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Claim and Claim Adjustment Expense Reserves
 6 Months Ended
Jun. 30, 2012
Insurance Loss Reserves [Abstract]  
Claim and Claim Adjustment Expense Reserves
Note F. Claim and Claim Adjustment Expense Reserves
The Company's property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including IBNR claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as field reserving trends and claims settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company's results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $68 million and $96 million for the three and six months ended June 30, 2012. Catastrophe losses in 2012 related primarily to U.S. storms. The Company reported catastrophe losses, net of reinsurance, of $100 million and $155 million for the three and six months ended June 30, 2011.
Net Prior Year Development
The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial and Corporate & Other Non-Core.
Net Prior Year Development
Three months ended June 30, 2012
CNA
Specialty
 
CNA Commercial
 
Corporate
& Other
Non-Core
 
Total
(In millions)
 
 
 
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(35
)
 
$
(13
)
 
$
(4
)
 
$
(52
)
Pretax (favorable) unfavorable premium development
(5
)
 
(19
)
 
1

 
(23
)
Total pretax (favorable) unfavorable net prior year development
$
(40
)
 
$
(32
)
 
$
(3
)
 
$
(75
)

Three months ended June 30, 2011
CNA
Specialty
 
CNA Commercial
 
Corporate
& Other
Non-Core
 
Total
(In millions)
 
 
 
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(52
)
 
$
(50
)
 
$
(9
)
 
$
(111
)
Pretax (favorable) unfavorable premium development
(1
)
 
40

 
—

 
39

Total pretax (favorable) unfavorable net prior year development
$
(53
)
 
$
(10
)
 
$
(9
)
 
$
(72
)

Six months ended June 30, 2012
CNA
Specialty
 
CNA Commercial
 
Corporate
& Other
Non-Core
 
Total
(In millions)
 
 
 
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(41
)
 
$
(27
)
 
$
(2
)
 
$
(70
)
Pretax (favorable) unfavorable premium development
(14
)
 
(36
)
 
2

 
(48
)
Total pretax (favorable) unfavorable net prior year development
$
(55
)
 
$
(63
)
 
$
—

 
$
(118
)

Six months ended June 30, 2011
CNA
Specialty
 
CNA Commercial
 
Corporate
& Other
Non-Core
 
Total
(In millions)
 
 
 
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(67
)
 
$
(57
)
 
$
(6
)
 
$
(130
)
Pretax (favorable) unfavorable premium development
(8
)
 
32

 
(1
)
 
23

Total pretax (favorable) unfavorable net prior year development
$
(75
)
 
$
(25
)
 
$
(7
)
 
$
(107
)

For the three and six months ended June 30, 2012, favorable premium development was recorded for CNA Commercial primarily due to premium adjustments on auditable policies arising from increased exposures.
For the three and six months ended June 30, 2011, unfavorable premium development was recorded due to a reduction of ultimate premium estimates relating to retrospectively rated policies, partially offset by premium adjustments on auditable policies due to increased exposures.
CNA Specialty
The following table provides further detail of the net prior year claim and allocated claim adjustment expense reserve development (development) recorded for the CNA Specialty segment for the three and six months ended June 30, 2012 and 2011.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2012
 
2011
 
2012
 
2011
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
 
 
 
 
Medical Professional Liability
$
(9
)
 
$
(20
)
 
$
(15
)
 
$
(34
)
Other Professional Liability
(6
)
 
(27
)
 
(2
)
 
(21
)
Surety
—

 
(3
)
 
1

 
(3
)
Warranty
—

 
(2
)
 
(1
)
 
(12
)
Other
(20
)
 
—

 
(24
)
 
3

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(35
)
 
$
(52
)
 
$
(41
)
 
$
(67
)

Three Month Comparison
2012
Favorable development for medical professional liability was primarily due to a decrease in incurred loss severity in accident years 2008 through 2010.
Other includes standard property and casualty coverages provided to CNA Specialty customers. Favorable development for other coverages was primarily due to favorable loss emergence in property and workers' compensation coverages in accident years 2005 and subsequent.
2011
Favorable development for medical professional liability was primarily due to favorable case incurred emergence in primary institutions in accident years 2008 and prior.
Favorable development for other professional liability was driven by better than expected loss emergence in life agents coverages.
Six Month Comparison
2012
Favorable development for medical professional liability was primarily due to a decrease in incurred loss severity in accident years 2008 through 2010 and reductions in the estimated frequency of large losses in accident years 2008 and prior.
Favorable development for other coverages was primarily due to favorable loss emergence in property and workers' compensation coverages in accident years 2005 and subsequent.
2011
Favorable development for medical professional liability was primarily due to favorable case incurred emergence in accident years 2008 and prior.
Favorable development for other professional liability was driven by better than expected loss emergence in life agents coverages.
Favorable development in warranty was driven by favorable policy year experience on an aggregate stop loss policy covering the Company's non-insurance warranty subsidiary.
CNA Commercial
The following table provides further detail of development recorded for the CNA Commercial segment for the three and six months ended June 30, 2012 and 2011.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2012
 
2011
 
2012
 
2011
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
 
 
 
 
Commercial Auto
$
2

 
$
(44
)
 
$
2

 
$
(34
)
General Liability
(13
)
 
—

 
(5
)
 
22

Workers' Compensation
8

 
28

 
(11
)
 
36

Property and Other
(10
)
 
(34
)
 
(13
)
 
(81
)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(13
)
 
$
(50
)
 
$
(27
)
 
$
(57
)

Three Month Comparison
2012
Favorable development for general liability coverages was primarily related to favorable loss emergence in accident years 2005 and prior.
Favorable development for property and marine coverages was due to a favorable outcome on an individual claim in accident year 2005 and favorable loss emergence in non-catastrophe losses in accident year 2010.
2011
Favorable development for commercial auto coverages was due to lower than expected severity on bodily injury claims in accident years 2006 and prior.
Unfavorable development for workers' compensation primarily reflected higher than expected severity on risk management claims, in accident years 2006 and prior.
Favorable development for property coverages was due to favorable loss emergence related to catastrophe claims in accident year 2008 and non-catastrophe claims in accident years 2009 and prior.
Six Month Comparison
2012
Overall, favorable development for workers' compensation reflects favorable experience in accident years 2001 and prior. Unfavorable development was recorded in accident year 2010 related to increased medical severity and in accident year 2011 related to favorable premium development.
Favorable development for property and marine coverages was due to a favorable outcome on an individual claim in accident year 2005 and favorable loss emergence in non-catastrophe losses in accident year 2010.
2011
Favorable development for commercial auto coverages was due to lower than expected severity on bodily injury claims in accident years 2006 and prior.
The unfavorable development in the general liability coverages was primarily due to two large claim outcomes on umbrella claims in accident year 2001.
Unfavorable development for workers' compensation primarily reflected higher than expected severity on risk management claims, in accident years 2006 and prior.
Favorable development for property coverages was due to lower than expected frequency in commercial multi-peril coverages primarily in accident year 2010, a favorable settlement on an individual claim in accident year 2003 in the equipment breakdown book, favorable loss emergence related to catastrophe claims in accident year 2008 and favorable loss emergence related to non-catastrophe claims in accident years 2009 and prior.