Note 12. Property and Casualty Unpaid Losses and Loss Expenses

The following table provides a reconciliation of our property and casualty beginning and ending loss and loss expense reserve balances for the years ended December 31:



(in millions)	Property and Casualty Group
	2013			2012			2011
Losses and loss expense reserves, beginning of year, – Gross	$	3,598		$	3,499		$	3,584
Less: reinsurance recoverable, beginning of year	154			151			188
Losses and loss expense reserves, beginning of year, – Net	3,444			3,348			3,396

Incurred losses and loss expenses related to:
Current accident year	3,379			3,494			3,616
Prior accident years	(19		)	(115		)	(272		)
Total incurred losses and loss expenses	3,360			3,379			3,344

Paid losses and loss expenses related to:
Current accident year	2,007			2,166			2,360
Prior accident years	1,206			1,117			1,032
Total paid losses and loss expenses	3,213			3,283			3,392

Losses and loss expense reserves, end of year, – Net	3,591			3,444			3,348
Add: reinsurance recoverable, end of year	156			154			151
Losses and loss expense reserves, end of year, – Gross	$	3,747		$	3,598		$	3,499

Loss reserves are set at full expected cost, except for workers compensation loss reserves, which have been discounted using an interest rate of 2.5% for all periods presented. This discounting reduced unpaid losses and loss expenses by $85 million, $85 million and $84 million at December 31, 2013, 2012 and 2011, respectively. The reserves for losses and loss expenses are reported net of receivables for salvage and subrogation, which totaled $149 million, $150 million and $145 million at December 31, 2013, 2012 and 2011, respectively.

Favorable development on prior accident year loss reserves was minimal in 2013. In 2012, the favorable development on prior accident year direct loss reserves was primarily the result of improved claims frequency and severity trends combined with the closing of several large claims in our homeowners, commercial multi-peril, and commercial auto lines of business, offset somewhat by adverse development in our workers compensation line of business as a result of increased severity trends. In 2011, the favorable development on prior accident year direct loss reserves was primarily the result of improvements in severity trends in our personal auto, workers compensation, commercial multi-peril and homeowners lines of business combined with the closing of several large claims.