Reserve for Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 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:

	Year Ended December 31,
	2022		2021		2020
Reserve for losses and loss adjustment expenses at beginning of year	$	17,757,156	$	16,513,929	$	13,891,842
Unpaid losses and loss adjustment expenses recoverable	5,599,231		4,314,855		4,082,650
Net reserve for losses and loss adjustment expenses at beginning of year	12,157,925		12,199,074		9,809,192
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	5,798,528		4,940,987		4,851,051
Prior years	(771,011)		(356,184)		(161,452)
Total net incurred losses and loss adjustment expenses	5,027,517		4,584,803		4,689,599
Net losses and loss adjustment expense reserves of acquired business (1)	—		104,176		—
Retroactive reinsurance transactions (2)	—		(444,147)		182,210
Impact of deconsolidation of Somers (3)	—		(1,460,611)		—
Foreign exchange (gains) losses and other	(290,376)		1,181		179,190
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(887,464)		(734,846)		(661,529)
Prior years	(2,254,484)		(2,091,705)		(1,999,588)
Total net paid losses and loss adjustment expenses	(3,141,948)		(2,826,551)		(2,661,117)
Net reserve for losses and loss adjustment expenses at end of year	13,753,118		12,157,925		12,199,074
Unpaid losses and loss adjustment expenses recoverable	6,278,825		5,599,231		4,314,855
Reserve for losses and loss adjustment expenses at end of year	$	20,031,943	$	17,757,156	$	16,513,929

(1)    Represents activity related to the Company’s acquisitions in the 2021 period. See note 2, “Acquisitions.”

(2)    See ‘Retroactive Reinsurance Transactions’ section.

(3)    See note 12, “Variable Interest Entity and Noncontrolling Interests.”

Development on Prior Year Loss Reserves

Year Ended December 31, 2022

During 2022, the Company recorded estimated net favorable development on prior year loss reserves of $771.0 million, which consisted of net favorable development of $25.3 million from the insurance segment, $191.6 million from the reinsurance segment and $554.1 million from the mortgage segment.

The insurance segment’s net favorable development of $25.3 million, or 0.6 points of net earned premium, consisted of $55.3 million of net favorable development in short-tailed lines partially offset by $29.9 million of net adverse development from medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $37.4 million of favorable development in warranty and lenders solutions, primarily from the 2021 accident year (i.e., the year in which a loss occurred), and $14.8 million of favorable development related to travel and accident

business, primarily from the 2020 and 2021 accident years. Net adverse development in medium-tailed lines reflected $24.7 million of adverse development in professional liability business, primarily from the 2013 to 2015 and 2018 to 2020 accident years, and $6.4 million of adverse development in contract binding business, across most accident years, partially offset by $12.9 million of favorable development in marine business, across most accident years. Net adverse development in long-tail lines reflected $18.5 million of adverse development related to casualty business, primarily from the 2020 and 2021 accident years, and $7.3 million of adverse development on construction and national accounts, primarily from the 2017, 2020 and 2021 accident years. This is partially offset by $21.5 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 $191.6 million, or 4.8 points of net earned premium, consisted of $196.2 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $4.6 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $109.4 million of favorable development from property other than property catastrophe business, primarily from the 2018 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), $24.0 million of favorable development from property catastrophe business, primarily from the 2018 to 2020 underwriting years, and $35.0 million from other specialty business, primarily from the 2016 and 2021 underwriting years. Net favorable development in medium-tailed lines reflected $28.0 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines primarily reflected $4.6 million in casualty, spread across many prior underwriting years.

The mortgage segment experienced net favorable development of $554.1 million, or 47.8 points of net earned premium, with the majority of reserve releases being on COVID-related delinquencies 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.

Year Ended December 31, 2021

During 2021, the Company recorded estimated net favorable development on prior year loss reserves of $356.2 million, which consisted of net favorable development of $16.2 million from the insurance segment, $178.8 million from the reinsurance segment, $169.6 million from the mortgage segment, partially offset by $8.4 million of adverse development from the ‘other’ segment (activity prior to the deconsolidation of Somers).

The insurance segment’s net favorable development of $16.2 million, or 0.4 points of net earned premium, consisted of $109.8 million of net favorable development in short-tailed and long-tailed lines mostly offset by $93.5 million of net adverse development from medium-tailed lines. Net favorable development of $81.7 million in short-tailed lines reflected $38.9 million of favorable development from property (excluding marine), primarily from the 2018 to 2020 accident years, $26.7 million of favorable development in warranty and lenders solutions, primarily from the 2020 accident year, and $16.2 million of favorable development on travel and accident, primarily from the 2016 to 2020 accident years. Net favorable development of $28.1 million in long-tailed lines reflected favorable development in construction, national accounts and alternative markets, primarily from the

2016 to 2019 accident years, partially offset by adverse development in executive assurance, primarily from the 2015, 2017 and 2018 accident years. Net adverse development in medium-tailed lines reflected $57.6 million of adverse development in contract binding, primarily from the 2013 to 2019 accident years and $30.8 million of adverse development in professional liability, primarily from the 2018 to 2020 accident years.

The reinsurance segment’s net favorable development of $178.8 million, or 6.3 points of net earned premium, consisted of $184.1 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $5.3 million of net adverse development from long-tailed lines. Net favorable development of $175.5 million in short-tailed lines reflected $123.3 million from other specialty lines, primarily from the 2014 to 2019 underwriting years, and $88.6 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2020 underwriting years. Such amounts were partially offset by adverse development of $36.4 million from property catastrophe, primarily from the 2020 underwriting year. Adverse development in long-tailed lines reflected an increase in casualty, primarily from the 2018 underwriting year.

The mortgage segment experienced net favorable development of $169.6 million, or 13.2 points of net earned premium. Approximately a third of this development came from the U.S. first lien portfolio, which benefited from improving economic conditions and rising home prices, resulting in reduced claim rate assumptions primarily associated with pre-pandemic delinquencies. Various vintage CRT contracts also experienced similar effects and contributed to the favorable development, including the effect of contracts called by the GSEs. Subrogation recoveries on second lien and student loan business and international business also contributed to the favorable development.

Year Ended December 31, 2020

During 2020, the Company recorded estimated net favorable development on prior year loss reserves of $161.5 million, which consisted of net favorable development of $7.8 million from the insurance segment, $134.0 million from the reinsurance segment, $19.0 million from the mortgage segment, and $0.7 million from the ‘other’ segment.

The insurance segment’s net favorable development of $7.8 million, or 0.3 points of net earned premium, consisted of $83.0 million of net favorable development in short-tailed and long-tailed lines partially offset by $75.2 million of net adverse development from medium-tailed lines. Net favorable development of $33.6 million in short-tailed lines reflected $21.6 million of favorable development from property (excluding marine), primarily from the 2015 to 2018

accident years, and $8.4 million of favorable development on travel and accident, primarily from the 2019 accident year. Net favorable development of $49.4 million in long-tailed lines included $38.8 million of favorable development related to other business, including alternative markets and excess workers’ compensation, across all accident years, and $9.3 million of favorable development related to construction business. Net adverse development in medium-tailed lines reflected $37.9 million of adverse development in surety business, primarily from the 2019 accident year, $23.1 million in contract binding business, primarily from the 2016 to 2019 accident years, and $16.0 million in program business, primarily from the 2016 to 2019 accident years.

The reinsurance segment’s net favorable development of $134.0 million, or 6.2 points of net earned premium, consisted of $155.9 million of net favorable development from short-tailed and medium-tailed lines, partially offset by $21.9 million of net adverse development from long-tailed lines. Net favorable development of $144.0 million in short-tailed lines reflected $87.7 million related to property catastrophe and property other than property catastrophe business, primarily from the 2015 to 2019 underwriting years, and $53.6 million from other specialty lines, across most underwriting years. The net reduction of loss estimates for the reinsurance segment’s short-tailed lines primarily resulted from varying levels of reported and paid claims activity than previously anticipated which led to decreases in

certain loss ratio selections during 2020. Adverse development in long-tailed lines reflected an increase in casualty, primarily from the 2012 to 2015 underwriting years.

The mortgage segment’s net favorable development of $19.0 million, or 1.4 points of net earned premium, included $16.2 million of favorable development on U.S. primary mortgage insurance business. Such development was primarily driven by subrogation recoveries on second lien business and student loan business.

Retroactive Reinsurance Transactions

In 2021, the Company entered into a retroactive reinsurance transaction with third party reinsurer to reinsure run-off liabilities associated with certain U.S. insurance exposures.

In 2021, the Company entered into a reinsurance to close with the related party, in connection with the 2018 and prior years of account for certain London syndicate business. See note 16, “Transactions with Related Parties”.

In 2020, the Company entered into a reinsurance-to-close agreement related to a third party arrangement covering the 2017 and prior years of account for certain London syndicate business.