NOTE 5 – PROPERTY CASUALTY LOSS AND LOSS EXPENSES

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

	Three months ended September 30,						Nine months ended September 30,
(In millions)	2012			2011			2012			2011
Gross loss and loss expense reserves, beginning of period	$	4,337		$	4,479		$	4,280		$	4,137
Less reinsurance receivable		332			508			375			326
Net loss and loss expense reserves, beginning of period		4,005			3,971			3,905			3,811
Net incurred loss and loss expenses related to:
Current accident year		611			675			1,991			2,115
Prior accident years		(86	)		(68	)		(287	)		(221	)
Total incurred		525			607			1,704			1,894
Net paid loss and loss expenses related to:
Current accident year		364			360			778			878
Prior accident years		229			205			894			814
Total paid		593			565			1,672			1,692

Net loss and loss expense reserves, end of period		3,937			4,013			3,937			4,013
Plus reinsurance receivable		343			450			343			450
Gross loss and loss expense reserves, end of period	$	4,280		$	4,463		$	4,280		$	4,463

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 condensed consolidated balance sheets also included $64 million at September 30, 2012, and $58 million at September 30, 2011, for certain life and health loss and loss expense reserves.

For the three months ended September 30, 2012, we experienced $86 million of favorable development on prior accident years. There was $12 million from favorable development of catastrophe losses compared with $3 million of adverse development of catastrophe losses that occurred for the three months ended September 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 on net loss and loss expenses of $25 million for the commercial casualty line and favorable development on net loss and loss expenses of $23 million for the workers’ compensation line, due to reduced uncertainty of prior accident years loss and loss adjustment expense for these lines.

For the nine months ended September 30, 2012, we experienced $287 million of favorable development on prior accident years. There was $39 million from favorable development of catastrophe losses compared with $2 million of adverse development that occurred for the nine months ended September 30, 2011. We recognized favorable reserve development on net loss and loss expenses of $130 million for the commercial casualty line and favorable development on net loss and loss expenses of $50 million for the workers’ compensation line, due to reduced uncertainty of prior accident years loss and loss adjustment expense for these lines.