Reserve for Property and Casualty Insurance Claims and Claims Expense

12 Months Ended

Dec. 31, 2023

Reserve for Property-Liability Insurance Claims and Claims Expense

Reserve for Property and Casualty Insurance Claims and Claims Expense

Note 9 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 considers 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 laws and regulations, judicial decisions, and economic conditions.

When the Company experiences changes in the mix or type of claims or changing claim settlement patterns or data, it applies actuarial judgment in the determination and selection of development factors to develop reserve liabilities. Supply chain disruptions and inflation have resulted in higher part costs, used car values and longer time to claim resolution, which have combined with labor shortages to increase physical damage loss costs. Medical inflation, treatment trends, attorney representation, litigation costs and more severe accidents have contributed to higher third-party bodily injury loss costs. The Company has also digitized and modified claim processes to increase effectiveness and efficiency. These factors 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 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, driving behaviors, miles driven or other factors. Changes in auto current year claim severity are generally influenced by inflation in the medical and auto repair sectors, the effectiveness and efficiency of claim settlements and changes in mix of claim types. When changes in claim data occur, actuarial judgment is used to determine appropriate development factors to establish reserves. The Company’s reserving process incorporates changes in loss patterns, operational statistics and changes in claims reporting processes to determine its best estimate of recorded 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 IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, Run-off Property-Liability 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 as well as heightened uncertainty for claims that involve litigation or take longer to settle during periods of rapidly increasing loss costs. The Company also has uncertainty in the Run-off Property-Liability 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 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.

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, laws and regulations.

Rollforward of reserve for property and casualty insurance claims and claims expense
($ in millions)	2023		2022		2021
Balance as of January 1	$	37,541	$	33,060	$	27,610
Less recoverables (1)	(9,176)		(9,479)		(7,033)
Net balance as of January 1	28,365		23,581		20,577
National General acquisition as of January 4, 2021	—		—		1,797
SafeAuto acquisition as of October 1, 2021	—		—		134
Incurred claims and claims expense related to:
Current year	40,521		35,523		29,196
Prior years	549		1,741		122
Total incurred	41,070		37,264		29,318
Claims and claims expense paid related to:
Current year	(23,607)		(20,739)		(18,438)
Prior years	(14,366)		(11,741)		(9,807)
Total paid	(37,973)		(32,480)		(28,245)
Net balance as of December 31	31,462		28,365		23,581
Plus recoverables	8,396		9,176		9,479
Balance as of December 31	$	39,858	$	37,541	$	33,060

(1) Recoverables comprises reinsurance and indemnification recoverables. See Note 11 for further details.

Reconciliation of total claims and claims expense incurred and paid by coverage
	December 31, 2023
($ in millions)	Incurred		Paid
Allstate Protection
Auto insurance - liability coverage	$	15,752	$	(13,032)
Auto insurance - physical damage coverage	9,128		(9,290)
Homeowners insurance	9,330		(8,225)
Total auto and homeowners insurance	34,210		(30,547)
Other personal lines	1,827		(1,632)
Commercial lines	784		(951)
Other business lines	148		(206)
Protection Services	533		(522)
Run-off Property-Liability	78		(89)
Unallocated loss adjustment expenses (“ULAE”)	3,292		(3,269)
Claims incurred and paid from before 2019	243		(845)
Other (1)	(45)		88
Total	$	41,070	$	(37,973)

(1)Paid and incurred amounts primarily related to the effect of foreign currency translation adjustments.

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 $5.64 billion, $3.11 billion and $3.34 billion in 2023, 2022 and 2021, 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.

Prior year reserve reestimates included in claims and claims expense (1)
	For the years ended December 31,
	Non-catastrophe losses						Catastrophe losses						Total
($ in millions)	2023		2022		2021		2023		2022		2021		2023		2022		2021
Auto	$	294	$	1,249	$	178	$	(50)	$	(64)	$	(29)	$	244	$	1,185	$	149
Homeowners	66		123		31		36		77		(166)		102		200		(135)
Other personal lines	37		(34)		(96)		(18)		2		(11)		19		(32)		(107)
Commercial lines	76		273		116		8		(1)		3		84		272		119
Other business lines	12		(10)		(19)		—		4		1		12		(6)		(18)
Run-off Property-Liability (2)	89		125		116		—		—		—		89		125		116
Protection Services	(1)		(3)		(2)		—		—		—		(1)		(3)		(2)
Total prior year reserve reestimates	$	573	$	1,723	$	324	$	(24)	$	18	$	(202)	$	549	$	1,741	$	122

(1)Favorable reserve reestimates are shown in parentheses.

(2)The Company’s 2023, 2022 and 2021 annual reserve review, using established industry and actuarial best practices, resulted in unfavorable reestimates of $80 million, $118 million and $111 million, respectively.

The following presents information about incurred and paid claims development as of December 31, 2023, 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 2019 to 2023 years, and the average annual percentage payout of incurred claims by age as of December 31, 2023, 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, 2023
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	10,377	$	10,307	$	10,557	$	10,729	$	10,812	$	83	$	642	2,569,785
2020	—		8,651		8,631		8,871		8,904		33		997		1,898,342
2021	—		—		10,365		10,851		11,180		329		2,057		2,229,946
2022	—		—		—		13,321		13,263		(58)		4,202		2,401,908
2023	—		—		—		—		15,365				10,258		2,283,467
							Total		$	59,524	$	387
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2019 accident years											229
Prior year reserve reestimates for ULAE											6
Other											—
Total prior year reserve reestimates											$	622
	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	3,936	$	6,995	$	8,530	$	9,519	$	10,170
2020	—		3,111		5,796		7,089		7,907
2021	—		—		3,589		7,304		9,123
2022	—		—		—		4,424		9,061
2023	—		—		—		—		5,107
							Total		$	41,368
All outstanding liabilities before 2019, net of recoverables									1,368
Liabilities for claims and claim adjustment expenses, net of recoverables									$	19,524

Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2023
	1 year		2 years		3 years		4 years		5 years
Auto insurance – liability coverage	36.6	%	29.2	%	13.6	%	8.6	%	5.6	%

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, 2023
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	6,241	$	6,162	$	6,121	$	6,120	$	6,113	$	(7)	$	(11)	4,864,602
2020	—		5,484		5,393		5,369		5,359		(10)		(11)		3,989,262
2021	—		—		7,269		7,326		7,269		(57)		(25)		4,567,859
2022	—		—		—		9,286		9,004		(282)		(79)		4,904,706
2023	—		—		—		—		9,484				970		4,591,024
							Total		$	37,229	$	(356)
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2019 accident years											(5)
Prior year reserve reestimates for ULAE											(20)
Other											3
Total prior year reserve reestimates											$	(378)
	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	5,936	$	6,132	$	6,126	$	6,123	$	6,124
2020	—		5,119		5,405		5,378		5,370
2021	—		—		6,847		7,351		7,294
2022	—		—		—		8,243		9,083
2023	—		—		—		—		8,514
							Total		$	36,385
All outstanding liabilities before 2019, net of recoverables									—
Liabilities for claims and claim adjustment expenses, net of recoverables									$	844

Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2023
	1 year		2 years		3 years		4 years		5 years
Auto insurance – physical damage coverage	95.0	%	5.0	%	(0.4)	%	(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, 2023
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	4,694	$	4,762	$	4,769	$	4,781	$	4,790	$	9	$	38	847,160
2020	—		5,626		5,680		5,773		5,824		51		83		977,647
2021	—		—		6,282		6,408		6,468		60		198		989,192
2022	—		—		—		6,537		6,489		(48)		567		784,867
2023	—		—		—		—		9,258				3,469		919,333
							Total		$	32,829	$	72
Reconciliation to total prior year reserve reestimates recognized by line
Prior year reserve reestimates for pre-2019 accident years											29
Prior year reserve reestimates for ULAE											(17)
Other											18
Total prior year reserve reestimates											$	102
	Cumulative paid claims and allocated claims adjustment expenses, net of recoverables
	For the years ended December 31,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Accident year	2019		2020		2021		2022		2023
2019	$	3,414	$	4,432	$	4,621	$	4,699	$	4,752
2020	—		4,162		5,423		5,649		5,741
2021	—		—		4,449		6,035		6,270
2022	—		—		—		3,866		5,922
2023	—		—		—		—		5,789
							Total		$	28,474
All outstanding liabilities before 2019, net of recoverables									95
Liabilities for claims and claim adjustment expenses, net of recoverables									$	4,450

Average annual percentage payout of incurred claims by age, net of recoverables, as of December 31, 2023
	1 year		2 years		3 years		4 years		5 years
Homeowners insurance	70.8	%	22.5	%	2.8	%	0.8	%	0.9	%

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, 2023
Net outstanding liabilities
Allstate Protection
Auto insurance - liability coverage	$	19,524
Auto insurance - physical damage coverage	844
Homeowners insurance	4,450
Other personal lines	1,788
Commercial lines	1,745
Other business lines	17
Protection Services	46
Run-off Property-Liability (1)	1,361
ULAE	1,679
Other (2)	8
Net reserve for property and casualty insurance claims and claims expense	31,462
Recoverables
Allstate Protection
Auto insurance - liability coverage	6,880
Auto insurance - physical damage coverage	22
Homeowners insurance	343
Other personal lines	243
Commercial lines	326
Other business lines	1
Protection Services	14
Run-off Property-Liability	497
ULAE	70
Total recoverables	8,396
Gross reserve for property and casualty insurance claims and claims expense	$	39,858

(1)Run-off Property-Liability includes business in run-off with most of the claims related to accident years more than 40 years ago. IBNR reserves represent $762 million of the total reserves as of December 31, 2023.

(2)Primarily related to the unamortized fair value adjustment related to the acquisition of National General.