Note 8. Claim and Claim Adjustment Expense Reserves

CNA’s property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including claims that are incurred but not reported (“IBNR”) as of the reporting date. CNA’s reserve projections are based primarily on detailed analysis of the facts in each case, CNA’s experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNA’s ultimate cost for insurance losses will not exceed current estimates.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in CNA’s results of operations and/or equity. CNA reported catastrophe losses, net of reinsurance, of $165 million, $141 million and $156 million for the years ended December 31, 2016, 2015 and 2014. Catastrophe losses in 2016 related primarily to U.S. weather-related events and the Fort McMurray wildfires.

In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, CNA generally projects ultimate losses using several common actuarial methods as listed below. CNA reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Further, CNA does not establish case reserves for allocated loss adjustment expenses (“ALAE”), therefore all ALAE reserves are included in its estimate of IBNR. The most frequently utilized methods to project ultimate losses include the following:

•

paid development;

•

incurred development;

•

loss ratio;

•

Bornhuetter-Ferguson using premiums and paid loss;

•

Bornhuetter-Ferguson using premiums and incurred loss;

•

frequency times severity; and

•

stochastic modeling.

The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid losses. The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses. The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. The Bornhuetter-Ferguson using premiums and paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method. The Bornhuetter-Ferguson using premiums and incurred loss method is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses. The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.

For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, CNA’s actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of CNA’s products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, CNA may not assign any weight to the paid and incurred development methods. CNA will use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.

Reserves for policyholder benefits for non-core operations, which primarily includes long term care, are based on actuarial assumptions which include estimates of morbidity, persistency, discount rates and expenses over the life of the contracts. Under GAAP, the best estimates of the actuarial assumptions at the date the contract was issued are locked-in throughout the life of the contract unless a premium deficiency develops, which occurred in 2015. As a result, CNA updated the assumptions to represent management’s best estimates at the time of the premium deficiency and these revised assumptions are locked-in unless another premium deficiency is identified.

Certain claim liabilities are more difficult to estimate and have differing methodologies and considerations which are described below.

CNA’s mass tort and A&EP reserving methodologies are similar as both are based on detailed account reviews of all large accounts with estimates based on ultimate payments considering the applicable law and coverage litigation. These reserves are subject to greater inherent variability than is typical of the remainder of CNA’s reserves due to, among other things, a general lack of sufficiently detailed data, expansion of the population being held responsible for these exposures and significant unresolved legal issues such as the existence of coverage and the definition of an occurrence.

CNA’s actuarial reserve analyses result in point estimates. Each quarter, the results of detailed reserve reviews are summarized and discussed with CNA’s senior management to determine management’s best estimate of reserves. CNA’s senior management considers many factors in making this decision. The factors include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in CNA’s pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. CNA’s recorded reserves reflect its best estimate as of a particular point in time based upon known facts, consideration of the factors cited above and its judgment. The carried reserve may differ from the actuarial point estimate as the result of CNA’s consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis.

The loss reserve development tables presented herein illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short duration insurance contracts for certain lines of business within CNA’s property and casualty operations. Not all lines of business are presented based on their context to CNA’s overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short duration contracts when the contracts are not expected to remain in force for an extended period of time. The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of CNA’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.

The information in the tables is reported on a net basis after reinsurance and does not include unallocated claim and claim adjustment expenses or the effects of discounting. The information contained in the years preceding the current calendar year is unaudited. To the extent CNA enters into a commutation, the transaction is reported on a prospective basis. To the extent that CNA enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with it.

The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.

In the loss reserve development tables, IBNR includes reserves for incurred but not reported losses and expected development on case reserves.

Liability for Unpaid Claim and Claim Adjustment Expenses Rollforward

The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of non-core operations.


Year Ended December 31	2016			2015			2014
(In millions)

Reserves, beginning of year:
Gross	$	22,663		$	23,271		$	24,089
Ceded		4,087			4,344			4,972

Net reserves, beginning of year		18,576			18,927			19,117


Change in net reserves due to disposition of subsidiaries								(13	)


Net incurred claim and claim adjustment expenses:
Provision for insured events of current year		5,025			4,934			5,043
Decrease in provision for insured events of prior years		(342	)		(255	)		(36	)
Amortization of discount		175			166			161

Total net incurred (a)		4,858			4,845			5,168


Net payments attributable to:
Current year events		(967	)		(856	)		(945	)
Prior year events		(4,167	)		(4,089	)		(4,355	)

Total net payments		(5,134	)		(4,945	)		(5,300	)


Foreign currency translation adjustment and other		(51	)		(251	)		(45	)


Net reserves, end of year		18,249			18,576			18,927
Ceded reserves, end of year		4,094			4,087			4,344

Gross reserves, end of year	$	22,343		$	22,663		$	23,271

(a)

Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected in the Consolidated Statements of Income due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables and benefit expenses related to future policy benefits, which are not reflected in the table above.

The following tables present the gross and net carried reserves:


December 31, 2016	Property and Casualty Operations		Non-Core Operations		Total
(In millions)

Gross Case Reserves	$	7,164	$	4,696	$	11,860
Gross IBNR Reserves		9,207		1,276		10,483


Total Gross Carried Claim and
Claim Adjustment Expense Reserves	$	16,371	$	5,972	$	22,343



Net Case Reserves	$	6,582	$	3,045	$	9,627
Net IBNR Reserves		8,328		294		8,622


Total Net Carried Claim and Claim
Adjustment Expense Reserves	$	14,910	$	3,339	$	18,249



December 31, 2015

Gross Case Reserves	$	7,608	$	4,494	$	12,102
Gross IBNR Reserves		9,191		1,370		10,561


Total Gross Carried Claim and
Claim Adjustment Expense Reserves	$	16,799	$	5,864	$	22,663



Net Case Reserves	$	6,992	$	2,844	$	9,836
Net IBNR Reserves		8,371		369		8,740


Total Net Carried Claim and Claim
Adjustment Expense Reserves	$	15,363	$	3,213	$	18,576

Net Prior Year Development

Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development. These changes can be favorable or unfavorable. Favorable net prior year development of $316 million, $218 million and $50 million was recorded for property and casualty operations for the years ended December 31, 2016, 2015 and 2014.

Favorable net prior year development of $43 million, $50 million and $17 million was recorded for non-core operations for the years ended December 31, 2016, 2015 and 2014. The favorable net prior year development for the year ended December 31, 2016 was driven by a reserve release resulting from the annual experience study of long term care reserves which indicated lower than expected claim severity.

Premium development can occur in the property and casualty business when there is a change in exposure on auditable policies or when premium accruals differ from processed premium. Audits on policies usually occur in a period after the expiration date of the policy.

The following table and discussion presents detail of the net prior year claim and allocated claim adjustment expense reserve development (“development”):


Year Ended December 31	2016			2015			2014

(In millions)

Medical professional liability	$	(37	)	$	(43	)	$	39
Other professional liability and management liability		(130	)					(87	)
Surety		(63	)		(69	)		(82	)
Commercial auto		(46	)		(22	)		31
General liability		(28	)		(33	)		45
Workers’ compensation		150			80			139
Other		(134	)		(123	)		(106	)

Total pretax (favorable) unfavorable development	$	(288	)	$	(210	)	$	(21	)

2016

Favorable development for medical professional liability was primarily due to lower than expected severities for individual health care professionals, allied facilities and hospitals in accident years 2011 and prior and better than expected severity in medical products liability in accident years 2010 through 2015. This was partially offset by unfavorable development in accident years 2012 and 2013 related to higher than expected large loss emergence in hospitals and higher than expected frequency and severity in accident years 2014 and 2015 in the aging services business.

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of claims in accident years 2010 through 2014 related to professional services and financial institutions. This was partially offset by unfavorable development related to a specific financial institutions claim in accident year 2014, higher management liability severities in accident year 2015 and deterioration on credit crises-related claims in accident year 2009.

Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2014 and prior.

Favorable development for commercial auto was primarily due to favorable settlements on claims in accident years 2010 through 2014 and lower than expected severities in accident years 2012 through 2015.

Favorable development for general liability was primarily due to better than expected claim settlements in accident years 2012 through 2014 and better than expected severity on umbrella claims in accident years 2010 through 2013. This was partially offset by unfavorable development related to an increase in reported claims prior to the closing of the three year window set forth by the Minnesota Child Victims Act in accident years 2006 and prior.

Unfavorable development for workers’ compensation was primarily due to higher than expected severity for Defense Base Act contractors that largely resulted from a reduction of expected future recoveries from the U.S. Department of Labor under the War Hazard Act. Further unfavorable development was due to the impact of recent Florida court rulings for accident years 2008 through 2015. These were partially offset by favorable development related to lower than expected frequencies related to the ongoing Middle Market and Small Business results for accident years 2009 through 2014.

2015

Overall, favorable development for medical professional liability was related to lower than expected severity in accident years 2012 and prior. Unfavorable development was recorded related to increased claim frequency and severity in the aging services business in accident years 2013 and 2014.

Favorable development in other professional liability and management liability related to better than expected large loss emergence in financial institutions primarily in accident years 2011 through 2014. Additional favorable development related to lower than expected severity for professional services in accident years 2011 and prior. Unfavorable development was recorded related to increased frequency of large claims on public company management liability in accident years 2012 through 2014.

Favorable development for surety coverages was primarily due to lower than expected frequency of large losses in accident years 2013 and prior.

Favorable development for commercial auto was primarily due to lower than expected severity in accident years 2009 through 2014.

Favorable development for general liability was primarily due to favorable settlements on claims in accident years 2010 through 2013.

Unfavorable development for workers’ compensation was primarily due to higher than expected severity related to Defense Base Act contractors in accident years 2008 through 2014.

2014

Unfavorable development for medical professional liability was primarily related to increased frequency of large medical products liability class action lawsuits in accident years 2012 and prior and increased frequency of other large medical professional liability losses in accident years 2011 through 2013.

Overall, favorable development for other professional liability and management liability was related to better than expected severity in accident years 2008 through 2011, including favorable outcomes on individual large claims. Additional favorable development related to lower than expected frequency in accident years 2011 through 2013. Unfavorable development was recorded due to higher than expected severity in financial institution and professional service coverages in accident years 2009 through 2011.

Favorable development for surety coverages was primarily due to better than expected large loss emergence in accident years 2012 and prior.

Unfavorable development for commercial auto was primarily related to higher than expected frequency in accident years 2012 and 2013 and higher than expected severity for liability coverages in accident years 2010 through 2013. Favorable development was recorded related to fewer large claims than expected in accident years 2008 and 2009.

Overall, unfavorable development for general liability was primarily related to higher than expected severity in accident years 2010 through 2013. Favorable development was recorded primarily related to lower than expected frequency of large losses in accident years 2005 through 2009.

Overall, unfavorable development for workers’ compensation was primarily due to increased medical severity in accident years 2010 and prior, higher than expected severity related to Defense Base Act contractors in accident years 2010 through 2013 and the recognition of losses related to favorable premium development in accident year 2013. Favorable development of $26 million was recorded in accident years 1996 and prior related to the commutation of a workers’ compensation reinsurance pool.

Property and Casualty Operations – Line of Business Composition

The table below presents the net liability for unpaid claim and claim adjustment expenses, by line of business for property and casualty operations:


December 31	2016
(In millions)

Medical professional liability	$	1,779
Other professional liability and management liability		3,063
Surety		394
Commercial auto		424
General liability		3,248
Workers’ compensation		4,306
Other		1,696

Total net liability for unpaid claim and claim adjustment expenses	$	14,910


*Medical Professional Liability*
																					December 31, 2016

Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																							Cumulative
																							Number of
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)		2016		IBNR		Claims

(In millions, except reported claims data)

Accident Year
2007	$	448	$	452	$	444	$	427	$	395	$	391	$	390	$	401	$	399	$	385	$	9		12,122
2008				426		451		496		480		468		468		467		455		442		9		14,094
2009						462		469		494		506		480		471		463		432		12		15,573
2010								483		478		478		486		470		446		403		16		15,206
2011										486		492		507		533		501		491		23		17,428
2012												526		529		575		567		559		47		18,375
2013														534		540		560		567		95		19,565
2014																511		548		585		165		19,286
2015																		480		539		278		16,798
2016																				469		400		11,600

																		Total	$	4,872	$	1,054


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses


Accident Year
2007	$	11	$	68	$	134	$	201	$	247	$	296	$	326	$	352	$	364	$	365
2008				9		90		207		282		332		377		395		409		428
2009						9		75		180		278		328		353		377		396
2010								11		93		186		273		338		361		371
2011										18		121		225		315		379		407
2012												15		121		236		359		428
2013														18		121		259		364
2014																25		149		274
2015																		22		105
2016																				18

																		Total	$	3,156


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																			$	1,716
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																				30
		Liability for unallocated claim adjustment expenses for accident years presented																		33

		Total net liability for unpaid claim and claim adjustment expenses																	$	1,779


Net Strengthening or (Releases) of Prior Accident Year Reserves
Years Ended
December 31																					Total


Accident Year
2007			$	4	$	(8)	$	(17)	$	(32)	$	(4)	$	(1)	$	11	$	(2)	$	(14)	$	(63)
2008						25		45		(16)		(12)				(1)		(12)		(13)		16
2009								7		25		12		(26)		(9)		(8)		(31)		(30)
2010										(5)				8		(16)		(24)		(43)		(80)
2011												6		15		26		(32)		(10)		5
2012														3		46		(8)		(8)		33
2013																6		20		7		33
2014																		37		37		74
2015																				59		59

Total net development for the accident years presented above															$	63	$	(29)	$	(16)
Total net development for accident years prior to 2007																(24)		(14)		(21)

Total															$	39	$	(43)	$	(37)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.

Other Professional Liability and Management Liability


																					December 31, 2016
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																							Cumulative
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)		2016		IBNR		Number of Claims

(In millions, except reported claims data)

Accident Year
2007	$	804	$	817	$	806	$	754	$	734	$	724	$	704	$	681	$	662	$	662	$	13		16,011
2008				916		933		954		924		915		880		850		845		827		35		16,326
2009						829		873		903		898		891		900		895		903		50		17,263
2010								825		827		850		848		846		836		823		39		17,796
2011										876		904		933		948		944		910		107		18,620
2012												907		894		876		870		833		107		18,228
2013														844		841		879		840		137		17,324
2014																841		859		854		306		16,886
2015																		847		851		478		16,391
2016																				859		742		15,045

																		Total	$	8,362	$	2,014


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses


Accident Year
2007	$	32	$	162	$	307	$	397	$	472	$	524	$	564	$	585	$	593	$	614
2008				39		181		376		515		600		641		678		719		741
2009						37		195		358		550		638		719		769		798
2010								31		203		404		541		630		670		721
2011										71		313		502		604		682		726
2012												57		248		398		570		648
2013														51		240		426		583
2014																51		212		375
2015																		48		209
2016																				60

																		Total	$	5,475


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																			$	2,887
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																				104
Liability for unallocated claim adjustment expenses for accident years presented																				72

Total net liability for unpaid claim and claim adjustment expenses																			$	3,063


Net Strengthening or (Releases) of Prior Accident Year Reserves
Years Ended
December 31																					Total


Accident Year
2007			$	13	$	(11)	$	(52)	$	(20)	$	(10)	$	(20)	$	(23)	$	(19)			$	(142)
2008						17		21		(30)		(9)		(35)		(30)		(5)	$	(18)		(89)
2009								44		30		(5)		(7)		9		(5)		8		74
2010										2		23		(2)		(2)		(10)		(13)		(2)
2011												28		29		15		(4)		(34)		34
2012														(13)		(18)		(6)		(37)		(74)
2013																(3)		38		(39)		(4)
2014																		18		(5)		13
2015																				4		4

Total net development for the accident years presented above															$	(52)	$	7	$	(134)
Total net development for accident years prior to 2007																(35)		(7)		4

Total															$	(87)	$	-	$	(130)

(a) Data presented for these calendar years is required supplemental information, which is unaudited.

Surety


																					December 31, 2016
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																							Cumulative
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)		2016		IBNR		Number of Claims

(In millions, except reported claims data)

Accident Year
2007	$	98	$	107	$	81	$	57	$	59	$	56	$	51	$	49	$	49	$	50				6,270
2008				114		114		73		68		61		52		48		45		44				7,153
2009						114		114		103		85		68		59		52		53	$	1		6,654
2010								112		112		111		84		76		66		63		8		5,943
2011										120		121		116		87		75		70		9		5,760
2012												120		122		98		70		52		16		5,473
2013														120		121		115		106		24		4,890
2014																123		124		94		51		4,737
2015																		131		131		100		4,279
2016																				124		110		2,902

																		Total	$	787	$	319


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses


Accident Year
2007	$	12	$	30	$	40	$	45	$	46	$	46	$	46	$	48	$	49	$	50
2008				9		27		35		39		42		43		43		43		43
2009						13		24		34		41		43		45		46		47
2010								13		34		50		55		57		58		55
2011										19		42		55		58		60		60
2012												5		32		34		35		35
2013														16		40		69		78
2014																7		30		38
2015																		7		26
2016																				5

																		Total	$	437


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																			$	350
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																				16
Liability for unallocated claim adjustment expenses for accident years presented																				28

Total net liability for unpaid claim and claim adjustment expenses																			$	394


Net Strengthening or (Releases) of Prior Accident Year Reserves
Years Ended
December 31																					Total


Accident Year
2007			$	9	$	(26)	$	(24)	$	2	$	(3)	$	(5)	$	(2)			$	1	$	(48)
2008								(41)		(5)		(7)		(9)		(4)	$	(3)		(1)		(70)
2009										(11)		(18)		(17)		(9)		(7)		1		(61)
2010												(1)		(27)		(8)		(10)		(3)		(49)
2011												1		(5)		(29)		(12)		(5)		(50)
2012														2		(24)		(28)		(18)		(68)
2013																1		(6)		(9)		(14)
2014																		1		(30)		(29)
2015

Total net development for the accident years presented above															$	(75)	$	(65)	$	(64)
Total net development for accident years prior to 2007																(7)		(4)		1

Total															$	(82)	$	(69)	$	(63)

(a) Data presented for these calendar years is required supplemental information, which is unaudited.

Commercial Auto


																					December 31, 2016

Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																							Cumulative
																							Number of
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)		2016		IBNR		Claims

(In millions, except reported claims data)

Accident Year
2007	$	348	$	367	$	368	$	360	$	355	$	358	$	356	$	355	$	354	$	352				67,473
2008				322		323		316		306		309		305		298		298		296				56,407
2009						287		272		274		278		281		277		275		272				47,325
2010								262		274		279		283		291		286		281	$	1		46,324
2011										262		273		279		293		290		285		5		46,676
2012												270		282		292		296		300		11		45,279
2013														242		259		257		241		20		38,513
2014																231		221		210		40		32,958
2015																		199		197		65		29,714
2016																				196		105		25,196

																		Total	$	2,630	$	247


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses


Accident Year
2007	$	93	$	185	$	250	$	295	$	329	$	340	$	348	$	349	$	350	$	351
2008				83		158		210		244		274		289		291		292		293
2009						72		128		188		229		257		269		270		270
2010								72		137		197		240		265		274		279
2011										78		141		193		241		264		275
2012												77		157		214		253		276
2013														73		132		164		195
2014																63		100		135
2015																		52		95
2016																				51

																		Total	$	2,220


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																			$	410
		Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																		4
		Liability for unallocated claim adjustment expenses for accident years presented																		10

		Total net liability for unpaid claim and claim adjustment expenses																	$	424


Net Strengthening or (Releases) of Prior Accident Year Reserves
Years Ended December 31																					Total


Accident Year
2007			$	19	$	1	$	(8)	$	(5)	$	3	$	(2)	$	(1)	$	(1)	$	(2)	$	4
2008						1		(7)		(10)		3		(4)		(7)				(2)		(26)
2009								(15)		2		4		3		(4)		(2)		(3)		(15)
2010										12		5		4		8		(5)		(5)		19
2011												11		6		14		(3)		(5)		23
2012														12		10		4		4		30
2013																17		(2)		(16)		(1)
2014																		(10)		(11)		(21)
2015																				(2)		(2)

		Total net development for the accident years presented above													$	37	$	(19)	$	(42)
		Total net development for accident years prior to 2007														(6)		(3)		(4)

														Total	$	31	$	(22)	$	(46)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.


*General Liability*
																					December 31, 2016
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																							Cumulative
																							Number of
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)		2012 (a)		2013 (a)		2014 (a)		2015 (a)		2016		IBNR		Claims

(In millions, except reported claims data)

Accident Year
2007	$	774	$	673	$	678	$	639	$	610	$	600	$	559	$	545	$	548	$	540	$	28		53,553
2008				611		604		630		647		633		632		613		600		591		18		44,586
2009						591		637		634		633		629		623		619		622		16		43,955
2010								566		597		599		649		695		675		659		25		43,378
2011										537		534		564		610		611		621		41		38,101
2012												539		563		579		570		558		63		34,037
2013														615		645		634		643		142		32,897
2014																627		634		635		224		26,744
2015																		573		574		330		21,687
2016																				622		495		16,720

																		Total	$	6,065	$	1,382

Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2007	$	30	$	130	$	236	$	328	$	413	$	458	$	481	$	492	$	497	$	504
2008				31		129		261		390		473		528		550		560		567
2009						33		112		270		392		486		532		557		584
2010								27		139		267		414		530		577		608
2011										27		135		253		389		484		534
2012												27		127		233		340		417
2013														33		135		257		377
2014																29		115		245
2015																		31		132
2016																				34

																		Total	$	4,002


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																			$	2,063
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																				1,130
		Liability for unallocated claim adjustment expenses for accident years presented																		55

		Total net liability for unpaid claim and claim adjustment expenses																	$	3,248

Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended
December 31																					Total

Accident Year
2007			$	(101)	$	5	$	(39)	$	(29)	$	(10)	$	(41)	$	(14)	$	3	$	(8)	$	(234)
2008						(7)		26		17		(14)		(1)		(19)		(13)		(9)		(20)
2009								46		(3)		(1)		(4)		(6)		(4)		3		31
2010										31		2		50		46		(20)		(16)		93
2011												(3)		30		46		1		10		84
2012														24		16		(9)		(12)		19
2013																30		(11)		9		28
2014																		7		1		8
2015																				1		1

Total net development for the accident years presented above															$	99	$	(46)	$	(21)
Total net development for accident years prior to 2007																(54)		13		(7)

														Total	$	45	$	(33)	$	(28)

(a)	Data presented for these calendar years is required supplemental information, which is unaudited.

Workers’ Compensation


																							December 31, 2016
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses																									Cumulative
																									Number of
December 31	2007 (a)		2008 (a)		2009 (a)		2010 (a)		2011 (a)			2012 (a)		2013 (a)		2014 (a)		2015 (a)			2016		IBNR		Claims
(In millions, except reported claims data)

Accident Year
2007	$	568	$	580	$	596	$	604	$	603		$	603	$	604	$	610	$	608		$	627	$	32	71,049
2008				558		575		593		606			608		612		622		630			638		36	59,883
2009						583		587		594			596		600		611		617			625		46	51,111
2010								576		619			641		663		683		697			717		45	48,056
2011										593			628		637		648		642			666		52	44,571
2012													589		616		648		661			671		86	41,683
2013															528		563		584			610		121	38,102
2014																	459		474			474		157	32,996
2015																			416			426		206	31,296
2016																						421		287	27,042

																			Total		$	5,875	$	1,068


Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses

Accident Year
2007	$	100	$	246	$	337	$	390	$	429		$	471	$	502	$	522	$	533		$	535
2008				92		233		323		381			425		461		489		505			520
2009						88		223		315			381		435		468		495			516
2010								94		245			352		433		500		531			565
2011										97			245		353		432		471			515
2012													86		229		338		411			465
2013															79		211		297			366
2014																	60		157			213
2015																			50			130
2016																						52

																			Total		$	3,877


Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented																					$	1,998
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007																						2,334
Other (b)																						(30)
Liability for unallocated claim adjustment expenses for accident years presented																						4

		Total net liability for unpaid claim and claim adjustment expenses																			$	4,306


(b) Other includes the effect of discounting lifetime claim reserves.

Net Strengthening or (Releases) of Prior Accident Year Reserves

Years Ended December 31																							Total

Accident Year
2007			$	12	$	16	$	8	$	(1	)			$	1	$	6	$	(2	)	$	19	$	59
2008						17		18		13		$	2		4		10		8			8		80
2009								4		7			2		4		11		6			8		42
2010										43			22		22		20		14			20		141
2011													35		9		11		(6	)		24		73
2012															27		32		13			10		82
2013																	35		21			26		82
2014																			15					15
2015																						10		10

		Total net development for the accident years presented above														$	125	$	69		$	125
				Adjustment for development on a discounted basis													1		(4	)		1
				Total net development for accident years prior to 2007													13		15			24

				Total												$	139	$	80		$	150


(a) Data presented for these calendar years is required supplemental information, which is unaudited.

The table below reconciles the net liability for unpaid claim and claim adjustment expenses for property and casualty operations to the amount presented in the Consolidated Balance Sheets.


As of December 31,	2016

(In millions)

Net liability for unpaid claim and claim adjustment expenses
Property and casualty operations	$	14,910
Non-core operations (a)		3,339

Total net claim and claim adjustment expenses		18,249

Reinsurance receivables (b)
Property and casualty operations		1,461
Non-core operations		2,633

Total reinsurance receivables		4,094

Total gross liability for unpaid claims and claims adjustment expenses	$	22,343

(a)	Non-core operations include amounts primarily related to long term care claim reserves, which are long duration insurance contracts, but also include amounts related to unfunded structured settlements arising from short duration insurance contracts.

(b)	Reinsurance receivables presented do not include reinsurance receivables related to paid losses.

The table below presents information about average historical claims duration as of December 31, 2016 and is presented as required supplementary information, which is unaudited.


Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year:
	1			2			3			4			5			6			7			8			9			10			Total

Medical professional liability		3.1	%		18.2	%		22.3	%		19.6	%		12.7	%		8.0	%		5.0	%		4.8	%		3.7	%		0.3	%		97.7%
Other professional liability and management liability		5.7	%		20.6	%		21.0	%		17.0	%		10.0	%		6.3	%		5.6	%		3.8	%		1.9	%		3.2	%		95.1%
Surety (a)		23.4	%		32.8	%		20.2	%		8.9	%		3.7	%		1.5	%		(0.7	)%		2.0	%		1.0	%		2.0	%		94.8%
Commercial auto		27.2	%		23.1	%		18.3	%		13.9	%		9.1	%		3.9	%		1.3	%		0.2	%		0.3	%		0.3	%		97.6%
General liability		5.0	%		16.3	%		20.5	%		20.1	%		15.3	%		8.0	%		4.2	%		2.7	%		1.1	%		1.3	%		94.5%
Workers’ compensation		13.5	%		21.4	%		14.6	%		10.5	%		7.5	%		5.7	%		4.6	%		3.0	%		2.1	%		0.3	%		83.2%

(a)	Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables.

A&EP Reserves

In 2010, Continental Casualty Company (“CCC”) together with several of CNA’s insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, CNA ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

Subsequent to the effective date of the LPT, CNA recognized adverse prior year development on its A&EP reserves which resulted in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which CNA recognizes a change in the estimate of A&EP reserves that increases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is impacted and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits in the Consolidated Statements of Income.

The following table presents the impact of the loss portfolio transfer on the Consolidated Statements of Income.


Year Ended December 31	2016			2015			2014

(In millions)

Net A&EP adverse development before consideration of LPT	$	200		$	150		$	-
Retroactive reinsurance benefit recognized		(107	)		(85	)		(13	)

Pretax impact of A&EP reserve development and the LPT	$	93		$	65		$	(13	)

Based upon CNA’s 2016 A&EP reserve review, net unfavorable prior year development of $200 million was recognized before consideration of cessions to the LPT. The unfavorable development was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than expected severity on pollution claims. An A&EP reserve review was not completed in 2014 because additional information and analysis on inuring third-party reinsurance recoveries were needed to finalize the review. The review was finalized in the second quarter of 2015 and management has adopted the first quarter of the year as the timing for all future annual A&EP claims actuarial reviews, subject to the timing of the corresponding review performed by NICO. Unfavorable development of $150 million was recorded in 2015 to reflect a decrease in anticipated future reinsurance recoveries related to asbestos claims and higher than expected severity on pollution claims. While this unfavorable development was ceded to NICO in 2016 and 2015 under the LPT, CNA’s reported earnings in both periods were negatively affected due to the application of retroactive reinsurance accounting.

As of December 31, 2016 and 2015, the cumulative amounts ceded under the LPT were $2.8 billion and $2.6 billion. The unrecognized deferred retroactive reinsurance benefit was $334 million and $241 million as of December 31, 2016 and 2015.

NICO established a collateral trust account as security for its obligations to CNA. The fair value of the collateral trust account was $2.8 billion as of December 31, 2016 and 2015. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to CNA’s A&EP claims.