Property Casualty Loss and Loss Expenses

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

	Years ended December 31,
(In millions)	2011			2010			2009
Gross loss and loss expense reserves, January 1	$	4,137		$	4,096		$	4,040
Less reinsurance receivable		326			435			542
Net loss and loss expense reserves, January 1		3,811			3,661			3,498
Net incurred loss and loss expenses related to:
Current accident year		2,620			2,319			2,274
Prior accident years		(285	)		(304	)		(188	)
Total incurred		2,335			2,015			2,086
Net paid loss and loss expenses related to:
Current accident year		1,206			939			929
Prior accident years		1,035			926			994
Total paid		2,241			1,865			1,923

Net loss and loss expense reserves, December 31		3,905			3,811			3,661
Plus reinsurance receivable		375			326			435
Gross loss and loss expense reserves, December 31	$	4,280		$	4,137		$	4,096

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 and 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 $59 million, $63 million and $46 million for certain life and health loss reserves at December 31, 2011, 2010 and 2009, respectively.

During 2011, we experienced $285 million of favorable loss development on prior accident years comprised mostly of $234 million in commercial lines. Overall favorable development for commercial lines reserves illustrated the potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial casualty and workers’ compensation. We recognized favorable reserve development of $132 million for the commercial casualty line and favorable development of $97 million for the workers’ compensation line due to reduced uncertainty of these lines one year later.

During 2010, we experienced $304 million of favorable loss development on prior accident years comprised mostly of $269 million in commercial lines. Overall favorable development for commercial lines reserves illustrated the potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial casualty and workers’ compensation. We recognized favorable reserve development of $186 million for the commercial casualty line and favorable reserve development of $39 million for the workers’ compensation line due to reduced uncertainty of these lines one year later.

During 2009, we experienced $188 million of favorable loss development on prior accident years comprised of $147 million in commercial lines. Overall favorable development for commercial lines reserves illustrated the potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial casualty and workers’ compensation. We recognized favorable reserve development of $154 million for the commercial casualty line and recognized adverse reserve development for the workers’ compensation line of $48 million.

Asbestos and Environmental Reserves

We carried $136 million of net loss and loss expense reserves for asbestos and environmental claims at December 31, 2011, compared with $134 million for such claims at December 31, 2010. These amounts constitute 3.5 percent of total net loss and loss expense reserves as of both 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.

Additionally, since 2002, we have revised policy terms, where permitted by state regulation, to limit our exposure to mold claims prospectively and further reduce our exposure to other environmental claims generally. Finally, 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.