Allstate 2015 Annual Report Download - page 175

The Allstate Corporation 2015 Annual Report 169
In 2015, DAC amortization acceleration for changes in the investment margin component of EGP related to interest-
sensitive life insurance and was due to lower projected investment returns. The acceleration related to benefit margin
primarily related to interest-sensitive life insurance and was due to a true up of actual inforce data. The deceleration related
to expense margin primarily related to interest-sensitive life insurance and was due to a decrease in projected expenses.
In 2014, DAC amortization acceleration for changes in the investment margin component of EGP related to interest-
sensitive life insurance and fixed annuities and was due to lower projected investment returns. The acceleration related to
benefit margin primarily related to interest-sensitive life insurance and was due to an increase in projected mortality. The
deceleration related to expense margin primarily related to interest-sensitive life insurance and was due to a decrease in
projected expenses.
In 2013, DAC amortization deceleration for changes in the investment margin component of EGP primarily related
to fixed annuities and interest-sensitive life insurance and was due to increased projected investment margins. The
acceleration related to benefit margin was primarily due to interest-sensitive life insurance and was due to an increase in
projected mortality. The acceleration related to expense margin related to interest-sensitive life insurance and was due
to an increase in projected expenses.
The following table displays the sensitivity of reasonably likely changes in assumptions included in the gross profit
components of investment margin or benefit margin to amortization of the DAC balance as of December 31, 2015.
($ in millions) Increase/(reduction)
in DAC
Increase in future investment margins of 25 basis points $ 52
Decrease in future investment margins of 25 basis points $ (58)
Decrease in future life mortality by 1% $ 14
Increase in future life mortality by 1% $ (14)
Any potential changes in assumptions discussed above are measured without consideration of correlation among
assumptions. Therefore, it would be inappropriate to add them together in an attempt to estimate overall variability
in amortization.
For additional detail related to DAC, see the Allstate Financial Segment section of the MD&A.
Reserve for property-liability insurance claims and claims expense estimation Reserves are established to provide
for the estimated costs of paying claims and claims expenses under insurance policies we have issued. Property-Liability
underwriting results are significantly influenced by estimates of property-liability insurance claims and claims expense
reserves. These reserves are an estimate of amounts necessary to settle all outstanding claims, including IBNR, as of the
financial statement date.
Characteristics of reserves Reserves are established independently of business segment management for each
business segment and line of business based on estimates of the ultimate cost to settle claims, less losses that have
been paid. The significant lines of business are auto, homeowners, and other personal lines for Allstate Protection, and
asbestos, environmental, and other discontinued lines for Discontinued Lines and Coverages. Allstate Protection’s claims
are typically reported promptly with relatively little reporting lag between the date of occurrence and the date the loss
is reported. Auto and homeowners liability losses generally take an average of about two years to settle, while auto
physical damage, homeowners property and other personal lines have an average settlement time of less than one year.
Discontinued Lines and Coverages involve long-tail losses, such as those related to asbestos and environmental claims,
which often involve substantial reporting lags and extended times to settle.
Reserves are the difference between the estimated ultimate cost of losses incurred and the amount of paid losses
as of the reporting date. Reserves are estimated for both reported and unreported claims, and include estimates of all
expenses associated with processing and settling all incurred claims. We update most of our reserve estimates quarterly
and as new information becomes available or as events emerge that may affect the resolution of unsettled claims.
Changes in prior reserve estimates (reserve reestimates), which may be material, are determined by comparing updated
estimates of ultimate losses to prior estimates, and the differences are recorded as property-liability insurance claims
and claims expense in the Consolidated Statements of Operations in the period such changes are determined. Estimating
the ultimate cost of claims and claims expenses is an inherently uncertain and complex process involving a high degree
of judgment and is subject to the evaluation of numerous variables.