4. Unpaid losses and loss expenses

The following table presents a reconciliation of beginning and ending Unpaid losses and loss expenses:



	Three Months Ended March 31
(in millions of U.S. dollars)	2018			2017
Gross unpaid losses and loss expenses – beginning of period	$	63,179		$	60,540
Reinsurance recoverable on unpaid losses - beginning of period ⁽¹⁾	(14,014		)	(12,708		)
Net unpaid losses and loss expenses – beginning of period	49,165			47,832
Net losses and loss expenses incurred in respect of losses occurring in:
Current year	4,358			4,078
Prior years ⁽²⁾	(256		)	(289		)
Total	4,102			3,789
Net losses and loss expenses paid in respect of losses occurring in:
Current year	809			798
Prior years	3,433			3,109
Total	4,242			3,907
Foreign currency revaluation and other	292			54
Net unpaid losses and loss expenses – end of period	49,317			47,768
Reinsurance recoverable on unpaid losses ⁽³⁾	13,822			12,811
Gross unpaid losses and loss expenses – end of period	$	63,139		$	60,579


⁽¹⁾	Net of provision for uncollectible reinsurance of $321 million and $300 million at December 31, 2017 and 2016, respectively.


⁽²⁾	Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments, and earned premiums totaling $47 million and $58 million for the three months ended March 31, 2018 and 2017, respectively.


⁽³⁾	Net of provision for uncollectible reinsurance of $320 million and $334 million at March 31, 2018 and 2017, respectively.

The increase in net unpaid losses and loss expenses from December 31, 2017 reflects the impact of catastrophic events in the quarter and foreign exchange movement, offset by favorable prior period development and catastrophe payments related to the 2017 catastrophic events.

Prior Period Development

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period, are discussed in more detail below. The remaining net development for long-tail lines and short-tail business for each segment and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of which is significant individually or in the aggregate.

Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, and agriculture. During the third quarter of 2017, we determined that the loss development classification for certain businesses, previously grouped within the short-tail column in the table below, would be more appropriately grouped within the long-tail column to better align with the classification of these businesses within our loss development triangles in our Form 10-K. We also determined that the loss development for certain other businesses should be reclassified from long-tail to short-tail. We updated the 2017 North America Commercial P&C Insurance segment amounts below to conform to the current period presentation and reclassified $5 million of net favorable development into short-tail from long-tail. These changes to the previously disclosed amounts have no impact to our financial condition and results of operations.



	Three Months Ended March 31
(in millions of U.S. dollars)	Long-tail			Short-tail			Total
2018
North America Commercial P&C Insurance	$	8		$	(109	)	$	(101	)
North America Personal P&C Insurance	—			(6		)	(6		)
North America Agricultural Insurance	—			(76		)	(76		)
Overseas General Insurance	—			(22		)	(22		)
Global Reinsurance	—			(14		)	(14		)
Corporate	10			—			10
Total	$	18		$	(227	)	$	(209	)
2017
North America Commercial P&C Insurance	$	(94	)	$	(85	)	$	(179	)
North America Personal P&C Insurance	—			(3		)	(3		)
North America Agricultural Insurance	—			(79		)	(79		)
Overseas General Insurance	32			(20		)	12
Global Reinsurance	8			—			8
Corporate	10			—			10
Total	$	(44	)	$	(187	)	$	(231	)

North America Commercial P&C Insurance

2018

For the three months ended March 31, 2018, net favorable PPD was $101 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net adverse development of $8 million in long-tail business, primarily from:

•

Net favorable development of $29 million in commercial excess and umbrella portfolios, driven by the 2012 and prior accident years where the cumulative emergence over time has been less than expected overall and an increase in weighting towards experience-based methods, partly offset by several large settlements; additionally there was adverse claim activity in the 2014 and 2015 accident years which led to reserve strengthening in those years;


•	Net favorable development of $3 million on several lines of business due to favorable claim development on the 2017 natural catastrophes; and


•	Net adverse development of $40 million, mainly in 2015, 2016 and some older accident years, partially offset by favorable development in other periods, particularly in the 2014 accident year. This net adverse development consisted of several underlying favorable and adverse movements by portfolio, principally including $16 million of adverse development in wholesale general liability lines.


•	Net favorable development of $109 million in short-tail business, primarily from:


•	Net favorable development of $75 million in commercial property and marine businesses due to favorable claim development on the 2017 natural catastrophes; and


•	Net favorable development of $34 million, principally including $19 million in surety business. The remainder was due to several underlying favorable and adverse movements, none of which were significant individually or in the aggregate.

2017

For the three months ended March 31, 2017, net favorable PPD was $179 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Net favorable development of $94 million in long-tail business, primarily from:


•	Net favorable development of $74 million in our commercial excess and umbrella portfolios, primarily in accident years 2010 and prior, driven by lower than expected reported loss activity, and an increase in weighting towards experience-based methods; and


•	Net favorable development of $32 million in our professional Errors and Omissions (E&O) portfolios, primarily in the 2011 through 2013 accident years, arising from lower than expected reported loss activity, partially offset by claim-specific adverse development.


•	Net favorable development of $85 million in short-tail business, primarily from:


•	Net favorable development of $45 million in our surety business, primarily due to lower than expected claims severity in the 2015 accident year; and


•	Net favorable development of $24 million in accident & health (A&H) lines, primarily due to lower than expected loss emergence in the 2015 and 2016 accident years.

North America Personal P&C Insurance

2018

For the three months ended March 31, 2018, net favorable PPD was $6 million and was driven by claim development on the 2017 natural catastrophes.

2017

For the three months ended March 31, 2017, net favorable PPD was $3 million, which was the net result of several underlying favorable and adverse movements, none of which were significant individually or in the aggregate.

North America Agricultural Insurance

For the three months ended March 31, 2018 and 2017, net favorable PPD was $76 million and $79 million, respectively. Actual claim development relates to our Multiple Peril Crop Insurance (MPCI) business and is favorable due to better than expected crop yield results in certain states at the prior year-end period (i.e., 2018 results based on crop yield results at year-end 2017).

Overseas General Insurance

2018

For the three months ended March 31, 2018, net favorable PPD was $22 million, which was primarily driven by $12 million of claim development on the 2017 natural catastrophes.

2017

For the three months ended March 31, 2017, net adverse PPD was $12 million, which was the net result of several underlying favorable and adverse movements, and was driven by the following principal changes:


•	Adverse development of $32 million in long-tail business, in our casualty lines, driven by a change in the discount rate in the U.K. (Ogden rate) impacting the 2016 and prior accident years.


•	Net favorable development of $20 million in short-tail business, which was the net result of several underlying favorable and adverse movements, none of which were significant individually or in the aggregate.

Global Reinsurance

2018

For the three months ended March 31, 2018, net favorable PPD was $14 million, which was primarily driven by $10 million of claim development on the 2017 natural catastrophes.

2017

For the three months ended March 31, 2017, net adverse PPD was $8 million, which was primarily due to adverse development of $9 million in long-tail motor and excess liability lines, driven by a change in the discount rate in the U.K. (Ogden rate) impacting the 2015 and prior accident years.

Corporate

For the three months ended March 31, 2018 and 2017, adverse development was $10 million for both periods, related to unallocated loss adjustment expenses due to run-off operating expenses paid and incurred.