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
	2014			2013			2012
Losses and loss expense reserves, beginning of year – Gross	$	3,747		$	3,598		$	3,499
Less: reinsurance recoverable, beginning of year	156			154			151
Losses and loss expense reserves, beginning of year – Net	3,591			3,444			3,348

Incurred losses and loss expenses related to:
Current accident year	3,969			3,379			3,494
Prior accident years	(116		)	(19		)	(115		)
Total incurred losses and loss expenses	3,853			3,360			3,379

Paid losses and loss expenses related to:
Current accident year	2,513			2,007			2,166
Prior accident years	1,220			1,206			1,117
Total paid losses and loss expenses	3,733			3,213			3,283

Losses and loss expense reserves, end of year – Net	3,711			3,591			3,444
Add: reinsurance recoverable, end of year	142			156			154
Losses and loss expense reserves, end of year – Gross	$	3,853		$	3,747		$	3,598

Loss reserves are set at ultimate 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 $89 million,

$85 million and $85 million at December 31, 2014, 2013 and 2012, respectively. The reserves for losses and loss expenses are reported net of receivables for salvage and subrogation, which totaled $171 million, $149 million and $150 million at December 31, 2014, 2013 and 2012, respectively.

In 2014, the favorable development on prior accident year direct loss reserves was primarily related to better than expected severity trends in personal auto, commercial multi-peril, and workers compensation lines of business combined with changes on individual claims, primarily workers compensation massive injury lifetime medical claims, personal auto massive injury lifetime medical claims, and the settlement of a commercial multi-peril individual large claim. 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.