Reserves for Losses and Loss Expenses

The Company's reserves for losses and loss expenses are comprised of case reserves and incurred but not reported liabilities (IBNR). When a claim is reported, a case reserve is established for the estimated ultimate payment based upon known information about the claim. As more information about the claim becomes available over time, case reserves are adjusted up or down as appropriate. Reserves are also established on an aggregate basis to provide for IBNR liabilities and expected loss reserve development on reported claims.

Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each operating unit. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each operating unit.

The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses. These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions.

The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each operating unit. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns.

Loss frequency and severity are measures of loss activity that are considered in determining the key assumptions described in our discussion of loss and loss expense reserves, including expected loss ratios, rate of loss cost inflation and reported and paid loss emergence patterns. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.

Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects our ability to accurately predict loss frequency (loss frequencies are more predictable for lines with short reporting lags) as well as the amount of reserves needed for incurred but not reported losses (less IBNR is required for lines with short reporting lags). As a result, loss reserves for lines with short reporting lags are likely to have less variation from initial loss estimates. For lines with short reporting lags, which include commercial automobile, primary workers’ compensation, other liability (claims-made) and property business, the key assumption is the loss emergence pattern used to project ultimate loss estimates from known losses paid or reported to date. For lines of business with long reporting lags, which include other liability (occurrence), products liability, excess workers’ compensation and liability reinsurance, the key assumption is the expected loss ratio since there is often little paid or incurred loss data to consider. Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags.

The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed.

A claim may be defined as an event, as a claimant (number of parties claiming damages from an event) or by exposure type (e.g., an event may give rise to two parties, each claiming loss for bodily injury and property damage).

The most commonly used claim count method is by event. Most of the Company's operating units use the number of events to define and quantify the number of claims. However, in certain lines of business, where it is common for multiple parties to claim damages arising from a single event, an operating unit may quantify claims on the basis of the number of separate parties involved in an event. This may be the case with businesses writing substantial automobile or transportation exposure.

Claim counts for assumed reinsurance will vary based on whether the business is written on a facultative or treaty basis. Further variability as respects treaty claim counts may be reflective of the nature of the treaty, line of business coverage, and type of participation such as quota share or excess of loss contracts. Accordingly, the claim counts have been excluded from the below Reinsurance segment tables due to this variability.

The claim count information set forth in the tables presented below may not provide an accurate reflection of ultimate loss payouts by product line.

The following tables present undiscounted incurred and paid claims development as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities (IBNR). The information about incurred and paid claims development for the years ended December 31, 2008 to 2016 is presented as supplementary information. To enhance the comparability of the loss development data, the Company has removed the impact of foreign exchange rate movements by using the December 31, 2017 exchange rate for all periods. Beginning with accident year 2012, the Company's U.K. and European insurance business is included in the Insurance segment's tables for Other Liability, Professional Liability, Commercial Automobile and Short-Tail Lines. Prior to 2012, the actuarial analysis for its U.K. and European insurance business was performed on an underwriting year basis and accident year data is not available for those years.

Insurance

Other Liability

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	830,091	$	798,785	$	744,614	$	707,274	$	687,619	$	678,552	$	651,784	$	642,430	$	644,303	$	638,545	$	24,822	26
2009	—		689,758		656,915		625,068		598,641		589,618		561,674		557,634		552,954		546,645		27,261		23
2010	—		—		612,630		616,196		590,160		591,042		577,714		575,030		573,865		571,623		39,109		23
2011	—		—		—		665,768		674,139		660,240		659,214		653,945		649,035		645,149		45,208		23
2012	—		—		—		—		688,924		703,226		703,984		710,395		714,301		724,641		65,037		24
2013	—		—		—		—		—		752,373		793,662		786,676		786,122		807,181		101,487		26
2014	—		—		—		—		—		—		848,794		851,216		849,147		854,008		180,513		27
2015	—		—		—		—		—		—		—		953,009		988,661		963,803		344,421		26
2016	—		—		—		—		—		—		—		—		1,019,961		1,012,783		545,372		23
2017	—		—		—		—		—		—		—		—		—		1,065,756		783,578		18
Total																			$	7,830,134



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	46,976	$	133,238	$	244,557	$	348,162	$	436,866	$	497,134	$	530,419	$	559,727	$	580,845	$	597,586
2009	—		44,802		122,851		214,500		311,444		384,999		429,062		470,787		486,793		500,851
2010	—		—		45,196		128,959		246,657		336,249		417,172		461,464		491,098		508,308
2011	—		—		—		48,852		141,225		266,761		379,801		470,886		524,250		556,043
2012	—		—		—		—		57,604		158,774		299,938		418,145		513,849		581,195
2013	—		—		—		—		—		63,754		189,747		333,221		474,304		590,435
2014	—		—		—		—		—		—		79,128		191,385		339,111		482,059
2015	—		—		—		—		—		—		—		82,822		211,177		383,425
2016	—		—		—		—		—		—		—		—		69,414		209,350
2017	—		—		—		—		—		—		—		—		—		77,941
Total																			$	4,487,193
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		126,966
	Reserves for loss and loss adjustment expenses, net of reinsurance																		$	3,469,907

Primary Workers' Compensation

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	377,794	$	347,423	$	345,605	$	345,413	$	388,558	$	388,472	$	389,343	$	391,788	$	393,932	$	396,505	$	12,292	47
2009	—		327,537		332,303		326,766		386,870		392,791		394,303		392,287		395,288		398,994		12,171		43
2010	—		—		358,734		361,808		409,237		420,604		426,622		429,952		429,762		427,698		19,659		45
2011	—		—		—		419,364		442,550		457,134		470,026		472,087		474,076		475,729		24,400		46
2012	—		—		—		—		499,752		501,810		503,956		503,863		509,167		512,707		36,929		48
2013	—		—		—		—		—		552,570		547,295		546,995		543,238		547,000		48,953		53
2014	—		—		—		—		—		—		639,436		637,307		627,767		617,242		71,042		57
2015	—		—		—		—		—		—		—		712,800		690,525		650,997		117,187		58
2016	—		—		—		—		—		—		—		—		702,716		696,339		175,332		57
2017	—		—		—		—		—		—		—		—		—		762,094		370,138		53
Total																			$	5,485,305



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	94,385	$	203,079	$	261,867	$	296,667	$	320,169	$	335,030	$	344,892	$	352,539	$	360,799	$	366,741
2009	—		93,647		197,736		257,972		297,079		318,349		333,793		344,771		352,516		360,289
2010	—		—		107,742		214,034		279,226		320,154		344,631		362,078		374,013		382,665
2011	—		—		—		106,157		234,694		309,509		355,909		385,759		408,304		420,945
2012	—		—		—		—		114,998		255,063		339,560		387,368		419,588		437,196
2013	—		—		—		—		—		117,900		277,538		363,028		414,160		447,894
2014	—		—		—		—		—		—		148,405		319,743		412,611		471,235
2015	—		—		—		—		—		—		—		139,320		323,744		421,734
2016	—		—		—		—		—		—		—		—		142,998		338,835
2017	—		—		—		—		—		—		—		—		—		153,456
Total																			$	3,800,990
			Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																157,868
			Reserves for loss and loss adjustment expenses, net of reinsurance																$	1,842,183

Excess Workers' Compensation

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	186,116	$	181,072	$	154,566	$	152,830	$	150,429	$	150,493	$	146,093	$	147,105	$	140,155	$	139,869	$	30,534	1
2009	—		168,762		153,766		153,912		148,223		147,556		138,765		142,768		134,716		129,249		26,998		1
2010	—		—		135,639		123,497		120,272		116,422		100,331		104,732		100,065		94,986		20,772		1
2011	—		—		—		88,650		93,993		95,714		87,064		85,299		83,850		78,246		23,339		1
2012	—		—		—		—		72,366		71,301		71,780		73,653		72,441		67,878		16,278		1
2013	—		—		—		—		—		62,767		48,493		46,025		42,419		38,551		19,501		1
2014	—		—		—		—		—		—		63,465		57,558		49,478		45,758		27,746		1
2015	—		—		—		—		—		—		—		69,977		57,897		50,099		32,693		—
2016	—		—		—		—		—		—		—		—		72,657		70,281		43,421		—
2017	—		—		—		—		—		—		—		—		—		76,702		48,784		1
Total																			$	791,619



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	2,213	$	2,607	$	5,909	$	9,111	$	13,648	$	19,725	$	27,350	$	31,434	$	36,485	$	41,921
2009	—		5,060		8,402		11,037		14,138		20,176		25,272		29,150		33,573		37,817
2010	—		—		2,867		4,003		5,571		6,533		9,084		11,699		14,261		18,821
2011	—		—		—		2,593		4,848		4,759		12,104		15,684		18,638		20,164
2012	—		—		—		—		1,127		4,815		9,480		11,167		13,234		15,738
2013	—		—		—		—		—		249		630		2,158		3,008		3,396
2014	—		—		—		—		—		—		358		1,729		3,354		4,175
2015	—		—		—		—		—		—		—		2,069		2,481		3,272
2016	—		—		—		—		—		—		—		—		2,498		4,783
2017	—		—		—		—		—		—		—		—		—		6,282
Total																			$	156,369
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		689,657
	Reserves for loss and loss adjustment expenses, net of reinsurance																		$	1,324,907

Professional Liability

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	113,409	$	120,203	$	116,836	$	111,535	$	110,337	$	107,829	$	107,369	$	109,291	$	108,554	$	109,325	$	439	2
2009	—		135,534		140,038		145,950		149,172		148,318		150,690		151,013		153,673		152,880		816		3
2010	—		—		147,301		166,172		179,693		178,381		177,127		172,918		175,180		178,122		1,984		4
2011	—		—		—		180,633		166,044		188,095		191,194		178,071		174,328		177,622		4,735		4
2012	—		—		—		—		242,306		245,732		268,793		253,392		241,616		247,513		14,511		8
2013	—		—		—		—		—		274,510		251,267		246,318		252,347		270,285		29,840		8
2014	—		—		—		—		—		—		257,362		250,131		263,782		246,980		44,937		8
2015	—		—		—		—		—		—		—		262,607		261,500		278,281		81,813		10
2016	—		—		—		—		—		—		—		—		313,907		328,108		150,631		11
2017	—		—		—		—		—		—		—		—		—		336,325		254,118		9
Total																			$	2,325,441



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	10,002	$	37,844	$	66,198	$	85,623	$	96,621	$	97,834	$	100,399	$	105,346	$	106,428	$	108,894
2009	—		12,613		52,612		85,960		117,802		127,879		139,030		144,109		144,883		147,768
2010	—		—		14,857		58,980		108,713		129,916		144,645		160,799		165,223		171,539
2011	—		—		—		18,833		62,659		103,404		135,095		151,388		159,555		167,847
2012	—		—		—		—		22,234		87,943		129,442		160,493		191,963		216,476
2013	—		—		—		—		—		24,784		64,525		120,431		178,821		208,169
2014	—		—		—		—		—		—		19,778		84,580		140,094		179,300
2015	—		—		—		—		—		—		—		20,616		86,116		140,660
2016	—		—		—		—		—		—		—		—		28,935		103,632
2017	—		—		—		—		—		—		—		—		—		36,958
Total																			$	1,481,243
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		3,100
	Reserves for loss and loss adjustment expenses, net of reinsurance																		$	847,298

Commercial Automobile

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	432,629	$	444,941	$	430,453	$	426,543	$	425,600	$	422,999	$	422,309	$	423,258	$	421,829	$	422,919	$	313	50
2009	—		362,302		345,139		340,967		335,851		337,922		336,861		334,654		335,091		334,979		535		39
2010	—		—		311,322		320,306		330,432		329,109		333,028		331,865		330,586		330,297		703		37
2011	—		—		—		314,028		322,724		330,125		335,024		343,701		341,200		342,094		1,781		37
2012	—		—		—		—		314,309		326,831		342,588		355,609		355,461		355,598		2,391		34
2013	—		—		—		—		—		327,514		349,136		368,894		366,305		356,664		6,069		34
2014	—		—		—		—		—		—		364,018		385,364		395,013		392,373		13,596		36
2015	—		—		—		—		—		—		—		390,101		390,734		395,956		31,536		38
2016	—		—		—		—		—		—		—		—		388,050		389,025		62,834		38
2017	—		—		—		—		—		—		—		—		—		391,617		131,197		32
Total																			$	3,711,522



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	175,402	$	270,421	$	334,078	$	377,643	$	402,882	$	413,411	$	417,598	$	420,553	$	420,596	$	422,236
2009	—		136,433		209,553		257,326		291,925		312,903		328,845		331,484		333,144		333,607
2010	—		—		136,054		208,790		263,639		295,355		313,262		324,997		326,804		327,240
2011	—		—		—		135,350		211,756		262,685		296,370		321,814		333,987		338,325
2012	—		—		—		—		136,844		215,214		273,446		312,342		335,805		346,961
2013	—		—		—		—		—		142,929		218,596		267,253		312,470		333,420
2014	—		—		—		—		—		—		155,630		237,802		306,618		342,988
2015	—		—		—		—		—		—		—		160,316		242,185		300,071
2016	—		—		—		—		—		—		—		—		156,753		240,395
2017	—		—		—		—		—		—		—		—		—		159,100
Total																			$	3,144,343
			Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																2,464
			Reserves for loss and loss adjustment expenses, net of reinsurance																$	569,643

Short-tail lines

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR		Cumulative Number of Reported Claims
2008	$	395,651	$	384,606	$	377,287	$	371,053	$	368,063	$	368,207	$	367,802	$	367,594	$	368,044	$	367,969	$	737	23
2009	—		346,902		335,950		326,460		318,124		318,454		314,914		314,140		314,068		316,279		1,063		19
2010	—		—		385,650		370,134		358,292		355,579		345,866		346,338		346,700		346,280		1,105		19
2011	—		—		—		477,005		470,151		461,561		456,871		455,005		450,427		449,639		1,511		21
2012	—		—		—		—		533,643		542,372		543,923		539,180		519,459		518,398		4,358		40
2013	—		—		—		—		—		582,165		594,296		585,661		569,888		568,276		7,802		47
2014	—		—		—		—		—		—		715,483		722,317		694,942		692,591		11,939		53
2015	—		—		—		—		—		—		—		748,981		764,638		763,735		28,878		59
2016	—		—		—		—		—		—		—		—		822,176		825,812		48,073		54
2017	—		—		—		—		—		—		—		—		—		796,305		150,489		42
Total																			$	5,645,284



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	244,633	$	338,299	$	351,580	$	361,024	$	360,380	$	365,069	$	366,388	$	366,389	$	366,953	$	366,991
2009	—		212,521		291,338		304,648		306,020		309,939		310,453		311,105		311,386		311,687
2010	—		—		245,042		325,176		337,696		346,630		340,075		342,783		343,909		344,897
2011	—		—		—		303,067		417,818		436,817		441,058		445,356		447,042		447,647
2012	—		—		—		—		283,339		458,412		510,142		520,989		509,941		511,253
2013	—		—		—		—		—		316,603		494,148		544,245		546,651		553,970
2014	—		—		—		—		—		—		375,623		607,174		641,364		660,618
2015	—		—		—		—		—		—		—		398,077		640,637		699,528
2016	—		—		—		—		—		—		—		—		448,522		715,192
2017	—		—		—		—		—		—		—		—		—		470,935
Total																			$	5,082,718
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		3,033
	Reserves for loss and loss adjustment expenses, net of reinsurance																		$	565,599

Reinsurance

Casualty

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR
2008	$	361,062	$	346,045	$	325,890	$	306,513	$	295,266	$	291,214	$	298,891	$	299,336	$	294,775	$	296,277	$	21,314
2009	—		336,295		329,565		328,313		310,178		302,380		293,983		282,968		288,634		282,130		22,883
2010	—		—		292,363		299,988		289,984		278,155		267,279		255,738		252,537		250,224		24,961
2011	—		—		—		293,319		312,388		306,928		302,166		309,707		306,560		297,910		30,716
2012	—		—		—		—		335,219		339,253		334,435		327,145		336,407		338,715		41,215
2013	—		—		—		—		—		322,691		273,677		276,773		286,997		295,688		47,285
2014	—		—		—		—		—		—		323,796		324,199		323,384		334,922		84,802
2015	—		—		—		—		—		—		—		262,424		234,938		233,590		58,408
2016	—		—		—		—		—		—		—		—		244,028		256,175		119,654
2017	—		—		—		—		—		—		—		—		—		234,749		178,718
Total																			$	2,820,380



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	11,649	$	37,063	$	72,647	$	111,515	$	144,701	$	171,747	$	191,656	$	207,639	$	226,964	$	241,572
2009	—		21,364		53,704		85,860		124,248		155,372		182,225		197,070		211,456		221,467
2010	—		—		18,121		45,931		77,589		106,937		129,700		150,021		165,773		181,311
2011	—		—		—		17,950		52,544		98,028		134,896		169,147		192,900		208,935
2012	—		—		—		—		22,476		62,438		112,445		152,453		187,599		220,422
2013	—		—		—		—		—		28,982		64,072		109,664		143,904		177,890
2014	—		—		—		—		—		—		21,365		69,422		116,894		156,564
2015	—		—		—		—		—		—		—		17,878		48,784		91,987
2016	—		—		—		—		—		—		—		—		19,962		62,099
2017	—		—		—		—		—		—		—		—		—		16,509
Total																			$	1,578,756
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		391,051
			Reserves for loss and loss adjustment expenses, net of reinsurance																$	1,632,676

Property

(In thousands)



Loss and Loss Expenses Incurred, Net of Reinsurance																					As of December 31, 2017
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR
2008	$	56,494	$	51,978	$	45,195	$	44,412	$	44,733	$	45,175	$	44,259	$	43,803	$	43,771	$	43,758	369
2009	—		48,283		43,508		42,622		38,899		38,327		37,709		37,119		36,462		35,444		350
2010	—		—		58,979		55,995		52,866		51,767		51,809		51,296		51,182		51,007		344
2011	—		—		—		95,697		88,316		85,466		86,876		85,304		85,028		84,747		455
2012	—		—		—		—		104,273		95,094		86,742		85,784		84,212		84,218		1,168
2013	—		—		—		—		—		142,043		113,039		114,430		112,217		112,855		1,906
2014	—		—		—		—		—		—		113,838		97,363		97,876		100,604		2,697
2015	—		—		—		—		—		—		—		127,716		118,016		132,382		5,778
2016	—		—		—		—		—		—		—		—		168,661		174,989		14,581
2017	—		—		—		—		—		—		—		—		—		207,088		84,116
Total																			$	1,027,092



Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
	Unaudited
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	11,280	$	29,300	$	34,456	$	36,773	$	37,200	$	38,845	$	39,193	$	40,490	$	42,585	$	43,007
2009	—		9,823		22,045		28,392		29,612		31,438		31,427		32,730		34,953		34,172
2010	—		—		23,882		37,996		42,676		44,165		45,102		46,701		49,353		49,610
2011	—		—		—		31,558		59,067		73,612		76,281		78,838		82,040		82,592
2012	—		—		—		—		15,705		51,967		64,471		70,924		77,786		79,349
2013	—		—		—		—		—		36,654		74,732		92,836		101,794		104,593
2014	—		—		—		—		—		—		39,050		67,255		82,651		88,871
2015	—		—		—		—		—		—		—		53,496		89,384		109,393
2016	—		—		—		—		—		—		—		—		79,015		133,856
2017	—		—		—		—		—		—		—		—		—		72,187
Total																			$	797,630
	Reserves for loss and loss adjustment expenses before 2008, net of reinsurance																		1,369
	Reserves for loss and loss adjustment expenses, net of reinsurance																		$	230,831

The reconciliation of the net incurred and paid claims development tables to the reserves for loss and loss adjustment expenses in the consolidated balance sheet is as follows:



(In thousands)		December 31, 2017
Undiscounted reserves for loss and loss expenses, net of reinsurance:
	Other liability	$	3,469,907
	Primary workers' compensation	1,842,183
	Excess workers' compensation	1,324,907
	Professional liability	847,298
	Commercial automobile	569,643
	Short-tail lines	565,599
	Other	164,433
	Insurance	8,783,970
	Casualty	1,632,774
	Property	230,831
	Reinsurance	1,863,604
Total undiscounted reserves for loss and loss expenses, net of reinsurance		$	10,647,575



(In thousands)		December 31, 2017
Due from reinsurers on unpaid claims:
	Other liability	$	392,159
	Primary workers' compensation	434,824
	Excess workers' compensation	37,088
	Professional liability	305,294
	Commercial automobile	6,662
	Short-tail lines	275,607
	Other	27,001
	Insurance	1,478,636
	Casualty	113,443
	Property	21,415
	Reinsurance	134,858
Total due from reinsurers on unpaid claims		$	1,613,494



(In thousands)		December 31, 2017
Loss reserve discount:
	Other liability	$	—
	Primary workers' compensation	—
	Excess workers' compensation	(442,349		)
	Professional liability	—
	Commercial automobile	—
	Short-tail lines	—
	Other	—
	Insurance	(442,349		)
	Casualty	(148,312		)
	Property	—
	Reinsurance	(148,312		)
Total loss reserve discount		$	(590,661	)
Total gross reserves for loss and loss expenses		$	11,670,408

The following is supplementary information regarding average historical claims duration as of December 31, 2017:



Insurance
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6		7		8		9		10
Other liability	7.9	%	14.1	%	18.3	%	16.8	%	13.9	%	8.6	%	5.7	%	3.5	%	2.9	%	2.6	%
Primary workers' compensation	22.5	%	27.3	%	15.4	%	9.4	%	6.0	%	4.0	%	2.7	%	2.0	%	2.0	%	1.5	%
Excess workers' compensation	3.1	%	2.3	%	2.7	%	3.1	%	3.2	%	3.7	%	3.3	%	3.7	%	3.4	%	3.9	%
Professional liability	9.0	%	23.9	%	22.3	%	16.9	%	9.6	%	6.4	%	3.2	%	2.9	%	2.7	%	2.3	%
Commercial automobile	40.3	%	21.7	%	15.4	%	10.4	%	6.3	%	3.5	%	0.9	%	0.4	%	0.1	%	0.4	%
Short-tail lines	60.2	%	29.1	%	5.9	%	1.7	%	—	%	0.6	%	0.3	%	0.1	%	0.1	%	—	%

Reinsurance
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6		7		8		9		10
Casualty	7.0	%	12.3	%	14.3	%	12.3	%	10.8	%	8.9	%	5.9	%	5.6	%	5.0	%	4.9	%
Property	34.8	%	33.2	%	14.7	%	5.2	%	3.6	%	2.5	%	2.6	%	3.2	%	1.3	%	1.0	%

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



(In thousands)	2017			2016			2015
Net reserves at beginning of year	$	9,590,265		$	9,244,872		$	8,970,641
Net provision for losses and loss expenses:
Claims occurring during the current year (1)	3,963,543			3,826,620			3,653,561
Decrease in estimates for claims occurring in prior years (2)	(5,165		)	(29,904		)	(46,713		)
Loss reserve discount accretion	43,970			49,084			49,422
Total	4,002,348			3,845,800			3,656,270
Net payments for claims:
Current year	1,027,405			1,052,452			914,637
Prior year	2,562,550			2,401,722			2,342,378
Total	3,589,955			3,454,174			3,257,015
Foreign currency translation	54,256			(46,233		)	(125,024		)
Net reserves at end of year	10,056,914			9,590,265			9,244,872
Ceded reserve at end of year	1,613,494			1,606,930			1,424,278
Gross reserves at end of year	$	11,670,408		$	11,197,195		$	10,669,150

_______________________________________


(1)	Claims occurring during the current year are net of loss reserve discounts of $22,064,000, $18,929,000 and $20,357,000 in 2017, 2016, and 2015, 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 $32,132,000, $59,175,000 and $64,971,000 in 2017, 2016 and 2015, respectively.

Favorable prior year development (net of additional and return premiums) was $37 million in 2017.

Insurance - Reserves for the Insurance segment developed favorably by $68 million in 2017. The favorable development was primarily attributable to workers' compensation business, and was partially offset by unfavorable development for professional liability business.

For workers' compensation, the favorable development was related to both primary and excess business and was spread across many accident years, including those prior to 2008, but was most significant in accident years 2014 through 2016. The favorable workers' compensation development reflects a continuation during 2017 of the generally benign loss cost trends experienced in recent years, particularly the favorable claim frequency trends (i.e. number of reported claims per unit of exposure). Reported workers' compensation losses in 2017 continued to be below our expectations at most of our operating units, and were below the assumptions underlying our previous reserve estimates. The favorable severity trends were also impacted by our continued investment in medical case management services and the higher usage of preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety.

For professional liability business, adverse development was primarily related to unexpected large directors & officers ("D&O") liability losses at one of our U.S. operating units, and large professional indemnity and D&O losses in the U.K. The adverse development stemmed mainly from accident years 2013 through 2016 in the U.S. and 2011 through 2016 in the U.K.

Reinsurance - Reserves for the Reinsurance segment developed unfavorably by $31 million in 2017. This adverse development was due to reserve strengthening associated with claims impacted by the change in the Ogden discount rate in the U.K., as well as adverse development on the U.S. facultative casualty excess of loss business. The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K., and was reduced by the U.K. Ministry of Justice from +2.5% to -0.75% in 2017; the adverse development mostly related to U.K. motor bodily injury claims which we reinsured on an excess of loss basis in accident years 2012 through 2016. The adverse development on U.S. facultative casualty business was due to construction related risks in accident years 2008 and prior.

Favorable prior year development (net of additional and return premiums) was $59 million in 2016.

Insurance - Reserves for the Insurance segment developed favorably by $53 million in 2016. The favorable development was primarily related to workers' compensation business, and was partially offset by unfavorable development for medical professional liability business.

For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. During 2016, reported workers' compensation losses continued to be below our expectations at most of our operating units. Loss frequency and severity trends continued to be better than the assumptions underlying our previous reserve estimates. Loss severity trends also benefited from our continued investment in medical case management services and from our preferred provider networks. The long term trend of declining workers' compensation frequency can be attributed to improved workplace safety.

For medical professional liability business, unfavorable development was primarily related to a class of business that has been discontinued. The adverse development for that business stemmed mainly from accident years 2010 through 2015.

Reinsurance - Reserves for the Reinsurance segment developed favorably by 6 million in 2016. The favorable development was primarily related to direct facultative reinsurance business and to accident years 2008 through 2014.

Favorable prior year development (net of additional and return premiums) was $63 million in 2015.

Insurance - Reserves for the Insurance segment developed favorably by $52 million in 2015. The favorable development was primarily related to workers' compensation, other liability business and commercial property, and was partially offset by unfavorable development for commercial automobile liability business and professional indemnity business.

For workers' compensation, the favorable development was related to both primary and excess business and to many accident years, including those prior to 2007. In 2015, reported workers' compensation losses were below our expectations for many of our operating units. In addition, overall loss frequency and severity trends emerged better than the assumptions underlying our previous reserve estimates. The long term trend of declining workers' compensation claim frequency continued in 2015. The improvement is attributable to better workplace safety and to benign medical severity trends as we continue to invest in medical case management services and higher usage of preferred provider networks.

For other liability business, favorable development was concentrated in accident years 2007 through 2013. The favorable development was primarily related to our excess and surplus lines casualty business that has benefited from a persistent improvement in claim frequency trends over the past several years.

For commercial property business, favorable development was attributable to accident years 2012 through 2014 and was driven by favorable frequency and severity trends on property business written in Lloyd's.

For commercial automobile business, adverse development was primarily related to large losses for long-haul trucking business and to accident years 2011 through 2014. The higher loss cost trends for the commercial automobile industry are attributable, in part, to the increase in miles driven as the economy improved and fuel prices declined over the past several years.

For professional indemnity business in the U.K., adverse development was primarily for accident years 2006 through 2013.

Reinsurance - Reserves for the Reinsurance segment developed favorably by $11 million in 2015. The favorable development was primarily related to direct facultative reinsurance business and to accident years 2005 through 2013. Loss reserves developed favorably for umbrella business and for other liability coverage for contractors.

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 expenses relating to asbestos and environmental claims on policies written before adoption of the absolute exclusion was $30 million at December 31, 2017 and $31 million at December 31, 2016. 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 certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,855 million and $1,907 million at December 31, 2017 and December 31, 2016, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $591 million and $640 million at December 31, 2017 and 2016, respectively. At December 31, 2017, discount rates by year ranged from 2.0% to 6.5%, with a weighted average discount rate of 3.8%.

Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2017) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.

The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2017), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates permitted by the Department of Insurance of the State of Delaware.