Allstate 2015 Annual Report Download - page 131

The Allstate Corporation 2015 Annual Report 125
Our reinsurance recoverable balances are shown in the following table as of December 31, net of the allowance we
have established for uncollectible amounts.
($ in millions) Standard
& Poor’s
financial
strength
rating (1)
Reinsurance
recoverable on paid and
unpaid claims, net
2015 2014
Industry pools and facilities
Michigan Catastrophic Claim Association (“MCCA”) N/A $ 4,664 (2) $ 4,419 (2)
New Jersey Property‑Liability Insurance Guaranty
Association (“PLIGA”) N/A 500 508
North Carolina Reinsurance Facility N/A 71 60
National Flood Insurance Program N/A 27 7
Other 3 2
Subtotal 5,265 4,996
Other reinsurance
Lloyd’s of London (“Lloyd’s”) A+ 183 202
Westport Insurance Corporation AA‑ 62 65
New England Reinsurance Corporation N/A 32 33
Clearwater Insurance Company N/A 28 27
R&Q Reinsurance Company N/A 26 28
Bedivere Insurance Company N/A 23 23
Other, including allowance for future uncollectible reinsurance recoverables 360 409
Subtotal 714 787
Total Property‑Liability $ 5,979 $ 5,783
(1) N/A reflects no rating available.
(2) As of December 31, 2015 and 2014, MCCA includes $29 million and $32 million of reinsurance recoverable on paid claims, respectively, and $4.61
billion and $4.39 billion of reinsurance recoverable on unpaid claims, respectively.
Reinsurance recoverables include an estimate of the amount of property-liability insurance claims and claims expense
reserves that are 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 reserves 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 primarily relates to Discontinued Lines and Coverages reinsurance
recoverables and was $80 million and $95 million as of December 31, 2015 and 2014, respectively. The allowance for
Discontinued Lines and Coverages represents 11.9% and 12.9% of the related reinsurance recoverable balances as of
December 31, 2015 and 2014, 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 cedents, and recent
trends in arbitration and litigation outcomes in disputes between cedents 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, some companies have 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.