Reserve for Losses and Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2024

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,
	2024		2023		2024		2023
Reserve for losses and loss adjustment expenses at beginning of period	$	23,705	$	20,758	$	22,752	$	20,032
Unpaid losses and loss adjustment expenses recoverable	7,069		6,347		6,690		6,280
Net reserve for losses and loss adjustment expenses at beginning of period	16,636		14,411		16,062		13,752
Net incurred losses and loss adjustment expenses relating to losses occurring in:
Current year	1,948		1,612		3,800		3,219
Prior years	(121)		(121)		(245)		(257)
Total net incurred losses and loss adjustment expenses	1,827		1,491		3,555		2,962
Net losses and loss adjustment expense reserves of acquired business (1)	50		—		50		—
Net foreign exchange (gains) losses and other	(10)		44		(94)		99
Net paid losses and loss adjustment expenses relating to losses occurring in:
Current year	(193)		(215)		(285)		(355)
Prior years	(927)		(857)		(1,905)		(1,584)
Total net paid losses and loss adjustment expenses	(1,120)		(1,072)		(2,190)		(1,939)
Net reserve for losses and loss adjustment expenses at end of period	17,383		14,874		17,383		14,874
Unpaid losses and loss adjustment expenses recoverable	7,083		6,394		7,083		6,394
Reserve for losses and loss adjustment expenses at end of period	$	24,466	$	21,268	$	24,466	$	21,268

(1) The 2024 second quarter amount related to the acquisition of RMIC Companies, Inc., and its wholly-owned subsidiaries (“RMIC”) that, together, comprise the run-off mortgage insurance business of Old Republic International Corporation.

Development on Prior Year Loss Reserves

2024 Second Quarter

During the 2024 second quarter, the Company recorded net favorable development on prior year loss reserves of $121 million, which consisted of $5 million from the insurance segment, $34 million from the reinsurance segment and $82 million from the mortgage segment.

The insurance segment’s net favorable development of $5 million, or 0.3 loss ratio points, for the 2024 second quarter consisted of $45 million of net favorable development in short-tailed lines and $40 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines included $36 million of favorable development in property (excluding marine), primarily from the 2022 and 2023 accident years (i.e., the year in which a loss occurred), and $8 million of favorable development related to travel and accident business, primarily from the 2023 accident year. Net adverse development in medium and long tailed lines included $52 million of adverse development in marine business, primarily from the 2022 accident year, and $9 million of adverse development in programs business, primarily from the 2022 and 2023 accident years, partially

offset by $20 million of net favorable development in surety business, primarily from the 2007 and 2021 to 2023 accident years.

The reinsurance segment’s net favorable development of $34 million, or 1.9 loss ratio points, for the 2024 second quarter consisted of $51 million of net favorable development in short-tailed lines and $17 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines included $30 million of favorable development related to property other than property catastrophe business, primarily from the 2022 and 2023 underwriting years (i.e., all premiums and losses attributable to contracts having an inception or renewal date within the given 12 month period), and $18 million of favorable development from property catastrophe business, primarily from the 2021 to 2023 underwriting years. Net adverse development in medium and long-tailed lines reflected $14 million of adverse development in casualty business, primarily from the 2011, 2017, 2020 and 2021 underwriting years.

The mortgage segment’s net favorable development was $82 million, or 26.9 loss ratio points, for the 2024 second quarter. Such amounts were primarily related to reductions on reserves for delinquent loans associated with the U.S. first lien portfolio from the 2023 accident year. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

2023 Second Quarter

During the 2023 second quarter, the Company recorded net favorable development on prior year loss reserves of $121 million, which consisted of $12 million from the insurance segment, $29 million from the reinsurance segment and $80 million from the mortgage segment.

The insurance segment’s net favorable development of $12 million, or 0.9 loss ratio points, for the 2023 second quarter consisted of $30 million of net favorable development in short-tailed and long-tailed lines and $18 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines included $16 million of favorable development in property (excluding marine), primarily from the 2022 accident year, and $7 million of favorable development in warranty and lenders solutions, primarily from the 2022 accident year. Net favorable development in long-tailed lines included $6 million of favorable development in executive assurance business, primarily from the 2016 and 2021 accident years. Net adverse development in medium-tailed lines included $8 million of adverse development in programs business, primarily from 2020 accident year, $5 million of adverse development in professional liability, across multiple accident years, and $4 million of adverse development in marine business, primarily from the 2022 accident year.

The reinsurance segment’s net favorable development of $29 million, or 2.2 loss ratio points, for the 2023 second quarter consisted of $51 million of net favorable development in short-tailed and medium-tailed lines and $22 million of net adverse development in long-tailed lines. Net favorable development in short-tailed lines included $23 million of favorable development related to property other than property catastrophe business, primarily from the 2021 underwriting year, and $21 million of favorable development related to other specialty and other short-tailed lines, primarily from the 2020 and 2021 underwriting years. Net favorable development in medium-tailed lines included $7 million in marine and aviation lines, primarily from the 2019 to 2022 underwriting years. Net adverse development in long-tailed lines reflected $22 million of adverse development in casualty business, primarily from the 2013 to 2019 underwriting years.

The mortgage segment’s net favorable development was $80 million, or 27.2 loss ratio points, for the 2023 second quarter. Such amounts were primarily related to reductions on reserves for delinquent loans 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.

Six Months Ended June 30, 2024

During the six months ended June 30, 2024, the Company recorded net favorable development on prior year loss reserves of $245 million, which consisted of $15 million from the insurance segment, $74 million from the reinsurance segment and $156 million from the mortgage segment.

The insurance segment’s net favorable development of $15 million, or 0.5 loss ratio points, for the 2024 period consisted of $74 million of net favorable development in short-tailed lines and $59 million of net adverse development in medium and long-tailed lines. Net favorable development in short-tailed lines reflected $54 million of favorable development in property (excluding marine), primarily from the 2022 and 2023 accident years, and $18 million of favorable development related to travel and accident business, primarily from the 2021 to 2023 accident years. Net adverse development in medium-tailed lines included $69 million of adverse development in marine business, primarily from the 2022 accident year, and $17 million of adverse development in programs business, primarily from the 2020 to 2023 accident years. Such amounts were partially offset by $25 million of favorable development in surety business, primarily from 2007 and 2022 accident years.

The reinsurance segment’s net favorable development of $74 million, or 2.2 loss ratio points, for the 2024 period consisted of $95 million of net favorable development from short tailed lines, partially offset by $21 million of net adverse development from medium and long-tailed lines. Net favorable development in short-tailed lines reflected $51 million of favorable development from property other than property catastrophe business, primarily from the 2022 and 2023 underwriting years, $37 million of favorable development from other specialty business, primarily from the 2021 and 2022 underwriting years, and $10 million of favorable development from property catastrophe, primarily from the 2020 to 2022 underwriting years. Net adverse development in medium-tailed lines included $5 million of adverse development in marine and aviation lines, primarily from the 2023 underwriting year, while net adverse development in long-tailed lines included $17 million of adverse development in casualty, primarily from the 2017 and prior underwriting years.

The mortgage segment’s net favorable development was $156 million, or 25.6 loss ratio points, for the 2024 period, with the largest contributor being reserve releases associated with the U.S. first lien portfolio from the 2022 and 2023 accident years. The Company’s credit risk transfer and international businesses also contributed to the favorable development.

Six Months Ended June 30, 2023

During the six months ended June 30, 2023, the Company recorded net favorable development on prior year loss reserves of $257 million, which consisted of $24 million from the insurance segment, $82 million from the reinsurance segment, $151 million from the mortgage segment.

The insurance segment’s net favorable development of $24 million, or 0.9 loss ratio points, for the 2023 period consisted of $55 million of net favorable development in short and long-tailed lines and $31 million of net adverse development in medium-tailed lines. Net favorable development in short-tailed lines reflected $25 million of favorable development in property (excluding marine), primarily from the 2022 accident year, and $14 million of favorable development related to warranty and lenders solutions business, primarily from the 2022 accident year. Net favorable development in long-tailed lines included $16 million of favorable development in executive assurance business, primarily from the 2019 to 2022 accident years, and $5 million of favorable development in alternative markets business, primarily from 2021 and prior accident years, partially offset by $5 million of adverse development in healthcare, primarily from the 2018 and 2021 accident years. Net adverse development in medium-tailed lines included $24 million of adverse development in professional liability business, primarily from the 2017 and 2020 accident years, and $6 million of adverse development in programs business, primarily from the 2020 accident year.

The reinsurance segment’s net favorable development of $82 million, or 3.0 loss ratio points, for the 2023 period consisted of $103 million of net favorable development from short and medium-tailed lines, partially offset by $21 million of net adverse development from long-tailed lines. Net favorable development in short-tailed lines reflected $46 million of favorable development from property other than property catastrophe business, primarily from the 2018 to 2022 underwriting years, $7 million of favorable development from property catastrophe, primarily from the 2019 underwriting year, $27 million from other specialty business, primarily from the 2021 underwriting year, and $13 million of favorable development from other lines of business, primarily from the 2020 underwriting year. Net favorable development in medium-tailed lines included $9 million in marine and aviation lines, primarily from the 2016 to 2021 underwriting years. Net adverse development in

long-tailed lines primarily reflected $19 million in casualty, primarily from the 2013 to 2019 underwriting years.

The mortgage segment’s net favorable development was $151 million, or 25.6 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, international, second lien and student loan businesses also contributed to the favorable development.