Allstate 2011 Annual Report Download - page 132

Ceded property-liability claims and claims expense decreased in 2010 and 2009 primarily due to amounts ceded to
National Flood Insurance Program.
For a detailed description of the MCCA, FHCF and Lloyd’s, see Note 9 of the consolidated financial statements. As
of December 31, 2010, other than the recoverable balances listed above, no other amount due or estimated to be due
from any single Property-Liability reinsurer was in excess of $17 million.
We enter into certain intercompany insurance and reinsurance transactions for the Property-Liability operations in
order to maintain underwriting control and manage insurance risk among various legal entities. These reinsurance
agreements have been approved by the appropriate regulatory authorities. All significant intercompany transactions
have been eliminated in consolidation.
Catastrophe reinsurance
Our catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our
exposure to catastrophes nationwide. Our program provides reinsurance protection for catastrophes including storms
named or numbered by the National Weather Service, fires following earthquakes, earthquakes and wildfires including
California wildfires. These reinsurance agreements are part of our catastrophe management strategy, which is intended
to provide our shareholders an acceptable return on the risks assumed in our property business, and to reduce
variability of earnings, while providing protection to our customers.
While our catastrophe management strategy remains substantially unchanged we have redesigned our
catastrophe reinsurance program in 2011. Our new reinsurance program continues to support our goal to have no more
than a 1% likelihood of exceeding annual aggregate catastrophe losses by $2 billion, net of reinsurance, from
hurricanes and earthquakes, based on modeled assumptions and applications currently available. Since the 2006
inception of Allstate’s catastrophe reinsurance program, our exposure to wind loss has been materially reduced and we
have nearly eliminated our exposure to earthquake loss. Our redesigned program for 2011 responds to these exposure
changes by including coverage for multiple perils, in addition to hurricanes and earthquakes, in all but one of the
contracts comprising the program. In addition, the per occurrence structure effective June 1, 2011 facilitates the
program’s administration while providing greater potential with respect to loss recovery.
The new program, as described below, provides $3.25 billion of reinsurance coverage, above the retention, with
reinstatements of limits. It includes a Per Occurrence Excess Catastrophe Reinsurance agreement reinsuring our
personal lines property and auto excess catastrophe losses resulting from multiple perils, including those perils
currently reinsured under our existing program, in every state other than New Jersey and Florida. For June 1, 2011 to
May 31, 2012, the program consists of two agreements: a Per Occurrence Excess Catastrophe Reinsurance agreement
providing coverage in six layers and a Top and Drop Excess Catastrophe Reinsurance agreement which includes
Coverage A and Coverage B.
The Per Occurrence Excess Catastrophe Reinsurance agreement provides an initial $3.25 billion per occurrence
limit in excess of a $500 million retention and after the Company has incurred $250 million in losses ‘‘otherwise
recoverable.’’ The $250 million in losses otherwise recoverable applies once each contract year to the First Layer only
and losses from multiple qualifying occurrences can apply to this $250 million threshold in excess of $500 million per
occurrence. The Top and Drop Excess Catastrophe Reinsurance agreement provides $250 million of reinsurance limits
which may be used for Coverage A, Coverage B, or a combination of both. Coverage A reinsures the ‘‘Top’’ of the
program and provides 50% of $500 million excess of a $3.25 billion retention. Coverage B allows the program limit to
‘‘Drop’’ and provides reinsurance for $250 million in limits excess of a $750 million retention and after the Company has
incurred $500 million in losses ‘‘otherwise recoverable’’ under the agreement. Losses from multiple qualifying
occurrences, in excess of $750 million per occurence, can apply to this $500 million threshold.
The New Jersey and Florida components of the reinsurance program are designed separately from the other
components of the program to address the distinct needs of our separately capitalized legal entities in those states.
New Jersey catastrophe losses will be reinsured under a newly placed per occurrence agreement and under existing
agreements which expire respectively on May 31, 2012 and 2013. The Florida component will be placed in May of 2011.
Allstate Protection’s separate reinsurance programs in Pennsylvania and Kentucky will continue to address exposures
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