Allstate 2008 Annual Report Download - page 164

The Florida reinsurance program, which will be effective June 1, 2009, should be similar in design to the
current program, however containing limits based on reduced underlying exposure, assuming there is no further
change in Florida insurance markets. Our current program comprises, four separate agreements entered into by
Allstate Floridian for personal property excess catastrophe losses in Florida, effective June 1, 2008 for one year.
These agreements coordinate coverage with the Florida Hurricane Catastrophe Fund, including our elected
participation in the optional temporary increase in coverage limit (‘‘TICL’’), (collectively ‘‘FHCF’’). We chose not to
participate in the optional temporary emergency additional coverage option (‘‘TEACO’’) that is below the
mandatory FHCF coverage. The FHCF provides 90% reimbursement on qualifying Allstate Floridian property losses
up to an estimated maximum of $398 million in excess of a $80 million retention, including reimbursement of
eligible loss adjustment expenses at 5%, for each of the two largest hurricanes and $27 million for all other
hurricanes for the season beginning June 1, 2008. The four agreements are listed and described below.
●FHCF Retention—provides coverage on $59 million of losses in excess of $40 million and is 100% placed,
with one prepaid reinstatement of limit.
●FHCF Sliver—provides coverage on 10% co-participation of the FHCF payout, or $40 million and is 100%
placed, with one prepaid reinstatement of limit.
●FHCF Back-up—provides coverage after the exhaustion of an amount equivalent to the anticipated FHCF
reimbursement protection on $398 million of losses in excess of $80 million and is 90% placed.
●FHCF Excess—provides coverage on $99 million of losses in excess of the FHCF Retention, FHCF and the
FHCF Back-up agreements and is 100% placed, with one prepaid reinstatement of limit.
We are currently evaluating the FHCF’s capacity to timely reimburse us in the event of a major catastrophe,
and await any changes that might be made by the FL legislature.
We have approximately $175 million or 9% of the Aggregate excess agreement limits for the June 1, 2008 to
May 31, 2009 period, $25 million or 5% of the South-East agreement limit, $250 million or 100% of the North-East
agreement limit; $250 million or 100% of the Texas agreement, and $2 million or less than 1% of the Florida limit
placed with alternative market sources. Alternative market sources refers to a reinsurer that hedge funds, private
equity firms, or investment banks substantially or wholly support; retrocedes 100% of its assumed liability to a
specific retrocessionaire; provides collateral to us equal to its assumed per occurrence limit; or funding is
provided by an unrelated third party issuance of bonds financing the reinsurance limit (‘‘catastrophe bond’’).
Our total annualized cost for catastrophe reinsurance for the year beginning June 1, 2008 is $613 million
(originally $660 million before annual exposure re-measurements). The total cost of our reinsurance program
during 2008 was $227 million in the first quarter, $223 million in the second quarter, $164 million in the third
quarter and $136 million in the fourth quarter. We estimate that the total annualized cost of our catastrophe
reinsurance program for the year beginning June 1, 2009, including the new Pennsylvania and Texas/Louisiana
agreements, to be within 10% of our expiring annualized reinsurance contract premiums of $613 million. We
continue to attempt to capture our reinsurance cost in premium rates as allowed by state regulatory authorities.
The reinsurance agreements have been placed in the global reinsurance market, with all limits on our current
Florida program and the majority of limits on our other programs placed with reinsurers who currently have an
A.M. Best insurance financial strength rating of A or better. The remaining limits are placed with reinsurers who
currently have an A.M. Best insurance financial strength rating no lower than A-, with three exceptions. Of the
three exceptions, one has a Standard & Poor’s (‘‘S&P’’) rating of AA, one has an S&P rating of AA- and we have
collateral for the entire contract limit exposure for the reinsurer which is not rated by either rating agency.
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