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Non-life and Life and Health Reserves
 12 Months Ended
Dec. 31, 2020
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]  
Non-life and Life and Health Reserves Non-life and Life and Health Reserves
(a) Non-life reserves
Non-life reserves are categorized into three types of reserves: case reserves, ACRs and IBNR reserves. Case reserves represent unpaid losses reported by the Company’s cedants and recorded by the Company. ACRs are established for particular circumstances where, on the basis of individual loss reports, the Company estimates that the particular loss or collection of losses covered by a treaty may be greater than those advised by the cedant. IBNR reserves represent a provision for claims that have been incurred but not yet reported to the Company, as well as future loss development on losses already reported, in excess of the case reserves and ACRs. See also Note 2(b).
The Company’s gross liability for non-life reserves reported by cedants (case reserves) and those estimated by the Company (ACRs and IBNR reserves) at December 31, 2020 and 2019 was as follows (in thousands of U.S. dollars):
December 31, 2020December 31, 2019
Case reserves$4,646,633 $4,203,052 
ACRs171,381 158,220 
IBNR reserves6,577,307 6,002,111 
Non-life reserves$11,395,321 $10,363,383 
The reconciliation of the beginning and ending gross and net liability for non-life reserves for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands of U.S. dollars): 
202020192018
Gross liability at beginning of year$10,363,383 $9,895,376 $10,102,172 
Reinsurance recoverable at beginning of year754,795 850,946 719,998 
Net liability at beginning of year9,608,588 9,044,430 9,382,174 
Net incurred losses related to: (1)(2)
Current year3,945,248 3,716,988 3,417,366 
Prior years71,456 (56,848)(248,719)
4,016,704 3,660,140 3,168,647 
Net paid losses related to:
Current year(459,718)(439,285)(336,584)
Prior years(2,772,886)(2,651,385)(2,585,403)
(3,232,604)(3,090,670)(2,921,987)
Retroactive reinsurance recoverable (2)
— (81,013)— 
Change in Paris Re reserve agreement (3)
— — (397,493)
Effects of foreign exchange rate changes and other220,303 75,701 (186,911)
Net liability at end of year$10,612,991 $9,608,588 $9,044,430 
Reinsurance recoverable at end of year782,330 754,795 850,946 
Gross liability at end of year$11,395,321 $10,363,383 $9,895,376 
(1) Net incurred losses include favorable loss development of $3 million during the year ended December 31, 2019, which are allocated to Corporate and Other as disclosed in Note 18. Non-life reserves allocated to Corporate and Other totaled $6 million and $9 million at December 31, 2019 and 2018, respectively. There were no incurred losses or non-life reserves allocated to Corporate and Other during 2020.
(2) In the fourth quarter of 2019, the Company entered into a loss portfolio transfer agreement transferring 100% of liabilities, including profit commissions, related to its wholesale managing general agent portfolio. As a result of the transaction, the Company recorded a reinsurance recoverable of $81 million and a related deferred gain of $14 million, which was included in Accounts payable, accrued expenses and other in the Consolidated Balance Sheet at December 31, 2019. In the fourth quarter of 2020, the Company completed a business transfer to extinguish the remaining$70 million of non-life reserves and derecognized the $70 million of related reinsurance recoverables. As a result, during 2020, the $14 million deferred gain was recognized within Losses and loss expenses in the Consolidated Statement of Operations. At settlement, $64 million of invested assets were transferred, and there was a corresponding decrease in Other reinsurance balances payable.
(3) The change in reserve agreement includes adverse development on Paris Re’s reserves which were guaranteed by Axa under the reserve agreement. In 2018, this balance also includes the reduction of the guaranteed reserves following the commutation of the agreement in the fourth quarter of 2018.
For the year ended December 31, 2020, the Company reported net unfavorable loss development for prior accident years resulting from adverse loss emergence in the Specialty segment, which was partially offset by favorable loss emergence in the P&C segment. The adverse loss emergence within the Specialty segment was across multiple accident years, predominantly from property, engineering, multiline and aviation business. The favorable loss emergence within the P&C segment was primarily from accident years 2015 and prior, mainly driven by the European casualty, motor and property business, which was partially offset by adverse loss emergence in the U.S. and Asia property business.
For the year ended December 31, 2019, the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in the P&C segment, which was partially offset by adverse loss emergence for the Specialty segment. The favorable loss emergence within the P&C segment was primarily from accident years 2014 and prior, mainly driven by the European casualty and motor business, which was partially offset by adverse loss emergence in the U.S. casualty business. The adverse loss emergence within the Specialty segment was across multiple accident years, predominantly from the engineering, aviation and multiline business.
For the year ended December 31, 2018, the Company reported net favorable loss development for prior accident years resulting from favorable loss emergence in both Non-life segments. The favorable loss emergence within the P&C segment was across multiple accident years, mainly driven by the European casualty business. The favorable loss emergence within the Specialty segment was across multiple accident years, predominantly from the financial risks and property marine energy business.
Paris Re Reserve Agreement
Following Paris Re’s acquisition of substantially all of the reinsurance operations of Colisée Re in 2006, Paris Re’s French operating subsidiary (Paris Re France) entered into a reserve agreement (Reserve Agreement) whereby AXA and Colisée Re guaranteed reserves in respect of Paris Re France and subsidiaries acquired in the acquisition. The Reserve Agreement related to losses incurred prior to December 31, 2005. The reserve guarantee was conditioned upon, among other things, the guaranteed business, including related ceded reinsurance, being managed by AXA Liabilities Managers, an affiliate of Colisée Re. At December 31, 2017, the Company’s gross liability for non-life reserves included $426 million of guaranteed reserves, which were settled prior to December 31, 2018 as a result of the commutation of the remaining reserves under the Reserve Agreement. As a result of this commutation, a gain of $29 million was recorded in Other income within the Consolidated Statement of Operations during the year ended December 31, 2018. As of December 31, 2020 and 2019, respectively, no balances related to the Paris Re agreement remain.
Asbestos and Environmental Claims
The Company’s net non-life reserves at December 31, 2020 and 2019 included $43 million and $45 million, respectively, related to asbestos and environmental claims. The gross liability for such claims at December 31, 2020 and 2019 was $50 million and $51 million, respectively.
Ultimate loss estimates for such claims cannot be estimated using traditional reserving techniques and there are significant uncertainties in estimating the Company’s potential losses for these claims. In view of the legal and tort environment that affect the development of such claims, the uncertainties inherent in estimating asbestos and environmental claims are not likely to be resolved in the near future. There can be no assurance that the reserves established by the Company will not be adversely affected by development of other latent exposures, and further, there can be no assurance that the reserves established by the Company will be adequate. The Company does, however, actively evaluate potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific issues that would materially affect its unpaid losses and loss expense reserves related to this exposure.
Non-life reserving methods
The reserving methods commonly employed by the Company are summarized as follows:
Chain Ladder (CL) Development Methods (Reported or Paid)
These methods use the underlying assumption that losses reported (paid) for each underwriting year at a particular development stage follow a stable pattern. The CL development method assumes that on average, every underwriting year will display the same percentage of ultimate liabilities reported by the Company’s cedants at 24 months after the inception of the underwriting year. The percentages reported (paid) are established for each development stage after examining historical averages from the loss development data. These are sometimes supplemented by external benchmark information. Ultimate liabilities are estimated by multiplying the actual reported (paid) losses by the reciprocal of the assumed reported (paid) percentage. Reserves are then calculated by subtracting paid claims from the estimated ultimate liabilities.
Expected Loss Ratio (ELR) Method
This method estimates ultimate losses for an underwriting year by applying an estimated loss ratio to the earned premium for that underwriting year. Although the method is insensitive to actual reported or paid losses, it can often be useful at the early stages of development when very few losses have been reported or paid, and the principal sources of information available to the Company consist of information obtained during pricing and qualitative information supplied by the cedant. However, the lack of sensitivity to reported or paid losses means that the method is usually inappropriate at later stages of development.
Bornhuetter-Ferguson (B-F) Methods (Reported or Paid)
These methods aim to address the variability at early stages of development and incorporates external information such as pricing. The B-F methods are more sensitive to reported and paid losses than the ELR method, and can be seen as a blend of the ELR and CL development methods. Unreported (unpaid) claims are calculated using an expected reporting (payment) pattern and an externally determined estimate of ultimate liabilities (usually determined by multiplying an a priori loss ratio with estimates of premium volume). The accuracy of the a priori loss ratio is a critical assumption in this method. Usually a priori loss ratios are initially determined on the basis of pricing information, but may also be adjusted to reflect other information that subsequently emerges about underlying loss experience.
Loss Event Specific Method
The ultimate losses estimated under this method are derived from estimates of specific events based on reported claims, client and broker discussions, review of potential exposures, market loss estimates, modeled analysis and other event specific criteria.
Method Weights
In determining the loss reserves, the Company often relies on a blend of the results from two or more methods (e.g., weighted averages). The judgment as to which of the above method(s) is most appropriate for a particular underwriting year and reserving cell could change over time as new information emerges regarding underlying loss activity and other data issues. Furthermore, as each line is typically composed of several reserving cells, it is likely that the reserves for the line will be dependent on several reserving methods. This is because reserves for a line are the result of aggregating the reserves for each constituent reserving cell and that a different method could be selected for each reserving cell.
The principal reserving methods used for each of the Specialty segment and P&C segment were ELR, Reported/Paid B-F, and Reported/Paid CL, with the exception of catastrophe risks within the P&C segment where the principal reserving methods used were ELR based on exposure analysis and loss event specific methods.
(b) Life and Health Reserves
The reconciliation of the beginning and ending gross and net liability for life and health reserves for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands of U.S. dollars):
 202020192018
Gross liability at beginning of period$2,417,044 $2,198,080 $2,098,759 
Reinsurance recoverable at beginning of period16,183 11,829 9,287 
Net liability at beginning of period$2,400,861 $2,186,251 $2,089,472 
Net incurred losses (1)
1,318,196 1,263,016 1,024,608 
Net losses paid(1,230,383)(1,071,487)(818,916)
Effects of foreign exchange rate changes and other179,893 23,081 (108,913)
Net liability at end of period$2,668,567 $2,400,861 $2,186,251 
Reinsurance recoverable at end of period35,662 16,183 11,829 
Gross liability at end of period$2,704,229 $2,417,044 $2,198,080 
(1)During 2020, certain life and health treaties in the European region were recaptured, resulting in total gains upon recapture of $28 million, recorded as a reduction to net incurred losses.
Net incurred losses includes unfavorable prior years' loss development of $52 million during the year ended December 31, 2020 driven by the Company's disability business.
The Company used interest rate assumptions to estimate its liabilities for policy benefits for life and annuity contracts which ranged from 0% to 11% at December 31, 2020 and 0% to 7% at December 31, 2019 and 2018.
Life and health reserving methods
The reserving methods commonly employed by the Company are summarized as follows:
Mortality
The reserves for the short-term mortality/morbidity business consist of case reserves calculated at the treaty level based upon cedant information. IBNR is calculated at the segment level using the ELR method described above for Non-life business.
The reserves for the traditional and limited payment long-duration contracts are established based upon accepted actuarial valuation methods which require us to make certain assumptions regarding future claims and policy benefits and includes a provision for adverse deviation. The provision for adverse deviation contemplates reasonable deviations from the best estimate assumptions for the key risk elements relevant to the product being evaluated, including mortality, disability, critical illness, expenses, and discount rates. The assumptions are locked in at contract inception and are subject to annual loss recognition testing (LRT). LRT occurs at the product group level, based on the manner of acquiring, servicing and measuring profitability of the reinsurance contracts. The LRT framework incorporates deferred acquisition cost (DAC) recoverability testing and involves determining an LRT reserve by re-measuring the policy benefit liabilities using current best estimate actuarial assumptions and current discount rates without any provisions for adverse deviation. If the aggregate LRT reserve is higher than the carrying amount of future policy benefit liabilities, net of DAC and VOBA, for a particular product grouping then a loss recognition event occurs. The DAC and VOBA asset balances for the given product grouping are first reduced, and if the balances are fully written off, the reserves will be increased, such that the current best estimate assumptions become the new locked-in basis.
The reserves for the guaranteed minimum death benefit (GMDB) reinsurance business are established similar to provisions for universal life contracts. Key actuarial assumptions for this business are mortality, lapses, interest rates, expected returns on cash and bonds and stock market performance. For the latter parameter, a stochastic option pricing approach is used and the benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The assumptions of investment performance and volatility are consistent with expected future experience of the respective underlying funds available for policyholder investment options. Recorded reserves for GMDB reflect management’s best estimate based upon actuarial indications.
Longevity
Reserves for the annuity portfolio of reinsurance contracts within the longevity book are established using the reserving methodology discussed above for long-term traditional mortality.
(c) Losses and Loss Expenses
Losses and loss expenses in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 were comprised as follows (in thousands of U.S. dollars): 
202020192018
Non-life (1)
$4,016,704 $3,660,140 $3,168,647 
Life and Health1,318,196 1,263,016 1,024,608 
Losses and loss expenses$5,334,900 $4,923,156 $4,193,255 
(1) Net incurred losses include favorable loss development of $3 million during the year ended December 31, 2019, which are allocated to Corporate and Other as disclosed in Note 18.    
Non-life net incurred and paid losses and loss expense development
The net incurred and paid losses and loss expenses development by accident year for each of the years ended December 31, 2012 through 2020, and the total of IBNR plus expected development on reported claims included within the net incurred claims amounts, as at each of the years ended December 31, 2012 through 2020, are presented in the tables below (in thousands of U.S. dollars).
The information presented below for incurred and paid claims development for each of the years ended December 31, 2012 through 2019 and the average annual percentage payout of incurred claims by age, net of reinsurance, is presented as supplementary information and is unaudited. The tables below reflect losses incurred and paid losses translated to U.S. dollars at the exchange rate as of the balance sheet date whereas the Losses and loss expenses in the Consolidated Statement of Operations reflect losses incurred at the average exchange rate for the period.
NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - NON-LIFE
For the year ended December 31,December 31, 2020
Accident year201220132014201520162017201820192020Total of IBNR plus expected development on reported claims
2012$2,639,688 $2,448,003 $2,290,439 $2,185,285 $2,153,160 $2,184,735 $2,161,359 $2,128,131 $2,113,301 $56,549 
20132,878,960 2,701,251 2,524,503 2,471,199 2,438,378 2,410,942 2,407,964 2,389,223 93,466 
20142,832,489 2,613,300 2,502,796 2,471,459 2,484,045 2,476,974 2,455,964 127,048 
20152,884,189 2,593,622 2,488,546 2,504,538 2,505,549 2,481,206 171,655 
20162,913,005 2,679,891 2,620,822 2,635,472 2,644,764 214,995 
20172,955,964 2,937,200 2,894,231 2,881,721 336,779 
20183,025,845 3,157,015 3,158,785 661,933 
20193,438,573 3,666,589 1,322,179 
20203,964,240 2,790,092 
Total$25,755,793 $5,774,696 
NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - NON-LIFE
For the year ended December 31,
Accident year201220132014201520162017201820192020
2012$282,336 $1,051,844 $1,435,654 $1,602,522 $1,706,226 $1,797,329 $1,846,856 $1,903,538 $1,924,585 
2013243,125 1,295,766 1,647,638 1,849,033 1,979,137 2,072,228 2,138,888 2,173,004 
2014302,881 1,311,827 1,616,215 1,825,493 1,967,077 2,076,264 2,154,230 
2015302,359 1,216,114 1,615,865 1,837,345 2,007,020 2,109,694 
2016322,009 1,363,347 1,721,704 1,997,281 2,125,590 
2017385,968 1,501,428 1,952,096 2,240,013 
2018258,601 1,430,969 2,010,369 
2019376,937 1,578,528 
2020445,338 
Total$16,761,351 
Net reserves for Accident Years and exposures included in the triangles$8,994,442 
All outstanding liabilities before Accident Year 2012, net of reinsurance1,242,482 
Total outstanding liabilities for unpaid claims$10,236,924 
AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - NON-LIFE
Years123456789
Non-life11%38%16%9%6%4%3%2%1%
NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY
For the year ended December 31,December 31, 2020
Accident year201220132014201520162017201820192020Total of IBNR plus expected development on reported claims
2012$669,251 $665,457 $585,528 $569,161 $553,571 $553,162 $541,206 $530,578 $529,800 $1,389 
2013688,562 583,828 550,859 535,390 531,092 520,552 518,273 517,995 9 
2014517,561 471,863 450,396 448,016 444,502 442,768 441,020 958 
2015591,817 548,716 523,677 516,138 510,688 506,222 3,806 
2016726,247 684,070 637,316 617,028 613,810 (1,802)
20171,016,229 1,066,376 982,359 951,418 6,426 
2018854,166 899,055 886,662 82,052 
2019797,247 848,801 90,827 
20201,183,875 656,924 
Total$6,479,603 $840,589 
NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - PROPERTY
For the year ended December 31,
Accident year201220132014201520162017201820192020
2012$100,426 $358,758 $452,456 $486,598 $498,174 $507,557 $510,674 $518,029 $517,970 
201390,133 341,662 442,974 477,517 495,869 498,952 503,187 505,337 
201491,891 323,437 388,024 414,395 424,068 429,160 432,996 
201596,019 354,874 443,500 472,059 483,099 488,049 
2016137,065 459,492 541,070 579,666 592,826 
2017223,598 729,810 839,658 891,247 
201877,248 573,855 715,182 
201969,729 479,960 
2020108,876 
Total$4,732,443 
Net reserves for Accident Years and exposures included in the triangles$1,747,160 
All outstanding liabilities before Accident Year 2012, net of reinsurance96,511 
Total outstanding liabilities for unpaid claims$1,843,671 
AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - PROPERTY
Years123456789
Property 15%52%15%6%2%1%1%1%—%
NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY
For the year ended December 31,December 31, 2020
Accident year201220132014201520162017201820192020Total of IBNR plus expected development on reported claims
2012$687,962 $673,952 $645,961 $606,043 $588,811 $597,170 $592,669 $577,494 $569,594 $41,729 
2013800,809 796,525 747,617 729,592 725,500 721,980 719,484 705,107 77,368 
2014901,424 877,191 857,330 863,051 879,547 873,227 857,663 103,508 
2015899,355 840,261 816,250 858,788 861,603 855,377 147,031 
2016849,717 801,939 822,539 850,527 856,372 174,156 
2017761,089 729,564 757,962 767,640 216,810 
2018941,900 957,888 975,851 418,539 
20191,214,328 1,223,746 745,117 
20201,278,149 1,073,385 
Total$8,089,499 $2,997,643 
NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - CASUALTY
For the year ended December 31,
Accident year201220132014201520162017201820192020
2012$51,015 $134,416 $203,970 $276,902 $333,006 $391,406 $422,362 $449,854 $467,395 
201350,172 158,781 266,697 348,233 418,556 480,167 521,355 547,056 
201471,742 209,570 313,465 413,742 501,473 573,308 637,432 
201567,091 187,339 300,083 398,324 501,468 575,490 
201633,049 163,317 263,687 380,668 468,089 
201761,811 180,400 292,946 399,268 
201862,403 238,134 375,961 
201989,228 294,178 
202097,584 
Total$3,862,453 
Net reserves for Accident Years and exposures included in the triangles$4,227,046 
All outstanding liabilities before Accident Year 2012, net of reinsurance1,059,637 
Total outstanding liabilities for unpaid claims$5,286,683 
AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - CASUALTY
Years123456789
Casualty7%16%13%12%11%9%6%4%3%
NET INCURRED LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY
For the year ended December 31,December 31, 2020
Accident year201220132014201520162017201820192020Total of IBNR plus expected development on reported claims
2012$1,282,475 $1,108,594 $1,058,950 $1,010,081 $1,010,778 $1,034,403 $1,027,484 $1,020,059 $1,013,907 $13,431 
20131,389,589 1,320,898 1,226,027 1,206,217 1,181,786 1,168,410 1,170,207 1,166,121 16,089 
20141,413,504 1,264,246 1,195,070 1,160,392 1,159,996 1,160,979 1,157,281 22,582 
20151,393,017 1,204,645 1,148,619 1,129,612 1,133,258 1,119,607 20,818 
20161,337,041 1,193,882 1,160,967 1,167,917 1,174,582 42,641 
20171,178,646 1,141,260 1,153,910 1,162,663 113,543 
20181,229,779 1,300,072 1,296,272 161,342 
20191,426,998 1,594,042 486,235 
20201,502,216 1,059,783 
Total$11,186,691 $1,936,464 
NET PAID LOSSES AND LOSS EXPENSES DEVELOPMENT TABLE - SPECIALTY
For the year ended December 31,
Accident year201220132014201520162017201820192020
2012$130,895 $558,670 $779,228 $839,022 $875,046 $898,366 $913,820 $935,655 $939,220 
2013102,820 795,323 937,967 1,023,283 1,064,712 1,093,109 1,114,346 1,120,611 
2014139,248 778,820 914,726 997,356 1,041,536 1,073,796 1,083,802 
2015139,249 673,901 872,282 966,962 1,022,453 1,046,155 
2016151,895 740,538 916,947 1,036,947 1,064,675 
2017100,559 591,218 819,492 949,498 
2018118,950 618,980 919,226 
2019217,980 804,390 
2020238,878 
Total$8,166,455 
Net reserves for Accident Years and exposures included in the triangles$3,020,236 
All outstanding liabilities before Accident Year 2012, net of reinsurance86,334 
Total outstanding liabilities for unpaid claims$3,106,570 
AVERAGE ANNUAL PERCENTAGE PAYOUT OF INCURRED CLAIMS BY AGE, NET OF REINSURANCE - SPECIALTY
Years123456789
Specialty12%46%17%8%4%2%1%1%—%
The Company is predominantly a reinsurer of primary insurers and does not have access to claim frequency information held by our cedants due to the majority of the Company’s business being written on a proportional basis. As such, the Company considers it impracticable to disclose information on the frequency of claims.
As disclosed in the notes to the consolidated financial statements for the year ended December 31, 2016, the Company concluded that it was impracticable to provide net incurred and paid losses and loss expenses development data for 10 years. As a result, the Company provided 5 years of data in 2016 and includes an additional year of data for each subsequent year such that by 2021 a full 10 years of data will be disclosed.
The reconciliation of the net incurred and paid claims development information above to the Non-life reserves in the Consolidated Balance Sheet at December 31, 2020 was as follows (in thousands of U.S. dollars):
December 31, 2020
Total outstanding liability for unpaid claims
Property$1,843,671 
Casualty5,286,683 
Specialty3,106,570 
Total outstanding liabilities for unpaid claims$10,236,924 
Unallocated loss expenses$186,523 
U.S. health net reserves (1)
188,879 
Other665 
Total other liabilities$376,067 
Net liability at end of year$10,612,991 
Reinsurance recoverable on paid and unpaid claims
Property$327,935 
Casualty166,494 
Specialty287,901 
Reinsurance recoverable at end of year$782,330 
Gross liability at end of year$11,395,321 
(1) U.S. health business is not meaningful to include in the development tables as the estimated average duration of the health reserves is less than one year and substantially all claims are expected to be paid within two years, based on historical payout patterns.