Reserves For Losses And Loss Expenses

12 Months Ended

Dec. 31, 2011

Insurance Loss Reserves [Abstract]

Reserves For Losses And Loss Expenses

Reserves for Losses and Loss Expenses

The table below provides a reconciliation of the beginning and ending reserve balances:

(In thousands)	2012			2011			2010
Net reserves at beginning of year	$	8,172,112		$	7,999,521		$	8,147,782
Net provision for losses and loss expenses:
Claims occuring during the current year(1)	2,997,995			2,791,860			2,509,933
Decrease in estimates for claims occurring in prior years(2)(3)	(102,571		)	(181,282		)	(253,248		)
Loss reserve discount accretion	53,055			47,787			53,182
Total	2,948,479			2,658,365			2,309,867
Net payments for claims:
Current year	698,834			765,440			641,570
Prior year	2,010,101			1,721,558			1,811,507
Total	2,708,935			2,486,998			2,453,077
Foreign currency translation	195			1,224			(5,051		)
Net reserves at end of year	8,411,851			8,172,112			7,999,521
Ceded reserve at end of year	1,339,235			1,165,022			1,017,028
Gross reserves at end of year	$	9,751,086		$	9,337,134		$	9,016,549

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(1) Claims occurring during the current year are net of loss reserve discounts of $26,078,000, $43,286,000 and $67,763,000 in 2012, 2011 and 2010, respectively.

(2) The decrease in estimates for claims occurring in prior years is net of loss reserve discount. On an undiscounted basis, the estimates for claims occurring in prior years decreased by $100,667,000, $182,937,000 and $246,941,000 in 2012, 2011 and 2010, respectively.

(3) For certain retrospectively rated insurance polices and reinsurance agreements, reserve development is offset by additional or return premiums. Favorable reserve development, net of additional and return premiums, was $103 million, $182 million and $234 million in 2012, 2011 and 2010, respectively.

For the year ended December 31, 2012, estimates for claims occurring in prior years (net of additional and return premiums) decreased by $103 million. The favorable reserve development in 2012 was primarily attributable to accident years 2008 through 2010. The changes in prior year loss reserve estimates are generally the result of ongoing analysis of recent loss development trends. Original estimates are increased or decreased as additional information becomes known regarding individual claims and aggregate claim trends.

Environmental and Asbestos — To date, known environmental and asbestos claims have not had a material impact on the Company’s operations, because its subsidiaries generally did not insure large industrial companies that are subject to significant environmental or asbestos exposures prior to 1986 when an absolute exclusion was incorporated into standard policy language.

The Company’s net reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $34 million at both December 31, 2012 and 2011. The Company’s gross reserves for losses and loss adjustment expenses relating to asbestos and environmental claims were $56 million and $59 million at December 31, 2012 and 2011, respectively. Increases in net incurred losses and loss expenses for reported asbestos and environmental claims were approximately $2 million, $1 million and $2 million in 2012, 2011 and 2010, respectively. Net paid losses and loss expenses for asbestos and environmental claims were approximately $2 million in 2012, $3 million in 2011 and $3 million in 2010. The estimation of these liabilities is subject to significantly greater than normal variation and uncertainty because it is difficult to make an actuarial estimate of these liabilities due to the absence of a generally accepted actuarial methodology for these exposures and the potential effect of significant unresolved legal matters, including coverage issues, as well as the cost of litigating the legal issues. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties are highly uncertain.

Discounting — The Company discounts its liabilities for excess and assumed workers’ compensation business because of the long period of time over which losses are paid. Discounting is intended to appropriately match losses and loss expenses to income earned on investment securities supporting the liabilities. The expected losses and loss expense payout pattern subject to discounting was derived from the Company’s loss payout experience. For non-proportional business, reserves for losses and loss expenses have been discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. At December 31, 2012, the discount rates by year ranged from 2.1% to 6.5% with a weighted average discount rate of 4.2%. For proportional business, reserves for losses and loss expenses have been discounted at the statutory rate permitted by the Department of Insurance of the State of Delaware of 2.2%. The aggregate net discount, after reflecting the effects of ceded reinsurance, was $867 million, $892 million and $898 million at December 31, 2012, 2011 and 2010, respectively.