Company which was partly offset by reserve decreases for other mass torts and extra contractual liability claims.

The Company increased reserves for sexual molestation claims by $129 considering the impact of recent bankruptcy filings and an expected increase in claim incidence largely driven by legislation passed in a number of states that provides an opportunity for claimants to file claims for a period of time despite the fact that the original statute of limitations had expired.

Marine reserves were increased principally due to an increase in domestic marine liability, mostly in accident years 2017 and 2018 due to a higher number of large losses. The increase in marine reserves is included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Package business reserves decreased for accident years 2014 to 2017 largely due to lower estimates of allocated loss adjustment expenses.

Commercial property reserves were decreased for accident year 2019 due to favorable developments on marine and middle market property claims.

Professional liability reserves were decreased primarily due to lower estimated severity on non-security class action D&O claims and fewer than expected E&O claims with financial institutions for the 2011 to 2018 accident years, partially offset by an increase in D&O reserves for the 2019 accident year driven by higher frequency of class action lawsuits and an increase in large Syndicate D&O losses for the 2016 and 2017 accident years. These Syndicate reserve increases within Global Specialty are included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Assumed reinsurance reserves were increased for accident year 2018 mostly due to higher accident and health reserve estimates for medical professionals on assumed casualty business. These reserve increases are included as a component of the change in deferred gain under retroactive reinsurance in the above table.

Automobile liability reserves were decreased in Personal Lines principally due to lower than previously expected AARP Direct automobile liability claim severity for the 2017 and 2018 accident years. Automobile liability reserves were increased in Commercial Lines primarily due to higher than expected large losses on national accounts in the first quarter of 2020 related to accident years 2015 to 2017 and due to large losses within middle & large commercial, primarily within the 2018 and 2019 accident years.

Catastrophes reserves were reduced, primarily due to a reduction in estimated reserves for 2017 and 2018 California wildfires and a reduction in estimated catastrophes for wind and hail events in the 2018 and 2019 accident years, partially offset by an increase in reserves for 2019 typhoons Hagibis and Faxai in Asia. The reduction in reserves for the 2017 and 2018 wildfires was largely due to recognizing a $289 subrogation benefit in the second quarter of 2020 from PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”).

In December, 2019, the judge overseeing the bankruptcy of PG&E approved an $11 billion settlement of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. That settlement was contingent upon, among other things, the judge

entering an order confirming PG&E’s chapter 11 bankruptcy plan (“PG&E Plan”) incorporating the settlement agreement. On June 20, 2020, the bankruptcy court judge approved the PG&E Plan and PG&E subsequently transferred the $11 billion settlement amount to a trust designed to allocate and distribute the settlement among subrogation holders, including certain of the Company’s insurance subsidiaries. In the second quarter of 2020, the Company recorded an estimated $289 subrogation benefit though the ultimate amount it collects will depend on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation.

Re-estimates of prior accident year reserves for the nine months ended September 30, 2019

Workers’ compensation reserves were reduced, principally in small commercial driven by lower than previously estimated claim severity for the 2014 through 2017 accident years and, to a lesser extent, in national accounts due to lower estimated claim severity, primarily for accident years 2013 and prior.

General liability reserves were increased, primarily due to reserve increases in small commercial for accident years 2017 and 2018 due to higher frequency of high-severity bodily injury claims, reserve increases in middle and large commercial for accident years 2015 to 2018 due to higher estimated severity, as well as increased estimated severity on the acquired Navigators book of business related to U.S. construction, premises liability, products liability and excess casualty, mostly related to accident years 2014 to 2018. In addition, an increase in reserves for mass torts was offset by a decrease in reserves for extra contractual liability claims.

Package business reserves were decreased, primarily due to favorable emergence on property claims related to accident years 2016 through 2018 and due to favorable development of allocated loss adjustment expenses on general liability claims for 2017 and prior accident years.

Commercial property reserves were decreased, principally due to favorable emergence of reported losses, including on the acquired Navigators Group book of business related to offshore energy in accident years 2017 to 2018 and construction engineering across accident years 2015 to 2018.

Professional liability reserves were increased, primarily due to large loss activity, including wrongful termination and discrimination claims, in accident years 2017 and 2018 and increased estimated frequency and severity of directors’ and officers’ reserves on the Navigators Group book of business, principally for the 2014 to 2018 accident years.

Marine reserves were increased, principally related to pollution exposure from the 1980s and 1990s related to the Navigators Group book of business.

Automobile liability reserves were decreased in Personal Lines due to the emergence of lower estimated severity in automobile liability for accident year 2017 and were increased in Commercial Lines due to higher estimated severity on national accounts, principally in accident years 2017 and 2018.

Catastrophes reserves were reduced, primarily as a result of lower estimated net losses from 2017 hurricanes Harvey and Irma.

Adverse Development Covers

The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.

Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid are recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings. As of September 30, 2020, the Company has incurred $640 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $860 of available limit remaining under the A&E ADC.

Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO, on behalf of Navigators Insurers. Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018.

As of September 30, 2020, the Company has recorded a reinsurance recoverable under the Navigators ADC of $204, as estimated cumulative loss development on the 2018 and prior accident year reserves of $304 exceed the $100 deductible. While the reinsurance recoverable is $204, the Company has also

recorded a $113 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a deferred gain. As the Company has ceded $204 of the $300 available limit, there is $96 of remaining limit available as of September 30, 2020.

Group Life, Disability and Accident Products

Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses


	For the nine months ended September 30,
	2020		2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross	$	8,256	$	8,445
Reinsurance recoverables [1]	246		239
Beginning liabilities for unpaid losses and loss adjustment expenses, net	8,010		8,206

Provision for unpaid losses and loss adjustment expenses
Current incurral year	3,339		3,351
Prior year's discount accretion	160		169
Prior incurral year development [2]	(362)		(321)
Total provision for unpaid losses and loss adjustment expenses [3]	3,137		3,199
Payments
Current incurral year	(1,553)		(1,603)
Prior incurral years	(1,681)		(1,743)
Total payments	(3,234)		(3,346)
Ending liabilities for unpaid losses and loss adjustment expenses, net	7,913		8,059
Reinsurance recoverables	242		231
Ending liabilities for unpaid losses and loss adjustment expenses, gross	$	8,155	$	8,290

[1]Reflects a cumulative effect adjustment of $(1) representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies for further information.

[2]Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.

[3]Includes unallocated loss adjustment expenses of $133 and $130 for the nine months ended September 30, 2020 and 2019, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2020

Group disability- Prior period reserve estimates decreased by approximately $293 largely driven by group long-term disability lower claim incidence and higher recoveries on prior incurral year claims, and a refund on the New York Paid Family Leave program.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $50 largely driven by lower-than-previously expected claim incidence in group life premium waiver.

Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $19 driven by lower-than-expected emergence of prior year claims, especially for voluntary critical Illness and voluntary accident products.

Re-estimates of prior incurral years reserves for the nine months ended September 30, 2019

Group disability- Prior period reserve estimates decreased by approximately $265 largely driven by group long-term disability claim recoveries higher than prior reserve assumptions and claim incidence lower than prior assumptions. Long-term disability ("LTD") reserve assumptions were also updated based partially on these more recent favorable trends. New York Paid Family Leave also experienced favorable claim emergence and refund compared to year-end estimates.

Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $45 largely driven by lower-than-previously expected claim incidence in group life premium waiver.

11. RESERVE FOR FUTURE POLICY BENEFITS


Changes in Reserves for Future Policy Benefits[1]
Liability balance, as of January 1, 2020	$	635
Incurred	74
Paid	(67)
Change in unrealized investment gains and losses	8
Liability balance, as of September 30, 2020	$	650
Reinsurance recoverable asset, as of January 1, 2020	$	31
Incurred	(2)
Paid	—
Reinsurance recoverable asset, as of September 30, 2020	$	29


Liability balance, as of January 1, 2019	$	642
Incurred	63
Paid	(77)
Change in unrealized investment gains and losses	17
Liability balance, as of September 30, 2019	$	645
Reinsurance recoverable asset, as of January 1, 2019	$	27
Incurred	2
Paid	—
Reinsurance recoverable asset, as of September 30, 2019	$	29

[1]Reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits segment and reserves for run-off structured settlement and terminal funding agreement liabilities which are in the Corporate category.