Note E. 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 incurred but not reported (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 $29 million for the three months ended March 31, 2015. Catastrophe losses in 2015 related primarily to U.S. weather-related events. The Company reported catastrophe losses, net of reinsurance, of $74 million for the three months ended March 31, 2014.

The fourth quarter of 2014 asbestos and environmental pollution (A&EP) reserve review was not completed because additional information and analysis on inuring third-party reinsurance recoveries were needed to finalize the review. The review and analysis of this information continues, and the Company expects to complete the review in the second quarter of 2015. Given the significance of the information and analysis needed to finalize the remaining elements of the review, the Company is not able to estimate the impact, if any, of this uncertainty on the Company's Condensed Consolidated Financial Statements.

Net Prior Year Development

The following tables and discussion present net prior year development recorded for Specialty, Commercial, International and Corporate & Other Non-Core segments.



Three months ended March 31, 2015
(In millions)	Specialty			Commercial			International			Corporate & Other Non-Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	2		$	(5	)	$	(4	)	$	—	$	(7	)
Pretax (favorable) unfavorable premium development	(6		)	(1		)	16			—		9
Total pretax (favorable) unfavorable net prior year development	$	(4	)	$	(6	)	$	12		$	—	$	2



Three months ended March 31, 2014
(In millions)	Specialty			Commercial			International			Corporate & Other Non-Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(3	)	$	18		$	10		$	—	$	25
Pretax (favorable) unfavorable premium development	(6		)	(18		)	(7		)	—		(31		)
Total pretax (favorable) unfavorable net prior year development	$	(9	)	$	—		$	3		$	—	$	(6	)

Specialty

The following table presents further detail of the net prior year claim and allocated claim adjustment expense reserve development (development) recorded for the Specialty segment.



Three months ended March 31
(In millions)	2015			2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Medical Professional Liability	$	14		$	—
Other Professional Liability and Management Liability	(3		)	(6		)
Surety	1			1
Warranty	—			—
Other	(10		)	2
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	2		$	(3	)

2015

Overall, unfavorable development for medical professional liability was primarily related to increased frequency in the Aging Services book for accident years 2013 and 2014, partially offset by better than expected severity in accident years 2010 and prior.

Favorable development for other coverages was primarily due to better than expected frequency in property coverages provided to Specialty customers in accident year 2014.

2014

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

Commercial

The following table presents further detail of the development recorded for the Commercial segment.



Three months ended March 31
(In millions)	2015			2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Commercial Auto	$	—		$	20
General Liability	4			—
Workers' Compensation	(1		)	11
Property and Other	(8		)	(13		)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(5	)	$	18

2015

Favorable development for property and other was due to lower than expected loss emergence from 2014 catastrophe events.

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.

Favorable development for property and other was primarily due to better than expected loss emergence in catastrophe losses in accident year 2013.

International

The following table presents further detail of the development recorded for the International segment.



Three months ended March 31
(In millions)	2015			2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Medical Professional Liability	$	—		$	1
Other Professional Liability	—			(1		)
Liability	(5		)	(2		)
Property & Marine	(6		)	8
Other	7			(6		)
Commutations	—			10
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(4	)	$	10

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.