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.

When the Company experiences changes in the mix or type of claims or changing claim settlement patterns, it may need to apply actuarial judgment in the determination and selection of development factors to be more reflective of the new trends. For example, the Coronavirus has had a significant impact on driving patterns and auto frequency that may lead to historical development trends being less predictive of future loss development, potentially creating additional reserve variability. Generally, the initial reserves for a new accident year are established based on actual claim frequency and severity assumptions for different business segments, lines and coverages based on historical relationships to relevant inflation indicators. Reserves for prior accident years are statistically determined using several different actuarial estimation methods. Changes in auto claim frequency may result from changes in mix of business, the rate of distracted driving, miles driven or other macroeconomic factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors of the economy and the effectiveness and efficiency of claim practices. The Company mitigates these effects through various loss management programs. When such changes in claim data occur, actuarial judgment is used to determine appropriate development factors to establish reserves.

As part of the reserving process, 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 initial reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company also has uncertainty in the Discontinued Lines and Coverages reserves that are based on events long since passed and are complicated by lack of historical data, legal interpretations, unresolved legal issues and legislative intent based on establishment of facts.

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)	2020		2019		2018
Balance as of January 1	$	27,712	$	27,423	$	26,325
Less recoverables (1)	(6,912)		(7,155)		(6,471)
Net balance as of January 1	20,800		20,268		19,854
Incurred claims and claims expense related to:
Current year	22,437		24,106		23,033
Prior years	(436)		(130)		(255)
Total incurred	22,001		23,976		22,778
Claims and claims expense paid related to:
Current year	(14,245)		(15,160)		(14,877)
Prior years	(7,979)		(8,284)		(7,487)
Total paid	(22,224)		(23,444)		(22,364)
Net balance as of December 31	20,577		20,800		20,268
Plus recoverables	7,033		6,912		7,155
Balance as of December 31	$	27,610	$	27,712	$	27,423

(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, 2020
($ in millions)	Incurred		Paid
Allstate Protection
Auto insurance - liability coverage	$	7,629	$	(7,939)
Auto insurance - physical damage coverage	4,817		(4,716)
Homeowners insurance	4,889		(4,731)
Total auto and homeowners insurance	17,335		(17,386)
Other personal lines	1,015		(1,007)
Commercial lines	585		(463)
Protection Services	319		(326)
Discontinued Lines and Coverages	132		(88)
Unallocated loss adjustment expenses (“ULAE”)	2,681		(2,590)
Claims incurred and paid from before 2016	(32)		(423)
Other	(34)		59
Total	$	22,001	$	(22,224)

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 $2.81 billion, $2.56 billion and $2.86 billion in 2020, 2019 and 2018, 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
	2020		2019		2018		2020		2019		2018		2020		2019		2018
Auto	$	(63)	$	(306)	$	(416)	$	(44)	$	(17)	$	(39)	$	(107)	$	(323)	$	(455)
Homeowners	(17)		(1)		(51)		(422)		66		65		(439)		65		14
Other personal lines	(27)		8		(6)		(39)		—		(1)		(66)		8		(7)
Commercial lines	34		18		108		2		(1)		—		36		17		108
Discontinued Lines and Coverages (2)	141		105		87		—		—		—		141		105		87
Protection Services	(1)		(2)		(2)		—		—		—		(1)		(2)		(2)
Total prior year reserve reestimates	$	67	$	(178)	$	(280)	$	(503)	$	48	$	25	$	(436)	$	(130)	$	(255)

(1)Favorable reserve reestimates are shown in parentheses.

(2)The Company’s 2020 annual reserve review, using established industry and actuarial best practices, resulted in unfavorable reestimates of $132 million.

In the third quarter of 2020, the Company recognized favorable prior year catastrophe reserve reestimates of approximately $495 million, net of expenses and adjustments to reinsurance, related to two subrogation settlements, which is reflected as a reduction of claims and claims expense in the Consolidated Statements of Operations.

PG&E settlement On June 20, 2020, the United States Bankruptcy Court for the Northern District of California confirmed PG&E Corporation’s and Pacific Gas and Electric Company’s (together, "PG&E") Chapter 11 Plan of Reorganization. The Plan of Reorganization included an agreement to resolve insurance subrogation claims arising from the 2017 Northern California wildfires and the 2018 Camp Fire for $11 billion. Allstate was party to the agreement.

On July 1, 2020, PG&E emerged from Chapter 11 and funded the subrogation trust from which distributions will be made to the insurers. Insurers have five years from the effective date of the Plan of Reorganization to submit proof of paid losses to the trust prior to the final distribution.

Allstate recognized a favorable impact of approximately $450 million. To date, the Company has received distributions from the trust representing approximately 80% of the expected recovery.

Southern California Edison settlement On September 14, 2020, Southern California Edison reached a $1.16 billion settlement agreement with insurance companies, resolving all insurance subrogation claims arising from the December 2017 Thomas and Koenigstein Wildfires and January 2018 Montecito Mudslides litigation. Allstate was party to the agreement and recognized a favorable impact of approximately $45 million. The Company has received substantially all distributions from the trust for its expected recovery.

Subsequent event On January 22, 2021, Southern California Edison reached a $2.20 billion settlement agreement with insurance companies, resolving subrogation claims arising from the Woolsey wildfire. Allstate is party to the agreement and expects to recognize a favorable impact of approximately $110 million in the first quarter of 2021.

The following presents information about incurred and paid claims development as of December 31, 2020, 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 2016 to 2020 years, and the average annual percentage payout of incurred claims by age as of December 31, 2020, 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, 2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	9,038	$	8,841	$	8,740	$	8,690	$	8,709	$	19	$	554	2,400,904
2017	—		8,465		8,396		8,312		8,330		18		1,017		2,217,132
2018	—		—		8,734		8,715		8,731		16		1,846		2,180,275
2019	—		—		—		9,341		9,295		(46)		3,064		2,205,813
2020	—		—		—		—		7,622				4,919		1,500,921
							Total		$	42,687	$	7
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2016 accident years											(20)
Prior year reserve reestimates for ULAE											23
Other											(3)
Total prior year reserve reestimates											$	7

	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	3,487	$	5,772	$	6,853	$	7,700	$	8,155
2017	—		3,151		5,333		6,532		7,313
2018	—		—		3,231		5,618		6,885
2019	—		—		—		3,498		6,231
2020	—		—		—		—		2,703
							Total		$	31,287
All outstanding liabilities before 2016, net of recoverables									1,389
Liabilities for claims and claim adjustment expenses, net of recoverables									$	12,789


Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2020
	1 year		2 years		3 years		4 years		5 years
Auto insurance – liability coverage	39.4	%	27.5	%	13.1	%	8.4	%	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, 2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	5,128	$	5,054	$	5,027	$	5,023	$	5,022	$	(1)	$	5	4,432,048
2017	—		5,121		5,039		5,028		5,027		(1)		1		4,237,772
2018	—		—		5,219		5,157		5,108		(49)		9		4,310,750
2019	—		—		—		5,662		5,606		(56)		26		4,469,473
2020	—		—		—		—		4,924				324		3,493,530
							Total		$	25,687	$	(107)
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2016 accident years											(1)
Prior year reserve reestimates for ULAE											(5)
Other											(1)
Total prior year reserve reestimates											$	(114)

	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	4,890	$	5,033	$	5,022	$	5,018	$	5,017
2017	—		4,847		5,039		5,030		5,026
2018	—		—		4,971		5,140		5,099
2019	—		—		—		5,418		5,580
2020	—		—		—		—		4,600
							Total		$	25,322
All outstanding liabilities before 2016, net of recoverables									8
Liabilities for claims and claim adjustment expenses, net of recoverables									$	373


Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2020
	1 year		2 years		3 years		4 years		5 years
Auto insurance – physical damage coverage	96.9	%	3.0	%	(0.3)	%	(0.1)	%	—	%

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, 2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	3,961	$	3,995	$	3,958	$	3,953	$	3,948	$	(5)	$	43	814,026
2017	—		4,477		4,619		4,614		4,390		(224)		61		908,714
2018	—		—		4,749		4,854		4,551		(303)		182		811,046
2019	—		—		—		4,549		4,601		52		301		784,257
2020	—		—		—		—		5,369				1,398		838,829
							Total		$	22,859	$	(480)
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2016 accident years											(11)
Prior year reserve reestimates for ULAE											52
Other											—
Total prior year reserve reestimates											$	(439)

	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2016		2017		2018		2019		2020
2016	$	2,949	$	3,680	$	3,811	$	3,876	$	3,905
2017	—		3,228		4,249		4,437		4,329
2018	—		—		3,491		4,514		4,369
2019	—		—		—		3,316		4,300
2020	—		—		—		—		3,971
							Total		$	20,874
All outstanding liabilities before 2016, net of recoverables									119
Liabilities for claims and claim adjustment expenses, net of recoverables									$	2,104


Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2020
	1 year		2 years		3 years		4 years		5 years
Homeowners insurance	75.2	%	19.4	%	2.5	%	0.9	%	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, 2020
Net outstanding liabilities
Allstate Protection
Auto insurance - liability coverage	$	12,789
Auto insurance - physical damage coverage	373
Homeowners insurance	2,104
Other personal lines	1,335
Commercial lines	1,132
Protection Services	30
Discontinued Lines and Coverages (1)	1,330
ULAE	1,484
Net reserve for property and casualty insurance claims and claims expense	20,577

Recoverables
Allstate Protection
Auto insurance - liability coverage	5,979
Auto insurance - physical damage coverage	4
Homeowners insurance	171
Other personal lines	153
Commercial lines	196
Protection Services	10
Discontinued Lines and Coverages	479
ULAE	41
Total recoverables	7,033
Gross reserve for property and casualty insurance claims and claims expense	$	27,610

(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 $695 million of the total reserves as of December 31, 2020.

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.


Reserves for asbestos, environmental and other discontinued lines claims before and after the effects of reinsurance
($ in millions)	December 31, 2020		December 31, 2019
Asbestos claims (1)
Gross reserves	$	1,204	$	1,172
Reinsurance	(377)		(362)
Net reserves	827		810
Environmental claims (1)
Gross reserves	249		219
Reinsurance	(43)		(40)
Net reserves	206		179
Other discontinued lines
Gross reserves	435		427
Reinsurance	(60)		(51)
Net reserves	375		376
Total
Gross reserves	1,888		1,818
Reinsurance	(480)		(453)
Net reserves	$	1,408	$	1,365

(1) For further discussion of asbestos and environmental reserves, see Note 14.