Reserve for Losses and Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2022

Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]

Reserve for losses and loss adjustment expenses

The following table represents an analysis of losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Reserve for losses and loss adjustment expenses at beginning of period	$	18,109,107	$	16,443,952	$	17,757,156	$	16,513,929
Unpaid losses and loss adjustment expenses recoverable	5,709,998		3,916,650		5,599,231		4,314,855
Net reserve for losses and loss adjustment expenses at beginning of period	12,399,109		12,527,302		12,157,925		12,199,074
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	1,273,882		1,219,081		2,416,529		2,463,853
Prior years	(171,226)		(59,250)		(313,038)		(100,922)
Total net incurred losses and loss adjustment expenses	1,102,656		1,159,831		2,103,491		2,362,931
Retroactive reinsurance transactions (1)	—		—		—		(183,893)
Net foreign exchange (gains) losses and other	(248,655)		135,847		(281,295)		88,970
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(166,466)		(164,441)		(237,272)		(223,425)
Prior years	(578,668)		(607,911)		(1,234,873)		(1,193,029)
Total net paid losses and loss adjustment expenses	(745,134)		(772,352)		(1,472,145)		(1,416,454)
Net reserve for losses and loss adjustment expenses at end of period	12,507,976		13,050,628		12,507,976		13,050,628
Unpaid losses and loss adjustment expenses recoverable	5,686,348		4,146,020		5,686,348		4,146,020
Reserve for losses and loss adjustment expenses at end of period	$	18,194,324	$	17,196,648	$	18,194,324	$	17,196,648

(1)     During the 2021 first quarter, the Company entered into a reinsurance to close and other related agreements with Premia Managing Agency Limited (“Premia”), in connection with the 2018 and prior years of account related to the acquisition of Barbican Group Holdings Limited (“Barbican”).

Development on Prior Year Loss Reserves

2022 Second Quarter

During the 2022 second quarter, the Company recorded net favorable development on prior year loss reserves of $171.2 million, which consisted of $6.7 million from the insurance segment, $46.4 million from the reinsurance segment and $118.1 million from the mortgage segment.

The insurance segment’s net favorable development of $6.7 million, or 0.6 loss ratio points, for the 2022 second quarter consisted of $14.3 million of net favorable development in short-tailed lines and $7.5 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $12.2 million of favorable development in lenders products, primarily from the 2021 accident year (i.e., the year in which a loss occurred). Net adverse development in medium-tailed lines included $6.3 million of adverse development in professional liability business, primarily from the 2018 and 2019 accident years, partially offset by favorable development in marine business of $2.6 million, primarily from the 2019 and prior accident years. Net adverse

development in long-tailed lines reflected $5.7 million related to executive assurance business, primarily from the 2013 and 2020 accident years.

The reinsurance segment’s net favorable development of $46.4 million, or 5.0 loss ratio points, for the 2022 second quarter consisted of $54.4 million of net favorable development in short-tailed and medium-tailed lines and $8.0 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $31.6 million of favorable development related to property other than property catastrophe business, primarily from 2016 to 2021 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), $13.1 million of favorable development in other specialty business, primarily from the 2018 and 2021 underwriting year, and $6.3 million of favorable development related to property catastrophe business, primarily from the 2017 to 2021 underwriting years. Net favorable development in medium-tailed lines included $4.2 million in marine and aviation lines, across most underwriting years. Adverse development in long-tailed

lines reflected an increase in casualty reserves, across several years, most notably the 2013 and 2021 underwriting years.

The mortgage segment’s net favorable development was $118.1 million, or 39.9 loss ratio points, for the 2022 second quarter, primarily related to the U.S. first lien portfolio from the 2020 accident year. The Company’s credit risk transfer, international, second lien and student loan business also contributed to the favorable development.

2021 Second Quarter

During the 2021 second quarter, the Company recorded net favorable development on prior year loss reserves of $59.3 million, which consisted of $4.0 million from the insurance segment, $20.5 million from the reinsurance segment and $43.1 million from the mortgage segment, partially offset by $8.3 million unfavorable from the ‘other’ segment.

The insurance segment’s net favorable development of $4.0 million, or 0.5 loss ratio points, for the 2021 second quarter consisted of $28.5 million of net favorable development in short-tailed and long-tailed lines and $24.5 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $10.7 million of favorable development in lenders products, primarily from the 2020 accident year, $7.1 million of favorable development from property (excluding marine), primarily from the 2017, 2019 and 2020 accident years and $6.7 million of favorable development in travel and accident, primarily from the 2020 accident year. Net favorable development in long-tailed lines reflected $5.6 million of favorable development related to construction and national accounts, primarily from the 2016 to 2020 accident years. Net adverse development in medium-tailed lines included $20.1 million of adverse development in contract binding business, primarily from the 2014 to 2019 accident years.

The reinsurance segment’s net favorable development of $20.5 million, or 2.8 loss ratio points, for the 2021 second quarter consisted of $53.7 million of net favorable development in short-tailed and medium-tailed lines and $33.2 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $61.6 million of favorable development related to other specialty, primarily from the 2019 underwriting year, which was partially offset by $17.1 million of net adverse development related to property catastrophe, primarily from the 2020 underwriting year. Net favorable development of $4.0 million in medium-tailed lines reflected favorable development in marine and aviation, across most underwriting years. Net adverse development in long-tailed lines reflected $34.2 million of adverse development in casualty, primarily from the 2018 underwriting year.

The mortgage segment’s net favorable development was $43.1 million, or 12.9 loss ratio points, for the 2021 second quarter, with the largest contributor being reserve releases associated with the various vintage credit risk transfer contracts that were called by the GSEs. The net favorable development also included reserve releases in our international portfolio and subrogation recoveries on second lien and student loan business.

Six Months Ended June 30, 2022

During the six months ended June 30, 2022, the Company recorded net favorable development on prior year loss reserves of $313.0 million, which consisted of $14.0 million from the insurance segment, $78.9 million from the reinsurance segment and $220.2 million from the mortgage segment.

The insurance segment’s net favorable development of $14.0 million, or 0.7 loss ratio points, for the 2022 period consisted of $33.2 million of net favorable development in short-tailed and $19.2 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines reflected $30.8 million of favorable development in lenders products, primarily from the 2021 accident year. Net adverse development in medium-tailed lines included $13.6 million of adverse development in professional liability business, primarily from the 2018 and 2019 accident years, and $6.1 million of adverse development in contract binding business, across most accident years, partially offset by $5.5 million of favorable development in marine business, across most accident years, and $5.2 million of favorable development in program business, primarily from the 2020 accident year. Net adverse development in long-tailed lines primarily reflected $7.6 million of adverse development related to construction and national accounts, primarily from the 2020 and 2021 accident year.

The reinsurance segment’s net favorable development of $78.9 million, or 4.6 loss ratio points, for the 2022 period consisted of $89.7 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $10.9 million of net adverse development from long-tailed lines. Net favorable development of $74.9 million in short-tailed lines reflected $47.4 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2021 underwriting years,$18.0 million of favorable development from other specialty business, primarily from the 2016 and 2021 underwriting years, and $9.7 million from property catastrophe, primarily from the 2018 and 2019 underwriting years. Net favorable development in medium-tailed lines included $14.9 million in marine and aviation lines, across most underwriting years. Adverse development in long-tailed lines reflected an increase in casualty reserves, primarily from the 2021 underwriting year.

The mortgage segment’s net favorable development was $220.2 million, or 37.6 loss ratio points, for the 2022 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 accident year. The Company’s credit risk transfer, international, second lien and student loan business also contributed to the favorable development.

Six Months Ended June 30, 2021

During the six months ended June 30, 2021, the Company recorded net favorable development on prior year loss reserves of $100.9 million, which consisted of $8.1 million from the insurance segment, $47.3 million from the reinsurance segment, $54.0 million from the mortgage segment, partially offset by $8.4 million of adverse development from the ‘other’ segment.

The insurance segment’s net favorable development of $8.1 million, or 0.5 loss ratio points, for the 2021 period consisted of $53.5 million of net favorable development in short-tailed and long-tailed lines, partially offset by $45.4 million of net adverse development in medium-tailed lines. Net favorable development of $49.4 million in short-tailed lines reflected $21.6 million of favorable development from property (excluding marine), primarily from the 2018 to 2020 accident years, $18.6 million of favorable development in lenders products, primarily from the 2020 accident year and $9.3 million of favorable development in travel and accident, primarily from the 2020 accident year. Net favorable development of in long-tailed lines included favorable development primarily related to construction and national accounts, primarily in the 2016 to 2019 accident years. Net adverse development in medium-tailed lines reflected $20.1 million of adverse development in contract binding business, primarily in the 2014 to 2019 accident years, $12.6 million of adverse development on programs business, primarily from the 2016 to 2020 accident years, and $11.2 million of adverse development in professional liability business, primarily from the 2019 and 2020 accident years.

The reinsurance segment’s net favorable development of $47.3 million, or 3.4 loss ratio points, for the 2021 period consisted of $72.1 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $24.8 million of net adverse development from long-tailed lines. Net favorable development of $67.2 million in short-tailed lines reflected $78.2 million of favorable development from other specialty lines, primarily from the 2019 underwriting year and $28.8 million of favorable development from property other than property catastrophe business, partially offset by adverse development of $39.6 million from property catastrophe, primarily from the 2020 underwriting year. Adverse development in long-tailed lines reflected an increase in reserves from casualty, primarily from the 2018 underwriting year.

The mortgage segment’s net favorable development was $54.0 million, or 8.1 loss ratio points, for the 2021 period, primarily driven by favorable development in the credit risk transfer and international portfolios. Subrogation recoveries on second lien and student loan business also contributed.