ALL » Topics » Catastrophe Reinsurance Program

This excerpt taken from the ALL 8-K filed Jan 31, 2007.

Catastrophe Reinsurance Program

Our personal lines catastrophe reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes nationwide.  Our program provides reinsurance protection to us for catastrophes including storms named or numbered by the National Weather Service, earthquakes and fires following earthquakes.  During January 2007 we completed the renewal of our aggregate excess, South-East and New Jersey excess reinsurance contracts, opted to expand coverage in the existing multi-year contracts in the states of Texas and New Jersey and added a new agreement covering Kentucky earthquake and fires following earthquakes.  These contracts will be effective June 1, 2007 to May 31, 2008, with the exception of the aggregate excess contract which is effective June 1, 2007 until May 31, 2009.  The aggregate excess contract has a 5% retention by Allstate in the first year and a 20% retention by Allstate in the second year.  We also expect to place contracts for the state of Florida later this year.  For detailed information on our program see http://media.corporate-ir.net/media_files/IROL/93/93125/reports/ALL_Q406reinsurance.pdf.

We estimate that the total annualized cost of all reinsurance programs will be approximately $770 million per year or $193 million per quarter, including an estimate for reinsurance coverage in Florida.  This is compared to approximately $800 million per year from our total annualized cost during the 2006 hurricane season, or an estimated decrease of $30 million due to lower expected cost of coverage in Florida.  This is compared to a cost of $73 million in the first quarter, $114 million in the second quarter, $211 in the third quarter and $209 million in the fourth quarter of 2006.  We currently expect that a similar level of coverage will be purchased or renewed for the comparable 2008 period. The actual placement of the Florida program, contractual redeterminations and risk transfers of certain catastrophe and other liability exposures during 2007 may cause our total annualized cost to differ from our current estimates.

The Florida program will be placed later this year, once the state’s recent legislative actions have been assessed, and should become effective on June 1, 2007 for the beginning of the hurricane catastrophe season.

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