Property Casualty Loss and Loss Expenses

This table summarizes activity for our consolidated property casualty loss and loss expense reserves:



(Dollars in millions)	Years ended December 31,
	2015			2014			2013
Gross loss and loss expense reserves, January 1	$	4,438		$	4,241		$	4,169
Less reinsurance recoverable	282			299			356
Net loss and loss expense reserves, January 1	4,156			3,942			3,813
Net incurred loss and loss expenses related to:
Current accident year	2,756			2,725			2,448
Prior accident years	(184		)	(98		)	(147		)
Total incurred	2,572			2,627			2,301
Net paid loss and loss expenses related to:
Current accident year	1,152			1,212			1,045
Prior accident years	1,197			1,201			1,127
Total paid	2,349			2,413			2,172

Net loss and loss expense reserves, December 31	4,379			4,156			3,942
Plus reinsurance recoverable	281			282			299
Gross loss and loss expense reserves, December 31	$	4,660		$	4,438		$	4,241

We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an

inter-departmental committee that includes actuarial management that is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the consolidated balance sheets also includes

$58 million, $47 million and $70 million for certain accident, life and health loss reserves at December 31, 2015, 2014 and 2013, respectively.

During 2015, we experienced $184 million of favorable development on prior accident years including $154 million of favorable development in commercial lines, $5 million of adverse development in personal lines and $35 million of favorable development in excess and surplus lines. Favorable development in 2015 was $86 million more than in 2014, due primarily to reduced uncertainty of prior accident year loss and loss adjustment net expense. This illustrates the potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial casualty and workers’ compensation. We recognized favorable development of $93 million for the workers' compensation line, largely due to more favorable 2015 workers' compensation trends for estimated payments to be made in future calendar years that were down slightly from 2014. We recognized favorable development of $63 million for the commercial casualty line. Development for products liability was favorable for most prior accident years and development of prior years for commercial umbrella coverage improved slightly better than expected. Therefore, estimated ultimate losses were lowered. Our commercial auto line experienced $31 million of adverse development due to higher loss cost effects in recent accident years, resulting in an increase of our reserve estimate for claims that have not yet been settled. We believe we were slow to recognize some of the higher loss cost effects.

During 2014, we experienced $98 million of favorable development on prior accident years including $57 million of favorable development in commercial lines, $12 million of favorable development in personal lines and

$29 million of favorable development in excess and surplus lines. Favorable development in 2014 was $49 million less than in 2013, largely due to the change in prior accident years before catastrophes. We recognized favorable reserve development of $51 million for the workers’ compensation line, $34 million for the commercial property line and $14 million for the homeowner line, due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Our commercial casualty line experienced $5 million of adverse development due to an increase in its paid loss and loss expenses for cumulative accident years three or more years old, resulting in an increase recognized in estimates for IBNR losses and loss expenses for all prior accident years in total compared to 2013 and 2012. Our commercial auto line developed unfavorably by $39 million during 2014 due to higher loss cost effects in recent accident years, resulting in an increase of our reserve estimate for claims that have not yet been settled.

During 2013, we experienced $147 million of favorable development on prior accident years including $95 million of favorable development in commercial lines, $39 million of favorable development in personal lines and

$13 million of favorable development in excess and surplus lines. Favorable development in 2013 was $249 million less than in 2012, largely due to the change in prior accident years before catastrophes. We recognized favorable reserve development of $70 million for the commercial casualty line, $22 million for the commercial property line, $14 million for the workers' compensation line and $19 million for the homeowner line, due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines.

Asbestos and Environmental Reserves

We carried $84 million of net loss and loss expense reserves for asbestos and environmental claims and

$45 million of reserves for mold claims at December 31, 2015, compared with $81 million and $51 million, respectively, at December 31, 2014. The asbestos and environmental claims amounts for each respective year constituted 1.9 percent and 2.0 percent of total net loss and loss expense reserves at these year-end dates.

We believe our exposure to asbestos and environmental claims is limited, largely because our reinsurance retention was $500,000 or below prior to 1987. We also were predominantly a personal lines company in the 1960s and 1970s. During the 1980s and early 1990s, commercial lines grew as a percentage of our overall business and our exposure to asbestos and environmental claims grew accordingly. Over that period, we included an asbestos and environmental exclusion in most policies or endorsed the exclusion to the policies. We have not engaged in any mergers or acquisitions through which such a liability could have been assumed. We continue to monitor our claims for evidence of material exposure to other mass tort classes such as silicosis, but we have found no such credible evidence to date.