4. Property Casualty Loss and Loss Expenses

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



(In millions)	Years ended December 31,
		2012		2011		2010
Gross loss and loss expense reserves, January 1	$	4,280	$	4,137	$	4,096
Less reinsurance receivable		375		326		435
Net loss and loss expense reserves, January 1		3,905		3,811		3,661
Net incurred loss and loss expenses related to:
Current accident year		2,533		2,620		2,319
Prior accident years		(396)		(285)		(304)
Total incurred		2,137		2,335		2,015
Net paid loss and loss expenses related to:
Current accident year		1,123		1,206		939
Prior accident years		1,106		1,035		926
Total paid		2,229		2,241		1,865

Net loss and loss expense reserves, December 31		3,813		3,905		3,811
Plus reinsurance receivable		356		375		326
Gross loss and loss expense reserves, December 31	$	4,169	$	4,280	$	4,137

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 $61 million, $59 million and $63 million for certain life and health loss reserves at December 31, 2012, 2011 and 2010, respectively.

During 2012, we experienced $396 million of favorable loss and loss expense reserve development on prior accident years including $292 million in commercial lines. Favorable development in 2012 was $111 million more than in 2011, in part due to $39 million for catastrophe losses.

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 $177 million for the commercial casualty line and $74 million for the workers’ compensation line and $52 million for the homeowner line due to reduced uncertainty of these lines one year later.

During 2011, we experienced $285 million of favorable loss development on prior accident years including $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 $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 including $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 $39 million for the workers’ compensation line due to reduced uncertainty of these lines one year later.

Asbestos and Environmental Reserves

We carried $67 million of net loss and loss expense reserves for asbestos and environmental claims and $54 million of reserves for mold claims at year-end 2012, compared with $74 million and $62 million, respectively, for such claims at year-end 2011. The asbestos and environmental claims amounts for each respective year constituted 1.8 percent and 1.9 percent of total 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.