

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 and reserves and reinsurance recoverables for the Discontinued Lines and Coverages, 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 Condensed Consolidated Statements of Operations in the period such changes are determined.

Management believes that the reserve for property and casualty insurance claims and claims expense, net of reinsurance 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 Condensed Consolidated Statements of Financial Position based on available facts, technology, laws and regulations.

Allstate’s reserves for asbestos claims were $866 million and $884 million, net of reinsurance recoverables of $399 million and $412 million, as of March 31, 2018 and December 31, 2017, respectively. Reserves for environmental claims were $162 million and $166 million, net of reinsurance recoverables of $33 million and $33 million, as of March 31, 2018 and December 31, 2017, respectively.



Rollforward of the reserve for property and casualty insurance claims and claims expense
	Three months ended March 31,
($ in millions)	2018			2017
Balance as of January 1	$	26,325		$	25,250
Less reinsurance recoverables	6,471			6,184
Net balance as of January 1	19,854			19,066
SquareTrade acquisition as of January 3, 2017	—			17
Incurred claims and claims expense related to:
Current year	5,200			5,513
Prior years	(51		)	(97		)
Total incurred	5,149			5,416
Claims and claims expense paid related to:
Current year	2,260			2,239
Prior years	3,115			2,815
Total paid	5,375			5,054
Net balance as of March 31	19,628			19,445
Plus reinsurance recoverables	6,487			6,183
Balance as of March 31	$	26,115		$	25,628

Incurred claims and claims expense represents the sum of paid losses and reserve changes in the period. This expense includes losses from catastrophes of $361 million and $781 million in the three months ended March 31, 2018 and 2017, respectively, net of reinsurance and other recoveries. 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. During the three months ended March 31, 2018, incurred claims and claims expense included $51 million of prior year reserve reestimates, increasing net income. Prior year reserve reestimates excluding catastrophes is comprised of net decreases in auto reserves of $73 million, due to auto liability coverages development, and net increases primarily related to commercial lines of $18 million. Incurred claims and claims expense includes unfavorable catastrophe loss reestimates of $4 million, net of reinsurance and other recoveries, which include $34 million of unfavorable reestimates related to homeowners and $30 million of favorable reestimates, primarily related to auto.