Property and Casualty Unpaid Losses and Loss Expenses

12 Months Ended

Dec. 31, 2011

Property and Casualty Unpaid Losses and Loss Expenses

Property and Casualty Unpaid Losses and Loss Expenses

Note 13.   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:

	Property and Casualty Group
(in millions)	2011		2010		2009
Losses and loss expense reserves at January 1, – Gross	$3,584		$3,598		$3,586
Less: reinsurance recoverable	188		200		187
Losses and loss expense reserves at January 1, – Net	3,396		3,398		3,399
Incurred losses and loss expenses related to:
Current accident year	3,616		3,053		2,732
Prior accident years	(272	)	(244	)	(93	)
Total incurred losses and loss expenses	3,344		2,809		2,639
Paid losses and loss expenses related to:
Current accident year	2,360		1,855		1,608
Prior accident years	1,032		956		1,032
Total paid losses and loss expenses	3,392		2,811		2,640
Losses and loss expense reserves at December 31, – Net	3,348		3,396		3,398
Add: reinsurance recoverable	151		188		200
Losses and loss expense reserves at December 31, – Gross	$3,499		$3,584		$3,598

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 $84 million, $127 million and $136 million at December 31, 2011, 2010 and 2009, respectively.  The reserves for losses and loss expenses are reported net of receivables for salvage and subrogation which totaled $145 million, $141 million and $133 million at December 31, 2011, 2010 and 2009, respectively.

Favorable development on prior accident year direct loss reserves in 2011 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.  In 2010, the favorable development on prior accident year direct loss reserves was primarily the result of improvements in severity trends in the commercial multi-peril, personal auto and workers compensation lines of business, combined with the closing of several large claims.  In 2009, the favorable development was primarily the result of the closing of several large claims, changes in our mortality assumptions, and a change in the payout patterns used in the calculation to discount reserves in our workers compensation line of business.  The 2009 favorable development was offset somewhat by adverse development in our personal auto line of business as a result of the use of gender specific tables in our mortality rate assumption and the outcome of certain court decisions related to our commercial multi-peril line of business.