Reserves for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2022

Reserves for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of reserves for losses and loss adjustment expenses (“LAE”):


	For the Nine Months Ended September 30,
(in millions)	2022		2021
Net reserves beginning of the year	$	3,123.2	$	2,906.1


Add:
Losses and LAE incurred during current calendar year, net of reinsurance:
Current accident year	826.8		884.9
Prior accident years	31.6		6.0
Losses and LAE incurred during calendar year, net of reinsurance	858.4		890.9
Deduct:
Losses and LAE payments made during current calendar year, net of reinsurance:
Current accident year	112.0		100.5
Prior accident years	623.2		552.8
Losses and LAE payments made during current calendar year, net of reinsurance:	735.2		653.3

Divestitures (1)	(35.2)		—
Net reserves ceded:
Loss portfolio transfer (for years of account 2019 and 2018) (2)	(175.5)		—
Reinsurance to close transaction (for years of account 2017 and prior) (3)	—		219.7
Change in participation interest (4)	32.2		12.5
Foreign exchange adjustments	(10.6)		(7.3)
Net reserves - end of period	3,057.3		2,929.2
Add:
Reinsurance recoverables on unpaid losses and LAE, end of period	2,674.1		2,510.3
Gross reserves - end of period	$	5,731.4	$	5,439.5

(1)Refer to the sale of Argo Seguros and AGSE in Note 1, “Business and Significant Accounting Policies” for additional information.

(2)Loss portfolio transfer on Syndicate 1200's reserves for the 2018 and 2019 years of account. Refer to Note 1, “Business and Significant Accounting Policies” for additional information.

(3)Amount represents reserves ceded under the reinsurance to close transaction with RiverStone for Lloyd’s years of account 2017 and prior, effective January 1, 2021.

(4)Amount represents the change in reserves due to changing our participation in Syndicates 1200 and 1910.

Reserves for losses and LAE represent the estimated indemnity cost and related adjustment expenses necessary to investigate and settle claims. Such estimates are based upon individual case estimates for reported claims, estimates from ceding companies for reinsurance assumed and actuarial estimates for losses that have been incurred but not yet reported to the insurer. Any change in probable ultimate liabilities is reflected in current operating results.

Underwriting results for the nine months ended September 30, 2022 included net losses and loss adjustment expenses for Hurricane Ian of $23.4 million.

The impact from the (favorable) unfavorable development of prior accident years’ loss and LAE reserves on each reporting segment is presented below:


	For the Nine Months Ended September 30,
(in millions)	2022		2021
U.S. Operations	$	27.9	$	(0.7)
International Operations	0.8		0.1
Run-off Lines	2.9		6.6
Total (favorable) unfavorable prior-year development	$	31.6	$	6.0

The following describes the primary factors behind each segment’s prior accident year reserve development for the nine months ended September 30, 2022 and 2021:

Nine months ended September 30, 2022:

•U.S. Operations: Unfavorable development primarily related to liability and property lines, including the impact of large losses, partially offset by favorable development in specialty lines. The unfavorable prior year development was largely driven by businesses we have exited, and relates to accident years 2019 and prior partially offset by favorable prior year development on accident years 2020 and 2021.

•International Operations: Unfavorable development primarily related to unfavorable movements in professional lines in Argo Insurance Bermuda, partially offset by favorable development in Syndicate 1200 property and liability lines.

•Run-off Lines: Unfavorable loss reserve development on prior accident years in other run-off lines.

Nine months ended September 30, 2021:

•U.S. Operations: Favorable development primarily in specialty lines, partially offset by unfavorable development in liability and professional lines.

•International Operations: Unfavorable development primarily related to a one-time accounting adjustment and large claim movements in Argo Insurance Bermuda, partially offset by favorable development in property lines, including losses associated with prior year catastrophe losses.

•Run-off Lines: Unfavorable loss reserve development on prior accident years in risk management workers compensation, other run-off lines and an individual environmental loss.

Our reserves represent the best estimate of our ultimate liabilities, based on currently known facts, current law, current technology and reasonable assumptions where facts are not known. Due to the significant uncertainties and related management judgments, there can be no assurance that future favorable or unfavorable loss development, which may be material, will not occur.