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Reserve for Property-Liability Insurance Claims and Claims Expense | 12 Months Ended
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Dec. 31, 2019
Reserve for Property-Liability Insurance Claims and Claims Expense |
Reserve for Property-Liability Insurance Claims and Claims Expense |
Note 8 | Reserve for Property and Casualty Insurance Claims and Claims Expense
The Company establishes reserves for claims and claims expense 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, Discontinued Lines and Coverages and reinsurance and indemnification recoverables, 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 and casualty insurance claims and claims expense in the Consolidated Statements of Operations in the period such changes are determined.
Rollforward of reserve for property and casualty insurance claims and claims expense
($ in millions) |  | 2019 |  | 2018 |  | 2017
Balance as of January 1 |  | $ | 27,423 |  |  | $ | 26,325 |  |  | $ | 25,250 |
Less recoverables (1) |  | (7,155 | ) |  | (6,471 | ) |  | (6,184 | )
Net balance as of January 1 |  | 20,268 |  |  | 19,854 |  |  | 19,066 |
SquareTrade acquisition as of January 3, 2017 |  | — |  |  | — |  |  | 17 |
Incurred claims and claims expense related to: |  |  |  |  |  |
Current year |  | 24,106 |  |  | 23,033 |  |  | 22,350 |
Prior years |  | (130 | ) |  | (255 | ) |  | (503 | )
Total incurred |  | 23,976 |  |  | 22,778 |  |  | 21,847 |
Claims and claims expense paid related to: |  |  |  |  |  |
Current year |  | (15,160 | ) |  | (14,877 | ) |  | (14,112 | )
Prior years |  | (8,284 | ) |  | (7,487 | ) |  | (6,964 | )
Total paid |  | (23,444 | ) |  | (22,364 | ) |  | (21,076 | )
Net balance as of December 31 |  | 20,800 |  |  | 20,268 |  |  | 19,854 |
Plus recoverables |  | 6,912 |  |  | 7,155 |  |  | 6,471 |
Balance as of December 31 |  | $ | 27,712 |  |  | $ | 27,423 |  |  | $ | 26,325 |
(1) Recoverables comprises reinsurance and indemnification recoverables. See Note 10 for further details.
Reconciliation of total claims and claims expense incurred and paid by coverage |  | December 31, 2019
($ in millions) |  | Incurred |  | Paid
Allstate Protection |  |  |  |
Auto insurance - liability coverage |  | $ | 9,142 |  |  | $ | (8,419 | )
Auto insurance - physical damage coverage |  | 5,576 |  |  | (5,570 | )
Homeowners insurance |  | 4,625 |  |  | (4,616 | )
Total auto and homeowners insurance |  | 19,343 |  |  | (18,605 | )
Other personal lines |  | 1,024 |  |  | (1,059 | )
Commercial lines |  | 648 |  |  | (404 | )
Service Businesses |  | 297 |  |  | (311 | )
Discontinued Lines and Coverages |  | 91 |  |  | (121 | )
Unallocated loss adjustment expenses (“ULAE”) |  | 2,687 |  |  | (2,585 | )
Claims incurred and paid from before 2015 |  | (97 | ) |  | (444 | )
Other |  | (17 | ) |  | 85 |
Total |  | $ | 23,976 |  |  | $ | (23,444 | )
Incurred claims and claims expense represents the sum of paid losses, claim adjustment expenses and reserve changes in the calendar year. This expense includes losses from catastrophes of $2.56 billion, $2.86 billion and $3.23 billion in 2019, 2018 and 2017, respectively, net of recoverables. Catastrophes are an inherent risk of the property and casualty insurance business that have contributed to, and will continue to contribute to, material year-to-year fluctuations in the Company’s results of operations and financial position. The Company calculates and records a single best reserve estimate for losses from catastrophes, in conformance with generally accepted actuarial standards. As a result, management believes that no other estimate is better than the recorded amount. Due to the uncertainties involved, including the factors described above, the ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. Accordingly, management believes that it is not practical to develop a meaningful range for any such changes in losses incurred.
Prior year reserve reestimates included in claims and claims expense (1)
|  | Twelve months ended December 31,
($ in millions) |  | Non-catastrophe losses |  | Catastrophe losses |  | Total
|  | 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017
Auto (2) |  | $ | (306 | ) |  | $ | (416 | ) |  | $ | (475 | ) |  | $ | (17 | ) |  | $ | (39 | ) |  | $ | (15 | ) |  | $ | (323 | ) |  | $ | (455 | ) |  | $ | (490 | )
Homeowners |  | (1 | ) |  | (51 | ) |  | (124 | ) |  | 66 |  |  | 65 |  |  | (7 | ) |  | 65 |  |  | 14 |  |  | (131 | )
Other personal lines |  | 8 |  |  | (6 | ) |  | (2 | ) |  | — |  |  | (1 | ) |  | 3 |  |  | 8 |  |  | (7 | ) |  | 1 |
Commercial lines |  | 18 |  |  | 108 |  |  | 18 |  |  | (1 | ) |  | — |  |  | 1 |  |  | 17 |  |  | 108 |  |  | 19 |
Discontinued Lines and Coverages (3) |  | 105 |  |  | 87 |  |  | 96 |  |  | — |  |  | — |  |  | — |  |  | 105 |  |  | 87 |  |  | 96 |
Service Businesses |  | (2 | ) |  | (2 | ) |  | 2 |  |  | — |  |  | — |  |  | — |  |  | (2 | ) |  | (2 | ) |  | 2 |
Total prior year reserve reestimates |  | $ | (178 | ) |  | $ | (280 | ) |  | $ | (485 | ) |  | $ | 48 |  |  | $ | 25 |  |  | $ | (18 | ) |  | $ | (130 | ) |  | $ | (255 | ) |  | $ | (503 | )
(1) | Favorable reserve reestimates are shown in parentheses.
(2) | Non-catastrophe results related to continued favorable personal lines auto injury coverage development.
(3) | The Company’s 2019 annual reserve review, using established industry and actuarial best practices, resulted in unfavorable reestimates of $95 million.
The following presents information about incurred and paid claims development as of December 31, 2019, net of recoverables, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included in the net incurred claims amounts. See Note 2 for the accounting policy and methodology for determining reserves for claims and claims expense, including both reported and IBNR claims. The cumulative number of reported claims is identified by coverage and excludes reported claims for industry pools and facilities where information is not available. The information about incurred and paid claims development for the 2015 to 2019 years, and the average annual percentage payout of incurred claims by age as of December 31, 2019, is presented as required supplementary information. Auto insurance – liability coverage
($ in millions, except number of reported claims) |  | Incurred claims and allocated claim adjustment expenses, net of recoverables |  |  |  | IBNR reserves plus expected development on reported claims |  | Cumulative number of reported claims
|  | For the years ended December 31, |  | Prior year reserve reestimates |  | As of December 31, 2019
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2015 |  | $ | 8,763 |  |  | $ | 8,733 |  |  | $ | 8,677 |  |  | $ | 8,617 |  |  | $ | 8,578 |  |  | $ | (39 | ) |  | $ | 519 |  |  | 2,383,853 |
2016 |  | — |  |  | 9,030 |  |  | 8,833 |  |  | 8,732 |  |  | 8,683 |  |  | (49 | ) |  | 988 |  |  | 2,399,890 |
2017 |  | — |  |  | — |  |  | 8,457 |  |  | 8,389 |  |  | 8,305 |  |  | (84 | ) |  | 1,777 |  |  | 2,214,254 |
2018 |  | — |  |  | — |  |  | — |  |  | 8,727 |  |  | 8,708 |  |  | (19 | ) |  | 3,093 |  |  | 2,169,753 |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,333 |  |  |  |  | 5,838 |  |  | 2,108,919 |
|  |  |  |  |  |  |  | Total |  |  | $ | 43,607 |  |  | $ | (191 | ) |  |  |  |
Reconciliation to total prior year reserve reestimates recognized by line |  |  |  |  |  |
Prior year reserve reestimates for pre-2015 accident years |  | (56 | ) |  |  |  |
Prior year reserve reestimates for ULAE |  | 14 |  |  |  |  |
Other |  | (1 | ) |  |  |  |
Total prior year reserve reestimates |  | $ | (234 | ) |  |  |  |
|  | Cumulative paid claims and allocated claims adjustment expenses, net of recoverables |  |  |  |  |  |
|  | For the years ended December 31, |  |  |  |  |  |
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |  |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |  |  |  |  |
2015 |  | $ | 3,524 |  |  | $ | 5,837 |  |  | $ | 6,883 |  |  | $ | 7,565 |  |  | $ | 8,059 |  |  |  |  |  |  |
2016 |  | — |  |  | 3,485 |  |  | 5,768 |  |  | 6,849 |  |  | 7,695 |  |  |  |  |  |  |
2017 |  | — |  |  | — |  |  | 3,149 |  |  | 5,330 |  |  | 6,528 |  |  |  |  |  |  |
2018 |  | — |  |  | — |  |  | — |  |  | 3,229 |  |  | 5,615 |  |  |  |  |  |  |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,495 |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total |  |  | $ | 31,392 |  |  |  |  |  |  |
All outstanding liabilities before 2015, net of recoverables |  | 1,274 |  |  |  |  |  |  |
Liabilities for claims and claim adjustment expenses, net of recoverables |  | $ | 13,489 |  |  |  |  |  |  |
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019
|  | 1 year |  | 2 years |  | 3 years |  | 4 years |  | 5 years
Auto insurance – liability coverage |  | 40.0 | % |  | 27.2 | % |  | 12.9 | % |  | 8.2 | % |  | 4.9 | %
Auto insurance – physical damage coverage
($ in millions, except number of reported claims) |  | Incurred claims and allocated claim adjustment expenses, net of recoverables |  |  |  | IBNR reserves plus expected development on reported claims |  | Cumulative number of reported claims
|  | For the years ended December 31, |  | Prior year reserve reestimates |  | As of December 31, 2019
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2015 |  | $ | 4,653 |  |  | $ | 4,681 |  |  | $ | 4,669 |  |  | $ | 4,660 |  |  | $ | 4,656 |  |  | $ | (4 | ) |  | $ | 2 |  |  | 4,390,288 |
2016 |  | — |  |  | 5,125 |  |  | 5,052 |  |  | 5,025 |  |  | 5,020 |  |  | (5 | ) |  | 5 |  |  | 4,431,735 |
2017 |  | — |  |  | — |  |  | 5,119 |  |  | 5,037 |  |  | 5,025 |  |  | (12 | ) |  | (2 | ) |  | 4,236,640 |
2018 |  | — |  |  | — |  |  | — |  |  | 5,216 |  |  | 5,154 |  |  | (62 | ) |  | 17 |  |  | 4,306,335 |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,659 |  |  |  |  | 244 |  |  | 4,312,306 |
|  |  |  |  |  |  |  | Total |  |  | $ | 25,514 |  |  | $ | (83 | ) |  |  |  |
Reconciliation to total prior year reserve reestimates recognized by line |  |  |  |  |  |
Prior year reserve reestimates for pre-2015 accident years |  | (4 | ) |  |  |  |
Prior year reserve reestimates for ULAE |  | (2 | ) |  |  |  |
Other |  | — |  |  |  |  |
Total prior year reserve reestimates |  | $ | (89 | ) |  |  |  |
|  | Cumulative paid claims and allocated claims adjustment expenses, net of recoverables |  |  |  |  |  |
|  | For the years ended December 31, |  |  |  |  |  |
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |  |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |  |  |  |  |
2015 |  | $ | 4,507 |  |  | $ | 4,672 |  |  | $ | 4,658 |  |  | $ | 4,655 |  |  | $ | 4,654 |  |  |  |  |  |  |
2016 |  | — |  |  | 4,887 |  |  | 5,031 |  |  | 5,019 |  |  | 5,016 |  |  |  |  |  |  |
2017 |  | — |  |  | — |  |  | 4,845 |  |  | 5,036 |  |  | 5,027 |  |  |  |  |  |  |
2018 |  | — |  |  | — |  |  | — |  |  | 4,968 |  |  | 5,137 |  |  |  |  |  |  |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,414 |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total |  |  | $ | 25,248 |  |  |  |  |  |  |
All outstanding liabilities before 2015, net of recoverables |  | 7 |  |  |  |  |  |  |
Liabilities for claims and claim adjustment expenses, net of recoverables |  | $ | 273 |  |  |  |  |  |  |
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019
|  | 1 year |  | 2 years |  | 3 years |  | 4 years |  | 5 years
Auto insurance – p hysical damage coverage |  | 97.0 | % |  | 3.0 | % |  | (0.2 | )% |  | — | % |  | — | %
Homeowners insurance
($ in millions, except number of reported claims) |  | Incurred claims and allocated claim adjustment expenses, net of recoverables |  |  |  | IBNR reserves plus expected development on reported claims |  | Cumulative number of reported claims
|  | For the years ended December 31, |  | Prior year reserve reestimates |  | As of December 31, 2019
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |
2015 |  | $ | 3,558 |  |  | $ | 3,611 |  |  | $ | 3,553 |  |  | $ | 3,537 |  |  | $ | 3,520 |  |  | $ | (17 | ) |  | $ | 36 |  |  | 721,328 |
2016 |  | — |  |  | 3,959 |  |  | 3,993 |  |  | 3,955 |  |  | 3,951 |  |  | (4 | ) |  | 77 |  |  | 813,728 |
2017 |  | — |  |  | — |  |  | 4,475 |  |  | 4,617 |  |  | 4,612 |  |  | (5 | ) |  | 177 |  |  | 907,218 |
2018 |  | — |  |  | — |  |  | — |  |  | 4,747 |  |  | 4,851 |  |  | 104 |  |  | 340 |  |  | 807,012 |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,547 |  |  |  |  | 1,233 |  |  | 721,434 |
|  |  |  |  |  |  |  | Total |  |  | $ | 21,481 |  |  | $ | 78 |  |  |  |  |
Reconciliation to total prior year reserve reestimates recognized by line |  |  |  |  |  |
Prior year reserve reestimates for pre-2015 accident years |  | (36 | ) |  |  |  |
Prior year reserve reestimates for ULAE |  | 23 |  |  |  |  |
Other |  | — |  |  |  |  |
Total prior year reserve reestimates |  | $ | 65 |  |  |  |  |
|  | Cumulative paid claims and allocated claims adjustment expenses, net of recoverables |  |  |  |  |  |
|  | For the years ended December 31, |  |  |  |  |  |
|  | (unaudited) |  | (unaudited) |  | (unaudited) |  | (unaudited) |  |  |  |  |  |  |  |
Accident year |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  |  |  |  |  |
2015 |  | $ | 2,586 |  |  | $ | 3,296 |  |  | $ | 3,399 |  |  | $ | 3,458 |  |  | $ | 3,484 |  |  |  |  |  |  |
2016 |  | — |  |  | 2,947 |  |  | 3,678 |  |  | 3,809 |  |  | 3,874 |  |  |  |  |  |  |
2017 |  | — |  |  | — |  |  | 3,227 |  |  | 4,246 |  |  | 4,435 |  |  |  |  |  |  |
2018 |  | — |  |  | — |  |  | — |  |  | 3,489 |  |  | 4,511 |  |  |  |  |  |  |
2019 |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,314 |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total |  |  | $ | 19,618 |  |  |  |  |  |  |
All outstanding liabilities before 2015, net of recoverables |  | 126 |  |  |  |  |  |  |
Liabilities for claims and claim adjustment expenses, net of recoverables |  | $ | 1,989 |  |  |  |  |  |  |
Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2019
|  | 1 year |  | 2 years |  | 3 years |  | 4 years |  | 5 years
Homeowners insurance |  | 74.5 | % |  | 18.9 | % |  | 3.1 | % |  | 1.4 | % |  | 0.7 | %
Reconciliation of the net incurred and paid claims development tables above to the reserve for property and casualty insurance claims and claims expense
($ in millions) |  | As of December 31, 2019
Net outstanding liabilities |  |
Allstate Protection |  |
Auto insurance - liability coverage |  | $ | 13,489 |
Auto insurance - physical damage coverage |  | 273 |
Homeowners insurance |  | 1,989 |
Other personal lines |  | 1,326 |
Commercial lines |  | 1,010 |
Service Businesses |  | 36 |
Discontinued Lines and Coverages (1) |  | 1,286 |
ULAE |  | 1,391 |
Net reserve for property and casualty insurance claims and claims expense |  | 20,800 |
Recoverables |  |
Allstate Protection |  |
Auto insurance - liability coverage |  | 5,891 |
Auto insurance - physical damage coverage |  | 3 |
Homeowners insurance |  | 214 |
Other personal lines |  | 160 |
Commercial lines |  | 130 |
Service Businesses |  | 13 |
Discontinued Lines and Coverages |  | 452 |
ULAE |  | 49 |
Total recoverables |  | 6,912 |
Gross reserve for property and casualty insurance claims and claims expense |  | $ | 27,712 |
(1) | Discontinued Lines and Coverages includes business in run-off with most of the claims related to accident years more than 30 years ago. IBNR reserves represent $660 million of the total reserves as of December 31, 2019.
Management believes that the reserve for property and casualty insurance claims and claims expense, net of recoverables, is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the Consolidated Statements of Financial Position based on available facts, technology, laws and regulations. Allstate’s reserves for asbestos claims were $810 million and $866 million, net of reinsurance recoverables of $362 million and $400 million, as of December 31, 2019 and 2018, respectively. Reserves for environmental claims were $179 million and $170 million, net of reinsurance recoverables of $40 million and $39 million, as of December 31, 2019 and 2018, respectively. For further discussion of asbestos and environmental reserves, see Note 14.

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- Definition Describes the various components of the reserve for property-liability future policy benefits and guaranteed minimum benefits, and for claims and claims adjustment expenses; the significant assumptions for estimating claims losses; causes of significant variances from prior periods (such as catastrophes, asbestos and environmental claims reserve losses); and reconciliations of beginning to ending reserve balances. + References No definition available. + Details
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