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Retroactive reinsurance contracts
12 Months Ended
Dec. 31, 2022
Insurance [Abstract]  
Retroactive reinsurance contracts
(17)
Retroactive reinsurance contracts

Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Claims payments may commence immediately after the contract date or, when applicable, after a contractual retention amount has been reached. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and reconciliations of incurred losses and loss adjustment expenses to the amounts recorded in the Consolidated Statements of Earnings for each of the three years ended December 31, 2022 follow (in millions).

 

 

2022

 

 

2021

 

 

2020

 

Balances at beginning of year

$

37,855

 

 

$

40,623

 

 

$

41,927

 

Incurred losses and loss adjustment expenses:

 

 

 

 

 

 

 

 

Current year contracts

 

 

 

 

153

 

 

 

 

Prior years’ contracts

 

86

 

 

 

(974

)

 

 

(399

)

Total

 

86

 

 

 

(821

)

 

 

(399

)

Paid losses and loss adjustment expenses

 

(2,358

)

 

 

(1,889

)

 

 

(1,076

)

Foreign currency effect

 

(168

)

 

 

(58

)

 

 

171

 

Balances at December 31

$

35,415

 

 

$

37,855

 

 

$

40,623

 

Incurred losses and loss adjustment expenses above

$

86

 

 

$

(821

)

 

$

(399

)

Deferred charge amortization and adjustments

 

769

 

 

 

1,802

 

 

 

1,306

 

Incurred losses and loss adjustment expenses included in the Consolidated
   Statements of Earnings

$

855

 

 

$

981

 

 

$

907

 

 

In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts, which reflect when our exposures to losses began. We believe that analysis of losses incurred and paid by accident year of the underlying event is irrelevant given that our exposure to losses incepts when the contract incepts and that the classification of reported claims and case development liabilities has little or no practical analytical value. Incurred losses and loss adjustment expenses in the Consolidated Statements of Earnings include changes in estimated liabilities and related deferred charge asset amortization and adjustments arising from the changes in estimated timing and amount of future loss payments. Unamortized deferred charges related to retroactive reinsurance contracts were $9.9 billion at December 31, 2022 and $10.6 billion at December 31, 2021.

Paid losses and loss adjustment expenses include claim payments attributable to a contract between our subsidiary, National Indemnity Company, and certain subsidiaries of American International Group, Inc. (collectively, “AIG”). Claim payments under the AIG contract commenced in 2021 and were $1.5 billion in 2022 and $1.2 billion in 2021. Our estimated unpaid claim liabilities with regard to the AIG contract were approximately $13.9 billion at December 31, 2022 and $15.8 billion at December 31, 2021.

In establishing retroactive reinsurance claim liabilities, we analyze historical aggregate loss payment patterns and project losses into the future under various probability-weighted scenarios. We expect the claim-tail to be very long for many contracts, with some lasting several decades. We monitor claim payment activity and review ceding company reports and other information concerning the underlying losses. We reassess and revise the expected timing and amounts of ultimate losses periodically or when significant events are revealed through our monitoring and review processes.

Estimated claim liabilities for retroactive reinsurance included estimates for environmental, asbestos and other latent injury exposures of approximately $12.1 billion at December 31, 2022 and $12.3 billion at December 31, 2021. Retroactive reinsurance contracts are generally subject to aggregate policy limits and thus, our exposure to such claims under these contracts is likewise limited. We monitor evolving case law and its effect on environmental and other latent injury claims. Changing laws or government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could result in increases in these liabilities, which could be material to our results of operations. We are unable to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible.