Reserves for Loss and Loss Settlement Expenses

12 Months Ended

Dec. 31, 2011

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES [Abstract]

Reserves for Loss and Loss Settlement Expenses Disclosure [Text Block]

NOTE 5. RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES

Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported ("IBNR"), the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts, which are based on management’s best estimates. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported in losses and loss settlement expenses in the accompanying Consolidated Statements of Income in the period such changes are determined.

The following table provides an analysis of changes in our property and casualty loss and loss settlement expense reserves for 2011, 2010 and 2009 (net of reinsurance amounts):

(In Thousands)
Years Ended December 31	2011			2010			2009
Gross liability for losses and loss settlement expenses at beginning of year	$	603,090		$	606,045		$	586,109
Ceded loss and loss settlement expenses	(39,000		)	(33,754		)	(52,508		)
Net liability for losses and loss settlement expenses at beginning of year	$	564,090		$	572,291		$	533,601
Reserves acquired in Mercer Insurance Group acquisition, net	252,598			—			—
Beginning balance, as adjusted	$	816,688		$	572,291		$	533,601
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	468,926		$	335,315		$	339,506
Prior years	(61,095		)	(45,878		)	26,215
Total incurred	$	407,831		$	289,437		$	365,721
Losses and loss settlement expense payments for claims occurring during
Current year	$	253,175		$	132,592		$	131,507
Prior years	146,653			165,046			195,524
Total paid	$	399,828		$	297,638		$	327,031
Net liability for losses and loss settlement expenses at end of year	$	824,692		$	564,090		$	572,291
Ceded loss and loss settlement expenses	120,359			39,000			33,754
Gross liability for losses and loss settlement expenses at end of year	$	945,051		$	603,090		$	606,045

The favorable development in 2011 and 2010 on claims that occurred in prior years, resulted from a re-estimation of loss reserves recorded at December 31 of the prior year. This re-estimation is primarily attributable to both the payment of claims in amounts less than the amounts reserved and changes in loss reserves mainly in the other liability and commercial automobile lines due to additional information on individual claims that we received after the reserves for those claims had been established. Another factor contributing to the redundancy recognized is the development of reserves for IBNR loss and loss settlement expenses at a level significantly less than anticipated at December 31 of the prior year. We attribute the favorable development to the fact that we have experienced overall lower levels of claims severity during recent years.

The unfavorable development in 2009 was attributable to an increase we made in our prior accident year loss reserves due to additional development from Hurricane Katrina, which included a federal court ruling and subsequent judgment of $28,868,000, which we paid in 2009. We also experienced deterioration in our other liability lines of business, which includes claims for construction defects.

We did not alter our reserving process during 2011. However, conditions and trends that have affected the reserve development for a given year may change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.

We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.