Allstate 2008 Annual Report Download - page 293

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In September 2008, TWIA assessed the Company $66 million for losses relating to Hurricane Ike. The
assessment was based on 2007 direct voluntary writings in the State of Texas. We expect to recoup $35 million of
the assessment via premium tax offsets over a five year period. $31 million of the assessment is eligible for
cession under the Company’s reinsurance program. The TWIA board has not indicated the likelihood of any
possible future assessments to insurers at this time. However, assessments from the TWIA for a particular quarter
or annual period may be material to the results of operations and cash flows, but not the financial position of the
Company. Management believes Allstate’s exposure to losses in Texas has been significantly reduced as a result
of its participation in the TWIA.
Guaranty funds
Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to
prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants.
Amounts assessed to each company are typically related to its proportion of business written in each state. The
Company’s policy is to accrue assessments as the related written premium upon which the assessment is based is
written, subsequent to the occurrence of a formal determination of insolvency. As of December 31, 2008 and 2007,
the liability balance included in other liabilities and accrued expenses was $118 million and $107 million,
respectively. The related premium tax offsets included in other assets were $29 million and $21 million as of
December 31, 2008 and 2007, respectively.
Shared markets
As a condition of maintaining its licenses to write personal property and casualty insurance in various states,
the Company is required to participate in assigned risk plans, reinsurance facilities and joint underwriting
associations that provide various types of insurance coverage to individuals or entities that otherwise are unable
to purchase such coverage from private insurers. Underwriting results related to these arrangements, which tend
to be adverse, have been immaterial to the results of operations.
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. Management does not believe this
agreement will have a material adverse 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, 2008, the Company’s maximum obligation pursuant to these guarantees,
assuming the automobiles have no residual value, would be $17 million at December 31, 2008. 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 referenced 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 $195 million at
December 31, 2008. The obligations associated with these fixed income securities expire at various dates during
the next six years.
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
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Notes