Allstate 2011 Annual Report Download - page 235

In the preceding table, the contractual amounts represent the amount at risk if the contract is fully drawn upon, the
counterparty defaults and the value of any underlying security becomes worthless. Unless noted otherwise, the
Company does not require collateral or other security to support off-balance-sheet financial instruments with credit
risk.
Commitments to invest generally represent commitments to acquire financial interests or instruments. The
Company enters into these agreements to allow for additional participation in certain limited partnership investments.
Because the equity investments in the limited partnerships are not actively traded, it is not practical to estimate the fair
value of these commitments.
Private placement commitments represent conditional commitments to purchase private placement debt and
equity securities at a specified future date. The Company regularly enters into these agreements in the normal course of
business. The fair value of these commitments generally cannot be estimated on the date the commitment is made as
the terms and conditions of the underlying private placement securities are not yet final.
Other loan commitments are agreements to lend to a borrower provided there is no violation of any condition
established in the contract. The Company enters into these agreements to commit to future loan fundings at
predetermined interest rates. Commitments generally have fixed or varying expiration dates or other termination
clauses. The fair value of these commitments is insignificant.
7. Reserve for Property-Liability Insurance Claims and Claims Expense
As described in Note 2, the Company establishes reserves for claims and claims expense (‘‘loss’’) on reported and
unreported claims of insured losses. The Company’s reserving process takes into account known facts and
interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid,
historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs,
product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the
normal course of business, the Company may also supplement its claims processes by utilizing third party adjusters,
appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and
non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.
Because reserves are estimates of unpaid portions of losses that have occurred, including incurred but not
reported (‘‘IBNR’’) losses, the establishment of appropriate reserves, including reserves for catastrophes, is an
inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts,
which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for
losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been
reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as
events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be
material, are reported in property-liability insurance claims and claims expense in the Consolidated Statements of
Operations in the period such changes are determined.
Activity in the reserve for property-liability insurance claims and claims expense is summarized as follows:
($ in millions) 2010 2009 2008
Balance as of January 1 $ 19,167 $ 19,456 $ 18,865
Less reinsurance recoverables 2,139 2,274 2,205
Net balance as of January 1 17,028 17,182 16,660
Incurred claims and claims expense related to:
Current year 19,110 18,858 19,894
Prior years (159) (112) 170
Total incurred 18,951 18,746 20,064
Claims and claims expense paid related to:
Current year 12,012 11,905 12,658
Prior years 6,571 6,995 6,884
Total paid 18,583 18,900 19,542
Net balance as of December 31 17,396 17,028 17,182
Plus reinsurance recoverables 2,072 2,139 2,274
Balance as of December 31 $ 19,468 $ 19,167 $ 19,456
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Notes