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 $74 million and $39 million for the three months ended March 31, 2014 and 2013. Catastrophe losses in the first quarter of 2014 related primarily to U.S. winter weather-related events.

Net Prior Year Development

The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial, Hardy and Corporate & Other Non-Core segments.

Net Prior Year Development



Three months ended March 31, 2014
(In millions)	CNA Specialty			CNA Commercial			Hardy			Corporate & Other Non-Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(2	)	$	17		$	10		$	—	$	25
Pretax (favorable) unfavorable premium development	(8		)	(19		)	(4		)	—		(31		)
Total pretax (favorable) unfavorable net prior year development	$	(10	)	$	(2	)	$	6		$	—	$	(6	)



Three months ended March 31, 2013
(In millions)	CNA Specialty			CNA Commercial			Hardy			Corporate & Other Non-Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(15	)	$	(11	)	$	(1	)	$	1	$	(26	)
Pretax (favorable) unfavorable premium development	(8		)	(10		)	4			1		(13		)
Total pretax (favorable) unfavorable net prior year development	$	(23	)	$	(21	)	$	3		$	2	$	(39	)

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 months ended March 31, 2014 and 2013.



Three months ended March 31
(In millions)	2014			2013
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Medical Professional Liability	$	1		$	(3	)
Other Professional Liability and Management Liability	(6		)	(1		)
Surety	1			1
Warranty	—			—
Other	2			(12		)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(2	)	$	(15	)

2014

Favorable development for other professional liability and management liability was related to better than expected loss emergence in accident years 2004 and prior.

2013

Overall, favorable development for medical professional liability reflects favorable experience in accident years 2009 and prior. Unfavorable development was recorded for accident years 2010 and 2011 due to higher than expected large loss activity.

Other includes standard property and casualty coverages provided to CNA Specialty customers. Favorable development for other coverages was primarily due to better than expected loss emergence in property coverages in accident years 2010 and subsequent.

CNA Commercial

The following table provides further detail of the development recorded for the CNA Commercial segment for the three months ended March 31, 2014 and 2013.



Three months ended March 31
(In millions)	2014			2013
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Commercial Auto	$	20		$	(5	)
General Liability	(5		)	(21		)
Workers' Compensation	10			25
Property and Other	(8		)	(10		)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	17		$	(11	)

2014

Unfavorable development for commercial auto was primarily related to higher than expected frequency in accident years 2012 and 2013 and higher than expected loss emergence in accident years 2010 and 2011.

Unfavorable development for workers' compensation was primarily due to the recognition of losses related to favorable premium development in accident year 2013.

2013

Favorable development in the general liability coverages was primarily due to better than expected loss emergence in accident years 2002 and prior.

Unfavorable development for workers' compensation was primarily due to higher than expected large losses and increased severity in the state of California in accident year 2010.

Hardy

The following table provides further detail of the development recorded for the Hardy segment for the three months ended March 31, 2014 and 2013.



Three months ended March 31
(In millions)	2014			2013
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Marine and Aviation	$	5		$	(1	)
Non-Marine Property	(2		)	—
Property Treaty	(2		)	—
Specialty	(1		)	—
Commutations	10			—
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	10		$	(1	)

2014

Reinsurance commutations in the first quarter of 2014 reduced ceded losses from prior years. Overall the commutations increased net operating income because of the release of the related allowance for uncollectible reinsurance.