Allstate 2011 Annual Report Download - page 130

The impacts of reinsurance on our reserve for claims and claims expense as of December 31 are summarized in the
following table, net of allowances we have established for uncollectible amounts.
($ in millions) Reserve for
property-liability
insurance claims Reinsurance
and claims expense recoverables, net
2010 2009 2010 2009
Industry pools and facilities $ 1,990 $ 2,000 $ 1,419 $ 1,408
Asbestos and environmental 1,903 2,027 628 683
Other including allowance for future
uncollectible reinsurance
recoverables 15,575 15,140 105 121
Total Property-Liability $ 19,468 $ 19,167 $ 2,152 $ 2,212
Reinsurance recoverables include an estimate of the amount of property-liability insurance claims and claims
expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not
reported unpaid losses. We calculate our ceded reinsurance estimate based on the terms of each applicable
reinsurance agreement, including an estimate of how IBNR losses will ultimately be ceded under the agreement. We
also consider other limitations and coverage exclusions under our reinsurance agreements. Accordingly, our estimate of
reinsurance recoverables is subject to similar risks and uncertainties as our estimate of reserve for property-liability
claims and claims expense. We believe the recoverables are appropriately established; however, as our underlying
reserves continue to develop, the amount ultimately recoverable may vary from amounts currently recorded. We
regularly evaluate the reinsurers and the respective amounts recoverable, and a provision for uncollectible reinsurance
is recorded if needed. The establishment of reinsurance recoverables and the related allowance for uncollectible
reinsurance is also an inherently uncertain process involving estimates. Changes in estimates could result in additional
changes to the Consolidated Statements of Operations.
The allowance for uncollectible reinsurance relates to Discontinued Lines and Coverages reinsurance recoverables
and was $142 million as of both December 31, 2010 and 2009. This amount represents 17.6% and 16.2% of the related
reinsurance recoverable balances as of December 31, 2010 and 2009, respectively. The allowance is based upon our
ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, and other
relevant factors. In addition, in the ordinary course of business, we may become involved in coverage disputes with
certain of our reinsurers which may ultimately result in lawsuits and arbitrations brought by or against such reinsurers
to determine the parties’ rights and obligations under the various reinsurance agreements. We employ dedicated
specialists to manage reinsurance collections and disputes. We also consider recent developments in commutation
activity between reinsurers and cedants, and recent trends in arbitration and litigation outcomes in disputes between
cedants and reinsurers in seeking to maximize our reinsurance recoveries.
Adverse developments in the insurance industry have led to a decline in the financial strength of some of our
reinsurance carriers, causing amounts recoverable from them and future claims ceded to them to be considered a
higher risk. There has also been consolidation activity in the industry, which causes reinsurance risk across the industry
to be concentrated among fewer companies. In addition, over the last several years the industry has increasingly
segregated asbestos, environmental, and other discontinued lines exposures into separate legal entities with dedicated
capital. Regulatory bodies in certain cases have supported these actions. We are unable to determine the impact, if any,
that these developments will have on the collectability of reinsurance recoverables in the future.
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