Note 5 – Property Casualty Loss and Loss Expenses

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

(In millions)	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Gross loss and loss expense reserves, beginning of period	$	4,289		$	4,179		$	4,280		$	4,137
Less reinsurance receivable		352			326			375			326
Net loss and loss expense reserves, beginning of period		3,937			3,853			3,905			3,811
Net incurred loss and loss expenses related to:
Current accident year		725			853			1,380			1,442
Prior accident years		(85	)		(96	)		(201	)		(155	)
Total incurred		640			757			1,179			1,287
Net paid loss and loss expenses related to:
Current accident year		282			391			414			522
Prior accident years		290			248			665			608
Total paid		572			639			1,079			1,130

Net loss and loss expense reserves, end of period		4,005			3,971			4,005			3,971
Plus reinsurance receivable		332			508			332			508
Gross loss and loss expense reserves, end of period	$	4,337		$	4,479		$	4,337		$	4,479

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 condensed consolidated balance sheets also includes $59 million at June 30, 2012, and $56 million at June 30, 2011, for certain life and health loss and loss expense reserves.

During the second quarter of 2012, we experienced $85 million of favorable development on prior accident years. There was $5 million from favorable development of catastrophe losses compared with no favorable development of catastrophe losses at June 30, 2011. Overall favorable development for commercial lines reserves illustrated the potential for revisions inherent in estimating reserves, especially for long-tailed lines such as commercial casualty and workers’ compensation. We recognized favorable reserve development of $56 million for the commercial casualty line and favorable development of $12 million for the workers’ compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines.

During the first half of 2012, we experienced $201 million of favorable development on prior accident years. There was $27 million from favorable development of catastrophe losses compared with $1 million at June 30, 2011. We recognized favorable reserve development of $104 million for the commercial casualty line and favorable development of $28 million for the workers’ compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines.