Reserve for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2023

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,
	2023		2022		2023		2022
Reserve for losses and loss adjustment expenses at beginning of period	$	21,268	$	18,194	$	20,032	$	17,757
Unpaid losses and loss adjustment expenses recoverable	6,394		5,686		6,280		5,599
Net reserve for losses and loss adjustment expenses at beginning of period	14,874		12,508		13,752		12,158
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	1,793		1,863		5,012		4,279
Prior years	(146)		(180)		(403)		(492)
Total net incurred losses and loss adjustment expenses	1,647		1,683		4,609		3,787
Net foreign exchange (gains) losses and other	(123)		(245)		(24)		(527)
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(345)		(227)		(700)		(464)
Prior years	(713)		(538)		(2,297)		(1,773)
Total net paid losses and loss adjustment expenses	(1,058)		(765)		(2,997)		(2,237)
Net reserve for losses and loss adjustment expenses at end of period	15,340		13,181		15,340		13,181
Unpaid losses and loss adjustment expenses recoverable	6,496		6,107		6,496		6,107
Reserve for losses and loss adjustment expenses at end of period	$	21,836	$	19,288	$	21,836	$	19,288

Development on Prior Year Loss Reserves

2023 Third Quarter

During the 2023 third quarter, the Company recorded net favorable development on prior year loss reserves of $146 million, which consisted of $10 million from the insurance segment, $44 million from the reinsurance segment and $92 million from the mortgage segment.

The insurance segment’s net favorable development of $10 million, or 0.7 loss ratio points, for the 2023 third quarter consisted of $30 million of net favorable development in short-tailed and long-tailed lines and $20 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines included $8 million of favorable development in property (excluding marine), primarily from the 2021 and 2022 accident years (i.e., the year in which a loss occurred), $6 million of favorable development in warranty and lenders solutions and $6 million favorable development related to travel and accident business, both primarily from the 2022 accident year. Net favorable development in long-tailed lines included $7 million of favorable development in executive assurance business, primarily from the 2019, 2021 and 2022 accident years, and $7 million of favorable development in alternative markets business, spread across most prior accident years. Net adverse development in medium-tailed lines included

$25 million of adverse development in professional liability, primarily from 2019 and 2020 accident years.

The reinsurance segment’s net favorable development of $44 million, or 2.8 loss ratio points, for the 2023 third quarter consisted of $69 million of net favorable development in short-tailed lines and $25 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines included $29 million of favorable development related to property other than property catastrophe business, primarily from the 2020 to 2022 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given twelve-month period), $22 million of favorable development related to property catastrophe business, primarily from the 2021 and 2022 underwriting years, and $19 million of favorable development related to other specialty lines, primarily from the 2021 and prior underwriting years. Net adverse development in medium-tailed lines included $4 million in marine and aviation lines, primarily from the 2021 underwriting year, while net adverse development in long-tailed lines reflected $21 million of adverse development in casualty business, primarily from the 2016 to 2020 underwriting years.

The mortgage segment’s net favorable development was $92 million, or 31.4 loss ratio points, for the 2023 third quarter. Such amounts were primarily related to reductions on reserves for delinquent loans associated with the U.S. first lien portfolio from the 2020 through 2022 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

2022 Third Quarter

During the 2022 third quarter, the Company recorded net favorable development on prior year loss reserves of $180 million, which consisted of $5 million from the insurance segment, $49 million from the reinsurance segment and $126 million from the mortgage segment.

The insurance segment’s net favorable development of $5 million, or 0.5 loss ratio points, for the 2022 third quarter consisted of $16 million of net favorable development in short-tailed lines and $11 million of net adverse development in medium-tailed and long-tailed lines. Net favorable development in short-tailed lines reflected $9 million of favorable development in property (excluding marine), primarily from 2020 and 2021 accident years and $6 million of favorable development in warranty and lenders solutions products, primarily from the 2021 accident year. Net adverse development in medium-tailed lines included $11 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 $6 million, across most accident years. Net adverse development in long-tailed lines reflected $12 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 million, or 4.9 loss ratio points, for the 2022 third quarter consisted of $58 million of net favorable development in short-tailed and medium-tailed lines and $9 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines reflected $36 million of favorable development related to property other than property catastrophe business, primarily from 2015 to 2021 underwriting years and $13 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 $8 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines reflected $10 million related to casualty business, primarily from the 2014 to 2017 underwriting years.

The mortgage segment’s net favorable development was $126 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.

Nine Months Ended September 30, 2023

During the nine months ended September 30, 2023, the Company recorded net favorable development on prior year loss reserves of $403 million, which consisted of $34 million from the insurance segment, $126 million from the reinsurance segment and $243 million from the mortgage segment.

The insurance segment’s net favorable development of $34 million, or 0.8 loss ratio points, for the 2023 period consisted of $86 million of net favorable development in short and long-tailed lines and $52 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $33 million of favorable development in property (excluding marine), primarily from the 2022 accident year, $20 million of favorable development related to warranty and lenders solutions business, primarily from the 2022 accident year and $11 million of favorable development related to travel and accident business, primarily from the 2020 and 2022 accident years. Net favorable development in long-tailed lines included $24 million of favorable development in executive assurance business, primarily from the 2019 and 2021 accident years, and $13 million of favorable development in alternative markets business, from 2021 and prior accident years. Net adverse development in medium-tailed lines included $48 million of adverse development in professional liability business, primarily from the 2017 to 2020 accident years, and $11 million of adverse development in contract binding business, primarily from the 2014 to 2017 accident years. Such amounts were partially offset by $11 million of favorable development in marine business, primarily from 2021 and 2022 accident years.

The reinsurance segment’s net favorable development of $126 million, or 3.0 loss ratio points, for the 2023 period consisted of $168 million of net favorable development from short and medium-tailed lines, partially offset by $42 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $75 million of favorable development from property other than property catastrophe business, primarily from the 2021 and 2022 underwriting years, $29 million of favorable development from property catastrophe, primarily from the 2019 and 2022 underwriting years, $46 million from other specialty business, primarily from the 2021 underwriting year, and $12 million of favorable development from other lines of business, primarily from the 2020 underwriting year.

Net favorable development in medium-tailed lines included $5 million in marine and aviation lines, primarily from the 2019 and prior underwriting years. Net adverse development in long-tailed lines primarily reflected $39 million in casualty, primarily from the 2014 to 2020 underwriting years.

The mortgage segment’s net favorable development was $243 million, or 27.5 loss ratio points, for the 2023 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2020 to 2022 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

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 $492 million, which consisted of $19 million from the insurance segment, $127 million from the reinsurance segment, $346 million from the mortgage segment.

The insurance segment’s net favorable development of $19 million, or 0.6 loss ratio points, for the 2022 period consisted of $49 million of net favorable development in short-tailed and $30 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines reflected $37 million of favorable development in warranty and lenders solutions business, primarily from the 2021 accident year, and $14 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 $25 million of adverse development in professional liability business, primarily from the 2013 to 2015 and 2018 to 2020 accident years, and $6 million of adverse development in contract binding business, across most accident years, partially offset by $11 million of favorable development in marine business, across most accident years. Net adverse development in long-tailed lines reflected $18 million of adverse development related to casualty business, primarily from the 2020 and 2021 accident years, partially offset by $17 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 $127 million, or 4.7 loss ratio points, for the 2022 period consisted of $148 million of net favorable development from short and medium-tailed lines, partially offset by $20 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $83 million of favorable development from property other than property catastrophe business, primarily from the 2015 to 2021 underwriting years, $22 million of favorable development from property catastrophe, primarily from the

2018 to 2020 underwriting years, and $20 million from other specialty business, primarily from the 2021 underwriting year. Net favorable development in medium-tailed lines included $23 million in marine and aviation lines, across most underwriting years. Net adverse development in long-tailed lines primarily reflected $19 million in casualty reserves, primarily from the 2021 underwriting year.

The mortgage segment’s net favorable development was $346 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.