We use actuarial methods, models, assumptions 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, claims, underwriting, loss prevention and finance management. This committee 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.

Our reserving process takes into account known facts and interpretations of circumstances and factors including the type of claim, policy provisions pertaining to each claim, potential subrogation or salvage recoverable, large loss activity and trends, new business activity, judicial decisions, economic conditions, changes in law and regulation and product and underwriting changes. There have been no significant changes in methodologies and assumptions used in calculating loss and loss expense reserves for all years presented. There were no material additional premiums or return premiums accrued for as a result of prior-year effects.

For events designated as natural catastrophes resulting in losses incurred related to direct premiums, we calculate IBNR reserves directly as a result of an estimated claim counts and estimated average dollar amount per claim for each event. Once individual case reserves are established for a catastrophe event, we reduce the IBNR reserves.

Our actuarial staff uses generally accepted actuarial methods and models to derive ultimate loss and IBNR reserve estimates. The time interval between a claims occurrence and its settlement is one of the crucial attributes when estimating ultimate losses and IBNR reserves.

Due to the uncertainties inherent with loss reserves, our ultimate loss experience could prove better or worse than what our carried reserves reflect. To the extent that reserves are inadequate and are required to be increased, the amount of the increase is a charge in that period, raising our loss and loss expense ratio and reducing earnings. To the extent that reserves are redundant and are required to be released, the amount of the release is a credit in that period, reducing our loss and loss expense ratio and increasing earnings.



(Dollars in millions)	Years ended December 31,
	2019			2018			2017
Gross loss and loss expense reserves, January 1	$	5,646		$	5,219		$	5,035
Less reinsurance recoverable	238			187			298
Net loss and loss expense reserves, January 1	5,408			5,032			4,737

Net loss and loss expense reserves related to acquisition of Cincinnati Global at February 28, 2019	246			—			—

Net incurred loss and loss expenses related to:
Current accident year	3,600			3,390			3,257
Prior accident years	(248		)	(167		)	(119		)
Total incurred	3,352			3,223			3,138
Net paid loss and loss expenses related to:
Current accident year	1,462			1,391			1,404
Prior accident years	1,798			1,456			1,439
Total paid	3,260			2,847			2,843

Net loss and loss expense reserves, December 31	5,746			5,408			5,032
Plus reinsurance recoverable	342			238			187
Gross loss and loss expense reserves, December 31	$	6,088		$	5,646		$	5,219

In 2019, 2018 and 2017, the reserve for loss and loss expense in the consolidated balance sheets also included $59 million, $61 million and $54 million, respectively, for certain life and health loss and loss expense reserves. Additional disclosures for reserves related to these health claims are not material and therefore not provided.

During 2019, we experienced $248 million of favorable development on prior accident years including $192 million of favorable development in commercial lines, $27 million of favorable development in personal lines and $11 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable development of $78 million for the commercial casualty line, $77 million for the workers' compensation line, $25 million for the commercial property line and $6 million for the commercial auto line due to reduced uncertainty of prior accident year loss and loss expense for these lines. Within personal lines, we recognized favorable reserve development of $26 million in personal auto. We recognized unfavorable reserve development of $11 million for the homeowner line of business due primarily to higher-than-anticipated loss development on known claims.

During 2018, we experienced $167 million of favorable development on prior accident years including $157 million of favorable development in commercial lines, $13 million of adverse development in personal lines, $24 million of favorable development in excess and surplus lines and $1 million of adverse development in our reinsurance assumed operations. We recognized favorable development of $58 million for the workers' compensation line and

During 2017, we experienced $119 million of favorable development on prior accident years including $73 million of favorable development in commercial lines, $14 million of favorable development in personal lines, $29 million of favorable development in excess and surplus lines and $3 million of favorable development in our reinsurance assumed operations. We recognized favorable development of $54 million for the workers’ compensation line, $33 million for the commercial property line and $30 million for the other commercial lines due to reduced uncertainty of prior accident year loss and loss expense for these lines. We recognized unfavorable reserve development of $33 million for the commercial auto line 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. Commercial casualty developed unfavorably by $11 million due to paid losses or re-estimates of case reserves at higher than expected levels.

Included in our lines of business are asbestos and environmental claims. We carried $85 million and $89 million of net loss and loss expense reserves for asbestos and environmental claims at December 31, 2019 and 2018, respectively. The asbestos and environmental claims amounts for each respective year constituted less than 2.0% 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 almost all policies or endorsed the exclusion to the policies. We have no exposure to asbestos and environmental claims with our recent acquisition of Cincinnati Global. We continue to monitor our claims for evidence of material exposure to other mass tort classes but have found no such credible evidence to date.



(Dollars in millions)	Cumulative incurred losses and ALAE as reported within the triangles, net of reinsurance		Cumulative paid losses and ALAE as reported within the triangles, net of reinsurance		Liabilities for loss and ALAE for accident years not presented in the triangles, net of reinsurance		Total liabilities for loss and ALAE, net of reinsurance		Reinsurance recoverable on unpaid losses		Total liabilities for gross loss and loss expense reserves




Commercial casualty	$	4,910	$	2,863	$	88	$	2,135	$	30	$	2,165
Workers' compensation	2,061		1,433		295		923		64		987
Commercial auto	2,200		1,566		15		649		5		654
Commercial property	2,739		2,469		13		283		111		394
Personal auto	1,933		1,659		6		280		33		313
Homeowner	1,779		1,621		2		160		21		181
Excess and surplus	658		333		1		326		8		334
Other lines											771
Total liabilities for loss and ALAE reserves											5,799
Unallocated loss adjustment expense reserves											289
Gross loss and loss expense reserves											$	6,088

For all lines of business, the claim counts reported are primarily measured by insurance coverages that are triggered when a loss occurs and a reserve is established. For this purpose, coverages are defined as unique combinations of certain attributes such as line of business and cause of loss. Claims that are opened and closed without payment are included in the reported claim counts. Claim counts are presented on a direct basis only and do not reflect any assumed or ceded reinsurance.

In the following tables, commercial casualty and workers' compensation each disclose 10 accident years of loss and ALAE reserves and cumulative number of reported claims. Commercial auto, commercial property, personal auto and homeowner each disclose five accident years of loss and ALAE reserves and cumulative number of reported claims as each of these lines have five year cumulative average annual percentage payouts of approximately 95% or higher. The excess and surplus lines began operations in 2008 with earned premiums and loss and ALAE reserves being immaterial prior to 2011. Accordingly, we disclosed nine accident years of loss and ALAE reserves and cumulative number of reported claims for the excess and surplus lines, and will disclose additional accident years in subsequent annual filings, not to exceed 10 years.



(Dollars in millions, reported claims in thousands)																					As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																						Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	495	$	394	$	378	$	349	$	347	$	348	$	349	$	343	$	341	$	336		$	11	20
2011			466		404		377		377		375		380		366		365		368			11		19
2012					466		414		417		394		394		404		399		397			14		18
2013							448		443		431		416		413		407		391			31		20
2014									503		496		479		476		479		465			34		21
2015											533		526		529		516		508			78		21
2016													563		574		557		555			120		21
2017															610		597		577			160		20
2018																	650		641			272		20
2019																			672			440		15
Total																			$	4,910

Cumulative paid losses and ALAE, net of reinsurance
2010	$	33	$	92	$	159	$	203	$	256	$	285	$	300	$	314	$	318	$	321
2011			27		93		149		227		266		298		315		325		337
2012					27		88		170		232		288		330		346		364
2013							35		90		159		232		286		312		337
2014									34		97		172		287		338		390
2015											38		108		200		287		362
2016													46		126		228		331
2017															48		122		234
2018																	44		148
2019																			39
Total																			2,863
All outstanding liabilities before 2010, net of reinsurance																			88
Liabilities for loss and ALAE, net of reinsurance																			$	2,135



(Dollars in millions, reported claims in thousands)																					As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																						Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	283	$	274	$	248	$	242	$	240	$	239	$	240	$	237	$	236	$	237		$	19	26
2011			284		251		246		242		239		236		231		229		228			17		24
2012					265		245		234		220		213		211		209		208			21		21
2013							264		246		221		212		208		205		202			16		20
2014									261		233		214		203		201		198			18		19
2015											246		220		208		195		179			33		17
2016													230		218		206		188			31		16
2017															218		208		190			56		15
2018																	222		207			65		15
2019																			224			90		13
Total																			$	2,061

Cumulative paid losses and ALAE, net of reinsurance
2010	$	67	$	134	$	164	$	181	$	192	$	198	$	202	$	204	$	207	$	209
2011			65		131		161		177		186		190		192		195		197
2012					62		121		147		162		171		175		178		180
2013							61		119		144		157		164		168		170
2014									56		110		134		148		157		162
2015											47		93		115		129		134
2016													46		97		119		131
2017															45		88		106
2018																	48		95
2019																			49
Total																			1,433
All outstanding liabilities before 2010, net of reinsurance																			295
Liabilities for loss and ALAE, net of reinsurance																			$	923



(Dollars in millions, reported claims in thousands)											As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2015		2016		2017		2018		2019
2015	$	374	$	384	$	394	$	401	$	400		$	3	51
2016			417		430		450		463			7		53
2017					451		441		443			27		51
2018							453		442			72		49
2019									452			133		42
Total									$	2,200

Cumulative paid losses and ALAE, net of reinsurance
2015	$	173	$	244	$	303	$	349	$	375
2016			184		273		350		408
2017					187		266		334
2018							184		266
2019									183
Total									1,566
All outstanding liabilities before 2015, net of reinsurance									15
Liabilities for loss and ALAE, net of reinsurance									$	649

The following table shows the average annual percentage payout of incurred losses for the commercial auto line of business. Commercial auto includes both physical damage and liability losses. A majority of the incurred losses paid after year 2 are the result of liability losses.



(Dollars in millions, reported claims in thousands)											As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2015		2016		2017		2018		2019
2015	$	454	$	414	$	416	$	415	$	414		$	2	17
2016			590		551		541		545			4		17
2017					587		560		556			5		18
2018							630		603			9		18
2019									621			22		15
Total									$	2,739

Cumulative paid losses and ALAE, net of reinsurance
2015	$	279	$	388	$	407	$	411	$	411
2016			358		504		528		539
2017					395		522		547
2018							386		559
2019									413
Total									2,469
All outstanding liabilities before 2015, net of reinsurance									13
Liabilities for loss and ALAE, net of reinsurance									$	283



(Dollars in millions, reported claims in thousands)											As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2015		2016		2017		2018		2019
2015	$	343	$	356	$	356	$	360	$	361		$	—	108
2016			383		384		386		384			—		110
2017					412		394		391			—		109
2018							424		398			18		111
2019									399			54		96
Total									$	1,933

Cumulative paid losses and ALAE, net of reinsurance
2015	$	229	$	292	$	325	$	346	$	354
2016			243		316		351		370
2017					256		324		358
2018							262		327
2019									250
Total									1,659
All outstanding liabilities before 2015 net of reinsurance									6
Liabilities for loss and ALAE, net of reinsurance									$	280

The following table shows the average annual percentage payout of incurred losses for the personal auto line of business. Personal auto includes both physical damage and liability losses. A majority of the incurred losses paid after year 2 are the result of liability losses.



Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5
Average annual percentage payout	64.2%	17.4%	9.1%	5.4%	2.4%



(Dollars in millions, reported claims in thousands)											As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2015		2016		2017		2018		2019
2015	$	284	$	275	$	275	$	274	$	274		$	—	24
2016			315		304		303		302			—		23
2017					356		383		385			1		26
2018							370		386			6		23
2019									432			39		20
Total									$	1,779

Cumulative paid losses and ALAE, net of reinsurance
2015	$	203	$	260	$	269	$	272	$	273
2016			208		283		295		299
2017					277		356		378
2018							268		368
2019									303
Total									1,621
All outstanding liabilities before 2015, net of reinsurance									2
Liabilities for loss and ALAE, net of reinsurance									$	160



(Dollars in millions, reported claims in thousands)																			As of December 31, 2019
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019
2011	$	48	$	47	$	44	$	38	$	36	$	35	$	35	$	34	$	34		$	—	1
2012			67		56		49		40		37		36		35		36			1		1
2013					74		64		54		45		42		41		41			1		2
2014							95		82		75		64		60		59			6		2
2015									96		81		73		67		65			8		2
2016											93		87		84		82			14		3
2017													104		95		95			26		3
2018															116		109			44		3
2019																	137			83		2
Total																	$	658

Cumulative paid losses and ALAE, net of reinsurance
2011	$	8	$	14	$	23	$	27	$	30	$	32	$	34	$	33	$	33
2012			9		15		19		25		29		31		32		33
2013					7		12		20		27		32		34		37
2014							9		17		27		37		43		48
2015									8		19		29		41		51
2016											10		21		39		51
2017													11		23		41
2018															11		26
2019																	13
Total																	333
All outstanding liabilities before 2011, net of reinsurance																	1
Liabilities for loss and ALAE, net of reinsurance																	$	326

The following table shows the average annual percentage payout of incurred losses for the excess and surplus lines insurance segment. Excess and surplus lines consist mostly of commercial casualty and commercial property coverages. A majority of the incurred losses paid after year 2 are the result of commercial casualty losses.