Reserve for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 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				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Reserve for losses and loss adjustment expenses at beginning of period	$	18,194,324	$	17,196,648	$	17,757,156	$	16,513,929
Unpaid losses and loss adjustment expenses recoverable	5,686,348		4,146,020		5,599,231		4,314,855
Net reserve for losses and loss adjustment expenses at beginning of period	12,507,976		13,050,628		12,157,925		12,199,074
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	1,863,519		1,348,528		4,280,048		3,812,381
Prior years	(180,823)		(122,509)		(493,861)		(223,431)
Total net incurred losses and loss adjustment expenses	1,682,696		1,226,019		3,786,187		3,588,950
Net losses and loss adjustment expense reserves of acquired business (1)	—		104,307		—		104,307
Retroactive reinsurance transactions (2)	—		—		—		(183,893)
Impact of deconsolidation of Somers (3)	—		(1,460,611)		—		(1,460,611)
Net foreign exchange (gains) losses and other	(243,387)		(78,152)		(524,682)		10,818
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(226,575)		(208,923)		(463,847)		(432,348)
Prior years	(538,967)		(417,368)		(1,773,840)		(1,610,397)
Total net paid losses and loss adjustment expenses	(765,542)		(626,291)		(2,237,687)		(2,042,745)
Net reserve for losses and loss adjustment expenses at end of period	13,181,743		12,215,900		13,181,743		12,215,900
Unpaid losses and loss adjustment expenses recoverable	6,106,548		5,115,147		6,106,548		5,115,147
Reserve for losses and loss adjustment expenses at end of period	$	19,288,291	$	17,331,047	$	19,288,291	$	17,331,047

(1)     Represents activity related to the Company’s acquisitions in the 2021 period of the Westpac Lenders Mortgage Insurance Limited and Somerset Bridge Group Limited, Southern Rock Holdings Limited and affiliates.

(2)     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”).

(3)    See note 11.

Development on Prior Year Loss Reserves

2022 Third Quarter

During the 2022 third quarter, the Company recorded net favorable development on prior year loss reserves of $180.8 million, which consisted of $5.4 million from the insurance segment, $49.2 million from the reinsurance segment and $126.2 million from the mortgage segment.

The insurance segment’s net favorable development of $5.4 million, or 0.5 loss ratio points, for the 2022 third quarter consisted of $15.9 million of net favorable development in short-tailed lines and $10.5 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $8.9 million of favorable development in property (excluding marine), primarily from 2020 and 2021 accident years (i.e.,

the year in which a loss occurred) and $5.7 million of favorable development in lenders products, primarily from the 2021 accident year. Net adverse development in medium-tailed lines included $11.3 million of adverse development in professional liability business, primarily from the 2013 to 2016 and 2020 accident years, partially offset by favorable development in marine business of $5.9 million, across most accident years. Net adverse development in long-tailed lines reflected $12.3 million related to casualty business, primarily from the 2014 and 2020 accident years, partially offset by favorable development in construction, executive assurance and other lines of business.

The reinsurance segment’s net favorable development of $49.2 million, or 4.9 loss ratio points, for the 2022 third quarter consisted of $58.1 million of net favorable development in short-tailed and medium-tailed lines and

$8.9 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $35.8 million of favorable development related to property other than property catastrophe business, primarily from 2015 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) and $12.7 million of favorable development related to property catastrophe business, primarily from the 2014 to 2017 underwriting years. Net favorable development in medium-tailed lines included $7.9 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines reflected $9.5 million related to casualty business, primarily from the 2014 to 2017 underwriting years.

The mortgage segment’s net favorable development was $126.2 million, or 44.7 loss ratio points, for the 2022 third quarter, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 and 2021 accident years. The Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.

2021 Third Quarter

During the 2021 third quarter, the Company recorded net favorable development on prior year loss reserves of $122.5 million, which consisted of $5.1 million from the insurance segment, $72.3 million from the reinsurance segment and $45.1 million from the mortgage segment.

The insurance segment’s net favorable development of $5.1 million, or 0.5 loss ratio points, for the 2021 third quarter consisted of $49.0 million of net favorable development in short-tailed and long-tailed lines and $43.9 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $5.4 million of favorable development in lenders products, primarily from the 2020 accident year, $5.4 million of favorable development from property (excluding marine), primarily from the 2020 accident year, and $5.1 million of favorable development in travel and accident, across most accident years. Net favorable development in long-tailed lines reflected $26.3 million of favorable development related to construction and national accounts, across most accident years, and $6.7 million of favorable development related to other business, including alternative markets, primarily from the 2015 to 2018 accident years. Net adverse development in medium-tailed lines included $37.0 million of adverse development in contract binding business, across most accident years, partially offset by favorable development in marine and programs, primarily from more recent accident years.

The reinsurance segment’s net favorable development of $72.3 million, or 10.7 loss ratio points, for the 2021 third quarter consisted of $65.4 million of net favorable

development in short-tailed lines and $6.9 million in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $46.1 million of favorable development related to property catastrophe and property other than property catastrophe business, primarily from the 2017 to 2020 underwriting years and $18.9 million of favorable development related to other specialty, primarily from the 2012 to 2017 underwriting years. Net favorable development in medium-tailed and long-tailed lines included $4.7 million of favorable development in casualty, primarily from the 2013 and 2014 underwriting years.

The mortgage segment’s net favorable development was $45.1 million, or 14.5 loss ratio points, for the 2021 third quarter, about half of which came from U.S. primary mortgage insurance, from better than expected cure activity in pre-pandemic delinquencies and recoveries on second lien and student loans, and the other half from our CRT portfolio and international mortgage insurance.

Nine Months Ended September 30, 2022

During the nine months ended September 30, 2022, the Company recorded net favorable development on prior year loss reserves of $493.9 million, which consisted of $19.4 million from the insurance segment, $128.1 million from the reinsurance segment and $346.4 million from the mortgage segment.

The insurance segment’s net favorable development of $19.4 million, or 0.6 loss ratio points, for the 2022 period consisted of $49.1 million of net favorable development in short-tailed and $29.7 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines reflected $36.5 million of favorable development in lenders products, primarily from the 2021 accident year, and $14.3 million of favorable development related to travel and accident business, primarily from the 2019 to 2021 accident years. Net adverse development in medium-tailed lines included $24.9 million of adverse development in professional liability business, primarily from the 2013 to 2015 and 2018 to 2020 accident years, and $5.5 million of adverse development in contract binding business, across most accident years, partially offset by $11.4 million of favorable development in marine business, across most accident years. Net adverse development in long-tailed lines reflected $18.0 million of adverse development related to casualty business, primarily from the 2020 and 2021 accident years, partially offset by $17.4 million of favorable development in other business, including alternative markets and excess workers’ compensation, primarily from the 2019 and prior accident years.

The reinsurance segment’s net favorable development of $128.1 million, or 4.7 loss ratio points, for the 2022 period consisted of $147.8 million of net favorable development from short and medium-tailed lines, partially offset by

$19.7 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $83.2 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2021 underwriting years, $22.4 million of favorable development from property catastrophe, primarily from the 2018 to 2020 underwriting years, and $19.8 million from other specialty business, primarily from the 2021 underwriting year. Net favorable development in medium-tailed lines included $22.7 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines primarily reflected $19.3 million in casualty reserves, primarily from the 2021 underwriting year.

The mortgage segment’s net favorable development was $346.4 million, or 39.9 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 and 2021 accident years. The Company’s credit risk transfer, international, second lien and student loan businesses also contributed to the favorable development.

Nine Months Ended September 30, 2021

During the nine months ended September 30, 2021, the Company recorded net favorable development on prior year loss reserves of $223.4 million, which consisted of $13.1 million from the insurance segment, $119.6 million from the reinsurance segment, $99.1 million from the mortgage segment, partially offset by $8.4 million of adverse development from the ‘other’ segment (activity for the six months ended June 30, 2021 prior to deconsolidation of Somers).

The insurance segment’s net favorable development of $13.1 million, or 0.5 loss ratio points, for the 2021 period consisted of $102.5 million of net favorable development in short-tailed and long-tailed lines, partially offset by $89.4 million of net adverse development in medium-tailed lines. Net favorable development of $65.3 million in short-tailed lines reflected $27.0 million of favorable development from property (excluding marine), primarily from the 2019 and 2020 accident years, $24.0 million of favorable development in lenders products, primarily from the 2020 accident year, and $14.4 million of favorable development in travel and accident, primarily from the 2017 to 2020 accident years. Net favorable development of $37.1 million in long-tailed lines included favorable development primarily related to construction, national accounts and alternative markets, primarily from the 2016 to 2019 accident years. Net adverse development in medium-tailed lines reflected $57.1 million of adverse development in contract binding business, primarily from the 2014 to 2019 accident years, $26.2 million of adverse development in professional liability business, primarily from the 2019 and 2020 accident years, and

$6.9 million of adverse development in programs business, primarily from the 2019 accident year.

The reinsurance segment’s net favorable development of $119.6 million, or 5.8 loss ratio points, for the 2021 period consisted of $139.7 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $20.1 million of net adverse development from long-tailed lines. Net favorable development of $132.6 million in short-tailed lines reflected $97.1 million of favorable development from other specialty lines, primarily from the 2016 to 2019 underwriting years, and $71.7 million of favorable development from property other than property catastrophe business, primarily from the 2017 to 2020 underwriting years. Such amounts were partially offset by adverse development of $36.3 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 $99.1 million, or 10.1 loss ratio points, for the 2021 period, which included reserve releases associated with various vintage credit risk transfer contracts that were called by the GSEs, favorable development on U.S. and international business and subrogation recoveries on second lien and student loan business.