Allstate 2008 Annual Report Download - page 298

One or more of these matters could have an adverse effect on the Company’s operating results or cash flows
for a particular quarterly or annual period. However, based on information currently known to it, management
believes that the ultimate outcome of all matters described in this ‘‘Other Matters’’ subsection, in excess of
amounts currently reserved, as they are resolved over time is not likely to have a material effect on the operating
results, cash flows or financial position of the Company.
Asbestos and environmental
Allstate’s reserves for asbestos claims were $1.23 billion and $1.30 billion, net of reinsurance recoverables of
$704 million and $752 million at December 31, 2008 and 2007, respectively. Reserves for environmental claims
were $195 million and $232 million, net of reinsurance recoverables of $56 million and $107 million at
December 31, 2008 and 2007, respectively. Approximately 64% and 63% of the total net asbestos and
environmental reserves at December 31, 2008 and 2007, respectively, were for incurred but not reported estimated
losses.
Management believes its net loss reserves for asbestos, environmental and other discontinued lines
exposures are appropriately established based on available facts, technology, laws and regulations. However,
establishing net loss reserves for asbestos, environmental and other discontinued lines claims is subject to
uncertainties that are greater than those presented by other types of claims. The ultimate cost of losses may vary
materially from recorded amounts, which are based on management’s best estimate. Among the complications are
lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential
exposure and unresolved legal issues regarding policy coverage; unresolved legal issues regarding the
determination, availability and timing of exhaustion of policy limits; plaintiffs’ evolving and expanding theories of
liability, availability and collectability of recoveries from reinsurance, retrospectively determined premiums and
other contractual agreements; and estimating the extent and timing of any contractual liability, and other
uncertainties. There are also complex legal issues concerning the interpretation of various insurance policy
provisions and whether those losses are covered, or were ever intended to be covered, and could be recoverable
through retrospectively determined premium, reinsurance or other contractual agreements. Courts have reached
different and sometimes inconsistent conclusions as to when losses are deemed to have occurred and which
policies provide coverage; what types of losses are covered; whether there is an insurer obligation to defend; how
policy limits are determined; how policy exclusions and conditions are applied and interpreted; and whether
clean-up costs represent insured property damage. Management believes these issues are not likely to be
resolved in the near future, and the ultimate cost may vary materially from the amounts currently recorded
resulting in an increase in loss reserves. In addition, while the Company believes that improved actuarial
techniques and databases have assisted in its ability to estimate asbestos, environmental, and other discontinued
lines net loss reserves, these refinements may subsequently prove to be inadequate indicators of the extent of
probable losses. Due to the uncertainties and factors described above, management believes it is not practicable
to develop a meaningful range for any such additional net loss reserves that may be required.
14. Income Taxes
The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and
benefits realized by the consolidated group are allocated as generated by the respective entities.
The Internal Revenue Service (‘‘IRS’’) is currently examining the Company’s 2005 and 2006 federal income tax
returns. The IRS examination of the Company’s 2003 and 2004 tax returns is complete, and a closing agreement
documenting the settlement of that audit was signed by the Company and the IRS. The statute of limitations for
2003 and 2004 expired during the third quarter of 2008. The Company’s federal income tax returns for tax years
prior to 2003 have been examined by the IRS and the statute of limitations has expired on those years. Any
adjustments that may result from IRS examinations of tax returns are not expected to have a material effect on
the results of operations, cash flows or financial position of the Company.
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Notes