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Liability for Unpaid Loss and Loss Adjustment Expense
 12 Months Ended
Dec. 31, 2014
Liability for Unpaid Loss and Loss Adjustment Expense  
Liability For Future Policy Benefits And Unpaid Claims Disclosure TextBlock

(6) Liability for Unpaid Loss and Loss Adjustment Expense

 

The table below provides a reconciliation of our liability for loss and loss adjustment expense payable (referred to as reserves) at December 31, 2014, 2013 and 2012.

201420132012
Reserves at beginning of year$3,902,132 $3,767,850 $3,658,317
Less reinsurance recoverables on reserves1,122,731 1,018,047 974,834
Net reserves at beginning of year2,779,401 2,749,803 2,683,483
Net reserve additions from acquired businesses--14,705
Net loss and loss adjustment expense:
Provision for loss and loss adjustment expense for claims occurring
in current year1,383,192 1,396,196 1,408,085
Decrease in estimated loss and loss adjustment expense for
claims occurring in prior years(56,357)(73,742)(70,011)
Net loss and loss adjustment expense1,326,835 1,322,454 1,338,074
Net loss and loss adjustment expense payments for claims occurring during:
Current year543,605 562,049 575,573
Prior years856,896 736,351 729,335
Net loss and loss adjustment expense payments1,400,501 1,298,400 1,304,908
Foreign currency adjustment(48,113)5,544 18,449
Net reserves at end of year2,657,622 2,779,401 2,749,803
Plus reinsurance recoverables on reserves1,070,463 1,122,731 1,018,047
Reserves at end of year$3,728,085 $3,902,132 $3,767,850

The table below details our loss and loss adjustment expense on a consolidated basis, as well as the net (favorable) adverse loss development by segment.

201420132012
Net (favorable) adverse loss development
U.S. Property & Casualty$ (41,560)$ (39,363)$ 2,321
Professional Liability 973 (26,346) (25,897)
Accident & Health (13,086) (18,027) (10,511)
U.S. Surety & Credit (22,629) (37,898) (25,377)
International 25,050 43,805 (10,084)
Exited Lines (5,105)4,087 (463)
Total net favorable loss development(56,357)(73,742)(70,011)
Accident year catastrophe losses 28,683 55,939 52,390
All other net loss and loss adjustment expense 1,354,509 1,340,257 1,355,695
Net loss and loss adjustment expense$1,326,835 $1,322,454 $1,338,074

Loss development represents an increase or decrease in estimates of ultimate losses related to business written in prior accident years. We record such increases or decreases as loss and loss adjustment expense in the current reporting year. Favorable development means our original ultimate loss estimate was higher than the current estimate. Adverse development means the current ultimate loss estimate is higher than our original estimate. Loss development occurs as we review our loss exposure with our actuaries, increasing or decreasing estimates of our ultimate losses as a result of such reviews, and as losses are finally settled or claims exposure changes.

Based on our annual review of reserves in our five insurance underwriting segments and in our Exited Lines, we recognized net favorable loss development of $56.4 million, $73.7 million and $70.0 in 2014, 2013, and 2012, respectively. These amounts included favorable development of $5.9 million, $7.3 million and $21.4 million, respectively, from the release of prior years’ catastrophe reserves. The primary drivers of development in each year by segment are described below.

U.S. Property & Casualty

Net favorable loss development of $41.6 million in 2014 was due to better than expected loss experience, primarily in underwriting years 2012 and prior, compared to the 2013 annual reserve review. The majority of the development related to various liability lines of business ($18.7 million), our aviation business ($9.0 million) and a run-off assumed quota share contract that we wrote from 2003 – 2008 ($5.0 million).

Net favorable development of $39.4 million in 2013 was due to better than expected experience, primarily in underwriting years 2011 and prior, compared to the 2012 reserve review. This amount included $17.0 million of favorable development related to the run-off assumed quota share contract, where expected ultimate losses have continued to decline. In addition, we recognized $5.8 million of favorable development related to our errors and omissions (E&O) business.

In 2012, the segment recognized net adverse development of $2.3 million, which included adverse development of $8.1 million in our public risk business and $7.0 million in our E&O business, partially offset by $5.6 million of favorable development in the run-off assumed quota share contract. The adverse development, which impacted underwriting years 2010 and prior for public risk and 2011 and prior for E&O, was based on higher than expected losses compared to our 2011 reserve review.

Professional Liability

In 2014, we recognized minimal loss development based on our annual review of reserves.

Net favorable development of $26.3 million in 2013 was due to better than expected loss experience, compared to the 2012 reserve review. This development included reserve releases related to underwriting years prior to 2007 as well as 2009 and 2010 (totaling $64.2 million), partially offset by reserve strengthening of $37.9 million in underwriting years 2007 and 2008, which were impacted by the worldwide financial crisis.

Net favorable development of $25.9 million in 2012 included reserve releases of $62.1 million due to better than expected loss experience, compared to the 2011 reserve review. This development related to underwriting years prior to 2007 and was partially offset by reserve strengthening in underwriting year 2008.

Accident & Health

The segment recognized net favorable development as follows: 1) 2014 – $13.1 million related to underwriting years 2012 and 2013, 2) 2013 – $18.0 million related to underwriting years 2011 and 2012 and 3) 2012 – $10.5 million related to underwriting year 2011. Our review of the segment’s reserves indicated better than expected claims activity in our medical stop-loss product.

U.S. Surety & Credit

The segment recognized net favorable development as follows: 1) 2014 – $20.3 million related to surety and $2.3 million related to credit, 2) 2013 – $20.6 million for surety and $17.3 million for credit and 3) 2012 – $18.0 million for surety and $7.4 million for credit. Our review of the segment’s reserves indicated better experience than our actuarial expectations in each year’s review compared to the prior year review.

International

In 2014, the segment’s $25.1 million net adverse loss development primarily related to $44.1 million of adverse development for the surety & credit line of business, partially offset by net favorable development in various lines of business and a $5.4 million reduction of prior years’ catastrophe reserves. In the third quarter of 2014, we increased our reserves on a specific class of Spanish surety bonds to reflect our revised estimates of our liability under these bonds in light of our settlement of a majority of the outstanding claims during that quarter. The segment’s favorable development primarily related to our energy, property treaty and liability lines, which had better than expected loss experience in underwriting years 2013 and prior, compared to our annual 2013 reserve review. The net favorable development related to catastrophe reserves was primarily due to reserve releases for the 2013 European floods ($6.0 million), partially offset by reserve increases for the 2011 Denmark storms ($1.5 million).

In 2013, the segment’s net adverse development of $43.8 million was due to reserve strengthening in the surety & credit line of business, partially offset by net favorable development in other lines of business, primarily energy and liability. For surety & credit, we increased our reserves by $70.3 million on the Spanish surety bonds discussed above. The increase was made to reflect our revised estimates of our liability under these bonds in light of an adverse Spanish Supreme Court ruling published in 2013. We recognized net favorable development of $10.1 million in energy and $16.1 million in our U.K. professional liability products based on better than expected loss experience primarily in underwriting years 2011 and prior, compared to our 2012 reserve review. In addition, we recognized favorable development related to our release of catastrophe reserves for Superstorm Sandy ($3.4 million) and the 2010 New Zealand earthquake ($2.3 million), due to lower than expected losses.

The segment’s $10.1 million of net favorable development in 2012 included $59.0 million of net favorable development, primarily related to the liability and energy lines, partially offset by $48.9 million of adverse development related to the Spanish surety bonds. The adverse development was based on management’s evaluation of the claims and the likelihood that we would ultimately be required to pay the claims, based on information available at that time. The segment’s net favorable development related to better than expected experience in underwriting years 2011 and prior and also included $18.9 million of catastrophe reserve releases, primarily for Hurricane Irene ($10.7 million) and the Japan earthquake and tsunami ($4.6 million).