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Reserve for Claims and Claim Expenses
3 Months Ended
Mar. 31, 2018
Insurance Loss Reserves [Abstract]  
Reserve for Claims and Claim Expenses
RESERVE FOR CLAIMS AND CLAIM EXPENSES
The Company believes the most significant accounting judgment made by management is its estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts the Company sells. The Company establishes its claims and claim expense reserves by taking claims reported to the Company by insureds and ceding companies, but which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred but not yet reported to the Company, or incurred but not enough reported to the Company (collectively referred to as “IBNR”) and, if deemed necessary, adding costs for additional case reserves which represent the Company’s estimates for claims related to specific contracts previously reported to the Company which it believes may not be adequately estimated by the client as of that date, or adequately covered in the application of IBNR.
The following table summarizes the Company’s claims and claim expense reserves by segment, allocated between case reserves, additional case reserves and IBNR:
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2018
Case
Reserves
 
Additional
Case Reserves
 
IBNR
 
Total
 
 
Property
$
701,202

 
$
850,498

 
$
687,209

 
$
2,238,909

 
 
Casualty and Specialty
740,809

 
118,380

 
1,801,361

 
2,660,550

 
 
Other
4,999

 

 
8,269

 
13,268

 
 
Total
$
1,447,010

 
$
968,878

 
$
2,496,839

 
$
4,912,727

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
Property
$
696,285

 
$
896,522

 
$
893,583

 
$
2,486,390

 
 
Casualty and Specialty
689,962

 
124,923

 
1,760,607

 
2,575,492

 
 
Other
6,605

 

 
11,921

 
18,526

 
 
Total
$
1,392,852

 
$
1,021,445

 
$
2,666,111

 
$
5,080,408

 
 
 
 
 
 
 
 
 
 
 
Activity in the liability for unpaid claims and claim expenses is summarized as follows:
 
 
 
 
 
 
 
Three months ended March 31,
2018
 
2017
 
 
Net reserves as of January 1
$
3,493,778

 
$
2,568,730

 
 
Net incurred related to:
 
 
 
 
 
Current year
203,038

 
164,075

 
 
Prior years
(31,335
)
 
29,006

 
 
Total net incurred
171,703

 
193,081

 
 
Net paid related to:
 
 
 
 
 
Current year
9,050

 
7,729

 
 
Prior years
328,129

 
147,500

 
 
Total net paid
337,179

 
155,229

 
 
Foreign exchange
12,104

 
2,287

 
 
Net reserves as of March 31
3,340,406

 
2,608,869

 
 
Reinsurance recoverable as of March 31
1,572,321

 
325,819

 
 
Gross reserves as of March 31
$
4,912,727

 
$
2,934,688

 
 
 
 
 
 
 

Prior Year Development of the Reserve for Net Claims and Claim Expenses
The Company’s estimates of claims and claim expense reserves are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of the Company’s reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer’s estimate at a point in time of its ultimate liability, and because there are numerous factors that affect reserves and claims payments that cannot be determined with certainty in advance, the Company’s ultimate payments will vary, perhaps materially, from its estimates of reserves. If the Company determines in a subsequent period that adjustments to its previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. On a net basis, the Company’s cumulative favorable or unfavorable development is generally reduced by offsetting changes in its reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums and redeemable noncontrolling interest for changes in claims and claim expenses that impact DaVinciRe, all of which generally move in the opposite direction to changes in the Company’s ultimate claims and claim expenses.
The following table details the Company’s prior year development by segment of its liability for unpaid claims and claim expenses:
 
 
 
 
 
 
 
Three months ended March 31,
2018
 
2017
 
 
 
(Favorable) adverse development
 
(Favorable) adverse development
 
 
Property
$
(27,562
)
 
$
(928
)
 
 
Casualty and Specialty
(3,791
)
 
30,262

 
 
Other
18

 
(328
)
 
 
Total favorable development of prior accident years net claims and claim expenses
$
(31,335
)
 
$
29,006

 
 
 
 
 
 
 

Changes to prior year estimated claims reserves increased the Company’s net income by $31.3 million during the three months ended March 31, 2018, (2017 - decreased the Company’s net income by $29.0 million), excluding the consideration of changes in reinstatement, adjustment or other premium changes, profit commissions, redeemable noncontrolling interest - DaVinciRe and income tax.
Property Segment
The following tables detail the development of the Company’s liability for unpaid claims and claim expenses for its Property segment, allocated between large and small catastrophe net claims and claim expenses and attritional net claims and claim expenses, included in the other line item:
 
 
 
 
 
Three months ended March 31,
2018
 
 
 
(Favorable) adverse development
 
 
Catastrophe net claims and claim expenses
 
 
 
Large catastrophe events
 
 
 
2017 Catastrophe Events
$
(27,109
)
 
 
Other
(4,258
)
 
 
Total large catastrophe events
(31,367
)
 
 
Small catastrophe events
 
 
 
Other
3,805

 
 
Total small catastrophe events
3,805

 
 
Total catastrophe net claims and claim expenses
(27,562
)
 
 
Total net favorable development of prior accident years net claims and claim expenses
$
(27,562
)
 
 
 
 
 

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in the three months ended March 31, 2018 of $27.6 million was comprised of net favorable development of $31.4 million related to large catastrophe events and net adverse development of $3.8 million related to small catastrophe events. Included in net favorable development of prior accident years net claims and claim expenses from large events was $27.1 million of net decreases in the estimated ultimate losses associated with Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake and the wildfires in California during the fourth quarter of 2017 (collectively, the “2017 Catastrophe Events”). In addition, the Company’s Property segment experienced net favorable development of $0.5 million associated with a number of other large and small catastrophe events.
 
 
 
 
 
Three months ended March 31,
2017
 
 
 
(Favorable) adverse development
 
 
Catastrophe net claims and claim expenses
 
 
 
Large catastrophe events
 
 
 
Other
$
2,586

 
 
Total large catastrophe events
2,586

 
 
Small catastrophe events
 
 
 
Fort McMurray Wildfire (2016)
(5,850
)
 
 
Other
2,336

 
 
Total small catastrophe events
(3,514
)
 
 
Total catastrophe net claims and claim expenses
(928
)
 
 
Total net favorable development of prior accident years net claims and claim expenses
$
(928
)
 
 
 
 
 

The net favorable development of prior accident years net claims and claim expenses within the Company’s Property segment in the three months ended March 31, 2017 of $0.9 million was principally comprised of net favorable development of $3.5 million associated with small catastrophe events related to a reduction in the estimated ultimate losses associated with the 2016 Fort McMurray Wildfire of $5.9 million, partially offset by net adverse development associated with a number of other large and small events. In addition, the Company experienced net favorable development of $2.6 million from large catastrophe events due principally to a decrease in the estimated ultimate losses associated with a number of other small catastrophe events.
Casualty and Specialty Segment
The following table details the development of the Company’s liability for unpaid claims and claim expenses for its Casualty and Specialty segment:
 
 
 
 
 
 
 
Three months ended March 31,
2018
 
2017
 
 
 
(Favorable) adverse development
 
(Favorable) adverse development
 
 
Actuarial methods
$
(3,791
)
 
$
(5,999
)
 
 
Ogden Rate change

 
33,481

 
 
Actuarial assumption changes

 
2,780

 
 
Total adverse (favorable) development of prior accident years net claims and claim expenses
$
(3,791
)
 
$
30,262

 
 
 
 
 
 
 

The net favorable development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in the three months ended March 31, 2018 of $3.8 million was driven by reported losses generally coming in lower than expected on attritional net claims and claim expenses across a number of lines of business.
The net adverse development of prior accident years net claims and claim expenses within the Company’s Casualty and Specialty segment in the three months ended March 31, 2017 of $30.3 million was driven by $33.5 million of adverse development associated with the change in the discount rate used to calculate lump sum awards in U.K. bodily injury cases (the “Ogden Rate”), from 2.5%, to minus 0.75%. Notwithstanding the impact of the Ogden Rate change, the Company experienced $6.0 million of net favorable development related to reported losses coming in lower than expected on attritional net claims and claim expenses across a number of lines of business, partially offset by $2.8 million of adverse development associated with actuarial assumption changes.