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.


	March 31,
(In thousands)	2021		2020
Net reserves at beginning of period	$	11,620,393	$	10,697,998
Cumulative effect adjustment resulting from changes in accounting principles	—		5,927
Restated net reserves at beginning of period	11,620,393		10,703,925
Net provision for losses and loss expenses:
Claims occurring during the current year (1)	1,115,173		1,097,523
(Decrease) increase in estimates for claims occurring in prior years (2) (3)	(859)		433
Loss reserve discount accretion	7,278		9,297
Total	1,121,592		1,107,253
Net payments for claims:
Current year	97,586		84,310
Prior years	794,472		864,064
Total	892,058		948,374
Foreign currency translation	(14,779)		(77,167)
Net reserves at end of period	11,835,148		10,785,637
Ceded reserves at end of period	2,245,380		1,946,878
Gross reserves at end of period	$	14,080,528	$	12,732,515

The ongoing COVID-19 global pandemic has impacted, and will likely continue to impact, the Company’s results through its effect on claim frequency and severity. Loss cost trends have been impacted and will likely be further impacted by COVID-19-related claims in certain lines of business, as well as by other effects of COVID-19 associated with economic conditions, inflation, and social distancing and work from home rules, for example. It remains too early to determine the ultimate net impact of COVID-19. Losses incurred from COVID-19-related claims as well as increased severity are being offset, to a certain extent, by lower claim frequency in certain lines of our businesses, including commercial auto, workers’ compensation, and other liability. However, as the economy and legal systems continue to reopen, we expect the benefit of lower claim frequency in certain lines of business will abate. Given the continuing nature of the pandemic, the direct and indirect impacts of COVID-19 remain uncertain and ultimately could increase or decrease overall loss cost trends and will likely continue to have differing impacts on the Company's different lines of business.

Most of the COVID-19-related claims reported to the Company to date involve certain short-tailed lines of business, including contingency and event cancellation, business interruption, and film production delay. Until the economy fully reopens, the Company expects additional claims to be reported for these lines of business. The Company has also received COVID-19-related claims for longer-tailed casualty lines of business such as workers’ compensation and other liability; however, the estimated incurred loss impact for these reported claims appears to be modest at this time. Given the continuing uncertainty regarding the pandemic's pervasiveness, the future impact that the pandemic may have on claim frequency and severity remains uncertain at this time. In workers’ compensation, for example, currently nearly one-half of the states still have rules, legislation or administrative orders creating a presumption that certain “essential” workers who contract COVID-19 did so through the course of their employment. Several other states are considering similar actions, including varying the definition of “essential” workers. While the ultimate impact of these presumptions remains unknown at this time, the Company believes that such state actions will likely increase workers’ compensation claims with respect to workers deemed “essential,” although this impact may be partially offset by lower workers’ compensation claim frequency with respect to non-essential workers.

The Company has estimated the potential COVID-19 impact to its contingency and event cancellation, workers’ compensation, and other lines of business under a number of possible scenarios; however, due to COVID-19’s continued evolving impact and the still limited amount of available data, there remains a high degree of uncertainty around the Company’s COVID-19 reserves. In addition, several states (and international jurisdictions), through regulation, legislation and/or judicial

action, continue to seek to expand policy coverage terms beyond the policy’s intended coverage, including, for example, but not limited to, property coverages, where there are attempts to extend business interruption coverage where there is no physical damage or loss to property, and attempts to disregard policy exclusions for communicable disease. Accordingly, losses arising from these actions, and the other factors described above, could exceed the Company’s reserves established for those related policies.

As of March 31, 2021, the Company had recognized losses for COVID-19-related claims activity, net of reinsurance, of approximately $204 million, of which $183 million relates to the Insurance segment and $21 million relates to the Reinsurance & Monoline Excess segment. Such $204 million of COVID-19-related losses included $120 million of reported losses and $84 million of IBNR. For the three months ended March 31, 2021, the Company recognized current accident year losses for COVID-19-related claims activity, net of reinsurance, of approximately $15 million, all of which relates to the Insurance segment.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on the 2020 accident year, partially offset by adverse development on the 2016 through 2018 accident years. The favorable development on the 2020 accident year was largely concentrated in the commercial auto liability and other liability lines of business. During 2020, the Company achieved larger rate increases in these lines of business than were contemplated in its budget and initial loss ratio selections. The Company also experienced significantly lower reported claim frequency in these lines in 2020 relative to historical averages, and lower reported incurred losses relative to our expectations. We believe that the lower claim frequency and lower reported incurred losses were caused by the impacts of the COVID-19 pandemic, including for example, lockdowns, reduced driving and traffic, work from home, court closures, etc.; however, due to the ongoing uncertainty regarding the ultimate impacts of the pandemic on accident year 2020 incurred losses, the Company did not adjust its reserves based on these lower trends during 2020. As of March 31, 2021 we began to recognize some of the favorable accident year 2020 experience in certain lines in our ultimate loss picks. The adverse development on the 2016 through 2018 accident years is concentrated in the other liability line of business, and is driven by a higher than expected number of large losses reported. The large losses particularly impacted directors and officers liability and excess and surplus lines casualty classes of business.

Prior year reserve development for the Reinsurance & Monoline Excess segment was less significant during the first quarter of 2021, and consisted of small adverse or favorable movements across many lines of business, which largely offset each other. The largest contributor to the slight overall adverse development for the segment was non-proportional reinsurance assumed property business, which was impacted by higher than expected reported losses on property per risk treaties written in the U.S. and U.K. related to accident year 2020.

The overall favorable development for the Insurance segment was primarily attributable to favorable development on workers’ compensation business, partially offset by adverse development on professional liability business. The favorable workers’ compensation development was spread across many accident years, including prior to 2010, and was especially significant in accident years 2018 and 2019. The favorable workers’ compensation development reflects a continuation of the benign loss cost trends experienced during recent years, particularly the favorable claim frequency trends (i.e., number of reported claims per unit of exposure). In addition, ongoing workers’ compensation claims management efforts, including active medical case management and use of networks and specialty vendors to control medical and pharmaceutical benefit costs, have added to the Company’s favorable workers’ compensation prior year development. The adverse professional liability development was mainly concentrated in accident years 2016 and 2017, but was also spread to a lesser degree across other accident years. The development mainly relates to directors and officers and lawyers professional liability lines of business, and was driven by a higher than expected number of large losses being reported in the period. The Company also experienced a small amount of adverse prior year development during the first quarter 2020 on general liability business stemming from large losses in its excess and surplus lines book of business, mainly in accident years 2016 and 2017.