
2006. The decrease was primarily due to lower favorable prior year reserve reestimates, higher catastrophe losses,
increases in auto and homeowners claim frequency excluding catastrophes, higher current year claim severity and
increases in the cost of catastrophe reinsurance.
Catastrophe losses in 2008 were $3.34 billion and include estimates of losses for Hurricanes Ike and Gustav
among other events. This compares to catastrophe losses in 2007 of $1.41 billion. Hurricane Ike is expected to be
among the top three costliest U.S. hurricanes along with Hurricane Katrina of 2005 and Hurricane Andrew of
1992. Losses from Hurricane Ike were incurred in multiple states. Hurricane Ike losses in Texas were estimated to
be $666 million, net of reinsurance, and losses in all other states, which primarily included losses in Ohio and
Kentucky, were estimated to be $300 million. Hurricane Gustav is also expected to be among the top 10 costliest
U.S. hurricanes. Catastrophe loss estimates include losses for approximately 173 thousand and 81 thousand
claims for Hurricanes Ike and Gustav, respectively, on our auto, homeowners, commercial and other insurance
products. These estimated claim counts include 129 thousand and 66 thousand for Hurricanes Ike and Gustav,
respectively, that have been reported as of January 16, 2009.
Catastrophe losses in 2008 also include assessments totaling $75 million from the Texas Windstorm Insurance
Association (‘‘TWIA’’) for our estimated share of losses for Hurricanes Dolly and Ike. We expect to recover
$35 million of the assessment relating to Hurricane Ike through premium tax credits over the next five years, with
the remaining $31 million from Ike eligible for cession under our reinsurance program.
We define a ‘‘catastrophe’’ as an event that produces pre-tax losses before reinsurance in excess of
$1 million and involves multiple first party policyholders, or an event that produces a number of claims in excess
of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time
following the event. Catastrophes are caused by various natural events including high winds, winter storms,
tornadoes, hailstorms, wildfires, tropical storms, hurricanes, earthquakes, and volcanoes. We are also exposed to
man-made catastrophic events, such as certain acts of terrorism or industrial accidents. The nature and level of
catastrophes in any period cannot be predicted.
The following table presents our 2008 catastrophe losses related to events that occurred by the size of the
event.
2008
Average
Number Claims and Combined catastrophe loss
of events claims expense ratio impact per event
($ in millions)
Size of catastrophe
Greater than $250 million:
Hurricane Ike (net of recoveries) 1 0.8% $ 966 28.9% 3.6 $966
Hurricane Gustav 1 0.8 342 10.2 1.3 342
$100 million to $250 million 2 1.6 278 8.4 1.0 139
$50 million to $100 million 7 5.7 444 13.3 1.6 63
Less than $50 million 112 91.1 1,187 35.5 4.4 11
Total 123 100.0% 3,217 96.3 11.9 26
Prior year reserve reestimates 125 3.7 0.5
Total catastrophe losses $3,342 100.0% 12.4
In the years 1995 through 2008, we incurred catastrophe losses of $21.63 billion related to 912 events. Of
these total losses, 41.9% related to 11 events with losses greater than $250 million per event, 8.4% related to
12 events with losses between $100 million and $250 million per event, 11.1% related to 35 events with losses
between $50 million and $100 million per event, and 38.6% related to 854 events with losses less than $50 million
per event. Catastrophe losses in the period 2003 through 2008 amounted to $15.19 billion or 70.2% of the total
losses. Catastrophe losses greater than $50 million in the period 2003 through 2008 amounted to 37 events and
$11.25 billion or 52.0% of the total losses. There were no catastrophe losses greater than $100 million incurred in
2006.
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MD&A