Allstate 2008 Annual Report Download - page 231

Management’s Discussion and Analysis
of Financial Condition and Results of Operations–(Continued)
(7) Balance sheet liabilities not included in the table above include unearned and advance premiums of $10.79 billion and deferred tax
liabilities netted in the net deferred tax asset of $3.79 billion. These items were excluded as they do not meet the definition of a
contractual liability as we are not contractually obligated to pay these amounts to third parties. Rather, they represent an accounting
mechanism that allows us to present our financial statements on an accrual basis. In addition, other liabilities of $708 million were not
included in the table above because they did not represent a contractual obligation or the amount and timing of their eventual payment
was sufficiently uncertain.
(8) Net unrecognized tax benefits relate to Financial Accounting Standards Board Interpretation No. 48, ‘‘Accounting for Uncertainty in
Income Taxes’’ (‘‘FIN 48’’). We believe it is reasonably possible that the FIN 48 liability balance will not significantly increase or decrease
within the next 12 months. The resolution of this obligation may be for an amount different than what we have accrued.
Our contractual commitments as of December 31, 2008 and the payments due by period are shown in the
following table.
Less than
Total 1 year 1-3 years 4-5 years Over 5 years
($ in millions)
Other commitments—conditional $ 13 $ 11 $ 2 $ — $ —
Other commitments—unconditional 1,945 216 1,052 616 61
Total commitments $1,958 $227 $1,054 $616 $61
Contractual commitments represent investment commitments such as private placements, limited partnership
interests and mortgage loans.
We have agreements in place for services we conduct, generally at cost, between subsidiaries relating to
insurance, reinsurance, loans and capitalization. All material inter-company transactions have appropriately been
eliminated in consolidation. Inter-company transactions among insurance subsidiaries and affiliates have been
approved by the appropriate departments of insurance as required.
For a more detailed discussion of our off-balance sheet arrangements, see Note 6 of the consolidated
financial statements.
ENTERPRISE RISK AND RETURN MANAGEMENT
Allstate has established enterprise risk and return management (‘‘ERRM’’) processes and infrastructure to
effectively manage risk within our tolerances while optimizing risk adjusted returns. We have a senior
management committee called the Enterprise Risk & Return Council (‘‘ERRC’’) which is responsible for overseeing
enterprise risks. Enterprise risk and return management is a disciplined, holistic, integrated and interactive
approach to risk that is conducted under an overall framework which:
●Increases transparency thereby providing additional insight when setting enterprise strategy
●Identifies potential events that could have a significant impact on Allstate
●Proactively manages risk and optimizes our overall profile consistent with Allstate’s risk appetite
●Provides greater assurance of achieving Allstate’s objectives
●Allows Allstate to pursue a return commensurate with the risks taken
Allstate’s Board of Directors and Audit Committee provide enterprise risk management oversight by reviewing
enterprise principles, guidelines and limits for Allstate’s significant risks and by monitoring major risk exposures,
trends and actions management has taken to control these risks.
Allstate’s primary risk exposures result from the capital markets, followed by catastrophes and operational
risk events. Allstate has been proactive in the face of financial market and economic turbulence by responding
quickly to reduce exposures in ‘‘at risk’’ asset classes, implementing risk mitigation and return optimization
programs designed to protect our investment portfolio values, and enhancing our liquidity position through a
series of actions.
Risk management is primarily executed within the business units where risk is undertaken. Our risk
management programs include appropriate governance policies with established tolerances and risk limits,
stochastic modeling software and analyses, risk identification, evaluation, prioritization, treatment and monitoring
practices and effective communication and reporting. Chief Risk Officers and managers in the various business
units are responsible for managing, measuring, evaluating, and reporting risks as appropriate in their respective
areas within the risk appetite of the overall enterprise. This includes items such as monitoring appropriate
tolerances and managing exposure to catastrophes; managing the impacts to invested assets and liabilities
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MD&A