This excerpt taken from the ALL 10-K filed Feb 23, 2006.
Reconciliation of Claims Reserves
The following tables are summary reconciliations of the beginning and ending property-liability insurance claims and claims expense reserves, displayed individually for each of the last three years. The first table presents reserves on a gross (before reinsurance) basis. The end of year gross reserve balances are reflected in the Consolidated Statements of Financial Position. The second table presents reserves on a net (after reinsurance) basis. The total net property-liability insurance claims and claims expense amounts are reflected in the Consolidated Statements of Operations.
The year-end 2005 gross reserves of $22.12 billion for property-liability insurance claims and claims expense, as determined under GAAP, were $4.32 billion more than the net reserve balance of $17.79 billion recorded on the basis of statutory accounting practices for reports provided to state regulatory authorities. The principal differences are reinsurance recoverables from third parties totaling $3.19 billion that reduce reserves for statutory reporting and are recorded as assets for GAAP reporting, and a liability for the reserves of the Canadian subsidiaries for $854 million. Remaining differences are due to variations in requirements between GAAP and statutory reporting.
As the tables above illustrate, Allstate's net reserve for property-liability insurance claims and claims expense at the end of 2004 decreased in 2005 by $468 million, compared to reestimates of the gross reserves of a decrease of $127 million. Net reserve reestimates in 2005, 2004 and 2003 were lower than the gross reserve reestimates due to reinsurance cessions.